1. These two appeals are filed by M/s Vijay Transformers, Chennai and M/s Tamilnadu Transformers, Ranipet. The common issue involved in the appeals is classification of aluminium/copper coils for transformer manufactured by the appellants. The question decided in the impugned order is the correctness of classification of the coils as transformer parts. Classification of transformer parts under CSH 8504 is not an issue. The period involved in both the appeals is 1.12.94 to 25.2.99 and show cause notices were issued on 9.12.99 in the case of appeal No.E/1484/00 and on 14.12.99 in the case of Appeal No. 1488/00.
2. As the facts and issues are identical, we proceed to examine one of the appeals, Appeal No.E/1488/2000 in detail. The facts of the case are that M/s Vijay Transformers, Chennai were engaged in the repair of sick transformers and manufacture of new transformers. In 1985, the assessee had obtained L-4 licence under Rule 174 of Central Excise Rules, 1944 for manufacture of Distribution transformers and Transformer coil windings. In the year 1992, they had obtained registration, also for manufacture of electrical stampings and laminations. They followed Central Excise formalities such as filing of classification list, issuing goods under cover of GP-1s/invoices and filing of periodical RT-12 returns. They had classified the impugned goods HV & LV coil windings of both copper and aluminium under Chapter sub-heading 8504.00 of I schedule to CETA 1985 in their classification lists filed since 1986. They had declared the item as under: Same classification continued for the subsequent years for the subject goods. They were receiving sick transformers from various Electricity Boards for repair. The appellants replaced burnt coils in the sick transformers with HV & LV coils of double paper coated (DPC) aluminium or copper wire and enameled aluminium or copper wire and paid duty on them as parts of transformer on the value agreed with the customer Electricity Boards. For the above purpose, the assessee used to get aluminium rods and copper rods converted into aluminium wires or copper wires through a job worker based in Hyderabad in terms of Rule 57F(4) of CER 1944 read with Notification No. 214/86. These insulated wires so received were utilized in the manufacture of fresh transformers or in the repair of sick transformers. The department found that the assessee was not replacing the entire core made up of CRGO laminated sheets pn which the wires/coils were wound so as to make it a part of transformer for captive consumption. The assessee was replacing only wound wire/coil in the sick transformer, in the course of repair. The department therefore, took a tentative view that what was replacing burnt coils had to be classified as insulated coils (electrical conductor) falling under sub-heading 8544.90 of the CETA schedule. The department was of the view that the coils were not transformer parts and they continued to remain wires even after winding. It appeared that the assessee had therefore, contravened the provisions of Rule 9, 53, 173B, 173F of CER 1944. On the basis of the proposed re-classification, show cause notice was issued demanding duty of Rs 20,00,863/- for the period 1.12.94 to 25,2.99 with proposals to penalize them under Section 11AC, 173Q and also to demand interest due under Section 11AB.3. The ass,essee contested the demand and justified classification of the HV & LV coils of copper and aluminium removed under Chapter heading 8504.00 on the ground that elaborate process of manufacture was involved in producing the item and that the item was being marketed.
The demand was not sustainable as the same classification as above had been approved every year since 1985. They explained the process of manufacture and narrated the differences between the input received 'i.e. double paper cut/enamel covered aluminium and copper wires' and the corresponding coil windings as follows: The wires are first decoiled and wound with specific design supported with press board, Kraft paper, cotton sleeves and cotton tapes in between the layers.
The ordinary wires supplied as such cannot perform or have such KVA handling capacity.
The extra insulating material is provided to withstand the induced higher KVAs.
After winding required number of turns and layers, they are cut to be called as coils.
No such connectors are required, as they are only wires, which will be used for any purpose.
The cut ends are braced together to facilitate for connection with the load distribution.
They are in the coil form with specific number of turns (in detailed circular form) with layers having ID, OD and axial height.
Such wound coils function as primary or secondary depending upon the KVA of the transformers in which they are to be used/replaced based on the parameters like voltages, currents and cross section of the wire.
The wires cannot be placed as such to be used as primary or secondary.
In fact, they do not have such electrical insulation materials between layers and turns and the wound the coils will be put around the core along with insulation materials.
The impulse strength of the windings for the various voltages has been prescribed. Eg. For voltage rating of 22/11 KV, the impulse voltage crest is 1.50/110 KV.Impulse test is performed as required by TNEB only with coils, thus manufactured and fixed in a transformer.
They argued that it was obvious from the above that there had been discernible and perceptible transformation of raw material to the final product with a new name, characteristics and use. Therefore, the mere wire could not be equated with coil.
4. It was submitted that the classification of the impugned goods under Chapter heading 8504 had been approved by the department since 1986 and they had filed RT 12 returns along with invoices based on the classification lists during the previous 13 years. They had paid duty appropriately and the same had been assessed by the proper officer without any objection. They also challenged invocation of larger period on the ground of misdeclaration on the basis that they had declared the goods correctly in the classification lists and the description and the classification had been approved by the department. It was not for the department to say whether they should repair sick transformers by replacing the entire core or only the coils. They also submitted that the allegation of intention to evade payment of duty was without any basis. They cited the ratio of Apex Court's decision in ESPI Industries & Chemicals Pvt. Ltd. in support of the argument that the classification approved and in force for a long time cannot be modified or changed by the department. They requested the Commissioner to drop the proceedings.
5. While adjudicating the notice, the Commissioner observed that the duty liability on the impugned goods arose when the appellant had cleared the aluminium/copper wires (conductors) in coil form for fitment to the core of transformers. He relied on the ratio of decision of the Tribunal in Punjab Electricity Board v. CCE in taking the view that the subject goods were only wire arranged in coil and nothing else; and on Punjab State Electricity Board v. CCE, Chandigarh to hold that coils did not exist at any time as a marketable commodity. The Commissioner accordingly decided that coils had not emerged as a marketable item and they were aluminium/copper wires wound on the core of the transformers in the course of repair/re-conditioning of transformers . He observed that it had been incumbent on the part of the assessee working under Self Removal Procedure to intimate the department that they were only replacing DPC aluminium/copper wires during repair of transformers but they had withheld this vital information and misdeclared that they had been replacing coils. Their misdeclaration had been detected by preventive officers after investigation. He found that the Apex Court's decisions cited by the appellants were in cases of different facts.
Accordingly he confirmed the demand of duty of Rs 20,00,863.86, imposed equal amount of penalty under Section 11AC, demanded interest due under Section 11AB and imposed a penalty of Rs 2 lakhs under Rule 173Q of CER 1944.
6. In the appeal filed before the Tribunal, the appellants have advanced the same arguments as they had made before the Commissioner.
In order to establish that the coils were marketable, they referred to the purchase order placed by TNEB, P.O. 6/94 dated 6.9.94 on record for the supply of wound HV coils of 100 KVA/11 KV distribution transformer, wound with DPC aluminium winding wire. The purchase order indicated the fact that wound HV coils were manufactured out of DPC aluminium winding wire. They also submitted copy of invoice No. IHT/Misc/502 dated 4.6.90 for the supply of coils for their use and to support their contention that coils were marketable and that coils had been purchased from M/s Industrial Heaters and Transformers. They had also filed necessary declaration under Rule 57G. They submitted that they had contested the demand invoking larger period under Section 11A and claimed that they had not misdeclared or suppressed any fact from the department and their activities were known to the department all along. As regards the proposal to demand differential duty on the basis of a revised classification they cited the case law ESPI Industries and Chemicals Pvt Ltd. (supra) wherein the Apex Court had observed that after having accepted the classification list the department could not take somersault and contend to the contrary.
7. During the hearing learned Counsel for the appellants reiterated the arguments in the appeal. He relied on the decision of the Tribunal in Filtronics Ltd v. CCE wherein the Tribunal had held that coils were covered by tariff heading 8504. They submitted that vide Circular No. 219/90-CX-4 dated 9.7.90 the CBEC had accepted this decision of the Tribunal. They relied on a number of judgements of the Hon'ble Supreme Court to the effect that extended period could not be invoked alleging suppression when classification list was approved from time to time. The learned SDR reiterated the arguments of the Commissioner.
8. We have carefully considered the facts of the case and the submissions. It is seen that the appellant had got the impugned goods classified under heading CSH 8504 as coil winding. HV & LV coil windings of copper and aluminium declared as falling under tariff heading 8504 had been approved by the Assistant Commissioner of Central Excise, Madras VII Division vide Divisional Serial No. 184/91-92 dated 3.10.91.
As explained by the appellants, coil windings are produced by winding wires with specific design supported with press board, craft paper, cotton sleeves and cotton tapes in between the layers . Adhesive is used for binding the extra insulating material in order to withstand the induced higher KVAs . The number of turns of each coil is decided on the basis of the requirement of the transformer to be manufactured i.e. for stepping up or stepping down a given voltage to obtain a desired voltage. The ends of the coil are braced together to facilitate connection with load distribution. The coils have predetermined inner diameter and outer diameter, axial height and weight depending on the voltage and current requirements. The cross section of the wire used and the wire used (copper/aluminium) are also very much material and decide the voltage change desired . The impulse strength of the windings is prescribed for various voltages and this is tested with coils before, fixing in the transformer. Thus it could be seen that winding coils are not just electric conductors or wires.
9. The coil with a single turn around a magnetic core produces an emf (electro motive force) and a coil with several turns is an accumulation of emfs. The literature on transformer technology on record talks of two types of coils depending on the directions of winding i.e. left hand and right hand. They are classified according to the direction in which they are wound; their placement on the core limbs, the manner in which the coil windings are inter-connected and the number of parallel conductors. The winding is chosen according the power per limb, the conductor to be used, the current in the winding in one limb, the voltage of the winding and the cross sectional area of a turn. The inner diamemeter, outer diameter and axial height are also specific for coils of a given transformer. In the case of Filtronics Ltd. v. CCE , the Tribunal observed that the inductor was an electronic device consisting of conductor bound in a cylindrical or spiral form. Coils which were required to produce a desired impedence were inductors covered by heading 85.04. The above judgment also quoted the ISI definition of inductors as follows: Inductors (coils) is an electromagnetic device consisting of conductor bound in a cylindrical or spiral form, or a variation of this form of pattern cause concentrated magnetic filed parallel to the axis of the coil.
In this decision the Tribunal decided the classification of coils forming a transformer and did not take up classification of a single coil. But the observations made apply to single coil as well. In a transformer each coil generates emf and both HV and LV coils are separately saleable and are sold for repair of sick transformers.
11. In the classification list filed by M/s. Vijay Transformers, in 1991, they had classified coil winding for transformers under heading 85.04 and indicated the duty liability as 20% BED when cleared outside the factory and claimed exemption under notification No. 217/86 dt.
2/4/86 when they were used within the factory.
12. The classification now questioned had been in the classification list approved vide divisional classification list No. 184/91-92. The exemption was claimed for captive use of the coil for manufacture of transformers whereas the clearance on payment of duty applied to coils used in sick transformers. The approved classification list therefore recognized removal of coils for fitment in the sick transformers in place of burnt coils as clearance as per the Central Excise Law. It is obvious from the above discussion that winding coils have a commercial name, different applications, are marketable and are goods different from electric wires which are just conductors of electricity 13. As regards limitation, we find that the appellants had not suppressed anything relevant from the department and the department was aware of the activity undertaken by the assesse in relation to the subject goods. The appellants had classified the subject goods under the heading 85.04 as far back as 1991 and much earlier in the case of M/s Tamilnadu Transformers. The appellants had filed the classification lists regularly, indicating the same classification. They had furnished the pre-budget stock several years showing the closing stock of excisable goods including the subject goods. The units used to be visited by the departmental officers periodically including the audit parties. The appellants had also filed Rule 57G declaration for availing input credit where also the subject goods had been shown as final product.
14. M/s. Tamilnadu Transformers had manufactured coils following similar process of manufacture starting with winding of the wires on a wooden pattern and finishing by dipping the coil in a golden yellow insulation varnish. Show Cause Notice dt. 12/12/99 was issued to them to demand the duty on winding coils cleared during the period 01/12/94 to 2/1999. In adjudication a duty amount of Rs. 25, 89,714.27 was confirmed and an equal amount of penalty under Section 11 AC and another penalty-of Rs. 2.00 lakhs under Rule 173Q were imposed on these appellants. The interest due on the duty amount was also demanded, The appellants had obtained licence under Rule 174 in the year 1986 and got themselves registered in the year 1992. They filed classification list under Rule 173B for various products manufactured by them such as distribution transformers and coils classifying them under Chapter Heading 8504.00. A copy of the classification list approved in May 1987 is available on record. It is also claimed in the classification list that they were availing Modvat Credit. The appellants have placed on record the declaration filed under Rule 57G in the year 1991 (revised).
They have periodically filed classification lists under 173B and R.T.I2 returns and other prescribed returns.
15. In respect of Tamilnadu Transformers, the jurisdictional Assistant Commissioner had initiated proceedings to revise the classification of the subject goods from the approved heading 85.04 and had dropped the proposal in adjudication order C No. 5/85/15/^/98 BC dated 23.11.98.
Therefore, in both the cases demand is barred by limitation. The appellants had relied on the ratio in the case of Primella Sanitary products (P) Ltd. v. CCE reported in 2005 (184) ELT 117 (S.C) wherein the Apex Court had held that in a case where the classification list was furnished and approved, extended period could not be invoked alleging suppression. In that case however, the assessee had furnished the write up on the manufacturing process along with classification lists. In Filtronics Ltd. v. CCE (T), the Tribunal cited the following observation of the Supreme Court in the case of Chemphar India v. CCE : In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to Sub-section 11A of the. Act, it has to be established that the duty of excise has not been levied or paid or short-paid, or erroneously refunded by reasons of either fraud or collusion or willful misstatement or suppression of facts or contravention of any provision of the Acts or Rules made there under, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before the period of six months.In ESPI Industries and Chemicals (P) Ltd. v. CCE HYD The department accepted this classification without demur. Having done so, it is difficult to understand how the department could take a somersault and contend to the contrary 16. From the above discussion, it transpires that the coils come into existence separately before they are used to replace old coils of sick transformers or are used in the manufacture of new transformers. The ratio of the decisions of the Tribunal cited to the contrary effect therefore, appear to be applicable only to the cases of particular facts dealt with in those decisions. In the impugned order, the Commissioner has also referred to the coils removed, as parts of transformer. M/s Tamilnadu Transformers Ltd had got the same classification approved in their various classification lists filed from 1987-88 for the subject goods. One of the points considered by the adjudicating authority to decide that the impugned goods were not parts of transformer was that the heart of the transformer i.e. magnetic steel core and yoke which formed nearly 40% of the transformer had not been replaced and that no connecters were attached to the coil. We do not think that these facts are adequate to hold that the impugned goods are not classifiable as winding coils forming transformer part.
17. The demands are, without doubt, time barred. On a careful assessment of the facts of the case, we are convinced that the appeals should succeed on merits as well as on limitation. Accordingly, we allow both the appeals.