03 July 2015

Exemption notification – Applicability of Interpretative Rules of Excise Tariff

Three Judges Bench of the Supreme Court has, on 1-7-2015, held that Rules of Interpretation of the Central Excise Tariff may not be applicable if the notification (exemption notification) commands and require a different understanding. Holding that rules or principles of interpretation are always subject to context and are not binding commands, the Court rejected the contention of the Revenue Department that car air-conditioning kits without gas compressors, and gas compressors cleared separately are to be seen as clearance of air conditioners.
Further, upholding its earlier view as pronounced by two Judges Bench, in an earlier decision between same parties, the Apex Court was of the view that there was no conflict between the decisions in the cases of Maestro Motors and Mewar Bartan Nirman Udyog, both dealing with rules of interpretation.
The Court held that application of Rule 2(a) of the Rules of Interpretation to Notification No. 166/86-C.E. was contrary to legislative intention. It was noted that the notification treated accessories and parts including kits, compressors, and finished or complete air-conditioners separately under different serial numbers and hence intended to maintain distinction between a completed product and the kits and compressors which can be assembled and installed in a car after necessary efforts and working.
Clarifying the Division Bench decision, the Larger Bench of the Court in this case held that if there are two invoices for separate pricing, the air-conditioning kit would come under serial no.8 and the automotive gas compressor with or without magnetic clutch will be liable to duty separately.
To read the order:  Commissioner v. Sandan Vikas (I) Ltd.


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