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Tata Iron & Steel Co. Ltd. v. Collector Of Central Excise .
Factual and Procedural Background
The appellant is a manufacturer of iron and steel products. In the course of its manufacturing process, various kinds of steel scrap emerged. This scrap was supplied to M/s Tata Yodogawa Ltd. after the payment of central excise duty, converted by that company into ingots through re-melting, and ultimately re-used by the appellant itself as raw material.
The Central Excise authorities sought to classify this scrap under Item 26-AA of the Central Excise Tariff Schedule (duty: Rs 350 per metric tonne, covering “iron or steel products” such as semi-finished steel). The appellant, however, contended that the material was “steel melting scrap” falling under Item 26 (duty: Rs 100 per metric tonne, covering “Steel Ingots including Steel Melting Scrap”).
The Central Excise and Gold (Control) Appellate Tribunal (CEGAT) upheld the departmental view, treating the scrap as a form of sub-standard semi-finished product dutiable under Item 26-AA. The appellant challenged that decision, giving rise to the present appeals.
Legal Issues Presented
- Whether the steel scrap generated by the appellant qualifies as “steel melting scrap” dutiable under Item 26, or as “semi-finished steel” dutiable under Item 26-AA of the Central Excise Tariff Schedule.
Arguments of the Parties
Appellant's Arguments
- The scrap, being re-melted into ingots and not usable in its existing form, is “melting scrap” squarely falling under Item 26.
- In commercial parlance, “scrap” signifies waste material and cannot be equated with “semi-finished steel products” listed in Item 26-AA.
- Classifications based on size or Controller of Iron & Steel price circulars are irrelevant for tariff purposes.
Department's/Tribunal's Position
- Reliance on price circulars that divided scrap into industrial, re-rolling and melting categories, suggesting that the appellant’s scrap was not “melting scrap” because of its size.
- Treatment of the material as akin to “sub-standard blooms, slabs or bars,” thereby bringing it within the expression “semi-finished steel” under Item 26-AA.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court focused on the statutory language and commercial understanding of the competing tariff entries:
- Nature of Items 26 and 26-AA: Item 26 covers raw materials such as steel ingots and explicitly includes “steel melting scrap,” whereas Item 26-AA covers “iron or steel products,” specifically enumerating semi-finished goods like blooms and billets.
- Commercial Meaning of Scrap: In common trade usage, “scrap” denotes waste material, not serviceable without further processing. The Court drew a clear line between such scrap and semi-finished products that are already shaped into serviceable forms, even if sub-standard.
- Re-melting Purpose: The undisputed fact that the appellant’s scrap was actually re-melted and converted into ingots confirmed its character as “melting scrap.”
- Rejection of Size-Based Classification: A letter from the Director of Inspection (Metallurgical) questioned the rationality of classifying scrap solely on size. The Court accepted that size cannot transform scrap into a semi-finished product for tariff purposes.
- Irrelevance of Price Circulars: Price-fixation circulars issued by the Controller of Iron & Steel were held to be extraneous to the interpretation of tariff entries under the Central Excises and Salt Act, 1944.
- Tribunal’s Errors: By relying on price circulars and size considerations, the Tribunal conflated “scrap” with “sub-standard products,” leading to an incorrect application of Item 26-AA.
Holding and Implications
Holding: The appeals are allowed; the order of the Central Excise and Gold (Control) Appellate Tribunal is set aside. The scrap cleared by the appellant is “re-melting scrap” dutiable under Item 26 of the Tariff Schedule.
Implications: The decision reduces the duty liability of the appellant from the higher rate under Item 26-AA to the lower rate under Item 26 and clarifies that, for tariff classification, steel scrap intended for re-melting cannot be treated as semi-finished steel merely because of its dimensions or price circular categorisation. The ruling is confined to the interpretation of these specific tariff entries and does not announce any broader doctrinal change.
R.M Sahai, J.— The only dispute that arises for consideration in these appeals directed against the order of Central Excise and Gold (Control) Appellate Tribunal is whether scrap obtained by the appellant in course of manufacture of iron and steel and steel products was dutiable under Item 26 or Item 26-AA of the Tariff Schedule.
2. Since facts are not in dispute, and the duty is sought to be levied on scrap obtained by the appellant in course of manufacture of iron and steel products and supplied by it to M/s Tata Yodogawa Ltd. on payment of duty for conversion of scrap into ingots after re-melting which was actually re-melted and re-used by the appellant as ingot, it is appropriate to extract the two entries relating to steel ingots and iron or steel products:
“26. Steel Ingots including Steel Melting Scrap. Rs 100 per metric tonne. 26-AA. Iron or steel products, the following namely: Rs Three hundred and fifty per metric tonne (i) Semi-finished steel including blooms, billets, slabs, sheet bars, tin bars and hoe bars. (ii)—(v) ***”
Item 26 levies duty on raw material. In commercial parlance steel ingots are used for producing steel products. Raw melting scrap serves the same purpose. Item 26-AA deals with iron and steel products. What are those products is mentioned in clauses (i) to (v) of the item. These appeals are concerned with the scope of clause (i). It deals with semi-finished steel. A semi-finished product is one which requires some further work or treatment to become serviceable. But it cannot apply to scrap as it is normally understood as something which is not serviceable. Even the Tribunal held that scrap produced by appellant “did not strictly answer to the description but they can resemble or closely resemble them, qualifying to be called substandard blooms or slabs or bars or channels”. But a substandard article is not scrap as understood in commercial parlance or trade circle. Two reasons have been given by the Tribunal for including scrap of iron and steel in Item 26-AA — one, price circular issued by Controller of Iron and Steel classifying scrap into industrial, re-rolling and melting scrap and fixing different rates for each and other the size of scrap. The Tribunal held that even though scrap sold by the appellant to M/s Tata Yodogawa Ltd. was melted to produce ingots but that was not determinative of its character as what was melted was not melting scrap because of its size, therefore, it did not attract levy under Item 26 but under Item 26-AA being something like substandard goods.
3. When the matter was pending in appeal the Assistant Collector of Central Excise wrote a letter to the Director of Inspection (Metallurgical), Jamshedpur, requesting him to give his views whether the scrap sold by the appellant under agreement to different parties for manufacturing steel ingots out of the scrap could be described as re-melting scrap as the Department on examining the invoices found that maximum length of such scrap of various products like rails, billets, plates, lee, channels, angles, beams etc. were only up to 1.5 metres and such scrap, according to Iron and Steel Controller's specification of 1959, could not be classified as re-melting scrap. This letter was replied by the Director and it was mentioned that from the letter sent by the Assistant Collector it appeared that the size and dimension of the scrap was taken as the sole yardstick for classification and, “if that be the case then the classification of scraps solely on the basis of size factor can hardly be considered a very rational classification”. The Director further was of the opinion that “the steel manufacturing operations generate scrap which is in turn re-used not only in the steel-making process but also in plant furnaces and cupolas. This scrap is called process scrap or ‘arisings’ of steel mills. Cuttings of rails, billets, plates, axles, channels etc. supplied to M/s Tata Yodogawa Ltd. are ‘arisings’ of TISCO's mills. These scraps (process scrap) are usually treated as melting scraps in developed countries as well as in India. There are different grades of melting scrap — heavy, medium and light”. He further observed that the technology has changed and in view of the developments in iron and steel industry the size factor could not always be main criterion for the classification of steel scraps.
4. Although this letter is not relevant but it goes to demonstrate that size of the scrap is not determinative whether it was melting scrap or not. ‘Scrap’ according to dictionary means “a small piece cut or broken from something; fragment”. In commercial parlance ‘scrap’ is normally understood as ‘waste’. But it may be used for re-rolling or re-melting for bringing out raw material to be used for producing finished products. Under Entry 26-AA what is exigible to duty is semi-finished steel including blooms, billets, slabs, sheet bars etc. Semi-finished may mean between raw material and finished products. But it cannot be described as scrap. A substandard bloom or billet is steel bloom or billet. But the scrap of billet or bloom would not be the same thing as semi-finished product. In the commercial sense, scrap and semi-finished products cannot be understood in the same sense. The attempt of the Department, therefore, to levy duty on scrap under Item 26-AA was not correct.
5. Melting scrap is defined as:
“Scrap which cannot be used for any other purposes but can be charged into furnace for melting should be classified as melting scrap.”
The Tribunal held that since the appellant did not dispute that the scrap produced by the appellant could be industrial scrap, the scrap produced by it could not be taken to be re-melting scrap. Item 26 purports to levy duty on re-melting scrap. The Tribunal having found that the scrap produced by the appellant was remelted the products cleared by the appellant satisfied the test of being re-melting scrap.
6. Neither reason given by the Tribunal, therefore, appears to be sound. Price fixation by Controller of Iron and Steel could not furnish basis for interpreting the entry, for levying duty under the Central Excises and Salt Act, 1944. The Controller might have classified scrap depending on size and terming it as rolling, melting and industrial scrap but that could not render it as semi-finished steel products. Size of scrap may be relevant for fixation of price but it could not reflect on the nature of scrap.
7. In the result, the appeals are allowed and the order passed by the Tribunal is set aside. The question of law raised by the appellant is decided by saying that the scrap cleared by the appellant in each year having been melted and re-used as iron ingot was re-melting scrap dutiable under Item 26 of the Tariff Schedule.
8. The appellant shall be entitled to its costs.
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