Holding

The Supreme Court held that the demand for excise duty on the pig iron embedded in steel‑melting scrap was unauthorized and amounted to double taxation, and therefore quashed the demand.

Summary

Steel Authority of India Ltd (SAIL) manufactured steel ingots using pig iron as a captive input and followed the "later the better" principle, paying excise duty only on the final steel ingots while steel‑melting scrap, a by‑product, was exempt under Notification No.150/77. The Central Excise Department issued show‑cause notices demanding duty on the pig iron embedded in the scrap for the periods 1977‑1980 and 1981, and the Collector and CEGAT upheld a demand for six months prior to the notices. SAIL appealed, arguing that the demand amounted to double taxation of the same pig iron and that the department could not bifurcate the input between the ingot and the scrap. The Supreme Court held that the demand was unauthorized, would result in double taxation, and could not be sustained. The appeal was allowed, the CEGAT order set aside, the demands quashed, and the matter restored for refund processing.

Issues considered

The department’s demand of excise duty on pig iron embedded in steel‑melting scrap, which is exempt under Notification No.150/77.
Whether such demand results in double taxation of the same input of pig iron.
Whether the set‑off under Notification No.18/71 (27‑Mar‑1971) is available to the assessee.
Whether the demand for the six‑month period preceding the notice is time‑barred.
Effect of the "later the better" principle on the assessee’s duty liability.

Legislation cited

Subjects

excise dutypig ironsteel melting scrapby‑product exemptiondouble taxationlater the better principleset‑offCentral Excise ActCEGAT

Judgment

STEEL AUTHORITY OF INDIA LTD. A
v.
COLLECTOR OF CENTRAL EXCISE, BOLPUR

FEBRUARY 20, 1997
B
[S.P. BHARUCHA AND S.B. MAJMUDAR, JJ,]

Central Excises and Salt Act, 1944 r/w Central Excise Tariff, T.l. 25,
26 and 26AAA-Excise duty 011 pig iron embedded in duty free by-product
steel melting scrarr-Appellant with pemiission of autholities fallowing 'the C
later the better' p1inciple-Not paying duty on pig iron captively used but on
final product steel ingots-Appellant not availing set off of duty payable on
pig iron-Departmmt demanding duty p~yable on pig iron embedded in by-
product, duty-free steel melting scrap-fleld, per curiam, the demand was
illegal; department cannot recover duty twice on pig iron used captively in
manufacturing steel ingots giving rise to steel scrap, a by-product fully exempt D
from excise duty.

With the permission of the authorities, the appellant, which
manufactured steel using a composite combined process of producing and
then captively consuming pig iron as an input, followed for a large number
of years, 'the later the better' principle. Thus, the appellant did not pay E
duty on pig iron captively consumed but paid duty on the final product,
steel ingots, without availing the set off of the duty payable on the pig iron
consumed. The steel melting scrap, which emerged as a by-product, was
fully exempt from payment of excise duty.
F
The Department demanded from the appellant the duty payable on
iron used in the manufacture of the steel melting scrap foi: the period
December 12, 1977 to September 30, 1980 as well for the period April to
October, 1981. The Collector of Central Excise confirmed the demand. The 0
Tribunal upheld the demands for the period six months prior to the date G
of the notices and quashed the demands for the earlier period as being
time barred.

Allowing the appeal, this Court

HELD: (per curiam) H
291
292 SUPREME COURT REPORTS [1997] 2 S.C.R.

A 1.1. The demands of duty on the supposed embedded input of pig
iron which resulted into the steel melting scrap were clearly unauthorised
and incompetent. [304-C]

1.2. The notices sought to equate total quantity of steel melting scrap
with the embedded proportionate input of pig iron. This was clearly imper-
B missible. In the absence of relevant data being produced by the department
it was impossible to bifurcate to find out as to what part of the input to pig
iron resulted into the manufacturing of steel ingots and which in the emerg-
ing by-product or steel melting scrap. The process for manufacturing steel
ingots by utilising the input of crude iron being a single uniform one, such
C bifurcation even othe~se was not possible. [300-D, A)

1.3. The demands resulted in seeking to recover excise duty twice on
the input of pig iron utilised by the appellant in manufacturing the final
product of steel ingots and which in the same process as a by-product gave
rise to steel scrap which was fully exempted from excise duty. [303-B)
D
Mis. Swadeshi Polytex Limited v. Collector of Central Excise, [1990) 2
SCC 358; Union of India v. Indian Aluminum Co. Ltd., [1995) Supp 2 SCC
465, distinguished.

1.4. For a decision on the question of refund of duty the case would
E stand restored to the file of the Collector of Central Excise, Bolpur. [304-E]

Per Bharucha, J. (Supplementing) :

By reason or the use of "the later the better" principle, with the
concurrence of the excise authorities, the assessee could not be placed in
F a position mode disadvantageous than it would have been had it not
followed that principle. It could not be asked to pay excise duty on some
theoretical proportion of pig iron that had not been used in the manufac-
ture of steel ingots but had come out, incidentally, as steel scrap. [305-C]

G CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2766 of
1991.

From the Judgment and Order dated 21.12.90 of the Customs Excise
& Gold (Control) Appellate Tribunal, New Delhi in E/11/91-BI.

H V. Sridharan, R. Nambirajan, Sunil Jain and Vijay Hansaria for the
STEELAUTIIORITY OF INDIA LTD. v. COLLECTOR OF C.E. (S.B. MAJMUDAR, J.] 293

Appellant. A

-
Dr. R.R. Mishra, V.K. Verma and S.P. Aggarwal for the Respondent.

The Judgment of the Court was delivered by

S.B. MAJMUDAR, J. This appeal under Section 35(L) of the Central B
Excise & Sale Act, 1944 (hereinafter referred to as 'the Act') is brought
by the appellant-assessee on being aggrieved by the decision rendered by
the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT for
short) dismissing the assessee's appeal against the order in original passed
by the Collector of Central Excise, Bolpur. C

A few relevant facts leading to this appeal deserve to be noted at the
outset. The appellant, Steel Authority of India Ltd. is a wholly owned
Government of India Company. The appellant-company has seveFal steel
plants and Durgapur Steel Plant (DSP), situated at Durgapur in West
Be~al, is one of the integrated steel plmts of the appellant-company. DSP D
manufactures pig iron, steel ingots and several steel products. These
products of DSP prior to 1983 were classified under the erstwhile tariff
Items 25, 26 and 26AA. The appellant-company has been paying excise
duty on these items under reference following the principles of "later the
better". The appropriate central excise duty was determined and paid on E
iron and steel products, when cleared The evidence led by the appellant
explained the process of production. That in the integrated steel plant of
the appellant-company at Durgapur the process of production is as under:
Iron ore Sinter put into Blast
Limestone Manganese furnace.
Ore Dolamite BHQ F
Molten iron is produced in the blast furnace. Molten iron goes to steel
furnaces of ste<,el melting shop (SMS) directly and other ingredients are
mixed. The product from SMS is steel. In other words, iron is converted
into steel in SMS. Raw materials like iron ore, sinter, coke limestone etc.
are fed into blast furnace which produces pig iron. At this stage, the molten G
metal is called pig iron. Once this molten metal is fed into steel making
furnace which~produces steel, the produce which comes out, out of the
. steel melting shop (SMS)is known as steel and not iron and will fall into
tariff Item 26. It is only when the steel ingots are further processed and the
various products like structurals, rails, wire-rods, etc. are produced, they H
294 SUPREME COURT REPORTS [1997] 2 S.C.R.

A would come under Tariff Item 26AA. According to the appellant, the steel
melting scrap is specifically covered under Tariff item ·26 and once a
produce comes out of SMS, it is known as steel and not iron. In the process
of production of steel at SMS, some scrap arises which is known in the
· industry as 'steel melting scrap'. While most of this steel melting scrap is
B captively consumed by DSP itself, a small portion is also sold to other steel
plants manufacturing steel ingots, steel castings and semi-finished steel with
the aid of electric furnace. The procedure set out in Chapter X of the
Central Excise Ri;les, 1944 is followed while selling the steel melting scrap
which is •cleared at nil rate of duty.

C It is the case of the appellant-company that clearance of steel melting
scrap was being done in accordance with Chapter X of the Central Excise
Rules and the said clearance was governed by the terms of Notification No.
150n7 dated 18.6.1977 as amended by Notification No. 209n7 dated
2.7.1977. This practice of removal of steel melting scrap as per the proce-
D dure laid down by the aforesaid notification was being followed by the
appellant- comflany since the date of the said notification- i.e. 18.6.1977.

The facts leading to the present proceedings stem' out of the show
cause notices iSsued to the appellant-company by the Superintendent of
Central Excise, Durgapur. The first show cause notice dated 21.11.1980
E alleged that the appellant-company had not paid duty on the iron contained
in crude from in 'steel melting scrap'. It was alleged in the said show cause
notice that as per Tarrif Item 25 iron in crude from attracted central excise
duty @ Rs. 70 per metric ton and there was no clear exemption from
payment of duty on iron used for manufacturing of steel ingots and steel
F melting scrap. That Notification No. 18nl-CE dated 27.3.1971 provided a
set off.of duty paid on iron in crude form against the duty payable on steel
ingots and steel melting scrap. It was further alleged in the show cause
notice that since specified steel melting scrap was chargeable to nil rate of
duty, the question of set off of duty on steel melting scrap did not arise. It,
therefore, followed that duty on iron used in the manufacture of steel
G melting scrap cleared without payment of duty, was chargeable. The
aforesaid notice was in respect of the period from 12.12.1977 to 30.9.1980.
On similar terms another demand notice was issued for the period from
April 1981 to October 1981. The total duty so demanded was about Rs.
25.50 lakhs. The appellant-company submitted replies to the said show
H cause notices and pointed out that the notices were misconceived and the
STEELAUTIIORITYOFINDIALW.v. COLLECTOROFC.E.[S.B.MAJMUDAR,J.] 295

demands raised were not sustainable. The Collector of Central Excise by A
his order in original 9.6.1987 confirmed the demand of Rs. 25,50,593.87 on

-
iron in crude form used by the appellant-company in manufacture of
34,346,327 metric tons of steel melting scrap which had been cleared
without payment of duty.

The appellant-company being aggrieved by the aforesaid order of B
Collector of Central Excise, Bolpur, carried the matter in appeal before
the CEGAT, New Delhi. The said appeal was partly allowed by the
CEGAT by its order dated 21.12.1990 whereby the CEGAT quashed the
' demands in respect of the period prior to 6 months of the issue of the
' respective show cause notices dated 21.11.1980 and 23.11.1981 on the C
ground that for earlier period notices were time barred. However, the
CEGAT upheld the demand of the department for duty for the period of
6 months computed backward from the dates of the respective show cause
notices. As per the aforesaid order of the CEGAT, total demand covered
by both the notices worked out to about Rs. 6 lakhs. It is the aforesaid D
order of the CEGAT that has been brought on the anvil of scrutiny of this
Court in the present appeal.

RIVAL CONTENTIONS:

Learned counsel for the appellant in support of the appeal submitted E
that the CEGAT had patently erred in upholding the demands for duty
payable on iron in crude form which had already resulted into duty paid
steel ingots manufactured by the appellant out of the paid crude iron. That
steel melting scrap which resulted in the process of manufacture of steel
ingots from crude iron was purely a by-product which was already ex- p
empted and bore nil duty on account of Notification dated 18.6.1977 being
Notification No. 150/77. That integrated steel plant like DSP was meant to
produce pig irnn and various steel products but not scrap. Scrap was not
a conscious production. That the iron in crude form which had not borne
duty at the time of its production had already resulted in the manufacture
of duty paid still ingots. Even in the light of Notification No. 18/71-CE G
dated 23.3.1971 full excise duty was paid by the appellant-company on the
steel ingots which were the ultimate product manufactured by the appellant
by utilising input of iron in crude form. Hence, even if set off of duty on
utilised iron in crude form was not available as duty was not paid at the
relevant time when iron in crude form was manufactured, save and except H
296 SUPREME COURT REPORTS [1997) 2 S.C.R.

A demanding full duty on manufactured steel ingots, there would remain no
occasion for the revenue to bring to tax the very same utilised iron in crude
form which during the process of manufacture of the final product of steel
ingots might have resulted in a by-product like steel melting scrap which
in its turn was fully exempted from the excise duty because of Notification
B No. 150/77. According to the learned counsel for the appellant, the im-
pugned notices of demand and the final order of adjudication even for a
period of six months immediately preceding the impugned show cause
notiq:s were ex facie unauthorised and not· sustainable in law.

Learned counsel for the revenue, on the other hand; submitted that
C at the time when the input of crude iron i.e. pig iron was produced, no
duty was paid by the appellant. The said input was utilised by the appellant
for manufacturing two excisable items, namely, (i) steel ingots and (ii) steel
melting scrap. Steel melting scrap, though an excisable item, did not bear
any duty in view of the exemption Notification No. 150/77. Consequently,
D the input of pig iron to the extent to which it resulted into the final product
of steel melting scrap remained liable to pay excise duty as no fmal duty
on steel melting scrap was available for proportionately setting off duty
payable on the input to the extent to which it had resulted in the manufac-
ture of steel melting scrap. It was submitted that steel melting scrap was
by itself an excisable item which had a market of its own and was not like
E a by-product which had no value whatsoever and was not exigible to central
excise. Consequently, when the final product of steel melting scrap had not
borne excise duty because of the exemption notification, as aforesaid, the
non-duty paid input which was embedded in it, which in its turn was
exigible to tax had to be brought to tax when the fmal product steel melting
F scrap got cleared and that is precisely what the demand notices sought to
do and hence the adjudication order was correctly passed by the CEGAT.

Having given our anxious consideration to the rival contentions, we
find that the CEGAT has patently erred in sustaining the impugned
G demands of excise duty even for the period of six months prior to the dates
of respective show cause notices. At the outset, we may note that it is not
in dispute between the parties that the appellant which is a wholly owned
Government of India company, in the process of manufacturing the final
product at its Durgapur Steel Plant produces as an input for captive
H consumption molten metal called pig iron. This pig iron as an input results'
·--<.

STEEL AUTHORITY OF INDIA LTD. v. COLLECTDROF C.E. [S.B. MA.IMl.JDAR, J.J 297

in manufacture of two excisable commodities, namely, steel ingot as well A

-
as melting scrap. We may, for the purpose of the pn:sent proceedings,
proceed on the basis that steel melting scrap which gets manufactured is
an excisable commodity and has its own market if not captively consumed.
However, the moot question remains as to whether the input of pig iron
ultimately bears the full burden of excise duty as leviable on the said pig B
iron at a stage when the said input results into the final product. We may
note at this stage that at the relevant time, the tariff item concerned which
made the input of pig iron exigible to excise duty was Tariff Item 25 and
the rate of duty was Rs 70. per metric ton. The final products which
resulted utilising this input, as noted above, were steel ingots as well as C
steel melting scrap. Both of them were covered by Tariff Item 26 and were
liable to tax@ Rs. 350 per metric ton. There was Tariff Item 26AA which
dealt with iron or steel products which were manufactured by utilising steel
scrap as an input by the appellant-company and those steel products
enumerated in the said Entry 26AA were of various types and were liable D
to bear excise duty as mentioned in the said tariff item. The short question
for our consideration is whether pig iron in crude form which was utilised
as an input by the appellant- company in manufacturing the final products
of steel ingots and steel melting scrap had been subjected to full payment
of excise duty under Tariff Item 25, if not at an earlier stage when it was
manufactured, at least at a latter stage when it got embedded in steel ingots E
and steel melting scrap. It has to be appreciated that it is not the case of
department nor is there anything on record to indicate that out of the input
of crude iron or pig iron, a particular portion thereof was separately
utilised by the appellant as an input for manufacturing steel ingots and
another separate identifiable portion of pig iron as an input was utilised by F
the appellant in manufacturing steel melting scrap. In fact, the entire
process of manufacturing steel ingots was uniform, composite and a com-
bined process and in the said process of manufacturing of steel ingots the
entire input of crude iron got exhausted and utilised but in the very same
process two commodities emerged, namely, steel ingot and steel melting G
scrap. There is substance in the contention of the learned counsel for the
appellant that the integrated steel plant like DSP owned by the appellant
was meant to produce pig iron and various steel products. However, the
process was such that certain amount of scrap arises due to technological
necessity and it was not a conscious production and, still it might be H
298 SUPREME COURT REPORTS [1997) 2 S.C.R.

A exigible to excise duty under the concerned Tariff Item 26. We are not
concerned in the present proceedings with the taxability of the final
product, the steel m.elting scrap, as admittedly the said steel melting scrap
as a final product is not liable to pay any excise duty and is exigible to nil .....
duty on account of exemption Notification No. 150n7 dated 18.6.1977. It
B is not in dispute between the parties that steel melting scrap which is the
. final by-product in the process of manufacture of stet! ingots. undertaken
by the appellant by utilising the input of pig iron has earned full exemption
from payment of excise duty under the aforesaid notification. In fact, that
is the very basis of the show cause notices. The department accepts that
C steel melting scrap is not liable to pay any excise duty but its contention is
that the proportionate input of pig iron which was embedded in the said
final product and which by itself. did not bear any duty earlier though it
was liable to pay duty under Tariff Item 25 had escaped excise duty
thereon. If that is so, the question remains whether the remaining and the
main final product, namely, steel ingot, which was exigible to central excise
D as per Tariff Item 26 @ Rs. 350 per metric ton and which had utilised the
same input of crude iron, namely, pig iron could be said to have accounted
for payment of excise duty on input of crude iron which was fully utilised
by it when it got manufactured in the steel melting furnace as a result of
the same and uniform manufacturing process. The basis of the impugned
E show cause notices which in their turn got upheld by the CEGAT to the
extent of six months demands prior to the dates of issue of these notices,
being Notification No. 18/71 dated 27.3.1971 is, therefore, required to be
reproduced. The said notification reads as under :

F "18nl-CE dt. 27.3.71 In exercise as of the powers con- /.
amended by 109/80-CE ferred by Rule 8(1) of the ~

dt. 19.6.80 Central Excise Rules, 1944, and
in Supersession of the notifica-
tion of India in the M.F. (D.R.
& I) No. 67n8-CE dt. 30.3.68,
G the Central Government hereby
exempts:

(a) steel ingots falling under Item No. 25 of the First
Schedule to the Central Excise and Salt Act, 1944 (1of1944),
H and
STEELAIITHORITY OF !NOIA LTD. v. COLLECTOR OF C.& (S.B. MAJMUDAR, J.) 299

(b) iron or steel products falling under Item No. 26AA of the A
First Schedule

in which duty paid iron in any crude form, including pig iron,
scrap iron, molten iron or iron cast in any other shape or size,
is used, from so much of the duty as is proved to have been B
paid on the said iron in any crude form;

(Provided that in relation to the exemption under this
notification the procedure set out in Rule 56A of the
aforesaid rules is followed)."
c
Now a mere look at the aforesaid notification shows that it seeks to
permit a set off of excise duty payable on the final product manufactured
by the appellant by utilising the input of pig iron to the extent of amount
of excise duty which might have been paid by the assessee on the utilised
input of pig iron which ultimately resulted into the final products. Those D
fmal products are either steel ingots covered by Tariff Item 26 or iron or
steel products falling under Tariff Item 26AA. It is pertinent to observe
that the said exemption/set off notification does not cover final product of
steel melting scrap mentioned in Tariff Item 26 which obviously results as
an unplanned by-product. Learned counsel for the respondent is right
when he contends that on the facts of the present case, the benefit of the E
set off of excise duty payable on pig iron would not be available to the
appellant so far as its liability to pay excise duty on the finished products
was concerned as the input of pig iron which resulted into steel ingots had
not already borne the excise duty under Tariff Item 25 at the time when it
was manufactured. But the said fact does not improve the case of the p
respondent-department any further. The reason is obvious. Even though
such set off from duty payable on steel ingots as finished product @ Rs.
350 per metric ton as per Tariff Item 26 might not be available to the
appellant-company, still the entire input of pig iron which got utilised by
the appellant in manufacturing steel ingots got reflected in the full and final
dufy payable·by the appellant on the final product, namely, steel ingots. All G
that resulted was the deferred payment of excise duty on input of pig iron
which got fully accounted for when final product namely steel ingots bore
the excise duty @ Rs. 350 per metric ton without any set off. That was the
only logical effect of the non-availability of the benefit of Notification No.
1sn1 dated 27.3.1971: In the absence of relevant data being available or H
300 SUPREME COURT REPORTS (1997] 2 S.C.R.

A even tried to be produced by the respondent-department on the record of
this case, it is impossible to bifurcate and try to find out as to what part of
the input of pig iron resulted into the manufacturing of steel ingots and
what part of the very same input of pig iron got embedded in the emerging
by-product of steel melting scrap. In the absence of such bifurcation, the
B impugned notices would obviously result in double taxation on the input of
pig iron which got embedded in steel ingots that became liable to bear full.
excise duty and for which there is no dispute between the parties. As the
process for manufacturing steel ingots by utilising the input of crude iron
was a single uniform process, such birfurcation even otherwise was not
possible even if it was so attempted by the respondent-department. The
C impugned show cause notices make clear, in this connection, that they seek
to levy basic excise duty for the relevant period on the entire input of pig
iron by seeking to bring it to tax on the basis of the entire output of steel
melting scrap. In other words, these notices seek to equate total quantity
of steel melting scrap with the embedded proportionate input of pig iron.
D This is clearly impermissible. It is obvious that steel melting scrap, as a final
product, is exigible to nil rate of duty as there is no dispute between the
parties that it is fully covered by exemption Notification No. 1son1 dated
18.6.1977. In fact, that is the very basis for the impugned notices, as seen
earlier. If that is so, the impugned notices indirectly seek to bring to tax
the entire quantity of steel melting scrap by treating it to be resulting from
E the total input of pig iron, which directly could not have been brought to
tax. Once entire quantity of steel melting scrap is exempted from excise
duty as per Notification of 18.6.1977, it is difficult to appreciate how the
very same quantity of scrap can be taken as a basis for levying tax on input
of pig iron embedded therein when admittedly a substantial part of the very
F same input had resulted in a different duty paid product, namely steel
ingots and for manufacturing the same substantial quantity of pig iron had
stood utilised.

The moot question that survives for our consideration is as to
whether the input of pig iron which itself was an exigible commodity as per
G Tariff Item 25 had been subjected to the requisite excise duty by way of
deferred payment of duty not at the time of manufacture of crude iron but
at the time when it got embedded in the final product of steel ingots. In
order to answer this question, we may take a simple illustration. Let us
assume that 100 inetric tons of iron in crude form i.e. pig iron was
H manufactured by the appellant at a given point of time which was being
STEELAU1HORITY OF INDIA LTD. v. COLLECIDR OF CE. (S.B. MAJMUDAR, J.] 301

utilised by it in the uniform manufacturing process for ultimately producing A
the steel ingots out of it. As per Tariff Item 25 the rate of excise duty was
Rs. 70 per metric ton on pig iron. Therefore, 100 metric ton of pig iron
when manufactured would have been liable to pay excise duty of Rs. 7,000.
If that duty was paid by the appellant at the time when this input was
manufactured and was removed to its steel making furnace for producing B
steel ingots out of it, then as per exemption Notification No. 18.71 dated
27.3.1971, Rs. 7,000 would have been available to the appellant to be
adjusted against the final duty payable on the steel ingots when the said
final product, namely, the steel ingots was cleared by it. For the purpose
of this illustration, let us assume that by utilising 100 metric tons of pig
iron, 90 metric tons of steel ingot and 10 metric tons of steel melting scrap C
emerged. So far as 10 metric tons of scrap was concerned, it was not
exigible to excise duty as per the exemption notification No. 150/77 dated
18.6.1977, as noted earlier. So far as 90 metric tons of steel ingots are
concerned, the excise duty payable thereon as per Tariff Item 26 was Rs.
350 per metric ton. Therefore, accordingly 90 metric tons of steel ingots D
would have been required to bear total excise. duty of Rs. 31,500 = (90
metric x Rs. 350). Towards this total liability of Rs. 31,500 of excise duty
on the final product of the steel ingots, the appellant would have been
entitled tG a set off of Rs. 7,000 in all as it had utilised 100 metric tons of
pig iron as input for manufacturing this 90 metric tons of steel ingots ·
especially in the absence of there being any bifurcation of the input of pig E
iron between the final emerging products, namely, 90 metric tons of steel
ingots on the one hand and 10 metric tons of steel scrap on the other. But
that would have been possible if the input of 100 metric tons of pig iron
had already been subjected to payment of excise duty at the time of
clearance for captive consumption. Then in that case the net duty liability p
on 90 metric tons of steel ingots would have been Rs. 24,500 only Rs. 31,500
- Rs. 7,000). However, the set off of Rs. 7,000 in all is not available to the
appellant on the excise duty payable on 90 metric tons of steel ingots as at
the relevant time when the input of pig iron was namufactured, the same
had admittedly not borne any duty and the payment of duty was deferred.
Therefore, the notification No. 18/71 dated 23.3.1971 could not be of any G
avail to the appellant. The net result was that the appellant had to pay the

-
full duty of Rs. 31,500 on the 90 metric tons of steel ingots which had
utilised non-duty paid 100 metric tons of pig iron. In the process the
appellant accounted for full duty payable on steel ingots of 90 metric tons .
H
302 SUPREME COURT REPORTS (1997) 2 S.C.R.

A i.e. Rs. 24,500 and also accounted for full duty on the input of 100 metric
tons of pig iron i.e. Rs. 7,000. A conjoint operation of Notification No. ·
18/71 dated 23.7.1971 and Tariff Item 26, therefore, projects the following
picture. Excise duty payable on final output of steel ingots would work out
to Rs. 350 per metric ton consisting of Rs. 280 per metric ton as duty on
B steel ingots and Rs. 70 per metric ton being the duty on the embedded
input of pig iron which results into the final output of one metric ton _of
steel ingots. If input of one metric ton of pig iron had suffered the octroi
duty at the time to its clearance for captive consumption, the appellant
would have been required to pay only Rs. 280 per metric ton as excise duty
on the final product of steel ingots. On the other hand, if input of pig iron
C had not borne such duty on its clearance for captive consumption, and the
duty thereon was deferred, the steel ingots on clearance would bear full
duty of Rs. 350 per metric ton which in its turn would result in deferred
payment of excise duty on input of pig iron on Rs. 70 per metric ton. Thus
as per the illustration under consideration, if the No~cation No. 18/71
D dated 23.3.1971 operated in the field, the department would have got Rs.
7,000 by way of excise duty on _the manufacture of input of pig iron of 100
metric tons when it was cleared for captive consumption and it would have
got excise duty of Rs. 24,500 on 90 metric tons of steel ingots in the light
of the set off permissible under the said Notification i.e. in all Rs. 31,500.
If the benefit of the said notification was not available, as in fact it is not
E available as the input of 100 metric tons pig iron had not borne any duty
at the relevant time and the department had permitted the appellant to
adjust it ultimately at the stage of manufacture of final product of 90 metric
tons steel ingots which utilised the entire 100 metric tons of pig iron for its
production, in the absence of separate bifurcation, the net result would still
F remain the same. Full excise duty of Rs. 31,500 on 90 metric tons of steel
ingots @ 350 per metric ton without giving any benefit of adjustment would
become available to the department. In either case, the appellant would he
out of pocket to the requisite amount of Rs. 31,500 by way excise duty
which would fully meet the department demand of the full excise duty of
Rs. 7,000 payable on the total input of 100 metric tons of pig iron. When
G the amount of excise duty so recovered on 90 metric tons of steel ingots
which had exhausted the entire pig iron, accounted for full duty on the
entire quantity of input of pig iron, it is difficult to appreciate as to how
the very same quantity of 100 metric tons of pig iron as input can again be
subjected to excise duty because a further unintended product of 10 metric
H
STEELAlITHORnYOFINDIALTD.v. COU..ECIOROFC.E.(S.B.MAJMUDAR,J.] 303

tons of steel scr.ap also resulted from the very same process of manufacture A
undertaken by the appellant in its steel making furnace. Consequently, it
must be held that the impugned demands of excise duty clearly resulted in
seeking to recover excise duty tWice on the input of pig iron utilised by the
appellant in manufacturing the final product of steel ingots and which in
the same process as a by-product gave rise to steel scrap whi!;h was fully B
exempted from excise duty o.n account of the concerned exemption
notification.

In this connection, we may note that the reasoning of the CEGAT
as noted in paragraph 7 of the impugned judgment is clearly unsust~able.

-
The CEGAT has observed that in this case steel melting scrap falling under C
· Tariff Item 26 has been produced from iron on which duty has not been
paid and the final product has been cleared without paying the duty or
following the procedure of Chapter X as stipulated in Notification No.
1som dated 18.6.1977. It has been further observed that the department
was justified in recovering duty at the stage prior to the last stage as in the D
last stage the produce, i.e., steel melting scrap is subject to nil rate of duty.
With respect, the error committed by the CEGAT is to .the effect that"it
had failed to appreciate that though duty on the input of pig iron at prior
.
\
stage was not paid, whole of that duty got paid on clearance of steel ingots
which were the main final product and the emergence of ·a minor by-
product like steel melting scrap which might have been cleared on payment E
of nil duty had no impact whatsoever for enabling the department to once
again bring to tax the same input of pig iron.

We may also note that the reliance placed by the learned counsel for
the appellant on two decisions of this Court in Mis. Swadeshi Polytex Ltd. F
v. Collector of Central Excise, (1990) 2 SCC 358 and in Union of India &
Ors. Etc. v. Indian Aluminium Co. Ltd. Etc., (1995) Supp. 2 SCC 465 may
not be strictly apposite on the facts of the present case as the by-products
which were dealt with in these cases were not excisable goods at all and
..... had no independent market. In the present case even according to the
j appellant steel melting scrap had a market value and was capable of being G
sold outside if not captively consumed by the appellant. In ground No.
(V)B in the memo. of appeal, in this connection, has averred as under :

"Because Steel Melting scrap was exempted in terms of Notifica-
tion No. 1son1 dated 18/6/1977 upon conditions mentioned there- H
304 SUPREME COURT REPORTS [1997) 2 S.C.R.

A in. The conditions having been fulfilled, no central excise duty can
be determined or demanded, on the said 'steel melting scrap' when
sold to the steel plants following the Chapter X procedure."

It, therefore, cannot be urged by the learned counsel for the appellant that
steel melting scrap was not an excisable commodity or that it could not be
B sold in the market. Consequently, the aforesaid decisions cannot be
pressed in service by the appellant in the present ·case. However, as
discussed earlier, the impugned demand of duty on the supposed em-
bedded input of pig iron which resulted into the steel melting scrap were
clearly unauthorised and incompetent. The appellant is entitled to succeed
C on this ground alone. In the result, the appeal is allowed, the judgment and
order of the CEGAT is set aside, the impugned demands pursuant to both
the notices dated 21.11.1980 and 23.11.1981 and the consequential ad-
judication thereon as confirmed by the CEGAT are quashed and set aside.
The question of refund of Rs. six lakhs deposited by the appellant pursuant
to the order of the CEGAT will have to he processed by the Collector of
D Central Excise, Bolpur in accordance with law and in the light of the
decision of this Court in Mafatlal Industries Ltd. v. Union of India, [1997)
89 ELT 247. The proceedings for this aforesaid limited purpose will stand
restored to the file of the Collector, Central Excise, Bolpur. Ordered
accordingly. In the facts and circumstances of the case, there will be no
E order as to costs.

BHARUCHA, J. I have had the benefit of reading the judgment that
my brother, Majmudar, J., is about to deliver and I am in respectful
agreement therewith. These few lines may be read as an addendum thereto.

F Let me assume for the moment that the assessee was not making
clearance on the basis of "the later the better" principle. It would have paid
excise duty on the pig iron input and claimed, under the notification dated
27th March, 1971, set-off of the amount thereof when clearing the steel·
ingots produced therefrom. To illustrate, it would have paid Rs. 'X' as
G excise duty upon, say, 100 tonnes of pig iron and claimed the set-off of Rs.
'X' against the excise duty of Rs. 'Y' payable on the steel ingots produced
therefrom.

The assessee has, with the pernuss1on of the excise authorities,
followed over a large number of years "the later the better" principle. It
H does so to save itself and the excise authorities the hassle of making the
SIBELAUTIIORITYOFINDIALTD. v. COLLECTOROFC.E. [BHARUCHA,J.) 305

book entries required by the said notification of taking and giving credit A
for the excise duty on the pig iron when paying excise· duty on the steel
ingots produced therefrom. Instead, the assessee pays excise duty on the
steel ingots that it manufactures and does not pay excise duty on the pig
iron that it uses in such manufacture. To use the example aforementioned,
it pays excise duty of Rs. 'Y' on the steel ingots.
B
By reason of the use of "the later the better" principle, with the

--. concurrence of the Excise authorities, the assessee cannot be placed in a
position more disadvantageous than it would have been had it not followed
that principle. It cannot be asked to pay excise duty on some theoretical
proportion of pig iron that has not been used in the manufacture of steel C

- ingots but has come out, incidentally, as steel scrap. It must be borne in
mind that the pig iron is used to produce the steel ingots and not the
'jncidental steel scrap.

S.M. Appeal allowed.

'l