"http://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 1 of 7 \nCASE NO.:\nAppeal (civil) 3914 of 2001\nPETITIONER:\nCommissioner of Central Excise, Delhi \nRESPONDENT:\nCarrier Aircon Ltd. \nDATE OF JUDGMENT: 05/07/2006\nBENCH:\nASHOK BHAN & Dr. AR. LAKSHMANAN\nJUDGMENT:\nJ U D G M E N T\nWith\nC.A. Nos. 8418 - 8419 of 2001\nC.A. Nos. 4715 - 4717 of 2002\nC.A. No. 2898 of 2005\nBHAN, J.\n This judgment shall dispose off Civil Appeal \nNos. 3914 of 2001, 8418 \\026 8419 of 2001, 4715 \\026 \n4717 of 2002 and 2898 of 2005 by a common order as \nthe point involved in all these appeals is the \nsame. \nFacts are taken from Civil Appeal No.3914 of \n2001. The point which calls for consideration is \nas to:\n \"Whether the chillers manufactured by M/s. \nCarrier Aircon Limited (respondent herein) are \nclassifiable under Chapter Heading 84.18 of the \nSchedule to the Central Tariff Act (for short \"the \nAct\") as claimed by them or under Chapter Heading \n84.15 as contended by the Revenue?\" \n M/s. Carrier Aircon Limited (respondent herein) \nis engaged in the manufacture of chillers besides \nother goods i.e. room air-conditioners, air \nhandling units, gas compressors, radiators for \ncentral heating and parts of aforesaid goods. \nRespondent classified the chillers manufactured by \nit as refrigerating and freezing equipments under \nsub-heading No.8418.10 of the First Schedule to the \nCentral Excise Tariff Act, 1985 (for short the \n\"Tariff Act\"). The classification list was \naccepted by the Department. \nCommissioner of Central Excise, Central Excise \nCommissionarate, Delhi-III, issued a show cause \nnotice dated 3.8.1999 to the respondent requiring \nthem to state their case, vis-a-vis, the \ndepartment’s proposal to classify their product \n\"chiller\" under Chapter Heading 84.15 instead of \nChapter Heading 84.18 on the grounds mentioned \ntherein. It was alleged in the notice that from \nthe end use of the \"chillers\" being manufactured by \nthe respondent, it was evident that the said \n\"chillers\" were nothing but an integral part of the \ncentrally air-conditioning system. That complete \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 2 of 7 \ncentral air-conditioning plant comes into existence \nwhen the said chiller is fitted with air handling \nunit or fan coil unit, ducting, piping and pumps \netc,. On perusal of the description of ’chillers’ \nas submitted by the respondent vis-‘-vis the \ndescription of goods available under Chapter \nHeading 84.18 it was observed that the description \nand functioning of the chillers was not covered \nunder Chapter Heading 84.18. During the course of \ninvestigation, statements of Shri R.K. Verma, AGM \n(CBU) who is a Mechanical Engineer, working with \nthe respondent and Shri A.K. Mehra, B.Sc. \nEngineering Electrical, working as a Manager \n(Mechanical) dealing with designs of mechanical \nengineering in M/s. Jacob H & G Ltd., were \nrecorded. \nThe Department on perusal of the statements \ndated 31.12.1998 of Shri R.K. Verma and statement \ndated 27.1.1999 of Shri A.K. Mehra, the \nliterature/brochure available on the subject and \nthe purchase orders placed by various customers \ncame to the conclusion that the respondent erred in \nclassifying the chillers under heading 84.18 as \n’other refrigerating or freezing equipments’, as \nthe majority of the customers (more than 90%) had \nplaced their purchase orders for supplying of \nchillers of various capacities along with air \nhandling units or fan coil units and other \nelectrical accessories required for use in air-\nconditioning purposes; that chillers when used in \ncombination with AHU connected with chiller water \nsystem cools and dehumidifies the air and there is \nno difference between this system and central air-\nconditioning system as the effect will be the same. \nThat the main application of both types of chillers \nis for air-conditioning of the various types of \nlarge buildings/establishments and that the \nchillers are one of the essential components of \nair-conditioning systems. That ’other use’ of \nchillers without AHU/FCU for control of temperature \n(other than air- conditioning system) in various \nindustrial applications is very little i.e. 5 to \n10% of the total application. That the respondent \nhad willfully suppressed the material facts of \nreceipt of purchase orders of said chillers for \nair-conditioning equipments and use of chillers in \ncombination with AHUs/FCUs for the purpose of air-\nconditioning system of star hotels, auditoriums, \nlarge office complexes, big hospitals and other \nlarge establishments from the department with a \nmalafide intent to evade appropriate payment of \nduty in as much as they never informed the \ndepartment by way of any sort of correspondence \nthat the purchase orders were placed by the \ncustomers for air-conditioning equipments \ncomprising of chillers of required capacities, air \nhandling units or fan coil units etc. The \nrespondent was called upon to show cause to the \nCommissioner of Central Excise Delhi-III within 30 \ndays of the receipt of the notice, as to why:\n1. The chillers should not be classified \nunder sub-heading No.8415.00 instead of \nsub-heading NO.8418.00 of the First \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 3 of 7 \nSchedule of the Central Excise Tariff \nAct, 1985;\n2. Central Excise Duty of Rs.1,84,62,136/- \n(Rupees One Crore Eighty Four Lac Sixty \nTwo Thousand One Hundred Thirty Six only) \nshort-paid on 249 number of chillers \ncollectively valued at Rs.10,79,55,623/- \ncleared under sub-heading No.8418.00 \ninstead of 8415.00 (details of which are \ngiven in Annexure 6 to this Show Cause \nNotice) during the period 01.08.94 to \n30.9.96 and April 1997, January 1998 \nshould not be demanded from them under \nrule 9(2) of the \nCentral Excise Rules, 1944 read with \nSection 11A of the Central Excise Act, \n1944;\n3. Provisions of extended time limit of five \nyears under proviso to Section 11A of the \nCentral Excise Act, 1944 should not be \ninvoked for the extended period in view \nof suppression and misrepresentation of \nfacts as discussed above;\n4. Penalty under Section 11AC of the Central \nExcise Act, 1944 should not be imposed \nupon the party; and\n5. Interest should not be charged from the \nparty under Section 11 AB of the Central \nExcise Act, 1944.\nThe respondent in its reply inter alia briefly \nsubmitted that the entire proceedings contemplated \nunder the impugned show cause notice invoking the \nextended period of limitation of 5 years under the \nproviso to Section 11A of the Act was without \njurisdiction and no valid proceedings could subsist \nthereunder. It was submitted that they were \nmanufacturing and clearing the chillers which are \nalso known in trade parlance as refrigerating \nmachinery for which classification/declaration list \nhad been accepted by the department. On merits, it \nwas submitted that it was common knowledge that \nchillers and cooling towers are generally used in \nrelation to central air-conditioning plants for \nair-conditioning of large areas such as hotels, \nairports, Govt. offices/departments and that the \nfacts which are within the common knowledge ought \nto be presumed in law to be within the knowledge of \nthe excise department; the allegation made by the \ndepartment that end use of the chiller is for the \nair-conditioning purposes and hence the chiller \nmust be treated as part of the air-conditioner, was \nerroneous in law; that the process of manufacture \nof a product and the end use to which it is put \ncannot necessarily be determinative of the \nclassification of that product under a fiscal \nschedule like the Tariff Act; that the liquid \nchiller has many applications in industry such as \ncooling the rolls used in manufacture of polyester \nfilms; for providing chilled water in the \nprocessing of colour picture tubes; to provide \nchilled water to cool the plant in paint shops in \nautomobile manufacturing industry; to provide \nchilled water/air to cool the equipments in nuclear \nscience centre; tool manufacturing companies; food \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 4 of 7 \nindustry; spot welding industry; textile \nmanufacturing industry and in the chemical \nindustry. That in all these applications and even \nin the central air-conditioning system, the \nfunction of chiller is understood to be to chill \nthe liquid. As per Section 2(a) of Section XVI of \nthe Tariff Act the chiller when cleared separately \nwhich specifically falls under Chapter Heading No. \n84.18 cannot by any stretch of imagination be \ntreated as part of an air-conditioner on the same \nanalogy as fans used in the air-conditioner are \nclassified at the time of clearance as an electric \nfan and not as a part of air-conditioner. That the \nchiller itself does not do any air-conditioning as \nit is designed only to refrigerate or produce \nchilled water/liquid. In support of its \nsubmission, the respondent relied upon certain \njudgments as well as the Board’s circulars. \nThe Commissioner, Central Excise, in his order-\nin-original No. 9/2000 dated 24.3.2000 held that \nthe chillers are classifiable under tariff heading \nNo. 84.15 and not under tariff heading No. 84.18 as \nhad been claimed by the respondent. It was held \nthat the chillers are nothing but an integral part \nof the air-conditioning system. A complete central \nair-conditioning system comes into existence when \nchiller is fitted with air handling unit or with \nfan coil unit, ducting, piping, pumps etc. and no \ncentral air-conditioning plant can come into \nexistence without a chiller. Applying the \nprincipal of ’end use’ it was held that since more \nthan 90% of the chillers manufactured and cleared \nby the respondent had been used in the \ncommissioning of central air-conditioning plants \nand hardly 5 to 10% were put to application for \nother uses, the chillers were classifiable under \nheading 84.15 as parts of air-conditioning machine. \nExtended period of limitation was invoked as it was \nfound that the respondent was guilty of suppression \nof facts. Accordingly, the demand of differential \nduty of Rs.1,84,62,136/- short paid on 249 chillers \nvalued at Rs.10,79,55,623/- was confirmed and \nordered to be recovered under Rule 9 (2) read with \nSection 11A. Penalty of Rs.1,84,62,136/- was \nimposed under Section 11AC of the Act. Interest \nwas also ordered to be charged under Section 11AB \nof the Act. \nBeing aggrieved by the orders passed by the \nauthority-in-original, respondent filed appeal \nbefore the Central Excise and Gold (Control) \nAppellate Tribunal (for short \"the Tribunal\"). The \nTribunal by the impugned order has accepted the \nappeal, set aside the order-in-original and held \nthat the end use of \"chillers\" in the air-\nconditioning system would not take away the primary \nor basic function of the chillers which is to \nproduce chilled water by using a refrigeration \ncircuit and the same shall fall under Chapter \nHeading 84.18 of the Tariff Act. \nAggrieved by the orders passed by the Tribunal, \nthe Department has filed the present appeals. \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 5 of 7 \nShri K. Radhakrishnan, learned senior advocate \nappearing for the Revenue submitted that the \nchillers are nothing but an integral part of the \ncentral air-conditioning system and a complete \ncentral air-conditioning system comes into \nexistence when chiller is fitted with the air \nhandling unit or with fan coil unit, ducting, \npiping, pumps etc. It was emphasized by him that \nmore than 90% of the chillers manufactured and \ncleared by the respondent were used in the \ncommissioning of central air-conditioning plants. \nOn the other hand, counsel appearing for the \nassessee contended that the primary function of the \nchiller is only to produce chilled water/liquid and \nthe function of the chiller comes to an end once \nthe chilled water/liquid is produced. \nRival tariff headings read as under:-\n\"84.15 Air-conditioning machines, \ncomprising a motor driven fan and \nelements for changing the temperature \nand humidity, including those machines \nin which the humidity cannot be \nseparately regulated.\"\n\"84.18 Refrigerators, freezers and other \nrefrigerating or freezing equipment, \nelectric or other; heat pumps other than \nair-conditioning machines of heading No. \n84.15.\"\n The chilled water produced by the chiller is \nadmittedly in turn being used in various industrial \napplications namely:\n(i) In polyester film processing, chilled \nwater produced by chiller is used for \ncooling the rolls used in the \nmanufacture of polyester films. \n(ii) The chilled water produced by chiller is \nused in the processing of colour picture \ntubes. \n(iii) For the painting of cars, a process is \nused whereby the entire car body is \ncharged negative and dipped in paint \ncharged positive. During the process, a \nlot of heat is generated and the chiller \nis used here for producing chilled \nwater, which cools the paint \ncontinuously.\n(iv) Nuclear science centre is engaged in \ncryo-generator research wherein \nequipment like ion accelerator is used \nto bombard materials and study their \nbehaviour. Chiller is used in the \nprocess to produce chilled water, which \ncools the equipment round the clock.\n(v) Chilled water produced by the chiller is \nused to cool manufacturing equipment.\n(vi) Chillers are used for the purpose of \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 6 of 7 \nprocess cooling in food industry. \n(vii) Metals subjected to welding are chilled \nwith the help of chilled water produced \nby the chiller.\n(viii) Chilled water produced by chiller is \nused in flawless weaving in textile \nindustry.\n(ix) Chillers are being supplied for use in \nchemical process industry. \n All these facts have been admitted by the \nadjudicating authority in its order-in-original. \n From the above, it is established that the \nprimary function of the chiller is to refrigerate \nor chill water/liquid irrespective of the \nindustrial or other application which the chilled \nwater is put to. Air-conditioning system is just \none amongst the various industrial applications in \nrelation to which chillers are used. Only because \n90% of the chillers manufactured by the respondent \nare used in the air-conditioning system cannot be \nthe basis for classification of the chillers as \nparts of air- conditioning system classifiable \nunder heading 84.15. \n End use to which the product is put to by \nitself cannot be determinative of the \nclassification of the product. See Indian \nAluminium Cables Ltd. vs. Union of India and \nOthers, 1985 (3) SCC 284. There are a number of \nfactors which have to be taken into consideration \nfor determining the classification of a product. \nFor the purposes of classification the relevant \nfactors inter alia are statutory fiscal entry, the \nbasic character, function and use of the goods. \nWhen a commodity falls within a tariff entry by \nvirtue of the purpose for which it is put to, the \nend use to which the product is put to, cannot \ndetermine the classification of that product. \n Tariff heading 84.15 covers air-conditioning \nmachines which control and maintain temperature and \nhumidity in closed places. The main function of \nair-conditioning system is to control temperature, \nwhich is not done by a chiller. A reading of the \ntariff entry 84.15 would show that it is intended \nto cover only those machines which comprise of \nelements for changing temperature and humidity and \nchillers would fall outside the purview of the said \nentry. The function of the chiller is only to \nchill water or bring it to a very low temperature, \nand it is the air handling unit having an \nindependent and distinct function which produces \nthe effect of air-conditioning, controlling the \ntemperature and the humidity. The chiller itself \ndoes not do any air-conditioning as it is designed \nonly to refrigerate or produce chilled \nwater/liquid. \n Revenue is classifying the impugned chillers as \nparts of the air-conditioning system as the same is \nused in central air-conditioning plant of star \nhotels, airport, hospital, large office complexes \nand large establishments. The use of the chillers \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 7 of 7 \nin the air-conditioning system would not take away \nthe primary or basic function of the chiller which \nis to produce chilled water by using a \nrefrigerating circuit. Heading 84.18 covers \nrefrigerators, freezers and other refrigerating or \nfreezing equipment. Accordingly, the chillers in \nquestion shall fall under specific heading 84.18 of \nthe Tariff Act. This view is supported by the \nexplanatory notes of H.S.N. below heading 84.15. \nHSN provides that \"If presented as separate \nelements, the components of air-conditioning \nmachines are classified in accordance with the \nprovisions of Note (2) (a) to Section XVI (heading \n84.14, 84.18, 84.19, 84.21, 84.79, etc)......\" \n’Chillers’ manufactured by the respondent are \ncleared as separate elements and not as air-\nconditioning machine, therefore, the same have to \nbe classified under tariff entry 84.18 as \nrefrigerating or freezing equipments as the basic \nfunction of the chillers is to chill the water or \nliquid. Chillers manufactured by the respondent \ncannot be classified under heading 84.15 simply \nbecause 90% of the chillers manufactured by the \nrespondent were being used in the commissioning of \ncentral air-conditioning plant. End use to which \nthe product manufactured is put to, cannot \ndetermine the classification of the product when \nthe product manufactured falls under a specific \nheading. \n Chillers in the domestic and international \ntrade parlance are known as refrigerating \nequipment. The trade identifies chillers as \nrefrigerating machinery on the basis of its \nfunction of chilling water using refrigerating \ncircuit. Even by testing it from the commercial \nparlance test as well the chillers would not be \nclassifiable under Chapter Heading 84.15. \n Since the Tribunal decided the case on merits \nit did not record any finding regarding invoking of \nthe extended period of limitation under Section \n11A. Since we are agreeing with the view taken by \nthe Tribunal on merits, there is no need for us as \nwell to go into the question regarding the extended \nperiod of limitation. \nFor the reasons recorded above, we do not find \nany merit in these appeals and dismiss the same \nleaving the parties to bear their own costs. \n"