1994(05)LCX0056

 IN THE CEGAT, SPECIAL BENCH �B1�, NEW DELHI

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

COLLECTOR OF CENTRAL EXCISE, JAIPUR

Versus

 NATIONAL ENGG. INDIA LTD.

Order No. E/272-283/94-B1, dated 23-5-1994 in Appeal No. E/3149/91-B1 and 11 others

Advocated By : S/Shri B.K. Singh, SDR and S.K. Sharma, JDR, for the Deaprtment.

  S/Shri N.R. Khaitan with Ms. Poonam Madan, Shri B.R. Pradhan, Advocates i/b M/s. Khaitan & Partners, Advocates, P.R. Gupta, Officer on Special duty, M.L. Maini, Manager, C.G. Bhangoo, Advocate, P.S. Bedi, Consultant, Smt. Archana Wadhwa, Advocate, for the Assessee Companies.

[Order per : P.C. Jain, Member (T)]. - Question involved in all these matters are common and, therefore, a common order is being passed.

2. The assessees (whether the appellants or respondents) are manufacturing cycle grade steel balls. They contend that the steel balls manufactured by them either fall under Chapter 87 Tariff Heading 87.14 or Chapter 73 Tariff Heading 73.26 as parts of cycles or other forged products, as the case may be. On the other hand, the department contends that the steel balls manufactured by the assessees are polished steel balls within the specifications given in Note 6 to Chapter 84 of the CETA, 1985 and, therefore, all these steel balls fall under Tariff Heading 84.82 as parts of ball bearings. Consequently, benefit of Notification No. 62/86, dated 10-2-1986 or 162/86, dated 1-3-1986 given to parts and accessories of cycles and cycle rickshaws will not be available to the steel balls manufactured by the assessees. It is the case of the assessees that prior to 1-3-1986 i.e. the date from which the new Tariff was introduced, the said steel balls manufactured by the various assessees were being assessed under Tariff Item 68 of the erstwhile Central Excise Tariff read with exemption Notification No. 104/82, dated 28-2-1982 and later on under Notification No. 234/82 as parts of cycle and cycle rickshaws. It is also pointed out by the assessees� learned counsels that the steel balls under consideration are sold in packed condition with markings on packets as �cycle grade steel balls�. They have always been sold to dealers of cycles and cycle parts. Use of the steel balls in cycle is not denied by the department. Not a single piece of evidence has been brought on record by the department where the steel balls under consideration have been used in ball bearing industry as parts of ball bearings.

3. For the sake of convenience we shall set out the facts as given in the cases of National Engineering Industries.

3.1 Facts as given in the Revenue�s Appeal Nos. E/3149-3152/91-B1 are reproduced below :-

3.2 M/s. National Engineering Industries Ltd. Khatipura Road, Jaipur (hereinafter referred to as �M/s. N.E.I. Ltd.� or �the assessee�) are the manufacturer of roller bearings falling under sub-heading No. 8482.00 of the Central Excise Tariff Act, 1985. The assessee is also manufacturing steel balls which were classifiable under Tariff Item 68 of the erstwhile tariff. On introduction of Central Excise Tariff Act, 1985, w.e.f. 28-2-1986, the assessee submitted a classification list effective from 28-2-1986 classifying their product steel balls under sub-heading 8714.00 along with their other products and claimed exemption under Notification No. 96/86 dated 10-2-1986 as applicable to the cycle parts. The assessee again submitted a revised classification list effective from 1-3-1986, since Notification No. 96/86 dated 10-2-1986 was amended. In this classification list assessee has also classified their product steel balls as cycle steel balls under sub-heading 8714.00 as parts of cycle and claimed exemption under Notification No. 162/86 dated 1-3-1986. The assessee vide their letter dated 20-1-1987 informed regarding the dimension of their product as under :-

 Besides this, nothing was informed by the assessees with regard to polished steel balls. Hence the Assistant Collector, Central Excise Division, Jaipur vide his order-in-original No. 6/87, dated 13-1-1987, decided the classification of steel balls holding that the steel balls manufactured by the assessee do not satisfy the definition of the parts and accessories as given in the Section Note 2 of Section XVII and held that these balls are classifiable as polished steel balls under sub-heading No. 8482.00 of the Central Excise Tariff Act, 1985 in view of the Chapter Note 6 of Chapter 84 and Note 2(a) of Section XVI as these balls satisfied the dimensional variations provided under Chapter Note 6.

 An appeal against the above order was filed by the assessee before the Collector (Appeals), New Delhi, contending that these steel balls are classifiable under Chapter 87; and are further entitled to exemption under Notification No. 162/86, dated 1-3-1986; as parts and accessories of cycles. The said appeal was rejected by the Collector (Appeals), New Delhi vide his order-in-original No. 261/CE/JPR/87, dated 29-9-1987 upholding the order-in-original passed by the Assistant Collector, Central Excise, Jaipur.

 An appeal against the order-in-appeal mentioned above, was filed by the assesses before the CEGAT. On pleas of the assessee, vide its Order No. 331/88-B, dated 27-7-1988 CEGAT remanded back the case for de nova proceed -ings by the Assistant Collector on the grounds that the matter may be reconsidered in the light of experts opinion.

 During the course of de novo proceedings the samples of the said products were drawn and got tested through Chemical Examiner, New Delhi who in turn communicated the results of the tests undertaken by him vide his letter dated 15-2-1989 which confirmed that the steel balls manufactured by the assessee are polished one and satisfy the conditions of Note 6 to Chapter 84.

 After communicating the said test report, the unit requested for retesting of the sample and after getting the permission by the assessee, the Dy. Chief Chemist visited the unit and conducted the re-test of the samples. The Dy. Chief Chemist, New Delhi vide his letter No. 55-EXD/89, dated 15-9-1987 communicated the test report as under :-

 �Each of the four samples is in the form of steel balls each has an apparent polished appearance.�

 Out of the four samples, two samples of size 1/4" and 3/16" were tested for roundness under very high magnification by the instrument Tolyround-73 in the factory premises. The variation of maximum and minimum diameter to the nominal diameter as determined in duplicate, in each of the two samples by Tolyround-73 is as under :-

 The maximum and minimum diameter of the other two samples of size 5/32" and 1/8" could not be determined by Tolyround-73.

3.9 The Assistant Collector on de novo adjudication held that the steel balls manufactured by the appellants are polished steel balls within the dimensions given in Chapter Note 6. Hence these were classifiable under Tariff sub-heading 8482.00 and consequently were not entitled to the benefit of Notification No. 62/86.

 3.10 The Collector (Appeals) in his order-in-appeal Nos. 131 to 134-CE/JPR/91 dated 14-5-1991 set aside the adjudication order of the Assistant Collector and held that the goods are classifiable under Tariff Heading 73.26 and were liable to exemption under Notification No. 62/86. Consequential relief was, therefore, extended to the appellants. Therefore, the appeal by the Revenue in the case of National Engineering Industries.

4. In order to appreciate the respective contention of the assessees and the Revenue we set out below the relevant Tariff Headings, Chapter Notes, Section Notes and the extracts from the exemption notifications :-

5. Crux of the grounds taken by the Revenue is set out in Para (4) of their grounds of appeal in the case of National Engineering India Ltd. (respondent). For the sake of proper appreciation we reproduce it below :

�(4) The submissions of the assessee that these steel balls can be used as cycle parts only cannot be taken into consideration as no such condition regarding end use of these balls has been quoted/mentioned in Chapter Note 6. Thus the end use of the product will not make any effect while classifying the same under sub-heading 8482.00. On the same line the opinions of the experts regarding availability of different type of machinery with assessee for manufacture of steel balls for use in ball bearings, will not make any effect on the issue of finalisation of classification because the condition imposed vide Chapter Note 6 to classify the steel balls under sub-heading 8482 is that -

(1)  they should be polished; and

(2)  the maximum and minimum diameters of which do not differ from the nominal diameter by more than 1% or by more than 0.5 mm,whichever is less.

 and nothing has been mentioned in the said Chapter Note with regard to having any special type of machineries.

 Thus, it may be apprised that Collector (Appeals) have not considered the issue on its merits and has wrongly accepted the plea of the assessee, which is not correct in law.�

5.1 It would thus be seen that the whole case of the Revenue revolves around the Chapter Note 6 to Chapter 84 of the CETA, 1985. It is the contention of the learned DR for the Revenue that by virtue of Note 6 to Chapter 84 polished steel balls within the specifications given in the said Chapter Note would be falling under Tariff Heading 84.82 irrespective of their use anywhere else. It has, therefore, been submitted that steel balls manufactured by the assessees herein even though admittedly used for cycles and there being no contrary evidence to the effect that they are used anywhere else, they would fall under Tariff Heading 84.82 inasmuch as the steel balls under consideration satisfy the specifications given in Chapter Note 6 to Chapter 84. In support of the aforesaid proposition, learned DRs for the Revenue led by Shri B.K. Singh, ld. SDR relies on HSN Explanatory Notes to Chapter 84. Reliance has been placed on the following Notes at page 1324 of the said Explanatory Notes under HSN Heading 84.82

�PARTS

The heading also covers parts of ball, roller or needle roller bearings, e.g.:

 (1)  Polished steel balls whether for bearings of this heading or not, the maximum and minimum diameters which do not differ from the nominal diameter by more than 1% or by more than 0.05 mm whichever is less, balls not conforming to this definition are classified in heading 73.26 (See Chapter Note 6).

(2)  Bearing balls copper, bronze, plastics, etc.

(3)  Needles or rollers for bearings, of any shape

(4)  Rings, cages, fixing sleeves etc.

The heading does not cover machinery parts incorporating ball, roller or needle roller bearings; these are classified in their own appropriate headings, e.g.

 (a) Bearing housings and heating brackets (Heading 84.83)

(b)  Bicycle hubs (Heading 87.14)�.

5.2 On a query from the Bench it has been clarified by both the sides that the steel balls in question are directly used in the cycles. They do not form part of any ball bearings which in turn may be used in a cycle. Learned SDR has specifically relied on the Explanatory Notes to the effect that �Polished steel balls whether of bearings of this heading or not, the maximum and minimum diameter of which do not differ from the nominal diameter by more than 1% or by more than 0.05 mm whichever is less, balls not conforming to this definition are classifiable in Heading 73.26 (See Chapter Note 6)�. Learned SDR has, therefore, emphasised that irrespective of the use of the steel balls so long as such steel balls conform to the specifications given above, these steel balls would be classifiable under Tariff Heading 84.82.

5.3 He also draws attention to the fact that expression �parts and accessories� occurring in Tariff Heading 87.14 under which the assessees seek classification would not be applicable to the articles of Tariff Heading 84.82 as given in Section Note 2(e) of Section XVII of the CETA, 1985. He further submits that Tariff Heading 73.26 in view of the aforesaid Chapter Note will be applicable only if Tariff Heading 84.82 is ruled out, as given in the aforesaid Explanatory Note.

5.4 As against the above contention of the Revenue learned counsels for the assessees led by Shri N.R. Khaitan for National Engineering submit that the Explanatory Notes relied upon by the Revenue covers only those steel balls which are inter alia parts of ball bearings. If the steel balls are not parts of ball bearings they are not to be classified under the said Tariff Heading 84.82. This is clear, according to the learned counsels for the assessees, from the Tariff Heading 84.82 read with Section Note 2(b) of Section XVI. This is further clear, according to them, from the Explanatory Notes relied upon by the Revenue itself which states that the Heading also covers �parts of ball..... bearings�. Even in the narration against the polished steel balls at S. No. 1 of the above cited Explanatory Notes it is made clear that polished steel balls are for bearings of this Heading or not. In other words, the ld. counsels emphasise that the polished steel balls in order to be classified under Tariff Heading 84.82 must form parts of the bearings. They submit that it is not in dispute that the steel balls in question are directly used in various places of a cycle such as handle, free wheel, hub, pedal without being assembled into bearings. They have also drawn attention to the fact that not one piece of evidence has been brought on record by the Revenue that the steel balls in question are first used in assembling ball bearings whereas there is ample evidence on record in the form of certificates of the various dealers namely, (i) M/s. Daga Trading Company, Jaipur, dated 4-11-1989, (ii) Hindustan Distributors, Kanpur, dated 4-11-1989, (iii) Indian Wood Products Co. Ltd., Calcutta, dated 3-11-1989 and (iv) Modern Amenities, Madras, dated nil available at pages 69 to 72 of the Paper Book in appeal Nos. E/3149-3152/91-B1. All these certificates from the dealers in cycles and parts and accessories indicate that the four sizes of steel balls i.e. 1/4", 1/8", 3/16" and 5/323" are essential parts being used in cycle such as free wheel, hub, handle, front wheel, pedal, front and rear wheels and gear centre axle. They further state without cycle balls the entire cycle becomes inefficient and cannot run. Therefore, the cycle balls are essential components and accessories of cycles. It is, therefore, urged that the polished steel balls under consideration being parts of cycles and not parts of ball bearings, would not be hit by Section Note 2(e) to Section XVII. They are, therefore, rightly classifiable, according to the assessees� counsels under Tariff Heading 87.14 as parts and accessories of vehicles falling under Tariff Heading 87.12. Since they are admittedly parts of cycles these steel balls would also be entitled to the benefit of Notification 62/86.

6. We have carefully considered the aforesaid pleas of both sides. Section Note 1(k) of Section XVI clearly spells out that Section XVI under which Chapter 84 falls would not cover articles of Section XVII under which Chapter 87 falls. On the basis of evidence on record adduced by the assessees that the steel balls under consideration are parts of cycle and not parts of ball bearings and there being no evidence to the contrary adduced by the Revenue, we hold prima facie at this stage that the steel balls in question would fall under Tariff Heading 87.14 as parts and accessories of vehicles falling under 87.12. We have now to examine whether Section Note 2(e) to Section XVII would take away the classification of steel balls under Tariff Heading 87.14. This can only be possible if the steel balls are articles inter alia of Tariff Heading 84.82. Steel balls could be articles of Tariff Heading 84.82 if only they are parts of ball bearings. As stated above, there is no evidence on record that the steel balls under consideration are used or even capable of being used in assembly of ball bearings. HSN Explanatory Notes under Tariff Heading 84.82 relied upon by the Revenue does not at all advance the case of the Revenue. Reading of the whole of the Explanatory Notes makes it clear that the steel balls referred to therein as also in Chapter Note 6 must be for bearings. It is immaterial whether they are for bearings of Heading 84.82 or any other Heading. There is further force in the pleas of some of the counsels that the Explanatory Note itself makes it clear by way of an example that the heading (84.82) does not cover machinery part incorporating ball, roller or needle roller bearings; these are classified in their own appropriate headings. One of the examples given hereunder is bicycle hubs (Heading 87.14). It has been urged by one of the counsels of the assessees (Shri G.S. Bangor) that bicycles hub is not complete without the steel balls.

6.1 Entire argument of the Revenue revolving around Chapter Note 6 to Chapter 84 is like reading the said Note in isolation without taking into account the effect of other Notes such as Section Note 1(k) of Section XVI, Section Note 2(b) of Section XVI, Section Note 2(e) of Section XVII. Purpose of Chapter Note 6 to Chapter 84 is merely to spell out the specifications of steel balls falling under Chapter 84.82 and stating further if the specifications as given in the said Chapter Note 6 are not fulfilled these steel balls would be assessable under Tariff Heading 73.26. Purpose of Chapter 6 to Chapter 84 cannot be to classify all steel balls under Tariff Heading 84.82. If we take that to be the interpretation, we shall be rendering nugatory the effect of Section Note 1(k) of Section XVI, Section Note 2(b) of Section XVI and Section Note 2(e) of Section XVII. According to the well settled rules of statutory construction, we have to harmonise all the statutory provisions and should not give primacy to one provision over the other or render a provision totally redundant. Accordingly, we hold steel balls in question fall under Heading 87.14.

7. After our aforesaid finding on the scope of Chapter Note 6 to Chapter 84 in the light of other relevant Notes of Section XVI and XVII, it is merely of academic interest to examine the question whether the steel balls under consideration satisfy the specifications given in the said Chapter Note 6. There is a lot of controversy on this question. Revenue contends that the steel balls under consideration satisfy the specifications of the said Chapter Note 6 whereas the assessees contend that they do not. Controversy is on two grounds :-

(i) whether the steel balls are polished;

(ii) what is the scope of the expression �the maximum and minimum diameter of which do not differ from the nominal diameter by more than 1% or by more than 0.05 mm�.

Since the controversy has arisen, we would like to give our finding thereon although, as stated earlier, it is not very much material for the disposal of these appeals in view of our finding that the steel balls under consideration fall under Tariff Heading 87.14.

7.1 On the question whether the steel balls are polished or not, learned SDR has contended that the said Chapter Note merely speaks of the steel balls being polished. The degree of polishing and the process by which the polishing is to be carried out is not spelt out in the said Chapter Note. It has been submitted that the process of barelling and tumbling undertaken by the first assessee namely National Engineering and other processes of polishing undertaken by the other assessees makes the steel balls polished thereby satisfying thereby one of the two criteria laid down in Chapter Note 6. In this connection, learned SDR has taken us through the various technical literature as follows :-

"(001) New Mechanical Dictionary :

�Polish� means to make smooth and glossy usually by friction; as, to polish glass, marble, metals and the like.

 (2) Handbook of Product Design for Manufacturing:

�Polishing Processes

Conventional polishing. In this operation abrasive particles glued to a flexible wheel or a belt remove surface irregularities from a workpiece. Conventional polishing is often an intermediate operation, being preceded by casting, forging, machining, stamping, or some other basic operation and followed by buffing. Sometimes referred to as flexible grinding, the process can remove metal either slowly or rapidly and causes some plastic deformation of the metal surface. Generally, less flexible wheels cut more rapidly, and softer wheels cut more slowly but conform better to contoured shapes. Wheels can be made from fabric, hemp, leather, wood, or felt. Polishing belts have contact wheels of various materials, the most common being rubber. Various durometers are employed depending on the speed of cutting required and the shape of the parts normally processed. Hard wheels are better for fast cutting and soft wheels for contoured shapes and blending operations.

Lubricants - tallow, wax, and fatty acids - are used with both wheel and belt polishing to extend the life of the abrasive surface. Both wheel and belt polishing are often carried out in several steps with progressively finer abrasive. �Roughing�, �fining� and �oiling� are common terms for three steps of polishing.

Barrel Polishing or Tumbling -

 Though primarily a deburring process (see Chapter 4.23) this is also an effective means of surface polishing. With proper conditions and equipment parts can be polished to finished comparable to those achieved with conventional polishing and buffing.

The process involves a rotating barrel or vibrating hopper, water, a compound (cleaners or detergents plus fine abrasives), a medium (chunks of ceramic, stone, or metal), and the parts to be polished. The rotation of the barrel or vibration of the hopper causes the medium to rub against the part with the abrasive, providing a polishing action. The cleaner and water separate the abraded particles from the work.

Characteristics and Applications:

Polishing operations have the purpose of surface-finish improvement rather than dimensional refinement. However, parts and surfaces of irregular contour which require some refinement of shape with minimum stock removal are suitable for polishing operations. If dimensional-accuracy requirements are high or the amount of metal to be removed is large, it is better to use conventional grinding or machining operations. By far the most important function of polishing operations is the improvement of appearance. This involves the removal of surface imperfections like scratch marks, gates, stretch marks, cutting tool marks, pits, parting, lines, etc. It also includes surface smoothing prior to plating, anodizing, painting, or other surface finishes. There are, however, other reasons for polishing workpieces."

7.2 On the other hand, the assessees contend that Chapter Note 6 to Chapter 84 speaks of polished steel balls for bearings. It is submitted by the learned advocate Shri N.R. Khaitan that polishing of steel balls for bearing purposes essentially requires polishing by lapping machines and it is not undertaken in respect of cycle grade steel balls. In this connection, he relies on affidavits of �

 (1) Prof. Dr. Amitabh Bhattacharyya, Faculty of Engineering and Technology in Jadavpur University. Relevant extracts therefrom reproduced below :-

 �Unless the polishing is done, and thereafter the diameter tolerance is tested and satisfied, the polished steel balls cannot be used for any of the items coming under Chapter 84.82 as components.�

 (2) Dr. A.K. Chatterjee, Birla Institute of Technology, Ranchi, having 58 years of experience in Engineering Discipline and presently working as Scientific Research Advisor and Consultant to various Engingering industries dealing with machining of metals and metal products. Formerly working as Principal in Birla Institute of Technology. Relevant extracts from the affidavit of Dr. A.K. Chatterjee are reproduced below :-

�I hereby certify and state the following on the subject of Polished Steels Balls:

Polish in general term is used to describe polishing operation which is done on an article to give it a decorative look and in some cases to give the article a protective layer against wear and tear or effect of weathering.

The purpose of polishing in case of a steel ball is quite different. A polished steel ball has a definite purpose and precise application. The polishing operation is specifically designed to create sphericity in the ball for uniform rolling action, provide a uniformly polished surface to minimise rolling friction, reduce peaks and valleys to smoothen the surface and cut out vibrations and help maintain fine layer of lubricant to prevent rubbing of mating surfaces and above all make the balls to a precise uniform diameter in order to provide equal load sharing and uniformity of movement.

The polished steel balls are therefore used in preloaded machine slides, movement of which can be slow but highly accurate for precise positioning of the tables in accurate measuring devices and instrument.

On high speed rotational application polished steel balls find use in Ball Bearings where only polished steel balls having the desired characteristics can be used.

Polishing of steel balls is done on lapping machines which are accurately designed for this purpose only. Specially designed machines are very expensive and are mostly imported in the country. The Customs Duty on such machines has been specially reduced to 35% (refer Appendix 1 of Import and Export Policy) to give relief to polished steel ball manufacturers. Even then a machine system for polishing and lapping operations of steel balls will have a landed cost of approximately Rs. 3.00 crores. Precision toolings will also involve considerable expense. The technology used in polishing steel balls is high technology, for which most manufacturers in the country have foreign collaborations.

The cost of polishing steel balls will therefore be prohibitive. On the other hand the balls used for other commercial use do not require the precision inbuilt as a result of polishing operation. Therefore no polishing is done on commercial balls generally used in furnitures, turntables and bicycles. Such steel balls although made out of similar or cheaper steels cannot be categorised as polished steel balls.

Simple barelling operation is enough to give these balls a finish commercially accepted.

Therefore I certify that commercial grade balls used in bicycles and furniture etc. cannot be classified as polished steel balls since they have not undergone the expensive polishing and lapping operations which create the desired accuracies, polish and other characteristics as a result of polishing".

It may be stated at this stage that the aforesaid two persons have not seen the processes of manufacture of the steel balls manufactured by National Engineering Industries.

(3) Dr. J.N. Hatte, a very well qualified Professor and former Head of Department of Mechanical Engineering, VJT Institute, Bombay.This affidavit has been given after the study of process of manufacture of steel balls by National Engineering Industries. With regard to polishing Dr. Hatte has stated as follows :-

Polishing

 �I further state that the cycle balls manufactured by National Engineering Industries Ltd. are not polished nor finished by any process required to achieve the polishing and finished surface. These are kept in rough coarse state as they come out from the barrel washing machines.�

7.3 Learned advocate has also relied upon the tour report of Deputy Chief Chemist who visited the appellants� factory on the request of the Collector of Customs and Central Excise, Jaipur which is reproduced below :-

Tour Report of Dr. Badri Prasad, Deputy Chief Chemist, Central Revenues Laboratory, I.A.R.L, New Delhi - 12 on his visit to M/s. National Engineering Industries Ltd., Jaipur.

In response to letter C. No. V(Tech)30/101/87/505 dated 18-8-1989 from the Collector, Customs & Central Excise, Jaipur the factory was visited on 8-9-1989. Shri B.K. Joshi, Chemical Examiner, Central Revenue Control Laboratory, New Delhi, accompanied me during my visit. During the course of my visit the following were present.

1.  Shri Sahib Singh, Assistant Collector, Central Excise Division, Jaipur.

2. Shri Gupta, Supdt. (Tech.), Central Excise, Jaipur.

3.  Shri V.D. Mathur, General Manager, National Engineering Industries, Ltd., Jaipur.

4.  Shri S.K. Surekha, National Engineering Industries Ltd., Jaipur.

Besides, Supdt, Central Excise Range, Podarpur, Inspector, Central Excise and other officers of the factory were also present.

Shri V.D. Mathur, General Manger, NEI, Jaipur took me round the factory and explained the details of the process of manufacture of cycle balls and steel balls for ball bearing. In brief the process manufacture is as under :-

High carbon chromium steel wires are stated to be used for the manufacture of cycle balls as well as polished steel balls for bearing. The wires undergo the operations of cold heading, slug sorting, flashing and soft grinding. The balls thus obtained are heat treated. They are then hardened, washed and tempered. All the steel balls meant for bearings are stated to be inspected for their hardness. The hard steel balls undergo the process of rough grinding. Steel balls meant for cycles undergo the process of barelling/tumbling which smoothens the surface and gives a shine to the surface of cycle balls. They are thereafter washed, dried, oiled and packed.

However, in case of manufacture of balls for bearings; the operations abrasive lapping; grading on electronic machine, first polishing and lapping, second polishing & lapping are done in the case of manufacture of cycle balls. All the steel balls for bearing undergo rigid inspection for diameter variation, roundness, surface finish etc. On passing the tests, such balls are oiled & packed as steel balls for bearings.

The main operation which is stated to make the difference between cycle balls and steel balls for bearings is lapping operation. Lapping is low-speed, low-pressure abraiding operation. In lapping machine, there are two cast iron lapping plates having precision lappe grooves in which the balls are made to run. One plate is stationary and the other is rotating. Lapping compound is made of chromium oxide powder & light machine oil. In the first lapping operation approximately 5 micron material is removed from the surface of the ball & in the second lapping operation approximately 2 micron material is removed. This operation makes the balls free from peaks, valleys, nicks & dents. The surface thus gets highly polished with high degree of sphericity. This is the requirement for steel balls used in bearings.

On the other hand, barelling or tumbling operation for cycle balls no doubt gives a shine to the surface, which on visual examination cannot be distinguished from the polish of other steel balls. However, the peaks and valleys and other surface defects are not completely removed by these operations.

During the course of my visit, a number of smaples of steel balls meant for ball bearings and cycle were drawn and tested for their roundness by the instrument called Tolyround-73 under very high magnification. The samples of cycle balls under dispute are also tested by the said instrument under very high magnification say about (2000). The photocopies of measurements taken during the visit of Tolyround-73 machines showing the shapes of polished steel balls for bearings and cycle balls are enclosed herewith.

 It may be seen that maximum and minimum diameter variation is 7� in case of balls used for ball-bearing. The ball bears to be quite spherical with no apparent peaks and valleys; whereas in case of cycle balls the diameter variation is 287", 462", 262", 324", 365" and 360". The peaks and valleys can be seen on the printed graph.

 The point under dispute is whether the goods under reference satisfy Note 6 to Chapter 84, or not, that is, whether the goods under reference can be considered as polished steel balls, the maximum and minimum diameters of which do not differ from the nominal diameter by more than 1% or by more than 0.05 mm, whichever is less.

It is seen that cycle balls undergo the operation of barelling or tumbling, whereas other steel balls for ball bearings undergo lapping operations. Lapping and tumbling have been defined in McGraw-Hill Dictionary of Engineering as under :-

Lapping : Polishing with a material such as cloth, land, plastic, wood, iron or copper having fine abrasive particles incorporated or rubbed into the surface.

Tumbling : A surface finishing operation for small articles in which irregularities are removed or surfaces are polished by tumbling them together in a barell alongwith wooden pegs, sawdust, and polishing compounds.

From the above, it may be seen that although tumbling and lapping are different operations, the function of both the operation is to polish the surface. That is why both cycle balls & ball bearings have a shiny look on the surface. They cannot be distinguished from each other on visual examination. Thus acquire a look of polished surface in a restricted sense, although degree of polish may vary considerably.

However, when examined under very high magnification on Tolyround-73, cycle balls showed valleys & peaks which are practically negligible in other steel ball meant for bearings. The maximum and minimum diameters of each of the cycle balls examined differed from nominal diameter by more than 1% or by more than 0.06 mm, whichever is less. Hence the cycle balls do not satisfy Note 6 to Chapter 84 CET.

Test report is issued separately, copy of the same enclosed�.

Learned advocate also draws attention to the fact that it is clear from the tour report that for the cycle balls lapping operation is not undertaken. He also draws attention to the fact that the peaks and valleys and other surface defects of the steel balls are not completely removed by the operations undertaken by the appellants whereas in the case of steel balls for ball bearings high precision polishing operation i.e. lapping is undertaken by the appellants. Learned advocate has also drawn attention to the opinion of Directorate General of Technical Development in its U.O. Note dated 21-7-1988 to Shri M.V.B. Rao, U.S. Deptt. of Revenue, Ministry of Finance. Same is reproduced below :-

 �Subject: Classification of Cycle Balls - Repn. from M/s. National Engineering Industries Ltd., Jaipur.

Department of Revenue may please refer to their letter No. 139/29/88-CX. 4, dated 16th June, 1988. The matter has been examined and in this connection the following observations have been arrived at :-

1.  Cycle balls require a much lower degree of surface smoothness/roundness as compared to bearing balls due to operating speed requirements.

2.  As per BTN definition the roundness and surface finish of bicycle balls falls below that of �polished steel balls�.

3.  As far IS specifications the grade required for bicycle balls falls below the BTN specifications of �polished steel balls�.

4.  M/s. NEI are selling bicycle balls separately calling them �Cycle Grade� and in their production process these balls do not go through the polishing lapping operation which they do in the case of bearing balls only.

 In view of the above it can be concluded that cycle balls are of much lower accuracy and surface finish as compared to bearing balls and cannot be termed as �polished steel balls�.

This has the approval of I - Incharge (KKT)".

7.4 On the other question of the scope of the expression in Chapter Note 6, Revenue wants Chapter Note 6 to be read as follows :-

 (i) �Heading 84.82 applies, inter alia, to polished steel balls, the maximum diameter of which does not differ from the nominal diameter by more than 1% or by more than 0.05 mm.�

and

(ii) Heading 84.82 applies, inter alia, to polished steel balls, the mini mum diameter of which does not differ from the nominal diameter by more than 1% or by more than 0.05 mm whichever is less.�

In other words, the Revenue desires that the meaning of this expression is that the difference between the maximum diameter and nominal diameter and difference between nominal diameter and maximum diameter should be properly checked and compared with the specifications given therein. If it is so done, the specifications of the steel balls under consideration satisfy the criteria given in the said Chapter Note.

7.5 As against the above reading of the said Chapter Note 6 of the Department of Revenue, the assessees� learned advocate wants us to read the Chapter Note as follows :-

 (i) �Heading 84.82 applies, inter alia, to polished steel balls, the maximum and minimum diameter of which do not differ; (ii) from the nominal diameter; (iii) by more than 1% or by more than 0.05 mm.�

In other words, the case of the assessee is that the difference between the maximum and minimum diameters should be arrived and this should be compared with the nominal diameter of the steel ball to check whether this is within the specifications of 1% or 0.05 mm whichever is less.

 7.6 So read, the learned advocate contends that the steel balls under consideration do not satisfy the criterion of difference of maximum and minimum diameters from the nominal diameter laid down in Chapter Note 6. In this connection, he relies on the affidavit of Shri J.N. Hatte in the tour report of Dr. Badri Parsad, Deputy Chief Chemist.

7.7 Learned advocate has submitted that the original authority, namely, Assistant Collector of Central Excise, Jaipur has arrived at his own findings in interpreting the aforesaid Chapter Note without taking into account the affidavit of Dr. J.N. Hatte and the tour report of Dr. Badri Parsad. He could not do so, submits the ld. advocate, without summoning the aforesaid two persons for cross-examination. Nor did the Assistant Collector ever ask the assessees (National Engineering) for producing the two persons whose affidavits including Dr. Hatte, as mentioned above, have been discarded by the said authority. He further submits that Deputy Chief Chemist visited the appellants� factory at the behest of the Revenue and his tour report is binding. If the Assistant Collector wanted to differ from the said tour report, he should have at least cross-examined Dr. Badri Prasad.

8. We have carefully considered the pleas advanced from both sides on the question of meaning of Chapter Note 6 to Chapter 84. Heading 84.82, as already stated, applies to parts of ball bearings. Steel balls are parts of ball bearings. Therefore, when Chapter Note 6 to Chapter 84 refers to polished steel balls it must be referring to how the polished balls as parts of ball bearings are understood in trade, industry and commercial circles which deal with the CETA, 1985. The word �polished� has not been defined in the chapter itself or anywhere else. We cannot merely go by the ordinary dictionary meanings including technical dictionaries. We have to give meaning to this word in the sense it is understood by the trade, industry and commercial circles. There is no doubt on the basis of affidavits that polished steel balls in the context of parts of ball bearings would apply to polishing made by lapping machine which is not undertaken in respect of the steel balls cycle grade.

 8.1 As regards the tolerances of maximum and minimum diameters from the nominal diameters provided in Chapter No. 6, we are of the view that there is a certain amount of ambiguity in the said Chapter Note. Both the readings, as contended by the assessees on the one hand and the Revenue on the other are possible.

 8.2 It is well settled principle of law that where there is an ambiguity in a provision of law, the benefit thereof should be given to the subject. Keeping in view the aforesaid principle the assessees are entitled to the benefit. Therefore, it has to be held that the steel balls under consideration do not satisfy the two criterion (i) of being polished and (ii) of measurements of maximum and minimum diameters. For this reason as well as the steel balls cycle grade would not fall under Tariff Heading 84.82 and they would be classifiable under Heading 73.26 (w.e.f. 1-3-1988) and under Tariff Heading 73.08 (prior to 1-3-1988). Consequently, the steel balls would be entitled to the benefit of Notification 62/86 or 162/86.

9. In some of the cases demands of duty have been made and penalties have been imposed on the basis of classification of the steel balls under Tariff Heading 84.82. In view of our finding on the question of classification and applicability of Notification 162/86 or 62/86 demands of duty and penalties on some of the assessees herein would not be sustainable.

10. In short, appeals of the Revenue are dismissed and appeals of the assessees are allowed with consequential relief to the assessees.

11. Before parting, we may say that both the sides have relied on certain citations of general propositions such as (1) Heading of Tariff to be interpreted in the light of Chapter Notes, (2) definition in the Tariff to be followed, (3) specific prevails over general, (4) use is not relevant for classification (5) opinion of an expert should not be brushed out of hand, and (6) order under Section 37B by the CBEC is not binding on appellate authority etc. We have taken those citations also into consideration while arriving at the aforesaid findings.

Equivalent 1994 (72) ELT 588 (Tribunal)

Equivalent 1994 (002) RLT 0593 (CEGAT-B1)