CENVAT duty cannot be levied on sale of fly ash, says High Court

The Central Board of Excise and Customs cannot levy Central Value Added Tax (CENVAT) duty on sale of fly ash generated during burning of pulverised coal in thermal power plants, the Madras High Court has held.

In a judgement reserved in the Principal Seat of the High Court in Chennai and delivered in its Bench here, Justice S. Vaidyanathan ruled that fly ash would not fall under the purview of excisable goods since it was not a manufactured product.

Partly allowing a writ petition filed by Mettur Thermal Power Station (MTPS), a unit of Tamil Nadu Generation and Distribution Corporation (Tangedco), the judge said that excise duty was an incidence of manufacture and therefore it could be levied only on manufactured goods.

“Simply because certain goods find mention in the First Schedule of the Central Excise Tariff Act, 1985, does not mean that they become eligible for payment of excise duty. It is essential that the goods should have been produced or manufactured in India,” he said.

Taking a cue from a 2003-Supreme Court judgement which had exempted cinders, small pieces of partly-burnt coal, from the purview of excise duty for similar reasons, the judge said that the ratio laid down in that decision would squarely apply in the case of fly ash too.

“When coal is not burnt fully and leaves pieces behind, it is called cinder whereas, when it is fully burnt and reduced to ash, it is called fly ash…

But for levying excise duty, the raw material should have gone through the process of transformation into a new product by skilful manipulation,” he added.

The judge, however, held that MTPS was liable to pay excise duty to the Central Board of Excise for the fly ash bricks manufactured and sold by it since the “ash does not get shaped as bricks unless some manufacturing activity is involved.”

The power station had approached the court challenging a notice issued by the Central Board on March 21, 2014, demanding Rs.1.4 crore, along with interest, towards excise duty for sale of fly ash and Rs.1.85 lakh for the sale of fly ash bricks.