2006 (8) TMI 427 - AT - Central Excise

Summary

Issues Involved:
1. Classification of goods as "parts of Air Conditioning Machines" versus "Complete Air-conditioning Machine."
2. Eligibility for exemption under Notification No. 22/2000-C.E.
3. Allegation of suppression of facts with intent to evade duty.
4. Applicability of Rule 2(a) of the Rules for Interpretation of the Schedule to Central Excise Tariff Act, 1985.
5. Imposition of duty, penalty, and interest.

Issue-wise Detailed Analysis:

1. Classification of Goods:
The appellant, engaged in the manufacture of diverse parts of "Car-Conditioning Machine" other than a compressor, supplied these parts to customers like Tata Motors and Mahindra & Mahindra. The core issue was whether these parts should be classified as "Complete Air-conditioning Machine" or merely as parts. The Commissioner initially confirmed a significant demand of duty, asserting that the clearances should be classified as complete air-conditioning machines by virtue of Rule 2(a) and Note 4 to Section XVI. However, the Tribunal found that the appellant did not manufacture compressors, an essential component of a complete air-conditioning machine, and thus could not be classified as manufacturing complete air-conditioning machines.

2. Eligibility for Exemption:
The appellant claimed exemption under Notification No. 22/2000-C.E. for parts of air-conditioning machines. The notice alleged that the clearances should not be entitled to this exemption as they were to be considered complete air-conditioning machines. The Tribunal, however, concluded that since the compressors were imported and not manufactured by the appellant, and no complete air-conditioning machine came into existence at the appellant's premises, the exemption claim was valid.

3. Allegation of Suppression of Facts:
The notice alleged that the appellant misled the Department by using unique terminology to describe the goods and did not properly indicate amendments in classification declarations. The Tribunal found that the appellant adopted the nomenclature used by their customers, which was based on practical aspects, and there was no intent to evade duty.

4. Applicability of Rule 2(a):
The Tribunal examined whether the parts supplied could be considered as having the essential character of a complete air-conditioning machine under Rule 2(a). It was noted that without the compressor, which is the heart of the machine, the parts could not be considered as a complete air-conditioning machine. The Tribunal also referred to the Board's Circular No. 666/57/2002-CX, which clarified that if an assessable kit does not have all essential elements, it cannot be considered as an entity with the essential characteristics of an air-conditioning machine.

5. Imposition of Duty, Penalty, and Interest:
Given that no complete air-conditioning machine was manufactured by the appellant, the Tribunal set aside the duty demands, interest, and penalties. The Tribunal emphasized that no air-conditioning machine ever came into existence at any stage in the appellant's premises or the buyer's premises, thus nullifying the grounds for duty, penalties, and interest.

Conclusion:
The Tribunal allowed the appeals, setting aside the duty demands, interest, and penalties. It was pronounced that no complete air-conditioning machine was manufactured by the appellant, and thus, the parts supplied could not be classified as such, maintaining the eligibility for exemption under Notification No. 22/2000-C.E.