Case: Union Of India Vs. Ahmedabad Electricity Co.Ltd.

The question which arises for consideration in this bunch of appeals is regarding exigibility of cinder to excise duty. The respondents in all the appeals use coal as fuel for producing steam to run the machines used to their factories to manufacture the end product. Coal is burnt in the boilers or furnaces for producing steam. Normally coal when it is burnt in boilers is reduced to ash. Some part of coal does not get fully burnt because of its low combustible quality. This unburnt or half burnt portion of coal is left out in the boilers. It is called cinder. Though the respondents are engaged in manufacturing different end products, one thing is common between them and that is that they all use coal as a fuel.2. The First Schedule to the Central Excise Tariff Act contains various entries which is a list of excisable goods. The list also gives rates of duty leviable on the respective items. Clinder is not mentioned in any of the entries to the First Schedule Chapter 26 of the Schedule contains an entry at Serial No. 26.21 which is asslag and ash, including seaweed ash (kelp) -The Revenue seeks to cover cinder under the said entry to make it subject to levy of excise duty. The respondents have resisted this claim of the Revenue. This has led to the present litigation. The learned Additional Solicitor General appearing for the Union of India, i.e. the Central Excise Department, raised following points in support of the stand of the Department that cinder is liable to be subjected to levy of exciseIn view of the Entry No. 26.21 in the Central Excise Tariff Act cinder is per se exigible to excise duty as it is covered under an entry in the First Schedule to the Tariff Act. According to him, the fact that an item finds mention in the Schedule to the Tariff Act per se becomes excisable. The said Schedule contains a list of excisable goods and all items in the Schedule are liable to payment of excise duty.2) Section 3 of the Central Excise and Salt Act is the charging Section from which the twin test of excisable goods being manufactured in India and capable of being marketable emerge. According to the learned ASG both the tests and satisfied in the present case. It is argued that cinder is a by-product of coal which emerges in the course of manufacture of the end product. Cinder is sold by the various assessees from their factories. Therefore, it is marketable. Thus both the tests are satisfied.3) The question involved in the present appeals is more a question of fact which the High Court should not have entertained in a petition under Article 226 of the Constitution of India.Apart from the above points urged on behalf of the Revenue, some points emerge from the contentions raised by the learned counsel appearing for the assessees. They are:In the statutory appeals filed by the Revenue against the judgment of the Customs Excise & Gold (Control) Appellate Tribunal in the case of the Tata Iron and Steel Company (C.A. No. 4051/2003), it has been argued that the show cause notice issued by the departmental authorities was beyond time. Section 11A of the Central Excise Act which allows an extended period of limitation for issue of Show Cause Notice could not be invoked in the facts of the case because all necessary facts were being disclosed regularly by the Company to the Revenue authorities and there was no concealment or suppression or misrepresentation . Therefore, the show cause notice being highly belated was liable to be quashed.Another point raised in the Tata Iron Companys case is that clinder is a waste emerging from coal and the Company was spending much more on its removal from the site as compared to what it was getting from its sale. This point has been raised in some other cases also. This is a point which would arise on the facts of particular cases. Proper pleadings have to be there. The Tribunal being the fact finding body ought to have adverted to it. Unfortunately, this aspect has not received any attention before the Tribunal.An important distinguishing factor is that coal is used in factories as fuel and not as raw material for purposes of manufacturing the end product. The learned ASG appearing for the Union of India submitted that cinder is a by-product of coal. Even if cinder is a by-product of coal, it is not a by-product of the raw material used in a factory for manufacturing the end product. It is a by-product of an item of

Reasoning: . 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. (See Hyderabad Industries Ltd. and another vs. Union of India and others (1995) 5 SCC 338  and Moti Laminates Pvt. Ltd. and others vs. Collector of Central Excise, Ahmedabad (1995) 3 SCC 23 ). Therefore both an authority and on principle, for being exigible to excise duty, excisable goods must satisfy the test of being produced or manufactured in India. The argument to the contrary is rejected.In the case in hand also coal which leads to production of cinder is not used as a raw material for the end product. It is being used only for ancillary purpose that is as a fuel. Therefore, irrespective of the fact whether any manufacture is involved in production of cinder it should be held to be out of the tax net for the reason that it is not a raw material for the endis 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 skillful manipulation. Excise duty is an incidence of manufacture and, therefore, it is essential that the product sought 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.In view of our finding that cinder cannot be subjected to levy of excise duty because it is not an item of goods which has been subjected to process of manufacture, it is not necessary for us to go into any other point. We may only note that courts have evolved another test of marketability i.e. to be exigible to excise duty goods must be marketable. It is not disputed that cinder is being sold by the accessees. But can it be said to be marketable goods in the sense word marketable is used? We doubt it. However, this need not detain us since cinder does not satisfy the test of being manufactured in India. Even if it is saleable, it does not make any difference. The result is that the contention of the Revenue that cinder is liable to payment of excise duty is hereby rejected.The objection is that the High Court should not have entertained a petition under Article 226 of the Constitution of India in the facts and circumstances of the case. At the outset we may note that was have only one Civil Appeal in the case of Ahmedabad Electricity Company (C.A. No. 2168-69/2001) which is arising from proceedings before the High Court under Article 226. The remaining matters in the bunch are statutory appeals under Section 35L of Central Excise Act. Therefore, this court has to go into the matter on merits. Moreover, in the Ahmedabad Electricity Companys case challenge by way of Writ Petition under Article 226 was to a Circular dated 7th April, 1998 issued by the Central Board of Excise and Customs and the consequential Trade Notice No. 36/98 dated 22nd May, 1998 issued by the office of the Commissioner of Central Excise and Customs, Ahmedabad by which it was clarified that coal-ash (cinder)" is an excisable commodity classifiable under sub-heading No. 26.21 of the Central Excise Tariff Act, 1985. In the first place no objection regarding maintainability of the Writ Petition seems to have been taken before the High Court. Even if such an objection was raised, the same would have been a futile attempt. In the facts of the case the High Court would have been justified in rejecting such an objection. The impugned circular could not have been challenged before the departmental authorities as they would have felt bound by it. We find no merit in the objection. The same is