2005 (4) TMI 233 - AT - Central Excise

Excisability - Residue in the form of red mud emerges - Manufacture of Aluminium from Bauxite - Duty demand - Penalty - HELD THAT - It appears that wet red mud emerges as residue during the course of manufacture of Aluminium from Bauxite and the same is dried in the open yard to obtain the commodity in question. But as held by the Apex Court time and again vide for instance CCE v. Markfed Vanaspati Allied Industries 1999 (11) TMI 230 - CEGAT NEW DELHI any goods does not become excisable merely because it falls under a tariff entry. It must be a manufactured product known to the trade as a marketable commodity. The test of manufacture was not satisfied in respect of red mud. Hence in our view it is not necessary to examine the question whether red mud was marketable or not. The Tribunal s Larger Bench decision in the case of Markfed Vanaspati Allied Industries (supra) appears to be supportive of the appellants case. In that case spent earth which emerged during the course of refining and bleaching of edible oils was found not to be a manufactured product. The Larger Bench held that even if a commodity found mention in a specific Heading/sub-heading of the CETA Schedule it would not be exigible to levy of excise duty if it did not satisfy the test of manufacture . The Civil Appeal filed in the Supreme Court by the department against this decision of the Tribunal s Larger Bench was withdrawn whereby the Larger Bench decision stood accepted by the Revenue. Thus we hold that red mud which emerged during the course of manufacture of Aluminium from Bauxite in the appellants factory during the period of dispute was not excisable and hence the demand of duty is not sustainable. In the result the impugned orders are set aside and these appeals are allowed.

Summary

Issues:
Classification of red mud as excisable product under sub-heading 2621.00 of the CETA Schedule, demand of duty for various periods, applicability of penalties, marketability of red mud, whether red mud is a manufactured product.

Analysis:

1. The appellants, engaged in manufacturing Aluminium from Bauxite, faced a dispute regarding the classification of "red mud" as excisable or non-excisable. The department classified red mud under sub-heading 2621.00 of the CETA Schedule and issued show-cause notices for recovering duty on its clearance. The original authority confirmed demands of duty for specific periods and imposed penalties, which were partially set aside by the first appellate authority. Two appeals were filed against these orders, challenging the demand of duty and penalties imposed.

2. The primary issue in both appeals was whether red mud should be considered excisable. The appellants argued that red mud was a waste product sold at a nominal price to cement manufacturers and was not a marketable commodity. They contended that no manufacturing process was involved in the emergence of red mud. The appellants relied on judicial precedents, including a Tribunal's decision regarding "spent earth" and a Supreme Court judgment on Zinc dross, to support their argument that red mud was not excisable.

3. The department, represented by the SDR, asserted that red mud resulted from a manufacturing process and was sold to cement manufacturers, indicating its marketability. The value of red mud was deemed irrelevant to its marketability, citing a Supreme Court judgment. The Revenue contended that red mud was a manufactured and marketable product, justifying its classification under Heading 26.21 for levying central excise duty.

4. The Tribunal examined the manufacturing process of red mud, undisputed by both parties, and noted that wet red mud emerged as residue during the Aluminium manufacturing process. The Tribunal referenced the Apex Court's rulings emphasizing that mere classification under a tariff entry did not make a product excisable; it must be a manufactured and marketable commodity. Referring to a Tribunal's decision on "spent earth," the Tribunal concluded that red mud did not meet the test of manufacture, rendering it non-excisable. Therefore, the demand of duty on red mud was deemed unsustainable, and the appeals were allowed.

This detailed analysis of the judgment showcases the dispute over the classification and excisability of red mud, the arguments presented by both parties, and the Tribunal's reasoning leading to the decision in favor of the appellants.