Custom, Excise & Service Tax Tribunal
Medical Engineers India Ltd vs New Delhi(Prev) on 18 September, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. III
CUSTOMS APPEAL NO. 52818 OF 2015
[Arising out of Order-in-Appeal No. CC(A)CUS/230/2015 dated 20.02.2015
passes by the Commissioner of Customs(Appeals) New Custom House, New
Delhi ]
M/s. MEDICAL ENGINEERS (INDIA) LTD., ...APPELLANT
B-69/2, Wazirpur Industrial Area,
New Delhi- 110 052
Versus
Commissioner of Customs (Preventive) ...RESPONDENT
New Custom House Near IGI Airport, New Delhi-110 037.
WITH
C/52251/2015 C/52252/2015
APPEARANCE:
Shri Prabhat Kumar and Shri Pralabh Mathur, Advocates for the appellant Shri Rakesh Kumar, Authorised Representative for the respondent CORAM:
HON'BLE MS. BINU TAMTA, MEMBER (JUDICIAL) HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) FINAL ORDER NOs. 51311-51313/2025 Date of Hearing: 25.07.2025 Date of Decision:18.09.2025 BINU TAMTA:
1. The instant appeals have been filed challenging the Order-in-Appeal No. CC(A)CUS/230/2015 dated 20.02.2015, whereby the Commissioner (Appeals) confirmed the demand of duty and interest limiting the demand to normal period of six months under Section 28 of the Customs Act, 1962 along with penalties on Shri Varun Khurana and Ms. Raj Kumar Motwani. The matter was 2 CUSTOMS APPEAL NO. 52818 OF 2015 remanded to the Adjudicating Authority to re-quantify the penalty amounts in view of the demand being limited to the normal period.
2. The background facts of the case are that M/s. Medical Engineers India Ltd. is engaged in importing CNG kits and components classified under Customs Tariff Heading1 8409 99 90. On the basis of the intelligence, the Department found that the appellant was evading customs duty by paying CVD based on transaction value instead of the Retail Sale Price2 as mandated by the proviso to Section 3(2) of Customs Tariff Act, 19753 read with Section 4A of the Central Excise Act, 1944 4 and Entry No.108 of Notification No.49/2008-CE. As per Entry No.108 of Notification No.49/2008-CE(NT), as amended CVD on parts, components, and assemblies of automobiles under any tariff heading is chargeable based on RSP with 30% abatement. The issue was clarified as per the CBEC instruction F.No.167/38/2008-CX-4 dated 16.12.2008 and upheld in CCE Vs. Mahendra Engg. Works 5 . It thus appeared that the CNG kits/ components, being classifiable as ―parts, components, and automobiles‖ and imported in packaged form and substantial quantity, attracted the requirement of RSP declaration, with CVD payable on the basis of RSP instead of the transaction value.
3. A show cause notice dated 11.02.2010 was issued demanding short paid duty of Rs.17,59,393/- in terms of proviso to Section 28(1) of the Act.
Penalties under section 112(a)/112(b) and 114A was proposed on the Appellant 1 and under Section 112(a)/112(b) was proposed on Appellant 2 and 3. The demand was confirmed vide Order-in-Original dated 10.02.2011 along with the penalties on penalties as proposed. The appeal filed before the Commissioner was dismissed for want of compliance to make the pre-deposit. 1 CTH 2 RSP 3 CTA 4 CEA 5 1993 (67) ELT 134 (Tri.) 3 CUSTOMS APPEAL NO. 52818 OF 2015 On appeal being filed before the High Court, the matter was remanded to the Commissioner (Appeals). On remand, the Commissioner (Appeals) passed the impugned order confirming the demand for the normal period and accordingly, the penalty imposed under Section 114A and 112(a) was required to be re-quantified by the Adjudicating Authority. Hence, the present appeals have been filed by the three appellants.
4. Heard Shri Prabhat Kumar and Shri Pralabh Mathur, Advocates for the appellant and Shri Rakesh Kumar, Authorized Representative for the respondent.
5. The learned Counsel for the appellant submitted that assessment of incomplete CNG kit, parts based on RSP is unjustified and the correct method of assessment is on the basis of transaction value. He submitted that the appellant did not import all parts and components of the CNG kits and only the following items were imported:-
(i) Reducer
(ii) Gas Solenoid (On Reducer)
(iii) High Pressure Pipe
(iv) Pressure Gauge
(v) Switches
(vi) Re-filling Valve
(vii) Wiring Harness
(viii) LCS/LCS Wiring.
The remaining components, detailed below were procured from the domestic market and varied based on the type of CNG kit -―Closed Loop System‖ or ―Open Loop System‖. These include:
―Wiring Harness; Mixuture; Stepper Motor; cylinder; Cylinder Valve; Cylinder Bracket; Regulator Bracket; Gas Solenoid Bracket; High Pressure Clips; Low Pressure Clips; Plastic Breather; and breather hose.‖ 4 CUSTOMS APPEAL NO. 52818 OF 2015
6. Learned Counsel further submitted that the goods imported under various BOEs were rightly cleared under Sl.No.229 of Notification No.20/2022-Cus (as amended), which provide exemption from basic customs duty. The relevant portion of the notification is reproduced below:-
―(1) Kits required for the conversion of Motor spirit or diesel driven vehicles into the CNG driven or propane driven or LPG driven vehicles.
(2) Parts of the kits specified at Sl.No.1 above‖ Appellant's imports fall under Sl.No.2 as parts of conversion kits for dual-fuel vehicles. Consistently, assessing authorities have recognized these goods as components used to convert petrol vehicles to run on CNG/propane/LPG. They are optional accessories-not essential parts or sub-
assemblies required for vehicle manufacturing.
7. The submission of the learned counsel is that the provisions of RSP is inapplicable to the imported parts as they never sold the imported parts on retail basis as under:-
―(ii) These parts are used as original components, along with locally procured items, to assemble complete CNG kits. As they are not sold individually in the retail market. CVD based on Retail Sale Price (RSP) is not applicable, irrespective of any RSP-related classification.
(iii) The provisions related to MRP are also inapplicable, as the goods are not sold in packaged form.
Consequently, the Packaged Commodities Rules under the Standards of Weights and Measures Act do not apply.‖
8. Learned Counsel relied on the provisions of Rule 2A of the Packaged Commodity Rules and relied on the decisions in Grasim Industries Ltd. Vs. CCE, Jaipur-II 6 and Controls and Switchgears Contractors Ltd. Vs. 6 2004 (175) ELT 779 (Tri.-Delhi) 5 CUSTOMS APPEAL NO. 52818 OF 2015 CCE, Noida7. For interpretation of RSP provisions for parts, components and assemblies, reliance has been placed on the decision of the Apex Court in Jayanti Food Processing (P) Ltd. Vs. CCE, Rajasthan 8 , where it has been confirmed that MRP provisions would not apply with respect to the goods, which are not used for retail sale. Learned counsel has also challenged the imposition of penalties.
9. Shri Rakesh Kumar, Authorised Representative for the Revenue has contested the appeal reiterating the findings of the Authorities below. He submitted that the CNG kit should be treated as ‗part, component and assemblies of automobiles' and relied on Sl.No.108 of Notification No.49 dated 14.12.2008 and, therefore, CVD on CNG kit/components should be charged on RSP as provided under proviso to Section 3(2) of CTA. Learned Authorized Representative emphasized that the appellant had accepted that they sold these goods under packaged form as they received and some of them were sold as it is and some were sold after being fitted into the cars.
10. The main issue in the present appeals is whether the imported CNG kits/components are subjected to Section 4A of CEA and, therefore, required to declare RSP for the purpose of calculating CV duty equivalent to excise duty. As the basic issue leading to levy of duty is due to non-declaration of RSP by the appellant on import of CNG kit/components, we need to appreciate the law requiring the declaration of RSP on the products, i.e. Section 4A of CEA, Section 3(2) of CTA and the provisions of Standards of Weights and Measures Act, 1976 9 and Standards of Weight and Measures 7 2005(183) ELT 95(Tri.-Delhi) 8 2007(215) ELT 327 (SC) 9 SWM ACT 6 CUSTOMS APPEAL NO. 52818 OF 2015 (Packaged Commodities) Rules, 197710. Hence, the relevant legal provisions are quoted below:-
1
[SECTION 4A. Valuation of excisable goods with reference to retail sale price.-- (1) The Central Government may, by notification in the Official Gazette, specify any goods, in relation to which it is required, under the provisions of the 2[Legal Metrology Act, 2009 (1 of 2010) or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods, to which the provisions of sub-section (2) shall apply.
(2) Where the goods specified under sub-section (1) are excisable goods and are chargeable to duty of excise with reference to value, then, notwithstanding anything contained in Section 4, such value shall be deemed to be the retail sale price declared on such goods less such amount of abatement, if any, from such retail sale price as the Central Government may allow by notification in the Official Gazette.
(3) The Central Government may, for the purpose of allowing any abatement under sub-section (2) take into account the amount of duty of excise, sales tax and other taxes, if any, payable on such goods.
(4) If any manufacturer removes from the place of manufacture any excisable goods specified under sub- section (1) without declaring the retail sale price of such goods on the packages, or declares a retail sale price which does not constitute the sole consideration for such sale, or tampers with, obliterates or alters any such declaration made on the packages after removal, such goods shall be liable to confiscation Explanation 1. For the purposes of this section, "retail sale price"
means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards 10 PC Rules 7 CUSTOMS APPEAL NO. 52818 OF 2015 advertisement, delivery, packing, forwarding and the like, as the case may be, and the price is the sole consideration for such sale.
Explanation 2. (a) Where on the package of any excisable goods more than one retail sale price is declared, the maximum of such retail sale price shall be deemed to be the retail sale price for the purpose of this section.
(b) Where different retail sale prices are declared on different packages for the sale of any excisable goods in packaged form in different areas, each such retail sale prices shall be the retail price for the purposes of valuation of the excisable goods intended to be sold in the area to which the retail sale price relates.
Section 3(2) of the Customs Tariff Act, 1975 reads as under:-
[3. Levy of additional duty equal to excise duty, sales tax, local taxes and other charges.
"(2) For the purpose of calculating under sub-sections (1) and (3), the additional duty on any imported article, where such duty is leviable at any percentage of its value, the value of the imported article shall, notwithstanding anything contained in section 14 of the Customs Act, 1962 (52 of 1962), be the aggregate of --
(i) the value of the imported article determined under sub-
section (1) of section 14 of the Customs Act, 1962 (52 of 1962) or the tariff value of such article fixed under sub-section (2) of that section, as the case may be; and
(ii) any duty of customs chargeable on that article under section 12 of the Customs Act, 1962 (52 of 1962), and any sum chargeable on that article under any law for the time being in force as an addition to, and in the same manner as, a duty of customs, but does not include--
[(a) the duty referred to in sub-sections (1), (3), (5), (7) and (9)];
(b) the safeguard duty referred to in sections 8B and 8C; 8
CUSTOMS APPEAL NO. 52818 OF 2015
(c) the countervailing duty referred to in section 9; and
(d) the anti-dumping duty referred to in section 9A:
[PROVIDED that in case of an article imported into India,--
(a) in relation to which it is required, under the provisions of the [Legal Metrology Act, 2009] or the rules made thereunder or under any other law for the time being in force, to declare on the package thereof the retail sale price of such article; and
(b) where the like article produced or manufactured in India, or in case where such like article is not so produced or manufactured, then, the class or description of articles to which the imported article belongs, is--
(i) the goods specified by notification in the Official Gazette under subsection (1) of section 4A of the Central Excise Act, 1944 (1 of 1944), the value of the imported article shall be deemed to be the retail sale price declared on the imported article less such amount of abatement, if any, from such retail sale price as the Central Government may, by notification in the Official Gazette, allow in respect of such like article under sub-
section (2) of section 4A of that Act; or
(ii) the goods specified by notification in the Official Gazette under Section 3 read with Clause (1) of Explanation III of the Schedule to the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1995), the value of the imported article shall be deemed to be the retail sale price declared on the imported article less such amount of abatement, if any, from such retail sale price as the Central Government may, by notification in the Official Gazette, allow in respect of such like article under Clause (2) of the said Explanation] Explanation.--Where on any imported article more than one retail sale price is declared, the maximum of such retail sale price shall be deemed to be the retail sale price for the purposes of this section.] 9 CUSTOMS APPEAL NO. 52818 OF 2015 [PROVIDED FURTHER that in the case of an article imported into India, where the Central Government has fixed a tariff value for the like article produced or manufactured in India under sub-section (2) of Section 3 of the Central Excise Act, 1944, the value of the imported article shall be deemed to be such tariff value].‖ The relevant rules from PC Rules are reproduced under:-
"Rule 2(o) "Retail dealer ", in relation to any commodity in packaged form, means a dealer who directly sells such packages to the consumer and includes, in relation to such packages as are sold directly to the consumer, a wholesale dealer who makes such direct sale;
Rule 2 (p)[ "Retail Package" means a package containing any commodity, which is produced, distributed, displayed, delivered or stored for sale through retail sales agencies or other instrumentalities for consumption by a individual or group of individuals‖ Rule 2(q): "retail sale", in relation to a commodity, means the sale, distribution or delivery of such commodity through retail sales agencies or other instrumentalities for consumption by an individual or a group of individuals or any other consumer;
Rule 2(r) "retail sale price" means the maximum price at which the commodity in packaged form may be sold to the ultimate consumer and where such price is mentioned on package, there shall be printed on the packages the words ] [Maximum or Max. retail price....inclusive of all taxes or in the form MRP Rs. ....... inclusive of all taxes.‖ ―34. Exemptions in respect of certain packages Nothing contained in these rules shall apply to any package containing a commodity if, --
(a) the marking on the package unambiguously indicates that it has been specially packed for the exclusive use of any industry as a raw material or for the purpose of servicing any industry, mine or quarry‖.
11. The provisions of Section 4A read with the SWM Act and PC Rules have been considered by the Apex Court in Jayanti Foods. With reference to the provisions of Section 4A, the Apex Court observed that the whole section 10 CUSTOMS APPEAL NO. 52818 OF 2015 covered the goods which were packaged and sold as such with the rider that such package had to have a retail price thereupon under the provisions of SWM Act or Rules made thereunder or under any other law. Thus, viewed from the plain language of the Section, where the goods are excisable goods and are packaged and further such packages are required to mention the price thereof under the SWM Act or Rules made thereunder or under any other law and further such goods are specified by the Central Government by notification in the Official Gazette, then the valuation of such goods would be on the basis of the retail sale price of such goods and only to such goods the provisions of sub-section (2) shall apply whereby it is provided that the value of such goods would be deemed to be such retail price declared on the packages. Of course, the assessee shall be entitled to have a reduction of abatement as declared by the Central Government by the notification in the Official Gazette. Even at the cost of repetition the Apex Court laid down the following factors so as to include the goods in Section 4A(1) & (2) of the Act:-
―(i) The goods should be excisable goods;
(ii) They should be such as are sold in the package;
(iii) There should be requirement in the SWM Act or the Rules made thereunder or any other law to declare the price of such goods relating to their retail price on the package;
(iv) The Central Government must have specified such goods by notification in the Official Gazette;
(v) The valuation of such goods would be as per the declared retail sale price on the packages less the amount of abatement.
If all these factors are applicable to any goods, then alone the valuation of the goods and the assessment of duty would be under Section 4A of the Act.‖ The Apex Court further observed as under:-
―When we read these rules along with provisions of Section 4A of the Act, it would be clear that where there is a general exemption like Rule 34 under the SWM (PC) Rules such goods and/or packages of such goods shall not be covered by Section 4A(1) and (2) of the Act. However, all such packages which 11 CUSTOMS APPEAL NO. 52818 OF 2015 are covered under Chapter II, more particularly under Rule 6(1)(f), Rules 15, 16 and 17, would be governed under Section 4A, and such packages are required to declare the retail sale price on the packages. The packages covered by Rule 29 would be outside the purview of the retail sales as under that Rule retail prices are not required to be mentioned on the package. However, again those packages which enjoy the exemption under Rule 34 shall also be outside the scope of Section 4A of the Act as the Rules do not apply to the said packages.‖
12. In view of the interpretation placed and the conditions prescribed for invoking the provisions of Section 4A for declaring RSP, we find that the CNG kits/components were being sold in packages and, therefore, the appellant is required to declare the RSP on the same. In the present case, the appellant received the imported goods under packaged form and some of them were sold as it is whereas some were sold after being fitted into the vehicles. In this regard, the statement of Ms. Raj K. Motwani, Officer Incharge of the Company, categorically stated that the items imported by them used to come in individual packed condition and were sold as they were received. In addition to the CNG kits, they also imported some items in individual packing. Shri Varun Khurana, Director of the appellant company also made similar statement that the items in question came in individual packing and were sold as such without changing the packing or without fixing any details on the packing. Both Shri Varun Khurana and Shri Sachin Baish, Regional Manager of M/s. R.G. Cargo Services (CHA) also stated that CNG kits and components can be treated as parts and components of automobiles which run on CNG. In view of the admissions made, we hold that there is no reason to doubt that the goods were imported in packaged form and were sold as such. Consequently, applying the principles laid down by the Apex Court in Commissioner of Central Excise Madras versus System and 12 CUSTOMS APPEAL NO. 52818 OF 2015 Components Pvt. Ltd. 11 , subsequently followed in Sodagar Kit Wear versus Commissioner 12 that once the party has admitted and does not dispute, there is no need for the Department to prove the same on the basic principle that what is admitted need not be proved.
13. It is not in dispute that SWM Act or the Rules made thereunder requires such articles to declare RSP on the packaged goods and the Central Government has issued the notification specifying such goods. Therefore, the conditions pre-requisite for application of Section 4A are satisfied in this case.
14. The proviso to section 3(2) of CTA as quoted above, also requires similar condition that an article imported into India are required under the SWM Act and the Rules made thereunder to declare RSP. This is the basic satisfaction to bring the goods within the scope of the section and thereby comply with requirement of declaring RSP.
15. The Revenue has relied on Notification No.49/2008-CE (N.T) dated December 24, 2008 to say that payment of CVD on RSP basis is mandatory, which reads as under:-
"G.S.R. (E)-In exercise of the powers conferred by sub-sections (1) and (2) of section 4A of the Central Excise Act, 1944 (1 of 1944) the Central Government, in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No.14/2008-Central Excise (N.T.), dated the 1st March, 2008, published in the Gazette of India Extraordinary, vide number G.S.R.147(E) of the same date, except as respects things done or omitted to be done before such supersession, hereby specifies the goods mentioned in Column (3) of the Table below and falling under Chapter or heading or sub-heading or tariff item of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) mentioned in the corresponding entry in column (2) of the said Table, as the goods to which the provisions of sub-section (2) of said section 4A shall apply, and allows as abatement the percentage of retail sale price mentioned in the corresponding entry in column (4) of the said Table:-
2004 (165) ELT 136(SC) 11 2018 (362)ELT A213 (SC) 12 13 CUSTOMS APPEAL NO. 52818 OF 2015 TABLE S.No. Chapter, Description of goods Abatemen heading, sub- t as a heading or percentag tariff item e of retail sale price 108. Any Heading Parts, components and 30 assemblies of automobiles Explanation. For the purposes of this notification, except for S.No.30, "retail sale price" means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight, transport charges, commission payable to dealers and all charges towards advertisement, delivery, packing, forwarding and the like, as the case may be, and the price is the sole consideration for such sale.‖ The Revenue has also relied on the provisions of Instruction dated December 16, 2008, where clarification has been given to understand that, ‗all parts, components and assemblies' irrespective of their classification shall be covered. The said Circular has been issued with reference to Entry No.97, the said instruction reads as follows:
3.1 Another issue that has arisen is the scope of the term 'parts' as used in the aforementioned entry. Chapter 87 of the Central Excise Tariff covers parts of different vehicles. Further, Section Note 2 of the Section XVII also defines the scope of 'parts' of goods falling in said section. Doubts have arisen as to whether 'parts' classified in Chapter 87 shall only be covered under the said entry or all parts irrespective of their classification should be covered.
3.2 The issue has been examined. The said entry provides that 'parts, components and assemblies' falling in any heading inthe Tariff are covered. Therefore, it is logical that all 'parts, components and assemblies,' irrespective of their classification shall be covered. It is also important to note that there is no specific entry for 'components' or 'assemblies' of automobiles in the Tariff, therefore, this also 14 CUSTOMS APPEAL NO. 52818 OF 2015 supports the view that all goods which are commonly known and sold in the trade as 'parts, components and assemblies ' are covered by said entry, irrespective of their clarification in the Tariff.
Hence, the term 'parts, components and assemblies' of automobiles includes items like batteries, brake assembly, tyres, tubes and flaps, IC engines, ball bearing, etc."
16 Appellant 1 disputes the said position by stating that the CNG Kits imported by them were not part of automobiles and were classified by them under Chapter 84 of the Customs Tariff Act. We do not find any merits in the submissions made by the appellant in view of the decision of the Hon'ble Supreme Court in case of Westinghouse Saxby farmers Ltd. [2021 (376) E.L.T. 14 (S.C.)] wherein following has been observed, similar to the view expressed in instruction dated 16.12.2008 referred above:
"25. Section 2 of the Central Excise Tariff Act, 1985 provides that the rates at which duties of excise shall be levied under the Central Excise Act, 1944 are specified in the First Schedule and the Second Schedule.
The First Schedule contains a set of Rules known as "General Rules for the Interpretation of this Schedule". These Rules begin with a mandate that the "classification of goods in this Schedule shall be governed by the principles laid thereunder."
26. Rule 1 of these Rules makes it clear that "the titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only and that for legal purposes, classification shall be determined according to the terms of the Headings and any relative Section or Chapter Notes and provided such headings or Notes do not otherwise require, according to the provisions of the rules that follow". 15
CUSTOMS APPEAL NO. 52818 OF 2015
27. Rule 2 deals with (i) incomplete or unfinished articles; and (ii) mixtures or combinations of material or substance. While Rule 2(a) deals with incomplete or unfinished Articles, Rule 2(b) deals with mixtures or combinations of a material or substance.
28. Rule 3 deals with cases where goods are classifiable under two or more sub-headings. But Rule 3 begins with a reference to Rule 2(b). Therefore, it is necessary to extract Rule 2(b) and Rule 3 together. They read as follows :
"2.(a) xxxx
(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.
3. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows :
(a) the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. 16
CUSTOMS APPEAL NO. 52818 OF 2015
(b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
(c) when goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration."
29. Interestingly Rule 2(a) speaks about "Article", Rule 2(b) speaks about "material or substance" as well as "goods of a given material or substance" and Rule 3 speaks about "goods".
30. In the case on hand, the claim of the assessee was that the relays manufactured by them were part of the railway signalling equipment. But all the Authorities were of the unanimous view that this product is referable to goods of a specific description in Chapter sub-heading 8536.90 and that, therefore, General Rule 3(a) will apply.
31. But in invoking General Rule 3(a), the Authorities have omitted to take note of 2 things. They are : (i) that as laid down by this Court in Commissioner of Central Excise v. Simplex Mills Co. Ltd. [(2005) 3 SCC 51 = 2005 (181) E.L.T. 345 (S.C.)] the General Rules of Interpretation will come into play, as mandated in Rule 1 itself, only when no clear picture emerges from the terms of the Headings and the relevant section or chapter notes; and (ii) that in any case, Rule 3 of the General Rules can be invoked only when a particular goods is classifiable under two or more Headings, either by application of Rule 2(b) or for any other reason. Once the authorities have concluded that 17 CUSTOMS APPEAL NO. 52818 OF 2015 by virtue of Note 2(f) of Section XVII, „relays' manufactured by the appellant are not even classifiable under Chapter Heading 8608, we do not know how the Authorities could fall back upon Rule 3(a) of the General Rules. There is a fundamental fallacy in the reasoning of the Authorities, that Rule 3(a) of the General Rules will apply, especially after they had found that „relays‟ are not classifiable under Chapter Heading 8608, on account of Note 2(f) of Section XVII.
32. Coming to Section XVII, which precedes Chapter 86, the same contains a few notes, one of which is Note 2, which lists out certain articles to which the expressions "parts" and "parts and accessories"
mentioned in Chapter 86 do not apply. Note 2(f) reads as follows :-
"(1) xxxx (2) xxx
(a) xxxx
(b) xxxx
(c) xxxx
(d) xxxx
(e) xxxx
(f) electrical machinery or equipment (Chapter 85)".
33. Note 2(f) is relied upon by the Revenue, in view of the fact that Chapter Heading 8608 uses the words "parts of the foregoing" after the words "Railway or tramway track fixtures and fittings" etc. Chapter Heading 8608 does not specifically mention "electrical relays". The 18 CUSTOMS APPEAL NO. 52818 OF 2015 assessee‟s contention is that "it is part of the railway signalling safety or traffic control equipment" and that, therefore, Relays manufactured by them would fall under Chapter Heading 8608 due to the usage of the word "parts". It is this contention that is sought to be repelled by the Authorities by relying upon Note 2(f) of Section XVII.
34. Though at first blush, Note 2(f) seems to apply to the case on hand, it may not, upon a deeper scrutiny.
35. Note 3 of Section XVII reads as follows :
"References in Chapters 86 to 88 to "parts" or "accessories" do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part or accessory."
36. What is recognized in Note 3 can be called the "suitability for use test" or „the user test‟. While the exclusion under Note 2(f) may be of goods which are capable of being marketed independently as electrical machinery or equipment, for use otherwise than in or as Railway signalling equipment, those parts which are suitable for use solely or principally with an article in Chapter 86 cannot be taken to a different Chapter as the same would negate the very object of group classification. This is made clear by Note 3.
37. It is conceded by the Revenue that the relays manufactured by the appellant are used solely as part of the railway signalling/traffic control equipment. Therefore, the invocation of Note 2(f) in Section 19 CUSTOMS APPEAL NO. 52818 OF 2015 XVII, overlooking the "sole or principal user test" indicated in Note 3, is not justified.
38. On the question as to what test would be appropriate in a given case, this court pointed out in A. Nagaraju Bros. v. State of A.P. [1994 Supp (3) SCC 122 = 1994 (72) E.L.T. 801 (S.C.)], as follows :
".....there is no one single universal test in these matters. The several decided cases drive home this truth quite eloquently. It is for this reason probably that the common parlance test or commercial usage test, as it is called, is treated as the more appropriate test, though not the only one. There may be cases, particularly in the case of new products, where this test may not be appropriate. In such cases, other tests like the test of predominance, either by weight of value or on some other basis may have to be applied. It is indeed not possible, nor desirable, to lay down any hard and fast rules of universal application."
Therefore, the respondents ought not to have overlooked the „predominant use‟ or „sole/principal use‟ test acknowledged by the General Rules for the Interpretation of the Schedule."
17. Thus the issue of declaring RSP on the CNG kits/components stands, answered against the appellant and in favour of the Revenue.
18. The learned Commissioner has very fairly confirmed the demand of duty only with respect to the normal period and resultantly, the penalty imposed under Section 114A of the Act on the company was set aside. The appellants, namely, Ms. Raj Kumari Motwani and Shri Varun Khurana and Shri Sachin Baish has now challenged the personal penalty imposed under Section 112 of the Act. Ms. Raj Kumari Motwani is merely an employee in the capacity of Officer Incharge in the company and cannot be saddled with the 20 CUSTOMS APPEAL NO. 52818 OF 2015 liability of penalty. Similarly, Shri Sachin Baish is the CHA and is not responsible for declaration of RSP on the goods imported. Shri Varun Khurana being Director of the company is definitely responsible for non-declaration of RSP on the imported goods and hence the penalty imposed on him under Section 112 of the Act needs no intervention.
19. On merits, we do not find any reason to interfere with the impugned order, hence the same is hereby affirmed except to the extent of imposing penalty as clarified in the previous paragraph. The appeals filed by the company and Shri Varun Khurana are, accordingly dismissed. The appeal filed by Ms. Raj Kumari Motwani is hereby allowed.
[Order pronounced on 18th September, 2025 ] (BINU TAMTA) MEMBER (JUDICIAL) (SANJIV SRIVASTAVA) MEMBER (TECHNICAL) ckp