COMMISSIONER OF CENTRAL EXCISE, DELHI versus M/S. FRICK INDIA LTD. AND ANR.

Citation: [2007] 10 S.C.R. 172 · Decided: 21-09-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Case Partly allowed

Judgment (excerpt)

A 
COMMISSIONER OF CENTRAL EXCISE, DELHI 
v. 
~ 
MIS. FRICK INDIA LTD. AND ANR. 
SEPTEMBER 21, 2007 
B 
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.] 
Central Excise Tariff Act, I 985; Rules for Interpretation of the 
+ 
Schedule; r. 2(a) to s. XVI of HSN: 
c 
Valuation-Assessee manufacturing air-conditioning and 
refrigerating machinery-Clearance of compressor with fly wheel, 
safety valve, filter and other bought out items from the factory 
separately-Notice-Authorities observing that assessee deliberately 
undervalued the compressor and overvalued the accessories by 
D supplying the accessories/parts separately to buyers, confirmed demand 
of differential amount of duty-Tribunal remitting the matter to 
Revenue holding that the compressor as cleared by the assessee from 
the factory stood cleared as stand alone item and not removed in an 
unassembled condition, therefore, general interpretation rule not 
E applicrrble-On appeal, Held: There is confusion in application of the 
concept of valuation and classification by the Revenue while 
confirming the demand of differential amount of excise duty-Thrust 
of show cause notice is towards undervaluation and not classification-
Tribunal rightly observed that General Interpretation Rule has no 
i 
F 
application to the present case and that parts/accessories could not 
_J. 
have been classifiable as compressor under tariff Heading 84. I 4-
Since assessees supplied accessories and other bought out items to 
buyers as a package, the Revenue should have examined the pricing 
aspect of the entire package for the purpose of assessment/levy of 
G excise duty-Under the circumstances, Revenue is directed to de novo 
consider the question of valuation in terms of the provisions of the Act 
,,.._ 
in addition to other question as remitted by the Tribunal-In doing so, 
services of the cost accountant may be utilized to arrive at correct value 
of the package-Directions issued. 
H 
172 
COMMISSIONER OF CENTRAL EXCISE, DELHI v. 
173 
MIS. FRICK INDIA LTD. 
Assessee manufactures air-conditioning and refrigerating A 
machinery and appliances including compressors, fly wheel, safety ' 
valve and filter falling under tariff sub-headings 8414.10, 8483.00 
and 8421.00 respectively of the Central Excise Tariff Act. Apart from 
1 
these items, assessee supplied to its buyers certain bought-out items. 
A Show Cause notice was issued by the Revenue alleging that the' B 
assessee had knowingly cleared manufactured items and bought-out 
items separately from its factory and trading office respectively; that 
the value of the bought-out items and manufactured items were 
includible in the assessable value of the compressor as without these 
items the compressor was non-functional; that the assessee had C 
deliberately undervalued the compressor and overvalued the 
accessories/parts which were supplied separately to the buyers; that, 
there was a difference between the cost price and the declared 
assessable value for compressor and in the circumstances the 
assessee became liable to pay differential amount of duty amounting D 
to Rs.4,46,19,392.65 on these items during certain period. In 
response to the Show Cause Notice, the assessee stated that these 
three items were not classifiable as "compressor" under tariff 
Heading 84.14. In this connection, reliance was placed by the 
assessee on Note 2 to Section XVI of the Central Excise Tariff Act, E 
1985. The Commissioner held that the manufactured items and 
bought-out items were parts of the compressor, as the compressor 
was non-functional without such bought-out items and confirmed the 
Show Cause Notice. Aggrieved, the assessee preferred an appe'l 
before CEGAT which took the view that the compressor, cleared by 
the assessee, stood cleared as a "stand-alone" item and that it was F 
not removed in an unassembled or disassembled condition and, 
therefore, there was no question of applying General Interpretative 
Rule 2(a), Part-V Section XVI of HSN; that, similarly Part-III of 
section XVI oflnterpretative Notes of HSN was not applicable as 
the compressor was cleared as a "stand-alone" item. The Tribunal G 
held that Revenue had erred in classifying the items used in the 
compressors. Sinc·e the said items were classifiable under specific 
headings by virtue of Note 2(a) to Section XVI of the Central Excise 
Tariff Act, 1985, the said three items could not have been classified 
as "compressor". However, on the question as to whether the H 
A 
B

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