Metal Scrap and waste generated while repairing worn out machinery – not manufacture - not excisable: SC
IN every factory, old machines are worn out and when they are removed or repaired, metal scrap is bound to be generated. Now, is this metal scrap excisable? There are occasions when the Department had demanded duty on scrap generated while demolishing a shed. A Commissioner even held that withering of metals in the factory by nature would amount to manufacture!
In a judgement delivered yesterday, the Supreme Court emphatically held that metal scrap or waste generated while repairing of worn out machineries do not amount to manufacture and so are not excisable. The Supreme Court observed that the goods have to satisfy the test of being produced or manufactured in India. It is settled law that excise duty is a duty levied on manufacture of goods. Unless goods are manufactured in India, they cannot be subjected to payment of excise duty. Simply because a particular item is mentioned in the First Schedule, it cannot become exigible to excise duty.
The Supreme Court further noted that the charging Section 3 of the Act comes into play only when the goods are excisable goods under Section 2(d) of the Act falling under any of the tariff entry in the Schedule to the Tariff Act and are manufactured goods in the terms of Section 2(f) of the Act. Therefore, the conditions contemplated under Section 2(d) and Section 2(f) has to be satisfied conjunctively in order to entail imposition of excise duty under Section 3 of the Act. The manufacture in terms of Section 2(f) includes any process incidental or ancillary to the completion of the manufactured product. This 'any process' can be a process in manufacture or process in relation to manufacture of the end product, which involves bringing some kind of change to the raw material at various stages by different operations.
The Act charges duty on manufacture of goods. The word ‘manufacture' implies a change but every change in the raw material is not manufacture.
Keeping up our tradition of bringing important Supreme Court judgements to you the day after they are delivered, we bring you today this important judgement delivered yesterday.