AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (10) TMI 669
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.... 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 ('CGST Act') and Karnataka Goods and Service Tax Act, 2017 ('KG....
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....comotives. 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 they are identifiable as for the goods of this section: (a). . . (b). . . (c). . . (d). . . (e) Machines and apparatus of heading 8401 to 8479, or parts the....
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....tomized 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 combustion purpose Diesel locomotive works (DLW), Diesel loco sheds (Founder Indian Railways) Car body filter Providing clean air to the electrical equipment and compressor compartment Lube oil and Fuel filter Removes particulate matter from the fuel oil and engine lube oil 6.1.3 B....
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....uter 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 classification of the product under classification would be under chapter 8473.30 or 84.71 and not under chapter 90 as held by the lower authority. I set aside the order passed by the lower authority and allow the appeal filed by the appellants." 6.2.2 The above decision of the Hon'ble Tribunal has further been affirmed by the....
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....ct 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 for use with the vehicles of Section XVII. A copy of the said clarification is enclosed as Annexure - III(C). Though a clarification under the erstwhile excise regime, but since the excise also followed the common code of classification i.e. HS, an interpretation of the Tariff thereunder would squarely apply to resent matter also. Hindustan Wel....
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.....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 subject matter of SCN No. 107/HEB/JC/B1/2016 dated 23.03.2017 issued under the Central Excise Act, 1944 (in the pre-GST regime) by the Office of the Principal Commissioner of Central Excise, Bangalore-I Commissionerate, the applicant submitted that (a) the proviso to Section 98(2) of the CGST Act, 2017 embodies the expression "proceeding in the case of an applicant under any of the provi....
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....s 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 parts and accessories are suitable for use on more than one type of vehicle (motor cars, aircraft, motorcycles, etc.); examples of such goods brakes, steering systems, wheels, axles, etc. Such parts and accessories are to be classified in the heading relating to the parts and accessories of the vehicles with which they are principally used." The applicant stated that in view of the above explanatory notes, it was established that the effect of Note 3 was therefore that when a part....
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....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 classification entry Classification under 8607 based on sole and principal use Commissioner of Central Excise, Bangalore v. Sri Ram Metal Works [1998 (99) ELT 616 (Tri)] = 1997 (11) TMI 265 - CEGAT, MADRAS Water Tank Sanitary Ware 8312.90 Container fabricated to specific design and drawings of railways for fitment into coach and becomes art of coach Sanitary ware 7308.80/ 7613.30 Sanitary ware designed for fitment into coach and considered as part of coach work Commissioner of Central Excise, Chennai v. Parikh Metal & Chemical Industries [2001 (130....
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....ection 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. The expressions "parts" and "parts and accessories" do not apply to the following articles, whether or not they are identifiable as for the goods of this Section:- (e) Machines and apparatus of heading No.s 84.01 to 84.79, and parts thereof; articles of heading No. 84.81 or 84.82 and provided they constitute integral parts of engines or motors, articles of heading No. 84.83." The Commissioner in the impugned order took note of the meaning or locomotive given in the Explanatory Notes to HSN..... He further noted the meaning of locomotive from Encyclopedia Brittanica as a vehicle containing the power u....
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....plied 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, which still holds good. If radiator assembly manufactured for Railways for being fitted in locomotives is to be classified under Heading 8607, we do not find any justification in the department taking a view that integral parts of IC engines which form locomotive are outside Chapter Heading 86. In light of the above discussion, we come to the conclusion that the various components manufactured by the appellant company are classifiable solely under Chapter Heading 86. The contrary view taken by the Commissioner is clearly erroneous." 7.4.5 The applicant further submitted that the present issue was squarely covered by the ratio laid down by the Hon'ble Tribunal in as much bot....
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....ication 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 applicant must be classified under Heading 8607 as parts of goods falling under Chapter 86 (railway / tramway and locomotive) and not elsewhere. FINDINGS & DISCUSSION: 9. We have considered the submissions made by the Applicant in their application for advance ruling as well as the submissions made by Sri Gopal Mundhra, Advocate and authorized representatives, during personal hearing. We have also considered the issues involved, on which advance ruling is sought by the applicant, and relevant facts. At the outset, we would like to state that the provisions of both the CGST Act and the KGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act wo....
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....es 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 question must be suitable for use solely or principally with the articles of Chapter 86. That means, for a goods to be considered as a part of Railway locomotive, it must be "suitable for use solely or principally with Railway locomotive" 9.7 The seemingly conflicting stipulations of Section Notes 2 and 3 to Section XVII are central to the instant issue. We delve into the details of the aforesaid Notes to reach to an answer to the question raised by the applicant. The applicant has amply demonstrated, with the help of a plethora of documents including design approvals and testimonials from railways to prove, that the filters are meant only for railways and are for principal use in locomotives manufactured by Railways. However this does not resolve the issue. Answer lies in the analysis of the two seemingly conflicting Chapter Notes....
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....he 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 are suitable for use solely or principally with a particular kind of machine, then such parts would find classification with the machines of that kind. In summation these Rules in Note 2 provide that if there is a part which is suitable for use solely or principally with a particular kind of machine but is specifically classified under a heading by its name then that part would continue to hold its classification under the same heading and would not be classified under the heading of the machine, of which it is a part. In this regard we find that the items supplied by the applicant to Railways are Air filters for Electric locomotives, Air filters for Diesel locomotives, Car body filter and Lube oil and Fuel filter. We find that Air filters for internal combustion engines are specifically classified under heading 84213100, Oil filters under 84212300 and Air f....
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....plies 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 air and oil filters are specifically classified as goods under Heading 8421 and by virtue of the Section Notes and the Explanatory Notes, as enumerated above, these items would continue to be classified under Heading 8421 even if they are solely and specifically for use in railway locomotives. 9.10 We now examine the Explanatory Notes and Section Notes concerning Heading 8607. The applicant contends that their goods find classification as parts of locomotives under heading 8607. Chapter 86 is covered under Section XVII. There are five Section Notes to Section XVII. Notes 2 and 3 concern the issue at hand. Note 2 reads as follows: 2.- The expressions "parts" and "parts and accessories" do not apply to the following articles, whether or not they are identifiable as for the goods of this Section : (a) ... (b) ....... (c) ... (d) ...... (e) Machine or apparatus of headings 84.01 to 84.79, or parts thereof; cuticles of heading 84.81 or 84.82 or, provided they constitu....