Top gas is refuse and cannot be held to be manufactured goods

JSW Steel Limited Vs Commissioner of Central Excise (CESTAT Bangalore)

CESTAT Bangalore held that top gas is refuse like dross and skimmings which are merely scum thrown out in the manufacture of aluminium sheets and have been held not to be “manufactured” goods.

Facts- JSW Steel Limited is engaged in the manufacture of Hot Rolled Coils, Sheets, Plates and Direct Reduced Iron. The appellant claimed that it had become necessary to remove the impurities from the top gas which had emerged from the Reduction Shaft during the process of manufacture to ensure compliance with the directions issued by the Ministry of Environment and Forests. The top gas, according to the appellant, is refuse like dross and skimmings which are merely scum thrown out in the manufacture of aluminium sheets and have been held not to 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 the removal of impurities even if the export gas was supplied to Jindal Praxair Oxygen Company Pvt. Ltd. and JSW Energy Limited.

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 of 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.

Conclusion- Held that top gas is refuse and has not been manufactured. Merely because impurities have to be removed to comply with the conditions set out in the letter granting permission to the appellant to ensure the protection of the environment, the refuse will not change its character and will continue to be refuse. It cannot be urged that a new product having a distinct name would emerge after removal of impurities and the product will continue to be refused.

Held that the process undertaken on the top gas for removal of impurities to satisfy not only the conditions set out in the letter granting permission to the appellant for continuation and expansion of its manufacturing facilities but also to ensure compliance of the process design of the Technology supplier would not result in ^„manufacture^‟ of the export gas. The Commissioner was, therefore, not justified in confirming the demand.

FULL TEXT OF THE CESTAT BANGALORE ORDER

JSW Steel Limited, Bellary¹ is engaged in the manufacture of Hot Rolled Coils, Sheets, Plates and Direct Reduced Iron. The appellant claims that it had become necessary to remove the impurities from the top gas which had emerged from the Reduction Shaft during the process of manufacture to ensure compliance of the directions issued by the Ministry of Environment and Forests. The top gas, according to the appellant, is refuse 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.² and JSW Energy Limited³. 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 appellant is engaged in the manufacture of Hot Rolled Coils, Sheets, Plates and Direct Reduced Iron falling under Chapter 72 of the Excise Tariff Act, 1985⁴. Direct Reduced Iron can be manufactured using Blast Furnace Technology as also Corex Technology. The appellant, during the relevant period from February 2009 to June 2012, had two functional C-2000 Corex Modules that operated on patented technology of VAI, Austria. The two reactors of the Corex Module are Reduction Shaft and Melter Gasifier.

4. In the Reduction Shaft, the volume of which is 600m³, Iron ore, pellets and additives (limestone and dolomite) are continuously charged through a lock hopper system located on top of the Shaft. The same reacts with Carbon Monoxide and Hydrogen content of the reduction gas generated in the Melter Gasifier for reducing the Iron ore to Iron. The said reduction gas has a temperature of around 850⁰C and a pressure of over 3 bar gauge. The same is injected in the Reduction Shaft through a Bustle located 5 meters above the bottom of the Reduction Shaft. The composition of the reduction gas is broadly as follows:

Carbon Monoxide	67.99 %
Carbon-Dioxide	6.48 %
Hydrogen	21.01 %
Methane	1.62 %

5.In the Melter Gasifier, the volume of which is 2200m³, coal is fed directly into the dome through a lock hopper system and is converted to char (fixed carbon and ash) at temperatures in the range of 1000-1500⁰ Oxygen is blown into the Melter Gasifier where it reacts with the coal, generating reduction gas which is a mixture of, amongst others, Carbon Monoxide (67.99%) and Hydrogen (21%). The heat generated in the Melter Gasifier is utilized for melting Iron and slag and also for other metallurgic reactions in the Melter Gasifier, which receives hot Direct Reduced Iron from the Reduction Shaft. The reduction gas generated in the Melter Gasifier contains fine dust particles, which are separated in Hot Gas cyclone and are recycled back to the Melter Gasifier. After the dust fine particles 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 250⁰ 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 design of the Technology supplier is required to be flared off at the top of the tall chimney ends. The appellant, however has some group companies within the vicinity of its manufacturing facility, which are in a position to utilize the ^„export gas^‟, the composition of which broadly is as follows:

Carbon Monoxide	47.02 %
Carbon-Dioxide	30.68 %
Hydrogen	18.45 %
Methane	1.62 %

8. The composition, in percentage, of the gas in different stages in the plant, as furnished by the appellant is as follows:

	Reduction Gas		Top Gas		Export Gas
Carbon Monoxide	67.99	%	45.79	%	47.02	%
Hydrogen	21.01	%	18.28	%	18.45	%
Carbon-Dioxide	6.48	%	31.70	%	30.68	%
Methane	1.62	%	1.61	%	1.62	%

9. The appellant claims that the permission granted to the appellant by the Ministry of Environment and Forests in the letter dated 19.01.2001, in relation to the continuation and expansion of its manufacturing facility, is subject to certain general and specific conditions and it is because of these conditions it was imperative for the appellant to remove the impurities from the top gas, otherwise the plant would have to be shut down. The relevant stipulations mandating the removal of particulate matter and other impurities from the top gas generated during the manufacturing process are as follows:-

SPECIFIC CONDITIONS:

i. At no time the emission level should go beyond the prescribed standards. In the event of failure of any pollution control system adopted by the unit. the respective unit should not be restarted until the control measures are rectified to achieve the desired efficiency.

ii. The off gases from Corex Plant should be cleaned in venturi scrubbers. Electrostatic precipitator (ESPs) with operation efficiency of not less than 99.80 should be provided and the gas cleaning devices in combined process gas in the pelletization plan should be designed so as to limit the emissions of particulate below 150 Mg/Nm^³ 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 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 Excise Tariff Act as Carbon Monoxide. According to the appellant, the removal of impurities from the top gas that emerged from the Reduction Shaft would not amount to manufacture and, therefore, central excise duty could not have been levied on the export gas.

SHOW CAUSE NOTICE

11. Five show cause notices were issued to the appellant alleging that the processes to which the top gas had been subjected to would amount to manufacture and so the export gas would be excisable. The relevant portion of the allegations made in one such show cause notice dated 26.02.2010 are reproduced below:

“2.2 Processing of Reduction gas, Top gas and Export gas amounts to manufacture

It is evident from the technical write up as well as the evidence on record that both the Reduction gas and Top gas are processed for removal of impurities and water by passing the said gases through hot gas cyclone, Packing Scrubber, Venturi Scrubber, and Mist eliminator. As a result, the said gases are no longer the same gases that emanated from the respective reactors. The gases have undergone change in their composition after the processes of refining that they are subjected to, in order to meet the specific requirements of the purchaser’s M/s JSWE and M/s JPOCL. This COREX Gas is supplied as per the specifications detailed in the respective schedules of the respective Agreements (Annexure C2 -C3). Thus, the processes involved in the processing of the said gases, it appears, fall within the scope of definition of manufacture in Section 2(f) of Central Excise Act (‘CEA’), 1944. Further, the said processed Top gas, is mixed with processed Reduction gas, to produce Export gas. Thus, it appears to be evident that the processes, that the said gases are subjected to amount to manufacture and the said Export gas are cleared as fuel which is excisable.”

(emphasis supplied)

12. Similar allegations have been made in the subsequent four show cause notices.

13. The appellant filed detailed replies to each of the aforesaid show cause notices and contended that the ^„export gas^‟ was not manufactured goods and so excise duty could not be levied.

ORDER OF COMISSIONER

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 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 permissible impurities. The removal of the gas through pipeline out of the assessee factory itself establishes the moveability and the recurring sale transactions against monetary benefits establish the marketability of the gas. The Agreement and its related transactions are in the ordinary course of trade and these transactions are not in isolation or accidental. Therefore, I am not inclined to accept the assessee’s contention in this regard. I also find from, the technical details furnished by the assessee and confirmed by the statements of the persons concerned that the Corex gas is not supplied to their customers in the same form in which it emerged in the process of manufacture of iron. It is also evident that the emerged gas was subjected to refining processes for removal of impurities and water by passing the said gas through hot gas cyclone, packing scrubber, venture scrubber and mist eliminator so as to obtain the desired composition of the gas as per the parameters prescribed by their customers in the said Agreement. The adoption of the said processes so as to bring about the desired changes and to make the product marketable is clearly indicative of existence of manufacture which is essential factor for levy of duty.

32 The assessee has claimed that the gas being supplied is an off gas and their case is covered by the Hon’ble Tribunal decision in the case of Phillip Carbon Black Ltd Vs CCE, 1999 (111) ELT 835 and other similar decisions. The contention of the assessee is not acceptable as the Corex gas after its emergence in the furnace is subjected to various processes to obtain desired Carbon Monoxide as per the sale agreement and the same is being sold to their customers against monetary consideration.

38. In the instant case the Corex gas having essential character and use as that of carbon monoxide, merit classification under heading 28112940.

40. My predecessor has already held vide OIO No. 02/2008 dated 05.03.2008 issued from file C. No.V/72/15/39/2006 Adjn that 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 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 or decided by the Tribunal. It would, therefore, be open to the Tribunal to examine this issue in the present appeals;

(iii) In view of the settled position in law, mere marketability of a product is not enough for levy of central excise duty even consequent to the addition of the Explanation in the definition of ^„excisable goods^‟ in section 2(d) of the Excise Act, 1944⁵e.f. 16.05.2008;

(iv) The issue as to whether any ^„manufacture^‟ took place goes to the root of the matter and in the absence thereof central excise duty cannot be levied even if the product is marketable;

(v) Export gas was not manufactured by the appellant and so excise duty cannot be levied. The Commissioner committed an error in recording a finding that the export gas on which duty of excise has been demanded had been subjected to a process of manufacture since the gas that emerged from the furnace had been subjected to a refining process for removal of impurities so as to obtain the parameters of the gas desired by the customers;

(vi) The processing of the top gas which emerges from the the Reduction Shaft for removing the impurities before being released in the atmosphere is a mandatory requirement because of the directions issued by the Ministry of Environment and Forests;

(vii) The scrubbing of the top gas was not undertaken to meet the contractual specifications of Jindal and JSW, but to ensure compliance of the environmental norms in case the said gas was to be released in the atmosphere;

(viii) The burden to prove that manufacture had taken place was on the department, which burden has not been discharged; and

(ix) The Commissioner completely misread the statement of Dharmendra Gupta to hold that Corex Technology is designed in such a way to tap the emergent gas and to process it in the auxiliary plant so as to produce commercially viable Carbon Monoxide as a final

16. Shri P.R.V. Ramanan, learned special counsel for the department 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 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 involving more than one process of manufacture and it is a product which is new and different from the inputs or the raw materials, namely coal and oxygen, with which the process started in the Melter Gasifier and

(b) It is admittedly a gas with high calorific value and as stated in the Technical write-up supplied by the appellant, it is suitable for a wide-range of applications including power generation, production of Direct Reduced Iron, use as fuel gas in iron and steel plant, production of fertilizers and chemicals. Thus, export gas satisfies the criterion of marketability;

(v) The submission of the appellant that expot gas is nothing but refuse and is of the nature of ^„scum^‟ or ^„rubbish^‟ is not correct. Export gas has also wrongly been compared with Aluminium dross and skimmings, Zinc dross and skimmings, Cinder and Bagasse:

(vi) The export gas supplied to Jindal and JSW, after going through a series of processes, though with a reduced Carbon Monoxide content, still has predominant wide applications. Thus, it meets the twin requirements of ^„manufacture^‟ and ^„marketability^‟, unlike Aluminium dross and skimmings, Zinc dross and skimmings, Cinder and Bagasse; and

(vii) Paragraph 8 of the show cause notice refers to two articles, one co-authored by an employee of the suppliers of Corex Technology and the other by the employee of the appellant. The first article refers to export gas as a high quality product, that is used for heating, generation of power and Direct Reduced Iron production. It would, therefore, be incorrect to regard export gas as an ^„off gas^‟ or ^„waste gas^‟. In the second

article, it is stated that more than 40% of the total energy input in the corex process is subsequently available as valuable export gas and that the economy of the process is strongly enhanced when the export gas is put to use in the possible ways of its application.

DISCUSSION

17. Learned 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. Commissioner of C. Ex., Belgaum⁶, 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 24 90 from 28.02.05) as held in the impugned orders.

8. We find that the said certificates are not an impediment to a reasoned finding that the mixture of gases emerging in the process of production of iron is further processed by the assessee to produce export gas which is liable to excise duty under an appropriate entry in the tariff. On classification, we find the plea that Section heading of Section VI covers goods of chemical or allied industries and therefore export gas cannot be classified under chapter 28 of Section VI to be without merit. As per the interpretive Rule 1 of Central Excise Tariff Act, 1985, section headings are for ease of reference and do not have statutory force. Impugned orders establish that the impugned goods fetch considerable price and there are regular buyers. We find that the product is not marketed as carbon monoxide is no legal hurdle to classify it under the entry for carbon monoxide if the item conforms to the description of that entry. In the instant case the impugned gas is a manufactured product and has a market. The product is known to the trade dealing in it. From the agreements entered into by JSW for sale of EG, we find that the parties dealing in the product call it corex gas. The gas has well defined parameters/ specification and fits the description in the relevant entry. We therefore find that this ground raised by the assessee has no merit.

 11.2 The subject gas is not a non­descript mixture without particular applications but a valuable product rendered marketable by the assessee as a potent fuel. The same is known among concerned trade circles. It is not similar to kiln gas referred to in the above judgment; the ratio therefore does not apply.”

(emphasis supplied)

19. It is seen from the aforesaid decision that the Tribunal had only examined 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 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 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 or labeling or re-labelling of containers including the declaration or alteration of ratail sake price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, and the word ^„manufacturer^‟ shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods but also any person who engages in their production or manufacture on his own account.”

23. Section 3 of the Excise Act provides that there shall be levied and collected in such manner as may be prescribed a duty of excise on all ^„excisable goods^‟ (excluding goods, produced on manufacture in special economic zones) which are produced or manufactured in India as, and at the rates, set for in the First Schedule to the Excise Tariff Act.

24. The issue, therefore, that arises for consideration is whether mere marketability of a product is enough for levy of central excise duty in view of what is contained in the Explanation to the definition of ^„excisable goods^‟ in section 2(d) of the Excise Act w.e.f. 10.05.2008 or is it necessary that ^„manufacture^‟ must necessarily also take place.

25. This issue was examined by the Bombay High Court in Hindalco Industries Limited vs. Union of India⁷. The decision rendered by a Larger Bench of the Tribunal in Hindalco Industries Limited vs. C.C. E., Belapur, Mumbai-III⁸ was assailed in a Writ Petition before the Bombay High Court. The issue that had arisen before the Larger Bench of the Tribunal was whether aluminium dross and skimmings or similar non-ferrous metal dross and skimmings, which arise in the process of manufacture of aluminium/non-ferrous metal products can be considered as ^„manufactured^‟ goods and hence, 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 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 Bombay High Court, in view of the decisions of the Supreme Court in Union of India vs. Ahmedabad Electricity Co. Ltd.⁹, Collector of Central Excise, Patna vs. Tata Iron & Steel Co. Ltd.¹⁰ and Grasim Industries Ltd. vs. Union of India¹¹ held that when the Supreme Court had held that the conditions contemplated under section 2(d) and section 2(f) of the Excise Act have to be satisfied conjunctively in order to entail imposition of excise duty under section 3 of the Excise Act, the Tribunal committed an error in holding otherwise and the relevant observations of the Bombay High Court are as follows:

“21. We do not see how, in the light of these authoritative pronouncements of the Hon^‟ble Supreme Court, can the Tribunal take a different view. When the Hon^‟ble Supreme Court holds and as in Grasim Industries Ltd. (supra) 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 Act, then, we cannot agree with the Tribunal. The Larger Bench decision does not take into account the fact that the authoritative pronouncement by the Supreme Court and repeatedly rendered is binding on it. That is law declared under Articles 141 of the Constitution of India. That it is rendered in the case of identical issues, controversy and the Assessee makes these Judgments of the Supreme Court all the more binding. Their binding effect is not lost merely because the Tribunal has another occasion to consider the issue or another shade of the same controversy. So long as there are Supreme Court Judgments in the field, we do not see how the Revenue could have proceeded to disregard 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 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 Hindalco Industries Limited¹², which is reproduced below:

“In view of the decision in Union of India vs. DSCL Sugar Ltd. ¹³, nothing survives for consideration in these Special Leave Petitions and the Civil Appeal. The Special Leave Petitions and the Civil Appeal are dismissed accordingly.”

28. In DSCL Sugar, which has been referred to the aforesaid judgment of the Supreme Court, the Supreme Court held:

“2. All these appeals are filed by the Revenue and the question which arises for consideration is common, namely, whether Bagasse which emerges as residue/waste of sugarcane is subjected to excise duty or not. The excisability of the aforesaid residue depends on the answer to the question as to whether it is manufactured product and falls within the definition of ^„manufacture^‟ as contained in Section 2(f) of the Central Excise Act.

9. The Revenue sought to cover the case under sub-clause (ii) as per which the process which is satisfied in relation to any goods in the Section or Chapter notices of the First Schedule to the Central Excise Tariff Act, 1985 would amount to ^„manufacture^‟. Here again, fiction is created by including those goods as amounting to manufacture in respect of which process is specified in the Section or Chapter notices of the First Schedule.

10. In the present case it could not be pointed out as to whether any process in respect of Bagasse has been specified either in the Section or in the Chapter notice. In the absence thereof this deeming provision cannot be attracted. Otherwise, it is not in dispute that Bagasse is only an agricultural waste and residue, which itself is not the result of any process. Therefore, it cannot be treated as falling within the definition of Section 2(f) of the Act and the absence of manufacture, there cannot 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^‟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 Fiat India Pvt. Ltd¹⁴ and the relevant observations are as follows:

66. We further hold that the decision in Bisleri^‟s case (supra) will also not assist the assessees for the reason that the issue that came up for consideration is entirely different from the legal issue raised in these civil appeals. Before we conclude on this issue, we intend to refer to the often quoted truism of Lord Halsbury that a case is only an authority for what it actually decides and not for what may seem to follow logically from it.”

32. As noticed above, section 3 of the Excise Act provides that there shall be levied and collected in such manner as may be prescribed a duty of excise on all excisable goods which are produced or manufactured in India. Section 2(f) defines ^„manufacture^‟ to include any process which is incidental or ancillary to the completion of a manufactured product; which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Excise Tariff Act as amounting to manufacture; or which in relation to the goods specified in the Third Schedule involves packing or repacking of such goods or re-labeling of containers or adoption of any other treatment on the goods to render the product marketable to the consumer.

33. The contention advanced by the learned counsel for the appellant is that export gas was not manufactured by the appellant and so excise duty cannot be levied.

34. It would be useful, before analyzing the process undertaken by the appellant, to examine certain decisions to find out what exactly is ^„manufacture^‟.

35. In Union of India vs. Delhi Cloth and General Mills Co. Ltd.¹⁵, the Supreme Court held that the word ^„manufacture^‟ means bringing into existence a new substance but this would not 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 Supreme Court in B. Sugar Mills vs. Union of India¹⁶. 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 meaning. The dictionary meaning is that to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market. That it would be such an article which would attract the Act was brought out in Union of India v. Delhi Cloth and General Mills Ltd. – 1963 Supp (1) SCR 586 = (AIR 1963 SC 791).”

(emphasis supplied)

37. After placing reliance upon the aforesaid two decisions of the Supreme Court, the Bombay High Court in Indian Aluminium Co. Ltd. and another vs. A.K. Bandyopadhyay and others¹⁷ observed that though dross and skimmings may be capable of fetching some price but this cannot be the criteria since any rubbish can also be sold. The High Court held that dross and skimmings are merely scum thrown out in the process of manufacture of aluminium sheets and, 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. The Bombay High Court also observed that the aluminium ingots were utilized for the manufacture of the end product, namely aluminium sheets and certainly not for the manufacture of scum and refuse like dross and skimmings. The relevant observations of the Bombay High Court are as follows:

“24. The question that one must ask oneself is whether therefore dross and skimmings are “goods”. lt may well be that dross and skimmings may be capable of fetching some sale price. For that matter any rubbish can be sold. But that is not the criterion. It cannot be said that dross and skimmings are the result of treatment, labour or 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 refuse or scum may fetch some price in the market does not justify it being clothed with the dignity of being called a by­product, 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 refers to the use of the material received in the manufacture of the end-product, namely “the finished excisable goods.” Hence the thrust of the manufacturing process must be the production of the finished product, namely, the aluminium sheets from the ingots. Aluminium ingots could by no stretch of imagination be considered to have been used by the Company for the manufacture of dross and skimmings but necessarily for the manufacture of aluminium sheets. Dross and skimmings cannot be said to be “finished excisable goods”. Further, dross and skimmings were not exempted from the whole of the duty of excise nor were they chargeable to “nil” rate of duty.”

(emphasis supplied)

38. The Civil Appeal filed by the department against the aforesaid decision of the Bombay High Court was dismissed by the Supreme Court and the decision is reported in 1995 (77) E.L.T. 268 (S.C.)¹⁸. The relevant portions of the judgment of the Supreme Court are reproduced below:

“13. It is also not possible to accept the contention of the appellants that aluminium dross and skimmings are “goods” or marketable commodity which can be subjected to the levy of excise. Undoubtedly, aluminium dross and skimmings do arise during the process of manufacture. But these are nothing but waste or rubbish which is thrown up in the course of manufacture.

Dross and skimmings may contain some small percentage of metal. But dross and skimmings are not metal in the same class as waste or scrap. It may be possible to recover some metal from such dross 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 “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., Aurangabad¹⁹, 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 aluminium parts. The appellants herein supplied aluminium ingots to job worker and the job worker manufactured the parts, by melting this aluminium and die-casting the same. This factual position is undisputed. During the course of such die-casting of items/parts of aluminium, ash and dross arises. It is the contention of the Revenue that such aluminium ash and dross are liable for payment of excise duty.

2. The aforesaid contention of the Revenue has been accepted by the Customs, Excise & Service Tax Appellate Tribunal (hereinafter referred to as ^„CESTAT^‟) holding that the appellant No. 1 – assessee is liable to pay duty on the aluminium ash and dross as well.

3. It is submitted by the learned counsel for the appellants that the CESTAT has committed grave error in arriving at the aforesaid conclusion. He argues that in order to make a particular product excisable to duty twin conditions are to be satisfied, viz., (1) that the product has come into existence by process which amounts to manufacture within the meaning of Section 2(f) of the Central Excise Act and (2) such product is marketable. In support of this, he has referred to the judgment of this Court in ^„Union of India and Others v. Indian Aluminium Co. Ltd. and Another^‟ [1995 Supp (2) SCC 465 = 1995 (77) L.T. 268 (S.C.)]. He submits that aluminium ash and dross were by-products which came into being during the manufacture of die-casting of aluminium parts. He has also pointed out that the CESTAT itself accepted, while deciding the issue for the future period, 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 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 revenue. They have done nothing to discharge this onus. For this reason alone they must fail.”

(emphasis supplied)

41. In Philips Carbon Black Ltd. Commissioner of C. Ex., Bhopal²⁰, the Tribunal observed that merely because off gas which emerged in the course of manufacture of carbon black was burnt because of environmental laws and in the process heat that was generated was used for the rotaters in the manufacturing operation, it cannot be said that manufacture had taken place. The relevant observations of the Tribunal are as follows:

“10.We find that this is a mixture of crude gases known as “Lean Gas” or “Off Gas” which emerges in the course of manufacture of Carbon Black. Chemically, these are liquid hydro-carbons. One of the components of this Gas is Carbon monoxide which is an extraneous gas and cannot be flared up in the atmosphere, being a hazardous one. In terms of the Anti-Pollution Laws, the appellants are required to burn the Carbonmonoxide content out of this mixture of gases, before venting out the remaining constituents of the Lean Gas. While burning the Carbon monoxide gas out of the Off Gas, certain heat is generated, which is used by them for their rotaters in the manufacturing operation. This particular fact has been considered by the Commissioner as a leading factor to hold the gases in question as excisable goods, inasmuch as the same is to be used captively by the appellants as fuel for the purpose of heat generation, during 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 E/1824/2010 & 4 others 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 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 process so as to bring about the desired changes and to make the product marketable, according to the Commissioner, would amount to ^„manufacture^‟ of export gas and, therefore, export gas would be leviable to duty of excise.

44. To appreciate the issue, it would be useful to understand the process undertaken by the appellant for the manufacture of Hot Rolled Coils, Sheets, Plates and Direct Reduced Iron. It has been described earlier in detail, but briefly stated it transpires that the appellant had used Corex Technology for the two functional modules. These modules operated on the technology offered by VAI, Austria. It consists of two reactors, namely, Reduction Shaft and Melter Gasifier. A schematic diagram to demonstrate the manner in which Direct Reduced Iron is manufactured in the Corex Module has been supplied by the appellant, and it is as follows:

45. In the Melter Gasifier, coal is burnt in the presence of Oxygen at a very high temperature, so as to crack the volatile matter in the The gas so generated participates in the manufacturing process in the Melter Gasifier and thereafter is injected into the Reduction Shaft after cleaning the same of the dust particles and reducing its temperature to 850°C. This gas, which has been nomenclated by the appellant as the reduction gas, inter alia has Carbon Monoxide of about 67.99%, while Hydrogen is about 22.01%. It also has Carbon Dioxide of about 6.48% and other impurities. 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 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 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 Learned special counsel submitted that aluminium dross and skimmings arise during the manufacture of aluminium/zinc sheets/foils and other products from aluminium/zinc ingots. They are regarded as rubbish or refuse and not as a result of treatment, labour or manipulation, whereby a new and different article emerges with a distinctive name, character or use which can ordinarily be bought and sold in the market.

50. It not possible to accept the distinction sought to be drawn by the learned special counsel for the department as the top gas is admittedly not manufactured and arises only as a technological accident. The top gas emerging out of the process of manufacture of Direct Reduced Iron is, in fact, in the nature of dross and skimmings which are scum that are produced in the course of manufacture of aluminium. It would, therefore, be reasonable to apply the same principles that have been enumerated in the decisions of the Supreme Court in Hindalco Industries, Ahmedabad Electricity, Delhi Cloth and General Mills and S.B. Sugar Mills to determine whether manufacture had taken place. We need to remind ourselves, at this stage, about the observations made by the Bombay High Court and the Supreme Court in Indian Aluminium Co. Indian Aluminium Co. The Bombay High Court noted that dross and skimmings are merely the scum thrown out in the process of manufacture of aluminium sheets and, therefore, it cannot be said that transformation has 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.

5.1 It has now to be considered whether removal of impurities from the top gas would result in the manufacture of export gas.

5.2 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.

5.3 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.

5.4 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 water before it can be flared up in terms of the stipulations of the Ministry of Environment and

55. Such a commercial reality has also been taken note of by the Supreme Court in Ahmedabad Electricity and the relevant observations are as follows:

“30. ***** Due to sheer necessity cinder has to be removed from the place where it occurs because unless removed it will keep on accumulating which in turn lead to loss of precious space. Facts noted in TISCO^‟s case by the lower authorities show that TISCO had been paying substantial amounts for removing cinder to a dumping ground. From the dumping ground it was picked up by parties to whom it was sold . As per the averment, TISCO is spending many times more on removing cinder than what it realizes from its sale. These are matters of fact which have not been gone into by the authorities concerned *****”

5.6 Top gas is refuse and has not been manufactured. Merely because impurities have to be removed to comply with the conditions set out in the letter granting permission to the appellant to ensure protection of environment, the refuse will not change its character and will continue to be refuse. It cannot be urged that a new product having a distinct name would emerge after removal of impurities and the product will continue to be refuse.

5.7 It has been urged by the learned special counsel for the department and has also been noticed by the Commissioner 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 68%.

5.8 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.

5.9 The Supreme Court in South Bihar Sugar Mills Ltd. Union of India²¹, 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 the gas generated in the kiln could be classified as Carbon Dioxide. The gas so generated was a mixture of gases and only one of the constituents was Carbon Dioxide.

60. This judgment would be applicable to the facts of the present Merely because one the constituents of the gas which is supplied to Jindal and JSW for use as fuel, has some percentage of Carbon Monoxide, the said mixture of gases cannot be classified as Carbon Monoxide and considered as manufactured goods.

6.1 The Commissioner has also found that the top gas was processed to satisfy the contractual requirements of Jindal and JSW. According to the appellant, the top gas that emerged from the Reduction Shaft meets the specifications of the gas specified in the contract entered into between the appellant on the one hand and Jindal and JSW on the other, and for this purpose the appellant has placed a chart showing the agreed specifications and the composition of top gas that emerges from the Reduction Shaft. The chart is reproduced below:

Sr. No.	Specifications in terms of the contractual agreement with JSW			Specifications in terms of contractual agreement with Jindal			Top Gas
	Particulars	Nominal % by volume	Permitted Limits in %	Particulars	Nominal % by volume	Permitted Limits in %	Particulars	Composition in Percentage
1.	Carbon 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

6.2 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 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.

6.3 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 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 JSW Steel that this would amount to ^„marketability^‟. This view, as discussed above, is incorrect.

6.4 Even otherwise, it is a settled law that the burden is on the department to establish that a product is a manufactured product, before seeking to levy duty of excise on the same. The said burden has not been discharged, in the facts of the present case.

6.5 The Commissioner also failed to appreciate that the calorific value of export gas is around 1830 kCal/Nm³, which is equal to 1429 kCal/kg, as is evident from a perusal of the agreements entered into by the appellant with Jindal and JSW. Learned counsel for the appellant pointed out that the calorific value of the said export gas is lower than most of other waste such as medical waste, which has a calorific value between 4530-5745kCal/kg; domestic waste (recycled) which has a calorific value between 2379-3335 kCal/kg. In this connection it would be useful to examine the calorific value of different types of waste that has been provided by the appellant and it is as follows:

Waste Types	Calorific Value (kCal/kg)
Medical waste	4530-5745
Industrial & hazardous waste	5247-9548
Domestic waste (un-processed)	1663-38 13
Domestic waste (recycled)	2379-3335
Plastic (PVC)	9787
Wood	3431
Paper	3216
Coal	3594-6462

6.6 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.

6.7 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.

6.8 This submission is not only factually incorrect, but is also not relevant for the purpose of 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.”

6.9 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.

7.0 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 not fully utilized and is released from the Reduction Shaft as top gas. The article does not suggest that 40% of the power required for operation of the plant is through the use of export gas.

CONCLUSION

7.1 What, therefore, follows is that the process undertaken on the top gas for removal of impurities to satisfy not only the conditions set out in the letter granting permission to the appellant for continuation and expansion of its manufacturing facilities but also to ensure compliance of the process design of the Technology supplier would not result in ^„manufacture^‟ of the export gas. The Commissioner was, therefore, not justified in confirming the demand.

7.2 The order dated 21.05.2010 assailed in Excise Appeal No. 1824 of 2010; the order dated 30.11.2010 assailed in Excise Appeal No. 546 of 2011; the order dated 25.01.2012 assailed in Excise Appeal No. 964 of 2012; the order dated 24.12.2012 assailed in Excise Appeal No. 26028 of 2013; and the order dated 22.06.2015 assailed in Excise Appeal No. 21875 of 2015, therefore, deserve to be set aside and are set aside. Excise Appeal No. 1824 of 2010, Excise Appeal No. 546 of 2011, Excise Appeal No. 964 of 2012, Excise Appeal No. 26028 of 2013 and Excise Appeal No. 21875 of 2015 are, therefore, allowed.

(Order pronounced on 22.08.2023)