2002(08)LCX0005

IN THE CEGAT, SOUTH ZONAL BENCH, CHENNAI

S/Shri S.L. Peeran, Member (J) and Jeet Ram Kait, Member (T)

EIMCO-KCP LTD.

Versus

COMMISSIONER OF CENTRAL EXCISE, CHENNAI

Final Order No. 912/2002, dated 16-8-2002 in Appeal No. E/1174/98

Cases Quoted

Collector v. Cotspun Ltd. — 1999(09)LCX0297 Eq 1999 (113) ELT 0353 (S.C.) — Relied on........................... [Paras 5, 7]

Hindustan Ferodo Ltd. v. Collector — 1996(12)LCX0029 Eq 1997 (089) ELT 0016 (S.C.) — Relied on............... [Paras 5, 7]

Advocated By :   Ms. L. Mythili and Shri S. Anand, Advocates, for the Appellant.

Shri A. Jayachandran, DR, for the Respondent.

[Order per : S.L. Peeran, Member (J) (Oral)]. - This appeal arises from Order-in-Appeal No. 19/98 (M-II), dated 24-2-98 passed by the Commissioner of Central Excise (Appeals), Chennai.

2. In this appeal, a dispute of classification has arisen with respect to “Drive assembly/drive head” and drive unit which were classified and approved by the department as parts of filtering equipment under chapter heading 8421.00. However, by show cause notice dated 3-11-94, the department intended to classify the item under chapter heading 8483.00 as “Torque Converters” on the premise that according to Section Note (2) of Section XVI which is amplified in explanatory notes, Vol-III page 1131 that parts which in themselves constitute an article covered by a heading of this section or in all cases classified in their own appropriate heading, even if specially designed to work as a part of a specific machine. Hence, they issued the show cause notice raising demand for Rs. 3,27,850/- as differential duty for the clearances made during the period from 15-6-94 to 20-9-94. The appellants contested the issue and denied that the item is “torque converters” and reiterated that the item is part of filtering and purifying machinery. They relied on the definition of the term “torque” as appearing in Webster’s 7th New Collegiate Dictionary and the World Book Dictionary which define Torque as ‘something that produces or tends to produce rotation or torsion’. The “torque converter” was defined as device for transmitting and amplifying torque especially by hydraulic means. The World Book Dictionary defines ‘torque’ as a force causing rotation or torsion. It also stated that ‘the movement of the system of force causing rotation : the power produced by automobile machine consist of speed and torque’. The “torque converter” was defined as hydraulic device for altering torque and speed delivered by driving shaft to the ratio required by a driven shaft and that certain automobiles with automatic transmission use torque converters. They explained after noting the definitions that if a device which merely produces rotatory motion it is “torque” and if the device amplifies or converts a rotatory motion of a specific level to rotatory motion of different levels, then it is a “torque converter”. They further contended in reply to the show cause notice as follows :-

“In the light of the above meanings and illustration the functioning of the drive mechanism in question may be studied. The drive unit is an assembly consisting of a main gear at the bottom which drives a shaft and a worm drive mounting on top. The worm gear drive is designed with a worm shaft that moves axially under loaded conditions of the drive unit. The movement is possible by a thrust bearing with a sliding bearing seat arrangement on the loaded side of the worm. This assembly is connected to two sweeping arms. When the equipment is started, it rotates the arms which are kept inside a circular tank that contains the liquid solid mixture. By the rotary motion of the arms, the solid is separated from the liquid. The equipment in question is a simple device to provide a rotary motion to the arms as stated above. The rotary motion or the torque does not change but remains constant. There is no device in the equipment to convert the torque from one level to another. It may be seen from the working of the equipment that its function is only to give the force required for rotating motion (that is the torque) or to rotate two sweeping arms at constant speed in a circular tank. At all times the torque or the force required for rotary motion is the same and the make arms are rotated at the same speed. The torque required will vary from equipment to equipment of different sizes of arms and of different tank sizes. However, the torque of each equipment will be constant. In the equipment there is no device for conversion into different torques.

The expression “torque” ranging from 5,000 Kg. M to 5,50,000 Kg. M found in the pamphlet does not mean that the subject equipment is a torque converter changing the torque from 5,000 Kg. M to 5,50,000 Kgm. It only means that company can supply the drive units having torque range from 5,000 Kg. M to 5,50,000 Kgm, according to the requirement of the customer. For example, one unit may have a constant torque of 5,000 Kgm, another equipment may have a constant torque of 1,00,000 Kgm and yet another equipment may have a constant torque of 5,50,000 Kgm. as specified by the customer. In any case, there is no variation in the torque of a particular equipment as it remains constant.

From the above facts, it may be seen that the equipment only produces a constant circular motion (or torque) to run two sweeping arms and it is not a torque converter. In view of this, the equipment cannot be classified under heading No. 8484.00 as a torque converter.

The equipment has, therefore, to be classified as per explanation II applicable to Parts (page 1131 of HSN) which says that parts which are suitable for use in itself or principally with particular machines or apparatus are classified in the same heading as the machines or apparatus.

As the drive assembly is only a part of liquid solid separation equipment covered by Heading No. 8421.00, it merits classification under the same heading namely of 8421.00.

Even as per the second part of the Explanatory note (page 1131), especially filtration machinery and apparatus (in which the subject equipment is a part) has to be classified under heading No. 8421.00.

A perusal of the explanatory note under the sub-heading No. 8488.40 (In H.S.N) would reveal the following :

Speed changers or torque converters covers mainly :

(1)      Certain mechanical parts which are used in the transmission of power upon an external power unit to one or more machinery.

(2)      Certain internal parts of a machine used to transmit power to the various parts of the same machine.

(3)      This heading does not cover gear box or other variable speed changers combined with the motor. These are classified in the same heading as the Motor.

The equipment in question is not used in the transmission power upon any external power unit to one or more machinery. It is only used to rotate the sweeping arms. Hence explanation (I) is not applicable to the equipment.

The equipment in question is also not used to transmit power to various parts of the same machinery. Hence explanation (d) is also not applicable to the equipment.

The equipment is always combined with a motor without which it cannot work. Hence as per explanation (s) it cannot be classified under 8488.40.

In view of the foregoing submissions, the Drive assembly is not classifiable under heading No. 8488.00 and is rightly classifiable under Heading No. 8481.00 and therefore no differential duty is payable by us. When no differential duty is payable by us, we are not liable to any penalty.”

3. Both the authorities did not accept their view and proceeded to hold the item to be a ‘torque converter’ requiring classification under heading 8483.00. In the impugned order, the Commissioner has expressed his personal view also by holding in Para 5.1 as follows :-

“I have carefully considered the facts of the case and the submissions of the appellants in their grounds of appeal as well as those advanced by the Advocate during the heading. The first issue taken up by the appellants is that the Assistant Commissioner has taken the torque range from 0 to 5,000 kgm and - 0 - 50,000 kgm as if the torque can be varied. The pleaded that they do not manufacture any drive-head or drive assembly whose torque could be changed. They manufacture drive-head or drive-assembly with fixed torque. Although the drive heads are designed in such a way that the torque can be kept constant for a particular application, this does not necessarily mean that they are not capable of producing variable torque as contended by the appellants; that variability of the torque does not mean that the application is also to be varied. As per the definition of torque converter, pointed out by the Advocate, it is a device for transmitting or amplifying the torque. My view is that the torque is transmitted even it is not amplified. In the circumstances, the torque at fixed point will be covered by “transmitting”. We should understand torque converter as “converted into torque”, instead of understanding it as “converting one level of torque to another”. In the circumstances, the impugned order on this point is correct and is upheld.“

4. We have heard Ms. L. Mythili along with Shri S. Anand, ld. Counsels for the appellants and Shri A. Jayachandran, ld. DR for the Revenue.

5. Ld. Counsel relied on the judgment of Apex Court rendered in CCE, Baroda v. Cotspun Ltd., 1999(09)LCX0297 Eq 1999 (113) ELT 0353 (S.C.) to argue that the demands cannot be confirmed as there was an approved classification list and any change in the classification sought by issue of show cause notice will have only prospective effect. She further relied on the judgment of the Apex Court rendered in Hindustan Ferodo Ltd. v. CCE, 1997 (089) ELT 16 to argue that the Commissioner cannot replace his personal opinion by brushing aside the technical information given by the appellants who manufactured the products. She submitted that burden of classification had not been discharged by the department and that there was no mis-declaration as the classification list and the accompanying documents clearly disclosed all the details of the product. Ld. Counsel denied that the item is a “torque converter”. Although the item may produce a torque which does not transmit the same and it is not used in the automobile assembly but used as parts of filtering and purifying machinery and therefore it has been rightly classified under heading 84.21 as parts of filtering equipment.

6. Ld. DR merely reiterated the departmental view and could not counter the judgment cited by the Counsel nor placed technical opinion or advice or literature to explain as to what the product is about.

7. On a careful consideration of the submissions, we are of the considered opinion that the matter is required to be remanded for de novo consideration for the reason that the appellants’ contention was accepted in the first instance while approving the classification list without demur and without any verification through technical opinions obtained from experts. The contention of the appellants that the item is used as part of filtering equipment was not challenged but is contended that it is ‘torque converter’ and capable of performing as such, although it is a ‘torque’ but is required to be separately classified when there is a separate heading for ‘torque converter’ under Chapter Heading 8483.00. The appellants have relied on the definitions of the term “torque converter” as appearing in the dictionaries and contend that the item is not ‘torque converter’, and they contend that it is not used in the automobiles. This aspect is required to be verified through technical opinion and the Commissioner cannot introduce his own personal opinion to arrive at conclusions without any basis or evidence as held by the Apex Court in the case of Hindustan Ferodo Ltd. (supra). Further, we notice that there is no mis-declaration in the matter as all the details pertaining to the item including pamphlets and literature had been furnished at the initial stage when the classification was approved from time to time. The case is in the nature of change of opinion on the part of the department. This required evidence which should have been in the nature of technical opinions from experts which is not forthcoming. Therefore, the authorities on their own cannot form an opinion as to what the product is about unless it is established through proper evidence. The demands can be confirmed with retrospective effect from the date of the show cause notice in cases where the classification had been approved and only if the proviso to Section 11A had been invoked. There is no grounds made out for invoking larger period and demands can be only prospective as held by the Apex Court in the case of CCE v. Cotspun Ltd. (supra). For that reason, we are required to set aside the demands and remand the case to the original authority to arrive at the appropriate classification only after obtaining the expert opinion on the item. The department is required to establish and discharge the burden of classification which has not been done except that the personal opinion has formed the basis for classifying the item, this cannot substitute the technical opinion to discharge the burden of classification. Therefore, for arriving at a correct classification, we remand the case to the original authority. Both sides shall produce the evidence which should be technical in nature in the form of expert opinion to establish as to what the item is about and only thereafter, the original authority shall proceed to decide the case after observing the principles of natural justice. Thus, while setting aside the demand for differential duty, we remand the case for deciding the question of classification.

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Equivalent 2003 (151) ELT 157 (Tri. - Chennai)