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CASE NO.: Appeal (civil)  4567 of 2002

PETITIONER: CCE Lucknow

RESPONDENT: M/s. Wimco Ltd

DATE OF JUDGMENT: 05/10/2007

BENCH: Dr. ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T       Dr. ARIJIT PASAYAT, J.

1.      Challenge in this appeal is to the order passed by the  Customs Excise and Gold (Control) Appellate Tribunal, New  Delhi (in short the \021CEGAT\022). By the impugned judgment dated  28.11.2001 CEGAT allowed the appeal filed by the respondent  holding that waste/scrap/parings of paper board which are  generated during the process of manufacture of paper and  paper board is nothing new, distinct in name, character and  use for the purpose of levy of duty. Therefore, it was held that  no duty was chargeable.       2.      Background facts in a nutshell are as follows:            During     investigation   of the accounts of M/s Wimco  Ltd. Bareilly, it transpired that the respondent was using  paper and paper board for the manufacture of printed paper  board boxes. During the course of manufacture of such boxes,  waste/scrap/parings are generated, it was alleged that this  waste was classifiable under Chapter sub-heading 4702.90 of  Central Excise Tariff Act, 1985 (in short the \021Tariff Act\022).   Scrutiny of records revealed that the respondent was selling  this waste/scrap/parings. It was also noticed that they did not  declare transactions of waste/scrap/parings, and did not file  classification list under Rule 173-B of the Central Excise  Rules, 1944 (in short the \021Rules\022) and did not issue any  invoices prescribed under Rule 52-A. Accordingly, a show  cause notice (in short \021SCN\022) was issued to the respondent  asking it to explain as to why duty amounting to  Rs.23,20,000/- should not be demanded and why penalty  should not be imposed and why interest should not be  charged. In reply to the SCN, the respondent submitted that  scrap is generated at two stages; that it arises before the  manufacturing operation starts; that the demand of duty on  the quantity of scrap which is generated during the pre- manufacturing operations cannot be sustained; that the scrap  is not a result of manufacturing process; that the word  \021manufacture\022 is generally understood to mean as bringing into  existence a new substance and does not mean merely to  produce some changes in a substance; that manufacturing  implies a change; that every change in an article is the result  of treatment; that every treatment is not manufacture as  something more is necessary; that there must be  transformation and a new different article must emerge having  a distinctive name, character and use. It was submitted that  in their case, generation of scrap was not manufacture.      

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    It was also submitted that longer period is invokable and  substantial part of the demand was beyond a period of six  months; there was no evidence of any suppression or mis- statement; there was a bona fide belief that waste generated in  the process of manufacture of match boxes was not dutiable  as it arose out of duty paid paper and card board.              Commissioner of Central Excise confirmed the payment  of duty amounting to Rs.23,20,000/- imposed penalty of  identical amount and also  directed payment of interest at the  appropriate rate under Section 11 AB  of the Central Excise  Act, 1944 (in short the \021Act\022).        3.      The stand of the respondent before the CEGAT was that  there was no manufacture inasmuch as whatever is used is  paper and paper board and whatever is generated as  waste/scrap/parings is generated out of duty paid paper and  paper board and a new different article must emerge having a  distinctive name, character and use to constitute  manufacture. It was submitted that in their case, generation of  scrap was not manufacture and hence not dutiable. In  essence, it was submitted that since duty paid paper and  paper board was used by it, duty cannot be demanded again  on waste/scrap/parings which are nothing but paper and  paper board.        4.      It was also submitted that if Department\022s stand is  accepted, assessee would be entitled to modvat credit. Such  credit available on paper and paper board would be much  higher than duty payable on waste/scrap/parings.         5.      The stand of revenue on the other hand was that what is  generated is waste/scrap/paring and there is specific heading  for these items in the Central Excise Tariff and, therefore, the  items are classified distinctively under Chapter heading  4702.90.  It was submitted that as a result of manufacture,  waste/scrap and paper board come into existence which are  distinct in name, character and use and, therefore, dutiable.       6.      Tribunal noted that the Chapter Heading 4702.90 of the  Schedule to the Tariff Act reads \023Recovered (waste and scrap)  paper or paper board, and is not \023recovered waste or scrap\024. In  the instant case, whatsoever is generated in the process of  manufacture of match boxes is paper and paper boards in  small pieces. This paper and paper board are used as inputs  and continue to be paper and paper board when they appear  as waste/scrap/parings. Charging of duty tantamounts to  charging of duty on the same product twice. CEGAT also noted  that in the instant case there is no value addition.        7.      In support of the appeal, learned counsel for the  appellant submitted that effect of classification list filed under  Rule 173 B has not been considered and there is a sale of  waste/scrap/parings.       8.      The Commissioner observed that the benefit of exemption  under Notification No. 89/95 dated 18.5.1995 is not available.       9       Reference was made to following observations of the  adjudicating authority :            \023I find that the case has not been  contested on merits at all by the party. The  SCN to the party was issued on the allegation  that during  the course of manufacture of

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printed paper board boxes waste parings scrap  is generated which is classifiable under the  Chapter sub-heading 4702.90 of the schedule  to the Central Excise Tariff Act 1985 (for short  tariff).  The scrap so generated is liable to  Central Excise duty if sold to outside buyers  by the manufactures who also manufacture  and clear other excisable goods on payment of  duty.  Since the party \021manufacture\022 and  \023clear\024 matches apart from the scrap waste  parings which are chargeable to duty they are  not entitled to the benefit of exemption from  duty in terms of Notification No. 89.95 dated  18.5.95.            In this case the party\022s contention that  such waste arises during pre-manufacturing  operation is not correct.  Because manufacture  means the entire process of the converting raw  material into finished goods.  It is an  afterthought that they divided their waste &  scrap in two categories because in their 173B  declaration dated 28.2.1999 manufacturing  process of match has been described in detail  in which phase-II (process of making of empty  boxes) starts from the receipts of cardboard in  the form of Jumbo Rolls from various papers  mills.  So this variety of scrap cannot be said  to be a pre-manufacturing waste.  The  manufacturing activity commences the  moment the processing of the inputs is started  inside the manufactory.  The party has not  denied that the so called pre-manufacturing  took place somewhere else then the  manufacturing premises.\024           10.     Learned counsel for the respondent supported the order  of the CEGAT.         11.     In Commissioner of Central Excise v. Indian Aluminium  Co. Ltd. (2006 (203) ELT (S.C.) 3) it was observed inter alia as  follows:

\02318. The entry in question does not contain  any legal fiction.  It does not say that any  residue having more than a certain percentage  of the metal would be deemed to have been  manufactured or would be excisable.  Records  maintained by Respondent whereupon the  Revenue has relied upon may be a relevant  factor to identify \021dross\022 as a marketable  commodity but then percentage of the metal in  dross may not by itself make it excisable, if it  is otherwise not.  An article is not exigible to  tax only because it may have some saleable  value.

19.     It may be that dross no longer answers  the description of \023waste and scrap\024 in view of  the changes made in the Tariff.  It is, however,  almost well-settled that even if some  percentage of metal is found in the dross the  same in absence of something more in the  entry would not be rendered as an excisable  article.  This Court in Indian Aluminum

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(supra) in fact noticed that some amount of  metal is found in dross and skimming.  A  distinction, however, was made that dross and  skimming are not metals in the same class as  \021waste or scrap\022.  Even assuming that dross  having a high percentage of metal is a  marketable commodity, the question, in our  opinion, would arise as to whether the same  can be said to be a manufactured product.   The term \021manufacture\022 implies a change.   Every change, however, is not a manufacture.   Every change of an article may be the result of  treatment, labour and manipulation.  But  manufacture would imply something more.  There must be a transformation; a new and  different article must emerge having a  distinctive name, character or use. [See Union  of India and Another v. Delhi Cloth and  General Mills Co. Ltd. AIR 1963 SC 791].\024                        12.     It is to be noted that merely because there is a tariff entry  it does not become excisable unless manufacture is involved.   In Commissioner of Central Excise, Chandigarh-I v. Markfed  Vanaspati & Allied Industries [2003 (153) ELT 491 (S.C)] it was  observed as follows: \0232.  The question for consideration is whether  "spent earth" is liable to excise duty or not.  Under the Tariff, prior to its amendment in  1985, it had been consistently held that "spent  earth" was not liable to duty. However, with  the enforcement of new Tariff in 1985, a  conflict arose between various benches of the  Tribunal. Some benches held that "spent  earth" was still not excisable, whereas other  benches held that, as it now stood included by  a specific sub-heading, it became excisable. In  view of these conflicting decisions, the matter  was placed before the larger Bench of the  CEGAT which by the impugned judgment has  held that "spent earth" was still not dutiable.  Hence these appeals. 3. The only question for consideration for us is  whether a goods becomes excisable merely  because it falls within a tariff item. After 1985  Tariff item 1507 reads as "residue resulting  from the treatment of fatty substances". It is  submitted that "spent earth" is a residue  resulting from treatment and is thus now  excisable. What we have to consider is whether  the well settled twin tests of "manufacture and  marketability" cease to apply if a goods falls  within a tariff entry. 4. Prior to this Entry being introduced in 1985,  it had been consistently held that "spent earth"  was not manufactured. It had been  consistently held that "spent earth" remained  "earth" even after processing. It had been  consistently held that all that happened was  that its capacity to absorb was reduced. It had  been consistently held that duty having been  paid on "earth", no duty was leviable on "spent  earth as it remained the same product. It had  been held that to levy duty on "spent earth"  would amount to levying duty twice. It is on

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this ground that it has been held that "spent  earth" was not excisable. Even now it has not  been shown that there is manufacture. The  only submission is that "spent earth" is a  residue resulting from the treatment of fatty  substances. The submission is that now that  there is a specific Entry which makes "residue  resulting from the treatment of fatty  substances" excisable, duty has to be paid on  "spent earth". In other words, what is  submitted is that merely because a good falls  within one of the Tariff items it becomes  excisable. 5. In support of their submission, reliance in  placed on the case of Lal Wollen & Silk Mills (P)  Ltd., Amritsar v. Collector of Central Excise,  Chandigarh, (1999 (4) SCC 466). In this case  the question was whether excise duty was to  be paid on dyed worsted woolen yarn made  from duty paid worsted woolen grey yarn. It  was argued that there was no manufacture.  The Court however held as follows: "Admittedly both "dyed yarn" and "grey  yarn" are covered by two separate distinct  heads of tariff items with different duty.  So this itself recognizes them to be two  different goods with separate levy. In this  view of this it cannot be urged that there  is no manufacture of "dyed yarn" from the  "grey yarn".      Undoubtedly this authority appears to  support the contention which is raised. 6. However, it appears to us that the  observations made in this authority are "per  incuram". In so observing, the decision of a  larger Bench of this Court in the case of  Collector of Central Excise, Indore v. Universal  Cable Ltd. reported in 1995 Supp (2) SCC 465,  has not been noted or considered. In this case  an argument that a good become excisable  because it is covered by Tariff Entry, has been  negatived. In the case of B.P.L.  Pharmaceuticals Ltd. v. Collector of Central  Excise, (1995 Supp (3) SCC 1) it has also been  held that merely because there is a change in  the Tariff Item the goods does not become  excisable. Subsequently in a judgment dated  13th February, 2003 in Civil Appeal No. 6745  of 1999 it has been held that merely because  an item falls in a Tariff Entry, it does not  become excisable unless there is manufacture  and the good is marketable. In Lal Woolen &  Silk Mills’ case (supra) it has been held that  the twin test of manufacture and marketability  is not to apply. It is not possible to accept the  contention that merely because an item falls in  a Tariff Entry it must be deemed that there is a  manufacture. The law still remains that the  burden to prove that there is manufacture and  that what is manufactured is on the revenue.  In this case no new evidence is placed to show  that there is manufacture. "Spent earth" was  "earth" on which duty has been paid. It  remains earth even after the processing. Thus  if duty was to be levied on it again, it would

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amount to levying double duty on the same  product.\024

13.     What amounts to \023manufacture\024 has been dealt with by  this Court in Kores India Ltd., Chennai v. Commissioner of  Central Excise, Chennai (2005 (1) SCC 385).       14.     Since CEGAT has not dealt with the factual scenario in  detail and has abruptly come to an abrupt conclusion that no  manufacture is involved, the matter is remitted to it for fresh  consideration in the light of decisions referred to above.         15.     The appeal is allowed. No cost.