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Motor Industries Co. Ltd. Vs. Collector of Customs - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1983)LC1729DTri(Delhi)
AppellantMotor Industries Co. Ltd.
RespondentCollector of Customs
Excerpt:
.....wire" and that they had a working surface of precious/semi-precious stones on a support of a base metal. they further contended that these grinding wires were used mounted on a special collet on a special purpose machine with high frequency spindles. the appellants relied on note l(c) to chapter 82 of the customs tariff schedule and submitted that the goods correctly fell under heading no. 82.05(1). the appellate collector, however, relied on note l(d) to chapter 82 and rejected the contentions of the appellants.it is against the orders of the appellate collector that the appellants filed revision applications before the central government which have been transferred to this tribunal, under the provisions of section 131-b of the customs act, 1962 for disposal as if they were.....
Judgment:
1. The present order disposes of the two captioned appeals which involved identical issues. These appeals had been originally filed before the Central Government as Revision Applications as those have come on transfer to this Tribunal, under the provisions of Section 131-B of the Customs Act, 1962 for disposal as if they were appeals presented before it.

2. The goods in relation to which the dispute in the present appeals has arisen are two consignments of "Diamonds impregnated grinding wires". The Customs authorities at Madras assessed them to duty under Heading No. 68.01/16(1) of the First Schedule to the Customs Tariff Act, 1975 (hereinafter referred to as the Customs Tariff Schedule at 100% ad valorem (basic customs duty) plus 20% ad valorem (auxiliary duty) plus 15% (additional-countervailing-customs duty). After clearance of the goods on payment of the duty so assessed, the appellants filed refund claims before the Assistant Collector on the ground that the goods were correctly assessable to duty under Heading No. 82.05 (1) of the said Customs Tariff Schedule at 60% ad valorem (basic customs duty) plus 15% ad valorem (auxiliary customs duty). The Assistant Collector rejected the claim on the ground that the goods were only impregnated with diamond and that since they did not have cutting teeth, flutes, grooves or the like, they would not qualify for classification under Heading No. 82.05. The appellants pursued the matter in appeal before the Appellate Collector of Customs on the ground that the subject grinding wires were adopted for grinding operations to meet the appellants' specific requirements of pintlehole grinding of Nozzles where the diameter had to be controlled to a very high degree of tolerance to achieve precise delivery of fuel, that the manufacturer's catalogue referred to the goods as "Rotating Diamond files and sawing wire" and that they had a working surface of precious/semi-precious stones on a support of a base metal. They further contended that these grinding wires were used mounted on a special collet on a special purpose machine with high frequency spindles. The appellants relied on Note l(c) to Chapter 82 of the Customs Tariff Schedule and submitted that the goods correctly fell under Heading No. 82.05(1). The Appellate Collector, however, relied on Note l(d) to Chapter 82 and rejected the contentions of the appellants.

It is against the orders of the Appellate Collector that the appellants filed Revision Applications before the Central Government which have been transferred to this Tribunal, under the provisions of Section 131-B of the Customs Act, 1962 for disposal as if they were appeals presented before it.

3. In the Revision Applications (hereinafter referred to as appeals), the appellants have reiterated their contentions before the lower authorities to the effect that the subject goods correctly fell under Heading 82.05(1) in view of Note l(c) to Chapter 82. In a write-up furnished along with the appeals, it has been stated that the subject diamond impregnated wire is used on a special purpose precision grinding machine for internal grinding of very small bore of the injector nozzle and that the form accuracy and the tolerances on the ground hole are extremely close. The Write-up also furnishes other technical features and properties of the diamond impregnated wire and the diamond grains coated on the base wire of spring steel. In a subsequent communication dated 8-3-1983, the appellants have made further written submissions in which they have reiterated their contentions that the subject goods are in the nature of a tool like a Diamond Dressing Tool used on a special purpose precision grinding machine for internal grinding of a very small bore of the injector nozzle. As regards the levy of countervailing duty, they have drawn attention to the Central Board of Excise & Customs decision No. F.B-48/1/71 CX-1I dated 31-7-1971 holding that Diamond Dressing Tools and Diamond Indenters do not fall under Item 51-CET.4. The case was heard on 8-4-1983 when Shri Mascarenhas, Consultant, appearing on behalf of the appellants, submitted that reliance by the lower authorities on Note l(d) to Chapter 82 of the Customs Tariff Schedule and ruling out classification of the goods under Heading 82.05(1) was not correct since it was Note l(c) and not Note l(d) which was applicable in the present case. The Appellate Collector erred in holding that it was the wire that should have cutting teeth, flute or groove or the like; the said feature should be on the article, not on the wire, as per the said Note l(d); and that if the wire had teeth etc., it would not be good for the tool. On the other hand, Note l(c) which covered precious or semi-precious stones on a support of base metal, covered the present goods. He also submitted that, at the material time, only cutting tools were liable to central excise duty under Item No. 51A of the CET and not the present goods. For this purpose he relied on Board's Tariff advice No. 116/1/71-CX-3 dated 16-2-1972 (reproduced in the CET of 1971 by R.K. Jain) to the effect that diamond dressing tools did not fall within the purview of the said Item 51A.5. Appearing on behalf of the Respondent, Shri Kunhikrishnan, referring to the Explanatory Notes appearing on page 1124 of the Customs Cooperation Council Nomenclature, Volume 3, under Heading No. 82.05, submitted that to qualify for classification under the heading the metal tool should be able to cut, having teeth etc. even if it might have abrasive on it. The present goods, not being of this type, were excluded from the scope of heading 82.05 and fell within the scope of Heading 68.04. They were thus not tools for the purpose of basic Customs duty or countervailing Customs duty.

6. We have carefully considered the submissions of both the parties.

For a proper appreciation of the contentions, it is necessary to set out the relevant Headings of the Customs Tariff Schedule and the Chapter Notes referred to : "Articles of natural or artificial stones, of agglomerated natural or artificial abrasives, of plastering material, of cement, of concrete, of asbestos, of asbestos-cement or cellulose fibre cement, or of mica; articles of vegetable materials agglomerated with mineral binders; mineral wools; expanded mineral materials; articles of other mineral substances, not elsewhere specified or included : (2) Grinding stones, grinding wheels and the like of natural stone, of agglomerated natural or artificial abrasives, and segments or other finished parts of such stones and wheels but excluding hand polishing stones, whetstones, oil stones, and bones." "Interchangeable tools for hand tools, for machine tools or for power-operated hand tools (for example, for pressing, stamping, drilling, tapping, threading, boring, broaching, milling, cutting, turning, dressing, morticing or screw driving), including dies for wire drawing, extrusion dies for metal, and rock drilling bits : "Apart from blow lamps, portable forges, grinding wheels with frameworks, manicure and chiropody set and goods classified in Heading No. 82.07 and handles of base metal falling within Heading No. 82.08/15, this Chapter covers only articles with a blade, working edge, working surface or other working part of:* * * * (c) precious or semi-precious stones (natural, synthetic or reconstructed) on a support of base metal ; or (d) abrasive materials on a support of base metal, provided that the articles have cutting teeth, flutes, grooves, or the like, of base metal, which retain their identity and function after the application of the abrasive." 7. The question for consideration is whether the subject diamond impregnated wires fall for classification under Heading 82.05(1) or 68.01/ 16(1). The appellants contend that the correct Heading is 82.05(1) and the basis for this contention is that the subject diamond impregnated wires are in the nature of as tool like a diamond dressing tool. The wires are mounted on a special collet on a special purpose grinding machine. The use of the wire is for the internal grinding of the very small bore of the injector nozzle. The grinding is said to be done to very close tolerance. The grinding spindle is stated to run at a very high speed of 1,25,000 R.P.M. The lower authorities rejected their contention on the ground that the diamond impregnated grinding wire has no cutting teeth, flutes, grooves or the like, of base metal which retain their identity and function after application of abrasive, relying on Note l(d) of Chapter 82 of the Customs Tariff Schedule (reproduced above). The lower authorities have held that the goods in question has a base metal, i.e. spring steel wire which is a mere wire and has no cutting teeth, flutes, grooves or the like and that this wire is not a tool as such to retain its identity and function of a tool even after application of the abrasive, namely, diamond grains. On this reasoning they have held that the goods fall under Heading No.68.01/16(1) as any article made of natural abrasives. The appellants, however, argue that the goods are in the nature of tools covered by Note l(c) of Chapter 82 which deals with articles with a blade, working edge, working surface or other working part of precious or semi-precious stones, natural synthetic or re-constructed on a support of base metal.

8. Now, the technical "Write-up" furnished by the appellants makes it clear that diamond of a very fine grain size is uniformly coated on the base wire which is made of spring steel; the process of impregnation and bonding being very important to ensure that the diamond cutting points, while the wire is being used in the machine, must not fall down at a high speed. The article herein is thus comprised of abrasive material on a support of base metal. However, as the appellants have admitted during the hearing, the article as such has no cutting teeth, flutes, grooves or the like of base metal, which retains its identity and function after application of the abrasive. The Explanatory Notes to the CCCN appearing on page 1124, Volume 3, make it clear that the tool must have a base metal working part fitted or covered with abrasive material provided that the tool has cutting teeth, flutes, grooves, etc., i.e. tool should be capable of being put to use even if the abrasive has not been applied. Note l(c) of Chapter 82, on the other hand, deals with articles with a blade working edge or working surface or other working part of precious or semi-precious stones on a support of base metal. The Explanatory Notes to the CCCN, to which we have referred, state that the composite tool must consist of one or more working part of, among other things, base metal or diamond, attached to a base metal support either permanently by welding or insetting or as detachable part. In other words, the reference is to a working part made of diamond rather than diamond grains, bonded or impregnated on a support of base metal. A reference to the Explanatory Notes under Heading 68.04 (Pp. 885 to 887), Volume 2, makes it further clear that Chapter 82 covers only tools with cutting teeth, flutes, grooves, etc. which retain their identity and function even after application of the abrasive material, i.e. tools which could be put to use even if the abrasive had not been applied. The said Notes also make it clear that Heading 68.04 covers tools consisting of a centre or core of rigid material, such as metal on to which compact layers of agglomerated abrasives have been permanently bonded. Having regard to these Notes it is clear that the appropriate classification for the subject diamond impregnated grinding wire is 68.01/16(1) and not 82.05 of the Customs Tariff Schedule.

9. As regards the levy of countervailing duty, the appellants have challenged the classification of the subject goods under Item No. 51 (1) of the Central Excise Tariff Schedule as a "Natural or artificial abrasive powder or grain on a base of woven fabric, of paper, of paper board or of other material whether or not cut to shape or sewn or otherwise made up". In this context, they have referred to Board's Tariff Advice of 31-7-1971 holding that damond dressing tools, diamond drilling bits and diamond indentors do not fall within the purview of Item No. 51 of the C.E.T. We do not have the benefit of the basis which led to these conclusions. From a plain reading of the wording of Item No. 51(1) of the C.E.T. it is clear that the subject goods which consisted of fine diamond grains impregnated or bonded on a base of spring steel wire and which are "made up" and are in a ready-to-use condition, fall for classification under that Item. It is not quite clear from the record whether the goods were assessed under Sub-item (1) or Sub-item (2) of Item No. 51 of C.E.T., but this, for all practical purposes, is an academic issue since the rate of duty was the same for both the Sub-items.


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