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Customs, Excise and Gold Tribunal - Delhi

Aravali Forgings Ltd. vs Collector Of Central Excise on 24 August, 1993

Equivalent citations: 1994(70)ELT693(TRI-DEL)

ORDER
 

S.L. Peeran, Member (J)
 

1. In all these appeals common question of law arises, hence they are all taken up together for disposal as per law.

2. EA. 282 and 299/89-B1 (M/s. Aravali Forging Ltd):

These appeals arise from a common order-in-appeal passed by Collector of Central Excise (Appeals), New Delhi. By this order, the ld. Collector held that the goods are not rough forgings of iron & Steel but they are goods identifiable as motor vehicle parts falling outside the purview of "Rough Forgings" and they are to be classified under sub-heading 7308.90 of Central Excise Tariff, 1985 as 'Articles of Iron & Steel' and the classification under tariff sub-heading 7208.00 of Central Excise Tariff, 1985 as "pieces roughly shaped by Forging of Iron & Steel" claimed by assessee in respect of classification list w.e.f. 8-7-1987 has to be rejected. The ld. Collector has held that processes of "grooving and grinding" are carried on and these processes impart to the goods identity of motor vehicle parts, and hence taking the goods away from the purview of "crude forgings".

We have heard Shri J.S. Agarwal for the appellants and Shri K.K. Dutta, Ld. JDR for the revenue. We will record the arguments of all the Counsels and the DR's in separate paragraphs.

3. E.A. 1808/90-B1 (M/s. Forge & Forge v. CCE):

This appeal arises from order-in-appeal dt. 5-12-1989/1-1-1990 passed by Collector of Central Excise (Appeals), Bombay confirming a duty amount of Rs. 57,87,240.50 for the period 18-11-1986 to 30-6-1987. The appellants are manufacturers of steel forgings of various descriptions and dimensions (as per drawings and requirements) viz. (1) Connecting Rod (2) Gear (3) Crank-shafts (4) Rear Wheel Hut (5) Piston etc. They filed classification list w.e.f. 18-11-1986 under sub-heading 7208.00 showing the description of the said goods as "pieces roughly shaped by rolling or forging of iron & steel not elsewhere specified". The classification list was modified by Asstt. Collector of Central Excise, Rajkot by order dt. 26-6-1987 and classified the goods under sub-heading 7308.90 15% ad valorem under Rule 173B(5) of Central Excise Rules, 1944. The assessee challenged this order before Hon'ble Gujarat High Court. The Court vide Order SCA No. 4109 of 1987 directed inter alia to the department to grant the assessee an opportunity to defend the case before the modification of classification list is done. As per the terms of the High Court order, show cause notice dt. 26-2-1988 was issued by Asstt. Collector proposing to classify the goods under sub-heading 7208.00 and demand duty as stated above. The Asstt. Collector after granting the assessee an opportunity of hearing has passed the impugned order which has been confirmed by Collector (Appeals). The ld. Asstt. Collector of Central Excise has noted that following processes are carried out on the forged products namely:

1. Trimming

2. Normalisation

3. Annealing

4. Tempering

5. Hardening

6. Inspection

7. Shot blasting The Asstt. Collector of Central Excise has held that after these processes, the goods are given specific names as crank-shafts, pinion, connecting rod etc. and they are made as per specification and drawings. Therefore, they do not satisfy the tariff sub-heading 7208.00, which is meant for forging roughly shaped. The ld. Asstt. Collector of Central Excise had held that the forgings have become identifiable articles having specific dimensions and hence do not remain as pieces roughly shaped after undergoing these processes and hence they all are classifiable under sub-heading 7308.90 as other articles of iron & steel. The demands were thus confirmed under Section 11A of the Act. The assessees' appeals were also rejected by Collector (Appeals). Hence this appeal.

We have heard Shri Dushayant Dave, ld. Advocate for the appellant and Smt. Vijaya Zutshi, ld. CDR for the Revenue.

4. EA. 872/91-B* (M/s. BCL Forging Ltd.):

This appeal arises from order-in-appeal dt. 7-5-1991 passed by Collector (Appeals), Pune. The assessees are manufacturing Iron and Steel Forged products and they had classified their goods under sub-heading 7308.90 of Central Excise Tariff, 1985. A show cause notice dt. 30-5-1988 was issued demanding differential duty of Rs. 12,64,552.32 for the clearances during 1-11-1987 to 11-1-1988 by Range Supdt. under Section 11A of the Central Excises & Salt Act, 1944. It was alleged that the goods had essential characteristics and are identifiable as such, as products falling under respective categories of Chapters 84 to 87 of Central Excise Tariff, 1985 and precisely under tariff sub-heading 8708 and 8483, since the goods had been manufactured as per the drawings, design and the specifications of the customers. It was further alleged that commodity description had been recast under revised hormomised system of nomenclature, as a result of which the specific description of the forged products of iron & steel stands replaced by the definition as available for the individual forged products in the revised Hormonised System of Nomenculature.

The assessee resisted the department's claim. However, the Asstt. Collector of Central Excise confirmed the demand. On appeal, Collector (Appeals) rejected their plea and confirmed the demands. In the meantime, the Collector Aurangabad had also issued show cause notice dt. 31-8-1989 for the same period 1-8-1987 to 10-8-1987 for Rs. 25 lakhs. The ld. Collector by his order dt. 10-2-1990 withdrew the said demands raised in show cause notice dt. 31-8-1989. The appellants had brought these facts before the ld. Collector (Appeals) but the ld. Collector (Appeals) despite recording these facts in the impugned order, yet proceeded to confirm the earlier demands for the same period raised and confirmed by Asstt. Collector of Central Excise in the impugned order-in-original. It is contended that the ld. Collector (Appeals) has gone beyond his jurisdiction and limit, to confirm the demands, when the Jurisdictional Collector in his order in original dt. 10-8-1987 had dropped the demands.

We have heard Shri S.R. Patankar, ld. Consultant for the appellants and Shri S.K. Sharma, ld. JDR for the Revenue.

5. EA. 4382/92-B1 (M/s. Delhi Forgings & Stampings v. CCE):

This appeal arises from order-in-original passed by Collector of Central Excise, New Delhi in Order No. 41 /92 dt. 17-7-1992 confirming a duty demand of Rs. 12,24,172.35 for the period 1-3-1986 to 23-11-1987 under Rule 9(2) read with Section 11A(1) of Central Excises & Salt Act, 1944 and also imposed a penalty of Rs. One lakh under Rule 173Q of Central Excise Rules, 1944.

The assesseee are manufacturing various parts for the use in automobile industry i.e. shaft, kick, starter, gear, spindle front, fork, roker arm, sprocket, axle, drive by the process of Die Forgings and claimed classification under sub-heading 7208 of Central Excise Tariff, 1985. It is alleged by department in the show cause notice dt. 21/24-4-1989 that the assessee had been clearing the goods without any Central Excise Licence or by paying CED or by issuing Gate Passes or by filed classification list/price list and without maintaining any statutory Central Excise records. They claimed the classification of the goods under 7326.19 of Central Excise Tariff, 1985 as "pieces roughly shaped by rolling or forging of iron and steel not elsewhere specified. In the show cause notice, it is contended that this heading covers only those pieces which are semi-finished products of rough appearances and large dimensional tolerances and requiring considerable further shaping in the forge press, lathe etc. and hence will not cover items of forging which are ready for final machining. The department contended that this heading claimed by assessee excludes drop forgings and pressings produced by forgings between matrics since the articles produced by these operations are ready for final machining. As the goods are cleared in a fully mechanical state from the factory they are appropriately classifiable under sub-heading 7308.90 of Central Excise Tariff, 1985. The ld. Collector has held that the purchase order placed by purchasers and from the bills, it is clear that the goods are 'tailor-made articles' according to the requirements of individual purchasers in terms of drawings provided by the customers. These goods were supplied to various automobile manufacturing companies. It is held that the goods are identifiable for its particular use namely as parts of motor vehicles or automobiles and hence it would be incorrect to call the goods as "pieces of roughly shaped steel". The assessee had relied on Board's circular No. 26/89 but this was also rejected as not binding on quasi-judicial authority. The ld. Collector has noted the manufacturing process and also the excess flesh being trimmed on forged products by a process of trimming, and grinding and further process of twisting, padding, normalisation process with the help of heat treatment was also done to achieve the desired mechanical properties and "IS" numbers were also affixed as per drawings/specifications supplied by their customers.

6. EA. 4473/92-B1 & 4475/92-B1 (M/s. Sadhu Forgings (I) Ltd. v. CCE):

These appeals arise from order-in-original No. 43/92 dt. 17-7-1992 and 44/92 dt. 17-7-1992 passed by Collector of Central Excise, New Delhi.

In order-in-original No. 43/92 a duty demand of Rs. 51,07,618.39 for the period 1-3-1986 to 31-10-1987 under Rule 9(2) read with Section 11 of the Central Excises & Salt Act, 1944 has been confirmed. A penalty of Rs. one lakh and RF of Rs. 60,000/- on seized goods has also been imposed.

In order in original 44/92, a duty demand of Rs. 43,42,180.30 for the period 1-3-1986 to 31-10-1987 under Rule 9(2) read with Section 11 of Central Excises & Salt Act, 1944 has been confirmed besides a penalty of Rs. 1 lakh and RF of Rs. 30,000/- on seized goods has been imposed. The assesse is manufacturing various parts for the use in the automotive automobile industry i.e. Inlet value Rocker, Arm, Steering Arm, A.S. Gear, 4th/5th Gear, T.S. Fork, B.S. Fork, GTC, Shaft lever, Flange & PD Gear, by the process of the Die forging. The allegation and findings in these two appeals are similar to the Appeals E. 4382/92-B1.

7. EA. 4474/920-B1 (M/s. Jai Forging & Stampings (P) Ltd.):

This appeal arises from order-in-original No. 39/92 dt. 15/16-7-1991 passed by Collector of Central Excise, New Delhi confirming a duty demand of Rs. 10,40,027.25 for the period 1-3-1986 to 7-12-1987 under Rule 9(2) read with proviso to Section ll(A)(i) of Central Excises & Salt Act, 1944 and has been confirmed besides a penalty of Rs. one lakh. The assessee has been manufacturing various parts i.e. unmachined steel components like adjusting levers, gear shaft idlers, driving flanges, Adjusting Levers, UJ Cross, Forks, First speed sleeves, shanks, gear & speed main shaft etc. with the process of "Die Forging". In the manufacturing premises the assessee has installed power hammers and other allied machinery installed for the manufacture of other articles of steel with the help of dies and matrices not further worked which is alleged to be confirming to ISI specifications IS. 3469,3479 and 2884 i.e. sand Blasted, Prima coated with red-exide Zinc Chronic Primes. The assessee had been purchasing steel rounds, ingots and billets from the market and were supplying the forged articles as per drawings received from M/s. Vehicle Factory, Jabalpur, TELCO Jamshedpur, HMT Pinjore and others. These Billets and rounds were cut into required sizes, then the pieces were heated in "Bhatties" Oil fired and later on put between the 'Dies' which had two pieces (i.e. top and bottom) on the forging hammers and hence claimed the same to be forged goods. Finally were normalised, quenched, tempered, short blasted and prime coated. The Deptt. alleged that the pieces roughly shaped by rolling or forging of iron & steel not elsewhere specified were covered under 7208.00 of Central Excise Tariff and the HSN Explanatory Notes were also relied. The ld. Collector has passed similar order like in above-noted appeals confirming the duty and also imposed a penalty of Rs. One lakh.

8. EA. 4693/92 (M/s. Vikas Forging (P) Ltd. v. CCE):

This appeal arises from Order No. 40/92, dt. 17-7-1992 passed by Collector of Central Excise, New Delhi confirming a demand of Rs. 9,21,610.13 for the period 1-3-1986 to 19-11-1987 under Rule 9(2) read with proviso to Section 11A(1) of Central Excises & Salt Act, 1944 and also a penalty of Rs. 1 lakh has been imposed. In this case also the assessee is manufacturing various parts for the use in the automobile industry viz. gear, lever, crank, piston rod, gear, wheel etc. by the process of die forging and claiming classification under sub-heading 7208 of Central Excise Tariff, 1985, while department confirming the demand under sub-heading 7308.90 of Central Excise Tariff, 1985. The order is similar to the above-noted appeals.

9. EA. 4737/92-B1 (M/s. Faridabad Forging (P) Ltd. v. CCE):

This appeal arises from order-in-appeal No. 42/92 dt. 17th July '92 passed by Collector of Central Excise, New Delhi confirming a duty demand of Rs. 33,05,262.82 for the period 1.3.1986 to 16-11-1987 under Rule 9(2) read with proviso to Section 11A(1) of Central Excises & Salt Act, 1944 and also a penalty of Rs. one lakh has been imposed under Rule 173Q of Central Excise Rules.

In this case, the assessee are manufacturing forged products as per drawings and specifications. The order is similar to the above-noted appeals.

In all these appeals, Shri R. Santhanam and Shri R.C. Gupta addressed arguments for the appellants and Shri B.K. Singh, Ld. SDR and Shri S.K. Sharma, Ld. JDR for the Revenue.

10. EA. 1602/88-B1 (CCE v. TISCO):

This is revenue appeal directed against the order in appeal No. 86A Pt./88 dt. 18-3-1988 setting aside the order in original No. 914/87 dt. 29-9-1987 passed by Asstt. Collector of Central Excise, Jamshedpur. The assessee is manufacturing 'Forged Rolled Rings' and filed classification list under subheading 7208.90 of Central Excise Tariff. A show cause notice dt. 10-9-1986 was issued asking for explanation as to why the goods should not be classified under 7308.90 and charged to duty at 15% ad valorem. The Asstt. Collector of Central Excise confirmed this classification. On appeal, Collector (Appeals) reversed the order and held the goods to be classifiable under sub-heading 7208.00 of Central Excise Tariff, 1985. Hence the revenue is aggrieved and has filed this appeal.

We have heard Shri K.K. Dutta, ld. JDR and Shri Ravinder Narain, ld. Advocate for the assessee.

11. Shri J.S. Agarwal, ld. Advocate appearing for Aravali Forging Ltd. argued that the sub-heading 7308.90 of Central Excise Tariff, 1985 which the department had chosen to classify the rough forgings is not at all appropriate. The goods had all emerged from forgings and they were in rough shapes. He submitted that the process of manufacture of forged products consists of cutting of iron/steel, pre-heating of material, which is fed into drop forging machine (Hammer). These forgings were further fed into trimming press and subjected to necessary heat treatment of normalising/annealing etc. and thereafter the extra/unwanted material are removed and these crude forgings have large dimensional tolerances, and the buyers at their end subjected them to various machining processes like grinding, grooving, teeth cutting, turning, boring, threading etc. Only thereafter the forgings acquired a shape and size for being fit for use as a part/component of the machine. Ld. Advocate submitted that these crude 'Rough Forgings' are not capable of being used as such at the buyers' end. The processes undertaken by Customer would reduce the weight of the forging by 30 to 50% and the value of the goods would go up by 100% to 300%. the goods were only Rough Forgings with large Dimensional tolerances. It is further submitted that upto 1-8-1983, these crude rough forgings were being classified under Tariff 26AA(ia); from 1-8-1983 to 1-3-1986 under Tariff Item 25(8) and thereafter they merited classification under sub-heading 7208.00 of Central Excise Tariff, 1985 which heading is verbatim worded to erstwhile tariff entry 25(8). He further contended that the ld. Collector had erroneously recorded that grooving and grinding processes were carried on the goods, which is not so. He also referred to Board's Telex F. No. 139/69/86-CX-4 dt. 4/5-6-1987 by which they had advised the Collectorates that these products would be classifiable under Tariff sub-heading 7208.00 only. A letter dt. 16th Nov. '87 addressed by DGTD, New Delhi to the Association of Indian Drop Forgings and Stamping Industries also clarified that the raw and proof machined forgings are distinctly different from finished components and also held the opinion that they would fall under 7208 as pieces roughly shaped, by rolling of iron & steel not elsewhere specified.

Shri Agarwal referred to order-in-original No. 24/88-C.E. dt. 23-9-1988 passed by Collector of Central Excise, Jaipur, by which the ld. Collector had dropped the proceedings for demands pertaining to larger period. The ld. Collector had not given findings on merits of the case but had clearly held that there was no suppression and the goods were cleared as roughly forged, ones, after 1-3-1986 as done from 1982 onwards. Thus, the goods continued to remain the same throughout the period.

Referring to the entry 7308.00 of Central Excise Tariff, 1985, Shri Agarwal pointed out that these goods falling in this entry would be capable of direct and immediate use without requiring any further processes. These goods would come to be sold to market and were not tailor-made as per specifications and drawings and hence the entry is not at all specific to 'rough forgings'. This entry cannot be resorted to, when a specific and appropriate entry is available in the tariff Act. He further pleaded that a long standing established practice in the matter of classification cannot be changed abruptly without any cogent reasons. He argued that in the absence of any definition of the term 'forging' in the Central Excise Tariff, the term has to be interpreted in accordance with its popular meaning or the meanings attached to it by those dealing with it. In this context, he relied on the ruling rendered by Hon'ble Supreme Court in the case of Atul Glass (P) Ltd. v. Collector of Central Ex. as reported in 1986 (25) E.L.T. 473.

He argued that the Ld. Collector was not justified in relying on HSN explanatory note, as the same had not been aligned during the material period. In this context, he relied on the ruling rendered in the case of Atul Glass Ind. Pvt. Ltd. as reported in 1986 (8) ECR 513.

He contended that the Tribunal had already decided the classification of the goods, which were castings of machine parts, as classifiable under subheading 7325.00 and also held that they had not acquired the 'essential character' of products under Chapter 84, 85 or 87, as rendered in the case of M/s. shivaji Works Ltd. and Anr. v. Collector of Central Excise, Aurangabad as per final Order No. E. 103 to 105/93-B1 dt. 20-5-1993 = 1994 (69) E.L.T. 674. Likewise a similar view had also been expressed in the case of International Steel Foundry Ltd. v. Collector of Central Excise as reported in 1993 (65) E.L.T. 552. The various other rulings rendered in the following cases also settled the issued in the appellants' case:

1. Metal Forging (P) Ltd. v. Union of India and Ors. - 1987 (32) E.L.T. 15 (Delhi)

2. BHEL v. Collector of Central Excise - 1989 (39) E.L.T. 569

3. Enfield India Ltd. v. Collector of Central Excise - 1989 (42) E.L.T. 494

4. Steel & Indl. Forging Ltd. v. Collector of Central Excise - 1992 (19) ETR 868

5. TELCO v. Collector of Customs - 1990 (50) E.L.T. 571 11(ii) Shri K.K. Dutta, ld. JDR countering the arguments of Shri J.S. Agarwal submitted that the goods were not roughly shaped and the tariff entry 7208.00 did not cover goods which were ready for machining. He placed reliance on the HSN Explanatory Note appearing at page 991 to support the order passed by the ld. Collector. Therefore, the goods clearly fall outside Chapter 72 and reading the Section Note 2 of Section XV alongwith Explanatory note at page 602, 973, the goods would be appropriately classifiable under heading Chapter 84/85, as they had acquired the 'essential character' of the goods falling under Chapter 84/85 of Central Excise Tariff, 1985.

11(iii) Shri Agarwal countering the argument of ld. JDR submitted that the department had not proceeded on the basis of the goods having acquired 'essential character' of goods falling under Chapters 84 and 85 of Central Excise Tariff, 1985 and hence the arguments now raised by ld. JDR are not at all sustainable.

11(iv) Shri S.R. Patankar, ld. Advocate arguing for BCL Forgings submitted that the Collector (Appeals) had committed judicial indiscipline in not following the order passed by Collector, Central Excise, who had dropped the proceedings for the same period, which had been initiated by invoking larger period. Therefore, the earlier appeal filed in terms of Asstt. Collector of Central Excise order had simply to be allowed by Collector (Appeals). Instead, the ld. Collector (Appeals) had held that the order of Collector, Central Excise was not binding on him, was unfortunate.

He submitted that the ld. Collector (Appeals) had erred in assuming that there were three stages in the process of forging to final product. He submitted that there was no intermediate process and the goods that had emerged from the forging stage were all in rough forgings. They had not assumed any identity of a part, as several processes were required to be carried out. He submitted that Notification No. 23/86 had mentioned about the processes that could be carried on the 'rough forging' and still after the processes they would remain as 'rough forgings'. He submitted that HSN Explanatory Notes were aligned from 1-3-1988, which could not be given retrospective effect.

11(v) Shri S.K. Sharma, ld. JDR submitted that the Notification No. 223/86-C.E. did not apply to forgings but were applicable only to castings. In view of the order of Collector of Central Excise dropping the proceedings in original proceedings, the ld. JDR did not have much to argue in this matter, but simply reiterated the findings given on merits by ld. Collector.

12(i) Shri R. Santhanam, ld. Advocate appearing for other set of appeals adopted the arguments of Shri J.S. Agarwal. He submitted that the entire demands in Jai Forging were time-barred, as the classification list had been approved in the first instance and the show cause notice had been issued much later beyond the period of 6 months.

As regards the appeal of Sri Sadhu Forgings, Shri Santhanam attempted to show that the notice was not signed by the ld. Collector and an unsigned notice was bad in law and all further proceedings were invalid. In this context, he relied on the ruling rendered in the case of Uma Shankar Mishra v. Commissioner of Income Tax as reported in 1982 (136) ITR. 330 and that of Commissioner of Agricultural Income Tax v. Keshochander as reported in AIR 1950 SC. 265 para 22-27. This argument was met by ld. SDR by pointing out that the notice had been attested by the Supdt. and there was endorsement of "sd/- Collector" at the end of the notice and hence this plea, also not having been raised at original stage, cannot be permitted to be raised at this stage. On a careful consideration of this plea, we uphold the ld. SDR's plea and we hold that the notice issued to the party is a copy duly endorsed by the Supdt. and there is a clear endorsement that original has been signed by the Collector Hence, we do not find any substance in this plea of ld. Counsel. Moreover, this plea had not been raised at earliest stage and we cannot also appreciate the arguments at this late hour.

Shri Santhanam submitted that the seizure in the Sadhu Forgings is illegal as no search warrant had been issued as also the party had been exempted under licencing control. Therefore, the imposition of penalty was also invalid, as the goods were very much within the factory and no seizure of such goods can be legally done.

12(ii) Shri B.K. Singh, ld. SDR countering the arguments in these set of appeals reiterated the findings of the ld. Collector. He contended that the parties had carried out more processes than mentioned in the Notification No. 223/88-C.E. He submitted that affixing "IS" number is a process by itself. The processes like "Twisting" & "Padding" would no longer keep the goods as 'rough forgings'. He quoted from page 60 of Book 'Metals Hand Book' Vol. 5 part A, 8 Edition on topic 'Forging'. He submitted that the Govt. had not issued any exemption notification under Section 11C of the Central Excises & Salt Act and hence the demands raised under 7308 of Central Excise Tariff are valid. He pointed out that Tariff Entry 7308 was pari materia to Heading 7326 of HSN and a reading of the notes at page 1038 of HSN makes it clear that 'Forging' could not be brought under 7208 of the Central Excise Tariff. He submitted that the competing entries would be sub-headings 7308.00 and Chapter 84/85 and not sub-heading 7203.00 of Central Excise Tariff, 1985.

Countering the argument, the ld. Advocate placed extracts from the book 'Forging & Forging Metals' by Rusinoff to demonstrate that no processes of "twisting" and "padding", were not carried in their case and 'Twisting' was done only for 'Crankshaft' which was not manufactured in their factory. He further argued that no separate process of numbering was done. It was done at the time, when metal was poured in the dyes and also submitted that numbering is not a process of manufacture. He further pleaded that the circulars issued by the Board were binding on the lower authorities. In this context, he relied 6n the ruling rendered in cases as reported in

(i) 56 ITR 198 SC

(ii) 131 ITR 597 SC

(iii) 82 ITR 913 SC 13(i) Shri Dushyant Dave, ld. Advocate arguing for M/s. Forge and Forge adopted the arguments of Shri J.S. Agarwal, ld. Advocate on merits and proceeded to argue on the other points. He submitted that the circular issued by Board suggesting the classification of the 'rough forged' products under sub-heading 7308.00 was binding on the lower authorities. The Board, being the highest authority having issued a circular for deciding a classification by lower authorities, its circular cannot be flouted. The effect of the understanding of the Board on a classification had the effect of contemporaneous exposition. In this context, the ld. Advocate drew strength from the exposition on this topic done by ld. Authors Francis Bennion at page 371 para 146 in the book Statutory Interpretation and that of G.P. Singh's Interpretation of Statutes 5th Edn. 1992, at pages 204 and 207. He submitted that these salutory principles had been adopted by Hon'ble Supreme Court, while interpretating the circular issued by Board, as laid down in the following rulings:

(i) Collector of Central Excise v. Andhra Sugar Ltd. - 1988 (38) E.L.T. 564

(ii) Swadeshi Polytex Ltd. v. Collector of Central EXcise - 1989 (44) E.L.T. 794

(iii) Dunlop India v. Union of India - 1989 (2) SCC.699

(iv) Indian Metals & Ferro Alloys Ltd. v. Collector of Central Excise - 1991 (51) E.L.T. 165 (SC) He further pointed out to Section 37B of Central Excises & Salt Act, 1944 and argued that any circular issued under this section by Board, cannot be flouted by the lower authorities. He pointed out that in an unreported decision of Gujarat High Court, the Court had remanded the case for de novo consideration, in respect of a case, wherein a circular had been issued much later to the date of adjudication (SCA No. 5547/87 dt. 2-2-1988 - Kothari Oil Products v. Union of India). He also relied on the ruling rendered in the case of Air Control & Chemical Engineer Co. Ltd. v. Collector of Central Excise as reported in 1991 (51) E.L.T. 265. He further argued that the lower authorities had not given any reasons for not following the Board's circular or for that matter held that the Board's opinion was contrary to law. The Board's circular had acquired a statutory force and even if it was contrary to law, the authorities were bound by it. He also placed reliance on the ruling of the Supreme Court rendered in the case of Orient Paper Mills Ltd. v. Union of India as reported in 1978 (2) E.L.T. (J 345) Para 8.

Shri Dave, ld. Advocate further argued that the demands were timebarred. The show cause notice is dt. 26-2-1988 for the period 1-1-1987 to 30-6-1987 and the same had been issued by Asstt. Commissioner invoking larger period. The fresh show cause notice was again issued by Asstt. Collector on 26-2-1988 and therefore, the fresh show cause notice issued after a considerable period was time-barred. He submitted that the Asstt. Collector could issue fresh show cause notice if there is any stay of show cause notice by High Court. In this case, Gujarat High Court had not stayed the show cause notice and therefore, fresh show cause notice issued by Asstt. Commissioner would not save the limitation. In this context, he relied on the ruling rendered in the case of Gokak Patel Volkart Ltd. v. Collector of Central Excise, Belgaum as reported in 1987 (28) E.L.T. 53 (SC), GSFC v. Union of India and Ors. - 1988 (34) E.L.T. 442.

13(ii) Ld. CDR Mrs. Vijay Zutshi, countering the arguments of ld. Advocate submitted that the Hon'ble Gujarat High Court in this case had given a direction to approve the classification list as per law. It followed that the proceedings had to be initiated by issue of show cause notice as per the High Court's direction and the issue of fresh show cause notice by Asstt. Commissioner on 26-2-1988 is valid in law. In this context reliance was placed on the judgment rendered in the case of Echjay Industries Pvt. Ltd. v. Union of India and Ors. - 1988 (34) E.L.T. 42 para 10, 14.

As regards the merits of classification, ld. CDR argued that the erstwhile Tariff 25(8) read "pieces roughly shaped elsewhere specified" had to be clearly interpreted and the goods were classified under Tariff Item 25(8) as there was no other entry available. After the introduction of new tariff, a clear entry 7308 was available, which fitted with the goods in question, as the goods were not mere 'roughly shaped articles' as the goods but had undergone several processes as per specifications and drawings. The goods had assumed a characteristic of an article, and they were recognised in the trade as articles of Iron & Steel not as 'articles of roughly shaped'. The understanding of the trade being a good test, and the goods not having been understood in market as 'roughly shaped articles', were, therefore, not classifiable under tariff sub-heading 7208.00. Therefore, the classification adopted by lower authorities is sustainable.

Ld. CDR pointed out that the circulars issued by the Board were not under Section 37B of the Act and hence the question of its having a binding force does not arise. They were mere instructions and the same did not have any binding force on quasi-judicial authorities, as the circulars were in the nature of mere opinions. She submitted that the BTN Explanatory notes had persuasive value and its interpretation would lead to the result of the instant goods do coming within the category of 'roughly shaped forgings', as the goods had acquired a particular shape.

She further submitted that even applying interpretative Rule 2(a) of the Central Excise Tariff, the goods cannot fall as 'roughly forged' under sub-heading 7208.00 of Central Excise Tariff, 1985 and relied on the rulings rendered in the cases of

(i) BHEL v. Collector of Central Excise - 1987 (28) E.L.T. 545

(ii) Bajaj Auto Ltd. v. Collector of Central Excise - 1988 (33) E.L.T. 367.

(iii) Collector of Customs v. MICO Ltd. - 1990 (46) E.L.T. 163.

She submitted that the ruling rendered by Tribunal in the case of Shivaji Works Ltd. (supra) dealt with castings and not forgings and therefore, the ruling would not apply.

14. The Revenue appeal against TISCO was argued by Shri K.K. Dutta, ld. JDR. He argued that the goods were rings of bearings. The goods had assumed final shape and there was no further forging done on this item and hence it was an article of Iron & Steel and in any case tariff sub-heading 7208.00 was ruled out. It being a part of bearing, note 6 of chapter 84 would apply. Shri Ravindra Narain, ld. Advocate countering the arguments pointed out that goods were in rough shape and it required to undergo several processes to assume friction free and only then it would assume the characteristic of a part. Therefore, invoking Rule 2(a) would not arise in this case. He pleaded that Rule 2(a) would arise only if there is no specific entry. In this case there being a specific entry for 'roughly shaped forgings' question of invoking Rule 2(a) does not arise. He further argued that the Revenue had not discharged its burden of classification in this case. He argued that Collector (Appeals) had given a reasoned finding and they were sustainable in law.

15. We have carefully considered the submissions made in each & every appeal taken up together for our consideration and examined the impugned orders; the Board circular referred to before us, HSN explanatory notes and the large catena of judgments referred by both the sides.

16. In order to appreciate the controversy it is firstly important for us to once again summarise the charges levelled in each of the show cause notices under consideration and examine its validity in the light of the defence put forth and the well laid down propositions by the highest judicial forum i.e the Hon'ble Supreme Court of India, various High Courts, Tribunal judgments and the Board's circular. It is equally important for us to examine the understanding in trade and commerce as also the technical understanding of the goods. Besides we have to examine as to how the goods were held classifiable under the erstwhile tariff and as to whether the change in tariff structure would bring in any change in goods; when they had admittedly remained the same; deserving a fresh classification. It is also important for us to examine as to whether the department has discharged its primary burden of classification of goods. The ld. Collectors had while adjudicating disregarded the Board's circular and the ruling on classification of goods. We have to examine as to whether such an action is justifiable or not? Whether their is any suppression, misdeclaration to invoke lager period under proviso to Section 11A(1) of the Central Excises & Salt Act, 1944, thus justifying confiscation and imposing of penalty.

17. Summary of charges:

(a) Show cause notice dt. 6-7-1987 issued to M/s. Aravali Forgings Ltd. states that there is no specific sub-heading for covering forged products of iron & steel corresponding to castings of iron and steel which are covered under Heading 7307 of Central excise Tariff. It is further held that sub-heading 7208.00 covers "pieces roughly shaped" by rolling or forging of steel not elsewhere specified". The scope of the description 'pieces roughly shaped by forging' is delineated in explanatory notes to HSN Heading 7207(8). The classification under this heading is confined only to semi-finished products of rough appearances and large dimensional tolerances, produced from blocks or ingots by action of power hammers or forging processes. They may take the form of crude recognisable shapes in order that the final article can be fabricated without excessive waste, but the heading covers only those pieces which require considerable further shaping in the forge, press, lathe etc. The heading would for example cover an ingot roughly hammered into the shape of a flattened zig-zag and requiring further shaping to produce a marine crankshaft, but it would not cover a crankshaft forging ready for final machining. The heading similarly excludes drop forgings and pressings produced by forging between matrices since the articles produced by these operations are ready for final machining. (emphasis supplied by us) Forgings which have not been further worked but which do not conform to the description of pieces roughly shaped forging as outlined above would more appropriately be classifiable under sub-heading 7308.90 as residuary articles of iron & steel attracting 15% excise duty classifiable under this sub-heading supported by explanatory notes for corresponding sub-heading 7326.00 HSN. After the forgings are machined to become an identifiable part the Modvat would attract further duty as applicable to machinery part, motor vehicle part etc. under respective chapter. However, the MODVAT of the duty paid on unmachined forging would be available towards payment of duty on machinery part, Motor vehicle part etc. The show cause notice further reads that "In view of the forging the products manufactured by you are very much chargeable to duty of excise (c) 15% ad valorem under sub-heading 7308.90. You are, therefore, advised to remove the goods from your factory on payment of duty at the above rate". Sd/- AC 6-7-1987"

The above letter is more an order of the Asstt. Collector hence, it cannot be construed as show cause notice. Therefore, the Department issued another letter dt. 22-7-1987, where the contents of the above letter dt. 6-7-1987 was retained and they were asked to show cause notice as to why it should not be classified under sub-heading 7308.90 of Central Excise Tariff Act, 1985.

18(a) In the case of M/s. Forge & Forge the Supdt. of Central Excise issued a show cause notice dt. 16-7-1987 stating that short levy is recoverable under Section 11A of the Central Excises & Salt Act, 1944 for the period 1-1-1987 to 30-6-1987 for Rs. 57,87,240.59 on the ground that the goods had been cleared claiming them as forged articles classifiable under heading 7208.00 as pieces roughly shaped for the period from 1-1-1987 to 30-6-1987 while it appears the classification claimed by the party is not proper therefore the Asstt. Collector has modified the classification list under Rule 173(B)(C) of Central Excise Rules, 1944 and approved under sub-heading 7308.90 as other articles of Iron or steel subject to levy of Central Excise duty @ 15%.

As can be seen from the show cause notice, no grounds for rejecting the classification claimed under sub-heading 7208.00 as "roughly forgings" has been given by Supdt. nor the reasons are proposed for classifying under sub-heading 7308.90 as articles of iron or steel. Therefore, the assessee challenged the order passed by Asstt. Collector for reclassification before the Hon'ble Gujarat High Court. The Hon'ble Gujarat High Court passed the final order in Special Civil Application No. 4109/87 dt. 31-12-1987, as follows:

"In the result, this petition is partly allowed the order dt. 30-6-1987 (Annexure 'H') passed on the classification list dt. 18-11-1986 is quashed and set aside. In view of the subsequent order (Annexure I) passed by the Asstt. Collector and in view of what we have observed above, it is not necessary to grant any relief with respect to the two letters written by the Supdt. on 9-6-1987 (Annexure D) and 16-6-1987 (Annexure F). As we are quashing the order dt. 30-6-1987, the show cause/demand notice dt. 16-7-1987 (Annexure J) is also quashed (emphasis supplied by us). The respondents are directed to refund the amount of excise duty paid by the petitioners under protest within two months in case their classification list classifying their steel forging falling under item 7208.00 is approved. Rule is accordingly made absolute to the above extent only with no order as to costs".

(b) The department instead of complying with the terms of the Hon'ble Gujarat High Court issued a fresh show cause notice dt. 26-2-1988 by Asstt. Collector invoking larger period under Section 11A of the Act and claimed short levy for the period from 1-1-1987 to 30-6-1987 for the said goods proposing classification under tariff sub-heading 7308.90 of Central Excise Tariff, 1985.

In this show cause notice new grounds have been urged that they had filed classification list effective from 18-11-1986 and claimed classification of such forging products as 'pieces roughly shaped by rolling or forging of iron or steel, not elsewhere specified' which have been subjected to processes viz.

(1) Billet Cutting (2) Billet Heading (3) Pre-forging and Forging (4) Trimmings (5) Shot blasting (6) Heat treatment (7) Inspection (8) Rectification. The deformation of steel is done with the help of drop die forging press; as is seen from the diagram of processes required in respect of such items (letter No. CE/AR-1/88 dt 19-2-1988 and diagram of processes refers). The show cause notice further states that it appears that such steel forgings after undergoing various processes does acquire specific name and shape; which an article/component may require. It further states that it also appears that the forged steel items which are subjected to various processes cannot be categorised as 'pieces roughly shaped' when the items manufactured appear to be ...(word not clear in SCN) with dimensions and tolerance limit of such specified ...(words not clear in SCN) and ready for final machining. The show cause notice states that this show cause notice is being issued in pursuance of directions of Gujarat High Court's order dt. 31-12-1987 and calls upon them to explain "as to why (i) their contention of claiming classification of steel forgings, having specific name and shape and which have undergone certain processes by which rough shape gets shaped according to respective drawings and exactness of such items recognised, should not be rejected;

(2) the classification of forged steel items manufactured in their factory from time to time in conformity with respective specification/dimensions and which merit proper classification under Central Excise Tariff Act, (5 of 1986) "introduced with effect from 28-2-1986 should not be considered to be as other" articles of iron or steel instead (of)' pieces roughly shaped' falling under subheading 7308.90;

(3) the classification lists bearing No. IDO. 523/87 should not be modified and accorded approval w.e.f. 18-11-1986 considering such items manufactured by them to be meriting classification as 'other articles of iron or steel' under proper sub-head of the said tariff; and (4) the duty of excise leviable on such excisable goods manufactured and cleared by them as per Annexure 'A' demanded at the appropriate rate should not be determined/assessed and removed as duty of short paid with effect from 1-1-1987 to 30-6-1987 under Section 11A of the Central Excises & Salt Act, 1944".

This show cause notice has been issued by Asstt. Collector, Rajkot.

(c) The ld. Advocate has challenged this very issue of show cause notice on the ground that the previous show cause notice issued by Supdt. stands quashed and that the Hon'ble High Court had given a clear direction to grant refund on approval of the pending classification list under 7208.00. The show cause notice having been quashed, fresh proceedings by Asstt. Commissioner, for short levy under Section 11A cannot be invoked by him and the same is time-barred. This plea of the ld. Counsel has got lot of force and the same requires to be upheld and this appeal to be allowed solely on this ground alone. Ld. CDR defended the issue of show cause notice on the ground that the show cause notice is being issued at the direction of the Hon'ble High court. With due respect to ld. CDR, this argument has no basis. The Hon'ble Gujarat High Court had quashed the show cause notice dt. 16-7-1987 issued by the Supdt. It followed that the entire proceedings for short levy no longer exist. There is a clear direction that "the respondents are directed to refund the amount of excise duty paid by the petitioner under protest within two months in their classification list classifying their steel forgings as falling under Item 7208.00 is approved". It follows that Hon'ble Gujarat High Court has not given any further directions to reopen the case by issue fresh show cause notice. If the intention for reopening the case were to be clear then the show cause notice dt. 16-7-1987 issued by the Supdt. would not have been quashed. In that even an order for issuing a clarificatory show cause notice would have been given. This is not the case here. The revenue understanding is not acceptable. Further, the Assistant Commissioner cannot invoke Section 11A by issuing a show cause notice for a period beyond six months (see GSFC v. Union of India supra). The fresh show cause notice is dt. 26-2-1988 for the period 1-1-1987 to 30-6-1987. This is not a case, where the Hon'ble High Court had stayed the proceedings after the issue of show cause notice. The Hon'ble High Court has quashed the proceedings and given direction to make refund within two months, hence nothing remained for the revenue. If they were aggrieved with the order of Hon'ble Gujarat High court, then they should have appealed to Hon'ble Supreme Court. They not having done so, cannot reopen the matter by issuing a fresh show cause notice by Assistant Commissioner invoking proviso to Section 11A for larger period and justify by saying that it is being done at the instance of Hon'ble Gujarat High Court. The Revenue is giving its own interpretation, which is not supported by any precedent. On the other hand, the ld. Counsel relied on the ruling rendered in the case of Hon'ble Supreme Court as rendered in the case of Gokak Patel Volkort Ltd's case and GSFC (Supra). Both the rulings are directly applicable to the facts of this case. The Hon'ble Supreme Court in the cited case has observed at para 4 to 8 is reproduced at page 54 to 55 of the report herein below:

"4. It is not disputed by the Revenue that the appropriate period of limitation to apply to the facts of the case is six months as provided in Section 11A of the Act and that the Notice issued on 20th of May, 1982 was beyond that period. Reliance was placed on the Explanation for obtaining extension of that period. The Explanation reads thus:

"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".

5. The provision in the Explanation incorporates a well-known principle of law. Section 15 of the Limitation Act of 1908 (also of Section 15 of the Limitation Act of 1963) incorporates the same principle. This Court in Sirajul Haq Khan and Ors. v. The Sunni Centralk Board of Waqf, U.P. and Ors., (1959) SCR 1287, dealt with the effect of an order of injunction in the matter of computation of limitation. At page 1302 of the Reports, Gajendragadkar, J. as he then was, spoke for the Court thus:

"It is plain that, for excluding the time under this section, it must be shown that the institution of other suit, in question had been stayed by an injunction of order; in other words, the section requires an order or an injunction which stays the institution of the suit and so in cases falling under Section 15, the party instituting the suit would by such institution be in contempt of court.

... ... ... ... ... ... ...

But, in our opinion, there would be no justification for extending the application of Section 15 on the ground that the institution of the subsequent suit would be inconsistent with the spirit or substance of the order passed in the previous litigation ...."

6. In the instant case, the order of stay passed by the Karnatake High Court had only stayed the collection of the excise duty, which is a stage following levy under the scheme of the Act. Obviously there was no interim direction of the High court in the matter of issue of notice for the purpose of levy of duty. The relevant portion of Section 11A provided:

"(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:

xxx xxx xxx xxx (2) The Asstt. 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".

7. Reference to Section 3 of the Act which contains the charging provision clearly shows that levy and collection are two distinct and separate steps. This Court in N.B. Sanjana, Asstt. Collector of Central Excise, Bombay and Ors. v. Elphinstone Spinning & Weaving Mills Co. Ltd. (1971) 3 SCR 506 = 1978 (2) ELT (J.399) (S.C.) at page 514 stated:

'...The charging provision Section 3(1) specifically says "there shall be levied and collected in such a manner as may be prescribed the duty of excise..." It is to be noted that Sub-section (1) uses both the expressions "levied and collected" and that clearly shows that the expression "levy" has not been used in the Act or the Rules as meaning actual collection'.

8. The High Court having direct stay of collection had, therefore, not given any interim direction in the matter of issue of notice or levy of the duty. The Explanation in clear terms refers to stay of service of notice. The order or the High Court did not at all refer to service of notice. Therefore, there is force in the submission of the appellant that the benefit of the Explanation is not available in the facts of the case".

(d) Applying the above ratio, this appeal is allowed on this sole ground alone. However, even the findings that we propose to give on merits of the case would also be applicable to this appeal and on merits also, they would succeed.

19. E 872/91-B2 (M/s. BCL Forging Ltd. v. CCE) This appeal can be disposed of on a short point also. However, the findings that we propose to give on merits of the case would also apply to the facts of this case. The ld. Counsel pointed out that the Asstt. Collector had confirmed the demands for 1-11-1987 to 11-1-1988 for roughly forged goods under sub-heading 7308.90 of Central Excise Tariff. They had filed appeal before Collector (Appeals) whose order is being challenged here. In the meanwhile, the ld. Collector of Central Excise had issued show cause notice dt. 31-8-1987 invoking larger period 1-3-1987 to 31-7-1987 and period 1-8-1987 to 10-1-1988. This period also included the period adjudicated by Asstt. Collector and in appeal before Collector (Appeals). The ld. Collector by order-in-original No. 2/90 dt. 19-2-1990 dropped the proceedings in terms of Board's clarificatory circular No. F. No. 139/79/87-C. X. 4 dt. 18-9-1989 and Board's telex dt. 4-6-1987 being withdrawn. The ld. Collector accepted the classification under sub-heading 7208 as roughly forged goods and rejected the department's contention for classification under 7308.90 of Central Excise Tariff on the sole ground of HSN Explanatory notes, on the ground that the entries in the Chapter 72, 73 of Central Excise Tariff Act, 1985 prior to 1-3-1988 were fully aligned and hence could not be applied.

The appellants brought to the notice of the ld. Collector (Appeals) about the orders passed by Collector of Central Excise, Aurangabad. The ld. Collector (Appeals) records the submission but with impunity rejects it and holds that the same is not binding on him and that he can proceed to give his own order in appeal before him. With due regard to ld. Collector (A) we do not appreciate this attitude of the ld. Collector (Appeals). Once the Collector of Central Excise, Aurangablad had invoked larger period under Section 11A and issued a show cause notice covering the entire period and dropped the proceedings, the order of the Asstt. Collector did not survive and hence the appeal of the appellant ought to have been simply allowed. It was for the revenue to have proceeded to file appeals before CEGAT, if they had so chosen to do. The ld. Collector of Central Excise had sound reasons to drop the proceedings by applying the Board's circular and also noting that the ground for invoking sub-heading 7308.90 being solely on the basis of HSN Explanatory Notes did not apply as the entries had not been aligned in respect of Chapters 72 & 73. This is a sound basis for dropping the charges. Unfortunately, the ld. Collector (Appeals) has brushed aside this finding of Collector of Central Excise and also the Board's circular and proceeded to apply interpretative Rule 2(a) of tariff to hold the goods as classifiable, anywhere from Chapters 84 to 87 failing which under sub-heading 7308.90 of Central Excise Tariff, 1985. Unfortunately, these headings had not been pleaded by revenue at all. The classification under sub-heading 7308.90 of ld. Collector (Appeals) has also failed to examine several rulings cited before him. Therefore, order of Collector (Appeals) is not at all sustainable. Our findings on merit of the case would also be applicable to this case.

20(a) We now take the allegations made in the other set of appeals which are more or less similar and identical orders have been passed by same Collector of Central Excise, New Delhi. The allegations made in these appeals have all been incorporated in the preceedings paragraph. The reasons delineated by Revenue for denying classification list under sub-heading 7208.00 of Central Excise Tariff, 1985 are as follows:

(i) Pieces roughly shaped by rolling or forging of iron or steel not elsewhere are covered under sub-heading 7208.00 of Central Excise Tariff. These pieces cover semi-finished products of rough appearances and large dimensional tolerances. But it would not cover forging ready for machining (emphasis supplied by us).

(ii) The Revenue's contention is that this heading also excludes drop forgings and pressings produced by forging between matrices since the articles produced by these operations were ready for final machining. (emphasis supplied by us).

(iii) The party is manufacturing as per drawings given by the customers as per which the goods have to confirm to strict dimensional parameters and hence cannot be referred as crude forgings.

(iv) In most of their products the party is affixing the brand name/drawing number given by their customer on the goods. These goods are in fully manufactured state when they leave the factory requiring only final machining. On the basis of this, the articles manufactured by them appear to be excluded from subheading 7208.00 of Central Excise Tariff.

(v) The goods are identifiable as parts of motor vehicles or automobiles and for this ground reliance has been placed on HSN explanatory notes.

(vi) Process of twisting and padding has been held by ld. Collector in his order in the case of Delhi Forging to be beyond the process mentioned in the exempting notification. The extra flesh being trimmed with the help of trimming presses and grinders has made the forged items as ready for final machining.

20(b) The point in all these appeals is as to whether the process leading to the goods upto a stage of making them fit and ready for final machining would make them go out of the Tariff Entry 7208.00 as pieces roughly shaped by rolling and forging of iron & steel not elsewhere specified.

20(c) In these set of appeals, the same ld. Collector has passed similar order. The Ld. Collector has not invoked interpretative Rule 2(a) but has proceeded on the Explanatory Notes and has rejected the Board's circular as not binding on him.

20(d) It is clear that the Revenue has not examined appropriate HSN explanatory note in respect of chapter sub-heading 7308.90 of Central Excise Tariff, to see whether the goods satisfy the same or not. Further, they have not given reasons for rejecting the classification under sub-heading 7208.00 of Central Excise Tariff, 1985 and in none of the show cause notices a single reason has been given to justify the classification under sub-heading 7308.90 as "other articles of iron or steel-other".

21. Therefore, we have first to examine as to whether sub-heading 7208.00 can be excluded for the reasons assigned by the revenue in the various show cause notices in respect of the those goods stated therein, before examining its inclusion under sub-heading 7308.90 of Central Excise Tariff, 1985.

(a) We can straightaway reject these grounds assigned by Revenue for the sole reason that the basis of invoking the HSN explanatory note is itself erroneous, as the respective tariff entries had not been aligned for the period in question were all prior to 1-3-1988 and also that the HSN explanatory notes are only having a mere persuasive value and the real test is the trade and commercial understanding of the product and the technical sense in which it is understood. We can also set aside the revenue's reasoning for the simple reason that the revenue has not discharged its burden of classification by classifying the goods under residuary item of 7308.90 and also having not assigned any reasons for classifying under this heading except by a mere process of rejecting tariff sub-heading 7208.00 and then saying that the goods fall under sub-heading 7308.90. This method of classifying the goods has been deprecated in several rulings and now it is well settled that the duty of classifying the goods has to be done after proper investigation and after finding out the manner in which the goods are understood in trade or by the people who deal with them (M/s. Atul Glass Ltd. (P) Ltd. (ibid). Further, the authorities vested with the duty of classifying the goods are bound by the directions, instructions and circulars issued by the Board, a highest body. In this case, the ld. Collector of Central Excise, New Delhi has held that he is not bound by it. L333d. CDR has pointed out that the circular had not been issued under Section 37(B) of the Act and Hon'ble Supreme Court ruling rendered in Orient Paper Mills Ltd. [1978 (2) E.L.T. (J. 345)] while the Counsels have relied on the ruling rendered by Hon'ble Supreme Court in the case of Indian Metals & Ferro Alloys Ltd. case (ibid), Collector of Central Excise v. Andhra Sugar Ltd. and the ruling of Gujarat High Court in the case of Air Control & Chemical Engg. Co. Ltd. (ibid). Although we agree with ld. CDR that the Board's circular in reference has not been issued under Section 37B of the Central Excises & Salt Act, 1944 but a reading of this circular discloses that the Board had issued this circular only after due deliberation and after examining the ruling of the Hon'ble Supreme Court in the case of TISCO v. Union of India (Supra) and that of ruling of Gujarat High Court in the case of Echjay Ind. v. Union of India on these very goods. Therefore, it follows hat when sound good and clear guidelines have been issued to the lower authorities, they were bound to have followed the same, and by not following and by not giving any consequence to it, is an act of serious breach of discipline. The net result would be that it brings in chaos in the classification matters, besides upsetting the uniformity which the Board had chosen to bring, in respect of classification of these goods. The lower authorities would have been well within their bounds, had the show cause notice been issued after a close examination of the Board's circular and in the light of the rulings of the highest court of the land namely Hon'ble Supreme Court and those of the Tribunal judgment on this issue. The Deptt. should have got expert's opinion; after due examination of process of manufacture, besides obtaining trade and commercial understanding of the goods and thereafter should have proceeded to issue the show cause notice distinguishing the circular. However, this exercise has not been done at all. There is no evidence placed by revenue to discharge its burden of classification. The classification of these goods had been settled by large catena of judgments including the ruling of Hon'ble Supreme Court and the department did not choose to immediately invoke sub-heading 7308.90 of Central Excise Tariff on the introduction of new tariff. The wisdom has dawned on the department in most of the cases after considerable lapse of time and then to cover up the same, the deptt. has invoked larger period under Section 11A of the Act. As we have noticed, the same Collectorates have rightly dropped the demands for larger periods. Therefore, the revenue have proceeded in all these appeals clearly without proper application of mind, and without a proper appreciation of Board's circular and the rulings rendered in respect of goods falling under sub-heading 7208.00 of Central Excise Tariff viz. erstwhile Tariff Item 25(8), which are both akin and similarly worded. The change in tariff would not change the nature of goods. The Hon'ble Supreme Court in the case of Indian Metals & Ferro Alloys Ltd. has held at para 11 that goods were classified under Tariff Item 26AA of erstwhile Central Excise Tariff for a number of years; its classification cannot be revised merely because of introduction of Tariff Item 68. In this case also the erstwhile Tariff 25(8) reads "pieces roughly shaped by rolling or forging of iron or steel not elsewhere specified".

Chapter 25 pertains to iron and steel and products thereof.

On the introduction of the new Tariff Central Tariff '85, this chapter re relates to Chapter 72 'iron & steel' Heading 72.08 and sub-heading No. 7208.00 reads:

"pieces rougly shaped by rolling or forging of iron or steel, not elsewhere specified".

Both headings read identical and there is no difference in wordings. Therefore, it is for the revenue to have placed sufficient and cogent evidence in terms of technical literature, trade understanding, to show that there is another more appropriate entry for classification. In all these cases sub-heading 7308.90 is shown. This entry is also not a specific entry, as the sub-heading refers to "other" in a residuary entry under sub-heading 7308 reading "other articles of iron or steel". It is the revenue's case that by the processes undertaken by the assessee in each case, the goods, although roughly shaped forging has reached the stage ready for final machining and hence would go out of entry 7208 of the tariff. However, the revenue had accepted the goods as 'rough forgings' in erstwhile tariff by virtue of judgment rendered by Hon'ble Supreme Court in the case of TISCO, yet if the goods were to go out of the entry of 'rough forging' and to have come within "articles of iron or steel" as "other" in another residuary entry, then they were required to have lead evidence, which they failed to do so. Therefore, on this sole ground alone, the impugned orders in all the cases deserve to be set aside except the revenue appeal, which deserves to be rejected. We also see lot of force in Dave's argument that Board's circular is contemporaneous in expositio and its effect is very much binding on the authorities in the peculiar facts and circumstances of this case, although we do not agree with him that the circular had been issued under Section 37B of the Act.

22. Now let us further examine and see as to whether the heat treatment, normalisation, annealing, tempering, Hardening, Inspection, Short blasting, numbering of IS; twisting and padding would all take the goods away from the category of 'roughly forged goods' and make them different identifiable goods as urged by Revenue. Before us all the ld. DRs including CDR, did not press for the classification under 7308.90. They were also not very persistent in their arguments for invoking HSN explanatory notes, as admittedly the same is not aligned prior to 1-8-1988 and it is not necessary for us also to look into HSN Explanatory Notes at all in view of the ruling of Gujarat High Court in the case of Echjay Inds. v. Union of India (ibid). Even a cursory look into the Heading 73.26 - other articles of Iron & Steel at page 1037 of HSN explanatory notes would make it clear that the note does not apply. The note reads:

"This heading covers all iron & steel articles obtained by forging or punching by cutting or stamping or by other processes such as folding, assembling, welding, turning, milling or perforating, other than articles included in the preceding headings of this chapter or covered by note 1 to Section XV or included in chapter 82 or 83 or more specifically covered elsewhere in the nomenclature".

A clear reading of the above note just shatters the Revenue's case into pieces. As we have observed there is absolutely no application of mind by any of the authorities who issued show cause notice to examine the HSN explanatory notes of the chapter under which they proposed to classify, although they were so enthusiastic in quoting HSN explanatory note under chapter 72 to exclude the goods from sub-heading 7208. A bare reading makes it so clear that the goods should have undergone process of folding, assembling, welding, turning, milling or perforating. Admittedly in this case, the goods have emerged at a stage just prior to machining. The revenue case is that as the goods have become fit for machining they are no longer 'roughly shaped'. Even if it is so, they are not articles of iron or steel. We have dealt with this point of explanatory note, only for illustration's sake to show that even Heading 73.26 makes it clear that the goods emerging are to be fully Brushed goods and the same is also subject to exclusion of goods covered by note 1 to Section XV or included in Chapter 82 or 83 or more specifically covered elsewhere in the nomenclature. Thus, the invoking of HSN explanatory note is not at all helpful to the revenue.

23. The other plea of the ld. CDR and other DRs had been that the goods should be classified under chapter 84/85 by invoking interpretative Rule 2(a). We wish to make it very clear that the revenue has not based its case on this proposition and the question of examining this also would not arise. However, we would like to cite the Larger Bench decision in the case of Bharat Heavy Electricals Ltd. v. Collector of Customs, Madras (1987 (28) E.L.T. 545) at para 11 had laid down "11. In view of the above discussions, we are of the view that no general and precise guidelines can be laid down regarding the consideration that should weigh as to when interpretative Rule 2(a) would be applicable for assessment and when assessment will have to be done without reference to this interpretative Rule 2 (a) and a view has to be taken on the basis of facts of each case".

In this case this point had not been urged by the revenue at any time and we do not see any reason to examine it and hence we reject this plea. We also observe that this plea will not arise for our consideration, when a specific entry is to be found in the tariff.

24. As regards the plea of the revenue that the goods although they are roughly forged but as the processes have been done, they would be identifiable as final goods or as parts of motor-vehicles or automobiles. We have to observe that this aspect of the matter has already been examined by several rulings and we note the same, for following it as a precedent.

(i) In the case of BHEL v. Collector of Central Excise [1989 (39) E.L.T. 569]. The department had classified the goods as machine parts. The Tribunal held that the goods had still the character of forgings, even though rough machined are more appropriately classifiable as forgings than as goods not elsewhere specified i.e.. under Tariff Item 68 and classification as forging under Tariff Heading 26AA was upheld.

(ii) The Single Bench of Delhi High Court in the case of Metal Forgings Pvt. Ltd. [1985 (20) E.L.T. 280] held in para 11 of the report that the process of manufacture of forged products consists of cutting of steel, pre-heating, pre-heating of material, heating and heating of steel material till final shaping is achieved. The steel forging process involves open forging process where the quantity is 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 ISI/or International. The forging would not cease to be forging by processes like removal of superfluous extra skin of cast iron.

On this plea, the Hon'ble Court held in para 13 of the report that "The forged products of iron & steel manufactured by the petitioner are excisable goods having come into existence as a result of manufacturing process. The removal of the extra/unwanted material by either trimming or by gas cutting of forged products, by either trimming or by gas cutting or by skin cutting for the removal of superfluous extra skin of cast iron to achieve the prescribed dimensions and tolerances is not a further process of manufacture. This process is incidental or ancillary to the process of manufacture. They do not cease to be forged products as known in the market. All the manufactured goods can ordinarily come to the market to be bought and sold as forged products. They are known as such to the commercial community Central Excise Authorities have been treating these forged goods under Tariff Item 26AA(ia) and there is no grievance by it by the petitioner". Thus judgment has been approved by the Division Bench of the same Court as reported in 1987 (32) E.L.T. 15 (Delhi). It has been held in para 17 at page 23 as follows:

"Whether transformation has been taken place or not and whether a new and different article, having distinct name, character or use, has emerged or not is essentially a question of fact depending upon the facts and circumstances of each case. Whether execution of a particular kind of work, results in manufacture of a new and distinct article would also depend upon a number of tests, some of them being, (i) the nature of work carried out, (ii) whether the material undergoes alteration or change in its essential nature and character; (iii) whether anything more is required to be done to the said article or the same is marketable without any further process. It will differ from product to product. There can be no hard and fast rules. The nature and extent of processing may vary from one case to another. In a given case, even a small change may lead to a new article having distinct name, character, and use being made. In yet another case it may be so. To become a new commercial article, the product must cease to be the goods of the taxable description and become that of a different taxable description".

This ruling has been approved by Hon'ble Supreme Court as in the case of Tata Iron & Steel Co. Ltd. v. Union of India 1988 (35) E.L.T.. 605 at para 4 at page 608/609. The same is extracted below:

"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 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 which is done in 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 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 item upto with 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 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 Railways' 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. Union of India and Ors. (1985 (20) E.L.T. 280 at paragraph 2):

"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 ld. 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 regard must be accepted".

The Tribunal applied these rulings in the case of Steel & Industrial Forging Ltd. (ibid) for the new Tariff. These rulings squarely apply to the facts of each case before us. There is no reason to differ from these rulings by us.

(iii) In these appeals as stated earlier, the revenue has not placed any evidence on record to show that the impugned goods are no longer considered in trade or in commercial parlance as roughly forged items. On the other hand, the assessees in all the cases have relied on their evidences to show that both in the trade and in technology, the goods are considered as roughly forged ones. There is no reason given by the revenue to reject the evidence of both trade and technical understandings. The rulings relied by DR's pertain to Customs Act and are pari materia to these cases.

(iv)(a) In the appeal of M/s. Aravali Forgings, the party has relied on the Trade Notice No. 31/87 dt. 4-3-1987 of Vadodara Collectorate, who have clarified that merely because the following operations (those listed below) are carried on, the goods would acquire essential character of the casting and would not be enough to merit 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 clearing of surface defects

(c) Chipping, filing or grinding to remove excess material

(d) Annealing the stress relieving

(e) Proof machining

(f) Surface casting The Trade Notice states that such castings would be more appropriately classified under heading 7307 of the Act. Although this TN pertains to castings, yet the understanding of the Board and Collectorates are bound to be taken notice by us and the same cannot be ignored.

(b) The CBE & C.F. No. 139/2/81 dt. 10-11-1981 pertainig to classification and assessment of casting/forging also clarifies that "machining" or 'other process' as referred in the earlier letters of the Board would mean any process other than those employed for merely removing the surface defects or excess material by grinding, chipping or filing. Such processes are known as 'Fettling' in IS-1956 (Pt.4-1976). The idea is that only surface defects or excess material is removed by such processes as grinding, chipping or filing and no further machining is done on castings/forgings to give different form or shape to them. If 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, if any other process other than fettling is carried out on the castings/forgings i.e. boring of holes or cutting to give a different form and such semi-finished or finished machine parts with a identities different from single castings or forgings come in existing, such articles would fall under Item No. 68 and not under Item 25 or 26AA.

(c) As can be seen from the impugned order in this appeal, the forged item had not undergone any of these processes except heat treatment and the final process would bring down the weight of the Item by 30% to 50% and the value of the goods would go up by 100% to 300%.

(d) The appellant has produced purchase orders of customers which shows the description as forging only. Escorts Ltd. by their letter dt. 12-12-1987 has certified that the forgings supplied by M/s. Aravali Forgings are rough forgings and all forgings are subsequently machined before use on the tractor. The HMT Ltd. by their certificate dt. 9-10-1987 has also certified that the goods purchased by them are rough forgings. The DGTD vide their letter dt. 16-11-1987 have also given their opinion that 'Raw and Proof Machined forgings' are distinctly different from finished components. They have given their opinion that Forging (Raw and Proof machined) are all roughly shaped by rolling of iron and steel.

(e) Ultimately the Board's circular/telex are also referred given opinion of classification under sub-heading 7208.00 of central Excise Tariff, 1985.

(f) Therefore on an independent appreciation of all these evidence, it also discloses that the appellants' goods continue to be rough forgings and therefore all these appeals are to be allowed.

(g) These findings would equally apply to the appeal of M/s. Forge & Forge. The revenue has not been able to show that merely because the forgings have specific name and shape and having undergone process other than machining and manufactured as per drawings would seize to be rough forgings. For these grounds and grounds already stated supra these appeals are also allowed.

(h) For these reasons and for the reasons already stated in preceding paragraphs, the appeal of M/s. BCL Forgings is also allowed.

(i) In the appeals of M/s. Sadhu Forgings & other connected appeals, they are relying on the letter of DGTD dt. 16-11-1987, 23-11-1987 issued by Director (Structural & Metals) Bureau of Indian Standards. The Director of this Bureau has examined the impugned goods and has given an opinion that the impugned goods cannot be treated as a finished component. We have also gone through the technical literature and extracts from the book 'Forging & Forging Metals' by S.E. Rusinoff. On perusal of these materials and for the reasonings enumerated by us these appeals are allowed. There are no sufficient ground to uphold the charge of suppression, as the department were aware of their activities and this charge also fails. The confiscation of goods and penalties are also set aside.

(j) The revenue appeal in Collector of Central Excise v. TISCO is also not maintainable and is liable to be rejected. The ld. Collector (Appeals) has given a very reasoned finding. The show cause notice dt. 10-9-1986 merely states as to why the goods should not be classified under sub-heading No. 7308.90 of the Schedule of the Central Excise Tariff, 1985 and does not give any reasons for rejecting the claim under sub-heading 7208.00 as claimed by the assessee. The ld. Asstt. Collector of Central Excise has applied interpretative Rule 2(a) of the rules which had not invoked in the show cause notice. The ld. Collector by a reasoned order set aside the order-in-original. The ld. Collector (Appeals) has examined the sample and has held that the impugned goods have to undergo a series of processes before it can attain the shape and size of the article ready for use as a part of roller bearing. He has held that these could be considered as roughly shaped pieces of iron and steel arising during forging/rolling not withstanding the fact that these have been made with reference to approved drawing. We are satisfied that this is a reasoned and correct order. We apply the findings given in these appeals to this case also and reject this revenue appeal.