Supreme Court of India
Khandelwal Metal & Engineering ... vs Union Of India And Others on 11 June, 1985
Equivalent citations: 1985 AIR 1211, 1985 SCR Supl. (1) 750
Author: Y Chandrachud
Bench: Chandrachud, Y.V. ((Cj)
           PETITIONER:
KHANDELWAL METAL & ENGINEERING WORKS AND ANOTHER ETC.
        Vs.
RESPONDENT:
UNION OF INDIA AND OTHERS
DATE OF JUDGMENT11/06/1985
BENCH:
CHANDRACHUD, Y.V. ((CJ)
BENCH:
CHANDRACHUD, Y.V. ((CJ)
PATHAK, R.S.
MUKHARJI, SABYASACHI (J)
CITATION:
 1985 AIR 1211            1985 SCR  Supl. (1) 750
 1985 SCC  (3) 620        1985 SCALE  (1)1073
ACT:
Customs Act 1962, Section 12 & Customs Tariff Act 1975,
Section 3(1)-  'Additional duty'-Whether  in the nature of a
counter-vailing   duty-Import   of   brass   scrap-Test   of
taxability-Imported brass scrap-'Like Article if produced or
manufactured in  India'-Meaning of-Taxable  event is whether
import and  not manufactured  in  India-Whether  nature  and
quality of  goods imported  relevant- Whether imported brass
scrap need  be capable  of being produced or manufactured in
India-Manufacturing process-What  is-Being a  bye-product of
manufacturing process-Whether liable to duty-Sections 2. 25,
1st Schedule,  (Import Tariff) Chapter 74, Heading 74.01/02,
Rules for  interpretation of the Ist Schedule, Rules 1 to 4,
Notes 2  Section XV  of the  Ist Schedule,  Notes 3  and  4-
'Copper waste and scrap'-Whether brass scrap is comprehended
within the  expression and whether is 'master alloy'-Whether
imported   brass   scrap   entitled   to   exemption   under
Notification No. 97 dated June 25 1977.
Customs Tariff  Act 1975-Ist  Schedule (Import Tariff),
Chapter 74,  Heading 74.01/02-Classification  of goods under
import  tariff-Contemporary   notification-Whether  can   be
relied  upon-Rules  of  interpretation-Whether  should  have
precedence  over  other  aids  of  interpretation-Rules  for
interpretation of  the Ist Schedule-Rules 1 to 4-Application
of.
Khandelwal Metal & Engineering ... vs Union Of India And Others on 11 June, 1985
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1
     Central  Excises   and  Salt  Act  1944,  
Section  3(1)
Schedule  1,  Entry  26A  Clause  (1b)-Whether  ultra  vires
Section 3(1)-Whether  within the  legislative competence  of
Parliament.
     Words  and   phrases-'Brass  Scrap'-'Copper  waste  and
scrap'/'Master alloy'-Meaning of.
HEADNOTE:
Section 2(15)  of the  Customs Act, 1962 defines "duty"
to mean  a duty of customs leviable under the Act. Chapter V
of  the  Act  contains  provisions  for  the  levy  of,  and
exemption from,  customs duties.  By s.  12(1)
 of  the  Act,
"Except otherwise  provided in  the Act  or in any other law
for the  time being  in force",  duties of  customs shall be
levied at such rates as may be specified
751
under the  Customs Tariff  Act, 1975  or under any other law
for the  time being  in force,  on goods  imported  into  or
exported from  India.  Section  25  of  the    Customs  Act,
empowers the  Central Government to grant exemption from the
payment of Customs duty.
     The rates  at which  duties of  customs shall be levied
under the  Customs Act,  1962 are specified in the First and
Second Schedules  of Tariff Act. Section 3 of the Tariff Act
deals with  the levy  of "additional  duty equal  to  excise
duty". Sub-s.(1)  thereof provides that any article which is
imported into  India shall in addition be leviable to a duty
equal to  the excise  duty for  the time being leviable on a
like article  if produced  or manufactured  in India  and if
such excise  duty on  a like  article  is  leviable  at  any
percentage of  its value,  the additional  duty to which the
Imported article  shall be  so liable shall be calculated at
that percentage of the value of the imported article.
     The expression  "the excise  duty for  the  time  being
leviable on  a like  article if  produced or manufactured in
India", according  to the Explanation in the section, means,
the excise  duty for  the time being in force which would be
leviable on  a like  article if  produced or manufactured in
India  or   if  a   like  article  is  not  so  produced  or
manufactured which  would  be  leviable,  on  the  class  or
description  of   article  to  which  the  imported  article
belongs, and where such duty is leviable at different rates,
the highest duty.
     On  June   25,  1977   the  Central  Government  issued
Notification No.  97 under  s. 25  of the  Customs Act 1962,
exempting articles  other than  copper waste  and scrap  and
unwrought copper  (refined or not) falling under Heading No.
74.01/02 of  the First  Schedule to  the Customs Tariff Act,
1975) (51 of 1975) when imported into India, from so much of
duty of  customs leviable  thereon which is specified in the
First Schedule as is in excess of 40 per cent ad valorem.
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     Another Notification  No. 156 was issued by the Central
Government on  July 16, 1977 by which copper waste and scrap
falling under the same heading were exempted from so much of
the duty  of customs  leviable thereon which is specified in
the First  Schedule, "as  is in  excess of  80 per  cent  ad
valorem".
     The appellants  carry on  the  business,  of  importing
brass scrap from other countries. According to them 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 as per the respondent-Union Government they are liable
to pay  duty at  the rate  of 80  per cent  since the second
notification is attracted.
     The appellants  filed Writ  Petitions under Art, 226 of
the Constitution  and the  same were  dismissed by  the High
Court.
752
     In the appeals to this Court it was contended on behalf
of the  appellants :  (1)  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  and (2)  that they  are 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.'
     Dismissing the Appeals and the Special Leave Petitions,
^
     HELD : 1. 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. [774 C-D]
     2. The  charging section  is s  12 of  the Customs Act,
1962 and  not s.  3(1) of  the  Customs  Tariff  Act,  1975.
Section 12  of the  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".  Section 2 of the Tariff Act 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 Schedules."  The scheme  incorporated in  s.12 of the
Customs Act  read with s.2 of the Tariff Act is analogous to
the scheme  embodied in  s.4, Income  Tax Act  read with the
relevant provisions  of the  Finance Act. The levy specified
in s.3(1)  of the  Tariff Act  is a  supplementary levy,  in
enhancement of  the levy  charged by s.12 of the Customs Act
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and with  a different  base constituting  the measure of the
import. The  'additional duty'  which is mentioned in s.3(1)
of the  Tariff Act  is not  in the  nature of countervailing
duty. [758 G-H; 759 A-C]
     Ashok Service  Centre v.  State of Orissa, [1983] 2 SCR
363, relied upon.
     3. Under  s.12 of  the Customs  Act duty is leviable on
the taxable  event of  export of  goods from  India  or  the
import of  the goods into India, which is relatable to Entry
No.  83   is  List   I  of   the  Seventh  Schedule  to  the
Constitution. The  taxable event  is not  the manufacture of
the goods.  Under s.3(1) of 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. [761 F-
H]
     4. The provisions contained in Explanation to s.3(1) of
the Tariff  Act make  it clear  that the duty referred to in
s.3(1) of  the Tariff  Act does  not bear any nexus with the
nature and quality of the goods imported in to India.
                                                  [762 A-C]
753
     5. Section  3(5) of the Tariff Act which provides, that
the  duty  "chargeable  under  this  section"  shall  be  in
addition to  any other  duty imposed under the Act, does not
help  s.3(1)   becoming  a   charging  provision.  The  word
'chargeable'  occurring   in  sub-s.  (5)  has  to  be  read
alongwith the expression "imposed under this Act". Section 2
of the Tariff Act does not charge a duty but only prescribes
the rates  of duty  leviable under  s.12 of the Customs Act.
Besides, s.3(5)  of the  Tariff Act refers not merely to any
other duty  imposed under the Tariff Act but also "under any
other law  for the time being in force", which would include
s.12 of  the Customs Act. Therefore, in the instant case, it
cannot be  said  that  s.3(1)  of  the  Tariff  Act  is  not
attracted because  the damaged  articles, which  are in  the
nature of  brass scrap,  are outside  the scope  of that Act
since, such  articles are  not and  cannot  be  produced  or
manufactured. [762 C-F]
     6.(i) Even if the duty "chargeable" under s.3(1) of the
Tariff Act is a countervailing or counterbalancing duty, the
brass scrap  imported by  the appellants  will  attract  the
charge on that basis also. The damaged goods of brass, which
are  compendiously  called  'brass  scrap',  can  come  into
existence during the process of manufacturing brass articles
and such brass scrap has an established market in India. The
scrap is  re-cycled for  extracting metal  and 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 true test is as to what is the description
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of the articles imported. [762 G-H; 763 A-C]
     (ii) 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 s 3(1) of the Tariff Act. [763 C-E]
     7. In  the instant  case, the appellants claim that the
goods imported  by them  fall in the class of 'master alloy'
is against  the tenor of their own documents. The appellants
imported  the   articles  under   Open  General  Licence  in
pursuance of Entry 44 of Appendix 10 of the 'Import Policy'.
They could  not  have  been  granted  permission  to  import
'master alloy'  under the Open General Licence because under
the OGL  the import  of brass  scrap was  permissible at the
relevant time but not of any 'master alloy'. [765 E-G]
     8.  An  'alloy'  is  a  substance  possessing  metallic
properties and  composed of two or more elements of which at
least one  must be  a metal.  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. It is not an
alloy of  mixture of  elements used  for introducing desired
elements into  melted metals in the foundry. Brass is but an
alloy of  copper and  zinc  and  is  complete  and  finished
product by
754
itself. Brass  or brass  scrap is not used as a raw material
in the  manufacture of  other alloys, therefore, it is not a
master alloy.  The appellants  cannot claim  the benefit  of
Notification No.  97 dated  June 25,  1977 on the basis that
brass scrap  is a  master alloy.  [767 G-H; 770 C-D 768 C-D;
770 F-G]
     "A  Dictionary   of  Metallurgy   by  A.D.   Merriman".
"Materials Handbook"  by George  S. Brady,  'World Trade and
the law  of Gatt'  by John H. Jackson, Ed. 1969. Henderson's
'Metallurgical Dictionary'  Osborne's 'Encyclopaedia  of the
Iron and Steel Industry', Encyclopaedia Britannica, referred
to.
     9. The  question of  classification of  goods under the
'Import Tariff'  cannot be  decided  by  implications,  when
there are  Rules of  Interpretation which  are  specifically
framed to  aid and  assist the classification of goods under
appropriate Heading.  Those rules  must have precedence over
other aids of interpretation. [774 B-C]
     Desh Bandhu  Gupta v. Delhi Stock Exchange Association,
[1979]3 SCR  373, K.P.  Verghese v.  I.T.O
, [1982]1  SCR 629
referred to.
     10. Rule  1 of  the Rules for the Interpretation of the
First Schedule  (Import Tariff)  to  the  Tariff  Act,  1975
provides that  classification has to be determined according
to the  provisions of the Rules unless, a particular Heading
or Note  excludes the  application of  the Rules  other than
Rule 1.  In the  instant case,  the terms of the Heading No.
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74.01/02 by  themselves, yield  an answer  to  the  question
whether copper  waste and scrap includes brass scrap and the
Heading does  not require  or provide  that the  other rules
should be  excluded while  determining the classification of
articles under  the Heading. That is how Rules 2 to 4 become
relevant for deciding the question whether 'copper waste and
scrap' includes  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.  Applying  the  principle
contained in  Rule 3(b)  brass is  a mixture  of copper  and
zinc, usually  in the  proportion of 60:40 but, in which the
component of  copper may be anywhere between 67 per cent and
70 per cent. 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. Even if
it is  assumed that  brass scrap  does not  fall within  any
Heading of  the First  Schedule, Rule 4 would yield the same
result because Rule 4 provides that goods not falling within
any Heading  of the First Schedule shall be classified under
the Heading  appropriate to the goods to which they are most
akin. Brass,  unquestionably, is  most akin  to copper  and,
therefore, brass scrap has to be classified as 'Copper Waste
and Scrap'. [772 A-H; 773 A-C]
     11. Clause  (a) of  Note 3  of Section  XV of the First
Schedule (Import  Tariff) provides  that an  alloy  of  base
metals is  to be  classified as  an alloy of the metal which
predominates by  weight over each of the other metals. Since
brass is  an alloy  of  copper  and  zinc  in  which  copper
predominates by weight,
755
brass has  to be classified as an alloy of copper. According
to  Note  4,  unless  the  context  otherwise  requires  any
reference in  the First  Schedule to  a base  metal is to be
taken to  include a  reference to  alloy which  by virtue of
Note 3, is to be classified as alloys of that metal. Heading
No. 74.01/02  of the  First Schedule  refers to waste copper
and scrap.  Copper is  a base  metal. Reference to copper in
that heading  would include  reference to  brass  since,  by
virtue of  Note 3, brass has to be classified as an alloy of
copper. Therefore,  'copper waste  and scrap' includes brass
scrap. [773 C-F]
     12. Considerations  based on  documents issued  by  the
Merchants'  Association   and  upon  extracts  from  'Indian
Standard Coding  and Classification  for  non-ferrous  scrap
metals' showing  that  brass  scrap  and  copper  scrap  are
regarded as  distinct  and  separate  items  for  commercial
purposes cannot  furnish a  true  answer  to  the  question,
because the  distinguishing feature  is brass and copper are
not mentioned  as separate  items in the Import Tariff. [773
F-H]
     13. (i) Imposition of excise duty on 'waste and scrap',
referred to  in Cl.  1(b) of Entry 26A of the First Schedule
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to the Central Excises and Salt Act, 1944 is not ultra vires
s. 3 of that Act. Section 3 provides for levy of excise duty
on all  exciseable goods  produced or manufactured in India.
The production of waste and scrap is a necessary incident of
the manufacturing  process. Waste  and scrap  are  the  bye-
products of  the manufacturing  process. Sub-standard  goods
which are  produced during  the process of manufacturing may
have to  be disposed  of as 'rejects' or as scraps. But they
are  still   the  products  of  the  manufacturing  process.
[774 D-H]
     (ii) 'Intention'  is not  the gist of the manufacturing
process. [774 H]
     14. Section  2(d) of the Act of 1944 defines 'excisable
goods' to  mean good  s which  are specified  in  the  First
Schedule as  being subject to a duty of excise under s. 3 of
the Act.  The goods  mentioned in  the First  Schedule  will
attract excise duty under s. 3 only if they are manufactured
in India  and not  otherwise. Entry  26A (1b)  of the  First
Schedule of  the Act of 1944 cannot be held to be beyond the
legislative  competence   of  the   Parliament  because  the
precondition of  the excisability  of the articles mentioned
therein, namely, waste and scrap is in the manufacturability
of those  articles. Since  the production of waste and scrap
is an  integral part  and  an  inevitable  incident  of  the
manufacturing  process,   Parliament  has   the  legislative
competence to  make 'waste  and scrap' excisable under Entry
84 of  List 1  of the  Seventh Schedule to the Constitution.
Parliament  would   even  otherwise   have  the  legislative
competence to  pass the  law by  virtue of  Article 248 read
with the  residuary Entry  97 of List I, because the subject
matter of  Legislation does  not fall  within List  II,  the
State List. [775 A-E]
     Second Gift  Tax Officer,  Managalore v.  D.H. Nazareth
[1971] 1 S.C.R 195 and Union of India v. H.S. Dhillon [1972]
2 SCR 33 followed.
756
The Hingir-Rampur  Coal Co. Ltd. v. The State of Orissa
[1961] 2  SCR 537  Kalyani Stores  v. The  State  of  Orissa
[1966] SCR  865, 1  A.B. Abdul  Kadir  v.  State  of  Kerala
[1976]2 SCR  690 and Mc. Dowell & Company Ltd. v. Commercial
Tax Officer,  VII Circle,  Hyderabad [1977] SCR 914 referred
to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 338- 349 of 1983 etc etc. From the
Judgment and Order dated 19th October, 1982 of the Delhi High Court in Civil Writ Petitions Nos.
2684, 2685, 2686, 1687, 2688, 2724, 2725, 2507, 2508, 2509 and 1432 of 1981.
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7
R.N. Bajoria, Soli J. Sorabji, Anil B. Dewan, Gobind Dass, A.K. Sen, I.R. Gupta, M.M. Abdul Khadar,
S.K. Bagaria, Kamal Persuram Puria, A.M. Shah, V.N. Deshpande, E.C. Agarwala, R. Sathish, Vijaya
Pandita, Prakash Mittal, Madan Sharma, Ravinder Narain, O.C. Mathur, J.B. Dadachanji, Talat
Ansari, D.N. Mishra, Harish Salve, Miss Rainuwalia, Ashok Gupta, P.H. Parekh, D.K. Chhaya, Miss
Nisha Srivastava, JP. Devadhar, Aruneshwar Gupta, Brij Bhushan, S.P. Mangla, Rajesh Gupta, J.N.
Aggarwal, P.D. Sharma, P.K. Mukherjee, A.S. Pundir, N.D. Garg, P.K. Aggarwal, V.K. Varma, S.
Sriniasan, Sushil Kumar Jain, M.K.D. Namboodiry, R.C. Pathak, Mrs. Rani Chhabra, Mrs. Shobha
Dixit. A.T.M. Sampath, K.J. John, Shri Narain, J.N. Aggarwal, B.P. Maheshwari, Miss Halida
Khatun, R.S. Suri, S.K. Dholakia, Altaf Ahmad, G.D. Rawal, Shyam Moorjani Kailash Vasdev, C.S.
Vaidyanathan. D.D. Sharma, B. Parthasarthi, S.S. Shroff, Mrs. Pallavi Shiraf, D.P. Mohanty. S.A.
Shroff, Subhash Parekh, A.K. Sanghi. S.N. Parekh, Vijay Pandita, Madan Sharma, R.D. Upadhya,
Mrs. Hemantika Wahi, Janendra Lal, B.R. Agarwala, Miss V. Menon, A.K. Goel, K. Dileep and M.A.
Feroz, for the Appellants/Petitioners.
K. Parasaran, Solictor General, M.K. Banerjee, Additional Solictor General, A.K. Ganguli, K. Swamy,
R.N. Poddar, C.V. Subbarao, Suraj Udai Singh and Miss Halida Khatun for the Respondents.
Anil B. Dewan, Abhay M. Shah, V.N. Deshpande, E.C. Aggarwala and V.K. Pandita for the
Interveners (Indravandan Gokuldas Mehta).
The Judgment of the Court was delivered by CHANDRACHUD, CJ : This is a group of Civil Appeals
and Special Leave Petitions arising out of a judgment dated October 19, 1982 delivered by a Division
Bench of the High Court of Delhi in a batch of Writ petitions filed under Article 226 of the
Constitution. Those Writ Petitions having been dismissed by the High Court, the Writ-petitioners
have filed these Appeals and Special Leave Petitions.
The facts of the various Writ Petitions naturally vary from case to case but, such variation has no
bearing on the points which arise for our decision. We will mention the facts of Civil Appeal Nos.
27-33 of 1983 as a representative batch of cases. The two appellants therein are respectively Messers
Eastern Engineers, a partnership firm carrying on business at Goregaon, Bombay, and a 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.
Section 2 (15) of the Customs Act, 1962 defines "duty" to mean a duty of customs leviable under the
Act. Chapter V of the Act contains provisions for the levy of, and exemption from, customs duties. By
section 12 (1) of the Act, "Except as otherwise provided in the Act or in any other law for the time
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8
being in force", duties of customs shall be levied at such rates as may be specified under the Customs
Tariff Act, 1975 or under any other law for the time being in force, on goods imported into or
exported from India. Section 25 of the Customs Act, which deals with the power of the Central
Government to grant exemption from the payment of customs duty, provides by sub-section (1) that,
if the Central Government is satisfied that it is necessary in the public interest so to do, it may, by a
notification in the Official Gazette, exempt generally, either absolutely or subject to such conditions
as may be specified, goods of any specified description from the whole or any part of the duty of
customs leviable thereon.
Section 2 of the Customs Tariff Act, 1975 says that the rates at which duties of customs shall be
levied under the Customs Act, 1962 are specified in the First and Second Schedules of the Tariff Act.
Section 3 of the Tariff Act deals with the levy of "additional duty equal to excise duty". Sub-section
(1) of section 3 and the Explanation to that section, which are relevant for our purpose, read thus:
"Levy of additional duty equal to excise duty. (1) Any article which is imported into
India shall, in addition be liable to a duty (hereafter in this section referred to as the
additional duty) equal to the excise duty for the time being leviable on a like article if
produced or manufactured in India and if such excise duty on a like article is leviable
at any percentage of its value, the additional duty to which the imported article shall
be so liable shall be calculated at that percentage of the value of the imported article.
Explanation- In this section the expression "the 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 or, if a like article is not so produced or manufactured which
would be leviable on the class or description of article to which the imported article
belongs, and where such duty is leviable at different rates, the highest 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 my be specified under the Custom 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 Schedules". 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
charged by section 12 of the Customs Act and with a different base constituting the measure of the
impost. In other words, the scheme embodied in section 12 is amplified by what is provided in
section 3 (1). The customs duty charged under section 12 is extended by an additional duty confined
to imported articles in the measure set forth in section 3 (1). Thus, the additional duty which is
mentioned in section 3 (1) of the Tariff Act is not in the nature of countervailing duty. In Ashok
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Service Centre v. State of Orissa, which considered the nature of levy of additional sales-tax under
an Orissa Act, this Court observed:
"This construction receives support from the use of the word 'additional' in section 3
(1) which involves the idea of joining or uniting one thing to another so as thereby to
form one aggregate. (See Black's Law Dictionary). The gross turnover referred to
therein should therefore be understood as that part of the gross turnover which is
taxable under the principal Act." (page 380).
Counsel for the appellants rely strongly on the 'Objects and Reasons' of section 3 of the Tariff Act in
support of their contention that the said section is a charging section and imposes a countervailing
duty. The Statement of Objects and Reasons says:
"Clause 3 provides for the levy of additional duty on an imported article to
counterbalance the excise duty leviable on the like article made indigenously, or on
the indigenous raw materials, components or ingredients which go into the making of
the like indigenous article. This provision corresponds to section 2-A of the existing
Act, and is necessary to safeguard the interests of the manufacturers in India."
This Statement lends prima facie support to the contention of the appellants but, in the absence of
any ambiguity in the wording of section 3 (1), we cannot treat the additional duty referred to therein
as countervailing duly, Nor, indeed, can we regard that provision as a charging section merely
because the Statement says that section 3 "provides for the levy". The Statement of Objects and
Reasons errs in being common to sub-sections (1) and (3) of section 3. It is more apposite to
sub-section (3) though, even there, it may not be correct to say that it is a charging provision. Sub-
section (3) confers power on the Central Government, in public interest, to levy on any imported
article "such 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.
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.
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 the excise
duty for the time being leviable on a like article produced or manufactured in India". The contention
of Mr. Sorabjee, who appears on behalf of the appellants, is that the brass scrap imported by them is
not produced or manufactured in India because the damaged articles of brass which constitute brass
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scrap, are not only incapable of being manufactured but are in fact not manufactured. Learned
counsel contends that if the change in the condition of an article is the result of an accidental event,
that is to say, an event not intended or if the change is the result of ordinary wear and tear, the
change thus produced cannot be termed as manufacture. It is urged that the articles imported by the
appellants are what they are because, they had suffered damage or had been subjected to ordinary
wear and tear in the natural course. If such goods cannot be produced or manufactured in India for
the reason that they cannot be and are, in fact, not produced or manufactured in India, or for the
matter of that anywhere, no additional duty can be levied upon them under section 3 (1). According
to the learned counsel, the basic postulate underlying the levy of duty under section 3 (1) of the
Tariff Act is that indigenous goods belonging to the class of goods which are chargeable to excise
duty. The illustrations given are the import of live animals, live trees burnt up cables, broken glass
or fused bulbs. The argument is that there is and can be no levy of additional duty on these goods if
imported because they cannot be and are not manufactured for the simple reason that they are not
the result of treatment, labour and manipulation, nor are they the result of one or more processes
through which the original commodity is made to pass. Putting it in one sentence, the argument is
that if indigenous goods, similar to those which are imported, do not suffer excise duty for the
reason that they are not manufactured, the charge leviable under section 3 (1) of the Tariff Act is not
attracted.
There is no substance in this argument. In the first place, as we have indicated earlier, sections 2
and 3 (1) of the Tariff Act are not charging sections. The charging section is section 12 of the
Customs Act under which, duty is leviable on the taxable event of export of goods from India or the
import of goods into India, which is relatable to Entry No. 83 in List 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).
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 Explanation even goes further and provides that if a like article is
not so produced or manufactured, then, the duty leviable means the duty which would be leviable on
the class or description of articles to which the imported article belongs. These provisions leave no
doubt that the duty referred to in section 3 (1) of the Tariff Act does not bear any nexus which the
nature and quality of the goods imported into India.
Section 3 (5) of the Tariff Act which provides, inter alia, that the duty "chargeable under this
section" shall be in addition to any other duty imposed under the Act, cannot be pressed into service
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in support of the contention that section 3 (1) is in the nature of a charging provision. The word
'chargeable' which occurs in sub-section (5) has to be read along with the expression "imposed
under this Act". Section 2 of the Tariff Act does not charge a duty but only prescribes the rates of
duty Ieviable under section 12 of the Customs Act. Besides, section 3 (5) of the Tariff Act refers not
merely to any other duty imposed under the Tariff Act but also "under any other law for the time
being in force," which could include section 12 of the Customs Act. For these reasons, we must reject
the argument of Mr. Sorabjee and of the other learned Counsel for the appellants that section 3 (1)
of the Tariff Act is not attracted because, the damaged articles, which are in the nature of brass
scrap, are outside the scope of that Act since, such articles are not and cannot be produced or
manufactured.
Looking at the matter from a different point of view, the brass scrap of the kind imported by the
appellants is a by-product of the manufacturing process. Such goods can and do come into existence
as waste articles or rejected articles during the process of manufacturing that class of articles.
Indeed, brass scrap is known in commercial parlance by that name and is excisable as such.
Assuming for the sake of argument that the appellants, contention is correct that the duty
"chargeable" under section 3 (1) of the Tariff Act is a countervailing or a counterbalancing duty, the
brass scrap imported by the appellants will attract the charge on that basis also. As stated above,
damaged goods of brass, which are compendiously called 'brass scarp', can come into existence
during the process of manufacturing brass articles and such brass scrap has an established market
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.
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 question depends upon which of the two notifications, notification No. 97 dated June
25, 1977 and notification No. 156 dated July 16, 1977, is applicable. It is undisputed that excise duty
is payable on the brass scrap imported by the appellants, the only controversy being as to the rate of
duty payable.
Section 25 of the Customs Act, as stated earlier, empowers the Central Government, in public
interest to exempt goods of any specified description from the whole or any part of the Customs duty
leviable thereon. The First Schedule called "Import Tariff" to the Tariff Act, which is referable to
section 2 of that Act consists of one-hundred chapters divided into XXII sections. Each chapter
bears a broad heading of the articles comprised therein. Chapter 74 which bears the heading ',
Copper and articles thereof," contains six headings, the first of which reads thus:
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Heading    Sub-heading       Standard Rate          Central
No.                          of duty                Excise
                                                    Tariff
                                                    Item
____________________________________________________________ 74.01/02
Copper matte; (a) 100% 26A Unwrought copper (refined or not);
          copper                  waste                  and
          scrap;                                      master
          alloys.
____________________________________________________________ On June 25,
1977, the Central Government issued Notification No. 97 to the following effect:
"In exercise of powers conferred by sub-section (1) of Section 25 of the Customs Act,
1962 (52 of 1962) the Central Government being satisfied that it is necessary in public
interest to do so, hereby exempts articles other than copper waste and scrap and
unwrought copper refined or not) falling under heading Nos. 74. 01/02 of the First
Schedule to the Customs Tariff Act 1975 (51 of 1975 when imported in to India, from
so much of duty of customs leviable thereon which is specified in the First Schedule
as is in excess of 40% ad valorem.
Another Notification, No. /156, was issued by the Central Government on July 16, 1977 by which
copper waste and scrap falling under the same heading were exempted from so much of the duty of
customs leviable thereon which is specified in the First Schedule, "as is in excess of 80 per cent ad
valorem." The upshot of the two notifications is that under the first notification of June 25, 1977,
customs duty at the rate of 40 per cent is payable while, under the second notification of July 16,
1977, customs duty at the rate of 80 per cent is payable. In other words, 60 per cent duty is
exempted under the first notification while 20 per cent duty 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.
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 mad 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 import brass scrap. Indeed, the appellants had to accept
that goods were imported by them under the Open General Licence, the goods being described by
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themselves as 'brass scrap'. Otherwise, they would have countered other serious impediments.
Further, the claim made by the appellants for exemption, whether it is 60 per cent or 20 per cent is
dependant upon the goods imported by them falling under the heading 74.01/02.
The fact that brass scrap is covered by the heading 74.01/02 is undisputed and is indisputable. The
Controversy between the parties is this. Whereas the appellants claim that brass scrap is a 'master
alloy' and, therefore, falls under the notification dated June 25, 1977, the contention of the Union
Government is that brass scrap is comprehended within The expression 'copper waste and scrap'
and therefore falls under the notification dated July 16, 1977. In the first place, the appellants, claim
that the goods imported by them fall in the class of 'master alloy' is against the tenor of their own
documents to which we have referred a little while ago. The learned Attorney General is not
unjustified in his submission that if the appellants were to ask for permission to import 'master
alloy' under the Open General Licence, they could not have been granted that permission since,
under the OGL, the import of brass scrap was permissible at the relevant time but, not of any master
alloy. One of the three items in Entry 44 of Appendix 10 of the 'Import policy' was 'Brass Scrap'. But,
apart from this consideration, it seems to us difficult to accept the appellants contention that brass
scrap is a 'master alloy.' The best part of the argument before us was occupied by this particular
question since, the difference between the duty payable by the appellants is quite considerable,
depending upon whether the first or the second notification applies. The contention of the various
counsel on this point may be summed up thus. Firstly, Brass scrap' cannot be classified as 'copper
scrap' because, the context in which Notification No. 97 was issued has to be examined in order to
find out whether Note 4 of Section XV of the 'Import Tariff' is at all applicable. Secondly, two
Notifications, Nos. 96 and 97, were issued simultaneously, one for 'copper scrap' and the other for
'other than copper waste and scrap'. Notification No. 97 on which the appellants rely should,
therefore, be so interpreted as to avid 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', which unequivocally indicates that the framers 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, and K. P.
Verghese v. I.T.O., 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, that conclusion must be resisted in view of the
history of the exemption Notifications issued from time to time.
Mr. Sorabjee urged, in addition, that the classification of an item under a particular commercial
category must not be mixed up with its liability to taxation. Rule 1 of the Rules for the interpretation
of the First Schedule ('Import Tariff') of the Tariff Act, 1975 takes precedence over other rules by
providing that "for legal purposes, classification shall be determined according to the terms of the
Headings and any relative Section or Chapter Notes and, provided such Headings or Notes do not
otherwise require, according to the provisions hereinafter contained." The question of the
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application of Interpretative Rules 2 to 4, therefore arises, only where the text of the Heading and of
the Notes cannot by itself determine the appropriate Heading for classification of an article. The
other Interpretative Rules cannot be invoked in the instant case, because brass scrap being an alloy
of copper. its classification can be determined under Rule 1. In any case, Note No. 4 of the Import
Tariff which says:
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"
cannot apply since, Rule 1 of the Interpretative, Rules must take precedence over it. These
considerations, according to the learned counsel, lead to the conclusion that brass scrap, as a
'copper alloy scrap' must be classified with copper as an 'alloy scrap of copper' or 'copper alloy
scrap'. It cannot be classified as 'copper scrap'.
Arguments advanced by the various learned counsel including Mr. Asoke Sen, Mr. Sorabjee, Mr.
Bajoria, Mr. R. K. Jain, Mr. Gobind Das, Mr. L. R. Gupta and Mr. K. Parshurampuria were an
interesting interplay of different facets of forensic presentation. Broadly, the central theme of their
argument was the same but, a few of them, who are evidently well-versed in the " Import Tariff",
dissected with ability many a minute point concerning the composition of metals like brass and
copper.
The reasons why we are unable to accept the submission of the appellants that brass scrap is a
'master alloy', are these. An 'Alloy' is described in "A Dictionary of Metallurgy by A. D. Merriman"
thus:
"Alloy It is a substance possessing metallic properties and composed 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 melten
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.
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Indeed zinc which is a constituent of brass is not mentioned even as one of the constituents of a
master alloy.
At pages 25 and 26 of "Materials Handbook" by George S. Brady, it is stated:
"The commercial utility of alloys arises from the fact that the pure metals are often
too soft, weak or rare to be used alone. Thus, copper, a soft metal, when alloyed with
the brittle metal zinc, forms a strong, hard alloy, brass, that has wide usage." "A
master alloy or a foundry alloy is an alloy used for adding elements in the foundry."
Moves to unify tariff classification stem at least from the early days of the League of Nations. In
Brussels in 1950, the Customs Co-operation Council was formed by a convention signed by 13
governments of the European Customs union Study Group. The CCC studies customs matters with a
view towards simplifying and unifying them and has prepared the "Brussels Tariff Nomenclature"
complete with principles of interpretation and an advisory process for settling disputes over the
nomenclature. (See pp. 238-239, Section 10, 7 of 'World trade and the law of Gatt' by John H.
Jackson, Ed. 1969).
According to Brussels Tariff Nomenclature, "Master alloys are generally in the form of small blocks
or cakes divided for easy breaking, brittle sticks, or pellets, and have the appearance of crude
foundry products."
In Hendersons 'Metallurgical Dictionary' (page 206) 'Master alloy' is treated synonymously with
'Foundry alloy' and 'Hardener'. At page 163 of the book the following statement occurs:
"Hardener (preliminary alloy; foundry alloy; master alloy; rich alloy) An alloy, rich in
one or more alloying elements, that is added to the melt, this procedure permitting
closer composition control then is possible with the addition of pure metals; an alloy
designed to facilitate adding to a base metal, to make a complete composition, those
additive elements that, due to refractoriness or susceptibility to oxidation, do not, as
pure metals, readily alloy with the base metal."
At page 142 of the book, Foundry alloy which is equated with Master alloy is described as "an alloy
of specific composition as, for example, a ferro-alloy, used for making cupola, ladle, or furnace
additions."
In Osborne's 'Encyclopaedia of the Iron and Steel Industry' (page 195) 'Hardeners' are described as
"Master alloys prepared for the purpose of adding small quantities of the desired alloying elements
to molten metals."
According to Encyclopaedia Britannica (Volume 1, Pages 649-50), "The most common way of
preparing alloys is by the melting together of the constituent metals. If the melting points of the
metals differ widely, or if one is relatively very reactive, it maybe convenient to prepare first a
master alloy, portions of which are then melted with the remaining metals."
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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 melten
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 then the metals into a melting pot.
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 of other metals are sometimes added to
obtain increased strength and hardness of resistance to corrosion". The book states further at page
23 that "the commonest form of brass (known as 60/40), contains 40% zinc". According to
Encyclopaedia Britannica ( Vol. I, page 649 ), "Brass is an alloy of copper and zinc, the copper
content usually varying between 57% and 70%.
This shows that brass is but an alloy of copper and zinc and is a complete and finished product by
itself. Brass or brass scrap is not used as a raw material in the manufacture of other alloys.
Therefore, it is not a master alloy. Accordingly, the appellants cannot claim the benefit of
Notification No. 97 dated June 25, 1977 on the basis that brass scrap is a Master alloy.
That leads to the question as to whether brass sorap is comprehended within the expression 'copper
waste and scrap' under Heading No. 74.01/02. Brass, as we have seen is an alloy of copper and zinc,
generally in the proportion of 60:
40. Rule 1 of the Rules for the interpretation of the First Schedule (Import Tariff) to the Tariff Act,
1975 provides that for legal purposes, classification shall be determined according to the terms of
the Headings and any relative Section or Chapter Notes and, provided such Headings or Notes do
not otherwise require, according to the provisions contained in the following Rules. By Rule 2 (b),
the classification of goods consisting of more than one material or substance shall be according to
the principles contained in Rule 3. Rule 3, on its own terms, is applicable only when goods are prima
facie classifiable under two or more Headings. But by reason of Rule 2 (b), the principles contained
in Rule 3 will apply to the classification of brass scrap since it consists of more than one material or
substance, namely, copper and zinc That is, of course, if the Rules, apart from Rule 1, are at all
attracted. Under clause (a) of Rule 3, the Heading which provides the most specific description shall
be preferred to Headings providing a more general description. Under clause
(b) of Rule 3, Mixtures and composite goods which consist of different materials or are made up of
differents and which cannot be classified by reference to clause (a) shall be classified as if they
consisted of the material or component which gives the goods their essential character, in so for as
this criterion 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.
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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 which at once leads to two consequences: The first Notification is not attracted and
the second Notification would apply.
Turning to Rule 1 of the Import Tariff, insofar as relevant, classification has to be determined
according to the terms of the Headings; and, provided such Headings do not otherwise require,
classification has to be determined according to the provisions of the rules following Rule 1. Heading
No. 74.01/02 are consists of four items: (i) Copper matte, (ii) unwrought copper (refined or not),
(iii) copper waste and scrap, and (iv) master alloys. Insofar as the terms of Heading No. 74.01/02
are concerned, the primary conclusion to which we have come is that brass scrap is not a master
alloy. It is nobody's case that brass scrap belongs to either of the first two categories, namely, copper
matte or unwrought copper. The only question then is whether the third item 'copper waste and
scrap' includes brass scrap. Putting Rule 1 in simple language, classification has to be determined
according to the description of the article in the Heading and, if the Heading or a Note does not
otherwise require, according to the provisions of the other Rules and Notes. In the instant case, the
terms of the relevant Heading do not, by themselves, yield an answer to the question whether
copper waste and scrap includes brass scrap. But, the particular Heading does not require or provide
that the other rules should be excluded while determining the classification of articles under that
Heading. That is how, Rules 2 to 4 become relevant for deciding the question whether 'copper waste
and scrap' includes brass scrap. What is meant by the clause in Rule 1: "and provided such Headings
or Notes do not otherwise require" is not that a Heading must require that the provisions contained
in the rules following Rule 1 should be applied. What it means is exactly the opposite, namely, that if
a Heading does not require the exclusion of the other rules, those other rules must also be applied
for determining the classification of an article. Therefore, all the relevant rules of interpretation in
the Import Tariff come into play in the classificatory process. Rules 2 to 4 of the Import Tariff are
not a mere adornment. Nothing ever is an adornment in an Import Tariff. Therefore, classification
has to be determined both according to the terms of the Headings and according to the provisions of
the rules unless a particular Heading or Note excludes the application of rules other then Rule 1.
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 (p) classification of goods consisting of more then 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
Marriman's 'A Dictionary of Metallurgy') but, in which the component of copper may be any where
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between 67% and 70% (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 appropriate to the goods to which it is
most akin. Brass, unquestionably, is most akin to copper and therefore brass scrap has to be
classified as 'Copper Waste and Scrap'.
We may usefully turn to the Notes to Section XV of the First Schedule (Import Tariff), which is
called 'Base metals and Articles of Base Metal'. Clause (a) of Note 3 provides that an alloy of base
metals is to be classified as an alloy of the metal which predominates by weight over each of the
other metals. Since brass is an alloy of copper and zinc in which copper predominates by weight,
brass has to be classified as an alloy of copper. Therefore, 'Copper Waste and Scrap' includes brass
scrap. According to Note 4, unless the context otherwise requires, any reference in the First
Schedule to a base metal is to be taken to include a reference to alloys which, by virtue of Note 3, are
to be classified as alloys of that metal. Heading No. 74. 01/02 of the First Schedule refers to copper
waste and scrap. Copper is a base metal. Reference to copper in that Heading would include
reference to Brass since, by virtue of Note 3, brass has to be classified as an alloy of copper.
Therefore, 'copper waste and scrap' includes 'Brass Scrap'.
The appellant relied upon certain documents issued by the Merchants' Association and upon
extracts from 'Indian Standard Coding and Classification for non-ferrous scrap metals' to show that
brass scrap and copper are regarded as distinct and separate items for commercial purposes. Such
considerations cannot furnish a true answer to the question before us because, the distinguishing
feature is that, here brass and copper are not mentioned as separate items in the Import Tariff. It is
because of the absence of such specific, separate specification of these two items that the question
arises whether, under Heading No. 74. 01/02, 'Copper Waste and Scrap', includes 'brass scrap'.
Reliance was also placed by the appellants on certain exemption Notifications, referred to earlier, as
affording intrinsic evidence to show the contemporaneous understanding of the framers of such
Notifications. True, that such understanding is a legitimate aid to interpretation but, we cannot
decide the question of classification of goods under the 'Import Tariff' by implications, when there
are Rules of Interpretation which are specially framed to aid and assist the classification of goods
under appropriate Headings. Those rules must have precedence over other aids of interpretation.
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% 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% only.
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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 26 A 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 appellants' argument being that it cannot be so regarded, has
already been answered by us in the affirmative. The production of waste and scrap is a necessary
incident of the manufacturing process. It may be true to say that no prudent businessman will
intentionally manufacture waste and scrap. But, it is equally true to say that waste and scrap are the
by-products of the manufacturing process. Sub-standard goods which are produced during the
process of manufacture may have to be disposed of as 'rejects' or as scrap. But they are still the
products of the manufacturing process. 'Intention' is not the gist of the manufacturing process. We
have already dealt with this aspect of the matter and do not consider it necessary to elaborate upon
it any further.
The argument of legislative competence of the Parliament is a facet of the same contention. Section
3 of the Act of 1944 brings to duty excisable goods produced or manufactured in India. Section 2 (d)
of the Act defines 'excisable goods' to mean goods which are specified in the First Schedule as being
subject to a duty of excise. Therefore, the goods mentioned in the First Schedule will attract excise
duty under section 3 only if they are manufactured in India and not otherwise. Entry 26A (1b) of the
First Schedule of the Act of 1974 cannot be held to be beyond the legislative competence of the
Parliament because, the pre-condition of the excisability of the articles mentioned therein, namely,
waste and scrap, is in the manufacturability of those articles. Since the production of waste and
scrap is an integral part and an inevitable incident or the manufacturing process, Parliament has the
legislative competence to make 'waste and scrap' excisable under Entry 84 of List I of the Seventh
Schedule to the Constitution, which relates to 'Duties of excise on Tobacco and other goods
manufactured or produced in India", except certain intoxicants and narcotics.
On the question of the legislative competence of the Parliament to incorporate Entry 26A (1b) in the
First Schedule to the Act of 1944, it must be added that the proper approach is to determine whether
the subject-matter of a legislation falls in List II, the State List, which is the only field which the
parliament cannot enter. If it does not fall in List II, Parliament would have the legislative
competence to pass the law by virtue of Article 248 read 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 and
Union of India v. H. S. Dhillon The cases relied upon by the appellants, namely, The Hingir-Rampur
Coal Co. Ltd. v. The State of Orissa, Kalyani Stores v. The State of Orissa, A. B. Abdul Kadir v. State
of Kerala and Mc. Dowell & Company Ltd. v. Commercial Tax Officer, VII Circle, Hyderabad, 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.
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We may sum up our conclusions thus : (1) The charging section under which duties of customs are
leviable is section 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 character as the Customs duty since, it is in addition to the duty which is leviable under
section 12 of the Customs Act, 1962, the rates for which are prescribed by section 2 of the Tariff Act,
1975. The duty mentioned in section 3 (1) of the Tariff Act, 1975 is not countervailing duty. (3)
Section 3 (1) of the Tariff Act, 1975 provides a measure of the additional duty, which has to be "equal
to the excise duty" leviable on a like article if produced or manufactured in India, as defined in the
Explanation to that section. The measure of a tax or duty cannot determine its nature or character.
(4) The brass scrap which is imported into India by the appellants is liable to the levy of additional
duty mentioned in section 3 (1) of the Tariff Act, 1975 because, the taxable event is the import of the
goods into India and not their manufacture. (5) The duty referred to in section 3 (1) of the Tariff Act,
1975 is, therefore, leviable even if the goods imported into India are not capable of being
manufactured in India or are not in fact manufactured in India. (6) The expression "excise duty for
the time being leviable on a like article if produced or manufactured in India", which occurs in
section 3 (1) of the Tariff Act, 1975 means excise duty for the time being in force which would be
leviable on a like article if produced or manufactured in India or, if a like article is not so produced
or manufactured, which would be leviable on the class or description of articles to which the
imported article belongs. (7) Even if the duty referred to in section 3 (1) of the Tariff Act, 1975 is
regarded as in the nature of a countervailing duty, the brass scrap imported by the appellants would
still be liable to the levy of that duty. The reason is that scrap or waste is a by-product of
manufacture and, is an integral part and an inevitable incident of the manufacturing process. Brass
scrap is manufactured or happens to be manufactured in India. It is well-known as a marketable
commodity, both of Indian and foreign origin. The brass scrap produced in India must receive
protection by the imposition of a countervailing duty on imported brass scrap.
(8) The brass scrap imported by the appellants falls under Exemption Notification No. 97 dated
June 25,1977 and not under Exemption Notification No. 156 dated July 16, 1977. The reason is
two-fold: one, that within the meaning of Heading No. 74. 01/02 of the First Schedule to the Tariff
Act, 1975, brass scrap is not a 'Master alloy'; and two, that it is comprehended within the expression
copper waste and scrap' in that Heading. The appellants are, therefore, entitled to exemption from
duty of customs to the extent of 20% only and not to the extent of 60%. (9) Clause (1b) of Entry 26A
of the First Schedule to the Central Excises and Salt Act, 1944 is not ultra vires section 3 (1) of that
Act. The reason is that 'waste and scrap' referred to in that Entry is excisable to duty if it is produced
or manufactured in India. Waste and scrap are by-products of the process of manufacture and are
inevitable incidental to the manufacturing process. (10) The said Entry, namely, Entry 26A (1b) of
the First Schedule to the Act of 1944 is within the legislative competence of the Parliament because,
the duty of excise is attracted under the Central Excises and Salt Act, 1944, only if the goods are
produced or manufactured in India. The impugned provision falls within Entry 84, List I, of the
Seventh Schedule to the Constitution. Even otherwise, Parliament would have the legislative
competence to pass the law because of the combined operation of Article 248 and Entry 97, List I, of
the Seventh Schedule.
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In the result, the judgment of the High Court, which is marked with care, is confirmed and these
Appeals and the Special Leave petitions are dismissed with costs.
Writ Petition No. 3761 of 1982, in which Mr. Abdul Khadar appears, relates to 'copper fungicide'.
That Writ Petition was delinked from the other cases since the pleadings therein are not complete.
That Writ Petition and all other cases involving import of copper scrap may be listed for hearing at
an early date.
A.P.J. Appeals and Petitions dismissed.
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