JUDGMENT
S.L. Peeran, Member (Judicial)
1. Both these appeals filed by the appellants are against two separate independent orders passed by the Commissioner (appeals) confirming the orders in original for classification of item:
a) Heater and Blower Assembly – HBA
b) Duct Assembly Intake – DAI
as parts of the Air Conditioner under Chapter Heading 84.15 of the Central Excise Tariff Act. Both the items had been classified under Chapter Heading 84.08 as parts of the Motor Vehicles before and after issue of the show cause notice, however the said classification is now revised as part of Air conditioner assembly under Chapter heading 84.15 and demands raised for short levy only for the period June 99 to November 99 for Duct Assembly Air Intake and May 99 to October 99 for HBA for total amount of Rs. 8,82,218/-.
2. We have heard Shri Aravind Dattar, Ld. Sr. Advocate for the appellants and Shri Sree Kumar Menon, Ld. SDR for the Revenue.
3. At the outset the Ld. Sr. Counsel pointed out that in the stay order No. 393 & 394/01 dt. 30.7.01 his argument has been recorded and based on the prima facie nature of the case, the Tribunal accepted the plea for granting waiver of pre deposit. The Ld. Sr. Advocate’s arguments which are recorded in the stay order in para 2 and 3 are extracted below in order to avoid repetition.
“The issue involved is the correct classification of item described by the appellants in the classification list as “Heater and Blower Assembly (HBA) and Duct Assembly Air Intake (DAAI)”. The appellants have sought for classification under the specific entry as “parts and accessories of motor vehicles” under chapter heading 87.08. The reason for seeking this classification is that all Motor Vehicles irrespective of being fitted with air conditioners are being fixed with both these items. They do not have remodest connection with the air conditioning machines and does not perform any function specially or remedially with the air conditioning machine; being independent “parts of motor vehicles”, they are required to be classified under Chapter heading 87.08. In support of their contention they relied on Explanatory Notes of HSN under the said Chapter. It is contended that the HSN persuasive value and is required to be applied in terms of the explanation at page 1122 and 1123 of the HSN. However, the authorities have not accepted their contention and have classified the items at higher duty under chapter heading 84.15 as the “air conditioning machines comprising motor driven fan and elements for changing the temperature and humidity, including those machines in which the humidity cannot be separately regulated.” The Ld. Senior Advocate took us through the chapter note of Central Excise Act and Explanatory Notes of HSN; Technical evidence and appellants various pleas to demonstrate that the item in question is “parts of Motor Vehicles as vehicles even without any air condition machines require these items and it performs the function of conducting air cool air or hot air and has no occasion as such with Air conditioning machine.” He, further pointed out that the issue has got recurring liability and the appellants are faced with serious financial hardship inasmuch as that they have suffered loss of Rs. 79 crores. He submits that on merits the appellants have a strong prima facie case as the item cannot be considered as “air conditioning machine” but “parts of Motor vehicle”. As stated, Ld. Senior Advocate referred to various technical literature and other material on records, submits that both the In counter the Ld. Sr. Counsel submits that it is not in a fan and pointed out to page 1123 of the HSN to show that if hot air temperature is used to expel the heat of the engine then it comes under specific Section XVII as “Parts of Motor Vehicles”.
items are more important and the classification has to be on the basis of functional test. It is his contention that the main function of the item is to conduct he air whether hot air or cool air and it is fitted to the air conditioner or to hot blower. Therefore it cannot be considered as a “part of” a “motor vehicle” as it does not have any function with the Motor vehicle but it is linked with only air conditioning system. Therefore, the appellants do not have a strong prima facie case and opposed the prayer for waiver of pre deposit and for staying its recovery. He submits that, in the revenue interest, they should be put to terms. The Ld. DR also takes us to the Explanatory Notes HSN at page 1123 and submits that it is a clearly applicable and it is not supportive to the case made out by the appellants. He submits that the item is a hot blower and it is designed to change the temperature. In counter the Ld. Sr Counsel submits that it is not in a fan and pointed out to page 1123 of the HSN to show that if hot air temperature is used to expel the heat of the engine then it comes under specific Section XVII as “Parts of Motor Vehicles”.
4. The Ld. Counsel places before us the Book “Automotive Heating and Air Conditioning”, a manual by Haynes Techbook. He specifically refers to various chapters in this book and pleads that the item cannot be treated as “Parts of Air conditioner”. The items are fitted in between Dash Board and Engine and there is no connection with the air conditioning machine. Earlier classification list was approved as “parts of Motor Vehicles” after due consideration of its function and after examining the technical literature. However, the show cause notice dt. 4.1.2000 for re-classifying the items Duct Assembly and SCN dt. 3.12.99 for Heater and Blower Assembly did not give any reasons of the changed view, and no technical literature has been relied. The department has also not got the technical literature produced by the appellants examined through Experts. They have also not sent both the items to the Experts for opinion. Therefore, in terms of the judgment rendered in the case of J.K. Synthetics v. UOI reported in 1981 (8) ELT 114 (SC) the re-classification adopted requires to be set aside. The Ld. Sr. Counsel submitted that the reasons for reclassification are:-
(a) if the facts are different
(b) fresh facts are brought on record
(c) if the process of manufacture has changed
(d) the relative entries in the tariff have been modified
(e) subsequent to the earlier decision, there has been pronouncement which necessitates reconsideration of the issue.
The Ld. Sr. Counsel also referred to the latest Apex Court judgment rendered in the case of J.K. Mills v. CCE reported in 2001 (117) ELT 537 wherein the Hon’ble Apex Court has clearly laid down the ratio of changing the classification and further held that it could not be done without issuance of show cause notice for re-classifying the item and demands could only prospectively and it is also laid down giving clear reasons for changing of classification is a must. He contends that in the present case the order in original proceeds on the basis of the item being an air conditioner. Ld. Sr. Counsel submitted that the finding is solely on presumption. He submits that the re-classification adopted is not in terms of the principles laid down in the above noted citations. He pointed out that even in terms of HSN explanatory note the item cannot be treated as “parts of air conditioner” and the explanation at page 1122-1123 of HSN clearly lays down that the item is to be treated as “arts of Motor Vehicles” as per the explanation and that if the hot air temperature is used to expel heat of the engine then the item would come under Section XVII (parts of motor vehicles). He pointed out that there is total non application of mind by both the authorities and hence the impugned orders are required to be set aside. He prayed for treating the items as “parts of motor vehicle” under chapter headings 87.08 in view of the technical literature relied by the appellants.
6. Ld. DR pointed out that the authorities have clearly noted from the appellants’ own submissions that the items function is in conjunction with car air conditioner and it is not designed to function independently. The item enables the car air conditioner to control the temperature inside the car. Therefore, it is a part of the “car air conditioner”. He submits that he has no information about the present practice of items being cleared under Heading 87.08. He contends that the present practice has no relevance as the show cause notice was proposed to change the classification for a specific period and procedures for reclassification have been rightly followed. He contends that there is no infirmity in the order.
7. On a careful consideration of the submissions, we find that lot of force in the submissions made by the Ld. Sr. Counsel. There is no dispute in the fact that the item was classified as “parts of Motor Vehicle” under Chapter 87.08 before and after the issue of show cause notice. The appellants have produced Technical Literature, Drawings indicating the function of the item and to show that it has independent function that it has no connection with the air conditioner. They have also pointed out that the item is independently fixed in between engine and dash board and the same is utilised even for non AC cars. They have produced the extracts of Technical Book before us. We have perused the impugned order and find that the Assistant Commissioner has proceeded on his own understanding as can be seen from the paras 1, 2 and 6 of the impugned order in original. It is now well settled that for the purpose of classifying the item is required to first considered. The technical literature cannot be ignored besides the opinion of the technical experts. The entire classification has to be proceeded on the basis of the technical literature and the function of the item. The authorities should also apply the section notes and chapter notes and rules of interpretation. On our careful consideration of the materials produced before us, we find that the item is expelling hot air temperature of the engine, hence prime facie, the item would be covered under Section XVII as “parts of Motor Vehicle”. The Ld. Senior Counsel demonstrated before us by exhibiting the item and explained as to how the item functions. On a careful consideration of the facts, we find that there is merit in what the appellants have stated that the item has got independent function from the air conditioner. We notice that the department itself has reverted the classification of the item as parts of the motor vehicle under chapter heading 87.08 after the issue of show cause notice. Therefore, the matter requires to be remanded back to the original authority for reconsideration of the appellant’s plea that there are no circumstances available for taking a changed view for the period in question in the light of the Apex Court judgment as well as Delhi High Court judgments referred in the case of J.K. Synthetics (supra). In that circumstances, we agree with the Ld. Senior Counsel that both the orders are not speaking orders in view of the fact that the authorities have not appreciated the technical literature and experts opinion of the matter. They have also not shown as to show a changed view can be taken and the items are required to be re classified. In that view of the matter the impugned order is set aside and the matter is remanded to the original authority with a direction that the appellants shall be given an opportunity to show that the item is “parts of motor vehicles” and not “parts of Air conditioner”. The Revenue is at liberty to get the item examined by experts. The appellants evidence shall also be taken into consideration. The appellants shall be heard and thereafter a detailed speaking order be passed by observing the principles of Natural Justice. Thus the Appeals are allowed by way of remand for de novo consideration.
(order dictated and pronounced in the open court)