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TMI Blog2025 (2) TMI 1052X X X X Extracts X X X X X X X X Extracts X X X X ..... rt Rail Technologies India Limited (Faiveley) and their domestic marketing partner M/s. Transloco Engineering Industries (Transloco). 2.2 As the goods are manufactured according to the specifications of the BLW, the Respondent classified the products under CSH 8607.99.90 of the erstwhile Central Excise Tariff Act, 1985 (CETA for short) and were discharging appropriate duty liability. Consequent to the issue of Exemption Notification No. 12/2016-CE dated 01.03.2016 which amended Notification No. 12/2012-CE dated 17.03.2012 reducing rate of duty on "All goods" under CH 8607 of CETA to 6% by insertion of Sl. No. 272A, the Respondent started discharging duty liability on the products @ 6% from 01.03.2016. 2.3 The DGGI, Coimbatore Zonal Unit conducted investigation into the Respondent unit with specific reference to the classification adopted by the Respondent for the goods manufactured and cleared to Railways. It appeared to the investigating team that in spite of the products being made for and supplied to Railways as per the design and specification given by the BLW, Varanasi, the products stood excluded from CH 8607 of CETA by virtue of Note 2(e) of Section XVII of the CETA and me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion shafts, clutches, differentials, etc.), but which are designed for use solely or principally with vehicles or aircraft (Section XVII), it should. however, be noted that this exclusion does not apply to internal parts of vehicle or aircraft engines these parts remain classified in this heading. Thus a crank shaft or a cam shaft remains in this heading even if it is specialised for a motor car engine, but motor car transmission (propeller) shafts, gear boxes and differentials fall in heading 87.08. (c) It should further be noted that transmission equipment of the type described in this heading remains classified here even if it is specially designed for ships" ii. The reliance placed by the Lower Appellate Authority on CBIC Order No.57/2/2000-CX dated 20.10.2000 that held Water tanks of Steel and aluminium to be fitted for railway coaches merit classification under Chapter Heading 86.07 of CETA as parts of coach work is also misplaced since the products supplied in this case were not water tanks. iii. The Hon'ble Supreme Court in the case of Intel Design Systems (India) Pvt. Ltd. [2008 (223) ELT 135 SC] held that switches, control boxes etc. tailor-made for armoured t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproduced below: - "36. What is recognized in Note 3 can be called the 'suitability for use test' or 'the user test. While the exclusion under Note 2(f) may be of goods which are capable of being marketed independently as electrical machinery or equipment. for use otherwise than in or as Railway signalling equipment, those parts which are suitable for use solely or principally with an article in Chapter 86 cannot be taken to a different Chapter as the same would negate the very object of group classification. This is made clear by Note 3. 37. It is conceded by the Revenue that the relays manufactured by the appellant are used solely as part of the railway signalling/traffic control equipment. Therefore, the invocation of Note 2(f) in Section XVII, overlooking the 'sole or principal user test' indicated in Note 3, is not justified" vii. In the case of Intel Design Systems (India) Pvt. Ltd. [2008 (223) ELT 135 SC] the apex court held that switches, control boxes etc, tailor-made for armoured tanks are classifiable under 8536 and not under 8710, even though they are used specifically, solely or principally with the armoured vehicles of chapter heading 8710. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, namely, Note 2 and Note 4 have to be read harmoniously. If we accept the submission of the learned counsel for the assessee predicated on Note 2, then Note 4 even after its conscious inclusion, would be rendered otiose which cannot be countenanced. Therefore. Note 2, when seen along with Note 4, has to govern itself in limited territory". Also, in the case of British Airways PLC [2002 (139) ELT 6 SC], the Hon'ble Supreme Court ruled as follows: - It is a cardinal principle of construction of a statute that effort should be made in construing the different provisions so that each provision will have its play and in the event of any conflict a harmonious construction should be given. The well-known principle of harmonious construction is that effect shall be given to all the provisions and for that any provision of the statute should be construed with reference to the other provisions so as to make it workable. A particular provision cannot be picked up and interpreted to defeat another provision made in that behalf under the statute". x. In view of the above, the interpretation made by the Hon'ble Supreme Court in the Westinghouse Saxby case does not appear to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central Excise Tariff in the Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terms has a different purpose and, therefore, the specific purpose of tariff classification for which the internationally accepted nomenclature in HSN has been adopted, for enacting the Central Excise Tariff Act, 1985, must be preferred". xiii. The HSN Explanatory Notes regarding classification of "Parts and Accessories" under XVII is extracted below: - "It should, however, be noted that these headings apply only to those parts or accessories which comply with all three of the following conditions: (a) They must not be excluded by the terms of Note 2 to this Section [see paragraph (A) below] (b) They must be suitable for use solely or principally with the articles of Chapters 84 to 88 [see paragraph (B) below) (c) They must not be more specifically included elsewhere in the Nomenclature [see paragraph (C) below]" xiv. The findings of the Lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow, has specific entries for these seats. "9401 Seats (Other than those of heading 9402), whether or not convertible into beds, and parts thereof 9401 10 00 - Seats of a kind used for aircraft 9401 20 00 - Seats of a kind used for motor vehicles" III) To conclude with another example, it is well known that 'head lights' of motor cars with dip/dim options, side lights, taillights, blinking lights, horns and windscreen wipers are tailor-made for use in motor cars. But such 'sole or principal use' does not seem to matter since the Tariff has a specific heading for those under Chapter 85. "8512 Electrical lighting or signalling equipment (excluding articles of heading 8539), windscreen wipers, defrosters and demisters, of a kind used for cycles or motor vehicles 8512 10 00 - Lighting or visual signalling equipment of a kind used on bicycles 8512 20 00 - Other lighting or visual signalling equipment 8512 20 10 -- Head lamps, tail lamps, stop lamps, side lamps and blinkers 8512 20 20 --- Other automobile lighting equipment 8512 20 90 --- Other 8512 30 --- Sound signalling equipment 8512 30 10 --- Horns 8512 30 90 --- Other 8512 40 00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertains to a matter under the Central Excise Tariff Act in the year 1994 when the Central Excise Tariff and the Customs Tariff were not aligned. xx. The Instruction No. 01/2022- Customs dated 05.01.2022 regarding the 'parts' to be classified under a specific heading of the First Schedule of the Customs Tariff Act, 1975, suggests to consider all the relevant aspects including HS Explanatory Notes, the relevant Section and Chapter notes and the various decisions of Hon'ble Supreme Court in order to arrive at an appropriate classification based on all facts and details of individual cases. Two judgments of the Hon'ble Apex Court (discussed above), were quoted in the Instruction No. 01/2022-Customs, dated 05.01.2022 to highlight the earlier interpretation of the Supreme Court when dealing with the classification of parts. These judgements have already taken a stand on giving prominence to the exclusions in Note 2 of the Section XVII over the Note 3 of the same Section. 4. During the hearing before the Tribunal, Shri M. Karthikeyan, the Ld. Advocate, representing the respondent, has at the outset, informed the Bench that on the same issue, the Tribunal Chen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion adopted by the respondent under CH 8607 chiefly relying on the relevant Section Notes and Rules for Interpretation of Tariff as is evident from the findings recorded in Paras 9.2 to 9.14 of the impugned Order. We therefore do not agree that the Lower Appellate Authority upheld classification under CH 8607 by merely relying on Board's Circulars dated 09.07.1990 and 20.10.2000 and the Supreme Court judgment in the case of M/s. Westinghouse Saxby Farmer Ltd. [2021 (376) ELT 14 (SC)]. 7.2 In Para 5 of Board's Circular dated 09.07.1990, it is conveyed that transmission elements, when specifically designed for use with vehicles of Section XVII of the CETA, 1985, would merit classification appropriately either under C11 8607 or 8708 or 8714. As the instruction therein covered not only CH 8708 but also CH 8607 which applied inter alia to parts of Railway Locomotives, the Lower Appellate Authority cannot be faulted for following the Circular. 7.3 We find that Section 37B Order issued earlier on 01.09.1993 instructing classification of Steel/Aluminium Water Tanks for supply to Railways either under Chapter 73 or Chapter 76 of the CETA, 1985 was withdrawn consequent to the Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, we affirm that the ratio of the aforesaid judgment of the Hon'ble Supreme Court in M/s. Westinghouse Saxby Farmer Ltd. case would apply squarely to the facts of this case. 7.6 The Applicant has averred that the Lower Appellate Authority has ignored the findings recorded in paras 18.1 and 18.2 of the Original-in-Original that the products were standalone devices and found usage across industrial sectors. We have perused the Original-in-Original and we find that no such findings have been recorded by the Adjudicating Authority. We also notice that the sole reason which weighed with the Adjudicating Authority in not accepting the classification under CH 8607 was that since each of the products had specific headings in the CETA, classification under CH 8607 is inappropriate in view of Note 2. However, in terms of the ratio laid done by the Hon'ble Supreme Court in the above case as to the predominant use/sole or principal use test for purpose of classification under Chapter 86, the items are not hit by exclusion clause Note 2 to Section XVII in view of specific inclusion under Note 3. The Lower Adjudicating Authority was therefore correct in following the Judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and held that: - "26. A conjoint reading of the Notes, referred to above, would show that the expression "parts of general use" throughout the Schedule, means, inter alia, articles of Heading No. 73.18 and similar articles of other base metal, and the expression part and accessories in Chapter Heading 87.08 does not apply to parts or accessories which are not suitable for use solely or primarily with articles of Chapter Heading 87.08 which pertains to parts and accessories of motor vehicles of Chapter Heading Nos. 87.01 to 87.05. For the purposes of classification under Chapter Heading 87.08, the test to be applied is: whether the goods are suitable for use solely or primarily with articles of Chapter Heading Nos. 87.01 to 87.05; if the answer is in the affirmative, the goods will be classifiable under Chapter Heading 87.08, but if the answer is in the negative, they would have to be classified under Chapter Heading No. 73.18. Having regard to the finding that the goods in question cannot but be regarded as parts of automobiles, it has to be held that they are suitable for use primarily with articles of Chapter Heading Nos. 87.01 to 87.05. It follows that the goods in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssories which are not suitable for use solely or primarily with articles of Chapter Heading 87.08 which pertains to parts and accessories of motor vehicles of Chapter Headings 87.01 to 87.05. The Court was also categorical that in such a case the test that is to be applied is: 'whether the goods are suitable for use solely or primarily with articles of Chapter Headings 87.01 to 87.05'. It is strange even when the judgment was specifically brought to the notice of the Tribunal and is taken note of, but the same was not dealt with by the Tribunal in the impugned judgment at all. 7. We are of the opinion that the aforesaid judgment clinches the issue in favour of the appellant/assessee herein. Accordingly, the impugned judgment of the Tribunal is set aside and this appeal is allowed with no order as to costs." 7.9 We have no doubt whatsoever that the ratio of these two judgements fully supports the Respondent's case. 7.10 We also note that in the case of M/s. Vikas Automatic Fasteners Pvt. Ltd. [2005 (190) ELT 90 (Tri.-Mumbai)], a question arose as to whether items like spring lock washer, spring washer, plow bolt, rigid tine carrier and bolt hex designed to speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ELT 656] and [2002 (139) ELT 6]. It is seen that in the case of M/s Star Industries, the issue arising for decision was whether benefit of an exemption notification available to 'Ores" could be extended to 'Ore Concentrate when Ore underwent the process of roasting to become Ore Concentrate. On the face of it, the ratio therein has no application to this case. Likewise in the case of M/s. British Airways PLC, the issue was whether the Aircraft Carrier could absolve himself of liability for shortages while offloading claiming that he was not the person in charge. The issue being totally unconnected has no application to this case. 7.13 There is absolutely no quarrel with the proposition that classification is to be decided in terms of the relevant Section and Chapter Notes. Even a cursory reading of the judgement in M/s Westinghouse case would show that the decision was rendered keeping in view Note 3 to Section XVII of the CETA, 1985 terming application of Note 2(f) overlooking sole/principle use criterion and the sole/principal use test acknowledged by the Rules for Tariff Interpretation as incorrect. 7.14 In Para 16 of the Appeal Memo reference is made to SC judgem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether Note 2(e) of Section XVII would hinder classification under CH 8607 when an independent Note 3 mandates classification based on sole or principal use. There was never a doubt in the minds of the department at any point of time as to the use of the products solely and exclusively by Railways. In fact, we noticed that there is a clear admission in Para 6 of the Order-in-Original dated 29.04.2022 under the caption "Summary" that '(ii) the goods supplied by the Noticee are for the usage in HHP Locomotive as per the vendor directory of DLW, Varanasi, However, the dispute is about the classification as per the CETA 1985'. The Respondent during investigation submitted enough proof to prove that the products are manufactured and supplied to Indian Railways based on the drawings and specifications of Indian Railways and they are properties of Indian Railways who have exclusive proprietary interest over them. Therefore, the question of either use of the products elsewhere or their generic use cannot be raised at this point of time. Besides, being a classification issue, if the Applicant is of the view as said, the burden of proof is on the Department to adduce evidence to nega ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent; and if the department wanted any further clarification, it was always open to them. Inviting attention to Sub rule 3 of Rule 12 of erstwhile Central Excise Rule, 2002 which empowered the proper officer to conduct such further enquiry as he deemed necessary while scrutinizing the correctness of assessment done by the assesee, it was argued that scrutiny of returns was not for arithmetical accuracy alone as the proper officer was duty bound to ensure that the assessment done by the assesee was correct in all respects including classification, eligibility to exemption and whether had there been improper availing of Cenvat Credit for duty payment. We observe that as rightly argued by the respondent, when such a statutory obligation is cast on the officer, it is unfair to say that there was deliberate misclassification especially when the respondent did not withhold any information or details from the knowledge of the department and made true and complete disclosure of facts required under law. To put it precisely, having kept quiet accepting the description as given in the returns filed prior to availing the notification, it is not open to the department to say that misclassi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir use, decisions of the Tribunal and the judgments of the Hon'ble Supreme Court rendered under identical circumstances favouring the classification done by the Respondent, there is no basis to even remotely charge the respondent with intention or evasion of duty. 10. It also needs to be noted that even in the Customs advisory contained in Instruction No. 01/2022-Customs dated 05.01.2022 to which a reference is made in Para 26 of the appeal memo, in Para 3 the Board says that "In the context of the divergent practises arisen, it is noted that the classification of 'parts' of goods falling under Section XVII of the Customs or Central Excise Tariff is a complex issue." Thus, the factum of admission in Board's circular that the classification of parts is a complex issue confirms the view that the issue is not free from doubt. Therefore, we have no hesitation to hold that the demand raised invoking extended period of limitation under Section 11(4) CEA, 1944 is wholly without any basis. 11. It is argued that the SC judgement in M/s. Westinghouse Saxby case does not refer to its wider applicability to any other case or issue of similar nature. In essence it amounts to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assification both for the Central Excise Tariff Act, 1985 (which came into force from 01.03.1996) and the Custom Tariff Act. There is no difference or variation in the relevant Section/Chapter Notes and Tariff Entries between the two statutes. The Applicant has also not pointed out as to what extent the Entries in the statutes vary. Therefore, this contention has no force. 13. We are unable to fathom the rationale behind bringing into aid the instruction contained in the Customs Circular dated 05.01.2022 as it is in the form of an advisory to the formations below and it has no statutory force. Para 9 of the Circular mentions that review petition has been filed against the Supreme Court Judgment in the case of M/s. Westinghouse Saxby. The applicant may not be unaware of the fact that the review petition filed by the Department stood dismissed both on merits and on limitation. As a result, the issue regarding classification of the products meant for exclusive use for Railway Locomotive has attained finality. In Para 10 of the Circular, the formations are advised to take all relevant aspects including HSN Notes, relevant Section and Chapter Notes and various decisions of Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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