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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 ..... rent qualities, characteristics and uses. The process of cold rolling imparts quality of hardening to the products. (c) Hot Rolled SS Pattą/Pattis are classifiable under Chapter Heading 7220.10 and Cold Rolled 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty need not be interfered with. 9. Therefore, the demand of duty from M/s. Gujarat Industries in respect of cold rolled Patta/Pattis cleared by them is sustained. Equal penalty imposed on M/s. Gujarat Industries under 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 unable to agree with the same. 12. As per facts on record, it stands undisputed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tta/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, especially in view of the stand taken by them that no surface treatment or even the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 22-1-2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and removing S.S. Cold Rolled Patta/Patti falling under Chapter sub-heading 7220.20 in its Cold Rolling Mills. Search was conducted in the presence of two independent witnesses and a partner of the firm, Shri Rajnibhai. It was noticed during the search that cold rolling mills were fitted with debpeti and gear box. The partner of the assessee firm, Shri Rajnibhai, disclosed that M/s. Gujarat Industries, was engaged in the reduction of gauge (15 mm gauge to 20 mm gauge) of hot rolled S.S. patta received from various parties on their two cold rolling mills since November, 1995 to March, 1997. After reducing the gauge, the goods were sent back to the parties from whom they were received. The process was undertaken on their two cold rolling mills on job work basis. In April, 1997, they had closed down the two cold rolling mills and sold out its parts other than housing, debpeti and gear box. 22.1 During the investigation, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by M/s. Gujarat Industries in its factory were registered with the Central Excise Department and were paying Central Excise Duty under the compounded levy scheme on their cold rolling mills installed in their respective factories. 22.4 The appellant, Shri Kapoorchand, the authorized signatory of M/s. Yeshwant Metal Industries also stated that, during 1996-97 they had sent 64734 kgs. of 15 mm gauge hot rolled S.S. pattas after annealing and pickling process to M/s. Gujarat Industries for processing on the cold rolling mills in- stalled in the factory of M/s. Gujarat Industries for reducing the gauge to 20 mm. The work was done on job basis. He stated that they had received the goods back without any central excise invoice from M/s. Gujarat Industries. 22.5 The appellant, Bharatbhai, partner of M/s. Raju Industries, in his statement recorded under Section 14 of the Central Excise Act, 1944 stated that their factory was engaged 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 pickl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without subsequent heat treatment, developing controlled mechanical properties. It was stated that any single or combination of these three effects were the reason for the cold rolling of a particular product. It was also stated that in terms of modern nomenclatures of steel industry, cold rolling implied a rolling operation in which the thickness of the material was reduced by a relatively small amount usually just enough to produce a superior surface or impart the desired mechanical properties to the rolled materials. In the show cause notice, reference was made to the book "Steels: Metallurgy and Application", Third Edition by D.T. LLE Wellyn and R.C. HUDD, particularly to the following quotation: "The cold rolling is usually carried out using a tandem mill containing five stands, with controlled front and back tension. Each stand usually contains four rolls consisting of two work rolls and two back-up rolls, but six high stands, 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. Traditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to manufacture, was not attracted in the present case because the appellant assessee, M/s. Gujarat Industries, did not undertake any process of hardening or tempering. He submitted that the expression "hardening or "tempering" has to be understood in the metallurgical sense as per which it was a heat treatment process and in no way concerned with cold rolling process. He argued that cold rolling only reduced thickness and mere reduction in thickness i.e. gauge was not manufacture, in view of the ratio of the Hon'ble Supreme Court in CCE, Chandigarh v. Steel Strips Ltd., reported in 1995 (77) E.L.T. 248 (S.C.). He submitted that the Tribunal in Indian Strips v. CCE, Ahmedabad reported in 2004 (173) E.L.T. 265 (T-Mum.), had not noticed Paragraph 8 of the judgment of the Hon'ble Supreme Court in Steel Strips Ltd. (supra), in which the Hon'ble Supreme Court had observed, in the context of the material which was referred to on behalf of the excise 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further argued that, cold rolling processes resulted in hardening and tempering. He argued that heat treatment can occur both in hot rolling as well as in cold rolling processes. The difference being that cold rolling process was a process under taken at room temperature or ambient temperatures unlike hot rolling processes, which are undertaken at re-crystallization temperature. He submitted that only cold rolling can result in hardening. He argued that cold reduced, i.e., cold rolled process involved not only reduction, but also hardening of the steel strips. He referred to the HSN Explanatory Notes for understanding the concept of cold rolling process. He also pointed out from the literature produced on behalf of the appellant that hardening and tempering resulted from the process of cold rolling. He also contended that hot rolled strips were flat rolled product and, therefore, hardening and tempering of such hot rolled strips by adopting 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct is cold-reduced. Thus, when hot-rolled steel sheets/strips, which are flat-rolled products are subjected to the process of cold-rolling for reducing the gauge, the product so processed will fall under sub-heading 7220.20 by virtue of being subjected to the work of being cold-rolled or cold-reduced. 24. In this context, the Harmonized System of Nomenclature known as HSNExplanatory Notes was referred to by both the sides. These notes correspond to the Chapter sub-headings of the Schedule to the Tariff Act. The HSN throw considerable light on the process of production in iron and steel industries. To begin with, in the present context, semi-finished products and in certain cases ingots are converted into finished products which are generally sub divided into flat products ("wide flats" including universal plates, wide coil, sheets, plates and strip) and long products (bars 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the literature on hardening or tempering from a 'Dictionary of Metal Heat Treatment', 'Hand book of Heat Treatment Steels', 'Heat Treatment Principles and Techniques', would give a lope sided picture of the concept of hardening or tempering. If by heat treatment hardening or tempering of metal can be achieved, equally so by a cold-reducing or cold-rolling or cold-working, hardening of the flat rolled product/strips can be achieved. Heat treatment for hardening or tempering may be suited for particular products while cold-rolling or cold-working may be suited for hardening or tempering other kinds of products. Therefore, by merely referring to hardening or tempering by process of heat treatment, one cannot shut out the entire cold-rolling or cold-working processes which bring about hardening or temper ing. In the midst of technical literature produced on behalf of the appellant, there 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is not disputed that cold-rolled sheet products are used in a wide variety of end applications such as appliances-refrigerators, washers, dryers, and other small appliances, automobiles-exposed as well as unexposed parts, electric motors, and bathtubs. Cold-rolled sheet products are used in these and many other areas of manufacturing. To meet the various end use requirements, cold-rolled sheet products are metallurgically designed to provide specific at tributes such as high formability, deep drawability, high strength, high dent resistance, good magnetic properties, enamelability and paintability. The primary feature of cold reduction is to reduce the thickness of hot-rolled coils into thinner thicknesses that are not generally attainable in the hot-rolled state. Cold reduction operation induces very high strains (work hardening) into the sheet. Thus, the sheet not only becomes thinner, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in their factories. Therefore, even in the trade, it was well understood that cold-rolling process required excise registration and that duty was payable on the cold-rolled products of their factories which were cold-rolling strips/sheets, as admitted by the appellants in their statements recorded under Section 14 of the said Act. When it was known to all the appellants, who sent the hot-rolled strips for cold-rolling to the appellant-assessee, that cold-rolled products which they also themselves manufactured by similar process were subject to excise duty, it is obvious that receiving them back after being cold-rolled without any excisable invoice amounted to dealing with the excisable goods which they knew or had reason to believe were liable to confiscation. The appellant-assessee was receiving hot-rolled pattas/pattis from other appellants who themselves were also undertaking cold- rolling 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 iden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered without considering a binding precedent would be a decision per incurium. Therefore, as a precedent, the earlier decision in Indian Strips v. CCE, Ahmedabad (supra) is required to be followed in a subsequent decision of the Division Bench. The appellant-assessee M/s. Gujarat Industries removed the goods without any cover of excise invoices and the other appellants received the cold-worked goods without cover of such excise invoices. The demand of duty and imposition of penalty on the appellant-assessee M/s. Gujarat Industries is, therefore, fully justified. The interest demand is also in accordance with law. The penalties imposed on the other appellants are fully justified for the aforesaid reasons. Confiscation of land, building and machineries appears to be harsh and that part of the impugned order need not be sustained. Concurring with the opinion of the learned Member (Technical), 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. Abic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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