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PETITIONER: HYDERABAD INDUSTRIES LTD. AND ANI

       Vs.

RESPONDENT: UNION OF INDIA AND ORS.

DATE OF JUDGMENT21/07/1995

BENCH: BHARUCHA S.P. (J) BENCH: BHARUCHA S.P. (J) AHMADI A.M. (CJ) PARIPOORNAN, K.S.(J)

CITATION:  1995 SCC  (5) 338        JT 1995 (5)   594  1995 SCALE  (4)516

ACT:

HEADNOTE:

JUDGMENT:           JUDGMENT BHARUCHA, J.      The  appellants   (original  writ  petitioners)  import asbestos fibre  and pay  Custome duty  thereon  under  entry 25.01.32, which reads:      Mineral substances, not elsewhere specified      .........................................: (1)  xx     xx      xx (2) Asbestos raw including fibre  40% xx            xx                      xx There is  no dispute  in regard to the levy of Customs duty. The dispute  is in  regard  to  the  levy  on  the  imported asbestos fibre  of additional duty under Section 3(1) of the Customs Tariff  Act, 1975,  which is qwaied hereinafter. The appellant in  Civil Appeal  No.  1354  of  1980  also  mines asbestos in  India and  is made  liable to  pay excise  duty thereon under Tariff item 22F. Which reads thus: "Item No.  Description of goods             Rate of Duty ------------------------------------------------------------  22F       Mineral Fibres and manufactures  Fifteen percent            therefrom in all in relation to  ad valorem            the manufacture of which any            process is ordinarily carried            on with the aid of power. Explanation :  "Mineral fibres  and yarn, and manufactures therefrom"  shall be  deemed  to include : (i) glass  fibre  and  yarn  including  glass tissues and glasswool; (ii) asbestos fibre and yarn; (iii)  any   other  mineral  fibre  or  yarn, whether  continuous   or  otherwise  such  as slagwool and rock wool; and (iv)  manufactures   containing  other   than

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asbestos cement products." This levy  is also  disputed. By  the common  judgment under appeal, the Delhi High Court dismissed the writ petitions.      The constitutionality  of the imposition of excise duty on asbestos fibre is not now disputed.      What asbestos  is and how it is recovered is set out in the judgment  under appeal,  and it  is not  faulted on this account. This is what it says:                Major  producers  of  asbestos      are  Canada  and  U.S.S.R.  Asbestos  is      defined as  general name  for the useful      fibrous varieties  of a  number of  rock      forming minerals.  The value of asbestos      ensues from  the incombustible nature of      the products fabricated from the various      grades of mineral fibres. (Vide Mc. Graw      Hill  Encyclopaedie   of   Science   and      Technology. Vol.  1  (1977)  page  618).      Most  asbestos  fibres  occur  in  small      cracks  in   massive   rocks   and   are      difficult to  recover e.g. a large cubic      open pit  mine handles  approximately 16      tons of  ore. 8 tons of waste ore and 23      tons of  over-burden to produce a single      ton of asbestos. To mine chrysotile. the      ore is  first blasted  loose. The larger      asbestos  seams   i.e.  those  that  are      atleast 9.5  mm wide are picked from the      ore after  blasting and adhering rock is      removed  with   a  pick.  The  cesulting      chunks of  ore called  crudes. Which may      contain as  much as  30% water, are then      dried in  preparation for the next stage      -   separation    into   fibres.   Fibre      separation is  accomplished mainly  by a      series  of   shaking  screens,   special      separators    called    cyclones,    and      additional  crushers  or  fibrizers.  At      each shaking screen the liberated fibres      are  sucked  off  by  an  airstream  and      collected for grading and packaging. The      larger pieces of ore, which are retained      by the  screen are  recycled for further      crushing.  Smaller  pieces,  which  pass      through  the   screen  and   are  called      throughs, are  sent to the next crushing      or fiberizing  sequence.  The  extremely      small  pieces   that  fall  through  the      screens following  the  final  fiberizer      are   discarded.   (Vide   Encyclopaedia      Americans Vol. 11 (1970) page 427, 428).           Similarly  the   Encyclopaedia   of      Natural   Chemical  analysis,   Vol.  11      gives the  processing of  asbestos fibre      as follows:-      "Asbestos fibre is recovered by open pit      or underground mining operations. In the      open pit  operation, the  ore  is  taken      from the  top  of  the  deposit  and  in      underground method,  the ore  is removed      from the  bottom  of  the  deposit.  One      imported  method   used  in  underground      mining is  known as  block  carving.  In      this method,  a large  block of  ore  is      loosened in  such a  way that  it breaks

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    down from  its own  weight. The  ore  is      extracted through  a network  of tunnels      and carried  to primary  crushers  which      break up  the  large  rock  chunks  into      fragments. The  crushed ore  falls  into      bins and then undergoes further crushing      and drying  prior to  processing at  the      mill.   The    milling   operation   are      complicated but  consist  of  separating      the fibres  from the  rock. In  the mill      the rock  is  crushed  more  finely  and      passes ores  through  vibrating  screans      which roughly  separate the  loose fibre      from the  rock.  Powerful  hoods,  which      operate much  like vaccum cleaners, lift      the  loose  fibre  leaving  the  heavier      rock. This  operation is  repeated until      the  separation  is  complete  and  only      waste rock remains. The separated fibres      are then  cleared and  carefully  graded      according to  length.  Grading  is  done      according    to     rigid     industrial      specifications. BRUSSELS’ NOMENCLATURE  defines  asbestos  as follows: "25.23 - ASBESTOB :           Asbestos  is   a  natural   mineral      substance produced  by the decomposition      of  certain   rocks.  It   has  a   very      characteristic fibrous  texture:  It  is      sometimes, silky  in appearance  and the      colour  varies  greatly,  being  usually      white,  but  sometimes  grey,  greenish,      blue or dark brown. Its main property is      its resistance to fire and acida.           The  heading   applies   to   crude      asbestos in rock form, to raw, beaten or      washed fibres,  whether graded to length      or not,  to asbestos in flakes or powder      and also  to asbestos waste. The heading      excludes fibre  which has  been  further      processed  (carded,   dyed   etc.)   and      finished artioles  of asbestos  (heading      68.13)".           The process  by which  the asbestos      fibre is  obtained is  more or  less  as      follows:-           The  petitioners  extract  asbestos      rock from the mine which is in the shape      of large boulders. This asbestos rock is      put into  jaw crushers  and is made into      small size  of  about  20-40  mm.  These      further rocks of 20-40 mm size are still      subject to further reduction in a hammer      mill, the  purpose of which is to reduce      the rock  to a  stage so  that the fibre      could be  taken away  from rock in which      it is  embedded. The  asbestos fibre  is      found on  the rocks  which contain  thin      layer of  the fibre  of about an inch in      length of a piece of rock about the size      of a  cricket ball. The petitioners have      obtained permission  from the  Collector      of Central Excise. Patna as communicated      by Assistant  Collector  dated  December

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    14. 1977 to remove in bond semi finished      goods under  Rule 56 (b) from the mining      place  at   Roro  to   the  factory   at      Hyderabad for  further processing  after      the  pieces   of  rock  are  brought  to      Hyderabad they  are crushed  to  smaller      size with  the  aid  of  power  and  the      resultant  is   subject  to   series  of      screening surfaces  so that the asbestos      fibre which  is  very  much  lighter  is      removed and  seperated from the dust and      the  grit.   The  fibre  however,  still      contains rock  particles  and  spicules.      The fibre  is  then  pressed  through  a      Hwrricane Hill  where  rapidly  rotating      rotors pulverise the stones and apicules      without damaging  the fibre.  It  is  in      this   process   that   ultimately   the      asbestos fibre  free  of  all  dust  and      stone particles is produced."           In Minerals  and  Metals  Trading  Corporation  of India Ltd.  vs. Union  of India and ors., 1973-1 S.C.R. 997, this Court was concerned with the exigibility of the mineral wolfram to excise duty. The relevant portion of the judgment is self-explanatory.           "The separating of wolfram ore from      the rock  to make  it usable  ore  is  a      process of selective mining. It is not a      manufacturing  process.   The  important      test is  that the  chemical structure of      the ore  should remain the same. Whether      the ore imported is in powder or granule      form is  wholly immaterial,  What has to      be   seen    is   what   is   meant   in      international trade and in the market by      wolfram ore containing 60% ore more WO3.      On that there is a preponderation weight      of authority  both of  experts and books      and of  writings on  the  subject  which      show that  wolfram ore when detached and      taken out  from the  rock in which it is      embedded either by crushing the rock and      sorting out  pieces  of  wolfram  or  by      waening or magnetic separation and other      similar and necessary process it becomes      a concentrate  but does  not cease to be      ore.  Unless   the  ore  is  roasted  or      treated with  any chemical  it cannot be      classed as processed." We are  satisfied upon  the material  placed before  us,  as indicated in  the judgment  under appeal  quated above, that all that  the appellants  in Civil Appeal 1354 of 1980 do is to separate  the asbestos fibre from the rock in which it is embedded by  manuel and mechanical means. The asbestos fibre that is  so removed from the parent rock is in every respect the  esbestos  that  was  embedded  in  it.  No  process  of manufacture can  be  said  to  have  been  employed  by  the appellants nor  is a  new or  a distinct  commodity realised therefrom.           In Moti  Laminates  Pvt.  Ltd.  vs.  Collector  of Gentral Exoise,  1006 (70)  E.L.T. 241  (S.C.),  this  Court said:                "6.  The  duty  of  excise  is      leviable under Entry 84 of List 1 of the      Vllth Schedule on goods manufactured, or

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    produced. That  is why  the charge under      Section  3   of  the   Act  is  on  all,      ’Excisable      goods’,’produced      or      manufactured’. The expression ’excisable      goods’ has been defined by clause (d) of      Section 2  to mean, ’goods’ specified in      the Schedule. The scheme in the Schedule      is to  divide the  goods  in  two  broad      categories -  one, for  which rates  are      mentioned  under   different  entry  and      other the, residuary. By this method all      goods are  excisable  either  under  the      specific or  the  residuary  entry.  The      word ’goods’ has not been defined in the      Act. But  it has to be understood in the      sense it  has been  used in  Entry 84 of      the Schedule.  That  is  why  Section  3      levies  duty   on  all  excisable  goods      mentioned in  the Schedule provided they      are    produced     and    manufactured.      Therefore, where the goods are specified      in the Schedule they are excisable coods      but whether  such goods can be subjected      to duty  would depend  on  whether  they      were produced  or  manufactured  by  the      person on  whom duty  is proposed  to be      levied.  The   expression  ’produced  or      manufactured’ has further been explained      by this  Court to mean that the goods so      produced  must   satisfy  the   test  of      marketablity. Consequently  it is always      open to  an assessee  to prove that even      though  the   goods  in   which  he  was      carrying  on   business  were  exciseble      goods being  mentioned in  the  Schedule      but they  could not be subjected to duty      as they  were not  goods either  because      they were  not produced  or manufactured      by it  or if  they had  been produced or      manufactured they  were not  marketed or      capable of being marketed."           It also said:      "The  tariff  schedule  by  placing  the      goods in  specific and  general category      does not  alter the  basic character  of      leviability. The  duty is  attracted not      because an  article is covered in any of      the  items  or  it  falls  in  residuary      category but  it must  further have been      produced  or   manufactured  and  it  is      capable of being brought and sold."      Assuming that  Tariff  item  22F.  When  it  refers  to "asbestos fibre  and yarn",  covers asbestos  fibre that has been  separated   from  its   parent  rock   in  the  manner aiopamentioned, such  asbestos fibre  is not the result of a process of  manufacture, it  is not  a new  and commercially identifiable article  and it  is, therefore,  not liable  to excise duty.      What all  the appellants import is, it is not disputed, asbestos fibre  that has been separated from its parent rock in the manner aforementioned.      The learned Additional Solicitor General submitted that the asbestos  fibre imported  by the appellants was exigible to additional  duty regardless  of the  fact that it was not the result  of manufacture  and, therefore,  not exigible to

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excise duty.  He placed  reliance in  this behalf  upon this court’s judgment in Khandelwal Metal & Engineering Works and another etc.  vs. Union of India and others. (1985) Suppl. 1 SCR 750.  There is no doubt that this judgment, delivered by a bench  of three  learned Judges, is of great assistance to the case of the Revenue.      In the case of Khandelwal Metal & Engineering Works the appellants carried on the business of importing orsss scrap. They contended that the additional duty was in the nature of counter-vailing duty,  and it  could not  be levied on brass scrap because  the brass  scrap, which  consisted of damaged articles like  taps and pipes, was not manuractured in India or elsewhere.  The bench  noticed that Beation O (15) of the Customs Act,  1982, defined "duty" to mean a duty of Customs leviable under  the  Act,  Chapter  V  of  the  Customs  Act contained provisions  for the  levy of,  and exemption from. Customs duties.  By  Section  12(1),  "except  as  otherwise provided in  the Act  or in  any law  for the  time being in force". duties  of Customs  were leviable  at such  rates as might be  specified under  the Customs  Tariff Act, 1975, or under any  other law  for the  time being in force, on goods imported into  or exported  from India.  Section  2  of  the Customs Tariff  Act stated that the rates at which duties of Customs would be levied under the Customs Act were specified in the  First and Second Schedule of the Tariff Act. Section 3 of  the Tariff  Act dealt with the levy of additional duty equal to excise duty.      Sub-section (1)  of Section  3 and  the Explanation  to that section read thus!                "Levy of additional duty equal      to excise duty. (1) Any article which is      imported into  India shall,  in addition      be liable  to a  duty (hereafter in this      section referred  to as  the  additional      duty) equal  to the  excise duty for the      time being leviable on a like article if      produced or manufactured in India and if      such excise  duty on  a like  article is      leviable at any percentage of its value,      the  additional   duty  to   which   the      imported  article  shall  be  so  liable      shall be  calculated at  that percentage      of the value of the imported article.      Explanation-   In   this   section   the      expression "the excise duty for the time      being leviable  on  a  like  article  if      produced or manufactured in India" means      the excise  duty for  the time  being in      force which  would be leviable on a live      article if  produced or  manufactured in      India or,  if a  like article  is not so      produced or  manufactured which would be      leviable on  the class or description of      article to  which the  imported  article      belongs, and where such duty is leviable      at different rates, the highest duty."      The first  question which  the bench  was  required  to examine related  to the true nature of the duty mantioned in Section 3(1)  of the  Tariff Act. The bench said that it had to be appreciated at the threshold that the charging section was Section  12 of  the Customs  Act and not Section 3(1) of the Tariff  Act. Section  12 of the Customs Act incorporated the different  ingredients embodied  in  the  concept  of  a fiscal imposition.  It levied  a charge,  it  indicated  the taxable event,  which was the import or export of goods, and

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it indicated the rate of the levy, which was such "as may be specified under  the Customs Tariff Act, 1975." Section 2 of the Tariff Act laid down that "the rates at which the duties of Customs  shall  be  levied  under  the  Customs  Act  are specified in  the  First  or  Second  Schedules".  The  levy specified  in   Section  3(1)   of  the  Tariff  Act  was  a suppiementary levy  in enhancement  of the  levy charged  by Section 12  of the  Customs Act  and with  a different basis constituting the  measure of the impost. In other words. the scheme embodied  in Section  12 was  amplified by  what  was provided in  Section 3(1).  The Customs  duty charged  under Section 12  was extended  by an  additional duty confined to imported articles  in the measure set forth in Section 3(1). Thus, the  additional duty  which was  mentioned in  Section 3(1)  of  the  Tariff  Act  was  not  in  the  nature  of  a countervailing  duty.  Counsel  for  the  appellants  relied strongly on  the objects  and Reasons  of Section  3 of  the Tariff Act  in support  of  the  contention  that  the  said section was  a charging section and imposed a countervailing duty. The Statement of Objects and Reasons read:      "Clause  3  provides  for  the  levy  of      additional duty  on an  imported article      to  counterbalance   the   excise   duty      leviable  on   the  like   article  made      indigenously, or  on the  indigenous raw      materials,  components   or  ingredients      which go  into the  making of  the  like      indigenous   article.   This   provision      corresponds  to   section  2-A   of  the      existing  Act,   and  is   necessary  to      safeguard   the    interests   of    the      manufacturers in India." The Statement  of Objects  and Reasons, the bench said, lent prima facle support to the contention of the appellants but, in the  absence of  any ambiguity  in the wording of Section 3(1), the  additional duty  referred to therein could not be treated as  countervalling  duty  not  could  Section  3  be regarded as    a  charging   section  merely   because   the Statement said  that it  "provides  for  the  levy".  Having concluded that  Section 3(1)  of the  Tariff Act  was not  a charging section  and that the additions duty which it spoke of was  not a  countervalling duty,  the bench  went  on  to consider the  contention of  the appellants  that the  brass scrap imported  by them  was not produced or manufactured in India  because   the  damaged   articles  of   brass   which constituted brass  scrap were  not only  incapable of  being manufactured but  were, in  fact not manufactured. According to learned  counsel for  the appellants, the basic postulate underlying the levy of duty under Section 3(1) of the Tariff Act was  that there  were indigenous  goods belonging to the class of  goods which were imported which were chargeable to excise duty.  The illustrations  he gave  were the import of live animals,  live trees,  burnt up cables, broken glass or fused bulbs. The argument was that there was and could be no additional duty  on these  goods, if  imported, because they could not  be and  were not  manufactured. To  put it in one sentence, the  argument was that if indigenous goods similar to those  which were imported did not suffer excise duty for the reason  that they  were  not  manufactured,  the  charge leviable under  Section 3(1).  At the  Tariff  Act  was  not attracted. The  bench rejected  the argument.  In the  first place, it  said. Sections  2 and 3(1) of the Tariff Act were not charging  sections; the  charging section was Section 12 of  the   Customs  Act.   The  taxable  event  was  not  the manufacture of  goods. Under Section 3(1) of the Tariff Act,

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"the excise  duty for  the time  being leviable  on  a  like article if  produced or  manufactured in India" was only the measure of  the  duty  leviable  on  the  imported  article. Section 3(1)  did not  require  that  the  imported  article should  be   such  as  was  capable  of  being  produced  or manufactured in  India. The  assumption had  to be  that  an article  imported   into  India   could   be   produced   of manufactured in  India and, upon that basis, the duty had to be determined under Section 3(1). The bench said:      "Any doubt  on this point is resolved by      the Explanation  to section  3(1) of the      Tariff Act.  The Explanation furnishes a      dictionary  for  the  interpretation  of      section 3(1)  and provides a clue to its      understanding. The  Explanation provides      in so  many words  that  the  expression      "excise duty for the time being leviable      on  a   like  article   if  produced  of      manufactured in India" means "the excise      duty for  the time  being in force which      would be  leviable on  a like article if      produced  or   manufactured   in   India      "...........................The      Explanation  even   goes   further   and      provides that  if a  like article is not      so produced  or manufactured,  then, the      duty leviable means the duty which would      be leviable  on the class or description      of  articles   to  which   the  imported      article belongs.  These provisions leave      no doubt  that the  duty referred  to in      Section 3(1)  of the Tariff Act does not      bear any  nexue which  (sic) the  nature      and quality  of the  goods imported into      india."      The bench  then considered  the matter from a different point of view and found that the brass scrap imported by the appellants came into existence as waste or rejected artioles during the prooess of manufacture and, therefore, it was, in any  event,   liable  to  excise  duty  and,  therefore,  to additional duty under Section 3(1) of the Tariff Act.      We have  some difficulty  in construing the Explanation to Section  3(1) of  the Tariff Act in the manner adopted in the case  of  Khandelwal  Metal  &  Engineering  Works.  The difficulty arises when the article which is imported has not been produced or manufactured. The Explanation says that the expression "excise  duty for  the time  being leviable  on a like article  if  produced  or  manufactured  in  India"  in Section 3(1)  means the  excise duty that "would be leviable on the class or description of article to which the imported article belongs".  Excise duty  is leviable  on the class or description of article to which the imported article belongs if articles  of that  class or  description are  exigible to excise duty,  having undergone production or manufacture. If they have  not undergone  production or manufacture they are not exigible  to excise  duty. Articles  of  that  class  or description of  goods when imported are, then, not liable to additional duty.  The assumption  underlying the Explanation to Section  3(1) would appear to be that an imported article which is  the result  of production  of manufacture  can  be produced or  manufactured in  India;  the  emphasis  in  the assumption is  on the  words "in  India". In other words, if the  imported   article  is  the  result  of  production  of manufacture, it  must be  assumed that it can be produced or manufactured in  India. In  this context  the  Statement  of

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Objects and  Reasons is  relevant. It  says that the levy of additional duty  on an  imported article  is provided for to counterbalance the  excise duty leviable on the like article made indigenously.      It may  also be reconsidered why, insofar as additional duty is  concerned, Section  3 of  the Tariff Act is not the charging  section.   It  provides   for  the  levy,  namely, additional duty; it provides for the taxable event, which is the import of goods that have been produced or manufactured; and it sets out the measure of the duty, which is the excise duty  on   the  indigenously  produced  or  made  equivalant article. The  Statement of Objects and Reasons is meaningful in the  context because it says that Section 3 "provides for the levy of additional duty...........".      We are, therefore, of the view that the decision in the case of  Khandelwal Metal  & Engineering  Works requires the consideration of  a larger bench. The papers and proceedings shall be  placed before  the Hon’ble  the Chief  Justice for appropriate administrative directions.