1985 (6) TMI 178 - SC - Customs

Brass scrap classified as 'copper waste and scrap' not 'master alloy' under customs tariff, entitled to 20% duty exemption only

SC held that brass scrap must be classified as 'copper waste and scrap' rather than 'master alloy' under customs tariff headings. Brass is an alloy of ... Additional duty equal to excise duty - measure of additional customs duty - classification under Import Tariff Heading 74.01/02 - copper waste and scrap versus master alloys - interpretative Rules of the Import Tariff (Rules 1-4) - excisability of waste and scrap as by-products of manufacture - legislative competence to impose excise on waste and scrapAdditional duty equal to excise duty - measure of additional customs duty - Nature and character of the levy under Section 3(1) of the Customs Tariff Act, 1975 - HELD THAT: - Section 12 of the Customs Act is the charging provision; Section 3(1) of the Tariff Act prescribes a supplementary measure by reference to the excise duty leviable on a like article. The additional duty under Section 3(1) is in addition to the customs duty leviable under the Customs Act and partakes the character of customs duty rather than being an independent countervailing charging provision. The Statement of Objects and Reasons does not override the clear statutory language. The Explanation to Section 3(1) confirms that the phrase `excise duty...leviable on a like article if produced or manufactured in India' supplies the measure for the additional duty and does not render Section 3(1) a charging section. [Paras 4, 8, 37]Section 3(1) prescribes an additional customs duty measured by excise duty; it is not a separate countervailing charging provision.Additional duty equal to excise duty - taxable event - import of goods - Whether Section 3(1) additional duty is leviable when the imported article is not produced or manufactured in India - HELD THAT: - The taxable event for customs and for the additional duty is the import of goods into India, not their manufacture in India. The Explanation to Section 3(1) clarifies that where a like article is not produced or manufactured in India, the measure is the duty leviable on the class or description to which the imported article belongs. Therefore the statutory scheme contemplates levy of the additional duty even if the specific imported article is not in fact produced or manufactured domestically. [Paras 7, 8, 37]Additional duty under Section 3(1) is leviable on imports even if the imported article is not produced or manufactured in India.Classification under Import Tariff Heading 74.01/02 - copper waste and scrap versus master alloys - Interpretative Rules of the Import Tariff (Rules 1-4) - Whether brass scrap is a `master alloy' or falls within `copper waste and scrap' under Heading 74.01/02 and which exemption Notification applies - HELD THAT: - Authoritative metallurgical definitions show that a `master alloy' (foundry alloy) is an alloy used to introduce alloying elements into molten metal and brass does not fit this description. Applying the Import Tariff interpretative rules: Rule 1 requires reliance on the Heading and Notes; Rule 2(b) and Rule 3(b) direct that where goods consist of more than one material the component giving essential character governs classification. Brass, being an alloy of copper and zinc in which copper predominates by weight, derives its essential character from copper. Note 3 to Section XV confirms that an alloy of base metals is to be classified as the metal which predominates. Hence brass scrap is classifiable as `copper waste and scrap'. Consequently, Notification No.156 (which exempts `copper waste and scrap' so as to leave an effective customs rate of 80% ad valorem) governs, and Notification No.97 (applicable to articles other than copper waste and scrap) is not attracted. [Paras 26, 29, 30, 33, 37]Brass scrap is not a master alloy but is includible in `copper waste and scrap' under Heading 74.01/02; Notification No.156 applies, leaving exemption only to the extent granted thereby.Excisability of waste and scrap as by-products of manufacture - legislative competence to impose excise on waste and scrap - Whether `waste and scrap' can be subjected to excise duty and whether Entry 26A(1b) in the First Schedule to the Central Excises and Salt Act, 1944 is intra vires Parliament - HELD THAT: - Waste and scrap arise as by-products or rejects of the manufacturing process and are marketable commodities; their production is an inevitable incident of manufacture even though not intentionally produced. Section 3 of the Central Excises and Salt Act levies excise on goods produced or manufactured in India; Entry 26A(1b) specifies `waste and scrap' as excisable goods and therefore satisfies the precondition of producibility/manufacturability. The question of competence should focus on whether the subject falls within the State List; it does not, and Entry 84 List I of the Seventh Schedule covers duties of excise on goods manufactured or produced in India. Consequently Parliament possessed legislative competence to include waste and scrap as excisable goods. [Paras 34, 35, 37]Waste and scrap are excisable as by-products of manufacture and Entry 26A(1b) is valid and within Parliament's legislative competence.Final Conclusion: The High Court's judgment is affirmed. Section 3(1) of the Tariff Act prescribes an additional customs duty measured by excise duty and is not a separate countervailing charging provision; the additional duty is leviable on imports notwithstanding that the imported articles may not be produced or manufactured in India. Brass scrap is not a master alloy but falls within `copper waste and scrap' under Heading 74.01/02, and Notification No.156 applies (leaving exemption only to the extent it provides). Waste and scrap are excisable as by-products of manufacture and the impugned excise entry is intra vires; accordingly the appeals and petitions are dismissed with costs. Issues Involved:1. Nature of the additional duty under Section 3(1) of the Customs Tariff Act, 1975.2. Applicability of the additional duty on brass scrap.3. Appropriate rate of customs duty on brass scrap.4. Legislative competence concerning the imposition of excise duty on waste and scrap.Detailed Analysis:1. Nature of the Additional Duty under Section 3(1) of the Customs Tariff Act, 1975:The primary issue was whether the additional duty mentioned in Section 3(1) of the Customs Tariff Act, 1975, is a countervailing duty or an extension of customs duty. The court clarified that the charging section is Section 12 of the Customs Act, 1962, and not Section 3(1) of the Tariff Act. Section 3(1) provides a supplementary levy in enhancement of the levy charged by Section 12 of the Customs Act. The court stated, 'The additional duty which is mentioned in Section 3(1) of the Tariff Act is not in the nature of countervailing duty.' The court rejected the argument that Section 3(1) is an independent charging section, emphasizing that it is an additional customs duty.2. Applicability of the Additional Duty on Brass Scrap:The court examined whether brass scrap imported by the appellants is liable for additional duty under Section 3(1) of the Tariff Act. The appellants contended that brass scrap, being damaged articles, is not manufactured and hence not subject to additional duty. The court disagreed, stating, 'The assumption has to be that an article imported into India can be produced or manufactured in India and upon that basis, the duty has to be determined under Section 3(1).' The court further explained that the duty is applicable even if the goods are not capable of being manufactured in India, as the measure of the duty is based on the excise duty for a like article if produced or manufactured in India.3. Appropriate Rate of Customs Duty on Brass Scrap:The court addressed the dispute regarding the applicable rate of customs duty on brass scrap, which depended on which of the two Notifications (No. 97 and No. 156) was applicable. Notification No. 97 exempted articles other than copper waste and scrap and unwrought copper from duty in excess of 40% ad valorem, while Notification No. 156 exempted copper waste and scrap from duty in excess of 80% ad valorem. The court concluded that brass scrap is not a 'master alloy' and falls under the category of 'copper waste and scrap.' The court stated, 'The appellants are, therefore, entitled to exemption from duty of customs to the extent of 20% only and not to the extent of 60%.'4. Legislative Competence Concerning the Imposition of Excise Duty on Waste and Scrap:The court examined whether the imposition of excise duty on waste and scrap under Entry 26A(1b) of the First Schedule to the Central Excises and Salt Act, 1944, is ultra vires Section 3 of the Act or beyond the legislative competence of Parliament. The court held that waste and scrap are by-products of the manufacturing process and are, therefore, excisable. The court stated, 'The production of waste and scrap is a necessary incident of the manufacturing process.' The court also affirmed the legislative competence of Parliament to enact the impugned provision under Entry 84, List I, of the Seventh Schedule to the Constitution, and even otherwise, under Article 248 and Entry 97, List I.Conclusion:1. The additional duty under Section 3(1) of the Customs Tariff Act, 1975, is not a countervailing duty but an extension of customs duty.2. Brass scrap imported by the appellants is liable for additional duty under Section 3(1) of the Tariff Act.3. The appellants are liable to pay customs duty on brass scrap at the rate of 80% ad valorem, with an exemption to the extent of 20% only.4. The imposition of excise duty on waste and scrap under Entry 26A(1b) of the First Schedule to the Central Excises and Salt Act, 1944, is within the legislative competence of Parliament.The appeals and special leave petitions were dismissed with costs, and the judgment of the High Court was confirmed.