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Supreme Court of India
Westinghouse Saxby Farmer Ltd. vs Commr.Of Central Excise Calcutta on 8 March, 2021Author: V. Ramasubramanian
Bench: Hon’Ble The Justice, A.S. Bopanna, V. Ramasubramanian
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.37 OF 2009
WESTINGHOUSE SAXBY FARMER LTD. …Appellant(s)
Versus
COMMR. OF CENTRAL EXCISE CALCUTTA …Respondent(s)
JUDGMENT
V. RAMASUBRAMANIAN, J.
1. Aggrieved by the dismissal of their appeal by the Customs
Excise and Service Tax Appellate Tribunal (for short “CESTAT”), the
Signature Not Verified
Digitally signed by
Madhu Bala
Date: 2021.03.08
15:47:26 IST
Reason:
1
assessee has come up with the present appeal under Section 35
L(b) of the Central Excise Act, 1944.
2. We have heard Shri Kunal Chatterji, learned counsel for the
appellant/assessee and Ms. Nisha Bagchi, learned standing counsel
for the respondent.
3. The appellant is a company wholly owned by the State
Government of West Bengal. It is engaged in the manufacture of
“Relays” which is used as part of the Railway signaling system.
4. A ‘Relay’ is generally an electrically operated switch, used to
control a circuit. They may also be used where several circuits must
be controlled by one signal.
5. Though essentially relays are electrical equipment, they may
also form part of Railway signaling equipment.
6. While the normal electrical relays fall under Tariff Item No.
8536.90, ‘Railways and Railways signaling equipment’ fall under
No. 8608.
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7. It appears that from 01.03.1986 till February1993, the
effective rate of excise duty charged under both subheadings was
15% and hence the appellant had no problem with the classification
of their goods under subheading No.8536.90. But with effect from
28.02.1993, the effective rate of excise duty for the goods under
subheading No.8536.90 became much higher than the effective
rate of duty for the goods under subheading 8608.
8. On 27.08.1993, the appellant submitted a classification list for
the approval of the Assistant Collector, Central Excise. This list
provided details of the products manufactured by the appellant as
Railway signaling equipment, including relays and claimed that
they should be classified under subheading 8608 and not under
8536 in the First Schedule to the Central Excise Tariff Act.
Admittedly this classification list was approved by the competent
authority.
9. On 23.04.1996 the Central Board of Excise and Customs
issued a circular indicating that ‘plugin type relays’ merited
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classification under the Chapter Heading 85.36. Thereafter, the
Assistant Commissioner of Central Excise issued nine different
show causecumdemand notices calling upon the appellant to
show cause as to why the goods should not be classified under the
SubHeading 8536.90 and why the differential duty should not be
collected together with the interest and penalty.
10. The appellant gave reply to the show cause notices,
contending that what was manufactured by them was supplied only
to Railways as part of the signaling equipment and that, therefore,
the show cause notices required to be dropped.
11. However, the Assistant Commissioner passed 9 separate
Ordersinoriginal on 20/21.12.2001 confirming the demand. The
dates of the show cause notices, the period to which each one of
them related to, the differential excise duty arrived at by the
Adjudicating Authority and the penalty imposed by the Adjudicating
Authority are provided in a tabular column for easy appreciation as
follows:
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Show Cause Period Involved Differential Penalty
Notice Date Duty
30.08.1995 01.02.1995 to 31.07.1995 Rs. 3,04,662 Rs. 5000
05.02.1997 27.10.1995 to 09.01.1996 Rs. 66,311 1. Rs.
2000
09.02.1996 01.08.1995 to 31.01.1996 Rs. 95,978 2. Rs.
2000
06.08.1996 01.02.1996 to 31.07.1996 Rs. 1,63,843.25 1. Rs.
5000
06.02.1998 01.08.1996 to 31.01.1997 Rs. 2,69,842 2. Rs.
5000
07.08.1997 01.02.1997 to 31.07.1997 Rs. 1,53,441.583. Rs.
5000
04.09.1998 February 1998 Rs. 41,509.204. Rs.
2000
05.09.1998 01.03.1998 to 31.08.1998 Rs. 3,71,922.575. Rs.
5000
05.03.1999 01.09.1998 to 28.02.1999 Rs. 1,99,180 6. Rs.
5000
Total Duty Imposed/ Total Penalty Rs.16,67,109/ 7.
Imposed Rs.36,000/
12. Aggrieved by the Ordersinoriginal, the appellant filed
statutory appeals. All the nine appeals were partly allowed by the
Commissioner (Appeals) by an Order dated 29.08.2003. By this
Order, the Appellate Authority confirmed the classification made by
the Adjudicating Authority and the consequential differential duty
demanded by the Adjudicating Authority. However, the penalty
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imposed by the Original Authority was set aside by the
Commissioner (Appeals).
13. Challenging that portion of the order of the Commissioner
(Appeals) upholding the proposed classification and demanding
differential duty, the appellant filed an appeal before CESTAT. The
CESTAT dismissed the appeal by a final order dated 26.03.2008. It
is against the said order that the appellant has come up with the
present appeal under Section 35L(b) of the Central Excise Act, 1944.
14. The questions that arise for our consideration in this appeal
are:
(i) Whether the “Relays” manufactured by the
appellant used only as Railway signaling equipment
would fall under Chapter 86, Tariff Item 8608 as
claimed by the appellant or under Chapter 85 Tariff
Item No.8536.90 as claimed by the Department ?
(ii) Whether the show causecumdemand notices
issued by the Department on various dates during
the period 19951998 were not barred by time
under Section 11A of the Central Excise Act,1944,
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in the absence of any fraud, collusion, willful
misstatement or suppression of facts, especially
since the classification list submitted by the
appellant have been approved on 27.08.1993?
Question No.1
15. For finding an answer to question No.1, it is necessary first to
see the description of the goods that fall under Chapter 85 and
Chapter 86 with particular reference to the relevant Tariff Items
thereunder. Chapter 85 covers goods, described as “Electrical
machinery and equipment and parts thereof; sound recorders and
reproducers, television image and sound recorders and reproducers,
and parts and accessories of such articles.”
16. Chapter Heading 8536 covers “Electrical apparatus for
switching or protecting electrical circuits, or for making connections to
or in electrical circuits (for example, switches, relays, fuses, surge
suppressors, plugs sockets, lampholders and other connectors,
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junction boxes), for a voltage not exceeding 1,000 volts; connectors
for optical fibres, optical fibre bundles or cables.”
17. Subheading 8536.90 covers “other apparatus”. This includes
(i) Motor starters for AC motors under subheading 8536.90.10;
(ii) Motor starters for DC motors under subheading 8536.90.20;
(iii) Junction boxes under subheading 8536.90.30; and (iv) others
under subheading 8536.90.90.
18. Chapter 86 covers “Railway or tramway locomotives, rolling
stock and parts thereof; railway or tramway track fixtures and
fittings and parts thereof; mechanical (including electromechanical)
traffic signaling equipment of all kinds.”
19. Chapter Heading 8608 covers “Railway or tramway track
fixtures and fittings; mechanical (including electromechanical)
signaling safety or traffic control equipment for railway, tramways,
roads, inland waterways, parking facilities, port installation or air
fields; parts of the foregoing”.
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20. There are five subheadings under Chapter Heading 8608
which are as follows:
8608 00 10 Railway and tramway track fixtures and
fittings………………..
8608 00 20 Mechanical equipment, not electrically powered for
signaling to, or controlling, road rail or other
vehicles, ships or aircraft
8608 00 30 Other traffic control equipment for
railways……………………
8608 00 40 Other traffic control equipment for roads or inland
waterways including automatic traffic control
equipment for use at ports and airports
8608 00 90 Other ……………………………………
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21. The Assistant Commissioner who passed the Ordersin
Original felt that the ‘Relays’ manufactured by the appellant fell
only under the category of ‘Electrical machinery’ covered by Chapter
85 and that in view of Note 2(f) of Section XVII, the expressions
“parts” and “parts and accessories” appearing in Chapter 86 do not
apply to electrical machinery or equipment, covered by Chapter 85.
The Assistant Commissioner also relied upon Rule 3(a) of the
“General Rules for Interpretation of the First Schedule” to the
Central Excise Tariff Act, 1985 to hold that the Heading which
provides the most specific description shall be preferred to the
Heading providing a more general description. Therefore, the
Original Authority held that since “Relays” do not find a mention in
Chapter 86, but finds a specific mention in Chapter Heading 8536,
the same has to be classified only under subHeading 8536.90.
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22. The Appellate Authority agreed with the assessee that the
Relays manufactured by them are used solely as part of the Railway
signaling equipment, but held that in view of Note 2(f) of Section
XVII, the Orders of the Original Authority did not call for any
interference. However, the Appellate Authority set aside that portion
of the Orders of the Original Authority by which penalty was
imposed. This was on the ground that the classification list
submitted by the appellant on 27.08.1993 was approved by the
competent Authority and that, therefore, the appellant could not be
taken to have violated the provisions of the law.
23. CESTAT, by the Order impugned in the present appeal, merely
concurred with the reasoning given by the Appellate Authority and
dismissed the appeal.
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24. As could be seen from the Orders of the Original Authority and
the first Appellate Authority, the answer to question No.1 revolves
around the description of goods found in Chapters 85 and 86, as
well as the Notes in Section XVII and the General Rules for
Interpretation of the First Schedule. We have already extracted the
description of goods in Chapters 85 and 86. Therefore, let us now
take note of the relevant Notes in Section XVII and the relevant Rule
of the General Rules for interpretation of the First Schedule.
25. Section 2 of the Central Excise Tariff Act, 1985 provides that
the rates at which duties of excise shall be levied under the Central
Excise Act, 1944 are specified in the First Schedule and the Second
Schedule. The First Schedule contains a set of Rules known as
“General Rules for the Interpretation of this Schedule”. These Rules
begin with a mandate that the “classification of goods in this
Schedule shall be governed by the principles laid thereunder.”
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26. Rule 1 of these Rules makes it clear that “the titles of Sections,
Chapters and SubChapters are provided for ease of reference only
and that for legal purposes, classification shall be determined
according to the terms of the Headings and any relative Section or
Chapter Notes and provided such headings or Notes do not otherwise
require, according to the provisions of the rules that follow”.
27. Rule 2 deals with (i) incomplete or unfinished articles; and (ii)
mixtures or combinations of material or substance. While Rule 2(a)
deals with incomplete or unfinished Articles, Rule 2(b) deals with
mixtures or combinations of a material or substance.
28. Rule 3 deals with cases where goods are classifiable under two
or more subheadings. But Rule 3 begins with a reference to Rule
2(b). Therefore, it is necessary to extract Rule 2(b) and Rule 3
together. They read as follows:
“2. (a) xxxx
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(b) Any reference in a heading to a material or substance shall be
taken to include a reference to mixtures or combinations of that
material or substance with other materials or substances. Any
reference to goods of a given material or substance shall be taken to
include a reference to goods consisting wholly or partly of such
material or substance. The classification of goods consisting of more
than one material or substance shall be according to the principles
of Rule 3.
3. When by application of rule 2(b) or for any other reason, goods
are, prima facie, classifiable under two or more headings,
classification shall be effected as follows:
(a) the heading which provides the most specific
description shall be preferred to headings providing a
more general description. However, when two or more
headings each refer to part only of the materials or
substances contained in mixed or composite goods or to
part only of the items in a set put up for retail sale,
those headings are to be regarded as equally specific in
relation to those goods, even if one of them gives a more
complete or precise description of the goods.
(b) mixtures, composite goods consisting of different
materials or made up of different components, and
goods put up in sets for retail sale, which cannot be
classified by reference to (a), shall be classified as if
they consisted of the material or component which gives
them their essential character, insofar as this criterion
is applicable.
(c) when goods cannot be classified by reference to (a) or
(b), they shall be classified under the heading which
occurs last in numerical order among those which
equally merit consideration.”
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29. Interestingly Rule 2(a) speaks about “Article”, Rule 2(b) speaks
about “material or substance” as well as “goods of a given material
or substance” and Rule 3 speaks about “goods”.
30. In the case on hand, the claim of the assessee was that the
relays manufactured by them were part of the railway signaling
equipment. But all the Authorities were of the unanimous view that
this product is referable to goods of a specific description in
Chapter subHeading 8536.90 and that, therefore, General Rule
3(a) will apply.
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31. But in invoking General Rule 3(a), the Authorities have
omitted to take note of 2 things. They are : (i) that as laid down by
this Court in Commissioner of Central Excise Vs. Simplex Mills
Co. Ltd1 the General Rules of Interpretation will come into play, as
mandated in Rule 1 itself, only when no clear picture emerges from
the terms of the Headings and the relevant section or chapter notes;
and (ii) that in any case, Rule 3 of the General Rules can be
invoked only when a particular good is classifiable under two or
more Headings, either by application of Rule 2(b) or for any other
reason. Once the authorities have concluded that by virtue of Note
2(f) of Section XVII, ‘relays’ manufactured by the appellant are not
even classifiable under Chapter Heading 8608, we do not know how
the Authorities could fall back upon Rule 3(a) of the General Rules.
There is a fundamental fallacy in the reasoning of the Authorities,
that Rule 3(a) of the General Rules will apply, especially after they
1 (2005) 3 SCC 51
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had found that ‘relays’ are not classifiable under Chapter Heading
8608, on account of Note 2(f) of Section XVII.
32. Coming to Section XVII, which precedes Chapter 86, the same
contains a few notes, one of which is Note 2, which lists out certain
articles to which the expressions “parts” and “parts and
accessories” mentioned in Chapter 86 do not apply. Note 2 (f) reads
as follows:
“1. xxxx
2. xxx
(a) xxxx
(b) xxxx
(c) xxxx
(d) xxxx
(e xxxx
(f) electrical machinery or equipment (Chapter 85)”
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33. Note 2(f) is relied upon by the Revenue, in view of the fact that
Chapter Heading 8608 uses the words “parts of the foregoing” after
the words “Railway or tramway track fixtures and fittings” etc.
Chapter Heading 8608 does not specifically mention “electrical
relays”. The assessee’s contention is that “it is part of the railway
signaling safety or traffic control equipment” and that, therefore,
Relays manufactured by them would fall under Chapter Heading
8608 due to the usage of the word “parts”. It is this contention that
is sought to be repelled by the Authorities by relying upon Note 2(f)
of Section XVII.
34. Though at first blush, Note 2(f) seems to apply to the case on
hand, it may not, upon a deeper scrutiny.
35. Note 3 of Section XVII reads as follows:
“References in Chapters 86 to 88 to “parts” or “accessories” do not
apply to parts or accessories which are not suitable for use solely or
principally with the articles of those Chapters. A part or accessory
which answers to a description in two or more of the headings of
those Chapters is to be classified under that heading which
corresponds to the principal use of that part or accessory.”
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36. What is recognized in Note 3 can be called the “suitability for
use test” or ‘the user test’. While the exclusion under Note 2(f) may
be of goods which are capable of being marketed independently as
electrical machinery or equipment, for use otherwise than in or as
Railway signaling equipment, those parts which are suitable for
use solely or principally with an article in Chapter 86 cannot be
taken to a different Chapter as the same would negate the very
object of group classification. This is made clear by Note 3.
37. It is conceded by the Revenue that the relays manufactured by
the appellant are used solely as part of the railway signaling/ traffic
control equipment. Therefore, the invocation of Note 2(f) in Section
XVII, overlooking the “sole or principal user test” indicated in Note
3, is not justified.
38. On the question as to what test would be appropriate in a given
case, this court pointed out in A. Nagaraju Bros Vs. State of A.P.2,
as follows:
2 1994 Supp( 3) SCC 122
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“…..there is no one single universal test in these matters. The
several decided cases drive home this truth quite eloquently. It is
for this reason probably that the common parlance test or
commercial usage test, as it is called, is treated as the more
appropriate test, though not the only one. There may be cases,
particularly in the case of new products, where this test may not
be appropriate. In such cases, other tests like the test of
predominance, either by weight of value or on some other basis
may have to be applied. It is indeed not possible, nor desirable, to
lay down any hard and fast rules of universal application
Therefore, the respondents ought not to have overlooked the
‘predominant use’ or ‘sole/principal use’ test acknowledged by the
General Rules for the Interpretation of the Schedule.
39. As pointed out by the Commissioner (Appeals), the goods were
previously classified (before 1993) under Subheading 8536.90, but
a revised classification list, classifying them under subheading
8608, submitted by the appellant, was approved by the competent
Authority on 27.08.1993. After such specific approval of the
classification list, it is not proper on the part of the Authorities to
invoke Note 2(f) of Section XVII. Hence question No.1 is answered in
favour of the appellant and against the Revenue.
Question No.2
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40. The second question that arises for consideration is as to
whether the show causecumdemand notices issued by the
Department on various dates during the period 19951998 were not
barred by time under Section 11A of the Central Excise Act, 1944,
in the absence of any fraud, collusion, willful misstatement or
suppression of facts, especially since the classification list
submitted by the appellant have been approved on 27.08.1993.
41. At the outset we should point out that this is not a case where
the extended period of limitation would apply, especially in the light
of the admitted position that the assessee who had his product
classified under subheading 8536.90 till the year 1993, specifically
filed a classification list on 27.08.1993, reclassifying them under
subheading 8608 and the same was also approved by the
competent authority. Therefore, there is no question of any fraud or
collusion or any willful misstatement or suppression of facts or
contravention of any of the provisions of this Act or of the rules
made there under with intent to evade payment of duty. It is not
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even the case of the Department that the appellant was guilty of
any of these things, warranting the invocation of the extended
period of limitation. Therefore, the conclusion is inescapable that
the Revenue had only the normal period of limitation available to
them to invoke the power under Section 11A.
42. As a matter of fact the first Appellate Authority held in the
penultimate paragraph of its Order as follows:
“I find that the subject goods were previously classified under sub
heading No.8536.90 and then the appellant asked for
reclassification of the goods under subheading No.8608.00. The
new classification was approved by the proper authority and the
appellant paid duty according to the approved classification. Hence
there is no violation of any provisions of law on the part of the
appellant and therefore penalty is not imposable under rule 173Q.
43. The Appellate Authority also held without any discussion, that
the show cause notices were issued within the time limit envisaged
in Section 11A and that “any discussion on the jurisdiction of
invocation of extended period is not at all required”. Therefore, it is
obvious that none of the Authorities chose to invoke the extended
period of limitation, but proceeded on the footing that all show
22
cause notices were issued within the normal period of limitation. If
only any of the Authorities had taken care to look at the dates of the
show cause notices, the period covered by those notices and the
normal period of limitation that prevailed at that time, they could
have easily found that the show cause notices were at least partly
time barred.
44. The normal period of limitation for invoking Section 11A was
six months until 11.05.2000 and the same was modified as one
year by Act 10 of 2000 with effect from 12.05.2000. This period of
one year was modified as two years by Act 28 of 2016 with effect
from 14.05.2016. Keeping this in mind let us now have a look at the
dates of issue of show cause notices and the period covered by the
show cause notices. They are as follows:
S.No. Date of Show Cause Period covered by the Show
Notice Cause Notice
1 30.08.1995 01.02.1995 to 31.07.1995
2 09.02.1996 01.08.1995 to 31.01.1996
3 05.02.1997 01.08.1996 to 31.01.1997
4 07.08.1997 01.02.1997 to 31.07.1997
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5 06.08.1996 01.02.1996 to 31.07.1996
6 06.02.1998 01.08.1996 to 31.01.1997
7 04.09.1998 February 1998
8 05.09.1998 01.03.1998 to 31.08.1998
9 05.03.1999 01.09.1998 to 28.02.1999
45. It could be seen from the above table (i) that all show cause
notices were of a date prior to 12.05.2000 and hence the normal
period of limitation was only six months; and (ii) that at least a
couple of show cause notices were issued in respect of a period
partly or fully beyond the period of limitation. Unfortunately neither
the Appellate Authority nor CESTAT took care to analyze the show
cause notices individually with reference to the period covered by
them.
46. In any case all the show cause notices were issued only on
and after 30.08.1995, raising a classification dispute, after having
approved the classification list submitted on 27.08.1993. The
dispute in the case on hand was one of classification alone,
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applicable to the product manufactured during the entire period
after 27.08.1993. The dispute was not invoicecentric. Therefore,
what was sought to be done by the Original Authority was actually
to review the approval of the classification list submitted on
27.08.1993 by cleverly issuing separate notices covering certain
specific periods. What is to be seen here is that the attempt to undo
the effect of the approval of the classification done on 27.08.1993,
was actually time barred. Therefore, despite the fact that some of
the individual notices were issued within the period of limitation
either in respect of the part of the period or in respect of the whole
of the period covered by them, the very invocation of Section 11A,
in the facts and circumstances of the case, cannot be said to be
within time.
47. Therefore, both questions of law are answered in favour of the
appellant and the appeal is allowed. The OrdersinOriginal, the
Order of the Appellate Authority and the Order of the CESTAT are
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set aside. Consequently, the show causecumdemand notices are
also set aside. There will be no order as to costs.
…………………………..CJI.
(S. A. Bobde)
….…………………………..J.
(A. S. Bopanna)
…..………………………….J.
(V. Ramasubramanian)
March 08, 2021
New Delhi
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