Excise duty on fly ash and bottom ash fails where residue is only incidental to electricity generation.

Fly ash and bottom ash generated incidentally during coal combustion in a captive power plant were treated as residual by-products, not as goods produced by a manufacturing process directed to their creation. Central excise duty requires both manufacture and marketability; failure of either test keeps the product outside the levy. Mere inclusion in a tariff entry, or the fact that the residue is sold, does not by itself make it excisable when it arises only as an incidental outcome of electricity generation. On that basis, fly ash and bottom ash were regarded as not liable to central excise duty.

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Issues: Whether fly ash or bottom ash arising as a residual by-product during burning of coal in a captive power plant is a manufactured and marketable commodity liable to central excise duty.

Analysis: The Tribunal followed its earlier decision and the view that fly ash emerging during generation of electricity is only a by-product and not the result of a manufacturing process directed to its production. Liability to excise depends on the twin requirements of manufacture and marketability, and failure of either test keeps the product outside the charge of excise. Since the residue was generated incidentally during combustion of coal for electricity generation, mere inclusion of the goods in a tariff entry or their sale did not make them excisable.

Conclusion: Fly ash and bottom ash were held not liable to central excise duty, and the impugned orders were set aside in favour of the assessee.

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