ORDER
A.J.F. D’Souza, Member (T)
1. This appeal was earlier heard on 19-10-1983 by a Special Bench. Since they could not agree with the ratio of the decision by another Special Bench in Order No. (1983 E.L.T. 1122), this Special Bench comprising five Members has been constituted by the President to decide the appeal.
2. The matter before the Bench originated in the Revision Application dated 27th August, 1975 transferred by the Government of India to the Tribunal to be heard as an appeal, pursuant to Section 131(B) (a) of Customs Act, 1962.
3. The issue that arises for our consideration is whether Malleable Iron Castings, imported by the appellants for further processing into motor parts fall within the purview of Item 25 : Iron in Any Crude Form including…or 26AA : Iron or Steel Products … of the First Schedule to the Central Excises and Salt Act, 1944, in order that countervailing duty in terms of the rates prescribed in either of these items could be levied under Section 2A of the Indian Tariff Act, 1934. Six other appeals filed by the appellants in relation to consignments of similar goods decided by the common order-in-appeal of the Appellate Collector of Customs, Bombay are connected with this appeal and the ratio of our decision herein will apply to those appeals as well.
4. The subject consignment was described in Bill of Entrv No dated 9th August, 1972 as-
“CKD Motor Vehicle Parts” castings
in semi-finished condition for the manufacture
of Motor Vehicles.
Cover, oil cooler
(Iron casting)
and was assessed under Item 63 (28) and also charged to countervailing duty at Rs. 73.13 per M.T. The appellants claimed re-assessment without levy of countervailing duty, on the ground that the goods imported are castings having carbon contents more than 1.8% and hence they are “malleable iron castings” and not “steel castings”. The Assistant Collector of Customs, however, held that Item 26AA(v) of the Central Excise Schedule covers “all other steel castings N.O.S.” and even though the castings imported may be having carbon contents more than 1.8%, these are known in the trade as “steel castings” and hence have been correctly charged C.V.D. He, therefore, held that no refund is due and rejected the claim as untenable by his order No. 2018/72-73R, dated 12-10-1972. The appeal against this order and the six orders in respect of other consignments were decided by the impugned common order-in-appeal dated 25-3-1975.
5. Accepting the contention that the castings in question were not steel castings and were not liable to duty under C.E.T. Item 26AA, the Appellate Collector, Bombay did not, however, accept the contention that castings of iron, which had undergone processes like annealing, normalising and heat treatment, would not fall under Item 25 because it comprehends “iron in any crude form” and by inference excludes iron which is not in crude form. Citing the description “IRON IN ANY CRUDE FORM, including pig iron, scrap iron, molten iron and (obviously a mistake for ‘or’) iron cast in any other shape or size”; and relying on a judgment of the Kerala High Court (ACR 1969 KER II P. 16) to interpret the word “including”, the Appellate Collector held that it would be reasonable and tenable to hold that, “iron castings in any other shape or size”, is not necessarily limited in its connotation to the genus “iron in any crude form” and could be iron, other than in crude form, cast in any other shape or size. The consequence of such construction would be that even processed iron casting in any shape or size would fall within the ambit of Item 25 and be liable to countervailing duty. He held accordingly and allowed the appeals to the extent that these castings are determined to be of processed iron, not liable to C.V.D. at the rate in Item 26AA, but the appellants should be granted consequential refund of the duty levied in excess of that which is appropriate under Item 25 C.E.T.
6. In this appeal it is contended that it is clear from the definitions of Items 25 and 26AA of the ICT (Vol. II) that the former covers iron in any crude form or in a primary stage, without any processing, and the latter covers semi-finished and finished products. This is borne out by Notification No. 18/71, dated 27-3-1971 which grants exemption to steel ingots and iron and steel products falling under Item 26AA in which duty paid iron in any crude form, including pig iron, scrap iron, molten iron or iron cast in any shape or size is used, provided duty is proved to have been paid on the iron in any crude form. The Item 26AA(iv) covers “cast iron pipes”, which are also covered by Notification No. 106/65. Hence, the view that Item 25 is wide enough to cover all iron castings, irrespective of whether they are (a) crude or primary; (b) semi-finished; or (c) finished; appears to be incorrect. Only pig iron, such as ingots, pellets, etc. would be covered by Item 25; and semifinished and finished products of iron, such as Malleable Iron Castings, would fall outside Item 25 and 26 A A. The goods imported by the appellants are iron/malleable castings. These castings are produced in two main stages : (a) white cast iron castings and (b) high temperature annealing of these castings. The annealing processes are designed to decompose the cementite and pearlite cementite. The process takes more than 3 days and the annealing furnaces are quite different from the melting furnaces where molten iron is produced and cast and the castings are subjected to the following processes before they are shaped in semi-finished condition by M/s. Daimler Benz : (a) Malleablising or annealing; (b) straightening; (c) Buffing and rough machining; (d) surface protection; (e) testing and inspection by the suppliers M/s. Daimler Benz. From this it will be seen that the Malleable iron castings can under no circumstances be classified under Item 25 since there is a change in the micro-structure and the raw casting has undergone a completely different process. In the case of their own malleable castings manufactured at Jamshedpur, the cost of processing amounts to approximately 60% of the cost of the raw white iron casting. This proportion may also hold good in the case of the goods imported by the appellant. For these reasons, the appellants, request refund of the balance not allowed since the goods have been re-assessed at Rs. 40/-per M.T. under Item 25 and the amount of excess levy is Rs. 15,383.20.
7. Shri K.A. Nair reiterated these contentions. The main thrust of his argument was that these imported processed iron castings carry part numbers equivalent to the Catalogue part numbers of the finished motor parts manufactured and sold by M/s. TELCO, the appellants; 60% of the processes are done abroad and only 40% remains to be done locally, namely, final machining. According to him these goods could not be covered by Item 25 (not being in crude form) or Item 26AA (not being steel castings).
8. Shri Habbu, appearing as an Intervener on the plea that his case, PEFCO Foundry, heard by the same Special Bench, has a bearing on these appeals, supported the appellate order. Apart from the reasons given there interpreting the word “including”, he argued that the use of the conjunction or before the words “iron cast in any other shape or size”, separated this clause from term “iron in any crude form”. He referred to Ministry of Finance Letter No. 139/45/79-CX. 4, dated 26-9-1980 clarifying that if iron or steel castings are machined/polished without converting the same into identifiable machine parts, they would fall under Item 25 or 26AA as the case may be and not Item 68. He contended that so long as the article is iron cast, it continues to be in Item 25 and only when it further processed and finished to become an identifiable machine part can it shift to any other item. He relied on judgment in the case of Tata Yodogwa (1983 E.L.T. 17) which held that Item 26AA (v) does not speak about finished or semi-finished castings and semifinished castings are covered by it. He argued that all processes incidental to completion of a product must be completed for it to emerge as a manufactured item within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. The Tribunal has also held that forgings remain forgings even after machining (TISCO-1983 E.L.T. 1113) and that iron castings in semi-finished condition continue under Item 25 and countervailing duty is leviable (TELCO- 1983 E.L.T. 1122). He cited the Supreme Court decision that de-odorising was necessary if oil was to be considered as refined oil (vide DCM v. Union of India). In this light, Shri Habbu contended that the name, character and use of the castings imported have not changed. He also relied on decisions of Bench ‘B’ in Order Nos. 161 of 1984 and 158 of 1984 in two appeals by M/s. Jemco, holding that “iron cast in any other shape or size” is not synonymous with ‘cast iron’ and ‘iron in any crude form’ would not qualify these shapes and sizes and that iron/steel cast rolls, not subjected to final machining, polishing and grooving, could not be classified under Item 68. He cited the’ cases of A.C.C. Babcok v.. C.C.E., Poona vide Order No. 1143/83-B, dated 1-12-1983 to support this view.
9. Shri V. Lakshmi Kumaran, S.D.R., replying to the points raised by the appellants stated that Item No. 25, as it stood at the relevant time, read as under:-
“25. Iron in any Crude form including pig iron, scrap iron, molten iron or iron cast in any other shape or size.”
The types of iron castings covered under this tariff item are only crude castings and not castings which were subjected to the process of machining, polishing, finishing etc. for these reasons :
(i) Iron in any crude form appears in capital letters and hence the item could cover only iron in any crude form;
(ii) the words “any other shape or size” would also go to indicate that the iron casting should be in crude form, in comparison with the crude iron in the form of pig iron, scrap iron, molten iron;
(iii) the words “iron cast” have been specifically used in contradistinction from the words “cast iron”;
(iv) in this view of the matter, the word “or” has not been used in the disjunctive sense ;
(v) the doctrine of ejusdem generis is applicable in a case like this.
While submitting that Tariff Item 25 covers only crude iron castings apart from pig iron, molten iron etc., a further question arises as to upto what stage an iron casting could be considered as a crude iron casting. According to the inclusive definition of Section 2(f), any process which is incidental or ancillary to the completion of a manufactured product would be considered as a process of manufacture. Accordingly, any processes which are done in the foundries (where these iron castings are manufactured) which would improve the quality of the iron casting would be considered as a process of manufacture of iron castings. Such iron castings would continue to be crude iron castings attracting levy under Tariff Item 25. The processes undertaken in the instant case are basically in the nature of improving the quality of the iron casting and whatever machining has been done on the iron castings is in the nature of proof machining only to find out any defect in the iron castings so manufactured. Even in the trade, such iron castings are understood as crude castings only. Any standard text book on the steel industry would prove this point. The word “crude” would not be understood in its dictionary meaning but as it is understood in the iron or steel trade. If this test is applied, the castings would remain as crude attracting duty under Tariff Item 25.
As regads the points urged by the intervener, Shri Lakshmi Kumaran stated that Government has gone in appeal against the judgment of Patna High Court. Further, if a foundry undertakes detailed machining operation also, apart from proof machining etc. (which are in the nature of improving the quality of the iron castings) duty under Tariff Item 25 would be leviable before the crude iron castings are taken to the Machine Shop, for further machining etc. After the completion of the machining, etc, in !the, Machine Shop, the subject goods would be assessable under Tariff Item 68, so long as the department can prove that manufacturing activity has taken place converting the crude casting into a different product.
It is not necessary that all the processes of machining, polishing etc. have to be completed to classify the product as an identifiable machine part under Tariff Item 68 of C.E.T. It is not necessary that a product should be an identifiable machine part to attract classification under Tariff Item 68; So long as the product is a manufactured product, sold as such by the manufacturer to a buyer and known as “goods” in that state and if such product is not specifically enumerated under Tariff Items 1 to 67, duty under Tariff Item 68 will be attracted notwithstanding the fact that some operations are necessary for making that product an identifiable machine part. Most of the products which we buy from the market have to be necessarily adapted for the personal use of the consumer. For example, a mirror frame without hooks is bought and sold generally in the market and a person buying it and fixing the hooks in his house before hanging it on the wall, would still be considered as buyer of goods and such frames would still qualify for assessment under Tariff Item 68, notwithstanding the fact that the hooks were not fixed at the time when the goods were cleared from the factory. What is relevant is whether people who are conversant in that trade will recognise such products as goods and as different from crude iron castings. If the answer is in the affirmative, the goods will merit classification under Tariff Item 68.
He submitted that where substantial machining takes place on the castings and only a minor portion of the operations which are still to be done at the consumer end as per their specific needs e.g. grooving, painting or polishing, the castings should be considered as manufactured goods under Tariff Item 68. Our attention was drawn to the judgment of Allahabad High Court in the case of Union of India v. Union Carbide reported in 1978 E.L.T. 31 where it has been held-“A thing would nonetheless be ‘goods’ even if it does not have a general market, where it can be easily bought and sold. The fact that a product may not be known to the general public or to the traders in general will not change the position. Therefore, the test of general marketability does not appear to be sound.”
10. At this stage it would be appropriate to briefly refer to the background leading to the present hearing by a Larger Bench. The view taken by the reference Bench i.e. the Bench which has sent the reference to the Larger Bench is that the general description in Item 25 is “iron”; the words “in any crude form” qualify “iron”; and this “iron” specifically includes within its ambit “iron cast in any other shape or size” by virtue of the inclusive definition. The qualification “in any crude form” applies not only to iron but all the various goods mentioned. Therefore, castings are still to be crude and not semi-finished or finished so as to conform to the general description, “iron in any crude form”. It could be further argued that ‘crude’ means ‘unprepared, not reduced to form or order, unfinished,…-‘ unrefined, inartistic and ‘crudeness ‘is ‘raw’ and to be in crude form the iron in Item 25 should be altogether raw/unfinished/unprepared/unrefined and any process intended to reduce rawness renders it other than crude. It could also be argued that in contradistinction to Item 25, Item 26AA(v) covers “all other steel castings, not otherwise specified” and is residuary in character and does not speak of semi-finished and finished steel castings,’so the former, qualified by the words “in crude form”, cannot include semi-finished or finished iron castings. The castings in dispute having been subjected to annealing, straightening, buffing and rough machining before shipment and the raw_ness haying been reduced so that they are anything.but crude, cannot fall. Within Item ’25’ and any. other construction of the ‘words, ‘in any .crude form’ will, lead to , a subjective selection of processes that may be carried out before the “iron” ceases to be in crude form.
11. We have given anxious consideration to the various opinions, arguments and citations given.
Though “Iron In Any Crude Form” appears to dominate this item, being in Block Capital Letters, the inclusive description that follows consists of the words “including pig iron, scrap iron, molten iron” and the words “iron cast in any other shape or size” separated by the word or. Since the words “pig”, “scrap” and “molten” arc descriptive in character qua the item ‘iron ‘and instead of “cast iron”, which the legislature could well have used, the phrase “iron cast in any other shape or size” is used, the word or cannot be interpreted as conjunctive (equivalent to ‘and’) apart from the reason that or is generally disjunctive. The use of the verb cast in the latter clause and the fact that only pig iron is cast, while scrap iron and molten iron are not cast; and whereas the words ‘any other shape or size’ are used, indicate that the item should be correctly read as Iron (cast) IN ANY CRUDE FORM including “pig iron, scrap iron, molten iron OR iron cast in any other shape or size”. Considering that the ordinary meaning of pig iron is crude iron and, of the iron not directly taken for steel making from the blast furnace, this is the major portion of iron emanating, it would not be unreasonable to infer that ‘crude iron’ qualifies pig iron mainly and scrap iron and molten iron to a lesser extent, if at all; and does not at all qualify ‘iron cast in any other shape or size’.
Incidentally, the working Schedule brought out in 1974 by the Director of Statistics and Intelligence reads : “25. Iron, in any crude form including pig iron, scrap iron, molten iron or iron cast in any other shape or size.” The word or is disjunctive. Even conceding that the phrase “in any crude form” was intended to cover “iron cast in any other shape or size”, it could only refer to the various varieties or forms such as cast iron, grey cast iron, white cast iron, malleable cast iron, nodular cast iron, chilled cast iron, etc. in contradistinction to cast iron pipe [specifically covered by Item 26AA(iv)], alloy cast iron, nickel cast iron etc. In any event, it is clear that castings of iron in any shape or size are covered by this item. Now, some of these iron castings may not need further treatment, while others may, before becoming identifiable, marketable goods. We agree with Shri Lakshmi Kumaran that they will continue to fall under Item 25, till they lose their identity as castings and assume a new name, character and use.
Similarly, in the case of semi-finished steel castings, levy under Item 26AA(v) would be attracted. In the present case, the goods are indubitably not motor parts and are invoiced as iron castings. As the numerous authorities cited establish, corresponding iron castings, if subjected in India to the same pre-importation processes to which the subject goods were put, would be within the ambit of Item 25. That there would be an element of discrimination and subjective selection of processes that may be carried out before the ‘iron cast in any other shape or size goes outside this ambit’, is inevitable, given the wide amplitude of the meaning of ‘manufacture’ in Section 2(f) and the various requirements of industry and commercial activity. Suffice it to say that the imported goods cannot be absolved from the levy of duty to which their indigenous counterparts would be subjected. Here we would advert to Order No. 158/84 of the Tribunal wherein it was observed, inter alia “After-all, if a casting and a machine part are to bear duty under Items 2.5/26AA. as well as 68, it is incumbent on the department (Central Excise) to fix the stage when the casting ceases to be this and becomes a machine part”. In the present case, the goods are undoubtedly marketed as malleable iron castings. The pre-importation processes if done to corresponding goods, made and marketed in India, would attract duty under Item 25, as is abundantly clear from the various citations and the imported goods must merit a similar assessment for purposes of countervailing duty.
12. For the reasons set out above, we hold that the malleable iron castings imported would correctly be classifiable under Item 25 of the Central Excise Tariff for the purpose of levy of duty under Section 2A of Indian Tariff Act, 1934. In the result we uphold the impugned order and reject the seven appeals arising therefrom. We also hold that the order of the Bench reported in 1983 E.L.T. 1122 was correct.
13. The issues raised by the learned intervener is not an issue which concerns these appeals and we are not called upon to give any finding in this regard. The appeal by M/s. PEPCO Foundry and Chemicals will have to be separately heard and decided on its own merits.
Addendum to Order Nos. 449 to 455/84-B
14. For agreeing with the main conclusion that ‘malleable Iron Castings’ subjected to various processes described by the appellants would fall under T.I. 25 of the Central Excise Tariff in the order drafted by Brother D’Souza, Member (T) in which Brothers DVN. Lal, Member (T), M. Santhanam, Member (J) and B.B. Gujral, Vice-President have concurred, I would like to add the following :
15. According to the order of reference, the crux of the issue was, if the castings can be said to be crude after they were subjected to processes of annealing, straightening, buffing and rough machining. Now there is no dispute that if the subject goods had been imported without these processes undoubtedly they were classifiable under T.I. 25 of the C.E.T. The question thus before us is whether after the above described processes, the goods can be said to have gone out of the purview of T.I. 25. Now in this connection, we may refer to certain observations of the Supreme Court in Deputy Commissioner, Sales Tax {Law) Board of Revenue {Taxes), Ernakulam v. P.I.I. Food Packers, 1980 E.L.T. 343 (S.C.). In this decision, the Supreme Court after referring to a number of decisions on Excise matters also, held as under:
“Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another. Although, it has undergone a degree of processing, it must be regarded as still relating its original identity.” (underlining done).
It is true that the decision is with regard to provision of Kerala General Sales Tax Act, but the ratio of decision is applicable in the present case.
16. By way of abundant precaution, it is necessary- to state that there may be marginal or border line cases where processes have gone so far as to give the original commodity the character of a new and distinct article though some negligible process or operations still remain to be performed. In such a case, the Tribunal in a series of decisions has taken the view that in such a case the original identity of the commodity must be taken to be lost and the article having acquired the character of a new and distinct article in spite of negligible deficiency.
17. When the matter is examined in the light of the Supreme Court’s decision, it is nobody’s case that the result of the processes is to make a new and distinct article of the castings. Till that stage is reached in spite of the processes claimed the castings must still be regarded as retaining the original identity. It must, therefore, be held continuing to fall under T.I. 25, where it would have fallen had it been imported without the processes and liable to additional duty accordingly. The order reported in 1983 E.L.T. 1122 must be held to have been correctly decided.
18. I have however, a reservation about the finding relating to expression ‘IRON IN ANY CRUDE FORM’ qualifying part of the item. The appellants and the respondent, both during the arguments agreed that the words ‘IRON IN ANY CRUDE FORM’ would qualify the whole of the item i.e. even the words ‘Iron cast is any other shape or size’ would also be qualified by this term. The learned Sr. Departmental representative no doubt further qualified this admission by arguing that even after a number of processes ‘Iron cast in any other shape or size’ would merit description ‘iron in any crude form’. This qualification, to my mind does not detract from the admission regarding interpreting of the item. We cannot also overlook the fact that the words IRON IN ANY CRUDE FORM are in Capital Letters meaning that heading of the item is “IRON IN ANY CRUDE FORM”. Law on the point set out in Maxwell and approved by Supreme Court in Bhinka v. Charan Singh, AIR 1959 S.C. 960 at page 960 is “The heading prefixed to sections or sets of sections in modern statutes are regarded as a preambles to those Sections. They cannot control the plain words of the Statute, they may explain ambiguous words”. Having regard to all this, I do not see why we should ignoring the interpretation made by the appellants and respondents substitute our own interpretation and hold the expression “IRON IN ANY CRUDE FORM” qualifies part of the item and not the whole of it. 1 would, therefore, for myself not express either way about the term qualifying whole or part of the item leaving the matter open.
With the above observations, I would agree with the main conclusion that appeals deserve rejection.