1998 (2) TMI 336 - AT - Central Excise

Lean gas/Off gas emerged during the process of manufacture of carbon black is not an excisable product

Summary

Issues Involved:
1. Excisability of Lean Gas/Off Gas
2. Classification of Lean Gas/Off Gas under Central Excise Tariff
3. Marketability and RG-1 stage of Lean Gas/Off Gas
4. Applicability of Board's Circulars and Trade Notices
5. Penalties and demands of duty imposed by the Commissioner

Detailed Analysis:

Excisability of Lean Gas/Off Gas:
The central issue in the appeals was whether Lean Gas/Off Gas, which emerged during the manufacture of carbon black, could be considered excisable. The Tribunal found that Lean Gas/Off Gas is a mixture of crude gases generated as a by-product during the manufacturing process. The gas contains hazardous components like Carbon Monoxide, which must be incinerated due to anti-pollution laws. The Tribunal noted that the gas is not marketable and does not reach the RG-1 stage, thus should not be subjected to excise duty. The Tribunal relied heavily on the Board's Circular No. 89/7/88-CX 3, dated 22-12-1988, which stated that such gases need not be subjected to excise duty if released into the atmosphere after incineration.

Classification under Central Excise Tariff:
The Department had classified Lean Gas/Off Gas under sub-heading 2705.00 of the Central Excise Tariff, attracting a 12% ad valorem duty. The appellant firm contended that the gas should be classified under Chapter 28 and claimed exemption under Notification No. 217/86, dated 2-6-1986. The Tribunal did not delve deeply into this classification issue, as it resolved the case on the broader issue of excisability.

Marketability and RG-1 Stage:
The appellants argued that Lean Gas/Off Gas is not marketable and does not reach the RG-1 stage. They emphasized that the gas is a by-product, vented into the atmosphere, and cannot be bottled or transferred. The Tribunal agreed, noting that the gas is in an unmarketable condition and there is no evidence of marketability. The Tribunal cited the Trade Notice No. 12 (CH-28)-1/CE/PRO/CAL-II/89, dated 13-1-1989, which also stated that such gases are non-excisable.

Applicability of Board's Circulars and Trade Notices:
The Tribunal extensively referred to the Board's Circular No. 35/88-CX-II, dated 22-12-1988, which directed that Lean Gas should not be levied with excise duty. The Circular clarified that gases released into the atmosphere after incineration of Carbon Monoxide need not be subjected to duty. The Tribunal noted that the Commissioner had misinterpreted this Circular. The Tribunal also referenced the Supreme Court's decision in Ranade Micronutrients v. Collector of Central Excise, which held that Revenue Authorities cannot argue against instructions and circulars issued by the Board.

Penalties and Demands of Duty:
The Commissioner had confirmed duties amounting to Rs. 614.730 lakhs and Rs. 415.967 lakhs for different periods and imposed penalties of Rs. 60 lakhs and Rs. 40 lakhs. The Tribunal set aside these demands and penalties, concluding that Lean Gas/Off Gas is not excisable. The Tribunal allowed the appeals filed by the appellant firm and the Revenue, thus nullifying the Commissioner's orders.

Conclusion:
The Tribunal concluded that Lean Gas/Off Gas generated during the manufacture of carbon black is not excisable. It allowed all three appeals, setting aside the demands and penalties imposed by the Commissioner. The Tribunal's decision was based on the non-marketability of the gas, the applicability of Board's Circulars, and the fact that the gas does not reach the RG-1 stage. Consequently, other issues regarding classification and the demand being barred by limitation did not survive.