Full Judgment
2. The appellants are engaged in the manufacture of 'Iron and Steel Pipe fittings (Sockets)'. The department has held that these are classifiable under Tariff Item 68 as it existed prior to 28-2-1986 and under sub-heading 7305.00, and Central Excise Tariff 1985 from 28-2-1986. It is the contention of the appellant that prior to 1-8-1983, the goods were classifiable under Tariff Item 26AA(iv) as pipes and tubes (including blanks therefor) all sorts, whether rolled, forged; spun, cast, drawn, annealed, welded or extruded. After 1-8-1983, under Tariff Item 25(15) - Tubes and Pipes and Blanks therefor of iron or steel, rolled, forged, spun, cast, drawn, annealed, welded or extruded. After 1-3-1986 - under 73.03 as Tubes and Pipes and Blanks therefor, of iron or steel, rolled forged, spun, cast, drawn, annealed, welded or extruded (other than rain water pipes). That they are liable for exemption vide Notification No. 69/83-C.E., dated 1-3-1973, and prior to 1-8-1983, under Tariff Item 26AA(iv), that after 1-8-1983 being covered by T.I. 25(15) and sub-heading 7303.29 and exempted under Notification No. 208/83-C.E., dated 1-8-1983.
3. Pleading the case of the appellant, Shri M. Chandrashekharan, Ld.
Advocate, stated that the decision of the Hon'ble Supreme Court in the case of Bharat Forge & Press Industries v. C.C.E., Baroda (Gujarat), reported in 1990 (45) ELT 525 (SC), fully covered the issue, wherein it was decided that pipes/tubes, heading T.I. 26AA(iv) covers all types of pipes and pipe fittings. These cannot fall under the residuary Item 68.
He, therefore, contended that till 1986, the decision of the Supreme Court as applicable to the erstwhile tariff should be extended and after 1986, the appropriate heading would be 7303.29. He referred to the reply to the Show Cause Notice before the Collector of Central Excise, New Delhi, where they have indicated that 'Socket' is a pipe, and no pipe can be sold in the market without a socket, and I. S.Specification 1239 (Part-I) 1979 gives the specifications for Sockets, the relevant particulars are reproduced below :- "Length of Screwed and Socketed Tube - The length of the tube inclusive of the socket.
Note-1 While 2.2 applies to exact length, 2.3 applies to random lengths only.
Note-2 The length of the tube inclusive of the socket means the tube length measured with socket fitted at one end to handling tight.
Note-3 Handling tight means that the socket is so tight fitted that it should not fall down during handling or transit." Further, he emphasised that "couplings" are different from sockets, where, "in a coupling, a nut and bolts are required for fastening the coupling, which is not the case in a socket and the Explanatory Notes to Harmonised System of the Central Excise Tariff, differentiates between sockets and couplings. Therefore, it was the plea of the Ld.
Advocate that the Heading 7305.00 was not applicable as "a socket cannot be held to be the same as coupling". Photographs and samples of sockets were produced to drive this point. On the aspect of limitation, the Ld. Advocate pointed out that the extended period under Section 11A was not invokable as there was no deliberate attempt on the part of the appellant to evade payment of duty, as it was the practice in many of the units manufacturing sockets for not paying any duty and bills produced indicate that no central excise duty was paid, and as such no malafide can be attributed. He referred to the following case laws in his favour :-Orient Cement v. C.C.E., Hyderabad.
4. Shri M.S. Arora, the Ld. J.D.R. drew attention to the tariff description at the relevant time. Item 26-AA(iv) as it existed prior to 1-8-1983 and the tariff description under 25(15) differed in the omission of the term "All Sorts" and the decision of the Hon'ble Supreme Court in Bharat Forge and Press Industries v. C.C.E. Baroda (Gujarat), reported in 1990 (27) ECR 1 (SC) was with reference to the entry where the Supreme Court had held that the words "all sorts" was comprehensive enough to bring within their fold the pipe fittings.
Tariff Item 25(15) as it existed after 1-8-1983, referred to tubes, pipes and with no mention of "all sorts", would construe to mean pipes and tubes only and not the fittings. Hence, he differentiated the scope of the entries in the tariff to explain the application of the decision of the Supreme Court. For supporting this intention on the ratio to be made applicable, he referred to the case law referred in 1988 (33) ELT 297 (Patna) - Tata Iron and Steel Co. Ltd. v. U.O.I. and Ors.: "Precedent - Ratio decidendi - Binding only as such and not logical extensions therefrom - What binds is the ratio of a decision and not the logical extensions therefrom. Ratio decidendi is the rule deducible from the application of law to the facts and circumstances of the case and not some conclusions based upon facts, which may appear to be similar (1976 SC 1766 and 1986 BLJR relied upon)." Therefore, he pleaded that the "ratio of the Supreme Court's decision cannot be extended to the entries in the tarift brought about subsequently. He further drew attention to the fact that in the Finance Minister's budget speech presented for the Year 1983-84, he had proposed that the tariff description relating to Iron and Steel items would be aligned with the Indian Customs Tariff and after 1-3-1983, the Customs Tariff Heading 73.20 read as : "Tube and pipe fittings (for example, joints, elbows, unions and flanges) of iron and steel".
Therefore, specific entry of pipe fitting, would indicate that Tariff Item 25(15) would not cover the pipe fitting. After 1-3-1986, the specific entry in 7305.00 covers fittings for tube and the same will cover the sockets manufactured by them. On the aspect of limitation, Shri Arora the Ld. J.D.R. referred to the order of the Principal Collector, whereby the appellant had not taken out a Central Excise licence and he was not covered by the decision of the Supreme Court in Collector of Central Excise v. Chemphar Drugs & Liniments, reported in 1989 (40) ELT 276. He cited the case laws that were directly applicable to this case so far as the extension of the provisions of Section 11A (Proviso) was concerned :-Vishwakarma Steel Industries, Ahmedabad and Anr. v. C.C.E., Ahmedabad (ii) 1984 (18) ELT 76 (Tribunal) - Lustre Lamions, Madras v. C.C.E., Madras: - "Recovery of duty - Section 11A of the Central Excises and Salt Act, 1944 or Rule 10 (since omitted) of the Central Excise Rules - Extended period can be invoked for contravention of any of the provisions of the Act or Rules - It is not only for wilful mis-statement or suppression that the extended period of five years for recovery of duty of excise could be invoked but for contravention of any of the provisions of the Act or Rules, with intent to evade payment of duty. In the instant case, rules had been undoubtedly contravened and goods were manufactured without proper accounting and were improperly cleared. Therefore there was wilful non-compliance with the mandatory requirements and an attempt to evade payment of duty, by availing of an unauthorised and inadmissible exemption under Exemption Notfn. No. 71/78 or 80/80.
The limit of six months could not, therefore, be attracted but the longer period of five years would apply."Jaishri Engineering Co. (P) Ltd. v. C.C.E.5. We have considered the submissions made. The appellants have been charged with manufacture of Iron and Steel pipe fittings (Sockets) without obtaining Central Excise Licence. 4122 pieces of the Iron and Steel pipe fittings have been confiscated and permitted to be redeemed on payment of a fine of Rs. 10,000/-. Duty of Rs. 9,40,663.23 has been demanded for the 'Sockets', manufactured and cleared by them during 1985-86, 1987-88 upto 10-7-1987 and penalty of Rs. 50,000/- has been imposed. The finding of the Principal Collector for holding their products as not pipes and tubes is for the following reasons, his order is extracted below :- "I observe that the Socket, the product manufactured by party is normally used for connecting two pipes. The product is sold loose in the market as well as attached with pipes and is distinctly known in trade as 'socket' and not pipe/tubes as contended by the party. I feel that if a manufactured product can be separately identified then there is no reason why it should be considered as a part of the another item even if it is used with or without the other item. Now coming to the sub-heading 7305.00 of the GET which reads as under :- 'fittings for tubes and pipes (other than fittings for rain water pipes) of Iron or Steel (for example: Coupling, elbow, sleeves etc.)' I observe that sockets have not been distinctly mentioned in the three examples given under the sub-heading but it distinctly refers to the fittings for tubes and pipes of Iron and Steel. As per the explanatory notes to the Harmonised System, fittings of iron or steel are mainly used for together, or for connecting a tube to some other apparatus or for closing the tube operative. The connection is obtained: - by screwing, when using cast iron and steel threads fittings; or by welding, when using butt-welding of socket - welding steel fittings.
- in the case of butt-welding, the ends of the fittings and of the tubes are square cut or clarified; In their written submission, the party has clearly admitted that the socket can either be welded together or screwed by means of a pipe wrench with the pipes and tubes. It would, therefore, be appropriate to classify sockets as fittings for tubes and pipes under sub-heading 7305 of the Central Excise Tariff.
Further since the party, is manufacturing sockets only. The term socketed pipe mentioned under heading 7303 of H. S. N. as referred by the party, does not apply in their case.
In the light of my observations above I hold that the product is classifiable under erstwhile T.I. 68 and not under T.I. 25(15) and 26AA(iv) as claimed by the party and, therefore, chargeable to duty at the appropriate rate."Supreme Court, Bharat Forge & Press Industries v. C.C.E. Baroda (Gujarat), reported in 1990 (45) ELT 525 (SC). The order is dated 16-1-1990. At the time when the Order-in-Original was passed dated 21-2-1989, obviously the adjudicating authority did not have before him the decision of the Supreme Court. All the same, this Tribunal while considering the submissions made, finds that the Hon'ble Supreme Court had dealt with the issue while discussing the Tariff Heading 26AA(iv) and T.I. 68 of the erstwhile C.E.T., Para 4 of the judgment is relevant which is reproduced below :- "The question before us is whether the Department is right in claiming that the items in question are dutiable under Tariff entry No. 68. This, as mentioned already, is the residuary entry and only such goods as cannot be brought under the various specific entries in the tariff should be attempted to be brought under the residuary entry. In other words, unless the department can establish that the goods in question can by no conceivable process of reasoning be brought under any of the tariff items, resort cannot be had to the residuary item. We do not think this has been done. Looking at Tariff Item 26AA(iv), it encompasses all sorts of pipes and tubes.
It is also clear that it is of no consequence whether the pipes and tubes are manufactured by rolling, forging, spinning, casting, drawing, annealing, welding or extruding. It is true that initially pipes and tubes may be obtained from sheets, billets or bars by various processes, but the process of manufacture of pipes and tubes does not end there. In order to achieve fully the purpose for which the pipes and tubes are manufactured, it is necessary to manufacture smaller pieces of pipes and tubes and also to manufacture them in such a shape that they may be able to conduct liquids and gases, passing them through and across angles, turnings, corners and curves for regulating their flow in the matter required. Smaller pieces of pipes and tubes differently shaped are manufactured for this purpose. They are merely intended as accessories or supplements to the larger pipes and tubes. They are pipes and tubes made out of pipes and tubes. There is no change in their basic physical properties and there is no change in their end use. There is no reason why these smaller articles cannot also be described as pipes and tubes." The Hon'ble Supreme Court has gone by the fact that Tariff Item 26 AA(iv) covers pipes and tubes... (all sorts), and small pipes and tubes, which are meant to conduct liquids and gases and meant as accessories and supplements to the larger pipes and lubes, should go under the item Tariff Item 26AA(iv), in preference to T.I. 68 which is a residuary item. This may be held to be applicable to the heading Tubes and pipes, which have no other alternate classifiable heading, but with the new tariff heading under 7305, which is specific for fittings for Tubes etc., the specific heading is preferable.
Interpretative Rule 3(a) of the Rules for the interpretation of the Tariff Schedule is applicable. At the time when the Hon'ble Supreme Court was considering the case of classification of pipes and tubes, they were considering only the headings T.I. 26AA(iv) and T.I. 68.
Therefore, the Sockets as they stood prior to 1-3-1986, will stand classified under T.I. 26AA(iv) prior to 1-8-1983, and after 1-8-1983 under T.I. 25(15). The Tariff Item 25(15) is not a vast departure to the extent that it will not cover the products' in question. The omission of the word "all sorts", will not be a deterrent as the Supreme Court has held that small pipes and tubes should also be considered as pipes and tubes in preference to a residuary item.
After 1-3-1986 with the introduction of the new C.E.T., the heading 7305 is specific to fittings for pipes and tubes. Rightly has the adjudicating authority analysed this aspect in the context of the meaning accorded to pipe fittings in the HSN that the "fittings of Iron and Steel are mainly used for connecting of two tubes together, or for connecting a tube to some other apparatus, or for closing the tube aperture...". The connection is obtained by welding when using butt welding of socket - welding steel fittings etc. Therefore, it would be appropriate to classify sockets as pipe fitting. The appellants' plea that Heading 7305 refers to couplings and the socket is different from coupling is not tenable, as the Heading 7305 in citing coupling etc., has only cited by way of example which is illustrative but not exhaustive. Hence, the Heading 7305 would cover the sockets manufactured from 1-3-1986 and demand for duty is correct for the period effective from that date.
6. As regards the aspect of limitation, the argument that there was no conscious or deliberate intent to evade payment of duty and it was a mere failure on their part is not sustainable. As being a manufacturer, it was his responsibility to have approached the department and obtained I confirmation that he was not expected to pay duty as per the prevailing practice with regard to the other manufacturers of the same products in the field. Failure to take out a Central Excise Licence and to follow the law set out therefore would amount to evasion of duty, and the ratio enunciated in the judgment of the Supreme Court in C.C.E.v. Chemphar Drugs and Liniments, reported in 1989 (40) ELT 276 (SC) will not come to their rescue. Therefore, the extended period beyond the period of 6 months is invokable. The confiscation and fine call for no modification. The penalty has rightly been imposed, but, however, reduced to Rs. 25,000/-.
8. I agree with the order proposed by my learned sister, in so far as the classification of the goods is concerned. However, I am not able to agree that there is justification for demand of duty for extended period of limitation and imposition of penalty. I also add the following observation about classification, concurring with my learned sister.
9. In so far as the classification prior to 1-3-1986 is concerned, the learned advocate submitted that a socket is different from a coupling and is part of a pipe. In the tariff there was no definition of a fitting or a socket or a coupling. He also submitted that coupling is not part of a pipe. In the tariff there was no definition of a fitting or a socket or a coupling. He also submitted that coupling is not part of a pipe.
10. That an article should not be relegated to the residuary Item (TI-68) unless all possible alternatives are totally excluded has been the approach of the Supreme Court and High Courts and also of this Tribunal. In my opinion the ratio of the Supreme Court's decision in Bharat Forge and Press Industries (supra) is squarely applicable to the facts of the present case. Each of the changes made in Tariff Item 26AA(iv) was discussed fully during the course of hearing. The exclusion of the words all sorts and other verbal changes brought in did not, in my opinion, change the scope of the item rendering the judgment of the Supreme Court inapplicable to the facts of the present matter. I agree that if there is even one different fact, the earlier judgment would not be of precedential value, but here no fact is different and, to repeat my observations, there is no material change in the Tariff Item 26AA(iv) after 1-8-1983. Therefore, I agree that upto 28-2-1986 the goods were correctly classifiable under TI 26AA(iv) of the erstwhile Central Excise Tariff and not under TI 68.
11. I also agree with the findings of the learned sister that after 1-3-1986 the goods should be classified under TI 7305.00.
12. In so far as the aspect of the limitation is concerned, the Collector's order records that the appellants in their reply resisted the proposed classification and pleaded various grounds including past practice, absence of malafides and the Department's knowledge of the facts. The appellants also filed certain details of other manufacturers showing that these products were cleared elsewhere without payment of duty. The appellants also stated before the Collector that the words "couplings" and "sockets" were not defined in the Tariff and filed trade opinion before him. They laid stress on Indian Standards (extracted in the Collector's order) and during the personal hearing these pleas were reiterated. In so far as the limitation is concerned I reproduce below the whole part of the observations made by the Collector : "Regarding invoking of proviso to Section 11A(1) the party had been clearing excisable goods from their factory premises without the cover of Central Excise Gate Pass. They had neither disclosed the fact of manufacture of the goods nor complied with any of the Central Excise formalities. From the foregoing it is obvious that the party had deliberately withheld the information regarding manufacture and clearances of excisable goods from the Department.
Thus in my opinion proviso to Section 11A(1) is clearly applicable in this case".
In my opinion the reasoning of the Collector is not enough to justify invocation of the extended period of limitation. It is not proved that the appellants acted as they did with intention to evade duty. The learned DR's argument that intention is not necessary does not appear to be correct. The case law cited by him shows that the facts of each matter have to be examined to decide whether the omissions or other acts were deliberate. The appellants' pleas before the Collector, the factual part of which was not disproved, do not show that there was a deliberate act of omission or commission by the appellants. The prevailing practice elsewhere in the country appears to have influenced the appellants. Therefore, I hold that the ratio of the Supreme Court's judgment in Collector of Central Excise v. Chemphar Drugs and Liniments [1989 (40) ELT 276 (S.C.)] is attracted by the facts of this matter.
This being a dispute of classification and there being no proof of any clandestine removal I order that the demand should be limited to a period of six months prior to the issue of show cause notice.
13. For the same reasons I hold that confiscation and penalty arc not justified.
In accordance with the majority view, we order that the goods should be classified under TI 26AA(iv) prior to 1-8-1983, under Tariff Item 25(15) between 1-8-1983 and 1-3-1986 and in the subsequent period under Heading 7305. We further order that the demand for duty should be limited to a period of six months.