1. The miscellaneous application for early hearing of the appeal was dismissed as infructuous since we are taking up the appeal itself for hearing today.
2. The appellants are aggrieved by the order of the Commissioner of Central Excise (Appeals) who has remanded the issue of classification of chillers manufactured by the appellants herein, on the ground that the review order passed under Section 35E(2) based upon which the appeal was filed by the Revenue before the Commissioner (Appeals), relied upon a report of the Central Economic Intelligence Bureau alleging that the manufacturers of chillers were clearing goods under Chapter 84.18 as heat pumps, which report was a fresh piece of evidence, for the purpose of enabling the respondents to make their submissions in the matter. According to the appellants who are represented by their Counsel, Shri R. Krishnan, the review order raises an entirely new point which was not raised in the show cause notice, and therefore, the review order is bad in law and the Commissioner (Appeals) ought to have held accordingly instead of remanding the matter for fresh decision on merits. The prayer is opposed by the learned SDR, Shri R.K. Sharma, who submits that the review order is not based entirely upon the Central Economic Intelligence Bureau report but also on points arising from the adjudication order passed by the Assistant Collector.
3. We have carefully considered the rival submissions and perused the records. The show cause notice alleges that chillers are nothing but parts of airconditioners and become complete airconditioner when fitted with air handling unit and description and functions of chillers are not covered under Chapter Heading 84.18 claimed by the assessees but fall under exclusion clause, and thus are not refrigerators or freezers or refrigerating/freezing equipment. The notice proposes classification of the goods in dispute under Heading 84.19 which covers machinery and plant designed to submit materials (solids/liquids, gasous) to a heating or cooling process in order to cause single change of temperature and the notice proposes alternate classification under Heading 84.15 of the Schedule to the CETA, 1985. On the other hand, the review order against the order of the Assistant Collector who dropped the proceedings and accepted the classification of the product under Chapter Heading 8418, alleges as under: 1. As per information received from the Central Economic Intelligence Bureau, it is learnt that the manufacturer of airconditioning equipment are clearing chiller package unit as heat pumps, whereas logically such equipments should be classified under 84.15 and attract duty @ 30%. Instead the manufacturers of such chiller units are misclassifying them under 84.18 and paying duty @18%.
2. Further, as per C.E.I.B. reports, the chiller packages units, which are used for heating, ventilation and airconditioning application are primarily airconditioning machine parts falling under chapter heading 84.15 which read as airconditioning machines, comprising a motor driven fan and elements for changing the temperature and humidity, including those machines in which the humidity cannot be separately regulated are being wrongly classified as head pumps of Tariff No. 84.18 "which is read as Refrigerator, freezer and other refrigerating or freezing equipment, electric or other heat pumps other than airconditioning machine of heading No. 84.15". Invariably all the manufacturers of chiller package units by such misclassification are evading excise duty, since the excise duty applicable under Tariff No. 84.15 @ 30% whereas under the Tariff No. 84.18 i.e. All goods other than parts is only 18%.
Categorised as heat pumps. The airconditioning machines parts of the chiller package units produce hot water in the condenser which can be sent to an external heat exchanger i.e. cooling tower for cooling (for a drop in temperature of condensor hot water so that it can be again used in the closed cycle) and the chilled water produced in the evaporating coil/chiller is used for airconditioning process application. The condensor hot water which normally is sent to the cooling tower as explained above can also be used for heating application in which case the chiller package unit function as a Heat pump (In such application the chilled water produced in the chiller package units is sent to an external heat exchanger to gain heat so that it can be recycled.) This duel functioning of the chiller package unit is used as a probable rationale by the manufacturers to clear these goods at a lower excise duty under heading 8418.10. However, the heating application is generally a subsidiary function of the chilling machine and its primary or basic function is airconditioning only whether for comfort purposes or for process applications, as described in note 7 of chapter 84 clearly specified that "A machine which is used for more than one purpose is for the purposes of classification, to be treated as if its principal purpose were its sole purpose." Therefore the chiller package unit has to be categorised under air-conditioning machines of Tariff heading 84.15 and not 84.18".
A comparison of the grounds raised in the notice with the grounds of appeal in the review order would show that they are different from each other and that the review order is entirely based upon the report of the Central Economic Intelligence Bureau. We, therefore, agree with the appellants that the review order seeks to make out a new case against them. This is not legally permissible under Section 35E(2), the Commissioner of Central Excise may of his own motion, call for and examine the record of any proceeding in which an adjudicating authority subordinate to him has passed any decision or order under this Act for the purpose of satisfying himself as to the legality or propriety of any such decision or order and may, by order, direct such authority to apply to the Commissioner (Appeals) for the determination of such points arising out of the decision or order as may be specified by the Commissioner of Central Excise in his order. It is thus clear that the review order should be based upon points arising out of the decision or order of the subordinate adjudicating authority and cannot raise fresh or new grounds. This is the view taken by the Tribunal in several decisions, among them being the decision in the case of Collector of Central Excise v. Sunita Textiles reported in 1993 (67) E.L.T. 932; 1993 (69) E.L.T. 144, in case of Extrusion Processors v. Collector of Central Excise; 1999 (107) E.L.T. 208 (T) = 1998 (29) RLT132 in the case of Collector of Central Excise v. Eastern Aeromatics and 1999 (107) E.L.T. 533 (T) = 1998 (29) RLT 710 in the case of Collector of Central Excise, Hyderabad v. Swastic Coalers.
4. In the light of the above decisions, we hold that the revisionary authority has exceeded its power under Section 35E of the Central Excise Act by travelling beyond the record of proceeding before the adjudicating authority and, therefore, remanding of the matter is not justified. Accordingly, we set aside the impugned order and allow the appeal on this preliminary point alone without going into the merits of the classification of the disputed product.