Custom, Excise & Service Tax Tribunal
M/S. Acd Communication Pvt. Ltd vs Cc, Chennai on 20 May, 2010
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
C/298 300/2008
(Arising out of Order in Original No. 7703/2008 dated 14.05.08, OIO No. 7706/2008 dated 14.05.09 and OIO No. 7702/2008 dated 15.05.08 passed by the Commissioner of Customs (Seaport Import), Chennai).
For approval and signature
Honble Ms. JYOTI BALASUNDARAM, Vice President
Honble Dr. CHITTARANJAN SATAPATHY, Technical Member
___________________________________________________________
1. Whether Press Reporters may be allowed to see the :
order for Publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether the Honble Member wishes to see the fair :
copy of the Order.
4. Whether order is to be circulated to the :
Departmental Authorities? ___________________________________________________________
1. M/s. ACD Communication Pvt. Ltd. : Appellant
2. M/s. ICOMM Tele Ltd.
3. M/s. ACD Commn. Pvt. Ltd.
Vs.
CC, Chennai : Respondent
Appearance Shri K.S. Venkatagiri, Adv., for the appellant Shri C. Dhanasekharan, SDR, for the respondent CORAM Honble Ms. JYOTI BALASUNDARAM, Vice President Honble Dr. CHITTARANJAN SATAPATHY, Technical Member Date of hearing : 20.05.2010 Date of pronouncement: 21.09.2010 FINAL ORDER No._____________ Per: Dr. Chittaranjan Satapathy, Initially on 07.07.2009 and subsequently on 20.05.10, both sides have been heard in respect of the following three appeals involving a common issue:-
Appeal No. Duty demanded (Rs. in lakhs) R.F. (Rs. in lakhs) Penalty (Rs. in lakhs) C/298/2008 66.83 20.00 10.00 C/299/2008 47.45 15.00 8.00 C/300/2008 39.92 16.30 11.00 Shri K.S. Venkatagiri, Ld. Advocate, appearing for the appellants states that the appellants are manufacturers of Integrated Fixed Wireless Telephones (IFWT), which the appellants supplied along with patch panel antenna, 12V Switch Mode Power Supply (SMPS), RF feeder cable, connectors and accessories to M/s. BSNL. The appellants have imported 12V Valve Regulated Lead Acid (VRLA) Batteries, which are used in the assembly of SMPS, which in turn are supplied to M/s. BSNL along with IFWT.
2. The appellants declared the impugned VRLA batteries to be parts of IFWT, claimed assessment under Customs Tariff Heading 85299090 and exemption from duty under Customs Notification No. 21/05 and Central Excise Notification No. 6/06.
3. The impugned goods were assessed and cleared under the Risk Management System on the basis of declaration by appellant-importers. The present proceedings have been initiated as a result of post clearance audit by customs authorities.
4. The customs authorities have classified the impugned VRLA batteries under CTH 85072000 and have denied the duty exemption holding that the impugned batteries are not part of IFWT.
5. Ld. Advocate, concedes that the appellants are agreeable for classification of the VRLA batteries under CTH 85072000 instead of their initial claim for classification under the CTH 85299090 but argues that the appellants are eligible for duty exemption in respect of the impugned batteries. His argument centers on the proposition that the exemption notification does not refer to any tariff heading and even though the impugned batteries cannot be considered as parts of IFWT for classification purposes under the HSN, the same have to be considered as part of the IFW telephone for the exemption notification purpose.
6. He argues that the impugned batteries are designed to fit into the SMPS and therefore they are integral parts of the SMPS. However, SMPS being a part of the IFWT, the batteries should also be treated as a part of the IFWT. He also argues that batteries cannot be considered to be consumables as has been held by the adjudicating Commissioner as they do not get consumed but wear out in course of time as any other part. He argues that alternatively, the impugned batteries should be extended the exemption considering the same as accessories to the IFWT. He also argues that since the impugned batteries have been imported for use with original equipment and not for sale, the appellants are not required to register themselves with the Ministry of Environment and Forest under Rule 5 of the Batteries (Management and Handling) Rules 2001. The Ld. Advocate also cites the following decisions in favour of the arguments advanced by him.
a. Vanasthali Textiles Industries Ltd. Vs. CCE, Jaipur -
2007 (218) ELT 3 (S.C.) b. MAK Controls Vs. CCE, Coimbatore -
2001 (138) ELT 1152 (Tri.-Chenn.)
c) CCE Vs. Mak Controls -
2005 (183) ELT A73 (S.C.)
d) Union Carbide (I) Ltd. Vs. State of Andhra Pradesh -
1995 (76) ELT 489 (S.C.)
e) Teracom Pvt. Ltd. Vs. CC, Goa -
2008 (222) ELT 58 (Tri.-Mumbai)
f) Jayshree Industries Vs. CCE -
1993 (63) ELT 492 (Tri.)
g) Eveready Industries India Ltd.Vs. CCE, Lucknow 2005 (184) ELT 90
7. We have heard Shri C. Dhanasekaran, Ld. SDR, appearing for the department. He cites the decision of the Tribunal in the case of Twenty First Century Builders Vs. CC, New Delhi 2004 (172) ELT 459 (Tri.-Del.) and argues that parts of batteries were not considered as parts of cellular phones in that case. He also states that this decision of the Tribunal has been upheld by the Honble Supreme Court vide Twenty First Century Builders Vs. CC, New Delhi 2005 (183) ELT A118 (S.C.) and the civil appeal against the Tribunals order has been dismissed. He argues that from this decision it can be concluded that the batteries are not parts of telephones, otherwise the part of the batteries would have been allowed exemption on the basis of the logic that part of a part is a part of the whole. He also states that in the case of Teracom (supra), batteries were listed among various other goods and that the issue as to whether the batteries were part of the telephones was not in question nor the Tribunal has decided this issue therein. It was merely decided in the Teracom case that CDMA WLL phones are cellular phones which was the issue for consideration in that case. He further states that in the following cases, it has been held that battery cells are articles by themselves and are not parts of any machines:-
(i) M/s. Webel Telecommunication Industries Vs. CC, Calcutta 1995 (76) ELT 163
(ii) M/s. Electronic and Engineering Co. Vs. CC, Bombay 1997 (92) ELT 382
(iii) CC, Madras Vs. Kodi Medical Electronics Pvt. Ltd 1998 (98) ELT 535
(iv) M/s. Titan Watches Ltd. Vs. CC, Coimbatore 1999 (108) ELT 643
8. After hearing both sides and perusal of case records along with the cited decisions, we find that the appellants did claim classification of the impugned batteries under the tariff heading 85299090, declaring the goods as part of IFWT. Only subsequent to the post clearance audit by the customs authorities, the appellants have agreed to the classification under the heading 85072000. The country of origin certificate produced along with the imported batteries also indicated that the goods were classifiable under CTH 85072000 and the goods were described as batteries supplied from China. The impugned batteries in question have also been imported separately and not with any telephone equipment.
9. The impugned batteries are VRLA batteries, VRLA stands for valve-regulated lead-acid and is the designation for low-maintenance lead-acid rechargeable batteries. These batteries are often called sealed lead-acid batteries, but they do include a safety pressure relief valve. They do not require regular addition of water to the cells and use much less electrolyte. The name valve regulated does not wholly describe the technology; these are really recombinant batteries, which means that the oxygen evolved at the positive plates will largely recombine with the hydrogen ready to evolve on the negative plates, creating water- thus preventing water loss. The valve is strictly a safety feature in case the rate of hydrogen evolution becomes dangerously high. One result of this design is a much higher ratio of power to floor space than large, flooded type battery systems; another is a high-rate power capacity, though of relatively short duration. As a result, VRLA batteries are frequently employed in UPS (uninterruptible power supply) or other high-rate applications.
10. It is an admitted position that the impugned VRLA batteries cannot be used inside the telephones because of its size as also the fact that it is not a dry cell battery but a lead-acid battery containing electrolyte. It is also admitted that the VRLA batteries are actually placed in the Switch Mode Power Supply (SMPS) which supplies power to the telephone. During the argument of the case, the Ld. Advocate has indicated that the IFW telephones are typically used in rural areas and since electrical power from the transmission lines are often interrupted, the SMPS is useful since automatically it switches from the main power supply to VRLA battery used in the SMPS, thereby ensuring continuous functioning of the telephone. It appears that functioning of the SMPS is more akin to the UPS which are nowadays used along with the computers, which provide continuous power at times of power cuts. The question to be decided in this case is whether VRLA batteries which supply power to IFW telephones at the time of power cuts can be considered as parts of IFW telephones as argued by the Ld. Advocate.
11. We reproduce below the relevant extract of the exemption Notification which is the subject matter of this appeal. Notification No. 21/05-Cus dated 1.3.2005 reads as under:-
In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts parts, components and accessories of mobile handsets including cellular phones, from the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and from the whole of the additional duty leviable thereon under sub-section (1) of section 3 of the said Customs Tariff Act subject to the condition that the importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996.
12. The aforecited exemption Notification exempts parts, components and accessories of mobile handsets including cellular phones from the duty leviable under both Section 3(1) and the First schedule to the Customs Tariff Act, 1975. The exemption Notification has been issued under Section 25 of the Customs Act, 1962. Admittedly, the expressions used in the exemption Notification have not been defined in the Notification itself nor does the Notification contain any provision to the contrary that the meaning assigned to these expressions in the Customs Act and the Customs Tariff Act, cannot be used for interpreting the expressions used in the Notification. In such a case, the definitions and rules of interpretation available under the principal Acts namely, the Customs Act, 1962 and the Customs Tariff Act, 1975 have to be naturally taken recourse to for interpreting a notification issued using the powers given under the Customs Act, 1962 for granting exemption from the duty leviable with reference to the Customs Tariff Act,1975. It would be a different situation if the Notification contained a provision that the expressions used in the Notification should be interpreted in a specified manner not withstanding the provisions contained in the principal Acts. However, that is not the situation in this case.
13. We find that the customs authorities have classified the impugned batteries under CTH 85072000 which is a separate entry for the lead-acid batteries ruling out the claimed classification under CTH 85299090 as parts of telephones. The appellants have also accepted the classification proposed by the customs authorities. This implies that under the Customs Tariff Act provisions, it is not in dispute that the impugned batteries cannot be held to be and classified as parts of IFW telephones. Applying the same interpretation to the notification at hand, we have to hold that the impugned VRLA batteries cannot be considered as parts of IFW telephones and extended the exemption under the aforecited notification as parts of cellular phones. These cannot also be considered to be components as the expression part includes both component part and spare part.
14. The Tribunals decision in the case of Twenty First Century (supra), also favours such an interpretation as in the said case, it was held that the parts and components of the batteries cannot be considered as parts, components and accessories of mobile phones. By implication, it rules out the proposition that the batteries are parts of mobile phones. The Ld. SDR is right in referring to the principle that part of a part is a part of the whole in this regard. If batteries were parts of the telephones, then the Tribunal would have extended the benefit to the parts of the batteries treating the same as part of the telephones. However, the cited decision is to the contrary holding the view that parts of the batteries cannot be extended the exemption benefit as applicable to parts of telephone. Aforecited decision of the Honble Supreme Court in the case of Twenty First Century (supra) has also dismissed the civil appeal against the decision of the Tribunal. On the other hand, the decision of the Tribunal in the case of Teracom (supra), cannot be taken as a precedent to decide the issue as to whether the batteries are part of the telephones since that was not an issue for consideration before the Tribunal in that case. The Tribunal merely dealt with the question in that case as to whether CDMA telephones are to be considered as cellular phones or not and came to the conclusion that such phones have to be considered as cellular phones.
15. The Ld. Advocate for the appellants has referred to the Honble Supreme Courts decision in the case of Vanasthali Textiles (cited supra). According to the said decision, consumables refers only to material which is utilized as an input in the manufacturing process but not identifiable in the final product by the reason of fact that it has got consumed therein. Applying the ratio of the said decision, finding of the adjudication Commissioner, that batteries are consumables may not be appropriate. However, that by itself does not entitle the appellants to the exemption as the exemption is applicable to parts, components and accessories of mobile handsets including cell phones.
16. On the basis of material available on record, it is not possible to hold that VRLA batteries are either parts or components of the IFW telephones. It, however, remains to be considered as to whether such batteries can be considered to be accessories to IFW telephones. In the case of Union Carbide (supra), the Honble Supreme Court has made a distinction between dry batteries or primary cells on the one hand and storage batteries/accumulators or secondary cells on the other. It has, thereafter, proceeded to hold dry cell batteries marked for transistors as accessories of wireless reception instruments. It is significant that in the said case, the Honble Supreme Court made a distinction between dry batteries and storage batteries/accumulators and in the present case we are concerned not with dry batteries but with lead-acid batteries. Secondly, the said decision was rendered in the context of Andhra Pradesh General Sales Tax Act57.
17. The expression accessory is defined in the Exim Policy to mean a part, sub-assembly, or assembly that contributes to the efficiency or effectiveness of a piece of equipment without changing its basic functions. The lead-acid batteries in question cannot be considered as an accessory in terms of the said definition and also for the reasons stated in paragraph 18 below. These batteries do not contribute to the efficiency or effectiveness of the telephone but merely provide power in the absence of electric supply from the mains.
18. The Ld. Advocate has also cited the decision of the Tribunal in the case of Jayshree Industries (supra). However, the said decision was rendered in the case of dry cells fitted inside quartz clocks and time pieces, holding the same to be component of the final product but not an accessory therefor. As has been noted earlier, we are dealing in this case with lead-acid batteries and not dry cell batteries. The decision takes into account that the dry cell batteries are fitted within the gadget, and hence considered the same to be an essential component and, therefore, is not relevant to the present case where the lead-acid batteries are separately housed in the SMPS apart from not being dry battery cells. This decision also deals with the question as to what can be considered to be an accessory. The Tribunal has ruled that battery is not an item, which goes as an attachment for improving the efficiency or for performing a secondary or subordinate function. We entirely agree that a lead-acid battery which merely provides power in the absence of power from the mains does not improve the efficiency of the telephone nor performs a secondary or subordinate function and hence cannot be considered as an accessory to the IFW telephones. The reliance placed by the Ld. Advocate on Eveready Industries Ltd. (supra) is also misplaced as the same merely allowed modvat credit purely giving by the logic that the value of the input was included in the value of the final product.
19. The Ld. Advocate has also cited the majority decisions in the case of MAK Controls (supra), in support of his argument. We find that in this case a ground power unit with an inbuilt computer system which synchronizes with the aircraft mechanism and which also activates the computer operations in the aircraft was held to be a part of the aircraft. The case of the lead-acid batteries under consideration here is quite different from that of a ground power unit which has an inbuilt computer system. Hence, the ratio of the said decision in the case of MAK Controls (supra) cannot be applied to the present case.
20. We have considered all aspects of the case. The impugned batteries are lead-acid batteries. They weigh around 2.16 kgs each, are not and cannot be fixed inside the IFW telephones, have been separately imported, and the country of origin certificates describes them as batteries indicating HSN classification as 85072000. As such, these batteries cannot be held to be parts, components or accessories of IFW telephones for the reasons elaborately discussed above. Hence, the impugned orders of the adjudicating Commissioner denying the claimed exemption requires to be upheld. We order accordingly.
21. As has been held by the adjudicating Commissioner, the appellants have also mis-declared the impugned batteries as parts of IFW telephones with a view to avail the claimed exemption instead of declaring the same as lead-acid batteries as indicated in the country of origin certificate. Hence, the orders of confiscation and orders imposing redemption fines and penalties passed by the adjudicating Commissioner are also required to be upheld. We order accordingly. However, considering the amounts of duty benefit sought to be availed, we reduce the redemption fine and penalty in respect of Appeal No. C/300/08 to Rs. 13 lakhs and Rs. 6 lakhs respectively.
22. All the three appeals are dismissed except for reduction in fine and penalty in respect of Appeal No. C/300/08 as indicated above.
(Order pronounced in the open Court on 21.09.10 )
(Dr. CHITTARANJAN SATAPATHY) (JYOTI BALASUNDARAM)
TECHNICAL MEMBER VICE PRESIDENT
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