2018 (7) TMI 1365 - AT - Central Excise

Classification of goods - Rotary Frequency Converter - appellants claimed that the item is a Ground Power Unit (GPU), which is part of aircraft only meant for exclusive use of aircraft, classifiable under CETH 8803 of the CCETA and hence subject to Nil rate of tariff rate of duty - Revenue has sought to classify the item under CETH 8502 of CETA and attracting Excise Duty @ 16% - Whether the goods would be classifiable under CETH 8803 or under CETH 8502 of CETA? - penalty. Held that - Taking into account the fact that GPU (Diesel Engine) has been held to be part of the aircraft by virtue of Tribunal decision in Mak Controls 1998 (6) TMI 563 - CESTAT CHENNAI , the interest of justice will be met by remanding the matter back to the adjudicating authority for reconsideration of the issue of classification after applying the test laid down by the Tribunal. Penalty - Held that - The matter is only one of interpretation of classification of goods - penalty u/r 25 is unjust and is set aside. Appeal allowed by way of remand.

Issues involved:
Classification of "Rotary Frequency Converter" under Central Excise Tariff Act, 1985, and the applicability of Nil rate of tariff rate of duty vs. Excise Duty @ 16%.

Analysis:
The issue in dispute revolves around the classification of the "Rotary Frequency Converter" (RFC) under the Central Excise Tariff Act, 1985 (CETA). The appellants argue that the RFC should be classified as a Ground Power Unit (GPU), which is part of an aircraft meant exclusively for aircraft use, falling under CETH 8803 of CETA and thus subject to a Nil rate of tariff rate of duty. On the other hand, the Revenue seeks to classify the RFC under CETH 8502 of CETA, attracting Excise Duty at a rate of 16%. The impugned order confirmed the classification of the RFC under CETH 8502.90 of CETA, imposed duty demand of ?2,80,000/- with interest, and a penalty of ?25,000/- under Rule 25 of the Central Excise Rules, 2002. The appellants challenged this decision before the forum.

The appellants, represented by Ld. Counsel Ms. D. Naveena, argued that the RFC, as a type of GPU, is specifically designed for aircraft use, generating 400 Hz electrical energy. They highlighted that previous judgments favored the classification of similar items like GPU (Diesel Engine) under CETH 8803 of CETA. They emphasized that RFC, like GPU (Diesel Engine), is exclusively designed for aircraft or aircraft subsystems, making it unsuitable for other applications. They pointed out relevant duty exemption notifications and Tribunal decisions supporting the classification of GPU components as aircraft parts.

On the contrary, Ld. A.R Shri K. Veerabhadra Reddy supported the impugned order, arguing that the RFC should be classified as an Electric Rotary Converter under CETH 8502.90 based on a comparison of entries in the HSN and Central Excise Tariff Heading under 85.02. He contended that the end use of goods is irrelevant in classification matters unless specified in the Tariff entry, citing relevant Tribunal decisions to support his stance. He distinguished RFC from GPU, emphasizing that RFCs can have applications beyond aircraft use.

After hearing both sides and reviewing the facts, the Bench noted that while previous decisions classified GPU (Diesel Engine) as part of an aircraft, the RFC's classification was not adequately analyzed. The appellants' contentions regarding the RFC's specialized aircraft use were not properly addressed by the adjudicating authority. Therefore, the Bench held that the matter should be remanded back for reconsideration, applying the test laid down in previous decisions. The penalty imposed was deemed unjust and set aside, with the appellants granted the opportunity to present their case in the fresh proceedings.

In conclusion, the appeal was allowed by way of remand, emphasizing the need for a detailed reevaluation of the RFC's classification based on established criteria, while setting aside the previously imposed penalty.

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