Full Judgment Text
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CASE NO.:
Appeal (civil) 240 of 2005
PETITIONER:
Commissioner of Central Excise
RESPONDENT:
Indian Aluminium Co. Ltd.
DATE OF JUDGMENT: 29/09/2006
BENCH:
S.B. Sinha & Dalveer Bhandari
JUDGMENT:
JUDGMENT
S.B. Sinha, J.
Whether zinc dross and flux skimming are excisable articles is the question
involved in this appeal, which arises out of a judgment and order dated
25.06.2004 passed by the Customs, Excise & Service Tax Appellate Tribunal,
New Delhi, allowing the appeal filed by Respondent herein.
Respondent herein manufactures aluminium sheets, the raw material wherefor
is aluminium oxide. In the melting furnance, the top layer of the molten
metal is exposed to atmosphere and gets oxidized. As a result of oxidation,
a thin layer/ film is formed which is removed by skimming. The second layer
so removed is called dross. Indisputably, the percentage of metal in dross
will vary and there would be some quantity of aluminium metal therein.
Whether excise duty is payable on ‘dross’ came up for consideration before
a Bench of this Court in Respondent’s own case i.e. in Union of India and
Ors. v. Indian Aluminium Co. Ltd. and Anr., [1995] Supp 2 SCC 465 : (1995)
77 ELT 268. The said decision has been followed by a 3-Judge Bench of this
Court in Collector of Central Excise, Patna v. Tata Iron & Steel Co. Ltd.,
[2004] 9 SCC 1.
The Tribunal by reason of its impugned" judgment following Indian Aluminium
(supra) and Tata Iron and Steel Co. Ltd, (supra) opined that the issue is
covered by the said decisions.
Mr. Gopal Subramanium, learned Additional Solicitor General appearing on
behalf of Appellant inter alia raised a contention that Indian Aluminium
(supra) and consequently Tata Iron and Steel Co. Ltd., (supra) do not lay
down a good law having regard to the fact that the classification of ‘
dross’ under the Central Excise Tariff Act, has been changed. It is, thus,
no longer a waste or scrap but would come within the purview of ‘ash and
residue’. The learned Additional Solicitor General would submit that Indian
Aluminium (supra) proceeded on the basis that dross was a waste material
and it was not marketable, whereas in fact it is not only marketable but in
fact contains high percentage and in some cases upto 78% of aluminium. It
is the contention of the learned Additional Solicitor General that the
value of dross is sometimes more than the value of the aluminium itself and
thus, it will come within the purview of the term "goods".
Per contra, Mr. V. Lakshmikumaran, learned counsel appearing on behalf of
Respondent, argued that dross is not a manufactured item. It may be a
produce in the process of manufacturing but that by itself would not make
it a manufactured product.
Chapter 26 of Central Excise Tariff deals with ores, slag and ash. Sub-
heading 2620.00 of Heading 26.20 of the said Chapter reads as under:
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"Heading Sub-Heading Description of goods Rate of duty
26.20 2620.00 Ash and residues (other 16%
than from the manufacuter
of iron or steel), containing
metals or metal compounds)
Paragraph 3 of the Chapter Note states that the said Heading applies only
to ash and residues of a kind used in industry either for extraction of
metals or as a basis for the manufacture of chemicals compounds of metals.
Section XV of the Central Excise Tariff deals with base metals and articles
of base metal. Note 8 defines waste and scrap to mean "metals waste and
scrap from the manufacture or mechanical working of metal, and metal goods
definitely not usable as such because of breakage, cutting-up, wear or
other reasons. Chapter 76 deals with aluminium and articles thereof.
‘Aluminium, not alloyed’ is defined to mean metal containing by weight at
least 99% of aluminium, provided that the content by weight of any other
element does not exceed the limit specified therein. ‘Aluminium waste and
scrap’ comes within the purview of Sub-Heading Nos. 7602.10 and 7602.90 of
Heading 76.02 which read as under:
"Heading Sub-Heading Description of goods Rate of duty
76.02 Aluminium waste and scrap
76.02.10 Waste and scrap used within Nil
the factory of production for
the manufacture of
unwrought aluminium plates
and sheets
76.02.90 Others 16%
Explanatory Note in respect of ‘aluminium waste or scrap’ reads, thus:
"76.02 - Aluminium Waste or Scrap. - The provisions concerning waste and
scrap in the Explanatory Note to heading 72.04 apply, mutatis mutandis, to
this heading.
Aluminium waste and scrap is an important source of raw material
for the aluminium industry. It is also used as a de-oxidising or
de-carburising agent in metallurgy.
The heading does not cover:
(a) Slag, dross, etc., from the manufacture of iron or steel containing
recoverable aluminium in the form of silicates (heading 26.18 or 26.19).
(b) Ash and residues from the manufacture of aluminium (heading 26.20)
(c) Ingots and similar unwrought forms, cast from remelted aluminium waste
and scrap (heading 76.01)."
In Indian Aluminium (supra), the contentions of Respondent were noticed in
the following terms:
"(1) that aluminium dross and skimmings are finished excisable goods
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produced by the assessees which are exempted from the whole of the duty of
excise leviable thereon or are chargeable to nil rate of duty, and (2) a
proportionate credit should not be allowed to the assessees in respect of
the excise duty paid on that portion of aluminium ingots which "result in
the manufacture’5 of aluminium dross and skimmings. This argument proceeds
on the assumption that aluminium dross and skimmings are finished excisable
goods. If one looks at the definition of excisable goods, it is clear that
aluminium dross and skimmings were not in the First Schedule to the Central
Excises and Salt Act, 1944 at the relevant time and are not excisable
goods, finished or otherwise."
Noticing that aluminium dross does arise during the process of manufacture,
this court held:
"The entire quantity of raw material, namely, duty-paid aluminium ingots
procured by the assessees from outside was used in the manufacture of
aluminium sheets. It is nobody’s case that the aluminium sheets which were
manufactured by the assessees could have been manufactured out of a lesser
quantity of aluminium ingots than what was actually used. In the process of
manufacture, dross and skimmings had to be removed in order that aluminium
sheets of the requisite quality could be manufactured. This does not mean
that the entire quantity of aluminium ingots was not used for the
manufacture of aluminium sheets. In the course of manufacture, a certain
quantity of raw material may be lost because of the very nature of the
process of manufacture or some small quantity of raw material may form part
of wastage or ashes. This does not mean that the entire raw material was
not used in the manufacture of finished excisable products. An exact
mathematical equation between the quantity of raw material purchased and
the raw material found in the finished product is not possible, and should
not be looked for."
What is the meaning of dross is the core question.
In Indian Aluminium (supra), this Court noticed the meaning of the term
‘dross’ in the following terms:
"The term c dross5 is defined in The New Shorter Oxford English Dictionary
as:
"Dross, dregs ... (1) Impurities separated from metal by melting the scum
which forms on the surface of molten metal .... (2) Foreign matter mixed
with anything .... (3) Refuse, rubbish, worthless matter especially as
contrasted with or separated from something of value."
The ASM Metals Reference Book (2nd Edn., 1983) produced by the American
Society for Metals defines ‘dross’ as follows:
"The scum that forms on the surface of molten metals largely because of
oxidation but sometimes because of the rising of impurities to the
surface."
McGraw Hill Dictionary of Science and Engineering (1984 Edn.) defines it
as:
"An impurity, usually an oxide, formed on the surface of molten metal.""
The decision of this Court in Indian Aluminium (supra), it is submitted, is
no longer good law, as:
(a) There was no specific entry for dross when the decision was rendered by
this Court whereas Chapter heading 26.20 covers the same.
(b) Dross and skimming are not thrown out but are preserved for further
sale.
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The contention of Respondent, on the other hand, are:
(i) Appellants are not extracting metal from dross.
(ii) The content of metal in dross is immaterial.
(iii) Dross is not comparable to metal or waste.
(iv) The issue as to the dutiability of dross was settled by this Court
in Indian Aluminium (supra). Thereafter, the Tribunal after considering
Tariff Heading 26.20 held that dross was not dutiable.
Tariff Heading 26.20 was introduced with effect from 13.1986. It is not
waste but it comes under the heading ‘ash or residue’. It may be true that
the old tariff did not contain a specific entry as regards dross’ when the
decision of this Court was rendered but the question which arises for
consideration is whether only because there now exists a specific entry in
the Central Excise Tariff by way of ‘ash and residue, would the same by
itself make ‘dross’ subject to payment of excise duty although no
manufacturing process is involved.
The entry in question does not contain any legal fiction. It does not say
that any residue having more than a certain percentage of the metal would
be deemed to have been manufactured or would be excisable.Records
maintained by Respondent whereupon the Revenue has relied upon may be a
relevant factor to identify cdross’ as a marketable commodity but then
percentage of the metal in dross may not by itself make it excisable, if it
is otherwise not. An article is not exigible to tax only because it may
have some saleable value.
It may be that dross no longer answers the description of ccwaste and
scrap’’ in view of the changes made in the Tariff. It is, however, almost
well-settled that even if some percentage of metal is found in the dross
the same in absence of something more in the entry would not be rendered as
an excisable article. This Court in Indian Aluminium (supra) in fact
noticed that some amount of metal is found in dross and skimming. A
distinction, however, was made that dross and skimming are not metals in
the same class as ‘waste or scrap’. Even assuming that dross having a high
percentage of metal is a marketable commodity, the question, in our
opinion, would arise as to whether the same can be said to be a
manufactured product. The term ‘manufacture’ implies a change. Every
change, however, is not a manufacture. Every change of an article may be
the result of treatment, labour and manipulation. But manufacture would
imply something more. There must be a transformation; a new and different
article must emerge having a distinctive name, character or use. See Union
of India and Anr. v. Delhi Cloth and General Mills Co. Ltd., AIR (1963) SC
791.
We have noticed hereinbefore as to how dross comes into being. The learned
Additional Solicitor General submitted that in Indian Aluminium (supra)
itself this Court held that "undoubtedly dross and skimming do arise during
the process of manufacture’, but, it was not held therein that it amounts
to manufacture.
In Tata Iron and Steel Co. Ltd. (supra), on the other hand, this Court
noticed that dross and skimming are capable of being sold. This Court
furthermore opined that only because the article may have some saleable
value, the same would not render it to be ‘a manufactured product’.
This Court clearly opined:
"This Court, in conclusion, held that the onus to show that particular
goods on which excise duty is sought to be levied have gone through the
process of manufacture in India is on the Revenue and that the Revenue have
done nothing to discharge this onus."
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It was further held:
"In our opinion, this Court in Indian Aluminium Co. Ltd. has held that
merely selling does not mean dross and skimming are a marketable commodity
as even rubbish can be sold and everything, however, which is sold is not
necessarily a marketable commodity as known to commerce and which, it may
be worthwhile to trade in. The issue involved in this case is governed by
the past decisions of the Tribunal and also of this Court where the
Tribunal and this Court held that the zinc dross and skimming arising as
refuse during galvanisation process are not excisable goods. The Tribunal,
in our opinion, has rightly relied upon the decision of this Court in
Indian Aluminium Co, Ltd. and in view of the above decision of the Tribunal
following this Court’s opinion in Indian Aluminium Co. Ltd. we disagree
with the appellants that zinc dross, flux skimming and zinc scalings are
goods and hence excisable."
In this case also, it has not been contended that the article was obtained
during the process of manufacture. It was faintly suggested by the learned
Additional Solicitor General that the proposition of law in Tata Iron and
Steel Co. Ltd. (supra) has been overstated, but in view of our findings
aforesaid we do not think that we should enter into the said question.
For the reasons aforementioned, we find no merit in this appeal which is
dismissed accordingly. No costs.