Customs, Excise and Gold Tribunal - Delhi
Thermo Electrics Madras Manufacturers vs Collector Of C. Ex. on 20 September, 1990
Equivalent citations: 1991(32)ECC68, 1992ECR125(TRI.-DELHI), 1991(54)ELT82(TRI-DEL)
ORDER D.M. Vasavada, Member (J)
1. The appellants are engaged in the manufacture of heating mantles and heating elements. On 23rd July, 1981, Central Excise Officers of Madras Collectorate visited the factory of the appellants and conducted investigations regarding "Heating elements being manufactured in the said factory out of glass fibre yarn, glass fibre fabric, asbestos yarn, nichrome wire and M.S. ring by using power". On enquiry, Shri J. Ranganathan, who looks after the accounts of the said factory stated that the appellants did not hold central excise licence for manufacture of these products. Thereupon the officers seized 525 numbers of heating elements valued at Rs. 60,945 lying in the store room of the factory. A show cause notice dated 8-1-1982 was issued alleging that -
(i) the appellants had manufactured and cleared/consumed heating elements falling under Tariff Item No. 22F(iv) of the First Schedule to the Central Excises & Salt Act, 1944 as it stood at the relevant time (hereinafter referred to as the 'Act' only) without a Central Excise licence; without payment of duty; and without observing the other Central Excise formalities by suppressing facts of production and clearance of goods with deliberate intention to evade payment of duty.
The appellants were required to show cause as to why penalty should not be imposed and why duty on the heating elements cleared from the factory and also captively consumed within the factory from 16-3-1976 onwards should not be demanded. Duty of Rs. 3292.58 was demanded on heating elements captively consumed in 118 numbers of heating mantles that were found in the factory at the time of the visit and an amount of Rs. 7038:08 was demanded on the heating elements captively consumed in the 244 numbers of heating mantles that were kept under the custody of the Indian Bank at the time of the visit. The appellants were also asked to show cause why 525 numbers of heating elements seized and 166 numbers of heating elements pledged with the Indian Bank should not be confiscated.
2. On adjudication, the Collector of Central Excise, Madras, demanded duty of Rs. 2,40,620.37 in respect of heating elements cleared by the appellants/captively consumed during the period 16-3-1976 to 23-7-1981 under Rule 9(2) of Central Excise Rules, 1944. The Collector held the seized 525 numbers of heating elements liable for confiscation under Rule 173Q of the Central Excise Rules, 1944. He also imposed a penalty of Rs. 5,000/- on the appellants.
3. The appellants preferred appeal which came up for hearing before Special Bench 'D' consisting of 3 Members. The Collector classified the product under Tariff Item 22F(iv), while the appellants claimed classification under Tariff Item 68. At the time of hearing, the learned S.D.R. submitted that the classification of similar goods had come up previously before the Tribunal in the case of Raga Industries v. Collector of Central Excise, Madras (Appeal No. E/315/83-D - Order No. 455/87-D dated 27-5-1987). In was held therein that heating elements were classifiable under T.I. 22F(iv), CET.
4. The learned Consultant, Shri Daya Sagar referred to the decision in Collector of Central Excise, Madras v. IPG Engineers (P) Ltd. -1986 (25) ELT 451 (Tribunal) wherein it is held that though the goods manufactured directly from mineral fibres and yarn were classifiable under Tariff Item 22F, articles manufactured out of such manufactures would not be so classifiable. This conclusion was based on the construction put on the words "manufactures therefrom" occurring in the same item. The Bench also noted that in the case of Mahindra Engineering & Chemical Products Ltd., Pune v. Collector of Central Excise, Pune -1984 (18) ELT 680 (Tribunal) a contrary view has been expressed to the one taken in the case Oil P.G. Engineers (P) Ltd. (supra) and the Tribunal held that the entry clearly covered all manufactures made from glass fibres/yarn irrespective of the fact that the raw material undergoes some intervening processes in the same or another factory before ending up in the final manufacture. The Bench took note of another decision of the Tribunal in the case of Dalmia Laminators v. Collector of Central Excise, Calcutta - Order No. 902/87-D dated 16-11-1987 - wherein the Tribunal construing the expression "jute manufactures" in Tariff Item 22A, CET, held that the said expression was designed to cover, apart from manufactures wholly comprising jute fibres or yarn also manufactures comprised not merely of jute fibre or yarn but also of other fibres or yarn. The item would not appear to cover a manufacture which comprises of jute manufacture as defined in Item 22A and any other article not falling under Item 22A as, in that case, laminated jute bags or articles made out of hessian fabric and plastic film or sheet laminated with the fabric. It was held that such a composite article would not fall under Item 22A since it would no longer be a mere jute manufacture. In view of the Bench, this view seemed to be in accord with the conclusion oil.P.G. Engineers (P) Ltd. (supra). So the Bench felt that the decision in the case of Raga Industries (supra) required reconsideration as, in view of the Bench, there is direct conflict between the decisions in the case oil.P.G. Engineers (P) Ltd. and Mahindra Engineering & Chemical Products Ltd. (supra). So, the Bench decided to place the matter before the President for considering setting up a 5 Member Bench to hear this appeal. As a consequence of this decision, this Larger Bench has been constituted and this Bench heard arguments of Shri Daya Sagar, learned Consultant for the appellants and Mrs. Vijay Zutshi, SDR, as she then was, for the respondent, on 4th/5th May, 1989. Before the appeal could be decided, in Paras Laminates Pvt. Ltd. v. CEGAT-1990 (45) ELT 521 the Hon'ble Delhi High Court held that there was no provision in the CEGAT Rules whereby the President could constitute a Larger Bench. So this matter was kept pending. Now this decision of the Hon'ble Delhi High Court has been set aside by the Supreme Court; so we are deciding this matter.
5. Shri Daya Sagar, Consultant, for the appellants, made the following submissions.
It is not in dispute that the product in question is known and referred to as "heating elements". Even in the show cause notice and in the impugned order it has been referred to as such. So, the emphasis is on the heating property of the product and not insulating property of the same. So, identity of an article should be decided keeping in view its primary function. The product in question is used by laboratories and educational institutional which is admitted by the Collector in the impugned order and so the primary function is heating function. Thus it cannot be classified on the basis that mineral fibres and yarn are used in the manufacture of the same and that it predominates though it is not admitted that it predominated even in weight. His submission is that the product should also be considered for classification purposes on the basis of how the persons who use it know it and classify it. In trade parlance, the product is known as "heating elements" and should be classified as such. He cited the Tribunal's decision in Shriram Jute Mills Ltd., Calcutta v. Collector of Central Excise, Calcutta -1986 (23) ELT 446 (Tri), and Anil Gloss Industries Ltd. and Ors. v. Collector of Central Excise and Ors. -1986 (25) ELT 473 (SC) and Geep Flash Light Industries v. Union of India and Ors. -1986 (6) ECR 430. Another argument was that the product is manufactured out of several materials and so it should not be classified on the basis of its mineral fibre and yarn content. Reliance was placed upon Geep Flash Light Industries (supra) and Indian Textile Paper Tube Company Ltd. v. Collector of Central Excise, Madurai (Civil Appeal No. 3650 of 1984 decided by the Hon'ble Supreme Court on 3-12-1984). In his view the decision of the Tribunal in Mahindra Engineering & Chemical Products Ltd. (supra) was in direct contrast with the decision of the Hon'ble Supreme Court in Atul Glass Industries Ltd. case (supra). On interpretation of the words "manufactured from" used in the relevant Tariff Item, the Learned Consultant submitted that the decision of this Tribunal in I.P. G. Engineers (P) Ltd. case (supra) is correct. He also cited the case of Mis. Dalmia Laminators (Order No. 902/87-D dated 16th November, 1987). So in the view of the Learned Consultant the decision in Raga Industries v. Collector of Central Excise, Madras (Tribunal's Order No. 455/87-D dated 27-5-1987) is not correct and the interpretation and classification suggested in the case oil. P.G. Engineers (P) Ltd. (supra) should be accepted and the classification accordingly should be under Tariff Item 68. On limitation he submitted that there was no wilful suppression on the part of the appellants and there was no necessity to invoke longer period of limitation. Moreover, the Collector has gone beyond five years which is per se illegal. The Collector was not competent to issue notice and it is only the Assistant Collector who should have done this and as the Collector has issued the notice, the right of appeal is taken away. Reliance was placed upon Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh and Ors. -1983 (13) ELT 1277 (SC) and Atma Steels Pvt. Ltd. and Ors. v. Collector of Central Excise, Chandigarh and Ors. -1984 (17) ELT 331 (Tribunal).
6. Mrs. Vijay Zutshi for the revenue made the following submissions. She distinguished the decision in Atul Glass (supra) and submitted that mirror could not have been termed as glass because it cannot be used as glass and m that context that decision has been given which would not be applicable in the present case. She also distinguished the case of Shriram Jute Mills (supra) stating that in that case the product was different; the relevant tariff items were different; and the case was decided in the light of Calcutta High Court's judgment which had been referred to in that order and the Tribunal had no alternative about interpretation of entry 22F. She submitted that the decision inl.P.G. Engineers (P) Ltd. case (supra) is not correct because entry should be read as it is and no words can be added to it. The entry does not consist the words "direct manufacture" and interpolation of these words is not warranted and on this point the decision in the case of Mahindra Engineering & Chemical Products (supra) is correct and should be followed. Mrs. Zutshi also submitted that the decision in Indian Textile Paper Tube case (supra) is not applicable because the relevant tariff item in that case was different and the entry 15A as it stood at the relevant time was specific entry which would not have covered the product in question in that case. So, the decision of the Tribunal in M/s. Raga Industries case (supra) is correct. The product in question in the present case is almost identical with the product in question in M/s. Raga Industries case and so this is a covered case and M/s. Raga Industries decision should be followed. She distinguished the case Hoosein Kasam Dada (supra) also stating that Collector could have exercised the powers vested in his subordinates and in that way no right of appellants has been taken away. Mrs. Zutshi relied upon various decisions of this Tribunal including ORG Systems v. Collector of Central Excise 1989 (40) ELT 401 (Tribunal). She cited several authorities on the point as to how relevant entry should be interpreted. On limitation she submitted that it was the legal duty cast upon the appellants to file declaration to prove the bona fides which they had failed to do and so there was suppression of facts and thus longer period was properly and rightly invoked.
7. In reply, Shri Daya Sagar reiterated his arguments and submitted that mere allegation in the show cause notice would not be sufficient and there is no evidence that there was any wilful suppression on the part of the appellants.
8. We have considered the arguments and perused the records.
9. The process of manufacture of "heating elements" and their composition are described thus -
The glass fibre yarn is knitted into fabric in a hand operated knitting machine. Simultaneously, Nichrome wire is wound on strands of asbestos yarn and the same is insulated with glass fibre yarns (filament yarn) in a winding machine which is operated with the aid of power. Then the insulated Nichrome wire so manufactured is stitched with knitted glass fabric mentioned above and a thin M.S. Ring is placed inside the glass fabric net for giving final shape so that the heating element sits on the aluminium housing of the heating mantle. The leads of the Nichrome wire are also insulated in glass fibre. Thus the heating element of heating mantle consists of components viz. glass fabric, asbestos yarn, Glass fibre, Nichrome wire and M.S. Ring. On weighing one sample of heating element of Code No. GL 43.06 (2000 ML capacity) its various components were found to weigh as under
(i) Weight of Nichrome wire 24 gms
(ii) Weight of M.S. Ring 20 gms (jii) Weight of knitted glass fabric, 115 gms
(iv) Weight of glass fibre and asbestos yarn 96 gms Thus the ratio of mineral fibres and yarn and of other materials viz. Nichrome wire and M.S. Ring is 211:44.
10. There is no dispute that one of the component parts viz. heating coil was manufactured by the appellants with the aid of power and so the product in question was excisable. It is also not in dispute that heating element was mainly used in laboratories and educational institutions for heating solutions. The Collector has also held that it was not classifiable under item 33C, CET, as domestic electrical appliances as claimed by the appellants. The appellants have not disputed this contention. So, now we have to consider the question of classification from three angles -
(i) how the product is identified by the class or section of the people dealing with or using the product;
(ii) how the relevant Tariff Entry 22F(iv) should be interpreted and whether it would cover the product in question; and
(iii) whether the product is a composite product and if so what would be the correct classification keeping that aspect in view.
As far as the first angle is concerned, it is not in dispute, as discussed above, that the product in question is known and used as heating element and this fact is not disputed by the Revenue. As rightly submitted by Shri Daya Sagar, in Atul Glass Industries case (supra) the Hon'ble Supreme Court has laid down the test for classification of such products in these words -
"The test commonly applied to such cases is how is the product identified by the class or section of the people dealing with or using the product. That is a test which is attracted whenever a statute does not contain any definition. It is a matter of common experience that the identity of an article is associated with its primary function. It is only logical that it should be so. When a consumer buys an article, he buys it because it performs a specific function for him. There is a mental association in the mind of the consumer between an article and the need it supplies in his life. It is the functional character of the article which identifies it in his mind."
So, considering from this angle, the product in question could not be described as a product manufactured from mineral fibres and yarn only even though these materials are used in the manufacture thereof and, in that case, the product would not be covered by the entry in question which we reproduce hereunder.
Item 22F(iv) "Mineral fibres and yarn, and manufactures therefrom, in or in relation to the manufacture of which, any process is ordinarily carried on with the aid of power":
Explanation I - "Mineral fibres and yarn and manufactures therefrom shall be deemed to include -
x x x x
(iv) manufactures in which mineral fibres or yarn or both predominate or predominates in weight."
A bare reading of the above entry would suggest that only those items or products would be covered whose main function or attendant function has something to do with mineral fibres and yarn and that in trade parlance also it will be known as such. But only because in any product mineral fibre and yarn are used would not necessarily bring that product in the ambit of this entry.
11. Considering from the second angle, the entry, as it reads, would warrant interpretation put on it in the case of Collector of Central Excise, Madras, I.P.G. Engineers (P) Ltd. (supra), relevant portion of which is reproduced below:
"However, we are not concerned here with classification of the sheets. We are concerned with the classification of gaskets manufactured out of the sheets. In this connection, the words "manufactures therefrom" occurring in the main heading of Item No. 22F(iv) after the words "Mineral Fibres and yarn, and" are significant. We think that the words imply that a manufacture to fall under the said item should be one which is the result of direct manufacture from yarn or fibre and not a manufacture made out of such manufactured article. If goods like gaskets were to be covered by Item No. 22F, the words would have been "manufactures containing" as is to be found in a number of other tariff items, for example, item No. 18 III, 18A. In such an event, any manufactured article so long as it contains or is comprised of fibres or yarn would fall under the entry".
In our view, the above interpretation is proper and logical. We find support from the decision of the Supreme Court in Mis. Geep Flashlight Industries Ltd. (supra) wherein it has been held as under :
"The High Court approached the matter from this angle and reached the correct conclusion that the expression 'articles made of plastic' used in Tariff Item No. 15A(2) do not cover such articles which are not directly made from the material indicated in sub-item (I) but are made from articles made out of such material."
It is true that the Supreme Court was concerned with the interpretation of Tariff Item No. 15A(2) but then the principle laid down therein would naturally and properly apply to the interpretation of entry 22F(iv) also because herein also the article from which the product in question is manufactured is not directly made from the material indicated but made from articles made out of such material. So, in this view of the matter, we are of the opinion that the decision in Mahindra Engineering & Chemical Products Ltd. v. Collector of Central Excise, Pune -1984 (18) ELT 680 (Tribunal) is not proper. In para 5 of that order, it has been stated that - "Bread made from wheat flour, and not directly from wheat, still remains wheat bread. A shirt stitched from cotton cloth continues to be considered as a cotton shirt although it is well known that cotton fibre cannot be turned into a shirt directly...." But, then, the fact remains that the product in question is not directly manufactured from the materials referred to; and a cotton shirt is known as cotton shirt to distinguish it from silk shirt or artificial fibre shirt and 'wheat' breads can be distinguished from any other foodgrain like 'Rye'. This agrument is advanced by Shri Daya Sagar, learned Consultant and we are fully in agreement with that. We have noted the contention of Mrs. Vijay Zutshi that tariff entry should be interpreted as it is and no words can be read or interpolated into it. But then on perusal of the order in IPG Engineers (P) Ltd. (supra) we are convinced that what the Tribunal has done is not adding or interpolating any words but they have put a particular construction which appears to be more relevant, logical and correct and in doing so, to explain the correct position, they have used the words "directly from". These words have been used to make the meaning of the entry more meaningful and explicit. But that does not mean that the Bench dealing with the matter has tried to add these words into the entry. We have perused the authorities cited by Mrs. Vijay Zutshi including the following -
1. Sahney Paris Rhone Ltd. Hyderabad v. Collector of Central Excise, Hyderabad -1988 (33) ELT 129 (Tribunal)
2. Bakelite Hylam Limited, Hyderabad and Ors. v. Collector of Central Excise, Hyderabad and Ors. -1986 (24) ELT 643 (Tribunal)
3. Collector of Central Excise, Bombay v. Bharat Shoe-Lace Works, Bombay - 1987 (27) ELT 545 (Tribunal)
4. Collector of Central Excise, Bombay v. Industrial Marketing Corporation, Bombay -1985 (22) ELT 950 (Tribunal) But, in our view, these authorities do not come in the way in interpreting the entry 22F(iv) in the way in which it has been sought to be interpreted by this Tribunal in IPG Engineers (P) Ltd. case (supra).
12. If considered from this point of view, the weight of mineral glass fabric in question could not be considered as the weight of mineral fibres or yarn and so it could not be considered a manufacture in which mineral fibres or yarn or both would predominate or would predominate in weight. So, these products would not be covered by tariff entry 22F(iv) as it stood at the relevant time.
13. Considering from the third angle as can be seen from the composition of the product it is a composite product of several materials and so it could not be identified with and described keeping in view only one of the materials however important it may be. This position of law has been clearly laid down in Geep Flashlight Industries case (supra) by the Hon'ble Supreme Court. Again in Indian Textile Paper Tube Co. Ltd. case (supra) this view has been reiterated by the Hon'ble Supreme Court. Therein the Hon'ble Court was concerned with the interpretation of Tariff Item 17(4) but the principle laid down therein can be applied to the facts of the present case also.
14. Considering from the above three angles, we are of the view that the product in question could not be classified under Tariff Entry 22F(iv) but it could be classified under Tariff Item 68 only as it stood at the relevant time. So, the decision of this Tribunal in the case of Raga Industries (supra) cannot be supported.
15. As far as the question of limitation is concerned, it is alleged that it was the duty of the appellants to have filed declaration under Notification No. 111/78 for the manufacture of heating mantles and by not doing so they have suppressed the fact of manufacture of heating elements also which are manufactured by the appellants and consumed by them captively in production of heating mantles. Shri Toshniwal, Administrative Officer of the appellants' company whose statement was recorded submitted that they had not filed the declaration in respect of manufacture of heating mantles as their turnover was about Rs. 3*/2 lakhs per year and was well within the limit of Rs. 30 lakhs; that they were not aware that heating element was classifiable under Tariff Item 22F(iv) and that is why they did not obtain manufacturing licence or filed declaration. But, in view of the above position, if the item would be classifiable under Tariff Item 68 then it would not attract central excise duty under Tariff Entry 22F(iv). There is no evidence to suggest that the appellants knew about the excisability of the product and had the intention to evade payment of duty. Mere allegation in the show cause notice would not prove this aspect. Shri Toshniwal also stated that several other manufacturers were also not having central excise licence and were not paying duty and he genuinely believed that their product is not excisable. In these circumstances, keeping in view the principles laid down in Collector of Central Excise v. Chemphar Drugs & Liniments -1989 (40) ELT 276 (SC), we are of the view that invocation of a longer period of limitation would not be justified.
16. We do not think it necessary to go into other contentions raised by the appellants. The appeal is disposed of in the above terms.
17. Penalty is set aside. Demand of duty, if any, to be recalculated with consequential relief to the appellants, if any.
18. [Contra per : D.C. Mandal, Member (T)]. - Tariff Item 22 F(iv) has been extracted in paragraph 10 of the order written by the learned brother Shri Vasavada. The definition of the term "mineral fibres and yarn and manufactures therefrom" is available in the Tariff Entry itself. According to the definition, given in the tariff item, the manufactures in which mineral fibres or yarn or both predominate or predominates in weight is included in the term "mineral fibres and yarn and manufactures therefrom". Trade parlance becomes irrelevant for the purpose of classification when the tariff item itself gives the definition. This being the case, the classification of the impugned product should be decided in terms of the tariff entry and not according to the trade parlance. In my view, therefore, none of the decisions relied on by the learned counsel for the appellants regarding trade parlance is applicable to the present case.
19. The learned counsel for the appellants has argued that the products which are directly manufactured from mineral fibres and yarn are only covered by the term "manufactures therefrom". In support of his contention, he has relied on this Tribunal's decision reported in 1986 (25) ELT 451 (Tribunal) in the case of Collector of Central Excise, Madras v. IPG Engineers (P) Ltd. In the said case, gaskets were made from duty paid sheets manufactured from glass fibre and yarn. The sheets manufactured from glass fibre and yarn paid duty under Tariff Item 22F. In that case, the Tribunal took the view that the gaskets being manufactured from sheets and not directly from glass fibre and yarn were not assessable under Tariff Item No. 22F(iv), but under Item 68 of the Central Excise Tariff. He also relied on this Tribunal's order No. 902/87-D dated 16th November, 1987 in Appeal No. E/307/83-D in the case of Dalmia Laminates v. Collector of Central Excise, Calcutta. In that case the classification of laminated jute bags was in dispute. Following a judgment of Calcutta High Court, the Tribunal held that those bags were not classifiable under Central Excise Tariff Item 22A. The above contention of the learned counsel has been accepted in the order written by Shri Vasavada and the same has been concurred by the learned brothers Shri Harish Chander and Shri Rao. The process of manufacture has been described in Paragraph 9 (supra). Heating elements produced by the same process of manufacture were in dispute for Central Excise classification in Appeal No. ED/SB/315/1983-D in the case of Raga Industries v. Collector of Central Excise, Madras, and this Tribunal, vide Order No. 455/1987-D dated 27-5-1987, held that the heating elements manufactured by the said appellants were correctly classifiable under Item No. 22F(iv) of the Central Excise Tariff. This order has been relied on by the learned Departmental Representative. She has also relied on another decision of this Tribunal, namely, Order No. 168/84-D dated 8-3-1984, reported in 1984 (18) ELT 680 (T), in the case of Mahindra Engineering & Chemical Products Ltd., Pune v. Collector of Central Excise, Pune. In the said case, the appellants manufactured arc chambers, tubular shaped housings from glass fibres purchased from the market. The Tribunal held that the product, "housing", was classifiable under Tariff Item No. 22F (iv) and not under Item No. 68 of the Central Excise Tarifff. The process of manufacture undertaken by the present appellants, as given in paragraph 9 (supra), shows that the heating elements were manufactured from glass fibres and yarn. Nichrome and MS Rings were also used in the manufacture. As stated in the last sentence of paragraph 9 (supra), the ratio of "mineral fibres and yarn" and "all other materials" was 211:44. Thus, the glass fibre and yarn predominate by weight in the heating elements. Secondly, the heating elements are coveredi>y the term "manufactured from glass fibres and yarn" in view of the description of the tariff entry. Although from the process of manufacture it appears that knitted fabric comes into existence in the intermediate stage in the process of manufacture of the heating elements, but in the records before us there is no material to show that the glass fabric was in the condition in which it is understood as "glass fabric" in the commercial parlance, or that the same was marketable. Therefore, in my view, the fabric in the intermediate stage should not stand in the way of classification of the heating elements under Tariff Item 22F (iv). Accordingly, I classify the impugned product under this tariff item and not under Item 68 of the tariff.
20. So far as limitation is concerned, I agree with Shri Vasavada that 5 years' limitation is not applicable in the present case. I agree with the reasons recorded by him in paragraph 15 (supra). In the circumstances, I confirm the demand for duty for a period of six months prior to the issue of the show-cause notice.