By TIOL News Service

CHENNAI, AUG 25, 2015: WITH effect from 01.03.2011, Central Excise duty at the rate of 1% was imposed on many goods which were hitherto exempted. Fly Ash is found at Sl No 27 of the Notification. Hence, many started to believe that Fly Ash attracts duty with effect from 01.03.2011. A Show Cause Notice was issued to a Thermal Power Station demanding Central Excise duty on Fly Ash and Fly Ash Bricks cleared by them, which is under challenge.

After hearing both sides, the High Court ruled:

Process does not amount to manufacture:

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 be subjected to excise duty should have gone through the process of manufacture.

It is worthwhile to refer the decision of the Apex Court in "Union of India versus Ahemdabad Electricity Company Limited" - 2003-TIOL-17-SC-CX, wherein, while upholding the view of the High Court of Gujarat, the Apex Court has categorically held the "cinder" which is unburnt part of coal, is not exigible to excise duty since no manufacturing process was involved to produce the same and as such it did not satisfy the test of being manufactured in India as envisaged in the provisions of the Act and that the onus to establish that cinder has gone through the process of manufacture in India was not discharged by the department.

The difference between 'cinder' and 'fly ash' is that when coal is not burnt fully and leaves pieces behind, is called 'cinder' whereas, when it is fully burnt and reduced to ash, is called 'fly ash'. Therefore, The ratio decided in the above said decision would squarely apply in the case of 'fly ash' also since the product 'fly ash' also cannot be said to have gone through any manufacturing process.

Waste arising out of exempted goods is exempted under Notification No 89/95 CE:

It is not in dispute that 'electricity' has been specified in the First Schedule of the Central Excise Tariff under heading 27160000, but it is not subjected to a duty of excise since under the 'rate column' the duty of excise is indicated as 'nil'. Merely, rate of duty is mentioned 'nil', it cannot be construed that it is non-excisable good. In "CCE, Hyderabad versus Vazir Sultan Tocacco Co.Ltd., - 2002-TIOL-215-SC-CX-LB, the Supreme Court has held that though by virtue of an exemption notification, the rate of duty was nil, this does not mean that they were not excisable goods. They were excisable goods. Nil rate of duty is also a rate of duty. Therefore, electricity is excisable good and can be construed as exempted goods by virtue of the above notification No.89/95-CE, dated 18.05.1995 as it has been clearly clarified in the Explanation that "....for the purpose of this notification, the expression "exempted goods" means excisable goods which are chargeable to "Nil" rate of duty. Therefore, as rightly contended by the petitioner, the exemption Notification No.89/95-CE would squarely applicable to the product 'fly ash', which is a waste arise during the course of manufacture of electricity, which is an excisable good chargeable to "nil" rate of duty.

Fly Ash Bricks dutiable:

As regards "fly ash bricks", since fly ash does not itself get shaped as bricks unless some manufacturing activity is involved. Since the raw material fly ash undergoes a change since an operation performed on it, resulting into fly ash brick, such operation would certainly amount to processing of the commodity and such commodity is recognized as a new and distinct article, i.e. 'fly ash brick'. Therefore, the good 'fly ash brick', having satisfied the test of being manufactured in India and also marketability, it is leviable to excise duty.

Accordingly, the High Court set aside the demand on Fly Ash and allowed the Writ partly.

(See 2015-TIOL-1948-HC-MAD-CX)