H.R. Syiem, Member (T)

1. The Assistant Collector of Central Excise, Mirzapur has argued his case well, in his order C.No.V. 68(3) Demand/158/82/2797-99 dated 17-7-1984 (there is another date 13-7-84 on the order).

2. He says that cryolite, aluminium flouride, borax, lime cannot be termed raw materials for the purpose of manufacture of aluminium to gain the benefit under notification No. 201/79-CE amended by notification No. 105/82-CE which provides for duty exemption on goods in the manufacture of which any goods falling under item 68 have been used as raw materials or component parts. The exemption is from so much of the duty of excise as is equivalent to the duty of excise already paid on the raw materials or component parts. The reasons he gives for holding that the cryolite, aluminium fluoride and others are not raw materials are reproduced below :-

The term raw material is not defined in the Central Excises & Salt Act, Central Excise Rules or Notification No. 201/79 (as amended). Therefore, we shall have to consider the popular meaning of the words "raw material", the dictionary meaning of "raw material" is Material (often in its natural state) that serves as the starting point of a manufacturing or technical process and that out of which something is made or may develop. "(Chamber's 20th Century Dictionary). According to McGraw Hill Dictionary of Scientific and Technical Terms II edition Raw Material (Ind. Eng.)" means a crude unprocessed or partially processed material used as feed stock for a processing operation; for example crude petroleum is the raw material from which naphtha is obtained. Naphtha is the raw material from which Benezene, Teluene-Xylene are obtained." The figurative view of the above definitions reveals that raw material is material out of which the product comes. In other words if the final product is either a constituent of the material that as starting point of the process or some part of this material is in the final product, only then the material will be entitled to be called a raw material for the final product. Yarn is a raw material for the cloth since yarn is a constituent of the cloth. Again when plain cloth and colour and dyes are raw materials for the printed cloth as plain cloth and dyes combine and emerge and come out in the form of printed cloth. Barium carbonate is used to remove impurities from the salt solution in the manufacture of caustic soda. But it is not considered as raw material for the manufacture of caustic soda as none of its constituents are represented in the final product, the caustic/soda.

The discussions by the Asstt. Collector are sound; but in the context of the problem, they lead to even greater problems, for which his reasoning will provide no solution. It is quite correct that crude petroleum is the raw material from which naphtha is obtained; and naphtha is the raw material from which benzene, toluene, xylene are obtained. It is also correct to say that yarn is the raw material for the manufacture of cloth, and that yarn is a constituent of the cloth.

3. However, by this reasoning, no exemption can be given under notification No. 201/79-CE. Naphtha does "not fall under item 68 nor does yarn. For the matter of that, most of the goods in the tariff do not have for their raw materials goods which fall under Item 68. To take a few examples: the raw material for paper is wood, bamboo, grass etc. The raw materials for petrol, kerosene, diesel oil and mineral lubricant is naphtha made from crude petroleum; for iron and steel, it is pig iron, whose own raw material is iron; cigarettes have their origin in tobacco and paper while chemicals in other chemicals; plastics start their lives as resins. Cotton fabric has its raw material in cotton yarn which begins its life on the cotton boll. Glass occurs in sand which is its starting point and raw material. None of these raw materials are assessable under Item 68; hence in effect notification No. 201/79-CE will remain a d