Central Excise Tariff Act, 1985: Heading 8418 – Modified Vapour Absorption Chiller (MVAC) manufactured by assessee and sold and described in their invoices and catalogue as Heat Pumps – Classification – Intra-heading dispute – Held: The definition of a product given in the Harmonious System of Nomenclature (HSN) should be given due weightage in the classification of a product for purpose of levying excise duty – Guided by the definition of heat pump as given in the HSN, it is clear that MVAC manufactured by assessee do not satisfy the definition of heat pump as given in HSN – The heat pumps by utilizing energy as per HSN becomes a source of more intense heat, however, since the final output of MVAC is cold/chilled water, the MVAC does not fit into given definition of heat pump – The manner of operation of the device and its output makes it abundantly clear that the primary purpose of the MVAC is to produce chilled water and the production of hot water in its operation is only incidental – Also, in the description of the product on the appellant’s website, Vapour Absorption Chillers do not mention about its heating capability – It is quite apparent that the product MVAC is intended to produce chilled water – Even if the option of availing hot water is available, significantly, the production of chilled water never ceases, while the machine is operating – The additional purpose does not alter the primary character/functionality of the product which is to function as a Vapour Absorption Chiller, this is how the product is recognized in the market – Thus, MVAC cannot be categorised as Heat Pump and is classifiable under SubHeading 8418.10 as refrigerating equipment.
Dismissing the appeals, the Court
HELD: 1. Guided by the definition of heat pump as given in the HSN, the Modified Vapour Absorption Chillers (MVAC) manufactured by the appellant do not satisfy the definition of heat pump as given in the HSN. The heat pumps by utilizing energy, as per HSN becomes a source of more intense heat. However, since the final output of MVAC is cold/chilled water, the MVAC obviously does not fit into the given definition. The hot water, that is produced for generating chilled condition/ refrigeration, is only an incidental purpose of the MVAC and therefore classification of the appellant’s product as a heat pump on this basis, would, be irrational. It cannot also be overlooked that customers do not purchase MVAC because it produces hot water and in commercial parlance the manufactured product of the appellant is known as a Vapour Absorption Chiller used for air conditioning and refrigeration and not at all for heating purpose. The manner of operation of the device and its output makes it abundantly clear that the primary purpose of the MVAC is to produce chilled water and the incidental production of hot water in its operation is only incidental and cannot therefore be a ground for classification of the product under Chapter 8418. [Paras 8-10, 12][176-E-H; 177-A-B, E]
2. When the market/common parlance test is applied for the manufactured product, it is seen that the appellant in their website have identified Vapour Absorption Chillers and heat pumps separately. Significantly in the description of the product on the appellant’s website, Vapour Absorption Chillers do not mention about its heating capability. Likewise, heat pumps do not mention about the cooling function. This would suggest that the appellants do not themselves recognize the incidental hot water generating capacity of the Vapour Absorption Chillers, to treat it as a heat pump. The additional purpose does not alter the primary character/functionality of the product which is to function as a vapour absorption chiller, used to produce chilled water for the purpose of refrigeration and air conditioning. This is how the product is recognized in the market. The incidental output from the machine cannot therefore justify classification of the product in the category of heat pump. [Para 13][177-F-G; 178-A-B]
3. In a situation like this, Chapter Note 7 can act as a tiebreaker mechanism. The resolution can be achieved by looking at the Principal Purpose Test, which if applied, can also resolve the intra-heading dispute. Such mode of interpretation will aid in settling, the classification dispute by adhering to the HSN Code. Applying the Principal Purpose Test for the machine manufactured by the appellant, it is quite apparent that the product MVAC is intended to produce chilled water. Moreover, even if the option of availing hot water is available, significantly, the production of chilled water never ceases, while the machine is operating. Therefore, the principal purpose of the machine is to produce chilled water. Therefore, taking help from Chapter Note 7, producing chilled water is to be taken as the sole purpose of the MVAC manufactured by the appellants.[ Paras 17 and 18][1749D-G]
4. The end use of MVAC is to produce Chilled Water. The use of heat as one of the sources in the air-conditioning system would not take away the primary or basic function of the MVAC, which is to cool and not heat water. The additional heating capability of the machine thus raises a peculiar dilemma, but then one can be guided by the market parlance test which shows that the machine is perceived and purchased only as a cooling device. [Para 21][180-E]
Commissioner of Central Excise, Mumbai v. Blue Star Ltd.
(198) ELT 454; Commissioner of Customs and Central Excise v. Voltas Ltd. 2005 (180) ELT 57 – distinguished. Collector of Central Excise, Shillong v. Wood Craft Products Ltd. (1995) 3 SCC 454 : [1995] 2 SCR 797; Commissioner of Customs and Central Excise, Amritsar (Punjab) v. D. L. Steels Etc. 2022 SCC OnLine SC 863; Xerox India Ltd. v. Commissioner of Customs (2010) 14 SCC 430 : [2010] 14 SCR 199 – relied on.
Commissioner of Central Excise, Delhi v. Carrier Aircon Ltd. (2006) 5 SCC 596 : [2006] 3 Suppl. SCR 254 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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