CESTAT: Dolochar Generated During Sponge Iron Manufacture Is Waste, Not Excisable Goods

CESTAT: Dolochar Generated During Sponge Iron Manufacture Is Waste, Not Excisable Goods

Introduction

The Customs, Excise and Service Tax Appellate Tribunal (Kolkata Bench) has held that dolochar generated during the manufacture of sponge iron is merely an inevitable waste and not a manufactured excisable product. The Tribunal ruled that no central excise duty is payable on its clearance. The Bench comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan allowed the appeal filed by Kaushal Ferro Metals (P) Ltd., setting aside the excise duty demand along with interest and penalty imposed on the sale of dolochar.

Factual Background

Kaushal Ferro Metals (P) Ltd. is engaged in the manufacture of sponge iron. The manufacturing process involves the use of iron ore as the primary raw material, coal as fuel, and dolomite or limestone as flux for desulphurisation. During the manufacturing process, certain waste materials such as coal ash, char, devolatilised dolomite and iron particles are generated. These waste residues are collectively referred to in the trade as dolochar. The Department treated dolochar as a manufactured excisable product and proposed recovery of central excise duty along with interest and penalty under Section 11AC of the Central Excise Act, 1944 on its clearance.

Procedural Background

The adjudicating authority confirmed the demand of central excise duty on the clearance of dolochar along with interest and equal penalty. The Commissioner (Appeals) upheld the order. Aggrieved by these findings, the appellant approached the Tribunal challenging the levy of duty on dolochar.

Issues

1. Whether dolochar generated during the manufacture of sponge iron constitutes a manufactured excisable product.

2. Whether central excise duty can be levied on the clearance of dolochar arising as a by-product or waste during production.

3. Whether the demand of duty along with interest and penalty was legally sustainable.

Contentions of the Parties

The Department contended that dolochar was a marketable commodity arising during the manufacturing process and therefore qualified as a manufactured excisable product liable to duty. On this basis, it justified the recovery of central excise duty along with interest and penalty.

The appellant argued that dolochar was merely waste generated inevitably during the production of sponge iron and did not emerge as a result of a manufacturing process. It was submitted that the residue did not possess a distinct name, character or use as required to qualify as a manufactured product under excise law.

Reasoning and Analysis

The Tribunal examined the manufacturing process of sponge iron and the nature of the residue known as dolochar. It observed that dolochar emerges unavoidably during the production process as a mixture of coal ash, char, devolatilised dolomite and iron particles.

The Bench held that the emergence of dolochar does not involve any manufacturing activity that results in a new product having a distinct name, character or use. It therefore concluded that dolochar cannot be treated as a manufactured excisable product.

The Tribunal relied on earlier decisions including Alok Steel Industries Pvt. Ltd. v. CCE and CCE v. Jharkhand Ispat Pvt. Ltd., where it had consistently been held that dolochar or coal char generated during sponge iron production is merely waste and not the result of a manufacturing process. In light of these precedents and the factual findings, the Tribunal held that no duty was payable on the clearance of dolochar.

Decision

The Tribunal held that dolochar generated during sponge iron production is not an excisable product and therefore no central excise duty is payable on its clearance. It allowed the appeal filed by Kaushal Ferro Metals (P) Ltd. and set aside the impugned demand along with interest and penalty.

In this case the appellant was represented by Mr. Kartik Kurmy and Ms. Ritika Kurmy, Advocates. Meanwhile the respondent was represented by Mr. D.Sue, Authorized Representative.