1. In his order No. 12 of 1984, dated 29.6.1984, the Collector of Central Excise, Bombay-I decided that MS specials manufactured by M/s.
Indian Hume Pipe Co. Limited, Bombay were assessable under Item 68 of the Central Excise Tariff and not under Item 26AA(iv) as claimed by the factory. He ordered payment of a sum of Rs. 901,086.13 as demand for the period 1.4.1976 to 1.4.1981 under Rule 9(2) of the Central Excise Rules read with Section 11A of the Central Excises and Salt Act, 1944.
He confiscated some seized goods which he allowed redemption on a fine, and imposed a penalty of Rs. 25,000/-on the factory under Rule 173Q of the Central Excise Rules, 1944.
2. The manufacturers have appealed before this Tribunal to say that the Collector was mistaken in his order because there was no suppression or misstatement of facts to warrant recovery within the extended period of 5 years under Section 11 A. For the same reason there was no justification for the confiscation or for the penalty.
3. It was submitted before us by the learned counsel for M/s. Indian Hume Pipe Co. Limited that the goods MS specials manufactured by them were pipes and tubes correctly classifiable under Item 26AA(iv) and were exempted under Notification No. 69/73-C.E. These goods had been classified by the central excise under the same tariff item, and there was no change in circumstances to require a change in the classification. The Collector relied on a decision by the Bombay High Court which he said ruled that the MS specials were not assessable under Item 26AA(iv). But the same cannot be relied upon for the purpose of classification because the Bombay High Court only decided the issue of dutiability of the products. In a decision of this Tribunal reported in 1984 (17) ELT 127 (Tribunal) M/s. Structural & Machineries (Bokaro) Pvt. Ltd., the Tribunal ruled that MS pipes and fittings cut into sections and welded to the pipes would not alter the position, that the goods remained pipes and would not travel outside the scope of Item 26AA. The goods manufactured by the factory confirmed to ISI specifications 534 of 1966 for pipes and tubes. In special civil application No. 436 of 1966 Zaverchand Gaikwad of the Gujarat High Court ruled that the most essential ingredients of a tube or a pipe is that it must be used or capable of being used for the purpose of fluid or gas at a pressure, it must be leak-proof and should not collapse or burst under pressure. It must be a continuous hole and it ought to have been manufactured by one of the following three known processes of manufacture of a tube or pipe :- 4. This judgment would prove that their products were rightly covered under Item 26AA(iv). The order was defective because the Collector relied on Rule 9(2) read with Section 11 A, and therefore, the order is void and bad in law since Rule 9(2) can be invoked only in cases of clandestine removal as has been decided by several High Courts and by the Supreme Court. In the instant case, the goods were cleared after approval of their classification lists and all removals were with the knowledge of the central excise. Therefore, the claim was clearly time-barred as it covered the period 1.4.1976 to 1.4.1981 and for reasons that he had given, the time-limit cannot be extended to 5 years since there had been no suppression, fraud or misstatement.
5. The learned counsel also referred to a number of classification lists filed by the party and said that these showed clearly that they were manufacturing and the clearing MS pipes and specials. The Central Excise as early as November, 1975 in answer to one of their letters said that the pipes and specials manufactured by their factory fell under Tariff Item 26AA, and hence did not attract duty under Tariff Item 68. Classification list No. 11 of 1978 in which they declared MS pipes and specials with the remark that they were exempted under Notification No. 69/73-C.E. was approved by the Central Excise on 5.12.1978. Classification list No. 27/79 which again declared MS pipes and specials claiming exemption under 69/73-C.E. was approved by the Central Excise on 7.7.1980. But for some reason the item showing MS pipes and specials and notes thereunder were scored out by the Central Excise office. Classification list No. 23/1 HP/81 was also approved by the Central Excise on 30.4.1982 by the Central Excise but again they cancelled the item relating to MS pipes and specials, and the exemption claimed under 69/73-C.E. In this list, however, a note was entered under the cancellation, thus - 6. The Central Excise has never raised any problem about the MS specials. There had been some dispute about the clearances under Notification No. 118/75-C.E. and 119/75-C.E. on job work carried out by them and goods used for internal consumption. But there had never been a time when they had a dispute about the MS pipes and specials except when a civil application was fought in the Bombay High Court. That decision was delivered by the Bombay High Court on 14th October, 1964.
After this the Central Excise has not questioned the clearances. It is true that when Item 68 was first introduced, they cleared goods under this item; but when they realised that this was an error, they reverted back to claim assessment under Item 26AA especially when there was an exemption for the goods. Their classification lists had not been rejected. In fact, the classification list filed by them in 1980 is still pending decision and so is the classification list for the financial year 1981-82. The Collector does not deal with these matters in his order.
7. The MS specials are manufactured by them from duty paid pipes, which in turn, are made from duty paid plates and sheets. The taper sections are made directly from steel sheets. The learned counsel showed Photographs of the MS specials and said that these products are known as tees, bends, Y-junctions etc. etc. They form part and parcel of pipes and do all the work that pipes do. They are indistinguishable in their function and manner of manufacture from pipes. It is not correct to say as the Collector did that they fell outside Item 26AA(iv) and should be assessable under Item 68. The Central Excise knew at all times about their method of clearances and nothing was hidden from the authorities. Nor was there any fraud for which they should be punished in the way the Collector has punished them. The Collector's order deserves to be set aside.
8. The learned counsel for the department said that the factory had itself claimed before the Bombay High Court in the civil application that their products tees, bends, etc. etc. were not assessable under 2 6AA. They cannot now change their argument just because they stand to benefit under an exemption notification. These goods are not pipes as can be seen from their shapes though they had been made from pipes.
They are fitments. The party took the law into its own hands and started clearing the goods free of duty in spite of the fact that at one time it removed the goods under payment of duty under Item 68. The party seems to change its mind every now and then and in the process it has not hesitated to mislead the department and failed to obtain duty free assessment of the goods. It should have awaited confirmation of its duty exemption claim before removing the goods in the manner it did. Having done so it has been rightly punished for fraud and misstatement and the extended period of 5 years had been correctly imposed in order to recover all the duty lost through its fraudulent suppression of facts.
9. We read in the Collector's order that the inspector of Central Excise had raised demand for duty on these "pipe fittings of MS special". The company, however, filed writ petitions in the Bombay High Court against the demand claiming that the MS specials were not pipes but were pipe fittings. The company, we are told, paid duty under Tariff Item 68 when this item was introduced in 1975. Subsequently, they asked for classification of MS pipes and specials under Tariff Item 26AA claiming exemption under Notification No. 69/73; the Assistant Collector classified MS pipes only under Tariff Item 26AA.The order of the Collector does not tell us what order the Assistant Collector passed in respect of the specials. The order tells us further that the factory started availing exemption under Notification No.69/73 for MS specials along with MS pipes unilaterally without declaring facts to the department and subsequently deleted MS pipes and specials from their classification list No. 2/77 filed with the department. However, in classification list No. 11/78 and 27/79 for Tariff Item 68 they simply mentioned "MS pipes and specials". This was taken by the Collector to mean that the word "special" only referred to MS pipes._ 10. We are not clear about this reasoning because it is not as if the department was not aware that the MS specials were these kinds of fittings with which we are concerned now. Nor are we clear about what is meant by the clearance of MS special under Notification No. 69/73 without declaring facts, because we read in the same paragraph that in that classification list they did claim Notification 69/73. We see that the Assistant Collector classified MS pipes only under Tariff Item 26AA without showing anything about the MS specials; there is no explanation for this. In another paragraph, the order says that the company failed to declare full description of all excisable goods manufactured but a little further records that the goods had never been cleared as specials but under their individual description such as tees, bends, etc. This is belied by the letter dated 24.11.1975 written by the Assistant Collector of Central Excise, Bombay-VIII Division which had as its subject "request from M/s. Indian Hume Pipe Company Ltd. for exempting their product 'Hume steel and MS pipes and specials'." In this letter the Assistant Collector said nothing about the special though he said that the MS pipes fell under Tariff Item 26AA and did not attract duty under Tariff Item 68. The Collector argued that this letter should be taken as a clarification only in respect of MS pipes and about the specials but this is hardly satisfactory considering that the Assistant Collector himself refers to a request from the factory for clarification with respect to MS pipes and specials.
11. The order of the High Court of Bombay in Miscellaneous Petition No.188 of 1963, the judgment refers to the company as being manufacturer of pipes, pipe fittings known as specials and other equipment. The specials have also been referred in the judgment as tapers, tees, bends, Y-junctions, bellmouths etc. There can be no doubt that the department knew that specials meant these very things with which we are concerned now.
12. The reliance by the Collector on the judgment by the Bombay High Court in Miscellaneous Petition No. 188/1963 is not correct. The dispute before the High Court was that some of the specials or pipe fittings, were prepared from pipes. Where the products are prepared from pipes the duty was to be assessed only on the value of the pipes.
In some other cases, however, the fittings were prepared from plates without first converting the plate into pipe. The Court said that obviously the pipe fittings could not be subjected to an excise duty under Tariff Item 26AA(iv). The company did maintain before the Court that the specials on which the demands were issued by the Inspector of Central Excise were not pipes or tubes and were not covered by Tariff Item 26AA(iv). The Court said that it had now become clear that there was a good deal of misunderstanding on the part of the petitioners as well as the respondents with regard to the basis on which the specials or pipe fittings could possibly be assessed under Tariff Item 26AA(iv).
The department held that during the manufacture of the specials the factory prepared pipes which were subsequently processed into these pipe specials and that the products were chargeable to excise duty not on the value of the specials or pipe fittings but on the value of the pipes which went into their manufacture. It was this that formed the basis of the judgment of the Hon'ble Court and it was on this dispute that the court gave its directions to the department to reassess the excise duty payable under Tariff Item 26AA(iv) after giving the manufacturers an opportunity to show that any of the specials or pipe fittings were not prepared from pipes and after assessing the value of the pipes, if any, which had gone into the manufacture of special or pipe fittings. The decision of the Court was on pipes or rather it ruled that the assessment should be made by taking the letter of the Central Board of Revenue dated 24th May, 1962, into account and to assess the fittings on the value of the pipes of which they were made.
13. The hearings that took before the Collector have been reproduced and many submissions have been recorded. One of the points made by the party in its reply to the Collector was that the classification list of 1980 was pending and so was the classification list for the financial year 1981-82 but we can find nothing in the order as to what the department did about this and the Collector does not examine the submission. The company claim that they had given full description and information for MS pipes and specials before the central excise authorities, who therefore could only issue a show cause notice for revoking the approval of the classification list and demand for short-levy, and that they had not contravened the central excise law as alleged. The Collector simply gave a decision that the judgment of the Bombay High Court in Miscellaneous Petition No. 188 of 1963 was binding on the department and since he took this judgment as supporting assessment of the specials under Item 26AA, he ruled to that effect.
14. This is a misunderstanding of the High Court judgment as we have already stated above. There is no judgment that MS specials would be dutiable under 26AA but only that the pipes from which the specials were made were assessable under Item 26AA and that their value should be taken for assessing the goods made from them. The letter of the Assistant Collector dated 24.11.75 is said to be an approval of the classification of MS pipes manufactured by the company as falling under Item 26AA and, wrote the Collector, there was no mention at all about the approval of the classification of MS specials. This is not correct.
The Assistant Collector himself puts down the subject as referring to MS pipes and specials, although the Assistant Collector said nothing about the specials but clarified only the assessment on pipes. The Order of the Collector had no discussion at all on how the party is held to have suppressed or misstated the facts. The classification list filed by the party speaks about MS specials and from what we have seen it appears that the assessing officers either took no notice and ignored the MS specials or said they were going to do something about it separately; but we are not informed what the separate action was in respect of the specials. There is no doubt that MS specials were items produced by the factory and that there was once a dispute about them in 1963 before the High Court. The department cannot claim ignorance about these goods now. It may say that the party should not have taken exemption under 69/73-CE. unilaterally; but it is not possible to say that the department did not know about the manufacture or the clearance of the goods since classification lists had been filed before the department. There is no ignorance on the part of the department even though there may have been wrong assessment and wrong availment of exemption on the part of the manufacturers.
15. The manufacturers did seem to have taken for granted that the MS specials were exempted from duty under Notification No. 69/73-CE. We are not convinced that the correct assessment of the goods is 26AA (iv). These products were made from pipes and fittings and plates and may at first sight appear to have the general characteristics of pipes but that they are not pipes is proved by the fact that they do not serve the functions of pipes but only serve as aids, adjuncts and supplements to pipes. They cannot by themselves convey or transport materials like fluids, which a pipe does. These products only serve to join pipes, divert pipes where such diversion becomes necessary into two or three channels or when a pipe has to take a bend because of contour or outline on the ground or other obstructions require a pipe's direction to be changed to any degree. In such a case, one of these MS fittings/ specials called a bend will be used to connect the two meeting pipes at an angle. One should not mistake the functions of a bend or a tee to be the functions of a pipe. They are not pipes but they merely bring pipes together. Obviously, no pipe can be cast, welded or extruded without restriction on the length or the size.
Length is usually the most common restriction since there are severe limits of the length to which a pipe can be fashioned. Variations, considerations of weight, materials, etc. require that pipes should be only of given lengths. A pipe which has an indefinite length or which is too long will not allow transportation from the site of manufacture to the site of installation.
16. Sometimes it is necessary that the materials carried by a. bigger pipe should be diverted into smaller pipes in two or three different directions. Here the Y-junctions, tees, etc. serve the purpose of bringing two or three pipes together to the sources (the larger pipe) at the point at which the material carried by the larger pipe is diverted into two or three different channels. That the specials have configuration of pipes, that they allow the passage of materials like fluids to pass inside them, will not turn them into pipes.
17. The British Standard 534 : 1966 for steel pipes, fittings and specials for water, gas and sewage defines a pipe as a straight pipe of uniform outside diameter, with plain or prepared ends. It defines fittings as bends, tees and collars. It also defines specials as any other manipulating or fabricated pipe. These specials which are bends, tees and so on are defined as fittings by the standards and not as specials. In fact, there is no technical authority to support the understanding that bends, tees, Y-junctions for pipes are known as pipes. They are pipings and fittings for pipes etc. etc., but they can never be pipes and we have not seen any description of them as pipes.
18. M/s. Indian Hume Pipe seek support from the Tribunal decision 1984 ECR 1057 M/s. Structural & Machineries (Bokaro) Pvt. Ltd. This decision was taken by the appellants to be a Tribunal ruling that MS pipes and fittings fell under the Tariff Item 26AA and not under Tariff Item 68.
What the Tribunal did was to decide on a product that had been cut from a pipe and welded to it. The pipe after such welding, would still remain a pipe, iron pipes or steel pipes and "would not travel outside the scope of Item 26AA of the CET". Furthermore, the Tribunal said that there was no dispute that those pipes fulfil the conditions set out in column 3 of Notification No. 69/73-C.E. for getting exemption from the whole of the duty of excise and that this part of the claim was not disputed by the respondents. The Tribunal, therefore, held that this was a job work and that its value of Rs. 169,215.63 relating to MS pipes and fittings should be excluded from a consideration in determining the duty liability of the appellants. There is no decision here on MS fittings as such falling under Tariff Item 26AA or otherwise though this was urged by one of the parties. The decision given (in paragraph 6) was to say that the welding by the factory using the fittings to weld the pipes together did not take the pipes out of Tariff Item 26AA, and that the said welding was a job work whose value should not be taken for determining the duty liability of the factory.
The Collector was inclined to deduct the job work charges but was unable to do so because the appellants have not given the break-up value though they were asked to do so. He even said in his order that if the appellants supplied the break up of the value for job work done in respect of MS pipes (but under fittings) falling under Notification No. 69/73-C.E., the duty equivalent value of 8% would be deducted from the duty demanded. It is clear from para 3 that the Rs. 169,215.63 to be excluded from the computation was the value of MS pipes manufactured by M/s. Structural & Machineries (Bokaro) Pvt. Ltd. from duty paid plates and sheets.
19. We will note briefly here that M/s. Indian Hume Pipes themselves classified their goods once under Tariff Item 68. It is only when they heard of an exemption for pipes that they changed their classification.
This is not right. They should not have done this without proper proceedings although the Central Excise Department itself hardly did anything to stop the factory from making the clearances under Triff Item 26AA free of duty. But this is not to say that there was suppression or fraudulence. M/s. Indian Hume Pipe wrongly took exemption but this fact was not only not hidden from the Central Excise but was once approved by them. The Collector himself says little or nothing about the nature of the fraud or the deception practised by M/s. Indian Hume Pipe on the department. This is a case where the department failed to take proper action when it could have stopped the factory from clearing goods wrongly. We are not satisfied that there has been fraud and the Collector certainly has not brought out any fraudulent dealing by the factory. There is no answer in the order of the Collector to the submission by M/s. Indian Hume Pipe that the classification list 27/79 claiming exemption for the specials under Tariff Item 26AA was approved by the Assistant Collector on 15.1.1981.
Nor does the order record why the classification list of 1980-81 and 1981-82 claimed by the factory to be steel pending disposal, have not been approved or disapproved. The order as we have once noted, depends entirely on the judgment of the Bombay High Court, and not on the merits of the assessment of the goods. This would appear to support a view that the department went along with Item 68 until it discovered that in 1963 a decision was given on these materials by the High Court, and this was what brought about the change, and not any revelation of a fraud by M/s. Indian Hume Pipe. And, we would like to repeat, we have not been told the nature of this fraud and what it consisted of.
Furthermore, the show cause notice was issued on 28.9.1981, to which a reply was given within a little over a month on 12.11.1981.
20. We were told by the counsel for M/s. Hume Pipe that they had not recovered any duty from their customers, and this was not disputed by the counsel for the department on 18.12.1984 when the application of stay filed by the firm was heard. We cannot see how the factory gained by the so-called fraudulence if it got in the sale just what it had shown in its books. We are not told of any hidden or secret benefits, unknown to the department, that accrued to the factory as a result of the transactions in MS specials. Evidently, there was none. Of course, non-recovery of duty from customers does not always prove absence of fraud. But taking all circumstances together with this, we are of the view that there was no fraudulence or suppression by M/s. Indian Hume Pipe. There had been only incorrect payment of duty. Therefore, the recovery cannot stretch for more than 6 months.
21. The assessment under Item 68 suggested by the Department is in our view correct, and we reject M/s. Indian Hume Pipe's claim for assessment under Tariff Item 26AA(iv). The demand for duty is correct but it will work only for six months backwards since we have held that there has been no fraudulence to bring in the 5 years period. We direct M/s. Indian Hume Pipe to pay the duty short paid during the period of six months preceding the notice. We, however, set aside the confiscation of seized goods i.e. Rs. 145,361.24 as we do not think that there have been conditions warranting confiscation. If the fine in lieu of confiscation has been paid it shall be refunded. We also set aside the penalty of Rs. 25,000/- imposed under Rule 173Q. The demand of Rs. 11,628/-payable on the goods under seizure is correctly leviable and M/s. Indian Hume Pipe shall pay it.