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2015 (7) TMI 96 - SUPREME COURT

2015 (7) TMI 96 - SUPREME COURT - 2015 (321) E.L.T. 353 (SC) - Classification of car air-conditioning kit - Legal substantiality of the judgment and order of tribunal based on Apex court judgment in past - Matter refer to three judge bench for hearing - Whether the car air-conditioning kit is classifiable under item No. 3 or under Item No. 8 of the table to the said Notification No. 166/86-C.E., dated March 1, 1986? - Held that:- The Division Bench has quite categorically stated that if the air- .....

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paid separately, but if there are two invoices for separate pricing, the air-conditioning kit would come under serial no.8 and the automotive gas compressor with or without magnetic clutch will be liable to duty separately. We may hasten to clarify that if there is a combined sale, which serial item it will fall, being not necessary in this case, we are not inclined to dwell upon the same. We have only clarified the two-Judge Bench decision in Sanden Vikas (India) Ltd. [2003 (3) TMI 97 - SUPREME .....

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dv. Mr. B. Krishna Prasad, AOR For the Respondent : Mr M P Devanath, AOR JUDGMENT Dipak Misra,J. The present appeal calls in question the legal substantiality of the judgment and order dated 23.04.2003 passed by the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi (for short, 'the Tribunal') in Appeal No. E/577/2001-B whereby the Tribunal, placing reliance on the decision Sanden Vikas (India) Ltd. v. C.C.E., New Delhi 2003 (153) ELT 3 (SC), opined that the issue raised by .....

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the case of this very respondent-assessee titled Sanden Vikas (India) Ltd. v. Collector of Central Excise, New Delhi, 2003 (153) E.L.T. 3 (S.C.) and on that basis, the appeal of the respondent was allowed. The Revenue challenging the aforesaid order in the present appeal, contended that the judgment of this Court in Sanden Vikas (India) Ltd. (supra) requires re-consideration. This is specifically stated in the synopsis and the list of dates. We further find that on 08.12.2003, an order was passe .....

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kas (India) Ltd. (supra) was the pronouncement between the same parties for a different period i.e. 20.3.1990 to 25.7.1991. The present appeal is primarily concerned with the period 1.8.1991 to 28.2.1993, during which notification no. 166/86-CE was applicable. Before we proceed to deal with the postulates in the notification, it is obligatory to understand what was decided in Sanden Vikas (India) Ltd. (supra). The facts in the said case were that the appellant-assessee therein, the respondent in .....

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eated as an air-conditioner. The Assistant Collector, disagreed with the stance of the assessee and treated the same as air-conditioning system falling under Item No. 3 of the Heading 8415 of the Notification. On March 20, 1990, a new Entry, Item No.8, was added to the table of the Notification and thereafter the assessee classified the air-conditioning kits under the said Entry for the purpose of levy of excise duty. On October 1, 1990, the Assistant Collector, Central Excise, Division-I, Farid .....

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and other show cause notices asserting that car air-conditioning kits, including compressor, manufactured by it, is a machinery especially designed to be used for air-conditioning of motor vehicle and as it is not usable as room air-conditioner, split unit air-conditioner or package type air-conditioner, it cannot be classified in that group; the components of the car air-conditioner kit are nothing but parts of the car air-conditioner and the air-conditioning kit was shown as such in common pa .....

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car air-conditioning kit is classifiable under Item No. 3 or under Item no. 8 of the table of the said Notification. After reproducing the Item No. 3 of the said Notification, to which we shall refer to in detail at a later point of time, analysed the description of goods given against Item No.3 in column (3), referred to the amendment made on March 20, 1990 whereby in column (3), following words were added against Item No.5:- "other than the parts and accessories of car airconditioner incl .....

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e-mentioned goods from the description of goods against Item No. 5 and their specification against Item No. 8, with effect from March 20, 1990, was with the intention of creating a specific entry in regard to car air-conditioners - both parts and accessories thereof as well as car air-conditioning kits. 14. As the air-conditioning kit is meant for providing air-conditioning in car and as the description of the goods first mentioned against column (3) which notes air-conditioners, we are inclined .....

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ll July 25, 1991, air-conditioning kits which comprises of various parts are classifiable under Item No. 8 of the said Notification. The Division Bench reproduced the Explanation (2) that was added on July 25, 1991, which reads as under:- "Explanation (2) - For the purposes of this notification, the term 'car air-conditioner kit' or 'car air-conditioning kit' shall exclude the kit or assembly of parts which contains automotive gas compressor with or without magnetic clutch.& .....

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ion has the effect of taking away the automotive gas compressor (with or without magnetic clutch) from out of the car air-conditioning kit. The car air-conditioning kit which comprises of parts of car air-conditioner remains as part of Item No. 8 of the notification. The Explanation cannot be so construed as to remove the term "car air-conditioner kit" or "air-conditioning kit" itself from Item No. 8 of the Notification. What follows is that 'car air-conditioning kit minu .....

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d that car air-conditioning kit minus automotive gas compressor with or without magnetic clutch will remain in the description of goods against Item No. 8 and that excluded part of the kit, namely, 'automotive gas compressor' will cease to be a part of Item No.8 and would be liable to duty separately is not the correct conclusion and it requires to be reconsidered. It is urged by her that in view of the express language of the Explanation (2) which excluded car air-conditioning kits whic .....

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te 4 to Section XVI to highlight that while interpreting the section notes, the respondent would be disentitled to the benefit of the Notification since in the manner in which the goods came to be cleared, the compressor remained part of the air-conditioning kit. Elaborating the same, it is contended by her that the car air-conditioning kit cleared by the respondent was also having a corresponding clearance of gas compressor and the same constitute an air-conditioning unit and would be chargeabl .....

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on exemption is with reference to an Item in the First Schedule to the Customs Tariff Act, then the interpretative rules would equally apply to such Notification. Learned counsel has also submitted that the reliance by the respondent on Board's Circular No. 479/45/99 CX dated 17.8.1999 is irrelevant since the present dispute relates to period from 1991 to 1993 much prior to the issuance of the Board's circular. 5. In oppugnation of the aforesaid submissions, it is propounded by Mr. V. La .....

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would contend that during the disputed period i.e. 1.8.1991 to 28.2.1993, the respondent was clearing the automotive gas compressors and the air-conditioning kits (without gas compressors) under different gate passes, which were supplied separately, and at different point of time and on that basis the respondent was discharging excise duty at the rate mentioned in serial no.1 of Notification No. 166/86-CE whenever automotive gas compressors were cleared and the rate mentioned in serial no.8 of .....

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e where the car air-conditioning kit was cleared without the automotive gas compressor. According to him, Explanation (2) to Notification applies only in a situation where the air-conditioning kit or assembly of parts contains automotive gas compressor (with or without magnetic clutch). Commenting on the Explanation (2), learned counsel would contend that the said Explanation means that where a car air-conditioning kit or assembly of parts contains an automotive gas compressor (with or without m .....

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ve gas compressor was cleared separately in serial no.8, it is not liable to pay any further excise duty. Elaborating further, it is urged by Mr. Lakshmi Kumaran that as the items were cleared independently they attract duty as given in serial no.1 of Notification. It is his stand that the respondent during the relevant period was not clearing the car air-conditioning kit with the automotive gas compressor and any decision on this plea of the appellant, as far as the respondent is concerned, is .....

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t the said Circular would not be applicable to the past transactions is unacceptable inasmuch as it really clarifies the position. Rebutting the submissions of the revenue that the presence of the automotive gas compressor in a kit will remove the kit away from serial no.8 of Notification No. 166/86-CE, it is canvassed by him that assuming the contention of the revenue is correct, the car air-conditioning kit with the automotive gas compressor will rightly fall under serial no.5 of the said Noti .....

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or is not part of the kit and if the automotive gas compressor is a part of the car air conditioning kit, according to the contention of the revenue, it will not be "parts and accessories of the car air-conditioning including car air-conditioning kit" under serial no.8 and in that event, it will have to be under serial no.5. Elucidating the submission, learned counsel would contend, the exclusion under serial no.5, namely, "other than the parts and accessories of car air-condition .....

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that they are not applicable while interpreting the present Notification No. 168/86-CE since the said Notification has not borrowed its terms from the Tariff. In this context, the learned counsel has commended us to the decision in CCE, Jaipur v. Mewar Bartan Nirman Udyog (2010) 13 SCC 753. It is also urged by him that the decision in Maestro Motors (supra) is not applicable to the facts and circumstances of the present case since in that case the words used in the Excise Tariff and the Notifica .....

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quirement for reconsideration of the judgment passed in Sanden Vikas (India) Ltd. (supra). 9. At the outset, it is imperative to appositely scrutinise the Notification No. 166/86-CE dated 1.3.1986 (as amended from time to time). In the case at hand, we are concerned with the amendment made in the said Notification vide Notification Nos. 75/90-CE dated 20.03.1990 and 68/91-CE dated 25.07.1991 10. As the period in question relates to the period after the amendment took place, it is apposite to rep .....

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Air-conditioners including room air conditioners (window type), split unit air conditioners, and package type air conditioners, - (a) of capacity not exceeding 1.5 tonnes (b) of capacity exceeding 1.5 tonnes but not exceeding 3 tonnes (c) of capacity exceeding 3 tonnes but not exceeding 7.5 tonnes (d) of capacity exceeding 7.5 tonnes but exceeding 10 tonnes (e) of capacity exceeding 10 tonnes but not exceeding 15 tonnes Rs.12,000 per air conditioner Rs.15,000 per air conditioner Rs.33,000 per a .....

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including car air-conditioning kit Sixty five percent ad valorem - 11. Be it stated that air conditioners including car air-conditioning kits fall under Chapter 8415.00 of Central Excise Tariff Act, 1985. The Explanation to the Notification was inserted on 25.07.1991. During the period in dispute, as the factual matrix would unveil, the respondent-assessee had cleared the car air-conditioning kits without gas compressors under serial no.8 and automotive gas compressors under serial no. 1. To pu .....

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e proceed to scrutinise the correctness of the said authority, we have to clear the maze, whether interpretation as per Rule 2(a) would be applicable to the Notification. Rule 2(a) of Rules for the Interpretation of Schedule reads as follows:- "2. (a) Any reference in a heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that, the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also .....

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her devices) intended to contribute together to a clearly function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function." 13. The question is whether the Rules of Interpretation would apply. Learned counsel for the appellant has heavily relied on Maestro Motors (supra). In the said case, after reproducing Rule 2(a), the two-Judge Bench has opined thus: "Thus, as per this interpretative rule, even t .....

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r of a complete car even though presented in unassembled form. As per interpretative Rule 2(a) even though presented unassembled they have to be classified as a complete article." 14. Learned counsel for the respondent has drawn inspiration from Mewar Bartan Nirman Udyog (supra). In the said case, the Court posed the question whether the respondent-assessee was entitled to claim benefit of exemption Notification No. 3/2001-C.E dated 1.3.2001. The assessee in the said case had claimed exempt .....

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ification. At that juncture, the Court opined that:- "5. We may also point out at this stage that it is well settled position in law that exemption Notification has to be read strictly. A notification of exemption has to be interpreted in terms of its language. Where the language is plain and clear, effect must be given to it. While interpreting the exemption notification, one cannot go by rules of interpretation applicable to cases of classification under the Tariff. Tariff items in certai .....

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ty. As stated above, in this case, the Department has not disputed the fact that the circles were manufactured by the assessee from brass. This is expressly recorded in the findings given by the Tribunal." 15. The aforesaid two decisions are to be understood regard being had to the context in which they are delivered. In Maestro Motors (supra), it is elucidated that one has to examine the notification and then refer to serial number of the notification and the item number in the first sched .....

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tood in the context. 16. We have already reproduced Rule 2(a) and Section Note 4 to Section XVI. Rule 2(a) of Rules of Interpretation consists of two parts. First part stipulates that incomplete or unfinished goods would fall in heading relating to the completed goods provided the incomplete or unfinished good bears the essential character of the complete or finished goods. Second part predicates unassembled or assembled goods can be treated as goods complete or finished goods. In this context w .....

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urpose classification shall be determined in accordance with the terms of headings and any relative section or Chapter Notes, provided such headings or Notes do not otherwise require a different interpretation. 18. Keeping the aforesaid in view and the context, we are required to interpret the serial numbers of the notification. On a scanning of the Notification, it is perceptible that the gas compressors are specified and taxable on the heading serial no.1. Serial no.3 deals with air conditione .....

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of a car air-conditioner including air-conditioning kit, are expressly excluded from serial no.5. The reason for exclusion is that car air-conditioners and car air-conditioning kits have been included in serial no.8. Car air-conditioner or car air-conditioning kits cannot per se perform essential functions of an air-conditioner until and unless they are fixed in a car. A car air-conditioning is obtained by fitting part by part, compressor is fitted above engine, condenser is fitted in front of .....

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the same. The Explanation states that for the purpose of Notification, "car air-conditioning unit" or "car air-conditioning kit" shall exclude the kit or assembly of parts which contains automotive gas compressor with or without the magnetic clutch. The two-Judge Bench in Sanden Vikas (India) Ltd. (supra) has understood the said Explanation to mean that it has the effect of taking away the automotive gas compressor (with or without magnetic clutch) from out of the car air-co .....

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on of goods against item no.8 of the notification and that the excluded part of the kit, namely, automotive gas compressor with or without magnetic clutch will cease to be a part of item no. 8 and will be liable to duty separately. 20. Ms. Nisha Bagchi, learned counsel appearing for the department would contend that in view of the express language employed in Explanation (2) which excludes car air-conditioning kit which contain automotive gas compressor with or without magnetic clutch from the p .....

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he said submission, it requires a careful scrutiny of the language used in the Notification. The Notification consciously and deliberately treats a complete or finished air-conditioner as a dutiable entity under serial no.3, but kit of the same air-conditioner is not treated at par and similar to a complete or finished air-conditioner dutiable under serial no.3. The air-conditioners' parts and the accessories including air-conditioner kits are dutiable under serial no.5, if it relates to a w .....

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the context of notification, it can safely be stated that the accessories and parts including kits, compressors and the finished or complete air-conditioners having treated separately under different serial numbers and the notification intended to maintain the said distinction between a completed and a finished produce and the kits and compressors which can be assembled and installed in a car to function as a car air-conditioner after necessary efforts and working including gas charging. Under t .....

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9/45/99 CX dated 17.8.1999. The relevant part of the said circular reads as follows: "Doubts have been expressed as to whether fitting of duty paid parts and components of an air-conditioner in a car amounts to manufacture of car air conditioner. ...... 2. The matter has again been examined by the Board. It is observed that in the course of the activity of fitting the parts and components of an air-conditioner in a car, they are fitted part by part at different places in a car engine and el .....

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e same, learned counsel for the respondent submitted that though the said circular has been brought at a later stage, but it really exposits the intention of the notification. The question of retrospective applicability or not does not arise, for the simon pure reason is it really clarifies the position. 22. Having regard to the analysis we have made, the purport and impact of the Notification, the question that would arise for consideration is whether Sanden Vikas (India) Ltd. (supra) lays down .....

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oods against item no.8 of the Notification and the excluded part of the kit, namely, automotive gas compressor with or without magnetic clutch will cease to be a part of item no.8 and will be liable to duty separately. As we understand from the said conclusion, a car air-conditioning kit, if it contains an automotive gas compressor with or without magnetic clutch, the kit part will meet the description of goods against item no.8 of the Notification and the automotive gas compressor with or witho .....

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lude the kit or assembly or parts which contains automotive gas compressor with or without magnetic clutch and when there is total exclusion of the kit, and hence, it gets out of item no.8 of the Notification. In a sense, the submission is if the kit contains the automotive gas compressor, it shall stand excluded and will be liable to duty separately. Learned counsel for the respondent has submitted that in that event, it would not fall under serial no.8, for if kit cannot be covered under seria .....

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f a manufacturer sells the kit and the automotive gas compressor as one unit of transaction, it will get out of serial no.8. If a manufacturer sells the kit and the automotive gas compressor separately by different invoice or by separate pricing, we do not see any reason for exclusion of the air-conditioning kit from the serial no.8 because there are two transactions and the kit is charged as per serial no.8 and compressor is charged as per serial no.1. There is no dispute over the fact that one .....

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