1. This appeal was filed by M/s Tata Iron and Steel Company Limited, Jamshedpur directed against an order passed by the Appellate Collector, Central Excise, Calcutta dated 30-7-1979 whereby he rejected the appeal of the appellant-company on the point of classification, of their products which they described as "(1) harrow discs and (2) coal-cutting picks, falling under Tariff Entry 26AA of the Central Excise Tariff, (hereinafter referred te as C.E.T.).
2. It appears that the aforesaid two products are being manufactured in a factory owned by the appellant company, under the name and style of "Agrico", where agricultural implements are produced by forging process, out of duty paid steel materials. It is contended that no duty is leviable on such forged products of iron and steel if made out of duty paid semi-finished steel material.
3. According to the appellant, they have been manufacturing number of products at the said factory under AL-4 Licence which they held since 9-12-1968, but when sometime in 1976, an application was made, in the usual course, for renewal of the aforesaid licence, they were advised by the Assistant Collector, Jamshedpur vide his letter dated 16-2-1976 that although the licence in question had been renewed as requested by the Company, no licence was required as this Agrico Unit of the Company was exempt from having a licence as it was producing only forged products. It is averred that the company still wanted to be very clear and they again approached the Assistant Collector to grant them personal hearing as they felt that notwithstanding the fact that their products were exempt from duty, it was necessary to have their licence renewed but the Assistant Collector, Central Excise again by his letter dated 19-3-1977 so informed them that in view of Notification No.31/76-C.E., dated 28-2-1976, iron and steel products which were exempt from payment of whole of the excise duty, were also exempt from the operation of Rule 174-A of the Central Excise Rules, and that in his view, the continuance of the licensing control over the fully exempted iron and steel products of Agrico, Jamshedpur would be tantamount to contravention of the provisions of the notification and consequently renewal of the licence was not required. He categorically stated that the "licensing control over 'Agrico' is hereby withdrawn and that they may claim refund of licence fee paid against the AL-4 licence, in question". This letter is shown as Annexure B.3. However, a notice to show cause dated 13-2-1978 was addressed to the Company by the Assistant Collector, Jamshedpur alleging that they had contravened provisions of Rule 173-Q(l)(a) read with Rule 173-PP of the Central Excise Rules inasmuch as they had removed goods falling under Tariff Item 68 without payment of duty, and so they were called upon to explain as to why penalty should not be imposed on the company for having removed excisable goods without payment of duty and why the duty payable on these goods should not be recovered under Rule 9(2) of the Central Excise Rules, 1944.
4. This show cause notice was resisted, by means of a reply dated 31-5-1978 (Annexure C) whereby the company took up the position that since the products manufactured at Agrico plant were exempt from payment of duty, they had been so cleared during the period which was the subject matter of the notice, namely, 1-3-1975 to 17-6-1977.
However, the Assistant Collector by his order dated 19-6-1978 rejected the contentions of the appellant company that their products manufactured at 'Agrico' were all duty free items, and holding that although 'hammers', being a forged product were covered under T.I.26AA, and did not attract T.I. 68, the other two products namely 'harrow discs', and 'coal-cutting picks' clearly fell within the description of T.I. 68 and hence dutiable and so the demand of duty in respect thereof was confirmed for the period 1-3-1975 to 17-6-1977, excluding the opening balance held on 1-3-1975. He also thought it to be a fit case where no penalty was leviable.
5. The appellant carried the matter to the Appellate Collector, by way of appeal, an it was contended that all they were required to establish was that before 1st of March, 1975 i.e. before the introduction of T.I.68, all products of Agrico Plants, namely, hammers, harrow discs and coal-cutting picks were treated as falling under T.I. 26AA of the First Schedule of the Central Excise Act, 1944 and that their classification list filed by them had been approved in this regard and that there was no reason why simply because T.I. 68 came into force, their products should cease to be falling under Tariff Heading 26AA. It was further pleaded that the Assistant Collector had not passed any speaking order, inasmuch as whereas in respect of hammers, he held that they were forged products, covered by T.I. 26AA, as regards 'coal-cutting picks' and 'harrow discs', he simply said that they fell under T.I. 68, without assigning any reasons. They also annexed copies of the R.T. 12 Returns,, pertaining to the period before March 1975 in support of their plea that hammers and coal cutting picks have been described as forged products, falling under Tariff Entry No. 26AA. They also pleaded, in the alternative, that even if assuming, though, not admitting, that harrow discs fell under T.I. 68, they were otherwise exempt from payment of duty being agricultural implements, and further that the demand made by the Central Excise authorities by means of show cause notice was barred by limitation.
6. The Appellate Collector by means of his order, which is now the subject matter of this appeal rejected the contentions that these two products fell within the description of T.I. 26AA. He did not advert to the objection as to time-bar and he disposed of the plea about the classification lists having been filed earlier and approved describing all these products to be covered by T.I. 26AA, by saying that this plea has not been taken up before the Assistant Collector, and so could not be entertained, at that stage. He accordingly dismissed the appeal in toto.
7. This order is assailed in the present appeal on the same pleas, namely, that the Assistant Collector, Central Excise of the area had himself informed them repeatedly that their products were falling under T.I. 26AA, and were totally exempt from excise control, so much so that they were told by means of letter dated 19-3-1977, (Annexure B), that the Licensing Control was being withdrawn, in view of the Notification No. 31/76-C.E., dated 28-2-1976, exempting the products of Agrico completely from excise duty. They thus pleaded that there was no justification in the allegation that the Company had cleared excisable goods without payment of duty, and that in any case, provisions of Rule 9, of the Central Excises Rules, could not be invoked, which applied only in the case of clandestine removal, whereas the company had themselves been approaching the Excise Authorities for renewal of licence, and have been filing classification lists, from time to time, but they had been told by the Excise authorities themselves that the goods were completely exempt from excise duty and consequently the allegations made against them by means of the show cause notice, were not sustainable. They also reiterated the plea that the goods manufactured by them were forged products of iron and steel falling within the description of Tariff Entry 26AA, and since they were made of duty paid semi-finished steel, they were totally exempt from duty.
8. At the time of hearing, namely on 10-5-1983, Miss Rainu Walia, Advocate appeared for the appellant whereas Shri P.M. Panwar represented the respondent. The learned Counsel, Miss Rainu Walia pressed forwards the arguments, as set out in the grounds of appeal, reproduced above, and contended that the conduct of the appellant company throughout had been open and clear so mush so, that they in spite of being told that no licence was required, had sought a further clarification, expressing the view that in spite of the exemption, renewal of the licence was necessary, but the Assistant Collector in categorical terms told them again, that in view of the statutory notification, he could not extend Excise Control to those products, and consequently the same was withdrawn. She further contended that even the classification Lists had been filed and approved for this period regarding which now allegations are levelled that goods had been cleared without payment of excise duty, and that there being no clandestine removal in any case, provisions of Rule 9(2) would not apply, and that period of six months only was available under Rule 10, and that the notice to show cause having been given for the first time on 13-2-1978, the demand for the entire period covered by the show cause notice, namely 1-3-1975 to 17-6-1977 was not enforceable. These arguments were; addressed without prejudice to her main contention that the goods manufactured at the factory, known as Agrico, were all forged products and classifiable under T.E. 26AA, and Classification Lists for the period even after 1-3-1975 have been approved and she quoted authorities to say that classification once approved could not be suddenly changed simply because some other entry comes into being, and that in case it is proposed to be done that has to be for cogent and valid reasons, and that none existed in the present case. She also placed reliance on an authority of Patna High Court in the case of Tata Yodogwa Limited v. Assistant Collector of Central Excise, Jamshedpur reported as 1983 ELT 17 (Pat.) holding that mere machining is not a process and that articles of castings, falling under T.E. 26AA(v) would not cease to be so, simply because some machining or polishing had been done, and this process would not take these products, which were basically 'castings', to Tariff Entry 68. She urged on the basis of this authority that on a parity of reasoning, these two forged products would also retain their characteristics as such even though some finishing touches by way of machining or polishing or edging etc. have been given.
9. The learned Departmental Representative countered these arguments by contending that there was no material on the file to show that these two products known as "harrow discs" and "coal-cutting picks" were produced by forging process, and that the onus lay for establishing this on the appellant before they could seek classification of these two products under T.I. 26AA and consequential benefit of the Exemption Notification being No. 31/76-C.E. He also cited, that since clearances have been made without payment of duty, the demand for the whole of the period contemplated by the show cause notice was enforceable.
10. We have given our very careful thought to the matter, and we feel that the question of classification of these goods is of primary importance, and the same has to be determined, and we thus, take up this basic issue first of all. We find certain facts on record which are asserted from the very beginning and which have not been effectively controverted ; the foremost being that the factory of appellants run under the name and style: "Agrico" is manufacturing forged products. There is a positive and definite assertion in this regard throughout, and none of the two orders of the lower authorities give any indication that this was not factually so. The catalogue which the appellants have forwarded with the revision petition (now appeal) also hows that this factory produces a large range and variety of implements primarily for agriculture and the main process is that of forging. There is also no controversion of the fact that the company has been filing classification lists throughout constantly showing all these products as forged products and the Department, till the time the show cause notice was issued, was accepting the said description and declaration, and processing the lists accordingly. We find that the Assistant Collector in fast has been intimating the appellants that their products squarely fell within the ambit of Exemption Notification No. 31/76-CE, dated 28-2-1976 and went to the extent of telling them that he thought it to be a case where excise control had to be withdrawn, and was being actually withdrawn.
11. In this setting of facts, it becomes incumbent upon the Revenue to give some cogent reasons for suddenly changing their view. The contention of the appellants is supported by judicial authorities to the effect that although principles of res judicata may not apply to quasi judicial authorities but still the classification which has been accepted through the years cannot suddenly be rejected, and without any reasonable basis. This proposition is clearly propounded by the Gujarat High Court in the case of Bhor Industries Ltd. v. Union of India reported in 1980 ELT P. 752 and also by Bombay High Court in the case of Deepak and Co., Bombay v. Central Excise Division X, Dadar reported in the 1980 ELT P. 3. In the later decision, besides enunciating the .
well established principle that if two views were possible regarding classification of a product, the benefit must go to the taxpayer ; it was further held that "mere change of an opinion without any basis is not sufficient to conclude that the earlier orders were incorrect".
12. Reverting to the facts of the present case, we find that the order of the Assistant Collector does not indicate as to what was the basis for the Department to have abruptly changed their stand after telling the appellant as late as up to March 1977 that their factory could not be subjected to excise control because of the Exemption Notification No. 31/76-CE dated 28-2-1976, and that how they suddenly felt in February 1978 that this was a case where excise duty was payable on certain products. The learned Departmental Representative could not indicate any basis for this change of opinion, which culminated in the show cause notice dated 1.3-2-1978, covering the entire period from 1-3-1975 to 17-6-1977. He also could not refute the assertion of the learned Counsel for the Appellant that prior to 1-3-1975 these products were being classified under Tariff Item 26AA. That being so, that specific entry still remaining, merely because a residuary item like T.I. 68 was introduced, the goods could not be taken to fall under that item, without any cogent reasons being shown.
13. The order of the Assistant Collector who was the original authority is absolutely non-speaking on this point and there is also no indication from his order as to what was the reason for his holding that whereas 'hammers' were forged products, 'harrow discs' and 'coal cutting picks' were not so. Reasoning for this distinction was absolutely essential because of the unrebutt-ed assertion that before 1-3-1975, and even after, these goods were being classified under T.I.26AA and the said classification was being accepted by the Revenue and that even after the introduction of Tariff Item 68 till the time of issue of this show cause notice in February, 1.978, these classification lists were being accepted. There is also a written communication under the signatures of the Factory Superintendent of the Agrico Department of the appellant giving the manufacturing process of these two products, which is on the file, and which shows that the process employed for manufacturing these two products, harrow discs and coal cutting picks was that of forging and the rest of the operations, if any, are by way of finishing touches only. The cata logue which the appellant annexed with the appeal also reveals that all their products were result of forging process. That being so, and the show cause notice and the order of the Assistant Collector having failed to reveal the basis for change of opinion, and it also being factfully established that these two products were basically forged products, and in view of the authority of Patna High Court, namely Tata Yodogwa Limited v. Assistant Collector of Central Excise, Jamshedpur reported as 1983 ELT 17 (Pat.) laying down that merely because some machining or polishing is being done of certain products, their basic character as casting could not alter ; we find abundant justification in the appellants' plea that the lower authorities committed error in changing the classification of these two products. The Appellate Collector, in his order in appeal, has also not tried to go deep into the matter and has summarily disposed of the plea of the appellant that their products had throughout been classified under T.I. 26AA. We, therefore, find that this endorsement of the Assistant Collector's view holding harrow discs and coal cutting picks not to be forged products, without any basis being indicated and finding no cogent reason for change of opinion by the Department, we hold that the authorities below have erred, now holding these two products to be falling under T.I. 68. In the view we have taken, the appeal has to be allowed on the point of classification, and the other issues regarding time bar etc. become redundant. We accordingly allow the appeal and set aside the orders of the authorities below. The appellant shall be entitled to consequential relief whatever may flow from the fact of the appeal being allowed.