2025 (5) TMI 1686 - AT - Central Excise

Revenue's appeal dismissed on excise duty demand for Aluminium Dross clearance after previous favorable decision

Commissioner of CGST & Central Excise, Howrah Versus M/s Hindalco Industries Limited

CESTAT Kolkata dismissed Revenue's appeal regarding excise duty demand on clearance of Aluminium Dross. The case involved determining whether aluminium ... Excisability - Demand duty on clearance of Aluminium Dross along with interest and penalty - nature of waste or residue arising during the course of manufacture of Hot Rolled Aluminium Products - applicability of Circular Nos.941/02/2011-CX and 1027/15/2016-CX - HELD THAT:- We find that the issue has been settled by this Tribunal in the appellant’s sister unit in [2019 (4) TMI 1458 - CESTAT KOLKATA], As the issue has been settled in favour of the respondent, therefore, we do not find any merit in the appeal filed by the Revenue. Accordingly, the same is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal are:(a) Whether Aluminium Dross generated during the manufacture of Hot Rolled Aluminium Products is excisable goods liable to duty under the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985.(b) Whether Aluminium Dross qualifies as a 'manufactured' product under Section 2(f) of the Central Excise Act, 1944, and thus falls within the ambit of excisable goods.(c) Whether the monetary consideration received on sale of Aluminium Dross establishes that the product is marketable and therefore excisable under the Explanation added to Section 2(d) of the Central Excise Act by the Finance Act, 2008.(d) The impact and applicability of judicial precedents and Circulars issued by the Central Board of Excise and Customs (CBEC) on the excisability of Aluminium Dross and similar waste/residue products.(e) The retrospective effect of the Explanation added to Section 2(d) of the Central Excise Act, 1944 and its implications on classification and levy of duty on Aluminium Dross.2. ISSUE-WISE DETAILED ANALYSIS(a) Excisability of Aluminium Dross as goods liable to dutyThe relevant legal framework includes Section 3 of the Central Excise Act, 1944 which mandates levy of excise duty on goods specified in the First Schedule and Second Schedule to the Central Excise Tariff Act, 1985. Section 2(d) defines excisable goods as goods specified in these Schedules and includes an Explanation inserted by the Finance Act, 2008 clarifying that 'goods' include any article, material or substance capable of being bought and sold for a consideration and such goods shall be deemed marketable.The Revenue contended that Aluminium Dross is classifiable under Central Excise Tariff Sub-Heading No. 2620 4010 and is therefore chargeable to duty. They emphasized that the sale of Aluminium Dross for monetary consideration establishes its marketability, making it excisable.The Tribunal noted the Revenue's reliance on the Explanation to Section 2(d) and argued that this Explanation has retrospective effect and clarifies that marketability alone renders goods excisable.However, the Respondent and the Tribunal referred to judicial precedents including the Hon'ble Supreme Court's ruling in Commissioner of Central Excise vs. Indian Aluminium Co. Ltd. and the Bombay High Court judgment in Hindalco Industries Ltd. Vs. Union of India. These authorities held that mere marketability does not satisfy the test of manufacture under Section 2(f), which is essential for excisability.The Tribunal further referred to the CBEC Circular No. 1027/15/2016-CX dated 15.04.2016 which rescinded earlier Circulars and clarified that waste or residue like Aluminium Dross, being not a product of any manufacturing process, is not excisable despite being marketable.The Tribunal applied these precedents and Circulars to the facts, finding that Aluminium Dross is a waste product generated during manufacture but not itself manufactured, and thus not excisable.(b) Whether Aluminium Dross is a 'manufactured' product under Section 2(f)Section 2(f) of the Central Excise Act defines manufacture as any process incidental or ancillary to the completion of a product. The Revenue argued that Aluminium Dross, being a by-product arising during manufacture, is itself manufactured and hence excisable.The Tribunal examined the Supreme Court's decision in Union of India & Ors. Vs. DSCL Sugar Ltd. and the Bombay High Court ruling in Hindalco Industries Ltd., which held that a waste or residue not resulting from a manufacturing process does not satisfy Section 2(f). The Tribunal emphasized that the conditions under Section 2(d) (goods being marketable) and Section 2(f) (goods being manufactured) must be satisfied conjunctively for excise duty to apply.Applying this principle, the Tribunal concluded that Aluminium Dross, being a waste lump formed and not a product of any manufacturing process, does not qualify as manufactured goods and therefore cannot be subjected to excise duty.(c) Effect of monetary consideration and marketabilityThe Revenue's contention that sale of Aluminium Dross for monetary consideration establishes marketability and thus excisability was addressed by the Tribunal. While acknowledging that the Explanation to Section 2(d) deems goods capable of being bought and sold as marketable, the Tribunal reiterated that marketability alone is insufficient for excise duty unless the goods are also manufactured as per Section 2(f).The Tribunal relied on the principle that the Explanation added by the Finance Act, 2008 clarifies the meaning of goods but does not alter the requirement of manufacture. Therefore, despite the marketability of Aluminium Dross, it is not excisable without manufacture.(d) Impact of judicial precedents and CBEC CircularsThe Tribunal extensively analyzed relevant judicial pronouncements and Circulars:The Supreme Court's ruling in Commissioner of Central Excise vs. Indian Aluminium Co. Ltd. held that Zinc Dross and flux are not excisable.The Bombay High Court and Supreme Court decisions in Hindalco Industries Ltd. affirmed that Aluminium Dross is not manufactured goods and hence not excisable.The Supreme Court's decision in Union of India & Ors. Vs. DSCL Sugar Ltd. held that waste products not resulting from manufacture are not excisable.CBEC Circular No. 1027/15/2016-CX dated 15.04.2016 rescinded earlier Circulars and clarified that waste or residue arising during manufacture, such as Aluminium Dross, is not excisable.The Tribunal noted that these authorities have settled the issue in favour of the Respondent, establishing that Aluminium Dross is not liable to excise duty.(e) Retrospective effect of Explanation to Section 2(d)The Revenue argued that the Explanation added by the Finance Act, 2008 has retrospective effect and clarifies that goods capable of being bought and sold are marketable and excisable.The Tribunal accepted the retrospective effect of the Explanation but clarified that it does not expand the scope of excisable goods to include waste products not manufactured. The Explanation is declaratory and does not introduce any new provision or alter the requirement of manufacture under Section 2(f).Thus, retrospective application of the Explanation does not render Aluminium Dross excisable where it fails the manufacture test.3. SIGNIFICANT HOLDINGSThe Tribunal's key legal determinations include:'...merely because a good satisfies the test of being marketed and saleable, it does not mean that the test of being manufactured has also been satisfied. Accordingly, it was held that the conditions contemplated under Section 2 (d) and Section 2 (f) have to be satisfied conjunctively in order to entail imposition of excise duty under Section 3 of the Central Excise Act, 1944.''...the issue now stands settled in favour of the Appellant as it becomes abundantly clear that Aluminium dross, being a waste product emerging during the manufacture of Aluminium products, cannot be subject to excise duty.''...the Explanation added to Clause (d) of Section 2 of the Central Excise Act, 1944 by the Finance Act, 2008 in a declaratory form must have retrospective effect. However, this Explanation does not change the scope of the Rules or introduce any new provision regarding manufacture.'The Tribunal concluded that Aluminium Dross is not excisable as it is a waste product not resulting from manufacture, notwithstanding its marketability or sale for consideration. Therefore, the impugned order demanding excise duty on clearance of Aluminium Dross was set aside and the Revenue's appeal dismissed for lack of merit.