Holding

A product is liable to excise duty only if it has undergone manufacture resulting in a new article with a distinct name, character or use; mere classification under a tariff heading does not make it excisable.

Summary

M/s Wimco Ltd., a manufacturer of printed paper board boxes, sold waste/scrap/parings generated during production without filing a classification list under Rule 173B or issuing invoices under Rule 52A. The Revenue issued a show‑cause notice and demanded excise duty of Rs 23.20 million with an equal penalty. The CEGAT held that the waste was not a new product and therefore not dutiable, reasoning that charging duty would amount to double taxation. The Supreme Court held that a product is liable to excise duty only if it has undergone manufacture resulting in a new article with a distinct name, character or use; the mere existence of a tariff entry is insufficient. Finding that the CEGAT had not examined the factual matrix and had abruptly concluded that no manufacture occurred, the Court remitted the matter to the Tribunal for fresh consideration and allowed the appeal.

Issues considered

Whether waste/scrap/parings of paper board generated during manufacture constitute a separate excisable article under sub‑heading 4702.90 of the Central Excise Tariff Act, 1985.
Whether the presence of a tariff entry alone makes the waste excisable, i.e., does the twin test of manufacture and marketability apply.
Whether failure to file a classification list under Rule 173B and issue invoices under Rule 52A renders the waste liable to duty and penalty.
Whether exemption under Notification No. 89/95 dated 18.5.1995 is available to the assessee.
Whether the CEGAT erred in law by not considering the factual scenario and by concluding that no manufacture is involved.

Legislation cited

Central Excise Act, 1944s. 11AB
Central Excise Rules, 1944s. Rule 173B, s. Rule 52A
Central Excise Tariff Act, 1985

Subjects

central excisewaste scrapmanufacturetariff classificationdouble taxationexemption notificationclassification listRule 52ARule 173Bexcise dutySupreme Court

Judgment

A CCE, LUCKNOW
v.
MIS. WIMCO LTD.

OCTOBER 5, 2007
B
[DR ARIJIT PASAYAT AND LOKESHWAR SINGHPANTA,JJ.]

Central Excise Tariff Act, 1985; Sub-heading 4702.90/Central
Excise Act, 1944; S.l lAB!Central Excise Rules; rr.52-A and 173-Band
C Exemption Notification No.89195 dated 18.5.1995:

Classification-Waste/scrap/paringsfrom manufacture ofprinted
paper boxes sold by assessee-No declaration made-Neither
classification list filed nor invoices issued in terms ofRule 52A ofthe
D Rules-Levy ofExcise duty-Show Cause Notice-Revenue confirmed
demand of certain amount of the duty and also imposed penalty-
., Appeal against the order ofRevenue allowed by the Tribunal holding
that charging ofexcise duty on such waste/scrap/parings tan/amounts
to charging of duty on the same product twice-On appeal, Held:
E Tribunal came to an abrupt conclusion without considering the factual
scenario-Hence, matter remitted to it for consideration afresh in the
light of the decision on the subject, as referred in the judgment-
Directions issued

Respondent-assessee is manufacturer of printed paper board
F
boxes from paper board. The waste/scrap/parings generated in the
process was allegedly sold by the assessee without making declaration
of such transactions, nor did it file classification list under Rule 173-B
of the Central Excise Rules, 1944. Since goods in question were
G classifiable under sub-heading 4702.90 of the Central Excise Tariff Act,
a show cause notice was issued by the competent authority. Later,
Commissioner of Central Excise confirmed the demand of excise duty
amounting to Rs. 23,20,000/- imposing penalty ofidentical amount and
also directed payment ofinterest at the appropriate rate under Section
H 560
1 CCE, LUCKNOW v. M/S. WIMCO LTD. 561

llAB of the Central Excise Act, 1944. Aggrieved, the assessee filed A
appeal before the CEGAT. The Tribunal held that the paper and paper
board are used as inputs and continue to be paper and paper board when
they appear as waste/scrap/parings. Charging of duty on such waste/
scrap/paring tantamounts to charging ofduty on the same product twice.
Hence the present appeal. B

Revenue contended that effect of non-filing of classification list
under Rule 173B ofthe Rules has not been considered by the Tribunal;
that the fact that there is a sale of waste/scrap/parings, was also not
considered by the Tribunal; and that the benefit of exemption under C
Notification No. 89/95dated18.5.1995 is not available to the assessee.

Allowing the appeal, the Court

HELD: 1.1. Merely because there is a tariff entry, the goods does
not become excisable unless the process of manufacture is involved. D
[Para 12] [566-B]

Commissioner ofCentral &cise, Chandigarh-Iv. Marlged Vanaspati
& Allied Industries, (2003) 153 ELT 491 SC, relied on.

1.2. Since CEGAT has not dealt with the factual scenario in detail E
and has come to an abrupt conclusion that no manufacture is involved,
the matter is remitted to it for fresh consideration in the light of the
relevant decisions. [Para 14) [568-E]

Kores India Ltd, Chennai v. Commissioner of Central Excise, F
Chennai, [2005) 1 SCC 385, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4567 of
2002.
From the Final Order No. 247/2001-D dated 28.11.2001 passed G
by the Customs Excise and Gold Control Appellate Tribunal, New Delhi
in Appeals No. E/281/2001-D.

Nagendra Rai, T.V. Ratnam, Jayesh Gaurav, K. Subba Rao and B.
Krishna Prasad for the Appellant.
H
\ \

\
562 SUPREME COURT REPORTS [2007] 10 S.C.R.

A V. Lakshmi Kumaran, Alok Yadav and Rajesh Kumar for the
Respondent.

The Judgment of the Court was delivered by

DR. ARIJIT PASAY AT. J. 1. Challenge in this appeal is to the
B order passed by the Customs Excise and Gold (Control) Appellate
Tribunal, New Delhi (in Short the 'CEGAT'). By the impugned judgment
dated 28.11.2001 CEGAT allowed the appeal filed by the respondent
holding that waste/scrap/parings of paper board which are generated
during the process of manufacture of paper and paper board in nothing
C new, distinct in name, character and use for the purpose oflevy of duty.
Therefore, it was held that no duty was chargeable.

2. Background facts in a nutshell are as follows:

During investigation of the accounts of Mis Wimco Ltd. Bareilly, it
D transpired that the respondent was using paper and paper board for the
manufacture of printed paper board boxes. During the course of
manufacture of such boxes, waste/scrap/parings are gererated, it was
alleged that this waste was classifiable under Chapter sub-heading
4702.90 of Central Excise Tariff Act, 1985 (in Short the 'Tariff Act').
E . Scrutiny of records revealed that the respondent was selling this waste/
scrap/parings. It was also noticed that they did not declare transactions
of waste/scrap/parings, and did not file classification list under Rule 173-
B of the Central Excise Rules, 1944 (in short the 'Rules') and did not
issue any invoices prescribed under Rule 52-A. Accordingly, a show cause
F notice (in short 'SCN') was issued to the respondent asking it to explain
as the why duty amounting to Rs. 23,20,000/- should not be demanded
and why penalty should not be imposed and why interest should not be
charged. In reply to the SCN, the respondent submitted that scrap is
generated at two stages; that it arises before the manufacturing Operation
G starts; that the demand of duty on the quantity of scrap which is generated
during the pre-manufacturing operations cannot be st•stained; that the scrap
is not a result of manufacturing process; that the word 'manufacture' is
generally understood to mean as bringing into existence a new substance
and does not mean merely to produce some changes in a substance; that
H
CCE, LUCKNOW v. MIS. WIMCO LTD. [PASAYAT, J.] 563

manufacturing implies a change; that every change in an article is the result A
of treatment; that every treatment is not manufacture as something more
is necessary; that there must be transformation and a new different article
must emerge having a distinctive name, character and use. It was
submitted that in their case, generation of scrap was not manufacture.
It was also submitted that longer period is invokable and substantial B
part of the demand was beyond a period of six months; there was no
evidence of any suppression or mis-statement; there was a bona fide
belief that waste generated in the process of manufacture of match boxes
was not dutiable as it arose out of duty paid paper and card board. C
Commissioner of Central Excise confirmed the payment of duty
amounting of Rs. 23,20,000/- imposed penalty ofidentical amow1t and
also directed payment of interest at the appropriate rate under Section
11 AB of the Central Excise Act , 1944 (in short the 'Act').
D
3. The stand of the respondent before the CEGAT was that there
was no manufacture inasmuch as whatever is used is paper and paper
board and whatever is generated as waste/scrap/parings is generated out
of duty paid paper and paper board and a new different article must
emerge having a distinctive name, character and use to constitute E
manufacture. It was submitted that in their case, generation of scrap was
not manufacture and hence not dutiable. In essence, it was submitted that
since duty paid paper and paper board was used by it, duty cannot be
demanded again on waste/scrap/parings which are nothing but paper and
paper board.
F
4. It was also submitted that if Department's stand is accepted,
assessee would be entitled to modvat credit. Such credit available on
paper and paper board would be much higher than duty payable on
waste/scrap/parings.
G
5. The stand of revenue on the other hand was that what is generated
is waste/scrap/parings and there is specific heading for these items in the
Central Excise Tariff and, therefore, the items are classified distinctively
under Chapter heading 4702.90. It was submitted that as a result of
manufacture, waste/scrap and paper board come into existence which H
-~
\
564 SUPREME COURT REPORTS (2007] 10 S.C.R.

A are distinct in name, character and use and, therefore, dutiable.
6. Tribunal noted that the Chapter Heading 4702.90 of the Schedule
to the Tariff Act reads "Recovered (waste and scrap) paper or paper
board, and is not "recovered waste or scrap". In the instant case,
B whatsoever is generated in the process of manufacture of match boxes is
paper and paper boards in small pieces. This paper and paper board are
used as inputs and continue to be paper and paper board when they
appear as waste/scrap/parings. Charging of duty tantamounts to charging
of duty on the same product twice. CEGAT also noted that in the instant
C case there is no value addition.
7. In support of the appeal, learned counsel for the appellant
submitted that effect of classification list filed under Rule 173B has not
been considered and there is a sale of waste/scrap/parings.
D 8. The Commissioner observed that the benefit of exemption under
Notifications No. 89/95 dated 18.5.1995 is not available.
9. Reference was made to following observations of the adjudicating
authority:

E "I find that the case has not been contested on merits at all by
the party. The SCN to the party was issued on the allegation that
during the course of manufacture of printed paper board boxes
waste parings scrap is generated which is classifiable under the
Chapter sub-heading 4702.90 of the schedule to the Central Excise
F Tariff Act 1985 (for Short tariff). The scrap so generated is liable
to Central Excise ~uty if sold to outside buyers by the manufactures
who also manufacture and clear other excisable goods on payment
of duty. Since the party 'manufacture' and "clear" matches apart
from the scrap waste parings which are chargeable to duty they
.G
are not entitled to the benefits of exemption from duty in terms of
Notification No. 89.95 dated 18.5.95.
In this case the party's contention that such waste raised during
pre-manufacturing operation is not correct. Because manufacture
means the entire process of the converting raw material into finished
H
CCE, LUCKNOW v. MIS. WIMCO LTD. [PASAYAT, J.] 565

goods. It is an afterthought that they divided their waste & scrap A
in two categories because in their 173B declaration dated
28.2.1999 manufacturing process of match has been described in
detail in which phase-II (process of making of empty boxes) starts
from the receipts of cardboard in the form of Jumbo Rolls from
various papers mills. So this variety of scrap cannot be said to be B
a pre-manufacturing waste. The manufacturing activity commences
the moment the processing of the inputs is started inside the
manufactory. The party has not denied that the so called pre-
manufacturing took place somewhere else then the manufacturing
premises." c
I 0. Learned counsel for the respondent supported the order of the
CEGAT.
11. In Commissioner of Central Excise v. Indian Aluminium Co.
Ltd. (2006) 203 EL T SC 3 it was observed inter alia as follows: D
/ "l 8.111e entry in question does not contain any legal fiction. It does
not say that any residue having more than a certain percentage of
the metal would be deemed to have been manufactured or would
be excisable. Records maintained by Respondent whereupon the E
Revenue has relied upon may be a relevant factor to identify 'dross'
as a marketable commodity but then percentage of the metal in
dross may not by itself make it excisable, if it is otherwise not. An
article is not exigible to tax only because it may have some saleable
value.
F
19. It may be that dross no longer answers the description of"waste
and scrap" in view of the Changes made in the Tariff. It is, however,
almost well-settled that even if some percentage of metal is found
in the dross the same in absence of something more in the entry
would not be rendered as an excisable article. This Court in Indian G
Aluminum (supra) in fact noticed that some amount of metal is
found in dross and skimming. A distinction however, was made
that dross and skimming are not metals in the same class as 'waste
or scrap'. Even assuming that dross having a high percentage of
metal is a marketable commodity, the question, in our opinion, H
566 SUPREME COURT REPORTS [2007] 10 S.C.R.

A would arise as to whether the same can be said to be a
manufactured product. The term 'manufacture' implies a change.
Every change, however, is not a manufacture. Every change of an
article may be the result of treatment, labour and manipulation. But
manufacture would imply something more. There must be a
B transformation; a new and different article must emerge having a
distinctive name, character or use. [See Union ofIndia and Anr.
v. Delhi Cloth and General Mills Co. Ltd AIR ( 1963) SC 791]."

12. It is to be noted that merely because there is a tariff entry it does
C not become excisable unless manufacture is involved. In Commissioner
of Central Excise, Chandigarh-Iv. Markfer Vanaspati & Allied
Industries (2003) 153 ELT 491 SC it was observed as follows:
"2. The question for consideration is whether "spent earth" is liable
to excise duty or not. Under the Tariff, prior to its amendment in
D 1985, it had been consistently held that "spent earth" was not liable
to duty. However, with the enforcement of ne'C' Tariff in 1985, a
conflict arose between various benches of the Tribunal. Some
benches held that "spent earth" was still not excisable, whereas
other benches held that, as it now stood included by a specific sub-
E heading, it became excisable. In view of these conflicting decisions,
the matter was placed before the larger Bench of the CEGAT which
by the impugned judgment has held that "spent earth" was still not
dutiable. Hence these appeals.
3. The only question for consideration for us is whether a goods
F becomes exciseable merely because it falls within a tariff item. After
1985 Tariff item 1507 reads as "residue resulting from the treatment
of fatty substances". It is submitted that "spent earth" is a residue
resulting from treatment and is thus now excisable. What we have
to consider is whether the well settled twin tests of"manufacture
G and marketability" cease to apply if a goods falls within a tariff entry.
4. Prior to this Entry being introduced in 1985, it had been
consistently held that "spent earth'' was not manufactured. It had
been consistently held that "spent earth" remained "earth" even after
H processing. It had been consistently held that all that happened was
'

j
CCE,LUCKNOWv. M/S. WIMCOLTD. [PASAYAT,J.] 567

that its capacity to absorb was reduced. It had been consistently A
held that duty having been paid on "earth", no duty was leviable
on "spent earth as it remained the same product. It had been held
that to levy duty on "spent earth" would amount to levying duty
twice. It is on this ground that it has been held that "spent earth"
was not excisable. Even now it has not been shown that there is B
manufacture. The only submission is that "spent earth" is a residue
J resul~from the treatment of fatty substances. The submission is
that now that there is a specific Entry which makes "residue resulting
from the treatment of fatty substances" excisable, duty has to be
paid on "spent earth". In other words, what is submitted is that C
merely because a good falls within one of the Tariff items it becomes
excisable.
5. In support of their submission, reliance in placed on the case of
Lal Wollen & Silk Mills (P) Ltd., Amritsar v. Collector of D
Central Excise, Chandigarh, [1999] 4 SCC 466. In this case
the question was whether excise duty was to be paid on dyed
worsted woolen yarn made from duty paid worsted woolen grey
yam. It was argued that there was no manufacture. The Court
however held as follows:
E
"Admittedly both "dyed yarn" and "grey yarn" are covered
by two separate distinct heads of tariff items with different duty.
So this itself recognizes them to be two different goods with
separate levy. In this view of this it cannot be urged that there
is no manufacture of"dyed yarn" from the "grey yarn". F
Undoubtedly this authority appears to support the contention
which is raised.
6. However, it appears to us that the observations made in this
authority are "per incuram". In so observing, the decision of a larger Bench G
of this Court in the case of Collector of Central Excise, Indore v.
Universal Cable Ltd. reported in [1995] Supp. 2 SCC 465, has not
been noted or con~idered. In this case an argument that a good become
excisable because it is cove~ed by Tariff Entry, has been negatived. In
the case of B.P.L. Pharmaceuticals Ltd. v. Collector ofCentral Excise, H
\
568 SUPREME COURT REPORTS [2007] 10 S.C.R.

. ...
A [1995] Supp. 3 SCC 1 it has also been held that merely because there is
a change in the Tariff Item the goods does not become excisable.
Subsequently in a judgment dated 13th Febmary, 2003 in Civil Appeal
No. 6745 of 1999 it has been held that merely because an item falls in a
Tariff Entry, it does not become excisable unless there is manufacuture
B and the good is marketable. In Lal Woolen & Silk Mills' case (supra) it
has been held that the twin test of manufacture and marketability is not to
apply. It is not possible to accept the contention that merely because an
item falls in a Tariff Entry it must be deemed that there is a manufacture.
The law still remains that the burden to prove that there is manufacture
C and that what is manufactured is on the revenue. In this case no new
evidence is placed to show that there is manufacture. "Spent earth" was
"earth" on which duty has been paid. It remains earth even after the
processing. Thus if duty was to be levied on it again, it would anlount to
levying double duty on the same product.
D
13. What amounts to "manufacture" has been dealt with by this Court
in Kores India Ltd, Chennai v. Commissioner of Central Excise,
Chennai, f2005] 1 SCC 385.
14. Since CEGAT has not dealt with the factual scenario in detail
E and has abruptly come to an abrupt conclusion that no manufacture is
involved, the matter is remitted to it for fresh consideration in the light of
decisions referred to above.
15. The appeal is allowed. No cost.
F S.K.S. Appeal allowed.