Customs, Excise and Gold Tribunal - Delhi
Fairbanks Morse India Ltd. vs Commissioner Of C. Ex. on 11 January, 2005
ORDER V.K. Agrawal, Member (T)
1. The issue involved in these two appeals, filed by M/s. Fairbanks Morse (India) Ltd. is that whether the benefit of exemption under Notification No. 236/86 CE dated 3-4-1986 is available in respect of Column and Shaft Assembly and Discharge Head Assembly manufactured by them.
2. Shri A.R. Madhav Rao learned Advocate, mentioned that the appellants manufacture vertical turbine pumps which mainly consist of bowl assembly, column and shaft assembly and discharge head assembly; that all the three items put together comprises of the power driven pumps in respect of which the benefit of exemption was availed of by them from time to time; that the proceedings were initiated by the Department by issuing various show cause notices proposing to demand duty on the column and shaft assembly and discharge head assembly on the ground that they are accessories of the power driven pump and hence not eligible for the exemption; that the show cause notices had been confirmed by the Deputy Commissioner by demanding the Central Excise duty and the Commissioner (Appeals) also under the impugned Order had rejected their appeals relying upon the decision of the Hon'ble Gujarat High Court in the case of Jyoti Limited v. Union of India 1979 (4) E.L.T. (J 546) (Guj.).
3. The learned Advocate submitted that a power driven pump is a pump having an inbuilt bowl assembly (impeller and volute assembly) and discharge pipe designed and built integrally as a complete unit called a mono block pump; that as the mono block pump is not suspended into sump or tube well, it does not require column and shaft assembly; that, on the other hand, a power driven vertical turbine pump is a composite machine consisting of bowl assembly, column/shaft assembly and discharge head assembly; that the bowl assembly is submerged deep in the well connected to driving motor at the top of discharge head on top of the well through shaft and the column assembly with a discharge head assembly visible above on the ground; that the bowl assembly performs the function of lifting the water from deep tube well by action of rotating shaft and impeller; that the mechanical power to create water pressure is provided by an electric motor on the top of discharge head at the ground level and the mechanical power is transmitted to the bowl assembly through the line shaft in absence of column shaft assembly and discharge head assembly; that it is only through column assembly through which liquid is elevated from the deep well to the discharge head; that the column and discharge head assembly also act as housing for the line shaft which transmits the power from motor to the bowl assembly through" the line shaft; that the column shafts are not merely pieces of ordinary pipes and shafting but precision machined sophisticated components so that the alignment of the intermediate line shaft bearings in the column pipes is well maintained to support the precision components; that discharge head assembly provides power through the rotating line shafts to the bowl assembly to enable it to rotate and convert mechanical energy into kinetic energy of water; that the discharge head assembly enables the water elevated by the bowl assembly through the column shaft assembly to be discharged at ground level for further distribution. The learned Advocate submitted that it is apparent that the vertical turbine pumps comprise of all the three components and can effectively function if and only if all the above three components are fitted together for performing the function of the pump, namely, to shift or lift the liquid from the underground; that the bowl assembly by itself cannot perform the principal function of pump; that the main function is facilitated by the column and shaft assembly and the discharge head assembly and, therefore, all the three components put together only can be classified as pump. The learned Advocate mentioned that this view is supported by Note 3 and 4 to Section XVI of the Schedule to the Central Excise Tariff Act; that Note 3 and 4 reads as under:
3. Unless the context otherwise requires composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.
4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 Chapter 85, then the whole falls to be classified in the heading appropriate to that function.
4. He mentioned that whenever there is a requirement for vertical turbine pump, they invariably clear all the three components since all the three components put together would only function as a vertical turbine pump and absence of any of these would not complete the vertical turbine pump and would not be capable of performing the function of vertical turbine pump; that in terms of Note 3 to Section XVI, where composite machines consisting of two or more machines are used to perform complementary or alternative functions, the composite machine is to be classified under the heading of the machines which performs the principal functions; that undisputedly the bowl assembly performs the principal function and the other two components enable the performance of bowl assembly as a vertical turbine pump; that all the three machines put together enable the lifting of the water from the deep tube well and, thus by applying Note 3, both column and shaft assembly and discharge head assembly are to be classified along with the machine performing the principal function and, accordingly, they are to be classified along with bowl assembly under heading 84.13 of the Central Excise Tariff. He, further, mentioned that Note 4 to Section XVI stipulates that where a machine including a combination of machine, consists of individual components which put together are intended to contribute to a clearly defined function, then, the whole falls to be classified in the heading appropriate to that function; that in the case of vertical turbine pump, the bowl assembly is always cleared along with column and shaft assembly and the discharge head assembly and all the three components put together only contributes to the main function of the power driven pump and thus applying Note 4, all the three components put together are to be classified as a power driven pump under heading 84.13. In this regard, the learned Advocate also relied upon the Board's Circular No. 224/58 /96-CX, dated 26-6-1996 wherein the Board, relying on Notes 3 and 4 of Section XVI of the Act, has clarified that the power driven pump set is classifiable under Heading 84.13. The learned Advocate mentioned that this Circular also clearly shows that the PD pump comprises of various items and where the combination of machines are cleared together, they are to be classified along with the machines performing the principal function; that this Circular has been followed by the Tribunal in the case of Kirloskar Brothers Ltd. v. C.C.E., Pune and Calama Industries Ltd. v. C.C.E., Bombay . He also referred to IS Specification 1710.1989 for vertical turbine pump according to which a typical vertical line shaft pump consists of bowl assembly, column assembly and discharge head assembly; that annexure 'B' relating to "Nomenclature of Parts commonly used in Vertical Turbine Pumps driven by Shaft Motor" also refers to 'Discharge Case' and 'Head Shaft' besides 'Bowl'. He, further, contended that various purchase orders received by them for the supply of the impugned goods clearly indicate that the specification should be in accordance with the IS 1710:1972 or IS 1710:1989; that thus, the customers also clearly recognise the fact that the vertical turbine pump consists of the three assemblies. He also referred to a letter dated 16-9-03 of Dr. V. Sheshadhari, Professor of Department of Applied Mechanics, IIT, New Delhi wherein it is mentioned that all the three components are essential and this fact is universally accepted and also has been mentioned in IS Specification 1710. Reliance has also been placed on 'Wealth of India' published by Council of Scientific & Industrial Research wherein it is mentioned that the drive from the motor is transmitted to the pump by means of a long shaft. He also referred to the book 'Pumps, Fans and Compressors by V.M. Cherkassky, published by Mir Publishers, Moscow. Finally, the learned Advocate, relied upon the HSN Explanatory Notes under Heading 84.13 and submitted that these Notes show the fact that all the three components put together only comprise of the pumps; that the HSN Explanatory Notes specifically make the connecting rods and the columns to be part of the pump; that the Explanatory Notes under Heading No. 84.13 for Parts clearly lay down that "rods, specially designed to connect and drive the piston in pumps at some distance from the prime mover (e.g. pumping roads, "sucker roads") are to be classified as parts of pumps; that applying the same analogy, the column and shaft assembly and discharge head assembly are parts of vertical turbine pump. Regarding applicability of the decision of the Gujarat High Court in the case of Jyoti Ltd. (supra), the learned Advocate submitted that, as held by the Supreme Court in the case of Escorts Ltd. v. C.C.E., Delhi-II 2004 (65) RLT 111 (S.C), reliance cannot be placed on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed; that the Court has held that the observations must be read in the context in which they appear to have been stated. He also relied upon the decision in the case of C.C.E., Bangalore v. Mestro Motors Ltd. 2004 (65) RLT 780 (S.C.) wherein the Supreme Court, applying Rule 2(a) of Interpretative Rules, has held that completely knocked down packs, 'components are to be classified as complete motor vehicle for the purpose of payment of customs duty.
5. Countering the arguments, Sh. S.M. Tata, learned S.D.R., submitted that the issue has been settled by the Gujarat High Court in the case of Jyoti Ltd. (supra); that the decision has been affirmed by the Supreme Court also as reported in 1997 (96) E.L.T. A73 (S.C); that the said decision is applicable in the present matters also as Tariff Item 30A of the erstwhile Central Excise Tariff are same as both apply to power pumps; that the Gujarat High Court has decided as to what constitutes a power driven pump; that the Gujarat High Court has distinguished the pumping system; that it has been held by the Gujarat High Court that "what is driven by power are the parts of the bowl assembly, not the column assembly which remains purely stationary, or the discharge head assembly suspended below the discharge head assembly." The learned S.D.R. mentioned that the parts mentioned in HSN Explanatory Notes under Heading 84.13 refers to pumping section and not to the other items. He relied upon the decision in the case of Swelore Engg. (P) Ltd. v. C.C.E., wherein it has been held that parts of machines which are in themselves goods include in any other heading of Chapter 84, are in all cases to be classified in their respective headings; that, accordingly, the Tribunal classified the parts and accessories of power driven pumps, such as, warm shaft etc. under their respective headings 84.80 to 84.84 of the Central Excise Tariff and not under heading 84.13. Finally, the learned S.D.R. submitted that neither Note 3 nor Note 4 to Section XVI of the Central Excise Tariff applies in the present matters; that Note 3 speaks of composite machine which is not the impugned power driven pump; that, similarly, Note 4 speaks of combination of machines which also PD pump is not; that the opinion given by Dr. Shedhadhari of ITI, in fact, supports the case of the Department as it clearly mentions, in the said letter, that column assembly and discharge head assembly are essential only for delivering the water.
6.1 We have considered the submissions of both the sides. Heading 84.13 of the Schedule to the Central Excise Tariff Act applied to 'Pumps for liquids, whether or not fitted with a measuring device; liquid elevators." 'Power driven pumps primarily designed for handling water under Heading 84.13 has been sub-divided as under :
8413.11 -- Centrifugal pumps (horizontal or vertical);
8413.12 -- Deep tube-well turbine pumps;
8413.13 -- Submersible pumps;
8413.14 -- Axial flow and mixed flow vertical pumps;
8413.19 -- Other
6.2 Tariff Item 30A of the erstwhile Central Excise Tariff read as under:
Power driven pumps (including motor pumps, dropped pumps and mono-block pump sets) for liquids, whether or not fitted with measuring device.
6.3 The issue involved in the present appeals is whether column and shaft assembly and discharge khead assembly are parts of power driven pumps or are to be treated separately. This issue has been considered by the Hon'ble Gujarat High Court in the case of Jyoti Ltd. (supra). In the said matter, the question involved was what is the meaning of the word "pump" occurring in item 30A of the Central Excise Tariff. The Department had confirmed the demand of duty by including the value of the accessories sold along with the power driven pumps. The contentions in the said decision centred round what is known as 'column assembly' and what is known as discharge head assembly' which are the subject matter of present appeals also before us. The contention of the petitioner before the Gujarat High Court was that pumps manufactured by them are essential bowl assembly. They are turbine pumps which work on the principle of building up a pressure head of water by movements of the vanes of the pump either in a vertical or in a horizontal field. These bowl assemblies are suspended from the column assemblies. Through column assembly was passes upward and in the central portion of the column assembly is a hollow tube through which a shaft is passed in order to supply mechanical motion to the vanes of the pump in the bowl assembly. The vanes operate in the bowl assembly and the vanes together are referred to as impellers which impel water upwards and pushes the water towards column assembly. Above the column assemblies are the discharge heads through which water is discharged and passed on to the distribution system and the shaft is moved either by a prime mover which may be an electric motor or any other motor which supplies mechanical energy for the purposes of rotating the shaft. The contention of the Department in Jyoti Ltd. (supra) was that all the three assemblies, namely, bowl assembly which houses impellers, column assembly through which water or liquid goes up, and the shaft is passed for moving the impellers and discharge head assembly, are all parts of a power driven pump, whereas according to the petitioner, it is only the bowl assembly which houses impellers that is the pump or that is the power driven pump, the rest, namely, the column assembly and discharge head assembly being merely accessories of the pump. The Hon'ble High Court has considered the testimony of Sh. N.W. Lalchandani, who was, at some time, Chairman of ISI Sub-Committee of Vertical Pumps and Member of Horizontal Pumps, Leader of Indian Delegation to I.S.O. Conference for Screw Threads at Vienna. At the time, Sh. Lalchandani gave his evidence before the Assistant Collector in 1976, he was Consultant to Haryana Government for design of largest vertical pump in India. The technical book such as Centrifugal and Axial Flow Pumps by A.J. Stepanoff was also considered by the Hon'ble High Court. The Gujarat High Court has held as under:
To us it seems that applying both the technical aspect and common parlance aspect, once real function of a pump is understood, the whole problem before us could be very easily solved. The function of a pump is to shift or to lift liquid in question from one point to another, or from a lower point to a higher point. But in each case, by the rotating action of the shaft and the impellers, mechanical energy is converted into kinetic energy of the liquid and liquid is forced out by great pressure from the pump itself. So far as column assembly and discharge head assembly are concerned, they merely enable water to pass out from the bowl assembly and they enable the shaft to supply rotary action to the vanes of the impellers so far as column assembly is concerned. The discharge head merely keeps the bowl assembly and column assembly suspended at the appropriate depth so that liquid could be forced out. Under these circumstances, it is obvious that what is driven by the power is the impeller in the bowl assembly and the rest merely provides the housing or casing through which water rushes out or the shaft passes for the purposes of moving the impeller. It is thus clear that what is driven by power are the parts of the bowl assembly, not the column assembly which remains purely stationary or the discharge-head assembly which merely keeps column assembly and the bowl assembly suspended below the discharge head assembly.
There is another aspect also from which this question can be considered, and it is supplied by the book "An Introduction to Engineering Fluid Mechanics" which points out that a turbine pump is exactly the reverse of a turbine which generates electricity. It is well-known and common knowledge that in a hydraulic power generating system, water stored in a reservoir at a great height is allowed through penstock pipes to the turbine and pressure of water at great head of pressure moves the turbine and kinetic energy of the water is converted into mechanical energy by the turbine and that mechanical energy is fed into the generator which creates electrical energy. In a vertificate turbine pump, the reverse process is followed. If the power is supplied by electricity, the electric motor converts the electrical energy into mechanical energy which is imparted through the shaft to the vanes of the impellers and the vanes of the impellers convert the mechanical energy into kinetic energy of water which moves up under pressure built up by the impellers. So far as hydro-electric system is concerned it would be futile to call penstock pipes or reservoir as turbine. A turbine is merely that part which moves under the impact of water when water is under great pressure. In the reverse process of turbine pump-it may be a vertifical turbine or a mixed turbine pump - what happens is that it is the impellers action which converts mechanical energy of the shaft supplied through the electric motor in kinetic energy, and equally it would be futile to say that the column assembly through which water passes up or out, and the discharge head from which the column assembly discharge water, are pumps or are essential parts of a pump. The essential parts of a pump in all such cases like the essential parts of a turbine are the moving parts which convert energy of one kind into another kind of energy, kinetic energy into mechanical energy so far as turbine is concerned, and mechanical energy into kinetic energy of the liquid as far as pump is concerned.
Considering the question from another angle, it seems to us from a common sense point of view that if a pump goes out of order for some reason or another and has to be replaced, it will only be the bowl assembly which would be replaced or rejected and not the column assembly nor the discharge head assembly. If a customer wants his pump to be replaced, he will not ask for the column assembly to be replaced or the discharge head assembly to replaced because they will remain as they are. It is only the bowl assembly which contains moving parts which would be required to be repaired from time to time or replaced from time to time, the rest of the things remaining as they are, unless the bowl assembly pipes or the casing have rusted or some such action takes place. But so far as a power driven pump is concerned it is only the bowl assembly which houses the pump; namely, the impellers with their vanes which pump water or pump out the liquid, as the case may be, without the column assembly or the discharge head assembly contributing anything to the pumping out action of the pump or the pumping up action, so far as the liquid to be pumped up or pumped out is concerned.
7. The appeal, filed by Union of India against the judgment of the Gujarat High Court was disposed of as the Government of India did not press the issue. Accordingly, the Supreme Court affirmed the decision of the High Court on the question of classification. Thus, the issue has been settled by the Supreme Court that column assembly and discharge head assembly only contribute to the effectiveness of the bowl assembly and they do not perform function essentially of a power driven pump in building a pressure in the liquid. Note 3 as well as Note 4 to Section XVI of the Central Excise Tariff are not applicable in the present matters. As rightly emphasised by the learned S.D.R., the power driven pump is neither composite machines consisting of two or more machines fitted together to form a whole for the purpose of peforming two or more complimentary or alternative functions inasmuch as the column assembly and discharge head assembly only contribute to the effectiveness of the bowl assembly and does not constitute a composite machine. Note 4 applies where the machine consists of individual components intending to contribute together to a clearly defined functions. As held by the Gujarat High Court and affirmed by the Supreme Court, the main function of the pump i.e. to shift or lift liquid from one point to another point is done only by the bowl assembly and the other two assemblies, column and shaft and discharge head assembly only contribute to the effectiveness of the bowl assembly. Thus, Note 4 also is not applicable. Accordingly, there is no merit in the appeals filed by the Appellants, which are rejected.
(Operative part of Order pronounced in open Court on 11-1-2005).