TaxTMI 
TaxTMI 
2009 (3) TMI 316
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.... 1997-98 2. Shri G. Shiva Dass, the learned Advocate, appeared on behalf of the appellants and Smt. Sudha Koka, the learned Departmental Representative for the Revenue. 3. We heard both sides. 4. The issue involved in all these appeals is the classification of the Turbo Generating Sets (TG sets) manufactured by the appellants and cleared to their various customers. The case of the Department is that the appellants had never manufactured Turbo Generating Sets. They only manufactured Parts and cleared them. Therefore, the Revenue classified the items cleared by the appellants as Parts of Turbo Generating Sets whereas the contention of the appellants is that the items cleared by them over a period of time should be considered as TG sets for classification and assessment purpose. This is the dispute in short. The issue can be elaborated as follows :- 4.1 The appellants are a Public Sector Undertaking engaged in the manufacture of various engineering equipments for use in Core Industrial Sectors such as Power, Steel, Petrochemicals, Refineries, Cement, Fertilizers, Oil & Gas, etc. They also manufacture and supply equipments such as Turbo Generating sets, Steam Turbines, Gas ....
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....ssification of the Turbo Generating Sets. It was stated that the TG Set comprises normally of Gas Turbines, Steam Turbines, Generators and Heat Exchanger. These are all manufactured in various sections of the appellants' unit. Each of the items manufactured is tested in their respective shops. Once it is certified that the product is in accordance with the specification of the customer, the same is un-assembled and transported to the customer's site for assembling. The case of the department is that the TG Set never comes into existence at the time of clearance because the various components are cleared over a period of time and, therefore, according to the Department, what is cleared should be considered only as parts of the TG Sets. The entire controversy arises because the rate of duty is different for the TG Set and the Parts. For the Parts, it is little higher. If the duty were the same, this dispute itself would not have arisen. The following submissions were made by the learned Advocate. 5. The learned Advocate took us through the various documents and stated that this controversy or the problem of assessment of this huge machinery, which is cleared over a period of time,....
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....al) (k) Vinar Systems Ltd. v. CC, Calcutta-II - 2001 (131) E.L.T. 578 (Tri.-Kolkata) In all these cases, it has been settled that classification of goods has to be with reference to contracts entered into with the customers. If the contract is for manufacture and supply of full set/sets, the supplies are to be classified under the Chapter/Heading/sub-heading appropriate to such sets. 5.1 Our attention was invited to the Interpretative Rule 2(a) of the Central Excise Tariff Act in terms of which, the incomplete goods having the essential character of the complete or finished goods should be classified as complete or finished goods. Also, goods which can be removed in disassembled condition or in an unassembled condition should be classified as a complete article. It was urged that as far as the essential character of the sub-assemblies vis-a-vis the TG set is concerned, it is plain and evident that by the very nature of the items, each of them would have the essential character of TG set since, they are all tailor made to the specification of the Final TG Set. The function of each of the sub-assembles has to be compatible to the final product. These are kept in view right f....
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....l independently have come to the same conclusion. In Shrike Construction Equipments Pvt. Ltd. v. CCE, Pune - 1997 (95) E.L.T. 644 the Tribunal has held that what was cleared by the appellant before it was cranes, and not parts of cranes, as held by the department. The Tribunal took into account the fact that the order of the buyer was for design, manufacture and supply of cranes and the cranes were cleared from the factory unassembled or disassembled. In Vishwa Industrial Co. (P) Ltd. v. CCE - 1999 (107) E.L.T. 774, the Tribunal held that what was cleared by the appellant before it was a complete conveyor system. Here, too, the reasoning was that what was ordered and supplied was a complete conveyor system, which by its very nature had to be cleared in knocked down condition and erect at site." It was urged that the above decision conclusively decides the issue in question in favour of the appellants. 5.3 Our attention was invited to Note 4 of Section XVI of the Central Excise Tariff Act, 1985 which provides that where a machine consists of individual components, whether separate or inter connected, intended to contribute together to a clearly defined function covered by one ....
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....that Note 2(a) of Section XVI of the Central Excise Tariff Act, 1985 specifies that parts, which are goods included in any of the headings of Chapter 84 or 85 other than 84.85 and 85.48, are in all classes to be classified under respective headings. Assuming without admitting that the goods cleared by the appellants in CKD condition cannot be considered to be a TG set, the classification should be in the light of Note 2(a) as individual items. For instance, a Generator is specifically covered under Heading 8501, which attracts the same rate of tax as TG set. The clearance of a Generator, if not classifiable as a TG set, has to be necessarily classified as a Generator only under Chapter 8407 and not as parts of TG set under Chapter Heading 8503. Similarly, a gas turbine or a steam turbine would be classified under Chapter 8411.10 or 8406.10 and not as a part of the TG set. If such a classification is done, then 90% of the demands would be set aside as the rate of duty for all such sub-assemblies is the same. It is only with reference to the remaining items that the issue would survive. As far as the remaining items are concerned, the Department cannot now reclassify the said goods u....
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....ard is not relevant here because the same was issued in a different context for demand of duty when the demand of duty was raised on final products emerging as immovable property. That Circular cannot be used to classify the impugned items as parts of the TG sets. It was contended that such a Circular should not be taken out of context and applied here blindly. 8. On a very careful consideration of the entire issue, we find that the appellants have entered into contract with their customers for Turbo Generator Sets. It has already been explained that the TG sets have to be manufactured with the help of various sub-assemblies over a lengthy period of time in view of the complexity of the job. It is not a simple machine, which can be manufactured and cleared just in one consignment. The contention of the appellant is that even though the item is cleared in several consignments over a period of time, the same thing should be classified only as Turbo Generator set and not as Parts. This issue was already a matter of dispute between the Department and also the Revenue. 8.1 Our attention was also invited to the earlier Circulars of the Department in 1977 and also the letter w....
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....This principle has been applied in the various decisions cited by the learned advocate. 8.2 Especially, we have to agree with the learned advocate that the ratio of the Flat Products Equipments India Ltd. decision of the Tribunal, which was quoted supra by the learned advocate, is squarely applicable to the present case. The Tribunal, in the said case, analysed the scope of Rules of Interpretation 2(a) and came to the conclusion that in a situation like this, where there is a contract for supply of a machinery and if that machinery cannot be transported in one single piece and in view of the enormous weight and practical difficulties, if the said machinery or equipment is transported over a period of time in different consignments, then the classification adopted should be that of the entire equipment itself and it should not be considered that Parts have been cleared. The learned Commissioner (Appeals) has tried to distinguish the facts of this case on the ground that some parts are directly bought out and they reach the customer's places. This is not acceptable. Even if some parts directly go to the customer's sites and which are bought out, it cannot be said that the consignm....
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....embled." We find that the aforesaid Rule permits classification of machinery under the Headings specific to the machinery, even when it is incomplete or unfinished, provided that, as presented (emphasis ours), the incomplete or unifinished article has the essential character of the complete or finished article. The Rule also permits classification of goods presented unassembled or disassembled as a machinery under the Heading appropriate to such machinery. However, in the present case as stated earlier, we find that only parts of the two integrated auxiliary plants nave been presented/cleared from the factory of the appellants on different dates during a period spanning around one and a half years. It is clear that not only these parts have been cleared separately, but they have also been manufactured over a long period of time. Hence, each of these parts as cleared/presented obviously do not have the essential character of the complete machinery. Therefore, the decision of the lower Appellate Authority classifying individual consignments as parts under sub-heading 8404.90 is fully in conformity with the General Interpretative Rule 2(a), and the same does not require any interfe....