Top gas impurity removal in manufacturing process and whether it constitutes manufacture for excise liability denied where only marketability existed

Whether scrubbing impurities from top gas produced during manufacture amounts to 'manufacture' and thus attracts central excise was the central issue. The tribunal applied the established manufacture testemergence of a new commodity with a distinct name, character or useand held that top gas is refuse or by-product analogous to dross and skimmings, not a new manufactured article; mere marketability after impurity removal does not establish manufacture. The department bears the burden to prove transformation into a manufactured product, which was not discharged here, so excise demand was not justified.

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Issues Involved:
1. Whether the removal of impurities from top gas amounts to "manufacture" under the Central Excise Act.
2. Classification of the resultant export gas under the Excise Tariff Act.
3. Marketability and excisability of the export gas.

Summary:

1. Whether the removal of impurities from top gas amounts to "manufacture" under the Central Excise Act:
The Tribunal examined whether the process undertaken on the top gas for removing impurities would amount to "manufacture" under Section 2(f) of the Central Excise Act. The appellant argued that the top gas, which emerges as a technological accident in the manufacture of Direct Reduced Iron, is similar to refuse like dross and skimmings, and the process of scrubbing impurities is mandated by environmental regulations, not for creating a new product. The Tribunal referred to various Supreme Court judgments, including *Union of India vs. Indian Aluminium Co. Ltd.*, which held that dross and skimmings are not manufactured goods but refuse. The Tribunal concluded that the removal of impurities from the top gas does not result in the manufacture of a new product, and thus, the export gas is not a manufactured product.

2. Classification of the resultant export gas under the Excise Tariff Act:
The department classified the export gas under Tariff Item 2811 29 40 of the Excise Tariff Act as Carbon Monoxide. The appellant contended that the export gas is a mixture of gases and not predominantly Carbon Monoxide. The Tribunal noted that the export gas has only 47.02% Carbon Monoxide, and the rest is Hydrogen and Carbon Dioxide. Referring to the Supreme Court's decision in *South Bihar Sugar Mills Ltd. vs. Union of India*, the Tribunal held that a mixture of gases cannot be classified as Carbon Monoxide merely because it contains some percentage of it. Therefore, the classification under Tariff Item 2811 29 40 was not justified.

3. Marketability and excisability of the export gas:
The Tribunal examined whether the export gas is marketable and excisable. The Commissioner had held that the export gas is marketable because it is sold to Jindal and JSW, and thus, it is excisable. The Tribunal, however, emphasized that mere marketability does not make a product excisable unless it is manufactured. The Tribunal referred to the Bombay High Court's decision in *Hindalco Industries Limited vs. Union of India*, which held that both manufacture and marketability are required for a product to be excisable. Since the export gas was not manufactured, it cannot be subjected to excise duty.

Conclusion:
The Tribunal set aside the orders confirming the demand for central excise duty on the export gas, holding that the process of removing impurities from the top gas does not amount to manufacture, and the resultant export gas is not a manufactured product. The excise appeals filed by the appellant were allowed.

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