The honorable Supreme Court recently (dated 21-9-2007 - reported in 2007 -TMI - 1744 - SUPREME COURT OF INDIA) has delivered a landmark judgment on classification of removal of different parts of a specific product as a stand alone items.

In the instant case - Assessee cleared compressors falling under tariff sub-heading 8414.10.  They also cleared to its buyers separately "fly wheel" under separate tariff sub-heading 8483.00, "safety valve" under separate tariff sub-heading 8481.80 and "filter" under separate tariff sub-heading 8421.00.  Apart from the above three items, assessee supplied to its buyers bought-out items, namely, V. belt, motor, pulley, belt guard, gauge, gauge board, angle valve, M.S. male flange, C.A.F. Gasket, set of tools, bolts and nuts, etc.

Department has tried to classify the above items as composite one as "compressors" raised a demand on the ground of classification and valuation.

After considering and discussing all the facts and circumstances, honorable Supreme Court has held that, where all the parts are cleared as stand alone items, provisions of General Interpretative - Rule 2(a) has no application to the present case for two reasons.  Firstly, the compressor manufactured by the assessee was removed as a "stand-alone" item.  It was not cleared in an unassembled or disassembled condition. Secondly, section and chapter notes in Central Excise Tariff Act, 1985 and the Interpretative Rules do not provide guidelines for valuation of excisable goods as they decide classification of a product under different headings/sub-headings of the tariff. 

However on the ground of valuation the matter has been remanded back to the commissioner with the direction to get the help of special audit u/s 14A of the Central Excise Act, 1944, if necessary. 

(See full text of decision -  2007 -TMI - 1744 - SUPREME COURT OF INDIA)

Classification of separately sold parts: general interpretative rule inapplicable; valuation remanded for special audit. The court held that General Interpretative Rule 2(a) did not apply because the compressor was removed in assembled form and component parts were cleared separately; tariff notes and interpretative rules govern classification but not valuation. Valuation was remitted to the commissioner with direction to obtain a special audit if necessary.