1987 (3) TMI 125 - HC - Central Excise

Summary

Issues Involved:

1. Liability of the petitioner to pay excise duty under Tariff Item 26AA and Tariff Item 68.
2. Whether machining and polishing of forged items constitute a new excisable product.
3. Limitation period for the demand of excise duty under Section 11A of the Central Excises and Salt Act, 1944.
4. Allegations of fraud, collusion, or suppression of facts to evade duty.

Issue-Wise Detailed Analysis:

1. Liability of the petitioner to pay excise duty under Tariff Item 26AA and Tariff Item 68:

The petitioner, Tata Iron and Steel Company Limited (Tisco), manufactures wheels, tyres, and axles for Indian Railways. The dispute centers on whether these items, after being machined and polished, fall under Tariff Item 26AA(ia) or also under Tariff Item 68. The petitioner argued that these items should only be taxed under Tariff Item 26AA(ia), while the revenue contended that post-machining and polishing, these items become new products and should be taxed under Tariff Item 68. The court noted that forged steel products are liable to duty under Tariff Item 26AA, but once machined and polished, they constitute a new product, thus falling under Tariff Item 68 as well.

2. Whether machining and polishing of forged items constitute a new excisable product:

The court examined whether the process of machining and polishing transforms the forged items into a new excisable product. The petitioner claimed that the machining and polishing were insignificant and did not create a new product. However, the court found that machining and polishing do result in a new product, as indicated by the new classification under the Central Excise Tariff Act, 1985. This Act distinguishes between forged items and finished products like wheels, axles, and tyres, which are categorized under separate tariff items, confirming that the machined and polished items are indeed distinct products.

3. Limitation period for the demand of excise duty under Section 11A of the Central Excises and Salt Act, 1944:

The court addressed the issue of the limitation period for the demand of excise duty. Section 11A mandates that notice for unpaid duty must be served within six months, extendable to five years in cases of fraud, collusion, or suppression of facts. The court found that the notice issued in July 1981 covered the period from March 1975 to July 1981, which exceeded the five-year limit for the period before July 1976. Therefore, the demand for duty for the period from March 1975 to July 1976 was barred by limitation.

4. Allegations of fraud, collusion, or suppression of facts to evade duty:

The revenue alleged that the petitioner engaged in fraud, collusion, or suppression of facts to evade duty, thereby invoking the extended five-year limitation period. The court, however, found no evidence of fraud, collusion, or suppression. It noted that the petitioner had been paying duty under Tariff Item 26AA since 1962 with the knowledge of the revenue authorities, who had accepted the classification lists. The court concluded that the petitioner's belief that the items were not new products after machining and polishing was bona fide, and there was no intent to evade duty.

Conclusion:

The court held that the petitioner is liable to pay excise duty on wheels, tyres, and axle sets under Tariff Item 68 for the entire period. However, the petitioner is not liable to pay duty and differential duty on these items for the period from March 1975 to 15 November 1980 due to the limitation period. The petitioner is liable to pay duty and differential duty for the period from 16 November 1980 to 16 May 1981. The application succeeded in part, with no order as to costs.