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M/S. Thermax Ltd. thr. its Director vs. Commissioner of Central Excise, Pune 1

Civil Appeal · 2022 INSC 1078Decided 13 Oct 2022
Civil Appeal Nos. 6048-6050 of 2009
K.M. Joseph · Hrishikesh Roy

Background

Thermax Ltd. manufactured a product called Modified Vapour Absorption Chillers (MVAC) and sold it describing it as a "heat pump" to claim a concessional excise duty rate available to heat pumps under a 1986 notification. The Assistant Commissioner of Central Excise rejected this classification, the Commissioner (Appeals) sided with Thermax, but the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) reversed again, holding the product was not a heat pump and so was not entitled to the concessional rate. Thermax's writ petition to the Bombay High Court was dismissed since a statutory appeal route to the Supreme Court existed, leading to this appeal.

Decision Breakdown

The Supreme Court applied the "Principal Purpose Test" (drawn from Chapter Note 7 to Chapter 84 of the tariff schedule and the Harmonized System of Nomenclature), reasoning that although the MVAC could produce both chilled and hot water, its chilling function never stopped during operation while its heating capability was merely incidental, meaning cooling was its true, principal purpose. The Court found the "market parlance" test also pointed the same way, since customers bought the machine primarily as a cooling device. It distinguished earlier Tribunal rulings involving Blue Star and Voltas as dealing with different classification disputes (choice between two rival tariff headings, not an intra-heading dispute like this one). The Court affirmed CESTAT's finding, held the product must be classified as refrigeration equipment under Sub-heading 8418.10 (not as a heat pump), and dismissed the appeals, leaving each side to bear its own costs.

Lesson Learnt

In tax classification disputes, how a manufacturer's product is described or marketed does not control its legal classification. Courts look to a product's actual principal function (what it is chiefly used for) to decide its correct tariff category, and a business cannot secure a tax concession by emphasizing an incidental capability over the product's true primary purpose.

Official source (sci.gov.in)View Judgment (PDF)

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