1. Brief facts of the case as given in the impugned order are as follows :- "On 28-5-1984, the Central Excise Preventive party, headed by the Superintendent (Prev.), Patiala paid a surprise visit to the factory premises of M/s. Hindustan Tools and Forgings Pvt. Ltd. Dhakansa Road, Rajpura (hereinafter referred to as party) and found them manufacturing roughly shaped forged products of steel falling under Tariff Item No. 25(8) (Tariff Item No. 26AA(ia) prior to 1-8-1983) out of steel flats falling under Tariff Item No. 25(9)(i) (Tariff Item 26AA (iii) prior to 1-8-1983) without the cover of Central Excise Licence for Tariff Item 25 or 26AA and captively cleared the same without payment of Central Excise duty in the manufacture of hand tools falling under Tariff Item 52A(i) for which they had valid licence in Form L-4. The party, thus, was alleged to have contravened the provisions of Rules 9(1), 49, 52A, 53, 173B, 173F, 173G and 226 of the Central Excise Rules, 1944 as amended read with Section 6 of the Central Excises and Salt Act, 1944. The goods manufactured out of steel flats do not enjoy complete exemption under any notification, issued under sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 since 1-8-1980 (after rescinding of Notification No. 75/67-C.E.). During the course of checking of the stock books of raw materials of the party for the accounting years (1980-81, 1981-82, 1982-83 and 1983-84 upto 27-5-1984 (accounting year beginning from Ist July and ending on 30th June next year), it was observed that the party had issued 3760-209 M.T. of steel flats during the period 1-8-1980 to 27-4-1984 and had manufactured and removed 3384-188 M. Tonne of goods (calculated after taking into account the maximum percentage of loss at the rate of 10% of raw material used in the case of iron and steel products) valued at Rs. 12,28,460.24 (Rs. 11,16,782.04 BED + Rs. 1,11,678.20 SED) as per Notification No. 209/83, dated 1-8-1983 as amended and Section 53 of the Finance Act, 1984. Further, a quantity of 18.075 M.T. of goods lying in the forging section of the factory for conversion into hand tools and valued at Rs. 1,08,000/- involving Central Excise duty Rs. 5964.76 BED + Rs. 596.49 SED = Rs. 6561.25 was seized by visiting preventive staff under Section 110 of the Customs Act, 1962 as made applicable to Central Excise cases vide Government of India, Ministry of Finance (DR) Notification 68/63, dated 4-5-1963 as amended to date issued under Section 12 of the Central Excises and Salt Act, 1944 as per offence/recovery-cum-seizure memo dated 28-5-1984, prepared on the spot. In his written statement dated 28-5-1984, Sh. Arun Goel, Finance Director of the party admitted that the party had been manufacturing the goods out of steel flats and using the same captively in the manufacture of hand tools without the cover of valid Central Excise Licence and without payment of duty.
The party was, therefore, show caused vide Assistant Collector, Central Excise Division, Patiala's Letter C.No. V(51A) 130/81/84/5674, dated 11-7-1984 as to why the seized goods be not confiscated and Central Excise duty amounting to Rs. 12,28,460.84 on the goods manufactured and removed during the period 1-8-1980 to 27-5-1984 without payment of duty be also not recovered under Rule 9(2) of Central Excise Rules, 1944 and penalty imposed under 9(2) and 210 of the Central Excise Rules, 1944, for contravention of the rules mentioned in para 1 above." (i) the so called tool blanks or blank tools are forged products attracting classification under Item 26AA(ia) of Central Excise Tariff as it existed prior to 1-8-1983 and item 25(8) as it is after 1-8-1983.
(ii) goods under seizure are liable to confiscation under Rule 173Q of Central Excise Rules, 1944 for the violation of Rules 9(1), 49, 52A, 53, 173B, 173F, 173G and 226 ibid.
(iii) duty of Rs. 12,28,460.24p leviable on such forged products removed during the period from 1-8-1980 to 27-5-1984 is recoverable under Rule 9(2) of Central Excise Rules, 1944, and (iv) party is also liable to penal action under Rule 173Q of Central Excise Rules, 1944.
1.2 On adjudication, the adjudicating authority has held that so called tool blanks and blank tools are forged product attracting duty under Tariff Item 26AA(ia) CET as it existed prior to 1-8-1983 and under Item 25(8) as it is after 1-8-1983. He has, therefore, confiscated the seized blank tools or tool blanks under Rule 173Q of the Central Excise Rules, 1944. Since the party failed to produce the seized goods in terms of the bond, provisionally released thereunder, he appropriated an amount of Rs. 20,000/- towards value of the goods and Rs. 6521.23p towards duty payable on such goods. He has also demanded duty of Rs. 12,28,460.24p on the forged product so removed without payment of duty during the period 1-8-1980 to 27-5-1984. A penalty of Rs. 2 lakhs was also imposed on the appellants for contravention of provisions of Rules 9(1), 49, 52A, 53, 173-B, 173-C, 173-G, 173-F, 174 and 226 of the Central Excise Rules, 1944.
2. It is against the aforesaid order that the appellants have come in appeal before the Tribunal :- 3. In order to appreciate the controversy in hand it is desirable to set out the process of manufacture as given in para 12 (in the portion relating to 'discussion and conclusion') of the impugned order :- "Steel Flats are cut into pieces of the predetermined size and design. These cut pieces are known as blanks. They are heated and then stamped by way of closed die impact pressure by the drop hammer. This is one type of the forging process. The extra metal is removed by fettling process. After fettling process, the products arc broached, punched wherever necessary stone grounded, barrelled, hardened, tempered, shot blasted, gauged, straightened etc. and chromeplated or blackened. After these processes hand tool is completely manufactured." 4. It is the contention of the appellants that the forged product sought to be levied to duty by the department under T.I. 26AA(ia) as it existed before 1-8-1983 and under Item 25(8) as it existed after 1-8-1983 is nothing but a crude product not capable of being marketed.
After the process of fettling the product acquires fully the shape of hand tools classifiable under separate Tariff Item 51A. The remaining processes after fettling are only to give further finish and polish to the product without bringing any change in the character of the product. The various processes which are undertaken by the appellants after the process of fettling are described as below in an affidavit and upon which there was controversy from side of the department :-(a) BROACH The broaching is named after name of the ING : instrument used. Broaching is performed to remove inside burr if any and for better hold. broach passes through the jaw of the spanner and removes inside burr if any from the jaw of the(b) STONE The stone grinding is named because the grinding GRINDING : is done by stone grinding wheels. This process is used to remove sharp edges and fins on the shank and outer surface of the jaws of the spanner. This operation is carried out manually. The grinding wheel moves with fast speed clockwise. The spanners are manually fed to the grinding wheel which removes the fins and sharp edges if any. The spanners can be used as hand tool even without stone grindings.(c) BARRELLING Barrelling is named because in this process the barrels are used. In this process the material it is rotated. Since this is only a preparatory operation for giving smooth surface to the spanner, the spanner can also be used without this operation.(d) HARDENING : The hardening is named because during this process the effect is to make the material more harder for better life. During this process the hardness of the spanner is increased. The material is already hard but to make it more harder to prolong life of the spanner, hardening process is carried out. These spanners are fed into the furnace and heated upto a certain temperature and then quenched into the water where it gets more harder to have better life.(e) TEMPERING : Tempering means softening and by this process brittleness is removed. The tempering is required only in case the material is hardened. The hardened material if fed into a tempering furnace at a certain temperature for some time and taken out from that furnace when the material gets softened and brittle- ness is removed. The spanner can also be used without harden- ing and tempering as Hand Tool.(f) SHOT This is a process wherein small steel balls (shots) BLASTING strike with a force on to the spanners. The steel balls and spanners are loaded into a chamber of the equipment. When the steel balls strike the surface of the spanners with force they remove the scale and pits from the surface of the spanner. The spanner can be used without shot blasting as Hand Tool.(g) GAUGING : It is process to measure the jaws of the spanner with standard gauge. It is a type of inspection process. It is done at random. The spanner can be used without gauging also as Hand Tool.(h) PUNCHING : This is a process named after the tool used.
The punching is done for numbering the jaw size, where the number is dim or are missing during(i) STRAIG- Straightening means to strengthen the tool and HTENING : get its bends free caused during the process of tumbling and heating of span- ners. The straightening is done to remove the minor bends.
The spanner can be used without straightening also.(j) CHROME- It is a well known process to improve the PLATING/ appearance. The tool is subjected to N. Chrome BLACKENED : plating to make it rust preventive.(k) BLACKENED : By this process the surface of the spanner is blackened either by paint or by chemicals. This also improves appearance of the spanner and make it rust preventive. The spanner can also be used in its natural finish without N. Chrome Plating /Blackened.
Details of the aforesaid processes had been called for by the Tribunal in the course of the hearing of the case on an affidavit in order to examine whether forged product after fettling undergoes any substantial change bringing into existence a different product having a different name, characteristic or use as known to the market.
4.1 From a perusal of the aforesaid processes, urges the learned advocate for the appellants, it is apparent that these processes are undertaken to provide a finish, strength and appearance to the product 'Hand Tools'. The moment the process of fet- tling the forged product as it comes out after the process of "closed die impact pressure by the drop hammer" is complete, the product fulfills the description of the product under T.I. 51A, namely the Hand Tools. It is further contended that it is an admitted fact that the product is captively consumed for finishing into Hand tools. No part of the product is sold at all by the appellants, nor it is saleable at all. The learned consultant stresses that the department has not produced any evidence whatsoever that the product after fettling is marketed or marketable so as to come within the definition of goods as defined by the Supreme Court in a series of judgments starting from Union of India v. DCM [1911 (1) ELT 199]. He submits that this very principle has been confirmed in a very recent judgment in the case of Bhor Industries Ltd. v. CCE, Bombay [1989 (21) ECR 273 SC]. He further submits that the adjudicating authority's reliance on Delhi High Court's judgment in the case of Metal Forgings Pvt. Ltd. [1987 (32) ELT 15] is misplaced because in that case the forgings after fettling were held to be known as a marketable product and were known to the market as forgings. In the instant case there is no evidence whatsoever regarding the marketability of the product. The product under considera- tion, according to the appellants, is an "incomplete, unfinished material in process at an intermediate stage".
Accordingly, these cannot be considered as goods chargeable to duty under Section 3 of the Central Excises and Salt Act, 1944.
4.2 Apart from the aforesaid contention, learned consultant has urged that most of the demand for the past period is time barred inasmuch as the process of manufac- ture was fully known to the department and nothing was concealed or could not be said to have been concealed from the department. In the circumstances, invoking the period of 5 years for the demand of duty was totally unwarranted.
4.3 Another contention made by the learned consultant is that hand tools were manufactured out of duty paid flats. Accordingly, the set off of duty paid on such flats would be permissible to the appellants in terms of Rule 56A by way of proforma credit. If that is taken into account no duty would be chargeable on the forged product proposed to be levied by the department under T.I. 26AA(ia) or 25(8) as the case may be.
5. Learned SDR, on the other hand, reiterates the findings of the adjudicating authority and supports the impugned order.
6. We have carefully considered the pleas advanced on both sides. We are in- clined to agree with the learned consultant that the forged product after the process of fettling, at which stage duty is proposed to be levied by the department, no longer remains a product covered under T.I. 26AA(ia) or 25(8) as the case may be. The product square- ly acquires the shape of hand tools falling under T.I. 51A CET. It is also worth noting, as rightly emphasised in one of the arguments in passing, that 26AA (ia) or 25(8), as the case may be, levies duty on the forged product 'not elsewhere specified'. In other words, if hand tools, as in this case, have been manufactured by the process of forging they would more appropriately fall under the specific Item 51A rather than under the residuary T.I. 26AA(ia) or 25(8). No evidence whatsoever, has been given by the department that the products under consideration are marketable. It is a settled proposition of law that the burden of proving that the goods are marketable and therefore, are excisable lies square- ly on the department [1989 (43) ELT 214 SC]. Collector's reliance on Delhi High Court's judgment in a general manner that forgings are bought and sold in the market is of no avail unless it be shown with the help of cogent evidence that the forgings of hand tools proposed to be levied to duty are marketable. There may be some forgings after the process of fettling which may be marketable, as mentioned supra, but it does not mean that the product under consideration in the instant appeal is marketable. Accordingly, on this question itself no duty can be levied on the product at the intermediate stage in the instant case. Consequently, the appeal is allowed in toto and the impugned order is set aside. Consequential relief to be granted to the appellants