Enterprises, Madras Vs. The Collector of Central
Excise, Madras  INSC 498 (5 May 1997)
BHARUCHA, SUHAS C. SEN
Hon'ble Mr. Justice S.P. Bharucha Hon'ble Mr. Justice Suhas C. Sen Krishnan Venugopal,
S.R. Setia, Advs for the appellant N.K. Bajpayee, R.S. Rana, Advs. for P. Parmeswaran,
Adv. for the Respondent
following Judgment of the Court was delivered:
appellant, Balaji Enterprises, purchases aluminium ingots from the market and
manufactures aluminium containers which are used according to the permission
granted by the Excise Authority under Rule 56A of the Central Excise Rules.
process followed for making the containers has been stated by the appellant in
a letter to the Assistant Collector of Central Excise. The appellant melts the
ingots, converts them into slabs, rolls them into sheets which are converted
into circles. These circles are converted into containers which are sold in the
market. The appellant pays duty on the containers manufactured by it regular
course. In the process of manufacturing containers, waste products such as aluminium
scrap also come into existence.
Central Excise Authority called upon the appellant to pay duty on the scrap
manufactured by it. The appellant was compelled to pay duty on the value of the
scrap at the rate of 40 per cent under Tariff Item 27(a)(i) of the Central
appellant's case before the Department was that `scraps' generated in course of
manufacture of aluminium containers by the appellant, could not be classified
under T.I., 27(a)(i) of the Central Excise Tariff which before 1.3.1981 was as
under 27-ALUMINIUM -------------------------------------------------------
Tariff Rate of duty Item Description of goods Basic Special No. Excise
ALUMINIUM (a)(i) in any crude form 50% 10% of including ingots, Adv the basic
bars, blocks, plus duty slabs, billets, Rs. chargeable shots & pellets. 2000/-
per metric tonne.
Wire, bars, wire 50% Adv -do- rods and castings plus not otherwise Rs. 2000/-
specified. per metric tonne.
Manufactures, the -do- -do- following, namely, plates, sheets, circles, strips,
shapes and sections in any form or size, not otherwise specified.
(whether or not -do- -do- embossed, cut to shape, perforated, coated, printed
or backed with paper or other reinforcing material) of thickness (excluding any
backing) not exceeding 0.15 mm.
Pipes and tubes other -do- -do- than extruded pipes and tubes.
Extruded shapes & -do- -do- sections including extruded pipes and tubes.
Containers, plain, -do- -do- lacquered or printed, or lacquered and printed.
I " Container" means containers ordinarily intended for packaging of
goods for sale, including collapsible tubes, casks, drums, cans, boxes, gas
cylinders and pressure containers whether in assembled or unassembled
condition, and containers known commercially as flattened or folded containers.
II- In this Item, the expression "Aluminium" shall include any alloy
in which aluminium predominates by weight over each of the other metals.
The appellant's case is that `aluminium scrap' cannot be described as `aluminium
in any crude form' Aluminium scraps are not really in crude form. In fact, T.I.
27(a)(i) makes it clear that it is only the commodities known in the market
like ingots, bars, blocks, slabs, billets, shots and which can be taxed under
T.I. 27(a). But scraps remaining after manufacturing products like utensils
cannot be brought to tax under T.I. 27(a)(i) as "aluminium in any crude
27(a)(i) speaks of 'aluminium in any crude form'.
bars, blocks, slabs, billets, shots and pellets have been specifically brought
within the Tariff Description.
however, does not mean that only the articles which have been specifically
mentioned in T.I. 27(a)(i) are excisable to duty. The Tariff Description is
inclusive which means apart from ingots, bars, blocks, slabs, billets, shots
and pellets, other things that may come within the description of `aluminium in
any crude form' will be excisable to duty as such.
problem in this case, however, is about the nature of the scraps produced by
the appellant. Can the scraps be regarded as `aluminium in any crude form'?
Obviously Tariff Item 27(a) will not take in aluminium in any finished form.
dictionary meaning of `crude' is: "In a state needing preparation for use
not refined; raw; uncooked" (Webster Comprehensive Dictionary
International Edition 1984.) From the Tariff Description it appears that in ;
sub- item (a)(i) of Tariff Item 27 `crude form' of aluminium will include
ingots, bars, blocks, slabs, billets, shots and pellets, That is the most
primary form of the metal. Sub- item (b) of Tariff Item 27 speaks of "Aluminium
manufactures" , namely, plates, sheets, circles, strips, shapes and
sections in any form or size not otherwise specified'. There is no dispute that
the appellant manufactures circles which have been specifically included in
T.I. 27 (b) and not T.I. 27(a). `Circles' have not been included in the Tariff
Description in T.I. 27 (a) (j). That means `circles' have not been treated as `aluminium
in any crude form' but `Aluminium Manufactures'. The assessee manufactures the
circles and thereafter aluminium containers out of these circles. The scraps
are generated while converting circles which are not `aluminium in crude form'
into containers which are finished goods. If anything is made out of the
circles, whether as end-product or by product, it cannot be treated as the
metal itself in crude form. The scraps that arise out of the manufacturing
process; do not go back to the crude form of aluminium.
ingots are converted into circles, the end-products are not treated as aluminium
in crude form. In that event, how can something which emerges as a result of
further manufacturing process be treated as Crude metal? In our view, the aluminium
scraps cannot be treated as aluminium in crude form and classified as such in
case of M/S Khandelwal Metal and Engineering Works and Anr. vs. Union of India & Ors. (1985) 3 SCC 620, Chandrachud,
C.J. pointed out waste and scrap are by- products of manufacturing. Aluminum
scrap which is obtained in course of manufacturing aluminium containers is an
integral part and inevitable consequence of the manufacturing process.
view, what emerges as a consequence of a manufacturing process out of the aluminium
circles cannot be treated as the metal in crude form.
position becomes clearer after the amendment of T.I.27 on and from 1.3.1981.
`Waste and Scrap' was specifically included in sub-heading (aa) of T,I.27. The
Tariff Description was as under:
1.3.1981 -------------- ITEM NO.27 - ALUMINIUM ----------------------
------------------------------------------------------- ITEM No. Tariff
Description Rate of Duty
------------------------------------------------------- 27 ALUMINIUM (A) i) In
any crude form Fifty per cent including ingots, bars, ad valorem blocks, slabs,
billets plus Rs. two shots and pellers. thousand per metric tonne ii) Wire
bars, wire tods -do- & castings not otherwise specified.
Waste and Scrap. -do- (b) ........
III - " Waste and Scrap" means waste and scrap of aluminium fit only
for the recovery of metal or for use in the manufacture of chemicals, but does
not include sludge, drosss scalings, skimmings, ash and other residuals.
legislature recognised that `Waste and Scrap' could not be brought to tax as aluminium
in crude form, If "Waste and Scrap" was already included in Item
No.27(A), there would not have been any need for making the entry (aa). The
amendment left sub-item (a) of Item 27 untouched, Moreover, every type of waste
and scrap was not made taxable after the amendment made on 1.3.1981. Only the
type of waste and scrap mentioned in Explanation III were subjected to duty.
Sludge, dross, scalings, skimmings, ash and other residuals were left out.
Before 1.3.1981 there was no guideline to decide what would constitute scrap
for imposition of Central Excise.
these things go to show that sub-item (aa) was not clarificatory of sub-item
(A) of Item 27. It was a new entry altogether bringing "Waste and Scrap'
for the first time to duty after specifying the limited scope of this entry by
adding Explanation III.
been rightly contended on behalf of appellant that whenever things like `Waste
and Scrap' under any head, have been sought to be taxed in the Central Excise
Act, specific entries have been made for this purpose. In Tariff Item No.25
'iron in any crude form' specifically includes pig iron, scrap iron molten iron
or iron cast in any other shape or size. The legislature specifically included
the scrap iron within the description of 'iron in any crude form' in T.I.25,
but in the description of goods under the head `aluminium in any crude form', aluminium
scraps were not included in T.I.27. Even when the amendment was made on
1.3.1989, aluminium scarps were separately taxed and not included in `aluminium
in any crude form'.
in the T.l. 18 dealing with man-made fibres, other than mineral fibres,
man-made filament yarns, cellulosic spun yarn, 'Non-cellulosic wastes, all
sorts' have been specifically included as sub-item (4) of T.I.18.
(4) has been explained to include only wastes arising in, or in relation to,
the manufacture of man-made fibres (other than mineral fibers) and man-made
obvious legislative intent was not to tax aluminium scrap and Waste' prior to
the amendment made a with effect from 1st March 1989. What emerged from the
manufacturing process was certainly not aluminium in crude form.
is also another feature of this case, the Tribunal has not held that aluminium
scraps should be described as 'aluminium in any crude form' and brought to tax
as such even prior to 1.3.1981. The Tribunal has held:
assessment made by the department favours the revenue but we cannot say that it
is a perverse assessment or that the law does not sanction it. While one person
may say that word scrap does not belong in the sub-item with ingots. bars and
the others, another person may say with equal, I would say more logic, that it
does belong in the sub-item. I would not like to disturb an assessment made by
the department unless it has perverseness or unreasonableness in it. This
assessment is not unreasonable much less perverse." We are of the view the
Tribunal has really avoided ;
the question of law raised before it. Whether the scrape generated during the
course of a manufacturing utensils should be treated as 'aluminium in crude
form' is a question of law that had to be answered fairly and squarely by the
Tribunal. The Tribunal's jurisdiction is not limited to deciding whether the
decision of the departmental authority was perverse or unreasonable.
of the view that Tribunal should have examined the Question of law before it
and given proper answer.
we have examined the question. In our view, the aluminium scarps, produced by
the assessee in course of manufacturing utensils, could not be taxed under
T.I.27 before its amendment on 1.3.1981.
order of the Tribunal is set aside. The appeal is allowed. There will be no
order as to costs.