B.B. Gujral, Vice-President, S.D. Jha (J) and A.J.F. D' Souza (T), Members 1. The question for decision in Show Cause Notice F. No. 380/52/82-Cus.
II, dated 22-7-1982 issued by the Govt. of India to the respondent (now transferred to the Tribunal to be diposed of as an appeal presented by the Collector of Customs, Bombay) is classification of Forged Rings for bearing races.
2. The respondent imported certain consignments of Forged Rings for bearing races. At the time of import the respondent claimed classification of the goods under heading 73.33/40 read with Notification No. 254/76, dated 2-8-76 as steel castings and forgings.
The appraising authorities, Asstt. Collector and Deputy Collector of Customs classified the goods vide orders dated 13-10-81 and 23-11-81 under heading 84.62 (3) of Customs Tariff Act as part of roller bearings. In appeal, the Appellate Collector of Customs by two separate orders dated 12-11-81 and 3-12-81 held the goods correctly classifiable under heading 73.15 (1) since they fitted the description under heading 73.06/07(2) as 'pieces roughly shaped by forging of iron and steel'.
The Government of India on various grounds set out in the S.C.N. dated 22-7-82 felt that the goods were correctly classifiable under heading 84.62(3) as 'components of roller bearings' as had been done by the Asstt. Collector and Deputy Collector of Customs. The Government of India now the appellants then issued a show cause notice dated 22-7-82 to the respondent. The respondent in its reply dated 18-9-1982 defended the classification made by the Appellate Collector of Customs in his appellate orders. It is this Show Cause Notice which is the appeal before us.
3. Shri S. Ganesh, learned Advocate for the respondent raised preliminary objection that according to the practice obtaining in the Tribunal as there were two appellate orders it was necessary for the appellants to file one more appeal. Shri A.S. Sunder Rajan, Departmental Representative for the appellants agreed to comply with this requirement.
4. At the hearing of the appeal, representative sample of the imported goods - one set of forged rings and another a complete ready for assembly roller bearings, without objection from the other side were shown to us. This was considered necessary for proper appreciation of points in controversy.
5. Shri A.S. Sunder Rajan for the appellant besides reiterating the grounds set out in the Show Cause Notice in brief submitted as under : Goods are forgings of inner and outer taper roller bearings 32213 imported in sets and not by weight. They conform to specific drawings of the respondent and their shapes, sizes and dimensions conform to the finished product. Import licence is for forged rings in sets and goods are made of high carbon chromium steel or bearing steel, the principal and sole use of which is for bearings. Heading 84.62(3) specifically covers bearings. Explanatory Notes to the B.T.N. at pages 1380 and 81 read that parts of bearings like rings fall within purview of heading 84.72. Delhi High Court in Super Traders and Assoc. v. Union of India and Ors. case 1983 E.L.T. 258 held that stainless steel sheets would include circles also and this would apply to the present case. He further submitted that Rule 2(a) of the Rules for Interpretation of First Schedule-Import Tariff to the Customs Tariff Act, 1975 stipulated that reference to an article shall be taken to include a reference to that article incomplete or unfinished, provided it has the essential character of the complete or finished article. Shri Sunder Rajan, learned representative for the appellants cited pages 363 and 371 of 'Manufacturing Processes by Roberts & Lapidge which gives details about the processes of forgings. He also cited page 181 of Lindberg's Processes of Materials and Manufacture to emphasise that forging is used to reduce metal to a size and shape close to that of the finished part.
Shri Sunder Rajan also relied On two decisions of the Tribunal reported in 1983 E.L.T. 410 and 181 both in the cases of Bharat Heavy Electricals Ltd. v. Collector of Customs, Madras & Bombay where it has been held that 'pole-end plate forgings are components of synchronous condensers and that forged stubs for fixing in boilers are 'parts' and post importation process of machining is to be ignored. He further relied on an order dated 23-10-1979 passed by another Appellate Collector of Customs, Bombay where Rolled Steel rings were classified under heading 84.62(1). Shri Sunder Rajan submitted that the imported goods had the essential character of roller bearings though they were incomplete and unfinished & that they should be classified as roller bearings under heading 84.62(3).
6. On behalf of the respondent, Shri S. Ganesh, learned Advocate besides reiterating the submissions made in reply to the Show Cause Notice made the following submissions : "(1) The imported items are not parts of bearings, but are merely raw material out of which the Appellants manufacture parts of bearings. Tariff Item 84.62 does not therefore cover the imported items at all.
(2) Under Rule 2(a) of the Rules for Interpretation of the Schedule, any reference in a Heading to an article shall be taken to include a reference to that article, incomplete or unfinished provided the incomplete or unfinished article has the essential character of the complete or finished article. In the present case, the imported rough forgings cannot possibly be said to have the essential character of the finished bearings. The imported forgings cannot, for this reason also be classified under T. I. 84.62.
(3) T. I. 84.62 covers only bearings and not parts thereof Note 2 at the beginning of Section XVI (in which T. I. 84.62 falls) only provides that parts of machines shall be classified under the head covering the machines. Bearings are not machines. Parts of bearings are not, therefore covered by T. I. 84.62 at all. Consequently, even assuming without conceding that the imported forgings can be considered to be parts of bearings, even then they cannot be classified under T. I. 84.62.
(4) The imported items are rough forgings falling under Tariff Item 73.06/07. This is how they are commercially regarded and understood.
They are rough forgings from a common sense point of view also, inasmuch as they have to be subjected to a very substantial amount of processing and treatment afterwards to make them parts of bearings.
(5) In any event, the imported forgings are forged shapes covered by T. I. 73.11. Consequently, whether they are rough forgings or not is of no consequence whatsoever, as they fall u/T.I. 73.11 and they are made of carbon steel, they would be classifiable under T.I. 73.15(1)." He further submitted that the essential character of the roller bearings and their components among other things are (ii) Permanent retention of the rolling elements in position by special grooves, tracks and cage.
(iii) Load carrying capacity, load torque and tensile strength by the process of hardening.
(iv) Undercuts for retention of oil for frictionless performance, (v) High degree of finish on the rolling elements and the races.
We were explained the various processes involved in the manufacture of bearings. The sequences of operations in the manufacture of bearing races (inner races and outer races) were stated to be and not disputed by the other party, turning operations are carried out on multi-spindle automat lathes and other operation by further turning on the small face, track, flange and one undercut, pieces are stamped with markings, pieces then are subjected to undercutting on turning machine, hardening at 840 degree C, to get hardness RC 623 to get martensite structure with abundance of globular carbide, temperitig by which hardened stress are removed from the rings, grinding of rings on double disc grinder to maintain the parallelism, track grinding on special purpose grinding machines, flange grinding is done on special purpose lip-grinding machine, graded within 5 microns to ensure that bore tolerance to specific limits, further bore grinding to ensure proper concentricity between the track and bore being ground, final machining operation to two stages for finishing and super finishing. Similar operations are carried out on outer races also.
It was further submitted that the respondents have a very expensive plant costing nearly 25 crores and were carrying out highly precise operations. There is considerable loss in weight in the rings after operations. Shri Ganesh submitted that imported rough forgings and the finished bearing races differ widely in every respect including shape, dimension and surface texture. The goods imported are pieces roughly shaped by forging without any subsequent operations and falling under heading 73.06/07. The goods have only crude recognisable shape on which further considerable manufacturing operations are carried out for shaping them to specific dimensional size and tolerance. In trade and merchandise the imported goods are known as pieces roughly shaped by forging and not parts of a bearing. Affidavits and letters in support of this proposition were filed. Shri Ganesh submitted that the imported goods do not have the essential character of finished bearing races. He submitted that Show Cause Notice was wholly misconceived. Shri Ganesh further submitted that order passed by the Appellate Collector in another case classifying the goods under heading 84.62 had no relevance for the present appeal.
7. Shri Sunder Rajan in reply reiterated his earlier submissions and submitted that what had to be considered was the state in which the goods were impoited and the post importation processes should not be taken into consideration, for deciding the classification of the goods.
8. Appellants have strongly relied on Rule 2(a) of the Rules for inter-pretatu n to the 1st Schedule to the Import Tariff. For case of reference Rule 2(a) is extracted below : 2(a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as imported, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule) imported un-assembled or disassembled.
9. While on behalf of the appellants it has been strenuously urged that the imported goods had the essential character of complete or finished inner races which had to be classified as bearing, being component parts of bearings, on behalf of the respondent it has been submitted that Rule 2(a) is not applicable as the rings are by themselves not bearing but only the parts of bearings. It has also been submitted that the imported goods do not have the essential character of bearing races. We have had an opportunity of seeing a sample of the imported goods and have carefully considered the arguments advanced by the parties. The goods as imported are only rough shaped forgings considerably different from the bearing races which are used in roller bearings. The material placed before us leaves no doubt that considerable manufacturing processes involving high costs, labour & technical expertise have to be put into before the forging become bearing races. Merely because the imported forged rings have rough round shape of bearing races and are made of the required metal it would not be correct to say that they have acquired the essential character of bearing races. During the arguments we were informed that forgings are imported in particular shapes so that they could, after slight or considerable operations on them be converted into some specific part or article. If every forging which would necessarily have the shape resembling final article were to be classified as the finished product on the argument that incomplete or unfinished article is to be classified with the finished article bearing, heading 73.06/07 and 73.15 of the C.T.A. to the extent they relate to pieces roughly shaped by forgings of iron or steel or alloy steel and high carbon steel would be negatory.
10. Besides after Supreme Court's decision in Dunlop India Lid's case AIR 1977 S.C. 597 now also reported in 1983 E.L.T. 1566, it is well-settled that in interpreting the meaning of words in a taxing statute, the acceptation of a particular word by the trade and its popular meaning should commend itself to the authority. There are two orders in favour of the respondent passed by the Appellate Collector of Customs, Bombay. The Government of India or the appellant by the present show couse notice want to displace these orders. The burden of showing that the appellate orders are wrong is on the appellant. Viewed from this angle, the appellant has not placed material before the Tribunal to show as to how the imported forged rings are understood in trade and merchandise circles. As against this, the respondents have placed on record copies of affidavits of Parveen Kumar Banerjee, employed in N1CO Seamless Rings, who had considerable experience (4 1/2 years in the Council of Scientific and Industrial Research and 6| years in other private bodies) in the field. He says that rough forged rings cannot be considered as roller bearings. He has given his reasons for this opinion. Tirlochan Singh Anand, who has been in the trade for several years opined that forging cannot be identified as bearing components because the shapes, size and surface functions of the bearing races are not at all present in the forging. Gurdeep Singh, who is a bearing dealer for the last 22 years, give the same opinion. There is no material controverting these affidavits and there is no reason to disbelieve the same.
11. As to the appellate order dated 23-10-1979 passed by late Shri M.G.Vaidya, relied on by Shri Sunder Rajan, learned representative for the appellants, we do not see how it is helpful in the matter though for that matter any reasoning not necessarily in the appellate order could be advanced before the Tribunal. To meet this point for illustration, we might point out that stand of the Department in respect of classification or forged rings in different cases has not been uniform.
We have come across another case before the Tribunal of Nary ana Singh & Co., Bombay v. Collector of Customs, Bombay (Appeal No. CD(SB)(T)A.No. 342/80-B) heard on 2nd Sept., 1983, in which the Asstt. Collector and Appellate Collector both classified Rolled Steel rings having 711 mm diameter imported for manufacture of finished rods of ball bearings under heading 73.33/40 of C.T.A. instead of 84.62(a) as claimed by importers. In this case importers had stated that the goods were not castings since they were rolled products for manufacturing thrust ball bearings which do not require any tapering or grooving. They only require machining which is done locally. In other words these goods were rolled rings or unfinished bearing races on which finishing is done locally. The Asstt. Collector and the Appellate Collector, however, did not accept the classification for assessment under heading 84,62(1) and assessed the goods under heading 73.33/40 in terms of rule 2(a) of Interpretation Rules, holding that goods were not identifiable parts of the finished product. It is also significant that in this appeal which was heard by this Bench, consisting of Shri S.D. Jha, Member (J), Shri A.J.F. D'Souza, Member (T) and Shri I.J. Rao, Member (T), the department defended the orders passed by the lower authorities classifying the goods under heading 73.33/40 and opposed the appellant's claim for classification under heading 84.62(1). This observation is only to meet Shri Sunder Rajan's reliance on appellate order passed by Shri M.G. Vaidya, Collector of Customs, (Appeal), Bombay, and to show inconsistency in the approach of the department.
12. One more point requires mention. For the purpose of countervailing duty the goods were classified under Tariff Item 26AA of the C.E.T.-Iron pipes, cast or spun made from iron any crude form. It also appears that the respondent after manufacture of bearings pay duty under Tariff Item 49 of the C.E.T. as "Rollar bearing, that is to say, ball or roller bearings, all sorts". While not expressing any opinion, whether the classification for the Customs and Excise should invariably be uniform or identical we would only like to say that this supports the arguments of the respondent that the goods as imported cannot be described as incomplete or unfinished bearing races.
13. For the two Tribunal decisions Mis. Bharat Heavy Electrical Ltd-v.Collector of Customs, Madras 1983 E.L.T. 181 and Bharat Heavy Electricals Ltd. v. Collector of Customs, Bombay 1983 E.L.T. 410 relied on by Shri A.S. Sunder Rajan in his arguments, it is sufficient to say that in the first case, there was minor machining of goods which was not considered as changing their essential character. This is not the case here. Extensive manufacturing operations are necessary on the imported forged rings. Besides, in the precedent, it was also stated where the machining could change the essential character would depend on facts of each case. On the facts of the particular case, it was found that the minor machining did not change the essential character.
In the other case, from the technical write up and drawings it was held that imported goods pole-end plate forgings were semi-finished or incomplete articles which on certain machining result in pole-end plates which are component parts of Synchronous condensers and this was not disputed by the respondent. Finding was given in that case in view of the technical write up and drawings and this concession by the Department. These conditions do not obtain here. In our view the imported rough forging do not possess the essential character of the parts/ components of bearings in respect of shape, dimension, surface finish metallurgical structure, load carrying capacity, retention of roller in position by special grooves, tracks, cage and load, torque hardness and tensile strength. These various operations add to the value of the goods and the respondents have stated that the resultant product is valued three or four times the cost of input raw material.
This has not been contradicted by the appellants or the Departmental Representative on their behalf. In this view of the matter the two precedents are not applicable to the facts of the present case. We hold that the imported rough forgings in pairs do not have the essential character of finished bearing races and cannot be called incomplete or unfinished bearing races.
In view of the foregoing we would drop the show cause notice issued to the respondent by the Government of India and dismiss the appeal and uphold the orders passed by the Appellate Collector of Customs, Bombay.
In accordance with the decision of the majority, the appeal is dismissed,