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TMI Blog2009 (1) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. In Appeal No. E/819/2000, the issue involved is whether the value of Lithium bromide is includible in the assessable value of MVACs and whether benefit of abatement under Section 4(4)(d)(ii) of the Central Excise Act, 1944 is available to it. 3. Facts of the case in brief are that the respondent, M/s. Thermax Ltd. is engaged in the manufacture of various machinery including Vapour Absorption Machines falling under Chapter 84 of the Central Excise Act, 1985. 3.1 Based on an intelligence received by the Deptt. that the assessee was clearing Vapour Absorption machines in the guise of heat pumps and thus evading payment of appropriate amount of Central Excise duty, records, such as, invoices, purchase orders, etc. of heat pumps for the past periods were obtained by the Officers under summons. Scrutiny of the said records showed that Vapour Absorption machines were declared to the Deptt. as heat pumps. Investigations carried out revealed that all the Vapour Absorption machines cleared by it have been used as parts of air-conditioning or refrigeration machinery by the customers. These were used for production of chilled water used in the refrigeration machinery or in the Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 8418.90 of the Central Excise Tariff at the appropriate rate of duty. Accordingly, he confirmed the differential duty of Rs. 11,99,36,826/- arisen out of classification dispute. He, however, dropped the rest of the demand relating to inclusion of value of lower and accessories and lithium bromide in the assessable value of MVACs. 3.7 Against the above order of the Asstt. Commissioner, both the assessee and the Deptt. filed appeals before the Commissioner (Appeals), Central Excise and Customs, Pune. The appeal of the assessee was against the order of classification of MVAC (called as heat pump by the assessee), while that of the Deptt. was against the order of valuation of MVAC relating to inclusion of value of lower end accessories and lithium bromide in the assessable value of MVAC and grant of benefit of abetment under Section 4(4)(d)(ii) of the Central Excise Act, 1944. 3.8 The Commissioner (Appeals) allowed the appeal of the assessee vide Order-in-Appeal No. PII/NK/105/99 dated 30-9-1999 holding that the MVAC manufactured and cleared by it is an equipment/device itself and not a part of machinery or equipment or system as held by the adjudicating authority. He held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or process cooling. (iii) In their statements, the officials of the assessee have also admitted that the disputed product is used as a part of refrigeration/air-conditioning machinery which is used for industrial cooling purpose. (iv) No customer has ever specifically ordered for this product for using in heating mode. (v) The modified vapour absorption chiller is capable of producing chilled water or chilled water plus hot water. (vi) The disputed product has been tested for its performance only in cooling mode. Its heating capability is only supplementary or incidental in nature. (vii) Earlier the assessee was classifying the vapour absorption chillers as parts/components of refrigerating/air-conditioning machinery and paid duty accordingly 5.1 On the question of inclusion of value of lithium bromide, he submitted that as per contracts with its customers, the assessee is also supplying lithium bromide as an absorbent along with MVAC. Lithium bromide is a bought out item. Before clearance, each MVAC is tested for satisfactory function of the absorbent i.e. Lithium bromide. After testing, about 3/4th of lithium bromide remains inside the MVAC as it cannot be drained out fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment of the Hon'ble Apex Court in the case of CCE v. ACER India Ltd. - 2004 (172) E.L.T. 289 (S.C.) and the Tribunal's decision in the case of Bharat Heavy Electricals Ltd. v CCE - 2000 (119) E.L.T. 350 (T) and submitted that vapour absorption heat pump and lithium bromide are completely distinct and separate items and hence the value of lithium bromide cannot be added to the assessable value of vapour absorption heat pump. 7. We have considered the rival submissions. Appeal Nos. E/1482/2000 and E/1731/2000 8. We have already set out the issues involved in the appeals in the beginning of this order. We may first take up the Appeal Nos. E/1482/2000 and E/1731/2000. Common issue involved in these two appeals is whether Modified Vapour Absorption Chillers (MVACs) are parts of refrigeration/air-conditioning machinery falling under sub-heading 8418.90 as contended by the revenue or Vapour Absorption Heat Pumps falling under Heading 8418/8418.10 as contended by the assessee. 9. At this stage, we may see the relevant entry of Chapter Heading 84.18 of the Central Excise Tariff Act, 1985 which reads as follows: 8418 Refrigerators, freezers and other refrigerating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the heating mode only. They have also stated that the customers have used the MVACs to produce chilled water at controlled temperature and this chilled water is used to cool the air in the air handling unit of the Central Air-conditioning machinery or to cool the process fluid by the chilled water. Modified Vapour Absorption Chiller has been used as a component in the refrigeration/air-conditioning machinery. They have also stated that in cooling mode, the modified vapour absorption chillers providing simultaneous heating and cooling are used in air-conditioning machinery or in industrial process cooling as a component/part of the central air-conditioning machinery or as a component/part of a refrigeration machinery. These statements have not been retracted at any stage of the proceedings. It was also emphasized that MVACs are designed and manufactured as parts of refrigeration machinery/plant. It forms an integral part of refrigeration/air-conditioning plant. Therefore, MVAC is appropriately classifiable under sub-heading 8418.90 as part of refrigerating/air-conditioning machinery. 13. Ld. Counsel for the assessee contended that the heat pump is a complete machine in all respects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion) by Shri C.P. Arora, while dealing with Heat Engine, Heat Pump and Refrigerating Machine at page 72, the author, inter alia, says that as for the heat pump, there is no difference in the cycle of operation between a refrigerating machine and a heat pump. While dealing with the manner of their application, the author says that the same machine can be used either for cooling or for heating. When used for cooling, it is called a refrigerating machine and when used for heating, it is called a heat pump. Thus it is clear that the manner and the purpose of use of heat pump determines its classification either as a heat pump or as a refrigerating machine. 17. Ld. Counsel for the assessee submitted that end-use of the product is not the criterion for determination of classification of MVAC. This submission has no force in view of the HSN Explanatory Notes as reproduced herein above. This apart, in the case of O.K. Play (India) Ltd. v. CCE, Delhi-III - 2005 (180) E.L.T. 300 (S.C.), in para 8 of the judgment, the Hon'ble Apex Court has observed that "the scheme of the Central Excise Tariff is based on Harmonized System of Nomenclature (for short "HSN") and the explanatory notes thereto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne purpose is, for the purposes of classification, to be treated as if its principal purpose were its sole purpose". 21. We have already seen from the Book entitled "Refrigeration and Airconditioning" (Second Edition) by Shri C.P. Arora that there is no difference in the cycle of operation between a refrigerating machine and a heat pump and that the same machine can be used either for cooling or for heating. When used for cooling, it is called a refrigerating machine and when used for heating, it is called a heat pump. Therefore, it is clear that the classification of MVAC will depend upon how it is used. 22. Learned Counsel for the assessee then relied upon the decision of the Tribunal in the case of CC & CE, Mumbai v. Voltas Ltd. - 2005 (180) E.L.T. 57 (T) and submitted that the present case is squarely covered by this decision. He laid emphasis on para 5 of the decision which, inter alia, says that a heat pump is provided with a generator, condenser and evaporator and is capable of producing chilled water as well as hot water. He said that the vapour absorption heat pump manufactured by the assessee is identical to that manufactured by M/s. Voltas. 23. We have perused the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence benefit of the notifications applicable to heat pumps during the relevant period will not be available to the assessee. 26. We have now to see whether these MVACs can be treated as parts or components of refrigeration/air-conditioning machinery as claimed by the revenue or otherwise. We find that in a somewhat similar situation in the case of Carrier Aircon Ltd. - 2001 (128) E.L.T. 485, the Tribunal was dealing with the classification of Chillers - whether under Heading 84.18 as claimed by the assessee or under Heading 84.15 as parts of air-conditioning system as contended by the Revenue. The Tribunal held that end-use of "Chillers" in the air-conditioning system would not take away the primary or basic function of the chillers which is to produce chilled water by using a refrigeration circuit and the same shall fall under Chapter Heading 84.18 of the Central Excise Tariff Act. This decision of the Tribunal has been upheld by the Hon'ble Apex Court as reported in 2006 (199) E.L.T. 577 (S.C.). The Hon'ble Apex Court found that the main function of the air-conditioning system is to control temperature, which is not done by a chiller. The function of the, chiller is only to ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that lithium bromide is sold along with MVAC. It is absolutely essential for working of MVAC inasmuch as it must contain lithium bromide as absorbent to make it function. Hence its value should form part of the assessable value of MVAC. In support of this contention, Shri Mondal, ld. Consultant for the revenue has relied upon various decisions of the Hon'ble Tribunal and the Hon'ble High Court. However, Shri Sridharan, ld. Counsel for the assessee has contended that lithium bromide, besides being a bought out item, is completely distinct and different from MVAC and hence its value cannot be added to the assessable value of MVAC. He has relied upon the decision of the' Hon'ble Apex Court in the case of CCE v. ACER India Ltd. - 2004 (172) E.L.T. 289 (S.C.) in this regard. 32. We have considered the submissions of both the sides. We find that lithium bromide is a bought out item. Though it is essential for operation of MVAC, it cannot be said to be a part or component of MVAC. It is quite distinct and different from MVAC. We find that the decision of the Hon'ble Apex Court in the case of CCE v. ACER India Ltd. cited supra by the ld. Counsel for the assessee is more apt and appropria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty as applicable to heat pumps under various notifications, such as, Notification No. 155/86-C.E., Notification No. 54/93-C.E., etc. In the case of Srichakra Tyres Ltd., there was no exemption notification involved. In view of this, Larger Bench decision in Srichakra Tyres Ltd. is not relevant for the present purpose. In the facts of this case, the Apex Court decision in Amrit Agro Industries Ltd. is more appropriate. Para 14 of this judgment which is relevant is reproduced below: "14. In our view, the above judgments in the case of Maruti Uyog Ltd. and Srichakra Tyres Ltd. have no application in the facts of the present case. In the case of Asstt. Collector of Central Excise v. Bata India Ltd. reported in 1996 (84) E.L.T. 164 this Court held that under section 4(4)(d)(ii) of Central Excises and Salt Act, 1944 the normal wholesale price is the cum-duty price which the wholeseller has to pay to the manufacturer-assessee. The cost of production, estimated profit and taxes on manufacture and sale of goods are usually included in the wholesale price. Because the wholesale price is usually the cum-duty price, the above section 4(4)(d)(ii) lays down that the "value" will not include dut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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