TaxTMI 
TaxTMI 
1985 (6) TMI 178
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....l Appeal Nos. 27-33 of 1983 as a representative batch of cases. The two appellants therein are respectively Messrs Eastern Engineers, a partnership firm carrying on business at Goregaon, Bombay, and partner of that firm. For the sake of convenience, we will proceed on the basis that the real appellant is the firm. The appellant carries on the business, inter alia , of importing brass scrap from other countries. Its contention is that the `additional duty' of customs, which is in the nature of countervailing duty, cannot be levied on brass scrap because, such scrap which consists of damaged brass articles like taps and pipes, is not "manufactured" in India (or elsewhere), as indeed it cannot be. The second contention of the appellant is that it is liable to pay duty of customs on the brass scrap at the rate of 40 per cent only and not at the rate of 80 per cent because, brass scrap is a `master alloy'. The rate of customs duty payable depends upon which of the two Notifications, granting exemption from payment of customs duty, is applicable. These contentions are based on the following provisions of law. 3. Section 2(15) of the Customs Act, 1962 defines "duty" to mean a duty of c....
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....hest duty." The question which we must first examine is as to what is the true nature of the duty mentioned in Section 3(1) of the Tariff Act. It has to be appreciated at the threshold that the charging section is Section 12 of the Customs Act and not Section 3(1) of the Tariff Act. Section 12, Customs Act, incorporates the different ingredients embodied in the concept of a fiscal imposition. It levies a charge, it indicates the taxable event (the import or export of goods) and it indicates the rate of the levy. The rates are such "as may be specified under the Customs Tariff Act, 1975". The last ingredient takes us to Section 2, Tariff Act, which lays down that "the rates at which the duties of customs shall be levied under the Customs Act are specified in the First or Second Schedule". Nothing more would be ordinarily required to complete the scope of Section 12, Customs Act. The scheme incorporated in that section read with Section 2 of the Tariff Act is analogous to the scheme embodied in Section 4, Income-tax Act read with the relevant provisions of the Finance Act. The levy specified in Section 3(1) of the Tariff Act is a supplementary levy, in enhancement of the levy char....
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....uch additional duty as would counterbalance the excise duty leviable on any raw materials, components and ingredients of the same nature as, or similar to those, used in the production or manufacture of such article", whether on such article, duty is leviable under sub-section (1) or not. Since we are not concerned directly with sub-section (3), we will not pronounce upon its meaning and implications. 5. In this view of the matter, it is unnecessary to consider the various decisions cited at the Bar on the nature and connotation of `countervailing duty'. We are unable to accept the argument of the appellants that Section 3(1) of the Tariff Act is an independent, charging section or that, the `additional duty' which it speaks of is not a duty of customs but is a countervailing duty. 6. That leads to the inquiry as to the reason or purpose behind the argument that Section 3(1) of the Tariff Act is an independent, charging section. It shall have been noticed that Section 3(1) provides that any article which is imported into India shall, in addition, (that is, in addition to the duty of customs for which rates are specified in Section 2) be liable to an additional duty "equal to ....
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....t I of the Seventh Schedule to the Constitution : "Duties of Customs including export duties". The taxable event is not the manufacture of the goods. Under Section 3(1) of the Tariff Act, "the excise duty for the time being leviable on a like article if produced or manufactured in India" is only the measure of the duty leviable on the imported article. Section 3(1) does not require that the imported article should be such as to be capable of being produced or manufactured in India. 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). 8. Any doubt on this point is resolved by the Explanation to Section 3(1) of the Tariff Act. The Explanation furnishes a dictionary for the interpretation of Section 3(1) and provides a clue to its understanding. The Explanation provides in so many words that the expression "excise duty for the time being leviable on a like article if produced or manufactured in India" means "the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India" (emphasis supplied). The Explanati....
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....in India. The scrap is re-cycled for extracting metal. Since excise duty is payable on such scrap, the imported brass scrap is subjected to the additional duty in order that indigenous brass scrap may not suffer in competition with the imported brass scrap. The argument that the articles imported by the appellants have been reduced to scrap by reason of damage, wear and tear, is quite irrelevant. The true test is as to what is the description of the articles imported. If the articles are brass scrap, the limited inquiry which has to be made is whether brass scrap can come into being during the process of manufacture. If the answer is in the affirmative, the imported brass scrap will be chargeable to additional duty in accordance with Section 3(1) of the Tariff Act. 11. Having disposed of the contention as to whether the duty mentioned in Section 3(1) of the Tariff Act, whether one calls it additional duty or countervailing duty, is leviable on the brass scrap imported by the appellants, the next question for consideration is as to whether the appellants are liable to pay excise duty on the brass scrap at the rate of 40 per cent or at the rate of 60 per cent. The answer to this q....
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....is exempted under the second notification. The case of the appellants is that they are liable to pay customs duty at the rate of 40 per cent only by reason of the exemption granted by the first Notification while, the case of the Union Government is that they are liable to pay duty at the rate of 80 per cent since the second Notification is attracted. 14. The fact that the goods imported by the appellants are brass scrap should be beyond the pale of argument though, an attempt was made in the High Court by some of the counsel to contend that the goods imported by the appellants are not brass scrap at all. There is a specific averment in the pleadings of the appellants that they carry on the business of importing brass scrap and have in fact imported brass scrap. In the Bill of Entry, the Customs Tariff Heading indicated by the appellants themselves is 74.01/02. That entry has to be made in order to show entitlement for importing goods of the particular description. The import policies for the years 1980-81 and 1981-82 contain lists, in Appendix 10, of items which can be imported under the Open General Licence. It is in pursuance of an Entry in Appendix 10 that the appellants imp....
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....pellants rely should, therefore, be so interpreted as to avoid any conflict between the two Notifications. The intrinsic evidence furnished by the two Notifications points to the conclusion that they relate to two separate types of scrap. Thirdly, the contemporaneous understanding of those who framed and issued the exemption Notifications has always been that the expression `brass scrap' is distinct from the expression `copper scrap' for determining the application of those Notifications. For example, each of the two Notifications, No. 403, dated August 2, 1976 and No. 138, dated July 1, 1977, uses the expressions `copper scrap' and `brass scrap', which unequivocally indicates that the farmers of the Notifications understood these two expressions to mean two different things. Reliance is placed by the counsel on the decisions of this Court in Desh Bandhu Gupta v. Delhi Stock Exchange Association - (1979) 3 SCR 373 and K.P. Verghese v. I.T.O. - (1982) 1 SCR 629, in support of their submission that the contemporaneous exposition is a legitimate aid to interpretation. Therefore, so the contention goes, even assuming for the purpose of argument that copper scrap includes brass scrap, t....
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....of two or more elements of which at least one must be a metal. The term is usually reserved for those cases where there is an intentional addition to a metal for the purpose of improving certain properties. Though pure metals may possess certain useful properties, they seldom possess the strength required for industrial application. Copper is practically the only matter used in bulk in the commercially pure state. In the case of most metals, alloying elements are added to increase the hardness, strength and toughness of the basic metals and to obtain properties which are not found in any of those metals." [page 5]. At page 182 of Merriman's book it is stated that "Master alloy is the name given to an alloy of mixture of elements that is used for introducing desired elements into molten metals in the foundry. ........ and are often used in the ladle to obtain good control over the final product. Also called Foundry Alloy." The book does not mention brass as a master alloy. Indeed, zinc which is a constituent of brass is not mentioned even as one of the constituents of a master alloy. 20. At pages 25 and 26 of "Materials Handbook" by George S. Brady, it is stated : "Th....
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....the melting together of the constituent metals. If the melting points of the metals differ widely, or if one is relatively very reactive, it may be convenient to prepare first a master alloy, portions of which are then melted with the remaining metals." It is clear from these statements, which occur in books which are universally regarded as authoritative, that brass scrap cannot possibly be a `master alloy'. It is not, in the wildest imagination, an alloy of mixture of elements used for introducing desired elements into molten metals in the foundry. A master alloy is generally called a foundry alloy for the simple reason that it is an alloy used for adding elements in the foundry. Brass scrap does not square with that description and use. The appellants' contention, if accepted, will lead to the anomalous position that all brass articles shall have to be regarded as Master alloys. That will be doing grave violence to the science of Metallurgy : Almost putting the science rather than the metals into a melting pot. 24. As stated at page 22 of Merriman's `A Dictionary of Metallurgy', "Brass is essentially an alloy of copper and zinc, but for special purposes small proportions o....
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.... is applicable. Rule 4 provides that, goods not falling within any Heading of the Schedule shall be classified under the Heading appropriate to the goods to which they are most akin. 27. We will immediately proceed to consider the impact of these rules on the case on hand but, before doing so, it must be mentioned and appreciated that the sole ground on which the appellants claim exemption from payment of duty to the extent of 60% under Notification No. 97, dated June 25, 1977 is that brass scrap, being a master alloy, is an article other than `copper waste and scrap' or `unwrought copper'. Once that contention is rejected, the appellants cannot claim the benefit of the said Notification. However, in order not to leave scope for needless litigation in future, we must examine the question whether the item `copper waste and scrap' under Heading No. 74.01/02 includes brass scrap. Besides, by the second Notification No. 156, dated July 16, 1977 `copper waste and scrap' falling under the same Heading were exempted from so much duty of customs as exceeded 80% ad valorem. The contention of the Attorney General is that copper waste and scrap includes brass scrap, which at once leads to ....
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....rules unless, a particular Heading or Note excludes the application of rules other than Rule 1. 29. Accordingly, we must turn to Rules 2 to 4 for determining the classification of Brass Scrap. By reason of the concluding part of Rule 2(b), classification of goods consisting of more than one material or substance shall be according to the principles contained in Rule 3. Clause (a) of Rule 3 has no application. Applying the principle contained in Rule 3(b), which is relevant for our purpose, brass is a mixture of copper and zinc, usually in the proportion of 60 : 40 (See pages 22 and 23 of Merriman's `A Dictionary of Metallurgy') but, in which the component of copper may be anywhere between 67 per cent and 70 per cent (See Encyclopaedia Britannica, Volume I, page 649). Since copper gives its `essential character' to brass, brass scrap has to be classified as `copper waste and scrap' within the meaning of Heading No. 74.01/02. Alternatively, Rule 4 would yield the same result if it is assumed, for which there is no justification, that brass scrap does not fall within any Heading of the First Schedule. If it does not, it has to be classified, by reason of Rule 4, under the Heading a....
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....classification of goods under appropriate Headings. Those rules must have precedence over other aids of interpretation. 33. Notification No. 156 of July 16, 1977 exempts `copper waste and scrap' from so much of the duty of customs as is in excess of 80 per cent ad valorem. Since brass scrap is includible in the expression `copper waste and scrap' and since, brass scrap is not a `Master alloy', the appellants' case would fall under this Notification. Accordingly, they would be entitled to exemption from customs duty to the extent of 20 per cent only. 34. The next question which is raised by some of the appellants is as to whether the imposition of Excise duty on `waste and scrap', which is referred to in clause (1b) of Entry 26A of the First Schedule to the Central Excises and Salt Act, 1944 is either ultra vires Section 3 of that Act or beyond the legislative competence of the Parliament. Section 3 of the Act of 1944 provides that there shall be levied and collected duties of excise on all excisable goods, other than salt, which are produced or manufactured in India. The question as to whether `waste and scrap' can be regarded as capable of being produced or manufactured, the....
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.... with the residuary Entry 97 of List I. This is clear from the decisions of this Court in Second Gift Tax Officer, Mangalore v. D.H. Nazareth - (1971) 1 SCR 195 and Union of India v. H.S. Dhillon - (1972) 2 SCR 33. The cases relied upon by the appellants, namely, The Hingir-Rampur Coal Co. Ltd. v. The State of Orissa - (1961) 2 SCR 537, Kalyani Stores v. The State of Orissa - (1966) 1 SCR 865, A.B. Abdul Kadir v. State of Kerala - (1976) 2 SCR 690 and McDowell and Company Ltd. v. Commercial Tax Officer, VII Circle, Hyderabad - (1977) 1 SCR 914, relate to State legislations, namely, The Orissa Mining Fund Act, The Bihar and Orissa Excise Act, the Kerala Luxury Tax on Tobacco (Validation) Act and the Andhra Pradesh General Sales Tax Act respectively. Those cases are, therefore, not relevant for deciding upon the competence of the Parliament to enact the impugned law. 37. We may sum up our conclusions thus : (1) The charging section under which duties of customs are leviable is Sectin 12 of the Customs Act, 1962 read with Section 3(1) of the Customs Tariff Act, 1975. (2) `Additional duty' which is mentioned in Section 3(1) of the Customs Tariff Act, 1975 partakes of the same ....