Customs, Excise and Gold Tribunal - Delhi
M/S. Luminous Electronics Private Ltd. vs Cce, New Delhi on 12 March, 2001
ORDER K.Sreedharan, J.
1. Appellants are engaged in the manufacture of Uninterrupted Power Supply System (hereinafter referred to as UPSS) falling under Chapter 85 of the Central Excise Tariff Act, 1985. They filed declaration with effect from 1.5.95 under Rule 173B of the Central Excise Rules claiming classification of UPSS under Chapter Heading 85.04 attracting central excise duty at the rate of 10% ad valorem. Three show cause notices were issued demanding differential duty of Rs. 3,78,598 stated to be short paid during the period from July 1995 to June 1996 by classifying the product under sub-heading 8543. The assessee contended that UPSS is an equipment used to convert electrical energy of uninterrupted electrical energy by maintaining frequency as well as voltages. The adjudicating authority frequency as well as voltages. The adjudicating authority observed that UPSS has individual function and is not specifically included elsewhere in Chapter 85 of the Central Excise Tariff, relying on the judgment of the Tribunal in J.K.Synthetics Vs. Collector of Customs, Jaipur 1995 (80) ELT 208. In this view the adjudicating authority confirmed the demand made in the show cause notices. That order was challenged in appeal by the assessee. Appellate Commissioner by Order-in-Appeal No.704-Ce/DLH/2000 dated 16.8.2000 dismissed the appeal relying on the Larger Bench decision of this Tribunal in Tata Libert ltd. & Ors. 1999 (35) RLT 933. Thus, the UPSS, according to the Department, is classifiable under tarif sub-heading 8543 and not under 8504, as contended by the appellant.
2. Along with the appeal, appellant moved application for waiving the condition of pre-deposit required by Section 35F of the Central Excise Act. When that stay application was ordered as per Stay Order No.1/2001-B dated 3.1.2001, Bench doubted the correctness of the decision rendered by a Larger Bench of three Member of this Tribunal in Tata Libert Ltd. Vs. CCE, Mumbai 1999 (35) RLT 933. Consequently, this matter has come up before this larger Bench of 5 Members.
3. Before proceeding with the issue we think it worthwhile to consider the true function of Uninterrupted Power Supply System (UPSS). Uninterruptible power system as per modern Dictionary of Electronics authored by Rudolf F. Graf, Sixth Edition, means "A solid state power conversion system to provide regulated AC power to critical loads". In other words, the system provides uninterrupted power even during brownouts and blackouts. Brownouts are situation where voltage falls much below the required standard and blackouts mean breakdown of supply. Standard Handbook for Electrical Engineers authored by Donald G. Fink and H.Wayne Beaty, Twelfth Edition, states that the heart of the Uninterruptible power supply system is the rectifier-inverter unit called module. Its function is to accept AC line power and deliver transient-free AC power to the critical load. Thus it can be seen that UPSS should have rectifier-inverter unit. A Static Inverter, according to McGraw-Hill Dictionary of Science & Technical terms 5th Edition means a device that converts a DC voltage to a stable AC Voltage for use in an uninterruptible power system. The same book describes Converter as a device for changing alternating current to direct current or direct current to alternating current. Further, McGraw-Hill Encyclopedia of Science & Technology 5th Edition, states that uninterruptible power system may be used on-line between the commercial power and the sensitive load to provide transient-free well-regulated power. From these technical book it is crystal clear that UPSS are intended to provide regulated output power regardless of the condition of the input power source including total power failure. In other words, the function of this equipment is to supply regulated outputs.
4. Critical load functions on alternating current. For its smooth function the frequency and voltage of the alternating current should be constant. At present there is no technology to convert an alternating current of known frequency and voltage into one having different frequency and voltage. So alternating current from the input has to be converted into direct current and then reconverted to alternating current with required voltage and frequency for functioning the critical load. This is achieved by installing the critical load. This is achieved by installing a rectifier and then an invertor in the UPSS. This equipment also eliminates other deficiencies in the input energy so that the equipment gets regulated uninterrupted energy with pre-determined constant voltage and frequency.
5. Opinion given by Harmonized System Committee on Uninterruptible power supply apparatus falling under chapter heading 8504 is as follows:
Uninterruptible power supply apparatus which supplies a range of electronic equipment with stable alternating current (AC) by rectification and conversion of an electric current. In the case of failure of serious disruption of the mains electricity supply, the apparatus ensures a continuous supply of stablised alternating current for ten minutes; it includes the following components forming a single unit:
(i) A rectifier (AS to DC inverter),
(ii) A battery charger;
(iii) A sealed lead acid battery, maintenance free;
(iv) An inverter from DC to AC;
(v) A static by-pass switch;
(vi) An anti-nose filter;
(vii) Digital display for input volt/ampere, output volt/ampere, battery volt and output frequency.
This opinion of the Harmonized system Committee has lot of weight and should ordinarily be taken as binding (vide Division Bench decision of the Delhi High Court in Manisha Pharma Plasto Pvt. Ltd. vs. Union of India 1999 (112) ELT 22). The purpose of a static inverter in the system is to change DC voltage derived from the battery charger or battery bank to an AC voltage in order to power the sensitive load. The static inverter determines the quality of power used to drive the sensitive load.
6. Central Excise Tariff is based on internationally accepted nomenclature found in the HSN. So, any dispute relating to tariff classification must, according to the Apex Court (Collector of Central Excise, shillong vs. Wood Craft Products Ltd. 1995 (77) ELT 23), be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tarif Act, 1985 itself. The Apex Court observed "Since the Central Excise Tariff Act, 1958 is enacted on the basis and pattern of the HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in the HSN when there is no indication in the Indian Tariff of a different intention". This statement is being consistently followed by the Apex Court as seen in Collector of Central Excise, Hyderabad vs. Bakelite Hylam Ltd. 1997 (91) ELT 13. In this case, Their Lordships opined "in case of any doubt, the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act". In view of this legal position we shall proceed to deal with the Explanatory Notes in the HSN. As per HSN electrical static converters are used to convert electrical energy in order to adapt it for further use. HSN goes on to state that these apparatus often incorporate auxiliary circuits to regulate the voltage of the emerging current and that should not effect their classification in this group. They include rectifiers, inverters, alternating current converters and cycle converters, and direct current converters. It further states that electrical static converters may be used for different purposes and that this heading includes stabilised supplier as rectifiers combined with regulator.
7. Heading 85.04 of the Central Excise Tariff Act describes the good covered by it as -
"Electrical transformers, static converters (for example, rectifiers) and inductors."
What is meant by static converter? As stated earlier, any device for changing alternating current to direct current or direct current to alternating current can fall within the category of static converter.
8. Central Board of Excise and Customs examined the question as to how uninterrupted power supply system is to be classified. By Circular No.40/90 it was decided by the Board that UPSS will be more appropriately covered under heading 8504 of the Central Excise Tariff Act, 1985 and resort to clasification under residuary heading 8543 would not be necessary. This clarification given by the Board was in conformity with the HSN. Without nothing this Board's circular, this Tribunal examined the question of classification of UPSS in J.K.Synthetics Ltd. vs. Collector of Customs, Jaipur 1995 (80) ELT 208. In that decision, the Tribunal observed-
We observe that the equipment imported by the appellants was not a simple machine or appliance or a number of machines joined together for conversion so as to be eligible for classification as static converters. We observe that the equipment was known in the Trade/common parlance as uninterrupted power supply system. It comprises and functions for an elaborate work namely supply of uninterrupted power. Now whether this supply of uninterrupted power can be reduced this supply of uninterrupted power can be reduced to simple conversion of AC to DC and vice versa or could it be said that it was more than this, we observe that the composite equipment imported by the appellants was definitely not a simple static converter but a composite system which not only converted AC to DC and vice versa but also maintained the load factor and filled in the gap for supply of power when temporarily there was no power supply from the main supply source. It has been explained by the appellants that whenever the electric supply from the main power supply stopped and starting the alternate source of power, namely the generator took some time. In between that time power was generated from the batteries converted into AC and then supplied to the system. Thus it was not a simple case of conversion but a sophisticated equipment which ensured that in case of failure of the main supply and the use of the alternative supply source power is available to the plant and machinery during the interim period in an uninterrupted manner. Examining all these facts and the contentions of both sides as well as the explanatory notes of HSN coupled with the understanding of the equipment in the Trade/common parlance, we hold that the goods did not qualify to be classified as electrical static converters to be classified under Heading 8504.40."
The observations made by the Bench quoted above, according to the Learned Counsel representing the appellants were erroneous in the sense that the actual functioning of UPSS has not been taken into consideration. The main reason for taking this view appears to be the presence of battery in the system for the uninterrupted supply of energy. The authoritative literature on UPSS referred to in earlier paragraphs of this order also show that the above view was not correct. So we are of the view that the said view can not be treated to be correct. Further while making the above observations the Bench did not take note of the Board's circular No.40/90. Be that as it may, identical issue again came before a Bench of two members in Mangalore Chemicals & Fertilizers Co.Ltd.vs Collector of Customs, Bombay 1997 (93) ELT 548. That Bench doubted the correctness of the decision in J.K.Synthetics Ltd. 1995 (80) ELT 208, and placed the matter before the president for reference to a Larger Bench. Accordingly a Larger Bench was constituted which rendered Misc. Order No.131/99-B dated 7.12.99. In that order again the Bench took the view that UPSS are to be classified under Heading 8543 and not under heading 8504 as static converter. In other words, principle stated by the Tribunal in J.K.Synthetics case has been upheld.
9.Paragraph 9 of the order passed by the Larger Bench of three Members enumerates the dissimilarities between the static converter and UPSS. While enumerating the dissimilarities the first and foremost point highlighted by the Bench is that static converter converts AC power to DC power and this is made static converter only as long as the DC main is available. The fact that in UPSS DC power is again converted to AC for supply to the instrument was not taken into consideration. According to Learned Counsel had this mistake not been committed, the conclusions reached by the bench would have been different. We find much force in this submission made by the Learned Counsel. Other dissimilarities mentioned in paragraph 9, namely (ii) to (v) are the outcome of the first difference. Since the first difference itself is non existant the others can not have independent existence. Thus, we find no way to agree with the distinguishing feature highlighted by the bench on static converters and UPSS.
10. This Tribunal in J.K.Synthetics case accepted the position that there is a static converter in the UPSS but took the view that the presence of battery makes it more than a static converter. Without the presence of battery, UPSS will not be effective. When the main supply of electrical energy is interrupted, UPSS must draw power from battery converted into AC and supply it to the unit. In some UPSS instead of battery, generator may be the source of alternate power. This shows that battery can not be treated as the core of UPSS. The presence of the battery does not change the nature and function of the product. As has already been mentioned in para 5 of this order, Harmonised System Committee opined that UPSS was classifiable under 8504 after specifically noting that 'A sealed lead acid battery maintenance free was one of the components of UPSS. The description of the goods with which we are concerned in this case is Uninterrupted power supply system. On the question whether the said goods fall within a particular sub-heading, one has to examine whether the said goods is covered by that entry. In other words, examination should not be as to whether the goods are known by the wording of the tariff description but as to whether they fall within that description.On such examination, to our mind, UPSS is covered by the wording "static converter" as understood in HSN. This being the position the UPSS must be classified under sub-heading 8504.
11. A machine which has to multi-function must be classified according to its principal function. The principal function as far as UPSS is concerned is of a static converter. When it is so understood, relying on the interpretative rules, it can be classified invoking Rule 3 therein as falling under sub-heading 8504. As observed by the Apex Court in Dunlop India Ltd. & Madras Ruffer Factory Ltd. vs. Union of India 1983 ELT 1566, "when an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and cosign it to an orphanage of the residuary clause". When UPSS falls under 8504 as an enumerated item, it cannot be consigned to an orphanage of the residuary clause 8543.
12. In view of what has been stated above, it is our considered opinion that Uninterrupted Power Supply System is classifiable under Tariff sub-heading 8504 as contended by the manufacturer and not under 8543 as taken by the departmental officers. The result therefore is that the orders impugned in this appeal are set aside in their entirety. Amount deposited by the appellant pursuant to the order of stay passed should be returned without any delay.
13. The appeal is allowed in the above terms.