Full Judgment
2. Assessee is engaged in the manufacture of airconditioning machining.
On collection of intelligence that the assessee is indulging in misclassification of parts and accessories and undervaluing refrigeration gas compressors were subjected to an enquiring which revealed - "For convenience of transport many machines and apparatus are transported in an unassembled state. Although, in effect, the goods are then a collection of parts, they are classified as being machine in question and not in any separate heading of parts. The same applied to an incomplete machine having the features of complete machine. However, unassembled components in excess of the number required for a complete machine for an incomplete machine having the characteristics of a complete machine are classified in their own appropriate heading. Thus, the refrigerant compressor cleared along with the accessories from the factory of M/s ACCEL Ltd. can be regarded as refrigerant compressor in an unassembled state. It can be said that for the sake of convenience of transport the refrigerant compressor is being transported in an unassembled state.
Although the refrigerant compressors are, in effect, a collection of parts, they are classified as being a refrigerant compressor and not in any separate heading of parts.
Similarly Part III Section XVI of interpretative notes defines Accessory Apparatus with the help of General Interpretative Rules 2(a) and 3(b) and Section notes 3 and 4 defines Accessory Apparatus are as follows : Accessory apparatus and instruments (e.g. manometers, thermometers, level gauges or the measuring or checking instruments, output counters, clockwise switches, control panels, automatic regulators) presented with the machine or apparatus are classified with that machine or apparatus, if they are designed to measure, check, control or regulate one specific machine or apparatus. In the above cases of refrigerant compressor of models described above, the following accessories supplied by M/s. ACCEL Ltd. along with refrigerant compressor main body can be considered to be accessory apparatus as defined above :-II
(3) Suction and delivery Control flow Stop Valve II
(8) Solenoid Valve with Oil Automatic Strainer Assembly regulator (F-7321) and connection and switch II
(9) L.P Cut out switch II
(10) H.P Cut out switch Switches as described II
(11) Oil Failure Switch II
(12) Set of High, Low and oil pressure Pressure Gauges gauges Since, as per above definition of accessory apparatus and instruments as given in General Interpretative notes in HSN, Part III Section XVI read with General Interpretative Rules 2(a) and 3(b) and section notes 3 and 4, it can be seen that the accessories supplied with the refrigerant compressor Model are accessory apparatus and instruments and hence stand to be classified under the same heading as that of refrigerant compressor and hence will carry the rate of 30% and is be classifiable under sub tarriff heading, 9414.91. Thus, it is clear that M/s. ACCEL Ltd. have misclassified the accessories apparatus as stated above and have not paid duty at the same rate as that of the main base compressor at the rate of 30%.
Further, Rule 2(a) of Rules for the interpretation of the schedule to Central Excise Tariff Act, state that, "Any reference in a heading to goods shall be taken to include a reference to those goods complete or finished, removed unassembled or disassembled".
Here, in this case, the refrigerant compressor along with accessories supplied by M/s. ACCEL Ltd. can be said to be a complete refrigerant compressor supplied in unassembled or disassembled condition and, therefore, the accessories stand to be classified under the heading applicable to refrigerant compressor, i.e., heading 84.14.
Thus, from the above, we find that M/s. ACCEL Ltd. have misclassified the accessories supplied along with the main compressor body. The correct classification should have been under the tariff sub-heading 8414.19 for all the accessories of refrigerant compressor. Therefore, M/s. ACCEL Ltd. should have paid 30% excise duty as applicable on goods classifiable under the sub-heading 8414 covering parts and accessories of refrigerant compressors falling under the sub heading 8414.10.
The gross under-valuation and misclassification leading to evasion of duty is also based on the fact that: (a) While manufacturing a particular model, the Technical Data for the compressors like compressors speed, refrigerant, full meter details as such as horse power, make, type, speed, frame ring, etc.
is called for from the customers to enable the manufacturer to select the drive set, pulleys, etc. This shows that all the accessories supplied by M/s. ACCEL Ltd. are tailor made accessories for that particular model and the performance guarantee of the refrigerant compressor is given only when the above accessories are ordered along with the main refrigerant compressor.
Investigations reveal that M/s. ACCEL Ltd., in order to pay less duty on the full value of the O.T.C/semi hermetic compressors manufactured and cleared by them, have knowingly/deliberately shown separate clearance of accessories under separate invoice for bought out items and hence have not paid duty on the full value of the refrigerant compressor." (i) Value of accessories bought out and supplied cannot form part of assessable value of an excisable entity is well settled law. The impugned proceeding are based on the charges arrived after due enquiry which the SCN, dated 3-7-1998 in Annexure-I in para 2 made as follows - "2. Generally, Gas compressors of a......cased in refrigeration, i.e. refrigeration compressors are chargeable to 30% excise duty M/s ACCEL Ltd. are evading duty on the refrigeration compressor by mis-declaration, mis-classification of accessories and optional fitments and also suppressing the assessable value of the refrigerant compressors under lower rates of Central Excise Duties (i.e. 10% to 15%) instead of 30%. Advance which is leviable to all parts and accessories of refrigerant gas compressor falling under heading 8414.10. In fact, parts and accessories of refrigerant compressors covered under 8414.10 are classifiable under heading 8414.91 and carry a rate of 30% excise duty instead of (NIL rate of 10% or 15%) paid on the parts and accessories supplied along with the refrigeration compressor." A perusal of the above said charge in the show cause notice would lead to a conclusion that value of optional parts and accessories is sought to be added and charged to duty at rates applicable to Gas compressors, that cannot be approved.
(ii) The Respondent in the cross objection filed have given the following list of accessories both manufactured and bought out from the market along with list of manufactured spares and accessories with the classification adopted. Their submission are not challenged. The entities are - 1. List of Manufactured accessories not fitted with the Compressors Item Sub-Heading These are accessories supplied to the customers separately under separate invoices. They are not fitted into the compressors.
Therefore, they are classified under their specific headings and cleared on payment of applicable rate of Central Excise duty.
2. List of Manufactured accessories (Optional) fitted with the Compressors at the Instance of the Customers 4. Brass Mullar Valve 8414.92 1-5/8" for Rly These accessories, though optional in nature, are fitted with the compressors as desired by the customers. Therefore, they are classified under heading 8414.92 along with the compressors. Central Excise duty is paid at the rate applicable to the compressors.
Therefore, there is no dispute on this score.
These accessories are bought out accessories from the open market on payment of appropriate Central excise duty. They are brought to the assessee's stores situated outside the factory. After inspection of the accessories by the Quality Control Department of the assessee, they are sent directly to the site of the customers. Therefore, the question of payment of duty for the second time cannot and does not arise. The duty demand on this score is totally erroneous and unsustainable in law.Items Sub-HeadingDischarge valve Assly.
8481.80Safety Valves "Suction Stop Valves "Discharge Stop Valves "Crank Shafts 8483.90Fly Wheels/Pulleys "Bearing cover at "Pump/Shaft Seal (BearingEle. Crank Case Heater 8516.00Driers/Strainers 8421.10Suction Strainers Oil "StrainersOil Pumps 8413.19Oil Pump Housing "Intermediate Plate "End Cover at Pump "Housing for Oil Pump "Cover for Oil Pump " These are spares manufactured by the Respondents and cleared to the dealers separately under separate invoices. They are not cleared to the buyers of the compressors. Though they are essential parts of the compressors, they are specifically covered by the aforesaid sub-heading of Central Excise Tariff. Therefore, they have been cleared to the dealers on payment of appropriate rate of duty as indicated against the relevant subheadings of the tariff. Duty demand on this score is therefore also erroneous and cannot be sustained in law.Items Sub-HeadingCylinder Liners 8414.92Suction & Discharge Pipe Connection "Oil Inlet Pipe "Panel Board "Cooling Water Pipe Set "Side & Top Covers "Cylinder Liner Housing "Shaft Seal Covers "Plate for Screen "Unloading Cylinders for single "Pipe conn.
"Manual Capacity Control "Connection Rod "Shell "Bottom for Shell "Bottom Cap "End Pieces "Clamp for Compressor "Screen for Compressor "Ring for Compressor "Slide Rings "Compressor Bodies " These are spares and also cleared to the dealers. These spares are classified under sub-heading 8414.92 and cleared on payment of appropriate rate of duty, i.e. at the rate of 30% ad valorem as applicable to the parts and accessories under subheading 8414.92.
There is, therefore, no dispute on this score.
It is now contended by the appellant Commissioner in ground m) that parts/components claimed as accessories were always fitted to the refrigerant gas compressor and do not have a separate identity of their own. This is a new ground inasmuch as in the show cause notice it was alleged that the Respondents knowingly invoiced the manufactured and bought out items separately and have thus not paid duty on the full value of the compressor. It was never the case of the Department that the bought out accessories were fitted to the compressor. As the Board and the appellant Commissioner has travelled beyond the scope of the show cause notice, the present appeal deserves to be dismissed.
It is an admitted position of facts that bought out accessories are not brought to the factory of the Respondents. They are brought to the Respondents Stores situated outside the factory and from there the said accessories are dispatched to the site of the customers after inspection by the Quality Control Department without undertaking any manufacturing process thereon. They are already duty paid. Therefore, payment of duty for the second time on the same goods cannot and does not arise. Inclusion of their value in the assessable value of the compressors is, therefore, not warranted by any law. Further, accessories cannot be equated with the essential parts of the compressors, as is the case of the appellant Commissioner. Accessory is distinct and different from parts as held by the Hon'ble Bombay High Court in the case of T.I. Miller Ltd. v. Union of India and Anr. 1987 (31) E.L.T. 344 (Mad.). In this decision, the Hon'ble High Court has held that a thing is a part of the other only if the other is incomplete without it, while, a thing is an accessory of the other if the thing is not essential for the other but only adds to its convenience or effectiveness. It is, therefore, submitted that the bought-out accessories which do not form part of the compressors and which are not even brought to the factory of the Respondents, inclusion of their value in the assessable value of the compressors is not permissible under the law. Therefore, the present appeal deserves to be dismissed.
It has also been contended by the appellant Commissioner that the Respondents had misdeclared and suppressed the assessable value of gas compressor by not including the value of the manufactured and bought out accessories, though they are actually essential parts of the compressor. It appears that this contention is made under the mistaken and erroneous belief that the gas compressor supplied by the Respondents are integral parts of the compressors and the said compressor can be said to have been supplied in S.K.D. condition.
These entities from the submission made that they are brought to the "stars" situated outside the factory and supplied from that place to the side, after quality control checks, would lead to the conclusion that, they are not required or essential/used in the manufacture of the compressor. They are optional items which final use in the Airconditioning Plant Systems being executed by ACCEL or the clients. Parts connecting the Compressor to such system or enhancing the function cannot be parts which are essential parts to Ball for addition in value of an alleged SVD compressor under clearance or be assessed separately to duty under 84 as is sought by Revenue.
(iii) On classification of parts, accessories of airconditioning machining and appliances under Central Excise Tariff Act, 1985 schedule, based on CBEC directions, Trade Notices were issued. One such Notice No. 224/86 reads as:- "Annexure, 'A' enclosed with this Trade Notice covers those parts and accessories of air-conditioning machines, refrigerators, freezers and machinery for the treatment of materials by a process involving a change of temperature, which would appear to merit classification under sub-heading 8415.00, 8418.00 or 8419.00. These parts of accessories would be classifiable under any one or more of the above subheadings depending on whether these are parts or accessories of air-conditioning machines or refrigerators, freezers, etc. or of machinery for the treatment of materials by a process involving a change of temperature. It may, however, be noted that the effective rate of duty on goods falling under any of these sub-heading is 40% ad-valoram in terms of Notification No. 166/86-CE, dated 1-3-1986, as amended.
Annexure 'B' contains a list of parts, accessories or other products used in this industry, which would appear to merit classification under headings or sub-headings different from three sub-headings referred to above.
In addition to the parts or accessories listed out in both the above Annexures, there may be some more items. For determining the classification of such parts and accessories, the general guidelines circulated under this Collectorate Trade Notice No. 22/86, dated 20-2-1986 may be kept in view." and following these very said guidelines, the Respondents products were classified by the department pursuant to Gujarat High Court direction in Writ filed by them. This classification, is proposed to be disturbed by the proceedings impugned herein. A classification afresh cannot be approved nor possible, on the same attaining finality. In any case they cannot be amended retrospectively to recover duty. Especially when the subject Trade Notice is not shown to be disturbed, amended or withdrawn. The instructions in the Trade Notice shall be binding and has to be followed by Revenue. Nothing is brought out in this appeal how classification of the impugned entities could be effected differently following these instructions & entity be placed under 8415.00, 8418.00 & 8419.00. The classification, on merit by application of Section XVI note 2, as arrived by the lower authorities, cannot be disturbed. It is found on perusal of the impugned order, that the ld. Commissioner in paras 80 to 85 after considering the scope of note 2 (a) of Section XVI and considering the case law decided on the subject has very categorically found- "Therefore the departments contention is not acceptable that all parts of gas compressor shall merit classification under rules heading 8414.92 only. We find no reason to upset these finding of Central (Appeals). In this view, no demand would survive on misclassification." (iv) When, addition of value is not being upheld and on misclassification, we find no case, the demands as proposed cannot be made/determined. There is no case or cause therefore for penalty and or interest. The order is required to be upheld and Revenue appeal rejected.
4. In view of the findings, no merits are found in these appeals filed by Revenue.