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 prove that items taxed have undergone manufacture in India rests on the Revenue, which failed to discharge that burden. The Tribunal's reliance on prior authority was upheld. Revenue's appeals were dismissed and the assessee is entitled to refund of any duty and penalty paid.

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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.

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