The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has clearly erred in fastening the appellant with duty liability on black sand, which was not manufactured. The bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) relied on the decision of the Supreme Court in the case of Board of Trustees vs. Collector of Central Excise, in which it was...
The Chennai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has clearly erred in fastening the appellant with duty liability on black sand, which was not manufactured.
The bench of P. Dinesha (Judicial Member) and M. Ajit Kumar (Technical Member) relied on the decision of the Supreme Court in the case of Board of Trustees vs. Collector of Central Excise, in which it was held that in order to constitute goods, twin tests have to be satisfied, namely, the process constituting manufacture and, secondly, its marketability. It is observed by the Apex Court that the goods are manufactured with the object of being sold in the market; if the goods are not capable of being sold, then the test of marketability is not fulfilled.
The appellant/assessee is in the business of manufacturing castings of iron and aluminium falling under Chapters 73 and 76 of the First Schedule to the Central Excise Tariff Act, 1985 ('CETA' for short).
The department noted that the appellant had cleared 'Black Sand' without payment of Central Excise Duty since, according to them, it was produced during the course of the manufacture of cast articles of iron, which were capable of being bought and sold in the market for consideration. This prompted the issuance of two show-cause notices for two periods. 'Black Sand' finds place in Schedule to the CETA under sub-heading 26190090, and hence the same is an excisable good. The duty was proposed to be demanded, along with applicable interest and penalties.
The adjudicating authority, after considering the arguments of the appellant, confirmed the demands proposed in both SCNs.
The appellant filed appeals before the first appellate authority. The first appellate authority in the order refers to the definition of 'manufacture' as appearing in the Explanation to Section 2(d) of the Central Excise Act, 1944, refers to the classification under the first schedule to CETA, wherein black sand is specifically classified under sub-heading 2619 0090, refers to a test report of a chemical engineer, Customs House, Chennai. As per the report, black sand is used in various applications like asphalt concreting, compost additive concrete, the manufacture of Portland cement, mineral wool products, etc., and finally refers to its marketability. The term 'marketable' would mean that goods are ready and fit for sale, and in this context, he refers to the admission of the appellant that the black sand that had emerged was sold to a buyer.
The first appellate authority held that black sand is the result of a process and is a distinct product having a distinct name, character, and use, and, therefore, the same becomes dutiable.
The assessee contended that the black sand, which is the residue, is nothing but the natural sand, which has become black when used in the manufacture of castings and hence is not a manufactured product, is not even a by-product, nor is it an intermediary product to be subjected to Central Excise Duty liability. The authorities should have appreciated that black sand is neither a product nor an intermediate product; it is a total waste that arises during the manufacture of castings and that the natural sand used in the course of the manufacture of castings would become black. While natural sand is not dutiable, black sand also cannot be subjected to duty.
The tribunal held that black sand is not generated from the manufacture of iron or steel, but rather sand that is used 'remains' as sand only but in black colour upon being burned; it is only the 'remains' of natural sand after losing its 'natural' colour.
The tribunal, while allowing the appeal, held that both authorities have only proceeded on the basis that the black sand so generated was sold thereafter for a price, and therefore, the same is liable to duty, which, according to us, is totally unjustified. The authorities have failed to understand that the appellant had to remove the black sand from their factory since the same was occupying the operating space, and while doing so, if the same results in the generation of some revenue, that by itself would not amount to the process of manufacturing a dutiable product.
Counsel For Appellant: M. Kannan
Counsel For Respondent: M. Selvakumar
Case Title: M/s. Ashok Leyland Ltd. Versus ommissioner of GST & Central Excise
Case No.: Excise Appeal No.41018 of 2014