Customs, Excise and Gold Tribunal - Delhi
Paxma Axle And Springs P. Ltd. vs Collector Of Central Excise on 29 December, 1989
Equivalent citations: 1990ECR337(TRI.-DELHI), 1990(47)ELT639(TRI-DEL)
ORDER V. Rajamanickam, Member (T)
1. The appeal is against the Order-in-Original No. 70/86 (C No. V(68) 15/44/CE/86/120, dated 14th January 1987 of the Collector of Central Excise, Delhi. The appellants are manufacturing elastic rail clips. The manufacturing process is, the duty paid rods are cut into pieces of required length and subjected to bending/forming process with the aid of Horizontal Power Press which gives U-shape to the steel rod pieces. The U-shaped Steel rod pieces are thereafter again put to Horizontal Power Press to give them another U-bend at different angles. The said pieces are then put into a vertical power press, which gives them the desired bending. In order to harden them and give them greater elasticity the said shaped steel rod pieces are subject to heat treatment in an electric furnace at a pre-determined temperature. These are tested and supplied to the railway department for use as elastic rail clips. The appellants claim the entire process as a forging process, falling under Item 25(11) of the erstwhile Central Excise Tariff and claim exemption under Notification 208/83, dated 1-8-1983. The Collector of Central Excise has not accepted the classification under T.1.25(11) and has reasoned as follows:
"The Party's argument is based on their claim that these rail clips are manufactured by forging. The party themselves have given the details of the process of manufacture. The manufacture of rail clips start with iron/steel rods. These are first cut into specific required sizes of particular length. The cut pieces are then heated in a furnace to high temperature. The red hot iron rods are then bent on bending machines to give the required specific shape. The red hot pieces are forged in power press in the dies fitted in the press and are directly dipped in oil for quenching. Then the pieces are taken out of the oil and are tempered in an electrically heated tempering furnace to give strength. It is obvious from the foregoing that forging forms only one intermediate process in a chain of various processes.
While interpreting TI-25(11), it has to be examined whether the product in question is an iron and steel product of the nature specified in that sub-item, namely, an intermediate iron and steel product which is not a specific finished article with a specific function and known in the trade as a distinct article on account of its function, and not merely as angles, shapes and sections of iron and stsel. This sub-item obviously cannot include an article distinctly known in the trade as such and not known in the trade as merely a semi-finished product of iron and steel. Neither in the Tariff sub-item nor in the definition, article of a finished character made of iron & steel are included. The classification of finished articles will have to be decided taking into consideration the nature of the material, the process of manufacture and the function to be performed as is commonly known in the trade. The rail clips are admittedly articles which are required for fitting in the railway tracks. They have their own distinct name and are not merely "angles, shapes and sections" as is known in the trade. Their function and use are limited to the Railways. The Railways admittedly have laid down their strict specifications as to the raw materials to be used, chemical composition, dimensional precision, hardness etc. Rail clips have to be manufactured with great precision according to the specifications and they have to have the minimum strength required. The conditions of hardness etc. are vital, considering the ultimate use to which they are to be put. Any slackness in conforming to the specifications could lead to disaster. Therefore, these goods are of a specific nature commonly known in the trade and have given a specific shape and quality which is not required for use except in Railway tracks. I do not see what other criterion is required to distinguish these goods from other items of hardware. Even giving a literal interpretation to the tariff item. It is clear that the process of manufacture is not entirely or even mainly forging. The other processes referred to are clearly vital and cannot be dismissed as something subsidiary. I am, therefore, convinced that rail clips cannot come within the definition of TI 25(11)."
The classification has been held under T.I. 68. The duty of Rs. 34,86,951.20 has been demanded and confirmed with a penalty of Rs. 30,000/- against this order the appellants have appealed to the Tribunal.
2. The appellants claim classification under T.I. No. 26AA(la) as it was prior to 1-8-1983 treating them as forged shapes and sections and under T.I. 25(11) after 1-8-1983. They claim exemption under Notification 206/63-CE, dated 30-10-1983 which remained in force till 31-7-1983 which exempts goods falling under Item No. 26AA (la) when made from another duty paid product covered under the same tariff. Thereafter under Notification No. 208/83, dated 01 August 1983, which exempted goods under T.I. 25(11) when produced out of bars and rods covered under Item No. 25(9). Since the Govt. of India had also exempted such units from licensing control under Notification No. 111/78, dated 09-5-1978, no licence was obtained.
3. Shri P.S. Bedi, learned advocate in his submissions which reiterating the points raised in the appeal memorandum submitted that the process involved was only forging. The hardening and tampering does not alter the product. The appellants had written a letter dated 1-12-1980 to the Assistant Collector of the division about the product manufactured and there was no suppression as alleged in the Order. He also referred to the Order of Collector (A) Madras in an identical case, who had allowed the appeal for classifying the identical product under T.I. 26AA(1)(a) in respect of M/s. Guest Keen Williams Ltd. He also referred to the classification list filed by a unit in the Delhi Collectorate classifying rail clips (without hole) under T.I. 25(11). The following case laws were cited in support of his defences.
1. 1983 ECR/198-B Tribunal Iron and Steel Lid. v. Collector of Customs Calcutta "Harrow Discs and Coal Cutting Pricks are forged products classifiable under Item 26AA(V).
2. 1989 (40) ELT 276 (S.C.) Collector of Central Excise v. Chemphar Drugs & Liniments - Demand Limitation - Extended period of five years applicable only when something positive other than mere inaction or failure on the part of manufacturer is proved - Conscious or deliberate withholding of information by manufacturer necessary to invoke larger limitation of five years - Department if had full knowledge or manufacturer had reasonable belief that he is not required to give a particular information - Six months limitation applicable - Section 11A of the Central Excises and Salt Act, 1944.
3. 1989 (40) E.L.T. 472 Electrical Manufacturing Co. Ltd. v. Collector of Central Excise, Calcutta - on the aspect of limitation under Section 11A of the Central Excise Act - Demand - Limitation - Extended period of five years not available when there is no suppression of fact or material - Demand time barred, being issued for a period beyond six months - Section 11A of Central Excises and Salt Act, 1944.
4. 1977 ELT-J 199 (SC) Union of India and Ors. v. Delhi Cloth and General Mills Co. Ltd. - "the word 'manufacture' used as a verb is generally understood to mean as 'bring into existence a new substance' and does not mean merely 'to produce some change in a substance' however minor in consequence the change may be. This distinction is well brought about in a passage quoted in permanent edition of Words and Phrases Volume 26 from an American Judgment, the passage runs thus:-
"Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character and use."
5. 1978 ELT 336 South Bihar Mills Ltd. and Ors. v. Union of India - "Manufacture" - Meaning of - The word "manufacture" implies a change but every change in the raw material is not a manufacture. There must be such a transformation that a new and different article must emerge having a distinctive name, character or use (see Para 14).
6. AIR 1973 (SC) 425 -Allenberg Engineering Pvt. Ltd. v. Shri Ram Krishna Dalmia - "The expression manufacturing process thus means processes making or fabricating articles or materials by a physical labour or skill or by mechanical power vendible and useful as such. Such making or fabricating does not mean merely a change in an already existing article or material, but transforming it into a different article or material having a distinctive name, character, or use or fabricating a previous article by a noval process".
7. 1976-37 STC 319-SC Stale of Tamil Nadu v. Pyarelal Malhotra - If the question is whether a new commercial commodity has come into existence or not, it is necessary to consider whether a manufacturing process has altered identity of the commercial commodity or not. It is, therefore also necessary to determine whether they cease to be goods of one taxable description and become those of a commercially different category and taxable description.
4. In reply, Shri K.D. Tayal learned SDR drew attention to the Show Cause Notice dated 3-6-1986 which indicates that the appellant had cleared the goods during the last five years as per Annexure 'A' without payment of duty and without obtaining Central Excise licence. The learned SDR confirms the receipt of the letter dated 01-12-1980 referred to by the learned Advocates but states that it was the responsibility of the appellant to further pursue the matter, when no clarification was received. The letter of the department dated nil C No. CE/Paxma/80-81 wherein the appellant was informed that he should observe the formalities and give particulars of the clearances was not complied with and hence the extended time was invokable.
5. The product Elastic rail clip was manufactured out of bar having an individual identity or process involving manufacture. He cited the following citations :
1. 1982 (10) ELT 253 Kores (India) Limited v. Union of India and Ors. -
"Teleprinter rolls manufactured from printing or writing paper (jambo rolls) - Whether amounts to manufacture - Section 2(f) - The process of cutting large rolls of paper into specific sizes and dimensions and to roll them into teleprinter rolls with the aid of power driven machines amounts to manufacture under Section 2(f) of the Central Excises Act".
2. 1986 (26) ELT 211 Madras High Court - Brakes India Ltd., Madras v. Superintendent of Central Excise, Madras and Ors. - "Manufacture - Process of drilling, trimming or chamferring is a process incidental or ancillary to the completion of brake lining and amounts to manufacture - Section 2(f) of the Central Excises Act and Item 34A of the Central Excise Tariff.
3. 1983 (13) ELT 1186 - Carew & Co. Ltd. Distt. Shahjahanpur, U.P. v. Collector of Central Excise, Allahabad - Bagasse is dutiable under Item 68 of Central Excise Tariff - "The Bagasse is known as such in the commercial parlance and is in fact a by-product and cannot be treated merely as waste or scrap, therefore, it is dutiable under Tariff Item 68 of the Central Excise Tariff.
4. 1978 (2) ELT J520 Metro Readywear Co. v. Collector of Customs - Ironing amounts to process of Manufacture.
5. 1988 (38) ELT 535 (S.C.) Ujagar Prints, etc. etc. v. Union of India and Ors.- Manufacture - Scope of - Manufacture vis-a-vis processing - Section 2(f) of the Central Excises and Salt Act, 1944. - The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where commercially it can no longer be regarded as the original commodity but is, instead recognised as a distinct and new article that has emerged because of the result of the processes. There might be border-line cases where either conclusion with equal justification be reached. Insistence on any sharp or intrinsic distinction between 'processing' and 'manufacture', results in an over simplification of both and tends to blur their interdependence in cases. By the above citations, Shri K.D. Tayal emphasized the point that the process of manufacture undertaken by the appellant was no longer a mere forging, but a new product with an identifiable shape was brought into being. The Notification 111/78 can be availed only after a declaration is filed.
6. The matter has been examined. A sample of the product was also produced before the bench. It is called an elastic rail clip. The process of manufacture has already been referred to Supra i.e. Steel rod is put to Horizontal Power Press to form a U-shape and another U bend at a different angle is given. This is done as per the specification given by the railway. The Collector in his adjudication order laid stress on the requirements of the product to adhere to the specifications laid down by them. This is not a case of simple forging which car be used by any other purchaser, neither is it sold in the market as a distant article. It is meant for the railway track and has its own identity. The process involves a series of operations.
7. The bench had directed the appellants to submit the drawing of the product along with the contract, and the same was sent in their letter dated 11-9-1989. The drawing indicates the diameter measurement of the product as follows :-
4. The dia of finished clip measured in the curve shall be 20.20 mm minimum.
3. The dia of finished clip measured at Central leg small be within +2 -0.15.
2. Inspection Gauge to Drawing No. RDSO/T-1893 shall be used to check whether the tolerances actually achieved in the manufacture of clip are within the permissible limits.
1. All dimensions are in millimetres.
These drawings with Type RT1892 named as Elastic Rail Clip is with detailed specifications as per scale. As per the contract these Rail Clips are subject to full payment only after inspection by the Inspection Unit of the Railway Department.
The above documents reveal that the rail clips should strictly adhere to the specifications given by the railways. There is no simple process of forging alone undertaken and as such the claim of the appellant for classification under Tariff Item 25(11) is untenable. The article is correctly classifiable under T.I. 68. The citations quoted by the learned advocates have been examined, the process of manufacture, the degree of manufacture resulting in the production of a new product have been highlighted. The appellant's product is very much in alignment with these decisions and no contrary view appears to be indicated.
The case laws cited by the learned SDR on the other hand cover the case under reference.
8. Now coming to the aspect of limitation, it is the appellant's contention that there was no suppression or concealment. The learned advocate has during his submissions referred to a letter dated 1-12-1980 written by him as an Authorised representative of M/s. Paxma Axle and Springs (P) Ltd. stating that they are manufacturing goods falling under Item 68 and they were forging duty paid Iron and Steel Rods into shapes as per drawing given by the Railway Department. He had enclosed a sample and asked the department to confirm the views that the product falls under Item 26AA(la) of the Central Excise Tariff and not under Item 68, and will not attract further duty that no licence will be required as contemplated under Notification No. 31/76, dated 28 February 1976. The letter has been addressed to the Assistant Collector MOD HI. The learned SDR has confirmed that it was received in the Department as per receipt endorsement. The learned advocate also contended that this matter was also intimated to the Collector in their reply to the Show Cause Notice but the Collector had not taken into consideration this letter. It was seen that the letter has been mentioned in their reply dated 3-7-1986. Therefore the learned advocate contended that there was no concealment or suppression and the department was informed about the manufacturing activities. On this issue the learned SDR has pointed out, that merely having written a letter would not suffice. The appellant had not pursued the matter with the department and it was their responsibility to have obtained a confirmation of their views and not remained silent. Moreover the Notification 111/78, dated 9-5-1978 envisages a declaration to be filed for claiming exemption from licensing control. It does not entitle the manufacturer to straightaway avail the exemption without following the conditions prescribed in the notification. Having failed to do so, the appellant has manufactured the goods without obtaining "Central Excise Licence".
9. From the records filed by the appellant, it is seen that a letter dated 1-12-1980 has been written to the Department seeking clarification whether the duty is required to be paid. But thereafter no correspondence on this has been produced from the Department confirming their views or otherwise. But from the letter of the Superintendent Central Excise T.I. 68 J.66 Rajouri Garden in C No. CE 13/Paxma/50/51/504 dated nil - The department has referred to their letter 13/Paxma 81/263, dated 17-4-1982 and has observed as under:-
"Please refer to their letter No. CE 13/Paxma/81/263, dated 17-4-1982 on the above subject.
It has been observed that you are not submitting RT-12 and making formalities under Central Excise Rules, 1944 required. Therefore, you are directed to submit the following required information to the undersigned:
1. Full description and explanation regarding elastic rail clips manufactured by you.
2. Submit the classification list.
3. Give the certificate regarding, investment made on plant and machinery.
4. Clearance from 1-8-1981 to 31-3-1982 and 1-4-1982 to upto date.
You are directed to submit the above required information to undersigned within two days of receipt of this letter."
From this letter obviously the Department has not known about the manufacturing activities of the appellant. In response to the Department's letter the appellant in their letter dated 09-3-1983, has given the required information and also stated in conclusion that the process of forging of duty paid Iron and Steel rod into Zig Zag shape does not amount to manufacture. The issue now to be decided is whether the relevant letter dated 1-12-1980 should be taken as an intimation to the Department. When no reply in confirmation was received and the Department in having asked the appellant during 1983, for furnishing the information has been oblivious of the activities of the appellant. It was a responsibility cast on the appellant as a manufacture under the self removal procedure to see to it that they follow the provisions of the Central Excise Act and Rules and pay duty if required and maintain accounts. They should have pursued the matter with the Department and obtained their confirmation for classifying their product and submitted a declaration for exemption from licensing control. A mere letter addressing the Department will not absolve them of their responsibilities. Hence they cannot take shelter under the plea that they had intimated the Department and no suppression was envisaged. It is further seen from the letter of the Department that they had as early as 17-4-1982 made a reference to the appellant and that they were not submitting the RT.12 returns and observing the formalities under the Central Excise Rules. Therefore the Superintendent of Central Excise has directed them to produce the information called, which has been replied in their letter dated 9-3-1983. Therefore even assuming that the appellant had brought to the notice of the Department about the manufacture of rail clips and asked about its duty liability for which they had received no reply, yet, from the date the Department beame aware of the manufacture and directed them to observe the formalities the appellants should have followed the procedure and ensured the clearance of their product after payment of duty and submitting the classification list as required under the law. But till the date of the Show Cause Notice on 3-6-1986 the appellants have not complied with the requirement and have been clearing the goods from the years 1981-82 to 1985-86 as per Annexure 'A' of the Show Cause Notice. This therefore cannot be considered as an innocent act of the manufacturer who is responsibility bound to adhere to the Central Excise Law. Therefore the Department's action in invoking the extended period is right. The Notification 11.1/78, dated 09-3-1978 cannot be taken as a blanket permission for exemption under licensing control. The appellants ought to have observed the provisions of that notification and made a declaration for availing the exemption. On this score also the appellant cannot plead that their manufacture was exempted and hence they had not taken out a licence.
10. In view of these observations, the Tribunal is of the view that the appellant has contravened the provisions of the Act and the rules rendering him liable for payment of duty under the extended period and his product is not "mere forged product" but an identifiable product with a prescribed specification, and is classifiable under T.I. 68 of the erstwhile Central Excise Tariff. The appeal preferred by the appellant on these grounds has therefore no merits. However, in respect of the penalty amount the same calls for a reduction in view of the mitigating circumstances that the appellant had at one stage during the inception of the production intimated to the department about the manufacture of the product, the penalty is therefore reduced to Rs. 3 lakhs (Rupees three lakhs only). But for this modification, the appeal is otherwise rejected.