Judgment:
1. This is an appeal against the order of Collector (Appeals), New Delhi dated 31-1-1986.
2. Learned Counsel stated that the appellants are engaged in the manufacture of goods known as Generator and Generating Set in the common parlance. They have been clearing their goods on payment of excise duty.
3. The issue involved in this case is as to whether this product was entitled to the benefit of Notification No. 20/79, dated 2-2-1979 as amended.
4. It provides that the generators of 100-V and above shall be charged excise duty @ 5.5% ad valorem. Hence, the appellants cleared the goods during the period August, 1979 to March, 1981 by paying excise duty.
5. The appellants were, however, served with a series of show cause-cum-demand notices in 1980-81 relating to the various periods ranging from August, 1979 to March, 1981 as indicated in their appeal memorandum.
6. In all these notices, the common ground on which the demand was raised by the Department was that what the appellants had manufactured and cleared was generating set and not a generator and hence, not entitled to the benefit of the aforesaid notification. All these notices stated that generator comprises of alternator and engine (which generates power) whereas the generating set is a combination of alternator, engine base frame, control panel and other accessories such as 'aircleaner, silencer, fuel tank and starter etc.
7. In their reply to show cause notice, the appellants had stated that the generator is also known as generating set in commercial parlance.
In fact, the alternator and engine put together alone will not generate power until these machines are combined with other essential components. Therefore, the term 'Generator' used in Notification No.20/79 must be taken to mean as a generator with a prime mover without which it is of no use as it cannot generate electricity otherwise the notification will become fruitless.
8. The Assistant Collector, however, held that generator is different from generating set and confirmed the demand. It was their contention that the A.C. has passed his decision on documents and papers which were not within the knowledge of the appellants and were never given to them. Furthermore, these decisions were passed on surmises and conjectures. Learned Collector (Appeals) did not appreciate the facts.
He had erred in taking the view that what the appellants were purchasing from outside was a generator and thereafter converting them into generating sets.
9. It was not, however, the Department's case at the A.C.'s level that alternator is the generator. In fact, in a Chandigarh Collectorate's Trade Notice, the alternator and generator have been shown as different items which indi cates that even the Department recognised them as different commodities.
10. Even the Import Policy of the relevant period shows that alternator cannot be equated to generator or in other words, the Government understands that generator is different from alternator. He had also filed the opinion of the technical experts to show that the terms 'Generator' and 'Generating Set' are inter-changeable and this becomes clear from the trade notice of the Chandigarh Collectorate also.
11. In fact, the learned Collector has used the material against the appellants without giving them an opportunity to rebut such evidence.
12. Even the show cause notices themselves refer to generator/generui-ing set as meaning alternator with engine which produces electrical power.
13. Further, the authorities below have relied upon brochures and literature regarding the generating sets collected from different sources or dealers but the appellants were not allowed any opportunity to cross-examine the officers of the Collectorate or those parties to whom the brochures belonged.
14. It was also their contention that the demands made by the Department were barred by time.
15. Learned DR drew attention to the order-in-original and order-in-appeal and stated that the basic issue involved in this case is whether the product of the appellants is a generator or a generating set and whether the terms 'generator' and 'generating set' are synonymous or they represent two different items. It would be seen from the extracts from McGraw Hill Encyclopaedia of Scientific and Technical Terms (Fifth Edition) that 'generator' has been described as "Any machine by which mechanical power is transformed into electric power." Generators fall into two main groups, AC & DC. "They may be further classified by their source of mechanical power, called the prime mover.
Generators are usually driven by steam turbines, hydraulic turbines, engines, gas turbines, or motors etc." This itself shows that generators are concerned with conversion of mechanical power into electrical power but for driving the generators themselves, some turbine, engine or motor is required. This engine or motor is a different article and not an integral part of the generator itself.
16. 'The World Book Encyclopaedia' Volume 6 at Page 143 also indicates that "Electric Generator is a machine that produces electricity." 17. "The basic principle on which a generator works is that a generator does not create energy; it only changes mechanical energy into electrical energy. Therefore, every generator must be driven by turbine, a diesel engine, or some other machine that produces mechanical energy. The Engineers often use the term 'prime mover' for mechanical device that drives a generator." 18. This again shows that the 'prime mover' is a different machine required to operate the generator. In view of this technical position, the Department is right in its contention.
19. This view is further supported by the BTN Explanatory Notes under Heading 85.01 covering electrical generators which also indicate that generating set consists of a generator and its prime mover which are mounted (or designed to be mounted) together as one unit or on a common base.
20. It was also his contention that the Department had made market enquiries and found that even in the market, generator and generating sets are treated as distinct from each other. For instance, the Department had verified from M/s. Kirloskar who had been clearing generating sets during the relevant period on payment of full rate of duty under Tariff Item 68. They had also clarified that a difference can be drawn between 'generator' and 'generating sets' inasmuch as a generator is that item which generates electricity and generating set is one which has prime mover attached to it also.
21. In the present case, the party was obtaining generators from outside and using them in the manufacture of generating sets and claiming set off of the duty paid. In other words, the appellants itself had categorised 'generator' and 'generating set' differently and were using the generator to make the generating set.
22. The Notification No. 20/79 prescribes the concessional rate of duty only to generators or 100V and above and the amending Notification No.26/79 only altered the rate of concessional duty.
23. As regards time bar, the Collector (Appeals) had already given the benefit in respect of the portion which was beyond the normal time limit.
24. Learned DR further stated that it is essentially a fact-based case and the case law enclosed with appeal memorandum does not help the cause of the appellants.
25. In fact, the case of Puran Mal Kauntia v. I.T.O. (Patna High Court) relates merely to the power of the Tribunal to stay proceedings and the case of Employees' State Insurance Corporation, Bangalore-I v.Tungabhadra Steel Products Ltd. and Ors. relates to levy of damages under Employees' State Insurance Act, 1948. These cases are not relevant at all.
26. Learned Counsel drew attention to the extracts from the BTN & HSN and stated that Heading 85.01 referred to by the learned DR itself indicates in the Explanatory Notes that electric generators may be hand or pedal operated, but usually they have prime movers. The word 'usually' is significant. It further indicates that generating sets consisting of the generator and prime mover which are mounted (or designed to be mounted) together as one unit or on a common base are classified here. In other words, the generator or generating sets were held as classifiable under the same heading.
27. Learned DR stated that HSN Heading 85.01 makes the position all the more clear inasmuch as it clearly states that this heading only covers inasmuch as it clearly states that "this heading only covers generators when presented without prime movers" and the Exclusion Clause (c) also incorporates 'electric generators combined with prime movers (Heading 85.02)' and Heading 85.02 specifically covers 'electric generating sets' and defines the electric generating set as a combination of an electric generator and prime mover and mentions certain types and exclusions as well.
28. Learned Counsel states that exclusions are impartial. He further cited the following orders and judgments in respect of his various contentions :- 29. We have considered the above submissions. We observe that the CCCN and HSN distinguish between 'Generators' and 'Generating Sets'. The CCCN Heading 85.01 which covers electrical generators specifically mentions as follows :- Machines that produce electrical power from various energy sources (mechanical, solar, etc.) are classified here, provided that they are not more specifically covered by any other heading of the Nomenclature.
There are two main classes, direct current (d.c.) generators (dynamos), and alternating current (a.c.) generators (alternators).
Electrical generators may be hand or pedal operated, but usually they have prime movers (e.g., hydraulic turbines, steam turbines, wind engines, reciprocating steam engines, internal combustion engines). Generating sets consisting of the generator and its prime mover which are mounted (or designed to be mounted) together as one unit or on a common base (see General Explanatory Note to Section XVI), are classified here provided that they are imported together (even if packed separately for convenience of transport). On the other hand, the prime mover and generator (even if imported at the same time) are to be classified in their separate headings if they are designed to be simply coupled together in such a way as not to form an integral unit or to be on a common base." This heading covers, in addition, electric motors and rotary converters and describes as follows :- "Electric Motors are machines for transforming electrical energy into mechanical power. This group includes rotary motors and linear motors." "These consist essentially of a combination of a motor and a generator permanently mounted on a common base, though in certain cases, the two functions are combined in one unit with certain windings in common." 30. The HSN makes the position all the more clear. It shows that Heading 85.01 covers 'ELECTRIC MOTORS AND GENERATORS (EXCLUDING GENERATING SETS)'.
31. Under this heading, it classified motors of various types under sub-headings from 8501.10 to 8501.53. It classifies AC generators (alternators) under sub-headings 8501.61 to 8501.64.
32. The Explanatory Note describes the 'Electrical Generator' as follows : "Machines that produce electrical power from various energy sources (mechanical, solar, etc.) are classified here, provided they are not more specifically covered by any other heading of the Nomenclature.
There are two main classes, direct current (DC) generators (dynamos), and alternating current (AC) generators (alternators). In general, both consist essentially of a stator mounted in a housing, and a rotating member (the rotor) mounted inside the stator on a shaft driven by the prime mover. In the case of DC generators a commutator with segments is mounted on the rotor shaft. The current produced is collected by a system of carbon brushes which rub the commutator segments, and is transferred to the external circuit. AC generators are in most cases brushless and the current which they prouce is led off directly to the external circuit. In other AC generators the current is collected by slip rings mounted on a rotor shaft and is transferred by a system of carbon brushes which rub the slip rings.
The stator usually consists of a system of electromagnets, but for certain DC generators (magnetoelectric generators) a system of permanent magnets is used. The rotor usually consists of a system of coils of wire mounted on a laminated iron core; this system is known as the armature. In some AC generators the revolving portion is the field system.
Electric generators may be hand or pedal-operated, but usually they have prime movers (e.g., hydraulic turbines, steam turbines, wind engines, reciprocating steam engines, internal combustion piston engines). However, this heading only covers generators when presented without prime movers." The heading covers all electric generators including large generators for power stations; small auxiliary generators used for exciting the windings of other generators; generators of various sizes and types used for supplying current for a variety of purposes." "(c) Electric generators combined with prime movers (Heading 85.02)." 33. The HSN Heading 85.02 covers 'ELECTRIC GENERATING SETS AND ROTARY CONVERTERS'. The explanation under this heading indicates 'Generating sets with compressionignition internal combustion piston engines (diesel or semi-diesel engines)'.
34. The explanatory notes also clarify that "the expression 'generating sets' applies to the combination of an electric generators and any prime mover other than an electric motor". This shows that the term 'generating set' is used here in a narrower sense than commonly understood. But, the fact that 'generating sets' consisting of a generator and its prime mover which are mounted (or designed to be mounted) together as one unit or on a common base are classified here provided they are presented together" remains as an essential feature.
35. It is also to be kept in mind that we are not dealing with a customs classification matter and CCCN & HSN can offer only limited guidance inasmuch as our case is a central excise case pertaining to the pre-1986 period when the central excise tariff had not been aligned with the international classification and furthermore, here we are dealing with the use of the word 'generator' in an excise notification.
36. Our attention has also been drawn to the communication received from M/s. Kirloskars indicating that commercially also, generators and generating sets are treated and understood separately. The commercial pamphlets produced by the respondent are of little evidentiary value because a particular firm may choose to project its own equipment in a variety of ways and use a term or phrase loosely and is not bound to keep any particular criterion in view except the requirement of salesmanship in case of such pamphlets which may be issued for publicity or propaganda purposes as well. That apart, even the diagrams and reproductions of photographs also show that they are simply calling the small size units as generators and larger ones as generating sets whereas both types are, in fact, a combination of motors and generators along with other ancillary items.
37. Our attention has been drawn to the letter of the Association of Indian Engineering Industry & M.M. Chhabra & Associates certificate where they have stated that 'generators' and 'generating sets' are one and the same item in common parlance according to them but it is to be noted that the letter of the Association of the Indian Engineering Industry 'Gensets Division' is itself an interested party in a manner of speaking as the decision on the interpretation and application of exemption notification would affect all its Members, one way or the other and the undated certificate of M.M. Chhabra & Associates appears to have been procured and when it was so obtained, is not clear. Our attention has also been drawn to the Import Policy of April, 1980 to March, 1981 (App. 17) IV. Electrical Machinery, Equipment and Apparatus A. 22 covering 'Power equipment including alternators, generators, transformers, switch gear and control gear, motors, rectifiers and power capacitors.' This, however, does not help the cause of the respondents inasmuch as it shows that the word 'generator' has been used here in a sense different from that used in the excise tariff or the BTN/HSN as it distinguishes alternators and generators whereas in the later, generators include both dynamos and alternators but even the above description shows that motors are treated as separate items. The Import Policy 1981-82 (Appx. 16) S. No. 882 Col. 2 which covers description of export products again shows alternators, generators and motors separately.
38. The Excise Tariff Chapter 85 Heading 85.01 covers 'ELECTRIC MOTORS AND GENERATORS (excluding generating sets)' whereas 85.02 covers 'ELECTRIC GENERATING SETS AND ROTARY CONVERTERS'. This heading description tallies with the HSN Headings in respect of the above items but it is noteworthy that in CCCN/HSN electric generating sets have been given a specific meaning for the purpose of distinguishing those generators which are operated by such motors and in the later case, have treated those which are used for changing the characteristics of the current e.g. AC to DC and its frequency etc., as converters.
39. The items before us are not converters but generating sets admittedly used for converting mechanical energy into electrical energy. The notification apparently grants exemption to generators only and not to sets which are a combination of generators and prime mover and its description in McGraw Hill Dictionary as well as World Book Encyclopaedia clearly shows the distinction between the generator and the prime mover and the letter of the Kirloskar shows that even in the trade, they are treated as distinct and distinguishable. Furthermore, in view of the latest Supreme Court judgments, the notifications are required to be interpreted strictly.
40. Therefore, although the words, 'generators' and 'gensets' may be used at times loosely or vaguely as if they were synonymous, in reality, they are two different items.
41. Furthermore, although prime movers are usually used with generators so that they may receive mechanical energy for conversion into electrical energy as noted above, it is not necessary to always couple them with such prime movers and generators can be operated manually even by hand or foot. Therefore, the word 'generator' cannot be treated as referring to set of two machines coupled or joined or connected together but only to that machine which can generate electricity on being provided with the mechanical energy from any source, be it hand, foot or a prime mover. In our opinion, therefore, the benefit of notification is applicable to generator simplicitor and not to gensets/generating sets.