By TIOL News Service

MUMBAI, SEPT 16, 2014: ALUMINIUM dross and skimmingsthat arise during the process of manufacture of various aluminium products are cleared by the appellant without payment of duty.

The department viewed that aluminium dross and skimmings are classifiable under CETH 26204010 of the CETA, 1985 and the appellant is liable to discharge the duty liability thereon for the period after 10.05.2008 pursuant to insertion of Explanation in section 2(d) of the CEA, 1944 by the Finance Act, 2008.

SCNs were issued and the demands were confirmed by the lower authorities with penalty and interest.

Before the CESTAT, the appellant submitted that in an identical case covering the period post 10.05.2008, the Tribunal in the case of Bhushan Steel Ltd.- 2012-TIOL-2042-CESTAT-MUM had held that Zinc Dross is not a manufactured product and hence not liable to excise duty.

The Revenue representative submitted that a co-ordinate Bench of the Tribunal in the case of KEC International Ltd.- 2012-TIOL-2043-CESTAT-DEL considered the very same issue and held that as per the Explanation to Section 2(d) of the CEA, 1944, Zinc Dross and Ash are deemed to be marketable and even as per the HSN Explanatory Notes, Zinc Dross is specifically mentioned as a tradable item and consequently, it was held that Zinc Dross is an excisable product and liable to excise duty.

In view of the conflicting decisions, the matter was placed before the Larger Bench for considering the following point(s) -

++ Whether Aluminium Dross and Skimmings or similar Non-ferrous Metal Dross and Skimmings, which arise in the process of manufacture of aluminium/Non-ferrous metal products can be considered as a 'manufactured goods' and hence excisable for the period post 10.05.2008 in view of the Explanation added to Section 2(d) of the Central Excise Act, 1944?

OR

++ Notwithstanding the Explanation to Section 2(d), Aluminium Dross and Skimmings or other Non-ferrous metal dross and Skimmings cannot be considered as 'manufactured products' and hence, not liable to excise duty?

We reported the reference order as - 2013-TIOL-1715-CESTAT-MUM.

The matter was heard by the Larger Bench in July and the decision has been pronounced recently.

And the Bench after hearing the submissions made by both sides observed –

++ Sub-heading 2620 40 deals with slag, ash or residues containing mainly aluminium. CETH 2620 4010 specially deals with aluminium dross and CETH 2620 4090 deals with other slag, ash or residues containing mainly aluminium. Thus, the aluminium dross, skimmings are clearly specified in the Central Excise Tariff and there is no dispute in this regard.

++ Explanation added to Section 2(d) vide Finance Act, 2008 provided that, for the purpose of the said 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 is not in dispute that aluminium dross and skimmings are capable of being bought and sold for a consideration and are, in fact, regularly bought and sold. The Customs Tariff also includes aluminium dross and skimmings under CTH 2620 40. Customs Tariff is based on the Harmonized System of Nomenclature and an entry (heading/sub-heading) is created specifically for a product only when the commodity is bought and sold on a regular basis on a substantial scale. This would imply that aluminium dross and skimmings are marketable commodities. Therefore, the only question left for consideration is whether they are ‘manufactured' goods.

++ Explanation to section 2(d) of the Central Excise Act, 1944 was inserted to overcome certain adverse judicial decisions with regard to marketability of waste products.

++ Explanatory notes to clause 73 of Finance Bill, 2008 reads as under:

"Clause 73 seeks to amend section 2 of the Central Excise Act with a view to insert an Explanation in clause (d) which defines “excisable goods”. The proposed Explanation provides that for the purposes of this clause, “goods” includes any article, material or substance which is capable of being bought and sold for consideration and such goods shall be deemed to be marketable. It will remove the ambiguity occurred due to the judgments in certain cases regarding the marketability of goods and it will be applicable prospectively."

++ It is a well-known fact that nobody deliberately manufactures waste and scrap. Waste and scrap emerge as a by-product in the course of manufacture of other products. In fact both the Central Excise and Customs Tariff provide for separate headings/sub-headings in respect of waste and scrap of various materials such as plastics, rubber, paper, textile, iron and steel, non-ferrous metals, glass and glassware, precious metals and so on.

++ The tariff recognises waste and scrap as a distinct and different commodity and seeks to impose a tax on waste and scrap either when it is traded (Customs duty) or when it is manufactured, by way of excise duty. In other words, the purpose and object of creating a tariff entry for waste and scrap including ‘dross and skimmings' is to make the product liable to tax/duty.

++ It is also equally well understood that nobody undertakes, either deliberately or purposefully, manufacture of waste and scrap, whether it be of aluminium or other metals or of plastics, rubber, textiles, glass, etc. Waste arises in the manufacturing process of various products. It is to tax such waste and scrap which arise in the course of manufacture of other products, separate entries are created in the tariff, including those for aluminium dross and skimmings. Thus, the intent of the legislature is very clear.

++ Therefore, a specific entry created for the purpose of levy of duty/tax cannot be merely wished away or brushed aside, by holding that waste and scrap are not manufactured goods.

++ It is a settled principle in taxation that no part of the law should be interpreted in such a way so as to make it non-effective or odious. Viewed from this perspective, when dross and skimmings are specifically mentioned in the tariff, it would not be unreasonable to assume that such products are manufactured goods even though they arise in the course of manufacture of other products.

++ Inasmuch as the goods which are capable of being bought and sold are deemed to be marketable, in view of explanation to Section 2(d), the twin tests of ‘manufacture' and ‘marketability' are clearly satisfied in the case of dross and skimmings.

++ As per the settled position in law manufacture takes place when a new commodity with a distinct name, character or use emerges from a process or series of processes. In the present case, this test of manufacture is satisfied in respect of dross and skimmings. Therefore, the will of the legislature has to be given effect to by adopting a harmonious interpretation. In this view of the matter, it appears to us that w.e.f. 10/05/2008, aluminium dross and skimmings are liable to excise duty.

The reference was answered accordingly.

(See 2014-TIOL-1762-CESTAT-MUM-LB)