clearance of coal fines - procedure

[phaniraju konidena]

Dear Professionals,

We are manufacturers of iron and steel and using coal to substitute the furnace oil due to heavy cost. After processing of the said coal by sizing and screening as required to our needs, some 'COAL FINES' are generated, which are waste for us and hence, cleared the same on payment of excise duty on the basis of 'transaction value'. But the department directing to clear the same on 'as such' category. Kindly clarify.

[YAGAY andSUN]

Dear Phani Raju,

In our opinion, if coal fines does not come under the category of coal and if both are entirely two different goods, then, coal fines cannot be removed as such, otherwise, demand raised by the revenue department seems valid. Please check this technical aspect.

Further, if there is no much difference of duty between above two goods, then, for the sake of avoid litigation, you may reverse the duty as demanded by the department after conducting the cost benefit analysis.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Mahir S]

As per your contention, coal fines are generated during the process of sizing and screening of the coal.

In the chapter notes 27, no where it is mentioned that the process of sizing and screening of the coal amounts to manufacture. Therefore, the process carried at your end does not appear to be a manufacturing process and the coal fines separated from coal is nothing but coal itself. If the same are subsequently cleared, then it is nothing but coal cleared As Such from the factory premises.

Therefore, department contention is true.

Even otherwise, if the coal fines are sold at lower rate then the refined coal (without coal fines) can now be sold at much higher rate; therefore any loss made for sale of coal fine is compensated through notional profit made on the refined coal; thus nullifying any loss to the company as a whole.

[phaniraju konidena]

But in the case of CCE, Coimbatore Vs. K.M.Textiles Engg. Products reported in

[phaniraju konidena]

But in the case of CCE, Coimbatore Vs. K.M.Textiles Engg. Products reported in 2009 (248) ELT 689 (Tri.-Chennai)  = 2009 (4) TMI 762 - CESTAT, CHENNAI while dismissing the appeal of the revenue, the Tribunal has held that Demand and penalty - Cenvat/Modvat - Allegation of removal of inputs as such - Cut pieces of MS and HR sheets, removed on payment of duty as applicable to waste and scrap, was left over material after inputs put into use in manufacture of final goods - Demand and penalty not sustainable - Rule 57-I of erstwhile Central Excise Rules, 1944 - Sections 11A and 11AC of Central Excise Act, 1944. [para 2]

On similar ground, since the coal fines are left over material, it cannot be treated as removal as such. Kindly comment.

[Mahir S]

The above case pertains to waste and scrap generated after put to use and after use in the manufacture of finished goods.

In this case, coal fines are segregated from coal and thereafter the remaining refined coal is put to use in the manufacture of finished goods.

[phaniraju konidena]

But in the case of CCE, Raigad Vs. Vikaram Ispat Ltd., reported in 2007 (211) ELT 60 (Tri.-Mum.) = 2007 (1) TMI 18 - CESTAT, MUMBAI in that case the Hon'ble Tribunal has held that Cenvat/Modvat - Iron ore fines separated from inputs, being in the nature of waste, their clearance cannot be equated with the clearance of inputs - Hence, provisions of Rule 57AB of erstwhile Central Excise Rules, 1944, not applicable - Appellants correctly paid applicable duty at price at which waste was sold - Demand for differential duty not sustainable - Rule 3(5) of Cenvat Credit Rules, 2004. [para 19]

Then what is your opinion, please tell me.

[Mahir S]

Definition of coal fines :-

(i) Coal fines are typically generated in the crushing and drying processes during coal preparation prior to combustion in utility boilers.

(ii) When coal is extracted from the ground, it is necessary to separate the coal material from sand, dirt, stones, rocks and other non-coal material. This “washing” process, typically utilizing water, is performed by specialized equipment referred to as “coal preparation plants”. “Coal Fines” are the small particles of coal material that are “washed-off” the coal during the preparation plant process.

In view of above, the coal fines are something that is generated during process/manufacture/ extraction of coal. Hence, question of coal fines generated during use of COAL or separation from coal does not arise at all. Coal fines comes into existence before COAL.

In youe case, what is segregated/separated from coal is nothing but coal.. It is just like Bettle nuts, where in the hard/medium/small pieces of Nuts are segregated/separated from the small particles of bettle nuts, however resulting in no manufacturing activity at all.

AI Summary

Classification of coal fines: whether screening is manufacture determines if fines are coal cleared as such or distinct waste for excise. Whether coal fines are chargeable as coal cleared as such or as a separate waste good turns on whether sizing and screening constitute manufacture and on the technical nature of the fines. If screening is non manufacturing, fines are coal cleared as such; if fines are a distinct commodity formed prior to or during coal preparation, they may be treated as waste sold at their own value. Tribunal precedents vary and factual/technical determination is required; consider cost-benefit reversal of duty if distinction is uncertain.