TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 917
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....Central Excise Act, 1944.s" 2. I order for recovery of interest at appropriate rate on above confirmed demand under Section 11AB (Now Section 11AA) of the Central Excise Act, 1944. 3. I impose a penalty of Rs 16,30.69,507/- (Rs. Sixteen Crores Thirty Lacs Sixty Nine Thousand Five Hundred Seven only) on the party under Rule 173 Q of the Central Excise Rule 1944 and Rule 25 of the Central Excise Rule 2001/2002 read with Section 11AC of the Central Excise Act. 1944 4. I Confirm the demand of Central Excise duty on shortage of inputs and finished goods amounting to Rs 5,00,062/- (Rs Five Lacs and Sixty Two only) under Rule 9(2 of the Central Excise Rules. 1944 and Rule 12 of the Cenvat Credit Rules 2001/2002 read with Section 11A of the Central Excise Act, 1944. As this amount is already deposited by the party, I order for its appropriation. I confirm the demand of interest on this amount under Section 11AB (Now Section 1 1AA) of the Central Excise Act 1944. 5. I impose a penalty of Rs. 5,00.062/- (Rs Five Lacs and Sixty Two only) upon the party under Rule 13 of the Cenvat Credit Rules. 2002 read with Section1 1AC of the Central Excise Act. 1944 ....
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....ant was clearing processed waste generated during the course of manufacturing process without paying duty ⮚ Supplying waste components of CTVs and VCD players to their customers/ service centres as free supplements without payment of duty or reversal of credit. Appellant submitted details of process waste and inputs cleared without payment of duty and debited Rs 1,09,174/- and Rs 3,84,458/- voluntarily in PLA accounts. 2.3 Investigations were conducted regarding clearances of sub-assemblies by the Appellant to their OEMs. Shri P.K. Jain Factory Manager in his statement dated 12.11.2002 inter alia stated that:- ⮚ Chassis sub assembly is manufactured from populated circuit board. ICs. EHT, resistance, tuner, capacitor, relay and wiring. ⮚ The cabinet sub- assembly is manufactured with cabinet, CRT, Speaker, operation unit, main lead, on/off switch, thermal and packing box. In some cases the CRT is not fitted at the time of clearance but are supplied in the same consignment which can be fitted by the OEMs, but even without CRT, this sub, assembly is called cabinet sub assembly. ⮚ a TV can be manufactured/ assembled wit....
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....for interpretation of the schedules to CETA, 1985 and the facts of the case, it is observed that subassemblies supplied by the appellant to their OEMs had the essential character of a complete CTV and thus merit classification under Chapter heading No 8528 instead of 8529 of the Central Excise Tariff Act. 1985. 2.8 As the kits of CTVS were supplied to OEMs who were industrial consumers hence the goods should have been assessed to specific rates of duty meant for goods classifiable under heading 85.28 of CETA.1985 and not on ad-valorem rates as assessed by the appellant. 2.9 A show cause notice dated 14.10.2003, was issued to Appellants asking them to show cause as to why:- (1) Duty amounting to Rs: 16,30,69,507/- (Rs. Sixteen Crore Thirty Lac Sixty Nine Thousand Five Hundred Seven only) short paid by them on clearance of kits of Colour television sets during the period 14.10.99 to 3 1.10.02 as above should not be demanded (2) Duty amounting to Rs. 6430/- and Rs 493632/- paid on shortage of goods and processed waste of Cenvatable inputs should not be appropriated. (3) Penalty under rule, 173 Q of erstwhile Central Excise Rules 1944, Rule 25 of Centre....
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....on Sh. Antony Joseph. Manager Accounts of the said unit under Rule 209 A of the Central Excise Rule 1944 and Rule 26 of the Central Excise Rule 2001/2002. 2.12 Aggrieved appellants filed an appeal before the CESTAT. The appeal vide Final Order No. A/57508-57530/2013-EX(DB) dated 07.08.2013 was allowed and the matter remanded for the matter for de novo adjudication, observing as follows: "As regards other appellants, after hearing the learned advocate Shri Lakshmi Kumaran for the appellant and Shri L.P. Asthana, learned advocate for the Revenue, we find that both sides are in agreement for remand of the matter to the original adjudicating authority for fresh decision in the light of the declaration of law by the Hon'ble Supreme Court in the case of Salora International referred supra. We make it clear that we have not gone to the merits of the case and the other contentious issues which the appellant may raise and have remanded the matters for fresh decision on simpliciter for fresh decision in the light of Apex Court judgment without expressing any opinion on the merits of the case. The party is at liberty to raise any issues" 2.13 Matter in the remand proceeding....
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....ance is placed on following decisions:- o Haldia Petrochemicals Ltd. [2006 (197) ELT 97 (Tri-Del.)] o ITEL Industries Pvt. Ltd. [2004 (163) ELT 219 (Tri-Bang.)] o Hindustan Steel Ltd. [AIR 1970 (SC) 253] ⮚ Imposition of penalty on the chief operating officer (Appellant 3) and the accounts manager (Appellant 2) is not sustainable. Reliance is placed on:- o Amit Industries [2004 (165) ELT 177 (Tribunal)] o Rajendra F. Doshi [2007 (82) RLT 429 (CESTAT -Mum.)] o Globe Rexine Pvt. Ltd. [2006 (203) ELT 632 (Tri.-Chennai)] o Rutvi Steel & Alloys [2009 (243) EL T 154 (Tri.Ahmd.)] 3.3 Departmental Representative reiterated the findings recorded in the impugned order:- 4.1 We have considered the impugned order alongwith the submissions made in the appeal and during the course of arguments. 4.2 We find that the matter has been taken up in remand proceedings as per the Tribunal Final Order No.5750857530/2013 dated 07.08.2013 wherein the matter has been remanded making observation as under:- "Both sides agree that the legal issue stands decided by the Supreme Court in the case of Salora Internationa....
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.... rules." 20. Therefore, as clearly specified by the above rule, resort must first be had only to the particular tariff entries, along with the relevant Section and Chapter Notes, to see whether a clear picture emerges. It is only in the absence of such a picture emerging, that recourse can be made to the Rules for Interpretation. 21. In the matter at hand, the entire case of the Revenue is based on an application of Rule 2(a) of the Rules for Interpretation to the goods produced by the appellant, however, the applicability of this Rule cannot be established unless the classification is first tested against the relevant Section and Chapter Notes. In this case, the relevant Section Note is Section Note 2 to Section XVI of the Tariff, as reproduced above. The same may be reproduced again here for the purpose of a closer examination : "2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading 84.84, 85.44, 85.45, 85.46 or 85.47) are to be classified according to the following rules : (a) parts which are goods included in any of the headings of Chapter 84 or 85....
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....ts of the case, it is not in dispute that complete Television was manufactured by the appellant and therefore, in our opinion, the Revenue had rightly classified the goods-product as complete Television set even though it was subsequently disassembled. 26. It is seen from the material on record, that at the time of the parts of the TV set being transported from the factory of the appellant, the parts manufactured by it are already identified as distinct units. As it can be seen from the affidavit of the Revenue, which has not been controverted by the appellant, the parts manufactured by it are matched and numbered within the factory itself, and also assembled together to receive pictures for the purpose of testing and quality control. The consequence of this is that the goods assembled at the satellite units would be identifiably the same as those assembled together by the appellant in its factory for the purpose of testing, as all such parts are already numbered and matched. This element of identifiability shall take the goods manufactured by the appellant away from being classified as 'parts', and they will be classified as identifiable Television Receivers. The fact tha....
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....terms of this Rule, it is our view that the goods produced by the appellant do in fact possess the essential character of Television Receivers. 4.4 Impugned order records as following in the remand proceedings:- "5.5 I find that detailed investigations were carried out by the department in the matter prior to issuance of the SCNs. During the course of examination of invoices, packing lists and other related documents of the party. it was found that the party were supplying complete kit of Colour Television Sets (in SKD form), which included sub-assemblies. plastic moulded cabinets, packing materials and all other parts required for the manufacture of Colour Television Sets (with or without Colour Picture Tubes) to various OEMs for the purpose of manufacture of Colour Television Sets of "OSCAR" brand on their behalf. The party was not engaged in selling of these sub-assemblies/CTV Chassis in general market. Thus, neither the party was engaged in setting of these assemblies, sub-assemblies/CTV Chassis in general market nor the OEMs to whom these were supplied, were selling it in the open market or disposing it in any otherwise manner. It thus follows that exactly the same....
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....number of cabinet and chassis assemblies with remote controls etc were being cleared to a particular OEM. Shri Krishan Kalani Chief Operating Officer under his statement given under Section 14 of Central Excise Act,1944 on 21.08.2003 also confirmed that they were supplying complete CTVs assemblies with CPTs and packing materials to OEMs and that they were providing distribution network for sales of CTVs to OEMs. 5.8. Enquiry from M/s East India Vision Pvt Limited. an OEM, confirmed that party has supplied certain numbers of cabinet subassemblies and chassis sub-assemblies to them from which they assembled same numbers of CTVs. 5.9. Enquiry from M/s Om Industries Jammu another OEMs confirmed that in a particular consignment they were receiving cabinet subassemblies and chassis sub-assemblies remote controls and CPTs. Smt Chanchal Mahajan Partner of M/s Om Industries Jammu in he statement given under Section 14 stated that all sub-assemblies components and part required to manufacture a CTV are supplied by the party and that packing materials to OEM and that all subassemblies components and parts/ packing material for specific number c pieces are received in one con....
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....so with picture tubes and other components were captively used by the party to manufactures CTVs. In case of OEMs. the party sent these sub-assemblies with other items like pack material, labels etc,, They arranged to send CPTs directly to OEMs for sake of convenience to save the transit cost. In any case, they had all the right to check and inspect conversion of CTVs at OEMs any point of time. Also it is evident from the enquiry from M/s Clear Vision Industry, that the dispatches of CTVs were also made on the telephonic instructions of the marketing department of the party. 5.14. I find that classification of an item under First Schedule to the Central Excise Tariff Act, 1985 is basically governed by the provisions contained in the 'Rules Interpretation" (in short referred to as 'Interpretation Rules'). Rule 1 of the Rules of Interpretation reads as under: "1. The titles of Sections and chapters are provided for ease of reference only: for legal purposes, classification shall be determined according to the terms of headings and any relative Section or Chapter Notes and, provided such headings or notes do not otherwise require, according to the provisi....
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....ssential character of the complete or finished goods. It shall also be taken to include a reference to those goods complete or finished (or falling to be classified as complete or Finished by virtue of this Rule) removed unassembled or disassembled." I have gone through the submissions put forward by the party in this regard. They also submitted that Rule 2(a) of Interpretative Rules is not applicable in the instant case. It is also submitted that Note 4 to Section XVI is not applicable in the instant case. I have carefully examined these arguments and various case laws cited by the party in their support. The relevant Rules and Chapter Notes have been quoted in the foregoing paras. Now, given the unique facts of the case as discussed in detail above, and also keeping in mind the characteristics of the impugned goods, resort to Rule 2 of the Interpretative Rules has rightly been taken and I find the same as proper and legal. From the perusal of Rule 2(a) it is clear that incomplete television or unfinished television having essential character of television is to be assessed as a complete television. Rule 2(a) would also apply to complete television or finished television ....
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....s evident from the enquiry from M/s Clear Vision Industry, who categorically stated that the dispatches of CTVs were also made on the telephonic instructions of the marketing department of the party. Hence, it is evident that compiete kit of CTVs having essential characteristic of a CTV were cleared to the OEMs by party. It is very important to mention here that the manufacturing process of the CTVs was already over when the said parts/components/ assembly/ sub-assembly/ CPTs/ packing materials etc. reached OEM. No further manufacturing process was required to make a complete CTV at OEMs. I find that Technical persons/ Engineers at various OEMs in their statements and opinion have referred the impugned goods as CTV sets in SKD condition since they were having all the essential character of complete CTV. Thus, the facts indicate it beyond any doubt that the goods manufactured and cleared by the party merit classification under Chapter 85.28 and not under Chapter 85.29. 5.18. I further observe that vide Circular No. 12/12/94-CX dated 03.02.1994 the Central Board of Excise & Customs has also examined the matter relating to the classification/excitability of various sub-assemb....
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....when the statute does not define the words. If words are defined in the statute, trade parlance is not relevant. (iii) CCE Vs Woods Polymers Ltd- 1998(9)ELT-193(SC) In this case the Hon'ble Supreme Court has held that classification should be done as per the Rules of Interpretation contended in the Tariff and not as per trade parlance and commercial understanding. (iv) Collector of Customs, New Delhi Vs. Printer House Ltd., 1998(104)ELT632(Tri.)-The Hon'ble Tribunal held that the legal provision in fiscal enactment is to be construed in a manner that it does not promote evasion of tax. (v) Collector of Customs. Bangalore Vs. Maestro Motors Ltd., 2004(174)ELT289(SC), The Hon'ble Supreme Court held that, "...In our view, CEGAT has erred in holding that the Interpretative Rule 2(a) does not apply to a Notification When a Notification exempts goods falling within the First Schedule to the Customs Tariff Act, 1975, then the goods must be classified in the same manner both for purposes of payment of customs duty as well as for the purposes of exemption/benefit under the Notification..." 5.20. The, Hon'ble CESTAT, New Delhi has remanded ....
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....e 1 of the Rules of Interpretation or as laid down under Rule 2(a) of the Rules of Interpretation or as explained in the Board's Circular No. 12/12/94-CX dated 03.02.1994 has been altered. When I go through the said judgment of the Apex Court I find the following law declared therein: (i) When different parts or components are supplied in bulk without matching the correlative numbers so as to match as a definite number of TV set, in that case it may be called as 'parts': I find that the law laid down by the Hon'ble Supreme Court in the case of Salora International Limited is that, in case the different parts of TV are supplied /received in bulk without matching the correlative numbers so as to match to a definite number of TV sets, then it is removal of "parts" of TV classifiable under Chapter heading $5.29 of the First Schedule to the CETA. 1985. It is important to see that the Apex Court has used the word "bulk" two times in its judgment in regard to the nature of supply of different parts of TV; first time in Para 27 of the judgment and again in Para 28 of the said judgment, which are reproduced below: "27. The facts in the case of Sony India Ltd. (....
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....ed with this legal position declared by the Apex Court in its said judgment. (i) When at the time of clearance of the parts of the TV set being transported from the factory of the appellant, such parts manufactured by it are already identified as distinct units, the same cannot be classified as 'parts': The Hon'ble Supreme Court under Para 26 of the Judgment in Salora International case has held as under- 26. It is seen from the material on record, that at the time of the parts of the TV set being transported from the factory of the appellant, the parts manufactured by it are already identified as distinct units. As it can be seen from the affidavit of the Revenue, which has not been controverted by the appellant, the parts manufactured by it are matched and numbered within the factory itself, and also assembled together to receive pictures for the purpose of testing and quality control. The consequence of this is that the goods assembled at the satellite units would be identifiably the same as those assembled together by the appellant in its factory for the purpose of testing, as all such parts are already numbered and matched. This element of identif....
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....at the satellite units are so vital to the manufacture of the Television Receivers so as to render the goods transported by the appellant lacking the essential character of Television Receivers. Rule 2(a) of the Rules for Interpretation has been couched in wide terms, and in terms of this Rule, it is our view that the goods produced by the appellant do in fact possess the essential character of Television Receivers......." The law declared by the Hon'ble Supreme Court in its above quoted Para clearly lays down that if the process undertaken at the satellite units (OEMs in this case) is not so vital to the manufacture the manufacture of the Television Receivers so as to render the supplied goods as lacking 'essential character' of Television Receivers, then the same cannot be classified as 'parts'. The Apex Could held that the terminology of the Rule laid down in this regard is wide enough to cover such goods as Television Receivers. I have no doubt that the Apex Court here refers to and also affirms the statutory position as laid down under the Section Notes/ Chapter Notes read with the Rules for Interpretation discussed supra and applies it to the case....
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....f subassemblies and component to be reassembled as CTV and cleared by the satellite manufacture. We do not find that the same is the true in the present proceedings. Not even an iota of finding has been recorded to this effect that these subassemblies and components were ever assembled at the premises of Appellant into complete TV for testing or any other purpose and then disassembled before being cleared to the OEM's etc. The facts in the present case are more akin to the case of Sony India, which has been distinguished by the Hon'ble Supreme Court on this ground only. 4.6 Such issue came for consideration by the Tribunal in the case of M/s L.G. Electronics India Pvt. Ltd. V/s Commissioner, Central Excise, Noida-II in Excise Appeal No.70677 to 70679 of 2016 having Final Order Nos. 70138-70140/2022 dated 18.08.2022 and after considering the issue Tribunal concluded as under:- "15. The first issue that arises for consideration is regarding Interpretative Rules 2(a) of the Central Excise Tariff. The order of the Commissioner is based on this rule 2(a) and, therefore, it will be necessary to reproduce it and rule 1 also and they are as follows: "The Schedule-Excis....
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....1997 can be combined together for the purpose of assessment by applying Rule 2(a), of the Interpretative Rules. Going by the language of Rule 2(a) the question whether parts or components are to be treated as article complete or finished, has to be considered at the time when they are presented unassembled or disassembled. There is no case for the Revenue in these proceedings that at some point of time before the import the goods were in the form of CTV sets and thereafter they were disassembled and imported as parts or components. The contention is that parts in 94 consignments taken together should be treated as CTV sets presented unassembled. ***** It is not the case of the Revenue that import of the consignment covered by any of the 94 Bs/E is in contravention of law if the goods comprised therein are to be treated as parts of components. Assessments were also being made under the relevant heading or sub-heading in respect of each component as and when Bs/E were presented during the relevant period. It is in the background of the factual position, as above, we are to consider whether by applying Rule 2(a) of the Interpretative Rules the components imported are to be treated as ....
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.... German Court decision on which the Tribunal also relied upon. According to the learned counsel in that decision Rule 2(a) was considered and the Court took the view that the article is to be considered to be imported in unassembled or disassembled where the component parts, that is the parts which may be identified as components intended to make up the finished product are all presented for customs clearance at the same time. The interpretation that we have given to Rule 2(a) would mean that Rule 2(a) would be applicable only and only if all the components which are intended to make a final product would have to be presented at the same time for customs clearance. Such is not the case in the present situation where the goods have been brought in 94 different consignments." (emphasis supplied) 20. In the present case, it is not in dispute that not even a single consignment was cleared or removed from the factory of the appellant to the manufacturers containing all the parts of CTVS at the same point of time. All the consignment of sub-assemblies/parts (except for 21" Flatron) the colour picture tubes were not supplied and the colour picture tubes were always purch....
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....ing to the terms of the headings and any relevant section or Chapter Notes". If neither the heading nor the notes suffice to clarify the scope of a heading, then it must be construed according to the other following provisions contained in the Rules. Rule-l gives primacy to the Section and Chapter Notes along with terms of the headings. They should be first applied. If no clear picture emerges then only can one resort to the subsequent rules." 24. In Salora International, the Supreme Court also clarified the legal position as follows: "18. The main question that arises for consideration in this case is that of the applicability or otherwise of Rule 2(a) of the Rules for Interpretation to the goods of the Appellant, and the effect of Section Note 2 to Section XVI of the Tariff, reproduced above, on the applicability of such provision. 19. On the question of the applicability of the Rules for Interpretation vis-à-vis the Section Notes and Chapter Notes in the Tariff Schedule, the rule laid down by this Court in Commissioner of Central Excise, Nagpur v. Simplex Mills Co. Ltd. - (2005) 3 SCC 51 = 2005 (181) E.L.T. 345 (S.C.) may be seen to be applicabl....
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....hall in all cases be classified in their respective heading. In that light, the fundamental enquiry in this case must be that of whether the goods produced by the appellant may be said to be covered by the above Section Note. 23. In view of the above mentioned Section Note, the question that arises here is whether the goods produced by the appellant can be described as 'parts' under the goods included in any of the headings of Chapter 84 or 85. In this respect, it is the contention of the appellant that the goods produced by them shall inevitably have to be considered as 'parts', as they are unable to receive a picture, which is said to be a fundamental requirement for a good to be considered as a 'Television Receiver'. At the first sight, one may find force in this contention. As the test in Section Note 2 is simply that of whether the goods in question are 'parts', it may be convincingly said that as the goods transported by the appellant are incapable of functioning as 'Television Receivers', they shall have to be considered to be 'parts' thereof. 24. However, on closer scrutiny of the unique facts of this case, i....
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....t. The Supreme Court noted that the CTVS were assembled, tested and then disassembled into parts and, thereafter, the classification was claimed as part. This is not the situation in the present case." 4.7 Appeal filed by the Revenue against this decision has been dismissed by the Hon'ble Supreme Court vide order dated 10.04.2023 in Civil Appeal Diary No.8150/2023. 4.8 Thus in light of the above decisions the only issue that needs to be decided is whether the Appellant was clearing all the parts after first assembling then CTV test and then disassembling them into parts to clear them after classification as parts. There is no evidences available to show that these parts were first assembled in CTV, tested and then cleared to the OEM and the satellite manufacturing units of the Appellant. 4.9 The basic difference which has been observed by the Tribunal in case of LG Electronics India Pvt. Ltd. (supra) was that in case of Salora International Ltd. (supra) the parts were assembled, dismantled and then cleared. Similar distinction was drawn by the Hon'ble Supreme Court in the case of Sony India Ltd. reported as 2008 (231) E.L.T. 385 (S.C.) wherein the Hon'ble Supreme Court obs....
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....ount is to be taken in that regard of the complexity of the assembly method. However, the components would not be subjected to any further working operation for completion into the finished stage". It is an admitted position that this amendment was not there and therefore, the complexity of the assembly method would have to be taken into consideration at-least in case of the present goods since the concerned period is pre 1997 period. The Tribunal has correctly held that the HSN Explanatory Notes to Rule 2(a) had to be applied while considering the relevant Tariff Entry. It has also correctly held after considering the whole process that the process involved in the user of the components is the complex manufacturing process during which many components are subjected to working operation requiring sophisticated machinery and skilled operators. Further it has correctly assessed the effect of the amendment of HSN Explanatory Notes which came on 14-31997. We approve of the finding given by the Tribunal in para 25 of its order which takes into account the fact that there was no amendment to Clause (v) while this is amended to the effect that complexity of the assembly method was made ir....
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....e imported articles presented unassembled or disassembled can be put together by means of simple fixing device or by riveting or welding. We have already pointed out in the earlier part of our judgment that the complicated process would be required for the user of those parts. 17. Lastly, we must take stock of the argument of Shri Lakshmikumaran that Section Interpretative Rule 2(a) would not be applicable at all in this case. For this he invited our attention to Rule 1 of Interpretative Rules as also to the decision in Simplex Mills v. Union of India [2005 (181) E.L.T. 345 (S.C.)] wherein this Court had held in para 11 as under : "11. The rules for the interpretation of the Schedule to the Central Excise Tariff Act, 1985 have been framed pursuant to the powers under Section 2 of that Act. According to Rule 1 titles of sections and chapters in the Schedule are provided for ease of reference only. But for legal purposes, classification "shall be determined according to the terms of the headings and any relevant sector or chapter Notes". If neither the heading nor the notes suffice to clarify the scope of a heading, then it must be construed according to the other f....