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TMI Blog1987 (6) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... d that dross was not goods and hence not liable to duty. There is no dispute between the parties that if dross is held to be goods, it would fall for classification under the residuary item No. 68 of the Central Excise Tariff. 2. We have carefully considered the rival submissions. We find that the appellants reliance on the Bombay High Court judgments aforesaid is no longer valid for two reasons: (1) These judgments relate to clearances of dross prior to 1975 while in the case of the appellants the relevant period is subsequent to 1981. There have been successive amendments in the statutory Central Excise Tariff between 1-3-1975 and 1-3-1981 and because of these changes in the law, the Bombay High Court judgments can no longer be considered binding on the point whether aluminium dross is goods or not. (2) The facts and the issue before the Bombay High Court were distinguishable from those in the instant case before us. 3. To take up the legislative changes first, the position before 1-3-1975 was that aluminium dross was then not covered by any item in the Central Excise Tariff In other words, it was not an excisable article at all. The department itself accepted this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is destroyed or thrown away as a total waste. The whole of it is bought and sold in the market. The buyers use it as a raw-material in chemical industries. Applying the test laid down by the Supreme Court to the facts of the case before us, the conclusion is inescapable that aluminium dross is goods . Dross has, no doubt, very little metal content and, for that reason, it has been aptly excluded from the metal item No. 27. But since the facts before us show that it is not only ordinarily but wholly marketed by the appellants and it has industrial uses as a raw-material, it would still be goods and would fall under the residuary item No. 68. 5. While it is true that certain residues have been taken out of the scope of waste and scrap in item 27, it does not mean that such residues would not be goods unless they are fit for recovery of metal therefrom. Explanation III below item 27 itself provides that waste and scrap may be fit for the recovery of metal or for use in the manufacture of chemicals . Therefore, if a certain type of process wastes, say dross, has been specifically excluded from item 27, it could yet be goods under some other item of tariff so long as it is prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may well be that dross and skimmings may be capable of feching some sale price. dross and skimmings may be capable of fetching some sale price. For that matter any rubbish can be sold. But that is not the criterion. It cannot be said that dross and skimmings are the result of treatment, labour or manipulation whereby the end-product is dross and skimmings. They are merely the scum thrown out in the process of manufacture of aluminium sheets. Therefore it cannot be said that dross and skimmings are transformation resulting in a new and different article with a distinctive name, character or use or that they ordinarily come to the market to be bought and sold and are known to the market. The article or goods manufactured from the aluminium ingots was not dross and skimmings but the aluminium sheets. It was the aluminium sheets therefore that were the end-product or the finished product and not the dross and skimmings which were merely the refuse or scum or rubbish thrown out in the course of the manufacture of the finished product, namely, the aluminium sheets. As stated earlier, in the affidavit-in-reply,- there has throughout been a repeated emphasis that the dross and skimmings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e gist of the manufacturing process. X X X X X X X It is quite evident that the Supreme Court over-ruled the assumption of the Bombay High Court that by-products and process rejects could not be called manufactured articles. It also over-ruled the other assumption of the Bombay High Court that process rejects could not be considered by-products of the manufacturing process. Aluminium dross is in no way different from other process rejects or wastes. 8. The aforesaid discussion would have revealed that the law, the facts as well as the issue before the Bombay High Court were different. In view of the successive legislative amendments, the Supreme Court judgments in the cases of South Bihar Sugar Mills and Khandelwal Metal and Engineering Works, the Delhi High Court judgment in the case of Khandelwal Metal Engg. Works and the other case law cited in the Tribunal s judgment in Super Tyres case aforesaid, it cannot now be said that the Bombay High Court s observation that dross and skimmings were scum and rubbish and hence not goods is still binding. Since the dross arose in the course of a manufacturing process, it was a by-product or process waste which was quite distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase regarding the nature of the product and after adverting to Delhi Cloth Mills case held that the dross and skimmings cannot be said to be finished excisable goods . Section 3 of the Central Excise Act envisages that there shall be levied and collected in such a manner as may be prescribed duties of excise on excisable goods (emphasis supplied) other than salt which are produced or manufactured in India at the rates set forth in the First Schedule. So, the basic requirement to attract duty would be that the imposition of the levy should be under Section 3 of the Act. In view of the categorical findings of the Bombay High Court, Aluminium Dross cannot be considered as goods. It is significant to note that this judgment of the Single Judge has been subsequently affirmed by the Division Bench of the Bombay High Court dated 24-2-1986 (Appeal No. 524/80) in Misc. Petition 1661 of 1975. The Tribunal by a Three Member Bench has followed this Ruling in 1984 E.C.R. 1871 (Collector of Central Excise, Chandigarh v. M/s Mehra Ferro Alloys, Amritsar). The decision cited by Sh. A.K. Jain, SDR, in the case of Khandelwal Metal Engg. Works and Another Etc., v. Union of India and Others [1985 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid order it is stated that to be excisable, an article or substance must be a product of active and conscious effort on the part of the manufacturer who engages in its production and whose aim is to produce it. When a manufacturer whose aim is to produce good aluminium, is burdened by the appearance of some dross and skimming, it stretches logic too much to say that scum and refuse, simply because they appear in the factory during or in the manufacturing processes, must be goods to be honoured by an excise duty . Scrap is totally different from dross. The nature of the manner in which dross arises affirms my view that it cannot be considered as excisable goods. 15. In the explanation to Item 68, to which my learned brother has adverted to in paragraph 3 of this order, it is stated that goods which were excluded by means of an explanation to the item or by words of exclusion in the description itself or in any other manner shall be deemed to be goods not specified in the item. Sh. A.K. Jain, SDR argued that as dross has been mentioned in the explanation to item 27 by way of exclusion, item 68 would be attracted. The explanation to item 27 is not the exclusion contemplated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Supreme Court in the case of Khandelwal Metal Engineering Works Another etc. v. Union of India and others, 1985 (20) E.L.T. 222 (S.C.), waste and scrap would be by-products of the manufacturing process and in view of Explanation to T.I. 68 introduced under the Finance (No.2) Act of 1980 dated 19-6-1980 duty would be attracted under T.I. 68. 4. In T.I. 27, item (aa) waste and scrap was inserted under the Finance Act of 1931. Explanation III to Item 27 was introduced in 1931 and excluded dross/ash/skimmings from T.I. 27. In view of this Explanation it is urged that duty under Item 68 would be attracted. 5. The decision of the Supreme Court in the case of Khandelwal Metal Engineering Works was in respect of brass scrap. The observations in para 10 of the judgment indicates that it is in respect of scrap recycled for extracting metal. In paragraphs 34 and 35 the Hon ble Supreme Court had referred to waste and scrap being an integral part and an inevitable incident of the manufacturing process. The decision of the Delhi High Court in 1983 E.L.T. 292 (against which the appeal was filed before the Hon ble Supreme Court) had an occasion to consider the rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of the Bombay High Court was prior to the insertion of T.I. 27-AA and the Explanation. But in my view that will not make a difference or bring dross and skimmings under Item 68 because the Bombay High Court has held in paragraph 22 that it would be difficult to come to the conclusion that dross and skimmings are goods . The observation is as follows:- As stated earlier, dross is nothing but scum thrown off from metals in something; refuse, rubbish or worthless impure metal and skimming is that which is removed or obtained from the surface by skimming. Unless the basic requirement that dross and skimmings become goods is established, a liability to duty will not be attracted. The Explanation III to T.I. 27 merely defined waste and scrap and hence one cannot say that dross and skimmings were excluded from the description of the goods in that item. The Explanation to T.I. 68 introduced in 1980 would be applicable only if the items are goods . 9. There are certain judgments of the Tribunal which have considered the judgment of the Bombay High Court. In 1985 ECR 857, M/s. Super Tyres (Pvt.) Ltd., New Delhi v. Collector of Central Excise, Delhi, the Tribunal ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability to duty of molasses. It must be noted that at the time of the hearing of the writ petitions the plea that molasses was a waste product was given up (vide para 1). The contention was that molasses was not a waste product but an intermediate product. Molasses being a by-product or intermediate to sugar it became an excisable article. It cannot be said that dross or skimmings are by-products or intermediate products. 10. Since there is a direct decision of the Bombay High Court on that point and there is no contrary decision of any other High Court relating to the same product. I am of the view that dross and skimmings are not liable to duty under T.I. 68. The decision of the Tribunal in the case of Mehra Ferro Alloys confirms this view. Following the judgment of the Bombay High Court and the Tribunal I hold that dross and skimmings are not liable to duty. The Appeal is, therefore, allowed. I beg to differ with my learned brother. My views are as recorded in my judgment dated 31-3-1987 in Appeal No. E-522/83-B1 relating to M/s. Indian Aluminium Co. Ltd. In view of the difference of opinion between the two of us, the matter is referred to the Hon ble President for hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Delhi)]. This however would not support the case of the Department. That case was with reference to brass scrap. In para 29 of the judgment it was recorded that brass scrap was admittedly a marketable commodity known in the market. The Delhi High Court noticed and distinguished the decision of the Bombay High Court in the case of Indian Aluminium Co. Ltd. It took note of the fact that (aluminium) dross and skimmings were not excisable goods. The judgment of the Delhi High Court would therefore go against the Department. 5. The Khandelwal case had been taken up to the Supreme Court, whose judgment has been reported in 1985 (20) E.L.T. 222 SC. In para 10 of the decision, it had been recorded that brass scrap of the kind imported by the appellants was a by-product of the manufacturing process. This decision would not however help the Revenue, because such brass scrap could not be equated with aluminium dross and skimmings. 6. In the Tribunal s Order No. 567/86-B1, dated 9-9-1986 in the case of Collector of Central Excise, Guntur, M/s Anam Electrical Manufacturing Co., a two-Member Bench of the Tribunal had held that aluminium dross and skimmings were not goods and could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Khandelwal Metals (para 6 supra). In para 34 of the judgment it had been observed that the production of waste and scrap is a necessary incident of the manufacturing process . The learned Member had taken the view that the Supreme Court had overruled the assumption of the Bombay High Court that by-products and process rejects could not be called manufactured articles. Shri Daya Sagar submitted that the observations of the Supreme Court could not be applied to dross and skimmings. They were applicable to defective goods arising in the course of manufacture, which could be considered as having been manufactured. Dross and skimmings were not process rejects in the same sense. 10. Member, Shri Rekhi had referred to the Tribunal s decision in the case of Super Tyres (para 7 supra). In para 6 of that order, support had been drawn from the judgment of the Allahabad High Court in the case of Oudh Sugar Mills, where reference had been made to the word production as referring to finished and semi-finished articles. Shri Daya Sagar submitted that the word produced in Section 3 of the Central Excises and Salt Act referred to goods like tobacco, coffee and betelnuts which were not ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs were not goods . However, he had also pointed out that under the new tariff they were treated as goods liable to excise duty, although exempted from duty. Shri Daya Sagar replied that there was no contradiction. Since the new tariff contained a specific description of the material, the question whether it was goods did not arise. 16. Shri Daya Sagar referred to the Tribunal s order in the case of Addison and Company Ltd. v. Collector of Central Excise, Madras [1985 (22) E.L.T. 437 (Tribunal)]. In para 21 reference had been made to the mischief rule applicable to the interpretation of statutes. Reference had been made to the observation of the Supreme Court that expressions used in statutes should ordinarily be understood in a sense in which they best harmonised with the object of the statute. Shri Daya Sagar also cited the judgment of the Supreme Court in the case of Madhav Rao Scindia v. Union of India (AIR 1971 SC 530) to the effect that the Court would interpret a statute agreeably to law and justice, and that there was a presumption against the lawmaker intending injustice. In the end he submitted that the view expressed by Member Shri M. Santhanam should be upheld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by them. Accordingly, in terms of the D.C.M. and South Bihar Sugar Mills judgments, aluminium dross and skimmings should be considered as goods. 22. Reference had been made to several orders passed by Special Bench B1 of the Tribunal, to the effect that aluminium dross and skimmings were goods. All these orders had been based on the judgment of the Bombay High Court in the case of Indian Aluminium Co. Ltd. [1980 E.L.T. 146 (Bom.)]. That judgment had been delivered prior to the judgment of the Gujarat High Court in the case of Darshan Hosiery Works, and the consequent amendment of Item 68. Further, the decision of the Bombay High Court had been in the context whether aluminium dross and skimmings were finished excisable goods . This would be clear from para 21 of the judgment. The Bombay High Court had given importance to the point that the assessees had not set out to manufacture dross and skimmings. This however was not a relevant consideration. Thus, bagasse and molasses were accepted to be liable to excise duty even though no one set out to manufacture them. 23. In para 22 of the Bombay High Court judgment, reference had been made to the Supreme Court judgment in the D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re so since it had taken into account the judgment of the Bombay High Court in the case of Indian Aluminium Co. It was equally binding on the Tribunal and should be respected. 27. Smt. Zutshi then stated that she would argue on the following questions, namely:- (1) whether aluminium dross and skimmings were goods; (2) whether they were excisable goods; and (3) if so, from what date. 28. On the first question, she had already argued that they were goods. Elaborating this argument, she referred to the Tribunal s order No. 567/86-B1, dated 9-9-1986 in the case of Anam Electrical Manufacturing Co. (para 6 supra). Referring to the para 6 of the order, she submitted that dross and skimmings were not waste and scrap, but it did not follow that they were not goods. Referring to para 7, she submitted that no doubt dross and skimmings were different from prime metal, but this by itself would support the argument that they had their own character, use etc. The fact that they were sub-standard would not be a bar to the levy of duty. 29. At this stage the Bench enquired from Smt. Zutshi whether she was proposing to distinguish the two cases before the Bench, from the previous cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it had been established that the dross and skimmings were goods and they were marketable, since they were actually marketed. Since they were specified in the First Schedule, they were also excisable goods. There could be no doubt that they were manufactured goods, having regard to the definition of manufacture in Section 2(f) of the Central Excises and Salt Act, because any process, even an incidental one, could amount to manufacture. 35. The next question would be under what item the goods were classifiable. T.I. 27 was obviously ruled out whether before or after its amendment. The alternative was Item 68, which was available from 1-3-1975. According to Smt. Zutshi, Item 68 was applicable even without the explanation to that item which was added in 1980. The explanation was considered necessary only because of the judgment of the Gujarat High Court in the case of Darshan Hosiery Works. 36. Smt. Zutshi cited the judgment of the Supreme Court in the case of Union Carbide v. Union of India [1986 (7) ECR (SC)]. In para 6 of the judgment it had been held that in order to attract excise duty, the article manufactured must be capable of sale to customer. In that case it had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (P) Ltd., Shri Daya Sagar submitted that he had cited notifications to show that there has been no intention to levy duty on dross and skimmings. It had been held by the Supreme Court in the case of J.K. Steel Ltd. v. Union of India and Others (ECR C 281 SC) that for finding out the scope of a particular levy, exemption notifications could be looked into. 45. Shri Daya Sagar submitted that the fact of sale was not conclusive. The question was whether the substance ordinarily came to the market. Specialised purchases were not relevant. It was after taking into account the observations of the Supreme Court in the D.C.M. case regarding the definition of manufacture that the Bombay High Court had come to the conclusion that aluminium dross and skimmings were not goods. 46. The judgments of the Supreme Court in the case of Geep Flashlight Industries Ltd. and Union Carbide did not have any application to the present case. 47. At her request, Smt. Zutshi was permitted to reply briefly. She submitted that the learned representatives of the appellants had referred to certain notifications which they had not referred to at the earlier stage. According to her the exemption from d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I am unable to agree with this interpretation of the judgment in the case of Indian Aluminium Co. Ltd. [1980 E.L.T. 146 (Bom.)]. In para 21 of the judgment, the learned Single Judge had observed that the proviso to Rule 56A(2) contained 4 conditions, namely (a) material is used in manufacture; (b) such manufacture is of goods; (c) such goods are finished excisable goods and (d) such finished excisable goods are either exempt from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty . In the succeeding paragraphs he examined whether each of the 4 conditions had been fulfilled. In paras 22 to 24 he discussed at length whether dross and skimmings were goods , and, after referring to the leading case of D.C.M. in the Supreme Court, he negatived the contention that the dross and skimmings were goods. In the later part of para 24 he held that the other conditions were also not satisfied. His summing up is contained in para 25, which reads as follows:- 25. Thus none of the requirements of this proviso can be said to have been complied with so as to bring the case of the department within its ambit. In these circumstances, the contention urged on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which necessitates reconsideration of the issue, it can hardly be doubted that the department can take a different view and have the matter agitated right upto the Supreme Court, if necessary. In the present cases however, the cogent reason merely amount to saying that the Bombay High Court and the Tribunal had taken a wrong view of the law. 57. No doubt an attempt has been made to differentiate the cases on the basis of a change in the law. In this connection reference has been made to the amendment of T.I. 68 in 1980. There is no dispute that this amendment was made in view of the judgment of the Gujarat High Court in the case of Darshan Hosiery Works. The effect of this amendment has been explained in para 7 of the Tribunal s order in the case of Collector of Central Excise, Patna v. Bihar Extrusion Co. Ltd., Jamshedpur (vide para 6 supra). To put it simply, the explanation which was added in 1980 made it clear that because a certain article was specifically excluded from a tariff item, it was not automatically excluded from T.I. 68, on the ground that it had been elsewhere specified . It did not mean that something excluded from an earlier item was necessarily included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various other points raised by both sides. Nor is it necessary for me to discuss the question from first principles. It is however of interest to find that some observations which are very relevant to the present cases have been made by the Hon ble Delhi High Court in its judgment dated 8-12-1986 in the case of Modi Rubber Ltd. and Another v. Union of India and Others [1987 (29) E.L.T. 502 (Del.)]. In that judgment the Delhi High Court has referred with approval to the judgment of the Bombay High Court in the case of Indian Aluminium Co. Ltd. v. A.K. Bandyopadhyay and Others., In its judgment the Hon ble Delhi High Court has examined the scheme of the Central Excise Rules to show that not all waste material is dutiable. In this connection specific reference has been made to Rule 50. The Delhi High Court has also observed It is the common case that waste/scrap are capable of fetching some sale price but that cannot be the criterion for the event of manufacture . The conclusion, as succinctly stated by the Hon ble Delhi High Court, is that if the intention of the Legislature is to cover waste or scrap arising in or in relation to a manufacture, then it has been specifically prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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