Customs, Excise and Gold Tribunal - Delhi
Sakthi Pipes Ltd. vs Collector Of Customs on 16 November, 1989
Equivalent citations: 1990(25)ECC306, 1990ECR478(TRI.-DELHI), 1990(47)ELT675(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The appellant has filed this appeal against the order of the Collector of Customs (Appeals) in Order No. C 3/3055/80 dated 17-3-1983 confirming the order of the Assistant Collector of Customs (Refunds) in order No. S. 25/134/80 dated 27/29-8-80. The issue involved in this case relates to the assessment of Customs duty by the Assistant Collector of Customs, Madras on 22 shipments of goods which are plant and machinery imported from Belgium for the manufacture of Cast Iron Spun Pipes. The Appellant has filed a claim for refund of Rs. 15,90,023/- after deducting a sum of Rs. 50,764/- refunded by the Department at the time of final assessment of the duty.
2. The facts of the case in brief are as follows :-
The Company imported a complete plant for the manufacture of Cast Iron Spun Pipes and the import was completed in 22 parts. Shipments were spread over a period of about three years from 1965. As this was imported under contract procedure, the Assistant Collector of Customs made preliminary assessment directing payments of duty as demanded subject to reconciliation at the tune of final assessment.
3. The Assistant Collector of Customs, Madras directed the appellant to file a certificate of final payment with reconciliation statement in a specified form showing the name of vessel, bill of entry and date and FOB value, insurance, landing charges, total assessable value, rate of duty, duty payable, duty-paid, refund and recovery. In response to this direction the appellant filed the reconciliation statement showing the duty payable, the duty paid and the excess refundable to them under relevant Customs Tariff Schedule of the year 1965-66. Another statement was also filed in response to letter dated 9-3-1968 from the Assistant Collector of Customs, Madras. The extracts of the statements have been filed as part of record. On 21-7-1982 the Asst. Collector of Customs had issued a cheque for Rs. 50,764.76 as refund due to them. The appellant was not aware of the details of the refund as against the original claim of Rs. 16,40,787/-. The Assistant Collector of Customs was requested to give a speaking order. But this was not acted upon by the Department. The Department took a stand in their letter S. 35/6/65 Gr-.II dated 30-3-1973 stating that when provisional assessment was finalised there is no need for issue of an order in original giving a speaking order. Aggrieved by the said rejection the Appellant preferred an appeal before the Appellate Collector of Customs, Madras under Section 128 of the Customs Act. But the Appellate authority rejected the appeal in litnine as not maintainable without a speaking order from the Assistant Collector of Customs, Madras and directed the appellant to obtain an appealable order from the lower authority. The appellant had to seek its remedy through a court of law and filed a writ petition in the High Court, WP No. 1885 of 1977 and WMP 5239 of 1979 seeking direction for issue of a speaking order by the appropriate authority. On 31-8-1979, the High Court directed de novo enquiry and considered the petitioner's application dated 12-3-1969 for refund of excess duty and condoned the plea of bar of limitation on this aspect and directed the Collector of Customs to consider the case on merits after giving due opportunity to the appellant.
4. The Assistant Collector of Customs, thereupon gave a personal hearing to the appellant through their Counsel to consider the matter de novo. In Order in Original No. S25/134/80 dated 27-8-1980, the Assistant Collector of Customs (Refund) had passed an order rejecting the claim of the appellant for refund of excess duty. In the order, he has stated that "the contention of the appellant that the machinery imported by them is only a 'Metal Working Machinery' is not acceptable. The term 'Metal Working Machinery' appearing in Item 72(17) ICT would refer to those types of machinery which works on metal as such. Machines connected with the production of metal such as ladels, converters, and machines which work on metal in the molten stage such as spun pipe making machines, continuous casting machines will be excluded from the scope of the term 'metal working machinery'. Their claim for reassessment under 72(17) ICT, therefore, is not tenable and rejected accordingly."
5. Thereupon the Appellant preferred an appeal before the Collector of Customs (Appeals), Madras and the Appellate Collector of Customs held that the contentions of the appellant are not tenable and that their manufacture of Cast Iron Spun Pipes do not attract the exemption Notfn. No. 117 dated 20-8-1965 for the following reasons :
(a) In the 57th Issue of the Tariff Cover 72(15) to 72(24) and 72(25) ICT there are two notifications:
(i) Notification 117 dated 20-8-1965;
(ii) Notification No. 104 dated 6-6-1966 By Notification 117/65 goods falling under 72(15) to 72(25) ICT are exempt from duty as is in excess of 271/2% ad valorem. By the issue of amended Notification 104/66, the earlier Notification No. 117/65 automatically stood cancelled.
(b) The Collector of Customs (Appeal) has taken an expert opinion drawing attention to the write-up given by the Works Manager of the Appellant-firm and considered the explanatory notes under heading 84.43 to 45 of CCCN for the term 'Metal Working Machinery' figuring in Item No. 72(17) ICT. The Collector has held that metal working generally comes under two processes. (1) Metal cutting process; (2) Metal forming process. In metal cutting process a specified tool is used in such a way as to form the required shape by removing some portion of the material e.g. lathes, drilling machines, planing, milling etc. In the 'metal forming process' the raw material may be in the form of a plate in which it is worked upon a machine like a press or extrusion machine in which the required shape is obtained. In this process there will be no removal of material. Presses, hammers, wire drawing machines, extrusion machines can be considered as examples. In both the processes, there is no change in physical state namely, that the material remains as a solid throughout and in the metal forming case it may take a semi-solid or plastic form for the purpose of deformation. The manufacturing of pipes by centrifugal castings refers to a casting process where metal in molten (liquid) state is led into cylindrical mould rotating at high speed and due to centrifugal force the molten metal is thrown out, with which it is able to form a pipe on solidification. In her opinion, manufacturing of pipes by ball drawing methods may be considered to come under metal forming but not pipes manufactured by centrifugal castings. The Collector of Customs (Appeals) affirmed the order of the lower authority and rejected the appeal preferred by the appellant.
6. Aggrieved by the said order the Appellant has filed this appeal before this Tribunal. In the grounds of appeal, the appellant has raised the following material points.
(a) The goods imported are entitled to duty only at 10% ad valorem by virtue of Notification 117/65 dated 20-8-1965 as a GATT item;
(b) The assessment made on individual item under several sub-headings of Item 72 Customs Tariff 1966 was bad in law and not applicable to their case as all the machineries form the entire plant and machinery.
(c) The classification was not made by the competent authority namely, the Assistant Collector of Customs, Madras and this was delegated to the Appraisers whose financial jurisdiction is limited only to goods valued at Rs. 1000/- and, therefore, the Assistant Collector of Customs, Madras could not give a speaking order. The assessment was not made in accordance with relevant provisions of the Act and as such, the order was vitiated by illegality;
(d) The authorities in the Department, have held that machines such as ladles, converters and machines that work on metal in molten stages such as spun pipe making machines will be excluded from the scope of Tariff Item 72(17) under definition 'Metal Working Machinery and this is a clear mis-conception of fact and not supported by any definition of the term to arrive at a decision. The rejection of claim is not based on relevant materials and thereby arbitrary;
(e) The appellant had filed a write-up given by the Works Manager of the manufacturing Unit who is a technical officer concerned with the working of the machinery and in the absence of any other counter opinion by any experts on the manufacturing process through the machinery imported, the evidence of the Works Manager ought to have been accepted;
(f) Even though the High Court had directed a de novo enquiry for the claim of refund by considering the merits of the claim, the matter was not taken up by the appropriate assessment authority;
(g) The finding of the Collector of Customs (Appeals), Madras that the metal casting does not come within metal forming process and that the manufacture of cast iron spun pipes through centrifugal castings is excluded from the scope of definition 'Metal Working Machinery' is unsustainable in law especially when text book references prove the contrary.
7. The appellant has prayed for a re-classification of the several items of goods imported treating them as coming within the definition of 'metal working machinery' comprised in the assessable item of ITC 72(17) and 72(25) respectively. The appellants have made a total claim of Rs. 16,40,787/- and after deducting the amount of Rs. 50,764/- sent by cheque by the Assistant Collector of Customs, Madras they have prayed for a direction to refund a sum of Rs. 15,90,023/-.
8. The appellant was given the opportunity before this Tribunal to state the case concerning the levy of Customs duty on the goods imported with reference to Customs Notifications and let in evidence from textual references to establish their basic claim for refund. During the stage of arguments the appellant was permitted to file fresh statement showing the categories of goods imported by each shipment and to point out the classified item to which they belong, referring to the relevant customs tariff item under which the Department have levied a duty and the assessment classification to which the appellant now refers, based on relevant provision of Customs Tariff Schedule.
9. Before filing this document the appellant was directed to file a copy before the Collector of Customs, Madras. The Departmental representative was requested to obtain remarks if any, from the Collector of Customs, Madras on the admissibility of the claim in each individual case pertaining to the description of the goods. At the next hearing when the statement was filed by the appellant, the Departmental representative filed a copy of the circular purported to have been issued on the strength of Customs Appellate Board's directive showing the items of machinery that alone would fall within the ambit of definition of the term 'metal working machinery'.
10. The arguments of the learned Counsel for the appellant, Shri S. Venkataraman were heard in support of his contentions in the appeal. He filed a consolidated paper Book Vol. II in addition to the first volume.
11. The second paper book which he relied on for his argument contains, extracts, on Customs Notifications 117/65 dated 20-8-1965 Customs Tariff Schedule (xerox copy) on item 72(1) to 72(25) from pages 9 to 55 of the paper book. He has also incorporated the extracts of Customs Notification No. 104/66 dated 6-6-1966 referred to by the Appellate Collector of Customs, Madras.
12. He argued that machinery imported under every shipment formed the entire plant and machinery absolutely necessary for the manufacture of cast iron spun pipes. He relied on the sale contract in which the items of goods marked A to O are shown as manufacturing machinery required for setting up of the plant and machinery. He also argued that the exact description of the machinery imported finds a place in the bill of entry to show that what was imported was plant and machinery for the manufacture of cast iron spun pipes and they are 'metal working machinery' attracting the relevant Customs Tariff Item No. 72(17).
13. During the course of his argument the learned Counsel for the appellant invited our attention to the proviso to Notification No. 104 of 1966 dated 6-6-1966 which runs as follows :-
"Provided that nothing contained in this notification shall affect the standard rate of duty or as the case may be, the preferential rate of duty leviable under the Notification of the Govt. of India, Ministry of Finance (Department of Revenue) Customs Nos. 117,118 and 119, dated the 20th August, 1965, as for the time being in force, on the goods referred to in those Notifications."
By virtue of this proviso, the Counsel argued that the Notification No. 117 dated 20-8-1965 was not annulled by the later notification.
14. In the course of the argument, the Counsel for the appellant cited a variety of Standard Text Books showing the types of machines and machinery required for the manufacture of cast iron spun pipes and he had taken us through the relevant passages relating to the forming process of manufacture in casting. The learned Counsel has filed xerox copies of relevant material evidence on the manufacture of spun pipes in support of his contention which are listed below :-
1. Manufacturing Process - Author : S.E. Rusinoff, M.E., Professor of Mech. Engg., Illinois Institute of Tech., U.S.A.
2. The Manufacture of Iron and Steel - D.J.O. Brandt, Sr. Scientific Officer, (Casting Operation) British Iron & Steel Association
3. Metal Forming Process McGraw Hill Encyclopedia of Science & Technology
4. Principles of Metal Casting - Richard W Heine - Associate Prof. Metallurgy & Mining Philip C Rosen Thal - University of Wisconsin
5. Specification for Cast Iron Pipes - British Standard Institution
6. Process and Materials of Manufacture - Roy A. Lindberg
7. Manufacturing & Machine Tool Opera- - Herman W. Pollack, Chairman, Physical tions Science Division, Orange County Com-
munity College
8. Material Science - R.S. Khurmi & R.S. Sedha
9. Mechanical Metallurgy (on fundamen- - George E. Dieter, Professor of Engg., tals of metal working in forming process) Carnegie Mellon University
10. Production Technology (on castings) - R.K. Jain & S.C. Gupta
11. Elements of Workshop Technology - S.K. Hajra Choudhury, A.K. Hajra (Manufacturing Process) Choudhury
15. The learned Counsel for the appellant drew our attention to the relevant portions of the chapters concerning metal forming process, centrifugal casting, hot spinning and cold spinning annealing process and continuous centrifugal casting process with the use of blast furnace and cupola using the same for the manufacture of spun pipes. He reiterated the contention put forward before the Customs authorities that in the manufacture, there is no change in the character and composition of the machinery or the metal which passes through several machines made of metal and gets transformed through forming process of metal castings. The resultant product undergoes only a change in shape and not in character or composition. He also clarified before us that several other machines are component parts required for the purpose of cutting, drawing, and making the spun metal conform to the specification prescribed by the Indian Standard Institution and they are also forming part of the machinery in the process of manufacture. He urged us to consider the entire plant and machinery involved in the process of manufacture which were also imported along with the main machinery such as cranes, mono-rails, buckets and other serviceable items connected with the integrated system of machinery in the manufacture as part and parcel of the machinery involved in the manufacture of spun pipes.
16. Lastly, the learned Counsel placed before us a write-up (at page 517 of the paper book volume- 2) showing the working of metal through stages in the manufacture of spun pipes under five several units of manufacture. The learned Counsel also submitted for our consideration the write-up of the process of spun pipes manufacture in technical language to explain the working of the several units in the process of manufacture of cast iron spun pipes. The learned Counsel submitted that in order to place before the Tribunal the actual working of the machinery and tehnical words that would make the meaning clear in understanding the process of manufacture, he had relied upon the note of Prof. R. Krishnamoorthy of All India fame in Metallurgy and at present attached to Production Engineering and Machine Tool Section in Mechanical Engineering Department at the Indian Institute of Technology, Madras: 600 036. The Counsel drew a pointed distinction between the approach to the question taken earlier by the appellate Collector and the working of the machinery in casting process explained in the books referred to by him.
17. Learned Counsel for the appellant described the process of manufacture of cast iron spun pipes with reference to each stage in the process. He described the first Unit in the process of manufacture to contain (a) Hot Blast Cupola with accessories such as automatic charger Hot Blast generator, control instrumentation, automatic weighing and handling and cupola and electro static precipitator. They are primarily intended for maintaining the quality of manufacture in setting the molten liquid within the required temperature. The second unit is concerned with the working of molten metal by means of spinning machines of varying capacity with ancillaries.
18. The third unit relates to maintaining the apt working condition of the spinning machines in order to get the size, shape, quality and test of the spinning pipes by grinding machines, testing machine and cutting machine, moulding machine and boring machine and other facilities that form the essential parts of the machinery. After the molten metal gets into spinning machine it has to undergo necessary heat treatment with the aid of annealing machine shown in the fourth unit. Unit 4 consists of annealing machines which is an important facility to ensure the required structural properties of the spun material.
19. The last and fifth unit in the process is the servicing unit with tool room facilities and other accessories. The learned Counsel placed before us the list of machinery used and each unit in the order of the machine involved in the machinery and description shown at page 517 of the paper book II. These correspond to the machinery imported as per Item-A to O indicated in the Sale Contract (the extract of which is at page 5 of the Paper Book Vol. I).
20. Finally in the course of the argument the learned Counsel maintained that the additional document produced by the Departmental representative in the form of a Circular issued by the Assistant Collector of Customs, Madras is not a statutory notification or an authorised order binding on this Tribunal or the public in general in respect of payment of duty covering items of goods-imported. The Circular was not considered either by the Assistant Collector of Customs, Madras or by the Collector of Customs (Appeals), Madras earlier. It is not, therefore, binding on this Tribunal to take into account a Circular order shown as Appraising Department Order C11/58/69 AP dated 28-5-1969 to the Departmental officials, not having any statutory force.
21. In conclusion, the counsel stated that there are two stages in the forming process of manufacture (i) Metal in liquid state (ii) metal in solid state. In the process the molten liquid gets solidified after proper treatment through spinning machines The product gets necessary heating or cooling through annealing apparatus, after which the solid metal as cast iron spun pipes emerge. Even after the formation the pipes have to be tested for quality, rigidity, thickness, durability and adaptability according to specification prescribed by Indian Standard Institution. These are possible by machines working on solid state pipes. So in both the stages there is metal working on the liquid metal in one stage and solid metal in the other stage. In these circumstances, it is clear that the machines operate on metal at either stages and the plant and machinery are to be classified as 'metal working machinery'.
22. Shri Durghayya, the learned Departmental Representative argued in favour of affirming the order of the Collector of Customs (Appeals). He gave the following reasons for his stand: (a) The Collector of Customs, Madras (Appeals) has given cogent reasons for rejecting the claim; (b) The Collector of Customs (Appeals) has described 'metal forming process' and 'metal cutting process' as coming within the definition of metal working machinery. The centrifugal casting of spun pipes is excluded from the definition. So, there is no material for the appellant to substantiate his claim for refund; (c) Even the lower authority has given adequate and convincing reasons for rejecting the claim; (d) the claim of the appellant is apparently to take advantage of the lower percentage envisaged under GATT item which is lower than duty under project import. This cannot be extended indiscriminately; (e) just because the appellant had imported several items all the machines do not come within the definition of 'metal working machinery'; (f) The assessing authority has levied duty on individual items of goods based on separate description falling under separate customs tariff schedule and that assessment cannot be disturbed while considering the parts of the machinery involved in this case; (g) the component parts and accessories like mono-rail, crane, buckets do not fall within the ambit of machinery that work on metal and should be eliminated in considering the claim for refund and (h) though the Circular issued by the Assistant Collector of Customs to the assessing authorities may not have a binding force, it however, serves as a guidance to avoid wrong classification in the assessment and so the circular merits consideration.
23. However, Shri Durghayya, the learned Departmental Representative fairly stated that the text book authorities produced by the appellant prove the issue that 'casting' comes within metal forming process and that in continuous centrifugal casting, the working of metal in liquid state gets transformed through metal working machine like spinning machine and annealing machine and they alone can be taken as 'metal working machinery'.
24. The departmental representative had invited our attention to the diagram of the working of the machinery produced by the appellant and in his opinion Unit-II and III would have a correct bearing on the working of metal on the machinery.
25. In conclusion, Shri Durghayya pleaded that the assessment made by the authority on individual items under relevant entries in Customs Tariff Schedule be maintained and the benefit of doubt be extended only to specific machines that work on metals.
26. The point for determination is whether the plant and machinery imported by the appellant in the integrated process of manufacture of cast iron spun pipes would fall within the definition of 'metal working machinery' prescribed in Customs Tariff Item 72(17) and entitled to duty concessions.
27. It is an accepted fact that in the formative stage the raw material is heated to be transformed into molten liquid iron and it is undoubtedly a metal in liquid form. The text books describe the process of centrifugal casting by the transformation of liquid metal through spinning machine. Subsequent to this stage, the metal gets the required hot cold and air spinning to conform to durability. Likewise, after the ejection of spun pipes they have to undergo several treatments to conform to specifications and the other machines work on the metal to give a shape, density, quality and diameter.
28. There is ample material from the metal forming process described in McGraw Hill Encyclopedia of Science & Technology on metal forming to show that casting is included in the metal forming process. There is force in the contention of the counsel for appellants that the Collector of Customs (Appeals), Madras considered only one aspect of the metal forming process, that concerning solid state of metal. New technologies have developed and the metal in liquid state also undergoes transformation by working on metal. In centrifugal casting of spun pipes, we see that the process involves working on liquid state of metal and working on solid state of metal as well. Under these circumstances we hold that machines used in the forming process of manufacture of cast iron spun pipes come within the definition of 'metal working machinery'.
29. In this view, we direct that such Units/machines imported by the appellants and used for working on metal should be given the concession, Prima facie, it appears that Units II, III, & IV qualify for such concessions in the light of our discussion and findings recorded in the preceding paragraphs. Units I & V do not seem to qualify for the concession. We would, however, add that the Customs House should examine whether all the machinery in Units II, III and IV discharge the functions necessary to qualify them for concessional assessment. If some distinct machines in these Units do not so qualify, they should not be given the concessional assessment. However, any single Unit should not be artificially divided for denying the concession.
30. With these directions we set aside the impugned order and remand the matter to the Assistant Collector to pass a fresh order in the light of our directions, after giving a reasonable opportunity to the appellants to represent their case. The Assistant Collector should conduct the necessary examination to ensure that the concession is not denied to those machines which comprise the Units and which work on metals and to ensure that the concession is not given to machines which are not so used.
31. The appeal is thus allowed by remand.