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TMI Blog2007 (6) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... lled SS Patta/Pattis are classifiable under Chapter Heading 7220.20 during the relevant period. 3. It was held that cold rolling process under taken by M/s. Gujarat Industries would amount to manufacture and that they have manufactured and cleared Cold Rolled SS Patta/Pattis clandestinely and accordingly duty of Rs. 12,20,563/- was demanded and equal amount of penalty was imposed under Sec.11AC. In addition interest was demanded and the land, building and machinery was confiscated with an option to redeem the same by payment of fine of Rs.1,00,000/-. 4. The other four appellants are units working under the compounded levy scheme; they have sent their Hot Rolled SS Patta/Pattis to M/s. Gujarat Industries for the purpose of gauge reduction. They were all imposed penalties under Rule 209A of the Central Excise Rules. 5. According to the appellants, the reduction of thickness is not fol lowed by any other change; variation noticed in the qualities are not significant. A patta has remained the same even after the gauge reduction and the use of patta has also not undergone any change. 6. It was also contended by the appellant that simply because the input material and output material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Sec. 11AC is also sustained. The interest demanded from M/s. Gujarat Industries is sustained. Confiscation of land, building and machinery of M/s. Gujarat Industries and allowing their redemption on payment of fine is harsh and accordingly set aside. The penalties of Rs. 10,000/- imposed on Shri Kamlesh Madhusudan Bhavsar; Rs. 15,000/- imposed on Shri Manoharmal Bhabhutmal Jam; Rs.20,000I- imposed on Shri Kapoorchand Manroop Malvi; Rs. 35,000/- imposed on Shri Bharatbhai Bhanjibhai Gala; are justified and are not excessive and, therefore, the same are sustained. 10. The appeals are disposed off on the above terms. Sd/- (M. Veeraiyan) Member (Technical) 11. [Contra per : Archana Wadhwa (J)]. - I have gone through the order proposed by id. Brother Shri Veeraiyan and record a separate order as I find myself unabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment, it was observed that the appellants were supplying the Hot Rolled patta/pattis for pickling in dilute hydrochloric acid for removal of rust and scales and then they were cold rolled between plain rolls to obtain a bright surface, closely controlled gauge, thinner gauge and a variety of tempers by passing previously hot rolled patties through the set of rolls often many times until the final size obtained. In the instant case, it is on record that the process of pickling and annealing was undertaken by the principal manufactures and the appellants was only reducing the gauge without undertaking any further process at their premises. As such, I am of the view that the said activity would not amounts to manufacture. 15. It is further seen that not only the appellants, the principal manufactures have also taken a stand during the course of adjudication that such patta/patties are not marketable in the State in which they leave the factory of M/s. Gujarat Industries. The remaining process on the said goods was done in the supplier's factory. No evidence have been produced by the revenue to show that the goods cleared from the Gujarat Industries factory are marketable, especi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts I find that they are the persons, who had sent the goods to the factory of Gujarat Industries and were receiving back the same after reduction in thickness. After receiving back the same were being further processed in their factory and cleared on payment of duty. As such, there is no justification for imposition of penalty upon them on the ground that Gujarat Industries had cleared the goods without payment of duty. 19. In view of the above discussion, I am of the view that the impugned order is liable to set aside and all the appeals allowed with consequential relief to the appellants. Sd/- (Archana Wadhwa) Member (Judicial) Dated: 11-12-2006 DIFFERENCE OF OPINION Whether the demand of duty and imposition of penalty upon M/s. Gujarat Industries is required to be upheld along with confirmation of interest amount. Further, the imposition of penalties upon the other appellants under the provisions of Rule 209A are to be upheld, as held by the ld. Member (Technical) or the appeals are required to be allowed by setting aside the impugned order as held by the ld. Member (Judicial). Sd/- Member (Technical) (M. Veeraiyan) dated 22-1-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 11-12-2006 20. [Order per Justice R.K. Abichandani, President]. - The appellants have challenged the order made by the Commissioner on 21-5-2001, demanding excise duty of Rs. 12,20,563/- from the appellant-assessee, M/s. Gujarat Indus tries, imposing penalty of like amount on it under Section 11AC of the Central Excise Act, 1944 read with Rule 173Q of the Central Excise Rules, 1944 and also a penalty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statement of Kamlesh, Manager and authorized signatory of M/s. Shripal (P) Ltd. was recorded on 10-6-1999. He stated that their factory used to purchase S.S. flats from open market and sent them for hot rolling process to other factories, and on receiving of hot rolled S.S. pattas in their factory annealing and pickling and cold rolling process was done. He also stated that they used to send hot rolled S.S. patta after annealing and pickling to M/s. Gujarat Industries in the years 1995-96 and 1996-97, and after reduction of gauge from 15 mm to 20 mm by cold rolling process on two cold roIling mills installed in M/s. Gujarat Industries, the goods were sent back to their factory. 22.2 The appellant, Manoharmal, partner of M/s. Amit Industries, stated in his statement dated 26-6-1999 that they had three cold rolling mills in their factory, and were paying central excise duty under compounded levy scheme on the three cold rolling mills installed in their factory from the beginning. They used to receive hot rolled S.S. patta/pattis from various factories. They carried out annealing and pickling process on the hot rolled S.S. pattas and reduced their gauge on their cold rolling mills, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the manufacture of S.S. pattas and pattis and was paying central excise duty under the compounded levy scheme on two cold rolling mills installed since 1994. He also stated that during 1996-97 they had sent hot rolled SS. pattas after annealing and pickling process to the appellant M/s. Gujarat Industries for reduction of gauge from 15 mm to 20 mm. The goods were received by his factory after cold rolling process on the machinery installed in the factory of M/s. Gujarat Industries. 22.6 The appellant - Sudhir, partner of M/s. Kad Steel Rolling Mills, in his statement stated that, they were having four cold rolling mills and were paying duty under the compounded levy scheme on their said machines since 1994. He also stated that, they had sent hot rolled S.S. pattas to M/s. Gujarat Industries for reducing the gauge from 15 mm to 20 mm by cold rolling process. They had received the goods back after the job work without any central excise duty paying documents, from M/s. Gujarat Industries. 22.7 The appellant - Nehalbhai, partner of M/s. Vishwakarma Technomech Industries stated that their factory was registered with the Central Excise Department and engaged in the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds, each containing four back-up rolls, may be used in one or more positions if a particularly high cold reduction is required. An oxide-free surface is required for cold reduction and this is achieved by passing the steel through pickle line. Traditionally, the acid used was sulphuric acid, but rnost pickle lines now use hydrochloride acid. Cold rolling cause the steel to become hard and strong and with very little ductility. For almost all applications, therefore, an annealing treatment is required to reduce the strength and to give formability that is needed for the final application. Various metallurgical changes take place during annealing including recovery, re-crystallisation and grain growth, and the formation, growth of dissolution of precipitates or transformation products. It is the complex controlled interaction of these changes which provides the steel with its final properties." In the show cause notice, reference was also made to "Practical Metallurgy and Materials of Industry", Second Edition by John E. Neely by referring to its following contents :- "Cold Rolled (CR) Steels makes up a large part of steel production. Hot rolled sheet is cleaned with an acid dip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcise authority, that it was "not proved" that hot rolled strips undergo a process of manufacture before they become cold rolled strips. It was also submitted that the decision of the Tribunal in Indian Strips (supra) was per incurium because it did not consider the said Chapter Note 4. He then submitted that the decision of the Tribunal in Lalit Engineering Works v. CCE, Ahmedabad, rendered on 25-10-2005 was based on the ratio of the decision of the Hon'ble Supreme Court in Steel Strips Ltd. (supra) and ought to be followed for holding that, cold rolled strips produced out of duty paid hot rolled strips, do not undergo a process of manufacture. The learned Counsel further submitted that, the question whether Chapter Note 4 of Chapter 72 covered manufacture by cold rolling process was not free from doubt and courts had taken a differing views and therefore, intention to evade duty cannot be attributed to the appellant. He also submitted that letter dated 28-2-1996 was written to the department by the appellant informing about their activity and, therefore, the extended period could not have been invoked against the appellant. Reliance was placed on the decision of this Tribunal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting cold rolled process was "manufacture"s within the meaning of Chapter Note 4 of Chapter 72. He submitted that in view of the definition of "manufacture" in relation to flat rolled products on which the process of hardening or tempering was carried out, the decision of the Supreme Court in Steel Strips Ltd. (supra), was now inapplicable to the cold rolling processes undertaken after the said definition was introduced, which enlarged the meaning of "manufacture", as contemplated by Section 2(f)(ii) of the Central Excise Act, 1944. The learned Authorized Representative for the Department heavily relied on the decision of this Tribunal iii Indian Strips v.CCE, Ahmedabad (supra), and submitted that this decision was rendered after taking into consideration the decision of the Hon'ble Supreme Court in Steel Strips Ltd. (supra), Chapter Note 4 of Chapter 72, as well as the decision of the Hon'ble Supreme Court in CCE, Chandigarh v. Steel Strips Ltd. reported in 2003 (154) E.L.T.336 (S.C.) and submitted that it constituted a binding precedent which was not noticed by the Tribunal in Lalit Engineering Works. He submitted that since the decision in Lalit Engineering Works did not notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and rods, hot-rolled, in irregularly would coils, other bars and rods, angles, shapes, sections and wire). These products are obtained by plastic deformation, either hot, directly from ingots or semi-finished products (by hot-rolling, forging or hot-drawing); or cold, indirectly from hot finished products (by cold rolling, extrusion, wire, drawing, bright-drawing), followed in some cases by finishing operations (e.g. cold-finished bars obtained by centreless grinding or by precision turning). In the category of hot plastic deformation, "hot-rolling" means rolling at a temperature between the point of rapid recrystallization and that of the beginning of fusion. The temperature range depends on various factors such as the composition of the steel. As a rule, the final temperature of the work-piece in hot-rolling is about 900°C. In the category of cold plastic deformation, "cold-rolling" is carried out at ambient temperature, i.e., below the recrystallization temperature. Thus most significant operational distinction between the hot-rolling arid cold-rolling is that, hot-rolling is a rolling done at a temperature between the point of rapid recrystallization and that of the begi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re are certain excerpts from 'Material Science and Metallurgy', Chapter 57 of which deals with mechanical working processes. Mechanical working of metals may either be (i) Hot working, or (ii) Cold working. Plastic deformation of a metal above the recrystallization temperature, but below the melting or burning point is called hot working whereas plastic deformation of a metal below its recrystallization temperature is known as cold working. In that chapter, there is an analysis done on principles of hot and cold working of metals and their effects on mechanical properties. The purposes of hot working and its advantages as well as purposes and advantages of cold working are narrated. While stating the principles of hot and cold working, the very first distinction drawn is that in hot working, metal working is performed on a metal held at such a temperature that the metal does not work-harden, while in cold working it is stated that it is a plastic deformation of a metal which results in strain hardening. It usually involves working at ordinary (room) temperature, but for high melting point metals cold- working may be carried out at a red heat. Hot working processes are : forging,rol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner, but also becomes much harder, less ductile, and very difficult to form. However, after the cold-reduced product is annealed (heated to high temperature), it becomes very soft and formable. Tempering is a form of cold rolling that gives the steel a precise amount of hardness on the outer surface of the steel. Cold rolling is undertaken to reduce the thickness, improve the surface finish, improve the thickness tolerances, to offer a range of tempers and as a preparation for surface coating. Thus, cold-rolling process is also a process of hardening or tempering which is applied to flat rolled products, namely hot rolled strips so as to attract Chapter Note 4 of Chapter 72 of the Schedule to the Tariff Act. In the present case, there is no dispute over the fact that the appellant-assessee was undertaking cold-rolling process on its cold-rolling mills on the hot-rolled strips which were sent to it for the job work of reducing the gauge. The process of reducing the gauge by cold-rolling was also a process of hardening or tempering because cold-rolled products become hard and possess a very high tensile strength by the process of cold-rolling. The fact that a degree of hardness can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling and paying excise duty on their cold-rolled pattas/pattis. From the facts and circumstances of the case, it is clear that the appellant-assessee would be knowing that cold-rolling process which it was undertaking, resulted in excisable products and that the other appellants who were doing identical cold-rolling processes were registered with the excise authorities and paying excise duty. The Commissioner was, therefore, fully justified for the valid reasons given by him in the impugned order in concluding that cold-rolling process amounted to manufacture and that cold-rolled pattas/pattis were distinct marketable goods and were excisable. He relied upon the Explanatory Notes which lent support to the fact that hot-rolled products and cold-rolled products were distinct products having their own identity, name, character and use. Cold-rolled strips were used for making auto parts etc. for which hot-rolled strips cannot be used. The Com missioner has also for valid reasons held that the extended period of limitation was applicable and that the department's record did not show the receipt of any letter allegedly written on 28-9-1996. The appellant-assessee, dealing with several s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical), it is opined that the impugned order deserves to be upheld. All these appeals are, therefore, required to be dismissed subject to the above modification of setting aside the confiscation of land, building and machinery. (Dictated and pronounced in the open Court) Sd/ (Justice R.K. Abichandani) President FINAL ORDER 25. In view of the majority order, the appeal filed by all the appellants are rejected, except for setting aside of confiscation of land, building and machinery of M/s. Gujarat Industries. 26. All the appeals are disposed off accordingly. Sd/- (M. Veeraiyan) Member (Technical) dated 18-6-2007 Sd/- (Archana Wadhwa) Member (Judicial) dated 11-6-2007 & ..... X X X X Extracts X X X X X X X X Extracts X X X X
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