Customs, Excise and Gold Tribunal - Mumbai
Flat Products Equipments (I) Ltd. vs Commr. Of C. Ex. on 18 August, 1999
Equivalent citations: 2000ECR609(TRI.-MUMBAI), 2000(115)ELT629(TRI-MUMBAI)
ORDER Gowri Shankar, Member (T)
1. The appellant manufactures metal rolling mills and "galvanising lines". Rolling mills were, at the relevant time, classifiable under Heading 8455.00 of the Central Excise Tariff, and galvanising lines under Heading 8479.00. Relevant entries are reproduced below :-
84.55 Metal rolling mills and rolls thereof 8455.10 All goods other than parts 10% 8455.90 Parts 15% 84.79 Machines and mechanical appliances having in-
dividual functions, not specified or included elsewhere in this Chapter 8479.10 All goods other than parts 10% 8479.90 Parts 15% Upto 15th March, 1995 the rate of duty applicable to sub-heading 10 and sub-heading 90 in each of the heading was the same -10%. With effect from that date, parts, classifiable under sub-heading 90 became liable to a higher rate of duty. Subsequent to this date, the appellant cleared rolling mills and galvanising lines under sub-heading 10 at the lower rate of duty. Notices were issued on the basis that what was cleared was parts liable to duty @ 15% and demanding their duty. Appellant took the stand that what it contracted to supply was a complete rolling mills and galvanising lines and not a part and it was only as a result of requirement of the transport and installation having regard to the heavy weight and complex nature of the machinery that these were separately cleared. The Commissioner however was not persuaded by these and he said that for the goods to be cleared under sub-heading 10 they must consist of the complete machine at the time of clearance which was not the case and held the goods to be assessable under sub-heading 90, confirmed the demand for differential duty and imposed penalty. Hence these appeals.
2. It is contended for the appellant that it had contracted to manufacture and supply rolling mills or galvanising lines tailor made to the specification of the buyer. It requires 9 to 14 months to manufacture a complete cold rolling mill. The cold rolling mills and the galvanising mills weight between 900 to 1500 metric tonnes, have a length of 60 to 300 meters, and a height of 5 to 12 meters. Rolling mills are composed of assemblies or sub-assemblies which are to be erected at site in a specific sequence over 8 to 9 months. Considering the sizes and nature of the mill, the time taken to manufacture and the volume of activities involved, it is not possible to manufacture and despatch the entire unit in one lot. It is contended that whenever parts for replacement of existing components were cleared, they were correctly classifiable under sub-heading 90. Rule 2(a) of the rules for the interpretation of the tariff provides that any reference in heading to an article shall be taken to include reference to that article in unfinished or removed unassembled or disassembled. This note would apply to these goods. Note 4 to Section XVI of the tariff which provides that a machine consisting of separate components which intended to contribute together to have clearly definite intentions cover one of the Headings 84, 85 falls to be classified in the heading appropriate to that function. By applying these two notes, the goods when supplied as in pursuance of me contract for complete machine has to be classified as a complete machine even when removed piece-meal.
3. The Departmental Representative contends that what is to be considered is state of the goods presented for removal. He says that Rule 2(a) of the Interpretative Rules only apply to goods complete or finished removed unassembled or disassembled and hence would not apply where the goods have not yet acquired the character of complete or finished goods. He contends that note 4 of Section XVI will only apply in those cases each of the component of the machine contribute to a function which might be different from the main function of the machine and would not apply where the dispute between the two headings relate to part of the machine or the complete machine.
4. The current Central Excise Tariff and the Customs Tariff are based on the Harmonised Commodity Description and Coding System of the Customs Co-operation Council, Brussels. Rule 2(a) of the Tariff is identical (except for one word) of Rule 2(a) of the General Rules for the Interpretation of the Harmonised System. The rule reads as follows: "Any reference in a heading to article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, incomplete or unfinished articles it has essential character of the complete or finished article, which has also taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), removed unassembled or disassembled. The only difference in this rule and the rule in the Harmonised System is that the latter talks about the goods "presented" unassembled or disassembled, when the Excise tariff refer to goods cleared. The word "presented" is the word that is found in the Interpretative notes to the Customs Tariff. The difference obviously is on account of the fact that in the Excise Tariff we are concerned with the duty on goods removed and not presented for clearance.
5. The Explanatory Notes to Rule 2(a) explains that when goods are presented unassembled or disassembled, it is usually for reasons such as requirements or convenience of packing, handling or transport. Thus, a machine or an article, which, because of its size or on account of delicacy of its component is required to be handled or transported after disassembling into sub-assemblies of components, would be classifiable as a complete machine or an article. Parts or assemblies into which it is disassembled will not be classifiable separately on their on merit.
6. At first glance it will appear that this would apply only to disassembled articles, and not those presented unassembled, because of their reference to a complete or finished articles if so presented. The article which is complete or finished will necessarily be disassembled i.e. broke down to its component parts, it cannot be unassembled that is considering only of parts yet waiting to be assembled into a complete machine. But that is not so. The reference to an unassembled article is to articles, essential components of which are presented together, and requiring only assembling of those components, to acquire shape of the articles. This is made clear in clause VII under Rule 2(a) which defines "articles presented unassembled or disassembled" as articles the components of which are to be assembled either by means of fixing devices (screws, nuts, bolts, etc.) or by riveting or welding, for example provided only assembly operations are included. The notes explains that no account is to be taken in that regard of the complexity of the assembly method. However, the components shall not be subjected to any further working operation for completion into the finished stage.
7. The remaining part of this note provided that unassembled components of an article which are in excess of the number required for that article when complete are to be classified separately. This explanation is of significance, as it clearly emphasises that an assembly of components required for making finished articles, in that number and in that rules required for making that article has to be considered as a finished article.
8. Since this rule (with the minor modification noted above required by the excise department) has been made part of the Central Excise Tariff, the provisions of the Interpretative Rules therefore, would apply to goods cleared under that tariff.
9. As we have seen the tariff heading has two sub-headings one for parts and other for goods other than parts. The heading for parts would clearly cover these goods which, either finished or in combination (assembling them to be cleared together) do not have the essential character of the finished rolling mill and remaining part. These goods therefore would be clearly classifiable as parts under sub-heading 10. To think of rolling mill being cleared complete, or complete and assembled, is well neigh inconceivable having regard to its size and weight, it would not be even possible to come into existence at the factory of manufacture, or to be assembled or transported in that form. It is difficult to conceive of a rolling mill or galvanising lines removed unassembled or disassembled that is all with parts that provides its essential character being present at one time, considering the weight and dimensions of the unit. The fact that installation of the mills takes time would also result in the parts being supplied by entailment.
10. This is true of a number of other items in the tariff, particularly in Section 16(1) of the tariff of machinery (Chapter 84), electrical and electronic machinery (Chapter 85). Thus, goods such as nuclear reactor, steam or gas turbine industrial furnaces, to name only a few, are not capable because of their weight or size or both, it physically being transported completely. Apart from the sheer size and weight of the machines their components, factors such as width of the road in which they are transported, load bearing capacity of the bridges on which they are carried would render such course of action impossible. Each of these goods is, however, specifically mentioned in the tariff. Parts of these goods are either specifically mentioned in a sub-heading by virtue of notes to the Chapter or Section, require to be separately classified as parts. Thus, Heading 8455 has two sub-headings, goods other than parts and parts (sub-heading 90). Even when there is absence of specific mention for parts in the sub-heading, the parts would be liable to be classified as provided in the notes. Classification of part of nuclear reactor mentioned in Heading 8501 would be governed by the provisions of notes 1 and 2 to Section XVI and that of Chapter 84.
11. Specific mention of a machine and separately its parts, or, where parts are not specified, the presence of provisions for their classification could only lead to a conclusion which is inescapable that the complete machine merits classification that may be different from that of its parts and that in any case it has to be determined what has been cleared as the complete machine or parts. Such a determination necessarily presupposes examination of the machine as classifiable distinctly by its own identity, separately from the classification as an assembly of some (but not all) of the parts. It would be unreasonable in the extreme to suggest that the provision was made for classification of machine separately notwithstanding this to provide for the possibility that such machines might one day be cleared separately. The same consideration would have to be applied to the Customs tariff that the possibility of transportation of goods for example a complete nuclear reactor or a rolling mill was in the contemplation of the legislative. It would be more rational and realistic to conclude that the tariff determines classification of a complete machine separately from its parts. In most cases, the conflict between that two sub-headings did not arise because rate of duty for machine and part is the same. The classification of the main machine as such in that case is significant only academically, since payment of duty would be unaffected. However, the dispute arises in cases (like the present) where the rate of duty is different for part of a machine and the complete machine.
12. There was in fact provision even before the commencement of the present tariff based on the Harmonised System for clearance of an assembly of part of machine to be regarded as clearance of the complete machine.
13. We have by our research, been able to lay our hands on the Trade Notice No. 17/(MP) ALL OTHER GOODS (NES)/(2)/1983 issued by the Bombay Central Excise Collector. This trade notice issued in March, 1983, was with reference to Item 68 of the erstwhile tariff, for goods not elsewhere specified. It deals with the clearance of machinery items dispatched in piecemeal.
14. The trade notice provide with reference to earlier Trade Notice No. 204/79, which we, despite our efforts, have been unable to locate. The procedure was optional. The significance of this notice lies in the fact that, even prior to the coming into force of the new current tariff, the department itself recognised that complete machinery, transportation of which had necessarily to be spread over more than one consignment, continues for purpose of classification to render as complete machinery .
15. The Departmental Representative's contention that Rule 2(a) of the Interpretative Rules applies only to goods moved unassembled or disassembled and therefore would not apply where the parts, which would constitute the machine having regard to unassembled, goes against the wordings of the rule itself. A machine is disassembled where the parts of which it comprises separate goods. Unassembled parts would be those parts, which, having been manufactured and been brought together are yet to be finished into the complete machine. Accepting the Departmental Representative's contention would result in limiting Rule 2(a) to goods disassembled and not applying them to unassembled goods. The Explanatory Notes to Section 16b(i) referred to page 1226 say that "for convenience of transport of any machines and apparatus may be transported in an unassembled state".
16. We must consider in detail the first sentence in the General Explanatory Notes relating to unassembled machines is "for convenience of transport manufactured machines and apparatus are transported in an unassembled state. Although in effect the goods are in collection of parts they are classified as being the machine in question and not in any separate heading of parts". Does the sentence refer to a collection of parts transported together at one time? Does it postulate consequently that every part of the machine or at least those parts, which are necessary to confer on it, its essential character must travel together before this rule can be applied? We think not. The considerations of weight and size of the machine to which we have earlier referred would dictate removal of the goods, not necessarily at one time. The further fact that requirements of installations would also dictate the manufacture of machine in parts over a period of time, each set of parts being sent to the buyer separately.
17. It is therefore clear that such parts would be classifiable as a complete machine if it can be established the parts are removed as such so as to constitute a complete machine; even if they are not parts removed and unassembled together. How the assessing officer to know that there is no removal of parts, which by themselves would not be sufficient to constitute complete machine, but removed in that guise in order to avail the benefit of a notification at a lower rate of duty? The answer is provided by the character of these goods themselves. They are, more often than not, tailor made to the requirement of the customer. They are in almost invariably sold in pursuance of a written contract. Examination of such a contract and of the processes involved in the manufacture of the machines and the parts required for its manufacture, would therefore be sufficient to satisfy the officer as to whether the parts in question when considered together constitute the complete machine or not. The practice in such cases is resort to provisional assessment and finalise the assessment on it being shown that all the parts required for assembly of the machine and refitted in the requisite number have been manufactured and cleared.
18. In the appeal with which we are concerned, the Commissioner does not dispute that the parts when assembled constitute a complete rolling mill, or galvanising line. He only says that these parts and components did not constitute such a mill or line at the time of clearance. We have already dealt with this point. The reliance by the Commissioner upon the decision of the Tribunal in Punjab Breweries Ltd. v. Collector -1985 (22) E.L.T. 573, that the condition of the article at the time of clearance from the factory would be a material factor for deciding the tariff entry is misplaced. The Tribunal decision is concerned to classification of fermentation gas under the earlier Central Excise tariff. It was not relevant to classification of goods in pursuance of the current tariff in which the interpretative rules, especially those relating to classification of unassembled or disassembled goods are significant.
19. It has therefore to be held that the goods were classifiable as rolling mills/galvanising line and not its parts thereof. We must note that two other decisions of the Tribunal independently have came to the same conclusion. In. Shrike Construction Equipments Pvt. Ltd. v. C.C.E., Pune -1997 (95) E.L.T. 644 the Tribunal has held that what was cleared by the appellant before it was cranes, and not parts of cranes, as held by the department. The Tribunal took into account the fact that the order of the buyer was for design, manufacture and supply of cranes and the cranes were cleared from the factory unassembled or disassembled. In Vishwa Industrial Co. (P). Ltd v. C.C.E. -1999 (107) E.L.T. 774, the Tribunal held that what was cleared by the appellant before it was a complete conveyor system. Here, too, the reasoning was that what was ordered and supplied was a complete conveyor system, which by its very nature had to be cleared in knocked down condition and errect at site.
20. Some interesting questions arise out of our conclusion. If it is held that what is cleared from the factory was a complete article, crane, rolling mill or conveyor system, it would then follow that the same crane, rolling mill or conveyor system would not once again came into existence at the customer's site. The same article cannot be manufactured more than once by the same process or set of processes. This would require reconsideration of the question whether the article which came into existence at the site was immovable property or not and hence excisable or not. Another factor that we have considered is the scope and effect of note 6 to Section XVI. This provides that in respect of goods provided in that Section completion of article which is incomplete and unfinished but having the essential character of the complete or finished article shall amount to manufacture. Let us consider the case of a rolling mill sufficient parts of which were cleared against an order for a complete mill, to give it essential character but lacked sufficient parts to render it a functional rolling mill? The provisions and fitment of these parts to render the goods functional rolling mill would attract the application of note 6 to Section XVI. This process therefore would amount to manufacture. In that case, would what was cleared from the factory be classifiable as a complete rolling mill or not? There appears to us exist, on the face of it, a contradiction between note 6 to Section XVI and Rule 2(a) of the Interpretative Rules. However, we make these observations in passing as matters of interest. These points were not argued before us by either side.
21. Appeals allowed. Impugned order set aside.
G.N. Srinivasan, Member (J)
22. I have seen the well considered order passed by my learned brother Member (Technical) with which I agree. Normally I would not have given a separate order but as I want to highlight certain aspect of the matter, I give this as an assent order agreeing with his conclusion.
23. The facts have been succinctly stated in his order and I do not wish to repeat the same, but wherever it is necessary I shall refer to that portion of the facts for purpose of my order.
24. The appellants are manufacturing metal rolling mills and galvanising lines. They come under Tariff Heading 8455.00 and 8479.00 respectively. The tariff heading has been described in paragraph 1 of the order of my learned brother. The nature of the production has been described in paragraph 2 of the order of my learned brother. It is the case of the appellants that the parts when they are removed are correctly classified as per the contract and the appellants have relied on Rule 2(a) of the Interpretative Rules as well as note 4 to Section XVI of the Tariff. Out of the totality of the goods 70% of the parts are made by the appellants and 30% of the same are bought out items. This they mentioned in their reply. In page 53 of the paper book they have stated as follows:-
"that to complete the above contracts our clients actually manufacture approximately 70% of the parts at their factory and purchased the remaining 30% from the market. (It is however wrongly stated that our clients used all these parts at site to manufacture the products listed above)."
In paragraph 16 of the reply at page 74 of the paper book the appellants further state as follows :-
"Our clients say and submit that it is clear from the contract itself that the machine will be delivered in segments as per the billing schedule. Our clients pay excise duty on these segments as per the value of the invoice sent to the customer. This invoice is based on the billing schedule and the duty is paid accordingly. Our clients thus pay duty on the entire rolling mill under Heading 8455.10 or 8479.10 depending on the type of the mill and or galvanising line cleared by them."
Paragraph 19 of the reply states only that the appellants have cleared the goods as per correct entry given in the declaration and there is no question therefore of the contravention of any of the rules.
25. It is therefore argued by the learned DR, Shri C.P. Rao, that nearly 30% of the products are manufactured outside the factory but not shown to have entered the factory. If these bought out items did not enter when did they get assembled in the factory so that final product gets characteristic of rolling mill. Mr. Rao further argues that the goods for purpose of duty should be viewed in the manner in which it is cleared and that will determine the classification. He emphasized the fact that the product as parts which are removed therefore the impugned order items as such as provided under 8455.90 and 8479.00 respectively. He relies on the observations of the decision reported in Punjab Breweries Ltd. v. C.C.E. -1985 (22) E.L.T. 513. Let us examine the above contention. In the show cause notice it is stated as follows :-
"The rolling mills and galvanising lines actually come into existence at site after adding the bought out items and therefore clearances of various parts from factory appears to be classifiable only as parts and components attracting duty of 15% under Heading 8455.90 and 8479.90."
In the order-in-original the adjudicating authority has found as follows :-
"From the facts on record the assessee has been manufacturing 70% of the parts within their factory and purchasing remaining 30% parts from outside. The assessee has claimed that the bought out items had been used inside the factory in the manufacture of complete rolling mills etc. but no evidence to this effect has been furnished by assessee that the bought out items were used in the factory in the completion of the rolling mills."
(Emphasis supplied).
26. The department's case is that "the assessee has been clearing only parts and components inside the factory and without manufacturing of any complete rolling mills etc. In other words, goods in order to become eligible for classification under this tariff sub-heading, should come into existence as a distinct identifiable goods and should discharge appropriate duty as such at the time of clearance." There is no evidence which has been led in by the appellants. It is difficult therefore to accept that bought out items nearly 30% as admitted by the appellants in their reply have been bought into factory. If this is a correct norm they would have mentioned it in their reply. However it is found that by letter dated August 26, 1996 written by the appellants at internal page 95 it is stated that the statement was given to the assessing authority showing bought out items received in the factory, Modvat availed and despatches under Central Excise invoices. It is further stated in the letter that the details of the above were supported by copies of Modvat input invoices, RG 23A Part II, entries for credit availed and despatch invoices in respect thereof. It is therefore claimed that the appellants have given a statement of the bought out items received in their factory. Therefore bought out goods having been used in the manufacture of final products as evidenced by Modvat documents. Under the circumstances can the adjudicating authority find that no evidence to this effect has been furnished by the assessee in page 8 of his order? In our view this is a wrong finding.
27. The appellants in their appeal memorandum state inter alia at page 8 as follows :- ' "The appellants state that none of the systems, mechanical parts, electronic parts, electrical parts etc, are standard items. The manufacturing of all the above mentioned systems, mechanical parts etc, takes place in the appellants' shop or the appellants' sub-vendors' shop. These systems or equipments manufactured in the sub-vendor's shop are brought to the appellants' factory and are preassembled, inspected and tested in the appellants' factory only."
Firstly August 26,1996 letter has been received by the Commissioner, the impugned order has been passed on 4-12-1996. What prevented the adjudicating officer from looking into the letter and giving a finding? Supposing the statement regarding bought out items and the other documents were not enclosed in the letter under consideration, namely the letter of 26th August, 1996 this could have been pointed out in the order. It is therefore not possible for us to accept the argument of the learned DR.
28. It is true that duty has to be levied on the form in which the goods are removed. However when there are artificial definitions as contained in note 2(a) of the Interpretative Rules and also para 4 of the Section notes under Chapter XVI, it is not possible for us to accept the argument of the department. Further, if DR's argument has to be accepted then it is not practicable to have the application of 2(a) of the Interpretative Rules in any case.
29. It is true that the learned DR has cited the judgment in the case of Punjab Breweries Ltd. v. C.C.E. - 1985 (22) E.L.T. 513 especially paragraph 5 thereof, but in our view it is not possible to accept the arguments because it was under earlier tariff. The Interpretative Rules did not come into existence at that time.
30. One more point needs clarification. When the goods are removed in segments, supposing there are some damages occurred to it and how the assessee could have claimed the damages from its insurance company. Of course, it could not have claimed as rolling mill, but it could have claimed only as parts of the rolling mill. Facts are different. Here we are not dealing with the character of insurance claim or where the claim which the assessee has with its transporting company on the basis of its contractual liability with such transporter. Here we are dealing with the exigibility of the duty on the manufacture of goods in relation with the provisions of the CETA. Therefore, even that argument may not hold good. Moreover that line of approach has not been indicated in the show cause notice. Regarding the other aspects of the matter my learned brother has already dealt with it in his eloquent order with which I wholeheartedly agree.