1998 (2) TMI 607 - AT - Central Excise

Tribunal Upholds Classification of 'Chassis with Cowl' under 8706.40, Rejects Department's Appeal

MAHINDRA & MAHINDRA LTD. Versus COLLECTOR OF C. EX., BOMBAY

The Tribunal upheld the classification of 'Chassis with Cowl' under sub-heading 8706.40, rejecting the department's appeal and accepting the assessee's ... - Issues Involved:1. Classification of 'Chassis with Cowl' under the Central Excise Tariff.2. Application of Rule 9(2) and Section 11A of the Central Excise Act, 1944.3. Admissibility of technical evidence and expert opinions.4. Allegations of suppression of facts and intent to evade duty.5. Predominant use and interpretative rules for classification.Issue-wise Detailed Analysis:1. Classification of 'Chassis with Cowl' under the Central Excise Tariff:The primary issue was whether the product 'Chassis with Cowl' should be classified under sub-heading 8706.40 (chassis fitted with engine for vehicles for the transport of goods) or sub-heading 8706.30 (chassis fitted with engine for vehicles principally designed for the transport of persons). The department initially classified the product under sub-heading 8706.30, attracting a higher duty rate of 35% ad valorem, arguing that the chassis were used for passenger vehicles. However, the assessee contended that the chassis were designed for goods transport and should be classified under sub-heading 8706.40, attracting a duty rate of 20% ad valorem. The Tribunal found that the chassis were predominantly used for goods transport (54% of total production) and accepted the assessee's classification under 8706.40, applying Interpretative Rule 3(c) which states that when goods cannot be classified by reference to specific or essential character, they should be classified under the heading which occurs last in numerical order.2. Application of Rule 9(2) and Section 11A of the Central Excise Act, 1944:The department invoked Rule 9(2) and Section 11A, alleging suppression of facts with intent to evade duty. The assessee argued that these provisions could not be invoked as the goods were cleared after due approval of the classification list and price list, and there was no clandestine removal. The Tribunal agreed with the assessee, noting that the classification list was approved after due enquiry, and there was no evidence of deliberate suppression or intent to evade duty. The Tribunal also referenced Supreme Court rulings in Sanjana's case and J.K. Steel Ltd. case to support this conclusion.3. Admissibility of technical evidence and expert opinions:The Tribunal considered various technical opinions and expert reports, including those from the Automotive Research Association of India (ARAI), Vehicle Research and Development Establishment (VRDE), and Victoria Jubilee Technical Institute (VJTI). These reports indicated that the chassis design was suitable for both goods and passenger vehicles and that progressive springs and shock absorbers were used in both types of vehicles. The Tribunal found that the technical evidence supported the assessee's claim that the chassis were not principally designed for passenger transport. The Tribunal also noted that the department did not produce any counter-evidence to challenge the technical opinions.4. Allegations of suppression of facts and intent to evade duty:The department alleged that the assessee had prior knowledge of the end-use of the chassis for passenger vehicles and suppressed this fact to evade duty. The Tribunal found that while there was some knowledge of the end-use, this did not constitute suppression with intent to evade duty. The design changes were made before the new tariff was introduced, and there was no evidence of deliberate intent to evade duty. The Tribunal also noted that the department had full knowledge of the use of the chassis for passenger vehicles, as evidenced by correspondence and approvals from the department.5. Predominant use and interpretative rules for classification:The Tribunal applied Interpretative Rule 3(c) to classify the chassis under sub-heading 8706.40, noting that the predominant use was for goods transport. The Tribunal also referenced the judgment in Customs and Excise Commissioners v. Mechanical Services Ltd., which supports the application of Interpretative Rule 3(c) when goods are capable of multiple uses. The Tribunal concluded that the predominant use and technical evidence supported the classification under sub-heading 8706.40.Conclusion:The Tribunal upheld the classification of 'Chassis with Cowl' under sub-heading 8706.40, rejected the department's appeal, and accepted the assessee's appeal. The Tribunal found that the department did not provide sufficient evidence to support the classification under sub-heading 8706.30 and that the assessee's classification was supported by technical evidence and predominant use. The Tribunal also found no grounds for invoking Rule 9(2) or Section 11A, as there was no suppression of facts or intent to evade duty.