1. The question that falls for decision in this case is whether scrap rubber arising in the appellants' factory in the course of manufacture of tyres and tubes is liable to duty under Item 68 of the Central Excise Tariff.
2. The appellants claimed rubber scrap as free of duty in their classification list effective from 1-3-1978. The lower authorities have not accepted their claim and have held that scrap rubber is chargeable to duty under Item 68. The appellants stated before us that scrap rubber was an automatic, involuntary and unavoidable arising in the course of manufacture of tyres and tubes. They sold a part of the rubber scrap to kabaris and whatever portion was left unsaleable was consumed within their factory by burning. They relied on the Supreme Court judgment in the DCM case to say that taxable event for levy of excise duty was manufacture of goods and since they did not intend to manufacture rubber scrap and on the contrary it arose automatically as a process waste, no manufacturing activity could be said to have taken place in regard to the scrap. Secondly, they stated that rubber scrap was not goods. For this, they relied on the Bombay High Court judgment in the case of Indian Aluminium Company 1980 E.L.T. - 146 (bom) wherein it was held that the dross and skimmings of aluminium were merely the refuse, scum or rubbish thrown out in the process of manufacture of aluminium sheets and could not be treated either as goods or end products or as finished products even though such refuse or scum may fetch some price in the market. The appellants pleaded that on the analogy of this judgment, no duty should be charged on their rubber scrap. Thirdly, they stated that the successor Assistant Collector had conceded -their point of view in his subsequent order dated 28-2-1981 relating to the period 1-3-1980 to 30-6-1980 in which the Assistant Collector held that rubber scrap was a process waste and could not be treated as goods manufactured in terms of the statute and, accordingly, the Assistant Collector dropped the demand for duty for rubber scrap.
They also relied on the order of the Bombay Bench of this Tribunal in the case of Kolhapur Steel Ltd. [1983 (12) E.T.R. 692.] 3. The Department's representative drew our attention to the impugned order in appeal in which the Appellate Collector had recorded a detailed finding showing how rubber scrap was different in name, character and use from the raw materials (raw rubber, chemicals, yarn etc.) and how labour and machinery had been employed in transforming the raw materials into tyres and tubes and similarly into scrap rubber.
The process involved was a process of manufacture, according to the test laid down by the Supreme Court in the DCM case. Further scrap rubber was goods according to the test laid down by the Supreme Court in South Bihar Sugar Mill case as it was sold by the appellants to others and ultimately it was used for making hard rubber products such as cycle brakes and paddles and shoe soles. The Supreme Court had held that to become goods an article must be something which can ordinarily come to the market to be bought and sold. Scrap rubber thus satisfied this definition. The Department's representative sought to distinguish the Indian Aluminium Company case saying that scrap rubber of the appellants could not be treated as scum or refuse in view of the fact that it was sold and ultimately used for manufacture of many useful articles. He added that as against the single judge judgment of the Bombay High Court in Indian Aluminium Company case, there was the Division Bench judgment of the Allahabad High Court in Oudh Sugar Mills case (1982 E.L.T. 937) in which it had been held that by-products, residual products and intermediate goods arising in the course of manufacture of other goods were also liable to duty because the charging Section 3 of the Central Excises and Salt Act, 1944 used the word 'production' in juxtaposition with the word 'manufacture'. He also relied on the following orders of this Tribunal wherein several by-products (namely, bagasse, glass lumps and saw dust, respectively) were held to be liable to duty :- (iii) 1984 (16) E.L.T. 317 (Tribunal) - Order No. 738/83-D, dated 24-11-1983 in appeal No. 45/78-D (Sanghvi Enterprises).
He stated that the same rationale should apply to scrap rubber of the appellants. As regards the successor Assistant Collector's order dated 28-2-1981, he stated that the anamoly occurred because of lack of coordination and this order had not been taken up for review as perhaps it could not be linked with the orders previously passed by the earlier Assistant Collectors. The Department's representative, however, stated that the anamoly related to a short period only (1-3-1980 to 30-6-1980) and that since 1981 the appellants had been paying duty on rubber scrap under Item 68.
4. In a brief rejoinder, the appellants stated that baggasse, glass lumps and saw dust were distinct products while their rubber scrap was only a process waste which was sold to kabaris or just burnt. They also stated that rubber scrap was not specified anywhere in the Central Excise Tariff.
5. We have carefully considered the matter. We agree with the Appellate Collector that as between the raw materials like raw rubber, chemicals and yarn etc., on the one hand and rubber scrap on the other, labour and 'manufacturing activity is involved and that rubber scrap is a different article having a distinct name, character and use as compared to the raw materials. It, therefore, satisfies the test of 'manufacture' as laid down by the Supreme Court in the DCM case. The Supreme Court has not said anywhere in this judgment that only the goods which are intended to be manufactured can be called manufactured goods. -We also agree with the Appellate Collector that scrap rubber of the appellants satisfies the definition of 'goods' as laid down by the Supreme Court in the South Bihar Sugar Mills case as it is bought and sold and is ultimately used as a raw material for manufacture of other hard rubber products. The appellants have relied heavily on the single judge decision of the Bombay High Court in Indian Aluminium Company case relating to dross and skimmings. The basic issue under consideration in that case was whether dross and skimmings were finished excisable goods in terms of the proviso to Rule 56A(2) of the Central Excise Rules, 19W. The Court held that dross and skimmings were not finished by-products and the Department itself agreed that during the material period they were not excisable goods and hence the proviso to Rule 56A(2) did not apply. However, the Court did observe in the course of its judgment that dross and skimmings were just refuse, scum or ashes sold as rubbish and could not be called goods. Scrap rubber, though sold by the appellants at relatively a cheap price, cannot be called rubbish. It is bought and sold and is used for making their useful articles. Further, in order to be taxable under Item 68, it is not a condition that the articles must be finished products. Thirdly, as against this judgment, there is the subsequent Division Bench judgment of the Allahabad High Court in Oudh Sugar Mills case wherein the Court categorically held that the word 'production' in Section 3 of the Act was used in juxtaposition with the word 'manufacture' and obviously referred to finished and semi-finished articles made from raw materials and, therefore, any by-product or intermediate or residual product in the manufacture of particular goods would be covered by the word 'production'. We are in respectful agreement with this judgment of the Allahabad High Court. We find no authority to support the appellants' plea that only the particular goods intended to be manufactured can be taxed. Our conclusion finds support from numerous instances in the tariff itself where by-products and residual products have been taxed. To quote, just a few examples, - (1) Item 11 - Asphalt, Bitumen and Tar (arising in the course of refining of crude petroleum).
(2) Item 14C - glycerine (arising in the course of manufacture of vegetable product or vanaspati) (3) Item 15CC - Molasses (arising in the course of manufacture of sugar).
(4) Item 18IV - Non-cellulosic wastes (arising in the course of manufacture of man made fibres and yarns).
(5) Items 25 and 26(old) - Scrap iron and steel scrap (arising in the course of manufacture of various iron and steel products).
The appellants are correct in saying that rubber scrap is not similarly specified by name anywhere in the tariff. But that would only mean that being goods not specified anywhere else in the tariff, rubber scrap, so long as it is goods produced or manufactured, will have to be classified under the residuary Item No. 68 of the tariff. The appellants have relied on the order of this Tribunal (Bombay Bench), in the case of Kolhapur Steel Ltd. The ratio of this order is that in the case of steel melting scrap manufactured from steel melting scrap, both falling under old Item No. 26 of the tariff, it could not be said that a new and different article had been brought into existence and hence.
no manufacture was involved. The facts of that case are different from the facts of the present case before us in as much as the starting raw material of the appellants is not rubber scrap but raw rubber, various chemicals and yarns etc., and, therefore, they cannot claim that their rubber scrap is arising out of rubber scrap.
6. Applying the combined ratio of the Supreme Court judgment in the DCM and South Bihar Sugar Mills cases, and the Allahabad High Court judgment in the Oudh Sugar Mills case and also consistent with the view taken by us earlier in the cases relating to bagasse, glass lumps and saw dust cited by the Department's representative, we hold that rubber scrap arising in the appellants' factory was liable to duty under Item 68 of the tariff. However, we find that the appellants deserve relief in one respect. During the hearing on 20-1-1983, the appellants stated that duty had been demanded from them even on the quantity of the rubber scrap consumed by burning within their factory. If true this demand not correct. It is not clear whether this burning is as a fuel or just for the sake of destroying the unwanted rubber scrap. However, in either case the appellants deserve exemption/remission of duty - under Notification No. 118/ 75-CE, dated 30-4-1975 in case they are using rubber scrap as fuel within their factory, and under Rule 49 in case rubber scrap is destroyed by burning on the ground that it is unfit for consumption or for marketing. We, therefore, direct that appropriate relief be given to the appellants in respect of the quantity of the rubber scrap which is burnt by them. Subject to this relief, the appeal is rejected.