2025 (11) TMI 1094 - AT - Central Excise

Appeal allows classification of bulletproof special-purpose vehicles on customer chassis under tariff heading 8705 90 00, not as tanks

M/s JCBL Limited, Unit-II Versus Commissioner of Central Excise, Goods & Service Tax, Chandigarh-I

CESTAT, Chandigarh AT allowed the appeal, holding that bulletproof special purpose vehicles fabricated on customer-supplied chassis are classifiable under ... Classification and valuation of Bullet Proof Special Purpose Vehicle manufactured/ fabricated, on the chassis supplied by their customers, and cleared by the appellants - to be classified under CETH 8710 0000 and to be valueed in terms of Rule 10A of the Central Excise Valuation Rules, 2000 or not - HELD THAT:- The issue is no longer res integra having been decided by this Bench in the appellant’s own case [2019 (4) TMI 176 - CESTAT CHANDIGARH] wherein periodical show cause notices were issued to the appellant and this Bench held that 'the bulletproof SPVs deserve to be classified under chapter heading 8705. We also find that HSN Explanatory Notes to chapter heading 8705 provides that primary purpose of a vehicle of this heading is not the transport of persons or goods. These bulletproof special purpose vehicles are primarily designed for rendition of defence/policing services and not for the transportation of persons or goods and hence, merit classification under tariff item 8705 90 00. In view of this, we hold that merit classification of the goods is under chapter heading 8705 90 00.' The issue is squarely covered in favour of the appellants. It is not on record as to whether the Revenue has filed any appeal against the above orders. Revenue has not placed on record any Stay granted in this regard. Therefore, there are no reasons to deviate from the stand taken by this Bench not once but twice - Understandably, the impugned vehicles cannot be classified along with tanks and other armoured fighting vehicles just because they are armoured and satisfy the dictionary meaning of the word “armoured”. Applying the principle of noscitur a sociis, the impugned vehicles cannot be grouped with tanks and other armoured fighting vehicles. The impugned order is not sustainable - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the impugned bullet-proof special purpose vehicles (SPVs) manufactured on customer-supplied chassis are classifiable under tariff heading for 'special purpose motor vehicles' (Chapter/Heading 8705) or under the heading for 'armoured fighting vehicles' / armoured personnel carriers (Chapter/Heading 8710). 2. Whether certificates/opinions from Vehicle Research & Development Establishment (VRDE) / analogous expert agencies are admissible and determinative for classification of such SPVs. 3. Whether the appellants' manufacturing arrangement (use of customer-supplied chassis) renders Rule 10A of the Central Excise Valuation Rules (valuation for goods manufactured on behalf of another) applicable, or whether valuation under Section 4 read with Rule 6 is correct. 4. Consequences for exemption eligibility (cum-tax benefit) if classification under Chapter 8705 is upheld. 5. Whether interest and penalty can be imposed where classification/demand is not sustainable and where the appellant is a regular manufacturer without mens rea. ISSUE-WISE DETAILED ANALYSIS Issue 1: Classification - 8705 (Special purpose vehicles) v. 8710 (Armoured fighting vehicles / armoured personnel carriers) Legal framework: Classification is governed by the Chapter/Heading text and HSN Explanatory Notes. Heading 8705 covers 'special purpose motor vehicles' whose primary purpose is not the transport of persons or goods. Heading 8710 covers tanks and other armoured fighting vehicles (motorized), with Explanatory Notes including armoured personnel carriers under certain entries. Precedent treatment: The Tribunal has previously decided identical factual and legal questions in favour of classification under 8705 in the appellant's earlier matters; those decisions were relied upon and treated as binding for the same issue. Prior authorities recognizing that light armoured vehicles designed for policing/defence use can fall under 8705 were followed; contrary departmental reliance on broader dictionary definitions of 'armoured' and on inclusion of 'armoured personnel carriers' under 8710 was considered and distinguished. Interpretation and reasoning: The Court applied HSN Notes and the principle noscitur a sociis to interpret 8710 in its context - namely, that 8710 pertains to tanks and armoured fighting vehicles of the type associated with battlefield weaponry and motorized fighting platforms. The Court observed that Explanatory Notes to 8710 exclude cars and lorries of conventional type, armoured or equipped with removable armour, which are classifiable under headings 8702-8705 as applicable. The SPVs in question were found to be light armoured bulletproof vehicles primarily designed for patrolling, surveillance and protection of occupants (defence/policing functions), not principally for transport of persons or goods. Features such as firing apertures and protective armour supported special-purpose character. Thus, vehicles fall within the scope of 'special purpose motor vehicles' 8705 and are excluded from 8710. Ratio vs. Obiter: Ratio - The Court's holding that light armoured SPVs primarily designed for defence/policing services and not principally for transport are classifiable under 8705 (special purpose vehicles), and that 8710 is confined to tanks/armoured fighting vehicles in the HSN sense. Obiter - General remarks on dictionary meanings of 'armoured' and comparative observations about vehicle features not essential beyond application to present facts. Conclusions: The impugned vehicles are classifiable under Chapter/Heading 8705 (special purpose vehicles) and not under 8710. The Court affirmed prior Tribunal conclusions to the same effect and treated those decisions as determinative for the period in issue. Issue 2: Admissibility and weight of VRDE (expert) certificate for classification Legal framework: Classification may be informed by technical/expert evidence regarding construction, design and primary purpose of goods. Administrative practice and Tribunal precedent accept competent technical agency reports as relevant. Precedent treatment: Tribunal decisions were cited where VRDE/ARAI certificates were accepted as reliable in resolving classification (including bench decisions in the same registry). Those prior holdings were followed and applied. Interpretation and reasoning: The Court examined the VRDE certificate which characterised the vehicles as special purpose armoured vehicles meeting requirements of the security forces. The Court found such certification credible and probative on the primary purpose and technical features (armour, firing apertures, protection level). The Court also noted prior instances where the Revenue had opportunity to seek further expert verification but failed to do so, reducing the force of departmental objections. Consequently, the VRDE certificate was held to be applicable and persuasive for classification. Ratio vs. Obiter: Ratio - VRDE certificate (competent technical agency opinion) is admissible and, on the facts, determinative in establishing the special purpose character of the vehicles for classification under 8705. Obiter - Observations criticising Revenue's failure to obtain or act on expert examination in earlier proceedings. Conclusions: The VRDE certificate was accepted as reliable evidence supporting classification under 8705 and was a decisive factor in the Court's conclusion. Issue 3: Applicability of Rule 10A (valuation for manufacture on behalf of another) v. valuation under Section 4/Rule 6 Legal framework: Rule 10A of the Valuation Rules applies where goods are 'manufactured or produced... on behalf of' another and deals with valuation by reference to the price at which such goods are sold by the principal. Section 4 read with Rule 6 sets out valuation when goods are sold by the manufacturer. Precedent treatment: Authorities were cited for both sides - decisions applying Rule 10A where vehicles were returned to the principal's depots after processing, and decisions rejecting Rule 10A where parties were not in a tripartite job-work/principal/customer relationship or where substance showed independent manufacture and sale. The Court recognized these precedents but found valuation discussion unnecessary once classification and exemption were determined. Interpretation and reasoning: The appellants contended that they purchased the chassis from the customer on payment of duty and independently supplied materials/labour amounting to a large portion of value (60-70%), indicating standalone manufacture/sale rather than job work 'on behalf of' another. They relied on circular and precedents stating that Rule 10A presupposes a tripartite arrangement. The Revenue contended that vehicles were returned to the manufacturer's depots after work and so Rule 10A applied. The Court ultimately did not decide the valuation issue on merits because, having held the goods classifiable under 8705 and exempt, duty was not payable; thus valuation determinations under Rule 10A were rendered unnecessary. Ratio vs. Obiter: Obiter - Discussion of the applicability of Rule 10A and the factual indicators that differentiate job-work arrangements from independent manufacturing (the Court refrained from a definitive ratio on valuation due to exemption outcome). Conclusions: The Court did not pronounce a final finding on Rule 10A applicability; valuation questions were left undecided as they were rendered redundant by the classification and exemption finding. Issue 4: Entitlement to exemption / cum-tax benefit if classified under 8705 Legal framework: Exemption notifications provide relief for specified tariff items; classification under an exempted tariff entry entitles the manufacturer to benefit thereunder. Precedent treatment: Prior Tribunal orders in the appellant's cases granted exemption when classification under 8705 was accepted; the Court followed those precedents. Interpretation and reasoning: Since the Court held the goods classifiable under 8705 (special purpose vehicles), it logically followed that the appellants were entitled to exemption benefits available to that tariff item for the relevant period. The Court noted that an outcome of zero duty rendered valuation and associated issues moot. Ratio vs. Obiter: Ratio - Classification under 8705 entitles the goods to the applicable exemption; consequent valuation issues are unnecessary when duty is not demandable. Conclusions: Appellants are eligible for the exemption applicable to Chapter/Heading 8705 for the impugned period; cum-tax benefit and CENVAT/credit consequences arise in accordance with the exemption rules. Issue 5: Imposition of interest and penalty where demand is unsustainable and absence of mens rea Legal framework: Interest and penalty provisions attach to confirmed duties where payable; imposition of penalty depends on culpability, mens rea and sustainability of demand. Precedent treatment: Tribunal decisions hold that where duty is not payable (demand unsustainable), imposition of penalty is not justified. Authorities were cited to the effect that classification disputes without culpable intent do not attract penalties. Interpretation and reasoning: The Court observed that because the goods are not dutiable (classification under 8705 and consequent exemption), there can be no valid demand; therefore, interest and penalty based on that demand cannot be sustained. The Court also accepted the appellants' contention that as regular manufacturers with a bona fide classification position supported by expert certification and earlier favorable decisions, imposition of penalty for mens rea was not warranted. Ratio vs. Obiter: Ratio - When duty is not payable, the case for imposition of penalty and interest fails; penalty under Section 11AC cannot be sustained in such factual circumstances. Obiter - Considerations on mens rea and bona fide reliance on expert certification and precedent. Conclusions: Interest and penalty confirmed by lower authorities were set aside because duty is not exigible; imposition of penalty is not sustainable on the facts. Overall Disposition and Cross-References The Court adhered to prior Tribunal decisions in the same factual matrix, accepted VRDE expert certification as determinative for classification, held the vehicles to be special purpose armoured SPVs classifiable under Chapter/Heading 8705 (not 8710), declared the appellants eligible for the applicable exemption, and found discussion on valuation and imposition of penalty/interest unnecessary or unsupportable in light of the classification and exemption outcome. Cross-references: the Court relied on earlier bench rulings concerning VRDE evidence, noscitur a sociis interpretation of HSN notes for 8710, and principles that make valuation/penalty questions redundant when duty is not exigible.