Custom, Excise & Service Tax Tribunal
Bharat Bijlee Ltd vs Commissioner Of Central Excise on 5 June, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.E/556/06 (Arising out of Order-in-Original No.44/Commr/05-06 dated 31/10/2005 passed by Commissioner of Central Excise, Belapur) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) Honble Mr. Anil Choudhary, Member (Judicial) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
Bharat Bijlee Ltd., Appellant
Vs.
Commissioner of Central Excise, Respondent
Mumbai
Appearance:
Shri.D.B.Shroff, Advocate for appellant
Shri.K.M.Mondal, Special Consultant for respondent
CORAM:
Honble Mr. P.R.Chandrasekharan, Member (Technical)
Honble Mr.Anil Choudhary, Member (Judicial)
Date of Hearing : 05/06/2014
Date of Decision : /2014
ORDER NO
Per: P.R.Chandrasekharan
The present proceedings have come up before this Tribunal for the second time in the following circumstances. In Order-in-Original No. 44/COMMR/05-06 dated 31/10/2005 passed by the Commissioner of Central Excise, Belapur, it was held that the goods manufactured by the appellant, M/s Bharat Bijlee Ltd. would merit classification under CETH 84.31 of the Central Excise Tariff as parts of lift machinery against the contention of the appellant that they merited classification under CETH 84.28 as lift machinery. Against the said order, the appellant had filed an appeal before this Tribunal which was disposed of vide order No. dated 10/7/2008. In the said order, it was held that the goods manufactured by the appellant would merit classification under CETH 84.31 as parts of lift machinery and duty would be payable accordingly. However, the duty demand for the period April 1986 to August, 1990 was set aside as time barred. Aggrieved, the Department filed an appeal before the honble Bombay High Court, vide Central Excise Appeal No. 6 of 2009. The honble High Court disposed of the said appeal vide order dated 16/4/2009 holding as follows:
1. The learned Counsel for the parties, after hearing, submit that reasons need not be given for passing the order.
2. Hence, the impugned order is set aside. The matter is remanded back to the Tribunal for de novo consideration and after hearing the parties to pass order according to law within four months from today.
3. Appeal stands disposed of.
2. Brief facts of the case leading to the passing of the impugned order by the Commissioner may be summarized as follows. During the relevant period spanning from April 1986 to March 1995, the appellant was engaged in the manufacture of parts and components of lift machinery and clearing the same to the sites of the customers for construction of lifts under works contracts on payment of Central Excise duty @ 15% ad valorem under CETH 8428.00 of the Central Excise Tariff. However, while such parts and components of lift machinery were cleared to the site for maintenance of lifts under separate Maintenance Contracts, the appellant was paying Central Excise duty @ 20% under CETH 8431.00 as parts. The appellant was, therefore, issued a Show cause notice dated 3/4/1991 seeking to recover a Central Excise duty of Rs. 9,62,614/- on the clearances for the period 1/9/1990 to 28/2/1991 on the allegation that it had mis-declared the classification of the parts and components of lift as machinery under CETH 8428.00 instead of CETH 8431.00. The notice also sought to impose penalty under Rule 173Q of the erstwhile Central Excise Rules, 1944. Immediately thereafter, another Show cause notice dated 5/4/1991 was issued to the appellant seeking to recover a total Central Excise duty of Rs. 32,63,415.59 covering the period April 1986 to August 1990 on the allegation that it had suppressed the fact that it had manufactured parts and components which constituted only 50% to 70% of the complete lift machinery. The notice also sought to impose penalty on it under Rule 173Q of the said Rules, 1944. Thereafter, 10 more periodical Show cause notices were issued to the appellant covering the period March 1991 to March 1995 on the same issue. Total duty demanded under the above mentioned 12 Show cause notices was Rs. 1,75,42,277/-. In adjudication of the above mentioned Show cause notices, the Commissioner vide order dated 31/10/2005 confirmed the duty demand of Rs. 1,75,42,277/- and also imposed equal amount of penalty on the appellant assessee under Rule 173Q of the erstwhile Central Excise Rules, 1944. Hence the appeal. The appeal was heard on 7/05/14 to 9/05/14 and 5/6/14.
3. The submissions of the ld. learned Counsel for the appellant can be summarized as follows:-
(1) The Appellants manufactured, inter alia, essential and critical items of lifting machinery. They undertook the execution of works contracts for the design, supply, erection, installation and commissioning of such lifting machinery with other bought out items required for installation of lifts and elevators in buildings. A lift which functions in a building requires the installation of diverse parts, which, when duly and properly installed, result in the functioning of the lift. The lift when it comes into existence becomes a part of the immovable property, i.e., the building itself.
(2) A lift is essentially a device designed to vertically transport passengers from one floor of a building to another. It is a complex agglomerate of interrelated modules and assemblies that are intended to fulfill the specific standards of performance (designated broadly by speed, capacity, control technique, door type etc), which contribute to the desired passenger handling parameters and integrated into the architecture and civil construction. It is an integrated system composed of various types of machinery and when installed in the prescribed manner, functions as a lift in a building.
(3) The Appellant manufactures the following sub-assemblies and components of the lifting machinery. The items in bold capital letters denote those manufactured either exclusively or predominantly by the Appellants:
(i) Machine Unit The Machine Unit is the main drive machinery and serves to mechanically hoist the lift car, (which is partially/ approximately balanced by a counterweight) up and down the shaft. Its prime mover is a specially designed Hoist Motor. This is usually coupled to a reduction gear-box, which, in turn is equipped with the Friction Sheave (or pulley) along which the suspension ropes are deployed. A Break Unit is attached and the machine Unit may include, depending upon the specifications, a Digital Tachometer (which measures the car speed and position to infinite dismal tolerances) Flywheel and Diverter Sheave.
(ii) A microprocessor based Drive Controller may be used for high-speed lifts to ensure smooth travel and accurate levelling.
(iii) The Lift Controller, which may include a Micro-Electronics Logic Controller, saves as the nerve-centre of the lift or group of lifts. It receives signals from the following items so as to activate the machine unit and to direct the overall operation and movement of the lift car so as to respond to routine passenger commands and to maximise traffic handling, minimise waiting time, minimise energy consumption and conform to safety standards:
a) Magnetic Shaft Information Devices or Floor Selector
b) Car Control Panel
c) Landing Push-Button Boxes
d) Digital Tachometer
e) Gate Locks
f) Shaft Switches etc
(iv) The Over speed Governor is a precisely calibrated safety device designed to sense possible over speed of the lift car and to trigger emergency breaking by means of the car mounted Safety Gear.
(v) The Car and Landing Control Panels receive travel instructions from passengers and communicate them to the Lift Controller. Conversely, the various Signal Fixtures, Indicators and Displays (mounted in the car and landings) communicate, through the controller, relevant information to the passengers regarding the car's position and direction of travel.
(vi) The car and landing gates (or doors) are essential for the safety of passengers. These may be manual or automatic. The latter is driven by car-mounted Door-Drive Assembly consisting of a kinematic mechanism operated by a special Torque Motor. The movement of both types of doors is precisely guided by Top and Bottom Track Assemblies and Hanger-Plate Assemblies while the Gate Locks provide an electro-mechanical interlock to prevent the lift from moving while the doors are open.
(vii) The lift car and its accessories merely provides an enclosure for passengers and is mounted in a car-sling which runs along the guide rails via the Guide Shoe Assemblies.
(viii) The machinery and assemblies above are inter-connected by means of various types of electrical cables and wiring.
(4) The principal function of regulated or controlled lifting is fulfilled by the Lift Controller, the Digital Tachometer, the Drive Controller and the Machine Unit, which are all manufactured by the Appellants. The items such as guide rails, wire ropes, cage, collapsible gates etc. which are bought out items are used in the installation and complete setting-up of a lift and are not parts of lifting machinery classifiable under heading 84.28. These manufactured items of lifting machinery/sub-assemblies/components are taken to the site of installation and the complete lift is erected at site by using these manufactured items together with the other peripheral bought out components and parts as mentioned above.
(5) Between 1.3.1975 and 27.3.1978, the Appellants had paid excise duty on the total works contract value of Lift under a mistake of law. With effect from 27.3.1978, the Appellant started paying duty on the full contract value under protest as it was their contention that their liability was limited only to the manufactured goods and not on the bought out goods with which the department did not agree. However, on 15.3.1980 the Appellants filed a revised classification list classifying the manufactured items only under the erstwhile Tariff Item 68. Though the Appellants had pursued the matter, the classification lists were not approved by the proper officer. By a letter dated 26.3.1981, the Appellants informed the Assistant Commissioner that all bought out items on which appropriate duty had already been paid would be cleared to the site from the Appellants' Lift stores under the Appellants' own challans and that manufactured items would be cleared under Gate passes on payment of duty and that on completion of the installation of lift, duty would be paid on the full contract value including erection, commissioning and service charges etc, minus the duty already paid on manufactured/produced components/parts, if any. In November 1981, the Appellants became aware of the order of the Government of India in the matter of Otis Elevator Company (India) Ltd (1981 E.L.T. 720 (GOI)), whereby it was held that elevators (lifts) and escalators erected and installed at site would not be considered as goods and hence could not be assessed under Tariff Item 68. The Government of India made it clear that components and parts of elevators and escalators manufactured and cleared from the respective factories would be chargeable to duty at the appropriate rates but no further duty was chargeable when these components and parts were assembled at site. In view of the order of the Government of India, the Appellants by letter dated 10th November 1981 requested the then Assistant Collector to give an early decision on the matter to the effect that the Appellants were liable to pay excise duty only on the machinery manufactured by them and not on the total contract value. The then Assistant Collector visited the factory on 10.6.1982 and satisfied himself that the Appellants were only liable to pay excise duty on the machinery manufactured by them and gave a decision in that respect and since then the Appellants have been paying excise duty on the components of lift machinery manufactured by them under the erstwhile Tariff Item 68. By a letter dated 29.6.1982 the Appellants referred to the visit of the Assistant Collector to their factory from which it is clear that the Department was fully aware that the Appellants apart from manufacturing were also buying parts from outside parties. By a letter dated 7.7.1982, the Assistant Commissioner gave a decision regarding classification in which he confirmed that the Appellants liability was confined to parts of lift machinery manufactured by them and supplied for lift machinery outside their premises. He however stated that the assessment would be provisional under Rule 9 B of the Central Excise Rules.
(7) With effect from 1.3.1986, the HSN based Central Excise Tariff came into force and the relevant Tariff headings 84.28 and 84.31, read as follows:
Heading 84.28 "Other lifting, handling or unloading machinery (for example, lifts, escalators, conveyors and teleferics)"
Heading 84.31 "Parts suitable for use solely or principally with the machinery of heading numbers 84.25 to 84.30."
As per the Rules of Interpretation of the Tariff, Rule 2 (a) provided that:
"Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished goods has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished, (or falling to be classified as complete of finished by virtue of this rule), presented unassembled or disassembled."
Thus, on a true and correct interpretation of Rule 2 (a), an item in a heading also refers to an incomplete item provided it has the essential character of the complete or finished article. The Rule does not state that the unfinished article must be essentially the finished article. It uses the words essential character. Oxford English Dictionary, 11th Edition, page 238, defines the word 'character', inter alia, as the distinctive nature of something. The Webster's 3rd New International Dictionary, page 376 defines the word 'character', inter alia, 'distinctive quality' and 'main or essential nature'.
(8) Basically, a lift essentially has to fulfill the following:
(i) Moving people up and down. This is done by the Machine Unit.
(ii) The aforesaid up-and-down movement has to be done safely. This is done by the break unit, the speed governor, the weighted pulley, the limit switches and the car door drive mechanism.
(iii) The movement has to be at a specified speed. This is attained by a magic box called the Controller, which controls and regulates the speed of the machine unit. The controller also controls all aspects of lift function in the speed of the motor.
(iv) The lift has to stop and level correctly. This is done by the aforesaid controller and shaft information assembly.
(v) The lift has to respond intelligently to instructions from inside the cabin and the landings. This is done again by the controller, position indicator and the landing pushbuttons.
The items mentioned in bold above, are the items manufactured by the Appellants. These items give the lift its essential character of moving people up and down safely, at a specified speed, stopping and leveling correctly and responding intelligently to instructions from inside the cabin and the landing. Without all these items the lifts cannot function. Other bought out items like the cage, wires, ropes, m. s. plates etc, are off-the-shelf items and do not give the lift its essential character. As per Rule 2 (a), an item can be unfinished, as long as it has the essential character of a lift. It is therefore not necessary that all items of the lift should be manufactured or cleared together in order to attain the essential character of a lift.
(9) The relevant Section Notes to Section XVI, namely, Section Notes 2, 4 and 5 reads as :
"2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading No. 84.84, 85.44, 85.45, 85.46 or 85.47) are to be classified according to the following rules:
(a) Parts which are goods included in any of the headings of Chapter 84 or 85 (other than heading Nos. 8409, 8431, 8448, 8466, 8473, 8487, 8503, 8522, 8529, 8538 and 8548) are in all cases to be classified in their respective headings.
(b) Other parts, if suitable for use solely or principally with a particular kind of machine, or with the number of machines of the same heading (including the machine of heading No. 84.79 or 85.43) are to be classified with machines of that kind. However, parts, which are equally suitable for, use principally with the goods of heading Nos. 85.17 and 85.25 to 85.28 to be classified in heading No. 85.17.
(c ) All other parts are to be classified in heading No. 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or, failing that, in heading 84.87 or 85.48.
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 other devices) intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or Chapter 85, then the whole falls to be classified in heading appropriate to that function.
5. For the purposes of these Notes, the expression 'machine' means any machine, machinery, plant, equipment, apparatus, or appliance cited in the headings of Chapter 84 or 85."
(10) It is well settled that for the purposes of Central Excise Law, lifts are not taxable as they come into existence only as a part of immovable property. What is, therefore, taxable under heading 84.28 is lifting machinery and not lifts. When Heading 84.28 says, for example lifts, escalators, conveyors and telefrics; what is meant is such lifting, handling, loading or unloading machinery for lifts, escalators, conveyors and teleferics (cable car systems). The heading cannot and does not cover lifts. If that heading is interpreted with reference to Rule 2 (a) of the Rules of Interpretation and Section Note 4 of Section XVI, then it is clear that the items of machinery manufactured by the Appellants, as described above, (i) have the essential character of a lift and (ii) are intended to contribute together to a clearly defined function covered by heading 84.28, namely, lifting. Therefore, the whole falls to be classified under heading 84.28, as that is the heading that is appropriate to that function, namely, lifting. These items, therefore, cannot be classified under heading 84.31. When the lifting machinery and individual components thereof are cleared to the site for the erection and installation of the same, they are classifiable under heading 84.28 as lifting machinery for lifts. Heading 84.31 cannot be made applicable to lifting machinery and components thereof, meant for the initial assembly of lift since such components are parts of lifting machinery of heading 84.28 and not parts suitable for use with the machinery of heading 84.28. Heading 84.31 postulates the existence of a lift and the use of parts with such a lift. It cannot, therefore, be applied to components necessary to form or constitute a lift for the first time.
(11) The aforesaid classification is supported by the HSN Explanatory Notes to heading 84.28, wherein it is stated that:
" The heading covers lifting or handling machines usually based on pulley, winch or jacking systems, and often including large proportions of static structural steelwork, etc. These static structural elements (e.g., pylons specialised for telefrics etc) are classified in this heading when they are presented as parts of more or less complete handling machine.
When presented separately, they are classified in heading 84.31 provided they are fitted or designed to be fitted with the mechanical features essential for the operation of the moving parts of the complete installation (Wheels, rollers, pulleys, running or guide rails, etc.). Otherwise the structural elements are classified in heading 73.08".
These more complex machines include:
"(D) Lifts are usually operated by winch and cable, or by rams worked by water, air or oil. They are used for raising or lowering a passenger cage or goods platform between vertical guide bars, and are generally fitted with counterbalance weights. The control, stopping, safety, etc, equipment, whether or not electrical, is also classified in this heading provided it is presented with a lift itself. "Presented" means "given". The Explanatory Notes, make a distinction between the machinery/ components forming part of the initial assembly of a lift and machinery/components used for replacement or spare parts. The machinery/components forming part of the initial assembly of lifting machinery would be classifiable under heading 84.28 whilst machinery/components used for replacement or spare parts would be covered under heading 84.31.
(12) The Appellants, therefore, filed a revised classification list effective from 1.3.1986 classifying (i) lift machinery/sub-assemblies/components manufactured by them under heading 84.28; and (ii) parts suitable for use solely or principally with lift machinery under heading 84.31. This classification list was approved. With effect from 1.3.1987 a revised classification list was filed classifying (i) lifting machinery /components used in the execution of works contracts for lift installation under heading 84.28 and (ii) parts and accessories of lift machinery/components in the execution of lift maintenance contracts under heading 84.31. This classification list was also approved finally. Thereafter, the Appellants have been filing classification lists from time to time on the same basis. In the classification lists, the Appellant had specifically classified lifting machinery for use in the execution of works contracts under heading 84.28 and parts of lift machinery for use in execution of maintenance contracts under heading 84.31. Only after making detailed inquiries, these classification lists were approved by the department. The classification lists which were filed from time to time and with effect from 1.3.1992 were all finally approved. The department had, therefore, granted legal sanction to the classification of lift machinery under heading 84.28 in accordance with Rule 173 C of the said Rules.
(13) The CBEC issued Circular No. 16/89 dated 19th April 1989 regarding the classification of lift in which it was clarified that excise duty could be levied only on goods and not on immovable property and that heading 84.28 is to be taken not to refer to an installed lift but only to lift machinery and that if together they can be regarded as lift in an unassembled/disassembled condition or having the essential character of Lift, they would be assessed under heading 84.28; otherwise such parts and components would be assessed under the heading 84.31.
(14) The Appellants had filed a refund claim on 24.9.1984 for the period October 1979 to August 1982 in respect of the duty paid under protest on the lifts assembled at the site. Together with the refund claim, the Appellants had given copies of gate passes, invoices and other relevant documents. By a show cause notice dated 25.5.1989, the Appellants were called upon to show cause as to why the refund claim should not be rejected on the ground of unjust enrichment. This show cause notice shows that the Department was fully aware that it was manufacturing some items of lifting machinery and removing the same to site, together with bought out components for the purposes of construction and erection of a lift. The Appellants also filed separate price lists for items cleared as spares or parts under heading 84.31 and separate price lists for the same components, when cleared under contract for the initial installation of lifts. All price lists and assessments for the period after August 1990 were provisionally assessed and have till date remained provisionally assessed, since there being no sale of the lifting machinery, the value of the lifting machinery had to be determined in accordance with sub-rule 6(b)(ii) of the Valuation Rules, 1975 (upto June 2000) and thereafter, rule 11 read with Rule 8 of Valuation Rules, 2000 which provide that where excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of the articles, the value shall be based on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods. The petitioners' Cost Accountants had determined the actual cost of production and profit for each year and it was noticed that the petitioners had paid duty by taking into consideration much higher cost of production and profit. A statement showing the price lists and assessments that are provisional after August 1990 is annexed. In March 1991, the Range Superintendent requested for certain information and certain documents which was submitted by the appellants vide letter dated 16.3.1991 along with copies of a cost certificate, invoices, gate passes, bill of materials, price lists etc. By a letter dated 18.3.1991 addressed to the then Assistant Collector, the Appellants enclosed a list of lift machinery/components thereof, manufactured and assembled and tested by the Appellants in the factory and pointed out that these were manufactured solely for use in the execution of works contracts and that the said lifting machinery manufactured by them had the essential characteristic of a lift. It was pointed out that these goods were removed on payment of duty as per the approved classification lists. The Appellants also submitted a list of bought out machinery/components which were removed as such from their lift stores for use in the execution of lift works contracts as well as a list of bought out machinery and components which are directly delivered to site by local suppliers. Despite the fact that the price lists and the assessments for this period were provisionally assessed, the Superintendent of Central Excise, Range II purported to issue a show cause notice dated 3.4.1991 purporting to demand duty amounting to Rs 9,62,614/- in respect of the period September 1990 to February 1991 seeking to classify lifting machinery under heading 84.31 on the ground that these were only parts.. No allegation of suppression was made in the show cause. The Commissioner, thereafter, issued a show cause notice dated 5.4.1991 purporting to demand duty amounting to Rs 32,63,415.59 in respect of the period April 1986 to August 1990. The only ground taken in the show cause notice was that the manufactured machinery constitutes about 50% to 70% of the total value of machinery used in the execution of lift works contract and that 50% to 70% of machinery does not constitute the full machinery and so would not have the essential characteristics of a lift. Hence, they would be parts classifiable under heading 84.31. The Commissioner purported to invoke the larger period of limitation despite the fact that there was no specific allegation of suppression with intent to evade duty.
(15) The appellant relies on the expert opinion given by Professor Menon of VJTI wherein a full description of machinery manufactured by Appellants and the purpose/operating principle has been given. It is clear from this description, as also from the schematic diagram and the expert opinion of Professor Menon that the principal function of regulated or controlled lifting is fulfilled by the Lift Controller, the Digital Tachometer, the Drive Controller and the Machine Unit. These are all manufactured by Appellants. These are 30 items in all. These 30 items of lifting machinery/subassemblies/ components constitute a lift in an incomplete or unassembled form. They have the essential character of a lift and are known and understood in the trade as lift machinery. Professor Menon has also set out in his affidavit the various parts and components which are going into the manufacture of such lift machinery, with their part numbers. The lift machinery when they are cleared under invoices are not cleared under any part numbers It is submitted that quite unlike a complete assembled product, for example a window air conditioner, which is cleared from a factory as one unit, the various items of lifting machinery/lifting systems are assembled together in the lift room and the lift shaft of a building. The lifts that are installed by the Appellants are predominantly used for vertical transportation of human beings, and therefore, apart from the Machine Unit, i.e., Prime Mover, and several other complimentary items of machinery, the Appellants also have to ensure the utmost safety of passengers, control of movement, speed and direction, control of halting positions, timely opening enclosure of doors, jerk free operation and information position and status of lifts etc. The Appellants, therefore, manufactured these items as well. These items have to be classified under heading 84.28 when presented with the lifting machinery for the purpose of installation and erection of a lift.
(16) The Commissioner's conclusion that the items of machinery manufactured and cleared by the Appellants did not together have the essential characteristics of a lift or lifting machinery is not based on any evidence whatsoever. It is well settled that in matters of classification, the burden is cast on the Excise Department and the Department has produced no evidence whatsoever. A mere perusal of the Show Cause Notices would show that no evidence has been relied upon and no reason has been given for classifying these items under heading 84.31. Even though the burden is not cast upon the Appellants, the Appellants produced evidence in the form of an affidavit by Professor A.S. Menon, a Chartered Engineer and Professor of Mechanical Engineering at Victoria Jubilee Technical Institute. Professor Menon visited the factory, observed the manufacturing process, discussed the process of installation of lifts and discussed each of the items of machinery manufactured by the Appellants as also the bought out items. After setting out and discussing the unique functions of each of the items of machinery manufactured by the Appellants, he came to the conclusion that the various items manufactured by the Appellants Professor Menon came to the conclusion that all these items taken together had the essential characteristics of lifts. The Department neither rebutted the conclusion/findings given by Professor Menon at any stage nor did they lead any evidence whatsoever, either on the issue of classification or whether the items of Lift machinery manufactured by the Appellants, when taken together, had the essential characteristics of lift. His conclusions therefore cannot be brushed aside and/or ignored.
(17) The appellant relies on the decision of the Appellate Administrative Tribunal of Australia in the case of Renault (Wholesale) Pty Ltd. where in the context of import of motor vehicle parts in CKD form along with a minor portion of Australian components, assembly of cars was undertaken. It was held that the imported components would constitute a car in as much as they had the essential character of a car, applying the provisions of Rule 2(a) of the interpretative rules. Reliance is also placed on the following decisions of the Tribunal:
i) Vinar Systems Ltd. vs. CCE, Calcutta [2001 (131) ELT 578(T)];
ii) Vishwa Industrial Co. (P) Ltd. vs. CCE, Calcutta [1999 (107) ELT 774 (T)]; and
iii) Flat Products Equipments (I) Ltd. vs. CCE, Mumbai III [2000 (115) ELT 629 (T)] In these decisions, this Tribunal had held that if parts of a machinery are cleared over a period of time, where the contract is for supply of the machinery, and the parts supplied taken together had the essential character of the machinery, then the goods cleared has to be classified as machinery only and not as parts.
(18) Without prejudice to the aforesaid, it is submitted that the assessments for the period August 1990 onwards till date are provisional. No demand could therefore have been made under section 11 A of the Central Excise Act. Therefore, once the classification issue is decided, the matter should be remanded back for quantification of the demand after finalisation of the assessments. After finalisation of the assessments, the Department would have to re-quantify the duty as per the Tribunal's order taking into consideration the quantum of duty-paid vis-`-vis the quantum of duty payable. It is well settled that once the assessments are provisional for one purpose, they are provisional for all purposes. The fact that the assessments were provisional on account of valuation and not on account of classification can make no difference whatsoever. It is also well settled that when the assessments are provisional there can be no show cause notice issued under section 11 A as the sine qua non for issuing a show cause notice under section 11 A is that there must be a short levy or non-levy from the relevant date. The fact that the relevant date has not come because the assessments are provisional and shows that no show cause notice can be issued under section 11 A that when the assessments are continuing to be provisional. The subsequent 10 show cause notices must be set-aside on this ground alone; and/or remanded for quantification in accordance with the decision of this Hon'ble Tribunal. It is submitted the Larger Bench of the Tribunal in the case of L. D. Textiles 2005 (190) E.L.T. 174 (T-L. B.) did not hold that demands can be raised even if assessments are provisional on some other account. Such a conclusion would be contrary to the following long line of judgements:
1. PMT Machine Tools Ltd 1991 (55) ELT 592 (T-LB)
2. CCE Vs IOC 2002 (141) ELT 334 (Mad)
3. Kerala Electric Lamp Works 1988 (33) ELT 771(T)
4. Salica Electronic Ltd 1998 (98) ELT 561(T)
5. Orient Pre-stressed Products Ltd 2003 (159) ELT 1161 (T)
6. Mahesh India 2003 (151) ELT 605(T)
7. Tisco Ltd 1999 (114) ELT 461(T)
8. Denso Haryana Pvt Ltd 2004 (176) ELT 548 (T) (19) Without prejudice to the aforesaid, in any event the demand raised in the show cause notice dated 5.4.1991 is totally time-barred. The allegation in the show cause notice was that the Appellants had suppressed the fact that they manufactured parts and components which constituted only 50% to 70% of the value of the complete lift. This is untenable. The Appellants had been manufacturing lift machinery since 1975 and there has been no significant change. There has been continuous interaction and correspondence between the Appellants and the department since 1978. The classification lists had been approved right up to 1991-92. The departmental officers have visited the factory and observed the manufacturing process. The documents on record show that there was no suppression whatsoever and that the Department was fully aware of the entire facts. The Commissioner has not dealt with the specific allegations raised in the show cause notice but has merely purported to deal with the Appellant's submission that the classification lists having been approved, there was no suppression. It is clear from what has been set out in the appeal that the department was fully aware of all the facts. The extended period of limitation cannot be invoked when classification lists had been approved and the Department is fully aware of all facts as then there can be no suppression of facts leave alone suppression with intent to evade duty. This is clear from the judgement of the Supreme Court in the case of Pahwa Chemicals Pvt Ltd Versus CCE 2005 (189) ELT 257 (SC) and O. K. Play. Further this is a pure dispute regarding classification. It is well settled that in a dispute regarding classification the Department cannot allege suppression with intent to evade duty or invoke the longer period of limitation. In the circumstances it is submitted that this demand in any case is liable to be set-aside. In any event, in respect of the last five show cause notices where the aggregate demand was Rs 62, 95, 720/-, no penalty could have been imposed as no penalty was demanded in any of the show cause notices. The appeal should therefore be allowed.
4. Shri. K.M. Mondal, Special Consultant appeared on behalf of Revenue and made the following submissions.
(i) As per the appellants own admission, it had manufactured about 30 items of lift machinery/sub-assemblies/components which were cleared to the site of installation over a period of time and then complete lift was erected on site by using these manufactured items together with other bought out components and parts, such as, guide rails, wire ropes, cage, collapsible gates, etc. According to the appellant, these 30 items of lift machinery/sub-assemblies/components manufactured by it are appropriately classifiable under Chapter sub-heading 8428.00 of the Central Excise Tariff Act, 1985 and the parts & components supplied for maintenance of the lifts are classifiable under Chapter sub-heading 8431.00 of the said Tariff Act.
(ii) The relevant Tariff entries under the heading 84.28 and 84.31 of the Central Excise Tariff as they stood at the relevant time read as under:
Heading No. Sub-heading No. Description Rate of duty 84.28 8428.00 Other lifting, handling, loading or unloading machinery (for example, lifts, escalators, conveyors, teleferics) 15% 84.31 8431.00 Parts suitable for use solely or principally with the machinery of heading Nos. 84.25 to 84.30 20%
(iii) On a plain reading of the above description of the goods under heading 84.28, it would be quite clear that a lifting machinery (i.e. a lift) would be classifiable under heading 84.28, while the parts suitable for use solely or principally with the lift machinery would be classifiable under heading 84.31.
(iv) Admittedly, the appellant manufactured about 30 items of the Lifting Machinery which are (i) Machine Unit, (ii) Brake Unit, (iii) Control Board (or Controller), (iv) Car & Counterweight Guide Shoe Assembly, (v) Floor Selector, (vi) Speed Governing Assy, (vii) Safety Gear Assy., (viii) Carriage Assy., (ix) Levelling Vane with Bracket Assy. (x) U Sheave Assy., (xi) Floor Sensor Assy., (xii) Sprocket Assy., (xiii a) CP Boxes Assy., (xiiib) LP Boxes Assy., (xiiic) PI Boxes Assy., (xiiid) OLWD Indicator Boxes Assy., (xiv) Gate Lock Assy., (xv) Shaft Information Assy., (xvi) Door Drive Unit Assy. (xvii) Top Track Assy., (xviii) Retiring Cam Assy., (xix) Hanger Plate Assy., (xx) Divertor Pulley Assy., (xxi) Main Limit Switch Assy., (xxii) Reed Switch Assy., (xxiii) PCB Assy. For Control Board, (xxiv) Release Lever Assy., (xxv) PCB Box Assy for OLWD, (xxvi) Junction Box Assy. & (xxvii) Tension Device for Speed Governor & Floor Selector.
(v) According to the appellant, these items, when put together, would give the essential character of the lift in terms of Rule 2(a) of the Interpretative Rules of the Schedule to the Central Excise Tariff.
(vi) Rule 2(a) of the Interpretative Rules reads as follows:
Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled. Ld. Sr. Counsel for the appellant relies upon the first part of the Rule and says that the parts & components manufactured by the appellant, when put together, would have the essential character of the lift.
(vii) In the case of CC, New Delhi V/s. Sony India Ltd. 2008 (231) ELT 385 (SC), while interpreting Rule 2(a) of the Interpretative Rules of the Customs Tariff which is analogous to Rule 2(a) of the Interpretative Rules of the Central Excise Tariff, the Honble Apex Court has held that the Rule must apply as a whole. Dissection of the Rule is not possible. In the present case, admittedly the appellant had manufactured about 30 items of the lifting machinery and by using these manufactured items together with a large number of bought out parts and components, it had constructed the lift at the site of the customers. It is simply unthinkable that the parts and components manufactured by the appellant, when put together, would have the essential character of the complete lift.
(viii) The bought out items which are used together with the manufactured items for construction of the lift are - (i) Fly wheel, (ii) controller (24), (iii) card road panels, (iv) apron of car, (v) landing door panels, (vi) spring buffer, (vii) fiction sheave pedestal bracket, (viii) bed plate, (ix) deflection pully, (x) u sheave, (xi) speed governor, (xii) counterweight guide, (xiii) grail bracket, (xiv) car guide rail bracket, (xv) hoisting ropes, (xvi) guide rail for car, (xvii) guide rail, (xviii) main limit switch, (xix) car guide shoe, (xx) top channel, (xxi) lift car, (xxii) car sling, (xxiii) bottom channels, (xxiv) ropes, (xxv) trailing cables, (xxvi) rope suspension bolts, (xxvii) counterweight guide shoe, (xxviii) counterweight frame, (xxix) counterweight blocks, (xxx) compensating chain, (xxxi) weighted pully for speed governor, etc. These bought out parts & components are also very essential. Without these essential parts & components, construction of a complete lift is just not possible.
(ix) Admittedly, the manufactured parts & components of the lifting machinery were cleared to the site of installation over a period of time for construction of the lift. It is a settled position of law that the goods have to be assessed in the form in which they are presented for assessment and classification. Needless to say, in the present case, the goods were presented for assessment and classification at time of clearance from the factory only as parts and components of the lifting machinery. Therefore, they have to be assessed as parts only. Consequently, Rule 2(a) of the Interpretative Rules will have no application to this case. Rule 2(a) would be applicable only when all the components which are intended to make a final product are presented at the same time for the purpose of clearance from the factory. Paras 11 & 12 of the afore-cited judgment of the Honble Apex Court in Sony Indias case may be usefully referred to and relied upon in this regard.
(x) It has been the consistent view of the Tribunal that the goods have to be assessed and classified in the condition in which they are cleared from the factory. In this connection, reliance is also placed on the following decisions of the Tribunal :
(1) Tisco V/s. CCE, Calcutta 2001 (131) ELT 173 (T).
(2) Procter & Gamble India Ltd. V/s. CCE, Indore 2006 (206) ELT 913 (T).
(3) CCE, Nasik V/s. Mahindra & Mahindra Ltd. 2010 (262) ELT 366 (T).
(4) CCE, Mumbai V/s. Ashida Electronics Pvt. Ltd. 2001 (272) ELT 305 (T).
(xi) The appellant also relied upon the Affidavit of Shri A.S. Menon, Chartered Engineer & Professor of Mechanical Engineering at VJTI, Mumbai in support of its contention that the parts & components manufactured by it, when put together, will have the essential character of a lift. As seen from the affidavit, it only states that the items manufactured by the appellant are essential & critically important for proper & safe functioning of the lift. It does not say that other bought out items are not required or essential for manufacture of lifts. Therefore, it does not advance the case of the appellant.
(xii) It is submitted that in a similar set of facts, the Honble Tribunal has already decided the issue in the case of Otis Elevator Co. (India) Ltd. V/s. CCE, Mumbai-V - 2007 (208) ELT 114 (T) & CCE, Chennai V/s. Kone Elevators India Ltd.- 2001 (138) ELT 635 (T) holding that parts of Lifts cleared over a period of time under a single contract are classifiable under Chapter Heading 84.31. However, ld. Sr. Counsel for the appellant contends that the Tribunal did not consider the Boards Circular No. 16/89 dtd. 19/4/1989 regarding the classification of Lifts in the case of Otis Elevator Co. (India) Ltd. & Kone Elevators India Ltd. Therefore, he suggested that the matter be referred to the Larger Bench. It would, therefore, be necessary to have a look at the Boards Circular. For proper appreciation, the relevant portion of para 2 of the Circular is reproduced below :
.2. Where parts or components of lifts are brought together at site, it cannot be viewed as manufacture of lift in unassembled/disassembled condition since the process of purchasing and transportation is not a process of manufacture. Accordingly, it was decided that :
(i) Duty would be chargeable on parts and components leaving the factory in the condition in which they are removed. Thus, if together they can be regarded as lifts in unassembled/disassembled condition or having the essential character of lifts, they would be assessed under heading 84.28, otherwise such parts and components would be assessed under heading 84.31.
(ii)
(xiii) On a plain reading of the reproduced portion of the Circular, it is very difficult to accept the contention of the appellant that the parts and components manufactured and cleared by it from the factory over a period of time would have the essential character of Lifts. From the Circular, it is very clear that if all the parts together are removed from the factory, only then they can be regarded as Lifts in un-assembled/dis-assembled condition or having the essential character of the Lifts. The Circular does not envisage that if the parts and the components of Lifts are removed from the factory over a period of time, they will have the essential character of Lifts. Therefore, the Boards Circular is not relevant for the present purpose. Consequently, the suggestion that the matter may be referred to the Larger Bench does not merit any acceptance. The goods manufactured by the appellant are rightly classifiable under ch. Sub-heading 8431.00.
(xiv) Ld. Sr. Counsel for the appellant also relied upon the various case laws in support of his contention that in similar facts and circumstances Rule 2(a) of the Interpretative Rules has been applied by the various Benches of the Tribunal. The said case laws are discussed herein below:
I. In the case of Vinar Systems Ltd. V/s. CCE, Calcutta-II 2001 (131) ELT 578 (T), the appellant was engaged in the manufacture of Conveyors and Material Handling Equipments. As it was impossible and impracticable to clear these heavy machineries in a fully finished form, the same were cleared in SKD or CKD condition. There was, however, no dispute that the parts cleared from the appellants factory would constitute complete Material Handling Equipments. Therefore, it was rightly held by the Tribunal that Conveyors and Material Handling Equipments cleared in SKD or CKD condition are classifiable under Chapter sub-heading 8428.00 and not under sub-heading 8431.00. The facts of this case have no application to the facts of the case on hand. Admittedly, in the case on hand, only some of the items of lifting machinery were manufactured by the appellant and not all the parts that constituted a complete lifting machinery.
II. In the case of Vishwa Industrial Co. (P) Ltd. V/s. CCE, Calcutta-II 1999 (107) ELT 774 (T), the appellant was engaged in the manufacture of Conveyor Systems & Mill rejects Handling Systems along with some of their parts and components. It filed classification lists claiming classification of Conveyors under sub-heading 8428.00 of the Central Excise Tariff and parts under sub-heading 8431.00. It also purchased some parts from the market and thereafter the Conveyor System was cleared from the factory in SKD or CKD condition on payment of duty on the full value of the Conveyor System for which the order was placed by the customer. Hence the Tribunal accepted the classification under Sub-heading 8428.00 of the Conveyor System cleared by the appellant in SKD or CKD condition. The facts of this case are clearly distinguishable from the facts of the case on hand.
III. In the case of Flat Products Equipments (I) Ltd. V/s. CCE, Mumbai-III 2000 (115) ELT 629 (T), the appellant was manufacturing Metal Rolling Mills and Galvanising Lines. Rolling Mills were classifiable under sub-heading 8544.10, while their parts were classifiable under sub-heading 8455.90 carrying higher rate of duty. Similarly, galvanizing lines were classifiable under sub-heading 8479.10, while their parts were classifiable under sub-heading 8479.90 carrying higher rate of duty. Under contracts with the customers, the appellant was required to supply complete rolling mills and galvanizing lines. However, because of heavy weight and complex nature of the machinery, these were cleared in parts separately for the sake of convenience of transport and installation. The claim of the appellant that the goods cleared were complete machines classifiable under sub-heading 10 was accepted by the Tribunal as against the Departments classification as parts under sub-heading 90. The facts of this case have, therefore, no application to the facts of the case on hand.
IV. Ld. Sr. Counsel also cited a decision of the Australian Administrative Tribunal in the case of Renault (Wholesale) Pty. Ltd. & Collector of Customs. In that case, certain motor vehicle parts were imported from France for assembly with some locally produced parts. The dispute was whether these parts should be classified as Motor Vehicles or as parts of Motor Vehicle. On the basis of the evidence, the Tribunal found that Australian components comprised 16 per cent of the value of the Renault Vehicle and 25 per cent in value of Peugeot Vehicle components used in the final assembly. Further on the evidence, the Tribunal also found that the goods were regarded commercially as CKD motor vehicles (Page 116 of the report). Hence it was held that the subject goods had the essential character of motor vehicles. The facts of this case are quite distinct and different from the facts of the case in hand. Hence it does not help the appellant.
(xv) The 2nd Show cause notice dtd. 5/4/1991 for the period April, 1986 to August, 1991 was issued two days after the 1st Show cause notice dtd. 3/4/1991. It is submitted that the Show cause notice invoking extended period of limitation can be issued after a notice had already been issued within the normal period of limitation. In this connection, reliance is placed on the decision of the Honble Tribunal in the case of Kapoor Lamp Shade Co. V/s. CCE, New Delhi reported in 2001 (136) ELT 376 (T).
(xvi) Since it is a case of mis-declaration of classification with a view to pay lower rate of duty, penalty under Rule 173Q of the erstwhile Central Excise Rules, 1944 is quite justified.
(xvii) It was contended on behalf of the appellant that the assessments are still provisional on account of valuation. Even so, demand can be raised as held by the Larger Bench n the case of L.D. Textiles as reported in 2005 (190) ELT 174 (T-LB).
In view of the foregoing submission, the appeal has no merit and hence, the same deserves to be dismissed and it is prayed accordingly.
5. In his rejoinder, the ld. Counsel for the appellant submitted that the Government of India had issued a Circular dated 19/4/1989 which categorically stated that duty would be chargeable on parts and components leaving the factory in the condition in which they are removed. Thus if together they can be regarded as lifts in unassembled/disassembled condition or having the essential character of lifts, they would be assessed under heading 84.28, otherwise such parts and components would be assessed under heading 84.31 The aforesaid circular was not considered by this Honble Tribunal in the judgements of Otis Elevator Company (India) Ltd v CCE 2007 (208) E.L.T. 114 (T) and CCE vs Kone Elevators 2001 (138) ELT 635 (T) where the Honble Tribunal upheld the order of the Commissioner (Appeals) that the manufactured items would be classifiable under heading 84.31. Merely, because the lifting machinery manufactured by the Appellants form part of the lift to be erected at site, their clearance are not in the form of parts falling under heading 84.31 as erroneously contended by the Department and held by this Hon'ble Tribunal in the Otis Elevator case (surpa). The interpretation placed by this Hon'ble Tribunal in the Otis case on headings 84.28 and 84.31 render heading 84.28 otiose. On a correct interpretation heading 84.28 will cover items of lifting machinery cleared for the setting up of a lift provided they have the essential character. Heading 84.31 will cover only parts cleared for repair or maintenance. The contention in Otis case that Otis was clearing parts and therefore are classifiable under heading 84.31 renders heading 84.28 nugatory and otiose and does not take into account the 1st part of Rule 2(a). The matter, therefore, deserves to be referred to a Larger Bench of this Hon'ble Tribunal.
5.1 The burden of classification is on the Department. The Department has produced no evidence whatsoever, either in the show cause notice or in the order of the Respondent. In the circumstances, it is submitted that the Departmental Special Consultant ought not be allowed to produce evidence at this stage of the appeal by relying on documents which are not on record.
5.2 Referring to the schematic diagram in the Appellant written submissions, it has been contended by the Revenue that several items are bought out items and that if only the manufactured items are put together, it would not look like a lift. The items of machinery manufactured by the Appellants do not have to look like a lift. They only have to have the essential character of lifting machinery, i.e., it must have the distinctive nature of lifting machinery which it does.
5.3 With regard to the issue of provisional assessment, the contention of the Revenue is untenable. The Appellants had given a bond and bank guarantee in terms of Rule 9B. This is clear from the communication dated 16/10/2001 addressed by the Deputy Commissioner of Central Excise to the Appellants stating that the issue of finalisation is the determination of the value of the products manufactured by the Appellants, whether the value should be the contract value for the entire lift or the value of the individual part along with the profit margin to be taken for the purposes of charging Central excise duty and that for this purpose bonds and bank guarantee had been given by the Appellants. The following correspondence exchanged between the Appellants and the Department categorically show that the assessments were provisional:
(1) Communication dated 17/9/2001 from the Superintendent of Central Excise, calling the Appellants for a personal hearing Re: finalisation of provisional assessment in respect of lift machinery from 1989 onwards.
(2) Letter dated 15/10/2001 from the Appellants to the Deputy Commissioner regarding the finalisation of provisional assessment in respect of lifting machine requesting him to indicate the basis on which he intended to finalise the provisional assessment.
(3) Copy of a price list that has been assessed provisionally. The price list state that the duty on the goods removed under gate passes GP1 Nos. 599 to 699 and included in this return has been assessed provisionally under Rule 9-B and the provisions of the said rules shall apply for recovery of deficiency in or refund of excess duty.
(4) Copies of the bond, bank guarantees, communication dated 16/10/2001, 17/9/2001 and 15/10/2001 and the price lists.
Accordingly it is prayed that the submissions made by the Revenue are both factually and legally incorrect and therefore, the appeal should be allowed.
6. We have carefully considered the rival submissions.
6.1 The main question for consideration in this appeal is whether parts and components manufactured and supplied by the appellant, M/s.Bharat Bijlee Ltd. to their buyers would constitute a lift classifiable under CETH 84.28 or they would merit classification under CETH 84.31 as parts suitable for use solely or principally with the lift machinery. The competing entries at they stood at the relevant time are re-produced below:-
Heading No. Sub-heading No. Description Rate of duty 84.28 8428.00 Other lifting, handling, loading machinery (for example, lifts, escalators, conveyors, teleferics) 15% 84.31 8431.00 Parts suitable for use solely or principally with the machinery of heading No. 84.25 to 84.30 20% 6.2 One of the arguments put forth by the appellant is that CETH 84.31 covers parts suitable for use solely or principally with the machinery of headings 84.25 to 84.30 and the word with used indicates that the lift machinery is already in existence and the parts to be used with that machinery is sought to be classified under the said heading and not parts of lift machinery. Both the words with and of are prepositions. According to English Grammar, a preposition is a word that shows the relationship of one word in a sentence to another word. The four things that prepositions tell are 1) where something is (location); 2) where something is going (direction); 3) when something happens (time); and 4) the relationship between a noun or a pronoun and another word in the sentence. In the context of the tariff, both the prepositions with and of indicate the relationship between the parts and the machinery and have been used for the same purpose. In other words parts of the machinery and parts used with the machinery convey the same meaning. Different prepositions have been used only for the reason that simple grammar requires it. A similar issue came up for consideration before the honble Bombay High Court in the context of usage of different prepositions in Dhirajlal Valji Kotak vs. Ramachandra Janglaji Gujar [AIR 1970 Bom 290] and the following paragraph from the said decision is quite revealing:
Lastly, some emphasis was put by the counsel on the preposition for preceding the words human consumption in the definition of sale. The counsel contrasted it with the prepositions used in other clause for instance whether by wholesale or retail in contrast to for human consumption. We do not think that anything turns upon this distinction because the preposition for although it no doubt indicates for the purpose of, is not used in contradistinction with the preposition by in the earlier clause but because the requirements of simple grammar necessitate the use of that preposition. In the earlier clause, viz., whether for cash or on credit or by way of exchange, similarly three prepositions are used for, on and by because simple grammar requires it. No greater meaning therefore can be attached to the different prepositions used preceding the different clauses. The ratio of the above decision squarely applies to the facts of the case before us. The use of the preposition with was due to the requirement of grammar and nothing else. According to the Shorter Oxford Dictionary, one of the meanings of the word with (which accords here with the context) is part of the same whole. In other words, the phrases parts of machinery and parts suitable for use with the machinery convey the same meaning. Therefore, we do not find much substance in this argument put forth by the appellant.
6.3 As regards the reliance placed on Note 4 to section XVI, the said note states that 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 of Chapter 84 or 85, then the whole falls to be classified in the heading appropriate to that function. From the words employed, it is clear that all the individual components should contribute together and then the whole of the components would fall under the appropriate heading. The said note no where states that if individual components are cleared or presented separately, they would fall under the heading appropriate to the machinery. Further note 2(a) dealing with the classification of parts specifically excludes from its scope parts falling under heading 8431. Note 2(c) makes it abundantly clear that Parts suitable for use solely or principally with the machinery of heading No. 84.25 to 84.30 have to be classified under heading 8431 and nowhere else. Note 5 does not deal with classification of parts at all. Therefore, the contention of the appellant that as per Notes 2, 4 and 5 of section XVI, parts of lifts are classifiable under heading 8428 is baseless and contrary to the statutory provisions.
6.4 A schematic diagram of the lift and its components and the various parts manufactured by the appellant and supplied was given during the course of hearing and the same is reproduced below:
6.5 From the diagram given it may been seen that out of the 40 parts comprising the lift, the appellant has manufactured only 14 parts and these 14 parts have also been supplied not in a single consignment but in several consignments over a period of time. The question is whether these 14 parts can be said to have the essential character of a lift. As per the HSN explanatory notes pertaining to 84.28, the said heading covers lifting or handling machines usually based on pulley, winch or jacking systems and often including large proportions of static structural steel work, etc. These static structural elements (e.g. pylons specialized for teleferics, etc.) are classified in this heading when they are presented as parts of a more or less complete handling machine. The HSN explanatory note further states that lifts are usually operated by winch and cable, or by rams worked by water, air or oil. They are used for raising or lowering a passenger cage or goods platform between vertical guide bars, and are generally fitted with counter-balance weights. The control, stopping, safety, etc. equipment, whether or not electrical, is also classified in this heading provided it is presented with the lift itself. The heading also includes manually operated lifts.
6.6 From the HSN explanatory notes it is clear that the primary components of a lift are - 1) winch and cable, 2) passenger cage or goods platform, 3) vertical guide bars, 4) counter balance weights, and 5) control, stopping and safety equipment. In the case before us, from the schematic diagram submitted, it is clear that the appellant does not supply winch and cable, passenger cage or goods platform, vertical guide bars and counter balance weights. What the appellant has supplied comes under the category of control, stopping and safety equipment consisting of electric motor, brake assembly, hoisting motor and machine unit, speed governor and weighted pulley and the controller. In addition, main limit switch, car guide shoe, weighted pulley for speed governor, shaft information assembly, car push button box, position indicator and landing push button box have been supplied over a period time. These various elements which have been manufactured and supplied do not provide the essential character of a lift which at least should have passenger cage or goods platform and winch and cable mechanism for movement of the lift. It also does not have the vertical guide bars, which guides the movement of the lift. It also does not have the counter balance weights which facilitate the stopping of a lift. As per the HSN explanatory notes, the control, stopping, safety, etc. equipment (whether or not electrical) is classifiable in heading 84.28, provided it is presented with the lift itself. In other words, if these equipment are not presented with the lift, they will not merit classification under CETH 84.28 but under the heading appropriate to them. In the facts of the case before us, it is clear that the various control, stopping and safety equipment were not presented with the lift at all. It is also an admitted position that the lift car/cage was not manufactured by the appellant nor the ropes/cables for pulling the lift. The appellant also did not manufacture the guide rail or the counterweights which regulate the movement of the lift. Even the parts of the lift machinery manufactured by the appellant were cleared not in one consignment but were in fact cleared in several consignments. In this undisputed factual matrix, the items manufactured and supplied by the appellant do not constitute lift in an unfinished or incomplete form having the essential character of a lift and we hold accordingly.
6.7 From the ISI standards produced by the Revenue during the course of hearing and relied upon, it is seen that the essential components of a lift consist of i) lift guide rails and guide shoes, ii) Lift car frame and car, iii) counterweight and suspension, iv) safety gears and governors, v) lift retiring cam, vi) lift doors and locking devices and contacts, vii) lift machines and brakes, viii) lift wire ropes, ix) controller and operating devices for lifts movements. The ISI specifications also match well with the HSN explanatory notes as to what constitutes a lift. Out of these nine main components, the appellant has not manufactured and supplied lift guide rails, lift car frame, car, counterweights and suspension, lift doors, locking devices and lift wire ropes. Only guide shoes, safety gears and governors, lift machines and brakes and control and operating devices for the lifts, have been supplied. These by themselves cannot constitute a lift in an incomplete form especially when they are not supplied together with the lift car and the pulley mechanism. Further, these parts have been supplied not in a single consignment but cleared over a period of time. Therefore, the goods supplied by the appellant can be considered only as parts suitable for use solely or principally with the lift machinery, meriting classification under CETH 84.31.
6.8 Further, from the technical literature downloaded from the website of the Department of Mechanical Engineering, University of Hong Kong, it is seen that the major lift components are (i) Prime mover (Electric Machine or Hydraulic Pump), (ii) lift car (car frame, the car itself), (iii) counterweight (if used), (iv) guide rails, (v) entrances/doors, (vi) safety gear and over speed governor, (vii) buffers (energy accumulation, energy dissipation), (viii) roping systems (compensating ropes, traction systems), (ix) car and landing fixtures (buttons, indicators and switches). It is relevant to note that the items mentioned in the web-site is entirely in tune with the HSN explanatory notes and the ISI specifications. Out of these, only the prime mover, safety gear and over speed governor, car and landing fixtures have been manufactured and provided by the appellant. The remaining essential components such as lift car, counter weight, guide rail, entrances/doors, roping systems and buffers have not been manufactured by the appellant. When bulk of the components have not been manufactured and supplied, we do not understand how the goods supplied can be said to have the essential character of a lift. They can only be parts and components of the lift.
6.9 The learned Counsel for the appellant had taken objection to the Revenue relying upon the ISI Standards and technical literature down loaded from the web sites. We do not find any merit in this objection. All the materials relied upon are in the public domain. They have been submitted to have a clear, better and correct understanding of the issue. The appellants have been given a copy of these documents also and an opportunity to rebut the same. Therefore, no prejudice has been caused to the appellant. In many of the orders of the higher courts, such as high courts and the honble apex court, literature available in the website or in technical publications have been relied upon in classification matters even though they did not form part of the proceedings before the lower authorities. Reliance has been placed on these materials only to have a clearer and better understanding of the issues and to further the object of finding the truth. In any case, this Tribunal has the power to admit additional evidence under Rule 23 of the CESTAT Procedure Rules, 1982, if it is of the view that they are relevant to the proceedings before it. In the present case, we find that the material relied upon by the Revenue are very useful for the classification of a lift and hence we have taken the same on record. Therefore, we over-rule the objection raised by the appellant in this regard as lacking in merits.
6.10 The installation of a lift is governed by various rules and regulations and the various components of the lift have to satisfy the specifications prescribed in the Indian Standards. In fact, the Bombay Lift Rules, 1958 itself prescribes Standards for landing gates and doors, locking devices, lift cars, lift car frame, counter weights, car guides, buffers, suspension ropes, emergency safety devices, over speed governors, lift machines, controllers, sheaves and drums and so on. Many of these parts comprising a lift, which are essential for the functioning of the lift and for which standards have been laid down, have not been manufactured and supplied by the appellant. Therefore, from the Bombay Lift Rules, 1958, itself, it can be seen that what has been supplied by the appellant does not constitute a lift either in an incomplete form nor does it have the essential character of a lift. They are only components and parts of a lift. Therefore, the contention of the appellant that what they have supplied is a lift in incomplete form having essential character of the lift totally fails. The items supplied do not constitute a lift falling under CETH 84.28 either in an incomplete form or having the essential character. They can only be considered as parts and components falling under CETH 84.31 and we hold accordingly.
6.11 The concept of essential character can also be seen from certain examples. A motor vehicle chassis may be capable of auto-movement. But can it carry a passenger or goods without the body. The answer would be a clear NO. Therefore, can we say that a motor vehicle chassis can be classified as a motor vehicle. The answer will be in the negative. In fact the tariff itself recognizes this fact and has provided a separate heading for automobile chassis. Let us consider another example. A mono-block pump set consists of an electric motor (the driver) and the pump. Without the motor, the pump cannot function. Therefore, can we say that an electric motor has the essential character of a pump. Here again the answer would be NO. On the same logic, the prime mover, safety gear and over speed governor, car and landing fixtures, by themselves do not have the essential character of a lift without the lift car, car frame, guide rails, counter-weights, cables/ropes, etc., even though they may be essential for the functioning of the lift.
6.12 The appellants have contended that as per the expert opinion tendered by Prof. Menon of VJTI, the parts manufactured by the appellant have the essential character of a lift though it is incomplete. We have perused the affidavit of Prof. Menon. The said opinion does not take into account the HSN explanatory notes which clearly spells out what are the essential components of a lift nor does it consider the ISI standards which deal with the subject matter. The said report also does not consider the Bombay Lift Rules and the specifications given therein. In other words, the said expert opinion does not consider the commercial understanding as to what constitutes a lift nor does it consider the statutory requirements/definitions of a lift. HSN reflects the commercial understanding based on international trade practice. ISI standards and the Bombay Lift Rules lay down the statutory requirements. Any opinion which does not consider these aspects, cannot have relevance for the purpose of tariff classification. Tariff classification is based on commercial understanding/trade parlance coupled with the statutory definitions/requirements. In view of the above, we are of the considered view that the said expert opinion cannot be relied upon for the purpose of tariff classification.
6.13 As regards the contention of the appellant that Rule 2 (a) of the General Interpretative Rules would apply to the facts of the case, this issue needs examination at some length. Invocation of General Interpretative Rules would be required only if the tariff heading and the chapter and section notes are not sufficient for the purpose of classification. In Simplex Mills Co. Ltd. case [2005 (181) ELT 345 (SC)], the honble Apex Court laid down the principle as follows:-
11. The rules for the interpretation of the Schedule to the Central Excise Tariff Act, 1985 have been framed pursuant to the powers under section 2 of that Act. According to Rule 1 titles of Sections and Chapters in the Schedule are provided for ease of reference only. But for legal purposes, classification shall be determined accordingly to the terms of the headings and any relevant section or chapter Notes. If neither the heading nor the notes suffice to clarify the scope of a heading, then it must be construed according to the other following provisions contained in the Rules. Rule 1 gives primacy to the Section and Chapter Notes along with terms of headings. They should be first applied. If no clear picture emerges then only can one resort to the subsequent rules. As per the description of heading 84.28, the said heading covers machinery for lifting, handling, loading or unloading machinery. Parts, which are suitable for use solely or principally with the above machinery, are classified under heading 84.31. Thus from the tariff description itself, it is clear that parts of lift machinery are classifiable under CETH 84.31 and there is no need to invoke any other rule for the purpose of classification.
6.14 Assuming but not admitting that Rule 1 does not apply, let us see whether Rule 2(a) of the interpretative rules is applicable to the facts of the case as contended by the appellant. The said Rules reads as follows:
Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.
The claim of the appellant is that as presented, the items supplied by the appellant would constitute an incomplete or unfinished lift and has the essential character. It is a fact on record that the various parts and components of the lift manufactured by the appellant did not constitute the complete lift and several essential components were missing. The parts were also not cleared together but were cleared over a period of time. Therefore, as presented, they did not constitute an incomplete or unfinished lifts having the essential character. Excise duty liability arises at the time of removal of the goods from the factory and the goods have to be assessed to duty in the form in which they have been cleared. What happens subsequent to clearance from the factory is of no consequence.
6.15 The appellant has placed reliance on the decision of Administrative Appeals Tribunal of Australia in the case of Renault (Wholesale) PTY Ltd vs. Collector of Customs. The facts of the said case are that motor vehicle parts were imported for assembly with a minor proportion of Australian components into motor vehicles. The importer contended that the parts though incomplete and unfinished had the essential character of motor vehicles and should be classified as such. Revenue contended that the parts lacked that essential character and should be classified as motor vehicle parts. The Tribunal held as follows:-
On the evidence we are of the view that the subject goods had the essential character of motor vehicles for the transport of persons, goods or materials of a kind operated by self-contained power, albeit unassembled motor vehicles. We are of the view that the type and quantity of work required to be done in Australia to the imported goods to form motor vehicles was consistent with the identity of the goods being unassembled motor vehicles, though unfinished vehicles. Indeed, no evidence was put to the contrary. Rather, the evidence was that the goods were regarded commercially as CKD motor vehicles. We are of the view that, looked at collectively, the goods were sufficiently committed to assembly into motor vehicles of the designated type and were sufficiently complete to be identified as belonging to the specified class and no other. The above conclusion was arrived at based on the evidence available. In the case before us, as we have already noted earlier, many essential components of the lift are lacking and even the components supplied were not presented together but cleared over a period of time. Therefore, the ratio of the above decision does not apply.
6.16 As regards the reliance placed on the Vishwa Industrial Co. (P) Ltd.(supra), the issue for consideration was whether the conveyer system supplied by the appellant against a specific order would merit classification under CETH 84.28 or as parts/spares of such cover under CETH 8431. The appellant therein the manufactured some parts in their own factory and purchased some other parts from the market. The conveyor system thereafter was cleared from the factory in a knocked down condition on payment of duty on the entire value of the goods which was for a complete conveyor system. The question was whether the goods supplied should be considered as conveyor system falling under CETH 84.28 or as parts or components of conveyor system falling under CETH 84.31. It is very important to note here that the entire system comprising the manufactured parts and the bought out parts were cleared together from the factory as a complete system. It was in that context it was held that merely because some parts have been bought out, it cannot be held that the system supplied were only parts but not complete system in itself. In the case before us, the bought out parts were either supplied directly to the site or were cleared separately. The bought out parts were not cleared together with the manufactured parts so as to constitute a complete lift machinery. Further duty liability was discharged only on the manufactured parts. Thus, the facts are distinguishable and hence, the ratio of the said decision cannot be applied. As regards the reliance placed on Flat Products Equipments (I) Ltd. case, in the said case a rolling mill and galvanizing lines were cleared in parts in unassembled condition. In that case also both the bought out parts and the manufactured parts were cleared from the factory and the bought out parts were used in the manufacture of final products and Modvat Credit had been taken on the parts. Therefore, it was held that the goods supplied was a complete machine in itself and not parts. It was in that context, it was held that the item should be classified as a rolling mills in terms of Rule 2 (a). In the facts of the case before us, this is not the position. It is not the case of the appellant that they utilised the bought out parts for manufacture of any final product nor the bought out parts were cleared along with the manufactured parts so as to constitute a complete lift machinery. So is the position in respect of the decision in the Vinar Systems. Thus, these decisions are distinguishable on facts and therefore, cannot be relied upon.
6.17 The honble Supreme Court in the case of CCE v. Alnoori Tobacco Products, 2004 (170) ELT 135 (SC) held that "Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed.These observations must be read in the context in which they appear to have been stated ............... Judges interpret statutes, they do not interpret judgments. They interpret words of statute, their words are not to be interpreted as statutes". The Supreme Court further observed that "circumstantial flexibility, one additional or different fact may make a word of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper". In view of the above legal position, we are of the considered view that the reliance placed by the appellant on the decision of the Australian Tribunal and of this Tribunal in the case of Vishwa Industrial Co. and Flat Product Equipments is of no avail as the facts involved in those cases and in the present case are substantially different and hence distinguishable.
6.18 On the contrary, in a more or less identical case pertaining to Otis Elevator Company (supra), this Tribunal held that parts of lifts/escalators cleared over a period of time under a single contract cannot be considered as lifts or escalators, as such lifts/escalator come into existence only at the customers end and therefore, they merit classification under 84.31 and not under 84.28. Similarly, in Kone Elevators India Ltd. case relied upon by the Revenue, an identical issue came up for consideration wherein parts of the lift manufactured and parts which were bought out, were supplied. The question for consideration was whether the parts manufactured and supplied could be construed as constituting a lift and it was held that since the lift comes into existence only at the site of installation and becomes functional therein, the parts supplied cannot be considered as the lift or lift machinery but has to be considered as parts falling under CETH 84.31. The argument that these decisions did not take into account the Boards Circular dated 19/04/89 lacks merit for the reason that the said circular, in fact, supports the view take by the Tribunal rather than being contrary to these decisions. In the Sony India Ltd. case (supra), the Apex Court had an occasion to examine the scope of Rule 2 (a) of the of the General Rules for Interpretation. The question for consideration was whether colour television components (CTV) in CKD condition should be assessed as a CTV especially when the goods were imported under 94 different consignments. It was held by the Honble Apex Court that Rule 2 (a) would come into picture only if all components intended to make a final product are presented at the same time for Customs clearance. If they are not presented together, the goods will have to be assessed as parts of CTV and not as CTV. Similarly in the case of Pioneer Embroideries Ltd. a question arose whether an embroidery machine which did not have computer attached to it could be classified as a computerized embroidery machine when these are imported separately. It was noticed that the Jacquard Control Devices which provides for the computerization were installed on the embroidery machine after importation and therefore, it was held that the embroidery machine cannot be treated as a computerized embroidery machine by resorting to Rule 2(a). In the light of these decisions, it is clear that application of Rule 2 (a) will arise, when the parts comprising of a machine are supplied/presented together. If they are cleared over a period of time or are not presented together, they cannot be considered as constituting the entire machine. In view of this legal position, we are of the considered view that parts of lift machinery manufactured and supplied by the appellant do not constitute an incomplete or unfinished lift nor such parts have the essential character of a lift. Therefore, they cannot be considered as a lift machinery falling under CETH 84.28. The said parts supplied can only be classified under CETH 84.31 as parts/components of the lift machinery. Therefore, the classification of the parts under CETH 84.31 by the adjudicating authority is correct in law and cannot be faulted.
6.19 From the documents available on record and those tendered at the time of hearing, it is seen that the assessments were provisional from 1-9-1990 onwards on account of non-finalisation of price lists. Therefore, the question of time bar would not arise in respect of demands for the period from 1-9-1990 onwards. However, as regards the demand for the period August, 1986 to August, 1990 is concerned, the demand would be time-barred for the reason that the entire issue regarding classification dispute was well known to the department and the department had also approved the classification list classifying the parts under CETH 8428 since 1987 onwards. In these circumstances, the allegation of suppression made in the show cause notice dated 5-4-1991 would not sustain and we hold accordingly. Thus the demand for the period August 86 to August 90 is clearly time barred.
6.20 The next question for consideration is whether the impugned demand could be confirmed when the price lists themselves were provisionally approved and had not been finalized. The period of provisional assessment starts from 1-9-1990 onwards. The appellant has submitted copies of the price lists of the various goods supplied by them during the period of demand involved. As per the assessment memorandum, it is seen that the price lists were approved provisionally and the goods were also assessed to duty provisionally as per the endorsements made by the jurisdictional Range Officer. From the various correspondence exchanged between the department and the appellant assessee, it is seen that the assessments were provisional, inasmuch as details were sought for from the appellant for finalization of the assessment. In as much as these details were not produced, only classification under CETH 84.31 was finalized. In these circumstances, the adjudicating authority should have confirmed the duty demand only after finalization of the prices by the competent authority. Therefore, there is merit in the appellants contention that the duty demand should have been confirmed only after the finalization of the price lists. Since the assessments were provisional, the question of time bar would not arise. In these circumstances, we remand the matter back to the adjudicating authority for the limited purpose of finalization of the prices for the purpose of valuation and thereafter, determine the duty demand by classifying the goods under CETH 84.31. The appellant is also directed to furnish the relevant details required for finalization of prices without any further delay.
6.21 As regards the question of penalty, the same would not arise inasmuch as the issue involved relates to classification of the goods manufactured by the appellant. It is a settled position in law that in respect of classification disputes, where the assessee has classified the product as per his understanding and the department proposes to classify differently, the question of imposing any penalty would not arise. Therefore, imposition of penalty on the appellant is not warranted in the facts of the present case.
6.22 There are a few decisions cited by the appellant and the Revenue which we have not adverted to specifically in the foregoing discussion. This is for the reason that they are not really required for consideration of the issues involved and the decisions which are relevant have been examined and considered by us.
7. To sum up, we hold that the parts and components of the lift machinery supplied by the appellant merit classification under CETH 84.31 as is stood at the relevant time. The duty demand period for the period August 1986 to August, 1980 is clearly time-barred and accordingly we set aside the same. For the period from 1-9-1990 onwards, inasmuch as the price lists and the consequent assessment were provisional, the matter is remanded back to the adjudicating authority for finalization of prices and thereafter, quantifying the duty demand liable to be paid by the appellant. Since the matter relates to interpretation of tariff, the imposition of penalty is not warranted. Thus, the appeal is partly allowed in the above terms.
(Pronounced in Court on ..) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 2