REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7453 OF 2008

M/s. Grasim Industries Ltd.                 ………….. Appellant

versus

Union of India                                                            ………..Respondent

J U D G M E N T

H.L. Dattu, J.

1) This  appeal  is  directed  against  the  Judgment  and  

Order dated 31.07.2008 of the High Court of Judicature of  

Rajasthan  in  Central  Excise  Appeal  No.  60/2006.  By  the  

impugned  Order,  the  High  Court  has  set  aside  the  Order  

dated 09.08.2005 of the Customs, Excise and Service Tax  

Appellate Tribunal [hereinafter referred to as “the Tribunal”]  

whereby the Tribunal had dropped the entire duty demand  

and penalty imposed on the assessee.  

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2) The issue  before  us  is:  Whether  the  metal  scrap  or  

waste generated whilst repairing of worn out machineries or  

parts  of  cement  manufacturing  plant  amounts  to  

manufacture, and thereby, is excisable to excise duty.  

3)        The assessee is the manufacturer of the white cement.  

The assessee repairs worn out machineries  or  parts of the  

cement  manufacturing  plant  at  its  workshop  such  as  

damaged roller, shafts and coupling with the help of welding  

electrodes,  mild  steel,  cutting  tools,  M.S.  Angles,  M.S.  

Channels, M.S. Beams, etc.  In this process of repair certain  

metal scrap or waste is generated. In a surprise inspection  

conducted by the officials of the Central Range-II, Jodhpur,  

it was found that the assessee has cleared various types of  

metal  scrap  and waste  without  the  payment  of  the  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 ` 10,81,736/- under Section 11A of the  

Central  Excise  Act,  1944  [hereinafter  referred  to  as  “the  

Act”]  along  with  equal  amount  of  penalty  under  Section  

11AC of the Act and further penalty under Rule 173 Q of the  

Central Excise Rules, 1944 [hereinafter referred to as “the  

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Rules”] for non-payment of excise duty on clearance of said  

metal scrap and waste. On the request of the assessee on two  

occasions, the revenue has granted extension of time, first up  

to 31.12.2000 which was further extended till 22.01.2001, in  

order to reply to the said show cause notice. Thereafter, the  

assessee further made a request for some more time to file  

reply  vide  letter  dated  20.01.2001,  the  same  was  rejected  

whilst confirming the duty demanded and penalty proposed  

in the show cause notice vide Order dated 08.02.2001 of the  

Additional Commissioner.  The assessee filed appeal before  

the  Commissioner  (Appeals),  Jaipur.  The  Commissioner  

(Appeals)  vide  its  Order  dated  30.04.2004,  set  aside  the  

demand  of  duty  along  with  equal  amount  of  penalty  

pertaining to scrap and waste arising out of the dismantling  

of used capital goods and the packing materials to the extent  

of  ` 6,05,955/-. The Commissioner (Appeals) also set aside  

the demand of penalty under Rule 173Q(1)(a) of the Rules,  

whilst, upholding the demand of duty and equal amount of  

penalty  of  ` 4,75,781  under  Section  11AC of  the  Act  on  

metal scrap and waste generated during course of repair and  

maintenance of the machinery or parts of the plant on the  

ground that such metal scrap and waste has been generated  

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during  mechanical  working  of  metal  in  the  workshop,  as  

contemplated by the definition of the waste and scrap under  

Section Note 8(a) of Section XV of the Central Excise Tariff  

Act, 1985 [hereinafter referred to as “the Tariff Act”] and, in  

view of the decision of the Tribunal in  Budhewala Co-op.   

Sugar Mills Ltd.  vs.  CCE, Chandigarh-I,  2002 (141) ELT  

490  (Tri.  Delhi).   Being  aggrieved  by  the  portion  of  the  

Order  of  the  Commissioner  (Appeals),  pertaining  to  

confirmation of demand of duty along with equal amount of  

penalty of ` 4,75,781 on the metal scrap and waste generated  

during repair of machinery, the assessee preferred an appeal  

before  the  Tribunal.  The  Tribunal,  vide its  Order  dated  

09.08.2005, allowed the appeal and set aside the demand of  

duty and penalty confirmed by the said portion of the Order  

of  the  Commissioner  (Appeals)  on  the  ground  that  metal  

scrap and waste cleared by the assessee does not arise out of  

any manufacturing activity and, thereby, not excisable to any  

excise duty in view of the decision of the Tribunal in CCE v.   

Birla  Corpn.  Ltd.,  2005  (181)  ELT  263.   The  Revenue,  

aggrieved by this Order, filed an appeal under Section 35G  

of the Act before the High Court of Rajasthan.  The High  

Court,  vide its  Judgment  and  Order  dated  31.07.2008,  

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allowed the appeal, set aside the Order of the Tribunal and  

restored  the Order  of  the  Commissioner  (Appeals)  on the  

ground that the generation of scrap amounts to manufacture  

as it is incidental or ancillary to the manufacture of spare or  

replaceable part.  The spare or replaceable part comes into  

existence as distinct product during the repairing of the parts  

of the cement plant. Also, the generation of scrap need not  

be  in  the  process  of  manufacture  of  the  excisable  end  

product such as cement. Being aggrieved, the assessee has  

filed this appeal under Section 35L of the Act against the  

judgment and order of the High Court.

4) Shri.  Alok Yadav, learned counsel  has appeared for  

the  assessee  and  the  Revenue  is  represented  by  Shri.  B.  

Bhattacharyya,  learned Additional  Solicitor  of  India.   We  

will refer to their submissions while dealing with the issue  

canvassed before us.

5) Learned counsel  Shri.  Alok Yadav submits  that  the  

Revenue has wrongly relied on the definition of the metal  

waste and scrap under Note 8 (a) to Section XV of the Tariff  

Act  which  states-  ‘Metal  waste  and  scrap  from  the   

manufacture  or  metal  waste  and  scrap  from  mechanical   

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working of metal’ in order to establish that metal scrap and  

waste  arising out  of  the repairing and maintenance  of  the  

various  machinery  or  parts  of  the  cement  manufacturing  

plant amounts to manufacture of such scrap and waste.  He  

submits that nowhere the definition of waste and scrap in the  

said Note deems it to be manufacturing process.   In other  

words,  the  definition  of  ‘waste  and  scrap’  only  gives  

coverage of the entry ‘waste and scrap’ under Chapter 72.04  

of the Schedule to the Tariff Act and does not ipso facto lead  

to  a  conclusion  that  waste  and  scrap  arising  by  the  

mechanical  working  of  metal  amounts  to  a  process  of  

manufacture in terms of Section 2(f) of the Act in order to  

attract the charging Section.  He further submits that unless  

the particular excisable product falling under the particular  

tariff entry is manufactured in the sense of Section 2 (f) of  

the  Act,  it  does  not  entail  or  attract  the  operation  of  the  

charging  Section  under  Section  3  of  the  Act.   Learned  

counsel  refers  to  the  wordings  of  the  definition  of  the  

manufacture under Section 2(f) of the Act and relies on the  

decision of this Court in Union of India v. Delhi Cloth and  

General Mills Co. Ltd.,  AIR 1963 SC 791 in support of his  

submission that the High Court, vide its impugned judgment,  

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has grossly erred in observing that any incidental or ancillary  

process  to  the  completion  of  any  manufactured  product,  

which  itself  need  not  be  end  product  or  excisable  goods,  

would  amount  to  manufacture  and  is  excisable.  In  other  

words,  such  observation  of  the  High  Court  creates  very  

anomalous situation by conferring the status of manufacture  

on  every  process  incidental  and  ancillary  to  any  

manufactured  product  which  itself  need  not  be  excisable  

manufactured  end  product.   Learned  counsel  submits,  by  

placing reliance on several decisions of this Court in order to  

buttress his contention, that the excise duty mentioned under  

the tariff entry for the excisable goods cannot be levied in  

terms of charging Section 3 unless such excisable goods or  

items are produced and manufactured.  In other words, the  

event of levying of excise duty under the charging Section 3  

is the manufacture of the excisable goods.  Learned counsel  

concludes  that  the  manufacture  of  the  excisable  goods  in  

terms of Section 2 (f) is the prerequisite to levy excise duty.

6) Per  Contra,  Shri.  B.  Bhattacharyya,  learned  ASG,  

submits  that  the  metal  scrap  and  waste  are  indisputably  

excisable goods under Section 2(d) of the Act falling under  

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the  Chapter  heading  72.04  read  with  Note  8  (a)  to  the  

Section XV of the Tariff Act.  He further submits that metal  

scrap and waste as excisable goods are generated during the  

repair and replacement of the old machinery or parts of the  

cement  manufacturing  plant,  which  is  incidental  and  

ancillary  to  the  manufactured  product,  that  is,  cement.  In  

other  words  the process  of  generation of  scrap and waste  

amount to the manufacture in terms of Section 2(f) of the  

Act.  In support of his contention, learned ASG has relied on  

the  decision  of  this  Court  in  CST  v.  Bharat  Petroleum  

Corpn. Ltd., (1992) 2 SCC 579. He further submits that once  

the  conditions  or  requirements  of  excisable  goods  and  

manufacture as envisaged by Section 2(d) and Section 2(f),  

respectively, of the Act are satisfied, then only, such metal  

scrap and waste would attract the levy of excise duty under  

the charging Section 3 of the Act. Shri. B. Bhattacharyya has  

cited  several  decisions  of  this  Court  in  support  of  his  

submission.

7) We have heard the learned counsel for the parties. In  

the  present  case,  the  assessee  had  undertook  repair  and  

maintenance work of his worn out old machinery or parts of  

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the cement manufacturing plant for the period between 1995  

to 1999. The assessee repaired machinery or capital goods  

such  as  damaged  roller,  shafts  and  coupling  by  using  

welding electrodes,  mild  steel,  cutting tools,  M.S. Angles,  

M.S. Channels, M.S. Beams etc. In this process of repair and  

maintenance, M.S. Scrap and Iron Scrap were generated in  

the workshop.  It is not in dispute that these M.S. Scrap and  

Iron Scrap are excisable goods under Section 2(d) of the Act  

falling under the Chapter heading 72.04 in the Schedule to  

the Tariff  Act read with Note 8 (a) to Section XV of the  

Tariff Act as ‘metal scrap and waste’.  We are of the opinion  

that  Section  Note  has  very  limited  purpose  of  extending  

coverage to the particular items to the relevant tariff entry in  

the 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  

Section 2(f) of the Act, unless expressly mentioned in the  

said Section Note. In Shyam Oil Cake Ltd. v. CCE, (2005) 1   

SCC 264, this Court has held:

“16. Thus, the amended definition enlarges the   scope of manufacture by roping in processes which   may  or  may  not  strictly  amount  to  manufacture   provided  those  processes  are  specified  in  the   

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section or chapter notes of  the tariff  schedule as   amounting  to  manufacture.  It  is  clear  that  the   legislature realised that it was not possible to put in   an  exhaustive  list  of  various  processes  but  that   some methodology was required for declaring that   a particular process amounted to manufacture. The   language of the amended Section 2(f) indicates that   what  is  required  is  not  just  specification  of  the   goods  but  a  specification  of  the  process  and  a   declaration that the same amounts to manufacture.   Of course, the specification must be in relation to   any goods.

…

23. We are in agreement with the submission that   under the amended definition, which is an inclusive   definition,  it  is  not  necessary  that  only  in  the   section or chapter note it must be specified that a   particular process amounts to manufacture. It may   be  open  to  so  specify  even  in  the  tariff  item.   However, either in the section or chapter note or in   the tariff entry it must be specified that the process   amounts  to  manufacture.  Merely  setting  out  a   process in the tariff entry would not be sufficient. If   the process is indicated in the tariff entry, without   specifying that the same amounts to manufacture,   then the indication of the process is merely for the   purposes  of  identifying  the  product  and  the  rate   which is applicable to that product. In other words,   for a deeming provision to come into play it must   be  specifically  stated  that  a  particular  process   amounts to manufacture. In the absence of it being   so  specified  the  commodity  would  not  become   excisable  merely  because  a  separate  tariff  item  exists in respect of that commodity.

24. In this case, neither in the section note nor in   the chapter note nor in the tariff item do we find   any  indication  that  the  process  indicated  is  to   amount to manufacture. To start with, the product   was  edible  vegetable  oil.  Even  after  refining,  it   remains edible vegetable oil. As actual manufacture   has not taken place, the deeming provision cannot   

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be  brought  into  play  in  the  absence  of  it  being   specifically  stated  that  the  process  amounts  to   manufacture.”

8)  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. [See  Hyderabad Industries Ltd. v.  Union of   

India,  (1995) 5 SC 338,  Moti Laminates (P) Ltd. v.  CCE,  

(1995) 3 SCC 23, CCE v. Wimco Ltd.,  (2007) 8 SCC 412]  

Therefore,  both  on  authority  and  on  principle,  for  being  

excisable to excise duty, goods must satisfy the test of being  

produced  or  manufactured  in  India.  In  our  opinion,  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  

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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 process in manufacture  

must have the effect of bringing change or transformation in  

the raw material and this should also lead to creation of any  

new  or  distinct  and  excisable  product.  The  process  in  

relation  to  manufacture  means  a  process  which  is  so  

integrally connected to the manufacturing of the end product  

without which, the manufacture of the end product would be  

impossible or commercially inexpedient. This Court has in  

several  decisions  starting  from  Tungabhadra  Industries v.  

CTO, AIR 1961 SC 412,  Union of India v.  Delhi Cloth &  

General  Mills  Co.  Ltd.,  AIR  1963  SC  791, South  Bihar  

Sugar Mills Ltd. v. Union of India, AIR  1968 SC 922 and in  

line  of  other  decisions  has  explained  the  meaning  of  the  

word ‘manufacture’ thus:  

“14. The  Act  charges  duty  on  manufacture  of   goods. The word ‘manufacture’ implies a change   

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but  every  change  in  the  raw  material  is  not   manufacture. There must be such a transformation   that  a  new  and  different  article  must  emerge   having a distinctive name, character or use.”

9) In Ujagar Prints (II) v.  Union of India, (1989) 3 SCC 488,  

this  Court  has  laid  down  the test  to  ascertain  whether  

particular process amounts to manufacture:

“whether  the  change  or  the  series  of  changes   brought about by the application of processes take   the commodity to the point where, commercially, it   can  no  longer  be  regarded  as  the  original   commodity but is, instead, recognised as a distinct   and new article that has emerged as a result of the   processes”  

10) In  Hindustan  Polymers v.  CCE,  (1989)  4  SCC  323, this  

Court has observed:  

“11. Excise  duty  is  a  duty  on  the  act  of   manufacture. Manufacture under the excise law, is   the  process  or  activity  which  brings  into  being   articles which are known in the market as goods   and  to  be  goods  these  must  be  different,   identifiable  and  distinct  articles  known  to  the   market  as  such.  It  is  then  and  then  only  that   manufacture takes place attracting duty. In order   to be goods, it was essential that as a result of the   activity,  goods  must  come  into  existence.  For   articles to be goods,  these must be known in the   market as such and these must be capable of being   sold or are being sold in the market  as such.  In   order, therefore, to be manufacture, there must be   activity which brings transformation to the article   in such a manner that different and distinct article   

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comes into being which is  known as such in the   market.”

11) In CCE v. Rajasthan State Chemical Works, (1991) 4  

SCC 473, this Court has considered the meaning of process  

in relation to manufacture as thus:  

“12. Manufacture  implies  a  change  but  every   change is not manufacture, yet every change of an   article  is  the  result  of  treatment,  labour  and   manipulation.  Naturally,  manufacture  is  the  end   result of one or more processes through which the   original commodities are made to pass. The nature   and extent of processing may vary from one class   to  another.  There  may  be  several  stages  of   processing, a different kind of processing at each   stage.  With  each  process  suffered  the  original   commodity  experiences  a  change.  Whenever  a   commodity undergoes a change as a result of some   operation performed on it or in regard to it, such   operation  would  amount  to  processing  of  the   commodity.  But it  is  only when the change or a   series of changes takes the commodity to the point   where commercially it can no longer be regarded   as  the  original  commodity  but  instead  is   recognised  as  a  new  and  distinct  article  that  a   manufacture can be said to take place.

13. Manufacture  thus  involves  a  series  of   processes. Process in manufacture or in relation to   manufacture  implies  not  only  the production but   the various stages through which the raw material   is subjected to change by different operations. It is   the cumulative effect  of  the various processes  to   which the raw material is subjected (sic that the)   manufactured  product  emerges.  Therefore,  each   step towards such production would be a process   in  relation  to  the  manufacture.  Where  any   

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particular process is so integrally connected with   the ultimate production of goods that but for that   process manufacture or processing of goods would   be  impossible  or  commercially  inexpedient,  that   process is one in relation to the manufacture.

14. The natural meaning of the word ‘process’ is a   mode of treatment of certain materials in order to   produce  a  good  result,  a  species  of  activity   performed  on  the  subject-matter  in  order  to   transform  or  reduce  it  to  a  certain  stage.   According  to  Oxford  Dictionary one  of  the   meanings of the word ‘process’  is  a ‘continuous   and regular action or succession of actions taking   place  or  carried  on  in  a  definite  manner  and   leading to the accomplishment of some result’. The   activity contemplated by the definition is perfectly   general  requiring  only  the  continuous  or  quick   succession. It is not one of the requisites that the   activity  should  involve  some  operation  on  some   material in order to (sic effect) its conversion to   some  particular  stage.  There  is  nothing  in  the   natural meaning of the word ‘process’ to exclude   its  application  to  handling.  There  may  be  a   process which consists only in handling and there   may be a process which involves no handling or   not merely handling but use or also use. It may be   a process involving the handling of  the material   and it need not be a process involving the use of   material. The activity may be subordinate but one   in relation to the further process of manufacture.”

12)   In Union of India v. Ahmedabad Electricity Co. Ltd.,   

(2003)  11  SCC 129,  the  issue  before  this  Court  was  that  

whether the process in which cinder is produced by burning  

of coal as a fuel for producing steam to run machines used in  

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the  factory  to  manufacture  end  product  amounts  to  

manufacture. This Court has held:

“19. What is the meaning of “manufacture” in the   context of excise law? We have already quoted the   definition of the word “manufacture” as contained   in  Section  2(f)  of  the  Act.  According  to  this   definition,  manufacture  includes  any  process   incidental  or  ancillary  to  the  completion  of  a   manufactured  product.  The  word  “manufacture”   used as a verb is generally understood to mean as   bringing into existence  a new substance.  It  does   not  mean  merely  to  produce  some  change  in  a   substance.  To  quote  from  a  passage  in  the   Permanent  Edition  of  Words  and  Phrases,  Vol.   XXVI

“manufacture  implies  a  change,  but  every   change is not manufacture and yet every change   of an article is the result of treatment, labour and  manipulation. But something more is necessary   and  there  must  be  transformation:  a  new  and   different article must emerge having a distinctive   name, character or use”.

“Manufacture”  may involve  various  processes.   The  aim  of  any  manufacturing  activity  is  to   achieve an end product. Depending on the nature   of  manufacturing  activity  involved,  processes   may be several or one. The natural meaning of   the  word “process”  is  a  mode of  treatment  of   some material in order to produce a good result.   Every process which is incidental or ancillary to   the  completion  of  manufactured  product  is   included within the meaning of manufacture. The   word “process” has not been defined in the Act.   In its ordinary meaning “process” is a mode of   treatment of certain material in order to give a   desired  shape to  the  material.  It  is  an  activity   performed  on  a  given  material  in  order  to   transform it into something.”

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   This Court further observed thus:

“27. In the case in hand also, coal which leads to   production of cinder is not used as a raw material   for  the  end  product.  It  is  being  used  only  for   ancillary  purpose,  that  is,  as  a  fuel.  Therefore,   irrespective of the fact whether any manufacture is   involved in the production of  cinder it  should be   held to be out of the tax net for the reason that it is   not a raw material for the end product.

28. In  producing  “cinder”,  there  is  no   manufacturing  process  involved.  Coal  is  simply   burnt  as  fuel  to  produce  steam.  Coal  is  not   tampered with, manipulated or transformed into the   end product. For purposes of manufacture the raw   material  should  ultimately  get  a  new  identity  by   virtue  of  the  manufacturing  process  either  on  its   own or in conjunction or combination with other   raw materials. Since coal is not a raw material for   the  end  product  in  all  the  cases  before  us,  the   question of getting a new identity as an end product   due to manufacturing process does not arise.”

13)         In  Commissioner  of  Central  Excise,  Chennai  II   

Commissionerate v. Tarpaulin International, (2010) 9 SCC  

103,  whilst  addressing  the  issue  whether  the  process  of  

preparing  tarpaulin  made-ups  by  cutting  and  stitching  the  

tarpaulin  fabric  and  fixing  the  eyelets  would  amount  to  

manufacture, this Court has held:

“25. Is  there  any  manufacture  when  tarpaulin   sheets  are stitched and eyelets  are made?  In our  view, it does not change the basic characteristic of   the raw material and end product. The process does   

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not bring into existence a new and distinct product   with  total  transformation  in  the  original   commodity.  The  original  material  used  i.e.  the   tarpaulin  is  still  called  tarpaulin  made-ups  even   after undergoing the said process. Hence, it cannot   be said that the process is a manufacturing process.  Therefore,  there can be no levy of Central excise   duty  on  the  tarpaulin  made-ups.  The  process  of   stitching  and  fixing  eyelets  would  not  amount  to   manufacturing  process,  since  tarpaulin  after   stitching and eyeleting continues to be only cotton   fabric.  The  purpose  of  fixing  eyelets  is  not  to   change the fabric. Therefore, even if there is value   addition the same is minimum. To attract duty there   should be a manufacture to result in different goods   and the goods sought to be subject to duty should   be known in the market as such.”

14)        In the present case, it is clear that the process of repair  

and  maintenance  of  the  machinery  of  the  cement  

manufacturing  plant,  in  which  M.S.  scrap  and  Iron  scrap  

arise,  has  no  contribution  or  effect  on  the  process  of  

manufacturing  of  the  cement,  which  is  the  excisable  end  

product,  as  since  welding  electrodes,  mild  steel,  cutting  

tools, M.S. Angles, M.S. Channels, M.S. Beams etc. which  

are used in the process of repair and maintenance are not raw  

material used in the process of manufacturing of the cement,  

which is the end product. The issue of getting a new identity  

as  M.S.  Scrap  and  Iron  Scrap  as  an  end  product  due  to  

manufacturing process does not arise for our consideration.  

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The  repairing  activity  in  any  possible  manner  cannot  be  

called  as  a  part  of  manufacturing  activity  in  relation  to  

production of  end product.  Therefore,  the  M.S.  scrap  and  

Iron scrap  cannot  be said  to  be a  by-product  of  the  final  

product.  At  the  best,  it  is  the by-product  of  the  repairing  

process  which uses  welding electrodes,  mild  steel,  cutting  

tools, M.S. Angles, M.S. Channels, M.S. Beams etc.  

15)         Learned ASG has placed reliance on the decision of this  

Court in  CST v. Bharat Petroleum Corpn. Ltd., (Supra). In  

that case, the assessee purchased sulphuric acid and cotton  

for  the  manufacturing  of  kerosene  and  yarn/cloth.  In  the  

manufacturing  process,  the  acid  sludge  and  cotton  waste  

emerged as a distinct  product having commercial  identity.  

The issue before this Court was that  whether the assessee  

can be said to  manufacture  acid sludge and cotton waste.  

This  Court  observed  that  where  a  subsidiary  product  is  

turned  out  regularly  and  continuously  in  the  course  of  a  

manufacturing business and is also sold regularly from time  

to time, an intention can be attributed to the manufacturer to  

manufacture and sell not merely the main item manufactured  

but also the subsidiary products. We are afraid, the decision  

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does not help the Revenue because the metal scrap and waste  

arising  out  of  the  repair  and  maintenance  work  of  the  

machinery used in manufacturing of cement, by no stretch of  

imagination,  can be treated as a  subsidiary  product to the  

cement  which is  the  main  product.   The  metal  scrap  and  

waste arise only when the assessee undertakes repairing and  

maintenance work of the capital goods and, therefore, do not  

arise  regularly  and  continuously  in  the  course  of  a  

manufacturing business of cement.

16)       In view of the above, we cannot sustain the Judgment  

and Order of the High Court dated 31.07.2008.

17) In the result, the appeal is allowed and the impugned  

Judgment and the Order  of the High Court is set aside and  

the  Order  dated  09.08.2005  of  the  Tribunal  is  restored.  

Costs are made easy.

........................……………………J.                                                                                  [H.L. DATTU]

.....…..............……..………………J.                                                  [CHANDRAMAULI  KR. PRASAD]

New Delhi, October 13, 2011.

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