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TMI Blog2015 (1) TMI 850X X X X Extracts X X X X X X X X Extracts X X X X ..... assification under CETH 84.31 as parts of lift machinery so duty would be payable accordingly. However, the duty demand for the period April, 1986 to August, 1990 was set aside as time-barred. Aggrieved, the Department filed an appeal before the Hon'ble Bombay High Court, vide Central Excise Appeal No. 6 of 2009. The Hon'ble High Court disposed of the said appeal vide order dated 16-4-2009 holding as follows : "1. The learned Counsel for the parties, after hearing, submit that reasons need not be given for passing the order. 2. Hence, the impugned order is set aside. The matter is remanded back to the Tribunal for de novo consideration and after hearing the parties to pass order according to law within four months from today. 3. Appeal stands disposed of." 2. Brief facts of the case leading to the passing of the impugned order by the Commissioner may be summarized as follows. During the relevant period spanning from April, 1986 to March, 1995, the appellant was engaged in the manufacture of parts and components of lift machinery and clearing the same to the sites of the customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which, when duly and properly installed, result in the functioning of the lift. The lift when it comes into existence becomes a part of the immovable property, i.e., the building itself. (2) A lift is essentially a device designed to vertically transport passengers from one floor of a building to another. It is a complex agglomerate of interrelated modules and assemblies that are intended to fulfill the specific standards of performance (designated broadly by speed, capacity, control technique, door type, etc), which contribute to the desired passenger handling parameters and integrated into the architecture and civil construction. It is an integrated system composed of various types of machinery and when installed in the prescribed manner, functions as a lift in a building. (3) The appellant manufactures the following sub-assemblies and components of the lifting machinery. The items in bold capital letters denote those manufactured either exclusively or predominantly by the appellants : (i) Machine Unit The Machine Unit is the main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-mounted Door-Drive Assembly consisting of a kinematic mechanism operated by a special Torque Motor. The movement of both types of doors is precisely guided by Top and Bottom Track Assemblies and Hanger-Plate Assemblies while the Gate Locks provide an electro-mechanical interlock to prevent the lift from moving while the doors are open. (vii) The lift car and its accessories merely provides an enclosure for passengers and is mounted in a car-sling which runs along the guide rails via the Guide Shoe Assemblies. (viii) The machinery and assemblies above are inter-connected by means of various types of electrical cables and wiring. (4) The principal function of regulated or controlled lifting is fulfilled by the Lift Controller, the Digital Tachometer, the Drive Controller and the Machine Unit, which are all manufactured by the appellants. The items such as guide rails, wire ropes, cage, collapsible gates etc. which are bought out items are used in the installation and complete setting-up of a lift and are not parts of "lifting machinery" classifiable under Heading 84.28. These manufactured items of lifting machinery/sub-assemblies/compone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on the total contract value. The then Assistant Collector visited the factory on 10-6-1982 and satisfied himself that the appellants were only liable to pay excise duty on the machinery manufactured by them and gave a decision in that respect and since then the appellants have been paying excise duty on the components of lift machinery manufactured by them under the erstwhile Tariff Item 68. By a letter dated 29-6-1982 the appellants referred to the visit of the Assistant Collector to their factory from which it is clear that the Department was fully aware that the appellants apart from manufacturing were also buying parts from outside parties. By a letter dated 7-7-1982, the Assistant Commissioner gave a decision regarding classification in which he confirmed that the Appellant's liability was confined to parts of lift machinery manufactured by them and supplied for lift machinery outside their premises. He however stated that the assessment would be provisional under Rule 9B of the Central Excise Rules. (7) With effect from 1-3-1986, the HSN based Central Excise Tariff came into force and the relevant Tariff headings 84.28 and 84.31, read as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssembly. (v) The lift has to respond intelligently to instructions from inside the cabin and the landings. This is done again by the controller, position indicator and the landing pushbuttons. The items mentioned in bold above, are the items manufactured by the appellants. These items give the lift its essential character of moving people up and down safely, at a specified speed, stopping and leveling correctly and responding intelligently to instructions from inside the cabin and the landing. Without all these items the lifts cannot function. Other bought out items like the cage, wires, ropes, M.S. plates, etc, are off-the-shelf items and do not give the lift its essential character. As per Rule 2(a), an item can be unfinished, as long as it has the essential character of a lift. It is therefore not necessary that all items of the lift should be manufactured or cleared together in order to attain the essential character of a lift. (9) The relevant section notes to Section XVI, namely, Section Notes 2, 4 and 5 reads as : "2. Subject to Note 1 to this Section, Note 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... described above, (i) have the essential character of a lift and (ii) are intended to contribute together to a clearly defined function covered by Heading 84.28, namely, "lifting". Therefore, the whole falls to be classified under Heading 84.28, as that is the heading that is appropriate to that function, namely, lifting. These items, therefore, cannot be classified under Heading 84.31. When the lifting machinery and individual components thereof are cleared to the site for the erection and installation of the same, they are classifiable under Heading 84.28 as lifting machinery for lifts. Heading 84.31 cannot be made applicable to lifting machinery and components thereof, meant for the initial assembly of lift since such components are parts of lifting machinery of Heading 84.28 and not parts suitable for use with the machinery of Heading 84.28. Heading 84.31 postulates the existence of a lift and the use of parts with such a lift. It cannot, therefore, be applied to components necessary to form or constitute a lift for the first time. (11) The aforesaid classification is supported by the HSN Explanatory Notes to Heading 84.28, wherein it is stated that : "The heading cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ists from time to time on the same basis. In the classification lists, the Appellant had specifically classified lifting machinery for use in the execution of works contracts under Heading 84.28 and parts of lift machinery for use in execution of maintenance contracts under Heading 84.31. Only after making detailed inquiries, these classification lists were approved by the Department. The classification lists which were filed from time to time and with effect from 1-3-1992 were all finally approved. The Department had, therefore, granted legal sanction to the classification of lift machinery under Heading 84.28 in accordance with Rule 173C of the said Rules. (13) The CBE&C issued Circular No. 16/89, dated 19th April, 1989 regarding the classification of lift in which it was clarified that excise duty could be levied only on goods and not on immovable property and that Heading 84.28 is to be taken not to refer to an installed lift but only to lift machinery and that if together they can be regarded as lift in an unassembled/disassembled condition or having the essential character of lift, they would be assessed under Heading 84.28; otherwise such parts and components would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s enclosed a list of lift machinery/components thereof, manufactured and assembled and tested by the appellants in the factory and pointed out that these were manufactured solely for use in the execution of works contracts and that the said lifting machinery manufactured by them had the essential characteristic of a lift. It was pointed out that these goods were removed on payment of duty as per the approved classification lists. The appellants also submitted a list of bought out machinery/components which were removed as such from their lift stores for use in the execution of lift works contracts as well as a list of bought out machinery and components which are directly delivered to site by local suppliers. Despite the fact that the price lists and the assessments for this period were provisionally assessed, the Superintendent of Central Excise, Range II purported to issue a show cause notice dated 3-4-1991 purporting to demand duty amounting to Rs. 9,62,614/- in respect of the period September, 1990 to February, 1991 seeking to classify lifting machinery under Heading 84.31 on the ground that these were only parts. No allegation of suppression was made in the show cause. The Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng positions, timely opening enclosure of doors, jerk free operation and information position and status of lifts etc. The appellants, therefore, manufactured these items as well. These items have to be classified under heading 84.28 when presented with the lifting machinery for the purpose of installation and erection of a lift. (16) The Commissioner's conclusion that the items of machinery manufactured and cleared by the appellants did not together have the essential characteristics of a lift or lifting machinery is not based on any evidence whatsoever. It is well settled that in matters of classification, the burden is cast on the Excise Department and the Department has produced no evidence whatsoever. A mere perusal of the show cause notices would show that no evidence has been relied upon and' no reason has been given for classifying these items under Heading 84.31. Even though the burden is not cast upon the appellants, the appellants produced evidence in the form of an affidavit by Professor A.S. Menon, a Chartered Engineer and Professor of Mechanical Engineering at Victoria Jubilee Technical Institute. Professor Menon visited the factory, observed the manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter should be remanded back for quantification of the demand after finalisation of the assessments. After finalisation of the assessments, the Department would have to requantify the duty as per the Tribunal's order taking into consideration the quantum of duty-paid vis-à-vis the quantum of duty payable. It is well settled that once the assessments are provisional for one purpose, they are provisional for all purposes. The fact that the assessments were provisional on account of valuation and not on account of classification can make no difference whatsoever. It is also well settled that when the assessments are provisional there can be no show cause notice issued under Section 11A as the sine qua non for issuing a show cause notice under Section 11A is that there must be a short levy or non-levy from the relevant date. The fact that the relevant date has not come because the assessments are provisional and shows that no show cause notice can be issued under Section 11A that when the assessments are continuing to be provisional. The subsequent 10 show cause notices must be set aside on this ground alone; and/or remanded for quantification in accordance with the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no suppression of facts leave alone suppression with intent to evade duty. This is clear from the judgment of the Supreme Court in the case of Pahwa Chemicals Pvt. Ltd. v. CCE - 2005 (189) E.L.T. 257 (S.C.) and O.K. Play. Further this is a pure dispute regarding classification. It is well settled that in a dispute regarding classification the Department cannot allege suppression with intent to evade duty or invoke the longer period of limitation. In the circumstances it is submitted that this demand in any case is liable to be set-aside. In any event, in respect of the last five show cause notices where the aggregate demand was Rs. 62,95,720/-, no penalty could have been imposed as no penalty was demanded in any of the show cause notices. The appeal should therefore be allowed. 4. Shri K.M. Mondal, Special Consultant, appeared on behalf of Revenue and made the following submissions. (i) As per the appellant's own admission, it had manufactured about 30 items of lift machinery/sub-assemblies/components which were cleared to the site of installation over a period of time and then complete lift was erected on site by using these manufactured items ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretative Rules of the Schedule to the Central Excise Tariff. (vi) Rule 2(a) of the Interpretative Rules reads as follows : "Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled." Ld. Sr. Counsel for the appellant relies upon the first part of the Rule and says that the parts and components manufactured by the appellant, when put together, would have the essential character of the lift. (vii) In the case of CC, New Delhi v. Sony India Ltd. - 2008 (231) E.L.T. 385 (S.C.), while interpreting Rule 2(a) of the Interpretative Rules of the Customs Tariff which is analogous to Rule 2(a) of the Interpretative Rules of the Central Excise Tariff, the Hon'ble Apex Court has held that the Rule must apply as a whole. Dissect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case may be usefully referred to and relied upon in this regard. (x) It has been the consistent view of the Tribunal that the goods have to be assessed and classified in the condition in which they are cleared from the factory. In this connection, reliance is also placed on the following decisions of the Tribunal : (1) TISCO v. CCE, Calcutta - 2001 (131) E.L.T. 173 (T). (2) Procter & Gamble India Ltd. v. CCE, Indore - 2006 (206) E.L.T. 913 (T). (3) CCE, Nasik v. Mahindra & Mahindra Ltd. - 2010 (262) E.L.T. 366 (T). (4) CCE, Mumbai v. Ashida Electronics Pvt. Ltd. - 2011 (272) E.L.T. 305 (T). (xi) The appellant also relied upon the affidavit of Shri A.S. Menon, Chartered Engineer and Professor of Mechanical Engineering at VJTI, Mumbai in support of its contention that the parts and components manufactured by it, when put together, will have the essential character of a lift. As seen from the affidavit, it only states that the items manufactured by the appellant are essential and critically important for proper and safe funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory over a period of time, they will have the essential character of lifts. Therefore, the Board's Circular is not relevant for the present purpose. Consequently, the suggestion that the matter may be referred to the Larger Bench does not merit any acceptance. The goods manufactured by the appellant are rightly classifiable under Ch. sub-heading 8431.00. (xiv) Ld. Sr. Counsel for the appellant also relied upon the various case laws in support of his contention that in similar facts and circumstances Rule 2(a) of the Interpretative Rules has been applied by the various Benches of the Tribunal. The said case laws are discussed herein below : I. In the case of Vinar Systems Ltd. v. CCE, Calcutta-II - 2001 (131) E.L.T. 578 (T), the appellant was engaged in the manufacture of Conveyors and Material Handling Equipments. As it was impossible and impracticable to clear these heavy machineries in a fully finished form, the same were cleared in SKD or CKD condition. There was, however, no dispute that the parts cleared from the appellant's factory would constitute complete Material Handling Equipments. Therefore, it was rightly held by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , no application to the facts of the case on hand. IV. Ld. Sr. Counsel also cited a decision of the Australian Administrative Tribunal in the case of Renault (Wholesale) Pty. Ltd. v. Collector of Customs. In that case, certain motor vehicle parts were imported from France for assembly with some locally produced parts. The dispute was whether these parts should be classified as 'Motor Vehicles' or as parts of Motor Vehicle. On the basis of the evidence, the Tribunal found that Australian components comprised 16 per cent of the value of the Renault Vehicle and 25 per cent in value of Peugeot Vehicle components used in the final assembly. Further on the evidence, the Tribunal also found that the goods were regarded commercially as "CKD" motor vehicles (Page 116 of the report). Hence it was held that the subject goods had the essential character of motor vehicles. The facts of this case are quite distinct and different from the facts of the case in hand. Hence it does not help the appellant. (xv) The 2nd show cause notice, dated 5-4-1991 for the period April, 1986 to August, 1991 was issued two days after the 1st show cause notice, dated 3-4-1991. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 84.31 will cover only parts cleared for repair or maintenance. The contention in Otis case that Otis was clearing parts and therefore are classifiable under Heading 84.31 renders Heading 84.28 nugatory and otiose and does not take into account the 1st part of Rule 2(a). The matter, therefore, deserves to be referred to a Larger Bench of this Hon'ble Tribunal. 5.1 The burden of classification is on the Department. The Department has produced no evidence whatsoever, either in the show cause notice or in the order of the Respondent. In the circumstances, it is submitted that the Departmental Special Consultant ought not be allowed to produce evidence at this stage of the appeal by relying on documents which are not on record. 5.2 Referring to the schematic diagram in the Appellant's written submissions, it has been contended by the Revenue that several items are bought out items and that if only the manufactured items are put together, it would not look like a lift. The items of machinery manufactured by the appellants do not have to look like a lift. They only have to have the essential character of lifting machinery, i.e., it must have the distinctive nature of lifting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s suitable for use solely or principally with the lift machinery. The competing entries as they stood at the relevant time are re-produced below :- Heading No. Sub-heading No. Description Rate of duty 84.28 8428.00 Other lifting, handling, loading machinery (for example, lifts, escalators, conveyors, teleferics) 15% 84.31 8431.00 Parts suitable for use solely or principally with the machinery of heading No. 84.25 to 84.30 20% 6.2 One of the arguments put forth by the appellant is that CETH 84.31 covers "parts suitable for use solely or principally with the machinery of Headings 84.25 to 84.30" and the word 'with' used indicates that the lift machinery is already in existence and the parts to be used with that machinery is sought to be classified under the said heading and not parts of lift machinery. Both the words 'with' and 'of' are prepositions. According to English Grammar, a 'preposition' is a word that shows the relationship of one word in a sentence to another word. The four things that prepositions tell are - (1) where something is (location); (2) where something is going (direction); (3) when something happens (time); and (4) the relationship between a no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r devices) intended to contribute together to a clearly defined function covered by one of the headings of Chapter 84 or 85, then the whole falls to be classified in the heading appropriate to that function. From the words employed, it is clear that all the individual components should contribute together and then the whole of the components would fall under the appropriate heading. The said note no where states that if individual components are cleared or presented separately, they would fall under the heading appropriate to the machinery. Further note 2(a) dealing with the classification of parts specifically excludes from its scope parts falling under Heading 8431. Note 2(c) makes it abundantly clear that "Parts suitable for use solely or principally with the machinery of Heading No. 84.25 to 84.30" have to be classified under Heading 8431 and nowhere else. Note 5 does not deal with classification of parts at all. Therefore, the contention of the appellant that as per Notes 2, 4 and 5 of section XVI, parts of lifts are classifiable under Heading 8428 is baseless and contrary to the statutory provisions. 6.4 A schematic diagram of the lift and its components and the various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the essential character of a lift which at least should have passenger cage or goods platform and winch and cable mechanism for movement of the lift. It also does not have the vertical guide bars, which guides the movement of the lift. It also does not have the counter-balance weights which facilitate the stopping of a lift. As per the HSN explanatory notes, the control, stopping, safety, etc. equipment (whether or not electrical) is classifiable in Heading 84.28, provided it is presented with the lift itself. In other words, if these equipment are not presented with the lift, they will not merit classification under CETH 84.28 but under the heading appropriate to them. In the facts of the case before us, it is clear that the various control, stopping and safety equipment were not presented with the lift at all. It is also an admitted position that the lift car/cage was not manufactured by the appellant nor the ropes/cables for pulling the lift. The appellant also did not manufacture the guide rail or the counterweights which regulate the movement of the lift. Even the parts of the lift machinery manufactured by the appellant were cleared not in one consignment but were in fact cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gear and over speed governor, car and landing fixtures have been manufactured and provided by the appellant. The remaining essential components such as lift car, counter weight, guide rail, entrances/doors, roping systems and buffers have not been manufactured by the appellant. When bulk of the components have not been manufactured and supplied, we do not understand how the goods supplied can be said to have the essential character of a lift. They can only be parts and components of the lift. 6.9 The learned Counsel for the appellant had taken objection to the Revenue relying upon the ISI Standards and technical literature down loaded from the web sites. We do not find any merit in this objection. All the materials relied upon are in the public domain. They have been submitted to have a clear, better and correct understanding of the issue. The appellants have been given a copy of these documents also and an opportunity to rebut the same. Therefore, no prejudice has been caused to the appellant. In many of the orders of the higher Courts, such as High Courts and the Hon'ble Apex Court, literature available in the web site or in technical publications have been relied upon in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill be in the negative. In fact the tariff itself recognizes this fact and has provided a separate heading for automobile chassis. Let us consider another example. A mono-block pump set consists of an electric motor (the driver) and the pump. Without the motor, the pump cannot function. Therefore, can we say that an electric motor has the essential character of a pump. Here again the answer would be 'NO'. On the same logic, the prime mover, safety gear and over speed governor, car and landing fixtures, by themselves do not have the essential character of a lift without the lift car, car frame, guide rails, counter-weights, cables/ropes, etc., even though they may be essential for the functioning of the lift. 6.12 The appellants have contended that as per the expert opinion tendered by Prof. Menon of VJTI, the parts manufactured by the appellant have the essential character of a lift though it is incomplete. We have perused the affidavit of Prof. Menon. The said opinion does not take into account the HSN explanatory notes which clearly spells out what are the essential components of a lift nor does it consider the ISI standards which deal with the subject matter. The said repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at parts of lift machinery are classifiable under CETH 84.31 and there is no need to invoke any other rule for the purpose of classification. 6.14 Assuming but not admitting that Rule 1 does not apply, let us see whether Rule 2(a) of the Interpretative Rules is applicable to the facts of the case as contended by the appellant. The said Rules reads as follows : "Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished', provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled." The claim of the appellant is that as presented, the items supplied by the appellant would constitute an incomplete or unfinished lift and has the essential character. It is a fact on record that the various parts and components of the lift manufactured by the appellant did not constitute the complete lift and several essential components were missing. The parts were also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant against a specific order would merit classification under CETH 84.28 or as parts/spares of such cover under CETH 8431. The appellant therein the manufactured some parts in their own factory and purchased some other parts from the market. The conveyor system thereafter was cleared from the factory in a knocked down condition on payment of duty on the entire value of the goods which was for a complete conveyor system. The question was whether the goods supplied should be considered as conveyor system falling under CETH 84.28 or as parts or components of conveyor system falling under CETH 84.31. It is very important to note here that the entire system comprising the manufactured parts and the bought out parts were cleared together from the factory as a complete system. It was in that context it was held that merely because some parts have been bought out, it cannot be held that the system supplied were only parts but not complete system in itself. In the case before us, the bought out parts were either supplied directly to the site or were cleared separately. The bought out parts were not cleared together with the manufactured parts so as to constitute a complete lift machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emsp;On the contrary, in a more or less identical case pertaining to Otis Elevator Company (supra), this Tribunal held that parts of lifts/escalators cleared over a period of time under a single contract cannot be considered as lifts or escalators, as such lifts/escalator come into existence only at the customers' end and therefore, they merit classification under Heading 84.31 and not under Heading 84.28. Similarly, in Kone Elevators India Ltd. case, relied upon by the Revenue, an identical issue came up for consideration wherein parts of the lift manufactured and parts which were bought out, were supplied. The question for consideration was whether the parts manufactured and supplied could be construed as constituting a lift and it was held that since the lift comes into existence only at the site of installation and becomes functional therein, the parts supplied cannot be considered as the lift or lift machinery but has to be considered as parts falling under CETH 84.31. The argument that these decisions did not take into account the Board's Circular dated 19-4-1989 lacks merit for the reason that the said circular, in fact, supports the view taken by the Tribunal rather than be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod August, 1986 to August, 1990 is concerned, the demand would be time-barred for the reason that the entire issue regarding classification dispute was well known to the department and the department had also approved the classification list classifying the parts under CETH 8428 since 1987 onwards. In these circumstances, the allegation of suppression made in the show cause notice dated 5-4-1991 would not sustain and we hold accordingly. Thus the demand for the period August, 1986 to August, 1990 is clearly time-barred. 6.20 The next question for consideration is whether the impugned demand could be confirmed when the price lists themselves were provisionally approved and had not been finalized. The period of provisional assessment starts from 1-9-1990 onwards. The appellant has submitted copies of the price lists of the various goods supplied by them during the period of demand involved. As per the assessment memorandum, it is seen that the price lists were approved provisionally and the goods were also assessed to duty provisionally as per the endorsements made by the jurisdictional Range Officer. From the various correspondence exchanged between the department and the app ..... X X X X Extracts X X X X X X X X Extracts X X X X
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