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

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 ... Excisable goods - manufacture - marketability - waste, dross and skimmings as non-goods - burden on the Revenue to prove manufacture - refund of duty and penaltyExcisable goods - waste, dross and skimmings as non-goods - marketability - manufacture - burden on the Revenue to prove manufacture - Zinc dross and flux skimming arising during galvanisation of steel sheets are not goods within the meaning of the Central Excise Act, 1944 and are not liable to central excise duty. - HELD THAT: - The Court applied the settled twin tests for exigibility of excise duty - that the article must be the result of 'manufacture' (a new and different article with distinctive name, character or use) and must be a marketable commodity. Dross and skimmings are refuse, scum or ashes produced in the process of galvanisation and lack the characteristics of a new article that emerges from treatment, labour or manipulation; their occasional sale does not render them marketable commodities in the commercial sense. Reliance was placed on earlier precedents holding that similar residues (aluminium dross and skimmings, diluted pickle liquor, spent earth, cinder) are not exigible to excise duty where no manufacture producing a new marketable article is shown. The Revenue bears the onus of proving that manufacture has occurred; that onus was not discharged here. Consequently, the Tribunal correctly followed this Court's precedent in holding that zinc dross, flux skimming and related residues are not excisable goods. [Paras 19, 20, 21, 22, 23]Zinc dross and flux skimming are not excisable goods; the Revenue's appeals are dismissed.Refund of duty and penalty - The respondent/assessee is entitled to refund of duty and penalty, if any, paid in respect of the zinc dross and flux skimming. - HELD THAT: - Since zinc dross and flux skimming were held not to be exigible to excise duty, amounts paid by the assessee as duty and any penalty imposed in relation to those goods must be refunded. The Court dismissed the Revenue appeals and directed refund of duty and penalty paid by the respondent, with no order as to costs. [Paras 23]Respondent entitled to refund of duty and penalty, if any, paid; appeals dismissed.Final Conclusion: The appeals filed by the Revenue are dismissed. Zinc dross and flux skimming arising in the galvanisation process are not excisable goods; the respondent is entitled to refund of any duty and penalty paid in relation thereto. 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.