Case Law Details
Thermax Ltd Vs Commissioner of Central Excise (Supreme Court of India)
Conclusion: In present facts of the case, the Hon’ble Supreme Court after taking definition of the particular product in HSN, applying common parlance test, principal purpose test and end user test held that the product in dispute is Modified Vapour Absorption Chillers (MVAC) falling under heading 84.18 of the Schedule to the Central Excise Tariff Act, 1985 and not heat pumps.
Facts: The appeal was filed under Section 35L of the Central Excise Act, 1944 and the issue to be considered here is whether the product manufactured by the appellant is classifiable as heat pump under the heading 84.18 of the Schedule to the Central Excise Tariff Act, 1985. The question is important for the appellant because under notification 155/86-CE dated 1.3.1986, heat pumps falling under Chapter 8418, enjoyed a limited exemption from the levy of excise duty. The appellant herein have sold their manufactured product by describing them as heat pumps but the Revenue negated such description. On appeal by the assessee, the Commissioner of Central Excise (Appeals) however agreed with the manufacturer’s claim. But in the appeal by the Revenue, the Customs, Excise and Service Tax Appellate Tribunal has reversed the decision vide impugned order dated 22.1.2009, wherein it was observed that the product is not heat pump and therefore, ineligible for concessional rate of duty under Sl. No. 2 of Notification No. 155/86-CE dated 1.3.1986.
The Hon’ble Supreme Court after taking submissions of both sides into consideration have observed that the definition of a product given in the HSN should be given due weightage in the classification of a product for the purpose of levying excise duty. It was observed that as per definition of heat pump as given in the HSN, it is clearly discernible that the Modified Vapour Absorption Chillers (MVAC) manufactured by the appellant do not satisfy the definition of heat pump as given in the HSN. The heat pumps by utilizing energy, as per HSN becomes a source of more intense heat. However, since the final output of MVAC is cold/chilled water, the MVAC obviously does not fit into the given definition. The hot water, which is produced for generating chilled condition/ refrigeration, is only an incidental purpose of the MVAC and therefore classification of the appellant’s product as a heat pump on this basis, could not be termed as rational. Moreover, it cannot also be overlooked that customers do not purchase MVAC because it produces hot water and in commercial parlance the manufactured product of the appellant is known as a Vapour Absorption Chiller used for air conditioning and refrigeration and not at all for heating purpose.
Further, it was observed that when the market/common parlance test is applied for the manufactured product, the appellant in their website have identified Vapour Absorption Chillers and heat pumps separately. Significantly in the description of the product on the appellant’s website, Vapour Absorption Chillers do not mention about its heating capability. Likewise, heat pumps do not mention about the cooling function. This would suggest that the appellants do not themselves recognize the incidental hot water generating capacity of the Vapour Absorption Chillers, to treat it as a heat pump. If the Principal Purpose Test is applied for the machine manufactured by the appellant, it is quite apparent that the product MVAC is intended to produce chilled water. Moreover, even if the option of availing hot water is available, significantly, the production of chilled water never ceases, while the machine is operating. Therefore, the principal purpose of the machine is undoubtedly to produce chilled water. The end use of MVAC is to produce Chilled Water. The use of heat as one of the sources in the air-conditioning system would not take away the primary or basic function of the MVAC, which is to cool and not heat water. The additional heating capability of the machine thus raises a peculiar dilemma, but then one can be guided by the market parlance test which shows that the machine is perceived and purchased only as a cooling device. The conclusion therefore is inevitable that the MVAC machine must not be categorized as a Heat Pump. Consequently, it was declared that the product manufactured by the appellants merit classification under Sub-heading 8418.10 of the central excise Tariff Act, 1985, in the category of refrigerating equipment. The view of the CESTAT was affirmed and the appeals were dismissed.
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