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TMI Blog2024 (12) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... pter 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 Standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. - CJI ( SANJIV KHANNA ) , JUSTICE ( SANJAY KUMAR ) And JUSTICE ( R. MAHADEVAN ) For the Appellant : Mr. B. Krishna Prasad, AOR Mr. Gurmeet Singh Makker, AOR Mr. Mukesh Kumar Maroria, AOR For the Respondent : Mr. Harish N. Salve, Sr. Adv. Mr. Arvind Datar, Sr. Adv. Mr. S.K. Bagaria, Sr. Adv. Mr. Ankur Saigal, Adv. Mr. Mahesh Agarwal, Adv. Mr. Vipin Jain, Adv. Mr. Rishi Agrawala, Adv. Mr. Vishal Aggarwal, Adv. Ms. Sayree Basu Mallik, Adv. Mr. Abhinabh Garg, Adv. Mr. Ramnath Prabhu, Adv. Mr. Karan Verma, Adv. Ms. Aditi Jain, Adv. Mr. Rongon Choudhry, Adv. Mr. E.C. Agrawala, AOR JUDGMENT SANJAY KUMAR, J 1. The issue for consideration in these appeals filed by the Revenue is whether pure coconut oil, packaged and sold in small quantities r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s obtaining and on merits, it would be apposite to take note of the statutory milieu germane thereto, both past and present. Prior to 28.02.2005, i.e., before amendment of the First Schedule to the Central Excise Tariff Act, 1985 (hereinafter, the Act of 1985 ), vide the Central Excise Tariff (Amendment) Act, 2004 [Act 5 of 2005], irrespective of the size of its packaging, coconut oil was treated as a vegetable oil exigible to excise duty under Heading 15.03 in Chapter 15 in Section III of the First Schedule to the Act of 1985. Section III, Chapter 15 and the relevant Chapter Notes therein along with Heading 15.03, as they then stood, are extracted hereunder: SECTION III ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS; ANIMAL OR VEGETABLE WAXES 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) to (d) ; (e) Fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or (f) .. 3. In this Chapter, the expression fixed vegetable oils means o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecialised to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents or are held out as having subsidiary curative or prophylactic value. 3 5. 6. Heading No. 33.05 applies, inter alia, to the following products; brilliantines, perfumed hair oils, hair lotions, pomades and creams, hair dyes (in whatever form), shampoos, whether or not containing soap or organic surface active agents. Heading 33.05 in Chapter 33 read as under: Heading No. Sub heading No. Description of goods Rate of duty 33.05 Preparations for use on the hair 3305.10 - Perfumed hair oils - Other 16% 3305.91 Hair fixer 16% 3305.99 Other 16% 7. While so, the Central Excise Tariff (Amendment) Act, 2004 [Act 5 of 2005] was promulgated by the Parliament and came into effect on 28.02.2005. Thereby, in exercise of power under Section 5 of the Act of 1985, the Central Government amended the First Schedule to the Act of 1985. Thereafter, the amended Chapter Notes in Chapter 15 in Section III, to the extent relevant, read as under: SECTION III ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS; ANIMAL OR VEGETABLE WAXES CHAPTER 15 ANIMAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings and put up in packings of a kind sold by retail for such use. 11. Post the amendment, Heading 3305 reads as under: Tariff Item Description of goods Unit Rate of duty 3305 Preparations for use on the hair 3305 10 - Shampoos: kg. 16% 3305 10 10 --- Containing spirit kg. 16% 3305 10 90 --- Other kg. 16% 3305 20 00 - Preparations for permanent waving or straightening kg. 16% 3305 30 00 -- Hair lacquers kg. 16% 3305 - Other : --- Hair Oil: 3305 90 11 ---- Perfumed kg. 16% 3305 90 19 ---- Other kg. 16% 3305 90 20 --- Brilliantines (spirituous) kg. 16% 3305 90 30 --- Hair cream kg. 16% 3305 90 40 --- Hair dyes (natural, herbal or synthetic) kg. 16% 3305 90 50 --- Hair fixers kg. 16% 3305 90 90 --- Other kg. 16% 12. The Act of 1985 also provides rules for interpretation of the First Schedule thereto. Rule 1 therein provides that classification of goods shall be determined according to the terms of the headings and any relative Section or Chapter Notes. However, the admitted position is that the Harmonized Commodity Description and Coding System [Harmonized System of Nomenclature (HSN)], brought out by the World Customs Organization, reflects internationally accepted norms and is exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nationally adopted HSN to be used for all trade-related transactions to facilitate international and domestic trade. The amendment Bill, therefore, proposed to expand the six-digit classification in the First Schedule into an eight-digit classification, so as to remove difficulties arising from divergence in classification by different departments and would also facilitate international trade. It was clarified that the proposed amendments did not make any change in the existing rates of Central Excise duties and, hence, they did not involve revenue implication. 14. Notably, in Collector of Central Excise, Shillong vs. Wood Craft Products Ltd. (1995) 3 SCC 454 , a 3-Judge Bench of this Court held as under: 12. It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central excise tariffs are based on the HSN and the internationally accepted nomenclature was taken into account to reduce disputes on account of tariff classification . Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the headings/entries in the First Schedule to the Act of 1985 are different from the headings/entries in the HSN or if they are not fully aligned, reliance cannot be placed upon the HSN for the purpose of classifying those goods under the Act of 1985. 17. To sum up, the First Schedule to the Act of 1985 is based on the HSN, which is an internationally standardized system developed and maintained by the World Customs Organization for classifying products, and unless the intention to the contrary is found within the Act of 1985 itself, the HSN and the Explanatory Notes thereto, being the official interpretation of the Harmonized System at the international level, would be of binding guidance in understanding and giving effect to the headings in the First Schedule. It is only when a different intention is explicitly indicated in the Act of 1985 itself that the HSN would cease to be of guidance. In effect, the legislative intention to depart from the HSN must be clear and unambiguous. For instance, in Camlin Ltd. v. Commissioner of Central Excise, Mumbai (2008) 9 SCC 82 , this Court found that there was an inconsistency between the Central Excise tariff description and the entry in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classifiable in heading 30.04, 30.05, 30.06, 32.12, 33.03, 33.04, 33.05, 33.06, 33.07, 35.06, 37.07 or 38.08 by reason of being put up in measured doses or for retail sale are to be classified in those headings and in no other heading of the Nomenclature. It is, therefore, identical to the amended Section Note 2 in Section VI in the First Schedule to the Act of 1985. The General Note under Section Note 2 in the HSN is of relevance and reads as follows: Section Note 2 provides that goods (other than those described in headings 28.43 to 28.46) which are covered by heading 30.04, 30.05, 30.06, 32.12, 33.03, 33.04, 33.05, 33.06, 33.07, 35.06, 37.07 or 38.08 by reason of being put up in measured doses or for retail sale, are to be classified in those headings notwithstanding that they could also fall in some other heading of the Nomenclature. For example, sulphur put up for retail sale for therapeutic purposes is classified in heading 30.04 and not in heading 25.03 or 28.02, and dextrin put up for retail sale as a glue is classified in heading 35.06 and not in heading 35.05. 21. Chapter Note No. 3 in Chapter 33 of the HSN, titled Essential Oils and Resinoids; Perfumery, Cosmetics or Toi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the HSN reveals that Chapter Note 1(e) in Chapter 15 in Section III of the First Schedule remained the same even after the 2005 amendment and was identical to Chapter Note 1(e) in Chapter 15 of Section III of the HSN. This Note clarified that Chapter 15 would not be applicable to fatty acids, etc., including cosmetic or toilet preparations, which would fall in Section VI. However, the headings in Chapter 15 in Section III of the First Schedule increased to twenty-two after the amendment, with effect from 28.02.2005. Heading 15.03 in the pre-amended Chapter 15 dealt with fixed vegetable oils, excluding those named in Heading 15.02. Coconut oil, not being one of them, was classifiable under Heading 15.03 and there was no issue about it, as was clarified vide Circular dated 31.08.1995. However, post the 2005 amendment, Heading 1513 was created specifically for coconut oil and the other named oils. This heading dealt with crude coconut oil and other forms of coconut oil and its fractions. All that was required thereunder was that the coconut oil should not have been chemically modified. Significantly, the post-2005 amendment description of coconut oil in Heading 1513 was a replica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) SCC 1 , this Court held that for a product to be classified as a cosmetic under Chapter 33 in Section VI of the First Schedule, it must first be a cosmetic, i.e., it should be suitable for use as goods falling under Headings 3303 to 3308 and it must be put in packing with a label or literature or other indication, showing that it is intended for use as a cosmetic preparation. This decision was rendered in the year 1995 and was in keeping with the then Chapter Note 2 in Chapter 33 of the First Schedule. 27. As already noted hereinbefore, Act 5 of 2005 was aimed at bringing about full conformity between the First Schedule to the Act of 1985 and the HSN and amendments were made accordingly in the First Schedule. Post the 2005 amendment, Chapter Note 3 in Chapter 33 in Section VI of the First Schedule was made a verbatim reproduction of the corresponding Chapter Note 3 in Chapter 33 in the HSN. However, as it is an admitted position that the Explanatory Notes in the HSN would also be binding once the entry in the HSN corresponds with the description of the goods in the First Schedule to the Act of 1985, the General Notes in Chapter 33 in the HSN would apply. In consequence, what w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld in small containers, irrespective of whether its use as hair oil was indicated on the containers. The Circular dated 31.08.1995 was withdrawn and coconut oil in small quantities, up to 200 ml, was directed to be classified under Heading 3305. 30. However, this understanding of the Board was clearly not in keeping with the General Notes in Chapter 33 of the HSN. Perhaps realizing the same, the Board then issued Circular No. 1007/14/2015-CX dated 12.10.2015. Therein, it was noted that decisions had been rendered on the issue by Tribunals/Courts holding that, just because the retail packs of coconut oil were in sizes of 200 ml or less, the same could not be presumed to be meant for use as hair oil and the same would not be classifiable under Heading 3305. The Board, accordingly, withdrew the Circular dated 03.06.2009 and left the issue of classification of coconut oil packed in small containers of up to 200 ml to be decided in the field, taking into consideration judicial pronouncements and the facts of individual cases. 31. It is also relevant to note that in Heading 1513 in Chapter 15 in Section III of the First Schedule, there is no mention of the size, volume or weight of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought about in the year 2005 and the Explanatory Notes in the HSN. The Tribunal held that the coconut oil sold during the relevant period was classifiable as edible oil under Heading 1513 in Chapter 15 of Section III of the First Schedule to the Act of 1985. 33. Civil Appeal Nos. 6703 to 6710 of 2009, eight appeals in all, pertain to the period 28.02.2005 to 28.02.2007. Four of these appeals relate to M/s. Marico Ltd., Mumbai, which manufactures and markets pure coconut oil as edible oil under the name Parachute . The remaining four appeals relate to job-workers of M/s. Marico Ltd., who receive its coconut oil in bulk and market the same after packing it in small containers, ranging from 50 ml to 2 litres. The four job-workers are M/s. Aishwarya Industries, M/s. Moreshwar Industries, M/s. Shivam Enterprises and M/s. Sowparnika Enterprises, all situated at Pondicherry (now, Puducherry). Show-cause notices were issued in July, 2007, by the Central Excise authorities proposing to treat the coconut oil so sold by them as hair oil , classifiable under Heading 3305, which led to Orders-in-original being passed on 27th and 28th of February, 2008, confirming the demand of excise duty ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test would have to be understood in the proper perspective and cannot be brought into play when there is no ambiguity and there is no difference in the clear heading in the First Schedule and the corresponding entry in the HSN. In Commissioner of Central Excise, New Delhi vs. Connaught Plaza Restaurant Pvt. Ltd., New Delhi (2012) 13 SCC 639 , this Court observed that classification of excisable goods shall be determined according to the headings and corresponding Chapter or Section Notes but where these are not clearly determinative of the proper classification, the same shall be effected according to the general rules of interpretation and according to the common parlance understanding of such goods. It was pointed out that fiscal statutes are framed at a point of time but are meant to apply for significant periods of time thereafter and they cannot, therefore, be expected to keep up with nuances and niceties. It was held that the terms of the statutes must be adapted to developments of contemporary times rather than being held entirely inapplicable and it is for this precise reason that Courts apply the common parlance test every time parties attempt to differentiate their produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 phrase suitable for such use under Headings 3303 to 3307 in Chapter Note 3 would have to be read in conjunction with the Explanatory Notes thereto, which categorically state that such packaging must be accompanied with labels, literature or other indications that the product is intended for use as a cosmetic or toilet preparation or it must be put in a form clearly specialized to such use - as in the case of acetone marketed in small bottles, along with an applicator brush, indicating its use as nail polish remover. 41. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the light of such marketing, the oil sold was obviously meant for use as hair oil and not as edible oil . However, such an advertisement is not conclusive, in itself, to classify the oil as hair oil . Reference may be made to Meghdoot Gramodyog Sewa Sansthan, U.P. vs. Commissioner of Central Excise, Lucknow ( 2005 ) 4 SCC 15 , 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. 44. Further, registration of the trademark Parachute by M/s. Marico Ltd. for hair oil is not sufficient to classify the coconut oil sold by it, in its entirety, as hair oil. As rightly noted in the impugned final orders, Parachute trademark was also registered by the company for Edible Oil (Class 29), Coffee/Tea (Class 30), Pharmaceuticals (Class 5) and Non-Alcoholic Beverages (Class 32). Therefore, the trademark, by itself, does not ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. AIR 1988 SC 342 , in support of its contention that the expression for use can only mean intended for use and not actual use , is misplaced as that decision turned upon the language of Section 5(2)(a)(iv) of the Punjab General Sales Tax Act, 1948, and the said interpretation cannot be applied mutatis mutandis in the present case, as the wording of the provisions presently under consideration and the rules of interpretation applicable thereto are entirely different. The argument of the Revenue that the fact that edible coconut oil marketed by the respondents could also be used as hair oil is therefore not sufficient to classify the same under Heading 3305 with nothing further. As pointed out by this Court in HPL Chemicals Ltd. vs. Commissioner of Central Excise, Chandigarh ( 2006 ) 5 SCC 208 , classification of goods is a matter relating to chargeability and the burden of proof is squarely upon the Revenue if it intends to classify the goods under a particular heading or sub-heading different from that claimed by the assesses. In such an event, the Revenue had to adduce proper evidence and discharge that burden of proof in the context of the classification entries, which it fai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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