CX - By virtue of note 4 in ch. 26, a legal fiction has been created bringing such processes into fold of manufacture - crushing, grinding & washing of iron ore, converts it into iron ore concentrates & attracts duty: CESTAT
By TIOL News Service
KOLKATA, MAR 27, 2016: THE appellant is engaged in mining of iron ore at their mines. On blasting of the mine faces, large boulders and fines are generated. The iron ore boulders of bigger sizes are collected with the help of excavators and brought to the crusher plant. In the said crusher plant the boulders are crushed into different sizes of 5-18 mm, 10-30/40 mm and iron ore fines of 0-10 mm are also generated. After crushing it is screened at the screening plant where the iron ores of different sizes are segregated. Alleging that by the aforesaid processes, ores are converted into concentrates and as per chapter note 4 Chapter 26 of CETA, 1985 inserted w.e.f. 1.3.2011 the said processes amount to manufacture, two show cause cum demand notices were issued for the period from March, 2011 to September, 2012 demanding duty of Rs.206,32,99,768/-.
On adjudication, the demands were confirmed and penalty of equivalent amount were imposed.
Similar such whopping demands have been issued and confirmed against other mining companies and all of them are in appeal before the CESTAT.
After considering the elaborate submissions by the appellant on merits of the case as well as their alternate plea of their being eligible for the benefit of exemption in terms of notification 63/95-CE and the special counsel for the Revenue, the Bench observed thus -
++ A careful reading of the aforesaid decisions (of India Rare Earths & SAIL), we do not find anywhere in these judgements this Tribunal has held that after application of processes viz. crushing, grinding, washing, grading etc. on ores, the resultant is not 'concentrate', hence not amounting to manufacture. There is no doubt of the fact that in both these cases this Tribunal has been confronted with the sole question whether the processes employed on the Ores would result into manufacture within the meaning and scope of the definition of section 2(f)(i) of Central Excise Act, 1944. Consequently, the Tribunal referring to the principles in relation to concept of 'manufacture' laid down by the Hon'ble Supreme Court, concluded that the processes of crushing, grinding, washing, grading of iron ores does not satisfy the test of a new commercial commodity having distinct name, character and use so as to qualify the definition of manufacture as prescribed under section 2(f)(i) of CEA, 1944. Thus, the claim of the appellant that the issue now raised has been decided in the aforesaid two cases does not carry weight and accordingly does not impress us.
++ In the Chapter Note 4 which has been inserted in Chapter 26 w.e.f. 01.03.2011, it has been laid down that process of converting ores into concentrates shall amount to manufacture. The meaning of ores has been laid down in Chapter 2 of the said Chapter 26. The term "concentrate" is applicable to ores which are made free from impurities through the application of certain processes by which part or all of the foreign matters are removed for the reason that such foreign matter might hamper subsequent metallurgical operations or such foreign matter would not help in economical transport.
++ In our view, the processes mentioned under the definition of beneficiation are also included in explaining the term "concentration" under HSN. It is laid down that the physical or physico-chemical operations include crushing, grinding, magnetic separation, gravimetric separation, floatation, screening etc. which are normal to the preparation of the ores for the extraction of metals.
++ Therefore, since the processes undertaken by the appellant on ores, and the resultant satisfies the meaning of 'concentrate' as explained in the HSN, hence in our considered opinion, it should be considered as "manufacture" as per Sec.2(f)(ii) of CEA, 1944 in view of the chapter note 4 of Chapter 26 of CETA, 1985 and the resultant Iron Ore concentrate is dutiable.
++ The Apex Court in S.D. Fines Chemical's case = 2002-TIOL-101-SC-CX has laid down that if a process is declared as amounting to manufacture under the relevant Chapter Notes or Tariff Heading then applicability of the test of emergence of new and distinct commodity having different use and character after the processes applied to a commodity becomes irrelevant.
++ A cumulative reading of the ratios of the judgements, the chapter note 4 of chapter 26 and the relevant tariff entry, makes the legislative intention and object clear that the processes which on application on ores held by the courts/tribunal earlier as not amounting to manufacture, by virtue of the chapter note, a legal fiction has been created bringing such processes into the fold of the definition of manufacture, which otherwise in common parlance would not be considered as manufacture. The contention of the appellant that unless the process of benefication is applied on Ores, the resultant cannot be called as a 'Iron Ore concentrates' and accordingly the processes of crushing, grinding, screening, grading and washing of Ores would not fall under the definition of manufacture, in our opinion, is the result of misunderstanding and incorrect interpretation of the relevant tariff entry, the chapter note 4 and clause (ii) of Sec. 2(f) of CEA, 1944.
++ In view of the judgements of this Tribunal if on application of processes on Ores its Fe content increases and its use, commercial identity and character is different from the ore then the resultant would be considered as manufactured and accordingly dutiable. The broad and detail tariff entry has been introduced with effect from 2005-06 classifying ores having different Fe content assigning different sub-headings. Therefore, in absence of an increase in the Fe content by benefication or any other method, if there cannot be a manufacturing process, the chapter note 4 inserted with effect from 01.3. 2011 defeat the very purposes and becomes otiose. Such a situation, in our opinion, cannot be the intention of the legislature. Therefore, in our considered opinion application of processes of crushing, grinding, screening and washing and grading of iron ore, converts it into iron ore concentrates and accordingly in view of the chapter note 4 of chapter 26 becomes manufacture and leviable to Excise duty.
++ The appellants also pleaded that since the processes on ores have been carried out in the premises declared as mines, and they are governed under the Mines Act, therefore, the benefit of exemption notification 63/95 CE dt. 16.03.1995 is applicable to them. Nonetheless, the appellants fairly accepted that this issue of exemption was not raised before the adjudicating authority and the claim has been advanced for the first time before the Tribunal.
On the question of penalty imposed u/s 11AC of CEA, 1944, the Bench observed that since the issue involved is an interpretation of law and the demands are for normal period, imposition of penalty is unjustified and unwarranted.
The Bench, therefore, concluded -
(i) the processes of crushing, grinding, screening, grading of iron ore as stated under the respective Appeals result into "manufacture" of "iron ore concentrate" under clause (ii) of section 2(f) read with Chapter Note 4 to chapter 26 and classifiable under Chapter Sub-heading 2601 1150 of CETA, 1985;
(ii) the eligibility of benefit of exemption notification 63/95-CE dt.16.03.95 in case of all appellants except M/s Odisha Mining Corporation (Appeal No. EA-75912/15) be examined by the adjudicating authority;
(iii) no penalty is imposable on any of the appellants .
The appeals were disposed of as above.
(See 2016-TIOL-717-CESTAT-KOL)
