M/S THERMAX LTD. THROUGH ITS DIRECTORversusCOMMISSIONER OF CENTRAL EXCISE, PUNE-1

                         [2022] 16 S.C.R. 165                              165


        M/S THERMAX LTD. THROUGH ITS DIRECTOR                              A
                                   v.
       COMMISSIONER OF CENTRAL EXCISE, PUNE-1
                (Civil Appeal Nos. 6048-6050 of 2009)
                         OCTOBER 13, 2022                                  B
        [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
                                                                           C
– 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         D
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
                                                                           E
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   F
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-
                                                                           G
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        H
                              165
166            SUPREME COURT REPORTS                    [2022] 16 S.C.R.


A     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
B
      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
C     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,
D
      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
E     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
F     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
G     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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 M/S THERMAX LTD. THROUGH ITS DIRECTOR v. COMMISSIONER OF              167
                   CENTRAL EXCISE, PUNE-1


the intra-heading dispute. Such mode of interpretation will aid in     A
settling, the classification dispute by adhering to the HSN Code.
Applying the Principal Purpose Test for the machine manufactured
by the appellant, it is quite apparent that the product MVAC is
intended to produce chilled water. Moreover, even if the option
of availing hot water is available, significantly, the production of
                                                                       B
chilled water never ceases, while the machine is operating.
Therefore, the principal purpose of the machine is to produce
chilled water. Therefore, taking help from Chapter Note 7,
producing chilled water is to be taken as the sole purpose of the
MVAC manufactured by the appellants.[ Paras 17 and 18][1749-
D-G]                                                                   C
      4. The end use of MVAC is to produce Chilled Water. The
use of heat as one of the sources in the air-conditioning system
would not take away the primary or basic function of the MVAC,
which is to cool and not heat water. The additional heating
capability of the machine thus raises a peculiar dilemma, but then     D
one can be guided by the market parlance test which shows that
the machine is perceived and purchased only as a cooling device.
[Para 21][180-E]
      Commissioner of Central Excise, Mumbai v. Blue Star Ltd.
      (198) ELT 454; Commissioner of Customs and Central Excise        E
      v. Voltas Ltd. 2005 (180) ELT 57 – distinguished.
      Collector of Central Excise, Shillong v. Wood Craft Products
      Ltd. (1995) 3 SCC 454 : [1995] 2 SCR 797; Commissioner
      of Customs and Central Excise, Amritsar (Punjab) v. D. L.
      Steels Etc. 2022 SCC OnLine SC 863; Xerox India Ltd. v.          F
      Commissioner of Customs (2010) 14 SCC 430 : [2010] 14
      SCR 199 – relied on.
      Commissioner of Central Excise, Delhi v. Carrier Aircon Ltd.
      (2006) 5 SCC 596 : [2006] 3 Suppl. SCR 254 – referred to.
                      Case Law Reference                               G
[1995] 2 SCR 797                 relied on           Para 4.7
[2006] 3 Suppl. SCR 254          referred to         Para 18
[2010] 14 SCR 199                 relied on          Para 19
                                                                       H
168             SUPREME COURT REPORTS                         [2022] 16 S.C.R.


A
            CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6048-
      6050 of 2009.
            From the Judgment and Order no.A/35-37/09/EB/C-II dated
      22.01.2009 of the Customs, Excise and Service Tax Appellate Tribunal,
B     West Zonal Bench, Mumbai in Excise Appeal Nos.E/819/2000, E/1482/
      2000 and E/1731/2000.
           V. Sridharan, Sr. Adv., R. Nambirajan, Aditya Bhattacharya,
      Ms. Mounica Kasturi, Ms. Apeksha Mehta, Sahil Parghi, Ms. Charanya
      Lakshmikumaran, Advs. for the Appellant.
C
            N. Venkataraman, ASG, V. Chandra Shekara Bharathi, Rupesh
      Kumar, Ms. Vishakha, B. K. Satija, Anirudh Sharma, Ms. Amritha
      Chandramouli, S. Ramnarayan, Mukesh Kumar Maroria, B. Krishna
      Prasad, Advs. for the Respondent.

D           The Judgment of the Court was delivered by
            HRISHIKESH ROY, J.
            1. Heard Mr. V. Sridharan, the learned Senior Counsel representing
      the appellant. Also heard Mr. V. Chandra Shekara Bharathi, learned
      counsel representing the Revenue.
E           2. This appeal is filed under Section 35L of the Central Excise
      Act, 1944 and the issue to be considered here is whether the product
      manufactured by the appellant is classifiable as heat pump under the
      heading 84.18 of the Schedule to the Central Excise Tariff Act, 1985.
      The question is important for the appellant because under notification
F     155/86-CE dated 1.3.1986, heat pumps falling under Chapter 8418,
      enjoyed a limited exemption from the levy of excise duty.
              3. The appellant had sold their manufactured product by describing
      them as heat pumps but the Assistant Commissioner of Central Excise
      negated such description. On appeal by the assessee, the Commissioner
G     of Central Excise (Appeals) however agreed with the manufacturer’s
      claim. But in the appeal by the Revenue, the Customs, Excise and Service
      Tax Appellate Tribunal, Mumbai (for short “CESTAT”) has reversed
      the decision. The conclusion in the impugned order dated 22.1.2009, is
      that the product is not heat pump and therefore, ineligible for concessional
      rate of duty under Sl. No. 2 of Notification No. 155/86-CE dated 1.3.1986.
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 M/S THERMAX LTD. THROUGH ITS DIRECTOR v. COMMISSIONER OF                      169
         CENTRAL EXCISE, PUNE-1 [HRISHIKESH ROY, J.]


It was also held that the product is a complete machine and cannot be          A
treated as part of a machine. It was accordingly declared that the
manufacturer is disentitled to the concessional rate of duty in terms of
the notification, for their product. Incidentally, the CESTAT also held
that the value of Lithium Bromide is not to be calculated in the assessable
value of the machine. However, to facilitate computation of the payable
                                                                               B
sum of duty by the manufacturer, the matter has been remanded to the
adjudicating authority. Earlier, the appellant had preferred a writ petition
before the Bombay High Court to challenge the decision of the CESTAT
but because the statutory remedy of appeal to this Court is available, the
High Court dismissed the writ petition on 26.3.2009 resulting in the present
appeal.                                                                        C
                  APPELLANTS CONTENTION
       4.1 Mr. V. Sridharan, the learned Senior Counsel submits that
appellant manufactures Modified Vapour Absorption Chillers (for short
“MVAC”) and this product was presented for assessment as heat pumps
classifiable under Heading 8418, attracting lower rate of excise duty as       D
compared to chillers. The appellant asserts that MVAC is bought, sold
and described in their invoices and catalogues as heat pumps. It is their
further contention that the process of manufacturing their product (MVAC)
is distinct from manufacturing ordinary chillers as they are installing
additional components in the Vapour Absorption Chillers (for short             E
“VAC”) such as, (I) Sensor to sense the temperature, (II) Selector Switch
to control panel which can select heating/cooling mode, and (III)
Additional Wiring to carry the signals from the sensors and these features
warrant recognition of the machine as “heat pumps”.
       4.2 The learned Senior Counsel emphasizes that MVAC has inbuilt         F
capability whereby the customer can obtain both chilled and also hot
water as output for further use by the end user. The Counsel relied upon
a technical book “Heat Pumps” authored by R.D. Heap and a self-
prepared chart describing the functioning of the Heat Pump. Based upon
the aforesaid, the counsel contended that since the subject machine can
provide both chilled and hot water using refrigerator circle, the              G
interpretation against the appellant, ignoring technical features of the
product, would be unjustified. Pointing out that heat pumps are classified
with refrigerators, freezers and other freezing equipments under Heading
8418 and not as boilers under Heading 8402, it is argued that merely
because heat pumps are inherently capable of producing cold water              H
170             SUPREME COURT REPORTS                           [2022] 16 S.C.R.


A     would not by itself justify its classification in the manner suggested by
      the Revenue.
             4.3 The appellants Counsel then refers to the Harmonious System
      of Nomenclature (HSN) Explanatory Notes to argue that therein the
      functioning of the heat pumps is shown as heat plus energy, resulting in
B     a source of more intense heat. Because substantial modification is carried
      out by the manufacturer to transform chillers into MVAC and the four-
      way reversing Valve, a key component in MVAC can provide heating
      and cooling from the system to the air condition space by reversing the
      flow direction of refrigerant and thereby an air conditioner can fit into
      the description of heat pumps. It is argued that classification of the
C     product should be based on the machine, as altered by the additional
      components and the product presented should be seen as a whole for
      the purpose of classification by taking into account its inbuilt functionality
      to produce hot water. The senior counsel would rely on the recognition
      of few customers of the product who say that the product is purchased
D     for getting both hot and cold water.
             4.4 To blunt the Revenue’s projection that the product is capable
      of heating water by mere 5 degree celsius or so and the same should not
      therefore be classified as heat pumps, the appellant’s Counsel submits
      that the MVAC is similarly capable of marginally cooling the water also
E     by around 5 degree celcius only and if the theory propounded by the
      Revenue is to be applied, the product - if it cannot be a heat pump,
      cannot also be a chiller for the same reasoning.
             4.5 Assailing the legality of the impugned decision by the CESTAT,
      the appellant submits that Chapter Note 7 to Chapter 84 of the Central
F     Excise Tariff Act, 1985 was wrongly relied upon in the impugned order
      as the said aspect was neither counted upon in the show cause notice
      nor was considered in the Order-in-Original and also in the further
      proceedings by the Revenue. It is the further submission of the appellant
      that even as per Chapter Note 7, the machine which is based upon
      generation of heat in order to achieve cooling, should be classified in the
G     manner suggested by the manufacturer.
            4.6 Explaining the scope of Note 2 and Note 7 in the HSN
      explanatory notes, Mr. V. Sridharan the learned Senior Counsel submits
      that Note 7 cannot be made applicable to products falling under Chapter
      84.01 to 84.24 by referring to the following extract from Note 2:-
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    M/S THERMAX LTD. THROUGH ITS DIRECTOR v. COMMISSIONER OF                  171
            CENTRAL EXCISE, PUNE-1 [HRISHIKESH ROY, J.]


         “Machines, which fall in two or more headings, none of which         A
         is within headings 84.01 to 84.24, are classified in that
         heading which provides the most specific description of the
         goods, or according to the principal use of the machine.
         Multipurpose machines which are used equally for a number
         of different purposes or industries (e.g. eyeleting machines
                                                                              B
         used equally well in the paper, textile, leather, plastics, etc.,
         industries) are classified in heading 84.79,”
       4.7 The Senior Counsel has referred to the industry related decision
in the cases of Commissioner of Central Excise, Mumbai Vs. Blue
Star Ltd.1 and Commissioner of Customs and Central Excise Vs. Voltas
Ltd.2 who are the principal competitors of the appellant in the same field    C
to point out that the product manufactured by the said two companies
are identical to MVAC manufactured by the appellant, and in the
proceedings pertaining to those two companies, the products
manufactured by them were treated as heat pumps, falling under Heading
84.18. What is more, the issue has attained finality as the Revenue’s         D
appeal against the order of CIT(A) favouring the manufacturer, was
dismissed by the CESTAT and further appeal against the order of the
CESTAT was thereafter dismissed by this Court. Accordingly, it is argued
by the appellant that since similar products as theirs were taxed at the
rate of 15 per cent, higher duty should not be levied for the appellant’s
similar machine, as the same would be discriminatory, accordingly MVAC        E
must also be treated as Heat Pump.
                    RESPONDENTS CONTENTION
       5.1 On the other hand, Mr. V. Chandra Shekara Bharathi, the
learned counsel, at the outset, submits that the Revenue does not dispute     F
the classification of the product under Chapter 8418 since there are no
rival entries. Notwithstanding such a stand, it is argued that the MVAC
manufactured by the appellant does not qualify as heat pump to secure
the benefit of limited exemption, under the Notification 155/86-CE dated
1.3.1986.It is specifically contended that MVAC does not satisfy the
definition of heat pump given in the HSN where heat pump is defined           G
as under:-
         “A heat pump is a device which draws heat from a suitable heat
         source (principally underground or surface water, the soil or the
1
    (198) ELT 454
2
    2005 (180) ELT 57                                                         H
172               SUPREME COURT REPORTS                          [2022] 16 S.C.R.


A              air) and converts it with the assistance of a supplementary energy
               source (e.g. gas or electricity) into a source of more intense heat.”
             5.2 Taking a cue on the functional description of the device in the
      HSN, the respondent submits that the definition of the heat pumps is
      through a process of heat plus energy resulting in a source of more
B     intense heat, but for the appellant’s device, the final output is chilled
      water and therefore, MVAC would not qualify as heat pump. The
      production of hot water from MVAC is only an incidental purpose of the
      machine and this by itself, the respondents argue, would not justify
      classification of the product as no customer has purchased MVAC for
      the incidental purpose that it also produces hot water, and the primary
C     use of the product is only for cooling/chilling purpose. It is also pointed
      out that the product is understood and recognized in market parlance as
      a Vapour Absorption Chiller, used exclusively for air conditioning or
      refrigeration purpose and the device is not known as a heat pump.
             5.3 Since an exhaustive definition of heat pump is given in HSN,
D     Mr. Bharathi argues that the said definition should be the basis for
      classification of the MVAC and deviation from the HSN definition to
      classify product as heat pump, would be contrary to the ratio in Collector
      of Central Excise, Shillong Vs. Wood Craft Products Ltd. 3 and
      Commissioner of Customs and Central Excise, Amritsar (Punjab)
E     Vs. D.L. Steels etc.4. In these two decisions, it has been held that when
      a definition is contained in the HSN, that definition should prevail for the
      purpose of classification of the product and accordingly, it is argued that
      any interpretation of heat pump, beyond the scope of definition provided
      in the HSN, would not be justified.

F            5.4 According to the respondent, the primary function of MVAC
      is to produce chilled water and since production of hot water is only
      incidental, the same cannot provide an acceptable justification for
      classification of the product as heat pump. It is also pointed out by Mr.
      Bharathi on behalf of the Revenue that the website of the appellant
      shows that both heat pumps and Vapour Absorption Chillers are
G     marketed separately by the appellant and in the description of the product
      Vapour Absorpotion Chillers, the appellant does not mention about its
      heating capability. Likewise in the description of heat pumps, the cooling

      3
          (1995) 3 SCC 454
      4
H         2022 SCC OnLine SC 863
 M/S THERMAX LTD. THROUGH ITS DIRECTOR v. COMMISSIONER OF                      173
         CENTRAL EXCISE, PUNE-1 [HRISHIKESH ROY, J.]


capability is not mentioned. According to the respondent, the modification     A
of the Vapour Absorption Chillers (VAC) as Modified Vapour
Absorption Chillers (MVAC) does not in any way alter the primary
character/purpose of the device which is intended to function as Vapour
Absorption Chillers used exclusively for refrigeration and cooling. The
incidental production of hot water through modification of VAC is not
                                                                               B
germane to warrant classification of VAC in the category of heat pumps.
       5.5 The learned counsel for the Revenue next contends that the
judgment of the Tribunal in Blue Star (supra) and Voltas (supra) are
distinguishable and should have no application in determining the
classification of the MVAC manufactured by the appellant.
                                                                               C
       5.6 Adverting to Chapter Note 7 to Chapter 84, it is also argued
that production of chilled water is the sole purpose of the MVAC and
the product does not qualify as heat pump, if the HSN definition is
applied as is necessary.
                             DISCUSSION                                        D
       6. The definition of a product given in the HSN should be given
due weightage in the classification of a product for the purpose of levying
excise duty. This is because in the Statement of Objects and Reasons of
the Bill leading to enactment of Central Excise Tariff Act, 1985, it was
clearly stated that the pattern of tariff classification is broadly based on   E
the system of classification derived from the International Convention
on the Harmonised Commodity Description and Coding System
(Harmonised System) with such contraction or modification thereto as
are necessary, to fall within the scope of the levy of central excise duty.
The tariff so suggested for the levy under the Indian Tariff Act is based
on an internationally accepted nomenclature, in the formulation of which,      F
all considerations, technical and legal, have been taken into account.
This was done to reduce avoidable disputes on tariff classification.
Besides, the tariff would be on the lines of the harmonized system. It
was also borne in mind that the tariff on the lines of the harmonized
system would bring about considerable alignment, between the customs           G
and central excise tariffs, which in turn, would facilitate charging of
additional customs duty on imports, equivalent of excise duty. It was
therefore expressly stated in the Statement of Objects and Reasons that
the central excise tariff are based on the HSN and the internationally
accepted nomenclature was as such taken into account, to reduce tariff
                                                                               H
174            SUPREME COURT REPORTS                          [2022] 16 S.C.R.


A     classification disputes. Thus, it was suggested that a safe guide for
      classification is the internationally accepted nomenclature emerging from
      the HSN and in case of doubt, the HSN should be chosen advisory for
      ascertaining the true meaning of any expression used in the Tariff Act.
      In Wood Craft (supra), in the opinion written by Justice J.S. Verma, the
      following was pertinently opined in this context:
B
            “12. ….. Accordingly, for resolving any dispute relating to tariff
            classification, a safe guide is the internationally accepted
            nomenclature emerging from the HSN. This being the expressly
            acknowledged basis of the structure of Central excise tariff in the
            Act and the tariff classification made therein, in case of any doubt
C           the HSN is a safe guide for ascertaining the true meaning of any
            expression used in the Act. The ISI Glossary of Terms has a
            different purpose and, therefore, the specific purpose of tariff
            classification for which the internationally accepted nomenclature
            in HSN has been adopted, for enacting the Central Excise Tariff
D           Act, 1985, must be preferred, in case of any difference between
            the meaning of the expression given in the HSN and the meaning
            of that term given in the Glossary of Terms of the ISI.
                      ****              ****              ****              ****

E                     ****              ****              ****              ****
            18. We are of the view that the Tribunal as well as the High
            Court fell into the error of overlooking the fact that the structure
            of the Central excise tariff is based on the internationally accepted
            nomenclature found in the HSN and, therefore, any dispute relating
F           to tariff classification must, as far as possible, be resolved with
            reference to the nomenclature indicated by the HSN unless there
            be an express different intention indicated by the Central Excise
            Tariff Act, 1985 itself. The definition of a term in the ISI Glossary,
            which has a different purpose, cannot, in case of a conflict, override
G           the clear indication of the meaning of an identical expression in
            the same context in the HSN. In the HSN, block board is included
            within the meaning of the expression “similar laminated wood” in
            the same context of classification of block board. Since the Central
            Excise Tariff Act, 1985 is enacted on the basis and pattern of the
            HSN, the same expression used in the Act must, as far as
H           practicable, be construed to have the meaning which is expressly
 M/S THERMAX LTD. THROUGH ITS DIRECTOR v. COMMISSIONER OF                       175
         CENTRAL EXCISE, PUNE-1 [HRISHIKESH ROY, J.]


      given to it in the HSN when there is no indication in the Indian          A
      tariff of a different intention.”
       7. Commenting on the importance of taking guidance from HSN
Classification and how a taxing statute should be construed in consonance
with their commonly accepted meanings in the trade and popular sense,
Justice Sanjiv Khanna in D.L. Steels (supra) also so correctly observed         B
as follows:-
              “9. The Harmonised System of Nomenclature9, developed
      by the World Customs Organisation, has been adopted in India by
      way of the Customs Tariff Act, 1975, though there are certain
      entries in the Schedules to this Act which have not been assigned         C
      HSN codes. The Harmonised System is governed by
      the International Convention on Harmonised Commodity
      Description and Coding System, which was adopted in 1983,
      and enforced in January, 1988. This multipurpose international
      product nomenclature harmonises description, classification, and
      coding of goods. While the primary objective of the HSN is to             D
      facilitate and aid trade, the Code is also extensively used by
      governments, international organisations, and the private sector
      for other diverse purposes like internal taxes, monitoring import
      tariffs, quota controls, rules of origin, transport statistics, freight
      tariffs, compilation of national accounts, and economic research          E
      and analysis. In the present times, given the widespread adoption
      of the Harmonised System by over 200 countries, it would be
      extremely difficult to deal with an international trade issue involving
      commodities, without adverting to the Harmonised System. The
      Code is the bedrock of custom controls and procedures. The HSN
      consists of over 5000 commodities groups, which are structured            F
      into 21 Sections and 97 Chapters, which are further divided into
      four and six digit subheadings. Many custom administrations, like
      India, use an eight or more digit commodity coding system, with
      the first six digits being the HSN code.
             10. Classification under the Harmonised System is done             G
      by placing the good under the most apt and fitting sub-heading.
      This is done by choosing the appropriate Chapter, Heading, and
      sub-heading respectively. To facilitate interpretation and
      classification, each of the 97 Chapters in the HSN contain
      corresponding Chapter Notes, General Notes, and Explanatory               H
176             SUPREME COURT REPORTS                          [2022] 16 S.C.R.


A           Notes applicable to the Headings and sub-headings within that
            Chapter. In addition, there are six General Rules of
            Interpretation10 applicable to the Harmonised System as a whole.
            ****                         ****                       ****
            ****                         ****                       ****
B
                   12. We would, at this stage, take on record the well-settled
            principle that words in a taxing statute must be construed in
            consonance with their commonly accepted meaning in the trade
            and their popular meaning. When a word is not explicitly defined,
            or there is ambiguity as to its meaning, it must be interpreted for
C           the purpose of classification in the popular sense, which is the
            sense attributed to it by those people who are conversant with the
            subject matter that the statute is dealing with. This principle should
            commend to the authorities as it is a good fiscal policy not to put
            people in doubt or quandary about their tax liability. The common
D           parlance test is an extension of the general principle of
            interpretation of statutes for deciphering the mind of the law-maker.
            However, the above rule is subject to certain exceptions, for
            example, when there is an artificial definition or special meaning
            attached to the word in a statute, then the ordinary sense approach
            would not be applicable.”
E
             8. Guided by the definition of heat pump as given in the HSN, it is
      clearly discernible that the Modified Vapour Absorption Chillers
      (MVAC) manufactured by the appellant do not satisfy the definition of
      heat pump as given in the HSN. According to the appellant, the functioning
      of the MVAC involved - a) Lithium Bromide in a lower concentration is
F     made to react with water to form what is commonly known as the ‘weak
      solution’ containing both water and Lithium Bromide; b) To this weak
      solution, heat is applied. When heat is applied, the concentration of Lithium
      Bromide increase which results in the separation of the water from
      Lithium Bromide. The separated water is in the form of Vapour; c) This
G     Vapour travels to the condenser and then to the cooling tower to produce
      chilled water; d) The waste heat if any can be used to produce hot
      water. The heat can also be wasted.
             9. 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
H
 M/S THERMAX LTD. THROUGH ITS DIRECTOR v. COMMISSIONER OF                       177
         CENTRAL EXCISE, PUNE-1 [HRISHIKESH ROY, J.]


definition. The hot water, that is produced for generating chilled condition/   A
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 in our view, be irrational.
        10. Moreover, it cannot also be overlooked that customers do not
purchase MVAC because it produces hot water and in commercial                   B
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.
       11. The appellant however argued that their machine can produce
both chilled and hot water as output using refrigeration cycle and the          C
product user has the option of availing either hot or chilled water. On this
aspect, it is acknowledged by the learned counsel for the appellant that
the production of cold water never stops when the MVAC is operating.
Of course, with the option of a switch, the hot water can also be obtained.
However, the customer does not have the option of choosing either hot
or chilled water and he has to compulsorily use chilled water or use both       D
chilled water and hot water.
       12. As it is not possible for the user to obtain only hot water from
the MVAC, we find it difficult to relate the product to the definition of
heat pump given in the HSN. The manner of operation of the device
and its output makes it abundantly clear that the primary purpose of the        E
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.
       13. When the market/common parlance test is applied for the
manufactured product, it is seen that the appellant in their website have       F
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               G
incidental hot water generating capacity of the Vapour Absorption
Chillers, to treat it as a heat pump. The modification of Vapour
Absorption Chillers by adding a sensor to gauze the temperature and
incorporating a selector switch in the control panel to select heating/
cooling mode with added wiring to carry the signal from the censors
                                                                                H
178             SUPREME COURT REPORTS                           [2022] 16 S.C.R.


A     would simply mean that a vapour absorption chiller can also produce
      hot water. However, what is important to keep in mind is that 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
B
      the machine cannot therefore justify classification of the product in the
      category of heat pump.
             14. Insofar as the submission of Mr. V. Sridharan, the learned
      Senior Counsel that the product manufactured by the appellant must be
      similarly classified as the products manufactured by the two rival
C     companies i.e. M/s. Blue Star and M/s. Voltas, as was decided in the
      related proceedings, it must be said at the outset that the concerned
      decisions of the Tribunal related to classification of the product under
      two rival entries but in the present case, the adjudication relates to a
      single entry. Additionally, in the present matter, the Tribunal held in favour
D     of the Revenue whereas in the case of Blue Star (supra) and Voltas
      (supra), the manufacturers succeeded with their contention before the
      Tribunal. Therefore, the decision cited by the learned senior counsel for
      the appellant do not persuade us to hold in favour of the appellant.
             15. That apart, it must be kept in mind that the Revenue in the
E     case of Voltas (supra), classified their Vapour Absorption Unit as an air
      conditioning equipment falling under Chapter 8415 and not as a
      refrigeration equipment falling under Chapter 8418. Significantly, while
      declaring that the product is a refrigeration equipment falling under
      Chapter 8418, the Tribunal had no occasion to decide whether the product
      is a heat pump or not. Therefore, in the present matter where the issue
F     to be decided is whether MVAC is a heat pump or not, the decision in
      the case of Voltas (supra) can be of no assistance for such determination.
             16. Likewise, in the case of Blue Star, in order to classify the
      product beyond the scope of heat pump, the Revenue placed it under
      Chapter 8415. In that proceeding, the product in question was not tested
G     to determine whether it would be covered in the definition of heat pump
      given in the HSN. The onus to be discharged by M/s. Blue Star, in their
      case, was to prove that their product did not fall under Chapter 8415 and
      they had no occasion to satisfy the definition under HSN, for their product.
      Moreover, as earlier said, unlike the case of M/s. Blue Star, we are not
H     required to deal with two rival entries in the present matter as the
    M/S THERMAX LTD. THROUGH ITS DIRECTOR v. COMMISSIONER OF                      179
            CENTRAL EXCISE, PUNE-1 [HRISHIKESH ROY, J.]


contention of the Revenue before us is that despite the product falling           A
under Chapter 8418, the MVAC is not a heat pump.
       17. Proceeding next to examine whether Chapter Note 7 to Chapter
84 can have a bearing in the present matter, what is stated therein is that
a machine is capable of additional function, for the purpose of
classification, its principal purpose is to be understood as the machine’s        B
sole purpose. On this, the learned counsel for the Revenue has argued
that Chapter note 7 forms part of the HSN which has been adopted in
the Central Excise Tariff Act and the same being an Act of Parliament,
the reliance on the chapter note in the HSN is a legal contention which,
given the circumstances, can be applied in the present matter. We cannot
also be unmindful of the fact that Chapter Note 7 comes into play only            C
when there are two or more headings, and in those situations when,
none of those headings fall under Chapter 84.01 to 84.24. According to
HSN, the headings 84.01 to 84.24 cover an apparatus by referring to
their definition which can be used in different industries. The present
case pertains to heading 84.18 and the expression and phrases must                D
therefore be literally construed to include two commercial classifications
within the same heading. For example, a product under heading 84.18
can either be a refrigerator or a freezer or a refrigeration equipment or
a heat pump not falling under Chapter 8415. In a situation like this, if we
apply Chapter Note 7, the same can act as a tie-breaker mechanism.
The resolution can be achieved by looking at the Principal Purpose Test,          E
which if applied, can also resolve the intra-heading dispute. Such mode
of interpretation in our understanding will aid in settling, the classification
dispute by adhering to the HSN Code.
       18. If the Principal Purpose Test is applied for the machine
manufactured by the appellant, it is quite apparent that the product MVAC         F
is intended to produce chilled water. Moreover, even if the option of
availing hot water is available, significantly, the production of chilled water
never ceases, while the machine is operating. Therefore, the principal
purpose of the machine is undoubtedly to produce chilled water.
Therefore, taking help from Chapter Note 7, producing chilled water is            G
to be taken as the sole purpose of the Modified Vapour Absorption
Chillers manufactured by the appellants. The CESTAT by applying the
ratio laid down in Commissioner of Central Excise, Delhi Vs. Carrier

5
    (2006) 5 SCC 596                                                              H
180                SUPREME COURT REPORTS                      [2022] 16 S.C.R.


A     Aircon Ltd.5 has therefore concluded that the function of the machine is
      only to chill water or bring it to a very low temperature.
             19. The above conclusion is supported by the ratio in Xerox India
      Ltd. Vs. Commissioner of Customs6, where Justice H.L. Dattu while
      adverting to functional classification of multi-functional machines opined
B     that in case of machines capable of performing two or more
      supplementary/alternative functions, the appropriate classification should
      be in reference to its principal function.
             20. The principles enunciated in DL Steels (Supra) qua
      significance of HSN and the manner in which the appellant’s product
C     have been treated on the earlier occasions by the Revenue, together
      with the fact that it had been treated as a chiller and the customers have
      been purchasing MVAC primarily for the purpose of chilling, should have
      a definite bearing on the classification issue under consideration. The
      MVAC manufactured by the Appellant should normally be not classified
      as a heat pump, notwithstanding the fact that the manufacturer has
D     modified the vapour absorption chiller, using additional components.
      Moreover, the definition provided in the HSN must have an overriding
      influence over any other definition for the purpose of Classification of
      the product.
             21. The end use of MVAC is to produce Chilled Water. The use
E     of heat as one of the sources in the air-conditioning system would not
      take away the primary or basic function of the MVAC, which is to cool
      and not heat water. The additional heating capability of the machine thus
      raises a peculiar dilemma, but then one can be guided by the market
      parlance test which shows that the machine is perceived and purchased
F     only as a cooling device. The circumstances here remind us of the
      somewhat similar predicament of Lord Illingworth, the character in A
      Women of No Importance. In this classic play of Oscar Wilde7, in the
      context of observing all kinds of human capabilities, the dramatis personae
      made that classic remark on those, “who do the improbable.” The
      uncharacteristic capability of the cooling machine to also produce hot
G     water, should not however deflect us and it would be appropriate to
      observe in this case that a chiller machine is attempting to masquerade
      as a heat pump, to gain concessional tariff benefits. The conclusion

      6
          (2010) 14 SCC 430
      7
H         Oscar Wilde - A Women of No Importance.: Act 3.
 M/S THERMAX LTD. THROUGH ITS DIRECTOR v. COMMISSIONER OF                    181
         CENTRAL EXCISE, PUNE-1 [HRISHIKESH ROY, J.]


therefore is inevitable that the MVAC machine must not be categorized        A
as a Heat Pump. Consequently, it is declared that the product
manufactured by the appellants merit classification under Sub-heading
8418.10 of the central excise Tariff Act, 1985, in the category of
refrigerating equipment. The view of the CESTAT is thus affirmed. The
appeals are accordingly dismissed leaving the parties to bear their own
                                                                             B
cost.

Devika Gujral                                           Appeals dismissed.
(Assisted by : Preetam Bharti, LCRA)


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