ORDER
I.J. Rao, Member (T)
1. The appellants manufacture building materials, viz. slabs, lintels and blocks classifiable under Tariff Item 68 at the relevant time. During the course of manufacture of these products some waste arises either because the end product does not conform to the required standards or there is some defect. Some waste arises in handling during the course of manufacture. The appellants categorise such waste in four categories viz. siporex waste, siporex powder, siporex aggregate and siporex broken. They filed a classification list (allegedly on the direction of the Superintendent of Central Excise on 1-8-1979) for these four items claiming Nil rate of duty on the ground that these were waste material not covered by the Central Excise Tariff. The Central Excise authorities classified these goods under Tariff Item 68. The appellants appealed to the Collector of Central Excise (Appeals) who upheld the classification in respect of siporex waste, siporex broken and siporex aggregate but held that siporex powder was exempted. Hence the present appeal.
2. We heard Shri N.D. Khosla, Consultant for the appellants. He argued that siporex waste arising in the course of manufacture of slabs, lintels and blocks is not a manufactured product and, therefore, not excisable. He explained that siporex waste arose during testing, hammering and crushing of the main products and submitted that the waste is not a recognised or marketable product though, not frequently, the waste is sold to buyers for a nominal price. Such buyers use it for various purposes like body cleaning. He further submitted that the siporex aggregate is a result of hammering and crushing which are not processes of manufacture. The learned Consultant relied on two judgments of the Tribunal to argue that siporex waste and siporex powder and siporex aggregate do not involve manufacture and are not excisable. These were Collector of Central Excise v. Gayathri Glass Works reported in 1988 (33) ELT 124 (Tri.) Tribunal and Gujarat Reclaim and Rubber Products Ltd. v. Collector of Central Excise reported in 1983 (2) ETR 718. He submitted that the products which are not the result of labour treatment or manipulation are not excisable and relied on Union of India and Ors. v. Delhi Cloth and General Mills Co. Ltd. reported in 1977 (1) ELT J 199 and Hindustan Lever Ltd. v. Collector of Central Excise, Calcutta reported in 1985 (19) ELT 562 (Tri.) = 1985 (5) ETR (Tribunal). He further submitted that the Collector wrongly relied on the judgment in Pyrites Phosphates & Chemicals Ltd., New Delhi v. Collector of Central Excise, Delhi reported in 1983 (13) ELT 1192 (CEGAT) as the judgment held that crushing of rocks amounted to manufacture and there was a new product, the facts in the present matter being different. He also submitted that the Collector’s reliance on U-Foam Ltd., Hyderabad v. Collector of Central Excise, Hyderabad reported in 1983 (14) ELT 2502 was also wrong as the trimmings and cuttings of polyurethane foam were used for the same purpose as foam and such is not the situation here. In sum the learned Consultant submitted that as no manufacture is involved in respect of these products excise duty was not leviable.
3. Shri Chakraborty, the learned DR opposing the arguments submitted that the appellants in their memorandum of appeal before the Collector accepted that the goods were sold. He emphasised that the Collector held that siporex powder being a forced product and used captively was exempted. This observation made it clear that the goods were liable to duty though exempted. He referred to the impugned order and pointed out that on page 3 thereof, the Collector referred to the grounds of appeal before him to the effect that “siporex broken is obtained from siporex waste and manually broken into appropriate size within the range of two inches. No power is used and therefore, exempted under Notification No. 179/77-C.E., dated 18-6-1977.” The learned representative argued that this ground of the appellants showed that in making regular sizes of two inches manufacture was involved and the appellant’s prayer that they were only waste products was only belated. Shri Chakraborty referred to grounds of appeal relating to siporex aggregate and referring to the opening sentence submitted that admittedly siporex aggregate is produced from siporex waste by the processing of crushing only though with the aid of power. Therefore, power was used in bringing out siporex aggregate. In respect of siporex broken Shri Chakraborty submitted that manual labour was used and, therefore, there was manipulation and labour. Same was the case with siporex aggregate. He submitted that the use of labour, skill and manipulation was deliberate as recorded in the impugned order.
4. Referring to the plea of the appellants for the benefit of Notification No. 179/77 (for siporex broken) Shri Chakraborty argued that though power might not have been used for the production of siporex broken the primary goods used power and siporex broken arises in the course of manufacture. Therefore, the origin of the goods was through power.
5. Referring to the reliance of the appellants on the Tribunal’s judgment in Gayathri Glass Works (supra) wherein broken glass was held to be not excisable. The learned representative argued that another judgment of a Bench consisting of 3 Members (there were two Members in Gayathri Glass Works), the Tribunal held that broken glass was excisable. This was in Collector of Central Excise v. Hindustan Scientific Glass and Fancy Glassware Works and Anr. reported in 1985 (21) ELT 195. He also referred to the Supreme Court’s judgment in Khandelwal Metal and Engineering Works v. Union of India reported in 1985 (20) ELT 222 S.C. and submitted that in Modi Rubber the Supreme Court’s judgment in Khandelwal Metal and Engineering Works was not cited. He argued that in the light of the Supreme Court’s judgment in A.R. Antulay [1988 (2) SCC 602] the Delhi High Court’s judgment in Modi Rubber becomes per incuriam. Referring to various judgments of the Madras High Court and of the Tribunal Shri Chakraborty submitted that these judgments held that bagasse waste, cotton waste and polyester waste were excisable [1986 (26) ELT 209 Madras, 1983 ELT 1186 Tribunal (both for bagasse waste), 1987 (31) ELT 773 (Tribunal) (Cotton waste) and 1986 (25) ELT 282 Tribunal (Polyester waste)].
6. In his rejoinder Shri Khosla submitted that the Supreme Court held that raw materials Should be transformed into a new commodity to render it excisable. He accepted that in siporex aggregate, there was manipulation but argued that there was no transformation. According to him there was neither transformation nor manipulation in siporex broken and siporex aggregate. Referring to siporex broken, Shri Khosla argued that it was the range of two inches that was material and not the regular size. He further submitted that siporex waste was made into siporex broken and between these two positions there was no power used. He submitted that orders in Gayathri and Hindustan Scientific and Fancy Glassware Works and Another were different and referred to a judgment of the Bombay High Court in Tata Mills Ltd. v. The Union of India reported in 1980 (6) ELT 76 (Bom.). He further submitted that bagasse having been included in the tariff its excisability was beyond question.
7. We have considered the submissions. In so far as siporex powder is concerned the impugned order has already given the appellants relief by holding that it was exempt from duty. Therefore, there is no necessity for us to go into the academic question of whether or not it is excisable.
8. In this context we have considered the rival submissions about the presence of manufacture in bringing into existence goods of various descriptions. In the judgment in Delhi Cloth and General Mills Ltd. reported in 1977 (1) ELT J 199 (para 14 as mentioned by the learned Consultant), the Supreme Court held that the word manufacture used as a verb is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some change in a substance. In this context the Supreme Court referred to a passage from Permanent Edition of Words and Phrases, Vol. 26, (from an American Judgment). The passage was as follows:
“Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.”
9. In the present appeal there is no dispute that the raw materials used by the appellants are different from the 3 articles which were examined. These 3 articles have different names, characters and uses. Therefore, the ratio of this judgment cannot be applied to the facts of the present matter.
10. In Hindustan Lever Ltd. (supra) the Tribunal held that Spent earth which comes in the course of soap manufacture is not a result of manufacture. It also held that Spent earth should not be subjected to the same duty a second time because the activated earth is a duty paid product which has suffered duty under Item 68. In para 12 of the judgment the Tribunal held, inter alia, that “in no case is the end product a baser commodity than the material from which it is made; it is always better, more valuable, more finished.” The next paragraph of the same judgment records the observation that Spent earth lost the virtues it had as an activated earth. In paragraph 14 of the same judgment the Tribunal further took note that the activated earth from which spent earth is obtained already paid duty under Tariff Item 68. It was for all these reasons that the Tribunal held as it did. No such facts were brought before us in the present matter.
11. In CCE, Kanpur v. Gayatri Glass Works (supra) a two Member Bench held that ‘Bhagar’ or molten and broken glass which is waste arising in the course of manufacture of articles of glass was not excisable goods. However, the Tribunal in Hindustan Scientific Glass and Fancy Glassware Works and Another (supra) held that Bhagar or scrap glass is a manufactured item and was excisable. In paragraph 10 of this judgment the Tribunal held, referring, inter alia, to the judgments in DCM (supra), and South Bihar Sugar Mills, etc., that no authority was brought to the Tribunal’s notice according to which only the goods intended to be manufactured could be taxed and not the by-products or the residuary products arising in the course of manufacture. The Tribunal took note of the judgment in Oudh Sugar Mills v. Union of India and Ors. (reported in 1982 (10) ELT 937) that by-products and residuary goods are also liable to duty. Therefore, this judgment of the 3 Member Bench is in fact in favour of Revenue and is against the appellants.
12. In Gujarat Reclaim and Rubber Products Ltd. (supra) the Tribunal held that a simple act of crushing and powdering hard rubber should not be taken to be synonymous with creation of a new product. The ratio of this judgment is not applicable to the facts of the present appeal because it is not merely powdering something that takes place in the instant matter.
13. Keeping the ratio of these judgments in view, we examined the facts of the present matter. Siporex Broken is obtained from siporex waste and is manually broken into appropriate sizes within the range of two inches. Therefore, there is manipulation and there is a new product as especially indicated by the size of the goods. Shri Chakraborty’s submission that the grounds of appeal relating to siporex aggregate clearly show that even according to the appellants the product is the outcome of a process of crushing with the aid of power is correct.
14. Siporex broken which is obtained from siporex waste is admittedly broken into appropriate sizes [appellant’s own words before the Collector (Appeals)]. The argument that no power is used in breaking into appropriate sizes does not help the appellants as it is what happens from the raw materials stage to the end product that is to be seen and not only a particular part of the production.
15. In respect of siporex waste it appears that this waste comes into existence without any voluntary or involuntary action on the part of the appellants. Therefore, the observations made in respect of siporex aggregate and siporex powder do not apply to this commodity. It is a waste and cannot be termed as manufactured goods liable to excise duty.
16. While coming to these conclusions we have kept in mind the ratio of various judgments cited by the learned DR. These include Hindustan Scientific Glass and Fancy Glass Ware Works, Khandelwal Metal & Engineering Works and Anr., etc. v. Union of India and Ors., Modi Rubber (with the reservations expressed by Shri Chakraborty) and the 4 judgments which held that bagasse, cotton waste, polyester waste excisable.
17. We find no need to go into the details of these judgments as none of them dealt with the product in question and we have kept the ratio of the judgments in mind to apply them to the facts of the present matter to the extent relevant and possible.
18. In the result we allow the appeal in respect of siporex waste, and reject the appeal in respect of siporex aggregate and siporex broken.
