On 13th October 2022, the Supreme Court in a division bench comprising of Justice K.M. Joseph and Justice Hrishikesh Roy observed that in case of machines capable of performing two or more supplementary/alternative functions, the appropriate classification should be in reference to its principal function. (M/s Thermax Ltd. through its Director V. Commissioner of Central Excise)
Facts of the Case:
The appellant had sold their manufactured product by describing them as heat pumps but the Assistant Commissioner of Central Excise negated such description. On appeal by the assessee, the Commissioner of Central Excise however agreed with the manufacturer’s claim. But in the appeal by the Revenue, the Customs, Excise and Service Tax Appellate Tribunal, Mumbai (CESTAT) has reversed the decision. It was concluded that the product is not heat pump and therefore, ineligible for concessional rate of duty under Sl. No. 2 of Notification No. 155/86-CE dated 1.3.1986. It was also held that the product is a complete machine and cannot be treated as part of a machine. It was also held that the value of Lithium Bromide is not to be calculated in the assessable value of the machine. However, to facilitate computation of the payable sum of duty by the manufacturer, the matter has been remanded to the adjudicating authority. Earlier, the appellant had preferred a writ petition before the Bombay High Court to challenge the decision of the CESTAT but because the statutory remedy of appeal to this Court is available, the High Court dismissed the writ petition on 26.3.2009 resulting in the present appeal.
Contentions of the Appellant:
The counsel for the appellant submitted that “appellant manufactures Modified Vapour Absorption Chillers(MVAC) and the process of manufacturing their product (MVAC) is distinct from manufacturing ordinary chillers as they are installing additional components in the Vapour Absorption Chillers (VAC) such as, (I) Sensor to sense the temperature, (II) Selector Switch to control panel which can select heating/cooling mode, and (III) Additional Wiring to carry the signals from the sensors and these features warrant recognition of the machine as “heat pumps”.” “Since the subject machine can provide both chilled and hot water using refrigerator circle, the interpretation against the appellant, ignoring technical features of the product, would be unjustified. as per Chapter Note 7, the machine which is based upon generation of heat in order to achieve cooling, should be classified in the manner suggested by the manufacturer and Note 7 cannot be made applicable to products falling under Chapter 84.01 to 84.24.” Relying upon the cases, Commissioner of Central Excise, Mumbai Vs. Blue Star Ltd. And Commissioner of Customs and Central Excise Vs. Voltas Ltd. He submitted that “the product manufactured by the said two companies are identical to MVAC manufactured by the appellant, and in the proceedings pertaining to those two companies, the products manufactured by them were treated as heat pumps, falling under Heading 84.18.”
Contentions of the Respondent:
The counsel for the respondent submitted that “MVAC manufactured by the appellant does not qualify as heat pump to secure the benefit of limited exemption, under the Notification 155/86-CE dated 1.3.1986. It is specifically contended that MVAC does not satisfy the definition of heat pump given in the HSN where heat pump is defined. the product is understood and recognized in market parlance as a Vapour Absorption Chiller, used exclusively for air conditioning or refrigeration purpose and the device is not known as a heat pump.” While referring to the cases Collector of Central Excise, Shillong Vs. Wood Craft Products Ltd. and Commissioner of Customs and Central Excise, Amritsar (Punjab) Vs. D.L. Steels etc. it was submitted that “any interpretation of heat pump, beyond the scope of definition provided in the HSN, would not be justified. Moreover, the appellant shows that both heat pumps and Vapour Absorption Chillers are marketed separately by the appellant and in the description of the product Vapour Absorption Chillers, the appellant does not mention about its heating capability. Likewise in the description of heat pumps, the cooling capability is not mentioned.”
Observations and Judgement of the Court:
The Hon’ble court observed that “The heat pumps by utilizing energy, as per HSN becomes a source of more intense heat. However, since the final output of MVAC is cold/chilled water, the MVAC obviously does not fit into the definition given by HSN. Moreover, it cannot also be overlooked that customers do not purchase MVAC because it produces hot water and in commercial parlance the manufactured product of the appellant is known as a Vapour Absorption Chiller used for air conditioning and refrigeration and not at all for heating purpose. The manner of operation of the device and its output makes it abundantly clear that the primary purpose of the MVAC is to produce chilled water and the incidental production of hot water in its operation is only incidental and cannot therefore be a ground for classification of the product under Chapter 8418. When the market/common parlance test is applied for the manufactured product, it is seen that the appellant in their website have identified Vapour Absorption Chillers and heat pumps separately. Moreover, the decision in the case of Voltas (supra) can be of no assistance as the revenue classified their Vapour Absorption Unit as an air conditioning equipment falling under Chapter 8415 and not as a refrigeration equipment falling under Chapter 8418. the principal purpose of the machine is undoubtedly to produce chilled water. Therefore, taking help from Chapter Note 7, producing chilled water is to be taken as the sole purpose of the Modified Vapour Absorption Chillers manufactured by the appellants.” The case of Xerox India Ltd. Vs. Commissioner of Customs was used in support of the conclusion.
The present appeal was dismissed and the view of the CESTAT was thus affirmed.
Case: M/s Thermax Ltd. through its Director V. Commissioner of Central Excise
Citation: Civil Appeal Nos. 6048-6050_Of 2009
Bench: Justice K.M. Joseph and Justice Hrishikesh Roy
Date: 13th October 2022
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