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TMI Blog2023 (5) TMI 298X X X X Extracts X X X X X X X X Extracts X X X X ..... horse. To determine whether the goods are exigible to Central Excise duties, it is first necessary to determine whether manufacture of excisable goods as defined under Section 2(d) of Central Excise Act, 1944, has taken place. Thereafter assessment for duty purposes is to be done and not the other way round. The General Rules come into play only if classification and assessment of excisable goods are involved. General Rules cannot cloth an activity as manufacture of goods on the lines contemplated by Section 2(f) of Central Excise Act, 1944. The said Rule would be of use in determining the classification of incomplete/ unfinished goods, for assessment purposes, when they satisfy the criteria for excisable goods including the fact that they are also marketable in that condition - the lower authority has failed to demonstrate that a distinct marketable commodity known as alternator has been manufactured and come into being at Unit I, to be exigible to Central Excise duties. Classification of goods - HELD THAT:- As regards the classification and rate of duty applicable on alternators if they had been found manufactured at Unit I, it should not make any difference. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actory of production in or in relation to the manufacture of the final products. The impugned order reject the claim for exemption on two grounds (a) the goods are not manufactured in the same unit. Unit I and Unit II have different premises and different Central Excise Registration Certificates and hence the alternators are not consumed within the factory. (b) the second condition of the notification is that the final products should suffer duty, which is not so in this case - the appellant was not eligible for the said exemption on alternators during the period covered by the SCN. Claim for exemption under notification 214/86 dated 25/03/1986 - HELD THAT:- This is a procedural issue and in the light of our finding that no manufacture was involved a sympathetic view can be taken and the matter be laid to rest without having to go into the issue in-depth. Value of alternators - HELD THAT:- It is seen that the appellant are amenable to the valuation of alternators, when captively consumed in Unit II, if arrived at as per Rule 8 of the Central Excise Valuation Rules 2000. Their only contention was that if goods from Unit I are to be valued for the purpose of Central E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Unit I is an additional premises of the appellant. The appellants case is that raw materials for manufacture of specific alternators are first sent by Unit II to Unit I and exclusively designed semi-finished alternators meant for use as integral part of GPUs / APUs / DFCs are sent back to Unit II by Unit I, for completion into alternators . Final alternators emerge at Unit II after finishing and testing processes and are cleared from Unit II after further assembly in GPUs / APUs / DFCs in Unit II. Department s contention is that manufacture of excisable goods i.e. complete alternators was being done at Unit I which was being cleared to Unit II without payment of duty during the period May 2003 to February 2008 and July 2008 to March 2009. This resulted in the issue of two show cause notices dated 04.06.2008 and 03.08.2009 to the tune of Rs 1,03,51,757/- + 11,82,227/- for the respective periods. The notices alleged that the clearances were made without observing any central excise procedure, thereby involving suppression of fact, and evoked the extended period of time, which culminated in the impugned order being passed after following all formalitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, which are integral part of GPU [parts of parts] are also entitled for such exemption. Doctrine of substantial compliance and intended use is satisfied. On the same logic as above, alternators of APUs and DFGs were cleared based on the excise duty exemption certificates issued under notifications Sl.No:84 of 6/2002-CE; Sl.No:88 of 4/2006-CE; and 64/1995-CE. Since, the main part is cleared under excise duty exemption certificate the same exemption is also available for parts of the main item. He finally stated that the extended period of limitation cannot be invoked for the appellant was under the bona fide belief that alternators were parts of aircrafts and subject to NIL rate of duty. This was also supported by decisions taken by the Hon ble Supreme Court and the CESTAT in their own case. It is a well settled principle that where an assessee has entertained bona fide doubt regarding classification/non-taxability, proviso to Section 11A (1) cannot be invoked. Therefore, there is no suppression on the part of the appellant. He prayed that the appeal filed by the appellant be allowed and the impugned order be set aside. 5. Learned AR Shri M. Ambe appeared on behalf of Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant. (d) Whether the method adopted for determining the assessable value is correct and (e) Whether extended period for issue of show cause notice is invokable in this case. 7. We find that the whole issue revolves around the question whether alternators are finally manufactured excisable goods when cleared from Unit I to Unit II. 8. The appellants contentions are; (i) the alternator can be said to be a complete unit only after fixing the rotating rectifier assembly which converts AC data to DC data, at Unit II. (ii) the rectifier is one of the six major components used in the alternator which gives it its essential character, as stated in the write up furnished along with reply to the show cause notice on 24/12/2011. (iii) final in-house testing for various stringent parameters specified by the Directorate General of Aeronautical Quality Assurance is also to be completed before the goods are marketable. (iv) they have not cleared these semi-finished alternators as such from Unit I to any of their customers. (v) the impugned order has not refuted these contentions of the appellant. The impugned order on the other hand holds: (i) serial number were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to have been attached to it, is no longer res integra. In Moti Laminates Pvt. Ltd. vs. CCE 1995 (76) ELT 241 (SC), this aspect was again reiterated by the Supreme Court in the following words: 6. The duty of excise is leviable under Entry 84 of List I of the VII Schedule on goods manufactured, or produced. That is why the charge under Section 3 of the Act is on all, 'Excisable goods , 'produced or manufactured . The expression 'excisable goods has been defined by clause (d) of Section 2 to mean, 'goods specified in the Schedule. The scheme in the Schedule is to divide the goods in two broad categories one, for which rates are mentioned under different entry and other the residuary. By this method all goods are excisable either under the specific or the residuary entry. The word 'goods has not been defined in the Act. But it has to be understood in the sense it has been used in Entry 84 of the Schedule. That is why Section 3 levies duty on all excisable goods mentioned in the Schedule provided they are produced and manufactured. Therefore, where the goods are specified in the Schedule they are excisable goods but whether such goods can be subjecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -finished alternators manufactured at Unit I was cleared to Unit II, by virtue of rule 2(a) of the General Rules for interpretation of the schedule to the CETA, 1985 the same is liable for payment of duty. This reasoning is not legally sound as discussed above. Merely finding the availability of the testing facility in Unit I is not the same as finding that the impugned goods were actually manufactured, tested and had reached the marketable stage at Unit I itself. Further no clandestine clearance of the alternator , to third parties, has been alleged in the notice, whereby marketability could enter the picture. In the circumstances the appellants contention that the essential character of the alternator is attained only after fixing the rotating rectifier assembly and that the article can be said to be a complete unit known in the market as an alternator only after testing for quality assurance at Unit II cannot be ignored. The appellant has also relied upon the decision of the Apex Court in the case of M/s Flex Engineering Lt Vs CCE UP [2012 (276) ELT 153(SC)]. Para 21 is reproduced below; 21. Thus, in our opinion the process of testing the customised F S machines is ine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods within the factory of production. In other word the processing of goods sent by Unit I to Unit II cannot be considered to be done during a continuous process of manufacture within a single unit. 13. Section 2 of the CETA provides that the rates at which duties of excise shall be levied are specified in its First and Second Schedule. Classification of excisable goods under CETA is to be determined according to the terms of the headings and any relative Section or Chapter Notes. The First Schedule contains the General Rules . These Rules begin with a mandate that the classification of goods in this Schedule shall be governed by the principles laid thereunder. The steps for classification, under the schedule, will be firstly to determine whether an excisable product by itself finds a suitable mention in terms of the CETH. A specific entry should be preferred to a residuary entry. Secondly one has to check for any exclusion of the said goods from the identified specific heading, in line with the Section/ Chapter Notes etc, if applicable, so as to classify it elsewhere. Section/ Chapter notes given in the schedule to the CETA have a limited purpose of excluding the coverage o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er; 24. We may notice that as per Rule 3(a) of the Interpretation Rules to the Central Excise Tariff Act, 1985: 3. (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. 25. Accordingly, Heading 40.08 provides more specific description to the impugned goods than Heading 40.16 and hence, the specific entry should overrule the general entry. . . . 14. We find that the classification to be decided in this case is that of alternators . The said item finds specific mention under Chapter Heading 8501.00 (up to 27.2.2005 and 85016100 / 85016200 with effect from 28.2.2005). The said CETH as it stands now is given under:- Tariff Item Description of goods Unit Rate of duty (1) (2) (3) (4) - AC generators (alternators): 8501 61 00 -- Of an output not exceeding 75k VA 12.5% 8501 62 00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the same heading (including a machine of heading 8479 or 8543) are to be classified with the machines of that kind or in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate. However, parts which are equally suitable for use principally with the goods of headings 8517 and 8525 to 8528 are to be classified in heading 8517, and parts which are suitable for use solely or principally with the goods of heading 8524 are to be classified in heading 8529; (c) All other parts are to be classified in heading 8409, 8431, 8448, 8466, 8473, 8503, 8522, 8529 or 8538 as appropriate or, failing that, in heading 8487 or 8548. It is seen that Note 2 of Section XVI contains three rules, dealing with three different categories of parts. (a) Parts which are goods included in any of the headings of Chapter 84 or 85 (b) Other parts, if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading and (c) All other parts. From the scheme of the said rules each of these rules has to be applied sequentially as it moves from a specific product to a general product. Alternator gets covered by the first rule as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Chapter Heading 8710 would be covered under the said chapter, provided they fulfill both the conditions i.e. they must be identifiable as being suitable for use solely or principally for such vehicles and that they must not be excluded by the provisions of Notes to Section XVII. The identifiable parts under the said heading bodies of armoured vehicles and parts thereof, cover special road wheels for armoured cars, propulsion wheels for tanks, tracts etc. As per this requirement, the goods should not only be identifiable to be armoured vehicles, but it should so not have been excluded by Notes to Section XVII. The Chapter note 2(f) excludes electrical machinery and equipment falling under Chapter 85. Explanatory Notes to HSN relating to the parts and accessories excluded by Note 2 specify items with reference to specific Chapter Heading as per (7) (a), (k) which excludes photographs and other current collectors for electric traction vehicles, fuses, switches and other electric apparatus of Heading No. 85.35 or 85.36. The items, therefore, manufactured by the appellants are identifiable or are in the nature of goods falling under Chapter Heading 85.36. Since these fall under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities, that Rule 3(a) of the General Rules will apply, especially after they had found that relays are not classifiable under Chapter Heading 8608, on account of Note 2(f) of Section XVII. 32. Coming to Section XVII, which precedes Chapter 86, the same contains a few notes, one of which is Note 2, which lists out certain articles to which the expressions parts and parts and accessories mentioned in Chapter 86 do not apply. Note 2(f) reads as follows :- (1) xxxx (2) xxx (a) xxxx (b) xxxx (c) xxxx (d) xxxx (e) xxxx (f) electrical machinery or equipment (Chapter 85) . 33. Note 2(f) is relied upon by the Revenue, in view of the fact that Chapter Heading 8608 uses the words parts of the foregoing after the words Railway or tramway track fixtures and fittings etc. Chapter Heading 8608 does not specifically mention electrical relays . The assessee s contention is that it is part of the railway signalling safety or traffic control equipment and that, therefore, Relays manufactured by them would fall under Chapter Heading 8608 due to the usage of the word parts . It is this contention that is sought to be repelled by the Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssified (before 1993) under sub-heading 8536.90, but a revised classification list, classifying them under sub-heading 8608, submitted by the appellant, was approved by the competent Authority on 27-8-1993. After such specific approval of the classification list, it is not proper on the part of the Authorities to invoke Note 2(f) of Section XVII. Hence question No. 1 is answered in favour of the appellant and against the Revenue. 16. It is seen from the above judgment that it does not deal with a case of classifying goods that has a specific description under a tariff heading and by applying Note 2 of Section XVI. In fact, Section XVI does not have a Note similar to Note 3 of Section XVII. The Westinghouse Saxby Farmer Ltd judgment (supra) looks into the applicability of General Rule 3(a) apart from Note 2 and 3 of Section XVII for classifying relays . The sole/principal use test was a requirement of Note 3 of Section XVII. However, in the impugned order while the classification of the alternators was settled under Chapter 85 falling under Section XVI, Section Notes of Chapter XVII have been examined in the context of the claim of the appellant for classification of the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or short the Act ) as claimed by them or under Chapter Heading 84.15 as contended by the Revenue? It is seen that both the sub-headings under dispute were falling under Chapter 84 coming under Section XVI of the Schedule and did not have the legal requirement of being subjected to the sole/principal use test as required by Note 3 of Section XVII. The Hon ble Court held: 15. End use to which the product is put to by itself cannot be determinative of the classification of the product. See Indian Aluminium Cables Ltd. vs. Union of India and Others, 1985 (3) SCC 284 / 1985 AIR 1201. There are a number of factors which have to be taken into consideration for determining the classification of a product. For the purposes of classification the relevant factors inter alia are statutory fiscal entry, the basic character, function and use of the goods. When a commodity falls within a tariff entry by virtue of the purpose for which it is put to, the end use to which the product is put to, cannot determine the classification of that product. 18. In the light of the above discussion the classification of alternators if it had been found to be manufactured by Unit I would fall u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the appellants claim for exemption under notification 214/86 dated 25/03/1986. He found that the appellant had not followed the job-work procedure as laid out in the notification. However, the appellant was of the view that the transactions were covered by delivery challans of Unit I and Unit II and hence substantial compliance and intended use is satisfied. We find that this is a procedural issue and in the light of our finding that no manufacture was involved a sympathetic view can be taken and the matter be laid to rest without having to go into the issue in-depth. 22. With respect to the other exemption notifications claimed by the appellant, we find that the same has not been discussed in the impugned order. Hence had the alternators been found to be excisable goods manufactured by Unit I, the claims of the appellants would require to be revisited by the proper officer in the light of the classification of the goods discussed above. 23. As regards para 6 (d) regarding, the value of alternators , it is seen that the appellant are amenable to the valuation of alternators, when captively consumed in Unit II, if arrived at as per Rule 8 of the Central Excise Valu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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