1. This appeal challenges the Order-in-Original No. 1/97 dated 5.3.97 passed by the Commissioner Customs and Central Excise, Visakhapatnam by holding that the item under dispute falls under tariff description under sub-heading No. 8419.00 of the schedule CETA '85 and also holding that the rate of duty applicable would be 20% adv. as prescribed under SI. No. 14 of Notification No. 46/94 dt. 1.3.94. He has noted that the item does not fall under SI. No. 16 of the said notification, as it does not include refrigeration or air-conditioning machinery and parts thereof. While at the same time holding that the item is air-conditioning machinery, but he has preceeded to levy duty on the basis of the item being a refrigeration equipment.
2. Learned Counsel R. Ravindran, at the outset pointed out to the show cause notice which is at pages 135 to 143 of the paper book. Show cause notice dated 10.1.95 recapitulated the facts of the case and on the basis of the statement of Shri Govindam, Manager of the appellant company and various documents recovered from the appellants office; that is the tender notices describing the items which are required to set up the plant, the show cause notice has alleged that the item is to be treated as a heat exchanger which is classifiable under chapter S.H.No. 8419.00 of the schedule to the CETA attracting the effective rate of Central Excise duty @ 20% adv. at the relevant item as on 31.3.94.
The show cause notice mentions proviso to Section 11A to invoke larger period to claim the duty difference on the goods said to have been manufactured by the appellants in procurement of the work contract from DGNP.3. The appellants gave a detailed reply to the show cause notice which is at page 201 of paper book and also filed synopsis of their submission which is also filed at pages 218 to 227 of the paper book.
Learned Counsel submit that at the first instance they had taken a plea that they are not the manufacturers but were hired labourer. The manufacturers were DGNP who had assembled all the parts supplied by them and brought into existence the item in question. He submits that they had contested that the item is not a heat exchanger falling under heading 8419 and the rate of duty applicable was only 10% adv.4. The Commissioner has also not dealt with their plea that they are not the manufacturer although he has noted the submission in para 6 of the order. The learned counsel also contended that the order of the Commissioner on classification is only a one line order and the finding recorded on the notification is contrary to the classification adopted by him. He further submits, that the Commissioner had straightaway gone to decide of the aspect of assessable value in para-8 of the order without going into question of the appellant being a manufacturer or not? He submits the time bar issue was also raised but although the order of the Commissioner deals with the invocation of the provisions of Rule (9)(2) of Excise rules and for imposing of penalty but has not touched on their pleadings. Learned Counsel takes us through the entire record of the case and contends that the appellant had seriously contested the claim of the revenue that they are manufacturers; that the item submitted is not a "heat exchanger" for classification under SH. No. 8419.00; that the rate of duty had not been wrongly applied that the larger period is not invocable and that the order is not a speaking and valid order in the light of the pleadings and submissions made by them.
5. Learned DR Shri Jeyachandran, defended the order. However, to a specific query from the bench regarding the non-recording of the detailed findings on classification, Learned DR reiterated the findings recorded by the Commissioner in para-7 of he order. He further submits that the submissions raised by the assessee is not acceptable as they never contested the classification issue and further had cleared the items without paying the duty. Therefore, the department was justified in proceedings against the appellant and holding them to be the manufacturer and that the item is a heat exchanger. He submits that the appellant is not disputing the classification under heading 8419 of CETA but their claim is for the benefit of the Notification No. 46/94 dated 1.3.94 (S. No. 16) with duty at 10% only. He submits that the order is quite clear on all aspects of the matter including the appellant being the "manufacturer" as they had accepted the tender and carried out the work and they are not considered "hired labourer" as claimed by them, as they had not worked directly as a hired labourer under DGNP. The contract clearly discloses that the relationship between DGNP and the appellant was on "principle to principle" basis and not that of a 'hired labourer'. He seeks for confirmation of order in original.
6. In counter learned Counsel reiterated his pleas, besides submitting that they had claimed deductions for certain item like hoses and cables. The Commissioner has also unjustly rejected their claim of Modvat on the inputs used in the manufacturing of the item which had been put as an alternate argument. He also submitted that there was no justification for imposition of penalty.
7. We have carefully considered the submissions made by both the sides.
We note from the show cause notice dated 10.1.95 that the main allegation brought out jn paras 2 to 7 is that the appellant had manufactured "heat exchanger" on accepting the contract from DGNP and cleared it without payment of duty. The paras (2) to (7) of the show cause notice is reproduced below: 2. Shri Ch. Govindam S/o Ch. Krishnamurthy, Area Manager, M/s. Blue Star Limited, Visakhapatnam was summoned under Section 14 of Central Excises and Salt Act, 1944 and he, in his statement dated 27.7.94, stated, inter alia, that in response to the tender enquiry No. CA No. DGNP (V) 22/90-91 of DGNP. M/s. Blue Star Limited, Visakhapatnam submitted an offer for provision of Mobile Chilled water plants (2 Nos.) each of capacity of 2,00,000 kilo calories per hour and 2 Nos.
each of capacity 1,00,000 kilo calories per hour for yard services of Naval dockyard, Visakhapatnam; that their corporate office is situated at Bombay; that the cost of contract was Rs. 1,05,06,000.
He had given the flow diagram of the chilled water plant.
3. Shri Ch. Govindam explained the chilled water plants as machines wherein sea water is circulated as condenser water, freon-22 gas is circulated as refrigerant and fresh water is used for chilling in the chiller and the same chilled water is circulated to ship/sub-marines to provide air-conditioning on the ship/sub-marine.
Each of these four machines is mounted on a 8 tyred mobile trailor fitted with a turn table and towbar to be pulled by a tractor. Shri Ch. Govindam had supplied copies of correspondence, contract and technical data including the diagram of the trailor.
4. The Department vide this office letter dated 3.8.94 and 17.8.94 addressed the DGNP, Visakhapatnam requesting for certain information relating to the chilled water plants and the DGNP in response vide their letter No. DG/ 2615/EOPT/339/E8 dt. 19.9.94, informed that the chiiled water plants are used for providing Air-conditioning to the sub-marines and war ships which are under extended repairs during Dry docking when the vessel's air-conditioning plants are under maintenance/repair; that Freon-22 gas is used as refrigerant for re-cycling in the plants.
5. M/s. Blue Star Limited, vide their letter dated 17.8.94 stated further that the refrigerant plant circuit consists of mainly compressor, condenser, expansion valve and chiller. The refrigerant gas is compressed from low pressure to high pressure by compressor.
The refrigerant gas is condensed into liquid in the condenser by rejecting heat to condenser water. The refrigerant liquid is expanded from high pressure to low pressure through expansion valve.
The refrigerant is evaporated in the chiller. The chilled water is cooled by the refrigerant by removing heat in chiller. They added that the entire plants were assembled at site with bought out indigenous items.
6. From the foregoing it is evident that M/s. Blue Star Limited, Visakhapatnam responding to a tender notice clinched the tender for the provision of 4 mobile chilled water plants which are used for providing Air-conditioning of the ship/ submarine whose in-built chilled water plants are switched off during maintenance. In the chilled water plants there are 3 circuits namely; In the first circuit sea water is circulated through the condenser by means of a pump and motor. In the second circuit refrigerant gas is compressed in a compressor and then condensed in the condenser by exchanging the heat to sea water and then expanding to lower pressure through Expansion valve and goes to the chiller to exchange heat with the water circulating in the chiller through ships/submarines and thereby providing air-conditioning to them.
Therefore, these plants are heat exchangers.
wherein the condenser and chiller are heat exchangers effecting change of temperature by a process of condensing or cooling. Each of these chilled water plants is mounted on a traitor having two axles and 8 tyres. The traitor is also provided with a turn table and towbar fixed to the front axle. Because these plants are mounted on a trailor they are mobile. The plants are connected to the vessel by means of piping to circulate the coolant (chilled) water to provide air-conditioning in the vessel. Such Heat Exchange units are excisable and accordingly classifiable under Chapter Sub-heading No. 8419.00 of the schedule to the Central Excise Tariff Act, 1985, attracting an effective rate of Central Excise duty of 20% ad valorem at the relevant time viz., as on 31.3.1994.
7. M/s. Blue Star Limited, Visakhapatnam have apparently not registered themselves with Central Excise as required before manufacturing of excisable goods and consequently violated Rule 174 of Central Excise Rules, 1944 (hereinafter referred to as the said Rules) read with Section-6 of Central Excises and Salt Act, 1944 (hereinafter referred to as the said Act). M/s. Blue Star Limited have also not filed Classification List and Price List and cleared excisable goods manufactured by them without payment of Central Excise duty payable thereon and thereby violated Rules 52A, 53F, 173B, 173C, 173G and 9(1) of the said rules.
The duty claim of Rs. 15,31,333 was raised on the said mobile chilled water plants (4 Mos.) failing under chapter sub-heading No. 8419.00 of the schedule to the Central Excise Tariff Act, 1985.
8. We have also gone through in detail reply submitted by the appellants and the written submissions before the Commissioner. The Commissioner in the impugned Drder has recorded various allegations made out in the show cause notice and the reply made by them. However, in the impugned order, unfortunately the Commissioner has not given a detailed speaking order on the aspect of classification. He has also not recorded as to who is the manufacturer at the time of clearance of goods. He has also not dealt on claims of deductions made by the appellant, besides the plea of mdodvat claim and the penalty being not imposed and demands being time barred. we are not happy with the findings recorded on the issue of classification of the goods. The Commissioner ought to have addressed himself to the question in greater detail and discussed the item, its nature, its technical details and as to how the item s required to be considered as a "Heat Exchanger" and as to why it is required to be classified under S.H. No. 8419.00 of CETA. The findings recorded by him is one line.
7. The next question relates to classification of the product. From the technical specification and functional parameters mentioned at para No. 1 it is clear that the product conforms to the tariff description under sub-heading No. 8419.00 of the schedule to the Central Excise Tariff Act, 1985 (5 of 1986).
Coming to the question of applicable rate of duty on Mobile Chilled Water Plant, I find that department has demanded the duty 20%-Adv. as leviable on goods falling under sub-heading. No. 8419.00.
However, the assessee contended that the duty liability should be 10% Adv. as the product merits exemption under SI. No. 16 of Notfn.
No. 46/94 dt. 1.3.94. On a perusal of the said Notfn., it is seen that under SI. No. 16 an effective rate of duty of 10% Adv. is prescribed in respect of goods falling under Ch. Hd. No. 84.19 other than refrigeration or air conditioning machinery and parts thereof.
It has been confirmed by the DGNP vide their letter No. DG/2615/ENPP/339/E4 dt. 19.9.94 that the chilled water plants are used for providing air conditioning to the submarine and war ships which are under extended repair during dry docking when the vessels air conditioning plants are under maintenance/repair. From the above, it is absolutely clear that the MCWPs is in the nature of air conditioning machinery which provides air conditioning to the vessels. Serial No. 16 of the said Notfn. does not include refrigeration or air conditioning machinery parts thereof.
Therefore, the contention of the assessee that a duty of 10% adv. should be levied, does not have any merit and is rejected. The correct/applicable rate of duty would be 20% adv. as prescribed under SI. No. 14 of Notfn. No. 46/94 dt. 1.3.94.
On the reading of the above para, we have to note that the findings on the aspect on the classification of the item is totally a non-speaking order. Further, there is contradiction in the findings pertaining to the claims of notification. As the impugned order is not a speaking order it is required to be set aside and the matter remanded for de novo consideration. We further notice that the appellant had taken a stand that they are not the "manufacturers" but only 'hired labourers'.
Although learned DR submitted that the relationship is that of "principle to principle" basis but we notice from the order of the Commissioner, that such a finding has not been recorded. There is no finding on this basic issue at all. The Commissioner ought to have addressed himself to this question at the first instance, before dealing with the question of classification of the item in question.
9. As the order is not a speaking order, on all aspects of the matter and no findings have been recorded on the various submissions raised by the appellants, therefore, the order has to be considered as violative of principle of natural justice.
10. Therefore, the impugned order is set aside and the matter remanded to the original authority i.e., the Commissioner of Central Excise, Visakhapatnam for de novo consideration in the light of the observations made by us, he shall redecide the case after giving full opportunity to the appellants in terms of principle of natural justice.
The Commissioner shall deal with all the submissions of the appellant and discharge the revenue's burden of classification of the item underlying the sub-heading 8419.00 as alleged. He should also deal with the plea of the appellants that they are not the "manufacturers" and their alternative claim of various deductions; claim of Modvat credit, besides their plea of time bar and penalty being not imposable in the matter. Thus the appeal is allowed by way of remand to original authority for de novo consideration.