TMI Blog1985 (6) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... ion lists having been filed, the goods; namely, wheels and axles (including sets), were duly approved by the proper officer on physical verification, to be classifiable under TI 26AA(ia). The appellants have claimed that the Department has, all through, treated these wheels and axles as forged products within the contemplation of TI 26AA(ia), and that the appellants have been clearing the goods on this assumption but, the Department issued a show cause notice, covering the period 1-3-1975 to 27-4-1980, for the first time on 28-4-1980 calling upon the appellants to show cause as to why the final products, cleared as wheels, axles and wheel-sets, after having discharged duty-liability at the forging stage under TI 26AA(ia), be not assessed to duty as finished products under TI 68. This notice was followed by a corrigendum issued on 30-9-1981, on which date another notice was also issued for the subsequent period: 28-4-1980 to 31-8-1981. Yet another notice was issued on 17-2-1982 for clearances effected during the period 1-9-1981 to 30-11-1981. 3. The appellants contested the notices by contending that the goods which they cleared were nothing beyond forged products, and that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that the wheels, axles and wheels-sets, as they are finally cleared and delivered to the Indian Railways, undergo substantial processes, after the stage of forging, which give them a separate commercial identity and, consequently, the first excisable point would be when they emerge as forged goods of certain shape and size, and they have to discharge the duty-liability under TI 26AA(ia), but there would be a second excisable point when the finished wheels and axles are turned out and made into wheel-sets and since Tariff Items 1 to 67 do not cover these final products, they would be excisable under the residuary item; namely, TI 68. He also took note of the fact that the preponderant quantity is cleared in the shape of wheel-sets which entails substantial machining, joining of wheels and axles by hydraulic press, painting, etc., which are in the nature of substantial operations undertaken in a machining plant with high precision instruments and subjected to a very high quality control, and that the wheel-sets are definitely a distinct commodity. 6. Pursuant to this finding, that what had been declared were only the goods falling under TI 26AA(ia), which envisages only forg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector on 26-5-1979, and that was the prevailing classification list, till the issue was raised by means of show cause notice issued on 28-4-1980. He also added that the Assistant Collector, in his order dated 5-9-1978, in respect to the RG-1 Register, had taken full note of the factum of clearances of wheel sets, which argument he put forward to counter the Collector s observation that there was lack of full disclosure for the reason that there had never been a mention of wheel sets being cleared in the classification lists. Shri Mukherjee further contended that this was a case where even the demand could not go back to six months from the date of issue of show cause notice because there was no circumstance to justify revision of the earlier approvals, accorded to the classification lists. 9. Reverting to the merits of classification, Shri Mukherjee contended that the products, described as wheels and axles, or even wheel-sets could not be considered to be falling in any category beyond forged products inasmuch as forged products were not marketable as such, and they could not be treated as a product at the black stage, and that machining was a necessary process to make them for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machining as a necessary part of the forging process. Shri Mukherjee also placed on record a set of photographs of the products both for the goods called as a black stage , and the goods as delivered to the Railways under description : wheels, axles or wheel-sets . 13. Shri Mukherjee further added that, in any case, there had been no loss to the Government inasmuch as the delivery of the goods had been primarily to Indian Railways, who were manufacturers of wagons, and in case they had purchased these goods as duty paid they would have got benefit of Rule 56A and, thus, the duty, which the appellants would have paid, would have been adjusted by the Railways by way of set off, and that this circumstance also had a bearing on the question of the period of limitation, inasmuch as there could not be any intent to evade duty which was a necessary condition to extend the standard period of limitation. 14. Shri Mukherjee also urged that inasmuch as the goods clearly fall within the description of forged products, as contemplated by Tl 26AA(ia), there was no justification to consign them to the orphanage of the residuary item-TI 68-for which contention, he relied on a judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as parts of machinery, they will be liable to additional duty of Central Excise under T.I. 68, i.e., in addition to the duty paid at the stage of forging. 16. As to the Notification No. 150/77, referred to by learned Advocate for the appellants, Shri Verma contended that, apart from the fact that exemption notification could not be used for interpretation of a tariff entry, the purpose of the said notification was entirely different and it had referred to melting scrap in certain situations, when cleared from an integrated steel plant, and had no bearing on the controversy in issue. 17. Shri S.C. Rohtagi, DR, supplemented the arguments of Shri Venna in this regard by asserting that there had been cases of imports of goods described as forgings or castings to counter Shri Mukherjee s arguments that forged products were not treated as separate marketable products. 18. On the question of time bar , Shri Verma stated that apart from the fact that there was no disclosure in respect to the wheel-sets as such and these were never shown in the classification lists; otherwise also, the processes of machining were not described in the classification lists nor were these goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We consider it expedient to take note of certain established, or admitted, facts in this regard. The fact that the goods were cleared under the distinct name of wheels and axles is not disputed. It was in fact admitted during hearing that goods are mostly in the nature of wheel-sets, and it is only occasionally that they are cleared as wheels or axles, separately. We further find from the description in the classification lists filed by the appellants themselves-the latest being one effective from 1-4-1978 filed on 24-4-1979 and approved by the Asstt. Collector on 26-5-1979 (Annexure-IV)-that these goods called, wheels and axles have been put under a general heading; namely Finished Steel Products . This clearly indicates that the appellants treat these wheels and axles as not bare forgings, but as finished steel products. (Emphasis supplied). 12. According to the Collector, as discussed in detail in the Adjudication Order and summed up in the last para of Summary , it is clearly mentioned that after the forging-stage, the goods are transferred to a separate section, known as Machining Section , where they undergo processes such as substantial machining, joining of wheel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of machinery, they become liable to additional duty of Central Excise under TI 68 in addition to the duty at the stage of forging; we confirm the view taken by the Collector in the impugned order to the effect that the steel forgings in this case had crossed that stage and become, as a result of further machining and other processes as described therein, separate identifiable goods to be used as part of the railway wagons, and they have to discharge duty liability at the second stage, after having paid duty under TI 26AA(ia) as forged-products. 24. Although there was no reference by either party but we find that this Tribunal in another case has taken a similar view in the case of Pefco Foundary and Chemicals Ltd. v. Collector of Central Excise, Pune 1985(19) E.L.T. 103 (Tribunal) , holding that whereas proof machining could be considered to be an integral part of the forging process with the result that forged products merely undergo rough machining so as to remove some defects from the forgings and make them smooth and clean ones and also as part of testing-process; the machining to which the goods are further subjected to make them fully machined identifiable part of mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent natures by the customers, before being used as machine-parts; whereas, in the present case there is no such suggestion even, that the Railways have to subject the goods to any further processes before fixing them on to the wagons, and it can rather be inferred from the combined circumstances that the goods as cleared in the form of wheel-sets, and even as wheels and axles which may be kept as spares, do not require any further processing at the end of appellants customers; namely, the Railways. 27. The Delhi High Court also had this distinction in view while holding in the case of Khandelwal Metal and Engg. that the goods, after the stage of forgings or castings; when subjected to further processes of machining, trimming or drilling of holes, etc., before clearance, whether to outside customers or for captive consumption as intermediatory goods, so as to become identifiable machine- parts, they become liable to pay excise duty at the second stage under TI 68 and, to the same effect, is the reasoning in the case of Pefco Foundary and Chemicals Ltd. decided by the Tribunal (supra). 28. We also find no substance in the plea that forgings as such are not marketable prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, and the Adjudication Order of the lower authorities indicated that the factory of the appellants manufactured only forged products and it was in that context that the Bench held that the type of machining which those products, cleared as products of a forging-factory, had undergone was of an incidental nature and did not convert them into goods further liable to duty under TI 68, particularly when the contention of the appellants in regard to one of products; namely, hammers, as being covered by TI 26AA, was upheld and the other two products of the same factory were held to be falling under TI 68, without assigning any reason. This case, therefore, also lends no assistance to the case of the appellants where, as discussed in detail, the goods assumed a distinct character as wheel-sets, wheels or axles, ready for use in the manufacture of wagons by the Railways, which are shown in the classification lists by the appellants themselves under the heading finished steel products . 31. We, therefore, hold that the Collector had rightly held them liable to discharge duty liability under TI 68, at the second stage after having paid duty as forged products under TI 26AA(ia). We also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the first time only in April 1980; it does not lie in the mouth of the Department to even suggest that there was suppression on the part of appellants, much less mis-statement, or that it was a case of any clandestine removal. We also find justification in the plea of the appellants that in case they were obliged to pay duty, they could pass it on to the customers who could claim set off under Rule 56A and, as such, there could be no intention to evade duty, nor any loss of revenue to the Department, and that it was apparently a case of genuine belief as to classification. 34. We are, therefore, of our considered view that there is absolutely no justification in invoking or applying the extended period of limitation of 5 years. It was held by the Supreme Court in the case of N.B. Sanjana, Assistant Collector of Central Excise, Bombay, and others v. Elphinstone Spinning and Weaving Mills [AIR 1977 (SC) 2039 = 1978 E.L.T. 399], that in the case of classification lists being filed and the stand, as indicated therein, being endorsed by the Deptt., by according approval to the classification lists; the provisions of Rule 9(2) could not be invoked. 35. There can be, thus, no d ..... 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