1999 (7) TMI 422 - AT - Central Excise

Classification of LDPE/HDPE pipes for Drip Irrigation System as agriculture machinery

The Tribunal determined that LDPE/HDPE pipes, specifically manufactured for a Drip Irrigation System (DIS), should be classified under heading 84.24 as ... Classification Issues Involved:1. Classification of LDPE/HDPE pipes.2. Applicability of exemption notifications.3. Determination of duty and penalty.Summary:1. Classification of LDPE/HDPE Pipes:The appellants manufacture LDPE/HDPE pipes and filters, while other components of the Drip Irrigation System (DIS) are bought out. The Revenue classified LDPE/HDPE pipes under sub-heading 39.17, arguing they are not used solely or principally with DIS as per Note 2 of Section XVI and are parts of general use per Note 2 of Section XV and Note 1(g) of Section XVI. The appellants contended that these pipes are specifically made for DIS as per ISI specifications and should fall under sub-heading 84.24 of the CET Act, 1985, which deals with mechanical appliances for agriculture.2. Applicability of Exemption Notifications:The Revenue denied the benefit of Notification No. 67/95-C.E., dated 16-3-1995, as the final product DIS is exempt from duty. They argued that HDPE/LDPE pipes cleared with other components cannot be considered for captive consumption since they are assembled at the customer's site, not in the factory. The appellants argued that the pipes are integral to DIS and should be classified under heading 84.24, making them eligible for exemption under Notification 45/94 or 56/95.3. Determination of Duty and Penalty:The department issued a duty demand of Rs. 7,70,085/- u/r 9(2) of CE rules read with Section 11A of CE Act, along with a penalty of Rs. 75,000/- under Rules 9(2), 52A, 173Q, and 226 of C.E. Rules. The appellants provided evidence, including ISI specifications and a letter from the Agricultural Engineering Department, to support their claim that the pipes are specifically manufactured for DIS and not for general use.Judgment:The Tribunal concluded that the LDPE/HDPE pipes are specifically manufactured for DIS and should be classified under heading 84.24. The pipes are integral to the functioning of DIS, which falls under mechanical appliances for agriculture. The Tribunal referred to Note 2(b) and Note 4 of Section XVI, which support the classification of parts intended to contribute to a clearly defined function under the appropriate heading. The Tribunal also considered the explanatory note to HSN under Chapter 84.24, which includes irrigation systems as functional units. The appeal was allowed, granting the benefit of exemption Notification No. 56/95 dated 16-3-1995, and the duty demand and penalty were set aside.