1997(02)LCX0104

IN THE CEGAT, COURT NO. II, NEW DELHI

S/Shri Lajja Ram, Member (T) and A.C.C. Unni, Member (J)

PUNJAB WIRELESS SYSTEMS LTD.

Versus

COLLECTOR OF C. EX., CHANDIGARH

Final Order No. E/227/97-B, dated 6-2-1997 in Appeal No. E/3429/87-B1

Advocated By : Shri V. Lakshmikumaran, Advocate, for the Appellant.

 Shri P.K. Jain, SDR, for the Respondents.

[Order per : Lajja Ram, Member (T)]. - In this appeal filed by M/s. Punjab Wireless Systems Ltd. (`PUNWIRE’ for short), being aggrieved with the order-in-original dated 3-12-1987 passed by the Collector of Central Excise, Chandigarh, two issues for our consideration are : (1) classification and excisability of electrically connected in-series and encased of Nickel Cadmium (NI-CAD) batteries; and (2) classification and dutiability of microphones. With regard to NI-CAD batteries, it has been contended by PUNWIRE that the process of electrically connecting in-series of the NI-CAD cells/batteries and encasing them for use in the hand-held transreceivers did not amount to the process of manufacture. These batteries were declared by PUNWIRE as telecommunication and transreceiver accessories classifiable under Item No. 68 of the old Central Excise Tariff (as in force prior to 28-2-1986). With effect from 28-2-1986 such batteries were classified under Heading No. 85.29 of the Schedule to the Central Excise Tariff Act, 1985 (new tariff). The Revenue had sought to classify these batteries under Item No. 31(1) of the old Tariff, and under Heading No. 85.07 of the new Tariff. For the microphones cleared along with the transreceivers, the Revenue had determined the classification under Heading No. 85.18 of the new Tariff, while according to the PUNWIRE, they were rightly classifiable under Heading No. 85.29 of the new Tariff. There is no dispute that prior to 28-2-1986, they were classifiable under Item No. 68 of the old Tariff. In the show cause notice dated 20-2-1987, mis-statement and suppression of facts had also been alleged to invoke the extended period of limitation. The Collector of Central Excise, Chandigarh, who adjudicated the matter came to a finding with regard to the battery pack that a new product had emerged and that there was a substantial addition in value. In his view the fact that the battery pack fall in the same Heading as the individual cells would not make any difference to the duty liability. With regard to microphones, he classified them under Heading No. 85.18 of the new Tariff with benefit of notification no. 217/86-C.E. w.e.f. 2-4-1986, with no such benefit for the earlier period. He confirmed the demand of duty of Rs. 10,32,884.96 (Rs. 8,59,274.96 on batteries and Rs. 1,73,510/- on microphones). A penalty of Rs. 50,000/- was also imposed.

2. The matter was heard on 18-11-1996, when Shri V. Lakshmikumaran, advocate, appeared for the appellants. Shri P.K. Jain, SDR, represented the respondent/Revenue.

3. Shri V. Lakshmikumaran, advocate, stated that they had imported the Nickel-Cadmium battery cells and on such import proper countervailing duty had been paid. When such individual cells were connected and housed for proper use for the walkie talkie sets, no new product emerged and the view taken by the Department that a new item of manufacture had emerged, was not correct. As regards the microphones, he stated that the matter related to the period from 1-3-1986 to 1-4-1986 when the new tariff came to be introduced and when notification no. 217/86-C.E. was not in force.

4. In reply, Shri P.K. Jain, SDR, stated that when the imported battery cells were connected in-series and were encased, a new product emerged for specific use in the walkie talkie sets; the individual cells were not usable as such in such walkie talkie sets. As regards the classification, he relied upon the findings of the adjudicating authority. In so far as the microphones are concerned, he submitted that as there was a specific tariff entry under Heading No. 85.18 of the new tariff, there was no question of their classification as parts of the goods falling under Item No. 85.25 of the new Tariff.

5. We have carefully considered the matter. M/s. PUNWIRE were engaged in the manufacture of telecommunication and transreceiver equipment and parts thereof. These goods were classifiable under item no. 68 of the old Tariff. On introduction of the new tariff w.e.f. 28-2-1986, they were classifiable under item no. 85.25 of the new tariff which covers the following :

“Transmission apparatus for radio-telephony, radio-telegraphy, radio-broadcasting or television, whether or not incorporating reception apparatus or sound, recording or reproducing apparatus; television cameras.”

6. The appellants had imported individual cells and had processed them to make Nickel-Cadmium batteries. There is no dispute that during the period prior to 28-2-1986 the NI-CAD batteries manufactured by the appellants out of individual cells imported were being classified under item no. 68 of the old tariff. They were connecting in-series a number of NI-CAD cells/batteries or NI-CAD accumulator batteries so as to provide the required power of 10.8-13.8 volts to operate hand-held transreceivers. From 1-3-1986 such batteries were classified by the appellants under Heading No. 85.29 which covered “parts suitable for use solely or principally with the apparatus of heading nos. 85.25 to 85.28". The telecommunication and transreceivers equipment manufactured by PUNWIRE was classifiable under Heading No. 85.25 which had already been extracted above. The Revenue sought to classify the NI-CAD batteries upto 27-2-1986 under Item No. 31(1) of the old Tariff and under Heading No. 85.07 from 28-2-1986 onwards.

7. In their reply to the show cause notice, among other grounds, the appellants had submitted that the process of connecting in-series a number of imported NI-CAD cells/batteries or NI-CAD accumulator batteries, and encasing them in high impact lexan did not amount to manufacture. The Collector of Central Excise, Chandigarh, who had adjudicated the matter initially agreed that no new product emerged in the form of NI-CAD cells. He observed as under :

“I agree no new product emerges in the form of NI-CAD cells as the job of the battery created by the unit is same i.e. providing electricity (current)”.

On the ground that by connecting the batteries in-series and putting them in the plastic housing for specific use in particular walkie talkie, he, however, thought that “it can reasonably be said that a new product has emerged”. We consider that the reasoning given by the learned adjudicating authority lacks clarity. Either there is a process of manufacture or there is not a process of manufacture; either new goods emerged or no new goods emerged, it cannot be both at the same time. The concept of manufacture goes to the root of the matter. If there is no process of manufacture and no new goods emerged, then the levy of central excise duty may not be attracted, unless the goods are specifically mentioned in the tariff.

8. The process to which the imported NI-CAD cells/batteries and the NI-CAD accumulator batteries were subjected to by M/s. PUNWIRE had been explained as under :

“We connect-in-series a number of Nickel-Cadmium cells/batteries or Nickel-Cadmium Accumulator batteries so as to provide the required power of 10.8-13.8 volts and further connect the +ve and -ve terminals to the terminals of the battery housing case.”

After observing “I agree no new product emerges in the form of NI-CAD cells as the job of the battery created by the unit is the same i.e. providing electricity (current)”, we consider that no plausible reasons have been given by the learned adjudicating authority to conclude “I think, it can reasonably be said that a new product has emerged”. He has described the process adopted by PUNWIRE as under :

“by connecting the batteries in series, their voltage changes and they have been so connected in series as to provide specific voltage for the walkie talkie sets i.e. depending upon the model of the set. After these were connected in series, these were put in a plastic housing which was designed to be fitted into the walkie talkie sets manufactured by them and therefore, for this purpose special shape and size was given. The battery pack would not normally fit into other walkie talkie.”

He has not discussed as to what new product emerged and how it was known in the trade and industry. He had not discussed the matter in terms of the law laid down by the Supreme Court in a number of authoritative pronouncements.

9. On this ground alone, we consider that the order with regard to the batteries is not maintainable, and without going further into the question, we set aside that part of the order which relates to the batteries. This part of the appeal is allowed.

10. As regards the microphones, they were specifically covered by Heading No. 85.18 of the new tariff. Once they are covered by a specific entry, they will not be covered in any other entry on the strength of the Section Notes relating to the parts suitable for use solely or principally with a particular kind of machine. Section Note 2(a) of Section XVI of the new tariff provides that 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. Thus, the classification of microphones under Heading No. 85.18 of the new Tariff had been correctly decided by the adjudicating authority. He has already extended the benefit of notification no. 217/86-C.E., dated 2-4-1986 w.e.f. 2-4-1986. For the period 1-3-1986 to 1-4-1986, the issue of applicability to the Central Duties of Excise (Retrospective Exemption) Act, 1986 has not been raised by either side before us. Thus, we refrain from passing any judgment on this aspect of the matter and confirm the view taken by the adjudicating authority.

11. The adjudicating authority had imposed a penalty of Rs. 50,000/- on M/s. PUNWIRE. In the facts and circumstances of the case, we reduce the amount of penalty to Rs. 10,000/- (rupees ten thousand only).

12. The appeal is disposed of in the above terms.

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Equivalent 1997 (93) ELT 88 (Tribunal)