M/S. Ellora Steels vs C.C.E. Chandigarh

[Arising out of Order-In-Original No. 5/CE/2006 dated: 31.01.2006 passed by Commissioner of Central Excise Chandigarh]

For approval and signature:

Hon'ble Mr. Rakesh Kumar, Member (Technical)

Hon'ble Mr. S.K. Mohanty, Member (Judicial)

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether Their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

M/s. Ellora Steels ...Appellant

Sh. Raj Kumar, Partner

Vs.

C.C.E. Chandigarh Respondent

Appearance:

Mr. Sudip Singh, Advocate for the Appellants

Mr. R. K Grover, DR for the Respondent

CORAM:

Hon'ble Mr. Rakesh Kumar, Member (Technical)

Hon'ble Mr. S.K. Mohanty, Member (Judicial)

Date of Hearing/decision.26.02.2015

FINAL ORDER NO. 50711-50712 /2015-Ex(Br)

Per Rakesh Kumar (for the Bench):

The appellant have their factory at Nasrali road, Mandi Govind Garh. The appellant under their letter dated 30.11.1993 addressed to the Assistant Commissioner Central Excise Patiala informed that they intend to reroll the hot rolled flats of uneven having thickness less than 4.75 MM and uneven width less than 600 MM falling under heading 72.14 of the tariff and according to them that process which would result in elimination of unevenness and minor reduction in thickness, would not amount to manufacture. Along with this letter they also enclosed a flow chart for the rerolling process of the hot roll flat bars and they sought views of the Assistant Commissioner as to whether their process would amount to manufacture. The Jurisdictional Superintendent Central Excise under his letter 05.01.1994 informed that by their process no new excisable goods emerged and they need not register themselves with Central Excise Department. Accordingly, the appellant started the process of rerolling in their factory and clearing the goods without payment of duty. The factory of the appellant was visited by the Jurisdictional Central Excise Officers on 25.09.1999 when the entire process being undertaken by the appellant was studied and inquiry was made with Shri Raj Kumar, Partner, of the appellant firm. Sh. Raj Kumar in his statements dated 25.09.1999 and 01.10.1999 stated that prior to 27.08.1999, there was one electrical heating furnace, three rolling stands, three pinch/ straightening machines, two DG sets, one lathe machine and one cutting machine installed in the factory. Sh. Raj Kumar also stated that the process of rerolling was being undertaken at the controlled temperature between 700oC to 800oC in an electric heating furnace. The Departmental officers also conducted inquiry in respect of the customers who were buying the finished products and it was found that the buyers of the products were manufacturers of electrical stamping.

1.1 The Departmental Officers after studying the process and inquiry with the customers, were of the view that the process undertaken by the appellant is cold rolling process, as hot rolling process has to be carried out at temporature above 900oC. Accordingly, the Department was of the view that the goods being manufactured by the appellant are classifiable as cold rolled flat products under heading 7211 of the tariff. It is on this basis that a Show Cause Notice dated 09.09.2000 was issued to the appellant for demand of Central Excise Duty amounting Rs. 1,36,48,645/- from the appellant in respect of alleged clearances of cold roll products during period from August 1995 to March 2000 along with interest thereon under section 11AB and also for imposition of penalty on the appellant under section 11AC. The Show Cause Notice also sought imposition of penalty under Rule 209A of the Central Excise Rule 1944 on Shri Raj Kumar, Partner, of the appellant firm.

1.2 The Show Cause Notice was adjudicated by the Commissioner vide order-in-original dated 30.01.2006 by which the Commissioner holding that the process being undertaken by the appellant is not hot rerolling process and the goods which emerged by these process are cold rolled flat Products classifiable under heading 72.11 of the Central Excise Tariff, confirmed the duty demand of Rs. 1,18,54,560/- , after giving cum duty benefit, along with interest on it under section 11AB and beside this, while penalty of same amount was imposed on the appellant firm under section 11AC, penalty of Rs. 10,00,000/- was imposed on Shri Raj Kumar under Rule 209A of Central Excise 1944. The duty demand was confirmed against the appellant firm by invoking Rule 8 under proviso to section 11A(i).

1.3 Against this order of the Commissioner these appeals have been filed.

2. Heard both the sides.

3. Sh. Sudip Singh, Advocate, the Ld. Counsel for the appellant, pleaded, that though the rerolling of the hot rolled bars is carried out at temperature below 900oC, the process simply results in elimination of the unevenness of the surface without any significant reduction in thickness, that by this process, the character of the goods as hot rolled product does not change, that during period of dispute, the goods were not being subjected to the process of annealing which was set up only in August, 1999, that no tests have been carried out to establish as to whether the goods emerging as a result of process being undertaken by the appellant are cold rolled products, that the Department has not come up with any evidence to show that the physical characteristics of the goods which emerged after the process being undertaken are different from the characteristics of the goods subjected to process, that is, hot rolled products so as to classify the goods as cold roll products, that the appellant had fully disclosed the processes being undertaken by them to the Department and only on confirmation from the Department that their process would not amount to manufacture had started their operations, that in view of this, in any case, the longer limitation period would not apply and the bulk of the duty demand would be time barred and for the same reason penalty under section 11AC would not be attracted. He, therefore, pleaded that the impugned order is not correct.

4. Shri R K Grover, the Ld. DR, defended the impugned order by reiterating the findings of the Commissioner and pointed out that:-

(a). hot rolling cannot be done at temperature below 900oC while in this case, admittedly, the rerolling was being done at temperatures below 900oC;

(b). final products being made by the appellant were being purchased by the industries manufacturing electrical stamping which are made only form the cold rolled sheets, as the hot rolled sheets would not have the required hardness and smoothness of the surface;

(c). Shri Raj Kumar partner of the appellant firm himself, in his statement, mentioned his final product as reduced bars which indicate that by the process being undertaken by the appellant, not only the surface unevenness was being removed, the thickness of the bars was also being reduced;

(d). as per the book on manufacturing technology by Shri P.N. Rao, the Processe undertaken above the re-crystallization temperature of metal is termed as hot working process and those undertaken below the re-crystallization temperature are termed as cold working process, and as per this book, the re-crystallizing temperature for steel is of the order of 1000oC and, therefore, working below that temperature would result in cold rolled product only; and

(e). scrutiny of the purchase invoices produced by the appellant in respect of the purchase of the machinery revealed that four rolling stands had been supplied by M/s Kalgidhar Foundry and M/s Agro Industries, Mandi, Govindgarh and inquiry with the suppliers revealed that the rolling stands supplied were only suitable for cold rolling as in case of hot rolling, the RPM should be more than 180;

He, therefore, pleaded that the goods being manufactured by the appellant were cold rolled products, and that though prior to starting the manufacturing process, the appellant had intimated the Department about their process giving the flow chart, in that flow chart they had not revealed the relevant facts and had concealed the fact from the Department that the rerolling was to be done at temperature below 1000oC, and thus, the appellant have suppressed the relevant facts from the Department. He, accordingly, pleaded that there is no infirmity in the impugned order.

5. We have considered the submissions from both the sides and perused the records. The undisputed facts are that the appellant received hot rolled flat products of width less than 600 MM and of thickness less than 4.75MM and subjected the same to rerolling at temperature below 1000oC. There is also no dispute that the appellant have an electric heating furnace, three rolling stands, three pinch/ straightening machines, two DG sets, one lathe machine and one cutting machine. According to the appellant by the processes being undertaken by them only removed the unevenness of the surface and there was no other changes in the product except for small reduction in thickness, and the same remained hot rolled products. It is also contended by the appellant that during the period from August 1995 to July 1999, they had no reheating furnace and that the facility for set up annealing process was set up only in August 1999. The stand of the Department, however, is that the hot rolling process is not possible below 1000oC and as such the appellant were undertaking cold rolling process and hence, the process undertaken by them amounts to manufacture and the goods manufactured by them would be chargeable to duty under heading 7211. It is also alleged by the Department that the goods were also being subjected to annealing process. The Department in support of this stand mainly relies upon:-

(a). Statements of the suppliers of the rolls who stated that the rolling stands supplied by them are suitable only for cold rolling process and;

(b). The buyers of the products were the manufacturers of the electrical stamping for which the cold rolled products are required.

6. In terms of Explanatory notes IV(B) to chapter 72 of the HSN notes, while hot rolling means rolling at a temperature between the point of rapid re-crystallization, and that of the beginning of fusion , that while the hot rolling is done at temperatures above 900oC, cold rolling is carried out at ambient Temperature, that is, below re-crystallization temperature, and that, one distinguishing feature between hot rolled and cold rolled products is that microscopic examination of cold worked products reveals a marked deformation of the grains and grain orientation parallel to the direction of working and by contrast the products obtained by hot processes show almost regular grains owing to re-crystallization. According to these explanatory notes, the cold worked/ cold rolled products can be distinguished from hot rolled products by the criterias such as:

(a) The surface of cold roll products has better appearace than that of the products obtained by hot process and never has a layer of scale; and

(b) The dimensional tolerances are smaller for cold work products. The HSN Explanatory note of HSN chapter 72 also mention that very light cold rolling process (known as a skin pass or pinch pass) which is applied to certain hot rolled flat products without significant reduction of their thickness does not change their character of finished hot rolled products, and this cold pass under low pressure acts essentially on the surface of the products only, whereas cold rolling in true sense (also known as cold reduction) changes the crystallization structure of the work piece by considerably reducing its cross-action.

6.1 Since heading 7211 of the central excise tariff is based on HSN heading 72.11, in terms of the well settled law on this point, the HSN explanatory notes would have persuasive value and hence, for distinguishing a hot rolled product from a cold rolled product, the criteria prescribed in this regard in the HSN explanatory notes would be applicable. In this case, no tests has been done to establish as to whether the resultant product of the appellant have the physical characteristics of cold rolled products as mentioned in the note IV(B) chapter 72 of the HSN, as no tests has been done to ascertain as to whether microscopic examination of the product, in question, reveals a marked deformation of the grains and the grains orientation parallel to the direction of the working. Merely on the basis on the types of customers who were buying the products or the statements of the suppliers of the rolling stands that the rolls supplied by them were suitable for cold rolling, it cannot be concluded that the product of the appellant was a cold roll product.

7. In terms of the HSN explanatory notes, if a hot rolled product has been subjected to very light cold rolling process known as skin pass or pinch pass without significant reduction of thickness, the process does not result in change of the character of the finished product as hot roll product. In this case, the stand of the appellant from the very beginning has been that there has not been any significant change in thickness. No evidence has been produce that this claim of the appellant is not correct.

8. The judgment of the tribunal in the case of BharatBhai B. Gala vs CCE Ahmadabad Reported in 2007 (214) ELT 419 Tri. HMD cited by the Ld. DR is not applicable to the facts of this case, as the dispute in this case is as to whether the process undertaken by the appellant is process of hot rolling or cold rolling and this point has to be decided on the basis of the criteria prescribed in this regard in the HSN explanatory notes.

9. No tests have been done to establish as to whether the Appellants final product has the characteristics of cold rolled product. In view of this, we hold that the impugned order is not sustainable. The same is set aside. The appeals are allowed.

(Dictated and pronounced in open court)

(S.K. Mohanty) (Rakesh Kumar)

Member(Judicial) Member (Technical)

Neha

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