Holding

The Court held that asbestos fibre obtained by separating it from rock is not a product of manufacture, is not liable to excise duty, and consequently is not liable to additional duty under Section 3(1) of the Customs Tariff Act, 1975.

Summary

Hyderabad Industries Ltd. and others imported asbestos fibre, which they obtained by separating the fibre from its parent rock using manual and mechanical means, and paid customs duty under entry 25.01.32. They challenged the levy of additional duty under Section 3(1) of the Customs Tariff Act, 1975 and the liability to excise duty under tariff item 22F, arguing that the fibre was not a product of manufacture. The Revenue contended that the fibre was liable to additional duty irrespective of manufacture and thus also to excise duty. The Supreme Court held that the asbestos fibre, being merely separated from rock and not a new or distinct commodity, is not the result of manufacture and therefore not subject to excise duty, which in turn means it is not liable to additional duty under Section 3(1). The Court also clarified that Section 3(1) provides a measure of duty, not a charging provision, and that the additional duty is not a counter‑vailing duty. Consequently, the appeal was dismissed.

Issues considered

Whether asbestos fibre imported after being separated from its parent rock is liable to additional duty under Section 3(1) of the Customs Tariff Act, 1975.
Whether such asbestos fibre is liable to excise duty under tariff item 22F.
Interpretation of the Explanation to Section 3(1) regarding the requirement that the imported article be 'produced or manufactured in India'.

Legislation cited

Subjects

customs dutyadditional dutyexcise dutyasbestos fibreSection 3(1) Customs Tariff Actmanufactureimporttariff classificationcountervailing duty

Judgment

HYDERABAD INDUSTRIES LTD. AND ANR. ETC. A
v
UNION OF INDIA AND ORS.

JULY 21, 1995

[AM. AHMADI, CJ, S.P. BHARUCHA AND B
K.S. PARIPOORNAN, JJ.]

Custom Tariff Act, 1975-Se.ction 3(1), Entry 25.01.32-Nature of duty
mentioned in section 3(1 )-Levy of additional duty on an imp01ted ar-
ticle-Expression excise duty for the time being leviable on a like aiticle if C
produced or manufactured in India' in section 3(1)-Meaning of.

The appellants used to separate asbestos fibre from the rock in
which it was embedded, by manual and mechanical means and the asbestos
fibre that was so removed from the parent rock was in every respect the
asbestos that was embedded in it and so no process of manufacture was D
said to have been employed by the appellants nor was a new or a distinct
commodity realised therefrom and therefore, what the appellants were
importing was asbestos fibre that had been separated from its parent rock.
They were paying Customs duty under entry 25.01.32. The appellants
disputed the levy on the imported asbestos fibre of additional duty u/s 3(1) E
of the Customs Tariff Act, 1975 and liability to pay excise duty under Tariff
item 22f.

The Revenue submitted that the asbestos fiber imported by the
appellants was exigible to additional duty regardless of the fact that it was
not the result of manufacture and, therefore, not exigible to excise duty. F

Disposing of the matter, this Court

HELD : 1. According to the Explanation to Section 3(1) of the
Custom Tariff Act, Excise duty is leviable on the class or description of G
article to which the imported article belongs if articles of that class or
description are exigible to excise duty, having undergone production or
manufacture, If they have not undergone production or manufacture they
are not exigible to excise duty. Articles of that class or description of goods
when imported are then not liable to additional duty. The assumption
underlying the Explanation to Section 3(1) would appear to be that an H
W7
288 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.

A imported article which is the result of production or manufacture can be
produced or manufactured in India. The emphasis in the assumption is
on the words "in India". If the imported article is the result o_f production
or manufacture, it must be assumed that it can be produced or manufac-
tured in India. In this context the Statement of Objects and Reasons state
that the levy of additional duty on an imported article is provided for the
B counterbalance the excise duty leviable on the like article made indigenous-
ly. Therefore, the decision in the case of Khandelwal Metal & Engineering
Works requires the consideration of a large Bench. It also requires
recosideration why insofar as additional duty is concerned, Section 3 of
the Tariff Act is not the charging Section. [297-H, 298-A-C-D]
c
Khandelwal Metal & Enginee1ing Works and another Etc. v. Union of
India & Others, (1985) Suppl. 1. SCR 750, referred to.

Mineral & Metal Trading Corporation of India Ltd. v. Union of India,
(1973) 1 SCR 997 and Moti Laminates Pvt. Ltd. v. Collector of Central
D Excise, (1009) 78 ELT 241 (SC), relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1354 of
1980 Etc. Etc.

From the Judgment and Order dated 23.5.80 of the Delhi High Court
E in C.W.P. No. 48 of 1978.

M. Chandrashekharan, Additional Solicitor General, Shanti
Bhushan, AK. Ganguli, AK. Sen, R.F. Nariman, V.A. Bobde, H.N. Salve
Dr. V. Gaurishanker, Soli J. Sorabjee and V.C. Mahajan, N.K. Bajpayee,
S.D. Sharma G. Prakash P.Parmeshwaran, V.K. Verma, Ravinder Narain,
F Ms. Amrita Mitra, Rajan Narain for JBD & Co. Assem Mehrotra, Darshan.
Singh, Suman Khaitan, Shalini Lums, Rahul Roy, for Khaitan & Co., Satish
Agarwal, Ms. P. Gautam, Pramod B Aggarwala, D.A. Dave, R.N. Kar-
najawala, Bhasker Pradhan, Manik Karanjawala, Ms. Vidula, R. Ashok
S.Rajappa P. Narasimhan, Sarva Mitter, Pardeep Kumar for Mitter &
G Mitter Co., for the appearing parties.
The Judgment of the Court was delivered by

BHARUCHA, J. The appellants Original writ petitioners import
asbestos fibre and pay Customs duty thereon under entry 25.01.32, which
H reads:
HYDERABAD INDS. LID. v. U.0.1. [BHARUCHA, J.] 289

"Mineral substances not elsewhere specified ........... .. ........... .. : A

(1) xxxxx xxxxx xxxxx xxxxx

(2) Asbestos raw including fibre 40%
B
xxxxx xxxxx xxxxx xxxxx

There is no dispute in regard to the levy of Customs Duty. The dispute is
in regard to the levy on the imported asbestos fibre of_ additional duty
under Section 3(1) of the Customs Tariff Act, 1975, which is quoted
hereinafter. The appellant in Civil Appeal No. 1354 of 1980 also mines C
asbestos in India and is made liable to pay excise duty thereon under Tariff
item 22p. which reads thus :

"Item Rate of
Description of goods
No. Duty
D
22F Mineral Fibres and Yarn and manufac- Fifteen
turers therefrom in or in relation to the per cent
manufacture of which any process is ad valorem
ordinarily carried on with the aid of power.
Explanation : "Mineral fibres and yarn and
manufactures therefrom' shall be deemed
E
to include:
(i) glass fibre and yarn including glass
tissues and glasswool
(ii) asbestos fibre and yarn;
F
(iii) any other mineral fibre or yarn whether
continuous or otherwise such as slagwool
and rock wool : and
(iv) manufactures containing other than
asbestos cement products. "
G
This levy is also disputed. By the common judgment under appeal. the
Delhi High Court dismissed the writ petitions.

The constitutionality of the imposition of excise duty on asbestos
fibre is not now disputed. H
290 SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R.

A What asbestos is and how it is recovered is set out in the judgment
under appeal, and it is not faulted on this account. This is what is says :

"Major producers of asbestos are Canada and U .S.S.R. Asbestos
is defined as general name for the useful fibrous varieties of a
number of rock forming minerals. The value of asbestos ensures
B
from the incombustible nature of the products fabricated from the
various grades of mineral fibres. Vide Mc. Graw Hill Encyclopaedia
of Science and Technology. Vol. I, (1977) Page 618). Most asbestos
fibres occur in small cracks in massive rocks and are difficult to
recover e.g. a large cubic open pit mine handles approximately 16
c tones of ore. a tons of waste ore and 23 tons of over-burden to
produce a single ton of asbestos. To mine chrysotile, the ore is first
blasted loose. The larger asbestos seams i.e. those that are atleast
9.5mm wide are picked from the ore after blasting and adhering
rock is removed with a pick. the resulting chunks of ore called
D crudes, which may contain as much as 30% water. are the dried
in preparation for the next stage - separate into .fibres. Fibre
separation is accomplished mainly by a series of shaking screens,
special separators called cyclones, and additional crushers or
fibrizers. At each shaking screen the fibrerated fibres are sucked
off by an airstream and collected for grading and packaging. The
E larger pieces of ore, which are retained by the screen are recycled
for further crushing. Smaller pieces, which pass through the screen
and are called throughs, are sent to the next crushing or fiberizing
sequence. The extremely small pieces that fall through the screens
following the final fiberizer are discarded. (Vide Encyclopaedia
F Americans Vol. II (1970) page 427. 428).

Similarly the Encylopaedia of Natural Chemical analysis, Vol.
II gives the processing of asbestos fibre as follows :

"Asbestos fibre is recovered by open pit or underground mining
G operations, in the open pit operation, the ore is taken from the top
of the deposit and in underground method, the ore is removed
from the bottom of the deposit. One imported method used in
underground mining is known as block carving. In this method, a
large block of ore is loosened in such a way that it breaks. down
H from its own weight. The ore is extracted through a network of
HYDERABAD INDS. LTD. v. U.0.1. (BHARUCHA, J.] 291

tunnels and carried to primary crushers, which break up the large A
rock chunks into fragments. The crushed ore falls into bins and
then undergoes further crushing and drying prior to processing at
the mill. The milling operation ar complicated but consist of
separating the fibres from the rock. In the mill the rock is crushed
more finally and passed ores through vibrating screans which
B
roughly separate the loose fibre from the rock. Powerful hoods,
which operate much like vaccum cleaner, lift the loose fibre leaving ,
the beavled rock. This operation is repeated until the separation
is complete and only waste rock remains. The separated fibres are
then cleared and carefully graded according to length, grading is
done according to rigid industrial specifications. c
BRUSSELS' MOMENCLA TURE defines asbestos as follows :

"25.23 - ASBESTOS :

Asbestos is a natural mineral substance produced by the D
decomposition of certain rocks. It has a very characteristic fibrous
texture; It is sometimes, silky in appearance and the colour varies
greatly, being usually white but sometimes grey, greenish, blue or
dark brown its main property is its resistance to fine and acids.
E
The heading applies to crude asbestos in rock form, to raw,
beaten or washed fibres. Whether graded to length or not, to
asbestos in flakes or powder and also to asbestos waste. The
heading excludes fibre which has been further processed carded,
dyed etc. finished articles of asbestos (heading 68.13)".
F
The process by which the asbestos fibre is obtained is more or
less as follows :

The Petitioners extract asbestos rock from the mine which is in the
shape of large boulders. This asbestos rock is put into jaw crushers and is G
made into small size of about 20-40 mm. These further rocks of 20-40 mm
size are still subject to further reduction in a hammer mill, the purpose of
which is to reduce the rock to a stage so that the fibre could be taken away
from rock in which it is embedded. the asbestos fibre is found on the rock
which contain thin layer of the fibre of about an inch in length of a piece
of rock about the size of a cricket ball. The petitioners have obtained H
292 SUPREME COURT REPORTS [1995] SUPP. 2S.C.R

A permission from the Collector of Central Excise Patna as communicated
by Assistant Collector dated December 14, 1977 to remove in bond semi
finished goods under Rule 56(b) from the mining place at Roro to the
factory at Hyderabad for further processing after the pieces of rock are
brought to Hyderabad they are crushed to smaller size with the aid of
power and the resultant is subject to series of screening surfaces so that
B
the asbestos fibre which is very much lighter is removed and separated
from the dust and the grit. The fibre however, still contains rock particles
and spicules. The fibre is then pressed through a Hurricane· Hill where
rapidly rotating rotors pulverise the stones and spicules without damaging
the fibre. It is in this process that ultimately the asbestos fibre free of all
c dust and stone particles is produced.''

In Minerals and Metals Trading C01poration of India Ltd. v. Union of
India and Ors., [1973-1] 1 S.C.R. 997, this Court was concerned with the
exigibility of the mineral wolfram to excise duty. The relevant portion of
D the judgment is self- explanatory.

"The separating of Wolfram ore from the rock to.make it usable
ore is a process of selective mining. It is not a manufacturing
process. The important test is that the chemical structure of the
ore should remain the same. Whether the ore imported is in
E powder or granule form is wholly, immaterial. What has to be seen
is what is meant in international trade and in the market by wolfram
ore containing 60% ore more W08. ON that there is a prepondera-
tion weight of authority both of experts and books and of writings
on the subject which show that wolfram ore when detached and
F taken out from the rock in which it is embedded either by crushing
the -rock and sorting out pieces of wolfram of by washing or
magnetic separation and other similar and necessary process it
becomes a concentrate but does not cease to be ore, Unless the
ore is roasted or treated with any Chemical it cannot be classed
as processed."
G
We are satisfied upon the material placed before us, as indicated in
the judgment under appeal quoted above, that all that the appellants in
Civil Appeal 1354 of 1980 do is to separa_te the asbestos fibre from the rock
in which it is embedded by manual and mechanical means. The asbestos
H fibre that is so removed from the parent rock is in every respect the
HYDERABAD INDS. LTD. v. U.0.1. [BHARUCHA, J.] 293

asbestos that was embedded in it. No process of manufacture can be said A
to have been employed by the appellants nor is a new or a distinct
commodity realised therefrom.

In Moti Laminates Pvt. Ltd. v. Collector of Central Excise, 1009 (78)
E.L.T. 241 (S.C.). this Court said :
B
"6. The duty of excise is leviable under Entry 84 of List I of the
Vllth Schedule on goods manufactured or produced. that is why
the charge under Section 3 of the Act is on all, 'Excisable goods',
'produced or manufactured. The expression 'excisable goods' has
been defined by clause (d) of Section 2 to mean, 'good's specified C
in the Schedule. the. scheme in the Schedule is to divide the goods
in two broad categories - one, for whi~h rates are mentioned under
different entry and other the residuary. By this method all goods
are excisable either under the specific or the residuary entry. The
word 'goods' has not been defined in the Act. But it has to be
understood in the sense it has been used in Entry 84 of the D
Schedule. That is why Section 3 levies duty on all excisable goods
mentioned in the Schedule provided they are produced and
manufactured. Therefore, where the goods are specified in the
Schedule they are excisable goods but whether such goods can be
subjected to duty would depend on whether they were produced E
or manufactured by the person on whom duty is proposed to be
levied. The expression 'produced or manufacture' has further been
explained by this Court to mean that the goods so produced must
satisfy the test of marketability. Consequently it is always open to
an assessee to prove that even though the goods in which he was
carrying on business were excisable goods being mentioned in °the F
Schedule but they could not be subjected to duty as they were not
goods either because they were not produced or manufactured by
it or if they had been produced or manufactured they were not
marketed or capable of being marketed."
G
It also said :

"The tariff schedule by placing the goods in specific and general
category does not alter the basic character of leviability. The duty
is attracted not because an article is covered in any of the items
or it falls in residuary category but it must further have been H
294 SUPREME COURT REPORTS (1995] SUPP. 2 S.C.R.

A produced or manufactured and it is capable of being brought and
sold."

Assuming that Tariff item 22F, when it refers to "asbestos fibre and
yarn', covers asbestos fibre that has been separated from its parent rock in
the manner aforementioned, such asbestos fibre is not the result of a
B process of manufacture it is not a new and commercially identifiable article
and it is, therefore, not liable to excise duty.

What all the appellants import is, it is not disputed, asbestos fibre
that has been separated from its parent rock in the manner aforemen-
c tioned.

The learned Additional Solicitor General submitted that the asbestos
fibre imported by the appellants was exigible to additional duty regardless
of the fact that it was not the result of manufacture and, therefore, not
D exigible to excise duty. He placed reliance in this behalf upon his court's
judgment in Khandewal Metal & Engineering Works and Another Etc. v.
Union of India and Others., [1985] Suppl. 1 SCR 750. There is no doubt
that this judgment, delivered by a bench of three learned Judges, is of great
assistance to the case of the Revenue.

E In the case of Khandelwal Metal & Engineering Works, the appellants
carried on the business of importing brass scrap. They contended that the
additional duty was in the nature of counter- vailling duty, and it could not
be levied on brass scrap because the brass scrap, which consisted of
damaged articles like taps and pipes, was not manufactured in india or
F els·ewhere. the bench noticed that Section 2(10) of the Customs Act, 1982 .
defined "duty" to mean a duty of Customs leviable under the Act, Chapter ·
V of the Customs Act contained provisions for the levy of, and exemption
from. Customs duties, By Section 12(1), "except as otherwise provided in
the Act or in any law for the time being in force", duties of Customs were
leviable at such rates as might be specified under the Customs Tariff Act,
G 1975, or under any other law for the time being in force, on goods imported
into or exported from India, Section 2 of the Customs Tariff Act stated
that the rates at which duties of Customs would be levied under the
Customs Act were specified in the First and Second schedule of the Tariff
Act. Section 3 of the Tariff Act dealt with the levy of additional duty equal
H to excise duty.
HYDERABAD INDS.LID. v. U.0.1. [BHARUCHA, J.] 295

Sub-section (1) of section 3 and the Explanation to that section read A
thus:

- "Levy of additional duty equal to excise duty. (1) Any article which
is imported into India shall, in addition be liable to a duty
(hereafter in this section referred to as the additional duty) equal B
to the excise duty for the time being leviable on a like article if
produced or manufactured in India and if such excise duty on a
like article is leviable at any percentage of its value, the additional
duty to which the imported article shall be so liable shall be
calculated at that percentage of the value of the imported article.
c
Explanation - in this section the expression "the excise duty fo~ the
time expression" excise duty for the time being leviable on a like
article it produced or manufactured in India" means the excise duty
Act the time being in force which would be leviable on a like article
if produced or manufactured in India or, if a like article is not so
produced or manufactured which would be leviable on the class D
or description of article to which the imported article belongs, and
where such duty is leviable at different rates, the highest duty".

The first question which the bench was required to examine related
to the true nature of the duty mentioned in Section 3(1) of the Tariff Act. E
The bench said that it had to be appreciated at the threshold that the
charging section was Section 12 of the Customs Act and not Section 3(1)
of the Tariff Act, Section 12 of the Customs Act incorporated the different
ingredients embodied in the concept of a fiscal imposition. It levied a
charge. It indicated the taxable event, which was the import or export of
goods, and it indicated the rate of the levy, which was such "as may be
F
specified under the Customs Tariff Act, 1975." Section 2 of the Tariff Act
laid down that "the rates at which the duties of Customs shall be levied
under the Customs Act are specified in the First of Second Schedules". The
levy specified in Section 3(1) of the Tariff Act was a supplementary levy in
enhancement of the levy charged by Section 12 of the Customs Act and G
with a different basis constituting the measure of the impost. In other
., words, the scheme embodies in Section 12 was amplified by what was
provided in Section 3(1)~ The Customs duty charged under Section 12 was
extended by an additional duty confined to imported articles in the
measure set forth in Section 3(1). Thus, the additional duty which was H
296 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.

A mentioned in Section 3 (1) of the Tariff Act was not in the nature of a
countervailing duty. Counsel for the appellants relied strongly on the
Objects and Reasons of Section 3 of the Tariff Act in support of the
contention that the said section was a charging section and imposed a
countervailing duty. The Statement of Object and Reasons read : -
B·
"Clause 9 provides for the levy of additional duty on an imported
article to counterbalance the excise duty leviable on the like article
made indigenously, or on the indigenous raw materials, com-
ponents or ingredients which go into the making of the like in-
digenous article. This provision corresponds to section 2-A of the
c existing Act, and is necessary to safeguard the interests of the
manufactures in India."

The Statement of Object and Reasons, the bench said lent prima
f acie support to the contention of the appellants but, in the absence of any
D ambiguity in the wording of Section 3(1), the additional duty referred to
therein could not be treated as countervailing duty nor could Section 8 b·e
regarded as a charging section merely because the statement said that it
"provides for the levy". Having concluded that Section 3(1) of the Tariff
Act was not a charging section and that the additions duty which it spoke
E of was not a countervailing duty, the bench went on to consider the
contention of the appellants that the brass scrap imported by them was not
produced of inanufactured in India because the damaged articles of brass
which constituted brass scrap were not only incapable of being manufac-
tured but were, in fact, not manufactured. According to learned counsel
for the appellants, the basic postulate underlying the levy of duty under
F Section 3(1) of the Tariff Act was that the there were indigenous goods
belonging to the class of goods which were imported which were charge-
able to excise duty. The illustrations he gave were the import of live
animals, live tress, burnt up cables, broken glass or fused bulbs. The
argument was that there was and could be no additional duty on these
G goods, if imported, because they could not be and were not ~anufactured.
To put it in one sentence, the argument was that if indigenous goods similar
to those which were imported did not suffer excise duty for the reason that
they were not manufactured, the charge leviable under Section 3(l)of the
Tariff Act was not attracted. The bench rejected the argument. In the first
H place, it said, Sections 2 and 3(1) of the Tariff f-ct were not charging
·) HYDERABAD INDS. LTD. v. U.0.1.[BHARUCHA,J.] 297

sections; the charging section was Section 12 of the Customs Act. The A
taxable event was not the manufacture of goods. Under Section 3(1) of the
Tariff Act, "the excise duty for the time belong leviable on a like article it
produced or manufactured in India" was only the measure of the duty
leviable on the imported article. Section 3(1) did not required that the
imported article should be such as was capable of being produced or B
manufactured in India. The assumption had to be that an article imported
into India could be produced of manufactured in India and, upon that
basis, the duty had to be determined under section 3(1). The bench said :

"Any doubt on this point is resolved by the Explanation to section
3(1) of the Tariff Act, The Explanation furnishes a dictionary for c
the interpretation of section 3(1) and provides a clue to its under-
standing. The Explanation provides in so many words that the
expression "excise duty for the time being leviable on a like article
time being leviable manufactured in India" means "the excise duty
for the time being in force which would be leviable on a like article D
it produced or manufactured in India' ........................................ The
Explanation even goes further and provides that if a like article is
- .... not so produced or manufactured, then, the duty Leviable means
the duty which would be leviable on a class or description of
articles to which the imported article belongs. These provisions
leave no doubt that the duty referred to an Section 3(1) of the E
Tariff Act does not bear nay nexus which (sic) the nature and
quality of the goods imported into India.

The bench then considered the matter from a different point of view
and found that the brass scrap imported by the appellants came into F
existence as waste or rejected articles during the process of manufacture
and, therefore, it was, in any ev'ent, liable to excise duty and, therefore, to
additional duty under Section 3(1)'o(!he Tariff Act.

We have some difficulty in construing the Explanation to Section 3(1)
of the Tariff Act in the manner adopted in the case of Khandelwal Metal G
& Engimering Works. The difficulty arises when the article which is im-
•
~' ported has been produced or manufactured. The Explanation say~ that the
expression "excise duty for the time being leviable on a like article if
produced or manufactured in India" in Section 3(1) means the excise duty
that "would be leviable on a class or description of article to which the H
298 SUPREME COURT REPORTS [1995] SUPP. 2 S.C.R.
<_
A imported article belongs". Excise duty is leviable on the class or description
of article to which the imported article belongs if articles of that class or
description are exigible to excise duty, having undergone production or
manufacture. If they have not undergone production or manufacture they
are not exigible to excise duty. Articles of that class or description of goods
when imported are, then, not liable· to additional duty. The assumption
B underlying the Explanation to Section 3(1) would appear to be that an
imported article which is the result of production at manufacture· can be
produced of manufactured in India : the emphasis in the assumption is on
the words "in India" . In other words, if the imported article is the result
of production of manufacture, it must be assumed that it can be produced
c or manufactured in India. In this context the Statement of Objects and
Reasons is relevant. It says that the levy of additional duty on an imported
article is provided for to counterbalance the excise duty leviable on the like
article made indigenously.

It may also be reconsidered why, insofar as additional duty is con-
D cerned. Section 3 of the Tariff Act is not the charging sector. It provides
for the levy, namely, additional duty; it provides for the taxable event, which
is the import of goods that have been produced or manufactured; and it
sets out the measure of the duty, which is the excise duty on the indigenous-
ly produced or made equivalent article. The Statement of Objects and
E Reasons is meaningful in the context because it says that Section 3
"provides for the levy of additional duty........... ".

We are, therefore, of the view that the decision in the case of
Khandelwal Metal & Engineering Works requires the consideration of a
larger bench. The papers and proceedings shall be placed before the
F Hon'ble the Chief Justice for appropriate administrative directions.

RA. Appeal disposed of.