Fly Ash generated in Thermal Power Plant - Applicability of Excise Duty
By Joseph Prabakar, Advocate
UNDER Central Excise, liability to pay Excise Duty would arise, inter alia, on the condition that the product is specifically mentioned in the Central Excise Tariff Act, 1985. Further, the Supreme Court had held that for anything to be termed as ‘goods' the said item should pass the twin test of being called as ‘movable' and ‘marketable'. Also, under Central Excise, any waste generated during a process of manufacture would be liable to Excise Duty.
It is to be noted here that for a long time till Year 2008, the requirement of ‘marketability' was mandatory for levy of Excise Duty on an item. However, definition of the term, ‘excisable goods' under Section 2 (d) of the Central Excise Act, 1944, was amended in Year 2008, to do away with the requirement of ‘marketability' by insertion of the following Explanation in the said definition.
‘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.'
It may be interesting to note that earlier, the Gujarat High Court in the case of Ahmedabad Electricity Co. Ltd. Vs Union of India (2003-TIOL-107-HC-AHM-CX) held that Boiler ash arising while burning coal is not excisable. This decision was upheld by the Supreme Court in Union of India Vs Ahmedabad Electricity Co. Ltd (2003-TIOL-17-SC-CX). Thereafter, the Government vide Circular dated November 18, 2005, accepted the Apex Court decision and clarified that ‘Coal Ash' is not excisable.
Please note that these decisions were rendered when marketability was one of the essential requirements for terming a product as ‘excisable'. Therefore, during the relevant period, the assessee was forced to take an argument that ‘Fly Ash' is not marketable and hence not liable to excise Duty. The decision of the Supreme Court and the Circular issued in Year 2005, have become redundant in view of the fact that the definition of the term ‘excisable goods' under Section 2 (d) of the Central Excise Act, 1944, had been amended in Year 2008.
It may be noted that ‘Ash – Others' is specified under Central Excise Chapter Heading 26 21. Therefore, in the case of Fly Ash, the only requirement for levy of Excise Duty would be ‘movable' which is fulfilled in the instant case. However, it is crucial to note that Fly Ash is generated when Coal is burnt in the process of generating electricity or ‘electrical energy'. Further, please note that ‘Electrical energy' is now specified under Central Excise Chapter Heading 27 16 00 00 and ‘Electrical energy' is exempt from Excise Duty.
In this regard, it may be interesting to note that vide Customs Notification No. 91/2010 dated September 6, 2010, the Government had levied Customs Duty on ‘Electrical energy (falling under Chapter Heading 2716 00 00) removed from a Special Economic Zone into Domestic Tariff Area or non processing areas of Special Economic Zone'. Thus, it is a settled fact that electricity or ‘electrical energy' is excisable goods under Central Excise Tariff Act, 1985.
Now let us examine whether ‘Fly Ash', generated in the course of production of ‘Electrical energy' in a Thermal Power Plant would be subject to payment of Excise Duty. It may be evident that ‘Fly Ash' is generated in the course of manufacture or production of ‘Electrical energy' and apparently, it may seem that Fly Ash may be liable to Excise Duty.
However, it is important to note that vide Central Excise Notification No 89/95 dated May 18, 1995, the Government had exempted waste and scrap arising out of manufacture of exempted products from payment of Excise Duty.
Notification No 89/95 dated May 18, 1995, is reproduced below.
‘Waste, parings and scrap arising during manufacture of exempted goods - Exempted
In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts waste, parings and scrap arising in the course of manufacture of exempted goods and falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from the whole of the duty of excise leviable thereon which is specified in the said Schedule :
Provided that nothing contained in this notification shall apply to waste, parings and scrap cleared from a factory in which any other excisable goods other than exempted goods are also manufactured.
Explanaton. - For the purpose of this notification, the expression “exempted goods” means excisable goods which are chargeable to “Nil” rate of duty or, are exempted from the whole of the duty of excise leviable thereon by any other notification (not being a notification where exemption from the whole of duty of excise is granted based upon the value or quantity of clearances made in a financial year) issued under sub-rule (1) of rule 8 of the Central Excise Rules, 1944 or sub-section (1) of section 5A of the said Act.'
It is admitted fact that Fly Ash arises in the course of production of electrical energy and further it is not in dispute that electrical energy is exempt goods. Hence, it may be noted that Fly Ash arising in the course of production of electricity in a Thermal Power Plant would be exempt from Excise Duty under Notification No 89/95 dated May 18, 1995.
Now, in Budget 2011, the Government had included ‘Fly Ash' as one of the items in Sl No 27 in Notification No. 1/2011 dated March 1, 2011 and had provided for a concessional rate of duty of 1% upon the condition that the assessee does not avail Cenvat credit. Similarly, Sl No 14 of Notification No. 1/2011 dated March 1, 2011, specifies ‘Fly Ash' and effective rate of duty of 5% has been prescribed for ‘Fly Ash'.
However, it is crucial to note that ‘Fly Ash' arising in the course of generation of electricity in a Thermal Power Plant would continue to be exempt from payment of Excise Duty under Notification No 89/95 dated May 18, 1995, notwithstanding the fact that the Government had notified ‘Fly Ash' under Notification No's. 1 and 2 of 2011 dated March 1, 2011.
(Author is a Chennai based Advocate)