Pr. Commissioner of Central Tax Vs Maruti Ispat And Energy Pvt Ltd. (CESTAT Hyderabad)
Marketability Alone Cannot Make Incidental Waste Excisable; Dolochar and Fly Ash Without Manufacture Not Excisable; Sponge Iron Waste Not Excisable Merely Because Marketable; Manufacture Essential for Excise Duty on Waste Materials; Excise Demand on Dolochar, Fly Ash and Iron Fines Quashed: CESTAT Hyderabad
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Summary: The CESTAT Hyderabad dismissed the Department’s appeal against the order of the Commissioner (Appeals) setting aside Central Excise duty of Rs. 1,91,54,979/-, interest and penalties demanded from the respondent, a manufacturer of sponge iron falling under tariff item 72031000. During manufacture, dolochar, fly ash, waste material and iron ore fines emerged and were cleared without payment of duty. The Department treated these materials as marketable excisable goods and issued a Show Cause Notice dated 04.02.2016 for the period April 2010 to January 2015. The Adjudicating Authority confirmed the demand with interest and penalty under Section 11AC of the Central Excise Act, 1944 and imposed personal penalties upon the Managing Director and authorised signatory under Rule 26 of the Central Excise Rules, 2002. The Commissioner (Appeals), however, held that the disputed materials did not arise from any process of manufacture and set aside the entire demand, leading to the Department’s appeal before the Tribunal.
The Tribunal identified the principal issue as whether dolochar, fly ash, iron ore fines and other waste materials arising incidentally during manufacture of sponge iron could be subjected to Central Excise duty merely because they were marketable and mentioned in the tariff. It held that manufacture or production is the foundational taxable event under Section 3 of the Central Excise Act. Although the explanation to Section 2(d) expands the concept of “goods” and marketability to include articles, materials or substances capable of being bought and sold for consideration, it does not dispense with the independent statutory requirement of manufacture or production. Marketability and manufacture are separate conditions, and existence of one does not establish the other.
Relying upon Moti Laminates Vs Collector of Central Excise, Ahmedabad, Union of India Vs Ahmedabad Electricity Company Ltd., Union of India Vs DSL Sugar Ltd. and Hindalco Industries Ltd. Vs Union of India, the Tribunal reiterated that specification in a tariff entry, marketability or sale value cannot by itself make a material excisable unless it has emerged through manufacture. In respect of dolochar, the Tribunal found that it was partially burnt coal or coal char remaining in the rotary kiln during manufacture of sponge iron and arose inevitably rather than through an independent process undertaken to manufacture dolochar. It also referred to M/s Alok Steel Industries Pvt Ltd., Principal Commissioner Vs Jharkhand Ispat Ltd. and M/s kaushal Ferro Metals (P) Ltd. Vs Commissioner of CGST & Central Excise as supporting the proposition that dolochar generated during manufacture of sponge iron is an inevitable residue rather than a manufactured product.
As regards fly ash, the Tribunal observed that it comes into existence upon burning coal and is collected through pollution-control equipment. Burning coal for generation of heat or power is not a process undertaken to manufacture fly ash. Ahmedabad Electricity Company Ltd., CBEC Vs Mettur Thermal Power Station and Principal Commissioner of Central Tax, Rangareddy – GST Vs ITC Ltd. were relied upon. The Tribunal further held that the respondent’s subsequent payment of duty on fly ash could not constitute an admission contrary to the correct legal position, since there can be no estoppel against law.
For iron ore fines, the Tribunal found no material showing that the respondent undertook beneficiation, enrichment or another process resulting in emergence of a new and distinct product. Mere handling, screening, segregation or size reduction did not by itself amount to manufacture. Tarini Prasad Mohaty Vs Commissioner of CGST & CE, Bhubaneswar was referred to for the proposition that crushing and screening of iron ore involving merely size reduction and segregation without beneficiation or enrichment does not amount to manufacture of iron ore concentrate. BLOP Steels & Power Pvt Ltd., Deccan Enterprises Pvt Ltd., Jai Balaji Industries Ltd. and Hariyana Steel and Power were also relied upon in relation to incidental scrap and waste materials.
The Tribunal additionally considered the respondent’s alternative claim concerning dolochar under Notification No. 4/2006-CE dated 01.03.2006 and Notification No. 12/2012-CE dated 17.03.2012. It held that if the Department sought to classify dolochar under Chapter 26 as waste arising from manufacture of sponge iron, the concerned unconditional exemption covering “slag, dross, scaling and other waste from the manufacture of iron or steel” could not be denied. Thus, even on the alternative assumption that dolochar was excisable, no effective duty liability would arise for the relevant period subject to classification under that chapter. However, this was only an alternative ground because the Tribunal had already found that dolochar did not emerge as a result of manufacture.
On limitation, the Tribunal noted that the dispute concerned excisability of unavoidable waste and residues and had been the subject of divergent administrative views and extensive litigation. The Show Cause Notice itself relied upon Board Circular No. 904/24/2009-CX dated 28.10.2009, which was subsequently rescinded by Circular No. 1027/15/2016-CX dated 25.04.2016. These circumstances demonstrated the interpretational nature of the dispute. In the absence of evidence of fraud, collusion, wilful misstatement or suppression with intent to evade duty, the extended period could not be invoked. The Tribunal relied upon CCE Vs Chemphar Drugs & Liniments and Continental Foundadtion Jt. Venture Vs CCE, Chandigarh – I. Consequently, the demand failed both on merits and limitation; interest under Section 11AA, penalty under Section 11AC and personal penalties under Rule 26 also could not survive. Finding no infirmity in the Commissioner (Appeals)’ conclusion, the Tribunal dismissed the Department’s appeal and disposed of the respondent’s cross-objection in the same terms.
Cases Discussed
- Moti Laminates Vs Collector of Central Excise, Ahmedabad, 1995 (76) E.L.T. 241 (SC) — Mere specification of an article in the tariff is insufficient unless it emerges as a result of manufacture.
- Union of India Vs Ahmedabad Electricity Company Ltd., 2003 (158) E.L.T. 3 (SC) — Cinder resulting from burning coal was held not to be a manufactured product.
- Union of India Vs DSL Sugar Ltd., 2015(322) E.L.T. 769 (SC) — Waste or residue inevitably arising during manufacture cannot be subjected to duty unless it emerges through a process amounting to manufacture.
- Hindalco Industries Ltd., Vs Union of India, 2015 (315) E.L.T. 10 (Bom), affirmed in 2019 (367) E.L.T. A246 (SC) — Refuse or waste arising during manufacture cannot be treated as excisable merely because it possesses sale value.
- M/s Alok Steel Industries Pvt Ltd., Vs CCE — Relied upon on the non-excisability of dolochar generated as an inevitable residue during manufacture of sponge iron.
- Principal Commissioner Vs Jharkhand Ispat Ltd., 2021 (378) E.L.T. 802 (Tri.-Kol.) — Relied upon regarding dolochar arising during manufacture of sponge iron.
- M/s kaushal Ferro Metals (P) Ltd., Vs Commissioner of CGST & Central Excise, 2026 (3) TMI 904 – CESTAT Kolkata — Relied upon for the principle that dolochar generated during sponge iron manufacture does not emerge through an independent manufacturing process.
- CBEC Vs Mettur Thermal Power Station, 2017 (349) ELT 708 (Mad.) — Fly ash arising during electricity generation was held not to be a manufactured commodity.
- Principal Commissioner of Central Tax, Rangareddy – GST Vs ITC Ltd., 2026 (8) TMI 515, CESTAT, Hyderabad — Fly ash emerging from burning coal in a captive power plant was held not excisable.
- Tarini Prasad Mohaty Vs Commissioner of CGST & CE, Bhubaneswar, 2026 (7) TMI 84 CESTAT Kolkata — Crushing and screening involving size reduction and segregation without beneficiation or enrichment does not amount to manufacture of iron ore concentrate.
- BLOP Steels & Power Pvt Ltd., Vs Commissioner of Central Tax, Tirupati – GST, 2023 (7) TMI 1172 – CESTAT Hyderabad — Relied upon regarding incidental scrap and waste materials.
- Deccan Enterprises Pvt Ltd., Vs Commissioner of Central Tax & Central Excise Medchal – GST, 2023 (4) TMI 1327 – CESTAT Hyderabad — Relied upon regarding incidental scrap and waste materials.
- Jai Balaji Industries Ltd., Vs Commissioner of Central Excise, Raipur, 2017 (346) E.L.T. 227 (Tri.-Del.) — Relied upon regarding incidental waste materials.
- Hariyana Steel and Power Vs Commissioner of Central Excise, Mysore, 2015 (325) ELT 400 (Tri.-Bang.) — Relied upon regarding incidental waste materials.
- CCE Vs Chemphar Drugs & Liniments, 1989 (40) E.L.T. 276 (SC) — Relied upon on the requirement of the requisite intent for invocation of the extended period.
- Continental Foundadtion Jt. Venture Vs CCE, Chandigarh – I, 2007 (216) E.L.T. 177 (SC) — Relied upon on the requirement of intentional suppression for invoking the extended period.
FULL TEXT OF THE ORDER OF CESTAT HYDERABAD
1. The Department has filed the present appeal against Order-in-Appeal dated 31.01.2018, whereby, Commissioner (Appeals), set aside the demand of Central Excise duty of Rs. 1,91,54,979/-, along with interest and penalties, confirmed against the respondent by Order-in-Original dated 26.12.2016.
2. The fact in brief is that the respondent is engaged in the manufacture of sponge iron falling under tariff items 72031000 of the Central Excise Tariff. During the course of manufacture, certain materials, namely dolochar, fly ash, waste material and iron ore fines, emerged and were cleared without payment of duty. The Department entertained the view that these materials were marketable excise goods and, accordingly, issued the Show Cause Notice dated 04.02.2016 covering the period from April, 2010 to January, 2015.
3. The Adjudicating Authority held the disputed materials to be excisable and confirmed the duty demand with interest and penalty under Section 11AC of the Central Excise Act, 1944. Personal penalties were also imposed upon Managing Director and the authorized signatory under Rule 26 of the Central Excise Rules, 2002. On appeal, the Commissioner (Appeals), held that the disputed materials did not arise as a result of any process of manufacture and consequently set aside the entire demand, interest and penalties. Hence the present appeal by the Department.
4. Learned Authorized Representative submits that the disputed goods have distinct names, possess commercial utility are regularly sold for consideration and are a specifically covered by tariff entries. In view of the explanation added to Section 2(d) of the Central Excise Act, any article capable of being bought and sold for consideration is deemed to be marketable. It is further submitted that the respondent itself subsequently started paying duty on fly ash and ESP dust, which establishes their excisability. The Commissioner (Appeals), therefore, erred in setting aside the adjudication order.
5. Learned Counsel for the respondent reiterates the impugned order. It is submitted that levy under Section 3 of the Central Excise Act is attracted only when the goods emerge as a result of manufacture or production. Marketability or the existence of a tariff entry cannot substitute the indispensable of requirement of manufacture. Dolocahr, fly ash iron ore fines and other waste materials emerge inevitably during the manufacture of sponge iron and are not products manufactured by the respondent.
6. It is further submitted that dolochar, even if treated as excisable, is unconditionally exempt under Notification No. 4/2006-CE dated 01.03.2006 and Notification No. 12/2012-CE dated 17.03.2012 as waste arising from the manufacture of iron or steel. The respondent also contest the invocation of the extended period on the ground that the issue is interpretational and all relevant facts were reflected in its statutory and other records.
7. Heard both the sides and perused the record.
8. The principal issue before us is whether dolochar, fly ash, iron ore fines and other waste materials arising incidentally during the manufacture of sponge iron can be subjected to Central Excise duty merely because they are marketable and find mention in the tariff.
9. Section 3 of the Central Excise Act levies duty of excise goods manufactured or produced in India. Thus, manufacture or production is the foundational taxable event. For an activity to amount to manufacture, it must result in the emergence of a new and distinct commodity having a name, character or use different from the material from which it is produced. The burden of establishing the existence of such manufacture lies upon the Department.
10. The explanation to Section 2(d) expands the concept of “goods” and marketability by including an article, material or substance capable of being bought and sold for consideration. It does not, however, dispense with the independent statutory requirement that the goods must be manufactured or produced. Marketability and manufacture which separate conditions and the existence of one does not establish the other.
11. The Hon’ble Supreme Court in Moti Laminates Vs Collector of Central Excise, Ahmedabad, 1995 (76) E.L.T. 241 (SC), held that mere specification of an article in the tariff is not sufficient unless the article has emerged as a result of manufacture. The same principle was relied in Union of India Vs Ahmedabad Electricity Company Ltd., 2003 (158) E.L.T. 3 (SC), wherein cinder resulting from the burning of coal was held not to be a manufactured product. In Union of India Vs DSL Sugar Ltd., 2015(322) E.L.T. 769 (SC), the Hon’ble Supreme Court held that waste or residue arising inevitably during the manufacture of another product cannot be subjected to duty unless it is shown to have emerged through a process amounting to manufacture. Similarly, in Hindalco Industries Ltd., Vs Union of India, 2015 (315) E.L.T. 10 (Bom), affirmed by the Hon’ble Supreme Court as reported in 2019 (367) E.L.T. A246 (SC), it was held that refuse or waste arising during manufacture cannot be treated as excisable merely because it possesses some sale value.
12. Dolochar
Dolochr is the partially burnt coal or coal char remaining in the rotary kiln during the manufacture of sponge iron. It emerges inevitability and is not the result of any independent process undertaken to manufacture dolochar.
The fact that it may subsequently be sold as a low-grade fuel does not establish that the respondent manufactured a new and distinct commodity.
13. The issue is directly covered by the decisions in M/s Alok Steel Industries Pvt Ltd., Vs CCE, Principal Commissioner Vs Jharkhand Ispat Ltd., 2021 (378) E.L.T. 802 (Tri.-Kol.) and M/s kaushal Ferro Metals (P) Ltd., Vs Commissioner of CGST & Central Excise, 2026 (3) TMI 904 – CESTAT Kolkata. It has consistently been held that dolochar generated during the manufacture of sponge iron is an inevitable residue and does not emerge from any independent manufacturing process. We see no reason to take a different view.
14. Fly ash
Fly ash comes into existence upon the burning of coal and is collected through pollution control equipment. Burning coal to generate heat or power cannot be regarded as a process under taken for the manufacture of fly ash. In Ahmedabad Electricity Company Ltd., supra, the Hon’ble Supreme Court held that the combustion of coal does not amount to manufacture of the residue resulting there from. In CBEC Vs Mettur Thermal Power Station, 2017 (349) ELT 708 (Mad.), it was similarly held that fly ash arising during the generation of electricity is not a manufactured commodity. The decision of this Tribunal in Principal Commissioner of Central Tax, Rangareddy – GST Vs ITC Ltd., 2026 (8) TMI 515, CESTAT, Hyderabad also reiterates that fly ash emerging from the burning of coal in a captive power plant is not excisable.
15. Thus, the mere fact that fly ash is capable of being sold or is specified in a tariff entry cannot establish manufacture. The respondent’s subsequent payment of duty, evidently made as a matter of caution, cannot constitute an admission contrary to the correct legal position. There can be no estoppel against law.
16. Iron ore fines and other waste materials
Iron ore fines arise through handling, screening or segregation of iron ore. There is no material on record showing that the respondent undertook benefication, enrichment or any other process by which a new and distinct product emerged. The mere reduction or segregation according to size does not, by itself amount to manufacture. In Tarini Prasad Mohaty Vs Commissioner of CGST & CE, Bhubaneswar, 2026 (7) TMI 84 CESTAT Kolkata, it was held that crushing and screening of iron ore, resulting merely in size reduction an segregation without beneficiation or enrichment, does not amount to manufacture of iron ore concentrated. The same principle applies to the iron ore fines involved in the present proceedings. Likewise, in the absence of evidence establishing a process resulting in a commercially distinct commodity, scrap and other waste materials arising incidentally during manufacture cannot be subject to duty. The decisions in BLOP Steels & Power Pvt Ltd., Vs Commissioner of Central Tax, Tirupati – GST, 2023 (7) TMI 1172 – CESTAT Hyderabad, Deccan Enterprises Pvt Ltd., Vs Commissioner of Central Tax & Central Excise Medchal – GST, 2023 (4) TMI 1327 – CESTAT Hyderabad, Jai Balaji Industries Ltd., Vs Commissioner of Central Excise, Raipur, 2017 (346) E.L.T. 227 (Tri.-Del.), Hariyana Steel and Power Vs Commissioner of Central Excise, Mysore, 2015 (325) ELT 400 (Tri.-Bang.) support this conclusion.
17. The Department has not identified any particular process undertaken for manufacture of the disputed waste materials. Nor has it established the emergence of commodities having a character and use fundamentally different from the original inputs. Its case rests substantially upon marketability, sale for consideration and the existence tariff entries. These considerations, in the absence of manufacture, cannot sustain the levy.
18. Exemption available to dolochar
Even otherwise, the respondent has claimed the dolochar falls under chapter 26 as waste arising from the manufacture of iron or steel and is covered by Serial No. 6 of Notification No. 4/2006 – CE dated 01.03.2006 and, for the subsequent period, Serial No. 57 of Notification No. 12/2012-CE dated 17.03.2012.
19. The exemption entries cover “slag, dross, scaling and other waste from the manufacture of iron or steel” falling under chapter 26. If the Department seeks to classify dolochar under chapter 26 as waste arising from the manufacture of sponge iron, the concerning unconditional exemption cannot be denied. Therefore, even on the alternative assumption that dolochar is excisable, no effective duty liability would arise for the relevant period, subject to its classification under the said chapter. However, in view our finding that dolochar does not emerge as a result of manufacture, the exemption issue is only an alternative ground supporting the impugned order.
20. Limitation and penalty
The dispute concerns the excisability of unavoidable waste and residues and has remained the subject matter of divergent administrative views and extensive ligation. The Show Cause Notice itself proceeded on the basis of Board Circular No. 904/24/2009-CX dated 28.10.2009, which was subsequently rescinded by Circular No. 1027/15/2016-CX dated 25.04.2016. The existence of such administrative classification, its subsequent withdrawal and the considerable judicial debate demonstrate that the dispute was interpretational in nature. There is no evidence of any positive act of fraud, collusion, wilful, mis-statement or suppression of facts with intent to evade duty. Mere non-payment of duty without proof of requisite intent, cannot justify the extended period, as held in CCE Vs Chemphar Drugs & Liniments, 1989 (40) E.L.T. 276 (SC) and Continental Foundadtion Jt. Venture Vs CCE, Chandigarh – I, 2007 (216) E.L.T. 177 (SC).
21. Consequently, the invocation of the extended period is also unsustainable. Since, the demand itself fails on merits as well as of limitation, the question of recovery of interest under Section 11AA or imposition of penalty under Section 11AC does not arise. The personal penalties imposed upon company’s officers under Rule 26 also cannot survive in the absence of any established liability or deliberate contravention.
22. In view of the forgoing discussion, we find no infirmity in the conclusion reached by the Commissioner (Appeals), that the disputed materials are not liable to Central Excise duty. The impugned Order-in-Appeal therefore, calls for no interference.
23. Accordingly, the appeal filed by the Department is dismissed. The cross-objection filed by the respondent are disposed of in the above terms.
(Pronounced in the open court on 10.09.2026 )
