Judgment:
1. The present matter arises from a notice issued by the Government of India Under Section 36(2) of the Central Excises & Salt Act, 1944 calling upon respondents to show cause as to why the order-in-appeal No. 45-B/80 dated 25-1-80 passed by the Central Board of Excise & Customs should not be set aside, as the Central Government was of the tentative view that the said order-in-appeal was not proper, legal and correct. On the setting up of this Tribunal, the matter is transferred here and is being treated as an appeal of the department before us against the above cited orders of the Board.
2. Briefly, the facts are that the respondents manufacture inter alia telephone systems which have been named as MAX 1, II and III having 1000, between 600 and 1000, and less than 600 lines. These systems were admittedly purchased not only by Indian Posts and Telegraphs Department for installation of small telephone Exchanges but also by private parties such as factories and other offices for their intracommunication system. The Collector of Central Excise, Bangalore held that these systems would be classifiable as intercom devices and fall under Tariff Item 33-D of the Central Excise Tariff, if sold to other than Indian Posts and Telegraphs department. When the respondents went up in appeal, the Board set aside the order of the Collector holding that the telephone system in question works with a Central Exchange having selection-cum-switching facility, with secrecy of communication between two points, whereas intercom devices, as commonly known, do not have such facilities. It was held that in an intercom, there is a point to point connection between those who are to communicate among themselves, whereas in telephone, such communication would pass through a central point. Accordingly, the Board held that MAX I, II & III systems fell out of the purview of Tariff Item 33-D of the Central Excises & Salt Act, 1944.
3. In their show cause notice, the Central Government has expressed the tentative view that the equipments in question can be used as intercom devices and as a part of the telephonic system. It is pointed out that as per the Board's order-in-appeal, at the stage of clearance from the factory, the end-use of MAX I, II and III systems is indistinguishable, and that some additional items such as Central Exchange and selection-cum-switching device have to be fitted when they are utilized by the Posts and Telegraphs department. The Central Government also expressed the tentative view that if, as held in the Board's order-in-appeal, equipments, when delivered to a private party for use within a building, are classifiable as intercom devices, then the other equipment, which is delivered to the P&T department should also be classifiable as intercom devices. In this connection, the notice issued by the Central Government refers to a description of the term 'telephone' available in Rule 472 of the Indian Telephone Rules, 1961 and in Section 7 of the Indian Telegraphs Act, 1885.
4. We have heard Shri A.K. Jain, SDR on behalf of the department and Dr. V. Gauri Shankar, Senior Counsel alongwith Shri Manoj Arora, Advocate, for the respondents.
5. The learned Departmental Representative submits that as per item 33-D of the Central Excise Tariff, all intercom devices, other than telephones, are to be classified as office machines. It is not denied by the respondents that the impugned equipment is, in a large number of cases, being used as intercom devices by private parties in their office/ factories etc. It is submitted that in view of the actual use of the equipment as intercom, it is not understandable how the item in question can be held not to fall under Item 33-D of the Central Excise Tariff.
6. Even in regard to the items which are sold to the Posts and Telegraphs department, it is submitted on behalf of Revenue that what is important is that at the point of clearance from the factory, there is no essential difference between the items which are supplied to private parties for use as intercom devices and the items which are supplied through the Posts & Telegraphs department. All that is necessary in the latter case is the addition of some items such as Central Exchange and selection-cum-switching device, after they are removed from the factory. Therefore, it is submitted, these items should also be classifiable as intercoms under Item 33-D of the Central Excise Tariff.
7. Shri A.K. Jain, learned SDR has also made a point that every day words in taxing statute are not to be understood in the technical sense, and that their meaning in common parlance should afford guidance. In this context, it is pointed out that it is not understood how items which are being used by private companies within their offices as intercom devices can be claimed to be classifiable as anything other than intercom.
8. In the light of the above arguments, it is submitted that the impugned products should be classifiable under Item 33-D of the Central Excise Tariff, regardless of end-use. When pointed out by the Bench, that this goes beyond the orders passed by the Collector in his order-in-original, Shri A.K. Jain submits that the Tribunal has the power to go into the question of correct classification independently of the orders passed by the lower authorities. He, in support of this product, cites the following case law :-Bell Punch (India) Pvt. Ltd. v. Collector of Customs, Calcutta.Collector of Central Excise, Bombay v. Rohit Pulp and Paper Mills.Collector of Central Excise, Allahabad v. Kanoria Chemicals & Industries Ltd., Renukoot.
9. The learned SDR also briefly refers to the submissions made before the lower authorities that the demand of duty was barred by limitation.
It is submitted that from 1970 to 1975, the department had no intimation that goods in the nature of intercom were being manufactured by the respondent company. It was, therefore, a case of manufacture and clearance without prior intimation or approval of the department and, therefore, the demand for duty could not be held to be time barred.
10. The learned SDR has submitted that recently, the issue of classification of the impugned product has been settled in favour of Revenue by a decision of the Karnataka High Court in the case of Associated Electronic and Electrical Industries Pvt. Ltd. v. Assistant Collector of Central Excise, Bangalore, 11. The other case law cited by Shri Jain in support of his arguments is as follows :-Radio Supply Store (P) Ltd. v. Union of India and Ors.
2. 1986(24) E.L.T. 180 - Filterco and Ors. v. Commissioner of Sales Tax, Madhya Pradesh and Anr.
12. While the arguments in the matter were progressing, the learned Departmental Representative moved an application for being permitted to file the following documents as additional evidence: (ii) Literature - on intercoms manufactured by M/s. Usha Electronics: (iii) Copies of some correspondence exchanged by the department with Karnataka Power Corporation Limited.
13. Shri A.K. Jain relied on the following case law in support of his request for being allowed to file the additional evidence:-Patnaik & Co. Ltd. v. Commissioner of Income-tax.
3. 1986(7) E.C.R. 284 - Simplicity Engineers v. Commissioner of Sales-tax.V.V. Iyer v. Collector of Customs, Bombay.
14. Dr. Gauri Shankar, learned Senior Counsel points out that respondents have been licensed and are paying duty on their impugned products under Item 68 of the Central Excise Tariff. It is claimed that this is the correct classification for their products.
15. It is submitted that intercoms are limited to a maximum of 30 OMHS and operate within an area of 300 mts., whereas the impugned products are of the order of 1400 OMHS and can operate over an area of up to 10 miles.
16. Further, it is Submitted on behalf of the respondents that in the order of the Collector as well as in the show cause notice issued by the Central Government, a point has been made regarding additional facilities being provided in respect of intercom equipment at the point of clearance. It is submitted that this is factually incorrect, that no additional facilities are provided by the respondents after clearance and further, that respondents enquired from the department as to what was the material relied upon on the basis of which this conclusion has been reached, but the department has not supplied the material on which they have relied.
17. The respondents have referred to various technical authorities to show that intercoms are equipments meant for use within offices only without exchange/signalling equipment, whereas the impugned products have the distinguishing features of having an exchange/signalling facility and provision for secrecy in communication.
18. It is also emphasized that the Collector has himself admitted that there was no clandestine manufacture or removal and no malafides.
Therefore, even if demand of duty were held to be justified on the basis of decision as regards classification, it cannot be for a period beyond 6 months.
19. So far as the request on behalf of the department to be allowed to file additional evidence is concerned, Dr. Gauri Shankar submitted that it was strange that this was sought to be done at such a late stage. It is submitted that while the Tribunal has the power to allow additional evidence in the interest of justice, but there is no right with the parties who can refer to technical publications only. In support of this argument, Dr. Gauri Shankar has cited the following case law :- 1. 1985 (22) E.L.T. 63 - S.P.A.M. Krishnan Chettair v. Collector of Customs and Central Excise, Madurai.Bakehte Hylam Ltd. v. Collector of Central Excise, Hyderabad and Ors.
20. Referring to the specific documents sought to be filed, the learned senior counsel says that he has no objection to the filing of the literature on MAX HI equipment. However, he objects to the literature on intercoms manufactured by M/s. Usha Electronics as, it is submitted, they are of no relevance in respect of the impugned products manufactured by Indian Telephone Industries. Furthermore, Dr. Gauri Shankar submits that it appears that the letter from the Karnataka Power Corporation Ltd. is in response to personal enquiries made behind the back of the appellant during the course of the hearing and without the approval of the Bench.
21. Even, while Dr. Gauri Shankar was opposing the filing of additional documents by the department, he himself made a prayer for being permitted to file documents from the Income Tax pertaining to the respondent's products. These were not objected to from the department side and, therefore, admitted.
22. So far as the request for the filing of additional evidence on behalf of the department is concerned, we would like to observe that this was made when the arguments from both sides had been almost completed. We also found that these additional documents included some literature of another manufacturer, namely, M/s. Usha Electronics and prima facie, it is not at all clear as to how this literature can at all have any relevance to the matter before us. It appears that the department would like to argue that the product of Usha Electronics is identical. We are not inclined at this late stage to permit the opening of such a controversy which is also not a part of the pleadings before us. Similarly, the department proposes to file as additional evidence copy of a letter from Karnataka Power Corporation Ltd. dated 1st September, 1986, well after the commencement of the hearing of this matter before the Tribunal. The obtaining of this letter appears to be in the nature of an investigation taken up while the appeal is being heard by the Tribunal and is, therefore, not to be encouraged. The filing of both of these documents is, therefore, rejected. The department has also requested to be permitted to file some literature on MAX III equipment. This has not been objected to by the respondents.
Being essentially in the nature of a catalogue, although belated, the filing of this literature as additional evidence is admitted.
23. The facts of the case, the evidence on record and the arguments made before us have been carefully considered by us. In the light of the show cause notice issued by the Government of India, "the following are the issues to be decided upon as grounds of appeal : (i) Whether the impugned equipments MAX I, II & III because they can be used as intercom devices at the point of their clearance from the factory, as observed by the Board in their order-in-appeal, would be classifiable as intercom. The show cause notice issued by the Central Government notes that at the stage of clearance from the factory, the end-use of the impugned products "is undistinguishable" but 'the show cause notice itself admits that for the equipments to be classified as belonging to the telephonic system, they should be utilized by the P&T department in the public telephone system.
Besides, as per the show cause notice, some additional items, such as central exchange and selection-cum-switching device have to be fitted on to these equipments after they are removed from the factory. As per the show cause notice, such equipments which acquire additional functional capability by the addition of some more parts after their clearance have to be classified as intercom devices at the point of their clearance from the factory; (ii) Whether in the light of the description of the term 'telephone' available in Rule 472 of the Indian Telephone Rules, 1961 and in Section 7 of the Indian Telegraphs Act, 1885, the impugned equipments should be treated as intercom devices.
24. It is to be noted here that in his order-in-original, the Collector had decided that only such of the equipments which are supplied by the respondents to non Post & Telegraph customers would be classifiable as intercom devices falling under Item 33-D of the Central Excise Tariff.
In other words, it was conceded that the same product, if supplied to the Posts and Telegraphs department would be considered as telephone falling outside the purview of Tariff Item 33-D. The Collector, while coming to this conclusion, observed that Item 33-D of the Central Excise Tariff includes all office machines including intercom devices, but specifically excludes telephones; but since telephones could be distinguished from intercom devices only by their end-use, the Collector held that the tariff itself would seem to permit classification depending on the end-use.
25. In the order-in-appeal, the Central Board of Excise and Customs have observed that it is a well known fact that the telephone system works with a central exchange having selection-cum-switching facility with secrecy of communication between two points, whereas the intercom devices as commonly known, do not have such facility. It was observed that intercom devices provide limited speaking facility between a few locations which are in the nature of direct communication and a point-to-point connection between all those who communicate among themselves, whereas in the case of telephone, such communication have to pass through a central point. The Central Board of Excise & Customs have, therefore, held that it is possible to differentiate between intercom and telephone systems and equipments. It is held that MAX 1, II and III work on the principle of telephonic system and as such, all the systems should be categorised as telephones and not as intercom devices. This conclusion of the Board is supported by the finding of fact that all the equipments in question are exactly similar, whether they are supplied to Posts & Telegraphs department or to private parties or individual customers, and it is held that the same equipment, when used within an organisation, is called an intercom, and when supplied to the P&T department, is referred to as telephone.
26. The learned Departmental Representative has argued not only against the orders of the Board but he has also disputed the orders of the Collector and submits that the impugned equipment is essentially an intercom and at the stage of clearance from the premises of the respondents, because of the essential character of the equipment, it should be classifiable as intercom device under Item 33-D of the Central Excise Tariff, ignoring the actual use to which such equipment is put; that is to say, whether it is used actually as telephones by the P&T department or as intercom by private parties. Shri Jain has referred to the wide powers vested in the Tribunal in deciding the correct classification of goods and submits that the Tribunal is not bound, while taking a decision, to confine itself to the alternative classification considered by the lower authorities.
27. The first and foremost point which has to be disposed of in taking a view in the matter is related to the nature and state of the equipment at the point of clearance from the factory. In the show cause notice issued by the Central Government, there is a reference to the finding of the Board in the order-in-appeal that at the stage of clearance from the factory, the equipment, whether for supply to the P&T department or to private parties, is identical but it is observed that, some additional items such as central exchange and selection-cum-switching device have to be fitted on to such equipment when supplied to the P&T department. There is nothing contained in the show cause notice issued by the Central Government which can be considered to substantiate this assertion. In the course of the hearing before us, the respondents have flatly denied that there is any addition to the items after clearance from the factory and it is also stated that they have repeatedly enquired as to from where the department has got this information. No light on this aspect has been thrown by the learned SDR.28. In view of the foregoing, it has to be concluded that there is no basis for the view contained in the grounds of appeal that some additional items are fitted to the impugned equipments after they are removed from the factory. In the orders of the Central Board of Excise & Customs, it is categorically stated as a finding of fact that all the equipments in question are exactly similar, whether they are supplied to the Posts and Telegraphs department or to the individual customers or private parties. Therefore, this ground of appeal, against a finding of fact, which remains un-substantiated, has to be rejected.
29. The next ground of appeal arises from the description of the term 'telephone' in Rule 472 of the Indian Telephone Rules, 1961 framed Under Section 7 of the Indian Telegraphs Act, 1985. Both of these are discussed in the order-in-original itself. For facility of ready reference, this rule is reproduced below :- "Any person may, without license establish, maintain and work a telegraph 'not being a wireless' within the limits of a single building, compound or estate; provided that no telegraph line shall pass over or under a public road".
There is no elaboration in the show cause notice issued by the Central Government as to how reading of this rule can at all support the view that the impugned equipment would be classifiable as intercom. In so far as supplies to the P&T department are concerned, Rule 472 of the Indian Telephone Rules was relied upon by the Collector in his order-in-original in order to differentiate the equipment used without a license by private parties from the equipment supplied to the P&T department and installed only in accordance with their authority.
Accordingly, this ground of appeal, which incidentally did not attract any comment or elaboration from the SDR too, has also to be rejected.
30. In the course of the arguments, both sides have at length re-stated their respective cases. We might have been inclined to re-examine these points if, on the basis of the grounds of appeal contained in the show cause notice of the Central Government, a case for such re-consideration or re-examination was justified, but since the very grounds taken for review of the orders of the Board have been rejected, we do not consider it necessary to go afresh into all the arguments relating to classification which are already disposed of ably in the orders of the Central Board of Excise and Customs.
31. A lot of case law has been cited before us in the course of arguments from both sides. In the view that we are taking in the matter, it is not necessary to deal with the case law cited in their favour by the respondents. In so far as the case law cited by the department in their favour is concerned we would like, briefly, to refer to the decision of the High Court of Karnataka in the case of Associated Electronics and Electrical Industries Pvt. Limited (supra).
This judgment relates to the product of another company which was held by the High Court of Karnataka to be an intercom and not telephone. It has not been shown before us that the product that was the matter of dispute before the Karnataka High Court was the same as that before us.
Nor on going through the judgment, do we find that the basic issue which arises in this matter on account of the impugned product being meant essentially for supply to P&T department came up for consideration in the Karnataka case. Therefore, the department cannot obtain any support from the decision in that matter.
32. The orders of the Board are upheld. Show Cause Notice is discharged and appeal dismissed.