1. This batch of petitions was heard together and will be decided by the common judgment. The counsel for the petitioners were agreed that the judgment in this petition will cover the other cases also. There are some extra points in the petitions i.e., C.W. 1108 and 1109/1982 relating to the import of Aluminum scrap and we shall deal with that separately later in the judgment.
2. These petitions challenge the levy of duty of customs and additional duty of Customs, under the Customs Act, 1962 (to be called Customs Act) and the Customs Tariff Act, 1975 (to be called Tariff Act) respectively.
3. The petitioners import brass scrap. Duty means a duty of Custom livable under the Act vide Section 2(15) of the Customs Act. Section 12 of the Customs Act provides that duty of Customs shall be levied at such rate as may be specified in Customs Tariff Act, 1975 or any other law for the time being in force for the goods imported or exported. Section 2 of the Tariff Act lays down that the rates at which duty of customs shall be levied under the Customs Act, 1962 are specified in the first and second Schedules. The Schedule is broadly based on the Brussels Tariff Nomenclature. The statutory rates of duty shown in the First Schedule have to be read with exemption notifications issued under the Customs Act, 1962 giving effect to the temporary duty reductions in respect of particular articles. Section 25 of the Customs Act empowers the Central Government if it is satisfied that it is necessary in the public interest so to do.....to exempt generally either absolutely or subject to such conditions as may be specified in the notification, goods of any specified description from the whole or any part of the Customs duty livable thereon.
4. Heading 74.01/02 in the First Schedule to the Tariff Act reads as follows :-
Heading No. Sub-heading Rate of duty
74.01/02 Copper matter unwrought (a) 100%
copper (refined or not);
copper waste and scrap;
In exercise of the powers conferred by Section 25 of the Customs Act the Central Government has issued the following notification No. 97 dated 25-6-1977 :-
'In exercise of powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962) the Central Government being satisfied that it is necessary in public interest so, to do hereby exempts articles other than copper waste and scrap and unwrought/copper (refined or not) falling under heading Nos. 74.01/02 of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) when imported into India, from so much of duty of customs livable thereon which is specified in the First Schedule as is in excess of 40% ad valorem.'
Similarly another notification was issued being No. 156 dated 16-7-1977 by which copper waste and scrap falling under heading 74.01/02 are exempt from so much of the duty of customs livable thereon which is specified in the first schedule as is in excess of 80% ad valorem.
5. Of the two reliefs prayed by the petitioners, the first relates to a claim that for the import made by the petitioners they are only liable to pay duty of customs at the rate of 40% because they are governed by the notification No. 97 of 26-6-1977. The respondents case however is that duty of customs is payable at the rate of 80% because according to them the petitioners' case is governed by the second notification No. 156 of 16-7-1977. This is one aspect of the dispute between the parties.
6. Section 3 of the Tariff Act provides that any articles which is imported into India shall in addition be liable to a duty (hereinafter to be called the additional duty) equal to the excise duty for the time being livable on a like article if produced or manufactured in India... ... ... Explanationn to Section 3 reads as under :-
'In this Section, the expression 'the excise duty for the time being livable on a like article if produced or manufactured in India' means the excise duty for the time being in force which would be livable on a like article if produced or manufactured in India; or, if a like article is not so produced or manufactured, which would be livable on the class or description of articles to which the imported article belongs and where such duty is livable at different rates, the highest duty.'
Item No. 26A of the First Schedule to the Central Excises and Salt Act, 944 is as under :-
26A - Copper and Copper alloys containing not less than fifty per cent by weight of copper. (1) In any crude form including ingots, One thousand and fivebars, blocks, slabs, billets, shots hundred rupees perand pellets. metric tonne.(1a) Wire bars, wire rods and castings,not otherwise specified.(2) Manufactures the following, Two thousand rupeesnamely - plates, sheets, circles, per metric tonne.strips and foils in any form or size.(3) Pipes and tubes. Ten per cent ad valorem.
7. By Section 48 of the Finance Act, 1981 the schedule to the Excise Act has been amended and a sub-item (1b) and Explanationn II has been included as follows :
(1b) Waste and scrape.
Explanationn I - 'Copper' shall include any alloy in which copper pre-dominates by weight over each of the other metals.
Explanation II - 'Waste and Scrap' means waste and scrap of copperfit only for the recovery of metal or for use inthe manufacture of Chemicals, but does not includeslag, dross, scalings, ash and other spurious residues.
The amendment above provides for an excise duty of Rs. 5,600/- per M.T. However, by virtue of notification No. 32 of 1981 dated 1-3-1981 the exemption has been given for payment of duty not exceeding Rs. 3,000/- per M.T. on which a further special excise of 10% has been levied, thus making a total of Rs. 3,300/- per M.T.
8. The other dispute relates to the challenge by the petitioners to paying additional duty of customs at the above rate of Rs. 3,300/- per M.T.
9. Now Section 3 provides for levy of additional duty of customs equal to excise duty for the time being leviable. Per se, no grievance can be made to the levy of additional duty of customs by pointing out any infirmity in the Tariff Act. The argument, however, is that the incorporation of entry 26A(1b) included in the schedule to the Excise Act is unconstitutional, ultra-vires and beyond the legislative competence of the Parliament as entry 84 only permits excise to be levied when there is manufacture, but waste and scrap does not involve manufacture. If the petitioners succeed in the challenge to the virus of the amendment above in Excise Act, it is not disputed that automatically no additional duty of customs will be livable because under Section 3 of the Tariff Act additional duty of customs is only livable if duty of excise is livable under the Excise Act on like articles, if produced or manufactured in India. These are the two broad contentions which we will now examine.
POINT NO. 1 : Are the petitioners liable to pay duty of customs at the rate of 40% or 80%.
10. That the goods imported by the petitioners are brass scrap should admit of no argument though Mr. Gupta the learned counsel for some of the petitioners did make, in our opinion, a futile and unnecessary attempt at contending otherwise. We say this because this argument is even against the pleadings and understanding of the petitioners. There is a specific averment that the petitioners carry on the business of imports of brass scrap and have imported brass scrap, on which duty of customs is being claimed by the respondents. This is further clear from the fact that in the bill of entry the Customs Tariff Heading shown by the petitioner itself is 74.01/02. The Customs Tariff heading has to be mentioned in order to be able to claim to have the right to import any article. Import Policy (1980-81) gives a list in appendix 10 containing the items which can be imported under Open General license (hereinafter called OGL). It is in pursuance of appendix 10 that the petitioners are importing brass scrap. Similarly in import policy (1981-82) appendix 10 which deals with imported items under OGL mentions Aluminum scrap at items No. 19, 20, 21, 22 and 24 respectively. In order to be able to import any article it is apparent themselves treat the goods imported by them as bass scrap and have even described it in Bill of entry at S. No. 44 as falling within item 44 appendix 10 of 1980-81 Import Policy under OGL, which entry is of brass scrap. Reference may also be made to the Bill of entry in C.W. 2034/1982 where the import is described as under OGL, appendix 10 of 1981-82 policy, item No. 25 which is of brass scrap. Evidently unless the petitioners admitted that the goods imported by them have come under OGL, they may run into difficulty with the Customs authorities. That is why the petitioners did not raise any dispute with the Customs that their goods were not covered under Tariff Heading 74.01/02, and for very goods reason because the claim of the petitioners to take the benefit of exemption notification 97 dated 25-6-1977 is dependent upon their articles falling within the heading 74.01/02 even in respect of the notification. The effort, thereforee, to contend that the brass scrap is not covered under Tariff Heading 74.01/02 is a futile one. As a matter of fact the sole plea of the petitioners on this point is that though liable to pay duty of customs under heading 74.01/02 they are entitled to the benefit of the exemption notification of 25-6-1977 and cannot be compelled to pay more than 40%. The enquiry, thereforee, must be limited to finding out whether the contention of the petitioners not to pay duty of customs at 80% is justifiable or not. The answer to this depends on whether the petitioners' imports are governed by exemption notification No. 97 dated 25-6-1977 or No. 156 dated 16-7-1977. Both sides cannot dispute that brass scrap is covered within the heading 74.01/02. The difference is whether the brass scrap is covered under Article copper waste and scrap (mentioned in notification of 16-7-1977) as is the claim of the respondents or under any article other than copper waste/scrap (mentioned in notification of 25-6-1977) which the petitioners claim is master alloy. We may at once note that the claim that the petitioner import 'master alloy' and not 'brass scrap' is against the very Bill of Entry on the basis of which the goods are being got released from the Customs authorities. Mr. Solicitor General made a grievance, and in our view rightly, that with this turn-about by the petitioners is not permissible because were the petitioners to claim that their imported articles are 'master alloy' they would not have been permitted to import these articles because OGL only permits the import of 'brass scrap' and not 'master alloy'. We feel the justification of this objection. The petitioners cannot go against their own pleading and it is doubly objectionable because the authorities who have to appraise the articles have done so on the assurance given by the petitioners that the articles are 'brass scrap'. The petitioners would, thereforee, be estopped from claiming these articles to be anything other than brass scrap. But we nevertheless permitted the petitioners to urge this point on merit but we are of the view that the claim of these articles being 'master alloy' is without merit.
11. It may be relevant at this stage to have some idea of what these various articles stand for :-
(a) ALLOY :
It is a substance possessing metallic properties and composed of two or more elements of which at least one must be a metal. The term is usually reserved for those cases where there is an international addition to a metal for the purpose of improving certain properties. Though pure metals may possess certain useful properties, they seldom possess the strength required for industrial application. Copper is practically the only metal used in bulk in the commercially pure state. In the case of most metals alloying elements are added to increase the hardness, strength and toughness of the basic metals and to obtain properties which are not found in any of those metals; (vide 'A Dictionary of Metallurgy' by A. D. merriment; Page 5).
(aa) The commercial utility of alloys arises from the fact that the pure metals are often too soft, weak, or rare to be used alone. Thus, copper, a soft metal, when alloyed with the brittle metal zinc, forms a strong, hard alloy, brass, that has wide usage, (vide 'Materials Handbook' by George S. Brady, page 25).
(b) PREPARATION OF ALLOY. The most common way of preparing alloys is by the melting together of the constituent metals. If the melting points of the metals differ widely, or if one is relatively very reactive, it may be convenient to prepare first a master alloy, portions of which are then melted with the remaining metals. According to the nature of the alloy, the melting process may be carried out in furnaces fired by gas, coke or oil. (vide Encyclopedia Britannica, Vol. I, page 649-650).
(bb) Master alloys are generally in the form on small blocks or cakes divided for easy breaking, brittles sticks, or pellets, and have the appearance of crude foundary products. (Vide Brussels nomenclature).
(c) 'Master alloy is the name given to an alloy of mixture of elements that is used for introducing desired elements into molten metals in the foundry'......................................and are often used in the ladle to obtain good control over the final product. Also called Foundry Alloy, (some of the compositions of common master alloys is given at page 182 of merriment's 'A Dictionary of Metallurgy'). Brass is not mentioned as a master alloy. Not only that but zinc, which is a constituent of Brass is not even one of the constituents of composition of Master Alloy.
A Master alloy or a foundry alloy, is an alloy used for adding elements in the foundry (Brady page 26).
(d) COPPER : Copper is one of the few metals that occur native in workable quantities, with Zinc Copper forms a vide range of alloys called brasses, containing up to 50% of zinc with or without additions of small amounts of other elements. With tin copper forms a series of alloys called bronzes.
Nickle silvers are copper alloys containing zinc and nickle. (P. 45 of merriment)
(i) BRASS : Brass is essentially an alloy of copper and zinc, but for special purposes small proportions of other metals are sometimes added to obtain increased strength, hardness or resistance to corrosion. The industrially important alloys of the zinc-copper system contain up to 50% zinc and are often designated by their copper zinc content (p. 22 of merriment).
The commonest form of brass (known as 60/40) contains 40% zinc and is known as yellow brass or Muntz Metal. (p. 23 of merriment).
Brass is an alloy of copper and zinc. The copper content usually varies between 57% and 70% by weight. (Vide Encyclopedia Britannica. Vol. I, page 649).
12. It will thus be clear that to equate Brass Scrap with Master Alloy is a total misnomer. Brass is an alloy of copper and zinc and is a product complete by itself....... It is already a finished product. The purpose of Master Alloy is totally different. As explained in Brussels Nomenclature they are used either to introduce in brass, bronze or Aluminum bronze other elements with a higher melting point than those alloys.......or to facilitate the preparation of certain alloys. Master alloy in a sense is a device to introduce certain elements into the foundry or other alloy. Master alloy is in fact used as a raw material in the manufacture of other alloys, but brass is itself an alloy, a complete product.
Thus brass scrap which is an alloy by itself and is not to be used as a raw material cannot be considered to be Master Alloy. The attempt, thereforee, of the petitioners to go against their own pleadings that goods imported were Brass Scrap must fail both on the ground of estoppel as well as on merit. Now it will be seen that Heading 74.01/02 mentions 4 items - (a) copper matte (b) unwrought copper (c) copper waste and scrap; & (d) Master Alloy.
If as we have held what the petitioners import cannot be called Master alloy, they obviously cannot take the benefit of Notification No. 97 dated 25-6-1977, which exempted articles other than copper waste/scrap falling under Heading No. 74.01/02. It is true that neither heading 74.01/02 of the Notification No. 156 dated 10-7-1977 talks of Brass Scrap - it only talks of copper waste and scrap. But then rules of interpretation and notes given in Section 15 of Schedule I to the Tariff Act show that Brass Scrap is to be deemed to be copper scrap.
13. Now brass is an alloy of copper (60%) and zinc (40%). Rules for the interpretation of First schedule to the Import Tariff provide by Rule 1 that for legal purposes, classification shall be determined according to the terms of the Headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to these provisions hereinafter contained. Rule 3 of Section 15 of the First Schedule deals with classification of alloys other than 'ferro alloys' and 'master alloys' as defined in Chapters 73 and 74. Clause (a) of Rule 3 provides that an alloy of base metals is to be classified as an alloy of the metals which predominates by weight over each of the other metals. In terms of Rule 3(a), thereforee, as brass is an alloy consisting of copper and zinc and as copper predominates it is to be classified as an alloy of copper. Rule 4 further provides that unless the context otherwise requires any references in the Schedule to a base metal is to be taken to include a reference to alloys which by virtue of Note 3 are to be classified as alloys of that metal. Now the Heading 74.01/02 in the schedule mentions copper waste and scrap, being a base metal like copper. So by virtue of Rule 4 copper scrap is to include a reference to Brass Scrap, because by virtue of Rule 3, the latter is to be known as alloy of copper. The position thus comes out as follows :
As brass is an alloy composed of copper ad zinc it is to be regarded as an alloy of one of the two metals. Clause 3(a) says that an alloy of base metals is to be classified as an alloy of the metal which predominates by weight over each of the other metals. Brass alloy has to be classified as a copper alloy. Clause (4) further says that any reference to a base metal is to be taken to include a reference to alloys which by virtue of note 3 are to be classified as alloys of that metal. Now the base metal mentioned in the schedule is copper waste and scrap in heading 74.01/02. Thus by deeming provision brass, an alloy being predominant in copper, has to be taken to be a copper alloy and by virtue of rule 4 the copper is the base metal mentioned in the schedule is to include and have reference to a copper alloy. Rule 5(b) provides about the classification of composite articles and lays down that for this purpose an alloy is regarded as being entirely composed of that metal as an alloy of which by virtue of note 3 it is classified. Thus by virtue of combined Rules 3, 4, 5 and section 15 Brass scrap, an alloy, will be classified as entirely composed of copper. The result being that brass scrap, though not specifically mentioned in heading No. 74.01/02 will be deemed to be included and treated as copper waste and scrap for the purpose of classification under this heading. The Notification No. 97 of 25.6.1977 exempted articles other than copper waste and scrap, and as Brass Scrap is to be treated as copper waste, the petitioners cannot avail of the benefit of this notification. Much emphasis was laid by the counsel for the petitioners to urge that scrap and copper scrap are two commercially different goods known to the market. Reference was made to certificates from some of the Merchant's Associations, the Bombay Metal Exchange Limited and extracts from Indian Standard Coding and Classification for non-ferrous scrap metals to drive home the point. We can readily accept that broadly brass scrap and copper scrap in common parlance would mean separate and distinct articles in the market. If there were separate headings of 'copper scrap' and 'Brass scrap' in the Schedule to the import tariff, the petitioner's goods would have undoubtedly been classified under a separate head of brass scrap. But the difficulty in the way of the petitioners is that there is no specific or separate heading of brass scrap in the Schedule. The heading in 74.01/02 is copper waste and scrap. It is because of the notes in Section 15 that Brass Scrap must be deemed to be covered by copper scrap. Legislature has so mandated, and it must be given effect to.
14. That leaves in field only the notification No. 156 of 16-7-1977 which exempts copper waste and scrap from so much of the duty as is in excess of 80% ad valorem. As brass scrap explained above would be deemed to be copper waste and scrap it is this notification of 16-7-1977 which will be applicable to the patisseries' case.
15. Reference was made to the Collector's Conference held in January, 1981, wherein view was expressed that brass scrap was covered by the exemption notification of 25-6-1977. It is, however, interesting that a doubt was expressed about this view because the notification of 25-6-1977 postulates that the item must fall within Heading 74.01/02 in order to claim exemption. But it sought to explain this away by taking the stand that so long as brass scrap can fall within the heading 74.01/02 by means of application of notes in Section 15 of First Schedule to Tariff Act it will be entitled to the benefit of this notification. In this decision there is obviously a confusion. The Collectors' Conference assume that brass scrap is not copper scrap because commercially they are two distinct articles. Having come to that conclusion, the logical result should be that brass scrap is not covered by Heading 74.01/02 because brass scrap is not so specifically mentioned therein. But in that case as exemption would not be available unless the item is covered under Heading 74.01/02 a resort is had to notes in Section 15 so as to deem brass scrap as referring to copper scrap. But this exercise of resort to Notes in Section 15 cannot be done half way. Either Section 15 has to be applied for classification purposes in all circumstances or none at all. If Section 15 is not resorted to Brass Scrap would not fall within Heading 74.01/02 and exemption notification of 25-6-1977 which presupposes an imported article to be covered by Heading 74.01/02 would not be available. But as we have said before there is no justification not to apply rules in Section 15, and so applying, Brass Scrap would be deemed to be copper scrap and will have the benefit of exemption notification of 16-7-1977 which specifically deals with item of copper waste and scrap. That is why the advise in July, 1981 of the Board was the correct one.
16. One of the arguments raised was that exemption is granted under Section 25 of the Customs Act and, thereforee, in order to interpret the scope of exemption reference to the notes in Section 12 of the First Schedule to Tariff Act was not permissible as they related to a different Act then the Customs Act. The contention is without any substance. Customs Act and Customs Tariff Act form a composite legislation and the one cannot be effectuated without having resort to the other. Thus Section 12 which is the charging Section itself provides that duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act. Evidently, thereforee, in order to find the extent of chargeability under section 12 of the Customs Act a resort has necessarily to be made to the Tariff Act. When that is done Section 2 of the Tariff Act provides that the rates at which duties of Customs shall be levied under the Customs Act, 1962 are specified in the First Schedule and Second Schedule. In order, thereforee, to find out the duties payable one must refer to the First Schedule of the Tariff Act, which tells us that under Heading 74.01/02 the rate of duty is 100%. But this rate of duty mentioned in Tariff Act has to be read Along with the power of exemption given under Section 25 of the Customs Act. The petitioners who claim exemption under the notification No. 97, dated 25-6-1977, must necessarily go to the basic rate of duty provided under the Tariff Act. To determine classification of the article one must necessarily refer to the Rules for the interpretation of Schedule and Chapter Notes and the rules of classification of alloys in Chapter 73 and 74 given in Section 15 of the First Schedule. The argument that the notification issued under section 25 of the Customs Act shall have effect as if enacted in the Customs Act and for which reliance was placed on Kailash Nath v. State of U.P. : AIR1957SC790 and Orient Weaving Mills v. Union of India : AIR1957SC790 means nothing more that these notifications have as much validity and statutory force as if the provision had been made in the Act. But that does not alter the essential position of it being subordinate legislation. 'The true position appears to be that, the Rules and Regulations do not lose their character as rules and regulations, even though they are to be of the same effect as if contained in the Act. The continue to be rules subordinate to the Act, and though for certain purposes, including the purpose of construction they are to be treated as if retained in the Act, their true nature as subordinate rule is not lost.' Vide Chief Inspector of Mines v. K. C. Thapar - AIR 1981 SC 838 and also see State of Kerala v. K. M. Abdulla & Co. AIR 1965 SC 1589. Moreover, the respondents are not denying the validity of any exemption given by notification under Section 25 of the Customs Act. They are only insisting that the notifications must be read Along with Chapter Notes in the Tariff Act.
17. In our opinion the charging Section 12 of the Customs Act only provides that duties of customs shall be levied at rates as may be specified in the Customs Tariff Act. The computation of the duty is provided by Section 2 of the Tariff Act read with Schedule. The Customs Act remains incomplete without the Tariff Act. Charging Section in Customs Act provides no computation of duty. For computation of duty you have to go to the Tariff Act. It is as if both the provisions are provided in one Act. There can be no question of splitting them up. They are one integrated whole. Thus the charging section and the computation provisions together constitute an integrated code and as explained in C.I.T. v. B. C. Srinivasa Setty : 128ITR294(SC) , where the charging Section of the Income tax Act and the computation Section were said to constitute an integrated code and it was explained that a transaction to which these provisions apply cannot be understood without making a reference to the other. We would, thereforee, hold that the demand by the respondents of duty of customs at 80% is not only permissible but is valid. The contention of the petitioner in this respect is without any merit.
POINT NO. 2 : Is the imposition of Excise duty on 'waste and scrap' mentioned in clause (1b) of the Tariff Item 26A of the Schedule to the Central Excises & Salt Act, 1944 as introduced by clause (v) of the 3rd Schedule read with Section 48 of the Finance Act, 1981 as ultra virus of Section 3 of the Act and/or beyond legislative competence and in unconstitutional.
POINT NO. 3 : Is the levy and collection of additional duties of customs under Section 3 of the Customs Tariff Act, 1975 on the brass scrap imported by the Petitioner No. 1 valid.
Both these points are interconnected and will be dealt together.
18. Section 3 of the Tariff Act provides that any article which is imported into India shall in addition be liable to duty referred to as the additional duty equal to the excise duty for the time being livable on a like article if produced or manufactured in India. The first part of Section 3 is in a sense a charging section for levy of additional duty. No separate schedule of rates for additional duty of customs is provided as is done by Section 2 of the Tariff Act. A different method is adopted, namely, to provide by one sweep that additional duty will be equal to the excise duty for the time being livable on a like article if produced or manufactured in India. There is definite purpose in so providing because the object and reason of Section 3 of Tariff Act is to provide for the levy of additional duty on the imported article to counterbalance the excise duty livable on the like article made indigenously or on the indigenous raw materials, components or ingredients which go into the making of the like indigenous articles. It is different that the additional duty of customs will be livable on brass scrap if it is held that 'waste and scrap' introduced by amendment made by the Finance Act 1981 will bear excise duty. Indeed the petitioners conceded that if the incorporation of 1(b) in Tariff item 26A as made by the Finance Act 1981 is upheld as being unconstitutional, they would be liable to pay additional duty of customs under Section 3 of the Tariff Act as demanded by the respondents. That is why they made a challenge to the validity and the constitutionality of sub-item 1(b) in item 26A by virtue of Section 48 of Finance Act 1981.
19. Mr. Solicitor General appearing for the respondents also did not dispute that unless Brass Scrap was held to be excisable goods under Section 2(d) of the Excise Act, additional duty under Section 3 of the Tariff Act will not be leviable. Now so far as the item 26A(1b) of Schedule to the Excise Act is concerned Brass Scrap is admittedly included. This is because by virtue of Explanationn II item 'waste and scrap' means waste, scrap of copper fit for the recovery of metal. Explanationn I further says that copper shall include any alloy in which copper predominates by weight over each of other metals. Brass, as mentioned above, is an alloy of copper (about 60%) and zinc. Thus apart from the argument of constitutionality, 'Brass scrap' would be included within item 26A(1b) and would be excisable goods, and automatically additional duty of customs would be payable on the import of Brass Scrap. That is why the main contention of the petitioners was that Brass Scrap is not obtained by any manufacturing process and, thereforee, could not have been included at sub-item (1b) in item 26A in the Excise Act because entry 84 of the List I of the 7th Schedule of the Constitution only permits the Parliament to impose levy of duty of Excise upon manufacture. Mr. Solicitor General, however, maintains that Brass Scrap is obtained by process of manufacture and, thereforee, the sub-item (1b) in Tariff Item 26A is valid and constitutional. The immediate question, thereforee, that has to be first answered is whether process of obtaining Brass Scrap amounts to manufacture
'The Court ought not to interpret statutory provisions unless compelled by their language in such a manner as would involve its constitutionality because the Legislature is presumed to enact a law which does not contravene or violate the constitutional provisions'. (See M. K. Balakrishnan Menon v. Asstt. Collector of Estate Duty-cum-Tax Officer, (1971) 2 SOC 909. 'If certain provisions of law construed in one way would make them consistent with the Constitution, and another interpretation would render them unconstitutional the Court would lean in favor of the former construction.' [Vide : 3SCR769 Kedarnath Singh v. State of Bihar.] Now the question whether a particular levy is a levy in respect of manufacture or production of goods has to be decided on the facts of each case. It is also well settled that a duty of excise is a tax on goods produced or manufactured in the taxing country and issued in contradistinction to customs duty on articles imported into the country from elsewhere. (Vide A. B. Abdul Kadir & Ors. v. State of Kerala and another); : AIR1962SC922 and in re. CP. Motor Spirit Act .
'Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. It is an indirect duty which the manufacturer or producer passes on to the ultimate consumer, that is, its ultimate incidence will always be on the consumer. thereforee, subject always to the Legislative competence on the taxing authority, the said tax can be levied at a convenient stage so long as the character of the import, that is, it is a duty on the manufacture or production, is not lost. ' - Vide R. C. Jall v. Union of India : AIR1962SC1281
'Taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof'. Similarly in the case of duties of customs including export duties though they are levied with reference to goods the taxable event is either the import of goods within the customs barrier or their export outside the customs barrier. They are also indirect taxes like excise.' - Vide In re : Sea Customs Act AIR 1963 SC 1760.
'In order to levy excise duty the levy must be upon goods and the taxable even must be the manufacture or production of goods.' Vide Shinde Bros. v. Dy. Commissioner, Raicher, : 1SCR548b . 'It is no doubt true that levy of excise has to be linked with production or manufacture of the imposable item' - Vide A. B. Abdul Kadir v. State of Kerala; : 2SCR690 .
'It being thus settled that the excise duty is livable on the manufacture or production of goods question arises as to what exactly is meant by 'manufacture'. In our opinion it is unnecessary to burden the judgment with various definitions from other courts because our Supreme Court has broadly defined - 'What manufacture is' in Union of India and another v. Delhi Cloth & Gen. Mills. Co. Ltd. : 1973ECR56(SC) . The Supreme Court had accepted the meaning of manufacture given in permanent edition of 'Words and Phrases' Vol. 26, from an American Judgment which is as follows :- '. and another etc. v. Union of India and others etc. : 1973ECR9(SC) .
20. In the present case 'waste and scrap' is certainly an excisable item because it is so included in the First Schedule to the Excise Act and the definition of excisable goods in Section 2(d) means goods specified in the First Schedule as being subject to a duty of excise. The only thing one has to find out is whether it is goods in the sense that they are commonly sold in the market and are so known in commercial parlance. Now millions of worth of 'waste and scrap' is being imported from international market and that can only be on the ground that 'waste and scrap' have a ready market and are accepted as goods.
21. Admittedly Brass scrap is a marketable commodity known in the market, and which is bought and sold as such. This much is clear even from the petitioner's own Bill of entry and other documents of contract which clearly describe goods imported as brass scrap. It is not, thereforee, as if the commodity which is brought into existence under the name of 'waste and scrap' is not goods or a commodity known in the market. In that context Explanationn II makes the position still further clear when it defines waste and scrap to mean waste and scrap of copper fit only for the recovery of metal or for the use of manufacture of Chemicals but does not include slug, dross scalings, ash and other cuprous residues. We are making a special reference to this Explanationn II because the argument of counsel for the petitioners suffered from the infirmity of equating waste and scrap as equivalent to dirt, scum or such like incidental processes arising in the manufacture of other articles. The Explanationn specifically excludes such like scum or dross from the definition of waste and scrap. Argument of the counsel for the petitioners lay emphasis on the colloquial and routine meaning of waste/scrap, which no doubt conjures up something as dirt or incidental to the manufacture. But this plea omits to appreciate the significance of the Explanationn which encompasses only that waste/scrap which is fit only for the recovery of metal or Chemical. Thus the waste/scrap under the Excise and Tariff Act means an article which has a potentiality of allowing another article like metal or Chemical to be recovered. This misapprehension was the reason for Dr. Singhvi to urge that the Bombay Judgment in Indian Aluminum Co. Ltd. & another v. A. K. Bandyopadhyaya and others - 1980 E.L.T. 146, fully covers the present case. We cannot agree. In that case the company carried on the business of manufacturing Aluminum sheets which it prepared from Aluminum ingots. At the very fist processing dross and skimming arise and accumulate in the furnace in the shape of ashes. As the Aluminum ingots were used in the manufacture of Aluminum sheets and since duty was already paid in respect of Aluminum ingots the company was allowed credit of duty already paid on Aluminum ingots. The company also cleared dross and skimming as not-excisable items and cleared them without paying any duty. Thus the company got the credit in respect of entire duty paid on Aluminum ingots. Later on the excise authorities took the view that under Rules 56A(2) to the extent dross and skimming are not utilised in the finished product, the credit on such portion of ingots is not admissible, and the company was liable to be debited against the credit given for the full quantity of Aluminum ingots. The question naturally arose whether dross, skimmings were obtained by manufacturing process because proviso to sub-rule (2) of Rule 56A provided that no credit of duty shall be allowed in respect of any material used in the manufacture of finished excisable goods if such finished excisable goods produced by the manufacturer are exempted from the whole of the duty of excise livable thereon. The court held that dross and skimmings are not goods and it is only scum thrown out in the process of manufacturing Aluminum sheets and it cannot be said that dross, skimmings are transformation resulting in a new and different article known to the market. It also held that manufacture was of Aluminum sheets and not dross. Further it was greatly influenced by the fact that dross and skimmings were not excisable goods which was a condition requisite for the applicability of proviso to Rule 56A. That case is clearly distinguishable. In the present case dross, skimmings, ash have been excluded from the definition of waste/scrap and are thus not excisable goods. It is the waste/scrap fit for recovery of metal which is an excisable goods.
22. Reference to M/s. I.C. & E. Morton (India) Ltd. and others v. Supdt. of Central Excise & others 1980 E.L.T. 99 is also of no avail. There during the process of manufacturing confectionery some assorted sorts fall into the trays and on the floor and was called scrap and was collected and sold in the market. The excise authorities wanted to levy excise duty on it on the ground that the scrap was still confectionery. The learned Judge noted that there was no item as 'scrap of confectionery' in the Central Excise Tariff, but it also noted that if the scrap are broken parts of sweet, it will come within the definition of confectionery and liable to excise duty. That is why the court remanded the matter to the excise authorities. This authority thus does not carry the matter any further. In M/s. Perry Confectionery Ltd., Madras v. Government of India and others 1980 E.L.T. 468; it was held that the lozenges are not included in the word 'Candy' which was sub-heading in item 1A(1) of confectionery. Reason was that to come within 'Candy' it had to be one in the manufacture of which the process of boiling and cooking are also involved, but as in the process of manufacture of lozenges boiling and cooking are not done necessarily lozenges could not be included in the item 'Candy'.
23. Reference was also made to Dy. Commr. Sales Tax, Ernakulam v. Pio Food Packers : 1980(6)ELT343(SC) wherein all that was held was that where pine-apple fruit was processed into the pine-apple slices for the purpose of being sold in sealed cans there is no consumption of the original pine-apple fruit for the purpose of manufacture. Though there may be some processing the commodity continues to possess its original identity. Chowgule & Co. Pvt. Ltd. v. Union of India : 1985ECR263(SC) again was a case where all that was held was that 'the blending of different qualities of ore possessing different Chemical and physical composition so as to produce ore of the contractual specifications cannot be said to involve the process of manufacture, since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. What is produced as a result of blending is commercially the same article, namely ore, though with different specifications then the ore which is blended and hence it cannot be said that any process of manufacture is involved in blending of ore.' It is on the same reasoning that in P. C. Cheriyan v. Mst. Barfi Devi 1979 E.L.T. 593 it was held that 'retreating of tyres does not amount to manufacture because it still remains a tyre and does not become a different article or a different identity.' It will be seen that in all these cases which have been referred to by the counsel for the petitioners there is no change in the original commodity from its original identity. Thus even after blending of ores it still remain ores. (Chowgule's case supra); retreaded tyres still remains tyres (P.C. Cheriyan's case supra); processing of pine-apple fruit and canning them still retains the original identity of pine-apple fruit (Pio Food case supra). Thus in all these cases a new article never came into existence and that is why it was held that it is not manufacture. The test running through all the case law that was applied was - does the processing of original commodity bring into existence a commercially different and distinct commodity. In this connection reference may be made with advantage to 1948 78 C.L.R. 336 Federal Commissioner of Taxation v. Jack Zinadar Proprietory Ltd. the ratio of which was referred to with approval in Cheriyan's case though on facts it was found not to be applicable.) In that case the question was whether the company which received old fur garments like old worn out fur coats from its customers and remodeled them into modern style of coat, or a fur necklace is remodeled into a stole was engaged in the manufacture of goods. The majority noted that the definition of manufacture included whereby an article or substance is formed which is commercially distinct from those parts, and in that view held that when company took skins made up into one description of fur garment and produces another, he must be treated as having made a different article, and it must follow that thus goods were manufactured.
24. Now in the present case Brass is an alloy of copper land zinc. The mixing of these two metals produces a distinct commercial commodity - Brass Waste/scrap is that from which metal can be recovered evidently showing that Brass Scrap is different and distinct commodity from the metal or Chemical that is to be recovered. Brass is not the original metal. It is something different which has been brought about by a mixture of other metals, a process which cannot be anything but manufacture.
25. We feel we must dispel one misconception which seems to colour the main argument of the petitioner namely - as if it is the final or last product which alone can be considered to involve process of manufacture. The suggestion being that till raw material is converted into the last product, there is no manufacture even if in the intermediate stage a distinct product known to the commercial world comes into existence. We cannot agree. The precise contention was specifically negatived in Delhi Cloth & General Mills case (supra). In that case the company were manufacturing products known as vanaspati. For that purpose they bought raw oil. It was their contention that the only finished product they produced from the raw material was vanaspati and at no stage did they produce any new product which could come within the item 'Vegetable non-essential oils'. The Union of India's contention however, was that during the process of manufacturing vanaspati from raw groundnut the petitioner brings into existence at one stage what is known to the market as refined oil. The question, thereforee, was whether the company did bring into existence refined oil at any intermediate stage. The Supreme Court held in favor of the company only because it came to the conclusion that refined oil is always deodorized before it is marketed a refined oil and as there was no proof that the oil at the intermediate stage was passed through a process of deodorisation the court held that it does not become at any stage a refined oil as is known to the consumers as commercial commodity. It is relevant to note that the Supreme Court accepted the Union of India's contention that even though excise duty is not the manufacture of goods, yet the same would be livable even at an intermediate stage if a substance produced by the companies has come into existence. Thus the stage even earlier to the manufacture of final product does not by itself absolve the party from paying excise duty if a product has been manufactured. In this connection it observed as follows :-
'If from the raw materials has been brought into existence a new substance by the application of processes one or more of which are with the aid of power and that substance is the same as 'refined oil' as known to the market an excise duty may be livable under Item 23 (the present Item 12). But has it been shown that the substance produced by the petitioners is at an intermediate stage before Vanaspati or comes into existence is 'refined oil' as known to the market. We are not satisfied that this has been shown.'
26. Similarly in S. S. Sugar Mills v. Union of India : 1973ECR9(SC) the Company manufactured sugar by carbonisation process. The contention of the Revenue was that company during the production of sugar also produced carbon dioxide which was livable to excise duty. However, the court rejected this contention of the Revenue because it held on facts that the gas generated by the kilns is kiln gas and not carbon dioxide as is known to the trade and, thereforee, cannot attract excise. This authority also, thereforee, accepts the view that if a new substance is brought into existence form raw materials earlier to the manufacture of the end product it would also be liable to pay excise duty. The broad argument of the petitioners, thereforee, that it is only the ultimate product like the brass tops or the regular brass tubes or other brass products including sanitary fittings which alone are excisable has no principle or authority to support it. So what has to be determined is whether Brass Scrap is obtained by the process of manufacture. If so, it was rightly incorporated as a sub-item in Schedule to the Excise Act by the Finance Act, 1981. It would be no argument to say that even though obtaining Brass Scrap involves manufacture, it cannot be excisable because it is not the end product. The argument of the counsel for the petitioners proceeds on the untenable assumption of confusing Tariff item waste/scrap as being equivalent to and nothing else but what waste/scrap as may be understood in colloquial terms as meaning a thing which is useless, rotten and scum. But this is not how it is understood in the commercial parlance. A scrap is not merely something sheared from a material and only a part of that. Scrap has a separate, distinct recognisable meaning in trade circles. Thus scrap has been said to be 'A term applied to both ferrous and non-ferrous metals that have been removed from service as no longer suitable for use in their present form, and to metals, components or parts that have been discarded at various stages of manufacture. As scrap metal is a valuable source of material it is usual and advisable that it should be segregated with a view to remitting and reprocessing.' (merriment page 308). This will show that scrap is not as what was suggested by counsel for the petitioner as shear because shear is defined as something used in reference to cutting portions in which metal rods, wires, sheets are cut by means of blades, one of which may be stationery (merriment page 315). In Excise Tariff same is not, thereforee, to be confused with a shear or an incidental to the product. It will be appreciated that brass scrap is alloy of copper and zinc. Now in the process of making brass goods the various metals have to be mixed and subjected to a process of manufacture to form a different article. It is during the making of that final article that sometimes scrap comes into existence. Scrap is not, thereforee, useless item which comes as an incidental to the manufacture of some other commodity.
27. The waste and scrap is not to be taken as those items which are throw away or rubbish. This is clear from the fact that the definition of waste and scrap explains that it is only that waste and scrap from which metal and Chemicals can be recovered. Such waste and scrap could result from the cutting or shaping of the brass into various shapes. As brass scrap is an alloy of copper and zinc, normally brass scrap would be of those articles which were probably fine articles at one point of time and have become unusable or broken in the course of use and they are used as brass scrap for the purpose of recovering a metal from it for further use. Brass scrap may also result from the process of manufacturing the brass articles but which may turn out to be defective and cannot be put into the market as a final finished product but is nevertheless of great utility and commands a place in the market. This is what brass scrap is. The melting and mixing of various metals alone bring into existence brass scrap. This would show brass scrap is a new product obtained by mixing of various metals involving manufacture. Had brass scrap not been a commercially known commodity in the sense that it can be bought and sold, it might have been open to argument that brass scrap, even if obtained in the process of manufacturing fine products cannot be considered goods and thus no manufacture is involved, but admittedly that is not the position here because the brass scrap is understood in the common trade parlance and is accepted as a commodity which can be bought and sold.
26. Scrap which is an excisable item is that manufacture which arises when a manufacturer producing an article finds that it has not turned out to be of the quality and type which could be sold to as a fully finished product. It may be that in trying to make some casings, there may be left some air bubbles or holes in the finished product. Now since it is not a finally finished product it will not fetch that price which a quality product can command. But from that it does not follow that what has come out is not a new article which is known to the market. This situation may arise because of lack of precision in forging. Now forging in the forming of metals into the required shape by hammering or pressing. For relatively simple shapes open dies can be used, but for more complex shapes conforming to the contours and dimensions of the finished product, two or more sets of dies may be required. The process of forging is usually confined to shapes that cannot be reduced by rolling. The more accurate dimensioned finished forging are usually drop forgings.
Thus in making brass goods what is found rejected due to weakness in quality, or lesser fineness or some malformation becomes and is known as Brass Scrap. It is self evident that before the articles Brass Scrap comes into existence a manufacturing activity of mixing, melting different metals and Chemicals has gone into operation. It is, thereafter that a totally different article from its various constituents comes into existence. Thus a new article is born out of the manufacture. And admittedly this article Brass Scrap is commonly bought and sold in the market. Excise on this manufacturing activity could legitimately be imposed by the Parliament.
29. The argument that brass scrap is not a new product because it is a sub-standard item, stands negatived by D.C. & B. Mills v. Government of India 1978 T.L.R. 2094 where it was held that because the substance produced by the petitioner is sub-standard judged from the Indian Standards Institution's specifications does not necessarily make it unmarketable, and that the marketability would depend on the degree by which the product was below standard. That even lesser activity than is involved in manufacturing brass scrap has been held to be manufactured will be cleared by a reference of Union of India v. Hindu Undivided Family Business known as Ramlal Mansukhlal, Rewari and another - A.I.R. 1971 SC 2335. In that case the owner of a manufacturing unit of utensils procured copper, tin since he first prepared alloys from these metals. These alloys were then converted into billets. The billets were then sent to mills for rolling them into uncut circles. The uncut circles are trimmed and then converted into utensils and sold as such in the market. Item 26(2) under which excise was levied reads as under :-
(2) 'manufacturer the following, namely :- plated, sheets, circles, strips and foils in any form or size.....'
Apparently the excise was levied on the basis that at the stage when billets were rolled into circles the process of manufacturing circles was complete and these circles became liable to excise duty under item 26A(2). Thus excise could be imposed on billets when they were converted into circles. If billets which is a semi-finished metal product by rectangular shape with rounded corners produced by rolling ingots, (vide page 18 of merriment) when rolled into uncut circles is considered as involving the manufacturing process, it is impossible to accept that the present case where brass which comes into existence by making of alloy of two different metals of copper and zinc and brass scrap which only comes into existence when manufacturing some end product of brass will not pass the test of manufacture. That Brass Scrap is a different article from the constituent of copper, zinc which are mixed to from brass was not even disputed by the petitioners. The argument that Brass scrap was not goods is equally without substance and stands negatived by their own documents which clearly show that imported articles are being described as brass scrap.
30. A reference to Import Policy of April 1981 - March 1982 (Appendix 10) shows the list of items which are allowed to be imported under open general licenses. Item 20 is Brass Scrap. Also at Seriall Nos. 19, 21, 22, 24 are to be found items of Aluminum scrap, copper scrap, lead scrap, zinc scrap respectively. Obviously these items must be goods commercially known as such and being a product which can be bought and sold, before they could have included in the Import Policy. Thus Brass Scrap fulfills both conditions of being brought into existence by a process of manufacture and also being a commonly known goods in the market so as to justify the test under which an item could be included in the schedule to the Excise Act, and excise could thus be validly levied on those items mentioned above.
31. Though we have independently come to the conclusion that Brass Scrap is brought into existence by a process of manufacture, the counsel for the respondent further sought to support this conclusion by urging that as Parliament has itself included the item of 'waste and scrap' in Schedule to the Excises Act and a presumption arises that manufacture is involved and that it was not permissible for the Court to go behind it to find out whether any process of manufacture was involved because if Parliament has included this item it could only have done so if it involved manufacture because Parliament was aware that it could legislate with regard to excise duty only if there is manufacture or production of goods.
Dr. Singhvi took strong objection to the stand of Mr. Solicitor which is also the stand in counter affidavit filed by the respondent. The counsel argues that it is impermissible in our system of jurisprudence to urge that simply because legislature has spoken, the rest of the incrementing of state must be silent. The argument is that entry 84 of list I, 7th Schedule of the Constitution dealing with duties of excise necessarily postulates that the legislature can only include an item which involves manufacture and if it does otherwise, it can clam no immunity from being challenged in a court of law. We did not understand the learned Solicitor to make any such claim because by now it is beyond doubt that if the legislature passes a legislation which is beyond its legislative competence the same is certainly challengeable in a court of law. Thus if the transactions sought to be taxed is not a sale, a law which seeks to tax it treating as a sale would be ultra virus (Sales Tax Officer, Pilibhit v. Budh Prakash Jai Prakash : 1SCR243 , where a tax on agreement to sell was held to be not authorised by the court. Similarly in Madras State v. Demurely & Co. : 1SCR379 a tax on supply of materials in a contract for the construction of work implicate on the footing of treating it as a sale was held to be outside the Entry 54 (List II 7th Schedule of Constitution) dealing with tax on sale or purchase of goods.......) and hence ultra vires.
32. The rationale of this view was explained in New India Sugar Mills v. Commr. Sales Tax : AIR1963SC1207 . In that case the dispatch of sugar to the province of Madras from the factories in Bihar were made liable to be included in the taxable turnover under the Bihar Sales Tax Act. The argument by the assessed was that the transaction by which dispatch of sugar were made in pursuance of the direction of the Controller was not the result of any contract of sale as they were not sale as understood under the Sale of Goods Act. The majority held that 'as the sale has to be interpreted within the rigid meaning given to it under the Sale of Goods Act the dispatches in pursuance of an order by the Controller did not amount to a sale'. For the same reason in Bhopal Sugar Industries v. D. P. Dube : 1SCR481 the consumption by an owner of goods in which he deals was held not to be a sale within the meaning of Sale of Goods Act and it was observed that 'the legislative powers for levying tax on sale of Goods within the meaning of the Sale of Goods Act, 1930, extended the definition which includes consumption by a retailer to himself for 'retail sale' is beyond the competence of the State Legislature'. Similarly in Dy. Commercial Tax Officer v. Enfield India Ltd. A.I.R. 1968 SC 833 it was reported that the expression 'sale of goods' in the Legislative entries in the Constitution and the Government of India Act, 1935, bears the same meaning which it has in the Sale of Goods Act, 1930.
33. Reference was also made by Dr. Singhvi to Cibatul Limited P. O. Atul v. Union of India and others 1979 E.L.T. 407. In that case the validity of the concept of related person introduced by Parliament in amended Section 4 of the Excise Act was held to be ultra virus of the legislative competence of Parliament under Article 246 read with entry 84, broadly on the ground that the duty of excise has to be on manufacture and linked with manufacture and as value for the purpose of Excise was calculated not with reference to it but by expanding the meaning Parliament has trenched on the State List of what is sale under entry 54 of List II. We may note however that this view is different from that taken by Kerala High Court in 1978 E.L.T. 595 Madras Rubber Factory v. Assistant Controller of Central Excise & Others which had upheld the validity of Section 4 (amended) because it held that Section 4 only implements what Section 3 directs and it does not suffer from any legislative infirmity. Of course it is not necessary for us to go into this aspect because the said matter does not arise here, though on first impression Kerala High Court's view appears to have more plausibility than that of Gujarat High Court. But we need not pursue this matter as it is unnecessary.
34. It may however, be appreciated that in all these cases the main emphasis was that the meaning of the word 'sale' in the Entry 54 had been taken to be fixed with reference to the meaning given to the word 'sale' in the Entry 54 had been taken to be fixed with reference to the meaning given to the word 'sale' under the Sale of Goods Act, that is why any extended definition of the word 'sale' was held to be ultra virus of the Act. The position however is not the same so far as the Parliament is concerned. The powers of State Legislature cannot for obvious reasons be of the same amplitude as that of Parliament by virtue of Entry 97, List I, which is residuary entry empowering Parliament to legislate on any topic not specifically prohibited. Thus Parliament is not confined to any particular definition of manufacture and could prima facie possibly give an extended meaning to the word manufacture. We however need not go so far because Mr. Solicitor did not bar an enquiry by the court to determine whether the item included in Excise Tariff comes into existence by a process of manufacture or not. We must however say that though an enquiry by the court may be permissible, we cannot ignore the fact that Parliament having included the Entry in Excise Act, it will clearly raise a presumption even if assailable one that the item so included come into existence by process of manufacture and that normally the courts would be referred reluctant to say that the process does not involve manufacture. We are saying this because the controversy in all the cases which have been referred to by the Council for the petitioners has been whether any particular goods falls within any particular item included in the Schedule to Excise Act or not. There has never been a case in which a challenge had been made and succeeded that though the Parliament has specifically included a particular goods the Brass Scrap in item 26A(1b) in Excise Act, yet it should be held to be invalid on the ground that notwithstanding the understanding of Parliament that brass scrap is a manufactured product, court should hold that it does not involve manufacture. Thus, in Union of India and another v. Delhi Cloth & General Mills Co. Ltd. 2. Ganesh Flour Mills Co. Ltd. and Modi Rubber Mills and another A.I.R. 1963 SC 1791 the court accepted that if a refined oil came into existence excise duty was payable, but the department failed because it was not able to show that refined oil as known to the market ever came into existence. - Vide South Bihar Sugar Mills Ltd. and another etc. v. Union of India and another etc. A.I.R. 1968 SC 1922 'excise duty was payable on carbon dioxide. The court found that department was seeking to levy duty on what is Kiln gas tax and this was quashed. Again it will be seen that emphasis was that the gas produced was not covered by a particular item given in the first schedule, and not that though the article was specifically covered by an item in first schedule, still it was not a manufactured product.
35. That the weight to be attached to the factum of inclusion of entry in Excise Act was highlighted in Union of India v. Hindu Undivided Family business known as Ramlal Mansukhlal, Rewari and another (supra) where the question was whether rolling of billets into uncut circles involved manufacture so as to attract excise duty the court laid special emphasis on the fact that legislature has laid down that excise duty shall be livable on billets at a lower rate and on manufacture of circles at higher rate and observed - 'this provision itself makes it clear that the legislature was aware that billets are converted into circles, and it was decided that excise duty should be livable at both stages. When the legislature used the word 'manufacture' in connection with circles, after having taken account of the fact that billets were already subjected to excise duty, it is obvious that the process, by which the billets were converted into circles, was held by the legislature to amount to manufacture'. The main emphasis was that as the Parliament itself had provided for imposition of excise duty it was futile to urge that the process to obtain the end product was not manufacture.
36. As a result we would hold that clause 1(b) of the Tariff Item 26A of the Schedule to the Central Excises & Salt Act, 1944 as introduced by clause (v) of the 3rd Schedule read with Section 48 of the Finance Act, 1981, is intra virus and constitutional. On the finding above that excise duty is validly livable on brass scrap, it would naturally follow that the petitioners would be automatically liable to pay additional duty of customs under Section 3 of tariff Act. The counsel for the petitioners however strongly urged an alternative contention as to why, notwithstanding the finding of the validity about the entry in the Excise Act, they are still not liable to pay additional duty under Tariff Act, 1975. This argument is based on the petitioners case that though they import brass scrap, the said scrap does not consist of scrap obtained in the course of manufacture of brass product. The scrap imported by the petitioner No. 1 consists of broken water taps worn out and damaged sanitary fittings and other worn out and damaged parts and components of brass products which have been discarded after use since they have become unfit for such use and are sold as junk. To illustrate, a water tap, which is a manufactured product, ceases to be a water tap because of the damage sustained by it or on account of its becoming worn out and/or is rendered scrap. The attribute of the characteristic or the causes on account of which it is rendered scrap is not because of any treatment, labour or manipulation because of it being subject to any process of manufacture but it is a result of causes like damages, wear and tear etc. So runs the argument and as such, there is no manufacture of such scrap.
37. We cannot agree. This argument seems to blot out the distinction of the liability under the Customs Act and the liability under the Excise Act. The petitioners are not manufacturers of Brass Scrap in the country. It is not their complaint that they are being asked to pay duty of excise on goods which they have brought from the market after they had become unserviceable because of consistent use. In fact the petitioners are not at all being asked to pay Excise duty. The liability of petitioners is to pay duty of customs and that arises because of Section 12 Customs Act which says that a duty of customs shall be levied on all goods imported into India and Section 3 of the Customs Tariff Act which provides for the levy of an additional duty. In order, however, to fix the rate of additional duty what has been done is that instead of fixing the additional duty separately for each item the measure of duty of customs is sought to be made equal to the excise duty for the time being livable on a like article if produced or manufactured in India. The condition for the leviability of additional duty of customs thereforee, is that if the articles whether produced or manufactured in India will incur a liability to pay excise duty. The simple test for finding the liability to pay additional duty of customs is to know the classification of the articles when they are imported into India. Admittedly articles imported by the petitioners are classified as Brass Scrap. This item is excisable under Item 26A of Excise Tariff.
38. It is well settled that for liability under Section 3 of Tariff Act it is not even necessary that like articles are actually being manufactured in India. It is enough, as Explanationn to Section 3 makes clear that if like articles are not produced or manufactured in India which would be livable on the class or description of the articles to which the imported article belongs.
39. Now in the present case the petitioners are importing brass scrap which is an excisable goods. Even if the brass scrap was not being manufactured in India they would be liable to pay additional duty of customs under Section 3 of the Tariff Act. In this context it is not even necessary to find out whether the brass scrap as such is being manufactured in India or not. Thus the enquiry to determine leviability under the Tariff Act does not encompass the determination whether the brass scrap consignment imported has been obtained during manufacturing process. The only matter that the customs authorities have to satisfy themselves is that when the consignment of a petitioner comes into the Port whether a like article i.e. Brass Scrap is subject to excise duty, and on finding in the affirmative additional duty of customs becomes payable. Law does not require an enquiry to be made to determine whether a particular consignment of brass scrap was one which was obtained by process of manufacture or was obtained from discarded and worn out brass products, for the reason that 'brass scrap' is one specific article. Such an enquiry backwards into how and wherefrom this particular consignment of scrap was obtained whether in the manufacturing process of same foreign merchant or trader is totally irrelevant because taxable event in the matter of customs is the import into India and not manufacture. Just as duty of customs under Section 12 is payable whether the goods imported involved an element of manufacture or not, similarly additional duty of customs is payable under Section 3 of the Tariff Act, irrespective on the manufacture involved in that particular consignment. Of course an enquiry has to be made if any like article produced or manufactured in India will bear excise duty. That requirement is satisfied because the amendments made by the Finance Act of 1981 make the brass scrap an excisable goods. We would, thereforee, hold that the demand on the petitioners to pay additional duty of customs is valid and permissible.
40. Mr. Gupta made an alternative argument that the additional duty of customs was not livable because by means of a notification No. 34 dated 1-3-1981 issued under Rule 8 of the Central Excise Rules by which waste and scrap of copper, Aluminum falling under items 23A and 27 of the Schedule to the Excise Act have been 'exempted from the whole of the duty of excise livable subject to the condition that the said waste and scrap are used in the manufacture of copper, zinc within the factory of production. We are of the view that the reliance of the notification is in apposite as it relates to the exemption from payment of duty of excise in certain conditions and has no relevance for the purpose of payment of additional duty of customs under the Customs Tariff Act. This notification exempts those articles from excise duty if it is used within the factory by the manufacturer, apparently because he will be liable to pay excise duty on the article which will be produced. It can have no effect on payment of additional duty of customs at the time of importation. This notification does not as such exempts the copper scrap from the payment of excise duty. Here the exemption is subject to the condition that the copper which is manufactured should be used in the factory of the production i.e. to say that if the same factory produced and manufactured copper and waste and then uses the same scrap within the factory of production no excise duty will be payable. This is done to avoid paying twice over the excise duty, once on copper scrap and again on the manufactured product obtained from use of copper scrap. This avoidance of paying duty twice over also explains another notification No. 33, dated 1-8-1981 by which the Central Government has exempted waste and scrap of copper from the payment of whole of the duty of excise livable subject to the condition that such waste and scrap are manufactured from copper falling under item 26A on which appropriate amount of duty of excise.....has already been paid. The purpose of the notification is different and the petitioners cannot take any advantage from it.
Point No. 4: Has this court jurisdiction to entertain the petition
41. One of the preliminary objections raised to the competency of the present petitions was that this Court had no territorial jurisdiction to entertain the petition. It will be seen that in all cases Bills of Entry had been presented at the Ports of Bombay, Calcutta and Madras. Thus orders when passed will be by authorities which are situated outside the territorial jurisdiction of this court. Prima facie, thereforee, this court would not have jurisdiction to issue writs to these authorities which are outside the jurisdiction of this court. The Council for the petitioner, however, urged that this court would have jurisdiction first on the ground that the decision is bound to be Central against the petitioners because of the Tariff Advice dated 9-7-1981 from the Board of Excise and customs to all Collectors, which is to the effect that the Board was of the opinion that the bras scrap would be assessable to duty under notification No. 156 of 1977 dated 16-7-1977 and not notification No. 97, dated 25-6-1977 (as is now contended by the petitioner). The contention is that as the Board undoubtedly has its seat within the territorial jurisdiction of the Court and because by these circulars the petitioners are denied the benefit of the notification No. 97, dated 25-6-1977 part of cause of action has arisen in this court. We cannot agree that the Board's Circular will confer jurisdiction, though it may be a somewhat satisfactory reply to another objection raised by the respondents about alternative remedy being available. In that context the petitioners could legitimately object that even though the Board has termed it as advice it would be considered to be binding on the lower authorities - Assistant Collectors and, thereforee, the Collectors would not be exercising their own independent decision which they are expected to be as quasi-judicial authorities but would consider themselves bound by the advice given by the Board and hence provisions of appeal/revision are not efficacious. This apprehension could not be lightly brushed aside. It is unfortunate that this practice should continue to prevail, notwithstanding the direction by the Supreme Court in Orient Paper Mills v. Union of India : 1973ECR1(SC) that the power exercised by the Collector was a quasi-judicial power and it cannot be controlled by the directions issued by the Board. The Court held that these directions vitiate the proceedings and make mockery of judicial proceedings. It is a pity that this distinction between the administrative power and a quasi-judicial power sometimes gets lost and blurred. The authorities no doubt justify this course of giving advice by pointing out that this leads to uniformity and sometimes even the parties themselves invite such advice. But then the advice coming from the Board which also was an appellate authority cannot be countenanced. Fortunately now the appellate and the revisionary powers of the Board and the Central Government have been entrusted to the Customs Excise, Gold (Control) Appellate Tribunal which is analogous to that of an income tax tribunal. Thus the administrative and quasi-judicial functions at the highest have been separated. Thus even if now advice is given by the Board, it would have no effect because the Tribunal, the being the highest quasi-judicial authority could ignore Board's circulars and the argument of not availing the alternative remedy of revision before the Tribunal, on this ground would no longer have any efficiency. But with all the objectionable features these directions have no relevance to the question of jurisdiction, for as emphasised in Rama Devi v. R. A. Gafoor & Ors. wherein it was said that 'Objections, if any, issued by the officials of the Central Government would only have the effect of showing, if at all, that there was non-application of mind by the concerned detaining authority of the State Government; this may furnish, if this is so, in some cases at least a ground for vitiating the order of detention but such directions would not by themselves have any bearing on the questions of jurisdiction. Dr. Singhvi sought to rely on a judgment by one of us (Sachar J.) in C.W. 1601/1972 decided on 31-5-1974. That case is distinguishable. In that case it was found that the Assistant Collector did not act on his own independent judgment but carried out the direction given by the Board. The petitioners in that case were asked to pay duty under sub-item (1a) of heading 26A of Excise Tariff on the ground that the Board of Excise and Customs had stated that the products manufactured by the petitioners were not eligible for exemption from duty. It was evident that the Collector did not apply his own mind but acted on the direction of the Central Government. The reason, thereforee, why it was held that this Court had territorial jurisdiction was because it was accepted that unless the petitioners got rid of the direction given by the Board which was situated in Delhi he could not get any relief. That case cannot assist the petitioners. Reference by the counsel for the petitioners to Poona Bottling Co. Ltd. and anr. v. Union of India and others 1981 E.L.T. 389 is equally of no avail. In that case the Assistant Collector of Central Excise Pune served notice on the petitioner company that it was of the view that the Company was not entitled to exemption under notification dated 4-7-1977 as it was not manufacturing soft drinks independently but was rather an agent of M/s. Parley. The objection that this court would not have territorial jurisdiction as notice was issued by the Collector of Customs, Pune was negatived. But this was done because the bench took the view that the basis of the show cause notice was direction or advice issued by the Central Government. The Bench rejected the contention of the Revenue that the advice of the Central Government was not binding. The Bench rather held that the tenor of the show cause notice shows as if the decision had already been taken and the bench was, thereforee, satisfied that the notice was issued in pursuance of the direction given by the Central Government, and, thereforee, this court had territorial jurisdiction. It will be seen that though formally a notice was issued by the Assistant Collector of Customs, Pune, the finding was that this was pursuance of the direction from Delhi by the Central Government. In fact, thereforee, the challenge was to the action and direction taken by the authorities in Delhi. This case is clearly distinguishable.
42. The next argument to confer territorial jurisdiction on this Court was on the ground that as the virus of some of the provisions of the Finance Act, 1981 have been challenged the Central Government would be a necessary party and as the Central Government has its seat in Delhi this court would have jurisdiction. This very argument that because virus of a Central Act challenged the Central Government is a necessary party was raised in Shiv Shankar Lal v. I.T. Commissioner, Bombay AIR 1968 Del. 295 but was rejected. The Bench held that there is no foundation for the view that because virus has been challenged the Central Government has to be imp leaded as a party. The Bench, held that the writ petition was incompetently field even though Section 132(5) of the Income-tax Act which is a Central Act had been challenged in the writ petition. Our attention is, however, drawn to Rama Devi's case (supra), where in para 26 it has been observed that 'challenge to the law will be as much a part of cause of action as a challenge to a declaration made under the law' which according to the counsel for the petitioner would mean that if virus of a Central Act has been challenged Delhi High Court would have jurisdiction. We may, however, note that in that case the objection to the lack of territorial jurisdiction of this court was negatived mainly on the ground that a declaration under Section 9 of the COFEPOSA which permitted the detention to be made without making a reference to the Advisory Board was issued at Delhi and as the detenu had been detained without reference to the Advisory Board the cause of action certainly arose in Delhi where the Central Government had issued the direction. It is, however, to be noted that the earlier division bench judgment of Shiv Shankar Lal's case (supra) was not brought to the notice of the judges who decided the latter division bench case. We, however, do not wish to give any considered decision on this point for the reason that large number of writ petitions have been pending here for quite some time and it would serve the purpose neither of the Revenue nor of the writ petitioners if we were to refuse to decide the petitions on merits and throw out these petitions on the questions of jurisdiction only. Moreover as one division bench had broadly proceeded on the basis that challenge to the virus of a Central Act can confer jurisdiction we have contented ourselves by giving a decision on merits, and would leave open this vexed question of jurisdiction, to be decided at some other appropriate time.
Civil Writ Nos. 1108 and 1109 of 1981.
43. These two cases deal with the import of Aluminum scrap and additional duty payable on it. Entry 27 of the Schedule of Central Excise Tariff mentions Aluminum. By Finance Act 16 of 1981 clause (aa) has been added which is as follows:
'(aa) Waste and scrap Fifty per cent ad valorem plus two
thousand rupees per metric tonne.'
It is in pursuance of this that additional duty of customs is being asked from the petitioners.
'Aluminum ranks third among all elements and in the form of silicates, comprises nearly one-tenth of the weight of the earth's crust. It is never found native, but all clays contain Aluminum silicate, usually in association with the silicates of iron, calcium and magnesium. The extraction of Aluminum from clay, however, is not at present an economic proposition and the most important source of Aluminum is bauxite'........ Even the highest grades of bauxite contain appreciable impurities chiefly oxides of iron and titanium, and must be purified before the metal is extracted. The ore is mixed with caustic soda solution and heated in pressure chambers so that Aluminum way form the soluble compound Sodium aluminate. This is separated from the insoluble residues by filtration. Aluminum hydroxide is then precipitated from the solution and heated at a temperature of 1,500 Degree C to obtain practically pure alumina. This latter is then dissolved in molten cryolite (3 Na F. Alf 3) and reduced to Aluminum by electrolysis' - (vide merriment page 7), it will thus be seen that Aluminum scrap is not a refuse or throw away as is sought to be suggested by the counsel for the petitioners, Mr. Rangaswamy. For the same reasons which have persuaded us to hold that brass scrap involves an element of manufacture, it must also be held that Aluminum scrap also involves manufacturing process. Insertion of clause (aa) in Heading 27 in First Schedule to the Central Excise Act by Amendment Act 16 of 1981 was, thereforee, validly introduced. It was not disputed that once the entry in the Excise Act is validly incorporated the consequential additional duty is payable by the petitioners.
44. Aluminum scrap imported into the country before 31-3-1981 was subject to a duty of customs under Heading 76.01 of First Schedule to the Tariff Act @ 40%. The effective rate of duty however, was 35% by virtue of exemption notification which was however valid only up to 21-3-1981. Additional duty under Section 3 of the Tariff Act was also imposed but by an exemption notification of 1-1-1981 the whole of the additional duty livable therein was exempted up to 31-3-1981. Further notification was issued on 30-3-1981 by which additional duty was exempted as was in excess of 24% ad valorem. The petitioners are thus now liable to pay full duty of customs at 40% and 24% of additional duty of customs. After our finding that the inclusion of Aluminum scrap in the Central Excise Act is a valid and constitutional the next ground in resisting to pay the full duty of customs urged by Mr. Rangaswamy is that the petitioners cannot be asked to pay the full duty of customs and additional duty on goods which had been booked against irrevocable letter of credit earlier than the withdrawal of the exemption notification w.e.f. 31-3-1981. It is claimed that the petitioners acting on the representation of the Union of India that duty of customs and additional duty of customs will be at the rate as mentioned in the exemption notification had placed firm orders with foreign seller who had also shipped the goods in February, 1981 and, thereforee, as the exemption notifications were subsisting up to 31-3-1981 they can only be asked to pay the duty of custom and additional duty read with the exemption notifications. In short the petitioners claim that they are entitled to the benefit of exemption notification even if their goods arrived subsequent to 31-3-1981. In this connection it is relevant to note that in the petition the allegation that is made is that the ship has left in February, 1981. It is nowhere averred as to when the ship entered the territorial waters of India. As a matter of fact we pointedly asked the counsel for the petitioner to tell us as to when the said ship containing the petitioners consignment entered the territorial waters, but he expressed his inability to do so. Counsel asked us to proceed on the basis that though the ship containing the petitioner's consignment must have entered the territorial waters of India subsequent to 31-3-1981 and also that the bill of entry in respect of such goods also would have been presented subsequent to 31-3-1981 but yet asked us to hold that the petitioners are entitled to the benefit of exemption notification which were not extended beyond 31-3-1981. We cannot agree. The counsel for the petitioners realised the unusualness of the stand and that is why he put forth the extreme argument that notwithstanding withdrawal of the exemption notification the petitioner has a vested right to get the benefit of this exemption notification simply because he entered into a contract for the import of the goods earlier to 31-3-1981, and seeks to plead promissory estoppel in this regard and relies on A.I.R. 1969 SC 718 union of India v. Anglo African Agencies. In that case under an Export Promotion Scheme an exporter who exported goods was entitled to import entitlements of a certain value. Even when the goods were imported the Textile Commissioner made a cut in the value of the entitlement. It was this order which was quashed because, as the court observed, that it could not be said that the Textile Commissioner was the sole judge of the quantum of import license to be granted to an exporter, and that the courts were powerless to grant relief, if the promised import license was not given to an exporter who had acted to his prejudice relying upon the representation. That case is clearly distinguishable. Even if the limited sense the benefit of exemption could if at all be insisted upon if the goods were imported into India before 31-3-1981. There was no representation that the exemption notification will continue beyond 31-3-1981, the benefit of exemption notification was rightly refused to the petitioners. In this context, it is well to remember that 'the doctrine of promissory estoppel cannot be invoked for preventing the Government in acting in discharge of its duties under the law. There could be no promissory estoppel against the exercise of legislative power. Legislature can never be precluded from exercising its legislative functions by resort to the doctrine of promissory estoppel'. (Vide M. P. Sugar Mills v. State of U.P. A.I.R. 1979 SC 1612 & Jit Ram Shiv Kumar v. State of Haryana : 3SCR689
45. In the present case in reality what the petitioner is urging is that a mandamus should go that the exemption notification should have been continued till after the period the goods were imported by him. No such relief is maintainable. Reference may usefully be also made to Narendra Chand v. U.T.H.P. : 1SCR940 where the plea of a successful bidder in an auction of foreign liquor was that at the time of auction it was represented to them that no sales tax would be livable but subsequently the sales tax was being imposed. They filed a writ petition pleading estoppel against the State praying for a mandamus against the Deputy Commissioner claiming that no sales tax was liable to be paid on sales of Indian made Foreign Liquor. The plea of estoppel was rejected by the Supreme Court, which observed that 'the power to impose tax is undoubtedly a legislative power. That power can be exercised by the legislature directly or subject to certain conditions, the legislature may delegate that power to some other authority. But the exercise of that power, whether by the legislature, or by its delegate is an exercise of a legislative power. The fact that the power was delegated to the executive does not convert that power into an executive or administrative power. No court can issue a mandate to a legislature to enact a particular law. Similarly no court can direct a subordinate legislative body to enact or not to enact a law which it may be competent to enact. These observations aptly apply to the present case. We must dispel the oft repeated suggestion as if there is any estoppel against the Government or the legislature to change the rate of duty Customs or Excise during the course of a financial year. We had occasion to dilate on this aspect in C.W. 2131/1982 decided on 23-9-1982 and need not repeat it. We will only content ourselves by adopting a few observations. 'The whole stress of this argument seems to be as if during the financial year, the rate of duty of excise or customs or the list of goods which can be imported or exported as indicated either in the Import Policy or in the Schedule is immutable and that it is not permissible for the Government or the legislature to revise its policy or rates of duty during the year or in such a manner as to affect existing contracts, which had been entered into prior to the announcement of changed policy. These arguments amount to pleading promissory estoppel against the legislature which is impermissible in law. All private commitments must and are subject to overall power of the legislature or the executive to bring forth any legislation. Policy changes required in the public interest do not get held up to suit the private conveniences of the various business interests. This plea, thereforee, fails.
As a result of the above our findings are as follows :-
(1) The petitioners are liable to pay duty of customs at 80% as demanded by the respondent;
(2) The imposition of excise duty on waste and scrap as included in the Third Schedule to the Central Excises Act by Section 48 of the Finance Act, 1981 is constitutional and within legislative competence.
(3) The levy and collection of additional duty of custom under Section 3 of the Tariff Act on the petitioners is valid.
46. We may mention that there are a few writ petitions concerning lead scrap, nickle scrap and size scrap against this batch. The counsel for the petitioners therein had adopted the arguments addressed in the case of brass scrap and had conceded that the decision in this writ petition will also govern their cases.
47. We may mention that at the time of admission interim orders were obtained to the effect that the Port Authorities may allow the goods to be removed without the petitioners paying the full demurrage charges subject to the furnishing of bond and further security/bank guarantee. Mr. Chopra, the learned counsel for the Port Authorities makes a grievance that the Port Authority is not concerned with the alleged disputes between the Customs Authority and the petitioners and that it has a right to recover the demurrage charges for the delay in clearing the goods whosoever may be at fault. He relied in this connection on Port of Bombay v. Indian Goods Supplying Co. - : 3SCR343 . As we are now dismissing the writ petitions it is apparent that the interim directions given against the Port Authorities will stand vacated and are so ordered accordingly. The Port Trust can proceed to recover any amount of demurrage which it is entitled to. Naturally it can recover it from the bond and the bank guarantee which were furnished by the petitioners in pursuance of the Court's order. As the Port Trust was imp leaded and has had to suffer expenses it is entitled to the costs of the petition which we asses at Rs. 800 in each petition.
48. The result is that the writ petitions are dismissed with costs. The respondent/Union of India will have costs of petitions which we assess at Rs. 1000/- in each petition.
49. As the writ petitions are being dismissed the interim orders permitting the petitioners to import goods without paying the duty asked for by Customs Authorities are hereby recalled and vacated. The respondents are at liberty to take any appropriate steps as advised to realise the amount of duty from the petitioners in terms of the bond and or bank guarantee and to encash the same which were furnished to them in pursuance of our order or to proceed against for recovery in any way as is deemed proper, and in accordance with law.