TaxTMI 
TaxTMI 
2019 (10) TMI 669
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....manufacture of various type of filters viz., air filter, oil filter, fuel filter etc. The applicant has sought advance ruling in respect of the following question: a) Whether filters manufactured solely and principally for use by/in Indian Railways and supplied directly to Indian Railways are classifiable under HSN Heading 8421 or under HSN Heading 8607 of the Customs Tariff (which has been borrowed for classification purposes under GST regime)? b) Whether the aforementioned classifications of subject goods i.e. filter alter if identical goods are supplied to a distributor instead of Indian railways directly, and the distributor in turn effects supply to Indian railways? 3. The applicant furnishes some facts relevant to the stated activity: a. The Applicant is inter-alia engaged in the manufacture of various types of filters viz. air filter, oil filter, Fuel filter etc. Different products manufactured by the Company find application in different industrial sectors and some of them are customized to the need and specification of the customers. The Applicant Company is duly registered under the provisions of the Central Goods and Service Tax Act, 2017 ('....
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.... that, the manufactured product would still be solely and principally used as a part in the railway/ locomotives. h. The applicant Company states that he is deemed fit to seek a ruling on the subject classification matter both in current fact patterns of direct supplies and future pattern of supplying to an intermediary or a distributor. 4. The applicant provides the relevant Section Notes under Customs Tariff. a. The applicant draws reference to Section Note 1 to Section XVI - Machinery and Mechanical Appliances; Electrical Equipment; Parts thereof; Sound Recorders and Reproducers, Television Image and Sound Recorders and Reproducers, and Parts and accessories of such Articles" which covers chapter 84 which reads as under: "1. This Section does not cover: (a) . . . . (b) . . . . (c) . (k).. . . (l) Articles of Section XVII' b. The applicant also refers to section notes to Section XVII (which covers Chapter 86) - Vehicles, Aircrafts, Vessels and Associated Transport Equipments - as under" "2(e) The expressions "parts" and "parts and accessories" do not apply to the following articles, whether or not....
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.... case • Ability to fit within the railways/ locomotives as a part thereof (Fitment) - the engines or other parts of the railway or locomotives where the Applicant's filters would be placed cannot follow a plug and play model. The product is therefore customized to fit into the desired compartment (as the customer may have indicated) and work seamlessly on the equipment's platform. • Filters are meant for cleaning fuel / clearing air, as the case may be - however the capacity and output may vary depending upon the platform and equipment for which it is used. The customer specifications clarify this aspect (Function) and hence, the product so manufactured and supplied by Parker is unique by its function, which is compatible only with Railway or locomotives. 6.1.2 It is submitted that the following filters are supplied to Indian Railways:- Type of Filter Function Customer Air filters for Electric locomotives Providing clean air for cooling inside the electric locomotives Chittaranjan Locomotive works (CLW), Electric loco sheds (Founder Indian Railways) Air filters for Diesel locomotives Providing clean air to Diesel IC engine for co....
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....ugned product imported by the appellants is a web camera. From the technical literature submitted at the time of personal hearing, it is observed that the camera is not an ordinary camera and functions only with the computer and this camera has got very specific functions and it works basically as a part of the computer and cannot function independently on its own. Thus, it is observed that the web camera imported by the appellant is not an ordinary camera and does not function independently. The image can be captured only when it is connected with the computer. Thus, from the above, it can be seen that the product imported by the appellants is not an ordinary camera and therefore will not fall under chapter 90 as held by the lower authority. The proper classification will be under chapter 84.73 or 84.71. Besides, a perusal of the aforesaid judgment of the Hon'ble Tribunal also clearly indicates that all those items which come along with the computer are to be treated as spares and accessories. Thus, in view of the submissions made by the appellants and in view of the case law referred to by the applicants at the time of personal hearing, it is observed that the proper classificati....
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.... be safely concluded that these are parts of the railway classifiable under Tariff Heading 86.07 (sub-heading 8607.00) of the Tariff. The principal that specific tariff entry has to prevail over the general entry, is not attracted in this case. The view taken in the impugned order dated 15-06-1994 by the Collector (which is the subject matter of the appeal of the assessees) is legally correct and no fault can be found with the same." 6.2.4 The classification of goods owing to sole and principal usage thereof in view of Section Note 3, according to the applicant, is a widely regarded and accepted position of law and the same is supported by a plethora of decisions and departmental clarification. The same have been illustratively cited below for ease of reference: REFERENCE PARTICULARS Circular No. 17/90-CX.4, dated 9-7-1990 Clarification: Gear, gear boxes per se classified under 8483 would attract classification under heading 8607 /8608/8614 when specifically designed for use with vehicles of Section XVII. Rationale: Transmission elements even though covered under a specific heading would be covered under heading 8607 when they have been specifically designed....
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....lling under the said Section. A corollary to the said Section Note is that, if any heading under chapters of Section XVII covers parts of an article also falling under that Chapter than all such parts of the said article, which are meant for 'sole' or 'principal' use with it would be classified under the respective heading of chapters under Section XVII, which covers parts. 6.3.5 The present case, in applicant's view, is a fit example for same wherein the filters are meant exclusively for railway or locomotive (both fuel based as well as electric) & have no generic use; thus, the same are classifiable under Tariff Heading 8607. 6.3.6 Given the above, in Applicant's view, the position so emerging at para 3.14/ 3.15 above is apt and unambiguous. PERSONAL HEARING 7. Personal hearing in the matter was held on 28.06.2018 and Shri Gopal Mundhra, Advocate, represented the applicant. The Advocate submitted a compilation of their arguments and also undertook to submit additional documents. 7.1 During the personal hearing, when it was pointed out as to whether the application for advance ruling was maintainable for the reason that the question raised in the application was a s....
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....ant for "sole" or "principal" use with it would be classified under the respective heading of Chapters under Section XVII, which covers parts. 7.2.2 The applicant argued that this position was also supported by the explanatory notes to HSN which states as follows: - "-Criterion of sole or principal use. (1) Parts and accessories classifiable both in Section XVII and in another Section. Under Section Note 3, parts and accessories which are not suitable for use solely or principally with the articles of Chapters 86 to 88 are excluded from those Chapters. The effect of Note 3 is therefore that when a part or accessory can fall in one or more Sections as well as in Section XVII, its final classification is determined by its principal use. Thus, the steering gear, braking systems, road wheels, mudguards, etc., used on many of the mobile machines falling under Chapter 84, are virtually identical with those used on lorries of Chapter 87, and since their principal use is with lorries, such parts and accessories are classified in this Section." (2) Parts and accessories classifiable in two or more headings of the Section. Certain part....
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....erits its classification under heading 8607 as "parts of railway or tramway locomotives or rolling stock". 7.2.5 The applicant also makes reference to Section Note 1 of Section XVI, which is inter-alia governs coverage under Chapter 84 (which falls in Section XVI) provides as follows: "1. This Section does not cover: . . . . (l) articles of Section XVII;" 7.2.6 The applicant states that the above implies that where by virtue of specific provisions, if goods are covered in Section XVII (i.e Chapter 86), its coverage under Section XVI (i.e Chapter 84 / Heading 8421) is naturally ruled out. Thus, Section Note 1 (l) of Section XVI reinforces that the subject goods must be classified under Chapter 86 only and not under Chapter 84. 7.3 Regarding classification under Tariff heading 86.07, the applicant states that this is supported by a plethora of judicial precedents: 7.3.1 The classification of goods on the basis of sole and principal usage for Indian Railways have been determined under the specific tariff heading under 86.07 in number of cases. The said cases have been summarized as under: Case law Goods in question Competing classificati....
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....'ble Tribunal in the case of Diesel Component Works v. CCE, Chandigarh [2000 (120) ELT 648] = 2000 (6) TMI 68 - CEGAT, COURT NO. I, NEW DELHI which deals with an identical issue of classification under the two competitive chapter heading viz. 8409 and 8607. While the assessee in the said case relied on Section Note 3 for classifying the articles under heading 8607, the departmental authorities sought to invoke provisions of Section Note 2(e) to disallow the classification under heading 8607. In the said case, while laying down its ratio, the Hon'ble Tribunal took cognizance of the provisions of Section Note 2(e) as well as Section Note 3 and held that articles in question attract classification under heading 8607 in view of the collective reading of Section Notes. The applicant has extracted the relevant portion of the said decision, which reads as under: "The Excise Department took the stand that the goods manufactured by the appellant company are not parts of locomotives, but they are parts of machines and apparatuses falling under Chapter Heading 84 or 85. This approach was made on the basis of Note 2(e). For a proper understanding of that Note, we read the same: "2.....
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....mittedly as parts of locomotive. A similar issue came up for consideration before this Tribunal in the decision reported in Bajaj Auto Ltd. v. Collector of Central Excise, Pune, 1994 (74) ELT 599 = 1994 (9) TMI 171 - CEGAT, NEW DELHI where the question, unspecific parts of IC engines used in motor vehicles are parts of motor vehicles came up for consideration. The Tribunal gave the answer in the affirmative. parts of IC engines which were the main parts in the locomotive should also be termed as part of the locomotive and not as IC engines coming under the general category. Central Board of Excise and Customs had to consider the issue as to whether a radiator assembly supplied to Indian Railways is to be classified under sub-heading 8607.00 or otherwise. The Board observed that product radiator assembly is designed according to the specifications of the Indian Railways and is for use solely and principally with locomotives of Heading 8601 and 8602. It is clarified that the radiator assembly is not to be classified as parts of IC engines under Heading 8409. This understanding of the Central Board of Excise and Customs is discemible from circular No. 16/90 dated 11-06-1990, ....
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.... Quality Assurance (Mechanical) Directorate of RDSO also issues "Vendor Directory". Since the vendors manufacturing products for Indian Railways deals with critical items, hence the vendors are first approved by Quality Assurance (Mech.), Wagon, Carriage, Motive Power and M&C Directorates of RDSO. The applicant is an authorised vendor for manufacturing the filters and other products. The vendor directory specifically states/ mentioned the name of the applicant corresponding to the product for which the applicant is an authorised manufacturer. • Purchase order is issued by the Indian Railways to the applicant. Thus, the applicant states that the manufacturing process for the subject goods is based upon the design and specification received from the Indian Railways. 7.6 The products manufactured by the applicant are customized for Indian Railways. The product so manufactured and supplied by the applicant, he claims that is unique by its functions, which is compatible only with Railways or locomotives and useless for any other purpose. 8. Hence, in view of the above, the applicant requests the authority to issue a ruling that the filters manufactured by the appli....
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....with the goods of the Chapter as contended by the applicant. Therefore plain reading of Section Note 2, as narrated above, indicates that filters appearing in heading 8421 cannot be considered as covered under Heading 8609. The exceptions to this rule are (a) Radiators for articles of Section XVII; (b) Articles of Heading 8481 or 8482; and (c) Articles of Heading 8483, provided they constitute integral parts of engines and motors. Since filters are covered under Heading 8421 and these are not covered under the above exceptions, the same are not liable to be covered under Parts of Railway or Tramway locomotives or rolling stock. 9.6 Further, Section Note 3 of Section XVII reads as under: "3. References in Chapters 86 to 88 to "pans" or "accessories" do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those Chapters." The first sentence clearly states that the parts which are not suitable for use solely or principally with the articles of those Chapters cannot be considered as parts under Chapter 86 to 88. To be considered as parts of an article of Chapter 86, the goods in qu....
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....propriate. However, parts which are equally suitable for use principally with the goods of headings 85.17 and 85.25 to 85.28 are to be classified in heading 85.17. The Rule stipulated at 2(a) above says that if there is a part which is shown in the Tariff as an item or as a goods in any of the headings of Chapter 84 then that part shall be classified in its heading only. In other words that item will not be liable to be classified as a part of the machine under the heading of the machine. This is rightly so as the item appears as an individual entry under a particular heading, which provides the item an identity of its own even if it is a part of some specific machinery. This finds resonance in the next rule at 2(b). It provides that 'Other parts' if suitable for use solely or principally with a particular kind of machine, or with a number of machines of the same heading (including a machine of heading 84.79 or 85.43) are to be classified with the machines of that kind. The words 'Other Parts' here means those parts which are not specifically classified as goods. A conjoint reading thus shows that if there are parts which are not specifically named and listed under a heading but....
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....to 85.28 (heading 85.29). (I) Parts of apparatus of heading 85.35, 85.36 or 85.37 (heading 85.38.) The above rules do not apply to parts which in themselves constitute an article covered by a heading of this Section (other than headings 84.87 and 85.48); these are in all cases classified in their own appropriate heading even if specially designed to work as part of a specific machine. This applies in particular to: (1) Pumps and compressors (heading 84.13 and 84.14). (2) Filtering machinery and apparatus of heading 84.21. (3) ... (4) ... This shows that in general, parts which are suitable for use solely or principally with particular machines or apparatus are classified in the same heading as those machines or apparatus. However the rule very specifically further states that the above rule does not apply to parts which in themselves constitute an article covered by a heading of this Section and it says 'This applies in particular to (1) Pumps and compressors (heading 84.13 and 84.14), (2) Filtering machinery and apparatus of heading 84.21...........'. These stipulations and provisions clearly lead one to conclude that the....
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.... and accessories, even if identifiable as being for ships, etc., are therefore classified in other Chapters in their respective headings. The other Chapters of this Section each provide for the classification of parts and accessories of the vehicles, aircraft or equipment concerned. It should, however, be noted that these headings apply only to those parts or accessories which comply with all three of the following conditions: (a) They must not be excluded by the terms of Note 2 to this Section (See paragraph (A) below) and (b) They must be suitable for use solely or principally with the articles of Chapters 86 to 88 (see paragraph (B)below) and (c) They must not be specifically included elsewhere in the Nomenclature (see paragraph (C)). The above provisions show that for any item to be classified as a part in Chapter 86 all the three conditions as at (a), (b) and (c) above have to be fulfilled. We now examine whether all these conditions are fulfilled in respect of the items supplied by the applicant. 9.12 The first condition to be fulfilled is that the items must not be excluded by the terms of Note 2 to Section XVII. Note 2 is already re....