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2023 (8) TMI 1043
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....se like dross and skimmings which are merely scum thrown out in the manufacture of aluminium sheets and have been held not be 'manufactured' goods. It is for this reason that the appellant believed that central excise duty could not have been levied on the export gas that emerged after removal of impurities even if the export gas was supplied to Jindal Praxair Oxygen Company Pvt. Ltd. [Jindal] and JSW Energy Limited [JSW]. The demand has been confirmed by the orders impugned in these appeals holding that since the top gas that emerged from the Reduction Shaft had been subjected to a refining process for removal impurities, the process had resulted in changes that made the resultant export gas marketable which indicates that it was 'manufactured', an essential factor for levy of central excise duty. 2. It needs to be noted that five show cause notices dated 26.02.2010, 16.08.2010, 23.08.2011, 02.05.2012 and 15.11.2012 had been issued to the appellant for the period from February 2009 to June 2012. These show cause notices were adjudicated by orders dated 21.05.2010, 30.11.2010, 25.01.2012, 24.12.2012 and 22.06.2015 respectively and it is these orders which have been assailed in t....
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....les are removed, the gas is cooled to 8500C, before being injected into the Reduction Shaft. 6. In the Reduction Shaft, the reduction gas moves upwards after participating in the Reduction process and exits from the top of the Reduction Shaft. This gas exiting from the top of the Reduction Shaft has been nomenclated by the appellant as 'top gas' and has a temperature of around 2500C. The composition of top gas is broadly as follows: Carbon Monoxide 45.79 % Carbon-Dioxide 31.70 % Hydrogen 18.28 % Methane 1.61 % 7. After the top gas exits from the Reduction shaft, the same is worked upon for the removal of impurities and water by passing the said gas through Hot Gas Cyclone, Packing Scrubber, Venturi Scrubber and Mist Eliminator. The said top gas, after it has been scrubbed for the removal of impurities and particulate matter, as also the excess reduction gas ....
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....s to limit the emissions of particulate below 150 Mg/Nm³ under any circumstances failing which the plant should be shut down. iii. In plant control measures for checking fugitive emissions, spillage or chemicals/raw materials etc. should be provided Data on fugitive emissions should be regularly monitored and records maintained. ............. ............. ............. GENERAL CONDITIONS: i. The project authorities must strictly adhere to the stipulations made by the Karnataka State Pollution Control Board and the State Government. ii. No further expansion or modifications in the plant should be carried out without prior approval of the Ministry of Environment and Forests. iii. At least four ambient air quality-monitoring stations should be established in the downward direction as well as where maximum ground level concentration of SP SO2 and NOx are anticipated in consultation with the Karnataka State Pollution Control Board. Data on ambient air quality and stack emission should be regularly submitted to this Ministry including its Regional Office at Bangalore and the State Pollution Control Board/Central Poll....
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.... and so excise duty could not be levied. ORDER OF COMMISSIONER 14. The Commissioner, however, by the impugned orders, confirmed the demand. The Commissioner noted that the appellant supplied gas to Jindal and JSW, which gas is predominantly Carbon Monoxide with essential parameters for using it as a fuel. Thus, transactions with monetary benefits were involved which establish marketability of the gas. The Commissioner also noticed that the gas that emerged was subjected to refining processes for removal of impurities so as to obtain the desired composition of the gas as per the parameters prescribed by Jindal and JSW. This would result in manufacture, which is an essential factor for levy of central excise duty. Since the orders are based on the same reasons, it would be appropriate to reproduce the relevant portions of one such order dated 21.05.2010 that has been assailed in Excise Appeal No. 1824 of 2010 and the relevant portions are as follows: "31. On perusal of the agreement entered into by the assessee with their marketability viz. M/s. JSW Energy Ltd. and M/s. Jindal Praxair Oxygen Pvt. Ltd., in the year 1995, it is noteable that the assessee has assured to s....
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.... Corex Gas is rightly classifiable under Chapter Heading No. 28112940 and I have also after due examination of the case, held the same view in my earlier Orders. As this Order is being passed after due process of law, I do not intend to deviate from the same. Accordingly, in view of the above facts, I hold that "Corex Gas" is classifiable under Heading No. C. SH. 28112940 of the first schedule to the Central Excise Tariff Act, 1985 and leviable to duty of excise plus Education Cess and S & HE Cess as applicable. 41. Further, the Hon'ble Tribunal while disposing off the appeal filed by the assessee in the same case pertaining to earlier period, in its Final Order No. 289- 293/2010 dated 20.01.2010 observed that "impure carbon monoxide is classifiable under heading 281190 and upheld the classification decided in the orders impugned in the appeals". Therefore, it is imperative that the assessee has to adopt the decision of the Tribunal." (emphasis supplied) SUBMISSIONS 15. Shri Vipin Jain and Shri M.S. Nagaraja assisted by Shri Vishal Agarwal, learned counsel for the appellant made the following submissions: (i) Export gas arose as a technological ....
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....tment assisted by Shri Rajiv Kumar, learned authorized representative for the department made the following submissions: (i) Export gas is excisable and is nothing but Carbon Monoxide which is classifiable under Tariff Item 2811 29 40 of the Excise Tariff Act. The appellant has, while, contesting the excisability of the product, wrongly claimed classification of the said product under heading 2705; (ii) The Tribunal had earlier disposed of four appeals for the period from May 2005 to January 2009 holding that export gas is excisable and the correct classification of the same is under Tariff Item 2811 29 40 of the Excise Tariff Act. The appellant filed Civil Appeals against the said order before the Supreme Court, which are pending; (iii) It is not correct that the Tribunal, in its final order dated 02.02.2010, has not given any finding on the aspect whether export gas was a 'manufactured produced' or not. In the last sentence of paragraph 3 of the order, the Tribunal observed "Extensive arguments are also advanced with supporting case law to establish that export gas is a non-excisable by-product", which implies that the Tribunal has taken note of all the....
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....ed counsel for the appellant submitted that central excise duty is levied on 'excisable goods' which are produced or manufactured in India and since the export gas was not manufactured by the appellant, central excise duty could not have been levied. Learned counsel pointed out that in the earlier decision rendered by the Tribunal in the case of the appellant for the period from February 2005 to January 2009 in JSW Steels Ltd. vs. Commissioner of C. Ex., Belgaum [2010 (254) E.L.T. 318 (Tri.-Bang.)], a ground was neither raised in the appeal filed by the appellant that manufacture had not taken place, nor this issue was examined or decided by the Tribunal and since it is a settled position of law that mere marketability of a product, which alone was examined and decided in the earlier decision of the Tribunal, is not enough for levy of central excise duty even consequent to the addition of Explanation in the definition of 'excisable goods' in section 2(d) of the Excise Act with effect from 16.05.2008, it would be open to the Tribunal in these appeals to examine whether 'manufacture' had taken place or not, for it is only then that central excise duty can be levied. 18. To examine....
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....ed the issue of marketability of the export gas and it is not possible to accept the contention of the learned special counsel for the department that 'manufacture' aspect was also examined by the Tribunal. Paragraphs 3 and 8 of the order of the Tribunal do not indicate that marketability aspect had been considered. 20. It would, therefore, be necessary to examine the contention raised by learned counsel for the appellant that the process undertaken by the appellant on the top gas would not amount to 'manufacture'. 21. To examine this issue raised by the learned counsel for the appellant, it would be appropriate to reproduce the definition of 'excisable goods' as contained in section 2(d) of the Excise Act with the Explanation that was inserted w.e.f. 10.05.2008 and it is as follows:- "(d) 'excisable goods' means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt; Explanation.- For the purposes of this clause, 'goods' includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall ....
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.... excisable for the period post 10.05.2008 in view of the Explanation added to section 2(d) of the Excise Act. The Larger Bench of the Tribunal held: "6.5 ******. Viewed from this perspective, when dross and skimmings are specifically mentioned in the tariff, it would not be unreasonable to assume that such products are manufactured goods even though they arise in the course of manufacture of other products. Inasmuch as the goods which are capable of being bought and sold are deemed to be marketable, in view of explanation to Section 2(d), the twin tests of 'manufacture' and 'marketability' are clearly satisfied in the case of dross and skimmings. As per the settled position in law manufacture takes place when a new commodity with a distinct name, character or use emerges from a process or series of processes. In the present case, this test of manufacture is satisfied in respect of dross and skimmings. Therefore, the will of the Legislature has to be given effect to by adopting a harmonious interpretation. In this view of the matter, it appears to us that w.e.f. 10-5-2008, aluminium dross and skimmings are liable to excise duty. ******** 6.11 ******. In th....
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.... them. 22. That the Revenue does not wish to abide by them would not mean that the Tribunal is justified in not following them. We find that the attempt made by the Tribunal to hold that what is marketable and satisfies the requirement stipulated in the Explanation necessarily means that they are liable for imposition of duty under Section 3 is directly contrary to the binding Judgments of the Hon'ble Supreme Court on the same issue. ******** The Hon'ble Supreme Court listed the twin tests and which have to be satisfied before the goods can be said to be excisable to tax or Central Excise duty. It is in these circumstances that the attempt of the Tribunal and which is supported before us by Mr. Sethna cannot be upheld. Each of these observations and from para 6.5 onwards run counter to the Judgments of the Hon'ble Supreme Court. 24. ********. However, finding that the matter stands completely covered by the Judgments of the Hon'ble Supreme Court and which have been totally disregarded by the Tribunal that we are unable to sustain and uphold its conclusions. The impugned order can be safely termed as perverse and vitiated by an error of law apparent on the face of ....
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....not be any excise duty." (emphasis supplied) 29. The Supreme Court in Ahmedabad Electricity also observed as follows: "13. We are unable to accept the proposition advanced by the learned Additional Solicitor General. A close look at Section 3 of the Central Excise Act shows that the words 'excisable goods' have been qualified by the words "which are produced or manufactured in India". Therefore, simply because goods find mention in one of the entries of the First Schedule does not mean that they become liable for payment of excise duty. Goods have to satisfy the test of being produced or manufactured in India. It is settled law that excise duty is a duty levied on manufacture of goods. Unless goods are manufactured in India, they cannot be subjected to payment of excise duty. There is no merit in the argument that simply because a particular item is mentioned in the First Schedule, it becomes exigible to excise duty." (emphasis supplied) 30. The inevitable conclusion that follows from the aforesaid decisions is that even after the addition of Explanation in the definition of 'excisable goods' w.e.f. 16.05.2008 in section 2(f) of the Excise Act, it h....
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.... mean that minor changes in the substance would also amount to manufacture, for every change is not manufacture. The Supreme Court emphasized that the change must result in transformation and a new and different article must emerge having a distinctive name, character or use. The relevant observations of the Supreme Court are as follows: "......The word 'manufacture' used as a verb is generally understood to mean as 'bringing into existence a new substance' and does not mean merely 'to produce some change in a substance' however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in Permanent Edition of Words and Phrases, Vol. 26, from an American Judgment. The passage runs thus- 'Manufacture' implies a change but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use." (emphasis supplied) 36. The aforesaid decision of the Supreme Court in Delhi Cloth and General Mills was followed by the S....
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....r manipulation whereby the end-product is dross and skimmings. They are merely the scum thrown out in the process of manufacture of aluminium sheets. Therefore it cannot be said that dross and skimmings are transformation resulting in a new and different article with a distinctive name, character or use or that they ordinarily come to the market to be bought and sold and are known to the market. The article or goods manufactured from the aluminium ingots was not dross and skimmings but the aluminium sheets. It was the aluminium sheets therefore that were the end-product or the finished product and not the dross and skimmings which were merely the refuse or scum or rubbish thrown out in the course of the manufacture of the finished product, namely, the aluminium sheets. As stated earlier, in the affidavit-in-reply, there has throughout been a repeated emphasis that the dross and skimmings are a by-product and that the aluminium ingots were used by the Company in the manufacture of dross and skimmings. ***** ***** Refuse or scum thrown off during the process of manufacture cannot by any stretch of imagination be considered as a by-product and merely because such ref....
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....s and skimmings. They can, therefore, be sold. But this does not make them a marketable commodity. As learned Single Judge of the Bombay High Court has pointed out, even rubbish can be sold. Everything, however which is sold is not necessarily a marketable commodity as known to commerce and which, it may be worthwhile to trade in. Learned Single Judge of the Bombay High Court, therefore, rightly came to the conclusion that the proviso to Rule 56A was not applicable as aluminium dross and skimmings are not excisable goods. ***** 22. The entire argument proceeds on the basis that aluminium dross and skimmings are excisable goods. Otherwise the question of their inclusion in Tariff Item 68 does not arise. The appellants have emphasized the fact that aluminium dross and skimmings are capable of being sold. Hence they must be considered as marketable goods. Since they arise in the course of manufacture, the duty of excise can be levied on such goods. The foundation of the argument rests on the assumption that aluminium dross and skimmings are marketable goods. For reasons which we have set out earlier, it is not possible to consider aluminium dross and skimmings as "go....
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....eriod, that the aforesaid case of the appellant is covered by the judgment of this Court in Indian Aluminium Co. Ltd.'s case referred to above. 4. After hearing the counsel for the parties, we are of the opinion that the CESTAT's later judgment in the appellant's case itself, which is the decision dated 23-1-2008 rendered in Appeal No. E/3182/2001, etc., clinches the issue. The learned counsel is right that in the aforesaid decision, the CESTAT has held that during the manufacture of die-casting of aluminium parts, dross and ash emerge as by-products and, therefore, insofar as these by-products are concerned, no manufacturing process is involved and on that basis, it has held that no excise duty shall be payable thereupon. It is pertinent to mention that this decision has been accepted by the Revenue. " (emphasis supplied) 40. In Ahmedabad Electricity, the Supreme Court observed that for being produced and manufactured, the raw material should have gone through the process of transformation into a new product by skilful manipulation and the burden is on the department to prove that the particular goods on which excise duty is sought to be levied have undergone ....
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....uring the burning process. The appellants' contention is that though this proposition is a casual affair for them for generation of heat, neverthless, they are compelled by the process of law to burn the Carbon monoxide before release of the rest of the gases into the atmosphere. It is only to put to use the heat so generated by the burning process. The mere fact is that due to environmental laws, the appellant are compelled to burn the carbon monoxide content from the Off Gas and use the heat so generated from Off Gas/Lean Gas." (emphasis supplied) 42. It, therefore, transpires from the aforesaid decisions that; (i) The word 'manufacture' is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some change in a substance. The change must result in transformation and a new and different article must emerge having a distinctive name, character or use; (ii) Dross and skimmings are merely refuse or scum thrown off during the process of manufacture of aluminium sheets and it cannot said that they are a new and different article with a distinctive name, character or use. Aluminium dross and skimmings are....
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..... This reduction gas participates in the reduction process in the Reduction Shaft, wherein Carbon Monoxide and Hydrogen reduce the Oxygen content in the Iron Oxide to reduce it to Iron. The gas which emerges from the Reduction Shaft has been nomenclated by the appellant as top gas, which inter alia has Carbon Monoxide of about 45.79% and Hydrogen of about 18.82%, while Carbon Dioxide is about 31.70%. This top gas after scrubbing of the particulate matter and after mixing with the excess reduction gas, is cleared as export gas, which inter alia has Carbon Monoxide of about 47.2%, Hydrogen of about 18.45% and Carbon Dioxide of about 30.68%. The Revenue has classified the export gas as manufactured Carbon Monoxide under Tariff Item 2811 29 40 of the Central Excise Tariff. 46. The contention of the appellant is that the top gas which emerges either from the Melter Gasifier or the Reduction Shaft is refuse, but it has necessarily to undergo the requirement of scrubbing of the particulate matter and other impurities before being released in the atmosphere because of the directions issued by the Ministry of Environment and Forests and this process of removal of impurities would not amo....
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....taken place resulting in a new and different article with a distinctive name, character or use. The Supreme Court also observed the dross and skimmings are merely refuse given out in the course of manufacture in the process of removing impurities from the raw material. A conclusion can, therefore, safely be drawn that top gas was not manufactured, and indeed the Commissioner has also not recorded a finding that top gas had been manufactured. 51. It has now to be considered whether removal of impurities from the top gas would result in the manufacture of export gas. 52. The process design of the Technology supplier requires that the top gas should be scrubbed of its impurities before being flared off at the top of the tall chimney end. This is also the requirement contemplated in the permission granted to the appellant by the Ministry of Environment and Forests in the letter dated 19.01.2001. It is a mandate on the appellant to remove the particulate matter and other impurities from the top gas, otherwise it would have to shut down the plant in terms of the permission granted to it by the Ministry of Environment and Forest. 53. Learned counsel for the appellant also submitt....
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....ssioner that the resultant gas is Carbon Monoxide. This is factually incorrect as the resultant export gas has only 47.2% Carbon Monoxide. Hydrogen is to the extent of 18.45% and Carbon Dioxide is to the extent of 30.68%. 58. The Commissioner has also referred to the statement of Dharmendra Gupta made on 22.02.2006, to hold that the Corex Technology has been designed to tap the emergent gas and to process it in the auxiliary plant so as to produce a commercially viable Carbon Monoxide as one of its final products. The findings are factually incorrect as such a statement was not made by Dharmendra Gupta. All that he stated was that injection of Oxygen in the Melter Gasifier Reactor to react with burning coal is a distinct feature of Corex Technology, where the Oxygen through the Melter Gasifier tuyeres reacts with Coal to generate Carbon Monoxide along with heat, which is subsequently used for residual reaction, calcinations and melting of burden. Dharmendra Gupta did not even remotely suggested that Corex Technology was designed to produce Carbon Monoxide as one of the final products. 59. The Supreme Court in South Bihar Sugar Mills Ltd. vs. Union of India [1978 (2) E.L.T. J ....
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....n Monoxide 46 42-50 Carbon Monoxide 42 35-45 Carbon Monoxide 45.79 2. Carbon Dioxide 29 22-32 Carbon Dioxide 35 30-38 Carbon Dioxide 31.70 3. Hydrogen 18 15-22 Hydrogen 18 15-20 Hydrogen 18.28 4. Water Vapour 1.5 (saturated) 1.3-2.5 Water Vapour 1.5 (saturated) 1.3-1.6 Methane 1.61 5. Nitrogen 3.5 2.1-6.0 Nitrogen 2.5 2.1-2.8 6. Methane 2.5 1.4-4.0 Methane 1.0 0.85-1.1 62. The Commissioner has not found that the top gas was manufactured by the appellant. A perusal of the aforesaid chart would indicate that the composition of top gas, which arises as a technological accident in the Reduction Shaft, meets the contractual specifications. There is, therefore, force in the contention advanced by the learned counsel for the appellant that the scrubbing of the top gas was not undertaken to meet the contractual specifications but to comply with the environmental norms in case the said gas was to be released in the atmosphere. The appellant could have cleared the top gas to Jindal and JSW withou....
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....2379-3335 Plastic (PVC) 9787 Wood 3431 Paper 3216 Coal 3594-6462 66. The finding of the Commissioner that the export gas has a high calorific value and consequently can be used as fuel, fails to take into consideration the fact that the calorific value of the export gas is low as compared to other waste such as medical waste, paper waste and wood waste. In any view of the matter, the calorific value content cannot form the basis for determining whether an article having a distinct, character and use has emerged as a result of the treatment or manipulation or labour on the raw material. 67. Learned special counsel for the department submitted with reference to an article titled 'Corex operation at Jindal Steel-a success story' by Dwijendra Ghoria, Senior VP, JVSL; Dieter Siuka, VP Iron making Technologies, Helmut Freydorfer, Product Manager, COREX Technology, Friedrich J. Brauer, Project Manager for JVSL COREX Plant with VAI, Gmbh, Austria that the export gas powers the 130MW power plant, of which 50% of the power is supplied to the national power grid. 68. This submission is not only factually incorrect, but is also not relevant for the purpose of r....