Customs, Excise and Gold Tribunal - Delhi
Space Age Engg. Projects (P) Ltd. vs Collector Of Central Ex. on 24 April, 1995
Equivalent citations: 1995ECR473(TRI.-DELHI), 2005(78)ELT544(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. These two appeals involve a common issue and arise out of two orders Sri. No. 44/CEX/1987 and Srl. No. 45/CEX/1987, dated 8-7-1987 passed by the Collector of Central Excise, Pune. The facts in brief are that appellants herein [are] manufacturing Conveyors, Stackers/Reclaimers and parts thereof. They filed a classification list w.e.f. 1-3-1986 claiming classification as follows :-
Item Chapter Sub-heading Rate of duty
(1) Conveyors 8428.00 15% Ad valorem
(2) Stackers/Reclaimers 8428.00 15% Ad valorem
(3) Lifts 8428.00 15% Ad valorem
(4) Cranes 8426.00 15% Ad valorem
(5) Parts suitable for use 8431.00 20% Ad valorem
solely or principally
with the machinery
of Headings 8420.00 to
8430.00
The component parts namely idlers, pulleys and structurals are manufactured in the factory of the assessee and certain other bought out items like electric motors, gear box, belting switches, coupling etc. are assembled at the site of the customers to form conveyors, stackers/reclaimers. The Department found that the appellants have paid duty on the items manufactured in their factory namely idlers, pulleys and structurals at the rate of 15% ad valorem under sub-heading 8428.00 Central Excise Tariff. A statement was given on 28-10-1986 by Shri D.R. Purohit, the Assistant Manager (Finance) of the appellants. He stated inter alia that the bought out items are generally never brought into the factory but are assembled at the site directly. He further stated it was not at all possible to make complete assembly of conveyor system in the factory and then to despatch and to attach it to the earth. He stated that their products like conveyors and stackers/reclaimers are tailor-made system. He said that they classified parts of conveyors produced by them like idlers and pulleys which are cleared as replacement parts under sub-heading 8431.00 Central Excise Tariff Act. When these are cleared for use as component parts as conveyors Shri Purohit said they classified them under sub-heading 8428.00. The Department found that the appellant is not manufacturing complete conveyors, stacker/reclaimer at their factory but manufactured certain essential component parts like idlers, pulleys and structurals and the department took the view that as such they are classifiable under Heading 8431.00. The department also noted that there is no practice of manufacture/assembling the entire conveyors in the factory and then clearing it in CKD condition. So also, the Department felt that the component parts have not the essential characteristics of conveyors. Therefore, classification of these parts according to the department would be more appropriate under sub-heading 8431.00 and not under sub-heading 8428.00. Proceedings were, therefore, initiated against the appellants for the classification of the goods at the higher rate of duty as parts and on considering the appellants' defence the Collector found that though appellants had contracted for supply of conveyors/stackers/reclaimers, they only manufacture some of the components required for erection of the material handling equipment and some of the items are bought out straightaway go to the site for assembly and erecting. This position, the Collector observed had been confirmed in the statement of Shri Purohit. The Collector, therefore, concluded that the appellants are not manufacturing entire conveyors, stackers and reclaimers but only the components required for the machinery and the Collector held that as such it cannot be accepted that these are complete machinery in C.K.D./S.K.D. condition. The Collector, therefore, confirmed the demand of duty for Rs. 9,37,944.64 under Rule 9(2) of Central Excise Rules read with Section 11A of Central Excises and Salt Act, 1944. He imposed a penalty of Rs. 1 lakh on the appellants. This is in respect of the Appeal No. E/715/87-B1 which related to the period March 1986 to November 1986. In the other appeal relating to the period March 1986 to December 1986, the Collector confirmed the demand for Rs. 81,474.50 and imposed the same amount of penalty.
2. Shri V. Sridharan, the learned Counsel appearing for the appellants submitted that the Collector erred in concluding that the parts have to pay higher duty merely because the other bought out items had been directly taken to the site for assembly and not brought into their factory. The learned Counsel urged that the appellants were clearing certain parts which were components of conveyors etc. and when these parts are inter-connected by transmission devices like conveyors belt at the site of the customers they together contribute to the clearly defined function of material handling equipment covered by Heading 84.28 Central Excise Tariff Act. The learned Counsel also pleaded that this was the situation in which classification has to be done in accordance with the Rule 2(a) of the interpretative rules for the Tariff. This rule lays down inter alia that a reference in a heading to goods shall be taken to include a reference to those goods removed in unassembled or disassembled condition when they have the essential characteristics of the finished goods. Therefore, the contention is that simply because the machines manufactured by the appellants are removed in unassembled or disassembled condition, it would not change the essential characteristics of the goods manufactured and removed by them. The learned Counsel further argued that in any case the demand is hit by limitation because the show cause notice has been issued for a period covering more than six months in both cases and the department cannot invoke the longer period for demanding the duty because the appellants cannot be said to have suppressed any facts relating to the manufacture/clearance of the goods from the department. The learned Counsel also pleaded that in this context, it will be useful to bear in mind that the dispute relates to the period in March 1986 when the HSN based Central Excise Tariff Act, 1985 had just been introduced. The appellants have also filed their classification list in Part-H for sales against contract. The learned Counsel argued that Rule 2(a) of the interpretative rules of the Tariff in Central Excise Tariff Act is slightly different from the rule for such interpretation of the Customs Tariff in that condition of the goods as presented which occurs in Rule 2(a) under Customs Tariff Act, 1975 is absent in Rule 2(a) of those rules in the Central Excise Tariff Act, 1985. When this is so, the condition of the goods presented at the time of clearance from the factory cannot be read as a condition incorporated in the interpretative Rule 2(a). Therefore, the learned Counsel argued that the clearance of the component parts for the purposes of assembly at site along with bought out materials should be taken as the complete machinery for classification purposes.
3. Shri A.K. Singhal, the learned Departmental Representative contended that the appellants declared goods in their classification list that the appellants have cleared only the certain component parts from their factory. The complete parts making up the conveyors or other machinery were never manufactured by the appellants in their factory. They are only producing certain component parts. In such a situation, the learned Departmental Reprie-sentative contended Rule 2(a) of the interpretative rules to the tariff is not applicable. The position of the clearance of only component parts from their factory has been confirmed in the statement of Shri Purohit. The learned Departmental Representative relied upon the case law reported in 1993 (63) E.L.T. 593 (Tribunal) in the case of Shriram Refrigeration Industries Ltd. v. Collector of Customs, 1989 (41) E.L.T. 343 (Tribunal) in the case of Collector of Central Excise v. MM. Rubber Co. Ltd. and 1994 (71) E.L.T. 711 (Tribunal) in the case of Collector of Customs, Bombay v. Hydranautics Membrane (India) Ltd. to say that classification of the goods depends on the condition at the time of clearance and the form in which they are presented for assessment and the end-use of the goods presented for clearance is not material for classification.
4. The submissions made by both the sides have been carefully considered. The question in both these appeals is whether the goods cleared by the appellants could be classified tinder 84.28 as conveyors, stackers/reclaimers considering them as removal of such machinery in unassembled or disassembled form by applying Rule 2(a) of Interpretative Rules to the Central Excise Tariff Act, 1985. This Rule reads as follows :-
"2(a) Any reference in a heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that, the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to those goods complete or finished (or falling to be classified as complete or finished by virtue of this rule), removed unassembled or disassembled".
The goods in question which are manufactured and cleared from- the appellants' factory are idlers, pulleys and structurals. Only when these parts are assembled and erected at site of the customers along with bought out items and are interconnected with transmission devices like conveyor belt, the whole assembled erected machinery becomes conveyor system. In such a situation, it cannot be said, in our view, that the parts cleared like idlers, pulleys and structurals by themselves have acquired the essential character of conveyors, stackers/reclaimers and it cannot be said that it is a case of clearance of such machinery in unassembled or disassembled parts. It will be relevant in this context to refer HSN Explanatory Notes to the Rules of Interpretation and also to the HSN Explanatory Notes to Section XVI thereof for understanding the expression incomplete and unassembled machines. Note VII to Rule 2(a) of the General Rules for the interpretation of HSN states that for the purposes of that Rule "articles presented unassembled or disassembled" means articles the components of which are to be assembled either by means of simple fixing devices (screws, nuts, bolts, etc.) or by rivetting or welding, for example, provided only simple assembly operations are involved. The appellants herein supply the goods manufactured by them against turnkey contracts entered with their customers which includes designing, manufacturing, supplying, erection, installation and commissioning of the material handling equipment at site. Therefore, the operation undertaken by them cannot be termed as simple assembly operation falling within the scope of Rule 2(a) of the Interpretative Rules. Moreover, in the Explanatory Notes to Section XVI HSN incomplete machines and unassembled machines are of the following types :-
"Incomplete Machines Throughout the Section any reference to a machine or apparatus covers not only the complete machine, but also an incomplete machine (i.e., an assembly of parts so far advanced that it already has the main essential features of the complete machine). Thus a machine lacking only a flywheel, a bed plate, calender rolls, tool holders, etc., is classified in the same heading as the machine and not in any separate heading provided for parts. Similarly a machine or apparatus normally incorporating an electric motor (e.g., electromechanical hand tools of Heading 85.08) is classified in the same heading as the corresponding complete machine even if presented without that motor."
"Unassembled Machines For convenience of transport many machines and apparatus are transported in an unassembled state. Although in effect the goods are then a collection of parts, they are classified as being the machine in question and not in any separate heading for parts. The same applies to an incomplete machine having the features of the complete machine [see Part (IV) above], presented unassembled (see also in this connection the General Explanatory Notes to Chapters 84 and 85). However, unassembled components in excess of the number required for a complete machine or for an incomplete machine having the characteristics of a complete machine, are classified in their own appropriate heading".
Clearly, the idlers, pulleys and structurals cleared by the appellants from their factory cannot by themselves be called a collection [of] part the conveyor system, stackers/reclaimers. Nor can these parts be said to be assembly of parts of such advanced stage as to be considered as having the main essential features of the complete conveyor, stacker/reclaimer at the time of clearance. The form in which the goods are cleared from the factory is the criterion for classification (even under erstwhile Central Excise Tariff which did not have any Interpretative Rules) as has been held by the Tribunal in the case of Collector of Central Excise v. MM. Rubber Co. Ltd., reported in 1989 (41) E.L.T. 343 (Tribunal) cited by learned Departmental Representative supra. In this context, it will be useful to bear in mind the recent Supreme Court decision in 1995 (77) E.L.T. 23 (S.C.) in the case of Collector of Central Excise, Shillong v. Wood Craft Products Ltd. etc. wherein in para-12 the Supreme Court observed as follows :-
Para-12 - It is significant, as expressly stated, in the Statement of Objects and Reasons, that the central excise tariffs are based on the HSN and the internationally accepted nomenclature was taken into account to "reduce disputes on account of tariff classification". Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of central excise tariff in the Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act."
Therefore, it is held that the goods manufactured and cleared by the appellants from their factory more appropriately answer the description under Heading 8431.00 Central Excise Tariff Act, 1985 and the Collector's order on classification is accordingly upheld.
5. However, on the other question of limitation, it is felt that the appellants have case for resisting the demand beyond six months under Section 11A Central Excises and Salt Act, 1944. They had admittedly filed classification list in prescribed form in Part II indicating the supply against contract with customers. RT-12 Returns with full description of the goods had been submitted, they had also issued Gate Passes separately for the clearance of the goods as spares, and as against contracts. In such a situation, it cannot be held that there has been a deliberate withholding of relevant facts by the appellants to justify invoking the exceptional powers under proviso to Section 11A Central Excises and Salt Act, 1944 to demand duty beyond six months. The Collector's finding on this aspect is also that though the appellants have declared in the classification list these parts under Item (5) of the classification list, they have not paid the duty correctly as per approved classification list and as such the Collector has held that the proviso to Section 11A of Central Excises and Salt Act invoking the longer period comes into play. But as has been found above on the facts and in the circumstances of this case the ingredient of deliberate withholding of information by the appellants from the Department is not borne out by material evidence. Therefore, it is held that the demand of duty for the extended [period] under Section 11A of Central Excises and Salt Act, 1944 is not sustainable in this case. As a corollary of the above finding on limitation, and also considering the circumstances that the period of the demand related to the early days of working of the HSN-based Central Excise Tariff Act, 1985 in 1986, the penalty on the appellants would appear to be harsh, and it is accordingly set aside. The appeals are disposed of accordingly.