Holding

Zinc dross and flux skimming are not excisable goods as they are not manufactured products, and the existence of a specific tariff entry for "ash and residues" does not by itself render them liable to excise duty.

Summary

The Commissioner of Central Excise appealed against the CESTAT order that held zinc dross and flux skimming, by-products of aluminium sheet manufacture, to be non‑excisable. The Revenue argued that the revised Central Excise Tariff (heading 26.20) now classifies such residues as "ash and residues" and that their high aluminium content and marketability make them taxable. The Court examined whether the presence of a specific tariff entry alone converts a waste material into a manufactured product liable to duty, emphasizing the statutory definition of "manufacture" as requiring a transformation resulting in a new article with a distinct character or use. It held that dross, despite containing metal and being saleable, is not a manufactured product and the tariff entry does not create a legal fiction rendering it dutiable. Consequently, the appeal was dismissed and the CESTAT decision affirmed.

Issues considered

Whether zinc dross and flux skimming are excisable goods under the Central Excise Tariff Act, 1985 in view of the revised heading 26.20.
Whether the presence of a specific tariff entry for "ash and residues" makes such residues liable to excise duty.
Whether the marketable value or metal content of dross transforms it into a manufactured product for tax purposes.

Legislation cited

Central Excise Tariff Act, 1985s. Section XV

Subjects

excise dutydutiabilityzinc drossflux skimmingmanufactureCentral Excise Tariffash and residueswaste and scraptariff classification

Judgment

A COMMISSIONER OF CENTRAL EXCISE
v.
MIS. INDIAN ALUMINIUM CO. LTD.

SEPTEMBER 29, 2006

B (S.B. SINHA AND DAL VEER BHANDARI, JJ.)

Central Excise Tariff Act, 1985-Heading 26.20 'zinc dross' and 'flux
skimming '-Dutiability-The articles previously held to be 'waste and scrap'
not exigible to duty by Supreme Court-Subsequent changes in the tarijf-
C Revenue demanding duty on the same on the ground that the articles contained
high percentage of metal and the same were marketable-Held: The articles
are not dutiable as they are not manufactured products-The commodity is
not exigible for tax only because it has saleable value and contains high
percentage of metal.
D
Words and Phrases: · Manufacture'--Meaning of

The question for consideration in the present case was whether 'zinc
dross' and 'Dux skimming' which were extracted in the process of manufacture
of aluminium sheets by the respondents are excisable articles. The Tribunal
E relying on Indian Aluminium and Tata Iron and Steel cases held that the same
were not excisable.

In appeal to this Court appellant-Revenue contended that the articles
are excisable as the same are ash and residue in view of chapter heading 26.20
of Central Excise Tariff, and since they are marketable commodity containing
F high percentage of aluminium and that the Indian Aluminium case was not
applicable as at the time that judgment was rendered there was no specific
entry for dross.

Dismissing the appeal, the Court

G HELD: I. Only because there now exists a specific entry in the Central
Excise Tariff by way of 'ash and residue', the same would not by itself make
dross subject to payment of excise duty although no manufacturing process
was involved. (892-D(

I-I 886
COMMNR. OF CENTRAL EXCISE 1•. INDIAN ALUMINIUM CO.LTD. [SINHA, J.] 887
2. The entry in question does not contain any legal fiction. It does not A
say that any residue having more than a certain percentage of the metal would
be deemed to have been manufactured or would be excisable. Records
maintained by respondent whereupon the Revenue has relied upon may be a
relevant factor to identi.fy 'dross' as a marketable commodity but then
percentage of the metal in dross may not by itself make it excisable, if it is B
otherwise not. An article is notexigible to tax only because it may have some
sal~able value. !892-EI

·3. It may be that dross no longer answers the description of"waste and
scrap" in view of the changes made in the Tariff. It is, however, almost well-
settled that even if some percentage of metal is found in the dross the same C
in absence of something more in the entry would not be ~endered as an
excisable article. Even assuming that dross having a high percentage of metal
is a marketable commodity, the question would arise as to whether the same
can be said to be a manufactured product. The term 'manufacture' implies a
change. Every change, however, is not a manufacture. Every change of an article
may be the result of treatment, labour and manipulation. But manufacture D
would imply something more. There must be a transformation; a new and
different article must emerge having a distinctive name, character or use.
1892-F, H; 893-Al

Union of India and Ors. v. Indian Aluminium Co. Ltd. and Anr., (1995)
Supp 2 SCC 465 and Collector ofCentral Excise, Patna v. Tata Iron and Steel E
Co. Ltd, [2004) 9 SCC 1, relied on.

Union of India and Anr. v. Delhi Cloth and General Mills Co. Ltd., AIR
1963 SC 791, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 240 of2005. F

From the final Order No. 645/04-NB(A) dated 25.6.2004 of the CESTAT,
New Delhi in Appeal No. E/4126/30-NB(A).

Gopal Subramanium, A.S.G.., T.S. Murthy, Raghavendra Rao, P.
Parmeswaran and B. Krishna Prasad for the Appellant. U
V. Lakshimkumaran, Raj esh Kumar and Alok Yadav for the Respondent.

The Judgment of the Court was delivered by ·

S.B. SINHA, J. \Vhether zi11~, ~!irs\~d:fl~~}~'.11i?~ are excisable H
. /- •. - - , 1,· ~-~~;·;-·'::
888 SUPREME COURT REPORTS (2006) SUPP. 6 S.C.R.

A articles is the question involved in this appeal, which arises out of a judgment
and order dated 25.06.2004 passed by the Customs, Excise & Service Tax
Appellate Tribunal, New Delhi, allowing the appeal filed by Respondent
herein.

Respondent herein manufactures aluminium sheets, the raw material
B wherefor is aluminium oxide. In the melting furnance, the top layer of the
molten metal is exposed to atmosphere and gets oxidized. As a result of
oxidation, a thin layer/ film is formed which is removed by skimming. The
second layer so removed is called dross. Indisputably, the percentage of metal
in dross will vary and there would be some quantity of aluminium metal
C therein.

Whether excise duty is payable on 'dross' came up for consideration
before a Bench of this Court in Respondent's own case i.e. in Union of India
and Ors. v. Indian Aluminium Co. Ltd. and Anr., (1995] Supp 2 SCC 465 :
( J995) 77 EL T 268. The said decision has been followed by a 3-Judge Bench
D of this Court in Collector of Central Excise, Patna v. Tata Iron & Steel Co.
Ltd., (2004J 9 sec 1.

The Tribunal by reason of its impugned" judgment following Indian
Aluminium (supra) and Tata Iron and Steel Co. Ltd, (supra) opined that the
issue is covered by the said decisions.
E
Mr. Gopal Subramanium, learned Additional Solicitor General appearing
on behalf of Appellant inter alia raised a contention that Indian Aluminium
(supra) and consequently Tata Iron and Steel Co. Ltd., (supra) do not lay
down a good law having regard to the fact that the classification of ' dross'
under the Central Excise Tariff Act, has been changed. It is, thus, no longer
F a waste or scrap but would come within the purview of' ash and residue'. The
learned Additional Solicitor General would submit that Indian Aluminium
(supra) proceeded on the basis that dross was a waste material and it was
not marketable, whereas in fact it is not only marketable but in fact contains
high percentage and in some cases upto 78% of aluminium. It is the contention
G of the learned Additional Solicitor General that the value of dross is sometimes
more than the value of the aluminium itself and thus, it will come within the
purview of the term "goods".

Per contra, Mr. V. Lakshmikumaran, learned counsel appearing on behalf
of Respondent, argued that dross is not a manufactured item. It may be a
H produce in the process of manufacturing but that by itself would not make
COMMNR. OF CENTRAL EXCISE v. INOIAN ALUl.llNIUM CO.LTD. 889
·it a manufactured product. A
Chapter 26 of Central Excise Tariff deals with ores, slag and ash. Sub-
heading 2620.00 of Heading 26.20 of the said Chapter reads as under:
"Heading Sub-Heading Description of goods Rate of duty

2620 2620.00 Ash and residues (other 16% B
than from the manufacuter
of iron or steel), containing
metals or metal compounds)

Paragraph 3 of the Chapter Note states that the said Heading applies
only to ash and residues of a kind used in industry either for extraction of C
metals or as a basis for the manufacture of chemicals compounds of metals.

Section XV of the Central Excise Tariff deals with base metals and
articles of base metal. Note 8 defines waste and scrap to mean "metals waste
and scrap from the manufacture or mechanical working of metal, and metal D
goods definitely not usable as such because of breakage, cutting-up, wear or
other reasons. Chapter 76 deals with aluminium and articles thereof. 'Aluminium,
not alloyed' is defined to mean metal containing by weight at least 99% of
aluminium, provided that the content by weight of any other element does not
exceed the limit specified therein. 'Aluminium waste and scrap' comes within
the purview of Sub-Heading Nos. 7602.10 and 7602.90 of Heading 76.02 which E
read as under:

"Heading Sub-Heading Description of goods Rate of duty
76.02 Aluminium waste and scrap
76.02.10 Waste and scrap used within Nil F
the factory of production for
the manufacture of
unwrought aluminium plates
and sheets
76.02.90 Others 16%
G
Explanatory Note in respect of 'aluminium waste or scrap' reads, thus:

"76.02 - Aluminium Waste or Scrap. - The provisions concerning
waste and scrap in the Explanatory Note to heading 72.Q4 apply,
mutatis mutandis, to this heading.
H
890 SUPREME COURT REPORTS [2006] SUPP. 6 S.C.R.

A Aluminium waste and scrap is an important source of raw material
for the aluminium industry. It is also used as a de-oxidising or de-
carburising agent in metallurgy.

The heading does not cover:

(a) Slag, dross, etc., from the manufacture of iron or steel containing
B
recoverable aluminium in the fonn of silicates (heading 26.18 or 26.19).

(b) Ash and residues from the manufacture of aluminium (heading
2620)

(c) Ingots and similar unwrought fonns, cast from remelted aluminium
c waste and scrap (heading 76.0 I)."

In Indian Aluminium (supra), the contentions of Respondent were
noticed in the following terms:

"(I) that aluminium dross and skimmings are finished excisable goods
D produced by the assessees which are exempted from the whole of the
duty of excise leviable thereon or are chargeable to nil rate of duty,
and (2) a proportionate credit should not be allowed to the assessees
in respect of the excise duty paid on that portion of aluminium ingots
which "result in the manufacture" of aluminium dross and skimmings.
This argument proceeds on the assumption that aluminium dross and
E skimmings are finished excisable goods. If one looks at the definition
of excisable goods, it is clear that aluminium dross and skimmings
were not in the First Schedule to the Central Excises and Salt Act,
1944 at the relevant time and are not excisable goods, finished or
otherwise."
F
Noticing that aluminium dross does arise during the process of
manufacture, this court held:

"The entire quantity of raw material, namely, duty-paid aluminium
ingots procured by the assessees from outside was used in the
G manufacture of aluminium sheets. It is nobody's case that the aluminium
sheets which were manufactured by the assessees could have been
manufactured out of a lesser quantity of aluminium ingots than what
was actually used. In the process of manufacture, dross and skimmings
had to be removed in order that aluminium sheets of the requisite
quality could be manufactured. This does not mean that the entire
H
COMMNR. OF CENTRAL EXCISE,., INDIAN ALUMINIUM CO. LTD. [SINHA, J.] 89 J
quantity of aluminium ingots was not used for the manufacture of A
aluminium sheets. In the course of manufacture, a certain quantity of
raw material may be lost because of the very nature of the process .
of manufacture or some small quantity of raw material may fonn part
of wastage or ashes. This does not mean that the entire raw material
was not used in the manufacture of finished excisable products. An
exact mathematical equation between the quantity of raw material B
purchased and the raw material found in the finished product is not
possible, and should not be looked for."

What is the meaning of dross is the core question.

In Indian Aluminium (supra), this Court noticed the meaning of the tenn C
'dross' in the following tenns:

"The tenn ' dross' is defined in The New Shorter Oxford English
Dictionary as:

"Dross, dregs ... (I) Impurities separated from metal by melting the D
scum which fonns on the surface of molten metal .... (2) Foreign matter
mixed with anything .... (3) Refuse, rubbish, worthless matter especially
as contrasted with or separated from something of value."

The ASM Metals Reference Book (2nd Edn., 1983) produced by the
American Society for Metals defines 'dross' as follows: E
"The scum that forms on the surface of molten metals largely because
of oxidation but sometimes because of the rising of impurities to the
surface."

McGraw Hill Dictionary of Science and Engineering (1984 Edn.) f
defines it as:

"An impurity, usually an oxide, fonned on the surface of molten
metal.'"'

The decision of this Court in Indian Aluminium (supra), it is submitted, G
is no longer good law, as:

• (a) There was no specific entry for dross when the decision was
rendered by this Court whereas Chapter heading 26.20 covers
the-same.
(b) Dross and skimming are not thrown out but are preserved for H
892 SUPREME COURT REPORTS (2006] SUPP. 6 S.C.R.

A further sale.

The contention of Respondent, on the other hand, are:

(i) Appellants are not extracting metal from dross. f

(ii) The content of metal in dross is immaterial.
B (iii) Dross is not comparable to metal or waste.
(iv) The issue as to the dutiability of dross was settled by this Court
in Indian Aluminium (supra). Thereafter, the Tribunal after
considering Tariff Heading 26.20 held that dross was not dutiable.

C Tariff Heading 26.20 was introduced with effect from 13 .1986. It is not
waste but it comes under the heading 'ash or residue'. It may be true that
the old tariff did not contain a specific entry as regards dross' when the
decision of this Court was rendered but the question which arises for
consideration is whether only because there now exists a specific entry in the
D Central Excise Tariff by way of 'ash and residue, would the same by itself
make 'dross' subject to payment of excise duty although no manufacturing
process is involved.

The entry in question does not contain any legal fiction. It does not say
that any residue having more than a certain percentage of the metal would
E be deemed to have been manufactured or would be excisable.Records
maintained by Respondent whereupon the Revenue has relied upon may be
a relevant factor to identify 'dross' as a marketable commodity but·then
percentage of the metal in dross may not by itself make it excisable, if it is
otherwise not. An article is not exigible to tax only because it may have some •
saleable value.
F
It may be that dross no longer answers the description of "waste and
scrap" in view of the changes made in the Tariff. It is, however, almost well-
settled that even if some percentage of metal is found in the dross the same
in absence of something more in the entry would not be rendered as an
G excisable article. This Court in Indian Aluminium (supra) in fact noticed that
some amount of metal is found in dross and skimming. A distinction, however,
was made that dross and skimming are not metals in the same class as 'waste
or scrap'. Even assuming that dross having a high percentage of metal is a •
marketable commodity, the question, in our opinion, would arise as to whether
the same can be said to be a manufactured product. The term 'manufacture'
H implies a change. Every change, however, is not a manufacture. Every change
COMMNR. OF CENTRAL EXCISE'" INDIAN ALUMINIUM CO.LTD. [SINHA, J.] 893
of an article may be the result of treatment, labour and manipulation. But A
manufacture would imply something more. There must be a transformation;
a new and different article must emerge having a distinctive name, character
or use. See Union of India and Anr. v. Delhi Cloth and General Mills Co.
.. Ltd, AIR (1963) SC 791.

We have noticed hereinbefore as to how dross comes into being. The B
learned Additional Solicitor General submitted that in Indian Aluminium (supra)
itself this Court held that "undoubtedly dross and skimming do arise during
the process of manufacture', but, it was not held therein that it amounts to
manufacture.

In Tata Iron and Steel Co. Ltd. (supra), on the other hand, this Court c
noticed that dross and skimming are capable of being sold. This Court
furthermore opined that only because the article may have some saleable
,.
value, the same would not render it to be 'a manufactured product'.

This Court clearly opined:
D
"This Court, in conclusion, held that the onus to show that particular
goods on which excise duty is sought to be levied have gone through
the process of manufacture in India is on the Revenue and that the
Revenue have done nothing to discharge this onus."

It was further held: E

"In our opinion, this Court in Indian Aluminium Co. Ltd. has held that
.. merely selling does not mean dross and skimming are a marketable
commodity as even rubbish can be sold and everything, however,
which is sold is not necessarily a marketable commodity as known to
F
commerce and which, it may be worthwhile to trade in. The issue
involved in this case is governed by the past decisions of the Tribunal
and also of this Court where the Tribunal and this Court held that the
zinc dross and skimming arising as refuse during galvanisation process
are not excisable goods. The Tribunal, in our opinion, has rightly
relied upon the decision of this Court in Indian Aluminium Co, Ltd. G
and in view of the above decision of the Tribunal following this
Court's opinion in Indian Aluminium Co. Ltd. we disagree with the
·• appellants that zinc dross, flux skimming and zinc scalings are goods
and hence excisable."

In this case also, it has not been contended that the article was obtained H
894 SUPREME COURT REPORTS [2006) SUPP. 6 S.C.R.

A during the process of manufacture. It was faintly suggested by the learned
Additional Solicitor General that the proposition of law in Tata Iron and Steel
Co. Ltd. (supra) has been overstated, but in view of our findings aforesaid
we do not think that we should enter into the said question.

For the reasons aforementioned, we find no merit in this appeal which
B is dismissed accordingly. No costs.

K.K.T. Appeal dismissed.