1992(09)LCX0081

BEFORE THE CEGAT, SPECIAL BENCH ‘B’, NEW DELHI

S/Shri P.C. Jain, Member (T) and S.L. Peeran, Member (J)

INTERNATIONAL STEEL FOUNDRY LTD.

Versus

COLLECTOR OF CENTRAL EXCISE

Order No. E/203/92-B1, dated 24-9-1992 passed in Appeal No. E/1883/90-B1

Cases Quoted

Collector v. Fenner (India) Ltd. — 1989(09)LCX0061 Eq 1990 (045) ELT 0428 (Tribunal)...................................... [Para 4]

Tata Iron & Steel Co. Ltd. v. UOI. — 1988(05)LCX0068 Eq 1988 (035) ELT 0605 (S.C.)........................................ [Para 4]

Elson Machines Pvt. Ltd. v. Collector — 1988(11)LCX0035 Eq 1988 (038) ELT 0571 (S.C.)................................... [Para 4]

Collector v. Kosan Metal Products Ltd. — 1988(10)LCX0056 Eq 1988 (038) ELT 0573 (S.C.)................................ [Para 4]

Collector v. Chemphar Drugs & Liniments — 1989(02)LCX0024 Eq 1989 (040) ELT 0276 (S.C.)......................... [Para 4]

Bharat Heavy Electricals Ltd. v. Collector — 1986(11)LCX0052 Eq 1987 (028) ELT 0545 (Tribunal)..................... [Para 5]

Collector v. Motor Industries Co. Ltd. — 1988(02)LCX0038 Eq 1990 (046) ELT 0163 (Tribunal)........................... [Para 5]

Advocated By : Shri K.V. Pradhan, Consultant, for the Appellants.

Shri S.K. Sharma, JDR. for the Respondents.

[Order per : S.L. Peeran, Member (J)]. - The appellants are aggrieved with the order passed by the Additional Collector of Central Excise, Indore. By this Order, the learned Additional Collector has held that the impugned product, namely, cast articles of Iron and Steel (unmachined) are parts which have acquired the essential character and are recognisable by specific names of machinery which term is of wide amplitude. Therefore, the learned Collector has classified the impugned goods under Chapter 84 and 86 in case of parts of articles except a few as mentioned in the order. As a result a demand of duty of Rs. 1,38,845.07 (as basic duty) + Rs. 6,949.56 (as special duty) under extended period to Section 11A of Central Excises and Salt Act, 1944 has been confirmed on the notice for having manufactured and cleared the impugned product without filing the classification list. A penalty of Rs. 25,000/- is also imposed. The facts of the case are that the appellants are engaged in the manufacture of excisable goods viz. cast articles of Iron and Steel (unmachined) which the department alleged are parts of machine falling under Chapter 84 or parts of railway bogies falling under Chapter 86 of Central Excise Tariff, 1985. In pursuance of intelligence escorts of preventive officers, Central Excise Headquarters, Indore visited the factory of the notice located at Industrial Estate, Pologround, Indore on 17-10-1988 and found that:

(i) Cast articles of iron falling under Chapter 84 have been cleared by the noticee without issuing G.P. 1 and without payment of duty of excise. No statutory records prescribed under the Central Excise Laws have been maintained in respect of this product.

(ii) Cast articles of steel falling under Chapter 84 or 86 have been removed by the noticees under the guise of ‘other cast articles of steel’ falling under sub-heading 7325.20 of the CET. The noticees have paid duty of excise (Basic) and Rs. 220/- per M.T. on these products.

(iii) Cast articles of iron and steel are either parts of machine of railway bogies falling under Chapter 84 or 86 attracting basic excise duty @ 15% or 20% adv.

(iv) No classification list of these products falling under Chapter 84 or 86 have been filed by the noticee, effective from 1-3-1988.

The visiting squad verified from their private records, challans and invoices and it was found that those cast articles of iron and steel are parts of machine or railway bogies falling under Chapter 84 or 86. A statement of the noticee was also recorded under Section 14 of the Central Excises and Salt Act, 1944 on the spot. Shri Harsh Vora, Partner of the firm has admitted that:

(i) The said products namely unmachined cast articles of iron are parts of machines;

(ii) The said products namely unmachined cast articles of steel are either parts of machine or parts of railway bogies;

(iii) No amending or fresh classification list of those excisable products, falling under Chapter 84 or 86 effective from 1-3-1988 has been filed;

However, he had also stated that he had filed classification list of cast articles of iron and steel falling under Chapter 84 and 86 effective from 23-6-1988 to 14-10-1988 for availing exemption under Notification No. 223/88-C.E., dated 23-6-1988. It was also alleged that the noticee had removed the said excisable goods of cast iron and steel total weighing 4190.5 kg. and valued at Rs. 44,866/- without payment of duty of excise and without issuing G.P. 1 during the period 1-3-1988 to 22-6-1988. It was also alleged that the noticee had removed the said excisable goods of steel falling under Chapter 84 or 86 total weighing 71,904.5 kg. and valued at Rs. 11,44,916.12 under the guise of other cast articles of iron falling under sub-heading 7325.20 during the period 1-3-1988 to 22-6-1988. It was also alleged that they had not filed any price list for approval of the assessable value of the said excisable goods under Section 4 of the Central Excises and Salt Act, 1944. Therefore, it was alleged that they had evaded Central Excise duty of Rs. 1,82/474.93 during the said period and hence they were charged for contravention of Rules 9(1), 52A, 53, 173B, 173C, 173F, 173G and 226 of the Central Excise Rules, 1944. They were called upon to show cause as to why Central Excise duty of the said sum recovered from them under Rules 9(2), 52A(5), 173Q(2) and 226 of the Central Excise Rules, 1944.

2. The appellants had taken a stand while denying all the charges that they had filed two classification lists (a) 123/87-88 from 1-4-1987 for excisable goods falling under Chapters 72 and 73 and the same had been duly approved by the Assistant Collector, Indore, and it was duly checked by the Audit Parties in the month of June ‘88 and July ‘88. These classification lists cover the period from 1-4-1987 to 31-3-1988. Therefore, they stated that the allegation that they had not filed any classification list of the said excisable goods, effective from 1-4-1988 is hot based on facts. It was also contended by them that cast iron and steel were exempted from duty in terms of Notification No. 90/88 dated 1-3-1988. It was further contended that the excisable goods of steel alleged to be falling under Chapter 84 or 86 were in fact falling under sub-heading 7325.00 and were cleared on payment of duty under that chapter heading and were cleared during the period from 1-3-1988 to 22-6-1988. These articles of castings of steel were duly subjected to the permissible processes in which only surface defects or excess material have been removed and that they had not acquired a stage at which they could be said to have the essential character of the complete or finished machinery parts. Therefore, they contended that these articles of steel castings were correctly classified under Chapter 73 and were cleared on payment of duty at appropriate rates. They have contended that they have cleared the goods after paying duty at the correct rate and there was no evasion of excise duty. It is pointed out by them that the alleged short recovery notice issued by the department for the period from 1-3-1988 to 22-6-1988 is on wrong terms as during the relevant period the cast articles of iron and steel were classified under Heading 73.25 and the effective rates of excise duty on iron and steel products were applicable as per Notification No. 89/88-C.E., dated 1-3-1988 and subsequently it was superseded by Notification No. 170/88-C.E., dated 13-5-1988 which they have rightly discharged. They have further contended that these castings were assessable at specified rate of duty, therefore, the question of filing a price list did not arise. It was further contended that since cast articles were exempted from duty, they were cleared under the cover of factory’s delivery challan and they were not shown in the RT-12 returns. The jurisdictional excise officers neither took any objection on this nor they have given any guidelines on this point. They have also contended that they have submitted the classification lists, cleared the goods on gate passes, submitted monthly statement and the Audit Parties checked their accounts from time to time as the department had full knowledge of their activity, the allegation that there has been clandestine and surreptitious removal under Rules 9(1) and 9(2) of Central Excise Rules is not sustainable. They contended that if there was any question of short recovery, they should have issued a notice under Central Excises and Salt Act and therefore the demands are all time barred.

3. The learned Collector after examining their case was dissatisfied with their explanation and has held that the item had acquired essential character and are recognisable by specific names of machinery which find use directly in the machine or after further working in the machine and therefore, the item iron and steel castings articles do not fall under Heading 73.25 but appropriately under Chapter 84 or 86. He has held that between the period 1-3-1988 to 22-6-1988 for cast articles of steel and between the period 20th February, 1988 to 22-6-1988 for cast iron and steel of all these articles are chargeable. The refund of duty was since ad valorem and hence the noticee was required to file price lists under Rule 173C which they had failed and the charge thus stood proved. He has likewise held that they had filed two classification lists after the period described under Chapter 73 with effect from 1-3-1988, the charge under Rule 173B stands established. The classification list filed effective from 1-4-1988 remained no longer in force with effect from 1-3-1988, in view of the changes made in the Tariff. He has also held that castings articles of iron and steel had been cleared without issuing GP.1 and no RT.12 returns have been submitted by the noticee between the period 20-5-1988 to 22-6-1988. The GP 1(s) of unmachined cast articles of steel do not bear the full description of goods i.e. the name by which the cast articles of steel are known in the trade. He has also held that classification list effective from 1-4-1987, the details of castings have not been given by the assessee. Thus there is clear suppression of facts. Cast articles of steel/iron of Chapter 84 and 86 were cleared under the guise of miscellaneous cast articles of steel or iron under Chapter 73 instead of appropriate Chapter Headings No. 84 or 86 as the case may be.

4. We have heard Shri K.V. Pradhan, learned consultant for the appellants and Shri S.K. Sharma, JDR for the revenue. Shri Pradhan, learned consultant contended that the question was as to whether the item is an article of castings falling under Chapter 73.25 or it is a part of machinery falling under Chapter Heading 84 or 86 of Central Excise Tariff. It is his contention that the party had filed classification list on 1-4-1987 and it has been checked, verified and approved by the Superintendent on 21-12-1987. Another classification list was filed on 1-3-1988. It was also approved by the department by not raising any objection with regard to the classification sought by the appellant and that they were making regular visits and auditing books. He contended that the department has not placed any evidence to discharge the classification under Heading 84 or 86 to make the item as a part of machinery. He contended that item is still article of castings and that item having essential character of the finished product has not been established. Neither, it had acquired any recognisable essential character by specific names of machinery and also it could not be used directly in the machines. He contended that none of the process of steel finished product had been carried out by them and therefore, it was not proper for the department to have classified the item under Heading 84 or 86. He further contended that even the change in the tariff description product in 1-3-1988 did not make any change so far as the impugned goods are concerned and he did not make any goods to fall under Heading 84 or 86. He contended that the description of the tariff changed was ‘other’ articles of cast iron under Chapter Heading 73 while the earlier description of casting iron and steel not elsewhere specified in this chapter or Chapter 73. Therefore, the item having given metal casting was an article of cast iron and had undergone several processes like punching, holing, grounding, polishing etc. so far as to be considered as a semi-finished product or a part of the machinery to fall under Heading 84 or 86. He also contended that the casting which had come out of mould being in nature of cast iron did not have any essential character or part of machinery, as the metal required to undergo several other processes as stated to acquire a specific shape and essential character of a part of machinery or mechanical appliances. He contended that Notification No. 223/88 has got wider applicability and he did not restrict to items falling only under Chapter 73 and hence they cleared the goods under that notification and there was nothing wrong in it as it does not change the item from being a casting of iron and steel. He further contended that the appellants were barred by time as there was no clandestine or surreptitious removal. They had been filing regularly classification list which had been approved from time to time. The department could have only issued short levy notice under Section 11A for re-classification and there was no suppression in the case and the question of invoking larger period did not arise. He contended that the case of the department was also not under the extended period of Section 11A but the department had made out a case under Rule 9(1) or 9(2) of Central Excise Rules on the charge of clandestine removal which on the facts of the case is not sustainable. He also submitted that there was a doubt under the classification of the item and it could be noted in Board’s letter dated 28-6-1989 which had been published on 19-8-1989 in 1989 (044) ELT T-21-22 wherein the Board itself had ex- pressed a doubt with regard to classification of such items and therefore, he contended that even if extreme view is taken the demand has to be dropped in lieu of bona fide doubt appearing at the material point of time. The learned consultant also relied on the rulings rendered in the case of CCE v. Fenner (India) Ltd. - reported in 1989(09)LCX0061 Eq 1990 (045) ELT 0428 (Tribunal),

(ii) In the case of Tata Iron & Steel Co. Ltd. v. Union of India and Others - reported in 1988(05)LCX0068 Eq 1988 (035) ELT 0605 (S.C.)

(iii) In the case of Elson Machines Pvt. Ltd. v. CCE - reported in 1988(11)LCX0035 Eq 1988 (038) ELT 0571 (S.C.),

(iv) In the case of CCE, Baroda v. Kosan Metal Products Ltd. - reported in 1988(10)LCX0056 Eq 1988 (038) ELT 0573 (S.C.),

(v) In the case of CCE, v. Chemphar Drugs & Liniments - reported in 1989(02)LCX0024 Eq 1989 (040) ELT 0276 (S.C.).

5. Shri S.K. Sharma, learned JDR contended that the party has been filing the classification list under Chapter 84/86 dated 23-6-1988. He contended that the description was other articles of casting iron and steel, the word ‘other’ refers to those which cannot come under Chapter 73.25. He contended that from 1-3-1988, the party had not filed any revised or fresh classification list. All these classification lists could not indicate the facts as to whether the item was a part of railway bogey. As it has been removed as ‘other’ cast articles of steel, the charge of clandestine removal under Rule 9(1) is maintainable. Shri Sharma submitted that the process had been carried on the castings is indicated in the Appeal Memo itself. Therefore, it gave a very clear indication that the product is a part of machine and this process is shown in the notification also. The learned JDR relied on the rulings in the case of:

(i) In the case of Bharat Heavy Electricals Ltd. v. Collector of Customs, Madras - reported in 1986(11)LCX0052 Eq 1987 (028) ELT 0545 (Tribunal),

(ii) In the case of Collector of Customs v. Motor Industries Co. Ltd. - reported in 1988(02)LCX0038 Eq 1990 (046) ELT 0163 (Tribunal).

6. The learned consultant in his counter contended that the mould was sent to Simco who were carrying on the various processes before sending to the railways. Therefore, the article which came out from the appellant’s factory was a mere mould and did not specify the description as amended after 1-3-1988. He reiterated that Rule 9(1) cannot be invoked in this case.

7. We have carefully considered the submissions made by both the sides and perused the records. The main question that arises for consideration is as to whether the item which is a casting of iron and steel manufactured by the appellants can be considered as an item falling under Chapter Heading 84/86 as parts of machine on the ground that it has acquired the essential character of a complete or finished article classifiable under Chapter 84 to 86 as alleged in the show cause notice. The appellants have been filing regularly classification lists from time to time which has been checked and approved and cleared by the department. The description given in the classification list is articles of iron and steel (all types) manufactured with the aid of electric furnace. They have shown the Chapter Heading 7325.20 in their classification list dated 15-12-1987. This classification list has been checked and signed by the Inspector on 21-12-1987 and Superintendent Customs and Central Excise, Range III, Indore on 7-12-1987 and Assistant Collector on 6-5-1988. Another classification list produced also describes the item as articles of iron and steel castings of alloy steel (other than stainless steel castings) 7325.20 Serial No. 2 of the classification list is showing Heading 7325.30 and Serial No. 3 in the classification list is ‘other’ castings of iron and steel under Chapter Heading 7325.10. This classification list has been signed by the Inspector on 3-3-1988 and also by the Superintendent and the Assistant Collector respectively. Therefore, it cannot be said that the Department was not aware of the appellants carrying on the activities of manufacturing of alloy steel and articles of iron and steel classifiable under heading 7325.10 to 7325.30. The department has taken a view that after the change of tariff from 1-3-1988 it was incumbent on the assessee to file a fresh classification list. It has been shown by the learned consultant that there has been no material change in the manufacturing process. Even the changed description in the tariff item does not make material change with regard to classification of their product which is casting and which has not undergone any processes to become an article of machine or unfinished article of machine or has acquired essential character of such finished product. Therefore, we are inclined to accept the arguments raised by the learned Consultant in this case. There is no suppression or wilful misrepresentation or mis-declaration, fraud or collusion. The fact that the appellants have been filing classification list from time to time which had been approved and that the department had been making various visits and auditing their records squarely shows that there has been no clandestine removal or surreptitious removal to attract either under Rule 9(2) of the Central Excise Rules, 1944 or Section 11A of the Act. Therefore, in the circumstances, the appellants succeed both on merits as well as on limitation. As the facts of the case are quite clear, it is not necessary for us to go into other arguments pertaining to the citations raised by both the sides. However, we have gone through these citations placed before us and we are of the view that rulings placed by the learned Consultant in support of his arguments pertaining to limitation is fully applicable to the facts of the case. In the circumstances, the appeal is allowed with consequential relief. The cross appeal is rejected.

Equivalent 1993 (65) ELT 552 (Tribunal)