1995 (7) TMI 368 - SC - Customs

Mechanically separated asbestos fibre not a manufactured product; additional duty under Sec. 3(1) of Tariff Act inapplicable

SC held that asbestos fibre mechanically separated from its parent rock is not the product of manufacture and therefore does not become a new, ... Levy of additional duty equal to excise duty under Section 3(1) of the Customs Tariff Act - Requirement of production or manufacture for excise liability (marketability test) - Separation of mineral from parent rock is not a process of manufacture - Distinction between additional duty under the Tariff Act and countervailing duty - Interpretation of the Explanation to Section 3(1) as measure of additional dutySeparation of mineral from parent rock is not a process of manufacture - Requirement of production or manufacture for excise liability (marketability test) - Whether asbestos fibre recovered by mechanical and manual separation from the parent rock constitutes goods produced or manufactured and thus exigible to excise duty under the Tariff - HELD THAT: - The Court accepted the factual and technical material in the High Court record describing the mining, crushing, screening and fibre-separating operations. Applying the principle that manufacture requires the production of a new or distinct commodity and that excise liability depends on goods being 'produced or manufactured' (the marketability test), the Court held that the asbestos fibre so separated remains the same asbestos that was embedded in the rock and is not the result of a manufacturing process. Reliance on earlier authority emphasising that mere separation or concentration of a mineral from its matrix does not amount to manufacture supported the conclusion that the separated fibre is not a new commercial article and therefore not exigible to excise duty. [Paras 5, 6, 7, 8]The separated asbestos fibre is not the product of manufacture and is not liable to excise duty.Levy of additional duty equal to excise duty under Section 3(1) of the Customs Tariff Act - Distinction between additional duty under the Tariff Act and countervailing duty - Interpretation of the Explanation to Section 3(1) as measure of additional duty - Whether imported asbestos fibre (which is not the product of manufacture) is nevertheless liable to additional duty equal to excise duty under Section 3(1) of the Tariff Act and the correctness of the construction adopted in Khandelwal Metal & Engineering Works - HELD THAT: - The Court examined the scheme of the Customs Act and the Tariff Act and observed that Section 3(1) prescribes an additional duty measured by the excise duty leviable on a like article if produced or manufactured in India. While Khandelwal Metal & Engineering Works treated the additional duty as not being a countervailing charge and upheld levy on imported brass scrap, this Court found difficulty in adopting that construction where the imported article has not been produced or manufactured. The Explanation to Section 3(1) was analysed and the Court noted that if a like article is not produced or manufactured in India, excise liability on the 'class or description' is the yardstick; but the Court questioned extending additional duty to articles which have not undergone production or manufacture. Given the importance and breadth of the question and the contrary reading in Khandelwal, the Court considered that the issue requires authoritative resolution by a larger Bench. [Paras 12, 13, 14, 15, 16]Question of whether additional duty under Section 3(1) applies to imported asbestos fibre not produced or manufactured in India requires consideration by a larger Bench; the matter is referred for appropriate administrative directions.Final Conclusion: The Court held that asbestos fibre obtained by separating it from the parent rock is not the result of manufacture and therefore not liable to excise duty; however, the broader question whether such imported fibre is nonetheless exigible to additional duty under Section 3(1) of the Customs Tariff Act-and the correctness of the Khandelwal construction-was deemed sufficiently important to be referred to a larger Bench, and papers are to be placed before the Chief Justice for directions. Issues Involved:1. Levy of additional duty on imported asbestos fibre under Section 3(1) of the Customs Tariff Act, 1975.2. Exigibility of excise duty on asbestos fibre mined in India under Tariff Item 22F.3. Whether the process of separating asbestos fibre from rock constitutes manufacturing.Detailed Analysis:1. Levy of Additional Duty on Imported Asbestos Fibre:The primary issue was whether the imported asbestos fibre was liable to additional duty under Section 3(1) of the Customs Tariff Act, 1975. The appellants contended that the imported asbestos fibre should not be subject to additional duty as it was not a manufactured product. The court referenced the case of *Khandelwal Metal & Engineering Works and Another v. Union of India*, which held that additional duty could be levied regardless of whether the imported article was manufactured, as the duty was to counterbalance excise duty on like articles produced in India. The court noted that the charging section was Section 12 of the Customs Act, and Section 3(1) of the Tariff Act was supplementary, extending the Customs duty to include an additional duty measured by the excise duty on a like article if produced in India.2. Exigibility of Excise Duty on Asbestos Fibre Mined in India:The appellants also disputed the excise duty levied on asbestos fibre mined in India under Tariff Item 22F. The court analyzed the process of extracting asbestos fibre and concluded that the process did not constitute manufacturing. The court cited the case of *Minerals and Metals Trading Corporation of India Ltd. v. Union of India*, which held that separating minerals from the rock did not amount to manufacturing. The court found that the asbestos fibre, once separated from the rock, retained its original properties and was not a new or distinct commodity.3. Process of Separating Asbestos Fibre from Rock:The court examined whether the process of separating asbestos fibre from rock amounted to manufacturing. It was determined that the process involved manual and mechanical means to separate the fibre from the rock without altering its chemical structure. The court referenced *Moti Laminates Pvt. Ltd. v. Collector of Central Excise*, which emphasized that for goods to be subject to excise duty, they must be produced or manufactured and capable of being marketed. The court concluded that the asbestos fibre, as separated, did not result from a manufacturing process and was not a new, commercially identifiable article.Conclusion:The court concluded that the asbestos fibre, whether imported or mined in India, was not subject to additional duty or excise duty as it was not the result of a manufacturing process. The decision in *Khandelwal Metal & Engineering Works* was found to require reconsideration by a larger bench, particularly regarding the interpretation of Section 3(1) of the Tariff Act and its applicability to non-manufactured goods. The papers and proceedings were directed to be placed before the Hon'ble Chief Justice for appropriate administrative directions.