COMMISSIONER OF CENTRAL EXCISE, DELHI-IVversusM/S. SANDAN VIKAS (I) LTD.

                          [2015] 7 S.C.R. 712


A       COMMISSIONER OF CENTRAL EXCISE, DELHI-IV
                                    v.
                    M/S. SAN DAN VIKAS (I) LTD.
                   (Civil Appeal No. 9730 of 2003)
8
                             JULY01, 2015
               [DIPAK MISRA, R. K. AGRAWAL AND
                    PRAFULLA C. PANT, JJ.]
c         Central Excise Tariff Act, 1985 - Tariff Heading 8415,
  Item No. 3- Classification of car air-conditioning kit - Whether
  under Item No.3 or under Heading at serial No. 8 which was
  added to the table of the Notification No.166186-CE dated
  1.3.1986- For the period 1.8.1991 to 28.2.1993- CEGAT
D (Tribunal) placing reliance on *Sanden Vikas case allowed
  appeal of the assessee - On appeal, plea of revenue to
  reconsider the *Sanden Vikas case - Held: 'Car air-
  conditioning kits' without the compressor are dutiable under
  the Heading at Serial No.8 and the 'compressor' is dutiable
E under Serial No. 1 - If the kit and compressor are sold in a
  singular invoice or in one pricing, it will go out of item 8, but if
  there are two invoices for separate pricing, the air-conditioning
  kit would come under item No. 8 - The *Sanden Vikas case
  does not need reconsideration - The assessee, since sold
F the kit and compressor separately, the order of the Tribunal
  cannot be found fault with.

          Rules of Interpretation to Central Excise Tariff Act- r.
  2(a) - Applicability of - To Notification - Held: Rules or
G principles of interpretation are always subject
                                           ,      to context and
  not binding commands on iron cast imperatives- The Rules
  may not be applicable if the Notification commands and
  require a different understanding - Applying r.2(a) of the
  Notification No.166186-CE dated 1.3.1986 would be contrary
H to the legislative intent.
                                712
  COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.              713
           M/S. SANDAN VIKAS (I) LTD.

      Disposing of the appeal, the Court                    A

       HELD: 1. Rules of interpretation may not be
applicable if the notification commands and require a
different understanding. It needs no special emphasis
to state that rules or principles of interpretation are B
always subject to context and not binding commands
on iron cost imperatives. [Para 15] [729-G]

  Collector of Customs v. Maestro Motors 2004 (6) Suppl.
   SCR 745: (2005) 9 SCC 412; CCE, Jaipur v. Mewar          C
  Bartan Nirman Udyog (2010) 13 SCC 753 - referred
  to.

        2. Rule 2(a) of Rules of Interpretation consists of
two parts. First part stipulates that Incomplete or
                                                            0
unfinished goods would fall in heading relating to the
completed goods provided the incomplete or unfinished
good bears the essential character of the complete or
finished goods. Second part predicates unassembled
or assembled goods can be treated as goods complete E
or finished goods. Rule 1 of the Rules of Interpretation
lays down that for legal purpose classification shall be
determined in accordance with the terms of headings
and any relative section or Chapter Notes, provided such
headings or Notes do not otherwise require a different F
interpretation. [Paras 16, 17] [730-A-C, E-F]

       3. On a scanning of the Notification, it is
perceptible that the gas compressors are specified and
taxable on the heading serial No.1. Serial No.3 deals with G
air conditioners including room air-conditioners which
Is a distinct and separate commodity sold and
purchased and Is distinguishable from the gas
compressors or kits. Serial No.5 deals with parts and
accessories of refrigerator and air conditioning H
714        SUPREME COURT REPORTS               (2015] 7 S.C.R.


A appliances and machinery of all sorts. Thus, serial No.5
  would cover air-conditioner kits, but would not include
  compressors, for they are specifically covered under
  serial No.1. Thus, parts and accessories of a car air-
  conditioner including air-conditioning kit, are expressly
B excluded from serial No.5. The reason for exclusion is
  that car air-conditioners and car air-conditioning kits
  have been included in serial No.8. [Para 18] [730-G-H;
  731-A-B]

C           4. The Explanation (2) states that for the purpose
      of Notification, "car air-conditioning unit" or "car air-
      conditioning kit" shall exclude the kit or assembly of
      parts which contains automotive gas compressor with
      orwithoutthe magnetic clutch. [Para 19) [731-E-F]
D
            ~-
             The Notification consciously and deliberately
  treats a complete or finished air-conditioner as a dutiable
  entity under serial No.3, but kit of the same air-
  conditioner is not treated at par and similar to a complete
E or finished air-conditioner dutiable under serial No.3.
  The air-conditioners' parts and the accessories including
  air-conditioner kits are dutiable under serial No.5, if it
  relates to a window, split or packaged air-conditioner.
  The compressor, however, is liable to duty as per the
F rates specified in serial No.1. Car air-conditioning kits
  are dutiable under serial No.8 and after insertion of
  Explanation 2, the car air-conditioning kits without the
  compressor would be dutiable in serial No.8 and the
  compressor itself would be dutiable separately under
G serial No.1. This is the intention of the Notification.
  Applying Rule 2(a) of the Rules of Interpretation to the
  Notification in questio'n, would be contrary to the
  legislative intent. [Para 20) [732-E-H; 733-D]

H           6. In *Sanden Vikas case, the Division Bench has
  COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.                715
          M/S. SANDAN VIKAS (I) LTD.

quite categorically stated that if the air-conditioning kit A
does not contain automotive gas compressor with or
without magnetic clutch, duty is paid as per item No.8,
and if it contains the automotive gas compressor with
or without magnetic clutch, it will not come under item
No.8. Therefore, the ratio laid down in the said decision B
cannot be found to be erroneous. It is identified that if a
kit and compressor are sold in a singular invoice or in
one pricing, it will go out of item No.8 and duty will be
paid separately, but if there are two invoices for separate
pricing, the air-conditioning kit would come under serial C
No.8 and the automotive gas compressor with or without
magnetic clutch will be liable to duty separately. [Paras
23 and 24] [739-B-D]

  Sanden Vikas (India) Ltd. v. C. C.E., New Delhi 2003        D
  (153) ELT 3 (SC)-affirmed and clarified.
       7. In the present case, the respondent-assessee
has sold the kit and compressor separately and that
position having been accepted by the tribunal, no error E
is found in the order passed by the authorities and the
Tribunal. (Para 25] [736-F]

                  Case Law Reference
2004(6) Suppl.SCR 745 Referred to.            Para 4          F
(2010) 13 SCC 753     Referred to.            Para 7
2003 (153) ELT 3 (SC) Affirmed and Clarified. Para 1
      CIVILAPPELLATE JURISDICTION: Civil Appeal No.
9730 of2003                                                  G
       From the Judgment and Order No. 296/03-B dated
23.04.2003 in Appeal No. E/577/01-B of Customs, Excise and
Gold(Control)Appellate Tribunal, New Delhi

      Nisha Bagchi, Sunita Rani Singh, Pooja Sharma, B.       H
716    '      SUPREMECOURTREPORTS                       [2015] 7 S.C.R.


A Krishna Prasad for the Appellant.

              V. Lakshmi Kumaran, Vivek Sharma, M. P. Devanath
      for the Respondent.

               The Judgment of the Court was delivered by
B
          DIPAK MISRA, J. 1. The present appeal calls in
  question the legal substantiality of the judgment and order dated
  23.04.2003 passed by the Customs, Excise and Gold (Control)
  Appellate Tribunal, New Delhi (for short, 'the Tribunal') in Appeal
C No. E/577/2001-B whereby the Tribunal, placing reliance on
  the decision Sanden Vikas (India) Ltd. v. C.C.E., New Delhi1,
  opined that the issue raised by the revenue is covered by the
  said decision and, therefore, the appeal was sans merit and
  did not warrant any interference.
0
          2. At the outset, it is apt to note that when the matter
  was listed before a two-Judge Bench on 25.3.2015, the
  following order came to be passed:-

E          "From the reading of the impugned order passed by the
           Customs, Excise and Gold (Control) Appellate Tribunal,
           New Delhi (for short, 'the Tribunal'), it transpires that the
           Tribunal followed decision of this Court in the case of
           this very respondent-assessee titled Sanden Vikas
F          (India) Ltd. v. Collector of Central Excise, New Delhi,
           2003 (153) E.L.T. 3 (S.C.) and on that basis, the appeal
           of the respondent was allowed.

           The Revenue challenging the aforesaid order in the
G          present appeal, contended that the judgment of this Court
           in Sanden Vikas (India) Ltd. (supra) requires re-
           consideration. This is specifically stated in the synopsis
           and the list of dates. We further find that on 08.12.2003,
           an order was passed by this Court admitting the present
H     1 2003 (153) ELT 3 (SC)
   COMMISSIONER OF CENTRAL EXCISE, D~LHl-IV v.                  717
     M/S. SANDAN VIKAS (I) LTD. [DIPAK MISRA, J.]

   appeal, after condoning the delay in filing the appeal. In    A
   view thereof, we are of the opinion that the matter needs
   to be heard by a three-Judge Bench. Ordered
   accordingly.

   The Registry is directed to obtain necessary instruction      B
   in this regard from Hon'ble the Chief Justice of India for
   listing of this matter before a three-Judge Bench."

       In view of the aforesaid order, the matter has been
placed befo.re us.                                               c
         3. Be it noted, the decision in Sanden Vikas (India)
Ltd. (supra) was the pronouncement between the same parties
fora different period i.e. 20.3.1990 to25.7.1991. The present
appeal is primarily concerned with the period 1.8.1991 to
                                                                  0
28.2.1993, during which notification no. 166/86-CE was
applicable. Before we. proceed to deal with the postulates in
the notification, it is obligatory to understand what was decided
in Sanden Vikas (India) Ltd. (supra). The facts in the said
case were thatthe appellant-assessee therein, the respondent E
in the present appeal, is a manufacturer of car air-conditioning
kits. It classified the said goods under Item No. 5 of Heading
8415 of the Schedule to the Central Excise Tariff Act, 1985
(for short, 'the Act') for the purpose of availing the benefit of
exemption as given under Notification No. 166/86-CE dated F
March 1, 1986 (as amended from time to time). The appellant
therein contended that it was only manufacturing parts of the
air-conditioning kit and, therefore, the kit could not be treated
as an air-conditioner. The Assistant Collector, disagreed with
the stance of the assessee and treated the same as air- G
conditioning system falling under Item No. 3 of the Heading
8415 of the Notification. On March 20, 1990, a new Entry,
Item No.8, was added to the table of the Notification and
thereafter the assessee classified the air-conditioning kits
under the said Entry for the purpose of levy of excise duty. On H
718        SUPREME COURT REPORTS                    [2015] 7 S.C.R.


A October 1, 1990, the Assistant Collector, Central Excise,
   Division-I, Faridabad issued a notice to the assessee stating
   that under the said Entry i.e. serial no. 8, the sub-heading
   relating to compressor had not been included in the second
   column of the table and as the car air-conditioning kits include
B compressor they fall under Item No.3 (Heading No. 8415.00}
   of the Notification and accordingly the assessee was asked
   to show cause why the excise duty amounting to
   Rs.2,20,74,021.30 should not be demanded from it. The
   assessee replied to the said show cause notice and. other show
C cause notices asserting that car air-conditioning kits, including
   compressor, manufactured by it, is a machinery especially
   designed to be used for air-conditioning of motor vehicle and
   as it is not usable as room air-conditioner, split unit air-
D conditioner or package type air-conditioner, it cannot be
  classified in that group; the components of the car air-
  conditioner kit are nothing but parts of the car air-conditioner
  and the air-conditioning kit was shown as such in common
  parlance and, therefore, it was classifiable under serial no. 8
E of the said Notification. The Assistant Collector, vide order
  dated January 24, 1992 rejected the stand put forth by the
  assessee and confirmed the demand which was affirmed by
  the Collector (Appeals} by his order dated July 13, 1992. On
  appeal being filed before the Tribunal, it dismissed the same.
F The two-Judge Bench of this Court referred to the column 3 of
  the table annexed with the notification and posed the question
  whether the car air-conditioning kit is classifiable under Item
  No. 3 or under Item no. 8 of the table of the said Notification.
  After reproducing the Item No. 3 of the said Notification, to
G which we shall refer to in detail at a later point of time, analysed
  the description of goods given against Item No.3 in column
  (3), referred to the amendment made on March 20, 1990
  whereby in column (3), following words were added against
  ltemNo.5:-
H
  COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.                   719
    M/S. SANDAN VIKAS (I) LTD. [DIPAK MISRA, J.]

  "other than the parts and accessories of car air-              A
  conditioner including car air-conditioning kit."

       The Court observed that what is excluded from Item
No.5 is mentioned against Item No.8, as per the portion quoted
above. Thereafter, the two-Judge Bench referred to the B
Memorandum explaining the provisions in the Finance Bill,
1990 insofar as it relates to Chapter 84 and observed thus:-

  "13. A careful reading of the items afore-mentioned, in
  the light of the note under Chapter 84 in the Memorandum,      c
  leaves no doubt in our minds that exclusion of the afore-
  mentioned goods from the description of goods against
  Item No. 5 and their specification against Item No. 8, with
  effect from March 20, 1990, was with the intention of
  creating a specific entry in regard to car air-conditioners    D
  - both parts and accessories thereof as well as car air-
  conditioning kits.

  14. As the air-conditioning kit is meant for providing air-
  conditioning in car and as the description of the goods        E
  first mentioned against column (3) which notes air-
  conditioners, we are inclined to take the view that the car
  air-conditioning kit fell within the meaning of the air-
  conditioners against Item No. 3 befor~March 20, 1990.
  This position continued till Item No. 5 was amended and        F
  Item No. 8 was inserted in the said Notification where
  specific entry with regard to parts and accessories of ·
  car air-conditioner and car air-conditioning kit was
  provided."
                                                                G
  Thereafter, the Court opined that a specific Entry prevails
  over the general Entry and, therefore, w.e.f. March 20,
  1990 till July 25, 1991, air-conditioning kits which
  comprises of various parts are classifiable under Item
  No. 8 of the said Notification. The Division Bench            H
720· ~'      SUPREME COURT REPORTS                      [2015] 7 S.C.R.


 A        reproduced the Explanation (2) that was added on July
          25, 1991, which reads as under:-
                    ';);-
             "Explanation (2)-Forthe purposes of this notification,
             the term 'car air-conditioner kit' or 'car air-conditioning
 8           kit' shall exclude the kit or assembly of parts which
             contains.automotive gas compressor with or without
             magnetic clutch."

           While interpreting Explanation (2), the Court noted the
 c   submissions of the learned counsel and eventually held thus:-

          "18. To resolve the controversy, we shall revert to the
          wording of the said Explanation. It provides that for the
          purposes of the Notification, the term "car air-conditioner
          kit" or "car air-conditioning kit" shall exclude the kit or
 D
          assembly of parts which contains automotive gas
          compressor with or without magnetic clutch. In our view,
          the Explanation has the effect of taking away the
          automotive gas compressor (with or without magnetic
 E        clutch) from out of the car air-conditioning kit. The car
          air-conditioning kit which comprises of parts of car air-
          conditioner remains as part of Item No. 8 of the
          notification. The Explanation cannot be so construed as
          to remove the t~rm "car air-conditioner kit" or "air-
 F        conditioning kit" itself from Item No. 8 of the Notification.
          What follows is that 'car air-conditioning kit minus
          automotive gas compressor with or without magnetic
          clutch' will remain in the description of goods against Item
          No. 8 of tHe Notification and that the excluded part of the
 G        kit, namely, automotive gas compressor with or without
          magnetic clutch, will cease to be part of Item No. 8 and
          will be liable to duty separately."

         4. It is submitted by Ms. Nisha Bagchi, learned counsel
 H appearing for the appellant that the view expressed by the
    COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.                        721   '.
      MIS. SANDAN VIKAS (I) LTD. [DIPAK MISRA, J.]

   Division Bench in paragraph 18 wherein it has been held that         A
  car air-conditioning kit minus automotive gas compressor with
  or without magnetic clutch will remain in the description of
  goods against Item No. 8 and that excluded part of the kit,
  namely, 'automotive gas compressor' will cease to be a part
  of Item No.8 and would be liable to duty separately is not the        B
  correct conclusion and it requires to be reconskfered. It is
  urged by her that in view of the express language of the
   Explanation (2) which excluded car air-conditioning kits which
  contained automotive gas compressor, with or without
  magnetic clutch, from the purview of Item No.8 of the                 c
  Notification, the entire kit would stand excluded from the scope
  of Item No.8 and thereby as a logical corollary the said air-
  conditioning kit which continues to be meant for providing air
. conditioning in cars would then revert to Item No. 3 which has
                                                                        D
  been expressly held to cover car air-conditioning kits. Learned
  counsel has referred to Rule 2(a) of Rules of Interpretation and
  Section note 4 to Section XVI to highlight that while interpreting
  the section notes, the respondent would be disentitled to the
  benefit of the Notification since in the manner in which the          E
  goods came to be cleared, the compressor remained part of
  the air-conditioning kit. Elaborating the same, it is contended
  by herthatthe car air-conditioning kit cleared by the respondent
 was also having a corresponding clearance of gas compressor
  and the same constitute an air-conditioning unit and would be         F
  chargeable to duty as per serial no.3 of the Notification as
 held by this Court in paragraph 14 of the earlier judgment.
 Learned counsel has referred to certain facts .. how the
 respondent was able to supply the order during the period
 August, 1991 to February, 1993 to avail the benefit under serial      G
 no.8 of the said Notification. She has placed reliance on
 Collector of Customs v. Maestro Motors2, fof:'in the said
 decision, as per the learned counsel, it has been held that when
 in a Notification exemption is with reference to an Item in the
   2 (2005) 9 sec 412
                                                                       H
722          SUPREME COURT REPORTS                     [2015] 7 S.C.R.


A First Schedule to the Customs Tariff Act, then the interpretative
  rules would equally apply to such Notification. Learned counsel
  has also submitted that the reliance by the respondent on
  Board's Circular No. 479/45/99 CX dated 17.8.1999 is
  irrelevant since the present dispute relates to period from 1991
B to 1993 much prior to the issuance of the Board's circular.

               5. In oppugnation of the aforesaid submissions, it is
      propounded by Mr. V. Lakshmi Kumaran, learned counsel for
      the respondent that there is no cavil over the fact that the
C     respondent is a manufacturer of car air-conditioning kits and
      it is also not in dispute that classification of the klt falls under
      Chapter 8415.00 (which reads as air-conditioning machines,
      comprising a motor-driven fan and elements for changing the
      temperature and humidity, including those machines in which
D     the humidity cannot be separately regulated) of the Central
      Excise Tariff Act. Learned counsel would contend that during
      the disputed period i.e. 1.8.1991 to 28.2.1993, the respondent
      was clearing the automotive gas compressors and the air-
      conditioning kits (without gas compressors) under different
E     gate passes, which were s~pplied separately, and at different
      point of time and on that basis the respondent was discharging
      excise duty at the rate mentioned in serial no.1 of Notification
      No. 166/86-CE whenever automotive gas compressors were
F     cleared and the rate mentioned in serial no.8 of Notification
      No. 166/86-CE, whenever car air-conditioning kits (without the
      gas compressors) were cleared. He has referred to relevant
      part of the Notification No. 166/86-CE, as it stood during the
      period of dispute, which we shall refer to at a later ~tage, and
G     placed heavy reliance on the two-Judge Bench in Sanden
      Vikas (India) Ltd. (supra), especially, on paragraphs 16, 17
      and 18 and supported it in entirety. It is put forth by him that the
      Explanation (2) to the Notification is not applicable where the
      car air-conditioning kit was cleared without the automotive gas
H     compressor. According to him, Explanation (2) to Notification
   COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.                       723
     M/S. SANDAN VIKAS (I) LTD. [DIPAK MISRA, J.]

applies only in a situation where the air-conditioning kit or         A
assembly of parts contains automotive gas compressor (with
or without magnetic clutch). Commenting on the Explanation
(2), learned counsel would contend that the said Explanation
means that where a car air-conditioning kit or assembly of parts
contains an automotive gas compressor (with or without                B
magnetic clutch) then such a car air-conditioning kit or assembly
of parts stands excluded from the term "car air-conditioner kit"
or "car air-conditioning kit" and hence, the said Explanation
has no bearing if a car air-conditioning kit is cleared without
the automotive gas compressor. Learned counsel has                    C
submitted that as the respondent had cleared the automotive
gas compressor separately on payment of duty in serial no.1
and the car air-conditioning kit without the automotive gas
compressor was cleared separately in serial no.8, it is not liable    D
to pay any further excise duty. Elaborating further, it is urged
by Mr. Lakshmi Kumaran that as the items were cleared
independently they attract duty as given in serial no.1 of
Notification. It is his stanj that the respondent during the
relevant period was not clearing the car air-conditioning kit         E
with the automotive gas compressor and any decision on this
plea of the appellant, as far as the respondent is concerned,
is only academic.

        6. Learned counsel would further submit that the car F
air-conditioning kit consisting of the automotive gas
compressor will be an air-conditioning machinery falling under
Chapter 8415 of the Central Excise Tariff Act but not an 'air
conditioner' itselffalling under serial no.3 of the No~ification. In
that context, he has invited our attention to Circular No. 4?9/ G
45/99-CX, which is urged to be clarificatory .in nature. It is put
forth by him that the stand of the revenue that the said Circular
would not be applicable to the past transactions is
unacceptable inasmuch as it really clarifies the position.
Rebutting the submissions of the revenue that the presence of H
724         SUPREME COURT REPORTS                 [2015] 7 S.C.R.


A the automotive gas compressor in a kit will remove the kit away
  from serial no.8 of Notification No. 166/86-CE, it is canvassed
  by him that assuming the contention of the revenue is correct,
  the car air-conditioning kit with the automqtive gas compressor
  will rightly fall under serial no.5 of the said Notification, for
B Explanation 2 begins by saying "For the purposes of this
  notification, the term "car air-conditioner kit" or "car air-
  conditioning kit" shall exclude the kit or assembly of parts which
  contains automotive gas compressor with or without the
  magnetic clutch. In this context, it is his submission that car
C air-conditioning kit is mentioned in serial no.5 and serial no.8
  and serial no. 5 would exclude car air-conditioning kit only when
  the automotive gas compressor is not part of the kit and if the
  automotive gas compressor is a part of the car air conditioning
  kit, according to the contention of the revenue, it will not be
0
  "parts and accessories of the car air-conditioning including
  car air-conditioning kit" under serial no.8 and in that event, it
  will have to be under serial no.5. Elucidating the submission,
  learned counsel would contend, the exclusion under serial no.5,
E namely, "other than the parts and accessories of car air-
  conditioner including car air-conditioning kit" will therefore not
  apply for such air-conditioning kits comprising the automotive
  gas compressor and as far as car air-conditioning kits are
  concerned, serial no.5 and serial no.8 are rnutualiy exclusive,
F for if kit cannot be covered under serial no.8, and it has to be
  covered under serial no.5 and vice-versa.

         7. Replying to the submissions of Rule of Interpretation
  to Central Excise Tariff Act, it is submitted by the learned
G counsel for the respondent that they are not applicable while
  interpreting the present Notification No. 168/86-CE since the
  said Notification has not borrowed its terms from the Tariff. In
  this context, the learned counsel has commended us to the
  decision in CCE, Jaipur v. Mewar Bartan Nirman Udyog3.
H     3 (2010) 13 sec 753
  COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v. - 725
    M/S. SANDAN VIKAS (I) LTD. [DIPAK MISRA, J.]

It is also urged by him that the decision in Maestro Motors A
(supra) is not applicable to the facts and circumstances of the
present case since in that case the words used in the Excise
Tariff and the Notification were identical, whereas- it1l the present
matter, the Explanation 2 has re-defined the term "car air-
conditioner kit" or "car air-conditioning kit" and these terms B
are not part of the Excise Tariff, therefore, the principles of the
Rules of Interpretation of the Tariff are inapplicable for the
purpose of interpretation of the present Notification No. 166/
86-CE.
                                                                                c
       8. On the basis of the aforesaid submissions, learned
counsel for the respondent would contend that there is no
requirement for reconsideration of the judgment passed in
Sanden Vikas (India) Ltd. (supra).
                                                                                D
        9. At the outset, it is imperative to appositely scrutinise
the Notification No. 166/86-CE dated 1.3.1986 (as amended
from time to time). In the case at hand, we are concerned with
the amendment made in the said Notification vide Notification
Nos. 75/90-CE dated 20.03.1990 and 68/91-CE dated E
25.07.1991

       10. As the period in question relates to thitrperiod after
the amendment took place, it is apposite to reproduce the
relevant part of the Notification No. 166/86-CE as it stood F
during the period of dispute. It reads as follows:.:: ._
   SN.   1-mdirgcr l:esoiptim rf g:xxjs             R3\e             C<ndtion
         Sib hea:lirg
         ro.                                                    '"' -
   01    8414.10     (i) Gas CCJTIµ"essolS of the   FG.600CY- pa'
                     kind u;ed in air-cxndtionas    oorrpresscr                 G
                     including room air
                     oondtiona's (wrdow ~).
                     spl~ um air andtiCJ1EJsaid              t )\
                     package type air
                     oon:litiCJ'lEJs rf ca~ less
                     not exceeding 7.5 tonnes       Forty per cait              H
                     (ii) OihEr CBS           s     advalmm
726        SUPREME COURT REPORTS                         [2015] 7 S.C.R.


A     03   8415.00         Ai r-a:>rd itioners i ncludi rg                 -
                           room air corditiooers
                           (wi rdo.v type), split unit
                           air cordfoners, ard
                           1Eckage          type        air
                           conditioners, -
B                          (a) d capccity not Rs.12,000 per air
                           exceeding 1.5 1omes              cooditioner
                           (b) of capa::ity exceedi rg Rs.15,000 per air
                           1.5 toones but not coodtioner
                           exceeding 3 tonnes
                           (c) of capa::ity exceedirg Rs.33,000 per air
c                          3 1omes but not conditioner
                           exceeding 7.5 1omes
                           (d) of capa::ity exceedirg Rs.70,000 per air
                           7.5 bnnes but exceedirg cooditioner
                           10 bnnes
                           (e) of capa:ity exceedirg Rs.74,000 per air
                           10 tomes but not cooditioner
D                         exceedina 15tonnes
      05 84.15,84.18,      Parts aid accessories of Forty per cert oo      -
           84.19,         refrigeratirg aid air valorem
           84.76.91,      conditioning ~pliances
           8481.10,       aid ma::h inery, all sorts,
           8481.91,       ether thai the 1Erts ard
E          8536.10,       a::cessories of car air
           903211 or      conditiooer including car
           903291         ai r-a:>rditionina kit
      08   84.15,84.18,   Parts aid accessories of Sixty five percent      -
           84.19          car       air      conditioner advalorem
           84.76.91,      including         car      air-
F          8481.10,       conditiooing kit
           8481.91,
           8536.10,
           9032.11 or
           am?a1
          11. Be it stated that air conditioners including car air-
G conditioning kits fall under Chapter 8415.00 of Central Excise
  Tariff Act, 1985. The Explanation to the Notification was
  inserted on 25.07.1991. During the period in dispute, as the
  factual matrix would unveil, the respondent-assessee had
H cleared the car air-conditioning kits without gas compressors
  under serial no.8 and automotive gas compressors under
  COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.                   727
    M/S. SANDAN VIKAS (I) LTD. [DIPAK MISRA...: 1

serial no. 1. To put in other words, the respondent has paid ad A
valorem excise duty at 65% on the car air-conditioning unit
without gas compressors and 40% ad valorem duty on the
gas compressors. The stand of the revenue is that in terms of
Explanation 2 read with Rule 2(a) and Section Note 4 to Section
XVI, the goods manufactured would be covered by serial no.3 B
of the aforesaid Notification and they were chargeable under
the same. Similar issue had arisen and this Court has dealt
with it in paragraph 18. Before we proceed to scrutinise the
correctness of the said authority, we have to clear the maze,
whether interpretation as per Rule 2(a) would be applicable to C
the Notification. Rule 2(a) of Rules for the Interpretation of
Schedule reads as follows:-

  "2. (a) Any reference in a heading to goods shall betaken
  to include a reference to those goods incomplete or            D
  unfinished, provided that, the incomplete or unfinished
  goods have the essential character of the complete or
  finished goods. It shall also be taken to include a
  reference to those goods complete or finished (or falling
  to be classified as complete or finished by virtue of this     E
  rule), removed unassembled or disassembled."

        12.   Learned counsel for the appellant has also
referred to Section Note 4 to Section XVI, which reads as
follows:-                                                 F

  "4. Where a machine (including a combination of
  machines) consists of individual components (whether
  separate or interconnected by piping, by transmission
  devices, by electric cables or by other devices) intended     G
  to contribute together to a clearly function covered by one
  of th'3 headings in Chapter 84 or Chapter 85, then the
  whole falls to be classified in the heading appropriate to
  that function."
                                                                H
728         SUPREME COURT REPORTS                     [2015)7 S.C.R.


A             13. The question is whether the Rules of Interpretation
      would apply. Learned counsel for the appellant has heavily
      relied on Maestro Motors (supra). In the said case, after
      reproducing Rule 2(a), the two-Judge Bench has opined thus:

s       "Thus, as per this interpretative rule, even though an article
        is incomplete or unfinished when it is presented for
        clearance, if that article has the essential character of
        the complete article and/or even though the complete or
        finished article is presented in an unassembled or
C       dissembled form the classification must be as a
        complete article. In this case, it is fairly not being denied
        that the components were imported in CKD packs. Thus
        what was imported was completely knocked-down cars.
        The components imported had the essential character
D       of a complete car even though presented in unassembled
        form. As per interpretative Rule 2(a) even though
        presented unassembled they have to be classified as a
        complete article."

 E         14. Learned counsel for the respondent has drawn
  inspiration from Mewar Bartan Nirman Udyog (supra). In
                                                             --
  the said case, the Court posed the question whether the
  respondent-assessee was entitled to claim benefit of
  exemption Notification No. 3/2001-C.E dated 1.3.2001. The
F assessee in the said case had claimed exemption under serial
  no. 200 of the said Notification which was denied by the
  department on the ground that trimmed or untrimmed circles
  of brass cannot fall under serial no. 200 buttheyfall under serial
  no. 201. The Court noted the factthat if the produce in question
G falls under serial no. 200, then the rate of duty is nil. The Court
  extracted the relevant part of the notification and held that s1 'ial. ·
  no. 200 would apply and assessee would be entitled to claim
  nil rate of duty under the said notification. At that juncture, the
H Court opined that:-
   COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.                     729
     M/S. SANDAN VIKAS (I) LTD. [DIPAK MISRA, J.]

   "5. We may also point out at this stage that it is well          A
   settled position in law that exemption Notification has to
   be read strictly. A notification of exemption has to be
   interpreted in terms of its language. Where the language
   is plain and clear, effect must be given to it. While
   interpreting the exemption notification, one cannot go by        B
   rules of interpretation applicable to cases of classification
   under the Tariff. Tariff items in certain cases are required
  .to be interpreted in cases of classification disputes in
   terms of HSN, which is the basis of the Tariff. In this case,
   we are not concerned with interpretation of Tariff. In fact,     c
   as stated above, the product in question falls under
   Chapter Heading 74.09. It is the dichotomy which is
   introduced by the exemption Notification which needs to
   be interpreted. Items made from copper attract duty at
                                                                   D
   the rate of Rs.3500 PMTwhereas circles made from
   brass attract nil rate of duty. As stated above, in this
   case, the Department has not disputed the fact that the
   circles were manufactured by the assessee from brass.
   This is expressly recorded in the findings given by the          E
   Tribunal."

         15. The aforesaid two decisions are to be understood
regard being had to the.context in which they are delivered. In
Maestro Motors (supra), it is elucidated that one has to F
examine the notification and then refer to serial number of the
notification and the item number in the first schedule of the Act
and if they are identical and pari materia, rules of interpretation
will apply. Rules of interpretation may not be applicable if the
notification commands and require a different understanding. G
It needs no special emphasis to state that rules or principles
of interpretation are always subject to context and not binding
commands on iron cost imperatives. Therefore, we do not
perceive any conflict between the two decisions which deal
with rules of interpretation. It has to be understood in the H
730       SUPREME COURT REPORTS                   [2015] 7 S.C.R.


A context.

          16. We have already reproduced Rule 2(a) and Section
  Note 4 to Section XVI. Rule 2(a) of Rules of Interpretation
  consists of two parts. First part stipulates that incomplete or
B unfinished goods would fall in heading relating to the completed
  goods provided the incomplete or unfinished good bears the
  essential character of the complete or finished goods. Second
  part predicates unassembled or assembled goods can be
  treated as goods complete or finished goods. In this context
C we may usefully refer to Rule 1 of the Rules of Interpretation,
  which is as follows:-

      "1. The titles of Sections and Chapters are provided for
      ease of reference only; for legal purposes, classification
o     shall be determined according to the terms of the
      headings and any relative Section or Chapter Notes and,
      provided such headings or Notes do not otherwise
      require, according to the provisions hereinafter
      contained."
E
          17. Thus, Rule 1 of the Rules of Interpretation lays down
  that for legal purpose classification shall be determined in
  accordance with the terms of headings and any relative section
  or Chapter Notes, provided such headings or Notes do not
F otherwise require a different interpretation.

          18. Keeping the aforesaid in view and the context, we
  are required to interpret the serial numbers of the notification.
  On a scanning of the Notification, it is perceptible that the gas
G compressors are specified and taxable on the heading serial·
  no.1. Serial no.3 deals with air conditioners including room
  air-conditioners. Needless to say that the air-conditioner is a
  distinct and separate commodity sold and purchased and is
  distinguishable from the gas compressors or kits. Serial no.5
H deals with parts and accessories of refrigerator and air
   COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.                             731
     M/S. SANDAN VIKAS (I) LTD. [DIPAK MISRA, J.]

 conditioning appliances and machinery of all sorts. Thus, serial           A
 no.5 would cover air-conditioner kits, but would not include
compressors, for they are specifically covered under serial
 no.1. It is apt to note here that parts and accessories of a car
air-conditioner including air-conditioning kit, are expressly
excluded from serial no.5. The reason for exclusion is that car             B
air-conditioners and car air-conditioning kits have been
included in serial no.8. Car air-conditioner or car air-
conditioning kits cannot per se perform essential functions of
an air-conditioner until and unless they are fixed in a car. A car
air-conditioning is obtained by fitting part by part, compressor            C
is fitted above engine, condenser is fitted in front of the radiator,
cooling coil is fitted inside the car, fan is fitted in front of cooling
coils and then all theses parts are connected by copper pipes
to complete the cycle. If this exercise is not carried out, they
                                                                            0
would be parts and accessories of car air-conditioners and
not a car air-conditioner itself. The assembly is possible when
the kit and the compressor are installed and attached to the
car.

        19. In this context, one is required to x-raythe language           E
used in Explanation (2) and understand the same. The
Explanation states that for the purpose of Notification, "car air-
conditioning unit" or "car air-conditioning kit" shall exclude the
kit or assembly of parts which contains automotive gas                      F
compressor with or without the magnetic clutch. The two-Judge
Bench in Sanden Vikas (India) Ltd. (supra) has understood
the said Explanation to mean that it has the effect of taking
away the automotive gas compressor (with or without magnetic
clutch) from out of the car air-conditioning kit. It is further held       G
that the car air-conditioning kit which comprises of parts of
air-conditioner remains as part of item no.a of the Notification
and the Explanation cannot be so construed as to remove the
term "car air-conditioner kit" or "car air-conditioning kit" itself
from item no. 8 of the notification. What has been further opined          H
732         SUPREME COURT REPORTS                     [2015] 7 S.C.R.


A is that the air-conditi.oning kit minus automotive gas
  compressor with or without magnetic clutch will remain in the
  description of goods against item no.8 of the notification and
  that the excluded part of the kit, namely, automotive gas
  compressor with or without magnetic clutch will cease to be a
B part of item no. 8 and will be liable to duty separately.

              20. Ms. Nisha Bagchi, learned counsel appearing for
      the department would contend that in view of the express
      language employed in Explanation (2) which excludes car air-
C     conditioning kit which contain automotive gas compressorwith
      or without magnetic clutch from the purview of item no.8 of the
      Notification, the entire kit would stand excluded from the scope
      of item no.8 and the said car air-conditioning kit which
      continues to be meant for providing air-conditioning in cars
D     would revert to item no. 3, which has been expressly held to
      cover car air-conditioning kits. It is urged by her that the
      interpretation placed by the two-Judge Bench causes violence
      to the plain and unequivocal language expressed in the
      Explanation (2) to the Notification. To appreciate the said
E     submission, it requires a careful scrutiny of the language used
      in the Notification. The Notification consciously and
      deliberately treats a complete or finished afr-conditioner as a
      dutiable entity under serial no.3, but kit of the same air-
F     conditioner is not treated at par and similar to a complete or
      finished air-conditioner dutiable under serial no.3. The air-
      conditioners' parts and the accessories including air-
      conditioner kits are dutiable under serial no.5, if it relates to a
      window, split or packaged air-conditioner. The compressor,
G     however, is liable to duty as per the rates specified in serial
      no.1. Car air-conditioning kits are dutiable under serial no. 8
      and after insertion of Explanation 2, the car air-conditioning
      kits without the compressor would be dutiable in serial no.8
      and the compressor itself would be dutiable separately under
H     serial no.1. This is the intention of the notification. Regard
  COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.                        ~;733
    M/S. SANDAN VIKAS (I) LTD. [DIPAK MISRA, J.]

being had to the notification, which we have already spelt out         A
in the context of notification, it can safely be stated that the
accessories and parts including kits, compressors and the
finished or complete air-conditioners having treated separately
under different serial numbers and the notification intended to
maintain the said distinction between a completed and a                B
finished produce and the kits and compressors which can be
assembled and installed in a car to function as a car air-
conditioner after necessary efforts and working including gas
charging. Under these circumstances, the submission of the
learned counsel for the revenue is that while interpreting the         C
notification, Rule 2(a) and Section Note 4 to Section XVI would
be applicable does not commend acceptance. In our
considered opinion, applying Rule 2(a) of the Rules of
Interpretation to the Notification in question, would be contrary      D
to the legislative intent.

        21.    Mr. Lakshmi Kumaran, learned counselforthe
respondent, as we have indicated earlier, has drawn our
attention to Circular No. 479/45/99 CX dated 17.8.1999. The
relevant part of the said circular reads as follows:        E

  "Doubts have been expressed as to whether fitting of
  duty paid parts and components of an air-conditioner in
  a car amounts to manufacture of car air conditioner.
                                                                       F

  2. The matter has again been examined by the Board.
  It is observed that in the course of the activity of fitting the
  parts and components of an air-conditioner in a car, they
                                                                       G
  are fitted part by part at different places in a car engine
  and elsewhere in the car. Though by virtue of such fitments
  an ordinary car is converted into an air-conditioned car,
  but at no point of time & car-conditioner as a separate
  and distinct commodity comes into existence. It is thus
                                                                       H
734          SUPREME COURT REPORTS                     [2015) 7 S.C.R.


A        clarifie.d that the activity of acquiring duty paid parts and
         components of a car air-conditioner from the market and
         fitting the same at appropriate positions in a car does
         not result into manufacture of a new excisable item such
         as car air-conditioner"
B
           Relying on the same, learned counsel for the respondent
  submitted that though the said circular has been brought at a
  fater stage, but it really exposits the intention of the notification.
  The question of retrospective applicability or not does not arise,
C for the simon pure reason is it really clarifies the position.

               22. Having regard to the analysis we have made, the
      purport and impact of the Notification, the question that would
      arise for consideration is whether Sanden Vikas (India) Ltd.
o     (supra) lays down any incorrect proposition of law. In the said
      decision, in paragraph 18, which we have already reproduced,
      the two-Judge Bench, construing the Explanation, has laid
      down that the expression cannot be so construed as to remove
      the term "car air-conditioner kit" or "car air-conditioning kit"
E     itself from item no.8 of the Notification. What follows is that
      car air-conditioning kit minus automotive gas compressor with
      or without magnetic clutch will remain in the description of
      goods against item no.8 of the Notification and the excluded
      part of the kit, namely, automotive gas compressor with or
F     without magnetic clutch will cease to be a part of item no.8
      and will be liable to duty separately. As we understand from
      the said conclusion, a car air-conditioning kit, if it contains an
      automotive gas compressor with or without magnetic clutch,
      the kit part will meet the description of goods against item
G     no.8 of the Notification and the automotive gas compressor
      with or without magnetic clutch will be liable to duty separately
      and it will go away from description of Item no.8. To elaborate,
      if a car air-conditioning kit has both, there has to be two sets
H     of duty; one for the ~it and the other for the automotive gas
  COMMISSIONER OF CENTRAL EXCISE, DELHI-IV v.                        735
    M/S. SANDAN VIKAS (I) LTD. [DIPAK MISRA, J.]

compressor with or without magnetic clutch. Learned counsel           A
for the Revenue would submit that such an interpretation is
contrary to the Explanation (2) as it clearly lays the postulate
that the car air-conditioner kit or car air-conditioning kit shall
exclude the kit or assembly or parts which contains automotive
gas compressor with or without magnetic clutch and when there         B
is total exclusion of the kit, and hence, it gets out of item no.8
of the Notification. In a sense, the submission is if the kit
contains the automotive gas compressor, it shall stand
excluded and will be liable to duty separately. Learned counsel
for the respondent has submitted that in that event, it would not     C
fall under serial no.8, for if kit cannot be covered under serial
no.8, it has to be covered under serial no.5 and vice versa.
Expatriating the said submission, it is urged by him that serial
no.8 lays duty i.e. 65% ad valorem as compared to serial no.5         D
40% ad valorem, and the respondent has paid duty as per
serial no.8 at the rate of 65% and would be entitled to refund
as it has paid higher duty under serial no.8 of the notification.
We have noted the submission for the sake of completeness
though we do not intend to address the same.                          E

         23. According to us, if a manufacturer sells the kit and
the automotive gas compressor as one unit of transaction, it
will get out of serial no.8. If a manufacturer sells the kit and the
automotive gas compressor separately by different invoice or F
by separate pricing, we do not see any reason for exclusion of
the air-conditioning kit from the serial no.8 because there are
two transactions and the kit is charged as per serial no.8 and
compressor is charged as per serial no.1. There is no dispute
over the fact that one can buy the automotive gas compressor G
with or without magnetic clutch with the kit, and both can also
be purchased separately from different manufacturers. What
the two-Judge Bench has said is that an air-conditioning kit
minus automotive gas compressor with or without magnetic
clutch will remain in the description of goods against item no.8 H
736           SUPREME COURT REPORTS                 [2015] 7 S.C.R.


A of the Notification and that the excluded part of the kit, namely,
  automotive gas compressor with or without magnetic clutch
  will cease to be a part of item no.8 and will be liable to duty
  separately. Thus, the Division Bench has quite categorically
  stated thaHtthe air-conditioning kit does not contain automotive
B gas compressor with or without magnetic clutch, duty is paid
  as per item no.8 and if it contains the automotive gas
  compressor with or without magnetic clutch, it will not come
  under item no.8.

C          24:1n our view, the ratio laid down in the said decision
  cannot be found to be erroneous but as a matter of clarification,
  we say thafif a kit and compressor are sold in a singular invoice
  or in one pricing, it will go out of item no.8 and duty will be paid
  separately, but if there are two invoices for separate pricing,
D 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. We may hasten to clarify that
  if there is a combined sale, which serial item it will fall, being
  not necessary in this case, we are not inclined to dwell upon
E the same. We have only clarified the two-Judge Bench decision
  in Sanden Vikas (India) Ltd. (supra) to the above effect.

            25. Coming to the case at hand, it is the case of the
    appellant that the respondent-assessee has sold the kit and
F compressor separately and that position having been accepted
  . by the tribunal, we do not find any error in the order passed by
    the authorities and the Tribunal.
         26.      Resultantly, the civil appeal stands disposed of
G with the clarification of the decision in Sanden Vikas (India)
  Ltd. (sup~~) as per paragraph 24. There shall be no order as
  to costs.                       ·

      Kalpana K. lripathy                           Appeal disposed of.
                                                       '
H