judgement:
ivil Appeal No. 756 of 1988.
From the Judgment and Order dated 21.7.1987 of the High Court of Allahabad in F.A.F.O. No. 106 of 1984.
F.S. Nariman, M.L. Verma, Jeet Mahajan and Ranjit Kumar for the Appellats.
B. Sen, Gopal Subramanium and Mrs. Shobha Dikshit for the Respondent.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
This appeal by special leave is from the judgment and order of he High Court of Allahabad, dated 21st July, 1987.
The High Court has set aside the award of the Umpire.
To appreciate the decision and the contentions urged, a few facts are necessary.
On or about 20th October, 1962 there was a Bulk Supply Agreement entered into between Agra Electric Supply Co. Ltd. and the appellant herein, for supply of electrical energy to the latter 's hotel, inter alia, containing 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 of the said agreement contained terms of the rate of supply and the contingencies in which such rates could be increased.
The said Clause provided as follows: PG NO. 674 "The consumer shall, subject to the provisions hereinafter contained, pay to the Company for all electrical energy supplied and registered or estimated as herein provided at the rate of Rs.0.20 (Rupees zero decimal two zero) per unit per month for all energy so supplied and registered and/or estimated in the case of a defective meter installation in accordance with the proviso to clause 6 thereof.
The charge for all energy shall be subject to the scale of special discounts in accordance with the schedule annexed thereto.
Provided that, (without regard to the quantity of units supplied) if the payment made or to be made for any one English Calendar year ending 31st March in respect of the electricity consumed shall fall short of a minimum sum of Rs. 38640 (Rs. Thirty eight thousand six hundred and forty) the consumer shall nevertheless pay to the Company such amount in addition to the payments already made in respect of the electricity consumed for such Calendar year as will, being the total payment made in this respect to the said minimum of Rs.38640 (Rs. Thirty eight thousand six hundred and forty).
Provided Further that, in the event of the first and last years of this Agreement not being complete calendar year as aforesaid the Company shall make a proportionate reduction on the aforesaid annual Maximum Demand and Minimum charges in respect of the period for which the said first and last year as the case may be shall be less than a complete calendar year.
Provided also that.
if and whenever during the subsistence of this Agreement the Company is satisfied that there has been an increase in the cost of production and distribution of electrical energy it shall be at liberty (but not more than once in any year of accounts) to increase the rates and sums payable by the Consumer under the foregoing provision of this present clause 9 by such amount as it shall in its sole and absolute discretion decide.
" There was a clause providing for arbitration i.e. clause 18 which read as follows: "If any question or difference whatsoever shall arise between the parties to these presents as to the PG NO 675 interpretation or effect of any provision or clause herein contained or the construction thereof or as to any other matter in anyway connected with or arising out of these presents or the operation thereof or the rights, duties or liabilities of either party in connection therewith, when unless the means for deciding any such question or difference is provided for by the or the as the case may be, or by the rules made respectively under the said Acts or by a specific provision of this Agreement, in every such case the matter in difference shall be referred to the Arbitration of two Arbitrators, one to be appointed by each party hereto, and an Umpire to be appointed by the Arbitrators before entering upon the reference and the decision or award of the said Arbitrators or Umpire shall be final and binding on the parties hereto and any reference made under this clause shall be deemed to be a submission to arbitration under the Indian (Act X of 1940) or any statutory modification or re enactment thereof for the time being in force.
The Arbitrators or the Umpire giving their or his decisions shall also decide by which party the cost of the Arbitration and award shall be paid and if by both parties in what proportion.
" On or from 26th September, 1973 the Agra Electric Supply Co. Ltd. increased per unit rate of electricity from 0.20 P to 21.5 P in terms of clause 9 of the said agreement.
Thereafter, the bills were sent @ 21.5 P per unit, after giving discounts and rebates as per the agreement.
On or about 17/18th December, 1973, the respondent herein took over the undertaking of the Agra Electric Supply Co. Ltd. On or about 16th January, 1974, the respondent informed the appellant by a written communication that consequent upon the expiry of licence granted to Agra Electric Supply Co. Ltd. to generate and supply electricity the respondent had taken it over and would supply electric energy to the hotel and that the Bulk Supply Agreement with Agra Electric Supply Co. Ltd. will continue to be in force with the respondent until such time the agreement is determined in accordance with its relevant provisions.
All bills received subsequent to the take over were billed at the agreed rate allowing discounts and rebates.
On or about 23rd November, 1974, the appellant received a communication from the respondent informing that uniform PG NO 676 tariff rates issued under section 49 of the Electricity Supply Act, 1949 will be applicable to the electrical energy supplied to the hotel w.e.f.
12.10.1974.
Section 49 of the (hereinafter called `the Act '), is to the following effect: "49.
Provision for the sale of electricity by the Board to persons other than licensees.
(1) Subject to the provisions of this Act and of regulations, if any, made in this behalf, the Board may supply electricity to any person not being a licensee upon such terms and conditions as the Board thinks fit and may for the purposes of such supply frame uniform tariff.
(2) In fixing the uniform tariffs, the Board shall have regard to all or any of the following factors, namely: (a) the nature of supply and the purposes for which it is required: (b) the co ordinated development of the supply and distribution of electricity within the State in the most efficient and economical manner, with particular reference to such development in areas not for the time being served or adequately served by the licensee: (c) the simplification and standardisation of methods and rates of charge for such supplies; (d) the extension and cheapening of supplies of electricity to sparsely developed areas.
(3) Nothing in the foregoing provisions of this section shall derogate from the power of the Board, if it considers it necessary or expedient to fix different tariffs for the supply of electricity to any person not being a licensee, having regard to the geographical position or any area, the nature of the supply, and purpose for which supply is required and any other relevant factors.
(4) In fixing the tariff and terms and conditions for the supply of electricity, the Board shall not show undue preference to any person.
" PG NO.
677 After the said date the bills were sent at the enhanced rate of 0.30 P per unit, adding fuel cost variation charges and without allowing any discount or rebate.
On or about 28th November, 1974, the appellant, however, protested against the unilateral withdrawal of contractual discount and rebates and enhancement in the rates and drew the attention of the respondent to the existing and subsisting bulk supply agreement, but the respondent took no action.
On or about 31st August, 1976, a Circular was issued by the Chief Engineer of the respondent advising all Engineers in charge of the undertakings to bill the consumers having special agreements with the ex licensees as per those agreements and steps be taken to terminate the old agreements with new agreements providing for application of tariff.
On 7th October, 1977, vide written communication the appellant informed the respondent that upon latter 's failure to resolve the disputes and differences arising between them consequent to the illegal increase in the rates and discontinuation of discounts and rebates w.e.f.
12.10.1974, the appellant was referring the disputes for decision by the arbitrator and appointed Justice Manchanda, a retired Judge of the Allahabad High Court, as the arbitrator and the respondent appointed Justice Nigam, another retired Judge of the same High Court, as its arbitrator.
On or about 8th April, 1977, the joint arbitrators appointed Justice V. Bhargava, a retired Judge of this Court, as an Umpire.
Between 3rd November, 1979 and 4th March, 1980, several sittings were held before the arbitrators but the parties were unable to agree and upon their disagreement the disputes were referred to the learned Umpire for decision.
From 4th March, 1980 onwards, proceedings started before the Umpire and there was a plea for de novo hearing of the proceedings before the Umpire, by the respondent.
The learned Umpire started de novo proceedings taking evidence of the parties.
On 21st March, 1980, the respondent filed an application, being Case No. 59 of 1980 under section 33 of the before the District Judge, Lucknow, denying the existence of the agreement dated 20th October, 1962.
The respondent also denied the acceptance and adoption of the agreement consequent upon the take over and sought a declaration from the Court that the arbitration agreement did not exist.
The Vth Addl.
District Judge by his order dated 27.5.1983 held that the agreement was duly executed, accepted and adopted by the respondent and was binding on it and that the arbitration proceedings were pursuant to the arbitration clause and, as such, the application under section 33 of the , was rejected.
PG NO.
678 On 1st June, 1983, the award was made by the learned Umpire holding that in terms of clause 9 the increase in the 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 held that the appellant was entitled to discount of 50% on the charges for electricity; and was also entitled to 0.03 paise per rupee for prompt payment of bills.
The learned Umpire in his award set out the facts and therein recited these as follows: "The main terms of the agreement were that in respect of the bulk electric supply to the petitioner the Hotel was to be charged at the rate of twenty paise per unit per month.
There was also a clause for granting a special discount to the petitioner to the extent of 50% and in addition a cash discount of three paise per whole rupee was to be allowed to the petitioner in case the petitioner paid the bills of the Company within the stipulated period.
The bills for the electric energy supplied by the Supply Company continued on these contractual rates till October 1974, even after the Supply Company was acquired by the opposite party in December 1973, and the bills were accordingly paid.
However, in October 1974, the opposite party under section 49 of the (hereinafter referred to as the Act) unilaterally and according to the petitioner illegally and arbitrarily purported to replace the original terms in the agreement and revised the charges with effect from 12th October, 1974.
The Board, under this notification, increased the rate of electricity supplied to 30 paise per unit and further refused to grant the discount to which the petitioner was entitled under the agreement as well as the cash discount of three paise per rupee.
The opposite party further levied a fuel cost adjustment charges and subsequently the rate was raised to 31 paise per unit with effect from June 1976.
" Thereafter, the learned Umpire set out the history of the negotiations between the parties resulting in the agreement dated 20.10.1962.
After referring to the bulk supply agreement the learned arbitrator set out the terms upon which supply was made to the appellant.
The appellant was to make an initial payment of Rs.35,326 towards service connection for the purpose of supply, though irrespective of PG NO 679 the payment the service connection was to continue to be the property of the Supply Company.
The Supply Company was to make provision in the appellant 's monthly bill granting a rebate of Rs. 147.20 for each month that the agreement remained inforce upto a maximum of 20 years.
Under para 9 of the agreement the appellant was to pay the Company for all electric energy supplied, registered, and estimated at the rate of 20 paise p.m.
The charges for energy consumed were subject to special discount according to the scale in the schedule which permitted a maximum discount of 50% in case a minimum of 41,000 units were consumed in each month.
The consumption as shown by the record was never less than 41,000 units p.m.
In addition, there was a provision under clause (ii) of the agreement for cash discount of 3 paise per whole rupee in case payment was made within the stipulated period.
Under the first proviso to para 9, the appellant had to pay a minimum sum of Rs.38,640 for electricity consumed in any English calendar year.
The provision made was that in addition to the amount paid in accordance with the bills, the appellant was to make payment in such cases so as to make up the said minimum of Rs.38,640.
The second proviso laid down that if and whenever during the subsistence of the agreement the Supply Company was satisfied that there was an increase in the cost of production and distribution of electric energy it shall be at liberty (but not more than once a year) to increase the rates and sums payable by the consumer under the provisions of clause 9 by such amount as the Company shall, in its sole and absolute discretion, decide.
Hence, it was held by the Umpire on the oral and documentary evidence that the payment was made at the enhanced rate under protest.
Challenging the Award, several contentions were raised, namely, (i) that there was no agreement in existence and that neither the Umpire nor the arbitrator had any jurisdiction to make the award.
This contention was rejected and no argument was advanced before us challenging this finding of the Umpire, (ii) that the appellant should prove the terms and conditions upon which the Supply Company was supplying the electricity to the appellant.
This the Umpire held, had been duty proved and there was no challenge to either of the findings of the Umpire.
(iii) it was thirdly contended that the agreement even if in existence, was not binding upon the respondent.
and that while admitting that the respondent under section 49 of the Act, issued Notification under which the tariff was revised w.e.f.
12.10.1974, it was claimed that the opposite party had not, in any way, failed to fulfil its obligations on the alleged agreement and that the opposite party was fully competent under law to fix a uniform tariff and also to levy fuel PG NO 680 adjustment charges.
This is the main and substantial question involved in this matter.
It was then contended that the respondent was entitled even under the agreement and under its second proviso to clause 9 to revise the tariff and the appellant was not entitled to any relief.
It was further urged that the payments were made after coming into operation of the , under protest.
In respect of these contentions the learned Umpire held that the plea was that even if the agreement was in existence, it was not binding on the opposite party and that the opposite party was competent under section 49 of the Electricity Supply Act, to fix revised charges w.e.f.
12.10.1974 and had not violated any terms of the agreement.
The appellant had also relied on the alternative provisions of section 49(3) of the Act, set out hereinbefore.
The said sub section (3) provides that nothing contained in sub sections (1) & (2) of section 49 shall derogate from the power of the Board, if it happens to enter into an agreement at different rates of tariff with any person other than a licensee.
It appears that when the Supply Company was taken over on l7/18.12.1973, the resident Engineer wrote a letter on 16.1.1974 in which he informed the appellant that the licence of M/s. Agra Electric Supply Co. Ltd. having expired and the U.P. State Electricity Board having taken over the supply, it was to supply energy to the appellant at the aforesaid date.
Their further contention was that the bulk supply agreement which the appellant had with M/s. Agra Electric Supply Co. Ltd., would continue to be in force with the State Electricity Board until such time as the agreement was determined in accordance with the relevant provisions thereof.
The learned Umpire held that the letter clearly laid down that the U.P. Electricity Board had accepted the agreement which was in existence between the Supply Company and the appellant, and the Umpire proceeded on that basis.
The learned Umpire further stated as follows: "The Board thus having accepted the agreement with the claimant, it became binding on the Board and under sub section (3) of section 49 of the Electric Supply Act nothing contained in sub sections (1) & (2) of section 49 of the Act could have any bearing on the terms of the agreement.
The result was that the uniform tariff fixed by the Board with effect from 12th October, 1974 did not apply to the claimant and the claimant had to be granted the various rebates laid down in the agreement.
The decision of the Supreme Court in Indian Aluminium Co. Ltd. vs Kerala Electricity Board, PG NO 681 [1976] 1 SCR pa.
70 fully covers the case and supports the claim of the claimant.
In the case before the Supreme Court an agreement had been entered into by the State Government and it was held that under section 60 of the Electricity Supply Act, 1940 it became binding on the Kerala State Electricity Board and further that that agreement was enforceable under sub section (3) of s 49 irrespective of the fixation of uniform tariff under sub sections (I) and (2) of section 49.
In the present case the only difference is that instead of the agreement being first binding between the consumer and the State Government, the agreement became binding on the Electricity Board, because it accepted the agreement and became a party to it by letter dated 16th January 1974 (exhibit R).
" The aforesaid basis of the decision, it was contended, was the error of law which vitiated the award.
This question will require further consideration later.
It was held that the decision in Indian Aluminium Co., (supra) fully covered the dispute on this aspect in the instant case.
The learned Umpire further held as follows: "Once the agreement was binding on the Board its terms under sub section (3) of section 49 could not be varied by fixation of uniform tariff under sub sections (1) and (2) of section 49.
The opposite party in these circumstances must be held to have failed to fulfil its obligations under the agreement".
On 1st July, 1983.
an application was made under section 12 [2] of the before the learned District Judge, Lucknow, for filing of the award and making the same Rule of the Court.
Objections were filed by the respondent against the said award.
The learned kind Addl.
Distt.
Judge, Lucknow, held that the award was legal, valid and binding on the parties and the alleged grounds of misconduct were not maintainable.
The award was.
however, set aside on the ground that the reference made to arbitration was unilateral.
The appellant filed an appeal.
The Lucknow Bench of the Allahahad High Court held against the finding of the Ilnd Additional Distt.
Judge Lucknow that the reference was unilateral.
but set aside the award on the ground that there was an error of law apparent on the face of it in view of the agreement dated 20.10. 1962 and the ratio of the decision of this Court in Indian Aluminium Co., (supra).
The revision filed by the respondent against the judgment of the Vth Addl.
Distt Judge, Lucknow was also rejected.
This appeal is from the aforesaid decision of the High Court by special leave.
PG NO 682 The two learned Judges of the High Court gave separate judgments.
The High Court was of the view that the instant case was distinct from the facts in the case of Indian Aluminium Co., (supra).
There it was held that where a stipulation in a contract is entered into by a public authority in exercise of a statutory power then, even though such stipulation fetters subsequent exercise of the same statutory power, it would be valid and the exercise of such statutory power would pro tanto stand restricted.
Mr Justice Loomba was of the view that in the instant case even if the stipulation as to the tariff structure in the agreement by taken to have been continued to be in existence in view of sub section (3) of section 49 of the Act, the same was not unrestricted.
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".
Mr Justice Loomba was of the view that the decision of the Indian Aluminium Co., (supra) case was inapplicable to the present case.
According to the learned Judge, the mistake committed by the Umpire was a manifest error.
It was further stated that it is well settled proposition of law that if the reasons are stated on the basis of which the award was made and such reasons are found to be erroneous, the errors become apparent on the face of the award and constitute legal misconduct on the part of the Umpire vitiating the award.
The other learned Judge Mr Justice Mathur also held that there was error of law apparent on the face of the award of the Umpire.
He was of the opinion that the expression "sum payable by the consumer under the foregoing provision of this present clause 9" was subject to the discounts mentioned in the subsequent clauses of the agreement.
In view of the discounts, the sum payable under clause 9 was altered and the altered amount becomes the sum payable under clause 9.
According to the learned Judge, since the amount determined after allowing discounts is also sum payable under clause 9, it followed that in exercise of the power conferred under the third proviso, the discount could only be tampered with in the same way the unit charge could be tampered with.
Beyond this it was not permissible.
In permitting this the Umpire committed an error 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.
According to the learned Judge, this was a wrong understanding of the decision of the Indian Aluminium 's case (supra).
In the aforesaid view of the matter, the learned Judge agreed with the other learned Judge and held that the award was vitiated.
PG NO 683 It appears that the main question that arises is: whether the decision of this Court in Indian Aluminium 's case (supra) was properly understood and appreciated by the learned Umpire and whether he properly applied the agreement between the parties in the light of the aforesaid decision.
It was contended that the question was whether the sums payable under clause 9 included discounts.
On the aforesaid basis it was contended that there was an error of law and such error was manifest on the face of the award.
Even assuming, however, that there was an error of construction of the agreement or even that there was an error of law in arriving at a conclusion, such an error is not an error which is amenable to correction even in a reasoned award under the law.
Reference may be made to the observations of this Court in Coimbatore Distt.
P.T. Sangam vs Bala Subramania Foundry, AlR , where it was reiterated that an award can only be set aside if there is an error on its face.
Further, it is an error of law and not mistake of fact committed by the arbitrator which is justiciable in the application before the Court.
Where the alleged mistakes or errors, if any, of which grievances were made were mistakes of facts if at all, and did not amount to error of law apparent on the face of the record, the objections were not sustainable and the award could not be set aside.
See also the observations of this Court in Delhi Municipal Corpn.
vs M/S. Jagan Nath Ashok Kumar, ; , where this Court reiterated that reasonableness of the reasons given by an arbitrator in making his award cannot be challenged.
In that case before this Court, there was no evidence of violation of any principle of natural justice, and in this case also there is no violation of the principles of natural justice.
It may be possible that on the same evidence some court might have arrived at some different conclusion than the one arrived at by the arbitrator but that by itself is no ground for setting aside the award of an arbitrator.
Also see the observations of Halsbury 's Laws of England, 4th Edn., Vol. 2, at pages 334 & 335, para 624, where it was reiterated that an arbitrator 's award may be set aside for error of law appearing on the face of it, though that jurisdiction is not lightly to be exercised.
If a specific question of law is submitted to the arbitrator for his decision and he decides it, the fact that the decision is erroneous does not make the award bad on its face so as to permit it being set aside; and where the question referred for arbitration is a question of construction, which is, generally speaking, a question of law, the arbitrator 's decision cannot 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 PG NO 684 countenance, there is error in law which may be ground for setting aside the award.
It was contended by Mr F.S. Nariman, counsel for 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.
In view of clause 18, it was submitted that in this case a specific reference had been made in the interpretation of the agreement between the parties, hence, the parties were bound by the decision of the Umpire.
Our attention was drawn to the observations of this Court in M/s. Hindustan Tea Co. vs M/s. K. Sashikant & Co., AIR 1987 SC 81, where this Court held that under the law, the arbitrator is made the final arbiter of the dispute between the parties, referred to him.
The award is not open to challenge on the ground that the arbitrator has reached a wrong conclusion or has failed to appreciate facts.
Where the award which was a reasoned one was challenged on the ground that the arbitrator had acted contrary to the provisions of section 70 of the Contract Act, it was held that the same could not be set aside.
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.
For this see the observations of this Court in Kanpur Nagar Mahapalika vs M/s.
Narain Das Haribansh, In that case the appellant had entered into a contract with the respondent for certain construction work.
The contract contained an arbitration agreement between the parties.
The respondent filed a suit in 1946 claiming certain moneys due against its final bills but, at the instance of the appellant, the suit was stayed and the matter referred to arbitration.
The arbitrator made an award in March 1960 in favour of the plaintiffs determining the amount payable by the appellant.
Thereafter the appellant made an application for setting aside the award on the ground that the arbitrator had misconducted himself in not properly considering that the claim of the respondent was barred by limitation under section 326 of the U.P. Act 2 of 1916.
Although the trial court set aside the award, the High Court, in appeal, reversed this decision.
In appeal to this Court it was contended for the appellant that the award was bad by reason of an error apparent on its face.
Dismissing the appeal, it was held that there could not be predicated of the award that there was any proposition of law forming the basis of the award, and, therefore, it could not be said that there was any error apparent on the face of the award.
PG NO 685 The Judicial Committee in the famous decision of Champsey Bhara & Co. vs Jivraj Balloo Spinning & Weaving Co. Ltd., [ held that the error of law on the face of the award means that one can find in the award or in document incorporated thereto as, for instance, a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which is erroneous.
The same view was reiterated by this Court in Dr. S.B. Dutt vs University of Delhi, ; In this case.
Mr. Nariman appearing for the appellant contended that there was no proposition of law as such stated by the Umpire which could be said to be the basis of his decision.
Hence, the award was not amenable to corrections on the ground that there was an error of law apparent on its face.
Mr. Nariman further submitted that the Umpire had decided the specific question of law and such a decision, right or wrong, is binding on the parties.
In aid of his submission Mr. Nariman referred to the decision of this Court in M/s. Kapoor Nilokheri Co op.
Dairy Farm Society Ltd. vs Union of India & Ors., [ , where it was held that in a case of arbitration where the appellants had sepcifically stated that their claims were based on the agreement and on nothing else and all that the arbitrator had to decide was as to the effect of an agreement between the appellant and the respondent, the arbitrator had really to decide a question of law i.e. of interpreting the document, the agreement.
Such a decision his, is not open to challenge.
Our attention was drawn to the observations of this Court in Tarapore & Co. vs Cochin Shipyard Lld.
Cochin & Anr., [l984] 3 SCR 118, where Desai J., spoke for the Court and Justice Chinnappa Reddy agreed with him.
It was stated that a question of law might figure before an arbitrator in two ways.
It may arise as an incidental point while deciding the main dispute referred to the arbitrator or in a given case parties may refer a specific question of law to the arbitrator for his decision.
This Court reiterated that the arbitration has been considered a civilised way of resolving disputes avoiding court proceedings.
There was no reason why the parties should be precluded from referring a specific question of law to an arbitrator for his decision and agree to be bound by the same.
This approach manifests faith of parties in the capacity of the tribunal of their choice to decide even a pure question of law.
If they do so, with eyes wide open, there is nothing to preclude the parties from doing so.
If a question of law is specifically referred and it becomes evident that the parties desired to have a decision on the specific question from the arbitrator rather than one from the Court, then the court will not interfere PG NO 686 with the award of the arbitrator on the ground that there was an error or law apparent on the face of the award even if the view of law taken by the arbitrator did not accord with the view of the court.
A long line of decisions was relied upon by this Court for that proposition.
Mr. B. Sen, learned counsel for the respondent, however, contended that in the present case, there was no specific question of law referred to the Umpire.
He submitted that it was a general reference in which a question of law arose.
It was any question in the proceedings and the question of law, as such, did not arise.
According to Mr. Sen, the mistake that the Umpire, has committed is clear from his following statement: "The Board thus having accepted the agreement with the claimant, it became binding on the Board and under sub section [3] of section 49 of the Electricity Supply Act nothing contained in sub section ( 1) & (2) of section 49 of the Act could have any bearing on the terms of the agreement.
The result was that the uniform tariff fixed by the Board with effect from 12th October, 1974 did not apply".
It was stated that no specific question having been referred to, this mistake was fatal.
We are unable to accept this submission.
Our attention was drawn by Mr. Nariman to the observations of Justice Macnaghten in Hitchins & Anr.
vs British Coal Refining Processes Ltd., [1936] 2 A.E.R. Reprint 191.
Ihere, by an agreement the applicants were to act as consulting Engineers in connection with a certain coal refining process owned by the respondents.
While the plant for the working of the process was being erected, a dispute arose.
the respondents wanting the applicants to attend every day at the site of the plant and the applicants considering this to be no part of their duty.
The respondents thereupon terminated the agreement and the matter was referred to arbitration.
The applicants pleaded that the termination of the agreement was unjustified; the respondents pleaded that the applicants should have attended every day and that they had been quilty of negligence in respect of certain matters set out in the counterclaim.
The arbitrator found the termination of the agreement to be unjustified and also negligence on the part of the appellants in respect of the matters set out in the counterclaim, and he awarded the appellants damages after setting off an unspecified amount for damages for negligence.
The respondents moved to set aside the award on PG NO 687 the ground of error of law apparent on the face of it.
At the hearing the respondents contended that the whole of the pleadings in the arbitration were admissible.
The respondents contended that for the purpose of deciding whether there was an error of law apparent on the face of the award, the court could not look at any document except the award itself.
The respondents further contended that the arbitrator had committed an error of law in deciding that the negligence found did not afford sufficient ground for the termination of the agreement, and further that on the true consideration of the agreement, the refusal to attend daily was as a matter of law a sufficient ground for the termination of the agreement.
It was held that inasmuch as the arbitrator in his award referred to certain paragraphs in the counterclaim, such paras ought, in considering whether there was an error on the face of the award, to be regarded as forming part of the award.
Whether misconduct justifies dismissal is a question of fact, and the arbitrator 's decision was final.
It was further held that the light to terminate the agreement because the applicants refused to attend daily was a question specifically submitted to the arbitrator and the court could not interfere with his decision, even if the question was a question of law.
Mr. Justice Macnaghten at page 195 of the report observed that it was permissible to look at the whole of the pleadings delivered in the arbitration, and it appears therein that the respondents affirmed and the applicants denied that the respondents were entitled to terminate the agreement as the applicants refused to attend daily at the site, and that this was a specific question submitted to the decision of the arbitrator.
Our attention was also drawn to the observations of House of Lords in Pioneer Shipping Ltd. and Ors.
vs ETP Tioxide Ltd., In that case by a charterparty dated 2nd November, 197 the owners of a vessel chartered her to the charterers.
It was held by the House of Lords that having regard to the purpose the Arbitration Act, 1970 of England which was to promote greater finality in arbitration awards then had been the case under the special case procedure judicial interference with the arbitrator 's award was only justified if it was shown that the arbitrator had misdirected himself in law or had reached a decision which no reasonable arbitrator could have.
In the instant case, the view taken by the Umpire on the interpretation of the agreement between the parties in the light of the observations of this Court in Indian Aluminium Co. 's case (supra) was at best a possible view to take, if not the correct view.
If that was the position then such a view, even if wrong, cannot be corrected by this Court on the basis6is of long line of decisions of this Court.
In the PG NO 688 aforesaid view of the matter it is necessary to examine the aforesaid decision in the Indian Aluminium Co 's case (supra).
There under section 49(1) & (2) of the Electricity Supply Act, 1948, the Legislature had empowered the State Electricity Board to frame uniform tariffs and had also indicated the factors to be taken into account in fixing uniform tariffs.
Under sub section (3), the Board was empowered, in the special circumstances mentioned therein, to fix different tariffs for the supply of electricity, but in doing so, sub section (4) directed that the Board was not to show undue preference to any person.
Under section 59 it was stipulated that the Board shall not, as far as practicable, carry on its operations at a loss and shall adjust its charges accordingly from time to time.
Certain consumers of electricity had entered into agreements for the supply of electricity for their manufacturing purposes at specified rates for specified period.
Some of the agreements were entered into with the State Governments and the others with the State Electricity Boards.
In one of the agreements there was an arbitration clause.
On account of the increase in the operation and maintenance cost, due to various causes which caused loss to the State Electricity Boards, the Boards wanted to increase the charges in all the cases.
The consumers challenged the competency of the Boards to do so by petitions in the respective High Courts.
The High Court sustained the Board 's claim, in some cases, under sections 49 & 59, and in others, held that the Board was incompetent to do so.
In the case of the consumer where there was the arbitration clause.
the High Court refused to entertain the petition on account of the clause.
This Court held that fixation of special tariffs under section 49 (3) can be a unilateral Act on the part of the Board but more often it is the result of negotiations between the Board and the consumer and hence a matter of agreement between them.
Therefore, the Board can, in exercise of the power conferred under the sub section, enter into an agreement with a consumer stipulating for special tariff for supply of electricity for a specific period of time.
The agreements for supply of electricity to the consumers must therefore he regarded as having been entered into by the Boards in exercise of the statutory power conferred under section 49(3).
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 is that there was only an agreement by which the Electricity Board accepted the agreement which was held by the Umpire to have become operative.
Once that agreement was binding on the Board, its terms could not be varied from the uniform rate under sub sections (1) and (2) of section 49.
The Umpire was right.
In our opinion, the Umpire committed no error in arriving at such conclusion.
Furthermore, such a conclusion is certainly a possible view of the interpretation of the decision of this PG NO 689 Court in Indian Aluminium Co 's case, if not the only view.
We need go no further than that.
We, are, therefore, of the opinion that the view taken by the Umpire on section 49 was a possible view in the light of the decision of this Court in Indian Aluminium 's case.
In the premises, 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 of law 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 is no proposition of law which could be said to be the basis of the award of the Umpire, and which is erroneous.
In the premises, we are of the opinion that the High Court and the learned IInd Additional District Judge were in error in the view they took of the award of the Umpire.
The appeal must, therefore, be allowed and the decision of the High Court, dated 21st July, 1987 as well as the order of the IInd Additional Judge, Lucknow, dated 30th May, 1984 are set aside.
No other point was urged challenging the award of the Umpire.
The award of the Umpire is confirmed and let the award be made Rule of the Court under section 14(2) of the Act.
The appeal is allowed with costs.
R.S.S. Appeal allowed.

summary:
On taking over the Agra Electric Supply Co. in December 1973, the respondent U.P. State Electricity Board intimated to the appellant U.P. 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.
P.T. Sangam vs Bala PG NO 673 Subramania Foundry; , ; Delhi Municipal corpn.
vs M/s Jagan Nath Ashok Kumar; , ; M/s. Hindustan Tea Co. vs M/s. K. Sashikant & Co., AIR 1987 SC 81; Kanpur Nagar Mahapalika vs M/s.
Narain Das Haribansh, ; Champsey Bhara & Co. vs Jivraj Balloo Spinning & Weaving Co. Ltd., ; Dr. S.B. Dutt vs University of Delhi; , ; M/s. 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 A.E.R. Reprint 191; Pioneer Shipping Ltd. & Ors.
vs ETP Tioxide Ltd., , referred to.


judgement:
vil Appeals Nos.
1671 87 of 1987.
From the Judgment and order dated 22.4.1987 of the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. 1546, 1547 etc.
in Order No. 267 to 283 of 1987 B I. M.K. Banerjee, Solicitor General, R.P. Srivastava and P. Parmeswarn for the Appellants.
Soli J. Sorabji, K.K. Patel, Rajiv Dutta and R.S. Sodhi for the Respondents .
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J.
These are appeals from the decision of the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi (hereinafter referred to as 'CEGAT ') under Section 35L(b) of the Central Excises & Salt Act, 1944 (hereinafter called 'the Act ).
The respondent Calcutta Steel Industries filed revised classification lists wherein they had classified all rectangular products of thickness below 3.0 mm manufactured by them as bars covered by Tariff item 26AA(ia) of the Central Excise Tariff.
The Assistant Collector, Central Excise was of the tentative view that rectangular products of thickness less than 3.0 mm and of width less than 75 mm conform to the definition of Hoops and merit classification under item (ii) of Tariff Item 26AA attracting effective rate of duty of Rs.450 per MT less the PG NO 597 reduction provided for under Notification No. 55/80 dated 13th May, 1980.
The respondents were, therefore, called upon to show cause as to why the classification list should not be amended and duty charged accordingly.
The respondents submitted their written statement and requested for a personal hearing.
The matter came up for adjudication before the Assistant Collector, Central Excise.
He held inter alia that the type of Mills used for the manufacture was irrelevant.
He relied on the definition of "Hoops" evolved in consultation with the Ministry of Steel and the Indian Standard Institution.
The revised definition was as follows: "The finished product, generally of cross section with edges of controlled contour and of thickness 3.0 mm and over width 400 mm and below and supplied in straight lenths.
The product shall have rolled edges only (square or slightly rounded).
This group also includes flat bars with bulb that has swelling on one or two phases of the same edge under width of less than 400 mm.
The Assistant Collector, Central Excise on the basis of certain discussion, in his order, was of the view that rectangular products of thickness less than 3.0 mm and of width less than 75 mm were hoops and were correctly classified under sub item (ii) of Tariff item 26AA of the Central Excise Tariff and accordingly exigible to the appropriate duty.
The revised classification list was accordingly modified and approved.
The respondents preferred appeals to the Collector of Central Excise (Appeals).
The Collector considered the Indian Standard 1956 62 (2nd reprint May 1975) which defined "Hoops" as follows: "5.54 HOOP (bailing, hoop iron) a Hot Rolled Flat Product, rolled in rectangular section of thickness less than 3.0 mm and width less than 75.0 mm." He held that according to the specifications the product in question sequarely fell within the above definition particularly when the description of the Tariff Items covered "Hoops, all sorts".
The Appellate Collector also considered the definition of "Hoop and Strips" in the Brussels Tariff Nomenclature which described these as follows: "Hoop and Strip (heading No. 73.
12) rolled products with sheared or unsheared edges of rectangular section, of a thickness set exceeding 6 milli PG NO 598 metres, of width not exceeding 500 millimetres and of such dimension that the thickness does not exceed one tenth of the width, in straight strips, coils or flattened coils." He accordingly held that this definition showed that the edges of the product in question might be sheared or unsheared and the products might be in straight lengths or in coils.
He also held that the nature or type of mill cannot by itself be the determining factor of the issue in dispute which has to be determined taking into account all relevant considerations, viz., the phraseology and the scope of the Tariff Entry, the trade practice terminology, well recognised standard national and international technical literature.
In the result, the Appellate Collector of Central Excise inter alia for the reasons stated above, found no reason to interfere with the order of the Assistant Collector, Central Excise which was accordingly upheld.
The respondents preferred appeals to the Tribunal.
The Tribunal allowed the appeals and held that the flat product of thickness less than 3.0 mm and a width of less than 75 mm is classifiable as bars as claimed by the respondents herein and not as hoops as held by the Assistant Collector, Central Excise and upheld by the Appellate Collector of Central Excise.
in allowing the appeals, the Tribunal referred to U.S. Steel Publications (The shaping and treating of steel) wherein it is stated as follows: "goods have been rolled in a bar mill and have not been subjected to the process mentioned by the book for producing hoops and that they were not meant for bailing or packaging which a hoop is meant for. ' ' The Tribunal in its order discussed various aspects of the matter.
The Tribunal noted that the Collector had stated and what are the different categories.
In U.S. Steel Publication (The Making, Shaping and Treating of Steels) edited by Herald E. Mc.
Gannon 9th Edition whom the Tribunal has described as an authority on the Steel and we presume he is, there are some observations at page 808 under the heading "Narrow Flat rolled products" which are relevant.
There,"Hoops" have been described as follows: "Hoop There are four general classification of this type of products: 1.
Tight cooperage hoop for barrels to hold liquid.
PG NO 599 2.
Slack barrell hoop for barrels to hold dry products.
Tobacco barrel hogshead hoop, and 4.
Special hoop for special packages.
" It has further to be noted that "hoop" is made either by slitting coiled strip rolled in multiple width, into narrow coiled strip of the desired width, or from narrow coiled strip with a not rolled or mill edge and the type and width of hoop being produced influences the choice of the method used.
It further appears that the method of the products in question is not one of the methods listed in this authoritative work for hoops.
The so called hoops were not produced by slitting coiled strip nor rolled from narrow coiled strip, with hot rolled or mill edge.
The article, as has been noted, says that "hoop" is produced as ' curled hoop ' or 'a straight length '.
Curled hoop is made by a pinchroll and curved guide shoe arrangement that permits the hoop to take a circular form.
A straight length hoop is produced merely by removing the curved guide shoe.
The Tribunal was conscious that the goods in question were neither curled hoops nor straight length.
In those circumstances, it was necessary to understand clearly that the "straight length" used in this book is not the straight length understood by the department which seems to think that any short straight length is the straight length signified by the term for these products.
It is nothing of the kind as can be seen from the above passage quoted from the authority.
Straight length is not a short length, it is long.
The means of producing the goods is completely different from what is generally written.
The Tribunal was justified in holding that it is not possible to agree with the department that the manner of production of the goods can be taken into account.
It has also to be borne in mind that the very nature of the mill was a criteria to decide the nature of the product manufactured.
Further, however, taking into account the nature and type of the mill cannot itself be the determining factor in the issue in dispute.
The Tribunal also took into account that these are produced in a mill which cannot produce hoops or strips.
The Tribunal found the fact that they were produced in a mill that could produce hoops and strips.
Their lengths are not such as to place them in the same class as hoops.
Having, therefore, regard to this and the relevant tariff item, the Tribunal came to the conclusion that it will be more appropriate to assess them PG NO 600 under item 26AA(ia) than under Item 26AA(ii).
The Tribunal has considered all the relevant facts.
There was no misdirection on the facts.
All proper and relevant materials relevant for the determination of the question before the Tribunal have been applied to.
Reliance was placed on certain observations of this Court in South Bihar Sugar Mills Ltd. vs Union of India & Ors., ; There, this Court was dealing with Item 14A and the appellants ' manufacturing mixture of gases containing carbon dioxide by burning lime stone with coke in using only the carbon dioxide from the mixture for refining sugarcane juice and for producing soda ash by solvay ammonia soda process Whether the mixture of gases was kiln gas or compressed carbon dioxide covered by Item 14 H in Schedule I to the Act.
It was held by this Court that the gas generated by the appellant companies was kiln gas and not carbon as known to the trade, i.e., to those who deal in it or who use it.
The kiln gas in question therefore is neither carbon dioxide nor compressed carbon dioxide known as such to the commercial community and therefore cannot attract Item 14 H in the First Schedule.
It was held that it was incorrect to say that because the sugar manufacturer wants carbon dioxide for carbonisation purposes and sets up a kiln for it that he produces carbon dioxide and not kiln gas.
In fact what he produces is a mixture known both to trade and science as kiln gas one of the constituents of which is no doubt, carbon dioxide.
The kiln gas which is generated in these cases is admittedly never liquified nor solidified and is therefore neither liquified nor solidified carbon dioxide, assuming that it can be termed carbon dioxide.
It cannot be called compressed carbon dioxide as understood in the market among those who deal in compressed carbon dioxide.
If the Revenue wants to tax a particular goods known as such then the onus is on the Revenue.
That they have failed.
The Tribunal has analysed all the aspects.
In appeal, we have to see the propriety and the correctness of adjudication.
Having examined the aspects from all angles, we find that there was no misdirection in law nor any non consideration of facts.
There is no exclusion from consideration of legitimate and proper materials.
In the premises, we have also examined the ultimate conclusion of the Tribunal.
That conclusion appeals to us.
It follows irresistibly from the other premises as indicated hereinbefore.
In the premises, the appeals fail and are accordingly dismissed.
S.K.A. Appeals dismissed.

dataset_name: IN-Abs

summary:
The respondent company filed revised classification lists classifying all rectangular products of thickness below 3.0 mm manufactured by them as bars covered by Tariff Item 26AA(ia) of the Central Excise Tariff.
The Asstt.
Collector, Central Excise took the view that rectangular products of thickness less than 3.0 mm and of width less than 75 mm fell under the definition of 'Hoops ' and merit classification under Tariff Item 26AA(ii) and exigible to the appropriate duty.
The respondent preferred an appeal before the Collector of Central Excise who held that the product fell within the definition of 'Hoops ' and upheld the order of the Asstt.
Collector.
The respondent appealed to the Tribunal which held that the flat product of thickness less than 3.0 mm and a width of less than 75 mm was classifiable as 'bars ' as claimed by the respondent company and not as 'Hoops ' and allowed the appeals.
The Department therefore filed the appeals under Section 35L(b) of the Central Excises & Salt Act, 1944 before this Court.
Dismissing the appeals, this Court, HELD: If the revenue wants to tax a particular goods known as such then the onus is on the Revenue.
[600F] 'Hoop ' is made either by slitting coiled strip rolled in multiple width, into narrow coiled strip of the desired width, or from narrow coiled strip with a hot rolled or mill edge and the type and width of hoop being produced influences the choice of the method used.
[599B] Curled hoop is made by a pinch roll and curved guide shoe arrangement that permits the hoop to take a circular form.
A straight length hoop is produced merely by removing the curved guide shoe.1599D] PG NO 597 PG NO 598 Straight length is not a short length, it is long.
[599E] The fact is that they were produced in a mill that could produce hoops and strips.
Their lengths are not such as to place them in the same class as hoops.
Having, therefore, regard to this and the relevant tariff item, the Tribunal came to the conclusion that it will be more appropriate to assess them under Item 26AA(ia) than Item 26AA(ii).
[599(G H; 600A] South Bihar Sugar Mills Ltd. vs Union of India & Ors., ; , referred to.
In an appeal under Section 35L(b) this Court has to see the propriety and the correctness of adjudication.
There was no misdirection in law nor any non consideration of facts.
There is no exclusion from consideration of legitimate proper materials.
[600F G]


judgement:
ivil Appeal No. 783 (NM) of 1987.
From the Judgment and Order dated 9.3.87 of the High Court of Patna in C.W.J.C. No. 608 of 1983.
Soli J. Sorabjee, Ravinder Narain, section Ganesh, Laxmi Kumaran, P.K. Ram and D.N. Mishra for the Appellant.
Govind Das, C.V.S. 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 26AA(ia) 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. 26AA(ia).
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. 26AA(ia) 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. 26AA(ia) 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 16.5.1981 called upon the appellant to show cause why it should not be proceeded against for contravention of Rule 173 B, 9(i) read with rule 173(G)(i) and rule 173(i)(a).
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. 26AA(ia) 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 26AA(ia) 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 Rs.1 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 2(c) 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. 26AA(ia) 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. 26AA(ia).
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 E.L.T. p.280 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 drop/close die forging and/or upset forging process under which the product is made with the help of dies.
Thereafter, the extra/unwanted 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 I.S.I./or 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 extra/unwanted 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 26AA(ia) 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 No.26AA 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 A.K. 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 "rolled/as forged" condition.
These wheels/tyres, 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. 26AA(ia) 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. 26AA(ia) 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. 26AA(ia) 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. 26AA(ia) 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.
R.S.S. Appeal allowed.

summary:
The appellant assessee manufactures and supplies to the Indian Railway wheels, tyres and axles as separate items.
The goods are forged products.
After being forged, the goods are rough machined and polished before supplying, thus removing the excess layer of steel, commonly referred to as 'excess skin '.
The appellant also makes and supplies to the Railways wheels and axles as composite units.
Right from 1962 the appellant/assessee was filing classification lists showing the forged goods as liable to excise duty only under Tariff Item No. 26AA(ia) of the Central Excise Tariff set out in the First Schedule to the , and this classification was being accepted and approved by the Excise Authorities.
It is common ground that duty under Tariff Item No. 26AA was payable on the forged product and duty under Tariff Item No. 68 was payable only at the stage of the completion of the manufacture of the finished goods.
In 1981, the Assistant Collector, Central Exicse, called upon the appellant to show cause why it should not be proceeded against for contravention of Rule 173 B, 9(i) read with Rule 173(G)(i) and Rule 173(i)(a) on the ground that the goods supplied to the railways were not forged items as such, but the said goods after they had undergone machining and polishing after having been forged had been turned into a distinct commercial commodity which process amounted to manufacture and hence the goods were liable to 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. 26AA(ia) should not be payable on the footing of the weight of the goods as forged and before 1024 the removal of the excess skin.
The basic contention of the revenue was that the goods were liable to duties at two stages, namely, under Tariff Item No. 26AA(ia) when they were forged and under Triff Item No. 68 after they were machined and polished.
The stand of the appellant was that the process of forging of the goods could be paid to be completed only after machining and polishing, that machining and polishing was required to be done in order to bring the goods in line with the specification of the Indian Railways, that the goods supplied have to be further precision machined and fine polished at the railway workshop before these could be put to use by the railways, and hence the machining by the appellant did not amount to manufacture.
A Certificate issued by the Railways states that axles are supplied to the railways in rough machined condition and wheels, tyres and blanks are supplied in "as rolled/as forged" condition.
It further states that these wheels, tyres, exles and blanks have to be sometimes rough machined partially to remove excess steel or manufacturing defects, and these products are subsequently precision machined by the Railways at their workshops before being put to use.
The Collector rejected the stand of the appellant and held that the appellant was liable to pay differential duty under Item 26 AA (ia) 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.
The Collector also held that the appellant was liable to penalty of Rs.1 lac under Rule 173 Q for suppression of facts or giving misleading particulars.
On that basis the Collector took the view that the period of limitation for making the demand was 5 years prior to the service of the show cause notice.
The appellant filed writ petition in the Patna High Court for quashing the order passed by the Collector.
The 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 and hence the period of limitation would be only 6 months prior to the service of the show cause notice.
The Appellants contends before this Court that machining and polishing which is done in its workshop was not of a significant character and is only in the nature of shaping by removing the superficial material to bring the forged items upto Railways ' specifications.
It is further 1025 contended that the weight should be measured only after the machining and polishing at the appellant 's workshop was complete.
The Respondents, on the other hand, contend that the forging of the goods was complete before machining and polishing was done and that the duty on the forged goods under Tariff Item No. 26AA(ia) should be payable on the footing of the weight of the goods as forged and before the removal of the excess skin by machining.
Three points arise for decision: (1) at what stage could the goods suplied by said to be forged, and in respect of the said goods whether the weight for the purpose of levy of excise duty under item 26AA(ia) should be taken before or after the machining and polishing is done by the appellant to remove excess skin; (ii) whether as a result of machining and polishing the forged goods were transformed into new commercial commodities; (iii) whether the appellant was guilty of misstatement of facts so as to attract longer period of limitation.
Allowing the appeal, this Court, ^ HELD: (i) The removal of extra/unwanted surface steel by either trimming or skin cutting of the forged product must be regarded as incidental or ancillary to the process of "manufacture" as defined in sub section 2(f) of the .
The appellant is, therefore, liable to pay duty on the goods referred to in the petition other than the composite units only under Item No. 26AA(ia) 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.
[1030D F] (ii) It is quite clear on facts 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 complete and therefore the appellant is not liable to pay any duty on these goods as under Item No. 68 of the Central Excise Tariff.
[1031F] (iii) It is common ground that right from 1962 the appellant 's classification lists were accepted and approved by the excise authorities.
In these circumstances, it could not be said that the appellant was guilty of any suppression or mis statement of facts or collusion or violation of the provisions of the 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.
[1032E F 1026 (iv) In respect of the composite sets, it is beyond dispute, and it is conceded by the appellant, that the appellant is liable to pay duty both under Items Nos. 26AA(ia) and 68, but only for a period of six months prior to the service of the show cause notice.
[1033A B] Metal Forgings Pvt. Ltd. vs Union of India, [1985] 20 E.L.T. approved.