Customs, Excise and Gold Tribunal - Delhi
Metal Forgings (P) Ltd. vs Collector Of Central Excise on 29 June, 1994
Equivalent citations: 1994(73)ELT302(TRI-DEL)
ORDER G.A. Brahma Deva, Member (J)
1. These are three appeals filed by the appellants which are interlinked and connected and, therefore, they are clubbed together and are being disposed of by this common order.
2. The appellants are engaged in the manufacture of forge, iron and steel products. They manufacture products namely, crank-shafts, rings, discs, connected rod, pinion, shafts, gear etc. The dispute is in respect of classification of the above products. The appellants claimed that these items were classifiable under Item 26AA, sub Item(i-a) of the first schedule to Central Excises and Salt Act, 1944. But according to Deptt. that these items were classifiable under Item 68 with effect from 1-3-1975 since Item 68 was introduced into the Tariff Schedule. In the order dated 25/26-7-1985 passed by the Asstt. Collector it was held by him that the goods would be classifiable under Tariff Item 68 of the erstwhile Tariff. Subsequently, on that basis the classification lists were approved by him on 15-10-1985. The appellants have filed two appeals against the respective orders passed by the Asstt. Collector and also one more appeal has been filed by them against letter dated 21-1-1988 issued by the Asstt. Collector (A & R) Central Excise Collector, Delhi re-determining the duty amount of Rs. 1.93 crores (approximately) based on the order of the Principal Collector with reference to the demand already raised on the basis of classification.
3. These three appeals were disposed of by common order in appeal No. 529 to 531 dated 9-8-1990 by the Collector of Central Excise (Appeals), New Delhi. Feeling aggrieved by the said common order they have come before us by way of these three appeals. The Asstt. Collector determined the classification of the products in question under Tariff Item 68 of the erstwhile Tariff based upon the observations by the Govt. of India in its Order No. 786/80 dated 2-8-1980 in the revision application filed by the appellants wherein "The Govt. of India observed in this case that forgings would not cease to be forgings by process like mere removal of superfluous extra skin of cast iron. However, the processes like machining, drilling holes etc. which convert the forged product into an identifiable machine part would render the final products leviable to duty under T.I. 68 because there is a transformation of the forged article to another article with a distinct name, character or use. Government, therefore, directed the Asstt. Collector to examine the goods in question having regard to the observations made in the order and decide their classification" and following the direction of the Hon'ble High Court, Delhi in its order dated 12-12-1984 in the Writ Petition No. 214/81 filed by the appellants. While dismissing the writ petition, the Hon'ble High Court granted liberty to the Central Excise Authorities to determine as to which of the forged products of iron and steel manufactured by the appellants are transformed by a further process of manufacture as parts of machinery liable to duty under T.I. 68 in addition to the duty at the stage of forging.
4. It has been contended by the appellants before the Collector (Appeals) that the goods continue to still remain as forged products classifiable under T.I. 26AA (i-a) or later under T.I. 25 and did not attain the characteristics of a part of machinery to the extent of being eligible for classification under T.I. 68. They have relied upon various decisions and in particular the decisions of the Supreme Court in the case of TISCO v. Union of India, reported in 1988 (35) ELT 605 and in the case of Bharat Forge and Press Industries Pvt. Ltd. v. Collector of Central Excise, reported in 1990 (45) E.L.T. 525. The Collector (Appeals) negatived the contentions of the appellants observing that each case has to be decided on particular facts and circumstances of that case. He observed that Delhi High Court in the very appellants' case has gone into the details of manufacturing process of the goods, the nature and condition of products leaving the factory their identity in the commercial world and also discussed in depth various schedule pronouncement relied upon by both sides and finally held as follows:
"For the reasons stated above, I hold that in the facts and circumstances of the case, the process of machining, polishing and/or drilling holes on the forged shapes make them as identifiable parts of machine having different name, character and use. Merely because the forged shapes and sections are used subsequently for the manufacture of another article namely, machine parts, it does not mean that the earlier process of manufacture was not complete. I hold that after removal of superfluous extra skin of forgings the goods in question are subjected to sophisticated machining and drilling for the specific purposes of manufacturing machine parts. After the aforesaid process, the flanges cease to be shapes and sections and by these process transformation or substantial change takes place and shapes and sections go out of the purview of Tariff Item 26AA (i-a). All the authorities of Central Excise have rightly come to the conclusion that the goods in question are identifiable as machining parts. It is not possible to hold that the conclusion of the authorities is perverse. The forged products which undergo the further process like machining, polishing and drilling holes to make them identifiable as machine parts leave the factory gate in a form known to the commercial community as machinery parts."
He held that Asstt. Collector was right in arriving at the conclusion that this item is classifiable under T.L 68 in addition to duty under Item 26AA at the stage of forging in view of observation made by the High Court that two stage duty is accepted whenever transformation takes place by further process of manufacture and as such the appellants are liable to duty of Central Excise under T.I. 68 in addition to duty Item 26AA (i-a) at the stage of forging.
5. Shri D.A. Dave ld. Adv. has commenced arguments and same was concluded by Sh. Lachman Dev, ld. Consultant for the appellants and Deptt. was duly represented by Shri Siddharth Kak ld. Joint Chief Departmental Representative.
6. Two main issues are involved in this case, classification and time barring issue. On classification it was submitted on behalf of the appellants that by judgment dated 12-12-1984 of the Single Judge of the Delhi High Court directed the Central Excise Authorities to determine as to which of the forged products of iron and steel manufactured by the petitioner (appellants) are transformed by a further process of manufacture as parts of machinery liable to duty under T.I. 68 in addition to the duty at the stage of forging. Neither goods were examined by the Asstt. Collector nor any evidence on the record to establish that any of the forged products manufactured by the appellants' Company by the process of forging are transformed into a new product. The Asstt. Collector has not given a finding that it is separate identifiable part to attract duty under T.I. 68 in addition to the duty at the stage of forging under T.I. 26AA (i-a). They referred to the decisions of the Supreme Court in the case of TISCO v. Union of India (supra) and Bharat Forge and Press Industries Ltd. in support of their contention.
7. While countering the arguments on this issue it was submitted by the DR that ratio of the decision in the case of TISCO as well as in the case of Bharat Forge is not applicable to the facts of this case as it was rightly distinguished by the Collector (Appeals) in the impugned order. He said that it is not correct to say that the Asstt. Collector has not examined the goods. In fact he has inspected the premises and examined the goods before arriving at the conclusion as can be seen from the records. Detailed process of the manufacture of the product in question was considered as it was admitted by the party before the High Court and referred to the Para 15 of the judgments dated 12-12-1984 wherein it observed that "Merely because a manufactured goods is used subsequently for manufacturing another article it cannot be concluded that the earlier process of manufacture was not complete or finished goods had not come into existence. Forged products which are machined, polished, holled etc. and made fit for being used as machine parts assume a different name, character and usage. Such forged products as are machined/drilled/polished assume an altogether different character from what it was when forged and so as to make them identifiable or usable as machine parts".
8. The appellants not being satisfied with the findings of the Single Judge preferred an appeal before the Division Bench but they did not succeed even before the Division Bench and on the other hand upheld the order of the Single Judge holding that ld. Single Judge rightly held that the transformation takes place by further process of manufacture and as such the appellants are liable to pay duty of Central Excise under T.I. 68 in addition to duty under Item 26AA(i-a) at the stage of forging. Since the product ultimately is machined/tooled/polished to achieve the final shape, the Deptt. was right in classifying the Item under 68 in addition to the duty classified under T.I. 26AA (i-a) as it was observed by the High Court. He said that although plea was taken by the party that item continues to remain under 26AA(i-a) and further process was taken with reference to item at the hands of customer there is no evidence to show to that effect nor was substantiated. In rejoinder it was submitted on behalf of the appellants that judgment of the Division Bench was not there at the time of passing the order by the Asstt. Collector and furthermore the judgment of the Division Bench confined to 'flanges' since the appellants themselves have accepted that transformation has taken place with reference to 'flanges'.
9. We have considered the rival submissions with reference to the issue of classification. What amounts to manufacture and how assessment is to be done will depend upon the facts and circumstances of that particular case. In this context, the observation made by the larger Bench in the case of Bharat Heavy Electricals Ltd. v. Collector of Customs, Madras, reported in 1987 (28) E.L.T. 545 at para 11 of that judgment is relevant and same is reproduced as under :-
"In view of the above discussion we are of the view that no general precise guidelines can be laid down regarding the considerations 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 the instant case the impugned goods were the subject matter of dispute with reference to classification in the Delhi High Court before the Single Judge as well as before the Division Bench in appeal and at both levels the details of the manufacturing process of the goods and their identity in commercial world discussed in depth with reference to judicial pronouncements. The ld. Single Judge held that the transformation takes place by further process of manufacture and as such the appellants are liable to pay duty of Central Excise under T.I. 68 in addition to duty under Item 26AA(i-a) at the stage of forging. While upholding the view of the Single Judge, observation made by the Division Bench in para 17 of his judgment reads as under :-
"Whether transformation has 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, result in manufacture of a new and distinct article would also depend on a number of tests, some of them being, (i) the nature of the 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."
10. In view of the direction given by the Hon'ble High Court the Asstt. Collector has examined the goods and given his findings in page 5 of his order.
"Accordingly, the process of manufacture briefly involves initial cutting of steel, pre-heating of steel material, heating and beating of steel material in the furnaces and under the hammers repeatedly till the material requires a shape nearest to the shape of the forged product, required by the customers. The extra/unwanted material is removed by either trimming or by gas cutting or skin cutting and the product ultimately is machined/tooled/polished to achieve the final shape. Apparently, the process of forging is normally complete when the required material comes to a shape after it is taken out of the furnace and hammered repeatedly and the unwanted material is trimmed. The subsequent process of machining/tooling/polishing is thus done to achieve the final shape. The machining work is undertaken only in respect of items like steel flanges, rings discs, connecting rods, pinions, shafting, gears, crankshafts. For these processes, the party is equipped with required machinery. These items are also tested apart from machining and grinding of surface."
11. In view of the facts and circumstances of the case the Deptt. was right in classifying the goods under T.I. 68. Accordingly department succeeds on this issue.
12. Next question arises for our consideration in this case is time barring issue. Number of points were raised by the appellants with reference to this issue. That no show cause notice was issued, letters issued by the Deptt. prior to finalization of the classification were neither notices nor in the form of show cause notices and order dt. 25/26-7-1985 passed by the Asstt. Collector cannot be considered as show cause notice. They have also questioned the legality of the issuing a demand without giving them a notice and also raising the demand for entire 10 years period.
13. Facts of the case in brief relating to this issue are that a demand for Rs. 1.97 crores was raised as per letter dt. 2-8-1985 by the Asstt. Collector. The appellants challenged this letter by way of appeal before the Collector (Appeals) who held that this letter is not an order and, therefore, no appeal lies against this letter. The appellants did not file an appeal against this order but they gave representation to the Principal Collector disputing the calculation of the duty amount. In pursuance to the direction given by the Principal Collector the Asstt. Collector (A & R) revised the demand to Rs. 1.93 crores (approximately) vide letter dt. 21-1-1988. This demand is the subject matter of the dispute before the Collector (Appeals) in the present proceedings and the Collector (Appeals) modified the demand for different periods as indicated below on the ground that these periods are covered by show cause notices except for the period 26-11-1975 to 30-11-1980.
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S.No. Period Ground on which demand is sustained by the
Collector (Appeals).
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(1) 1-3-1975 to Letter dt. 24-6-1975 issued by the Supdt. is to be
24-6-1975 taken as a demand notice.
(2) 25-6-1975 to Notice of demand dt. 19-11-1975 and 25-11-1975.
25-11-1975
(3) 26-6-1975 to ----------
30-4-1980
(4) 1-5-1980 to That Supdt's show cause notice dt. 31-10-1980
18-8-1980
(5) 19-8-1980 to On the ground that the appellant had got a stay of
1984-85 the operation of Govt. of India's order dt. 2-8-1980
on 19-2-1981 and that since the Asstt. Collector
came to a decision about classification under his
order dt. 25/26-7-1985 the intervening period was
required to be excluded in terms of the Explanation
under Section 11A. The remark in the last sentence of
the order dt. 25/26-7-1985 has been declared by the
Collector (Appeals) as the show cause notice for
this period.
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At the first instance the Asstt. Collector of Central Excise vide his order dt. 27-1-1976 classified goods in question under T.I. 68. The appellants challenged this order in appeal and further by way of revision before the Govt. of India. Govt. of India in its order dt. 2-8-1980 remanded the matter to the Asstt. Collector to decide the issue of classification with some observations. This order was challenged by the appellants before the Hon'ble High Court in the writ petition CWP No. 214/81 and High Court passed an interim order on 19-2-1981 staying operation of the Govt. of India order dt. 2-8-1980. By further order dt. 8-4-1981 the High Court continued staying of the operation of the order of the Govt. of India till further orders. Further by their order dt. 14-7-1981 the High Court continued the ex parte interim order passed on 8-4-1981, whereby the impugned order of the Central Government dt. 2-8-1980 was stayed. Finally High Court disposed of the case on merits by its order dt. 12-12-1984 up to which date stay continued. After passing of the order of the High Court by Single Judge on 12-12-1984, the Asstt. Collector examined the matter and gave a decision on classification in his order dt. 25/26-7-1985 which is subject matter of the appeal in the present proceeding.
14. Sh. Lachman Dev, ld. Consultant while referring to the letter dt. 24-6-1975 issued by the Supdt. and notice of demand dt. 19-11-1975 and 25-11-1975 issued by the Asstt. Collector, submitted that above notices are either in the form of a decision or in the form of advice but these notices do not call upon the appellants to show cause and hence same cannot be treated as show cause notices. He said that show cause notice dt. 31-10-1980 is a show cause notice for imposing a fine for non-maintenance of records but not for any recovery of duty short-levied. He contended that the Collector erred in sustaining the demand pertaining to the period 2-8-1980 to 18-2-1981 and 19-2-1981 to 1984 on the ground that the period starting from a date which is six months prior to 19-2-1981 till the decision arrived by the Asstt. Collector as per his order dt. 25/26-7-1985 should be excluded in terms of the proviso to Section 11 A. High Court stayed the operation of the order of Govt. of India only on 19-2-1981 and there was more than six months in between 2-8-1980 and 19-2-1981 and no show cause notice had been issued before in the said period and accordingly, the period which could be excluded in terms of explanation to Section 11A is only the period from 19-2-1981 to 12-12-1984 and not prior to that period or to the subsequent period. During the period where stay of the High Court was in operation stay order is applicable for the recovery of demand and not for issuing show cause notice. In support of his contention he referred to the decision of the Supreme Court in the case of Gokak Patel Volkart Ltd. v. Collector of Central Excise, Belgaum, reported in 1987 (28) E.L.T. 53 (SC), in which Apex Court upheld the Karnataka High Court order that stay of collection of duty did not amount to stay in relation to issue of show cause notice. It was held in para 8 of that judgment that the "High Court having directed stay of collection had, therefore, not given any interim direction in the matter of issue of the notices for levy of duty. The explanation in clear terms referred to stay of service of notice. The order of the High Court did not at all refer to services 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." He also referred to the decision of the Karnataka High Court in the case of Davanagere Cotton Mills Ltd. v. Chairman, C.B.E. & C. reported in 1991 (55) E.L.T. 295 wherein while quashing the demand it was held that demand made on 2-5-1986 for Rs. 2.11 crores without issuing a show cause notice must be held as one without authority of law and hence illegal. Further it observed that by virtue of the explanation, the limitation to issue the notice as required under Section 11A(1), namely, six months or 5 years as the case may be is extended by the period of such stay but does not dispense with the issue of notice after that period; and that the period which apply to the facts of the case was six months from the date of dismissal of the writ petition. He also stated that the concluding sentence of the order dt. 26-7-1975 passed by the Asstt. Collector cannot be considered as a show cause notice as it is not in the form of show cause notice and it suffers from ingredients of show cause notice under Section 11 A. He referred to following decisions in support of his contention :-
(i) J.B.A. Printing Inks Ltd. v. UOI -1980 (6) E.L.T. 121 (Bom.)
(ii) Kelvinator of India v. CCE, Delhi -1991 (56) E.L.T. 361 (Tri.)
(iii) Indian Aluminium Co. Ltd. v. CCE, Bombay-II -1987 (31) E.L.T. 764
(iv) Madhumilan Syntex Pvt. Ltd. and Anr. v. UOI-1985 (19) E.L.T. 329.
He stated that even presuming that the order of the Asstt. dt. 25/26-7-1985 can be treated as a show cause notice even then longer period under Section 11A cannot be invoked for the recovery of the duty in the absence of suppression of facts and in view of clear finding by the Collector (Appeals) that there is no allegation made either in the Asstt. Collector order dt. 25/26-7-1985 or in the letter dt. 2-8-1985 about the suppression/wilful misstatement of facts, fraud, collusions etc. He emphasised that since no show cause notice had been issued for the period in question entire demand is clearly barred by time.
15. While countering the arguments on this issue Sh. Siddharth Kak, ld. Jt. CDR reiterated the reasons given in the impugned order passed by the Collector (Appeals). He said that classification issue of product in question was in dispute since the beginning and the appellants constantly challenging this issue either in one form or another including before Hon'ble High Court of Delhi and no finality was reached about the classification of the product and, therefore, no demand could be raised till the Asstt. Collector passed the order on 25/26-7-1985 in pursuance of the order of the Hon'ble Delhi High Court dt. 12-12-1984. He said that ratio of the decision in the case of Samrat International (P) Ltd. v. Collector of Central Excise, Hyderabad, reported in 1992 (58) E.L.T. 561 (SC) is applicable to this case since classification was not finalised till passing the order of the Asstt. Collector in pursuance of the direction of the High Court and accordingly, demand was not barred by time. He also referred to the decisions in the case of Shree Baidyanath Ayurved Bhawan Ltd. v. Asstt. Collector of Central Excise, Allahabad, reported in 1986 (25) E.L.T. 11 wherein it was held that it is obvious that unless it is decided that the petitioner is liable to the payment of excise duty, the question of determination of the quantum of excise duty does not arise. Show cause notice could not be issued earlier since the proceedings were stayed by the Delhi High Court and after vacating the stay on 12-12-1984 without wasting much time the Asstt. Collector visited the factory on 30-1-1985 to examine the goods and issued a letter to the party on 1-3-1985 to give description and after issuing show cause notice on 25-5-1985 regarding classification matter was duly heard on 3-6-1985 and finally assessment was finalised classifying the Items under T.I. 68 on 25/26-7-1985 as can be seen from the record. As soon as classification was finalised letter of demand was followed by classification on 2-8-1985 and on the very day Central Excise licence for T.I. 68 was also issued. The demand could not be quantified as the duty was chargeable at ad valorem under T.I. 68 since details of value of clearance were required for that purpose. He said that department could not get required information for quantifying the duty amount as the party was reluctant and non-cooperative in giving information. In fact the department had to get balance sheets from the other departments for the purpose of calculation and even now exact amount of duty was not quantified due to lack of co-operation from the party. He said that letter of demand is based on calculation since show cause notice was already issued indicating duty liability. As regards show cause notice, he submitted that the purpose of the show cause notice is to indicate the duty liability and even if the notice does not describe it as a show cause notice but the contents thereof make a recipient aware and conscious of the position, the recipient cannot be permitted to raise the technical arguments to defeat the just a demand. Show cause notice was not invalid even if exact amount is not specified therein and in support of his contention, he referred to the decisions in the case of Collector of Central Excise, Meerut v. Star Paper Mills Ltd., reported in 1986 (26) E.L.T. 81 and Hindustan Aluminium Corp. Ltd. v. Supdt. of Central Excise, Mirjapur, reported in 1981 (8) E.L.T. 642 (Delhi).
16. On a careful consideration of the arguments advanced on both sides with reference to this issue and on perusal of the records, we are not convinced with the plea taken by the Deptt. that earlier order dt. 22-1-1976 passed by the Asstt. Collector was only provisional till the passing of the order in pursuance of the order of the High Court. We find that the order dt. 22-1-1976 was not provisional but final against which appeal and the revision proceedings have taken place. Continuance of dispute on classification issue will not convert final order into a provisional. Letters either in the form of suggestion or advice or deemed notice issued prior to finalisation of the classification cannot be taken note of as show cause notices for the recovery of demand since issue of show cause notice for the recovery of demand will not arise till the finalisation of the classification. Once classification was approved Deptt. was required to issue show cause notice for the recovery of demand either for six months or 5 years as the case may be under Section 11A. Invoking larger period under Section 11A does not arise in this case in view of the facts and circumstances and finding given by the Collector (Appeals) in the impugned order that there is no suppression of facts to attract larger period. But point to be noted in this case is that no show cause notice has been issued by the Deptt. after passing the order on classification i.e. on 22-1-1976 till the High Court granted stay on 19-2-1981. We fail to understand why show cause notice was not issued during the period where stay was not in operation. Furthermore surprising factor is that Deptt. failed to issue show cause notice within six months period even after stay was vacated by the High Court on 12-12-1984. This is a clear case of lapse on the part of the Deptt. Observation made by the High Court of Karnataka in paras 48 and 49 of that judgment in the case of Davanagere Cottons Mills Ltd. (supra) is more appropriate in this context and accordingly, same is extracted here :-
"Before parting with the case, I deem it necessary to observe with some concern, that the deptt. was not vigilant and failed to issue notice for recovery of the arrears of excise duty which was not levied and not paid during the period covered by the stay order. It is needless to point out that any such notice should have been issued within six months from the date of dismissal of the writ petition. But the deptt. on the other hand, choose to issue a demand straightway on 2-5-1986, as per Annexure B, calling upon the petitioner to pay excise duty in a sum of Rs. 2,11,86,467.27 ps. due for the period from September 1981 to 20th July, 1985.
The present case is a classic instance of large revenue being lost on a technical ground. There is obviously no organisation in the deptt., at any level, to review cases where considerable amounts of duty are involved."
17. Next point to be considered is whether order passed by the Asstt. Collector can be treated as show cause notice for the purpose of under Section 11A. Taking into consideration that there is no prescribed form of show cause notice in the excise law and giving credence to the submissions made by the DR with reference to the case law and on seeing the contents in the last para of the order and particularly in the facts and circumstances of the case, we are of the view the order dt. 26-7-1985 can be treated as order-cum-show cause notice. This show cause notice serves little purpose in indicating duty liability to gain time factor and precedes demand. Accordingly, Govt. can recover the duty from six months prior to issue of this show cause notice and subsequent remaining period in the year 1984-85 but not beyond six months prior to the issue of this notice. But this show cause notice cannot be said to be show cause notice for determining the quantum of duty as no quantum was indicated therein. We are also not convinced with the submissions made by the DR that duty amount could not be quantified as the party was not co-operative in furnishing details. Deptt. should have enforced the provisions of the Act in issuing summons etc. to get the relevant information. Difficult to conceive that Deptt. could not get information in spite of its vast machinery. Since much water has flown after this order by issuing a demand notice on 2-8-1985, same was modified by the Asstt. Collector on 21-1-1988 revising the demand on the direction given by the Principal Collector with reference to representation given by the party regarding quantum of duty and still quantum is yet to be finalised as it was pointed out by the DR, we are of the view that the continued correspondence subsequent to the passing of the order dt. 26-7-1985 itself served as a purpose in giving opportunity to the party in determination of the quantum of duty since quantum is not yet finalised. We direct the deptt. to redetermine the duty amount payable by the party from 25-1-1985 till the end of 1985 on getting required information in this regard from the party and, accordingly Deptt. is entitled to recover that amount. Party should also cooperate with the Deptt. in furnishing relevant data to enable the Deptt. in arriving at the exact figure. Accordingly, Deptt. partly succeeds on this issue. With this observation these three appeals are disposed of in the above terms.
Sd/-
(G.A. Brahma Deva) Member (J) ORDER P.C. Jain, Member (T)
18. I have carefully perused the order proposed by the learned brother, Shri G.A. Brahma Deva, Judicial Member but I regret I am not able to agree with the conclusions reached by him.
19. I am not going to recapitulate the facts already set out in the learned brother's order. However, some additional facts which I feel are necessary for the disposal are also set out.
19.1 The appellants herein filed a classification list after protracted correspondence after introduction of T.I. 68 w.e.f. 1-3-1975 "without prejudice and under protest" in December 1975 describing the goods at s. nos. 2 and 4 of the said list and making the claim for classification and notification as follows :-
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S.No. Full Description of Item No. Rate of No. & Date Remarks
the goods. and sub- Duty levi- of the Rele-
item if any able (give vant Notifi-
of the First details)of cation(s) if
Schedule to basic & any issued
the Central other duty under the
Excises & separately rules
Salt Act, having a
1944 under bearing on
which the the rate of
goods fall. duty.
--------------------------------------------------------------------------------1 2 3 4 5 6
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1 ... ... ... ... ...
2. Forged Steel pro- 26AA(ia) Rs. 165/ 67/73 ducts (Shapes & Sec- Basic Duty dt. 1-3-1973 tions not otherwise (-)Rs. 165/-
specified) manufac- Auxl. Duty.
tured out of semi-
finished steel
pro-ducts, viz:
a. Steel Forgings for 26AA(ia) Rs. -do- 67/73 ...
Auto & Tractors dt. 1-3-1973
like Forged Crank & TI 34A-
shafts, forged con- Noti-
necting Rods, fication No.
Forged Pinions, 99/71-
Forged Gears, C.E.
Forged Levers,
Forged shaftings.
Dt. These pro-
29-5-1971 & ducts are
27/73 supplied in
dt. 1-3-1973 forged and
/or skin cut
and/or
shot blas-
ted & semi
/fully
machined
condition.
b. Misc. Steel Forg- 26AA(is) Rs. 165/- 67/73 These pro-
ings e.g. Rings, Basic Duty dt. 1-3-1973 ducts are
discs, Step Forgings, (-)Rs. 165/- supplied in
bars. Auxl. Duty forged and
/NIL Effec- /or skin cut
tive Rate and/or
shot
blasted
condition.
c. Forged Steel Flanges 26AA(ia) -do- 67/73 These pro-
& other fittings for dt. 1-3-1973 ducts are
high pressure pipe supplied in
lines of Petrochemi- forged and
cal & other projects /or skin cut
and for Exports. and/or
shot blast-
ed condi-
tion.
d. Forged Steel Flanges 26AA(ia) -do- 67/73 These pro-
& other fittings for dt. 1-3-1973 ducts are
high pressure pipe supplied in
lines of Petrochemi- for ged and
cal & other projects fully
for Export, fully machined
Machined & Drilled. condition,
forged and but the
Threading,
Lapping,
Welding are
done by the
customers at site.
3. ... ... ... ... ...
4. Forged Steel
Products (Shapes &
Sections not other-
wise specified)-
manufactured out of
semi-finished steel
products, viz:
a. Steel Forgings for 26AA(ia) Rs. 165/- 63/73 dt. These pro-
Auto and Tractors Basic Duty 1-3-1973& ducts are
like Forged Crank (-) Rs. 100/- 19/74 dt. Supplied in
shafts, Forged con- Ingot Duty, 1-3-1973& Forged
necting Rods, Rs. 65/- T.I. 34A and/or skin
Forged Pinions, Basic paid Notifi- cut and/or
Forged Gears, duty+100% cation No. not blasted
Forged Levers, Auxiliary 99/71-C.E. & semi/
Forged Shaftings, Duty dt. Fully mach-
29-5-1971 ined condi-
27/73-C.E. tion.
dt.1-3-1973
b. Misc. Steel Forgings, 26AA(ia) -do- 63/73, These pro-
e.g. Rings, discs, 82/73 dt. ducts are
step Forgings, bars. 1-3-1973 & supplied
19/73 dt. Forged and
1-3-1973 /or skin cut
and/or
shot
blasted
condition.
c. Forged Steel Flanges 26AA(ia) Rs. 165/- 63/73, These pro-
& other fittings for Basic Duty 82/73 dt. ducts are
high pressure pipe (-)Rs.100/- 1-3-1973 & supplied in
lines of Petrochemi- Ingot Duty, 19/74 dt. Forged and
cal & other projects Rs. 65/- 1-3-1974. /or skin cut
and for Exports. Basic Duty and/or
paid + 100% shot
Auxiliary blasted
Duty. condition.
d. Forged Steel Flanges 26AA(id) -do- -do- These pro-
& other fittings for ducts are
high pressure pipe supplied in
lines of petrochemi- Forged and
cals & other projects fully mach-
for Export, fully ined condi-
Machine and tion, but the
Drilled. final
Threading, Lapping, Welding are done by the customers at site.
--------------------------------------------------------------------------------
The Assistant Collector of Central Excise, MOD-HI, New Delhi passed the following order vide his order-in-original dated 22-1-1976 :-
"From an examination of the goods in question it is seen that the party wants to make a distinction between those machined items which have been drilled and threaded on the one hand and on the other those items where these operations have not been carried out. It was, however, noticed that after machining - a process which the unit classified, as skin cut, the goods definitely acquire an independent identity as parts of machinery etc. and are no longer in crude forged stage. In view of the same goods classified by the party at s. No. 2(b), (c) and (d) and 4(b), (c) and (d) will be covered under tariff item 68 and will be chargeable to duty at the rate of 1% ad val. These goods, it might be mentioned, will also bear the duty liability under tariff item 26AA at the initial forging stage and as the same goods subsequently become identifiable parts of machinery etc. they will at the latter stage, effect machining be covered also under tariff item 68".
[Emphasis supplied] 19.2 Collector of Central Excise (Appeals) upheld the above order in an appeal filed by the appellants herein vide his order-in-appeal dated 19-6-1976. In revision application to the Government of India an order-in-revision dt. 2-8-1980 was passed by the Government observing as follows :-
"The issue of classification of machined forgings has been considered by the Government earlier in a decision Application filed by M/s. Guest Keen Williams Ltd. Government of India Order in Revision No. 176 of 1979 dated 3-3-1979 (copy enclosed). The Government held therein that all forged shapes and sections, other than those specifically classifiable under Tariff Items 1 to 67 Central Excise Tariff are leviable to duty under Tariff Item 26AA(ia) and that if such forged shapes and sections are further subjected to other processes that would make them classifiable as component parts of machinery, then they would be leviable to further duty and or Tariff Item 68 of the Central Excise Tariff. Government further held that if after forging a few further processes are undertaken then the goods would remain classifiable under Tariff item 26AA(ia) unless these processes made the products identifiable parts of machinery.
Government observe that the ratio of the order mentioned above would be equally applicable to this case. Forgings would not cease to be forgings, by process like mere removal of superfluous extra skin of cast iron. However, processes like machining, drilling, holes etc. which convert the forged product into an identifiable machine part would render the final products leviable to duty under Tariff Item 68 Central Excise Tariff because there is a transformation of the forged article to another article with a distinct name, character or use.
Government, therefore, direct that the Assistant Collector should having regard to the above observations examine the goods in question and decide their classification."
19.3 From the operative part of the order, it is apparent that the Central Government directed the Assistant Collector to examine the goods in question and decide their classification having regard to the above observations.
19.4 Thereafter the Superintendent of Central Excise had issued a show cause notice dated 31-10-1980 to the appellants that they were not maintaining any records of production and clearance of the forged products; nor they were submitting monthly returns as required under the Rules. The show cause notice also indicates that party's (appellants') plea was that the goods do not fall under T.I. 68 and since they have got stay order from the Government of India, they are not required to pay any duty nor to maintain any record. The show cause notice further alleged that the appellants' contention is wrong as the stay order is against the recovery of duty and not against maintenance of excise records, licensing and submission of returns. The appellants, were, therefore, asked to show cause as to why a penalty be not imposed on them under Rule 173-Q. The Superintendent (Technical) vide his order-in-original dt. 29-1-1981 directed the appellants to maintain the records and submit monthly returns as required under Central Excise law. He also imposed a penalty of Rs. 200/- under Rule 173-Q. 19.5 Thereafter the appellants aggrieved by the Govt. of India's order-in-revision filed a writ petition before Delhi High Court CWP 214/81. Government's order-in-revision was stayed for the first time by Delhi High Court in the aforesaid writ petition on 19-2-1981 which continued till disposal of the writ petition on 12-12-1984 whereby the writ petition filed by the appellants herein was dismissed. Delhi High Court's operative part of the order in the said judgment dt. 12-12-1984 was as follows :-
"The Central Excise authorities are granted opportunity to determine as to which of the forged products of iron and steel manufactured by the petitioner are transformed by a further process of manufacture as parts of machinery liable to duty under Tariff Item 68 in addition to the duty at the stage of forging."
19.6 The appellants thereafter filed a letter Patent Appeal before the Division Bench of Delhi High Court in respect of Delhi High Court in respect of the steel flanges manufactured by them. This is apparent from the following observations in the opening para of Delhi High Court's D.B. judgment dt. 12-8-1987 in the following words (photo copy brought on record by the appellants) :-
"The main question for determination in the Letters Patent Appeal is whether the steel flanges manufactured by the appellants are classifiable for payment of excise duty under T.I. No. 26AA(ia) or under Item No. 68 of the 1st Schedule to the Central Excises & Salt Act, 1944."
It is further apparent by the observations of the Court at page 2 of the judgment to the following effect :-
"According to the appellants, the dispute in this appeal is only with regard to flanges and no other product."
19.7 Thereafter the Assistant Collector has passed one of the impugned orders on 26-7-1985 which gives the detailed reasons for classifying the products at s. No. 2(b), (c) & (d) and 4(b), (c) and (d) of the classification list as falling under IT 68 after they had been charged to duty earlier at the stage of forging under T.I. 26AA(ia). In pursuance of this order, the Asstt. Collector issued a letter dated 2-8-1985 to the appellants demanding a duty of Rs. 1,97,18,728.00 for the period 1975-76 to 1984-85.
19.8 The appellants thereafter filed an appeal dated 5-8-1985 against Assistant Collector's order-in-original dated 26-7-1985 and the aforesaid letter dt. 2-8-1985 to the Collector of Central Excise (Appeals), New Delhi claiming the relief that the orders of the Assistant Collector of Central Excise dated 26-7-1985 and 2-8-1985 be set aside and reversed. A stay application was also filed on 9-8-1985.
19.9 Collector (Appeals) vide his order dt. 21/26-8-1985 on the stay application rejected the prayer for staying the operation of the Assistant Collector's order dt. 26-7-1985. On the prayer for staying the order of Assistant Collector dated 2-8-1985 demanding payment of Rs. 1,97,18,728.00, Collector (Appeals) observed as follows :-
"Under Section 35 of the Central Excises & Salt Act, 1944, an appeal to Collector of Central Excise (Appeals) lies against 'any decision or order' passed under Central Excises & Salt Act. Dealing with the words 'a decision or order passed by an officer of Customs under this Act/ with reference to Sea Customs Act, the Honourable Supreme Court held that these words 'a decision or order' referred to must mean real and not purported determination (Union of India v. Tarachand Gupta, AIR 1971 SC1558). Perusal of the letter dated 2-8-1985 would indicate that this letter by itself, even though it has been issued in pursuance of the order dated 25/26th July 1985 which determines the classification of the product, is not an order. The letter does not disclose the basis on which and the method by which the amount payable has been worked out and therefore, in the form in which it is issued, no determination as to wrongs or rights of it can be made at the appellate stage. This letter can at best be deemed to have, even though not in the usual format, the character only of a demand saying that they are liable to pay certain sum in accordance with the decision on classification of their products, as already communicated to them, vide letter dated 25/26th July 1985. Against such a demand notice no appeal is maintainable and therefore, no stay application also can obviously be entertained. Ordered accordingly."
19.10 The appellants thereafter pursued the matter with the Principal Collector and they received a letter dated 21-1-1988 quantifying demand of Rs. l,93,55,660.44p for the period 1975-76 to 1984-85. One of the appeals against this order was filed before the Collector (Appeals).
19.11 Third appeal dealt with by the impugned order is against approval of classification lists for the subsequent period in 1985.
19.12 Two hearings appear to have been given by the lower appellate authority before he passed the impugned order and two written notes styled as (i) 'Resume of Facts' and (ii) 'Note of Submission' were given to the Collector (Appeals) on 23-5-1990 and 22-6-1990 respectively.
20. In the aforesaid factual background, learned consultant for the appellants, Shri Lachman Dev, has urged that the lower appellate authority has erred in relying on the observations of Delhi High Court's D.B. judgment dated 12-8-1987 without any notice to the appellants. The observations of the Division Bench judgment could be only in respect of flanges for which product alone the appellants went in LPA to the Division Bench against the judgment of the learned Single Judge of Delhi High Court.
20.1 Apart from the aforesaid submission, learned consultant has submitted that an identical issue involved on the question of dutiability of forged products came up before the Supreme Court in the case of Tata Iron and Steel Company (TISCO), reported in 1988 (35) E.L.T. 605 (SC) and in the case of Bharat Forged & Press Industries (P) Ltd. v. CCE, 1990 (43) E.L.T. 525 (SC). Learned consultant has submitted that TISCO's case being identical to the scope of T.I. 26AA(ia) vis-a-vis T.I. 68, the Supreme Court's judgment cannot be ignored inasmuch as it is a law under Article 141 of the Constitution and is binding on all authorities at the time of deciding any pending case. He has also brought to the notice, in support of his reliance on TISCO's case that the department did make enquiries from the various customers of the appellants and the correspondence exchanged by those customers with the department clearly show that what they have supplied to their customers are forged products. Some of the customers who contacted the appellants gave the copies of those correspondence and is a part of the paper book at pages 269 to 275. These customers are (i) Arse Marketing Co. (ii) Atlantic Private Ltd. (iii) Ingersollrand and (iv) BHEL, Bhopal. They have also brought on record in their appeal against Assistant Collector's order dt. 26-7-1985 the detailed manufacturing process of various products vide their letter dated 28-3-1985 as also various correspondence, technical literature in support of their contention that what they are manufacturing are only forged products and not machine parts as Annexure-7 to the appeal. The Collector (Appeals), submits the learned consultant, has merely gone by the observations of Delhi High Court's D.B. judgment dated 12-8-1987 without taking into account the material on record brought on by the appellants, apart from the allegation that the direction to the Assistant Collector to examine the goods and to arrive at a finding in respect of each product, whether the products as they are clearing, are machine parts liable to fall under T.I. 68 or they continue to remain under T.I. 26AA(ia) or T.I. 25 (w.e.f. 1-8-1983) has not been complied with.
20.2 Learned JCDR, Shri S. Kak, for the Revenue has drawn attention to the various observations in the judgment of Delhi High Court (Single Judge) and Division Bench judgment relied upon by the learned lower appellate authority. He has also brought on record the correspondence exchanged between the appellants and the Assistant Collector before passing of the impugned order dated 26-7-1985 e.g. letter dated 31-1-1985 refers to a visit of the Assistant Collector to the appellants factory on 30-1-1985. A letter dt. 1-3-1985 from the Assistant Collector to the appellants shows that the appellants have been requested to furnish a list of products with full description manufactured by them immediately. Letter dated 13-2-1985 by the Assistant Collector in response to appellants' letter dated 31-1-1985 shows as to what happened during the visit of the Assistant Collector on 30-1-1985. It is appropriate to produce the relevant extracts from the said letter dated 13-2-1985 :-
"During the visit, it was explained to your representatives, Shri Raj Kumar and Shri Vinod Kharbanda, that it would be necessary for you to follow the excise formalities after the decision of the Hon. High Court in CM No. 214/81 delivered on 12-12-1984. The undersigned also visited the plant and saw the process of manufacture and there was'nt any need nor intention to meet the Managing Director of the Company. There is also no question of declining to give instruction in writing as specific directions have already been issued to you vide this office letter of even No. 1654 dated 30/31-1-1985. In fact, no person by the name of Shri H.L. Lamba met the visiting team on that day. The contents of your letter dated 31-1-1985, particularly, paras 1 & 3 are contrary to the facts. You are once again advised to follow the directions contained in this office letter dated 30/31-1-1985."
In these facts and circumstances, learned JCDR has submitted that the order passed by the Assistant Collector was correct in law and so also the impugned order passed by the learned lower appellate authority.
21. I have carefully considered the pleas advanced on both sides. I find sufficient force in the pleas of the learned consultant that Collector of Central Excise (Appeals) reliance in paras 7 & 8 of the impugned order on Delhi High Court's D.B. judgment dated 12-8-1987 is not correct inasmuch it is apparent that the observations were in the context of one product alone i.e. flanges and not in the context of all the products. It could not be so inasmuch as the LPA before the Division Bench was for flanges alone. There is further substantial force in the plea of the appellants that in an appeal before a competent authority all subsequent facts & events which have happened and are material to the decision of the case must be taken into account. First and foremost is Supreme Court's judgment in the case of TISCO which decides the same controversy as falls for consideration in this case. The material brought on record by the appellants before the lower appellate authority for placing reliance on Supreme Court's judgment in TISCO's case should be duly taken into account, apart from considering the other material in the form of Board's circulars etc. before arriving at any finding regarding the classification of the products under T.I. 68. This plea of the appellants, I find is fortified by the Supreme Court's judgment in the case of Mithlesh Kumari v. Prem Behari Khare 1989 (40) E.L.T 257 (SC). Paras 20,21 and 22 are reproduced below :-
"20. Lachmeshwar v. Keshwar Lal, AIR 1941 EC. 5 is an authority for holding that the hearing of appeal under the procedural law of India is in the nature of re-hearing and therefore in moulding the relief to be granted in a case on appeal, the appellate court is entitled to take into account even facts and events which have come into existence after the decree appealed against. Consequently, the appellate court is competent to take into account legislative changes since the decision under appeal was given and its powers are not confined only to see whether the lower court's decision was correct according to the law as it stood at the time when its decision was given. Once the decree of the High Court has been appealed against, the matter became subjudice again and thereafter the court had seisin of the whole case, though for certain purposes, e.g., execution, the decree was regarded as final and the courts below retained jurisdiction in that regard. This was followed in Shyabudinsab v. The Gadag Betgeri Municipal Borough, 1955 (1) S.C.R. 1268 where after the judgment of the High Court and after grant of special leave by the court the legislation was passed, and it was applied by this Court. Their lordships, referring to The King v. The General Commissioner of Income Tax (1916) 2 K.B. 240 and Mukharjee Official Receiver v. Ramratan Kaur (1935) L.R. 63 LA. 47 rejected the contention that unless there are express words in the amending statute to the effect that the amendment shall apply to pending proceedings, it cannot affect the proceedings. In Dayawati v. Inderjit 1966 (3) S.C.R. 275 it has been held that the word 'suit' includes an appeal from the judgment in the suit. The only difference between a suit and an appeal is that an appeal only reviews and corrects the proceedings in a case already constituted but does not create the cause. In Mohanlal Jain v. Hi's Highness Maharaja Shriman Singh 1962 (1) S.C.R. 702 it was observed that 'A person is 'sued' not only when the plaint is filed against him, but is 'sued' also when the suit remained pending against him. The word 'sued' covers the entire proceeding in an action.' In Amarjit Kaur v. Pritam Singh 1975 (1) S.C.R. 605 it has been held that an appeal is a rehearing and in moulding relief to be granted in a case on appeal, the appellate court is entitled to take into account even facts and events which have come into existence after the passing of the decree appealed against.
21. For the respondent it is submitted that right of the parties to a suit would be determined on the basis of rights available to them on the date of filing of the suit. Reliance is placed on Nand Kishore Marwah v. Samundri Devi 1987 (4) S.C.C. 382. That however, was a case of eviction where the rights of the parties on the date of suit were material unlike in this case where subsequent legislation has nullified the defences of benami holders. That case is, therefore, distinguishable.
22. Counsel for the respondent lastly submits that nobody should be allowed to suffer for fault of the Court. As the maxim goes, actus curiae neminem gravabit. Nobody should suffer for an act of the court. However, the delay in disposal of an appeal cannot be termed as action of the court. The consequence is that the plaintiff respondent's suit or action cannot be decreed under the law; and hence the decree passed by the lower courts is annihilated and the suit dismissed.
In the result, the appeal is allowed in the manner indicated above. Under the peculiar facts and circumstances of the case, we make no order as to costs."
This having not been done, I am of the view that the matter is fit for remand to the lower appellate authority for deciding the classification of the products after taking into account the entire material brought on record by the appellants before the said authority and not merely by relying on Delhi High Court's D.B. judgment dated 2-8-1989. Needless to say that the appellants would be at liberty to produce such further evidence, as they desire, with the permission of the lower appellate authority, to substantiate their pleas.
22. As regards the question of limitation, it may not be strictly necessary to give a finding on this question in view of my finding of remand on the main question of classification, nevertheless I would like to record my finding for the purpose of settling the issue at my level so as to avoid multiplicity of litigation. I may say at the outset that the various documents have been treated as show cause notices by the lower appellate authority. I do not find those documents to be adequate as show cause notices as contemplated under Rule 10 or Section 11A, as the case may be. These documents are straightaway directions or decisions without any definite allegation and reasons therefor and without any indication that the appellants have the opportunity to rebut the same. Burden of classification and manufacture of a new commodity, as is settled law, falls on the Revenue. None of the documents or observations therein can be treated as show cause notices.
22.1 However, it is apparent that the question of classification was decided for the first time by the Asstt. Collector vide his order dt. 22-1-1976. Upto this date the clearances made by the appellants would be deemed to be provisional in nature inasmuch as the matter was in correspondence regarding excisability and the classification lists filed by the appellants had still not been approved. The provisional nature of the assessments, therefore, ceased to exist w.e.f. 22-1-1976 on passing of the first order by the Assistant Collector. There is nothing on record that this order was stayed by any competent authority till passing of the order-in-appeal dated 19-6-1976. There is an indication from the show cause notice dt. 31-10-1980 issued by the Superintendent that the Govt. of India stayed the recovery of duty in pursuance of the order-in-appeal dated 19-6-1976 against which the revision application had been filed. A stay on recovery (collection) of duty cannot be equated with a stay on issue of show cause notice for an assessment of duty under Rule 10 or Section 11A, as it existed at that time, as held by the Supreme Court in the case of Gokak Patel Volkart Ltd. v. CCE, Belgaum, 1987 (28) E.L.T. 53 (SC). Therefore, the period for which the stay order issued by the Govt. of India subsisted cannot be excluded from calculating the time limit under the then Rule 10 of the Central Excise Rules, 1944 or Section 11A of the Act. Therefore, the demand of duty from 23-1-1976 to the date of order-in-revision dated 2-8-1980 would be barred by time inasmuch as no show cause notice for recovery thereof has-been issued by the department which was a mandatory condition both under the then Rule 10 of the said Rules and Section 11A of the Act. Delhi High Court's order dated 19-2-1981 staying the operation of the impugned order of the Government of India dated 2-8-1980 which was later on confirmed on 14-7-1981 is in the following terms :-
"...In the meantime stay the operation of the impugned order of the Central Govt. dt. 2-8-1980."
22.1A It is apparent from this stay order that it is not merely a stay on collection or recovery of the duty from appellants. It is a total stay on the operation of the Government of India's order dated 2-8-1980 with the result that even the proceedings for classification of the goods, as directed by the Central Government could not be pursued by the Assistant Collector. The period of stay by Delhi High Court w.e.f. 19-2-1981 would, therefore, be excluded from computing the time limit under Section 11A in respect of recovery of duty on clearances by the appellants. Another consequence of the stay by the Delhi High Court (Single Judge) is that the question of classification of all the products under consideration revived and the clearances not only after this dated 19-2-1981 should be treated as provisional clearances pending decision of the High Court but also clearances after 2-8-1980, the date of the order of the Central Government, would also be treated as provisional since the Government of India directed the Asstt. Collector to examine the goods and decide the classification of each product in the light of their observations thereby making the whole question of classification at large as in the beginning. This means that the clearances from 2-8-1980 to 26-7-1985 were in the nature of provisional clearances on which no duty had been paid by the appellants pending decision on classification. On passing of the order dated 26-7-1985 the provisional character of the clearances got extinguished and the duty liability was imposed on the appellants by virtue of the said order. The finding that these clearances are provisional is fortified by the ratio of the Supreme Court's judgment in the case of Samrat International (P) Ltd., 1992 (58) E.L.T. 561 (SC). The relevant extracts from Para 9 of the said judgment are reproduced below :-
"9. ...In this case, the classification list filed by the appellant for the period 1-4-1985 to 27-4-1985 was not approved till 3-6-1985. From the provisions of Rules 173B, 173C and 173CC, which we have set out earlier, it will be seen that clearances can be made only after the approval of the list by the particular officer. However, if there is likely to be delay in according the approval the officer can allow the assessee to avail himself of the procedure prescribed under Rule 9B for provisional assessment of the goods. In the present case between 1st April, 1975 when the classification list was filed and 3rd June, 1985 when the list was approved, the assessee was clearing the goods by determining the duty himself and debiting the amount of duty in his personal ledger account. The amount of duty paid by him was obviously provisional and subject to the result of the final approval by the officer concerned. This is the procedure prescribed under Rule 9B except for the circumstance that no bond as provided in Rule 9B is required in a where the personal ledger account is maintained for the clearance of the goods, since there is always a balance in the account current sufficient to cover the duty that may be demanded on the goods intended to be removed at any time. In these circumstances, the clearance of goods made by the appellant between 1st April and 3rd of June, 1985 were in accordance with the procedure for provisional assessment. In such a situation clause (c) of para (B) of the Explanation under Section 11B will be attracted. In this case the RT-12 Return for the month of April, 1985 was filed on 8-5-1985 and the same was assessed on 29-10-1985. It is, therefore, only from the date of this assessment that time bar in Section 11B will operate. In the present case the refund application had been filed on the 30th of October, 1985. It cannot, therefore, said to be time barred."
[Emphasis Supplied] Subsequent letter dated 2-8-1985 is in pursuance of finalisation of the classification dispute by the Assistant Collector vide his order dated 26-7-1985. There is no time limit for finalisation of the assessment in respect of provisional clearances laid down in any rule or provision of the Act. It is only after finalisation of the provisional assessment that the question of time bar in terms of Rule 10 or Section 11A would arise. Since the appellants had not been maintaining any records or submitting any R.T. 12 returns despite constant reminders to them and despite a show cause notice in 1980 and imposition of penalty on them, correct final assessment could not be made by the department and they had to necessarily fall back on figures taken from the annual reports of the assessee. Since such reports are not a correct indication of the manufacture and clearance of goods under consideration by the appellants, a show cause notice before finalisation of the provisional assessment for clearances made during the period 2-8-1980 to 26-7-1985 becomes necessary by virtue of the principles of natural justice. The department would be competent to issue a show cause notice setting out the basis of quantification of demand for the period 2-8-1980 to 26-7-1985 provided the products are held to be liable to duty after re-examination by the lower appellate authority, as directed by me on the first issue. 22.2 In other words, subject to decision on classification of each of the products and its dutiability under T.I. 68, the demand for the periods 1-3-1975 to 22-1-1976 and 2-8-1980 to 26-7-1985 is not time-barred quantum of demand to be determined after issuing show cause notice and deciding the same in accordance with the principles of natural justice.
22.3 The aforesaid periods would be further restricted because out of the said periods, Collector (Appeals) has already declared the demand for the period 26-11-1975 to 22-1-1976 as time barred and there is no appeal from the Revenue against the said finding.
22.4 The appeal is disposed of in the above terms.
Following points of difference have arisen amongst the two Members of the Bench :-
(1) Whether in the facts and circumstances of the case goods falling under s.no. 2(b), (c) and (d) and 4(b), (c) and (d) of the classification list filed in December 1975 by the appellant are classifiable under T.I. 68, as held by the Judicial Member or the question of classification in respect of the aforesaid products is to be examined de novo by the lower appellate authority, as held by the Technical Member, in the light of the latter's directions in his order.
(2) Whether in the facts and circumstances of the case on the question of time bar the demand for the period prior to 25-1-1985 is barred by time and duty can be recovered from 25-1-1985 till the end of 1985, as held by the Judicial Member or the demand for the periods 1-3-1975 to 25-11-1975 and 2-8-1980 to 26-7-1985 is not barred by time, as held by the Technical Member.
Sd/-
(P.C. Jain)
Dated : 1-12-1993 Member (T)
ORDER
P.K. Kapoor, Member (T)
I have heard Shri K.L. Rekhi, ld. Consultant on behalf of the appellants and Shri Siddarth Kak, ld. Jt. CDR on behalf of the respondent.
24. On behalf of the appellants Shri K.L. Rekhi submitted that in arriving at the finding that in as far as classification of the disputed goods was concerned the matter had reached finality in view of the judgment of the Division Bench of the Delhi High Court in the appellants own case. He con-tended that in holding that the disputed goods were classifiable under Tariff Item 68, both the Collector (Appeals) and Member (Judicial) had over-looked the fact that the relevant judgment of the Delhi High Court was only in respect of one item, namely, "flanges". He contended on the basis of the judgment of the Delhi High Court, if at all, finality can be deemed to have been achieved only in regard to the classification of "flanges". He stated that from Government of India Order-in-Revision extracted by Member (Technical) also it follows that only precision machining would render forged products as classifiable under Tariff Item 68. He contended that under these circumstances as held by Member (Technical) the matter needs to be remanded to the Assistant Collector for determining the status of each product in the light of the principles for classification of forged products which have been laid down by the Supreme Court in the case of Tata Iron and Steel Co. Ltd. v. UOI, reported in 1988 (35) E.L.T. 605. He submitted that in view of the principles for the classification of forged products having been finally settled by the Supreme Court in the case of Tata Iron and Steel Co. Ltd. the appellate authorities would not be barred from taking into account the principles laid down by the Apex Court even though the present controversy dates back to the period prior to the date of the said judgment. In support of his contention he cited the judgment of the Supreme Court in the case of Mithlesh Kumari v. Prem Behari Khare, reported in 1989 (40) E.L.T. 257. On these grounds he contended that Member (Technical) was justified in ordering the remand of the matter to the original authority for determining the status of each product in light of the judgment of the Supreme Court in the case of Tata Iron & Steel Co. Ltd., which directly relates to the issue involved in the appellants' case.
25. Making his submissions on the question of limitation Shri Rekhi stated that both Members have held that there was no suppression of facts by the appellants warranting the invokation of the extended period of limitation and atleast prior to 26-7-1985 no show cause notice was issued. He added that the finding of Member (Judicial) that the order passed by the Assistant Collector on 26-7-1985 could be treated as Order-cum-show cause notice is erroneous since the communication dated 26-7-1985 was only an order of assessment which was not preceded by any show cause notice. He contended that under these circumstances Member (Technical) had correctly held that there was no document on record which could be treated as a show cause notice. He stated that the stay granted by the Government of India related to recovery and not to the issue of show cause notice. He contended that Member (Technical) had correctly held on the ratio of the judgment of the Supreme Court in the case of Gokak Patel Volkart Ltd. v. CCE, Belgaum, reported in 1987 (28) E.L.T. 53 that there being no show cause notice and the order dated 26-7-1985 not being treatable as a show cause notice any demand would be time barred. He submitted that even during the period between 19-2-1981 and 12-12-1984 when the stay granted by the High Court was operative there was no stay as regards the issue of show cause notice. He contended that under these circumstances relying upon the judgment of the Karnataka High Court in the case of Davanagere Cotton Mills Ltd. v. Chairman, C.B.E.C., reported in 1991 (55) E.L.T. 295 the Member (Judicial) has correctly held that the demand for the period when the stay granted by the High Court was in force would not be sustainable. He reiterated his stand that the finding by the Member (Judicial) that the order dated 26-7-1985 could be treated as Order-cum-show cause notice is erroneous since the said order was not preceded by any show cause notice. He stated that the only ground on which Member (Technical) had held that the assessments between 1-3-1975 to 25-11-1975 could be deemed as provisional was that during this period some correspondence was going on between the Department and the Appellants. He stated that from the Superintendent letter dated 24-6-1975 and the Order-in-Original dated 22-1-1976 passed in regard to the classification list submitted by the appellants it was evident that during the relevant period the concerned authorities had not entertained any doubts and as held by Member (Judicial) no provisional assessment was ordered. He submitted that finding by the Member (Technical) that assessments during the period 2-8-1980 to 26-7-1985 can also to be treated as provisional as a result of the reopening of the relevant issues on account of the remand of the matter by the Government of India has also to be held as erroneous since no provisional assessment in terms of Rule 9 was ordered. He stated that in para 22 of his order Member (Technical) has observed that "the question of classification was decided for the first time by the Assistant Collector vide his order dated 22-1-1976. Upto this date the clearances made by the appellants would be deemed to be provisional in nature inasmuch as the matter was in correspondence regarding excisability and the classification lists filed by the appellants had still not been approved. The provisional nature of the assessments, therefore, ceased to exist w.e.f. 22-1-1976 on passing of the first order by the Assistant Collector". In this regard he also referred to the observations of Member (Judicial) in para 16 of the order that "we find that the order dated 21-1-1976 was not provisional but final against which appeal and the revision proceedings have taken place." He contended that the proceedings admittedly had assumed finality and therefore, it would not be permissible to go back and once again treat it as provisional. He submitted that even if it was assumed that the orders passed by the Govt. of India and the High Court had the effect of reopening the issue regarding the classification of the disputed goods, it has to be held that on that account only the issue relating to the principles governing the classification of forged products became open and no right for recovery could be deemed to have been conferred on the Department which has necessarily to be subject to the mandatory provisions of Section 11A(1). In support of his submissions he placed reliance on the judgment of the Supreme Court in the case of J.K. Spinning & Weaving Mills Ltd. v. UOI, reported in 1987 (32) E.L.T. 234. He contended that the judgment of the Supreme Court in the case of Samrat International (P) Ltd. relied upon by Member (Technical) is distinguishable on facts since in that case the classification list filed by the assessee was pending for approval, whereas in the appellants' case before the order dated 22-1-1976 was passed by the Assistant Collector the Superintendent in his letter dated 24-6-1975 conveyed the decision which had been taken in regard to the classification of the goods. He contended that under these circumstances the demand for the entire period has to be held as time barred.
26. On behalf of the respondents, Shri Siddharth Kak, ld. Jt. CDR making his submissions on the question of classification referred to the relevant classification list extracted on pages 18 to 20 of the Tribunal's order and stated that the disputed items were mainly flanges and the other products were similar in nature. He contended that under these circumstances the findings of the Delhi High Court in respect of flanges would be equally applicable to other disputed products. He referred to para 5 of the order passed by the Collector (Appeals) and contended that the Collector (Appeals) had examined the classification of the products in question in the light of the judgments of the Supreme Court in the case of Tata Iron & Steel Co. Ltd. and Bharat Forge. He also referred to the order passed by the Assistant Collector on the basis of which the Collector (Appeals) had examined the classification of the goods in question and pointed out that in that order all the details regarding the processing to which the items had been subjected had been brought out. He stated that the appellants had not contested the details regarding the processing to which various products were being subjected to as recorded by the Assistant Collector. He contended that under these circumstances as held by the Member (Judicial) the classification of the goods has to be deemed as settled and there could not be any case for remanding the matter for determining the classification. Making his submission on the question of 'time bar' he stated that the department was unable to issue the demand since the appellants did not furnish the details regarding the value of the goods cleared even though they were repeatedly asked to do so. He contended that under these circumstances as held by the Allahabad High Court in the case of Jay Prestressed Products Ltd. v. UOI, reported in 1986 (26) E.L.T. 913 the extended period of five years was available to the department for raising the demand. He contended that having regard to the facts and circumstances of the case Member (Judicial) had rightly observed in para 17 of his order that the assessment order dated 26-7-1985 can be treated as an order-cum-show cause notice. He stated that in his letter dated 2-8-1985 (at page 92 of the paper book) the Assistant Collector while informing the appellants about the amount of duty recoverable for the period 1980-81 to 1984-85 had indicated that the amount due had been worked out on the basis of the appellants' 18th Annual Report dated 6-10-1980. He contended that the appellants having failed to take out a Central Excise Licence or to comply with the required formalities, in terms of Rule 173 and also having regard to the Order-cum-show cause notice dated 26-7-1985 the extended period of the recovery of duty was invocable on the ratio of the judgment of the Madras High Court in the case of Limenaph Chemicals v. HOI, reported in 1993 (68) E.L.T. 77. He further submitted that in view of the total stay of operations by the Govt. of India's order dated 2-8-1980 and the stay by the Delhi High Court with effect from 19-2-1981 as held by Member (Technical) in terms of the Supreme Court's judgment in the case of Samrat International (P) Ltd. clearances between 2-8-1980 and 26-7-1985 have to be deemed as provisional and the provisional character of the clearances can be deemed to have been extinguished only on passing of the order dated 26-7-1985.
27. In his reply Shri Rekhi stated that as held by Member (Technical) the question relating to the classification cannot be deemed to have been settled and the matter was to be demanded to the lower authority for deciding the classification of the products after taking into account the entire material brought on record by the/appellants. In this regard he contended that even though the Collector (Appeals) had referred to the judgment of the Supreme Court in the case of Tata Iron & Steel Co. Ltd. he had failed to examine the issue relating to the classification in the light of the said judgment. He reiterated his stand that 'Flange' was only one of the disputed items and argued that the observations of the Delhi High Court were not applicable in respect of the other disputed products. He reiterated his stand that the classification of the disputed product could not be deemed to have been settled and as ordered by the Member (Technical), it would be proper to remand the matter to the lower authorities for determining the correct classification of each item with reference to the relevant documents and in the light of the principles laid down by the Supreme Court in the case of Tata Iron & Steel Co. Ltd. He stated that it was not correct that the appellants had deliberately avoided the furnishing of the details regarding the values of their clearances from time to time. He contended that all such enquiries regarding the value of clearances were subsequent to the order dated 26-7-1985 and related to the quantification of the demand. He stated that the letter dated 2-8-1985 written by the Assistant Collector was a directive to the appellants to pay the amount specified therein and it could not be deemed as a show cause notice. He added that there was no force at all in the contention of the Jt. C.D.R. that no time limit was applicable in respect of a notice under Rule 173 in view of the time limit for raising the demand having laid down in Section 11.
28. I have considered the submissions made on behalf of both sides. The first question to be examined is whether the goods falling under Sr. No. 2(b), (c) and (d) and 4(b), (c) and (d) of the classification list filed in December, 1975 filed by the appellants are classifiable under T.I. 68, as held by the Member (Judicial) or the question of classification in respect of the aforesaid product is to be examined de novo by the lower appellate authority. In this regard the main contention of the appellants is that only the classification of 'flanges' can be deemed to have been settled by the judgment of the Delhi High Court, and for the determination of the correct classification of other disputed products it would be desirable to remand the matter to the Assistant Collector for determining the classification having regard to the principles laid down by the Supreme Court in regard to the classification of forged products in the case of .Tata Iron & Steel Co. Ltd. v. UOI (supra) and with reference to the relevant documents. It has been contended that principles of classification of the forged product having been finally settled by the Supreme Court in the case of Tata Iron & Steel Co. Ltd. there would be no bar as regards examination of the classification of the disputed product in the light of the principles laid down by the Apex Court in the said judgment even though the present controversy dates back prior to the date of the judgment. In this regard it is seen that in the case of TISCO the Supreme Court has held that forged goods subjected to only machining and polishing for removal of excess surface skin would fall under Item 26AA(ia) of the Central Excise Tariff since such machining and polishing is incidentally or ancillary to the manufacture of forged products as per Section 2(f) of the Central Excises and Salt Act, 1944 and such goods on further precision machining become chargeable to duty once again under Tariff Item 68. The Collector (Appeals) while discussing the judgment of Hon'ble Supreme Court in the case of TISCO and Bharat Forge reported in 1990 (45) E.L.T. 525 (SC) has correctly observed that these judgments lay down the principles for the classification of forged products but each case has to be decided on the basis of particular facts and circumstances of the case. As pointed out by the Collector (Appeals) the appellants had moved the Hon'ble Delhi High Court against the judgment dated 12-12-1984 passed by the learned single judge of the same court. The Delhi High Court while dismissing the appeal after going into the details of the manufacturing process of the goods, nature and condition of the products leaving the factory, their identity in the commercial word and taking into account the various judicial pronouncement which referred to tests similar to the tests laid down by the Supreme Court in the case of Tata Iron & Steel Co. Ltd. for determination of the classification of forged products, and finally held that:-
"For the reasons stated above, I hold that in the facts and circumstances of the case, the process of machining, polishing and/or drilling holes on the forged shapes make them as identifiable parts of machines having different name, character and use. Merely because the forged shapes and sections are used subsequently for the manufacture of another article, namely, machine parts, it does not mean that the earlier process of manufacture was not complete. I hold that after removal of superfluous extra skin of forgings the goods in question are subjected to sophisticated machining and drilling for the specific purposes of manufacturing machine parts. After the aforesaid process, the flanges ceases to be shapes and sections and by these process transformations or substantial change takes place and shapes and sections go out of the purview of tariff item 26AA(ia). All the authorities of Central Excise have rightly come to the conclusion that the goods in question are identifiable as machine parts. It is not possible to hold that the conclusion of the authorities is perverse. The forged products which undergo the further process like machining, polishing and drilling holes to make them identifiable as machine parts leave the factory gate in a form known to the commercial community as machinery parts.
The learned single judge rightly held that the transformation takes place by further process of manufacture and as such the appellants are liable to pay duty of central excise under Tariff Item 68 in addition to duty under item 26AA(ia) at the stage of forging. The counsel for the appellant, however, stated that central excise duty is not payable under Tariff Item 26AA(ia) on account of exemption notification issued by Government of India from time to time. This is for the respondents to decide in accordance with law. We are not concerned with this question in this appeal."
It is seen that the Div. Bench while giving the finding that all the authorities of Central Excise had rightly come to the conclusion that the goods in question were identifiable as machine parts had observed that the single judge had rightly held that the transformation takes place by further process of manufacture and as such the appellants were liable to pay duty of Central Excise under Tariff Item 68 in addition to the duty under Item 26AA(ia) at the stage of forging. The appellants' contention is that the judgment of the Div. bench had only settled the question of classification of flanges. In my view this does not appear to be correct and the judgment appears to have finally settled the matter regarding classification of the disputed products. It is also seen that in terms of the order of the learned single Judge which was confirmed by the Div. Bench the Assistant Collector after examining the facility available in the appellants' factory, the process adopted by them and the nature of the goods finally produced had arrived at the following conclusion :-
"In view of the above discussions, I classify the products manufactured by the party namely, Flange, Rings, Discs, Connecting Rods, Pinions, Shafting, Gears, Crankshafts etc., which are clearly known as machinery parts in the trade/commercial parlance, under Tariff Item 68. The party is hereby directed to obtain Central Excise licence under Tariff Item 68 immediately on receipt of this order and dear the goods only after following central excise formalities and on payment of appropriate duty.
In view of the decision of the Hon'ble High Court of Delhi, the classification of the above goods holds good for the past period also and the party is directed to discharge its duty liability immediately on the products already cleared by them."
Having regards to the finding of the learned single Judge and the Division Bench of the High Court of Delhi and also taking into account the finding of the Assistant Collector extracted above I am inclined to hold that in the facts and circumstances of the case the classification of the goods falling under Sr. No. 2(b), (c) & (d) and 4(b), (c) & (d) of the classification list filed in December, 1975 by the appellants can be deemed to have been settled and they would be classifiable under Tariff Item 68 as held by the Member (Judicial).
29. Taking up the point relating to limitation, I find that the learned Member (Judicial) has held that prior to 26-7-1985 no show cause notice was issued at any stage and only the order dated 26-7-1985 can be treated as Order-cum-show cause notice and it would be permissible for the Department to recover the duty for a period of six months prior to issue of show cause notice and also for the remaining part of the year 1984-85. He has, therefore, directed the Department to determine the duty payable by the appellants from 25-1-1985 till the end of 1985. In this regard the learned Member (Technical) has observed that none of the documents could treated as show cause notices as contemplated under Rule 10 or Section 11A since they are in the nature of directions or decisions without any indication that the appellants were given any opportunity to rebut the same. He has, however, held that the question of classification of the appellants' products having been decided for the first time by the Assistant Collector by his order dated 22-1-1976, the clearances upto that date would have to be deemed as provisional since the matter regarding excisability was under correspondence and the classification lists filed by the appellants had still not been approved. According to the Member (Technical) the provisional nature of assessments ceased to exist on passing of the first order by the Assistant Collector classifying the goods at Sr. Nos. 2(b), (c) and (d) and 4(b), (c) and (d) under Tariff Item 68. Thereafter, as observed by the Member (Technical) there was no stay by any competent authority and after rejection of their appeal against the Assistant Collector's order dated 22-1-1976 by the Collector (Appeals) the appellants filed a Revision application. The show cause notice dated 31-10-1980 issued by the Superintendent indicates that the Govt. of India by order dated 2-8-1980 had ordered the recovery of duty in pursuance of order-in-appeal dated 19-6-1976. Referring to the order dated 19-2-1981 passed by the Delhi High Court staying the operation of the Govt. of India order dated 2-8-1980 Member (Technical) has held that the High Court's stay order dated 19-2-1981 as confirmed by the order dated 14-7-1981 was not merely an order staying the recovery of duty but it amounted to a total stay on the operation of the Govt. of India order dated 2-8-1980 which resulted in the proceedings for classification of the goods directed by the Government not being pursued by the Assistant Collector. It has, therefore, been held that stay by the Delhi High Court had the effect of reviving the question of classification of all the products under consideration and for this reason not only clearances pending decision of the High Court but also clearances after 2-8-1980 i.e. the date of the order of the Central Government would be treatable as provisional since the Government of India had directed the Assistant Collector to examine the goods for deciding the classification of each product on the basis of the observations made in the order thereby reopening the whole question of classification. On these grounds Member (Technical) has held that clearances from 2-8-1980 to 26-7-1985 were in the nature of provisional clearances on which no duty was paid by the appellants pending decision on classification and on passing of the order dated 26-7-1985 by the Assistant Collector the provisional character of the clearances ceased to exist and the appellants became liable to duty by virtue of the said order and the subsequent letter dated 2-8-1985 was only in pursuance of finalisation of the classification dispute by the Assistant Collector's order dated 26-7-1985.
30. I am inclined to agree with the learned Member (Technical) that his findings that clearances prior to the order dated 21-1-1976 of the Assistant Collector deciding the question of classification of the appellants products for the first time and again between 2-8-1980 to 26-7-1981 when the whole question of classification remained open since the Assistant Collector was not able to proceed further in terms of the directions of the Government of India in the order dated 2-8-1980 on account of Delhi High Court's orders dated 19-2-1981 and 14-7-1981 staying the operation of the Government of India order dated 2-8-1980. As observed by the learned Member (Technical) the findings that the assessment during these periods have to be deemed as provisional find support from the Supreme Court's judgment in the case of Samrat International (P) Ltd. (supra).
31. Since there is no time limit for finalisation of the assessment of goods cleared on provisional basis, as held by the Member (Technical) the question of time bar in terms of Rule 10 or Section 11A would arise. For these reasons in my view the case law cited by the learned Consultant on behalf of the appellants cannot be of any assistance to them.
32. Hence, I hold that the demand for the period 1-3-1975 to 25-11-1975 and 2-8-1980 to 26-7-1985 cannot be deemed as time barred as held by the learned Member (Technical).
Sd/-
(P.K. Kapoor)
Dated : 10th June, 1994 Member (T)
ORDER
33. In view of the majority opinion as above, it is held that in the facts and circumstances of the case the goods shown against Sri. No. 2(b), (c) & (d) and 4 (b), (c) & (d) of the Classification List filed in 1975 by the appellants would be classifiable under Item 68 Central Excise Tariff.
34. It is also held that in the facts and circumstances of the case the demand for the period 1-3-1975 to 25-11-1975 and from 2-8-1980 to/26-7-1985 is valid and is not time-barred.