CHANGE OF CLASSIFICATION IS TO BE PROSPECTIVE AND NOT RETROSPECTIVE

[Mr. M. GOVINDARAJAN]

 In the first schedule to the Central Excise Tariff Act, 1985 the rates of central excise duty are specified for various products.  In the Second schedule to the Central Excise Tariff Act, 1985 the rates for special excise duty is specified.  The Central Excise Tariff contains unique 8 digit code for all excisable goods.  Choosing the right heading or sub heading of the Tariff and determining the applicable rate for the particular commodity is referred to as classification of goods. The Supreme Court has laid down the following for determination of classification of goods:

• HSN (Harmonized System of Nomenclature) along with explanatory notes provides a safe guide for interpretation of an entry;
• Equal importance to be given to Rules of Interpretation of the Tariff;
• Functional utility, design, shape and predominant usage have also got to be taken into account.

In ‘Hindustan Packaging Company Limited V. Collector’ – 1994 -TMI - 48728 - CEGAT, SPECIAL BENCH `B1', NEW DELHI it was held that for ease classification of goods, the Central Excise Tariff contains rules for interpretation of the schedule.  These are statutory rules.  Besides this there are ‘section notes’ and ‘chapter notes’ which explain the scope of each section and chapter of the Excise Tariff.  Thus they provide immense assistance in determining the classification of the goods under a particular heading or sub heading.  Section notes and chapter notes are also a part of the statutory tariff.  In fact, they have an overriding effect on the headings or the sub headings inasmuch as they sometimes expand and sometimes restrict the scope of the headings and sub headings.   If the wording of the heading/sub heading read with section notes and chapter notes, if any, is not clear enough to conclude the issue, resort has to be made to the Rules of Interpretation of the Schedule which have then to be applied sequentially.

The Supreme Court in ‘Collector V. Tata Iron & Steel Co. Limited’ – 1997 (94) ELT A133 (SC) held that an established practice of classification cannot be changed without cogent reasons.  The Supreme Court in ‘Puma Ayurvedic Herbal Limited V. Commissioner of Central Excise’ – 2006 -TMI - 47583 - SUPREME COURT OF INDIA) held that the burden of showing correct classification lies on the Department. 

When there is any change in classification, such change is only prospective not retrospective.  In ‘Commissioner of Central Excise, Chandigarh V. National Fertilizers Limited’ – 1989 -TMI - 80393 - CEGAT, NEW DELHI) it was held that the classification cannot be changed with retrospective effect to deny the MODVAT benefit.  The Delhi High Court in ‘J.K. Synthetics Limited V. CCE’ – 1981 -TMI - 40924 - HIGH COURT OF DELHI held that in change in classification can only be prospective and that too, if there are sound and cogent reasons.

In ‘Lamifab & Papers Limited V. Commissioner of Central Excise & Customs, Aurangabad’ – 2012 (275) ELT 93 (Tri. Mumbai) the appellant company is the manufacturer of Textile fabrics coated, impregnated or covered with plastics.  The dispute in the case is in respect of the items sold as tarpaulins, vehicle covers, tents etc., which are nothing but HDPE fabrics coated with LDPE preparations.  The appellant company filed a classification list effective from 1.4.90 claiming the classification under sub heading 5903.21 of the Central Excise Tariff, chargeable to NIL rate in respect of clearances under Chapter X Procedure of the erstwhile Central Excise Rules, 1944 and at 5% Adv., in respect of other clearances.   The Department approved this classification with effect from 1.4.90.   Later the Department took the view that the goods, in question, are correctly classifiable under sub heading 3923.90 of the Tariff.   Therefore the Department issued a show cause notice dated 5.8.91 seeking classification of goods under sub heading 3923.90 and demanded the differential duty.   The Adjudicating Authority confirmed the demand which was also upheld by the Commissioner of Central Excise (Appeals) on appeal by the assessee.   Therefore the appellant filed the present appeal before the Tribunal.

Subsequently another show cause notice on 5.8.91 was issued demanding differential duty for February 1991 to July 1991 on the basis of change in classification of the goods.  The Assistant Commissioner ordered for provisional assessment for the subsequent period from August 1991 to March 1993.  On finalization of the classification a show cause notice, dated 15.9.94 was issued for demand of differential duty which was adjudicated by the Assistant Commissioner.   On appeal the appellate authority confirmed the demand of Assistant Commissioner.   Hence the appellant filed appeal for this also before the Tribunal.

On the personal hearing there was no representation from the appellant side.   But it has filed the written submission.  In it the appellants had not challenged the change in classification.  The main contention of the appellant is that their classification list effective from 1.4.90 was approved by the jurisdictional Assistant Commissioner vide order dated 30.4.1990 which has not been challenged by the revenue.  Once the classification list is finally approved any change, if required, can be only prospective and not retrospective.  The Department contended that the goods are correctly classifiable under the heading 3923.90 of the tariff, that while the show cause notice dated 5.8.1991 is within the normal limitation period, in respect of the period of show cause notice dated 15.9.94 the assessments were provisional and hence the limitation period was not applicable and that in view of this the duty demands have been correctly upheld by the Commissioner (Appeals).

The Tribunal held that since the classification of the goods, in question, has been approved under sub heading 5903.21 of the Tariff Vide Assistant Commissioner’s order dated 30.4.1990 in respect of the classification list effective from 1/4/90 and this order has not been reviewed, though there is a specific provision for the same, the Tribunal was of the view that the duty demanded for the period from February 91 to July 91 is not sustainable and the same was set aside by the Tribunal.  As far as the second duty demand for the period from August 91 to March 1993 is concerned the Tribunal found that for this period the assessment has been made provisional and after issue of board’s order No. 28/4/94-CX, dated 1.4.94 under Section 37B of the Central Excise Act, instructing the classification of the goods, in question, under the sub heading 3923.90 show cause notice dated 15.9.94 was issued for finalization of the classification of the goods in question under sub heading 3923.90.   The Tribunal held that since the assessments for the period were provisional the duty demand on account of finalization of classification is not hit by the limitation and in view of this the Tribunal upheld the order of the Commissioner (Appeals).