IMPORTANT POINT
1. End use to which the product manufactured is put to, cannot determine the classification of the product when the product manufactured falls under a specific heading.
2. The chillers manufactured by M/s Carrier Aircon Limited are classifiable under Chapter Heading 84.18 of the Schedule to the Central Tariff Act.

Headnote:Central Excise and Tariff Act, 1985 — Chapter Heading 84.18 of the Schedule — Classification of chillers manufactured by M/s Carrier Aircon Ltd. — M/s Carrier Aircon Ltd., respondent classified the chillers manufactured by it as refrigerating and freezing equipments under sub-heading No. 8418.10 of the First Schedule to the Tariff Act — Department’s proposal to classify their product ‘chiller’ under Chapter Heading 84.15 instead of Chapter Heading 84.18 stating that ‘chillers’ were nothing but an integral part of the centrally air-conditioning system — Department concluded that respondent erred in classifying the chillers under heading 84.18 as ‘other refrigerating or freezing equipments’ — Whether the chillers are classifiable under Chapter Heading 84.18 of the Schedule to the Act as claimed by the respondent — (Yes).
       Held : The primary function of the chiller is to refrigerate or chill water/liquid irrespective of the industrial or other application which the chilled water is put to. Air-conditioning system is just one amongst the various industrial applications in relation to which chillers are used. Only because 90% of the chillers manufactured by the respondent are used in the air-conditioning system cannot be the basis for classification of the chillers as parts of air-conditioning system classifiable under heading 84.15.(Para 14)
       End use to which the product is put to by itself cannot be determinative of the classification of the product. See Indian Aluminium Cables Ltd. vs. Union of India and Ors., 1985(3) SCC 284. There are a number of factors which have to be taken into consideration for determining the classification of a product. For the purposes of classification the relevant factors inter alia are statutory fiscal entry, the basic character, function and use of the goods. When a commodity falls within a tariff entry by virtue of the purpose for which it is put to, the end use to which the product is put to, cannot determine the classification of that product. (Para 15)
       Tariff heading 84.15 covers air-conditioning machines which control and maintain temperature and humidity in closed places. The main function of air-conditioning system is to control temperature, which is not done by a chiller. A reading of the tariff entry 84.15 would show that it is intended to cover only those machines which comprise of elements for changing temperature and humidity and chillers would fall outside the purview of the said entry. The function of the chiller is only to chill water or bring it to a very low temperature, and it is the air handling unit having an independent and distinct function which produces the effect of air-conditioning, controlling the temperature and the humidity. The chiller itself does not do any air-conditioning as it is designed only to refrigerate or produce chilled water/liquid. (Para 16)
       Revenue is classifying the impugned chillers as parts of the air-conditioning system as the same is used in central air-conditioning plant of star hotels, airport, hospital, large office complexes and large establishments. The use of the chillers in the air-conditioning system would not take away the primary or basic function of the chiller which is to produce chilled water by using a refrigerating circuit. Heading 84.18 covers refrigerators, freezers and other refrigerating or freezing equipment. Accordingly, the chillers in question shall fall under specific heading 84.18 of the Tariff Act. This view is supported by the explanatory notes of H.S.N. below heading 84.15. 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 (heading 84.14, 84.18, 84.19, 84.21, 84.79, etc)..." Chillers manufactured by the respondent are cleared as separate elements and not as air-conditioning machine, therefore, the same have to be classified under tariff entry 84.18 as refrigerating or freezing equipments as the basic function of the chillers is to chill the water or liquid. Chillers manufactured by the respondent cannot be classified under heading 84.15 simply because 90% of the chillers manufactured by the respondent were being used in the commissioning of central air-conditioning plant. End use to which the product manufactured is put to, cannot determine the classification of the product when the product manufactured falls under a specific heading.(Para 17)
       Chillers in the domestic and international trade parlance are known as refrigerating equipment. The trade identifies chillers as refrigerating machinery on the basis of its function of chilling water using refrigerating circuit. Even by testing it from the commercial parlance test as well the chillers would not be classifiable under Chapter Heading 84.15.(Para 18)

JUDGMENT

Bhan, J. — This judgment shall dispose off Civil Appeal Nos. 3914 of 2001, 8418- 8419 of 2001, 4715-4717 of 2002 and 2898 of 2005 by a common order as the point involved in all these appeals is the same.

2. Facts are taken from Civil Appeal No.3914 of 2001. The point which calls for consideration is as to:

"Whether the chillers manufactured by M/s. Carrier Aircon Limited (respondent herein) are classifiable under Chapter Heading 84.18 of the Schedule to the Central Tariff Act (for short "the Act") as claimed by them or under Chapter Heading 84.15 as contended by the Revenue?"

3. M/s. Carrier Aircon Limited (respondent herein) is engaged in the manufacture of chillers besides other goods i.e. room air-conditioners, air handling units, gas compressors, radiators for central heating and parts of aforesaid goods. Respondent classified the chillers manufactured by it as refrigerating and freezing equipments under sub-heading No.8418.10 of the First Schedule to the Central Excise Tariff Act, 1985 (for short the "Tariff Act"). The classification list was accepted by the Department.

4. Commissioner of Central Excise, Central Excise Commissionarate, Delhi-III, issued a show cause notice dated 3.8.1999 to the respondent requiring them to state their case, vis-a-vis, the departments proposal to classify their product "chiller" under Chapter Heading 84.15 instead of Chapter Heading 84.18 on the grounds mentioned therein. It was alleged in the notice that from the end use of the "chillers" being manufactured by the respondent, it was evident that the said "chillers" were nothing but an integral part of the centrally air-conditioning system. That complete central air-conditioning plant comes into existence when the said chiller is fitted with air handling unit or fan coil unit, ducting, piping and pumps etc. On perusal of the description of chillers as submitted by the respondent vis-a-vis the description of goods available under Chapter Heading 84.18 it was observed that the description and functioning of the chillers was not covered under Chapter Heading 84.18. During the course of investigation, statements of Shri R.K. Verma, AGM (CBU) who is a Mechanical Engineer, working with the respondent and Shri A.K. Mehra, B.Sc. Engineering Electrical, working as a Manager (Mechanical) dealing with designs of mechanical engineering in M/s. Jacob H & G Ltd., were recorded.

5. The Department on perusal of the statements dated 31.12.1998 of Shri R.K. Verma and statement dated 27.1.1999 of Shri A.K. Mehra, the literature/brochure available on the subject and the purchase orders placed by various customers came to the conclusion that the respondent erred in classifying the chillers under heading 84.18 as other refrigerating or freezing equipments, as the majority of the customers (more than 90%) had placed their purchase orders for supplying of chillers of various capacities along with air handling units or fan coil units and other electrical accessories required for use in air-conditioning purposes; that chillers when used in combination with AHU connected with chiller water system cools and dehumidifies the air and there is no difference between this system and central air-conditioning system as the effect will be the same. That the main application of both types of chillers is for air-conditioning of the various types of large buildings/establishments and that the chillers are one of the essential components of air-conditioning systems. That other use of chillers without AHU/FCU for control of temperature (other than air-conditioning system) in various industrial applications is very little i.e. 5 to 10% of the total application. That the respondent had willfully suppressed the material facts of receipt of purchase orders of said chillers for air-conditioning equipments and use of chillers in combination with AHUs/FCUs for the purpose of air-conditioning system of star hotels, auditoriums, large office complexes, big hospitals and oth

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2006 Supreme(SC) 578

Cases Referred (1)