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TMI Blog1988 (5) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... r Item 26AA(ia) should be taken after the machining and polishing is done to remove the excess surface skin and the contention of the appellant in this regard must be accepted. In these state of affairs, it is quite clear that the finished goods, namely, finished wheels, tyres, axles and blanks could be said to have come into existence only after the precision machining and other processing at the Railways' workshops was completed and the appellant is not liable to pay any duty on these goods as under Item No. 68 of the said Central Excise Tariff. The period of limitation would clearly be only six months prior to the service of the show cause notice. The demand for excise duty against the appellant on the said composite units under Item No. 68 of the Excise Tariff, to the extent that it exceeds the period of six months prior to the service of the show cause notice must, therefore, be struck down. In the result, the appeal is allowed. The appellant is liable to pay duty on the goods referred to in the petition other than the composite units only under Item No. 68 of the First Schedule to the Central Excises Act and the duty will be based on the weight after the machining ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue was that in the hands of the appellant they were liable to duties at two stages, namely, under Tariff Item No. 26AA(ia) when they were forged and under Tariff Item No. 68 of the Excise Tariff after they were machined and polished for being supplied to the railways. Right from 1962, the appellant was following classification list showing these goods as liable to excise duty only under Tariff Item No. 26AA(ia) and this classification list submitted by the appellant was accepted and approved by the excise authorities. In 1981, the Asstt. Collector, Central Excise, Jamshedpur who is one of the respondents before us by a show-cause notice dated 16-5-1981 called upon the appellant to show cause why it should not be proceeded against for contravention of Rule 173-B, 9(i) read with Rule 173(G)(i) and Rule 173(i)(a). The ground was that the goods supplied by the appellant to the railways were not forged items as such, but the said goods after they had undergone machining and polishing after being forged and had been turned into distinct commercial commodities by the process of machining and polishing which amounted to manufacture and hence the goods were also liable to the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould like to set out the relevant items from the Central Excise Tariff. The relevant portion of Item 26AA of the Central Excise Tariff, at the relevant time read as follows (with emphasis supplied) :- "26AA. Iron or steel products, the following, namely :- (ia) Bars, rods, coils, wires, joists, girders, angles, other than slotted angles, channels, other than slotted channels, tees, beams, zeds, trough, piling and all other rolled, forged or extruded shapes and sections, not otherwise specified." Item 68 of the Excise Tariff is the residuary item and it ran as follows :- "68. All other goods, not elsewhere specified, but excluding :- (a) alcohol, all sorts, including alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics; and (c) dutiable goods as defined in Section 2(c) of the Medicinal and - Toilet Preparations (Excise Duties) Act 1955 (16 of 1955)." There is an explanation to Item 68, but the same is not relevant for our purpose. 4. A perusal of these items makes it clear that forged steel products are liable to duty in terms of Tariff Item No. 26AA. It is also beyond dispute that forged steel goods with which we a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of steel material till final shaping is achieved. The steel forging process involves open forging process where the quantity small and drop/close die forging and/or upset forging process under which the product is made with the help of dies. Thereafter, the extra/unwanted material is removed by either trimming or by gas cutting or by skin cutting to achieve the shape and section nearest to the forged steel product required and also the forging clearances specified in the standards by I.S.I./or International. It is conceded by the Government that forging would not cease to be forging by processes like removal of superfluous extra skin of cast iron." The learned Judge has further pointed out in the next paragraph of the said judgment that the removal of extra/unwanted surface steel by either trimming or by gas cutting or by skin cutting of the forged products must be regarded as incidental or ancillary to the process of manufacture. This view is also consistent with the definition given to the term "manufacture" contained in Sub-section (f) of Section 2 of the Central Excises and Salt Act, 1944. This definition shows that the manufacture includes any process incidental or ancillary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hows that axles supplied by the appellant to the Railways were in rough machined condition and wheels, tyres and blanks were supplied in rough or forged condition. Sometimes wheels, tyres, axles and blanks had to be even rough machined partially at the Railways workshop to remove excess steel or manufacturing defects. All these products had to be subsequently precision machined by the Railways before being put to use. In these state of affairs, it is quite clear that the finished goods, namely, finished wheels, tyres, axles and blanks could be said to have come into existence only after the precision machining and other processing at the Railways' workshops was completed and the appellant is not liable to pay any duty on these goods as under Item No. 68 of the said Central Excise Tariff. 6. We may make it clear that what we have said in the foregoing paragraphs is applicable to all the goods with which we are concerned save and except wheels, tyres and axles manufactured by the appellant and supplied as composite units. In respect of these composite units, it is beyond dispute, and it is conceded by the appellant, that it is liable to pay duty on the same under Tariff Item No. 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tariff, to the extent that it exceeds the period of six months prior to the service of the show cause notice must, therefore, be struck down. 8. In our view, the learned Judges who delivered the impugned judgment were in error in taking the view which they took on the questions discussed aforesaid, except regarding limitation. The learned judges have placed considerable reliance on the new classification of the Tariff Items in 1985 in considering the true scope of Item No. 26AA and Item No. 68 as they stood in 1981. In our opinion, this reliance was misplaced. 9. In the result, the appeal is allowed. The appellant is liable to pay duty on the goods referred to in the petition other than the composite units only under Item No. 68 of the First Schedule to the Central Excises Act and the duty will be based on the weight after the machining carried out in the factory of the appellant to remove the excess skin or excess surface steel. Secondly, in respect of the composite sets, the appellant is liable to pay duty both under Items Nos. 26AA(ia) and 68, but only for a period of six months prior to the service of the show cause notice. Looking to all the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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