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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 ..... elevant Section Notes and Rules for Interpretation of Tariff as well as judgments of the Hon'ble Supreme Court and decision of the Tribunal in identical cases. Therefore, the Lower Appellate Authority did not commit any error in falling back upon Board's Circular dated 20.10.2000. In the case of M/s. G.S. Auto International Ltd. [2003 (1) TMI 700 - SUPREME COURT], a question arose as to whether items such as Sprint Centre Bolts with Nuts, Spring U Bolt with Nuts, Spring U Clamps with nuts and plates, Spring Shackle Pin (Shackel Bolt) with Nuts and Spring Shackle Pin (Spring Pin) specifically designed for use in automobile vehicles merited classification as parts of general use under CH 73.08 or as parts and accessories of motor vehicles under CH 87.08. CETA 1985 is enacted on the basis and pattern of the HSN. For resolving any dispute with reference to classification, reference to HSN is needed. However, when Section or Chapter Notes are clear and unambiguous, resorting to HSN Notes is not required. The principles governing classification are given in the General Rules of the Interpretation of Tariff. As per Rule 1 of the said General Rules, the classification is to be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department assailing the Order-in-Appeal No. 07/2023 dated 27.02.2023 passed by the Commissioner of GST & Central Excise (Appeals), Coimbatore. 2.1 Brief facts are that M/s. Craftsman Automation Ltd. (Unit-3) (hereinafter referred to as 'Respondent') are engaged in the manufacture of various goods such as Fuel Filter assembly, Water Pump Assembly, Cylinder Head Sub-Assembly and Cylinder liner stud Assembly which are sub-assemblies and components of High Horse Power locomotives for Railways. The Respondent supplies these products to Diesel Locomotive Works, Varanasi (now renamed as Banaras Locomotive Works-BLW) through M/s. Faiveley Transport 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; and 'parts and accessories' do not apply to the following articles, whether or not they are identifiable as for the goods of this Section: (e) machines or apparatus of headings 8401 to 8479, or parts thereof, articles of heading 8481 or 8482 or, provided they constitute Integral parts of engines or motors, articles of 8483". The meaning of this Note is that if "gears, gear trains, gear boxes" are integral part of engines or motors, then they are to be classified under 8483. The HSN Notes for 84.83 read as follows: - "The heading also excludes: (a) .... (b) Transmission equipment of the kinds described above (gear boxes, transmission 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 tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r-made for railways should not be classified under 8537 but under 8608 as part of railway signalling system. In coming to this conclusion, the court relied heavily on Note 3 to Section XVII which reads: - "References in Chapters 86 to 88 to 'parts' or 'accessories' do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters. A part or accessory which answers to a description in two or more or the headings of those Chapters is to be classified under that heading which corresponds to the principal use of that part or accessory". The court's finding is reproduced 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling chapter 86 will merit classification under chapter 86, since such an interpretation amounts to rendering the explicit exclusion specified in Note 2(f) of Section XVII redundant or otiose. It may be profitably noted that, in a similar situation involving apparent overlapping of Chapter / Section Notes, the Hon'ble Supreme Court in the case of Star Industries [2015 (324) ELT 656 SC] advised against an interpretation that would render a Chapter Note otiose. Hon'ble Apex court observed: "As per this note, metals of Section XV would be included in the term 'ores'. However, after the insertion of Chapter Note 4, these two Notes, 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... THER OR NOT they are identifiable as for the goods of this Section [Vehicles]. xii. The significance and weightage enjoyed by HSN Notes was expounded by the Hon'ble Supreme Court in the case of Wood Craft Products Ltd [1995 (77) ELT 23] as follows: - "12. It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central Excise Tariffs are based on the HSN and the internationally accepted nomenclature was taken into account to 'reduce disputes on account of tariff classification'. Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpression-ignition internal combustion piston engines (diesel or semi-diesel engines) 8408 20 - Engines of a kind used for propulsion of vehicles of Chapter 87: 8408 20 10 --- Of a cylinder capacity not exceeding 250cc 8408 20 20 --- Engines of cylinder capacity exceeding 250cc" II) Similarly, it is common knowledge that car seats are designed to fit into specific models of cars and are not bought/sold in the open market by other users. Going by the logic of the Order-in-Appeal, these car seats are to be classifiable as parts of cars under heading 8708 of the Tariff. Yet, it is seen that heading 9401 of the Tariff, reproduced below, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted by the officers of DGGI, it came to the light that the goods under dispute would not fall under 86079990 and they were misclassified. xix. Article 141 of the constitution provides that the law declared by the Supreme Court shall be binding on all courts within the territory of India. The judgment in case of M/s. Westinghouse Saxby has decided the classification of the commodity 'relays' used in railway signalling equipment of Chapter 86 and not parts of goods falling under Chapter 87. The judgment itself does not refer to its wider applicability to any other case or issue of a similar nature. Also, this judgment 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 cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the respondent that all points raised in the Application had been duly answered and taken care of both by the respondent in the reply to the SCN/Appeal Memorandum and the Lower Appellate Authority in the impugned order. We therefore feel that it would be in the fitness of things if a decision is rendered considering the points raised in the Application instead of merely following the earlier decision in the case of M/s. Shakthi Tech Manufacturing India Pvt. Ltd. 7. We now proceed to discuss the points raised in the Application and record our observations. 7.1 It is noticed that the Lower Appellate Authority has accepted the classification 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Notes 2(f) and 2(e) overlooking Note 3 (sole or principal user test) is incorrect. iv. The Department should not have overlooked the "predominant use" or "sole/principal use" test acknowledged by the General Rules for interpretation of the Schedule. 7.5 In this case, it is an admitted fact that the products sought to be reclassified are engine parts as against signalling equipment in the other case but in both the cases, it remains an undisputed fact that they are designed and solely for use in Railways / Railway Locomotives. It is never the case of the Department that the subject goods have any independent marketability. Therefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch as Sprint Centre Bolts with Nuts, Spring U Bolt with Nuts, Spring U Clamps with nuts and plates, Spring Shackle Pin (Shackel Bolt) with Nuts and Spring Shackle Pin (Spring Pin) specifically designed for use in automobile vehicles merited classification as parts of general use under CH 73.08 or as parts and accessories of motor vehicles under CH 87.08. The Hon'ble Supreme Court, after taking note of Note 2(b) of Section XVII which excludes parts of general use of base metal from Section XVII and Note 3 which specifically includes parts or accessories suitable for use solely or principally with Articles of Chapters 86 to 88, observed 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or specific purpose viz. in the motor vehicles that too for specific model of the motor vehicles as its parts. 6. We also find that the issue is squarely covered by the judgment of this Court in the case of G.S.Auto International Limited vs. CC Excise, Chandigarh[2003(2) SCC 371]. In the said judgment, following the earlier decisions of this Court, the Court specifically held that to determine the applicability of the item under particular head, the test of commercial identity of the goods would be the relevant test and not the functional test. It was also held that the expression "parts of general use" would 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Westinghouse Saxby Farmer Ltd is directly on the issue, much later in point of time to the other two decisions and by a Bench consisting of three Judges. As per settled position of law, the ratio of this judgment would take precedence over the other two judgments relied by the appellant. We take note of the fact that the Review Petition filed by the Department against this decision has been dismissed by the Hon'ble Apex Court as reported in [2022 (382) Ε.LΤ. 292 (S.C.)] 7.12 In para 14 of the appeal memo, we find a reference to Supreme Court Judgements in the case of M/s Star Industries and M/s. British Airways PLC [2015 (324) 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sification is decided as interpreted by the Department. 7.16 We observe that the Applicant contests the findings of the Lower Appellate Authority that the products are rightly classifiable in CH 8607 in view of sole and exclusive use in Railways by saying that it does not mean these goods could not be used elsewhere or put to generic use thereby getting excluded from Section XVII by virtue of Note 2(e) and further sole or principal use test could not be a ground to circumvent Note 2(e). It is clear from the records that the only issue arising for decision in this case was in view of the exclusive use of the products for Railway Locomotive whether 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16-CE dated 01.03.2016. 9.1 We now turn to the issue of limitation. It is said that the respondent had declared the products under Chapter Heading 8607 with general description as "Parts of Railway Locomotive" in the ERI Returns and such a brief caption helped in misclassifying the products. It is also said that only after detailed investigation by DGGI, misclassification came to light. 9.2 The Respondent has countered this charge saying that: only the general description of the products is given in the returns filed; the invoices issued give the exact description of the product with a product code; both were in the knowledge of the Department; 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 classific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to avail the benefit of exemption in spite of the fact that in the ER I returns filed by the assessee the Sl. No of the exemption notification was clearly mentioned. The Bench held that, in the absence of any positive act on the part of the assessee to deliberately adopt the classification, the mere fact of wrong classification or availing of benefit of notification could not lead to the conclusion that there was suppression or misstatement to justify invoking the extended period. 9.4 Apart from the above, we also rightly feel that when there are circulars of the Board clarifying classification of products depending on the suitability of their 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for classification; CH 8607 being specific to parts of Railway Locomotive; Rule 3(a) of the General Rules for Tariff Interpretation mandating preference of specific entry to general entry, and Railway Locomotive Parts not finding mention or entry in any other chapter, classification affirmed by the learned appellate authority under CH 8607 is appropriate and cannot be faulted. 12. There is an argument that the judgment in M/s. Westinghouse Saxby case pertained to a matter under Central Excise Tariff Act in the Year 1994 when the Central excise Tariff and Customs Tariff were not aligned. We observe that HSN was adopted for purpose of classification 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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