Waste gas marketability test defeats excise duty on free-supplied industrial gas used as fuel

Waste gas generated during manufacture and supplied free of cost to a neighbouring unit as fuel was held not to be a marketable excisable product. Gas that escaped into the atmosphere was treated by the revenue as non-excisable, and gas used in the manufacturer's own boiler was also not subjected to duty, leaving only the surplus free-supplied gas in dispute. The Tribunal relied on a Board circular and prior precedent to state that gases arising as by-products or waste do not become excisable merely because they can be used to generate heat. As marketability was not shown, the duty demand and penalties could not stand.

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Issues: Whether the waste gas generated in the course of manufacture and supplied free of cost to a neighbouring unit for use as fuel was exigible to central excise duty as a marketable excisable product.

Analysis: The portion of gas allowed to escape into the atmosphere was treated by the revenue itself as non-excisable, and the gas used in the appellant's own boiler was also not subjected to duty. The dispute concerned only the surplus gas supplied without consideration to another unit. The Tribunal relied on the Board circular stating that gases escaping through flare system or otherwise are not manufactured excisable goods, and on prior precedent holding that a mixture of crude gases arising during manufacture does not become excisable merely because some heat is generated from its use. It further held that use of waste material by another unit does not, by itself, establish excisability unless marketability is shown.

Conclusion: The waste gas supplied free of cost was not excisable and the duty demand and penalties could not stand.

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