CX - It was duty of Audit party to consider whether classification & benefit of notification claimed was correct - department cannot say that EA-2000 was not for classification but other procedural aspects - demand time-barred: CESTAT
By TIOL News Service
MUMBAI, DEC 10, 2015: THE appellants are engaged in the manufacture of "forged round bars" and classified the same under CH 72.14 while claiming the benefit of exemption under Notification 16/2004-CE.
The department disputed this classification and viewed that the goods are correctly classifiable under CH 73.26 and demanded differential duty for the period 01.03.2004 to 31.10.2004.
The lower authorities upheld the allegations leveled.
In appeal before the CESTAT, the appellant adverted to the various types of forging processes and submitted that the product manufactured by them are undergoing the same process as mentioned in Explanatory Note in HSN and hence are correctly classifiable under CH 7214 and not 7326 as claimed by Revenue. Further, the products falling under CH 7326 are other articles of iron and steel forged or stamped but not further worked while the products manufactured by them are in the form of grinding, punching etc. They also submit that the demand is hit by limitation.
The AR submitted that the issue is now squarely settled in favour of the Revenue. Inasmuch as in order to get the items classified under Chapter Heading 7214, the articles should be bars and rods of iron or non-alloy steel while the product manufactured by the appellant is forged articles; that in view of Explanatory Note to the HSN and Chapter Heading 7326 the said product has been excluded from the purview of Chapter Heading 72.14. Reliance is inter alia placed on the decision in Jaypee Forges - 2003-TIOL-60-SC-CX. On limitation, it is submitted that the appellant had not indicated that they are manufacturing forged articles and have also mis-declared on the invoices that the product would fall under the category of iron bars and rods forged.
The Appellant produced photographs of their final product and after going through the same, the Bench observed -
Merits:
++ The said products as has been demonstrated before us indicative that they are not bars and rods of iron and non-alloy steel but they are some articles having definite shape but not further worked upon. These kind of articles in our considered view would merit classification under 73.26 as other articles of iron and steel forged or stamped, but not further worked. Our this view is also fortified from the Explanatory Note to HSN in respect of Chapter Heading 72.14 wherein HSN clearly states as under:-
"The heading, however excludes - (a) Products consisting of two or more rolled bars twisted together (heading 73.08)
(b) Pieces cut from bars and rods with a length not exceeding the greatest cross-sectional dimension (heading 73.26)"
++ The Explanatory note to Chapter Heading 72.14 as reproduced herein above indicates that the pieces cut from bars and rods are not eligible to be classified under 72.14. The Explanatory Note to HSN of Chapter 73.26 also categorically states as under:-
"This heading covers all iron or steel articles obtained by forging or punching by cutting or stamping or by other processes such as folding, assembling, welding, turning milling or perforating other than articles included in the preceding heading of this Chapter or covered by Note I to Section XV or included in 82 or 83 or more specifically covered elsewhere in the Nomenclature."
From the photographs, it would be seen that these products are correctly classifiable as per the HSN Explanatory Note under 73.26.
++ In the case in hand the first appellate authority in the impugned order at para 11 has reproduced the manufacturing process as has been stated by the Manager of the appellant which indicates that the appellant used to continue to hammer the forged articles to the required shape and removes the excess/over shaping of the items which is resultant due to hammering from all sides and then used to clear the same.
Noting that the reliance placed by the AR on the cited judgements were apt, the Bench concluded that the impugned articles would fall under Heading 73.26.
Limitation:
++ It is undisputed that appellant had been classifying the very same products from 1994 onwards under Ch. Heading 72.14 and also when they started manufacturing of products filed declaration with the authorities seeking to classify the product under Ch. Heading 72.14. Admittedly, during the material period there was no system of approval of the classification list filed by the assessee, at the same time the department cannot shirk away from their responsibility that they were aware of the classification of the product. It is on record that appellant was filing monthly returns indicating therein the clearances of forged articles by availing benefit and paying lesser duty.
++ Secondly, we find that the appellant's records were audited by audit party in EA-2000, Comprehensive audit, which has been formulated by the Govt. of India, includes all the aspects of business of the unit which is being audited. It was the duty of the audit party to consider whether the classification was correct and the appellant had availed the benefit of Notification correctly or otherwise. The audit report which has been produced before us indicate that this issue was not raked by the audit team would mean that it was accepted by the audit team that the classification of products is under Notification 72.14. Now the department cannot say that EA 2000 audit was not for the classification of the product and was for other procedural aspects.
Holding that the demand notice is blatantly hit by limitation, the order was set aside and the appeal was allowed.
In passing: You lose some, you win some! Also see - 2012-TIOL-1865-CESTAT-MUM.
(See 2015-TIOL-2627-CESTAT-MUM)
