1995 (5) TMI 30 - SC - Central Excise

Whether thrust washers , thrust half-washers and wrapped bushes manufactured by the appellant exclusively for Motor Vehicles could be classified as Thin walled-bearings so as to attract duty under Notification No. 99 issued in 1971? Held that - What the High Court omitted to consider was that there was no other material with the Department on which it could assume that the washers and bushes manufactured by the appellant were thin walled bearings . The basis for initiation of proceedings being Indian Standard Booklet published by the Indian Standard Institute, it was not proper either for the High Court or for the assessing authorities to ignore it and levy the duty treating these goods to be thin walled bearings , on assumptions without any material. The observation in the judgment of the High Court that it was undisputed that thrust washers and wrapped bushes were in accordance with specification under IS 4774-1968 is factually incorrect. The written note of the appellant given before the assessing authority has been extracted. It is obvious that the order was made under misapprehension. Since the High Court and the assessing authorities approached the case with an entirely incorrect perspective, their orders cannot be maintained. Yet it would be hazardous for this Court to examine the dimension and specification of these bushes and washers and decide whether they can be classified as thin-walled bearings. For that purpose it would be expedient to send the case back to the High Court which may decide it either itself or send it to the Tribunal which has now been constituted. Appeal allowed.

Issues Involved:
1. Classification of 'thrust washers', 'thrust half-washers', and 'wrapped bushes' as 'Thin-walled bearings'.
2. Binding nature of trade notices and departmental consensus on classification.
3. Applicability of Indian Standard (IS) specifications for classification.
4. Functional test for taxability.
5. Burden of proof for claiming exemption.

Issue-wise Detailed Analysis:

1. Classification of 'thrust washers', 'thrust half-washers', and 'wrapped bushes' as 'Thin-walled bearings':
The principal issue was whether the items manufactured by the appellant could be classified as 'Thin-walled bearings' to attract duty under Notification No. 99 issued in 1971. The High Court held that the items performed the same function as bearings and were in accordance with IS specifications, thus classifiable as 'Thin-walled bearings'. However, the Supreme Court found that neither the High Court nor the assessing authorities properly examined whether the goods satisfied IS: 4774-1968 specifications. The Court emphasized the need for a proper examination of dimensions and specifications to determine classification.

2. Binding nature of trade notices and departmental consensus on classification:
The High Court and departmental authorities relied on a trade notice and a consensus reached in a meeting between the Board and trade representatives, which classified the items as 'Thin-walled bearings' if they met IS: 4774-1968 specifications. The Supreme Court clarified that while trade notices are not binding, they are significant when there is no other material available. The Court criticized the authorities for assuming the classification without proper material and emphasized the need for evidence-based classification.

3. Applicability of Indian Standard (IS) specifications for classification:
The High Court dismissed the relevance of IS specifications, stating they did not reflect trade understanding. The Supreme Court disagreed, stating that IS specifications provide strong evidence for classification. The Court noted that the entire proceedings were based on the IS specifications and criticized the authorities for ignoring them without any other material basis.

4. Functional test for taxability:
The High Court used the functional test, stating that since the items performed the same function as bearings, they should be classified as such. The Supreme Court rejected this approach, citing previous judgments (Jain Engineering Co. v. Collector of Customs, Union of India v. Delhi Cloth & General Mills) that functional tests are not the sole criteria for taxability. The Court emphasized the need for proper classification based on specifications and evidence.

5. Burden of proof for claiming exemption:
The Department argued, based on M/s. Novopan India Ltd. v. Collector of Central Excise and Customs, that the burden was on the assessee to prove the exception. The Supreme Court found that the High Court and authorities did not properly assess the evidence and specifications. The Court remitted the case back to the High Court for a proper examination or transfer to the Tribunal for a decision based on law and evidence.

Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's order, and remitted the matter back to the High Court to decide the case or transfer it to the Tribunal. The Court emphasized the need for a proper examination of IS specifications and evidence for classification and criticized the reliance on assumptions and functional tests without material basis. Parties were ordered to bear their own costs.

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