Excisability of By-product Zinc Dross emerging from Galvanization process before 2008

PJ/Case Laws/2011-12/1331

Case: UTTAM GALVA STEELS LTD v/s COMMISSIONER OF CENTRAL EXCISE, RAIGAD

Citation: 2011-TIOL-1161-CESTAT-MUM

Issue:- Whether by-products Zinc dross arising out of galvanization process before 2008 can be held to have emerged in the course of manufacture of goods and is therefore excisable?

Brief Facts:- Appellant are manufacturers of excisable goods, namely, G.P.Coils, G.P.Sheets, G.C.Sheets, C.R.Sheets and C.R.Coils, falling under Chapter heading no. 72 of the Central Excise Tariff Act, 1985. During the course of galvanization, waste product, zinc dross emerges and appellants were selling the same without payment of Central Excise duty.

Prior to April, 2005, appellants were classifying Zinc Dross under chapter sub heading no. 7902.00 and were clearing the same on payment of Central Excise duty. However, they stopped payment of Central Excise duty on the said product in view of the Supreme Court's judgment in the case of CCE, Patna vs. Tata Iron & Steel Co. Ltd. [2004 (165) ELT 386 (SC)] wherein it was held Zinc dross is not a marketable commodity and hence not excisable.

Subsequently, Department issued show-cause notice dated 08.01.2008 to appellant proposing to classify the zinc dross manufactured and cleared by them during the period from December 2006 to November 2007 under Chapter sub-heading no. 79020010 of the CETA in respect of zinc bottom dross having zinc content of 92 % or more and under sub heading no. 79020090 of the CETA in respect of zinc dross having zinc content less than 92% arising during the course of continuous line galvanization of C.R. Coils and demanded duty with interest and also proposed to impose penalty.

The Adjudicating Authority confirmed the duty demand by classifying the products under chapter heading no. 79020010 and 79020090 of the CETA. It further ordered for recovery of interest at the appropriate rates on the duty amount confirmed under Section 11AB of the Central Excise Act and further imposed a penalty of Rs.5.00 lakhs under Rule 25 of the Central Excise Rules, 2002 for contravention of Rule 4, 6 & 8 of the Central Excise Rules, 2002.

Appellants are in appeal before the Tribunal.

Appellant’s Contention:- Appellant contended that prior to amendment of Central Excise Act vide Finance Act, 2008, zinc dross was not considered to be a manufactured item, even though zinc dross was specified in the Central Excise Tariff. They rely on the judgment of this Tribunal in the case of Vishal Pipes vs. CCE, Noida [2010 (255) ELT 532 (Tri-Del)] wherein it was held that the process of generation of zinc ash, dross and other residues does not involve any manufacturing process and the goods cannot be said to be excisable. The amendment made in March 2005 to the Central Excise Tariff wherein a specific heading was created for zinc dross under sub heading no. 720010 will not make the goods excisable in the absence of a chapter note or a legal fiction to treat the goods as manufactured item. The Tribunal while coming to the said conclusion relied on the decision of the Apex Court in the case of Indian Aluminium Co. Ltd. [2006 (203) ELT 3 (SC)].

Appellant also relied on the judgment of the Apex Court in Indian Aluminium Co. Ltd wherein while considering the exigibility of zinc dross, the Apex Court held that in the Excise Tariff there is no legal fiction of deeming residues with more than certain percentage of metal as manufactured or excisable. Merely because there is some presence of some percentage of metal in dross, it does not render the goods excisable. The article does not become excisable to tax only because of some saleable value.

Further appellant also rely on the judgment of the Apex court in the case of CCE, Patna vs. Tata Iron & Steel Co. Ltd. [2004 (165) ELT 386 (SC)] wherein it was held that zinc dross, flux skimming and zinc scalings arising as a by-product during the galvanization of steel sheets, are not excisable goods.

Respondent’s Contention:- Revenue placed reliance on the judgment of the Apex Court in the case of Commissioner of Income Tax, Kerala vs. Tara Agencies [2007 (214) ELT 491 (SC)] wherein it has been held that the word production/produce includes in its scope bringing into existence new goods by a process which may or may not amount to manufacture and also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. Therefore, the zinc dross arising in the process of galvanization of C.R Sheets/Coils have to be considered as manufactured goods exigible to excise duty.

It was further submitted that there is a specific sub heading namely, sub-heading no. 79020010 and 79020090 covering zinc top dross and zinc bottom dross having a zinc content less than 92 % and zinc content of 92% or more. Since there is a specific sub-heading provided in the Excise Tariff with a rate of duty mentioned against these items, they have to be held as excisable goods as per the definition of excisable goods provided in the Central Excise Act. Revenue further submits that the goods have been sold by the appellant for a consideration and, therefore, the marketability is clearly established.

Revenue further relies on the judgment of the Apex Court in case of CCE, Chandigarh vs. Gurdaspur Distillery [2008 (224) ELT 337 SC] wherein it was held that an article to become liable to excise duty, two conditions should be satisfied, namely, it should be mentioned in the tariff and it should be marketable. Revenue contends that both these conditions are satisfied in the instant case and, therefore, the findings of the adjudicating authority have to be upheld. Revenue also relies on the judgment of the Apex Court in case of Gayatri Glass [1999 114 ELT 786] wherein the Apex Court upheld the excisability of molten and broken glass arising in the manufacture of glass. In the light of the above judicial pronouncements, he submits that the zinc dross arising in the process of galvanization of G.R. Sheets/coils is a manufactured and excisable commodity and liable to excise duty.

Reasoning of Judgment:- The Tribunal held that there is no dispute or doubt about the fact that zinc dross is an item specified in the Central Excise Tariff. Merely because an item is specified in the tariff chargeable to a rate of duty, it cannot be concluded that they are excisable goods, i.e, they are manufactured and marketable goods. As has been held by the Tribunal in the case of Vishal Pipes vs. CCE, Noida, there is no legal fiction of manufacture by way of a chapter note to treat the impugned goods as manufactured items. Further, the Apex Court in the case of Indian Aluminium Co. Ltd. case had held specifically in the case of zinc dross that in the absence of legal fiction, deeming residues with more than certain percentage of metal as manufactured or excisable, it cannot be held that dross and skimmings are manufactured items. Further, in the case of Tata Iron & Steel Co. Ltd., the Apex Court held that merely because zinc dross and flux skimmings are sold, they cannot be held to be marketable as even rubbish can be sold in the market.

In the said case, the Apex Court further held that everything which is sold is not necessarily a marketable commodity known to commerce and which, it may be worthwhile to trade in. All the above decisions of this Tribunal and the Apex Court have been rendered specifically in the context of excisability and marketability of zinc dross and skimmings and these decisions categorically conclude that zinc dross/skimmings cannot be considered to be excisable/marketable even though there may be specific entry in the Central Excise Tariff covering the product.

Further, the Tribunal held that the Board in the Circular No. 904/24/2009-SC dated 28.10.2009 has clearly clarified that only after amendment in Section 2(d) of the Central Excise Act, 1944 wherein an explanation was added clarifying that 'goods' include 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, products like zinc dross and skimmings can be held to be excisable and marketable. Prior to the amendment to Section 2(d) effective May 2008, the Circular makes it absolutely clear that these products cannot be treated as excisable goods even though they might find specific entry in the Excise Tariff and even though they may fetch some price in the market.

It was held that from the Circular and the various judgments, it is clear that prior to 2008, Zinc Dross, zinc ash and flush skimming etc. arising in the process of galvanisation of CR Sheets cannot be considered to be excisable and marketable and excisable goods prior to May 2008. Impugned order confirming the demand is set aside.

Decision:- Appeal allowed.

Comment:- We have across a totally opposite case wherein the party has taken the credit on Zinc dross and skimming. The department has alleged in the show cause notice when the Zinc dross is not chargeable to excise duty then the duty should not be paid by the supplier and hence we have taken the wrong credit. The demand is for the period prior to 2008. The department maintained that it is chargeable to duty after this date as definition of goods has been changed. But this definition has not given retrospective effect.

Now, from this demand, it is clear that the department is taking totally opposite stand in different case. In this case, they are asking for the duty but when the poor manufacturer has taken the credit then they are asking for reversal. Such opposite stands in different matters are not legally sustainable. Further, we have contended in reply to show cause notice that we have taken the credit which has been charged by supplier in his invoice. We have paid the amount to him. Moreover, the classification and liability of duty cannot be decided at our end. It has to be decided by jurisdictional Authorities of supplier. But the litigation is going on and poor manufacturer is facing demand of crores of Rupee. How much pressure can a small scale manufacturer can sustain. On the contrary, the departmental officer issuing demand does not have any responsibility or accountability in this regard. I remember a line from a famous song “This happens only in India”.

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PJ/Case Laws/2011-12/1331

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