Westinghouse Saxby Farmer Ltd. Vs Commr. of Central Excise Calcutta (Supreme Court of India)
In the case on hand, the claim of the assessee was that the relays manufactured by them were part of the railway signaling equipment. But all the Authorities were of the unanimous view that this product is referable to goods of a specific description in Chapter subHeading 8536.90 and that, therefore, General Rule 3(a) will apply.
But in invoking General Rule 3(a), the Authorities have omitted to take note of 2 things. They are : (i) that as laid down by this Court in Commissioner of Central Excise Vs. Simplex Mills Co. Ltd1 the General Rules of Interpretation will come into play, as mandated in Rule 1 itself, only when no clear picture emerges from the terms of the Headings and the relevant section or chapter notes; and (ii) that in any case, Rule 3 of the General Rules can be invoked only when a particular good is classifiable under two or more Headings, either by application of Rule 2(b) or for any other reason. Once the authorities have concluded that by virtue of Note 2(f) of Section XVII, ‘relays’ manufactured by the appellant are not even classifiable under Chapter Heading 8608, we do not know how the Authorities could fall back upon Rule 3(a) of the General Rules. There is a fundamental fallacy in the reasoning of the Authorities, 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.
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 signaling 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 Authorities by relying upon Note 2(f) of Section XVII.
Though at first blush, Note 2(f) seems to apply to the case on hand, it may not, upon a deeper scrutiny.
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 signaling 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.
It is conceded by the Revenue that the relays manufactured by the appellant are used solely as part of the railway signaling/ 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.
The respondents ought not to have overlooked the ‘predominant use’ or ‘sole/principal use’ test acknowledged by the General Rules for the Interpretation of the Schedule.
As pointed out by the Commissioner (Appeals), the goods were previously classified (before 1993) under Subheading 8536.90, but a revised classification list, classifying them under subheading 8608, submitted by the appellant, was approved by the competent Authority on 27.08.1993. 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.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Aggrieved by the dismissal of their appeal by the Customs Excise and Service Tax Appellate Tribunal (for short “CESTAT”), the assessee has come up with the present appeal under Section 35 L(b) of the Central Excise Act, 1944.
2. We have heard Shri Kunal Chatterji, learned counsel for the appellant/assessee and Ms. Nisha Bagchi, learned standing counsel for the respondent.
3. The appellant is a company wholly owned by the State Government of West Bengal. It is engaged in the manufacture of “Relays” which is used as part of the Railway signaling system.
4. A ‘Relay’ is generally an electrically operated switch, used to control a circuit. They may also be used where several circuits must be controlled by one signal.
5. Though essentially relays are electrical equipment, they may also form part of Railway signaling equipment.
6. While the normal electrical relays fall under Tariff Item No. 8536.90, ‘Railways and Railways signaling equipment’ fall under No. 8608.
7. It appears that from 01.03.1986 till February1993, the effective rate of excise duty charged under both subheadings was 15% and hence the appellant had no problem with the classification of their goods under subheading No.8536.90. But with effect from 28.02.1993, the effective rate of excise duty for the goods under subheading No.8536.90 became much higher than the effective rate of duty for the goods under subheading 8608.
8. On 27.08.1993, the appellant submitted a classification list for the approval of the Assistant Collector, Central Excise. This list provided details of the products manufactured by the appellant as Railway signaling equipment, including relays and claimed that they should be classified under subheading 8608 and not under 8536 in the First Schedule to the Central Excise Tariff Act. Admittedly this classification list was approved by the competent authority.
9. On 23.04.1996 the Central Board of Excise and Customs issued a circular indicating that ‘plugin type relays’ merited classification under the Chapter Heading 85.36. Thereafter, the Assistant Commissioner of Central Excise issued nine different show causecumdemand notices calling upon the appellant to show cause as to why the goods should not be classified under the SubHeading 8536.90 and why the differential duty should not be collected together with the interest and penalty.
10. The appellant gave reply to the show cause notices, contending that what was manufactured by them was supplied only to Railways as part of the signaling equipment and that, therefore, the show cause notices required to be dropped.
11. However, the Assistant Commissioner passed 9 separate Ordersinoriginal on 20/21.12.2001 confirming the demand. The dates of the show cause notices, the period to which each one of them related to, the differential excise duty arrived at by the Adjudicating Authority and the penalty imposed by the Adjudicating Authority are provided in a tabular column for easy appreciation as follows:
