ORDER
H.R. Syiem, Member (T)
1. The point of dispute is the assessment of aluminium dross and skimmings. The department assessed the dross and skimmings under Item 68 of the Central Excise Tariff because they held that “aluminium dross losses its identity with the raw materials in the course of its production and emerges as a new and different product having a distinctive name, character or use”. They held that since the dross is sold and saleable, this test of marketability places it in the category of goods and since it is manufactured during the production of aluminium sheets, it would fall under Item 68.
2. The learned counsel for M/s. Hindustan Aluminium submitted that this Tribunal had held in several judgments that dross and skimmings are not goods and, therefore, not excisable.
3. The learned counsel for the department, however, opposes the freedom from excisability of dross and skimmings. He argued that all the Tribunal’s order of the past were based on the Bombay High Court judgment 1980 E.L.T. 146 re: Indian Aluminium. But it needs to be stated, he said, that this decision cannot support the assessment of dross and skimmings as not excisable. That judgment was in respect of periods before 1975 and concerned an order passed in September, 1974; the issue was proforma credit under Rule 56A(2) of Central Excise Rules. According to AIR 1976 SC1207, paragraph 546, the application of a judgment should be confined to the question before the court. If we do this, argued the learned SDR, we will find the Indian Aluminium judgment will not permit a decision that dross and skimmings are not excisable or that they are not goods.
4. However, if we read the Indian Aluminium judgment, we will come upon a significant observation of the court which I will briefly summarise in the following sentences. The Central Excise Department wanted to reduce the proforma credit by reason of the appearance of the aluminium dross during the manufacture of sheets, in accordance with Rule 56A3(iv) of the Central Excise Rules. It was this proposed reduction that was disputed by the assessees M/s. Indian Aluminium and the matter went to the High Court. The High Court ruled that no reduction was to be made on account of the appearance of the dross and skimmings because it held that dross and skimmings were not goods. “It may well be” said the court “the dross and skimmings may be capable of fetching some sale price. For that matter any rubbish can be sold. But that is not the criterion. It cannot be said the dross and skimmings are the result of treatment, labour or manipulation whereby the end-product is dross and skimmings. They are merely the scum thrown out in the process of manufacture of aluminium sheets. Therefore, it cannot be said that the dross and skimmings are transformation resulting in new and different articles with a distinctive name, character or use or that they ordinarily come to the market to be bought and sold and are known to the market”.
5. At another place the court said that refuse or scum thrown off during the process of manufacture cannot by any stretch of the imagination be considered a byproduct, and merely because such refuse or scum may fetch some price in the market does not justify its being clothed with the dignity of being called a by-product, much less and end-product or a finished product.
6. There can be fewer, clearer pronouncements than these. The dispute may have originated in proforma credit, but to settle the dispute, the court had to come to a finding on whether the thing on which the proforma credit was to be given, (or not given), was a good. There was no other way it could have settled the dispute. The decision rested squarely on the finding that aluminium dross and skimmings were not goods. But that was not all.
7. Any rubbish can be sold, said the court. It is not a criterion and it cannot be said the dross and skimmings are the result of the treatment, labour and manipulation. This is what the department lost sight of. In their impatience to give dross and skimmings a new name, a new character and a new use, they forgot that the product must be the result of manipulation, fabrication handling or transform the raw material. Without fabrication or manipulation, the “transformation” that may result need not necessarily yield, for the purpose of excise duty, an item with a new name or character or use. The process of reasoning adopted by the Supreme Court in the judgments in DCM and Mis. South Bihar Sugar were that the materials were processed to result in the product as a conscious effort on the part of the manufacturer or the producer, or as a necessary byproduct during the process of manufacture. Undiscriminating employment of the reasoning process can lead to weird results, one of which is before us – that refuse, scum and dross are the result of fabrication and manipulation, and have acquired new name, character and use. A sale does not turn an object into a goods for the purpose of excise duty assessment. As observed by the Bombay High Court, any rubbish can be sold, and is sold. In fact, city sewage is known to be sold to people who process and produce manure etc. from it. We have read reports of dead bodies being sold for their skeletons. Animal bones are sold to bone meal manufacturers. There are many instances of this kind which are difficult to enlist entirely. The department are, therefore, not correct to say that the Indian Aluminium decision does not deal with whether aluminium dross and skimmings are goods for the purpose of excisability.
8. The learned counsel for the department read paragraph 34 of 1985 (20) E.L.T. 22 re: Kandlewall Metal Engineering. But I am afraid, I am not able to see the connection. The court discussed in this paragraph the imposition of excise duty on waste and scrap as an entry to Item 26A(lb) of the Central Excise Schedule and whether it (entry) was ultra vires Section 3 of the Central Excises and Salt Act or whether it was beyond the legislative competence of the parliament. In the process the honourable court said that it was equally true to say that waste and scraps are by-products of the manufacturing process. There are two points to remember in this: (a) there was a definite entry for waste and scrap in Item 26A, and (b) waste and scraps are good metal they readily lend themselves to further utilisation by melting for the production of prime metal being themselves prime metal. This is more than we can say for dross and skimmings: no one can produce prime metal from dross and skimming by simply melting them like one can melt scrap; it takes a long and expensive and costly process to get metal from them, and then in small quantities. Waste and scrap yeild good metals.
9. The learned counsel said that in South Bihar Sugar, the Supreme Court ruled that dross was a goods. But I am afraid this is not so. All it said was that kiln gas does not contain a high proportion of carbon dioxide; even if not sold and even if it does not conform to Indian Standard, it would make no difference if the product is carbon dioxide. It rejected the argument that a sub-standard product may not be known as that product. Duty, it said, was on manufacture and not on sale, and the fact that the kiln gas was not actually sold would not make any difference.
10. Before 1975, argued the learned SDR, dross were not covered; from 1975, Item 68 was introduced into the tariff and this item is adequate to cover dross and skimmings. It has an explanation which would aid in this interpretation because it provides that goods excluded from an item in any manner shall be deemed to be goods not specified in that item. By an explanation under Item 27, waste and scraps are defined as waste and scrap of aluminium, fit only for the recovery of metal – but does not include sludge dross, scaling, skimming, and ash and other residues. This explanation in Item 27 excludes dross and skimming from that item and in doing so, transport it into Item 68.
11. But this is only if the dross and skimmings are goods not specified in Item 27. They are not goods and, therefore, their exclusion from Item 27 will not carry them into 68.
12. Furthermore, it is, in my opinion, an error to understand the explanation in Item 27 as an exclusion that has the effect of transferring dross and skimmings to Item 68. All exclusions that transfer goods to 68 are assessment exclusions: that is to say, for some reasons, the law makers do not want the excluded items to be regarded as belonging to the class from which it is excluded. For example, rectangular conductors are not included in Item 33B. But it is well known that such conductors are electric wires and have all the characters of electric wires. They are as good as round wires; but for assessment, they are to be excluded from 33B. Motors for use in gramophones or record players are excluded from the electric motors Item 30. And we know that such excluded motors are in no respect different from non-excluded electric motors: but their assessment is not to be with other electric motors.
13. A motor vehicle running upon fixed rails like a diesel electric locomotive, is excluded from motor vehicles Item 34. But we cannot take this to mean that the locomotive is not a motor vehicle; it is and there is no question about it. But it shall not be assessed as a motor vehicle, enjoins the law.
14. All the exclusions are of good prime-quality products whose inclusion (but for the exclusion) everybody would have taken for granted without demur and without reservations. Not so with dross. A few may say it goes with the prime aluminium, or lead or copper; most others will resist it, and I with them. Dross is no aluminium; not even waste aluminium. You may wrench some metal out of them; for that matter, rag pickers lift rags and waste paper and cans from refuse heaps. It will not prove that the refuse bin will be classed as a cotton bale, or a paper (or pulp) roll.
15. The exclusion in Item 27 of dross and skimmings is not because if not excluded it will be assessed in that item, but because it does not class as an aluminium, as a goods. It is, as its name tells us, dross i.e. scum, refuse, worthless matter, rejected matter, useless matter.
16. I, therefore, hold that the assessment of the dross and skimmings is not legal as they are not goods under the Central Excise laws.