Holding

Cinder, being an unburnt part of coal used only as fuel and not undergoing any manufacturing process, does not satisfy the test of manufacture in India and therefore is not an excisable good under the Central Excise Tariff Act, 1985.

Summary

The Court examined whether cinder, the unburnt portion of coal left after its use as fuel in factories, is liable to excise duty under Entry 26.21 of the Central Excise Tariff Act, 1985. It held that cinder is not a product of manufacture because coal is used only as fuel and no transformation creates a new substance; therefore it fails the statutory test that excisable goods must be produced or manufactured in India. The mere inclusion of an item in the First Schedule does not make it automatically taxable; the revenue must also show that the goods have undergone manufacture. The Court also rejected the argument that cinder is a marketable commodity, noting that marketability alone cannot confer liability without manufacture. Consequently, the revenue’s attempt to levy excise duty on cinder was held contrary to law and all appeals filed by the Union of India were dismissed.

Issues considered

Cinder’s liability to excise duty under Entry 26.21 of the Central Excise Tariff Act, 1985
Whether mere inclusion in the First Schedule makes a product automatically excisable
Whether cinder satisfies the statutory test of being ‘manufactured in India’ under Section 3 of the Central Excise Act
Whether cinder can be regarded as a marketable commodity for excise purposes
Whether the revenue bears the onus to prove manufacture of cinder
Maintainability of the writ petition under Article 226 of the Constitution

Legislation cited

Central Excise and Salt Act, 1944s. 2(d), s. 2(f), s. 3
Central Excise Tariff Act, 1985
Customs Act, 1962

Subjects

excise dutycindermanufacturemarketabilityCentral Excise Tariff ActFirst Scheduleby-producttaxabilityArticle 226writ petitioncoalash

Judgment

UNION OF INDIA A
v.
AHMEDABAD ELECTRICITY CO. LTD. AND ORS.

OCTOBER 29, 2003

[RUMA PAL AND ARUN KUMAR, JJ.] B

Central Excise Tariff Act, 1985; Tariff Heading 26.1/Central Excise
and Salt Act, 1944; Sections 2(d), 2(/), 3, Exemption Notification and Trade
Notice issued thereunder.

Cinder-Exigibility of-Held : Coal is not used as raw material for
c
getting the 'Cinder' as end-product-Burning of coal is for producing
steam and not for manufacturing ofCinder~ince, Cinder is unburnt part
of coal and not ash, it could not be equated to ash just for the purpose
of bringing it with in Entry 26.21 of the Act to make it exigible-
Withdrawal of Exemption Notification by the Revenue was without any D
justification and thus, contrary to law-Cinder though being sold for small
price, but it cannot be said to be marketable commodity in the sense the
word 'marketable' is understood-Cinder derived from coal, could have
at best been treated as coal which is also exempted from levy of excise
duty-Hence, excise duty could not be levied on it. E
The question which arose for determination in these appeals filed
by the Revenue is regarding exigibility of the Cinder under Tariff
Heading 26.21 of the Central Excise Tariff Act, though 'Cinder' is not
listed as excisable goods in the First Schedule to the Act. · F
It was contended by the Revenue that in view of the Entry No.
26.21 in the Central ExciseTariff Act, 'cinder' is per se exigible to
excise duty as it is covered under the entry in the First Schedule to the
Tariff Act; that 'cinder' is a by-product of coal which emerges in the
course of manufacture of the end product and it is being sol1 by the G
various assessees from their factories, therefore, it is marketable, thus
liable to exercise duty; and that the question involved in the presEnt
appeals ins more a question of fact which the High Court should not
have entertained in a petition under Article 226 of the Constitution of
~~ H
1117
1118 SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.

A Assessees submitted that the show cause notice issued by the
departmental authorities was beyond time; and that 'cinder' is a waste
emerging from coal and they have been spending much more on its
removal from the site as compared to what they are getting from its
sale.
B
Dismissing the appeals, the Court

HELD : 1.1. Cinder is obtained as a result of burning of coal in
the boilers and furnances in factories. Coal is used in the assessees'
factories as fuel and not as raw material for the purpose of
C manufacturing the end product. Even if it is assumed that cinder is a
by-product of coal, it cannot be said that it is a by-product of the raw
material used in a factory for manufacturing the end product. It is a
by-product of an item of fuel. Coal which leads to production of cinder
is not used as a raw material for the end product but for ancillary
D purpose that is as a fuel. Therefore, irrespective of the fact whether
any manufacture is involved in production of cinder it should be held
to be out of the tax net for the reason that it is not a raw material for
the end product. [1124-G-H, 1125-D, 1132-F)

E 'Dictionary of Scientific and Technical Terms' by Mc Grow-Hill,
referred to.

1.2. Section 3 of the Central Excise Act shows that the words
'excisable goods' have been qualified by the words "which are produced
or manufactured in India". Therefore, simply because goods find
F mention in one of the entries of the First Schedule of the Central Excise
Tariff act does not mean that they become liable for payment of excise
duty. Goods have to satisfy the test of being produced or manufactured
in India. It is settled law that excise duty is a duty levied on
manufacture of goods. The requirement of goods being manufactured
G in India is a sine qua non for levy of excise duty. Excise duty in fact
is an incidence of manufacture. [1128-C-D, G)

Hyderabad Industries Ltd and Anr. v. Union of India & Ors., [1995)
5 SCC 338 and Moti laminates Pvt. ltd and Ors. v. Callector of Central
H Excise, Ahmedabad, relied on.
U.0.1. v. AHMEDABAD ELECTRICITY CQ LTD. 1119

Mls.Khandelwal Metal and Engineering Works and Another, v. A
Union of India and Ors., (1985] 3 SCC 620 and 4ssociated Cement
Company Ltd. v. Commissioner of Custom, (20011 4 SCC 593,
distinguished.

1.3. Manufacture includes any process incidental or ancillary to the B
completion ofa manufactured product. The word 'manufacture' used as
a verb in generally understood to mean as !>ringing into existence a new
substance.' Manufacture' may involve various processes. The aim of any
manufacturing activity is to achieve an end product. Depending on the
nature of manufacturing activity involved, processes may be several or
one. The natural meaning of the word 'process' is a mode of treatment of C
some material in order to produce a good result. Every process which is
incidental or ancillary to the completion of manufactured product is
included within the meaning of manufacture. The word 'process' has not
been defined in the Act. In its ordinary meaning 'process' is a mode of
treatment of certain material in order to give a desired shape to the D
material. It is an activity performed on a given material in order to
transform it into something. (1128-A-B-C-D)

South Bihar Sugar Mills v. Union of India, AIR (1968) SC 922;
Mis. Hindustan Polymers v. Collector of Central Excise, (1989) 4 SCC
323; Mis. Ujagar Prints and Others v. VO! and Others, (1989) 3 SCC 488; E
Collector of Central Excise, Bombay-II v. Mis. Kiran Spinning Mills,
(1988) 2 SCC 34M; Collector of Central Excise v. TechnoWeld Industries,
(2003) 155 ELT 209; Collector of Central Excise, Jaipur v. Rajasthan
State Chemical Works, Deedwana, Rajasthan and Others, [19911 4 SCC
473 and Deputy Commissioner of Sales Tax (Law), Board of Revenue F
(Taxes), Ernakulam v. Mis. Thomas Stephen & Co. Ltd Qui/on, (1988] 2
sec 264, relied on
Permanent Edition of Words and Phrases Vol. XXVI, referred to.

1.4. In producing 'cinder', there is no manufacturing process G
involved. Coal is simply burnt as fuel to produce steam. Coal is not
tampered with, manipulated or transformed into the end product. For
purposes of manufacture the raw material should ultimately get a new
identity by virtue of the manufacturing process either on its own or
in conjunction or combination with other raw materials. Since coal is H
•

1120 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A not a raw material for the end product in all these cases, the question
of getting a new identity as an end product due to manufacturing
process does not arise. Burning of coal for purposes of producing steam
cannot be said to be a manufacturing activity. Therefore, neither ash
nor cinder can be said to be products of a manufacturing process.
B From burning coal when one gets either cinder or ash, it cannot be said
that a new product had emerged. Cinder remains coal. 'Cinder' is not
a new product. In fact, the Revenue has itself described it as unburnt .
part of coal, in the grounds of an appeal in the instant case. After
correctly describing cinder as unburnt part of coal, the Revenue
C cannot equate it to ash simply to somehow bring it within Entry 26.21
of the Tariff Act. [1132-G-H, 1133-A, 1133-E-F-G] "'
1.5. Cinder though sold for small price cannot be said to be a
marketable commodity in the sense the word "marketable" is
understood. Due to sheer necessity cinder has to be removed from the
D place where it occurs because unless removed it will keep on
accumulating which in turn lead to loss of precious space. These are
matters of fact which have not been gone into by the authorities
concerned and therefore it is too late for this Court to go into all this.
Applying the tests laid down in various judgments of this Court, it can
E not be said that cinder satisfies the requirement of being manufactured
in India. [1136-C-D-E)

Collector of Central Excise v. Kesoram Rayons; HMM Ltd v.
Collector of Central Excise, (1989) Vol. 40 ELT 422; CCE v. Mafatlal
F Fine Spinning 92 ELT A-145; CCE v. Swadeshi Cotton Mills, 82 ELT
A-160; Century Rayon v. Union of India, (2002) 142 ELT 319;
Commissioner of Central Excise, Chandigarh v. Markfed Vanaspati and
Allied Industries (2003)153 ELT 491; Modi Rubber Ltd, Modi Nagar, U.P.
and Anr v. Union of India and Others, (1987) 29 ELT 502 and Delhi UOJ
and Ors. v. Indian Aluminium Co. Ltd. & Anr, [1995) Suppl. 2 SCC 465,
G relied on.

Commissioner of Central Excise, Calcutta v. Papyrus Papers, [33]
ELT 97, approved.

H 1.6. The onus to show that particular goods on which excise duty
U.0.1. v. AHMEDABAD ELECTRICITY CO LTD. 1121

is sought to be levied have gone through the process of manufacture A
in India is on the Revenue. They have done nothing to discharge this
onus. For this reason alone they must fail. [1136-HJ

2. In the First Schedule to the Tariff Act, cinder does not find any
place anywhere. It is because the Revenue had to fall back upon entry
26.21 in the First Schedule in order to cover cinder with"in the excise net. B
The Tariff Act, 1985 does not have a residuary entry like entry 68 in the
old Tariff Act. Instead the new Tariff Act has interpretative notes.
Whenever some by-product of a product is sought to be included for
taxability it has been so said in the interpretative notes. However,
• regarding coal there is no interpretative note nor there is anything about C
cinder. When dnder is derived from coal it could have at best been treated
as coal for purposes of entries in the First Schedule to the Tarrif Act. But
that would not suit the department because coal is exempt from excise
duty. The department then describes cinder as "coal ash". But coal ash
also fails the test of being manufactured in India. It cannot be subjected
to levy of excise duty. [1133-H, 1134-A-B-C) D
3. Revenue has been consistently taking a stand that cinder is not
excisable as it does not involve any manufacturing activity. The
Department issued a clarification by issuing a Circular. According to
it coal ash left out in burning of coal would not attract duty under item E
68 of the Act for the reason that in the burning of coal as fuel, resulting
in coal ash as a waste product no manufacturing process is involved. ·
With the introduction of the new Tariff Act and specific entry for ash
being included in the Tariff Chapter 26, hence the issue again revived.
The exemption was withdrawn. Later, the Commissioner of Central
Excise issued a Trade Notice No. 35 of 1998 clarifying that coal ash F
(cinder) as specified in the Schedule to the Tariff Act was subject to
levy of excise duty. This sudden turn is not only unju~tified but also
is contrary to law. (1137-A-_B-C-D]

4. With regard to the objection by the Revenue that the High
Court should not hne entertained a petition under Article 226 of the G
Constitution of India in the facts and circumstances of the case, it is
observed that in only one Civil Appeal in the case of Ahmedabad
Electricity Company arose from proceedings before the High Court
under Article 226, and in the said case challenge was to a Circular
issued by the Central Board ofExcise and Customs and the consequential H
1122 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A Trade Notice No. 36/98 issued by the office of the Commissioner of
Central Excise and Customs, Ahmedabad by which it was clarified that
"coal-ash (cinder" is an excisable commodity classifiable under sub-
heading No.26.21 of the Central Excise Tariff Act, 1985. No objection
regarding maintainability of the Writ Petition under Article 226 of the
B Constitution have been raised before the High Court. Even if such an
objection was raised, the same would have been a futile attempt. In the
facts of the case the High Court would have been justified in rejecting
such an objection. The impugned Circular could not have been
challenged before the departmental authorities as they would have felt
C bound by it. Hence, no merit is found in the objection.
(1138-C-D-E-F-G]

CIVIL APPELLATE JURISDICTION Civil Appeal Nos. 2168-
2169 of 2001.

D From the· Judgment and Order dated 4.4.2000 of the Gujarat High
Court in S.C.A. Nos. 1966 and 9538 of 1999.

WITH

E C.A. Nos. 7792-7795/2001, 626-27, 2013, 3194, 4183-4188, 4724,
8642-8644, 8649/2002, 87-89, 4490-4493 of 2003.

Mukul Rohtagi, Additional Solicitor General, Jaideep Gupta, Ms.
Nisha Bagchi and B.K. Prasad for the Appellant.

F D.A. Dave, Joseph Vellapally, Ms. Meenakshi Arora, Uday Joshi,
Harris Beeran, George Panlose, Devang S. Nanavati, H.A. Ahmedi, Saurin
Mehta, Mrs. V.D. Khanna, Mrs. Nirmala Gupta, K.V. Viswanathan, Mrs.
Gauri Rasgotra, Suman J. Khaitan, Ajay Aggarwala, Rajan Narain, Thomas
Vellapally, M.H. Patil, Shri Narain, Sandeep Narain, Ms. Anjali Jha, Jay
G Savla, Ms. Reena Bagga, Sanjeev Kapur, Umesh Kumar Khaitan, Ms. Indu
Malhotra, Ms. Madhu Sweta, A.R. Madhav Rao, V. Balachandran, Ms.
Suruchi Aggarwal, Ambhoj Kumar Sinha and Sanjay Kapur for the
Respondents.

H The Judgment of the Court was delievered by
U.0.1. v. AHMEDABAD ELECTRICITY CO. LTD. [ARJUN KUMAR, J.] 1123

ARUN KUMAR, J. : The question which arises for consideration in A
this bunch of appeals is regarding exigibility of'cinder' to excise duty. The
respondents in all the appeals use coal as fuel for producing steam to run
the machines used in their factories to manufacture the end product. Coal
is burnt in the boilers or furnaces for producing steam. Normally coal when
it is burnt in boilers is reduced to ash. Some part of coal does not get fully B
burnt because of its low combustible quality. This unburnt or half burnt
portion of coal is left out in the boilers. It is called 'cinder'. Though the
respondents are engaged in manufacturing different end products, one
thing is common between them and that is that they all use coal as a fuel.

The First Schedule to the Central Excise Tariff Act contains various C
entries which is a list of excisable goods. The list also gives rates of duty
leviable on the respective items. 'Cinder' is not mentioned in any of the
entries to the First Schedule. Chapter 26 of the Schedule contains an entry
at Serial No. 26.21 which is as under:
D
"Other slag and ash, including seaweed ash (kelp)---8%"

The Revenue seeks to cover 'cinder' under the said entry to make it
subject to levy of excise duty. The respondents have resisted this claim
of the Revenue. This has led to the present litigation. The learned E
Additional Solicitor General appearing for the Union of India, i.e. the
Central Excise Department, raised following points in support of the stand
of the Department that "cinder" is liable to be subjected to levy of excise
duty:

(1) In view of the Entry No. 26.21 in the Central Excise Tariff Act,
F
'cinder' is per se exigible to excise duty as it is covered under an entry
in the First Schedule to the Tariff Act. According to him, the fact that an
item finds mention in the Schedule to the Tariff Act per se becomes
excisable. The said Schedule contains a list of excisable goods and all
items in the Schedule are liable to payment of excise duty. G

(2) Section 3 of the Central Excise and Salt Act is the charging
Section from which the twin test of excisable goods being manufactured
in India and capable of being marketable emerge. According to the learned
ASG both the tests are satisfied in the present case. It is argued that 'cinder' H
1124 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A is a by-product of coal which emerges in the course of manufacture of the
end product. 'Cinder' is sold by the various assessees from their factories.
Therefore, it is marketable. Thus both the tests are satisfied.

(3) The question involved in the present appeals is more a question
B of fact which the High Court should not have entertained in a petition under
Article 226 of the Constitution of India.

Apart from the above points urged on behalf of the Revenue, some
points emerge from the contentions raised by the learned counsel appearing
for the assessees. They are :
c•
In the statutory appeals filed by the Revenue against the judgment
of the Customs Excise & Gold (Control) Appellate Tribunal in the case
of Tata Iron and Steel Company (C.A.No.4051/2003), it has been argued
that the show cause notice issued by the departmental authorities was
D beyond time. Section l lA of the Central Excise Act which allows an
extended period of limitation for issue of Show Cause Notice could not
be invoked in the facts of the case because all necessary facts were being
disclosed regularly by the Company to the Revenue authorities and there
was no concealment or suppression or misrepresentation. Therefore, the
show cause notice being highly belated was liable to be quashed.
E
Another point raised in the Tata Iron Company's case is that 'cinder'
is a waste emerging from coal and the Company was spending much more
on its removal from the site as compared to what it was getting from its
sale. This point has been raised in some other cases also. This is a point
F which would arise on the facts of particular cases. Proper pleadings have
to be there. The Tribunal being the fact finding body ought to have
adverted to it. Unfortunately, this aspect has not received any attention
before the Tribunal.

WHAT IS CINDER:
G
Cinder is obtained as a result ~f burning ·coal in the boilers and
furnaces in factories. 'When coal is fully burnt it is reduced to ash. When
it is not fully burnt, it leaves pieces behind. Such pieces of unburnt or
partly burnt coal are called cinder. Cinder loses its capacity to produce
H flame. That is why it is of no use in the boiler and is left out. Since it
U.0.1. v. AHMEDABAD ELECTRICITY CO. LTD. [ARJUN KUMAR, J.] 1125

is left with some combustible value, it is described as inferior quality A
coal.

Mc Graw - Hill Dictionary of Scientific and Technical terms
describes cinders as :

"Incombustible residue from a burning process;
B

in particular, small pieces of clinker from the burning of soft
coal."

' According to the New Webster's Dictionary of the English Language C
one of the meanings of cinder is "a burned-out- or partially burned piece
of coal, wood or other substance."

An important distinguishing factor is that coal is used in factories
as fuel and not as raw material for purposes of manufacturing the end D
product. The learned ASG appearing for the Union of India submitted that
cinder is a by-product of coal. Even if cinder is a by-product of coal, it
is not a by-pro<luct of the raw material used in a factory for manufacturing
the end product. It is a by-product of an item of fuel.

Point I E

Whether inclusion of an item in the entries to the First Schedule to
the Tariff Act per se makes the item exigible to excise duty?

This point needs a reference to relevant statutory provisions. Material F
portion of Section 3 of the Central Excise Act, 1944 is reproduced as
under :

" Section 3 : Duties specified in the First Scheduie to be
levied
G
(I) There shall be levied and collected in such manner as
may be prescribed, duties of excise on all excisable goods other
than salt which are produced or manufactured in India and a duty
on salt manufactured in, or imported by land into, any part of India
as, and at the rates, set forth in the First Schedule." H
1126 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A The following key words occurring in this provision have been
defined in the Act as under :

" Section 2

(a) .......... .
B
(b) ......... .

(d) "excisable goods" means goods specified in the First
c Schedule as being subject to a duty of excise and includes salt;

(e) ......... .

(f) "manufacture" includes any process incidental or
D ancillary to the completion of a manufactured product; ...... ..

The learned Additional Solicitor General appearing for the Union
argued that Section 3 of the Act is the charging Seetion. It provides that
excise duty is to be levied on all excisable goods. Excisable goods are listed
E in the First Schedule to the Tariff Act. According to him, Section 3 read
with Section 2(d) makes it clear that an item which is listed in the First
Schedule to the Tariff Act is exigible to excise duty. It is further submitted
that in view of entry No. 26.21 in the First Schedule 'cinder' is liable to
levy of excise duty. According to him, cinder is nothing but ash. From
F this argument, it follows that cinder is being equated to ash in order to
bring it within Entry No. 26.21 to the First Schedule. As seen earlier,
cinder is not ash - it is something between coal and coal ash.

For the sake of deciding this issue, we will assume that cinder is ash
1 and, therefore, is liable to be covered under entry 26.21. The real question
G to be considered is whether all items listed in the First Schedule to the Tariff
Act, per se become subject to levy of excise duty. According to the learned
counsel for the Revenue, all excisable goods listed in the first Schedule are
subject to the liability to pay excise duty in view of Section 3 of the Act.
Excisable goods as per Section 2(d) are those which are specified in the
H First Schedule to the Tariff Act. 'Ash' being found mentioned in Entry
U.0.1. v. AHMEDABAD ELECTRICITY CO. LTD. [AR.TUN KUMAR, J.] 1127

26.21 in the First Schedule, it per se becomes liable to payment of excise A
duty. In support of his argument, the learned counsel relied on Mis.
Khandelwa! Metal and Engineering Works and Another v. Union of India
and Others ( 1985] 3 SCC 620. This was a case of levy of additional
customs duty under Section 3(1) of the Customs Tariff Act, 1975. This
duty is leviable in addition to the customs duty under Section 12 of the B
Customs Act. The additional customs duty is Ieviable on items imported
into India if like articles if produced or manufactured in India are liable
to payment of excise duty. The argument on behalf of the assessee was
that brass scrap imported by it was not subject to levy of the additional
.. customs duty which is in the nature of counter veiling duty. It cannot be
levied on brass scrap because such scrap is not manufactured in India. This C
contention of the assessee was rejected on the ground that brass scrap was
being produced in India. The argument on behalf of Revenue was that
waste and scrap is mentioned in Entry 26A of the First Schedule to the
Tariff Act and is therefore exigible to excise duty. Since reliance was
placed on the argument that waste and scrap being found in relevant entry D
in the First Schedule to the Tariff Act and therefore were exigible to
customs duty, this authority was pressed into service in support of the
argument that presence of an item in an Entry to the First Schedule to the
Act makes it per se subject to levy of excise duty. In our view, this
authority is of no help to the appellants. This was basically a case of levy E
of additional customs duty, for which different considerations apply.

He also relied on the following observations contained in Associated
Cement Company Ltd. v. Commissioner of Customs, (2001] i SCC
593] :
F
"81. Under the Central Excise Act, 1944 in the definition of the
words 'excisable goods' under Section 2 (d), the very specification
or inclusion of goods in the First and Second Schedules of the
Central Excise Tariff Act would make them excisable goods
subject to duty." G
These observations were made in the context of provisions of the
Customs Act, 1962. The charging Section in that Act is Section 12 which
refers to 'dutiable goods'. The expression 'dutiable goods' has been
defined in Section 2 (14) of the Act as goods which are chargeable to duty
and on which duty has not been paid. In the present case however, we H
1128 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A are considering the expression 'excisable goods' in the light of provisions
contained in Section 3 of the Central Excise Act, I 944. Section 3 qualifies
to expression 'excisable goods' by laying down the further requirement
that such goods should be produced or manufactured in India. Such a
requirement is not there in the Customs Act.. Therefore, the above
B observations have no bearing on the issue involved in the present case.

We are unable to accept the proposition advanced by the learned
Additional Solicitor General. A close look at Section 3 of the Central
Excise Act shows that the words 'excisable goods' have been qualified
C by the words "which are produced or manufactured in India". Therefore,
simply because goods find mention in one of the entries of the First
Schedule does not mean that they become liable for payment of excise
duty. Goods have to satisfy the test of being produced or manufactured
in India. It is settled law that excise duty is a duty levied on manufacture
of goods. Unless goods are manufactured in India, they cannot be
D subjected to payment of excise duty. There is, no merit in the argument
that simply because a particular item is mentioned in the First Schedule,
it becomes exigible to excise duty. [See Hyderabad Industries Ltd and
Another v. Union of India and Others, [1995] 5 SCC 338 and Moti
Laminates Pvt. Ltd. and Others v. Collector ofCentral Excise, Ahmedabad,
E (1995] 3 sec 23. Therefore both on authority and on principle, for being
exigible to excise duty, excisable goods must satisfy the test of being
produced or manufactured in India. The argument to the contrary is
rejected.

F Point 2

Does the item in question satisfy the tests of being "manufactured in
India" and "marketability" ?

While discussing the earlier issue, we have already emphasised the
G requireme11t of goods being manufactured in India being satisfied before
excise duty can be levied on goods. This requirement is a sine qua non
for levy of excise duty. Excise duty in fact is an incidence of manufacture.

What is the meaning of 'manufacture' in the context of excise law?
H We have already quoted the definition of the word "manufacture" as
U.O.I. v. AHMEDABAD ELECTRICITY CO. LTD. [ARJUN KUMAR, J.] 1129

contained in Section 2(f) of the Act. According to this definition, A
manufacture includes any process incidental or ancillary to the completion
of a manufactured product. The word 'manufacture' used as a verb is
generally understood to mean as bringing into existence a new substance.
It does not mean merely to produce some change in a substance. To quote
from a passage in the Permanent Edition of Words and Phrases Vol.XXVI B
"manufacture implies a change, but every change is not manufacture and
yet every change of an article is the result of treatment, labour and
manipulation. But something more is necessary and there must be
transformation: a new and different article must emerge having a distinctive
name, character or use". 'Manufacture' may involve various processes. C
The aim of any manufacturing activity is to achieve an end product.
Depending on the nature of manufacturing activity involved, processes
may be several or one. The natural meaning of the word 'process' is a
mode of treatment of some material in order to produce a good result.
Every process which is incidental or ancillary to the completion of
manufactured product is included within the meaning of manufacture. The D
word 'process' has not been defined in the Act. In its ordinary meaning
'process' is a mode of treatment of certain material in order to give a
desired shape to the material. It is an activity performed on a given material
in order to transform it into something.

The word "manufacture" has been defined in various judgments of
E
this court. In South Bihar Sugar Mills v. Union of India, AIR ( 1968) SC
922, this court observed:

"The Act charges duty on manufacture of goods. The word
"manufacture implies a change every change in the raw material F
is not manufacture. There must be such a transformation that a
new and different article must emerge having a distinctive name,
character or use."

In Mis. Hindustan, Polymers v. Collector of Central Excise, (1989] G
4 sec 323 this court observed :

"Excise Duty is a duty on the act of manufacture. Manufacture
under the excise law, is the process or activity which brings into
being articles which are known in the market as goods and to be
goods these must be different, identifiable and distinct articles H
1130 . SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A known to the market as such. It is then and .then only that
manufacture takes place attracting duty. In order to be goods,
it was essential that as a result of the activity, goods must come
into existence.. For articles to be goods, these must be known in
the market as such and these must be capable of being sold or are
being sold in the market as such. In order, therefore, to be
B
manufacture, there must be activity which brings transfonnation
to the article in such a manner that different and distinct article
comes into being which is known as such in the market."

According to Mis. Ujagar Prints and Others (II) v. UOI and Others,
. c [1989] 3 sec 488 the test to ascertain that there is manufacture is whether
the change or the series of changes brought about by the application of
processes take the commodity to the point where, commercially it can no
longer be regarded as the original commodity but is, instead, recognised
as a distinct and new article that has emerged as a result of the processes."
D
In Collector of Central Excise, Bombay-II v. Mis. Kiran Spinning
Mills, [1988] 2 SCC 348, the assessee used to cut running length fibre into
short length fibre. In this process it brought a change in the substance but
did not bring into existence a new substance. The character and use of
the substance remained the same. It was held that no manufacturing
E activity was involved and therefore there was n~ further liability to excise
duty. It was emphasized that the taxable event under the Excise Law is
"manufacture". Since there was no manufacture in this case there was no
liability to pay excise duty.

F. On the same lines there is a recent decision of this court in Collector
of Central Excise v. TechnoWeld Industries, (2003) 155 ELT 209. The
process in this case was drawing wires from wire rods that is from bigger
guage wire rods smaller guage wire rods were drawn. The goods continued
to be described as wire rods. It was held that no manufacture as such was
G involved and therefore there was no liability to pay excise duty. It was
reiterated that a product becomes excisable only if there is manufacture. ..:

In Collector of Central Excise, Jaipur v. Rajasthan State Chemical
Works, Deedwana, Rajasthan and Others, [1991] 4 SCC 473, this court
adverted to the meaning of process as well as manufacture. The following
H passages occurring in the judgment are useful for present purpose:
U.O.I. v. AHMEDABAD ELECTRICITY CO. LTD. [ARJUN KUMAR, J.] 1131

"12. Manufacture implies a change but every change is not A
manufacture, yet every change of. an article is the result of
treatment, labour and manipulation. Naturally, manufacture is the
end result of one or more processes through which the original
commodities are made to pass. The nature and extent of processing
may vary from one class to another. There may be several stages B
of processing, a different kind of processing at each stage. With
each process suffered the original commodity experiences a
change. Whenever a commodity undergoes a change as a result
of some operation performed on it or in regard to it, such operation
would amount of processing of the commodity. But it is only
• when the change or a series of changes takes the commodity to C
the point where commercially it can no longer be regarded as the
original commodity but instead is recognised as a new and distinct
article that a manufacttire can be said to take place.

13. Manufacture thus involves series of processes. Process D
in manufacture or in relation to manufacture implies not only the
production but the various stages through which the raw material
is subjected to change by different operations. It is the cumulative
effect of the various processes to which the raw material is
subjected (sic that the) manufactured product emerges. Therefore,
each steps towards such production would be a process in relation E
to the manufacture. Where any particular process is so integrally
connected with the ultimate production of goods that but for that
process manufacture of processing of goods would be impossible
or commercially inexpedient, that process is one in relation to the
manufacture. F
14. That natural meaning of the word 'process' is a mode
of treatment of certain materials in order to produce a good result,
a species of activity performed on the subject matter in order to
transform or reduce it to a certain stage. According to Oxford
Dictionary one of the meanings of the word 'process' is a G
"continuous and regular action or succession of actions taking
place or carried on in a definite manner and leading to the
accomplishment of some result". The activity contemplated by
the definition is perfectly general requiring only the continuous
or quick succession. It is not one of the requisites that the activity H
1132 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A should involve some operation on some material in order to (sic
effect) its conversiqn to some particular stage. There is nothing
in the natural mea.ning of· the word 'process' to exclude its
application to handling. There may be a process which consists
only in handling and there may be a process which consists only
in handling and there may be a process which involves no
B
handling or not merely handling but use or also use. It may be·
a process involving the ~andling of the material and it need ·not
be a process involving the use of material. The activity may be
subordinate but one in relation to the further process of
manufacture."
c
Deputy Commissioner ofSales Tax (Law), Board of Revenue (Taxes),·
Ernakulam v. Mis. Thomas Stephen & Co. Ltd, Qui/on, [1988] 2 SCC 264
is a case under the Kerala General Sales Tax Act, 1963. The assessee used
to purchase cashew shells for use as fuel in the kiln in the factory. Under
D the· Act levy of tax was on consumption of goods in the manufacture of
other goods for sale or otherwise. The difference between use of goods
in manufacture as raw material and use for other ancillary purposes was
brought out. Goods used for ancillary purposes like fuel in the process
of manufacture were held not to be exigible to tax. Since cashew shells
E were used only as fuel and they did not get transformed into the end product
they were held to be not exigible to tax. Cashew shells weri:! used in aid
of manufacture of goods and as such they did not attract levy of tax.

In the case in hand also coal which leads to production of cinder is
F not used as a raw material for the end product. It is being used only for
ancillary purpose that is as a fuel. Therefore, irrespective of the fact
whether any manufacture is involved in production of cinder it should be
held to be out of the tax net for the reason that it is not a raw material for
the end product.

G In producing 'cinder', there is no manufacturing process involved.
Coal is simply burnt as fuel to produce steam. Coal is not tampered with,
manipulated or transformed into the end product. For purposes of
manufacture the raw material should ultimately get a new identity by virtue
of the manufacturing process either on its own or in conjunction or
H combination with other raw materials. Since coal is not a raw material for
U.0.1. v. AHMEDABAD ELECTRICITY CO. LTD. [ARJUN KUMAR. J.] 1133

the end product in all the cases before us, the question of getting a new A
identity as an end product due to manufacturing process does not arise.

In Collector ofCentral Excise, New Delhi v. Mis. Ballarpur Industries
Ltd., [1989] 4 sec 566, the raw material in the course of chemical
reactions got burnt up and lost its apparent identity. To be more precise, B
the input of sodium sulphate in the manufacture of paper would not cease
to be of raw material by reason alone of the fact that in the cour_se of the
chemical reactions, this ingredient is consumed and burnt up. All the same
it remained a raw material. It was held that the relevant test is not the
absence of the raw material in the end product, but the dependence of the
• end product for its essential presence at the delivery end of process. What C
follows from this is that the raw material which we are concerned about
is the raw material which is linked with emergence of the end product.
It has to be present in the end product whether visibly or invisibly. Use
of an item as fuel cannot be called part of the manufacturing activity in
relation to production of the end product. Therefore, cinder cannot be said D
to be a by-product of the final product. At best it is a by-product of coal
which is used as fuel.

• Can burning of coal be called manufacturing? The locomotive steam
engines used to run on coal. Coal was being constantly burnt in the boiler E
of the engine. The constant burning of coal produced cinder. Could it be
said that the engine driver was manufacturing cinder? Is any manufacturing
activity involved? Burning ofcoal for purposes of producing steam cannot
be said to be a manufacturing activity. Therefore, neither ash nor cinder
can be said to be products of a manufacturing process. From burning coal F
when you get either cinder or ash, it cannot be said that a new product had
emerged. Cinder remains coal. In fact, the Department has itself described
it as unburnt part of coal in the grounds of appeal in C.A.No.2168-2169
of 2001 in the Ahmedabad Electricity Supply Company Case. 'Cinder'
is not a new product. After correctly describing cinder as unburnt part of
coal, the Revenue cannot equate it to ash simply to somehow bring it G
within Entry 26.21 of the Tariff A~t.

In the First Schedule to the tariff, cinder does not find any place
anywhere. It appears that it is because of this that the Revenue had to fall
back upon entry 26.21 in the First Schedule in order to cover cinder within H
1134 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A the excise net. The new tariff that is Tariff Act, 1985 does not have a
residuary entry like entry 68 in the old tariff. Instead the new tariff has
interpretative notes. Whenever some by-product of a product is sought to
be included for taxability it has been so said in the interpretative notes.
However, regarding coal there is no interpretative note nor there is anything
B about cinder. When cinder is derived from coal it could have at best been
treated as coal for purposes of entries in the First Schedule to the Tariff
Act. But- that would not suit the department because· coal is exempt from
excise duty. The department now describes cinder as "coal ash". But coal
ash also fails the test of being manufactured in India. It cannot be subjected
to ·levy of excise duty.
c
The learned counsel appearing for the assessee brought to our notice
several judgments of th'! CEGAT holding that cinder was not exigible to
payment of excise duty. Against some of the judgments statutory appeals
filed before this Court were dismissed. In Commissioner ofCentral Excise,
D Calcutta v. Papyrus Papers, 33 EL T 97 it was held by CEGAT that cinder
obtained by burning coal in boiler does not constitute manufacture of
excisable commodity even if sold for a price. In Collector of Central
Excise v. Kesoram Rayons the CEGA T held that cinder obtained on
burning coal in the boiler as a fuel is not exigible to excise duty. Civil
appeal filed by the Collector of Central Excise, Calcutta against the said
•
E judgment was dismissed by this Court .. HMM Ltd v. Collector ofCentral
Excise, (1989) Vol.40 ELT 422 is another judgment of the CEGA T
holding cinder to be coal waste. Merely because it could fetch some price
on sale it is not exigible to excise duty. Appeal against this judgment was
also dismissed by this Court. Same is the situation about decisions of the
f CEGAT in CCE v. Ma/at/al Fine Spinning, (92 ELT A-145) and CCE v.
Swadeshi Cotton Mills, (82 EL T A-160). Both these cases are regarding
cinder being held to be not exigible to excise duty and appeals against
orders of the CEGAT in these cases were dismissed by this Court. The
Bombay High Court noting this consistent view of the CEGAT regarding
G non-exigibility of cinder to tax held in Century Rayon v. Union of India,
(2002) 142 EL T 319 that cinder produced from use of coal as fuel could
not be treated as excisable commodity. Against this decision of the High
Court, Special Leave Petition was dismissed by this Court.

Recently this Court had occasion to deal with a case of excise duty
H sought to be levied on 'spent earth'. This was in Commissioner of Central
U.0.L v. AHMEDABAD ELECTRICITY CO. LTD. [ARJUN KUMAR, J.] 1135

Excise, Chandigarh v. Markfed Vanaspati and Allied Industries, (2003) A
153 ELT 491. Excise duty was being paid on "earth". 'Spent earth' is
a residue resulting from treatment of fatty substances. The 'spent earth'
remained 'earth' even after processing though its capacity to absorb was
reduced. It was held that no excise duty was leviable on 'spent earth'.
The facts in this case are quite similar to the facts of the case in hand. · In B
Markfed Case 'earth' was reduced to 'spent earth' with a reduced potency
to absorb. In the case in hand coal was reduced to inferior quality coal
which was no longer of use in the furnaces in the factories, therefore, it
could reasonably be said that 'cinder' i.e. coal ofreduced quality still was
coal and not exigible to excise duty .
• c
In Modi Rubber Ltd., Modi Nagar, UP.. and Anr. v. Union of India
.and Others, (1987) 29 EL T 502 Delhi, it was held that waste/scrap
obtained not by any process of manufacture but in the course of
manufacturing the end product was not exigible to excise duty. This was
·,
~-
a case of manufacture of tyres, tubes etc. In the course of manufacturing D
process to produce the end product i.e. tyres, tubes, flaps etc. waste was
obtained in the shape of cuttings. It was held that this was not exigible
to tax even though the waste may have some saleable value. The essential
I •
reason for this was that there was no transformation in the case of waste/
scrap to a new and different article. No new substance having a distinct E
name, character and use was brought about. Manufacturing process
involved treatment, labour or manipulation by the manufacturer resulting
in a new and different article. It requires a deliberate skillful manipulation
of the inputs or the raw materials. This was not so in case of scrap.

It is worth mentioning that in UOI and Ors. v. Indian Aluminium
F
Co. Ltd. and Anr., [ 1995] Suppl. 2 SCC 465, it was held that waste or
rubbish which is thrown up in the course of manufacture could not be said
to be a produce of manufacture exigible to excise duty. In this case the
assessees manufactured aluminium products out of the aluminium ingots.
In the process of manufacture dross and skimmings arise and accumulate G
in the furnace in the shape of ashes as a result of oxidization of metal.
Aluminium dross contain an amount of metal from which they come but
they lack not only metal body but also metal strength, formability and
character. Such dross and skimmings are distinct from scrap which is a
metal of good quality. Dross and skimmings though obtained during H
1136 SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.

A process of manufacture were held to be not exigible to excjse duty at the ~
relevant time. Since the dross and skimmings were sold in the market it
was argued that they were a marketable commodity and should be subject
to levy of excise duty. The court observed that these were nothing but
waste or rubbish which is thrown up in the course of manufacture. This
B judgment also answers the argument of the learned counsel for the
appellant based on Khandelwal Metal's case (Supra) wherein brass scrap
produced during manufacturing of brass goods were considered to be liable
to excise. · In the present case cinder though sold for small price cannot
be said to be a marketable commodity in the sense the word "marketable"
is understood. Due to sheer necessity cinder has to be removed from the
C place where it occurs because unless removed it will keep on accumulating
which in tum lead to loss pf precious space. Facts noted in TISCO's case
by the lower authorities show that TISCO had been paying substantial
amounts for removing cinder to a dumping ground. From the dumping
ground it was picked up by parties to whom it was sold. As per the
D averment, TISCO is spending many times more on removing cinder than
what it realizes from its sale. These are matters of fact which have not
been gone into by the authorities concerned and therefore it is too late for
us to go into all this.

Applying the tests laid down in these judgments, it is not possible
E to say that cinder satisfies the requirement of being manufactured in
India.

From the above discussion it is clear that to be subjected to levy of
excise duty 'excisable goods' must be produced or manufactured in India.
F For being produced and manufactured in India the raw material should
have gone through the process of transformation into a new product by
skilful manipulation. Excise duty is an incidence of manufacture and,
therefore, it is essential that the product sought to be subjected to excise
duty should have gone through the process of manufacture. Cinder cannot
be said to have gone th;ough any process of manufacture, therefore, it
G cannot be subjected to levy of excise duty.

The onus to show that particular goods on which excise duty is sought
to be levied have gone through the process of manufacture in India is on
the revenue. They have done nothing to discharge this onus. For thi~
H reason alone they must fail.
u.o.r. v. AHMEDABAD ELECTRICITY co. LTD. [ARJUN KUMAR, J.] 1137
The Department has been consistently taking a stand that cinder is A
not excisable as it does not involve any manufacturing activity. The
Department issued a clarification vide Circular No. B.352/75-TRU(J?t)
dated 6th June, 1975. According to it coal ash left out in burning of coal
would not attract duty under item 68 for the reason that in the burning of
coal as fuel, resulting in coal ash as a waste product no manufacturing B
process is involved. With the introduction of the new tariff in 1986 and
specific entry for ash being included in the Tariff Chapter 26, the issue
again revived. Notification No.76/86 dated 10th February, 1986 exempted
cinder from levy of excise duty.The whole thing was sought to be
overturned after the annual budget for the year 1996-9'7. The Tariff Act,
1975 was amended by virtue of the Tariff Act, 1985. The exemption was C
withdrawn by virtue of notification No. l l/96 dated 23rd July, 1996 in
view of.the annual budget for the year 1996-97. The Commissioner of
Central Excise vide Trade Notice No. 35 of 1998 dated 21st August, 1998
clarified that coal ash (cinder) is specified in the Schedule to the Tariff Act
and read with Section 2(d) of the Central Excise Act was subject to levy D
of excise duty. ,This s~dden tum is not only unjustified but also is contrary
to law.

Why we say it is contrary to law is because the department clarified
in June, 1975 that cinder is not exigible to excise duty as in its emergence E
no manufacturing process is involved. How can suddenly cinder become
exigible to excise duty ? The procedures which lead to emergence of cinder
have remained the same as they were in 1975. If it was not the result of
manufacturing process in 1975, it is not so even now. This aspect was not
taken into consideration at all. Interestingly in the Circular No:386/l 9/98- F
CX dated 7th April, 1998 the Central Board of Excise and Customs while
declaring coal ash (cinder) as subject to levy of excise duty, states that "the
commodity also satisfied the tests of m~rketability and has a distinct
commercial identity known to trade." There is no reference to the essential
test of being manufactured in India. It is for failing this test that the item
was excluded from levy of excise duty earlier in 1975. How can you ignore G
it now?

In view of our finding that cinder cannot be subjected to levy of excise
duty because it is not an item of goods which has been subjected to process
of manufacture, it is not necessary for us to go into any other point. We H
1138 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A may only note that courts have evolved another test of marketability i.e.,
to be exigible to excise duty goods must be marketable. It is not disputed
that cinder is being sold by the assessees. But can it be said to be
marketable goods in the sense word marketable is used ? We doubt it.
However, this need not detain us since cinder does not satisfy the test of
B being manufactured in India. Even if it is saleable, it does not make any
difference. The result is that the contention of the Revenue that cinder is
liable to payment of excise dufy is hereby rejected.

Point J

C The objection is that the High Court should not have entertained a + '
petition under Article 226 of the Constitution of India in the facts and
circumstances of the case. At the outset we m::iy note that we have only
one Civil Appeal in the case of Ahmedabad Electricity Company ( C.A.No.
2168-69/2001) which is arising from proceedings before the High Court
D under Article 226. The remaining matters in the bunch are statutory
appeals under Section 35L of Central Excise Act. Therefore, this court has
to go into the matter on merits. Moreover, in the Ahmedabad Electricity
Company's case challenge by way of Writ Petition under Article 226 was
to a Circular dated 7th April, 1998 issued by the Central Board of Excise
E and Customs and the consequential Trade Notice No.36/98 dated 22nd
May, 1998 issued by the office of the Commissioner of Central Excise and
Customs, Ahmedabad by which it was clarified that "coal-ash (cinder)" is
an excisable commodity classifiable under sub-heading No. 26.21 of the
Central Excise Tariff Act, 1985. In the first place no objection regarding
maintainability of the Writ Petition seems to have been taken before the
F High Court. Even if such an objection was raised, the same would have
been a futile attempt. In the facts of the case the High Court would have
been justified in rejecting such an objection. The impugned circular could
not have been challenged before the departmental authorities as·they would
have felt bound by it. We find no merit in the objection. The same is
G rejected.
All the appeals filed by the Revenue stand dismissed with no order
as to costs.

S.K.S. Appeals dismissed.