Customs, Excise and Gold Tribunal - Delhi
Tata Engg. And Locomotive Co. Ltd. vs Collector Of Customs on 18 October, 1996
Equivalent citations: 1997(90)ELT529(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. In all these appeals common question of law and facts are involved, hence they are all taken up together for disposal as per law.
2. The importer has imported "Crank Shaft Forgings" and filed their respective Bills of Entry declaring the classification of the said items under Customs Tariff Heading No. 84.63(1), the same was assessed finally and they paid duty on the same. For the purpose of CVD the Department had charged duty under Tariff Item 68 of CET. They filed refund claim seeking the classification for CVD purpose under CET Item 26 or 26AA of the erstwhile Central Excise Tariff Act. They also submitted that due to clerical mistake of supplier, the wrong value of DM 239.00 was shown as against the price of DM 214.00 FOB; that the supplier had sent the credit note of the difference of excess value in respect of Appeal C/1457/86-B. The learned Collector (Appeals) has held that from the records, it is clear that the appellants had not produced any corroborating evidence, like third party invoice to indicate that the correct price under Section 14 of the Customs Act, 1962 was DM 214 and not DM 239. He has also observed that they had failed to prove and establish that the imported goods were covered by the tariff advice based on clarification given by CBEC. He has held that on the plain reading of the description of the goods, they are correctly classifiable under Item 68 of CET and not under Item 26AA of CET.
3. In respect of Appeals C/157-158/87-B, the learned Collector (Appeals) has held that the unit price of Crank Shaft Forging had been erroneously shown as DM 239.00 FOB as against the price of DM 214 FOB. He has noted that the appellants producing documents to prove the unit price of forgings having been shown erroneously. To that extent, he allowed their appeal on remand for de nova consideration to be decided in the light of the documents produced by them. As regards the claim for reclassification for CVD purpose he has held that the appellants themselves submitted details of the processes which were carried on the Crank Shaft and many processes other than fettling were carried on it. Therefore, he has held that the imported goods would fall outside the scope of the Tariff Item 26AA and the classification adopted for CVD purposes under Tariff Item 68 is correct and to that extent he rejected the claim for reclassification. In this appeal, the appellants are contending that the imported consignments were Raw Crank Shaft Forgings and the Department had classified for customs purposes under Chapter Heading 84.63(1) by applying Rule 2(a) of Customs Tariff Act, 1975. The CV duty was recovered under CET Item 68 which is applicable only in cases of finished crank shaft which are components of motor vehicle. It is their contention that the said items were manufactured by their Germany suppliers exactly as per their drawing. These raw crank shaft have to be classified under CET Item 25 or 26AA and in this regard they contended that the authorities again applied Rule 2(a) of Rules of Interpretation of the Custom Tariff Act for the purpose of charging CV duty under CET. In this regard, they also relied on the CBEC already clarified vide their File No. 139/2/81-CX.4, dated 10-11-1981 on the basis of which a Departmental Circular No. 3, dated 6-1-1983 (TU-109/81) has been issued by new Customs House, Bombay. This trade circular states that there appears to be doubt still persisting in the minds of the field officers as to the exact classification of castings and forgings. In other words field officers are not sure as to whether or not a particular castings/forgings would fall under Tariff Item 25 or 26AA as the case may be, or under Tariff Item 68 of the Central Excise Tariff. Therefore, the Circular clarifies that "machining" or "other processes" as referred to in the instructions would mean any process other than those conducted for merely removing the surface defects or excess material by grinding/ chipping or filling. Such processes are known as "Fettling" in the IS. - 1956 (Pt. 4, 1976). It further states that the idea is that only surface defects or excess material is removed by such process as grinding, chipping or filling and no further machining is done on castings/forgings to give different form of shape to them. It further states that after casting or forging, fettling is done on such articles, they would continue to fall in Tariff Item No. 25 or 26AA as the case may be. However, it states that if any other process other than fettling is carried out on the casting/forgings e.g. boring of holes or cvitting to give a different form and such semi-finished or finished machine parts with identities different from simple castings or forgings come into existence, such articles would fall under Tariff Item No. 68 and not under Item No. 25 or 26AA (unless it falls under any of the remaining Item 1-67 such as 52).
4. On the basis of the above circular, the importer is contending that the goods which they have imported are crank shaft forgings and it cannot be sold in the market as motor parts as they are required to undergo several processes in their factory before they are made to finished crank shaft for use in their commercial vehicles. They have filed the summary operation sheets showing about 40 processes that are required to be carried out on forged crank shaft, to make it a finished crank shaft. As regards the plea for valuation, they stated that their supplier had inadvertently charged the unit price of these crank shaft at DM 239 as against DM 214, which was approved by them vide their Order Confirmation No. 121/406, dated 12-6-1981. Their supplier realised their mistake in charging the incorrect unit price DM 239.00 FOB and forwarded to them their Credit Note under cover of their letter Ref. No. 220/406, dated 10-5-1982. They stated that since import duty was paid in excess on the consignment due to the mistake on the part of the supplier in charging incorrect unit price, therefore, the same is required to be refunded. In this context, they also relied on their evidence in the form of certificate of Foreign Inward Remittance No. 73/228, dated 5-9-1994 issued by Central Bank of India, amounting to DM 8,000.00 given by the supplier has been credited to their account. In Appeals C/157-158/87-B2, the importer has not challenged the question of refund of the excise price paid in view of the Collector having remanded the issue and have confined their appeal with regard to the classification for CVD purposes only.
5. We have heard the learned Consultant, Shri R. Subramaniam for the appellants and the learned DR, Shri A.T. Usman for the Revenue.
6. The learned Consultant submitted that this issue has already been decided in several cases and relied on the following judgments :-
1. BHEL v. Collector of Customs -1989 (39) E.L.T. 569 The Learned Consultant submitted that this judgment has been confirmed by the Hon'ble Supreme Court in the case of Bharat Heavy Electri-cals Ltd. v. Collector of Customs as reported in 1994 (69) E.L.T. A170.
2. Bajaj Auto Ltd. v. Collector of Customs -1988 (33) E.L.T. 367 (Tribunal).
The learned Consultant also prayed for some time to produce necessary documents to prove their case. As sufficient time had been granted to them, the Bench did not agree for adjournment. Hence, the matter was heard. As regards the valuation, the learned Consultant submitted that the supplier had inadvertently charged higher unit price and the same has been since reimbursed by them and therefore, it is required to be refunded.
7. The learned DR referred to the original invoices wherein the description of the item has been shown as crank shaft forgings as per order. He also submitted that the importer did not dispute the classification for customs purposes under Heading 84.63 and therefore, for CVD purposes, the item cannot be considered as Raw forged crank shaft. He also pointed out to the revised invoiced which states :-
"Crankshaft Forgings to Telco Drawing X 2523 0320 5113-10 Gerlach Drawing No. 98/1, Material 37 Cr S4, Normalized, hardened and tempered, hardness of 735-880 N/mm with all the modifications indicated in our APRJ/RNT/1091/3331 of 29-4-1981.
AA = 657.493 FKH AB = 825.935 FKH AE = 96.032 Buderus".
He submitted that as the crank shaft has already been manufactured as per the importer's drawing and has undertaken several processes, therefore, it cannot be considered as a raw forged crank shaft, as it has assumed the essential characteristics of a crank shaft and hence, the authorities have rightly rejected the importer's case. He also submitted that even as per the reading of page 997 of BTN, the item would be classifiable only as a crank shaft. He also submitted that Rule 2(a) of Rules of Interpretation of the Tariff has not been applied in the present case as contended by the importer.
8. In countering the arguments, the learned Consultant submitted that the BTN was not applicable at the relevant time. He also submitted that the processes carried out were permissible processes and such processes do not take out the item from the forged category, as there was no machining done nor fettling done on the item. He pointed out to the write up given by the importer showing 40 processes which are required to be carried out on the forged item. He also submitted that the item cannot be sold in the market as crank shaft and as a part of motor vehicle and that the item was recognised only as a forged Item.
9. We have carefully considered the submissions made by both the sides and have perused the record. As per the record, the item has been supplied as per the drawing and the invoices. Further, what appears clear from the document is that the item has not undergone any of the processes which would give the essential characteristics of a crank shaft. This conclusion can easily be drawn by the fact that the Department has not denied about this item requiring 40 processes which are required to be carried out on these item, which is supported by documents like drawing sheets and summary operation sheets, which has been produced by the importer. These summary operation sheets produced by the importer company shows that the processes like facing in MTD F/c machine; Mass balance and centre in balancing machine; Mill drive pads in MTD SPM machine; Turn all journals, [flange] and shank in tata hyd. press; rough [grinding] machine; mill drive pads in machine considering processes in telco hook press; mill counterweight seat faces in control milling machine; Drilling of holes and induction hardening; stress relieve and finished [grinding] in polishing etc. etc. are still required to be done. Therefore, the imported item has to be only considered as a forged item, in view of the fact that the Department itself has clarified that where certain other processes are necessary to be done on the forged item then such processes other than fettling is permissible. In this case fettling has not been carried out, as per the list of processes filed by the importer, which shows the processes required to be done on the forged item. It is also seen that the issue had come up for consideration several times and several judgments had been delivered by the Tribunal including Larger Bench and also by Hon'ble Supreme Court and Delhi High Court. In the case of BHEL (supra) rough machine forging has been held to be classifiable under Item 26AA and not under Item 68 of CET. Likewise, in the case of Bajaj Auto Ltd. (supra) iron and steel semi-finished forgings were held classifiable under Heading 84.06 and 87.09/12(1) by applying Interpretative Rule 2(a). However, for the purpose of Additional Duty (CVD) the goods were held to be classified under Item 26AA of CET as castings and forgings. This judgment also took into consideration, the judgment rendered in the case of BHEL. The Hon'ble Supreme Court in the case of Tata Iron and Steel Co. Ltd. v. Union of India as reported in 1988 (35) E.L.T. 605 took up the issue of classification of forged products in rough machined condition and held that the process of machining and polishing to remove excess surface skin are incidental and ancillary to the completion of manufacture of forged product and even where the goods are supplied as per customers specification, the item would be classified only under Item 26AA. In the case of TELCO v. Collector of Customs as reported in 1990 (50) E.L.T. 571, the Tribunal considered the classification of imported item described as non-ferrous forgings in synchrocones which had been assessed by the Department under Heading 87.04/06(1) as parts of motor vehicles not elsewhere specified. The importer claimed the classification under Heading 74.03(1). The Bench also examined the question of application of interpretative Rule 2(a) of CTA, 1975. The Tribunal by applying the ratio of the Larger Bench judgment rendered in the case of BHEL v. Collector of Customs as reported in 1981 (28) E.L.T. 545, held that the imported item is required to be assessed as "forging" under Heading 74.03(1) of CTA.
10. These judgments have all been considered again in a latest order pertaining to the classification of the item described as "forgings and forged products of steel" and the Bench has also considered the term "essential character" and the application of Rule 2(a) of Interpretative Rules, as in the case of Jaypee Forges v. Collector of Central Excise as reported in 1995 (11) RLT 76. The Tribunal after a thorough examination of the case law and material on record has held that the item "forgings and forged products of steel" are unmachined and unfinished and has not acquired the essential character of a motor vehicle parts and hence would be classifiable under Chapter Heading 73.26 even after 1-3-1988 when the CET was aligned with HSN Explanatory Notes and not under Heading 8708.00 as M.V. parts. It is also pertinent to mention that the excess examination of these types of items manufactured in India came up for suitable consideration in several judgments more particularly in the case of Aravali Forgings Ltd. v. Collector of Central Excise as reported in 1994 (70) E.L.T. 693 as well as in the case of Echjay Industries Ltd. v. Collector of Central Excise as reported in 1994 (72) E.L.T. 98, and in the case of Shivaji Works Ltd. v. Collector of Central Excise, as reported in 1994 (69) E.L.T. 674. In all these cases a detailed examination has been done to consider as to what extent the item can be considered as a "forged item" and when it would go outside the category of forging. In this regard, the Board Circular as well as Trade Notice has also been considered. In Trade Notice 31/87, dated 4-3-1987 issued by Vadodara Collectorate, it has been clarified that the following processes when carried out would not make the goods acquire the essential character of a finished goods. The processes are :
(a) Removal of runners and risers
(b) Surface clearing of surface defects
(c) Chipping, filling or grinding to remove excess material
(d) Annealing the stress relieving
(e) Proof machining
(f) Surface casting The Tribunal has considered all the judgments and technical details also while arriving at the conclusion.
11. In that view of the matter, as the appellants have shown that the several major process are required to be carried out to convert this forged item into a fully semi-finished or finished item, therefore, the claim of the appellants for classification for CVD purpose under Item 26AA is justified and requires to be allowed. As regards the claim for refund for excess payment on the valuation aspect, the Collector has already remanded the matter after due re-consideration on the basis of the evidence produced by the appellants. Hence, this order does not require modification.
12. In Appeal C/1467/86-B, the appellants have produced the evidence and the same is required to be examined and the benefit granted by the lower authorities on re-consideration of their case by the lower authorities.
13. In that view of the matter, the appeals are allowed in the above terms with consequential relief, if any.
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(S.L. Peeran)
Dated: Jan, 1996 Member (J)
S.K. Bhatnagar, Vice President
14. With due respects to Hon'ble Member (Judicial), my views and orders in the matter are as follows :
15. I observe that two main issues were initially involved in this case -(1) regarding classification of the imported items for CVD purposes and (2) valuation.
16. As regards the first issue, the rival entries were (i) Tariff Item 68 in which the Department has classified; and (ii) Tariff Item 26 AA(ia) claimed by the appellants.
17. The issue boils down to determining as to whether the item described as 'Crank Shaft Forgings' in the Bill of Entry continued to be a forging of the type falling under Item 26AA or had travelled beyond the scope of26AA.
18. In this respect, I observe that both the sides have referred to the Departmental Tariff Circular dated 6-1-1983 based on CET File No. 139/2/81-CX. 4, dated 10-11-1981. This Circular has been relied upon by the appellants to show that if the item is merely subjected to such processes while removing the surface defects or excess material, then it remains a casting/forging. Learned DR, on the other hand, had emphasised that this very Circular also shows that if the article is subjected to processes other than fettling, then such semifinished or finished part would fall under Item 68 and not under 25 or 26AA unless it could be shown that it was classifiable under any of the remaining Headings 1 to 67.
19. Before proceeding further in this regard, I would like to mention that while in the Bill of Entry, the item has been described as 'Crank Shaft Forgings' and this has also been emphasised by the appellants in support of their contention that it was still a forging, it is noteworthy that any article made by the process of forging is commonly called as a 'forged article' or just 'forging'. Therefore, this by itself was not sufficient to decide the issue. I also notice that the appellants have emphasised that what they have imported are only raw crank shaft forgings which were required to be subjected to 40 different processes or operations before they could be used in the manufacture of Motor Vehicles. It is, however, interesting to note that these 40 operations mentioned in their document dated 2-9-1983 include such an operation, if we may call it so, "Receive raw crank shaft', 'inspect for machining allowance, Hardness etc." and similarly, 'final inspection and rectification', if necessary, but, a perusal of various varieties of operations listed therein shows that they mainly include milling, grinding, drilling and deburring.
20. The Departmental Tariff Circular relied upon by both the sides clearly states, as rightly pointed out by the learned SDR, that if merely fettling is done, it would continue to remain under Item 25 or 26AA but if any process other than fettling is carried out, then such semi-finished or finished machine part which comes into existence would take it beyond the scope of 26AA.
21. It is also noticed that in the documents produced by the appellants themselves, it is indicated in the revised invoice, that the crank shaft forgings had been normalised, hardened and tampered.
22. It is significant that the correspondence with the suppliers produced by the appellants includes a letter of the supplier dated 12th June, 1981 which mentions, inter alia, that :-
"re.: Crank shafts as per drawing X 25 23 0320 5113/10 = 98/1 We thank you for your purchase order dated 22-5-1981 and your telex dated 1-6-1981 placing your order for 6.000 crank shafts. The crank shafts will be deburred as usual, but a residual flash up to 1, 5 mm will still remain. The crank shafts will be made of steel 37 Cr 4 with the following chemical composition :
...
...
The design and delivery of this crank shaft as per our latest drawing 98/1 dated 3-6-1981 corresponds to design we usually deliver to the automobile industry and especially to the Company Daimler-Benz AG."
i.e. they are being made and modified as crank shafts for motor vehicles.
23. The appellants have argued that this correspondence itself shows that what was ordered and delivered was a rough and raw forging which was required to be subjected to further processing and therefore, it could not be said that it had become a finished article or an identifiable motor vehicle part.
24. However, from our point of view, it is apparent that the above correspondence indicates that what was ordered was 'crank shaft' to be manufactured according to a set of forging drawings approved by the importers and the design and delivery of these crank shafts corresponds to the design delivered to the automobile industry (and specially to the company Daimler-Benz AG). The appellants had themselves stated before the A.C. that these were imported for manufacture of motor vehicles. The revised invoice filed by them shows that the items were not only normalised, hardened and tampered but subjected to the modifications indicated in the importers' communication dated 29-4-1981 and the BTN classification was 846321400.
25. They are, therefore, in the nature of an article already identifiable as a motor vehicle part and could no longer be considered as merely a rough forging or forged article falling under 26AA(ia) which reads as follows :-
(ia) Bars, rods, coils, wires, joists, girders, angles other than slotted channels, tees, beams, zeds, trough piling and all other rolled, forged, or extruded shapes and sections, not otherwise specified."
It is significant that in this sub-heading, the word "forged" occurs along with or in association with such items as bars, rods, coils etc. and all other rolled or extruded shapes and sections, not otherwise specified. It is obvious that crank shafts are made by forging and therefore, called as crank shaft forgings, but even if they were 'raw', they could not be considered as any article similar to those falling under sub-item (ia) of 26AA. In other words, even according to the principle of interpretation of Statutes, crank shafts would be out of company of other items mentioned in sub-item (ia). It is significant that this sub-heading is residuary in character and does not include finished or nearly finished steel castings or forgings. The items in question having been subjected to various processes before shipment and the rawness, having been reduced substantially, even if they required some further processing, they could not fall under 26AA.
26. In the case of TELCO decided by the Tribunal vide Order No. 449 to 455/84-B, dated 31-5-1984, the appellants (importer) had claimed re-assessment on the ground that in view of their composition (carbon content), they were iron castings and not steel castings, (ii) The Collector (Appeals) had accepted that they were not steel castings but had not accepted the contention that castings of iron which had gone processes like annealing, normalising and heat treatment would fall under Item 25 because it covered only iron in any crude form', (iii) The Tribunal had accepted the contention that crude items will continue to fall under Item 25 till they loose such identity and assume a new game, character and use and in this context noted that the goods were being marketed as malleable iron castings and were classifiable under Item 25 as such. The present case is, however, distinguishable. As noted above, the correspondence between the importer and the supplier itself shows that whatever had been ordered and imported had already acquired the name and character of crank shaft and was known as such in the course of international trade and recognised as one designed for use in motor vehicles. In the circumstances, the fact that after importation, it was required to be subjected to some further processes before actual use or application did not matter because, on one hand, it did not result in any substantive change in the character, name and use and on the other, many of the products we buy from the market are required to be adapted for personal use of the consumer, but that does not mean that they become a different article thereby.
27. Insofar as the case of M/s. Bajaj Auto Ltd. is concerned, the case related to the classification of iron and steel forgings and the dispute extended to determination of correct heading both for the purposes of basic customs duty and CVD purposes and it boiled down to determining whether they could be deemed to be components of IC engines of scooters or rough forgings classifiable under Item 26AA for CVD purposes.
(ii) It is significant that the Importer in this case had stated that they were "totally unmachined rough forgings only" and after importation they underwent a number of different operations and it was only thereafter that they became finished items for IC engines for scooters and the post-importation processes were mechanical, chemical and electrical.
(iii) The Tribunal had noted, inter alia, that the post-importation operations, though split up by the appellants into numerous steps, were essentially those of heat treatment, smoothening of the forgings, turning and cleaning only and even in the absence of the operations, the goods, as imported, could be deemed to be components of IC engines and scooters and relying on a Larger Bench decision in the case of BHEL and CCCN Explanatory Notes held Rule 2(a) to be applicable and therefore, classified them as components of IC engines for scooters for the purpose of basic customs duty but insofar as the additional customs duty (CVD) was concerned, they agreed that the items could be classified under 26AA. This was, however, agreed to because the learned DR had, conceded and accepted the position that since Central Excise Tariff had no such thing as Interpretative Rule 2(a), the additional customs duty would be leviable only in terms of 16AA.
(iv) Thus, this order is based on the fact that the issue was conceded insofar as the CVD was concerned. In our case, the situation is different. The Department has not conceded but contested the appellants' claim and it is nobody's case that they were totally un-machined rough forgings only. The case was, therefore, distinguishable.
28. In the case of B.H.E.L. v. Collector of Customs reported in 1989 (39) E.L.T. 569 (Tribunal), the issue of course was whether rough machine castings/forgings would be classifiable under Item 26AA or Item 68. The goods had been assessed as machine parts under customs tariff according to Rule 2(a) of Interpretative Rules but, in the Central Excise Tariff, there was no such Rule at that time and the Tribunal had noted inter alia that there can be little doubt that between 26AA and Item 68, a rough machined forging falls more appropriately in the head that accommodates forgings even though it has undergone rough machining and has acquired certain essential shape or character that puts it apart from rough unmachined, unprocessed castings and forgings and sections. However, it is noteworthy that this order does not describe exactly the goods in the condition in which they were imported and a plain reading of the order shows that the items were apparently rough machine castings/forgings and it was in the face of these admitted facts that the question of classification had arisen. Again, there was apparently no dispute that the goods had not yet acquired the shape and size and character of a component or machinery part to take the goods in the category of finished machine parts; and it was in this context that 26AA was considered to be more appropriate. In the present case, the factual situation is different. The order had been placed for crank shafts and the suppliers have sent crank shafts for use as a motor vehicle part; they were identified as such at the time of importation and we are concerned with the goods as they are presented for assessment. As mentioned above, the Board's Circular referred by both the sides itself takes them beyond the scope of 26AA, the item having acquired the name, form and essential characteristics of an identifiable part of Motor Vehicles not specified under Tariff Item 34A. Hence, it could be classified only under Tariff Item 68 in the absence of claim for any other heading.
29. Insofar as the second issue of valuation is concerned, we find that the learned Collector (Appeals) has himself remanded the matter for re-consideration, and rightly so; therefore, no further orders are called for.
30. In view of the above position, the appeal is rejected and the impugned order of the Collector (Appeals) is upheld.
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(S.K. Bhatnagar) Vice President Dated 1-7-1996 POINT OF DIFFERENCE
31. In view of difference of opinion between Hon'ble Member (Judicial), Shri S.L. Peeran and the Vice President, the matter is submitted to Hon'ble President for reference to a Third Member on the following point :-
"Whether the crank shaft imported by the appellants was classifiable under Tariff Item 26AA(ia) or under Tariff Item 68 as it stood during the relevant period."
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(S.L. Peeran) (S.K. Bhatnagar)
Member (J) Vice President
Dated: 3-7-1996 Dated 3-7-1996
G.R. Sharma, Member (T)
32. The above matter has been referred to the undersigned as a difference of opinion. The point for determination is whether the Crank Shaft imported by the appellants was classifiable under Tariff Item 26AA(ia) or under Tariff Item 68 as it stood during the relevant period. Without going into the details of the facts of the case as the same were set out in the paragraphs proposed by the learned Member Q) in the order, I would like to straightway deal with the issue involved in this case.
33. Shri R. Subramaniam, the learned Consultant appeared for the appellants and Shri S.N. Ojha, the learned DR appeared for the respondent Commissioner.
34. The difference of opinion centres round the question whether the imported Crank Shaft forgings had acquired the specific character of crank shaft so as to be liable for classification under Tariff Item 68 of the then Central Excise Tariff or was still a forged and section and classifiable under Tariff Item 26AA(ia). The ld. Counsel again repeated the submissions made before the Bench and in support of his contention, he cited and relied upon the various Circulars of the Board issued from 1981 to 1987 as also the following case-law :
(1)1995 (10) RLT 92 (5 Member Bench), Sukke Heat Treatment Centre v. C.C.E., New Delhi.
(2) 1988 (35) E.L.T. 605 (SC), Tata Iron & Steel Co. Ltd., v. U.O.I. and Ors.
(3) 1989 (39) E.L.T. 569, BHEL v. C.C. (4) 1985 (20) E.L.T. 280 (Delhi), Metal Forgings Pvt. Ltd. and Anr. v. U.O.I. and Ors.
(5) 1994 (70) E.L.T. 693 (Tribunal), Aravali Forgings Ltd. v. C.C.E. (6) 1988 (33) E.L.T. 367 (Tribunal), Bajaj Auto Ltd. v. Collector of Customs.
The ld. Counsel also dealt with the specific points raised by the Hon'ble Vice President. It was argued that the. scope of the processes called as normalising, hardening and [tampering] have been defined in Automotive Handbook and these processes by no means made crank shaft forgings ready for use in the motor vehicle, that revised Invoice No. 3 describes the product as crank shaft forgings and not crank shaft only as mentioned by Vice President and though in some invoices, the product has been described as crank shaft however, the drawing is the same as that of crank shaft forgings and hence the item purchased by the appellants was crank shaft forgings and not ready to use as crank shaft.
35. The ld. DR appearing for the respondent Commissioner adopted the arguments and reasonings of the ld. Vice President.
36. Heard the submissions of both sides. On careful consideration of the facts, I find that the Apex Court in the case of TISCO v. UOI and Ors. reported in 1988 (35) E.L.T. 605 considered at length the classification of forged products vis-a-vis the Item No. 26AA(ia) and Item No. 68. The facts in the case of TISCO v. UOI and Ors. cited above, are similar. The Apex Court in Para 4 observed as under:
"4. A perusal of these items makes it clear that forged steel products are liable to duty in terms of Tariff Item No. 26AA. It is also beyond dispute that forged steel goods with which we are concerned would be covered by Tariff Item No. 26AA(ia) which includes forged or extruded shapes and sections, not otherwise specified. It is a common ground that the appellant is liable to pay excise duty on the said goods under Tariff Item No. 26AA(ia). The dispute in this [connection] is what is the stage at which the said goods could be said to be forged iron and steel products as contemplated in the said item; whether they could be regarded as such as soon as they are forged or after machining and polishing to remove the excess skin before being supplied to the Indian Railways. The stand of the appellant is that this machining and polishing which is done in its workshop, is not of significant character and extensive precision machining and polishing has to be done by the railways at their workshop before the wheels, tyres and axles supplied by the appellant can be attached to the rolling stock. The machining and polishing done in the workshop of the appellant was only in the nature of shaping by removing the superficial material to bring the forged items upto the Railways' specifications. A perusal of Item 26AA would show the excise duty on forged goods covered under the said entry, is according to the weight of the goods. It was contended by the appellant that the weight should be measured only after the polishing and machining at the appellant's workshop was completed. It is obvious that as a result of such machining and polishing there would be some loss of weight on account of excess skin removal. It was on the other hand contended on behalf of the Revenue, the respondent herein that the forging of the goods was complete before the machining and polishing was done to remove the excess surface or excess skin. It appears to us that the aforesaid contention of the appellant deserves to be accepted. Even to prepare forged goods for supplying to the Railways, it was essential that the goods should comply with the Railway's specifications and the excess steel on the surface or the excess skin as it is called, would have to be removed for that purpose. Moreover, as pointed out by learned Single Judge of the Delhi High Court in Metal Forgings Pvt. Ltd. and Anr. v. UOI and Ors. [1985 (20) E.L.T. 280 at Paragraph 12] :-
The process of manufacture of forged products consists of cutting of steel, pre-heating of material, heating and beating of steel material till final shaping is achieved. The steel forging process involves open forging process where the quantity small and drop/close die forging and/or upset forging process under which the product is made with the help of dies. Thereafter, the extra/unwanted material is removed by either trimming or by gas cutting or by skin cutting to achieve the shape and section nearest to the forged steel product required and also the forging clearances specified in the standards by I.S.I./or international. It is conceded by the Government that forging would not cease to be forging by processes like removal of superfluous extra skin of cast iron.
The learned Judge has further pointed out in the next paragraph of the said judgment that the removal of extra/unwanted surface steel by either trimming or by gas cutting or by skin cutting of the forged products must be regarded as incidental or ancillary to the process of manufacture. This view is also consistent with the definition given to the term 'manufacture' contained in Sub-section (f) of Section 2 of the Central Excises and Salt Act, 1944. This definition shows that the manufacture includes any process incidental or ancillary to the completion of a manufactured product. We are, therefore, of the view that in respect of the said goods the weight for the purpose of levy of excise duty under Item 26AA(ia) should be taken after the machining and polishing is done to remove the excess surface skin and the contention of the appellant in this regrd must be accepted."
On perusal of the above ruling, I find that the Apex Court observed that the dispute in this case is what is the stage at which the said goods could be said to be forged iron and steel products as contemplated in Item No. 26AA(ia), whether they could be regarded as such as soon as they are forged or after machining and polishing to remove the excess skin before being supplied to the Indian Railways and came to the conclusion that it was essential that the goods should comply with the Railways' specifications and the excess steel on the surface or the excess steel as it is called, would have to be removed for that purpose. The Apex Court also ruled in that case that it is not the case of the respondent that there were three distinct sets of goods namely, (i) forged steel products (ii) manufactured goods supplied by the Railways and (iii) the finished goods as turned out from the Indian Railways' workshops for being used by the Railways. It must be regarded as common ground that duty under Item No. 26AA was payable on the forged products and duty under Tariff Item 68 was payable at the stage of the completion of the manufacture of finished goods namely, axle, wheels, tyres and so on.
37. Now examining the facts in the present case, I find that the goods have been described as crank shaft forgings in the invoice and the B/E. I also find that the appellants have submitted that before use in motor vehicle, a number of processes are undertaken. Now subjecting these facts to the ruling of the Apex Court in the case of TISCO, I find that there are two stages. The first stage is when the goods are imported and the second stage will be when the goods are subjected to processes indicated by the appellants and crank shaft becomes ready for use in motor vehicle. Now according to the ratio of the judgment of the Apex Court, we find that the stages in which the goods were imported, they will be classifiable under Tariff Item 26AA(ia) and when they are fully finished and polished and ready for use in the motor vehicle, they will become classifiable under Tariff Item 68.I observe that this is a very rule laid down by the Apex Court insofar as the classification of forged articles under Tariff Item 26AA(ia) and Tariff Item 68 is concerned. More or less similar ratio has been followed in the cases cited and relied upon by the appellants.
Therefore, it will be reasonable in the circumstances to agree with the views expressed by the learned Member (Judicial).
Sd/-
(G.R. Sharma) Member (T) Dated: 15-10-1996 Final Order In view of the majority opinion the item is classifiable under Tariff Item 26AA(ia) under the Old Tariff for the purposes of countervailing duty. The appeals are therefore allowed in terms of the observations of Hon'ble Member (Judicial) with consequential relief, if any due.