Taxability of Waste and Scrap – Effect of Deemed Marketability Concept and Cases (C) PINNACLE ACADEMY
CCE V. Indian Aluminum Company Ltd. 2006 (SC) Whether zinc dross and flux (C) PINNACLE skimming are excisable articles? ACADEMY
(C) PINNACLE ACADEMY Facts of the Case Flux Skimming Zinc Dross The assessee herein manufactures aluminium sheets, the raw material wherefor is aluminium oxide. In the melting furnace, the top layer of the molten metal is exposed to atmosphere and gets oxidized. As a result of oxidation, a thin layer/film is formed which is removed by skimming. The second layer so removed is called dross. Indisputably, the percentage of metal in dross will vary and there would be some quantity of aluminium metal therein.
(C) PINNACLE ACADEMY Decision of Supreme Court: • Merely selling does not mean dross and skimming are a marketable commodity as even rubbish can be sold. • The product may be traded but there should be an established market for the said product. • Hence, zinc dross and skimming arising as refuse during galvanisation process are not excisable goods
Hindalco Industries Ltd. V. UOI 2009 (HC - Allahabad) Whether aluminium dross and skimming's have become (C) PINNACLE ACADEMY excisable in view of the insertion of Explanation to section 2(d) of CE Act, 1944?
(C) PINNACLE ACADEMY Decision of HC • The High Court elucidated that, the insertion of the explanation under section 2(d) providing for definition of “goods” to include any article, material or substance which is capable of being bought and sold for a consideration, and to treat such goods as marketable, would make the „aluminium dross and skimming‟ liable to excise duty. • If the goods are marketable or are deemed to be marketable , as on now by the explanation added to section 2(d), such goods included in the Tariff would attract excise duty.
(C) PINNACLE ACADEMY Waste and Scrap – Is it Dutiable? Taxability of Waste and scrap (4 M‟s has to be satisfied) If Marketable If Not Marketable If it is Deemed to Waste and Scrap is be Marketable (i.e. If it is not deemed dutiable Sold for a to be marketable Consideration) Waste and Scrap is Waste and Scrap is Dutiable Not Dutiable.
(C) PINNACLE ACADEMY When Deemed marketability do not apply? • Deemed marketability implies that goods are marketable if they are sold for consideration. • If the intermediate goods are captively consumed, it cannot be sold as such for consideration and hence, deemed marketability does not apply. • In case of captive consumption only marketability [Not deemed marketability] test should be applied to make intermediate product dutiable
Nicholas Piramal India Ltd. v. CCEx., Mumbai 2010 (S.C.) Does a product with short shelf life (C) PINNACLE satisfy the test of marketability? ACADEMY
(C) PINNACLE ACADEMY Vitamin A Palmitate Intermediate Products in the manufacture of Vitamin A Vitamin A Acetate Crude Covered under heading 29.36 of Vitamin A in the CETA, 1985 marketable Form
(C) PINNACLE ACADEMY Vitamin A Palmitate Intermediate Products in the manufacture of Vitamin A Which has a Vitamin A Acetate Crude shelf life of 2 to 3 days Also used in manufacture of animal Vitamin A in feed supplements with marketable the brand name Form `Rovimix' (now called `Endomie') and `Rovibe' (now called `Endobee').
(C) PINNACLE ACADEMY Substantial question of law involved?? • Why the said intermediate goods are dutiable? • Whether the intermediate goods are marketable? • Can the concept of deemed marketability applied here? • Whether a short shelf life is considered as no shelf life?
SC decision (C) PINNACLE ACADEMY • Short shelf-life could not be equated with no shelf-life and would not mean that it could not be marketed. • A shelf-life of 2 to 3 days was sufficiently long enough for a product to be commercially marketed. • Shelf-life of a product would not be a relevant factor to test the marketability of a product unless it was shown that the product had absolutely no shelf-life or the shelf-life of the product was such that it was not capable of being brought or sold during that shelf-life. • Hence, product with the shelf life of 2 to 3 days was marketable and hence, excisable.
CCE V. Umesh Pencil Processors P . Ltd. (2011) (SC) Whether “ Mixure of graphite and (C) PINNACLE clay” not bought or sold in the ACADEMY market is liable to duty?
(C) PINNACLE ACADEMY Facts of the case: Raw Material Intermediate product Raw Graphite Mixture of graphite and clay
(C) PINNACLE ACADEMY Facts of the Case Intermediate product Pencils Exempted Mixture of graphite and clay Pencil leads
(C) PINNACLE ACADEMY Facts of the Case: • The “mixture of graphite and clay” is not marketable and department has agreed this contention made by assessee. • But, department raised a demand on the assessee stating that the said activity amounts to manufacture. • The department also contended that as assessee was availing the exemption, the exemption once withdrawn, the said goods are liable to excise duty.
(C) PINNACLE ACADEMY Decision of Supreme Court: • It was found by the department itself that the mixture was not and could not be bought or sold in the market. The mixture had short shelf life. • The burden to prove that the goods are marketable is on the department, which was not discharged. Hence, goods were not marketable and therefore not liable to duty. • In deciding marketability of a product, mere specification in the Dictionary, Excise Tariff and Drawback schedule is of no consequence. The fact that assessee was availing the exemption doesn't prove the goods were marketable.
(C) PINNACLE ACADEMY
Grasim Industries Ltd. v. UOI 2011 (S.C.) Whether waste and scrap arising out of repairs is said to be waste and scrap arising out of manufacture and hence excisable ? (C) PINNACLE ACADEMY
(C) PINNACLE ACADEMY Engaged in manufacture of Grasim Industries White Cement Ltd. Iron Scrap Roller used in manufacture Shafts Mild Steel Scrap
(C) PINNACLE ACADEMY Departments Contention • The said scrap or waste generated is “goods” under excise • They are mentioned in CETA and hence “Excisable goods” • The process of generation of scrap and waste amounts to manufacture under sec. 2(f) [Assessee is in conflict with this point] • Hence, Excise duty is payable on said waste or scrap removed.
(C) PINNACLE ACADEMY SC Decision • Manufacture in terms of section 2(f) includes any process incidental or ancillary to the completion of the manufactured product • This „any process„ can be a process in manufacture or process in relation to manufacture of the end product, which involves bringing some kind of change to the raw material at various stages by different operations. • In the present case, it is clear that the process of repair and maintenance, has no contribution or effect on the process of manufacturing of the cement . • Hence, it is held that the generation of metal scrap or waste during the repair of the worn out machineries/parts of cement manufacturing plant does not amount to manufacture.
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