Customs, Excise and Gold Tribunal - Delhi
Sri Rama Vilas Service Ltd. vs Collector Of Customs on 27 May, 1987
Equivalent citations: 1987(13)ECC111, 1987(12)ECR565(TRI.-DELHI), 1987(30)ELT995(TRI-DEL)
ORDER D.C. Mandal, Member (T)
1. The appellants imported a consignment of cylinder head castings which was ordered by the Assistant Collector of Customs, for assessment under Heading 84.06 of the First Schedule to the Customs Tariff Act, 1975 (hereinafter referred to as C.T.A, 1975). The appellants claimed reassessment of the goods under Heading 73.33/40 of C.T.A, 1975 read with the notification No. 254/76 plus additional duty under Section 3 of the C.T.A., 1975. In the impugned order the Appellate Collector held that the manufacturer had described the goods as "Perkins Diesel Engine Components - 90 P 6/354 cylinder Head Castings" and has assigned part No. 37116690/6. The goods had achieved the essential character of the finished component and applying the interpretative Rule 2(a), they had been correctly assessed under Tariff Heading 84.06.
2. We have heard Shri V. Lakshmi Kumaran, learned advocate for the appellants and Shri 3. Gopinath, learned S.D.R for the respondent. The first leg of the arguments of the learned Advocate is that :-
(i) Rule 2(a) of the Interpretative Rules is inapplicable if the heading does not refer to an article ;
(ii) If parts are to be classified under a particular heading by virtue of Section Note 2 of Section XVI of the Customs Tariff, such classification of the parts does not mean that the heading refers to such parts. Interpretative Rule can not be applied to Section Note. It can be applied to a Tariff Heading ; and
(iii) The goods were not identifiable part of internal combustion engine in the condition in which they were imported. They required post importation processing. So, they can not be assessed as part by virtue of Section Note 2 of Section XVI.
The second leg to his arguments is that in paragraph 11 of the decision of larger Bench of this Tribunal in the case of Bharat Heavy Electricals Ltd. v. Collector of Customs, Madras, in appeals No. 260/79 and 266/79 vide order No. 1268 and 1269/86-B.2 dated 9.11.86 it was held that no general and precise guidelines could be laid down regarding the considerations that should weigh as to when interpretative Rule 2(a) would be applicable for assessment and when assessment will have to be done without reference to this interpretative Rule 2(a) and a view has to be taken on the basis of facts of each case. In view of this decision the present case will have to be decided on its merit. Essential character of cylinder was not attained by the castings imported. The learned advocate has relied upon the decision of this Tribunal in Collector of Customs, Bombay v. Antifriction Bearing Corporation, reported in 1984-(16)-E.L.T.-613.
3. The learned S.D.R Shri Gopinath has argued that in the case of Khandelwal Metal & Engineering Works and Anr. etc. v. Union of India and Ors. reported in 1985(20)-E.L.T-222 (S.C), Supreme Court has held that for classification of the goods the Tariff Heading, Section Notes, Chapter Notes and the Interpretative Rules are to be used. In the Tariff nothing is for adornment. In the said case, the dispute before the Supreme Court was the classification of brass scrap under Tariff Item 74.01/02. This Heading did not refer to brass scrap. The question was whether brass scrap was included in "Copper Waste and Scraps". Applying the Interpretative Rules, the Supreme Court held that brass scrap fell under this Heading. In the present case, Rule 2(a) of the Interpretative Rules was applicable and applying this Rule, the imported castings were classifiable under Heading 84.06 of C.T.A, 1975 as the goods attained the essential character of parts of Internal Combustion Piston Engine. Regarding essential character, Shri Gopinath has relied on paragraph 6,7,8,9, 13 and 18 of the Larger Bench decision (Supra), according to which the goods, at the time of import, should be in the approximate shape or outline of the finished article or part. In the present case, the bill of entry description of the goods is "Perkin's diesel engine components - 45 Nos. P 6/354 Cylinder head castings (Steel Casting unfinished for I.C.P. Diesel Engines)". The invoice description of the goods is "Perkins diesel Engine Components 90 - P 6/354 Cylinder Head Castings". Manufacturer's continuation invoice shows Part No. 37116690/6 of the Cylinder Head. The learned S.D-R has also stated that the imported cylinder Head was of special material. End product, after machining, becomes only a Perkins Cylinder Head and nothing else. The facts of the present case entirely fit in paragraph 18 of the Larger Bench decision (Supra). So, the classification under Heading 84.06 was correct.
4. We have considered the arguments of both sides. Rule 1 of the Rules for Interpretation of the First Schedule to the Customs Tariff Act, 1975 provides that 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 contained in the Rules following Rule 1. Rule 2(a) says that any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as imported, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be 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), imported unassembled or disassembled. In Khandelwal Metal and Engineering Works' case, 1985-(20)-E.L.T.-222 (SC), the Hon'ble Supreme Court, in paragraph 28 of the Judgement, has, inter alia, observed as follows :-
"What is meant by the clause in Rule 1 : "and, provided such Headings or Notes do not otherwise require" is not that a Heading must require that the provisions contained in the Rules following Rule 1 should be applied. What is meant is exactly the opposite, namely, that if a Heading does not require the exclusion of the other Rules, those other Rules must also be applied for determining the classification of an article. Therefore, all the relevant Rules of interpretation in the Import Tariff come into play in the classificatory process Rule 2 to 4 of the Import Tariff are not a mere adornment. Nothing ever is an adornment in an Import Tariff. Therefore, classification has to be determined both according to the terms of the leadings and according to the provisions of the Rules unless, a particular Heading or Note excludes the application of Rules other than Rule 1."
In Saurastra Chemicals, Porbandar v. Collector of Customs, Bombay, reported in 1986-(23)-E.L.T.-283, the Larger Bench of this Tribunal has held that Section Notes and Chapter Notes in the Customs Tariff are a part of the Statutory Tariff and thus relevant in the matter of classification of goods under the Customs Tariff. Tariff Headings should be interpreted and applied in the light of the Section Notes and Chapter Notes which are statutory and binding like the Headings themselves. These Section Notes sometimes expand and some times restrict the scope of certain headings. In other words, the scheme of the Customs Tariff Act is to determine the coverage of the respective headings in the light of the Section Notes and Chapter Notes. In this sense, the Section Notes and Chapter Notes have an over-riding force on the respective headings (paragraphs 4 and 7 of the Tribunal's order).
5. Note 2 to Section XVI of the Customs Tariff provides guide-line for the classification of parts of machines. For proper appreciation of the guide line, this Section Note is re-produced below :-
"2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and Note 1 to Chapter 85, parts of machines [not being parts of the articles described in Heading No. 84.64 or parts of the following articles falling within Heading No. 85.18/27, namely (i) insulators or insulated electric wire and the like (ii) Carbon articles used for electrical purposes, or (iii) electrical conduit tubing and joints therefor] are to be classified according to the following Rules :
(a) Goods of a kind described in any of the Headings of Chapter 84 and 85 (other than Heading Nos. 84.65 and 85.28) are in all cases to be classified in their respective headings ;
(b) other parts, if suitable for use solely or principally with a particular kind of machine or with a number of machines falling within the same Headings (including a machine falling within Heading No. 84.59 or electrical goods and apparatus falling within Heading No. 85.18/27) are to be classified with the machines of that kind. However, goods which are equally suitable for use principally with goods of Heading Nos. 85.13 and 85.15 are to be classified in Heading No. 85.13 ;
(c) all other parts are to be classified in Heading No. 84.65 or 85.28."
6. Tariff Heading 73.33/40 reads as under :-
"73.33/40. Other articles of iron or steel (1) Not elsewhere specified 150% (2) of stainless steel 300%"
Heading 84.06 under which the goods were assessed is as under : "84.06. Internal combustion piston engines 100%". Parts of internal combustion piston engines are classified under Heading 84.06 in view of the Section Note 2(b) of Section XVI of the Tariff. Rule 2(a) of the Rules for Interpretation provides that any reference to an article in a Heading shall be taken to include a reference to that article in-complete or unfinished, subject to the condition that at the time of import the incomplete or unfinished article has attained the essential character of the complete or finished article. The contention of the learned advocate is that in Heading 84.06 there is no reference to parts of internal combustion piston engine. Finished parts of this engine are classified under-Heading 84.06 by virtue of Note 2(b) of the Section Notes in Section XVI. According to him, in the absence of a reference to parts in Heading 84.06, Interpretative Rule 2(a) is not applicable to unfinished or incomplete parts of internal combustion piston engines. We are unable to accept this contention. Although parts of internal combustion piston engines are not specifically mentioned in this Tariff Heading, yet in view of the provision of the said Section Note 2(b), parts are deemed to be referred to in Heading 84.06. This being the position, incomplete or unfinished parts which have attained the essential character of the finished parts of internal combustion piston engines at the time of importation are classifiable under Heading 84.06 of the C.T.A, 1975.
7. In the light of the above general proposition, we shall now consider whether the imported steel castings attained the essential character of the Cylinder Head Castings of internal combustion piston engines. In the import documents, viz., Bill of Entry and the invoice, the appellants/ foreign supplier described the goods as "Perkins diesel engine components". Part No. 37116690 of the Cylinder Head is also given in the suppliers' continuation invoice. Having described the goods as components of diesel engines, the appellants cannot now take the plea that the goods did not attain the essential character of component parts of engines. In the case of Bharat Heavy Electrical Ltd. v. Collector of Customs, Madras, reported in 1987-(28)-ELT-545, the larger Bench of this Tribunal has observed that in order to apply the provisions of Rule 2(a) it has to be seen (1) whether the imported product had attained the approximate shape or outline of the finished article; (2) whether the said imported article can only be used for completion into the finished article and (3) these would have to be determined with reference to the nature of the material, its bulk, quantity, weight or value. While laying down these broad guide lines, the Tribunal has observed that no rigid principles can be laid down as to how and in what circumstances Rule 2(a) could be pressed into service for assessment of the imported unfinished article and that in each case the factors enumerated above would have to be taken into consideration individually, and then, collectively, to determine whether the imported article had attained the approximate shape and outline of the finished article and could be used only for completion into the finished article. Before coming to the above conclusions the larger Bench of the Tribunal considered the CCCN Explanatory Notes which though not statutory, has the pursuasive value. The Tribunal noted that in para 2 of the Volume I of CCCN Explanatory Notes it has been mentioned with reference to the provisions of Rule 2(a) in the CCCN (which is the same as Rule 2(a) in the First Schedule to Customs Tariff Act) that the provisions of that rule also apply to blanks, the term "Blank" being taken to mean an article, nor ready for direct use, having the approximate shape or outline of the finished article or part, and which, other than in exceptional cases, can only be used for completion into the finished article or part. The learned S.D.R., while arguing the present case, has stated that the imported cylinder head was of special material and end product, after machining, becomes only a Perkins Cylinder Head and nothing else. In the operational data submitted by the appellants with the Paper Book on 26.12.86, it has been stated that the imported castings had the rough shape and approximate size of the finished cylinder head. In view of the above, we observe that the goods attained the essential character of cylinder head when imported into India. Following the broad principles enumerated in the Larger Bench decision (Supra), the provision of Rule 2(a) of the Interpretative Rules are to be applied to this imported cylinder head and applying this rule the imported goods have been correctly assessed under Tariff Heading 84.06. The goods ceased to be simple articles of iron and steel within the meaning of the Tariff Heading 73.33/40. They, therefore, do not merit re-assessment under this Heading as claimed by the appellants.
8. The main contention of the appellants in support of their claim for re-assessment are that the imported castings have undergone considerable post-importation operation and the cost of these finishing operations works out to 30% of the landed cost of the rough casting (approximately). We have considered the details of operation submitted by them. The operations, as furnished, relate to removal of materials and making holes, to the required specification and accuracy, and automatic testing etc. These operations do not alter the basic fact that the cylinder head casting, when imported, already attained the essential character of finished cylinder head of internal combustion piston engine. As regards cost of operation, the findings of the larger Bench in the case of Bharat Heavy Electricals Ltd. (Supra) are applicable to this case. The Tribunal held therein that the cost of post importation operations could not be decisive in directing the applicability of Rule 2(a) of Interpretative Rules, because :-
(i) The said cost would vary from importer to importer, depending upon the facilities available to the importer for carrying out the post importation operation himself ;
(ii) no definite material on this account would be available with the assessing authority at the time of import, since the cost of post importation operation would be available only subsequent to the assessment and clearance ; and
(iii) the percentage of the cost of such operations will depend upon the value of the import, as this would depend on the nature of materials, while the cost of post importation operations would not depend on the cost of the material but on the nature of the operation.
We are in full agreement with the findings of the larger Bench. In the present case, the imported goods are steel castings. The cost of post importation operations, in terms of percentage of cost of the rough casting, will naturally be high.
9. In view of the foregoing discussions, we do not find any merit in the appeal filed before us. As a result, we uphold the impugned order and dismiss the appeal.