Custom, Excise & Service Tax Tribunal
Kirloskar Pneumatic Company Limited vs Commisioner Central Excise And Service ... on 25 October, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Excise Appeal No. 85716 of 2021
(Arising out of Order-in-Original No. PUN-EX-CGST-001-PKB-COM-39/20-21
dated 17.03.2021 passed by the Principal Commissioner of Central Excise &
GST, Pune-1)
M/s. Kirloskar Pneumatic Co. Ltd. Appellant
Hadapsar Industrial Estate,
Pune 411 013.
Vs.
Principal Commissioner of Central Excise Respondent
& GST, Pune-I
41-A, ICE House, Sassoon Road,
Opp. Wadia College, Pune 411 001.
Appearance:
Shri Prakash Shah, Advocate, for the Appellant
Shri Dhirendra Kumar, Joint Commissioner, Authorised Representative
for the Respondent
CORAM:
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
HON'BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL)
Date of Hearing: 25.10.2022
Date of Decision: 25.10.2022
FINAL ORDER NO. A/86060/2022
PER: SANJIV SRIVASTAVA
This appeal is directed against order in original No Pun-EX-
CGST-001-PKB-Com-39/20-21 dated 17.03.2021 of the
Commissioner of Central Excise and CGST, Pune. By the
impugned order, the Commissioner has held as follows:
"ORDER
(a) I reject the classification of the Compressor and parts
thereof done by the Noticee under Chapter Sub Heading
8607 of CETA 1985 and hold that the Compressor and
parts thereof be classified under Chapter Sub Heading
8414 of CETA, 1985;
(b) I reject the classification of the Gears/ Transmission
Products/Gear Boxes and parts thereof done by the
Noticee under Chapter Sub Heading 8607 of CETA 1985
and hold that the Gears/ Transmission Products/Gear
2 E/85716/2021
Boxes and parts thereof be classified under Chapter Sub
Heading 8483 of CETA, 1985;
(c) I determine and confirm the demand of Central Excise
duty amounting to Rs 2,51,02,8031- (Rs Two Crore
Fifty One Lakhs Two Thousand Eight Hundred and Three
only) (including Cesses), not paid on the goods
manufactured and cleared during the period from May
2016 to 30.06.2017 and order recovery of the same
from Noticee under the provisions of Section 11(10)
read with 11A(4) of the Central Excise Act, 1944. The
Noticee is directed to pay the said amount forthwith;
(d) I confirm the demand of interest and order recovery of
the same at applicable rates, on the duty amount
confirmed above at Sr. No.(c), under Section 11AA of
the Central Excise Act, 1944. The Noticee directed to
pay the said amount forthwith;
(e) I impose penalty of Rs 2,51,02,803/- (Rs Two Crore
Fifty One Lakhs Two Thousand Eight Hundred and Three
only), upon the Noticee under the provisions of Section
11AC(1)(c) of the Central Excise Act, 1944;
(f) However, I give an option to the Noticee under Section
11AC(1)(e) of the Central Excise Act, 1944, to pay
penalty equivalent to 25% of the total demand of
Central excise duty as determined and confirmed at Sr.
No.(c) above provided the assessee pays the entire
amount of Central excise duty as determined and
confirmed at Sr. No.(c) above, along with interest
payable thereon as ordered in Sr. No. (d) above, as well
as, 25% penalty, within 30 days of communication of
the order;
(g) I do not order confiscation of the goods as discussed in
para No.25;
(h) I refrain from imposing any separate penalty on the
Noticee under the provisions of Rule 25 of the Central
Excise Rules, 2002, as discussed in the above Paras as
already I have imposed penalty under Section 11 AC(1)
(e) of the Central Excise Act, 1944,
27. This order is issued without prejudice to any other action
that may be taken against the Noticees under the provisions of
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the Central Excise Act, 1944, and / or the rules made there
under and / or any other law for the time being in force within
the Republic of India."
2.1 Appellant is engaged in manufacture & clearance of
Compressors, Gears, Transmission Products (Gear Boxes) and
Parts thereof. These finished products were cleared by them to
various manufacturers and customers including Indian Railways.
2.2 Appellant were issued a show cause notice alleging that
they had misclassified the finished goods cleared viz.
Compressors, Gears, Transmission Products (Gear Boxes) and
parts thereof to Indian Railways, as such these goods merit
classification under Chapter Sub Heading (CSH) 8414
(Compressor) & 8483 (Gear, Transmission Products, Gear
Boxes), and attracted Central Excise Duty of 12.36% / 12.50%.
Appellant had classified the impugned goods under CSH 8607
and cleared such goods by availing exemption under Notification
No. 12/2012 dated 17.03.2012 (Entry No. 272A).
2.3. Prior to May 2016, Appellant themselves classified the
products viz. Compressor and its parts under Chapter Heading
8414 and Gears / Gear Boxes (which includes pinion) and its
parts under Chapter Heading 8483 and paid the Central Excise
Duty accordingly. In respect of clearances made to parties/
customers other than Indian Railways and other Locomotive
Manufacturers appellant classified these goods under chapter
Sub Heading 8414 and 8483 and paid the Central Excise duty
accordingly.
2.4 Statement of Shri Sadanad D. Dandage, and Shri Sameer
Ogale working for the Appellant was recorded on 22.06.2018 and
thereafter a show cause notice was issued to the appellant
asking them to explain as to why:
a) Extended period of limitation as provided under the
provisions of Section 11A (4) of the Central Excise Act
1944 should not be invoked, to recover Central Excise duty
of Rs. 2,51,02,803/- evaded and not paid by them;
b) The Compressor and parts thereof classified by M/s.
Kirloskar under Chapter Sub Heading 8706 should not be
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classified under Chapter Sub Heading 8414 for the reasons
mentioned in above paras;
c) The Gears, Transmission Products (Gear Boxes) and parts
thereof classified by M/s. Kirloskar under Chapter Sub
Heading 8706 should not be classified under Chapter Sub
Heading 8483 for the reasons mentioned in the above
paras;
d) Central Excise duty amounting to Rs. 2,51,02,803/- should
not be recovered from them under the provisions of
Section 11A (4) of the Central Excise Act 1944;
e) Interest on the said amount of Central Excise duty of Rs.
2,51,02,803/- should not be recovered at the applicable
rates under Section 11AA of the Central Excise Act, 1944;
f) Penalty should not be imposed on them under Section
11AC of the Central
1. Excise Act, 1944 for non-payment and evasion of Central
Excise duty of Rs. 2,51,02,803 (As Detailed in Annexure-l
to the impugned Show Cause Notice);
g) the penalty should not be imposed on them under Rule 25
of the Central Excise Rules, 2002; and
h) excisable goods, valued at Rs. 38,61,97,125/- (As Detailed
in Annexure-l to the impugned Show Cause Notice)
manufactured and cleared by them without payment of
Central Excise duty of Rs 2,51,02,803/-, as mentioned in
the foregoing paras, should not be held liable for
confiscation under Rule 25 of the Central Excise Rules,
2002.
2.5 The show cause notice has been adjudicated as per the
impugned order referred to in para 1. Aggrieved by the
impugned order appellant have filed this appeal.
3.1 We have heard Shri Prakash Shah, Advocate for the
appellant and Shri Dhirendra Kumar, Joint Commissioner
Authorized representative for the revenue.
3.2 Arguing for the appellant, learned counsel submits:
The issue of classification of goods suitable, solely and
principally for locomotive under heading 87.06 is no longer
res integra in view of Apex Court Judgment in
Westinghouse Saxby Farmer Limited 2021 (376) ELT 14.
5 E/85716/2021
For holding against the appellant adjudicating authority
has relied upon the decision rendered by the AAAR
Karnataka. No reliance can be placed on the ruling of
AAAR, Karnataka, in view provision of Section 103 of the
CGST Act.
Gears, transmission products and gear boxes and gears
are excluded from Section XVI in view of Note 2(e) of
Section XVII. Note 2(e) to Section XVII excludes articles of
Heading 84.83, provided they constitute integral parts of
engines or motors.
The certificate of independent chartered engineer (page 83
of the memo of appeal) is not controverted or disputed by
the department and no contrary evidence is produced by
the department.
Tribunal in Sans Transmission-1997 (107) ELT 482 has
held thus:
"11. The Assistant Collector relied on Note 2(e) to Section
XVII to hold against the applicability of Chapter Heading
86.07. The departmental representative also supported
this stand taken by the Assistant Collector. Note 2(e) to
Section XVII, no doubt, takes articles of Heading 84.83
provided they constitute integral parts of engines or
motors, out of Chapters 86 to 88. The subject matter of
dispute namely "gears" can be regarded as 'articles of
Heading 84.83' but they do not constitute integral parts of
engines or motors. Therefore Note 2(e) to Section XVII
cannot be invoked in this case.
12. In the above circumstances, we are inclined to agree
with the view taken by Collector (Appeals) that "gears and
pinions" manufactured by respondent for use vis-a-vis
locomotives would fall under Chapter Heading 86.07. We
are supported in this view by a decision of the Tribunal in
Poona Radiators reported in 1990 148) E.L.T. 93 (T) to a
similar effect in relation to radiators for use in
locomotives."
Respondent erred in not following circular no. 17/90-CX-4.
The said circular has been not followed by the learned
Commissioner in view of the orders of this Hon'ble Tribunal
6 E/85716/2021
in the case of Best Cast (supra), which is not applicable to
be present case as explained above.
The reliance placed on the circular no. 80/54/2018-CST
dated 31.12.2008 cannot have any binding effect as it has
not considered any of the provisions of section notes and
in particular note 3 of Section XVII.
Doctrine of approbate and reprobate is not applicable for
change of classification, after due notice to the department
and does not amount to subterfuge.
It is settled law that there is no estoppel in law and change
of classification after due notice to the department can
never be subterfuge on the part of the Appellant when
change of classification with prospective effect.
It is settled law that extended period can never apply
when the department is fully aware of facts. The Appellant
in its letter dated 05.05.2016, gave detailed reasons for
change of classification and the intent to evade is
completely missing in the present case. The Appellant has
supplied the goods to Indian Railways. The change of
classification was changed at the instance of the Indian
Railways as all other suppliers were classifying under
heading 86.07. and availing of the exemption.
No penalty is imposable on the Appellant.
No interest is payable by the Appellant in the absence of
demand being sustainable in law and time bar.
3.3 Arguing for the revenue learned authorized representative
while reiterating the findings recorded in the impugned order
and submits:
Classification of goods under Tariff is primarily on the basis
of the terms of the beading and related Section or Chapter
Notes. As per the Rule 3 of General Rules for
Interpretation of this Schedule, interpretation of tariff for
classification, the specific heading prevails over the general
heading. It is also settled law that one cannot jump to a
subsequent note without exhausting the previous note in a
sequential manner.
Heading 8607 covers parts of railway, locomotives or
rolling stock. However, Note-2 (e) of Section XVII excludes
7 E/85716/2021
the machines and apparatus of headings 8401 to 8479, or
parts thereof, other than the radiators for the articles of
this section, articles of heading 8481 or 8482 or, provided
they constitute integral parts of engines or motors, articles
of heading 8483; In other words, Gears, Transmission
Products (Gear Boxes) and Compressors and Parts thereof
manufactured and supplied by Appellant would specifically
fall under Chapter 84, by virtue of Section Note 2(e).
In terms of Note 2 (e) of Section XVII and Note 2 of
Section XVI, even if the "parts" and "parts and
accessories" are identified as articles for use with goods of
Chapter 86, they cannot be classified under Heading 8607
and such "parts" & 'parts & accessories merit classification
under respective Chapter i.e. 84 or 85.
In case of Kerala Electrical & Allied Engg. Co, Ltd [2006
(195) E.LT. 47 (Tri Bang.)] it was held that Brushless
alternator and components for use in railway coaches for
lighting/air-conditioning as per specification of Indian
Railways are classifiable under Heading 85.01 of Central
Excise Tariff as per Explanation in Note 4 to Section XVI
ibid. This order has been affirmed by the Hon'ble Supreme
Court as reported at [2006 (198) EL.T. A172 (SC)}
The machines have also been explicitly defined at Note 5
of Section XVI of Central Excise Tariff (which covers
Chapter 84 & 85) and said Note 5 of Section XVI reads as
under:
"For the purpose of these Notes, the expression machine"
means any machine, machinery, plant, equipment,
apparatus or appliance cited in the headings of Chapter 84
or 85."
As per the explanation in Note 4 to Section XVI of the
Central Excise Tariff for the goods falling under Chapter 84
& 85, the components/accessories which are strictly
necessary for the integrated and inevitable purposes shall
be classified in the heading appropriate to that function.
Therefore, in the light of the judgment of the Apex Court,
which is applicable to the case of M/s. Kirloskar and by
applying the Note 4 & 5 of Section XVI, the Gears,
Transmission Products (Gear Boxes) and Compressors and
8 E/85716/2021
Parts thereof manufactured and supplied by Appellant
would specifically fall under Chapter 84 and not Chapter
86.
in Intel Design Systems (India) Pvt. Limited [2008 (223)
ELT 135 (SC)], the Hon'ble Supreme Court had has taken
similar view in respect of the goods supplied to Ministry of
Defence for use in tank and armoured vehicles.
In case Best Cast (P) Ltd. [2001(127) ELT 730 (T-
Chennai)], it was held that Gear Box parts and Clutch are
not part of motor vehicle by commercial parlance and
therefore classifiable under Heading 8483 of Central Excise
Tariff Act, 1985 as part of gear box and not under Heading
8708, as part of motor. This decision has been affirmed by
the Hon'ble Apex Court as reported at [2001 (133) ELT
A258 (SC)]
The Appellant has also advanced their case by strongly
relying on the C.B.E.C Circular No. 17/90-CX-4, dated 9-7-
1990 issued in the context of transmission elements which
relates to the classification of transmission elements like
Gears, Gearings, Gear Trains, Gear boxes, etc which have
been specifically designed for use with vehicles of Section
XVII. The Circular was issued based on the discussions
held at the Tariff Conference wherein, after taking note of
Section Note To Section XVII, the Conference
recommended that transmission elements may not be
classifiable under Heading 84.83 when they have been
specifically designed for use with vehicle of Section XVII.
We find that this Circular has no relevance to this case
since the discussion in the Circular is only with specific
reference to transmission elements falling under Chapter
Heading 84.83 and is not a circular for classification of
parts of goods of Section XVII in general. Notwithstanding
the issuance of the Circular No. 17/90-CX-4, dated 9-7
1990,
Reliance is placed on Circular No. 80/54/2018-GST, dated
31-12-2018 and No. 30/4/2018 dated 25.01.2018 issued
by the CBIC regarding the classification of certain goods
under GST regime.
9 E/85716/2021
In light of above discussion of Section Notes and Chapter
Notes & various case laws, Gears, Transmission Products
(Gear Boxes) and Compressors and Parts thereof are to be
classified in Chapter Heading 8483 & 8414, respectively
The relevant applicable rates of Central Excise duty on
subject clearances for the period May, 2016 to June, 2018
should have been as applicable to CETH 8483 & 8414, as
correctly classifiable prior to May, 2016.
Reliance is placed on the following decisions:
o Hero Motorcorp Ltd [2022 (379) ELT 214 (Tri. -
Mum)]
o Jtekt Sona Automotive India Ltd [2020 (371) ELT
293 (Tri. - Del)]
o Parker Hannifin India Pvt. Ltd [2020 (34) GSTL 306
(App AAR -- GST - Kar)]
4.1 We have considered the impugned order along with the
submissions made in appeal and during the course of arguments.
4.2 Commissioner has vide the impugned order held as
followed
Sole purpose of use in Indian Railways will not determine
the classification but the classification is to be determined
in the light of Section and Chapter Notes
10. In the replies the Noticee have made averments that
impugned goods are cleared to Indian Railways and can be used
by Indian Railways only and such goods are manufactured on
the drawing and designs given by India Railways; that these
impugned goods do not have any other purpose or utility. I find
that the Central Excise Tariff is structured into Sections,
Chapters, Headings and sub-headings. Each Section and Chapter
under the Tariff is accompanied by the notes known as "Section
Notes" and "Chapter Notes" which play an important part in
classification. They are normally referred to as "Legal Notes" The
function of these notes is to define the scope of each headings,
chapters and sections precisely These are given at the beginning
of the Section or Chapter respectively which governs the
concerned section or chapter as the case may be. In the case of
Section Notes they are applicable to each Chapter which is part
of a specific section of the tariff. The Section Notes explain the
10 E/85716/2021
scope of chapters/ headings etc. Since these notes are the part
of the Tariff, they have full statutory backing. I also find that it
has been settled by the Hon'ble Supreme Court in the case of
CCE vs Wood Polymer Limited - citation 1998 97) ELT 193 SC)
that classification should be done as per General Rules for the
Interpretation of this Schedule (The First Schedule-Excise Tariff)
contained in the tariff and not as per trade parlance and
commercial understanding. Similarly, I have also gone through
the judgement of CEGAT (Now CESTAT) in case of CC v Sanghvi
Swiss Re fills Private Limited -citation 1997 (94) ELT 644
(CEGAT), wherein it was held that Section Notes and Chapter
Notes being statutory in nature have precedence over functional
test and commercial parlance for purpose of classification. In the
light of the Section Notes and Chapter Notes, I have to proceed
with the determination of the classification of impugned goods.
11. The department's proposal for classifying the impugned
goods under CSH 8414 and 8483 which fall under Section XVI
whereas the Noticee have classified the same under CSH 8607
which fall under the Section XVII. Section XVI pertains to
"Machinery and Mechanical Appliances; Electrical Equipment;
Parts thereof; Sound Recorders and Reproducers, Television
image and Sound Recorders and Reproducers; and Parts and
accessories of such articles. "Chapters 84 and 85 form part of
this Section Section XVII pertains to "Vehicles, Aircraft, Vessels
and Associated Transport Equipment". Chapters 86 to 89 form
part of this section. It is the case of the Noticee that, since the
subject impugned goods are manufactured for the sole and
principal use of the Railways, they merit classification under
Chapter Heading 86.07 of the Tariff as Parts of Railway
locomotives. While it might be logical to presume that an article
manufactured specifically for locomotives and not having any use
elsewhere, would be considered as parts of locomotives, it would
not be the correct way to classify an article. Rule 1 of the
General Rules of Interpretation of the Central Excise Tariff urges
classification"... according to the terms of the headings and any
relative section or chapter notes...." (Emphasis supplied). The
notes to Section XVII provide guidance on classification of 'parts'
and 'accessories' of goods falling under the Chapters of the said
Section Note 2(e) to Section XVII states that the expression
11 E/85716/2021
parts and parts and accessories' do not apply to the machines or
apparatus of Heading 84.01 to 84.79, whether or not they are
identifiable as goods falling under this Section. The relevant
Section Note 2 to Section XVII reads as under
2. The expressions "parts" and "parts and accessories" do not
apply to the following articles, whether or not they are
identifiable as for the goods of this Section:
(a) Xxxxxx
(b) Xxxxxx
(c) Xxxxxx
(d) Xxxxx
(e) the machines and apparatus of headings 8401 to
8479, or parts thereof, other than the radiators
for the articles of this section, articles of heading
8481 or 8482 or, provided they constitute integral
parts of engines or motors, articles of heading
8483;
(f) electrical machinery or equipment (Chapter 85);;
(g) XXXXXXXX;
(h) xXXXXXXX;
(i) XXXXXXXX;
(j) XXXXXXXX; or
(k) XXXXXXXX
(l) XXXXXXXX
As mentioned earlier, Compressor is covered under Heading
8414 and Gear/ Transmission Products/ Gear Boxes fall under
Heading 8483 of the Tariff, therefore they are required to be
treated as Machines apparatus and as such impugned goods
aptly fall under the definition of machines as envisaged under
Note 5 to Section XVI, which reads 'For the purpose of these
Notes, the expression 'machine' means any machine, machinery,
plant, equipments, apparatus or appliances cited in the heading
Chapter 84 or 85?. By virtue of Note 2(e) to Section XVII, the
impugned goods will not be considered as 'parts' or 'parts and
accessories' even if they are identifiable as being for railway
locomotives and would fall under appropriate Section and
Chapter. The Noticee has argued that primacy should be given to
Section Note 3 to Section XVII which determines the
12 E/85716/2021
classification based on the sole and principal use. I have gone
through Note 3 to Section XVII which states that, 'the 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'. It is the claim of
the Noticee that the reference to 'Parts" in Chapter Heading
86.07 applies only to those parts which are suitable for use
solely or principally with railway locomotives and since the
subject impugned goods were manufactured by them solely and
principally for the railways, the provisions of Note 3 to Section
XVII would squarely apply. This argument is not acceptable on
merits. On a conjoint reading of Section Notes 2 and 3 to Section
XVII, what emerges is that:
(a) Section Note 2 to Section XVII excludes certain items
mentioned at (a) to (l) from being covered under Section XVII as
'parts' or 'parts and accessories even though they are identifiable
as being for the goods under the chapters of this section. Note 2
(e) excludes machines and apparatus of Heading 8401 to 9479
from being considered as parts or "parts and accessories'.
(b) Section Note 3 to Section XVII states that the references in
Chapters 86 to 88 to 'parts' or 'accessories' applies only to those
parts and accessories which are used solely and principally with
the articles of those Chapters. In the case of Chapter Heading
86.07 - "Pans of Railway locomotives", the reference to 'parts'
will apply only to those parts which are used solely and
principally with the railway locomotives.
It is evident from the above Section Notes that certain articles
are excluded from being considered as parts of goods under the
Chapters of this Section, by virtue of Note 2. Articles which are
not excluded by virtue of Note 2, can qualify to be a 'part' or
accessory' only if it is suitable for use solely or principally with
the goods of this Section. In other words, in order to apply the
principle of Note 3 to Section XVII while classifying a 'part', it is
essential that said items should not be excluded from Section
XVII by virtue of Note 2. Only after it is ensured that the 'part' is
not excluded by Note 2, can the 'sole or principal use' concept in
Note 3 be applied. The final test for classifying a part under
Section XVII will no doubt be on the basis of the sole and
13 E/85716/2021
principal use with the goods of the Chapters in the said Section.
However, the contention of the Noticee that Note 2 contradicts
the specific test of 'sole or principal use' laid down in Note 3 and
hence Note 3 is to be given primacy over Note 2 is not a correct
interpretation. There is no contradiction between Section Notes 2
and 3 to Section XVII. The test laid down in Note 3 is to be
applied only after it is ensured that the article is not excluded by
virtue of Note 2. Section Notes 2 and 3 are to be read
harmoniously in sequential order. Section Note 3 cannot be read
in isolation or accorded primacy as contended by the Noticee. My
view is supported by the General Notes to Section XVII on Parts
and Accessories wherein it is stated that Chapter 86 to 88 of
Section XVII each provide for the classification of parts and
accessories of the vehicles, aircraft or equipment concerned.
However, it should be noted that these headings apply only to
those parts or accessories which comply with all three of the
following conditions:
(a) They must not be excluded by the terms of Note 2 to
this Section; and
(b) They must be suitable for use solely or principally with
the articles of Chapters 86 to 88; and
(c) They must not be more specifically included elsewhere
in the Nomenclature.
In the instant case, I find that the subject impugned goods,
Compressors' falling under Chapter Heading 8414 and Gears/
Transmission element Gear Boxes falling under 8483 is excluded
from being considered as a part for the goods under Section XVII
by virtue of Note 2 (e) to Section XVII, thereby failing to fulfill
the first condition above. Further the subject impugned goods
are also specifically included in Chapter Heading 8414 and 8483
and hence the third condition of the above General Notes is also
not fulfilled. I have gone through the Chapter Note at Sr. No. 2
of Chapter 86, which reads as under
2. Heading 8607 applies, inter alia, to:
(a) axles, wheels, wheel sets (running gear), metal
tyres, hoops and hubs and other parts of wheels;
(b) frames, under frames, bogies and bissel-bogies;
(c) axle boxes, brake gear;
14 E/85716/2021
(d) buffers for rolling-stock; hooks and other
coupling gear and corridor connections;
(e) coachwork
In his statement dated 22.06.2018, Shri Sadanad D. Dandage,
Deputy Manager of Transmission Division of M/s. Kirloskar has
stated that 'the gears and pinions manufactured by M/s.
Kirloskar are termed as traction gears by the Indian Railways
and these item cannot be termed as running gears (wheel set),
brake gear and coupling gear'. Thereby the products
manufactured by them do not fall under the list of gears
mentioned at chapter note 2 of Chapter 86. Since all three
conditions are not fulfilled, the subject impugned cannot be
considered as 'Parts of railway locomotives' and therefore,
cannot be classified under Chapter heading 86.07. The correct
classification of the subject impugned goods would be under CSH
8414 for Compressors and 8483 for Gears/ Transmission
elements/ gear boxes. This avowal also gets support from the
Section Note 2 (a) of the Section XVI, which reads as under
2 Subject to Note 1 to this Section, Note 1 to Chapter 84 and to
Note 1 to Chapter 85, parts and machines (not being the parts of
the articles of heading 8484, 8544, 8545, 8546 or 8547) are to
be classified according to following rules:
(a) Parts which are goods included in any of the heading of
Chapter 84 or 85
(other than headings 8409, 8431,8448,8466,
8473,8487,8503,8522, 8529, 8538 and 8548) are in all cases to
be classified in their respective headings.
12. The Noticee has contested the issue on the grounds that the
impugned goods are not parts of integral engines therefore it
would not fall under the ambit of exclusion clause of note 2 (e)
of the section XVII. From plain reading of the said clause it can
be seen that this precondition is not pre-requisite to be satisfied
for the heading 8401 to 8479 as the words provided they
constitute the integral part of engine or motors are attached with
the articles of heading 8481 or 8482 or 8483. Therefore as the
Compressors fall under Chapter heading 8414, therefore this
condition cannot be applied for Compressors and thereby the
15 E/85716/2021
Compressors are outrightly excluded from the Section XVII. Now
coming to the Gears / Transmission element / Gear Boxes, I
have already held that such goods will not fall under CSH 8607
as these items manufactured by the Noticee are not the types of
gears as mentioned in Chapter Note 2 to of Chapter 86 but are
traction gear.
13. The Noticee has also advanced his case by strongly relying
on the C.B.E. & C. Circular No. 17/90-CX-4, dated 9-7-1990
issued in the context of transmission elements. I have gone
through the said Circular which relates to the classification of
transmission elements like Gears, Gearings, Gear Trains, Gear
boxes, etc. which have been specifically designed for use with
vehicles of Section XVII. The Circular was issued based on the
discussions held at the Tariff Conference wherein, after taking
note of Section Note 2(e) to Section XVII, the Conference
recommended that transmission elements may not be
classifiable under Heading 84.83 when they have been
specifically designed for use with vehicle of Section XVII. We find
that this Circular has no relevance to this case since the
discussion in the Circular is only with specific reference to
transmission elements falling under Chapter Heading 84.83 and
is not a circular for classification of parts of goods of Section
XVII in general. We also find that, notwithstanding the issuance
of the Circular No. 17/90-CX-4, dated 9-7 1990, the Tribunal in
the case of CCE, Chennai v. Best Cast Pvt. Ltd. [2001 (127)
E.L.T. 730] has, after considering the Sections Notes to Section
XVII, held that parts of gear boxes and clutches were classifiable
under Heading 84.83 as these items could not be said to be
articles of Section XVII (parts of motor vehicles). The civil appeal
filed against the Tribunal's decision in Best Cast case was
dismissed by the Apex Court as reported in 2001 (133) E.L.T.
A258 (S.C.) I also draw attention to the Circular No.
80/54/2018-GST, dated 31-12-2018 issued by the CBIC
regarding the classification of certain goods. Para 12 of the said
Circular deals with the classification of Turbo Charger supplied to
Railways. It has been clarified that Turbo Charger is specifically
classified under Chapter Heading 8414.80.30 and continues to
remain in this code irrespective of its use by Railways. This
substantiates that goods which are excluded by virtue of Note
16 E/85716/2021
2(e) to Section XVII and specifically classified elsewhere in the
nomenclature cannot be classified as parts of railway
locomotives under Chapter 86, irrespective of their use by
Railways. Further, CBIC has also clarified the issue of
classification of goods supplied to Indian Railways vide Circular
bearing No. 30/4/2018 dated 25.01.2018 arisen during the GST
regime and rate of applicable GST, it has been clarified that
Only the goods classified under Chapter 86, supplied to
railways attract 6 % GST rate with no refund of unutilized
tax credit.
Other goods falling in any chapter, would attract the
general applicable rate to such goods, under the aforesaid
Notifications, even if supplied to the railways.
This circular supports my view that the goods even if supplied to
the Indian Railways can be classified in different chapters also
apart from the Chapter 86.
14. In their replies and at the time of Personal hearing, the
Noticee for supporting their classification of the impugned goods
under CSH 8607 had placed reliance on the judgement of
Hon'ble Tribunal in case of Commissioner v. San Transmissions -
1999 (107) E.L.T. 482 (Tribunal). However, subsequently the
said judgment stands distinguished in case of NEW STANDARD
ENGINEERING CO. LTD. versus COMMR. OF C. EX., MUMBAI-V-
citation - 2006 (196) E.L.T. 358 (Tri. - Mumbai). The relevant
paras reads as under
3. The Counsel for the appellant contends that these goods have
been specially manufactured for use in as parts of textile
machinery, or as parts of, for forging hammer and for that
purpose have been given special shape and size. Accordingly, by
applying the provisions of Note 2(b) to Section XVI of the Tariff,
they have to be classified along with machinery of which they
form part. He relies upon the decisions of the Tribunal in Flakt
India Ltd. v. C.C.E. - 1999 (108) E.L.T. 203, CCE v. San
Transmissions - 1999 (107) E.L.T. 482 and CCE V. Gabrial India
Ltd. - 2001 (134) E.L.T, 406. In reply to a question by the
Bench, he clarifies that the shafts under consideration are
intended for transmission of power and that "housing" is not
different from "bearing housing."
17 E/85716/2021
4. Note 2(a) to Section XVI of the Central Excise Tariff specifies
the criteria for classification of parts of machinery which fall for
classification in any of the chapters of that section. Clause (a) of
this note provides that parts which are goods included in any of
the headings of Chapter 84 or Chapter 85 other than those of
headings which are specified therein are in all cases to be
classified in their respective headings. Heading 84.83, in which
the goods have been classified by the department, is not among
the headings which are excluded in the note. This heading
includes within its scope transmission shafts, crank shafts,
bearing housing, gears and gear ring and pulleys. Therefore, the
goods under consideration, being included in these headings
would rightly be classified in that heading. The reliance upon
Note 2(b) is misplaced. It only refers to other parts i.e. parts
other than those dealt with in clause (a).
5.We will now deal with the decisions that are cited. In CCE v.
Gabrial India Ltd. what was under consideration was
classification of bushes and thrust washers which the Tribunal
found to be different or plain shaft bearings of Heading 84.83. In
CCE v. San Transmission, the Tribunal was concerned with
classification of gears and pinions which were parts of
locomotives. Locomotives and their parts are classifiable in
Heading 86.07 and fall in Section XVII of the Tariff. For
classification of goods classifiable in this Section, different
criteria specified in the notes to that Section, apply. Therefore,
gears of locomotives or other conveyance classifiable in Section
XVII cannot be treated on the same footing as gears and other
goods with which we are concerned. This is in fact made clear in
the decision itself in Flakt India Ltd. v. CCE, the Tribunal was
concerned with the classification of shaft bearing assembly, and
noting that these are different from transmission shaft, did not
approve of their classification in Heading 84.83. These decisions
are therefore not relevant to the case before us.
15. The Department in the impugned SCN have relied upon
various judgements. However, the Noticee have vaguely without
any cogent reasons have tried to distinguish them. These
judgments also support my findings that the impugned goods
merit classification under CSH 8414 and 8483. The judgement
18 E/85716/2021
mentioned in the impugned SCN and their relevance to the
classification of impugned goods have been mentioned below
15.1 The Apex Court in case of Commissioner v. Kerala Electrical
& Allied Engg. Co. Ltd. [2006 (198) E.L.T. A172 (S.C.)],
condoned the delay and dismissed the Civil Appeal No. D3716 of
2006 filed by the Commissioner of Central Excise, Trivandrum
against the CESTAT Order Nos. 1524-1529/2005, dated 22-7-
2005 {reported in 2006 (195) E.L.T. 47 (Tri. - Bang.)}. The
Appellate Tribunal, in its impugned order had held that Brushless
alternator and components for use in railway coaches for
fighting/air-conditioning as per specification of Indian Railways
are classifiable under Heading 85.01 of Central Excise Tariff as
per Explanation in Note 4 to Section XVI ibid. This case law is
applicable in the Noticee's case even though the finished goods
were meant for the Railways but it did not merit classification
under CSH 8607 but the Tribunal and Apex Court confirmed the
classification in other heading by interpreting the Section Notes
and Chapter Notes. In the Noticee's subject case, I have held the
classification other than CSH 8607 by applying the Section and
Chapter Notes.
15.2 In the case of M/s. Intel Design Systems (India) Pvt.
Limited vs. Commissioner of Customs and Central Excise (2008
(223) ELT 135 (SC)), the Hon'ble Supreme Court had held that
although the goods Electrical Machinery and Equipment
manufactured by the said firm were strictly manufactured as per
drawing and design supplied by the Ministry of Defence and were
for use solely and principally for fitting into the tanks and
armoured vehicles falling under Chapter Sub Heading 8710,
however, since these items fall in the category of excluded goods
under Chapter Notes to Chapter XVII (which include chapter 86
to 89), they are classifiable under Chapter Sub Heading 8536. It
was further held therein by the Hon'ble Supreme Court that as
per Explanatory Notes to HSN the parts falling under Chapter
Sub Heading 8710 would be covered under the said Chapter,
provided they fulfill both the conditions i.e. they must be
identifiable as being suitable for use solely or principally for such
vehicles and that they must not be excluded by the provisions of
Notes to Section XVII; whereas, the Section Note 2 (f) to Section
19 E/85716/2021
XVII excludes electrical machinery and equipment falling under
Chapter 85 from the purview of Chapter 86. The said case law is
applicable to the Noticee's case as classification under Chapter
85 was determined by using the Section Note 2 of Section XVII
(Sr No. f). Applying the same principles the classification in
respect of impugned goods have been determined by me in the
foregoing paras.
15.3 The Hon'ble Tribunal, Chennai in the case of Commissioner
of Central Excise, Chennai Versus Best Cast (P) Ltd., (2001(127)
E.L.T.730), held that Gear Box parts and Clutch are not part of
motor vehicle by commercial parlance and therefore is
classifiable under Heading 8483 of Central Excise Tariff Act, 1985
as part of gear box and not under Heading 8708, as part of
motor. Para-4 of said judgment reads as under
4. We have considered the material on records, submissions
made and find that the subject goods are parts of gear box and
clutch which are classifiable under Heading 8483.00, therefore,
these items cannot be said to be articles of Section XVII, which
are not excluded by Section Note 1K to Section XVI. Therefore,
we find no merit in the grounds urged in the appeal filed by the
Revenue when the gear box is classified under heading 8483.00,
parts thereof as per Notes have to be classified there under and
not as parts of Motor vehicle under Chapter 87 as proposed in
the Revenue appeal. The parts are not understood as parts of
motor vehicle but are understood as parts of gear box and
therefore, not only by reading of interpretation of Chapter Notes
as conducted by Commissioner (Appeals) but also by commercial
parlance, the goods will get classified as parts of gear box under
Heading 8483.00. Therefore, we find no reason to uphold the
present appeal.'
The Department had preferred an appeal in Hon'ble Supreme
Court against the above order. However the same was dismissed
[Commissioner v. Best Cast (P) Ltd. - 2001 (133) E.L.T. A258
(S.C)] and it was held that the Gear Box parts and clutch are not
parts of motor vehicle by commercial parlance and would be
classifiable under Heading 8483 of Central Excise Tariff Act,
1985, as parts of gear box and not under Heading 87.08, ibid, as
parts of motor vehicle. This interpretation been made by the
20 E/85716/2021
Apex Court, and needs to be followed. Therefore the same can
be applied in the Noticee's case for upholding the classification of
Compressor under CSH 8414 and
15.4 In the case of Commissioner of Central Excise versus
Autolec Industries Limited (2008-TIOL-1073-CESTAT MAD) (copy
enclosed), wherein at para-2 it was held as under
2. After considering the submissions, we note that in Best Cast
case, the above Circular was also considered. This Bench, in that
case, held that gear box parts and clutch were not parts of
motor vehicle by commercial parlance and hence not classifiable
under Heading 87.08 but would be classifiable under Heading
84.83 as gear box parts. The Civil Appeal filed against the
Tribunal's decision in Best Cast was dismissed by the Apex
Court. In the circumstances, we accept the submission of
Learned Counsel that the classification dispute stands settled in
favour of the assessee. Accordingly, the impugned order is
sustained and this appeal is dismissed.
Here the dispute was as to whether the Gears of the Motor
Vehicles would be classifiable under CSH 8483 or 8708. But the
Hon'ble court has held that gears even though used for motor
vehicle merits classification under CSH 8483.
Advance Ruling in GST in similar issue in favour of
Revenue
16. Further, I have gone through the judgment of the Hon'ble
Supreme Court in the case of J.K.Steel Limited v. Union of India,
AIR 1970SC 1173, p. 1183 (para 29); wherein it was held that
where there are different statutes which are pari materia though
made at different times, or even if expired, and not referring to
each other, they shall be taken and construed together, as one
system and as explanatory of each other. I further find that in
one of Advance Ruling in case IN RE : PARKER HANNIFIN INDIA
PVT. LTD., Order No. KARIAAAR/07/2019-20, dated 10-1
2020,2020 (34) G.S.T.L. 306 (App. A.A.R. - GST - Kar.), wherein
it was held as under
Filters for Locomotives - Railways exclusive supply -
Classification of - Appellant is manufacturing different types of
filters specifically for Indian Railways as per their design and
21 E/85716/2021
specifications for use in different locomotives - Two rival
classification headings for this product under Customs Tariff Act,
1975 as applicable to GST are Heading 8421 which is specific to
all types of filtering machinery and apparatus for liquids or gases
and Heading 8607 ibid which is applicable to parts of railway
locomotives - By virtue of Section Note 2(e) of Section XVII ibid
covering Chapter 86 ibid, parts mentioned in this chapter do not
include items which are specifically mentioned under Headings
8401 to 8479 ibid even if these parts are specifically designed
for goods of Chapter 86 ibid. - Since Filters are specifically
included under Heading 8421 ibid., these cannot be classified
under any of headings of Chapter 86 ibid. - Appellants reliance
on Section Note 3 of Section XVII is misplaced as said Section
Note would be applicable only if Section Note 2(e) is held
inapplicable. Mere sole use of parts for goods of Chapter 86 ibid
is not sufficient for their classification under this Chapter as their
exclusion from Section Note 2(e) ibid is also essential - Case
laws and C.B.E. & C. Circular No. 17/90-CX-4, dated 9 7-1990
relied by appellant are not applicable and distinguishable on
facts - Decision of Tribunal in 2000 (120) E.L.T. 648 (Tribunal),
although factually similar, is per incurium as same has not taken
into consideration Section Note ibid - Ruling of AAR for Uttar
Pradesh, which has also not considered Section Note 2(e) ibid, is
not binding - In view of above, appropriate classification of said
goods is under Heading 8421 ibid and not under Heading 8607
ibid as claimed by appellant - This view is also fortified by C.B.I.
& C. Circular No. 80/54/2018-GST, dated 31-12-2018 on
classification of Turbo Charger supplied to Railways and also
decision of Tribunal in 2001 (127) E.L.T. 730 (Tribunal) on parts
of gear box and clutches - Impugned Ruling of AAR sustainable -
Section 9 of Central Goods and Services Tax Act, 2017. (paras
10, 11, 12, 13, 15, 16, 17, 18, 19]
Principles settled therein fortifies my views that the Compressors
and Gears/ transmission / Gear Boxes merits classification under
CSH 8414 and 8483 and not 8607 as classified by the Noticee.
Doctrine of approbate and reprobate holds back the
Noticee from changing the classification
22 E/85716/2021
17. I find that for the period till May 2016, the Noticee was
clearing the impugned products and classifying them under
Chapter Sub Heading (CSH) 8414 (Compressor) & 8483 (Gear,
Transmission Products, Gear Boxes) later to avail benefit under
Notification No. 12/2012 dated 17.03.2012 (Entry No. 272A)
(which was inserted from 01.03.2016), the Noticee changed the
classification. The Noticee changed the classification, when they
found that the goods could be cleared with lesser payment of
Central Excise duty by classifying the impugned goods under
CSH 8607 however in respect of goods cleared to other
customers other then Indian Railways, they did not change the
classification and classified the impugned goods under (CSH)
8414 (Compressor) & 8483 (Gear, Transmission Products, Gear
Boxes). By applying the principles of Doctrine of approbate and
reprobate, the Noticee is barred from making change from the
classification. This principle was applied by Apex Court, in the
judgement of Tractor and Farm Equipment Limited versus and
Collector of Customs, Madras (citation-1997 (91) E.L.T.254
(S.C.), which is squarely applicable to the Noticee's case. In the
said judgement it was held that=
Classification of goods - Doctrine of approbate and reprobate -
Importer having earlier taken the plea that sub-assemblies
imported by them were not I.C. Piston Engines cannot now turn
round and say that such sub-assemblies are Piston Engines.
Also there are plethora of judgement, wherein it was held that
assessee cannot change the stands and they cannot approbate
and reprobate. Some of the judgements are cited below and
relied upon in the Noticee's case
1. Gokaldas Export (P) Limited v Union of India - Citation -
2009 (247) E.L.T. 41 Kar.)
2. Neoli Sugar Factory c Commissioner of central Excise, New
Delhi-Citation 2001 (133) E.L.T 439 (Tri. --Del.)
The ratio of the said judgements is squarely applicable in the
Noticee's case and therefore, the Noticee cannot approbate and
reprobate and the Noticee was required to continue to classify
the products under CSH 3414 and 8483 and pay the appropriate
duty and not change the same abruptly as per convenience in
order to unduly derive benefit of lesser effective rate of duty.
23 E/85716/2021
Change in classification of product is subterfuge on the
part of the Noticee and holds them back to avoid the tax
evasion by change in classification and also doctrine of
estoppel can be applied in the Noticee's case
18. I also find that the Noticee changed the classification of the
impugned goods clearly with an intention of unduly to gain
advantage and avoid Central Excise duty. The Noticee's act is
required to be treated as subterfuge i.e. deceit used in order to
achieve one's goal for saving expenditure and avoid tax
payment. From the series of transactions, I find that the whole
purpose and act of the Noticee was to avoid tax. Such acts
cannot be part of the tax planning. Hon'ble Supreme Court in the
judgement of Mc Dowell & Company Limited vs The Commercial
Tax Officer, dated 17 April, 1985, citation- 1986 AIR 649, 1985
SCR (3) 791, examined the concept of tax avoidance or rather
the legitimacy of the art of dodging tax without breaking the law
and also, inter alia, observed that - i. It is obligation of every
citizen to pay tax honestly without resorting to subterfuge; ii. It
is neither fair nor desirable to expect the legislature to intervene
and take care of every device and scheme to avoid taxation. It is
upto the Court to take stock to determine the nature of the new
and sophisticated legal devices to avoid tax and consider
whether the situation created by the devices could be related to
the existing legislation. The said cited judgement, supra, is
squarely applicable in the present matter I also find the
judgement of Hon'ble Supreme Court in case of Union Of India &
Ors vs Playworld Electronics Pvt. Ltd.; dated 02.05.1989;
citations: 1990 AIR 202, 1989 SCR (20 1023, is squarely
applicable in the present matter, in the said case, the Apex Court
inter alia, observed that it is necessary to find the true nature of
the transaction it is unsafe to make bad laws out of hard facts
and one should avoid subverting the rules of law. Further the
Apex Court judgement. The judgement of Hon'ble Supreme
Court in case of Kone Elevator India Private Limited vs. State of
Tamil Nadu - 2014 (304)E.L.T 161 (SC) is squarely applicable in
the present matter as by changing the long lasting classification,
they have found out innovate subterfuge. Para-52 of the said
judgment reads as under 52 ...elaborate, the submission that
the element of labour and service can be deducted from the total
24 E/85716/2021
contract value without treating the composite contract as a
works contract is absolutely fallacious. In fact, it is an innovative
subterfuge. We are inclined to think so as it would be frustrating
the constitutional provision and, accordingly, we unhesitatingly
repel the same.
Similarly, Hon'ble Supreme Court in the case of Century Metal
Recycling Private Limited versus Union of India-20199 (367)
E.L.T.3 (SC), inter alia, at Para- 20 held as under
20............ Formation of opinion regarding reasonable doubt as
to the truth or accuracy of the valuation and communication of
the said grounds to the importer is mandatory, subterfuge to by-
pass and circumvent the statutory mandate is unacceptable.
The said case is also applicable in the present matter, as the
Noticee changed the classification to avoid payment of Central
Excise duty. The change in classification was without change in
the nature of product and composition. Thereby, the Noticee has
contradicted his own previous conduct. I find the legal maxim
'Venire Contra Factum Proprium', which means none may set
himself in contradiction to his own previous conduct, is relevant
in the instant case. The said legal maxim puts constraint on the
Noticee to change his previous practice. Further, the doctrine of
estoppel is based on the principle that, the consistency in word
imparts certainty and honesty to human affair. It is legal rule of
evidence which prevents a party from making denial that
contradicts what it had previously stated or what has been
legally established. In the instant case, the Noticee operating in
the self assessment mode and on their own ascertainment had
determined the classification under CSH 8414 and 8483 till May
2016 and paid the Central Excise duty. Department had not
forced them to classify the products under the said heading.
Therefore the principle of estoppel holds back the Noticee from
changing his previous practice of classification of the impugned
goods. The Noticee changed the classification of the impugned
goods in respect of the clearances made to Indian Railways from
8414 78483 to 8607 but in respect of goods cleared to other
customers other then Indian Railways, they did not change the
classification and classified the impugned goods under (CSH)
8414 (Compressor) & 8483 (Gear, Transmission Products, Gear
25 E/85716/2021
Boxes). I find that there cannot be two CSH for similar goods. If
product is classifiable under one heading under no circumstances
the same would be classifiable under a different heading.
19. In view of above discussion, I hold that the Compressors and
it's part are appropriately classifiable under CSH 8414 and Gear,
Transmission Products, Gear Boxes and it's part classifiable
under CSH 8483 and not under CSH 8607 as resorted by the
Noticee. Therefore, the Noticee have wrongly claimed exemption
Notification No. 12/2012-CE (Entry No. 272A) as amended by
Notification No. 12/2016-CE dated 01.03.2016, which specifically
covers the Chapter Heading 8607. The relevant applicable rates
of Central Excise duty on clearances for the period May, 2016 to
30.06.2017 of Compressor, Gears, Transmission Products (Gear
Boxes) and parts thereof made by the Noticee to Indian Railways
would to be 12.50% and not @ 6%, therefore the Noticee is
liable to pay the differential Central Excise duty of Rs.
2,51,02,803)- as proposed in the impugned SCN."
4.3 Before we proceed further we cannot resist ourselves from
making the observation to the effect that in his order learned
adjudicating authority has relied upon the Head Notes of the
decisions rather than the observations made by the court/
tribunal etc. The reliance placed on the head notes prepared by
someone in the office of the publisher can never be the
judgement of the court/ tribunal, and the practice of just relying
on such head notes should be condemn even without reading the
relevant paragraphs of the order.
4.4 Undisputedly the subject goods viz. compressors, gears,
transmission products and gear boxes are manufactured as per
drawings and designs of Indian Railways and are suitable for use
solely and principally for locomotives and do not have any other
purpose of utility. Prior to May 2016, Appellant classified the
products viz. Compressor and its parts under Chapter Heading
8414 and Gears / Gear Boxes (which includes pinion) and its
parts under Chapter Heading 8483 and had charged Central
Excise Duty @ full rate i.e. 10% / 12% / 12.5%. This was
objected to by the Railways as per letter bearing No.31/
DYCMMIEI ACTC-01 dated 19.04.2016 stating as follows:
26 E/85716/2021
"It is noted that your company is manufacturer of set of gear
and pinion of WAP-5 locomotive gear case. You have
participating in the tender and quoted ED @ 12.50%. However,
Excise Duty has been reduced to 6% vide notification dated
29.02.2016 (copy enclosed) for item in Railways. Another firm
M/s San Engineering and Locomotive Co Ltd Bangalore has
quoted ED @ 6%."
4.5 Thereafter the appellant vide their letter dated 5th May
2016 represented to the jurisdictional Assistant Commissioner,
enclosing the copy of the letter dated 19.04.2016 and expressed
their intention to modify the classification of the said goods to
CETH 8607 and pay the duty @ 6% as per Sl No 272A of the
Notification 12/2012_CE dated 17.03.2012 as amended by
Notification No 12/2016-CE dated 01.03.2016. Along with the
said representation appellant also enclosed a opinion from the
Independent Chartered Engineer and also gave justification for
making such changes. In classification and the applicable rate of
duty. Explaining the changes made by the Notification of 2016,
JS TRU Has vide his letter D.O.F.No.334/8/2016-TRU dated
29.02.2016 stated as follows:
"Basic Excise duty on all goods falling under 8607 (parts of
railway or tramway locomotives or rolling stock) and 8608
(railway or tramway track fixtures and fitting, etc.) is being
reduced to 6%. Notification No. 12/2012-Central Excise as
amended by notification No. 12/2016-Central Excise, dated 1st
March, 2016 [new S. No.272A, 272B] refers."
4.6 The above makes it crystal clear that appellants had prior
to making the change in the Classification and claiming the
benefit of the exemption as per Notifications referred above have
intimated all the facts to the department and thus there is no
reason for holding the charge of suppression etc., against them
for invocation of the extended period of limitation as per Section
11A (4) for imposition of penalties under Section 11AC of the
Central Excise Act, 1944.
4.7 Now we take up the issue on merits. In respect of the
impugned goods Shri Vasant Agsar, Chartered Engineer has vide
his letter dated 2nd may 2016 opined as follows:
27 E/85716/2021
Ref:VA-KPCL-TRM-G & P-01-016
TO WHOM SOEVER IT MAY CONCERNED
Upon the request of M/s. Kirloskar Pneumatic Co Limited 1
visited their works to study and evaluate the end applications for
the Gears / Pinions, Gear Boxes, Industrial Gear Boxes and air
compressors manufactured for various Engineering applications.
A. I have been specifically asked to study goods
manufactured by them and opine as to whether
Gears/Pinions/Bull Gears / Axle Drives / Air Compressors
etc. manufactured for Railways are integral part of engines
or motors?
B. As to whether Gears/Pinions/Bull Gears / Axle Drives / Air
Compressors etc manufactured for Railways can be used
for any other purpose or general purpose?
C. As to whether Gears/Pinions/Bull Gears / Axle Drives / Air
Compressors etc manufactured for Railways can be said to
be parts of Locomotives, Rolling Stock, etc.?
M/s. Kirloskar Pneumatic Co. Limited manufacturers and
provides after sales service for the following major types of
goods / industry:
Air Compressors viz reciprocating, screw type, centrifugal
type etc as required by for Heavy Duty Applications
Air Conditioning & Refrigeration Systems on turnkey basis
Gears,
Gear Boxes, Transmissions etc for power transmission for
the various end applications,
Transmission division manufactures:
Gears/Pinions of various dimensions and specifications as
per Customer's specific drawings & design mainly for
Railway Locomotives.
Turbo reversing Transmissions, Axle Drive Gearboxes for
Locomotives
Industrial Gear Boxes for different applications in an
Engineering Industries viz Mining & Metallurgical
Industries, coal mining, heavy duty conveyor systems in
above industries, etc. Industrial Gear Boxes are custom
built to suite an end application.
28 E/85716/2021
Gears/Pinions for general Industrial applications viz
general transmission systems, in short, wherever the
movement, speed variation is required to be done the Gear
/ Pinions are required, other than above,
Air compressor division manufactures air compressors and air
compression systems for various industrial and railway
applications.
In order to arrive at the opinion,
I have studied drawings of Gears / Pinions / Bull Gears etc
provided by Indian Railways, drawings of air compressors
designed as per specifications provided by Research
Design & Standards Organisation (RDSO), drawings of
transmission gear boxes for railway applications and also
studied the technicalities of each of them.
I have verified all the present and few past Purchase
Orders;
I have studied Raw Material required with technical
specifications and parameters etc;
I have studied inspections carried out at various stages of
manufacturing:
I have studied assembly drawing at customer's end;
I have also studied the criticality of Gears / Pinions /
Transmissions / Axle Drive / Air compressors etc. being
supplied to Railway applications. To cite an example, item
Gear / Pinion is considered and detailed below:
Gear/ Pinion Used in WAG-9-Type Electric
Locomotive
Gears : ( Drg No SKDP-3848) Specn No MP-
0.2800.19 (Rev O- Oct 2005)
Have 107 Teeth duly hardened and ground
conforming to above specification
Pinion shaft:
Have 21 Teeth duly hardened and ground
conforming to above specification
Gear / Pinion Used in WAP-4-Type Electric
Locomotive
29 E/85716/2021
Gear Wheel with 58 teeth as per RDSO Drg No SKDL
4355 RDSO spec no. MP.0.2800.09 (Rev. 02. June
2005).
Considering the dimensions, centre distance between gear &
pinion and other technical parameters the same cannot
constitute as an integral part of engine, motors etc, as the power
being transmitted by Railway gears / pinions is very high. Thus,
the gears/pinions cannot be used for any other purpose than
their designed and intended use as parts of locomotives, rolling
stock, etc.
Generally, gears/pinions have wide applications but certain gears
/ pinions have specific applications such as for locomotive
applications as stated above,
In general terminology Gears, shafts, pinions, crankshafts, gear
boxes, couplings, etc. are classified for use in General
Engineering or Industrial applications. However, above type of
Gears/Pinions manufactured by M/s Kirloskar Pneumatic Co
Limited are exclusively designed by Indian Railways and M/s
Kirloskar Pneumatic Co Limited specially manufactures them
against Indian Railways purchase orders, drawings and technical
specifications etc for exclusive use on railways application only,
and shall NOT have any other commercial applications other
than for Railways use.
However balance all gears/pinions, industrial gear boxes, shafts
etc. made for general engineering and industrial use will have
alternate usage in various applications.
Similarly I may further add that Gears/Pinions/Bull Gears &
Transmissions and air compressors which have been exclusively
designed to meet an end application in Railways have no
alternate use other than in railway application.
I have also been shown photographs of these Gears/Pinions/Bull
Gears / Axle Drives/ Air Compressors in addition to Purchase
Orders, Drawings, etc. On the basis of the study of these
documents I am of the firm and concrete opinion that these
goods are not integral part of engines or motors.
This certificate has been issued as an independent authority and
have no interest what so ever in the transaction."
30 E/85716/2021
4.8 From the above opinion made by the Independent
Chartered Engineer, it is quite evident that the impugned goods
which are the subject matter of the present dispute are as per
specific purchase orders placed by the Indian Railways for use in
Locomotives and are made as per the drawings an specifications
of the Indian Railways. These are in no way part of general use
and cannot be used elsewhere.
4.9 In case of Westinghouse Saxby Farmer Limited [2021
(376) ELT 14 (SC)] Hon'ble Supreme Court has held as follows:
"14. The questions that arise for our consideration in this
appeal are :
(i) Whether the "Relays" manufactured by the
appellant used only as Railway signalling equipment
would fall under Chapter 86, Tariff Item 8608 as claimed
by the appellant or under Chapter 85 Tariff Item No.
8536.90 as claimed by the Department?
(ii) Whether the show cause-cum-demand notices
issued by the Department on various dates during the
period 1995-1998 were not barred by time under Section
11A of the Central Excise Act, 1944, in the absence of any
fraud, collusion, wilful misstatement or suppression of
facts, especially since the classification list submitted by
the appellant have been approved on 27-8-1993?
Question No. 1
15. For finding an answer to question No. 1, it is necessary first
to see the description of the goods that fall under Chapter 85
and Chapter 86 with particular reference to the relevant Tariff
Items thereunder. Chapter 85 covers goods, described as
"Electrical machinery and equipment and parts thereof; sound
recorders and reproducers, television image and sound recorders
and reproducers, and parts and accessories of such articles."
16. Chapter Heading 8536 covers "Electrical apparatus for
switching or protecting electrical circuits, or for making
connections to or in electrical circuits (for example, switches,
relays, fuses, surge suppressors, plugs sockets, lamp-holders
and other connectors, junction boxes), for a voltage not
31 E/85716/2021
exceeding 1,000 volts; connectors for optical fibres, optical fibre
bundles or cables."
17. Sub-heading 8536.90 covers "other apparatus". This
includes (i) Motor starters for AC motors under sub-heading
8536.90.10; (ii) Motor starters for DC motors under sub-heading
8536.90.20; (iii) Junction boxes under sub-heading 8536.90.30;
and (iv) others under sub-heading 8536.90.90.
18. Chapter 86 covers "Railway or tramway locomotives,
rolling-stock and parts thereof; railway or tramway track fixtures
and fittings and parts thereof; mechanical (including electro-
mechanical) traffic signalling equipment of all kinds."
19. Chapter Heading 8608 covers "Railway or tramway track
fixtures and fittings; mechanical (including electro-mechanical)
signalling safety or traffic control equipment for railway,
tramways, roads, inland waterways, parking facilities, port
installation or air-fields; parts of the foregoing".
20. There are five sub-headings under Chapter Heading 8608
which are as follows :
8608 00 10 - Railway and tramway track fixtures and fittings
.................
8608 00 20 - Mechanical equipment, not electrically powered for signalling to, or controlling, road rail or other vehicles, ships or aircraft 8608 00 30 - Other traffic control equipment for railways.....................
8608 00 40 - Other traffic control equipment for roads or inland waterways including automatic traffic control equipment for use at ports and airports 8608 00 90 - Other ..........................................
21. The Assistant Commissioner who passed the Orders-in- Original felt that the 'Relays' manufactured by the appellant fell only under the category of 'Electrical machinery' covered by Chapter 85 and that in view of Note 2(f) of Section XVII, the expressions "parts" and "parts and accessories" appearing in Chapter 86 do not apply to electrical machinery or equipment, covered by Chapter 85. The Assistant Commissioner also relied 32 E/85716/2021 upon Rule 3(a) of the "General Rules for Interpretation of the First Schedule" to the Central Excise Tariff Act, 1985 to hold that the Heading which provides the most specific description shall be preferred to the Heading providing a more general description. Therefore, the Original Authority held that since "Relays" do not find a mention in Chapter 86, but finds a specific mention in Chapter Heading 8536, the same has to be classified only under sub-heading 8536.90.
22. The Appellate Authority agreed with the assessee that the Relays manufactured by them are used solely as part of the Railway signalling equipment, but held that in view of Note 2(f) of Section XVII, the Orders of the Original Authority did not call for any interference. However, the Appellate Authority set aside that portion of the Orders of the Original Authority by which penalty was imposed. This was on the ground that the classification list submitted by the appellant on 27-8-1993 was approved by the competent Authority and that, therefore, the appellant could not be taken to have violated the provisions of the law.
23. CESTAT, by the Order impugned in the present appeal, merely concurred with the reasoning given by the Appellate Authority and dismissed the appeal.
24. As could be seen from the Orders of the Original Authority and the first Appellate Authority, the answer to question No.1 revolves around the description of goods found in Chapters 85 and 86, as well as the Notes in Section XVII and the General Rules for Interpretation of the First Schedule. We have already extracted the description of goods in Chapters 85 and 86. Therefore, let us now take note of the relevant Notes in Section XVII and the relevant Rule of the General Rules for Interpretation of the First Schedule.
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 33 E/85716/2021 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".
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.
34 E/85716/2021
(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 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.
35 E/85716/2021
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 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 36 E/85716/2021 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 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.
39. As pointed out by the Commissioner (Appeals), the goods were previously classified (before 1993) under sub-heading 8536.90, but a revised classification list, classifying them under sub-heading 8608, submitted by the appellant, was approved by the competent Authority on 27-8-1993. After such specific approval of the classification list, it is not proper on the part of the Authorities to invoke Note 2(f) of Section XVII. Hence question No. 1 is answered in favour of the appellant and against the Revenue.
37 E/85716/2021 Question No. 2
40. The second question that arises for consideration is as to whether the show cause-cum-demand notices issued by the Department on various dates during the period 1995-1998 were not barred by time under Section 11A of the Central Excise Act, 1944, in the absence of any fraud, collusion, wilful misstatement or suppression of facts, especially since the classification list submitted by the appellant have been approved on 27-8-1993.
41. At the outset we should point out that this is not a case where the extended period of limitation would apply, especially in the light of the admitted position that the assessee who had his product classified under sub-heading 8536.90 till the year 1993, specifically filed a classification list on 27-8-1993, reclassifying them under sub-heading 8608 and the same was also approved by the competent authority. Therefore, there is no question of any fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty. It is not even the case of the Department that the appellant was guilty of any of these things, warranting the invocation of the extended period of limitation. Therefore, the conclusion is inescapable that the Revenue had only the normal period of limitation available to them to invoke the power under Section 11A.
42. As a matter of fact the first Appellate Authority held in the penultimate paragraph of its Order as follows :
"I find that the subject goods were previously classified under sub-heading No. 8536.90 and then the appellant asked for reclassification of the goods under sub-heading No. 8608.00. The new classification was approved by the proper authority and the appellant paid duty according to the approved classification. Hence there is no violation of any provisions of law on the part of the appellant and therefore penalty is not imposable under rule 173Q.
43. The Appellate Authority also held without any discussion, that the show cause notices were issued within the time limit envisaged in Section 11A and that "any discussion on the 38 E/85716/2021 jurisdiction of invocation of extended period is not at all required". Therefore, it is obvious that none of the Authorities chose to invoke the extended period of limitation, but proceeded on the footing that all show cause notices were issued within the normal period of limitation. If only any of the Authorities had taken care to look at the dates of the show cause notices, the period covered by those notices and the normal period of limitation that prevailed at that time, they could have easily found that the show cause notices were at least partly time- barred."
4.10 The review petition filed by the revenue is dismissed by the Hon'ble Apex Court both on merits and delay 2022-VIL-55- SC-CE.
4.11 in Sans Transmission-[1997 (107) ELT 482 (T)] tribunal has held as follows:
"11. The Assistant Collector relied on Note 2(e) to Section XVII to hold against the applicability of Chapter Heading 86.07. The departmental representative also supported this stand taken by the Assistant Collector. Note 2(e) to Section XVII, no doubt, takes articles of Heading 84.83 provided they constitute integral parts of engines or motors, out of Chapters 86 to 88. The subject matter of dispute namely "gears" can be regarded as 'articles of Heading 84.83' but they do not constitute integral parts of engines or motors. Therefore Note 2(e) to Section XVII cannot be invoked in this case.
12. In the above circumstances, we are inclined to agree with the view taken by Collector (Appeals) that "gears and pinions"
manufactured by respondent for use vis-a-vis locomotives would fall under Chapter Heading 86.07. We are supported in this view by a decision of the Tribunal in Poona Radiators reported in 1990
148) E.L.T. 93 (T) to a similar effect in relation to radiators for use in locomotives."
4.12 Adjudicating authority has in impugned order stated that the said decision was distinguished by the tribunal in the case New Standard Engineering Co Ltd., is not correct because the issue in the said case was in respect of the classification of the goods have been specially manufactured for use in as parts of 39 E/85716/2021 textile machinery, or as parts of, for forging hammer and for that purpose have been given special shape and size, not in respect of the goods used principally for the locomotives. In para 5, distinguishing the case of Sans Transmission, tribunal observed:
"5. ........In CCE v. San Transmission, the Tribunal was concerned with classification of gears and pinions which were parts of locomotives. Locomotives and their parts are classifiable in Heading 86.07 and fall in Section XVII of the Tariff. For classification of goods classifiable in this Section, different criteria specified in the notes to that Section, apply. Therefore, gears of locomotives or other conveyance classifiable in Section XVII cannot be treated on the same footing as gears and other goods with which we are concerned. ..."
In fact tribunal decision in the case of New Standard Engineering Co Ltd., relied upon by the adjudicating authority cannot be relied upon in the present case because of the above observations made.
4.13 The decision in Best Cast Pvt Ltd relied upon by the adjudicating authority was in respect of separate set of facts as is evident from the observations made in the said order reproduced below:
"I observe that even according to the Assistant Collector's findings the subject castings are parts of gear box and clutch; there is no dispute about this fact. It is also admitted that these clutches and gear boxes are ultimately used in motor vehicles. However, the reasoning given by the Assistant Collector to classify them under Chapter heading 8708.00 is totally devoid of any merit for the following reasons : -
According to Note 2 of Section XVI, parts of machines are to be classified under any of the headings of Chapter 84 or 85 if they have been specifically included in any of these headings. Other parts, if suitable for use solely or principally with a particular kind of machine are to be classified with the machines of that kind. As rightly contended by the appellants, the exclusion clause under Section note 1(k) refers to those articles which are not specifically covered by Section XVI and also fall under 40 E/85716/2021 Section XVII. Further the letter of the appellants' customer M/s.
Telco makes it clear that the subject goods viz. gear case cover top, gear case cover-rear and front extension arms, gear box housing front half and rear half etc. are all being used as parts of gear box, and clutch house casting is used for housing of clutches. I have therefore, no hesitation to hold that the reclassification ordered by the Assistant Collector under 8708 is not supported by any legal provision and therefore set aside the impugned order and allow the appeal with consequential relief."
4.14 By circular no. 17/90-CX-4. Following has been clarified by the Board:
"2. This issue was discussed in the South Zone Tariff-cum- General Conference of Collectors held at Hyderabad on 11th and 12th January, 1990. The Conference had taken the view that Note 2a to Section XVI provides that parts or goods included in any of the Heading of Chapter 84 or 85 (other than Heading 84.85 and Heading 85.48) are in all cases to be classified in their respective Headings and since Gears are specifically described under Heading 84.83, they should be classified under that Heading only.
3. As it was felt that the scheme of classification in HSN did not provide for classification of transmission elements like Gear, Gearings, Gear Trains, Gear Boxes etc., under Heading 84.83 in all cases and classification would depend on whether these are designed for use with specific machines, amendment of relevant chapter/section notes was proposed. However an amendment was not considered advisable and therefore the matter was again taken up for discussion in the 2nd South Zone Tariff-cum- General Conference of Collectors of Central Excise held at Bangalore on 24 & 25th May, 1990.
4. The Conference took note of :
(a) Note 1k to Section XVI which excludes, inter alia, articles of Section XVII from the scope of Chapter 84.
(b) Note 2e to Section XVII which provides that expression parts and Parts & accessories does not apply to the following articles whether or not they are identifiable as for goods for the section, among others, machines and 41 E/85716/2021 apparatus of Heading 8401 to 4879 and parts thereof;
articles of Heading 8481 or 8482 and provided they constitute integral parts of engines or motors of Heading 84.83.
(c) HSN Explanatory Notes under Heading 8708 (sub-
heading 8709.40 for Gear Boxes) at page 1432 and 1433 specifically mention that Gear Boxes of all types, Torque Converters, Gear Box castings, Shaft and other internal parts of engines, Gear Pinions etc., and other transmission parts and components (for e.g., Propeller Shafts, half Shafts, Gears, Gearings etc.).
(d) Section Note 2e to Section XVII in HSN which excludes only machines or apparatus of Heading 8401 to 8479 or parts thereof; articles of Heading 8481 or 8482 or provided they constitute integral parts of engines or motors, articles of Heading No. 8483.
5. The Conference therefore, recommended that transmission elements may not be classifiable under single Heading 8483 when they have been specifically designed for use with vehicle of section XVII of Central Excise Tariff Act, 1985. They would be covered as parts of vehicles under the appropriate Headings 8607 or 8708 or 8714."
4.15 Adjudicating authority has relied upon circular no. 80/54/2018-CST dated 31.12.2018 whereby following clarification has been issued:
"12. Applicability of GST on supply of Turbo Charger for railways:
12.1.Representations have been received seeking clarification regarding classification and applicable GST rate on Turbo Chargers supplied to railways. It is stated that some of the supplier are classifying turbo charges supplied to Railways under Chapter 86 and paying GST at the rate of 5% 12.2The turbocharger is a turbine-driven forced induction device that increases an internal combustion engine's efficiency and power output by forcing extra compressed air into the combustion chamber. It has the compressor powered by a 42 E/85716/2021 turbine. The turbine is driven by the exhaust gas from the engine.
12.3Turbo charger is specifically classified under chapter HS code8414 80 30. It continues to remain classified under this code irrespective of its use by Railways. Therefore, it is clarified that the turbo charger is classified under heading 8414 and attracts 18% GST."
In our view the said circular has been issued without examination of the law as emerged on the subject through the decisions of the Hon'ble Apex Court etc. The circular has been issued without examination of any of the Chapter/ Section Notes as the same are not available for making the classification of the goods under GST. Even the GST Classification codes are only four digit based and cannot be said to be aligned with the HSN which is six digit. In the present case the classification of the goods under the Central Excise Tariff has to be done with reference of the Chapter Headings, relevant Section and Chapter Notes. The same may not be true in respect for making the classification under the GST. Hence when the Circular has been issued by the Board without consideration of any of the decisions the same cannot be binding. In case Ratan Melting and Wire [2008 (231) ELT 22 (SC)] Hon'ble Supreme Court has specifically observed:
"6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the Court to declare what the particular provision of statute says and it is not for the Executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.
43 E/85716/2021
7. As noted in the order of reference the correct position vis-a- vis the observations in para 11 of Dhiren Chemical's case (supra) has been stated in Kalyani's case (supra). If the submissions of learned counsel for the assessee are accepted, it would mean that there is no scope for filing an appeal. In that case, there is no question of a decision of this Court on the point being rendered. Obviously, the assessee will not file an appeal questioning the view expressed vis-a-vis the circular. It has to be the revenue authority who has to question that. To lay content with the circular would mean that the valuable right of challenge would be denied to him and there would be no scope for adjudication by the High Court or the Supreme Court. That would be against very concept of majesty of law declared by this Court and the binding effect in terms of Article 141 of the Constitution."
4.16 The same issue was considered by the tribunal in the case of Diesel Component Work [2000 (120) E.L.T. 648 (Tribunal)] and following was observed:
"5. Section XVI of the Central Excise Tariff Act deals, inter alia, with machinery and mechanical appliances. It deals with the general category of machinery and mechanical appliances. Note 1 to Section XVI specifically takes out articles of Section XVII outside the purview of this Section, by clause (k). Section XVII deals with special items like vehicles, aircraft, vessels and associated transport equipment. Chapter 86 coming under this Section deals with Railway or Tramway Locomotives, rolling stock and parts thereof; Railway or Tramway track, fixtures and fittings and parts thereof. This Chapter is dealing with specific goods relating to Railway, Tramway.
6. It is common case that the goods manufactured by the company are of Railway Locomotives. It is nobody's case that any parts manufactured by the appellant company, with which we are concerned in these appeals are usable in a manner unconnected with Railway Locomotive. Even in such a situation, the Excise Department took the stand that the goods manufactured by the appellant company are not parts of locomotives but they are parts of machines and apparatuses falling under Chapter Heading 84 or 85. This approach was made 44 E/85716/2021 on the basis of Note 2(e). For a proper understanding of that Note, we read the same:
"2. The expressions "parts" and "parts and accessories" do not apply to the following articles, whether or not they are identifiable as for the goods of this Section:-
(e) Machines and apparatus of heading Nos. 84.01 to 84.79, and parts thereof; articles of heading No. 84.81 or 84.82 and provided they constitute integral parts of engines or motors, articles of heading No. 84.83."
The department's view is that the various parts found dutiable in this proceeding are parts of internal combustion engines. Internal combustion engines are independent of locomotive. Consequently, those parts of machines fall under Heading 84 or
85.
6. The Commissioner in the impugned order took note of the meaning or locomotive given in the Explanatory Notes to HSN. He quoted the following from page 1414 of first edition of HSN:-
"Diesel locomotives are of three types, namely, diesel electric locomotive, diesel hydraulic locomotive and diesel mechanical locomotives. Diesel electric locomotive (which is relevant in this case) has been defined as locomotive in which diesel engine drives a generator to produce electricity which in turn powers traction motors driving the wheels."
He further noted the meaning of locomotive from Encyclopaedia Britannica as a vehicle containing the power unit used on rail roads. From the HSN and Encyclopaedia Britannica referred to by the Commissioner, it is evident that locomotive is an engine which drives the generator to produce electricity, which in turn powers traction motors. The engine, in other words, is main part of the locomotive. The engine is the main part which gives locomotion. After analysing this position, the Commissioner came to the following conclusion :-
"Apparently, from the above it envisages that engine and locomotive are two distinct and different commodities and also have different uses. Hence locomotive is something more than the engine as is evident from the definition of the diesel electric locomotives given under heading No. 86.02 of the Explanatory 45 E/85716/2021 Notes of HSN. Even I find from the explanatory notes of HSN given under heading 84.08 as detailed above that engines of heading 84.08 are suitable for use, of locomotives and other vehicles. This shows that the engine used in the locomotives is classifiable under heading No. 84.08 of the said schedule. Once it is so, then the parts of such engines would also be classifiable under heading 84.09 by virtue of section note 2(e) of the Section XVII. In wake of this I am of the opinion that the parts manufactured by the noticee have to be held classifiable under Chapter 84 and become chargeable to duty as not covered under notification No. 197/87-CE dated 28-8-87."
Even after coming to this conclusion, he found the parts of the engine to fall under Chapter Headings 84 and 85 because of Section Note 2(e) to Section XVII. After referring to Note 2, learned Commissioner failed to read Note 3 to that Section. That Note reads: -
"3. 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."
(Emphasis added) In relation to Chapter Note 3, what HSN states is:
"(B) Criterion of sole or principal use.
(1) Parts and accessories classifiable both in Section XVII and in another Section.
Under Section Note 3, parts and accessories which are not suitable for use solely or principally with the articles of Chapters 86 to 88 are excluded from those Chapters.
The effect of Note 3 is therefore that when a part or accessory can fall in one or more other Sections as well as in Section XVII, its final classification is determined by its principal use. Thus the steering gear, braking systems, roadwheels, mudguards, etc. used on many of the mobile machines falling in Chapter 84 are virtually identical with those used on the lorries of Chapter 87, 46 E/85716/2021 and since their principal use is with lorries, such parts and accessories are classified in this Section."
So, this Section Note of HSN makes it clear that final classification is determined by its principal use. The principal use of the components manufactured by the appellant company is admittedly as parts of locomotive.
7. As stated earlier, all assessable parts now found dutiable by the Commissioner in the impugned order are essential parts of machine used in the locomotive. Are not those parts to be described as parts of locomotive? A similar issue came up for consideration before this Tribunal in the decision reported in Bajaj Auto Ltd. v. Collector of Central Excise, Pune, 1994 (74) E.L.T. 599 where the question, unspecific parts of IC engines used in motor vehicles are parts of motor vehicles came up for consideration. The Tribunal gave the answer in the affirmative. These parts of IC engines which were the main parts in the locomotive should also be termed as part of the locomotive and not as IC engines coming under the general category. Central Board of Excise and Customs had to consider the issue as to whether a radiator assembly supplied to Indian Railways is to be classified under sub-heading 8607.00 or otherwise. The Board observed that product radiator assembly is designed according to the specifications of the Indian Railways and is for use solely and principally with locomotives of Heading 8601 and 8602. It is clarified that the radiator assembly is not to be classified as parts of IC engines under Heading 8409. This understanding of the Central Board of Excise and Customs is discernible from circular No. 16/90 dated 11-6-1990, which still holds good. If radiator assembly manufactured for Railways for being fitted in locomotives is to be classified under Heading 8607, we do not find any justification in the department taking a view that integral parts of IC engines which form locomotive are outside Chapter Heading 86.
8. In the light of the above discussion, we come to the conclusion that the various components manufactured by the appellant company are classifiable solely under Chapter Heading
86. The contrary view taken by the Commissioner is clearly erroneous. The Notification No. 197/87-CE gives complete 47 E/85716/2021 exemption to the goods manufactured by the appellant company. So, the Excise Department clearly mistook itself in imposing duty on the goods manufactured. The duty demand and the penalty imposed are quashed."
4.17 This decision was followed by the tribunal subsequently and also by the Authority for Advance Ruling - Uttar Pradesh, under GST regime, in their orders Tools and Gage Co, [2020 (43) GSTL 119 (A.A.R. - GST - U.P.)] & Parag Polymers [2021 (53) G.S.T.L. 364 (A.A.R. - GST - U.P.)]. Following was observed:
"13. Here, we observe that in the case of Commissioner of Central Excise, Bangalore v. Sri Ram Metal Works [1998 (99) E.L.T. 616 (Tribunal)] the Hon'ble Tribunal has observed that :
"It is seen that the containers as fabricated, to specific design and drawing of the railways for fitment into coach and it becomes a part of the coach. In that view of the matter, assessment under 8312.90 is not sustainable. The Chapter Note 2 to the Chapter 86 clearly sets out that the coach work falls under this chapter. The term coach work, as such, has not been defined. Coach work, as such, has to be, therefore, treated in the broad sense of the work which goes to make the coach functionally complete. In the case of railways, it goes without saying that the provision of water in the coach is a necessity and the coach can be taken to be complete with the fitment of the water tank. More so, when the water tank becomes part of the coach itself, Tariff Heading 86.07 would be more appropriate for assessment of the water tank".
By applying the same analogy in the instant case also, we observe that the "Roof Mounted AC Package Unit", specially meant for the Railways, as per the design and layout provided by them, are integral part of the coach and rightly classifiable under Chapter Heading 86.07.
13.1 Further, applying the same analogy, in the case of Commissioner of C. Ex., Bangalore v. Ramsons Udyog (P) Ltd. [2000 (115) E.L.T. 171 (Tribunal)] the Hon'ble Tribunal has 48 E/85716/2021 observed that "Sanitarywares are also designed for fitment into the coach and they would be classifiable under Heading 86.07".
13.2 Similarly, in the case of Sunflex Auto Parts v. Commissioner of C. Ex. (Appeals), Mumbai-II - 2004 (171) E.L.T. 188 (Tri. - Mumbai), it was observed by the Hon'ble Tribunal that "Parts made out of rubber and metal bonded together as per specification of Indian Railway and meant for use solely and exclusively for them, classification under sub-heading 8607.00 of Central Excise Tariff."
13.3 In the case of Mechanico Enterprises v. Commissioner of C. Ex, Calcutta-II, [1998 (104) E.L.T. 345 (Tribunal)], the Hon'ble Tribunal has observed that "Aluminium water tanks, principally and solely designed for use in railway coaches- classifiable under 86.07 and not under 76.11."
13.4 We also observe that, the Hon'ble Tribunal, in the case of Diesel Components Works v. Commissioner of C. Ex., Chandigarh [2000 (120) E.L.T. 648 (Tribunal)] has observed that "Parts of internal combustion engine used exclusively for Railway locomotive classifiable by virtue of Section Note 3 of Section XVII of Schedule to the Central Excise Tariff Act, classifiable under Chapter 86 as parts of Railway locomotive and not under Chapter 84 of the Central Excise Tariff Act, 1985.".
13.5 Similar views has been observed by the Hon'ble Tribunal, in the case of Rail Tech v. Commissioner of Central Excise, Chandigarh [2000 (120) E.L.T. 393 (Tribunal)] that "Aluminium windows, doors and their frames manufactured by the assessee have no use or relevance in structure but manufactured on the drawings and specifications provided by the Railways for the sole use in railway coaches - Such Aluminum windows and doors are neither marketable nor can be used for any structure-classifiable under Heading 86.07 of the Central Excise Tariff Act, 1985 as parts of Railways and not under 7610.10."
14. In the instant case, we observe that the "Roof Mounted AC Package Unit" would be manufactured by the applicant, strictly as per the specification and design provided by the Indian Railways (RDSO) and specially meant to be solely used in 49 E/85716/2021 railway coaches and nowhere else. Accordingly, we observe that the ratio of the above referred judgments is squarely applicable in the instant case that the "Roof Mounted AC Package Unit" are the interior fittings inside the Coach and they are suitably classifiable under Tariff Heading 8607 99 10 i.e. "Parts of Coach work of railways running stock".
4.18 These decisions didn't found favour with the Authority for Advance Ruling and Appellate Authority for Advance Ruling, Karnataka. In case of Parker Hannifin India Pvt. Ltd., [2020 (34) G.S.T.L. 306 (App. A.A.R. - GST - Kar.)]. In para 17, the authority has itself observed as follows:
"15. The Appellant has tried to make a strong argument that the final classification is to be determined by the principal use, by relying on the decision of the Tribunal in the case of Diesel Component Works v. CCE, Chandigarh reported in 2000 (120) E.L.T. 648 (Tribunal). In the said case, the Tribunal has held that the effect of Note 3 to Section XVII is that when a part or accessory can fall in one or more other Sections as well as in Section XVII, its final classification is determined by its principal use. We find that this decision has been rendered without taking note of the General Notes on Parts and Accessories given in Section XVII wherein it is stipulated that classification of parts and accessories of goods under Chapters 86 to 88 apply only to those parts or accessories which comply with all three of the following conditions :
(a) They must not be excluded by the terms of Note 2 to this Section;
(b) They must be suitable for use solely or principally with the articles of Chapters 86 to 88; and
(c) They must not be more specifically included elsewhere in the Nomenclature.
It appears that the provisions of the above General Notes have eluded the attention of the Tribunal and hence the decision is per incuriam.
50 E/85716/2021
16. The Appellant has also advanced his case by strongly relying on the C.B.E. & C. Circular No. 17/90-CX-4, dated 9-7- 1990 issued in the context of transmission elements. We have gone through the said Circular which relates to the classification of transmission elements like Gears, Gearings, Gear Trains, Gear boxes, etc. which have been specifically designed for use with vehicles of Section XVII. The Circular was issued based on the discussions held at the Tariff Conference wherein, after taking note of Section Note 2(e) to Section XVII, the Conference recommended that transmission elements may not be classifiable under Heading 84.83 when they have been specifically designed for use with vehicle of Section XVII. We find that this Circular has no relevance to this case since the discussion in the Circular is only with specific reference to transmission elements falling under Chapter Heading 84.83 and is not a circular for classification of parts of goods of Section XVII in general. We also find that, notwithstanding the issuance of the Circular No. 17/90-CX-4, dated 9-7-1990, the Tribunal in the case of CCE, Chennai v. Best Cast Pvt. Ltd. [2001 (127) E.L.T. 730] has, after considering the Sections Notes to Section XVII, held that parts of gear boxes and clutches were classifiable under Heading 84.83 as these items could not be said to be articles of Section XVII (parts of motor vehicles). The civil appeal filed against the Tribunal's decision in Best Cast case was dismissed by the Apex Court as reported in 2001 (133) E.L.T. A258 (S.C.)
17. The Appellant has also relied on the ruling given by the Uttar Pradesh Authority for Advance Ruling in the case of M/s. G.S. Products wherein it was held that the correct classification of the Filter elements and Air Filter Assembly manufactured as the specification and design of the Indian Railways, will be Heading 86.07. The Authority for Advance Ruling is constituted under the respective State/Union Territory Act and not under the Central Act and hence every ruling pronounced by the Authority will be applicable only within the jurisdiction of the concerned State or Union territory. Further the ruling given by the Authority is binding only on the applicant who has sought the advance ruling and on the concerned officer or the jurisdictional officer in respect of the applicant. This clearly means that an advance 51 E/85716/2021 ruling is not applicable to similarly placed other taxable persons in the State. Therefore, the ruling given by the UP Authority for Advance Ruling is not applicable to any other taxable person within the State of Uttar Pradesh leave alone a taxable person outside the State of Uttar Pradesh. Notwithstanding the above, we find that the ruling given by the Authority at Uttar Pradesh has not examined the provisions of Note 2(e) to Section XVII and the General Notes on Parts and Accessories in Section XVII while determining the classification of Air Filters For the above reasons we are not inclined to give any weightage to the ruling given in the case of M/s. G.S. Products."
Thus the authority while rendering this decision is aware of the contrary decision rendered in UP. The law in respect of classification in GST has to evolve and these orders cannot have any relevance beyond the jurisdiction of the authority concerned. Further the decision of the tribunal rendered in 2000, has been held to be per per-incuriam. In our view this decision of tribunal is totally in line with the decision rendered by the Hon'ble Apex Court in the case of Westinghouse Saxby Farmer Limited referred earlier by us. Hence we do not find any merits in the reliance placed by the adjudicating authority on this decision.
4.17 In view of above we do not find any merits in the impugned order either on the merits or on the issue of limitation.
5.1 Appeal is allowed.
(Order pronounced in the open court) (Sanjiv Srivastava) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) tvu