Full Judgment
2. The appellants are manufacturers of electro-mechanical electronic components like switches, relays and potentiometers. The appellants purchase silver strips/coils containing 90% silver for purposes of fabricating precious metal contacts like the rotor blades, clips etc.
The process involve punching out the components from silver strips using presses and progressive tools. The portion of the strips remaining with holes corresponding to the outside shape of the component punched out is returned by the appellants to the supplier of silver strips for reprocessing them into strip form again. The appellants had been returning the remnant portion of silver strips till 1-3-1986 to the suppliers and were receiving them back after reprocessing under Rule 56C. At that time silver strips were dutiable at 12%. Rule 56C procedure was abolished from 1-3-1986 after the new tariff system was introduced grouping precious metals under Chapter 71.
Silver strips was also exempted from duty by Notification No. 53/86.
Thereafter appellants were sending the remnant portion of silver strips for reprocessing without payment of duty on the basis of Notification No. 53/86. Since silver material as such was an exempted item, appellants also filed classification list to that effect which was approved by the Assistant Collector.
3. The appellants were issued a Show Cause Notice dated 15-12-1987 asking them to show cause as to why duty of Rs. 5,69,415.42 on 934.087 Kgs. of silver strips despatched by them without payment of duty should not be demanded.
4. In reply the appellants explained that the material despatched by them for reprocessing could not be termed as 'scrap' or 'waste' as it was uncontaminated and was directly convertible to strip once again by melting and rerolling and it fetched the same market value of silver material.
5. In the adjudication which followed the Collector by the impugned order held against them and hence the present appeal.
6. Shri C. Harishanker, Advocate appeared for the appellants and Shri M. Jayaraman, JDR appeared for the respondent Collector. We heard the submissions made on both sides.
7. On behalf of the appellants it was submitted that the Collector's finding that the remnant portion of silver strips sent by the appellants for reconditioning was classifiable as 'scrap' was erroneous. Advocate submitted that the term 'scrap' normally meant something which was contaminated and was of lesser value than the original material. Scrap of metal can be made use . of only to a much lesser extent and that too after refining. As per the definition of waste and scrap given under Section XV and Chapters 72, 74, etc. of the Central Excise Tariff Act scrap is an item fit only for recovery of metal by remelting the same. In the case of the appellants the remnants were uncontaminated silver material. The remnants remelted for conversion into strip for purposes of punching them again. There was no loss of purity of the metal in the process of remelting and rerolling.
Therefore, the remnants sent back for remelting and rerolling fetched the same value as that of silver material in the market. Advocate also contended that if the argument of the Department was accepted it will result in a situation where duty became payable again and again on the same material until the whole quantity was completely consumed by converting them into parts. During the course of the proceedings he also showed samples of silver strips which were punched for converting into parts. He therefore submitted that the Collector had gone wrong, in concluding that the punched remnants of silver strips were classifiable under sub-heading 7101.80 as waste and scrap of silver disentitling the appellants from claiming the benefit of exemption under Notification No. 53/86.
8. Shri Jayaraman, the Departmental Representative reiterated the findings of the Collector (Appeals).
9. We have considered the contentions of both sides. We observe that there is no dispute as to the essential facts of the case. The question needing decision is as to whether the pieces of silver strips remaining after they had been punched for purposes of making rotor blades, clips etc. for the electronic instruments manufactured by the appellants could be considered as scrap and classified under sub-heading 7101.80.
Scrap is normally understood in common parlance as waste having less or no intrinsic value. We find that in the instant case the remnants of silver strips which is the disputed item, has only lost its original shape because of punching and thereby lost its shape as a strip. The remaining portions of the silver strip after punching have not lost their purity. It still retains the same purity as the original silver strips before punching. When such strips are sent back for remelting and re-rolling for converting them into silver strip again, they do not lose their intrinsic worth as pieces of silver and become scrap. We therefore find that the appellants' contentions have force.
10. In view of above findings, the impugned order cannot be sustained.
The same is set aside with consequential reliefs if any, for the appellants.