2023 (8) TMI 698 - AT - Central Excise

Extended period of Limitation - marketability - classification of goods - flue gas - to be classified as Nitrogen under CTH 28043000 or not - content of Nitrogen - burden to prove that he goods are marketable - HELD THAT - In this case it is fact that the flue gas is generated during the course of manufacturing of coke. It is not manufactured by the appellant, but it is a waste gas which arises inevitably without beyond the control of the appellant. In that circumstances it is to be seen that the flue gas which was not intended to be produced by the appellant can fulfill the test of manufacture or not. The issue has been examined by the Hon ble Bombay High Court in the case of Hindalco Industries Ltd. 2014 (12) TMI 657 - BOMBAY HIGH COURT , wherein the Hon ble High Court observed whole purpose of making these observations is to justify the conclusion that because there is a reference to these items in the Tariff Entry or the Tariff Schedule that would change the colour of the controversy. That would enable the Tribunal to then hold that the earlier Judgments and in the case of this very Assessee are no longer good law - The said decision has been affirmed by the Hon ble Apex Court 2019 (3) TMI 1933 - SC ORDER wherein it has been held that dross and skimming of aluminium, zinc or other non-ferrous metal emerging during manufacture of aluminium/non-ferrous sheets/foils and other products and sold by assessee were not manufactured goods. In the case of UOI v. Indian Aluminium Co. 1995 (4) TMI 62 - SUPREME COURT , the Hon ble Apex Court has an occasion to deal the issue - Further, in the case of Ahmedabad Electricity Co.Ltd. 2003 (10) TMI 47 - SUPREME COURT , the Hon ble Apex Court has occasion to deal such issue - In view of the above judicial pronouncements, it is held that the flue gas which is generated in the manufacture of coke is not manufactured product, therefore, duty is not payable. Further, it is noted that merely this flue gas has been sold by the appellant in terms of the agreement with TPCL, it does not make it marketable as held by the Hon ble Apex Court in the case of Hindustan Zinc Ltd. 2005 (2) TMI 119 - SUPREME COURT , wherein it has been held that burden of proof that the product is marketable is on the revenue to prove that the flue gas in question is a marketable product. There is no market enquiry was conducted by the revenue in this case to hold that the gas in question is marketable and freely be sold, therefore, revenue has failed to prove the test of marketability also. Thus, merely because it is having contents more than 80% v/v, it cannot be said that the said gas is Nitrogen gas by applying rule 3(b) of the General Rules of Interpretation without any evidence. In the absence of any evidence produced on record that the flue gas can be sold in the market as Nitrogen and the same cannot be classified as Nitrogen. The flue gas generated during the course of manufacture metallurgical coke, is not a manufactured product and is also not marketable. The same cannot be classified as Nitrogen - Appeal allowed.

Summary

Issues Involved:
1. Whether flue gas generated during the manufacture of metallurgical coke is a manufactured product.
2. Whether flue gas is marketable and thus subject to central excise duty.
3. Correct classification of flue gas under the Central Excise Tariff.
4. Applicability of the extended period of limitation and imposition of penalty.

Summary:

1. Manufactured Product:
The Tribunal examined whether flue gas generated during the manufacture of metallurgical coke could be considered a manufactured product. The appellant argued that flue gas is not manufactured but is a waste by-product arising inevitably during the coke manufacturing process. The Tribunal referenced the decision in *Hindalco Industries Ltd. v. UOI* and the Supreme Court's rulings in *CCE v. Indian Aluminium Co. Ltd.* and *UOI v. Indian Aluminium Co. Ltd.*, concluding that flue gas is not a manufactured product as it is not intentionally produced but arises as an inevitable waste.

2. Marketability:
The Tribunal addressed the issue of whether flue gas is marketable. The appellant contended that the mere mention of goods in the First Schedule does not automatically mean they are marketable. The Tribunal noted that the burden of proof to establish marketability lies with the revenue, which failed to conduct a market survey or provide evidence that flue gas is marketable. The Tribunal cited the Supreme Court's decision in *Hindustan Zinc Ltd. v. CCE, Jaipur*, emphasizing that marketability implies a regular market for the product, which was not demonstrated in this case.

3. Classification:
The Tribunal evaluated the classification of flue gas under the Central Excise Tariff. The revenue classified flue gas as 'Nitrogen' under CTH 28043000, arguing that it contained more than 80% nitrogen. However, the Tribunal found no evidence supporting that flue gas could be marketed as nitrogen. The Tribunal held that applying Rule 3(b) of the General Rules of Interpretation without evidence was incorrect and that flue gas could not be classified as nitrogen.

4. Extended Period of Limitation and Penalty:
The appellant argued that the extended period of limitation was not invocable and that the penalty was not imposable. The Tribunal did not specifically address this issue in the summary provided but ultimately set aside the impugned order, which implies that the demands and penalties were not upheld.

Conclusion:
The Tribunal concluded that flue gas generated during the manufacture of metallurgical coke is neither a manufactured product nor marketable. Consequently, it cannot be classified as nitrogen, and duty is not payable. The appeal was allowed with consequential relief, setting aside the impugned order.