1989 PLP 3173 (MLD)

3. Before proceeding further, we would like to set out the relevant items from the Central Excise Tariff. The relevant portion of item 26AA of the central Excise Tariff, at the relevant item reads as follows (with emphasis supplied):-- "26AA. Iron or steel products, the following, namely:-- (ia) Bars, rods, coils, wires, joists, girders, angles, other than slotted angles, channels, other than slotted channels, tees, beams, zeds, trough piling and all other rolled, forged or extruded shapes and sections, not otherwise specified." 4.???????? Item 68 of the Excise Tariff is the residuary item and it ran as follows:-- "

68. All other goods, not elsewhere specified, but excluding:-- (a)??????? alcohol, all sorts, including alcoholic liquors for human consumption; (b)??????? opium, Indian hemp and other narcotic drugs and narcotics; and (c)??????? dutiable goods as defined in S.2(c) of the Medicinal and Toilet Preparations (Excise Duties) Act 1955 (16 of 1955)."

5. There is an explanation to Item 68, but the same is not relevant for our purpose.

6. A perusal of these items makes it clear that forged steel products arc liable to duty in terms of Tariff Item No.26AA. It is also beyond dispute that forged steel goods with which we are concerned would be covered by Tariff Item No.26AA(ia) which includes forged or extruded shapes and sections, nut otherwise specified. It is common ground that the appellant is liable to pay excise duty on the said goods under Tariff item No.26AA(ia). The dispute 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 to remove 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 of 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 items up to date 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 polishing there would be some loss of weight on account of excess skin removal. It was on the ether hand contended on behalf of the Revenue, the respondent herein, that the forging of the goods was complete before the machining and polishing was done to remove the excess surface or excess skin. It appears to us that the aforesaid contention of the appellant deserves to be accepted. Even to prepare forged goods for supplying to the Railways, it was essential that the goods should comply with the Railways specifications and the excess steel on the surface or the excess skin as it is called would have to be removed for that purpose. Moreover, as pointed out by learned single Judge of the Delhi High Court, in Metal Forgings Pvt. Ltd. v. Union o1 India, (1985) 20 ELT 280 at para. 12:-- "The process of manufacture of forged products consists of cutting of steel, pre-heating of material, heating and beating of steel material till final shaping is achieved. The steel forging process involves open forging process where the quantity small and drop/close 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 any; section nearest to the forged steel product required and also the forging clearances specified in the standards by I.S.I./or International. It is conceded by the government that forging would not cease to be forging by processes like removal of superfluous extra skin of cast iron.'

7. The learned Judge has further pointed out in the next paragraph of the said judgment that the removal of extra/unwanted surface steel by either, trimming or by gas cutting or by skin cutting of the forged products must regarded as incidental or ancillary to the process of manufacture. This view is also consistent with the definition given to the term "manufacture" contained subsection (f) of S.2 of the Central Excises and Salt Act, 1944. This definition shows that the manufacture includes any process incidental or ancillary to the completion of a manufactured product. We are, therefore, of the view that in respect of the said goods the weight for the purpose of levy of excise duty under Item 26AA(ia) should be taken after the machining and polishing is done to ?remove-the excess surface skin and the contention of the appellant in this regard must be accepted.

8. The next question is, whether, as a result of the polishing and machining: done by the appellant on the said goods before supplying them to the railways the same were transformed into new commercial commodities, namely, finished axles, wheels, tyres and so on or whether these finished or manufactured goods which could be regarded as distinct commercial products came into existence only after precision machining done at workshops of the Indian Railways to enable the, Railway to put these goods to use to meet the actual requirements of the Railways, it is not the case of the respondent that there were three distinct sets of goods, namely, one the forged steel products, two the manufactured goods supplied by the appellant to the Railways and three, the finished goods as turned out from the Indian Railways workshops for being used by the Railways. It must be regarded as common ground that duty under Item No.26AA was payable on the forged products and duly under Tariff item No.68 was payable only at the stage of the completion of the manufacture of the Finished goods, namely, axles, wheels, tyres and so on. The certificate issued by A.K. Malhotra, Additional Director, Railways (Stores) clearly states that the goods supplied by the appellant to the Indian Railways and manufactured at its plant at Jamshedpur are manufactured according to specifications and drawings agreed to between the parties. Axles are supplied to the railways in rough machined condition and wheels, tyres and blanks arc supplied in as "rolled/as forged" condition. These wheels/tyres, axles and blanks have to be sometimes rough machined partially to remove excess steel or manufacturing defects. These products arc subsequently precision machined by the Railways at their workshops before being put to use to meet the actual requirement of the Railways. There is no challenge to the correctness of this certificate either before the Collector or before the Trial Court and there is no reason as to why it should not be taken as correct. The certificate clearly shows that axles supplied by the appellant to the Railways were in rough machined condition and wheels, tyres and blanks were supplied in rough or forged condition. Sometimes wheels, tyres, axles and blanks had to be even rough machined partially at the Railways workshop to remove excess steel or manufacturing defects. All these products had to be subsequently precision machined by the Railways before being put to use. In this state of affairs, it is quite clear that the finished goods, namely, finished wheels, tyres, axles and blanks could be said to have come into existence only after the precision machining and other processing at the Railways workshops was completed and the appellant is not liable to pay any duty on these goods as under Item No.68 of the said Central Excise Tariff.

9. We may make it clear that what we have said in the foregoing paragraphs is applicable to all the goods with which we arc concerned save and except I wheels, tyres and axles manufactured by the appellant and supplied as composite units. In respect of these composite units, it is beyond dispute, and it is conceded' by the appellant, that it is fable to pay duty on the same under Tariff Item N0.26AA(ia) as well as under Tariff Item No.68. The only contention in this connection is as regards the question of limitation to which we shall presently come.

10. Regarding the question of limitation, the dispute is whether, assuming that the demand made by the Collector was valid, what is the period to which it could relate, it being common ground that as far as composite units comprising wheels, tyres and axles supplied by the appellant to the Indian Railways are concerned the demand under the item No.68 of the Central Excise Tariff was justified. The question here is as to whether that demand could extend only to six months prior to the service of the show-cause notice as contended by the appellant or up to a period of five years prior to that notice as contended by the respondent. In this regard, S.II-A is the relevant provision. The said section has been amended in 1978, but we are not concerned with that amendment. A perusal of subsection (1) of that section shows t hat where any duty of excise has not been levied or short levied or short paid or erroneously refunded, the Central Excise Officer concerned may, within six months from the relevant date, serve notice on the person chargeable with that duty. This provision would clearly show that the period for which the demand could be made was only six months prior to the service of the notice. Now, in the present case, it has been found by the High Court and, in our opinion, rightly, that there was no suppression or misstatement of facts or fraud by the appellant to which the alleged short levy or non-levy could be attributed. In fact, it is common ground that right from 1962 the appellant was filing classification lists containing the description of the items and showing them as liable to the payment of excise duty only under Item No.26AA(ia) and these lists were accepted and approved by the Excise Authorities. In these circumstances, we fail to see how it could be said that the appellant was guilty of any suppression or misstatement of facts or collusion or violation of the provisions of Central Excises Act as contemplated under the proviso to S.11-A of the said Act. In view of this, the period of limitation would clearly be only sir, months prior to the service of the show-cause notice. The demand for excise duty against the appellant on the said composite units under Item No.68 of the Excise Tariff, to the extent that it exceeds the period of six months prior to the service of the show-cause notice must, therefore, be struck down.

11. In our view, the learned Judges who delivered the impugned judgment were in error in taking the view which they took on the questions discussed aforesaid, except regarding limitation. The learned Judges have placed considerable reliance on the new classification of the Tariff Items in 1985 in considering the true scope of Item No.26AA and Item No.68 as they stood in 1981. In our opinion, this reliance was misplaced.

12. In the result, the appeal is allowed. The appellant is liable to pay duty on the goods referred to in the petition other than the composite units only under item No.68 of the First Schedule to the Central Excises Act and the duty v, ill be based on the weight after the machining carried out in the factory of the appellant to remove the excess skin or excess surface steel. Secondly, in respect of the composite sets, the appellant is liable to pay duty both under Items Nos.26AA(ia) and 68, but only for a period of six months prior to the service of the show-cause Notice. Looking to all the facts and circumstances of the case, there will be no order as to costs. M.B.A./124/F.C. Appeal allowed.