Judgment:
1. The appellants manufactured aluminium castings falling under erstwhile Tariff Item 26A(ii) from aluminium alloy ingots. These ingots were purchased from M/s. Emmes Metals Pvt. Ltd. and M/s. Phoenix Metals Pvt. Ltd. who in turn manufactured these from waste and scrap purchased from the open market. M/s. Emmes Metals Pvt. Ltd. and M/s. Phoenix Metals Pvt. Ltd. removed these ingots for supply to appellants without payment of duty claiming exemption under Notification 43/75, dated 1-3-1975. A demand of Rs. 7,34,047.29 for the period 1-9-1983 to 31-12-1983 was issued to the appellants. It was alleged that conditions relating to exemption under Notification 43/75 under which appellants removed castings without payment of duty were not satisfied in their case. Collector (Appeals) on a Revenue Appeal held that the appellants manufactured castings from ingots and not from scrap as stipulated in the notification and, therefore, they were not eligible to exemption.
Hence, this Appeal.
2. Arguing for the appellants, the ld. Advocate submitted that Notification 43/75 does not specifically require that castings be produced directly from scrap. In their case ingots were admittedly produced from scrap and it is these very ingots which were further used to manufacture of castings. It is therefore clear that castings in fact were made from scrap. He also submitted that notification nowhere stipulates that these should be made only from scrap. The ingots from which these castings were made were not non-duty paid. It is true that these ingots were removed by the supplier without payment of duty under exemption Notification 43/75 but this cannot be treated as non-duty paid. Such non-duty paid character would be a bar only in case of deemed credit under Modvat scheme, where the basic principle is to rebate duty to the extent duty already paid. Notification 43/75 grants exemption if the inputs are removed on payment of appropriate duty. Nil duty is the appropriate rate of duty and therefore the goods are deemed to be duty paid for the purpose of the exemption notification. He also submits that in any case demand of duty can be only prospective from the date of change of classification list and it cannot be extended backwards even for 6 months and in this connection cited the Apex Court Judgment in case of CCE v. Bhiwani Textiles - 1996 (88) E.L.T. 639 (S.C.).
3. Ld. DR reiterated departmental arguments and submitted that an exemption notification is to be construed strictly. Notification 43/75 does not mention ingots as a specified raw material from which castings could be made. In regard to limitation, he submits that Apex Court in case of Ballarpur Industries -1995 (76) E.L.T. 499 (S.C.) has clearly ruled that in case of modification of classification list, short levy can be recovered under Section 11A for a period of 6 months.
4. We have heard both sides. Notification 43/75, dated 1-3-1975 exempts aluminium in any crude form including ingots and aluminium castings, if manufactured from any of the following materials or a combination thereof, namely :- (b) waste or scrap obtained from virgin metal, or virgin aluminium in any form, or a combination of both on which duty of excise or the additional duty leviable Section 2A of the Indian Tariff Act, 1934, as the case may be, has already been paid.
5. It was strongly contended by the ld. Advocate that they manufacture castings from ingots which in turn are manufactured from scrap. These ingots, therefore, should be deemed to have been manufactured from scrap. The notification does not say that these should be directly made from scrap. In fact, if that interpretation were to be accepted, it would place an integrated factory which first produces ingots and then castings at advantage. He placed strong reliance on Hon'ble Apex Court's judgment in case of Union of India and Ors. v. Tata Iron & Steel Co., Jamshedpur - 1977 (1) E.L.T. (J 61) (S.C). That case is, however, distinguishable. In that case duty-paid pig iron was mixed with non-duty paid pig iron and the Apex Court held that because non-duty paid pig iron was also used would not have the effect of denying exemption to the finished product. Since the High Court had rightly observed that notification does not say that exemption is granted only when duty-paid pig iron is used and exemption would not be available if duty paid iron is mixed with other non-duty material. If the intention of the Government were to exclude exemption for duty-paid iron from the other material then, notification would have used the word "only", "exclusively" or "entirely" with regard to duty paid pig iron. The case of Indian Organic Chemicals UOI - 1983 (12) E.L.T. 34 (Mad.) is also distinguishable. In that case fibre/tops were exempted if produced out of duty paid waste. MEG (Glycol), however, was also used as an assisting agent. The Court observed that Notification 37/78 merely refers to fibre/tops manufactured out of duty paid waste and it does not say that no other material should be used along with duty paid waste. Notification does not use the word "exclusively" which is normally found in similar notifications.
5.2 In the case before us, however, it is not contended that castings are manufactured from scrap and other materials. The fact of castings being manufactured exclusively from ingots is not disputed. The ld.Advocate tried to make a distinction in regard to duty paid character in situations covered under Modvat scheme and under exemption notifications. Reliance was placed on the case of Steel Authority of India Ltd. v. CCE -1984 ECR 1336 (Tribunal) and Sulekh Ram & Sons v.UOI -1978 (2) E.L.T. (J 525) in which a reference was made to the Hon'ble Apex Court judgment in case of N.B. Sanjana, Asstt. Collector of Central Excise v. The Elphinstone Spinning & Weaving Mills Co. Ltd. 1971 (1) SCC 337 : AIR 1971 SC 2039 and the decision in case of Gursabai Saigal v. Commr. of Income Tax, Punjab -1963 (3) SCR 893 : AIR 1963 SC 1062. The Court observed that in the first decision, the word "paid" in Rule 10 was construed to mean "ought to have been paid", on the ground that it was used mainly to indicate the starting point of limitation only of 3 months prescribed in Rule 10, and in the second decision, the word "paid" was held to mean "ought to have been paid" because intention in using the word was to indicate point of time from which interest could be calculated.
6. We agree that the expression "appropriate duty" in Notification 43/75 would mean appropriate rate of duty and following the ratio of judgments cited it has to be held that non-payment of duty in such cases cannot be equated with non-payment of duty under Modvat scheme.
Modvat scheme is based on the principle that to prevent cascading effect of multi-point taxation duty already paid at the time goods entered in the factory must be rebated. Notification 43/75 on the other hand refers to old aluminium scrap or waste of scrap or virgin aluminium on which appropriate rate of excise or additional rate of duty has already been paid. Since the ingots were removed under an exemption notification on nil duty payment, such a nil duty can properly be termed as appropriate duty only.
7. The question, however, is whether in terms of Notification 43/75, dated 1-3-1975 as amended castings made from ingots are eligible to exemption. This Notification against S. No. 2(A) exempts among others aluminium in crude form including ingots (...) and castings, if manufactured from old aluminium scrap or waste or scrap obtained from virgin metal or virgin aluminium in any crude form or a combination of both on which appropriate rate of excise duty has already been paid.
8. The ld. Advocate also contended that the Commissioner (Appeals) has allowed the Department's appeal on the grounds different from those set out in show cause notice in holding that appellants did not manufacture aluminium castings from scrap but manufacture the same from ingots manufactured from scrap and ingots is not one of the items mentioned in Column 5 of Notification No. 43/75. The quasi judicial authority cannot go beyond what is alleged in the Show Cause Notice or allow an appeal on a totally new ground. Additional grounds were not brought in by the Revenue through any application filed in this regard. He relied upon the judgment of: (2) Raphael Pharmaceuticals v. Supdt. of Distilleries - 1988 (38) E.L.T. 11 (A.P.)Vickers Sperry of India v. CCE In case of Nasir Ahmed, the Hon'ble Apex Court held that inquiry which travels beyond the bounds of the notice is impermissible and without jurisdiction to that extent.
9. We have gone through the show cause notice. It is true that one of the remarks mentioned in the show cause notice is that aluminium ingots were not duty paid. The Annexure to the show cause notice also, further, state same as one of the grounds for demand that the castings were not made out of the aluminium scrap. In other words, the notice alleges that while aluminium castings are made from non-duty paid ingots, these are not made from scrap to be eligible to exemption.
Collector (Appeals) also has held against the appellants on the ground that the castings are made from ingots and not from scrap. The Collector, therefore, has not travelled beyond Show Cause Notice.
10. The ld. Advocate strongly contended before us that even if a view is held that casting is to be manufactured from the scrap to entitle it to exemption, the notification also mentions virgin aluminium in any crude form as one of the raw materials and ingots must be considered as virgin aluminium in any crude form. He submits that tariff description of aluminium itself indicates that ingots are aluminium in any crude form and further relies strongly on Tribunal's decision in case of C.C.E. v. Electrometal Industries -1994 (70) E.L.T. 72, wherein, according to ld. Advocate, it has been held that ingots manufactured from scrap are virgin metal as understood in Notification 43/75 and that castings made from scrap are entitled to the benefit of Notification 43/75.
11. In the first place, we notice that it is only by virtue of a definition that ingots are considered as aluminium in any crude form.
We note that in that case assessee's contention was that while manufacturing the aluminium castings falling under Tariff Item 27(A)(ii) from aluminium ingots falling under 27(A)(i), the Central Excise Duty has already been paid on aluminium ingots and such ingots are in crude form. The position here is that no duty was paid on ingots. Apart from this, the dissenting view rejected the contention that virgin aluminium can be equated with aluminium in crude form. It referred to ISI Specifications 5407 according to which virgin aluminium means metal obtained by electrolysis from ore and as per ISI Specifications alloy was regarded as secondary aluminium. The dictionary meaning of virgin as not yet used or tried, as has been relied upon in that order cannot in our view, be applied when there are clear ISI Specifications relating to virgin aluminium.
12. In our view, notification exempts castings if made from old aluminium scrap or waste or scrap obtained from virgin aluminium or virgin aluminium in any crude form. Admittedly the castings were made only from ingots which is not mentioned as one of the raw materials in Column 5 of the notification. We cannot, in considering an exemption notification, go to the parent material and hold that since ingots are made from scrap and castings in turn are made from ingots, these should be deemed to have been made from scrap. In case of Geep Flashlight -1985 (22) E.L.T. 3 (S.C.) - Hon'ble Apex Court while dealing with expression "Articles of Plastic" held that torch cases cannot be considered as articles of plastics but only as articles of articles of plastics. In dealing with expression "Asbestos fibre and manufactures thereof" under the old tariff, can it be held that gaskets manufactured from asbestos fibre sheets are manufactures of asbestos fibres? No.Gaskets are manufactured from asbestos sheet which in turn may be manufactured from asbestos fibre but for that matter such gaskets cannot be deemed to be manufactures of asbestos fibre.
13. In our view, considering all facts and the language of the notifications, we have to hold that castings cannot be deemed to be manufactured from aluminium scrap nor can ingots be considered as virgin aluminium.
13.2 Since, however, dealing with the same Notification 43/75, Tribunal in case of C.C.E., Thana v. Electrometic Industries supra has held otherwise, judicial proprietory demands that we either accept this Order or refer it to the Larger Bench for reconciling the conflict.
14. Registry is therefore directed to place it before Hon'ble President for reference to the Larger Bench for a decision in the matter.