CCE, LUCKNOW v. M-S. WIMCO LTD

Citation: [2007] 10 S.C.R. 560

Court: Supreme Court of India

Bench: ARIJIT PASAYAT, LOKESHWAR SINGH PANTA

Case summary

CCE, LUCKNOW v. M-S. WIMCO LTD.pdf

Judgment text

CCE, LUCKNOW v. MIS. WIMCO LTD. OCTOBER 5, 2007 [DR ARIJIT PASAYAT AND LOKESHWAR SINGHPANTA,JJ. ] Central Excise TariffAct, 1985; Sub-heading 4702. 90/Central Excise Act, 1944; S. llAB! Central Excise Rules; rr. 52-A and 173-Band Exemption Notification No. 89195 dated 18. 5. 1995: Classification-Waste/scrap/paringsfrom manufacture ofprinted paper boxes sold by assessee-No declaration made-Neither classification listfiled nor invoices issued in terms ofRule 52A ofthe Rules-Levy ofExcise duty-Show Cause Notice-Revenue confirmed demand ofcertain amount ofthe duty and also imposed penalty- .

, Appeal against the order ofRevenue allowed by the Tribunal holding that charging ofexcise duty on such waste/scrap/parings tan/amounts to charging ofduty on the same product twice-On appeal, Held: Tribunal came to an abrupt conclusion without considering thefactual scenario-Hence, matter remitted to itfor consideration afresh in the light ofthe decision on the subject, as referred in the judgment- Directions issued Respondent-assessee is manufacturer of printed paper board boxes from paper board. The waste/scrap/parings generated in the process was allegedly sold by the assessee without making declaration ofsuch transactions, nor did it file classification list under Rule 173-B of the Central Excise Rules, 1944. Since goods in question were classifiable under sub-heading4702. 90 ofthe Central Excise TariffAct, a show cause notice was issued by the competent authority. Later, CommissionerofCentral Excise confirmed the demand ofexcise duty amounting to Rs.

23,20,000/- imposing penalty ofidentical amount and also directed payment ofinterest at the appropriate rate underSection CCE, LUCKNOW v. M/S. WIMCO LTD. 561 llAB of the Central Excise Act, 1944. Aggrieved, the assessee filed A appeal before the CEGAT. The Tribunal held thatthe paperand paper boardare used as inputs and continue to be paper and paperboard when they appear as waste/scrap/parings. Charging ofduty on such waste/ scrap/paring tantamounts to chargingofduty on the same producttwice. Hence the present appeal. Revenue contended that effect of non-filing ofclassification list under Rule 173B ofthe Rules has not been considered by the Tribunal; that the fact that there is a sale of waste/scrap/parings, was also not considered by the Tribunal; and that the benefit ofexemption under Notification No. 89/95dated18. 5. 1995 is not available to the assessee. Allowing the appeal, the Court HELD: 1. 1.

Merely because there is a tariffentry, the goods does not become excisable unless the process ofmanufacture is involved. [Para 12] [566-B] Commissioner ofCentral&cise, Chandigarh-Iv. Marlged Vanaspati & AlliedIndustries, (2003) 153 ELT 491 SC, relied on. 1. 2. Since CEGAT has not dealt with the factual scenario in detail and has come to an abrupt conclusion that no manufacture is involved, the matter is remitted to it for fresh consideration in the light of the relevant decisions. [Para 14) [568-E] Kores India Ltd, Chennai v. Commissioner ofCentral Excise, Chennai, [2005) 1 SCC 385, referred to. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4567 of 2002. From the Final Order No. 247/2001-D dated 28. 11. 2001 passed G by the Customs Excise and Gold Control Appellate Tribunal, New Delhi in Appeals No. E/281/2001-D. Nagendra Rai, T. V. Ratnam, Jayesh Gaurav, K. Subba Rao and B. Krishna Prasad for the Appellant. \ \ \ V. Lakshmi Kumaran, Alok Yadav and Rajesh Kumar for the Respondent.

The Judgment ofthe Court was delivered by DR. ARIJIT PASAYAT. J. 1. Challenge in this appeal is to the order passed by the Customs Excise and Gold (Control) Appellate Tribunal, New Delhi (in Short the 'CEGAT'). By the impugned judgment dated 28. 11. 2001 CEGAT allowed the appeal filed by the respondent holding that waste/scrap/parings of paper board which are generated during the process ofmanufacture of paper and paper board in nothing new, distinct in name, character and use for the purpose oflevy ofduty. Therefore, it was held that no duty was chargeable. 2. Background facts in a nutshell are as follows: During investigation ofthe accounts ofMis Wimco Ltd. Bareilly, it transpired that the respondent was using paper and paper board for the manufacture of printed paper board boxes. During the course of manufacture of such boxes, waste/scrap/parings are gererated, it was alleged that this waste was classifiable under Chapter sub-heading 4702.

90 ofCentral Excise Tariff Act, 1985 (in Short the 'Tariff Act'). . Scrutiny ofrecords revealed that the respondent was selling this waste/ scrap/parings. It was also noticed that they did not declare transactions ofwaste/scrap/parings, and did not file classification list under Rule 173of the Central Excise Rules, 1944 (in short the 'Rules') and did not issue any invoices prescribed under Rule 52-A. Accordingly, a show cause notice (in short 'SCN') was issued to the respondent asking it to explain as the why duty amounting to Rs. 23,20,000/- should not be demanded and why penalty should not be imposed and why interest should not be charged.

In reply to the SCN, the respondent submitted that scrap is generated at two stages; that it arises before the manufacturing Operation starts; that the demand ofduty on the quantity ofscrap which is generated during the pre-manufacturing operations cannot be st•stained; that the scrap is not a result of manufacturing process; that the word 'manufacture' is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some changes in a substance; that manufacturing implies a change; that every change in an article is the result oftreatment; that every treatment is not manufacture as something more is necessary; that there must be transformation and a new different article must emerge having a distinctive name, character and use. It was submitted that in their case, generation ofscrap was not manufacture.

It was also submitted that longer period is invokable and substantial part of the demand was beyond a period of six months; there was no evidence ofany suppression or mis-statement; there was a bona fide beliefthat waste generated in the process ofmanufacture ofmatch boxes was not dutiable as it arose out of duty paid paper and card board. Commissioner of Central Excise confirmed the payment ofduty amounting ofRs. 23,20,000/- imposed penalty ofidentical amow1t and also directed payment of interest at the appropriate rate under Section 11AB ofthe Central Excise Act ,1944 (in short the 'Act'). 3. The stand of the respondent before the CEGAT was that there was no manufacture inasmuch as whatever is used is paper and paper board and whatever is generated as waste/scrap/parings is generated out of duty paid paper and paper board and a new different article must emerge having a distinctive name, character and use to constitute E manufacture.

It was submitted that in their case, generation ofscrap was not manufacture and hence not dutiable. In essence, it was submitted that since duty paid paper and paper board was used by it, duty cannot be demanded again on waste/scrap/parings which are nothing but paper and paper board. 4. It was also submitted that if Department's stand is accepted, assessee would be entitled to modvat credit. Such credit available on paper and paper board would be much higher than duty payable on waste/scrap/parings. 5. The stand ofrevenue on the other hand was that what is generated is waste/scrap/parings and there is specific heading for these items in the Central Excise Tariffand, therefore, the items are classified distinctively under Chapter heading 4702. 90. It was submitted that as a result of manufacture, waste/scrap and paper board come into existence which H -~ \ are distinct in name, character and use and, therefore, dutiable. 6. Tribunal noted that the Chapter Heading 4702.

90 ofthe Schedule to the Tariff Act reads "Recovered (waste and scrap) paper or paper board, and is not "recovered waste or scrap". In the instant case, whatsoever is generated in the process ofmanufacture ofmatch boxes is paper and paper boards in small pieces. This paper and paper board are used as inputs and continue to be paper and paper board when they appear as waste/scrap/parings. Charging ofduty tantamounts to charging ofduty on the same product twice. CEGAT also noted that in the instant case there is no value addition. 7. In support of the appeal, learned counsel for the appellant submitted that effect ofclassification list filed under Rule 173B has not been considered and there is a sale of waste/scrap/parings. 8. The Commissioner observed that the benefit ofexemption under Notifications No. 89/95 dated 18. 5. 1995 is not available. 9.

Reference was made to following observations ofthe adjudicating authority: "I find that the case has not been contested on merits at all by the party. The SCN to the party was issued on the allegation that during the course of manufacture of printed paper board boxes waste parings scrap is generated which is classifiable under the Chapter sub-heading 4702. 90 ofthe schedule to the Central Excise Tariff Act 1985 (for Short tariff). The scrap so generated is liable to Central Excise ~uty ifsold to outside buyers by the manufactures who also manufacture and clear other excisable goods on payment ofduty. Since the party 'manufacture' and "clear" matches apart from the scrap waste parings which are chargeable to duty they are not entitled to the benefits ofexemption from duty in terms of . G Notification No. 89. 95 dated 18. 5. 95. In this case the party's contention that such waste raised during pre-manufacturing operation is not correct.

Because manufacture means the entire process ofthe converting raw material into finished goods. It is an afterthought that they divided their waste & scrap in two categories because in their 173B declaration dated 28. 2. 1999 manufacturing process ofmatch has been described in detail in which phase-II (process ofmaking ofempty boxes) starts from the receipts ofcardboard in the form ofJumbo Rolls from various papers mills. So this variety ofscrap cannot be said to be a pre-manufacturing waste. The manufacturing activity commences the moment the processing of the inputs is started inside the manufactory. The party has not denied that the so called premanufacturing took place somewhere else then the manufacturing premises. " I0. Learned counsel for the respondent supported the order ofthe CEGAT. 11. In Commissioner ofCentral Excise v. Indian Aluminium Co. Ltd. (2006) 203 ELT SC 3 it was observed inter alia as follows: / "l 8. 111e 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 'dross' as a marketable commodity but then percentage of the metal in dross may not by itselfmake it excisable, ifit is otherwise not. An article is not exigible to tax only because it may have some saleable value. 19. It may be that dross no longer answers the description of"waste and scrap" in view ofthe Changes made in the Tariff. It is, however, almost well-settled that even ifsome percentage ofmetal is found in the dross the same in absence ofsomething more in the entry would not be rendered as an excisable article. This Court in Indian Aluminum (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, H 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 ofan article may be the result oftreatment, 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 ofIndia and Anr. v. Delhi Cloth and General Mills Co. Ltd AIR (1963) SC 791]. " 12. It is to be noted that merely because there is a tariff entry it does not become excisable unless manufacture is involved. In Commissioner of Central Excise, Chandigarh-Iv. Markfer Vanaspati & Allied Industries (2003) 153 ELT 491 SC it was observed as follows: "2.

The question for consideration is whether "spent earth" is liable to excise duty or not. Under the Tariff, prior to its amendment in 1985, it had been consistently held that "spent earth" was not liable to duty. However, with the enforcement ofne'C' Tariffin 1985, a conflict arose between various benches of the Tribunal. Some benches held that "spent earth" was still not excisable, whereas other benches held that, as it now stood included by a specific subheading, it became excisable. In view ofthese conflicting decisions, the matter was placed before the larger Bench ofthe CEGAT which by the impugned judgment has held that "spent earth" was still not dutiable. Hence these appeals. 3. The only question for consideration for us is whether a goods becomes exciseable merely because it falls within a tariffitem. After 1985 Tariffitem 1507 reads as "residue resulting from the treatment offatty substances".

It is submitted that "spent earth" is a residue resulting from treatment and is thus now excisable. What we have to consider is whether the well settled twin tests of"manufacture and marketability" cease to apply ifa goods falls within a tariffentry. 4. Prior to this Entry being introduced in 1985, it had been consistently held that "spent earth'' was not manufactured. It had been consistently held that "spent earth" remained "earth" even after processing. It had been consistently held that all that happened was ' j CCE,LUCKNOWv. M/S. WIMCOLTD. [PASAYAT,J. ] 567 that its capacity to absorb was reduced. It had been consistently A held that duty having been paid on "earth", no duty was leviable on "spent earth as it remained the same product. It had been held that to levy duty on "spent earth" would amount to levying duty twice. It is on this ground that it has been held that "spent earth" was not excisable. Even now it has not been shown that there is manufacture.

The only submission is that "spent earth" is a residue resul~from the treatment offatty substances. The submission is J that now that there is a specific Entry which makes "residue resulting from the treatment offatty substances" excisable, duty has to be paid on "spent earth". In other words, what is submitted is that C merely because a good falls within one ofthe Tariffitems it becomes excisable. 5. In support oftheir submission, reliance in placed on the case of Lal Wollen & Silk Mills (P) Ltd. , Amritsar v. Collector of Central Excise, Chandigarh, [1999] 4 SCC 466. In this case the question was whether excise duty was to be paid on dyed worsted woolen yarn made from duty paid worsted woolen grey yam. It was argued that there was no manufacture. The Court however held as follows: "Admittedly both "dyed yarn" and "grey yarn" are covered by two separate distinct heads oftariffitems with different duty. So this itselfrecognizes them to be two different goods with separate levy.

In this view ofthis it cannot be urged that there is no manufacture of"dyed yarn" from the "grey yarn". Undoubtedly this authority appears to support the contention which is raised. 6. However, it appears to us that the observations made in this authority are "per incuram". In so observing, the decision ofa larger Bench of this Court in the case of Collector of Central Excise, Indore v. Universal Cable Ltd. reported in [1995] Supp. 2 SCC 465, has not been noted or con~idered. In this case an argument that a good become excisable because it is cove~ed by TariffEntry, has been negatived. In the case ofB. P. L. Pharmaceuticals Ltd. v. Collector ofCentral Excise, \ . ... [1995] Supp. 3 SCC 1 it has also been held that merely because there is a change in the Tariff Item the goods does not become excisable. Subsequently in a judgment dated 13th Febmary, 2003 in Civil Appeal No.

6745 of 1999 it has been held that merely because an item falls in a Tariff Entry, it does not become excisable unless there is manufacuture and the good is marketable. In Lal Woolen & Silk Mills' case (supra) it has been held that the twin test ofmanufacture and marketability is not to apply. It is not possible to accept the contention that merely because an item falls in a TariffEntry it must be deemed that there is a manufacture. The law still remains that the burden to prove that there is manufacture and that what is manufactured is on the revenue. In this case no new evidence is placed to show that there is manufacture. "Spent earth" was "earth" on which duty has been paid. It remains earth even after the processing. Thus ifduty was to be levied on it again, it would anlount to levying double duty on the same product. 13. What amounts to "manufacture" has been dealt with by this Court in Kores India Ltd, Chennai v. Commissioner of Central Excise, Chennai, f2005] 1 SCC 385. 14.

Since CEGAT has not dealt with the factual scenario in detail and has abruptly come to an abrupt conclusion that no manufacture is involved, the matter is remitted to it for fresh consideration in the light of decisions referred to above. 15. The appeal is allowed. No cost. S. K. S. Appeal allowed.