Patna High Court
Hindusthan Malleables And Forgings ... vs Union Of India (Uoi) on 18 December, 1991
Equivalent citations: 1995ECR492(PATNA), 1992(58)ELT516(PAT)
Author: S.B. Sinha
Bench: S.B. Sinha
JUDGMENT S.B. Sinha, J.
1. This writ application is directed against an order dated 31st of July, 1991 passed by respondent No. 2 as contained in Annexure-18 to the writ application whereby and whereunder the said authority held that unmachined iron castings manufactured by the petitioner are allegedly classifiable under different sub-headings of Chapters 83, 84, 85, 86 and 87 of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter to be called and referred for the sake of brevity as the said Tariff) and consequently made a demand of Rs. 8,91,574.45 purported to be dues from it by way of short-paid central excise duty in exercise of its power conferred upon it under Section 11A of the Central Excises and Salt Act, 1944 (hereinafter to be called and referred for the sake of brevity as the said Act) and further imposed a penalty of Rs. 2 lakhs upon the petitioner purported to be in terms of Rule 173Q of the Central Excise Rules, 1944.
2. Bereft of all unnecessary details, the facts of the matter shortly put are:-
The petitioner, a company incorporated under the Companies Act, 1956, is engaged in the manufacture of graded gray iron, malleable and S.G. Iron castings which are supplied to many public undertakings of national importance, such as Vehicles Factory, Jabalpur, Heavy Vehicles Factory, Avadi, Small Arms Factory, Kanpur, Railways, Bharat Heavy Electricals Limited, Bhopal and Jagdianpur, National Thermal Power Corporation, Insulators and other Electricity Boards. The petitioner manufactures two types of iron castings : (i) machined and (ii) unmachined.
The dispute which led to the adjudication and passing of the impugned order is in relation to the unmachined iron castings. The petitioner has contended that no excise duty was payable for unmachined iron castings.
3. In terms of the provisions of the said Act and the Rules framed thereunder, classification lists used to be submitted by the petitioner before the appropriate authority. According to the petitioner, unmachined iron castings were falling under Tariff Item No. 25 till 28th February, 1986, but on and from 1st March, 1986, the heads of classifications having been revised, the petitioner was classified under Heading No. 7307.10. Its classification list bearing No. 76/85-86, 24/86-87 and 1/87-88 were approved by the Assistant Collector of the Central Excise and in view of the exemption notification No. 208/83, dated 1st August, 1983, as amended vide Notification No. 38/84, dated 1st March, 1984 and Notification No. 75/76, dated 10th February, 1986, no excise duty was payable. The said notifications are contained in Annexure-2 series.
4. On and from 1st March, 1988, tariff heads were again revised and articles of unmachined iron castipgs were classified under Heading No. 7325.10 for the year 1988-89 which was approved on 24th May, 1988 (Annexure-3).
5. A notification dated 20th May, 1988 bearing No. 202/88 was issued superseding the Notification No. 90/88 dated 1st March, 1988 and the petitioner in terms thereof had been availing the exemption from payment of excise duty, as, according to it, it had been fulfilling all the conditions thereof.
6. On 3/4th July, 1989, The Superintendent, Customs and Central Excise, Dhanbad Range, directed the petitioner to submit a fresh classification list by classifying the same under Chapters 84, 85, 86 and 87 instead of approving the classification Heading No. 7325.10 thereof. The petitioner by a letter dated 8th July, 1989 raised a dispute in relation thereto and informed the Superintendent, Central Excise that the petitioner's goods cannot be included under Chapters 84, 85, 86 and 87 but would fall under Chapter 73 thereof.
7. By reason of a letter dated 7th July, 1989 (Annexure 9), the Superintendent of Central Excise, however, insisted that the petitioners must submit the classification list under the aforementioned chapters or if it does not agree therewith, pay the duty under protest.
8. The petitioner filed a writ petition in this Court which was marked as C.W.J.C. No. 1206/89(R) which was disposed of by order dated 18-7-1989 whereby the petitioner was directed to file a reply to the notice issued but the respondents were also directed to allow the petitioner to clear the goods in the meanwhile till appropriate orders are passed by Respondent No. 3. However, later on some corrections were made in the said order. (both the orders are contained in Annexures 10 and 11 to the writ application).
9. By an order dated 31st January, 1990, Respondent No. 3 rejected the petitioner's objection and classified the said goods as under the heading or sub-heading of Chapters 84, 85, 86, 87 of the Tariff Act. Being aggrieved by the said approval of the classification list by Respondent No. 3, the petitioner again filed an application under Articles 226 and 227 of the Constitution of India before this Court being C.W.J.C. No. 291 of 1990 (R) and this Court by order dated 20th February, 1990 (Annexure-13) while permitting the petitioner to withdraw the said application in order to enable it to prefer an appeal directed the respondents to allow the petitioner a period often days from that day to clear the goods on the basis of the earlier approved classification list and the petitioner was directed to keep accounts of goods.
An appeal was preferred by the petitioner against the said order dated 31st January, 1990 and by order dated 2nd March 1990 (Annexure-14), the Collector of Central Excise (Appeals) allowed the said appeal, set aside the order passed by Respondent No. 3, and specifically approved the classification list filed by the petitioner classifying the unmachined iron castings as falling under Tariff Heading No. 7325.10 of the Schedule to the said Act.
10. According to the petitioner, no appeal or revision having been preferred from the said order, the aforementioned order dated 2nd March, 1990 has attained finality.
However, the petitioner received a notice issued by Respondent No. 2, dated 11th January, 1991 (Annexure-15) purported to be under Section 11A of the said Act alleging inter alia therein that it has contravened the provisions of the Rules by failing to pay duties on the unmachined castings manufactured by the petitioner between 23rd June, 1988 and 3rd November, 1988; 1st March, 1989 to 27th July, 1989 and petitioner was called upon to show cause as to why Rs. 8,91,574.45 should not be demanded from him.
11. On 11th February, 1991, the petitioner submitted his reply and the matter was heard on 15th April, 1991 on which date a written argument was filed. The impugned order dated 31st July, 1991 was passed by Respondent No. 2, whereby different articles of cast iron manufactured by the assessee were classified under different chapters as specified in paragraph 6 thereof and confirmed the demand of duty amounting to Rs. 8,91,574.45 ps. under Section 11A of the said Act and further imposed a penalty of Rs. 2 lakhs under Rule 173Q of the Central Excise Rules.
12. Dr. Samir Chakraborty, the learned counsel appearing for the petitioner submitted that the order of the Collector Central Excise dated 2nd March, 1990 having attained finality and no appeal or revision having been preferred by the Department either in terms of Section 35B or Section 35E of the said Act, Respondent No. 2 had no jurisdiction to initiate a proceeding under Section 11A of the said Act.
Learned counsel in this connection has relied upon Ajanta Iron & Steel Co. Ltd. v. Union of India and Ors. reported in 1986 (23) E.L.T. 318; in Naarden (India) Ltd. v. Union of India reported in 1989 (39) E.L.T. 530; in Union of India v. Kamlakshi Finance Corporation Ltd. reported in 1991 (55) E.L.T. 433 and in State of Andhra Pradesh v. Commercial Tax Officer and Ors. reported in 1988 (63) Company Cases 273.
13. It was next contended that in any event, the conditions precedent for invoking the provisions of Section 11A of the Act having not been fulfilled, the proceeding under Section 11A must be held to have been barred by limitation.
In this connection, the learned counsel has relied upon Collector of Central Excise v. Chemphar Drugs and Liniments reported in AIR 1989 SC 832; in Tata Yodogawa Ltd. v. Assistant Collector of Central Excise reported in 1983 (12) E.L.T. 17; and in Padmini Products v. Collector of Central Excise and Ors. reported in AIR 1989 SC 2278.
14. Learned counsel further submitted that it is not a case where the authorities were not aware of the contentions raised by the petitioner relating to the classification of unmachined goods and as such the question of fraud having been played by the petitioner in relation thereto does not arise.
According to the learned counsel even in the notice or in the impugned order (Annexure-18) the Respondent No. 2 has not given the particulars of fraud.
15. It was next contended that in any event, in view of the circulars issued by the Board from time to time which are binding upon the authorities, as would be evident from pages 112, 114 of the brief, that even on merits, the petitioners have a good case and the Respondent No. 2, although bound by the aforementioned circular, has passed the impugned order illegally.
16. On the other hand, the learned Additional Standing Counsel, Central Government took us through the counter-affidavit filed on behalf of the respondents and submitted that in view of the fact that the products under reference were not only unmachined iron castings, but, in fact, were in the nature of partial processed ones like annealing, rust preventive, protective painting etc., the basic iron castings are classifiable under Chapters 83, 84, 85, 86 and 87 depending upon their use.
It was further submitted that as in this case there has been a suppression by the manufacturer with regard to the process of manufacture which was detected subsequently, the proceedings cannot be said to be barred by limitation, in view of the proviso appended to Section 11A of the said Act.
17. It was submitted that, in fact, full description of each item of the goods manufactured including specification was never furnished by the petitioners and in the classification list effective from 1-3-1989, in Serial No. 8 of the prescribed proforma, the items in question used to be mentioned as "other cast articles of iron or steel - of iron".
18. In view of the rival contentions of the parties, the following questions arise for consideration in this appeal:-
A. Whether the order of the Collector, Central Excise (Appeals) dated 2nd March, 1990 having not been questioned by the Department, either in terms of Section 35B or Section 35E of the said Act, the Respondent No. 2 had any jurisdiction to initiate a proceeding under Section 11A thereof?
B. Whether no particulars of fraud having been furnished nor having been stated in the impugned order, the proceeding under Section 11A of the Act was barred under the law of limitation?
C. Whether the authorities of the Central Excise Department were bound by the circulars issued by the higher authorities from time to time?
19. Re. Question No. A : It is clear from the materials on record that with regard to the unmachined casting job, a dispute arose with regard to their proper classification in the year 1980. The said dispute culminated into an order dated 2nd March, 1990 passed by the Collector of Central Excise (Appeals) which is contained in Annexure-14 to the writ application, whereby the classification list filed by the petitioner was approved under Heading 7325.10 of the Schedule of the Tariff Act. It is not in dispute that as against the said appellate order, neither any appeal nor any revision has been preferred by the Department. Thus the classification lists contained in Annexure 2, 3 and 8 to the writ application have not been set aside by any competent authority.
20. In Ajanta Iron & Steel Co. Pvt. Ltd. v. Union of India and Ors. reported in 1986 (23) E.L.T. 318 (Del.), a Division Bench of the Delhi High Court held that once list has been approved by one of the Assistant Collectors, it becomes an approved list and, accordingly, the excise authorities may take recourse to some other provisions of the Act, but no proceeding under Section 11A thereof can be initiated. It had been pointed out that an approval of the classification list is given in terms of Rule 173B of the Central Excise Rules.
Thus, once a classification list is approved the same becomes binding upon the Assistant Collectors unless the Excise authorities take recourse to some other provisions of the Act, that is, the procedure for appeal or revision.
21. In Union of India v. Kamlakshi Finance Corporation Ltd. reported in 1991 (55) ELT 433, the Supreme Court has clearly held that once an appellate order has been passed, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector or the Appellate Tribunal, as the case may be, even where he may have some reservations on its correctness. He has to follow the order of the higher appellate authority.
The Supreme Court held:-
"The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws."
22. In Naarden (India) Ltd. v. Union of India reported in 1989 (39) E.L.T. 530, a learned Single Judge of the Bombay High Court has held that the excise authorities are bound by the order of the Appellate Collector unless reversed or set aside.
23. The decision in State of Andhra Pradesh v. Commercial Tax Officer reported in 1986 (63) Company Cases 273 is not relevant. In that case, a direction was given by the High Court. It was held that a direction given by the High Court cannot be ignored only because an appeal from the said judgment is pending before the Supreme Court of India.
24. If the Excise authorities are aggrieved by the order passed by the Collector (Appeals), evidently, it can take recourse to the provisions contained in Section 35B(2) or Section 35E (2, 3 and 4) of the said Act. Even subsequent to the passing of the order of the Collector, it may not approve the classification list submitted by the manufacturer, but so long the order passed by a higher authority is not set aside, reversed or modified, all other Excise authorities are bound by the said order for the period in question. It is now well known that what cannot be done directly cannot be done indirectly. An order which was otherwise binding upon the Excise authorities cannot be permitted to be reopened by initiating a proceeding under Section 11A of the said Act.
25. In this view of the matter, it must be held that Respondent No. 2 had no jurisdiction to initiate a proceeding under Section 11A of the Act.
26. Re. Question No. B & C:-
Section 11A reads as follows:-
"11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded:-
(1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :
Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of fact, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if for the words 'six months', the words 'five years' were substituted.
Explanation. - Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of six months or five years, as the case may be.
(2) The Assistant Collector of Central Excise shall, after considering the representation, if any, made by the person on whom notice is served under Sub-section (1), determine the amount of duty of excise due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.
(3) For the purposes of this section -
(i) 'refund' includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exo ported out of India;
(ii) 'relevant date' means:
(a) in the case of excisable goods on which duty of excise has not been levied or paid or has been short-levied or short-paid.
(A) where under the rules made under this Act a monthly return, showing particulars of the duty paid on the excisable goods removed during the month to which the said return relates, is to be filed by a manufacturer or producer or a licensee of a warehouse, as the case may be, the date on which such return is so filed;
(B) where no monthly return as aforesaid is filed, the last date on which such return is to be filed under the said rules;
(C) in any other case, the date on which the duty is to be paid under this Act or the rules made thereunder.
(b) in a case where duty of excise is provisionally assessed under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;
(c) in the case of excisable goods on which duty of excise has been erroneously refunded, the date of such refund."
27. Thus in terms of Sub-section (1) of Section 11A of the said Act, a show cause notice has to be issued within a period of six months from the relevant date. The 'relevant date' has been defined in Sub-section (3)(ii) of Section 11A to mean the date on which the duty is paid under the said Act or the Rules.
However, by reason of the proviso appended to the aforementioned provision, the period of limitation of six months can be extended to five years only in a case of nonlevy or short-levy or non-payment or short payment of central excise duty which has occasioned by reason of fraud, collusion or any wilful misstatement or suppression of fact or contravention of any of the provisions of the Act or of the rules made thereunder with intent to evade payment of duty.
28. It has, of course, been stated in the counter-affidavit that the petitioner had suppressed certain facts. But from a perusal of the impugned notice, as contained in Annexure-15 to the writ application, it does not appear that any such contention was raised thereunder and, in fact, the petitioners were directed to show cause, inter alia, on the ground that the petitioner has failed to pay duty at the prescribed rate under notifications dated 23-6-1988 and 1-3-1989 on all such castings and cast articles of iron which are to be ultimately used as goods falling under Chapters 84, 85, 86 and 87 of Central Excise Tariff and failed to submit revised classification list in view of the clear requirements of the aforementioned notifications and suppressed the facts with intentions to evade payment of duty because the castings supplied by them were clearly for use as parts of Machinery as per orders received from different customers.
29. It has not been disputed by the respondents that the petitioner has been manufacturing items involving process of iron castings both machined and unmachined for specific purposes and are supplied to public undertakings of national importance, such as Vehicles Factory, Jabalpur, Heavy Vehicles Factory, Avadi, Small Arms Factory, Kanpur, Railways for traction, air brakes and electrification, Bharat Heavy Electricals Ltd., Bhopal and Jagdianpur; National Thermal Power Corporation, Insulators and other Electricity Boards.
30. A Bench of this Court in Tata Yodogwa Ltd. v. Assistant Collector of Central Excise, Jamshedpur reported in, 1983 (12) E.L.T. 17 held as follows :-
"According to it the limitation of five years will apply in case of 'intentional evasion' and not 'mere evasion'. The crucial words are 'intent to evade'. In a case where the assessee bonafide disputes the classification of goods for the purpose of payment of duty, it cannot be said that there is intentional evasion of payment of duty. In this case from the very beginning i.e. 1969-70 the petitioners started removing goods on the classification approved by the respondents under Item 26AA(v). Item 68 was introduced in the First Schedule of the Act on 1-3-1975 and the petitioners continued to remove the goods upto 30th of April, 1979. At no point of time till then the respondents demanded duty under Item 68 or asked the petitioners to submit revised classification list. For the first time on 1-5-1979 notice was issued to the petitioners. The petitioners in its show cause contested . the matter before the Assessing Authority and being dissatisfied with the order filed this writ petition, and thereafter also filed an appeal. From these facts it cannot be said that the evasion of tax by the petitioners was intentional and that being the position, it must be held that the proviso to Rule 10(1) has no application to the present case. The period prior to 1-12-1978 must be held to be barred."
31. In Padmini Products v. Collector of Central Excise, Bangalore reported in AIR 1989 SC 2278 the Supreme Court relied upon its earlier decision in Collector of Central Excise v. Chemphar Drugs and Liniments reported in AIR 1989 SC 832 and held:-
"Shri V. Lakshmi Kumaran learned counsel for the appellant drew our attention to the observations of this Court in Collector of Central Excise, Hyderabad v. Chemphar Drugs and Liniments, Hyderabad (1989) 2 SCC 127 where at page 131 : (AIR 1989 SC 832) at P. 832 at p. 835] of the report, this Court observed that in order to sustain an order of the Tribunal beyond a period of six months and upto a period of 5 years in view of the proviso to Sub-section (1) of Section 11A of the Act, it had to be established that the duty of excise had not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. It was observed by this Court that something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise is required before it is saddled with any liability beyond the period of six months had to be established. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act is a question of fact depending upon the facts and circumstances of a particular case."
In this case, therefore, ex facie, proviso appended to Section 11A of the said Act is not attracted.
32. In paragraph 12 of the impugned order as contained in Annexure-18 to the writ application, Respondent No. 2 has held as follows:-
"Regarding limitation aspect I find that the assessee suppressed the material fact regarding manufacture of their products as per specification of their customers and its principal use. By suppressing above facts they got their classification list approved and evaded Central Excise duty. Besides in their classification list they did not submit list of such cast articles of iron. For such suppression of facts with sole intention to evade Central Excise duty special period of five years for realising duty not paid can equitably be evoked. As such the demand is not hit by limitation."
33. In arriving at the said conclusion, the Collector (Appeals), Central Excise, failed to take into consideration that the subject matter of the proceedings namely, Classification of the goods, had been in controversy between the parties since 1979 as would be evident from the order of the Customs, Excise and Gold (Control) Appellate Tribunal as contained in Annexure-1 to the writ application.
In this connection it is relevant to notice the relevant portion of the Customs, Excise & Gold (Control) Appellate Tribunal's order as contained in Annexure-1 to the writ application:-
"And we agree with this argument, although the learned counsel for the department Mr. Verma strongly supported the Appellate Collector's order. We read here that from the submission of the assessees, the records and the facts of the case, that the products were nothing but iron castings to be used as parts of motor vehicles. We also recorded that certain operations like further machining and thread cutting might be necessary before the castings were ready for figment as parts of motor vehicles and that the products were already clearly identifiable as parts of motor vehicles because the part numbers were already given and the trade mark of the customers who were going to use the products in their motor vehicles were already imprinted on the castings. These castings said the Appellate Collector, could not be used for purpose other than actual parts of vehicles for which they were intended. Therefore, it was no longer an ordinary iron casting, he concluded.
5. We are afraid this reasoning is not correct. From the submission and the records, it is clear that the castings had not been machined, but like all castings the parts which they are going to form can clearly discerned; otherwise, it would not be a casting. There is no point in making a casting that is so radically different from the other component it is ultimately going to be. In other words, all castings are given the shape as near as possible to the one they are going to have when they are finished.
Thus wheel castings can be seen as wheel in embryo although it is still too rough to work as a wheel and still requires drilling, balancing, trimming, machining etc. before it can be fitted as a wheel; but one can see the wheel form clearly in the cast product. If the Collector meant this, he was right to say that the products were clearly identifiable as part of motor vehicles, but that will not mean that they were parts of motor vehicles."
34. The order of the Collector of Central Excise (Appeals) is contained in Annexure-14 to the writ application, whereby the order of classification granted by the Assistant Collector dated 31st January, 1990 (Annexure-20) was reversed. It is, therefore, not a case where the facts were not known to the Department. There had all along been a dispute between the parties with regard to the proper heads of classification in respect of unmachined iron castings manufactured by the petitioner. Such a dispute must be held to be bonafide dispute and, thus, cannot be termed to be suppression on the part of the petitioner.
35. Further, from the letter dated 9th January, 1990 issued by the petitioner including annexures thereto, it would appear that the petitioner has stated in details that information had been given by it to the Assistant Collector of Central Excise with regard to the nature of the production along with the certificates issued by other custom officials including the fact that the process of annealing, rust preventive, protective painting, surface cleaning are being undertaken by the petitioner. The said letter had been taken into consideration by the Assistant Collector while passing the order dated 31st January, 1990 whereby he approved the classification list as would be evident from the penultimate paragraph of the said order as follows:-
"The assessee has himself confirmed that the said castings are subjected to only the process of annealing and fettling before despatch of the same and there is also no doubt that the said goods are used directly for the manufacture of goods classifiable under 84, 85, 86 and 87 with only job left out i.e. machining."
36. Even in the order of the Central Excise (Appeals) Collector dated 2nd March, 1990 (Annexure-14) the fact that the petitioner had been carrying annealing, surface cleaning of the goods had been recorded by the appellate authority.
37. It is, therefore, clear that the conclusion arrived at in paragraph 12 of the impugned order (Annexure-18) is an error of record on the part of Respondent No. 2 in coming to the conclusion that there has been suppression on the part of the petitioner.
38. Only in the counter-affidavit filed on behalf of the respondents it has been alleged that the petitioner had suppressed the fact that it had been manufacturing incomplete or semi-finished or semi-processed or partly processed castings. Such an allegation has not been made even in the impugned notice as referred to hereinbefore.
39. In Mahinder Singh Gill and Anr. v. Chief Election Commissioner reported in AIR 1978 SC 851, it has clearly been held :-
"When a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional ground later brought."
40. Further it appears that in relation to iron and steel castings departmental clarifications have been issued from time to time, the relevant portion whereof reads as follows:-
"Iron and steel castings. - Certain doubts have been raised as to whether iron and steel castings (which have not undergone machining) would be classifiable as castings of iron and steel not elsewhere specified, under Chapter 72/73 (heading 73.07) or as parts of machinery under Chapter 84/85 of the Schedule to the Central Excise Tariff Act, 1985.
2. It may be recalled that prior to 23-2-1986, instructions were issued under Board's F. No. 136/2/81-CX-4 dated 27-6-1981 to the effect that the product was subjected to only the process of making casting, it would be classifiable as casting. However, if machining or any processes other than casting were employed on such products, these would be covered under the then residuary Item 68. For this purpose, scope of the words 'machining or any other process' was explained in Board's letter F. No. 139/2/81-CX-4 dated 10-11-1981 to mean any process other than those employed for merely removing surface defects or excess material by grinding, chipping or filing which are known as fettling in the ISI terminology. In other words it was clarified in the context of the old tariff that where only surface defects or excess material is removed by the process of grinding, chipping and filing, and no further machining is done on castings to give different form or shape to them, in such cases, the products would continue to be classified as castings. But if certain other processes (other than fettling) were carried out on castings, such as boring of holes or cutting to give a different form and such semi-finished or finished machine parts with identities different from simple casting comes into existence. Such articles were to be regarded as falling under erstwhile Tariff Item 68 (unless that fell under any of the specific tariff items 167 such as Tariff Item 52).
3. The doubts which have arisen in the context of the new excise tariff are mainly based on the applicability of Rule 2(a) of the rules for the interpretation of the Schedule to the Tariff. It may be stated that the Board in its F. No. 114/13/86-CX-3 dated 10-2-1986, has already clarified that the important conditions to be satisfied for attracting interpretative Rule 2(a) for classification of incomplete and finished articles are that the articles must have the essential character of the complete or the finished articles, which could inter alia be judged with reference to the functional aspect, physical identity and the degree of completion of the product. Viewed in this context, castings, in which only surface defects or excess material have been removed may not acquire a stage at which it could be said to have the essential character of the complete or finished machinery part. Further, as per Interpretative Rule 1, the classification shall be determined according to the terms of the headings, and in this case, there is a specific Heading 73.07 covering all iron and steel castings not elsewhere specified in Chapter 72 or 73.
4. The operations, such as those listed below, which do not alter the essential character of the castings, would not be enough to merit the classification of such castings as machinery parts under Chapter 84 or 85 as the case may be.
(a) Removal of runners and risers.
(b) Surface cleaning and removal of surface defects.
(c) Chipping, filing or grinding to remove excess material.
(d) Annealing and stress relieving.
(e) Proof machining
(f) Surface coating."
41. The office of the Collector of Central Excise, Patna, upon receipt of the aforementioned circular issued by the Central Excise Board issued a trade notice bearing No. 30/1-Chap. 73/87 dated 10-3-1987 wherein also it was stated as follows:-
"It is viewed that operations, such as those listed below which do not alter the essential character of the castings, would not be enough to merit the classification of such castings as machinery parts under Chapters 84 or 85 as the case may be.
(a) Removal of runners and risers.
(b) Surface cleaning and removal of surface defects.
(c) Chipping, filing or grinding to remove excess material.
(d) Annealing and stress relieving.
(e) Proof machining
(f) Surface coating.
Such castings would more appropriately be classified under Heading 73.07 of the Central Excise Tariff Act, 1985."
42. The Circulars issued by the Board having been done under the powers conferred upon it under the provisions of Central Excises & Salt Act, the same is binding upon the inferior authorities.
43. In Star Chemicals (Bombay) Ltd. v. Union of India reported in 1980 (6) E.L.T. 133, it has been held that trade notice regarding classification of a product is binding on the Department and the Department would be estopped from contending to the contrary.
44. In State of U.P. v. Mrs. Rakesh Dubey reported in 1984 (10) Allahabad Law Reports 690, a Division Bench of the Allahabad High Court held that the circulars issued by the Central Government under Section 36 of the Urban Land (Ceiling & Regulation) Act is binding upon a competent authority. Reference in this connection may also be made to a recent decision of the Supreme Court in S.P. Dubey v. MPSRT Cor. and Anr. reported in AIR 1991 SC 276.
It, therefore, cannot be contended by the respondents that it was not aware of the trade notice issued by the Collector of Excise Department as also circulars issued by the Board. In such a situation, evidently proviso appended to Section 11A would not be attracted.
45. In Ambica Steel Rolling v. CEGAT reported in 1991 (52) E.L.T. 15, the Delhi High Court followed the decision of the Supreme Court in Padmini Products v. Collector of Central Excise - 1989 (43) E.L.T. 195, and held :-
"Reliance has been placed on the decision of the Supreme Court in Padmini Products v. Collector of Central Excise, 1989 (43) E.L.T. 195 (SC) wherein it has been held that extended period of five years is inapplicable for mere failure or negligence to pay duty when there was scope for doubt that the goods were not dutiable unless there is evidence that the manufacturer knew that the goods were liable to duty and he due to fraud or collusion or wilful misstatement or suppression of facts in contravention of any provision of the Act and the Rules, cleared the goods without payment of duty, the extended period of five years limitation could be invoked."
46. It is, therefore, clear that in the facts and circumstances of this case, the proviso appended to Section 11A is not attracted at all.
47. In view of my findings aforementioned, it is not necessary to consider the submissions of the learned counsel appearing on behalf of the appellant that even on merits the classification of unmachined steel castings made by Respondent No. 2 is not in accordance with law, need not be considered as, in my opinion, this Court should not enter into the thicket of a disputed question.
48. In the result, this application is allowed. The impugned order dated 31st of July, 1991 as contained in Annexure-18 is quashed.
49. By our order dated 7-10-1991, the petitioner was directed to deposit a sum of Rs. 2 lakhs. According to the learned counsel for the petitioner, the said amount has been deposited. The aforementioned amount of Rs. 2 lakhs may be adjusted by the petitioner against its current and future dues.
In the facts and circumstances of this case, the parties shall also bear their own costs.
R.N. Sahay, J.
I agree.