Holding

Fan regulators sold as separate items are accessories of electric fans and must be classified under sub‑heading 8414.99, and the penalty of Rs 10,000 is set aside.

Summary

M/s North West Switchgear Ltd and M/s Kesharbai Electronics manufactured fan regulators and classified them under sub‑heading 8414.20 of the Central Excise Tariff Act, 1985, claiming they are electric fans. The revenue issued show‑cause notices alleging short payment of duty, arguing that the regulators are accessories and should fall under sub‑heading 8414.99, attracting a higher rate. The appellants relied on CBEC Circular No. 7/87, while the Board and the Tribunal, invoking CBEC Circular No. 192/26/96, held that regulators cleared separately from fans are accessories under 8414.99. The Supreme Court affirmed that fan regulators sold without the fan are to be classified under sub‑heading 8414.99 and set aside the Rs 10,000 penalty imposed under Rule 1730. Consequently, the appeals challenging the classification were dismissed, but the penalty was vacated.

Issues considered

Whether fan regulators sold separately from electric fans are to be classified under sub‑heading 8414.20 (electric fans) or sub‑heading 8414.99 (parts and accessories) of the Central Excise Tariff Act, 1985.
Whether the penalty imposed under Rule 1730 of the Central Excise Rules, 1944 is valid.

Legislation cited

Central Excise Act, 1944s. 11A, s. 35E(2), s. 35L
Central Excise Rules, 1944s. 1730, s. 9(2)
Central Excise Tariff Act, 1985

Subjects

classificationtarifffan regulatorsaccessoriescentral excisesub‑heading 8414.99sub‑heading 8414.20penaltyCBEC circularshow‑cause notice

Judgment

A M/S NORTH WEST SWITCHGEAR LTD.
v.
COMMNR. OF CENTRAL EXCISE, NEW DELHI

FEBRUARY 14, 2006

B [ASHOK BHAN AND ARUN KUMAR, JJ.]

Central Excise Tariff Act, 1985/Central Excise Rules, 1944

C Chapter 84-Heading 8414-Sub-headings 8414.20 and 8414.99/Rule
9(2)- 'Electric fans· and 'Parts and accessories'-- 'Fan regulators'_
Classification--Held, fan regulators' sold as such 'without the electric fan'
would be classifiable under sub-heading 8414. 99 as accessories offans.

Appellants, manufacturers of fan regulators, filed the present appeals
D challenging the order of the Customs, Excise and Gold (Control) Appellate
Tribunal holding that 'fan regulators' manufactured by them were
classifiable under sub-heading 8414.99 as accessories of fans and not under
8414.20 along with electric fans. -
Disposing of the appeals, the Court
E
HELD: 1.1. The 'fan regulators' manufactured by the assessee, which
are sold as such 'without the electric fan' would be classifiable under sub-
heading 8414.99 as accessories of fans. The Board clarified in CBEC
Circular No.192/26/96 dated 27.3.96 that when the regulators are cleared
along with the fans as a whole, they are classifiable under sub-heading
F 8414.20 but when 'fan regulators' are cleared separately not in
combination with the fans they are classifiable as 'parts and accessories
of electrical fans' under sub-heading 8414.99 of the Schedule to the Tariff
Act. 'Fan regulators' being accessories of 'electric fan' would be covered
under the sub-heading 8414.99. [234-C-D-El
G
1.2. The order passed by the Tribunal in Civil Appeal No.4382 of
2001 in so far as the classification is concerned is confirmed but keeping
in view the facts and circumstances, the penalty of Rs.10,000/- imposed
on the appellant is set aside. [234-G-Hl

H 228
NORTH WEST SWITCHGEAR LTD.,.. COMMNR. OF CENTRAL EXCISE [BHAN, J.J 229

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 553-554 of A
2001.

From the Final Order No. 120-121/2000-B dated 20.1.2000 of the
Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi in Appeal
No. El506195-B and Ell 554196-8.
B
WITH

C.A. No. 438212001.

Mrs. Rohina Nath and Umesh Kumar Khaitan for the Appellant in C.A.
No. 553-554 of 200 I.
c
Rajiv Dutta, Ms. M.F. Humayuwisa and R. Nedumaran for the Appellant
in C.A. No. 43821200 I.

Harish Chandra, Arijit Prasad and B.K. Prasad for the Respondent.

The Judgment of the Court was delivered by D
BHAN, J. This order shall dispose of the two sets of Civil Appeals.
The Civil Appeal Nos. 553-554 of2001 filed by Mis. North West Switchgear
Limited and the Civil Appeal No. 4382 of 2001 filed by Mis. Kesharbai
Electronics Pvt. Ltd.; (for short "the appellants"). As the point involved in
both the sets of appeal is similar, they are being disposed of by a common E
order.

The Civil Appeal Nos. 553 - 554 of2001 have been filed by Mis. North
West Switchgear Limited under Section 35L of the Central Excise Act, 1944
(for short "the Act") against final order No.120-12112000-8 passed by the F
Customs Excise & Gold (Control) Appellate Tribunal, New Delhi in Appeal
No.E/506195-8 and Ell 554/96-8 dated 20cl :2000 whereby the Tribunal upheld
the orders of authorities below to drop the demands of Rs.2,02,506.88 &
Rs.93,514.38 raised on the appellants by the respondent herein, but, held that
the 'fan regulators' manufactured by the appellants were classifiable under
sub-heading 8414.99 as opposed to 8414.20 as an accessory of the fans. G
The Civil Appeal No.4382 of2001 filed by Mis. Kesharbai Electronics
Pvt. Ltd., has also been filed under Section 35L of the Act against the final
order passed by the Tribunal at Mumbai dated 16.11.2000 in Appeal No.El
1002/R/95 Mumbai, whereby the Tribunal rejected the appeal filed by the
appellants and confirmed the classification of the goods under sub-heading H
230 SUPREME COURT REPORTS (2006 I 2 S.C.R.

A 8414.99 as classified by the Assistant Collector of Central Excise & Customs,
Ahmednagar and confirmed by the respondent in Appeal bearing No.A/418/
1995 dated 29.9.1995.

The facts of Civil Appeal No.553-554 of 200 I are:

B The appellants are engaged in the manufacture of switches, fan regulators
and distribution board etc. falling under Chapter sub-heading No.8536.90,
8414.20 & 8537.00 of the Central Excise Tariff Act, 1985 (hereinafter referred
to as "the Tariff Act"). The appellants classified 'fan regulators' under sub-
heading No.8414.20 of Tariff Act, which covers electric fans, on the strength
that there is no other use of these items and these are used principally and
C solely with the electric fans. The classification list filed by the appellants for
clearing the same under sub-heading 8414.20 was approved by the Assistant
Commissioner.

The appellants were served with demand-cum-show cause notices dated
D 3.12.1993 and 28.6.1994 for the period March 1993 to February 1994 to
show cause to the Deputy Commissioner of Central Excise, Faridabad as to
why the differential duty amounting to Rs.2,02,506.88 and Rs.93,514.38 should
not be demanded and recovered under Rule 9(2) read with Section 11 A of •
the Act on the contention that 'fan regulators' are nothing but 'accessories'
of electric fans and the same are classifiable under sub-heading 8414.99 of
E the Tariff Act which attracts duty @ 15% ad valorem instead of I0% ad
valorem already paid by the appellants resulting in short payment of duty as
aforementioned. The appellants submitted their reply to the show-cause-notices
contending therein that they h£1d paid the duty correctly and there was no
short levy of duty as alleged by the show-cause-notice; that the fan regulators
F are correctly classifiable along with the fans according to the Section Notes/
Chapter Notes appended to Chapter 84 of the Tariff Act, 1985. It was also
submitted that the appellants are covered by Board Circular No.7/87 dated
24.06.1987 which was in force till the issuance of the CBEC Circular No.192/
26/96-CX dated 27 .06.1996.

G Authority in original in show cause notice dated 3. 12.1993 held that the
fan regulators were classifiable under the sub-h1::ading 8414.20 as had been
contended by the assessee. It was also held that the Board Circular No. 7/87
dated 24.6. 1987 was applicable to the facts of the case. The Commissioner
of Central Excise reviewed the order passed by the authority in original in
exercise of its powers under Section 35E(2) and directed that an appeal be
H
_,
-1
NORTll WEST SWITCHGEAR LTD."· COMMNR. OF CENTRAL EXCISE [BHAN. JJ2J l

.c/ preferred accordingly and appeal was filed. The appellants filed their A
i
memorandum of cross objection. The learned Commissioner upheld the order
passed by the authority in original holding that 'fan regulators' were/are
classifiable under sub-heading 8414.20 of the Tariff Act and not under 8414.99
and rejected the appeal. Being aggrieved with the order passed by the
Commissioner of Appeals, the revenue preferred appeal No. E/Appeal No.
506/95-B before the Tribunal. E

A
Against the show-cause-notice dated 28.6.1994 the authority in original
stuck with its view in the earlier order and held that the 'fan regulators' were
classifiable under the sub-heading 8414.20 and not under 8414.99 and dropped
the demand. Commissioner (A) did not agree with the order in original and
taking a contrary view held that the goods were classifiable under sub-heading
c
8414.99 and not under 8414.20. The appellants preferred appeal No. E/Appeal
No. 1554/96-B against the order of the Commissioner of Appeals before the
Tribunal. These two sets of appeals were clubbed together and disposed of
by the Tribunal by a common order dated 20.1.2000.
D
In the Civil Appeal No.4382 of 2001 the authority in original held that
.-1 the goods were classifiable under sub-heading 8414.99 and confirmed the
+- demand of Rs.9,87,086.86 and imposed a penalty of Rs.75,000/- under Rule
l 73Q of the Central Excise Rules, 1944 and directed the appellants to pay
these amounts immediately. In the appeal, the Commissioner of Appeals
maintained the order in original except that the amount of penalty was reduced E
to Rs.10,000/-. Being aggrieved, the assessee filed an appeal before the
Tribunal and the Tribunal vide its order dated 25.10.2000 maintained the
order passed by the Commissioner of Appeals.

The common issue involved in both the sets of appeals is, whether the
F
'fan regulators' are classifiable under the sub-heading 8414.20 along with
fans or under the sub-heading 8414.99 as 'parts and accessories'.

Learned counsel appearing for the appellants contended that during the
relevant period Central Board of Excise and Customs, Circular No.7/87 dated
24.6.1987 was in operation and therefore the fan regulators would be G
classifiable under the sub-heading 8414.20 along with fans. That the
... 1)
department cannot argue against the Board circular which is binding on them .
...::,<, Accordingly it was contended that the department cannot now claim that the
fan regulators were classifiable under sub-heading 8414.99 at tire relevant
time. Relying upon the sub-note (b) of Note 2 to Section XVI, it was contended
Q H
232 SUPREME COURT REPORTS [2006] 2 S.C.R.

A that since the 'fan regulators' were suitable for use solely or principally with
the electric fan the same are classifiable with the entry relating to electric
fans i.e. 8414.20. It is also submitted by the learned counsel for the appellants
that the regulators are classifiable under the sub-heading 8414.80 but they
have not given any reasons for this submission.

B Learned Counsel appearing for the respondents has countered both the
submissions.

We do not find any force in the submission made by the counsel for
the appellants.

C To understand the issue, heading 8414 is reproduced as under:-

8414 AIR OR VACUUM PUMPS, AIR OR OTHER GAS
COMPRESSORS AND FANS; VENTILATING OR
RECYCLING HOODS INCORPORATING A FAN, WHETHER
OR NOT FITTED WITH FILTERS.
D 8414.10 Gas compressor of a kind used in
refrigerating and air conditioning appliances and t -

machinery. 40%
8414.20 Electric fans 15%

E 8414.80 Others 40%
Parts and Accessories
8414.9 I Of goods covered by sub-heading 40%
No.8414. I

F 8414.99 Other 15%
Chapter heading 8414 applies to air or vacuum pumps, air or other gas
compressors and fans ventilating or recycling hoods. Sub-heading 8414. I0
applies to 'gas compressor'; sub-heading 8414.20 applies to 'electric fans'
and 8414.80 is a residuary sub-heading being "Others" which will apply to
G all other goods cover<;d by chapter heading, other than gas compressors and
electric fans. The 'Fan regulators' will not be classifiable under the sub-
heading 8414.80. There are twc sub-headings under 'parts and accessories'.
Sub-heading 8414.91, is in relation to the goods covered by the sub-heading
8414.10 whereas the sub-heading 8414.99 is a residuary class which applies
to the goods covered by other sub-heading of chapter heading 8414.
H
NORTH WEST SWllCHGEAR LTD. r. COMMNR. OF CENTRAL EXCISE [BHAN. JJ 233

-'>"'
!
The issue therefore is, whether the 'fan regulators' are classifiable under A
8414.20 along with fans or under sub-heading 8414. 99 as "parts &
accessories". The appellants have placed reliance on Board's Circular No.7/
87 dated 24.6.1997 in which it has been clarified that the resistance type and
choke type fan regulators are classifiable under sub-heading 8414.20 along
with the fans. The Tribunal has held that the 'fan regulators' would be
classifiable under sub-heading 8414.20, if cleared along with fans but if they B
are cleared only as regulators (not along with fan), they would be classifiable
,,.. under sub-heading 8414.99.

According to Note 2 of Section XVI of the Schedule to the Central
Excise Tariff Act, parts which are goods included in any of the headings of
Chapter 84 or Chapter 85 are in all cases to be classified in their respective c
headings. There is a separate entry for 'parts & accessories' of goods falling
under chapter heading 8414 and as such the regulators, if cleared "not along
with fans", will merit classification under the sub-heading 8414.99 being
'parts/accessories' of the fan. This position has been ~larified by the CBEC
Circular No.192/26/96-CX dated 27.3.1996, which reads as under:- D
..,,., "I am directed to invite your kind attention to Circular No.7/87-CX,
~·
dated 24.6.1987 wherein it was clarified that the resistance type and
choke type fan regulators, are classifiable under sub-heading 8414.20
of the Schedule to the Central Excise Tariff Act, 1985, along with
fans. Doubts have been expressed regarding the classification when E
the fan regulators are manufactured and cleared separately, not in
combination with fans. It is seen that though the electric fans can
function without the regulators, the regulators are needed as they
limit and control the flow of the electricity and consequently control
the speed of electric fans.
F
_J The matter has been examined, it is clarified that when 2 regulators
are cleared along with fans as a whole, they are classifiable as electric
fans under sub-heading 8414.20. When fan regulators are cleared
separately not in combination with fans, they are classifiable as 'Parts
and accessories of electric fan' under sub-heading 8414.99 of the
Schedule to the Central Excise Tariff Act, 1985." G
This view also finds support from the General Notes to Section XVI of
...,.-;,'
HSN under heading "Accessory Apparatus". The explanatory note provides
~
that accessory instrument e.g. regulators, presented with machine or apparatus
~·
to which they normally belongs are classified with that machine or apparatus,
if they are designed to measure check, control or regulate one specific machine H
234 SUPREME COURT REPORTS (2006) 2 S.C.R.

A or apparatus. Therefore, if fan regulators are manufactured by a unit like the
appellants and cleared as such and not along with fan, it will be classifiable
under the sub-heading 8414.99. If the contention of the appellants is accepted
that the regulators have to be classified under 'electric fans', whether sold
with the fan or separately, then no 'part or accessory' will be covered by
heading 8414.99. In the Board's circular No.7/87, the Board clarified that
B 'fan regulators' will not be classified under Chapter 85 as Electrical Resistors
and their classification under sub-heading 8414.20 along with fan would be
appropriate. The issue before the Board was not that, when regulators were
cleared as such without fans, would be classifiable under sub-heading 8414.99
or that they would be classifiable under 8414..20. Accordingly, the Board
C clarified in Circular No.192/26/96 dated 27.3.96 that when the regulators are
cleared along with the fans as a whole, they are classifiable under sub-
heading 8414.20 but when 'fan regulators' are cleared separately not in
combination with the fans they are classifiable as ''parts & accessories of
electrical fans" under sub-heading 8414. 99 of the Schedule to the Tariff Act.
There is a separate sub-heading of "parts and accessories" in heading 8414.
D The Sub-heading 8414.91 covers parts and accessories "of goods covered by
the sub-heading 8414. IO" and the sub-heading 8414. 99 covers parts and
accessories of "other" goods under the heading 8414 and the sub-headings ...
8414.20 and 8414.80. 'Fan regulators' being accessories of 'electric fan'
would thus be covered under the sub-heading 8414.99.
E
Accordingly, we do not find any merit in these appeals and hold that
the 'fan regulators' manufactured by the assessee, which are sold as such
"without the electric fan" would be classifiable under sub-heading 8414.99
as accessories of fans.

F The Tribunal, in Civil Appeal No.553-554 of2001 filed by M/s. North
West Switchgear Limited, has held that differential duty cannot be demanded
from the appellants against which the revenue has not filed any appeal.

For the reasons stated above, we do not find any merits in Civil Appeal
Nos. 553-554 of 200 I and dismiss the same.
G
The order passed by the Tribunal in Civil Appeal No.4382 of 200 I in
so far as the classification is concerned is confirmed but keeping in view the
facts and circumstances, th!! penalty of Rs. I0,000/- imposed on the appellants
is set aside. Costs shall follow the event.

H R.P. ' Appeals disposed of.