2025 (1) TMI 219 - AT - Central Excise

Classification of electrical machinery parts and accessories - to be classified under Chapter 86 or under Chapter 84? - extended period of limitation - penalty. Classification of electrical machinery parts and accessories - HELD THAT - As these goods were manufactured as per the designs submitted by the Indian Railway, they have to be specifically treated as part of Diesel Locomotive and so more appropriately classifiable under Chapter 86 of Central Excise Tariff Act, 1985. Further, the Tribunal in the case of M/S. FAIVELEY TRANSPORT RAIL TECHNOLOGIES INDIA PVT. LTD. VERSUS COMMISSIONER OF GST CENTRAL EXCISE, SALEM 2024 (8) TMI 1143 - CESTAT CHENNAI has held on the classification of goods supplied to Indian Railways that the pantographs and its parts are exclusively used in railway or tramway locomotives. Further, in the case of PREMIER POLYFILM LIMITED VERSUS COMMISSIONER, CGST, GHAZIABAD 2024 (7) TMI 6 - CESTAT ALLAHABAD the Tribunal Allahabad has decided the issue in favour of the Assessee that the goods will be classified under the specific tariff entry of the goods cleared or under Chapter 86 in view of the Hon ble Supreme Court s decision in the case of WESTINGHOUSE SAXBY FARMER LTD. VERSUS COMMR. OF CENTRAL EXCISE CALCUTTA 2021 (3) TMI 291 - SUPREME COURT . Thus, parts of railway diesel locomotive are more appropriately classifiable under CETH 86079100.Hence the issue regarding classification is decided in favour of the Appellant. Extended period of limitation - Penalties - HELD THAT - In the absence of any finding as to intent of suppression by the Appellant in the impugned order, the allegation of wilful misclassification and intention to evade duty by the appellant is not at all tenable as misclassification could not be equated with misdeclaration and it is a settled law that once the goods are correctly described, the bona fide adoption of classification by the importer cannot be equated with misdeclaration as the manufacturers are not expected to be fully conversant with the schedule to the Central Excise Tariff Act, 1985. So, the issue of limitation is also decided in favour of the appellant and consequently, penalties imposed are set aside. Conclusion - Parts of railway diesel locomotive are more appropriately classifiable under CETH 86079100. In the absence of any finding as to intent of suppression by the Appellant in the impugned order, the allegation of wilful misclassification and intention to evade duty by the appellant is not at all tenable. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the classification of certain electrical machinery parts and accessories supplied to Indian Railways should be under Chapter 86 or Chapter 84 of the Central Excise Tariff Act, 1985.
• Whether the invocation of the extended period for demanding differential duty was justified under the circumstances of this case.
• The applicability of the "sole/principal use test" for classification purposes and its precedence over exclusionary notes in the tariff schedule.
• The validity of the penalties imposed for alleged misclassification with intent to evade duty.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Goods

• Relevant legal framework and precedents: The classification dispute revolves around the interpretation of Section Notes 2 and 3 of Section XVII of the Central Excise Tariff Act, 1985, and the relevant Harmonized System of Nomenclature (HSN) explanatory notes. The Supreme Court's decision in Westinghouse Saxby Farmer Ltd. Vs. CCE was pivotal, which emphasized the "sole/principal use test" for classification.
• Court's interpretation and reasoning: The Tribunal found that the "sole/principal use test" should be applied, as established in the Westinghouse decision. The court rejected the Department's reliance on exclusionary Note 2(e) of Section XVII, which would have classified the goods under Chapter 84.
• Key evidence and findings: The goods were manufactured according to Indian Railways' specifications and were used solely as parts of railway locomotives, supporting classification under Chapter 86.
• Application of law to facts: The Tribunal applied the "sole/principal use test" and concluded that the goods should be classified under Chapter 86, specifically under CETH 86079100, given their exclusive use in railway locomotives.
• Treatment of competing arguments: The Tribunal dismissed the Department's argument that relied on earlier Supreme Court decisions that prioritized exclusionary notes over the "sole/principal use test." The Tribunal emphasized the binding nature of the Westinghouse decision.
• Conclusions: The Tribunal concluded that the goods were correctly classifiable under Chapter 86, rejecting the Department's classification under Chapter 84.

Issue 2: Invocation of Extended Period and Penalties

• Relevant legal framework and precedents: The extended period for demanding duty under Section 11A of the Central Excise Act, 1944, requires evidence of suppression or intent to evade duty. The Supreme Court decision in Uniworth Textiles Ltd. Vs. Commissioner was referenced regarding the invocation of the extended period.
• Court's interpretation and reasoning: The Tribunal found no evidence of deliberate suppression or intent to evade duty by the appellant. The classification dispute was based on interpretational differences, not misdeclaration.
• Key evidence and findings: The appellant had disclosed the classification and duty rate in returns and relied on established legal interpretations, negating any intent to evade duty.
• Application of law to facts: The Tribunal applied the legal standard for invoking the extended period and found it inapplicable due to the absence of deliberate intent or suppression.
• Treatment of competing arguments: The Department's argument for invoking the extended period was rejected due to insufficient evidence of intent to evade duty.
• Conclusions: The Tribunal set aside the invocation of the extended period and the penalties imposed, ruling in favor of the appellant.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The invocation of Note 2 (f) in Section XVII, overlooking the 'sole or principal user test' indicated in Note 3, is not justified."
• Core principles established: The "sole/principal use test" takes precedence over exclusionary notes in classification disputes, particularly when goods are designed for specific uses as per specifications.
• Final determinations on each issue: The Tribunal determined that the goods were correctly classifiable under Chapter 86, and the extended period for demanding differential duty was unjustified. Consequently, the penalties imposed were set aside.

The Tribunal's decision underscores the importance of adhering to established legal principles, such as the "sole/principal use test," and highlights the necessity of clear evidence when invoking extended periods for duty demands. The judgment reinforces the binding nature of Supreme Court decisions in classification disputes, ensuring consistency and predictability in tax law interpretation.