| SooperKanoon Citation | sooperkanoon.com/32481 |
| Court | Customs Excise and Service Tax Appellate Tribunal CESTAT Calcutta |
| Decided On | Sep-30-2003 |
| Judge | A Wadhwa, R K Jeet |
| Reported in | (2003)(158)ELT646Tri(Kol.)kata |
| Appellant | Commissioner of Central Excise |
| Respondent | Cerafil |
2. Shri T.K. Kar, Id. SDR, appearing for the Revenue submits that the said ceramic plugs are nothing but improved version of the battery caps, which are admittedly parts of the storage batteries. The ceramic plugs replace the conventional battery plugs in a more sophisticated manner than the caps thus reducing the maintenance of the batteries.
This fact by itself will not take the ceramic plugs from the category of being parts of the storage batteries. He draws our attention to the original order passed by the Additional Commissioner of Central Excise wherein he has discussed all the aspects relatable to classification of the product and has dealt in detail the submissions made by the respondents. He submits that the Commissioner (Appeals) has erred in accepting the respondents' stand that since the product in question is pre-dominantly made of ceramic, the same would be classifiable under Chapter 69. He submits that the observations of the Commissioner (Appeals) that ceramic plugs were neither necessary for completion of manufacture of batteries, but was an optional item for maintenance purpose and thus the same would classify as an accessory and not as a part is not correct inasmuch as the said ceramic plugs are nothing but a replacement of conventional battery caps. As such the same have to be treated as parts of the batteries and not an item of ceramic so as to be classified under Chapter 69.
3. Shri S.K. Bagaria, Id. Advocate, appears for the respondents. A written synopsis has also been filed by Shri Bagaria reiterating the arguments taken before the authorities below.
4. We have considered the submissions made from both the sides. The correct classification of the ceramic plugs is the disputed issue, in the present appeals. As per undisputed facts on record the appellants are purchasing components of the said ceramic plugs like ceramic dome, plastic tops/balls and rubber seal, etc., from the market and are assembling the same manually. The assessees' contention is that such ceramic plugs are optional items for storage batteries and as such the same cannot be treated as parts of the storage batteries so as to classify them under Heading 85.07 by applying Section Note 2(b) to Section XVI. However, we find that these ceramic plugs are used in the batteries as a replacement of the existing battery cap. The function of the said ceramic plug is to minimise the loss of fluid due to evaporation movement. It consists of ceramic dome, which is micro-porous and on account of its micro-porous structure and refractory ceramic material, the water vapour forming inside the battery condenses into water droplets and falls into the battery and is retained by it. If such ceramic plugs are not used in the battery vapour would escape to the holes in the battery caps requiring frequent topping of the battery fluid. Ceramic plug arrests the water vapours and condenses it back into water thus reducing the maintenance requirement of the battery. The respondents' contention is that inasmuch as the ceramic dome which pre-dominates in terms of weight, volume and value is made of ceramic material, the same would get classified under Chapter 69.
5. The Revenue's contention is that the storage batteries fall under 85.07 and as per Note 2(b) of Section XVI the parts, being suitable for use solely or principally with a kind of machine or with a number of machines of the same heading are to be classified with the machines of that kind. Inasmuch as the ceramic plugs are used exclusively in the storage batteries, they have to be treated as a part of the storage battery, thus earning their classification under Heading 85.07.
6. The respondents counter the above arguments on the ground that ceramic plug is not used by the battery manufacturer as a part of the same. A storage battery is complete without the use of the such ceramics plugs at the time of its clearance from the factory. Ceramic plug is an optional item, which is used subsequently by the user of the battery by replacing the caps on the battery holes. It is their contention that as it is a matter of consumers' discretion to use or not to use the ceramic plug, the same have to be treated as an accessory and have to be classified in terms of the provisions of Rule 3(b) of Rules for Interpretation of Central Excise Tariff Schedule.
They have stressed on the point that completion of manufacture of storage batteries does not depend upon ceramic plugs, inasmuch as battery would perform its function without a ceramic plug also. For the above proposition they have relied upon a number of decisions of the Tribunal.
7. We, however, do not find much force in the above contention of the Id. Advocate appearing for the respondents. It is an admitted fact that the disputed item i.e. ceramic plugs are used as a replacement for the storage battery caps and not as an additional or extra item for the proper functioning of the batteries. They are nothing but improvised version of the storage battery caps inasmuch as they have some additional functions to perform like prevention of water spilage and conversion of water vapour of the fluid material into liquid droplets.
The same may reduce the maintenance of the battery, but the fact remains that the ceramic plugs are nothing but sophisticated replacement of battery caps. Inasmuch as a battery cap is part of the storage battery, these plugs have to be treated as parts of the battery only. It is like saying that conventional bell fixed on the cycle, when replaced with the sophisticated bell performing some additional functions of giving light or indicating some obstructions on the way, no longer remains a part of the cycle but becomes as an accessory merely because the same was not fitted to the cycle at the time of clearance or replaced subsequently at the option of the buyer or the consumer.
8. The respondents have referred to the Hon'ble Supreme Court's decision in the case of CCE v. Perfect Machine Tools Co. Pvt. Ltd., 1997 (96) E.L.T. 214 and has referred to para 7 of the said judgment wherein their Lordships have observed that since an attachment cannot be operated independently of the main machine, the same is no ground for treating the attachment as a part and not as an accessory inasmuch as in the absence of the said attachment the machine can be operated.
However, we find that the ratio of the above decision is not applicable in the instant case inasmuch as ceramic plug is not an additional attachment to the battery, but is a replacement of the battery cap. The function which the cap was to perform is being performed by the ceramic plug in a more advanced, sophisticated and improvised way.
9. The respondents have also referred to the Larger Bench decision of the Tribunal in the case of Eureka Forbes Ltd. v. CCE, 2000 (120) E.L.T. 533. They have reproduced the following para of the said decision in their written synopsis : - "The above-mentioned reports go to show that Aquaguard without pre-filter not only filters the water but also purifies it. It is a complete unit in itself as far as filtering and purification are concerned. To have its efficacy increased and to give a longer life time to the activated carbon column fixed on the left side of the equipment, the assesses canvasses for a pre-filter to be added to it. What is the purpose served by the addition of pre-filter? It is not to make any change in the filtering or purification of the water that is passed through Aquaguard but it is to minimize the strain on the activated carbon column. Pre-filter is suggested for enhancing the utility of the activated carbon column. They take the characteristics of accessories. The meaning and scope of the word "accessory" was considered by their Lordships of the Supreme Court in Annapurna Carbon Industries Co. v. State of Andhra Pradesh 378. According to their Lordships accessories are "supplementary or secondary to something of greater or primary importance". These accessories need not be necessarily confined to any particular machine for which they may serve as an aid. It may be accessory of more than one kind of instrument. This pre-filter through which water is made to pass before it enters the carbon column in the Aquaguard simply filters the water. It will go to minimize the workload of activated carbon as a filter. It cannot be taken as an essential part of Aquaguard. This pre-filter can be attached to any other type of filter for filtering water. This pre-filter is added to help the Aquaguard in a secondary way. It adds to the convenience and effectiveness of Aquaguard. An object or device which adds to the effectiveness of something else cannot be considered to be an integral part of the equipment but it can only be an 'accessory'," A reading of the above paragraph clearly shows that what was before the Tribunal was an additional attachment in the shape of a pre-filter. It was in this context that the Tribunal observed that the addition of the pre-filter in the equipment meant for filtering and purifying water is for the purpose of increasing the efficiency of the activated carbon which is the main part of the aquaguard. The Tribunal observed that a device which adds to the effectiveness of something else cannot be considered as a part of the equipments, but can only be an accessory.
Now, considering hypothetically in the above case, if the activated carbon itself with an attached pre-filter, i.e. improved version of activated carbon is replaced, can it be said that the activated carbon no longer remains a part of the aquaguard but becomes an accessory. In the instant case the appellants have themselves admitted that ceramic plugs are nothing but a replacement of old conventional type of storage battery caps, the same have to be treated as a part only and not as an accessory inasmuch as it is not something which has been attached extra to the storage batteries as is the case of attachment of pre-filters to the activated carbon.
10. Similarly we find that the respondents' reliance on the Supreme Court's decision in the case of Annapurna Carbon Industries Ltd. v.State of Andhra Pradesh, 1976 (37) STC 378 as also in the case of M/s.
Fuji Electronics (MDU) (P) Ltd., 1999 (106) E.L.T. 522 holding that the TV boosters performing the function of boosting the TV signal to get the proper picture and quality of reception has to be treated as an accessory inasmuch as TV set is complete without boosters and the boosters are not considered as a part of TV cannot be applied to the facts and circumstances of the case. Taking a case where picture tube is so manufactured with the advanced technology that the same also performs the function of the boosters, can it be said that the picture tube has become an accessory instead of a part. The answer to the above question is definitely in the negative. As such inasmuch as the ceramic plugs are a replacement for the conventional plastic battery cap, the same have to take the place of battery cap for the purposes of classification.
11. Further examining the respondents' claim of classification under 6901.90, we find that the said Chapter 69 applies only to ceramic products which have been fired after shaping. The Additional Commissioner has observed that the said chapter does not include items which are mixture or combination of any other substance like plastic or rubber and inasmuch as the items under dispute are a combination of ceramic parts as also of plastic parts, the same fail to qualify for its classification under Chapter 69. We subscribe to the above view of the original adjudicating authority. Various items classified under chapter 69 refer to only the ceramic items and do not include any product which is a combination of ceramic as well as other substances.
12. The respondents have also referred to Board's order No. 29/5/94-CX, dated 9-3-94 issued under Section 37B laying down that the plastic caps meant for battery cells are to be properly classified under Heading 39.26. The original adjudicating authority has dealt with the said submission of the respondent and has observed that plastic caps referred to in the said circular are those caps which cover the head of the pole of the primary battery under sub-heading 8606.00 to prevent the leakage, drainage or electric current and also to prove virginity of the same to the customers. These caps are to be torn before the use of the primary battery. In view of the above we find that the Board's circular is of no help to the respondents. The plastic caps used in the storage batteries are completely different inasmuch as they are a part of the storage batteries and are not to be removed in any case before the usage of the same. The storage batteries are classifiable under Heading 8507 as electric accumulators and the ceramic plugs definitely help in appropriate and proper functioning of storage batteries. These plugs are specifically designed to be used for storage batteries in question and are nothing but improvised version of the usual and age-old caps and have to act as caps replacement. In terms of Section Note 2(b), the ceramic plugs have to be treated as parts of storage battery and nothing else. In our view Commissioner (Appeals) has erred in invoking the provisions of Rule 3(b) of Rules of Interpretation. In terms of Section Note 2(b) of Section XVI and in view of the fact that the ceramic plugs are nothing but replacement of caps, the same are clearly classifiable as part of the storage batteries.
13. The respondents vehemently argued that the burden of proof to classify is upon the Revenue and have relied upon the Supreme Court's decision in the case of CCE v. Sharma Chemicals Works, 2003 (154) E.L.T. 328 (S.C.) = 2003 (56) RLT 123. There can be no quarrel in the above proposition of law. We find that the Revenue in the present case has been able to establish and thus discharge the onus placed upon it that the ceramic plugs are properly classifiable under Heading 85.07.
In view of the foregoing we find merits in the Revenue's case that the ceramics plugs are to be classified under Heading 8507.00 as parts of the storage batteries and not under Heading 6901.90.
14. The respondents have also argued that the demand relates to the period 1992-93 to 1996-97 whereas the show cause notice was issued on 4-9-97 thus the demand for the period prior to six months from the date of issuance of the show cause notice would be barred by limitation. In support of their above submissions they have submitted that the judgment of the Hon'ble Gujarat High Court as reported in 1992 (59) E.L.T. 247 holding that plastic battery caps are not be considered as parts of the batteries but were to be classified under Chapter 39 as articles of plastic and the subsequent issuing of the circulars and Section 37B order by the Ministry let them to form a bonafide belief and impression that the ceramic plugs being manufactured by them are to be classified on the basis of the constituent material i.e. ceramic. In any case the respondents had written a letter dated 15-1-96 to the Commissioner of Central Excise, Calcutta stating relevant facts, forwarding its printed literature and mentioning about different inputs and their use. The Additional Commissioner has not disputed the receipt of the above letter of the respondents but in spite of that has confirmed the demand by invoking the extended period of limitation.
15. We take note of the respondents' letter written in the year 1996 to the Revenue. The said letter has been taken note of by the original adjudicating authority, but stands dismissed by him on the ground that though the assessee has asked and sought clarification about the excisability and classification of their manufactured goods but they have not uttered a single word about their actual clearance value at that point of time and they have tried to give an impression as if they were just going to cross Rs. 30,00,000/- clearance value. We do not substantiate the above view of the adjudicating authority. The appellants' having written a letter to the Commissioner seeking his advice on the excisability and classification of their product was required to be replied back by the proper officer. By making such a communication the assessee had placed all the facts before the Revenue, which now cannot allege any suppression or misstatement on their part.
It was for the Department to clarify the position and if necessary to ask for their clearance value and to take action accordingly. Having failed to do so at the appropriate time, subsequent issuance of the show cause notice beyond the period of six months cannot be sustained on the point of limitation. As such we hold that the demand beyond the period of six months from the date of issuance of show cause notice is barred by limitation.
16. The authorities are required to re-quantify the demand, if any, against the respondents for a period of six months from the date of issuance of the show cause notice. While quantifying such demands, the total realisation is required to be taken as cum-duty price and the benefit of the deduction of duty from the total realisation has to be extended to the respondents in view of the Larger Bench decision of the Tribunal in the case of Srichakra Tyres and Ors. v. CCE, Madras, 1999 (108) E.L.T. 361 (Tri-LB) = (32) RLT 1 (CEGAT-LB).
17. Inasmuch as we have already held that there was no intention on the part of the respondents to evade duty payment, we find no reason to impose them with penalty. That portion of the impugned order which set asides the penalty upon the respondents is confirmed. For identical reasons we do not find any justification to confiscate the seized goods. Accordingly, the redemption fine of Rs. 1,00,000/- is also not imposable on the respondents. However, the duty in respect of the said seized goods is required to be paid. The appeal of the Revenue is partly allowed in above terms.