H.R. Syiem, Member (T)

1. The learned counsel for the department Mr. Rajhans began his arguments by quoting a decision of the Supreme Court in MANU/SC/0123/1985 : 1985 (20) ELT 222 (S.C.); 1985 ECR 2571 (Khandelwal Metal Engineering Works and Anr. v. Union of India and Ors.) in which he said the Supreme Court approved the assessment of scraps under their respective heads. He than read the order of the Assistant Collector and pointed to various paragraphs to support his argument that the scrap should be charged to duty under Item 68.

2. The learned counsel for M/s. Aluminium Industries however submitted that there was no manufacturer and that the goods remained aluminium. The scrap came from duty paid aluminium and therefore no further duty is leviable on them. There have been various decisions of courts that scrap was not dutiable. The Supreme Court in its decision quoted by the JDR was only considering the question of countervailing duty; this decision was not relevant to this dispute. He then read the Tariff Item 27, and quoted 1980 ELT 789. In 1980 ELT 146 Indian Aluminium Co. Ltd. and Anr. v. A.K. Bandyopadiyay and Ors. , the Bombay High Court ruled that dross and skimmings were not goods. He also cited a number of decisions, but they have no relevance; it would take too much time to discuss them.

3. In his order-in-original No. V(68)(17)2/76 dated 28.10.1980 the Assistant Collector of Central Excise, Smabalpur records the following paragraph in his finding :-

The wires and cables was intended to be manufactured but at times in the process of such manufacturing some portion comes out defective and damaged which is unfit to be used as goods as perfect material or. unfit for being reproduced or remade to bring into perfect shape or size. Scraps of wires and cables are nothing but an entangled mass of different size: and shapes and almost a refuse. Above all, it is damaged and defective for rendering. Its further utility as useless as E.W.C. Therefore scraps of E.W.C. cannot be used as E.W.C. It therefore goes to mean that it has got a separate characteristic and separate nomenclature and separate utility. It is to be regarded as finished product because it is sold as such it is marketed as such and it has got a saleable value. It is evident that this scrap comes out of Aluminium wires but it is no more aluminium or does not come as wires and cable because it cannot be used as such as aluminium or for conductivity of Electricity. It is used usually for melting and recording aluminium. Out of it and sometimes for cloth hangers. It is to be treated as manufactured product because it has undergone the various manufacturing process and not subjected to further manufacturing of finishing operation.

If the scraps of wires are nothing but entangled mass, it is difficult to see how they are to be regarded as finished product, simply because they are sold as such. Selling a product does not make it a finished product for the purpose of assessment to central excise duty. And since he did not assess the goods as wires, the Assistant Collector held that they became finished products; but he does not say what finished product they became; he only said that they were to be regarded as finished product. But if we are to regard them as finished products, we must first know what products they are.

4. It is not correct to argue, as the department does, that scrap is a goods assessable under Item 68. Scrap is a rejected product when the prime products are finished. These scrap arose after the manufacture of electric wires and cables was finished. Some wires and cables were rejected, or there may be end cuttings, trimmings etc. which collectively were gathered into scrap.

5. Scrap is not a goods that the factory set out to produce. We can even say that the scraps arose in spite of the factory's efforts to prevent their appearance because they represent a loss to the factory as rejects incapable of fetching the price of the prime products. When