2019 (1) TMI 1157 - AT - Central Excise

By-product or manufactured item? - fly ash - Department observed that the appellant has not paid Central Excise duty on the fly ash alleging it to be a by-product, cleared during the period from March, 2011 to December 2011 - Held that - Since beginning the stand of appellant is that fly-ash is not manufactured by them, as it generates as a residue/ waste, during the generation of electricity. For excisability, the goods have to satisfy 2 conditions i.e. of manufacture and marketability. Though fly-ash has admittedly been sold by the appellant, thus, fulfilling one condition of marketability but it does not qualify the definition of manufacture. In terms of Section 2 (f) of Central Excise Act Hon ble High Court of Madras in the case of Central Board of Excise and Customs, vs. Mettur Power Thermal Station 2017 (1) TMI 222 - MADRAS HIGH COURT has held that the fly-ash since is formed during the production of electricity by burning pulverized coal fly-ash cannot be said to be manufacture merely because fly-ash was specific or residuary entry in schedule, it cannot be termed as excisable commodity just because, it satisfies the test of marketability. The statute levy excise duty on the goods which are manufactured and have marketability. Fly-ash in the given circumstances is qualifying only one of the conditions i.e. of marketability and is not qualifying the condition of manufacture, it being compulsorily generated during the process of generation of electricity from lignite and the appellant is the manufacturer of lignite. In the given circumstances, fly-ash is not even the by-product. Appeal allowed - decided in favor of appellant.

Summary

Issues: Central Excise duty on fly ash; Definition of manufacture under Central Excise Act, 1944; Applicability of Notification No.2/2011 dated 01.03.2011; Marketability of fly ash.

Central Excise Duty on Fly Ash:
The case involves the appellants, engaged in lignite manufacture, facing a demand for Central Excise duty on fly ash cleared during a specific period. The Department issued a show cause notice proposing duty recovery, which was partially confirmed by the Assistant Commissioner. The appeal before the Commissioner (Appeals) challenging this decision was dismissed, leading to the appellant approaching the Tribunal.

Definition of Manufacture under Central Excise Act, 1944:
The appellant argued that fly ash, generated as a waste during the electricity generation process, does not meet the definition of 'manufactured' under Section 2 (f) of the Central Excise Act, 1944. They contended that since fly ash is a by-product of electricity generation from lignite, their primary manufacturing activity, it should not be subject to excise duty. The Tribunal noted that for excisability, goods must satisfy conditions of manufacture and marketability.

Applicability of Notification No.2/2011 dated 01.03.2011:
The appellant disputed the applicability of Notification No.2/2011, arguing that fly ash must first be generated from a manufacturing process to be excisable, which was not the case here. They contended that the notification relied upon by the Commissioner (Appeals) was not relevant to their situation, as fly ash was a residue/waste from the electricity generation process.

Marketability of Fly Ash:
The Tribunal referenced precedents, including the case of M/s. Rama Industries Ltd., to highlight that inputs used in a process resulting in a by-product for further manufacturing exempted goods do not necessitate duty credit reversal. Additionally, citing the case law of M/s. Sterlite Industries and M/s. Hindustan Zinc Ltd., it was noted that waste products used for further manufacturing exempted goods do not require Cenvat credit reversal under Rule 57CC. The Tribunal further referred to the Hon’ble High Court of Madras and the Hon’ble Apex Court decisions to emphasize that fly ash, being a residue from electricity generation, did not meet the criteria for excisability under the Central Excise Act.

In conclusion, the Tribunal found that fly ash, being a residue of the electricity generation process from lignite, did not qualify as a manufactured product subject to excise duty. The Commissioner (Appeals)'s decision was set aside, and the appeal was allowed in favor of the appellants.