TMI Blog2022 (10) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the final output of MVAC is cold/chilled water, the MVAC obviously does not fit into the given definition. The hot water, that is produced for generating chilled condition/ refrigeration, is only an incidental purpose of the MVAC and therefore classification of the appellant s product as a heat pump on this basis, would in our view, be irrational. When the market/common parlance test is applied for the manufactured product, it is seen that the appellant in their website have identified Vapour Absorption Chillers and heat pumps separately. Significantly in the description of the product on the appellant s website, Vapour Absorption Chillers do not mention about its heating capability. Likewise, heat pumps do not mention about the cooling function. This would suggest that the appellants do not themselves recognize the incidental hot water generating capacity of the Vapour Absorption Chillers, to treat it as a heat pump - what is important to keep in mind is that the additional purpose does not alter the primary character/functionality of the product which is to function as a vapour absorption chiller, used to produce chilled water for the purpose of refrigeration and air condi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product manufactured by the appellant is classifiable as heat pump under the heading 84.18 of the Schedule to the Central Excise Tariff Act, 1985. The question is important for the appellant because under notification 155/86-CE dated 1.3.1986, heat pumps falling under Chapter 8418, enjoyed a limited exemption from the levy of excise duty. 3. The appellant had sold their manufactured product by describing them as heat pumps but the Assistant Commissioner of Central Excise negated such description. On appeal by the assessee, the Commissioner of Central Excise (Appeals) however agreed with the manufacturer s claim. But in the appeal by the Revenue, the Customs, Excise and Service Tax Appellate Tribunal, Mumbai (for short CESTAT ) has reversed the decision. The conclusion in the impugned order dated 22.1.2009, is that the product is not heat pump and therefore, ineligible for concessional rate of duty under Sl. No. 2 of Notification No. 155/86-CE dated 1.3.1986. It was also held that the product is a complete machine and cannot be treated as part of a machine. It was accordingly declared that the manufacturer is disentitled to the concessional rate of duty in terms of the notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner suggested by the Revenue. 4.3 The appellants Counsel then refers to the Harmonious System of Nomenclature (HSN) Explanatory Notes to argue that therein the functioning of the heat pumps is shown as heat plus energy, resulting in a source of more intense heat. Because substantial modification is carried out by the manufacturer to transform chillers into MVAC and the four-way reversing Valve, a key component in MVAC can provide heating and cooling from the system to the air condition space by reversing the flow direction of refrigerant and thereby an air conditioner can fit into the description of heat pumps. It is argued that classification of the product should be based on the machine, as altered by the additional components and the product presented should be seen as a whole for the purpose of classification by taking into account its inbuilt functionality to produce hot water. The senior counsel would rely on the recognition of few customers of the product who say that the product is purchased for getting both hot and cold water. 4.4 To blunt the Revenue s projection that the product is capable of heating water by mere 5 degree celsius or so and the same should not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CESTAT and further appeal against the order of the CESTAT was thereafter dismissed by this Court. Accordingly, it is argued by the appellant that since similar products as theirs were taxed at the rate of 15 per cent, higher duty should not be levied for the appellant s similar machine, as the same would be discriminatory, accordingly MVAC must also be treated as Heat Pump. RESPONDENTS CONTENTION 5.1 On the other hand, Mr. V. Chandra Shekara Bharathi, the learned counsel, at the outset, submits that the Revenue does not dispute the classification of the product under Chapter 8418 since there are no rival entries. Notwithstanding such a stand, it is argued that the MVAC manufactured by the appellant does not qualify as heat pump to secure the benefit of limited exemption, under the Notification 155/86-CE dated 1.3.1986.It is specifically contended that MVAC does not satisfy the definition of heat pump given in the HSN where heat pump is defined as under:- A heat pump is a device which draws heat from a suitable heat source (principally underground or surface water, the soil or the air) and converts it with the assistance of a supplementary energy source (e.g. gas or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the respondent, the modification of the Vapour Absorption Chillers (VAC) as Modified Vapour Absorption Chillers (MVAC) does not in any way alter the primary character/purpose of the device which is intended to function as Vapour Absorption Chillers used exclusively for refrigeration and cooling. The incidental production of hot water through modification of VAC is not germane to warrant classification of VAC in the category of heat pumps. 5.5 The learned counsel for the Revenue next contends that the judgment of the Tribunal in Blue Star (supra) and Voltas (supra) are distinguishable and should have no application in determining the classification of the MVAC manufactured by the appellant. 5.6 Adverting to Chapter Note 7 to Chapter 84, it is also argued that production of chilled water is the sole purpose of the MVAC and the product does not qualify as heat pump, if the HSN definition is applied as is necessary. DISCUSSION 6. The definition of a product given in the HSN should be given due weightage in the classification of a product for the purpose of levying excise duty. This is because in the Statement of Objects and Reasons of the Bill leading to enactme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI. **** **** **** **** **** **** **** **** 18. We are of the view that the Tribunal as well as the High Court fell into the error of overlooking the fact that the structure of the Central excise tariff is based on the internationally accepted nomenclature found in the HSN and, therefore, any dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself. The definition of a term in the ISI Glossary, which has a different purpose, cannot, in case of a conflict, override the clear indication of the meaning of an identical expression in the same context in the HSN. In the HSN, block board is included within the meaning of the expression similar laminated wood in the same context of classification of block board. Since the Central Excise Tariff Act, 1985 is enacted on the basis and pattern of the HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there are six General Rules of Interpretation10 applicable to the Harmonised System as a whole. **** **** **** **** **** **** 12. We would, at this stage, take on record the well-settled principle that words in a taxing statute must be construed in consonance with their commonly accepted meaning in the trade and their popular meaning. When a word is not explicitly defined, or there is ambiguity as to its meaning, it must be interpreted for the purpose of classification in the popular sense, which is the sense attributed to it by those people who are conversant with the subject matter that the statute is dealing with. This principle should commend to the authorities as it is a good fiscal policy not to put people in doubt or quandary about their tax liability. The common parlance test is an extension of the general principle of interpretation of statutes for deciphering the mind of the law-maker. However, the above rule is subject to certain exceptions, for example, when there is an artificial definition or special meaning attached to the word in a statute, then the ordinary sense approach would not be applicable. 8. Guided by the definition of heat pump as g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the device and its output makes it abundantly clear that the primary purpose of the MVAC is to produce chilled water and the incidental production of hot water in its operation is only incidental and cannot therefore be a ground for classification of the product under Chapter 8418. 13. When the market/common parlance test is applied for the manufactured product, it is seen that the appellant in their website have identified Vapour Absorption Chillers and heat pumps separately. Significantly in the description of the product on the appellant s website, Vapour Absorption Chillers do not mention about its heating capability. Likewise, heat pumps do not mention about the cooling function. This would suggest that the appellants do not themselves recognize the incidental hot water generating capacity of the Vapour Absorption Chillers, to treat it as a heat pump. The modification of Vapour Absorption Chillers by adding a sensor to gauze the temperature and incorporating a selector switch in the control panel to select heating/cooling mode with added wiring to carry the signal from the censors would simply mean that a vapour absorption chiller can also produce hot water. However, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er HSN, for their product. Moreover, as earlier said, unlike the case of M/s. Blue Star, we are not required to deal with two rival entries in the present matter as the contention of the Revenue before us is that despite the product falling under Chapter 8418, the MVAC is not a heat pump. 17. Proceeding next to examine whether Chapter Note 7 to Chapter 84 can have a bearing in the present matter, what is stated therein is that a machine is capable of additional function, for the purpose of classification, its principal purpose is to be understood as the machine s sole purpose. On this, the learned counsel for the Revenue has argued that Chapter note 7 forms part of the HSN which has been adopted in the Central Excise Tariff Act and the same being an Act of Parliament, the reliance on the chapter note in the HSN is a legal contention which, given the circumstances, can be applied in the present matter. We cannot also be unmindful of the fact that Chapter Note 7 comes into play only when there are two or more headings, and in those situations when, none of those headings fall under Chapter 84.01 to 84.24. According to HSN, the headings 84.01 to 84.24 cover an apparatus by referrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n issue under consideration. The MVAC manufactured by the Appellant should normally be not classified as a heat pump, notwithstanding the fact that the manufacturer has modified the vapour absorption chiller, using additional components. Moreover, the definition provided in the HSN must have an overriding influence over any other definition for the purpose of Classification of the product. 21. The end use of MVAC is to produce Chilled Water. The use of heat as one of the sources in the air-conditioning system would not take away the primary or basic function of the MVAC, which is to cool and not heat water. The additional heating capability of the machine thus raises a peculiar dilemma, but then one can be guided by the market parlance test which shows that the machine is perceived and purchased only as a cooling device. The circumstances here remind us of the somewhat similar predicament of Lord Illingworth, the character in A Women of No Importance. In this classic play of Oscar Wilde Oscar Wilde - A Women of No Importance.: Act 3 , in the context of observing all kinds of human capabilities, the dramatis personae made that classic remark on those, who do the improbable. Th ..... 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