Full Judgment Text
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PETITIONER:
PEFCO FOUNDRY CHEMICALS LTD.
Vs.
RESPONDENT:
COLLECTOR OF CENTRAL EXCISE, PUNE
DATE OF JUDGMENT19/02/1992
BENCH:
SAHAI, R.M. (J)
BENCH:
SAHAI, R.M. (J)
AHMADI, A.M. (J)
RAMASWAMY, K.
CITATION:
1992 SCR (1) 891 1993 SCC Supl. (1) 74
JT 1992 (2) 17 1992 SCALE (1)405
ACT:
Central Excises and Salt Act, 1944/Central Excise Rules,
1994:
Section 4/Rule 8-Entry 68-Cylinder liner-Manufactured
and supplied after machining and honing-Whether identifiable
as machine part-Whether exigible to duty.
HEADNOTE:
The appellant was manufacturing cylinder liner by
casting molten iron in specific shape. The rough surface of
the cylinders was removed and after machining and honing it
was delivered to Railways.
The respondent took the view that at the time the
cylinders were supplied to Railways, they became
identifiable as machine part attracting duty. According to
the appellant, the cylinders continued to be iron casting
and and only after Railways further treated the cylinders
with honing and chrome plating, they became machine parts
and excisable under the Central Excises & Salt Act, the duty
being exigible under Entry 68.
On appeal, the Tribunal gave a finding that by the time
the goods were cleared from the factory, they ceased to be
casting and assumed the character of fully machined
cylinders, identifiable as such and exigible to duty under
Entry 68.
Being aggrieved against the Tribunal’s order, the
assessee preferred the present appeal.
The appellant contended that till the cylinder liner
was finally processed by the Railways, it was incapable of
being used as machine part, and as such no excisable
commodity came into being at the time when the cylinder
liners were supplied to Railways.
It was also contended that the authorities were
precluded from issuing notice and adjudicating whether the
cylinder liner was a machine part, since in respect of an
earlier period the classification list claiming it as iron
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casting and thus exempt from duty, has been approved by the
authorities.
Dismissing the appeal, this Courts,
HELD: 1. The Tribunal found that the contract in
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pursuance of which the goods were manufactured was for
supply of ‘fully machined cylinder liner’. The Railways
would not have accepted the cylinder unless it tallied with
the specification. There was no dispute before the
authorities that first machining and honing was done in
assessee’s factory. Also, from the letter issued by
Railways, it is clear that what was supplied by appellant
was fully machined cylinder liner. That was the contract as
well. thus, the tribunal’s finding that the contract was
for supply of, ‘fully machined cylinder liners’ stands
supported by the letter of Railways also. The Tribunal, in
the circumstances, was justified in recording the finding
that by the time the goods cleared from factory they had
ceased to be casting, and had assumed the character of fully
machined cylinder liner or fully machined or proof machined
cylinders which were identifiable as such. Since duty under
Central Excises and Salt Act is leviable on manufacture of
goods produced, the cylinder liner became exigible to duty
under Entry 68. The duty of excise is on manufacture of a
good and not on its use, as in the instant case, by the
Railways. [894G-H; 895A, D, G-H;896A)
Tata Iron & Steel Co. Ltd. v. Union of India, [1988] 3
SCR 1025; Union of India v. Delhi Cloth & General Mills
Ltd., [1963] 1 SCR 587 referred to.
2. Once the tribunal found that cylinder liner ceased
to be cast iron it is obvious that the department could not
be precluded from levying duty on it subject to the law of
limitation. Since show cause notice which resulted in these
proceedings was for a period other than for which
proceedings had been dropped, it cannot be said to be review
proceedings. [896B]
Plasmac Machine Mfg. Co. Pvt Ltd. v. Collector of
Central Excise, AIR 1991 SC 999 relied on.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4457 of
1984.
From the Order dated 17.8.1984 of the Customs Excise
and Gold (Control) Appellate Tribunal, Delhi in Appeal No.
ED (SB) 776/83- B) Order No. 623 - B/ 84.
893
R.F. Nariman, Sumant Bhardwaj, B.R. Agrawala and Sunil
Goyal for the Appellants.
A. Subba Rao, A.D.N. Rao, G. V. Rao and P. Parmeswaran
for the Respondents.
The Judgment of the Court was delivered by
R. M. SAHAI, J. Two questions arise for consideration
in this appeal directed against the order of the customs,
Excise & Gold (Control) Appellante Tribunal Special Bench
‘B’. One, whether cylinder liner manufactured by the
appellant out of iron casting identifiable as machine part
was exigible to duty under tariff item no. 68 or it
continued to be iron casting and thus exempt under
Notification issued under sub-rule (1) of Rule 8 of Central
Excise Rules. Second, whether the authorities were
precluded from issuing notice and adjudicating if the
cylinder liner was a machine part, even though for an
earlier period the classification list claiming it as iron
casting, thus exempt, had been approved.
Cylinder liner was manufactured by the appellant by
casting molten iron in specific shape. By itself it was of
no use. This could be said to be first stage. Its rough
surface was thereafter removed. And after machining and
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honing it was delivered to the Railways. According to
department it became identifiable as machine part. This was
second stage. The Railways further treated it with honing
and chrome plating before putting it to use. There is no
dispute that on the first stage it is an iron casting which
is exempt under item no. 25. Nor there is any dispute that
at the third stage it is an excisable commodity. The only
dispute is if at the second stage when it was supplied by
the appellant to the Railways it could be subjected to duty.
According to the appellant till its final processing by the
Railways it did not become a machine part. It continued to
be iron casting. It is claimed that merely because it was
supplied to Railways or that it became identifiable as a
machine part no duty was attracted as no excisable commodity
came into being. Reliance was placed on Tata Iron & Steel
Co. Ltd. v. Union of India, [1988] 3 SCR 1025. It was urged
that this Court having held that rough machining before
supplying after removing the excess layer of steel commonly
referred to as excess skin did not convert the iron steel
into wheels, tyre, and axle. According to learned counsel
the principle of this case squarely applied to facts of the
case. Reliance was
894
also placed on Union of India v. Delhi Cloth & General Mills
Ltd., [1963] 1 SCR 587. The main plank of the argument was
that till cylinder liner was finally processed by the
Railways it was incapable of being used as a machine part.
To appreciate the submission it is necessary to extract
tariff item 25 which reads as under :
"25, IRON IN ANY CRUDE FORM - including pig iron,
scrap iron, molten iron or iron cast in any other
shape or size."
Notification No. 74/62 issued on 24.4.1962 as amended
by NOtification no. 119/64 dated 27.6.1964, under sub-rule
(1) of Rule 8 of Central Excise Rules, 1944 is extracted
below:
"Exemption to iron in any crude form produced from
old iron or steel scrap.- In exercise of the
powers conferred by sub-rule (1) of Rule 8 of the
Central Excise Rules , 1944, the Central
Government hereby exempts iron in any crude form
including pig, iron, scrap, iron, molten iron or
iron case in any other shape or size failing under
Item no. 25 of the First Schedule to the Central
Excises and Salt Act, 1944 (1 of 1944), and
produced out of old iron or steel scrap or scrap
obtained from duty-paid virgin metal, is with
effect from 1st March, 1964, exempted from the
payment of the excise duty leviable thereon."
In the classification list exemption was sought on
cylinder liner by describing it at serial no. 4 as under:
"4. Cylinder liners to Part No. 10123416 which is
not identifiable part in that it is partially
machined only and not ready for use."
The description of the goods as, partially machined,
does not appear to be correct. The tribunal found that
contract in pursuance of which the goods were manufactured
was for the supply of, ‘fully machined cylinder liner.’ And
in absence of any material it was obvious that the Railways
would not have accepted the cylinder unless it tallied with
the specification. There was no dispute before the
authorities that first machining and honing was done in
assessee’s factory. According to appellant it was only akin
to removal of rough layer as in Tata’s case whereas
according to department
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895
it was much more and it resulted in rendering it as machine
part. The Collector observed,’
"However, the specifications given by these clients
state in particular that the first machining and
honing is to be done at the assessee’s end. The
process mainly covers grinding which is defined as
‘Reducing to size by removing material by contact
with a rotating, abrasive wheel; plane or
cylindrical surfaces may be very accurately
finished with regard to size and shapes’ (as per
Dictionary of Mech. Eng. Alfred Del Vecchio and
Chambers’ dictionary of Sc. and Tech.) Similarly,
the term honing is defined as, ‘a term applied to
fine textured even grained indurated sedimentary
rocks, which may be used for imparting a keen edge
to cutting tools, replaceable by silicon carbide
products’. (...as per Chambers’ dictionary of Sc.
& Tech.)."
It is thus obvious that the processing undertaken in
assessee’s factory to render the cylinder liner as fully
machined resulted in changing the goods from crude cast iron
in size and shape to an identifiable commodity. The duty of
excise is on manufacture of a good and not on its use.
Reliance was placed on a letter issued by the
Controller of stores Indian Railways Diesel Locomotive
Works, Varanasi stating therein :
"Thus, it would be completely out of question to
use the cylinder liners fully machined and after
first honing as supplied by the suppliers in the
engine without further processing (chrome plating
and honey combing) howsoever uniform and smooth the
cylinder liners supplied by the manufacturers may
be."
In our opinion it does not help the appellant. In Tata
Iron & Steel Co. (supra) it was admitted in the letter of
Railway that what was supplied was rough machined or forged
condition. But from the letter extracted above it is clear
that what was supplied by appellant was fully machined
cylinder liner. That was the contract as well. The
tribunal’s finding that the contract was for supply of,
‘fully machined cylinder liners’ thus stands supported even
by the letter of Railways. The tribunal in the
circumstances, in our opinion, was justified in recording
the finding that by the time the goods cleared from factory
they had ceased to be casting, and had
896
assumed the character of fully machined cylinder liner or
fully machined or proof machined cylinder which were
identifiable as such. Since duty under Excise and Salt Act
is leviable on manufacture of goods produced the cylinder
liner became exigible to duty under Entry 68.
Once the tribunal found that cylinder liner ceased to
be cast iron it is obvious that the department could not be
precluded from levying duty on it subject to the law of
limitation. Since show cause notice which resulted in these
proceedings was for a period other than for which
proceedings had been dropped, it was not review as urged by
the learned counsel for appellant. In Plasmac Machine Mfg.
Co. Pvt. Ltd. v. Collector of Central Excise, AIR 1991 SC
999 it was held by court, of which one of us (R. M. Sahai,
J.) was a member, that if an item was found dutiable then
the department could not be prevented from levying duty on
it because it had earlier approved classification as there
is no estoppel against statute.
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In the result this appeal fails and is dismissed with
costs.
G.N. Appeal dismissed.
897