Judgment:
1. The appeals arise out of a common order passed by the Collector of Central Excise (Appeals) in AMP-399/PN-169/88, dated 13-09-1988. The same is disposed of by a common order by this Tribunal. The issue relates to classification of Base Frame/Base Plate and of Drive Set comprising either Flywheel, Motor Pulley, V-Belt or direct coupling.
The appellants submit that all the said parts manufactured by them are classifiable under the erstwhile Tariff Item 29A(3).
2. Tracing the facts leading to the filing of this appeal chronologically. The appellants have stated that they were paying duty under Item 68 upto December 1981 under a mistake of law. On being made aware that the correct classification should be under Item 29A(3), they filed a revised classification list on 12-10-1981, in respect of the parts classifying them under Item 29A(3) and claimed exemption from duty under Notification 80/62, dated 24-4-1962 and as the classification list was not approved by the Assistant Collector, they started paying duty "under protest" from 2-12-1981. The classification was provisionally approved.
The Assistant Collector in his order, dated 14-10-1982, held that the parts were parts of the air-conditioning and refrigerating machinery and classifiable under Item 29A(3) and also that the benefit of Notification 80/68 was available. In consequence a refund of Rs. 12,58,526/- was given to them under a cheque, under a covering latter, dated 29-6-1983. Aggrieved by the order of the Assistant Collector, the Collector directed the Assistant Collector by an order, dated 27-12-1983 to file an application to the Collector of Central Excise (Appeals), Bombay under Section 35E(2) of the Act, and also against the order of the Assistant Collector, dated 29-6-1983, by which a refund cheque was issued, the Collector directed the Assistant Collector to file an application to the Collector of Central Excise (Appeals) under Section 35E(2) of the Act. The Collector of Central Excise (Appeals) in his order, dated 13-9-1988, partly allowed the appeal of the department holding that the Base Frame/Base Plate, Drive Set comprising item of Flywheel, Motor Pulley, V-Bells or direct couplings as classifiable under Item 68, and modified the refund sanctioned. The appellants have filed an appeal against the order of the Collector of Central Excise (Appeals).
3. The appellants have held that parts under dispute, the base frame/base plate and drive set comprising either flywheel, motor pulley, V-belt or direct coupling are parts of air-conditioning and refrigerating machinery, classifiable under Item 29A(3) and in other Collectorates (Ahmedabad and Delhi), they are classified under Item 29A(3), the Pune Collectorate Trade Notice 91/76, has similarly held them as accessories. The Collector of Central Excise (Appeals) had failed to appreciate that the base frame/base plates and drive sets were not "parts" of a compressor, but commercially and even departmentally were known as "Accessories" of a compressor.
4. Shri A. Hidaytullah, the learned senior counsel in his submission before the Bench, laid emphasis that the two articles were parts of the ACR system falling under Tariff Item 129(A)3 and further they were accessories of a compressor and not parts of a compressors. To drive his point, the learned Counsel explained through technical note, compilation of technical literature. In order to fully appreciate the functions, the appellants explained, with literatures, the functions, as under : "A refrigeration and air-conditioning system (hereafter called "ACR system") is a closed circuit system. It is made up of various parts which when connected together via piping/valves form the refrigeration system. The main parts of the ACR system are : (1) Compressor (2) Condensor (3) Evaporator Chiller (4) Expansion Device/Valve.
The air-conditioning or refrigeration system or appliance can function once all the aforesaid parts are connected together in an appropriate refrigeration system design.
In order to enable the designed ACR system or appliance to function efficiently and to protect the various parts of the system from damage or overload, there are certain other parts used in the ACR system which in technical and commercial parlance are called "Accessories".
(1) Drive Set (bell drive/direct coupling), (2) Base Frame, (3) Oil Separator, (4) Suction and discharge stop valve, (5) Crankcase heater, (6) Solenoid valves, (7) Cutouts and Pressure gauges.
There is a clear distinction between a part of a compressor and an "accessory" of a compressor because though an accessory can never technically or commercially be called a part of a compressor it would be a part of the Refrigeration system.
All ACR compressors and air-conditioning and refrigeration system and appliances are manufactured to conform to international standards. Some are leading standards normally referred to in ARI. In the case of parts or components of a compressor, each part or component is specific and has to be manufactured so that it is integrated into the compressor design. Each and every part and component of compressor is, therefore, necessary for a compressor to function.
The functions of the compressor and of the following accessories of the compressor, i.e. parts of ACR system are detailed below: (1) Drive Set (2) Base Frame.
A compressor (1) is a vital part of the ACR system. Compressors can be of different designs - (in this Appeal we are concerned with the reciprocating type i.e. those that function with a forward and backward movement of pistons in the cylinders of the compressor).
The compressor sucks the refrigerant gas (hereafter referred to as "the gas") at low pressure and temperature from the evaporator and compresses it. Because of the compression there in temperature rises and gas is discharged from the compressor at high pressure. This high pressure hot gas is piped to the condenser. (2) The Condensor is an another part of the ACR system. The Condensor absorbs the heat from the gas which cools down and condenses to become liquid. The liquid passes through an expansion valve (3) which is yet another part of the ACR system. The expansion valve controls the rate of the flow of the liquid and it reduces the high pressure of the liquid received from the Condensor to a low pressure cold liquid which is, thereafter piped into the evaporator/chiller. (4) The evaporator/chiller is yet another part of ACR system. Here the liquid comes into contact (through the evaporator) with the heat from the space in which evaporator is installed. Thus reducing the temperature of space giving the desired cooling effect. The liquid turns into a gas by which process the heat in the space is absorbed.
The gas is piped back to the compressor and the cycle is repeated.
The essential function, therefore, of the compressor is to suck in the gas at lower pressure and temperature, compress it and discharge the hot gas at a higher pressure to the condensor. In a reciprocating compressor this is achieved by the movement of the pistons in the cylinders of the compressor which by their forward and backward movement alternatively suck the gas by creating a vacuum in the cylinder, then compress it and after compression discharge it at a higher temperature.
Function of the Drive Set: As explained above, the compressor works by the forward and backward movement of the piston in the cylinder of the compressor. To move the pistons in the cylinders of the compressor an external source of power is required which is normally an eiectric motor. This electric motor has to be connected to the shaft of the compressor so that when the electric motor rotates that rotation is transmitted to rotate the shaft of the compressor to which the pistons are attached. This connection is made by the drive set which consists of (a) flywheel, motor pulley and V-Belt or (b) the direct coupling. The drive set has to match the speed and horse power of the electric motor to the speed and compression capacity of the compressor. Either of the two types of drive sets has therefore, to be specific to the speed and horse power of the electric motor and the compressor and it is not interchangeable. Since the compressor can be made to run at different speeds (thereby giving different compression capacity) different combinations or permutations are possible in the size of the motor pulley and the size of the flywheel (and consequently the configuration of the belt) and these have to be selected for the particular ACR system.
Carrier air-conditioning system design hand book, page-7.8 indicates criteria for selecting drive from which it can be easily seen that choice depends on number of factors. There is, therefore, an option in the permutation/combination of the motor pulley and flywheel, but once a desired compressor capacity and a speed of the compressor is decided and the speed of the electric motor is determined the combination of the electric motor pulley, flywheel and V-belt becomes specific and is not interchangeable.
Function of base frame : The base frame is used to mount the compressor rigidly so as to minimize vibrations throughout the system. Excessive vibrations from the compressor if transmitted throughout the pipes of the system will result in the piping becoming loose and weak at the joints thereby resulting in leakage of gas. The efficiency of ACR system, which is a closed system, depends entirely on the appropriate/desired volume of gas which is present in the system any leakage radically reduces the efficiency of the ACR system. Besides, the gas is extremely expensive and constitutes a major component of the total cost of the ACR system and hence its loss has to be minimised. The base frame provides a rigid mount for the compressor and reduces the vibration present in the system, so as to minimise gas leakage. The base frame is made of mild steel and has to be grouted to the ground. A particular type of base frame i.e. dimensions, size, thickness etc., is chosen for a particular compressor design. It is specific to the design because it is machined, heat treated, grooved and drilled to accept the compressor mounting arrangement as well as its weight, speed and extent of vibration. The base frame is, therefore, specific to the compressor design and is not interchangeable." In explaining the part list of the compressor as per the literature in the book 'Gras-so RC-11 Compressor', which conforms to the summary bill of materials prepared for Kirloskar Pneumatic KC compressor, the learned Counsel stated that none of the parts of the compressor specified therein included the items under dispute. But, on the other hand, the Grasso Compressor has listed the V-belt drive, base frame and direct drive and flexible coupling as accessories.
Excerpts from the Handbook of Air-conditioning Systems were produced to emphasise the point that these parts were accessories of a compressor :Coupling - Used with an open compressor when driven at motor speed.Belt drive package - Used with an open compressor utilising a flywheel and motor pulley for driving theStructural steel base - Used to mount the compressor exit, con- densing exit, or water chilling unit as a Referring to the Tariff Item 29A, which covers refrigerating and air-conditioning appliances, the learned counsel stated that the parts of refrigerating and air-conditioning appliances and machinery, all sorts were to be brought under Item 29A(3) of the Tariff. The All India Air-conditioning and Refrigeration Association had issued a circular, dated 5-4-1986, asking their members to submit classification list to their respective Collectorates where the new tariff was introduced and items flywheels/pulleys, couplings/belt guard were to be classified under 8483.00, base stand/franc made of iron/steel under 7308.70.
Further instructions from the Govt. of India in Circular No. 6/86 Exn., dated 25-9-1986, had for the guidance of the field formations listed the items of air-conditioning and refrigerating machinery classifying them under the headings which would merit classification under the respective heading.
A reference was also made to the Tariff Advice No. 10/76, dated 3-3-1976 issued by the CBE & C advicing that among other things, belt drive guard cannot be considered as components of compressor, but these are items essential for working of the system, where compressor is also a part. By the Trade Notice 51/76 issued by the Collector of Central Excise, Poona, these items have been referred as accessories of compressor.
He referred to the decision of the Hon'ble Supreme Court, Frick India Ltd. v. UOI and Ors. published in 1990 (48) ELT 627 (SC), para 7 on the scope of Tariff Item 29A(3), that the language used in sub-item (3) is also wide and comprehensive in its application. Therefore, implying that parts of the refrigerating and air-conditioning appliances and machinery, all sorts would cover the disputed items.
The other case laws which were cited by the learned Counsel to project his points of arguments were as under : "The onus to prove that the said parts are not classifiable under Item 29A(3) but are classifiable under Item 68 is on the Excise Department. The Excise Department is bound to produce material evidence in support of the alleged reclassification which it has failed to produce. [Advani Oerlikon v. Union of India - 1981 (8) ELT 432 (Bom.); Bakelite Hylam v. Collector In other Collectorates (Ahmedabad and Delhi) to the Department's knowledge the parts identical to those manufactured by the appellants are being classified under Item 29A(3). On the basis of uniformity of classification between different Collectorates, the parts manufactured by the appellants have also to be classified under Item 29A(3). [Anup Engineering Ltd. v. Union -1978 (2) ELT J 533; Collector v. United Glass The Poone Trade Notice No. 91/76, dated May, 1976 wherein the said parts were acknowledged to be the parts of air-conditioning and refrigeration machinery is binding on the Excise Department and the Department is estopped from contending to the contrary. [Collector v. Garware Paints It is an admitted position as understood by the Excise Department, as well as commercially, that drive sets, base frame/base plate are not "parts" of a compressor but are known and understood to be "accessories". This commercial understanding is binding on the Collector. [Asian Paints v. Collector It is submitted that there is a distinction between a "part" and an "accessory" and an "accessory" of a compressor could still be a "part" of the air-conditioning and refrigeration machinery. The order dated 13th September, 1988, however, proceeds on the erroneous basis that an "Accessory" and a "part" of a compressor are not distinct from each other. [Grindwell Norton Ltd. v. Collector of Customs -1986 (24) ELT 426 (Tri); 77 Millers v. Union -1987 (31) ELT 344 (Bom.); Universal Luggage Mfg. Co. Ltd. v. Collector -1990 (45) ELT 508 (Tri.).] Item 29A(3) refers to "parts" of Refrigerating and Air-conditioning Appliances and machinery all sorts...." But the Collector has purported to restrict the language of the Item by holding that only "essential parts" of air-conditioning and refrigeration machinery are classifiable under 29A(3). [Flick India Ltd. v. UOI and Ors.
-1990 (29) ECR 145 (SC).] The Collector has no power to go beyond the scope of the arguments advanced before him at the personal hearing, which he has purported to do, by holding, that drive set and base frame were "essential parts of a compressor", when in fact all that was argued before him was that the said parts were "parts"-of air-conditioning and refrigeration machinery classifiable under Item 29A(3). [Nav Bharat Link Chain Mfg. Pvt. Ltd. v. Collector It is submitted that a Notification has to be construed strictly.
Notification No. 80/62, dated 24-4-1962 only excludes certain specified parts of air-conditioning and refrigeration machinery and cannot be extended to exclude "accessories" of a compressor which would continue to be exempt under Notifiction No. 80/62. [Capital Match Co. v. Collector -1988 (37) ELT 384 (Tri.); Indye Chemicals v. Collector The issue before the Collector was only whether the said parts were classifiable under Item 29A(3) or under Item 68. However, the Collector has gone beyond the scope of the Appeal in deciding the question of exemption under Notification No. 80/62.
5. In the second appeal, E/3956/90-B1, the issue relates to the refund granted to the appellants, whereby in his letter F. No. RCI 8/83, dated 29-6-1983, the Administrative Officer has intimated about the cheque for Rs. 12,58,526.74 having been issued to the appellant. The Collector of Customs and Central Excise, Pune, directed the Assistant Collector by an order, dated 27-12-1983, to file an application to the Collector of Central Excise (Appeals), Bombay under Section 35E(2) of the Act.
The Assistant Collector filed an application in Form EA(2), dated 29-1-1987 in respect of the refund granted to the appellants by the Assistant Collector. The Collector of Central Excise (Appeals) partly allowed the appeal and permitted recovery of the excess refund, against which the appellants have preferred this appeal.
The facts of the case are similar to the Appeal No. E/3711/88-B1, as the refund was consequential to the duty of excise paid by the appellant under protest pending approval of the classification test.
The appellants have filed a stay petition in E/Stay-458/89/SB(WR) in appeal E/690/89 SB (WR) and in order No. 110/89-WRB, dated 4-5-1989.
The WRB has directed the appellants to deposit Rs. 6.25 lakhs within 4 weeks from the date of communication of the order. On payment of which, the Tribunal has allowed the miscellaneous application for an early hearing and fixed the hearing on 6-3-1990.
6. Arguing the appeal, the learned counsel has argued that no application under Section 35E(2) can be filed, against a letter of sending of a cheque which is a ministerial act, and the only course was to resort to Section 11A of the Central Excise Act, for erroneous refund. The letter of the department signed by the Administrative Officer, dated 29-6-1983, was not an order coming within the scope of Section 35E(4) of the Act, and since no demand under Section 11A was raised for erroneous refund, the demand for recovery was time-barred.
He referred to the case law reported in 1988 (37) ELT 22 (Tri.) - Collector of Central Excise v. Universal Radiation Ltd., that the notice under Section 11 A, of the Central Excises and Salt Act was the only legal and correct process and application and proceedings under Section 35E is not the correct step.
The scope of an appealable order has been spelt out in the case, Maliindra and Mahindra Ltd. v. Collector of Central Excise, Bombay, reported in 1988 (33) ELT 377 (Tri.) and therefore, an administration letter cannot be regarded as an adjudicating order.
"Factual Highlights : As per ground 'D' of paper book, it has been alleged that there was no issue before the Collector (Appeals) regarding eligibility to Notification No. 80/62. On facts this submission is incorrect as the issue of eligibility to Notification was very much before the Collector as per page 41 of paper book.
Legal proposition: The Department has also made additional grounds that additional grounds can be preferred by the respondent at appeal stage. This is covered by following judgments : Additional ground preferred by the Department here is that accessories to a part will not be a component/accessory of the whole system. This ground is essentially an alternative ground which is permissible as per pleading and is covered by the judgment reported in 1987 (27) ELT 409 (Kar.) in the case of Supreme Motors v. State of Kamataka. This ground is an alternative ground only.
Section 35E of Central Excises and Salt Act, 1944 is not subject to Section 11A of the same authority.
(3) AIR 1977 (SC) 456 - Geep Flash Light India Ltd. v. Union of India.
(Though this judgment is under Customs Act, the circumstances are part material and the judgment acts as a binding precedent) Trade Notice does not bind the departmental authority. This proposition flows from the following case laws : (1) 1978 (2) ELT J 680 - UOI and Ors. v. Elphinstone Spinning and Weaving Mills Co. Ltd. Further, the instant trade notices as cited in the paper book are basically on valuation and certain parts of the trade notices are evidently, in favour of the Department. (Refer pages 25 and 86 of paper book). In any case since any order passed on instruction is void. These instructions cannot be binding on Department.
(3) AIR 1970 SC 1520 - Sirpur Paper Mills v. Commissioner of Wealth Tax, Hyderabad.
End-use shall not determine classification rather intrinsic character/functions of the articles shall determine classification.
(1) 1983 (13) ELT 1566 SC - Dunlop India Ltd. and Madras Rubber Factory v. UOI and Ors.
(2) 1986 (25) ELT 473 (SC) - Atul Glass Industries Ltd. and Ors. v. CCE and Ors.
In the instant case, the goods do not do any air- conditioning by themselves as such by function. They desire to be classified under Tariff Item 68.
The goods in the instant case are also not covered by Frick India Judgment as cited by the party as 29A(3) refers to "parts of refrigerating and air-conditioning appliances and machinery, all sorts". In the instant case the goods are at best part of air-conditioning plant. Thus, outside the purview of Section 29A(3) on intrinsic merits they are not even parts of air-conditioning plant as they do not do any air-conditioning or assist in air-conditioning. (Page 71 and 75 of paper book). On the submission that order reviewed was of Administrative Officer and not of AC, it is submitted that refund can be granted by AC only under Section 11B of Central Excises and Salt Act, 1944 as such the cheque issued for refund will become order of Refund." In conclusion, it was stated that these items were not parts of the air-conditioning and refrigerating system, even if they are accessories to the compressor.
8. The learned counsel, in reply to the points raised, offered the following comments : "The learned JDR made 3 propositions on behalf of the respondent, viz.
(i) Even if the 2 articles can be regarded as an accessory to the compressor which was a part of the ACR System, this by itself would not mean that they were an accessory or part of the ACR system.
(ii) The classification could not be decided by the end-use of the articles. What was relevant was the function of the articles and their intrinsic characteristics.
(iii) Even in a case of erroneous refund proceedings under Section 11A need not be invoked. The procedure under Section 35E(2) could be independently adopted. (Hereinafter referred to as "the 3 propositions").
Replying to the 3 propositions, Senior Counsel submitted as follows seriatem: (i) Even if the 2 articles can be regarded as an accessory to the compressor which was a part of the ACR system, this by itself would not mean that they were an accessory or part of the ACR System.
(a) At the hearing, serious objection was taken to the raising of this plea. It was pointed out that it was contrary to the stand taken by the Respondent in the EA-2 applications. The stand of the respondent and the Asst. Collector to the effect that the articles were "accessories of the ACR System" was pointed out at pages 50 and 52 as well as at page 41 of the Appeal Paper Book. It was submitted that the learned JDR was appearing on behalf of the Collector of Central Excise and not on behalf of the Collector (Appeals). He, therefore, could not argue contrary to what the Collector of Central Excise (i.e. the respondent) had taken as his primary ground for the purposes of classification in the EA-2 applications. He was not entitled to support the impugned order contrary to what he was authorised to appear.
(b) In support of his proposition and his right to raise the same, the learned JDR cited cases in which the following principle was allegedly laid down: (ii) A fresh classification could be urged for the first time before the Hon'ble Tribunal; (iv) That if a case was remanded, the higher authority to whom an appeal was filed was not restricted by the scope of the remand.
Replying to the above, Senior Counsel emphasised that, those were cases where an appeal had been filed by the assessee when the Appellate Authority, such as the Tribunal could perhaps consider a wider issue. However, in the case of an EA-2 application, the scope of the application and the jurisdiction of the Tribunal was statutorily limited. Under Section 35E(2), the Collector of Central Excise had to direct the Adjudicating Authority to apply to the Collector (Appeals) for the "determination of such points" arising out of the decision or order as may be "specified by the Collector of Central Excise" in his order. Reading the order passed under Section 35E(2) directing the filing of an application (page 52 of the Appeal Paper Book), the Respondent had clearly asked for determination of the point as to whether the articles were "parts of an ACR System" or were "accessories of the ACR System". This was repeated by the Assistant Collector in the EA-2 applications at page 41 of the appeal paper book and at page 50 of the appeal paper book.
Since the scope of the applications were limited, it was not open to contend that the articles in question were not "parts or accessories of an ACR System". The judgments relied upon were, therefore, not relevant.
(c) In any event it was submitted that the proposition was taken without any evidence in support. It was a mere assertion and that was not sufficient to refute the evidence produced by the Appellants in the Technical Note, the compilation of technical literature and trade understanding and the compilation of Tariff Advices, Trade Notices and Circulars.
(d) Referring to the judgment of the Karnataka High Court in Supreme Motors v. State of Karnataka [1987 (27) ELT 409] relied upon by the learned JDR, it was pointed out that this was a Sales Tax case given specifically in the context of the entries in question, particularly Entry 73. It did not, therefore, have universal application and could not be used for purposes of construing Item 29A(3). Without prejudice to the aforesaid, it was pointed out that the judgment in fact supported the appellants rather than the respondent. The Hon'ble Karnataka High Court had taken great pains to set out the various entries of the Karnataka Sales Tax Act to establish that whenever legislature wanted to include the parts and accessories within the scope of an entry, it used the expression "parts thereof.
Significantly, Item 29A used the same expression "and parts thereof This judgment, therefore, showed that all parts and accessories of the ACR system were classifiable under Item 29A(3) including the 2 articles in question. This judgment of the Hon'ble Karnataka High Court was also in consonance with the interpretation given of Item 29A(3) by the Hon'ble Supreme Court in Frick India (supra) that Item 29A(3) was wide and comprehensive.
(ii) The classification could not be decided by the end-use of the articles. What was relevant was the function of the articles and their intrinsic charac teristics: (a) During the course of the hearings, the learned JDR had referred to a decision of the South Regional Bench in Collector v. Raman Boards [1985 (22) ELT 892] in support of this proposition. It was pointed out that this view of the South Regional Bench was not binding on the special bench which had consistently taken a contrary view. In fact, the judgment in Raman Boards (supra) was concerned more with the applicability of the time-limit under Section HA to proceedings under Section 35E(4) and not whether in a case of erroneous refund the procedure under Section 11A alone could be adopted.Collector v. Universal RadiatorsRe-rolling Mills v. Collector [1989 (43) ELT 115] must prevail. During the course of the hearing, the learned JDR referred to certain cases under the provisions of the Customs Act, 1962 of the Hon'ble Tribunal in support of the above proposition. It was again submitted that the judgments of the Special Bench in Universal Radiators and Re-Rolling Mills (supra) were later in point of time and specifically dealt with the provisions of the Central Excises and Salt Act, 1944. The specific judgments under the Central Excises and Salt Act, 1944 were binding even if the provisions of the Customs Act, 1962, were in pari maleria.Geep Flashlight v. Collector was not relevant because it dealt with the erstwhile provisions of Section 129 of the Customs Act, 1962 and expressly turned on the issue whether erroneous refund would amount to "short-levy" within the meaning of Section 28 of the Customs Act, 1962. It did not deal with whether proceedings were maintainable under Section 129D in a case of erroneous refund.
(c) It was submitted by the Senior Counsel that the end-use of the articles was relevant. This was because of the language of Item 29A(3) itself which read "parts of or "parts thereof. On a true interpretation, these words incorporated the use because they meant "parts used in ...". As far as the 2 articles were concerned, they were used in a ACR System.
(d) Regarding the classification on the basis of the functions of an article, it was pointed out that the judgment cited by the learned JDR in Atul Glass v. Collector [1986 (25) ELT 473] was inconsistent with the later view of the Hon'ble Supreme Court in Jain Engineering v. Collector [1987 (32) ELT 3]. The Bench being of equal size, the later view of the Hon'ble Supreme Court had to be followed. [AIR 1963 BOM 236 at page 240].
(e) During the course of his address, the learned JDR had relied on certain letters written by the Appellants (at pages 29,71 and 75 of the Appeal Paper Book) in which the articles in question were described as "parts of complete ACR Plant". He had contended that "Plant" was different from "air-conditioning and refrigeration appliances and machinery". Hence, the goods were not classifiable under Item 29A(3). In rebutting this contention, reference was made to the classification list itself which was the primary document declaring the classification to the department wherein it was clearly pointed out that the articles in question were "parts of refrigerating and air-conditioning appliances and machinery".
(f) As far as the classification on the basis of the so-called "intrinsic characteristic" of the machine is concerned, the learned JDR had contended that the 2 articles in question could not by themselves carry out any function of refrigeration or air-conditioning. Hence, they could not fall within the scope of Item 29A(3). It was pointed out that Item 29A(3) referred to "parts". Each and every part of air-conditioning and refrigeration machinery or appliance i.e. the system could not by itself air-condition or refrigerate anything. It was only a combination of all the individual parts which could do that. The alleged test or intrinsic characteristic (which had in any case no basis in law) was, therefore, totally irrelevant.
(g) In the context of the contention of the learned JDR that the Trade Notices were relating to the valuation and not the classification of the articles in question, it was reiterated that the CBEC Tariff Advice and Poona Trade Notice first dealt with the question of classification in the first part of the advice or notice in question and only, thereafter, having determined the nature of the article in question vis-a-vis the ACR System and the compressor, had determined the question of valuation. All the Trade Notices after 1986, it was pointed out, dealt with the question of classification only. It was also pointed out that it was not the submission of the Appellants that the classification should be on the basis of the Tariff Advice or Trade Notices alone but it would be supportive material to show the Department's own understanding of the nature of the articles in question consistently for a period of 14 years, and some satisfactory material had to be produced to justify why only for one year in question (13-10-1981 to 12-10-1982) that consistent stand was being departed from in the EA-2 application.
(iii) Even in a case of erroneous refund proceedings under Section 11A need not be invoked. The procedure under Section 35E(2) could be independently adopted.
(a) It was pointed out by the Senior Counsel that the EA-2 application was misconceived. In a case of erroneous refund, only proceedings under Section 11A of the Act could be adopted. The procedure under Section 35E(2) was not available. Reference was made to judgments of this Hon'ble Tribunal in Universal Radiators v. Collector (supra) and Re-rolling Mills v. Collector [1989 (43) ELT 115].
(b) It was also submitted that the so-called "order or decision" impugned in the EA-2 application by the Respondent at page 46 of the Appeal Paper Book was an administrative communication sent by the Administrative Officer and could not be regarded as a "decision or order" within the meaning of Section 35 of the Act nor was it passed by an "Adjudicating Authority" within the meaning of the Act. Hence, no EA-2 application was maintainable from that communication.
(c) In response to the learned JDR's contention that there was the decision of the South Regional Bench in Collector v. Raman Boards [1985 (22) ELT 892], it was pointed out by the senior counsel that the judgments referred to hereinabove by the appellants were later decisions of the special bench of this Hon'ble Tribunal and that they would prevail.
(d) In response to the contention made by the learned JDR that the crossed cheque amounted to a "Pay Order" and therefore, was an "order or decision within the meaning of the Act", Counsel referred to the judgment of the East Regional Bench in Collector v. Metro Exporters [1988 (37) ELT 610]. It was pointed out that an administrative decision or communication was not an "adjudication order" and could not be appealed from. It was also pointed out that on a true construction of Section 11B of the Act, the same required - (a) the Assistant Collector (B) to pass (c) and order. None of the three criteria were satisfied. Significantly if there was, as alleged, an order on the file then the Respondent in directing the filing of the EA-2 application had not referred to that order on the file but had chosen to annex the administrative communication at page 46 of the appeal paper book.
(e) Referring to the judgments cited by the learned JDR under the Customs Act, 1962, it was pointed out by the senior counsel that where there were specific judgments dealing with the concerned provisions under the Central Excises and Salt Act, 1944, they should be preferred to any decision under the Customs Act, 1962. [Sec the written submissions earlier at 11(ii)(a) and (b) on this aspect.] (f) In particular, the latest decision of the Tribunal in Orissa Cement v. Collector - Order No. 1508 to 1514/90-A, dated 14th September, 1990 had considered both views as to whether proceedings under Section 35E(2) were maintainable or only recourse to Section 11A was permissible in a case of erroneous refund and had followed the decision of the Special Bench in the judgment in Collector v. Universal Radiators [1988 (37) ELT 222] and had confined the ratio of the judgment in Collector v. Raman Boards to cases other than of "erroneous refund", and further relied on the case law, Indian Leaf Tobacco Development Co. Ltd. and ITC Ltd. v. UOI reported in 1984 (16)'ELT 234 (Mad.).
9. We have considered the submissions made by both the sides. The issues to be resolved are: (i) Classification of (a) base frame (b) Drive set - consisting of flywheel, motor pulley and V-belt or direct coupling under Item 29A(3) and not under Item 68.
(iii) The application under Section 35E(2) for recovery of the erroneous refund is not valid.
The appellants claim that they were paying duty on these items under Item 68, and had on 12th October, 1981, filed revised classification list seeking classification under Item 29A(3) and exemption under Notification No. 80/62, dated 24-4-1962. The Tariff Item 29A is reproduced below :------------------------------------------------------------------------------------Item Tariff Description Rate of dutyNo.------------------------------------------------------------------------------------29A Refrigerating and air-conditioning appliances and machinery, all sorts, thereof: (1) Refrigerators and other refrigerating appliances, Eighty per cent ad which are ordinarily sold or offered for sale as ready valorem.
assembled units, such as ice-makers, bottle coolers, display cabinets and water coolers.
(2) Air-conditioners and other air-conditioning ap- One hundred ten per pliances, which are ordinarily sold or offered for cent ad valorem.
sale as ready assembled units, including package type of air-conditioners and evaporative type of coolers.
(3) Parts of refrigerating and air-conditioning applian- One hundred twenty- ces and machinery, all sorts.
five per cent ad-------------------------------------------------------------------------------------- The Item 29A(3) is for parts of refrigerating and air-conditioning appliances and machinery, all sorts. The base frame and drive set are claimed to be falling under the scope of parts of refrigerating and air-conditioning appliances. In order to appreciate the functions of these articles, the appellants were asked to produce write-ups. This has been referred to in para 4 supra. The drive set connects the shaft of the compressor to the electric motor which is the source of power to rotate the shaft of the compressor, to which the piston is attached.
The drive set is found to consist of flywheel, motor pulley and V-belt or direct coupling. The detailed functions are already set out as in para 4, supra, suffice it to say that the drives are for transmitting power, similarly the base frame is used to mount the compressor rigidly so as to minimise vibrations throughout the system. Excessive vibrations from the compressor, if transmitted throughout the pipes of the system, will result in leakage of gas. The literature that was produced for explaining the location of these parts have referred to them as accessories to the compressor. The Grasso literature which has termed the V-belt drive, direct drive and flexible coupling and the base frame as accessories has indicated that accessories which meet the same specifications of the original accessories have to be used for the correct operation of the compressor. Therefore, these items are of specific specifications. It has to be seen whether these are parts of the compressor or "parts of refrigerating and air-conditioning machinery, all sorts". The appellant has referred to the decision of the Hon'ble Supreme Court in Frick India Ltd. v. UOI, reported in 1990 (48) ELT 627 (SC) for scope of the Item 29A(3) of the tariff. The relevant portion is extracted below: "The legislative history and the notifications of the Government show that the sub-item (3) of Item 29A is a comprehensive provision encompassing within it parts of all sorts of air-conditioning and refrigerating appliances and machinery and the Government of India was issuing notifications of exemptions on the understanding that such parts are covered by sub-item (3). Thre language used in sub-item (3) is also wide and comprehensive in its application and could not be given a restricted meaning. Sub-items (1), (2) and (3) are independent of each other and mutually exclusive. The scope of sub-item (3) is neither restricted nor controlled by the provisions of sub-items (1) and (2)".
From the above decisions, flows the elucidation that the scope of the Item 29A(3) is comprehensive to bring within its fold, parts of all sorts of air-conditioning and refrigerating machinery. The Tariff Advices and Trade Notices referred to have listed them as parts of or accessories of refrigerating and air-conditioning machinery. Therefore, a base frame and drive set had to be regarded as parts of the refrigerating appliances, falling under Tariff Item 29A(3). The Tariff Item 68 is a residuary item which covers all other excisable products which do not find a place in other tariff items. The items under reference are parts of the refrigerating machinery and they cannot be taken out of its prerogative classification and put under a residuary item. The words "all sorts" bring within its campus, a wide application, of any part in a refrigerating system. Therefore, its classification under Item 29A(3) is appropriate.
Now, coming to the question whether it is a part of a compressor, we have already seen, the part played by a compressor in the refrigerating system vide para 4 supra. The functions of the compressor is to suck in the gas at lower pressure and temperature, compress it and discharge the hot gas at a higher pressure to the condenser. The components which make up the compressor are those which in totality help in performing this function. Reference has already been drawn by the learned counsel, to the Grasso literature of the parts comprising a compressor, the design details of which conform to the design of the appellant's manufacture. In the list of parts, the base frame and drive set, do not find a place, but are cited as accessories to the compressor. The question is now whether parts and accessories are same. Parts as normally understood are the components that go to make an article. The Mc-graw-Hill Dictionary of technical terms defines a "part" as "An element of a sub-assembly, not normally useful by itself and not amenable to further disassembly for maintenance purpose". An "Accessory", "A part, sub-assembly, or assembly that contributes to the effectiveness of a piece of equipment, without changing its basic function; may be used for testing, adjusting, calibrating, recording or other purposes". Therefore, being an accessory of the compressor, it is not a part. The Notification 80/82, dated 24-4-1982, exempts all parts of refrigerating, air-conditioning appliances and machinery, other than the parts mentioned therein, of which compressor is one of the excluded category. Being a part of the refrigerating appliances and not part of a compressor, it will be liable for the exemption.
10. Having decided the main points which have been raised by the appellants, in their favour, the legal points on the aspect of application under Section 35E(2) for the recovery of refund, and the scope of Section 35E(2) vis-a-vis, Section 11A, lose their significance and become interest of academic importance. There is no gain saying the fact that the decisions reported in 1988 (37) ELT 222 (Tri.), Collector of Central Excise v. Universal Radiations Ltd., the decision of the Tribunal in Orissa Cement v. Collector, Order No. 1508 to 1514/90, dated 14-9-1990, relied upon by the appellants, go against the department.