Calcutta High Court Quashes Ex Parte Order Imposing Excise Duty On Incineration Of Lean Gas Used In Generation Of Electricity

The Calcutta High Court has quashed the ex parte order imposing excise duty on the incineration of lean gas used in the generation of electricity.

The bench of Justice Md. Nizamuddin has remanded the matter back to the adjudicating authority concerned to pass a fresh adjudication order by allowing the petitioner to file an objection against the adjudication order by treating it as show cause notice and to take all the points raised in this writ petition.

The issue raised was whether lean gas or waste gas containing carbon monoxide, which is a poisonous gas and is neither marketable nor stable nor transportable to other locations, and which is generated during the process of manufacturing carbon black, after incineration of the same, in observing pollution laws and to prevent the atmosphere from being polluted and not being subjected to excise duty, can be made excisable on the ground that in the course of incineration of the said lean gas, a considerable amount of heat is generated, which is used in the generation of electricity, which is partly for captive consumption and is partly sold.

The petitioner/assessee has been a manufacturer of “Carbon Black” since March 27, 2009. During the process of manufacturing Carbon Black, a waste gas, off gas, or tail gas emerges as a by-product, and having regard to environmental norms and pollution laws, the petitioner incinerates the gas so as to prevent the emission of toxic materials, i.e., carbon monoxide (CO) and other hydrocarbons. A considerable amount of heat is generated in incinerating the gas, which is used in the generation of electricity, partly for captive consumption and partly for sale.

A spot memo was issued by the Excise Audit Team. It was recorded that the gas itself can be processed and used as a fuel in an industrial reciprocative engine. So, the waste has marketability and is to be treated as an excisable product.

The petitioner contended that the gas is generated during the process of manufacturing Carbon Black, and a captive power plant had been set up to avoid the surroundings being polluted by the CO contained in the waste gas. The waste gas is neither marketable nor storable nor transportable to other locations and has no value because it has no alternative use.

A show cause notice under Section 11A of the Central Excise Act, 1944, was issued primarily on the ground that since the gas is used in the generation of electricity, which is subject to the Nil rate of duty and non-excisable and/or exempted goods, the gas is marketable and therefore excisable.

The petitioner filed the writ petition challenging the validity and/or legality of the show cause notice. During the pendency of the writ petition, the respondent authority concerned proceeded with the adjudication proceeding in spite of repeated requests from the petitioner.

The petitioner contended that the department proceeded to levy excise duty on the gas after ascertaining the taxable value with regard to electricity captively consumed and sold to the grid. This approach by the department makes it manifestly clear that the focal point of adjudication is the production of electricity for captive consumption and sale to the grid. Since electricity was subject to a nil rate of duty, the respondent authority concerned sought to levy duty on a product that was never intended to be manufactured by the petitioner and that, under no circumstances, is marketable because of its high CO content.

The department contended that show cause notice was issued under proper authority, and the same was neither without jurisdiction nor violative of the principles of natural justice, and the order-in-original passed therein is binding on the petitioner, and thus this writ petition is not maintainable.

The court has set aside the ex parte adjudication order and remanded the matter back to the adjudicating authority concerned to pass a fresh adjudication order.

Counsel For Petitioner: Avra Mazumder

Counsel For Respondent: U. S. Bhattacharya

Case Title: M/s Himadri Speciality Chemical & Anr. Versus The Commissioner of Central Excise

Case No.: WPA No. 22712 of 2017

Citation: 2023 LiveLaw (Cal) 12

Click Here To Read The Order