ivil Appeal No 783 NM of 1987
From the Judgment and Order dated 9387 of the High Court of Patna in CWJC No 608 of 1983
Soli J Sorabjee Ravinder Narain section Ganesh Laxmi Kumaran PK Ram and DN Mishra for the Appellant
Govind Das CVS Rao and A Subba Rao for the Respondents
The Judgment of the Court was delivered by KANIA J
This is an appeal by the Tata Iron and Steel Co Ltd referred to hereinafter the Tisco against the judgment of a Division Bench of the Patna High Court in Writ Petition filed by the Tisco
The Writ Petition was filed by the Tisco for quashing an order passed by the Collector Central Excise Patna on 24th September 1982
The Division Bench of the Patna High Court in the impugned judgment only granted partial relief to the Tisco and the appeal in respect of the relief refused
The relevant facts are follows The appellant manufactures inter alia wheels tyres and axles of rail ays
The buyers of these products are the Indian Railways
Apart from this the appellant also makes and supplies to the Indian Railways wheel and exles as composite units
These are forged products
Before the said goods are supplied to the railways the said goods after being forged are machined and polished by the appellant and as a result of this machining and polishing the excess layer of steel which is commonly referred as excess skin is removed and one of the disputes is as to whether for the purpose of Item 26AAia of the Central Excise 1027 Tariff set out in the First Schedule to the referred to hereinafter as the Central Excises Act the weight of the steel should be calculated as at the time when the forging was complete or after machining and polishing to remove the excess skin of steel
Certain other incidental work on the said goods might have been done by the appellant but that is not material for our purposes
The stand of the appellant was that these items were dutiable in their hands only once and under Tariff Item No 26AAia
The contention of the revenue was that in the hands of the appellant they were liable to duties at two stages namely under Tariff Item No 26AAia when they were forged and under Tariff Item No 68 of the Excise Tariff after they were machined and polished for being supplied to the railways
Right from 1962 the appellant was filing classification lists showing these goods as liable to excise duty only under Tariff Item No 26AAia and this classification list submitted by the appellant was accepted and approved by the excise authorities
In 1981 the Asstt
Collector Central Excise Jamshedpur who is one of the respondents before us by a show cause notice dated 1651981 called upon the appellant to show cause why it should not be proceeded against for contravention of Rule 173 B 9i read with rule 173Gi and rule 173ia
The ground was that the goods supplied by the appellant to the railways were not forged items as such but the said goods after they had undergone machining and polishing after being forged and had been turned into distinct commercial commodities by the process of machining and polishing which amounted to manufacture and hence the goods were also liable to the payment of excise duty as set out in Item 68
The notice also called upon the appellant to show cause as to why duty on the forged goods under Tariff Item No 26AAia should not be payable on the footing of the weight of the goods as forged and before the removal of the excess skin by the machining
The appellant by their letter dated 27th May 1982 replied to the said notice taking up the stand that the process of forging of the goods could be said to be completed only after machining and polishing and that this was required to be done in order to bring the goods in line with the specifications of the Indian Railways
The said letter addressed to the Collector inter alia pointed out that all the wheels tyres and axles had to be rolled and machined by the appellant to make them conform to the Indian Railways standard denominations
However all wheels tyres and axles supplied by the appellant were further precision machined and fine polished at the railway workshop 1028 that this further machining at the railway workshop is a must before the said articles could be put to use by the railways and hence the machining by the appellant did not amount to manufacture
A copy of the letter is not on record but there is a clear reference to it in the order passed by the Collector imposing excise duties as aforesaid
The Collector rejected the stand of the appellant and held that the apellant was liable to pay differential duty under item 26AAia on the difference between weight of the said goods when forged and the weight after machining to remove the excess skin as well as the duty under Tariff Item No 68 as set out earlier
The Collector further held that the appellant was liable to penalty of Rs1 lac under Rule 173Q of the Central Excise Rules 1944 for suppression of facts or giving misleading particulars
The Collector took the view that the appellant was guilty of mis statement of suppression of facts and hence the period of limitation for making the demand was 5 years prior to the service of the show cause notice
The Division Bench of the Patna High Court accepted the conclusions of the Collector save and except that they took the view that there was no suppression or mis statement of facts on the part of the appellant and hence the period of limitation would be only 6 months prior to the service of the show cause notice
Before proceeding further we would like to set out the relevant items from the Central Excise Tariff
The relevant portion of Item 26AA of the Central Excise Tariff at the relevant time read as follows with emphasis supplied 26AA
Iron or steel products the following namely ia Bars rods coils wires joists girders angles other than slotted angles channels other than slotted channels tees beams zeds trough piling and all other rolled forged or extruded shapes and sections not otherwise specified
 Item 68 of the Excise Tariff is the residury item and it ran as follows 68
All other goods not elsewhere specified but excluding a alcohol all sorts including alcoholic liquors for human consumption 1029 b opium Indian hemp and other narcotic drugs and narcotics and c dutiable goods as defined in section 2c of the Medicinal and Toilet Preparations Excise Duties Act 1955 16 of 1955
 There is an explanation to Item 68 but the same is not relevant for our purpose
A perusal of these items makes it clear that forged steel products are liable to duty in terms of Tariff Item No 26AA
It is also beyond dispute that forged steel goods with which we are concerned would be covered by Tariff Item No 26AAia which includes forged or extruded shapes and sections not otherwise specified
It is common ground that the appellant is liable to pay excise duty on the said goods under Tariff Item No 26AAia
The dispute in this connection is what is the stage at which the said goods could be said to be forged iron and steel products as contemplated in the said item whether they could be regarded as such as soon as they are forged or after machining and polishing to remove the excess skin before being supplied to the Indian Railways
The stand of the appellant is that this machining and polishing which is done in its workshop is not significant character and extensive precision machining and polishing has to be done by the railway at their workshop before the wheels tyres and axles supplied by the appellant can be attached to the rolling stock
The machining and polishing done in the workshop of the appellant was only in the nature of shaping by removing the superficial material to bring the forged items upto with the Railways  specifications
A perusal of Item 26AA would show the excise duty on forged goods covered under the said entry is according to the weight of the goods
It was contended by the appellant that the weight should be measured only after the polishing and machining at the appellant s workshop was completed
It is obvious that as a result of such machining and polishing there would be some loss weight on account of excess skin removal
It was on the other hand contended on behalf of the Revenue the respondent herein that the forging of the goods was complete before the machining and polishing was done to remove the excess surface or excess skin
It appears to us that the aforesaid contention of the appellant deserves to be accepted
Even to prepare forged goods for supplying to the Railways it was essential that the goods should comply with the Railways  specifications and the excess steel on the surface or the excess skin as it is called would have to be removed for that purpose
1030 Moreover as pointed out by learned single judge of the Delhi High Court in Metal Forgings Pvt Ltd  Anr
vs Union of India  Ors
 1985 20 ELT p280 at paragraph 12 The process of manufacture of forged products consists of cutting of steel pre heating of material heating and beating of steel material till final shaping is achieved
The steel forging process involves open forging process where the quantity small and dropclose die forging andor upset forging process under which the product is made with the help of dies
Thereafter the extraunwanted material is removed by either trimming or by gas cutting or by skin cutting to achieve the shape and section nearest to the forged steel product required and also the forging clearances specified in the standards by ISIor International
It is conceded by the Government that forging would not cease to be forging by processes like removal of superfluous extra skin of cast iron
 The learned judge has further pointed out in the next paragraph of the said judgment that the removal of extraunwanted surface steel by either trimming or by gas cutting or by skin cutting of the forged products must be regarded as incidental or ancillary to the process of manufacture
This view is also consistent with the definition given to the term manufacture contained in Sub section f of section 2 of the 
This definition shows that the manufacture includes any process incidental or ancillary to the completion of a manufactured product
We are therefore of the view that in respect of the said goods the weight for the purpose of levy of excise duty under Item 26AAia should be taken after the machining and polishing is done to remove the excess surface skin and the contention of the appellant in this regard must be accepted
The next question is whether as a result of the polishing and machining done by the appellant on the said goods before supplying them to the railways the same were transformed into new commercial commodities namely finished axles wheels tyres and so on or whether these finished or manufactured goods which could be regarded as distinct commercial products came into existence only after precision machining done at workshops of the Indian Railways to enable the Railway to put these goods to use to meet the actual requirments of the Railways
It is not the case of the respondent that there were three distinct sets of goods namely one the forged steel pro 1031 ducts two the manufactured goods supplied by the appellant to the Railways and three the finished goods as turned out from the Indian Railways  workshops for being used by the Railways
It must be regarded as common ground that duty under Item No26AA was payable on the forged products and duty under Tariff Item No 68 was payable only at the stage of the completion of the manufacture of the finished goods namely axles wheels tyres and so on
The certificate issued by AK Malhotra Additonal Director Railways Stores clearly states that the goods supplied by the appellant to the Indian Railways and manufactured at its plant at Jamshedpur are manufactured according to specifications and drawings agreed to between the parties
Axles are supplied to the railways in rough machined condition and wheels tyres and blanks are supplied in as rolledas forged condition
These wheelstyres axles and blanks have to be sometimes rough machined partially to remove excess steel or manufacturing defects
These products are subsequently precision machined by the Railways at their workshops before being put to use to meet the actual requirements of the Railways
There is no challenge to the correctness of this certificate either before the Collector or before the Trial Court and there is no reason as to why it should not be taken as correct
The certificate clearly shows that axles supplied by the appellant to the Railways were in rough machined condition and wheels tyres and blanks were supplied in rough or forged condition
Sometimes wheels tyres axles and blanks had to be even rough machined partially at the Railways workshop to remove excess steel or manufacturing defects
All these products had to be subsequently precision machined by the Railways before being put to use
In these state of affairs it is quite clear that the finished goods namely finished wheels tyres axles and blanks could be said to have come into existence only after the precision machining and other processing at the Railways  workshops was completed and the appellant is not liable to pay any duty on these goods as under Item No 68 of the said Central Excise Tariff
We may make it clear that what we have said in the foregoing paragraphs is applicable to all the goods with which we are concerned save and except wheels tyres and axles manufactured by the appellant and supplied as composite units
In respect of these composite units it is beyond dispute and it is conceded by the appellant that it is liable to pay duty on the same under Tariff Item No 26AAia as well as under Tariff Item No 68
The only contention in this connection is as regards the question of limitation to which we shall presently come
1032 Regarding the question of limitation the dispute is whether assuming that the demand made by the Collector was valid what is the period to which it could relate it being common ground that as far as composite units comprising wheels tyres and axles supplied by the appellant to the Indian Railways are concerned the demand under Item No 68 of the Central Excise Tariff was justified
The question here is as to whether that demand could extend only to six months prior to the service of the show cause notice as contended by the appellant or upto a period of five years prior to that notice as contended by the respondent
In this regard Section 11 A is the relevant provision
The said Section has been amended in 1978 but we are not concerned with that amendment
A perusal of Sub section 1 of that Section shows that where any duty of excise has not been levied or short levied or short paid or erroneously refunded the Central Excise Officer concerned may within six months from the relevant date serve notice on the person chargeable with that duty
This provision would clearly show that the period for which the demand could be made was only six months prior to the service of the notice
Now in the present case it has been found by the High Court and in our opinion rightly that there was no suppression or mis statement of facts or fraud by the appellant to which the alleged short levy or non levy could be attributed
In fact it is common ground that right from 1962 the appellant was filing classification lists containing the description of the items and showing them as liable to the payment of excise duty only under Item No 26AAia and these lists were accepted and approved by the excise authorities
In these circumstances we fail to see how it could be said that the appellant was guilty of any suppression or mis statement of facts or collusion or violation of the provisions of Central Excises Act as contemplated under the proviso to Section 11 A of the said Act
In view of this the period of limitation would clearly be only six months prior to the service of the show cause notice
The demand for excise duty against the appellant on the said composite units under Item No 68 of the Excise Tariff to the extent that it exceeds the period of six months prior to the service of the show cause notice must therefore be struck down
In our view the learned judges who delivered the impugned judgment were in error in taking the view which they took on the questions discussed aforesaid except regarding limitation
The learned judges have placed considerable reliance on the new classification of the Tariff Items in 1985 in considering the true scope of Item No 26AA and Item No 68 as they stood in 1981
In our opinion this reliance was misplaced
1033 In the result the appeal is allowed
The appellant is liable to pay duty on the goods referred to in the petition other than the composite units only under Item No 26AAia of the First Schedule to the Central Excises Act and the duty will be based on the weight after the machining carried out in the factory of the appellant to remove the excess skin or excess surface steel
Secondly in respect of the composite sets the appellant is liable to pay duty both under Items Nos 26AAia and 68 but only for a period of six months prior to the service of the show cause notice
Looking to all the facts and circumstances of the case there will be no order as to costs
RSS Appeal allowed


Summary:
On taking over the Agra Electric Supply Co in December 1973 the respondent UP State Electricity Board intimated to the appellant UP Hotels that the Bulk Supply Agreement between the appellant and the Agra Electric Supply Co would continue to be in force until such time the agreement was determined in accordance with its relevant provisions
The agreement contained terms of rates discounts minimum sum payable and increase in the rates and sums payable once a year on account of increase in cost of production and distribution of electrical energy clause 9 and also contained an arbitration clause clause 18
In November 1976 the appellant received a communication from the respondent informing that the uniform tariff rates issued under section 49 of the Electricity Supply Act 1949 would be applicable to them
The Board also withdrew the contractual discount and rebates
While sub sections 1 and 2 of section 49 stipulate a uniform tariff for electric supply sub section 3 authorises the Board to fix different tariffs for the supply of electricity
The appellant protested against this unilateral increases and withdrawal but without success
The appellant then informed the respondent that it was referring the disputes for decision by the arbitrator and appointed a retired High Court Judge as its arbitrator
The respondent in turn appointed another retired High Court Judge as a joint arbitrator
The joint arbitrators appointed Justice V Bhargava a retired Judge of the Supreme Court as the Umpire
The arbitrators having failed the proceedings started before the Umpire
The Umpire gave his award in June 1983 and held that the Board having accepted the agreement it became binding on the Board and once the agreement was binding its terms under sub section 3 of section 49 could not be varied by PG NO 670 PG NO 671 fixation of uniform tariff under sub sections 1 and 2
The Umpire further held that the present case was fully covered by the decision of the Supreme Court in Indian Aluminium Co wherein it was held that where a stipulation in a contract was entered into by a public authority in exercise of a statutory power then even though such stipulation fettered subsequent exercise of the same statutory power it would be valid and the exercise of such statutory power would pro tanto stand restricted
In that view of the matter the Umpire held that in terms of clause 9 the increase in unit rate was permissible and the fuel cost variation charges which were variable every month was contrary to clause 9 as increase was permitted only once in a year of accounts and further that the appellant was entitled to discount of 50 of the charges for electricity and also to discount for prompt payment of bills
Objections were filed by the respondent before the IInd Additional District Judge during the proceedings initiated for making the award the Rule of the Court
The IInd Additional Distt
Judge set aside the award on the ground that the reference made to arbitration was unilateral
In appeal the High Court while holding against the above finding of the IInd Addl
Judge set aside the award on the ground that the Indian Aluminium Co case was inapplicable to the present case and the mistake committed by the Umpire in this regard was error of law apparent on the face of the award
The High Court held that even if the stipulation as to the tariff structure in the agreement be taken to have been Continued in existence in view of sub section 3 of section 49 of the Act the same was not unrestricted and that the stipulation was expressly made subject to certain reservations as would be clear from the opening sentence of clause 9 of the agreement the main clause was subject to the provisions hereinafter contained
It was further held that in drawing distinction between rates  and discount  and upholding the right of the Board to tamper with the former and negating similar right in respect of the latter the Umpire had committed an error
Before this Court it was contended on behalf of the appellant that a specific question of law being a question of construction had been referred to the Umpire and hence his decision right or wrong had to be accepted
On behalf of the respondent it was contended that there was no specific question of law referred to the Umpire but it was a general reference in which a question of law arose and that it was a question in the proceedings and the question of law as such did not arise
PG NO 672 Allowing the appeal it was HELD 1 Even assuming that there was an error of construction of the agreement or even that there was an error of a law in arriving at a conclusion such an error was not an error which was amenable to correction even in a reasoned award under the law
683B 2 Where the question referred for arbitration is a question of construction which is generally speaking a question of law the arbitrator s decision can not be set aside only because the court would itself have come to a different conclusion but if it appears on the face of the award that the arbitrator has proceeded illegally as for instance by deciding on evidence which was not admissible or on principles of construction which the law does not countenance there is error in law which may be ground for setting aside the award
683G H 684A 3 In order to set aside an award there must be a wrong proposition of law laid down in the award as the basis of the award
684D 4 In the instant case a question of law arose certainly during the course of the proceedings
Such a question has been decided by the Umpire on a view which is a possible one to take
Even if there was no specific reference of a question referred to the Umpire there was a question of law involved
Even on the assumption that such a view is not right the award is not amenable to interference or correction by the Courts of law as there was no proposition of law which could be said to be the basis of the award of the Umpire and which was erroneous
689B Cl 5 The Umpire in his award stated that the decision of this Court covered and supported the claim of the claimant
In the present case the only difference was that there was only an agreement which was held by the Umpire to have become operative
Once that agreement was binding on the Board its terms could not be vaired from the uniform rate under sub sections 1 and 2 of section 49
The Umpire was right
The Umpire committed no error in arriving at such conclusion
Further more such a conclusion was certainly a possible view of the interpretation of the decision of this Court in Indian Aluminium Co s case if not the only view
688G H 689A Indian Aluminium Co Ltd vs Kerala Electricity Board   Coimbatore Distt
PT Sangam vs Bala PG NO 673 Subramania Foundry   Delhi Municipal corpn
vs Ms Jagan Nath Ashok Kumar   Ms Hindustan Tea Co vs Ms K Sashikant  Co AIR 1987 SC 81 Kanpur Nagar Mahapalika vs Ms
Narain Das Haribansh  Champsey Bhara  Co vs Jivraj Balloo Spinning  Weaving Co Ltd  Dr SB Dutt vs University of Delhi   Ms Kapoor Nilokheri Co op
Dairy Farm Society Ltd vs Union of lndia  Tarapore  Co vs Cochin Shipyard Ltd Cochin   Hitchins  Anr
vs British Coal Refining 1936 2 AER Reprint 191 Pioneer Shipping Ltd  Ors
vs ETP Tioxide Ltd  referred to