ORDER
S.L. Peeran, Member (J)
1. The appellants have challenged the order-in-original dt. 15-5-1991 passed by the Collector of Customs, New Kandla, Gujarat. By his order dt. 15-5-1991, the ld. Collector has held that 68 packages imported by the appellants and declared to contain one No. Steam Calcination Plant (Steam Tube Drier) complete with Accessories and Wear-parts are not classifiable as a complete unit under sub-heading 8419.39 but they are required to be classified on merits, as per the allegations made in the show-cause notice. He has held that the importer did not include a part of the payment for goods to the extent of Rs. 51,27,500/- as assessable value even though they were aware that this demand had been made as a condition for the sale of the goods. By not including this amount, they would have evaded payment of duty to the extent of Rs. 58,52,4007-. He has held that besides they had also claimed classification of the entire machine under one heading even though each of the machine are separately invoiced and classifiable under different headings attracting higher rates of duty. Since the “value” for Import Contol purpose has the same meaning as in terms of Section 14 of the Customs Act, the importer should have produced an import licence for the full value arrived at in terms of Section 14 of the Customs Act and he has held that since the value of the licence produced by them fell short to the extent of Rs. 51,27,500/-, the goods of this value were liable for confiscation under Section 111(d) of the Customs Act. He has further held that in view of mis-declaration in respect of value and also in respect of classification of the items, the entire goods had been rendered liable for confiscation under Section 111(m) of the Customs Act. He has rejected the importer’s plea that there is no misdeclaration on their part. Therefore, he has held that the entire imported goods are liable for confiscation under Sections 111(d) and 111(m) of the Customs Act. He has held that they are also liable for penalty and hence has imposed a penalty of Rs. 50 lakhs under Section 112(a) of the Customs Act. In the result, he has passed an order to the effect:
(i) that the basic engineering and specification charges shall be included in the assessable value.
(ii) The classification of the machines in the Customs Tariff as indicated in his order.
(iii) The importer shall pay the differential duty due to the revised valuation and classification.
(iv) To pay penalty of Rs. 50 lakhs under Section 112(a) of the Customs Act.
The importer had been issued a show cause notice dt. 5-6-1990, which is based on the contract, which had been placed by the appellant for supply of this plant. The show cause notice delineates the various clauses of the contract to allege that they are liable to pay service charges viz. the engineering charges and supervision and commissioning charges of Rs. 51,25,5007- should not be added to the declared value of the goods to arrive at transaction value under Rule 4(1) of the Customs Valuation Rules, 1988 for the purpose of determination of the value under Section 14 of the Customs Act, 1962. There is allegation with regard to the enhancement value in terms of the import licence and as they had not produced any licence for the enhanced value, the importer is stated to have been contravened the import policy, thus making the goods liable for confiscation. It is alleged that the importer had sought the clearance of goods under Chapter Heading 8419.39 of the Customs Tariff Act, 1975. While going through the invoice, it is observed that they had imported the different items (as per Annexure ‘A’). The importer had sought the clearance under different headings, whereas the invoice shows the value of the each item separately thus attracting customs duty showing different headings. Therefore, they were called upon to explain as to why the goods should not be assessed on merit under Tariff Heading of CTA, 1975 instead of Heading 8419.39 claimed by them. They were also asked to explain as to why the goods should not be confiscated under Sections 111(d) and (m) of the Customs Act, 1962. The Annexure ‘b’ of the show cause notice has given the details of the items and the valuation of the same. The items are :-
1. Steam Calcination with Mixer.
2. Star Feeder
3. Calciner Gas Stack
4. Cyclone
5. Screw Conveyor
6. Calciner Gas Cooler
7. Liquid Separater
2. 1. Steam Calcination with Mixer:
The ld. Collector examining the invoices and the content of the contract has observed that nowhere the term “Steam Tube Drier” has been used. He has referred to the Technical Characteristic of the Equipments (Annexure 2.2 of the contract) furnished by the importers which clearly indicated that the item under Import is a steam calciner. Therefore, the Collector has held that the contract itself says that a contract has been concluded for the purpose of design, supply and construction of a steam calcination plant for manufacture of Soda Ash (introductory portion of the contract) Article 1 and 2 of the contract which refers to “the seller sells and the buyer buys on the terms and conditions of this contract supplies and services as follows for a steam calcination plant having a capacity of 300 mts of light Soda Ash for 24 hours”. Article 2 states that “the seller shall elaborate and supply the necessary basic engineering for the steam calcination plant”. Therefore, the ld. Collector has observed that nowhere else in the contract is there any mention of the word “steam tube drier”. In all the documents submitted by the importers, this machine is described as steam calcination plant. He has observed that no manufacturer’s catalogue or any other documents has been produced to show that the item under import is steam tube drier. In view of this, he has held that the Department has to take the item as a steam calciner. He has held that even if the item is described as steam tube drier, the classification of the item should be based on the exact function of the machine and not on the basis of nomenclature. He has held that in other words, merely because the machine is described as a drier, unless it meets the requirements of Heading No. 8419, it cannot be treated as a drier. Examining the Heading No 8419 of the Tariff and Explanatory Note thereunder, the ld. Collector has held that it is clear that this heading covers driers which remove the moisture from a material by a process of simple heating. The transformation of the materials that this heading envisages is the transformation like cooking, roasting, steaming etc. He has held in the other words, by heating, the material itself is transformed into another stage of its existence without undergoing a chemical change. He has noted that this is further clear from the HSN Explanatory Notes. He has held that the heating, evaporation and drying plants included under the heading “Evaporating or Drying Plant” (Page 1176) are all machines which perform the function of removing the moisture. The ld. Collector has, therefore, held that it is clear that a machine which brings about a chemical change in a material on account of heating will not be classifiable under Heading 8419 as a drier because it is not merely performing the function of drying. The ld. Collector has noted that in the present case the Sodium bicarbonate is heated in the steam calciner and as a result of the heating, the chemical reaction takes place and the Sodium bicarbonate decomposes into Soda Ash, water vapour and carbon dioxide. The fact that chemical reaction takes place in the steam calciner has not been disputed by the importers. He has also noted that the affidavit filed alongwith the reply to show cause notice confirmed that there is a chemical reaction in the steam calciner. Therefore, he has held that it is clear that the steam calciner is not a drier or something which removes the moisture in sodium bicarbonate. He has held that it is a reaction vessel which facilitates the decomposition of the sodium bicarbonate on account of the heating. He has observed that under Heading 8417 all industrial and laboratory furnaces, ovens including in incinerators non-electric have been included. He has held that in the case of steam calciner, there is no dispute that heating is by means of steam or in other words this is non-electrical heating. The Explanatory Notes under this heading have indicated that these machines are used for heat treatment i.e. by roasting, calcination or decomposition of various kinds of products. The ld. Collector has held that, from this, it is clear that a heating equipment which brings about calcination or decomposition will fall under this heading. The importers have argued that steam calciner cannot be termed as furnaces or oven. The furnace or oven produces very high temperature, whereas steam calciner produces only upto 200°C. The ld. Collector has held that all furnaces and ovens designed for production of high or fairly high temperature are included here. There is no dispute that 200°C generated in the calciner can be described as fairly high temperature. He has observed that there is no stipulation that the combustion of fuel should be inside the chamber. Many of the equipments included under this heading do not have refractory lining or the facility to have the fire inside the chamber. Therefore, the Collector has held that Heading No. 8417 not only includes conventional type furnaces but also ovens, designed for production of heat in chambers and used for the heat treatment of various kinds of products. He has held that since the steam calciner is for calcination or decomposition of the material, it is specifically included under this heading by the Explanatory Notes.
2. Star Feeder:
The importers had claimed classification of this item as a part of the drier under Heading No. 8419.39 whereas the department had indicated classification under Heading No. 8479.89, because of the multiple function of feeding the material into the calciner and sealing the calciner. The ld. Collector has held that the technical characteristics of the equipment furnished by the importers nowhere indicate that the star feeders are an integral part of the calciner. Ld. Collector has held that it is noticed that the importer had invoiced separately from the calciner. Hence, the star feeders have to be assessed as independent machine. He has held that the sodium bicarbonate is fed into the mixer by means of polyethelene lined feeder. Similarly, the star feeders are also used for Soda Ash discharge from the steam calciner. Therefore, the Collector has observed that there is no doubt that the star feeders are for the purpose of feeding or drawing of the material from the steam calciner and the function of sealing is subsidiary. Therefore, on the basis of principal function, the star feeders can be classified as handling, loading and unloading machinery and the most appropriate classification therefore for this item is 8428.90. Thus, as can be seen, the Collector has also not confirmed the classification suggested by the department in the show cause notice. He has rejected the importer’s claim under the heading claimed by them on the ground that there is no indication that the star feeders are performing continuous action.
3. Calciner Gas Stack:
The department had proposed Heading No. 8479.89 as a machine having independent function. The importer had taken a stand that this is a transmission device or a mere pipe connecting the calciner and the cyclone for the purpose of drawing out the calciner gas. Therefore, they had stated that it should be assessed alongwith the calciner as an integral part of the calciner. The ld. Collector has observed that from the technical characteristics of the equipments furnished by the importers, it is seen that calciner has stack which is for drawing the gas from the steam calciner and passing it on the cyclone. It has an expansion joint and two separate outlays. No further details have been furnished by the importers to substantiate that it is a mere pipe connecting the calciner to the cyclone. He has observed that the technical characteristics of the equipments (Annexure 1.3 to the contract) given by the importers it is noticed that the calciner gas stack serves for drawing off the gas from the steam calciner. He has observed that it is not clear as to how exactly draws off the gas. Therefore, he has held that from the description given in the documents and from the fact that it has been separately invoiced and the fact that this equipment had been packed in three packages, therefore, it is clear that it cannot be a mere pipe but independent item of machinery. Therefore, he has ordered for classification under Heading No. 8479.89.
4. Cyclone:
The Collector has observed that the technical characteristics of the equipments indicate (Annexure 1.3 to the contract) that the cyclone is used for dust collection from the calciner gas. The cyclone consist of a cylindrical part with the tangential gas inlet nozzle. In the lower part, there is a cone with the discharge nozzle for the Soda Ash dust captured by the cyclone. The calciner gas with the Soda Ash dust enters the cyclone which captures dust inside and leaves the clean calciner gas. He has observed that the importer had agreed with this description but they had taken a view that the function of the cyclone is an important part of the overall function of the entire plant to maintain high efficiency level and since it contributes to the principal function, it should be classified alongwith the main equipment. He has also noted the submissions that the cyclone does not carry out function of filteration or purification of gas and its essential work is for soda ash recovery and not purification of the gas, thus, the item to be classified under the heading claimed by them. Ld. Collector has held that these gas filters and gas purifiers are used to separate solid or liquid particles from gases either to recover products of value e.g. coal dust, metallic particles etc. recovered from furnace gas or to eliminate harmful materials e.g. dust, extractions, removal of tar etc. from gases or smoke fumes, removal of oil from steam engine vapour. Therefore, he has observed that it is clear that the machinery included in the Heading 8421 are used for removal of solid particles from gases. Since the cyclones are used to remove solid particles of Soda Ash, it clearly falls within the purview of the said heading. He has also noted that as per page 1183 of HSN Explanatory Notes, Cyclones are one of the items specifically mentioned under filtering purifying machinery. Therefore, he has held that the same is entitled for classification under Heading No. 8421.39.
5. Liquid Separater:
The department has proposed classification of this item under Heading No. 8421.39 because the function of the item is to remove liquid particles from the calciner gas. The Collector has noted that the function of the liquid separater is explained in the technical characteristic of the equipment (Annexure 1.3 to the contract). He has observed that it is stated therein that the liquid separater serves for removing the liquid droplet entrained by the cooled calciner gas. The gas enters cylindrical part of the separater. The liquid is removed and the gas leaves the separater via a pipe fitted to the cover and projecting into the separater Therefore, he has held that the function of the item is to separate the liquid particles in the calciner gas. He has rejected the argument that it cannot be treated as purifying machinery for gas. He has held that it is only removing the liquid particles from the calciner gas and hence it will clearly fall under Heading 8421.39.
6. Screw Conveyor:
The department has proposed classification of the item under Heading 8479.89 on the ground that the machine serves several purpose. He has noted the importer’s plea that the item is for removing the Soda Ash and Sodium Carbonate from the cyclone and conveying it to the steam tube drier and its main function is conveying the solids. The importer had submitted that this is a transmission device which contribute to the principal function of drying and it should be assessed alongwith the main machinery. Alternatively, they had suggested that it should be assessed under 8428.39 as a loading and unloading machinery as per the HSN Explanatory Note. The ld. Collector has agreed with this proposal of the importer and has classified the goods under Heading 8428.39.
7. Calciner Gas Cooler and Scrubber:
The department has proposed the classification of this item under Heading 8421.39 on the ground that its principal function is the recovery of Ammonia from the cooled calciner gas. The importer had sought separate classification for calciner gas cooler and gas scrubber. They had pleaded that cooling of the calciner gas is an essential part of the steam tube drier and hence it should be classified alongwith the steam tube drier. In the alternative, it should be treated as a heat exchanger unit falling under Heading 8419.50. As regards the gas scrubber, they had stated that it contributes to the heat removal of the calciner gas and hence it is an essential part to the principal function of drying and should be classified alongwith the calciner. They had stated that the proposed classification of the department is in appropriate as it does not do any filteration or purification of gas. The ld. Collector has noted the function of the machine which is described as follows :
“The Calciner gas cooler and scrubber serves for cooling the gas and for scrubbing the Ammonia.”
It consists of following three parts :
1. Condensate collecting vessel;
2. Calciner gas cooler; and
3. Calciner gas scrubber.
These parts are separated from each other by continuous intermediate plates. The Condensate collecting vessels receives the Soda Ash conveying Condensates. The calciner gas cooler designed for cooling down the calciner gas by means of cooling water. Cooling water flow through the cooling boxes from bottom to the top. The calciner gas scrubber is designed as a packed tower and serves for scrubbing Ammonia from the gas.
3. The ld. Collector has noted the above description and held that the function of this composite machine is to cool the calciner gas and scrub the Ammonia in the gas. The ld. Collector has observed that the manufacturers have taken the machine as one machine and from the description of the function, it is clear that it has two functions namely cooling the gas and scrubbing the Ammonia. Therefore, he has held that the machine has to be assessed as one machine and not separately. The ld. Collector has held that classification has to be done in terms of note 3 to Section XVI of the Tariff. He has held that in other words, its classification would be based on its principal function of the machine. He has held in the present case, there is no doubt that the principal function of machine is to remove Ammonia in the calciner gas by scrubbing. Before Ammonia is removed, calciner gas has to be cooled. The cooler parts of the machine serves this purpose. The function of the scrubber has been explained in the reply to the show cause notice as absorption of the Ammonia in the calciner gas by a solution of Sodium Chloride. The ld. Collector has held that the essential function of the cooler and gas scrubber is to remove Ammonia by means of filtering the calciner gas by a solution of Sodium Chloride. Therefore, he has held, there is no doubt that this item also will fall under filtering or purifying machinery or apparatus for liquids and gases under Heading 8421 in the light of HSN Explanatory Note appearing at page 1183. The ld. Collector has held that in the present case if the item is considered as a gas cooler, it may fall under Heading No. 8419.50 whereas as already indicated, if it is treated as a scrubber, it will fall under 8421.39. He has held that even if it is considered that both these classifications are equally applicable to the present case, applying Rule 3(c), the correct classification should be under 8421.39 and hence, he has ordered accordingly.
4. The ld. Collector has held that as regards the other items in the invoices, the classification indicated in the department’s letter dt. 24-8-1990 has not been disputed by the importers and hence, he has confirmed the classification accordingly. The ld. Collector was furnished with technical details which would appear in the affidavits of two renowned experts. However, the ld. Collector has not looked into these materials including the affidavit itself.
5. We have heard ld. Senior Advocate Sh. Arshad Hidayatulla ajnd Sh. S.M. Baxi for the appellants and Shri B.K. Singh, ld. SDR for the Revenue.
Ld. Senior advocate at the outset pointed out to the issue before the Tribunal which is, as to whether the imported steam tube drier plant can be assessed and classified as a whole, by applying the Section Note 4 of Section XVI under Chapter sub-heading 8419.39 as claimed by the importer, or that the individual units of the plants are required to be assessed on merits as held by ld. Collector. The other questions pertains to valuation and imposition of penalty. It was also pointed out initially that the ld. Collector had relied upon the H.S.N. Explanation Note under Section Note 4 to Section XVI. Although, the same had not been referred to or relied in the show cause notice. The main plea in support of the classification of all the equipments and machineries as a “composite drying plant” is the strong reliance placed on Note 4 to Section XVI of the Customs Tariff Act, as the drying plant is nothing but a combination of machines inter-connected by piping and transmission devices intended to contribute together to a clearly defined junction, i.e. of manufacturing of soda ash, by a process known as solvay process. It was pointed out that clause 1.3 of the contract dt. 6-5-1989 relied by the ld. Collector, was required to have been read along with clause 3.3.1 thereof, which makes it clear that all the equipments imported was in fact, a part of the entire plant and was described as “process main equipment” and therefore, the said Explanatory Note, which referred to auxiliary equipment, was inapplicable. The ld. Senior advocate explained the process of manufacture of Soda Ash by solyay process, with the help of a Drawing/plan of the entire plant, technical literature, on the basis of the affidavit of two renowned experts namely : Shri C.M. Shah and Shri J.D. Adhia and the certificates issued by a German firm namely ‘Alexanderwerk’ dt. 30-7-1990, and that of Tata Chemicals Ltd. dt. 31-7-1990. The extracts from the following literature has been relied
(i) Pages 20-38 to 20-40 from a book perry’s Chemical Engineer’s Hand Book 6th Edition.
(ii) Industrial Furnaces 5th Edition Volume I by W. Trinks & M.H. Mawhinney pages 2 to 5 & 15-16 & 75, published by John Wiley & Sons, New York, London.
The relevant HSN Explanatory Notes have also been referred to buttress the arguments.
6. Ld. advocate explained the procedure of manufacture of soda ash by the process known as solvay process. It was pointed out that the last intermediate product, which comes into existence is crude wet sodium bicarbonate. The imported plant being a composite plant, and which requires to be set up by inter-connected piping, transmission devices and that the entire process of the manufacture of dry soda ash is with the co-ordinated process of connected machineries. They all contribute together to a clearly defined function. Each of the function of the items, which would be fixed together to perform a process, which contributes to the emergence of the final product. The process employed to manufacture pure soda ash requires a heating/drying operation. The transformation of wet soda ash results in water vapour, some quantities of carbon-dioxide, and a small quantity of Ammonia. The Ammonia is scrubbed out. Sodium bi-carbonate is required to be dried out, with the help of the equipment. The gases which emerge namely carbon dioxide and ammonia are required to be separately taken out through the inter-connected pipings for the purpose of reuse in the manufacturing process. The temperature for the purpose of drying the wet soda ash is around 180°C and therefore, the furnace is not a furnace in the correct sense, which is designed for production of heat in chambers at high or fairly high temperatures by the combustion of fuel. It was pointed out that they are not used for the heat treatment (e.g. by roasting, fusion or decomposition) and in the chamber used, there is no fire bed, crucible, retorts and shelves and thus the equipment of drying the wet soda ash is not a furnace of oven of the type described in HSN Explanatory Note of Heading 84.17, which has been adopted by the department. It was further pointed out that the ld. Collector had accepted the principal function of the item “steam calcination with mixer” as that of drying the wet soda ash, but the ld. Collector had taken it an independent function, performed in a furnace, and the furnace below 200°C would also fall under Heading 84.17. The ld. Senior advocate very streneously argued and pointed out that this heading on the face of it is not applicable, as it did not have a feature of a furnace or in the sense understood technically as well as commercially and also as explained in HSN Explanatory Note of Heading 84.17. The ld. Counsel pointed out that the equipment should have the use of (1) combusion fuel, (ii) refractory lining and (iii) burners to bring it under the Heading 84.17. There is absence of all these three things and hence the classification under Heading 84.17 is high inappropriate. The ld. Counsel submitted that the process of manufacture of soda ash by use of steam, drying separator’s and scrubbers for removing carbon dioxide and ammonia, cannot be brought under the description of Heading 84.17 i.e. industrial or laboratory furnaces and ovens, including incinerators, non-electric. The department had chosen a residuary heading ‘other’ under sub-heading 8417.80, which is not appropriate, even as per the heading of HSN Explanatory Note. The ld. Senior advocate emphasised on the basis of technical literature and affidavits, that the process carried out is treatment of material by a process involving a change of temperature i.e. by drying and hence the entire plant and machinery having a composite function would be appropriately classifiable under Heading 84.19 and is required to be placed in the residuary sub-heading 8419.39, which falls under the description of “dryers”. He submitted that the main function is to obtain the dry soda ash by a process of calcination in steam tube dryer. In the equipment “cyclone” a whril wind is created by which the particles of soda ash gets dried and falls down. All other connected units contribute in the final emergence of the dry soda ash. He submitted that the process does not end on the mere emergence of dry soda ash in the ‘cyclone’, but the process gets complete, only when the gases like carbon dioxide and ammonia are removed and scrubbed out, through out subsidiary machines. Ld. Senior advocate submitted that he is not in a position to explain as to what a steam heated oven is, of which there is a reference in Heading 84.17, but he pointed out that this by itself, is not a sufficient ground for considering the equipment ‘steam calcination with mixer’ for classification under Heading 84.17, as the equipment does not satisfy the other requirements specified in the Explanatory Notes of that heading. He submitted that this equipment does the function of treatment of material by a process of drying and also it does the function of removal of moisture by change of temperature. “Treatment of materials” as per the HSN Explanatory Note, is to cause a transformation of materials, and, therefore, decomposition is a process of treatment of materials. The removal of carbon dioxide and ammonia is by a process of transformation of material, in the sense, there is transformation of the material namely wet soda ash, while CO2 and Ammonia is removed. Hence, in this process of decomposition through the solvay process, there is a drying and the drying process brings a changes by material transformation i.e. by removal of moisture dust particles. CO2 and Ammonia. These dust particles, moisture, CO2 and Ammonia cannot be left in the cyclone or in the calciner but there has to an outlet for it, for reuse, as both are very expensive materials, for its reuse, a process of scrubbing is done, which cannot be considered as an independent function. The affidavit of Shri Shah and Shri A.N. Adhia, were read out to support this plea. As the plant has to be a composite one, only for the entire process to get repeated. Hence, the entire plant has to be considered as a single composite one and each function of the machinery is in the furtherance of the composite function. Thus, it was argued that the independent classification on merit is highly inappropriate.
7. The ld. Senior advocate then took up the individually classification adopted by the ld. Collector, and argued that the classification is inappropriate and prayed for upholding the pleas of the appellant. He submitted that the alternate classification on merits placed by the importer is more appropriate in respect of ‘star feeder’ conveyor calciner gas stack, cyclone, liquid separator. He pleaded that in all these cases, there is no separate function. Liquid separator also does not perform any filtering or purifying function, therefore, its alternate classification would be only under sub-heading 8419.50 and it would fall under “gas cooler” by virtue of its heat exchange process. For the classification of calciner gas cooler, the ld. Senior advocate assailed the findings of the ld. Collector, on the ground that it performs function of heat exchange unit and referred to the affidavit of Sh. Adhia. On merits, it would fall under sub-heading 8419.50. He submitted that it did not perform the principal function of scrubbing ammonia, as held by the ld. Collector. It did only the subsidiary function of removal of ammonia. Its principal function was of cooling by heat exchange process. Ld. senior advocate, then pointed out that the ld. collector had proceeded on the basis of separate packing & invoicing, for the purpose of classification, which is a totally erroneous view. He pointed out that the entire machinery is made as per design and specification. The same was required to be installed’ by technical experts. The machineries were very huge ones and it required to be separately packed. It’s separate invoicing could not be a basis for classification on merits, as the Section Note, Chapter Note and interpretative rules were to be the basis for classification.
8. On valuation, the arguments were advanced by ld. advocate Sh. Baxi. He submitted that the importation technical know-how had been done at Bombay and the revision of valuation had been done at Kandla which is without jurisdiction. He submitted that valuation cannot be done as per Rule 9(1)(e). He submitted that engineering and technical fee cannot be added in the assessable value of the goods as it is an intellectual property, and does not become a part of assessable value. He submitted that vires and legality of Rule 9 of valuation had been challenged before the Gujarat High Court, but the Tribunal could proceed to decide the question, even otherwise. The ld. Counsel submitted that the department could not revise the valuation after the final assessment done at Bombay and it could have been possible only by filing a review petition under Section 129D of the Customs Act. As there was no misdeclaration, there is no question of invoking Section 28 of the Act. He pointed out that there is no breach of import licence and hence question of confiscation and imposition of redemption fine under Sections 111(d) and (m) does not arise. He submitted that imposition of penalty of Rs. 50 lakhs is not at all imposable, in the facts and circumstances of the case, as there were no mala fides nor any attempt to contravene any provision of law. He relied on the following rulings:
(i) Collector of Customs v. Vishakhapatnam Steel Project 1992 (62) E.L.T. 572 (Tribunal)
(ii) Ajay Exports and Anr.s v. Collector of Customs, Madras 1986 (26) E.L.T. 873 (Tribunal)
9. Shri B.K. Singh, ld. SDR argued the department’s case with equal force and vehemence. It is his initial plea that the calcinator plant has to be considered as a part of the huge soda ash plant, which is a composite plant and to which these imported parts, components and accessories are fitted. It is his argument that the calcinator plant cannot function without the raw material namely sodium bi-carbonate, which is fed into it. Therefore, there is no question of examining the principal function of the calcinator plant, as that function is of the soda ash plant, which is the main plant. In that view of the matter the question of applying Note (4) of Section XVI does not arise at all. In order to support his argument, ld. SDR relied on the following extracts :
(i) Pages 866 to 873 of Kirk Othmer’s (3rd Edition) “Encyclopedia of Chemical Technology.”
(ii) Pages 177 to 182 from “Outlines of Technology” edited and revised by M. Gopala Rao & Marshell Sitting published by Affiliated East-West Press (P) Ltd. New Delhi, Madras.
(iii) Extract of definition of the term “Calcination” appearing at page 484 of Van Mostrand’s Scientific Encyclopedia 6th Edition and Glemn D. Considine Managing Editor published by Van Nostrand Reinhold Company New York, etc.
(iv) Definition of the term “Calcination” appearing at page 449 in ‘The New Encyclopaedia Britannica’ Vol. II 15th Edition.
(v) Extract of the definition ‘Drying’ appearing at pages 405 to 411 from McGraw Hill Encyclopedia of Science and Technology, 5th Edition.
Pointing out to these literature, ld. SDR submitted that on reading of this material, one point is clear and that is that ‘Calcination’ is a part of the entire processes of the soda ash plant and not a separate independent function by itself. He further pointed out that the success of solvay process is dependent upon the sodium bi-carbonate plant. He submitted that the calcinator is the name given to a portion of the plant, where decomposition takes place, irrespective of the fact, whether it is fuel fired or steam utilised. Calcinator is, therefore, not a dryer. Decomposition is not in dryer by drying process. The manufacturer has not described the goods as dryer in the contract or in the bill of entry and the import is of calcinator and not dryer. The calcinator is nothing but a furnace or an oven. He submitted that calcinator not having been brought along with soda ash plant, it cannot even be classified along with soda ash plant by applying Note 2(a) of Section XVI and hence its classification on merits, by ignoring Note 4 of Section XVI is just and proper. Alternatively, he submitted that the item being components of main soda ash plant, the Bench could possibly think of classifying the items, in the heading in which soda ash plant is to be classified. Thus, he submitted with respect, although has not been the approach of the department or the ld. Collector, yet to arrive at correct classification, the Tribunal can do so. Pointing out to Note 5 of Section XVI and the definition of expression “machine” appearing therein, ld. SDR submitted that “machine” means any machine, machinery, plant, equipment, apparatus or appliance. Therefore, applying Note 2(a), the parts of the machines are to be classified in their respective headings on merits or by applying Note 2(b), these imported components are parts of machines i.e. soda ash plant and hence, if it is viewed as suitable for use solely or principally with that machine, then all these components would stand classified along with soda ash plant. For soda ash plant, ld. SDR suggested that the classification could appropriately be under Heading 84.79 under the description “Machines and mechanical appliances having individual functions, not specified or included elsewhere, in this chapter” and soda ash plant could be placed under residuary heading “Other” under 8479.89. Ld. SDR pointing out to HSN Explanatory Note appearing at page 1133, submitted that this note is a functional note, and each machine had a defined function. All machines have not been dryer, there classification has to be done on merits. He submitted that the HSN Explanatory Note at page 1168 deals with calcinator also. Hence classification of steam calcinator with mixer under Heading 8417 under the description “Industrial or Laboratory furnaces and ovens including incinerators non-electric is appropriate”. The principle of ejusdem generies has to be applied and by so applying the classification of the calcinator under Heading 8417 cannot be ruled out. Referring to the contract at page 5, ld. SDR submitted that its reading would show that the entire plant is not one unit and only steam calcinator is a separate unit. All other units were performing independent function. The main soda ash recovery is done in steam calcinator, while the recovery of carbon dioxide and ammonia in their respective equipments, are not part of solvay process plant. The gases are recovered for reuse and such a process is independent of the process of recovery of dry ash by solvay process. Referring to page 1183 of HSN Explanatory Note, ld. SDR submitted that filters and purifiers are dealt in this note and hence classification of cyclone and scrubber under Heading 84.21 is justified. He pointed out that the supplier has given guarantee only upto calciner and not to other plants and machinery, thereby, it is clear that steam calciner is an independent unit. He reiterated the ld. Collector’s finding in respect of “Gas Stack” and “Star feeder”. He pointed out that the classification of ‘screw conveyor’ was not in dispute. He submitted that the affidavits had been obtained from the persons, who had given the same, contrary to the scientific knowledge found in the technical literature produced by him.
10. On the aspect of valuation, ld. SDR submitted that this Bench cannot decide this question, in view of vires of the Rule 9 of Valuation Rules challenged by importer before the Gujarat High Court. He respectfully submitted that the decision on valuation cannot be pronounced by this Bench, as the matter is subjudice before Gujarat High Court. Referring to preamble of the contract ld. SDR pointed out that the contract is a comprehensive one and hence there is direct nexus between the technical and engineering fee with the assessable value. Its fee is required to be added to the assessable value. By doing so the net value as given in the Import Licence gets exceeded and hence the confiscation and imposition of fine is valid and so also its inclusion and charge of duty thereon. He countered the submission of ld. advocate regarding the jurisdiction and submitted that the Kandla customs has full jurisdiction and the process of valuation did not end at the Bombay Collectorate and hence the valuation and assessment had been rightly done. He relied on the ruling rendered in the case of Andhra Petro Chemicals v. Collector of Customs as reported in 1994 (51) ECR 96 and also submitted that the ruling of Ajay Exports and Anr. as reported in 1986 (26) E.L.T. 873 is not applicable.
11. Ld. senior advocate countering the arguments of the ld. SDR submitted that the Article 1.2 of the contract clearly referred to the entire plant and all the machineries and it did not restrict to merely ‘steam calcination mixer’ and the guarantee is for all the supplied equipments. He pointed out to the literature produced by ld. SDR and submitted that the information given therein was fully supporting the importer’s case. He reiterated his argument that the imported machinery is an independent plant and not a part of soda ash plant and the clarification by invoking Note 2 of Section XVI is inappropriate and it does not arise in the present case and it is only Note 4 which comes into play. He submitted that dryer removed moisture by a process of chemical change releasing CO2 and Ammonia and hence the information given at pages 406 to 410 regarding ‘Drying’ in McGraw Hill clearly supported the importer’s case. Referring to extract from ‘Outlines of Technology’, the ld. counsel submitted that it is a general work and hence Perry’s book should be preferred.
12. We have carefully considered the submissions made by both the sides and have perused the contract, technical literature, affidavits, Tariff Section Notes and HSN Explanatory Notes and also have perused the rulings placed before us. As can be seen from the allegations made in the show cause notice the importer has declared the goods as steam calcination plant (steam tube dryer) complete with accessories and wear-parts and they have sought the classification of the same as a complete unit under Heading 8419.00 under the main heading:
“machinery, plant or laboratory equipments, or not electrical heating in the treatment of material by process involving a change of temperature such as “heating, cooking roasting, distilling, rectifying, sterilising, pasteurising, steaming, drying, evaporating, vaporising etc, or the other than machinery or plant of a kind used for domestic purposes, instantaneous or storage water heaters, non-electrical”.
In the above heading, there are several sub-headings. The claim of the importer is that all the components form a composite machine and they are inter-connected with piping, transmission devices or by other devices and they all intend to contribute together to a clearly defined function and, therefore, it is their submission that the entire steam calcination plant is required to be classified in the heading, which is appropriate to that function. In this case the submission is that the function of steam calcination plant is “drying” and therefore, the plant being a dryer it has to come in residuary Heading 8419.30 -‘other’, as dryer is not of he type described in the other Heading namely 8419.31 (for agricultural products) : 8419.32 (for wood, paper, pulp paper or paper-board). The importer is taking support from Note 4 of Section XVI which reads as follows:
Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected 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.”
In order to support their arguments the importer has relied upon the literature, in particular, extract from Perry’s Chemicals Engineering Handbook; affidavit of two experts and certificates issued by Tata Chemicals Ltd. and Germany firm namely “Alexander Werk”. They have also produced the lay out plan of the Soda Ash Plant; the details in the contract is also relied. The importers have tried to impress upon us that the soda ash manufactured through a process known as solvey process comes into existence in a steam calcination plant and the other equipments being fastened together and interconnected through piping and transmission devices, they all contribute together for a clearly defined function i.e. the manufacture of Soda Ash, through the process of drying; which takes place in the steam calcination unit. They have argued that the unit steam calculator unit cannot be classified under residuary sub-heading ‘other falling under Heading 84.14 which reads :
“Industrial or laboratory furnace or ovens, including incinerators nonelectric”.
The main ground of attack for classifying this under category for furnace and ovens is that although the item may have a temperature of 200°C but it is not furnace as known in the commercial sense and it does not satisfy the features of the furnace, as understood in the technical or commercial sense, including the explanation given in HSN Explanatory Note of Heading 84.17. It is their plea that the items would become a furnace or a oven only if there is use of:
(i) composition fuel
(ii) refractory and
(iii) burners.
It is also their plea that the furnace is used for heat treatment of various kinds of products which may be placed on the fire bed, in crucibles, in retorts or a shelves. It is their plea that it is not a furnace or an oven to be classified under Heading 84.17. They have again relied on the technical literature and the affidavits besides the certificates referred to above. The importers have challenged the classification on merits, in respect of their item on the ground that there is no independent function of the same and all the equipments are interconnected to contribute to a wholly defined function of drying.
13. These arguments of the importers have been very clearly met by the ld. departmental representative by pointing out that the Section Note 4 alone cannot be read dehors of Note 2 and Note 5 and that a harmoneous construction of all the section notes have been taken into consideration. The ld. SDR has pointed out from the literature, as well as from the layout plan and the contract, that the imported item is not an independent and separate item by itself, but they all form a part of the soda ash plant, which employs solvey process for the manufacture of soda ash. He pointed out to the preamble of the contract which clearly states :
“The Buyers operate at Dhrangadhra (Gujarat State) a soda ash factory to the solvey process. Within that soda ash factory the Buyer intends to substitute a new-built steam calcination plant having a capacity of 300 metric tons per day of soda ash for the existing calcination unit.”
He has also pointed out to para 1.3 which defines steam calcination unit which is reproduced herein below :
“1.3. “Steam calcination plant” in the sense of this Contract is defined as follows :
Plant for the thermal conversion of sodium hydrogen carbonate, produced on the basis of SOLVAY-process, into saleable light soda ash and calcination gas. The plant begins at reception of the sodium hydrogen carbonates on the belt conveyors in the calcination areas and ends at the soda ash bulk outlet of the troughed chain conveyor Item 0400/0410. Plant limits for the liquid and gaseous incoming and outgoing media, being the limit of works, are considered to be the respective pipelines at 1 m outside the battery limits of the calcination plant area.”
The ld. SDR has also referred to the extract from the various authorities to show that the solvey process of manufacture of soda does not commence from the steam calcination unit but it starts from the process of “Brine”. He referred extensively to the literature, including to the affidavits and the importer’s admission to emphasise his point that the imported machinery do not have an independent function by itself dehors of the other units, in existence. But, they all contribute together and all are the parts of main plant soda-ash plant. In the other sense, he has submitted that the parts of machines means that the independent machines when they are inter-connected by piping and transmission devices would become part of the entire plant. The ld. SDR draws support from the Note 2 and Note 5. He has emphasised that by reading these notes, the conclusion that would be arrived at is that the entire imported machinery is suitable for use solely or principally with a particular kind of machine or with a number of machines, all of that kind which are equally suitable for use principally with the goods of the machinery of the principal kind. In other sense, the ld. SDR has emphasised on the basis of the entire reading of the literature, tariff notes and HSN Explanatory Notes that the solvey process of manufacture of soda ash being a composite function and that the imported unit is merely a substitution of steam calcination unit. The machineries being suitable for use solely or principally with a kind or particular kind of machine that is the soda ash manufacturing plant, therefore, the machineries are required to be classified in the heading under which the soda ash plant would be most appropriately classifiable. It is his plea that although the department has not proceeded on this basis, the correct classification being the aim of the adjudication, it requires to be settled before the Tribunal and that the Tribunal is not debarred from taking the correct view in the matter. The other questions to be examined besides the above pleas raised by the ld. Sr. Advocate and the ld. SDR are pertaining to valuation and imposition of penalty.
14. We will first examine the question of classification in the light of the above submissions made by ld. Sr. Advocate and ld. SDR so as to arrive at a correct conclusion. At the outset, we will examine the manufacturing process of the goods namely soda ash by solvey process. It is an admitted fact by both the sides that soda-ash manufactured in the present case is by a process known as solvey process. The Ammonia-soda process is usually called the Solvey process because in 1865 Ernest Solvey started the first really successful plant at Couillet in Belgium. The raw materials are common salt and limestone. Ammonia enters into the process but is not consumed, and only a very small amount is lost; consequently, it is not a raw-material in the usual sense. There are several steps in the manufacture of soda-ash. Pages 866 to 873 of Kirk Othmer (3rd Edition) of Encyclopedia of Chemical Technology may be seen in respect of the manufacture of soda-ash by solvey process. At page 868, the chemical reaction as well as the apparatus required for the manufacture of solvey ammonia-soda process is shown. The apparatus indicated therein are lime, kilns, Slakers, Absorbers, towers and filters, Rotary calciner Still and prelimer for Ammonia recovery. At pages 869 and 870, the role of ammonia as well as flow diagram for the production of ammonia-soda by the Solvey process has been shown. It is seen from this portion of the extract that the first lime is fed in the kiln at one portion of the plant. A series of inter-connected machineries are laid down. On the right hand side of the flow diagram, the process begins with brine preparation, filter gas scrubber, tower vent gas scrinner, weak absorber, cooler, strong absorber, cooler, tower cleaning and making filters calciners, cooler, storage packaging and from packaging the product emerges. From filters and calciners, the filter liquor and CO2 are taken to different two compressors and scrubber. As can be seen from pages 869 and 870, it is stated that
“The carbonation of the ammoniacal brine in the carbonating towers is a complex process involving serveral mechanisms of transport of ionic reactants across gas liquid interfaces; the nucleation of a crystal phase; the growth of solid crystals kept in suspension through gas agitation; and the removal of heat of reaction. High rate of reaction is favored by high (relative temperature, high concentration of carbon dioxide throughout the tower, and intimate mixing. High conversion of chloride to bicarbonate (salt economy) is favoured by high carbon dioxide pressure and concentration and optimum cooling at the slurry exit. An exit temperature too low gives mixed ammonium and sodium bicarbonate crystals. Economical utilization of carbon dioxide is favored by a low carbon dioxide concentration in the vent gas. Close approach to equilibrium favors slow throughput, whereas best utilization of investment favors fast throughout. The industry has evolved a fairly uniform practice, achieving a salt conversion of 72-76% with a bicarbonate slurry temperature of about 28HC.
For favourable yields, more than the theoretical equivalent of ammonia must be present and, in practice, about half a ton of ammonia is recycled per ton of sodium carbonate made. Loss of ammonia, which costs approximately three times as much as soda ash, must be kept small”.
At pages 871 to 873, the individual process steps have been described namely Brine Preparation, Ammonia Absorption, Precipitation of Bicarbonate, Filtration of Bicarbonate, recovery of Ammonia, Lime Preparation, Calcining the Bicarbonate of Soda Ash, Dense Ash.
15. As can be seen from the above processes, the processes are continuous once and commencing from brine and again by recovery of CO2 & Ammonia which is fed back to kiln. The above description of processes is also supported by the technical details at page 181 of the extract from the “Outlines of Technology” by M. Gopala Rao. The same is noted herein below :
“3.2.5. Process description
The principal discovery of Solvay in 1869 was that NHs dissolved in an NaC1 solution and then reacted with CO2. A precipitate of NaHCO2 was obtained which could be calcined to produce high purity Na2CO3. Saturated salt brine is purified in a series of wash towers with NHs and then with CO2 to remove Ca, Mg and Fe as a sludge.
The purified brine is pumped to the ammonia absorber tower where it dissolves NHs with liberation of heat (reaction 3.2.2.(e)): Some CO2 also dissolves in this tower.
The ammoniated partially carbonated brine is cooled to 30°C and pumped to the carbonating tower that is on clearing duty. In order to hasten the cleaning process, weak CO2 gas is admitted at the bottom of the tower. This gas serves to further carbonate the liquor to just below the precipitation point. The carbonating towers are about 22-25 m high, 1.8-2.5 m in diameter and constructed of cast iron. During the precipitation cycle, the temperature gradient is maintained as 20-25°C at both ends and 45-55°C in the middle. The tower gradually becomes fouled as bicarbonate cakes on the cooling surfaces. Cleaning is done as described above. The liquor from a cleaning tower is passed to a series of 4 to 5 remaining towers in a production line. A tower is generally on the make part of a cycle for 3 days and cleaining portion 12 hours. In the making portion of a tower run, lean time kiln gases are injected near the middle of the tower and rich CO2 gas from the bicarbonate calciner is recompressed and pumped to the bottom of the tower. In the make towers, reactions 3.2.2(f)(g) and (h) take place. The towers are constructed with a series of cooling boxes and sloped baffles so that the NaHCO2 precipitate settles to the bottom and is then pumped as a magma or slurry to a rotary filter. The solids from the rotary filter are calcined at about 200°C in a calciner which may be gas-fired or be a steam- heated unit. The average daily production of a modern carbonating tower is about 100 tons as finished soda ash.
The remainder of the process concerns ammonia recovery and recycle. Gases from the calciner are cooled and returned to the carbonating tower. The filtrade liquor from the pressure type rotary filter is sent to a pair of ammonia stills. In the first still, free ammonia in solution is driven off by distillation using a steam heated reboiler. The bottoms, containing combined ammonia, is fed to the lime still where reaction 3.2.2(j) releases NH3 gas and the liquor effluent contains largely CaC12 which3 must be disposed of.
The product from the calciner is light soda ash. To produce the dense grade required by the glass industry, sufficient water is milled in to form a monohydrate and the mixture is recalcined.”
These technical details pertaining to the manufacture of soda ash is not disputed by the Experts namely Shri C.M. Shah and Shri Adhiya. The details furnished by Shri C.M. Shah in his affidavit at para 1 to para 2 is reproduced herein below :
“1. I understand that sometimes ago DCW Ltd. have imported a Steam Tube Dryer for drying operation, approximate diameter 2.6 meters, length 20 meters, completely assembled with all the auxiliaries. It’s daily capacity is 300 MT of dry soda ash. The assembly consists of parts such as (a) Cylindrical Shell made from thick carbon steel plates (b) Three rows of steam tubes inside the shell to circulate steam at 22 ats, temperature 225°C (c) Drive unit with 30KW motor (d) Complete Mixer/feeder for crude wet sodium bicarbonate and dry soda ash (e) Related auxiliary equipment, etc., necessary for functioning of the dryer.
1.1 The above steam tube dryer is merely a dryer for reforming/drying crude weter sodium bicarbonate. The heat from the steam dries the mixture of crude wet sodium bicarbonate and dry soda ash and makes it 100% dry. There are no other chemicals or catalysts added nor any other chemical reaction taking place. 1.2 The above is purely a drying process for free water (H2O) and combined water. Some carbon dioxide CO2 and Ammonia (NHs) from the wet ash also escape along with the water vapour in the operation. The basic structure of the elements remains unchanged. 1.3 The steam tube Dryer is a standard equipment in the soda ash industry for reforming/drying a mixer of crude wet sodium bicarbonate and dry soda ash to dry it as 100% dry soda ash. It is used in our country by manufacturers of soda ash such as Tata Chemicals Ltd., Mithapur, Gujarat. 1.4 The Steam Tube Dryer does not have any of the equipment components/characteristics of any furnace such as :- (a) External Brick work and internal refractry brick work like a Boiler. (b) Fuel burning - like gas, coal, oil, baggage etc. (c) Fuel burning control pumps, etc. (d) Combustion channel. (e) Air supply (f) Air removal (g) Exhaust gases, flue gas ducts, chimney, etc. (h) High temperature of the order of 800°C and above. *Enclosed zerox copies of the illustration and description of Steam Tube Dryer and fuel fired calciner on Page 20.38 to 20.41 from Perry's Chemical Engineers' Hand Book, Sixth Edition, clearly show the distinction between the steam tube dryer and fuel fired calciner. 1.5 Before the Steam Dryer was invented some fifty years back, the drying of crude wet sodium bicarbonate to dry soda ash used to take place in (a) closed pans called Thallan pans fitted in furnaces which are fired with fuel, (b) Rotary shells (called calciners) fitted in fuel fired furnaces. Since these dryers in those days were called calciners, the name calciner has gravitated loosely and wrongly for the steam Tube Dryer. Calcining operation refers to the old lime process of reducing, limestone (CaCO3) to quick lime (Ca2) by burning or roasting. Burning or roasting of any description does not take place in a Steam Tube Dryer. 2. From the above facts, available authoritative data, observations and experience, I have absolutely no hesitation in certifying that the Steam Tube Dryer is merely a simple Dryer to reform/dry crude wet sodium bicarbonate to dry soda ash. It cannot be termed as a furnace to which it has no relation whatsoever. In the past, the reforming/drying/calcining operation used to be carried out at high temperature in a rotary shell operating in a fuel fired furnace."
Shri Adhia in his affidavit also states the same and his detailed affidavit also brings out the manufacturing process commencing from Brine and ending up with lime kiln. Shri Adhia has given step by step manufacture of soda ash by this solvey process in his affidavit. The details furnished by him in respect of the processes clearly indicates that the entire process of manufacture of soda-ash which is inter-connected with all the separate machineries, is performing a separate function but all the functions cumulatively are in conjunction for the manufacture of soda-ash. In this process of manufacture of soda ash, the carbonation and ammonia is reused in the process of manufacture. Therefore, there is no by-product or intermediate product or any waste and scrap arising in the process of manufacture. Therefore, the entire equipments are connected and inter-connected. Although there are individual processes done by the respective machines, but for the completion of the manufacture of soda ash, all the machineries are required to be connected or fitted together. Otherwise the manufacture process, which takes place in a cycle is disturbed and soda ash cannot be manufactured. This is an admitted and clear position, which can also be seen from the layout plan produced before us. The huge layout plan produced before us is of a composite soda ash plant. The preamble of the contract also clearly states that the appellants have set up a soda-ash factory by solvey process at Dhrah Gadhra, Gujarat State. It also states that the buyers intends to “substitute a new built-steam calcination plant having a capacity of 300 mts. per day of soda-ash for the existing calcinating unit”. The study of the entire contract makes it very clear that the importer has only imported the items to replace the steam calcination plant, with the one which is in existence. In this calcination plant, the sodium hydrogen carbonate produced on the basis of solvey process is conveyed by belt conveyors in the calcination area and ends at the soda-ash bulk outlet of the “troughed chain conveyor”. In the steam calcination plant and in the cyclone, the soda ash is dried by a process of drying and during this process, a chemical reaction occurs by which CO2 and ammonia are released. As CO2 and ammonia cannot be made to suffer by loss, the same is purified and taken back for the manufacturing process again for utilisation. Therefore, it cannot be said that the emergence of soda ash in the steam calcination plant and cyclone are the only independent separate individual unit or plant, and it is here alone that soda-ash is manufactured. Therefore, the finding given by the ld. Collector that the soda ash is recovered and manufactured only in the steam calcination plant is totally against the technical literature, affidavits and the commercial understanding.
16. After having understood the process of manufacture and having come to the conclusion that the manufacture of soda ash by solvey process is a complex process of manufacture commencing from brine preparation and that there is generation of ammonia from kiln, which is fed through steel condenser to the drying absorber. Therefore, it is seen that there are a series of machineries inter-connected to carry out the various processes and ultimately the wet soda-ash comes to steam calciners, where through drying process the soda ash is recovered. The gases which emerge in the calcinator are purified and recovered for reuse. The study of the literature given in “Perries Chemical Engineers Handbook” also discloses that the recovery of soda-ash in the calciner is by indirect heat rotary tube dryers. The literature clearly states that:
“The driers are suitably for drawing solvent recovery and chemical reactions. Steam-tube units have found effective employment in soda-ash production replacing more extensive indirect heat rotary calciners.”
Pages 20-38 to 20-41 of the said extract is produced before us, which details out about production of soda-ash from liquid separator, cyclone gas-stack and star-feeder. The diagram is also given, which clearly suggest that the process of manufacture is same as the one of the drying relied by ld. SDR before us. The literature clearly suggest that the liquid seperator is attached to the drawing absorber, so also the compressors are attached to the other portions of the soda ash plant. Therefore, the study of ‘Perries work’ does not suggest that the process of manufacture of soda-ash is independently done only a steam calcination plant dehors of the other processes. The certificate of Tata Chemicals Ltd. produced by the importers also states that :
“To manufacture Soda-ash (Na2Co3), they have to reform/dry a mixture of crude wet Sodium Bicarb and dry soda-ash through a rotary dryer called Steam Tube Dryer heated by steam passing through tubes inside the dryer.”
This certificate also suggest that the mixture of crude wet sodium Bicarb, is to be brought by Steam Tube Dryer for the purpose of recovery of dry-soda ash. The wet sodium bicarb which is not removed, but is conveyed by a continuous process. Thus, there is a clear indication that the imported machinery is forming the part of the soda-ash plant. Therefore, even by going by the argument of ld. advocate, by applying Note 4 of Section XVI, the entire soda ash plant itself has to be taken as a single plant, as the entire plant and the imported machinery, are intended to contribute together to clearly defined function and now that function is recovery of soda-ash. This soda-ash is manufactured in the solvey process by the held of the entire soda-ash plant. The definition given of the expression “Machine” in Note 5 of Section XVI is given below :-
“For the purpose of these Notes, the expression “machine” means any machine, machinery, plant, equipment, apparatus, or appliance cited in the headings of Chapter 84 or 85.”
If these two notes are taken into consideration, it follows that the imported machinery is a part of the plant. By reading Note 2, which states that parts of machines are to be classified according to the rules indicated therein. In this case Note 2(a) will not be applicable. It is Note 2(b) which comes into play. Note 2(b) stated that:
“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 No 84.79 or 85.43) are to be classified with the machines of that kind. It also stated that 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 85.17.”
Therefore, the parts of machine i.e. the entire steam calcination plant including its accessories which have been imported are nothing but parts of the main plant i.e. soda-ash plant. They all are suitable for use solely or principally with the particular kind of machine or with number of machines i.e. the soda-ash plant by solvey process. All these machines are having one principal use and i.e. for the manufacture of recovery of dry soda-ash. Therefore, by taking a combined reading of Notes 2,4 & 5, it is very clear that the entire machineries imported has to be classified alongwith the soda ash plant. The classification to be adopted in respect of the imported items has to be in the heading under which the entire machinery of soda ash plant would fall. Although each machinery may be having an individual function but all these contribute to the principal function of manufacture of soda-ash plant. They do not have single function which is independent by itself. In a way Note 3 would also come into plea which reads herein below :
“Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or being that machine which performs the principal function.”
Even this Note states where two or more machines are fitted together to form a whole and other machines adapted for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or being such machine. Therefore, by reading all these notes together, it indicate that the principal function is the recovery of soda-ash and for that all the machineries have to be inter-connected by piping, by transmission, devices, by electric cables or by other devices and all these contribute together to a clearly defined function. Such machines are seen to be classifiable only under Heading 84.79. We have examined all other headings and we do not find any suitable heading for classifying soda-ash plant. The ld. Advocate strongly opposed for any classification to be done at this stage under the headings not suggested by the department or by the importer. It is well settled that we have to adopt the correct classification as per Section Notes and Chapter Note. The Heading 84.79 is a heading which describes “the machines and chemical appliances having individual functions not specified or included elsewhere in this Chapter. In this case, all the machineries go to perform one single individual function and that is the manufacture of soda-ash. As both the sides submitted that this question has not been gone into, we therefore, think that in the interest of justice, the matter is required to be remanded for reconsideration under this heading. We therefore, set-aside the impugned order and remand the case to the Collector to readjudicate and classify the imported items in the heading under which soda-ash plant falls. We are of the opinion that Heading 8479.89 is the heading under which soda-ash plant will be classifiable. This aspect is required to be examined and both sides be given an opportunity to make their submission before the adjudicating authority. We are of the very clear opinion that the classification adopted in the present case is not proper one for the reasons given by us supra.
17. As regards the question of valuation, the submission made by the ld. SDR is that matter is sub-judice in view of challenge of Rule 9 before the Gujarat High Court. We observe that we are not estopped from going into the question of valuation. However, ld. Sr. Advocate has submitted that on this aspect, their detail submissions have not been considered and that the department has also not shown that the Technical and Engineering fee is part of the assessable value and that it has a nexus and connection with the goods. In the ends of justice, we remand this matter also for re-adjudication and it is for the department to show from the contract or otherwise that the Technical and Engineering fee, has a nexus to the value of goods to be manufactured by the appellants. The ld. Advocate had submitted that the Kandla Port has no jurisdiction as the technical documents had been imported at Bombay Port. We are not impressed with this argument, as the goods are to be valued at Kandla Port, where the goods have been imported. The assessment carried out at Kandla Port is within their jurisdiction.
18. The ld. Counsel has submitted that there is no mis-declaration calling for imposition of penalty, as the contract copy had been furnished alongwith the bill of entry. We have examined the bill of entry. There is a clear indication that the contract had been furnished alongwith the bill of entry. Therefore, there is no mis-declaration in the present case calling for imposition of penalty. There are no mala fides or intention to evade duty. Therefore, the penalty imposed by the ld. Collector is set-aside. In the result, the appeal is disposed of in the above terms.
P.C. Jain, Member (T)
19. I have carefully considered the judgment proposed by my learned Brother. While I agree that Heading 84.79 may be considered by the adjudicating authority for the various machines/equipments under consideration in this appeal, I would not go to the extent of saying that a machine which is a part of a plant would invariably be classified according to the classification of the plant on the ground that such a machine sub-serves the principal function of the plant. A machine which is specifically stated in Section XVI would be classified in that specific heading covering that machine, even though the plant as a whole might have been classified in some other heading.
20. Reasons for this, in my view is that while Note 5 to Section XVI states that for the purposes of these Notes, the expression ‘machine’ means any machine, machinery, plant, equipment, apparatus or appliance cited in the headings of Chapter 84 or 85, the expression does not include a “part”. Note 2 of Section XVI spelling out the rules for classification of ‘parts of machines’ would mean “parts” which are not complete machines in themselves. If expression ‘parts of machines’ in Note 2 of Section XVI is read as applicable to parts of a plant i.e. various machines constituting the plant, various headings specifying “machines” on the basis of their functions in Chapters 84 and 85 would become meaningless. It would violently disturb the structure of classification in Chapters 84 and 85.
21. I agree to reconsideration of the matter by the original authority inasmuch as the classification advanced by the assessee (appellant) for ‘calcinator’ as ‘dryer’ or that adopted by the lower authority treating it as an ‘Oven’ or ‘furnace’ are not acceptable for one reason or the other. Function of ‘calculator’ goes beyond that of the ‘dryer’. Nor is it understood as an ‘Oven’ or a ‘furnace’. Similarly for other equipments, as elaborated by my ld. Brother.