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PETITIONER: KHANDELWAL METAL & ENGINEERING WORKS AND ANOTHER ETC.

       Vs.

RESPONDENT: UNION OF INDIA AND OTHERS

DATE OF JUDGMENT11/06/1985

BENCH: CHANDRACHUD, Y.V. ((CJ) BENCH: CHANDRACHUD, Y.V. ((CJ) PATHAK, R.S. MUKHARJI, SABYASACHI (J)

CITATION:  1985 AIR 1211            1985 SCR  Supl. (1) 750  1985 SCC  (3) 620        1985 SCALE  (1)1073

ACT:      Customs Act 1962, Section 12 & Customs Tariff Act 1975, Section 3(1)-  ’Additional duty’-Whether  in the nature of a counter-vailing   duty-Import   of   brass   scrap-Test   of taxability-Imported brass scrap-’Like Article if produced or manufactured in  India’-Meaning of-Taxable  event is whether import and  not manufactured  in  India-Whether  nature  and quality of  goods imported  relevant- Whether imported brass scrap need  be capable  of being produced or manufactured in India-Manufacturing process-What  is-Being a  bye-product of manufacturing process-Whether liable to duty-Sections 2. 25, 1st Schedule,  (Import Tariff) Chapter 74, Heading 74.01/02, Rules for  interpretation of the Ist Schedule, Rules 1 to 4, Notes 2  Section XV  of the  Ist Schedule,  Notes 3  and  4- ’Copper waste and scrap’-Whether brass scrap is comprehended within the  expression and whether is ’master alloy’-Whether imported   brass   scrap   entitled   to   exemption   under Notification No. 97 dated June 25 1977.      Customs Tariff  Act 1975-Ist  Schedule (Import Tariff), Chapter 74,  Heading 74.01/02-Classification  of goods under import  tariff-Contemporary   notification-Whether  can   be relied  upon-Rules  of  interpretation-Whether  should  have precedence  over  other  aids  of  interpretation-Rules  for interpretation of  the Ist Schedule-Rules 1 to 4-Application of.      Central  Excises   and  Salt  Act  1944,  Section  3(1) Schedule  1,  Entry  26A  Clause  (1b)-Whether  ultra  vires Section 3(1)-Whether  within the  legislative competence  of Parliament.      Words  and   phrases-’Brass  Scrap’-’Copper  waste  and scrap’/’Master alloy’-Meaning of.

HEADNOTE:      Section 2(15)  of the  Customs Act, 1962 defines "duty" to mean  a duty of customs leviable under the Act. Chapter V of  the  Act  contains  provisions  for  the  levy  of,  and exemption from,  customs duties.  By s.  12(1) of  the  Act, "Except otherwise  provided in  the Act  or in any other law for the  time being  in force",  duties of  customs shall be levied at such rates as may be specified 751

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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  25  of  the    Customs  Act, empowers the  Central Government to grant exemption from the payment of Customs duty.      The rates  at which  duties of  customs shall be levied under the  Customs Act,  1962 are specified in the First and Second Schedules  of Tariff Act. Section 3 of the Tariff Act deals with  the levy  of "additional  duty equal  to  excise duty". Sub-s.(1)  thereof provides that any article which is imported into  India shall in addition be leviable to a 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.      The expression  "the excise  duty for  the  time  being leviable on  a like  article if  produced or manufactured in India", according  to the Explanation in the section, means, the excise  duty for  the time being in force which would be leviable on  a like  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.      On  June   25,  1977   the  Central  Government  issued Notification No.  97 under  s. 25  of the  Customs Act 1962, exempting articles  other than  copper waste  and scrap  and unwrought copper  (refined or not) falling under Heading No. 74.01/02 of  the First  Schedule to  the Customs Tariff Act, 1975) (51 of 1975) when imported into India, from so much of duty of  customs leviable  thereon which is specified in the First Schedule as is in excess of 40 per cent ad valorem.      Another Notification  No. 156 was issued by the Central Government on  July 16, 1977 by which copper waste and scrap falling under the same heading were exempted from so much of the duty  of customs  leviable thereon which is specified in the First  Schedule, "as  is in  excess of  80 per  cent  ad valorem".      The appellants  carry on  the  business,  of  importing brass scrap from other countries. According to them they are liable to  pay customs  duty at the rate of 40 per cent only by reason of the exemption granted by the first notification while as per the respondent-Union Government they are liable to pay  duty at  the rate  of 80  per cent  since the second notification is attracted.      The appellants  filed Writ  Petitions under Art, 226 of the Constitution  and the  same were  dismissed by  the High Court. 752      In the appeals to this Court it was contended on behalf of the  appellants :  (1)  that  the  ’additional  duty’  of customs, which  is in  the nature  of  countervailing  duty, cannot be  levied on  brass scrap  because, such scrap which consists of  damaged brass  articles like taps and pipes, is not "manufactured"  in India  (or elsewhere),  as indeed  it cannot be  and (2)  that they  are liable  to  pay  duty  of customs on  the brass  scrap at the rate of 40 per cent only and not at the rate of 80 per cent because, brass scrap is a ’master alloy.’      Dismissing the Appeals and the Special Leave Petitions, ^      HELD : 1. Notification No. 156 of July 16, 1977 exempts

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copper waste  and scrap  from so much of the duty of customs as is in excess of 80 per cent ad valorem. Since brass scrap is includible in the expression ’copper waste and scrap’ and since, brass  scrap is not a ’Master alloy’, the appellants’ case would  fall under  this notification. Accordingly, they would be  entitled to  exemption from  customs duty  to  the extent of 20 per cent only. [774 C-D]      2. The  charging section  is s  12 of  the Customs Act, 1962 and  not s.  3(1) of  the  Customs  Tariff  Act,  1975. Section 12  of the  Customs Act  incorporates the  different ingredients embodied  in the concept of a fiscal imposition. It levies  a charge,  it indicates  the taxable  event  (the import or  export of goods) and it indicates the rate of the levy. The  rates are  such "as  may be  specified under  the Customs Tariff  Act 1975".  Section 2 of the Tariff Act lays 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 scheme  incorporated in  s.12 of the Customs Act  read with s.2 of the Tariff Act is analogous to the scheme  embodied in  s.4, Income  Tax Act  read with the relevant provisions  of the  Finance Act. The levy specified in s.3(1)  of the  Tariff Act  is a  supplementary levy,  in enhancement of  the levy  charged by s.12 of the Customs Act and with  a different  base constituting  the measure of the import. The  ’additional duty’  which is mentioned in s.3(1) of the  Tariff Act  is not  in the  nature of countervailing duty. [758 G-H; 759 A-C]      Ashok Service  Centre v.  State of Orissa, [1983] 2 SCR 363, relied upon.      3. Under  s.12 of  the Customs  Act duty is leviable on the taxable  event of  export of  goods from  India  or  the import of  the goods into India, which is relatable to Entry No.  83   is  List   I  of   the  Seventh  Schedule  to  the Constitution. The  taxable event  is not  the manufacture of the goods.  Under s.3(1) of Tariff Act, "the excise duty for the time  being leviable  on a  like article  if produced or manufactured in  India" is  only the  measure  of  the  duty leviable on  the imported  article. Section  3(1)  does  not require that  the imported  article should  be such as to be capable of  being produced or manufactured in India. [761 F- H]      4. The provisions contained in Explanation to s.3(1) of the Tariff  Act make  it clear  that the duty referred to in s.3(1) of  the Tariff  Act does  not bear any nexus with the nature and quality of the goods imported in to India.                                                   [762 A-C] 753      5. Section  3(5) of the Tariff Act which provides, that the  duty  "chargeable  under  this  section"  shall  be  in addition to  any other  duty imposed under the Act, does not help  s.3(1)   becoming  a   charging  provision.  The  word ’chargeable’  occurring   in  sub-s.  (5)  has  to  be  read alongwith the expression "imposed under this Act". Section 2 of the Tariff Act does not charge a duty but only prescribes the rates  of duty  leviable under  s.12 of the Customs Act. Besides, s.3(5)  of the  Tariff Act refers not merely to any other duty  imposed under the Tariff Act but also "under any other law  for the time being in force", which would include s.12 of  the Customs Act. Therefore, in the instant case, it cannot be  said  that  s.3(1)  of  the  Tariff  Act  is  not attracted because  the damaged  articles, which  are in  the nature of  brass scrap,  are outside  the scope  of that Act since, such  articles are  not and  cannot  be  produced  or manufactured. [762 C-F]      6.(i) Even if the duty "chargeable" under s.3(1) of the

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Tariff Act is a countervailing or counterbalancing duty, the brass scrap  imported by  the appellants  will  attract  the charge on that basis also. The damaged goods of brass, which are  compendiously  called  ’brass  scrap’,  can  come  into existence during the process of manufacturing brass articles and such brass scrap has an established market in India. The scrap is  re-cycled for  extracting metal  and since  excise duty is  payable on  such scrap, the imported brass scrap is subjected to  the additional  duty in  order that indigenous brass scrap  may not suffer in competition with the imported brass scrap.  The true test is as to what is the description of the articles imported. [762 G-H; 763 A-C]      (ii) The  limited inquiry  which  has  to  be  made  is whether brass  scrap can  come into being during the process of manufacture.  If the  answer is  in the  affirmative, the imported brass  scrap will  be chargeable to additional duty in accordance with s 3(1) of the Tariff Act. [763 C-E]      7. In  the instant  case, the appellants claim that the goods imported  by them  fall in the class of ’master alloy’ is against  the tenor of their own documents. The appellants imported  the   articles  under   Open  General  Licence  in pursuance of Entry 44 of Appendix 10 of the ’Import Policy’. They could  not  have  been  granted  permission  to  import ’master alloy’  under the Open General Licence because under the OGL  the import  of brass  scrap was  permissible at the relevant time but not of any ’master alloy’. [765 E-G]      8.  An  ’alloy’  is  a  substance  possessing  metallic properties and  composed of two or more elements of which at least one  must be  a metal.  A ’master  alloy’ is generally called a  foundry alloy  for the simple reason that it is an alloy used  for adding  elements in the foundry. Brass scrap does not  square with that description and use. It is not an alloy of  mixture of  elements used  for introducing desired elements into  melted metals in the foundry. Brass is but an alloy of  copper and  zinc  and  is  complete  and  finished product by 754 itself. Brass  or brass  scrap is not used as a raw material in the  manufacture of  other alloys, therefore, it is not a master alloy.  The appellants  cannot claim  the benefit  of Notification No.  97 dated  June 25,  1977 on the basis that brass scrap  is a  master alloy.  [767 G-H; 770 C-D 768 C-D; 770 F-G]      "A  Dictionary   of  Metallurgy   by  A.D.   Merriman". "Materials Handbook"  by George  S. Brady,  ’World Trade and the law  of Gatt’  by John H. Jackson, Ed. 1969. Henderson’s ’Metallurgical Dictionary’  Osborne’s ’Encyclopaedia  of the Iron and Steel Industry’, Encyclopaedia Britannica, referred to.      9. The  question of  classification of  goods under the ’Import Tariff’  cannot be  decided  by  implications,  when there are  Rules of  Interpretation which  are  specifically framed to  aid and  assist the classification of goods under appropriate Heading.  Those rules  must have precedence over other aids of interpretation. [774 B-C]      Desh Bandhu  Gupta v. Delhi Stock Exchange Association, [1979]3 SCR  373, K.P.  Verghese v.  I.T.O, [1982]1  SCR 629 referred to.      10. Rule  1 of  the Rules for the Interpretation of the First Schedule  (Import Tariff)  to  the  Tariff  Act,  1975 provides that  classification has to be determined according to the  provisions of the Rules unless, a particular Heading or Note  excludes the  application of  the Rules  other than Rule 1.  In the  instant case,  the terms of the Heading No. 74.01/02 by  themselves, yield  an answer  to  the  question

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whether copper  waste and scrap includes brass scrap and the Heading does  not require  or provide  that the  other rules should be  excluded while  determining the classification of articles under  the Heading. That is how Rules 2 to 4 become relevant for deciding the question whether ’copper waste and scrap’ includes  brass scrap.  By reason  of the  concluding part of Rule 2(b) classification of goods consisting of more than one  material or  substance shall  be according  to the principles contained  in  Rule  3.  Applying  the  principle contained in  Rule 3(b)  brass is  a mixture  of copper  and zinc, usually  in the  proportion of 60:40 but, in which the component of  copper may be anywhere between 67 per cent and 70 per cent. Since copper gives its ’essential character’ to brass, brass scrap has to be classified as ’copper waste and scrap’ within  the meaning  of Heading No. 74.01/02. Even if it is  assumed that  brass scrap  does not  fall within  any Heading of  the First  Schedule, Rule 4 would yield the same result because Rule 4 provides that goods not falling within any Heading  of the First Schedule shall be classified under the Heading  appropriate to the goods to which they are most akin. Brass,  unquestionably, is  most akin  to copper  and, therefore, brass scrap has to be classified as ’Copper Waste and Scrap’. [772 A-H; 773 A-C]      11. Clause  (a) of  Note 3  of Section  XV of the First Schedule (Import  Tariff) provides  that an  alloy  of  base metals is  to be  classified as  an alloy of the metal which predominates by  weight over each of the other metals. Since brass is  an alloy  of  copper  and  zinc  in  which  copper predominates by weight, 755 brass has  to be classified as an alloy of copper. According to  Note  4,  unless  the  context  otherwise  requires  any reference in  the First  Schedule to  a base  metal is to be taken to  include a  reference to  alloy which  by virtue of Note 3, is to be classified as alloys of that metal. Heading No. 74.01/02  of the  First Schedule  refers to waste copper and scrap.  Copper is  a base  metal. Reference to copper in that heading  would include  reference to  brass  since,  by virtue of  Note 3, brass has to be classified as an alloy of copper. Therefore,  ’copper waste  and scrap’ includes brass scrap. [773 C-F]      12. Considerations  based on  documents issued  by  the Merchants’  Association   and  upon  extracts  from  ’Indian Standard Coding  and Classification  for  non-ferrous  scrap metals’ showing  that  brass  scrap  and  copper  scrap  are regarded as  distinct  and  separate  items  for  commercial purposes cannot  furnish a  true  answer  to  the  question, because the  distinguishing feature  is brass and copper are not mentioned  as separate  items in the Import Tariff. [773 F-H]      13. (i) Imposition of excise duty on ’waste and scrap’, referred to  in Cl.  1(b) of Entry 26A of the First Schedule to the Central Excises and Salt Act, 1944 is not ultra vires s. 3 of that Act. Section 3 provides for levy of excise duty on all  exciseable goods  produced or manufactured in India. The production of waste and scrap is a necessary incident of the manufacturing  process. Waste  and scrap  are  the  bye- products of  the manufacturing  process. Sub-standard  goods which are  produced during  the process of manufacturing may have to  be disposed  of as ’rejects’ or as scraps. But they are  still   the  products  of  the  manufacturing  process. [774 D-H]      (ii) ’Intention’  is not  the gist of the manufacturing process. [774 H]      14. Section  2(d) of the Act of 1944 defines ’excisable

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goods’ to  mean good  s which  are specified  in  the  First Schedule as  being subject to a duty of excise under s. 3 of the Act.  The goods  mentioned in  the First  Schedule  will attract excise duty under s. 3 only if they are manufactured in India  and not  otherwise. Entry  26A (1b)  of the  First Schedule of  the Act of 1944 cannot be held to be beyond the legislative  competence   of  the   Parliament  because  the precondition of  the excisability  of the articles mentioned therein, namely, waste and scrap is in the manufacturability of those  articles. Since  the production of waste and scrap is an  integral part  and  an  inevitable  incident  of  the manufacturing  process,   Parliament  has   the  legislative competence to  make ’waste  and scrap’ excisable under Entry 84 of  List 1  of the  Seventh Schedule to the Constitution. Parliament  would   even  otherwise   have  the  legislative competence to  pass the  law by  virtue of  Article 248 read with the  residuary Entry  97 of List I, because the subject matter of  Legislation does  not fall  within List  II,  the State List. [775 A-E]      Second Gift  Tax Officer,  Managalore v.  D.H. Nazareth [1971] 1 S.C.R 195 and Union of India v. H.S. Dhillon [1972] 2 SCR 33 followed. 756      The Hingir-Rampur  Coal Co. Ltd. v. The State of Orissa [1961] 2  SCR 537  Kalyani Stores  v. The  State  of  Orissa [1966] SCR  865, 1  A.B. Abdul  Kadir  v.  State  of  Kerala [1976]2 SCR  690 and Mc. Dowell & Company Ltd. v. Commercial Tax Officer,  VII Circle,  Hyderabad [1977] SCR 914 referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION : Civil Appeals Nos. 338- 349 of 1983 etc etc.      From the Judgment and Order dated 19th October, 1982 of the Delhi  High Court  in Civil  Writ Petitions  Nos.  2684, 2685, 2686,  1687, 2688,  2724, 2725,  2507, 2508,  2509 and 1432 of 1981.      R.N. Bajoria,  Soli J.  Sorabji, Anil  B. Dewan, Gobind Dass, A.K. Sen, I.R. Gupta, M.M. Abdul Khadar, S.K. Bagaria, Kamal  Persuram  Puria,  A.M.  Shah,  V.N.  Deshpande,  E.C. Agarwala, R.  Sathish, Vijaya Pandita, Prakash Mittal, Madan Sharma, Ravinder Narain, O.C. Mathur, J.B. Dadachanji, Talat Ansari, D.N.  Mishra, Harish  Salve, Miss  Rainuwalia, Ashok Gupta, P.H.  Parekh, D.K. Chhaya, Miss Nisha Srivastava, JP. Devadhar,  Aruneshwar  Gupta,  Brij  Bhushan,  S.P.  Mangla, Rajesh Gupta,  J.N. Aggarwal,  P.D. Sharma,  P.K. Mukherjee, A.S. Pundir,  N.D.  Garg,  P.K.  Aggarwal,  V.K.  Varma,  S. Sriniasan,  Sushil   Kumar  Jain,  M.K.D.  Namboodiry,  R.C. Pathak,  Mrs.   Rani  Chhabra,  Mrs.  Shobha  Dixit.  A.T.M. Sampath,  K.J.   John,  Shri  Narain,  J.N.  Aggarwal,  B.P. Maheshwari, Miss  Halida Khatun,  R.S. Suri,  S.K. Dholakia, Altaf Ahmad, G.D. Rawal, Shyam Moorjani Kailash Vasdev, C.S. Vaidyanathan. D.D.  Sharma, B.  Parthasarthi,  S.S.  Shroff, Mrs. Pallavi  Shiraf, D.P.  Mohanty.  S.A.  Shroff,  Subhash Parekh, A.K.  Sanghi.  S.N.  Parekh,  Vijay  Pandita,  Madan Sharma, R.D.  Upadhya, Mrs.  Hemantika Wahi,  Janendra  Lal, B.R. Agarwala,  Miss V. Menon, A.K. Goel, K. Dileep and M.A. Feroz, for the Appellants/Petitioners.      K.  Parasaran,   Solictor   General,   M.K.   Banerjee, Additional Solictor  General, A.K.  Ganguli, K.  Swamy, R.N. Poddar, C.V.  Subbarao, Suraj  Udai Singh  and  Miss  Halida Khatun for the Respondents.      Anil B.  Dewan, Abhay  M. Shah,  V.N.  Deshpande,  E.C.

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Aggarwala and  V.K. Pandita for the Interveners (Indravandan Gokuldas Mehta). 757      The Judgment of the Court was delivered by      CHANDRACHUD, CJ  : This is a group of Civil Appeals and Special Leave  Petitions arising  out of  a  judgment  dated October 19,  1982 delivered  by a Division Bench of the High Court of  Delhi in  a batch  of Writ  petitions filed  under Article 226 of the Constitution. Those Writ Petitions having been dismissed  by the High Court, the Writ-petitioners have filed these Appeals and Special Leave Petitions.      The facts  of the various Writ Petitions naturally vary from case  to case but, such variation has no bearing on the points which  arise for  our decision.  We will  mention the facts of Civil Appeal Nos. 27-33 of 1983 as a representative batch of  cases. The two appellants therein are respectively Messers Eastern  Engineers, a  partnership firm  carrying on business at  Goregaon, Bombay,  and a  partner of that firm. For the  sake of  convenience, we  will proceed on the basis that the  real appellant  is the firm. The appellant carries on the  business, inter  alia, of importing brass scrap from other countries.  Its contention  is  that  the  ’additional duty’ of  customs, which  is in the nature of countervailing duty, cannot  be levied  on brass  scrap because, such scrap which consists  of damaged  brass  articles  like  taps  and pipes, is  not "manufactured"  in India  (or elsewhere),  as indeed it  cannot be. The second contention of the appellant is that  it is  liable to  pay duty  of customs on the brass scrap at the rate of 40 per cent only and not at the rate of 80 per  cent because,  brass scrap  is a ’master alloy’. The rate of  customs duty  payable depends upon which of the two Notifications, granting  exemption from  payment of  customs duty, is  applicable. These  contentions are  based  on  the following provisions of law.      Section 2  (15) of the Customs Act, 1962 defines "duty" to mean  a duty of customs leviable under the Act. Chapter V of  the  Act  contains  provisions  for  the  levy  of,  and exemption from,  customs duties.  By section  12 (1)  of the Act, "Except  as otherwise  provided in  the Act  or in  any other law  for the  time being  in force", duties of customs shall be  levied at such rates as may 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  25 of  the Customs Act, which deals with the power of  the Central Government to grant exemption from the payment of 758 customs duty,  provides by  sub-section  (1)  that,  if  the Central Government  is satisfied that it is necessary in the public interest  so to  do, it may, by a notification in the Official Gazette,  exempt generally,  either  absolutely  or subject to such conditions as may be specified, goods of any specified description from the whole or any part of the duty of customs leviable thereon.      Section 2 of the Customs Tariff Act, 1975 says that the rates at  which duties  of customs shall be levied under the Customs Act,  1962 are  specified in  the First  and  Second Schedules of  the Tariff  Act. Section  3 of  the Tariff Act deals with  the levy  of "additional  duty equal  to  excise duty". Sub-section  (1) of  section 3 and the Explanation to that section, which are relevant for our purpose, 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

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    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 like 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 question  which we must first examine is as to what is the true nature of the duty mentioned in section 3 (1) of the Tariff  Act. It  has to  be appreciated at the threshold that the  charging section  is section 12 of the Customs Act and not section 3 (1) of the Tariff Act. Section 12, Customs Act, incorporates  the different ingredients embodied in the concept of a fiscal imposition. It levies a charge, 759 it indicates  the taxable  event (the  import or  export  of goods ) and it indicates the rate of the levy. The rates are such "as my be specified under the Custom Tariff Act, 1975". The last ingredient takes us to section 2, Tariff Act, which lays 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". Nothing more would be ordinarily required to  complete the  scope of section 12, Customs Act. The scheme  incorporated in that section read with section 2 of the  Tariff Act  is analogous  to the  scheme embodied in section 4,  Income Tax Act read with the relevant provisions of the  Finance Act.  The levy specified in section 3 (1) of the Tariff Act is a supplementary levy in enhancement of the levy charged  by section  12 of  the Customs  Act and with a different base  constituting the  measure of  the impost. In other words,  the scheme embodied in section 12 is amplified by what  is provided  in section  3 (1).  The  customs  duty charged under  section 12  is extended by an additional duty confined to  imported articles  in the  measure set forth in section 3  (1). Thus, the additional duty which is mentioned in section  3 (1)  of the Tariff Act is not in the nature of countervailing duty.  In Ashok  Service Centre  v. State  of Orissa, which  considered the  nature of  levy of additional sales-tax under an Orissa Act, this Court observed:           "This construction  receives support  from the use      of  the  word  ’additional’  in  section  3  (1)  which      involves the  idea of  joining or  uniting one thing to      another so  as thereby  to  form  one  aggregate.  (See      Black’s Law Dictionary). The gross turnover referred to      therein should  therefore be understood as that part of      the gross turnover which is taxable under the principal      Act." (page 380).      Counsel  for   the  appellants  rely  strongly  on  the ’Objects and  Reasons’ of  section 3  of the  Tariff Act  in support of  their contention  that the  said  section  is  a charging section  and imposes  a  countervailing  duty.  The Statement of Objects and Reasons says:           "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

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    ingredients 760      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." This Statement  lends prima  facie support to the contention of the  appellants but,  in the  absence of any ambiguity in the wording of section 3 (1), we cannot treat the additional duty  referred  to  therein  as  countervailing  duly,  Nor, indeed, can  we regard  that provision as a charging section merely because  the Statement  says that section 3 "provides for the  levy". The Statement of Objects and Reasons errs in being common to sub-sections (1) and (3) of section 3. It is more apposite  to sub-section (3) though, even there, it may not be  correct to say that it is a charging provision. Sub- section (3)  confers power  on the  Central  Government,  in public interest,  to levy  on  any  imported  article  "such additional duty  as would  counterbalance  the  excise  duty leviable on any raw materials, components and ingredients of the same  nature  as,  or  similar  to  those  used  in  the production or  manufacture of such article", whether on such article, duty  is leviable  under sub-section  (1)  or  not. Since we are not concerned directly with sub-section (3), we will not pronounce upon its meaning and implications.      In this  view of  the  matter,  it  is  unnecessary  to consider the  various decisions  cited at  the  Bar  on  the nature and  connotation of  ’countervailing  duty’.  We  are unable to accept the argument of the appellants that section 3 (1)  of the Tariff Act is an independent, charging section or that,  the ’additional  duty’ which it speaks of is not a duty of customs but is a countervailing duty.      That leads  to the  inquiry as to the reason or purpose behind the  argument that section 3 (1) of the Tariff Act is an independent, charging section. It shall have been noticed that section  3 (1)  provides  that  any  article  which  is imported  into  India  shall,  in  addition,  (that  is,  in addition  to  the  duty  of  customs  for  which  rates  are specified in  section 2)  be liable  to an  additional  duty "equal to  the excise  duty for the time being leviable on a like  article   produced  or  manufactured  in  India".  The contention of  Mr. Sorabjee,  who appears  on behalf  of the appellants, is  that the brass scrap imported by them is not produced  or  manufactured  in  India  because  the  damaged articles of brass which constitute brass scrap, are not only incapable  of   being  manufactured  but  are  in  fact  not manufactured. Learned 761 counsel contends  that if  the change in the condition of an article is  the result  of an  accidental event,  that is to say, an event not intended or if the change is the result of ordinary wear  and tear,  the change thus produced cannot be termed  as  manufacture.  It  is  urged  that  the  articles imported by  the appellants  are what they are because, they had suffered  damage or  had been subjected to ordinary wear and tear  in the  natural course.  If such  goods cannot  be produced or  manufactured in  India for the reason that they cannot be  and are, in fact, not produced or manufactured in India, or  for the  matter of  that anywhere,  no additional duty can  be levied upon them under section 3 (1). According to the  learned counsel,  the basic postulate underlying the levy of  duty under  section 3 (1) of the Tariff Act is that indigenous goods  belonging to  the class of goods which are chargeable to  excise duty.  The illustrations given are the import of  live animals,  live trees burnt up cables, broken

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glass or  fused bulbs. The argument is that there is and can be no  levy of  additional duty  on these  goods if imported because they  cannot be  and are  not manufactured  for  the simple reason  that they  are not  the result  of treatment, labour and  manipulation, nor  are they the result of one or more processes  through which the original commodity is made to pass. Putting it in one sentence, the argument is that if indigenous goods,  similar to  those which  are imported, do not suffer  excise duty  for the  reason that  they are  not manufactured, the charge leviable under section 3 (1) of the Tariff Act is not attracted.      There is  no substance  in this  argument. In the first place, as we have indicated earlier, sections 2 and 3 (1) of the Tariff  Act are  not  charging  sections.  The  charging section is  section 12  of the Customs Act under which, duty is leviable  on the  taxable event  of export  of goods from India or  the import of goods into India, which is relatable to Entry  No. 83  in List  I of  the Seventh Schedule to the Constitution: "Duties  of Customs  including export duties". The taxable event is not the manufacture of the goods. Under section 3  (1) of  the Tariff  Act, "the excise duty for the time being  leviable  on  a  like  article  if  produced  or manufactured in  India" is  only the  measure  of  the  duty leviable on  the imported  article. Section  3 (1)  does not require that  the imported  article should  be such as to be capable of  being produced  or manufactured  in  India.  The assumption has to be that an article imported into India can be produced  or manufactured  in India  and upon that basis, the duty has to be determined under section 3 (1). 762      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 or 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" (emphasis supplied). 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  nexus which  the nature  and quality of the goods imported into India.      Section 3  (5) of  the Tariff Act which provides, inter alia, that the duty "chargeable under this section" shall be in addition  to any other duty imposed under the Act, cannot be pressed  into service  in support  of the contention that section 3  (1) is in the nature of a charging provision. The word ’chargeable’  which occurs in sub-section (5) has to be read along  with the  expression "imposed  under this  Act". Section 2  of the Tariff Act does not charge a duty but only prescribes the  rates of  duty Ieviable  under section 12 of the Customs  Act. Besides,  section 3  (5) of the Tariff Act refers not merely to any other duty imposed under the Tariff Act but  also "under  any other  law for  the time  being in force," which  could include  section 12 of the Customs Act. For these  reasons, we  must  reject  the  argument  of  Mr. Sorabjee and of the other learned Counsel for the appellants that section  3 (1)  of the  Tariff  Act  is  not  attracted because, the  damaged articles,  which are  in the nature of brass scrap,  are outside  the scope of that Act since, such

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articles are not and cannot be produced or manufactured.      Looking at  the matter  from a different point of view, the brass  scrap of the kind imported by the appellants is a by-product of  the manufacturing process. Such goods can and do  come  into  existence  as  waste  articles  or  rejected articles during  the process  of manufacturing that class of articles.  Indeed,   brass  scrap  is  known  in  commercial parlance by that name and is excisable as such. Assuming for the sake  of argument  that the  appellants,  contention  is correct that  the duty  "chargeable" under  section 3 (1) of the Tariff 763 Act is  a countervailing  or a  counterbalancing  duty,  the brass scrap   imported  by the  appellants will  attract the charge on that basis also. As stated above, damaged goods of brass, which  are compendiously  called ’brass  scarp’,  can come into  existence during  the  process  of  manufacturing brass articles  and such  brass  scrap  has  an  established market in  India. The  scrap  is  re-cycled  for  extracting metal. Since  excise duty  is payable  on  such  scrap,  the imported brass  scrap is subjected to the additional duty in order  that   indigenous  brass  scrap  may  not  suffer  in competition with the imported brass scrap. The argument that the articles imported by the appellants have been reduced to scrap  by   reason  of  damage,  wear  and  tear,  is  quite irrelevant. The  true test  is as to what is the description of the  articles imported.  If the articles are brass scrap, the limited  inquiry which  has to  be made is whether brass scrap can  come into being during the process of manufacture If the  answer is  in the  affirmative, the  imported  brass scrap will  be chargeable  to additional  duty in accordance with section 3 (1) of the Tariff Act.      Having disposed  of the  contention as  to whether  the duty mentioned  in Section  3 (1) of the Tariff Act, whether one calls  it additional  duty or  countervailing  duty,  is leviable on  the brass scrap imported by the appellants, the next  question  for  consideration  is  as  to  whether  the appellants are  liable to pay excise duty on the brass scrap at the  rate of  40 per  cent or at the rate of 60 per cent. The answer  to this  question depends  upon which of the two notifications, notification   No. 97 dated June 25, 1977 and notification No.  156 dated July 16, 1977, is applicable. It is undisputed that excise duty is payable on the brass scrap imported by the appellants, the only controversy being as to the rate of duty payable.      Section 25  of the  Customs  Act,  as  stated  earlier, empowers the  Central  Government,  in  public  interest  to exempt goods  of any specified description from the whole or any part  of the  Customs duty  leviable thereon.  The First Schedule called  "Import Tariff" to the Tariff Act, which is referable to  section 2  of that Act consists of one-hundred chapters divided  into XXII  sections. Each  chapter bears a broad heading  of the articles comprised therein. Chapter 74 which bears  the heading  ’, Copper  and articles  thereof," contains six headings, the first of which reads thus: 764 Heading    Sub-heading       Standard Rate          Central No.                          of duty                Excise                                                     Tariff                                                     Item ____________________________________________________________ 74.01/02   Copper matte;     (a)      100%           26A           Unwrought                                   copper           (refined                 or                  not);           copper                  waste                  and

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         scrap;                                      master           alloys. ____________________________________________________________      On  June   25,  1977,  the  Central  Government  issued Notification No. 97 to the following effect:           "In exercise  of powers  conferred by  sub-section      (1) of Section 25 of the Customs Act, 1962 (52 of 1962)      the Central  Government  being  satisfied  that  it  is      necessary in  public interest  to do so, hereby exempts      articles  other   than  copper   waste  and  scrap  and      unwrought copper  refined or not) falling under heading      Nos. 74.  01/02 of  the First  Schedule to  the Customs      Tariff Act  1975 (51 of 1975 when imported in to India,      from so  much of duty of customs leviable thereon which      is specified  in the  First Schedule as is in excess of      40% ad valorem. Another Notification,  No. /156,  was issued  by the Central Government on  July 16, 1977 by which copper waste and scrap falling under the same heading were exempted from so much of the duty  of customs  leviable thereon which is specified in the First  Schedule, "as  is in  excess of  80 per  cent  ad valorem." The  upshot of the two notifications is that under the first notification of June 25, 1977, customs duty at the rate of  40 per  cent is  payable while,  under  the  second notification of  July 16,  1977, customs duty at the rate of 80 per  cent is payable. In other words, 60 per cent duty is exempted under the first notification while 20 per cent duty is exempted  under the  second notification. The case of the appellants is  that they  are liable  to pay customs duty at the rate  of 40  per cent  only by  reason of  the exemption granted by  the first  Notification while,  the case  of the Union Government  is that they are liable to pay duty at the rate of  80  per  cent  since  the  second  Notification  is attracted. 765      The fact  that the goods imported by the appellants are brass scrap should be beyond the pale of argument though, an attempt was made in the High Court by some of the Counsel to contend that  the goods  imported by  the appellants are not brass scrap  at all.  There is  a specific  averment in  the pleadings of  the appellants that they carry on the business of importing  brass scrap  and have  in fact  imported brass scrap. In  the Bill  of Entry,  the Customs  Tariff  Heading indicated by  the appellants  themselves is  74.01/02.  That entry has  to be  mad  in  order  to  show  entitlement  for importing goods  of the  particular description.  The import policies for the years 1980-81 and 1981-82 contain lists, in Appendix 10,  of items  which can be imported under the Open General Licence.  It is in pursuance of an Entry in Appendix 10 that  the appellants  import  brass  scrap.  Indeed,  the appellants had  to accept  that goods  were imported by them under the Open General Licence, the goods being described by themselves as  ’brass scrap’.  Otherwise,  they  would  have countered other serious impediments. Further, the claim made by the  appellants for  exemption, whether it is 60 per cent or 20  per cent is dependant upon the goods imported by them falling under the heading 74.01/02.      The fact  that brass  scrap is  covered by  the heading 74.01/02 is  undisputed and is indisputable. The Controversy between the  parties is  this. Whereas  the appellants claim that brass  scrap is  a ’master alloy’ and, therefore, falls under the  notification dated  June 25, 1977, the contention of the  Union Government is that brass scrap is comprehended within The expression ’copper waste and scrap’ and therefore falls under  the notification  dated July  16, 1977.  In the

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first place,  the appellants,  claim that the goods imported by them  fall in  the class of ’master alloy’ is against the tenor of  their own  documents to  which we  have referred a little while  ago.  The  learned  Attorney  General  is  not unjustified in his submission that if the appellants were to ask for  permission to  import ’master alloy’ under the Open General Licence,  they could  not  have  been  granted  that permission since,  under the  OGL, the import of brass scrap was permissible  at the relevant time but, not of any master alloy. One  of the three items in Entry 44 of Appendix 10 of the ’Import  policy’ was ’Brass Scrap’. But, apart from this consideration, it  seems  to  us  difficult  to  accept  the appellants contention that brass scrap is a ’master alloy.’ 766      The best part of the argument before us was occupied by this particular  question since,  the difference between the duty  payable  by  the  appellants  is  quite  considerable, depending upon  whether the first or the second notification applies. The contention of the various counsel on this point may be  summed up  thus. Firstly,  Brass  scrap’  cannot  be classified as  ’copper scrap’  because, the context in which Notification No.  97 was  issued has to be examined in order to find  out whether  Note 4  of Section  XV of  the ’Import Tariff’ is  at all  applicable. Secondly, two Notifications, Nos. 96  and 97, were issued simultaneously, one for ’copper scrap’ and  the other  for  ’other  than  copper  waste  and scrap’. Notification  No. 97  on which  the appellants  rely should, therefore, be so interpreted as to avid any conflict between  the   two  Notifications.  The  intrinsic  evidence furnished by  the two Notifications points to the conclusion that they  relate to  two separate  types of scrap. Thirdly, the contemporaneous  understanding of  those who  framed and issued the  exemption Notifications has always been that the expression ’brass  scrap’ is  distinct from  the  expression ’copper scrap’  for determining  the  application  of  those Notifications, For  example, each  of the two Notifications, No. 403 dated August 2, 1976 and No. 138 dated July 1, 1977, uses the  expressions ’copper  scrap’,  which  unequivocally indicates that  the framers  of the Notifications understood these two expressions to mean two different things. Reliance is placed  by the  counsel on the decisions of this Court in Desh Bandhu  Gupta v.  Delhi Stock Exchange Association, and K. P.  Verghese v.  I.T.O., in  support of  their submission that the  contemporaneous exposition  is a legitimate aid to interpretation. Therefore,  so  the  contention  goes,  even assuming for  the purpose  of  argument  that  copper  scrap includes brass  scrap, that  conclusion must  be resisted in view of  the history  of the  exemption Notifications issued from time to time.      Mr.   Sorabjee    urged,   in    addition,   that   the classification of  an item  under  a  particular  commercial category  must  not  be  mixed  up  with  its  liability  to taxation. Rule  1 of the Rules for the interpretation of the First Schedule  (’Import Tariff’)  of the  Tariff Act,  1975 takes precedence  over other  rules by  providing that  "for legal purposes, classification shall be determined according to the  terms of  the Headings  and any  relative Section or Chapter Notes  and, provided  such Headings  or Notes do not otherwise require, according to the 767 provisions  hereinafter  contained."  The  question  of  the application  of  Interpretative  Rules  2  to  4,  therefore arises, only  where the text of the Heading and of the Notes cannot by  itself  determine  the  appropriate  Heading  for classification of an article. The other Interpretative Rules

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cannot be  invoked in  the instant case, because brass scrap being  an   alloy  of  copper.  its  classification  can  be determined under  Rule 1.  In any  case, Note  No. 4  of the Import Tariff which says:           Goods  not  falling  within  any  Heading  of  the      Schedule  shall   be  classified   under  the   Heading      appropriate to the goods to which they are most akin" cannot apply since, Rule 1 of the Interpretative, Rules must take precedence  over it. These considerations, according to the learned  counsel, lead  to  the  conclusion  that  brass scrap, as  a ’copper  alloy scrap’  must be  classified with copper as  an ’alloy  scrap  of  copper’  or  ’copper  alloy scrap’. It cannot be classified as ’copper scrap’.      Arguments  advanced  by  the  various  learned  counsel including Mr.  Asoke Sen,  Mr. Sorabjee, Mr. Bajoria, Mr. R. K. Jain,  Mr. Gobind  Das,  Mr.  L.  R.  Gupta  and  Mr.  K. Parshurampuria were  an interesting  interplay of  different facets of  forensic presentation. Broadly, the central theme of their  argument was  the same but, a few of them, who are evidently well-versed  in the  " Import  Tariff",  dissected with ability  many a minute point concerning the composition of metals like brass and copper.      The reasons  why we are unable to accept the submission of the  appellants that brass scrap is a ’master alloy’, are these.  An   ’Alloy’  is   described  in  "A  Dictionary  of Metallurgy by A. D. Merriman" thus:           "Alloy           It is  a substance  possessing metallic properties      and composed  of two or more elements of which at least      one must  be a  metal. The term is usually reserved for      those cases where there is an intentional addition to a      metal for the purpose of improving 768      certain properties.  Though  pure  metals  may  possess      certain useful  properties,  they  seldom  possess  the      strength required for industrial application. Copper is      practically  the  only  matter  used  in  bulk  in  the      commercially pure  state. In  the case  of most metals,      alloying elements  are added  to increase the hardness,      strength and  toughness of  the  basic  metals  and  to      obtain properties  which are  not found in any of those      metals."      (page 5).      At page 182 of Merriman’s book it is stated that:           "Master alloy  is the  name given  to an  alloy of      mixture  of  elements  that  is  used  for  introducing      desired elements  into melten  metals in  the  foundry.      .......... and  are often  used in  the ladle to obtain      good  control  over  the  final  product.  Also  called      Foundry Alloy."      The book  does not  mention brass  as a  master  alloy. Indeed zinc which is a constituent of brass is not mentioned even as one of the constituents of a master alloy.      At pages 25 and 26 of "Materials Handbook" by George S. Brady, it is stated:           "The commercial  utility of alloys arises from the      fact that  the pure  metals are often too soft, weak or      rare to be used alone. Thus, copper, a soft metal, when      alloyed with  the brittle  metal zinc,  forms a strong,      hard alloy, brass, that has wide usage."           "A master  alloy or  a foundry  alloy is  an alloy      used for adding elements in the foundry."      Moves to unify tariff classification stem at least from the early  days of  the League  of Nations.  In Brussels  in 1950, the  Customs Co-operation  Council  was  formed  by  a

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convention signed  by 13 governments of the European Customs union Study  Group. The  CCC studies  customs matters with a view towards simplifying and 769 unifying  them   and  has   prepared  the  "Brussels  Tariff Nomenclature" complete with principles of interpretation and an  advisory   process  for   settling  disputes   over  the nomenclature. (See  pp. 238-239,  Section 10,  7  of  ’World trade and the law of Gatt’ by John H. Jackson, Ed. 1969).                According to  Brussels  Tariff  Nomenclature,           "Master alloys  are generally in the form of small           blocks or cakes divided for easy breaking, brittle           sticks, or  pellets, and  have the  appearance  of           crude foundry products."      In Hendersons  ’Metallurgical  Dictionary’  (page  206) ’Master alloy’  is treated synonymously with ’Foundry alloy’ and ’Hardener’.  At page  163  of  the  book  the  following statement occurs:                "Hardener (preliminary  alloy; foundry alloy;           master alloy; rich alloy)           An alloy,  rich in  one or more alloying elements,           that  is   added  to   the  melt,  this  procedure           permitting  closer  composition  control  then  is           possible with  the addition  of  pure  metals;  an           alloy designed  to facilitate  adding  to  a  base           metal,  to  make  a  complete  composition,  those           additive elements  that, due  to refractoriness or           susceptibility  to  oxidation,  do  not,  as  pure           metals, readily alloy with the base metal." At page 142 of the book, Foundry alloy which is equated with Master  alloy   is  described   as  "an  alloy  of  specific composition as,  for example, a ferro-alloy, used for making cupola, ladle, or furnace additions."      In Osborne’s  ’Encyclopaedia  of  the  Iron  and  Steel Industry’ (page  195) ’Hardeners’  are described  as "Master alloys prepared  for the  purpose of adding small quantities of the desired alloying elements to molten metals."      According to  Encyclopaedia Britannica (Volume 1, Pages 649-50), 770                "The most  common way  of preparing alloys is           by the melting together of the constituent metals.           If the melting points of the metals differ widely,           or if  one is  relatively very  reactive, it maybe           convenient  to   prepare  first  a  master  alloy,           portions  of   which  are  then  melted  with  the           remaining metals."      It is clear from these statements, which occur in books which are  universally regarded as authoritative, that brass scrap cannot possibly be a ’master alloy’. It is not, in the wildest imagination,  an alloy  of mixture  of elements used for introducing  desired elements  into melten metals in the foundry. A  master alloy is generally called a foundry alloy for the  simple reason  that it  is an alloy used for adding elements in  the foundry.  Brass scrap  does not square with that description  and use.  The appellants’  contention,  if accepted, will lead to the anomalous position that all brass articles shall  have to  be regarded  as Master alloys. That will be  doing grave  violence to the science of Metallurgy: Almost putting  the science  rather then  the metals  into a melting pot.      As stated  at page  22 of  Merriman’s ’A  Dictionary of Metallurgy’, "Brass  is essentially  an alloy  of copper and zinc, but  for special  purposes small  proportions of other metals are  sometimes added to obtain increased strength and

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hardness  of  resistance  to  corrosion".  The  book  states further at  page 23 that "the commonest form of brass (known as 60/40),  contains 40%  zinc". According  to Encyclopaedia Britannica (  Vol. I,  page 649  ), "Brass  is an  alloy  of copper and  zinc, the copper content usually varying between 57% and 70%.      This shows  that brass  is but  an alloy  of copper and zinc and is a complete and finished product by itself. Brass or brass  scrap is  not  used  as  a  raw  material  in  the manufacture of  other alloys.  Therefore, it is not a master alloy. Accordingly,  the appellants cannot claim the benefit of Notification No. 97 dated June 25, 1977 on the basis that brass scrap is a Master alloy.      That leads to the question as to whether brass sorap is comprehended within  the expression ’copper waste and scrap’ under Heading  No. 74.01/02.  Brass, as  we have  seen is an alloy of copper and zinc, generally in the proportion of 60: 40. Rule  1 of the Rules for the interpretation of the First Schedule (Import Tariff) 771 to the  Tariff Act,  1975 provides  that for legal purposes, classification shall be determined according to the terms of the Headings  and any relative Section or Chapter Notes and, provided such  Headings or  Notes do  not otherwise require, according to  the  provisions  contained  in  the  following Rules. By Rule 2 (b), the classification of goods consisting of more than one material or substance shall be according to the principles  contained in  Rule 3.  Rule 3,  on  its  own terms,  is  applicable  only  when  goods  are  prima  facie classifiable under  two or  more Headings.  But by reason of Rule 2 (b), the principles contained in Rule 3 will apply to the classification  of brass scrap since it consists of more than one material or substance, namely, copper and zinc That is, of  course, if  the Rules, apart from Rule 1, are at all attracted. Under  clause (a)  of Rule  3, the  Heading which provides the most specific description shall be preferred to Headings providing  a more general description. Under clause (b) of Rule 3, Mixtures and composite goods which consist of different materials  or are  made up of differents and which cannot be  classified by  reference to  clause (a)  shall be classified as if they consisted of the material or component which gives  the goods  their essential character, in so for as this criterion is applicable. Rule 4 provides that, goods not falling  within any  Heading of  the Schedule  shall  be classified under  the Heading  appropriate to  the goods  to which they are most akin.      We will  immediately proceed  to consider the impact of these rules  on the  case on  hand but,  before doing so, it must be  mentioned and  appreciated that  the sole ground on which the appellants claim exemption from payment of duty to the extent  of 60%  under Notification No. 97 dated June 25, 1977 is  that brass  scrap, being  a  master  alloy,  is  an article other  than ’copper  waste and  scrap’ or ’unwrought copper’. Once  that contention  is rejected,  the appellants cannot claim  the benefit of the said Notification. However, in order  not to  leave scope  for  needless  litigation  in future, we  must  examine  the  question  whether  the  item ’copper  waste  and  scrap’  under  Heading  No.  74.  01/02 includes brass  scrap. Besides,  by the second Notification, No. 156 dated July 16, 1977 ’copper waste and scrap’ falling under the  same Heading  were exempted  from so much duty of customs as  exceeded 80%  ad valorem.  The contention of the Attorney General  is that  copper waste  and scrap, includes brass which  at once  leads to  two consequences:  The first Notification is  not attracted  and the  second Notification

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would apply. 772      Turning to  Rule 1  of the  Import Tariff,  insofar  as relevant, classification  has to  be determined according to the terms  of the  Headings; and,  provided such Headings do not otherwise  require, classification  has to be determined according to  the provisions  of the rules following Rule 1. Heading No.  74.01/02 are consists of four items: (i) Copper matte, (ii)  unwrought copper (refined or not), (iii) copper waste and  scrap, and  (iv) master  alloys. Insofar  as  the terms of  Heading No.  74.01/02 are  concerned, the  primary conclusion to  which we have come is that brass scrap is not a master alloy. It is nobody’s case that brass scrap belongs to either  of the first two categories, namely, copper matte or unwrought  copper. The  only question then is whether the third item  ’copper waste  and scrap’  includes brass scrap. Putting Rule  1 in simple language, classification has to be determined according  to the  description of  the article in the Heading and, if the Heading or a Note does not otherwise require, according  to the provisions of the other Rules and Notes. In  the instant  case,  the  terms  of  the  relevant Heading do  not, by  themselves,  yield  an  answer  to  the question whether  copper  waste  and  scrap  includes  brass scrap. But,  the particular  Heading  does  not  require  or provide that  the  other  rules  should  be  excluded  while determining  the   classification  of  articles  under  that Heading. That  is how,  Rules 2  to 4  become  relevant  for deciding the  question  whether  ’copper  waste  and  scrap’ includes brass scrap. What is meant by the clause in Rule 1: "and provided  such  Headings  or  Notes  do  not  otherwise require" is  not  that  a  Heading  must  require  that  the provisions contained in the rules following Rule 1 should be applied. What it means is exactly the opposite, namely, that if a  Heading does  not require  the exclusion  of the other rules,  those   other  rules   must  also   be  applied  for determining the classification of an article. Therefore, all the relevant  rules of  interpretation in  the Import Tariff come into  play in  the classificatory process. Rules 2 to 4 of the  Import Tariff are not a mere adornment. Nothing ever is  an   adornment   in   an   Import   Tariff.   Therefore, classification has  to be  determined both  according to the terms of the Headings and according to the provisions of the rules unless  a particular  Heading  or  Note  excludes  the application of rules other then Rule 1.      Accordingly,  we   must  turn  to  Rules  2  to  4  for determining the  classification of Brass Scrap. By reason of the concluding  part of  Rule 2  (p) classification of goods consisting of  more then one material or, substance shall be according to  the principles contained in Rule 3. Clause (a) of  Rule  3  has  no  application.  Applying  the  principle contained in 773 Rule 3  (b), which  is relevant  for our purpose, brass is a mixture of copper and zinc, usually in the proportion of 60: 40 (See  pages 22  and 23  of Marriman’s  ’A  Dictionary  of Metallurgy’) but,  in which  the component  of copper may be any where between 67% and 70% (See Encyclopaedia Britannica, Volume I,  page 649  ). Since  copper gives  its  ’essential character’ to  brass, brass  scrap has  to be  classified as ’copper waste  and scrap’  within the  meaning of Heading No 74. 01/02. Alternatively, Rule 4 would yield the same result if it  is assumed, for which there is no justification, that brass scrap  does not  fall within  any Heading of the First Schedule. If it does not, it has to be classified, by reason of Rule  4, under  the Heading  appropriate to  the goods to

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which it  is most  akin. Brass, unquestionably, is most akin to copper  and therefore brass scrap has to be classified as ’Copper Waste and Scrap’.      We may  usefully turn to the Notes to Section XV of the First Schedule (Import Tariff), which is called ’Base metals and Articles  of Base  Metal’. Clause (a) of Note 3 provides that an alloy of base metals is to be classified as an alloy of the  metal which  predominates by weight over each of the other metals.  Since brass is an alloy of copper and zinc in which  copper  predominates  by  weight,  brass  has  to  be classified as  an alloy  of copper. Therefore, ’Copper Waste and Scrap’ includes brass scrap. According to Note 4, unless the context  otherwise requires,  any reference in the First Schedule to  a base  metal is  to  be  taken  to  include  a reference to  alloys which,  by virtue  of Note 3, are to be classified as alloys of that metal. Heading No. 74. 01/02 of the First  Schedule refers to copper waste and scrap. Copper is a  base metal.  Reference to copper in that Heading would include reference to Brass since, by virtue of Note 3, brass has to  be classified  as an  alloy  of  copper.  Therefore, ’copper waste and scrap’ includes ’Brass Scrap’.      The appellant  relied upon  certain documents issued by the Merchants’  Association and  upon extracts  from ’Indian Standard Coding  and Classification  for  non-ferrous  scrap metals’ to  show that brass scrap and copper are regarded as distinct and  separate items  for commercial  purposes. Such considerations cannot  furnish a true answer to the question before us  because, the distinguishing feature is that, here brass and  copper are not mentioned as separate items in the Import  Tariff.  It  is  because  of  the  absence  of  such specific, separate specification of these two items that the question 774 arises whether,  under Heading  No. 74. 01/02, ’Copper Waste and Scrap’, includes ’brass scrap’.      Reliance was  also placed  by the appellants on certain exemption Notifications,  referred to  earlier, as affording intrinsic evidence to show the contemporaneous understanding of the  framers  of  such  Notifications.  True,  that  such understanding is  a legitimate aid to interpretation but, we cannot decide  the question of classification of goods under the ’Import Tariff’ by implications, when there are Rules of Interpretation which  are specially framed to aid and assist the classification  of  goods  under  appropriate  Headings. Those  rules   must  have  precedence  over  other  aids  of interpretation.      Notification No.  156 of  July 16, 1977 exempts ’copper waste and  scrap’ from  so much of the duty of customs as is in excess of 80% ad valorem. Since brass scrap is includible in the  expression ’copper waste and scrap’ and since, brass scrap is  not a  ’Master alloy’,  the appellants’ case would fall under  this Notification.  Accordingly, they  would  be entitled to exemption from customs duty to the extent of 20% only.      The next  question which  is  raised  by  some  of  the appellants is as to whether the imposition of Excise duty on ’waste and  scrap’, which  is referred  to in clause (1b) of Entry 26  A of the First Schedule to the Central Excises and Salt Act,  1944 is  either ultra vires section 3 of that Act or beyond  the legislative  competence  of  the  parliament. Section 3  of the  Act of  1944 provides that there shall be levied and  collected duties  of  excise  on  all  excisable goods, other  than salt,  which are produced or manufactured in India.  The question  as to whether ’waste and scrap’ can be regarded  as capable  of being  produced or manufactured,

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the  appellants’   argument  being  that  it  cannot  be  so regarded,  has   already  been   answered  by   us  in   the affirmative.  The   production  of  waste  and  scrap  is  a necessary incident  of the  manufacturing process. It may be true to  say that  no prudent businessman will intentionally manufacture waste  and scrap. But, it is equally true to say that  waste   and  scrap   are  the   by-products   of   the manufacturing process. Sub-standard goods which are produced during the process of manufacture may have to be disposed of as ’rejects’ or as scrap. But they are still the products of the manufacturing  process. ’Intention’  is not  the gist of the manufacturing  process. We  have already dealt with this aspect of  the matter  and do  not consider  it necessary to elaborate upon it any further. 775      The  argument   of  legislative   competence   of   the Parliament is  a facet  of the same contention. Section 3 of the Act  of 1944  brings to duty excisable goods produced or manufactured in  India. Section  2 (d)  of the  Act  defines ’excisable goods’  to mean  goods which are specified in the First Schedule  as  being  subject  to  a  duty  of  excise. Therefore, the  goods mentioned  in the  First Schedule will attract excise  duty  under  section  3  only  if  they  are manufactured in  India and  not otherwise. Entry 26A (1b) of the First  Schedule of  the Act of 1974 cannot be held to be beyond the legislative competence of the Parliament because, the  pre-condition  of  the  excisability  of  the  articles mentioned therein,  namely,  waste  and  scrap,  is  in  the manufacturability of those articles. Since the production of waste and  scrap is  an  integral  part  and  an  inevitable incident or  the manufacturing  process, Parliament  has the legislative competence  to make  ’waste and scrap’ excisable under Entry  84 of  List I  of the  Seventh Schedule  to the Constitution, which  relates to ’Duties of excise on Tobacco and other  goods manufactured  or produced in India", except certain intoxicants and narcotics.      On the  question of  the legislative  competence of the Parliament to  incorporate  Entry  26A  (1b)  in  the  First Schedule to  the Act  of 1944,  it must  be added  that  the proper approach  is to  determine whether the subject-matter of a  legislation falls in List II, the State List, which is the only field which the parliament cannot enter. If it does not fall  in List  II, Parliament would have the legislative competence to  pass the  law by  virtue of  Article 248 read with the  residuary Entry  97 of  List I. This is clear from the decisions  of this  Court in  Second Gift  Tax  Officer, Mangalore v.  D. H.  Nazareth and  Union of  India v.  H. S. Dhillon The cases relied upon by the appellants, namely, The Hingir-Rampur Coal  Co. Ltd. v. The State of Orissa, Kalyani Stores v. The State of Orissa, A. B. Abdul Kadir v. State of Kerala and  Mc. Dowell  & Company  Ltd.  v.  Commercial  Tax Officer,   VII    Circle,   Hyderabad,   relate   to   State legislations, namely,  The Orissa Mining Fund Act, The Bihar and Orissa Excise Act, The Kerala Luxury Tax on Tobacco 776 (Validation) Act  and the  Andhra Pradesh  General Sales Tax Act respectively.  Those cases  are therefore,  not relevant for deciding  upon the competence of the Parliament to enact the impugned law.      We may  sum up  our conclusions thus : (1) The charging section under  which  duties  of  customs  are  leviable  is section 12  of the Customs Act, 1962 read with section 3 (1) of the Customs Tariff Act, 1975. (2) ’Additional duty’ which is mentioned  in section  3 (1)  of the  Customs Tariff Act, 1975 partakes  of the  same character  as the  Customs  duty

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since, it is in addition to the duty which is leviable under section 12 of the Customs Act, 1962, the rates for which are prescribed by  section 2  of the  Tariff Act, 1975. The duty mentioned in  section 3  (1) of  the Tariff Act, 1975 is not countervailing duty.  (3) Section  3 (1)  of the Tariff Act, 1975 provides a measure of the additional duty, which has to be "equal  to the excise duty" leviable on a like article if produced  or  manufactured  in  India,  as  defined  in  the Explanation to  that section.  The measure  of a tax or duty cannot determine  its nature  or character.  (4)  The  brass scrap which  is imported  into India  by the  appellants  is liable to the levy of additional duty mentioned in section 3 (1) of  the Tariff  Act, 1975  because, the taxable event is the  import   of  the   goods  into   India  and  not  their manufacture. (5)  The duty  referred to  in section 3 (1) of the Tariff  Act, 1975  is, therefore,  leviable even  if the goods  imported   into  India   are  not  capable  of  being manufactured in  India or  are not  in fact  manufactured in India. (6)  The expression  "excise duty  for the time being leviable on  a like  article if  produced or manufactured in India", which  occurs in  section 3  (1) of  the Tariff Act, 1975 means  excise duty  for the  time being  in force which would  be   leviable  on  a  like  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  articles  to  which  the  imported article belongs. (7) Even if the duty referred to in section 3 (1)  of the  Tariff Act, 1975 is regarded as in the nature of a  countervailing duty,  the brass  scrap imported by the appellants would  still be  liable to the levy of that duty. The reason  is that  scrap  or  waste  is  a  by-product  of manufacture and,  is an  integral  part  and  an  inevitable incident  of  the  manufacturing  process.  Brass  scrap  is manufactured or  happens to  be manufactured in India. It is well-known as  a marketable  commodity, both  of Indian  and foreign origin.  The brass  scrap  produced  in  India  must receive protection  by the  imposition of  a  countervailing duty on imported brass scrap. 777 (8) The  brass scrap  imported by the appellants falls under Exemption Notification  No. 97  dated June  25,1977 and  not under Exemption  Notification No.  156 dated  July 16, 1977. The reason  is two-fold:  one, that  within the  meaning  of Heading No.  74. 01/02  of the  First Schedule to the Tariff Act, 1975,  brass scrap  is not  a ’Master  alloy’; and two, that it  is comprehended  within the expression copper waste and scrap’  in that  Heading. The appellants are, therefore, entitled to  exemption from duty of customs to the extent of 20% only  and not  to the  extent of 60%. (9) Clause (1b) of Entry 26A  of the  First Schedule to the Central Excises and Salt Act, 1944 is not ultra vires section 3 (1) of that Act. The reason  is that  ’waste and  scrap’ referred  to in that Entry is excisable to duty if it is produced or manufactured in India.  Waste and scrap are by-products of the process of manufacture   and   are   inevitable   incidental   to   the manufacturing process.  (10) The  said Entry,  namely, Entry 26A (1b)  of the First Schedule to the Act of 1944 is within the legislative  competence of  the Parliament  because, the duty of  excise is  attracted under  the Central Excises and Salt  Act,   1944,  only   if  the  goods  are  produced  or manufactured in  India. The  impugned provision falls within Entry  84,   List  I,   of  the   Seventh  Schedule  to  the Constitution. Even  otherwise,  Parliament  would  have  the legislative competence  to  pass  the  law  because  of  the combined operation  of Article  248 and Entry 97, List I, of

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the Seventh Schedule.      In the result, the judgment of the High Court, which is marked with  care, is  confirmed and  these Appeals  and the Special Leave petitions are dismissed with costs.      Writ Petition  No. 3761  of 1982,  in which  Mr.  Abdul Khadar appears,  relates to  ’copper fungicide’.  That  Writ Petition  was  delinked  from  the  other  cases  since  the pleadings therein  are not  complete. That Writ Petition and all other  cases involving  import of  copper scrap  may  be listed for hearing at an early date. A.P.J.          Appeals and Petitions dismissed. 778