Excise duty cannot attach to fly ash residue from electricity generation absent manufacture, despite marketability and sale.

Fly ash generated as residue during electricity generation from lignite was held not to be manufactured goods for central excise purposes, because excisability requires both manufacture and marketability. Although the fly ash had been sold and therefore satisfied marketability, it was not a product manufactured by the assessee but a waste or by-product arising in the course of burning lignite. The notification relied on by the department could not sustain the levy in the absence of statutory authority to tax a non-manufactured residue, so the demand under Notification No. 2/2011 was unsustainable.

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Issues: Whether fly ash generated during the process of electricity generation from lignite was manufactured goods chargeable to central excise duty, and whether Notification No. 2/2011 dated 01.03.2011 could sustain the levy.

Analysis: Excisability requires satisfaction of both manufacture and marketability. Although fly ash had been sold and therefore answered the test of marketability, it arose only as a residue or waste during the burning process for generation of electricity and was not a product manufactured by the appellant. The reasoning in prior decisions on waste/by-products and the principle that a notification cannot create a levy absent statutory authority supported the conclusion that fly ash, in these circumstances, was not excisable. The notification relied upon by the department was therefore inapplicable.

Conclusion: Fly ash was not manufactured goods liable to central excise duty, and the demand based on Notification No. 2/2011 was unsustainable; the appeal was allowed in favour of the assessee.

Final Conclusion: The duty demand and the appellate findings confirming it were set aside because the impugned fly ash was treated as a residue generated in the course of electricity generation, not as manufactured excisable goods.

Ratio Decidendi: A product is liable to excise only if it is manufactured and marketable, and a levy cannot be sustained on a residue or waste merely because it is sold or covered by a notification when manufacture is absent.

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