TMI Blog1995 (9) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... f. 13-5-1988, 1-3-1989 and 20-3-1989. Later on the appellants claimed classification of these products under Chapter sub-heading 7326.90. However, the department was of the view that these forgings had already attained essential character of finished products as parts of motor vehicles and hence by virtue of Interpretative Rule 2(a) these products though not fully finished were to be classified as if they were finished parts under Chapter sub-heading 8708.00 of CETA, 1985. Accordingly, a show cause notice was issued to the appellants asking them to explain as to why the goods manufactured by them should not be classified under Chapter Heading 8708.00 of CETA, 1985 and why differential duty should not be demanded from them and why penalty should not be imposed. 3. Shri Gautam B. Doshi, Chartered Accountant alongwith Shri Jitendra Singh, Advocate appearing for the appellants submitted that the appellants are engaged in the manufacture of forgings and forged products; that the admitted position was that the goods were forgings and forgings can be machined to gears, pinions etc.; that the dispute between the department and the appellants is that the appellants claimed that their prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Item 68 on the completion of the manufacture of finished goods. The ld. Chartered Accountant therefore submitted that even after the forgings, the forged products had not acquired the essential character of component parts as they needed further to be worked and further working of these forged products was done by the purchasers before they are identifiable as motor vehicle parts and hence the appellants products were neither motor vehicle parts nor the forgings can be said to be motor vehicle parts. 4. It was argued by the ld. Chartered Accountant that the product of the appellants was roughly shaped forgings; that forging is the primary product; that alloy steel is used in these forgings; that the goods are un-machined forgings; that in para 9.4 of their order, this Tribunal had interpreted Rule 2(a); that according to this interpretation of Rule 2(a), the appellant s goods had not acquired the character so as to be classified under Central Excise Tariff Sub-Heading 8708.00. In support of his contention, the ld. CA cited and relied upon the decision of the Tribunal in the case of TELCO v. Collector reported in 1990 (50) E.L.T. 571. Further, the decision of the Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at letter the appellants have nowhere shown that they were rough forgings; that the invoices clearly show part number and not the drawing number; that the part numbers are indicated only in finished parts; that the photographs do not show rough forgings; that Central Excise Tariff Heading 7224 reads Other alloy steels in ingots or other primary forms; semi-finished products of other alloy steel ; that Chapter note (ij) excludes classification of the product of the appellants under CE Tariff Chapter Heading 7224; that classification under 7326.90 is ruled out in view of explanatory notes on page 1038 wherein it has been provided that This heading does not cover forgings which are products falling in other headings of the Nomenclature (e.g. Recognisable parts of machinery or mechanical appliances) or unfinished forgings which require further working but have the essential character of such finished products. that HSN Explanatory notes at page 1433 provided that forged products are not excluded from the purview of Tariff Heading 8708.00 as motor vehicle parts; that the product manufactured by the appellants was not rough forgings but recognisable parts of motor vehicles and hence w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or proper appreciation of these contentions, Tariff description and the provision of Rule 2(a) is reproduced below : - 7224.00 Other alloy steel in ingots or other primary forms; semi-finished products of other alloy steel. (i) forged (ii) other 73.26 Other articles of iron or steel - Forged or stamped, but not further worked: 7326.90 - other 8708.00 Parts and accessories of the motor vehicles of Heading Nos. 87.01 to 87.05. 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 those goods complete or finished (or falling to be classified as complete or finished by virtue of this rule), removed unassembled or disassembled." 9. The admitted position is that the goods are forged products. The only dispute is whether they had acquired the essential character of complete or finished goods or not. All the other disputes are peripheral and minor. 10. In the case of BHEL reported in 1987 (28) E.L.T. 545, the Lar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being proof-machined. Similarly, an incomplete/unfinished part of machine or motor vehicle would also be covered under Chapters 84, 85 or 87 as the case may be. A machine part or motor vehicle part, subject to any section or Chapter note, would normally be one which is ready for use in a particular machine or motor vehicle. Application of Rule 2(a) would lead us to conclude that an incomplete or unfinished part of a machine or motor vehicle would fall under Chapters 84, 85 or 87, subject to fulfilment of the condition of essential character . Rule 2(a) does not permit us to conclude that when an article squarely falls under a particular tariff heading, it can be made to fall under another heading by invoking the concept of essential character. This is against the plain reading of Rule 2(a). But this is precisely what is attempted to be done by the lower authorities in the impugned orders. It is not denied that `castings of iron and steel do fall under Heading 73.25, but because the castings have the `essential character of products under Chapters 84, 85 or 87, such `castings should be deprived of their most appropriate and only classification. Such an interpretation of Rule 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied that un-machined forgings supplied to us as forged condition by you undergo normalising, shot blasting, plank turning, gear cutting and further operations as required before the end use. M/s. Gajra Gears in their letter dated 22-8-1992 have certified that We are availing modvat credit on forgings received from M/s. Jaypee Forge . However, in the purchase order of M/s. Gajra Gears, it is clearly indicated as : FORGINGS AS PER SHEET ENCLOSED Note : 1. The material used for forgings should be from HUSCO, ASP-KALYANI, Oswal Steel (Forged Circuit) and Test Certificate as per Form already with you should be sent alongwith each batch of forging despatched. 2. The prices are in As Forged Condition. 3. Excise Duty : 10% of the value plus special duty of 15% on basic excise duty as applicable. 4. Sales Tax : 4% C.S.T. against `C form. 5. Forgings are to be despatched by Road Transport on (Freight to pay) on door delivery basis to the destination indicated by us." From the above, it is clear that the forgings supplied by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of essential character and that Rule 2(a) does not promise us to conclude that when an article squarely falls under particular Tariff heading, it cannot be made to fall under another Tariff heading by invoking the concept of any essential character. It is not denied that forgings of steel do fall under Heading 73.25 not because the forgings had acquired the essential character of products under Chapters 84, 85 or 87, such forgings should be deprived of their most appropriate and only classification under Chapter Heading 73.25. Such an interpretation of Rule 2(a) is untenable. 17. We also note that forged products which are machined polished, etc. and made fit for being used as machine parts, assume altogether different character from what it was when forged so as to make them identifiable or usable as machine parts. 18. In the instant case, admittedly, the items were declared as forged products/forgings as also from the letters submitted by the appellants from their buyer, these forged products underwent a number of processes before they took the shape of parts of motor vehicles. 19. It is a fact that with effect from 1-3-1988, Chapters 72 and 73 of the Central Excise Tar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the concept of blanks and semi-finished article under Rule 2(a) of the Rules of Interpretation. Forgings and forged products not covered under Heading 72.07 would be classifiable under Chapters 73, 84, 85, 86 etc. as blanks or semi-finished articles having essential character of machinery parts etc. 21. On careful consideration of the material placed before us, we find that in classification list No. 67/88, dated 14-10-1988, the assessees have claimed classification of their product under Chapter sub-heading 7207.90 in classification list dated 1-3-1989 classification of the product has been claimed by the assessees under Chapter sub-heading 7224.00 in the classification list dated 8-4-1991, the assessees have claimed classification of their product under Chapter sub-heading 7326.90 and in classification list dated 1-3-1992, the assessees have claimed classification of their product under Chapter, sub-heading 7326.90. In the classification list, the goods have been described as forgings and forged articles of steels, the purchase orders received from customer, the goods have been described as pinion forging, crown forging, speed gear forging etc. whereas the description gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orging ready for final mach- ining. The heading similarly excludes drop forgings and pressings produced by forging between matrices since the articles produced by the operations are ready for final machining . 24. Examining this definition given in the HSN notes which were fully aligned with the Central Excise Tariff from 1-3-1988, we observe that forgings were not machined and the only operation that was required to be done with the forgings, was machining. In the HSN Notes it has been very clearly provided that Heading 72.07 will not cover a product which is ready [for] final machining. The products manufactured by the appellant were ready for final machining as is evident from the bills issued by the appellants to their customers and a few of them have been cited (supra). In this view of the matter, we hold that the forgings and forged products manufactured by the appellants were correctly classified under sub-heading 8708.00 of the Central Excise Tariff Act, 1985. This finding is fully supported by the rulings of the Hon. Supreme Court in the case of Fenner (India) Ltd. v. Collector of Central Excise, Madurai reported in 1995 (77) E.L.T. 8. In this case, the Hon. Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere manufacturing forgings are not for engine application. The process of manufacture noted by ld. Asstt. Collector is that The process of manufacture involves cutting of iron bars, billets into requisite quantity in accordance with the specifications, heating of cut pieces to the required temperature and getting forged in the die forge hammer in the hot stage. Such hot forgings are taken out of the die hammer, will have excess material projecting on the sides. These forgings are then subjected to air cooling and thereafter the excess material is removed by grinding without causing any change in the form of the product. It is seen that no other process is carried out by them in their factory, other than this and therefore, the forgings forged products of steel manufactured by them are not subjected to any machining or treatment other than what is provided in the Notification No. 223/88 (emphasis supplied by me) . 28. The ld. Asstt. Collector has not considered these items as `Forgings Forged Products for classification under Chapter sub-heading 7326.90 which has already extracted in ld. Member (T) s order. He has held that the items are having the shape and essential char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Articles of Chapter 82 (but not in Heading No. 73.15) references to parts of goods do not include reference to parts of general use as defined above . Section XVII applies to Chapter 86 to 89 Note 2 of Section XVII reads : The expression `Parts and `accessories do not apply to the following articles, whether or not they are identifiable as per the goods of this Section :- (a) Parts of general use, as defined in Note 2 of Section 2 of Section XV, of base metal (Section XV), or similar goods of plastics (Chapter 39), (e) Machines and apparatus of Heading Nos. 84.01 to 84.79, and parts thereof, articles of Heading No. 84.81 or 84.82, and provided they constitute integral parts of engines or motors, articles of Heading No. 8483. Note 3 reads : Reference in Chapter 86 to 88 to parts or `accessories do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part or accessory. Therefore, it follows that Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewhere in the Nomenclature. The heading includes : (1) Horseshoes : boot or shoe protectors whether or not incorporating affixing points; tree climbing irons; non-mechanical ventilators; Venetian blinds; binding hoops for casks; iron or steel fittings for electric wiring (e.g. stays, clips, brackets); suspension or connecting devices for insulator chains (suspension rods, shackles, extensions, eyes or rings with stud connections, ball sockets, suspension clamps, dead-end clamps etc.), non-calibrated steel balls (see Note 6 to Chapter 84); fencing posts, tent pegs, stakes for tethering livestock, etc. hoops for garden borders, trainers for trees, sweet peas, etc. turnbuckles for bracing fencing wires; tiles and gutters; clamping or tightening bands or collars (hose clips) used for clamping flexible tubing or hose to rigid piping, taps etc. hangers, stays and similar supports for fixing piping and tubing (except clamps and other devices specially designed for assembling tubular elements for metal structures, which fall in Heading 73.08), capacity measures (other than domestic types Heading 73.23); thimbles; road studs; forged hooks, e.g. for cranes, snap hooks for all purposes; l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n forged stage without undergoing any process or processes to acquire essential character. The term Essential character has not been defined anywhere, but the understanding arrived in several judgments referred to before us, is that the product should have crossed the stages of processes delineated in the Notification No. 223/88. Further, the above HSN Explanatory Notes states that the heading covers all iron or steel articles obtained by Forging or Punching by cutting or stamping or by other processes such as folding, assembling, welding, turning, milling or perforating, but excludes 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. As the HSN Explanatory Notes itself points out that an article would go out of Heading 73.26 only if it is included in the preceding heading 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. As I have examined it is seen that the impugned item is not covered by Note 1 to Section XV or included in Chapter 82 or 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. Union of India 1988 (35) E.L.T. 605 at para 4 at pages 608/609. The same is extracted herein below :- ****** 32. The Collectorate and CBE C had been issuing circulars to express their understanding when a product would acquire essential character. Trade Notice No. 31/87 dated 4-3-1987 issued by Vadodara Collectorate, has clarified that merely because the following operations (as noted below) are carried on, the goods would not acquire essential character of the castings and would not be enough to merit classification of such castings as machinery parts under Chapter 84 or 85 as the case may be : (a) Removal of runners or risers (b) Surface clearing of surface defects (c) Chipping, filing or grinding to remove excess material (d) Anneating the stress relieving (e) Proof machining (f) Surface casting This view was reiterated by Central Board of Excise Customs by F. No. 139/2/81, dated 10-11-1981. Therefore, the understanding of essential characteristics has been well stated by the Trade Notices and by Board circulars. These understandings have not changed and the impugned goods has not acquired any of the essential characteristics of the semi-f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Forged or stamped but not further worked : 7326.11 Grinding balls and similar articles for mills [7326.19] Other 7326.20 Articles of iron or steel wire 7326.90 Other Under Heading No. 87.08 parts and accessories of the motor vehicles such as tractors, public transport type passenger motor vehicles, motor cars, motor vehicles for the transport of goods and other special purpose motor vehicles, etc., are covered. Various sub-headings under this Heading No. 87.08 cover such items as gear boxes, axles, shock absorbers, clutches, steering boxes, etc. From the reading of these various items, it is seen that they are all fully finished ready for use parts. 37. In the show cause notice, the main ground for classification under Heading No. 87.08 is that the forgings of motor vehicle parts in question had attained the essential character of the finished parts of motor vehicles. Motor vehicle parts call for strict specifications and precision. Safety of the passengers and the safety of the road users depend upon the quality of the motor vehicle parts. The facts of the case do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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