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TMI Blog2020 (1) TMI 793X X X X Extracts X X X X X X X X Extracts X X X X ..... Filters are suitable for use solely and principally with the articles of Chapter 86. Since all three conditions are required to be fulfilled, which is not so in the instant case, the subject Filters cannot be considered as Parts of railway locomotives and therefore, cannot be classified under Chapter Heading 8607. The correct classification of the subject Filters would be under Chapter Heading 84.21 of the Tariff. Thus, the subject Filters manufactured by the Appellant solely and principally for use by the Indian Railways and supplied directly the Indian Railways are classifiable under Chapter Heading 84.21 of the Customs Tariff - The classification of the subject goods Will not change if the Same are supplied to a distributor instead of Indian Railways and the distributor in turn affects the supply to the Indian Railways. The decision of Advance ruling authority upheld. - KAR/AAAR/Appeal-07/2019-20 - - - Dated:- 10-1-2020 - SHRI. D.P. NAGENDRA KUMAR, AND SHRI. M.S. SRIKAR, MEMBER Represented by: Shri Abhishek Naik, Consultant PROCEEDINGS (Under section 101 or the CGST Act, 2017 and the KGST Act, 2017) At the outset, we would like to make it Clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading 8421 and that the classification of the goods shall not alter on account of supply by distributor to Railways. 4. Being aggrieved by the above order of the Karnataka Authority for Advance Ruling the Appellant has preferred this appeal before us on the following grounds: 4.1. They submitted that the AAR has ignored the directions contained in Circular no.17/90-CX.4 dated 9 July 1990. The said circular refers to the discussions that took place in the South Zone Tariff-cum-General Conference of Collectors held in the year 1990, wherein in the context of certain transmission elements, it was clarified that where goods have been specifically designed for use with Vehicles of Section XVII, they would be covered as parts of vehicles under the appropriate Headings 8607 or 8708 or 8714. Applying the analogy to the Subject Filters, the Appellant submits that Since these goods have been specifically designed for use in railway locomotives of Section XVII, they would be appropriately covered under Heading 86.07; that Circulars issued by the Board are binding on the revenue authorities. This has been emphasized time and time again by the Supreme Court in various decisions, includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to as HSN ) Explanatory Notes to Section XVII to argue that in case a part appears to prima facie fall under one or more Sections and also under Section XVII, the final Classification is to be determined based on its principal use. Therefore, the subject filters; being designed to be used solely and principally for locomotives falling under Chapter 86, satisfy the test of Section Note 3 to Section XVII, and are thus required to be classified under the said Chapter itself, specifically under Heading 86.07 covering Parts of Railway Locomotives. This is notwithstanding the fact that the subject filters may have a prima facie probable classification elsewhere In the tariff The Appellant submitted that the AAR has erred by not according primacy to Section Note 3 of Section XVII and consequently not classifying the Subject Filters according to their sole or principal use. 4.5. The Appellant submitted that the proposition that goods meant solely or principally for use in railway locomotives are to be classified under Chapter 86, specifically under Heading 86.07 as Parts of Railway Locomotives , has been affirmed time and time again by numerous Tribunals. The Appellant submits that T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassifiable under Heading 86.07. c) Uni Deritend ltd. CCE, Mumbai-III [2014 (313) ELT 423 (Tri. - Mumbai)] = 2012 (11) TMI 1070 - CESTAT MUMBAI , wherein castings of nickel and nickel-based alloys were sought to be classified under Heading 75.08 by the assessee. However, owing to its usage in the railway and failure on the part of the assessee to prove any alternative usage, the same were held by the CESTAT to be classifiable under Heading 86.07. d) Nagpur Engg. Co: Ltd vs, CCE [1993 (63) ELT 699 (Tribunal)] = 1992 (10) TMI 150 - CEGAT, NEW DELHI , wherein the CESTAT observed that a brake block is fixed to a brake glove and together it is used as brake in the locomotive. Accordingly, the CESTAT held that brake block was more appropriately classifiable under the Heading 86.07. 4.7. The Appellant submitted that. the AAR has erred in not following settled judicial positions, while issuing the impugned Advance Ruling 4.8. The Appellant further submitted that the AAR, in the impugned Advance Ruling has heavily relied upon Section Note 2(e) to Section XVII in order to justify classification of the Subject filters under Heading 84.21. They submitted that the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XVII to disallow the said classification and instead sought to classify the goods under Headings 84.09 or 84.83. However, the CESTAT took cognizance of the provisions of both, Section Note 2(e) as well as Section Note 3 to Section XVII and held that articles in question attract classification under Heading 86.07 in view of the collective reading of the Section Notes and more importantly, the test of sole or principal use In view of the above, they submitted that Section Note 2(e) fails to exclude the subject filters from the coverage of Section XVII and owing to their sole and principal usage with railway locomotives and the said filters can appropriately be classified under Heading 86.07 and not under Heading 84.21 as ruled by the AAR. 4.10. The Appellant referred to the Advance Ruling issued by the Authority for Advance Rulings, Uttar Pradesh in the case of M/s. G.S Products [Order no. 31 dated 3 June 2019]. The assessee therein is also engaged in manufacture and supply of filters to Indian Railways. The Authority for Advance Ruling, Uttar relying upon Note 3 to Section XVII, affirmed classification of the filters manufactured by the assessee therein under Heading 86.07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Railways as a customized product. Their contention is that the classification of the filters; manufactured specifically and solely for Indian Railways is under Heading 86.07 as against the view taken by the AAR that the said product merits classification under Heading 84.21. The Consultant drew reference to the provisions or the relevant Section Notes which were mentioned in the impugned order and also took support of the various decisions of the Supreme Court and the Tribunal to buttress their case that the said filters are rightly classifiable under Heading 86.07. He also made a reference to the ruling dated 3rd June 2019, passed by the UP Authority for Advance Ruling in the case of M/s. G.S Products (a direct competitor of the Appellant), wherein the Filter Elements and Air-Filter Assembly manufactured for the India Railways has been classified under 86.07 parts of Diesel Electric Locomotive. In view of the aforesaid he pleaded that the ruling passed by the Karnataka Authority for Advance Ruling in their case may be set aside and the classification of the filters be held as under Heading 86.07. DISCUSSION FINDINGS: 6. We have gone through the records of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No 205G (from 1st Oct 2019) 12% 8. The above two Chapter Headings being considered for the classification of the subject Filters manufactured exclusively for Indian Railways, fall under two different Sections of the Customs Tariff, viz. Section XVI (Heading 84.21) and Section XVII (Heading 86.07). The Customs Tariff is structured into Sections, Chapters, Headings and subheadings. Each Section and Chapter under the Tariff is accompanied by the notes known as Section Notes and Chapter Notes which play an important part in Classification. They are normally referred to as Legal Notes . The function of these notes is to define the scope of each headings chapters and sections precisely. These are given at the beginning of the Section or Chapter respectively which governs the concerned Section or Chapter as the case may be. In the case of Section Notes, they are applicable to each Chapter which is part of a specific section of the Tariff. The Section notes explain the scope of chapters / headings, etc. Since these notes are part of the Tariff, they have full Statutory backing. The HSN and the Section/Chapter Notes and Explanatory Notes thereto, on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Chapters. It is the claim of the Appellant that the reference to Parts in Chapter Heading 86.07 applies only to those parts which are suitable for use solely or principally with railway locomotives and since the subject Filters manufactured by them are solely and principally for the railways, the provisions of Note 3 to Section XVII would squarely apply, This argument is not acceptable. 12. On a conjoint reading of Section Notes 2 and 3 to Section what emerges is that: a) Section Note 2 to Section XVII excludes certain items mentioned at (a) to (l) from being covered under Section XVII as parts or parts and accessories even though they are identifiable as being for the goods under the Chapters of this Section. Note 2(e) excludes machines and apparatus of heading 8401 to 8479 from being considered as parts or parts and accessories . b) Section Note 3 to Section XVII states that the references in Chapters 86 to 88 to parts or accessories applies only to those parts and accessories which are used Solely and principally with the articles of those Chapters. In the case of Chapter Heading 86.07 - Parts of Railway locomotives , the reference to parts will a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section XVII, thereby failing to fulfill the very first condition above. Further, the subject Filters are also specifically included in Chapter Heading 84.21 as filtering apparatus and hence the third condition of the above General Notes is also not fulfilled. The only condition that is satisfied is that the subject Filters are suitable for use solely and principally with the articles of Chapter 86. Since all three conditions are required to be fulfilled, which is not so in the instant case, the subject Filters cannot be considered as Parts of railway locomotives and therefore, cannot be classified under Chapter Heading 8607. The correct classification of the subject Filters would be under Chapter Heading 84.21 of the Tariff. 14. The Appellant has relied on several decisions of the Tribunal to buttress their case that the subject Filters are to be classified as parts of railway locomotives based on the sole and principal use concept. We have gone through the following case laws relied upon by the Appellant and observe as follows: a) In the case of Rail Tech vs CCE, Chandigarh reported in 2000 (120) ELT 393 (Tri) = 2000 (6) TMI 232 - CEGAT, NEW DELHI , the issue before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey are appropriately classified as parts of locomotive under 86.07. This case is distinguishable from the present case in as much as, in the case before the Tribunal, the item Radiator Assembly was proposed to be classified under 84.09 which heading pertained to parts Suitable for use with I C Engines. Since it was proved that the Radiator Assembly was not fitted on the diesel engines but on the body of the locomotive itself, the Tribunal had held that it will be part of the locomotive and not part of the diesel engine. In the instant ease, the Heading 84.21 covers filtering apparatus for liquids and gases. This is a specific tariff heading and is not based on where the filtering apparatus is used unlike goods of Heading 84.09. Therefore, when considering whether the subject Filters are parts of locomotives under 86.07, one has to adopt the guiding principles of the Section Notes and Explanatory Notes to Section XVII which we have discussed in the foregoing paras. d) The case of CCE, Bombay vs Polyset Plastics Ltd (2001 (129) ELT 259 (Tri-Del)) = 2000 (12) TMI 406 - CEGAT, NEW DELHI also does not help the cause of the Appellant since in that case, the issue before the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the decision is per incuriam. 16. The Appellant has also advanced his case by strongly relying on the CBEC Circular NO 17/90 CX-4 dated 09.07.1990 issued in the context of transmission elements. We have gone through the said Circular which relates to the classification of transmission elements like Gears, Gearings, Gear Trains, Gearboxes, etc. which have been specifically designed for use with vehicles of Section XVII. The Circular Was issued based on the discussions held at the Tariff Conference wherein, after taking note of Section Note 2(e) to Section XVII, the Conference recommended that transmission elements may not be classifiable under Heading 84.83 when they have been specifically designed for use with vehicle of Section XVII We find that this Circular has no relevance to this case since the discussion in the Circular is only with specific reference to transmission-elements falling under Chapter Heading 84.83 and is not a circular for Classification of parts of goods of Section XVII in general. We also find that, notwithstanding the issuance of the Circular No. 17/90-CX-4 dated 09.07.1990, the Tribunal in the case of CCE, Chennai vs Best Cast Pvt Ltd (2001 (127) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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