2001(06)LCX0004

IN THE CEGAT, SOUTH ZONAL BENCH, CHENNAI

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

COMMISSIONER OF CUS., CHENNAI

Versus

ASSOCIATED CEMENT COMPANIES LTD.

Final Order No. 987/2001, dated 27-6-2001 in Appeal No. C/483/96-Md.

Advocated By :   Shri G. Sreekumar Menon, SDR, for the Appellant.

Shri V. Mahadevan, Advocate, for the Respondent.

[Order per : S.L. Peeran, Member (J)]. - This is a Revenue appeal against the order-in-appeal No. M. CUS: 1064/96, dated 27-6-1996 passed by the Commissioner (Appeals), Chennai upholding the assessee’s contention seeking clearance of one set of reduction gear with attachment of lubrication device and coupling and for classification under heading 8493.90 as part of gear reduction along with the benefit of Notification No. 49.95. The Commissioner (Appeals) in the impugned order however did not agree with the contention of the assessee that the impugned goods were eligible for classification under heading 8493.90 as part of gear unit. However, going by Section Note 2(a) of Sec. XVI, he held the item to be classifiable along with main unit and upheld the classification under heading 8483.90 and the claim for the benefit of the concessional rate under the Notification. It is necessary for the purpose of appreciating the Revenue’s appeal to extract the main findings of the Commissioner (Appeals) in paras 7 to 13 herein below :

“7. I have carefully considered the written and oral submissions made by the appellant through their Counsel.

8. The short question that arises for determination in this case is whether the oil unit for Gear Reducer was classifiable under sub-heading 8479.89, as held by the lower authority or under sub-heading 8483.90, as contended by the appellant.

9. In his order, the lower authority has explained the reasons why the impugned lubricating unit has to be taken as a machine with individual functions, not specified or included elsewhere and, hence correctly classifiable under heading 84.79 only (sub-heading 8479.89). It is, therefore, held that C. No. 49/95 did not cover the impugned goods and hence, the appellants were not entitled to the benefit of the aforesaid Notification.

10. It is now the case of the appellant, on the other hand, that the impugned lubricating pump or gear pump is used as an integral part of the gear unit. Unless lubricating oil is supplied to the gear unit, the gear unit will not function. In view of the above, it is contended that the lubricating pump or gear pump in question should be taken as part of gear unit and is classifiable under sub-heading 8483.90.

11. On going through the Tariff headings under Chapter 84, it is seen that sub-heading 8413.30, inter alia, covers lubricating medium pumps for integral combustion piston engine. It is not in dispute in the instant case that the impugned lubricating unit or gear unit is a medium pump meant for supplying lubricating unit oil to the gear unit in internal combustion piston engine. The lubricating oil is supplied to the gear unit only in the engine and not to any other part. Therefore, it stands to reason to infer that the impugned medium lubricating pump for internal combustion engine was specifically covered by the sub-heading 8483.90. The Explanatory notes to HSN page 1180 for the goods falling under Heading 84.13 clearly indicate that one of the items covered is gear pump. It is further stated that in respect of the gear pumps, the liquid is displaced by teeth or specially shaped gears. This fully tallies with the situation prevailing with the appellant in the instant case and there is no reason why the impugned goods should not be taken as specifically covered by Heading 84.13 (sub-heading 8413.30). Once the goods are specifically covered by the aforesaid heading, the question of its classification under the residuary heading 84.29 would not obviously arise.

12. I am not inclined to agree with the contention of the appellant that the impugned goods were eligible for classification under sub-heading 8483.90 as part of the gear unit. As a matter of fact, the lubricating medium pump for internal combustion engine cannot be taken as a part of gear unit merely because without the lubricating oil, the gear unit cannot function. These are inter-dependant parts of Internal combustion engine. However, Note 2(a) of Section XVI provides that parts which are goods included in any of the Headings of Chapter 84 or Chapter 85 other than the Headings excluded in the said Chapter Note, are in all cases, to be classified in their respective Headings. Heading 84.13 has not been excluded in the said Section Note. Even though for argument’s sake it is accepted that the impugned lubricating oil pump or gear pump was a part of gear unit, since such parts are goods included in Heading 84.13, going by Section Note 2(a) of Section XVI, one has no option but to classify the goods under Heading 84.13 only (sub-heading 8413.30) Customs Notification No. 59.95, inter alia, covers all goods falling under Heading 84.13 excluding pumps to be used with swimming pools. There is no doubt that the impugned pumps were not to be used with swimming pools. Obviously, therefore, the impugned pumps could be taken as covered by CN No. 49/95.

13. It is seen that the appellant’s claim for the concessions under the aforesaid Notification was with reference to sub-heading 8482.90 and not with reference to Heading 84.13 (sub-heading 8413.30). However, the concessional rate claimed for assessment remains the same under the aforesaid Notification in respect of both sub-heading 8413.30 and sub-heading 8483.90. Hence, I am inclined to allow the appeal.”

2. The Revenue seeks for confirmation of the order-in-original which is based on the flow diagram, HSN explanatory note as well as based on the Examiner’s report. It is contended that the item is required to be considered as an independent machine as it has independent function for classification under heading 8479. They rely upon Section Note more particularly para B of HSN under this heading which refers to mechanical devices which cannot perform their function unless they are mounted on another machine or appliance, or are incorporated in a more complex entity, provided this function (i) is distinct from that which is performed by the machine or appliance whereon they are to be mounted or by the entity wherein they are to be incorporated (ii) does not play an integral and inseparable part in the operation of such machine, appliance or entity. The Revenue contends that the lubricating system squarely fits into the category mentioned at B above i.e. to say that the lubricating system is to be mounted on the reduction gear and the lubricating system is neither integral part of the reduction gear nor takes part in the operation of the reduction gear and that the function of the reduction gear is “Milling” whereas the operational part of the lubricating system is only to lubricate and cool frictional parts. Therefore, the lubricating system is correctly classifiable under heading 8479.89 and therefore, the impugned order is required to be set aside and the order-in-original is required to be confirmed.

3. The learned SDR takes us through entire records and more particularly the finding portion in the order-in-original. He also referred to the appraiser’s notes which according to the learned SDR cannot be rejected. He points out that the report clearly indicates that the unit is a separate complete unit which can be connected to the gear by connecting pipe from a distance. He submits that the physical examination conducted by the Group also confirms examination report of the Docks. The catalogue produced by them also shows this as a lubricating unit which conforms to the examination report. Therefore, the item having independent function cannot be treated to be dependent on the gear box. Therefore, the classification adopted at the first instance was in keeping with the Dock report, appraiser’s report and the assessee’s own catalogue and the HSN Notes. Therefore, the impugned order is required to be set aside and the appeal allowed.

4. On the other hand the learned Counsel for the respondents filed a detailed note as well as drawing of the impugned imported goods. The written note reads as follows :

“The difference of opinion with regard to classification of the Gear Box and Lubrication Oil Unit for the Gear Reducer has arisen because the Gear Box and Lubrication Oil Unit have been packed separately, though imported together under one Bill of Lading and under one Invoice from Nihon Cement Co., Japan.

Although the Purchase Order and the Invoice is for supply of Gear Box and the Lubrication Oil Unit at one Lump sum Price, the Price break up has been specifically obtained from the supplier at the request of Customs authorities.

It appears that the Department has considered only the Physical separation and the size of the components etc. of the arrived packages and not the integrated functioning of the units.

The Lubrication Oil Unit has been packed separately, for ease of transportation and to avoid damage in transit.

The Supplier M/s. Nihon Cement Co., Japan also vide their certificate dated 12th Jan., 1996 and the manufacturer M/s. Osaka Chain & Machinery Ltd, Japan vide their fax dated 9th Feb., 1996 have rightly confirmed that the Lubrication Oil Unit is a component of the Gear Box.

The Imported Gear Box and the Lubrication Oil Unit are interdependent and without operation of the Lubrication Oil Unit, the Gear Box/its teeth will get damaged. The function of the Gear Box is to transfer Power. Further the reduction Gear is a part of an integrated arrangement, by which the transmission of Power is modulated.

The Lubrication Unit is connected to the Gear Box with the help of Pipes and the Lubrication Oil Unit not only pumps the lubricant to the Gear Box but also the Lubrication Oil Unit draws the lubricant from the same Gear Box Unit, thereby setting up a complete circulation system. The Lubrication Oil Unit will run only when the Gear Box is in operation and also the Gear Box cannot run without the Lubrication Oil Unit in satisfactory operation thereby proving the interdependence of the units.

This is also emphasized by the Caution Note in the Product Technical Manual of the supplier of the Gear Box which specifies as under:

“THE GEAR REDUCER WILL RESULT IN FAILURE WITHOUT LUBRICATION OIL OR IN THE STATE OF SHORT OF OIL.”

(A copy of the Caution Note is attached for ready ref.)

The Lubrication Oil Unit has no independent function and its sole function is to Lubricate the Gear Box, without which the operation of the Gear Box and therefore Transmission of Power is not possible and hence the Lubrication Oil Unit functions as a component of the Gear Box System.

The Lubrication Oil Unit is specifically designed to suit the technical requirements of the Gear Box, alternatively the features of the Gear Box are taken into account in the design of the Lubrication Oil Unit and vice versa. It is a completely Custom built unit and cannot be used elsewhere along with any other equipment. Hence we surmise that the Lubrication Oil Unit is functionally an inseparable component of the Gear Box System and to be treated as such for classification purpose.”

5. On the basis of the above note, the learned Counsel takes us through the impugned order of the Commissioner (Appeals) and the technical literature and pointed out that the lubricating unit undisputedly even in terms of the technical report is to function along with gear box. They were declared as one unit only, though packed separately for transportation purpose. He also explained through the drawing which was filed along with the written submission to submit that the lubricating system does not have independent function for the purpose of classification under the heading sought for by the Revenue. The lubricating system according to the learned Counsel cannot function independently as is clear from the technical literature, drawing and the written notes given by them and the findings arrived at by the Commissioner (Appeals). The Commissioner (Appeals) has arrived at a correct conclusion that residuary entry cannot be taken for classification when specific entry is available. He also took us through Note 2(a) Section XVI in support of his plea that when a machine is to function along with another machine and both are interdependent, then the classification has to be done on the basis of the main machine. Therefore, Section Note 2(a) of Section XVI will have precedence over the grounds taken by the Revenue in their appeal which is based on the Examiner’s report. He also relied upon the technical expert’s opinion and the catalogue to support the Commissioner (Appeals)’s finding. He submitted that there is no infirmity in the Commissioner (Appeals)’s finding and sought for dismissal of the Revenue appeal.

6. On careful consideration of the entire submissions and the records of the case, we are of the considered opinion that there is lot of force in the submission of the learned Counsel for the respondents. We have gone through the extracted portion of the Commissioner (Appeals)’s order and we find that he has rightly held that a residuary heading cannot be resorted to for classification when specific entry is available. We find that the technical literature and the write-up given by the respondent’s support the plea that lubricating oil unit is totally dependent upon the gear box and both function simultaneously and both the items i.e. Gear Box and Lubricating Oil units are not independent units as correctly held by the Commissioner (Appeals). We also find that in accordance with Section Note 2(a) of Section XVI the classification of an item should be on the basis of the function of the main machine and the residuary heading cannot be adopted when specific entry is available for classification. The technical literature and the write-up clearly discloses that both the units are interdependent and function simultaneously and not independently. In this view of the matter, in view of the technical literature and the findings of the Commissioner (Appeals) which is in accordance with the Section note, we do not find any merit in the Revenue appeal and the appeal is rejected.

Equivalent 2001 (133) ELT 0400 (Tri. - Chennai)

Equivalent 2001 (045) RLT 0908