1985 (6) TMI 178 - SC - Customs

Whether brass scrap can come into being during the process of manufacture? Whether brass scrap can come into being during the process of manufacture? Held that - Brass, unquestionably, is most akin to copper and, therefore, brass scrap has to be classified as Copper Waste and 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 . 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 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.

Issues Involved:
1. Nature of the additional duty under Section 3(1) of the Customs Tariff Act, 1975.
2. Applicability of the additional duty on brass scrap.
3. Appropriate rate of customs duty on brass scrap.
4. Legislative competence concerning the imposition of excise duty on waste and scrap.

Detailed Analysis:

1. Nature of the Additional Duty under Section 3(1) of the Customs Tariff Act, 1975:
The primary issue was whether the additional duty mentioned in Section 3(1) of the Customs Tariff Act, 1975, is a countervailing duty or an extension of customs duty. The court clarified that the charging section is Section 12 of the Customs Act, 1962, and not Section 3(1) of the Tariff Act. Section 3(1) provides a supplementary levy in enhancement of the levy charged by Section 12 of the Customs Act. The court stated, "The additional duty which is mentioned in Section 3(1) of the Tariff Act is not in the nature of countervailing duty." The court rejected the argument that Section 3(1) is an independent charging section, emphasizing that it is an additional customs duty.

2. Applicability of the Additional Duty on Brass Scrap:
The court examined whether brass scrap imported by the appellants is liable for additional duty under Section 3(1) of the Tariff Act. The appellants contended that brass scrap, being damaged articles, is not manufactured and hence not subject to additional duty. The court disagreed, stating, "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)." The court further explained that the duty is applicable even if the goods are not capable of being manufactured in India, as the measure of the duty is based on the excise duty for a like article if produced or manufactured in India.

3. Appropriate Rate of Customs Duty on Brass Scrap:
The court addressed the dispute regarding the applicable rate of customs duty on brass scrap, which depended on which of the two Notifications (No. 97 and No. 156) was applicable. Notification No. 97 exempted articles other than copper waste and scrap and unwrought copper from duty in excess of 40% ad valorem, while Notification No. 156 exempted copper waste and scrap from duty in excess of 80% ad valorem. The court concluded that brass scrap is not a "master alloy" and falls under the category of "copper waste and scrap." The court stated, "The appellants are, therefore, entitled to exemption from duty of customs to the extent of 20% only and not to the extent of 60%."

4. Legislative Competence Concerning the Imposition of Excise Duty on Waste and Scrap:
The court examined whether the imposition of excise duty on waste and scrap under Entry 26A(1b) of the First Schedule to the Central Excises and Salt Act, 1944, is ultra vires Section 3 of the Act or beyond the legislative competence of Parliament. The court held that waste and scrap are by-products of the manufacturing process and are, therefore, excisable. The court stated, "The production of waste and scrap is a necessary incident of the manufacturing process." The court also affirmed the legislative competence of Parliament to enact the impugned provision under Entry 84, List I, of the Seventh Schedule to the Constitution, and even otherwise, under Article 248 and Entry 97, List I.

Conclusion:
1. The additional duty under Section 3(1) of the Customs Tariff Act, 1975, is not a countervailing duty but an extension of customs duty.
2. Brass scrap imported by the appellants is liable for additional duty under Section 3(1) of the Tariff Act.
3. The appellants are liable to pay customs duty on brass scrap at the rate of 80% ad valorem, with an exemption to the extent of 20% only.
4. The imposition of excise duty on waste and scrap under Entry 26A(1b) of the First Schedule to the Central Excises and Salt Act, 1944, is within the legislative competence of Parliament.

The appeals and special leave petitions were dismissed with costs, and the judgment of the High Court was confirmed.

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