Holding

The car air‑conditioning kit, excluding the automotive gas compressor, falls under Item 8 of Notification 166/86‑CE, while the compressor itself is chargeable under Item 3.

Summary

Sanden Vikas (India) Ltd., a manufacturer of car air‑conditioning kits, claimed exemption under Notification No.166/86‑CE by classifying its kits under Item 5 of Heading 8415. The Assistant Collector treated the kits as air‑conditioners under Item 3, leading to a demand for duty. After the amendment on 20 March 1990 introducing Item 8 for parts and accessories of car air‑conditioners, the appellant re‑classified the kits under Item 8. The Revenue argued that, following Explanation 2 (dated 25 July 1991), the automotive gas compressor was excluded from the kit and thus the whole kit should fall under Item 3. The Court held that the specific entry (Item 8) prevails over the general entry, and Explanation 2 only removes the compressor from the kit, leaving the remaining kit under Item 8 while the compressor is taxable under Item 3. Consequently, the demand for duty on the entire kit was set aside.

Issues considered

Whether a car air‑conditioning kit is classifiable under Item 3 (air‑conditioners) or Item 8 (parts and accessories) of Notification No.166/86‑CE.
Whether the specific entry introduced on 20 March 1990 overrides the earlier general entry for classification.
Effect of Explanation 2 (dated 25 July 1991) on the inclusion of the automotive gas compressor within the kit.
Whether the automotive gas compressor should be taxed separately under Item 3.

Legislation cited

Central Excise Tariff Act, 1985

Subjects

classificationcentral excisecar air‑conditioning kittariffspecific entry vs general entryExplanation 2automotive gas compressorexemption notification

Judgment

A SANDEN VIKAS (INDIA) LTD.
v.
COLLECTOR OF CENTRAL EXCISE, NEW DELHI

MARCH 4, 2003

B [SYED SHAH MOHAMMED QUADRI AND ASHOK BHAN, JJ.]

Central Excise Tariff Act, I 985

Schedule-Heading 84I5-ltem No. 5-Car air conditioning kit-'-
C Automotive gas compressor with or without magnetic clutch-Classification
of-Exemption Notification No. I 66186-CE, dated I. 3. 1986 -Explanation 2-
Heading 8415-ltem Nos. 3 and 8-Assessee-manufacturer classijj;ing goods
under Item No. 5 of Heading 8415 of Schedule to the Act for purposes of
availing benefit of exemption Notification-Held, an air conditioning kit fell
D within the meaning of 'air-conditioners' against Item No. 3 before .March
20,1990-This position continued till Item No. 5 was amended and Item No.
8 was inserted in the Notification where specific entry with regard to parts of
car air-conditioner and car air-conditioning kit was provided-Specific entry
prevails over general entry and, therefore, with effect from March 20, 1990
till July 25, 199I, air-conditioning kit which comprises of various parts are
E classifiable against item No. 8 of the Notification-As regards the automotive
gas compressor (with or without magnetic clutch), the Explanation-2 which
was added to the Notification on 25.7.199I, has the effect of taking it out of
the car air-conditioning kit-Consequently, 'car air-conditioning kit minus
automotive gas compressor with or without magnetic clutch' will remain in
F the description ofgoods against Item No. 8 of the Notification and 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--
Interpretation of Statute-Tariff Items-Classification of

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8079 of 1995.
G
From the Judgment and Order dated 31.3. 95 of the Central Excise
Customs and Gold (Control) Appellate Tribunal, New Delhi in A. No. E/
5095/92-B I in F.O. No. E/195 of 1995-BI.

V. Lakshmikumaran, Alok Yadav, V. Balachandran for the Appellant.
H
608

L
'
SANDEN VIKAS (INDIA) LTD. v. C.C.E. 609
M.L. Verma, Dileep Tandon and B.K. Prasad Advs. for the Respondent. A
The following Order of the Court was delivered.

This appeal, by the assessee arises from the judgment of the Customs,
Excise and Gold (Control) Appellate Tribunal at New Delhi (for short, the
Tribunal) in Final Order No.E/195/95-81, dated March 31, 1995. B
The appellant-assessee 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 of Notification No. 166/86-CE dated March
I, 1986 (as amended from time to time). Though the appellant sought to C
contend that it was only manufacturing parts of the air-conditioning kit and,
therefore, the kit cannot be treated as an air-conditioner, the Assistant Collector
did treat the same as air-conditioning system falling under item no. 3 of
Heading 84 I 5 of the Notification. That order is said to be the subject matter
of an appeal. Be that as it may, on March 20, 1990, a new Entry, item no. D
8., was added to the table of the Notification, which reads thus:

SL Heading Description of goods Rate Conditions
No. No. or
Sub-
E
heading No.

08. 84.15 Parts and accessories of sixty five
84.18 car air-conditioner percent ad
84.19 including car air- valorem.
8481.10 conditioning kit F
8481.91,
8536.10
~ 9032.l 1
or
9032.91
G
Thereafter, the appellant classified the air-conditioning kits under the
said entry for purposes of levy of excise duty. On October 1, 1990, the
Assistant Collector, Central Excise, Division-I, Faridabad issued a notice to
the appellant stating that under the said entry (sl. no. 8), the sub-heading
relating to compressor has not been included in the second column of the H
610 SUPREME COURT REPORTS [2003] 2 S.C.R.

A table and, as the car air-conditioning kits include compressors, they fall under
item no.3 (Heading 8415.00) of the Notification; the appellant was called
upon to show cause as to why excise duty amounted to Rs. 2,20, 74,021.30
should not be demanded from it. We are informed that there have been series
of notices and the total net demand under the said notices was in a sum of
B Rs. 3,68,81,590. The appellant replied to the show cause notice asserting that
the car air-conditioning kit, inclusive of compressor, manufactured by it, is
a machinery especially designed to be used for air-conditioning of motor
vehicle but, 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 car air-
C conditioner and the car air-conditioning kit was known as such in common
parlance, and, therefore, it was classifiable under sl. no. 8 of the said
notification.

The Assistant Collector by his order dated January 24, 1992 confinned
the demand. It was upheld by the Collector (Appeals) by his order dated July
D 13, 1992. The appellant carried the matter in appeal before the Tribunal. By
the impugned order, the Tribunal dismissed the appeal. It is against that order
that the appellant is in appeal before us.

Mr. Sridharan, the learned counsel for the appellants, contends that .for
E the period before 1990 as well as after 1990, the case of the appellant has
consistently been that a car air-conditioning kit comprises of only parts and
it cannot be treated as an air-conditioning system within the meaning of item
no.3 of the said notification. Mr. Verma, the learned senior counsel appearing
for the Revenue, on the other hand, contends that inasmuch as the parts put
together produce the effect of cooling, as found by the Assistant Collector
F and confirmed by the Collector (Appeals) and the Tribunal, it can appropriately
be called as air-conditioning system and would, therefore, be dutiable under
item no.3 of the said Notification.

To appreciate the contentions of the learned counsel, we may refer to
the substance of the said Notification.
G
By the said Notification, the Central Government exempted the goods
of the description specified in column (3) of the Table annexed to the
Notification and falling under Heading No. or Sub-heading No. of the Schedule
to the Central Excise Tariff Act, 1985 specified in the corresponding entry
H in column 2 of the said Table from so much of the duty of excise leviable
SANDEN VIKAS (INDIA) LTD. v. C.C.E. 611

thereon, which is specified in the said Schedule, as is in excess of the amount A
calculated at the rate specified in the corresponding entry in column (4) of
the said table. This was subject to the conditions, if any, laid down in the
corresponding entry in column (5) thereof.

The germane question that arises for consideration is: whether the car
air-conditioning kit is classifiable under item no.3 or under item no.8 of the B
table to the said Notification.

Item No. 3 of the said Notification reads as under :

SI. Heading Description of goods Rate Conditions c
No. No. or
Sub-
heading No.

03. 8415.00 Air-conditioners including Rs. 10000 D
room air-conditioners per air-
(window type), split unit conditioner
air-conditioners and package
type air-conditioners-(a) of
capacity not exceeding 1.5.
E
tonnes

(b) of capacity exceeding Rs. 12,600
1.5 tonnes but not per air-
exceeding 3 tonnes. conditioner
F
(c) of capacity exceeding Rs. 21,000
3 tonnes but not exceeding per air-
7.5 tonnes conditioner

(d) of capacity of Rs. 42,000 G
exceedings 7.5 tonnes but per air-
not exceeding I 0 tonnes conditioner

(e) of capacity exceeding Rs. 44,000
I0 tonnes but not exceeding per air-
15 tonnes conditioner
H
612 SUPREME COURT REPORTS [2003] 2 S.C.R.
A The description of the goods given against item no. 3, in column (3),
is air-conditioners which include room air-conditioners (window type), split
unit air-conditioners and package type air-conditioner which are classifiable
under Heading 8415.00 of die Schedule to the Act. The description of the
goods mentioned in column (3) against item no. 5, before March 20, 1990,
B was: "Parts and accessories of refrigerating and air-conditioning appliances
and machinery, all sort~''.. It is worth noticing that in this item there was no
mention of the 'paris-~nd accessories of ca1 air-conditioner including car air-
conditioner kit.' Under item no.5 entries in column (2) of the Table includes
various sub-headings, namely, 84.15, 84.18, 84.19, 8476.91, 8481.10, 8481.91,
8536.10, 9032.11or9032.91. These sub-headings refer to parts and accessories
•
C of goods falling ther~under; the sub-heading (8414.10) relating to gas
-compressors is-not shown therein. After the amendment, made on March 20,
----t'>96,-i-n column (3) the following words ·were added against item no.5:

"other than the parts and accessories of car air-conditioner
including car air-conditioner kit."
D
What is excluded from item no. 5 is mentioned against item no. 8,
quoted above.

From the 'Memorandum explaining the provisions in the Finance Bill,
1990', insofar as it relates to Chapter 84, the following needs to be referred.
E
"45. CHAPTER 84

45.1 Car Airconditioning parts including kits thereof

(i) Notification No. 166/86-Central Excises dated 1.3.86 is being
amended so as to increase duty on car aircondtioning parts including
F kits from the existing 40% ad valorem to 65% ad valorem. The duty
of airconditioner of capacity not exceeding 1.5 tonnes is being raised
from Rs. 9450 per airconditioner to Rs. I 0,000 per airconditioner.
(For details, Notification no. 75/90-Central Excises may be seen."

G A careful reading of the items afore-mentioned, in the light of the note
under Chapter 84 in the Memorandum, leaves no doubt in our minds that
exclusion of the afore-mentioned goods from the description of goods against
item no.5 and their specification against item no.8 with effect from March
20, I 990, was with the intention of creating a specific entry in regard to car
air-conditioners-both parts and <1ssessories thereof <1s well as car <1ir-
H conditioning kits.
SANDEN VIKAS (INDIA) LTD. v. C.C.E. 613

As the air-conditions kit is meant for providing air-conditioning in car A
and as the description of the goods first mentioned against column (3) which
notes air-conditioners, we are inclined to take the view that the car air-
conditioning kit fell within the meaning of the air-conditioners against item
no.3 before March 20, 1990. This position continued till item no.5 was
amended and item no.8 inserted in the said Notification where specific entry B
with regard to parts and accessories of car air-conditioner and car air-
conditioning kit was provided.

It is a settled position of law that specific entry prevails over general
entry and, therefore, with ef"ect from March 20, 1990 till July 25, 1991, air-
conditioner kits which comprises of various parts are classifiable against item C
no.8 of the said Notification .
... On July 25, 199 I, Explanation-2 was added to the said Notification
which reads as follows:

"Explanation (2)-For the purposes of this notification, the terin "car D
air-conditioner kit" or "car air-conditioning kit" shall exclude the kit
or assembly of parts which contains automotive gas compressor with
or without magnetic clutch."

In regard to this Explanation, Mr. Verma contends that this clarifies the
position that the car air-conditioning kit will not be an item of goods under E
item no.8 and would form part of item no.3. Relying on the words in the
Explanation, namely, "shall exclude the kit or assembly of parts which contains
automotive gas compressorwith or without magnetic clutch.". Mr. Verma
submits that as, admittedly, air-conditioner unit contains automotive gas
compressor, therefore , it will not be part of item no.8. On the contrary, Mr.
Sridharan contends that air-conditioning kit would remain as part of item F
no.8 but compressor will be chargeable to levy of duty against item no. I
thereof.

To resolve this controversy, we shall revert to the wording of the said
Explanation. It provides that for purposes of the Notification, the term "car G
air-conditioner kit" or "car air-conditioning kit" shall exclude that kit or
assembly of parts which contains automotive gas compressor with or without
magnetic clutch. In our view, the Explanation has the effect of taking away
the automotive gas compressor (with or without magnetic clutch) from out of
the car air-conditioning kit. The car air-conditioning kit which comprises of
parts of car air-conditioner remains as pa11 of item no. 8 of the notification. H
614 SUPREME COURT REPORTS (2003] 2 S.C.R.

A 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 compr~ssor 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
B 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.

In this view of the matter, the order under appeal is set aside. The
appeal is, accordingly, allowed as indicated above.

There shall be no order as to costs.
c
R.P. Appeal allowed.

I