2003 (10) TMI 47 - SC - Central Excise

Whether inclusion of an item in the entries to the First Schedule to the Tariff Act per se makes the item exigible to excise duty ? Held that - In the present case it is not possible to say that cinder satisfies the requirement of being manufactured in India. It is clear that to be subjected to levy of excise duty excisable goods must be produced or manufactured in India. For being produced and manufactured in India the raw material should have gone through the process of transformation into a new product by skilful manipulation. Excise duty is an incidence of manufacture and, therefore, it is essential that the product sought to be subjected to excise duty should have gone though the process of manufacture. Cinder cannot be said to have gone through any process of manufacture, therefore, it cannot be subjected to levy of excise duty. The onus to show that particular goods on which excise duty is sought to be levied have gone through the process of manufacture in India is on the revenue. They have done nothing to discharge this onus. For this reason alone they must fail. Thus as cinder cannot be subjected to levy of excise duty because it is not an item of goods which has been subjected to process of manufacture, it is not necessary for us to go into any other point.The result is that the contention of the revenue that cinder is liable to payment of excise duty is hereby rejected.

Issues Involved:
1. Exigibility of 'cinder' to excise duty under the Central Excise Tariff Act.
2. Whether 'cinder' satisfies the tests of being "manufactured in India" and "marketability".
3. Maintainability of the petition under Article 226 of the Constitution of India.

Detailed Analysis:

Issue 1: Exigibility of 'cinder' to Excise Duty
The primary question in these appeals is whether 'cinder', a by-product of coal used as fuel in manufacturing processes, is subject to excise duty. The Revenue argues that 'cinder' falls under Entry No. 26.21 of the First Schedule to the Central Excise Tariff Act, which covers "Other slag and ash, including seaweed ash (kelp)". The respondents counter that 'cinder' is not explicitly listed in the First Schedule and should not be subject to excise duty.

The Court examined Section 3 of the Central Excise Act, which states that excise duty is levied on all excisable goods produced or manufactured in India. The term "excisable goods" is defined in Section 2(d) as goods specified in the First Schedule. The Court concluded that simply being listed in the First Schedule does not automatically make an item subject to excise duty; it must also be produced or manufactured in India. The Court found that 'cinder' does not meet this criterion, as it is not a new product but merely unburnt or partially burnt coal.

Issue 2: Tests of "Manufactured in India" and "Marketability"
The Court emphasized that excise duty is a tax on the manufacture of goods, which requires a transformation resulting in a new and distinct article. The Court cited several precedents to define "manufacture," including South Bihar Sugar Mills v. Union of India and M/s. Hindustan Polymers v. Collector of Central Excise, which state that mere change in a substance does not constitute manufacture unless a new product with a distinctive name, character, or use emerges.

The Court noted that 'cinder' is a by-product of burning coal as fuel and does not undergo any manufacturing process. It remains coal, albeit of inferior quality. The Court also referred to previous judgments where similar by-products were not considered excisable, such as in Commissioner of Central Excise, Chandigarh v. Markfed Vanaspati and Allied Industries, where 'spent earth' was not subject to excise duty.

The Court further stated that even though 'cinder' is sold, it does not meet the requirement of being a marketable commodity in the sense understood in excise law. The Court highlighted that the Revenue failed to discharge its burden of proving that 'cinder' is a manufactured product.

Issue 3: Maintainability of Petition under Article 226
The Revenue argued that the High Court should not have entertained the petition under Article 226 of the Constitution. The Court noted that this objection was only relevant in the case of Ahmedabad Electricity Company, where the petition challenged a Circular and a Trade Notice classifying 'cinder' as excisable. The Court found no merit in this objection, stating that the High Court was justified in hearing the petition as the departmental authorities would have felt bound by the impugned circular.

Conclusion:
The Supreme Court dismissed all the appeals filed by the Revenue, holding that 'cinder' is not subject to excise duty as it does not meet the criteria of being manufactured in India. The Court also rejected the objection regarding the maintainability of the petition under Article 226.

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