2019 (2) TMI 310 - HC - Central Excise

High Court overturns Tribunal order, upholds Adjudicatory Authority decision on exemption eligibility under Notification No.223/1988-C.E.

The High Court set aside the Tribunal's order and upheld the Adjudicatory Authority's decision, ruling that the respondent was not entitled to exemption ... Manufacture - marketability - Exemption to specified goods falling under Chapters 73, 84, 85, 86 and 87 - cast articles of Iron and steel - N/N. 223/1988-C.E. dated 23.06.1988 - denial of benefit on the ground that the castings/cast articles were subjected to boring, welding and gauging, which being applied to transform the rough castings into specific parts having specific dimensions as per the drawings and not merely to remove surface defects or removal of excess material which being not permissible process in terms of the proviso to the Notification. Held that:- The Tribunal glossed over the fact on record that the unit was under Self Removal Procedure (SRP) whereunder it is not mandatory for the department to verify physically each and every article before clearance. It was, therefore, incumbent upon the noticee to have placed for physical verification the impugned article. The Tribunal lost sight of the fact that the Adjudicatory Authority drew an example of “Armature Casing” and unmachined casting which was placed for verification whereon the benefit of Notification No.223/88 was granted. Tribunal glossed over the aspect that the entire supply was to the Railways of fully machined Railway components/parts and other Railway components/parts from the stage of melting and casting. It was the later components/parts which were found subjected to drilling and welding. The department duly established the twin test of “manufacture and marketability”. The department having discharged the burden, the onus shifted on the respondent to have contradict that the impugned cast articles which were marketed (to Railways) were not subjected to process of manufacturing. The fact situation in the present case as is evident from cogent material evidence since establishes the fact as to cast articles being subjected to manufacturing process as per drawing and design given by the Railways, the respondent is not benefited by the decision in Vasantham Foundry [1995 (8) TMI 190 - SUPREME COURT OF INDIA], where it was held that `rough unmachined cast iron castings’ will continue to be treated as declared goods under sub-item (i) of Item (iv) of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959. The Tribunal having misread the entire evidence on record committed manifest error in reversing the order passed by the Commissioner, Customs and Central Excise, Indore - appeal allowed - decided in favor of Revenue. Issues Involved:1. Entitlement to exemption under Notification No.223/1988-C.E. dated 23.06.1988.2. Validity of Show Cause Notices.3. Limitation period for issuing Show Cause Notices.4. Whether the cast articles were subjected to unauthorized machining processes.5. Whether the findings of the Tribunal were perverse.Detailed Analysis:1. Entitlement to Exemption under Notification No.223/1988-C.E. dated 23.06.1988:The core issue was whether the assessee was entitled to exemption under Notification No.223/1988-C.E. dated 23.06.1988 for cast articles of iron and steel. The notification exempted certain goods from excise duty, provided they were not subjected to machining or surface treatments beyond specified processes. The controversy centered on proviso (e) of the notification, which allowed only specific treatments without changing the form of the product.The respondent was engaged in manufacturing steel castings and claimed exemption under the said notification. However, the Department argued that the castings were subjected to processes like boring, welding, and gauging, which transformed the rough castings into specific parts, thereby disqualifying them from the exemption.2. Validity of Show Cause Notices:Show Cause Notices were issued to the respondent for evading excise duty by availing the benefits of the notification wrongly. The respondent raised preliminary objections, claiming the notices were premature due to provisional assessments and were also barred by limitation.3. Limitation Period for Issuing Show Cause Notices:The Adjudicatory Authority found that the assessments were provisional due to valuation issues unrelated to the current dispute. The authority ruled that the show cause notices were not premature and were within the extended limitation period of five years, as the respondent had suppressed material facts.4. Whether the Cast Articles Were Subjected to Unauthorized Machining Processes:The Adjudicatory Authority concluded that the respondent's cast articles were subjected to processes like boring, welding, and gauging, which were not permissible under the notification. The authority relied on the statement of the respondent's superintendent and other evidence to determine that these processes changed the form of the product, disqualifying them from the exemption.5. Whether the Findings of the Tribunal Were Perverse:The Tribunal reversed the Adjudicatory Authority's findings, stating that the Department had not produced sufficient evidence to prove that all cast articles were subjected to machining. The Tribunal found that the statement of the respondent’s superintendent did not conclusively prove that every cast article was machined.However, the High Court found the Tribunal's findings to be perverse. The High Court noted that the Adjudicatory Authority had specifically addressed only those cast articles subjected to unauthorized processes. The Tribunal had overlooked the fact that under the Self Removal Procedure (SRP), the Department was not required to verify each article before clearance. The High Court restored the Adjudicatory Authority's order, concluding that the respondent had indeed subjected the cast articles to unauthorized processes, thus disqualifying them from the exemption.Conclusion:The High Court set aside the Tribunal's order and restored the Adjudicatory Authority's decision, holding that the respondent was not entitled to the exemption under Notification No.223/1988-C.E. dated 23.06.1988 due to unauthorized machining processes. The show cause notices were valid, and the extended limitation period was applicable due to suppression of facts by the respondent. The appeal was disposed of, and the substantial question of law was answered accordingly.