2026 (2) TMI 959 - AT - Central Excise

Concessional import benefit for relay parts confirmed where finished devices perform protective functions, not automatic regulation, so benefit allowed.

Whether imported components qualify as parts of relays for concessional import under Notification No.25/1999-Cus was decided by applying the technical and ... Entitlement to the benefit of Notification No.25/1999-Cus - imported parts declared as parts of relays - Classification under Chapter 85.36 vs Chapter 90.32 - Principal function / essential character test for tariff classification - HSN Explanatory Notes - Heading 9032 distinction between regulation/control and protective tripping - Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 - procedural compliance and Rule 8 - HELD THAT:- The relays are designed for protection of a system and the control functions incorporated in the numerical relays mentioned above makes it further clear that such functions are incorporated for the purpose of tripping the faulty system so as to protect the system from further damages. More or less similar explanation can be located in the HSN notes for Chapter 85.36 in emphasizing its role mentioned. A plain reading of the Explanatory Note relevant to Chapter 9032, it is clear that automatic regulator of electrical quantities and instruments or apparatus are for automatically controlling for non-electrical quantities, the operation of which depends on an electrical phenomenon, which vary according to the factor controlled, and are designed to bring this factor to and maintain it at a desired value, stabilized against disturbances, by constantly or periodically measuring its actual value. In the present case, the IEDs are designed to trip the circuit protecting from damages to the electrical distribution system and does not control the parameter in any manner, to stabilize or maintain the desired value of current or voltage at a particular level against any fluctuations or disturbances. As already referred; the control mechanism is incorporated for the purpose of enhanced security in tripping the circuit rather than controlling the parameters or transmission of electricity in any manner. The authorities below had observed that the IED contains a series of relays which is only a passive component and by performing various inter-linked functional sets like programmable logic controllers, self-adoptive, self-monitoring and self-testing, ability to communicate between different parts of the automation systems computing various quantities etc. be called as a multifunctional multi-device automation equipment and covered under Chapter sub-heading 9032. The Presence of number of relays in a circuit cannot be considered as a controller. This can be better understood reading the Circular No.51/2004-Cus. dated 01.01.2024 in extending benefits of Sl.No.112 of Notification No.25/1999-Cus dated 28.02.1999 to Lever combination of switches. Thus, we do not find merit in the said observation of the learned Commissioner (Appeals). Even though the IED consists of a series of relays which carries out multiple functions but are basically designed for protection of system and in absence of any feature for controlling the parameters except tripping the faulty system in transmission/ distribution of electricity, it cannot be considered to fall under Chapter sub-heading 9032. In absence of allegation under any other classification of the finished goods, it is to be inferred that the ‘relays’ manufactured by the appellant and cleared declaring the finished goods falling under Chapter heading 85364900 in their invoices as various types of relays viz. “ABB make transfer protection relay type REL670”, be accepted as ‘relay’ only. Also from the records, we find that the Central Excise authorities had not disputed the classification of the manufactured finished goods as ‘relays’ having its classification under Chapter sub-heading 85364900 at any point of time. Consequently, the appellant are entitled to the benefit of Notification No.25/1999-Cus as amended on the ‘parts of relays’ and used in the manufacture relays during the relevant period. Since we hold on merit that the appellant are entitled to the benefit of Notification No.25/1999-Cus dated 28.02.1999 as amended for the imported parts, analysis of ancillary issues like recovery of duty foregone, limitation etc. becomes academic; hence, not delved into. The Tribunal held that the finished devices are relays whose principal function is protection and therefore the imported parts qualify as 'parts of relays' under Sl. No.112 of Notification No.25/1999; the appeals allowing benefit were directed to be given and the related request dated 24.09.2012 remanded for fresh decision consistent with these findings. Issues: Whether the appellant is entitled to the benefit of Notification No.25/1999-Cus dated 28.02.1999 (Sl. No.112) for imported parts declared as parts of relays and used in the manufacture of finished goods classified and cleared as relays under Chapter sub-heading 85364100 / 85364900 for the relevant period; and whether the finished products (IEDs) supplied by the appellant are properly classifiable under Chapter sub-heading 9032 such that the concession is inapplicable.Analysis: The Tribunal examined (i) the terms of Notification No.25/1999-Cus and the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 including the procedural approvals and periodic bond cancellations; (ii) the HSN Explanatory Notes and technical definitions for Chapter 85 (relays) and Chapter 90.32 (automatic regulating or controlling instruments) and the criteria required to attract heading 9032 (presence of measuring device, control device that compares actual and desired values and a starting/stopping device); (iii) technical literature and catalogues for the REL670/REL650 series showing the devices are designed fundamentally for protection of electrical systems with ancillary monitoring, communication and control features oriented to secure tripping and system protection rather than continuous regulation to bring and maintain a variable at a desired value; and (iv) Board circulars and precedents distinguishing multifunctional protection devices from controllers that satisfy Chapter 9032 criteria. The Tribunal found that the devices, though multifunctional and containing microprocessor-based features, perform primary protective functions (tripping, monitoring, event recording, communications) and do not operate as automatic regulators that continuously measure and regulate a parameter to a set value as contemplated by heading 9032. The Tribunal also considered the longstanding procedural approvals, periodic cancellation of bonds after use reports, and that classification of the manufactured finished goods as relays had not been disputed by Central Excise authorities during the relevant period, concluding that the dispute was fundamentally one of eligibility under the concessional notification rather than a pure reclassification for past consignments.Conclusion: The Tribunal held that the finished products manufactured and cleared by the appellant are relays within Chapter sub-heading 8536 (specifically 85364100 / 85364900) for the relevant period and that the imported parts qualify as 'parts of relays' eligible for benefit under Notification No.25/1999-Cus (Sl. No.112). The Tribunal set aside the impugned Order-in-Appeal dated 01.03.2018 and allowed the appeals with consequential relief, and remanded the related appeal E/26173/2013 to the adjudicating authority for fresh decision in light of these observations.