Central air conditioning systems are not excisable goods as a whole; duty demand and penalty on the assembled system were set aside.

A central air conditioning plant assembled from compressors, ducting, piping, insulators and related parts was treated as a system brought into existence only by combination of components, not as excisable goods as a whole. A Board circular issued under section 37B clarified that individual parts may be dutiable, but the completed refrigeration or air conditioning system is not itself to be assessed as excisable goods. Relying on that clarification and supporting Supreme Court authority, the demand on the air conditioning system was held unsustainable and the consequential penalty was set aside in favour of the assessee.

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Issues: Whether the central air conditioning plant or system was excisable goods liable to duty and whether the demand and penalty were sustainable.

Analysis: The Circular issued by the Board under section 37B clarified that refrigeration and air conditioning plants are systems composed of compressors, ducting, pipings, insulators and similar components, and that such systems come into existence only by assembly and connection of parts. It further clarified that though individual components may be dutiable, the refrigeration or air conditioning system as a whole cannot be treated as excisable goods. In view of this clarification and the supporting Supreme Court authority relied upon, the demand raised on the air conditioning system could not be sustained.

Conclusion: The central air conditioning system was not liable to be treated as excisable goods as a whole, and the demand and consequential penalty were set aside in favour of the assessee.

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