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PETITIONER: M/S L.M.L. LIMITED

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISEKANPUR

DATE OF JUDGMENT:       21/08/1997

BENCH: J. S. VERMA, B. N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T Kirpal, J.      The appellant is engaged in the manufacture and sale of two-wheeler vehicles  and it has been granted central excise licence  by  the  respondent  for  the  manufacture  of  the scooters together with the parts and accessories.      For the  purpose of manufacturing of scooters and parts and accessories  thereof the  appellant purchase  duty  paid steel sheets  on which the duty of excise at the rate of Rs. 715 per ton is paid by it under Tariff Heading 7212.50. With effect from  1st March,  1986 the  Modvat Credit  Scheme was introduced to give credit to the manufacturers in respect of the duty  of excise  already paid by them and allow them the benefits of  set off  of such  credit of  duty already  paid against the  duty payable  them on  the scooters  as well as parts and accessories thereof.      After working  of these  sheets for  the manufacture of parts of  scooters some  portions of the sheets remain. Some of  these  portions  are  used  by  the  appellant  for  the manufacture of small parts of the scooters.      The dispute  which arise  in the  present case in as to how should  these portions  be classified.  According to the respondent these  portions, which  the Tribunal  has for the sake of convenience described as ‘off-cuts’, being fit to be used for the manufacture of further articles are nothing but steel sheet and they should have been cleared at the rate of duty of  which they brought in the factory and credit taken, i.e, at the rate of Rs. 715/- per ton. The contention of the appellant before  the excise authorities was that it is only some portions of off-cuts, depending upon their sizes, which are used  for the  manufacture of  some small  parts of  the scooter. These  portions of off-cuts cannot be classified as sheets and  their correct  classification would  be that  of waster as  scrap. According  to the appellant the duty which is payable on waste and scrap of steel under the tariff item 7203.20 is Rs. 365/- per ton and it is at this rate that the duty should be claimed from it.      The contention of the appellant was neither accepted by the assessing  authority, i.e.,  Assistant Collector  nor by the Collector,  Appeals. A second appeal to the Tribunal met

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with the same fate hence this appeal.      On behalf  of the  appellant,  Sh.  Joseph  Vellapally, learned senior  counsel, has contended that after the sheets have cut  and used  for the manufacture of scooter, the part which remains  is only  waste and  scrap. It is only some of these pieces  of steel  which is used for the manufacture of ancillary items  and the  correct tariff heading under which these pieces  would fall is 7203.20 the rate being Rs. 365/- per ton.  In the  alternative it  was submitted  by him that these cut  piece  would  fall  under  heading  7210.10.  The contention of  Sh. A.  Subba Rao,  learned counsel  for  the respondent however  was that the appellant has bought sheets and had  claimed credit at the rate of Rs. 715/- per ton and now when  parts thereof  are used  in manufacture  of  other items  these   portions  of   off-cuts  would  correctly  be classified under heading 7212.32.      It would  at this  stage be  appropriate to set out the three competing entries. These are as follows:      "72.03 Waste and Scrap      7203.10     -Of iron      Rs. 80                                per tonne      7203.20     -Of steel     Rs. 365                                per tonne      72.10     Angles,    shapes     and                sections of iron or steel                not  elsewhere  specified                (other    than    slotted                angles    and     slotted                channels)  rolled  forged                extruded,         formed,                finished, slotted angles.      7210.10   Angles,    shapes     and                sections  Rs.   365   per                tonne (other than slotted                angles    and     slotted                channels)      7210.20   Slotted angles       15%      72.12     Coils   for   re-rolling,                sheets,    plates     and                universal plates  of iron                or  steel,  hot  or  cold                rolled,           whether                galvanised or  not;  from                such as  ridges,  channel                (other    than    slotted                channels)    made    from                sheets,     plates     or                universal plates; and tin                plates    and     tinned,                lacquered  or   varnished                sheets   including    tin                taggers and  cuttings  or                such  plates,  sheets  or                tagger; slotted channels      7212.50   -Cold-rolled      Rs.                sheets            715 per                                  tonne"      Rule 4  of the  Excise Rules provides that "goods which cannot be  classified in  accordance with  the above  Rules, shall be  classified under  heading appropriate to the goods to which  they are  most akin". Chapter 72 of the Tariff Act deal with  iron or  steel. The expressions, waste and scrap, angles, shapes  and selection  and sheet  are among  several expressions which  have been  defined therein. These read as follows:

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    " Waste and scrap:      Waste and  scrap of  iron or  steel      fit only  for the recovery of metal      or for  use in  the manufacture  of      chemicals,  but  does  not  include      slag, ash and other residues.      Angels, shapes and Sections:      Products which  do not  have cross-      section in  the  form  of  circles,      segments    of    circles,    ovals      isosceles  triangles,   rectangles,      hexagons,        octagons        or      quadrilaterals with  only two sides      parallel and  the other  two  sides      equal and which are not hollow.      Sheets      A hot  or cold-rolled flat product,      rolled in  rectangular  section  of      thickness below  5 millimeters  and      supplied in  straight lengths,  the      width of  which is at least hundred      times the  thickness and  the edges      are either milled, trimmed, sheared      or  flame   cut  and   includes   a      corrugated sheet."      Applying the  principle contained in the aforesaid Rule 4 what  has to  be seen  is as  to what  is the  appropriate heading  to   which  the  off-cuts  which  are  use  by  the appellants for  the manufacture  of ancillary items are most akin. These  expressions as  contained in  Chapter 72 of the Excise Act  should be  read  along  with  the  tariff  items contained in the same chapter.      It is  quite evident  that those portions of cut sheets which are  used in the manufacture of ancillary items cannot be regarded  as  waste  and  scrap.  As  per  the  aforesaid definition it  is only  that ‘waste  and scrap’  of iron  or steel which is fit only for the recovery of metal or for use in manufacture  of chemicals  which could  fall  under  that category. Those portions of cut sheets which are used in the manufacture of  ancillary items cannot be regarded as having been  used   for  recovery  or  metal  or  for  use  in  the manufacture of  chemicals. This  being so, those portions of cut sheets  which are  not used  for recovery of metal or in the manufacture  of chemicals cannot be cleared under tariff items 72.03.  At the  same time  the definition  of the word ‘sheet’ as  contained in  Chapter 72  would clearly indicate that the  cut sheets  which are used by the appellant do not fall under  that category.  The definition  of sheet,  inter alia, states  that it  has to  be a  hot or cold-rolled flat product, rolled  in rectangular section of thickness below 5 millimeters and  supplied in  straight lengths.  It was  not disputed that  the off-cuts which remains after the parts of the scooter  had been manufactured by using the steel sheets no longer  retain rectangular  shapes. These off-cuts are of different shapes  and sizes  and in  our opinion, they would clearly fall under the tariff entry 72.10.      The off-cuts  which are  used would  clearly answers to the expression  ‘shape’ contained  in tariff  item 72.10. It does appear that the attention of the tribunal was not drawn to tariff  entry 72.10  but of  the facts,  as found  by the tribunal, it  is clear that the off-cut which are odd shaped are used  by the appellant do not answer to this description of sheet  but on  the  contrary  can  only  be  regarded  as ‘shapes’ falling  under tariff  entry 7210.10.  The rates of duty of  this is Rs. 365/- per ton which is the same as that

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on waste  and scrap  of steel under tariff entry 7203.20. It is this  duty of  Rs. 365/-  per ton which has to be paid by the appellant on those pieces of steel or off-cuts which are cleared by  the appellant  for use  in  the  manufacture  of ancillary items and not Rs. 715/- per ton as demanded by the respondent.      The appellant,  therefore, was  entitled to  clear  the off-cuts of  steel sheets  by paying duty under tariff entry 72.10 at  the rate  of Rs. 365/- per ton. Consequently, this appeal is  allowed and the orders of the Tribunal as well as the Assistant  Collector and the Collector, Appeals, are set aside. There will be no order as to costs.