ORDER
V.K. Agrawal, Member (T)
1. The issue involved in this appeal, filed by M/s. Keihin Panalfa Ltd. is whether the benefit of Notification No. 6/2000-CE. (SI. No. 212A), dated 1-3-2000 is available in respect of
‘A/C sub-assembly frame’ and ‘A/C sub-assembly engine’ manufactured by
them.
2. Shri V. Lakshmikumaran, Learned Advocate, submitted that appellants manufacture various parts of car air-conditioner for supplies to Honda Siel Cars India Ltd.; that the parts manufactured by them are supplied in two sub-assemblies called ‘A/C sub-assembly frame’ and ‘A/C sub-assembly engine’; that M/s. Honda Siel procures other parts of car air-conditioner like heater assembly, heater valve, A/c control panel, blower assembly, duct assembly etc. from other manufacturers and fit the same along with the parts manufactured and supplied by the appellants in their vehicles; that they had classified the parts of A/C under Heading 84.15 of the Schedule to the Central Excise Tariff Act and availed of exemption from payment of Special Excise Duty [S.E.D.] leviable under the Second Schedule in view of Notification No. 6/2000-C.E.; that the adjudication authority, under the impugned order dated 31-10-2001, has disallowed the exemption, confirmed the demand of S.E.D. and imposed penalty on the ground that the goods in question are in the nature of sub-assemblies of car air-conditioner and hence can not be treated as parts of air-conditioning machine for the purpose of Serial No. 212A of the said Notification; that the adjudicating authority has relied upon the definition of Tart’ as given in EXIM Policy which is not correct; that it is settled legal position that the definition for a particular expression given in another statute cannot be relied upon for the purpose of Central Excise Tariff and relied upon the decision in Bajaj Tempo Ltd. v. CCE – 2000 (120) E.L.T. 472 (T). He, further, submitted that in the context of air-conditioner itself, the Appellate Tribunal in Seagull Fabricators Pvt. Ltd. v. CCE, Mumbai-III – 2001 (127) E.L.T. 186 (T) has held that even a sub-assembly of an air-conditioner would come under the definition of ‘Part’ in the Central Excise Tariff. The learned Advocate also contended that the impugned goods cannot be classified as complete air-conditioners inasmuch as it does not even have the essential character of air-conditioning machine as stipulated in the Central Excise Tariff as it does not comprise of a motor driven fan; that apart from the two sub-assemblies supplied by them, their customer purchases other important and vital parts like blowers, heaters from other vendors to manufacture car air conditioner.
3. He relied upon the decision in the case of CCE v. Subrose Ltd. -1989 (43) E.L.T. 543 (Tri.) wherein it has been held that goods are not being classified as air-conditioning machines under Heading 84.15 unless clubbed with motor driving fan or blower. Finally learned Advocate submitted that in view of the correspondence exchanged with the Department right from the beginning, no penalty is imposable on them.
4. Countering the arguments, Shri N.K. Bajpai, learned Advocate, submitted that it is apparent from form R-2 which is Registration Certificate under Rule 174 of the Central Excise Rules that the appellants declared their activity as manufacture of air-conditioners for automobiles falling under Heading 84.15 of the Tariff; that the Registration Certificate is not for manufacturing of parts of car air-conditioners; that similarly in their application for registration, submitted under R-1, they had mentioned in the Column Description of excisable goods “Air-conditioners for automobiles”; that in the declaration filed under Rule 57G of the Central Excise Rules, 1944 again the description of the goods was “air-conditioners for automobiles”; that this goes to show that the appellants have always claimed to be manufacturer of air-conditioners and not parts; that this is also apparent from the list of goods supplied that they are supplying compressor as well as condenser which are the main equipments for air-conditioning machines. The learned Advocate for the Revenue further submitted that though the definition of the part has been taken from EXIM Policy, the said definition has been taken from McGraw Hill Dictionary of Scientific and Technical Terms according to which assembly unit as a device, which performs the function of associating and joining several parts or pieces together to form a programme; that it is clear from this definition that assembly and parts are not one and the same thing. He also mentioned that it is settled law by the judgments of the Supreme Court that an exemption notification has to be interpreted strictly; that and Explanatory Notes of HSN cannot be referred to for interpreting the notification; that the ratio of the decision in the case of Seagull Fabricators Pvt. Ltd. requires reconsideration. Finally, he submitted that the impugned products namely, A/C sub-assemble of engine and A/C sub-assembly frame are classifiable as air-conditioners in view of Note 4 to Section XVI of the Tariff.
5. In reply, the learned Advocate of the appellants mentioned that the show cause notice dated 4-4-2001 issued by the department clearly mentioned that the appellants are engaged in the manufacture of A/C sub-assemblies. It is nowhere mentioned in the show cause notice that these sub-assemblies are air-conditioners themselves; that in their letter dated 12-4-2000 addressed to the Range Superintendent, they had clearly mentioned that apart from sub-assemblies supplied by them, the air-conditioner system comprises 5 other parts; that again in their letter dated 1-6-2000 they have mentioned that the functions performed by an air-conditioners can only be performed in conjunction with the components which their customers procure from sources other than the appellants. He also contended that no legal consequences will flow from the declaration filed by them and relied upon the decision in the case of Net Lone India Ltd. v. CCE [2000 (121) E.L.T. 675 (Tri.) = 2000 (40) RLT 429].
6. After hearing, the order was reserved. Subsequently the learned Advocate under letter dated 9-10-2000 submitted a copy of CBEC Circular No. 666/57-2002-CX., dated 25-9-2002 wherein the Board has clarified that “a sub-assembly or an assemoly, which does not have essential character of complete machine, will be classified as a ‘part’ of an air-conditioning machine, and will be eligible for concessional rate of duty under the exemption Notification No. 6/2000. The Appeal was, therefore, reposted for hearing the arguments on the said circular dated 25-9-2002. The learned Advocate for Revenue submitted that the said Circular refers to an earlier Circular No. 231/65/96-CX., dated 12-7-96 which was issued regarding “Excisability of split Air-Conditioners and units thereof; that accordingly present Circular is also related to split air-conditioner and not to the air conditioners meant for motor vehicles; that for the same reason the decision in the case of Seagull Fabricators Pvt. Ltd. will also not apply to the present matter. In reply the learned Advocate for the appellants submitted that the basis for issuing the show cause notice was that unit/assembly and parts was not one and the
same thing and reliance was placed on the definition of Tarts’ in Para 7(28) of the EXIM Policy and of ‘Assembly’ in McGraw Hill Dictionary; that show cause notice also referred to the Board’s Circular regarding split air-conditioners and the charge was made that the benefit of notification would not be available to the sub-assembly for automobile air conditioner when cleared separately as the notification was available to “Parts of air-conditioning machines”. He also mentioned that earlier circular dated 12-7-96 was also based on the definition of “Parts” as given in EXIM Policy. He thus contended that now when the said Circular has been modified by the Circular dated 25-9-2002, it is not open to the Revenue to claim that the said Circular is only in respect of split air-conditioner and will not apply to the impugned air-conditioners for motor vehicle. He, further, submitted that moreover in the present circular, the scope has been enlarged as the Board, with a view “to prevent any divergence in practice in the field” prescribed “the minimum number of parts/assembly of an air-conditioning machine/kit which could be deemed (on assembly) to have the essential character of an air-conditioning machine as per Rule 2(a) of the Interpretative Rules”; that the circular also refers to the decision in the case of Universal Commercial Corporation v. Collector of Customs, Delhi, 1994 (69) ELT 150 (T) as to what would constitute the essential parts of an air-conditioning machine that the said decision was not in respect of split air-conditioner.
7.1 We have considered the submissions of both the sides. The facts which are not in dispute are that the appellants are only manufacturing and clearing two sub-asemblies known as ‘A/C sub-assembly frame’ and ‘A/c sub-assembly engine’. The Appellate Tribunal in the case of Seagull Fabricators has extended the benefit of Notification to sub-assembly by holding that there is no basis for denying the exemption by relying upon the definition of the parts which is at variance with the generally understood Scheme of the Tariff or the HSN upon which the tariff is based. The Board has also taken note of the said decision in the Circular dated 25-9-2002 and has observed that “this decision of the CEGAT has not been appealed against by the Government”. The Board, further, after referring two decisions in the case of Universal Commercial Corporation v. Collector of Customs, Delhi, 1994 (69) E.L.T. 150 (Tri.) and Collector of Central Excise v. Subros Ltd. [1989 (43) E.L.T. 543 (T) = 1989 (24) ECR 219 (T)] has mentioned that the essential elements of air-conditioning machines would be the following :-
(i) Evaporator (cooling) coil;
(ii) Condenser coil;
(iii) Motor;
(iv) Fan or blower for circulating the air;
(v) Compressor; and
(vi) Capillary line (expansion valve)
7.2 The Board has clarified in Circular No. 25/2002 that “if an assembly or a kit (even in CKD or SKD form) does not have all the above components, it will not be considered to have essential characteristics of air-conditioning machines and will be classified as ‘parts’. “The Board has, further, clarified that “a sub-assembly or an assembly which does not have the essential characteristics of the complete machine, will be classified as a ‘part’ of an air-conditioning machine and will be eligible for concessional rate of duty under the exemption notification (now Notification No. 6/2002-C.E. dated 1-3-2002 – S. No. 197)”.
7.3 We do not find any substance in the submissions of the learned Advocate for the Revenue that Circular, dated 25-9-2002 is not applicable to the facts of the present matter. The Board, under the said circular, has clarified as to what constitutes the essential elements of an air-conditioning machine and an assembly not having all the said component cannot be claimed to have the essential characteristics of an air-conditioning machine. Such assembly will be nothing else but a part of the A/C machinery.
7.4 The Revenue has not controverted the submissions made by the appellants that they are not supplying other parts, such as heater assembly, blower assembly, duct assembly, etc,. It is thus apparent that all the essential elements of air-conditioning machines are not being supplied by the appellants and according to the Board’s Circular, in such a situation the assembly supplied by the appellants will be classified as parts eligible for the benefit of Notification No. 6/2000 (S. No. 212A). This was also the ratio of the decision in the case of Seagull Fabricators Put. Ltd. In view of this, the impugned order is set aside and the appeal is allowed.