M/S. Himadri Speciality Chemical LTD & Anr vs. The Commissioner Of Central Excise Kol. & Ors

Facts

The petitioner, M/s Himadri Speciality Chemical & Anr., manufactures Carbon Black. During this process, a waste gas containing carbon monoxide is generated. To comply with pollution laws, the petitioner incinerates this gas. The heat generated from incineration is used to produce electricity, partly for captive consumption and partly sold. A show cause notice dated March 28, 2016, was issued, proposing to treat the waste gas as excisable. Subsequently, an Order-in-Original dated November 30, 2017, was passed, demanding Central Excise duty of Rs. 20,61,27,457/-, interest, and a penalty of equal amount. The petitioner had filed a writ petition challenging the show cause notice, and later amended it to challenge the Order-in-Original passed during the pendency of the writ.

Held

The Court set aside the impugned ex-parte adjudication order dated November 30, 2017. The Court reasoned that the initial challenge was to the show cause notice, and the Order-in-Original was passed ex-parte during the pendency of the writ petition, despite the petitioner's request to keep proceedings in abeyance. The Court found it appropriate to remand the matter back to the adjudicating authority. The petitioner is to be allowed to file objections against the impugned adjudication order, treating it as a show cause notice. The adjudicating authority must consider all points raised by the petitioner in the writ petition and supplementary affidavit, including relevant judgments and circulars, and provide an opportunity of hearing before passing a fresh adjudication order, observing principles of natural justice. The final adjudication order is to be passed within four months from the date of receipt of the objection/reply.

Key Issues

1. Whether the lean gas/waste gas containing carbon monoxide, generated during the manufacture of carbon black, which is poisonous, neither marketable nor stable nor transportable, and is incinerated to observe pollution laws, can be made excisable on the ground that the heat generated during incineration is used for electricity generation, partly for captive consumption and partly sold? (Question of law turning on Section 3 read with Section 2(d) of the Central Excise Act, 1944). Petitioner's arguments: The waste gas is not marketable, storable, or transportable, and has no alternative use. It is incinerated to prevent pollution. The impugned order is contrary to binding CBEC circulars and the extended period of limitation under Section 11A(1) of the Act could not have been invoked. The adjudicating authority's findings are mechanical and do not specifically deal with the petitioner's grounds. Respondents' arguments: Electricity, being capable of being bought and sold, falls under the category of "goods." The waste gas is a composite good used for electricity generation. The extended period of limitation is applicable due to wilful suppression of material facts, such as the sale of electricity, with intent to evade duty. Judgments relied upon by the petitioner are not applicable to the facts of the case.