2001(04)LCX0003
IN THE CEGAT, SOUTH ZONAL BENCH, BANGALORE
S/Shri G.A. Brahma Deva, Member (J) and S.S. Sekhon, Member (T)
COMMISSIONER OF CENTRAL EXCISE, BANGALORE
Final Order Nos. 741-742/2001, dated 11-4-2001 in Appeal Nos. E/25-26/2000
CASE CITED
Paper Products Ltd. v. Commissioner — 1999(08)LCX0250 Eq 1999 (112) ELT 0765 (S.C.) — Relied on....... [Para 4(d)]
DEPARTMENTAL CLARIFICATIONS CITED
C.B.E. & C. Circular No. 227/61/96-CX-6, dated 4-7-1996................................................. [Para 1]
C.B.E. & C. Circular No. 548/44/2000-CX, dated 13-9-2000............................... [Paras 4(b), 4(c)]
C.B.E. & C. F. No. 145/6/86/CX-4, dated 13-6-1986..................................................... [Para 4(b)]
Advocated By : Shri B.N. Gururaj, Advocate, for the Appellant.
Smt. Radha Arun, SDR, for the Respondent.
[Order per : S.S. Sekhon, Member (T)]. - E/26/2000 is filed by a proprietary concern. The proprietrix acquired the assets of the concern on 1-10-97 from the earlier proprietrix Sh. J.S. Kamath and continued the manufacture of same product as was being done earlier. The product being manufactured was Aluminium—Grills, Diffusers, of Aluminium which was believed by them to be covered by Small Scale Industry exemption vide Notification 16/97-C.E., 8/98 & 8/99 since they were classifiable under 7616.90. Since the clearances were well within the exemption limits, no registration was sought under Central Excise Rules. They also manufactured and cleared MS DUMPERS and LIGHT LOUVERS. A Show-Cause Notice dated 31-5-99 pursuant to enquiries made by Preventive Officers was issued proposing -
(i) Grills, Diffusers were classifiable under heading 84.15 of the CET in terms of Board’s Circular 227/61/96-CX 6, dated 4-7-1996 and the appellant was not eligible for the exemption under Notification 75/87-C.E. as the condition for opting for its benefit had not been exercised and duty was liable to be paid for the entire value of clearances between 1-4-94 to 31-3-99 by the proprietary firm, the proprietrix, Sh J.H. Kamath and Shri A.K. Jaya Chandra Reddy. Duty of Rs. 40,15,030/- was demanded under Rule 9(2) read with Section 11(A). It was proposed to impose penalty on them under Rule 173Q(1), Section 11AC and interest demanded under Section 11AB(1). Penalty was also proposed to be imposed on the present proprietrix, Sh J.K. Kamath former Proprietor and Sh A.K. Jayachandra Reddy under Rule 209A.
2. The Commissioner heard the appellants and by his order dated 18-10-2000, impugned before us, found and ordered-
(i) Goods being manufactured viz. Grills, Diffusers are classifiable under Heading 84.15 as parts of Air Conditioning System.
(ii) The goods were eligible for exemption under Notification 75/87 dated 1-3-87 and worked out the total duty liability at Rs. 9,75,202 which was determined to be paid by the appellants.
(iii) A penalty of Rs. 9,75,207/- under Section 11AC was imposed on the appellant and interest was demanded under Section 11AB.
(iv) The penal proceedings on the proprietrix, the earlier proprietor and Sh. Reddy under Rule 201A was dropped.
3. Appeal No E/25/2000 is filed by another Proprietary Concern, where the facts, except for time period of demand, are similar to the case in E/26/2000. Therefore, they are not being repeated. The Appeal is against the finding of the Commissioner who vide his impugned Order dated 23-11-2000 found and ordered . . . .
(i) Goods manufactured viz. Aluminium Grills/Diffusers for Air Conditioning Systems to be classifiable under 84.15 of the Central Excise Tariff & benefit of Notification 75/87 dated 1-3-87 was eligible.
(ii) Therefore, for the period 1-6-94 to 31-3-99, duty of Rs. 5,15,285/- was payable under the Proviso to Section 11AC read with Rule 9(2) of Central Excise Rules, 1944.
(iii) Penalty of Rs. 5,15,285/- was imposed under Section 11AC read with Rule 173Q of the Central Excise Rules, 1944 with interest.
4. We have heard both the cases together, as the issues to be decided are same on recording an identical findings. After hearing both sides and considering the submissions made we find :
(a) We find that an identical finding has been recorded in these cases, as regards the nature of goods under classification dispute. The findings are :-
“24. Air conditioning systems are used in large buildings, hospitals, hotels or commercial centers where a centralised air conditioning systems are preferred to window type air conditioners. Such systems have a main air conditioning plant installed in a remote area e.g. basements or a place close to the main building. With the help of ducting throughout the building, provision for guiding controlled air is made in every room/corridors/stairs as required. The ducting is terminated with the Aluminium grills which are often called supply outlets/return outlets or dampers or diffusers. While the temperature and the quality of the air is controlled by the main air conditioning system, supply outlets are responsible for guiding the air in the desired direction at desired speed, controlling the air flows as also closing the ducting with a look that would enhance the general interior of the room/building.
25. The grills are made of either plastic, Aluminium or steel and are available in ready to fix sizes and standard designs. Those are also manufactured against specific orders to suit a particular engineering design that may be required. In the case of aluminium grills, the raw materials are mainly aluminium extrusions, tubes, rods and screws, nuts and bolts.
26. The exact function of supply outlets/grills has been explained in the “Principles of Air Conditioning”, 3rd Edition, by V. Paul Lang as under :
“Supply outlets help to distribute the air evenly in a room, some outlets fan the air and other outlets direct the air in a jet stream. Still other outlets combine these actions. As a result of these actions the outlets are able to exhort some control on the direction of the air delivered by the fan. This directional control, plus the location and the number of outlets in the room contribute greatly to the comfort or to the discomfort resulting from the air pattern.”
27. The book further explains that the outlets/grills “are extremely important from the point of appearance function and performance. They are designed to attractively conceal a duct opening, throw the air-conditioned air no less than 3 quarters of the distance to the opposite wall, deflect or defuse the air, adjust the airflow, prevent dirt streaking and noise. The location of the outlets is vital to ensure that sufficient air is supplied to establish and maintain comfort conditions in the room.
28. The above details would indicate that in the absence of the grills and diffusers the air would come from the ducts in a concentrated flow in a particular direction and would not result in proper distribution and flow in the room thus defeating the very purpose of the air conditioning. In addition, the diffusers or the grills also contain the mechanisms of controlling the airflow thus controlling flow, and the airflow pattern in the room. The function of the grills as decorative part would be subsidiary to the functional utility of the grills in the air conditioning system. The fact that the grills are being used far away from the air conditioning machine itself and are attached to the ducts would not be very relevant as the function of the grill remains the same whether it is fixed at the end of a few meters of ducting or very close to air conditioning plant/machine. Its function is related not to the ducting but to the control of the air generated by the air conditioning plant. The items play a vital role in the successful air conditioning of a given space and are definitely parts of the air-conditioning machines or systems. The goods are therefore more appropriately classifiable under Chapter Heading 8415.00 of Central Excise Tariff Act, 1985.
29. It is seen that the principal function of the item would be that of air conditioning. This is also indicative from the fact that these are manufactured and dealt within the trade by persons dealing with air conditioning machines and plants. In commercial parlance they are associated with air conditioning systems.
30. It is observed from the case records that the major manufacturers of air conditioning systems also indicated that the aluminium grills are mainly used for air conditioning and ventilation systems and that the details of the outlets/grills are determined based on the drawings or site conditions and that the air terminals distribute the air uniformly in the conditioning area and help in sending the return air to the air handling units. Section 2(b) of Section XVI of the HSN states that “other parts, if suitable for use solely or principally with a particular kind of machine or a number of machines in the same heading (including a machine of heading number 84.79 or 85.43 are to be classified with the machine of that kind.....” As is evident from the usage of the aluminium grills as understood from M/s. Blue Star Kool Nest and M/s. Voltas, the principle and predominant use of the Aluminium grills is that connected with air conditioning plant. Its use for interior decoration is mainly to match the existing or proposed supply outlets and is minimal. Looking to the preponderance of the usage, the aluminium grills are more appropriately classifiable as parts of air conditioning plants only under chapter sub-heading 8415.00 of Central Excise Tariff Act, 1985.
31. Further, the Section Note XV of Base Metal and Articles of Base Metal, reads as under :
Notes :
(1) This section does not cover :
(f) Articles of Section XVI (Machinery; Mechanical appliances and Electrical goods);
(2) Throughout this Schedule, the expression "parts of general use"; means :
(a) Articles of Heading No. 7307, 7312, 7315, 7317 or 7318 and similar articles of other base metal.
32. The section 2(a) clearly defined the parts of general use as 7307, 7312, 7315, 7317 or 7318 and similar articles of other base metal and it may be seen from the said section note that 7616.90 has not been specified as parts of general use. In other words 7616.90 is an excluded item. Therefore, the contention of the assessees that the aluminium grills/diffusers manufactured by them are rightly classifiable under Chapter 7616.90 cannot be considered as parts of general use and the said goods are outside the purview of specified goods under Chapter 76 of Central Excise Tariff Act, 1985. I reproduce section XVI notes of Chapter 84 for easy understanding.
Notes :
Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of Heading No. 84.84, 85.44, 85.45, 85.46 or 85.47) are to be classified according to the following rules :
(a) Parts which are goods included in any of the headings of Chapter 84 or Chapter 85 (other than Heading No. 8409, 8431, 8448, 8466, 8473, 84.85, 8503, 8522, 8529, 8538 and 85.48) are in all cases to be classified in their respective headings.
(b) Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of Heading No. 84.79 or Heading No. 85.43) are to be classified with the machines of that kind or in Heading No. 84.09, 84.31, 84.48, 84.66, 84.73. 85.03 85.22. 85.29 or 85.38 as appropriate. However, parts, which are equally suitable for use principally with the goods of Heading Nos. 85.17 and 85.25 to 85.28, are to be classified in Heading No. 85.17.
33. From the above said section Note 2(a) & 2(b) it is quite evident that parts of air-conditioning systems should be classified in the respective heading i.e., under Chapter sub-heading 8415.00 as parts of air-conditioner only.
34. The Hon’ble Tribunal in the case of M/s Jahalam Tools (I) Ltd. v. CCE reported in 2000 (118) ELT 750 Tribunal has held that graph forging manufactured with drawing and specifications of finished goods and had been given a definite shape by the process of forgings, is classifiable under Ch. 82 of CETA 1985 and not under Ch. 72 ibid applying Rule 2(a) Interpretative Rules.
“Plastic grills used in air-conditioners are not merely decorative parts, although one of the functions of the said grill is to enhance the looks of the air-conditioner. Grills have functional utility for deflecting the air-flow in the desired direction. They are identifiable part of an air-conditioner and therefore, are more appropriately classifiable under Chapter 8415 of Central Excise Tariff Act, 1985.”
35. Air conditioning machine parts are clearly recognizable as identifiable parts of air handling system machine, hence classifiable under 84.15 of Central Excise Tariff Act, 1985 and not articles of metal ibid - Gen Power Electric v. Collector - 1998 (107) ELT 0259 (T).
36. Air handling unit a specific part of air conditioning machine, manufactured on specific orders from manufacturers of air-conditioners, used solely or principally with the air-conditioning machines though capable of various applications for handling air is classifiable under Heading 84.15 of Central Excise Tariff Act, 1985 by virtue of Note 2(b) of Section XVI.
- Keyer Industries v. Collector - 1996(09)LCX0062 Eq 1997 (091) ELT 0587 (T)
- Pawan Brothers (P) Ltd. v. Collector - 1997(09)LCX0089 Eq 1997 (095) ELT 0646 (T)
37. The Hon’ble Tribunal in the case of Sri Ram Metal Works v. CCE, Bangalore - 1997(11)LCX0191 Eq 1998 (099) ELT 0616 (T) has held that water tank-container fabricated to specific design and drawings of railways for fitment onto coach and becomes part of coach - classifiable under Heading 8607 of Central Excise Tariff Act, 1985.
38 The Hon’ble CEGAT, New Delhi, in the case of Rail Tech v. CCE, Chandigarh reported in 2000 (012) ELT 0393 (Tribunal) has held that “aluminium windows, doors and their frames manufactured by the assessee have no use or relevance in structures but manufactured on the drawings and specifications provided by the Railways for the sole use in railways coaches - such Aluminium windows and doors are neither marketable nor can be used for any structure - Classifiable under Heading 8607 of Central Excise Tariff Act, 1985 as parts of Railways and not under sub-heading 7610.10 ibid - Principle that specific tariff entry has to prevail over the general entry, is not attracted in this case.
39. From the foregoing decisions discussed above it is clearly evident that the goods manufactured by M/s AGI as per the specification and design provided by the manufacturers of Air Conditioning system are to be classified as parts of air-conditioning systems only and rightly classified under Chapter Heading 8415.00. Such a conclusion is in line with Board’s circular issued under F. No. 154/24/99 CX. 4 dated 13-9-2000. In view of the facts and circumstances of the case and aforesaid discussion, the argument put forth by the assessees that the goods are not classifiable as parts of air-conditioning system, is rejected.”
(b) The appellant had relied upon the Circular of CBE & C No 548/44/2000-CX dated 13-9-2000, clarifying that Grills used for General purpose, made of Aluminium are classifiable under 761690, which was binding on the Commissioner & was submitted and was taken on record by him. On perusal of this circular we find — it prescribes —
“3.....If the grills manufactured are suitable for use solely or principally with an air conditioning machine/system which is held excisable and dutiable under Chapter Heading 84.15, then such grills also will merit classification under Heading 84.15 and chargeable to duty accordingly. However, the general purpose grills would merit classification under the respective Chapters 39.73 or 76 etc., as the case may be, depending upon the constituent materials.”
This would, thus bind the department to follow and if they would hold such Grills used in Central Air Conditioning Plants, as in the cases before us, to be classified under 84.15, provided ‘Central Air Conditioning Plants’ of which they are parts is held to be excisable under 84.15. There is no finding arrived at, as to how the ‘Central Plants’ are excisable under 84.15. The learned Commissioner has either overlooked or is ignorant of Boards instructions on Exigibility of ‘Central Air Conditioning Plant’. By Telex dated 13-6-1986 vide F. No. 145/6/86/CX 4, Board has clarified :-
“IT IS REPORTED THAT THE EXCISE DUTY IS BEING DEMANDED IN CERTAIN COLLECTORATES ON REFRIEGERATION AND AIR-CONDITIONING PLANTS INSTALLED/ASSEMBLED AT SITE OUT OF DUTY PAID PARTS, COMPONENTS, ACCESSORIES THEREOF(.) MATTER HAS SINCE BEEN EXAMINED BY THE MINISTRY(.) IT IS VIEWED THAT NO EXCISE DUTY IS LEVIABLE ON THE PLANTS WHEN THE REFRIGERATION AND AIR-CONDITIONING PLANTS ARE ASSEMBLED/INSTALLED AT SITE (KNOWN AS CENTRAL PLANTS) PROVIDED THAT PARTS, COMPONENTS AND ACCESSORIES USED IN THE ASSEMBLY AT SITE HAVE PAID APPROPRIATE EXCISE DUTY AS SUCH INSTALLATION/ ASSEMBLY MAY NOT AMOUNT TO MANUFACTURE(.) LOWER FIELD FORMATIONS MAY BE SUITABLY INSTRUCTED IMMEDIATELY(.)”
Therefore it is evident that ‘Central Plants’ assembled at site are not to be held as exigible, under CETA 1985. If that be so, ‘Grills’ to be fitted to the Ducting of such ‘Central Plants’ cannot be classified under 84.15 as they are not part of Exigible goods. The department cannot plead otherwise. They are bound by their own instructions which cannot be overlooked.
(c) We find that the Board’s Circular No. 548/44/2000 dated 13-9-2000 itself, admits such Grills to be general purpose Grills also. Therefore, whether General Purpose or specifically designed for ducts of Centralised Air Conditioning Plants, they are to be covered under 76.16.90, if made from aluminium, as in this case,
(i) When we find that Section Note 2 of Section XV the definition of ‘Parts of General Use’ reads as follows -
“2. Throughout the nomenclature, the expression “Parts of General Use” means —
(a) xxxxx
(b) xxxxx
(c) xxxx
In Chapter 73 to 76 & 78 to 82 (but not in heading No 73.15) reference to parts of goods do not include reference to parts of general use as defined above. Subject . . . . .”
(ii) Therefore, a part made of Aluminium ‘as for General use’, would be classified under the sub-heading of parts under Chapter 76 only. We find that the heading notes in HSN under heading 76.16 read as follows -
“This heading covers all articles of Aluminium other than those covered by the proceeding headings of this chapter or by notes to Section XV, or articles specified or included in Chapter 82 or 83, or more specifically covered elsewhere in this Nomeneclature. This heading includes in particular :
(1) x x x
(2) x x x
(3) x x x
(4) Cloth, Grill and netting of aluminium wire, and expanded metal..."
(5) x x x
The heading does not cover
(a) Woven fabric of metal thread of a tier used in apparel as furnishing fabrics or the (heading 58.09)
(b) Wire Cloth etc. made into the form of machinery parts (e.g. by assembly with other materials)
(Chapter 84 or 85)
(c) Wire Cloth etc made up into hand or riddles
(Heading 96.04)”
(iii) Therefore we cannot find any reason to exclude all types, kinds of Grills/Diffusers as equated to be same by the Adjudicator to be specifically included and not covered by the exclusion under Heading 76.16. Chapter 76 of CET Act, 1985 was aligned with HSN in the Budget of 1988. The coverage of the Head Notes in HSN would be applicable to CET Act Heading 76.16.
(d) When we find that Board’s instructions have been (sic) are applicable in the facts of this case, to rule out the exigibility of ‘Centralised Air Conditioning System’ & classification of the Duct terminal end Grills/Diffusers from Heading 84.15; the Supreme Court has conclusively held that Board’s Circulars are binding on the Department. Then we see no reason to deny the classification of Grills/Diffusers used in Centralised Air Conditioning System under 7616.90 of C.E.T.A. 1985. We would rely on the following findings of the Supreme Court in Paper Products Case [1999(08)LCX0250 Eq 1999 (112) ELT 0765 (S.C.)] -
“Consistency and discipline are of far greater importance than winning or losing Court proceedings” and -
“Department do not have a right to file appeal against the correctness of binding nature of the Circular issued by the Board.”
and not uphold the Commissioner’s Orders impugned before us. The same required to be set aside. We also do not find any reason, to deal with arguments of the learned DR made at the hearing in light of the view we are taking. The arguments are therefore rejected.
6. In view of our findings, the impugned orders are set aside and the appeals allowed.
Equivalent 2001 (132) ELT 646 (Tri. - Bang.)
Equivalent 2001 (045) RLT 0789