Jagriti Industries vs Collector of Central Excise, Aurangabad>2000(12)LCX0273

2000(12)LCX0273

IN THE CEGAT, COURT NO. II, NEW DELHI

S/Shri Lajja Ram, Member (T) and P.S. Bajaj, Member (J)

JAGRITI INDUSTRIES

Versus

COLLECTOR OF CENTRAL EXCISE, AURANGABAD

Final Order No. 1954/2000-B, dated 15-12-2000 in Appeal No. E/4332/94-B

Cases Quoted

Pefco Foundary and Chemicals Ltd. v. Collector — 1984(08)LCX0006 Eq 1985 (019) ELT 0103 (Tribunal) — Followed [Para 7]

Shivaji Works Ltd. v. Collector — 1993(05)LCX0045 Eq 1994 (069) ELT 0674 (Tribunal) — Followed................... [Para 2]

DEPARTMENTAL CLARIFICATIONS CITED

C.B.E. & C. Circular No. 1/87, dated 18-2-1987 — 1987 (030) ELT (T 17)....................... [Para 7]

C.B.E. & C. Circular No. 139/2/81-CX 4, dated 10-11-1981............................................... [Para 6]

C.B.E. & C. Circular No. 24/89-CX 4, dated 1-8-1989 — 1989 (044) ELT (T 21).............. [Para 6]

Trade Notice No. 18/Bombay-III/General (17)/1987 of Bombay Collectorate .................. [Para 2]

Trade Notice No. 19/87, dated 9-3-1987 of Bombay Collectorate ...................................... [Para 2]

Advocated By : Shri S. Paul, Advocate, for the Appellants.

Shri S.N. Singh, SDR, for the Respondent.

[Order per : Lajja Ram, Member (T)]. - In this appeal filed by M/s. Jagriti Industries, the matter relates to the classification of the goods which the appellants had described as crude unmachined castings classifiable under Heading No. 73.25 of the Central Excise Tariff, and which were considered by the Central Excise Authorities as machinery parts. The appellants had availed of the benefit of exemption Notification No. 275/88-C.E., dated 4-11-1988 while the jurisdictional Central Excise authorities were of the view that the goods as cleared were classifiable under Chapter 84 of the Central Excise Tariff, and that the benefit of exemption under Notification No. 275/88-C.E., dated 4-11-1988 (as amended) was not available to the goods classifiable under Chapter 84 of the Tariff. A duty of Rs. 1,64,917.65 was demanded for the period 8-3-1989 to 28-2-1990 under show cause notice dated 10-5-1993. Penal provisions were invoked. For justifying the demand beyond the normal period of limitation, it was alleged that the assessee had wilfully suppressed the facts from the knowledge of the Department that the goods manufactured by them under the name of castings were nothing but the parts of various machineries covered under Chapter 84 and were used as such without carrying out any further process thereon. Besides contesting the demand on merits, the assessee submitted in reply dated 19-7-1993 to the show cause notice that there was no suppression of any facts by virtue of which the cast articles of Chapter 73 could be shifted to Chapter 84. As no such facts existed, hence the question of suppression did not arise and that there was no ground for applying the extended period of limitation for raising the demand. The Collector of Central Excise, Aurangabad, who adjudicated the matter also clubbed show cause notice dated 29-9-1990 (covering the period 1-3-1990 to 30-6-1990) and show cause notice dated 4-2-1991 (covering the period 1-7-1990 to 31-12-1990) for disposal. He held that as the castings covered by the invoices where the process was mentioned as proof machining, and cast pipes in this case have been subjected to the process of machining, the benefit of exemption Notification No. 275/88-C.E. was not available to the goods in question. He gave a benefit with regard to the rest of the goods. As regards the extended period of limitation, while observing that the assessee could not be charged with any mala fide intention of evading payment of duty, he held that there was sufficient reason to invoke the proviso to sub-section 11A(1) of the Central Excises Act, 1944. He confirmed the demand of Rs. 48,999/-. No penalty was, however, imposed.

2. The matter was heard on 17-10-2000 when Shri S. Paul, advocate, appearing for the appellants, submitted that proof machining will not convert the castings into machine parts and that the castings continued to remain castings up to the stage of proof machining. It was his plea that the benefit of exemption Notification No. 275/88-C.E. could not be denied on the ground that the castings had been subjected to the process of proof machining. He found fault with the reasoning of the adjudicating authority that the proof machining amounted to the process of machining. He relied upon the Trade Notice No. 19/87 dated 9-3-1987 of the Central Excise Collectorate, Bombay-I, and Trade Notice No. 18/Bombay-III/General (17)/1987 of Bombay-III Collectorate and Tribunal's decision in the case of Shivaji Works Ltd. v. CCE, Aurangabad, 1993(05)LCX0045 Eq 1994 (069) ELT 0674 (Tribunal) (para 9.2 at page 684).

In reply, Shri S.N. Singh, SDR, emphasised that the dispute was not whether the castings after proof machining cease to be castings and were to be treated as identifiable machinery parts, and that the issue for consideration was whether the goods in dispute were or not not (sic) unmachined castings. The learned SDR submitted that only unmachined castings were eligible for the benefit of exemption Notification No. 275/88-C.E., and that proof machining was a process of machining and that after the castings were subjected to the process of proof machining, they cease to be unmachined castings and become ineligible to the benefit of exemption Notification No. 275/88-C.E.

3. We have carefully considered the matter. In the show cause notice dated 10-5-1993, it was alleged that the appellants had manufactured machinery parts of iron falling under Chapter 84, and cleared them without payment of central excise duty in the guise of crude unmachined castings by availing exemption from the payment of central excise duty under Notification No. 275/88-C.E., dated 4-11-1988. The central excise duty had been demanded under Chapter 84. We find that the adjudicating authority had denied the benefit of Notification No. 275/88-C.E. on the ground that the process of proof machining was a process of machining, and as only unmachined castings were eligible for the benefit of aforesaid Notification No. 275/88-C.E., no such benefit accrued to the castings so proof machined. He had not discussed and had not held that the goods as so proof machined were machinery parts of iron to be classified under Chapter 84 of the Central Excise Tariff.

4. Under Notification No. 275/88-C.E., dated 4-11-1988 (as amended) unmachined iron castings and unmachined cast articles of iron were eligible for exemption from the payment of central excise duty subject to the following conditions -

(i) They were made from the duty paid specified materials as described in the annexure to that notification; and

(ii) No credit of the duty paid on the above duty paid specified materials had been taken.

5. It is seen from the scheme of the tariff that the articles do not cease to be cast articles just after machining; they cease to be cast articles only when after precision machining or other specific processes they assume the form of an identifiable machinery part.

6. In the present case, the articles as emerging from the foundary were subjected to the process of fettling and proof machining. The processes employed for merely removing the surface defects or excess material by grinding, chipping or filing are known as fettling (refer Board’s Circular No. 139/2/81-CX 4, dated 10-11-1981). By the process of fettling, only surface defects of excess material are removed and no further machining is done on castings to give them different form or shape. By the process of fettling, the castings do not cease to be castings. They remain classifiable as castings under appropriate heading of the tariff. Only when some extra processes are undertaken on the castings so as to make them identifiable semi-finished or finished machined parts, they would go outside the class of castings. This position has been clarified by the Board in their Circular No. 24/89-CX 4, dated 1-8-1989 at page T-21 of 1989 (044) ELT wherein it was clarified that the iron castings and cast articles of iron which had been subjected to the process of fettling were unmachined iron castings and unmachined cast articles eligible for exemption under Notification No. 275/88-C.E., dated 4-11-1988.

Thus, the adjudicating authority had taken a correct view holding that fettling was not the process that amounted to the process of machining for the purpose of Notification No. 275/88-C.E.

7. With regard to proof machining, it could not be said that it was not a process of machining for the purpose of Notification No. 275/88-C.E. While proof machining alone will not make the casting an identifiable specific machine part, to be classified as machine part, as such as distinct from the casting, the goods could not be considered as unmachined casting after proof machining.

Proof machining is done to see that the walls of the casting are not hollow from inside. It also removes surface defects of the casting and makes the casting a smooth and clean one [refer para 8 of M/s. Pefco Foundary and Chemicals Ltd. v. CCE, Pune, 1984(08)LCX0006 Eq 1985 (019) ELT 0103 (T) ].

While the process of proof machining would not alter the essential character of the castings and it would not be enough to merit the classification of such castings as machinery parts under Chapter 84 or 85 as the case may be, as clarified, by the Board in their Circular No. 1/87 dated 18-2-1987 at page T-17 of 1987 (30) ELT, it may not be correct to say that such castings after proof machining would continue to remain unmachined castings. They remain castings, but machined castings.

Under Notification No. 275/88-C.E., dated 4-11-1988, only unmachined castings, such castings or cast articles remaining classified under Chapter 72 or 73 of the Central Excise Tariff, enjoyed exemption from duty, of course, subject to the two provisions contained therein. While simply because the castings were subjected to the process of proof machining, they would not assume the essential character of the complete or finished machinery part, at the same time they after proof machining lose the character of unmachined casting.

In this regard also, we agree with the adjudicating authority that the proof machined cast articles were machined articles for the purpose of Notification No. 275/88-C.E., dated 4-11-1988.

8. Thus, on merits, we agree with the view taken by the learned Collector of Central Excise, Aurangabad, the adjudicating authority.

9. Real difficulty, however, arises in this case on the question of limitation. In the show cause notice dated 10-5-1993, the central excise duty has been demanded for the period 8-3-1989 to 28-2-1990 invoking the extended period of limitation. While the charge of wilful suppression of the facts had been levelled, the only ground referred to was that the goods manufactured under the name of castings were nothing but the parts of various machines covered under Chapter 84. In their reply dated 19-7-1993, the appellants had replied to the charge of suppression as under -

5. It is also to say and submit that there is no suppression of any facts by virtue of which the cast articles of 78 will shift to Chapter 84. A matter of fact no “Such facts” existed hence the question of suppression does not arise. As such availing and applying the extended period under Section 11(A) does not arise.

The ground of classification under Chapter 84 of the Tariff had not been discussed by the adjudicating authority who had only referred to the non-applicability of Notification No. 275/88-C.E. In fact, he had exonerated the assessee of any mala fide intention. He had recorded his finding as under -

“However, whether proof machining amounts to machining being a question of interpretation, I cannot charge any mala fide intention of evading payment of duty on the part of the assessee.”

He did not impose any penalty on the appellants.

The sequence of events as narrated by the appellants in their statement of facts leave little doubt that there was hardly any justification for alleging suppression on their part, with regard to the present dispute. The appellants had submitted that their classification lists had been approved and had become final. Their RT-12 returns have been regularly assessed and that the dispute was one of interpretation.

10. In ground L of their grounds of appeal, they have submitted as under -

(1) That the Collector seriously erred in law is not appreciating that in the present case, the product in question, unmachined castings, was specifically declared by the appellant and its classification was repeatedly approved by the excise authorities since 1975. Each of the classification lists filed by the appellant from time to time were subjected to appropriate scrutiny and various details were called for by the authorities and only thereafter the classification lists were approved. The approval accorded by the authorities was, thus, after full application of mind and scrutiny of the product. In the circumstances, there can be no justification, whatsoever, for invoking proviso to Section 11A of the Act as has been done in the present case. The show cause notice was issued on 10-5-1993 demanding duty for the period 8-3-1989 to 28-2-1990. Since the classification lists were repeatedly approved by the authorities and there was no question of any suppression of facts or mis-statement on the part of the appellant, there can be no justification, whatsoever for raising and confirming the demand for a period exceeding six months, assuming without admitting that all averments mentioned in the show cause notice and the order, with regard to merits, are correct. The impugned order, therefore, deserves to be set aside on this ground alone.

11. Thus on careful consideration of the matter, with regard to limitation, we are of the view that in the facts and circumstances of the case, there was no justification for invoking the extended period of limitation. Although, the adjudicating authority had clubbed two other show cause notices for adjudication in the impugned order, there is no separate discussion with regard to those two show cause notices, and the whole issue had been discussed as one. Accordingly, we set aside the impugned order on the ground of limitation.

12. As a result, the appeal is allowed.

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Equivalent 2001 (127) ELT 841 (Tri. - Del.)

Equivalent 2001 (043) RLT 0901