1. This is an appeal against the Commissioner's Order No. V.Adj (Ch.84) 15-30/2002 dated 20.01.2003 by which the Commissioner has confirmed the differential duty amounting to Rs. 13,31,38,723.69 short paid during the period 1.3.87 to 28.2.95.
2. Heard Shri Rohan Shah, Ld. Advocate for the appellant and Shri R.B.Tiwari, learned Jt. CDR for the department.
3. The relevant facts, in brief, as seen from the records of the case are as follows: (i) The appellants are engaged in the manufacture of Lift/Escalator and parts thereof falling under Chapter heading 84 of the CETA, 1985.
(ii) Show Cause Notice dated 29.3.95 was issued proposing differential duty on the ground that the assessee has mis-classified their product manufactured by them namely parts of lifts 85 escalators classifiable under Chapter Sub-heading 8431 as lifts and escalators under Chapter Sub-heading 8428 though they were removing only parts of lifts & escalators. Proposal also included invocation of penal action and demand of interest.
(iii) On receipt of show cause notice dated 29.3.1995, the assessee had filed a W.P. bearing No. 909 of 1995 in the Hon'ble Bombay High Court, which was finally disposed of by an order dated 27.8.2002 permitting the Commissioner to adjudicate upon the SCN dt. 29.3.95 and to decide the same in accordance with law, after following principal of natural justice.
(iv) The Commissioner vide his order dt. 20.1.03 has ordered the finalization of classification of the parts cleared for erecting of the lifts & escalators etc. under Chapter 8431 and accordingly confirmed the demand as proposed in the show cause notice.
4. The learned Advocate for the appellants challenged the order of the Commissioner inter alia on the following grounds: (i) They are entering into contracts with their customers for supply of lift/escalator which they execute by erecting and commissioning at the site of the customers. They also enter into contracts for maintenance of such lifts and escalators which include supply of required parts and components.
(ii) They are supplying the manufactured goods and procured goods over a period of time (some time stretching beyond a year) depending on the progress of the work as per contract. They also supply parts and components in pursuance of maintenance contract.
(iii) The goods cleared by them under the contract for supply of lifts/escalators has all the essential characters of the lift/escalator and should be classified only under Chapter 8428 attracting lower rate of duty. Only parts and components supplied for maintenance contract should be classified under 8431.
(iv) Notes 2(a) of Section Note of Chapter XVI and Rule 2(a) of Interpretative Rules should be applied in their case and the entire clearances made in pursuance of contract for erection should be subject to duty at the rate applicable to Parts suitable for use solely or principally with the machinery of heading Nos. 84.25 to 84.30.
It is to be noted that the unlike in many other Chapter headings word used as "parts with" instead of "parts of".
(vi) In support of their claim that the essential characteristics are satisfied, they relied on the affidavit dated 12.11.2002 of Shri Balasubramaniam, a very experienced engineer of their company; they also offered him for cross examination, the Commissioner has not cross examined him; the expert opinion has not been refitted with any authoritative literature or opinion.
(vii) The burden to prove that the manufactured items fall under a particular Chapter Heading falls on the department.Flat Products Equipments (I) Ltd. v. CCE Mumbai-IIIViswa Industrial Co. (P) Ltd. v. CCE, Calcutta-II 5. The learned Jt. CDR Shri R.B. Tiwari narrated the nature of activities undertaken by the company by taking us through the affidavit dated 25.6.90 filed by the appellant before the Collector (Appeals) and made the following submissions: (i) The classification list filed by them under Rule 173B mentions the items manufactured by them as parts indicating the part nos; the price lists filed under Rule 173C is for each part indicating the part no. The RT-12 returns filed under Rule 173G also furnishes quantities in terms of parts manufactured and cleared. The parts manufactured by them are cleared either for maintenance purpose in which case they are paying duty treating them as parts and classifying them under Chapter 8431 and when they are cleared under the contract for assembling the lifts/escalators they are claiming them as a lift or escalator and seeking classification under Chapter 8428.
(ii) The parts are cleared over a period of time to their own site office and for this purpose they are filing the price list in Part VI(B) Format treating the clearances as for captive consumption and not in Part-II Format as applicable to contract price.
(iii) Before the Hon'ble High Court Bombay in the WP No. 3276 of 1987 filed by the party on matters relating to valuation of the lifts, the department took the stand that what was cleared by them was actually lifts/escalators as they had the essential characteristics and the appellant took the view that full fledged lift/escalator comes into existence only at the customer's site that too after highly technical job was undertaken. The relevant findings of the Hon'ble High Court of Bombay on the rival contentions as per judgment dated 27.8.2002 are as follows: Having heard the rival contentions and having examined all the citations referred to hereinabove, we are clearly of the opinion that the same shall apply to the facts of this case in full force and item in question being immovable property cannot be subjected to excise under the tariff heading claimed by the Revenue. The case sought to be made out by the petitioner is also covered by the decision of the Government of India in reference: Otis Elevator Company (India) Ltd. 1981 (3) ELT 720 (GOI), wherein it was clearly held that if an article does not come into existence until it is fully erected or installed, adjusted, tested and commissioned in a building, and on complete erection and installation of such article when it becomes part of immovable property, it cannot be described as goods attracting levy of any excise duty. Thus applying the ratio of all the above judgments including the order of the Government of India referred, to hereinabove, the case sought to be made out by the petitioner has to be upheld. The contention sought to be advanced by the petitioner has a lot of merits in their submission and the issue is squarely covered against the Revenue that once the item has been held to be an immovable property; then, for the purpose of valuation the cost of construction and proportionate escalation charges cannot be added in the assessable value, as such, the impugned communication dated 20th August 1987 of the respondent No. 1 is quashed and set aside and it is declared that the erection of lift is not excisable under Tariff Item No. 68 of the First Schedule to the said Act. It is made clear that in this petition we have held that the erection of a lift us a whole is not excisable and we have not dealt with the issue of excisability of the manufacture of parts of the lifts under Tariff item 84.28 or Tariff Item 84.31 of the Central Excise Tariff. Therefore, seeking particulars of commissioning and erection charges received by the petitioners from their customers does not arise at all. If there is any dispute regarding the excisability of the parts of the lifts under Tariff Item 84.28 or 84.31, the respondents may proceed in the matter in accordance with law as this aspect of the matter will need investigation and adjudication based on questions of fact for which writ jurisdiction cannot be allowed to be invoked.
(iv) They are manufacturing only parts or components; each part is a complete item in itself. They are neither incomplete nor un-finished. They have acquired the essential character of parts of machine. They have not acquired the essential character of lifts/escalators/lifting machinery.
(v) Since the party has specified the parts by description and part No., the department is right in classifying them as parts under Chapter heading 84.31. In any case the same items when cleared for maintenance are being treated by them only as parts falling under chapter heading 8431.
(i) Pioneer Embroideries Ltd. v. CC, Mumbai 2004 (178) ELT 933 (Tri-Mum)Space Age Engg. Projects (P) Ltd. v. CCE, Pune 1995 (78) ELT 544 (Tri)Wesman Engg. Co. Ltd. v. CCE, Cal-III 2002 (150) ELT 644 (Tri-Kol)Godrej & Boyce Mfg. Co. Ltd. v. CCE, Mumbai-II Order No. A/429-432/WZB/06/C-I/EBWalchand Nagar Industries v. CCE (Tri).
6. We have carefully considered the rival submissions. The issue to be decided is whether items cleared by the appellant in terms of a contract to complete lift/escalator should be classified under Chapter tariff heading 8423 as contended by the appellant or as parts falling under 8431 as held by the department. The description of the tariff heading 8428 and 8431 and Section Note 2(a) of Section XVI of CETA are reproduced as under: 8428: Other lifting, handling, loading or unloading machinery (for example, lifts, escalators, conveyors, teleferics) 8431: Parts suitable for use solely or principally with the machinery of heading Nos. 84.25 to 84.30 Section Note 2(a): Parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 84.09, 84.31, 84.48, 84.66, 84.73, 84.85, 85.03, 85.22, 85.29, 85.38 and 85.48) are in all cases to be classified in their respective headings.
7. It is not a case that lifts/escalators are fully manufactured in the premises of the appellant company. They are cleared as parts and components over a period of time and lifts/escalators are assembled at site by the personnel belonging to the appellant company and thereafter commissioned at the customer's site. The Hon'ble High Court of Bombay considered the valuation aspects of these lifts/escalators supplied by the appellant company. The department was seeking to charge duty on the full value of the contract treating the product cleared by them from their factory as lifts/escalators as according to the department they had essential characteristics of lifts and escalators. This argument did not find favour with the Hon'ble High Court. They have held that the final product lifts/escalators come into existence only at the premises of the customers and they are not excisable as they come in to existence as immovable property.
8. The appellant company takes the view that valuation and classification are two distinct issues. Even though for the purpose of valuation, the Hon'ble High Court has held that the lifts/escalators come into existence at the premises of the customers, if the Interpretative Rules are applied what was cleared by them has to be classified only as lifts/escalators and not as parts or components. The claim for classification not as parts or components but as full fledged lifts/escalators arises out of the fact that the lifts/escalators carry a lower rate of duty.
9. While the Interpretative Rules are applied in determining the classification under Central Excise Law certain prior conditions are required to be applied. Under the Customs Law, any product which is entering India requires to be classified. But in under Excise Law only such goods which first satisfy the criteria of manufacture are to be classified. If a question is raised as to whether the appellant company has manufactured parts or components meant for lifts at their manufacturing unit, the answer is in the affirmative. If a question is asked as to whether the appellant company has manufactured lifts/escalators in their manufacturing unit, the answer is clearly no.
In this context, unequivocal finding of the Hon'ble High Court of Bombay in their own case that lifts/escalators come into existence only at the customer's site is relevant.
10. Whether the application of Interpretative Rules will treat the various components (including the components/sub-assembly which are according to the appellants imparting essential characteristics of a lift) as classifiable under chapter 84.28 as lifts/escalators.
11. It would be appropriate to consider an example. If somebody orders for a car, and if the car manufacturer delivers all the parts, components, sub-assembly like body, engine, brake assembly, dash board, doors etc. packed in cartons or in bags will that amount to a car being supplied? If it is imported in such form, for classification under the Customs Tariff, it will amount to a car. If a domestic manufacturer gives these parts in the above form it cannot be held that he has manufactured and cleared a car. On the other hand, if somebody chooses to clear a car minus the tyre, whether it should be treated as a car? In such a situation, the Interpretative Rules will come into play.
12. In the given case, where the parts or components are cleared over a period of time it cannot be treated as clearance of fully finished lift/escalator. This is not a case where the unassembled lifts or escalators are being cleared for ease of transportation or other valid reasons.
The Section Notes and Chapter Notes are relevant in respect of classification of any goods manufactured and in this case, the goods are parts made for use in or use with lifting machinery and equipments.
The Chapter heading 8431 is sufficiently specific enough to cover the various items, components manufactured by them. In other words, the test of essential character is applicable to even to the parts. Some items, which are claimed to be imparting essential characteristics for the lift themselves, are not listed as one single item in their classification list, price list or in RT-12 return. For example - machine and motors which are considered to be one of the items imparting essential characteristics of the lift (as per the affidavit of Shri Balasubramaniam) has not been listed as a single item.
13. The appellants' contention that if the items supplied by them are not treated as machinery, the tariff sub-heading 8428 will be rendered redundant is not correct as there are various items like Fork lifts Kitchen lifts, mini elevators etc. which fall under this tariff.
14. The various case laws relied by the appellants are distinct in facts when compared to their case. There is finding that parts cleared in those cases constitute full machinery but in appellants case, the specific finding of the Hon'ble High Court that the lift/escalator comes into existence only on the customer's end, has not been controverted. In the case relating to M/s Vinar Systems Ltd. cited supra there is a clear finding that parts cleared from the appellants' factory would constitute a complete material handling equipment in a CKD condition. In the case relating to M/s Flat Products Equipments Ltd. (cited supra), there is a clear claim by the party that the entire material required for manufacture of Rolling Mils come into their factory for reassembly, inspection and testing which has been accepted by the Tribunal. In the case relating to M/s Viswa Industries (cited supra), there is a finding that the items were cleared in CKD condition as complete system for the purpose of transportation. In the case relating to BHP Engg. (cited supra), the dispute relates to non-observance of procedure prescribed in Ministry's letter dated 10.3.93 in respect of piecemeal clearance of all parts he for a complete conveyor. Further, the very same components while cleared by the appellant for maintenance purpose are being assessed under Chapter 8431. The classification cannot change merely because they were supplied under a single contract. This view has been supported in the case of CCE v. Kone Elevators India Ltd. (cited supra).
12. In the light of above, Commissioner's finding on classification and demand of duty cannot be faulted.