M/S THERMAX LTD. THROUGH ITS DIRECTOR versus COMMISSIONER OF CENTRAL EXCISE, PUNE-1

Citation: [2022] 16 S.C.R. 165 · Decided: 13-10-2022 · Supreme Court of India · Bench: K.M. JOSEPH · Disposal: Dismissed

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Judgment (excerpt)

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M/S THERMAX LTD. THROUGH ITS DIRECTOR
v.
COMMISSIONER OF CENTRAL EXCISE, PUNE-1
(Civil Appeal Nos. 6048-6050 of 2009)
OCTOBER 13, 2022
[K. M. JOSEPH AND HRISHIKESH ROY, JJ.]
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 Sub-
Heading 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
[2022] 16 S.C.R. 165
165
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SUPREME COURT REPORTS
[2022] 16 S.C.R.
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 tie-
breaker mechanism. The resolution can be achieved by looking
at the Principal Purpose Test, which if applied, can also resolve
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