Holding

Aluminium scrap produced in the course of manufacturing cannot be treated as aluminium in crude form and therefore could not be taxed under Tariff Item 27(a)(i) before its amendment on 1 March 1981.

Summary

Balaji Enterprises, a manufacturer of aluminium containers, purchased aluminium ingots and processed them into circles and containers. During this process, aluminium scrap was generated. The Central Excise Authority demanded duty on the scrap under Central Excise Tariff Item 27(a)(i) (aluminium in any crude form) at a rate of 40% as it stood before the 1 March 1981 amendment. The assessee contended that scrap, being a by‑product of manufacturing, could not be classified as "crude form" and therefore should not be taxable under that entry. The Customs, Excise and Gold (Control) Appellate Tribunal upheld the demand, and the Supreme Court allowed the appeal, holding that scrap produced in the course of manufacturing cannot be treated as aluminium in crude form and could not be taxed under T.I. 27(a)(i) prior to the amendment. The Court also observed that the Tribunal should have squarely decided the question of law rather than merely assessing perverseness. The order of the Tribunal was set aside and the appeal was allowed.

Issues considered

Whether aluminium scrap generated during the manufacture of aluminium containers falls within the definition of "aluminium in any crude form" under Central Excise Tariff Item 27(a)(i) as it stood before 1 March 1981.
Whether the Appellate Tribunal erred by not directly answering the question of law concerning the classification of scrap.

Legislation cited

Central Excise Act, 1944

Subjects

central excisetariff classificationaluminium scrapcrude formlegislative intenttaxabilitywaste and scrapappellate tribunalinterpretation of tariff

Judgment

MIS. BALAJI ENTERPRISES, MADRAS A
v.
THE COLLECTOR OF CENTRAL EXCISE, MADRAS

, MAY 5, 1997

(S.P. BHARUCHA AND SUHAS C. SEN, JJ.) B

Central Excise Tariff:

-- Tariff Items 27(a)(i) and 27(b) as they stood prior to amendment w.e.f.
1.3.1981-'Aluminium Scrap'-Levy of duty on-Held, 'aluminium scrap'
generated in course of manufacture of aluminium containers cannot be
treated as aluminium in cmde fonn and ta.xed under T./. 27(a)(i).

Customs, Excise and Gold (Control) Appellate Tribunal-Jurisdiction
C

of-Held, T1ibunal should examine the question of law raised before it and
give proper answer. D
Words and Phrases :

Word 'cmde' occurring in Tariff Item 27(a)(i) of Central Excise
Tariff-Meaning of.
E
The appellant-assessee, a manufacturer of aluminium containers,
was required to pay duty on aluminium. scrap. The duty was to be paid on
the value of the scrap at the rate of 40 percent under Tariff Item 27(a)(i)
of the Central Excise Tariff. The assessee resisted the levy contending that
the scraps generated in the course of manufacturing utensils could not be p
' classified under T.I. 27(a)(i). Assessee's case was· that it purchased .
aluminium ingots .from open market, melted and converted them into
sl;tbs, then sheets and ultimately in circles; the circles were then converted
into containers on which duty was paid. In the process of manufacture,
' while converting circles into containers, waste product such as aluminium
scrap came into existence, which could not be classified uuder T.I. 27(a)(i). G
Assessee's case was rejected and ultimately the Customs, Excise and Gold
,,.__? (Control) Appellate Tribunal also held against it. Aggrieved, the assessee
filed the present appeal.

It was contended for the appellant-assessee that "aluminium scrap" H
53
54 SUPREME COURT REPORTS [1997) SUPP. l S.C.R.

A left after manufacturing the products like utensils could not be treated as
"aluminium in any crude form" as described in T.I. 27(a)(i), and as such
it could not be brought to tax under the said entry.

Allowing the appeal, this Court

B HELD: 1.1. The aluminium scrap produced by the assessee in course
of manufacturing utensils cannot be treated as aluminium in crude form
and classified as such in T.I. 27 (a) (i); and therefore the same could not be
taxed under T.I. 27 before its amendment on 1.3.1981. [61-B)

c 1.2. The 'crude form' of aluminium as described in sub-item (a)(i) of
Tariff Item 27, will include ingots, bars, blocks, slabs, billets, shots and
-
pellets, i.e. the most primary form of the metal. The appellant manufactures
circles which have been specifically included in T.I. 27(b) which speaks of
aluminium manufactures. When ingots are converted into circles, the end
..
D products or by-products are not treated as aluminium in crude form and,
as such, the scrap which emerges as a result of further manufacturing
process, cannot be treated as crude metal. It is an integral part and in-
evitable consequence of the manufacturing process. [57-F-H; 58-B; CJ

Mis. Khandelwal Metal and Engineeling Works and Anr. v. Union of
E India & Ors., [1985) 3 SCC 620, relied on.

Webster Comprehensive Dictiona1y, Intemational Edition, 1984,
.. '
referred to.

1.3. Besides, by virtue of an amendment, 'Waste and Scrap' has
F
specifically been included in sub-heading (aa) of T.I. 27, with effect from
1.3.1981. The obvious legislative intent was not to tax 'aluminium scrap
and waste' prior to the said amendment. [58"E; 60-D)

2. The Tribunal should have examined the question of law raised
G before it and given proper answer. Whether the scraps generated during
the course of manufacturing utensils should be treated as 'aluminium in
crude form' is a question of law that had to be answered fairly and squarely
by the Tribunal. It really avoided answering the question. The Tribunal's
jurisdiction is not limited to deciding whether the decision of the
H departmental authority was perverse or unreasonable. [61-A; 60-H)
B. ENIBRPRISES v. C.C.E. [SEN,J.] 55

t CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1403 of A
1987.

From the Judgment' and Order dated 27.4.87 of the Customs, Excise
and Gold (Control) Appellate Tribunal, New Delhi in A. No. 40/83. Bl in
(Order No. 294 of 1987-Bl).
B
Krishnan Venugopal and S.R. Setia for the Appellant.

N.K. Bajpayee, R.S. Rana and P. Parmeswaran for the Respondent.

The Judgment of the Court was delivered by
c
SEN, J. The appellant, Balaji Enterprises, purchases aluminium in-
gots from the market and manufactures aluminium containers which are
used according to the permission granted by the Excise Authority under
Rule 56A of the Central Excise Rules. The process followed for making
the containers has been stated by the appellant in a letter to the Assistant D
Collector of Central Excise. The appellant melts the ingots, converts them
into slabs, rolls them into sheets which are converted into circles. These
circles are converted into containers which are sold in the market. The
appellant pays duty on the containers manufactured by it in regular course.
In the process of manufacturing containers, waste products such as
aluminium scrap also come into existence. E
The Central Excise Authority called upon the appellant to pay duty
on the scrap manufactured by it. The appellant was compelled to pay duty
on the value of the scrap at the rate of 40 per cent under Tariff Item
27( a)(i) of the Central Excise Tariff. F

The appellant's case before the Department was that 'scraps'
generated in course of manufacture of aluminium containers by the appel-
( lants, could not be classified under T.I. 27(a)(i) of the Central Excise Tariff
which before 1.3.1981 was as under :
G
27-ALUMINIUM

Tariff Item Rate of duty
Description of goods
No. Basic Special Excise
27. ALUMINIUM
H
56 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R.

A (a)(i) in any crude form including 50% Adv. plus 10% of the
ingots, bars, blocks, slabs, Rs. 2000 per basic duty
billets, shots & pellets. metric tonne. chargeable
(ii) Wire, bars, wire rods and 50% Adv. plus -do-
castings not otherwise Rs. 2000 per
B specified. metric tonne.
(b) Manufactures, the -do- -do-
following, namely, plates,
sheets, circles, strips,
shapes and sections in any
c form or size, not otherwise
specified.
-
(c) Foils (whether or no"): -do- -do-
embossed, cut to shape,
perforated, coated, printed
D or backed with paper or
other reinforcing material)
of a thickness (excluding
any backing) not exceeding
0.15 mm.
E (d) Pipes and tubes other than -do- -do- ".
extruded pipes and tubes
(e) Extruded shapes & sections -do- -do-
including extruded pipes
and tubes.
F (f) Containers, plain, lacque- -do- -do-
red, or printed, or
lacquered and printed.

Explanation : I - "Container" means containers ordinarily intended
G for packaging of goods for sale, including collapsible tubes, casks,
drums, cans, boxes, gas cyl!nders and pressure containers whether
in assembled or unassembled condition, and containers known
commercially as flattened or folded containers.

H Explanation : II - In this Item, the expression "Aluminium" shall
B. ENTERPRISES v. C.C.E. [SEN;, J. J 57
include any alloy in which aluminium predominates by weight over A
each of the other metals.

The appellant's case is ,•that 'aluminium scrap' cannot be described
as 'aluminium in any crude form'. Aluminium scraps are not really in crude
form. In fact, T.I. 27(a)(i) makes it clear that it is only the commodities B
known in the market like ingots, bars, blocks, slabs, billets, shots and
pellets, which can be taxed under T.I. 27(a)(i). But scraps remaining after
manufacturing products like utensils cannot be brought to tax under T.I.
27(a)(i) as 'aluminium in any crude form'.

T.I. 27(a)(i) speaks of 'aluminium in any crude form'. Ingots, bars, C
blocks, slabs, billets, shots and pellets have been specifically brought within
the Tariff Description. That, however, does not mean that only the articles
which have been specifically mentioned in T.I. 27(a)(i) are excisable to
duty. The Tariff 'Description is inclusive which means apart from ingots,
bars, blocks, slabs, billets, shots and pellets, other things that may come D
within the description of 'aluminium in any crude form' will be excisable
to duty as such.

The problem in this case, however, is about the nature of the scraps
produced by the appellant. Can the scraps be regarded as 'aluminium in E
1 • any crude form'? Obviously Tariff Item 27( a) will not take in aluminum in
any finished form. The dictionary meaning of 'crude' is : "In a state needing
preparation for use; not refined; raw; uncooked" (Webster Comprehensive
Dictionary, International Edition 1984).

F
From the Tariff Description it appears that in sub-Item (a)(i) of
Tariff Item 27 'crude form' of aluminium will include ingots, bars, blocks,
slabs, billets, shots and pellets. That is the most primary form of the metal.
Sub-item (b) of Tariff 27 speaks of 'Aluminium Manufactures', namely,
plates, sheets, circles, strips, shapes and sections in any form or size no~
otherwise specified'. There is no dispute that the appellant manufactures G
circles which have been specifically included in T .I. 27(b) and not T .I.
27(a). 'Circles' have not been included in the Tariff Description in T.I.
27(a)(i). That means 'circles' have not been treated as 'aluminium in any
crude form' but 'Aluminium Manufactures'. The assessee manufactures the
circles and thereafter aluminium containers out of these circles. The scraps H
58 SUPREME COURT REPORTS [1997] SUPP. 1 S.C.R.

A are generated while converting circles which are not. 'aluminium in crude
form' into containers which are finished goods. If anything is made out of
the circles, whether as end-product or by-product, it cannot be treated as
the metal itself in crude form. The scraps that arise out of the manufactur-
ing process do not go back to the crude form of aluminium. When ingots
B are converted into circles, the end-products are not treated as aluminium
in crude form. In that event, how can something which emerges as a result
of further manufacturing process be treated as crude metal? In our view,
the aluminium scraps cannot be treated as aluminium in crude form and
classified as such in T.I. 27(a)(i).

C In the case of M/s. Kltandelwal Metal and Engi.neeling Works and Anr.
v. Union of India & Ors., [1985] 3 SCC 620, Chandrachud, C.J. pointed out
waste and scrap are by-products of manufacturing. Aluminium scrap which
is obtained in course of manufacturing aluminium containers is an integral
part and inevitable consequence of the manufacturing process.
D
In our view, what emerges as a consequence of a manufacturing
process out of the aluminium circles cannot be treated as the metal in
crude form.

E The position becomes clearer after the amendment of T.I. 27 on and ._.
from 1.3.1981. 'Waste and Scrap' was specifically included in sub-heading • ~
(aa) of TJ. 27. The Tariff Description was as under :

AFfER 1.3.1981
ITEM NO. 27 - ALUMINIUM
F
Item No. Tariff Description Rate of Duty
27 ALUMINIUM
(i) In any crude form Fifty per cent ad
including ingots, bars, valorem plus Rs. two
G (a)
blocks, slabs, billets shots thousand per metric
and pellers. tonne
(ii) Wire bars, wire tods & -do-
castings not otherwise
specified.
H
B.EN1ERPRISES v. C.C.E. [SEN,J.] 59

(aa) Waste and Scrap. -do- A
(b)
(c)
(d)
(e)
B

(t)

EXPLANATION I ............... .

EXPLANATION II .............. . c
EXPLANATION III - "Waste and Scrap" means waste and
scrap of aluminium fit only for the recovery of' metal or for
use in the manufacture of chemicals, but does not include
sludge, dross, scalings, skimmings, ash and other residuals.
D
The legislature recognised that 'Waste and Scrap' could not be
brought to tax as aluminium in crude form. If 'Waste and Scrap' was
already included in Item No. 27(A), there would not have been any need
for making the entry (aa). The amendment left sub-item (a) of Item 27
untouched. Moreover, every type of waste and scrap was not made taxable E
after the amendment made on 1.3.1981. Only the type of waste and scrap
mentioned in Explanation III were subjected to duty. Sludge, dross, scal-
ings, skimmings, ash and other residuals were left out. Before 1.3.1981
there was no guideline to decide what would constitute scrap for imposition
of Central Excise.
F
All these things go to show that sub-item (aa) was not clarificatory
of sub-item (a) of Item 27. It was a new entry altogether bringing 'Waste
and Scrap' for the first time to duty after specifying the limited scope of
this entry b¥ adding Explanation III.

It has been rightly contended on behalf of the appellant that when- G
ever things like 'Waste and Scrap', under any head, have been sought to
be taxed in the Central Excise Act, specific entries have been made for this
" purpose. In Tariff Item No. 25 'iron in any crude form' specifically includes
pig iron, scrap iron, molten iron or iron cast in any other shape or size.
The legislature specifically included the scrap iron within the description H
60 SUPREME COURT REPORTS (1997] SUPP. 1 S.C.R.

A of 'iron in any crude form' in T.I. 25, but in the description of goods under
the head 'aluminium in any crude form', aluminium scraps were not in-
cluded in T.I. 27. Even when the amendment was made on 1.3.1989,
aluminium scraps were separately taxed and not included in 'aluminium in
any crude form'.

B Similarly, in the T.I. 18 dealing with man-made fibres, other than
. mineral fibres, man-made filament yarns, cellulosic spun yarn, 'Non-cel-
lulosic wastes, all sorts' have been specifically included as sub-item (4) of
T.I. 18. Sub-item (4) has been explained to include only wastes arising in,
or in relation to, the manufacture of man-made fibres (other than mineral
C fibres) and man-made filament yarns.

The obvious legislative intent was not to tax aluminium scrap and
Waste' prior to the amendment made with effect from 1st March, 1989.
What emerged from the manufacturing process was certainly not
D aluminium in crude form. '

There is also another feature of this case, tJ\.e Tribunal has not held
that aluminium scarps should be described as 'aluminium in any crude
form' and brought to tax as such even prior to 1.3.1981. The Tribunal has
held:
E
"The assessment made by the department favours the revenue but
we cannot say that it is a perverse assessment or that the law does
not sanction it. While one person may say that word scrap does
not belong in the sub-item with ingots, bars and the others, another
F person may say with equal, I would say more logic, that.it does
belong in the sub-item. I would not like to disturb an assessment
made by the department unless it has perverseness or un-
reasonableness in it. This assessment is not unreasonable much
less perverse."

G We are of the view the Tribunal has really avoided answering the
question of law raised before it. Whether the scraps generated during the
course of manufacturing utensils should be treated as 'aluminium in crude
form' is a question of law that had to be answered fairly and squarely by "
the Tribunal. The Tribunal's jurisdiction is not limited to deciding whether
H the decision of the departmental authority was perverse or unreasonable.
B.ENIBRPRISES v. C.C.E.[SEN,J.] 61

We.are of the view that Tribunal should have examined the question A
of law before it and given proper answer.

However, we have examined the question. In our view, the aluminium
scraps, produced by the assessee in course of manufacturing utensils, could
not be taxed under T.I. 27 before its amendment on 1.3.1981.
B
The order of the Tribunal is set aside. The appeal is allowed. There
will be no order as to costs.

R.P. Appeal allowed.

c