COMMISSIONER OF CENTRAL EXCISE, DELHIversusCARRIER AIRCON LTD.

A               COMMISSIONER OF CENTRAL EXCISE, DELHI
                                                                                        ,
                                           v.
                                                                                            )
                              CARRIER AIRCON LTD.
                                                                                        ~


                                    JULY 5, 2006

B              [ASHOK BHAN AND DR. AR. LAKSHMANAN, JJ.]


          Central Excise Tariff Act, 1985; Chapter Headings 84.15 and 84.18:
                                                                                        ~
         Classification-Chillers-Tariff Headings 84.15 or 84. I 8-Held: Primary
c function of a chiller is to chill the water/liquid, the water/liquid so chilled put
   to use.for air-conditioning/refrigeration etc. thereafter-End use to which the
  product put to use by itself cannot be determinative of the classification of the
  product-Tariff Entry 84.15 intended to cover the machines which are used
  for changing temperature and humidity-Since the chiller itself is not capable
D ofperforming such functions, ii falls outside the purview of Entry 84.15-The
  chillers in question are cleared as separate elements and not as air-conditioning
   machines, hence, they could appropriately be classified under Tariff Entry
   84.18 of the Act.

          The question which arose for determination in this appeal before this
E   Court was as to whether the chillers being manufactured by the assessee-
    respo111dent are classifiable under Chapter Heading 84.18 of the Schedule
    to the Central Tariff Act as claimed by them or under Chapter Heading
    84.15 as contended by th1! Revenue.

          Revenue contended that the chillers are nothing but an integral part
F   of the central air-conditioning system and a complete central air-
    conditioning system coml!S into existence when chiller is fitted with the
    air handling unit; that more than 90% of the chillers manufactured and
    cleared by the assessee were being used in the commissioning of central
    air-conditioning plants.

G        Assessee contended that the primary function of the chiller is only
                                                                                            "<.,..
    to produce chilled water/liquid and the function of the chiller comes to
    an end once the chilled water/liquid is produced.

          Dismissing the appeals, the Court
                                                                                                •,-
H                                         254
        COMMISSIONER OF CENTRAL EXCISE, DELHI r. CARRJER AIRCON LTD.      25 5

       HELD:l.I. It is established that the primary function of the chiller       A
is to refrigerate or chill water/liquid irrespective of its industrial or other
application to which the chilled water is put to use. 1261-H; 262-A]

     Indian Aluminium Cables Ltd v. Union of India & Ors .. 11985] 3 SCC
284, relied on.

      1.2. Tariff Heading 84.15 covers air-conditioning machines which
                                                                                  B
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             C
purview of the said entry. 1262-D-E]

       1.3. The function of the chiller is only to chill water or bring it to a
very low temperature, and it is the air··h:tndling unit having an
independent and distinct function which produces the effect of air-
conditioning, controlling the ttmperature and the humidity. The chiller           D
itself does not do any air-conditioning as it is designed only to refrigerate
or produce chilled water/liquid. 1263-E-F]

      1.4. 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. Accordingly, the chillers in      E
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. Since
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       F
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 c~mmissioning 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           G
a specific Heading. 1262-G-H; 263-A-B-C]

      1.5. 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       H
     256                    SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A as well the chillers would not be classifiable under Chapter Heading 84.15.
                                                                     [263-C-DI

        2. Since the Tribunal decided the case on merits it did not record
  any finding regarding invoki111g of the extended period of limitation under
  Section HA of the Act. Agreeing with the view taken by the Tribunal on
B merits, there is no need for this Court to go into the question regarding
  the extended period of limitation. (263-D-El

           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3914 of2001.

           From the Order No. 1959/2000 dated 26.9.2000 of the Customs, Excise
C & Gold (Control) Appellate Tribunal, New Delhi in Appeal No. E/2101/
    2000-B.

                                       WITH

           C.A. Nos. 8418-8419 of 200 I.
D
           C.A. Nos. 4715-4 717 of 2002.

           C.A. No. 2898 of 2005.

           K. Radhakrishnan, Joseph Vellapally, K. Swami, Vikas Bansal for P.
E Parmeswaran, Ashok Mathur, Rakesh Ojha, Arindam Ghose, Ragvesh Singh,
    Kumar Vivek Vibhu, Indra Sawhney, Gopal Jain, Ruby Singh Ahuja,
    Debmalya Banerjee for Manik Karanjawala, Pratap Venugopal, Surekha
    Raman and Ragvesh Singh for K.J. John & Co. for the appearing parties.

           The Judgment of the Court was delivered by
F
          BHAN, J. This judgment shall dispose off Civil Appeal Nos. 3914 of
    2001, 8418-8419 of2001, 4715-4717 of2002 and 2898 of2005 by a common
    order as the point involved in all these appeals is the same.

           Facts are taken from Civil Appeal No.3914 of 2001. The point which
G calls for consideration is as to:
          "Whether the chillers manufactured by Mis. 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
H   or under Chapter H1~ading 84.15 as contended by the Revenue?"
   COMMISSIONER OF CENTRAL EXCISE, DELHI v. CARRIER AIRCON LTD. [BHAN,J.] 25 7

      Mis. Carrier Aircon Limited (respondent herein) is engaged in the A
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 B
Act"). The classification list was accepted by the Department.

       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 department's proposal to classify their
product "chiller" under Chapter Heading 84.15 instead of Chapter Heading            C
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        D
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            E
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.

       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/       p
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 84.1.8 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-   G
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      H
    258                     SUPREME COURT REPORTS [2006) SUPP. 3 S.C.R.

A 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 I0% of the total application. That the
    respondent had willfully suppressed the material facts of receipt of purchase
B   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 other large
    establishments from the department with a malajide intent to evade appropriate
    payment of duty in as much as they never informed the department by way
    of any sort of correspondence that the purchase orders were placed by the
C   customers for air-conditioning t:quipments comprising of chillers of required
    capacities, air handling units or fan coil units etc. The respondent was called
    upon to show cause to the Commissioner of Central Excise Delhi-Ill within
    30 days of the receipt of the notice, as to why:

           I.    The chillers should not be classified under sub-heading
D                No.8415.00 instead of sub-heading No. 8.t 18.00 of the First
                 Schedule of the Ct:ntra[ Excise Tariff Act, 1985;
           2.    Central Excise Duty of Rs.1,84,62,136/- (Rupees One Crore
                 Eighty Four Lac Sixty Two Thousand One Hundred Thirty Six
                 only) short-paid on 249 number of chillers collectively valued at
E                Rs. I0, 79,55,623/- cleared under sub-heading No. 8418.00 instead
                 of 8415.00 (details of which are given in Annexure 6 to this
                 Show Cause Notic1e) during the period 01.08.94 to 30.9.96 and
                 April 1997, January 1998 should not be demanded from them
                 under rule 9(2) of the Central Excise Rules, 1944 read with
                 Section I IA of tht: Central Excise Act, 1944;
F          ~
           .J.   Provisions of extended time limit of five years under proviso to
                 Section 11 A of the Central Excise Act, 1944 should not be
                 invoked for the extended period in view of suppression and
                 misrepresentation of facts as discussed above;

G          4.    Penalty under Section I !AC of the Central Excise Act, 1944
                 should not be imposed upon the party; and
           5.    Interest should not be charged from the party under Section 11
                 AB of the Central Excise Act, 1944.

          The respondent in its reply inter alia briefly submitted that the entire
H proceedings contemplated under the impugned show cause notice invoking
   COMMISSIONER OF CENTRAL EXCISE, DELHI '" CARRIERAIRCON LTO, [BHAN, J] 259

the extended period of limitation of 5 years under the proviso to Section I IA A
of the Act was without jurisdiction and no valid proceedings could subsist
thereunder. It was submitted that they were manufacturing and clearing the
chillers which are also known in trade parlance as refrigerating machinery for
which classification/declaration list had been accepted by the department. On
merits, it was submitted that it was common knowledge that chillers and B
cooling towers are generally used in relation to central air-conditioning plants
for air-conditioning of large areas such as hotels, airports, Govt. offices/
departments and that the facts which are within the common knowledge
ought to be presumed in law to be within the knowledge of the excise
department; the allegation made by the department that end use of the chiller
 is for the air-conditioning purposes and hence the chiller must be treated as C
part of the air-conditioner, was erroneous in law; 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 schedule
like the Tariff Act; that the liquid chiller has many applications in industry
such as cooling the rolls used in manufacture of polyester films; for providing
chilled water in the processing of colour picture tubes; to provide chilled D
water to cool the plant in paint shops in automobile manufacturing industry;
to provide chilled water/air to cool the equipments in nuclear science centre;
tool manufacturing companies; food industry; spot welding industry; textile
manufacturing industry and in the chemical industry. That in all these
 applications and even in the central air-conditioning system, the function of E
chiller is understood to be to chill the liquid. As per Section 2(a) of Section
XVI of the Tariff Act the chi;Ier when cleared separately which specifically
falls under Chapter Heading No. 84.18 cannot by any stretch of imagination
be treated as part of an air-conditioner 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 a part of air-conditioner. That the chiller itself does not do any air- F
conditioning as it is designed only to refrigerate or produce chilled water/
liquid. In support of its submission, the respondent relied upon certain
judgments as well as the Board's circulars.

      The Commissioner, Central Excise, in his order-in-original No. 9/2000 G
dated 24.3.2000 held that the chillers are classifiable under tariffheading No.
84.15 and not under tariff heading No. 84.18 as had been claimed by the
respondent. It was held that the chillers are nothing but an integral part of the
air-conditioning system. 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. and no central air-conditioning plant can H
    260                      SUPREME COURT REPORTS [2006] SUPP. 3 S.C.R.

A come into existence without a chiller. Applying the principal of 'end use' it
  was held that since more than 90% of the chillers manufactured and cleared
  by the respondent had been used in the commissioning of central air-
  conditioning plants and hardly 5 to I0% were put to application for other
  uses, the chillers were classifiable under heading 84.15 as parts of air-
  conditioning machine. Extended period of limitation was invoked as it was
B found that the respondent was guilty of suppression of facts. Accordingly, the
  demand of differential duty of Rs. I ,84,62, 136/- short paid on 249 chillers
  valued at Rs. I0, 79,55,623/- was confirmed and ordered to be recovered under
  Rule 9(2) read with Section 11 A. Penalty of Rs.1,84,62, 136/- was imposed
  under Section 11 AC of the Act. Interest was also ordered to be charged under
C Section I !AB of the Act.
         Being aggrieved by the orders passed by the authority-in-original,
  respondent filed appeal before the Central Excise and Gold (Control) Appellate
  Tribunal (for short "the Tribunal"). The Tribunal by the impugned order has
  accept(;d the appeal, set aside the order-in-original and held that the end use
D of "chillers" in the air-conditioning system would not take away the primary
  or basic function of the chillers which is to produce chilled water by using a
  refrigeration circuit and the same shall fall under Chapter Heading 84.18 of
  the Tariff Act.

          Aggrieved by the orders passed by the Tribunal, the Department has
E filed the present appeals.
         Shri K. Radhakrishnan, learned senior advocate appearing for the
  Revenue submitted that the chillers are nothing but an integral part of the
  central air-conditioning system and a complete central air-conditioning system
F comes into existence when chiller is fitted with the air handling unit or with
  fan coil unit, ducting, piping, pumps etc. It was emphasized by him that more
  than 90% of the chillers manufactured and cleared by the respondent were
  used in the commissioning of central air-conditioning plants. On the other
  hand, counsel appearing for the assessee contended that the primary function
  of the chiller is only to produce chilled water/liquid and the function of the
G chiller comes to an end once the chilled water/liquid is produced.
          Rival tariff headings read as under:-

        "84.15 Air-conditioning machines, comprising a motor driven fan and
               elements for changing the temperature and humidity, including
H              those machines in which the humidity cannot be separately
   COMMISSIONER OF CENTRAL EXCISE, DELHI v. CARRIERAIRCON LTD [BHAN,J.] 261

             regulated."                                                          A
    "84.18 Refrigerators, freezers and other refrigerating or freezing
           equipment, electric or other; heat pumps other than air-
           conditioning machines of heading No. 84.15."

      The chilled water produced by the chiller is admittedly in turn being       B
used in various industrial applications namely:

       (i)   In polyester film processing, chilled water produced by chiller is
             used for cooling the rolls used in the manufacture of polyester
             films.

       (ii) The chilled water produced by chiller is used in the processing       c
            of colour picture tubes.

       (iii) For the painting of cars, a process is used whereby the entire car
             body is charged negative and dipped in paint charged positive.
             During the process, a lot of heat is generated and the chiller is
             used here for producing chilled water, which cools the paint         D
             continuously.
       (iv) Nuclear science centre is engaged in cryo-generator research
            wherein equipment like ion accelerator is used to bombard
            materials and study their behaviour. Chiller is used in the process
            to produce chilled water, which cools the equipment round the         E
            clock.
       (v) Chilled water produced by the chiller is used to coo 1
           manufacturing equipment.

       (vi) Chillers are used for the purpose of process cooling in food
            industry.                                                             F
       (vii) Metals subjected to welding are chilled with the help of chilled
             water produced by the chiller.

       (viii)Chilled water produced by chiller is used in flawless weaving in
             textile industry.                                                    G
       (ix) Chillers are being supplied for use in chemical process industry.

      All these facts have been admitted by the adjudicating authority in its
order-in-original.

     From the above, it is established that the primary function of the chiller   H
    262                     SUPREME COURT REPORTS (2006] SUPP. 3 S.C.R.

A is to refrigerate or chill wat(:r/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
B   of the chillers as parts of air-conditioning system classifiable under heading
    84.15.

          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. v.
    Union of India and Ors., [ 1985] 3 SCC 284. There are a number of factors
C   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.
D
           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
E   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 lemperature, 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-
F   conditioning as it is designed only to refrigerate or produce chilled water/
    liquid.

          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, larg;e office complexes and large establishments.
G   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 heaJing 84.18 of the Tariff Act. This view
H   is supported by the explanatory notes of H.S.N. below heading 84.15. HSN
   COMMISSIONER OF CENTRAL EXCISE, DELI-fl v. CARRIERAIRCON LTD. [BHAN, J.l 263

provides that "If presented as separate elements, the components of air-              A
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       B
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.                         C
      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..                                         D
      Since the Tribunal decided the case on merits it did not record any
finding regarding invoking of the extended period of limitation under Section
I IA. Since we are agreeing with the view taken by the Tribunal on merits,
there is no need for us as well to go into the question regarding the extended
period of limitation.                                                                 E
     For the reasons recorded above, we do not find any merit in these
appeals and dismiss the same leaving the parties to bear their own costs.

S.K.S.                                                       Appeals dismissed.