1988(02)LCX0038
BEFORE THE CEGAT, SPECIAL BENCH ‘B2’, NEW DELHI
S/Shri H.R. Syiem, Member (T), M. Santhanam, Member (J) and P.C. Jain, Member (T)
COLLECTOR OF CUSTOMS
Versus
MOTOR INDUSTRIES CO. LTD.
Order No. 55 to 69/88-B2, dated 19-2-1988 in Appeal Nos. C/1415/81, CD/SB/T/570/82-B2, CD/SB/T/580/82-B2, CD/SB/T/586/82 with Supplementary Appeals C/3080/87-B2 to C/3085/87-B2, CD/SB/T/1514/82-B2, CD/SB/T/1556/82-B2, CD/SB/T/1558/82-B2, CD/SB/T/1564/82-B2 & CD/SB/T/1568/82-B2
Cases Quoted
GEEP FLASH LIGHT INDUSTRIES - 1983 (12) ELT 156 [PARA 19]
B.H.E.L. v. COLLECTOR - 1987 (28) ELT 545 [PARA 20]
Advocated By: Shri J. Gopinath, SDR, for the Appellants.
Shri T. Muscarenhas, Consultant, for the Respondent.
[Order per : H.R. Syiem, Member (T)]. - The dispute in all these 15 cases is whether the forgings imported by M/s. Motor Industries are to be assessed as parts under the respective heads as claimed by the department or as steel forgings under the forgings head. The Appellate Collector of Customs, Madras in various orders ruled that the steel forgings were mere pieces of forged iron/steel and had no similarity with the finished product except their outward shapes. He also recorded that the imported adjusting pins had to undergo the process of tumbling, turning, grinding, heat treatment, chromium plating, lapping, etc., after which alone the finished product could be fitted in the governor. Minor faults in such sensitive parts would lead to their rejection and so he concluded that the finished items had no resemblance with the rough blanks imported. He, therefore, decreed that the rough forgings did not have the essential characteristics of the finished items and would not attract the provision of Rule 2(a) of the Rules for the Interpretation of the First Schedule of the Customs Tariff of 1975. He assessed the goods under Heading 73.33/40 with Notification No. 254/76-Cus. as more appropriate, with countervailing duty under Item 26AA of the Central Excise Tariff and ordered refund to the appellants of the excess duty claimed by them. By notices under Section 131 of the Customs Act, 1962, the Government of India called upon the importers M/s. Motor Industries to show cause why the Appellate Collector’s order should not be set aside, and the Assistant Collector’s order assessing them as parts should not be restored, etc.
2. The dispute that we have to arbitrate is only in respect of this application of Rule 2(a) of Interpretation and not any other matter. The importers M/s. Motor Industires imported other goods like camplates for distributor pumps, control lever forgings used in governors, measuring head and retraction device. In all the decisions, whether it is camplate, or adjusting pin or control lever, the dispute between the two sides is the same, although the processing and finishing may vary from item to item. These processes and their details are not important; what is important is that they are necessary to convert the forgings into parts ready to be fitted in the distributors or the governors, etc. as finished products. The two sides agree that these different processing and finishing have to be carried out on the imported forgings before they can be finally fitted as components of distributors, governors. The difference of opinion arises only from the department’s move to assess these unfinished forgings as complete parts under respective heads, that is to say, an adjusting pin, forging as an adjusting forging for governor, a camplate forging as a camplate for a distributor pump and so on. Both sides also agree that the imported forgings are not ready to be fitted as finished components in the distributor pumps or the governor etc. Only the processing and finishing to be carried out in India by the importers M/s. Motor Industries will bring them to the level of completion and finish before they become suitable for fitment.
3. The two sides argued their respective view points with great learning and vigour. The learned Counsel for M/s. Motor Industries urged that these imported forgings cannot qualify to be assessed as parts because they are not parts. They simply cannot be fitted as parts and they cannot be sold as parts. Much work still remains to be done to the forgings, most of it of a highly complicated and intricate nature since precision and fidelity are absolutely necessary because their exact measurements and fit determine their satisfactory performance. Any deviation from the rigid standards will result in a rejected part. He referred also to the drawings they have submitted. It can be seen from these drawings that the forgings are only rough approximation of the shapes of the adjusting pins, camplates, control lever etc., since the exporter cannot machine them to the desired high accuracy unless he is on the spot. It is only they themselves i.e. the importers, who use them in their automotive vehicles who are able to machine them to close tolerance of the requirements of the other parts in conjunction with which these imported forgings, when they are finished, will operate. The learned Counsel said that the value of the finishing and processing of the rough forgings will contribute in the case of the adjusting pins over 500% of their value. The size of the pins is larger when they are imported ; they have no holes in them, but making holes is one of the processes of finishing. The Appellate Collector also observed that the goods were mere pieces of forged iron and have no similarity with the finished product except for outward shapes, and that the adjusting pins have to undergo the process of tumbling, turning, grinding, heat treatment, chromium plating after which only the finished pins are fitted in the governor.
4. It is the same with the other forgings like the camplates, said the learned Counsel. They require processes such as preturning, finish turning, pregrinding, broaching, electro-chemical machining, carburising, annealing and several other processes.
5. Control levers require operations like drilling, reaming, tapping, camfurning, milling and so on.
6. Considering that the value added by the processing in their factory to the forging is so high to bring them to the state of completion, it is clear that the goods they imported were not component parts but only forgings and, therefore, should be assessed only as forgings.
7. The learned Counsel for the department, however, said that whatever may be the condition of the goods at the time of importation, they were made to specification for specific application. They required a good deal of work to bring them to the finished state to render them fit as component parts; but the Customs Tariff has made clear provisions how to treat such forgings and incomplete parts. Rule 2(a) of the Rules of Interpretation of the Customs Tariff requires that a reference to an article includes a reference to that article incomplete and unfinished, provided that the imported incomplete or unfinished article has the essential character of the complete and finished article. The unfinished adjusting pin, the unfinished camplates, unfinished control lever, are forgings which will be turned, after processing and finishing, into adjusting pins, camplates, control levers etc. They are adjusting pins, camplates, control levers in unfinished states; they will receive their finishing at the hands of the importers but have been given the essential character of adjusting pins, camplates, though they are not yet complete in all respects. For obvious reasons they cannot be complete in all respects, because they required precision machining, and a number of processes like drilling, boring, turning etc. These are all crucial parts in the engine and must receive close and meticulous working to finish them, but their essential characters have already been imparted to them. They are not simply pieces of iron or steel but have been forged to specific designs with a definite end-use in view. They are capable of being finished for use as no other parts but the parts for which they are to be turned into. The Rule of Interpretation, he has quoted, will not allow their assessment as anything but parts in the heading in which they are listed or covered.
8. There is much to be said for the argument of the learned Counsel for M/s. Motor Industries. The goods are not parts and will not be parts until after considerable work and expense have been bestowed on them. They would not be capable of being used as parts, still less of being sold as parts. They would not even have general market ability as those parts into which they are to be turned, and certainly they will be recognised as such component parts neither by dealers nor by engineers or mechanics who deal in such parts or who will house or fit the parts in automotive engines. Their sizes alone will disqualify them from the role of parts to say nothing of holes, channels, threads etc. that are required to be given to them to turn them into finished parts and which they lack.
9. But the Rules of Interpretation are totally against M/s. Motor Industries. Rule 2(a) reads:
“Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as imported, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), imported, unassembled or disassembled."
The matter can be understood more clearly from one or two figures. I will illustrate below the coined forging for control lever as imported and the finished control lever made from the forging:
Diagrams of finished and unfinished control lever forging not produced here.
The contour and the outline of the control lever can be seen clearly in the forging. It is true that various processing had been carried out like drilling four holes, thread tapping, broaching the keyway, hole drilling and reaming etc. have been carried out; but it is impossible to miss in the unfinished forging, the beginning and the outline of the finished part. The unfinished forging in fact does look like an unfinished control lever and not simply a metal forging.
This forging cannot be machined or worked into any other component part but a control lever. The working, turning, finishing that will be expended will all have only one objective, and that is, to turn it into a finished control lever. No amount of turning, working or finishing will produce a different part out of this forging.
10. One more illustration will be enough. A forging of the adjusting pin is not reproduced below:
Diagram not produced here.
This adjusting pin will receive turning, grinding, cross-hole drilling, hardening, plating etc. to make it a complete and finished adjusting pin ; but that the forging is going to be an adjusting pin to be fitted in just that particular spot or part of the engine can be subject to no doubt. A good bit of the metal on the forging will be removed and the final product will be smaller and lighter than the forging ; but it is impossible not to distinguish in the embryo the adjusting pin of the future. The forging is an incomplete unfinished adjusting pin and can be turned by finishing and machining only into an adjusting pin and no other part. It is no use for making any other component, no matter how much working and finishing is devoted to it. The law is against the claims of M/s. Motor Industries.
11. Full perception of the meaning of the Rule of Interpretation can be gained from the CCCN. Rule 2(a) with its commentary or incomplete or unfinished articles are copied here:
(a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as imported, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), imported unassembled or disassembled.
COMMENTARY
(I) The first part of Rule 2(a) extends the scope of any heading which refers to a particular article to cover not only the complete article but also that article Incomplete or unfinished, provided that, as imported, it has the essential character of the complete or finished article.
(II) The provisions of this Rule also apply to blanks unless these are specified in a particular heading. The term “blank” is to be taken to mean an article, not ready for direct use, having the approximate shape or outline of the finished article or part, and which, other than in exceptional cases, can only be used for completion into the finished article or part.
Semi-manufactures not yet having the essential shape of the finished articles, (such as is generally the case with bars, discs, tubes etc.) are not regarded as “blanks”.
(III) In view of the scope of the headings of Sections I to VI of the Nomenclature, this Rule does not normally apply to goods of these Sections.
(IV) Several cases covered by the Rule arc cited in the General Explanatory Notes to Sections or Chapters (e.g., Section XVI, and Chapters 60,61,86, 87 and 90).
(V) The second part of Rule 2(a) provides that complete or finished articles imported unassembled or disassembled are to be classified in the same heading as the assembled article. When goods are so imported, it is usually for reasons such as requirements or convenience of packing, handling or transport.
The classification Rule also applies to incomplete or unfinished articles imported unassembled or disassembled provided that they are to be treated as complete or finished articles by virtue of the first part of this Rule.
(VI) For the purposes of the present Rule, “articles imported unassembled or disassembled” is to be taken to mean articles the components of which are to be assembled either by means of simple fixing devices (screws, nuts and bolts, etc.) or by riveting or welding, for example, provided that only simple assembly operations are involved. Cases covered by this Rule are cited in the General Explanatory Notes to Sections or Chapters (e.g., Chapter 44, Section XVI, Chapters 86,87 and 89).
(VII) In view of the scope of the headings of Sections I to VI of the Nomenclature, this Rule does not apply to goods of these Sections.
12. The commentary explains that blanks which have the approximate shape or outline of the finished article or part and which can only be used for completion into the finished article or part are covered by the provision of the rule. The essential shape and outline of the adjusting pin, camplates, control levers are all visible in the imported forgings. These would, therefore, qualify to be described as blanks which, though not ready for use, have the approximate shape and size of the finished article or part. There is a case for saying that an adjusting pin which has not been finished, though it has the shape, does not have the essential character of an adjusting pin and, therefore, Rule 2(a) cannot apply to it. But the commentary given in the CCCN elucidates the meaning of essential character : a blank would have the essential character if it is a blank of the kind in the commentary. There is no need to define a blank as we all understand it. But if a blank is to be taken to have the essential character of the finished product or article, if it has the approximate shape and outline and if capable only of being used for the completion of the finished article, then we cannot avoid the conclusion that these blanks, the adjusting pin, control lever, though they cannot be fitted in the condition in which they arrived, have the essential character of the part and will fall under the heading in which they are referred or named. Accordingly, the orders of the Appellate Collector are set aside. Assessment of the forgings shall be made under the heading(s) which cover the article or the part, and not as forgings.
13. [Order per: M. Santhanam, Member (J)].
14. I had gone through the judgment of my Ld. Brother, Shri H.R. Syiem, Member (Technical) and I would like to add these few lines reflecting my views of the matter.
15. Out of the 15 cases, Appeal Nos. 1415/81, 580/82, 586/82 and 3080/87 to 3085/87-B2 relate to ‘adjusting pins’ used in the .Governors.
16. Appeal Nos. 1514/82,1556/82 and 1558/82-B2 relate to ‘Camplates’ used in the distributors pumps.
17. Appeal Nos. 570/82 and 1564/82-B2 are in regard to ‘Control Lever Forgings’ used in the Governors.
18. Appeal No. 1568/82-B2 is a distinct appeal regarding the ‘Measuring Head and Retraction Unit’. For use solely and principally with the Grinding Machine for the purpose of convenience, I shall first deal with the last but one appeals.
19. At the outset, an objection was raised that the review show cause notice issued by the Government, pertained to matters of short levy and not a mere claim for refund. It was hence urged that the show cause notice having been issued beyond the period prescribed under Section 131(3) of the Customs Act, the review notices were barred by time. Shri J. Gopinath, SDR, drew our attention to the decision of the Supreme Court in the case of Geep Flash Light Industries (1983 (12) ELT 156]. The contention that such instances should be regarded as short levy, was repelled by the Supreme Court. We also find that as the refund has not been actually paid to the party, the notices will, therefore, be in time and the objection raised is without any force.
20. On merits, the entire question revolves on the nature and character of the imported articles. If the articles have all the essential characteristics of the finished products, then the classification as claimed by the department based on Rule 2(a) of the Interpretative Rules would be applicable. The consultant who appeared for the respondents urged that the essential character of the goods, if looked into, would indicate that the requirements have not been fulfilled. The Tribunal had an occasion to consider the scope of Section 2(a) of the Interpretative Rules in the case of B.H.E.L. v. Collector of Customs [1987 (28) ELT 545]. The Tribunal has indicated certain broad guidelines which should be taken into consideration though the Tribunal took the precaution to point out that the assessment has to be done without reference to the Interpretative Rules and a view had to be taken on the basis of the facts of each case. The Larger Bench had indicated the following criteria :-
(i) Whether the imported product had attained the approximate shape or outline of the finished article;
(ii) Whether the said imported articles can only be used for completion into the finished articles; and
(iii) This would have to be determined with reference to the nature of the material, its bulk, quantity, weight or value.
21. In each case, the factors enumerated above would have been taken into consideration individually and then collectively to determine whether the imported article had attained the approximate shape or outline of the finished product and could be used only for the completion into finished article. The Tribunal had laid stress that the percentage of cost of post importation operation as compared to the c.i.f. value of the import would not be the proper criteria. At the same time, it was specified that shape or contour of the imported article could not be brushed aside as not relevant. This ruling of the Tribunal has been followed in the later decisions reported in 1987 (030) ELT 1985 and in 1988 (33) ELT 367. In my view the broad guidelines specified by the Larger Bench should be taken into account in order to assess the merits of the case of both the parties. Essentially it dwindles-down to a scrutiny of the essential character of the items in question. The stress is not merely on the broad characteristics of the forgings but whether the imported forged items have the “essential character” of the complete or finished products.
22. With this background, if we scrutinise the facts of the case, brone out by the drawings, the ‘adjusting pins’ have the specified part number indicated in the drawings. This is a clinching circumstance which shows that this imported item has attained the approximate shape or outline of the finished article and could be used only for the completion of that finished article. It is pointed out by the respondents that the operations like turning, grinding, cross hole drilling, hardening and plating were involved. But then, these are not such major manufacturing processes that would be necessary to transform the crude forging into an ‘adjusting pin’. The adjusting pin in a crude shape had already been imported. Of course, certain minor and necessary operations were required to make it fit for use or ready for fitment in the Mico Fuel Injection Pump. The respondents laid emphasis on the cost of processing that would be required to make the imported item fit for use in the Governor. But as observed in the judgement of the Larger Bench, the post importation charges cannot be the basis to find out whether Rule 2(a) was applicable. If the other factors are established, then the post importation charges would also be one of the facets that would tilt the scales in favour of one or the other view. But it\cannot be the proper criteria to assess the nature of the item if otherwise Rule 2(a) would be attracted. Shri J. Gopinath, SDR rightly urged that the dimension of the finished component, invoice containing part number and the parts not being capable of conversion to any other article should be the basis for deciding the issue. In reply to the review show cause notice, it was urged that the ‘adjusting pins’ imported were larger than the finished ‘adjusting pins’. But then a crude blank would necessarily be a larger in size so that the fitment could be made with precision. Similarly, there being no holes in the imported pins, cannot be a sure indication, for, the holes are drilled to suit the particular type of machine. The other processes like turning, timbling, grinding, heat treatment, chromium plating etc., are merely operational processes that will not change the essential character of product. These processes are necessary to make the pin fit exactly to the fuel-injection pump. Therefore, there is no basis to hold that they do not have the essential characteristics.
23. In regard to the ‘camplates’ the respondents have set out 31 operations including the machine heat and furnace treatment etc. But as already pointed out, the camplate had a specific number and had the specific shape and contours of the finished product. The final product could only be used for the purpose of fitment in the machine. I do not agree that the item is merely a forging. Here again, it was urged that the cost of processing worked out to 360% of the value. But as already observed, the cost alone cannot be the basis for deciding the question. A scrutiny of the drawings shows that the item has assumed the shape and contour of camplates used in distributor pumps.
24. In regard to the ‘Control Lever Forgings’, I notice from the drawing that the imported item has assumed the shape and contour of the finished product even at the time of the import and the other minor operations were required merely to enable the item to be fitted in the machine.
25. I am, therefore, of the view that an analysis of the drawings and in the light of the judgement of the Larger Bench, the conclusions of my Ld. Brother, Shri H.R. Syiem, Member (T) is proper.
26. Appeal No. 1568/82-B2 is in respect of ‘Measuring Head and Retraction Unit’. The department seeks to classify it as ‘Machine Device" under Heading 90.28 (4) read with Heading 90.16(1). The respondents want the assessment under Heading 84.45/48 as part of machine tools. It was urged that this is merely a machine tool. But as rightly urged by the department, the function of the imported article is to serve as a ‘Measuring Device’. The main equipment is the ‘grinding machine’ and the ‘measuring head’ is designed for fitment in the machine. The function is to measure continuously during the process of grinding. I do not agree that it should be treated as an integral part of the grinding machine. The classification sought for by the department under Heading 90.28(4) read with Heading 90.16(1) of the C.T.A. is, therefore, correct.
In this view, all the appeals have to be allowed. I concur in the judgement passed by the learned Member (J).
Equivalent 1990 (046) ELT 0163 (Tribunal)