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Kwality Sales Corporation Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1986)(6)LC438Tri(Delhi)
AppellantKwality Sales Corporation
RespondentCollector of Central Excise
Excerpt:
.....held that the goods manufactured by the appellants were covered under item 52 of the central excise tariff. he confiscated the seized goods with a redemption fine of rs. 1,500/- and also imposed penalty of rs. 100/- on the appellants under rule 210 of the central excise rules, 1944 in addition to demanding central excise duty on the goods under rule 9(2).3. being aggrieved by the decision of the assistant collector, the appellants filed appeal before the appellate collector of central excise, new delhi. after examining the case records and a sample of axle stud supplied by the appellants and also considering the submissions of the appellants, the appellate collector observed that the axle stud had a screw arrangement on both the sides and the same is used for fastening in the.....
Judgment:
1. This was a Revision Application originally filed before the Central Government, which, on transfer to this Tribunal, was treated as an appeal.

2. The facts of the case, in brief, are that on 7-12-1976 Central Excise Officers of Range-III, Ludhiana visited the factory of the appellants and found that they were manufacturitg "Axle Studs" without obtaining Central Excise Licence in contravention of Rule 174 of the Central Excise Rules, 1944. The Officers seized 59-1/2 gross axle studs valued at Rs. 3,411/- found in the factory. A notice was issued to the appellants on 9-2-1977 to show cause to the Assistant Collector of Central Excise, Ludhiana as to why penalty should not be imposed on them and why Centra] Excise duty should not be charged on the seized goods under Rule 210 of the Central Excise Rules for contravention of Rule 174 ibid. Following the guidelines laid down in the Instruction No. 64/CE/77 (I-Nut & Bolts) dated 2-3-1977 issued by the Collec-torate of Central Excise, Chandigarh, the Assistant Collector of Central Excise held that the goods manufactured by the appellants were covered under Item 52 of the Central Excise Tariff. He confiscated the seized goods with a redemption fine of Rs. 1,500/- and also imposed penalty of Rs. 100/- on the appellants under Rule 210 of the Central Excise Rules, 1944 in addition to demanding Central Excise duty on the goods under Rule 9(2).

3. Being aggrieved by the decision of the Assistant Collector, the appellants filed appeal before the Appellate Collector of Central Excise, New Delhi. After examining the case records and a sample of axle stud supplied by the appellants and also considering the submissions of the appellants, the Appellate Collector observed that the axle stud had a screw arrangement on both the sides and the same is used for fastening in the automobile vehicles. He also observed that according to the Explanation to Central Excise Tariff Item No. 52, the expression, "Bolt and Nuts, threaded or tapped and screws" includes "Bolt ends, screws and screw studding". The subject axle studs, which are used for fastening purposes in automobile vehicles, thus qualify to be included within the meaning of item No. 52 of the Central Excise Tariff. Accordingly, he upheld the decision of the Assistant Collector and rejected the appeal. The appellants filed Revision Application against the said order of the Appellate Collector and the same is now under consideration before us.

(i) the order-in-original passed by the Assistant Collector is illegal as he did not apply his independent mind to the case while functioning as quasi-judicial authority, but based his order entirely on the trade notice issued by the Collectorate of Central Excise, Chandigarh. This legal flaw has vitiated the entire proceedings, and the order-in-original passed by the Assistant Collector and the order-in-appeal upholding that order deserve to be set aside on this legal ground alone ; (ii) the axle studs manufactured by the appellants are specially designed for exclusive use in different motor vehicles and have functional utility only in motor vehicles. These are made in accordance with special specification of a particular model of motor vehicle as its spare parts and have no other functional utility. The axle studs are also sold as parts of motor vehicles as would appear from the catalogue and would not be available at shops where other nuts, bolts and screws are sold. These axle studs, therefore, fall outside the general run of bolts, nuts and screws covered by Tariff Item 52 and are correctly classifiable as motor vehicle parts under Tariff Item 34A. As the axle studs are not included in the list of excisable parts of motor vehicles, the subject goods are exempt from payment of Central Excise duty and, therefore, no Central Excise licence is required to be obtained by the appellants. It has already been held by the Government of India in their Order No. 841 of 1973 dated 20-7-1973, on the Revision Application filed by M/s. Gurmukh Singh and Sons, Ludhiana that bolts and nuts etc. which are designed for exclusive use in automobile vehicles and are sold as such, do not fall under Item 52 of the Central Excise Tariff. It is not the intention of Government to make invidious distinctions in Tariff treatment to some manufacturers as against others in the same section of the industry ; (iii) it is an established principle of Tariff classification that an item which provides the most specific description shall have precedence over the item providing a more general description.

5. During personal hearing before us, the learned Advocate for the appellants reiterated the above contentions and said that the Government of India's order was binding on the Appellate Collector and he should have held the goods falling under Tariff Item 34A. He also emphasised the point that the goods manufactured by the appellants were motor vehicle parts and were understood as such in the common trade parlance. The goods were required to be classified on the basis of the popular sense in which they were understood in the trade. He cited the judicial pronouncements in the following cases in support of his contention :State of Uttar Pradesh and Anr. v. Kores (India) Ltd. [A.I.R. 1977 (SC) 132] ; (ii) Purushottam Gokuldas Plywood Co. v. Union of India and Ors., [1983 E.L.T. 1677 (Kerala)];Swadeshi Mills Co. Ltd. v. Union of India [1982 E.L.T. 237 (Bombay)] ;Dunlop India Ltd. and Madras Rubber Factory Ltd. v. Union of IndiaDelhi Cloth and General Mills Co. Ltd. v. State of Rajasthan and Ors., 6. Before concluding his arguments, the learned counsel submitted that if it be decided that the subject goods were classifiable under Tariff Item 52, then the benefit of Notification No. 158/71-CE should be allowed to the appellants.

7. The learned Senior Departmental Representative, Smt. Saxena, produced ten samples of axle studs for our inspection at the time of personal hearing. Each sample consists of one stud and one nut. The samples do not have any part No. embossed on them. She said that those samples were obtained from the appellants' factory out of the goods manufactured by them. Although the learned Counsel for the appellants pointed out that the samples did not bear the signature of his clients, but he confirmed that those were the types of axle studs manufactured by the appellants. Smt. Saxena explained that the axle studs produced by the appellants had threads, and according to Explanation below Item 52 of the Central Excise Tariff, the subject goods would come under the category of screw studs and would be classifiable under Item 52 of the Tariff. According to the Trade parlance also, those were screw studs and should be classified as such according to the ratio of Supreme Court's judgment in the case of Dunlop India Limited and Madras Rubber Factory Limited v. Union of India reported in A.I.R. 1977 Supreme Court, Page 597. It was also observed therein that the end use of an article is not relevant for classification where a Tariff entry does not contain a reference to the use or adaptation of the article.

Therefore, the fact that these screw studs are used as motor vehicle parts will not be relevant for the purpose of Tariff classification as the Tariff Item 52 specifically covers screw studs and there is no reference to end use in that Tariff Item.

8. With his letter dated 2-9-1985, the learned Advocate for the appellants filed an affidavit affirmed by Shri Kewal Krishan Bandha, a partner of the appellant firm and a statement of axle studs stated to have been manufactured and cleared by the appellants during 1976-77 for home consumption and direct and indirect exports. The statement is certified by Chartered Accountant. It has been mentioned in the statement that the nuts were purchased from outside as finished products. The statement shows, inter alia, part No., names of the motor vehicles, application/functional utility and the names of the customers. We have considered these details, but we find that in the absence of any reference to end use in the Tariff, these will not help the appellants in this case.

9. We have carefully considered the submissions of both sides and have also gone through the records. The first contention of the appellants is that the Assistant Collector did not apply his mind in this case and his order was based entirely on the Trade Notice and that on this ground alone, his order and also the order-in-appeal passed by the Appellate Collector are to be set aside. While we agree with the appellants that a quasi-judicial authority should apply his independent mind to the case before him and arrive at his own judicious decision, we are to observe that the Assistant Collector's reference to the Trade Notice would not vitiate the appellate order as the Appellate Collector applied his mind to the case and passed the order-in-appeal after going through the submissions made in the appeal and after examining the case records and a sample of axle stud supplied by the appellants and came to the conclusion that the axle studs manufactured by the appellants would be covered by Item 52 of the Central Excise Tariff and held that the order of the Assistant Collecter was maintainable.

10. For proper appreciation of the other arguments of both sides, it is necessary to reproduce the Tariff Items 52 and 34-A, which are the subject matter of dispute in this case. Tariff Item 52 reads as under : "52. BOLTS AND NUTS, threaded or tapped, and screws, of base metal or alloys thereof, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power.

Explanation.The expression "Bolts and Nuts, threaded or tapped and screws" used in this item shall include bok ends, screw studs, screw studding, self-tapped screws, screw hooks and screw rings".

Item 34-A of the Tariff, during the relevant period in 4976, read as follows : "34-A. Parts and accessories of motor vehicles not otherwise specified." However, during the relevant time, by virtue of an exemption Notification No. 99/71, dated 29-5-1971, all goods classifiable under this item, except those listed in that Notification, were exempted from duty. As axle stud was not included in the said Notification, the appellants have pleaded that they were entitled to the exemption granted under that Notification.

11. The goods in question are termed by the appellants themselves as "Axle Stud". In Chambers Dictionary of Science and Technology (Revised Edition1982) "Stud" has been defined as "A shank or headless bolt, generally screwed from both ends and plain in the middle. It is permanently screwed into one piece, to which another is then secured by a nut". The samples produced before us for inspection tally with the above definition. Each sample is a headless bolt having thread on each end and plain in the middle; it is screwed from both ends with the help of nuts. The learned SDR has argued that the product is "screw stud" and according to the Explanation below Tariff Item 52, the expression "Bolts and Nuts, threaded or tapped and screws" used in this item includes screw studs. We find substance in this argument. The goods, therefore, clearly fall within the scope of this Tariff Item. The fact that these are used in motor vehicles for fastening purposes does not affect this position.

12. This Tribunal has decided a number of similar cases, whose ratio is applicable to the present case. We may refer to the following cases :Ramdas Motor Transport Ltd. v. Collector of Central Excise, MadrasFit Tight Nuts and Bolts Ltd. v. Collector of Central Excise, RajkotCollector of Central Excise, Chandigarh v. Purewal and Associates Ltd.,Collector of Central Excise, Madras v. Sundram Fasteners Limited, Padi, Madras [CEGAT's Order No. 261/1985-D dated 2-8-1985 in Appeal No. ED (SB) 816/83-D].

(i) In the case of Ramdas Motor Transport Limited, 1983 E.L.T. 2067, the question for consideration was whether "Hub bolts and nuts" used in motor vehicles should be classified as bolts and nuts under Item 52 of the Tariff or as "goods not elsewhere specified" under Item 68. Although those hub bolts and nuts were made specially for motor vehicles and they were available only at the shops of automobile dealers and no hardware shop would stock them, it was decided by this Tribunal that they would fall under Item 52. Although the case of Ramdas Motor Transport related to the period after 10-5-1979 when the Tariff Item 34-A was amended to include 15 specified items only, it would not make any difference and the ratio laid down in that case would be applicable in the present case as the basic facts were similar, viz., that the articles in that case were specially made for motor vehicles, but still they were held to be classifiable under Item 52.

(ii) In the case of Fit Tight Nuts and Bolts Limited, 1985 (21) 'E.L.T. 717, the goods were "Hub bolts" which were also known as "Wheel mounting Pins". It was argued in that case that : (a) the goods were not capable of being used as general type fasteners, but had specific functional utility ; (b) the goods were manufactured as per the specifications and drawings supplied by the buyer and were assigned special part numbers : (c) the goods were only used as motor vehicle parts and were not available in the hardware shops ; (d) evidence of special engineering features was produced before the adjudicating officer to his satisfaction that the goods were for use in the motor vehicles only ; (e) there was hostile discrimination against the Company by not following the Government of India's decision in the case of M/s.

Gurmukh Singh and Sons, Ludhiana.

Notwithstanding the special characteristics of the Hub bolts, it was held by this Tribunal that the goods fell under Item 52 of the Tariff and not under Item 34-A as claimed by the appellants. In arriving at the above conclusion, the Tribunal followed its earlier decision in the case of Collector of Central Excise, Chandigarh v. Purewal & Associates Limited, and also the judgment of the Division Bench of Bombay High Court in the case of Simmonds Marshal Ltd. v. M.R. Baralikar, Assistant Collector of Central Excise, Aga (Pune) and Ors. ( 1984 Vol. 2 ECC Page 42]. It was also held that the alternative name of the goods as "Wheel Mounting Pins" would make no material difference.

In the case of M/s. Purewal and Associates Limited, the question for determination before the Tribunal was whether four articles known as barrel axle screw, bridge screw, dial key screw and lid screw were classifiable under Item 52 of the Central Excise Tariff as "Bolts, nuts and screws". Considering that the Tariff Item 52 specifically referred to 'Screws', there was no reference to the end use in the Tariff Item, the articles in question had the appearance of screws, they performed the function of holding in place two or more parts of the watch assembly, the Tribunal held that the articles would be classifiable under Item 52 of the Tariff.Collector of Central Excise, Madras v. Sundaram Fasteners Ltd., the Tribunal decided that connecting rod bolts, which were used as motor vehicle parts, were classifiable under Item 52 of the Central Excise Tariff.

13. The case of Simmonds Marshal Limited related to the classification of "Nyloc Self-locking Nuts" pertaining to a period prior to 10-5-1979.

The following relevant facts were considered in that case : (i) the nuts were manufactured as per specifications, they were not general fasteners, but had specific functional utility and their cost was 3 to 4 times the cost of ordinary nuts ; (ii) the nuts were used as motor vehicle parts, they were ordinarily stocked in auto spare parts shops and were not available in the hardware market; (iii) evidence of special engineering features was produced and admitted; (iv) there was argument of hostile discrimination against the appellants as against the case of M/s. Gurmukh Singh & Sonx.

The Hon'ble High Court held the goods to be classifiable under Item 52 and not under Item 34-A of the Tariff. Referring to the special features of the goods in that case, the High Court held that those features should not prevent the articles from being classified as "Nuts". The Hon'ble High Court observed as follows : "We have gone through these documents as well as certificates. We have also carefully gone through the expert evidence as well as draw-back scheme of the Government of India, the view expressed by ISI and the evidence of traders and consumers and other reports.

From the various certificates issued in the name of the petitioners, it is quite clear that the product of the petitioners, nylocs, are ordinarily stocked in the auto spare parts market as these nuts are used on special application, on all tyres of vehicles. They are somewhat different to the ordinary nuts as they have nyloc collar and in view of special characteristics, such as self-locking, sealing, etc., they are used where vibration is a major problem.

They are supplied against specific orders and they are not hardware items. Ordinary consumers of nuts do not purchase nyloc nuts because they are costlier than other types of standard nuts and are for specific use. These nyloc nuts are used by the consumers on critical applications which are subjected to stress and vibration where ordinary nuts are likely to work loose not having the locking action of the nyloc nut provided by the nylon ring. It appears from the certificate issued by Industrial Fasteners Association of India as well as the All India Automobile and Ancillary Industries Association, that the nyloc self-locking nuts are special fasteners used as original equipment on critical applications in the automobile industry. However, one thing is clear that these nuts are manufactured out of metal and alloy and are used as fasteners. If the evidence produced by the petitioners and the department is read as a whole, without laying undue stress on an individual quality of the product, it is quite clear to us that nyloc nut is nothing but a self-locking nut. It is the commodity as a whole which will have to be taken into consideration, while deciding the question as to whether it falls within a particular entry, and no undue stress can be laid on any isolated function or quality." 14. The Hon'ble High Court also rejected the argument, that the goods were not available in the ordinary hardware market and observed that it would make no difference whether it was readily available in the ordinary hardware market or was available only in automobile shop. The argument of hostile discrimination against the appellants vis-a-vis M/s. Gurmukh Singh and Sons was also rejected by the High Court. It was observed that the said case was decided on its own facts and no general rule of law was laid down in that behalf and that a decision on classification must depend on the facts and circumstances of each case.

15. The arguments advanced in the present case before us regarding special features and functional utility are similar to those dealt with m the cases decided by this Tribunal and in the case of Simmonds Marshal Limited, decided by Bombay High Court, and the decision was that the goods were classifiable under Tariff Item 52 arid not under Item 34-A. We find no reason to have a different line now.

16. The fact that the studs are used in the motor vehicles is also not material in view of the judgment of the Supreme Court in the case of Dunlop India Ltd. v. Union of India1983 E.L.T. 1566 (SC)=AIR 1977 SC 597 wherein it was observed that where a Tariff entry does not contain a reference to the use or adaptation of the article, the end-use of the article is not relevant. The goods in the present case are screw studs which are referred to in the Explanation below Tariff Item 52 and there is no reference to end-use in the item.

17. The appellants have raised the point of established, principle that a specific item for classification of goods will have precedence over an item providing a more general description. Even following this principle, the appellants are not entitled to have their products classified as motor vehicle parts under Item 34-A of the Tariff. This Tariff item, at the relevant time, contained general description of the goods, viz. "Parts and Accessories of motor vehicles not otherwise specified". The learned S.D.R. has submitted during personal hearing that the goods manufactured by the appellants are "screw studs" and that, according to the trade parlance, these are screw studs, and this has not been rebutted by the learned advocate for the appellants. Screw studs are specifically mentioned in the Explanation below Tariff Item 52. Further, "Stud" has been defined as "Headless Bolt" (Para 11 supra). "Bolts" is a specific entry in Item 52. Thus, Item 52 is more specific than Item 34-A in relation to these goods. In the circumstances, according to this established principle, the classification of the goods manufactured by the appellants under the Specific Item 52 would be preferred to the general Item 34-A.18. In view of the foregoing discussions, we do not find any justification to interfere with the impugned order and in the result, we dismiss the present appeal.

19. As we have held the goods to be classifiable under Item 52 of the Tariff, we direct that the benefit of Exemption Notification No.158/71-CE, dated 26-7-1971 shall be allowed to the appellants, if they satisfy the conditions of the Notification. The appeal is otherwise rejected.


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