The Supreme Court of India in Commissioner of Central Excise, Delhi-IV Vs. M/s. Sandan Vikas (I) Ltd. judgment dated July 1, 2015 held that “if a kit and compressor are sold in a singular invoice or in one pricing, it will go out of item no.8 and duty will be paid separately, but if there are two invoices for separate pricing, the air-conditioning kit would come under serial no.8 and the automotive gas compressor with or without magnetic clutch will be liable to duty separately”.
A full bench of Justices Dipak Misra, R.K. Agrawal and Prafulla C. Pant viewed that the ratio laid down in Sanden Vikas (India) Ltd. v. C.C.E., New Delhi, 2003 (153) ELT 3 (SC) cannot be found to be erroneous but Court not inclined to dwell upon “when there is a combined sale, which serial item it will fall”, being not necessary in this case.
# Car Air-conditioning Kit
The two-Judge Bench in Sanden Vikas (Supra) referred to the column 3 of the table annexed with the notification and posed the question whether the car air-conditioning kit is classifiable under Item No. 3 or under Item no. 8 of the table of the said Notification. The Court opined that a specific Entry prevails over the general Entry and, therefore, w.e.f. March 20, 1990 till July 25, 1991, air-conditioning kits which comprises of various parts are classifiable under Item No. 8 of the said Notification.
While interpreting Explanation (2), the two-Judge Bench eventually held thus:-
“The car air-conditioning kit which comprises of parts of car air-conditioner remains as part of Item No. 8 of the notification. The Explanation cannot be so construed as to remove the term “car air-conditioner kit” or “air-conditioning kit” itself from Item No. 8 of the Notification. What follows is that ‘car air-conditioning kit minus automotive gas compressor with or without magnetic clutch’ will remain in the description of goods against Item No. 8 of the Notification and that the excluded part of the kit, namely, automotive gas compressor with or without magnetic clutch, will cease to be part of Item No. 8 and will be liable to duty separately.”
The full bench observed that if a manufacturer sells the kit and the automotive gas compressor as one unit of transaction, it will get out of serial no.8. If a manufacturer sells the kit and the automotive gas compressor separately by different invoice or by separate pricing, not seen any reason for exclusion of the air-conditioning kit from the serial no.8 because there are two transactions and the kit is charged as per serial no.8 and compressor is charged as per serial no.1.
There is no dispute over the fact that one can buy the automotive gas compressor with or without magnetic clutch with the kit, and both can also be purchased separately from different manufacturers.
What the two-Judge Bench has said is that an air-conditioning kit minus automotive gas compressor with or without magnetic clutch will remain in the description of goods against item no.8 of the Notification and that the excluded part of the kit, namely, automotive gas compressor with or without magnetic clutch will cease to be a part of item no.8 and will be liable to duty separately.
Thus, the Division Bench has quite categorically stated that if the air-conditioning kit does not contain automotive gas compressor with or without magnetic clutch, duty is paid as per item no.8 and if it contains the automotive gas compressor with or without magnetic clutch, it will not come under item no.8.
The facts in the said case were that the appellant-assessee therein, the respondent in the present appeal, is a manufacturer of car air-conditioning kits. It classified the said goods under Item No. 5 of Heading 8415 of the Schedule to the Central Excise Tariff Act, 1985 (for short, ‘the Act’) for the purpose of availing the benefit of exemption as given under Notification No. 166/86-CE dated March 1, 1986 (as amended from time to time).
The appellant therein contended that it was only manufacturing parts of the air-conditioning kit and, therefore, the kit could not be treated as an air-conditioner.
The Assistant Collector, disagreed with the stance of the assessee and treated the same as air-conditioning system falling under Item No. 3 of the Heading 8415 of the Notification.
On March 20, 1990, a new Entry, Item No.8, was added to the table of the Notification and thereafter the assessee classified the air-conditioning kits under the said Entry for the purpose of levy of excise duty.
On October 1, 1990, the Assistant Collector, Central Excise, Division-I, Faridabad issued a notice to the assessee stating that under the said Entry i.e. serial no. 8, the sub-heading relating to compressor had not been included in the second column of the table and as the car air-conditioning kits include compressor they fall under Item No.3 (Heading No. 8415.00) of the Notification and accordingly the assessee was asked to show cause why the excise duty amounting to Rs.2,20,74,021.30 should not be demanded from it.
The assessee replied to the said show cause notice and other show cause notices asserting that car air-conditioning kits, including compressor, manufactured by it, is a machinery especially designed to be used for air-conditioning of motor vehicle and as it is not usable as room air-conditioner, split unit air-conditioner or package type air-conditioner, it cannot be classified in that group; the components of the car air-conditioner kit are nothing but parts of the car air-conditioner and the air-conditioning kit was shown as such in common parlance and, therefore, it was classifiable under serial no. 8 of the said Notification.
The Assistant Collector, vide order dated January 24, 1992 rejected the stand put forth by the assessee and confirmed the demand which was affirmed by the Collector (Appeals) by his order dated July 13, 1992.
On appeal being filed before the Tribunal, it dismissed the same.