Waste Mud From Refining Process Not Liable To Excise Duty: CESTAT Hyderabad

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that “waste mud” (spent earth) generated during the refining of crude palm oil is not an excisable product under Section 2(d) of the Central Excise Act and is therefore not liable to Central Excise duty.

A Division Bench comprising Technical Member A.K. Jyotishi and Judicial Member Angad Prasad set aside the duty demand and held that the adjudication rested on an invalid circular. The Tribunal ruled that involuntarily generated manufacturing waste cannot be treated as excisable goods merely on the ground of marketability. It observed:

“It is not in dispute that the spent fuller earth has not emerged by way of any conscious effort and it has emerged involuntarily in the process of bleaching the crude palm oil… We also find that the adjudicating authority has relied on clarification issued vide circular dt.28.10.2009… whereas the said circulars were withdrawn and rescinded… we also find that there is an omnibus Notification No.89/1995-CE… which exempts all waste… from the whole of the duty of excise.”

3F Industries Ltd. manufactured fatty acids and related products, during which waste mud emerged in the refining process. The Department treated the waste as an excisable product classifiable under Tariff 1522 and issued a show cause notice alleging non-payment of duty. The adjudicating authority confirmed the demand relying on a CBIC circular dated 28 October 2009 and concluded that the waste satisfied the tests of manufacture and marketability.

The Commissioner (Appeals) upheld the demand. Before the Tribunal, the appellant pointed out that identical demands for the same period had already been set aside in its own case. It was further argued that the circular relied upon by the department had been quashed by the Allahabad High Court and subsequently withdrawn by the CBIC following Supreme Court intervention.

The Tribunal observed that the entire demand was founded on a circular that had ceased to exist. It further held that waste arising involuntarily in the manufacturing process cannot be treated as manufactured goods merely because it may have some market value. The Bench also relied on exemption Notification No. 89/1995-CE, which exempts waste and scrap arising during manufacture from excise duty.

Accordingly, the CESTAT held that the impugned order was unsustainable in law, set aside the duty demand, and allowed the appeal.

Appearance for the Appellant: Shri Y. Sreenivasa Reddy, Advocate

Appearance for the Respondent: Shri M. Anukathir Surya, AR