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Indian Tool Manufacturers Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1984)(18)ELT527TriDel
AppellantIndian Tool Manufacturers
RespondentCollector of Central Excise
.....(ii), including dies for wire drawing, extrusion dies for metals and rock drilling bits;" "62. tool tips, in any form or size, unmounted, of sintered carbides of metals such as tungsten, molybdenum and vanadium." the bench pointed out to the appellants that one of their appeals had been entirely allowed by the appellate collector on the ground of time-bar and in view of that whether they would like the bench to consider all their three appeals. the appellants stated that they would like to argue on all the three appeals because even the appellate collector had rejected all their appeals on the substantive issue of classification.2. the appellants produced samples of throw away inserts as well as tool tips manufactured by them, explained the process of manufacture of the two articles.....
1. The common issue involved in these three appeals of the same appellants is whether Carbide Throw Away Inserts manufactured by the appellants fall under Item 51A (iii) of the Central Excise Tariff, as urged by them, or under Item 62, as held by the lower authorities. The two rival items of the Tariff read as under :- "51A (iii). Tools designed to be fitted into hand tools, machine tools or tools falling under sub-item (ii), including dies for wire drawing, extrusion dies for metals and rock drilling bits;" "62. Tool tips, in any form or size, unmounted, of sintered carbides of metals such as tungsten, molybdenum and vanadium." The Bench pointed out to the appellants that one of their appeals had been entirely allowed by the Appellate Collector on the ground of time-bar and in view of that whether they would like the Bench to consider all their three appeals. The appellants stated that they would like to argue on all the three appeals because even the Appellate Collector had rejected all their appeals on the substantive issue of classification.

2. The appellants produced samples of Throw Away Inserts as well as Tool Tips manufactured by them, explained the process of manufacture of the two articles and produced their trade catalogues in respect of them. The undisputed facts about the nature of the products are that both Tool Tips as well as Throw Away Inserts are made from carbide powder of the metals such as tungsten, molybdenum and vanadium. Both are pressed into the required shapes and then sintered (heat treated).

Both are affixed on the tool handle and perform the function of machining of metals (turning and milling etc.). Thus, both are tools.

So far as the differences between Tool Tips and Throw Away Inserts are concerned, the appellants gave an imposing list of 10 points of" difference. The Bench asked them to show the authorities and technical literature etc. on which these points of difference were based. The appellants were not able to produce any. The points of difference between Tool Tips and Throw Away Inserts, as understood by us on the basis of the samples, catalogues and Indian Standard Specifications etc. shown to us are as under:- (i) The Inserts are clamped on the tool handle and are detachable.

The Tool Tips are brazed (welded or soldered) on the tool handle.

(ii) Ths Inserts are pre-ground (sharpened) before clearance from the factory. Tool Tips are ground after they are welded on the tool handle.

(iii) Inserts have multiple edges. When one edge is blunted, the other edge can be put in place by manipulation of the angle. Tool Tips have only one edge.

(iv) When all the edges of the Inserts are blunted after use, the Inserts have to be thrown away. They cannot be sharpened again. The edge of the Tool Tip can, however, be sharpened and used again.

3. The appellants' arguments in favour of classification of the Inserts under Item 51A(iii) were three-fold :- (1) It was well settled that in the absence of a statutory definition, the articles should be classified for the purpose of central excise duty according to the trade parlance and understanding. The two articles - Tool Tips and Throw Away Inserts-were internationally known by two different names. There were two separate Indian Standard Specifications brought out by the ISI for them. It was not enough to say that the two articles were made from the same raw material or that their process of manufacture was more or less the same. They were functionally two different articles as seen from the aforementioned four points of difference in their nature and method of use. A customer wanting Tool Tips will not buy Throw Away Inserts and vice versa. Since Item 62 covered only Tool Tips, Throw Away Inserts did not fall thereunder. But since the Inserts were also tools, they fell under Item 51A(iii).

(2) It was equally well settled in law that if two interpretations were possible, the one beneficial to the assessee should be adopted.

(3) The Department was not entitled to change the classification of Throw Away Inserts abruptly and without cogent reasons. Item 62 existed in the Tariff since 1973. Yet, their Throw Away Inserts were not taxed till 28-2-75. When Item 68 (All other goods, not elsewhere specified.) was introduced on 1-3-75, the Inserts were assessed under this Item. The classification under Item 68 continued till 17-6-77. On 18-6-77, description of Item 51A(iii) was amended from "Cutting tools..." to 'Tools..." and from that date onwards their Inserts were classified under this Item. This practice of classification under Item 51A(iii) continued till 28-2-79. When they filed a fresh classification list on 1-3-79, the Department sought to change the classification to Item 62. Between 18-6-77 and 1-3-79, no change had taken place in the description of the Tariff item. The character of the goods had also remained the same. The Department was, therefore, not justified in changing the earlier classification [reliance on 1983 E.L.T. 1113 CEGAT-Tata Iron & Steel Company].

(1) But for the adjective 'Throw Away', both Tool Tips as well as the Inserts were carbide tips for machining of metal, The fact that the Inserts had a shorter functional life was not material Even the Tool Tips were not permanent and their cutting edge wore out in course of time. The point that Tool Tips had one cutting edge while the Inserts had multiple cutting edges also made no difference to their basic character. The Supreme Court had held in the Dunlop case [1983 E.L.T. 1566 (SC)] that method of use or end use of an article was not material unless the Tariff entry so stipulated. In the case of Tool Tips and Inserts, the difference in the method of use was only one of convenience of the customer. The fact that there were two separate Indian Standard Specifications for Tool Tips and Inserts was also not material. It was an accepted position in law that a specific entry had to be perferred to a more general entry In the present case, Item 62 of the Tariff was more specific for Tool Tips of all forms or sizes made from sintered carbide of metals while Item 51(A) was more general inasmuch as it related to Tools and not Tool Tips. The appellants had not submitted any evidence of trade parlance and understanding except their own two invoices issued to the Railways. The appellants could describe their product in any manner they chose but that would not be a clinching evidence for the purpose of deciding tariff classification.

(2) The question of giving the benefit to the assessee arose only in cases where the entry was vague and two interpretations were possible In the present case, the entry was not at all vague as it read: (3) It had been held by the Supreme Court in the Dunlop case referred to above and by the Delhi High Court in the case of Bawa Potteries [(1981 ELT 114 (Delhi) and in the case of J.K. Synthetics [1981 E.L.T. 328 Delhi) that there was no estoppel in taxation matters that the classification once decided was not permanent and it could be changed for cogent reasons. The reasons contained in the show cause notice and the Order-in-Original in this case were adequate and cogent for changing the classification.

5. In a brief rejoinder the appellants stated that the factors which constituted cogent reasons, as laid down in the Delhi High Court judgment in J.K. Synthetics case, were absent in their case. They admitted that the Indian Standard Specification (IS : 4022-1967) for Cemented Carbide Indexable Throw Away Inserts referred to Inserts as "Tips" in para 0.3. They stated that this was so in the earlier stages when Throw Away Inserts were being introdued into the market. They added that in the latest Standard (ISO/DIS: 1832.2 of 12th April, 1984) the name "Insert" alone had been used . The appellants, however, did not produce a copy of this latest Standard.

6. We have carefully considered the matter The appellants' assertion that in the absence of a statutory definition, reliance ought to be placed on trade parlance and understanding for classification of goods under the Central Excise Tariff is correct as a general proposition.

But when we apply it to their own specific case, we find that all that they have to show by way of evidence of trade parlance is that (1) Tool Tips and Throw Away Inserts are known by different names and that (2) there are two separate Indian Standard Specifica-tions for them. We find that these two factors by themselves can hardly consti-tute adequate evidence of trade parlance. We see in every day life that practi-cally the same thing is called by different names. Trousers and pants mean that same thing. Both napkins and disposable napkins are just two varieties of napkins. Maxis and middies are both gowns, the difference being only in their length. Plates and saucers are two different names but these two articles differ only in size. If one were asked whether saucers would fall in the entry 'Plates, in any form or size', the answer would doubtless be in the affirmative. Thus we observe that more important than the name is the basic character, function and use of the article. We find further that the appellants themselves admit that even so far as the name is concerned, until recently the Inserts were also called as Tips. Item 62 was introduced in the Tariff in 1973. At that time, the relevant I.S. Specification IS : 4022-1967 was in vogue. In the Chapter 'Foreward', in paragraph 0.3, this Specification describes the Inserts as Tips'. Paragraph 0.6 thereof states further that the said Standard was based on Draft ISO Recommendation No. 997 'Throw Away Carbide Tips' of the International Organisation for Standardisation (ISO). This shows that the trade and industry the world over did not consider Inserts and Tips as basically two different things, so much so that Inserts were commonly referred to as Tips. Therefore, in the context of such trade understanding, when the entry "Tool tips, in any form or size..." appeared in the Central Excise Tariff, the only reasonable conclusion can be that it encompassed Throw Away Tips or Inserts as well. IS : 4022-1967 has remained current till about three months ago. The appellants state that the revised Specification has dropped the name 'Tips' for Inserts. We have not been shown the revised Specification but even if it is so, it can only mean that a different name has been given to Throw Away type of Tips. There has, however, been no change in the character or use of the article. Both Tips and Inserts are made from the same raw material, undergo practcally the same process of manufacture and perform basically the same function of machining the metal. Difference in the method of fixing them on the tool handle and the shorter life span of the Inserts do not make them basically different goods. It only means that Inserts are a separate variety of Tool Tips. From their disposable character or the shorter life span, the Inserts have acquired the adjective "Throw Away" and from their method of fixing by insertion or clamping the name "Throw Away Inserts" has come to be more commonly used. But in their basic character and use, the Inserts are nothing more than a separate species of the generic item "Tool Tips". We have it on the authority of the Bombay High Court [1983 ELT 116(Bom.)]- The Commissioner of Sales Tax v. M/s. Aggarwal & Co.] which in turn was based on the Supreme Court decisions cited therein, that while interpreting a general term used for describing any commodity in any fiscal legislation, the general term so used covers that commodity or item or article in all its forms and varieties.

7. As regards the appellants' plea that there are two sexparate Indian Standard Specifications for Tool Tips and Throw Away Inserts, we quote from our Order in the case of Greaves Cotton Ltd, Bombay v. Collector of Central Excice, Bombay "Secondly, it is a well-known fact that the ISI does issue more than one specification for different sectors of the same industry or different varieties of the same goods. Therefore, the fact that there is one specification for grinding wheels generally and other for diamond wheels, would not by itself show that two are mutually exclusive, as it can well mean that diamond wheels are a species of grinding wheels." During the hearing before us, the appellants themselves displayed about half a dozen separate International Standard Organisation specifications for the Inserts alone. There is, therefore, no substance in the appellants' plea that a separate Specification signifies distinct nature, and character of the goods.

8. In the light of our findings in paragraphs 6 and 7 above, we hold that on the substantive issue the Throw Away Inserts, being a variety of the generic item Tool Tips, were classifiable under specific Item 62 and they could not, therefore, fall under the more general Item 51A(iii)-"Tools".

9. We agree with the Department's Representative that there is no ambiguity in the description of Item 62 of the Tariff. There is also no doubt in our mind in holding that Throw Away Inserts correctly fall under this Item. In the circumstances, the question of giving any benefit of doubt to the appellants or of adopting an equally possible interpretation more favourable to them does not arise.

10. We now finally come to the legal argument of the appellants that the practice of classifying the Inserts under Item 5lA(iii), which was in vogue from 18-6-77 to 28-2-79, could not be abruptly changed from 1-3-79. We agree with the Department's Representative that a decision on classification cannot be permanent for all times to come. We rely on the Delhi High Court judgment in J.K. Synthetics case (1981 E.L.T. 328) wherein it was held that the same authority or the one subordinate to it should not change the classification arbitrarily but such a change could be made for cogent reasons. The High Court observed that this rule was a harmonious reconciliation between two well-established positions-one of the Department and the other of the assessee. We quote from their judgment:- "It is indeed a harmonious reconciliation between two well-established positions: on the one hand, that the matter of levy of tax in respect of each occasion is a separate and independent subject matter and that, generally speaking, there can be no reson why the authorities as well as the assessee could not approach the matter from different stand points on different occasions and the practical necessity, on the other, that there should be a finality to all litigation even in tax matters and that it should not be open to the department to change the pattern of assessments at its whim and put an assessee to avoidable inconvenience and harassment." Coming to what constitutes cogent reasons for which the earlier decision could be changed, the High Court, after citing with approval a Bombay High Court judgment on the same lines, observed as under :- "Again, in Seth Ramnath Daga v. CIT (1971 82 ITR 287), the Bombay High Court after citing certain decisions of the High Court and Supreme Court for saying that the principle of res judicata would not apply to findings of the Income-tax Tribunal also referred to Kaniram Ganpat Rai v. CIT, [1941-(9) ITR 332 Pat] and Tejmat Bhojing v. CIT (1952 22 ITR 208 Nag.), and observed that the issue could be reopened or reconsidered if fresh facts come to light or the previous decision had not been arrived at after due enquiry." "20. The above decisions bring out clearly that whatever may be the position of a court of law or of an Appellate Tribunal it is not open to the Income-tax Authorities to change their view capriciously. An authority can depart from a finding arrived at in an earlier year only for cogent reasons. There should be either fresh facts or a changer of law or at least a suggestion that while arriving at the Conclusion of the earlier year certain material facts or provisions had not been considered and that if they had been considered a different view might have been taken. But for no reason at all there can be no departure from the view taken in an earlier year. This rule is based both on the principle that there should be a finality to litigation even in Income-tax matters as well on principles of natural justice." Thus, both Bombay and Delhi High Courts have agreed that if the previous decision had not been arrived at after due consideration of certain material facts or provisions, a reconsideration of the decision could be taken up. Applying this rule to the appellants' case, we find that the process of reconsideration started in this case when the appellants submitted a fresh classification list on 1-3-79. Thereafter, till 28-11-79, they submitted five more classification lists for approval on different dates. Rule 173-B(2) of the Central Excise Rules, 1944 requires that the Proper Officer, after such enquiry as he deems fit, shall approve the classification list with such modifications as are considered necessary. We notice from the Assistant Collector's show cause notice dated 23-2-80 that on receipt of the classification list effective from 1-3-79, he examined the samples of Tool Tips and Inserts and went into their manufacturing process and the printed literature on both. It was as a result of this detailed enquiry by him that he came to the tentative conclusion that the earlier decision required a reconsideration. The appellants submitted their replies to the show cause notice. They were also personally heard by the Assistant Collector. The Assistant Collector undertook verification of the matter personally in the appellants' factory before passing his impugned order. We hold in the light of these facts that reconsideration of the earlier decision on classification in the case of the appellants was taken up by the Asstt. Collector for cogent reasons and as required by Rule 173-B(2). The Asstt. Collector's decision was neither abrupt nor arbitrary.

11. In the light of our above discussion, we uphold classification of Carbide Throw Away Inserts under Item 62 of the Central Excise Tariff and reject all the three appeals so far as the substantive issue of classification is concerned. This will not, however, affect the relief already granted by the Collector (Appeals) on the ground of time bar.

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