1987 (6) TMI 150 - AT - Central Excise

Summary

Issues Involved:
1. Classification of goods under TI 25 or TI 68.
2. Applicability of Notification 89/79 and 105/80.
3. Timeliness of the show cause notice dated 8-1-1982.
4. Influence of other considerations on the Invoice Value.
5. Justification of the penalty imposed.

Detailed Analysis:

1. Classification of Goods under TI 25 or TI 68:

The primary issue was whether the goods in question should be classified under Tariff Item (TI) 25 or TI 68. The appellants argued that the machining operations did not transform the castings into new products with distinct names, characters, and uses, and thus they should remain classified under TI 25. They cited several judgments to support their contention, including decisions from the Calcutta High Court and the Patna High Court, which held that machining did not alter the basic character of the castings.

However, the opposing argument, supported by the Tribunal's ruling in cases like Tata Engineering & Locomotive Co. (P) Ltd. v. Collector of Customs, Bombay, maintained that if the original identity of the commodity was lost and it acquired the character of a new and distinct article, it should be classified under TI 68. The Tribunal concluded that the machined castings became identifiable machine parts and thus were rightly assessed under TI 68.

2. Applicability of Notification 89/79 and 105/80:

The appellants contended that even if the goods were classified under TI 68, they should be entitled to the benefits of Notification 89/79 and 105/80, which provided exemptions based on the value of the plant and machinery. The lower authorities had denied this relief by combining the values of the machinery from both factories. The Tribunal, however, agreed with the appellants, stating that only the value of the machinery at the Parel factory, where the machining occurred, should be considered. This interpretation aligned with the Tribunal's earlier decision in M/s Reckitt & Colman of India Ltd., Calcutta v. C.C.E., Calcutta.

3. Timeliness of the Show Cause Notice Dated 8-1-1982:

The appellants argued that the show cause notice dated 8-1-1982 was barred by time, as they had been in communication with the department and had received clarifications stating that the goods would continue to be assessed under TI 25. The Tribunal found merit in this argument, noting that the department was fully aware of the nature of the products and there was no suppression of facts or clandestine removal. Consequently, the demand for duty for the extended period was deemed unjustified, and the show cause notice was barred by time.

4. Influence of Other Considerations on the Invoice Value:

The appellants argued that there was no relationship between them and their selling agents, and the discount granted was based on normal commercial practice. The adjudicating authority had disallowed the discount, suspecting other considerations influenced the invoice price. However, given the Tribunal's findings on the classification and exemption issues, it was unnecessary to delve further into the question of invoice value or discount.

5. Justification of the Penalty Imposed:

Given the Tribunal's findings that the appellants were entitled to the benefits of Notification 89/79 and that the show cause notice was barred by time, the imposition of the penalty was deemed unsustainable. The Tribunal directed the Central Excise authorities to re-examine the applicability of the notifications in light of these observations.

Conclusion:

The appeal was disposed of by remand, directing the Central Excise authorities to re-examine the applicability of Notification 89/79 and 105/80 based on the Tribunal's observations. The penalty imposed was not justified, and the show cause notice dated 8-1-1982 was barred by time. The classification under TI 68 was upheld, but the benefits of the notifications should be reconsidered, focusing only on the machinery at the Parel factory.