M/s Thermax Limited Vs Commissioner of Central Excise, Pune(Supreme Court)
Date-13th October 2022
Sub-Whether MVAC manufactured by the petitioner can be classified as Heat Pump to be eligible for concessional rate of duty in terms of exemption notification? Relevance of definition given in HSN, Market/common Parlance and Principal Purpose test explained.

The Supreme Court in this case was seized of a situation where the petitioner argued that Modified Vapour Absorption Chillers(MVAC) manufactured by it were classifiable as Heat pumps since they could produce both chilled and Hot water and thus was eligible for concessional rate of duty in terms of Notification No 155/86-CE dated 01.03.1986. The department on the other hand relied on the definition of Heat pumps given in the HSN Code and argued that the primary purpose of MVAC was to produce chilled water and the product did not satisfy the definition as given and was thus not eligible for exemption. The court after noting that the definition of a product given in HSN should be given due weightage in the classification of a product for the purpose of levy of excise duty,also noted that the customers do not purchase MVAC because it produces hot water and it is basically purchased for cold water. Moreover it was also noted that even though the machine was capable of producing hot water it was not capable of producing chilled water or hot water and even while producing the hot water, the option of chilled water and hot water both had to be selected. Finally based on petitioner’s own depiction of the product in its website as one to produce chilled water, the court in a lighter vein noted ,the character of a woman in the play, a woman of no importance ,where the character could do the improbable and thus the appeal was dismissed by observing that a chiller machine is attempting to masquerade as a heat pump, to gain concessional tariff benefits.

This judgement even though in the context of Excise duty, will be relevant in the context of classification in the context of GST and is important.

Ramesh Patodia
14-10-2022