Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Aerolex Hose Industries on 21 July, 1995
Equivalent citations: 1995ECR124(TRI.-DELHI), 1995(79)ELT301(TRI-DEL)
ORDER Gowri Shankar, Member (T)
1. The issue in these two appeals is the classification of hose assemblies tinder the Central Excise Tariff.
2. M/s. Larsen & Toubro Ltd., Bangalore manufacture inter alia, excavators and their parts. Among these are hydraulic hose assemblies. These assemblies are made out of vulcanised rubber hose, sometimes reinforced with metal braiding- The rubber is cut to size and metal fittings are added at either [end] so that it can be securely fastened to the parts of the excavators where it is required. The function of the hose pipe assemblies is to convey hydraulic fluid to different parts of an excavator to enable it to carry out the functions for which it is designed. The company had claimed the classification of hose assemblies manufactured by [them] under Heading 84.31 as parts of excavators. The Central Excise department was, however, of the view that goods should be classified under Heading 4009.92 and the Assistant Collector of Central Excise accordingly passed an adjudication order confirming this classification and demanding differential duty on the goods already cleared by the company. The company's appeal was rejected by the Collector of Central Excise (Appeals), Bangalore who confirmed the view of the department. The company has now come in appeal before this Tribunal.
3. Shri C. Natarajan, Advocate, stated at the outset that he would not press the claim made in the memorandum of appeal that the hose assemblies were made out of hard rubber. He was instructed to say that the hose assemblies were made out of vulcanised rubber other than hard rubber. He argued that hose assemblies are specially designed for use with excavators. For this purpose they have to be of specific size and to be capable of withstanding required pressure. They were not capable of use elsewhere as such hose assemblies. Since the excavators could not function without these assemblies, they had to be considered as parts of excavators. He stressed that the non-interchangeable nature of these goods had been accepted by the Assistant Collector in his order. He said that the inference drawn by the Assistant Collector with regard to Note 2(d) to Chapter 40, that if it was the intention of the legislature to exclude the hose assemblies from Chapter 40, that note would not have been restricted to hardened rubber, was misplaced because the scope of the note was limited to hardened rubber and could not be applied to goods made of any other kind of rubber. By virtue of Note 2(a) to Section XVI of the tariff, the goods were classifiable under that section as component parts of machinery. The goods were among those specified in Note 1 (a) to Section XVI as falling under that section. They could not be considered articles of a kind used in machinery or parts of mechanical or electrical appliances for other technical uses and thus fall under 40.60. In view of the fact that they were not excluded by any other section or chapter note, classification would be under Section XVI. In any event, he said, the note to a section would over-ride a note to a chapter -in this case Note 2(b) to Chapter 40, in the event of a conflict between items. The advocate agreed that the decision of this Tribunal in Track Parts Corporation v. CCE, reported in 1992 (57) E.L.T. 98 went against him. However, said that this decision was mainly based upon the earlier decision in Collector of Central Excise v. Aerolex Hose (P) Ltd. - 1989 (39) E.L.T. 581. Since the decision in the Aerolex case had been set aside by the Supreme Court and was no longer binding, the Track Parts' decision would have to be distinguished.
4. Shri Sharad Bhansali, SDR supported the findings of the lower authorities that if the intention of the legislature was to exclude the items of rubber other than hard rubber from the scope of Chapter 40, Note 2(d) would not have been restricted specifically to goods of hard rubber. He said that there was no reason why excavators could not be considered mechanical or electrical appliances. He pointed out that Rule 1 (a) of the Interpretative Rules to the tariff prescribed that classification shall be decided according, inter alia, to "any relative Section or chapter notes." Therefore to decide the classification under Chapter 40, one has to consider the Notes to that chapter and not to Section XVI. The explanatory notes to HSN made it clear at page 591 that tubes, pipes etc. of rubber, would remain as Chapter 40 even if provided with fittings and, cut to size and shape. He pointed out that the actual finding in the Aerolex's case had not been set aside by the Supreme Court which had remanded the matter on the ground that some evidence had not been considered, and stated that the Track Parts' decision had already settled the matter.
5. This Tribunal had, in the Track Parts' case considered the classification of rubber hose in great detail. Paragraphs 9 and 10 of that order are reproduced below:
"9. Heading 40.09, sub-heading 4009.50 would appear on first blush to be quite specific for hoses of vulcanised rubber other than hard rubber with fittings. However, we have to consider the effect of Chapter Note 2(d) to Chapter 40 which eccludes mechanical or electrical appliances or parts thereof of Section XVI (including electrical goods of all kinds) of hard rubber. The present hose assemblies are admittedly not made of hard rubber. But that, however, by itself does not clinch the issue. We have to see whether the goods fall within Section XVI. At this stage, we may note that Shri Sunder Rajan has taken exception to the reliance being sought to be placed on Chapter Note 2(d) in support of the classification of the goods by the lower authorities on the ground that the impugned order did not rest its conclusion on the said chapter note and the D.R. should not be allowed to support the impugned decision by reasons not disclosed therein. He has placed reliance, in this connection on Bombay High Court's judgment in the case of Cadbury Fry (India) Pvt. Ltd. (supra). On a perusal of the judgment, it is seen that the Collector in the order impugned before the High Court had set out three reasons for coming to the conclusion adverse to Cadbury Fry (India) Pvt. Ltd. The Collector's order was, however, sought to be buttressed by his Counsel by advancing a reason which was never the case of the Department and was never put to the assessee. This attempt at justification of the Collector's order across the Bar contrary to the ratio of the Supreme Court's judgment in Mohinder Singh Gill and Anr. v. The Chief Election Commissioner, New Delhi and Ors. - AIR 1978 SC 851 to the effect that an order cannot be justified on grounds other than those contained in the order itself, was frowned upon by the Bombay High Court. In the present instance, however, it is not as though the Departmental Representative is seeking to urge a new factual ground which did not find place in the Collector's order and justify that order on the basis of the new factual ground. He has merely drawn our attention to certain statutory section and chapter notes which have necessarily to be looked into to arrive at the proper classification of goods under the Customs Tariff Schedule. These notes and the rules for interpretation of the Schedule are part of the law. Submissions based on legal provisions are not the same thing as submissions made on new factual grounds. We do not accept Shri Sunder Rajan's objection to the reliance sought to be placed on certain chapter notes and section notes which the Collector did not take into account.
10. Chapter Note 2(d) of Chapter 40 has to be seen in the light of Section Note 1 (a) to Section XVI. Going by the latter note, Section XVI does not cover articles of a kind used in machinery or for technical uses, of vulcanised rubber other than hard rubber. However, in our view, this part of the section note excludes only such articles as fall under Heading 40.16. It is not the Revenue's case that the present goods fall under Heading 40.16. They have been classified under Heading 40.09, sub-heading 4009.50. However, this fact alone would not mean that the present goods fall under Section XVI. In this connection, it is also to be noted that the reliance placed by Shri Sunder Rajan on Section Note 2(b) in support of the appellant's claim for classification of the goods in Chapter 84 is, in our opinion, misplaced for the reason that the provisions of Section Note 2(b) are, as the opening phrase of that note shows, "subject to Note (1) to this section". And, according to Section Note 1 (a) there are certain specific exclusions including goods falling under Heading 40.16. This, however, would not lead to the inevitable result that articles of a kind used in machinery but which do not fall under Heading 40.16 would be classifiable within Section XVI. This is for the reason that Heading 40.09, sub-heading 4009.50 specifically covers hoses of vulcanised rubber other than hard rubber. (There is no dispute that the said Hoses are made of vulcanised rubber other than hard rubber with fittings). What is excluded from the purview of Chapter 40 by Chapter Note 2(d) are only parts of mechanical appliances of hard rubber. The present goods are made of rubber other than hard rubber. The net result, therefore, is that though the subject Hoses are, admittedly, used solely or principally with loaders, they would not be classifiable within Section XVI because of Section Note 2 read with Section Note 1 (a). Now, if we turn once again to Chapter Note 2(d) to Chapter 40, it becomes clear that parts, not made of hard rubber, of mechanical appliances falling in Section XVI, are not excluded from Chapter 40. The assessment of the subject goods under Heading No. 40.09, sub-heading No. 4009.50 was, therefore, in our view correct."
6. In our view, these paragraphs answer adequately the challenge posed by most of the arguments of the advocate. No doubt, the Bench had invoked the Aerolex decision in coming to its conclusion, but that was only to reinforce the conclusion drawn, and the Track Parts decision would stand independently of the Aerolex decision, on account of the two paragraphs reproduced above.
7. Furthermore, if we assume for a moment, that by virtue of Note 2, Section XVI, there is uncertainty about the classification, recourse has to be had to the interpretative rules. The rule applicable is Rule 3(a) which incorporates the general principle that the heading with the specific description shall be preferred to that with a general description. As against the description in Heading 84.31 "All parts suitable for use solely or principally under machinery of Headings 84.27 to 84.30", there can be hardly any question that the description in Heading 40.09, Tubes, pipes, hose or vulcanised rubber...with or without fittings' is more specific. To illustrate by an analogy, let us consider classification of rubber tyres used for goods of Heading 84.27 to 84.30. Virtually, the same argument would apply to classification of these as have been advanced for that of hoses. Yet in the presence of a specific entry 40.11 for pneumatic tyres it would be clear that such tyres will not be classified under Chapter 84 and would fall tinder Chapter 40. This example, we think, drives home the point.
8. Much was sought to be made by advocate of the fact that the Assistant Collector in his order had accepted the fact that hose assemblies are designed for specific use in the excavators manufactured by the appellant, and that, even within the same excavator, different types and sizes of assembly would require for different functions without their being interchangeable. According to him, this establishes that the goods were parts; once this is accepted, the goods would necessarily fall under Chapter XVI.
9. We are not persuaded by this argument. It cannot be denied that the hose assemblies are parts of the excavators, as commercially understood or in engineering or indeed common parlance, since the excavator is not complete and cannot be used without them. But a leap from this fact to the conclusion that these are parts classifiable under Chapter 84 is not justified. An item may be a part of a machine, in the sense that the machine would be incomplete without it, and still be classifiable elsewhere than under Section XVI. This section excludes from its scope, various articles which are clearly parts of machinery or other goods falling under that section - for example, parts of general use, base metal, plastic, interchangeable tools of Heading 82.07. The structure of the tariff, and the Harmonised Code on which it is based, does not always contemplate classification of parts of a machine or an article with that machine or article, as a simple reading of the chapter and section notes would show. The fact that Heading 40.09 includes tubes, pipes and hose "with or without fittings" adds emphasis to our conclusion, in that while hose of a particular size and diameter can be capable of use in more than one application, the size and nature of the end fittings would determine specific application within a machine or elsewhere. The Explanatory Notes to HSN at page 591 make it clear that "tubes, pipes and hose remain under Heading 40.09 even if presented with fittings provided that they retain the essential character of piping or tubing. It is precisely for this essential character that the assemblies are designed i.e. conveying hydraulic fluid. These are therefore rightly classifiable under sub-heading 4009.92.
9A. We now turn to the decisions cited by the appellant. No doubt, the Aerolex Hose decision has been set aside by the Supreme Court, but, as we have observed the Track Parts continues to stand independently of this fact. The decision in 1992 (58) E.L.T. 503 therefore, does not have any relevance to the present issue. The ratio in 1991 (34) ECR 160, that a Bench is not bound by an earlier decision if there is a change in law or fresh material has to be considered obviously would not apply to the present case, there being neither a change in law nor any fresh material to consider. The Andhra Pradesh High Court decision in Pioneer Electronics v. State of Andhra Pradesh was a matter relating to the Andhra Pradesh General Sales Tax Act. It has not been shown that the various entries in the schedule to that Act were in pari materia with the Central Excise Tariff Act. The M.P. High Court decision in Ratlam Bone and Fertilizer Co. v. State of M.P. to the effect that "fertilizer" is more general than to the expression "powdered bone" in fact, supports our conclusion that the most specific should be preferred to the general. The decision reported in AIR 1971 SC 2221 which held that cloth manufactured by the powerloom has to be distinguished from the cloth manufactured by the mills and the decision in 1990 (49) E.L.T. 538, Star Radio Electronics v. Commissioner of Sales Tax relating to nature of appliance and apparatus and are not relevant. The decision in AIR 1957 SC 907 and AIR 1988 SC 1875 reiterates the principle that the first primary rule of construction is that words in a statute must be considered in an ordinary sense and intention of the legislature must be found in the words used in the statute. This is what we have endeavoured to do. The decision in AIR 34 1957 Privy Council, 1994, relied upon is that in the event of conflict between two provisions of statute, the latter must prevail as it "speaks the last intention of the makers". The advocate pointed out that this principle had been incorporated in the Interpretative [Rule] 3(c) that heading which occurs last must be preferred. The recourse to this sub-rule however is only to be had as a last resort, as that sub-rule itself provides that it would apply where the goods cannot be classified by the principles in Sub-rule 3(a) or (c). We have not found it necessary to go beyond Sub-rule 3(a). We are unable to see the relevance of the decision in AIR 1961 SC 838.
10. The appeal therefore, fails and the order of the Collector (Appeals) is confirmed.
11. We now turn to the other appeal by the Collector of Central Excise in which Aerolex Hose (P) Ltd. is the respondent. The earlier order of the Tribunal disposing of this appeal [reported in 1989 (39) E.L.T. 681] has been set aside by the Supreme Court in its order dated 30-1-1990. By this order the Court sent the matter back to the Tribunal for a fresh decision after an appropriate order on the application which the respondent before the Tribunal had made for filing additional evidence and which, by oversight, had not been considered by the Tribunal before it passed the order. The respondent had filed a miscellaneous application for taking the additional evidence on record. This evidence consists of certificate No. AT/TC/88-DRP dated 26-5-1988 issued by the Rubber Board to the respondent indicating that the hose assemblies sent by the respondent to the Board for testing were made of hardened vulcanised rubber. The letter dated 23-5-1988 of the respondent to the Rubber Board asking for its opinion is also sought to be taken on record. After considering the arguments of both sides, we have permitted in our order dated 22-11-1994, the letter of the Rubber Board to be taken on record with the observation that both sides will be at liberty to show the evidentiary value of the document during the hearing of the case. Shri Natarajan's argument is that the Rubber Board certificate showed that the hose from which the respondent makes [its] hose assemblies is made of hardened rubber. In that event, the hose assembly would be excluded from the Chapter 40 by virtue of Note 1 (d) and would then be classified in Chapter 84. We note however, that the objections of the departmental representative that the certificate of the Board does not establish that hose assemblies were manufactured by the respondent out of the hose identical to the sample tested has compelling force. The letter of the respondent indicates that sample forwarded to the Board for testing classified of one cut lengths of imported hose of type R9 - 1" ID manufactured by M/s Uniroyal Manuli Italy. The Board in fact has tested more than one hose of different sizes and says that they are made of vulcanised hardened rubber. We agree with the departmental representative that it is not possible to say from the documents that the samples tested represent the hose actually used by the respondent in making the assemblies which are in dispute. There is no correlation whatsoever between those goods and the present samples. This is all the more or for the reason that the samples were sent for test in May, 1988 only after the order-in-original was passed on 30-10-1986 and after the order-in-appeal on 25-10-1987 and even after the appeal itself was filed before the Tribunal. The respondent had not claimed at any stage before the Assistant Collector or the Collector (Appeals) that the hose assemblies were made of hardened rubber. It is therefore, not possible to agree that the document establishes that the goods under consideration were made of hard rubber. We also note that expression used in the Note 1 (d) to Chapter 40 is "hard rubber" whereas the goods have been described in the certificate as vulcanised rubber (hardened). The respondent therefore, has not established that the rubber in question has been hardened sufficiently to be considered as hardened rubber, there being difference in degrees of hardness. On these points being put to the advocate of the respondent, he had nothing to say.
11. We are thus unable to agree the goods manufactured by the respondent were made of hard rubber. This being the case, the discussions in the earlier paragraphs of this order would apply with equal force to the goods in the present case. The goods are therefore, classifiable under sub-heading 4009.92. The order of the Collector (Appeals) classifying them under Heading 84.31 or Heading 84.66 is set aside and the Assistant Collector's order is restored.