ORDER
K.L. Rekhi, Member (T)
1. Aluminium ‘dross’ is a residue which forms in the furnace during melting of aluminium ingots and also to some extent during subsequent treatment and holding operations of molten baths in the furnace. The point of dispute in this appeal is whether such dross can be considered as excisable ‘goods’. The appellants admitted before us that aluminium dross was a saleable commodity and it had commercial and industrial uses. Yet, placing reliance on the Bombay High Court judgment at 1980 E.L.T. 146 (Bom.) Indian Aluminium Co. Ltd. and Anr. v. A.K. Bandyopadhyay and Ors. 1980 Cen-Cus 178D (Bom.) which was later confirmed by the Division Bench of the same High Court on 24.2.1986 in Appeal No. 524 of 1980, they claimed that dross was not goods and hence not liable to duty. There is no dispute between the parties that if. dross is held to be goods, it would fall for classification under the residuary item No. 68 of the central excise tariff.
2. We have carefully considered the rival submissions. We find that the appellants’ reliance on the Bombay High Court judgements aforesaid is no longer valid for two reasons:
(1) These judgements relate to clearances of dross prior to 1975 while in the case of the appellants the relevant period is subsequent to 1981. There have been successive amendments in the statutory Central Excise Tariff between 1.3.1975 and 1.3.1981 and because of these changes in the law, the Bombay High Court judgements can no longer be considered binding on the point whether aluminium dross is ‘goods’ or not.
(2) The facts and the issue before the Bombay High Court were distinguishable from those in the instant case before us.
3. To take up the legislative changes first, the position before 1.3.1975 was that aluminium dross was then not covered by any item in the Central Excise Tariff In other words, it was not an excisable article at all. The department itself accepted this position before the Single Judge Bench of the Bombay High Court. However,-
(1) with effect from 1.3.1975, the residuary item 68 was introduced in the tariff which covered “All other goods, not elsewhere specified, excluding….
(2) by another amendment in 1980, the following Explanation was added in item 68:
Explanation–For the purposes of this item goods which are referred to in any preceding item in this Schedule for the purpose of excluding such. goods from the description of goods in that item (whether such exclusion is by means of an Explanation to such Item or by words of exclusion in the description itself or in any other manner) shall be deemed to be goods not specified in that Item;
(3) in 1981, a specific sub-item “waste and scrap” was inserted in the various non-ferrous metal items in the tariff, including item No. 27 relating to aluminium, and simultaneously the scope of the new sub-item was statutorily defined by Explanation III to item 27 (as also similarly in the case of other base metal items) in the following terms:
Explanation III–‘Waste and scrap’ means waste and scrap of aluminium fit only for the recovery of metal or for use in the manufacture of chemicals, but does not include sludge, dross, scalings, skimmings, ash and other residues.
The amendment of1981 is significant in that the Parliament specifically provided for taxing certain metal wastes (and scrap). The argument that certain articles were non-taxable just because they were by-products or process wastes was no longer available. No doubt, by virtue of the aforesaid Explanation, dross and skimmings etc. stood excluded from the scope of the new sub-item ‘waste and scrap ‘in item No. 27. But such exclusion no longer meant that they became totally non-excisable. So long as it could be shown that they were marketable godos, their classification under the residuary item No. 68, read with the Explanation thereunder, had now to be considered.
4. The test of what are ‘goods’ was laid down by the Supreme Court in South Bihar Sugar Mills case 1973 Cen-Cus June ix SC : ECR C 257 SC. The test is that “to become goods it must be something which can ordinarily come to the market to be bought and sold and is known to the market”. The appellants admit before us that their aluminium dross is marketed. There is nothing on record to show that any part of it is destroyed or thrown away as a total waste. The whole of it is bought and sold in the market. The buyers use it as a raw-material in chemical industries. Applying the test laid down by the Supreme Court to the facts of the case before us, the conclusion is inescapable that aluminium dross is ‘goods’. Dross has, no doubt, very little metal content and, for that reason, it has been aptly excluded from the metal item No. 27. But since the facts before us show that it is not only ordinarily but wholly marketed by the appellants and it has industrial uses as a raw-material, it would still be goods and would fall under the residuary item No. 68.
5. While it is true that certain residues have been taken out of the scope of “waste and scrap” in Item 27, it does not mean that such residues would not be goods Unless they are fit for recovery of metal therefrom. Explanation III below item 27 itself provides that “waste and scrap” may be fit for the recovery of metal “or for use in the manufacture of chemicals.” Therefore, if a certain type of process wastes, say dross, has been specifically excluded from item 27, it could yet be goods under some other item of tariff so long as it is proved that it is generally bought and sold and is commercially and industrially a usable material. In this connection, we invite attention to the judgment of this Tribunal reported at 1985 ECR 857 (CEGAT) M/s. Super Tyres (Pvt.J Ltd.–in which the question of excisability of process wastes was dealt with at length in the context of the numerous authorities of the High Courts and the Supreme Court cited therein.
6. Coming now to the second reason mentioned by us in paragraph 2 above, we find that the issue directly posed before the Bombay High Court was a different one. The issue was whether aluminium dross and skimings were finished excisable goods in terms of the proviso to Rule 56A(2). The proviso to Rule 56A(2) 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 were exempted from the whole of duty leviable thereon. Now, it is nobody’s case that dross and skimmings are finished goods. They are only a process waste. The word ‘waste’ has a relative meaning in the industrial parlance. What is a waste for one manufacturer could be a worthwhile raw-material for another manufacturer. It all depends upon what particular line of production each of the two manufacturers has. For the purpose of excisability under the Central Excise Tariff, it is not necessary that the goods must be finished goods. In the Tribunal judgment in the case of Super Tyres aforesaid, numerous examples have been given of process wastes, by-products and semi-finished goods which have been specifically made liable to duty in the Tariff. The question before us is not whether aluminium dross was finished goods but only whether it was goods. The limited question before us being different than the one before the Bombay High Court, we feel it has to be answered according to the test laid down by the Supreme Court in the South Bihar Sugar Mills case aforesaid.
7. Though the direct question before the Bombay High Court was different from the one before us, the said High Court, nevertheless, had occasion to make observations on the point whether dross and skimmings were goods. We reproduce below the relevant portion from paragraph 24 of their judgement:
24. The question that one must ask oneself is whether therefore dross and. skimmings are “goods”. It may well be that 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 that 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 dross and skimmings are transformation resulting in a new and different article 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. The article or goods manufactured from the aluminium ingots was not dross and skimmings but the aluminium sheets. It was the aluminium sheets therefore that were the end-product or the finished product and not the dross and skimmings which were merely the refuse or scum or rubbish thrown out in the course of the manufacture of the finished product, namely, the aluminium sheets. As stated earlier, in the affidavit-in-reply, there has throughout been a repeated emphasis that the dross and skimmings are a by-product and that the aluminium ingots were used by the Company in the manufacture of dross and skimmings.
x x x x x x x
x x x x x x x
Refuse or scum thrown off during the process of manufacture cannot by any stretch of imagination be considered as a by-product and merely because such refuse or scum may fetch some price in the market does not justify it being clothed with the dignity of being called a by-product, much less an end-product or a finished product. The aluminium ingots were utilised by the Company for the manufacture of the end-product, namely, aluminium sheets and certainly not for the manufacture of scum and refuse like dross and skimmings. Dross and Skimmings cannot be called a finished by-product nor can it be said that out of the aluminium ingots it was dross and skimmings, in other words “ashes”, that the Company manufactured. Furthermore, the fact that the dross and skimmings are not excisable is born out by the admissions contained in the affidavit-in-reply itself.
The Delhi High Court had an occasion to notice the aforesaid judgment of the Bombay High Court and observed in paragraph 21 of their judgment at 1983 ELT 292 (DEL) : 1983 ECR 91 D Khandelwal Metal and Engineering Works v. U.O.I. and Ors. that “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 56 A (2)”. The Delhi High Court judgment was confirmed by the Supreme Court by their judgment at Khandelwal Metal and Engineering Works and Anr. v. U.O.I. and Ors. This judgment related to Brass scrap, another article comprised in the entry “waste and scrap”. However, certain conclusions drawn by the Supreme Court on the question of excisability of by-products and process wastes are relevant and we re-produce them below:
34. x x x x x x x
x x x x x x x
The production of uaste and scrap is a necessary incident of the manufacturing process. It may be true to say that no prudent businessman will intentionally manufacture waste and scrap. But, it is equally true to say that waste and scrap are the by-products of the manufacturing process. Substandard goods which are produced during the process of manufacture may have to be disposed of as ‘rejects’or as scrap. But they are still the products of the manufacturing process. ‘Intention’ is not the gist of the manufacturing process.
x x x x x x x
It is quite evident that the Supreme Court over-ruled the assumption of the Bombay High Court that by-products and process rejects could not be called manufactured articles. It also over-ruled the other assumption of the Bombay High Court that process rejects could not be considered by-products of the manufacturing process. Aluminium dross is in no way different from other process rejects or wastes.
8. The aforesaid discussion would have revealed that the law, the facts as well as the issue before the Bombay High Court were different. In view of the successive legislative amendments, the Supreme Court judgements in the cases of South Bihar Sugar Mills and Khandelwal Metal and Engineerilg Works, the Delhi High Court judgment in the case of Khandelwal Metal & Engg. Works and the other case law cited in the Tribunal’s judgment in Super Tyres’ case aforesaid, it cannot now be said that the Bombay High Court’s observation that dross and skimmings were scum and rubbish and hence not goods is still binding. Since the dross arose in the course of a manufacturing process, it was a by-product or process waste which was quite distinct from the parent material namely, aluminium ilgots. Further, since the appellants have clearly admitted before us that their aluminium dross is a fully saleable commodity known to the market and finds industrial uses, it comes within the definition of ‘goods’ as laid down by the Supreme Court in South Bihar Sugar Mills case. We find it no where mentioned in the Supreme Court judgment that an industrial material ceases to be goods just because its price is low.
8A. We are conscious that there have been previous judgements of this Tribunal in which a contrary view was taken, relying entirely on the Bombay High Court judgment aforesaid. The legislative changes and other authorities cited by us in the preceding paragraphs were not adverted to in those judgements. We, therefore, do not feel bound by those judgements.
9. In the result, we uphold the lower orders and reject this appeal.
Dt. 31.3.1987 (K.L. Rekhi)
Member (T)
M. Santhanam, J.
10. I had the benefit of perusing the order of my Ld. Brother, Sh. K.L. Rekhi, M(T) but I regret that I am unable to agree with his findings. The two questions that would come up for decision in this appeal would be (i) whether the aluminium dross are liable to duty under TI68? and (ii) whether the explanation in Item 68 would be extracted in this case?
11. On the first question, the decision of the Bombay High Court in the case of the same party governs the issue. The Bombay High Court in 1980 E.L.T. 146 : 1980 Cen-Cus Bom. Indian Aluminium Co. and Anr. v. A.K. Bandyopadhyay and Ors. had to consider the show cause notice demanding the Company to pay excise duty of Rs. 2,29,231.32 on the ground that duties had not been levied on aluminium dross and skimmings and that the amount was recoverable from the company under Rule 10 of the Central Excise Rules. The company was receiving duty paid aluminium ingots and was availing the proforma credit under 56A. In paragraph 22, the High Court has observed, “It is difficult to come to the conclusion that dross and skimmings are “goods” and the contention to the contrary urged on behalf of the company was not entirely devoid of substance”. The High Court held that dross was nothing but “scum thrown off from metals in something; refuse, rubbish or worthless impure metal” and skimming is “that which is removed or obtained from the surface by skimming”. The High Court after referring to the affidavits filed in the case regarding the nature of the product and after adverting to Delhi Cloth Mills 1973 Cen-Cus Apr. 57 : ECR C 216 SC case held that the “dross and skimmings cannot be said to be finished excisable goods”. Section 3 of the Central Excise Act envisages that there shall be levied and collected in such a manner as may be prescribed duties of excise on excisable goods (emphasis supplied) other than salt which are produced or manufactured in India at the rates set forth in the First Schedule. So, the basic requirement to attract duty would be that the imposition of the levy should be under Section 3 of the Act. In view of the categorical findings of the Bombay High Court, Aluminium Dross cannot be considered as goods. It is significant to note that this judgment of the Single Judge has been subsequently affirmed by the Division Bench of the Bombay High Court dt. 24.2.1986 (Appeal No. 524/80) in Misc. Petition 1661 of 1975. The Tribunal by a Three Member Bench has followed this Ruling in 1984 E.C.R. 1871 Collector of Central Excise Chandigarh v. Mehra Ferro Alloys, Amritsar. The decision cited by Sh. A.K. Jain, SDR, in the case of Khandelwal Metal and Engg. Works and Anr. Etc. v. Union of India and Ors. : 1985 ECR 2571 SC was in respect of Brass Scrap consisting of Taps and Pipes. The Hon’ble Supreme Court held that “Brass Scrap imported by the party was the by-product of the manufacturing process. The Brass Scrap was known in commercial parlance by that name and was exciseable as such. The scrap is re-cycled by extracting the metal.” Since excise duty was payable on such scrap, the imported brass was subjected to the additional duty in order that indigenous brass scrap may not suffer in competition with the imported brass scrap. That decision will have no relevancy to the present facts, for, there is no proof on the side of the department that the dross is capable of recycling and extracting metals. In this connection, I may also point out that in the judgment of the Delhi High Court 1983 E.L.T. 292 : 1983 ECR 91D (Delhi) Khandelwal and Engg. Works v. Union of India and Ors. (the identical matter which came up subsequently before the Supreme Court) has considered the Bombay High Court judgment of the present party. In paragraph 21, it is stated that the case was clearly distinguishable. It is observed “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 which is fit for recovery of metal which is an excisable goods.” This observation of the Bombay High Court indicates that the liability to duty would arise only if they are excisable goods. The definition of waste and scrap excludes dross and skimmings and there is considerable force in the contention of the appellants that the aluminium dross is not excisable goods and duty liability will not arise under Item 68.
12. The emphasis is laid on the explanation to Item 68 which has been referred to by my learned Brother in paragraph 3 of his order. In Order No. 187/87-B-I Collector of Central Excise Patna v. Bihar Extrusion Co. Ltd., Jamshedpur in Appeal No. 76/83-B 1 dated 1.4.1987, Sh. H.R. Syiem, Member(T) and I had no occasion to cons`ider the identical issues. As observed in paragraph 4 of the judgment “Nobody engages in manufacturing aluminium dross and skimmings. It arises during the manufacture of “Aluminium Articles”. It is not goods in the conventional or classical sense that one understands goods to be, even though these scum and reject can be sold and so fetch some price.”
13. In paragraph 5 of the aforesaid order, it is stated that “to be excisable, an article or substance must be a product of active and conscious effort on the part of the manufacturer who engages in its production and whose aim is to produce it. When a manufacturer whose aim is to produce goods aluminium, is burdened by the appearance of some dross skimmings, it stretches logic too much to say that scum and refuse, simply because they appear in the factory during or in the manufacturing processes, must be goods to be honoured by an excise duty.” Scrap is totally different from dross. The nature of the manner in which dross arises affirms my view that it cannot be considered as excisable goods.
14. In the explanation to Item 68, to which my learned brother has adverted to in paragraph 3 of this order, it is stated that goods which were excluded by means of an explanation to the item or by words of exclusion in the description itself or in any other manner shall be deemed to be goods not specified in the item. Sh. A.K. Jain, SDR argued that as “dross” has been mentioned in the explanation to Item 27 by way of exclusion, item 68 would be attracted. The explanation to item 27 is not the exclusion contemplated in the explanation to Item 68. Dross and Skimmings are held to be not goods as they are merely waste and in order to be precise about the definition of “waste and scrap ” “dross and skimmings ” have been referred to in the Explanation. In this connection, if we look at Item 30, Motors specifically designed for use in Gramophone or Record player and all parts of such motors are not included in that item. This is the type of exclusion that has been contemplated in Item 68. In order No. 187/87-B1, we have referred to Item 40, Item 33D, all these are exclusions in their own right and are bought and sold in the regular market. The exclusion of dross and skimmings in the Explanation to Item 27, is not an exclusion, but only for clarifying and exactly defining “waste and scrap “. As dross, skimmings etc., are not exciseable goods and they cannot be considered as waste and scrap either, Explanation 3 to Hem 27 was added. It would be inappropriate to classify dross under Item 68 on that account.
15. In the absence of a judgment of some other High Court differing from the view expressed by the Bombay High Court and inasmuch as this view has been followed in regard to the identical goods by a Three Member Bench of the Tribunal, in my view, the appeal should be allowed.
Dt. 3.4.1987 (M. Santhanam)
Member (T).
16. In view of the difference of opinion between the two of us, the matter is referred to the Hon'ble President for hearing and disposal. The difference is basically on the point whether Aluminum Dross and Skimmings were 'goods'or not.