Sunil Forging & Steel Ind vs Commissioner Of Central Excise

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI

COURT No. I

Appeal No. E/12 & 35/11

(Arising out of Order-in-Appeal No. PKS/345/BEL/2010 dated 5.7.2010 passed by Commissioner of Central Excise (Appeals) Mumbai III)

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No 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 : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

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

4. Whether Order is to be circulated to the Departmental : Yes authorities?

Sunil Forging & Steel Ind. Shri Benu Ramesh Agarwal Appellant Vs.

Commissioner of Central Excise Belapur Respondent

Appearance:

Shri V.S. Sejpal, Advocate for appellant Shri Ashutosh Nath, Asst. Commr (AR) for respondent

CORAM:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical)

Date of Hearing: 13.10.2015 Date of Decision: ..

ORDER NO Per: M.V. Ravindran

These two appeals are directed against Order-in-Appeal No. PKS/345/BEL/2010 dated 5.7.2010.

2. Since both the appeals raise a common question of law and facts, they are being disposed of by a common order.

3. The relevant facts that arise for consideration after filtering out the unnecessary details are appellant M/s. Sunil Forging & Steel Industries (main appellant) have engaged in the manufacture of forged round bars etc. They manufactured forged round bars without any definite shape as per the order from the customers and classified the forged products under Chapter Heading 72.14 of Central Excise Tariff Act, 1985 (CETA) and also manufactured forged articles which called for additional machining work to be carried out on the forged materials and classified the same under Chapter Heading 73.26 of CETA and availed benefit of Notification under 16/2004 dated 28.02.2004 as amended. The department disputed the classification of goods under Chapter Heading 72.14 by appellant and issued a show-cause notice for change of the classification to Chapter Heading 73.26 and also demanded differential duty for the period 01.03.2004 to 31.10.2004. Appellant contested the matter on merits as well as on limitation. The adjudicating authority did not agree with the contentions and confirmed the demands along with interest and also imposed penalties. On an appeal filed before the first appellate authority the views expressed by the adjudicating authority were upheld by the first appellate authority.

3. Learned Counsel appearing on behalf of the appellant would take us through the show-cause notice and also the impugned order and the adjudication order. He would submit that both the lower authorities have incorrectly considered the Tariff Heading descriptions and the classifications thereof. He would submit that their products were classified under Chapter Heading 72.14 as they were forged and there were bars and rods of iron or non-alloy steel. It is also his submission that Explanatory Note to HSN clearly supports their goods is falling under Chapter Heading 72. He would take us through the Explanatory Note under Chapter Heading 72 and submit that the manufacturing process as mentioned there is being followed by them hence all products manufactured by them would merit classification under Chapter Heading 7214. He would then elaborate the said process of manufacturing by explaining the types of forging process and submit that the product manufactured by them are undergoing the same process as mentioned in Explanatory Note in HSN. He would also draw our attention to cold, warm or hot forging as given in Explanatory Note to HSN.

Subsequently, he would rely upon the Explanation given in HSN under Chapter Heading 7207 as regards the classification of rough shape piece by forging. He would draw our attention to the Explanatory Note in HSN under 7214 and submit that the said Explanation squarely covers their product. He would then draw our attention to the photographs which were produced before the lower authorities and being produced before us as to what kind of products are cleared by them from their factory premises. It is his submission that the products merit classification under Chapter Heading 7214 and not 7326 as claimed by Revenue. He would submit that the product 7326 are other articles of iron and steel forged or stamped but not further worked while the products manufactured by them are in the form of grinding, punching etc. It is his further submission that on limitation, they have got very good case inasmuch as before starting the manufacturing of the products they had informed the departmental authorities in 2002 that they are manufacturing these articles. He would submit that they were filing the returns regularly with the authorities indicating clearances of these goods with a benefit of lower rate of duty as provided in Notification 16/2004.

He would submit that the records of the appellant was audited by the audit party and by report on 24.09.2004, there was an audit objection of short payment of Central Excise duty on inputs cleared as such and various other points wherein the audit party was aware and recorded in the report that appellant is engaged in the manufacture of forged products falling under Chapter No. 7214. He would submit that on limitation when the audit party has examined the records for the period in question, the classification dispute was not raised. The show-cause notice issued on 30.04.2009 by invoking extended period of limitation for demanding the differential duty for the clearances made during 01.03.2004 to 31.10.2004 is blatantly hit by limitation. He would rely upon the judgement in the case of Trans Engineers India Pvt. Ltd.  2015 (40) STR 490 (Tri. Mum). He would submit that the penalty imposed on the Managing Director is also to be set aside as there was no suppression or mis-statement inasmuch as it is very same products were manufactured by them from 1994 onwards and classification lists were approved during the relevant period.

4. Learned D.R. on the other hand would submit that the issue is now squarely settled in favour of the Revenue as to the classification of forged articles by the Tribunal as well as the Apex Court. He would submit that the items manufactured by the appellant are nothing but articles which would merit classification under 7326 and not under 7214. He would submit that in order to get classified the items under Chapter Heading 7214, the articles should be bars and rods of iron or non-alloy steel while the product manufactured by the appellant is forged articles and not bars and rods of iron or non-alloy steel. He would draw our attention to the Explanatory Note to the HSN and Chapter Heading 7326 and submit that the said product has been excluded from the purview of Chapter Heading 72.14. He would then draw our attention to the judgement of the Tribunal in the case of BCL Forgings Ltd.  2008 (224) ELT 286 (Tri. Del.) and submit that the classification of similar product have been held to be falling under Chapter Sub-Heading 73.26. It is his submission that identical view has been taken by the Apex Court in the case of CCE vs. Jaypee Forges  2003 (158) ELT 560 (S.C.).

He would draw our attention to the judgement of the Tribunal in the case of TISCO Ltd.  2001 (131) ELT 253 (Tri. Kolkata wherein forged/rolled rings were classified under 73.26 and this order has been upheld by the Apex Court as reported at 2003 (156) ELT A210. He would submit that identical issue came in before this Tribunal in the case of Sharda Forging & Stampings (P) Ltd.  2004 (166) ELT 357 (Tri.  Del) and this Bench held that forged articles of iron and steel would fall under Heading 73.26. Aggrieved by such an order, the Apex Court was moved wherein the appeal filed by the assessee therein was dismissed the appeal which would mean that the products as manufactured by appellant would merit classification under Heading 73.26. On limitation it is his submission that the appellant had filed the classification in 1994 would amount that there is suppression. It is his submission that the appellant had not indicated that they are manufacturing forged articles and have also mis-declared on the invoices that the product would fall under the category of iron bars and rods forged. It is also his submission that the year 2002 it is not necessarily covered the classification issued when auditing is being undertaken.

5. We have considered the submissions made at length by both sides and perused the records.

6. The issue involved in this case is whether the articles manufactured by appellant get covered under Heading 7214 or 7326 during the relevant period. Revenue wants the classification product under 7326 while the assessee has claimed the classification under 72.14 by seeking the benefit of exemption under Notification 16/2004 as amended.

6.1 In order to come to a conclusion, it is necessary that we reproduce the relevant portions of the Chapter Heading 72.14 and 73.26.

72.14 Other bars and rods of iron or non-alloy steel not further worked than forged, hot rolled, hot-drawn or hot-extruded but including those twisted after rolling 7214.10 Forged 16%

7214.20 Of free-cutting steel 16% 7214.90 Other 16% 73.26 Other articles of iron or steel Forged or stamped, but not further worked:

7326.11 Grinding balls and similar articles for mills 16% 7326.19 Other 16% Articles of iron or steel wire:

7326.21 Tyre bead wire rings intended For use in the manufacture of tyres for cycles and cycle-rickshaws

7326.29 Other 16% 7326.90 Other 16%

It can be seen from the above reproduced Chapter Heading, to our mind, that in order to get classified under Heading 72.14, the product much be bars and rods of iron and non-Alloy steel. Appellant produced photographs of their final product and demonstrated before us, the items in the photograph is as under:-

6.2 The said products as has been demonstrated before us indicative that they are not bars and rods of iron and non-alloy steel but they are some articles having definite shape but not further worked upon. These kind of articles in our considered view would merit classification under 73.26 as other articles of iron and steel forged or stamped, but not further worked. Our this view is also fortified from the Explanatory Note to HSN in respect of Chapter Heading 72.14 wherein HSN clearly states as under:-

The heading, however excludes

(a) Products consisting of two or more rolled bars twisted together (heading 73.08)

(b) Pieces cut from bars and rods with a length not exceeding the greatest cross-sectional dimension (heading 73.26)

6.3 The Explanatory note to Chapter Heading 72.14 as reproduced herein above indicates that the pieces cut from bars and rods are not eligible to be classified under 72.14. The Explanatory Note to HSN of Chapter 73.26 also categorically states as under:-

This heading covers all iron or steel articles obtained by forging or punching by cutting or stamping or by other processes such as folding, assembling, welding, turning milling or perforating other than articles included in the preceding heading of this Chapter or covered by Note I to Section XV or included in 82 or 83 or more specifically covered elsewhere in the Nomenclature. From the photographs which were reproduced herein above of the articles manufactured by the appellant, it would be seen that these products are correctly classifiable as per the HSN Explanatory Note under 73.26.

6.4 We find that the reliance placed by learned D.R. on the judgement of the Tribunal in the case of TISCO Ltd. (supra) as upheld by the Apex Court is directly on the point and in favour of the Revenue. We find that the judgement of BCL Forgings Ltd. (supra) this Bench considered the very same issue wherein in para 8 this Bench held as under :-

8.?In the present case, we find that the appellants are only undertaking the process of removal of excess material from the forgings. The other important operations such as turning, drilling, grinding etc. are undertaken by the customers. The Tribunal in the case of Jaypee Forges v. CCE, Mumbai reported in 1996 (83) E.L.T. 49 held that forgings and forged articles of alloy steel after chipping of excess material are classifiable as forging. The revenue filed appeal and the Honble Supreme Court rejected the appeal reported as CCE v. Jaypee Forges reported in 2003 (158) E.L.T. 560. The Honble Supreme Court has held as under :-

In this appeal the only issue relates to the correct classification of the products in question which are described as forgings and forged articles of alloy steel by the assessee-respondent. Its claim is that the articles fall under Tariff item 73.26 of the Central Excise Tariff Act, 1985, whereas the claim of the Department is that it falls under Item No. 87.08 as parts of motor vehicles, viz. gears and pinions. The learned members of the Tribunal constituting majority were of the view that the goods in question were unmachined forgings and several processes have to be gone through before the articles were brought to required specifications and dimensions. It was observed thus :

In the present stage, they have just emerged from forging, without acquiring any essential characteristic of a part of a motor vehicle. The Revenue has not placed any evidence that the article has acquired such a shape and there has been further working of such a nature, that it is no longer an article of forging. The photographs of the product have been shown and the same are in the file. The impugned goods are straight from forging without any processes undertaken on it except the chipping of excess material around it.

Having regard to this finding of the majority members of the Tribunal, which appears to be reasonable, it is futile to contend that the goods have to be classified as parts of motor vehicles. This very finding of the Tribunal negatives the scope for any argument based on the 1st part of Rule 2a of Interpretation Rules contained in Central Excise Tariff Act. Therefore, we see no substance in the appeal of the Revenue. In fact, it may be stated that a similar view was taken by the Tribunal in Sikka Heat Treatment Industry v. Collector of Central Excise, New Delhi reported in 1996 (81) E.L.T. 628 and that order of the Tribunal has been confirmed by this Court vide 1997 (94) E.L.T. 5 (Veekay Industries v. Collector of Central Excise, New Delhi).

The learned Senior Counsel appearing for the appellant has tried to overcome the above precedent by contending that Rule 2(a) of the Interpretation Rules was not considered by the Tribunal in the aforementioned case; but, as we observed supra, in the light of the findings recorded by the Tribunal there is no scope to invoke the Rule that is sought to be relied upon. Hence the appeal is dismissed. No costs. 6.5 In the case in hand the first appellate authority in the impugned order at para 11 has reproduced the manufacturing process as has been stated by the Manager of the appellant which indicates that the appellant used to continue to hammer the forged articles to the required shape and removes the excess/over shaping of the items which is resultant due to hammering from all sides and then used to clear the same. Identical manufacturing process has been recorded in the case of BCL Forging Ltd. (supra) and the view taken by the Bench was such articles would fall under Heading 73.26.

7.6 In similar case of Sharda Forgings and Stampings (P) Ltd. (supra) this Bench was considering similar articles and held as under:-

7.?Heard both the sides. In this case, the appellants are claiming the classification of Tine (Hul) and Disc Spindle under Heading 73.26 of the Central Excise Tariff as forged articles of iron and steel. The appellants relied upon the decision of the Honble Delhi High Court in the case of Metal Forgings (P) Limited (supra) and in the case of Shivaji Works Ltd. v. CCE. The Honble Dehli High Court in the case of Metal Forgings (P) Limited held that extra unwanted material is removed by trimming or gas cutting or skin cutting to achieve the shape and section nearest to the forged steel products required. The forging would not cease to be forging for the removal of superfluous extra skin cast iron. Similar view was taken by the Tribunal in the case of Shivaji Works Limited. After the decision of the Tribunal in the in the case of Shivaji Works Limited, the Central Board of Excise and Customs also issued the instructions to this effect. The contention of the appellants is that they are only removing extra unwanted material from the hul and disc spindle. Therefore, they are classifiable as forged articles of iron and steel. We find that the facts of the present case are not similar to the facts of the M/s. Metal Forgings (P) Limited and in the case of M/s. Shivaji Works Limited. In the present case, the customers of the appellants undertake the various processes such as grinding, heat treatment, hole making and short blasting and thereafter hul and disc are become capable of to be used as parts of agricultural implements. In the circumstances, we find no merit in the contention of the appellants that the forged articles of iron and steel cleared from their factory were used as such as parts of agricultural implements, hence, we find no infirmity in the impugned order where the Commissioner of Central Excise held that the goods are classifiable under Heading 73.26 of the Central Excise Tariff as forged articles of iron and steel.

This order of the Tribunal was contested by the appellant therein and the Apex Court dismissed the Civil Appeal filed by the assessee which would mean that the classification of these kind of articles as manufactured by the appellant herein would be under Chapter Heading 73.26.

7.7 In view of the foregoing we hold that the products manufactured by appellant, in the facts of this case would merit classification under Ch. Heading 73.26.

7.8 As regards limitation, we find that the demand is for the period 01.03.2004 to 31.10.2004 and the show-cause notice is issued on 30.04.2009 by invoking extended period stating that the appellant had suppressed that they are manufacturing forged articles and mis-stating the facts. At the outset we record that the findings of the first appellate authority as well as the adjudicating authority on the limitation are incorrect for more than one reason.

7.9 Firstly, it is undisputed that appellant had been classifying the very same products from 1994 onwards under Ch. Heading 72.14 and also when they started manufacturing of products filed declaration with the authorities seeking to classify the product under Ch. Heading 72.14. Admittedly, during the material period there was no system of approval of the classification list filed by the assessee, at the same time the department cannot shirk away from their responsibility that they were aware of the classification of the product. It is on record that appellant was filing monthly returns indicating therein the clearances of forged articles by availing benefit and paying lesser duty.

7.10 Secondly, we find that the appellants records were audited by audit party in EA-2000, Comprehensive audit, which has been formulated by the Govt. of India, includes all the aspects of business of the unit which is being audited. This would mean that EA-2000 audit were also looking at the discharge of duty liability of the appellant in accordance with law. Appellant as reproduced herein above had clearly indicated in the monthly returns that the products manufactured by them are being classified under Ch. Heading 72.14 and cleared by availing the benefit of Notification 16/04. It was the duty of the audit party to consider whether the classification was correct and the appellant had availed the benefit of Notification correctly or otherwise. The audit report which has been produced before us indicate that this issue was not raked by the audit team would mean that it was accepted by the audit team that the classification of products is under Notification 72.14. Now the department cannot say that EA 2000 audit was not for the classification of the product and was for other procedural aspects. We find strong force in the contentions raised by the learned Counsel that this Bench in the case of Trans Engineers India Pvt. Ltd. (supra) was considering the aspect of limitation when the audit had taken place. We reproduced the relevant paragraph:-

9. We find that the show-cause notice has invoked the extended period for the demand of service tax liability. It is noticed by us that the records of appellants audited by the audit party of the Revenue in 2006 and vide audited report no. 288/2006-07, for a period on 1-4-2003 to 31-12-2006, the authorities raised various quarries but not in respect of the short payment of service tax as is alleged in the show cause notice in question in this appeal. We find that the audit party of the revenue in the 2nd audit conducted by them in 008, vide audit report No. 46/2008-09 came to conclusion that there was short payment of duty with intention to evade Service Tax. The show cause notice in the case hand was issued based upon the 2nd audit report.

10. In our view the entire demand is to be set aside on the ground on limitation only. Revenue authority cannot invoke the extended period of limitation, when the records of the assessee were audited by the officers once but did not find any short-payment from records. The 2nd audit party, doing the audit of same period or over lapping period, cannot allege that appellant has misstated or suppressed the facts from the departments. We find that the Hon'ble High Court of Bombay in the case of Rajkumar Forge Ltd. - 2010 (262) E.L.T. 155 (Born.) held in paragraph No. 13.

"13. It is an undisputed fact that insofar as the petitioners are concerned, audit of the petitioners' factory was carried out on three dates, i.e., 6th September, 1993, First November, 1995 and 2nd September, 1994. The petitioners vide their letter dated 6th September, 1993 have recorded the visit of the audit party and have also replied to the audit objections raised by the said audit party in respect of scrap generated and have informed the authorities that they were debiting Rs. 80,000/ - at the rate of Rs. 1,000/ -per Metric Ton and that they were also debiting differential duty totalling to Rs. 63,318/- in respects of Mill Rollers which was debited under PLA dated 3rd September, 1993. Therefore, the petitioners vide their letter dated 5th July, 1995 have informed the Superintendent of the respondents that they had debited Rs. 2,08,760/- against the Scrap Generation at sub-contractor end, where material is sent for processing under Rule 57F(3) for the period January, 94 to March, 95. Therefore by the said letters the petitioner had made' the respondents aware of the payment of duty on the scrap as well as on the Mill Rollers and considering the fact that the respondents had carried out audit on the dates mentioned herein above, the sad fact is conclusive insofar as the knowledge of the petitioners' activities to the respondents is concerned. Therefore, in our view, in the light of the audit carried out by the respondents off the petitioners' factory and the correspondence that is addressed by the petitioners to the respondents, it cannot be said that the petitioners have mis-stated the facts or there is a fraud practiced by the petitioners."

11. The above said views are also relied on by the Hon'ble High Court of Karnataka in the case of MTR Foods Ltd. (supra). We reproduce the relevant paragraph :-

"4. As is clear from the material on record, the returns were filed promptly. In the returns it is clearly mentioned that they availed credit under the aforesaid rules. The audit partly accepted the same. It is only in the second audit that they noticed the mistake and initiated proceedings. Therefore, in the light of the aforesaid facts none of the other conditions prescribed in the proviso exists in this case to extend the period of limitation of 5 years. It is in this background the Tribunal was justified in setting aside the order passed by the appellate authority and in restoring the order passed by the original authority. Therefore, there is no merit in this appeal. Accordingly, it is dismissed."

7.11 In view of the foregoing we find that on limitation the appeal succeeds and the demand for the period 01.03.2004 to 31.10.2004 is blatantly hit by limitation and the show-cause notice invoking the period of limitation under the provisions of Section 11A (i) is not correct. The impugned order is liable to be set aside on limitation only and we do so.

7.12 Since the demand of duty liability is set aside on limitation, the question of imposing interest or penalties on both the appeals does not arise.

8. The impugned order is set aside and the appeal is allowed on limitation.

(Pronounced in Court on..)

(C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial)

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1 21 Appeal No. E/12 & 35/11