ORDER
S.L.Peeran, Member (J)
1. The appellants are engaged in the manufacture of ‘Drip Irrigation System (hereinafter referred to as DIS) falling under sub-heading 84.24 of the CET, 1985. DIS consists of components like LDPE/HDPE adaptors, reducers, elbows, filters, pressure gauge etc. The appellants manufacture LDPE/HDPE pipes and filters and the rest of the components are bought out items. The above said items are assembled only at the site where the DIS as such comes into existence.
2. The Revenue accepts the classification of DIS and the parts under sub-heading No. 84.24 of CET Act and has granted the benefit of exemption from duty in terms of Notification No. 56/95-C.E., dated 16-3-1995. However, LDPE/HDPE pipes have been held to be not parts of DIS and hence it has been held to be classifiable only under sub-heading 39.17 on the premises that they are not used solely or principally with DIS in terms of Note 2 of Section XVI but are only parts of general use in view of the Note 2 of Section XV as also Note l(g) of Section XVI attracting duty at 20% adv. The further ground of the Revenue is that it is specifically included in sub-heading No. 39.17 of the CET Act and that the benefit of Notification No. 67/95-C.E., dated 16-3-1995 is also not available since the final product DIS is exempted from payment of duty. Further ground is that HDPE/LDPE tubes/pipes cleared along with other bought out components cannot be construed as used for captive consumption since they are used in the assembly of DIS only at the site of the customer and not in the factory of production. As a result, duty demand of Rs. 7,70,085/- under Rule 9(2) of CE rules read with provisions of Section 11A of CE Act, has been confirmed along with penalty of Rs. 75,000/- under Rules 9(2), 52A, 173Q and 226 of CE. Rules.
3. Mrs. Komala Choudhury, learned Consultant for the appellants contends that the DIS are not parts of general use as defined in note 2 of Section XV of the tariff but that they are specifically made as per ISI specifications for irrigation system. Referring to page 1189 of HSN, learned Consultant points out that as per HSN also the pipes of this nature fall as parts of drip irrigation system. Note 4 to Section XVI of the tariff is also referred which lays down the rule for classification in respect of a machine consisting of individual components etc. intended to contribute together to a clearly defined function is to be classified with the heading appropriate to that function. It is her contention that the DIS cannot function without these pipes which has special fittings for sprinkling water and that they are not general purpose pipes. It works along with all the items for a clear defined function of drip irrigation system for agriculture falling under heading 84.24 of the CET and hence are eligible for exemption under Notification 45/94 or 56/95 which is for parts of mechanical appliances used for agriculture.
4. On the other hand Shri S. Kannan, learned DR pleads for classification under sub-heading 39.17 of the CET Act, 1985 as they are ‘parts of general use’ in view of the definition of the expression under Note 2 of Section XV and Note l(g) of Section XVI. He pointed out that the DIS assembled in the customers field and at the time of removal from the factory it cannot be construed as a specific part of DIS, and they are in running length. Depending on the type of crops the pipe is cut and fixed with other parts to form the DIS. However, they are required to be treated as HDPE/LDPE tubes and pipes. He also relies on the ratio of the ruling reported in the case of Jyoti Plastics reported in 1993 (64) E.L.T. 291.
5. On careful consideration of the submissions made by both the sides we are required to consider as to whether these LDPE/HDPE pipes manufactured by the appellants along with drippers, reducers, elbows, filters, etc. are to be considered as DIS falling under sub-heading 84.24 of the CET Act, 1985 which deals with mechanical appliances (whether or not hand operated) for projecting dispersing or spraying liquids or powders; fire extinguishers, whether or not charged; spray guns and similar appliances; Steam or sand blasting machines and similar jet projecting machines.
8424 Mechanical appliances of a kind used in agriculture or hor-
ticulture
8424.80 Other Parts
8424.91 Of goods covered by sub-heading No. 8424.10
8424.99 Other
6. The department in the show cause notice has alleged that LDPE/ HDPE pipes manufactured by the appellants do not appear to be classifiable under sub-heading 84.24 since they are not for use solely or principally with DIS. Note 2 of Section XVI lays down as follows :
2. Subject to Note 1 of this Section, Note 1 to Chapter 84 and Note 1 to Chapter 85, parts of machines (not being parts of the articles of Heading Nos. 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 Chapter 85 (other than Heading Nos. 84.09,84.31,84.48, 84.86, 84.73, 84.85, 85.03, 85.22, 85.29, 85.38 and 85.48) are in all cases to be classified in the respective headings.
(b) Other parts if suitable for use solely or principally with a particular kind of machine, or with number of machines of the same heading (including a machine of heading No. 84.79 or heading No. 85.43) are to be classified with machines of that kind or in Heading Nos. 84.09, 84.31, 84.48, 84.66, 84.73, 85.03, 85.22, 85.29 or 85.38 as appropriate. However, parts which are equally suitable for use principally with the goods of heading Nos. 85.17 and 85.25 to 85.28 are to be classified in heading No. 85.17.
(c) All other parts to be classified in heading Nos. 84.09,84.31,84.48, 84.66, 84.73, 85.03, 85.22, 85.29 or 85.38 as appropriate or falling that, in heading Nos. 84.85 or 85.48.
The department contends that under note l(g) of Section XVI parts had been used as defined in note to Section XVI of base metal (Section XV) and similar goods of plastic of chapter 39 are excluded from Section XVI which has chapter 84 within it. The appellants contention has been that the goods are not parts of general use but they are specifically manufactured for DIS and cleared as such for the purpose of distribution of water to the lands where crops are growing. They contend that the item in question is manufactured as per the requirements, they are laid out for distribution to the irrigation system. In this connection the appellants have produced the evidence of ISI specifications meant for pipes in irrigation system/laterals. The appellants have also produced letter dated 16-7-1996 from the Agricultural Engineering Department issued by the Chief Engineer who has recognised the manufacture of DIS scheme and has issued the licence to the appellants under the agricultural engineering centrally sponsored scheme for use of plastics in Agriculture-Drip Installation for Horticulture crops. It is contended that the goods are manufactured specifically for agricultural laterals and are not for general purpose. They point out that registration certificate has been given by the ISI for such manufacture. They also relied upon the invoice which clearly show that these goods were removed earlier against specific order and invoice deals with the entire system including pipes which are fitted to this system. The Collector has basically proceeded on the note l(g) of Section XV which excludes parts of general use as defined under note 2 of Section XV. Note 2 of Section XV defines parts of general use as follows:
(a) Articles of heading Nos. 73.07, 73.12, 73.15, 73.17 or 73.18 and similar articles of other base metal;
(b) Springs and leaves for springs, of base metal, other than clock or watch springs (heading No. 91.14); and
(c) Articles of heading Nos. 83.01, 83.02, 83.08, 83.10 and frames and mirrors, of base metal, of heading No. 83.06.
It is contended that only these parts which are specified therein are to be treated as parts of general use and not others. It was also pointed out by the learned Consultant that the parts of DIS falling under 84.24 are not mentioned in the above note No. 2. On consideration of the submissions and on perusal of the above Note 2 of Section XV it is clear that the article and parts of heading 84.24 are not mentioned therein. Further the evidence on record clearly discloses that the items in question are specifically removed for the purpose of DIS and DIS would not come into existence without these manufactured pipes along with its fixtures. The appellants have been manufacturing and clearing the DIS in terms of the specific orders received from the parties. The invoices are supportive of their pleas. They have also produced their marketing literature which shows that these pipes are designed and the system is also designed for lay out for supply of water to the agriculture. On perusal of the evidence it is clear that the pipes are laid out as per the drawings and various strips are fixed to this pipes at the spot laid out. Therefore, the contention of the department that the parts are of general use as defined under Note 2 of Section XV & Note l(g) of Section XV is not acceptable as the said Note 2 of Section XV does not refer to these parts under Chapter 84.24.
7. It is also seen that in terms of note 2(b) of Section XVI parts if suitable for use solely or principally with a particular kind of machines are required to be classified along with the main item. These parts have become part of DIS and manufactured as per ISI specifications for use only as DIS is required to be considered for classification along with the entire system by applying Note 2(b) of Section XVI. Further even Note 4 of Section XVI reads as follows :
“Where a machine (including a combination of machines) consists of individual components (whether separate or inter-connected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function”.
On a reading of this, it is clear that if the machines consist of individual components (whether separate or inter-connected by piping, by transmission devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84, then the whole parts should be classified in the headings appropriate to that function. If this note is taken into consideration also, the pipes which are specifically manufactured for DIS parts is required to be classified as a system itself. It has clearly defined function and the item i.e. DIS clearly fall under Heading 84.24 which refers to mechanical appliances or for projecting, dispersing or spraying liquids etc.
8. The supportive arguments for the appellants is also a reading of explanatory note to HSN under Chapter 84.24 which deals with irrigation system. The said note deals with irrigation system which reads as follows :
These irrigation systems, consisting of various components linked together usually include:
(i) a control station (mesh filters, fertiliser injectors, metering valves, non-return valves, pressure regulators, pressure gauges, air vents, etc.);
(ii) an underground network (distribution lines and branch lines which carry the water from the control station to the irrigation zone); and
(iii) a surface network (dripper lines incorporating the drippers).
Such systems are classified in this heading as functional units within the meaning of Note 4 to Section XVI (see the General Explanatory Note to that Section).
This heading also covers:
(1) Machines for coating various objects (for example, cups, cartons, boxes) by spraying with paraffin wax or molten wax.
(2) Electrostatic painting apparatus consisting of a spray gun connected to a paint container by a flexible tube carrying paint, and also connected to a high-tension generator by an electric cable. The electrostatic field created between the object to be painted and the gun attracts the paint particles sprayed by compressed air to that object and prevents dispersion.
(3) Industrial robots specially designed for projecting, dispersing or spraying liquids or powders.
On a careful reading of the above note, it is seen that an underground net work (distribution lines and branchlines which carry the water from the control station to the irrigation zone) and also surface net work (dripper lines incorporating the drippers) constitute irrigation system and the above note also emphasises that such system are classifiable under heading 84.24 as functional units within the meaning of Note 4 to Section XVI. The parts thereof are also brought under this Section and the parts as are referred to above include reservoirs for sprayers, spray nozzles, lances and turbulent sprayer heads, to form the irrigation system as they carry out functions of the ground net work for distribution of water and surface net work. The irrigation system basically is of these pipes and the other items referred to above, which carry out the functions of distribution and dispersing or spraying in terms of the description under Chapter 84.24 and the said sub-heading 8414.10 dealing with removable appliances of the kind used in agriculture or horticulture. Therefore, parts thereof are covered by sub-heading 8424.91. As a result, the appellants’ claim for the benefit of exemption Notification for the items falling under Heading 84.24 claiming nil rate of duty under Notification No. 56/95 dated 16-3-1995 is justified.
9. The learned DR has relied upon the judgment in the case of Jyoti Plastics v. CC as reported in 1993 (64) E.L.T. 291 (Tribunal), wherein the item was plastic pipes of general use and were not meant to be used for DIS. The show cause notice itself indicated that the product are exclusively used in chemical industry and the products are of non-corrosive characteristic and on that ground being of general use the Tribunal applied note l(g) of Section XVI which excludes parts of general use. The facts in this case are totally different and the ratio of the decision cited is distinguishable.
10. In this view of the matter, the contention of the appellants is accepted and the appeal is allowed.