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of <h1>Par boiling machinery classified under heading 84.19 instead of 84.37 based on function-specific classification principles</h1> CESTAT Chandigarh classified par boiling machinery under chapter heading 84.19 rather than 84.37 of Central Excise Tariff. The tribunal noted that while ... Classification of par boiling machinery - classifiable under chapter heading 84.37 of Central Excise Tariff or under chapter heading 84.19? - Held that: - When we look at the two clarifications issued by the Board dated 19.5.2010 and the subsequent clarification dated 15.5.2014, we find that initially the Board had suggested classification of the par boiling machine under 84 7 considering it as a part of rice milling machinery. However, subsequent to the decision of the Tribunal in the case of Jyoti Sales Corporation vs. CCE, Panchkula [2011 (3) TMI 1317 - CESTAT, NEW DELHI], in which the classification of such machines were made under 8419, the Board has revised its guideline and as suggested classification of such machines under 8419. In any case we are of the view that this is the classification which would be most appropriate for par boiling machines and/or driers manufactured and cleared from a factory. Admittedly heading 8419 is a heading specific to the function performed by a particular heading. The same does not refer to the industry specific machine, but is relatable to function specific m chines. If the classification is to be adopted, as contested by the assessee, on the basis of industry specific (like in the present case rice industry) then the machines which stand specifically cover d under the said heading 84.19, would get shifted to the other heading dependent upon the industry in which they are to be used, ty us making the said entry as redunt and frivolous. It is well settled principal of law that an interpretation which renders an entry otiose has to be avoided. As such, when viewed from this angle also, we get affirmed in our opinion of the par-boiling machine falling under heading 84.19. Principles of interpretation - in terms of again, the well settled principle of interpretation, an item is required to be assessed, in the form, in which the same is cleared from the manufacturers factory and not on the basis of its future use, after clearance, unless it is the requirement of the entry. As such, we note that the par-boiling machine, when examined and assessed independently satisfies all the specification of heading 84.19, thus making it compulsorily to fall under heading 84.19. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:(a) Whether par boiling machinery and dryers used in rice processing are classifiable under Tariff Heading 8419 or 8437 of the Central Excise Tariff.(b) The applicability and interpretation of Section Notes 3 and 4 to Section XVI and Chapter Note 2 to Chapter 84 of the Central Excise Tariff Act in determining the correct classification.(c) Whether par boiling machinery and dryers constitute composite machines integral to rice milling, thereby meriting classification under heading 8437, or whether they are independent machines performing temperature treatment functions falling under heading 8419.(d) The relevance and binding nature of Board Circulars dated 19.05.2010 and 15.04.2014 regarding classification of rice parboiling machinery.(e) The principle of classification based on the function performed by the machine as cleared from the factory versus its use in conjunction with other machinery in the rice milling industry.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Correct Tariff Classification of Par Boiling Machinery and Dryer (8419 vs. 8437)Legal Framework and Precedents: The competing tariff headings were:- 8419: Machinery for treatment of materials involving change of temperature (heating, steaming, drying, etc.).- 8437: Machines used in milling industry or for working of cereals or dried leguminous vegetables.Section Notes 3 and 4 to Section XVI and Chapter Note 2 to Chapter 84 were pivotal in the analysis. The Tribunal also considered earlier decisions of coordinate benches, notably the conflicting decisions in the cases of Jyoti Sales Corporation (classification under 8419) and SKF Boilers (classification under 8437).Court's Interpretation and Reasoning: The Tribunal examined the process of parboiling rice, which involves pre-steaming, soaking, steaming, and drying, and acknowledged that these processes are part of the rice milling industry. However, the Tribunal emphasized that classification must be based on the machine as cleared from the factory, focusing on the function it performs rather than its ultimate use.The Tribunal noted that heading 8419 specifically covers machines for treatment involving temperature change, which squarely includes parboiling and drying functions. Conversely, heading 8437 covers machinery used in milling, but the Tribunal found that parboiling machinery performs a distinct function separate from milling.Key Evidence and Findings: The detailed technical description of the parboiling process and machinery was central. The Tribunal also reviewed the Board's circulars and the technical opinion submitted by an expert, which highlighted that parboiling and drying units perform complementary functions integral to rice milling.Application of Law to Facts: The Tribunal applied the principle that classification depends on the principal function of the machine as cleared from the factory. Since parboiling machines perform temperature treatment functions independently, they fall under heading 8419.Treatment of Competing Arguments: The appellants argued that parboiling machinery is part of the rice mill and hence should be classified under 8437. The Tribunal rejected this, stating that classifying based on industry usage would render heading 8419 redundant, violating the principle that tariff entries should not be rendered otiose.Conclusions: Parboiling machinery and dryers are classifiable under heading 8419.Issue (b): Interpretation of Section Notes 3 and 4 to Section XVI and Chapter Note 2 to Chapter 84Legal Framework and Precedents: Section Notes 3 and 4 provide that composite machines or multifunction machines are to be classified according to the principal function performed. Chapter Note 2 establishes precedence rules for classification between headings 8401 to 8424 and 8425 to 8480.Court's Interpretation and Reasoning: The Tribunal acknowledged that these notes are intended to resolve classification conflicts for composite machines. However, it found that parboiling machinery and dryers, as manufactured and cleared, are self-contained and perform independent functions, thus not qualifying as composite or multifunction machines under Section Notes 3 and 4.Key Evidence and Findings: The Board's 2010 circular initially classified parboiling machinery under 8437 based on these notes, but the 2014 circular reversed this, clarifying that these machines are independent and merit classification under 8419.Application of Law to Facts: Since the machines are designed to be installed independently and perform their functions independently, Section Notes 3 and 4 do not apply to reclassify them under 8437.Treatment of Competing Arguments: The appellants relied heavily on these notes to argue for classification under 8437, but the Tribunal found that the notes apply only to composite machines, which these are not.Conclusions: Section Notes 3 and 4 do not mandate classification under 8437 for parboiling machinery and dryers.Issue (c): Relevance and Binding Nature of Board CircularsLegal Framework and Precedents: Circulars issued by the Board provide administrative guidance but do not override statutory provisions or judicial decisions.Court's Interpretation and Reasoning: The Tribunal noted that the Board initially issued Circular No. 924/14/2010-CX classifying parboiling machinery under 8437, but following the Tribunal's decision in Jyoti Sales Corporation, issued Circular No. 982/06/2014-CX rescinding the earlier circular and directing classification under 8419.Key Evidence and Findings: The Tribunal gave weight to the revised circular and the judicial precedent supporting classification under 8419.Application of Law to Facts: The Tribunal held that the revised circular aligns with the correct interpretation of tariff headings and should be followed.Treatment of Competing Arguments: The appellants argued that the earlier circular was binding and that the machines form part of rice milling machinery. The Tribunal rejected this, emphasizing the revised circular and the principle of classification based on function and form at clearance.Conclusions: The revised Board circular of 2014 classifying parboiling machinery under 8419 is authoritative and consistent with legal principles.Issue (d): Classification Based on Form and Function at Factory Clearance vs. Ultimate UseLegal Framework and Precedents: It is a well-settled principle that classification must be based on the goods as cleared from the factory, not on their future use or incorporation into other machinery.Court's Interpretation and Reasoning: The Tribunal reiterated that parboiling machinery and dryers, as manufactured and cleared, perform temperature treatment functions independently and are not part of an integrated rice milling plant at the point of clearance.Key Evidence and Findings: The Tribunal noted that the factories manufacturing these machines do not produce the entire rice milling plant, reinforcing the independent nature of the machines.Application of Law to Facts: Classification must be assigned based on the machines' standalone functions at clearance, which corresponds to heading 8419.Treatment of Competing Arguments: The appellants' argument that these machines are integral parts of rice mills was rejected on the ground that classification cannot be based on post-clearance use.Conclusions: Classification must be determined based on the machines as cleared from the factory, supporting classification under 8419.3. SIGNIFICANT HOLDINGSThe Tribunal held that:'The par-boiling machine and dryer are self-contained machines which are designed to be installed independently and which perform their respective functions independently. Therefore, though they may be installed in a rice mill to work in conjunction with the milling machinery, the par-boiling machine and dryer do not appear to satisfy the requirements of Section Note 3 to be called composite machines/ multi-function machines meriting classification under CETH 8437.''The functions performed by the par boiling machine and dryer are squarely covered in heading 8419 which covers machinery for treatment of materials by a process involving a change of temperature such as heating, cooking, roasting, steaming, drying etc.''If the classification is to be adopted on the basis of industry specific use, then the machines which stand specifically covered under heading 8419 would get shifted to other headings dependent upon the industry in which they are to be used, thus making the said entry as redundant and frivolous. It is a well settled principle of law that an interpretation which renders an entry otiose has to be avoided.''An item is required to be assessed in the form in which the same is cleared from the manufacturer's factory and not on the basis of its future use, after clearance, unless it is the requirement of the entry.'Core principles established include:- Classification must be based on the principal function performed by the machine as cleared from the factory.- Composite or multifunction machine classification applies only where machines are designed and cleared as integrated units performing complementary functions.- Industry-specific usage cannot override tariff heading descriptions based on function.- Administrative circulars, especially revised ones, are significant in guiding classification consistent with judicial interpretation.Final determinations on each issue:- Parboiling machinery and dryers are classifiable under Tariff Heading 8419.- Section Notes 3 and 4 to Section XVI and Chapter Note 2 to Chapter 84 do not mandate classification under 8437 for these machines.- Revised Board Circular dated 15.04.2014 directing classification under 8419 is authoritative.- Classification must be based on the machines as cleared from the factory and not on their subsequent use in rice milling plants.
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