2004 (2) TMI 68 - SC - Central Excise

Zinc dross, flux skimmings and zinc scallings are refuse not excisable goods; Revenue failed to prove manufacture; refunds allowed

COLLECTOR OF CENTRAL EXCISE, PATNA Versus TATA IRON & STEEL CO. LTD.

SC held that zinc dross, flux skimmings and zinc scallings arising as refuse during galvanisation are not goods liable to central excise duty. The onus to ... Levy of excise duty - Classification of Zinc Dros - Whether zinc dross and flux skimming arising during galvanisation of steel sheets are goods within the meaning of the Central Excise Act, 1944 and are liable to central excise duty as classified by the Revenue? Held that:- This Court, in conclusion, held that 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 and that the Revenue have done nothing to discharge this onus. In our opinion, this Court in Indian Aluminium Co. Ltd. (1979 (6) TMI 43 - HIGH COURT OF BOMBAY) has held that merely selling does not mean dross and skimming are marketable commodity as even rubbish can be sold and everything, however, which is sold is not necessarily a marketable commodity as known to commerce and which, it may be worthwhile to trade in. The issue involved in this case is governed by the past decisions of the Tribunal and also of this Court where the Tribunal and this Court held that the zinc dross and skimming arising as refuse during galvanisation process are not excisable goods. The Tribunal, in our opinion, has rightly relied upon the decision of this Court in Indian Aluminium Co. Ltd. (supra) and in view of the above decision of the Tribunal following this Courts opinion in Indian Aluminium Company Limited (supra), we disagree with the appellant's that zinc dross, flux skimming and zinc scallings are goods and hence excisable. The appeals filed by the Revenue have no merits and are liable to be dismissed and we do so accordingly. The respondent/assessee will be entitled for refund of the duty and penalty, if any, paid by them. Issues Involved:1. Levy of excise duty on zinc dross and flux skimming arising during galvanisation of steel sheets.2. Classification of zinc dross under Central Excise Tariff Act, 1985.3. Marketability and excisability of zinc dross and flux skimming.4. Refund claims for duty paid on zinc scalling.5. Interpretation of Chapter Note 3 of Chapter 26 before and after 1-3-1988.Detailed Analysis:1. Levy of Excise Duty on Zinc Dross and Flux Skimming:The central issue in these appeals is whether zinc dross and flux skimming, by-products arising during the galvanisation of steel sheets, are subject to excise duty under the Central Excise Act, 1944. The Department alleged that the assessee cleared these products without paying duty and without maintaining the required records, thus evading duty. The assessees argued that these by-products are non-excisable as per various judicial precedents, including the Bombay High Court's decision in Indian Aluminium Co. Ltd. v. A.K. Bandyopadhyay.2. Classification of Zinc Dross:The Department classified zinc dross under Heading 7902.00 of the Central Excise Tariff Act, 1985, which includes waste and scrap of zinc. The assessees contended that zinc dross is not excisable and cited the decision of the Bombay High Court, which held that dross and skimming are neither goods nor end-products. The Tribunal relied on the Supreme Court's decision in Union of India v. Indian Aluminium Co. Ltd., which held that aluminium dross and skimming are not excisable goods.3. Marketability and Excisability of Zinc Dross and Flux Skimming:The Supreme Court reiterated that for a product to be excisable, it must be marketable and manufactured. The Court referred to its earlier decision in Union of India v. Delhi Cloth and General Mills Co. Ltd., which held that 'goods' must be something that can ordinarily come to the market and be bought and sold. The Court concluded that zinc dross and flux skimming are merely refuse products and not marketable commodities, thus not excisable.4. Refund Claims for Duty Paid on Zinc Scalling:In one of the appeals, the assessee filed for a refund of the duty paid on zinc scalling, arguing that it is not excisable. The Department rejected the refund claim, classifying the product under Chapter Heading No. 26.20. The Tribunal allowed the appeal, relying on the Supreme Court's decision in Indian Aluminium Co. Ltd., which held that zinc dross and zinc scalling are not goods and hence not excisable.5. Interpretation of Chapter Note 3 of Chapter 26:The Department argued that prior to 1-3-1988, dross and ash of zinc containing metals were classifiable under 7902, and subsequent to 1-3-1988, they were classified under sub-heading 26.20. The Supreme Court, however, found that the classification changes did not alter the fundamental nature of zinc dross and flux skimming as non-marketable and non-excisable products.Conclusion:The Supreme Court dismissed the Revenue's appeals, upholding the Tribunal's decision that zinc dross and flux skimming are not excisable goods. The Court emphasized that the mere ability to sell a product does not make it a marketable commodity. The assessees were entitled to a refund of the duty and penalty paid. The Court's decision was grounded in its previous rulings, particularly the Indian Aluminium Co. Ltd. case, which established that dross and skimming are not excisable.