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CASE NO.: Appeal (civil)  4391-4392 of 2000

PETITIONER: M/s Motor Industries Co. Ltd.              

RESPONDENT: Commissioner of Central Excise,Aurangabad.                                         

DATE OF JUDGMENT: 20/01/2006

BENCH: ASHOK BHAN & S.H. KAPADIA

JUDGMENT: J U D G M E N T

KAPADIA, J.         The short question which arises for  determination in these civil appeals filed by the  assessee under section 35-L(b) of the Central Excise  Act, 1944 (hereinafter referred to as "the Act") is \026  whether assembly of nozzles and nozzle holders  (intermediate products) brings into existence a new  product called an "injector" and if so, whether the  department was right in classifying the said injector  under sub-heading 8409.00.

       Appellant is engaged in the manufacture of  nozzles, nozzles holder and injectors.  Vide show- cause notice dated 3.9.1986, the department called  upon the appellant to show cause as to why duty @  20% ad valorem on the value of nozzles and nozzle  holders should not be recovered in respect of  injectors on the ground that the appellant had  produced nozzles and nozzle holders falling under  tariff item 8409.00 which were captively consumed  for the manufacture of injectors falling under  8409.00 for which no declaration was made by the  appellant in their classification list.  At this stage,  we may point out that the matter has a chequered  history, it has been remanded several times and for  the reasons mentioned hereinafter, it is not  necessary to set out the entire history of the prior  litigation.  Suffice it to state that in reply to the  show-cause notices, the appellant submitted that  fitting of nozzles into nozzle holders did not amount  to manufacture; that, even after such fitment, the  end-result remained "nozzles and nozzle holders";  that, this entire controversy stood settled by the  earlier judgment of Customs, Excise & Gold  (Control) Appellant Tribunal (for short "the  tribunal") in the case between the same parties,  namely, Collector of Central Excise v. Motor  Industries Co. Limited reported in 1989 (43) ELT  290; that, nozzle and nozzle holder had no  independent application as such; that, they have to  be used in the IC engine in an assembled state to  create combustion in the combustion chamber of IC  engines.  According to the appellant, an injector  was a fitment of nozzles into nozzle holders and  that on coupling, no new product came into  existence.  In reply, the appellant further stated  that non-vehicular injectors were exempted from

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payment of duty.  In this connection, it was  submitted that non-vehicular injectors constituted  parts of diesel engine used by agriculturists and  farmers and, therefore, the Government decided to  grant exemption to such non-vehicular injectors.  At  this stage, it may be noted that nozzles and nozzle  holders stood excluded from exemption notification  no.217/85 dated 8.10.1985.  However, according to  the appellant, by Amendment Notification No.79/86  dated 10.2.1986, non-vehicular injectors were also  given the benefit of exemption, which has not been  appreciated by the department (See Written  Submissions filed by the assessee before the A.C.,  on running page no.145 of the paperbook of original  record].  Similarly, according to the appellant,  exemption was also given by the Government to  vehicular nozzles and nozzle holders used in a  factory of production vide notification no.75/86  dated 10.8.1986 (See Written Submissions filed by  the assessee before the A.C., on running page  no.142 of the paperbook of original record].

       By the impugned judgment, the tribunal held  that the assessee was not entitled to exemption  under the above notification no.217/85 as "nozzles  and nozzle holders" were specifically excluded from  the purview of the said notification; that, the issue  in the case of Motor Industries Co. Limited  (supra) was only whether nozzles fitted with the  nozzle holders (injectors) were assessable under  item 68 of the old Tariff though nozzles and nozzle  holders were duty paid under item 34A, hence that  judgment had no application to the controversy in  hand.

       This matter needs to be remanded to the  adjudicating authority for the following reasons.   Firstly, in this case, the case of the department in  the show-cause notice was that nozzles and nozzle  holders were intermediate products used in the  coupling or assembly of injectors (final product);  and that, on completion of the process of coupling a  new independent product emerged, namely, an  injector.  How is an injector constructed and what  are its components has not been decided by any of  the authorities below including the tribunal.  Secondly, the decision of the tribunal in Motor  Industries Co. Limited (supra) has no application.   In that case, the question as to what is an injector  was not in issue.  It was matter of classification  under the old Tariff under which item 34A dealt  with "parts of motor vehicle" and which parts were  specifically described to include "nozzle and nozzle  holders" whereas the residuary item was item 68  and the question was - whether fitment of nozzle  into holder would attract item 68.  In the said case,  it was held that even on fitment, the product would  remain "nozzle and nozzle holder" under item 34A.   In the present case, it has been alleged by the  department  that nozzles and nozzle holders were  components of an injector; that, on coupling, which  process constituted manufacture, an independent  product, namely, an injector emerged.  This point  was not there in the earlier case, hence, Motor  Industries Co. Limited (supra) has no application

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to the present case.  Further, the present case  arises under the 1985 Tariff Act.  Chapter 84 falls  in section XVI.  Section note 2, with the headings  84.07, 84.08 and 84.09 are required to be  considered.  These provisions were not there in the  case of Motor Industries Co. Limited (supra).   Thirdly, in this case, the burden was on the  department to lead evidence on manufacture and  marketability.  It is for the department to prove that  nozzles and nozzle holders were intermediate  products which on coupling became an injector,  which was a saleable commodity in the market.   Earlier this exercise was not done because the  department had erred in holding that the issue was  covered by Motor Industries Co. Limited (supra).   Lastly, we may point out that the appellant has  claimed exemption under the above notification.   The burden is on them to prove that they were  entitled to exemption.  In this connection, we may  point out that the question of exemption will arise  only after the first question on coupling or assembly  is decided.  Here also, we may point out that  exemption notifications as amended after 1985  Tariff Act has to be seen.  In this case, the question  of manufacture, classification and exemption are  inter-connected.  The application of the above  assembly to vehicular and non-vehicular user have  to be examined in the light of the 1985 Tariff Act.   Assistance of HSN in that regard may also be taken.

       For the above reasons, we set aside the  impugned judgment of the tribunal dated 20.4.2000  and remit the matter to the Adjudicating Authority  for de novo adjudication of the show-cause notices.   Accordingly, the above civil appeals filed by the  assessee stand allowed, with no order as to costs.