Full Judgment
2. The appellants are engaged in the manufacture of Rock Drilling bits covered by the erstwhile Tariff Item 51A. Rock Drilling bits contain reaming shells or cores to which are fitted industrial diamonds which provide the cutting edge for the drilling operation. The cores are made of iron and steel. The appellants manufacture the reaming shells or cores and the other parts of the drilling bits, purchase diamonds and use the same in the manufacture of the finished product. It appears that diamonds are salvaged out of worn out or damaged drilling bits and the diamonds which are so salvaged by the appellants, are used in the manufacture of new Rock Drilling bits. Where the diamonds themselves get damage. They are removed and replaced by new diamonds and the (sic) the drilling bits become serviceable. In regard to the activity of replacement of damaged diamonds in Rock Drilling bits, there is a dispute between the department and the appellants, the former contending that the activity would amount to manufacture and the latter denying it. That controversy reached the Collector (Appeals) who held that the activity of removal of diamonds from worn out drilling bits and their replacement by salvaged or new diamonds would not amount to manufacture of new diamond drilling bits and therefore, no duty would be recoverable on the reconditioning of the diamond drilling bits by replacement of the diamonds. This order was passed in Appeal No.157/CE/APPL/JPR/79 and the order was No. 966/80-C.E. The Appeal Memorandum states that on the basis of this order, the Assistant Collector withdrew the demand of duty and by a separate order, refused the claim for refund. The Collector (Appeals) confirmed the rejection of the refund claim, Hence the present appeal.
3. Paragraph 27 of the Memorandum of appeal states that when drilling bits get damaged, a percentage of diamonds get deteriorated and have to be replaced by new diamonds, that used and worn out drilling bits are returned to the factory for reconditioning and the reaming shells or cores are repaired and if diamonds are damaged or deteriorated, they are replaced by salvaged or new diamonds. Where the new diamonds are used, the purchasers pay the cost of new diamonds plus the resetting charges and they do not pay for the salvaged diamonds when they are refitted in the drilling bits. The Appeal Memorandum does not speak of salvaged diamonds being used in new Rock Drilling bits. The impugned, order does not suggest that the refund claim was with reference to the cost of salvaged diamonds refitted to old Rock Drilling bits in the course of repairing the Drilling bits. The earlier order of the Collector (Appeals) merely held that the fitting of salvaged diamonds to old Rock Drilling bits would not amount to manufacture. That cannot apply to a situation where salvaged diamonds are fitted in new Rock Drilling bits. The present claim of refund appears to relate not to the activity of repairing old diamonds bits by replacing the worn out diamonds by salvaged diamonds or new diamonds but relates to the activity of manufacture of new rock drilling bits using salvaged diamonds. The later activity certainly amounts to manufacture and the cost of the diamonds would go into the assessable value. Therefore, there is no validity in the claim for refund in relation to such activity. The stand taken by the lower authorities is not contrary to the earlier order passed by the Collector (Appeals). We find no ground and accordingly dismiss the appeal.