Taxability of Waste and Scrap Effect of Deemed Marketability - - PowerPoint PPT Presentation

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

Zinc Dross 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

(C) PINNACLE ACADEMY

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

• 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 Waste and Scrap is dutiable If Not Marketable If it is Deemed to be Marketable (i.e. Sold for a Consideration) Waste and Scrap is Dutiable If it is not deemed to be marketable 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

(C) PINNACLE ACADEMY

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 Acetate Crude Vitamin A Palmitate Vitamin A in marketable Form Intermediate Products in the manufacture of Vitamin A Covered under heading 29.36 of the CETA, 1985

(C) PINNACLE ACADEMY

Vitamin A Acetate Crude Vitamin A Palmitate Vitamin A in marketable Form Intermediate Products in the manufacture of Vitamin A Which has a shelf life of 2 to 3 days Also used in manufacture of animal feed supplements with the brand name `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?

(C) PINNACLE ACADEMY

SC decision

• 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.

(C) PINNACLE ACADEMY

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:

Raw Graphite Mixture of graphite and clay Raw Material Intermediate product

(C) PINNACLE ACADEMY

Facts of the Case

Mixture of graphite and clay Intermediate product Pencils Pencil leads

Exempted

(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

(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

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

(C) PINNACLE ACADEMY