Supreme Court of India
KIRLOSKAR OIL ENGINES LTDversusUNION OF INDIA AND ORS.
- Citation
- 1995 INSC 357
- Decided
- 9 May 1995
- Disposal
- Appeal(s) allowed
- Bench
- R M SAHAI
Holding
The Supreme Court held that the assessing authorities erred in classifying the goods as thin‑walled bearings without material proof and remitted the issue for proper examination.
Summary
Kirloskar Oil Engines Ltd manufactured thrust washers, thrust half washers and wrapped bushes for motor vehicles and cleared them under Notification No. 99/1971, which exempted motor vehicle parts except those listed, including thin‑walled bearings. In 1978 a Board meeting with trade representatives concluded that such items could be treated as thin‑walled bearings if they met Indian Standard IS 4774‑1968, leading to a trade notice and a demand for excise duty by the Superintendent of Central Excise. The company contested, arguing that its products were distinct from thin‑walled bearings and that the assessing authority had no material proof of compliance with the standard. The High Court held that, despite lack of material, the goods performed the same function as bearings and were therefore liable to duty. The Supreme Court reversed, holding that a trade notice is not binding and that the authorities cannot levy duty without concrete evidence that the goods satisfy the specification; the matter was remitted to the High Court for proper determination. The appeal was allowed and the High Court order set aside.
Issues considered
- Whether thrust washers, thrust half washers and wrapped bushes fall within the definition of "thin‑walled bearings" under Item 34A of the Central Excises and Salt Act, 1944.
- Whether a trade notice or consensus reached in a Board‑trade meeting is binding on the assessing authority for classification of goods.
- Whether the functional similarity of the goods to bearings is sufficient to classify them as thin‑walled bearings for excise purposes.
- Whether compliance with Indian Standard IS 4774‑1968 must be established before levying duty on the goods.
- Whether the burden of proof lies on the assessee to demonstrate exemption or on the department to prove taxability.
Legislation cited
Subjects
excise dutyclassification of goodsthin‑walled bearingstrade noticeIndian Standardsmotor vehicle partsItem 34Aexemption notificationburden of proof
Judgment
,
A KIRLOSKAR OIL ENGINES LTD.
v.
UNION OF INDIA AND ORS.
MAY 9, 1995
B [R.M. SAHA! AND S.C. SEN, JJ.]
Central Excises and Salt Act, 1944 : First Schedule Item 34- A.
Excise Duty-'Thrust washers~ 'Thrust half washers' and 'Wrapped
C bushes'--Exclusive use in motor vehicles-Clearance of goods under Notifica-
tion providing exemption-Meeting between Excise Board and Trade Repre-
sentativr-Decision to classify the goods as 'thin walled bearings' if they meet
!SI specification-Absence of material to supports decision-Issue of trade
notice and levy of duty on goods cleared-Held not proper-Matter remitted
to High Court for redetennination.
D
The appellant-Company was manufacturing bushes and washers
which were exclusively used in motor vehicles. It cleared these goods under
notification No. 99 of 1971 without payment of excise duty from 1971
onwards. The said notification provided that motor vehicles parts and
E accessories falling under Item No. 34-A of the First Schedule to the
Central Excises and Salt Act, 1944 were exempted from payment of excise
duty except the items mentioned in the said notification. However, in a
meeting held in 1978 between the Central Excise and Tariff Board and
representatives of the Trade it was decided that washers and bushes
manufactured by the appellant were bimetal bearings and tha! they could
F be classified as 'thin walled bearing' if they satisfied the specifications as
provided in Indian Standard 4774-1968. Accordingly, a trade notice was
issued and acting on it the Superintendent of Central Excise issued a letter
demanding Rs. 1,79,504,21 from the appellant stating that the goods
cleared by the appellant were thin walled bearing liable to excise duty. The
G appellant contested the demand on the ground that 'wrapped bushes' and
'thrust washers' manufactured by it were articles different from 'thin
walled bearing' and therefore not excisable from the date of exemption
notification. Rejecting the contention the Assistant Collector held that the
goods in question were thin walled bearing liable lo duty under item No.
H 34-A. The Collector affirmed the view of Assistant Collector but did not
90
KIRLOSKAROILENGINESLTD. v. U.0.I. 91
record any finding whether the goods satisfied IS: 4774-1968 specification. A
On further appeal the High Court held that (i) there was no material to
determine how the bushes and washers were understood in the trade circle;
(ii) ISi specification was irrelevant and could not resflect trade under-
standing; and (iii) since the function performed by the bushes and washers
manufactured by the appellant was the same as those performed by the B
bearings, they were liable to be treated as thin walled bearings as they were
in accordance with the specification given in the ISi schedule. The asses-
see-Company preferred appeal before this Court.
Allowing the appeal and setting aside the order passed by the High
Court, this Court c
HELD : 1. A bush and washer manufactured by the appellant could
not normally be treated as bearing except when it is understood in techni-
cal sense. Before a decision was taken by the Board, there was no material
available with the Department which could furnish basis for deciding D
whether bushes or w~sbers manufactured by the appellant could be
classified as bearing much less 'thin walled bearings' within the meaning
of notification issued in 1971. Further the entire proceedings were initiated
by the Superintendent of Central Excise on the basis of trade notice
inviting the appellant to classify these goods as 'thin walled bearings' if E
they satisfied the specification of 4774. The High Court rightly held that a
trade notice is not binding, but it omitted to consider that there was no
other material with the Department on which it could assume that the
washers and bushes manufactured by the appellant were 'thin walled
bearings'. The basis for initiation of proceedings being Indian Standard
F
Booklet it was not proper either for the High Court or for the assessing
authorities to ignore it and levy the duty treating these good to be 'thin
., walled bearing' on assumptions llithout any material. The High Court's
observation that it was undisputed that thrust washes and wrapped bushes
were in accordance with specification under IS: 4774-1968 is factually
incorrect. (98-H, 99-A-C] G
2. Since the High Court and the assessing authorities approached
the case with an entirely incorrect perspective their orders cannot be
maintained. The matter is remi,tted to High Court to examine the di\llen·
sion and specification of these bushes and washers and decide whether H
92 SUPREME COURT REPORTS [1995] SUPP. 1 S.C.R.
A they can be classified as thin walled bearings. (99-D]
Jain Engineering Co. v. Collector of Customs, Bombay, [1988] 1 S.C.R.
220; Union of India v. Delhi Cloth & General Mills, (1963] Suppl. 1 SCR
586 and M/s. Novopan India Ltd., Hyderabad v. Collector of Central Excise
B and Customs, Hyderabad, (1994) 4 SCALE 122, referred to.
Van Nostrand, Scientific Encylcopedia; McGraw Hill, Encyclopedia
of Science & Technology; Encyclopedia Britainca Vol. 2, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 225 of
c 1991.
From the Judgment and Order dated 12.9.90 of the Bombay High
Court in W.P. No. 702 of 1982.
A Hidayatullah, Sandeep Narain and Narain for the Appellant.
D
The Judgment of the Court was delivered by
R.M. SAHA!, J. The principal issue that arises for consideration in
this appeal is whether 'thrust washer', 'thrust half washers' and 'wrapped'
E bushes manufactured by the appellant exclusively for Motor Vehicles could
be classified as 'Thin walled-bearings' so as to attract duty under Notifica-
tion No. 99 issued in 1971. Apart from this another legal question which
has cropped up mainly due to the High Court's finding and approach of
departmental authorities whether a goods which has a meaning assigned to
it with consensus of department and trade could be held to be so even
F
without satisfying the requirements on the premises that the court and
quasi-judicial authorities are not bound by it.
Legally there can be no two opinions that a trade notice issued by
the Collector of Excise or even the Central and Excise Tariff Board (in
G brief 'Board') has no binding authority and the assessing authority can draw
its conclusions but the importance of it can be appreciated in this appeal
only when facts, in brief, are narrated. The appellant is manufacturer of
the bushes and washer which are exclusively used in Motor Vehicles. They
are thus parts and accessories and were dutiable under Item 34A which
H read as under :
KIRLOSKAR OIL ENGINES LTD. v. U.0.1. (R.M. SAHA!, J.] 93
Item No. Description of Godds Rate of Duty A
34A PARTS AND ACCESSORIES NOT Twenty per
ELSEWHERE SPECIFIED OF cent ad
MOTOR VEHICLES AND TRAC- valorem
TORS INCLUDING TRAILERS
Explanation : I The expression " Motor Vehicles" has the meaning B
assigned to it in Item No. 34.
Explanation : II The expression 'Tractor' shall include agricultural
tractors.
In 1971 Notification No. 99 was issued exempting motor vehicles' acces- C
sories and parts except those which are mentioned in the schedule. The
notification is reproduced below :
"In exercise of the powers conferred by sub-rule (1) of Rule 8 of
the Central Excise Rules, 1944, the Central Government hereby
exempts motor vehicles parts and accessories, falling under Item D
No. 34A of the First Schedule to the Central Excise and Salt Act,
1944 (1of1944), other than those specified in the schedule hereto
annexed, from the whole of the duty of excise leviable thereon.
THE SCHEDULE E
1. Brake linings
2. Clutch facings
3. Engine Valves
4. Gaskets
5. Nozzles and nozzle holders F
6. Piston rings
_., 7. Shock absorbers
8. Sparking plugs
9. Thin-Walled bearings
10. Tie rod ends
G
11. Electric horns11 •
The effect of this notification was that from the date it was issued every
accessory and part of the Motor Vehicles became exempt from payment
of any duty except the items mentioned in it. Since the bushes and washers
manufactured by the appellant were accessories and parts of motor H
94 SUPREME COURT REPORTS (1995] SUPP. 1 S.C.R.
A vehicles, it was not liable to pay any duty and consequently the appellant
cleared these goods produced in the factory without paying any duty from
1971 onwards. In February, 1978 a meeting was called by the Board in
which representatives of the trade participated. Two decisions appear to
have been taken by consensus, one that such washer and bushes as were
manufactured by the appellant were bimetal bearings and second, they
B
could be classified as 'Thin-Walled bearing' if they satisfied the specifica-
tions as provided in Indian Standard 4774-1968. The consensus arrived at
the meeting is extracted below :
"(i) Bushes, bearings and thrust half-washers would fall within the
c category of bearings;
(ii) the question whether a bearing should be considered as a thin
walled bearing should be decided after taking into account
the other relevant dimensions as laid down in LS.I. specifica-
tion IS: 4774-1968 (it was understood that this had not been
D further revised).
(iii) the question whether a bearing was or was not "bimetallic" or
"multi-metallic" would not be relevant for deciding whether it
was a "thin walled bearings"."
E This led to issuing of trade notice dated 23rd September, 1978 which read
as under:
"It is considered that .valve rocker arm bushes, axle buses, suspen-
sion bushes, steering bushes, thrust washer sintered bushes, and
miscellaneous bushes would fall within the category of bearings.
F However, the relevant-dimensions as laid down in LS.I. specifica-
tion IS: 4774-1968 should be taken into account to decide whether
a bearing is "thin walled bearing". Whether a bearing is or is not
"bimetallic" or "multi-metallic" would not be relevant for deciding
whether it is a "think walled bearings". ·
G
2. All the Trade Association and Chamber of Commerce and
Industries are requested to bring the contents of this Trade Notice
to the Notice of their member constituents."
Acting on this Trade Notice, the Superintendent of Central Excise issued
H a letter to the appellant which is reproduced below :
KIRLOSKAR OIL ENGINES LTD. v. U.0.1. [R.M. SAHAI, J.] 95
't "Take notice that on behalf of the Central-Government. I hereby A
demand payment by you of the sum of Rs. 1,79,504.21 ps. Rs. One
lac seventy nine thousand five hundred four and ps. twenty one
only. Within ten days from the date hereof. Particulars of demand:
As per Tariff Advice No. 44178 dated 7.8.78 and Poona Central
Excise Collectorate Trade Notice No. 168/1978 dated 23.9.78 all
B
the thin walled bearings attract central excise duty provided they
are - manufactured to !SI specification l.S. 4774-1968 and are used
or have application as M.V. Parts. In view of the above the thin
walled bearings is thrust washers and Bushes like valve Rocker
Arm Bush etc. cleared from your factory from 7.8.1978 works out
as under. 11 c
... The appellant denied that the washer and bushes manufactured by it were
thin walled bearings. In the note of arguments, it was claimed that wrapped
bushes and thrust washers were not thin walled bearing. The relevant
portion of the Note of objections is extracted below :
D
"(a) IS-4774-1968 does not give any specifications for 'bushes';
(b) IS-4774 gives specifications for
(i) Thin walled bearing and
E
(ii). Thrust Half Washers
(c) IS-4757-1968 specifies dimensions for 'wrapped bushes' and
(thrust washers';
(d) The bushes manufactured by KOEL for automotive use being F
formed from strip are wrapped bushes and are in conformity
with IS:4757-1968; and
(e) The Thrust Half Washers and thrust washers manufactured
for automotive use are in conformity with IS:4774- 1968 and G
IS:4757-1968 respectively.
On examination of!S: 4757-1968 and 4757-1968 one can appreciate
that "wrapped bushes" and "thrust washers" (half or full) are
articles different from 'thin-walled bearing and therefore not ex-
cisable from the date of exemption notification''. H
96 SUPREME COURT REPORTS [1995] SUPP. l S.C.R.
A The Assistant Collector did not agree and held that since the goods
manufactured by the appellant were thin-walled bearings falling under Item
No. 34A, it was liable to pay duty on these goods. The Assistants Collector
did not accept the claim of the appellant that only bearing which are
manufactured according to the specification mentioned in Table Nos. 2 to
B 5 of ISI were liable to be classified as thin-walled bearings. In appeal the
Collector of Central Excise held :
"According to this specification, thrust washers is used at one each
end of a plain jurnal bearing in order to take light duty thrust loads,
a function performed by a bearing. Therefore, technically it will
c not be incorrect to call thrust washers including thrust half-
washers, which are nothing but one half of a split thrust washer,
as bearings. Similarly, a wrapped bush is a bush with a lon-
gitudanal split in one place and bush means a bearing liner in the
form of a complete tube covering 360 degree. Bearing-liner is a
D tublar element whose inner surface is the bearing bore. Thus,
bushes of the type manufactured by the appellants also are bear-
ings. In case the thrust washers and wrapped bushes have thin-walls
having specifications given in l.S. 4774-1968, these will be classifi-
able as thin-walled bearings and thus liable to pay duty under Tariff
E Item 34A. It is only when these are not according to those
specifications, they would be other than thin-walled bearings. Ac-
cordingly, I hold that the impugned goods are thin-walled bearings
and must pay duty under Tariff Item 34A."
F The Collector thus did not record any finding whether the goods sallsfied
IS: 4774-1968 specification. The orders were challenged by the appellant
by way of a writ petition. The High Court held that there was no material
to determine how the bushes and washers manufactured by the appellant
were understood in the trade circle. The High Court was of opinion that
ISI specification was irrelevant. It could not reflect trade understanding. It
G did not agree that there was difference between bearing and bushes. The
Court went into merits as well and held that it was not disputed that, 'thrust
washers' and 'wrapped bushes' manufactured by the Company are in
accordance with specifications under IS: 4774-1968, i.e. in the nominal
diameter range 16 to 150 mm. The High Court held that since the function
H performed by the bushes and washers manufactured by the appellant was
KJRLOSKAROILENGINESLTD. v. U.O.l.[R.M.SAHAI,J.] 97
the same as those performed by the bearings, they were liable to be treated A
as thin-walled bearings they are in accordance with the specification given
in the IS! Schedule. The High Court further held that even if it be assumed
that two views could be possible on the classification of certain goods, the
orders passed by the Collector and Assistant Collector were not liable to
interference unless it was found that they were perverse or unreasonable
B
or entirely unsustainable.
Various submission were advanced by Sri Hidayatulla, the learned
Senior Counsel appearing for the appellant. He urged that functional test
to determine taxability or assessability was rejected by this Court as far
back as 1988 in Jain Engineering co. v. Collector of Customs, Bombay, C
(1988] 1 SCR 220, therefore, the High Court gravely erred in rejecting the
claim of the appellant only because the bushes and bearings manufactured
by the appellant were performing same function as bearings. Reliance was
also placed on Union of India v. Delhi Cloth & General Mills, [1963] Supp.
.. 1 SCR 586 and it was urged that the specifications by the Indian Standard D
Institute 'furnished very strong and indeed incontrovertablc evidence and,
therefore, the 'High Court was in complete error in its opinion that the
Indian Standard specifications do not reflect trade understanding. The
learned counsel challenged the finding recorded by the High Court on
merits and urged that the specifications as given by the Indian Standard E
Institute have not only been understood erroneously, but even applied
incorrectly as the Assistant Collector found that the bush and bearing
manufactured by the appellant were of dimension of 4775 and the consen-
sus having been arrived at the meeting between the Board and the trade
representatives for including those bushes and washers which were of
dimension of 4774 the High Court could not have in absence of any other F
material held that the goods manufactured by the appellant were thin-
walled bearings. On the other hand Shri AK Ganguly, learned Senior
Counsel appearing for the Department urged that it has been held by a
Constitution Bench of this Court in M/s. Novopan India Ltd., Hyderabad v.
Collector of Central Excise and Customs, Hyderabad, (1994) 4 SCALE 122 G
that the burden was on assessee to prove the exception and in absence of
any material brought on record as to how the goods were understood in
the trade circle the High Court was justified in dismissing the writ petiti.on.
A bush in normal sense is understood as 'a thin metal sleeve or H
98 SUPREME COURT REPORTS [1995] SUPP. l S.C.R.
A tubulur lining serving as a bearing or guide'. In Van Nostrand's Scientific
Encyclopedia it is explained as under :
"In mechanical terminology, to bush is to reduce the size of a hole.
A bushing is a hollow cylinder used as a renewable line for a
bearing or a drill jig".
B
Similarly, washer is understood as 'a flat ring or drilled disc of metal used
under the head of a bolt or nut to spread the load when tightened'. In
McGraw-Hill's Encyclopedia of Science & Technology it is explained as, 'a
flattened, ring-shaped device used to improve the tightness of a screw
c fastener'. The use of washer in common parlance is explained in the
dictionary as' for placing beneath a nut or at an axle bearing or joint, to
serve as a cushion, lo relieve friction etc.'. A bearing is normally under-
stood in mechanical sense to be a 'part that rests on something or on which
something rests or in which a pin etc. turns' (Encyclopedia Britainca Vol.
D 2). In normal sense, therefore, a washer has different purpose than bearing.
..
Wrapped bushes and thrust washers, however, find a very wide
application in engineering industry, particularly automobile industry. In the
Forword to the Indian Standard Booklet, published in 1974 it is mentioned
E that wrapped bushes save both space and weighi and trust washers with
rapped bushes are intended to take light thrust loads. A bearing on the
other hand is generally understood as mentioned in the same Booklet an
element of mechanism which allows a force to be transmitted between two
relatively moving parts'. A bush and washer manufactured by the appellant
could not normally be treated as bearing except when it is understood in
F technical sense. It appears when the Indian Standard Specifications were
published and washers and wrapped bushes, thrust washers and thrust half
washers were mentioned in the Booklet as goods which are extensively used
in automobile industry, the Department invited the trade representatives
to discuss the matter, the result of which has been extracted earlier.
G Therefore, before a decision was taken by the Board, there was no material
available with the Department which could furnish basis for deciding
whether bushes or washers manufactured by the appellant could be clas-
sified as bearing much less 'thin walled bearing' within the meaning of
notification issued in 1971. Not only that the entire proceedings were
H initiated by the Superintendent of Central Excise on the basis of trade
KIRLOSKAR OIL ENGINES LTD. v. U.0.1. [R.M. SAHAI, J.] 99
notice referred to earlier inviting the appellant to classify these goods as A
'thin walled bearings' if they satisfied the specification of 4774. It is true,
as held by the High Court and by the authorities that a trade notice is not
binding, but what the High Court omitted to consider was that there was
no other material with the Department on which it could assume that the
washers and bushes manufactures by the appellant were 'thin walled B
bearings'. The basis for published of proceedings being Indian Standard
Booklet published by the Indian Standard Institute, it was not proper either
for the High Court or for the assessing authorities to ignore it and levy the
duty treating these goods to be 'thin walled bearings' on assumptions
without any material. The observation in the Judgment of the High Court C
that it was undisputed that thrust washer and wrapped bushes were in
accordance with specification under IS : 4774-1968 is factually incorrect.
The written note of the appellant given before· the assessing authority has
been extracted. It is obvious that the order was made under misapprehen-
sion.
D
Since the High Court and the assessing authorities approached the
case with an entirely incorrect perspective, their orders cannot be main·
tained. Yet it would be hazardous for this Court to examine the dimension
and specification of these bushes and washers and decide whether they can
be classified as thin-walled bearings. For the purpose it would be expedient E
to send the case back to the High Court which may decide it either itself
or send it to the Tribunal which has now been constituted. In view of this
it is not necessary to decided any other issue.
For these reasons this appeal succeeds and is allowed. The order
passed by the High Court is set aside. The matter is remitted back to it to F
restore the writ petition to its original number, decide the same of transfer
it to the tribunal for deciding it in accordance with law.
Parties shall bear their own costs.
T.N.A. Appeal allowed. G
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