Custom, Excise & Service Tax Tribunal
M/S. Fowler Westrup (India) Pvt. Ltd vs Commissioner Of Central Excise ... on 13 October, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Final Order No. 21888 / 2014 Application(s) Involved: E/Stay/20610/2014 in E/20624/2014-DB E/Additional Evidence/23546/2014 in E/20624/2014-DB Appeal(s) Involved: E/20624/2014-DB [Arising out of Order-in-Original No. 59/2013 dated 20/11/2013 passed by Commissioner of Central Excise, BANGALORE-I ] M/s. Fowler Westrup (India) Pvt. Ltd Plot No.249/250, III Phase, Bommasandra Industrial Area, Bommasandra, BANGALORE - 560099 KARNATAKA Appellant(s) Versus Commissioner of Central Excise ,Customs and Service Tax Bangalore-I POST BOX NO 5400, CR BUILDINGS, BANGALORE - 560001 KARNATAKA Respondent(s)
Appearance:
Mr. S. Thirumalai, Mr. Harish Bindumadhavan, Advocates No.66/1, T.R. Deepak Layout, Kothanur, J. P. Nagar 8th Phase, BANGALORE - 560008 KARNATAKA For the Appellant Dr. A. K. Nigam Addl. Commissioner (AR) For the Respondent CORAM:
HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Date of Hearing: 13/10/2014 Date of Decision: 13/10/2014 Order Per : B.S.V.MURTHY The issue involved is classification of galvanized silo storage system which according to the appellant is the product manufactured by them. The period involved is April 2012 to February 2013 and duty demanded is more than Rs.2.67 crores with interest. Penalty of Rs.50/- lakhs has also been imposed.
2. We have heard both the sides in great detail and considered the submissions and also perused the records. The appellant is contending that the product is classifiable under Chapter Subheading 8437 10 00 of Schedule to the Central Excise Tariff Act, 1985 whereas the department has taken a view that product is classifiable under Chapter subheading 9406 00 99. The Chapter heading 84 37 of CETA, 1985 reads as under Machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables; machinery used in the milling industry or for the working of cereals or leguminous vegetables, other than farm-type machinery. The specific tariff item 8437 10 00 in which the assessee has classified the impugned goods reads as under Machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables.
2.1 The Chapter subheading 9406 covers prefabricated buildings. As per the note 4 of Chapter 94, prefabricated buildings means buildings which are finished in the factory or put up as elements, presented together, to be assembled on site, such as housing or worksite accommodation, offices, schools, shops, sheds, garages or similar buildings.
2.2 The findings of the Commissioner in the impugned order to justify the stand taken by the Revenue are as under:
Silos manufactured and cleared by the assessee are classifiable under Chapter sub-heading No. 9406 00 99 of the CETA, 1985.
* As per the product brochure published, the assessee is manufacturing varieties of silos to suit different customer needs. These silos have a wide range for storing capacity of grains up to 15,000 tonnes and where required a galvanized reinforced roof structure is incorporated considering various loadings, machinery and wind factor. From the brochure, it is clear that these silos are customized to individual needs and the prefabricated structures are later installed at the customer site depending on the requirement of customers.
* The specific Tariff item 8437 10 00 under the Chapter heading No. 8437 of CETA, 1985 in which the assesses have classified the impugned goods viz., silos read as under: Machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables. There is no specific mention of grain storing machine or a specific description of silos or storage device in this Chapter heading.
* The Chapter heading 9406 covers prefabricated buildings. As per Note 4 to Chapter 94 prefabricated buildings means buildings which are finished in the factory or put up as elements, presented together, to be assembled on site, such as housing or worksite accommodation, offices, schools, shops, sheds, garages or similar buildings. The others under Chapter sub-heading No. 9406 00 99 of CETA, 1985 covers any other pre-fabricated building used for storage.
* From the purchase orders submitted by the assessees, it is evident that the structures of silos are manufactured/fabricated by the assessee in their factory premises for ultimate installation at the customers site which also include civil construction at the customer site as per the requirement of their customer. These fabricated components/structures/parts are later transported by the assessee to the customers site over a period of time for assembly at site.
* The argument of the Appellants that silos are equipped with pre-cleaners, fine cleaners etc., which forms a complete machinery system and since the same is used for milling industry they should invariably fall under Chapter sub-heading No. 8437 of CETA, 1985 is fallacious inasmuch as silos are also cleared to the customers without any pre-cleaners, fine cleaners etc., since these are optional items which can be customized depending on the requirement of the customers.
* As per Rule 3(a) of General Rules of Interpretation of the First Schedule to the Central Excise Tariff Act, 1985, it is clear that the silo in general being in the nature of pre-fabricated building (essential character) and functionally used for housing or storage are specifically covered under Chapter heading No. 9406 of CETA, 1985. In the case of Commissioner of Central Excise, Ghaziabad v. International Tobacco Ltd, 2009-TIOL-11-SC-CX, the Apex Court has held that for classification, the basic character, function and use is more important than the name used in trade parlance. Therefore, the Learned Commissioner finds that the basic character of the silos manufactured by the assessees is that it is a Pre-fabricated building since the assessees fabricate the whole silo in the factory and thereafter the same is installed at the customer site. Secondly, the basic function of the silo manufactured by the assessees is that it acts essentially as a storage device. The use of these silo in the instance case is to store food grains.
* There is no specific entry of silo in Chapter Heading No. 8437 and more so under Chapter Heading No. 8437 10 00 because the said Tariff item covers machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables. Whereas residuary entry under 9406 00 99 has shown defined pattern wherein only those items which are prefabricated building material other than the housing material or storage other than cold storage/ensilage can be classified under the said Tariff Item.
* The Learned Commissioner has distinguished the case law cited by the assessees viz., Thermax Ltd v. Collector of Central Excise, Pune reported in 1996(81) ELT 417 (Tri) on two counts- (i) In Thermax case, the assessee had catalogue which showed that the said silos had multiple devices attached to the storage system and therefore had multiple uses and (ii) the main point of dispute was with regard to classification either under 8479 or under 8436/8437 of CETA, 1985.
* The Honble Supreme Court in the case of CCE, Ahmedabad v. Solid & Correct Engineering Works 2010 (252) ELT 481 (SC) has laid down the principle to decide what is immovable and not excisable. The silos, applying such principle, cannot be treated as immovable as contested by the assessees. In the brochure, they have mentioned that their silos are customizable due to flexibility in Relocation of silos among other things.
3. On the other hand, the grounds of appeal filed by the appellants are as under:
(a) The silos manufactured by the Appellant are rightly classified under Chapter Heading 8437 of the Central Excise Tariff Act * The Appellants catalogue clearly shows that the Silos are equipped with pre-cleaners, fine cleaners, destoners, conveyor with belt/chain, elevators, temperature and level sensors, temperature controllers, aeration system, etc., and thus, the silos are not mere storage structure but a complete machinery system consisting of equipment, and machinery for fine cleaning, and storage and hence rightly classified under CETH 84378090 in as much as it is a machinery used in the milling industry.
* The Appellant has been consistently declaring the manufacture and clearance of the subject goods rightfully classifying them as agri processing machines based on the bonafide belief that subject goods being machinery used in milling industry can be termed as such. Therefore rendering the classification of the said goods under CETH 84.73 as correct and proper.
* The silos manufactured by the Appellant are similar to that considered in the Thermax judgment. Therefore the said judgment will continue to apply to the case of the Appellant as well and the classification under heading 84.37 claimed by the Appellant is tenable in law. The Thermax judgment has not been reversed till date and the same holds the field even today in so far as the classification of Grain Silo systems is concerned. The said judgment squarely applies in situations where the silos are cleared with various forms of machineries.
* It is possible to order pre cleaners separately and not with the silos that the appellant clears usually. As it is understood that pre cleaners are required by other customers too even if no order for silos have been made.
* Chapter Heading No. 8437 is a specific one and it ought to have been appreciated that the very description of the heading states that it covers machinery used in the milling industry. It is wrong to misapply the general rules of interpretation. Chapter Heading No. 8437 provides the most specific description of the silos given that it is machinery used in the milling industry.
* The very fact that the customers of the appellant, in so far as the subject silos are concerned, are of the milling industry can only lead to the conclusion that its use is in the milling industry.
* The Department has failed to establish that the goods in question can by no conceivable process of reasoning be brought under any of the tariff items, resort cannot be had to the residuary heading.
* If there is a conflict between two entries one leading to an opinion that it comes within the purview of the tariff entry and another residuary entry, the former should be preferred. The decision of the Honorable Supreme Court in Bharat Forge and Press Industries (P) Ltd. V. Collector of Central Excise, Baroda, Gujarat reported in MANU/SC/0110/1990 : (1990) 1 SCC 532 has been relied upon by the Appellant in the support of the above contention.
(b) The silos manufactured and cleared by the Appellant do not fall under the residuary Chapter sub-Heading 94060099 * The basic character, function and use of the SILO as a prefabricated building functioning as a storage device used for storing grains in as much as such an opinion has been formed without appreciating the silo storage system in its entirety and ignoring the write up provided by the appellant. Such a contention is totally contradictory to the chapter note 4 of Section XX of the Central Excise Tariff Act, 1985.
* Silo is not finished in the appellants factory nor are they put up as elements, presented together, to be assembled on site. It is quite evident that silos are erected/constructed by the appellant on the customers site. In fact the process only results in a construction of a civil structure which becomes an immovable property/capital asset in the form of a complex system of machinery and it therefore not an excisable goods at all as the impugned goods are formed at site and becomes an immovable property as held in the case of Thungabhadra Steel Products v. Union of India, 1998(98) ELT 334 (Kar).
* It is impossible to dismantle the silo without any damage. The decision of the Honorable Apex Court in Triveni Eng. & Indus Ltd v. Commissioner of Central Excise 2000 (120) ELT 273 (SC). Para (e) of CBEC circular No. 58/1/2002-CX., dated 15th January, 2002 also supports the said contention.
* The Appellant disowns any such brochure mentioned/reproduced certain contents at Para 15.1 and Para 22.1 on the findings. In any case neither does the SCN nor does the Appellants reply relies on any such brochure.
3.1 In addition to the above, the learned counsel also filed a miscellaneous application for additional grounds of appeal wherein the following issues have been raised.
Comparison at sub-heading level permissible only within a Chapter Heading * Further to the above, having said that Rule 2 and 3 of GRI are not applicable in their case, Appellant also refers to Rule 6 of GRI which provides for comparison between two sub-headings. The same could be relevant since the impugned O-I-O has invoked Rule 3(a) that compares two headings.
* In this regard, the Appellant draws attention to the recent Bangalore Tribunal Decision in case of M/s Coastal Energy Pvt. Ltd. & Ors. Vs. CCE (TS- 234-Tribunal-2014 (Bang)-CUST) wherein the issue involved was the classification of coal imported by the Appellant under the Customs Tariff Act.
* It was held by the Tribunal that GRI of the schedule to the tariff form part of the Customs Tariff Act. The classification of goods in the schedule is governed by the principles laid down in the rules. The rules make it clear that titles of sections, chapters and sub-chapters are provided for ease of reference only and for legal purposes classification has to be determined according to the terms of the headings and any relevant section or chapter notes and provided such headings or notes do not otherwise require, according to subsequent rules. It was also observed that Rules 2 to 5 of rules for interpretation speak of heading all through. Therefore, Rule 6 would be relevant rule for their purposes since this rule comes into play when the dispute arises between two sub-headings and not between headings.
* The Tribunal based on the above in that case, appreciated the fact that the dispute between the classification contended by Revenue and the Appellants is appropriate since the classification ,contended by Revenue and the Appellant pertain to equal sub-headings under the same Chapter Heading. Hence both classifications stand on the same footing and have to be considered as of equal level and comparable at the same level.
* In the instant case, the O-I-O proposes to compare the classification under Chapter Sub-Heading 9406 0099 as against the classification adopted by the Appellant i.e. Chapter Heading 8437 1000. In Para 16.1, 16.2 and 16.3, the O-I-O has directly referred to sub-headings 84371000 and 94060099 that belong to two different Chapter Headings.
* It would have been appropriate that the Respondent would have evaluated the classification of Silos manufactured by the Appellant as per 4 Digit Chapter Heading of 9406 and thereafter determined the sub-heading. A comparison at a sub-heading level is possible only if there is an anomaly in classification within a Chapter Heading.
4. After hearing both the sides and considering all these submissions, we came to the conclusion that it would be appropriate to remand the matter at this stage itself even though in respect of the very same product this Tribunal vide Stay Order No.1180-1182/2012 dated 5.7.2012 had taken a view that the appellant has to deposit the amount that may be payable during the normal period. The learned AR submitted that there is no reason why this order should not be followed. In the normal course this would have been the approach followed by us and in fact we would have also not heard the party in great detail. The learned counsel pressed that he has different grounds to address and should be given an opportunity and hence the matter was heard in great detail. We find that there are three major differences why we intend to remand the matter at this stage to the original adjudicating authority.
(i) It was submitted that only one purchase order was considered by the Commissioner wherein appellants had supplied only silos without any accessories. It was the submission that in most of the cases the appellants supplied silos with accessories and therefore in such cases where silos with accessories are cleared and it works as a system which can perform the function of grading, sorting, cleaning seeds, etc., it has to be treated as machinery. It was also submitted that the decision in the case of Thermax Ltd. relied upon by the learned counsel before the original authority is applicable to the facts of this case and distinction made by the Commissioner may not be applicable in respect of all the consignments cleared by the appellants.
(ii) The learned counsel submitted brochure of B. G. Shirke Construction Technology Pvt. Ltd. and Rostfrei Steels Pvt. Ltd. which were probably not made available to the Commissioner. It was submitted with the support of invoices raised by the competitors that the same type of systems are being classified under CETA 8437 10 00 and are being cleared without payment of duty. We feel that this is an important aspect which requires consideration. The duty element can make a substantial difference to the capacity to compete by an assessee and therefore similar products should get similar treatment.
(iii) In fact even the Commissioner has distinguished the decision in the case of Thermax Ltd. holding that in the Thermax Ltd. case the assessee had catalogue which showed that the said silo had multiple devices attached to the storage system and therefore had multiple uses. However, in this case, he has not discussed the catalogue or brochures of the assessee.
5. In view of the above, we consider that appellant should get another opportunity to defend the matter before the original adjudicating authority and the additional submissions which have been made before us and which has not been considered by the Commissioner and other relevant matters can be placed before the Commissioner. To ensure that appellant cooperate when the matter is taken up for fresh consideration and no delay is caused, we consider that the remand of the matter should not be made without any condition. Taking note of the fact that appellant pleaded financial difficulty, we consider that appellant should deposit an amount of Rs.10,00,000/- (Rupees Ten Lakhs Only) within eight weeks and report compliance to the Commissioner who after taking note of the compliance shall proceed to adjudicate the matter afresh and pass a well-reasoned order after observing principles of natural justice in accordance with law. We make it clear that if the appellant could not deposit the amount with eight weeks or within the extended time which may be allowed if felt justified by the Commissioner, the order-in-original already passed will come into effect.
(Operative portion of the order has been pronounced in open court) S.K. MOHANTY JUDICIAL MEMBER B.S.V.MURTHY TECHNICAL MEMBER rv 8