1. The question that falls for decision in this case is whether cuttings and trimmings of polyurethane foam are liable to duty as "polyurethane foam" under item 15A(3) of the Central Excise Tariff.
2. The facts of this case are not in dispute. Briefly stated, in the first instance the appellants manufacture polyurethane foam in the form of a huge block or bun. The bun is cut into smaller blocks which are later cut into articles of desired shape and size. Sometimes, smaller blocks are bonded together with adhesive to form large sized articles like mattresses. Cutting and trimmings arise in the process of cutting of bun into blocks and of blocks into articles etc. These cuttings and trimmings are also used by the appellants for manufacture of articles of polyurethane foam by further cutting and bonding the pieces together. The appellants call these cuttings and trimmings as waste and scrap. During the hearing before us they quoted from three books, Bayer-Plastics, Bayer-Polyurethanes and Advances in Urethane Science and Technology by K.C. Frisch and S.L. Reegen to show that these process cuttings and trimmings were described therein as waste or scrap. They also quoted from the CCCN-Section VII to show that waste and scrap were included in Heading 39.01-39.06 by virtue of a specific Explanatory Note. The Collector's finding, on the other hand is that these cuttings and trimmings may be waste and scrap in a relative sense-when compared with polyurethane foam bun or block-but they are good usable material and are put to the same uses as the prime foam blocks. Notification No, 108/73-C.E., dated 28-4-1973 exempts articles of polyurethane foam from the whole of central excise duty leviable provided the articles are manufactured from waste or scrap of polyurethane foam. The appellants assert that the notification does not require that the waste and scrap referred to therein should be duty-paid and, therefore, importation of such a condition into the notification was not called for. They argue that intention of the Legislature in this respect was not a relevant factor as the language of the notification was capable of plain meaning. We find, however, that the dispute before us is not whether the notification makes it a condition of the exemption that the waste and scrap should be duty-paid but whether the cuttings and trimmings themselves are liable to duty as polyurethane foam under the Tariff entry 15A(3).
3. The appellants made a three-fold plea in support of their case before us :- (1) The Budget of 1982 inserted Explanation III below item 15A of the Tariff by which waste and scrap of synthetic resins and plastic materials were specifically included in the scope of item 15A(1). In 1981 Budget, waste and scrap of certain metal items were also added in the Tariff by insertion of specific entries in the respective metal tariff items. But there was no similar amendment to entry 15A(3) relating to polyurethane foam. Explanation III below item 15A was not applicable to the appellants as waste and scrap of polyurethane foam was not covered by entry 15A(1).
(2) Waste and scrap was an involuntary arising-a residual product coming into existence incidentally and not involving a process of manufacture and hence not chargeable to duty. In support of this argument, they relied on the following case law- (a) 1980-E.L.T.-99 (Calcutta). (I.C. & E. Morton India Ltd. and Ors.
v. Superintendent of Central Excise, Chopra and Ors.) (b) 1980-E.L.T.-146 (Bombay). (Indian Aluminium Company Limited & Another v. A.K. Bandyopadhyay and Ors.).
(c) 1980-E.L.T.-789 (C.B.E. & C.). In RE : Wirecond Delhi Pvt.
(3) Their process waste and scrap of polyurethane foam was not classifiable under the residuary item No. 68 of the Tariff. For this they relied on A.I.R.-1977-SC-597 (Dunlop India Ltd. v. Union of India).
The appellants stated that they did not want to press for the argument that waste and scrap consumed captively within their factory did not amount to removal of goods as contemplated in Rules 9 and 49 of the Central Excise Rules, 1944.
4. On a query from the Bench, the appellants confirmed that their case was that they should neither have to pay the duty on cuttings and trimmings of polyurethane foam nor on the articles made therefrom.
5. The Department's representative stated that waste and scrap means something not usable and which had to be re-cycled. Such was not the position in the appellants' case, as they were using the cuttings and trimmings for the same purpose as the primary foam blocks. There was no dispute that cuttings and trimmings were small pieces of polyurethane foam only and since there was no restriction in entry 15A(3) as to the shape or size of polyurethane foam, the cuttings and trimmings very much remained covered by the said entry. The reason why it was considered necessary to include waste and scrap in entry 15A(1) by means of Explanation III was because of the highly technical and scientific wording of the said entry. On the other hand, entry 15A(3) "Polyurethane foam" was a very simple one. As the Central Excise Tariff was not based on the CCCN, Section Notes and Chapter Notes of the CCCN were not relevant to interpret the entries in the Central Excise Tariff. In any case, what the CCCN stated was that waste and scrap of synthetic resins and plastics remained covered within Chapter 39. He distinguished the authorities cited by the appellants saying that the cases covered by these authorities were of refuse, scum or rubbish (dross and skimmings of aluminium), or of aluminium scrap which required re-melting. On the other hand, in the appellants' case the cuttings and trimmings were good usable material as shown by their actual use. He stated finally that it was not the Department's case that these cuttings and trimmings were covered by item 68.
6. We have carefully considered the matter. It is not the Department's case that cuttings and trimmings of polyurethane foam are covered by item 15A(1) or item 68 of the Central Excise Tariff. It is also not in dispute that notification No. 108/73-C.E., does not make the exemption contained therein conditional on the fact that waste and scrap of polyurethane foam should be duty-paid. The point which is really in dispute before us is whether process cuttings and trimmings of polyurethane foam remain covered by item 15A(3) "Polyurethane foam" or not. It cannot be a matter of dispute that a small piece of polyurethane foam cut from a bigger bun or block of poiyurethane foam will, in nature, characteristics and composition of the material, remain polyurethane foam only. In the present case, even the use of these smaller pieces is the same as that of the bigger pieces, namely, the manufacture of polyurethane foam articles. It is not the Department's case that cuttings and trimmings amount to a new product different from the parent polyurethane foam bun or block. The argument of the appellants that no process of manufacture is involved in the case of cuttings and trimmings which are only incidental arisings is, therefore, misplaced. The dispute here is not whether any new product comes into existence but whether cuttings and trimmings continue to remain polyurethane foam for the purpose of the Tariff entry 15A(3) or not. As regards the appellants' argument that no duty can be charged on waste and scrap, we agree with the Department's representative that as commonly understood waste and scrap means something which cannot be used for the purpose for which the parent material is used and, therefore, has either to be thrown away or re-cycled. Such is not the case here. To quote from the book, "Bayer-Plastics" relied on by the appellants themselves, "Scrap produced in the manufacture and subsequent processing of Moltopren may be regarded as essentially high quality material and utilised in the form of flock or zig-zag strips e.g. for filling pillows and other articles and generally wherever its light weight and good insulating properties are valued. The production of laminates and mouldings from flock by cementing is a further application of scrap." The trade literature thus shows that process cuttings and trimmings, though called waste or scrap, are essentially "high quality material". The fact that the appellants themselves are using these cuttings and trimmings for the purpose of manufacturing polyurethane articles, i.e., the same purpose to which prime foam blocks are put, amply substantiates it. The point that there is no restriction as to shape or size in item 15A(3) is well taken by the Department's representative. Since the cuttings and trimmings are nothing but smaller pieces of polyurethane foam and are good usable material, we hold that they remain covered by item 15A(3) and are liable to duty thereunder.
7. The cases cited by the appellants in their support are easily distinguishable from the facts of the present case. In 1980-ELT-99 (Calcutta), the dispute related to various small bits and dusts of assorted sorts of sugar etc. fallen out into the trays and on the floor in the course of manufacture of confectionary. These bits and dusts were collected and sold at a nominal price of about Rs. 1.10 per kg. as against the average price of about Rs. 7.50 per kg. for the actual confectionary. The various small buyers who purchased these bits and dusts usually melted the same to extract sugar for the purpose of preparing cheap syrups used in preparation of low grade sweet-meats.
The said scrap was not known or sold in the market as confectionary.
The High Court held that the scrap could not be taxed as finished product if it was obtained in the course of manufacture and not out of manufacture of finished product because if the raw material underwent some change in the process of manufacture it could not be equated with the finished product. In 1980-ELT-146 (Bombay), the dispute related to dross and skimmings which the High Court held were merely refuse, scum or rubbish thrown out in the process of manufacture of aluminium sheets and which cannot be said to be the result of treatment, labour or manipulation whereby a new and different article emerged with a distinctive name, character or use which could ordinarily go to the market to be bought and sold. In 1980-ELT-789, the Central Board of Excise and Customs held that aluminium scrap which had to be re-melted before being put to any use was not a new product covered by Item 68 but remained covered by Item 27(a) as aluminium in crude form. It is quite evident that the nature of the materials involved in all these three cases was such they were really waste and scrap which cannot be used for the same purpose as the parent material and had either to be thrown away or re-cycled. The nature of the material involved in the case before us is quite different inasmuch as they are just smaller pieces of polyurethane foam and they can be, and are in fact, used for manufacture of polyurethane foam articles, i.e., the same purpose for which the prime foam blocks are used. The case law cited by the appellants does not, therefore, advance their case. The case really relevant to the facts of the present case is the Division Bench judgment of Allahabad High Court (1982-ELT-937-Oudh Sugar Mills Ltd. y.
Union of India and Others) in which it was held that the word "production" in Section 3 of the Central Excises and Salt Act, 1944 is used in juxtaposition with the word 'manufacture' and obviously refers to finished and semi-finished article made from raw material and, therefore, any by-product or intermediate or residual product in the manufacture of particular goods will be covered by the word 'production'.
8. The appellants have stated that various tariff items relating to metals were amended and a separate sub-item relating to waste and scrap was put in them but that no such amendment has been made in the case of Item 15A(3). The reason for this could be that various sub-items in the concerned metal items (26A, 26B, 27 etc.) applied to specified forms of those metals and some-doubt or difficulty might have been felt in fitting waste or scrap into the particular forms described in the tariff. There is, however, no such doubt or difficulty in the case of item 15A(3) as no form or shape of polyurethane foam is mentioned therein. So long as the material remains polyurethane foam in nature, characteristics, composition and use, it will continue to be covered by Item 15A(3).
9. To sum up, we hold that cuttings and trimmings of polyurethane foam, though described as waste and scrap, are smaller pieces of high quality and usable polyurethane foam and hence remain covered by Item 15A(3) "Polyurethane foam" and are liable to duty thereunder. In the result, we reject this appeal.