TMI Blog2000 (6) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... imposed as penalty on the Railways, namely, Diesel Component Works, Patiala invoking the provisions under Section 11AC of the Central Excise Act, 1944 read with Rule 173Q of the Central Excise Rules, 1944. Interest on the above amount at the rate of 20% under Section 11AB of the Act has also been levied. 2.The short facts necessary for the disposal of these appeals are as follows. 3.Diesel Component Works, Patiala, under the Ministry of Railways, is engaged in the activity of reconditioning diesel locomotives falling under Chapter 87 of the Schedule to the Central Excise Tariff Act, 1985. Apart from reconditioning of diesel locomotives, they were manufacturing parts of compression - ignition, internal combustion piston engines, which, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Excise Tariff Act and hence, completely exempt from payment of duty under Notification No. 197/87 dated 28-8-1987 and that the scrap which was now found liable to duty was worn out and damaged parts of locomotives which were being repaired. Consequently, it is argued that the dismantled or removed, damaged parts of the old locomotives can, under no circumstance, be considered as waste and liable to duty under the Central Excise Act, 1944. 5.Section XVI of the Central Excise Tariff Act deals, inter alia, with machinery and mechanical appliances. It deals with the general category of machinery and mechanical appliances. Note 1 to Section XVI specifically takes out articles of Section XVII outside the purview of this Section, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Internal combustion engines are independent of locomotive. Consequently, those parts of machines fall under Heading 84 or 85. 6.The Commissioner in the impugned order took note of the meaning or locomotive given in the Explanatory Notes to HSN. He quoted the following from page 1414 of first edition of HSN:- "Diesel locomotives are of three types, namely, diesel electric locomotive, diesel hydraulic locomotive and diesel mechanical locomotives. Diesel electric locomotive (which is relevant in this case) has been defined as locomotive in which diesel engine drives a generator to produce electricity which in turn powers traction motors driving the wheels." He further noted the meaning of locomotive from Encyclopaedia Britannica as a veh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engine to fall under Chapter Headings 84 and 85 because of Section Note 2(e) to Section XVII. After referring to Note 2, learned Commissioner failed to read Note 3 to that Section. That Note reads: - "3. References in Chapters 86 to 88 to 'parts' or accessories do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more of the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that (Emphasis added)part or accessory." In relation to Chapter Note 3, what HSN states is: Criterion of sole or principal use. Parts and accessories classifiable both in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of IC engines which were the main parts in the locomotive should also be termed as part of the locomotive and not as IC engines coming under the general category. Central Board of Excise and Customs had to consider the issue as to whether a radiator assembly supplied to Indian Railways is to be classified under sub-heading 8607.00 or otherwise. The Board observed that product radiator assembly is designed according to the specifications of the Indian Railways and is for use solely and principally with locomotives of Heading 8601 and 8602. It is clarified that the radiator assembly is not to be classified as parts of IC engines under Heading 8409. This understanding of the Central Board of Excise and Customs is discernible from circular N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the course of the dismantling of the locomotives. Admittedly, the scrap and waste originated during the course of dismantling of the locomotives is different and distinct item from the locomotives. Such scrap of iron and steel are classifiable under heading No. 72.04 of said Schedule and that of aluminium is classifiable under heading No. 76.02. In view of this I am of the opinion that the waste originated during the course of dismantling of the locomotive is also excisable goods and the process of dismantling amounts to manufacture." The Commissioner proceeded to levy duty on such quantity of scrap and waste relying on the decision of the Calcutta High Court in M/s. S.S. Jain Co. reported in 1986 (25) E.L.T. 14. Commissioner has erre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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