1982 (9) TMI 57 - HC - Central Excise

Iron or steel products - Steel castings - Liability to duty - Castings - Short levy - Interpretation - Fiscal statute

Issues Involved:
1. Whether the Steel Castings manufactured by the petitioners are excisable at two stages under Item 26AA(V) and Item 68 or only under Item 26AA(V).
2. Whether the demand for a part of the period from 1-3-1975 to 31-3-1979 was barred by limitation.
3. Whether any penalty could have been imposed on the petitioners under the circumstances of the case.

Detailed Analysis:

Issue 1: Excisability of Steel Castings
The primary issue was whether the Steel Castings manufactured by the petitioners were excisable at two stages: under Item 26AA(V) when taken out of the mould and under Item 68 after machining and polishing, or only under Item 26AA(V). The court examined the process of manufacturing Cast Rolls, which involves several stages from melting steel scrap to final machining and application of rust-preventive coatings. The petitioners argued that the castings taken out of the moulds with foreign materials like sand and dust are not marketable goods and thus not excisable. The respondents contended that the process of casting is completed after solidifying and cooling, making it excisable under Item 26AA(V), and further processing makes it excisable under Item 68. The court referred to various legal precedents and technical literature, concluding that the entire process from start to finish constitutes "manufacture" under the Act. Therefore, the goods remain steel castings excisable only under Item 26AA(V) and do not become excisable under Item 68 at any stage.

Issue 2: Limitation on Demand
The second issue was whether the demand for duty from 1-3-1975 to 31-3-1979 was barred by limitation. The court noted that the petitioners had been removing goods under the classification approved by the respondents under Item 26AA(V) since 1969-70. Item 68 was introduced on 1-3-1975, and the petitioners continued to remove goods under the same classification. The respondents issued a notice for duty under Item 68 for the first time on 1-5-1979. The court held that the period prior to 1-12-1978 was barred by limitation under Rule 10(1) of the Central Excise Rules, as there was no intentional evasion of duty by the petitioners. The court found that the petitioners had a bona fide belief that the goods were excisable only under Item 26AA(V), and thus the extended period of five years for recovery did not apply.

Issue 3: Imposition of Penalty
The third issue was whether the imposition of a penalty on the petitioners was justified. The court observed that the petitioners had been removing goods under the approved classification and had not been asked to submit a revised classification list until 1-5-1979. The court held that the petitioners' failure to apply for a license or submit a revised classification list was based on an honest and genuine belief that no duty was payable under Item 68. Therefore, the imposition of a penalty was not justified, referencing the case of Hindustan Steel Limited v. State of Orissa.

Conclusion:
The court allowed the petition, quashing the orders and notices issued by the respondents (Annexures '1', '2', 2/1, 2/2, and 1/A). The goods in question were held to be excisable only under Item 26AA(V) and not under Item 68. The demand for duty for the period prior to 1-12-1978 was barred by limitation, and the imposition of a penalty was deemed unjustified.

← Previous Next →