M/S. GRASIM INDUSTRIES LTD. versus UNION OF INDIA

Citation: [2011] 12 S.C.R. 1013 · Decided: 13-10-2011 · Supreme Court of India · Bench: H.L. DATTU · Disposal: Appeal(s) allowed

Judgment (excerpt)

[2011] 12 S.C.R. 1013 
MIS. GRASIM INDUSTRIES LTD. 
v. 
UNION OF INDIA 
(Civll Appeal No. 7453 of 2008) 
OCTOBER 13, 2011 
[H.L. DATTU AND CHANDRAMAULI KR. PRASAD, JJ.] 
Central Excise Act, 1944: 
A 
B 
s.2(f) - Repair and maintenance work of mact;iihery used c 
in manufacturing the end product - Metal scrap and waste 
arising out-of such repair and mairltenanc.e work- Held: Such 
repair and maintenance work would not amount to 
manufactwing activity in relation to production of end product 
- Therefore, scrap and waste cannot be said to be a by- c 
product of end product -
No excise duty payable on 
generation of such scrap and waste. 
ss. 2(f), 3 - Excisability of goods - Held: The goods have 
to satisfy the test of being produced or manufactured in India 
- Simply because a particular item is mentioned in the First 
E 
Schedule, it cannot become exigible to excise duty - The 
charging section s.3 of the Act comes into play only when the 
goods are excisable goods u/s.2(d) of the Act falling under 
any of the tariff entry in tire Schedule to the Tariff Act and are 
manufactured goods in terms of s.2(f) of the Act - Therefore, 
F 
the conditions contemplated u/s.2(d) and s.2(f) have to be 
satisfied conjunctively in order to entail imposition of excise 
duty uls.3 of the Act - Central Excise Tariff Act, 1985. 
s.2(f) - Manufacture - Held: Process of manufacture in 
G 
terms of s. 2(f) includes any process incidental or ancillary to 
the completion of the manufactured product - The process 
·in manufacture must have the effect of bringing change or 
transformation in the raw material and this should also lead 
1013 
H 
1014 
SUPREME COURT REPORTS 
[2011] 12 S.C.R. 
A to creation of any new or distinct and excisable product. 
INTERPRETATION OF STATUTES: Excise tariff -
Section Note - Held: Has very limited purpose of extending 
coverage to particular items to the relevant tariff entry in the 
8 
Schedule for determining the applicable rate of duty and it 
cannot be readily construed to have any deeming effect in 
relation to the process of manufacture as contemplated by 
s. 2(f) of the Central Excise Act, 1944, unless expressly 
mentioned in the said Section Note - Central Excise Tariff 
C Act, 1985. 
The assessee was the manufacturer of white cement. 
It undertook repair work on worn out machineries of the 
cement manufacturing plant at its workshop. During the 
process of repair work various types of metal scrap and 
D waste were generated. The assessee cleared such metal 
scrap and waste without payment of excise duty for the 
period from 1.10.1995 to 16.07.1999. A show cause notice 
dated 05.10.2000 was issued to the assessee demanding 
a duty of Rs.10,81,7361· under Section 11A of the Central 
E Excise Act, 1944 along with equal amount of penalty 
under Section 11 AC of the Act and further penalty under 
Rule 173 Q of the Central Excise Rules, 1944 for non· 
payment of excise duty on clearance of said metal scrap 
and waste. The adjudicating auttiority confirmed the duty 
F .demanded and penalty imposed. The appellate authority 
set aside the demand of duty to the extent of Rs. 6,05,9551 
• and also set aside the demand of penalty under Rule 
173 Q(1 )(a) of the Central Excise Rules. The demand of 
duty and equal amount of penalty of Rs.4,75,781 under 
G Section 11AC on metal scrap and waste generated 
during course of repair and maintenance of the 
machinery or parts of the plant was upheld on the ground 
that such metal scrap and waste was generated during 
mechanical working of metal in the workshop, as 
H contemplated by the definition of the waste and scrap 
GRASIM JNDUSTRIES LTD. v. UNION OF INDIA 
1015 
under Section Note 8(a) of Section XV of the Central 
A 
Excise Tariff Act, 1985. The Tribunal allowed the appeal 
of the assessee and set aside the demand of duty and 
penalty confirmed by the said portion of the order of the 
~ppellate authority on the ground that metal scrap and 
waste cleared by the assessee did not arise out of any 
B 
manufacturing activity and, therefore, no excise duty was 
payable. The High Court set aside the order of the 
Tribunal and restored the order of the appellate authority 
on the ground that the generation of scrap amounted to 
manufacture as it was incidental or ancillary to the c 
manufacture of spare or replaceable part; the spare or 
replaceable part came into existence as distinct product 
during the repairing of the parts of the cement plant; also, 
the generation o

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