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PETITIONER: PEFCO FOUNDRY CHEMICALS LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE, PUNE

DATE OF JUDGMENT19/02/1992

BENCH: SAHAI, R.M. (J) BENCH: SAHAI, R.M. (J) AHMADI, A.M. (J) RAMASWAMY, K.

CITATION:  1992 SCR  (1) 891        1993 SCC  Supl.  (1)  74  JT 1992 (2)    17        1992 SCALE  (1)405

ACT:     Central Excises and Salt Act, 1944/Central Excise Rules, 1994:     Section  4/Rule  8-Entry 68-Cylinder  liner-Manufactured and supplied after machining and honing-Whether identifiable as machine part-Whether exigible to duty.

HEADNOTE:      The  appellant  was  manufacturing  cylinder  liner  by casting molten iron in specific shape.  The rough surface of the cylinders was removed and after machining and honing  it was delivered to Railways.      The  respondent  took  the view that at  the  time  the cylinders   were   supplied   to   Railways,   they   became identifiable as machine part attracting duty.  According  to the  appellant, the cylinders continued to be  iron  casting and  and only after Railways further treated  the  cylinders with  honing and chrome plating, they became  machine  parts and excisable under the Central Excises & Salt Act, the duty being exigible under Entry 68.      On appeal, the Tribunal gave a finding that by the time the  goods were cleared from the factory, they ceased to  be casting   and  assumed  the  character  of  fully   machined cylinders,  identifiable as such and exigible to duty  under Entry 68.      Being  aggrieved  against  the  Tribunal’s  order,  the assessee preferred the present appeal.      The  appellant contended that till the  cylinder  liner was  finally processed by the Railways, it was incapable  of being  used  as  machine  part, and  as  such  no  excisable commodity  came  into being at the time  when  the  cylinder liners were supplied to Railways.      It  was  also  contended  that  the  authorities   were precluded  from issuing notice and adjudicating whether  the cylinder  liner was a machine part, since in respect  of  an earlier period the classification list claiming it as iron                                                   892 casting and thus exempt from duty, has been approved by  the authorities.      Dismissing the appeal, this Courts,      HELD:  1.   The  Tribunal found that  the  contract  in

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pursuance  of  which  the goods were  manufactured  was  for supply  of ‘fully  machined cylinder liner’.   The  Railways would not have accepted the cylinder unless it tallied  with the   specification.   There  was  no  dispute  before   the authorities  that  first machining and honing  was  done  in assessee’s  factory.   Also,  from  the  letter  issued   by Railways,  it is clear that what was supplied  by  appellant was fully machined cylinder liner.  That was the contract as well.   thus, the tribunal’s finding that the  contract  was for  supply  of,  ‘fully machined  cylinder  liners’  stands supported by the letter of Railways also.  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 Central  Excises and Salt Act is leviable on manufacture  of goods  produced, the cylinder liner became exigible to  duty under  Entry 68.  The duty of excise is on manufacture of  a good  and  not on its use, as in the instant  case,  by  the Railways.  [894G-H; 895A, D, G-H;896A)      Tata Iron & Steel Co. Ltd. v. Union of India, [1988]  3 SCR  1025;  Union of India v. Delhi Cloth  &  General  Mills Ltd., [1963] 1 SCR 587 referred to.      2.  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 cannot be said to be review proceedings.  [896B]      Plasmac  Machine  Mfg.  Co. Pvt Ltd.  v.  Collector  of Central Excise, AIR 1991 SC 999 relied on.

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4457 of 1984.      From  the Order dated 17.8.1984 of the  Customs  Excise and  Gold (Control) Appellate Tribunal, Delhi in Appeal  No. ED (SB) 776/83- B) Order No. 623 - B/ 84.                                                   893      R.F. Nariman, Sumant Bhardwaj, B.R. Agrawala and  Sunil Goyal for the Appellants.      A. Subba Rao, A.D.N.  Rao, G. V. Rao and P. Parmeswaran for the Respondents.      The Judgment of the Court was delivered by      R. M. SAHAI, J.  Two questions arise for  consideration in  this appeal directed against the order of  the  customs, Excise  & Gold (Control) Appellante Tribunal Special   Bench ‘B’.   One,  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.   Second,  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.      Cylinder  liner  was manufactured by the  appellant  by casting molten iron in specific shape.  By itself it was  of no  use.  This could be said to be first stage.   Its  rough surface  was  thereafter removed.  And after  machining  and

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honing  it  was  delivered to the  Railways.   According  to department it became identifiable as machine part.  This was second  stage.  The Railways further treated it with  honing and  chrome plating before putting it to use.  There  is  no dispute that on the first stage it is an iron casting  which is exempt under item no. 25.  Nor there is any dispute  that at  the third stage it is an excisable commodity.  The  only dispute   is if at the second stage when it was supplied  by the appellant to the Railways it could be subjected to duty. According to the appellant till its final processing by  the Railways it did not become a machine part.  It continued  to be  iron casting.  It is claimed that merely because it  was supplied  to  Railways or that it became identifiable  as  a machine part no duty was attracted as no excisable commodity came  into being.  Reliance was placed on Tata Iron &  Steel Co. Ltd. v. Union of India, [1988] 3 SCR 1025.  It was urged that  this  Court having held that  rough  machining  before supplying after removing the excess layer of steel  commonly referred  to as excess skin did not convert the  iron  steel into  wheels, tyre, and axle.  According to learned  counsel the principle of this case squarely applied to facts of  the case.  Reliance was                                                   894 also placed on Union of India v. Delhi Cloth & General Mills Ltd., [1963] 1 SCR 587.  The main plank of the argument  was that  till  cylinder  liner was  finally  processed  by  the Railways it was incapable of being used as a machine part.      To appreciate the submission it is necessary to extract tariff item 25 which reads as under :          "25,  IRON IN ANY CRUDE FORM - including pig  iron,          scrap  iron, molten iron or iron cast in any  other          shape or size."      Notification  No. 74/62 issued on 24.4.1962 as  amended by NOtification no.  119/64 dated 27.6.1964, under  sub-rule (1)  of  Rule 8 of Central Excise Rules, 1944  is  extracted below:          "Exemption to iron in any crude form produced  from          old  iron  or  steel scrap.-  In  exercise  of  the          powers  conferred by sub-rule (1) of Rule 8 of  the          Central   Excise   Rules  ,  1944,    the   Central          Government  hereby exempts iron in any  crude  form          including  pig, iron, scrap, iron, molten  iron  or          iron case in any other shape or size failing  under          Item  no. 25 of the First Schedule to  the  Central          Excises  and  Salt  Act,  1944  (1  of  1944),  and          produced  out of old iron or steel scrap  or  scrap          obtained  from  duty-paid  virgin  metal,  is  with          effect  from  1st March, 1964,  exempted  from  the          payment of the excise duty leviable thereon."      In  the  classification list exemption  was  sought  on cylinder liner by describing it at serial no. 4 as under:          "4.  Cylinder liners to Part No. 10123416 which  is          not  identifiable  part  in that  it  is  partially          machined only and not ready for use."      The  description of the goods as,  partially  machined, does  not  appear to be correct.  The  tribunal  found  that contract  in pursuance of which the goods were  manufactured was for the supply of, ‘fully machined cylinder liner.’  And in absence of any material it was obvious that the  Railways would not have accepted the cylinder unless it tallied  with the   specification.   There  was  no  dispute  before   the authorities  that  first machining and honing  was  done  in assessee’s factory.  According to appellant it was only akin to  removal  of  rough  layer  as  in  Tata’s  case  whereas according to department

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                                                 895 it was much more and it resulted in rendering it as  machine part.  The Collector observed,’          "However, the specifications given by these clients          state  in particular that the first  machining  and          honing  is to be done at the assessee’s  end.   The          process mainly  covers grinding which is defined as          ‘Reducing  to size by removing material by  contact          with   a   rotating,  abrasive  wheel;   plane   or          cylindrical   surfaces  may  be   very   accurately          finished  with regard to size and shapes’  (as  per          Dictionary  of  Mech. Eng. Alfred Del  Vecchio  and          Chambers’ dictionary of Sc. and Tech.)   Similarly,          the  term honing is defined as, ‘a term applied  to          fine  textured even grained  indurated  sedimentary          rocks, which may be used for imparting a keen  edge          to  cutting tools, replaceable by  silicon  carbide          products’.  (...as per Chambers’ dictionary of  Sc.          &  Tech.)."      It  is thus obvious that the processing  undertaken  in assessee’s  factory  to render the cylinder liner  as  fully machined resulted in changing the goods from crude cast iron in size and shape to an identifiable commodity.  The duty of excise is on manufacture of a good and not on its use.      Reliance   was  placed  on  a  letter  issued  by   the Controller  of  stores  Indian  Railways  Diesel  Locomotive Works, Varanasi stating therein :          "Thus,  it would be completely  out of question  to          use  the cylinder liners fully machined  and  after          first  honing as supplied by the suppliers  in  the          engine  without further processing (chrome  plating          and honey combing) howsoever uniform and smooth the          cylinder  liners supplied by the manufacturers  may          be."      In our opinion it does not help the appellant.  In Tata Iron  & Steel Co. (supra) it was admitted in the  letter  of Railway  that what was supplied was rough machined or forged condition.  But from the letter extracted above it is  clear that  what  was  supplied by appellant  was  fully  machined cylinder  liner.   That  was  the  contract  as  well.   The tribunal’s  finding  that the contract was  for  supply  of, ‘fully machined cylinder liners’ thus stands supported  even by   the   letter  of  Railways.   The   tribunal   in   the circumstances,  in our opinion, was justified  in  recording the finding that by the time the goods cleared from  factory they had ceased to be casting, and had                                                   896 assumed  the character of fully machined cylinder  liner  or fully  machined  or  proof  machined  cylinder  which   were identifiable as such.  Since duty under Excise 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.  In Plasmac Machine  Mfg. Co.  Pvt. Ltd. v. Collector of Central Excise, AIR  1991  SC 999  it was held by court, of which one of us (R. M.  Sahai, J.)  was a member, that 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.

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    In  the result this appeal fails and is dismissed  with costs. G.N.                                       Appeal  dismissed.                                                   897