Holding

The department must prove that nozzles and nozzle holders are merely intermediate products and that the injector is a marketable independent product, and the appellant must prove entitlement to exemption; the earlier case is inapplicable, and the matter is remitted for fresh adjudication.

Summary

M/s Motor Industries Co. Ltd., a manufacturer of nozzles, nozzle holders and injectors, was served a show‑cause notice demanding central excise duty on its nozzles and nozzle holders used in the assembly of injectors, the department alleging they were intermediate products under tariff heading 8409.00 and that the completed injector was a new independent product. The appellant claimed exemption under notifications granting relief to non‑vehicular injectors and to vehicular nozzles and holders, relying on the earlier decision in Collector of Central Excise v. Motor Industries Co. Ltd. The tribunal rejected the exemption, holding that the nozzles and holders were specifically excluded and that the earlier case was inapplicable. The Supreme Court held that the lower authorities had not examined how an injector is constructed, that the burden was on the department to prove the nozzles and holders were merely intermediate and that the injector was marketable, and that the appellant also bore the burden of proving entitlement to exemption. Consequently, the Court set aside the tribunal’s judgment, allowed the appeals and remitted the matter to the adjudicating authority for a fresh determination.

Issues considered

Whether the assembly of nozzles and nozzle holders creates a new product (injector) distinct from the components.
Whether the department correctly classified the injector under sub‑heading 8409.00 of the Central Excise Tariff Act, 1985.
Whether the appellant is entitled to exemption under the relevant notifications.
Who bears the burden of proof on the classification and exemption claims.

Legislation cited

Central Excise Act, 1944s. 35-L(b)
Central Excise Tariff Act, 1985

Subjects

central excisetariff classificationexemptionintermediate productinjectorburden of proofadjudicating authorityremand

Judgment

•· M/S MOTOR INDUSTRIES CO. LTD. A
' v.
COMMISSIONER OF CENTRAL EXCISE, AURANGABAD.

JANUARY 20, 2006

[ASHOK BHAN AND S.H. KAPADIA, JJ.] B

Central Excise Tariff Act, I 985-Chapter 84-Nozzles and nozzle holders
used in coupling of injectors-Exemption-Entitlement of-Failure of tribunal
and authorities to decide about construction and components of injector-
Failure of department to adduce evidence that nozzles and nozzle holders
c
were intermediate, products which on coupling became injector, and were
marketable-Assessee also failed to prove their entitlement to exemption-
Thus, matter remitted to Adjudicating Authority to decide afresh.
-~
Appellant-assessee is engaged in the manufacture of nozzles, nozzles D
' holder and injectors. Department issued notice to the appellants for levy
of duty on nozzles and nozzle holders in respect of injectors since the
nozzles and _nozzle holders falling under tariff item 8409.00 were
intermediate products used in the coupling or assembly of injectors (final
product) falling under 8409.00 and on completion of process of coupling
a new independent product emerged, namely,. an injector. Appellant E
relying on the case of *Collector of Central Excise v. Motor Industries Co.
Ltd., contended that injector was {I fitment of nozzles into nozzle holders
and on coupling no new product came into existence; and that by
-t ~
Notifications non-vehicular injectors and also vehicular nozzles and nozzle
holders were exempted from payment of duty. Tribunal held that the F
assessee was not entitled to exemption under the Notification as nozzles
and nozzle holders were specifically excluded and that the case of Motor
Industries Co. Ltd was not applicable. Hence the present appeal.

Remanding the matter to the Adjudicating Authority, the Court
G
HELD: Authorities below including the tribunal did not decide as
to how an injector is constructed and what are its components. The burden
4 was on the department to lead evidence on manufacture and marketability
which it did not exercise. Also the burden was on the appellant to prove

491 H

_,
492 SUPREME COURT REPORTS [2006] I S.C.R.
•
A that they were entitled to exemption under the notification. The question '
of manufacture, classification and exemption are inter-connected. The
question of exemption will arise only after the first question on coupling
or assembly is decided. Exemption notifications as amended after Central
Excise Tariff Act, 1985 has to be seen and also the application of assembly
of injectors to vehicular and non-vehicular user has to be examined in the
B light of the 1985 Act. Assistance of HSN i11 that regard may also be taken.
1494-B-C; E-GI

*Collector of Central Excise v. Motor Industries Co. limited, (1989) 43
ELT 290, disapproved.
c CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4391-4392
of 2000.

From the Judgment and Order No. 601-602/2000-B dated 20.4.2000 of
the Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi in
D Appeal Nos. E/4495/89-B and E/5550/91-B.
,
Joseph Vellapally, U.A. Rana, Sandeep Kharel, Ms. S. Roy and Ragvesh
Singh for M/s. Gagrat & Co. for the Appellant.

Mohan Parasaran, ASG, Manish Sharma and P. Parmeswaran for
E Respondent.
The Judgment of the Court was delivered by

KAPADIA, J. The short question which arises for determination in
these ~ivil appeals filed by the assessee under section 35-L(b) of the Central
F Excise Act, 1944 (hereinafter referred to as "the Act") is whether assembly
of nozzles and nozzle holders (intermediate products) brings into existence a
new product called an "injector" and if so, whether the department was right
in classifying the said injector under sub-heading 8409.00.

Appellant is engaged in the manufacture of nozzles, nozzles holder and
G injectors. Vide show-cause notice dated 3.9.1986, the department called upon
the appellant to show cause as to w~y duty @ 20% ad valorem on the value
of nozzles and nozzle holders should not be recovered in respect of injectors
on the ground that the appellant had produced nozzles and nozzle holders
falling under tariff item 8409.00 which were captively consumed for the
H manufacture of injectors falling under 8409.00 for which no declaration was
MOTOR INDUSTRIES CO.LTD.,., COMM. OF CENTRAL EXCISE, AURANGABAD !KAPADIA, J.] 493
•··"·
made by the appellant in their classification list. At this stage, we may point A
out that the matter has a chequered history, it has been remanded several
times and for the reasons mentioned hereinafter, it is not necessary to set out
the entire history of the prior litigation. Suffice it to state that in reply to the
show-cause notices, the appellant submitted that fitting of nozzles into nozzle
holders did not amount to manufacture; that, even after such fitment, the end-
result remained "nozzles and nozzle holders"; that, this entire controversy
B
stood settled by the earlier judgment of Customs, Excise & Gold (Control)
Appellant Tribunal (for short "the tribunal") in the case between the same
parties, namely, Collector of Central Excise v. Motor Industries Co. Limited.,
reported in (1989) 43 EL T 290; that, nozzle and nozzle holder had no
independent application as such; that, they have to be used in the IC engine c
in an assembled state to create combustion in the combustion chamber of IC
engines. According to the appellant, an injector was a fitment of nozzles into
nozzle holders and that on coupling, no new product came into existence. In
reply, the appellant further stated that non-vehicular injectors were exempted
from payment of duty. In this connection, it was submitted that non-vehicular
injectors constituted parts of diesel engine used by agriculturists and farmers D
" and, therefore, the Government decided to grant exemption to such non-
vehicular injectors. At this stage, it may be noted that nozzles and nozzle
holders stood excluded from exemption notification no.217/85 dated 8.10.1985.
However, according to the appellant, by Amendment Notification No.79/86
dated 10.2.1986, non-vehicular injectors were also given the benefit of E
exemption, which has not been appreciated by the department (See Written
Submissions filed by the assessee before the A.C., on running page no.145

- ~
of the paperbook of original record]. Similarly, according to the appellant,
exemption was also given by the Government to vehicular nozzles and nozzle
holders used in a factory of production vide notification no.75/86 dated
10.8.1986 (See Written Submissions filed by the assessee before the A.C., on F
running page no.142 of the paperbook of original record].

By the impugned judgment, the tribunal held that the assessee was not
entitled to exemption under the above notification no.217 /85 as "nozzles and
nozzle holders" were specifically excluded from the purview of the said G
notification; that, the issue in the case of Motor Industries Co. limited (supra)
~ was only whether nozzles fitted with the nozzle holders (injectors) were
assessable under item 68 of the old Tariff though nozzles and nozzle holders
were duty paid under item 34A, hence that judgment had no application to
the controversy in hand.
H
494 SUPREME COURT REPORTS [2006] I S.C.R.

A This matter needs to be remanded to the adjudicating authority for the •
following reasons. Firstly, in this case, the case of the department in the
show-cause notice was that nozzles and nozzle holders were intermediate
products used in the coupling or assembly of injectors (final product); and
that, on completion of the process of coupling a new independent product
B emerged, namely, an injector. How is an injector constructed and what are its
components has not been decided by any of the authorities below including
the tribunal. Secondly, the decision of the tribunal in Motor Industries Co.
Limited (supra) has no application. In that case, the question as to what is an
injector was not in issue. It was matter of classification under the old Tariff
under which item 34A dealt with "parts of motor vehicle" and which parts
C were specifically described to include "nozzle and nozzle holders" whereas
the residuary item was' item 68 and the question was - whether fitment of
nozzle into holder would attract item 68. In the said case, it was held that
even on fitment, the product would remain "nozzle and nozzle holder" under
item 34A. In the present case, it has been alleged by the department that
nozzles and nozzle holders were components of an injector; that, on coupling,
D which process constituted manufacture, an independent product, namely, an ;

injector emerged. This point was not there in the earlier case, hence, Motor
Industries Co. limited (supra) has no application to the present case. Further,
the present case arises under the 1985 Tariff Act. Chapter 84 falls in section
XVI. Section note 2, with the headings 84.07, 84.08 and 84.09 are required
E to be considered. These provisions were not !here in the case of Motor
Industries Co. Limited (supra). Thirdly, in this case, the burden was on the
department to lead evidence on manufacture and marketability. It is for the
department to prov<I that nozzles and nozzle holders were intermediate products
which on coupling became an injector, which was a saleable commodity in
the market. Earlier this exercise was not done because the department had
F eFred in holding that the issue was covered by Motor Industries Co. Limited
(supra). Lastly, we may point out that the appellant has claimed exemption
under the above notification. The burden is on them to prove that they were
entitled to exemption. In this connection, we may point out that the question
of exemption will arise only after the first question on coupling or assembly
G is decided. Here also, we may point out that exemption notifications as
amended after 1985 Tariff Act has to be seen. In this case, the question of
manufacture, classification and exemption are inter-connected. The application
of the above assembly to vehicular and non-vehicular user have to be examined
in the light of the 1985 Tariff Act. Assistance of HSN in that regard may also
be taken.
H
MOTOR l~OCSTRIES CO.LTD •·.COMM. OF CENTRAL EXCISE. AURA NG ABAD [KAPADIA. J ] 495

•-,, For the above reasons, we set aside the impugned judgment of the A
tribunal dated 20.4.2000 and remit the matter to the Adjudicating Authority
for de nova adjudication of the show-cause notices. Accordingly, the above
civil appeals filed by the assessee stand allowed, with no order as to costs.

N.J. Appeals allowed.
B