L.M.L. Limited Vs. Collector of Central Excise Kanpur  INSC 678 (21 August 1997)
VERMA, B. N. KIRPAL
appellant is engaged in the manufacture and sale of two-wheeler vehicles and it
has been granted central excise licence by the respondent for the manufacture
of the scooters together with the parts and accessories.
the purpose of manufacturing of scooters and parts and accessories thereof the
appellant purchase duty paid steel sheets on which the duty of excise at the
rate of Rs.
per ton is paid by it under Tariff Heading 7212.50. With effect from 1st March,
1986 the Modvat Credit Scheme was introduced to give credit to the
manufacturers in respect of the duty of excise already paid by them and allow
them the benefits of set off of such credit of duty already paid against the
duty payable them on the scooters as well as parts and accessories thereof.
working of these sheets for the manufacture of parts of scooters some portions
of the sheets remain. Some of these portions are used by the appellant for the
manufacture of small parts of the scooters.
which arise in the present case in as to how should these portions be
classified. According to the respondent these portions, which the Tribunal has
for the sake of convenience described as `off-cuts', being fit to be used for
the manufacture of further articles are nothing but steel sheet and they should
have been cleared at the rate of duty of which they brought in the factory and
credit taken, i.e, at the rate of Rs. 715/- per ton. The contention of the
appellant before the excise authorities was that it is only some portions of
off-cuts, depending upon their sizes, which are used for the manufacture of
some small parts of the scooter. These portions of off-cuts cannot be
classified as sheets and their correct classification would be that of waster
as scrap. According to the appellant the duty which is payable on waste and
scrap of steel under the tariff item 7203.20 is Rs. 365/- per ton and it is at
this rate that the duty should be claimed from it.
contention of the appellant was neither accepted by the assessing authority,
i.e., Assistant Collector nor by the Collector, Appeals. A second appeal to the
Tribunal met with the same fate hence this appeal.
behalf of the appellant, Sh. Joseph Vellapally, learned senior counsel, has
contended that after the sheets have cut and used for the manufacture of
scooter, the part which remains is only waste and scrap. It is only some of
these pieces of steel which is used for the manufacture of ancillary items and
the correct tariff heading under which these pieces would fall is 7203.20 the
rate being Rs. 365/- per ton. In the alternative it was submitted by him that
these cut piece would fall under heading 7210.10. The contention of Sh. A. Subba
Rao, learned counsel for the respondent however was that the appellant has
bought sheets and had claimed credit at the rate of Rs. 715/- per ton and now
when parts thereof are used in manufacture of other items these portions of
off-cuts would correctly be classified under heading 7212.32.
would at this stage be appropriate to set out the three competing entries.
These are as follows:
Waste and Scrap 7203.10 -Of iron Rs. 80 per tonne 7203.20 -Of steel Rs. 365 per
tonne 72.10 Angles, shapes and sections of iron or steel not elsewhere
specified (other than slotted angles and slotted channels) rolled forged
extruded, formed, finished, slotted angles.
Angles, shapes and sections Rs. 365 per tonne (other than slotted angles and
slotted channels) 7210.20 Slotted angles 15% 72.12 Coils for re-rolling,
sheets, plates and universal plates of iron or steel, hot or cold rolled,
whether galvanised or not; from such as ridges, channel (other than slotted
channels) made from sheets, plates or universal plates; and tin plates and
tinned, lacquered or varnished sheets including tin taggers and cuttings or
such plates, sheets or tagger; slotted channels 7212.50 -Cold-rolled Rs. sheets
715 per tonne" Rule 4 of the Excise Rules provides that "goods which
cannot be classified in accordance with the above Rules, shall be classified
under heading appropriate to the goods to which they are most akin". Chapter
72 of the Tariff Act deal with iron or steel. The expressions, waste and scrap,
angles, shapes and selection and sheet are among several expressions which have
been defined therein. These read as follows:
Waste and scrap:
and scrap of iron or steel fit only for the recovery of metal or for use in the
manufacture of chemicals, but does not include slag, ash and other residues.
shapes and Sections:
which do not have cross- section in the form of circles, segments of circles,
ovals isosceles triangles, rectangles, hexagons, octagons or quadrilaterals
with only two sides parallel and the other two sides equal and which are not
A hot or cold-rolled flat product, rolled in rectangular section of thickness
below 5 millimeters and supplied in straight lengths, the width of which is at
least hundred times the thickness and the edges are either milled, trimmed,
sheared or flame cut and includes a corrugated sheet." Applying the
principle contained in the aforesaid Rule 4 what has to be seen is as to what
is the appropriate heading to which the off-cuts which are use by the
appellants for the manufacture of ancillary items are most akin. These
expressions as contained in Chapter 72 of the Excise Act should be read along
with the tariff items contained in the same chapter.
quite evident that those portions of cut sheets which are used in the
manufacture of ancillary items cannot be regarded as waste and scrap. As per
the aforesaid definition it is only that `waste and scrap' of iron or steel
which is fit only for the recovery of metal or for use in manufacture of
chemicals which could fall under that category. Those portions of cut sheets
which are used in the manufacture of ancillary items cannot be regarded as
having been used for recovery or metal or for use in the manufacture of chemicals.
This being so, those portions of cut sheets which are not used for recovery of
metal or in the manufacture of chemicals cannot be cleared under tariff items
72.03. At the same time the definition of the word `sheet' as contained in
Chapter 72 would clearly indicate that the cut sheets which are used by the
appellant do not fall under that category. The definition of sheet, inter alia,
states that it has to be a hot or cold-rolled flat product, rolled in
rectangular section of thickness below 5 millimeters and supplied in straight
lengths. It was not disputed that the off-cuts which remains after the parts of
the scooter had been manufactured by using the steel sheets no longer retain
rectangular shapes. These off-cuts are of different shapes and sizes and in our
opinion, they would clearly fall under the tariff entry 72.10.
off-cuts which are used would clearly answers to the expression `shape'
contained in tariff item 72.10. It does appear that the attention of the
tribunal was not drawn to tariff entry 72.10 but of the facts, as found by the
tribunal, it is clear that the off-cut which are odd shaped are used by the
appellant do not answer to this description of sheet but on the contrary can
only be regarded as `shapes' falling under tariff entry 7210.10. The rates of
duty of this is Rs. 365/- per ton which is the same as that on waste and scrap
of steel under tariff entry 7203.20. It is this duty of Rs. 365/- per ton which
has to be paid by the appellant on those pieces of steel or off-cuts which are
cleared by the appellant for use in the manufacture of ancillary items and not Rs.
715/- per ton as demanded by the respondent.
appellant, therefore, was entitled to clear the off-cuts of steel sheets by
paying duty under tariff entry 72.10 at the rate of Rs. 365/- per ton.
Consequently, this appeal is allowed and the orders of the Tribunal as well as
the Assistant Collector and the Collector, Appeals, are set aside. There will
be no order as to costs.