1. In exercise of powers conferred under Section 37B of the Central Excise Act, 1944, the Central Board of Excise & Customs (hereinafter referred to as Board) considers it necessary, for the purpose of uniformity in classification of engines for agricultural purposes, to issue the following instructions.
2. The product under consideration is an engine, wherein power is produced by internal combustion of fuel and the fuel is ignited by electrical spark. These engines are assembled with sprayer-kit/knapsack sprayer to get sprayer machines that are sold to farmers for agricultural use. Such engines are used as part of a mechanical appliance, generally meant for spraying pesticides in fields and farms (hereinafter referred to as sprayer machine). The manufacturers of such engines (hereinafter referred to as sprayer engine) describe it differently, e.g. as Agricultural Knap sack Sprayer engine, L-35 Agricultural Kanapsack Sprayer Engine, Agricultural Engine for Knapsack Sprayer , Agricultural Mechanical Component for Sprayer etc. The issue is as to whether such sprayer engines are classifiable under Chapter Heading 84.07 or 84.24 of the First Schedule to Central Excise Tariff Act, 1985 for the purpose of levy of Central Excise duty.
3. The matter has been examined by the Board. As per Rule 1 of the Rules for Interpretation of Tariff, classification of excisable goods is to be done according to the terms of the heading read with any relative Section/Chapter Notes. Chapter Heading 84.24 covers mechanical appliances for projecting, dispersing or spraying liquids or powders. Sprayer engine is not an appliance but only a part of the appliance. In terms of Section Note 2(a) of Section XVI, Parts which are goods included in any of the headings of Chapter 84 or Chapter 85(other than Heading 84.09, 84.31, 84.48, 84.66, 84.73, 84.85, 85.03, 85.22, 85.29, 85.38 and 85.48) are in all cases to be classified in their respective headings. Sprayer engine, a spark-ignition internal combustion (IC) engine, is used as a part of sprayer machine and hence falls outside the scope of Chapter Heading 84.24 because spark-ignition IC engines are specifically covered under chapter heading 84.07. The fact that sprayer engine has got specific function or use does not alter the essential characteristics of it and it remains an IC engine, classifiable under Chapter heading 84.07. HSN Explanatory Notes [Vol.3(Page 1246)] states that the engines of Heading 84.07 are suitable for many uses, e.g. in agricultural machines, for driving electric generators, pumps or compressors; for propelling aircraft, motor cars, motor cycles, auto cycles, tractors or boats. Therefore it is evident that engines falling under chapter heading 84.07 are generally intended for multiple uses.
4. Note 2(b) of Section XVI of First Schedule to Central Excise Tariff Act, 1985 covers only classification of other parts and not parts that could be classified taking resort to Note 2(a) of the Section XVI. Parts classifiable in terms of Section Note 2(a) cannot fall within the scope of Section Note 2(b).
5. Rule 2(a) of the Rules for the interpretation of the Schedule to CETA 1985 states that any reference in a heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that, the incomplete or unfinished goods have the essential character of the complete or finished goods. Thus, even if sprayer engine is devoid of certain sundry items e.g. cowl, flywheel or fuel-tank, its essential character of IC engines is not lost and it has full and marketable identity as spark-ignition reciprocating internal combustion engines and chapter heading 84.07 provide specific entry for such engines.
6. HSN Explanatory Notes mention expanded meaning of items covered under Heading 84.07. The said heading covers aircraft engines, marine propulsion engines, outboard motors, reciprocating piston engines of a kind used for the propulsion of vehicles of chapter 87 and other engines. In contrast, Heading 84.24 covers fire extinguishers, spray guns, steam or sand blasting machines, syringes, sprays and powder distributors and irrigation systems. It is also pertinent to note that Chapter 84 of First Schedule to Central Excise Tariff Act, 1985 is fully aligned with Chapter 84 of HSN upto 4-digit level.
7. Board has considered the decision of CEGAT Chennai Bench in the case of Commissioner of Central Excise, Chennai-III Vs. M/s. Greaves Limited [2002-(148)-ELT-0059-(T)] on classification of sprayer engines. In the said order, the Tribunal did not consider the application of Note 2(a) and Note 2(b) of Section XVI of the First Schedule to Central Excise Tariff Act, 1985. The appeal filed by the department against the said order of the Tribunal was summarily dismissed by the Honble Supreme Court without going into the merits of the case. Mere rejection by Honble Supreme Court would mean that the Apex Court refused to exercise its jurisdiction and therefore could not by itself be considered as the decision of the Apex Court on merit on the correctness of the decision sought to be appealed against. The short order passed by the Honble Supreme Court in the matter of CCE Chennai III vs. Greaves Ltd. cannot be treated as a declaration of law by the Honble Supreme Court.
8. Board is also aware that in case of M/s HMP Engineers Limited Surat, the Assistant Commissioner, Division-I, Surat-I Commissionerate, passed order classifying product under consideration under chapter heading 84.07 of CETA 1985 and appeal against the said order was rejected by Commissioner (Appeal). CEGAT dismissed the appeal filed by the assessee against the said order-in-appeal of Commissioner (Appeal) on account of non-compliance with the stay order.
9. Taking into consideration the rules of interpretation of Central Excise Tariff Act, 1985, relevant Section/Chapter notes, HSN Explanatory Notes, the decision on classification in the case of M/s HMP Engineers Limited and all material facts, Board is of the view that sprayer engine is appropriately classifiable under Chapter Heading 84.07 of the First Schedule to the Central Excise Tariff Act, 1985. Prior to 28.02.2005, Central Excise Tariff for classification of excisable goods was in 6-Digit. With effect from 28.02.2005, the classification of excisable goods is based upon 8-Digit code. On perusal of Chapter 84 in both 6-digit and 8-digit Central Excise Tariff, it is noted that there is no change in classification scheme upto 4-digit level. Accordingly, the decision taken in respect of classification of sprayer engine would hold good for both old (6-digit) and new (8-digit) Central Excise Tariff.
10. Suitable Trade Notice may be issued for the information and guidance of Trade.
11. Receipt of this Order may please be acknowledged.
12. Hindi version will follow.
Views of field formations and Trade are solicited on this Draft 37B order. It may be sent by email at [email protected] or by speed post to Abhai Kumar Srivastav, Deputy Secretary, Room No. 47A, North Block, New Delhi-110001 or by Fax at 011-23092965, before 23rd September 2005.
Deputy Secretary to the Government of India F.No. 164/5/2004-CX.4
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