1994(05)LCX0073

IN THE CEGAT, SPECIAL BENCH `B1’, NEW DELHI

S/Shri P.C. Jain, Member (T) and S.L. Peeran, Member (J)

COLLECTOR OF CENTRAL EXCISE, NEW DELHI

Versus

ESCORTS LTD.

Final Order No. E/244/94-B1, dated 2-5-1994 in Appeal No. E/4499/92-B1

Advocated By : Shri B.K. Singh, SDR, for the Appellant.

Shri P.S. Bedi, Consultant, for the Respondents.

[Order per : P.C. Jain, Member (T)]. - Brief facts of the case are as follows :-

1.1 Respondents herein are inter alia engaged in the manufacture of certain excisable goods namely gears and shafts. Revenue contends that these goods are classifiable under Tariff Heading 84.83 because these parts are specifically covered under the said heading and Notes 1(k) and 2(a) of Section XVI of the CETA, 1985 come into play. Respondents on the other hand contend that the said goods are covered under Tariff Heading 87.08 as tractor parts. Notes of Section XVI, as mentioned above, do not apply in view of Section Note 2(e) of Section XVII of the CETA, 1985. It may be noted that Chapter 84 falls under Section XVI and Chapter 87 falls under Section XVII of the Tariff.

2. In order to appreciate the above controversy, we may reproduce the relevant Tariff Headings and Section notes :-

(1) Section Note 1(k) :-

“1. This Section does not cover :

(k) Articles of Section XVII :

(2) Section Note 2(a) of Section XVI :-

2. 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 Nos. 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 Nos. 84.85 and 85.48) are in all cases to be classified in their respective headings.

(3)Tariff sub-heading 8483.00 :-

8483.00 -Transmission shafts (including cam shafts and crank shafts) and cranks; bearing housings and plain shaft bearings; gears and gearing; ball screws; gear boxes and other speed changers, including torque converters; flywheels and pulleys, including pulley blocks and shaft couplings (including universal joints)

(4) Section Note 2(e) of Section XVII :-

2. The expressions `parts’ and `parts and accessories’ do not apply to the following articles whether or not they are identifiable as for the goods of this Section :-

(e) Machines and apparatus of Heading Nos. 84.01 to 84.79, and parts thereof; articles of Heading No. 84.81 or 84.82 and provided they constitute integral parts of engines or motors, articles of Heading No. 84.83.

(5) Tariff sub-heading 8708.00 :-

8708 : Parts and accessories of the motor vehicles of Heading Nos. 87.01 to 87.05."

3. From a plain reading of Section Notes 1(k) and 2(a) of Section XVI, it is apparent that Section Note 2(a) is subject to Section Note 1, Section Note 1(k) specially states that Section XVI, in which Chapter 84 falls, does not cover articles falling under Section XVII. Question of applying Section Note 2(a) of Section XVI, therefore, arises after recording a finding that Section XVII does not apply to the goods under consideration. We have, therefore, to examine whether Section XVII i.e. Chapter 87 applies to the goods under consideration.

4. Now Tariff Heading 87.08 applies to `parts and accessories’ of Motor vehicles of Heading Nos. 87.01 to 87.05. It is admitted to both sides that `shafts’ and `gears’ under consideration before us are parts of tractors inasmuch as they are principally used in tractors. No other use of these parts has been brought on record. Learned SDR, Shri B.K. Singh for the Revenue submits that Section Note 2(e) of Section XVII, already set out above, excludes from the said Section XVII articles of Heading 84.83 if such articles constitute integral parts of engines or motors. He submits that `shafts’ and `gears’ under consideration are integral parts of `engines’ of the tractor.

4.1 According to him, definition of `integral’ in relation to `mechanics’ in the Dictionary “Words & Phrases” (Permanent Edition) Vol. 21A means as follows :-

“Integral, as applied to mechanics, means all of one piece (of metal or wood) ; as the shaft and base are cast integral”

He submits that `gears’ and shafts directly affect the power of the engine and therefore, they are integral parts of engines. In this connection, he relies on the following extracts from `Auto Mechanics Fundementals’ (How & Why of the Design, Construction and Operation of Automotive Units) by Martin W Stocket :-

4.2 He also relies on the following extracts from `How Things Work’ (Vol. I) :-

“The internal combustion engines generally installed in motor vehicles develop their power output at high speeds of rotation (approx. 4000-6000 r.p.m.). It is therefore necessary to reduce the speed between the crankshaft and the shaft which drives the wheels. In addition, the torque (see below) that the engine delivers can be varied only within narrow limits. For this reason it is necessary to be able to alter the transmission ratio, so that the driving forces applied to the wheels of the vehicle can be adapted to the varying road resistance conditions.”

5. Shri P.S. Bedi, learned consultant on the other hand relies on the lower Appellate Authority’s judgment. He submits that `gears’ and `shafts’ are not integral parts of engines; they effect the power of the engine being outside the engine of a tractor. Engine merely produces power. Any part which controls the power produced by the engine will naturally be outside the engine and cannot be an integral part of it. He relies on HSN Explanatory Notes and points out the `gears’ and `shafts’ of automobiles are specifically excluded from the scope of 84.83. Relevant extracts from HSN Explanatory Notes in respect of Tariff Heading 84.83 and 87.08 are reproduced below :-

“84.83 - The goods covered by this heading are mainly :-

(i) Certain mechanical parts which are used in the transmission of power from an external power unit to one or more machines.

(ii) Certain internal parts of a machine, used to transmit power to the various parts of the same machine"

The heading also excludes :-

(a) Rough forgings of Heading 72.07

(b) Transmission equipment of the kinds described above (gear boxes, transmission shafts, clutches, differentials, etc.), but which are designed for use solely or principally with vehicles or aircraft (Section XVII); it should, however, be noted that this exclusion does not apply to internal parts of vehicle or aircraft engines - these parts remain classified in this heading.

Thus a crank shaft or a cam shaft remains in this heading even if it is specialised for a motor car engine; but motor car transmission (propeller) shafts, gear boxes and differentials fall in Heading 87.08.

It should further be noted that transmission equipment of the type described in this heading remains classified here even if it is specially designed for ships.

(c) Parts of clocks or watches (Heading 91.14).

87.08 - This heading covers parts and accessories of the motor vehicles of Heading 87.01 to 87.05, provided the parts and accessories fulfil both the following conditions :

(i) They must be identifiable as being suitable for use solely or principally with the abovementioned vehicles; and (ii) They must not be excluded by the provisions of the Notes to Section XVII (See the corresponding General Explanatory Note).

Parts and accessories of this heading included :

...................................................................

(d) Gear boxes of all types (mechanical, overdrive, preselector, electro-mechanical, automatic, etc.); torque converters ; gear box castings; shafts (other than internal parts of engines or motors); gear pinions; direct drive dog-clutches and selector rods, etc.

(f) Other transmission parts and components (for example, propeller shafts, half-shafts; gears, gearing; plain shaft bearings; reduction gear assemblies; universal joints). But the heading excludes internal parts of engines, such as connecting rods, push-rods and valve lifters of Heading 84.09 and crank shafts, cam shafts and flywheels of Heading 84.83."

He, therefore, submits that Revenue’s appeal deserves to be dismissed.

6. In his rejoinder Shri B.K. Singh submits that HSN Explanatory Notes are not relevant because Section Note 2(e) of Section XVII of the HSN excludes internal parts of engines from the scope of 84.83 and not integral parts as in CETA, 1985. Gears and shafts are not internal parts of engines, that is why `gears’ and `shafts’ have been excluded from 84.83 in the Explanatory Notes.

6.1. We have carefully considered the pleas advanced from both sides.

7.1 We reproduce below the findings of the lower appellate authority as set out in para 10 of the impugned order :-

7.2. We note from the above findings that the appellant-Collector is contesting the impugned order purely on the basis of Note 2(a) of Section XVI and Rule 3A of the Interpretative Rules for the Central Exicse Tariff Schedule under CETA, 1985. There is no controversy whether the `gears’ and `shafts’ in question are integral parts of the engine of the tractor or otherwise. Revenue’s entire case in appeal memo is based on the fact that Tariff Heading 84.83 covers `gears’ and `shafts’ specifically and therefore, it should be preferred to the Tariff Heading 87.08 which is of a general nature part of tractors. Such an argument advanced by the appellant-Collector ignores the various Section Notes mentioned above. This cannot be accepted, because the very first rule is the Interpretative Rules relied upon by the Revenue itself enjoins that classification is to be made according to the terms of the headings and the relative Section Notes and Chapter Notes.

7.3 Argument now advanced by the learned SDR that `gears’ and `shafts’ under consideration are integral parts of the engine, on the basis of the meaning of the word `integral’ is in our view without any evidence. It appears from the finding of the learned lower appellate authority, already set out and emphasised above, that the “goods in question are undisputedly not integral parts of engines or motors”. Revenue cannot now take sommersault and say that these are integral parts of the engine without disputing this finding in the `grounds of appeal’ and without bringing on record any evidence to that effect. It is apparent from the extracts of HSN Explanatory Notes set out that certain `gears’ and `shafts’ which are internal parts of the engines would be covered by Tariff Heading 84.83. We do not think it is necessary for us to enter into the controversy and effect of substitution of the word `internal’ occurring in HSN by the word `integral’ in Section Note 2(e) of Section XVII of CETA, 1985 in the absence of any evidence required to be adduced by the Revenue and the absence of any contest to the finding of the Collector (Appeals).

7.4 Question before us is purely of construction of the contending Tariff Headings 84.32 and 87.08 with relative Section Notes and Chapter Notes and Interpretative Rules of the Tariff. On this question, Revenue fails. Impugned order is confirmed. Revenue’s appeal is rejected.

Equivalent 1994 (072) ELT 0387 (Tribunal)

Equivalent 1994 (002) RLT 0308 (CEGAT-B1)