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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 skimming are excisable articles? (C) PINNACLE

ACADEMY

Facts of the Case

Facts of the Case Z i n c D r o s s (C) PINNACLE ACADEMY

Zinc Dross

(C) PINNACLE

ACADEMY

of the Case Z i n c D r o s s (C) PINNACLE ACADEMY Flux

Flux Skimming

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 excisable in view of the insertion of Explanation to section 2(d) of CE Act, 1944?

(C) PINNACLE

ACADEMY

Decision of HC

(C) PINNACLE

ACADEMY

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
Taxability of Waste and
scrap (4 M‟s has to be
satisfied)
If Marketable
If Not Marketable
Waste and Scrap is
dutiable
If it is Deemed to
be Marketable (i.e.
Sold for a
Consideration)
If it is not deemed
to be marketable
Waste and Scrap is
Dutiable
Waste and Scrap is
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 satisfy the test of marketability? (C) PINNACLE

ACADEMY

Vitamin A Palmitate

Vitamin A Palmitate (C) PINNACLE ACADEMY Intermediate Products in the manufacture of Vitamin A Vitamin A
Vitamin A Palmitate (C) PINNACLE ACADEMY Intermediate Products in the manufacture of Vitamin A Vitamin A

(C) PINNACLE

ACADEMY

Vitamin A Palmitate (C) PINNACLE ACADEMY Intermediate Products in the manufacture of Vitamin A Vitamin A
Vitamin A Palmitate (C) PINNACLE ACADEMY Intermediate Products in the manufacture of Vitamin A Vitamin A

Intermediate Products in the manufacture of Vitamin A

Vitamin A Acetate Crude

in the manufacture of Vitamin A Vitamin A Acetate Crude Covered under heading 29.36 of the
in the manufacture of Vitamin A Vitamin A Acetate Crude Covered under heading 29.36 of the

Covered under heading 29.36 of the CETA, 1985

of Vitamin A Vitamin A Acetate Crude Covered under heading 29.36 of the CETA, 1985 Vitamin

Vitamin A in marketable Form

Vitamin A Palmitate

Vitamin A Palmitate (C) PINNACLE ACADEMY Intermediate Products in the manufacture of Vitamin A Which has

(C) PINNACLE

ACADEMY

Vitamin A Palmitate (C) PINNACLE ACADEMY Intermediate Products in the manufacture of Vitamin A Which has
Vitamin A Palmitate (C) PINNACLE ACADEMY Intermediate Products in the manufacture of Vitamin A Which has
Vitamin A Palmitate (C) PINNACLE ACADEMY Intermediate Products in the manufacture of Vitamin A Which has

Intermediate

Products in the

manufacture of Vitamin A Which has a shelf life of 2 to

3 days

Vitamin A Acetate Crude

has a shelf life of 2 to 3 days Vitamin A Acetate Crude Also used in
has a shelf life of 2 to 3 days Vitamin A Acetate Crude Also used in

Also used in

manufacture of animal

feed supplements with the brand name `Rovimix' (now called

`Endomie') and

`Rovibe' (now called

`Endobee').

`Rovimix' (now called `Endomie') and `Rovibe' (now called `Endobee'). Vitamin A in marketable Form

Vitamin A in marketable Form

(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 clay” not bought or sold in the market is liable to duty?

(C) PINNACLE

ACADEMY

Facts of the case:

(C) PINNACLE

ACADEMY

Raw Material
Raw Material

Raw Graphite

Intermediate product
Intermediate
product

Mixture of graphite and

clay

(C) PINNACLE

ACADEMY
ACADEMY

Facts of the Case

Intermediate product
Intermediate
product

Mixture of graphite and

clay

Pencils Exempted Pencil leads
Pencils
Exempted
Pencil leads

Facts of the Case:

(C) PINNACLE

ACADEMY

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
(C) PINNACLE
ACADEMY
Grasim Industries Ltd. v. UOI 2011 (S.C.) Whether waste and scrap arising out of repairs

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 Ltd. Roller used in manufacture Shafts
(C) PINNACLE ACADEMY Engaged in manufacture of Grasim Industries Ltd. Roller used in manufacture Shafts

(C) PINNACLE

ACADEMY

Engaged in

(C) PINNACLE ACADEMY Engaged in manufacture of Grasim Industries Ltd. Roller used in manufacture Shafts White

manufacture of

Grasim Industries Ltd.

Roller used in manufacture
Roller used in
manufacture
in manufacture of Grasim Industries Ltd. Roller used in manufacture Shafts White Cement Iron Scrap Mild

Shafts

in manufacture of Grasim Industries Ltd. Roller used in manufacture Shafts White Cement Iron Scrap Mild

White Cement

in manufacture of Grasim Industries Ltd. Roller used in manufacture Shafts White Cement Iron Scrap Mild

Iron Scrap

in manufacture of Grasim Industries Ltd. Roller used in manufacture Shafts White Cement Iron Scrap Mild

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.

SC Decision

(C) PINNACLE ACADEMY

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.