Customs, Excise and Gold Tribunal - Delhi
Nestler Boiler Pvt. Ltd. vs Collector Of Central Excise on 25 June, 1990
Equivalent citations: 1990(50)ELT613(TRI-DEL)
ORDER V. Rajamanickam, Member (T)
1. Since both the appeals arise out of a common order, these have been heard together and taken up for decision. The impugned order of the Collector of Central Excise No. 13/MP/85 dated 27-06-1985 is against the assessee - M/s. Nutherm Pvt. Ltd., G.I.D.C., Makarpura, Baroda, but in appeal before the Tribunal, the appellants' name is shown as M/s. Nestler Boiler Pvt. Ltd. This is consequent to the order of the Bombay High Court's order dated 28-02-1985 by which M/s. Nutherm Pvt. Ltd., Baroda, have been amalgamated with M/s. Nestler Boiler Pvt. Ltd. On this change in the name of the appellant consequent to the amalgamation, we proceed to deal with the appeals.
2. The issue involved is whether the Air-fan/Blower which is an integral part of a burner which is manufactured by the appellant is liable for excise duty under the Tariff Item 33(2) of the erstwhile Central Excise Tariff.
3. In their Memorandum of Appeal, they state that at the relevant time they were manufacturing different types of boilers. In the oil fired boiler, one oil burner set is fitted, and for every type of oil burner fitted on an oil fired boiler, there is invariably some arrangement for blowing air to support the combustion of the oil. The one type of burner, which is the subject matter of the Collector's order is known as a PF-PAC Oil Burner, which comprises of three parts, viz. (i) burner head/fan unit, (ii) oil heading & pumping unit, (iii) Control penal. The part of burner head/fan unit contains air-fan/blower. This is called air-fan/blower because it provides air for combustion of oil. It is not known to the trade or industry and has no distinct name or use. It is not sold in the market as an electric fan or an industrial fan and is not a marketable commodity.
That in their own case the Government of India in Revision Application, held that the "air fan is part of the burner head/fan unit which has been designed as an integral part of the oil burner manufactured by the petitioner, the article in question is not an electric or industrial fan as commonly known in trade and industry and the impugned goods do not fall under Item 33(2) of the CET.
That the appellants when they manufactured the boilers, the department did not contend that Air-Blower was manufactured.
That the appellants produced a certificate from Professor(Dr.) J.N. Hate, Ph. D. (Tech.) and also names of other manufacturers who were manufacturing identical products, which were not chargeable to excise duty, and there is discrimination against them.
The value of the Blower taken by the department as Rs. 13,000/- per Blower was high.
The extended time invoked under Section 11-A was illegal and the activities were in the knowledge of the department.
4. Shri R.G. Sheth, Ld. Advocate, appeared on behalf of the appellant, while reiterating the facts submitted in their appeal stated that the dispute about the Blower being to be classified under Tariff Item 33(2) was incorrect, and his case was fully covered by the Tribunal's decision in the case of Stonnac India Ltd. v. Collr. of Cent. Excise, reported in 1989 (40) E.L.T. 343 (Tri.) and the decision in Air Conditioning Corporation, New Delhi v. Collector of Cent. Ex., Calcutta, reported in 1985 (19) E.L.T. 206 (Tribunal).
The ratio applicable in the case of M/s. Stonnac India Ltd. was as follows :-
"Fan/Blower-Circulation device inside the drier chamber not liable to duty as industrial fan, under Item 33(2) of the Central Excise Tariff - the circulation device inside the drier chamber, no doubt functioned like a blower/fan, so far as the mechanical characteristics are concerned. But the device took shape inside the drier chamber only when the components assembled and fitted therein. On such assembly the fan becomes integral part of the drier chamber. No separate commercially identifiable fan comes into existence. The fan cannot be taken out and marketed as such...."
He, therefore, averred that in his case the situation was similar, as the appellants' manufactured burner and the Blower/Air-Fan was an integral part of the oil burner.
His reference to the citation in 1985 (19) ELT 206 (Tribunal) was with reference to the classification list, which when once approved cannot be attacked for alleged mis-statement. He further referred to the Government of India's Order dated 30-6-1977 where in respect of the same goods it was held that it is not an electric fan or industrial fan. Referring to the opinion given by Dr. J.N. Hate, he stated that the opinion was given after examining the actual working of the burner and found that the oil burner was not an industrial system and would not fit into the description under Tariff Item 33(2) of C.E.T. The Department had placed reliance on the statement of Shri Parmeshwaran who was not an expert, and he had nothing to do with fabrication of oil burners. The department should have on the other hand obtained technical opinion from experts. He referred to a decision of the High Court of Bombay, 1988 (36) E.L.T. 15 (Bom.) in the case of Voltas Limited and Anr. v. U.O.I. wherein it was held that: "Fans-Assembly of motor and propeller used in manufacture of air-conditioners and water-coolers-Not capable of independent existence and not treatable as electric fans falling under Item 33(3) of Central Excise Tariff," and Para -7 makes a reference to the expert opinion which has been relied upon. In 1986 (25) E.L.T. 660 (Kar.) - Commissioner for Excise, Karnataka and Ors. v. J.L. Morison, the High Court of Karnataka has held that "Classification of goods involving technical questions not decidable without technical opinion and evidence as to chemical ingredients actually used in the product." Therefore, in respect of the classification, Shri R.G. Sheth, the Ld. Advocate, submitted that the Blowers cannot be treated as falling under Tariff Item 33(2).
On the limitation aspect, the Ld. Advocate contended that the demand was hit by limitation. The appellants had filed Classification List which specifically mentioned Boilers, Burners, Accessories, Components and Spares falling under T.I. 68 for the years 1980, 1981, 1982 and 1983, which were approved by the officials, and had filed declarations to the effect that they were also manufacturing Boilers, Burners, Accessories and parts thereof. The Excise officials visited their factory and their activities were within their knowledge. The following citations were quoted to provide the case laws on the subject of time bar:-
(i) 1988 (34) ELT 8 (S.C.) -Nat Steel Equipment Pvt. Ltd. v. Collr. of C. Ex.
(ii)1987 (31) E.L.T. 618 (Bom.) - Union of India and Ors. v. Piramal Spinning & Weaving Mills Ltd.
(iii) 1985 (19) ELT 206 (Tribunal) - Air Conditioning Corporation v. Collr. of Cent. Excise, Calcutta.
(iv) 1989 (40) E.L.T. 276 (S.C.) - Collr. of Central Excise v. Chemphar Drugs & Liniments.
(v) 1978 (2) E.L.T. (J-180) - Union Carbide Co. Ltd. v. Asstt. Collr. of Cent. Excise and Ors.
Thereafter, the Ld. Advocate dealt with the value adopted at Rs. 13,000/- per Blower by the Collector, he said that on the basis of clearance of 10 Blowers valued at Rs. 1,30,000/- for the period from 01-08-1978 to 30-12-1978, as against the Chartered Accountant's certificate based on Bills for materials constituting the blower portion of the burners and as per their calculation the excise duty payable would be Rs. 10,550.50 for five years without prejudice to the earlier submissions made on the non-dutiability of the blowers. He further claimed the set-off of duty paid on motors in terms of Notification No. 95/79 dt. 1-3-1979.
The penalty and fine imposed was not warranted in terms of the Supreme Court's judgement in the case of Hindustan Steel Ltd. v. State of Orissa [1978 (2) ELT J-159] - No penalty should be imposed for technical or venial breaches of legal provisions. That in respect of other manufacturers no duty was charged and for imposition of penalty on the director, no Show Cause Notice was issued, which was violative of the principles of -natural justice.
5. In reply, Shri K.D. Tayal, Ld. S.D.R. dealt with the decision relied upon by the appellant viz. Stormac India Ltd. v. Collr. of Central Excise, 1989 (40) ELT 343 (Tribunal). The relevant para-3 was referred which reads as under :-
"We have given our earnest consideration to the arguments put forth by both sides. Item 33(2) of the tariff applied to industrial fans. Had the appellants first assembled an industrial fan and then removed it and fitted it inside the drier chamber, there is no doubt that the said fan would have been chargeable to duty on its removal for a captive consumption. But we are informed that the facts were not so. No blower/fan was assembled outside first and then removed and fitted into the drier chamber. The circulation device inside the drier chamber, no doubt, functioned like a blower/fan so far as the mechanical characteristics are concerned. But the device took shape inside the drier chamber only when the components were assembled and fitted therein. On such assembly, the fan became an integral part of the drier chamber. It had no separate existence as a fan nor could it function independently as a fan in its own right. Consequently, there was no question of it being brought to the market for being bought and sold as a fan. Its status was that of an integral component of the drier chamber and it was not a separately identifiable product (fan). The identifiable product, which the appellants manufactured and removed was a drier chamber and not a fan."
The decision was in relation to the device which took shape inside drier chamber, as an integral part and in para-6 they have referred to the Air Corporation Ltd. Calcutta -1987 (12) ECR 89 (CEGAT SB-B1) and applied the ratio. But, the Ld. S.D.R. pointed that the Blower was prepared separately and the Stormac decision will not apply. He relied upon the facts in the Order-in-Original, para-2, 16 Blowers were lying in the finishing room of the factory in fully manufactured condition. The parts of the Blower as provided in para-3 of the order indicated that these blowers were manufactured. In para-5 of the order, the clearances of the blowers under delivery challan indicated manufactured and clearance of the Blowers. The Collector's reference to the blower, the parts purchased for assembly and the blowers supplied to the parties from page 17 to 21 of the order proved that blowers were manufactured and supplied by the appellant. The Ld. S.D.R. cited the following case laws :-
(i) 1987 (27) E.L.T. 262 (A.P.) - U. Foam Ltd. v. Union of India and Ors. on the term 'Manufacture'.
(ii) 1982 (10) E.L.T. 320 (Cal.) - Sanatam Mitra v. Collr. of Cent. Excise, Calcutta and Orissa and Ors. Blowers with electric devices classifiable under T.I. 33.
(iii) 1988 (37) E.L.T. 471 (S.C.) - Aditya Mills Ltd. v. Union of India - on excisability of yarns. The moment there is transformation into a new commodity commercially known as a separate and distinct commodity having its own character and use 'manufacture' takes place.
(iv) 1988 (38) E.L.T. 566 (SC) - Name Tulaman Manufacturers Pvt. Ltd. v. Collector of C.E. - on manufacture and excisability of goods assembled out of duty paid parts and components.
(v) 1989 (40) E.L.T. 276 (S.C.) - Collector of Central Excise v. Chemphar Drugs & Liniments - is not applicable, as the decision of the Supreme Court is with reference to Section 11-A and not to Rule 9. That it was the responsibility of the appellant under SRP to file classification list correctly of all goods manufactured by them.
(vi) 1984 (16) E.L.T. 148 (Tribunal)
(vii) 1989 (40) E.L.T. 214 (S.C.) - Jaishri Engg. Co. (P) Ltd. v. Collector of Central Excise - The relevant para was para-10. The visit by the department was no reason for the appellant not to truly and properly describe the goods.
(viii) 1989 (39) E.L.T. 113 (Tribunal) - Collector of Central Excise v. Wipro Information Technology Limited, para-5.
The value of the Blower has been discussed by the Collector in Para-22 of the order, and the Ld. S.D.R. reiterated the Collector's findings. In reply to the appellants' contention for application of Notification No. 95/79 dated 01-03-1979, the Ld. SDR referred to Para-25 of the Collector's order that procedure under Rule 56-A was not followed, and their claim for small scale exemption has been dealt with in Para-27 of the Collector's order that no declaration as envisaged under Condition (aa) was filed.
6. We have heard both the sides. It is seen that the appellants are manufacturing Oil Burners and for all types of Oil Burners for boilers. There has to be some arrangement for blowing air to the burner head for combustion of the fuel. The quantum of fuel and the quantum of air have to be regulated and necessary device incorporated for the purpose in the burner for regulating the air supply, an air fan or blower device has to be present either as an integral part of the burner set or as a separate fan or blower adopted for use with the burner set. It was the view of the department that the appellants had undertaken assembly/manufacture of "Air-Blower" on a distinct and identifiable product from the various parts purchased from outside. The appellants maintain that the Air Fan/Blower is an integral part of the Burner head/fan unit, and it has no distinctive name, character or use nor sold in the market as an electric or industrial fan. It was contended that the Government of India in respect of the same product "Air-Fan" in Revision Application dtd. 30-06-1977 had decided that the "Air-Fan" is a part of the oil burner which has been designed as an integral part of the oil burners manufactured by the Petitioner and that the article in question is not an electric fan. The Petitioner in this case was M/s. Nestler Boiler Ltd., prior to amalgamation. Therefore, it cannot now be held that the Blower/Air Fan is an item falling under 33(2) of the C.E.T. But, however, in the Govt. of India's order in Industrial and Agricultural Engineering Co. Ltd., Calcutta reported in 1982 (10) E.L.T. 717 (G.O.I.) - Blowers were held classifiable under Item 33(2) C.E.T., on the principle of pumping or transferring gas/air. Similarly, in Swastik Textile Trading Co. Ltd. and Anr., reported in 1981 (8) E.L.T. 809 (G.O.I), has held blower is an electric fan-Tariff Item 33(2) and Item 84.11 of BTN is referred to as the basis for arriving at such a conclusion. Likewise G.O.I. in Orion Engineering Works, reported in 1982 (10) E.L.T. 630 (GOI) has held Compressor or Blower classifiable under Item 33(2) of CET. Therefore, the appellants' plea that since G.O.I. has held in the case of M/s. Nestler Boiler that Air-fan is not classifiable under T.I. 33(2) will not withstand as no detailed reasons have been given while in the other decisions the applicability of T.I. 33(2) has been upheld on the guidelines issued under the B.T.N. The BTN description under Heading 84.11 (C) is as follows :-
84.11 (C) - "Fans and Blowers. - These machines while may be fitted with integral motors or not, are designed either for large volumes of air or gas at relatively low pressure or merely for creating a movement of the surrounding air ....Compressors, air pumps, fans, blowers, etc., specially constructed for use with other machines remain classified in this heading and not as spare parts of such other machines."
Similar guidelines are given in the HSN under Chapter 84.14. Therefore, with decisions on the air-fan/blower being not similar, one has to go strictly on the merits. The parts that go into the manufacture of a blower on verification by the department are: Electric Motor, Motor Stand, Impeller, Blower Casing, Air-Cone, Aluminium Air Regulator with hydraulic rain, M.S. Sq. Ring and Roschin below, and the function of the Blower in an Oil Burner is to provide air for combustion of fuel. From the B.T.N. extract, page-1189 and 1190, it is seen that a Blower/Air-Fan designed for deliveries, large volumes of air or gas etc. etc. as elsewhere described here, thus consist of a propeller or blade type impeller revolving in a casing or conduit, and function on the principle of rotary or centrifugal compressors. Now taking the Blowers manufactured, their function and facts are of the same description as per the BTN extract. They have a motor, impeller, casing and perform the function of delivering air for combustion of fuel to the oil burners and being a distinct and identifiable product it has to be classified under T.I. 33(2). The said Tariff Item reads as under:-
"Item 33 : Electric fans including regulators for electric fans, all sorts -
(1) xx xx xx xx xx (2) Electric fans, designed for use in an industrial system as parts indispensable for its operation and have been given for that purpose some special shape or quality which would not be essential for their use for any other purpose and...."
The Air-Fan/Blower which is fitted with oil burner can be referred as an industrial fan which has been specially designed for the purpose.
The appellants' have pleaded that the Tribunal's decision in Stormac India Ltd. v. Collector of Central Excise, reported in 1989 (40) ELT 343 (Tribunal) should be made applicable to their case. But, however, the case is distinguishable. The Tribunal in that case held that the air circulation device which took place inside the drier chamber when the components were assembled and fitted therein and could not be taken out were found not covered by Item 33(2) CET. But in the case of the appellant, the blower was identifiable and separately manufactured to be fitted on subsequently. The Ld. SDR had rightly pointed that the 16 blowers were manufactured and kept ready in the finishing room and sale of the blowers had also taken place. As such, therefore, the contention that the subject goods are covered by the case law cited does not hold good and the blower manufactured by the appellant has to come within the ambit of Tariff Item 33(2) CET. As for the plea of technical opinions not taken and the expert opinion of Dr. J.N. Hate as not relied upon, it has to be noted that the Collector has taken into consideration the opinion of Dr. J.N. Hate, and has proceeded to decide on merits. The Certificate referred to has been seen by us which opines the function and nature of the products and their nexus with each other. The technical opinion is necessary only to make more clear the technical aspects in order to help decide the classification, and it is for the department to arrive at the correct classification.
7. Coming now to the point of limitation, the extended period has been invoked under Section 11-A, and the appellants have been charged with suppression of facts. The Show Cause Notice is dated 28-01-1984 invoking the extended period for removal of goods from 1-8-1978 to 27-6.1983 and on 3-7-1980, 23-10-1980 and 14-11-1982, the appellants plead that classification lists were filed by them specially for boilers, burners, accessories, components and spares under T.I. 68 for the period 1980, 1981, 1982 and 1983 and have also filed declaration for the purpose of claiming exemption, where they have mentioned "Blower Assemblies" and they were duly approved by the excise officers. There was no suppression of facts and they are covered by the various decisions of the appellate courts and Supreme Court quoted supra. There is considerable force in their contention as classification lists have been filed by them mentioning boilers, burners, accessories, component parts and spares. While approving the classification list, the department is expected to study the process of manufacture and also dutiability of any product that comes into existence which will be leviable to excise duty. Blowers being manufactured as integral parts for oil burners ought to have created an awareness in the minds of the officers of excisable product having been manufactured. If in the bona fide belief the appellants had felt that they need not declare the blowers, without intent to evade payment of duty, the proviso to Section 11-A is not invokable, especially when they had before them the Govt. of India decision in Order No. 1271 of 1977 dated 30-6-1977 in favour of the sister concern prior to the amalgamation. Each of these cases of failure to disclose the facts has to be read, in the context in which such omissions have occurred. Therefore, when declaration was filed with specification, description of blowers, and one such blower was also cleared under a gate-pass under T.I. 68 as late as 14-11-1982, on payment of duty, the allegation of suppression with intent to evade payment of duty cannot be levelled against them. The Supreme Court decision in Collector of Central Excise v. Chemphar Drugs & Liniments, 1989 (40) ELT 276 is applicable to their case. As such the demand has to be restricted to the period of 6 months only.
8. The valuation adopted by the department has been considered. The appellants relies on the certificate issued by the Chartered Accountant based on the bills of material constituting the blower. The Collector, however, has referred to the value based on the actual value recovered by the applicant under delivery note 1 dated 3-9-1980 for one blower supplied to M/s. Nestler Boilers Pvt. Ltd. Baroda. This appears to be consistent with the provisions of valuation under the Act and does not call for any change.
9. On the issue of fine and penalties imposed, it is seen that the department had seized 16 blowers that were lying in the finishing room of the factory in a fully manufactured condition, and Show Cause Notice has been issued for the purpose of confiscation under Rule 173-Q(1) of the Central Excise Rules. These have been confiscated and permitted to be redeemed on payment of a fine of Rs. 25,000/- The Collector's finding is that the appellant illicitly manufactured and removed the Air-Blowers without payment of duty in contravention of the provisions of the Central Excises and Salt Act and, therefore, the 16 blowers seized from the possession of the appellant are liable for confiscation. Now that it has been held that no wilful suppression was involved, the 16 blowers in the finishing room and not cleared are only liable for payment of duty and not confiscation as no offence of clandestine removal is involved and, therefore, the confiscation and fine are set aside. The penalty of Rs. 50,000/- is not liable as no wilful suppression has been proved. The plea of the appellant of extending the exemption Notification No. 95/79 is not considered as the Collector has in his findings rightly pointed that the procedures for availment of such benefits have not been followed. In effect the appeal is allowed to the extent admissible as specified above but otherwise rejected.
10. In the Collector's Order-in-Original No. 13/MP/85 dated 27-6-1985 on the issue of classification of the air-blower and alleged possession of 16 blowers which have been confiscated, the Collector has imposed a penalty of Rs. 1,000/- on Shirish Ranchhodlal Shah, Director of M/s. Nutherm Pvt. Ltd. In his appeal, Shri Shah has contended that no Show Cause Notice was issued to him, and for the alleged contravention of Rule 198 of the Central Excise Rules, no Show Cause Notice was issued and the facts already mentioned in the appeal No. 1841/85-B1, which form part of this appeal, the appellant requests for setting aside the penalty. The above facts were reiterated by the Ld. Advocate during his arguments.
11. On a scrutiny of the Show Cause Notice dtd. 28-1-84, it is seen that mention about the alleged contravention of M/s. Nutherm Pvt. Ltd. has been made and also about the alleged contravention of Rule 198, and para-11 states why penalty should not be imposed separately. But no mention of the Director has been made specifically. However, in view of the findings in the Appeal No. E/1841/85-B and penalty of Rs. 50,000/- on M/s. Nutherm Pvt. Ltd. has been set aside. Since the issues are common, and no penalty is warranted, the penalty on the appellant is set aside and consequently the appeal is allowed.