REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4427 OF 2003
M/S Salora International Ltd. Appellant
Vs.
Commissioner of Central Excise, New Delhi Respondent
J U D G M E N T
ANIL R. DAVE, J
1. The challenge in this appeal is to an order dated 1st April, 2003
passed by the Customs, Excise and Gold (Control) Appellate Tribunal at New
Delhi (in short ‘The Tribunal’) in E/APPEAL No. 1553/02-B whereby the
Tribunal has dismissed the appeal filed by the appellant herein and upheld
the Order-in-Appeal passed by the Commissioner (Appeals).
2. The issue under consideration in this appeal is whether the goods
manufactured by the appellant are liable to be taxed as ‘Parts of
Television Receivers’ falling under Tariff Entry 8529 of the Central Excise
Tariff contained in the First Schedule to the Central Excise Tariff Act,
1985 (in short ‘the Tariff’) or as ‘Television Receivers’ under Tariff
Entry 8528 of the Tariff, for the year 1989-90.
3. 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’.
4. 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 (in short the ‘Rules for Interpretation’), 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.
5. 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.
6. 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.
7. At the outset, recourse may be had to the respective Tariff
Entries during the relevant period:
“8528.00 – Television Receivers (including video monitors and video
projectors), whether or not incorporating radio broadcast receivers or
sound or video recording or reproducing apparatus.
8529.00 – Parts suitable for use solely or principally with the
apparatus of heading Nos. 85.25 to 85.28.”
8. Rules 1 & 2 of the Rules for the Interpretation of Excise Tariff
framed under Section 2 of the Act read as under:
“1. The titles of Sections and Chapters are provided for ease of
reference only; 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 hereinafter contained.
2. (a) Any reference in a heading to goods shall be taken to include a
reference to those goods incomplete or unfinished, provided that, the
incomplete or unfinished goods have the essential character of the
complete or finished goods. It shall also be taken to include a
reference to those goods complete or finished (or falling to be
classified as complete or finished by virtue of this rule), removed
unassembled or disassembled.”
9. Mr. Dushyant Dave, learned senior counsel appearing for the appellant
contended that the aforestated Rules of the Rules for Interpretation may
not be taken recourse to in the instant case, as there exists a clear
stipulation to the contrary in the Section Notes to Section XVI of the
Tariff, where the headings involved herein are located. Note 2 of the
Section Notes to Section XVI is as follows:
“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 No. 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 Chapter 85 (other than headings 84.85 and 85.48) are in all
cases to be classified in their respective headings;”
10. He further submitted that the classification of the goods
manufactured by the appellant was not correct. According to him, as per
the sound principle of classification and more particularly as per the
provisions of interpretative Rule 1, the goods ought to have been
classified under Tariff Entry 8529 because the appellant had manufactured
only parts of Television Receivers. He submitted that invocation of Rule
2(a) of the Rules for Interpretation was not justified because looking to
the facts of the case, the provisions of Rule 1 of the Rules for
Interpretation would apply because of the specific head for ‘parts of
Television Receiver’, being Tariff Head 8529.00.
11. The learned senior counsel cited the decision of this Court in
Commissioner of Customs Vs. M/S Sony India Ltd. [(2008) 13 SCC 145],
wherein a case involving analogous headings as those in this case in the
Schedule to the Customs Tariff Act, the goods imported by the assessee
therein were held to be ‘parts of Television Receivers’, and further
interpretative Rule 2(a) was held to be inapplicable to such goods. He
further contended that as the goods transported by the appellant were
substantially in the same position and condition as those transported by
the assessee in the above case, the ratio in the said decision would be
applicable to this case also.
12. In the written submissions submitted on behalf of the appellant, it
was stated that keeping in mind the law laid down by this Court in Union of
India vs. Tara Chand Gupta [(1971) 1 SCC 486], the goods manufactured by
the appellant ought to have been classified under Tariff Entry 8529.00 and
an effort was made to compare the facts of the said case with the present
one by submitting that in the case referred to hereinabove, parts of
scooter, in completely knocked down condition, were treated as parts of the
scooter and not scooter itself.
13. He further submitted that the Rule 1 of the Rules for Interpretation
clearly denotes that the title of Sections and Chapters are provided for
ease of reference only but for legal purposes, the classification should be
determined according to the terms of the headings, and as the appellant had
manufactured only parts of Television Receivers, the Revenue ought not to
have classified the goods manufactured by the appellant as ‘Television
Receivers’ under a different head instead of as ‘parts’ of the same.
14. In addition to these contentions, he also contended that if the goods
manufactured by it are held to be Television Receivers covered by Tariff
Entry 8528 mentioned above, it would lead to double-taxation as the
satellite units, where such goods are finally assembled into Television
Receivers, are in fact paying excise duty on the assembled goods under the
above Tariff Entry 8528.
15. On the other hand, on behalf of the revenue, Mr. P.P. Malhotra,
learned Additional Solicitor General justified the judgment delivered by
the Tribunal. He tried to narrate the facts which lead the Revenue to
classify the goods manufactured by the appellant as complete television for
the reasons, some of which are as follows:
a. The appellant was assembling manufactured parts of TV sets and
operating TV sets so as to check whether the entire set was
complete and operative and then the TV sets were being
disassembled;
b. The appellant was giving the same serial number on the chassis as
well as the sub assemblies of the TV sets;
c. The matching of the said chassis and sub-assemblies was done at the
factory of the appellant itself;
d. The packing material and literature were supplied by the appellant
along with the disassembled parts.
….etc.
16. He further contended that the goods produced and temporarily
assembled by the appellant, being essentially/substantially complete
Television Receivers in a disassembled state, would necessarily have to be
classified as such, owing to Rule 2(a) of the Rules for Interpretation. It
was a simple contention of the Revenue that the appellant had chosen to
disassemble the television sets as parts before transporting them in order
to avail the lower duty payable on such parts.
17. We have heard the learned counsel and considered the facts of the
case. We have also gone through the judgments cited by the learned counsel
and upon doing so, we are of the view that the Tribunal did not commit any
error while passing the impugned order.
18. 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, reproduced above, on the applicability
of such provision.
19. On the question of the applicability of the Rules for Interpretation
vis-à-vis the Section Notes and Chapter Notes in the Tariff Schedule, the
rule laid down by this Court in Commissioner of Central Excise, Nagpur Vs.
Simplex Mills Co. Ltd. (2005) 3 SCC 51 may be seen to be applicable in this
case. In that decision, a three judge bench had the following to say on the
subject:
“The rules for the interpretation of the Schedule to the Central
Excise Tariff Act, 1985 have been framed pursuant to the powers
under Section 2 of that Act. According to Rule 1 titles of
Sections and Chapters in the Schedule are provided for ease of
reference only. But for legal purposes, classification "shall be
determined according to the terms of the headings and any relevant
section or Chapter Notes". If neither the heading nor the notes
suffice to clarify the scope of a heading, then it must be
construed according to the other following provisions contained in
the Rules. Rule-I gives primacy to the Section and Chapter Notes
along with terms of the headings. They should be first applied. If
no clear picture emerges then only can one resort to the subsequent
rules.”
20. Therefore, as clearly specified by the above rule, resort must first
be had only to the particular tariff entries, along with the relevant
Section and Chapter Notes, to see whether a clear picture emerges. It is
only in the absence of such a picture emerging, that recourse can be made
to the Rules for Interpretation.
21. 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 above. The
same may be reproduced again here for the purpose of a closer examination:
“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;
b. …” [Emphasis added]
22. As can be seen from the above, 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.
23. 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 ‘parts’, 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.
24. However, on closer scrutiny of the unique facts of this case,
it is our view, 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.
25. Looking to the facts of the case, it is not in dispute that complete
Television was manufactured by the appellant and therefore, in our opinion,
the Revenue had rightly classified the goods- product as complete
Television set even though it was subsequently disassembled.
26. 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.
27. The facts in the case of Sony India Ltd. (supra) may be distinguished
in this respect. In that case, the assessee had imported different parts of
television sets in 94 different consignments. The said parts were imported
separately in bulk, and thereafter, the process of matching, numbering and
assembling was carried out once they were in the possession of the
assessee. Therefore, it may be seen that what the assessee had imported in
that case were merely various parts which could not yet be identified and
distinguished as individual Television Receivers such as the parts
transported by the appellant in this case. The said decision is, therefore,
distinguishable on facts.
28. For further clarification, it may also be stated that if the
appellant had been in the practice of simply manufacturing and transporting
parts of Television Receivers in bulk, while leaving the matching and
numbering functions to be done at the satellite units, then it could have
availed the benefit of Section Note 2, because in such a case, there would
not have been any production of identifiable television sets such as in the
present case.
29. 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, 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. Consequently, the
only question that remains is with respect to whether such goods shall fall
foul of the said Rule.
30. In this regard, despite the attempts of the appellant to establish
otherwise, we are unable to see how the goods transported by them shall not
be covered by the Rule, especially as a complete or finished article,
‘presented unassembled or disassembled’. The terminology of the Rule is
wide enough to cover the goods transported by the appellant, and we are not
convinced that the processes required to be carried out at the satellite
units are so vital to the manufacture of the Television Receivers so as to
render the goods transported by the appellant lacking the ‘essential
character’ of Television Receivers. Rule 2(a) of the Rules for
Interpretation has been couched in wide terms, and in terms of this Rule,
it is our view that the goods produced by the appellant do in fact possess
the essential character of Television Receivers.
31. The appellant had also raised the plea of double-taxation; however,
in our view once the question of classification of the goods transported by
the appellant has been answered in the above manner, it is not open to us
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.
32. In view of the facts stated hereinabove, we are of the view that the
Tribunal did not commit any error while passing the impugned order and,
therefore, the appeal is dismissed with no order as to costs.
…….………………………J
(D.K. JAIN)
……….……………………J
(ANIL R. DAVE)
NEW DELHI
SEPTEMBER 07, 2012
