M/S. L.M.L. LIMITEDversusCOLLECTOR OF CENTRAL EXCISE, KANPUR

                          MIS. L.M.L. LIMITED                                     A
                                      v.
          COLLECTOR OF CENTRAf. EXCISE, KANPUR

                            AUGUST 21, 1997
                                                                                  B
               (J.S. VERMA, CJ. AND B.N. KIRPAL, J.)

      Central Excises and Salt Act, 1944-Chapter 72-Central EXcise
Rules-Rule 4-Tariff items 72.03, 72.10, 72.12--0ff-cuts or portions of
steet-Used in the manufacture of small parts of scooters-Classification
of-Whether can be treated as steel sheets fa/ling under 7212.5(}-Held, . C
11~The off-cuts being different sizes and shapes, classified as shapes falling
under 7210.10.

      The appellant is a manufacturer of scooters and parts and acees-
sories thereof. The appellant purchased duty paid steel sheets under Tariff       D
heading 7212.50. The MODVAT credit scheme was introduced in March
1986 to give the benefit of set off for the duty already paid against the duty
payable by them on the scooters as well as parts and accessories thereof.
After usage, of the steel sheets, the Appellant was using some remaining
portions of "off-cuts" for manufacture of small parts of scooters.
                                                                                  E
       The Respondent demanded that the off-cuts being fit to be used for
the Jl!anufacture of further articles they should be classified as steel sheets
and that they should have been cleared at the l"dte of duty at which they
were brought in the factory and credit taken.

      Before the Assistant Collector the appellant contended that it was F
only some portions of off-cuts which were used for manufacture of small
parts, that these portions or off-cuts cannot be classified as sheets and that
their classification would be that of waste and scrap under Tariff item
7203.20. The Assistant Collector rejected the contention of the Appellailt
and the appeals before Collector (Appeals) and the Tribunal were dis~ G
missed.

       In appeal to this court it was contended by the Appellant that after
the sheets have been cut and used for the manufacture of scooter, the part
which remains is only waste and scrap, that it is only some of these pieces
of steel which is nsed for the manufacture of ancillary items and that the        H
                                     507
     508                   SUPREME COURT REPORTS [1997) SUPP. 3 S.C.R.

A correct tariff heading under which these pieces would fall is 7203.20 at Rs.
     365 per ton or under 7210.10.

           The Respondents contended that the appellant bought sheets and
     had claimed credit at the rate of Rs. 715 per ton and that now when the
     parts thereof are used in manufacture of other items these portions or
B    off-cuts would be classified under 7212.12.

           Allowing the Appeal, this Court

           HELD : 1. The off-cuts which are used would clearly answer to the
     expression "shape" contained in tariff item 72.10. It is clear that the off-cuts
C    which are odd shaped and are used by the appellant do not answer to the
     description of sheet but can only be regarded as "shapes" falling under tariff
     entry 7210.10. [512-C]

           2. The off-cuts which remain after the parts of the scooter had been
     manufactured by using the steel sheets no longer retain their rectangular
D    shapes. These off-cuts which are of different shapes and sizes would clearly
     fall under the tariff entry 72.10. [512-B]

           3..The portions of cut sheets which are not used for recovery of metal
     or in the manufacture of chemicals cannot be cleared under tariff items
E    72.03. [511-G-HJ

          4. The appellant is entitled to clear the off-cuts of steel sheets by
     paying duty under tariff entry 72.10 at the rate of Rs. 365 per ton. [512-E]

            CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3239 of
F 1989.
           From the Judgment and Order dated 2.5.89 of the Customs Excise
      and Gold (Control) Appellate Tribunal, New Delhi in Appeal No.
      E/3414/87-B in (Order No. 46 of 1989-B).

            Joseph Vellapally, R. Santhanam and KJ. John for the Appellant.
 G
            A. Subba Rao, Mrs. Dipti Jain, V.K. Bajpai for P. Parmes~aran Adv.
      for the Respondent.

            The Judgment of the Court was delivered by

 H          KIRPAL, J. The appellant is engaged in the manufacture and sale of
                L.M.L. LTD. v. C.C.E. KANPUR [KIRPAL,J.]                   509

  two-wheeler vehicles and it has been granted central excise licence by the      A
  respondent for the manufacture of the scooters together with the parts and
· accessories.

        For the purpose of manufacturing of scooters and parts and acces-
 sories thereof the appellant purchases duty paid steel sheets on which the
 duty of excise at the rate of Rs. 715 per ton is paid by it under Tariff         B
 Heading 7212.50. With effect from 1st March, 1986 the Modvat Credit
 Scheme was introduced to give credit to the manufacturers in respect of
 the duty of excise already paid by them and allow them the benefit of set
 off of such credit of duty already paid against the duty payable by them on
 the scooters as well as parts and accessories thereof.                           C

       After working of these sheets for the manufacture of parts of scooters
 some portions of the sheets remain. Some of these portions are used by
 the appellant for the manufacture of small parts of the scooters.

        The dispute which arises in the present case is as to how should these    D
 portions be classified. According to the respondent these portions, which
 the Tribunal has for the sake of convenience described as 'off-cuts', being
 fit to be used for the manufacture of further articles are nothing but steel
 sheets and they should have been cleared at the rate of duty of which they
 were brought in the factory and credit taken, i.e., at the rate of Rs. 715 per   E
 ton. The contention of the appellant before the excise authorities was that
 it is only some portions of off-cuts, depending upon their sizes, which are
 used for the manufacture of some small parts of the scooter. These portions
 or off-cuts cannot be classified as sheets and their correct classification
 would be that of waste and scrap. According to the appellant the duty
 which is payable on waste and scrap of steel under the tariff item 7203.20       F
 is Rs. 365 per ton and it is at this rate that the duty should be claimed from
 it.

       The contention of the appellant was neither accepted by the assessing
 authority, i.e. Assistant Collector nor by the Collector Appeals. A second G
 appeal to the Tribunal met with the same fate, hence this appeal.

        On behalf of the appellant, Sh. Joseph Vellapally, learned senior
 counsel, has contended that after the sheets have been cut and used for
 the manufacture of scooter, the part which remains is only waste arid scrap.
 It is only some of these pieces of steel which is used for the manufacture       H
    510                  SUPREME COURT REPORTS [1997) SUPP. 3 S.C.R.

A of ancillary items and the correct tariff heading under which these pieces
    would fall is 7203.20, the rate being Rs. 365 per ton. In the alternative it
    was submitted by him that these cut pieces would fall under heading
    7210.10 The contention of Sh. A. Subba Rao, learned counsel for the
    respondent, however, was that the appellant had bought sheets and had
B   claimed credit at the rate of Rs. 715 per ton and now when parts thereof
    are used in manufacture of other items these portions of off-cuts would
    correctly be classified, under· heading 7212.32.

          It would, at this stage, be appropriate to set out the three competing
    entries. These are as follows :
c         "72.03 Waste and Scrap

            7203.10           - Of iron         Rs. 80 per tonne

            7203.20           - Of steel        Rs. 365 per tonne
D
            72.10       Angles, shapes and sections of iron or steel, not else-
                        where specified (other than slotted angles and slotted
                        channels). rolled, forged, extruded, formed, finished,
                        slotted angles.

E           7210.10     Angles, shapes and sections        Rs. 365 per tonne
                        (other than slotted angles
                        and slotted channels)

            7210.20     Slotted angles                      15%

F            72.12      Coils for re-rolling, sheets, plates, and universal plates
                        of iron or steel, hot or cold rolled whether galvanised
                        or not; forms such as ridges, channels (other than
                        slotted channels) made from sheets, plates. or universal
                        plates; and tin plates and tinned, lacquered or var-
G                       nished sheets including tin taggers and cuttings or such
                        plates, sheets or taggers; slotted channels

             7212.50    Cold-rolled sheets                  Rs. 715 per tonne"

         Rule 4 of the Excise Rules provides that "goods which cannot be
H classified in accordance with the above Rules, shall be classified under
               L.M.L. LTD. v. C.C.E. KANPUR [KIRPAL, J.]                 511

heading appropriate to the goods to which they are most akin". Chapter 72 A
of the Tariff Act deals with iron or steel. The expressions, waste and scrap,
angles, shapes and sections and sheet are among several expressions which
have been defined therein. These read as follows :

           "Waste and scrap :
        Waste and scrap of iron or steel fit only for the recovery of metal     B
        or for use in the manufacture of chemicals, but does not include
        slog, ash and other resides.

           Angles, shapes and Sections :
        Products which do not have cross-sections in the form of cirdes,        C
        segments of circles, ovals, isosceles triangles rectangles, hexagons,
        octagons or quadrilaterals with only two sides parallel and the
        other two sides equal, and which are not hollow.

           Sheets
        A hot or cold-rolled flat product, rolled in rectangular section of     D
        thickness below 5 millimeters and supplied in straight lengths, the
        width of which is at least hundred times the thickness and the edges
        are either milled, trimmed, sheared or flame cut and includes a
        corrugated sheet."

      Applying the principle contained in the aforesaid Rule 4 what has to ·
be seen is as to what is the appropriate heading to which the off-cuts which
are used by the appellants for the manufacture of ancillary items are most
akin. These expressions as contained in Chapter 72 of the Excise Act
should be read along with the tariff items contained in the same chapter.
                                                                                F   ,   .
      It is quite evident that those portions of cut sheets which are used in
the manufacture of ancillary items cannot be regarded as waste and scrap.
As per the aforesaid definition it is only 'waste and scrap' of iron or steel
which is fit only for the recovery of metal or for use in manufacture of
chemicals which could fall under that category. Those portions of cut G
sheets which are used in the manufacture of ancillary items cannot be
regarded as having been. used for recovery of metal or for use in the
manufacture of chemicals. This being so, those portions of cut sheets which
are ·not used for recovery of metal or in the manufacture of chemicals
cannot be cleared under tariff items 72.03. At the same time the definition
of the word 'sheet' as contained in Chapter 72 would clearly indicate that H
    512                   SUPREME COURT REPORTS (1997] SUPP. 3 S.C.R.

A the cut sheets which are used by the appellant do not fall undei: that
    category. The definition of sheet, inter alia, states that it has to be a hot or
    cold-rolled flat product, rolled in rectangular section of thickness below 5
    millimeters and supplied in straight lengths. It was not disputed that the
    off-cuts which remains after the parts of the scooter had been manufac-
B   tured by using the steel sheets no longer retain rectangular shapes. These
    off-cuts are of different shapes and sizes and, in our opinion, they would
    clearly fall under the tariff entry 72.10.

         The off-cuts which are used would clearly answer to the expression
  'shape' contained in tariff item 72.10. It does appear that the attention of
C the tribunal was not drawn to tariff entry 72.10 but on the facts, as found
  by the tribunal, it is clear that the off-cuts which are odd shaped and are
  used by the appellant do not answer to this description of sheet but, on the
  contrary, can only be regarded as 'shapes' falling under tariff entry 7210.10.
  The rate of duty of this is Rs. 365 per ton which is the same as that on
  waste and scrap of steel under tariff entry 7203.20. It is this duty of Rs. 365
D per ton which has to be paid by the appellant on those pieces of steel or
  off-cuts which are cleared by the appellant for use in the manufacture of
  ancillary items and not Rs. 715 per ton as demanded by the respondent.

          The appellant, therefore, was entitle to clear the off-cuts of steel
E   sheets by paying duty under tariff entry 72.10 at the rate of Rs. 365 per ton.
    Consequently, this appeal is allowed and the orders of the Tribunal as well
    as the Assistant Collector and Collector, Appe<:ls, are set aside. There will
    be no order as to costs.

    V.M.                                                          Appeal allowed.