1999 (11) TMI 458 - AT - Central Excise

Issues Involved:
1. Classification of Compressor Model SR 522.
2. Applicability of Notification No. 166/86-C.E.
3. Alleged suppression of facts and invocation of extended period of limitation.
4. Use of compressors by customers and its impact on classification.
5. Relevance of Brochure in determining classification.

Detailed Analysis:

1. Classification of Compressor Model SR 522:
The primary issue is whether Compressor Model SR 522 should be classified as "compressors of a kind used in Air-conditioning of capacity less than 7.5 tonnes" or as "gas compressors used in the manufacture of water coolers." The appellants argued that 80% of the production of Compressor Model SR 522 is used in manufacturing water coolers, with the remaining 20% sold in the market for replacement purposes for water and bottle coolers. They contended that the compressor does not fall within the category used in air-conditioners and should be subject to duty at 40% ad valorem under Notification No. 166/86.

2. Applicability of Notification No. 166/86-C.E.:
The Notification No. 166/86-C.E. provides different duty rates for gas compressors based on their use. The appellants argued that since the compressors were primarily used in water coolers, they should not be classified under the category of compressors used in air-conditioners. The tribunal noted that the department did not challenge the availability of the notification for compressors used in water coolers. The fact that 80% of the compressors were used in water coolers and the department did not differentiate between compressors used captively and those sold for home consumption supports the appellants' claim.

3. Alleged Suppression of Facts and Invocation of Extended Period of Limitation:
The department alleged that the appellants deliberately suppressed the fact that the compressors were used in air-conditioners, invoking the extended period of limitation. The appellants countered that they had conducted experiments to use the compressors in air-conditioners, which were unsuccessful. The tribunal found that the department did not provide sufficient evidence to prove that the appellants were aware of the compressors being used in air-conditioners by their customers or that they had suppressed information intentionally.

4. Use of Compressors by Customers and Its Impact on Classification:
The department relied on letters from customers indicating that the compressors were used in air-conditioners. However, the appellants argued that the compressors were sold for replacement purposes in water coolers and that any use by customers in air-conditioners was not within their control or knowledge. The tribunal agreed with the appellants, noting that the use by customers could at best be termed as "capable of being used" for air-conditioning, not "of the kind used" in air-conditioning.

5. Relevance of Brochure in Determining Classification:
The department argued that the brochure issued by the appellants in March 1988 mentioned the use of the compressor in air-conditioners, which indicated its capability. The appellants explained that this mention was based on a presumption and was corrected in subsequent brochures after unsuccessful experiments. The tribunal found that the brochure alone could not determine the classification, especially when the experiments conducted by the appellants did not support the use of the compressor in air-conditioners.

Conclusion:
The tribunal concluded that the department failed to prove that Compressor Model SR 522 was of the kind used in air-conditioning. The differential duty was not chargeable, and the appeal was allowed on merit without considering the aspect of the time limit.

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