ORDER
Harish Chander, Vice-President
1. M/s. Steel & Industrial Forgings Ltd., Athani, Mulagunnathakavu, Trichur, has filed the above captioned two appeals, and appeal No. E/1259/88-B1 and appeal No. E/3783/88 filed by the Revenue, emerge from the same impugned order i.e., Order-in-Original No. 228/87 dated 31st December, 1987 and appeal No. E/1348/88-B1 emerges from order No. 41/88 dated 22-6-1988 passed by the Collector of Central Excise, Cochin. Shri A. Vijay Raghvan, learned Consultant, has appeared on behalf of the assessee and Shri R.M. Ramchandani, learned SDR, for the Revenue. Both the sides state that the issue involved is common in all the above-captioned three appeals, and the same to be disposed of by this common order. Accordingly, we proceed to decide the same.
2. Shri A. Vijay Raghvan, learned Consultant, stated that the goods in dispute are steel forgings (drop forgings) for automobile industries as per the drawings supplied by the automobile manufacturers). Shri Raghvan pleaded that earlier the roughly shaped forgings were falling under Tariff Item 25(8) of the Central Excise Tariff prior to 1-3-1986, and with effect from 1-3-1986 the same fall under 72.08. He pleaded that description under the old as well as new Tariff is the same, viz., “Pieces roughly shaped by rolling or forging of iron and steel, not elsewhere specified”. Shri Vijay Raghvan,learned Consultant, pleaded that earlier the assessee was availing the benefit of Exemption Notification No. 208/83-C.E., dated 1st August, 1983 and also Notification No. 31/76-C.E., dated 28th February, 1976. He pleaded that the assessee was availing the benefits of these Notifications. Suddenly, the Board issued a clarification dated 4-6-1987 which appears on page 16, filed by him, which reads as under : Iron & Steel Forging – It is observed that there is no sub-heading for covering Forged products of iron and steel corresponding to castings of iron and steel which are covered by Heading No. 73.07 of the Central Excise Tariff. It is further viewed that sub-heading 7208.00 refers pieces roughly shaped by Rolling or Forging of steel not elsewhere specified. The clarification dated 4-6-1987 which was withdrawn by the Ministry’s letter Circular dated 18th September, 1989 is in respect of classification of forgings and forged products during the period 1st August, 1983 to 27th February, 1986, 28th February, 1986 to 29th February, 1988 and 1st March, 1988 onwards. Shri Vijay Raghvan, learned Consultant, pleaded that the letter circular issued by the Government was on the basis of the decision of the Supreme Court in the case of TISCO v. Union of India reported in 1988 (35) ELT 605. Shri Raghvan pleaded that in view of the position explained by him and the judgment of the Supreme Court, the appeals filed by him may be allowed and the Revenue’s appeal be dismissed.
3. Shri R.M. Ramchandani, learned SDR, who has appeared on behalf of the Revenue, stated that he has received instructions from Collector vide his letter No. C.No.IV/3/71/88-RC dated 29-5-1990 where it has been mentioned that he may concede in respect of in appeal No. E/1259/88-B1. The letter received from the Collector is reproduced below:
“Office of the Collector of Central Excise and Customs Central Revenue Building: I.S. Press Road, Cochin-18.
C. No. IV/3/71/88-RC
Dated 29-5-90
To
The Chief Departmental Representative,
Office of the Chief Departmental Representative,
CEGAT (Customs, Excise & Gold (Control) Appellate
Tribunal, R.K. Puram, New Delhi.
(By name to Shri M.S. Arora, JDR)
Sir,
Sub:- Excise appeal No. E/1259/88-B1 in the case of M/s.. Steel & Industrial Forgings Ltd. v. Collector of Central Excise, Cochin.
…
Please refer to your letter F. No. ED/BB/874/88/1357 dated 30-4-1990.
As per Ministry’s Circular F.No. 139/79/87-CX. 4, dated 18-9-1989 Forgings which had been subjected to processes upto and including the stage of proof machine were to be regarded as ‘pieces roughly shaped’ under old Tariff Item 25 and also under heading 7208 with effect from 28-2-1986. As such, you may concede the case in view of the afore-mentioned instructions.
Yours faithfully,
Sd/-
(T.R. RADHAKRISHNAN)
COLLECTOR (CENTRAL EXCISE)
COCHIN.
Shri Ramchandani, learned SDR, stated that in view of the Circular issued by the Board as well as judgment of the Supreme Court in the case of TISCO v. Union of India, reported in 1988 (35) ELT 605, he does not press appeal No. E/3783/88 filed by the Revenue and concedes in respect of appeal No. E/1259/88-B1. For appeal No. E/1348/88-B1, he fairly stated that the facts are similar and, as such, he leaves it to the discretion of the Bench.
4. We have heard both the sides and have gone through the facts and circumstances of the case. We have perused the Government of India, Ministry’s Circular F. No. 139/79/87-CX. 4, dated 18th September, 1989 as reported in 1990 (47) ELT T-14 is reproduced below:
“FORGINGS AND FORGED PRODUCTS (CHAPTERS 72 & 73)
I am directed to say that doubts were arisen on the classification of forg-ings and forged products during the periods 1-8-1983 to 27-2-1986, 28-2-1986 to 29-2-1988 and 1-3-1988 onwards and in particular the scope of the expression ‘Pieces roughly shaped’ and the application of the concept of blanks and other semi-finished articles having essential character of the finished articles.
The matter has been examined. The Board felt that in view of the order of the Hon’ble Supreme Court in the case of TISCO v. Union of India -1988 (35) ELT 605 on two stage levy for castings and forgings under the erstwhile CET and of the High Court of Gujarat, Ahmedabad’s order dated 5-2-1988 in the case of M/s. Echjay Industries v. Union of India, which is against the recourse to explanatory notes so long as the tariff entries were not aligned with HSN, the beyond ratio of Board’s decision on castings should be applicable mutatis-mutandis to the classification of forgings as well. The Board noted that Chapters 72,73 of the CET Act, 1985, prior to 1-3-1988, were not fully aligned with ESN. The entries in the Chapters 72,73, of the CET Act, 1985, prior to 1-3-1988 to be interpreted in accordance with the established practice and trade understanding. Accordingly, forgings which had been subjected to processes upto and including the stage of proof machining whereby they were only smoothened and made ready for final machining to shape them into machine parts were to be regarded as ‘Pieces roughly shaped’ under the old Tariff Item 25 and also under heading 7208 with effect from 28-2-1986. In view of the above, Board’s telex instructions contained in F. No. 139/69/86-CX. 4, dated 4-6-87 clarifying the specialised and restricted scope of ‘Pieces roughly shaped’ under heading 7208 on which the scope was based on HSN Explanatory Notes and calling for classification of such forgings and forged products as were not covered by heading 7208 and were yet not final articles of iron and steel under heading 7308, stands withdrawn. Pending classification disputes of the periods 1-8-1985 to 27-2-1986 and 28-2-1986 to 29-2-1988, if any should be finalised on the basis of the above decision.
With effect from 1-3-1988, Chapters 72 & 73 of the CET Act, 1985 were aligned with HSN and accordingly from 1-3-1988 onwards the classification ought to have been determined in the light of HSN Explanatory Notes, on the basis of narrow, restricted and specialised scope of heading 7207 and by application of the concept of ‘blanks’ or semi-finished articles under Rule 2A of the Rules of Interpretation. Forged and forged products not covered under heading 7207 would be classifiable under Chapters 73,84,85,86 etc. as ‘blanks’ or semi-finished articles having essential character of machinery parts etc. However, for the period 1-3-88 to 22-6-88 i.e. till the issue of Notification No. 223/88-C.E., dated 23-6-1988 the implications of HSN Explanatory Notes were not fully understood and their strict application may cause undue hardship to the trade. The Board is contemplating ascertainment of general practice of assessment for considering waiver of duty under Section 11-C. But after 23-6-1988, the classification in the light of HSN Explanatory Notes will be strictly applied.
The classification issue may be finalised accordingly – But it may be noted that refund of duty paid is not contemplated since duty paid under Heading 7308 was eligible for MODVAT credit as has been clarified in Board’s Telex dated 4-6-1987.
Para Nos. 4, 5 & 6 from the judgment of the Supreme Court in the case of TISCO v. Union of India, reported in 1985 (35) ELT 605 are reproduced below:
“4. A perusal of these items makes it clear that forged steel products are 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 cevered by Tariff Item No. 26AA(ia) which included forged or extruded shapes and sections, not 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 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 upto 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 Joss weight on account of excess skin removal. It was on the other 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. and Anr. v. Union of India and Ors. [1985 (20) ELT 280 at paragraph 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 and section nearest to the forged steel product required and also the forging clearances specified in the standards by ISI/or International. It is conceded by the Government that forging would not cease to be forging by processes like removal of superfluous extra skin or cast iron.”
The learned Judge had 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 be regarded as incidental or ancillary to the process of manufacture. This view is also consistent with the definition given to the term “manufacture” contained in Sub-section (f) of Section 2 of the Central Excises & 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”.
“5. 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 Railway 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 duty 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 are 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 are subsequently precision machined by the Railways at their workshops before being put to use to meet the actual requirements 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 these 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.
“6. We may make it clear that what we have said in the foregoing paragraphs is applicable to all the goods with which we are concerned save and except 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 liable to pay duty on the same under Tariff Item No. 26AA(ia) as well as under Tariff Item No. 28. The only contention in this connection is as regards the question of limitation to which we shall presently come.”
5. In view of the above discussion, the appeals filed by the assessee are allowed and the appeal filed by the Revenue is dismissed. Revenue authorities are directed to give consequential effect to this order.