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Taxability of Waste and Scrap
Effect of Deemed MarketabilityConcept and Cases
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CCE V. Indian Aluminum
Company Ltd. 2006 (SC)Whether zinc dross and fluxskimming are excisable articles?
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Facts of the Case
Zinc Dross Flux Skimming
The assessee herein manufactures aluminium sheets, the rawmaterial wherefor is aluminium oxide. In the melting furnace,
the top layer of the molten metal is exposed to atmosphere andgets oxidized.As a result of oxidation, a thin layer/film is formed which isremoved by skimming. The second layer so removed is calleddross. Indisputably, the percentage of metal in dross will vary
and there would be some quantity of aluminium metal therein.
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Decision of Supreme Court:
Merely selling does not mean dross andskimming are a marketable commodity as evenrubbish can be sold.
The product may be traded but there should bean established market for the said product.
Hence, zinc dross and skimming arising asrefuse during galvanisation process are notexcisable goods
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Hindalco Industries Ltd. V. UOI2009 (HC - Allahabad)Whether aluminium drossand skimming's have become
excisable in view of theinsertion of Explanation tosection 2(d) of CE Act, 1944?
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Decision of HC The High Court elucidated that, the insertion of
the explanation under section 2(d) providing fordefinition of goods to include any article,material or substance which is capable of being
bought and sold for a consideration, and to treatsuch goods as marketable, would make thealuminium dross and skimming liable to exciseduty.
If the goods are marketable or are deemed tobe marketable, as on now by the explanationadded to section 2(d), such goods included in theTariff would attract excise duty.
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Waste and Scrap Is it Dutiable?
Taxability of Waste andscrap (4 Ms has to be
satisfied)
If Marketable
Waste and Scrap is
dutiable
If Not Marketable
If it is Deemed tobe Marketable (i.e.
Sold for aConsideration)
Waste and Scrap isDutiable
If it is not deemed
to be marketable
Waste and Scrap isNot Dutiable.
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When Deemed marketability do not
apply? Deemed marketability implies that goods are
marketable if they are sold for consideration.
If the intermediate goods are captivelyconsumed, it cannot be sold as such forconsideration and hence, deemed marketabilitydoes not apply.
In case of captive consumption onlymarketability [Not deemed marketability] testshould be applied to make intermediate product
dutiable
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Nicholas Piramal India Ltd. v.CCEx., Mumbai 2010 (S.C.)Does a product with short shelf lifesatisfy the test of marketability?
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Vitamin A Acetate Crude
VitaminAPalmitate
Vitamin A inmarketable
Form
IntermediateProducts in themanufacture of
Vitamin A
Covered underheading 29.36 ofthe CETA, 1985
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Vitamin A Acetate Crude
VitaminAPalmita
te
Vitamin A inmarketable
Form
IntermediateProducts in themanufacture of
Vitamin AWhich has a
shelf life of 2 to3 days
Also used inmanufacture of animalfeed supplements with
the brand name`Rovimix' (now called
`Endomie') and
`Rovibe' (now called`Endobee').
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Substantial question of law involved??
Why the said intermediate goods are dutiable?
Whether the intermediate goods aremarketable?
Can the concept of deemed marketability appliedhere?
Whether a short shelf life is considered as noshelf life?
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SC decision Short shelf-life could not be equated with no
shelf-life and would not mean that it could not bemarketed.
A shelf-life of 2 to 3 days was sufficiently longenough for a product to be commercially
marketed. Shelf-life of a product would not be a relevant
factor to test the marketability of a productunless it was shown that the product had
absolutely no shelf-life or the shelf-life of theproduct was such that it was not capable of beingbrought or sold during that shelf-life.
Hence, product with the shelf life of 2 to 3 days
was marketable and hence, excisable.
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CCE V. Umesh Pencil Processors
P. Ltd. (2011) (SC)Whether Mixure of graphite andclay not bought or sold in the
market is liable to duty?
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Facts of the case:
Raw Graphite
Mixture of graphite and
clay
Raw Material
Intermediateproduct
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Facts of the Case
Mixture of graphite andclay
Intermediateproduct
Pencils
Pencil leads
Exempted
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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 tomanufacture.
The department also contended that as assesseewas availing the exemption, the exemption oncewithdrawn, the said goods are liable to exciseduty.
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Decision of Supreme Court: It was found by the department itself that the
mixture was not and could not be bought or soldin the market. The mixture had short shelf life.
The burden to prove that the goods aremarketable is on the department, which was notdischarged. Hence, goods were not marketableand therefore not liable to duty.
In deciding marketability of a product, merespecification in the Dictionary, Excise Tariff andDrawback schedule is of no consequence. Thefact that assessee was availing the exemptiondoesn't prove the goods were marketable.
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Grasim IndustriesLtd. v. UOI 2011
(S.C.)Whether waste and scrap
arising out of repairs issaid to be waste and scrap
arising out of manufacture
and hence excisable ?
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Grasim IndustriesLtd.
Engaged inmanufacture of
White Cement
Roller used in
manufacture
Shafts
Iron Scrap
Mild Steel
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Departments Contention
The said scrap or waste generated is goodsunder excise
They are mentioned in CETA and henceExcisable 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 orscrap removed.
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SC Decision
Manufacture in terms of section 2(f) includes anyprocess incidental or ancillary to the completion of themanufactured product
This any process can be a process in manufacture orprocess in relation to manufacture of the end product,which involves bringing some kind of change to the rawmaterial at various stages by different operations.
In the present case, it is clear that the process of repairand maintenance, has no contribution or effect on the
process of manufacturing of the cement . Hence, it is held that the generation of metal scrap orwaste during the repair of the worn outmachineries/parts of cement manufacturing plant doesnot amount to manufacture.
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