TMI Blog1979 (6) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... ists mostly of oxides, non-metallics and other foreign materials which are formed during the melting and holding operations and finally accumulates on the surface of the molten bath. The dictionary meaning of dross is scum thrown off from metals in smelting; refuse; rubbish or worthless impure metal . The dictionary meaning of skimming is that which is removed or obtained from the surface by skimming. Skimmings are mostly thin oxide layers normally obtained by skimming a molten bath prior to metal transfer on casting. The skimming operation is essential to help dissolved gases escape from molten bath. Re-melting of skimmings along with normal production melts impairs metal quality of the raw material and consequently losses its original chemical composition and characteristics. According to the petitioners, dross and skimming' represent process loss or melt loss. 2. Section 3 of the Central Excises and Salt Act, 1944, provides, inter alia, that there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India and at the rates set forth in the First Schedule to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessable at the appropriate rate and clarified that aluminium dross and skimmings were not liable to Central Excise duty under Item No. 27. Thereafter Government of India by its Notification dated 23rd November 1968, allowed exemption of excise duty on aluminium recovered from aluminium dross and skimmings. By his Trade Notice dated 27th December 1968, the Collector of Central Excise, Calcutta, stated that in view of the aforesaid Notification, his two earlier Trade Notices dated 29th September 1966 and 5th October 1967 shall be treated as cancelled. Since, however, in those two Trade Notices of 29th September 1966 and 5th October 1967, it had not only been stated that aluminium extracted out of dross and skimmings would be excisable and assessable at the appropriate rate but it was also clarified that aluminium dross and skimmings were not liable to Central Excise duty under Item No. 27 and since the Notification affected only a part of the two earlier Trade Notices dated 29th September 1966 and 5th October 1967, which stated that aluminium extracted out of dross and skimmings would be liable to excise duty it was not clear to the Company whether the cancellation of the two ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of dross and skimmings and requested the Board to examine the issue. On 4th January 1969, the Collector, Central Excise, Calcutta, addressed a letter to the Member of the Central Board of Excise and Customs, New Delhi, referring to the Ministry's circular dated 20th December 1968, the amendments to Rule 56-A and the issue regarding proforma credit being inadmissible for material or components lost or destroyed in the manufacturing factory and stating that it was not clear whether the processing losses would also come under the category or only the physical losses from the stock of RG-23 Part I. In that letter the Collector further stated that processing losses in manufacturing pertained to manufacturing operation and he presumed that such losses would remain immune. The Collector also referred to the question of admissibility of proforma credit as regards by-products, wastages, scrap, dross, skimmings, etc., obtained in the process of manufacture of products and stated that the emergence of the end-product was the final stage when materials/components had merged their identity finally with the product, that during the process of manufacture several changes in the form, sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion with the procedure under Rule 56-A, the Company maintained the requisite which Registers were scrutinised and checked by the Excise authorities from time to time and the Company was at all times prior to 1st March 1975 permitted to clear dross and skimmings without payment of any excise duty and claim at the time of clearance of the aluminium sheets, credit for the duty paid on the entire quantity of aluminium ingots received by the Company. According to the petitioners, dross and skimmings were treated as non-excisable throughout as it was only from 1st March 1975 that the same were brought under the purview of Tariff Item No. 68 pursuant to which the Company was required to furnish a separate classification list regarding dross and skimmings wherein dross and skimmings were shown as liable to duty at the rate of 1% ad valorem. 8. On 7th February 1974, the Superintendent of Central Excise, Khopoli, issued a notice calling upon the Company to show cause why it should not be required to pay excise duty of ₹ 1,71,923.49 basic and ₹ 57,307.83 auxiliary aggregating to ₹ 2,29,231.32 at 40% ad valorem on the ground that these duties had not been levied and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been obtained which was lost in the resultant formations different from the raw material. It was further stated that dross and skimmings subsequently cleared from the factory were not the material brought into the factory and duty was not paid on them (as they were non-dutiable) under the same item or sub-item as required by Rule 56-A but on aluminium ingots. By that letter the Company further submitted that the demand of duty for the period September 1972 to 6th February 1973 was time-barred. 10. Thereafter a personal hearing was given by the Assistant Collector of Central Excise who, by his order dated 7th September 1974, opined that the show-cause notice demanding duty on dross and skimmings cleared without debiting the amount of proforma credit was correctly issued and confirmed the same. 11. On 21st September 1974, the Inspector of Central Excise issued a demand notice in the sum of ₹ 2,29,231.32. In the meantime on 20th September 1974, the Company filed an appeal before the Appellate Collector against the order dated 7th September 1974 passed by the Assistant Collector. By his order dated 10th November 1974, the Appellate Collector allowed the Company's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taken up in the affidavit-in-reply filed by the Assistant Collector of Central Excise is that the dross and skimmings arise as a result of melting of aluminium ingots in the Company's factory and are marketable products which are sold by the Company. Dross and skimmings contain aluminium metals and are a by-product sold as such. Prior to 1st March 1975, dross and skimmings were non-excisable goods and no excise duty was leviable thereon. The Company brings duty-paid aluminium ingots for manufacture of aluminium sheets under the procedure provided in Rule 56A.The Company used in the manufacture of aluminium sheets duty-paid aluminium ingots and as duty was already paid for the aluminium ingots the Company got credit in respect of the entire duty paid on aluminium ingots obtained by it for manufacture of aluminium sheets which are excise goods and excise duties are levied thereon under Item No. 27 of the Central Excise Tariff. The aluminium ingots were being melted in the process of manufacture of aluminium sheets. In the melting process of the aluminium ingots, dross and skimmings arise as by-products which are marketable products sold by the Company. Under Rule 56-A (2) no cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold, recover aluminium. To the extent that dross and skimming are not utilised in the finished product, the credit on such portion of aluminium ingots is not admissible as the end-product, viz., dross and skimmings, is not excisable. It is denied that the petitioners are entitled to credit for the entire quantity of aluminium ingots used by them in the manufacture of aluminium sheet and dross and skimmings. The Company had manufactured dross and skimmings which were finished by-products and accordingly on the quantity of dross and skimmings the Company was not entitled to avail itself of credit in respect of any duty paid by the Company. 16. The first show-cause notice dated 7th February 1974 issued by the Superintendent as also the demand order dated 21st September 1974 issued by the Inspector proceed on the footing as if aluminium dross and skimmings are goods on which there was a levy of duty under Tariff Item No. 27 and that the Company had cleared the dross and skimmings without payment of duty and accordingly it was a case of non-levy of duty under Rule 10. It is conceded by the respondents that during the relevant period dross and skimmings were not excisable goods and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of such contention. Here it may also be stated that in the affidavit-in-reply, a plea has been taken that this petition should have been filed on the Appellate Side of the High Court. That technical ground was, however, not pressed by Mr. Dalal. 6th December 1979 20. In order to appreciate the rival contentions of the parties, it would be pertinent to refer to Rule 56-A which provides for special procedure for movement of duty-paid materials or component parts for use in the manufacture of finished excisable goods. Sub-rule (1) states that notwithstanding anything contained in the rules, the Central Government may, by notification in the Official Gazette, specify the excisable goods in respect of which the procedure laid down in sub-rule (2) shall apply. The relevant excerpts from sub-rule (2) are as under :- The Collector may,... permit a manufacturer of any excisable goods specified under sub-rule (1) to receive material or component parts ......on which the duty has been paid in his factory for the manufacture of these goods and allow a credit of the duty already paid on such material or component parts or finished product, as the case may be : Thus under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that dross and skimmings are goods and the contention to the contrary urged on behalf of the petitioner is not entirely devoid of substance. As stated earlier, dross is 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. These are nothing but ashes resulting in the process of the manufacture of aluminium sheets from aluminium ingots. In Union of India v. Delhi Cloth and General Mills Co. Ltd., A.I.R. 1963 Supreme Court 791 = 1977 E.L.T. (J 199), it was held that goods must be something which can ordinarily come to the market and be bought and sold and that the manufacture which is liable to excise duty under the Central Excises and Salt Act, 1944, must therefore be the bringing into existence of a new substance known to the market. At para 14 of the Report it was observed as under :- ......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' however minor in consequence the change may be. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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. To illustrate, in para 7 of the affidavit-in-reply, it is stated - ...... aluminium ingots utilised by the first petitioners in the manufacture of aluminium sheets and dross and skimmings. (The underlining is mine). In para 15 it is stated - ....... I submit that to the extent that dross and skimmings are not utilised in the finished products, the credit on such portion of aluminium ingots is not admissible as the end product dross and skimmings is not excisable . (The underlining is mine). In para 32 it is stated - ....... I deny that the entire quantity of aluminium ingot was used by them in the manufacture of aluminium sheets as is sought to be alleged, as part thereof was used in the manufacture of by-produ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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