ORDER
P.K. Kapoor, Member (T)
1. The appellants are engaged in the manufacture of parts of railways locomotives, rough alloy steel castings and cast articles of iron and steel. In respect of parts of railway rolling stock covered by Heading 86.07 of the Central Excise Tariff and rough alloy steel castings falling under Heading 73.07 (7225.20 from 1-3-1988), the appellants had filed classification lists from time to time which were duly approved by the Central Excise authorities. Consequent to the visit of the Central Excise, Preventive staff to the appellants factory on 29-7-1989 the Collector of Central Excise, Coimbatore issued a show cause notice dated 13-12-1989 wherein it was alleged that certain items of rough alloy Steel Castings and Cast articles of iron manufactured by the appellants out of rough steel castings received from M/s. Lasar Flow Control Ltd. for conversion into fully finished parts of railway rolling stock were classifiable under Heading 86.07 whereas during the period 11-6-1987 to 31-7-1989 they had been cleared after payment of duty under Heading 7307.20/7325.20 read with Notification No. 223/86, dated 23-6-1988 resulting in short levy amounting to Rs. 10,25,388.19. The appellants were accordingly asked to show cause why the duty short levied should not be recovered in terms of Rule 9(2) read with Section 11A of the Central Excises and Salt Act, 1944 and why penalty should not be imposed on them under Rules 9(2) and 173Q. In their reply to the show cause notice the appellants denied the allegation and contended that the processing carried out on the castings amounted only to removal of excess metal and surface cleaning and the goods continued to be rough alloy castings assessable under Heading 7307 from 11-6-1987 to 1-3-1988 and under Heading 7325.20 after 1-3-1988, read with Notification No. 89/88 dated 1-3-1988 and 223/88 dated 23-6-1988. They also contended that the demand was time barred as there were no grounds for invoking the extended period under Section 11A of the Act as the castings were assessed on the basis of approved classification lists. However, by the impugned order the Collector confirmed the demand of Rs. 10,25,388.19 relating to the period 11-6-1987 to 31-7-1989 under the proviso to Section 11A of the Act and also imposed a penalty of Rs. 50,000/- on the appellants under Rule 9(2) read with Rule 173Q.
2. On behalf of the appellants the learned Consultant Shri P.C. Srinivasan with Consultant Shri T.N. Vijayaraghvan appeared before us. He referred to the Miscellaneous application No. E/Misc./1013/91-B filed under Rule 23 of the Customs, Central Excise and Gold (Control) Appellate Tribunal (Procedure) Rules, 1982 seeking permission to produce the following documents listed therein by way of additional evidence :
(i) Letters dated 1-9-1989 and 11-9-1989 of the job workers as well as the proceedings durings their cross-examination at the time of personal hearing on 18-7-1990 before the Collector.
(ii) The affidavit, dated 20-7-1991 of a Chartered Mechanical Engineer.
(iii) Letters dated 5-7-1991 and 8-7-1991 from CMM/I & II Southern Railway, Madras addressed to the appellants.
(iv) Drawings in respect of the disputed items.
(v) A list containing names of manufacturers who supply similar items to Railways together with a copy of Gate Pass No. 74/116-5-1991 of M/s. Secals Ltd., Rampet and also letter dated 15-5-1991 from the Supdt. of Central Excise.
3. Making his submission on the findings of the Collector in the impugned order, Shri Sri Srinivasan stated that in his statement, dated 29-7-1989 Shri O.P. Pennuswamy, General Manager of the appellants company had stated that only fettling and rough grinding was being undertaken by the job workers. He contended that Shri Pennuswamy had nowhere admitted that machining operations were being carried out on the rough castings. He added that Sri Sampath Kumar, proprietor of M/s. Sampath Kumar Industries and Shri Shanmugam, Supervisor of M/s. Sri Saravanan Industries had not only retracted their statements but also categorically stated during their cross-examination on 18-7-1990 that while carrying out job work for the appellants they had not carried out any machining operation except, boring, grinding, drilling and milling which were intended to remove surface defects. He argued that under these circumstance their statements could be relied upon by the Department. He contended, as far as knuckle and lock were concerned, for the removal of extra material inside the bore already existing in the casting grinding was carried out with a pencil grinder in a manner so as not to increase the bore diameter. He added that Annexure II to the show cause notice on which reliance had been placed by the Department only referred to processes undertaken for the removal of surface defects or removal of extra material inside the bore. He claimed that in respect of the disputed items only the processes mentioned in proviso to Notification No. 223/88 had been undertaken. Referring to the Collector’s observations that the appellants had deliberately chosen to show the goods as classifiable under Heading 7307.20 and 7325.20, the learned Consultant argued that no mala fide intention could be attributed on the part of the appellants since the Assistant Collector even while choosing to amend the declared heading against Sr. No. 46 in the classification list No. 311/88-89 to 8607.00 had not alterated the rate of duty and the concessional assessment in terms of Notification No. 223/88. He contended that the unilateral change of the declared classification in the classification list was not permissible and on this account the Collector’s finding that the appellants had resorted to deliberate misdeclaration of the classification in the gate passes and invoices was not sustainable.
4. The learned Consultant stated that the appellants were manufacturing certain finished railway parts falling under Heading No. 8607.00 but these did not include knuckle and lock which on account of not having been subjected to any processes other than those mentioned in Notification No. 223/88 were eligible for the concessional rate of duty. He further submitted that the Collector had failed to appreciate that knuckle and lock manufactured by the appellants even if termed as ‘Cast articles’ would attract lower rate of duty since they were not being subjected to any operation other those listed in Notification No. 223/88, dated 23-6-1988. He argued that the benefit of the Notification was sought to be denied in respect of knuckle on the basis of end use whereas end use was not at all a pre-condition for eligibility of the concession under the notification. He contended that the reliance by the Collector on the Patna High Court’s decision in the case of Tata Iron and Steel Co. Ltd. v. Union of India, – reported in 1987 (32) E.L.T. 676 was misplaced since the High Court had examined the question whether forged parts initially attracting duty under Tariff Item 26AA(1)(A) on further machining would be classifiable under the erstwhile Tariff Item 68. He referred to the Collector’s observations in Para 24 of the impugned order and stated that there was no dispute that articles specified in Note 2 to Chapter 86 would be covered by Heading 86.07 provided they are fully furnished. He added that the Collector’s observations in para 25 of the order were contrary to the facts since the appellants had filed a classification list classifying parts of rolling stock which were supplied after machining, under Heading 86.07 and only those parts which were not machined were classified under Heading 7325.20.
5. Continuing his submissions Shri Srinivasan stated that the Collector’s observation that having filed the classificaion list claiming classification of the goods under Heading 8607.00 the reclassification of goods under Chapter 7325.20 in the invoices and G.P.ls amounted to a fraud was only to justify the invocation extended of period under proviso to Section 11A of the Central Excises & Salt Act, 1944. He stated that even though the knuckles and locks supplied to Railways were castings, prior to 11-6-1987 they were being classified by the appellants under Heading 86.07 but in view of the Board’s clarification that such unmachined parts do not lose their identity as castings, in the clarification list Nos. 311/88-89,471/88-89 and 543/88-89 the appellants declared “Rough alloy steel castings” under Chapter 7325.20 and also claimed benefit of Notification No. 223/88, dated 23-6-1988. He added that all these classification lists had been duly approved and while approving them the Assistant Collector had only substituted Heading No. 7325.20 by Heading No. 8607 but he did make any change in respect of the exemption claimed under Notification No. 223/88, dated 23-6-1988. He submitted that the appellants in their letter dated 7-9-1988 addressed to the Assistant Collector protested against this modification and informed him that in respect of “rough alloy steel castings” they would adopt the classification under Heading 7325.20. He contended that since the classification lists were approved and the RT-12s filed by the appellants after clearance of the goods against proper documentation were assessed, there could be no allegation of fraud or mis-statement. On these grounds he argued that the Collector’s order confirming the demand and imposing penalty on the appellants was not sustainable.
6. On behalf of the Department the learned Jt. CDR stated that the appellants were getting rough steel castings from M/s. Lasar Flow Control Limited under Rule 57F(2) for finishing. He added that knuckle and locks manufactured by the appellants were finished Railway parts since prior to 10-6-1987 the appellants had been filing classification lists declaring parts as falling under Heading 8607.00. He added that knuckles and locks supplied by the appellants to the Railways were finished Railway parts falling under Heading No. 8607.00 was evident from the Machine shop records which clearly indicated rough steel castings of knuckles and locks were being subjected by the appellants to boring, drilling and grinding. He contended that despite the fact that the appellants had themselves been classifying these items as finished Railway parts, after 10-6-1987 they changed their description in gate passes and started paying duty on these items under Heading 7307.20/7325.20. He stated that in addition to the operations carried out on these parts in the machine room, the appellants were carrying out fitment operations on odd shape profiles or castings by grinding and using 8 gauges. He referred to the order passed by the Collector and stated that apart from the fact that delivery notes under which knuckles were received back after processing showed that they were subjected to machining Shri P. Sampath Kumar, proprietor of a unit which was receiving the rough castings from the appellants under Rule 57F(2) for finishing in his letter dated 29-7-1989, had confirmed that they were subjecting the castings to processes such as welding, grinding and boring depending upon the requirements and Shri S.K. Shanmugham, the Supervisor in another unit receiving the parts for finishing from the appellants in his statement dated 29-7-1989 had also confirmed that the castings were subjected to processes such as welding, grinding and boring. He contended that retraction of the statements by these persons after a lapse of over a month and the evidence tendered by them during cross-examination was evidently an after thought. He stated that in the invoices prepared by the appellants in which knuckles were shown to have been sent after boring ‘B’ point, and grinding to profile proving showed beyond doubt that these parts had suffered processes such as welding, boring and grinding at the premises of job workers. He also referred to the Collector’s observation that Shri O.P. Ponnusawamy, Deputy General Manager of the appellant company had confirmed in his statement dated 29-7-1989 that after receiving the knuckles from the processing units they were completing the component to the specific dimension by grinding process and carrying out the finishing process to exact dimension by applying gauges as per the drawings and specifications of the Railways. He contended that the disputed parts having undergone machining and finishing operation had in terms of Rule 2(a) of the Interpretative Rules acquired the character of Railway parts falling under Heading 86.07 and could not be treated as castings or cast articles covered by Notification No. 223/88 especially when upto 1-6-1987 the appellants were themselves classifying under proviso to Section 11A was correctly invoked by the Collector since, even after classification of the goods under Heading 8607 had been approved the appellants on their own started showing them as covered by Heading 73.25 in the gate passes and the invoice in order to avail the exemption under Notification No. 223/88.
7. Before proceeding with the examination of the submissions made on behalf of both sides we would like to take up for consideration the Miscellaneous application No. E/Misc./1013/91-B filed by the appellants seeking permission to produce the documents which we have listed earlier in this order. In this regard we find that except the letters dated 1-9-1989 and 11-9-1989 written by the job workers and the record of their cross-examination at the time of personal hearing on 18-7-1990 all the other documents which are now sought to be filed as additional evidence were not placed by the appellants before the lower authority even though they had sufficient opportunity to do so. In this regard we find that in the case of Gaurav Paper Mills v. CCE reported in 1989 (41) E.L.T. 522 the Tribunal while rejecting the application under Rule 23 of the CEGAT (Procedure) Rules, 1982 for permission to produce certain documents by way of additional evidence had made the following observations :
” Following this authoritative pronouncement of the Apex Court this Tribunal in the case of Unique Beauty Care Product Pvt. Ltd. v. Collector of Central Excise -1988 (37) E.L.T. 369 did not allow the appellants of that case to raise a new point that there was no chemical transformation of the ingredients into Kajal on the ground that the same point was not raised before the lower authorities and also refused to admit additional evidence holding that there was sufficient opportunity for the appellants to produce affidavit before the lower authority, but they failed to do so. These authorities apply on all fours to the instant case. The appellants had ample opportunity to raise the plea of limitation that the demand made in the show cause notice was time barred. They had also sufficient opportunity to produce the documents before the authorities below which they now want to produce before this Tribunal by way of additional evidence. Even no such plea has been taken by the applicants in their instant application for admitting the additional evidence. It is interesting to note that in the application in hand they have admitted that the documents they sought to produce now were in their possession but plead that the same could not be produced before authorities below inadvertantly. This can hardly be a ground for admitting the additional evidence at this stage.
It may be stated that we do not require of our own the said documents as the same are not required to enable us to pass orders or for any sufficient cause. We also do not consider the necessity to admit these documents to meet the ends of justice. Tersely no question of “ends of justice” is involved in the instant case as the department is not trying to demand or collect any tax/duty without any section of law.”
Following the ratio of the decision quoted above, we allow the request for taking on record only the letters dated 1-9-1989 and 11-9-1989 of the job workers and also the record of their cross examination which were a part of the proceedings before the lower authority. However, since the remaining documents listed by in the application which were not a part of the record before the lower authority and which are not required to enable us to pass order in this case, we do not consider the necessity to admit them to meet the ends of justice and reject the request for admitting them as additional evidence.
8. Taking up the appeal we find that only the following questions arise for consideration:
(i) Whether the knuckle and lock supplied by the appellants to the Railways were eligible for the concessional assessment in terms of Notification No. 223/88, dated 23-6-1988.
(ii) Whether in view of the facts and circumstances of the case it was permissible for the Department to invoke the extended period for raising the demand in terms of the proviso to Section 11A.
9. In as far as the first point is concerned, in order to be able to appreciate the submissions made on behalf of both sides we consider it desirable to refer to Notification No. 223/88, dated 23-6-1988, the relevant extracts from which are reproduced below :
* * * * *
On a plain reading of the notification it follows that castings and cast articles of steel (other than stainless steel) falling under any heading or sub-heading of Chapters 73,84,85,86, or 87 were exempt from payment of duty in excess of Rs. 700 per tonne as long as they were not subjected to any machining or surface treatment operation other than those specified in the proviso to the notification.
10. The Revenue’s case is that the disputed items namely, ‘knuckle’ and ‘lock’ could not be deemed as ‘castings’ or ‘cast articles’ covered by Notification No. 223/88, dated 23-6-1988 since they were being subjected to certain machining and finishing operations on account of which they had acquired essential characteristics of railway parts classifiable under Heading 86.07. In support of their case that these parts were being subjected to certain machining and finishing operations which are not listed in the proviso to Notification No. 223/88, dated 23-6-1988 the Department has placed reliance mainly on the statements of the job workers to whom the castings received by the appellants from M/s. Lasar Flow Control Limited were being sent under Rule 57F(2) for finishing. Reliance has also been placed on the statement of the Deputy General Manager of the appellant factory wherein he had stated that after receiving knuckles from the processing units, they were carrying out all finishing operations including fitment to exact gauge as per specifications of the Railways and in respect of knuckles they were carrying out processes such as welding, grinding and boring depending upon the requirements. In this regard the Department has also referred the delivery notes under which knuckles were received back after processing by the job workers and also the machine room record of the appellants’ factory indicating the operations carried out on each item.
11. The appellants on the other hand have contended that the only processes undertaken in respect of the disputed items were boring, milling and drilling. In respect of ‘boring’ operations referred to by the Department they have claimed that the appellants subjected the castings to boring operations with pencil grinders to remove only the surface defects in the holes which are present in the rough castings in the form in which they were received by the appellants. It has been claimed that drilling operations were undertaken to correct the bores existing in the castings and no new bores were created by such operations. It has been claimed that grinding and milling operations were also undertaken only to remove surface defects. As regards the statements of the job workers the appellants have contended that they were made at the instance of the officers and could not be relied upon since while retracting their statements on 11-9-1989 they had explained the actual operations undertaken in their factories. Similarly, in regard to the statement of their Deputy General Manager, it has been contended that his version had been distorted, since all that he had stated was that the castings were being finished to the specific dimensions by applying the gauges required for this purpose. Thus, the main thrust of the appellants defence is that rough castings were not subjected to any operation other than those specified in the proviso to Notification No. 223/88 even if the resultant casting or cast article was treated as classified under any heading or sub-heading of Chapter 86, it could not be denied the benefit of the concessional assessment in terms of the Notification No. 223/88, dated 23-6-1988.
12. Even if the statements of the job workers and the Deputy General Manager of the appellants factory are disregarded, we find that in the reply submitted to the show cause notice the appellants themselves had admitted that the rough castings received by them from M/s. Lassar Flow Control were being subjected to various operations including drilling, boring and milling. In this regard the appellants’ case is that rough castings were subjected to drilling, boring and milling only for the purpose of the removal of excens metal or defects from the surface or enlarging the holes already present in the castings. We find that according to the Chambers Dictionary of Science and Technology the terms, ‘milling’, ‘drilling machine’, and ‘boring’ signify the following :–
Milling:- “A machine process in which metal is removed by a revolving multiple – tooth cutter, to produce flat or profiled surfaces, groves, and slots.”
Drilling machine:- “A machine tool for drilling holes, consisting generally of a vertical standard carrying a table for supporting the work and an arm provided with for drilling spindle.”
Boring :- “The process of machining a cylindrical hole, performed in a lathe, boring machine or boring mill, for large holes, or when great accuracy is required, it is preferable to drilling.”
It is evident that milling, drilling and boring are processes which contribute to finishing or change in form of rough casting and not merely to removal of surface defects or removal of excess metal. Castings and Cast articles of steel (other than stainless steel) falling under any of the headings or sub-headings of Chapters 73, 84, 85, 86 or 87 were eligible for concessional assessment in terms of Notification No. 223/88, dated 23-6-1988, only if they were not subjected to any machining or surface treatment other than :
(a) annealing, tempering, case-hardening, nitriding and similar heat treatment to improve the properties of the metal;
(b) descaling, pickling, scraping and other processes to remove the oxide and crust formed during the heating of the metal;
(c) rough coating intended solely to protect products from rust or other oxidation to prevent slipping during transport and to facilitate handling for ample, paints containing an active anti-rust pigment such as red lead powder, zinc oxide, zinc chromate, iron oxide (iron minium, jewel rough), and non-pigmented coatings with a basis of oil, grease, wax paraffin wax, graphite, tar or bitumen;
(d) removal of small portions of the metal for testing purposes; and
(e) removal of surface defects, or of excess “material by grinding chipping, or proof machining, provided that in both the cases there is no change in the form of the products.”
In our view milling, drilling and boring are not permissible processes in terms of the proviso to the Notification No. 223/88 since one or more or these processes if carried out on rough castings or cast articles will contribute not only to removal of surface defects but also to change in its form or shape. For those reasons we are inclined to agree with the findings of the Collector that the disputed items cleared by the appellants for being supplied to the Railways were not eligible for the concessional assessment in terms of Notification No. 223/88, dated 23-6-1988.
13. Taking up the second question relating to limitation we find that in support of his finding that the extended period for confirming the demand of duty was invokable in terms of proviso to Section 11A, the Collector made the following observations :
“In so far as the application of the extended time limit available under proviso to Section 11A is concerned the following may be said. It is a fact that the party had filed Classification List classifying the goods under Chapter 8607. However, it is noticed that having indicated the classification of these goods under Chapter 8607, the party had no option to reclassify the goods under Chapter 7325 on their own in the invoices and gate passes. Further, they never intimated this fact to the Department at any point of time. This amounts to fraud. The right course for the party would have been to seek exemption benefit under Notification No. 223/88 and if not given contest the same at the appropriate forum. Instead of doing this, the party has chosen unilaterally to classification other than what was approved (as indicated in the gate pass) and, the goods were cleared under payment of lesser duty. This act of the party squarely falls within ambit of the provisions available under Section 11A and therefore the department is well within its right to invoke the extended time limit to demand the differential duty.
To sum up, the party had explained that they were doing some processes on the rough steel casting received by them. They also explained the fact that such processes do not alter the basic characteristic of the goods. The goods under question are rightly classifiable under Chapter 8607 and therefore, the exemption is not available to such goods under Notification No. 223/88. In view of the fact that the party had obtained the classification of the goods under Heading 8607 and indicated a different classification, namely, 7325 in the gate passes so as to enable them to avail the concessional rate of duty, the department is well within its rights to invoke the extended time limit available under Section 11A of the fact.”
As regards the Collector’s observation that classification of the goods under Heading 7325.00 and payment of duty at concessional rate under Notification No. 223/88 dated 23-6-1988 after having filed the classification list classifying the goods in question under Chapter 8607 amounted to a fraud, the appellants have stated that in the classification list 311/88-89, 347/88-89, 471/88-89 and 543/88/89 even though the classification of the goods in question was claimed under sub-heading 7325.00 the Assistant Collector while approving the list had unilaterally changed the classification to sub-heading No. 8607.00. It has been also claimed that even while changing the classification the concessional rate of duty under Notification No. 223/88, dated 23-6-1988 was not altered by the Department in terms of the approved classification lists even if the goods were deemed as classifiable under sub-heading 8607.00 concessional assessment under Notification No 223/88, dated 23-6-1988 was admissible to the appellants.
14. On reference to the copies of the relevant classification lists which are available in the records of the case we find that as pointed out by the appellants they had declared the disputed goods as “Rough alloy steel castings” classifiable under sub-heading 7325.00. They had also claimed concessional assessment of goods in terms of Notification No. 223/88 dated 23-6-1988. It is seen that the Assistant Collector while approving the Classification lists revised the declared classification to show the goods as classifiable under sub-heading 8607.00 but at the same time he approved their assessment at the concessional rate in terms of Notification No. 223/88, dated 23-6-1988. Since the Notification No. 223/88, dated 23-6-1988 exempted all “Castings and Cast articles of steel (other than stainless steel)” irrespective of whether they were classifiable under any heading or sub-heading of Chapter 73 or 86 we are inclined to agree with the appellants that clearance of the disputed goods on payment of concessional duty under Notification No. 223/88, dated 23-6-1988 in terms of the approved classification list could not be held as amounting to a fraud. Apart from the fact that in terms of the approved classification list both castings and cast articles of steel (other than stainless steel) were assessable at the concessional rate of duty in terms of Notification No. 223/88, dated 23-6-1988, the RT-12 returns filed by the assessee from time to time were also finally assessed. It is, therefore, evident that the Department had at all times full knowledge about the activities of the appellants. Under these circumstances, on the ratio of the judgment of the Hon’ble Supreme Court in the case of Collector of Central Excise v. Chemphar Drugs and Liniments reported in 1989 (40) E.L.T. 276 we hold that there was no wilful mis-statement or supression of facts by the appellants and the order invoking the extended period of limitation under Section 11A of the Central Excises and Salt Act, 1944 is not sustainable and the period of limitation available to the department was only six months.
15. In light of the discussion we hold that:
(i) The disputed goods were not eligible for the concession in terms of Notification No. 223/88, dated 23-6-1988.
(ii) In view of the facts and circumstances of the case it was not permissible for the Department to invoke the extended period of limitation in terms of proviso to Section 11A of the Central Excises and Salt Act, 1944.
16. The appeal, is, therefore, partly allowed.