Customs, Excise and Gold Tribunal - Delhi
Malleable Iron And Steel Castings Co. P. ... vs Collector Of Central Excise on 25 May, 1987
Equivalent citations: 1987(12)ECR823(TRI.-DELHI)
ORDER M. Santhanam, Member (J)
1. The appellants have preferred this appeal against the order of the Collector of Central Excise (Appeals), Bombay dated 2nd March, 1983.
2. The appellants have two factories--one at Kurla Andheri and the other at Lower Parel. In the Kurla Andheri factory, they are manufacturing iron castings and raw steel shots. There is no machine shop at Kurla Andheri factory and the appellants are not carrying out any machining process at that factory. These castings which were classi6ed under TI 25 were exempt from duty under Notification 74/62 dated 24.4.1962. The steel shots were classified under TI 26AA(v) and the classification was confirmed under the Trade Notice issued by the Bombay Collectorate. However, the classification of shots was changed to TI 68 w.e.f. 1.1.1982. The duty in respect of this item for the period 7.7.1980 to 31.10:1980 is pending appeal.
3. In their Lower Parel factory, the appellants are manufacturing Iron Castings and are supplying the castings without any machining. But the defective castings manufactured at Kurla Andheri factory as well as the Lower Parel factory and also castings supplied by the customers are machined at the Parel factory. These machined and unmachined castings are intended for use as automobile parts after further process and cannot be used for any other purposes. The TI 68 came into force on 1.7.1975. The appellants sought a clarification and they were informed by the Supdt., vide letter dated 3.3.1975 that the castings remained classified under TI 25. On 7 3.1975, they received a letter from the Supdt., informing them that as they have got machining facility and the iron castings are converted into machine parts, they would attract duty under TI 68. The appellants contended that the machining operations did not change the form of the castings except that bore or holes were drilled and the surface made even by milling operation. No new product was manufactured by such type of machining. On 25.11.81, the appellants were informed that their machining to castings were liable under TI 68 and they should take out a licence. In reply the appellants ascertained that the castings after machining did not become identifiable parts. Even if the items fall under TI 68, the appellants would be entitled to exemption under Notification 105/80 dated 19.6.1980 inasmuch as the total clearances had not exceeded Rs. 24 lacs. The department was fully aware that the appellants were machining certain castings and clearing the same without payment of duty as they were classified under Tl 25.
4. While so, three show cause notices were as detailed under:
(1) Show Cause Notice dated 8.1.1982 demanding the duty of Rs. 3,60,442.82 for the period March, 1979 to May, 1981. (2) Show Cause Notice dated 23.12.1981 demanding the duty of Rs. 1,31,475.45 for the period June, 1981 to Nov., 1981. (3) Show Cause Notice dated 4.2.1982 demanding the duty of Rs. 5,901.17 for the period 17.12.1981 to 21.12.1981.
5. In their reply, the appellants reiterated their earlier contentions. The Asstt. Collector in his order dated 10.9.1982 rejected their submissions. He confirmed the demand and also imposed a penalty of Rs. 10,000/-.
6. The Collector of Central Excise (Appeals), Bombay under the impugned order confirmed the same except for allowing deduction for the duty involved in the computation of the value.
7. Shri V. Lakshmi Kumaran Ld. Counsel for the appellants argued that the appellants were merely machining the brackets, shackles etc. which are used as parts of automobile industry and that this machining would not convert the items as identifiable machine parts. Machining the castings as also the original castings were known in the market as castings and not as identifiable parts. There was no conversion of the raw material into a different article having a distinct name, character and use. In support of his contention, he relied on the decision Gonterman Peipers (India) Limited v. Additional Secretary to the Government of India. The Calcutta High Court held therein that such casting was capable of being used as a machine part did not alter its basic character as castings.
8. In 1983 E.L.T. 17 Tata Yodogawa Limited v. Asstt. Collector of Central Excise, Jamshedpur and Ors. 1983 ECR 227D, the Patna High Court repelled the contention that the steel castings after their cleaning, machining/polishing were again liable to duty under TI 68.
9. In 1983 E.L.T. 1113 TISCO Ltd. Jamshedpur v. Collector of Customs, Calcutta, the Tribunal held that when machining and polishing the castings did not change their basic character as castings and thus machining and polishing steel castings would still fall under TI 26AA and not under TI 68. The Ld. Counsel sought to distinguish in 1985 (20) E.L.T. 280 (Delhi) (Metal Forgings Pvt. Ltd. and Anr. v. Union of India and Ors. 1985 ECR 1337, the Delhi High Court has held that when forged products were machined/drilled/polished, they assumed altogether different character from what it was when forged. If they are identifiable and useable as machine parts without any further process, they became liable to duty under TI 68. He stated that an appeal has been admitted before the Division Bench and stay has been ordered.
10. The Ld. Counsel then urged that even if Item 68 apply to the facts of the case, the benefit of Notification 89/79 dated 1.3.1979 and Notification 105/80 dated 19.6.1980 would apply. The Lower Authorities have computed the value of the machinery of both the units. One at Kurla Andheri and the other Lower Parel. But such an approach was incorrect as each unit was distinct and the process of machining of the casting resulting in TI 68 goods, if any, took place only at Parel. He placed reliance on the decision of the Tribunal in Order No. 823/86-B1 dated 22.12.1986. Reckitt & Colman of India Ltd., Calcutta v. C.C.E., Calcutta, the Tribunal held that only the machinery producing TI 68 goods should be included for the purpose of Notification 89/79.
11. It was further submitted that in any event the show cause notice dated 8.1.1982 was barred by time. As soon as Item 68 was introduced, the appellants were requesting the department to clarify the matter. The Supdt. wrote to them that the goods would continue to be assessed under TI 25. The Supdt., wrote a letter on 5.12.1977 drawing the attention to the machining of the castings. A reply was sent to that letter. The finding that there was no reply to the letter was incorrect. There was no suppression of facts. The Ld. Counsel placed reliance on the rulings reported in Order No. C-589/84 dated 16.8.1984, Order No. 311/86-D, dated 16.5.1986 and Order No. 582/84-C dated 24.8.1984. Merck Sharp and Dohme of India Ltd., Bombay v. C.C.E., Bombay, Rajpura Crowns (P) Limited v. C.C.E., Chandigarh and Travancore Rayons Ltd., Kerala v. C.C.E., Cochin respectively.
12. The Ld. Counsel then urged that there was no relationship between the appellants and their selling agents. The discount granted varied from 17½% to 21½%. This was disallowed by the Adjudicating Authority on the ground that the normal practice was to allow merely 5% discount. Shri V. Lakshmi Kumaran urged that in the absence of any proof of financial interest, the discount sought for should be allowed.
13. He submitted that in any event the imposition of penalty was not justified.
14. Shri H.L. Verma, SDR. urged that the castings after the process of machining at Parel became identifiable machine parts and that imposition of penalty under TI 68 was justified. He relied on the ruling Tata Engineering & Locomotive Co. (P) Ltd. v. Collector of Customs Bombay 1984 ECR 1209, where the Five Member Bench of the Tribunal has observed that if the original identity of the commodity was lost and the article had acquired the character of a new and distinct article despite some negligible defciency, the goods could be said to have gone out of the purview of TI 25.
15. In (Tribunal) Pefco Foundry & Chemicals Ltd. v. C.C.E. Pune 1985 ECR 1137, the Tribunal having regard to the product involved therein held that they had become a different article falling under TI 68 of the Tariff.
16. In (Tribunal) SAIL, Durgapur v. C.C.E. West Bengal, Calcutta 1985 ECR 1860, the Tribunal held that whenever forged products of iron and steel had transformed by a further process of manufacturing as parts of machinery, they become liable to additional duty of Central Excise under Tl 68 in addition to the duty at the stage of forging. This decision follows the decision of the Delhi High Court in the case of Metal Forgings (1985 ECR 1337) (cited supra).
17. Shri H.L. Verma, SDR then urged that the factory at Kurla Andheri cannot be considered as a separate unit. The benefit of notification 89/79 will not apply.
18. Regarding the discount, it was urged on behalf of the Revenue that Invoice Price was influenced by other considerations and hence a higher discount was given to the agents. The SDR submitted that the authorities below have considered all the contentions and rightly rejected the same.
19. The points for consideration in this appeal are:
(i) Whether the goods in question would attract duty under Item 25 or whether the process of machining would take out a casting from TI 25 to TI 68?;
(ii) If the goods are classified under TI 68, whether Notification 89/79 would be applicable?;
(iii) Whether the show cause notice dated 8.1.1982 is barred by time?;
(iv) Whether the Invoice Value has been influenced by other considerations?; and
(v) Whether the penalty imposed is justified?
20. The numerous decisions cited by both the parties in regard to character and nature of the goods show that the imposition of duty under TI 68 on castings which had already borne duty under TI 25 cannot be justified unless a new and distinct commodity had come into existence by the process of machining. A close reading of judgments cited by either side shows that the liability under TI 68 would arise if the castings were converged into an identifiable machine part different from the casting. An analysis of the processes involved would be necessary to determine the controversy. Having in view the basic principal involved, we have to consider the facts of the present case. The Asstt. Collector has stated that the machining operations are such as drilling of holes, sleeting shaping and designing etc. He has given a categorical finding that the machined casting became a clearly identifiable part for a machine for motor vehicle and could be recognised as an identifiable part. In the reply to the show cause notice, the appellants have stated that the machining did not change the form of casting. They admitted that holes are drilled in some cases and the surface made even by milling operations. Except their interested version that there was no change in the castings, we have no acceptable material. In the present application it is stated that the brackets, shackles etc., are used as parts of automobile industry after further processing. But the appellants have not set out what those processes were and the effect of the processes on the machined casting. It is also not established that after machining the castings are known in the market only as 'castings'. The invoices have not been filed to indicate that the appellants have sold machined castings and not automobile parts. In our view the observations of the Assessing Authority has to be eccaped in view of the processes involved and the change or transformation in the nature of the product. In 1985 (20) E.L.T. 280 1985 ECR 1337 (cited supra), a Single Judge of the Delhi High Court had an occasion to examine the detailed classification of forged product of iron & steel. In paragraph 15, it is observed. "It is, therefore, for the Central Excise authorities to determine as to which of the forged products of iron & steel manufactured by the petitioner are transformed by a further process of manufacture as parts of machinery which are liable to additional duty of Central Excise under T.I. 68 in addition to the duty at the stage of forging." Having regard to the nature of the operations and impact of those operations on the castings we are of view that the products in question were rightly assecssed to duty under TI 68.
21. The appellants urged that, in any event, they would be entitled to the benefit of Notification 89/79 and 105/80. The relief in respect of these notifications was denied by the Authorities below on the basis that the total value of the Plant & Machinery of the factories as a whole exceeded Rs. 10 lacs and Rs. 20 lacs respectively. The Ld. Counsel for the appellants rightly urged that this interpretation was not correct. The notification contemplated the value of Plant & Machinery to be reckoned in respect of that unit which produced the TI 68 goods. In this case, it is seen that the factory at Andheri had no machining facility. This factory manufactures only castings. The rejected castings were sent to Parel for machining. Manufacturer of TI 68 goods was, therefore, by Parel and not at Andheri. The value of the machinery producing the item 68 goods alone should be included for the purpose of construing the term "industrial unit" occuring in Notification 89/79. If this view is taken, the value of the machinery at Andheri had to be deleted from consideration and only the value of machinery at Parel should be taken into account.
22. There is also considerable force in the contention of Ld. Counsel for the appellants that the show cause notice dated 8.1.1982 was barred by time. The department cannot plead any suppression inasmuch as the appellants have written to the Supdt. for clarification and the latter had clarified that the goods continued to be liable to duty under TI 25. When a further communication was issued to them, the appellants have sent a reply repudiating the allegation. While the department was fully aware of the nature of the products manufactured, it is far-fetched to say that there was suppression or clandestine removal. The demand for duty for the extended period is not justified. The demand under the second show cause notice dated 8.1.1982 is, in any event, barred by time.
23. In view of our finding that the appellants should not be liable to duty in view of Notification 89/79, the value of clearances being within the limit, it is unnecessary to go into the question of invoice value or grant of discount.
24. In the light of the above findings, we are of the view that the imposition of penalty cannot be sustained.
25. In the result, the Central Excise authorities are directed to examine the applicability of Notification 89/79 and 105/80 in the light of the observations contained in this judgment. Appeal disposed of accordingly by remand.
(Sd/- M. Santhanam) Member (J) Syiem, J.
There are two factories separated by seveal kilometres involved in this contention. One factory makes the primary products, castings, and the other does the machining of these castings. This was submitted by the learned Counsel Mr. Lakshmi Kumaran to the Bench on the day the appeal was heard. The two places were licensed separately by central excise: one for iron and steel castings, and the other for item 68 goods. Since the assessment of the machined parts is done under Item 68, I direct the central excise to take the value of the plant and machinery of only that place or unit or factory which produced the machined product, excluding the plant and machinery of the unit which produced the castings.
Dated: 25th May, 1987 (Sd/- H.R. Syiem)
Member (T)