1992 (2) TMI 85 - SC - Central Excise

Whether cylinder liner manufactured by the appellant out of iron casting identifiable as machine part was exigible to duty under Tariff Item No. 68 or it continued to be iron casting and thus exempt under Notification issued under sub-rule (1) of Rule 8 of Central Excise Rules? Whether the authorities were precluded from issuing notice and adjudicating if the cylinder liner was a machine part, even though for an earlier period the classification list claiming it as iron casting, thus exempt, had been approved? Held that - The Tribunal in the circumstances was justified in recording the finding that by the time the goods cleared from factory they had ceased to be casting, and had assumed the character of fully machined cylinder liner or fully machined or proof machined cylinders which were identifiable as such. Since duty under Excises and Salt Act is leviable on manufacture of goods produced the cylinder liner became exigible to duty under Entry 68. Once the Tribunal found that cylinder liner ceased to be cast iron it is obvious that the department could not be precluded from levying duty on it subject to the law of limitation. Since show cause notice which resulted in these proceedings was for a period other than for which proceedings had been dropped, it was not review as urged by the learned counsel for appellant. Thus if an item was found dutiable then the department could not be prevented from levying duty on it because it had earlier approved classification as there is no estoppel against statute. Appeal dismissed.

Summary

Issues:
1. Whether cylinder liner manufactured from iron casting is subject to duty under Tariff Item No. 68 or exempt under a Notification under Central Excise Rules.
2. Whether authorities can issue notice and adjudicate if cylinder liner is a machine part even if earlier classification listed it as iron casting.

Analysis:

Issue 1:
The case involved determining the duty applicability on a cylinder liner manufactured from iron casting. The appellant argued that until the final processing by the Railways, the cylinder liner remained iron casting and was exempt from duty. The Tribunal found that the processing in the appellant's factory transformed the cylinder liner into a fully machined commodity, identifiable as a machine part. This transformation rendered the cylinder liner liable to duty under the Central Excise Act. The Tribunal's decision was supported by the contract terms for the supply of fully machined cylinder liners.

Issue 2:
The second issue revolved around whether the authorities could levy duty on the cylinder liner despite an earlier classification listing it as iron casting. The Tribunal held that once the cylinder liner ceased to be cast iron due to processing, the department had the authority to levy duty, subject to the law of limitation. The Tribunal cited a previous judgment to support the principle that the department could not be prevented from levying duty on an item found dutiable, even if it was earlier classified differently.

In conclusion, the Supreme Court upheld the Tribunal's decision, ruling that the cylinder liner was liable to duty under Entry 68. The appeal was dismissed with costs, emphasizing that the department could levy duty on the cylinder liner once it ceased to be cast iron, despite any earlier classification.