2018 (4) TMI 721 - SC - Central Excise

Classification of goods - coconut oil in packings upto 2 litres/packings upto 500ml - 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 - Whether classifiable under Heading 1513 or under Heading 3305 of the Central Excise Tariff Act, 1985? - difference of opinion. Held that - In view of the difference of opinion in terms of the judgments pronounced by us in the present appeals, the Registry is directed to place the said appeals before Hon ble the Chief Justice of India for appropriate orders.

Issues Involved:
1. Classification of coconut oil in small packings under Central Excise Tariff Act, 1985.
2. Applicability of the General Rules for Interpretation and relevant Chapter Notes.
3. Impact of market perception and common parlance test on classification.
4. Relevance of Harmonised System of Nomenclature (HSN) and explanatory notes.
5. Effect of amendments to the Central Excise Tariff Act effective from 28.02.2005.
6. Consideration of CBEC circulars and judicial precedents.
7. Difference in judicial opinions on the classification issue.

Detailed Analysis:

1. Classification of Coconut Oil in Small Packings:
The core dispute revolves around whether coconut oil in small packings should be classified under Heading 1513 (coconut oil) or Heading 3305 (hair oil) of the Central Excise Tariff Act, 1985. The Revenue contends that small packings are used as hair oil and should be classified under Heading 3305, while the assessee argues for classification under Heading 1513, as the product is marketed as edible oil.

2. Applicability of General Rules for Interpretation and Relevant Chapter Notes:
The judgment examines the General Rules for Interpretation, particularly Rule 1, which mandates classification according to the terms of the headings and any relative Section or Chapter Notes. The Revenue relies on Chapter Note 1(e) to Chapter 15, Section Note 2 to Section VI, and Chapter Note 3 to Chapter 33 to argue for classification under Heading 3305. The assessee disputes the applicability of these provisions.

3. Impact of Market Perception and Common Parlance Test:
The Revenue argues that market surveys indicate consumers perceive coconut oil in small packages as hair oil, invoking the common parlance test. The court reviews precedents where the common parlance test was applied, emphasizing that classification should reflect how products are understood in trade and by consumers.

4. Relevance of Harmonised System of Nomenclature (HSN) and Explanatory Notes:
The judgment acknowledges the HSN as a guide for resolving classification disputes. The assessee points out that the 2005 amendment aligned the Central Excise Tariff with the HSN, which classifies coconut oil under Chapter 15. The court considers the explanatory notes to Chapter Note 3 of the HSN, which clarify that products suitable for use as hair oil and sold in retail packings should be classified under Heading 3305.

5. Effect of Amendments to the Central Excise Tariff Act Effective from 28.02.2005:
The 2005 amendment introduced specific headings for coconut oil (1513) and refined the classification criteria. The court examines the legislative intent behind the amendment, which aimed to align the tariff with the HSN without changing existing duty rates. The amendment's impact on the classification of coconut oil in small packings is a key consideration.

6. Consideration of CBEC Circulars and Judicial Precedents:
The court reviews CBEC Circular No.145/56/95-CX and subsequent circulars, which provided guidance on classifying coconut oil. The tribunal's reliance on pre-amendment circulars and judicial precedents is scrutinized, with the court noting that the amendment necessitates a fresh interpretation.

7. Difference in Judicial Opinions on the Classification Issue:
The judgment notes a divergence in judicial opinions. One judge concludes that coconut oil in small packings should be classified under Chapter 15, Heading 1513, as it remains coconut oil regardless of packaging size. The other judge argues for classification under Chapter 33, Heading 3305, based on the product's suitability for use as hair oil and its retail packaging. The matter is referred to the Chief Justice of India for resolution due to the difference of opinion.

Conclusion:
The judgment presents a thorough analysis of the classification issue, considering statutory provisions, market perception, HSN guidelines, and judicial precedents. The final determination hinges on whether the product's packaging and market usage justify classifying it as hair oil under Heading 3305 or as coconut oil under Heading 1513. The difference in judicial opinions underscores the complexity of the classification dispute.

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