Waste product is a fertile ground for litigation in courts and even in Supreme Court. The excisability of by-products and waste products have continued to be subject of judicial decisions over a period of time. Very recently there has been a judgment by the Tribunal in the case of Commissioner of Central Excise, Jalandhar vs A G Flats Ltd – 2012 (277) E L T 96 (Tri - Del) which shows that the issue is still being litigated in spite of so many judgments on the subject. To a large extent it is because of some variation in the judgments of the courts. This treatise is meant to clearly identify the issues and to crystallise the conclusion.
The issues are two: The first issue is if waste product is the same as by-product. Manufacturers claim by-products are waste products because the later is often exempted. The fact is that they are quite different. Oxford Advanced Learner’s Dictionary defines the term ‘by-product’ as a substance produced during the process of making or destroying something else. Thus, if in the course of manufacture of product A, a product B also emerges in addition to the intended product A, even though there was no intention to manufacture the product B, the product B would be called a ‘by-product. The ‘waste’ is a ‘by-product’ which is of no value or very low value. This position has been accepted by the Tribunal and it also the correct position. The Tribunal in the above judgment has rightly observed that if by-product emerged in manufacture of some other product, it cannot be treated as ‘waste’ just because it was an unintended product that is by-product. And a by-product would be ‘waste’ only if it is of no value or negligible value, something which manufacturer would want to get rid of. So the position is that if a by-product is sold for even a low price, it can still be a by-product not a waste. However in the case of CCE, Hyderabad vs Priyanka Refineries Ltd – 2010 (249) E L T 70 (Tribunal), the view taken by the Tribunal is that the soap stock arising out of manufacture of refined vegetable oil is a waste. The judgment of the Tribunal in the AG Flats case referred above has rightly pointed out that no reason has been given why it could be a waste even though it could be sold in the market for a certain price. Even the Supreme Court has rejected the appeal by the department in limine without going into any details which is, therefore, not a binding precedent. In any case, the latest judgment in the case of A G Flats Ltd given by the Tribunal is to be taken as binding compared to the previous judgment in the case of Priyanka Refineries.
The second issue is if waste, itself is excisable or not. In the legendary judgment in the case of Khandelwal Metal vs UOI-1985 (20) E L T 222(SC), the Supreme Court held that brass scrap of the kind imported by the appellant was a by-product of the manufacturing process. Such goods, however, were known in the commercial parlance by that name of brass scrap and were excisable. The Indian Aluminum judgment – 1995 (77) E L T 268 (SC) wanted to distinguish the case of dross and skimming from the case of Khandelwal Metal. However this distinguishing is based on wrong factual position. At paragraph 25 of the Indian Aluminum judgment it has been said that dross and skimming have very little metal value. On the other hand, the factual position is that the dross has 90 - 92% of metal content and is sold at 87% of the price of the prime metal. In another case of CCE vs Rattan Micro – 1996 (87) E L T 334 (SC), it has been held that zinc ash is dutiable.
There are other judgments also which hold that by-product and waste (which are also by-product if they are sold for a price) are dutiable.
Conclusion: Most judgments by Tribunal and the Supreme Court have confirmed the right conclusion that the by-product and waste if sold for financial consideration are dutiable. There are some odd judgments contrary to this. The CBEC should take the latest judgment of the Tribunal in the case of A G Flats Ltd and issue a binding circular to the above effect to stop all future controversies.
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