Hyderabad
Industries Ltd. & Anr Vs. Union of India
& Ors [1995] INSC 322 (21 July 1995)
Bharucha
S.P. (J) Bharucha S.P. (J) Ahmadi A.M. (Cj) Paripoornan, K.S.(J) Bharucha, J.
CITATION:
1995 SCC (5) 338 JT 1995 (5) 594 1995 SCALE (4)516
ACT:
HEAD NOTE:
The
appellants (original writ petitioners) import asbestos fibre and pay Custome
duty thereon under entry 25.01.32, which reads:
Mineral
substances, not elsewhere specified (1) xx xx xx (2) Asbestos raw including fibre
40% xx xx xx There is no dispute in regard to the levy of Customs duty.
The
dispute is in regard to the levy on the imported asbestos fibre of additional
duty under Section 3(1) of the Customs Tariff Act, 1975, which is qwaied
hereinafter. The appellant in Civil Appeal No. 1354 of 1980 also mines asbestos
in India and is made liable to pay excise
duty thereon under Tariff item 22F. Which reads thus:
"Item
No. Description of goods Rate of Duty
------------------------------------------------------------ 22F Mineral Fibres
and manufactures Fifteen percent therefrom in all in relation to ad valorem the
manufacture of which any process is ordinarily carried on with the aid of
power.
Explanation : "Mineral fibres and yarn,
and manufactures therefrom" shall be deemed to include :
(i) glass
fibre and yarn including glass tissues and glasswool;
(ii) asbestos
fibre and yarn;
(iii) any
other mineral fibre or yarn, whether continuous or otherwise such as slagwool
and rock wool; and (iv) manufactures containing other than asbestos cement
products." This levy is also disputed. By the common judgment under
appeal, the Delhi High Court dismissed the writ petitions.
The
constitutionality of the imposition of excise duty on asbestos fibre is not now
disputed.
What
asbestos is and how it is recovered is set out in the judgment under appeal,
and it is not faulted on this account. This is what it says:
Major
producers of asbestos are Canada and
U.S.S.R. Asbestos is defined as general name for the useful fibrous varieties
of a number of rock forming minerals. The value of asbestos ensues from the
incombustible nature of the products fabricated from the various grades of
mineral fibres. (Vide Mc. Graw Hill Encyclopaedie of Science and Technology.
Vol. 1 (1977) page 618).
Most
asbestos fibres occur in small cracks in massive rocks and are difficult to
recover e.g. a large cubic open pit mine handles approximately 16 tons of ore.
8 tons of waste ore and 23 tons of over-burden to produce a single ton of
asbestos. To mine chrysotile. the ore is first blasted loose. The larger
asbestos seams i.e. those that are atleast 9.5 mm wide are picked from the ore
after blasting and adhering rock is removed with a pick. The cesulting chunks
of ore called crudes. Which may contain as much as 30% water, are then dried in
preparation for the next stage - separation into fibres. Fibre separation is
accomplished mainly by a series of shaking screens, special separators called
cyclones, and additional crushers or fibrizers. At each shaking screen the
liberated fibres are sucked off by an airstream and collected for grading and
packaging. The larger pieces of ore, which are retained by the screen are
recycled for further crushing. Smaller pieces, which pass through the screen
and are called throughs, are sent to the next crushing or fiberizing sequence.
The extremely small pieces that fall through the screens following the final fiberizer
are discarded. (Vide Encyclopaedia Americans Vol. 11 (1970) page 427, 428).
Similarly
the Encyclopaedia of Natural Chemical analysis, Vol. 11 gives the processing of
asbestos fibre as follows:- "Asbestos fibre is recovered by open pit or
underground mining operations. In the open pit operation, the ore is taken from
the top of the deposit and in underground method, the ore is removed from the
bottom of the deposit. One imported method used in underground mining is known
as block carving. In this method, a large block of ore is loosened in such a
way that it breaks down from its own weight. The ore is extracted through a
network of tunnels and carried to primary crushers which break up the large
rock chunks into fragments. The crushed ore falls into bins and then undergoes
further crushing and drying prior to processing at the mill. The milling operation
are complicated but consist of separating the fibres from the rock. In the mill
the rock is crushed more finely and passes ores through vibrating screans which
roughly separate the loose fibre from the rock. Powerful hoods, which operate
much like vaccum cleaners, lift the loose fibre leaving the heavier rock. This
operation is repeated until the separation is complete and only waste rock
remains. The separated fibres are then cleared and carefully graded according
to length. Grading is done according to rigid industrial specifications.
BRUSSELS' NOMENCLATURE defines asbestos as
follows:
"25.23
- ASBESTOB :
Asbestos
is a natural mineral substance produced by the decomposition of certain rocks.
It has a very characteristic fibrous texture: It is sometimes, silky in
appearance and the colour varies greatly, being usually white, but sometimes
grey, greenish, blue or dark brown. Its main property is its resistance to fire
and acida.
The
heading applies to crude asbestos in rock form, to raw, beaten or washed fibres,
whether graded to length or not, to asbestos in flakes or powder and also to
asbestos waste. The heading excludes fibre which has been further processed
(carded, dyed etc.) and finished artioles of asbestos (heading 68.13)".
The
process by which the asbestos fibre is obtained is more or less as follows:-
The petitioners extract asbestos rock from the mine which is in the shape of
large boulders. This asbestos rock is put into jaw crushers and is made into
small size of about 20-40 mm. These further rocks of 20-40 mm size are still
subject to further reduction in a hammer mill, the purpose of which is to
reduce the rock to a stage so that the fibre could be taken away from rock in
which it is embedded. The asbestos fibre is found on the rocks which contain
thin layer of the fibre of about an inch in length of a piece of rock about the
size of a cricket ball. The petitioners have obtained permission from the
Collector of Central Excise. Patna as
communicated by Assistant Collector dated December
14.
1977 to remove in bond semi finished goods under Rule 56 (b) from the mining
place at Roro to the factory at Hyderabad for further processing after the
pieces of rock are brought to Hyderabad they are crushed to smaller size with
the aid of power and the resultant is subject to series of screening surfaces
so that the asbestos fibre which is very much lighter is removed and seperated
from the dust and the grit. The fibre however, still contains rock particles
and spicules.
The fibre
is then pressed through a Hwrricane Hill where rapidly rotating rotors pulverise
the stones and apicules without damaging the fibre. It is in this process that
ultimately the asbestos fibre free of all dust and stone particles is
produced." In Minerals and Metals Trading Corporation of India Ltd. vs. Union of India and ors.,
1973-1 S.C.R. 997, this Court was concerned with the exigibility of the mineral
wolfram to excise duty. The relevant portion of the judgment is
self-explanatory.
"The
separating of wolfram ore from the rock to make it usable ore is a process of
selective mining. It is not a manufacturing process. The important test is that
the chemical structure of the ore should remain the same. Whether the ore
imported is in powder or granule form is wholly immaterial, What has to be seen
is what is meant in international trade and in the market by wolfram ore
containing 60% ore more WO3.
On
that there is a preponderation weight of authority both of experts and books
and of writings on the subject which show that wolfram ore when detached and
taken out from the rock in which it is embedded either by crushing the rock and
sorting out pieces of wolfram or by waening or magnetic separation and other
similar and necessary process it becomes a concentrate but does not cease to be
ore. Unless the ore is roasted or treated with any chemical it cannot be
classed as processed." We are satisfied upon the material placed before
us, as indicated in the judgment under appeal quated above, that all that the
appellants in Civil Appeal 1354 of 1980 do is to separate the asbestos fibre
from the rock in which it is embedded by manuel and mechanical means. The
asbestos fibre that is so removed from the parent rock is in every respect the esbestos
that was embedded in it. No process of manufacture can be said to have been
employed by the appellants nor is a new or a distinct commodity realised therefrom.
In Moti
Laminates Pvt. Ltd. vs. Collector of Gentral Exoise, 1006 (70) E.L.T. 241
(S.C.), this Court said:
"6.
The duty of excise is leviable under Entry 84 of List 1 of the Vllth Schedule
on goods manufactured, or produced. That is why the charge under Section 3 of
the Act is on all, 'Excisable goods','produced or manufactured'. The expression
'excisable goods' has been defined by clause (d) of Section 2 to mean, 'goods'
specified in the Schedule. The scheme in the Schedule is to divide the goods in
two broad categories - one, for which rates are mentioned under different entry
and other the, residuary. By this method all goods are excisable either under
the specific or the residuary entry. The word 'goods' has not been defined in
the Act. But it has to be understood in the sense it has been used in Entry 84
of the Schedule. That is why Section 3 levies duty on all excisable goods
mentioned in the Schedule provided they are produced and manufactured.
Therefore,
where the goods are specified in the Schedule they are excisable coods but
whether such goods can be subjected to duty would depend on whether they were
produced or manufactured by the person on whom duty is proposed to be levied.
The expression 'produced or manufactured' has further been explained by this
Court to mean that the goods so produced must satisfy the test of marketablity.
Consequently it is always open to an assessee to prove that even though the
goods in which he was carrying on business were exciseble goods being mentioned
in the Schedule but they could not be subjected to duty as they were not goods
either because they were not produced or manufactured by it or if they had been
produced or manufactured they were not marketed or capable of being
marketed." It also said:
"The
tariff schedule by placing the goods in specific and general category does not
alter the basic character of leviability. The duty is attracted not because an
article is covered in any of the items or it falls in residuary category but it
must further have been produced or manufactured and it is capable of being
brought and sold." Assuming that Tariff item 22F. When it refers to
"asbestos fibre and yarn", covers asbestos fibre that has been
separated from its parent rock in the manner aiopamentioned, such asbestos fibre
is not the result of a process of manufacture, it is not a new and commercially
identifiable article and it is, therefore, not liable to excise duty.
What
all the appellants import is, it is not disputed, asbestos fibre that has been
separated from its parent rock in the manner aforementioned.
The
learned Additional Solicitor General submitted that the asbestos fibre imported
by the appellants was exigible to additional duty regardless of the fact that
it was not the result of manufacture and, therefore, not exigible to excise
duty. He placed reliance in this behalf upon this court's judgment in Khandelwal
Metal & Engineering Works and another etc. vs. Union of India and others. (1985)
Suppl. 1 SCR 750. There is no doubt that this judgment, delivered by a bench of
three learned Judges, is of great assistance to the case of the Revenue.
In the
case of Khandelwal Metal & Engineering Works the appellants carried on the
business of importing orsss scrap.
They
contended that the additional duty was in the nature of counter-vailing duty,
and it could not be levied on brass scrap because the brass scrap, which
consisted of damaged articles like taps and pipes, was not manuractured in India or elsewhere. The bench noticed
that Beation O (15) of the Customs Act, 1982, defined "duty" to mean
a duty of Customs leviable under the Act, Chapter V of the Customs Act
contained provisions for the levy of, and exemption from.
Customs
duties. By Section 12(1), "except as otherwise provided in the Act or in
any law for the time being in force". duties of Customs were leviable at
such rates as might 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 2 of the Customs Tariff
Act stated that the rates at which duties of Customs would be levied under the
Customs Act were specified in the First and Second Schedule of the Tariff Act.
Section 3 of the Tariff Act dealt with the levy of additional duty equal to
excise duty.
Sub-section
(1) of Section 3 and the Explanation to that section 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 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 live 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 first question which the bench was
required to examine related to the true nature of the duty mantioned in Section
3(1) of the Tariff Act. The bench said that it had to be appreciated at the
threshold that the charging section was Section 12 of the Customs Act and not
Section 3(1) of the Tariff Act. Section 12 of the Customs Act incorporated the
different ingredients embodied in the concept of a fiscal imposition. It levied
a charge, it indicated the taxable event, which was the import or export of
goods, and it indicated the rate of the levy, which was such "as may be
specified under the Customs Tariff Act, 1975." Section 2 of the Tariff Act
laid 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
levy specified in Section 3(1) of the Tariff Act was a suppiementary levy in
enhancement of the levy charged by Section 12 of the Customs Act and with a
different basis constituting the measure of the impost. In other words. the
scheme embodied in Section 12 was amplified by what was provided in Section
3(1). The Customs duty charged under Section 12 was extended by an additional
duty confined to imported articles in the measure set forth in Section 3(1).
Thus,
the additional duty which was mentioned in Section 3(1) of the Tariff Act was
not in the nature of a countervailing duty. Counsel for the appellants relied
strongly on the objects and Reasons of Section 3 of the Tariff Act in support
of the contention that the said section was a charging section and imposed a
countervailing duty. The Statement of Objects and Reasons read:
"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 ingredients 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." The Statement of Objects and
Reasons, the bench said, lent prima facle support to the contention of the
appellants but, in the absence of any ambiguity in the wording of Section 3(1),
the additional duty referred to therein could not be treated as countervalling
duty not could Section 3 be regarded as a charging section merely because the
Statement said that it "provides for the levy". Having concluded that
Section 3(1) of the Tariff Act was not a charging section and that the
additions duty which it spoke of was not a countervalling duty, the bench went
on to consider the contention of the appellants that the brass scrap imported
by them was not produced or manufactured in India because the damaged articles
of brass which constituted brass scrap were not only incapable of being
manufactured but were, in fact not manufactured. According to learned counsel
for the appellants, the basic postulate underlying the levy of duty under
Section 3(1) of the Tariff Act was that there were indigenous goods belonging
to the class of goods which were imported which were chargeable to excise duty.
The illustrations he gave were the import of live animals, live trees, burnt up
cables, broken glass or fused bulbs. The argument was that there was and could
be no additional duty on these goods, if imported, because they could not be
and were not manufactured. To put it in one sentence, the argument was that if
indigenous goods similar to those which were imported did not suffer excise
duty for the reason that they were not manufactured, the charge leviable under
Section 3(1). At the Tariff Act was not attracted. The bench rejected the
argument. In the first place, it said. Sections 2 and 3(1) of the Tariff Act
were not charging sections; the charging section was Section 12 of the Customs
Act. The taxable event was not the manufacture of 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" was only the measure of the duty leviable on the imported
article.
Section
3(1) did not require that the imported article should be such as was capable of
being produced or manufactured in India. The assumption had to be that an article imported into India could be produced of manufactured
in India and, upon that basis, the duty had
to be determined under Section 3(1). The bench said:
"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 of 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 "...........................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 nexue which (sic) the nature and
quality of the goods imported into india." The bench then considered the matter from a different point of
view and found that the brass scrap imported by the appellants came into
existence as waste or rejected artioles during the prooess of manufacture and,
therefore, it was, in any event, liable to excise duty and, therefore, to
additional duty under Section 3(1) of the Tariff Act.
We
have some difficulty in construing the Explanation to Section 3(1) of the
Tariff Act in the manner adopted in the case of Khandelwal Metal &
Engineering Works. The difficulty arises when the article which is imported has
not been produced or manufactured. The Explanation says that the expression
"excise duty for the time being leviable on a like article if produced or
manufactured in India" in Section 3(1) means the excise duty that
"would be leviable on the class or description of article to which the
imported article belongs". Excise duty is leviable on the class or
description of article to which the imported article belongs if articles of
that class or description are exigible to excise duty, having undergone
production or manufacture. If they have not undergone production or manufacture
they are not exigible to excise duty. Articles of that class or description of
goods when imported are, then, not liable to additional duty. The assumption
underlying the Explanation to Section 3(1) would appear to be that an imported
article which is the result of production of manufacture can be produced or
manufactured in India; the emphasis in the assumption is
on the words "in India". In other words, if the
imported article is the result of production of manufacture, it must be assumed
that it can be produced or manufactured in India. In this context the Statement of Objects and Reasons is relevant. It
says that the levy of additional duty on an imported article is provided for to
counterbalance the excise duty leviable on the like article made indigenously.
It may
also be reconsidered why, insofar as additional duty is concerned, Section 3 of
the Tariff Act is not the charging section. It provides for the levy, namely,
additional duty; it provides for the taxable event, which is the import of
goods that have been produced or manufactured; and it sets out the measure of
the duty, which is the excise duty on the indigenously produced or made equivalant
article. The Statement of Objects and Reasons is meaningful in the context
because it says that Section 3 "provides for the levy of additional
duty...........".
We
are, therefore, of the view that the decision in the case of Khandelwal Metal
& Engineering Works requires the consideration of a larger bench. The
papers and proceedings shall be placed before the Hon'ble the Chief Justice for
appropriate administrative directions.
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