1979 (6) TMI 43 - HC - Central Excise

Definition of excisable goods clarified under Rule 56-A(2)

INDIAN ALUMINIUM CO. LTD. AND ANOTHER Versus AK BANDYOPADHYAY AND OTHERS

INDIAN ALUMINIUM CO. LTD. AND ANOTHER Versus AK BANDYOPADHYAY AND OTHERS - 1980 (6) E.L.T. 146 (Bom.) Issues Involved:1. Classification of dross and skimmings as excisable goods.2. Applicability of Rule 56-A(2) proviso.3. Legality of the show-cause notice and demand order.4. Principle of promissory estoppel.Issue-wise Detailed Analysis:1. Classification of Dross and Skimmings as Excisable Goods:The Company, a public limited company, manufactures aluminium sheets using aluminium ingots. During the manufacturing process at its Taloja factory, dross and skimmings, referred to as 'ashes,' accumulate as by-products. The dictionary defines dross as 'scum thrown off from metals in smelting; refuse; rubbish or worthless impure metal,' and skimmings as 'that which is removed or obtained from the surface by skimming.' The Company contends that dross and skimmings represent process loss or melt loss and are non-excisable items. Prior to 1st March 1975, the Company cleared dross and skimmings without paying excise duty, with the permission of the Excise authorities. Trade Notices issued in 1966 and 1967 clarified that aluminium dross and skimmings were not liable to Central Excise duty under Item No. 27. This position was confirmed by subsequent notifications and communications from the Central Excise authorities, leading the Company to believe that dross and skimmings were non-excisable.2. Applicability of Rule 56-A(2) Proviso:Rule 56-A(2) of the Central Excises Rules, 1944, allows manufacturers to receive duty-paid materials and claim credit for the duty already paid. However, the proviso to Rule 56-A(2) states that no credit shall be allowed if the finished excisable goods produced are exempted from duty or chargeable to a 'nil' rate of duty. The Company argued that this proviso was inapplicable because dross and skimmings are not 'goods,' not 'finished excisable goods,' and not manufactured from aluminium ingots. The Court referred to the Supreme Court's interpretation in Union of India v. Delhi Cloth and General Mills Co. Ltd., which defined 'goods' as something that can ordinarily come to the market and be bought and sold. The Court concluded that dross and skimmings are not 'goods' as they are merely refuse or scum resulting from the manufacturing process and do not constitute a new and different article with a distinctive name, character, or use. Therefore, the proviso to Rule 56-A(2) was deemed inapplicable.3. Legality of the Show-Cause Notice and Demand Order:The Superintendent of Central Excise issued a show-cause notice on 7th February 1974, demanding excise duty on dross and skimmings, which was followed by a demand order on 21st September 1974. The Company appealed, and the Appellate Collector set aside the Assistant Collector's order, granting relief to the Company. However, the Central Government issued a show-cause notice on 10th June 1975, proposing to set aside the Appellate Collector's order. The Central Government's order dated 25th October 1975 stated that the Company was not entitled to credit for the portion of aluminium ingots equivalent to the weight of dross and skimmings. The Court found that the show-cause notice and demand order were based on the erroneous assumption that dross and skimmings were excisable goods. Since dross and skimmings were not excisable, the Company was entitled to credit for the entire quantity of aluminium ingots used in the manufacture of aluminium sheets.4. Principle of Promissory Estoppel:The Company argued that the letters dated 30th January 1969, 17th March 1969, and 17th November 1969 from the Excise authorities constituted a representation that dross and skimmings were non-excisable, giving rise to the principle of promissory estoppel. However, this contention was not pressed as the Company chose to rely on the inapplicability of the proviso to Rule 56-A(2).Conclusion:The Court upheld the Company's contention that the proviso to Rule 56-A(2) was inapplicable, as dross and skimmings were not 'goods' or 'finished excisable goods.' Consequently, the show-cause notice and demand order were set aside. The petition was allowed, and the rule was made absolute without any order as to costs.