TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 1043
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....n 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 the aforesaid five Excise Appeals. FACTS 3. The appellan....
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.... 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 generated in the Melter Gasifier after it has been scrubbed off its impurities, is called export gas and as per the process d....
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....hemicals/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 Pollution Control Board once in six months. (emphasis supplied) 10. The department has demanded central excise duty from the appellant on the clearance of 'export gas' to Jindal and JSW, by seeking to classify the said gas under Tariff Item 2811 29 40 of the Exci....
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....g 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 supply the gas which is predominantly Carbon Monoxide with other essential parameters to meet the purpose of using it as fuel. From this it can be concluded that the assessee was in conscious knowledge that the emanating gas which was removed/sold for consideration, was nothing but Carbon Monoxide with p....
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....le 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 accident in the course of the manufacture of Direct Reduced Iron and the said gas is refuse like dross and skimmings, which are scum and have been held not to be 'manufactured' goods; (ii) In the earlier decision rendered by the Tribunal in the case of the appellant in JSW Steel, neither was any plea raised that no 'manufacture' took place nor was it examined....
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....al 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 arguments and case law on the aspect of excisability of export gas. Paragraph 8 of the order of the Tribunal also shows that the issue of excisability of export gas was considered from the aspects of 'manufacture' and 'marketability'; (iv) The export gas supplied by the appellant to Jindal and JSW for further production, satisfies the twin requirement of excisability, since: (a) It has emerged as a result of a continuous process invo....
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....8 (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 whether only 'marketability' and not 'manufacture' was considered by the Tribunal in the earlier decision, it would be necessary to reproduce the relevant portion of the decision of the Tribunal in JSW Steels and the same is reproduced below: "3. The issue involved in these cases is whether the mixture of gases termed 'export gas' emerging in the assessee's steel plant in the course of manufacture of HR coils is exigible to duty as carbon monoxide under the heading 2811 90 (CSH 2811....
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....mine 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 be deemed to be marketable." 22. 'Manufacture' has been defined in section 2(f) of the Excise Act as: "(f) 'manufacture' includes any process,- (i) incidental or ancillary to the completion of a manufactured product; (ii) which is specified in relation to any goods in the Section or Chapter notes of (the First Schedule) to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or) (iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container o....
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....ketability' 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 the facts of the case before us, the legal position has undergone a change after the decisions were rendered by the High Court and the Supreme Court with regard to aluminium/zinc dross and skimmings. An Explanation has been added to Section 2(d) to provide for a deeming fiction in respect of goods. Secondly, a specific tariff entry has been created in Heading 2620 40 for aluminium dross, which was not the position when the issue was examined earlier by the Hon'ble Apex Court. Therefore, the ratio of these decisions cannot be applied to the facts of the case before us." (emphasis supplied) 26. The Bom....
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....mstances 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 the record. The Tribunal has reached a conclusion, which, no reasonable person in the position and as an adjudicating body could have reached. Its order passed on 19th August, 2014 and applied to the Petitioner's case is quashed and set aside." (emphasis supplied) 27. The aforesaid decision of the Bombay High Court was assailed by the department in a Civil Appeal before the Supreme Court. This Civil Appeal was dismissed by the Supreme Court by the judgment rendered in Union of India vs. Hindalco Industries Limited [2019 (367) E.L.T. A246 (S.C.)], which is reproduced below: "In view of the decision in Union of India vs. DSCL S....
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....cture 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 has necessarily to be seen whether the goods satisfy the requirement of 'manufacture', for only then excise duty can be levied. 31. This aspect was neither urged nor considered by the Tribunal in the decision rendered in the case of the appellant for the previous year in JSW Steels. It cannot, therefore, have a binding precedent on this issue, for a judgment is an authority only on the issue that it decides and not what may logically flow from the decision. This is what was observed by the Supreme Court in Commissioner of Central Excise, Mumbai vs. Fiat India Pvt. Ltd [2012 (283) E.L.T. 161 (S.C.)] and the relevant observations are as follows: "66. *******. We further hold that the decision in Bisl....
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....ssage 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 Supreme Court in S.B. Sugar Mills vs. Union of India [1978 E.L.T. (J 336)]. The Supreme Court again emphasised that for 'manufacture' to take place there must be such a transformation that a new and different article emerges having a distinctive name and character. The relevant observations of the Supreme Court are as follows: "The Act charges duty on manufacture of goods. The word 'manufacture' implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use. The duty is levied on goods. As the Act does not define goods, the legislature must be taken to have used that word in its ordinary, dictionary mean....
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.... 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 refuse or scum may fetch some price in the market does not justify it being clothed with the dignity of being called a by-product, much less an end-product or a finished product. The aluminium ingots were utilised by the Company for the manufacture of the end-product, namely, aluminium sheets and certainly not for the manufacture of scum and refuse like dross and skimmings. Dross and skimmings cannot be called a finished by-product nor can it be said that out of the aluminium ingots it was dross and skimmings, in other words "ashes", that the Company manufactured. Furthermore, the fact that dross and skimmings are not excisable is borne out by the admissions contained in the affidavit-in-reply itself. What also cannot be lost sight of is that the third limb of the proviso refer....
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....d. 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 "goods" or as a commercial and marketable commodity. Dross and skimmings are merely refuse or ashes given out in the course of manufacture, in the process of removing impurities from the raw material. This refuse is quite different from waste and scrap which is prime metal in its own right." (emphasis supplied) 39. In Bajaj Auto Ltd. vs. Commissioner of C. Ex. & Cus., Aurangabad [2015 (322) E.L.T. 419 (S.C.)], the Supreme Court observed that merely because during the course of casting of items/parts of aluminium, ash and dross arise, it cannot be said that 'manufacture' had taken place. The relevant observations of the Supreme Court are as follows: "The issue involved in these appeals is regarding the confirmation of duty on the aluminium dross and aluminium ash that arises during the manufacture of die-casting of ....
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....lectricity, 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 the process of manufacture and the relevant observations of the Supreme Court are as follows: "32. From the above discussion it is clear that to be subjected to levy of excise duty 'excisable goods' must be produced or manufactured in India. For being produced and manufactured in India the raw material should have gone through the process of transformation into a new product by skilful manipulation. Excise duty is an incidence of manufacture and, therefore, it is essential that the product sought to be subjected to excise duty should have gone through the process of manufacture. Cinder cannot be said to have gone through any process of manufacture, therefore, it cannot be subjected to levy of excise duty. 33. The onus to show that particular goods on which excise duty is sought to be levied have gone through the process of manufacture in India is on the reve....
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.... 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 not 'goods' or 'marketable' commodity and cannot be subjected to the levy of excise; (iii) Everything which is sold is not necessarily a marketable commodity known to commerce; and (iv) For being produced and manufactured in India, the raw material should have gone through the process of transformation into a new product by skilful manipulation. Commercially it can no longer be regarded as the original commodity but should be recognized as a new and distant article. Only then 'manufacture' can be said to have taken place. 43. The Commissioner, as noticed above, recorded a finding that the top gas that emerged from the Reduction Shaft was subjected to a refining process for removal of impurities and water by passing the said top gas through Hot Gas Cyclones, Packing Scrubber, Venturi Scrubber and Mist Eliminator so as to obtain the parameters of the gas desired by the customers. The adoption of the said proc....
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....ergo 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 amount to manufacture. According to the appellant, it was only to meet this requirement that it had to work on the top gas. 47. The issue, therefore, that arises for consideration is as to whether the scrubbing of the particulate matter and removal of impurities in the top gas would amount to 'manufacture' of export gas. 48. The top gas that emerges is refuse and can be said to be similar to dross and skimmings, which are scum and are not manufactured goods. The appellant manufactures Direct Reduced Iron and the top gas emerges as a result of process of manufacture of Direct Reduced Iron. Top gas is not a new and different article with a distinctive character or use and merely because top gas may fetch a price after the removal of the impurities would not mean that it has been manufactured. 49. Learned special counsel for the department, however, submitted that top gas has wrongly being compared with dross and skimmings. Learned speci....
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....rticulate 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 submitted that the top gas and the consequent generated export gas had either to be incinerated through a chimney or used alternatively for burning as fuel otherwise the manufacturing activity in the plant would have to be suspended in terms of the conditions laid down by the Ministry of Environment and Forests. It is for this reason that the learned counsel submitted that the appellant had entered into a contract with Jindal and JSW, who had agreed to use such refuse and if they had not used the export gas, the same would have to be burnt by the appellant before releasing it into the atmosphere. 54. This submission deserves acceptance. It is difficult to comprehend why export gas, which otherwise would have to be flared up and which has almost the same content of Carbon Monoxide as top gas has, can be considered to be a manufactured product merely because the top gas has been subjected to a process of scrubbing for removing the particulate matter and wa....
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....a 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 336 (S.C.)], examined whether Carbon Dioxide which was generated in the process of carbonization of sugar was a 'manufactured' gas. After noticing that for 'manufacture' there has to be a transformation that results in emergence of a new and different article having a distinctive name, character and use, the Supreme Court observed that in the process of carbonization, limestone is burnt with coke in lime kiln with a regulated amount of air, which generates a mixture of gases consisting of Carbon Dioxide, Nitrogen, Oxygen and quantities of Carbon Monoxide. The gas so produced is sucked by a pump and compressed therein, before being led into the tank containing the sugarcane juice. The department sought to tax the gas generated on the burning of coal as Carbon Dioxide. The Supreme Court held that it was incorrect to suggest that because the sugar manufacturer needed Carbon Dioxide for carbonization process and had accordingly set up a kiln for the same, the mixture of ....
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....ve cleared the top gas to Jindal and JSW without removing particulate matter or water to meet the contractual obligation. A further process was required to be undertaken by the appellant to meet the environmental laws. 63. It is, therefore, not possible to sustain the findings recorded by the Commissioner that since the top gas was subjected to processes for removal of impurities, it would amount to 'manufacture'. To arrive at this conclusion, the Commissioner has emphasized that since the export gas becomes 'marketable' it would indicate existence of manufacture. As noticed above, the Commissioner was first required to examine whether 'manufacture' had actually taken place and a conclusion could not have been drawn that because it was 'marketable' it would mean that manufacture had taken place. The Commissioner also heavily relied on the fact that the export gas was 'nothing but Carbon Monoxide', which conclusion is evidently incorrect since the export gas had only 47.02% of Carbon Monoxide. The Commissioner also proceeded to observe that manufacture had taken place since Carbon Monoxide falls under Tariff Item 2811 29 40 of the Excise Tariff and the Tribunal had earlier held in ....
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....resolving the controversy involved in these appeals. The said submission omits reference to 'Coal Fines', which according to article are also used for generation of power. The relevant extract of the article is reproduced below: "Both are powered using COREX Export gas and Coal Fines. About 50% of the generated electricity is supplied to the national power grid and the remainder is used within the steelworks and for the operation of the oxygen plant......" 69. It is not only the export gas, but also Coal Fines which are used in generation of power in the power plant. In any case, the article has no bearing on the determination of the question as to whether export gas is a manufactured product. 70. Learned special counsel for the department also submitted, based on the said article, that export gas generates 40% of the power required by the appellant plant. This factual position is not borne out from the article since what has been stated in the article is that more than 40% of the total energy input in the COREX process is subsequently available as export gas. What has been stated is that out of the total energy required for manufacture of steel about 40% of the energy value is....