1. This is a revision application which on transfer is being treated as an appeal.
2. The dispute relates to classification. The appellant are manufacturers of hinges from hot rolled steel strips. They are a small scale unit and the process of manufacture consists of the following :- "Strips and sheets are purchased from open market and from steel plants. The sheets are cut into small strips measuring 3 to 4' in length and a width of about 3 to 6", depending on the size of the units to be manufactured. These strips are then washed in acid and passed over small rollers to achieve uniform thickness. The strips are then cut into small pieces and the hinges are completed by drilling necessary holes. There is no dispute that the hinges are exciseable under Item 68." 3. The Assistant Collector by his order dated 18-1-1978 held that cold rolled strips are being manufactured by the appellants and these are liable to excise duty. The appellants preferred an appeal. The Appellate Collector by his order dated 5-7-1978 held against the appellants on the ground that the cold rolling process conducted by the appellants increased the length of the strips by 10 to 24%. The appellants contended that the cold reduction was merely a process and that no cold rolling was involved. They also relied on the DCM cases AIR 1973 Supreme Court of India and urged that the rolled strips or sheets could not be sold in the market.
4. Shri D.N. Kohli appearing for the appellants drew our attention to the Government of India communication dated 10-5-1980 giving a clarification sought in respect of the intermediate product made from hot rolled cut strips used in the manufacture of hinges. The relevant portion of his communication is extracted as follows :- "It has been represented that the purpose of cold rolling is not to reduce the thickness of the material which is only incidental but to smoothen out the unevenness in the hot rolled strips they buy and also to give a shine to the hinges that would ultimately be made. It was also (stated that the process of cold rolling contrary to adding to the value of the so called a strips actually reduce it to about 60% of the price at which the hot roiled s/trips are brought. It will also be useful to set down further processes that the so-called strips have to undergo before they become hinges. The strips are stamped out in a blanking press so as to produce the male and female- counterparts of the hinge, which is ultimately produced by devetailing the two parts. The slotted projections in the male and female parts which would be dovetailed are then passed through two successive processes one for slight bending and the other for full rounding. The male and female parts are put together and pinned through with a thin rod or pin by manual process. The hinge is now practically assembled except for the holing, rivetting, countersinking which then follow on three machines successively.
Countersinking of holes is necessary to allow the screws to fit on the surface of the hinge.
The question that has arisen is whether the processing of the cut hot rolled strip pieces through the rolling machine would amount to "cold rolling" and the product which emerges could be trented as a "cold rolled strips." 5. A strip by definition should be a rectangular or approximately rectangular shape whereas it is admitted that the product in disputed is of an irregular shape. In fact the use of a rolling each one has perhaps led us into a terminological trap of concluding the process is one cold rolling whereas one would prefer to call it as "cold working" on a hot rolled strip. The purpose of cold rolling of the cold working is not so much reduced the thickness but to even out the material.
Accordingly, if it was a thiner material that was wanted, the manufacturers of hinges could straightaway have gone in for gauges of the required thickness. The fact is that the hot rolled strips are uneven and cannot satisfy the essential requirements that a hinge has to be of is the objective which cold rolling is meant to achieve even though in the very nature of things when a product goes to the process of rolling an incidental reduction in thickness is inescapable.
6. Legalistically, - even though what has been set out about is sufficient to reach a conclusion that the cold rolled product in question is not a cold rolled strip, - the cold rolled material is not sold outside but consumed by the manufacturer himself is the making of hinges. It is pertinent that even if he did not want to sell the material outside it would have to be at a depreciated value (even though one might not go to the extent of saying, nobody would buy it except as scrap). In other words, in the ratio of the judgments in the DCM case as well as the South Bihar Sugar Mills case, the cold rolled material in question is not brought into the market to be sold or saleable as cold rolled strips.
7. It is, therefore, clarified that the intermediate product made from hot rolled cut strips that emerge after cold rolling for ultimate use in the manufacture of hinges cannot be held to be liable to further duty as cold rolled strips under Tariff Item 26AA(iii).
8. The learned Counsel also relied on the orders passed by the Appellate Collector of Central Excise, New Delhi, dated 27-9-1981 in the matter of Gupta Iron and Brass Work Ltd. and also in the matter of Ajanta Steel Pvt. Ltd. In both the above cases the respective Collectors have held that the identical product was not liable to duty.
The learned Counsel also drew our attention to the statement of Shri G.N. Misra a qualified Engineer and also a Member of the National Co-ordination Committee for UNIDO (United Nations Industrial Development Committee). This qualified Engineer has given an exhaustive account of the process involved.
9. In view of the clarification issued by the Government and in the light of the materials placed before us Shri Laxmikumaran appearing for the respondent fairly stated that he had nothing further to add. The lower authorities have proceeded on the basis that the process involved herein had resulted in a distinct product. As pointed out above and in view of the clarification issued by the Central Board, it is clear that the rolled cut strips emerging after cold rolling for ultimate use in the manufacture of hinges cannot be held to be liable to further duty as cold rolled strips under Tariff Item 26AA(iii).