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Pefco Foundry and Chemicals Ltd. Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1985)LC1137Tri(Delhi)
AppellantPefco Foundry and Chemicals Ltd.
RespondentCollector of Central Excise
Excerpt:
1. the allegations, in so far material in this appeal under section 35b of the central excises and salt act, 1944 (hereinafter referred to as the act), were- (a) the appellant had been making castings of diverse types for various industries since 1973. the castings had always been classified under item 25 of the 1st schedule to the act, to wit, "iron in any crude form including pig iron, scrap iron, molten iron or iron cast in any other shape or size," right from 1976 and exempted from duty under notification no. 74/62-ce, dated 24-4-62, as amended by notification no. 119/64, dated 27-6-1964. (b) earlier, the appellant filed a classification list on 15th april, 1981 claiming exemption in respect of "iron in any crude form-cast iron castings (semifinished, proof machined or partially.....
Judgment:
1. The allegations, in so far material in this Appeal under Section 35B of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act), were- (a) the Appellant had been making castings of diverse types for various industries since 1973. The castings had always been classified under Item 25 of the 1st Schedule to the Act, to wit, "iron in any crude form including pig iron, scrap iron, molten iron or iron cast in any other shape or size," right from 1976 and exempted from duty under Notification No. 74/62-CE, dated 24-4-62, as amended by Notification No. 119/64, dated 27-6-1964.

(b) earlier, the Appellant filed a classification list on 15th April, 1981 claiming exemption in respect of "Iron in any crude form-cast iron castings (semifinished, proof machined or partially machined) for- (4) Cylinder liners proof machined to Part No. 10123116 which isnot identifiable part in that it is partially machined only and not ready for use." under the aforesaid notification No. 74/62 and it was duly approved by the Asstt Collector in November, 1981; (Exhibit F in the Paper Book).

(c) however, in consequence of an audit objection dated 3-7-1981 (to (C) Which the Appellant submitted a reply dated 6th August, 1981), a notice dated 17-8-1981 (Exhibit D in the Paper Book) was issued to the Appellant under Section 11A of the Act, alleging inter alia that- (i) cylinder liners manufactured by the Appellant were cleared as cast iron castings under Item 25 of the First Schedule to the Act without payment of duty under the aforesaid notification, (ii) however, on physical verification, they were found to be identiliable as machine parts having undergone machining and polishing before clearance/removal; (iii) the cylinder liners in question would hence fall under Item 68 of the First Schedule; (v) such removals were with intent to evade payment of duty which, in the premises, became recoverable under the proviso to Section.

11A of the Act, and requiring the Appellant to show cause to the Assistant Collecfor of Central excise as to why duty in a sum of Rs. 3,07,028 at8% ad valorem in terms of Item 68 of the First Schedule to the Act in respect of cylinder liners cleared between September, 1980 and March, 1981 should not be levied and paid ; (d) on the submission of a reply on 29-9-1981 (Exhibit E in the Paper Book) by the Appellant, the show cause notice was, apparently, not proceeded with ; (e) subsequently, notwithstanding the approval accorded to an identical classification list dated 17-8-81 in November, 1981, [para (b) supra] another show cause notice dated 16th January, 1982 was issued by the self same Assistant Collector. The said notice (Exhibit G in the Paper Book) is almost indentical in terms with the earlier show cause notice dated 17-8-1981 except that it required the Appellant to show cause why- (i) the product in question should not be classified under Tariff Item 68 with appropriate rate of duty leviable thereon with effect from 1-3-1981 ; and (ii) the differential duty (being the difference of duty assessed and duty payable) should not be demanded as per provisions of Section. 11A of the Act, for which data of such duty payable is being forwarded separately; (f) in adjudication, the Assistant Collector, by order dated 6th July, 1982, directed that the cylinder liners in question should first be classified under Item No. 25 of the First Schedule as castings and then under Item 68 as cylinder liners and demanded duty of Rs. 7,30,393.76 [within 10 days of the receipt of the order] since the demand for the period Sept. 1980 to Jan. 1981 was barred by limitation; (g) in appeal, the Appellate Collector by an order dated 6th July, 1982 upheld the adjudication order except to the extent that the demands "which are issued for a period longer than six months from the date of issue of the show cause notice are not sustainable," inasmuch as a classification list can be revised only prospectively and any demand pursuant to a revised classification would be subject to the provisions of Section 11A of the Act and Rule 10 of the Central Excise Rules, 1944.

2. It was contended by Shri R.K. Habbu, Advocate for the Appellant before us, inter alia, that- (a) once the classification list was approved, the Asstt. Collector had no jurisdiction to go back on such approval since there is no such power that inheres and becomes vested, as it should, either expressly or by necessary implication, in the Asstt. Collector (reliance upon 1983 ELT 34-Indian Organic Chemicals Ltd. v. Union of India); (b) in any view, the first show cause notice dated 17-8-81 must be deemed to have been dropped in the facts and circumstances of the case; (c) the castings manufactured by the Appellant cannot in any view be considered to be machine parts and assessed to duty under Item 68 of the First Schedule, because, after the supply of castings, further processing by way of machining and polishing has yet to be done and was, indeed, done by the purchasers from the Appellant on their own.

Such processing by way of machining or polishing done by the Appellant before clearance was merely to remove the defects noticed on the surface of the castings rather than to render them completely serviceable as cylinder liners without any more machining or polishing. The goods in question cannot therefore be assessed to duty as identifiable machine parts on clearance from the Appellant's factory in terms of Item 68 of the First Schedule (reliance on 1983 ELT 17-Tata Yodogawa Ltd. v. Asstt. Collector of Central Excise) (d) in any view of the matter, excise duty cannot be levied unless the excisable goods with a distinct name, character and use come into existence and the goods manufactured must be ordinarily capable of being bought and sold. In view of the further process that the castings manufactured by the Appellant have to undergo at the customer's end, they cannot be held to be manufactured goods, identified as machine parts and assessed to duty under Item 68 of the First Schedule (reliance upon AIR 1963 SC 791 -Union of India v. Delhi Cloth & General Mills Co. Ltd.) (e) the Appellate Collector was in error in failing to specify either the amount required to be paid or the date of the relevant show cause notice from which the period of six months was to be reckoned retrospectively; (f) nor did the show cause notice dated 16-1-1982 specify the amount to be paid towards duty. It is a nullity in law being contrary to the specific requirements of Section. 11A of the Act.

(a) a review is always permitted when the appropriate authority came to a conclusion that the earlier decision was erroneous (reliance on 1981 ELT 114-Bawa Potteries v. Union of India); (b) it is not marketability but manufacture that is the true test for levy of excise duty ; (c) (i) for a fact, the first show cause notice dated 17-8-81 was not dropped. It related to the period between September, 1980 and March, 1981 while the second show cause notice dated 16-1-82 related to reclassification and demand for the differential duty with effect from 1-3-1981; (ii) accordingly the period of six months to which the demand was limited by the Appellate Collector necessarily takes us to six months prior to the first show cause notice dated 17-8-81; (d) the purpose of the show cause notice is to indicate the amount of duty payable and, hence, if the notice indicates the difference between the duty demanded and the duty not paid, that would be sufficient compliance with the requirement of Section. 11A of the Act. In case the amount is not specified, the Appellant could always enquire and ascertain the actual duty before giving a reply to the show cause notice. Mere failure to comply meticulously with the requirements of Section. 11A does not render the show cause notice void (reliance on 1981 ELT 642-Hindustan Aluminium Corporation Ltd. v. Superintendent, Central Excise, Mirzapur and Ors. It was Rule 10 as it existed at the relevant time that was construed in the said decision. Rule 10 is now replaced by Section. 11A and is ad idem.) (a) Shri Habbu, the learned counsel for the Appellant invited our attention to certain additional evidence in the form of two letters dated 23-5-83 and 29-9-83, the first from the Senior Stores Officer (for Controller of Stores, Diesel Locomotive Works, Varanasi, and the second signed for Controller of Stores, Southern Railway, Madras respectively, as well as certain certified photographs of the castings and submitted, inter alia, that the castings cannot be regarded as machine parts since they have to undergo further processing at the customers' end. He also relied upon the decisions of the Tribunal in- (i) 1983 ELT 1113 (July Part) (Tata Iron and Steel Co. Ltd. v. Collector of Customs, Calcutta) and (ii) 1983 ELT 1122 (Tata Engineering and Locomotive Co. Ltd. v. Collector of Customs, Bombay).

and (b) Shri Lakshmi Kumaran, for the Respondent, while conceding that castings which were merely proof machined may not be assessable to duty under any item of the First Schedule other than item 25, in view of the aforesaid decision of the Tribunal, contended that the castings in question were fully machined as is evident from the two letters relied upon by Shri Habbu. The contract itself was for supply of fully machined castings. Further, while proof machining and fettling can be said to be processes incidental or ancillary to the completion of "manufacture" [as defined in Section. 2(f) of the Act], the other processes that have been carried out by the Appellant were processes incidental or ancillary to the manufacture of cylinder liners-an identifiable machine part falling under item 68 of the First Schedule and accordingly again assessable to duty.

He placed reliance on A.I.R. 1964 S.C. 314 [ Associated Industries Pvt. Ltd. v. Regional Provident Fund Commissioner] and invited us to apply the test of predominent activity laid down therein for the purpose of ascertaining if the goods in question remained "iron in any crude form" or became identifiable as machine parts.

5. It would appear to us on the perusal of the papers, the submissions made and otherwise that- (A) (i) the show cause notice dated 16th January, 1982 [Exhibit G in the Paper Book] on its terms, did not have anything to do with the earlier notice to show cause dated 17-8-1981 (Exhibit D). It does not say that it was either in continuation or without prejudice to the earlier show cause notice for the period between September, 1980 and March, 1981. On the contrary, it deals entirely with the classification list No. 6 of 1981 with effect from 1-3-1981 duly approved as per Exhibit F dated 21-11-1981. It recites that- (a) the appellant had filed a classification list classifying cylinder liners under item 25 of the First Schedule and eligible for exemption under Notification No. 74/62; (b) such classification was approved on or about 20th of November 1981; (c) nevertheless, it appears that the cylinder liners in question are first classifiable under item No. 25 and further under item No.68 at the appropriate rate of duty for the reasons annexed to the notice ; (d) it is, hence, proposed to classify the said cylinder" liners under item 68 pursuant to the powers conferred by sub Rule (5) of Rule 173 B of the Central Excise Rules, 1944 and to levy duty under it and also to demand the differential duty payable with effect from 1-3-1981 on the said items under the provisions of Section 11A of the Act, (ii) the earlier show cause notice dated 17-8-81 did not propose any such reclassification. It merely alleged removal of excisable goods with an intent to evade payment of duty and, accordingly, such duty as has been evaded was recoverable from the Appellant under proviso to Section. 11 A. The Appellant was required to show cause why he should not be required to pay an amount of Rs. 3 07,028/- over the period September, J980 to March, 1981; (iii) personal hearing in the earlier show cause notice would appear to have been concluded before the Asstt. Collector on or about 23-10-81 It would appear that the Appellant had contended that cylinder liners manufactured by him were assessable only under item No 25 of the First Schedule to the Act and eligible for exemption under Notification No. 74/62, dated 24-4-1962, as amended by Notification No. 119/64, dated 27-6-1964. No separate order would appear to have been made; (iv) even prior to the issue of the earlier show cause notice dated 17-8-1981, the Appellant filed the classification list No. 6/81 claiming classification in terms of item 25 of the First Schedule to the Act and exemption under the aforesaid notification; (v) the said classification list was approved on or about 20th of November, 1981, close on the heels of the conclusion of the hearing on 23-10-1981 pursuant to the show cause notice dated 17-8-1981 Significantly, it was the self same Superintendent and Asstt.

Collector that were involved in the earlier show cause notice dated 17-8-1981 that were concerned with the approval for the classification list; (vi) nevertheless, on 16-1-1982 the second show cause notice was issued Curiously enough, while the earlier notice dated 17-8-1981 quantified the duty said to have been evaded, no such quantification was made in the second notice dated 16-1-1982. A personal hearing pursuant to the said notice took place on 17-5-1982; ' (vii) in the course of the adjudication order, the Asstt. Collector proceeds to say that she had considered the submissions made by the Appellant in respect of both the show cause notices and the issue involved being the same, they were both dealt with together; (viii) but then, the Asstt. Collector had recorded no findings whatsoever in regard to the allegations made under the first show cause notice dated 17-8-1981. There was hardly any discussion even of the substance of the allegations in the first notice-the quantity removed during September, 1980 to March, 1981; the intent to evade duty only in the said period-significantly, neither earlier, nor later; the applicability of Rule 173B (5); the quantification of the evaded duty; the reasons as to why the duty was evaded only during the aforesaid period and not right from 1976, when all along the Appellant had been consistently following the same practice. Not one word. Nor any explanation as to why the classification proposed by the Appellant was approved, on 20-11-1981, despite the earlier notice dated 17-8-1981, and the hearing pursuant to the said notice, by the same duo of officers involved right through. Is it, in the circumstances, unreasonable to conclude that the enquiry pursuant to the earlier notice dated 17-8-1981 was dropped with the approval accorded to the classification list on 20-11-1981 but resuscitated for obvious reasons on the issue of the subsequent show cause notice dated 16-1-1982 In any view of the matter, when there were no findings whatsoever on the issues that arise under the first show cause notice dated 17-8-1981, the 'composite' adjudication order is of no effect in so far as the said notice is concerned; (ix) this is how, the Appellate Collector had also apparently understood, for he proceeds to deal with the matter as if the adjudication order concerned itself with the notice dated 16-1-1982 only and the earlier notice finds no mention or discussion at all in his order. When he, therefore, modifies the adjudication order and quashes the demand for duty beyond a period of six months from the date of the show cause notice (para 3 and the last para), he can be understood to refer to the second show cause notice only and not to the first at all. Otherwise, there was no modification effected by him, as stated by him, if he is to be understood to confine the demand to a period of six months prior to the notice dated 17-8-1981, since that was the conclusion in the adjudication order as well; (x) the contention, in the premises, of the Respondent set forth in subparas (c)(i) and (ii) in para 3 supra, have to be rejected.

(B) (i) The question of a power of review of a classification list approved earlier, in terms of Rule 173B, had been exhaustively dealt with in the dissenting order in 1984 ELT 389 (Entremonde Polycoaters Pvt. Ltd., Nasik v. Collector of Central Excise, Pune) and I do not propose to add to it except to observe that apart from the decisions of the High Courts of Madras and Allahabad, cited in para 17(a) of the aforesaid order, the decisions of the Supreme Court in A.I.R. 1966 S.C. 641 (Harbhajan Singh v. Karam Singh), and A.I.R. 1978 S.C. 1814 {Major Chandrabhan Singh v. Latafatullah Khan) also categorically lay it down that a review is a creature of statute and is incompetent in the absence of an enabling provision. Again in (1984) 145 ITR (Commissioner of Incometax v. Jagabandhu Roul), the Orissa High Court had also held that a power of review has to be statutorily conferred.(Nuchem Plastics v. Collector of Central Excise, Delhi), the 'D' Bench of this Tribunal had, after consideration of the case law on the subject, came to a conclusion not substantially different from the ratio of the dissenting order aforesaid in 1984 ELT 389. A review is ruled out, in terms of the decision in the Nuchem case, in all cases except where- or (c) there had been a subsequent pronouncement of High Court or Supreme Court which necessitate reconsideration of the issue, or (d) fresh facts are brought on record or there is, at least, a suggestion that while arriving at the conclusion earlier, certain material facts and provisions have not been considered.

(iii) Without going critically into each of the aforesaid conditions that are laid down as sine qua non for review in the context of the provisions in Rule 173B, it would appear sufficient for our present purpose to observe that none of them is fulfilled in the instant case. On the contrary, the discussion in para (5A) supra of the proceedings relating to the show cause notices is enough indication of the arbitrary or capricious exercise of the power of review in this case, if at all it were assumed to inhere in the adjudication officer to a limited extent. One can hardly describe the action otherwise in the light of the sequence of events-the show cause notice for payment of differential duty on 17-8-1981, the conclusion of the adjudication on 23-10-1981, the approval of a classification list entirely negating the adjudication, and the issue of a second notice to show cause on 16-1-1982 in despite of it.

(C) (i) The foregoing, by itself, is sufficient to dispose of this Appeal and it is unnecessary to go into the other issues. Since, however, the issue as to whether the goods in question can be considered to be machined parts and assessed to duty all over again under Item 68 of the First Schedule, had been argued at some length, initially as well as after reopening the case, it is being dealt with.

(ii) The question of construction and applicability of Item 25 of the First Schedule, relevant in this context, was previously referred to a larger Bench by 'B' Bench itself in the case of M/s.

Tata Engg. & Locomotive Co. Ltd. [Appeal No. CD(SB)(T) 45/75-B] on account of an unanimous disagreement with an earlier ruling of the Tribunal reported in 1983 ELT 1122, (now cited and relied upon for the Respondent along with another decision in 1983 ELT 1113, to the same effect). It was observed in the referring order, inter alia that- (a) Item No. 25 makes use of an inclusive definition of "Iron in any crude form" and is thus enlarged to include all the goods enumerated therein; while in item 26AA the general description was restricted by the use of the expression "the following, namely"; (b) in the aforesaid general description in Item 25, the words "in any crude form" qualify "Iron". It is this general description that specifically included within its ambit "iron cast in any other shape or size". The qualification "in any crude form" applies, therefore, not only to "Iron" but of the various products sought to be included within "Iron in any crude form" and, inevitably, "iron cast in any other shape or size" amongst others. Further, other forms of "Iron" included are all crude and "castings" take the colour from them; noscitur a sociis"; (d) Item 26AA(v), even though residuary in character, was held not to include semifinished and finished castings 1983 ELT Yl-Tata Yadogwa Ltd. v. Assistant Collector of Central Excise, Jamshedpur-Para 7). If this were so, "Iron" in Item 25, qualified as it is by the words "in any crude form", cannot be semifinished or finished castings; (e) the processes undertaken like, for example, annealing, straightening, buffing and rough machining etc. indisputably, reduce the rawness. Once the castings had been subjected to those processes they ceased to "Iron in any crude form"; (f) any other construction would lead to a subjective selection of the processes that may be carried out before the "Iron" ceases to be "in any crude form"; (iii) In the Reference which was heard by five learned Members of this Tribunal, it was held, inter alia, that- (a) Item No. 25 has to be read "Iron cast in any crude form including pig iron, scrap iron, molten iron or iron cast in any other shape or size"; (b) once it is so read, it becomes clear that "crude iron" qualifies mainly pig iron, scrap iron and molten iron to a lesser extent and does not qualify iron cast in any other shape or size; (c) the castings fall under Item 25 till they lose their identity as castings and assumed a new name, character and use; (c) various citations (not, however, referred to) show that if the goods were manufactured in India, they were liable to duty under Item 25; (f) in an addendum, one of the learned Members relied upon the ratio of the Supreme Court in 1980 E.L.T. 343 (SC) (Dy. Commissioner, Sales Tax, Emakulam v. P.I.I. Food Packers) and observed that, even though the casting had undergone a degree of processing, it must still be regarded as retaining its original identity and accordingly it is assessable under Item 25; (iv) in terms of the ratio of the larger Bench of this Tribunal, therefore, it is not the extent of crudeness or roughness in the casting that is the true test determinative of the assessability to duty of a "Iron cast in any other shape or size" in terms of Item 25 of the First Schedule. The real test is whether, by dint of the processing, the casting had become another identifiable article. If one may say so with respect, "Iron cast in any other shape or size" cannot be an unidentifiable article. It has, necessarily, to be to a certain specification governing an identifiable article right from the beginning. In this very case, as would appear from the classification list, the casting required is for cylinder liners which are identifiable articles. It is not, therefore, as if iron cast in any shape or size is unidentifiable initially except as a nondescript casting and loses that identity when refined to become altogether a different object with a new name, character, specification and use; (v) be that as it may, applying the test as laid down by the larger Bench of this Tribunal to the facts of this case, it. would appear that - (a) the contracts pursuant to which the goods in questio were manufactured were for the supply of "fully machined cylinder liners" (purchase order for supply to the Diesel Locomotive Works, Varanasi) or fully machined and ptoof machined cylinders (purchase order for supply to the Controller of Stores, Southern Railway); [Vide the letters dated 23-5-1983 and 29-9-1983 from the Diesel Locomotive Works and Controller of Stores, Southern Railway respectively, filed as additional evidence by the Appellant]; (b) obviously, if the goods did not conform to the description in the purchase orders, there is no question of their acceptance by the purchasers. They have, therefore, to be "fully machined cylinder liners" or "fully machined and proof machined cylinders" as the case may be, before they are cleared from the Appellants' factory; (c) once this is so, it cannot be contended that they had not become identifiable machined parts even in accordance with the ratio of the larger Bench aforesaid, regardless of such processing as may be necessary at the purchaser's end; (d) the photographs of the goods in question submitted before us leave no manner of doubt that the castings had assumed the character of an identifiable article, namely, fully machined cylinder liners or fully machined or proof machined cylinders by the time they are cleared from the assessees' factory; (c) accordingly they ceased to be castings before clearance and became liable for duty once again under Item 68 of the First Schedule.

6. In the premises, the Appeal succeeds on the issue of the competence of the adjudicating authority to have purported to review a classification list approved earlier.

7. I agree with Brother Murthy that considering the way entry 25 of the Tariff is worded, viz., "25. Iron in any crude form-including pig iron, scrap iron, molten iron or iron cast in any other shape or size" the word "crude" ought to be taken as qualifying the entire entry. This was also the unanimous view of the appellants as well as the Department in M/s. TELCO's appeals before the Larger Bench [Appeals No. CD(SB) (T) A.No. 45 and 50-55/75-B]. However, the Larger Bench has ruled otherwise saying that the word "or" occurring after the words "molten iron" in the entry is disjunctive and that the word "crude" does not qualify the words "iron cast in any other shape or size". Therefore, whatever may be my personal views in the matter, I consider that as a part of the three Member Bench I am bound by the Larger Bench ruling on the point.

At the same time, I find that it is not necessary to prolong this controversy as this point is not very material for deciding the issues in the present appeal of M/s. Pefco Foundry & Chemicals Ltd. As I see from the records, two types of cylinder liners were supplied by the present appellants to two customers in the Indian Railways-one proof machined and the other fully machined. For drawing the distinction between a crude casting on the one hand and a semifinished/finished casting or machinery part on the other, we should go by the understanding of the iron and steel industry and trade rather than by the dictionary meaning of "crude". After a detailed examination, the Larger Bench in Mis. TELCO's case has held that proof machined castings are considered by the relevant trade and industry in India as falling under Item 25 only. Proof machining is done to see that the walls of the casting are not hollow from inside. It also removes surface defects of the casting and makes the casting a smooth and clean one. At this stage, the process of converting the casting into a machinery component has really not commenced. This was the finding of the earlier Tribunal Order reported at 1983 E.L.T. 1122 in M/s. TELCO' case and the Larger Bench has confirmed the said finding in subsequent other appeals of M/s TELCO also. I, therefore, hold that proof machined cylinder liners, if any, cleared by the present appellants were classifiable under Item 25 only.

8. The Larger Bench in Mjs. TELCO's case has ruled further that iron castings would continue to fall under Item 25 till they lose their identity as castings and assume a new name, character and use. Applying this test to the other cylinder liners cleared by the present appellants, it is clear from the contract documents that they were to be "fully machined cylinder liners". After personally seeing them and the detailed machining operations which they had undergone the Assistant Collector came to the finding that they were finished machinery components. During the hearing, we were shown the photographs of these castings. On seeing them, I endorse the Assistant Collector's finding on this point. This further supports the description in the contract documents that they were fully machined cylinder liners. At this stage, they could no longer be considered as mere "iron cast in any other shape or size". They had become a different article falling under Item 68 of the Tariff. The appellants have stated that some further processes still remained to be performed on them at the customers' end. I find that these further processes were nothing more than fitment operations of a peripheral nature. The fully machined cylinder liners, in the condition in which they were cleared from the appellants' factory, were almost finished machinery components, even if not fully finished. The important thing is that at this stage they had ceased to conform to the description "iron cast in any other shape or size" in entry 25. I, therefore, hold that fully machined cylinder liners were liable to assessment at two stages-under Item 25 at the stage of casting and under Item 68 at the time of their clearance after detailed machining etc. Patna High Court judgment in the case of M/s Tata Yodogawa (1983 E.L.T. 17) cited by the appellants is not applicable here because that judgment related to a case of classification of steel castings under entry 26AA (v) and the two entries-25 and 26AA(v) are worded differently.

9. As regards the appellants' argument that the Assistant Collector could not revise her own decision on the classification list, I rely on the Division Bench judgment of the Delhi High Court in J.K. Synthetics case (1981 E.L.T. 328). In this judgment, the Hon'ble High Court considered a host of authorities of the Supreme Court and the other High Courts and thereafter 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. After stating the by now wellsettled principle that the plea of estoppel could not be taken in taxation matters, the High Court observed that the rule laid down by them a harmonious reconciliation between two wellestablished positions-one of the Department and the other of the assessee. I 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 reason 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 Bhojingu-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 change 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." Applying the above rule to the present appellants' case, I find that the goods were declared by them in the classification list effective from 1-3-81 as under: - "(4) Cylinder liners proof machined to Part No. 10123116 which is not identifiable part in that it is partially machined only and not ready for use." However, on physical verification of the goods and their manufacturing processes, the Asstt. Collector found, and so have I after seeing the photographs and the contract documents, that they were 'fully machined cylinder liners". In other words, the description of the goods in classification list was misleading or, at best, only partially true. As far as the records before me show, both the classification lists, the one effective prior to 1-3-81 and the other effective from 1-3-81, were initially approved on the basis of the description of the goods given therein by the appellants. But when physical verification of the goods and their processes of manufacture revealed a different position, or in other words, fresh facts came to light on the basis of physical verification, the two show cause notices were issued for revising the earlier decisions given on the classification list. The first show cause notice issued on 17-1-81 was occasioned by physical verification of the goods. It covered the period from September, 1980 to March 1981.

The second show cause notice dated 16-1-82 was also issued after physical verification. The Assistant Collector herself visited the appellants' factory and saw things for herself. This show cause notice covered a different classification list for a different period (March, 1981 onwards). Thus, on both the occasions the show cause notices seeking to revise the earlier decisions on the classification lists were occasioned by fresh facts coming to the knowledge, of the, Assistant Collector. As per the Delhi High Court judgment in J.K.Synthetics case referred to above, as well as the Bombay High Court judgment cited therein, the Assistant Collector had the right to review her earlier decision when material facts not stated in the classification list came to her knowledge on physical verification of the goods and their processes of manufacture. In their judgment reported at 1982 E.L.T. 1 (Bom.) (Camlin Private Ltd.), the Bombay High Court has followed the Delhi High Court in J.K. Synthetics case referred to above. Relying on both these authorities, I hold that in the facts and circumstances of this case the Asstt. Collector had the power to reopen her earlier decisions on the two classification lists.

On this point, I, therefore, beg to differ from Brother Murthy's view.

10. Coming to the question of time bar, I find that the Collector (Appeals) had already given the benefit of time bar of six months under Rule 10 to the appellants. There is no appeal by the Department against this part of the Collector's order. The appellants are, therefore, entitled to have this benefit. The period of six months for which the demand for duty can validly be enforced against the appellants would be the period of six months preceding each of the two show cause notices as the two notices covered two different classification lists in force during two different periods. Approval given by the Asstt. Collector in November, 1981 to the subsequent classification list which was operative for a later period cannot mean that the first show cause notice given in respect of an earlier classification list, in force prior to March, 1981 stood dropped. The Asstt. Collector did not pass any order withdrawing the first show cause notice but actually adjudicated upon it, together with the later show cause notice, in her combined Orderin-Original.

(1) proof machined castings of cylinder liners were classifiable under Item 25 of the Tariff, (2) fully machined cylinder liners were liable to a two-stage levy-first under Item 25 and later under Item 68, and (3) the demand for duty should be revised accordingly and, in so far as the past period (prior to the issue of the show cause notices) is concerned, it should cover only a period of six months prior to the issue of the respective show cause notices.

11. Broadly, I agree with the judgment of Shri K.L. Rekhi, Member (Technical). The ratio of the larger Bench judgment vide Order No.449-455/ 84-B dated 31-5-84 in the matter of M/s. Tata Engineering and Locomotive Co. Private Ltd., Bombay v. Collector of Customs, Bombay, is binding on us and any views expressed to the contrary are not relevant.

In accordance with this decision of the Larger Bench, the goods would continue to be classified as 'castings' under Item 25, CET till they cease to be so and become identifiable machine parts. In the present case, as stated by Shri Rekhi, part of the goods are proofmachined and these are, therefore, clearly assessable as castings under Item 25, CET. Other cylinder liners which are admittedly fullymachined, would prime facie, be assessable in addition as machine parts under Item 68, CET.12. This finding is given on the basis of the evidence produced before us and its evaluation. Should the appellants at any subsequent stage be able to show to the assessing authorities that such fullymachined cylinder liners are in fact not fully finished (or nearly fully finished) articles, it would be open to them to contend that they do not merit classification under Item 68 but only under Item 25, CET.13. Regarding the other question, namely, whether the Assistant Collector could review the classification and assessment made earlier, I fully agree with Shri Rekhi. Since the orders of the Assistant Collector relate to different classification lists which are operative for two different periods, she was fully competent to change the classification/assessment in the light of fresh facts or even reevaluation of the existing facts. This can hardly be called a 'review'. It is merely a change in classification made after reconsideration and reevaluation of facts as ascertained by her and that too for a subsequent period. In the matters of taxation, there is no estoppel or res judicata to prevent such a course of action, provided, of course, such action is not arbitrary or capricious.

Accordingly, I agree with the orders incorporated in para 11 of Shri Rekhi's judgment. The appeal is thus partially allowed.

In accordance with the orders of majority of the Members who have heard this appeal, the appeal is partially allowed in terms of the order incorporated in paragraph 11 of Shri K.L. Rekhi, Member (Technical)'s order above.


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