TaxTMI 
TaxTMI 
1991 (8) TMI 225
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.... sub-heading 7308.90 of Central Excise Tariff, 1985 as 'Articles of Iron & Steel' and the classification under tariff sub-heading 7208.00 of Central Excise Tariff, 1985 as "pieces roughly shaped by Forging of Iron & Steel" claimed by assessee in respect of classification list w.e.f. 8-7-1987 has to be rejected. The ld. Collector has held that processes of "grooving and grinding" are carried on and these processes impart to the goods identity of motor vehicle parts, and hence taking the goods away from the purview of "crude forgings". We have heard Shri J.S. Agarwal for the appellants and Shri K.K. Dutta, Ld. JDR for the revenue. We will record the arguments of all the Counsels and the DR's in separate paragraphs. 3. E.A. 1808/90-B1 (M/s. Forge & Forge v. CCE): This appeal arises from order-in-appeal dated 5-12-1989/1-1-1990 passed by Collector of Central Excise (Appeals), Bombay confirming a duty amount of Rs. 57,87, 240.50 for the period 18-11-1986 to 30-6-1987. The appellants are manufacturers of steel forgings of various descriptions and dimensions (as per drawings and requirements) viz. (1) Connecting Rod (2) Gear (3) Crank-shafts (4) Rear Wheel Hut (5) Piston etc. The....
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....sified their goods under sub-heading 7308.90 of Central Excise Tariff, 1985. A show cause notice dated 30-5-1988 was issued demanding differential duty of Rs. 12,64,552.32 for the clearances during 1-11-1987 to 11-1-1988 by Range Supdt. under Section 11A of the Central Excises & Salt Act, 1944. It was alleged that the goods had essential characteristics and are identifiable as such, as products falling under respective categories of Chapters 84 to 87 of Central Excise Tariff, 1985 and precisely under tariff sub-heading 8708 and 8483, since the goods had been manufactured as per the drawings, design and the specifications of the customers. It was further alleged that commodity description had been recast under revised Hormomised System of Nomenclature, as a result of which the specific description of the forged products of iron & steel stands replaced by the definition as available for the individual forged products in the revised Hormonised System of Nomenculature. The assessee resisted the department's claim. However, the Asstt. Collector of Central Excise confirmed the demand. On appeal. Collector (Appeals) rejected their plea and confirmed the demands. In the meantime, the Co....
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....re ready for final machining. The department contended that this heading claimed by assessee excludes drop forgings and pressings produced by forgings between matrics since the articles produced by these operations are ready for final machining. As the goods are cleared in a fully mechanical state from the factory they are appropriately classifiable under sub-heading 7308.90 of Central Excise Tariff, 1985. The ld. Collector has held that the purchase order placed by purchasers and from the bills, it is clear that the goods are 'tailor-made articles' according to the requirements of individual purchasers in terms of drawings provided by the customers. These goods were supplied to various automobile manufacturing companies. It is held that the goods are identifiable for its particular use namely as parts of motor vehicles or automobiles and hence it would be incorrect to call the goods as "pieces of roughly shaped steel". The assessee had relied on Board's circular No. 26/89 but this was also rejected as not binding on quasi-judicial authority. The ld. Collector has noted the manufacturing process and also the excess flesh being trimmed on forged products by a process of trimming, an....
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....ma coated with red-exide Zinc Chronic Primes. The assessee had been purchasing steel rounds, ingots and billets from the market and were supplying the forged articles as per drawings received from M/s. Vehicle Factory, Jabalpur, TELCO Jamshedpur, HMT Pinjore and others. These Billets and rounds were cut into required sizes, then the pieces were heated in "Bhatties" Oil fired and later on put between the 'Dies' which had two pieces (i.e. top and bottom) on the forging hammers and hence claimed the same to be forged goods. Finally were normalised, quenched, tempered, short blasted and prime coated. The Deptt. alleged that the pieces roughly shaped by rolling or forging of iron & steel not elsewhere specified were covered under 7208.00 of Central Excise Tariff and the HSN Explanatory Notes were also relied. The ld. Collector has passed similar order like in above-noted appeals confirming the duty and also imposed a penalty of Rs. One lakh. 8. EA. 4693/92 (M/s. Vikas Forging (P) Ltd. v. CCE): This appeal arises from Order No. 40/92, dated 17-7-1992 passed by Collector of Central Excise, New Delhi confirming a demand of Rs. 9,21,610.13 for the period 1-3-1986 to 19-11-1987 under R....
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....partment had chosen to classify the rough forgings is not at all appropriate. The goods had all emerged from forgings and they were in rough shapes. He submitted that the process of manufacture of forged products consists of cutting of iron/steel, pre-heating of material, which is fed into drop forging machine (Hammer). These forgings were further fed into trimming press and subjected to necessary heat treatment of normalising/annealing etc. and thereafter the extra/unwanted material are removed and these crude forgings have large dimensional tolerances, and the buyers at their end subjected them to various machining processes like grinding, grooving, teeth cutting, turning, boring, threading etc. Only thereafter the forgings acquired a shape and size for being fit for use as a part/component of the machine. Ld. Advocate submitted that these crude 'Rough Forgings' are not capable of being used as such at the buyers' end. The processes undertaken by Customer would reduce the weight of the forging by 30 to 50% and the value of the goods would go up by 100% to 300%. the goods were only Rough Forgings with large Dimensional tolerances. It is further submitted that upto 1-8-1983, these ....
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....red by Hon'ble Supreme Court in the case of Atul Glass (P) Ltd. v. Collector of Central Ex. as reported in 1986 (25) E.L.T. 473. He argued that the Ld. Collector was not justified in relying on HSN explanatory note, as the same had not been aligned during the material period. In this context, he relied on the ruling rendered in the case of Atul Glass Ind. Pvt. Ltd. as reported in 1986 (8) ECR 513. He contended that the Tribunal had already decided the classification of the goods, which were castings of machine parts, as classifiable under sub-heading 7325.00 and also held that they had not acquired the 'essential character' of products under Chapter 84,85 or 87, as rendered in the case of M/s, shivaji Works Ltd. and Another v. Collector of Central Excise, Aurangabad as per final Order No. E. 103 to 105/93-B1 dated 20-5-1993 = 1994 (69) E.L.T. 674. Likewise a similar view had also been expressed in the case of International Steel Foundry Ltd. v. Collector of Central Excise as reported in 1993 (65) E.L.T. 552. The various other rulings rendered in the following cases also settled the issued in the appellants' case: 1. Metal Forging (P) Ltd. v. Union of India & Others - 1987 ....
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.... still after the processes they would remain as 'rough forgings'. He submitted that HSN Explanatory Notes were aligned from 1-3-1988, which could not be given retrospective effect. 11(v) Shri S.K. Sharma, ld. JDR submitted that the Notification No. 223/86-C.E. did not apply to forgings but were applicable only to castings. In view of the order of Collector of Central Excise dropping the proceedings in original proceedings, the ld. JDR did not have much to argue in this matter, but simply reiterated the findings given on merits by ld. Collector. 12(i) Shri R. Santhanam, ld. Advocate appearing for other set of appeals adopted the arguments of Shri J.S. Agarwal. He submitted that the entire demands in Jai Forging were time-barred, as the classification list had been approved in the first instance and the show cause notice had been issued much later beyond the period of 6 months. As regards the appeal of Sri Sadhu Forgings, Shri Santhanam attempted to show that the notice was not signed by the ld. Collector and an unsigned notice was bad in law and all further proceedings were invalid. In this context, he relied on the ruling rendered in the case of Lima Shankar Mishra v. Comm....
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....ocesses of "twisting" and "padding", were not carried in their case and 'Twisting' was done only for 'Crank-shaft' which was not manufactured in their factory. He further argued that no separate process of numbering was done. It was done at the time, when metal was poured in the dyes and also submitted that numbering is not a process of manufacture. He further pleaded that the circulars issued by the Board were binding on the lower authorities. In this context, he relied On the ruling rendered in cases as reported in (i) 56 ITR 198 SC (ii) 131 ITR 597 SC (iii) 82 ITR 913 SC 13(i) Shri Dushyant Dave, ld. Advocate arguing for M/s. Forge and Forge adopted the arguments of Shri J.S. Agarwal, ld. Advocate on merits and proceeded to argue on the other points. He submitted that the circular issued by Board suggesting the classification of the 'rough forged' products under sub-heading 7308.00 was binding on the lower authorities. The Board, being the highest authority having issued a circular for deciding a classification by lower authorities, its circular cannot be flouted. The effect of the understanding of the Board on a classification had the effect of contemporaneous expos....
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....se notice by High Court. In this case, Gujarat High Court had not stayed the show cause notice and therefore, fresh show cause notice issued by Asstt. Commissioner would not ' save the limitation. In this context, he relied on the ruling rendered in the case of Gokak Patel Volkart Ltd. v. Collector of Central Excise, Belgaum as reported in 1987 (28) E.L.T. 53 (SC), GSFC v. Union of India &* Others -1988 (34) E.L.T. 442. 13(ii) Ld. CDR Mrs. Vijay Zutshi, countering the arguments of ld. Advocate submitted that the Hon'ble Gujarat High Court in this case had given a direction to approve the classification list as per law. It followed that the ' proceedings had to be initiated by issue of show cause notice as per the High Court's direction and the issue of fresh show cause notice by Asstt. Commissioner on 26-2-1988 is valid in law. In this context reliance was placed on the judgment rendered in the case of Echjay Industries Pvt. Ltd. v. Union of India & Others - 1988 (34) E.L.T. 42 para 10,14. As regards the merits of classification. ld. CDR argued that the erstwhile Tariff 25(8) read "pieces roughly shaped elsewhere specified" had to be clearly interpreted and the goods were cla....
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....ed out that goods were in rough shape and it required to undergo several processes to assume friction free. and only then it would assume the characteristic of a part. Therefore, invoking rule 2(a) would not arise in this case. He pleaded that rule 2(a) would arise only if there is no specific entry. In this case there being a specific entry for 'roughly shaped forgings' question of invoking rule 2(a) does not arise. He further argued that the Revenue had not discharged its burden of classification in this case. He argued that Collector (Appeals) had given a reasoned finding and they were sustainable in law. 15. We have carefully considered the submissions made in each & every appeal taken up together for our consideration and examined the impugned orders; the Board circular referred to before us, HSN explanatory notes and the large catena of judgments referred by both the sides. 16. In order to appreciate the controversy it is firstly important for us to once again summarise the charges levelled in each of the show cause notices under consideration and examine its validity in the light of the defence put forth and the well laid down propositions by the highest judicial forum....
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....perations are ready for final machining, (emphasis supplied by us) Forgings which have not been further worked but which do not conform to the description of pieces roughly shaped forging as outlined above would more appropriately be classifiable under sub-heading 7308.90 as residuary articles of iron & steel attracting 15% excise duty classifiable under this sub-heading supported by explanatory notes for corresponding sub-heading 7326.00 HSN. After the forgings are machined to become an identifiable part the Modvat would attract further duty as applicable to machinery part, motor vehicle part etc. under respective chapter. However, the MODVAT of the duty paid on unmachined forging would be available towards payment of duty on machinery part. Motor vehicle part etc. The show cause notice further reads that "In view of the forging the products manufactured by you are very much chargeable to duty of excise @ 15% ad valorem under sub-heading 7308.90. You are, therefore, advised to remove the goods from your factory on payment of duty at the above rate". Sd/- AC 6-7-1987" The above letter is more an order of the Asstt. Collector hence, it cannot be construed as show cause notice.....
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....solute to the above extent only with no order as to costs". (b) The department instead of complying with the terms of the Hon'ble Gujarat High Court issued a fresh show cause notice dated 26-2-1988 by Asstt. Collector invoking larger period under Section 11A of the Act and claimed short levy for the period from 1-1-1987 to 30-6-1987 for the said goods proposing classification under tariff sub-heading 7308.90 of Central Excise Tariff, 1985. In this show cause notice new grounds have been urged that they had filed classification list effective from 18-11-1986 and claimed classification of such forging products as 'pieces roughly shaped by rolling or forging of iron or steel, not elsewhere specified' which have been subjected to processes viz. (1) Billet Cutting (2) Billet Heading (3) Pre-forging and Forging (4) Trimmings (5) Shot blasting (6) Heat treatment (7) Inspection (8) Rectification. The deformation of steel is done with the help of drop die forging press as is seen from the diagram of processes required in respect of such items (letter No. CE/AR-1/88 dated 19-2-1988 and diagram of processes refers). The show cause notice further states that it appears that such steel....
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....on 11A cannot be invoked by him and the same is time-barred. This plea of the ld. Counsel has got lot of force and the same requires to be upheld and this appeal to be allowed solely on this ground alone. Ld. CDR defended the issue of show cause notice on the ground that the show cause notice is being issued at the direction of the Hon'ble High court. With due respect to ld. CDR, this argument has no basis. The Hon'ble Gujarat High Court had quashed the show cause notice dated16-7-1987 issued by the Supdt. It followed that the entire proceedings for short levy no longer exist. There is a clear direction that "the respondents are directed to refund the amount of excise duty paid by the petitioner under protest within two months in their classification list classifying their steel forgings as falling under Item 7208.00 is approved". It follows that Hon'ble Gujarat High Court has not given any further directions to reopen the case by issue fresh show cause notice. If the intention for reopening the case were to be clear then the show cause notice dated 16-7-1987 issued by the Supdt. would not have been quashed. In that even an order for issuing a clarificatory show cause notice would ....
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....02 of the Reports, Gajendragadkar, J. as he then was, spoke for the Court thus: "It is plain that, for excluding the time under this section, it must be shown that the institution of other suit, in question had been stayed by an injunction of order; in other words, the section requires an order or an injunction which stays the institution of the suit and so in cases falling under Section 15, the party instituting the suit would by such institution be in contempt of court. But, in our opinion, there would be no justification for extending the application of Section 15 on the ground that the institution of the subsequent suit would be inconsistent with the spirit or substance of the order passed in the previous litigation....." 6. In the instant case, the order of stay passed by the Karnatake High Court had only stayed the collection of the excise duty, which is a stage following levy under the scheme of the Act. Obviously there was no interim direction of the High court in the matter of issue of notice for the purpose of levy of duty. The relevant portion of Section 11A provided : "(I) when any duty of excise has not been l....
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.... propose to give on merits of the case would also apply to the facts of this case. The ld. Counsel pointed out that the Asstt. Collector had confirmed the demands for 1-11-1987 to 11-1-1988 for roughly forged goods under sub-heading 7308.90 of Central Excise Tariff. They had filed appeal before Collector (Appeals) whose order is being challenged here. In the meanwhile, the ld. Collector of Central Excise had issued show cause notice dated 31-8-1987 invoking larger period 1-3-1987 to 31-7-1987 and period 1-8-1987 to 10-1-1988. This period also included the period adjudicated by Asstt. Collector and in appeal before Collector (Appeals). The ld. Collector by order-in-original No. 2/90 dated19-2-1990 dropped the proceedings in terms of Board's clarificatory circular No. F. No. 139/79/87-C. X. 4 dated 18-9-1989 and Board's telex dated 4-6-1987 being withdrawn. The ld. Collector accepted the classification under sub-heading 7208 as roughly forged goods and rejected the department's contention for classification under 7308.90 of Central Excise Tariff on the sole ground of HSN. Explanatory notes, on the ground that the entries in the Chapter 72,73 of Central Excise Tariff Act, 1985 prior t....
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....orging of iron or steel not elsewhere are covered under sub-heading 7208.00 of Central Excise Tariff. These pieces cover semi-finished products of rough appearances and large dimensional tolerances. But it would not cover forging ready for machining (emphasis supplied by us). (ii) The Revenue's contention is that this heading also excludes drop forgings and pressings produced by forging between matrices since the articles produced by these operations were ready for final machining. (emphasis supplied by us). (iii) The party is manufacturing as per drawings given by the customers as per which the goods have to confirm to strict dimensional parameters and hence cannot be referred as crude forgings. (iv) In most of their products the party is affixing the brand name/drawing number given by their customer on the goods. These goods are in fully manufactured state when they leave the factory requiring only final machining. On the basis of this, the articles manufactured by them appear to be excluded from sub-heading 7208.00 of Central Excise Tariff. (v) The goods are identifiable as parts of motor vehicles or automobiles and for this ground reliance has been placed on HSN exp....
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....is heading except by a mere process of rejecting tariff sub-heading 7208.00 and then saying that the goods fall under sub-heading 7308.90. This method of classifying the goods has been deprecated in several rulings and now it is well settled that the duty of classifying the goods has to be done after proper investigation and after finding out the manner in which the goods are understood in trade or by the people who deal with them (M/s. Atul Glass Ltd. (P) Ltd. (ibid). Further, the authorities vested with the duty of classifying the goods are bound by the directions, instructions and circulars issued by the Board, a highest body. In this case, the ld. Collector of Central Excise, New Delhi has held that he is not bound by it. L333d. CDR has pointed out that the circular had not been issued under Section 37(B) of the Act and Hon'ble Supreme Court ruling rendered in Orient Paper Mills Ltd. [1978 (2) E.L.T. (J. 345)] while the Counsels have relied on the ruling rendered by Hon'ble Supreme Court in the case of Indian Metals & Ferro Alloys Ltd. case (ibid). Collector of Central Excise v. Andhra Sugar Ltd. and the ruling of Gujarat High Court in. the case of Air Control &' Chemical Engg.....
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....208.00 of Central Excise Tariff viz. erstwhile Tariff Item 25(8), which are both akin and similarly worded. The change in tariff would not change the nature of goods. The Hon'ble Supreme Court in the case of Indian Metals Ferro Alloys Ltd. has held at para 11 that goods were classified under Tariff Item 26AA of erstwhile Central Excise Tariff for a number of years; its classification cannot be revised merely because of introduction of Tariff Item 68. in this case also the erstwhile Tariff 25(8) reads "pieces roughly shaped by rolling or forging of iron or steel not elsewhere specified." Chapter 25 pertains to iron and steel and products thereof. On the introduction of the new Tariff Central Tariff '85, this chapter re relates to Chapter 72 'iron & steel' Heading 72.08 and sub-heading No. 7208.00 reads: "pieces rougly shaped by rolling or forging of iron or steel, not elsewhere specified". Both headings read identical and there is no difference in wordings. Therefore, it is for the revenue to have placed sufficient and cogent evidence in terms of technical literature, trade understanding, to show that there is another more appropriate entry for classification. In all ....
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....perforating, other than articles included in the preceding headings of this chapter or covered by note 1 to Section XV or included in chapter 82 or 83 or more specifically covered elsewhere in the nomenclature." A clear reading of the above note just shatters the Revenue's case into pieces. As we have observed there is absolutely no application of mind by any of the authorities who issued show cause notice to examine the HSN explanatory notes of the chapter under which they proposed to classify, although they were so enthusiastic in quoting HSN explanatory note under chapter 72 to exclude the goods from sub-heading 7208. A bare reading makes it so clear that the goods should have undergone process of folding, assembling, welding, turning, milling or perforating. Admittedly in this case, the goods have emerged at a stage just prior to machining. The revenue case is that as the goods have become fit for machining they are no longer 'roughly shaped'. Even if it is so, they are not articles of iron or steel. We have dealt with this point of explanatory note, only for illustration's sake to show that even Heading 73.26 makes it clear that the goods emerging are to be fully finished g....
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....s of cutting of steel, pre-heating, pre-heating of material, heating and heating of steel material till final shaping is achieved. The steel forging process involves open forging process where the quantity is small and drop/dose die forging and/or upset forging process under which the product is made with the help of dies. Thereafter, the extra unwanted material is removed by either trimming or by gas cutting or by skin cutting to achieve the shape and section nearest to the forged steel product required and also the forging clearances specified in the standards by ISI/or International. The forging would not cease to be forging by processes like removal of superfluous extra skin of cast iron. On this plea, the Hon'ble Court held in para 13 of the report that "The forged products of iron & steel manufactured by the petitioner are excisable goods having come into existence as a result of manufacturing process. The removal of the extra/unwanted material by either trimming or by gas cutting of forged products, by either trimming or by gas cutting or by skin cutting for the removal of superfluous extra skin of cast iron to achieve the prescribed dimensions and tolerances is not a fur....
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....spute in this connection is what is the stage at which the said goods could be said to be forged iron and steel products as contemplated in the said item; whether they could be regarded as such as soon as they are forged or after machining and polishing which is done in the excess skin before being supplied to the Indian Railways. The stand of the appellant is that this machining and polishing which is done in its workshop, is not significant character and extensive precision machining and polishing has to be done by the railways at their workshop before the wheels, tyres and axles supplied by the appellant can be attached to the rolling stock. The machining and polishing done in the workshop of the appellant was only in the nature of shaping by removing the superficial material to bring the forged item upto with the Railways' specifications. A perusal of Item 26AA would show the excise duty on forged goods covered under the said entry, is according to the weight of the goods. It was contended by the appellant that the weight should be measured only after the polishing and machining at the appellant's workshop was completed. It is obvious that as a result of such machining and poli....
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....rface skin and the contention of the appellant in this regard must be accepted." The Tribunal applied these rulings in the case of Steel and Industrial forging Ltd. (ibid) for the new Tariff. These rulings squarely apply to the facts of each case before us. There is no reason to differ from these rulings by us. (iii) In these appeals as stated earlier, the revenue has not placed any evidence on record to show that the impugned goods are no longer considered in trade or in commercial parlance as roughly forged items. On the other hand, the assessees in all the cases have relied on their evidences to show that both in the trade and in technology, the goods are considered as roughly forged ones. There is no reason given by the revenue to reject the evidence of both trade and technical understandings. The rulings relied by DR's pertain to Customs Act and are pari materia to these cases. (iv)(a) In the appeal of M/s. Aravali Forgings, the party has relied on the Trade Notice No. 31/87 dated 4-3-1987 of Vadodara Collectorate, who have clarified that merely because the following operations (those listed below) are carried on, the goods would acquire essential character of the cas....
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....fied that the goods purchased by them are rough forgings. The DGTD vide their letter dated16-11-1987 have also given their opinion that 'Raw and Proof Machined forgings' are distinctly different from finished components. They have given their opinion that Forging (Raw and Proof machined) are all roughly shaped by rolling of iron and steel. (e) Ultimately the Board's circular/telex are also referred given opinion of classification under sub-heading 7208.00 of central Excise Tariff, 1985. (f) Therefore on an independent appreciation of all these evidence, it also discloses that the appellants' goods continue to be rough forgings and therefore all these appeals are to be allowed. (g) These findings would equally apply to the appeal of M/s. Forge & Forge. The revenue has not been able to show that merely because the forgings have specific name and shape and having undergone process other than machining and manufactured as per drawings would seize to be rough forgings. For these grounds and grounds already stated supra these appeals are also allowed. (h) For these reasons and for the reasons already stated in preceding paragraphs, the appeal of M/s. BCL Forgings is also allo....