Holding

Brass scrap is classified as copper waste and scrap, not a master alloy, and is liable to the additional duty under Section 3(1) of the Customs Tariff Act, with only a 20% exemption under Notification No. 156 of 1977.

Summary

Khandelwal Metal & Engineering Works imported brass scrap and argued that the "additional duty" under Section 3(1) of the Customs Tariff Act was a counter‑vailing duty that could not be levied because brass scrap is not manufactured in India and that it should be treated as a "master alloy" exempted under Notification No. 97 of 25‑June‑1977. The Union of India contended that brass scrap is a by‑product of manufacturing, is classified as "copper waste and scrap" under Heading 74.01/02 of the First Schedule, and therefore falls within Notification No. 156 of 16‑July‑1977, attracting only a 20% exemption. The Court held that brass scrap is not a master alloy, is includable in "copper waste and scrap", and is liable to the additional duty, but only the exemption under Notification No. 156 applies, giving a 20% exemption (i.e., 80% duty). It also clarified that Section 3(1) imposes an additional customs duty, not a counter‑vailing duty, and that the legislative competence of Parliament to tax waste and scrap is valid. Consequently, the High Court's order dismissing the writ petitions was affirmed.

Issues considered

The nature of the "additional duty" under Section 3(1) of the Customs Tariff Act – whether it is a counter‑vailing duty.
Whether brass scrap can be classified as a "master alloy" exempted under Notification No. 97 (1977).
Whether brass scrap falls within the expression "copper waste and scrap" under Heading 74.01/02 of the First Schedule.
The applicability of Notification No. 156 (1977) versus Notification No. 97 (1977) to brass scrap.
The legislative competence of Parliament to levy excise duty on waste and scrap under the Central Excises and Salt Act, 1944.

Legislation cited

Central Excises and Salt Act, 1944s. 3(1)
Customs Act, 1962s. 12, s. 25
Customs Tariff Act, 1975s. 2, s. 3(1), s. 3(5)

Subjects

customs dutyadditional dutycounter‑vailing dutybrass scraptariff classificationimport tariffexcise dutymaster alloylegislative competencenotification exemptionSection 12Section 3(1)Section 25

Judgment

750

KHANDELWAL METAL & ENGINEERING WORKS
A AND ANOTHER ETC.

v.

UNION OF INDIA AND OTHERS
B
June 11, 1985

[Y.V. CHANDRACHUD, C.J., R.S. PATHAK AND SABYASACHI
MUKHARJI, JJ.)
c
Customs Act 1962. Section 12 & Customs Tariff Act 1975, Se~tlon 3(1}-
"Additiona/ duty'- Whether in the nature of a counter-vai/ing duty-Import of
bras1 scrap-Test of taxabilit.r-lmported brass scrap-" like Arlicle if produced
or ma11JJ/actured in lndia'-Meaning of-Taxable event ls whether import and not
manufactured in India-Whether nature and quality of goods imported relevant-
D Whether imported brass scrap need be capable of being produced or manufactured
in India.....:...Manufacturing process-ivhat is-Being a bye-product of manufactur-
ing process-Whether liable to duty-Sections 2. 25, Isl Schedule, (Import
Tari.ff') Chapter 14, Heading 74.01/02, RU/es/or interpretation of the Isl Schedule.
Rules I lo 4, Notes 2 Section XV of t!te Isl Schedule', Notes 3 and 4-'Copper
waste and scrap'-Whether brass scrap is comprehended wilhin the expression
and wJ,,ther i.s •master alloy•- whether imported brass scrap entitled to exemption
E under Notification No. 97 dated June 25 1977.

Customs Tariff Act 1975-1 st Schedule (Import Tariff). Chapter 74, Head·
Ing 74.01/02-Classiftcatlon of goods under import tariff-Contemporary notifict;-
tlon-Whether can be relied upon-Rules of Interpretation-Whether should have
precedence over other aids of interpretation-Rules for interpretation of the /st
F Schedule-Rule.s 1 to 4-Appllcation of.

Central Excises and Salt Act 1944, Section 3(1) Schedule I, Ent,y 26A
Clause (lb}-Whether ultra vires Section 3(1)-Whether within the legislat/1e
comptence of Parliament.
G
/
Words and phrases-'Brass Scrap'-•Copper waste and scrap'rMmter
al/oy'-Meaning of.

Section 2(1.5) of the Customs Act, 1962 defines •"duty'' to mean a duty
H of customs leviable under the Act. Chapter V of the Act contains provisions
for the levy of, and exemption from, customs duties. Bys. 12(1) of the Act.
"Except otherwise provided in the Act or in any other Jaw for the time being
In rori;e'', t)uties or customs shall be levied at such rates as may be specified
KHANDELWAL METAL WORKS V. l'NION 751

under the Customs Tariff Act, 1975 or under :iny other law for the time being
in force, on goods imported into or exported from India. Section 25 of the A
Customs Act, empowers the Central Governn1ent to grant ex.en1ption from the
payment of Customs duty.

The rates at which duties of customs shall be levied under the Customs
Act, 1962 are specified in the First and Second Schedules of Tariff Act. Sec-
tion 3 of the Tariff Act deals with the levy of ''additional duty equal to B
excise duty". Sub-s.(l) thereof provides that any article which is imported into
India shall in addition be leviable to a duty equa 1 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 lmported article shall be so liable shall be
calculated at that percentage of the value of the imported article. c
The expression "the excise duty for the time being leviable on a like
article if produced or manufactured in India", according to the Explanation in
the section, means, the excise duty for 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 or D
description of article to which the imported article belongs, and where such
duty is leviable at different rates, the highest duty.

On June 25, 1977 the Central Goverment issued ".'Jotification No. 97
under s. 25 of the Customs Act 1962, eKempting article;; other than copper
waste and scrap and unwrought copper (refined or not) falling under Headini: E
No. 74.01/02 of the First Schedule to the Customs Tariff Act, 1975)
(51of1975) when imported into India, from so much of duty of customs
leviabJe thereon which is specified in the First Schedule as is in excess j of
40 per cent ad valorem.

Another Notification No. 156 was issued by the Central Government F
on July 16, 1977 by which copper waste and scrap falling under the same
heading were exempted from so much of the duty of customs leviable thereon
which is specified in the First Schedule, "as is in excess of 80 per cent ad
valorem".

The appellants carry on the business, of in1porting brass scrap from G
other countries. According to them they are liable to pay customs duty at
the rate of 40 per cent only by reason of the ex~mption granted by the first
notification while as per the respondent.Union Government tl1ey are liable to
pay duty at the rate of 80 per cent since the secor,d notification is attracted.
H
The appellants filed Writ Petitions under Art, 226 of the Constitution
and the same were dismissed by the f!igh Court.
752 SUPREME COURT REPORTS (1985] SUPPL. s.c.R.

Jn the appeals to this Court it was contended on behalf of the appel·
A Iants : (l) that the 'additional duty' of customs, which is in the nature of
countcrvai1ing duty, cannot be levied on brass scrap because, such scrap which
consists of damaged brass articles like taps and pipes, is not "manufactured"
in India (or elsewhere), as indeed it cannot be and (2) that they arc liable to
pay duty of customs on the brass scrap at the rate of 40 per cent only and not

B
at the rate of 80 per cent because, brass scrap is a 'master alloy.•
.
Dismissing the Appeals and the Special Leave Petitions,

HELD: 1. 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 a11oy', the appellants' case
c would fall under this notificatioa. Accordingly, they would be entitled to
exemption from customs duty to the extent of 20 per cent only. [774 C-DJ

2. The charging section is s 12 of the Customs Act, 1962 and nots. 3(1)
of the Customs Tariff Act, 1975. Section 12 of the Customs Act incorporates
the different ingredients embodied in the concept of a fiscal imposition. It
D levies a charge, it indicates the taxable event (the import or export of goods)
and it indicates the rate of the levy. The rates are such "as may be specified
under the Customs Tariff Act 1975". Section 2 of the Tariff Act lays down
that "the rates at which the duties of customs shall be levied under the Customs
Act are Gpecified in the first or Second Schedules." The scheme incorporated
in s.12 of the Customs Act read with s.2 of the Tariff Act is analogous to the

E
scheme embodied in s.4, Income Tax Act read with the relevant provisions of
the Finance Act. The levy specified in s.3(1) of the Tariff Act is a supplemen-
.
tary levy, in enhancement of the levy charged by s.12 of the Customs Act and '
with a different base constituting the measure of the import. The •additional
duty' which is mentioned in s.3(1) of the Tari:tf Act is not in the nature of
countervailing duty. [758 G·H; 759 A·q

Ashok Service Centre v. State of Ori"•· [1983] 2 SCR 363, relied
F upon.

3. Under s.12 of the Customs Act duty is leviable on the taxable event
of export of goods from India or the import of the goods into India, which is
relatable to Entry No. 83 is List I of the Seventh Schedule to the Constitution.
The taxable event is not the manufacture of the goods. Under s.3(1) of Tartiff
G Act, "the excise duty for the time being leviable on a like article if produced
or manufactured in India" is only the measure of the duty leviable on tho
imported article. Section 3(1) does not require that the imported article
should be such as to be capable of being produced or manufactured in
India. [761 F-HJ

ff 4. Th~ provisions contained in Explanation to s.3(1) of the Tariff Act
make it clear that the duty referred to in s.3(1) of the Tariff Act does not bear
any nexus with the nature and qualit~ of the ~oods imported in to India.
[762 A-Cj
,.ti
KHANDELWAL METAL WORKS 1. UNION 753

5. Section 3(5) of the Tariff Act which provides, that the duty "charge-
able under this section'' shall be in addition to any other duty imposed under A
the Act, docs not help s.3(1) becoming a charging provision. The word
'chargeable' occuring in sub·s. (5) has to be read alongwith the expression
"imposed under this Act". Section 2 of the Tariff Act does not charge a duty
but only prescribes the rates of duty leviable under s.12 of the Customs Act.
Besides, s.3(5) of the Tariff Act refers not merely to any other duty imposed
und'°r the Tariff Act but also •'under any other law for the time being in force", B
which would include s.12 of the Customs Act. Therefore, in the instant case,
it cannot be said that s.3(1) of the Tariff Act is not attracccd because the
damaged articles, which are in the nature of brass scrap, are outside the
scope of that Act since, such articles are not and cannot be produced or
manufactured. [762 C·F]

c
6. (i) Even if the duty "chargeable" under s.3(1 J of the Tariff Act is a
countervailing or counterbalancing duty, the brass scrap imported by the
appellants will attract the charge on that basis also. The damaged goods of
brass, which are compendiously called 'brass scrap!, can come into existence
during the process of manufacturing brass articles and such brass scrap has an
established market in l ndia. The scrap is re-cycled for extracting metal and
since excise duty is payable on such scrap, the imported brass scrap is subject-
D
ted to the additional duty in order that indigenous brass scrap may not suffer
in competition with the imported brass scrap. The true test is as to what is the
description of the articles imported. [762 G-H; 763 A-C}

(ii) The limited inquiry which has to be made is whether brass scrap can E
come into being during the process of manufacture. If the answer is in the
affirmative, the imported brass scrap will be chargeable to additional duty in
accordance with• 3(1) of the Tariff Act. [763 C-E]

7. Jn the instant case, the appellants claim that the goods imported by
them fall in the class of 'master alloy' is against the tenor of their F
own documents. The appellants imported the articles under Open
General Licence in pursuance of Entry 44 of Appendix 10 of the
'Import Policy'. Jhey could not have been granted permission to import
·master alloy' under the Open General Licence because under the OGL the
import of brass scrap was permissible at the relevant time but not of any
•master alloy'. [765 E-GJ G
8. An a1Ioy' is a substance possessing metallic properties and com-
1

posed of two or more elements of which at least one must be a metal. A
·master alJoy' js generally called a foundry alioy for the simple reason that it
is an alloy used for adding elements in the foundry. Brass scrap does not H
square with that description and use. It is not an alJoy of mixture of elements
used for introducing desired elements into melten metals in the foundry. Brass is
but ~~ ~Uoy of copper ~n4 JOin, an4 is complete and finished prod9\:t by
754 SUPRllMB COURT REPORTS (1985] SUPPL. S.C.R

itself. Brass or brass scrap is not used as a raw ffiaterial in the manufacture
A of other alloys, therefore, it is not a master alloy. The appellants cannot
claim the benefit of Notification No. 97 dated lune 25, 1977 on the basis that
brass scrap is a master alloy. (767 G-H; 770 C-D 768 C-D; 770 F-GJ

"A Dicllontry of Metallurgy by A.D. Merriman". "Materials Handbook"
by George S. Brady,• World Trade and the law of Gatt' by John H. Jackson, Ed.
B 1969. Henderson's •Mettal/urgical Dictionary,' Osborne's 'Encyclopaedia of the
Iron and Sttel Industry', Encyclpoaedia Britannica, referred to.

9. The question of classification of goods under the 'Import Tariff'
cannot be decided by implications, when there are Rules of Interpretation
which are specifically framed to aid and assist the classification of goods
c under appropriate Heading. Those rules must have precedence over other
aids of interpretation. [774 B·C]

Desh Bandhu Gupta v, Delhi Srock Exchange Association, [1979] 3 SCR
373, K.P. Verghese v. I.T.0, [1982] 1 SCR 629 referred to.

D 10. R•1le 1 of the Rules for the Interpretation of the First Schedule
(Import Tariff) to the Tariff Act, 1975 provides that classification has to be
determined according to the provisions of the Rules unless, a particular
Heading or Note excludes the application of the Rules other than
Rule I. In the instant case, the terms of the Heading No. 74.01/02 by
themselves, yield an answer to the question whether copper waste and
scrap includes brass scrap and the Heading does not require or
E provide that the other rules should be excluded while detern1ining the classi~
fication of articles under the Heading. That is how Rules 2 to 4 become
relevant for deciding the question whether 'copper waste and scrap' includes
brass scrap. By reason of the concluding part of Rule 2(b) classification of
goods consisting of more than one material or substance shall be according to
the principles contained in Rule 3. Applying the principle contained in Rule
F 3(b) brass is a mixture of copper and zinc, usually in the proportion of 60:40
but. in which the component of copper may be anywhere between 67 per cent
and 70 per cent. Since copper gives its •essential character• to brass, brass scrap
has to be classified as 'copper waste and scrap• within the meaning of Heading
No. 74.01/02. Even if it is assumed that brass scrap does not fall within any

G
Heading of the First Schedule, Rule 4 would yield the same result because
Rule 4 provides that goods not falling within any Heading of the First
Schedule shall be classified under the Heading appropriate to the aoods to
which they are most akin. Brass, unquestionably, is most akin to copper
ind, therefore, brass scrap bas to be classified as 'Copper Waste and
-
Scrap'. (772 A-H; 773 A-CJ

ff 11. Clause (a) of Note 3 of Section XV of the First Schedule (Import
Tariff) provides that an alloy of base metals is to be classified as an alloy of
the metal which predominates by weight over each of the other metals. Since
bra~~ i~ a:n allor of copper and ~inc in which copper pred,om~n~~~~ b)' weight,
KHANDELWAL METAL WORKS v. UNION 755

brass has to be classified as an alloy of copper. According to Note 4, unless
the context otherwise requires any reference in the First Schedule to a base A
metal is to be taken to include a referenc to alloy which by virtue of Note 3,
is to be classified as alloys of that metal. Heading No. 74.01102 of the First
Schedule refers to waste copper and scrap. Copper is a base metal. Reference
to coppr 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. [773 C-F)
8
12. Considerations based on documents issued by the Merchants'
Association and upon extracts from 'Indian Standard Coding and Classifica-
tion for non-ferrous scrap metals' showing that brass scrap and copper
scrap are regarded as distinct and separate items for commercial purposes
cannot furnish a true answer to the· question, because the distinguish in&
feature is brass and copper are not mentioned as separate items in the Import
c
Tariff. (773 F-H I

13. (i) Imposition of excise duty on 'waste and scrap', referred
to in CJ. l(b) of Entry 26A of the First Schedule to the Central Excises
and Salt Act, 1944 is not ultra vires s. 3 of that Act. Section 3 provides D
for levy of excise dut) on all exciseable goods produced or manufactured in
India. The production of waste and scrap is a necessary incident of the
manufactruing process. Waste and scrap are the bye-products of the manu~
facturing process. Sub-standard goods which are produced during the process
of manufacturing may have to be disposed of as 'rejects' or as scraps. But
they are still the products of the manufacturing process. (774 D-H]
E
(ii) 'Intention• is not the gist of the manufacturing process. {774 HJ

14. Section 2~d) of the Act of 1944 defines 'excisable goods' to n1ean
good s which are specified in the First Schadule as being subject to a duty of
excise under s. 3 of the Act .The goods mentioned in the First Schedule will
attract excise duty under s. 3 only if they are manufactured in India and not
otherwise. Entry 26A (lb) of the First Schedule of the Act of 1944 cannot
be held to be beyond the legislative competence of the Parlian:,ent because the
precondition of the excisability of the articles mentioned therein, namely, waste
and scrap is in the manufacturability of those articles. Since the production
of waste and scrap is an integral part and an inevitable incident of the manu-
facturing process, Parliament has the legislative competence to make •waste G
and scrap' excisable under Entry 84 of List 1 of the Seventh Schedule to the
Constitution. Parliament would even otherwise have the legislative compe-
tence to pass the law by "irtue of Article 248 read with the residuary Entry 97
of List I, because the subject matter of Legislation does not fall within List
JI, the State List. [775 A-El
H
Second Gift Tax Officer, Managalore v. D.H. Nazareth [1971] l S.C.R 195
~n\l Union of India v. H.S. Dhillon [1972) 2 SCR 33fol!owe4.
SUPREME COURT REPORTS (1985) SUPPL. s.c.a.

A The Hinglr·Rampur Coal Co. Ltd. v. The State of Orlssa (1961] 2 SCR
537, Kalyoni Stores v. The State ofOrissa [1966] SCR 865, I A.B. Abdul Kadlr v.
State of Kera/a (1976} 2 SCR 690 and Mc. Dowell & Company Ltd. v. Com·
merceial Tax Officer, VII Circle, Hyderabad [1977] SCR 914 referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 338-349 of
B 1983 etc etc.

From the Judgment and Order dated 19th October, 1982
of the Delhi High Court in Civil Writ Petitions Nos. 2684,
2685, 2686, 1687, 2688, 2724, 2725, 2507, 2508, 2509 and
c 1432 of 1981.

R.N. Bajoria, Soli J. Sorabji, Anil B. Dewan, Gobind Dass, A.K
Sen. I.R. Gupta, M.M. Abdul Khadar, S.K. Bagaria, Kamal Persul'am
Puria, A.M. Shah, V.N. D~shpande, E.C. Agarwala, R. Sathish, Vijaya
D Pandlta, Prakash Mittal, Madan Sharma, Ra~inder Narain, O.C.
Mathur, J.B. Dadachanji, Talat Ansari, D.N. Mishra, Barish Salve,
Miss Rainuwa/ia, Ashok Gupta, P.H. Parekh, D.K. Chhaya, Miss Nisha
Srivastava, JP. Devadhar, Aruneshwar Gupta, Brij Bhushan, S.P.
Mang/a, Rajesh Gupta, J.N. Aggarwal, P.D. Sharma, P.K. Mukherjee,
A.S. Pundir, N.D. Garg, P.K. Aggarwal. V.K. Varma, S. Srinivasan,
E Sushi/ Kumar Jain, M.K D. Namboodiry. R.C. Pathak. Mrs.
Rani Chhabra, Mrs. Shobha Dixit. A. T.M. Sampath, K.J. John, Shri
Narain, J.N. Aggarwal, B.P. Maheshwari. Miss Halida Khatun, R.S.
Suri, S.K. Dholakia, Altaf Ahmad, G.D. Rawal, Shyam Moorjani
Kai/ash Vosdev, C.S. Vaidyanalhan. D.D. Sharma, B. Parthasarthi,
F S.S. Shroff, Mrs. Pa//avi Shiraf. D.P. Mohanty, S.A. Shroff, Subhash
Parekh, A.K. Sanghi. S.N. Parekh, Vijay Pandita, Madan Sharma,
R.D. Upodhya, Mrs. Hemantika Wahi, Janendra Lal, B.R. Agarwala,
Mias v. Menon, A.K. Goel, K. Dileep and M.A. Feroz, for the
Appellants/Petitioners.
G
K. Parosaran, Solictor General, M.K Banerjee, Additional
Solictor General, A.K. Ganguli, K. Swamy, R.N. Poddar, C. V. Sub-
barao, Suraj Udai Singh and Miss Halida Khatun for the Respondents.

H
Anil B. Dewan, Abhay M. Shah, V.N. Deshpande, E.C. Aggar-
wala and V,K. Panditq for the Interveners (lndravanqan Golrnldas
Mehta),
iiteANDELWAL METAL WORKS'· UNION (Chandrachud, C.J.) 757

The Judgment of the Court was delivered by
A
CHANDRACHUD, CJ : This is a group of Civil Appeals and
Special Leave Petitions arising out of a judgment dated October
19, 1982 delivered by a Division Bench of the High Court of Delhi
in a batch of Writ petitions filed under Article 226 of the Constitu-
tion. Those Writ Petitions having been dhmissed by the High Court, B
the Writ-petitioners have filed these Appeals and Special Leave
Petitions.

The facts of the various Writ Petitions naturally vary from case
to case but, such variation has no bearing on the points which arise c
for our decision. We will mention the facts of Civil Appeal Nos.
27-33 of 1983 as a respresentative batch of cases. The two appel-
lants therein are respectively Messers Eastern Engineers, a partner-
ship firm carrying on business at Goregaon, Bombay, and a partner
of that firm. For the sake of convenience, we will proceed on the D
basis that the real appellant is the firm. The appellant carries on
the business, inter a/ia, of importing brass scrap from other countries.
Its contention is that the 'additional duty' of customs, which is in
the nature of countervailing duty, cannot be levied on brass icrap
because, such scrap which consists of damaged brass articles like taps
and pipes, is not "manufactured" in India (or elsewhere), as indeed E
it cannot be. The second contention of the appellant is that it is
liable to pay duty of customs on the brass scrap at the rate of 40 per
cent only and not at the rate of 80 per cent because, brass scrap is a
'master alloy'. The rate of customs duty payable depends upon
which of the two Notifications, granting exemption from payment
of customs duty, is applicable. These contentions are based on
F
the following provisions of law.

Section 2 (15) of the Customs Act, 1962 defines "duty" to mean
a duty of customs Ieviable under the Act. Chapter V of the Act G
contains provisions for the levy of, and exemption from, customs
duties. By section 12 (I) of the Act, "Except as otherwise prcvided
in the Act or in any other law for the time being in force", duties
of customs shall be levied at such rates as may be specified under
the Customs Tariff Act, 1975 or under any other law for the time H
being in force, on goods imported into or exported from India.
Section 25 of the Customs Act, which deals with the power of the
Central Government to grant exemption from the payment of
758 SUPIU!Mll COURT REPORTS [198S] SUPPL. s.c.il.

cutsoms duty, provides by sub-section (I) that, if the Central Govern·
A ment is satisfied that it is necessary in the public interest so to do, it
may, by a notification in the Official Gazette, exempt generally,
either absolutely or subject to such conditions as may be specified,
goods of any specified description from the whole or any part of the
duty of customs leviable thereon.
B
Section 2 of the Customs Tariff Act, 1975 says that the rates
at which duties of customs shall be levied under the Customs Act,
1962 are specified in the First and Second Schedules of the Tariff
Act. Section 3 of the Tariff Act deals with the levy of "additional
duty equal to excise duty". Sub-section (I) of section 3 and the
c Explanation to that section, which are relevant for our purpose, read
thus :

"Levy of additional duty equal to excise duty. (!)
Any article which is imported into India shall, in addition
D be liable to a duty (hereafter in this section referred to as
the additional duty) equal to the excise duty for the time
being leviable on a like article if produced or manufac-
red 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
E calculated at that percentage of the value of the imported
article.

Explanation- In thjs section the expression "the
excise duty for the time being leviable on a like article if
F produced or manufactured in India" means the excise
duty for 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 or description of article to
which the imported article belongs, and where such duty
G is leviable at different rates, the highest duty."

The question which we must first examine is as to what is the
tr 1e nature of the duty mentioned in section 3 (1) of the Tariff Act.
H It has to be appreciated at the threshold that the charging section is
section 12 of the Customs Act and not section 3 (!)of the Tariff Act.
Section 12, Customs Act, incorporates the different ingredients
embodied in the concept of a fiscal imposition. It levies a charge,
KHANDELWAL METAL WORllS v. UNION (Chandrachud, C.J.) 759

it indicates the taxable event (the import or export of goods ) and it
indicates the rate of the levy. The rates are such "as my be specified A
under the Custom Tariff Act, 1975". The last ingredient takes us to
section 2, Tariff Act, which lays down that "the rates at which the
duties of customs shall be levied under the Customs Act are specified
in the First or Second Schedules". Nothing more would be ordi·
narily required to complete the scope of section 12, Customs Act. The B
scheme incorporated in that section read with section 2 of the Tariff
Act is analogous to the scheme embodied in section 4, Income Tax
Act read with the relevant provisions of the Finance Act. The levy
specified in section 3 (J) of the Tariff Act is a supplementary levy
in enhancement of the levy charged by section 12 of the Customs
Act and with a different base constituting the measure of the impost. C
In other words, the scheme embodied in section 12 is amplified by
what is provided in sction 3 (1). The customs duty charged under
section 12 is extended by an additional duty confined to imported
articles in the measure set forth in section 3 (I). Thus, the additional
duty which is mentioned in section 3 (I) of the Tariff Act is not in D
the nature of countervailing duty. In Ashok Service Centre v. State
of Orissa,(1 ) which considered the nature of levy of additional sales·
tax under an Orissa Act, this Court observed :

"This construction receives support from the use
of the word 'additional' in section 3 (I) which involves E
the idea of joining or uniting one thing to another so as
thereby to form one aggregate. (See Black's Law
Dictionary ). The gross turnover referred to therein
should therefore be understood as that part of the gross
turnover which is taxable under the principal Act." F
(page 380).

Counsel for the appellants rely strongly on the 'Objects and
Reasons' of section 3 of the Tariff Act in support of their contention
that the said section is a charging section and imposes a countervail·
ing duty. The Statament of Objects and Reasons says : G

"Clause 3 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 H
indigenous raw materials, components or ingredients

(I) [1983] 2 S.C.R. 363.
'160 stJPP.Ei.!~ coui>.T REPORTS (1985) SUPPL s.c.R.

which go into the making of the like indigenous article.
A This provision corresponds to section 2-A of the existing
Act, and is necessary to safeguard the interests of the
manufacturers in India."

This Statement lends prima facie support to the contenion of the
B appellants but, in the absence of any ambiguity in the wording of
section 3 (I), we cannot treat the additional duty referred to therein
as countervailing duiy, Nor, indeed, can we regard that provision
as a charging section merely because the Statement says that section
3 "provides for the levy". The Statement of Objects and Reasons
errs in being common to sub-sections (I) and (3) of section 3. It
c is more apposite to sub- section (3) though, even there, it may not be
correct to say that it is a charging provision. Sub-section (3) confers
power on the.Central Government, in public interest, to levy on any
imported article "such additional duty as would counterbalance the
excise duty leviable on any raw materials, components and Ingredients
D of the same nature as, or similar to those used in the production or
manufacture of such article", whether on such article, duty is leviab:e
under sub-section (1) or not. Since we are not concerned directly
with sub-section (3), we will not pronounce upon its meaning and
implications.

E In this view of the matter, it is unnecessary to consider the
various decisions cited at the Bar on the nature and connotation of
'countervailing duty'. We are unable to acecpt the argument of
the appellants that section 3 (1) of the Tariff Act is an independent,
charging section or that, the 'additional duty' which it speaks of is
F not a duty of customs but is a countervailing duty.

That leads to the inquiry as to the reason or purpose behind
the argument that section 3 (1) of the Tariff Act is an independent,
charging section. It shall have been noticed that section 3 (!)provides
'
G that any article which is imported into India shall, in addition,
(that is, in addition to the duty of customs for which rates are specified
in section 2 ) be liable to an additional duty "equal to the excise
duty for the time being leviable on a like article produced or manu-
factured in India". The contention of Mr. Sorabjee, who appears
H on behalf of the appellants, is that the brass scrap imported by them
is not produced or manufactured in India because the damaged
articles of brass which constitute brass scrap, are not only incapable
of being manufactured but are in fact not manufactured. Learned
kiiANDELWAL MEfAL WORKS v. uNioN (Cirandrachud, C.J.) 76i
counsel contends that if the change in the condition of an article is
the result of an accidental event, that is to say, an event not intended A
or if the change is the result of ordinary wear and tear, the change
thus produced cannot be termed as manufacture. It is urged that
the articles imported by the appellants are what they are because,
they had suffered damage or had been subjected to ordinary wear
and tear in the natural course. If such goods cannot be produced
B
or manufactured in India for the reason that they cannot be and are,
in fact, not produced or manufactured in India, or for the matter of
that anywhere, no additional duty can be levied upon them under
section 3 (!). According to the learned counsel, the basic postulate
underlying the levy of duty under section 3 (I) of the Tariff Act Is
that indigenous goods belonging to the class of goods which are c
chargeable to excise duty. The illustrations given are the import of
live animals, live trees burnt up cables, broken glass or fused
bulbs. The argument is that there is and can be no levy of
additional duty on these goods if imported because they cannot be
and are not manufactured for the simple reason that they are not
the result of treatment, labour and manipulation, nor are they the D
result of one or more processes through which the original
commodity is made to pass. Putting it in one sentence, the
argument is that if indigenous goods, similar to those which are
imported, do not suffer excise duty for the reason that they are not
manufactured, the charge leviable under section 3 (I) of the Tariff E
Act is not attracted.

There is no substance in this argument. In the first place, as
we have indicated earlier, sections 2 and 3 (I) of the Tariff Act are
not charging sections. The charging section is section 12 of the F
Customs Act under which, duty is leviable on the taxable event of
export of goods from India or the import of goods into India, which
is relatable to Entry No. 83 in List I of the Seventh Schedule to the
Constitution : "Duties of Customs including export duties". The
taxable event is not the manufacture of the goods. Under section 3
(I) of the Tariff Act, "the excise duty for the time being leviable G
on a like article if produced or manufactured in India" is only the
measure of the duty leviable on the timported article. Section 3 (I)
does not require that the imported article should be such as to be
c~pable of being produced or manufactured in India. The assump-
t10n has to be .that an article imported into India can be produced H
or ma?ufactured in India and upon that basis, the duty has to be
determmed under section 3 (I).
762 SUPREME COURT REPORTS (198S) SUPPL. S.C.R.

Any doubt on thls point is resolved by the Explanation to
A section 3 (I) of the Tariff Act. The Explanation furnishes a dictionary
for the interpretation of seciion 3 {I) and provides a clue to its
understanding. The Explanation provides in so many words that
the expression "excise duty for the time being leviab!e on a like
article if produced or manufactured in India" means "the excise duty
for the time being in force which would be le viable on a like article
8
if produced or manufactured in India" (emphasis supplied). 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 leviab!e on the class or description of articles to
which the imported article belongs. These provisions leave no doubt
c that the duty referred to in section 3 (I) of the Tariff Act does not
bear any nexus which the nature and quality of the goods imported
into India.

Section 3 (5) of the Tariff Act which provides, inter alia, that
D the duty "chargeable under this section" shall be in addition to any
other duty imposed under the Act, cannot be pressed into service in
support of the contention that section 3 (!)is in the nature of a
charging provision. The word 'chargeable' which occurs in sub-section
(5) has to be read along with the exprossion "imposed under this
Act". Section 2 of the Teriff Act does not charge a duty but only
prescribes the rates of duty Ieviable under section 12 of the Customs
Act. Besides, section 3 (5) of the Tariff Act refers not merely to
any other duty imposed under the Tariff Act but also "under any
other law for the time being in force," which could include section 12
of the Customs Act. For these reasons, we must reject the argu-
F ment of Mr. Sorabjee and of the other learned Counsel for the
appellants that section 3 (1) of the Tariff Act is not attracted be-
cause, the damaged articles, which are in the nature of brass scrap,
are outside the scope of that Act since, such articles are not and
cannot be produced or manufactured.
G
Looking at the matter from a different point of view, the brass
scrap of the kind imported by the appellants is a by-product of the
manufacturing process. Such goods can and do come into existence
as waste articles or rejected articles during the process of manufac-
turing that class of articles. Indeed, brass scrap is known in com-
H
mercial parlance by that name and is excisable as such. Assum·
ing for the sake of argument that the appellants, contention is
correct that the duty "chargeable" under section 3 ( 1) of the Tariff
KHANDELWAL METAL WORKS v. UNION (Chandrachud, C.J.) 763
Act is a countervailing or a counterbalancing duty, the brass scrap
imported by the appellants will attract the charge on that l:>asis A
also. As stated above, damaged goods of brass, which are compen-
diously called 'brass scarp', can come into existence during the pro-
cess of manufacturing brass articles and such brass scrap has an
established market in India. The scrap is re-cycled for extracting
metal. Since excise duty is payable on such scrap, the imported B
brass scrap is subjected to the additional duty in order that indige-
nous brass scrap may not suffer in competition with the imported
brass scrap. The argument that the articles imported by the appel-
lants have been reduced to scrap by reason of damage, wear and tear,
is qute irrelevant. The true test is as to what is the description of the
articles imported. If the articles are brass scrap, the limited inquiry c
which has to be made is whether brass scrap can come into being
during the process of manufacture If the answer is in the affirmative,
the imported brass scrap will be chargeable to additional duty in
accordance with section 3 (I) of the Tariff Act.
D
Having disposed of the contention as to whether the duty
mentioned in Section 3 (l) of the Tariff Act, whether one calls it
additional duty or countervailing duty, is leviable on the brass scrap
imported by the appellants, the next question for consideration is
as to whether the appellants are liable to pay excise duty on E
the brass scrap at the rate of 40 per cent or at the rate of 60 per
cent. The answer to this question depends upon which of the two
notifications, notification No. 97 dated June 25, 1977 and notification
No. 156 dated July 16, 1977, is applicable. It is undisputed that
excise duty is payable on the brass scrap imported by the appellants, F
the only controversy being as to the rate of duty payable.

Section 25 of the Customs Act, as stated earlier, empowers the
Central Government, in public interest to exempt goods of any
specified description from the whole or any part of the Customs G
duty leviable thereon. The First Schedule called "Import Tariff" to
the Tariff Act, which is referrable to section 2 of that Act consists
of one-hundred chapters divided into XXII sections. Each chapter
bears a broad heading of the articles comprised therein. Chapter 74
which bears the heading ',Copper and articles thereof," contains
six headings, the first of which reads thus:
764 \ SUPREME COURT RErORTS [i9s5j SUPPL. s.c.Ji.
Heading Sub·headiitg Standard Rate Central
A. No. of Duty Excise
Tari.ff
Item

7 4.01/02 Copper matte; (a) 100% 26A
B Unwrought copper
(refined or not);
copper waste and
scrap; master
alloys. ·
c On June 25, 1977, the Central Government issued Notification
No. <!rho the following effect:

"In exercise of powers conferred by sub-section (I)
of Section 25 of the Customs Act, 1962 (52 of 1962) the
D
Central Government being satisfied that it is necessary
in public interest to do so, hereby exempts articles other
than copper waste and scrap. and unwrought copper
refined or not) falling under heading Nos. 74. 01/02 of the
First Schedule to the Customs Tariff Act 1975 (51 of
E 1975 when imported in to India, from so much ·of duty
of customs leviable thereon which is specified in the First
Schedule as is in excess of 40% ad valorem. .

Another Notification, No. /156, was issued by the Central Govern- ·
F ment on July 16, 1977 by which copper waste and scrap fallingunder
the same heading were exemted from so much of the duty of customs
leviable thereon which is specified in the First Schedule, "as is in
excess of 80 per cent ad va/orem." The upshot of the two .notifications
is that under the first notification of June 25, 1977, customs duty
at the rate of 40 per cent is payble while, under the second notifica·
G
tion of July 16, 1977, custums duty. at' the rate of 80 per cent is
payable. In other words, 60 per cent . dnty is exempted under the
first notification while 20 per cent duty is exempted under the
second notification: The case of the appellants is that they are liable
H ·to pay customs' duty at the rate of 40 per cent only by reason of the
· exemption granted by the first Notification while, the case of the
Union Government is that they are liable to pay duty at the rate
of 80 per cent since the second Notification is attracted.
l!HANDllLWAL METAL WORKS v. UNION (Chandrachud, 0.1.) 765

The fact that the goods imported by the appellants are brass
scrap should be beyond the pale of argument though, an attempt A
was made in the High Court by some of the Counsel to contend that
the goods imported by the appellants are not brass scrap at all.
There is a specific averment in the pleadings of the appellants that
they carry on the business of importing brass scrap and have in fact
imported brass scrap. In the Bill of Entry, the Customs Tariff B
Heading indicated by the appllants themselves is 74.01/0?. That
entry has to be mad in order to show entitlement for importing
goods of the particular description. The import policies for the
years 1980-81 and 1981-82 contain lists, in Appendix 10, of items
which can be imported under the Open General Licence. It is in
pursuance of an Entry in Appendix IO that the apellants import brass c
scrap. Indeed, the appellants had to accept that goods were imported
by them under the Open General Licence, the goods being described
by themselves as 'brass scrap'. Otherwise, they would have coun-
tered other serious impediments. Further, the claim made by the
appellants for exemption, whether it is 60 per cent or 20 per cent is D
dependant upon the goods imported by them falling under the
heading 74.01/02.

The fact that brass scrap is coverd by the heading 74.01/02
is undisputed and is indisputable. The Controversy between
E
the parties is this. Whereas the appellants claim that brass scrap
is a 'master alloy' and, therefore, falls under the notification
dated June 25, 1977, the contention of the Union Government is

- that brass scrap is comprehended within The expression 'copper
waste anb scrap' and therefore falls under the notification dated
July 16, 1977. In the first place, the appellants, claim that the goods
imported by them fall in the class of 'master alloy' is against the
F

tenor of their own documents to which we have referred a little
while ago. The learned Attorney General is not unjustified in his
submission that if the appellants were to ask for permission to im-
port 'master alloy' under the Open General Licence, they could not G
have been granted that permission since, under the OGL, the
import of brass scrap was permissible at the relevant time but not
'
of any master alloy. One of the three items in Entry 44 of Appendix
10 of the 'Import poiicy' was 'Brass Scrap'. But, apart from this
consideration, it seems to us difficult to ac1;ept th~ appellants 8
~ontention that brass scrap is a 'master alloy.' ·
766 SUPREME COURT REPORTS [1985] SUPPL. s.c.11..

The best part of the argument before us was occupied by this
A particular question since, the difference between the duty payable by
the appellants is quite considerable, depending upon whether the
firstor tbe second notification applies. The contention of the various
counsel on this point may be summed up thus. Firstly, 'Brass scrap'
cannot be classified as 'copper scrap' because, the context in which
B Notification No. 97 was issued has to be examined in order to find
out whether Note 4 of Section XV of the 'Import Tariff' is at all
applicable. Secondly, two Notifications, Nos. 96 and 97, were issued
simultaneously, one for 'copper scrap' and the other for 'other than
copper waste and scrap'. Notification No. 97 on which the appel-
lants rely should, therefore, be so interpreted as to avid any conflict
c between the two Notifications. The intrinsic evidence furnished by
the two Notifications points to the conclusion that they relate to two
separate types of scrap. Thirdly, the contemporaneous understanding
of those who framed and issued the exemption Notifications has
always been that the expression 'brass scrap' is bistinct from the ex-
pression 'copper scrap' for determining the application of those Noti-
D fications, For example, each of the two Notifications, No. 403 dated
August 2, 1976 and No. 138 dated July 1, 1977, uses the expressions
'copperscrap', which unequivocally indicates that the framers of the
Notifications understood the;e two expressions to mean two diffrent
things. Reliance is placed by the conscl on the decisions of this
E Court in Desh Bandhu Gupta v. Delhi Stock Exchange Association,(')
and K. P. Verghese v. l.T.O., in support of their submission that the
contemporanceous exposition is a legitirnete aid to interpretation.
Therefore, so the contention goes, even assuming for the purpose of
argument that copper scrap includes brass scrap, that conclusion
F
must be resisted in view of the history of the exemption Notifications
issued from time to time. -
Mr. Sorabjee urged, in addition, that the clasfification of an
item under a particular commercial category must not be mixed up
with its liability to taxation. Rule I of the Rules for the interpreta-
G tion of the First Schedule ('Import Tariff') of the Tarifi Act, 1975
takes precedence over other rules by providing that "for legal
purposes, classification shall be determined according to the terms of
the Headings and any relative Section or Chapter Notes and, provided
such Headings or Notes do not otherwise require, according to the
H
(!) [1979) 3 S.C.R. 373.
(2) (1982) I S.C.R. 629.
NBANDELWAL METAL WORKS'· UNION (Chandrachud, <J.J.) 767

provisions hereinafter contained." The question of the application
of Interpretative Rules 2 to 4, therefore arises, only where the text of A
the Heading and of the Notes cannot by itself determine the appro-
priate Heading for classification of an article. The other Interpreta-
tive Rules cannot be invoked in the instant case, because brass scrap
being an alloy of copper. its classification can be determined under
Rule I. In any case, Note No. 4 of the Import Tariff which B
says:

Goods not falling within any Heading of the Schedule
shall be classified under the Heading appropriate to the
goods to which they are most akin"
c
cannot apply since, Rule I of the Interpretative, Rules must take
precedence over it. These considerations, according to the
learned counsel. lead to the conclusion that brass scrap, as a 'copper
alloy scrap' must be classified with copper as an 'alloy scrap of
copper' or 'copper alloy scrap'. It cannot be classified as 'copper D
scrap'.

Arguments advanced by the various learned counsel including
Mr. Asoke Sen, Mr. Sorabjee , Mr. Bajoria, Mr. R. K. Jain,
Mr. Gobiod Das, Mr. L. R. Gupta and Mr. K. Parshurampuria E
were an interesting interplay of different facets of forensic
presentation. Broadly, the central theme of their argument was
the same but, a few of them, who are evidently well-versed in the
"Import Tariff", dissected with ability many a minute point
concerning the composition of metals like brass and copper.
F
The reasons why we are unable•to accept the submission of the
appellants that brass scrap is a 'master alloy', are these. An 'Alloy'
is described in "A Dictionary of Matallurgy by A. D. Merriman"
thus:
G
"Alloy

It is a substance possessing metalllc properties
and composed of two or more elements of which at H
least one must be a metal. The term is usually
reserved for those cases where there is an intentional
addition to a metal for the purpose of improvins
768 SUPREME COURT RBPOR TS [1985] SUPPL. s.c.R.

certain properties. Though pure metals may possess
A certain useful properties, they seldom possess the
strength required for industrial application. Copper
is practically the only matter used in bulk in the
commercially pure state. In the case of most metals,
alloying elements are added to increase the hardness,
B strength ann toughness of the basic metals and to
obtain properties which are not found in any of those
metals."

(page 5).
c At page 182 of Merriman's book it is stated that :

"Master alloy is the name given to an alloy of
mixture of elements that is used for introducing
desired elements into melten metals in the foundry .
D ... ... ...... and are often used in the ladle to obtain
good contra! over the final product. Also called
Foundry Alloy."

The book does not mention brass as a master alloy. Indeed
zinc which is a constituent of brass is not mentioned even as one of
E
the constituents of a master alloy.

At pages 25 and 26 of "Materials Handbook" by George S.
Brady, it is stated :

F "The commercial utility of alloys arises from the
fact that the pure metals are often too soft, weak or ,_
I
rare to be used alone. Thus, copper, a soft metal, .~
when alloyed with the brittle metal zinc, forms a
strong, hard alloy, brass, that has wide usage."
G
"A master alloy or a foundry alloy is an alloy
used for adding elements in the foundry."

Moves to unify tariff classification stem at least from the early
H days of the League of Nations. In Brussels in 1950, the Customs \I
Co-operation Council was formed by a convention signed by 13
governments of the European Customs union Study Group. The 1-
j
CCC studies customs matt~rs with a view towlird1 simplifyinll and
KHANDELWAL MBTAL WORKS v. UNION (Chandrachud, C.J.) 769

-
unifying them and has prepared the "Brussels Tariff Nomenclature"
complete with principles of interpretation and an advisory process
for settling disputes over the nomenclature. (See pp. 238-239,
Section 10, 7 of 'World trade and the law of Gatt' by John H.
Jackson, Ed. I 969 ),

According to Brussels Tariff Nomenclature, 8
"Master alloys are generally in the form of small
blocks or cakes divided for easy breaking, brittle
sticks, or pellets, and have the appearance of crude
foundry products."

0
In Hendersons ' Mettallurgical Dictionary' (page 206) 'Master
alloy' is treated synonymously with 'Foundry alloy' and 'Hardener'.
At page 163 of the book the following statement occurs :

"Hardener (preliminary alloy; foundery alloy; D
master alloy; rich alloy)

An alloy, rich in one or more alloying elements, that
is added to the melt, this procedure permitting closer
composition control then is possible with the addition
of pure metals; an alloy designed to facilitate adding E
to a base metal, to make a complete composition,
those additive elements that, due to refractoriness or
susceptibility to exidation, do not, as pure metals,
readily alloy with the base metal."
F
At page 142 of the book, Foundry alloy which is equated with
Master alloy is described as "an alloy of specific composition as,
for example, a ferro-alloy, used for making cupola, ladle, or hrnace
additions."
·-
G
In Osborne's 'Encyclopaedia of the Iron and S•
(page 195~ 'Hardeners' are described as "Master ? .
for the purpose of adding small quantities of the
elements to molten metals."

According to Encyclopaedia Britannica
50),
770 SUPREME COURT REPORTS [1985) SUPPL. s.c.R..

A
"The most common way of preparing alloys is
by the melting together of the constituent metals. If
the melting points of the metals differ widely. or if
...
one is relatively very reactive, it may be convenient
to prepare first a master alloy. portions of which are
then melted with the remaining metals...
B
It is clear from these statements, which occur in books which
are universally regarded as authoritative, that brass scrap cannot
possibly be a 'master alloy'. It is not, in the wildest imagination,
an alloy of mixture of elements used for introducing desired elements
into melten metals in the foundry. A master alloy is generally
c called a foundry alloy for the simple reason that it is an alloy used
for adding elements in the foundry. Brass scrap does not square
with that description _and use. The appellants' contention, if
accepted, will lead to the anomalous position that all brass articles
shall have to be regarded as Master alloys. That will be doing
D grave violence to the science of Metallurgy : Almost putting the
science rather then the metals into a melting pot.

As stated at page 22 of Merriman's 'A Dictionary ef
Metallurgy', "Brass is essentially an alloy of copper and zinc, but
for special purposes small proportions of other metals are sometimes
E added to obtain increased strength and hardness of resistance to
corrosion". The book states further at page 23 that "the commo·
nest form of brass (known as 60/40), contains 40% zine". Accord-
ing to Encyclopaedia Britannica (Vol. I, page 649 ), "Brass is an
alloy of copper and zinc, the copper content usually varying
F between 57% and 70%.

This shows that brass is but an alloy of copper and zinc and
is a complete and finished product by itself. Brass or brass scrap
is not used as a raw material in the manufacture of other alloys.
G Therefore, it is not a master alloy. Accordingly, the appellants
cannot claim the benefit of Notification No. 97 dated June 25, 1977
on the basis that brass scrap is a Master alloy.

That leads to the question as to whether brass sorap is
comprehended within the expression 'copper waste and scrap' under
H Heading No. 74.01 /02. Brass, as we have seen is an alloy of
copper and zinc, generally in the proportion of 60 : 40. Rule 1 of
the Rules for the interpretation of tbe Fir$t Sche4ule (Import Tariff)
' .
KHANDELWAL MBTAL WORKS v. UNION (Chandrachud, C.J.) 771

to the Tariff Act, 1975 provides that for legal purposes, classification
shall be determined according to the terms of the Headings and any A
relative Section or Chapter Notes and, provided such Headings or
Notes do not otherwise require, according to the provisions contained
in the following Rules. By Rule 2 (b), the classification of goods
consisting of more than one material or substance shall be according
to the principles contained in Rule 3. Rule 3, on its own terms, is B
applicable only when goods are prima facie classifiable under two
or more Headings. But by reason of Rule 2 (b), the principles
contained in Rule 3 will apply to the classification of brass scrap
since it consists of more than one material or substance, namely,
copper and zinc. That is, of course, if the Rules, apart from Rule 1,
are at all attracted. Under clause (a) of Rule 3, the Heading which c
provides the most specific description shall be preferred to Headings
providing a more general description. Under clause (b) of Rule 3,
Mixtures and composite goods which consist of different materials
or are made up of differents and which cannot be classified by
reference to clause (a) shall be classified as if they consisted of the D
material or component which gives the goods their essential
character, in so for as this criterion is applicable. Rule 4 provides
that, goods not falling within any Heading of the Schedule shall be
classified under the Heading appropriate to the goods to which they
are most akin.
E
We will immediately proceed to consider the impact of these
rules on the case on hand but, before doing so, it must be men-
tioned and appreciated that the sole ground on which the appellants
claim exemption fre>m payment of duty to the extent of 60% under
Notification No . 97 dated June 25, 1977 is that brass scrap, being a F
master alloy, is an article other than 'copper waste and scrap' or
'unwrought copper'. Once that contention is rejected, the appellants
cannot claim the benefit of the said Notification. However, in
order not to leave scope for needless litigation in future, we must
examine the question whether the item 'copper waste and scrap'
under Heading No. 74. Ol/02 includes brass scrap. Besides, by the G
second Notification, No. 156 dated July 16, 1977 'copper waste and
scrap' falling under the same Heading were exempted from so much
duty of customs as exceeded 80% ad v. alorem. The contention of the
Attorney General is that copper waste and scrap, includes brass which
at once leads to two consequences : The first Notification is not
H
attracted and the second Notification would apply.
172 SUPREMB COUKT REPORTS [1985} SUPPL. s.c.R.

Turning to Rule 1 of the Import Tariff, insofar as relevant, classi·
A ti.cation has to be determined according to the terms of the Headings;
and, provided such Headings do not otherwise require, classification
has to be determined according to the provisions of the rules following
Rule 1. Heading No. 74. 01 /02 consists of four items : (i) Copper
matte, (ii) unwrought copper (refined or not ), (iii) copper waste and
B scrap, and (iv) master alloys. Insofar as the terms of Heading No.
74. 01/02 are concerned, the primary conclusion to which we have
come is that brass scrap is not a master alloy. It is nobody's case
that brass scrap belongs to either of the first two categories, namely,
copper matte or unwrought copper. The only question then is
whether the third item 'copper waste and scrap' includes brass scrap.
c Putting Rule 1 in simple language, classification has to be determined
according to the description of the article in the Heading and, if
the Heading or a Note does not otherwise require, according to the
provisions of the other Rules and Notes. In the instant case, the terms
of the relevant Heading do not, by themselves, yield an answer to the
question whether copper waste and scrap includes brass scrap. But,
D
the particular Heading does not require or provide that the other
rules should be excluded while determining the classification of articles
under that Heading. That is bow, Rules 2 to 4 become relevant
for deciding the question whether 'copper waste and scrap' includes
brass scrap. What is meant by the clause in Rule l : ''and provided
E such Headings or Not~s do not otherwise require" is not that a
Heading must require Jhat the provisions contained in the rules
following Rule I should be applied. What it means is exactly the
opposite, namely, that if a Heading does not require the exclusion
of the other rules, those other rules must also be applied for deter-
mining the classification of an article. Therefore, all the relevant
F rules of interpretation in the Import Tariff come into play in the
classificatory process. Rules 2 to 4 of the Import Tariff are not a
mere adornment. Nothing ever is an adornment in an Import Tariff.
Therefore, classification has to be determined both according to the
terms of the Headings and according to the provisions of the rules
G unless a praticular Heading or Note excludes the application of rules
other then Rule I.

Accordingly, we must turn to Rules 2 to 4 for determining the
classification of Brass Scrap. By reason of the concluding part of Rule 2
H (p) classification of goods consisting of more then one material or, sub- «;;::::::

stance shall be according to the principles contained in Rule 3. Clause
(a) of ~ule 3 bas no application. Applyin~ the principle c.:<mtained in
ICilANDELWAL MBTAL WORKS v. UNION (Chandrachud, C.J.) 173

Rule 3 (b), which is relevant for our purpose, brass is a mixture of
copper and zinc, usually in the proportion of 60 : 40 (See pages 22
A
;
and 23 of Marriman's 'A Dictionary of Metallurgy') but, in which
the component of copper may be any where between 67% and 70%
(See Encyclopaedia Britannica, Volume I, page 649 ). Since copper
gives its 'essential character' to brass, brass scrap has to be classified
as 'copper waste and scrap' wiihin the meaning of Heading No 74. 8
01/02. Alternatively, Rule 4 would yield the same result if it is
assumed, for which there is no justification, that biass scrap does not
fall within any Heading of the First Schedule. If it does not, it has
to be classified, by reason of Rule 4, under the Heading appropriate
to the goods to which it is most akin. Brass, unquestionably, is
most akin to copper and .therefore brass scrap has to be classified as c
'Copper Waste and Scrap'.

We may usefully turn to the Notes to Section XV of the First
Schedule (Import Tariff), which is called 'Base metals and Articles
D
of Base Metal'. Clause (a) of Note 3 provides that an ailoy of
base metals is to be classified as an alloy of the metal which
predominates by weight over each of the other metals. Since brass
is an alloy of copper and zinc in which copper predominates by
weight, brass has to be classified as an alloy of copper. Therefore,
'Copper Waste and Scrap' includes brass scrap. According to E
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, F
by virtue of Note 3, brass has to be classified as an alloy of copper.
Therefore, 'copper waste and scrap' includes 'Brass Scrap'.

The appellant relied upon ce1 tain documents issued by the
Merchants' Association and upon extracts from 'Indian Standard
G
Coding and Classification for non-ferrous scrap metals' to show
that brass scrap and copper are regarded as distinct and separate
items for commercial purposes. Such considerations cannot furnish
a true answer to the question before us because, the distinguishing
H
feature is that, here brass and copper are not mentioned as separate
items in the Import Tariff. It is because of the absence of such
specific, separate specfication of these two items that the question
774 SUPREME couitT REPORTS [198SJ SUPPL. S.C.R.

arises whether, under Heading No. 74. 01/02, 'Copper Waste and
A Scrap', includes 'brass scrap'.

Reliance was also placed by the appellants on certain exemption
Notifications, referred to earlier, as affording intrinsic evidence to
show the contemporaneous understanding of the framers of such
B Notifications. True, that such understanding is a legitimate aid to
interpretation but, we cannot decide the question of classification of
goods under the 'Import Tariff' by implications, when there are Rules
of Interpretation which are specially framed to aid and assist the
classification of goods under appropriate Headings. Those rules
must have precedence over other aids of interpretation.
c
Notification No. 156 of July 16, 1977 exempts 'coppr waste
and scrap' from so much of the duty of customs as is in excess of
80% ad valorem. Since brass scrap is includible in the expression
'copper waste and scrap' and since, brass scrap is not a 'Master
D alloy', the appellants' case would fall under this Notification.
Accordingly, they would be entitled to exemption from customs duty
to the extent of 20% only.

The next question which is raised by some of the appellants
E is as to whether the imposition of Excise duty on 'waste and scrap',
which is referred to in clause (lb) of Entry 26 A of the First Schedule
to the Central Excises and Salt Act, 1944 is either ul Ira vires section
3 of that Act or beyond the legislative competence of the parliament.
Section 3 of the Act of 1944 provides that there shall be levied and
collected duties of excise on all excisable goods, other than salt, which
F are produced or manufactured in India. The question as to whether
'waste and scrap' can be regarded as capable of being produced or
manufactured, the appellants' argument being that it cannot be so
regarded, has already been answered by us in the affirmative. The
production of waste and scrap is a necessary incident of the
G manufacturing process. It may be true to say that no prudent
businessman will intentionally manufacture waste and scrap. But,
it is equally true to say that waste and scrap are the by-products of
the manufacturing process. Sub-standard goods which are produced
during the process of manufacture may have to be disposed of as
'rejects' or as scrap. But they are still the products of the manu·
H
facturing process. 'Intention' is not the gist of the manufacturing
process. We have already dealt with this aspect of the matter and do
not consider it necessary to elaborate upon it any further.
itiiANDELWAL METAL WORKS v. UNION (Chandrachud, (J.J.) 775
The argument of legislative competence of the Parliament is a
facet of the same contention. Section 3 of the Act of I 944 brings A
to duty excisable goods producted or manufactured in India. Section
2 (d) of the Act defines 'excisable goods' to mean goods which are
specified in the First Schedule as being subject to a duty of excise.
Therefore, the goods mentioned in the First Schedule will attract
excise duty under section 3 only if they are manufactured in India
B
and not otherwirse. Entry 26A (lb) of the First Schedule of the
Act of 1974 cannot be held to be beyond the legislative competence
of the Parliament because, the pre-condition of the excisability of
the articles mentioned therein, namely, waste and scrap, is in the
manufacturability of those articles. Since the production of waste
and scrap is an integral part and an inevitable incident or the c
manufacturing process, Parliament has the legislative competence
to make 'waste and scrap' excisable under Entry 84 of List I of the
Seventh Schedule to the Constitution, which relates to 'Duties of
excise on Tobacco and other goods manufactured or produced in
India", except certain intoxicants and narcotics.
D

On the question of the legislative competence of the Parlia·
ment to incorporate Entry 26A (lb) in the First Schedule to the
Act of 1944, it must be added that the proper approach is to
determine whether the subject-matter of a legislation falls in List II, E
the State List, which is the only field which the parliament cannot
enter. If it does not fall in List II, Parliament would have the
legislative competence to pass the law by virtue of Article 248 read
with the residuary Entry 97 of List I. This is clear from the deci-
sions of this Court in Second Gift Tax Officer, Mango/ore v. D. H.
Nazareth(') and Union of India v. H. S. Dhillon.(2 ) The cases relied
F
upon by the ap,iellants, namely, The Hingir-Rampur Coal Co. Ltd. v.
The State of Orissa('), Kalyani Stores v. The State of Orissa,( 4 )
A. B. Abdul Kadir v. State of Kera/a(') and M.c. Dowell & Company
Ltd. v. Commercial Tax Officer, VII Circle, Hyderabad,(') relate
to State legislations, namely, The Orissa Mining Fund Act, The Bihar G
and Orissa Excise Act, The Kerala Luxury Tax on Tobacco

(I) (1971] I S.C.R. 195.
(2) [1972] 2 S.C,R. 33.
(3) (1961] 2 S.C.R. 537. H
(4) [1966J I S.C.R. 865.
(5) [1976) 2 S.C.R. 690.
(6) [1977] I S.C.R. 914.
'176 SUPREME COURT REPoRTS [1985] sbi>Pt. s.C.ll.

(Validation) Act and the Andhra Pradesh General Sales Tax Act
A respectively. Those cases are therefore, not relevant for deciding
upon the competence of the Parliament to enact the impugned
law.

We may sum up our conclusions thus : (I) The charging
B section under which duties of customs are leviahle is section 12 of
the Customs Act, 1962 read with section 3 (I) of the Customs Tariff
Act, 1975. (2) 'Additional duty' which is mentioned in section 3
(I) of the Customs Tariff Act, 1975 partakes of the same character
as the Customs duty since, it is in addition to the duty which is
leviable under section 12 of the Customs Act, 1962, the rates for
c which are prescribed by section 2 of the Tariff Act, 1975. The duty
mentioned in section 3 (I) of the Tariff Act, 197 5 is not counter·
vailing duty. (3) Section 3 (I) of the Tariff Act, 1975 provides a
measure of the additional duty, which has to be "equal to the excise
duty" leviable on a like article if produced or manufactured in India,
as defined in the Explanation to that section. The measure of a tax
D
or duty cannot determine its nature or character. (4) The brass
scrap which is imported into India by the appellants is liable to the
levy of additional duty mentioned in section 3 (1) of the Tariff Act,
1975 because, the taxable event is the import of the goods into India
and not their manufacture. (5) The duty referred to in section 3 (I)
E of the Tariff Act, 197 5 h, therefore, le viable even if the goods
imported into India are not capable of being manufactured in India
or are not in fact manufactured in India. (6) The expression
"excise duty for the time being leviable on a like article if produced
or manufactured in India", which occures in section 3 (I) of the
Tariff Act, 1975 means excise duty for the time being in force which
F 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 or description of articles to which the
imported article belongs. (7) Even if the duty referred to in section
3 (I) of the Tariff Act, 1975 is regarded as in the nature of a
G
countervailing duty, the brass scrap imported by the appellants
would still be liable to the levy of that duty. The reason is that
scrap or waste is a by-product of manufacture and, is an integral
part and an inevitable incident of the manufacturing process. Brass
scrap is manufactured or happens to be manufactured in India. It is
H
wdl·known as a marketable commodity, both of Indian and foreign
origin. The brass scrap produced in India must receive protection
by the imposition of a countervailing duty on imported brass scrap.
KHANDBLWAL METAL WORKS v. UNION (Chandrachud, C.J.) 777

(8) The brass scrap imported by the appellants falls under Exemption
Notification No. 97 dated June 25, 1977 and not under Exemption
A
Notification No. 156 dated July 16, 1977. The reason is two-fold:
one, that within the meaning of Heading No. 74. 01/02 of the First
Schedule to the Tariff Act, 1975, brass scrap is not a 'Master alloy';
and two, that it is comprehended within the expression ·copper waste
and scrap' in that Heading. The appellants are, therefore, entitled B
to exemption from duty of customs to the extent of 20% only and
not to the extent of 60%. (9) Clause (lb) of Entry 26A of the First
Schedule to the Central Excises and Salt Act, 1944 is not ultra vires
section 3 (!) of that Act. The reason is that 'waste and scrap'
referred to in that Entry is excisable to duty if it is produced or manu·
factured in India. Waste and scrap are by-products of the process c
of manufacture and are inevitable incidental to the manufacturing
process. (10) The said Entry, namely, Entry 26A (lb) of the First
Schedule to the Act of 1944 is within the legislative competence of
the Parliament because, the duty of excise is attracted under the
Central Excises and Salt Act, 1944, only if the goods are produced
D
or manufactured in India. The impugned provision falls within
Entry 84, List I, of the Seventh Schedule to the Constitution. Even
otherwise, Parliament would have the legislative competence to pass
the law because of the combined operation of Article 248 and Entry
97, List I, of the Seventh Schedule.
E
In the result, the judgment of the High Court, which is marked
with care, is confirmed and these Appeals and the Special Leave
petitions are dismissed with costs.

Writ Petition No. 3761 of 1982, in which Mr. Abdul Khadar F
appears, relates to 'copper fungicide'. That Writ Petition was
delinked from the other cases since the pleadings therein are not
complete. That Writ Petition and all other cases involving import of
copper scrap may be listed for hearing at an early date.

A.P.J. Appeals and Petitions dismissed. G