Customs, Excise and Gold Tribunal - Delhi
Brakes India Limited And Ors. vs Collector Of Central Excise And Ors. on 21 August, 1987
Equivalent citations: 1987(14)ECC157, 1987(13)ECR404(TRI.-DELHI), 1987(31)ELT1030(TRI-DEL)
ORDER
G. Sankaran, Sr. Vice-President
1. The dispute in the present appeals turns, in the main, on the classification, under the First Schedule (hereinafter referred to as "the CEP") to the Central Excises and Salt Act, 1944 (hereinafter referred to as "the Act"), of air brake hose assemblies manufactured by Sundaram Clayton Ltd. and Hydraulic brake hose assemblies manufactured by Brakes India Ltd. This central issue is common to all these appeals. Another common feature is that the disputes pertain to the period after the changes brought about, with effect from 1-3-1979, by the Finance Bill, 1979, in Item No. 34A, CET. Prior to 1-3-1979, the Item read :
"Parts and accessories, not elsewhere specified, of motor vehicles and tractors, including trailers." (There were two "Explanations" to the item which, not being relevant for the present disputes, have not been reproduced) With the changes brought about with effect from 1-3-1979, Item No. 34 A read :
"Parts and accessories of motor vehicles' and tractors, including trailers, the following, namely:-" (15 articles are specified in the item but air-brake and hydraulic brake hose assemblies do not figure therein. There are also two "Explanations" to the item which are not relevant for the present purpose).
2. Prior to 1-3-1979, Item No. 34A was of a wide amplitude taking within its sweep all parts and accessories of motor vehicles not elsewhere specified. However, by an exemption notification issued under Rule 8(1) of the Central Excise Rules, 1944, the Central Government had exempted all parts and accessories of motor vehciles falling under the said item except 12 articles specified in the Schedule to the Notification. Air and hydraulic brake hose assemblies were not in the list of specified items subject to duty. Though we are not concerned in the present disputes with determination of the issue whether, these hose assemblies fell for classification under Item 34 A prior to 1-3-1979, we have thought it proper to refer to the pre-1-3-1979 situation for a better appreciation of the discussions which follow.
3. Insofar as the situation on and after 1-3-1979 is concerned, Item No. 34 A became considerably narrowed down in its scope and its coverage was restricted to 15 specified articles and the subject hose assemblies were not one of them.
4. The dispute between the Revenue and the assessees is whether the subject hose assemblies (which are admittedly for use in motor vehicles and are parts of motor vehicles) fall for classification during the period commencing 1-3-1979 under Item 16A or 68, CET.
5. Item No. 16A, CET reads as follows :-"Rubber products, the following, namely :-
1. xxx xxx xxx
2. "xxx xxx xxx
3. Piping and tubing of unhardened vulcanized rubber.
4. xxx xxx xxx Central Excise Notification No. 197/67, dated 29-8-1967 exempts from excise duty piping and tubing of unhardened vulcanized rubber falling under Item No. 16A(3), designed for use as hydraulic or air brake hose in motor vehicles.
6. Item No. 68, CET, covers "All other goods, not elsewhere specified" with certain specified exceptions which are not relevant for our purpose.
7. While the assessees claim that the subject goods fall under Item No. 16A(3), CET and are eligible for exemption from duty in terms of Notification No. 197/67, the Revenue contends that the goods fall under Item No. 68 and are liable to duty under that item,
8. Against the above background, we may now consider these cases.
9. The assessees procure rubber hoses which have discharged duty liability (actually exempted from duty under Notification No. 197/67) under Item No. 16 A, CET, and bring them to their factory. These are, according to Brakes India's letter dated 2-11-1979, cut to size and fitted with nozzles (hose ends) on both ends. The nozzles are fixed with the hose by crimping the edges. The resultant article is sold as hydraulic brake hose assembly. It is used for transmission of hydraulic brake fluid from the master cylinder assembly to wheel cylinder assemblies when the brake is applied to bring the motor vehicle to halt. The letters dated 14-11-1979 and 26-4-1980 from Sundaram Clayton are more explanatory. The hose adaptor is held in fixture; grease is applied to the hose and fitted to the adaptor; hose clips and lock nut are fitted to the hose assembly; air-leakage is tested with soap solution; after insertion of sleeves into hose adaptor, union nut is tightened. In the air brake system, hose assemblies are used to connect a pipeline to another pipeline for conveying air whenever flexibility is required, i.e., where the two points of the vehicle change their position in relation to one another. It is further stated that the hose adaptor, sleeve and union nuts are used solely for hose assemblies in air-brake system and are made to the Society of Automobile Engineer's standards.
10. Shri V. Lakshmikumaran made his submissions with reference to the appeals filed by Brakes India Ltd. According to him, the submissions on the issue of classification would equally apply to all the other cases also. It appears that Brakes India Ltd. filed a classification list classifying the subject goods under Item No. 34A during the period 1-3-1979 to 9-5-1979 and under Item No. 68 from 10-5-1979 onwards. The company addressed two letters - one dated 2-11-1979 and the other dated 29-11-1979 - to the Assistant Collector of Central Excise, Madras and contended therein that the fitment of nozzles, etc. to the hoses did not amount to manufacture within the meaning of Section 2(f) of the Act and further that the hose assemblies made by them would continue to remain classified under Item No. 16A(3), CET and that they could not be classified under Item No. 68 as unspecified motor vehicle parts and charged to duty. In reply to these letters, the Assistant Collector, by his letter dated 10-12-1979, informed Brakes India that hose assembly was classifiable under Item No. 16 A and that since duty liability of the hoses under Item No. 16 A, CET had been discharged at the time of their clearance from the factory of production, duty under the same item was not again leviable on hose assemblies. This letter purporting to be on behalf of the Assistant Collector, has been signed by the Superintendent (Technical) attached to the Assistant Collector's office. It should be mentioned here that Brakes India had made it clear in their letter dated 2-11-1979 to the Assistant Collector that they reserved their right to claim refund of duty paid on hose assemblies under Item 68, CET till date and that they would be paying duty under the said item under protest in respect of future clearances. On 14-5-1980, Brakes India wrote to the Assistant Collector enclosing a claim for refund of duty paid on hose assemblies during the period from 10-9-1979 to 8-1-1980. This was followed by another letter dated 23-7-1980 enclosing a claim for refund of the duty paid during the period 1-3-1979 to 9-9-1979. It was specifically urged therein that the claim would not be hit by limitation under Rule 11 of the Central Excise Rules. The Assistant Collector issued a. notice dated 13-8-1981 to Brakes India stating therein that it appeared that hose assemblies made from hoses were a new product with a distinct trade name and was designed for specific use in motor vehicles and, therefore, they fell outside the purview of Item No. 16A(3) and would be classifiable under Item No. 68 as motor vehicle parts not elsewhere specified. The assessee was called upon to show cause why the hose assembly should not be re-classified under Item No. 68 and charged to duty under that item and why duty on past clearances made from 14-2-1981 should not be collected under Section 11A of the Act. The assessee replied on 14-10-1981 contesting the notice. After hearing the assessee, the Assistant Collector passed an order dated 19-11-1981 confirming the classification of hose assemblies under Item No. 68, CET and demanding duty of Rs. 64,818.82 on the clearances of hose assemblies made from 14-2-1981 to 13-8-1981. He further ordered that all subsequent and future assessments of hose assemblies should be made under Item No. 68, CET. Briefly stated, the Assistant Collector's findings were :-
(a) The letter dated 10-12-1979 to the assessee from the Superintendent (Technical) "for Assistant Collector" was not a quasi-judicial order. Hence the show cause notice dated 13-8-1981 and the consequent proceedings did not amount to review of any quasi-judicial order;
(b) Under Section 11A of the Act, the Assistant Collector was empowered to demand payment of short levy, if any;
(c) Hose assemblies were different from plain hoses, having a distinct trade name and were designed for a specific use unlike the plain hose which could be put to several uses. Hose assemblies were motor vehicle parts with specific part numbers. They were not known in the market as rubber products;
(d) Government of India's instructions according to which hose assemblies manufactured out of duty paid rubber would fall under Item No. 16A(3), CET and they would not attract duty again were in the nature of only executive instructions not binding on the adjudicating authority;
(e) The contention that, even if the goods were classifiable under Item 68, CET, they were entitled to exemption under Notification No. 179/77 since they had been made without the use of power, was not tenable since air pressure required for operation of pneumatic tools, necessary for the making of hose pipe assemblies, was generated with the help of power.
11. By another order dated 20-12-1981, the Assistant Collector rejected the refund claim filed by the assessee (in pursuance of the Superintendent's letter dated 10-12-1979 classifying hose assemblies under Item No. 16 A, CET) for Rs. 41,109.18 paid under Item No. 68, CET during the period from 17-9-1979 to 8-1-1980.
12. Yet another order was passed by the Assistant Collector on 20-12-1981 dismissing the claim for refund of Rs. 39,921.41 paid under Item No. 68 during the period from 1-3-1979 to 9-9-1979.
13. The assessee challenged the aforesaid three orders of the Assistant Collector by separate appeals before the Appellate Collector of Central Excise, Madras, who, by his order-in-appeal dated 31-3-1982, held that hose assemblies were distinct and different from hoses and were correctly classifiable under Item No. 68, CET. However, he held that the Superintendent's letter dated 10-12-1979 written for the Assistant Collector amounted to a quasi-judicial order and that, therefore, the said order had no retrospective application and further that payment of duty by the appellants on hose assemblies during the period prior to 10-12-1979 under Item No. 68, CET was also in order notwithstanding the fact that it was paid under protest inasmuch as the dutiability of the goods under Item No. 68 had finally been decided upon. In the result, the Appellate Collector held that the Assistant Collector's order dated 19-11-1981 demanding duty for the period from 14-2-1981 to 13-8-1981 was not sustainable but that the other two orders both dated 20-12-1981 rejecting the assessee's refund claims were correct. He further held that his order would not affect the assessment of the goods under Item No. 68 arising after the date of the show cause notice.
14. The case of Sundaram Clayton is substantially similar, the issue of classification being just the same as in the Brakes India case. The goods in dispute are air brake hose assemblies. There are minor differences as to dates, amounts etc., but these are not really material to our discussions. The difference worth noting is that Sundaram Clayton made a claim dated 17-6-1980 for refund of duty paid on hose assemblies under Item No. 68 during the period from 1-5-1979 to 30-4-1980. The claim was received by the Assistant Collector on 21-6-1980. The Assistant Collector, therefore, held that the claim for the period from 1-5-1979 to 21-12-1979 was barred by limitation under Central Excise Rule 11. For the rest, the Assistant Collector, by his order dated 9-12-1981, rejected the claim on merits following his order dated 1-12-1981 (a) classifying hose assemblies under Item No. 68, CET and not 16 A, CET as had been earlier communicated to him by the Superintendent on 26-12-1979 and (b) demanding Rs. 1,55,506.37 towards duty under Item No. 68, CET on clearances of hose assemblies during the period 14-2-1980 to 13-8-1981 (the date of the show cause notice was 13-8-1981). The impugned order-in-appeal passed by the Appellate Collector also runs on the same line as in the Brakes India case. While setting aside the demand for duty for the period 14-2-1981 to 13-6-1981, the Appellate Collector confirmed the classification of the goods under Item 68, CET and upheld the rejection of the refund claim.
15. The Central Government, in exercise of its powers under Section 36(2) of the Act, issued notice dated 18/20-9-1982 to Brakes India and Sundaram Clayton to show cause why the order-in-appeal No. 117/82.M, dated 31-3-1982 and 116/82.M, dated 31-3-1982 respectively, should not be set aside insofar as they related to the demand for duty for the period 14-2-1981 to 13-8-1981 and why the Assistant Collector's orders dated 19-11-1981 and 1-12-1981 respectively demanding duty should not be restored. The notices, identically worded, set out the following basis for the propose revision of the Appellate Collector's orders :
"4. The Central Government are tentatively of the view that the impugned order-in-appeal passed by the Appellate Collector in respect of the duty demanded for the period from 14-2-1981 to 13-8-1981 are not correct, legal and proper due to the following reasons :
(1) The principle of 'estoppel' as defined in Section 115 of the Evidence Act, 1972 applies only to judicial proceedings in or before any court. There is no estoppel against revenue. Therefore, the provision of Section 115 of the Evidence Act would not apply to matters coming up for decision before quasi-judicial authorities under the Central Excises and Salt Act, 1944.
(2) Section 11A of the Central Excises and Salt Act, 1944 provides for recovery of duties not levied or not paid or short levied. In the instant case, the hose assemblies which were originally classified under Tariff Item No. 16A(3) and assessed was subsequently re-classified to fall under Tariff Item No. 68 of the Central Excise Tariff. The Assistant Collector, Madras-H Division has passed an order classifying the goods as falling under Tariff Item 68 and demanded duty short levied for 6 months preceding the date of issue of the show cause notice in accordance with the provisions contained in Section 14 A of the Central Excises and Salt Act, 1944. The provisions of Section 11A apply to all cases of short levy whatever be the cause. It, therefore, appears to the Government that the Appellate Collector had erred in holding that the demand for duty for the period from 14-2-1981 to 13-8-1981 is not sustainable."
Both the companies replied to the notices contesting the action proposed therein. These are the two proceedings which are now, in accordance with Section 35P of the Act, the deemed appeals of the Collector of Central Excise, Madras before us.
16. Shri Lakshmikumaran submitted that the Superintendent's letter dated 10-12-1979 "for the Assistant Collector" conveying the decision that hose assembly was classifiable under Item No. 16A, CET and that since the hoses and discharged duty liability at the time of their clearance from the factory of production, the hose assemblies would not attract duty again under Item No. 16A, was a quasi-judicial order and the Assistant Collector's view to the contrary in his order of 19-11-1981 was wrong. He referred to certain authorities in support of this view. In any case, he submitted, no cogent reasons had been adduced to justify revision of the previous decision on classification. On the merits of the classification, he urged that hose assemblies retained the essential characteristics of a tube or a pipe which was for conveyance of liquid or gas. The jobs done on the hose pipe had merely served to improve its quality but that would not take it away from the category of pipe or tube. In this context, he placed reliance on the Tribunal's decision in the case of The Western India Plywoods Ltd. v. Collector of Central Excise, Cochin, 1985(19) ELT 590 (Trib.). 'Addition of fittings to hoses designed for use in brake assembly did not amount to manufacture nor did it result in the hose assembly ceasing to be pipe or tube. And, finally, be placed reliance on Board's Circular letter No. Rubber/2/68, dated 2-4-1968 which supported the classification claimed by the assessees.
17. Shri Vineet Kumar, in his reply, submitted that the assessees were no doubt not manufacturing hose pipes and tubes but were fabricating, out of the bought out pipes and tubes, brake assemblies. They were not manufacturing any product falling under Item 16A, CET and, so, Notification No. 197/67 had no application to the goods in question. In revising the classification, the Assistant Collector had given cogent reasons and, therefore, there was no bar, in law, to such revision. A mistaken view could always be corrected by the Assistant Collector after giving due opportunity to the assessee. Shri Vineet Kumar also submitted that the revised classification could be applied to the past period also subject to the provisions of Section 11A of the Act.
18. e shall first deal with the question whether the Assistant Collector had jurisdiction to revise the classification indicated by the Superintendent in his letter dated 10-12-1979. To begin with, it is not clear from this letter whether the decision contained therein was of the Assistant Collector or of the Superintendent. Since the letter is written "for the Assistant Collector", we shall proceed on the basis that the decision was of the Assistant Collector. A somewhat similar question cropped up before the Tribunal in Wimco Ltd. v. Collector of Central Excise, Shillong, 1986 (26) ELT 877, the question being whether a letter written by the Deputy Collector to the effect that since the assessee did not avail of set-off of duty at the time of removal of the finished matches, no relief by way of refund or adjustment in the P.L.A. could be granted, was a decision or order against which an appeal lay under Section 35 of the Act, as it stood then. After analysing several authorities, the Tribunal came to the conclusion that the letter was an appealable decision or order. In the present case also, we are of the view that the Superintendent's letter of 10-12-1979 was a decision or order under the Act.
19. Shri Lakshmikumaran had referred to the Tribunal's decision in Siddheshwar Sahakari Sakhar Karkhana Ltd. v. Collector of Central Excise, Pune, 1987(27) ELT 79 in support of his contention that the Assistant Collector could not have reviewed his previous decision. In that case, the Superintendent had initially partly sanctioned a refund claim for a certain amount, rejecting the claim in respect of the balance amount. Later on, the Superintendent recalled a portion of the amount earlier sanctioned which, according to him, had been wrongly sanctioned and directing the assessee to debit the amount in the P.L.A. Thus, the Superintendent was reviewing his earlier order. The Tribunal held that no quasi-judicial authority had a right to review its earlier order unless such a right to review had been expressly conferred by the statute. Apparently, no such right of review had been conferred in law on the Superintendent. In Ajanta Iron and Steel Co. Pvt. Ltd. v. Union of India and Ors., 1986(23) ELT 318, the Delhi High Court had held that once an Assistant Collector accords approval to a classification list, it cannot be disapproved by another Assistant Collector and a notice seeking to revise the classification earlier approved would not be valid. However, we find that in a later judgment of the Karnataka High Court in Shyam Sunder Nichani v. Assistant Collector of Central Excise, Bangalore, 1985(22) ELT 751, the question again came up for detailed consideration. In that case, the classification list filed by the assessee was approved by the Assistant Collector and monthly returns filed thereafter by the assessee were also accepted by the proper officer. The Assistant Collector later issued a show cause notice proposing to withdraw the earlier approval of the classification list and the exemption from duty granted in terms of Notification No. 80/80 and calling upon the assessee to pay excise duty consequent on such withdrawal. In due course, the Assistant Collector passed an order confirming the action proposed in the said notice. The petitioner's contention before the High Court was that the Assistant Collector's order calling for duty under Section 11A of the Act amounted to reviewing his own earlier order which was not permissible in law. Relying on the Supreme Court's judgment in D.R. Kohli and Ors. v. Atul Products Ltd., 1985(20) ELT 212 (SC), the High Court held that it was not correct that Section 11A was only a recovery provision and did not enable the original authority under the Act to reopen and reassess. But it has to be noted that the Department was reopening the assessment on the basis of certain facts which were not before the assessing officer and not considered by him while granting exemption in the first instance. In the present case, there is no indication on record nor has it been urged before us by the Revenue that certain facts had come to light after the Superintendent's letter dated 10-12-1979 necessitating reopening of the assessment. On the contrary, it appears from the show cause notice that it was merely a change in the interpretation of the Tariff entry and the view taken by the Assistant Collector that prompted the issue of the show cause notice. The notice, after setting out the correspondence exchanged between the assessee and the Department leading to the Assistant Collector's order conveyed in the Superintendent's letter dated 10-12-1979, states :- "It now appears that the hose assemblies made from hoses is a new product with a distinct trade name and is designed for specific use in motor vehicles. It, therefore, appears that the hose assembly falls outside the purview of TI 16A(3) and would be classifiable under TI 68 as M.V. part not elsewhere specified". No other basis has been set out for the proposed action. The Assistant Collector's order dated 19-11-1981 classifying hose assemblies under Item No. 68 also does not show that any new facts had come to light. Nor had the Tariff entry undergone any change after 1-3-1979 during the period material to the present dispute. In the circumstances, the question arises whether the revised classification could be made operative so as to recover duty for the period of six months prior to the date of the show cause notice. A similar question came up before the Tribunal in Steel Authority of India Ltd., Durgapur v. Collector of Central Excise, West Bengal, Calcutta, 1985(22) ELT 487. The assessee's contention in that case was that the Excise authority could not go back even six months from the date of the show cause notice assuming that the Department's stand on classification was correct because of the non-existence; of any fresh reason for changing the stand established by long standing practice approved by the Department for a long period. The Tribunal referred to its earlier decision in Inarco Ltd., Bombay v. Collector of Central Excise, Bombay, 1984 ECR 2164 (CEGAT) that in such a situation the demand for additional duty was enforceable only with effect from the date of issue of the show cause notice. That was also a case of a long standing practice having been allowed to continue by the Department by means of orders issued and approvals recorded both from the period prior to introduction of Item No. 68, GET as well as subsequent dates till the issuance of a show cause notice in 1980. On this reasoning, the Tribunal held that the demand for additional duty could be enforced only with effect from the date of the show cause notice.
20. The Delhi High Court in 3.K. Synthetics Ltd. and Anr. v. Union of India and Ors., 1981 ELT 328 set out certain guidelines in the matter of reopening a classification previously settled. If the process of manufacture of goods has changed, or if the relevant entries in the Tariff have undergone a modification, or if there has been a subsequent pronouncement of a High Court or the Supreme Court which necessitates reconsideration of the issue, there is obvious justification for reopening the issue of classification. None of these factors is present in the instant case. Nor, as we have already seen, had any fresh facts, not available at the time of the initial decision, been brought on record.
21. In the light of the foregoing discussion, we are of the opinion that while it was open to the Assistant Collector to go into the question of classification of hose assemblies, though it had been previously settled, on the facts and in the circumstances of the present case, the revised classification cannot be made retorspectively applicable, that is, the demand for duty in terms of the revised classification can be enforced only from the date of the show cause notice and not for any earlier period.
22. Now, we shall deal with the merits of the classification issue. It is nobody's case that hose pipes and hose assemblies are one and the same thing. The processes applied by the assessees to the broughtout hose pipes have already been noted. The result of application of these processes, including addition of fittings, is the emergence of a product which is admittedly (there is no dispute about this), a part of motor vehicles. The argument that even the bare hose pipe is specially designed for use in the production of hose assembly and that the function of the hose assembly is the same as that of the hose pipe, namely, conveyance of fluid or gas, does not detract from the position that hose assembly is a new product which is the result of application of certain processes and fitment of certain items, and is known and recognised as a motor vehicle part. On the basis that the function of the bare hose pipe and the hose assembly is the same, it is urged for the assessees, the two cannot be classified differently and that the hose assembly does not cease to be a hose pipe. The contention is that the hose assembly continues to remain under Item No. 16A(3), CET and to enjoy exemption under Notification No. 197/67. We have found that the hose assembly is not the same thing as the bare hose pipe. It is converted into a brake hose assembly by cutting the hose into requisite size, addition of end fittings etc. Its very name shows that it is an assemblage of more than one thing, the things being the bare hose pipe and fittings. It is nobody's case that the bare hose is known as hose assembly. The assembly is thus a new article, having a distinct name. Further, it is evident that the bare hose pipe cannot be directly fitted into the motor vehicle for function as a part; it has to be fabricated into the hose assembly before it can be used as a motor vehicle part. Thus, the well settled test for ascertaining whether there has been "manufacture" resulting in emergence of a new product distinct in trade name, character and use has been satisfied in this case. There is no doubt that the hose assembly is different from the hose pipe. The fact that the Explanatory Notes under the CCCN (Customs Cooperation Council Nomenclature) include tubing and piping even if the ends are fitted into connectors under the head "Piping and Tubing" provided they retain the essential character of piping and tubing, is of no assistance to the assessee, the reason being that the CCCN is a self-contained code having its own scheme of classification, statutory section notes, chapter notes and rules for interpretation. The explanatory notes, in any event, have no binding force. Since there is no specific entry in the CET to cover brake hose assemblies, they have been rightly classified under Item No. 68, CET.
23. This view would be consistent with the view taken by the Tribunal in the case of Inarco Ltd., (Supra). In that case, tubings of unhardened vulcanized rubber were cut by the asaessee to specific lengths and the edges were bevelled to conform to Indian Standard Specifications for rubber aprons and cots which are textile machinery parts. The Tribunal negatived the contention that the final products were also tubings falling Under Item No. 16A(3), CET but held that in view of their having acquired a distinctly different trade name, character and use, etc., they were textile machinery parts classifiable under Item No. 68, CET.
24. In the result, the following are our conclusions :
(a) The re-classification of hydraulic and air brake hose assemblies under Item No. 68, CET, was correct and is upheld.
(b) However, assessments under Item No. 68, CET for purposes of raising demand can only be sustained for the periods commencing from the dates of the respective show cause notices. The demands for duty under Item No. 68, CET for the periods prior to the dates of the respective show cause notices are not sustainable and are set aside.
(c) The show cause notices issued by the Central Government under Section 36(2) of the Act are not sustainable and are discharged. The Collector's appeals are dismissed.
(d) The assessees are not entitled to refund of duties paid under Item No. 68, CET, since we have held the proper classification of the goods is under Item No. 68, CET.
25. The appeals are disposed of accordingly, on the above lines.