Full Judgment
E/A No. 984/96-C:-- In this case, the respondents were granted L-6 licence to obtain goods falling under Chapter 28, 29, 36 and 38 of the Schedule to the CETA1985 without payment of duty for use in the manufacture of zinc and lead concentrate in terms of Notification No.191/87 dated 4.7.87. The mines belonging to the respondents were issued CT-2 certificates for obtaining explosives falling under Chapter 36 without payment of duty. On a study of the process of use of explosives, it was observed that detonators and detonating fuses are being used to blast the mines to obtain zinc and lead ore through drilling and blasting and subsequent process such as crushing, grinding, flotation and filteration etc. were carried out to obtain zinc and lead concentrates. The Department was of the view that this use of explosive was not used in the manufacture of lead or zinc concentrates and hence the condition of Notification No. 191/87 was not satisfied. The matter was adjudicated by the Assistant Collector who held that explosives are not used in the manufacture of zinc and lead concentrates and therefore, exemption from duty in terms of Notification No. 191/87 was not available to explosives. The order of the Assistant Collector was set aside by the Commissioner (Appeals) holding that mining operation and manufacturing process of zinc and lead concentrates are integrated processes and hence explosives used in mining are to be treated as used in the manufacture of zinc concentrates. Hence this appeal by the Revenue.
E/A No. 2635-36/96-C:- The appellants are engaged in the manufacture of copper concentrates falling under Chapter 26 of the Tariff. They started obtaining explosives without payment of duty from various manufacturers for use in mines to blast rocks and obtain copper ores.
Show cause notices were issued on 28th April 1994 (covering the period from October 1993 to February 1994) and 2nd June 1994 (for the period April 1992 to September 93) proposing recovery of duty of Rs. 24,83,482 and Rs. 98,17,113 respectively on explosives used by the appellants on the ground that explosives are used only for blasting mines and not used in the manufacture of copper concentrates and hence the benefit of Notification No. 191/87 was not available to explosives. The Commissioner of Central Excise, Bhopal adjudicated the notices upholding the charge in the show cause notice and confirming the duty demand raised therein. Hence these appeals.
2. We have heard Dr. D.K. Verma, learned DR and S/Shri G. Shiv Das and M.P. Devnath, learned Advocates and perused the records. The process of manufacture of zinc concentrates as explained by the assessees, is as under: Zinc or lead ore is extracted from the mines by explosives by the process of drilling and blasting; zinc or lead thus procured is first crushed and then ground; As the zinc ore are generally low in the zinc contents, they must be concentrated for direct reduction and further floated in the slurry form to obtain the concentrate by a chemical process and further upgraded to get zinc oxide.
Copper ore is obtained by blasting the rocks with high quality explosives; copper ore is transported to the concentrator where it is crushed and then ground with water; the ground ore slurry enters the floatation cells where the copper minerals are separated and recovered as a froth concentrate wherein the solids typically contain about 20 to 30% of copper. The concentrate so collected is then subjected to smelting. Smelting produces impure copper which is then cast into anodes and purified.
4. Notification No. 191/87-CE as it originally stood, granted exemption to items falling under Chapter 36 and used in the manufacture of lead and zinc concentrates. On are presentation made by the appellants, who are the only manufacturers of copper concentrates in India, an amendment was carried vide Notification No. 63/91-CE by which copper concentrates was also added as an item. The Notification as it stood during the relevant period, reads as under: Exemption to goods falling within Chapters 28, 29, 36 and 38 if used in the manufacture of copper or zinc or lead concentrates:- In exercise of the power conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts goods falling within Chapters 28, 29, 36 and 38 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), and used in the manufacture of copper or zinc or lead concentrates, from the whole of the duty of excise leviable thereon which is specified in the said Schedule: Provided that where such use is elsewhere than in the factory of production, the procedure set out in chapter X of the said Rules is followed.
5. The objections of the Revenue is that explosives are not directly used in the manufacture of zinc concentrates and copper concentrates.
6. However, we note that the activity of mining is integrally connected with the activity of manufacture of the final product from the ore generated as a result of mining and the two processes are inter-dependent. Therefore, the explosives used for blasting mines in order to remove the ore which is raw material for the manufacture of zinc oxide are to be considered as 'in the manufacture of the concentrates. This view finds support from the decision of the Apex Court in the case of Indian Farmers Fertilizers Cooperative Ltd v. CCE 1996 (86) ELT 177 wherein raw naptha which was used to produce ammonia which in turn was used in off-site plants such as water treatment plant steam generating plant etc. was also held to be eligible to exemption under Notification No. 187/61-CE which provides exemption to raw naptha used in the manufacture of ammonia provided such ammonia is used elsewhere in the manufacture of fertilizers, since the notification did not require that ammonia should be used directly in the manufacture of fertilizers. This squarely answers the objection of the Revenue in the present cases.Indian Copper Corporation v. Commissioner of Commercial Taxes 19 (65) 16 Sales Tax Cases 259 is relevant in the context of what is meant by the expression 'in the manufacture of. The Apex Court has held that in a case where a dealer is engaged both in mining and manufacturing processes, the two processes being inter-dependent, it would be impossible to exclude vehicles which are used for removing from the place where the mining operations are concluded to the factory where the manufacturing process starts from coverage under the certificate of registration under Section 8 of the Central Excise Sales-Tax Act of goods used in the manufacture or processing of goods for sale or in mining....
8. The contention of the learned DR that the decision of the Supreme Court in the case of Indian Copper Corp (relied upon by the assessees) is in the context of Sales-Tax law and cannot be relied upon to interpret a Central Excise Notification, is not tenable in the face of the decision of the Larger Bench of the Tribunal in the case of Kudremukh Iron Ore Ltd. v. Collector of Customs, Bangalore, , wherein the argument of the learned DR that a decision in the context of Sales-Tax Act cannot be of any assistance in deciding the issue under the Customs Act, has been rejected holding that, whether dealt with under the Sales-Tax Act or any other Act, the functions and utility of the equipments will not change, their use continues to be the same and so the nature of the equipment stated by the Supreme Court (in the case of Chowgule & Co. Pvt. Ltd. a Union of India and Ors. must be taken as their 9. Following the ratio of the above decisions we hold that explosives used by the assessees for blasting ore in the mines, are used in the manufacture of zinc concentrates and copper concentrates respectively and are hence eligible to the benefit if exemption in terms of Notification No. 191/87-CE.10. In the result, we uphold the impugned order in Appeal No.E/984/86-C and reject the appeal of the Revenue against M/s Hindustan Zinc Ltd. and set aside the impugned order in E/A Nos. 2635-36/98-C and allow the appeals of M/s Hindustan Copper Ltd.