SATYESHWAR ROY, J.

(1.) By this application under Articles 226 and 227 of the Constitution of India, the petitioners have prayed for quashing order dated 24-11-1979 passed by Respondent No. 1 imposing duty and penalty on the petitioners under the Central Excises and Salt Act, 1944 ( the), Annexure-1 to this application, notices dated 5-12-1979 issued by Respondent No. 2 demanding payment of the said amount and to submit revised classification list under Tariff Item 68, Annexure 2 and 2/1 respectively, and notice dated 2-7-1979 issued by Respondent No. 2 for paying duty on goods before machining and/or polishing under Tariff Item No. 26AA(V) Annexure-2/2 Originally in the writ petition prayers were confined with regard to the aforesaid annexures only. While the writ petition was pending the petitioner, according to it, by way of abundant precaution filed an appeal against Annexure 1 and prayed for stay of the same till the disposal of the writ petition. However, the appellate authority refused the prayer and disposed of the appeal by rejecting it. The petitioners filed amendment of the writ petition praying for quashing the appellate order and the same was allowed. In this writ petition, therefore, prayer has been made also for quashing the appellate order dated 24-2-1981 passed by Respondent No. 5 confirming the order of Respondent No. 1, Annexure-1/A to the writ petition.

(2.) The petitioners carry on business, inter alia, of manufacture and sale of diverse iron and steel castings popularly known as Cast Rolls at its Adityapur factory. All the Cast Rolls manufactured by the petitioners are tailor-made items for individual customers as per the customers specifications, designs and drawings and against their specific orders. The process of manufacturing Cast Rolls have been described in paragraph-4 of the writ petition. We will refer the details at appropriate stage. The duty payable on the Cast Rolls, manufactured by the petitioners, was under Item 26AA(V) of the First Schedule of the. The goods were being removed by the petitioners under the procedure laid down in Chapter VII-A of the Central Excise Rules, 1944 (the Rules) commonly known as Self-Removal Procedure. The petitioners started manufacturing Cast Rolls in the year 1969-70 and from the beginning were removing the goods under the Self-Removal Procedure on paying duty under Item 26AA(V). The respondents at all material times upto May, 1979, accepted that on the Cast Rolls, manufactured by the petitioners, duty was payable under that Tariff Item. Some time in May, 1979, the respondent No. 2 issued a notice whereby the petitioners were called upon to show cause why a penalty should not be imposed on it for contravening Rule 173 PP read with Rule 173Q and why a duty of Rs. 3,98,860.80 (Rupees Three lakhs ninety eight thousand eight hundred sixty and paise eighty) evaded from 1st of March, 1975 to 31st of March, 1979 should not be realised from them under Rule 10 of the Rules. It may be mentioned here that Item 68 was introduced in the First Schedule of the on 1-3-1975. In response to the notice, the petitioners filed their show cause and refuted that they remained engaged in manufacturing of steel Rolls from 1-3-1975 without obtaining any licence under the. It contended that on the Cast Rolls duty was payable under Item 26AA(V) and no duty was payable under Item 68. Respondent No. 1 did not accept the contention of the petitioners and by Annexure-1 it held that the Steel Castings which came out from moulds fell under Item 26AA(V) and thereafter when the same were machined/polished it fell under Item 68. Therefore duty was demanded and penalty was imposed by respondent No. 1 as noticed above. In pursuance of this order three notices were issued to the petitioners by respondent No. 2. By Annexure-2 duty and penalty were directed to be deposited by the petitioners. By this Annexure, the petitioners were further directed to keep stock account in respect of production and clearance of crude steel casting and all machined/polished steel castings separately. By Annexure-2/1 the petitioners were directed to submit revised classification list as after machining and polishing the steel castings fall under item 68. By Annexure-2/2 the petitioners were informed that in crude form steel castings were excisable under Item 26AA and after machining and/or polishing it fell under Item 68. Against the order of Respondent No. 1, the appeal filed by the petitioners was dismissed by Respondent No. 5 by Annexure- I/A.

(3.) Three questions were formulated by the parties in this case, namely, (i) Whether the Steel Castings manufactured by the petitioners are excisable at two stages : under Item 26AA(V) when taken out of the mould and under Item 68 after the same are machined and polished for delivery according to the designs and specifications of its customers or whether the same are excisable only after machining and polishing under Item 26AA(V). If the answer to question No. (i) goes in favour of the respondents (ii) Whether the demand for a part of the period 1-3-1975 to 31st of March, 1979, was barred by limitation, and (iii) Whether in the circumstances of the case any penalty could have been imposed on the petitioners. Before discussing the questions, so raised, it is necessary to notice some of the provisions of the to which the counsel appearing on behalf of the parties repeatedly referred and the interpretation given to them by the Supreme Court and different High Courts. Under the excise duty is on the manufacture of goods. The fact that the substance produced by a manufacturer at any intermediate stage is not put in the market would not make any difference on the chargeability of the substance to excise duty, if it is covered by any of the items of Schedule-1 of the. Manufacture under the implies change, but every change in the raw material is not manufacture. To say that manufacture is complete as soon as by the cause of one or more processes the raw material undergoes some change is to equate "Processing to Manufacture". In other words manufacturing implies change, but every change in the raw material is not "manufacture". But it is only when the change, or series of changes, take the goods to the point where commercially it can no longer be regarded as the original goods but instead is recognised as a new and distinct article, that a manufacture can be said to take place. For the goods to be excisable under the it must be something which can ordinarily come to the market to be bought and sold and is known as such goods. For the above propositions reference may be made to the cases of Union of India v. Delhi Cloth and General Mills (A.I.R. 1963 S.C. 791), South Bihar Sugar Mills Ltd. v. Union of India (A.l.R. 1968 S.C. 922), and the Deputy Commissioner Sales Tax (Law) Board of Revenue (Taxes), Emakulam v. Mis. Pio Food Packers-(A.1.R. 1980 S.C. 1227). The word "Manufacture" has been defined in the to include any process incidental or ancillary to the completion of a manufactured product. Therefore the stage of completion of a manufactured goods is not reached until all the processes incidental or ancillary have also been completed (Hindustan General Electrical Corporation Ltd. v. Superintendent of Central Excise, Ranchi, A.I.R. 1966 Patna 248). Several decisions of different High Courts were cited at the Bar. I have refrained from referring to the same as in those judgments propositions of law noticed about have been reiterated and none of the cases relate to steel casting.

(4.) Keeping in view the law as stated above, I will take up question No. (i). The process of manufacturing Cast Rolls have been stated by the petitioners in paragraph 4 of the writ petition. According to the petitioners all the Cast Rolls are tailor-made items for individual customers as per the customers specifications, designs and drawings and against their specific orders. The process of manufacturing Cast Rolls as stated in paragraph 4 of the writ petition is as follows:-

"That the petitioner further says that the normal process of manufacturing Cast Rolls is as under :- (a) The main raw materials, which are steel melting scrap and/or used and scrapped rolls purchased from the market and ferro-alloys are melted in the furnaces. (b) The moltenrmetal is poured into moulds of different types depending upon customers ultimate requirement as per their drawings. (c) After solidifying and cooling of the metal in the moulds, the casting is taken out, foreign materials like sand, dust, etc. sticking to the casting are removed and certain appendages of metal like runners, etc. are also removed by cutting off. (d) The casting is then taken to machine shop and put on the machine for removal of other appendages like risers and rough machining is carried out ; after this, heat treatment process is carried wherever required. (e) Then the final machining on various machines is done to finish the castings as per the customers drawings. (f) On the finished product, rust preventing coatings are applied wherever required before despatch of the product to customers with or without packing depending upon the requirements." According to the petitioners the castings with foreign materials like sand, dust, etc., when taken out from the moulds are not goods which ordinarily come to the market or known to the market to be bought and sold. In the counter-affidavit, although respondents have not specifically denied each and every relevant averments made by the petitioners, there has been general denial of the assertions. According to the respondents the process of casting is completed after solidifying and cooling of the metal in the moulds and at that stage it becomes excisable under Item 26AA(V). It undergoes further manufacturing process, namely, manufacture for removal of appendages like risers ; heat treatment is carried out and then final manufacturing is done to finish the castings as per the customers drawings. At that stage rust preventive coatings are applied. At that stage the casting takes the shape of identifiable machine part which is different from steel castings and, therefore, excisable under Item 68. The issue is whether the steel castings when taken out of the moulds are excisable under Item 26AA(V) and when the same undergo further processes by machining and polishing becomes goods excisable under Item 68.

(5.) In support of its assertions, the petitioners have annexed certificates given by its different customers, namely, Tata Iron and Steel Co. Ltd., Steel Authority of India Limited, Alloy Steel Plant, Durgapur, Steel Authority of India Limited, Durgapur Steel Plant, Steel Authority of India Limited, Bhilai Steel Plant and Indian Iron and Steel Company Ltd. These are annexures 5 to 5E to the writ petition. According to these annexures the Cast Rolls supplied by the petitioners are not completely finished products for direct use in the mills of the purchasers and the same require further machining and processing like groove cutting, grinding, combering etc., before they can be put into use at the customers end. The correctness of the asserti6ns made in Annexure-5 series have not been denied by the respondents. As against this there is bold statement in support of the assertion that the finished product becomes identifiable machine part. Moreover, in the writ petition it has been also asserted that the goods supplied by the petitioners to its customers cannot be used in that condition as it requires further machining for using it as machine parts. This fact is supported by Annexures 5 series. From these evidences it must be held that the steel castings when taken out from the moulds and put to further processing for bringing it according to the designs and specifications of customers, do not cease to be steel castings as known in the market. Steel Castings Hand Book (Supplement 1) of Steel Founders Society of America was referred on behalf of the petitioners and Principles of Metal Castings by Richard W. Heine, Carl R. Loper, Jr. and Philip C. Rossentbal was referred by the respondents. According to the Hand Book, rules governing the design of steel castings are based upon (1) fluidity and solidification of steel, (2) the mechanical principles involved in the production of cores and moulds, (3) cleaning, (4) machining requirements and (5) functionality and weight consideration. In Principles of Metal Castings it has been stated that practically all the detailed operations that enter into the making of steel castings may be categorised as belonging to one of the five fundamental steps of the process:

1. Pattern making (including core bases), 2. Core making, 3. Moulding, 4. Melting and pouring and, 5. Cleaning.

According to Mr. Prasad, learned counsel appearing on behalf of the respondents the duty is payable when the casting is taken out of the mould and before cleaning process starts. Mr. Joshi learned counsel appearing on behalf of the petitioners submitted that no duty is payable at any stage before machining/polishing. According to the authors of both the books, cleaning is part of process of all castings. Therefore, contention of Mr. Prasad that duty is payable before cleaning has no basis.

(6.) With regard to appellate order, Annexure-1/A Mr. Joshi submitted that respondent No. 5 has been influenced by the end-use of the castings for holding that the end products are clearly identifiable machine parts. According to him for the purpose of determining as to under what item the goods are excisable the end use is irrelvant. Reliance was placed in Dunlop India Ltd. v. Union of India (A.I.R. 1977 S.C. 597). The relevant portion of the appellate order (Annexure-1/A) is as follows :-

"from the submissions made above it is clear that right from the time of castings the end use of the castings as parts of certain machinery was already known. The mould was made in order to conform to such requirements. Therefore, the roll was clearly identifiable as a part of that machinery to which it is intended to be fitted."

According to the appellate authority, if at the time of casting the end use of that casting as part of a certain machinery is already known, duty is payable as identifiable machine part. If that is the position in law, the steel castings of the petitioner are excisable at one point only and under Item 68. But that is not the case of the respondents. Moreover, as laid down by the Supreme Court in Dunlops case (Supra) if the goods can be clearly classified under a particular tariff item then it must be classified under that item and the ultimate use of that goods cannot be taken note of for the purpose of its classification. The reasoning of the appellate authority cannot be accepted.

(7.) It was contended by Mr. Joshi that under Item 26AA(V) all other steel castings not otherwise specified in item 26AA(i) to (iv) are to be classified. According to him this item does not speak about crude steel casting or even finished steel casting and even if at the end of the processing by the petitioners it remains steel casting, the respondents cannot take recourse to Item 68 for the purpose of duty on the finished steel casting. This submission was made by Mr. Joshi with reference to Annexure-1. From Annexure 1it appears that Respondent No. 1 is of the view that semi-finished steel castings are excisable under Item 26AA (V) and these semi-finished castings after cleaning, machining/ polishing becomes excisable under Item 68. There is no warrant for this reasoning. Item 26 A A (V) does not speak about semi-finished and finished castings. In considering a fiscal statute, the language used in the statute cannot be allowed to be strained in order to hold a subject liable to tax (The State of Punjab v. M/s. Jullendur Vegetable Syndicate, A.I.R. 1966 S.C. 1295).

(8.) According to the definition of "manufacture" in the, as interpreted in Hindustan General Electrical Corporation Ltd. (Supra), the manufacture of goods is not complete until all the processes incidental or ancillary to have been completed. According to the petitioners it manufacture goods according to the specifications and designs of individual customers and what is excisable is when the goods is finished after completion of all processes according to those specifications and designs. It is in evidence that the petitioners for the purpose of casting of molten steel pours it into moulds of different types depending upon individual customers ultimate requirements as per its drawings, designs and specifications. It is not the case of the respondents that the molten steel is poured into one particular type of mould and from these castings thereafter rolls of different designs, drawings and specifications according to customers order are manufactured. Had that been the case, perhaps duty would have been payable when the casting was taken out of the mould. In this case the whole process from the start to the finish must be held to be "manufactured" within the meaning of the. At no stage the goods become any thing other than an item to be classified under Item 26AA(V). Since there is no difficulty in this case for classifying the goods in question, the respondents cannot take recourse to the residuary item i.e., Item 68 as has been laid down by the Supreme Court in Dunlops case (Supra).

(9.) For the reasons aforesaid, it must be held that the goods in question manufactured by the petitioners is steel castings excisable under Item 26AA(V) and at no stage it becomes excisable under Item 68.

(10.) In view of findings on question (i) it was not necessary to decide question Nos. (ii) and (iii). But in defference to the counsel appearing on behalf of the parties, who addressed us at length on these questions also, and in view of the importance of these questions I am recording my findings on those two questions also.

(11.) Admittedly, the petitioners were removing the goods from the very inception under Rule 173B and the duty up to May, 1979, was shown payable under Item 26AA(V) only on the basis of the classification list approved by the respondents. Item 68 was inserted in the First Schedule of the on 1-3-1975. According to the respondents the petitioners avoided payment of duty inasmuch as it remained engaged in manufacturing goods excisable under Item 68 without obtaining any licence as per the provisions of Rule 174 and in violation of provisions of Rule 173Q(i)(c). Further, from 1st March, 1975, upto the period of notice the petitioners cleared goods from its factory in violation of Rule 173 PP(4 and 5) read with Rule 173Q(i)(C). This notice is Annexure-3 to the writ petition. The petitioners filed its show cause which is Annexure-4. The petitioners contended in the show cause that the steel casting rolls supplied by the petitioners to its customers were excisable at one point only and under Item 26AA(V) and at no stage it became excisable under Item 68. It asserted that it had not contravened any of the rules and no question of imposing penalty arose. By Annexure-1, Respondent No. 1 demanded a duty of Rs. 3,98,860.80 (Rupees Three Lakhs ninety-eight thousand eight hundred sixty and paise eighty only) said to be payable under Item 68 for the period 1-3-1975 to 31st of March, 1979, and also imposed penalty of Rs. 1000/- (Rupees one thousand). The notice to show cause (Annexure-3) was issued on 1-5-1979.

(12.) Mr. Joshi contended that in view of Rule 10, the period prior to 1-12-1978, was barred and the amount is not recoverable. Mr. Prasad replied that since it was a case of evasion of payment of duty period of limitation is five years. Under Rule 10(1) the period of limitation for recovery of duty, where it has not been levied or paid or has been short levied or erroneously refunded or any duty assessed has not been paid in full is six months from the relevant date. But there are three proviso to this. Mr. Prasad relied on proviso (b) which reads as follows:-

"Where any person or his agent, contravene any of the provisions of these rules with intent to evade payment of duty and has not paid the duty in full"..."the provisions of this sub-section shall, in any of the cases referred to above, have effect as if for the words six months the words five years were substituted."

According to it the limitation of five years will apply in case of "intentional evasion" and not "mere evasion". The crucial words are "intent to evade". In a case where the assessee bonafide disputes the classification of goods for the purpose of payment of duty, it cannot be said that there is intentional evasion of payment of duty. In this case from the very beginning i.e. 1969-70 the petitioners started removing goods on the classification approved by the respondents under Item 26AA(V). Item 68 was introduced in the First Schedule of the on 1-3-1975 and the petitioners continued to remove the goods up to 30th of April, 1979. At no point of time till then the respondents demanded duty under Item 68 or asked the petitioners to submit revised classification list. For the first time on 1-5-1979 notice was issued to the petitioners. The petitioners in its show cause contested the matter before the Assessing Authority and being dissatisfied with the order filed this writ petition, and thereafter also filed an appeal. From these facts it cannot be said that the evasion of tax by the petitioners was intentional and that being the position, it must be held that the proviso to Rule 10(1) has no application to the present case. The period prior to 1-12-1978 must be held to be barred.

(13.) In view of the fact that the petitioners bona fide did not apply for licence for removing the goods for which duty was payable under Item 68 or did not file revised classification list, it is a case of honest and genuine belief of a person that no duty was payable under that item. That being the position the imposition of penalty was not justified. Reference may be made to Hindustan Steel Limited v. State of Orissa (A.I.R. 1970 S.C. 253).

(14.) In view of answer to question No. (1) this application is allowed and Annexures 1, 2, 2/1, 2/2 and 1/A are quashed. There will be no order as to costs.