2019 (11) TMI 948 - AT - Central Excise

Classification of conveyors & elevators in rice milling machinery under Chapter 8437 of CETA, 1985

The Tribunal held that the conveyors and elevators manufactured as part of rice milling machinery should be classified under Chapter 8437 of CETA, 1985. ... Classification of goods by merit - composite machines / principal function rule - section notes on classification of machines - HSN explanatory notes are only guidance and not law - classification of conveyors and elevators as part of rice milling machineryClassification of goods by merit - composite machines / principal function rule - classification of conveyors and elevators as part of rice milling machinery - Conveyors and elevators specifically manufactured for and supplied as part of rice milling machinery are classifiable under Chapter Heading No. 8437 of the Central Excise Tariff Act, 1985 and not under Heading No. 8428. - HELD THAT: - The Tribunal applied the section notes governing composite machines and machines consisting of components (notes 3, 4 and 5 to Section 6) which require classification according to the principal function of the whole where components contribute together to a clearly defined function. The conveyors and elevators in question were found to be specifically designed for rice mills, supplied along with other rice mill machinery and to perform the feeding/transport function integral to the rice milling process. The HSN explanatory notes were held to be only a guide and cannot override the clear mandate of the tariff section notes; therefore reliance by the Revenue on explanatory notes to reclassify these items under a general heading (8428) was not warranted. Distinguishing authorities where conveyors were of general use and not part of composite machinery, the Tribunal followed precedents holding that parts or machines made specifically for a particular machine are classifiable with that machine. On these grounds the Tribunal concluded the merit classification is under Heading 8437. [Paras 6, 7]The impugned classification under Heading No. 8428 is set aside; the conveyors and elevators specifically manufactured for rice milling machinery merit classification under Chapter Heading No. 8437.HSN explanatory notes are only guidance and not law - consequences of classification on duty, interest and penalty - Consequent demand of duty and interest and imposition of penalty based on classification under Heading 8428 are unsustainable and set aside. - HELD THAT: - Having held that the goods are rightly classifiable under Heading 8437 (nil rate), the Tribunal found that the resulting demand of duty with interest and penalty founded on the contrary classification cannot stand. The Tribunal relied on its classification conclusion and relevant precedent to hold that the demand, interest and penalty fall with the reversal of classification. No separate penalty is imposable in view of the correct classification under Heading 8437. [Paras 5, 7]The demand of duty with interest and the penalty imposed are not sustainable and are set aside; consequential relief granted to the appellant.Final Conclusion: Appeal allowed: conveyors and elevators manufactured specifically for rice milling machinery are classifiable under Chapter Heading 8437 of CETA, 1985; the impugned order reclassifying them under Heading 8428 and the consequent demand of duty, interest and penalty are set aside. Issues Involved:1. Classification of goods under the appropriate tariff heading.2. Applicability of interest and penalty under Section 11 AC of the Act.Issue-wise Detailed Analysis:1. Classification of Goods:The primary issue revolves around the classification of the appellant's manufactured goods, specifically food processing machines, automobile components, and parts for elevators and conveyors. The appellant classified these goods under heading No. 8437 as 'machinery used in Milling Industry,' which carries a nil tariff rate. However, the department contended that these goods should be classified under heading No. 8428 as 'other lifting, handling, loading or unloading machines,' which includes lifts, escalators, and conveyors, thereby attracting a different tariff rate.The appellant cited previous Tribunal decisions in similar cases (Alpsco Graintech Pvt. Ltd. and Annapurna Agronics Machinery Pvt. Ltd.) where the goods were classified under Chapter Heading No. 8437 of CETA 1985. These decisions were affirmed by the Hon'ble Apex Court, making the issue res-integra. The Tribunal's observation was that the conveyors and elevators manufactured by the appellants were specifically designed for rice mills and supplied along with other rice mill machinery, forming a composite machine performing the function of rice milling. Therefore, as per Section Notes 3, 4, and 5 to Section 6 of the Central Excise Tariff Act, these goods should be classified under heading 8437.The Tribunal also noted that the HSN Explanatory Notes, which the revenue relied upon, are only guiding factors and not legally binding. The Tribunal emphasized that the explanatory notes to HSN cannot override the clear provisions of the Central Excise Tariff Act. The Tribunal concluded that the conveyors and elevators, being part of the composite machinery for rice milling, should be classified under heading 8437.2. Applicability of Interest and Penalty:Given the Tribunal's decision on the classification issue, the demand for duty along with interest and the imposition of penalty under Section 11 AC of the Act were deemed unsustainable. The Tribunal held that since the goods were correctly classified under heading 8437, there was no merit in the impugned order, and consequently, no penalty could be imposed on the appellant.Conclusion:The Tribunal set aside the impugned order, holding that the conveyors and elevators specifically manufactured as part of rice milling machinery merit classification under Chapter 8437 of CETA, 1985. Consequently, the demand for duty along with interest was not sustainable, and no penalty was imposable on the appellant. The appeal was allowed with consequential relief, if any.