1997 (5) TMI 108 - SC - Central Excise

Whether 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? Held that - The Tribunal has really avoided answering the question of law raised before it. Whether the scraps generated during the course of 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. In our view the aluminium scraps produced by the assessee in course of manufacturing utensils could not be taxed under T.I. 27 before its amendment on 1-3-1981. In favor of assessee.

Summary

Issues Involved:
1. Classification of aluminium scrap under Tariff Item 27(a)(i) of the Central Excise Tariff before 1-3-1981.
2. Whether aluminium scrap can be considered as "aluminium in any crude form."
3. Interpretation of amendments to Tariff Item 27 post 1-3-1981 regarding "Waste and Scrap."

Detailed Analysis:

1. Classification of Aluminium Scrap under Tariff Item 27(a)(i) of the Central Excise Tariff before 1-3-1981:

The appellant, Balaji Enterprises, contended that aluminium scrap generated during the manufacturing of aluminium containers should not be classified under Tariff Item 27(a)(i), which pertains to "aluminium in any crude form." The specific description under this item includes ingots, bars, blocks, slabs, billets, shots, and pellets. The appellant argued that aluminium scrap does not fit within these categories and thus should not be taxed under this item.

2. Whether Aluminium Scrap Can Be Considered as "Aluminium in Any Crude Form":

The court analyzed whether aluminium scrap could be considered "aluminium in any crude form." The dictionary meaning of "crude" is "in a state needing preparation for use; not refined; raw; uncooked." The court noted that the items listed under Tariff Item 27(a)(i) such as ingots, bars, blocks, slabs, billets, shots, and pellets represent the most primary form of the metal. The court emphasized that aluminium scrap, generated during the manufacturing process, does not revert to the crude form of aluminium. Therefore, it cannot be classified as "aluminium in any crude form."

The court referenced the case of M/s. Khandelwal Metal and Engineering Works and Anr. v. Union of India & Ors., where it was established that waste and scrap are by-products of manufacturing and are an inevitable consequence of the manufacturing process.

3. Interpretation of Amendments to Tariff Item 27 Post 1-3-1981 Regarding "Waste and Scrap":

The court highlighted that the amendment to Tariff Item 27 on 1-3-1981 introduced a new sub-heading (aa) specifically for "Waste and Scrap." This amendment recognized that "Waste and Scrap" could not be taxed as "aluminium in crude form." The new entry (aa) was not merely clarificatory but a new provision altogether, bringing "Waste and Scrap" under taxation with a limited scope defined by Explanation III. This explanation excluded certain types of waste such as sludge, dross, scalings, skimmings, ash, and other residuals.

The court noted that prior to this amendment, there was no guideline to decide what constituted scrap for the imposition of Central Excise. The legislative intent was clear that "aluminium scrap and Waste" was not to be taxed before the amendment made on 1st March 1981.

Conclusion:

The Tribunal had avoided answering the core question of law regarding whether aluminium scraps should be treated as "aluminium in crude form." The court found that the Tribunal's jurisdiction was not limited to deciding the reasonableness or perverseness of the departmental authority's decision but included examining the question of law.

Upon examining the question, the court concluded that the aluminium scraps produced by the appellant during the manufacturing process could not be taxed under Tariff Item 27 before its amendment on 1-3-1981. Consequently, the order of the Tribunal was set aside, and the appeal was allowed with no order as to costs.