Decided on October 10,1991

Somany Pilkingtons Pvt. Ltd. Respondents


Jyoti Balasundaram, G.P. Agarwal, Member (J) - (1.) THESE appeals arise out of a common order and are hence heard together and being disposed of by this common order.
(2.) BRIEFLY stated the facts of the case are that the respondents herein who are the manufacturers of glazed tiles falling under TI 23B of the first Schedule to the erstwhile Central Excise Tariff, filed classification list for broken pieces of glazed tiles waste classifying the same under TI 68. A show cause notice for classifying the product under TI 23B was issued and subsequently, in reply to the show cause notice the assessee withdrew the classification list and filed a fresh classification list describing the product as "scrap/waste glazed tiles" and claimed the same as waste matter under Rule 50 of the Central Excise Rules. Another Show Cause Notice was issued on 7 -10 -1983 proposing classification under TI 23B(3). The Assistant Collector vide his order dated 13 -12 -1983 classified the product under this Heading. The Collector (Appeals) set aside the order -in -original holding that the broken glazed tiles were not excisable under Rule 50. Hence these appeals by the Department.
(3.) IT is an admitted position that broken pieces of glazed tiles arise in the course of manufacture of glazed tiles. The Hon'ble Supreme Court, in the case of Khandelwal Metal and Engineering Works [1985 (20) E.L.T. 222 SC] has held that "the production of waste and scrap is a necessary incident of the manufacturing process. It may be true to say that no prudent business man 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 manufacturing process". It is necessary to note carefully that these words were written in respect of the question whether the imposition of excise duty on waste and scrap which is referred to in Clause 1(b) of Entry 26A of the First Schedule to the Central Excises and Salt Act, 1944 is either ultra vires Section 3 of that Act or beyond the legislative competence of Parliament. The question was not whether waste and scrap were goods as in our present case. The Hon'ble Supreme Court made a pronouncement on the vires of the items "waste and scrap". This is not to be understood to mean that waste and scrap have been accorded the status of goods. The Tribunal had occasion to consider the case of Khandelwal Metal Engineering Works in the case of Collector of Central Excise, Bhubaneshwar v. Aluminium Industries Ltd., Hiracut [1987 (31) E.L.T. 748 (Tri.) and after a detailed consideration of the Supreme Court's judgment (supra), the Tribunal held as follows: "In para 38, the court finally disposed of the question by ruling that Parliament had the legislative competence to make "waste and scrap" excisable under Entry 84 of List 1 of the Seventh Schedule to the Constitution. The scrap, ruled in the court, would be excisable goods under Item 26A(lb) of the central excise tariff, if it is produced in India. That is to say, because the law lists waste and scrap as excisable under the tariff, they became excisable goods to be taxed, if produced in India. Item 68 under which the department wanted to levy M/s. Aluminium Industries' scrap, has not received such a confirmation from the court; nor is it an entry of the central excise tariff for imposing duty on "waste and scrap" as was Item 26A(lb). Because Item 26A(lb) was found lawful entry by the Supreme Court for taxing waste and scrap is not a reason for finding Item 68 similarly lawful. The court gave its approval to the taxation of waste and scrap in the Khandelwal judgment only because it found an explicit entry waiting for them. So even if no prudent man will intentionally manufacture waste and scrap, if such waste and scrap are produced, they must be taxed as the legislature has specifically levied a tax on them. There is nothing of this specificity about Item 68 for scrap, nor can we say that the Supreme Court's decision allows a levy on scrap under Item 68. It does not; and this was the levy in this case which the factory rightly contests; not a levy on waste and scrap. The Khandelwal judgment does not support this levy. In 1987 (29) E.L.T. 502 (Del.) [1987 (12) ECR 850 (Delhi)] (Civil Writ Petition No. 214/1982 decided on 8 -12 -1986) re: Modi Rubber Limited, the High Court at New Delhi dealt with just this problem. The waste and scrap of rubber tyre products were assessed by the department under Item 68. The court noticed that Item 15A had specific heads for waste and scrap, and Item 18 for non -cellulosic waste; but Item 16 for Tyres had none. The court observed that when the legislature wanted to cover waste or scrap arising in manufacture it has been specifically provided in the tariff items. After a thorough analysis, the court ruled in para 16 that waste and scrap obtained in the course of manufacture are not goods, and that there was no event of manufacture of waste or scrap." Hence the order of assessment under TI 68 on aluminium waste and scrap was set aside. In the case of M/s. Indian Aluminium Company Ltd. v. Collector of Central Excise, Belgaum [1987 (31) E.L.T. 158 (Tri.) the Tribunal held that aluminium dross and skimmings are not goods excisable to duty under Item 68. The Tribunal considered Khandelwal Metal Engg. Works case in paragraph 5 of its order.;

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