2022-TIOL-90-SC-CX
Thermax Ltd Vs CCE
CX - The present appeal is filed u/s 35L of the Central Excise Act 1944 and the issue to be considered here is whether the product manufactured by the appellant is classifiable as heat pump under the heading 84.18 of the Schedule to the Central Excise Tariff Act, 1985 - The question is important for the appellant because under notification 155/86-CE dated 1.3.1986, heat pumps falling under Chapter 8418, enjoyed a limited exemption from the levy of excise duty - 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 (Appeals) however agreed with the manufacturer's claim - But in the appeal by the Revenue, the CESTAT reversed the decision - The conclusion in the order dated 22.1.2009, is 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 accordingly declared that the manufacturer is disentitled to the concessional rate of duty in terms of the notification, for their product - Incidentally, the CESTAT 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.
Held - The definition of a product given in the HSN should be given due weightage in the classification of a product for the purpose of levying excise duty - As it is not possible for the user to obtain only hot water from the MVAC, we find it difficult to relate the product to the definition of heat pump given in the HSN - 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 - The incidental output from the machine cannot therefore justify classification of the product in the category of heat pump: SC
+ The definition of a product given in the HSN should be given due weightage in the classification of a product for the purpose of levying excise duty. This is because in the Statement of Objects and Reasons of the Bill leading to enactment of Central Excise Tariff Act, 1985, it was clearly stated that the pattern of tariff classification is broadly based on the system of classification derived from the International Convention on the Harmonised Commodity Description and Coding System (Harmonised System) with such contraction or modification thereto as are necessary, to fall within the scope of the levy of central excise duty. The tariff so suggested for the levy under the Indian Tariff Act is based on an internationally accepted nomenclature, in the formulation of which, all considerations, technical and legal, have been taken into account. This was done to reduce avoidable disputes on tariff classification. Besides, the tariff would be on the lines of the harmonized system. It was also borne in mind that the tariff on the lines of the harmonized system would bring about considerable alignment, between the customs and central excise tariffs, which in turn, would facilitate charging of additional customs duty on imports, equivalent of excise duty. It was therefore expressly stated in the Statement of Objects and Reasons that the central excise tariff are based on the HSN and the internationally accepted nomenclature was as such taken into account, to reduce tariff classification disputes. Thus, it was suggested that a safe guide for classification is the internationally accepted nomenclature emerging from the HSN and in case of doubt, the HSN should be chosen advisory for ascertaining the true meaning of any expression used in the Tariff Act. (Para 6)
+ Guided by the definition of heat pump as given in the HSN, it is clearly discernible that the Modified Vapour Absorption Chillers (MVAC) manufactured by the appellant do not satisfy the definition of heat pump as given in the HSN. According to the appellant, the functioning of the MVAC involved - a) Lithium Bromide in a lower concentration is made to react with water to form what is commonly known as the 'weak solution' containing both water and Lithium Bromide; b) To this weak solution, heat is applied. When heat is applied, the concentration of Lithium Bromide increase which results in the separation of the water from Lithium Bromide. The separated water is in the form of Vapour; c) This Vapour travels to the condenser and then to the cooling tower to produce chilled water; d) The waste heat if any can be used to produce hot water. The heat can also be wasted. (Para 8)
+ 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 given definition. The hot water, that is produced for generating chilled condition/ refrigeration, is only an incidental purpose of the MVAC and therefore classification of the appellant's product as a heat pump on this basis, would in our view, be irrational. (Para 9)
+ 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 refri geration and not at all for heating purpose. (Para 10)
+ As it is not possible for the user to obtain only hot water from the MVAC, we find it difficult to relate the product to the definition of heat pump given in the HSN. 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. (Para 12)
+ 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. Significantly in the description of the product on the appellant's website, Vapour Absorption Chillers do not mention about its heating capability. Likewise, heat pumps do not mention about the cooling function. This would suggest that the appellants do not themselves recognize the incidental hot water generating capacity of the Vapour Absorption Chillers, to treat it as a heat pump. The modification of Vapour Absorption Chillers by adding a sensor to gauze the temperature and incorporating a selector switch in the control panel to select heating/cooling mode with added wiring to carry the signal from the censors would simply mean that a vapour absorption chiller can also produce hot water. However, what is important to keep in mind is that the additional purpose does not alter the primary character/functionality of the product which is to function as a vapour absorption chiller, used to produce chilled water for the purpose of refrigeration and air conditioning. This is how the product is recognized in the market. The incidental output from the machine cannot therefore justify classification of the product in the category of heat pump. (Para 13)
+ The end use of MVAC is to produce Chilled Water. The use of heat as one of the sources in the air-conditioning system would not take away the primary or basic function of the MVAC, which is to cool and not heat water. The additional heating capability of the machine thus raises a peculiar dilemma, but then one can be guided by the market parlance test which shows that the machine is perceived and purchased only as a cooling device. The circumstances here remind us of the somewhat similar predicament of Lord Illingworth, the character in A Women of No Importance. In this classic play of Oscar Wilde 7 , in the context of observing all kinds of human capabilities, the dramatis personae made that classic remark on those, "who do the improbable." The uncharacteristic capability of the cooling machine to also produce hot water, should not however deflect us and it would be appropriate to observe in this case that a chiller machine is attempting to masquerade as a heat pump, to gain concessional tariff benefits. The conclusion therefore is inevitable that the MVAC machine must not be categorized as a Heat Pump. Consequently, it is declared that the product manufactured by the appellants merit classification under Sub-heading 8418.10 of the central excise Tariff Act, 1985, in the category of refrigerating equipment. The view of the CESTAT is thus affirmed. The appeals are accordingly dismissed leaving the parties to bear their own cost. (Para 21)
- Assessee's appeal dismissed: SUPREME COURT OF INDIA
