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CASE NO.: Appeal (civil)  553-554 of 2001

PETITIONER: M/s. North West Switchgear Limited               

RESPONDENT: Commnr. of Central Excise, New Delhi     

DATE OF JUDGMENT: 14/02/2006

BENCH: ASHOK BHAN & ARUN KUMAR

JUDGMENT: J U D G M E N T With CIVIL APPEAL NO. 4382  OF  2001

BHAN, J.                  This order shall dispose of the two sets of  Civil Appeals. The Civil Appeal Nos. 553-554 of  2001 filed by M/s. North West Switchgear Limited          and the Civil Appeal No. 4382 of 2001 filed by M/s.  Kesharbai Electronics Pvt. Ltd.; (for short "the  appellants").  As the point involved in both the  sets of appeal is similar, they are being disposed  of by a common order.  

       The Civil Appeal Nos. 553 - 554 of 2001 have  been filed by M/s. North West Switchgear Limited          under Section 35L of the Central Excise Act, 1944  (for short "the Act") against final order No.120- 121/2000-B passed by the Customs Excise & Gold  (Control) Appellate Tribunal, New Delhi in Appeal  No.E/506/95-B and E/1554/96-B dated 20.1.2000  whereby the Tribunal upheld the orders of  authorities below to drop the demands of  Rs.2,02,506.88 & Rs.93,514.38 raised on the  appellants by the respondent herein, but, held that  the ’fan regulators’  manufactured by the  appellants were classifiable under sub-heading  8414.99 as opposed to 8414.20 as an accessory of  the fans.

       The Civil Appeal No.4382 of 2001 filed by  M/s.  Kesharbai Electronics Pvt. Ltd., has also been  filed under Section 35L of the Act against the  final order passed by the Tribunal at Mumbai dated  16.11.2000 in Appeal No.E/1002/R/95 Mumbai, whereby  the Tribunal  rejected the appeal filed by the  appellants and confirmed the classification of the  goods under sub-heading 8414.99 as classified by  the Assistant Collector of Central Excise &  Customs, Ahmednagar and confirmed by the respondent  in Appeal bearing No.A/418/1995 dated 29.9.1995.          The facts of Civil Appeal No.553-554 of 2001  are:

The appellants are engaged in the manufacture  of switches, fan regulators and distribution board  etc. falling under Chapter sub-heading No.8536.90,

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8414.20 & 8537.00 of the Central Excise Tariff Act,  1985 (hereinafter referred to as "the Tariff Act").   The appellants classified ’fan regulators’ under  sub-heading No.8414.20 of Tariff Act, which covers  electric fans, on the strength that there is no  other use of these items and these are used  principally and solely with the electric fans.  The  classification list filed by the appellants for  clearing the same under sub-heading 8414.20 was  approved by the Assistant Commissioner.  

       The appellants were served with demand-cum- show cause notices dated 3.12.1993 and 28.6.1994  for the period March 1993 to February 1994 to show  cause to the Deputy Commissioner of Central Excise,  Faridabad as to why the differential duty amounting  to Rs.2,02,506.88 and Rs.93,514.38 should not be  demanded and recovered under Rule 9(2) read with  Section 11A of the Act on the contention that ’fan  regulators’ are nothing but ’accessories’ of  electric fans and the same are classifiable under  sub-heading 8414.99 of the Tariff Act which  attracts duty @ 15% ad valorem  instead of 10% ad  valorem already paid by the appellants resulting in  short payment of duty as aforementioned.  The  appellants submitted their reply to the show-cause- notices contending therein that they had paid the  duty correctly and there was no short levy of duty  as alleged by the show-cause-notice; that the fan  regulators are correctly classifiable along with  the fans according to the Section Notes/Chapter  Notes appended to Chapter 84 of the Tariff Act,  1985.  It was also submitted that the appellants  are covered by Board Circular No.7/87 dated  24.06.1987 which was in force till the issuance of  the CBEC Circular No.192/26/96-CX dated 27.06.1996.

       Authority in original in show cause notice  dated 3.12.1993 held that the fan regulators were  classifiable under the sub-heading 8414.20 as had  been contended by the assessee.  It was also held  that the Board Circular No.7/87 dated 24.6.1987 was  applicable to the facts of the case.   The  Commissioner of Central Excise reviewed the order  passed by the authority in original in exercise of  its powers under Section 35E(2) and directed that  an appeal be preferred accordingly and appeal was  filed. The appellants filed their memorandum of  cross objection.  The learned Commissioner upheld  the order passed by the authority in original  holding that ’fan regulators’ were/are classifiable   under sub-heading 8414.20 of the Tariff Act and not  under 8414.99 and rejected the appeal.  Being  aggrieved with the order passed by the Commissioner  of Appeals, the revenue preferred appeal No.  E/Appeal No. 506/95-B before the Tribunal.   

Against the show-cause-notice dated 28.6.1994  the authority in original stuck with its view in  the earlier order and held that the ’fan  regulators’ were classifiable under the sub-heading  8414.20 and not under 8414.99 and dropped the  demand.  Commissioner (A) did not agree with the  order in original and taking a contrary view held

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that the goods were classifiable under sub-heading  8414.99 and not under 8414.20.   The appellants  preferred appeal No. E/Appeal No. 1554/96-B against  the order of the Commissioner of Appeals before the  Tribunal.  These two sets of appeals were clubbed  together and disposed of by the Tribunal by a  common order dated 20.1.2000.   

In the Civil Appeal No.4382 of 2001 the  authority in original held that the goods were  classifiable under sub-heading 8414.99 and  confirmed the demand of Rs.9,87,086.86 and imposed  a penalty of Rs.75,000/- under Rule 173Q of the  Central Excise Rules, 1944 and directed the  appellants to pay these amounts immediately.  In  the appeal, the Commissioner of Appeals maintained  the order in original except that the amount of  penalty was reduced to Rs.10,000/-.  Being  aggrieved, the assessee filed an appeal before the  Tribunal and the Tribunal vide its order dated  25.10.2000 maintained the order passed by the  Commissioner of Appeals.  

       The common issue involved in both the sets of  appeals is, whether the ’fan regulators’ are  classifiable under the sub-heading 8414.20 along  with fans or under the sub-heading 8414.99 as  ’parts and accessories’.         Learned counsel appearing for the appellants  contended that during the relevant period Central  Board of Excise and Customs, Circular No.7/87 dated  24.6.1987 was in operation and therefore the fan  regulators would be classifiable under the sub- heading 8414.20 along with fans.  That the  department cannot argue against the Board circular  which is binding on them.  Accordingly it was  contended that the department cannot now claim that  the fan regulators were classifiable under sub- heading 8414.99 at the relevant time.  Relying upon  the sub-note (b) of Note 2 to Section XVI, it was  contended that since the ’fan regulators’ were  suitable for use solely or principally with the  electric fan the same are classifiable with the  entry relating to electric fans i.e. 8414.20.  It  is also submitted by the learned counsel for the  appellants that the regulators are classifiable  under the sub-heading 8414.80 but they have not  given any reasons for this submission.         Learned Counsel appearing for the respondents  has countered both the submissions.          We do not find any force in the submission made  by the \counsel for the appellants.           To understand the issue, heading 8414 is  reproduced as under:- 8414 AIR OR VACUUM PUMPS, AIR OR OTHER  GAS COMPRESSORS AND FANS;  VENTILATING OR RECYCLING HOODS  INCORPORATING A FAN, WHETHER OR NOT  FITTED WITH FILTERS.

8414.10  Gas compressor of a kind  used in refrigerating and air

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conditioning appliances and  machinery.

40%

8414.20   Electric fans 15%

8414.80   Others 40%

Parts and Accessories

8414.91  Of goods covered by sub- heading No.8414.10

40%

8414.99  Other 15%

       Chapter heading 8414 applies to air or vacuum  pumps, air or other gas compressors and fans  ventilating or recycling hoods.  Sub-heading  8414.10 applies to ’gas compressor’; sub-heading  8414.20 applies to ’electric fans’ and 8414.80 is a  residuary sub-heading being "Others" which will  apply to all other goods covered by chapter  heading, other than gas compressors and electric  fans.   The  ’Fan regulators’ will not be  classifiable under the sub-heading 8414.80.     There are two sub-headings under ’parts and  accessories’.  Sub-heading 8414.91, is in relation  to the goods covered by the sub-heading 8414.10  whereas the sub-heading 8414.99 is a residuary  class which applies to the goods covered by other  sub-heading of chapter heading 8414.          The issue therefore is, whether the ’fan  regulators’ are classifiable under 8414.20 along  with fans or under sub-heading 8414.99 as "parts &  accessories".  The appellants have placed reliance  on Board’s Circular No.7/87 dated 24.6.1997 in  which it has been clarified that the resistance  type and choke type fan regulators are classifiable  under sub-heading 8414.20 along with the fans. The  Tribunal has held that the ’fan regulators’ would  be classifiable under sub-heading 8414.20, if  cleared along with fans but if they are cleared  only as regulators (not along with fan), they would  be classifiable under sub-heading 8414.99.             According to Note 2 of Section XVI of the  Schedule to the Central Excise Tariff Act, parts  which are goods included in any of the headings of  Chapter 84 or Chapter 85 are in all cases to be  classified in their respective headings.  There is  a separate entry for ’parts & accessories’ of goods  falling under chapter heading 8414 and as such the  regulators, if cleared "not along with fans", will  merit classification under the sub-heading 8414.99  being ’parts/accessories’ of the fan.   This  position has been clarified by the CBEC Circular  No.192/26/96-CX dated 27.3.1996, which reads as  under:-

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"I am directed to invite your  kind attention to Circular  No.7/87-CX, dated 24.6.1987  wherein it was clarified that the  resistance type and choke type  fan regulators, are classifiable  under sub-heading 8414.20 of the  Schedule to the Central Excise  Tariff Act, 1985, along with  fans.  Doubts have been expressed  regarding the classification when  the fan regulators are  manufactured and cleared  separately, not in combination  with fans.  It is seen that  though the electric fans can  function without the regulators,  the regulators are needed as they  limit and control the flow of the  electricity and consequently  control the speed of electric  fans.

The matter has been examined, it  is clarified that when 2  regulators are cleared along with  fans as a whole, they are  classifiable as electric fans  under sub-heading 8414.20.  When  fan regulators are cleared  separately not in combination  with fans, they are classifiable  as ’Parts and accessories of  electric fan’ under sub-heading  8414.99 of the Schedule to the  Central Excise Tariff Act, 1985."

       This view also finds support from the General  Notes to Section XVI of HSN under heading  "Accessory Apparatus".  The explanatory note  provides that accessory instrument e.g. regulators,  presented with machine or apparatus to which they  normally belongs are classified with that machine  or apparatus, if they are designed to measure  check, control or regulate one specific machine or  apparatus.  Therefore, if fan regulators are  manufactured by a unit like the appellants and  cleared as such and not along with fan, it will be  classifiable under the sub-heading 8414.99.  If the  contention of the appellants is accepted that the  regulators have to be classified under ’electric  fans’, whether sold with the fan or separately,  then no ’part or accessory’ will be covered by  heading 8414.99.   In the Board’s circular No.7/87,  the Board clarified that ’fan regulators’ will not  be classified under Chapter 85 as Electrical  Resistors and their classification under sub- heading 8414.20 along with fan would be  appropriate.   The issue before the Board was not  that, when regulators were cleared as such without  fans, would be classifiable under sub-heading  8414.99 or that they would be classifiable under

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8414.20.  Accordingly, the Board clarified in  Circular No.192/26/96 dated 27.3.96 that when the  regulators are cleared along with the fans as a  whole, they are classifiable under sub-heading  8414.20 but when ’fan regulators’ are cleared  separately not in combination with the fans they  are classifiable as "parts & accessories of  electrical fans" under sub-heading 8414.99 of the  Schedule to the Tariff Act.   There is a separate  sub-heading of "parts and accessories" in heading  8414.  The Sub-heading 8414.91 covers parts and  accessories "of goods covered by the sub-heading  8414.10"  and the sub-heading 8414.99  covers parts  and accessories of "other" goods under the heading  8414 and the sub-headings 8414.20 and  8414.80.  ’Fan regulators’ being accessories of ’electric  fan’ would thus be covered under the sub-heading  8414.99.

       Accordingly, we do not find any merit in these  appeals and hold that the ’fan regulators’  manufactured by the assessee, which are sold as  such "without the electric fan" would be  classifiable under sub-heading 8414.99 as  accessories of fans.   

       The Tribunal, in Civil Appeal No.553-554 of  2001 filed by M/s. North West Switchgear Limited         , has held that differential duty cannot be  demanded from the appellants against which the  revenue has not filed any appeal.    

For the reasons stated above, we do not find  any merits in Civil Appeal Nos. 553-554 of 2001 and  dismiss the same.

       The order passed by the Tribunal in Civil  Appeal No.4382 of 2001 in so far as the  classification is concerned is confirmed but  keeping in view the facts and circumstances, the  penalty of Rs.10,000/- imposed on the appellants is  set aside.  Costs shall follow the event.