The Central Excise duty is leviable on the process of “manufacture”. Any process that brings a new article into existence with different name, character and use is known as manufacturing activity. For levying duty on any article it must satisfy 2 basic conditions that it must be “goods” and should have come into existence as a result of “manufacture”. Thus, for the purpose of levying duty it is very necessary to ascertain what will constitute as ‘manufacture’. What are “goods” is not defined anywhere in the Central Excise Act, 1944 as such definition given in Sale of Goods Act, 1930 is adopted. According to Section 2(7) of this act, “goods” means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;”.
There are many by-products, inter-mediate products, waste and scrap generated during the manufacturing process but all such items cannot be said to be manufactured goods. It must not only be saleable but must be capable of being bought and sold. Thus, the marketability of an item is also necessary to ascertain whether it is goods or not.
One such item is zinc dross and skimmings. They arise out of the manufacturing of zinc oxide. There has been a long fought battle between the assessee and the revenue that whether zinc dross and skimmings can be said to be excisable goods and therefore, are liable to excise duty.
The definition of goods is given in section 2 (d) of the Central Excise Act, 1944 which is as under: –
(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.
The definition of ‘manufacture’ is given in section 2 (f) of the Central Excise Act, 1944. It is reproduced hereunder: –
(f) “manufacture” includes any process,—
(i) incidental or ancillary to the completion of a manufactured product; and
(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 labelling or re-labelling of containers including the declaration or alteration of retail sale 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.
Assessee’s Stand: –
The stand taken by the assessee is that dross is not manufactured item. It may be produced in the process of manufacturing but that by itself would not make it a manufactured product. The process of manufacture is carried on for manufacturing zinc oxide, the dross and skimmings arise only as a residue/waste/scrap. As such, every product arising as a result of manufacturing process would not be accepted as a manufactured product.
Revenue’s Stand: –
Revenue has taken the stand that zinc dross and skimming are excisable goods as they arise out of the manufacturing process. The reasoning adopted by the Revenue is that ‘dross’ is classifiable under ‘ash and residue’ and is no longer a waste or scrap. It is marketable and contains high percentage of aluminium. It is also contended that the value of dross is some time more than the value of aluminium itself and thus it will come under the purview of the term ‘goods’.
Verdict of Supreme Court: –
In the case of Collector of Central Excise, Patna v/s Tata Iron & Steel Co. Ltd [2004 (165) ELT 0386 (SC)] it was held as under: –
Zinc dross, flux skimming and zinc scalings arising as by-product during galvanisation of steel sheets, are not excisable goods based on the logic that everything which is sold is not necessarily a marketable commodity known to commerce. Thus, a mere selling does not mean dross and skimming is marketable commodity as even rubbish can be sold.
The Hon’ble Supreme Court in the case of Commissioner of Central Excise v/s Indian Aluminium Co. Ltd [2006 (203) ELT 0003 (SC)] has again dealt with the question that ‘whether zinc dross and flux skimming arising as refuse during galvanisation process are excisable articles?’
The Division bench of the Supreme Court held that they are not excisable goods merely because they can be sold. Mere selling does not mean that dross and skimming are marketable commodity as even rubbish can be sold. Only because a article has saleable value, the same would not render it to be a “manufactured product”.
Action of the Legislature: –
Thereafter, the Central Government vide Budget 2008-09 introduced amendment in the definition of “excisable goods” given under Section 2 (d) of the Central Excise Act, 1944. The following explanation was added: –
“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.”
Thus it was said that the goods which can be bought and sold for a consideration, will be deemed as marketable. The Government tried to nullify the judgments of the Supreme Court holding otherwise, by amending the definition. The said amendment was introduced with prospective effect.
New Development: –
Recently, the issue has again arisen in the case of “Navbharat Metallic Oxide Indus. Pvt. Ltd v/s Commr. of C. Ex., Daman [2009 (242) ELT 249 (Tri-Ahmd)]. In this case zinc ash was generated during the manufacture of Zinc Oxide.
The Lower Authorities held that the duty was leviable on zinc ash as the same was classified under heading 28170010 and was being sold by the appellant. The authorities did not follow the earlier decisions of the Supreme Court and of the Tribunal.
The Tribunal relied upon the judgment in the case of Indian Aluminium Co. Ltd in which it was held that: –
Tariff Heading 26.20 was introduced with effect from 1.3.1986. It is lot waste but it comes under the heading `ash or residue’. It may be true that the old tariff did not contain a specific entry as regards `dross’ when the decision of this Court was rendered but the question which arises for consideration is whether only because there now exists a specific entry in the Central Excise Tariff by way of `ash and residue’, would the same by itself make `dross’ subject to payment of excise duty although no manufacturing process is involved. [Para 13].
Accordingly, Tribunal held that the said paragraph answers the reasoning adopted by the authorities below. It was held that the appellants have strong case in their favour and unconditional stay was granted.
The issue it seems has not yet come to rest. By admitting the matter for adjudication, it is indicated that the issue once again has been raised.
Recent Board Clarification: –
The Board has now tried to clarify the amendment made by Budget 2008-09 by inserting the explanation in definition of excisable goods. This amendment has been made vide Circular no. 904/24/09-CX dated 28.10.2009. In this Circular it is clarified that the amendment made in the section 2(d) of the Central Excise Act, 1944 is intended to cover every goods that are capable of being sold for consideration will be deemed as marketable and hence will be excisable. It is therefore clarified that bagasse, aluminium/zinc dross and other such products termed as waste, residue or refuse which arise during the course of manufacture and are capable of being sold for consideration would be excisable goods and chargeable to payment of excise duty.
Hon’ble Supreme Court in the case of Tata Iron & Steel Co. Ltd and Indian Aluminium Co. Ltd has held that merely because the zinc dross and skimming are sold would not lead to conclusion that these are marketable. The amendment in the definition of excisable goods was made by Budget 2008-09 by adding a deeming clause in the concept of marketing and as such every item that was capable of being sold for consideration was deemed as marketable. This amendment was made in year 2008. Even after this amendment, stay has been granted by Tribunal by holding a view that no manufacturing process is involved in the dross or residue, and as such prima facie no excise duty is leviable on these items irrespective of the fact that there exists a specific entry in the tariff. While granting stay, decision of Indian Aluminium co. Ltd. has been relied upon. The amendment made by Budget 2008-09 has nullified the effect of these decisions by adding a specific clause in the definition of excisable goods. Yet the stay granted by Tribunal has once again litigated the issue. So the board has brought up a clarification in form of Circular no. 904/24/09-CX dated 28.10.2009. But issue of clarification on a amendment made before one and half year has itself clarified a fact that the Board has habit of issuing delayed clarifications. Now the department will once again bring action against the assessees on the basis of this clarification, but unfortunately, most of the cases will be made by invoking the extended period of limitation. Ignorance of department on the amendments will make a charge of suppression on the assessees. Hence more the clarifications, more the no. of litigations.
The article by:
– CA Pradeep Jain
-CA Preeti Parihar
– Sukhvinder Kaur (FYIC)