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TMI Blog2023 (5) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... /07/2009 was challenged before the Hon'ble CESTAT, Chennai who vide order No 215/10 dated 22/02/2010 have remanded the matter to the lower authority for a fresh decision after taking into account the written submission field by the appellant on 20/03/2009. Accordingly, the learned Commissioner in de-novo proceedings vide the impugned order has held that the 'alternators' manufactured and cleared from Unit - I are dutiable articles falling under Central Excise Tariff Heading (CETH) 8501.00 upto 27.2.2005 and under CETH 85016100 / 85016200 with effect from 28.2.2005. He has gone on to confirm the duty demanded and also imposed penalty. Aggrieved by the impugned order, the appellant is now before us. 3. The background of the issue is that the appellant has two units. The principal unit is Unit - II from where final products are manufactured and cleared. Unit - I is an additional premises of the appellant. The appellants case is that raw materials for manufacture of specific 'alternators' are first sent by Unit - II to Unit - I and exclusively designed semi-finished 'alternators' meant for use as integral part of GPUs / APUs / DFCs are sent back to Unit - II by Unit - I, for completi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In view of the above reasons, the learned counsel submitted that Alternators of GPU would fall under CETH 8803 and Alternators of APU would fall under CETH 8710. The learned counsel stated that the Tariff rate is NIL for CETH 8803 upto 11.5.2007. Therefore, the demand on the Alternators of GPU from May, 2003 to 10.5.2007 is not sustainable. The learned counsel stated that irrespective of CETH [whether it is 8803 or 8501], the parts of aeroplanes or helicopters of any chapter for servicing of aeroplanes or helicopters are exempted vide Sl.No:240 of notification 6/2002-CE dated 1.3.2022 as extended/ amended. Further, bulk quantity of GPUs was also exported under notification 42/2001-CE (NT). It is an admitted fact that Unit-II has availed these exemptions for GPUs and such exemption was not denied by the Revenue. Under such circumstances, alternators, which are integral part of GPU [parts of parts] are also entitled for such exemption. Doctrine of substantial compliance and intended use is satisfied. On the same logic as above, alternators of APUs and DFGs were cleared based on the excise duty exemption certificates issued under notifications Sl.No:84 of 6/2002-CE; Sl.No:88 of 4/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from Unit I are used only for the manufacture of exempted final products and not dutiable final product by Unit II, therefore duty exemption appeared to be not available to them under the said Notification for the alternator. The original authority has hence correctly classified the goods and demanded duty etc, so the impugned order may be upheld. He reiterated the other points made in the impugned order. 6. We have heard both sides and carefully gone through the appeal papers and the submissions made. We find that the points for determination are: (a) Whether the product 'alternators' manufactured at Unit - I is a distinct excisable product, (b) Whether the alternator in question is classifiable under CETH No. 8501 or 8803 / 8710 of the Schedule to CETA. (c) Whether Unit - I is eligible for the exemptions claimed by the appellant. (d) Whether the method adopted for determining the assessable value is correct and (e) Whether extended period for issue of show cause notice is invokable in this case. 7. We find that the whole issue revolves around the question whether alternators are finally manufactured excisable goods when cleared from Unit I to Unit II. 8. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that they are also marketable in that condition. 10. Classification of goods are intrinsically linked to the assessment of goods for the purposes of determining the duty that is payable. The assessment process involves classifying the goods, checking the quantity of goods cleared, ascertaining its value in the case ad valorem duty is to be levied, eligibility of the goods to the benefits of duty exemption if any etc. Hence assessment, which means determination of the tax liability, comes into play only when 'excisable goods' are manufactured. When no excisable product has been demonstrated to have been manufactured 'General Rules' would not be very relevant. The issue of marketability being an essential ingredient of determining whether goods have reached the stage of manufacture where duties of Central Excise could be said to have been attached to it, is no longer res integra. In Moti Laminates Pvt. Ltd. vs. CCE - 1995 (76) ELT 241 (SC), this aspect was again reiterated by the Supreme Court in the following words: "6. The duty of excise is leviable under Entry 84 of List I of the VII Schedule on goods manufactured, or produced. That is why the charge under Section 3 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le or was capable of being marketed. 11. Although the SCN dated 04/06/2008 at para 13 alleged that transactions between Unit I and Unit II (and vice versa) show the facility for fixing of rotating rectifier assembly on the alternators and testing was available in their Unit I itself; that in in a dozen odd cases, serial number were affixed to the alternators cleared from Unit I, pointing to the completion of the manufacturing process, the issue has not been elaborately discussed in the findings portion of the impugned order. Para 13.6 merely states that the recorded instances of the movement of alternators proves that the appellants manufacture fully finished alternators. The crux of his findings in this matter appears at para 13.6. At para 13.6 of the impugned order the learned Commissioner holds that even if the semi-finished alternators manufactured at Unit I was cleared to Unit II, by virtue of rule 2(a) of the General Rules for interpretation of the schedule to the CETA, 1985 the same is liable for payment of duty. This reasoning is not legally sound as discussed above. Merely finding the availability of the testing facility in Unit I is not the same as finding that the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not make any difference. The appellant states that they have established the sole and principal use of GPU is for servicing of aircrafts. The classification of GPU was decided under CETH 8803 by the Tribunal in the appellant's own case - 2001 (138) ELT 1152 by relying on Note 3. The Revenue's appeal in the case was also dismissed by the Hon'ble Supreme Court. Similarly, the sole and principal use of APU is in armored vehicles and the classification is CETH 8710. Therefore, alternators of APU are also classified under CETH 8710. The learned Lower Authority on the other hand has held that both Unit I and Unit II are separate premises with separate Central Excise registration certificates. The usage of products manufactured in Unit I after its transportation to Unit II for further production cannot be termed as usage of goods within the factory of production. In other word the processing of goods sent by Unit I to Unit II cannot be considered to be done during a continuous process of manufacture within a single unit. 13. Section 2 of the CETA provides that the rates at which duties of excise shall be levied are specified in its First and Second Schedule. Classification of excisabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a specific item, residuary item has no application. 59. The Court stated; "One more aspect of the issue should be adverted to before we conclude. The assessee is relying upon a specific entry in the tariff schedule while the department seeks to bring the goods to charge under the residuary Item 68. It is a settled principle that unless the department can establish that the goods in question can, by no conceivable process of reasoning, be brought under any of the specific items mentioned in the tariff, resort cannot be had to the residuary item" [See also Bharat Forge & Press Industries v. Commissioner of Central Excise, (1990) 1 SCC 532 : (1990) 45 ELT 525 (sc)] . . . . ." And again in Speedway Rubber Co. Vs. Commissioner of Central Excise, Chandigarh, [2002 (143) E.L.T. 8] it was held as under; "24. We may notice that as per Rule 3(a) of the Interpretation Rules to the Central Excise Tariff Act, 1985: "3. (a) The heading which provides the most specific description shall be preferred to headings providing a more general description." 25. Accordingly, Heading 40.08 provides more specific description to the impugned goods than Heading 40.16 and hence, the specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517, and parts which are suitable for use solely or principally with the goods of heading 8524 are to be classified in heading 8529; (c) All other parts are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or, failing that, in heading 8487 or 8548." It is seen that Note 2 of Section XVI contains three rules, dealing with three different categories of parts. (a) Parts which are goods included in any of the headings of Chapter 84 or 85 (b) Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading and (c) All other parts. From the scheme of the said rules each of these rules has to be applied sequentially as it moves from a specific product to a general product. 'Alternator' gets covered by the first rule as 'parts which are goods included in any of the headings of Chapter 84 or 85 and hence falls in the category of goods which 'in all cases' are to be classified in their respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or principally for such vehicles and that they must not be excluded by the provisions of Notes to Section XVII. The identifiable parts under the said heading bodies of armoured vehicles and parts thereof, cover special road wheels for armoured cars, propulsion wheels for tanks, tracts etc. As per this requirement, the goods should not only be identifiable to be armoured vehicles, but it should so not have been excluded by Notes to Section XVII. The Chapter note 2(f) excludes electrical machinery and equipment falling under Chapter 85. Explanatory Notes to HSN relating to the parts and accessories excluded by Note 2 specify items with reference to specific Chapter Heading as per (7) (a), (k) which excludes photographs and other current collectors for electric traction vehicles, fuses, switches and other electric apparatus of Heading No. 85.35 or 85.36. The items, therefore, manufactured by the appellants are identifiable or are in the nature of goods falling under Chapter Heading 85.36. Since these fall under the category of excluded goods under Chapter Notes, even though they are used specifically solely or principally with the armoured vehicles of Chapter Heading 8710, they are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XVII. 32. Coming to Section XVII, which precedes Chapter 86, the same contains a few notes, one of which is Note 2, which lists out certain articles to which the expressions "parts" and "parts and accessories" mentioned in Chapter 86 do not apply. Note 2(f) reads as follows :- "(1) xxxx (2) xxx (a) xxxx (b) xxxx (c) xxxx (d) xxxx (e) xxxx (f) electrical machinery or equipment (Chapter 85)". 33. Note 2(f) is relied upon by the Revenue, in view of the fact that Chapter Heading 8608 uses the words "parts of the foregoing" after the words "Railway or tramway track fixtures and fittings" etc. Chapter Heading 8608 does not specifically mention "electrical relays". The assessee's contention is that "it is part of the railway signalling safety or traffic control equipment" and that, therefore, Relays manufactured by them would fall under Chapter Heading 8608 due to the usage of the word "parts". It is this contention that is sought to be repelled by the Authorities by relying upon Note 2(f) of Section XVII. 34. Though at first blush, Note 2(f) seems to apply to the case on hand, it may not, upon a deeper scrutiny. 35. Note 3 of Section XVII reads as follows: "Ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he classification list, it is not proper on the part of the Authorities to invoke Note 2(f) of Section XVII. Hence question No. 1 is answered in favour of the appellant and against the Revenue." 16. It is seen from the above judgment that it does not deal with a case of classifying goods that has a specific description under a tariff heading and by applying Note 2 of Section XVI. In fact, Section XVI does not have a Note similar to Note 3 of Section XVII. The Westinghouse Saxby Farmer Ltd judgment (supra) looks into the applicability of General Rule 3(a) apart from Note 2 and 3 of Section XVII for classifying 'relays'. The 'sole/principal use' test was a requirement of Note 3 of Section XVII. However, in the impugned order while the classification of the 'alternators' was settled under Chapter 85 falling under Section XVI, Section Notes of Chapter XVII have been examined in the context of the claim of the appellant for classification of the goods under headings 8710 or 8803. Moreover, the said judgment at para 38, citing the Apex Court's decision in A Nagarajan Bro's, states that there is no one single universal test in these matters and that it is indeed not possible, nor desira ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of being subjected to the 'sole/principal use test' as required by Note 3 of Section XVII. The Hon'ble Court held: "15. End use to which the product is put to by itself cannot be determinative of the classification of the product. See Indian Aluminium Cables Ltd. vs. Union of India and Others, 1985 (3) SCC 284 / 1985 AIR 1201. There are a number of factors which have to be taken into consideration for determining the classification of a product. For the purposes of classification the relevant factors inter alia are statutory fiscal entry, the basic character, function and use of the goods. When a commodity falls within a tariff entry by virtue of the purpose for which it is put to, the end use to which the product is put to, cannot determine the classification of that product." 18. In the light of the above discussion the classification of 'alternators' if it had been found to be manufactured by Unit I would fall under CETH 8501.00 up to 27.2.2005 and under CETH 85016100 / 85016200 with effect from 28.2.2005, as decided in the impugned order and not under CETH 8803/ 8710 as claimed by the appellants. 19. Coming to the issue of whether the 'alternators' of Unit I were eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... livery challans of Unit I and Unit II and hence substantial compliance and intended use is satisfied. We find that this is a procedural issue and in the light of our finding that no manufacture was involved a sympathetic view can be taken and the matter be laid to rest without having to go into the issue in-depth. 22. With respect to the other exemption notifications claimed by the appellant, we find that the same has not been discussed in the impugned order. Hence had the 'alternators' been found to be excisable goods manufactured by Unit I, the claims of the appellants would require to be revisited by the proper officer in the light of the classification of the goods discussed above. 23. As regards para 6 (d) regarding, the value of 'alternators', it is seen that the appellant are amenable to the valuation of alternators, when captively consumed in Unit II, if arrived at as per Rule 8 of the Central Excise Valuation Rules 2000. Their only contention was that if goods from Unit I are to be valued for the purpose of Central Excise duty assessment, then the value based on costing principles should be determined based on the data pertaining to Unit I and not that of Unit II. We a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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