Excise Duty Is An Incidence Of Manufacture

A piece of wood is burnt and it turns into ashes, can this ash be considered as a manufactured good?

Can the government levy duty on the sale of this ash?

Let’s answer the above question with the help of a court case:  

M/S Mettur Thermal Power Station Vs the Central Board of Excise and Customs (CBEC), July 2015.


The Prelude:

Thermal power plants produce electricity by burning coal. The burnt coal turns into ash, which is either sold directly or it’s converted into fly ash bricks and then sold in the market.

The Act:

In Mettur Thermal Power Station Vs CBEC case, the CBEC had levied an excise duty of INR 1.4 crore on the sale of fly ash generated during burning of pulverised coal in the Mettur Thermal Power Station. It had also levied excise duty of INR 1.85 lakh on the sale of the fly ash bricks. The power plant challenged the CBEC order and filed a writ petition Madras High Court.

The Judgement:

The Court ruled that excise duty is an incidence of manufacture and fly ash is not a manufactured product. It stated, “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”.

It further stated that “for levying excise duty, the raw material should have gone through the process of transformation into a new product by skillful manipulation”. (In simple words, fly ash is more of a by-product ~ not a product of skillful manipulation).

However, the court held that the CBEC had rightly levied excise duty on fly ash bricks since the “ash does not get shaped as bricks unless some manufacturing activity is involved”.

Hence, the court ruled that the duty levied on the sale of fly ash was invalid, however, the duty levied on the sale of fly ash bricks was valid.


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