TaxTMI 
TaxTMI 
2022 (10) TMI 468
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....imited exemption from the levy of excise duty. 3. The appellant had sold their manufactured product by describing them as heat pumps but the Assistant Commissioner of Central Excise negated such description. On appeal by the assessee, the Commissioner of Central Excise (Appeals) however agreed with the manufacturer's claim. But in the appeal by the Revenue, the Customs, Excise and Service Tax Appellate Tribunal, Mumbai (for short "CESTAT") has reversed the decision. The conclusion in the impugned order dated 22.1.2009, is that the product is not heat pump and therefore, ineligible for concessional rate of duty under Sl. No. 2 of Notification No. 155/86-CE dated 1.3.1986. It was also held that the product is a complete machine and cannot be treated as part of a machine. It was accordingly declared that the manufacturer is disentitled to the concessional rate of duty in terms of the notification, for their product. Incidentally, the CESTAT also held that the value of Lithium Bromide is not to be calculated in the assessable value of the machine. However, to facilitate computation of the payable sum of duty by the manufacturer, the matter has been remanded to the adjudicating authori....
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....carried out by the manufacturer to transform chillers into MVAC and the four-way reversing Valve, a key component in MVAC can provide heating and cooling from the system to the air condition space by reversing the flow direction of refrigerant and thereby an air conditioner can fit into the description of heat pumps. It is argued that classification of the product should be based on the machine, as altered by the additional components and the product presented should be seen as a whole for the purpose of classification by taking into account its inbuilt functionality to produce hot water. The senior counsel would rely on the recognition of few customers of the product who say that the product is purchased for getting both hot and cold water. 4.4 To blunt the Revenue's projection that the product is capable of heating water by mere 5 degree celsius or so and the same should not therefore be classified as heat pumps, the appellant's Counsel submits that the MVAC is similarly capable of marginally cooling the water also by around 5 degree celcius only and if the theory propounded by the Revenue is to be applied, the product - if it cannot be a heat pump, cannot also be a chiller for ....
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....atory, accordingly MVAC must also be treated as Heat Pump. RESPONDENTS CONTENTION 5.1 On the other hand, Mr. V. Chandra Shekara Bharathi, the learned counsel, at the outset, submits that the Revenue does not dispute the classification of the product under Chapter 8418 since there are no rival entries. Notwithstanding such a stand, it is argued that the MVAC manufactured by the appellant does not qualify as heat pump to secure the benefit of limited exemption, under the Notification 155/86-CE dated 1.3.1986.It is specifically contended that MVAC does not satisfy the definition of heat pump given in the HSN where heat pump is defined as under:- "A heat pump is a device which draws heat from a suitable heat source (principally underground or surface water, the soil or the air) and converts it with the assistance of a supplementary energy source (e.g. gas or electricity) into a source of more intense heat." 5.2 Taking a cue on the functional description of the device in the HSN, the respondent submits that the definition of the heat pumps is through a process of heat plus energy resulting in a source of more intense heat, but for the appellant's device, the final output is chilled....
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....water through modification of VAC is not germane to warrant classification of VAC in the category of heat pumps. 5.5 The learned counsel for the Revenue next contends that the judgment of the Tribunal in Blue Star (supra) and Voltas (supra) are distinguishable and should have no application in determining the classification of the MVAC manufactured by the appellant. 5.6 Adverting to Chapter Note 7 to Chapter 84, it is also argued that production of chilled water is the sole purpose of the MVAC and the product does not qualify as heat pump, if the HSN definition is applied as is necessary. DISCUSSION 6. The definition of a product given in the HSN should be given due weightage in the classification of a product for the purpose of levying excise duty. This is because in the Statement of Objects and Reasons of the Bill leading to enactment of Central Excise Tariff Act, 1985, it was clearly stated that the pattern of tariff classification is broadly based on the system of classification derived from the International Convention on the Harmonised Commodity Description and Coding System (Harmonised System) with such contraction or modification thereto as are necessary, to fall within....
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.... found in the HSN and, therefore, any dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself. The definition of a term in the ISI Glossary, which has a different purpose, cannot, in case of a conflict, override the clear indication of the meaning of an identical expression in the same context in the HSN. In the HSN, block board is included within the meaning of the expression "similar laminated wood" in the same context of classification of block board. Since the Central Excise Tariff Act, 1985 is enacted on the basis and pattern of the HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in the HSN when there is no indication in the Indian tariff of a different intention." 7. Commenting on the importance of taking guidance from HSN Classification and how a taxing statute should be construed in consonance with their commonly accepted meanings in the trade and popular sense, Justice Sanjiv Khanna in D.L. Steels (supra) al....
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....xplicitly defined, or there is ambiguity as to its meaning, it must be interpreted for the purpose of classification in the popular sense, which is the sense attributed to it by those people who are conversant with the subject matter that the statute is dealing with. This principle should commend to the authorities as it is a good fiscal policy not to put people in doubt or quandary about their tax liability. The common parlance test is an extension of the general principle of interpretation of statutes for deciphering the mind of the law-maker. However, the above rule is subject to certain exceptions, for example, when there is an artificial definition or special meaning attached to the word in a statute, then the ordinary sense approach would not be applicable." 8. Guided by the definition of heat pump as given in the HSN, it is clearly discernible that the Modified Vapour Absorption Chillers (MVAC) manufactured by the appellant do not satisfy the definition of heat pump as given in the HSN. According to the appellant, the functioning of the MVAC involved - a) Lithium Bromide in a lower concentration is made to react with water to form what is commonly known as the 'weak solutio....
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....pellant in their website have identified Vapour Absorption Chillers and heat pumps separately. Significantly in the description of the product on the appellant's website, Vapour Absorption Chillers do not mention about its heating capability. Likewise, heat pumps do not mention about the cooling function. This would suggest that the appellants do not themselves recognize the incidental hot water generating capacity of the Vapour Absorption Chillers, to treat it as a heat pump. The modification of Vapour Absorption Chillers by adding a sensor to gauze the temperature and incorporating a selector switch in the control panel to select heating/cooling mode with added wiring to carry the signal from the censors would simply mean that a vapour absorption chiller can also produce hot water. However, what is important to keep in mind is that the additional purpose does not alter the primary character/functionality of the product which is to function as a vapour absorption chiller, used to produce chilled water for the purpose of refrigeration and air conditioning. This is how the product is recognized in the market. The incidental output from the machine cannot therefore justify classifica....
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....er, what is stated therein is that a machine is capable of additional function, for the purpose of classification, its principal purpose is to be understood as the machine's sole purpose. On this, the learned counsel for the Revenue has argued that Chapter note 7 forms part of the HSN which has been adopted in the Central Excise Tariff Act and the same being an Act of Parliament, the reliance on the chapter note in the HSN is a legal contention which, given the circumstances, can be applied in the present matter. We cannot also be unmindful of the fact that Chapter Note 7 comes into play only when there are two or more headings, and in those situations when, none of those headings fall under Chapter 84.01 to 84.24. According to HSN, the headings 84.01 to 84.24 cover an apparatus by referring to their definition which can be used in different industries. The present case pertains to heading 84.18 and the expression and phrases must therefore be literally construed to include two commercial classifications within the same heading. For example, a product under heading 84.18 can either be a refrigerator or a freezer or a refrigeration equipment or a heat pump not falling under Chapter ....