V.K. Agrawal, Member (T)
1. The issue involved in this appeal, filed by M/s. Carrier Aircon Ltd., is whether the Chillers, manufactured by them, are classifiable under Heading No. 84.18 of the Schedule to the Central Excise Tariff Act, as claimed by them or under Heading 84.15 of the Tariff, as decided by the Commissioner, under the impugned Order No. 9/2000, dated 24-3-2000.
2. Shri M. Chandrasekharan, learned Senior Advocate, submitted that the Chillers, manufactured by the Appellants, are functionally designed to produce chilled water by using a refrigeration circuit in its construction and this chilled water in turn is applied in Industrial processes such as spot welding, paint shops, nuclear science centre, biotech processing besides in relation to central air-conditioning systems/plants of huge size; that since the impugned chillers were independent machines and were designed to produce chilled water they classified them as refrigerating and freezing equipment under sub-heading No. 8418; that the Commissioner has classified the impugned goods under Heading No. 84.15, confirmed the demand of excise duty and imposed penalty, holding that chillers are nothing but an integral part of the central airconditioning system; that the Commissioner has classified the product on the basis of end use alongwith Air Handling unit and observing that more than 90% of the chillers were used in the commissioning of central airconditioning plants; that the use to which a product is put is irrelevant in the matter of classification because a particular product may have multifarious applications; that it was held in Indian Aluminium Cables Ltd. v. UOI, 1985 (21) E.L.T. 31 (S.C.) that the process of manufacture of a product and the end use to which it is put, cannot necessarily be determinative of the classification of that product under a fiscal statute like the Central Excise Tariff. He, further, submitted that the fact that chillers are used in applications other than in relation to commissioning of central air-conditioning plants, it is proof that they are not meant exclusively or solely for use with air conditioning plants only; that moreover the function of the chiller is only to chill water or bring to a very low temperature often below to a freezing point of water; that essence of the tariff appears that mahcine should be classified by reference to their principal functional purpose regardless of the field of industry to which they are put to use; that the purpose of the impugned goods is only one to chill the water and its function stops thereafter; that in undertaking this function it does not require any other aid or attachment; that internationally the chillers are accepted as falling under Heading 84.18 of the HSN; that as per Note 2(a) to Section XVI of the Tariff, the liquid Chiller when cleared separately and which specifically falls under Heading 84.18 and accordingly it cannot be treated as part of an airconditioner on the same analogy as fans used in the air-conditioner are classified at the time of clearance as an electric fan and not as part of air-conditioner. He also mentioned that air handling unit has an independent and distinct function and this unit produces the designs of air-conditioning effect ultimately and that the liquid chiller itself does not do any airconditioning as it is only designed to refrigerate or produce chilled water/liquid. He also referred to the classification of cooling towers under Heading 84.19 which are used in the central air conditioning plants and have not been treated as parts of central air-conditioning system.
3. The learned Sr. Counsel, further, submitted that Explanatory Notes of HSN dealing with the scope of 'parts' of airconditioners specifically clarifies that "if presented as separate elements, the components of air-conditioning machines are classified in accordance with provisions of Note 2(a) to Section XVI (Heading 84.14, 84.18, 84.19, 84.21, 84.79, etc.) whether or not designed for building into a self-contained unit." He also emphasised that in the impugned Order, the various industrial application of the impugned Chiller has not at all been considered; that these chillers are used in Polyster Film Processing, Colour Picture Tube Processing, Paint shops, Nuclear Science Centre, Welding Process, Textile/Chemical Industry. He also stated that Note 7 to Chapter 84 is not applicable as this Note will apply only where a machine is used for more than one purpose; that in the impugned Order, the term 'purpose' has been treated synonymously with 'end use'; that 'purpose' is different from 'end use'; that the only purpose of the chiller is to chill the water and nothing else; that there is no purpose other than chilling the water. He also relied upon the decision of the Larger Bench in Press Metal Corporation Ltd. v. CCE, 2000 (38) RLT 650 wherein it was held that ultimate use of the manufactured goods after clearance cannot determine the classification of goods manufactured.
4. Finally the learned Sr. Counsel submitted that there is no justification for invoking the extended period of limitation under Section HA of the Central Excise Act; that the fact of manufacture and clearance of Chillers was known to the Department as they were filing classification list/declaration which had been approved/accepted by the Department without any demur/query; that on 19.4.1996 the Range Officer directed them to produce copies of the invoices for verification as there was a query regarding mis-classification of the chillers; that they had complied with the same under letter dated 25-6-96; that a show cause notice dated 2-5-1999 was issued to them for reclassifying the chiller as parts of air-conditioning machine; that the Assistant Commissioner decided the matter in their favour vide Adjudication Order No. 314/97 dated 24-10-1997; then on filing review application, the Commissioner (Appeals) remanded the matter to the Assistant Commissioner with a direction to afford opportunity to defend the new grounds taken; that on appeal filed by them, the Tribunal vide Order No. 144/2000-B dated 25-1-2000 allowed their appeal and as such the validity of the Order dated 24-10-1997 on classification got restored to its validity and finality; that there is no warrant in law that the fact of use of chillers in more than 90% cases for central air conditioning system should have been disclosed by them to the Department; that it is the duty of the department to conduct an inquiry in case of doubt; that it is settled law that what is not required to be disclosed need not to be disclosed and least of all, there cannot be any allegation of suppression of facts. He relied upon the decision in Gammon Farchem Ltd. v. CCE, 1994 (71) E.L.T. 59 (T). He also mentioned that nothing adverse can be inferred from the fact that the Air Handling units and chillers were being invoiced separately since both are independent products by themselves; that the despatch of the chillers and air handling unit though for the same project was made at different points of time as the erection and commissioning of these two items were taking place at different points of time at the site.
5. Countering the arguments, Shri K.K. Goel, learned SDR, submitted that the Appellants themselves have admitted, in their reply dated 15-11-1999 to the show cause notice that chillers are used in relation to central air-conditioning plants generally; that it is also mentioned by them in the Memorandum of Appeal that they are only in the business of air-conditioning; that the view that chillers are arts of air-conditioning system was also expressed in his statement dated 27-1-1999 by Shri A.K. Mehra dealing with designs of mechanical engineering services including air-conditioning and refrigeration and having an experience of 27 years; that he deposed that main application of both type of chillers (Air-cooled chillers and Water cooled chillers) are for air-conditioning of various large buildings; that further Shri A.K. Mehra, working in M/s. Jacobs H & G Ltd. and having experience in air-conditioning field for 27 years, has stated in his statement dated 27-1-1999 that chillers, air handling units, fan coil units, etc., are components of air-conditioning system. The learned SDR relied upon the decision in Pawan Brothers (P) Ltd. v. CCE, Meerut, 1997 (95) E.L.T. 646 (T) wherein it was held that air handling unit is a part of the air-conditioning machine and was classifiable under Heading 84.15 of C.E.T.A. and contended that the deciding factor was end use only. He also relied upon the decision in Keyar Industries v. CCE, Madras, 1997 (91) E.L.T. 587 (T) in which also the use was the criteria for determining the classification of the air handling unit under Heading 84.15; that again in Sanden Vikas (I) Ltd. v. Collector of Customs, Madras, 1998 (98) E.L.T. 696 (T), the Appellate Tribunal classified the aluminium extruded tubes under Sub-heading 8415.90 of the Customs Tariff as these were specially designed for air conditioners in car. He submitted that as more than 90% of the chillers in question were used in the central air conditioning system, the principal use was in airconditioning and accordingly the impugned goods is classifiable under Heading 84.15 of the Central Excise Tariff Act. Finally, the learned SDR mentioned that they were issuing two invoices separately for chillers and air handling unit to suppress the real fact regarding use of chillers for air-conditioning purposes and this fact is indicative of their intention that they want to give an impression to the Department that the. chillers and air handling units were not required in combination of each other for purpose of central air-conditioning system.
6. In reply Shri M. Chandrasekharan, learned Senior Counsel, mentioned that air handling unit has a specific function of cooling the air while the Chiller has nothing to do with air; that it only chills the water. He emphasised that the classification of the goods cannot be decided on the basis of places where they are being despatched to. He relied upon the decision in the case of Prabhu Steel Industries Ltd. v. CCE, Nagpur, 1997 (95) E.L.T. 164 (S.C.) in support of his contention that mere change in opinion as to the correct classification/description is not sufficient to invoke the extended period of limitation. He finally mentioned that penalty under Section 11 AC of the Central Excise Act cannot be imposed in a case where the cause of action pertains to period prior to 28-2-1996 and reliance was placed on the decision in the case of Asian Techs Ltd. v. CCE, 1996 (111) E.L.T. 529 (T).
7. We have considered the submissions of both the sides. The rival Tariff Headings read as under :-
"85.15 Air-conditioning machines, compressing a motor driven fan
and elements for changing the temperature and humidity, in-
cluding those machines in which the humidity cannot be sepa-
"84.18 Refrigerators, freezers and other refrigerating or freezing
equipment, electric or other, heatpumps other than air-
conditioning machines of heading No. 84.15."
8. It has been emphasised by the learned Senior Counsel for the Appellants that the primary function of the Chiller is only to produce chilled water/liquid and the function of the chiller comes to stop once the chilled water/liquid is produced. The Revenue, on the other hand, has pleaded that the chillers are nothing but an integral part of the central air-conditioning system and a complete central air-conditioning system comes into existence when chiller is fitted with air handling unit or with fan coil unit, ducting, piping, pumps, etc. The Revenue has also emphasised the fact that 90% of the Chillers manufactured and cleared by Appellants have been used in the commissioning of central air-conditioning plants. We observe that the functioning of the chiller as explained by the Appellants has not been disputed by the Revenue. The Revenue is classifying the impugned Chiller as part of the air-conditioning system as it is used in central air-conditioning plant of star hotels, Airport, hospital, large office complexes, large establishments. This use in air-conditioning system does not take away the primary or basic function of the Chiller which is to produce chilled water by using a refrigeration circuit. There is a specific Heading 84.18 which covers refrigerators, freezers and other refrigerating or freezing equipment. Accordingly, the chillers in question will fall under the specific heading 84.18 of the Tariff. This view is supported by the Explanatory Notes of H.S.N. below Heading 84.15. While dealing with Parts, HSN provides that "If presented as separate elements, the components of air-conditioning machines are classified in accordance with the provisions of Note (2)(a) to Section XVI (headings 84.14,84.18,84.19,84.21,84.79, etc.)...". In view of this, the impugned goods cannot be classified under Heading 84.15 on the ground that 90% of the Chillers manufactured and cleared by the Appellants are used in the commissioning of central air-conditioning plants. The subsequent use of the Chiller by fitting it with air handling unit will not change the classification of the chiller. This view was also expressed by the Board in its circular No. 242/76/96CX dated 3-9-1996, relied upon by the Appellants. It was clarified in this Circular that expression 'other refrigerating appliances and machinery' will cover freezers and freezing equipments as they generally work on the mechanism of refrigeration and are essentially refrigerators which are maintained at sub-zero temperature for freezing perishable food for purpose of storage. Accordingly, we allow the appeal filed by the appellants and set aside the impugned order.