1. Dispute over classification of coconut oil in small containers under Heading 1513 or Heading 3305 of the Central Excise Tariff Act, 1985. (Para 1 , 2 , 3 , 4 , 5 )
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2018 Supreme(SC) 338
SUPREME COURT OF INDIA
RANJAN GOGOI, R. BANUMATHI, JJ.
Commissioner of Central Excise – Appellant
Versus
M/s. Madhan Agro Industries (I) Pvt. Ltd. – Respondent
Civil Appeal No. 1766 of 2009
With
Commissioner of Central Excise, Pondicherry – Appellant
Versus
M/s. Aishwarya Industries & Ors. – Respondents
Civil Appeal Nos. 6703-6710 of 2009
Decided On : 13-04-2018
IMPORTANT POINT
In view of difference of opinion between the judges, tye matter referred to larger Bench.
Headnote:Per Ranjan Gogoi, J.
(a) Interpretation of statute – Central Excise Tariff Act, 1985 – Rules for Interpretation and the Chapter Notes – Understanding of CBEC and other authorities can be an useful aid in understanding and resolving disputed issues of classification – Harmonised System of Nomenclature (HSN) and the Chapter Notes and Explanatory Notes thereto repeatedly acknowledged by Supreme Court to be a safe guide. (Para 12)
(1995) 3 SCC 454; (2008) 17 SCC 569; (2005) 2 SCC 460 – Relied upon
(b) Central Excise Tariff Act, 1985 – Chapter Headings 1513 and 3305 – Coconut oil – Falling under CH 1513 – When packed in small containers/sachets – Will not cease to be coconut oil and become hair oil – Held, would continue under CH 1513. (Para 20)
(2005) 2 SCC 460; (2008) 17 SCC 569 – Relied upon
1981 (8) E.L.T. 325 (S.C.); 1988 (35) E.L.T. 3 (S.C.); (1996) 9 SCC 402; (2003) 3 SCC 111 – Distinguished
(c) Central Excise Tariff Act, 1985 – Chapter Heading 1513 and 3305 – Coconut oil – Included in 1513 – Coconut oil as a preparation for use as hair oil – Not included in Heading 3305 or any of its Sub-Headings – 3305 applicable to products “which are suitable for use as goods mentioned in the Heading and if they are put up in packings of a kind sold by retail for such use” – Instantly, in the packings coconut oil mentioned as ‘edible oil’ in the inscription – Nothing on the packing indicating it to be meant to be used as hair oil – Held, the coconut oil in dispute would be more appropriately classifiable under Chapter 15, Heading 1513. (Para 26, 27, 32)
(2005) 2 SCC 460; (1995) 3 SCC 454; (2008) 17 SCC 569; (2008) 9 SCC 82 – Relied upon
(d) Excise law – Registration of a trademark under any particular class – Cannot be determinative of the classification of the product for purposes of Central Excise Tariff. (Para 33)
(e) Administration of justice – doctrine of merger – Order appealed against merges with the appellate order even if non-speaking but on merit. (Para 35)
(2000) 5 SCC 373 – Relied upon
Per R. Banumathi, J. (Differing)
(f) Central Excise Tariff Act, 1985 – Cardinal rule for interpretation of Schedule – Classification of goods – Heading and relative Section or Chapter Notes must be considered – If conflict in classification still persists, resort to other rules to be made. (Para 8)
(g) Central Excise Tariff Act, 1985 – Chapter heading 1513 and 3305 – Coconut oil – Packed in small containers/ sachet – Section Note 2 to Section VI – ‘Suitability for use as hair oil’ and 'put up in packings of the kind sold by retail for such use’ – Held instant product cannot be classified under Chapter 15 as 'fixed vegetables oils' or 'coconut oil'. (Para 16)
2002 (139) ELT 633 (T); 2005 (180) ELT 401 (T); 2006 (200) ELT 342 (T) – Distinguished
(h) Central Excise Tariff Act, 1985 – Rule 3(a) of "General Rules for the Interpretation" – Invokable only if the Headings and the relevant Sections and the Chapter Notes are not clearly determinative of the classification – Instantly Rule 1 applies. (Para 17, 32)
(i) Excise Tariff Act, 1985 – Chapter heading 3305 – 'Coconut Oil' instantly put up in packing of a kind sold in retail suitable for use as application on hair – Would merit classification under tariff entry 33.05. (Para 23)
2006 SCC onLine Raj 446; (2015) 78 VST 423 – Referred
(j) Central Excise Tariff Act, 1985 – Chapter heading 3305 – Common parlance test – Pure coconut oil packed in small containers – Understood by dealer and consumer and in the market as 'Hair Oil' – Expression "suitable for use as goods in these headings" – Not necessary that the product is used as such – ‘Suitability for such use’ is what matters. (Para 26, 50)
(k) Central Excise Tariff Act, 1985 – Classification – Product referable to two specific headings – The one occurring subsequently would prevail. (Para 34)
(2002) 8 SCC 410 – Relied upon
(l) Interpretation of statute – Classification under Central Excise Tariff Act – Classification of a product – On the basis of as to how that article is understood in 'common parlance' or in 'commercial world' – Not as per scientific or technical meaning – Held, coconut oil predominantly understood only as 'Hair Oil' and not as 'edible oil' – Hence, classifiable only under Chapter 33 and not under Chapter 15. (Para 36, 49)
(1988) 2 SCC 470; 1991 Supp (1) SCC 57; (2005) 4 SCC 9; (2012) 5 SCC 585; (2006) 5 SCC 596; AIR 1967 SC 1454; (2012) 13 SCC 639; (2003) 3 SCC 111 – Relied upon
1987 (29) ELT 753 Del – Cited with approval
(m) Central Excise Tariff Act, 1985 – Classification of goods – Harmonized System of Nomenclature (HSN), explanatory notes; and Chapter Headings – Held, instantly HSN Chapter Note, though a safe guide, cannot be relied upon to determine the classification – Rather the CETA Tariff Chapter Note must be considered. (Para 56, 59)
(2008) 9 SCC 82 – Relied upon
(1995) 3 SCC 454; (2008) 17 SCC 569; (2005) 2 SCC 460; (1995) 3 SCC 454 – Referred
(n) Administration of justice – Dismissal of an appeal by Supreme Court – By non-speaking order – Not correct to assume that all questions have been implicitly decided – "Doctrine of Merger" will not apply. (Para 64)
2014 (314) ELT 541 (Tri. - Mumbai); CA Nos. 2023-37 of 2014 – Referred
Facts of the case:
This appeal has been filed by the Revenue against the orders passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) holding that the coconut oil manufactured and packed in “small containers” by the respondent(s)-assessee(s) is classifiable under Heading 1513 and not under Heading 3305 of the Central Excise Tariff Act, 1985.
Finding of the Court:
The Hon’ble Judges differed in their opinions.
Result: Matter referred to larger Bench.
Legal Category Hierarchy
Table of Contents
2. Revenue argues classification as hair oil based on common parlance and packaging; assessees contend it remains coconut oil under the specific heading 1513. (Para 7 , 8 , 9 , 10 , 11 , 21 , 22 )
3. The court analyzed the HSN, General Rules of Interpretation, and Chapter Notes to determine if packaging and market perception override specific statutory headings. (Para 12 , 13 , 14 , 19 , 20 , 21 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 15 , 16 , 17 , 18 , 22 , 23 , 36 , 37 , 38 , 39 , 40 , 41 , 42 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53 , 54 , 55 , 56 , 57 , 58 , 59 , 60 , 61 , 62 , 63 , 64 )
4. Classification depends on whether specific headings and HSN notes prevail over common parlance and the exclusionary nature of Section Note 2 to Section VI. (Para 20 , 29 , 32 , 14 , 15 , 33 , 65 )
5. Due to a difference of opinion between the judges, the appeals are referred to the Chief Justice of India for appropriate orders. (Para 36 , 65 )
6. When does the common parlance test apply in tariff classification?
The common parlance test applies when a product is not specifically defined or dealt with by any heading. If a product is clearly covered by a specific heading, classification is determined by statutory provisions and Chapter Notes rather than consumer perception. (Para 20 )
7. What is the evidentiary value of the Harmonised System of Nomenclature (HSN) in resolving classification disputes?
HSN is a safe guide for ascertaining the true meaning of expressions in the Tariff Act. However, if the Tariff Act's notes are not aligned with HSN, the statutory notes of the Act prevail over the HSN. (Para 29 , 30 , 59 , 60 , 61 )
8. Does packing a product in small retail containers automatically change its classification to a cosmetic preparation?
Not necessarily. For classification under Chapter 33, the product must be suitable for such use and put up in retail packaging with labels, literature, or in a form clearly specialized for that use. (Para 27 , 28 , 29 )
9. How is Rule 3(c) of the General Rules for Interpretation applied when a product is prima facie classifiable under multiple headings?
If a product cannot be classified by the most specific description under Rule 3(a) or by its essential character under Rule 3(b), it is classified under the heading that occurs last in numerical order. (Para 33 )
JUDGMENT :
Ranjan Gogoi, J.
1. Aggrieved by the orders passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) (hereinafter referred to as ‘the Tribunal’) holding that the coconut oil manufactured and packed in “small containers” by the respondent(s)-assessee(s) is classifiable under Heading 1513 and not under Heading 3305 of the Central Excise Tariff Act, 1985 (hereinafter referred to as ‘the Act’), the Revenue is in appeal before us.
2. The dispute is with regard to classification of coconut oil in packings upto 2 litres in case of M/S Madhan Agro Industries the respondent-assessee in Civil Appeal No.1766 of 2009 and packings upto 500ml in case of the respondent(s)-assessee(s) in the connected appeals i.e. Civil Appeal Nos.6703-6710 of 2009. The relevant period of assessment in all the appeals under consideration is subsequent to the amendment of the First Schedule to the Central Excise Tariff Act, 1985 by the Amendment Act of 2004 (5 of 2005) which came into force on 28.2.2005.
3. The facts, in brief, may be noted at the outset: The respondent-assessee in Civil Appeal No.1766 of 2009 i.e. M/S Madhan Agro Industries Private Limited is/was a manufacturer of 100% pure coconut oil marketed under the brand name “Shanthi”. In Civil Appeal Nos.67036710 of 2009 the assesses are four job-workers of M/S Marico Limited who had received 100% pure coconut oil from Marico Limited in bulk and thereafter had packed the same in small packages which were supplied back to Marico as per dispatch schedules issued. The packages in question carried a declaration that they contain 100% pure coconut oil. The trademark “Parachute” is also inscribed on the packs. In Civil Appeal No.1766 of 2009, the packings also included pouches of 5 ml. All the packs are marked as “edible oil”.
4. It may also be noticed at this stage that the packing sizes conform to the requirement of Clause 5 of Schedule I of the Edible Oil packaging (Regulation) Order 1998 read with serial No.10 Schedule III of the Standards of Weights and Measures (packaged commodities) Rules 1977.
5. While the assessee(s) contended that coconut oil in small packings is also classifiable as coconut oil under Heading 1513 the revenue claimed classification of the said products as “hair oil” under Heading 3305 while conceding that coconut oil in large packings i.e. beyond 2 Kgs. merited classification under Heading 1513. This is the core dispute between the parties in the present case.
6. The relevant Headings before and after the Amendment of the Central Excise Tariff Act effective 28022005 will require a specific notice and is therefore extracted below:
BEFORE AMENDMENT
CHAPTER 15
ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS;
PREPARED EDIBLE FATS; ANIMAL OR VEGETABLE WAXES
NOTES
1. This Chapter does not cover :
(a) pig fat or poultry fat;
(b) cocoa butter, fat and oil (Chapter 18);
(c) Edible preparations of Chapter 21;
(d) Greaves and residues of Chapter 23;
(e) Fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or
(f) Factice derived from oils (Chapter 40).
2. Soapstocks, oil foots and dregs, stearin pitch, glycerol pitch and wool grease residues fall in heading No.15.07
3. In this Chapter, the expression ‘fixed vegetable oils’ means oils which cannot easily be distilled without decomposition, which are not volatile and which cannot be carried off by superheated steam (which decomposes and saponifies them).
4. In relation to the products of subheading Nos.1502.00, 1503.00, 1504.00 and 1508.90, labeling or relabeling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to “manufacture”.
| Heading No. | Subheading No. | Description of goods | Rate of duty |
| 15.01 | 1501.00 | Animal (including fish) fats and oils, crude, refined or pu | |
