Vs. M/S. Wimco Ltd  Insc 1022 (5 October 2007)
Arijit Pasayat & Lokeshwar Singh Panta Dr. Arijit Pasayat, J.
Challenge in this appeal is to the order passed by the Customs Excise and Gold
(Control) Appellate Tribunal, New Delhi (in short the CEGAT). 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.
Background facts in a nutshell are as follows:
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 Tariff Act).
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 Rules) and did not issue
any invoices prescribed under Rule 52-A. Accordingly, a show cause notice (in
short SCN) 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 manufacture 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.
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.
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 Act).
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
was also submitted that if Departments 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.
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.
Tribunal noted that the Chapter Heading 4702.90 of the Schedule to the Tariff
Act reads Recovered (waste and scrap) paper or paper board, and is not
recovered waste or scrap. 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.
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.
Commissioner observed that the benefit of exemption under Notification No.
89/95 dated 18.5.1995 is not available.
Reference was made to following observations of the adjudicating authority :
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 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 manufacture and clear 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.
this case the partys 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
Learned counsel for the respondent supported the order of the CEGAT.
Commissioner of Central Excise v. Indian Aluminium Co. Ltd. (2006 (203) ELT
(S.C.) 3) it was observed inter alia as follows:
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 dross 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.
may be that dross no longer answers the description of waste and
scrap 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 (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 waste
or scrap. 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.
term manufacture implies a change.
change, however, is not a manufacture.
change of an article may be the result of treatment, labour and manipulation.
But manufacture would imply something more.
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].
is to be noted that merely because there is a tariff entry it does not become
excisable unless manufacture is involved.
Commissioner of Central Excise, Chandigarh-I v. Markfed Vanaspati & Allied Industries [2003 (153) ELT 491
(S.C)] it was observed as follows:
The question for consideration is whether "spent earth" is liable to
excise duty or not.
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
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.
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 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.
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.
Court however held as follows:
both "dyed yarn" and "grey yarn" are covered by two
separate distinct heads of tariff items with different duty.
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".
this authority appears to support the contention which is raised.
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.
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
amount to levying double duty on the same product.
What amounts to manufacture has been dealt with by this Court in Kores
India Ltd., Chennai v. Commissioner of Central Excise, Chennai (2005 (1) SCC
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
The appeal is allowed. No cost.