Westinghouse Saxby Farmer Ltd. vs Commr. Of Central Excise Calcutta

Show Cause Notice

Date",Period Involved,Differential Duty,Penalty

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. 3,71,922.57 5.",Rs. 5000

05.03.1999,01.09.1998 to 28.02.1999,"Rs. 1,99,180 6.",Rs. 5000

Total Duty Imposed/ Total Penalty Imposed,,"Rs.16,67,109/Â​ 7.","Rs.36,000/Â​

8608 00 10,Â​Railway and tramway track fixtures and fittings………………..,,

8608 00 20,"Â​Mechanical equipment, not electrically powered for signaling to, or controlling, road rail or

other vehicles, ships or aircraft",,

8608 00 30,Â​Other traffic control equipment for railways……………………,,

8608 00 40,"ÂOther traffic control equipment for roads or inland waterways including automatic traffic

control equipment for use at ports and airports",,

8608 00 90,Â​Other ……………………………………,,

“2. (a) xxxx,,,

(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.,,,

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.â€​,,,

Interestingly Rule 2(a) speaks about “Articleâ€​, Rule 2(b) speaks about “material or substanceâ€​ as well as “goods of a given material or",,,

substanceâ€​ and Rule 3 speaks about “goodsâ€​.,,,

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 subÂHeading 8536.90 and that,",,,

therefore, General Rule 3(a) will apply.",,,

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. Ltd (2005) 3 SCC 51 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 had found",,,

that ‘relays’ are not classifiable under Chapter Heading 8608, on account of Note 2(f) of Section XVII.",,,

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 “partsâ€​ and “parts and accessoriesâ€​ mentioned in Chapter 86 do not apply. Note 2 (f) reads as follows:Â​,,,

“1. xxxx,,,

xxx,,,

(a) xxxx,,,

(b) xxxx,,,

(c) xxxx,,,

(d) xxxx,,,

(exxxx,,,

(f) electrical machinery or equipment (Chapter 85)â€​,,,

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 relaysâ€. 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 “partsâ€. It is this contention that is sought to be repelled by the,,,

Authorities by relying upon Note 2(f) of Section XVII.,,,

Though at first blush, Note 2(f) seems to apply to the case on hand, it may not, upon a deeper scrutiny.",,,

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.â€​,,,

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.,,,

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 testâ€​ indicated in Note 3, is not justified.",,,

S.No.,Date of Show Cause Notice,"Period covered by the Show 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,

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,

respect of the whole of the period covered by them, the very invocation of Section 11ÂA, in the facts and circumstances of the case, cannot be said",,,

to be within time.,,,

Therefore, both questions of law are answered in favour of the appellant and the appeal is allowed. The OrdersÂinÂOriginal, the Order of the",,,

Appellate Authority and the Order of the CESTAT are set aside. Consequently, the show causeÂcumÂdemand notices are also set aside. There will",,,

be no order as to costs.,,,