NEW DELHI, SEPT 11, 2012: THE appellant is a manufacturer of various components of television sets. The components are manufactured at its factory at Delhi. Thereafter, the said components are assembled in the same factory for the purpose of testing of each component and for checking the working of each television set. Thereafter the television sets so assembled are disassembled and then transported as parts to various satellite units of the appellant company at different places. In these satellite units, the separate components are re-assembled and, as per the appellant, some further processes are carried out in order to make those sets marketable. The issue is whether such components, which are manufactured at and transported from the factory of the appellant at Delhi are liable to be assessed as Television Receivers or as Parts of Television Receivers.

The appellant was issued a show-cause notice dated 21.3.1990 by the Assistant Collector, New Delhi, whereby it was asked to show-cause as to why the goods manufactured by the appellant were not liable to be classified under sub-heading 8528.00 of the Tariff as Television Receivers , rather than under Entry 8529.00, as parts of the same. The appellant replied to the show-cause notice that the goods/components as transported from its factory did not possess the essential characteristics of finished Television Receivers as required by Rule 2(a) of the Rules for Interpretation of the Tariff, and also detailed the various further processes required to be performed on those goods for them to be considered as complete Television Receivers. These contentions of the appellant appear to have been accepted as no further action was taken by the Revenue until the year 1993.

Thereafter, the Collector of Central Excise, exercising his power under Section 35E(2) of the Central Excise and Salt Act, 1944 vide order dated 18.02.1994 directed the Assistant-Collector to file an appeal before the Collector, Central Excise (Appeals) for setting aside the approval granted to the classification of the goods of the appellant. The Collector (Appeals) by order dated 21/22.07.1994 dismissed the appeal filed by the Department.

Against the aforestated order, the Department preferred an appeal before the Tribunal. The Tribunal by its order dated 18.02.2000 remanded the matter to the Collector (Appeals), on finding that the earlier order of the Collector (Appeals) was a non-speaking order and violative of the principles of natural justice. Consequently, the Collector (Appeals) in the remand proceedings decided the issue in favour of the Department vide order dated 26.06.2002. Against this, the appellant filed an appeal before the Tribunal, wherein the order impugned herein was passed. By the impugned order, the Tribunal has accepted the contentions of the Department and held the goods manufactured by the appellant liable to be classified under Tariff Entry 8528 as Television Receivers rather than under Tariff Entry 8529 as parts thereof

The main question that arises for consideration in this case is that of the applicability or otherwise of Rule 2(a) of the Rules for Interpretation to the goods of the Appellant, and the effect of Section Note 2 to Section XVI of the Tariff, on the applicability of such provision.

In the matter at hand, the entire case of the Revenue is based on an application of Rule 2(a) of the Rules for Interpretation to the goods produced by the appellant, however, the applicability of this Rule cannot be established unless the classification is first tested against the relevant Section and Chapter Notes. In this case, the relevant Section Note is Section Note 2 to Section XVI of the Tariff, as reproduced here.

"2. Subject to Note 1 to this Section, Note 1 to Chapter 84 and to Note 1 to Chapter 85, parts of machines (not being parts of the articles of heading 84.84, 85.44, 85.45, 85.46 or 85.47) are to be classified according to the following rules :

a. parts which are goods included in any of the headings of Chapter 84 or 85 (other than headings 84.85 and 85.48) are in all cases to be classified in their respective headings; "

The Supreme Court noted that the clear stipulation contained in Section Note 2 is to the effect that parts of goods mentioned in the Chapters specified therein, shall in all cases be classified in their respective heading. In that light, the fundamental enquiry in this case must be that of whether the goods produced by the appellant may be said to be covered by the above Section Note.

The Supreme Court observed,

"In view of the above mentioned Section Note, the question that arises here is whether the goods produced by the appellant can be described as parts under the goods included in any of the headings of Chapter 84 or 85. In this respect, it is the contention of the appellant that the goods produced by them shall inevitably have to be considered as part, as they are unable to receive a picture, which is said to be a fundamental requirement for a good to be considered as a Television Receiver . At the first sight, one may find force in this contention. As the test in Section Note 2 is simply that of whether the goods in question are parts, it may be convincingly said that as the goods transported by the appellant are incapable of functioning as Television Receivers , they shall have to be considered to be parts thereof.

However, on closer scrutiny of the unique facts of this case, the goods of the appellant may not be said to be parts as per Section Note 2 to Section XVI of the Tariff. The appellant not only used to assemble all parts of the Television Receivers and make complete television sets, but the said Television Receivers were also operated in the manufacturing unit of the appellant and thoroughly checked and only upon it being confirmed that the Television Receivers were complete in all respects, they were disassembled and along with relevant material and individual serial numbers, sent to the various satellite units. Once the Television Receivers are assembled or are made completely finished goods, the manufacturing process is over and we are not concerned as to what happens subsequently. Whether they are sent to the satellite units of the appellant in its complete form or in a disassembled form is irrelevant .

Looking to the facts of the case, the Supreme Court noted that it is not in dispute that complete Television was manufactured by the appellant and therefore, the Revenue had rightly classified the goods- product as complete Television set even though it was subsequently disassembled."

Supreme Court further noted,

"It is seen from the material on record, that at the time of the parts of the TV set being transported from the factory of the appellant, the parts manufactured by it are already identified as distinct units. As it can be seen from the affidavit of the Revenue, which has not been controverted by the appellant, the parts manufactured by it are matched and numbered within the factory itself, and also assembled together to receive pictures for the purpose of testing and quality control. The consequence of this is that the goods assembled at the satellite units would be identifiably the same as those assembled together by the appellant in its factory for the purpose of testing, as all such parts are already numbered and matched. This element of identifiability shall take the goods manufactured by the appellant away from being classified as parts , and they will be classified as identifiable Television Receivers. The fact that the packing material for the products is also manufactured and transported by the appellant further lends credence to this conclusion ."

Once the question of applicability of Section Note 2 to Section XVI of the Tariff is answered in the above manner, i.e. in the negative, the Supreme Court held that there may be seen to be no bar to the application of Rule 2 of the Rules for Interpretation to the goods transported by the appellant.

The appellant had also raised the plea of double-taxation; The Supreme Court however held that, once the question of classification of the goods transported by the appellant has been answered in the above manner, it is not open to grant the appellant any relief on this ground alone. Further, it is always open to the satellite units of the appellant to avail input tax credit on the duty paid by the appellant on the goods transported by them.

Therefore, the Supreme Court was of the view that the Tribunal did not commit any error while passing the impugned order and, therefore, the appeal is dismissed.

(See 2012-TIOL-67-SC-CX)