Holding

Excise authorities must lay requisite evidence that an article is the result of a process of manufacture; reliance on publications alone is insufficient, and in the absence of such evidence the cold‑rolled strips are not liable to the higher excise duty.

Summary

The assessees, M/s Steel Strips Ltd., manufactured cold‑rolled steel strips from hot‑rolled strips, which under Central Excise Tariff Item 26AA attracted a higher duty (Rs 650/MT) than hot‑rolled strips (Rs 450/MT). The excise authorities contended that the cold‑rolled strips were the result of a distinct manufacturing process and therefore liable to the higher duty, relying on technical publications. The authorities seized the strips and imposed a penalty, but the CEGA Tribunal allowed the assessees’ appeal. On further appeal, the Supreme Court held that when the revenue alleges an article is the result of a process of manufacture, it must adduce evidence before the first adjudicating authority; reliance on publications alone, without informing the assessee, is insufficient. No evidence was produced to show that hot‑rolled strips undergo a manufacturing process to become cold‑rolled strips. Consequently, the higher duty could not be levied and the revenue’s appeals were dismissed.

Issues considered

When must excise authorities produce evidence that an article is the result of a process of manufacture?
Can reliance on authoritative technical publications satisfy the evidentiary burden without informing the assessee?
Do hot‑rolled steel strips undergo a process of manufacture before becoming cold‑rolled strips for excise purposes?
Is the excise duty rate of Rs 650 per metric tonne applicable to the cold‑rolled strips in the present case?

Legislation cited

Central Excise Act, 1944
Central Excise Rules, 1944s. Rule 8

Subjects

central exciseprocess of manufacturecold rolled steelhot rolled steelevidentiary burdenexcise duty ratetechnical evidenceauthoritative publications

Judgment

t
COLLECTOR OF CENTRAL EXCISE, CHANDIGARH A
v.
M/S. STEEL STRIPS LTD. SANGRUR

MAY 2, 1995

[A.M. AHMADI, CJ., S.P. BHARUCHA AND B
K.S. PARIPOORNAN, JJ.1

Central facise Tariff:

Tariff Item 26AA-Cold rolled steel strips-c--Excise duty payable C
on-Excise authorities alleging the article to be the result of process of
manufacture-Held, excise authorities should have led evidence before first
adjudicating authority-Failure to lay requisite evidence cannot be made up
by reference .to authoritative publication unless assessee is infonned of it. ·

The assessees carried on the business of making cold rolled steel D
strips from hot rolled steel strips, an article covered under Tariff Item No.
•j 26AA of the Central Excise Tariff. In view of the exemption notification no.
55/80 dated 13.5.1980, excise duty payable on cold rolled steel strips and
hot rolled steel strips was Rs. 650 and Rs. 450 per metric tonne respective·
ly. Though the assessees had paid excise duty on hot rolled steel strips, E
the excise authorities held that since hot rolled steel strips underwent a
process of manufacture at the hands of the assessee before production as
cold rolled steel strips, the assessees were required to pay excise" duty at
the rate of Rs. 650 per metric tonne on cold rolled steel strips also. The
assessees appealed to the Customs, Excise and Gold (Control) Appellate
Tribunal, which allowed the appeals. F

; In the appeals filed by the Revenue before this Court, reliance was
piaced on certain publications. Reference was also made to a publication
of the Indian Standards Institute and the Specification therein for Cold
Rolled Carbon Steel Strips for general engineering purposes. However, G
there was no evidence on record in regard to the process adopted in
producing cold rolled steel strips from hot rolled steel strips.

Dismissing the appeals, this Court

HELD : 1. When the excise authorities allege that an article is the H
1051
1052 SUPREME COURT REPORTS [1995] 3 S.C.R.

A result of a process of manufacture and is commercially distinct and known
as such, it is for them to lay evidence in this behalf before the first
adjudicating authority. In appropriate cases, the excise authorities may
seek a direction requiring the assessee to set out in writing what it does to
-
obtain the article. The experience of this Court and of the High Courts
before the establishment of the Tribunal, shows. that lack of evidence has
B led to the failure of the case of the excise authorities, and, consequently,
to the loss or revenue to the State. [1054-G-H, 1055-A)

c
2. Failure to lay the request evidence cannot be made up by reference
to authoritative publications unless the Excise authorities inform the
assessee that they propose to rely upon the same before the adjudicating
authority. In matters relating to excise, technical knowledge plays a part,
and that is why the Tribunal has a Technical Member. Technical evidence
-
and authoritative publications must, therefore, be placed in the first
instance before the adjudicating authority and the Tribunal. [1055-CJ

D "The Making, Shaping & Treating of Steel", (8th Edn.) by Harold E.
Mcgannon, referred to.
•
3. Upon the material on record, it is not proved that hot rolled steel
strips undergo a process of manufacture before they become cold rolled
steel strips. Therefore, the Excise authorities cannot claim that the
E assessees' cold rolled steel strips are liable to excise duty at the rate of Rs.
650 per metric tonue. [1055-E)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 438 of
1989 Etc.
;,-
F From the Judgment and Order dated 29.9.88 of the Central Excise
and Salt Act, 1944 of the Customs Excise and Gold (Control) Appellate ~

Tribunal, New Delhi ;n A.No.E./1567/88B-1, Order No. 423/88-B.

P. Parmeswaran, Sarva Mitter for M/s. Miter & Motter Co. Sumaj J.
G Khaitan for M/s. Khaitan & Co., R. Karanjawala, Mrs. M. Karanjawala
K.L. Hathi, for Mis Hathi & Co., D.N. Mishra, for JBD & Co. and C.V.S.
Subba Rao for the appearing parties. .
The Judgment of the Court was delivered by

H BHARUCHA, J. These appeals may be disposed of by a common
COLLECTOR OF CENTRAL EXCISE». STEEL STRIPS LTD. {BHARUCHA. l I 1053
'
judgment inasmuch as the Customs, Excise and Gold (Control) Appellate A
Tribunal allowed the appeal in the case of Mis. Steel Strips Ltd. (Civil
Appeal No. 438 of 1989 before us) following its judgment in the case of
Mis. Atma Steel Pvt. Ltd. (Civil Appeal No. 3524 of 1986 before us).

The assessees make cold rolled steel strips from hot rolled steel
strips. The applicable entry of the Central Excise Tariff is Tariff Item. No. B
26AA, which deals with "Iron or steel products, the following, namely :

xxx xxx xxx

(iii) Flats, skelp and strips
c
xxx xxx xxx

For the relevant period being March 1982 to February 1986, an Exemption
Notification was in operation in regard to steel strips, being notification
no.55i80 dated 13th May, 1980, as amended, issued under rule 8 of the D
Central Excise Rules, 1944. It exempted galvanised strips and other than
galvanised strips from so much of the basic excise duty Jeviable thereon as
was in excess of Rs.850 per metric tonne and Rs. 350 per metric tonne
respectively. It then referred to "other cold-rolled strips" and "the hot-
rolled "strips" and exempted them from so much of the basic excise duty E
leviable thereon as was in excess of Rs.650 per metric tonne and Rs. 450
per metric tonne respectively.

It was the case of the Excise authorities that cold rolled strips were
obtained by the assessees by a process of manufacture and were entitled
to exemption from so much of the basic excise duty leviable thereon, F
namely, Rs.1350 per M.T., as was in excess of Rs.659 per M.T. In other
words, the effective rate of excise duty that the assessees were obliged to
pay, according to the Excise authorities, was Rs.650 per m.t. In this behalf,
the strips of the assessee Mis Atma Steel were confiscated and a penalty
imposed. The assessee :-\Ima Steel appealed to the Tribunal and the G
Tribunal allowed the appeal.

The contention of the Excise authorities is that hot rolled strips, upon
which excise duty had, admittedly, been paid, underwent a process of
manufacture at the hands of the assessees which resulted in the production
of cold rolied strips, upon which excise duty had to be paid at the effective H

.,I
!

1054 SUPREME COURT REPORTS [1995] 3 S.C.R.

A rate of Rs.650 per tonne. We find no evidence upon the record in regard
to what happens to hot rolled steel strips before cold rolleu steel strips are
produced.

The lacuna is sought to be made up by learned counsel for the Excise
authorities by referring to a publication of the Indian Standards Institution
B and the Specification therein for cold rolled carbon steel strips for general
engineering purposes. Para 0.3 of the Foreword thereto, which is relied
upon, states : "Cold rolled steel strip is produced by cold rolling descaled
hot rolled strip· between plain rolls to obtain a bright surface, closely
controlled gauge, thinner gauges and a variety of tempers." Reliance is
C also placed upon the 8th Edition of a book entitled "The Making, Shaping
& Treating of Steel" by Harold E. Mcgannon. Section 6 thereof deals with
the principal methods for cold working and, in relation to cold rolling, it
states : "Cold working by cold rolling consists of passing unheated, pre-
viously hot-rolled bars, sheets or strip (deaned of scale) through a set of
D rolls, often many times, until the final size is obtained". The !"ethods and
effects of cold rolling wide strips are discussed in detail in Chapter 32 of
the book. The relevant part of chapter 32 is Section 2, dealing with
Principles of Cold Reduction, and it states this:

"Cold rolling is a generic term applied lo the operation of passing
E unheated metal through rolls for the purpose of reducing its
thickness; producing a smooth, dense surface; and, with or without
subsequent heat treatment, developing controlled mechanical
properties. Any single one or combination of these three effects
may be the reason for cold rolling of a particular product. Actually,
in terms of modern nomenclature of the steel industry, cold rolling
F
implies a rolling operation in which the thickness of the material
is reduced a relatively small amount - usually just enough to
produce a superior surface or impart the desired mechanical
properties to the rolled material."

G It cannot be sufficiently emphasised that when it is the case of the
Excise authorities that an article is the result of a process of manufacture
and it is commercially distinct and known as such, it is for the Excise
authorities to lay evidence in this beha1f before the first adjudicating
authority regardless of the fact that he is an officer of the Ex~ise depart-
H ment. There should, ordinarily, be no difficulty in establishing that the
t
COLLECTOR OF CENTRAL EXCISh STEEL STRIPS LTD. [BHAR tJCHA. i. J 1055

article is the result of a process of manufacture; in the event of difficulty, A
it \vould be open to the Excise authorities to seek a direction requiring the
asscssee to set out in writing what it does to obtain the article. Too often,
as our experience in this Court and in the High Courts, before the Tribunal
was established, shows, lack of evidence has led to the failure of the case
of the Excise authorities and, consequently, to the loss of revenue to the
State.
B

Failure to lay the requisite evidence cannot be made up by reference
to authoritative publications unless the Excise authorities inform the asses-
" see that they propose to rely upon the same before the adjudicating
authority. It is then open to the assessee to establish that it does not obtain C
the article by the means referred to in the publication or, indeed, that the
publication is not authoritative. In the decision of matters relating to excise,
technical knowledge plays a part. It,is for that reason that the Tribanal has
a Technical Member. Technical evidence and authoritative publications
must, therefore, be placed in the first instance before the adjudicating
authority and the Tribunal. They have the requisite 'technical expertise to D
evaluate the same. Technical publications cannot usefully be cited for the
/. first time al the Bar of this Court.

Upon such material as has been referred to by learned counsel for
the Excise authorities, which we have set out above, we find it 'not proved'
that hot rolled strips undergo a process of manufacture before they become
E
cold rolled strips. We are, therefore, unable to accept the contention of
the Excise authorities that the assessees' cold rolled strips are liable to
excise duty at the rate of Rs.' 650 per metric tonne.

The appeals are dismissed. There shall be no order as to costs. F
R.P. Appeal dismissed.