Epc Irrigation Limited and Others Vs. Commissioner of Customs and - Court Judgment

Excerpt:
1. the question for consideration in this appeal e/1042/95 is the classification of pipes and fittings through which the appellant claims form apart of sprinklers and irrigation systems. the question in appeal e/3262/2000 is the valuation of such pipes and fittings. in order impugned in appeal e/1042/95 commissioner has held these pipes and fittings to be classifiable not as claimed by he appellant as irrigation system classifiable under heading 84.24 of the tariff, but pipes, tubes or hoses or their fittings under heading 39.17. the order impugned in the other appeal is on the duty payable on such goods.2. we have heard the counsels for the appellant in two appeals and the departmental representative at considerable length.3. the commissioner holds in his order that while the other parts manufactured by the appellant which he does not specify, but which we are hold by its counsel of sprinklers of metal, drippers, pipes, couplers, etc., are classifiable as parts of irrigation systems. the pipes themselves are classifiable under heading 39.17. he says "neither the pipes and tubes are connected with the various component parts it can be termed as a system but then this being unconnected into the system the piping and tubing can be separately identified as such". in other words when pipes, tubes, etc., emerged from the extruder "they are not parts of irrigation system but they pipes and tubes made of plastic squarely classifiable under heading 39.17". the contention of the appellant is that the explanatory notes to harmonized system of nomenclatures makes it clear that irrigation systems are classifiable under heading 84.24 as mechanical appliances for distribution plan or disbursing of gases or liquids. by application of note (4) to section xvi, as an example of the application of which the given irrigation systems finds, makes it clear that every component of the system that considered with other components is to be classified under this heading.4. this was in fact the argument that found in favour with the decision of tribunal in elgi ultra appliances vs. cce 1999 (35) rlt 175.5. the departmental representative contends that note (4) will not apply by application of note (5). the tubes and pipes in question are not machines classifiable under chapter 84. note (4) and (5) read as follows: "4. where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in chapter 84 or chapter 85, then the whole falls to be classified in the heading appropriate to that function. "5. for the purpose of these notes, the expression 'machine' means any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of chapter 84 or 85." 6. it will be clear from the consideration of these notes that reference to note (5) to the machine that reference will not apply to a component of the machine. for machine classifiable under chapter 84 and 85 exception may consist individual component each of which would not be classifiable under that heading. the fact that, as an example under note (4) irrigation system has been specifically mentioned confirms this view.7. the next objection is that the piping is not a functional unit referred to in section iv and has to be excluded. we are unable to accept this contention either. it has to be noted that in the case of a milking machine, given as another example of machines to which note (4) applies, the note excludes from classification under that heading apparatus, appliances which do not contribute directly to the milking function, filters, cooling devices, pipeline, etc., and require them to be classified in their appropriate heading. there is an absence of such a note under heading 85.24. this, it appears to us, is for the reason that all the pipes and tubes in question are not used merely to connect individual components or separate machines, but are themselves essential for the functioning of the system as a whole. the essence of an irrigation system is transportation and dispersal of water. all pipes in such a system will therefore directly contribute to its function.8. it was explained to us that these pipes and tubes, etc., are supplied together as a package against specific orders. they are of different size, specific diameter, cut to size and assembled in the site of the system so as to constitute the network. it is clear from this, that no manufacture takes place other than in t he factory of the appellant. cutting of piping of the required length does not change its character or classification and does not in any event amount to manufacture. therefore when the commissioner says "that the pipes and tubes were connected in various components the whole can be termed as a system" no doubt classifiable under heading 84.24, he goes on the footing "integration in the system involves a process of manufacture".his logic would otherwise be unsupported. the pipes in question would remain as pipes and would not change their classification. to that extend therefore that logic cannot be accepted. it will therefore follow that if the pipes in question were manufactured with the intention of being used as component parts of irrigation systems and t hey re in fact so supplied, alongwith other components of such an irrigation system, they would be entitled to classification under heading 84.24. if either the intention or the fact of supply against such a system is not present they would be classifiable under the appropriate heading, in this case under chapter 39. whether these two requirements are satisfied would have to be considered in each case.9. in the case of appellant before us it is not the department's case that these pipes were used for any purpose other than for manufacture of irrigation systems. the show cause notice itself relies heavily upon the statements of the employees to this effect. yogesh kumar, general manager - marketing, for the company has said the lateral lines manufactured were solely used for irrigation systems. vilas shambekar, president of the irrigation business has also said that these various components were manufactured in accordance with the standard prescribed in is 12786 : 1989 which is that prescribed for laterals i.e., parts of irrigation systems. ranjan mahapatra, accounts manager has also said that the goods were declared as parts of drippers and sprinkler irrigation systems. we have also referred to the commissioner's finding that when the pipes are connected with the irrigation systems the whole can be termed a system and his finding that the entire system including pipes would be classifiable under heading 84.24 of the tariff. we are therefore satisfied that in the case before us that these requirements has been complied with.10. in view of this, these goods would be classifiable under heading 84.24 and the benefit of the exemption would be available. the demand for duty would not be sustainable and we therefore would not require to deal with the contentions made with regard to order appealed in appeal e/3262/2000-mum.11. both the appeals are accordingly allowed and the impugned order set aside. consequential relief according to law.

Judgment:
1. The question for consideration in this appeal E/1042/95 is the classification of pipes and fittings through which the appellant claims form apart of sprinklers and irrigation systems. The question in appeal E/3262/2000 is the valuation of such pipes and fittings. In order impugned in appeal E/1042/95 Commissioner has held these pipes and fittings to be classifiable not as claimed by he appellant as irrigation system classifiable under heading 84.24 of the tariff, but pipes, tubes or hoses or their fittings under heading 39.17. The order impugned in the other appeal is on the duty payable on such goods.

2. We have heard the counsels for the appellant in two appeals and the departmental representative at considerable length.

3. The Commissioner holds in his order that while the other parts manufactured by the appellant which he does not specify, but which we are hold by its counsel of sprinklers of metal, drippers, pipes, couplers, etc., are classifiable as parts of irrigation systems. The pipes themselves are classifiable under heading 39.17. He says "neither the pipes and tubes are connected with the various component parts it can be termed as a system but then this being unconnected into the system the piping and tubing can be separately identified as such". In other words when pipes, tubes, etc., emerged from the extruder "they are not parts of irrigation system but they pipes and tubes made of plastic squarely classifiable under heading 39.17". The contention of the appellant is that the Explanatory Notes to Harmonized System of Nomenclatures makes it clear that irrigation systems are classifiable under heading 84.24 as mechanical appliances for distribution plan or disbursing of gases or liquids. By application of note (4) to Section XVI, as an example of the application of which the given irrigation systems finds, makes it clear that every component of the system that considered with other components is to be classified under this heading.

4. This was in fact the argument that found in favour with the decision of Tribunal in Elgi Ultra Appliances Vs. CCE 1999 (35) RLT 175.

5. The departmental representative contends that Note (4) will not apply by application of Note (5). The tubes and pipes in question are not machines classifiable under Chapter 84. Note (4) and (5) read as follows: "4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.

"5. For the purpose of these Notes, the expression 'machine' means any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of Chapter 84 or 85." 6. It will be clear from the consideration of these notes that reference to Note (5) to the machine that reference will not apply to a component of the machine. For machine classifiable under Chapter 84 and 85 exception may consist individual component each of which would not be classifiable under that heading. The fact that, as an example under Note (4) irrigation system has been specifically mentioned confirms this view.

7. The next objection is that the piping is not a functional unit referred to in Section IV and has to be excluded. We are unable to accept this contention either. It has to be noted that in the case of a milking machine, given as another example of machines to which Note (4) applies, the note excludes from classification under that heading apparatus, appliances which do not contribute directly to the milking function, filters, cooling devices, pipeline, etc., and require them to be classified in their appropriate heading. There is an absence of such a note under heading 85.24. This, it appears to us, is for the reason that all the pipes and tubes in question are not used merely to connect individual components or separate machines, but are themselves essential for the functioning of the system as a whole. The essence of an irrigation system is transportation and dispersal of water. All pipes in such a system will therefore directly contribute to its function.

8. It was explained to us that these pipes and tubes, etc., are supplied together as a package against specific orders. They are of different size, specific diameter, cut to size and assembled in the site of the system so as to constitute the network. It is clear from this, that no manufacture takes place other than in t he factory of the appellant. Cutting of piping of the required length does not change its character or classification and does not in any event amount to manufacture. Therefore when the Commissioner says "that the pipes and tubes were connected in various components the whole can be termed as a system" no doubt classifiable under heading 84.24, he goes on the footing "integration in the system involves a process of manufacture".

His logic would otherwise be unsupported. The pipes in question would remain as pipes and would not change their classification. To that extend therefore that logic cannot be accepted. It will therefore follow that if the pipes in question were manufactured with the intention of being used as component parts of irrigation systems and t hey re in fact so supplied, alongwith other components of such an irrigation system, they would be entitled to classification under heading 84.24. If either the intention or the fact of supply against such a system is not present they would be classifiable under the appropriate heading, in this case under Chapter 39. Whether these two requirements are satisfied would have to be considered in each case.

9. In the case of appellant before us it is not the department's case that these pipes were used for any purpose other than for manufacture of irrigation systems. The show cause notice itself relies heavily upon the statements of the employees to this effect. Yogesh Kumar, General Manager - Marketing, for the Company has said the lateral lines manufactured were solely used for irrigation systems. Vilas Shambekar, President of the Irrigation Business has also said that these various components were manufactured in accordance with the standard prescribed in IS 12786 : 1989 which is that prescribed for laterals i.e., parts of irrigation systems. Ranjan Mahapatra, Accounts Manager has also said that the goods were declared as parts of drippers and sprinkler irrigation systems. We have also referred to the commissioner's finding that when the pipes are connected with the irrigation systems the whole can be termed a system and his finding that the entire system including pipes would be classifiable under heading 84.24 of the tariff. We are therefore satisfied that in the case before us that these requirements has been complied with.

10. In view of this, these goods would be classifiable under heading 84.24 and the benefit of the exemption would be available. The demand for duty would not be sustainable and we therefore would not require to deal with the contentions made with regard to order appealed in appeal E/3262/2000-Mum.

11. Both the appeals are accordingly allowed and the impugned order set aside. Consequential relief according to law.