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PETITIONER: M/S. BALAJI ENTERPRISES, MADRAS

       Vs.

RESPONDENT: THE COLLECTOR OF CENTRAL EXCISE. MADRAS

DATE OF JUDGMENT:       05/05/1997

BENCH: S.P. BHARUCHA, SUHAS C. SEN

ACT:

HEADNOTE:

JUDGMENT: Present               Hon’ble Mr. Justice S.P. Bharucha               Hon’ble Mr. Justice Suhas C. Sen Krishnan Venugopal, S.R. Setia, Advs for the appellant N.K. Bajpayee, R.S. Rana, Advs. for P. Parmeswaran, Adv. for the Respondent                       J U D G M E N T      The following Judgment of the Court was delivered: SEN, J.      The appellant,  Balaji Enterprises, purchases aluminium ingots from the market and manufactures aluminium containers which are  used according  to the  permission granted by the Excise Authority under Rule 56A of the Central Excise Rules. The process  followed for  making the  containers  has  been stated by  the  appellant  in  a  letter  to  the  Assistant Collector of Central Excise. The appellant melts the ingots, converts them  into slabs,  rolls them into sheets which are converted into  circles. These  circles are  converted  into containers which  are sold in the market. The appellant pays duty on the containers manufactured by it regular course. In the process of manufacturing containers, waste products such as aluminium scrap also come into existence.      The Central  Excise Authority called upon the appellant to pay  duty on  the scrap manufactured by it. The appellant was compelled  to pay  duty on the value of the scrap at the rate of  40 per  cent under  Tariff  Item  27(a)(i)  of  the Central Excise Tariff.      The appellant’s  case before  the Department  was  that ‘scraps’ generated  in course  of manufacture  of  aluminium containers by  the appellant,  could not be classified under T.I., 27(a)(i)  of the  Central Excise  Tariff which  before 1.3.1981 was as under                         27-ALUMINIUM      -------------------------------------------------------      Tariff                                     Rate of duty      Item      Description of goods      Basic   Special      No.                                         Excise      -------------------------------------------------------      27.  ALUMINIUM      (a)(i)    in any crude form        50%     10% of

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              including ingots,        Adv     the basic                bars, blocks,            plus    duty                slabs, billets,          Rs.     chargeable                shots & pellets.         2000/-                                         per                                         metric                                         tonne.         (ii)   Wire, bars, wire         50% Adv  -do-                rods and castings        plus                not otherwise            Rs. 2000/-                specified.               per metric                                         tonne.         (b)    Manufactures, the         -do-    -do-                following, namely,                plates, sheets, circles,                strips, shapes and                sections in any form or                size, not otherwise                specified.         (c)    Foil (whether or not      -do-    -do-                embossed, cut to shape,                perforated, coated,                printed or backed with                paper or other reinforcing                material) of thickness (excluding any                backing) not exceeding 0.15 mm.         (d)    Pipes and tubes other     -do-    -do-                than extruded pipes                and tubes.         (e)    Extruded shapes &         -do-    -do-                sections including                extruded pipes and                tubes.         (f)    Containers, plain,        -do-    -do-                lacquered or printed,                or lacquered and                printed.      Explanation: I  " Container"  means      containers ordinarily  intended for      packaging  of   goods   for   sale,      including collapsible tubes, casks,      drums, cans,  boxes, gas  cylinders      and pressure  containers whether in      assembled or unassembled condition,      and containers  known  commercially      as flattened or folded containers.      Explanation: II-  In this Item, the      expression    "Aluminium"     shall      include   any    alloy   in   which      aluminium  predominates  by  weight      over each of the other metals. ----------------------------------------      The appellant’s  case is  that ‘aluminium scrap’ cannot be described  as ‘aluminium  in any  crude  form’  Aluminium scraps are not really in crude form. In fact,  T.I. 27(a)(i) makes it  clear that it is only the commodities known in the market like  ingots, bars, blocks, slabs, billets, shots and which can  be taxed  under T.I.  27(a). But scraps remaining after    manufacturing  products  like  utensils  cannot  be brought to  tax under  T.I. 27(a)(i)  as "aluminium  in  any crude form".      T.l.  27(a)(i) speaks of ’aluminium in any crude form’. Ingots, bars, blocks, slabs, billets, shots and pellets have been specifically  brought within  the  Tariff  Description. That, however,  does not  mean that  only the articles which

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have  been  specifically  mentioned  in  T.I.  27(a)(i)  are excisable to duty. The Tariff Description is inclusive which means apart from ingots, bars, blocks, slabs, billets, shots and  pellets,   other  things   that  may  come  within  the description  of  ‘aluminium  in  any  crude  form’  will  be excisable to duty as such.      The problem  in this case, however, is about the nature of the  scraps produced  by the appellant. Can the scraps be regarded as  ‘aluminium in any crude form’? Obviously Tariff Item 27(a)  will not take in aluminium in any finished form. The dictionary  meaning of  ‘crude’ is:  "In a state needing preparation for  use not  refined; raw;  uncooked"  (Webster Comprehensive Dictionary International Edition 1984.)      From the  Tariff Description  it appears that in ; sub- item (a)(i) of Tariff Item 27 ‘crude form’ of aluminium will include ingots,  bars, blocks,  slabs,  billets,  shots  and pellets, That  is the  most primary  form of the metal. Sub- item  (b)   of  Tariff   Item  27   speaks   of   "Aluminium manufactures" ,  namely, plates,  sheets,  circles,  strips, shapes and  sections in  any  form  or  size  not  otherwise specified’.  There   is  no   dispute  that   the  appellant manufactures circles  which have  been specifically included in T.I.  27 (b)  and not T.I. 27(a). ‘Circles’ have not been included in  the Tariff Description in T.I. 27 (a) (j). That means ‘circles’  have not  been treated as ‘aluminium in any crude  form’  but  ‘Aluminium  Manufactures’.  The  assessee manufactures the circles and thereafter aluminium containers out  of  these  circles.  The  scraps  are  generated  while converting circles  which are  not ‘aluminium in crude form’ into containers  which are  finished goods.  If anything  is made out  of the  circles,  whether  as  end-product  or  by product, it  cannot be  treated as the metal itself in crude form.  The  scraps  that  arise  out  of  the  manufacturing process;   do not  go back  to the  crude form of aluminium. When ingots are converted into circles, the end-products are not treated  as aluminium  in crude form. In that event, how can  something   which  emerges   as  a  result  of  further manufacturing process  be treated   as  Crude metal?  In our view, the aluminium scraps cannot be treated as aluminium in crude form and  classified as such in T.I. 27(a)(i).      In the  case of  M/S Khandelwal  Metal and  Engineering Works and  Anr. vs.  Union of India & Ors. (1985) 3 SCC 620, Chandrachud, C.J.  pointed  out  waste  and  scrap  are  by- products of  manufacturing. Aluminum scrap which is obtained in  course  of  manufacturing  aluminium  containers  is  an integral   part    and   inevitable   consequence   of   the manufacturing process.      In our  view,  what  emerges  as  a  consequence  of  a manufacturing process out of the aluminium circles cannot be treated as the metal in crude form.      The position  becomes clearer  after the  amendment  of T.I.27  on   and  from   1.3.1981.  ‘Waste  and  Scrap’  was specifically included  in sub-heading  (aa) of  T,I.27.  The Tariff Description was as under:      AFTER 1.3.1981      --------------      ITEM NO.27 - ALUMINIUM      ----------------------      -------------------------------------------------------      ITEM No.   Tariff Description          Rate of Duty      -------------------------------------------------------      27 ALUMINIUM      (A) i) In any crude form               Fifty per cent             including ingots, bars,         ad valorem             blocks, slabs, billets          plus Rs. two

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           shots and pellers.              thousand per                                             metric tonne      ii)    Wire bars, wire tods                -do-             & castings not             otherwise specified.      (aa)   Waste and Scrap.                    -do-      (b) ........      (c)............      (d) ............      (e) ..............      (f) ........      EXPLANATION I ....      EXPLANATION II....      EXPLANATION  III   -  "  Waste  and      Scrap" means  waste  and  scrap  of      aluminium fit only for the recovery      of  metal   or  for   use  in   the      manufacture of  chemicals, but does      not    include    sludge,    drosss      scalings, skimmings,  ash and other      residuals.      The legislature recognised that ‘Waste and Scrap’ could not be  brought to tax as aluminium in crude form, If "Waste and Scrap"  was already  included in  Item  No.27(A),  there would not  have been any need for making the entry (aa). The amendment left  sub-item (a) of Item 27 untouched, Moreover, every type of waste and scrap was not made taxable after the amendment made on 1.3.1981. Only the type of waste and scrap mentioned in Explanation III were subjected to duty. Sludge, dross, scalings,  skimmings, ash  and other  residuals  were left out.  Before 1.3.1981  there was no guideline to decide what  would  constitute  scrap  for  imposition  of  Central Excise.      All these  things go to show that sub-item (aa) was not clarificatory of sub-item (A) of Item 27. It was a new entry altogether bringing  "Waste and Scrap’ for the first time to duty after  specifying the  limited scope  of this  entry by adding Explanation III.      It has  been rightly  contended on  behalf of appellant that whenever things like ‘Waste and Scrap’  under any head, have been  sought to  be taxed  in the  Central Excise  Act, specific entries  have been made for this purpose. In Tariff Item No.25  ’iron in  any crude  form’ specifically includes pig iron,  scrap iron  molten iron or iron cast in any other shape or  size. The  legislature specifically  included  the scrap iron  within   the description  of ’iron  in any crude form’ in  T.I.25, but  in the description of goods under the head ‘aluminium  in any  crude form’,  aluminium scraps were not included in T.I.27. Even when the amendment was made  on 1.3.1989, aluminium  scarps were  separately taxed  and  not included in ‘aluminium in any crude form’.      Similarly,  in   the  T.l.  18  dealing  with  man-made fibres, other than mineral fibres, man-made filament  yarns, cellulosic spun  yarn, ’Non-cellulosic  wastes,  all  sorts’ have been  specifically included  as sub-item (4) of T.I.18. Sub-item (4)  has been  explained  to  include  only  wastes arising in,  or in relation to, the  manufacture of man-made fibres (other  than mineral  fibers) and  man-made  filament yarns.      The obvious legislative intent was not to tax aluminium scrap and  Waste’ prior  to the amendment made a with effect from 1st  March 1989.  What emerged  from the  manufacturing process was certainly not aluminium in crude form.      There  is  also  another  feature  of  this  case,  the Tribunal has  not  held  that  aluminium  scraps  should  be

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described as  ’aluminium in  any crude  form’ and brought to tax as such even prior to 1.3.1981. The Tribunal has held:      "The   assessment   made   by   the      department favours  the revenue but      we cannot say that it is a perverse      assessment or that the law does not      sanction it.  While one  person may      say that word scrap does not belong      in the  sub-item with  ingots. bars      and the  others, another person may      say with  equal, I  would say  more      logic, that  it does  belong in the      sub-item.  I   would  not  like  to      disturb an  assessment made  by the      department    unless     it     has      perverseness or unreasonableness in      it.   This    assessment   is   not      unreasonable much less perverse."      We are  of the  view the  Tribunal has really avoided ; answering the  question of law raised before it. Whether the scrape  generated  during  the  course  of  a  manufacturing utensils should be treated as ’aluminium in crude form’ is a question of  law that had to be answered fairly and squarely by the  Tribunal. The Tribunal’s jurisdiction is not limited to deciding    whether  the  decision  of  the  departmental authority was  perverse or unreasonable.      We are  of the  view that Tribunal should have examined the Question of law before it  and given proper answer.      However, we  have examined  the question.  In our view, the aluminium  scarps, produced by the assessee in course of manufacturing utensils,  could not  be  taxed  under  T.I.27 before its amendment  on 1.3.1981.      The order  of the  Tribunal is set aside. The appeal is allowed. There will be  no order as to costs.