Gold Bars recovered from gold mud, whether qualified as primary gold and is exemption under Notification No. 6/2002-C.E. is available?

PJ/CASE LAW/2015-16/2950

Case-COMMR. OF C. EX., VADODRA Versus HINDALCO IND. LTD. (UNIT : BIRLA COPPER)

Citation-2015 (325) E.L.T. 427 (S.C.)

Brief Facts- Various show cause notices were issued by the appellant/Revenue demanding duty in respect of gold manufactured and cleared allegedly without payment of duty started from the show cause notice dated 1st June, 2001. In this show cause notice, it was inter alia stated that the respondent had Precious Metal Recovery Plant (PMR Plant) for the recovery of precious metal starting from anode slime. That the process of manufacturing of gold was explained by Mr. P.K. Chandra, Manager (PMR Plant) of the assessee which is recorded in the said show cause notice as well, is that during electro refining of copper the insoluble impurities of copper anode like silver, gold, selenium, copper, tellurium, barite and silica are collected at the bottom of the electrolytic cells as black mud which is called anode slime. The copper remaining in the anode slime is removed by leaching with sulfuric acid and then it is filtered to get decompressed anode slime. The flow chart, which shows the stage at which anode slime forms was explained by submitting that from anode slime, silver is recovered, thereafter gold mud and from gold mud, gold bars are produced which are sold in the market. It is on this gold bar, which is the final product, the Revenue wanted to levy excise duty which is @ 16%.

Appelants Contention-Mr. Adhyaru, learned senior counsel for the appellant relied upon the discussion in the show cause notice and also upon opinion of the dissenting opinion of Judicial Member of the Tribunal and argued that the gold in question cannot be treated as “gold in primary form” as the original product was anode slime which underwent various processes from which product in question came into existence. In other words, he submitted that gold bars are produced from anode slime and anode slime can be treated as “any form of gold”. Mr. Adhyaru also referred to the detailed discussion by the Judicial Member which runs as follows :
“In view of the forgoing discussion. They held that the emergence of gold either at the gold powder stages or at all the gold bar stage was not firm any ‘other form’ of gold which already existed but was during the course of manufacture of copper or zinc by smelting. The various intermediary stages, as already discussed are technical necessities of the process of manufacture and to go through stages of increased concentration of gold before arriving at the stage of primary gold. As they have already held that primary gold comes into existence for the first time in the appellant’s factory, there can be no question of ‘Conversion’ of the same from one form to another. As is seen the expression used in the notification for grant of exemption is ‘conversion’ from one form to another form. By extracting the gold from the anode Slime which is nothing but the residue of the ore after extraction of copper, it cannot be said that the appellant ‘converted’ the gold. The expression ‘conversion’ envisage a situation where the metal to be converted already exist. The extraction of gold by the complex process of separating anode slime and undergoing the subsequent process of separation till the point of obtaining of pure gold cannot be called ‘conversion’. If the meaning of the term is extended to the ‘extraction’ of the gold and emergence of the gold in primary form for the first time for the entire notification in our view would become absurd.
Our above view is also fortified by the issuance of subsequence notification No. 6/2003, which amended notification No. 6/2002-C.E. Sr. No. 259 of the amended notification granted exemption to gold arising in the course of manufacture of copper or zinc by smelting. As such the first time production of gold during the process of zinc or copper was granted exemption was under notification No. 6/2003-C.E., effective from 1-3-2003. It may be noted that the earlier entry granting exemption to conversion of gold from one primary from to another was not disturbed and Sr. No. 170 covered the same. This clearly shows that the two entries covered two different situation. If the first exemption was broad enough to cover the situation of exemption by introducing a separate Sr. No. It was admitted before us that the second concluded that the exemption was extended to first time production of gold w.e.f. 1-3-2003.”

Respondents Contention-The assessee, on the other hand, submitted that the product in question was covered by exemption Notification No. 6/2002-C.E., dated 1-3-2002 attracting nil duty. Serial No. 170 thereof in which the product is sought to be included reads as under :

S. No.	Chapter or heading No. or sub-heading No.	Description of goods	Rate under the First Schedule	Rate under the Second Schedule	Condition No.
1.	2.	3.	4.	5.	6
170	71	Primary gold converted with the aid of power from any form of gold Explanation. - For the purposes of the exemption, “Primary gold” means gold in any unfinished or semi-finished form and	Nil
		includes ingots, bars, blocks, slabs, billets, shots, pellets, rods, sheets, foils and wires

Reasoning Of Judgement-The question, therefore, that falls for consideration is, as to whether the aforesaid product produced by the assessee is the “primary gold” which is exempted from payment of excise duty. They may mention here that insofar as Adjudicating Authority is concerned, it passed the Order-in-Original dated 2-6-2003 confirming the demand made in the show cause notice and held that the aforesaid exemption Notification does not apply to the product in question as the product in question is not any “primary gold”. This order was challenged by filing appeal before the Commissioner who also rejected the appeal vide order dated 24-2-2005. The matter was further taken up before the Custom, Excise & Service Tax Appellate Tribunal by the respondent. Two members who heard the matter differed with each other. Member (Technical) decided the issue in favour of the assessee taking a view that the product in question was “primary gold” and, therefore, does not attract to levy of excise duty.
Because of this difference of opinion, the matter was placed before the third member who has concurred with the opinion of the technical member holding that the assessee shall be entitled to the benefit of the aforesaid Notification and, therefore, product in question is not liable for any excise duty.
They have already re-produced the process of manufacturing of the product viz. gold in question and have also taken note of the exemption Notification. It is clear from the reading of relevant entry in the exemption Notification that it exempts “primary gold” when the same is converted with the aid of power from ‘any form of gold’. Explanation appended thereto defines the “primary gold” to mean gold in any unfinished or semi-finished form and includes among others, gold bars. From the process of manufacture that is explained above, it becomes clear that the gold bars are produced from gold mud. Gold mud would be qualified as “any form of gold” and the product in question viz. gold bars, therefore has to be treated as “primary gold”.
It is difficult to accept the aforesaid contention having regard to the description of goods that is exempted by the aforesaid Notification and narrated by them above. The fallacy in the aforesaid argument is to proceed on the basis as if the “primary gold” is converted from anode slime. They don’t have to go back and see the original material from which final product came into existence. What is relevant and important is that silver was recovered from anode slime and thereafter gold mud was recovered from silver. Insofar as the product in question viz. gold bars are concerned, these are produced from the gold mud. Thus, gold is converted in the form of bars from gold mud with the aid of power. It is undisputed that gold mud is a form of gold.
What is significant to note that the “primary gold” is the end-product which is manufactured. The entry clearly describes that when the said “primary gold” is converted from any form of gold with the aid of power into bars as well, the same would be treated as “primary gold”. This is explained by the third Member while concurring with the opinion of the Technical Member in the following manner :
“Since dore anode is an alloy of gold and therefore a form of gold, I hold that duty be determined on the value of land at the stage of emergence of “dore anode” as held by learned Member (Technical), and hence concur with his view.”
The apex court agree with the aforesaid view and as a result thereof the appeal is liable to be dismissed. The appeal is, accordingly, dismissed.

Decision-Appeal dismissed

Comment-The analogy of the case is that the Exemption under Notification No. 6/2002-C.E. is available in case the “primary gold” is converted from any form of gold with the aid of power. The term “primary gold” means the gold in any unfinished or semi-finished form, it includes gold bars also which is the final product of the assessee and as in the given case the gold bars are recovered from the gold mud or dore anode the same can be classified as primary gold and accordingly the assessee is eligible for exemption under said notification.

Prepared By-Neelam Jain

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PJ/CASE LAW/2015-16/2950

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