2024 (12) TMI 1022 - SC - Central Excise

Classification of goods - pure coconut oil, packaged and sold in small quantities ranging from 5 ml to 2 litres - classifiable as Edible oil under Heading 1513, titled Coconut (Copra) oil, etc. , in Section IIIChapter 15, or as Hair oil under Heading 3305, titled Preparations for use on the hair , in Section VI-Chapter 33, of the First Schedule to the Central Excise Tariff Act, 1985? HELD THAT - Presently, it is an admitted fact that pure coconut oil is suitable for multiple uses. That notwithstanding, when a specific heading was created in Chapter 15, viz., Heading 1513, for coconut oil along with other oils, it would not stand excluded therefrom so as to be classified as a cosmetic product under Heading 3305 in Chapter 33 in Section VI of the First Schedule, unless all the conditions required therefor are satisfied. As already noted, such conditions formed part of Chapter Note 2 in Chapter VI of the First Schedule itself, prior to the 2005 amendment, but after that amendment, whereby the said Chapter Note was brought into conformity with Chapter Note 3 in Chapter 33 of the HSN, the Explanatory/General Notes in the HSN in relation to the said Chapter Note would have to be fully satisfied. In effect, not only must the coconut oil be suitable for use as hair oil , but it must also be put in packaging sold in retail for such particular use, i.e., as hair oil. The mere fact that coconut oil is also capable of being put to use as a cosmetic or toilet preparation, by itself, would not be sufficient to exclude such oil from the ambit of coconut oil and subject it to classification as hair oil as coconut oil is name-specific. It is not in dispute that the packaging of the coconut oil in the cases on hand clearly demonstrated that it was being sold as edible oil and all parameters that had to be met in that regard were duly complied with - edible oil would have a shorter shelf life than oil meant for cosmetic purposes and must meet the Indian Standards Specifications prescribed for edible oil which are different from the standards for hair oil. Significantly, the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, provide that edible oil can be packed in specified sizes of 50 ml, 100 ml, 200 ml, 500 ml, 1 litre or 2 litres. Small-sized containers are a feature common to both edible oils as well as hair oils . Therefore, there must be something more to distinguish between them for classification of such oil, be it under Chapter 15 or under Chapter 33, other than the size of the packing - Reference may be made to Meghdoot Gramodyog Sewa Sansthan, U.P. vs. Commissioner of Central Excise, Lucknow 2004 (10) TMI 93 - SUPREME COURT , wherein this Court held that the mere fact that the product in that case was sold in a packing depicting a lady with flowing hair was not determinative of such product being intended as a preparation for use on the hair. This Court considered the composition and curative properties of the product to ultimately conclude that the product was classifiable as a medicament under Heading 3003 in Chapter 30 of the First Schedule. The argument of the Revenue that pure coconut oil should invariably be classified under Heading 3305 is, therefore, liable to be rejected. This argument completely loses sight of the General/Explanatory Notes in relation to Chapter Note 3 in Chapter 33 of the HSN and the fact that the said Chapter Note 3 is identical to Chapter Note 3 in Chapter 33 of the First Schedule to the Act of 1985. It is for the Revenue to take a stand by way of legislative action in the event it chooses to treat pure coconut oil marketed in small quantities differently from Coconut oil in Heading 1513. Having failed to do so and given the fact that the relevant headings in the First Schedule to the Act of 1985 are corresponding with the entries in the HSN, there can be no distinction drawn between the two and the Explanatory Notes in the HSN would have to be given due effect while interpreting Heading 1513 in the First Schedule to the Act of 1985. In consequence, the coconut oil marketed and sold by the respondents during the relevant period must necessarily be classified as edible oil. Thus, pure coconut oil sold in small quantities as edible oil would be classifiable under Heading 1513 in Section III-Chapter 15 of the First Schedule to the Central Excise Tariff Act, 1985, unless the packaging thereof satisfies all the requirements set out in Chapter Note 3 in Section VI-Chapter 33 of the First Schedule to the Central Excise Tariff Act, 1985, read with the General/Explanatory Notes under the corresponding Chapter Note 3 in Chapter 33 of the Harmonized System of Nomenclature, whereupon it would be classifiable as hair oil under Heading 3305 in Section VI - Chapter 33 thereof. The impugned orders, holding to that effect, therefore do not brook interference on any count - The appeals are bereft of merit and are accordingly dismissed.

Summary

Issues Involved:
1. Classification of pure coconut oil as 'Edible oil' under Heading 1513 or as 'Hair oil' under Heading 3305.
2. Applicability of the Harmonized System of Nomenclature (HSN) for classification.
3. Interpretation of statutory provisions and the role of the 'common parlance test' in classification.
4. Burden of proof on the Revenue for classification under a different heading.

Detailed Analysis:

1. Classification of Pure Coconut Oil:
The primary issue was whether pure coconut oil, packaged in quantities ranging from 5 ml to 2 liters, should be classified as 'Edible oil' under Heading 1513 or as 'Hair oil' under Heading 3305 of the Central Excise Tariff Act, 1985. The court examined the statutory framework and noted that prior to the 2005 amendment, coconut oil was classified as a 'vegetable oil' under Heading 15.03. Post-amendment, Heading 1513 specifically included coconut oil, and the court emphasized that unless the oil is chemically modified, it should be classified under this heading. The court rejected the Revenue's argument that coconut oil should be classified as 'Hair oil' merely because it is suitable for such use, emphasizing that classification should be based on specific criteria, including packaging and labeling.

2. Applicability of the Harmonized System of Nomenclature (HSN):
The court highlighted the significance of the HSN in resolving disputes related to tariff classification. It was noted that the First Schedule to the Central Excise Tariff Act, 1985, is based on the HSN, and unless there is a clear legislative intent to deviate, the HSN should guide classification. The court observed that the headings in the First Schedule and the HSN were aligned, and thus, the General/Explanatory Notes in the HSN were applicable. The court reiterated that the legislative intention to depart from the HSN must be clear and unambiguous.

3. Interpretation of Statutory Provisions and 'Common Parlance Test':
The court addressed the 'common parlance test', which is used to interpret taxing statutes based on the commonly accepted meaning of words in trade. However, the court found that this test was not applicable in the present case due to the clear and unambiguous headings in the First Schedule and the corresponding HSN entries. The court emphasized that classification should be determined according to the headings and Chapter Notes, and only in the absence of clarity should the common parlance test be applied.

4. Burden of Proof on the Revenue:
The court held that the burden of proof lies with the Revenue to classify goods under a different heading from that claimed by the assessee. In this case, the Revenue failed to provide sufficient evidence to classify coconut oil as 'Hair oil' under Heading 3305. The court noted that the packaging and labeling of the coconut oil sold by the respondents clearly indicated it was 'edible oil', and all necessary parameters for such classification were met.

Conclusion:
The court concluded that pure coconut oil sold in small quantities as 'edible oil' should be classified under Heading 1513 unless the packaging meets all the requirements for classification as 'Hair oil' under Heading 3305, as per the Chapter Notes and General/Explanatory Notes in the HSN. The appeals were dismissed, and the court upheld the classification of the coconut oil as 'edible oil'.