JUDGMENT

Dr. AR. Lakshmanan, J.-In these appeals, we are concerned with the question of levy of excise duty on zinc dross and flux skimming arising during galvanisation of steel sheets.

BRIEF FACTS OF THE CASE :

2. During galvanisation of steel sheets, zinc dross and flux skimming arises which the respondent/assessee has declared as by - product in their product manual published by the Marketing Division for information of customers. It has been alleged that zinc dross and flux skimming are being sold by the assessee to various customers without making any declaration in the classification list, without paying any duty on clearance of the above product and without maintaining any records prescribed under the Central Excise Rules, 1944 besides showing them as non-excisable in their Despatch Advices. According to the Department, the assessees have cleared the goods without payment of duty and thus evaded duty in contravention of the Central Excise Rules, 1944 and in doing so they did not obtain Central Excise licence for manufacture of zinc dross and flux skimming as required under Rule 174 of the Central Excise Rules, 1944 inasmuch as they have suppressed the production and removal of the said goods with intent to evade payment of duty.

CASE FOR THE DEPARTMENT :

3. A show cause notice was issued to the assessee to show cause why a penalty should not be imposed on them under the provisions of the Central Excise Rules, 1944 and why the duty be not demanded under Rule 9(2) of the Central Excise Rules, 1944.

CASE FOR THE PARTY :

4. In response to the show cause notice, the assessee made a written defence denying all the allegations of contravention of various Central Excise Rules and stated that flux skimming is a material held as non-excisable by the CEGAT. In support of their contention, they have cited various judgments and, in particular, the case of Indian Aluminium Co. Ltd. vs. A.K. Bandyopadhyay [1980(6) E.L.T. 146 (Bom.)] stating further that dross and skimming are neither goods nor end products nor finished goods attracting duty under item 25 of the Central Excise Tariff. As regards zinc dross, they have claimed to clear the item as non-excisable as per the decision of the Bombay High Court.

5. It is the contention of the assessee that they do not manufacture zinc and article thereof but they do galvanise sheets falling under Chapter 72. Since zinc dross and flux skimming have already been held to be non-excisable item, the issue of gate passes for removal of products and submission of quarterly returns etc. and filing classification list does not arise. All the assesses have denied violation of the Central Excise Rules, 1944. They have further stated that they submitted classification list and are in the bona fide impression that the goods are non-excisable and are not manufactured by them and, therefore, the question of imposing penalty under any rule is out of question.

6. In Civil Appeal Nos. 524 and 525 of 1998, the Collector of Central Excise, Patna ordered for confiscation of the zinc dross. However, the Collector gave the manufacturers the option to redeem the goods on payment of redemption fine. A penalty was also imposed on the manufacturer. The assesses preferred an appeal to the CEGAT, New Delhi which set aside the order of the Collector, Central Excise relying upon the decision of this Court in the case of Union of India vs. Indian Aluminium Co. Ltd. [1995 (77) E.L.T. 268 (S.C.)]. Aggrieved by the said decision, the Commissioner of Central Excise, Patna preferred the above two appeals.

7. In Civil Appeal No. 5262 of 2003 - M/s National Steel Industries Limited now known as M/s National Steel and Agro Industries Limited filed declaration classifying the zinc dross under Heading 7902.00 of the Schedule to the Central Excise Tariff Act, 1985. According to the assessee, they filed declaration claiming the zinc dross as non-excisable commodity and continued to clear zinc dross without payment of duty up to December, 1997. La