Custom, Excise & Service Tax Tribunal
M/S Shri Rolex Rings Pvt.Ltd vs Commissioner Of Customs, Kandla on 29 October, 2015
In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench at Ahmedabad
Appeal No.C/10572,10573/2014-DB
[Arising out of OIO No.KDL/COMMR/44/2013-14, dt.31.12.2013, passed by Commissioner of Customs, Kandla]
1. M/s Shri Rolex Rings Pvt.Ltd.
2. Shri Manesh Madeka Appellants
Vs
Commissioner of Customs, Kandla Respondent
Represented by:
For Appellant: Shri P.M. Dave, Shri P.V. Sheth - Advocates
For Respondent: Dr. J. Nagori, Authorised Representative
For approval and signature:
Honble Mr. P.K. Das, Member (Judicial)
Honble Mr. P.M. Saleem, Member (Technical)
1. Whether Press Reporters may be allowed to see the No
Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen
the order?
4. Whether order is to be circulated to the Departmental Yes
authorities?
CORAM:
HONBLE MR. P.K DAS, MEMBER (JUDICIAL)
HONBLE MR. P.M. SALEEM, MEMBER (TECHNICAL)
Date of Hearing: 15.07.2015
Date of Decision:29.10.2015
Order No.A/11578-11579/2015, dt.29.10.2015
Per: P.K. Das
The relevant facts of the case, in brief, are that the Central Government w.e.f. 01.10.2011 abolished export incentive under Duty Entitlement Pass Book (DEPB) Scheme. Notification No.68/2011-Cus(NT), dt.22.09.2011, was issued and determined rates of Drawback as specified in the list annexed thereto, and also covered the items earlier covered in DEPB scheme. Prior to 01.10.2011, the Appellant manufactured and exported Alloy Steel Forgings (Machined) for use rings for Bearing and Gear Blanks (hereinafter referred to the impugned goods) and availed DEPB benefit under Sr.No.68B of the DEPB Scheme. The Central Government issued Circular No.42/2011-Cus(NT), dt.22.09.2011 vide File No.609/82/2011-DBK, and clarified corresponding tariff item/chapter of Drawback Schedule and DEPB Scheme. It is mentioned in the list of the said circular that the corresponding sub-heading for the goods covered under Sr.No.68B of the DEPB scheme is tariff item 732616 of the Drawback schedule. From 01.10.2011, the Appellants manufactured and exported Alloy Steel Forgings (Machined) for use rings for Bearings/Gear Blanks and claimed Drawback benefit under tariff item No.732616 of the Drawback schedule. The competent authority sanctioned and paid drawback as per the claim of the Appellant. On 01.10.2012, the Central Excise Officers of Directorate General of Central Excise Intelligence (DGCEI) initiated summons proceedings for investigation that the Appellants were misclassifying their product during export so as to claim higher rate of Drawback.
2. A show cause notice dt.06.08.2013 was issued, proposing to classify the impugned goods machined rings used for Bearings, manufactured and exported by them under sub-heading No.84829900 of the schedule to the Customs Tariff Act, 1975 (CTA) and under tariff item No.848221 of Drawback schedule. Further, the impugned goods for use Gear Blanks manufactured and exported by them should be classified under sub-heading No.87084000 of CTA and under tariff Item No.8708099 of Drawback schedule. It has also proposed to recover excess amount of Drawback availed by the Appellant during the period from November 2011 to September 2012 under Rule 16 of the Customs, Central Excise duties, and Service Tax Drawback Rules, 1995 (in short Rules, 1995) alongwith interest and to impose penalty under Section 114(ii) of the Customs Act 1962. It has also proposed to impose penalty on Shri Manesh Madeka, Managing Director of the Appellant Company under Section 114(ii) of the Act, 1962. By the impugned order, the Adjudicating authority held that the impugned goods machined rings used for Bearing manufactured and exported by the Appellant should be classified under sub-heading No.84829900 of CTA and under tariff item No.848221 of Drawback schedule. The impugned goods used for Gear Blanks manufactured and exported by the Appellant should be classified under sub-heading 87084000 of CTA, wherever the impugned goods machined used for Gear Blanks are shown under sub-heading No.73261990 and the said Gear Blank should be classified under tariff item No.8708099 of the Drawback schedule. It has confirmed the demand of excess Drawback amount availed by the Appellant under proviso to Rule 16 of Rules, 1995 alongwith interest and imposed penalty of equal amount of excess Drawback on the Appellant Company and also imposed penalty on Shri Manesh Madeka, Managing Director of the Appellant Company. Hence, the Appellant Company and the Director filed the appeals before the Tribunal.
3. The learned Advocate on behalf of the Appellant submits that prior to 01.10.2011, they have manufactured and exported Alloy Steel Forgings (Machined), in unfinished form for use Rings for Bearing, and Gear Blanks and declared under Code 68B of DEPB schedule and thereafter under tariff item No.732616 of the Drawback schedule as per Board clarification. As per Serial No.70 of the list appended to the circular, DEPB product code 68B under the description of Alloy Steel Forging (Machined) would cover tariff item No.732616 of the Drawback Schedule. He submits that prior to 01.10.2011, the Department investigated on various occasions in the year 2000, 2005, 2009 etc to classify the impugned items under Code No.428 as Bearing Races of the DEPB schedule. After thorough investigation, it was decided that as the impugned goods were unfinished form, not fit for ready to use and therefore, it was covered under Item No.68B of DEPB scheme. The Board also clarified that the product under 68B of the DEPB scheme would cover under tariff item No.732616 of the DEPB scheme. The said circular is binding on the Department as held by the Honble Supreme Court in case of Ranadey Micronutrients Vs Collector of Central Excise - 1996 (87) ELT 19 (SC). He also submits that the strict interpretation at par with Customs tariff is not required while deciding the export incentive scheme as held by the Tribunal in the following cases:-
i) Imperial Thread Co. Vs CC (EP), Mumbai
2002 (139) ELT 221 (Tri-Mumbai)
ii) Amiya Commerce & Construction Co. P. Ltd Vs CC (Prev.), West Bengal, Kolkata
2007 (217) ELT 154 (Tri-Kolkata)
4. The learned Advocate further submits that the goods were exported in observance of the procedure as prescribed in Rules 1995. The Customs Officers, examined the documents mainly Central Excise invoices, ARE-1, and shipping bills. As per the practice prevailing during DEPB scheme, the Appellant mentioned the classification of the impugned goods under Chapter 84 or 87 of the schedule to the Central Excise Tariff Act/Customs Tariff Act in the Central Excise invoices and ARE-1 and the tariff item No.732619 DEPB Schedule in the Shipping Bills. The Customs officers verified the goods and documents and paid the Drawback claim as declared in the shipping bills for the reason, the goods were unfinished form and not ready to use as finished goods. He further submits that the demand is barred by limitation as there is no suppression of facts with intent to evade payment of duty. He further submits that even if there is no limitation prescribed in Rule 16, the limitation prescribed under Section 28 of the Customs Act, 1965 would be applicable. The learned Advocate also filed Written Submissions with compilation of case laws.
5. The learned Authorised Representative on behalf of the Revenue reiterated the findings of the Adjudicating authority. He submits that the Appellants were classifying the impugned goods under heading No.84829900 (machined rings) and heading No.87084000 (gear blank) in Central Excise invoice and ARE-1 and the same products were classified in the shipping bill under sub-heading No.73261990 describing Alloy Steel Forgings (Machined) for the purpose of claiming higher rate of Drawback under tariff item No.732616 of the Drawback schedule. Since, the Appellant had classified their product under heading 84829900 and 87084000, it is clear that the goods are classifiable under respective tariff heading of the Drawback schedule and it cannot come under tariff item 732616 of the said schedule. It is also submitted that the corresponding correct classification of Bearing/Gear Blank under DEPB schedule should have been under Sr.No.428 and not 68B of DEPB Schedule as classified by the Appellant. It was found during investigation that the Appellants fraudulently availed the benefit of DEPB scheme. He strongly relied upon the decision of the Tribunal in the case of Bharat Forge Ltd Vs CC(Export), Nhava Sheva - 2012 (284) ELT 280 (Tri-Mum.). He further submits that essential characters of the impugned product are rings for Bearing and Gear Blank, as the case may be, and as per The General Rules for the Interpretation of the First Schedule to CTA 1975. applicable to the Drawback schedule and the items in questions would be classified under Chapter 84 and 87 of the said Drawback schedule. It is stated that Rule 16 of Rules 1995 is not subject to the provisions of Section 28 of the Customs Act, 1962 as held by the Tribunal in the case of Sun Exports Vs CC(Exp.), Nhava Sheva - 2008 (228) ELT 545 (Tri-Mumbai). He also submitted written submissions with case laws. He also relied upon the following decisions of Hon'ble High Court:-
i) Pratibha Syntex Ltd Vs UoI
2013 (287) ELT 290 (Guj)
ii) CPS Textiles (P) Ltd Vs Joint Secretary, M.F.(D.R.)
2010 (255) ELT 228 (Mad.)
6. After hearing both the sides and on perusal of the records, we find that the dispute relates to the classification of the impugned goods manufactured and exported by the Appellants would be classifiable under Tariff Item 732616 of the Drawback Schedule as claimed by the Appellant or Tariff Item 848221 and 8708099 of Drawback Schedule as held by he Adjudicating authority. For the purpose of proper appreciation of the case, we reproduce below the relevant portion of the DEPB, Drawback schedule and CETA/CTA as under:-
(A) DEPB Schedule (Prior to 01.10.2011)
S.No.
DEPB Sr.No.
Description of goods
Corresponding Drawback Tariff item
1.
68B
Alloy Steel Forgings (Machined)
732616
2.
428
Bearing races
848221
(B) Drawback Schedule (from 01.10.2011)
Tariff Item
Description of goods
Unit
A
Drawback when Cenvat facility has not been availed
B
Drawback when Cenvat facility has been availed
Chapter 73: Articles of Iron or Steel
7326
Other Articles of iron and steel
732616
Alloy Steel Forging (Machined)
Kg.
5%
9%
5%
9%
Chapter 84: Nuclear Reactors, Boilers, Machinery and Machined
Applications; parts thereof
8482
Ball or roller bearings
Parts
848221
Bearing Races
2%
2%
Chapter 87: Vehicles other than Railway or Traction Rolling
Stock, and parts and accessories thereof.
8708
Parts and accessories of the motor vehicles of Headings 8701 to 8705
8708099
Others
1%
1%
(C) Customs Tariff Act, 1975
7326
Other articles of iron and steel
-
Forged or stamped, but not further worked:
7326 11 00
--
Grinding balls and similar articles for mills 7326 19
--
Other:
7326 19 90
---
other 8482 Ball or roller bearings
-
Parts:
8482 99 00
--
Others.8708
Parts and accessories of the motor vehicles of headings 8701 to 8705 8708 40 00
-
Gear boxes and parts thereof
7. The description of Chapter 73, 84 and 87 of CTA is similar to Drawback Schedule. Chapter 73 of the schedule to the Customs Tariff Act covers the Articles of iron and steel. Chapter 84 and 87 of the schedule to the Customs Tariff Act, cover the parts of machinery, motor vehicles etc. The articles of iron and steel are subjected to various processes and incomplete shape, would cover under Chapter 73. Sub-heading No.7326 of CTA covers other articles of iron and steel including forged and stamped, but not further worked. The Adjudicating authority observed that if the forged items are identifiable as parts of machinery and vehicles would cover under Chapter 84 and 87 of CTA. It is observed that as evident from the documents and statements of various persons of the Appellant, the impugned export goods are not just forged articles but further worked. It has been observed that the processes carried out at customers end, a new product does not emerge. These processes are carried out simply for the purpose that they fit into the specific need and requirements of the customers. These processes are not the processes alien to the manufacture of Bearing Rings/Gear Blanks. It has been held that the Appellant was manufacturing and exporting the goods after machining of their product machined Bearing ring or Gear blank. It has been further held that the impugned product machine rings/blank were manufactured and exported by the Appellant, were clearly identifiable as parts of bearing and blank. It is because of these facts that the Appellants themselves have classified the impugned product under Chapter 84 and 87 of CETA in the Central Excise invoices.
8. The learned Advocate submitted that the Appellants were manufacturing and exporting the parts of machinery in finished form classifying under Chapter 84. They claimed drawback benefit under the respective headings of the drawback schedule. In the case of manufacture and export of the unfinished articles of iron and steel, where the customers had further worked, the Appellants declared the goods under Chapter 73 of the Drawback Schedule. The Adjudicating authority also observed that the Appellant exported two types of alloy steel. According to the Revenue, the impugned product would also cover under Chapter 84 and 87 instead of Chapter 73 as claimed by the Appellant.
9. On perusal of the records, we find that from the very beginning, the Appellants took a stand before the Customs authorities that the impugned goods were exported in unfinished form and not ready to use by the customers and availed benefit under DEPB Scheme. It is noticed that in earlier occasions, the Customs authorities enquired the matter in detail. The Appellants submitted certificate dt.25.07.2000 of the Chartered Engineer. The relevant portion of the said certificate is reproduced below:-
On the basis of our inspection and verification of manufacturing facilities available at the factory of M/s Rolex Industries, process flow chart being followed by the unit and other relevant information furnished by the unit, it is certified that:-
1. M/s Rolex Industries, Rajkot is capable to manufacture forged and machined rings for producing bearing races from alloy steel materials.
2. Rings supplied as forged and machined condition, require further process of heat treatment to impart required hardness to bearing races, further process of finishing by grinding and lapping on special machineries, so that bearing races can be assembled as to prepare the bearing complete.
3. Forged and machined rings being exported by the unit, for producing bearing races, will require further process at buyers end to make machined rings suitable for bearing assembly.
4. Forged and machined rings manufactured and, being exported by the unit cannot be assembled or used for producing bearings. All rings require further process like heat treatment, grinding, lapping, assembly etc to make complete bearing.
5. Information furnished herewith is true and correct to the best of our knowledge and belief.
10. It is noticed that the Superintendent of Central Excise, Rajkot also issued a certificate dt.26.07.2000, certifying that the forged and machined rings manufactured and being exported cannot be assembled or used for producing the bearing. All rings are required further processing like heat treatment, grinding, lapping, assembly, etc for making complete bearing. The said certificate dt.26.07.2000 is reproduced below:-
M/s Rolex Industries, behind Glowtech Steel Pvt.Ltd, Gondal Road, Village: Kotharia, Rajkot is registered with this office manufacturer for forged & machined rings for producing bearing races from alloy steel materials.
On going through the records and information supplied by M/s Rolex Industries, Rajkot certified that export forged and machined condition rings required further process of heat treatment to impart required hardness to bearing races, further process of finishing by grinding and lapping on special machineries, so that bearing races can be assembled as to prepare the bearing complete. Forged and machined rings being exported by the unit, for producing bearing races will require further process at buyer end to make machined rings suitable for bearing assembly.
It is also certified that forged and machined rings manufactured and being exported by the unit cannot be assembled or used for producing bearings. All rings require further process like heat treatment, grinding, lapping, assembly etc to make complete bearing.
11. The matter was also enquired by the Mahindra SEZ (Special Economic Zone) as revealed from the File Note No.8/20/2006/Mahindra SEZ, dt.26.03.2009 of the Superintendent of Customs Authorised Officer, Mahindra City, SEZ, which is reproduced below:-
File No.8/20/2006/MAHINDRASEZ Dated 26/03/2009 Sir, Sub: Timken India Ltd Certain clarification DEPB - Reg.
Timken India Ltd had sought for clarification on the excisable raw materials namely alloy steel forged rings (cups & cones), proof machined and carburized, received from, vendors namely, M/s Mascot Forge Pvt.Ltd., Rajkot, Rolex, Rajkot, & Dual Rings, Hyderabad, used in the manufacture of Taper Roller Ball Bearing, and its applicable rates under deep scheme, viz-viz, the classification of the raw material supplied.
The undersigned is directed to examine the issue for compliance.
1) Timken India, (TIMKEN) has put a plant in Mahindra World City, Special Economic Zone, are the manufacturers of taper roller ball bearings falling under Customs Tariff 84829900, is described as assembled cones interalia includes roller, caging, cups & cone. The basic raw material/components, alloy steel forged cups & cones, are procured indigenously and roller and cages are procured under import from USA, & Japan.. The indigenously procured raw material alloy steel rods procured by the vendor, Mascot Forging, Rajkot, undergoes forging and machining operations, and cleared to the job workers premises for carburizing, and are received by, Timken directly from the job workers premises on behalf of the suppliers, under ARE-1 in terms of Central Excise Rules 1944 read with Notification No.21/2003, under claim of DEPB benefit. The issue involved is whether machined alloy steel forging is eligible for DEPB benefit under product code 61/68B or under bearing races under 61/428 or under 61/530A, and the applicable rates thereon.
It is examined and found that the machined and carburized rings, (cups & cones) received by Timken from M/s Mascot, Rajkot needs further operations to be called bearing casing, which in turn is used in the assembly of taper bearings which is exported, under SEZ procedures.
The process of manufacture is studied and the same is detailed under:-
The machined, carburized alloy steel forging, namely cups & cones, i.e. green rings received from the vendors are quality checked for visual damage etc, are sent for heat treatment in furnace at a relatively high temperature, then sent to quench press for sizing and washed.
The heat treated, washed materials are sent for tempering operation in tempering furnace for about couple of hours and taken out and sent to metallurgical lab for testing and certification for grinding operations, in 4 stages.
The face of cone and cups materials cleared for grinding operation, are ground in a Face grinding machine; the outer diameter of cups and cones are ground in the Outer dia grinding machine; the rib of the cone are ground with Rib grinding machine; and the inner dia meter of the cups and cones are ground in the Inner grinding machines, the operations necessitating for the required parameters of sizes of Timken USA standards.
During the course of each operation the materials are sent for quality test and inspected with high precession lab as well as physical, visual tests. Then the QC approved materials are sent for laser marking in the Laser marking machine, sent for de-magnetization, and the resultant product manufactured is known as Bearing Race, for final assembly with the rollers and caging (imported) for the final assembly of taper roller bearing assembly, and exported.
It appears a basic doubt may arise as to whether the steel alloy products, namely cups and cones, machined and carburized supplied to Timken, could be said to have attained the essential character of a part of taper roller bearing, as machined forging would only be used for the manufacture of the said item.
In the present case, though articles supplied are subjected to further grinding finishing on all sides of the bearing races, despite the fact the raw material, forged articles received has a rough shape of a race, however in the absence of the operations, refer supra, it cannot be directly fitted into the bearings as bearing race, thus the operations carried out at Timken only makes the alloy forging as an identifiable part of for fitment into roller bearings.
It is therefore felt the goods supplied by Mascot, merits classifiable under CT 73269990, rather under CT 84829900. The view is strengthened in light of the Apex Courts decision in the case of Jaypee Forgings Vs CCEX [2003 (158) ELT 560 (SC)], wherein the issue whether the forged article of alloy steel are classifiable under 7326 and not under 8708 on interpretation of rule 2(a) viz-viz rule 2(b).
It is further observed that CBEC has clarified in Circular No.225/59/96-CE, dt.01.07.1996 and Customs Circular No.28/2000/Cus, dt.07.04.2000, that castings/forgings upto stage of proof machining and require further machining before being used as machine parts would be appropriately classifiable under CET73, however the forgings which dont require further machining and are ready to be used merits classification under 84/85/86/87, & all castings coming out of casting moulds upto stage of proof machining and requiring further machining before being used as machine parts, are correctly classifiable under 7325.
Further, as per the explanatory notes of HSN DVI-8482-1, normally bearings consists of two concentric rings, enclosing the ball or the roller and a cage which keeps them in a place, and ensure their space remains constant. Thus, it appears only finished bearing race is merits classification under 84829900 and not the green rings received from the vendors.
Summing up the alloy steel forging machined, supplied by the vendors require further operations, such as hardening, quenching, tempering, face/id/od/grinding, honing, laser marking, which are done at Timken making it as bearing race fit for use as part of roller bearing and hence, the classification of alloy steel forging machined under product code 61/68B appears more appropriate rather than under product code 61/428 or 61/530A, WHICH IS MORE SPECIFIC inasmuch as the alloy steel forging machined are neither rough or attained the character bearing race or machine part fit for ready use. Regarding the classification of the components received, namely alloy steel rings machined and carburized, the appropriate classification appears under CT 7325.
12. The Appellant also submitted the certificates of the customers in the present appeal to substantiate that the impugned exported goods were further processed to produce the bearing races in the customers premises. In this context, the certificate dt.10.05.2013 of M/s SKF is reproduced below.
This is to inform that, We, SKF India Ltd, Chinchwad, Pune, procure Alloy Steel Forgings (Machined) rings from ROLEX RINGS PRIVATE LIMITED, RAJKOT INDIA.
These Alloy Steel Forgings (Machined) Rings supplied by ROLEX are further processed to produce a Bearing Race. Following processes are required to be performed on Forgings (Machined) Rings supplied by ROLEX RINGS PRIVATE LIMITED, RAJKOT INDIA.
(1) Heat Treatment (2) Grinding (3) Finishing (4) Assembly Further to state that these rings procured from ROLEX RINGS PRIVATE LIMITED, RAJKOT INDIA cannot be used directly in as supplied condition for assembly of bearings or cannot be considered as Bearing Races and fitted as Bearing Races.
13. The certificate dt.03.05.2013 of M/s NTN-SNR Roulements, France is reproduced below:-
This is to inform that, We, NTN-SNR Roulements, B.P. 2017, ANNECY CEDEX, FRANCE, import/procure Alloy Steel Forgings (Machined) Rings from ROLEX RINGS PRIVATE LIMITED, RAJKOT INDIA.
These Alloy Steel Forgings (Machined) Rings supplied by ROLEX are further used to produce Bearing Races. Alloy steel forged rings supplied by ROLEX RINGS PRIVATE LIMITED, RAJKOT INDIA are further processed to produce a Bearing Race. Following processes are required to be performed on Forgings (Machined) supplied by ROLEX RINGS PRIVATE LIMITED, RAJKOT INDIA (1) Heat Treatment (2) Grinding (3) Super Finishing process like honing and Lapping (4) Assembly Further to state that these items/Rings imported/procured from ROLEX RINGS PRIVATE LIMITED, RAJKOT INDIA cannot be used directly in as supplied condition for assembly of bearings or cannot be considered as Bearing Races and fitted as Bearing Races.
14. On perusal of the certificates of the customers and the customs authorities and SEZ, as mentioned above, we are unable to accept the findings of the Adjudicating authority. The customers categorically certified that the alloy steel forging (machined) for use rings supplied by the Appellant were further processed to produce Bearing Races. The processes undertaken by the customer are heat treatment, grinding, super-finishing process like honing, lapping, assembling etc. It is submitted by the learned Advocate that these processes are essential to produce the bearing races. The customers also certified that without these processes, the Bearing rings/blanks cannot be produced. The findings of the Adjudicating authority that the product is finished nature are without any substance.
15. The learned Authorised Representative strongly relied upon The Rules for the Interpretation of the First Schedule in the Customs Tariff Act. He submitted that the impugned product had attained essential character of the finished product under Chapter 84 or 87 of the tariff. On perusal of the certificates of various authorities, it is evident that the impugned product cannot be treated as Bearing Rings or Gear Blank and therefore, it would cover in the respective headings under Chapter 73 of Drawback Schedule.
16. The other aspect of this matter is that after abolition of export incentive of DEPB scheme, CBEC issued a Circular No.42/2011-Cus, dt.22.09.2011, vide F.No.609/82/2011-DBK, for taking into consideration that the items under DEPB, were included in the Drawback Schedule. It has been clarified as under:-
3.?The drawback schedule this year incorporates items which were hitherto under the DEPB scheme. Thus, the total number of items in the drawback schedule now number approximately 4000. While incorporating these DEPB items in the Drawback schedule, care has been taken to classify them at the appropriate four digit level. However, there may be some doubts about the classification of these DEPB items in the drawback schedule notified. Be that so as it may, it may please be noted that the rates of drawback as specified for these items in the drawback schedule is not to be denied in all such cases. For easy reference, a list of all the DEPB items falling under a particular product code and serial number with the corresponding drawback tariff item has also been separately hosted on the CBEC website. All field formations are requested to inform the Board about specific item/s (if any) on which there are doubts regarding the classification.
17. In exercise of the powers conferred by Section 75 of the Customs Act, 1962, Section 37 of the Central Excise Act, 1944, Section 93A, Section 94 of Finance Act, 1994, the Central Government framed the Customs, Central Excise duty and Service Tax Drawback Rules, 1995 (in short Drawback Rules, 1995)as amended by Notification No.69/2011-Cus(NT), dt.22.09.2011. Notification No.68/ 2011-Cus(NT), dt.22.09.2011 issued in exercise of the powers conferred under Section 75(2) of the Customs Act, 1962, Section 37(2) of the Central Excise Act, 1944, and Section 93A and 94(2) of Finance Act, 1994 read with the rules 3 & 4 of the Drawback Rules, 1995, the Central Government determined the rates of Drawback as specified in the schedule annexed to the said notification, subject to the notes and conditions mentioned therein. The Central Government issued circular No.42/2011-Cus, dt.22.09.2011 and clarified corresponding tariff item/chapter of Drawback schedule covered under DEPB scheme. In terms of the said clarification, Alloy Steel Forgings (Machined) under Sr.No.68B of DEPB Scheme would be covered under tariff item 732616 of Drawback schedule. After 01.10.2011, the Appellants claimed the Drawback benefit of the impugned goods under tariff item No.732616 of Drawback schedule.
18. There is no dispute that the list appended to the Circular clarified that the Sr.No.68B of DEPB Scheme is corresponding to Tariff Item 722616 of Schedule. The Honble Supreme Court in the case of Ranadey Micronutrients Ltd (supra) held that the circular issued by CBEC is binding on the officers of Revenue Department and consistency and discipline are of greater importance than winning or loosing the court case. The relevant portion of the said decision is reproduced below:-
14. We reject the submission to the contrary made by? learned Counsel for the Revenue and in the affidavit by M.K. Gupta, working as Director in the Department of Revenue, Ministry of Finance. One should have thought that an officer of the Ministry of Finance would have greater respect for circulars such as these issued by the Board, which also operates under the aegis of the Ministry of Finance, for it is the Board which is by statute, entrusted with the task of classifying excisable goods uniformly. The whole objective of such circulars is to adopt a uniform practice and to inform the trade as to how a particular product will be treated for the purposes of Excise duty. It does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with a statutory provision. Consistency and discipline are of far greater importance than the winning or losing of court proceedings. In view of the Boards circular, the Appellant had rightly classified the impugned goods under tariff item 732616 of the Drawback Schedule, which was earlier covered under Sr.No.26B of DEPB Scheme.
19. The Adjudicating authority, for the purpose of denying the benefit of the above Board circular, had observed that the Appellants had classified their product under CTH 84829900 of schedule to CETA/Customs Tariff in the Central Excise invoice and ARE-1. It was clear that their product to be part of ball bearing. It is also observed that the corresponding correct classification of Bearing Races under DEPB schedule should have been S.No.428 and not 68B as classified by the Appellant. It is further observed that the Appellant, while exporting the Bearing Races before 01.10.2011, had wrongly claimed DEPB under S.No.68B, as the correct heading of Bearing/Races is Sr.No.428 of DEPB schedule. It has also relied upon the statement of the Appellants and the Buyer. We are unable to accept the findings of the Adjudicating authority. There is no proposal in the show cause notice for re-opening of classification under DEPB scheme. Further, there is no proceeding initiated to deny DEPB benefit prior to 01.10.2011. Furthermore, it is seen from the records that enquiry was conducted to classify the said product other than Sr.No.68B of the DEPB scheme in the year 2000 and 2008. The customs authorities and Mahindra SEZ, after detailed examination of the issue, had ruled in favour of the Appellant. The learned Authorised Representative at the time of hearing submitted that the investigation was going on this issue. It is settled that the statement would not prevail over the evidence. In any event, the Appellants contested the authenticity of the statement. It is stated that the statement of Shri Bhavin Shah, working as Deputy General Manager (Production Supply Chain) of M/s FAG Bearing India Ltd would not reveal correct facts of the case. M/s FAG Bearing India Ltd certified in their certificate that the goods supplied by the Appellants are further processed by them and are not ready for use and therefore, the statement of Shri Bhavin Shah cannot be accepted. Shri Bhavin Shah during cross-examination stated that Forged Rings or Bearing Rings supplied by the Appellant are being further processed, which includes Cold Stampings, Heat Treatment, Face Grinding, Outer Diameter Grinding and Raceway Grinding. It is also stated that the Rings being supplied by the Appellant are not capable of direct use. We do not find any substance in the submission of the learned Authorised Representative, as the impugned order confirmed the classification under the Drawback Schedule and not under DEPB Scheme.
20. The learned Authorised Representative strongly relied upon the classification of the goods as declared by the Appellant under Chapter 84 or 87 of CTA/CETA in the Central Excise invoices. But, they have mentioned Chapter 73 of CTA/CETA in Shipping Bills. It is seen from the record that the Appellant followed the similar practice, while claiming DEPB benefit prior to 01.10.2011. It is noticed that after 01.10.2011, as there was different Sub-heading No. in the Central Excise invoices, ARE-1, and shipping bills, the Assistant Commissioner of Customs, Pipavav raised a specific query on this issue. The Appellant filed replies to the Assistant Commissioner of Customs with the various documents. The customs authorities, after satisfaction, allowed export and finally assessed shipping bill No.6308848 dt.05.12.2011 on which specific query was raised and also sanctioned duty drawback as claimed by the Appellant. The goods were exported under the supervision of the customs officers and an enquiry was made. But, no dispute was raised. Thereafter, the officers of the DGCEI stopped the payment of drawback in respect of shipping bill No.1668505 dt.12.10.2012 onwards. The appellant approached to the Hon'ble Gujarat High Court by way of filing Special Civil Application. The Honble High Court by order dt.19.06.2013, directed the authority concerned to sanction at least part of the duty drawback as claimed by the Appellant and also directed investigating agency to complete the investigation by the end of July 2013 and complete the adjudication proceeding within further period of two months. Apparently, the Customs officers at the time of exportation, had examined the documents and the goods and therefore, the impugned goods would be more appropriately classifiable under tariff item 732616 of the Drawback Schedule. In any event, the classification of a product is to be decided on the basis of description, nature, use etc of the product.
21. The learned Authorised Representative for the Revenue relied upon the decision of the Tribunal in the case of Bharat Forge Ltd (supra). The relevant portion of the said decision is reproeduced below:-
7.2.?From the above two circulars, two things are absolutely clear. The first two digits of the drawback schedule refer to the Chapter of the Customs Tariff under which the goods should fall. Where an entry falls under different Chapters, the same has been split up and incorporated in different chapters with the same rate of drawback. It has thus been made very clear that to be eligible for drawback under a particular serial no., the goods should fall under the chapter under which the serial no. is indicated and secondly, they should conform to the description given against the serial no. In the instant case, as is clearly admitted by the appellants officials and as revealed from the manufacturing processes undertaken, the item steering knuckle falls under Chapter 87 of the Customs Tariff and hence the all industry rate of drawback for the said item can not be claimed against goods for which rate has been prescribed under Chapter 73. In respect other items of export also such as crankshafts, axle beams, valves, spindle assembly, etc. the same principle would apply. From the description of the goods given in the purchase order as also the coverage of CTH 87.08 of the Customs Tariff, it is abundantly clear that these are motor vehicle parts suitable for use as such and have been subjected to various processes after forging. In that case, the Tribunal observed that from the description of goods given in the purchase order as also the coverage of CTA 87.08 of the Customs Tariff, it is abundantly clear that there are motor vehicle parts suitable for use as such and had been subjected to various processes after forging. In the case of M/s Bharat Forge Ltd (supra), the Tribunal strongly relied upon the purchase orders for the product from the foreign buyer, given the description of the goods such as Spindle-Wheel, I Beam, Spindle Assembly, Steering Krunches and so on. Therefore, the Tribunal rejected the claim of Drawback of the Appellant. In the present case, we find that the foreign buyers categorically certified that the impugned exported goods are not useable as such and subjected to various processes. This is supported by the certificates of Central Excise officers and officers of Special Economic Zone. Hence, the said case law is not applicable herein.
22. The learned Authorised Representative also relied upon the judgment in the case of In the case of Sun Exports (supra), it has been held that there was no evidence submitted regarding functional utilities of items viz. cake save, food saver, finger soup, stainers, collander showing that used for handling food or drink so as to fall under Heading 8215 of drawback schedule and the Appellants are not eligible for drawback claim. In the case of CPS Textiles (supra) the Hon'ble High Court observed that the description of the goods as per the document submitted alongwith shipping bills will be a relevant criteria for the purpose of classification, if not otherwise disputed on the basis of any technical opinion or test. We find that none of the case laws as relied upon by the learned Authorised Representative would be applicable in the facts and circumstances of the case. In the present case, the Revenue has not produced any evidence to the extent that the goods are identifiable ready to use as parts or components. The Appellants contested the nature of the impugned goods by showing the certificate of the customers. The classification of product is depending on description, nature and use of the goods and not merely on mentioning of Sub-heading No. of the Tariff in the documents.
23. It is noted that the Government had introduced various incentives/subsidies to the exporter for export of the goods. The exports are essential for earning foreign exchange for the country. The purpose of various incentives/subsidies allowed to the exporter that they may be able to compete in the international market and all taxes and duties are neutralized for the purpose of cost calculation. It is submitted that the Appellant exported goods under Chapter 84 (finished goods as parts of machinery) and claimed drawback under Chapter of Drawback Schedule. In the instant case, the claim of the Drawback benefit under Tariff item 732616 cannot be denied without sufficient evidence and cogent reasons. It is contended by the learned Authorised Representative for the Revenue that the gear blanks manufactured and exported by the Appellant were clearly identifiable as parts of gear box. We do not find any material on record, as contended by the learned Authorised Representative. On the contrary, the evidences in the nature of certificates of the customers and the Chartered Engineer etc, would show that the goods were unfinished nature, and clearly identifiable as not ready to use.
24. The Appellant also contended the demand of drawback is barred by limitation. As the appeal is decided on merit and hence, there is no need to go into the issue of limitation. However, the Appellant has a very strong case in their favour on limitation, as is evident from the analysis of facts herein earlier. When the Department had repeatedly examined the issue earlier and assessments were final, demand can be raised only for normal period.
25. In view of the above discussion, it is evident from the certificates of the buyers and other authorities that further processes were carried out on the exported goods and the goods were not ready to use i.e. Rings for Bearing /Gear Blank under Chapter 84 and 87 respectively. We hold that the goods exported by the Appellant declaring Alloy Steel Forging (Machined) for use of rings of Bearing and Gear Blank in their shipping bills, require further operation and such goods when not fit for being ready to use, would appropriately classifiable under tariff item No.732615 of Drawback Schedule. Therefore, the demand of differential amount of drawback alongwith interest and penalties cannot be sustained. The impugned order is set aside. But, the Revenue is at liberty to verify such certificates as placed by the Appellant with export documents, following the principles of natural justice. At this event, the Appellant Company may place further evidences, if necessary, to substantiate their claim. The appeal filed by the Appellant Company is allowed with the above observations. The appeal filed by the Appellant No.2 is allowed.
(Pronounced in Court on 29.10.2015)
(P.M. Saleem) (P.K. Das)
Member (Technical) Member (Judicial)
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