In recent judgment of Supreme Court in the case of Westinghouse Saxby Farmer Ltd. v. CCE, Calcutta, 2021-VIL-33-SC-CE, the Apex Court held that ‘Relays’ used in railway signaling equipment will be classified under Heading 8608 as per their predominant or sole or principal use.

Background: 

• Taxpayer was engaged in manufacture of ‘Relays’.

• ‘Relay’ is an electrically operated switch which control a circuit and was used as part of railway signaling system in the instant case.

• Revenue sought classification of ‘Relays’ as electrical equipment under Heading 8536 while taxpayer contended it to be part of railway signalling equipment under Heading 8608.

Decision:

The Supreme Court rejected revenue’s contentions and held as under:

• General Rules of Interpretation (‘GIR’) are applicable only when classification cannot be determined basis terms of Heading and relevant Section or Chapter Notes.

• Rule 3 of GIR is applicable when a product can be classified under two or more headings.

• Note 3 of Section XVII of the Central Excise Tariff Act, 1985 (‘CETA’) recognizes user test. Therefore, parts suitable for use solely or principally with an article in Chapter 86 cannot be classified under a different Chapter.

• ‘Relays’ manufactured by taxpayer were used solely as part of railway signaling / traffic control equipment. Hence, these goods were correctly classifiable under Heading 8608.

NITYA Comments: 

While this judgment offers relief to parts of railways, it will raise classification disputes for parts of motor vehicles. Supreme Court’s interpretation of Note 3 of Section XVII of the CETA lacks reasoning. If this interpretation is adopted, Note 2 of the Section XVII will become redundant and all parts of motor vehicle shall be classifiable in Heading 8708. This judgment also failed to consider earlier jurisprudence on classification of parts and accessories of motor vehicles holding contrary. 

Taxpayer must represent this issue before Government (through Industry Associations) to seek clarification on correct classification of parts and accessories of motor vehicles to avoid future disputes. 

On this issue, Mr. Deepak Suneja, Partner at NITYA Tax Associates has also shared his views in video available below: 

Hope you find this an interesting read and watch! Please feel free to share your comments / feedback on the same.

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