Cables held not part of wind mills – a weakly presented case lost before the Supreme Court in case of Nicco Corporation Ltd.

[C.A. DEV KUMAR KOTHARI]

Important links and references:

Notification No. 205/88-C.E. Dated 25-5-1988

Notification No. 57/95-C.E. Dated 16-3-1995

NICCO CORPORATION LTD. versus COMMISSIONER OF C. EX., CALCUTTA 2006 -TMI - 722 - SUPREME COURT OF INDIA / Other Citation: 2006 (203) E.L.T. 362 (S.C.)

Elecon Engg. Co. Ltd. v. CC, Munjbai-II reported in 1998 -TMI - 88794 – (CEGAT, MUMBAI)

United Cables Industries v. C.CE, Meerut 1[2000 -TMI - 89450 - CEGAT, NEW DELHI]

Definitions of ‘part’ and ‘component’.

Exemption for parts of wind mills:

The Central government has exempted from Central Excise the manufactured products known  ‘wind mills, and any specially designed devices which run on wind mills’ vide notification no. 205. 1988 dated 25.05.1988. The exemption was then extended to  ‘wind mills, parts of wind mills and any specially designed devices which run on wind mill’ by making amendment vide notification no. 57/ 95-CE dt. 16.03.1995. thus parts of wind mills were also made eligible for exemption.

From relevant notifications for exemption:

Portion relevant for exemption vide Notification No. 205/88-C.E. Dated 25-5-1988 as amended vide notification of 16.03.1995, reads  as follows:

In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, and in supersession of notification of the Govern­ment of India in the Ministry of Finance (Department of Revenue) No. 120/81-Central Excises, dated the 15th May, 1981, the Central Government hereby exempts goods of the description specified in column (2) of the Table hereto annexed and falling within the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from the whole of the duty of excise leviable thereon which is specified in the said Schedule.

THE TABLE

12.	Wind mills, parts of wind mills and any specially designed devices which run on wind mills.

Cables whether parts of windmills:

We find that besides wind mills, parts of wind mills were also specifically exempted from duty.

Wind mill is a machine or equipment. It is constructed or fabricated by  assembling  various  large and small components,  and  various  parts  which form a full set of machine or equipment known as  wind mill. Cables in any machine is important parts as they are used to complete electrical circuits for inflow and outflow of electricity to run the machine and to distribute electricity etc. In any machine which runs on electricity, cables are important parts of machine. A disconnection of cables in any manner can render entire machine non-functional. Therefore, cables, and wires are very important parts of any machine.

We can take a small example of any  domestic equipment. Say washing machine, dishwasher or microwave oven. In these machines there are cables of various type which are used to receive electricity and then distribute or provide electricity to various other parts of machine, as and when function of that part is run. Therefore, cables placed in these equipments are important parts of equipment.  

Parts vis a vis component:

The definition or meaning in the present context of subject matter,  of  these words  as per online dictionaries are as follows:

An essential portion or integral element of the whole of thing ( that is  windmill)

One of the constituent elements of a plant  (plant or machinery) or animal body.

A component that can be separated from or attached to a system; a detachable piece: spare parts for cars.

A constituent member of a machine or other apparatus; also : a spare part.

one of the smaller individual pieces that a machine or vehicle is made of

Component:

Usually component is also considered as a part in case of any plant and machinery. As per online dictionaries definition of component in the context of subject in hand can be considered as follows: 

    A constituent part; element; ingredient.

  A part of a mechanical or electrical system: hi-fi components.

A part of a mechanical or electrical complex.

A constituent part or aspect of something more complex a component of a car

component - an artifact that is one of the individual parts of which a composite entity is made up; especially a part that can be separated from or attached to a system; "spare components for cars"; "a component or constituent element of a system"

   Uniquely identifiable input, part, piece, assembly or subassembly, system or subsystem, that  is (a) required to complete or finish  an item, (b) performs a distinctive and necessary function in the operation of a system, or (c) is intended to be included as a part of a finished, packaged, and labeled item. Components are usually removable in one piece and are considered indivisible for a particular purpose or use. Commonly, items of very small or insignificant cost are not considered components.

1. a constituent part or aspect of something more complex a component of a car

2. (Electronics) Also called element any electrical device, such as a resistor, that has distinct electrical characteristics and that may be connected to other electrical devices to form a circuit

A part of a machine (eg a car), instrument (eg a radio) etc He bought components for the television set he was repairing.

A component is a part

We can say that the word ‘part’ is wider than the word ‘component’, in fact it can be said that any  ‘component’ is a part of machine or equipment but a part may or may not be considered as a component of any machine or equipment. Thus part includes component, but it is not restricted to component.

For example, a body or housing of a machine may not be regarded as component or machine itself, but it is definitely a part of machine. Similarly cables in a TV may not be called components of TV but they are very important parts of TV. 

About wind mill:

A windmill is a machine which converts the energy of wind into rotational energy by means of vanes called sails or blades. Windmills used for generating electricity are  also  known as wind turbines.

Major components of a windmill are as follows:

Anemometer. This is essentially a speedometer for the windmill - a gauge to tell how fast the blades are rotating. Some more sophisticated systems have a feedback loop so the anemometer will "talk" to the control computer, regulating the blades' speed so damage won't occur.

• Blades. Most turbines have at least two blades, similar to the halves of a airplane's propeller. Many windmills have more than two blades. Wind impacts these blades, causing "lift," making the windmill rotate.
• Brake. More expensive windmills have a brake. The brake can be applied to stop the windmill in an emergency.
• Controller. Again, more expensive and sophisticated wind turbines (proper name for a windmill that generates electrical power) have a computerized controller. One function of the controller is to start and stop the windmill. Normally, winds less than 8 miles per hour don't generate any electricity, and winds greater that 55 mph can damage to the windmill. The computer lets the windmill operate between these velocities.
• Gear Box. Some larger windmills have gearboxes, usually to increase the shaft speed from 60 rpm to a maximum of 1800 revolutions per minute. As these gearboxes can cost a lot, and can have high rates of failure, windmill engineers are always looking for ways to go "gearless" - meaning direct-drive. That saves money and makes the windmills much simpler.
• Generator. This is the part that actually makes the electricity. Similar to the alternator (or generator) in your car, the generator makes the electrical power.
• Nacelle. This is a fancy French name for the cover that protects the generator and gearbox (if included).
• Pitch. Pitch is the "tilt" of the blades, or the angle that the blades are at to "capture" the wind so the generator will rotate. Too much pitch can make the generator turn too fast and damage the windmill.
• Rotor. The rotor is attached to the generator shaft and also holds the blades and hub.
• Tower. The tower can be made of wood on the smaller windmills, and is usually made of steel or aluminum on the larger units. This is what holds the windmill up into the airflow.
• Wind Vane. This is the "tail" that helps keep the windmill pointed into the wind. Very important for maximum power generation.

The above items are important components of wind mill. Wind mill has in addition to these components many other parts which can be a part of a component or connector of two or more components.

Cables in wind mills:

Though in the above list of components cables are not considered as component of wind mill, however, cables find place in many components. Cables in wind mill are important parts of wind mills and its components. Without cables windmill may not be functional for generation and distribution of electricity.

NICCO CORPORATION LTD. Vs. CCE , CALCUTTA  2006 -TMI - 722 –(SC)/ (203) E.L.T. 362 (S.C.)

In this case under law of  Central Excise  manufacturer of  wire and cables supplied Insulated wires and cables for use in manufacture of windmills and claimed exemption by claiming wires and cables to be part of wind mills. The Supreme court held that wires and cables  are not identifiable parts of wind mill hence, benefit of exemption  under Notification No. 205/88-C.E.  is not available

The Supreme Court has noted inter alia as follows:

1. The assessee is a manufacturer of "insulated wires and cables" falling under Central Excise Tariff Sub-Heading No. 8544.00.
2. Apart from manufacturing the traditional domestic wires and cables, the assessee also manufactures specially  designed wires and cables for industrial use by specific customers.
3.   Exemption is granted to certain specified goods connected with solar and other natural energy. Wind mills, parts of wind mills and any specially designed devices which run on wind mills, are specified at serial no.12 of the Notification (as amended).
4.    Assessee claimed exemption in respect of the wires and cables removed and sold by the assessee during the period from August to September, 1995 to M/s. Vestas R.R.B. India Limited, Madras on the contetion that the power cables are part of the wind mill and, thus, entitled to the benefit of the notification in question.
5. On other hand the revenue contented  that the power cables are only for general purpose and cannot have the benefit of exemption under the Notification in question as the power cables cannot be treated to be parts of the wind mill.
6.   The Adjudicating Authority as well as the Commissioner (Appeals) held that the cables in question perform the normal functions for transmitting the power from Generator to the control panel from where the power is carried to the grid for onward supply to the customers and, therefore, do not qualify as part of wind mills.
7.  The Tribunal in appeal has upheld the decision of the Adjudicating Authority as well as the Commissioner (Appeals). Distinguishing the decision relied upon by the assessee in the case of Elecon Engineering Co. Ltd. v. Commissioner of Customs, Mumbal-II 1998 -TMI - 88794 –(CEGAT, MUMBAI) and relying upon the later decision of the Tribunal in United Cables Industries v. C.CE, Meerut 1[200 (40) RLT 38 (CEGAT)], the Tribunal while observing

                   "The case law relied upon by the Ld. Consultant namely the Tribunal decision in the case of Elecon Engg. Co. Ltd. v. CC, Munjbai-II reported in 1998 -TMI - 88794 – (CEGAT, MUMBAI) is distinguishable from the facts of the present case. In that case power cables were cut to specific sizes and were filling with end fittings which were connected to the induction generator in the Nacelle and they were performing dual function of transforming power for 'excitation.' Further, the importer produced a certificate from the Research and Development Centre of M/s Turbowinds, Brussels, to the effect that one Wind Turbine Controller which is also termed as an electrical regulation cabinet, comprises, inter alia, inside cabling which includes the cable between lower base and the Nacelle which is split into power cables and control cables. In the present the appellants have not been able to establish that the cables manufactured by them are identifiable parts of the wind mill and therefore, the benefit of exemption notification is not available to them" held that in the present case similar situation existed and, therefore, under the circumstances, the wires and cables in question cannot be considered as parts of wind mills and the benefit of notification cannot be extended to the assessee.

8.     United Cables Industries v. C.C.E., Meerut [supra], was challenged by assessee before the Supreme Court and appeal  was dismissed. Though the said order dismissing the appeal indicates that the delay in filing the appeal has not been condoned, yet, it seems, the appeal has not been dismissed on the ground of delay alone, but on merits as well. Resultantly, the decision of the Tribunal to the effect that the insulated cables are not parts of wind mill which is complete in itself without electric cables, although wind mill may not be able to function without these cables, and, as such benefit of exemption under Notification No. 205/88-C.E. would not be available to the assessee, was upheld by this Court.

The Supreme Court held that “ In view of the fact that the decision relying upon which the Tribunal has dismissed the appeal, has been upheld by this Court, we do not find any merit in this appeal and dismiss the same with no order as to costs.”

 

Weakness of the contentions raised by Nicco:

It appears that case on behalf of Nicco could not be pressed properly for the following reasons:

1.  Any attempt to  apply wider meaning to the  word ‘part’ was not made, ‘part’ was not distinguished with components.  It should have been pressed that wires and cables are important parts of wind mill, (and for that matter of any equipment) without which wind mill cannot be completed and made functional. Wires and cables may or may not be regarded as component or distinguishable parts, but they are important parts and play important role in manufacture and functioning of wind mills.
2. The decision in case of  United Cables Industries v. C.C.E should have been distinguished to find out whether all contentions on merit were considered in that case or not.
3. The sets of cables supplied for wind mills could have been supplied as a “kit of cables and wires with fittings”  to make it as a bought out components for wind mill manufacturers. A learning from case of Elecon Engineering could have been helpful.
4. Technical certificates, diagrams of wind mills to show that cables and wires are  important part of wind mills should have been placed.