CLASSIFICATION OF GOODS UNDER CUSTOMS ACT, 1962

[Mr. M. GOVINDARAJAN]

Classification of goods under Customs Act is essential to decide the rate of duty.  The classification of goods would continue to be very relevant and import unless all the goods attract the same rate of duty.  Classification of goods has an important bearing on a number of other connected questions of both substantive and procedural consequences. The substantive relate to the following:-

• Whether  at all the classification has been done correctly accordingly to the proper rules of classification;
• Whether the benefit of any exemption from duty partial or complete, is available appropriate to the relevant classification.
• Whether the assessee can claim certain special benefits of concession / duty exemption under a Notification;

A wrong classification of goods might not only mean payment of higher duty in some cases by the assessee but also would have further spin-offs in the matter or eligibility for any concessions under any appropriate notification had the product been properly classified. In yet another cases, a wrong classification of goods in a heading might lead to demand of higher duty with its attendant consequences, viz. demand of duty for an extended back period of five years on grounds of suppression of facts, willful mis-representation or fraud, envisaged under section of the Act.

Customs follows Harmonized System of Nomenclature (HSN) systems of classification of goods. The entire classification has been compressed into 98 chapters which have in turn been accommodation under 21 Sections. It consists of eight digits system to facilitate precise classification of goods. The superiority and distinctiveness in the customs Tariff consist in the detailed section notes and chapter notes which facilities the proper classification of goods. These sections notes and chapter notes required to be carefully read before arriving at the classification.   Section notes and chapter notes given in each chapter of the Customs Tariff Act contain valuable guides to classification of goods. Therefore, it is imperative that in order to identify the correct tariff classification, the entries given in the different headings of the relevant chapters has to be read along with the connection section notes and chapter notes and it is quite possible that what is perhaps given in one of the headings of a particular may be excluded in the Section or chapter notes.

The tariff contains a set of interpretative rules, viz. Rule 1 to Rule 4. These rules are nothing but a scientific set of principles which will be applied while arriving at a classification of a particular product. These rules need not be referred to when the section notes and Chapter notes or the very entries in the tariff. These rules for interpretation of tariff are applicable only when classification of a product cannot be determined in accordance with Headings for Section/ Chapter Notes are very clear about the classification. However, where the section and chapter notes do not offer much help or when evening accordance with the common parlance test the description of the products is incapable of being identified with a particular heading in the Tariff, these rules can be pressed into service as statutory aids in arriving at proper classification.

Case laws

The following case laws would discuss various issues involved on classification of goods:

In ‘Commissioner of Central Excise, Chennai V. Toyota Tsusho Private Limited’ – 2015 (12) TMI 480 - SUPREME COURT the respondent imported ‘beef leather cut pieces set TFC 235 set’ which was classified under Customs Tariff Heading 4115 20 90 for which the exemption was claimed under Notification No. 21/2002.  The Department, after examining the goods, took the view that the aforesaid goods were classifiable under Chapter 42 viz., 4205 00 90 which attracted duty @ 15% + CVD 16% + EC 2% and levied a duty of ₹ 22,86,812/-.  The Commissioner (Appeals) upheld the classification of the Revenue.  The Tribunal accepted the appeal of the assessee and classified the goods under Chapter Heading 4115 20 90 as ‘beef leather cut pieces set TCF 235 set’.  The Supreme Court was, during the course of arguments, shown two other Chapter Headings 87, 97 and 94.  The Supreme Court felt that it would have been more appropriate for the Tribunal to look into the aforesaid Chapter entries as a whole and then come to a definite conclusion, in the light of the definition of the goods involved as to which the most appropriate entry under which they fall.

In ‘Samsung India Electronics Private Limited V. Commissioner of Customs, Noida’ – 2015 (10) TMI 2258 - CESTAT NEW DELHI the Tribunal considered the issue to be decided is that whether Liquid Crystal Devices (LCDs) is classifiable under Tariff item 9013 80 10 or 8529 9090 of Customs Tariff Act, 1975.  The goods imported include components comprising driver, circuit, backlight, unit and inverter etc., which according to the Revenue are parts of LCD TVs covered under Heading 8529.  The Tribunal held that the said components are also devices in their own right, individually and in combination, and as liquid crystal panel is one of the components, impugned goods are covered under term ‘LCDs’.  LCDs is specifically mentioned in Head 9013 by name and Tariff item 9013 80 10 exclusively covers only LCDs.   In contrast, the description in Heading 8529 ‘as parts suitable for use solely or principally with apparatus of Headings 8525 to 8528 is general in nature.  Section Note 2 (b) of Sec. XVI of Customs Tariff Schedule, relied on by Revenue covered only goods under Chapters 84 and 85 and not applicable to Chapter 90 as per Note (1)(m) of Sec. XVI.  As such the impugned LCSs are correctly classifiable under Heading 9013 of CTA, 1975.

In ‘Essar Oil Limited V. Commissioner of  Customs (Preventive), Jamnagar’ – 2015 (1) TMI 262 - CESTAT AHMEDABAD the appellant is operating a Petroleum Oil Refinery at Vadinar, Gujarat.  The appellant imported Qatar Low Sulphur Condensate (QLSC) classifying the same under Chapter Heading 2709 00 00 which was exempted vide Notification No. 21/2002-Cus, dated 01.03.2002.  Samples of the imported cargo were drawn for chemical analysis.  The Chemical Engineer, in his report, indicated that the goods cannot be covered under CTG 2709 but are covered under CTH 2710.  A show cause notice was issued to the appellant and the same was confirmed.  Appeal was filed before the Tribunal.  The Tribunal held that denial of cross examination of the chemical examiner whose reports are only evidences with the Revenue for re-classification of goods is right.  It is settled proposition of law that chemical examiner can give opinion 9on chemical nature of goods tested and not on classification of goods.  No enquiry was made with the supplier of the goods.   There is no case that the appellant provided fake or forged documents deliberately giving a wrong description.  There is no evidence that goods of refined category fall under Heading 2710.  The Tribunal held that the goods are rightly classifiable under Heading 2709.

In ‘Commissioner of Central Excise, Mumbai V. Pfizer Limited’ – 2015 (12) TMI 1150 - SUPREME COURT the question that falls under the consideration is as to whether ‘virginiamycin’ imported under the brand name STAFAC 1000 is classifiable under CTH 2941.90 or 2302.00.  The Supreme Court held that the imported goods ‘virginiamycin’ is well defined chemical of 100% purity with anti-bacterial properties included specifically under Chapter 29 by issue of Chapter Note 1(a).  The Supreme Court allowed the appeal filed by the Revenue.

In ‘ICICI Bank Limited V. Commissioner of Customs (Airport – Cargo), Chennai’ – 2013 (11) TMI 494 - CESTAT CHENNAI the appellants imported 98 consignments of gold or silver medals during the period from 01.04.2003 to 30.07.2007.  The appellants classified the gold medals under the heading 7108 12 00 and silver under 7106 92 90 and claimed the benefit of Notification No. 80/97-Cus and 62/2004-Cus for different period.   Revenue was of the view that the medals were classifiable under Heading 9705 00 90.   The Department rejected the demand of the appellants and confirmed the demand.  The Tribunal held that medals were minted to order, to be marketed as collectors’ pieces, having images of gods, goddesses, saints, temples, historical sites and well known historical persons.  Such medals are marketed as items of numismatic interest, higher price per gram of gold/silver was to be charged from buyers as compared to other coins/medals of same purity.   HSN explanations notes being a safe guide for classification, considering the note to Heading 9705 the medals cannot be said to items of numismatic interest because they were freshly minted against orders and they were not exclusive, but could be minted as per the demand.   Marketing gimmick adopted therefore would not make it an item of numismatic interest and so, the goods could not be classified under Heading 970t.  Further the exemption in Notification No. 62/2004-Cus was intended for coins and medals of gold and silver, with the understanding that the same would fall under Chapter 71, though there is a lack of clarity as to exactly under which the heading of Chapter 71 these goods

In ‘Binani Cements Limited V. Union of India’ – 2013 (7) TMI 798 - GUJARAT HIGH COURT the High Court held that the Court does not encourage litigation at the stage of the issue of show cause notice as noticee would have sufficient opportunity to meet with all obligations and produce such  material on record as may be required to refute the same.  Therefore the instant petition challenging the show cause notice issued questioning classification of coal by the petitioner was rejected by the High Court.  The High Court further held that when several questions of fact as well as law would arise i.e., classification between steam and bituminous coal, properties of coal imposed by petitioner etc., which cannot be judged without adjudication by departmental authorities.  Further as statute provides mechanism for adjudication of disputes and as petitioner neither contended nor established any inherent lack of jurisdiction or gross violation of principles of Natural Justice on part of Adjudicating Authority.

In ‘Patwa Photo Studio V. Commissioner of Customs (Import),  Mumbai – I’ – 2014 (2) TMI 170 - CESTAT MUMBAI the Tribunal found that as per the catalogue the machine in question is capable of developing the films and thereafter printing the photographs as per the catalogue.  The machine in question is capable of developing photo films and also capable of digital printing service and digital data processing service and in the same manner as the film process operation.  The Revenue wants to classify the same under Chapter 84 of the Tariff which covers automatic data processing machines and units thereof.  The appellant before the Adjudicating Authority also claims the classification under Heading 9010 of the Tariff which covers the apparatus and equipment for photographic films.  Therefore the goods are classifiable under Heading of 9010 of Customs Tariff.  The Tribunal set aside the impugned order and allowed the appeal.

In ‘Commissioner of Customs, New Delhi V. Capital business systems Limited’ – 2011 (3) TMI 1570 - CESTAT NEW DELHI the matter involved in this case is the classification of a printer imported by the respondent.  As per the technical specifications the printer can print on paper, synthetics, labels, foils, thermostatic stocks.  The Assistant Commissioner classified the goods under 84436090.  The Commissioner (Appeals) classified under 84716026.  The Revenue objected to this classification for the reason that it is huge in size as compared to ordinary printers used along with computer and for the reason that it can print material other than paper.   The relevant chapter notes do not decide the issue based on the size of printer satisfies the condition laid down in Chapter Note 5 (B) of Chapter 84.  Further it specifically satisfies conditions laid down in Notes 5(B)(b) and 5(B) (c) of Chapter 84 and therefore in view of Note 5(D), it is classifiable under Heading 8471 only.  Further Tariff item 84716026 specifically covers Laser Jet Printer.  Such being the case the item cannot be taken to Heading 8443 for Printing Machinery used by printing by means of the printing type, blocks, plates, cylinders and other printing components of Heading 8442.  This machine does not make use of printing type, blocks, plates, cylinders and other printing components of Heading 8442.  So the impugned order is clearly classifiable under Tariff item 84716026.

In ‘Bharat Bijlee Limited V. Commissioner of Customs (Import), Mumbai’ – 2014 (3) TMI 798 - CESTAT MUMBAI (LB) the classification of goods under Heading 98.01 of Customs Tariff Act, 1975 facilitates assessment, false clearance of goods by customs and is used at times to boost industrialization of a particular sector, when the classification of goods under 98.01 of Customs Tariff when based upon false declaration, goods are liable to confiscation and importer is liable to fine and penalty.

In ‘Pennzoil Quaker State (I) Limited V. Commissioner of Customs (Import), Nhava Sheva’ – 2013 (5) TMI 741 - CESTAT MUMBAI the appellants imported Air fresheners (Paper type and spray type) and classified them under 3307.49.  The Department classified the products under 3307.90.  The Commissioner (Appeals) upheld the findings of the lower authority.  The appellant contended that the Air freshener (paper type) is not meant for use on human body or apparels worn by human beings.  The product bears instructions to avoid contact with skin and eyes.  Therefore the product does not merit classification as toilet preparation.  The Advance Ruling Authority has classified similar product in case of M/s Technical Concepts International Limited under Heading 3307.49.  The Revenue contended that as per HSN the product is specifically covered under the Heading 3307.90.  The order of Advance Ruling Authority is applicable to the particular assessee and the concerned Commissionerate and it does not have general applicability.  The Tribunal analyzed the Heading 3307.  The Tribunal held that it is clear that sub heading 3307.49 covers other goods, other than goods covered under Heading 3307.41.  By no stretch of imagination the Air freshener can fall under 3307.90.   It is also settled principle that the entry which comes last to be preferred.  The entry 3307.90 comes in the last.   In these circumstances the Tribunal found no reason to interfere with the concurrent findings of the lower authorities.

In ‘AGS Transact Technologies Limited V. Commissioner of Customs (Import), Nhava Sehva’ – 2013 (5) TMI 808 - CESTAT MUMBAI the appellants imported cash dispenser declaring it as ATM and availed the benefit of exemption under Notification No. 25/2005-Cus, dated 01.03.2005.  The Revenue classified the goods under Heading 8472 90 30 denying the exemption.  The Revenue contended that machines with facility to receive or accept cash is not ATM.  The Tribunal held that the classification of goods is to be determined by commercial identity test and not by functional test.  The Tribunal found that Procash 1500Xe not only dispense cash but also perform the other bank transactions like balance enquiry, cheque book request, statement request, pin change, fund transfer, mini statement etc., but not having the facility of the cash/cheque deposit.  The same shall be construed as ATM in the absence of clear findings.  The Tribunal remanded the matter to the original authority.

Discussions to this article

[YAGAY AND SUN]

Nice collection of judgments

[MARIAPPAN GOVINDARAJAN]

Thank you, Sir.