K. Sreedharan, J. (President)
1. These appeals have come before us in Larger Bench on a reference made by a Bench of two Members in Misc. Order No. 94/2000-B, dated 11-7-2000. The question referred for our consideration is –
“Whether in the facts and circumstances under consideration, the activity undertaken by M/s. Eureka Forbes Ltd. amounts to manufacture in view of Note 6 of Section XVI of the Schedule to the Central Excise Tariff”.
2. Circumstances which led to the reference to Larger Bench are as follows:
Assessee, Eureka Forbes, buys from APIC, one of its subsidiaries, water filter-cum-purifier. Assessee purchases other accessories like prefilter bowl, prefilter candle, nozzles, nipples, prefilter clamp, gaskets, hose clip and nuts. These items are packed in one carton along with Aquaguard ST-2000 purchased from APIC. Aquaguard so purchased packed and marketed along with the abovementioned bought out items in a single carton is taken as an assessable commodity. Assessee took up the stand that water filter and purifier purchased from APIC is complete in itself and the bought out items placed in the same carton are its accessories and not integral part of water filter and purifier.
3. Water filter and purifier purchased from APIC and other subsidiaries of the assessee before us were cleared from the factory after classifying it under sub-heading 8421,10. Sub-heading 8421 covers “Centrifuges, including centrifugal dryers; Filtering or purifying machinery and apparatus, for liquids or gases”. 8421.10 covers all goods other than parts of the goods falling under 8421. In other words, Eureka Forbes Water Filter and Purifier was being cleared as a complete apparatus.
4. APIC, subsidiary company of the assessee, a manufacturer of water filter-cum-purifier called Aquaguard tried to claim the benefit of notification 155/86-C.E., dated 1-3-1986 which exempted water filters of a capacity not exceeding 40 Ltrs. from central excise duty. That claim of the subsidiary company, namely, APIC was opposed by the Revenue contending that the equipment, namely, Aquaguard was not only a filter but also a purifier of water. On this count Revenue took up the stand that Aquaguard is not entitled to the benefit of notification 155/86-C.E. The contention of the manufacturer that there was no warrant for interpreting the notification to mean that it covers only water filter simpliciter and excludes water filter-cum-purifier was rejected by this Tribunal in the decision A.P. Industrial Components Ltd. v. Collector of .Central Excise – 1993,(68) E.L.T. 357. In that decision this Tribunal concluded that water filters simpliciter will only be eligible to the benefit of, the notification and not apparatus/equipments which combine filtration with other methods of purification of water. Assessee took up the matter before the Supreme Court. Their Lordships dismissed the appeal as per decision in A.P. Industrial Components Ltd. v. CCE, Hyderabad – 2000 (115) E.L.T. 33 (S.C.). In that decision, Aquaguard was taken by Their Lordships as an apparatus which filter water and then treat the filtered water with ultraviolet radiation. So, it is rather preposterous on the part of the Revenue to contend that Aquaguard is not an apparatus which filters water.
5. Aquaguard purchased by the assessee from its subsidiary unit after getting it cleared under tariff heading 8421.10 are sent to their various godowns located in different parts of the country. While packing the equipments in new carton they put in bought out items as well. Those bought out items are prefilter bowl, candle stop cock, T-joint, nipple, PF Nolle, PF clamp, hose clip, nut and nozzles. The pre filter candle and other accessories mentioned above are packed along with the filter received from APIC. The question for consideration is whether the equipment manufactured by APIC was incomplete and whether the bought out items placed along with it in the final packing alone makes it a complete equipment. According to the Revenue, Aquaguard purchased from APIC is an incomplete instrument and it becomes complete only by the addition of the pre filter, bought out items. This stand is taken in view of Note 6 to Section XVI. The said Note reads –
“6. In respect of goods covered by this Section, conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article (including ‘blank’, that an article, not ready for direct use, having the approximate shape or outline of the finished article or part, and which can only be used, other than in exceptional cases, for completion into the finished article or part) into complete or finished article shall amount to ‘manufacture’.”
6. Note 6 as far as relevant for our purpose states that in respect of goods covered by this Section conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article shall amount to manufacture. This show that conversion of an incomplete or unfinished into complete or finished article alone can amount to manufacture. If Aquaguard was complete in itself then this Note cannot have any application.
7. Learned Departmental Representative placed reliance on the brochure issued by the assessee. In the brochure Aquaguard ST 2000 is stated to have four major components. The first component is the Prefilter. The second is Activated Carbon Chamber. The third, Ultraviolet Chamber and the fourth Electronic Monitoring System. From this it was argued that without Prefilter Aquaguard ST 2000 does not become a complete article. It becomes finished article only by the addition of Prefilter. Activity of Prefilter as per assessee’s brochure is to filter the water for straining out physical impurities present in the water such as dust, dirt and mud. These impurities will not be removed in case Prefilter is not used. He went on to argue that passage of water through Activated Carbon Cartridge on the left hand column will not filter the suspended particles. We are not in a position to agree with this submission made by the Learned Departmental Representative. Kirk-Othmer’s Encyclopaedia of Chemical Technology, Third Edition, Volume 4, submitted by him belies this contention. Regarding the function of activated carbon, the Encyclopaedia states that “activated carbons are widely used to remove impurities from liquids and gases and to recover valuable substances from gas streams”. The book goes on to state that coal-derived carbons and activated carbons produced from a wide variety of raw materials are used for purification of various aqueous solutions. It states that by passing water through activated carbons protein wastes, aniline, benzene, phenol and camphor can be removed from water. Activated carbon is stored in the left hand side column of Aquaguard. Water passes through that column from below. Water that is discharged from that column then enters the right hand side chamber which is known as Ultraviolet chamber. Ultraviolet treatment of water while it passes through that chambe removes water borne diseases causing bacteria and viruses. That chamber is provided with an electronic monitoring system, namely, Sensor. If the sensor gets clogged by the suspended impurities in the water, the machine will automatically stop. In other words, ultraviolet chamber can purify water only if it is freed from suspended materials. This process of removal of suspended material takes place when the water is passed through the chamber filled with activated carbon.
8. Assessee got water purified by Aquaguard tested in three laboratories. All the three laboratories gave their findings on the purity of the water when Prefilter is used as also when Prefilter was not attached to Aquaguard. University of Agricultural Sciences, Bangalore in their report stated that the test was carried out on the basic unit of Aquaguard ST 2000 and repeated by connecting prefilter to the unit. On bacterial efficieny of Aquaguard ST 2000 they found no change by the addition of prefilter. The report states that “Aquaguard ST 2000 by itself is very effective in eliminating water borne pathogens such as E. coli, S. typhi and also UV resistant Sarcina Lutea providing safe drinking water. The results of bactericidal efficiency remained same with or without using prefilter. Addition of prefilter does not either enhance or add to the functioning of AG ST 2000”. In relation to turbidity, the certificate went on to state that Aquaguard by itself reduced the turbidity from 8 NTU to 7 NTU, but this turbidity improved to 6 NTU when it was connected with prefilter.
9. Central Food Technological Research Institute in their report stated that bacterial efficiency assessment of water remained the same with or with out prefilter. In the case of turbidity without prefilter it came to 8.9 NTU and with prefilter it came to 8.3 NTU. The certificate issued by Environmental Service SGS India Ltd. stated that microbiological studies conducted on the unit Aquaguard showed that it can deliver microbiologically safe drinking water without any additional attachment or accessories.
10. The abovementioned reports go to show that Aquaguard without prefilter not only filters the water but also purifies it. It is a complete unit in itself as far as filtering and purification are concerned. To have its efficacy increased and to give a longer life time to the activated carbon column fixed on the left side of the equipment, the assessee canvasses for a prefilter to be added to it. What is the purpose served by the addition of prefilter? It is not to make any change in the filtering or purification of the water that is passed through Aquaguard but it is to minimise the strain on the activated carbon column. Prefilter is suggested for enhancing the utility of the activated carbon column. They take the characteristics of accessories. The meaning and scope of the word “accessory” was considered by Their Lordships of the Supreme Court in Annapurna Carbon Industries Co. v. State of Andhra Pradesh – 37 STC 378. According to Their Lordships accessories are “supplementary or secondary to something of greater or primary importance”. These accessories need not be necessarily confined to any particular machine for which they may serve as an aid. It may be accessory of more than one kind of instrument. This prefilter through which water is made to pass before it enters the carbon column in the Aquaguard simply filters the water. It will go to minimise the workload of activated carbon as a filter. It cannot be taken as an essential part of Aquaguard. This prefilter can be attached to any other type of filter for filtering water. This prefilter is added to help the Aquaguard in a secondary way. It adds to the convenience and effectiveness of Aquaguard. An object or device which adds to the effectiveness of something else cannot be considered to be an integral part of the equipment but it can only be an ‘accessory. Presence of prefilter as per reports given by laboratories show that it goes to minimise the turbidity of water. Turbid means not clear or transparent because of stirred up sediments. It is true that prefilter helps in removing suspended or stirred up sediments. That does not mean that without prefilter water which is passed through the activated carbon column will not get filtered. The certificates issued by the laboratories referred to earlier have been described by the Bench which referred the issue to Larger Bench observing “These reports seem to us incomplete and purported”. We are not in a position to endorse this view made by the Bench. When the Revenue took up the stand that Aquaguard cleared by APIC was not complete in itself, it was their bounden duty to adduce evidence to support this stand. They did not care to adduce any evidence in that regard. In such a situation, Revenue cannot be heard to contend that certificates produced by the assessee are incomplete or purported. In Hindustan Ferodo Ltd. v. Collector of Central Excise, Bombay, (1997) 2 Supreme Court Cases 677, Their Lordships observed :
“It is not the function of the Tribunal to enter into the arena and make suppositions that are tantamount to the evidence that the party before it has failed to lead…. It is not an invitation to the Tribunal to give its opinion thereon, brushing aside the evidence before it. The technical knowledge of Members of the Tribunal makes for better appreciation of the record, but not its substitution.”
We do not find any ground to doubt the genuineness and correctness of the certificates issued by the three laboratories referred to earlier in this order.
11. The discussion of the entire circumstances as made above clearly leads to one and the only conclusion that Aquaguard cleared by APIC under tariff heading 8421.10 was an unit complete in itself which filters and purifies water. Therefore, Chapter Note 6 to Section XVI has no application to the said equipment when it was put in the new carton along with some other bought out items which is termed as Prefilter. In this view, the appeals filed by the assessee are allowed and that filed by the Department against the order of the Commissioner of Central Excise, Jaipur is dismissed.