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

(C) PINNACLE
ACADEMY

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

(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 Ms 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)

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 Acetate Crude

Vitamin A in
marketable
Form

Vitamin A Palmitate

(C) PINNACLE
ACADEMY

Intermediate
Products in the
manufacture of
Vitamin A

Covered under
heading 29.36 of
the CETA, 1985

Vitamin A Acetate Crude

Vitamin A in
marketable
Form

Vitamin A Palmitate

(C) PINNACLE
ACADEMY

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?

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 Graphite

Intermediate
product

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
Ltd.

White Cement

Iron Scrap
Roller used in
manufacture

Shafts
Mild Steel

(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.