The Commissioner of Customs and Vs. K.L.R. Industries Limited, - Court Judgment

Excerpt:
1. revenue has filed these four appeals against the orders in appeals of commissioner of customs & central excise (appeals-iii), hyderabad.since a common question of law and facts is involved, they are taken up together for disposal. the details of the appeals are given below.the commissioner of customs & central excise, commissionerate-iii, hyderabad.2. the respondents manufacture water well drilling rigs mounted on chassis of motor vehicles. they claimed classification of the goods under chapter sub heading 8430.00. however, proceedings were initiated against the respondents and the original authorities classified the impugned goods under 8705.00 and demanded differential duty during the relevant period. if the items are classified under chapter 84, they would be entitled for the benefit of ssi exemption. if the other classification under chapter 87 is adopted, the goods would not be entitled for the ssi exemption, hence the demand of duty by the revenue. the original authorities relied on the decision of the apex court in the case of cce v. lmp precision engg. co ltd. and classified the goods under chapter 87.05. the respondents were aggrieved over the decision on the ground that the supreme court decision in the above mentioned case is distinguishable from their cases. hence, they appealed to the commissioner (a) who passed the impugned orders allowing the appeals of the respondents with consequential relief. revenue is aggrieved over the decisions of the commissioner (a) on the following grounds. (i) the commissioner (a) in classifying the subject gods in sub heading no. 84.30 held that the goods in question are completely integrated units which are self propelled wheeled machine in which chassis in the working machine was specially designed for each other and forming integral mechanical unit. (ii) the observation of the commissioner (a) appears to be factually incorrect as the chassis is not specially designed but general purpose chassis manufactured by automobile industry which is modified according to the requirement for mounting the "drilling rigs" and this machine does not contain a cab in the machine which contains one or more of the propelling or control elements. the propelling and control elements referred to above are not located in the cab of a machine but in the cab of the motor vehicle. no control elements of the drilling equipments are located in the cab of the vehicle. assuming that the activity of mounting the drilling rig on the motor vehicle chassis becomes an integral part as held by commissioner (appeals), in view of the supreme court's judgment holding that even if explanatory note to the section indicates to the contrary -- drilling rigs mounted on chassis are not classifiable under heading 84.30 of ceta, 1985. (iii) the hon'ble supreme court dismissed the review petition filed by m/s. l.m.p. precision engg. co. ltd. as . (iv) in view of the hon'ble supreme court judgment mentioned above and dismissed of review petition filed by the party, it appears that the drilling rig mounted on chassis of motor vehicle chassis merits classification under chapter heading no.8705.00 as special purpose vehicle.3. shri k.s. reddy, learned jdr appeared for the revenue and shri v.j.sankaram, learned advocate appeared for the respondents.5. the learned advocate explained that the apex court's decision in the lmp case (supra) is not applicable to the present cases as the facts are distinguishable. in the lmp case, the supreme court has observed that there is no evidence to show that the chassis and the drilling rig are totally integrated. he produced enormous evidence with regard to the manufacture of the impugned goods to show that the machine is not simply mounted on an automobile chassis but is completely integrated with a suitable modified chassis that cannot be used for other purposes. the commissioner (a) has taken all these facts into consideration and decided the classification under chapter 8430. hence, he prayed that the revenue's appeals should be dismissed.6. we have gone through the records of the case carefully. the original authorities decision is based on the apex court's decision in the case of lmp case (supra). in that case the tribunal's decision to classify the goods under chapter 87.05 was rejected mainly on the ground that there was no evidence to show that the chassis and the working machines had been designed for each other and where both the chassis and the machine form an integral unit. we reproduce the observations of the hon'ble apex court in para 14 of the said order. 14. the question, therefore, before the adjudicating authority and the tribunal was whether there was any evidence to support the finding that the goods in question were self-propelled machines, where the chassis and the working machines had been designed for each other and where both the chassis and the machine formed an integral unit. whereas the adjudicating authority has considered the evidence on record and has come to the conclusion that there was no such integration as required and contemplated by the language of the explanatory note to heading 84.30, the tribunal appears to have accepted, without more, what had been stated by the assessee in answer to the show cause notice. the statement in reply to a show cause notice is not evidence, and the tribunal erred in treating it as such without any evidence in support of the respondents' case. the decision of the tribunal was clearly perverse being unsupported by the material on record.6.1 the apex court's decision can be applied only to cases where the facts are similar to that case. if it is shown that the chassis and the drilling rigs are integrally connected, then the apex court's decision will not be applicable. in the course of personal hearing, the learned advocate referred to the book-lets in respect of each of the respondent, wherein the entire process of manufacture has been outlined by shri r.a. sharma, chartered engineer. the various stages of manufacture are shown in photographs. we reproduce the process of manufacture in respect of m/s. chaitanya industries.sa/11/(1) date /05/2005 welldrilling rig by m/s. chaitanya industries, kushaiguda, hyderabad as per the request of m/s. chaitanya industries, the under signed has visited the rig registration no.rj 06 0 - 1894 supplied by m/s.chitanya industries vide invoice no.40 date 18-01-1997 to m/s.venkateshwera rock drills, and also rig r.c. no. ap 24 b 3888 supplied vide invoice no. 44 date 15-02-1997 to m/s. raghavendra borewells. we have inspected & examined the machinery / water well drilling rigs mounted on m. v. chassis supplied by m/s. chaitanya industries, kushaiguda, hyderabad and report is given as under. this is only our chartered engineer certificate and has no legality or consequences whatsoever. 1) driver cabin : as per the thawing available with the shop floor is fabricated and assembled on the chassis. the cabin is got welded with the chassis. 2) chassis : as per the functional requirement & for mounting of the rig the chassis is extended and doubled strength-wise by reinforming and welding additional channel to the chassis by fabrication and for support of base frame which is subsequently welded to these channels to accommodate rig equipments. 3) strengthening of springs : the original springs supplied along with the chassis are removed and strengthened by; adding extra spring level for taking load of rigs. the original springs are not suited for rig mounting hence it is necessary; to strengthen the capacity of springs. 4) chaitanva make transfer gear box & mounting : for the purpose of mounting of the chaitanya make gear box the chassis middle beam is cut with gas and the brackets are welded for gear box mounting. in the system followed by chaitanya the power takes off unit, the transfer gear box is used as a result of which the motor vehicle chassis on which - the drilling rig mounted is integrated. 5) removal of propeller shaft of the chassis and fixing of connected shaft: by gear changing lever for transfer of power either to the rig for boring or rear axle for moving purpose - the original propeller shaft is removed and the connecting shaft is fined for transfer of power either to the rig for boring or to the chassis for moving purpose. this arrangement is permanently welded / fixed. in this process, the modifications made are of permanent nature. such items are for speed reduction gear box mounting for running the hydraulic pump, etc. by introducing a gear box to facilitate the rig operation the original propeller shaft is changed by two shafts to transmit the power from engine to rear axle. with this change the, vehicle can move with lower speed which is sufficient to move rig from one place to other place. (in case of automobile higher speed is required and the modified chassis cannot be used for automobile purpose where speed requirement is higher). 6) base frame fabrication. fixing and welding of base frame to the chassis : this is done permanently with platform to accommodate various rig equipments as described below which is a big permanent integral welded part of the chassis / rig. 6.1 pillars : are welded with base frame permanently making integral with the frame. 6.2 installation of mast : mast is mounted on the pillars. the mast raising cylinder mounting bracket is welded with base frame. 6.3 compressor mounting (welded) : the compressor frame is fabricated and welded with the base frame and it becomes the integral part of the rig. 6-4 water pump : is fixed on the welded mounting on the pillar which is welded on the base frame. 6.5 diesel tank : is installed on the welded frame. the original diesel tanks supplied along with the chassis is removed and tank with higher capacity is fabricated and fixed. this is essentially required to meet the requirement for drilling purpose for higher fuel requirements. this is permanent and integral change. 6.6 hyderaulic circuit : is tailor made consisting of hydraulic pumps, valves, hydraulic cylinders, hydraulic motors, hoses, tubes etc. this forms an assembly and used for rig operation. 6.7 hydraulic tank : the hydraulic tank is installed on the frame which is welded with the base frame permanently. 6.8 rod racks : the racks are fabricated by welding for keeping the drill rods. 6.9 air oil cooler : the bracket / frame is welded to the base frame on which the making it an integral part on which the air oil cooler is mounted. 6.10 control panel of the rig : control panel is fitted with welded frame. 6.11 jack cylinders : jack cylinder mounting frames are welded with base frame on which the jack cylinders are fixed. jack cylinders are used for leveling of the rig for proper drilling. 6.12 mast rest : the rig mast rest is fabricated and welded with the base frame for resting of the mast. 7) testing painting & delivery : after the above operations are done the rig is tested, painted and delivered to the customer as per the schedule and contract / order acceptance. 9) the chassis supplied by the customer under goes a series of modifications through fabrication, welding, permanent structures as stated above to suit the design requirements and the working of the machine with respect to the rig which both put together form an integral mechanical unit. 10) from the above, flow sheet and actual machine it can be seen that the machine is not simply mounted on an automobile chassis but is completely integrated with a suitable modified chassis that cannot be used for other purpose.in conclusion, we certify that the chassis is totally disintegrated initially and manipulated and used to produce in the process a rig.thus the chassis undergoes transformation. it is transformed totally with various modifications described above so that it becomes integral and inseparable part of the rig and with such large modifications described above the chassis does not exist in its original form and contour. it becomes only an essential part of a rig. the operations conducted on the chassis (brought from outside) and on the material / machine parts / accessories and other equipments involve total integration and manipulation so that the original chassis does not exist at all. further the resultant rig is just like any other rig manufactured by an integrated manufactory exclusively employed in producing drilling rigs.6.2 further we are also enclosing the manufacturing process flow chart with respect to m/s. chaitanya industries and the manufacturing process is similar in respect of the other appellants.6.3 revenue contends that the chassis and drilling rig are not designed for each other. we do not agree with that contention. from the manufacturing process, we find that the chassis supplied by the customer undergoes great deal of modification to suit the design requirement and the working of the machine with respect to the rig. in fact the chassis is totally disintegrated initially and manipulated and used to produce in the process a rig. it is definitely an integral and inseparable part of the rig and the chassis does not exist in its original form and contour. in these circumstances, the impugned goods are rightly classifiable under chapter no.8430 which reads as: other moving grading, levelling, scraping, excavating, tamping, compacting, extracting or boring machinery, for earth minerals or ores; pile-drivers and pile-extractors; snow ploughs and snow-blowers.6.4 the commissioner (a) after going through the records has succinctly given his findings in para 7 and 8 (oia no. 127/2005). the para 7 & 8 are reproduced herein below. 7. both the appellants and department have relied upon apex court decision in the case of cce v. lmp precision engg. co. ltd. to argue their case. facts of this case are that m/s. lmp during the period 1.3.86 to 29.2.88 were classifying water well drilling rigs mounted on motor vehicle chassis under chapter sub-heading no.8430.00 to avail of exemption under notification no. 120/88 dated.1.3.88 they re-classified the same goods under chapter sub-heading no.87.05. when this notification was amended by notification no. 142/88 dated.18.4.88 to give exemption to above goods falling under either 8430 or 8705 the assessee again wanted to revert to the classification of 8430.00. at this stage the department issued show cause notice to the effect that goods has been wrongly classified by assessee under chapter sub-heading no. 84.30 and proposed classification of impugned goods under chapter sub-heading no. 8705.00. setting aside the tribunal's order classifying the goods under chapter sub- heading no. 8430.00 hon'ble supreme court observed.... 12. both the appellant and the respondent have rested their arguments on the corresponding entries, and the relative section and chapter notes in the hsn for the purposes of interpreting the tariff entries in the ceta. the corresponding entries in hsn are also numbered as 84.30 and 87.05 and are included in section xvi and xvii respectively. the explanatory note to tariff heading 84.30 in the hsn with regard to "self-propelled and other mobile machines states that 84.30 covers not only fixed or stationary machines but also mobile machines, whether or not self propelled except machines mounted on transport equipment of the type falling under sec. xvii the exceptions have been detailed under three heads namely, (a) machines mounted on vehicles proper to chapter 86; (b) machines mounted on tractors or motor vehicles proper to chapter 87 and (c) machines on floating structure proper to chapter 89. we are concerned with (b). within this category there are two sub-classifications, namely, (1) machines mounted on tractor type bases and (2) machines mounted on automobile chassis or lorries. up to this point it is clear that machines covered by 84.30 if mounted on automobile chassis or lorries are classifiable under chapter 87 by virtue of the exceptions to the explanatory note (b)(ll). however, this sub-classification while making it clear that- certain machines of this heading (e.g., pile-drivers, oil well drilling machines) are often mounted on what is in fact an essentially complete automobile chassis or lorry in that it comprises at least the following mechanical features propelling engine, gear-box and controls for gear- changing, and steering and braking facilities. such assemblies are classified in heading 87.05 as special purpose motor vehicles, self-propelled machines in which one or more of the propelling or control elements referred to above are located in the cab of a machine mounted on a wheeled chassis, whether or not the whole can be driven on the road under its own power. the heading (i.e. 84.30) further includes self-propelled wheeled machines in which the chassis and the working machine are specially designed for each other and form an integral mechanical unit. in this case, the machine is not simply mounted on an automobile chassis like the machines described in the first paragraph above, but is completely integrated with a chassis that cannot be used for other purposes and may incorporate the essential automobile features referred to above. 13. in other words, the exception (b) to heading 84.30 as noted is itself subject to further exceptions, namely, (i) self-propelled machines where the propelling and controlling elements are located in the cab of the machine which is mounted on the wheeled chassis; (ii) self-propelled wheeled machines in which the chassis and the working machine and specially designed for each other; and form an integral mechanical unit. in such cases, there must not be a "simple" mounting hut a "complete integration" such that the chassis cannot be used for any other purpose and the machine may incorporate "the essential automobile features" of propelling or control. by carving out these further exceptions to the exception detailed under b it is clear that the machines covered by the further exceptions would come under heading 84.30. 14. the question, therefore, before the adjudicating authority and the tribunal was whether there was any evidence to support the finding that the goods in question were self-propelled machines, where the chassis and the working machines had been designed for each other and where both the chassis and the machine formed an integral unit. whereas the adjudicating authority has considered the evidence on record and has come to the conclusion that there was no such integration as required and contemplated by the language of the explanatory note to heading 84.30, the tribunal appears to have accepted, without more, what had been stated by the assessee in answer to the show cause notice. the statement in reply to a show cause notice is not evidence, and the tribunal erred in treating it as such without any evidence in support of the respondents' case. the decision of the tribunal was clearly perverse being unsupported by the material on record. 8. the above decision is clearly distinguishable from the present case. here the goods in question are completely integrated units. as noted in para 5 above the manufacturing process begins with disintegrating the truck chassis and by the time manufacturing process is over, the truck becomes considerably heavier, loses a considerable amount of speed, and is no longer fit to transport any goods or passengers. it is just able to maneuver itself on its own motive power albeit at a reduced speed. the impugned goods can only be considered to be self propelled wheeled machine in which chassis and the working machine are specially designed for each other and form an integral mechanical unit. here the machine is not simply mounted on a truck chassis but the integration is so complete that chassis cannot be used for any other purpose though it may incorporate the essential automobile features to enable it to move on its own power. had they been merely mounted on skids to facilitate easy transportation or towing the situation would have been completely different and classification under chapter sub-heading no.8705 would have been correct. but in view of the facts narrated above i find that classification under chapter sub-heading no.8430 is proper. once the issue of classification is decided it follows that duty has been correctly paid and the appellants are also eligible for 551 benefits which were denied earlier, and the demand for differential duty has to be set aside. hence, i pass the following order.hence, we are of the view that the orders-in-appeals are legal and proper. we do not find any reason to interfere with the same, as the commissioner s have clearly distinguished the apex court's decision in the imp case from the present ones. in fine the revenue's appeals are rejected.(operative portion of this order was pronounced in open court on conclusion of hearing)

Judgment:
1. Revenue has filed these four appeals against the orders in appeals of Commissioner of Customs & Central Excise (Appeals-III), Hyderabad.

Since a common question of law and facts is involved, they are taken up together for disposal. The details of the appeals are given below.

The Commissioner of Customs & Central Excise, Commissionerate-III, Hyderabad.

2. The Respondents manufacture water well drilling rigs mounted on chassis of motor vehicles. They claimed classification of the goods under Chapter Sub Heading 8430.00. However, proceedings were initiated against the Respondents and the Original Authorities classified the impugned goods under 8705.00 and demanded differential duty during the relevant period. If the items are classified under Chapter 84, they would be entitled for the benefit of SSI exemption. If the other classification under Chapter 87 is adopted, the goods would not be entitled for the SSI exemption, hence the demand of duty by the Revenue. The Original Authorities relied on the decision of the Apex Court in the case of CCE v. LMP Precision Engg. Co Ltd. and classified the goods under Chapter 87.05. The Respondents were aggrieved over the decision on the ground that the Supreme Court decision in the above mentioned case is distinguishable from their cases. Hence, they appealed to the Commissioner (A) who passed the impugned orders allowing the appeals of the Respondents with consequential relief. Revenue is aggrieved over the decisions of the Commissioner (A) on the following grounds.

(i) The Commissioner (A) in classifying the subject gods in sub heading No. 84.30 held that the goods in question are completely integrated units which are self propelled wheeled machine in which chassis in the working machine was specially designed for each other and forming integral mechanical unit.

(ii) The observation of the Commissioner (A) appears to be factually incorrect as the chassis is not specially designed but general purpose chassis manufactured by automobile industry which is modified according to the requirement for mounting the "Drilling Rigs" and this machine does not contain a cab in the machine which contains one or more of the propelling or control elements. The propelling and control elements referred to above are not located in the cab of a machine but in the cab of the motor vehicle. No control elements of the drilling equipments are located in the cab of the vehicle. Assuming that the activity of mounting the drilling rig on the motor vehicle chassis becomes an integral part as held by Commissioner (Appeals), in view of the Supreme Court's judgment holding that even if explanatory note to the Section indicates to the contrary -- drilling rigs mounted on chassis are not classifiable under Heading 84.30 of CETA, 1985.

(iii) The Hon'ble Supreme Court dismissed the review petition filed by M/s. L.M.P. Precision Engg. Co. Ltd. as .

(iv) In view of the Hon'ble Supreme Court judgment mentioned above and dismissed of review petition filed by the party, it appears that the drilling rig mounted on chassis of motor vehicle chassis merits classification under Chapter Heading No.8705.00 as special purpose vehicle.

3. Shri K.S. Reddy, learned JDR appeared for the Revenue and Shri V.J.Sankaram, learned advocate appeared for the Respondents.

5. The learned advocate explained that the Apex Court's decision in the LMP case (supra) is not applicable to the present cases as the facts are distinguishable. In the LMP case, the Supreme Court has observed that there is no evidence to show that the chassis and the drilling rig are totally integrated. He produced enormous evidence with regard to the manufacture of the impugned goods to show that the machine is not simply mounted on an automobile chassis but is completely integrated with a suitable modified chassis that cannot be used for other purposes. The Commissioner (A) has taken all these facts into consideration and decided the classification under Chapter 8430. Hence, he prayed that the Revenue's appeals should be dismissed.

6. We have gone through the records of the case carefully. The Original Authorities decision is based on the Apex Court's decision in the case of LMP Case (supra). In that case the Tribunal's decision to classify the goods under Chapter 87.05 was rejected mainly on the ground that there was no evidence to show that the chassis and the working machines had been designed for each other and where both the chassis and the machine form an integral unit. We reproduce the observations of the Hon'ble Apex Court in Para 14 of the said order.

14. The question, therefore, before the Adjudicating Authority and the Tribunal was whether there was any evidence to support the finding that the goods in question were self-propelled machines, where the chassis and the working machines had been designed for each other and where both the chassis and the machine formed an integral unit. Whereas the Adjudicating Authority has considered the evidence on record and has come to the conclusion that there was no such integration as required and contemplated by the language of the explanatory note to Heading 84.30, the Tribunal appears to have accepted, without more, what had been stated by the assessee in answer to the show cause notice. The statement in reply to a show cause notice is not evidence, and the Tribunal erred in treating it as such without any evidence in support of the respondents' case.

The decision of the Tribunal was clearly perverse being unsupported by the material on record.

6.1 The Apex Court's decision can be applied only to cases where the facts are similar to that case. If it is shown that the chassis and the drilling rigs are integrally connected, then the Apex Court's decision will not be applicable. In the course of personal hearing, the learned advocate referred to the book-lets in respect of each of the Respondent, wherein the entire process of manufacture has been outlined by Shri R.A. Sharma, Chartered Engineer. The various stages of manufacture are shown in photographs. We reproduce the process of manufacture in respect of M/s. Chaitanya Industries.SA/11/(1) Date /05/2005 WELLDRILLING RIG BY M/s. CHAITANYA INDUSTRIES, KUSHAIGUDA, HYDERABAD As per the request of M/s. Chaitanya Industries, the under signed has visited the Rig Registration No.RJ 06 0 - 1894 supplied by M/s.

Chitanya Industries vide Invoice No.40 Date 18-01-1997 to M/s.

VenkatesHwera Rock Drills, and also Rig R.C. No. AP 24 B 3888 supplied vide Invoice No. 44 Date 15-02-1997 to M/s. Raghavendra Borewells. We have inspected & examined the Machinery / Water Well Drilling Rigs mounted on M. V. Chassis supplied by M/s. Chaitanya Industries, Kushaiguda, Hyderabad and report is given as under. This is only our Chartered Engineer Certificate and has no legality or consequences whatsoever.

1) Driver Cabin : As per the thawing available with the shop floor Is fabricated and assembled on the chassis. The cabin Is got welded with the chassis.

2) Chassis : As per the functional requirement & for mounting of the rig the chassis is extended and doubled strength-wise by reinforming and welding additional channel to the chassis by fabrication and for support of base frame which is subsequently welded to these channels to accommodate rig equipments.

3) Strengthening of Springs : The original springs supplied along with the chassis are removed and strengthened by; adding extra spring level for taking load of rigs. The original springs are not suited for rig mounting hence it is necessary; to strengthen the capacity of springs.

4) Chaitanva Make Transfer Gear Box & Mounting : For the purpose of mounting of the CHAITANYA make gear box the chassis middle beam is cut with gas and the brackets are welded for gear box mounting. In the system followed by CHAITANYA the power takes off unit, the transfer gear box is used as a result of which the motor vehicle chassis on which - the drilling rig mounted is integrated.

5) Removal of propeller shaft of the chassis and fixing of connected shaft: By gear changing lever for transfer of power either to the rig for boring or rear axle for moving purpose - the original propeller shaft is removed and the connecting shaft is fined for transfer of power either to the rig for boring or to the chassis for moving purpose. This arrangement is permanently welded / fixed. In this process, the modifications made are of permanent nature. Such items are for speed reduction gear box mounting for running the hydraulic pump, etc. By introducing a gear box to facilitate the rig operation the original propeller shaft is changed by two shafts to transmit the power from engine to rear axle. With this change the, vehicle can move with lower speed which is sufficient to move rig from one place to other place. (In case of automobile higher speed is required and the modified chassis cannot be used for automobile purpose where speed requirement is higher).

6) BASE FRAME FABRICATION. FIXING AND WELDING OF BASE FRAME TO THE CHASSIS : This is done permanently with platform to accommodate various rig equipments as described below which is a big permanent integral welded part of the chassis / rig.

6.1 PILLARS : Are welded with base frame permanently making integral with the frame.

6.2 INSTALLATION OF MAST : Mast is mounted on the pillars. The mast raising cylinder mounting bracket is welded with base frame.

6.3 COMPRESSOR MOUNTING (Welded) : The compressor frame is fabricated and welded with the base frame and it becomes the integral part of the rig.

6-4 WATER PUMP : Is fixed on the welded mounting on the Pillar which is welded on the base frame.

6.5 DIESEL TANK : Is installed on the welded frame. The original diesel tanks supplied along with the chassis is removed and tank with higher capacity is fabricated and fixed. This is essentially required to meet the requirement for drilling purpose for higher fuel requirements. This is permanent and integral change.

6.6 HYDERAULIC CIRCUIT : Is tailor made consisting of hydraulic pumps, valves, hydraulic cylinders, hydraulic motors, hoses, tubes etc. This forms an assembly and used for rig operation.

6.7 HYDRAULIC TANK : The hydraulic tank is installed on the frame which is welded with the base frame permanently.

6.8 ROD RACKS : The racks are fabricated by welding for keeping the drill rods.

6.9 AIR OIL COOLER : The bracket / frame is welded to the base frame on which the making it an Integral part on which the air oil cooler is mounted.

6.10 CONTROL PANEL OF THE RIG : Control panel is fitted with welded frame.

6.11 JACK CYLINDERS : Jack cylinder mounting frames are welded with base frame on which the Jack cylinders are fixed. Jack cylinders are used for leveling of the rig for proper drilling.

6.12 MAST REST : The rig mast rest is fabricated and welded with the base frame for resting of the mast.

7) TESTING PAINTING & DELIVERY : After the above operations are done the rig is tested, painted and delivered to the customer as per the schedule and contract / order acceptance.

9) The chassis supplied by the Customer under goes a series of modifications through fabrication, welding, permanent structures as stated above to suit the design requirements and the working of the machine with respect to the rig which both put together form an integral mechanical unit.

10) From the above, flow sheet and actual machine it can be seen that the machine is not simply mounted on an automobile chassis but is completely integrated with a suitable modified chassis that cannot be used for other purpose.

In conclusion, we certify that the chassis is totally disintegrated initially and manipulated and used to produce in the process a rig.

Thus the chassis undergoes transformation. It is transformed totally with various modifications described above so that it becomes integral and inseparable part of the rig and with such large modifications described above the chassis does not exist in its original form and contour. It becomes only an essential part of a rig. The operations conducted on the chassis (brought from outside) and on the material / machine parts / accessories and other equipments involve total integration and manipulation so that the original chassis does not exist at all. Further the resultant rig is just like any other rig manufactured by an integrated manufactory exclusively employed in producing drilling rigs.

6.2 Further we are also enclosing the manufacturing process flow chart with respect to M/s. Chaitanya Industries and the manufacturing process is similar in respect of the other appellants.

6.3 Revenue contends that the chassis and drilling rig are not designed for each other. We do not agree with that contention. From the manufacturing process, we find that the chassis supplied by the customer undergoes great deal of modification to suit the design requirement and the working of the machine with respect to the rig. In fact the chassis is totally disintegrated initially and manipulated and used to produce in the process a rig. It is definitely an integral and inseparable part of the rig and the chassis does not exist in its original form and contour. In these circumstances, the impugned goods are rightly classifiable under Chapter No.8430 which reads as: Other moving grading, levelling, scraping, excavating, tamping, compacting, extracting or boring machinery, for earth minerals or ores; pile-drivers and pile-extractors; snow ploughs and snow-blowers.

6.4 The Commissioner (A) after going through the records has succinctly given his findings in Para 7 and 8 (OIA No. 127/2005). The Para 7 & 8 are reproduced herein below.

7. Both the appellants and Department have relied upon Apex Court decision in the case of CCE v. LMP Precision Engg. Co. Ltd. to argue their case. Facts of this case are that M/s. LMP during the period 1.3.86 to 29.2.88 were classifying water well drilling rigs mounted on motor vehicle chassis under Chapter Sub-Heading No.8430.00 to avail of exemption under Notification No. 120/88 dated.1.3.88 they re-classified the same goods under Chapter sub-Heading No.87.05. When this Notification was amended by Notification No. 142/88 dated.18.4.88 to give exemption to above goods falling under either 8430 or 8705 the assessee again wanted to revert to the classification of 8430.00. At this stage the Department issued Show Cause Notice to the effect that goods has been wrongly classified by assessee under Chapter sub-Heading No. 84.30 and proposed classification of impugned goods under Chapter Sub-Heading No. 8705.00.

Setting aside the Tribunal's order classifying the goods under Chapter Sub- Heading No. 8430.00 Hon'ble Supreme Court observed....

12. Both the appellant and the respondent have rested their arguments on the corresponding entries, and the relative Section and chapter Notes In the HSN for the purposes of Interpreting the tariff entries In the CETA. The corresponding entries In HSN are also numbered as 84.30 and 87.05 and are included In Section XVI and XVII respectively. The explanatory note to Tariff Heading 84.30 In the HSN with regard to "Self-propelled and other mobile machines states that 84.30 covers not only fixed or stationary machines but also mobile machines, whether or not self propelled except machines mounted on transport equipment of the type falling under Sec. XVII The exceptions have been detailed under three heads namely, (A) machines mounted on vehicles proper to Chapter 86; (B) machines mounted on tractors or motor vehicles proper to Chapter 87 and (C) machines on floating structure proper to Chapter 89. We are concerned with (B). Within this category there are two sub-classifications, namely, (1) machines mounted on tractor type bases and (2) machines mounted on automobile chassis or lorries. Up to this point it is clear that machines covered by 84.30 If mounted on automobile chassis or lorries are classifiable under Chapter 87 by virtue of the exceptions to the explanatory note (B)(ll).

However, this sub-classification while making it clear that- certain machines of this heading (e.g., pile-drivers, oil well drilling machines) are often mounted on what is in fact an essentially complete automobile chassis or lorry in that it comprises at least the following mechanical features propelling engine, gear-box and controls for gear- changing, and steering and braking facilities. Such assemblies are classified in heading 87.05 as special purpose motor vehicles, self-propelled machines in which one or more of the propelling or control elements referred to above are located in the cab of a machine mounted on a wheeled chassis, whether or not the whole can be driven on the road under Its own power.

The heading (i.e. 84.30) further includes self-propelled wheeled machines in which the chassis and the working machine are specially designed for each other and form an integral mechanical unit. In this case, the machine Is not simply mounted on an automobile chassis like the machines described in the first paragraph above, but Is completely Integrated with a chassis that cannot be used for other purposes and may incorporate the essential automobile features referred to above.

13. In other words, the exception (B) to Heading 84.30 as noted is itself subject to further exceptions, namely, (i) self-propelled machines where the propelling and controlling elements are located in the cab of the machine which is mounted on the wheeled chassis; (ii) self-propelled wheeled machines in which the chassis and the working machine and specially designed for each other; and form an integral mechanical unit. In such cases, there must not be a "simple" mounting hut a "complete integration" such that the chassis cannot be used for any other purpose and the machine may incorporate "the essential automobile features" of propelling or control. By carving out these further exceptions to the exception detailed under B it is clear that the machines covered by the further exceptions would come under Heading 84.30.

14. The question, therefore, before the Adjudicating Authority and the Tribunal was whether there was any evidence to support the finding that the goods in question were self-propelled machines, where the chassis and the working machines had been designed for each other and where both the chassis and the machine formed an integral unit. Whereas the Adjudicating Authority has considered the evidence on record and has come to the conclusion that there was no such integration as required and contemplated by the language of the explanatory note to Heading 84.30, the Tribunal appears to have accepted, without more, what had been stated by the assessee in answer to the show cause notice. The statement In reply to a show cause notice is not evidence, and the Tribunal erred in treating it as such without any evidence in support of the respondents' case.

The decision of the Tribunal was clearly perverse being unsupported by the material on record.

8. The above decision is clearly distinguishable from the present case. Here the goods in question are completely integrated units. As noted in para 5 above the manufacturing process begins with disintegrating the truck chassis and by the time manufacturing process is over, the truck becomes considerably heavier, loses a considerable amount of speed, and is no longer fit to transport any goods or passengers. It is just able to maneuver itself on its own motive power albeit at a reduced speed. The impugned goods can only be considered to be self propelled wheeled machine in which chassis and the working machine are specially designed for each other and form an integral mechanical unit. Here the machine is not simply mounted on a truck chassis but the integration Is so complete that chassis cannot be used for any other purpose though it may incorporate the essential automobile features to enable it to move on its own power. Had they been merely mounted on skids to facilitate easy transportation or towing the situation would have been completely different and classification under Chapter Sub-Heading No.8705 would have been correct. But in view of the facts narrated above I find that classification under Chapter Sub-Heading No.8430 Is proper. Once the issue of classification is decided it follows that duty has been correctly paid and the appellants are also eligible for 551 benefits which were denied earlier, and the demand for differential duty has to be set aside.

Hence, I pass the following order.

Hence, we are of the view that the Orders-in-Appeals are legal and proper. We do not find any reason to interfere with the same, as the Commissioner s have clearly distinguished the Apex Court's decision in the IMP case from the present ones. In fine the Revenue's appeals are rejected.

(Operative portion of this Order was pronounced in open court on conclusion of hearing)