TaxTMI 
TaxTMI 
1994 (6) TMI 97
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....ssifiable under Item 68 with effect from 1-3-1975 since Item 68 was introduced into the Tariff Schedule. In the order dated 25/26-7-1985 passed by the Asstt. Collector it was held by him that the goods would be classifiable under Tariff Item 68 of the erstwhile Tariff. Subsequently, on that basis the classification lists were approved by him on 15-10-1985. The appellants have filed two appeals against the respective orders passed by the Asstt. Collector and also one more appeal has been filed by them against letter dated 21-1-1988 issued by the Asstt. Collector (A & R) Central Excise Collector, Delhi re-determining the duty amount of Rs. 1.93 crores (approximately) based on the order of the Principal Collector with reference to the demand already raised on the basis of classification. 3. These three appeals were disposed of by common order in appeal No. 529 to 531 dated 9-8-1990 by the Collector of Central Excise (Appeals), New Delhi. Feeling aggrieved by the said common order they have come before us by way of these three appeals. The Asstt. Collector determined the classification of the products in question under Tariff Item 68 of the erstwhile Tariff based upon the observatio....
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....s stated above, I hold that in the facts and circumstances of the case, the process of machining, polishing and/or drilling holes on the forged shapes make them as identifiable parts of machine having different name, character and use. Merely because the forged shapes and sections are used subsequently for the manufacture of another article namely, machine parts, it does not mean that the earlier process of manufacture was not complete. I hold that after removal of superfluous extra skin of forgings the goods in question are subjected to sophisticated machining and drilling for the specific purposes of manufacturing machine parts. After the aforesaid process, the flanges cease to be shapes and sections and by these process transformation or substantial change takes place and shapes and sections go out of the purview of Tariff Item 26AA (i-a). All the authorities of Central Excise have rightly come to the conclusion that the goods in question are identifiable as machining parts. It is not possible to hold that the conclusion of the authorities is perverse. The forged products which undergo the further process like machining, polishing and drilling holes to make them identifiable as ....
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....nclusion as can be seen from the records. Detailed process of the manufacture of the product in question was considered as it was admitted by the party before the High Court and referred to the Para 15 of the judgments dated 12-12-1984 wherein it observed that "Merely because a manufactured goods is used subsequently for manufacturing another article it cannot be concluded that the earlier process of manufacture was not complete or finished goods had not come into existence. Forged products which are machined, polished, holled etc. and made fit for being used as machine parts assume a different name, character and usage. Such forged products as are machined/drilled/polished assume an altogether different character from what it was when forged and so as to make them identifiable or usable as machine parts". 8. The appellants not being satisfied with the findings of the Single Judge preferred an appeal before the Division Bench but they did not succeed even before the Division Bench and on the other hand upheld the order of the Single Judge holding that ld. Single Judge rightly held that the transformation takes place by further process of manufacture and as such the appel....
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....-a) at the stage of forging. While upholding the view of the Single Judge, observation made by the Division Bench in para 17 of his judgment reads as under :- "Whether transformation has taken place or not and whether a new and different article, having distinct name, character or use, has emerged or not is essentially a question of fact depending upon the facts and circumstances of each case. Whether execution of a particular kind of work, result in manufacture of a new and distinct article would also depend on a number of tests, some of them being, (i) the nature of the work carried out, (ii) whether the material undergoes alteration or change in its essential nature and character, (iii) whether anything more is required to be done to the said article or the same is marketable without any further process. It will differ from product to product. There can be no hard and fast rules. The nature and extent of processing may vary from one case to another. In a given case, even a small change may lead to a new article having distinct name, character and use being made. In yet another case it may be so. To become a new commercial article, the product must cease to be the goods of the....
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.... The appellants did not file an appeal against this order but they gave representation to the Principal Collector disputing the calculation of the duty amount. In pursuance to the direction given by the Principal Collector the Asstt. Collector (A & R) revised the demand to Rs. 1.93 crores (approximately) vide letter dt. 21-1-1988. This demand is the subject matter of the dispute before the Collector (Appeals) in the present proceedings and the Collector (Appeals) modified the demand for different periods as indicated below on the ground that these periods are covered by show cause notices except for the period 26-11-1975 to 30-11-1980. S. No. Period Ground on which demand is sustained by the Collector (Appeals). (1) 1-3-1975 to 24-6-1975 Letter dt. 24-6-1975 issued by the Supdt. is to be taken as a demand notice. (2) 25-6-1975 to 25-11-1975 Notice of demand dt. 19-11-1975 and 25-11-1975. (3) 26-6-1975 to 30-4-1980 -- -- -- -- -- (4) 1-5-1980 to 18-8-1980 That Supdt's show cause notice dt. 31-10-1980 (5) 19-8-1980 to 1984-85 On the ground that the appellant had got a stay of the operation of Govt. of India's ord....
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....iod starting from a date which is six months prior to 19-2-1981 till the decision arrived by the Asstt. Collector as per his order dt. 25/26-7-1985 should be excluded in terms of the proviso to Section 11A. High Court stayed the operation of the order of Govt. of India only on 19-2-1981 and there was more than six months in between 2-8-1980 and 19-2-1981 and no show cause notice had been issued before in the said period and accordingly, the period which could be excluded in terms of explanation to Section 11A is only the period from 19-2-1981 to 12-12-1984 and not prior to that period or to the subsequent period. During the period where stay of the High Court was in operation stay order is applicable for the recovery of demand and not for issuing show cause notice. In support of his contention he referred to the decision of the Supreme Court in the case of Gokak Patel Volkart Ltd. v. Collector of Central Excise, Belgaum, reported in 1987 (28) E.L.T. 53 (SC), in which Apex Court upheld the Karnataka High Court order that stay of collection of duty did not amount to stay in relation to issue of show cause notice. It was held in para 8 of that judgment that the "High Court having dire....
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....nd is clearly barred by time. 15. While countering the arguments on this issue Sh. Siddharth Kak, ld. Jt. CDR reiterated the reasons given in the impugned order passed by the Collector (Appeals). He said that classification issue of product in question was in dispute since the beginning and the appellants constantly challenging this issue either in one form or another including before Hon'ble High Court of Delhi and no finality was reached about the classification of the product and, therefore, no demand could be raised till the Asstt. Collector passed the order on 25/26-7-1985 in pursuance of the order of the Hon'ble Delhi High Court dt. 12-12-1984. He said that ratio of the decision in the case of Samrat International (P) Ltd. v. Collector of Central Excise, Hyderabad, reported in 1992 (58) E.L.T. 561 (SC) = 1991 (33) ECR 19 (SC) is applicable to this case since classification was not finalised till passing the order of the Asstt. Collector in pursuance of the direction of the High Court and accordingly, demand was not barred by time. He also referred to the decisions in the case of Shree Baidyanath Ayurved Bhawan Ltd. v. Asstt. Collector of Central Excise, Allahabad, rep....
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....s with reference to this issue and on perusal of the records, we are not convinced with the plea taken by the Deptt. that earlier order dt. 22-1-1976 passed by the Asstt. Collector was only provisional till the passing of the order in pursuance of the order of the High Court. We find that the order dt. 22-1-1976 was not provisional but final against which appeal and the revision proceedings have taken place. Continuance of dispute on classification issue will not convert final order into a provisional. Letters either in the form of suggestion or advice or deemed notice issued prior to finalisation of the classification cannot be taken note of as show cause notices for the recovery of demand since issue of show cause notice for the recovery of demand will not arise till the finalisation of the classification. Once classification was approved Deptt. was required to issue show cause notice for the recovery of demand either for six months or 5 years as the case may be under Section 11A. Invoking larger period under Sec- tion 11A does not arise in this case in view of the facts and circumstances and finding given by the Collector (Appeals) in the impugned order that there is no suppress....
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....f this show cause notice and subsequent remaining period in the year 1984-85 but not beyond six months prior to the issue of this notice. But this show cause notice cannot be said to be show cause notice for determining the quantum of duty as no quantum was indicated therein. We are also not convinced with the submissions made by the DR that duty amount could not be quantified as the party was not co-operative in furnishing details. Deptt. should have enforced the provisions of the Act in issuing summons etc. to get the relevant information. Difficult to conceive that Deptt. could not get information in spite of its vast machinery. Since much water has flown after this order by issuing a demand notice on 2-8-1985, same was modified by the Asstt. Collector on 21-1-1988 revising the demand on the direction given by the Principal Collector with reference to representation given by the party regarding quantum of duty and still quantum is yet to be finalised as it was pointed out by the DR, we are of the view that the continued correspondence subsequent to the passing of the order dt. 26-7-1985 itself served as a purpose in giving opportunity to the party in determination of the quantum....
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.... These pro-ducts are supplied in forged and /or skin cut and/or shot blasted & semi /fully machined condition b. Misc. Steel Forg- ings e.g. Rings, discs, Step Forgings, bars. 26AA(is) Rs. 165/- Basic Duty (-)Rs. 165/-Auxl. Duty /NIL Effective Rate 67/73 dt. 1-3-1973 Thesepro-ducts are supplied in forged and /or skin cut and/or shot blasted condition. c. Forged Steel Flanges & other fittings for high pressure pipe lines of Petrochemical & other projects and for Exports. 26AA(ia) -do- 67/73 dt. 1-3-1973 These pro-ducts are supplied in forged and /or skin cut and/or shot blast- ed condition. d. Forged Steel Flanges & other fittings for high pressure pipe lines of Petrochemical & other projects for Export, fully Machined & Drilled. 26AA(ia) -do- 67/73 dt. 1-3-1973 These pro-ducts are supplied in for ged and fully machined condition, but the final Threading, Lapping, Welding are done by the customers at site. 3. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Forged Steel Products (Shapes & Sections not otherwise specified)- manufactured out of semi....
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....be mentioned, will also bear the duty liability under tariff item 26AA at the initial forging stage and as the same goods subsequently become identifiable parts of machinery etc. they will at the latter stage, effect machining be covered also under tariff item 68". [Emphasis supplied] 19.2 Collector of Central Excise (Appeals) upheld the above order in an appeal filed by the appellants herein vide his order-in-appeal dated 19-6-1976. In revision application to the Government of India an order-in-revision dt. 2-8-1980 was passed by the Government observing as follows :- "The issue of classification of machined forgings has been considered by the Government earlier in a decision Application filed by M/s. Guest Keen Williams Ltd. Government of India Order in Revision No. 176 of 1979 dated 3-3-1979 (copy enclosed). The Government held therein that all forged shapes and sections, other than those specifically classifiable under Tariff Items 1 to 67 Central Excise Tariff are leviable to duty under Tariff Item 26AA(ia) and that if such forged shapes and sections are further subjected to other processes that would make them classifiable as component parts of machinery, then they....
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....ellants aggrieved by the Govt. of India's order-in-revision filed a writ petition before Delhi High Court CWP 214/81. Government's order-in-revision was stayed for the first time by Delhi High Court in the aforesaid writ petition on 19-2-1981 which continued till disposal of the writ petition on 12-12-1984 whereby the writ petition filed by the appellants herein was dismissed. Delhi High Court's operative part of the order in the said judgment dt. 12-12-1984 was as follows :- "The Central Excise authorities are granted opportunity to determine as to which of the forged products of iron and steel manufactured by the petitioner are transformed by a further process of manufacture as parts of machinery lia- ble to duty under Tariff Item 68 in addition to the duty at the stage of forging." 19.6 The appellants thereafter filed a letter Patent Appeal before the Division Bench of Delhi High Court in respect of Delhi High Court in respect of the steel flanges manufactured by them. This is apparent from the following observations in the opening para of Delhi High Court's D.B. judgment dt. 12-8-1987 in the following words (photo copy brought on record by the appellants) :- "The ....
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....ce of the order dated 25/26th July 1985 which determines the classification of the product, is not an order. The letter does not disclose the basis on which and the method by which the amount payable has been worked out and therefore, in the form in which it is issued, no determination as to wrongs or rights of it can be made at the appellate stage. This letter can at best be deemed to have, even though not in the usual format, the character only of a demand saying that they are liable to pay certain sum in accordance with the decision on classification of their products, as already communicated to them, vide letter dated 25/26th July 1985. Against such a demand notice no appeal is maintainable and therefore, no stay application also can obviously be entertained. Ordered accordingly." 19.10 The appellants thereafter pursued the matter with the Principal Collector and they received a letter dated 21-1-1988 quantifying demand of Rs. 1,93,55,660.44p for the period 1975-76 to 1984-85. One of the appeals against this order was filed before the Collector (Appeals). 19.11 Third appeal dealt with by the impugned order is against approval of classification lists for the subsequen....
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.... and not machine parts as Annexure-7 to the appeal. The Collector (Appeals), submits the learned consultant, has merely gone by the observations of Delhi High Court's D.B. judgment dated 12-8-1987 without taking into account the material on record brought on by the appellants, apart from the allegation that the direction to the Assistant Collector to examine the goods and to arrive at a finding in respect of each product, whether the products as they are clearing, are machine parts liable to fall under T.I. 68 or they continue to remain under T.I. 26AA(ia) or T.I. 25 (w.e.f. 1-8-1983) has not been complied with. 20.2 Learned JCDR, Shri S. Kak, for the Revenue has drawn attention to the various observations in the judgment of Delhi High Court (Single Judge) and Division Bench judgment relied upon by the learned lower appellate authority. He has also brought on record the correspondence exchanged between the appellants and the Assistant Collector before passing of the impugned order dated 26-7-1985 e.g. letter dated 31-1-1985 refers to a visit of the Assistant Collector to the appellants factory on 30-1-1985. A letter dt. 1-3-1985 from the Assistant Collector to the appellant....
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....n in this case. The material brought on record by the appellants before the lower appellate authority for placing reliance on Supreme Court's judgment in TISCO's case should be duly taken into account, apart from considering the other material in the form of Board's circulars etc. before arriving at any finding regarding the classification of the products under T.I. 68. This plea of the appellants, I find is fortified by the Supreme Court's judgment in the case of Mithlesh Kumari v. Prem Behari Khare 1989 (40) E.L.T. 257 (SC). Paras 20, 21 and 22 are reproduced below :- "20. Lachmeshwar v. Keshwar Lal, AIR 1941 F.C. 5 is an authority for holding that the hearing of appeal under the procedural law of India is in the nature of re-hearing and therefore in moulding the relief to be granted in a case on appeal, the appellate court is entitled to take into account even facts and events which have come into existence after the decree appealed against. Consequently, the appellate court is competent to take into account legislative changes since the decision under appeal was given and its powers are not confined only to see whether the lower court's decision was correct according to the ....
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....obody should be allowed to suffer for fault of the Court. As the maxim goes, actus curiae neminem gravabit. Nobody should suffer for an act of the court. However, the delay in disposal of an appeal cannot be termed as action of the court. The consequence is that the plaintiff respondent's suit or action cannot be decreed under the law; and hence the decree passed by the lower courts is annihilated and the suit dismissed. In the result, the appeal is allowed in the manner indicated above. Under the peculiar facts and circumstances of the case, we make no order as to costs." This having not been done, I am of the view that the matter is fit for remand to the lower appellate authority for deciding the classification of the products after taking into account the entire material brought on record by the appellants before the said authority and not merely by relying on Delhi High Court's D.B. judgment dated 2-8-1989. Needless to say that the appellants would be at liberty to produce such further evidence, as they desire, with the permission of the lower appellate authority, to substantiate their pleas. 22. As regards the question of limitation, it may not be strictly necess....
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....te of order-in-revision dated 2-8-1980 would be barred by time inasmuch as no show cause notice for recovery thereof has been issued by the department which was a mandatory condition both under the then Rule 10 of the said Rules and Section 11A of the Act. Delhi High Court's order dated 19-2-1981 staying the operation of the impugned order of the Government of India dated 2-8-1980 which was later on confirmed on 14-7-1981 is in the following terms :- "....In the meantime stay the operation of the impugned order of the Central Govt. dt. 2-8-1980." 22.1A It is apparent from this stay order that it is not merely a stay on collection or recovery of the duty from appellants. It is a total stay on the operation of the Government of India's order dated 2-8-1980 with the result that even the proceedings for classification of the goods, as directed by the Central Government could not be pursued by the Assistant Collector. The period of stay by Delhi High Court w.e.f. 19-2-1981 would, therefore, be excluded from computing the time limit under Section 11A in respect of recovery of duty on clearances by the appellants. Another consequence of the stay by the Delhi High Court (Single ....
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....t current sufficient to cover the duty that may be demanded on the goods intended to be removed at any time. In these circumstances, the clearance of goods made by the appellant between 1st April and 3rd of June, 1985 were in accordance with the procedure for provisional assessment. In such a situation clause (c) of para (B) of the Explanation under Section 11B will be attracted. In this case the RT-12 Return for the month of April, 1985 was filed on 8-5-1985 and the same was assessed on 29-10-1985. It is, therefore, only from the date of this assessment that time bar in Section 11B will operate. In the present case the refund application had been filed on the 30th of October, 1985. It cannot, therefore, said to be time barred." [Emphasis Supplied] Subsequent letter dated 2-8-1985 is in pursuance of finalisation of the classification dispute by the Assistant Collector vide his order dated 26-7-1985. There is no time limit for finalisation of the assessment in respect of provisional clearances laid down in any rule or provision of the Act. It is only after finali- sation of the provisional assessment that the question of time bar in terms of Rule 10 or Section 11A would arise. Si....
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....25-1-1985 till the end of 1985, as held by the Judicial Member or the demand for the periods 1-3-1975 to 25-11-1975 and 2-8-1980 to 26-7-1985 is not barred by time, as held by the Technical Member. Sd/- (P.C. Jain ) Member (T) Dated : 1-12-1993 [Order per : P.K. Kapoor, Member (T)]. - I have heard Shri K.L. Rekhi, ld. Consultant on behalf of the appellants and Shri Siddarth Kak, ld. Jt. CDR on behalf of the respondent. 24. On behalf of the appellants Shri K.L. Rekhi submitted that in arriving at the finding that in as far as classification of the disputed goods was concerned the matter had reached finality in view of the judgment of the Division Bench of the Delhi High Court in the appellants own case. He contended that in holding that the disputed goods were classifiable under Tariff Item 68, both the Collector (Appeals) and Member (Judicial) had over-looked the fact that the relevant judgment of the Delhi High Court was only in respect of one item, namely, "flanges". He contended on the basis of the judgment of the Delhi High Court, if at all, finality can be deemed to have been achieved only in regard to the classification of "flanges". He stated tha....
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....the judgment of the Supreme Court in the case of Gokak Patel Volkart Ltd. v. CCE, Belgaum, reported in 1987 (28) E.L.T. 53 that there being no show cause notice and the order dated 26-7-1985 not being treatable as a show cause notice any demand would be time barred. He submitted that even during the period between 19-2-1981 and 12-12-1984 when the stay granted by the High Court was operative there was no stay as regards the issue of show cause notice. He contended that under these circumstances relying upon the judgment of the Karnataka High Court in the case of Davanagere Cotton Mills Ltd. v. Chairman, C.B.E.C., reported in 1991 (55) E.L.T. 295 the Member (Judicial) has correctly held that the demand for the period when the stay granted by the High Court was in force would not be sustainable. He reiterated his stand that the finding by the Member (Judicial) that the order dated 26-7-1985 could be treated as Order-cum-show cause notice is erroneous since the said order was not preceded by any show cause notice. He stated that the only ground on which Member (Technical) had held that the assessments between 1-3-1975 to 25-11-1975 could be deemed as provisional was that during this p....
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....ning & Weaving Mills Ltd. v. UOI, reported in 1987 (32) E.L.T. 234. He contended that the judgment of the Supreme Court in the case of Samrat International (P) Ltd. relied upon by Member (Technical) is distinguishable on facts since in that case the classification list filed by the assessee was pending for approval, whereas in the appellants' case before the order dated 22-1-1976 was passed by the Assistant Collector the Superintendent in his letter dated 24-6-1975 conveyed the decision which had been taken in regard to the classification of the goods. He contended that under these circumstances the demand for the entire period has to be held as time barred. 26. On behalf of the respondents, Shri Siddharth Kak, ld. Jt. CDR making his submissions on the question of classification referred to the relevant classification list extracted on pages 18 to 20 of the Tribunal's order and stated that the disputed items were mainly flanges and the other products were similar in nature. He contended that under these circumstances the findings of the Delhi High Court in respect of flanges would be equally applicable to other disputed products. He referred to para 5 of the order passed by....
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....3 (68) E.L.T. 77. He further submitted that in view of the total stay of operations by the Govt. of India's order dated 2-8-1980 and the stay by the Delhi High Court with effect from 19-2-1981 as held by Member (Technical) in terms of the Supreme Court's judgment in the case of Samrat International (P) Ltd. clearances between 2-8-1980 and 26-7-1985 have to be deemed as provisional and the provisional character of the clearances can be deemed to have been extinguished only on passing of the order dated 26-7-1985. 27. In his reply Shri Rekhi stated that as held by Member (Technical) the question relating to the classification cannot be deemed to have been settled and the matter was to be remanded to the lower authority for deciding the classification of the products after taking into account the entire material brought on record by the appellants. In this regard he contended that even though the Collector (Appeals) had referred to the judgment of the Supreme Court in the case of Tata Iron & Steel Co. Ltd. he had failed to examine the issue relating to the classification in the light of the said judgment. He reiterated his stand that `Flange' was only one of the disputed items....
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....ion of the forged product having been finally settled by the Supreme Court in the case of Tata Iron & Steel Co. Ltd. there would be no bar as regards examination of the classification of the disputed product in the light of the principles laid down by the Apex Court in the said judgment even though the present controversy dates back prior to the date of the judgment. In this regard it is seen that in the case of TISCO the Supreme Court has held that forged goods subjected to only machining and polishing for removal of excess surface skin would fall under Item 26AA(ia) of the Central Excise Tariff since such machining and polishing is incidentally or ancillary to the manufacture of forged products as per Section 2(f) of the Central Excises and Salt Act, 1944 and such goods on further precision machining become chargeable to duty once again under Tariff Item 68. The Collector (Appeals) while discussing the judgment of Hon'ble Supreme Court in the case of TISCO and Bharat Forge reported in 1990 (45) E.L.T. 525 (SC) has correctly observed that these judgments lay down the principles for the classification of forged products but each case has to be decided on the basis of particular fac....
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....n account of exemption notification issued by Government of India from time to time. This is for the respondents to decide in accordance with law. We are not concerned with this question in this appeal." It is seen that the Div. Bench while giving the finding that all the authorities of Central Excise had rightly come to the conclusion that the goods in question were identifiable as machine parts had observed that the single judge had rightly held that the transformation takes place by further process of manufacture and as such the appellants were liable to pay duty of Central Excise under Tariff Item 68 in addition to the duty under Item 26AA(ia) at the stage of forging. The appellants' contention is that the judgment of the Div. bench had only settled the question of classification of flanges. In my view this does not appear to be correct and the judgment appears to have finally settled the matter regarding classification of the disputed products. It is also seen that in terms of the order of the learned single Judge which was confirmed by the Div. Bench the Assistant Collector after examining the facility available in the appellants' factory, the process adopted by them and t....
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.... Collector by his order dated 22-1-1976, the clearances upto that date would have to be deemed as provisional since the matter regarding excisability was under correspondence and the classification lists filed by the appellants had still not been approved. According to the Member (Technical) the provisional nature of assessments ceased to exist on passing of the first order by the Assistant Collector classifying the goods at Sr. Nos. 2(b), (c) and (d) and 4(b), (c) and (d) under Tariff Item 68. Thereafter, as observed by the Member (Technical) there was no stay by any competent authority and after rejection of their appeal against the Assistant Collector's order dated 22-1-1976 by the Collector (Appeals) the appellants filed a Revision application. The show cause notice dated 31-10-1980 issued by the Superintendent indicates that the Govt. of India by order dated 2-8-1980 had ordered the recovery of duty in pursuance of order-in-appeal dated 19-6-1976. Referring to the order dated 19-2-1981 passed by the Delhi High Court staying the operation of the Govt. of India order dated 2-8-1980 Member (Technical) has held that the High Court's stay order dated 19-2-1981 as confirmed by the o....