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TMI Blog1993 (11) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... imited Companies there are two partnership firms, namely (i) Bharat Iron Works and (ii) Kisan Enterprises. Partners in the said two firms are the same four brothers, as mentioned above, which are also the Directors in the two Private Limited Companies. 1.2. LMP Precision Engg. Co. Ltd. came in existence in 1969. LMP Drilling and Mining Equipment (P) Ltd. came into existence in 1979. The two partnership firms, namely, Bharat Iron Works came into existence in 1985 and the other partnership firm, Kisan Enterprises was floated in 1977. 1.3. Following issues arise in the present matters for our decision :- (1) Whether water well drilling rigs mounted on motor vehicle chassis fall under Tariff Heading 84.30 as claimed by the two Private Limited Companies, as aforesaid or under Tariff Heading 87.05, as upheld by the adjudicating authority. (2) Whether the demand of duty on account of classification upheld by the Collector is time barred or not. (3) Whether the three manufacturers, namely (i) LMP Drilling and Mining Equipment (P) Ltd., (ii) Bharat Iron Works and (iii) Kisan Enterprises are so associated with LMP Precision Engg. Co. Ltd. that the clearances of the former three manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he adjudicating authority under Tariff Heading 8705.00. Goods falling under Tariff Heading 84.30 carry a rate of duty of 15% ad valorem whereas the goods falling under Tariff Heading 87.05 carry a rate of duty at 25% ad valorem. It has thus been held that a wilful suppression of the correct description of the goods in the classification list by the two companies has led to evasion of duty to the tune of Rs. 92,12,477/-(BED) for the period 1-3-1986 to 30-6-1988. Show cause notice for the same was issued on 31-12-1988 to various companies/firms, as aforesaid and persons. 3. Learned advocate for the appellants has, however, urged as follows :- 3.1. Drilling rigs basically consist of some main components such as hoisting system, meet, draw works, rotary table, transmission gear box, pull down system, mud pump, hydraulic system and truck chassis, crawler tractor, skid, power-take-off device etc. 3.2. He also highlighted the process of manufacture of mounted drilling rigs on a motor vehicle chassis which is as follows :- "that, the configuration of component, changes from model to model and they are based on the specifications given by the buyer; that the choice of mounting is also g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a truck chassis. The drilling rig components are mounted either on a truck chassis or trailer or skid, or crawler. (b) The use of truck chassis is for the sole purpose of imparting mobility to the drilling rigs. Thus, it is obvious that the drilling rig is required for digging the earth etc. and for this purpose, it has to be shifted from place to place, for this shifting, the chassis is used. (c) The truck chassis after receipt in factory requires to be modified substantially by cutting down its length, modifying the propeller shaft etc. The power from the engine of the chassis is also required to be transmitted to the drilling rig for the purpose of digging. This modification of the truck chassis is so substantial that after this modification and mounting of the drilling rig thereon, the truck chassis cannot be separated and used as a truck chassis again. (d) The functional capacity and essential characteristics of the drilling machine as a whole is attributable solely to the drilling rig and not to the truck chassis. The said product is recognised and serves its purpose as a boring machinery and not as a vehicle that, in view of the above technical facts, it is obvious tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a railway network of any gauge. Railroad ballast excavator screening machines are often mounted on wagons or trucks complying with this condition. On the other hand, excavating, etc., machines mounted on trucks or platforms not meeting the specifications of true railway rolling stock remain classified in this heading. Self-propelled vehicles for the servicing and maintenance of railway tracks also fall in heading 86.04. (b) Machines mounted on tractors or motor vehicles proper to Chapter 87. (i) Machines mounted on tractor type bases. Certain working parts (e.g. levelling blades) of the machines of this heading may be mounted on tractors which are constructed essentially for hauling or pushing another vehicle, appliance or load but, like agricultural tractors, are fitted with simple devices for operating the working tools. Such working tools are subsidiary equipment for occasional work. In general, they are relatively light and can be mounted or changed at the working site by the user himself. In such cases, the working tools remain in this heading provided they constitute machines of this heading, or in heading 84.31 if they are parts of those machines, even if presented wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s referred to above." 3.5. Learned advocate has submitted that the adjudicating authority while relying on the HSN Explanatory Notes has not referred to the full Explanatory Notes under Tariff Heading 84.30 while arriving at its finding that the goods under consideration are classifiable under Tariff Heading 87.05. He has submitted that in view of the process of manufacture and the fact that the chassis is fully integrated drilling rig as described in the process of manufacture, the goods would be classifiable under Tariff Heading 84.30. He relies in support of his proposition on Tribunal's judgment reported in 1990 (46) E.L.T. 49 [Mineral Exploration Corpn. Ltd v. C.C.] which is in respect of vehicles mounted drilling equipment held to be classifiable under Tariff Heading 84.23 of the Customs Tariff Act, 1975, as it stood before 28-2-1986 and not as a special purpose vehicle under Heading 87.03, as contended by the department. 3.6. Learned JCDR, Shri S. Kak, for the Revenue while reiterating the findings of the adjudicating authority, as aforesaid, has pointed out that pamphlet available in the Paper Book and showing DR 1000 (Direct Circulation Rotary Drilling Rig) does not indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor vehicle chassis to the drilling rig, thus completely integrating the chassis and the drilling rig. Power source referred to at para 23 in the order placed by the Chief Public Health Engineer, Government of Assam and pointed out by the learned JCDR is only a small alternative arrangement for the purpose of lighting and not for the purpose of working the drilling rig. 5. We have carefully considered the pleas advanced on both sides. We observe that the adjudicating authority has relied only on the following portion of HSN Explanatory Notes under Chapter Heading 84.30 :- "(c) Explanatory note of Chapter heading 84.30 (2) Machines mounted on automobile chassis or lorries. Certain machines of this heading (e.g. pile-drivers, oil well drilling machines are often mounted on what is in fact an essentially complete automobile chassis or lorry in that it comprises of least the following mechanical features : propelling engine, gear-box and controls for gear changing and steering and braking facilities. Such assemblies are classified in heading 87.05 as special purpose motor vehicles." and has not taken into consideration the complete Explanatory Notes both under Chapter Headings 87.05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudicating authority is that the brothers namely, C.L. Mistry, M.L. Mistry, Jayantilal Lallubhai Mistry and Chandrakantbhai Lallubhai Mistry are controlling all the 4 units. Two companies are controlled by them as Directors and the two partnership firms are controlled by them as partners of the firms. It is further based on the following findings :- (1) Free flow of funds between associated units and the main unit LMP Precision Engineering Co. (2) There is mutuality of interest both financially and managerial between the main unit and the other. The adjudicating authority has also held that it is necessary to lift the corporate veil of the main unit to disclose their true identity. The adjudication order goes on to set out extensive extracts of case law on the subject of lifting the corporate veil or following the principle laid down in McDowell's case by the Supreme Court that avoidance of tax should not be encouraged [(1985) 154 ITR 148] but the impugned order does not bring out the cogent basis on which the corporate veil should be lifted. The evidence brought on record gives certain stray instances of the advances given by one company or the firm to another. Inter company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as such a person does not engage himself either in manufacture or production of goods on his own account. He does not incur any financial involvement needed for manufacturing or producing the goods and also does not have any control or supervision over the manufacturing process. Manufacturing company was not a dummy company nor a buyer placing orders for its manufacturing could be considered to be a manufacturer. It is only if those who own a factory are a dummy concern or a camouflage for the buyer of goods produced, that the latter can be considered to be a manufacturer. [Emphasis supplied]. There is no finding in the impugned order to the aforesaid effect that the three units are dummies or facade for LMP Precision Engg. Co. Another incorrect approach adopted by the adjudicating authority on the aspect of clubbing is a confusion regarding the concept of 'related person' under Section 4 with that of clubbing. Relying on Delhi High Court's decision in the case of Straw Products Ltd. 6 Another [1987 (30) E.L.T. 275 (Del.)] in the context of definition of 'related person' under Section 4, the adjudicating authority has held that the goods cleared by LMP Drilling & Mining Equipment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassification of the goods under Tariff Heading 84.30. 9.5 On the basis of the aforesaid findings in respect of classification the demand of duty to the tune of Rs. 7,26,008.00 for the period 1-3-1986 to 29-2-1988 against LMP Drilling and Equipment (P) Ltd., held to be recoverable, is set aside. 9.6 In the absence of any defence taken by LMP Drilling and Mining Equipment (P) Ltd. on demand of Rs. 3,32,458.84 p. by not including the value of truck chassis and mounting charges is confirmed subject to modification in the quantum of duty on account of their classification under Tariff Heading 84.30. 9.7 Demand of duty against LMP Drilling and Mining Equipment (P) Ltd. to the tune of Rs. 25,52,881.20 p. by denying the benefit of Notification 175/86 on account of clubbing with the clearances of LMP Precision Engg. Co. is set aside in view of our aforesaid finding. 9.8 Demand of duty against Bharat Iron Works to the tune of Rs. 12,57,869.23p on account of clubbing their clearances with that of LMP Precision and denying the benefit of Notification 175/86 is set aside. 9.9 Similarly, demand of duty against M/s. Kisan Enterprises to the tune of Rs. 16,17,548.00 on account of clubbing th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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