TMI Blog1993 (5) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... rintendent of Central Excise, Range-II, however, observed that the said castings manufactured by the appellant were tailor-made castings required for machines falling under Chapters 84 to 87 and are manufactured as per specific instructions and drawings supplied by the customers. He also observed that these castings could be used only by the customer on whose behalf the said castings had been manufactured. It was, therefore, felt that the castings had the essential character of the machine parts for which they were ultimately intended. The department was also of the view that the Heading No. 73.25 CETA 1985 covered only those castings which had not been specified in the new Central Excise Tariff. It was also felt that in terms of Notification No. 223/88 dated 23-6-1988 the effective rate of duty applicable to such castings was Rs. 500/- per M.T. Therefore, two show cause notices dated 13-12-1988 and 15-12-1988 were issued by the Superintendent calling upon the appellant to show cause to the Assistant Collector of Central Excise, Solapur as to why the differential duty of Rs. 25,66,080.04p and Rs. 1,067.78 should not be recovered from the first appellant on the aforesaid two grounds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. In order to appreciate the arguments of both sides, we reproduce below the relevant Tariff Heading, Exemption notification and Interpretative Rule 2(a) :- Heading No. Sub-heading No. Description of goods Rate of duty 73.25 Other cast articles of iron or steel 7325.10 -Of iron Rs. 100 per tonne 7325.20 -Of alloy steel Rs. 1,500 per tonne 7325.30 -Of stainless steel Rs. 1,500 per tonne 7325.90 -Other Rs. 400 per tonne. Rule 2(a) - Any reference in a heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that, the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles contained in Rule 3. Exemption Notification No. 223/88-C.E., dated 23-6-1988 - In exercise of the powers conferred by sub-rule (1) of rule 8 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o remain castings although the castings are meant for their ultimate use as machine parts or parts of motor vehicle but such parts of machine or of motor vehicles are brought into existence only by further machining of substantial nature and vital importance at the customer s end or in another factory of one of the appellants wherein they are cleared as machine parts after payment of duty under the relevant Chapters 84 to 87. In short, he has submitted that the castings manufactured by the appellants do not acquire the essential character of machine parts/motor vehicle parts and they cannot be considered as falling under Chapters 84 to 87 liable to duty at the rate applicable to such parts under those Chapters or at the rate of Rs. 500/- per M.T. mentioned at S. No. 03. of the Table to the Notification 223/88. These pleas were sought to be substantiated with the help of photographs and produced in the form of album which was taken as an additional evidence on record. The department was also given an opportunity to verify the correctness of the aforesaid photographic evidence and give its comments thereon. The Collector of Central Excise, Aurangabad vide his letter dated 13-10-1992 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machined castings it can easily be observed that the proof-machined castings are in a rough form and can not be used as such, as a part of any machinery, whereas, the machined castings give a look of finished, smooth and ready to use form of a particular part of a machinery. Thus, it is observed that, what is stated in the note and illustrated in the photographs is factually correct. The party is supplying the cylinder heads to Indian Railways as raw castings (Proof-machined) as well as machined castings (part of machinery) on payment of appropriate duty under respective sub-heading. The enquiries made in this behalf reveal the value of the raw castings is very much less when compared with that of machined castings of the same class." 6.1 Learned advocate has pointed out a number of decisions in his support that the machining undertaken by them does not convert rough casting as it comes out of the casting mould, into a machine part. The essential character still remains that of a casting. He relies on the following decisions of the Tribunal and the relevant extracts therefrom are reproduced below :- (1) JMC Industries v. CCE [1991 (53) E.L.T. 321 (Tribunal) - Para 4.1]. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from which sand moulds can be made. Since molten metal and alloy decrease in volume as they cool and solidify, it is necessary to make the pattern slightly larger than the final casting by an amount known as shrinkage allowance. If machining is to be performed, further allowance must be added to the pattern. INVESTMENT CASTING This process of making castings is often referred to as `lost wax casting and `precision casting . CENTRIFUGAL CASTING A Centrifugal casting process consists of pouring molten metal into a revolving mould. CONTINUOUS CASTING This process of casting is used, in general, for the production of rods, pipes, sheet-metal and other articles as semi-finished products in an uninterrupted process. 7.1 Learned JDR has also relied upon Explanatory Notes to HSN on which is based CETA, 1985 pertaining to relevant Tariff Heading 73.25. These are reproduced below :- This heading covers all cast articles of iron or steel, not elsewhere specified or included. This heading includes inspection, traps, gratings, drain covers and similar castings for sewage, water, etc. systems; hydrant pillars and covers, drinking fountains; pillar boxes, fire alarm pillars, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out that one of the reasons given therein for not accepting the forging of a machine part as not acquiring the essential character of a machine part and consequently the forging not having the classification of a machine part is that the relevant tariff entry would become redundant. And then he went on to submit that the tariff entry would not be redundant; it would still be valid for a number of castings/forgings which are not ultimately intended for use as part of machine or a vehicle. 7.4 Learned JDR has sought to assail Tribunal s decision in TELCO [1990 (50) E.L.T. 571] on the ground that the functional test laid down by the Tribunal would make the Interpretative Rule 2(a) itself redundant because no incomplete/unifinished article would be able to perform the function of a complete/finished article, even if the former had acquired the essential character of the latter. 7.5 Learned JDR has attempted to advance, what he called a theory of progression. When an article is manufactured by casting after it comes out of the mould, it would be one article; when further machining is done on it, casting progresses to another article. It will have to be examined whether the subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed/incomplete article. He has further submitted that Tribunal s judgment in TELCO s case is a unanimous judgment of three Members and is, therefore, of a binding character. 9.0 We have carefully considered the pleas advanced on both sides. Short question involved in these matters is whether the castings of machine parts or motor vehicle parts upto the proof-machining stage acquire the essential character of those machine parts or motor vehicle parts, as the case may be, so as to attract classification under Chapters 84, 85 and 87 of the CETA, 1985 after applying Rule 2(a) of the Interpretative Rules for the First Schedule of the CETA, 1985. If the answer is in the negative, subject appeals succeed. 9.1 We have already extracted in para 6 the type and character of further working to which the castings, as they come out of the mould, are subjected. The Assistant Collector in his report has clearly stated that castings upto the stage of proof-machining are the raw castings still having excess metal for machining according to the requirement in order to achieve the required size to make an essential part of particular machinery and cannot be used in the respective machinery as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases. It is admitted to both sides that the goods in question are `castings - raw or unmachined or proof-machined - still having excess metal for machining according to the requirement in order to achieve the required size to make an essential part of a particular machinery. This subsequent machining is either done by the customer at his workshop or in another factory of one of the appellants herein who clears such parts after payment of due duty. This latter fact is another important factor in not treating the goods as `parts of machinery or as goods having acquired the essential character of parts of machinery inasmuch as the goods if made liable to duty as `parts of machinery on the strength of Rule 2(a), no further duty would be exigible on such goods after machining them into parts ready for use. 9.3 Notification 223/88, at the first blush, presents some difficulties in its interpretation. Table to the notification is applicable to `castings and forgings and not to `machine parts . Different rates of duty have been provided for different types of `castings . S. No. 3 of the Table speaks of castings and cast articles of iron and steel falling under any heading or sub-he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Rule 2(a) of Interpretative Rules to arrive at the finding that the castings in question are parts of machine or parts of motor vehicle. We shall now examine and analyse the wording of Rule 2(a) whether such a result is possible. Rule 2(a) has already been extracted in para 5 above. It states that any reference in a heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that the incomplete or unfinished goods have the essential character of the complete or finished goods. In other words, taking the example of the concerned Heading 73.25, reference to other cast articles of iron or steel would include reference to incomplete or unfinished other cast articles of iron and steel. We have already observed that a cast article is complete when it has been proof-machined and surface defects have been removed. Earliest form of cast article is when it comes out of the casting mould. The Heading 73.25 would, therefore, include all castings from the stage of their emergence from the casting mould to the stage of being proof-machined. Similarly, an incomplete/unfinished part of machine or motor vehicle would also be covered under Cha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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