1995(07)LCX0106
IN THE CEGAT, PRINCIPAL BENCH `B2’, NEW DELHI
S/Shri S.L. Peeran, Member (J) and G.R. Sharma, Member (T)
J.K. SYNTHETICS LTD.
Versus
COLLECTOR OF CUSTOMS, JAIPUR
Final Order No. C/210/95-B2, dated 4-7-1995 in Appeal No. C/2419/89-B2
Cases Quoted
Ferro Alloys Corporation Ltd. v. Collector — 1995(02)LCX0117 Eq 1995 (077) ELT 0302 (Tribunal) [Paras 6, 8, 9, 10]
Collector v. Widia (India) Ltd. — 1994 (071) ELT 193 [Para 8]
Collector v. Dowells Elektro — 1990 (045) ELT 96 [Para 8]
Collector v. Ferro Alloys Corpn. Ltd. — 1992 (061) ELT 689 [Paras 9, 10]
Sawhney Paris Rhone Ltd. v. Collector — 1995(04)LCX0117 Eq 1995 (077) ELT 0013 (S.C.) [Para 14]
Advocated By : Shri Ravinder Narain, Advocate with Shri M.R. Gupta, Ms. Amrita Mitra and Ms. Sonu Bhatnagar, for the Appellants.
Shri A.K. Singh, SDR, for the Respondent.
[Order per : G.R. Sharma, Member (T)] . - M/s J.K. Synthetics have filed this appeal being aggrieved by the order passed by Collector(Appeal). The Collector(Appeals) in his order had held as under :-
“7. From a consideration of the submissions made by the appellant in respect of the classification of the goods imported, it would appear that the entire static un-interrupted power supply system minus the batteries details of which are in the invoice is being given the character of static convertor and that the principal function of this static convertor is un-interrupted power supply. To my mind there is a total fallacy in this approach. The systems imported are a complete set of equipments and nor merely electrical static converters. Static converters as per the explanatory notes to the HSN are used to convert electrical energy in order to adapt it for further use and this group includes rectifiers, invertors, and a few others. What the appellant has imported is not these rectifiers and invertors in isolation but whole system consisting of a set of equipments including rectifier invertor system, output assembly etc. The very structure of Heading 8504 would indicate that what is envisaged thereunder is electrical transformers, static converters (for example rectifiers) and inductors imported in isolation but not when they are imported as part of a complete system. In view of this, I am unable to agree with the appellant’s contention that the goods imported by them would merit classification under Heading 8504.40. On the other hand having regard to the fact that what has been imported is un-interruptable power supply system which cannot be classified under any other heading of Chapter 85 would most appropriately merit classification under Heading 8543.80.
8. Having regard to the aforesaid discussion I uphold the impunged order and reject the appeal. The appeal is disposed of accordingly."
2. Briefly stated the facts of the case are that the appellants imported four nos. of static units of uninterrupted Power Supply Systems. The importers filed a Yellow Bill of Entry classifying the goods under 85.18/27(3) for re-warehousing the goods in C.W.C. Kota. The goods were cleared on payment of duty on 6-6-1986. Since with effect from 1-3-1986, the new Customs Tariff based on Harmonized System of Nomenclature (HSN) was introduced, therefore, the goods were re-classified under Chapter Heading 8535.90. However, subsequently Customs found that the goods are known for their application in supplying uninterrupted supply of electric current and were of a type of sophisticated equipment, therefore, they were rightly classifiable under Chapter Heading 8543.80. Accordingly, a show cause notice was issued to the appellant asking them as to why the goods should not be classified under Chapter Heading 8543.80 and why differential duty should not be demanded from them. In reply to the show cause the appellants submitted that the equipment imported by them was static convertor classifiable under Heading 8504.40. It was explained by the appellant that power supply in the normal course was obtained from Rajasthan State Electricity Board and in case of shortage it is augmented by generators installed in the factory. It was also explained that when such generators are to be switched on there is always a time lag and interruption of electricity and the said equipment has been imported to ensure un-interrupted supply of electricity. It was also explained by them that the supply of electricity from the batteries is direct current whereas the main supply is alternating current and therefore in order to utilise the direct current from the batteries to maintain continuous and un-interrupted supply to the plant, the direct current from the batteries has to be converted into alternating current which is achieved by invertors. It was also explained by the appellants that in order to keep the batteries re-charged it becomes necessary to convert the alternating current from the main supply system into direct current, which is achieved by rectifiers. It was also submitted by the appellants that the equipment imported by them performs principal function of converting current from D.C. to A.C. and from A.C. to D.C. with a view to maintaining continuing and un-interrupted supply of electricity. Explaining further, the appellants submitted that the equipment imported by them consists of certain auxiliary equipment in the nature of output and input assembly, circuit breakers and static bypass and that the auxiliary equipment assists in carrying out the principal function. It was also explained by the appellants that the principal function of the system is achieved by the convertors and that the entire equipment being static has to be classified as static convertor under Heading 8504.40.
3. Shri Ravindra Narain, Advocate along with Sh. M.R. Gupta, Ms. Amrita Mitra and Ms. Sonu Bhatnagar, Advocates appeared for the appellants. Shri Ravindra Narain, Ld. counsel arguing for the appellants submitted that the show cause notice dated 11-11-1986 is patently illegal inasmuch as no reasons have been set out as to why the equipment in question is sought to be classified under Chapter Heading 8543.80; that no reason was given as to why classification of the equipment under Chapter Heading 8504.40 as claimed by the appellants was rejected; that the assessment on the Yellow Bill of Entry had already been made as far back as on 21-10-1985 when the earlier Customs Tariff was in force; that the earlier classification once done cannot be re-opened; that the Asstt. Collector of Kota was not competent to reassess the goods which were cleared earlier at Bombay; that the Yellow Bill of Entry was assessed on 21-10-1985 and the show cause notice was issued on 11-11-1986; that the demand was time-barred.
4. The Ld. counsel for the appellants also emphasised the point that each module comprises of a rectifier which is static convertor converting A.C. into D.C.; that the rectifier coverts A.C. into D.C. whereas invertor converts D.C.to A.C.; that being static, both the rectifier and the invertor can therefore be described as static convertor; that all modules imported by the appellants could only be described as equipment consisting mainly of static convertors having the principal function of converting current of one type into another.
In regard to principal function, the ld. counsel referred to Note 3 and Note 5 of Section XVI of the Customs Tariff and submitted that in the notes, it is provided that when such a composite equipment is to be classified under a particular heading, it should be done with reference to that equipment which performs the principal function; that in the present case each module consists of equipments like rectifier and inverter both of which are static convertors and their principal function is that of converting current of one type into another. Since the principal function thereof is that of a static convertor, the equipment squarely falls under the Customs Tariff Heading 8504.40. Arguing further, the ld. counsel submitted that even though the equipment was imported alongwith certain auxiliary parts like systems output assembly and static bypass etc., the classification is to be done as per the above notes on the basis of the principal function of the equipment which is that of a static convertor. The ld. counsel also submitted that in view of the principal function of the equipment imported by the appellants when read with the provisions of Note 3 and Note 5 of Section XVI, there was no question of resorting to residuary Heading 8543.80.
5. It was argued by the ld. counsel that exemption Notification No. 13/86, dated 7-2-1986 was applicable to the imported goods and that the lower authorities have not taken this notification into consideration while arriving at the differential duty computed against them. It was also argued by the ld. counsel that in the absence of batteries, the imported equipment could not be said to have had the individual function of supporting un-interrupted electricity supply and the only function which could be discharged by the said imported equipment was that of a conversion of electricity by use of rectifiers and invertors as such the individual function of the equipment could only be that of conversion of electricity; that the Collector (Appeals) had not given any finding with regard to the jurisdiction of the Assitt. Collector of Kota; that the Collector (Appeals) had also not dealt with limitation. The ld. counsel concluded his arguments by saying that from whichever angle the case is looked at, the department has not proved anything against them and therefore the appeal merits to be accepted.
6. Shri A.K. Singhal, the ld. DR appearing for the respondent submitted that on the question of jurisdiction, the Collector(Appeals) had held :
“I am unable to agree with the contention of the appellant that the Assitt. Collector in charge of the warehouse at Kota does not have jurisdiction to adjudicate the case in respect of the demand from show cause notice issued by the Bombay Customs House. Having regard to the provisions of Section 46 read with Sections 17 and 68 of the Customs Act, 1962 and the provisions of Section 15 of the Act ibid”
The ld. DR submitted that in the case of Ferro Alloys Corporation Ltd. v. CC, Bhubaneshwar reported in 1995 (077) ELT 0802 (Tribual) = 1995 (057) ECR 481, this Tribunal had held that the assessment made at the port of importation on into Bond Bill of Entry is only tentative and for the purpose of warehousing of goods, the jurisdictional Customs Authorities can reassess the goods and raise demand of duty short levied.
7. The ld. DR submitted that the equipment imported by the appellants was a sophisticated one and was described as un-interrupted power supply system; that Tariff Heading 8504.40 does not cover such systems; that principal function of the system imported by the appellants was not only conversion of the direct current into alternating current and vice versa, but it was much more than this function; that a lot of emphasis was laid by the appellants on this issue that for classification of goods in terms of Section Note 3 of Section XVI, principal function was the main criteria. The ld. DR submitted that when there are a number of appliances imported as a composite unit, the question of principal function becomes subsidiary. How the entire composite system function becomes more prominent. He submitted that it was not the plain import of rectifiers or invertors but the imported item comprises of a few other equipments also and therefore the function of the entire equipment is to be seen. Once it is imported as a system even without the batteries, it remains a system for operating as an appliance for uninterrupted power supply system; that by no stretch of imagination, uninterrupted power supply system can be classified under Heading 8504.40 as static convertors; that the Customs have rightly classified the items under Chapter Heading 8543.80 as it more or less conforms, to the description of the goods given thereagainst.
8. On the question of limitation, the ld. DR submitted that six months’ period is counted from the date of actual payment; that the duty was paid on 6-6-1986 and the show cause notice was issued in November, 1986 therefore it was well within time and was not hit by the mischief of limitation. The ld. DR also referred to decision of the Tribunal in the case of CC, Madras v. Widia (India) Ltd. reported in 1994 (071) ELT 193. In this case, the ld. DR submitted that this Tribunal had dealt with question of principal function and held that the goods cannot be treated as only rectifiers or static convertors changing A.C. into D.C. and had also held that the function of the goods therefore is specific irrespective of the goods with which the goods are used. This function remains the same. It is, therefore, complete appliance by itself having an individual function. Reiterating the findings of the lower authorities, the ld. DR submitted that the appeal merits rejection.
Case law relied upon and cited is as under : -
1. Collector of Customs v. Widia (I) Ltd. reported in 1993(12)LCX0045 Eq 1994 (071) ELT 0193 (Trib.)
2. Ferro Alloys Corpn. reported in 1995(02)LCX0117 Eq 1995 (077) ELT 0302 (Trib.) = 1995 (057) ECR 0481 (TBL)
3. Collector of Central Ex. v. Dowells Elektro reported in 1990 (045) ELT 96.
Heard the submissions of both sides. On careful consideration of the evidence on record and submissions made by both sides before us, we find that we have three issues raised before us. The issues are as under : -
(a) whether the Asstt. Collector, Kota had any jurisdiction when the goods were first assessed to duty at Bombay, (b) whether the show cause notice was hit by limitation and (c) whether the goods were classifiable as electrical static converters under Chapter Heading 8504.40 as claimed by the importers or under Chapter Heading 8543.80 as electrical and apparatus having individual functions, not specified elsewhere, as held by the department.
9. On the question of jurisdiction we find that this Tribunal in the case of Ferro Alloys Corpn. Ltd. had in para 10 held :
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10. The ld. counsel for the appellant had submitted that the Tribunal in that case had relied on the decision of the Tribunal in the case of CCE v. Ferro Alloys Corpn. Ltd. reported in 1992(04)LCX0030 Eq 1992 (061) ELT 0689 (Tribunal) = 1992 (041) ECR 390 which was over-ruled by reference to the Larger Bench reported in 1995(02)LCX0117 Eq 1995 (077) ELT 0302 (T) = 1995 (057) ECR 481. We observe that the Larger Bench had held that “For the reasons discussed above, it has to be held that in the circumstances of this case, the jurisdiction for raising demand for short levy will therefore be with the proper officer having jurisdiction over the EOU and not the Customs House where the goods were assessed on an into Bond Bill of Entry for the purpose of being warehoused.” Moreover in the instant case there was structural change in the customs tariff inasmuch as it was aligned with the HSN and therefore the classification of the imported goods had to be redone. We respectfully agree with the decision of the Larger Bench and hold that the Asstt. Collector, Kota, in charge of the CWC, Kota had jurisdiction for raising demand for short levy and was the proper officer having jurisdiction over the CWC, Kota and not the Customs House, Bombay.
11. On the question of limitation, we find that the appellants had presented the Bill of Entry on 21-10-1985 for warehousing the goods. The Bill of Entry for home clearance was presented on 5-6-1986 and the goods were actually cleared on payment of duty on 6-6-1986. Show cause notice was issued on 11-11-1986. For purpose of limitation, the appellants have submitted that the material date was 21-10-1985 when the goods were assessed on Yellow Bill of Entry whereas the department is of the view that the limitation shall start from the date of payment of duty which in the instant case is 6-6-1986.
Let us examine the legal position on the issue : -
Section 15 of the Customs Act, 1962 in sub-section 1(b) provides for the date for determination of rate of duty and tariff valuation of imported goods in the following words : -
“(b) In the case of goods cleared from a warehouse under Section 68 on the date on which the goods are actually removed from the warehouse.”
Section 28 of the Act ibid under the heading `Notice for demand of duties not levied, short levied or erroneously refunded’ provides that the demand can be raised within six months from the relevant date. Relevant date has been defined under sub-section (3)(d) - “(d) in any other case the date of payment of duty”. Examining the contentions of the opposing parties, we find that in the instant case duty was admittedly paid on 6-6-1986. Therefore six months’ period for the purpose of limitation shall be counted in terms of Section 28 from 6-6-1986. Further, admittedly the show cause notice was issued on 11-11-1986 and was received by the appellants on 17-11-1986 which is well within six months. We, therefore, are not convinced by the pleadings of the appellants that the show cause notice was hit by the mischief of limitation and hold that the show cause notice was actually issued within six months and therefore the question of limitation did not apply to it.
12. Now we proceed to discuss the case on merits regarding the classification of the goods. We observe that the appellants imported an apparatus described in the invoice as static un-interrupted power supply system comprising of invertors, rectifiers, output input assembly, circuit breakers and static bypass. The principal function of the entire equipment was reported to be conversion of electricity from D.C. to A.C. and vice versa. It was argued before us that the principal function of the system was achieved by the convertors and that since the entire equipment being static was classifiable under Customs Tariff Heading 8504.40 as static convertor. For the purpose of principal function, reference was made to Section Note 3 of Section XVI which reads “3. Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted to the purpose of performing two or more complementory or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.” A reference was also made to Section Note 5 of Section XVI wherein the expression `machine’ has been defined. This note reads “5. For the purpose of these notes, the expression `machine’ means any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of Chapter 84 or 85.” For determination before us the main point is : what is the principal function of the equipment imported by the appellants? Is the function confined only to conversion namely converting the direct current into alternating current and vice versa so as to become eligible for classification as static convertors or the principal function is different ?
13. For examining this aspect we shall have to go a little further. Admittedly invertors and rectifiers are not the items in dispute. What was imported was a composite equipment for the purpose of un-inerrupted power supply. The equipment is called as `uninterrupted power supply system.’ It was argued at one point by the ld. counsel for the appellants that electric batteries were not imported and therefore the equipment was not a complete set of equipment to be described as interrupted power supply system. It was forcefully agitated before us that the principal function of the equipment was that of electrical static convertors and therefore it was claimed that the equipment imported by them fell under Chapter Heading 8504.40 of the Custom Tariff. The goods were assessed to duty and cleared on 6-6-1986. We also observe that Customs Tariff was aligned with HSN with effect from 1-3-1986 and therefore they fell well within the purview of HSN. Under the HSN Explanatory Notes on page 1338 electrical static converters are stated to be :
“The apparatus of this group are used to convert electrical energy in order to adapt it for further use. They incorporate converting elements (e.g. transformers, induction coils, resistors, command regulators, etc.). Their operation is based on the principle that the converting elements act alternately as conductors and non-conductors.
The fact that these apparatus often incorporate auxiliary circuits to regulate the voltage of the emerging current does not affect their classification in this group, nor does the fact that they are sometimes referred to as voltage or current regulators."
Now we have to examine whether the equipment imported by the appellants is covered by the above description namely whether the apparatus is used to convert electrical energy in order to adapt it for further use. We find that the system imported by the appellants was a sophisticated one. It was not a simple invertor or rectifier but a system for supply of un-interrupted power to the plant and machinery. We observe that the equipment imported by the appellants was not a simple machine or appliance or a number of machines joined together for conversion so as to be eligible for classification as static convertors. We observe that the equipment was known in the Trade/Common parlance as uninterrupted power supply system. It comprises and functions for an elaborate work namely supply of uninterrupted power. Now whether this supply of uninterrupted power can be reduced to simple conversion of A.C. to D.C. and vice versa or could it be said that it was more than this, we observe that the composite equipment imported by the appellants was definitely not a simple static convertor but a composite system which not only converted A.C. to D.C. and vice versa but also maintained the load factor and filled in the gap for supply of power when temporarily there was no power supply from the main supply source. It has been explained by the appellants that whenever the electric supply from the main power supply stopped and starting the alternate source of power, namely the generator took some time. In between that time power was generated from the batteries converted into A.C. and then supplied to the system. Thus, it was not a simple case of conversion but a sophisticated equipment which ensured that in case of failure of the main supply and the use of the alternative supply source power is available to the plant and machinery during the interim period in an un-interrupted manner. Examining all these facts and the contentions of both sides as well as the explanatory notes of HSN coupled with the understanding of the equipment in the Trade/common parlance, we hold that the goods did not qualify to be classified as electrical static convertors to be classified under Heading 8504.40.
14. The department had held the classification of the imported goods under Chapter Heading 8543.80. We find that Chapter Heading 85.43 reads as : “Electrical machines and apparatus having individual functions, not specified or included elesewhere in this chapter.” Further sub-heading 8543.80 reads : “Other machines and apparatus.” Now examining the goods in terms of the description given under Chapter Heading 85.43, we find that the equipment imported is no doubt an electrical machine. The term `machine’ has already been defined in Section Note 5 of Section XVI wherein it has been provided that the expression `machine’ means any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of Chapter 84 or 85. Further we find that the equipment has individual functions namely, the function of supply of uninterrupted power to the plant and machinery. We also find that the equipment providing for uninterrupted power supply is not specifically included elsewhere in this chapter. We also find that in the instant case, the rectifiers and invertors called as static covertors are fitted with additional accessory equipment in the nature of output and input assembly, circuit breakers and static bypass which taken together constitute the uninterrupted power supply system. Though rectifiers and invertors are used, it is not static convertors alone but something more equally important which in conjunction with others would constitute the uninterrupted power supply system. This view finds support from the ruling given by the Apex Court in case of Sawhney Paris Rhone Ltd. reported in 1995(077) ELT 13
15. There is no doubt that the goods are classifiable under Chapter 85. Both the parties are agreed on this issue. Having regard to all the facts, HSN Explanatory notes and submissions made by both sides as well as the Section notes considered above and pleaded by the appellants and the case law cited above, we hold that the imported goods described as uninterrupted power supply system shall appropriately be classificable under Chapter sub-heading 8543.80.
Now coming to the applicability of Notification No. 134/86, dated 17-2-1986, we observe that this notification is applicable to electrical appliances and apparatus, having individual functions falling under Heading No. 85.43 and since we have already held that the imported goods are electrical machines and apparatus, having individual functions not specified or included elsewhere in this chapter and therefore, the imported goods shall be eligible for the benefit of Notification No. 134/86, dated 17-2-1986.
Having regard to the above findings, the impugned order is modified to the extent stated above and the appeal is disposed of accordingly
Equivalent 1995 (80) ELT 208 (Tribunal)