COMMISSIONER OF CENTRAL EXCISE v. MADHAN AGRO INDUSTRIES (I) PVT. LTD.

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INDUSTRIES (I) PVT. LTD. [R. BANUMATHI, J.]

3 to Chapter 33, any product “suitable for use as goods in these A headings and that put up in packings of a kind sold by retail for such use”, has to be classified as ‘Hair Oil’ under Chapter 33. So long as the product is suitable for use as ‘Hair Oil’ and if it is packed in such a way that it is useable for the purposes of ‘Hair Oil’, it has to be classified as ‘Hair Oil’ under Chapter 33. B

30. Government of India, Trade Mark Registry and Public search result indicate that Trademark No.1033842 Class-3-Parachute is associated with Hair Oil, Hair lotions etc. Registration of the trademark of the ‘Parachute’ brand is for selling items like hair oil, hair lotion, hair growing preparation, hair tonics etc. The Tribunal held that the aspect C of label identified with the hair oil does not advance the case of Revenue for classification of ‘Coconut Oil’ as ‘Hair Oil’ since the allegation that job workers used green colour labels for marketing hair oil was absent in the Show Cause Notice. Relevant portion of the order of the Tribunal is as under:- D “7. ........Moreover, the material allegation of Marico that its job workers used green coloured labels for marketing hair oil exclusively was absent in the show-cause notice. Marico had never marketed any product under the orange label and all along marketed its entire range of products using the green label only. We find that in the absence of any label which could be identified with a hair oil, this aspect of the label does not advance the Revenue’s case for classification of the coconut oil as hair oil. Use of a trademark or a label has no bearing on classification.” The Tribunal is not right in saying that the Show Cause Notice issued to the respondent-M/s. Moreshwar and other job workers was absent on using green coloured labels for marketing hair oil exclusively. Para (3.4.2) of the Show Cause Notice refers to Screen-printing as under:- “.....HDPE granules and master batch in the required ratio is mixed and fed into the mould and blue colour container is obtained. G Runners and raisers are removed and the container is examined and if it is not fit, the same is sent for grinding. The fit container is sent to heating and then screen-printing with blue, green and white colour printing ink for printing the trademark and logo and other details as required by Marico Ltd.....”[Underlining added] H

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A That apart para (3.4.5)(4.1) of the Show Cause Notice contains scanned copy of the application for registration of the trademark in respect of hair oil. Contents of Show Cause Notice, there are clear averments as to the colour, printing of green ‘label’ and also the trademark. Hence, the Tribunal is not right in saying that the Show Cause Notice is absent as regards use of green coloured labels for marketing hair oil and that B registration of trademark for hair oil on the containers is of no significance for classifying the product as hair oil under Chapter 33.

31. Whether classification of ‘Coconut Oil’ falls under Chapter 15 and applicability of Interpretative Rule 3 is acceptable:-After amendment Heading 15 13 reads as under:- C 1513 Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not refined, but not chemically modified - Coconut (copra) oil and its fractions D 1513 11 00 - - Crude oil 1513 19 00 - - Other - Palm kernel or babassu oil and fractions thereof

32. Contention of the assessee is that the description of ‘Coconut Oil’ under Chapter 15 is specific and hence applicable to the subject goods in terms of Rule 3(a) of the Interpretative Rules. It is well-settled that Rule 3(a) of “General Rules for the Interpretation” is invokable only if the Headings and the relevant Sections and the Chapter Notes are not clearly determinative of the classification. The contention that the description “coconut oil (copra)” under Chapter 15 is specific and hence, applicable to the impugned goods does not merit acceptance since the classification of the goods is determinate on the harmonious construction of headings, relative Chapter Notes and Section Notes and the main Rule 1 of the Interpretative Rules. Classification of the impugned goods is primarily based on the Headings, relative Chapter Notes and Section Notes which are paramount in this regard as per Rule 1 of the G Interpretative Rules.

33. Rule 3 provides for classification in case goods are classifiable under two or more headings. For proper appreciation, at the risk of repetition, it is necessary to refer to Rule 3 of the Interpretative Rules which reads as under:- H

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INDUSTRIES (I) PVT. LTD. [R. BANUMATHI, J.]

3. When by application of sub-rule (b) of rule 2 or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:- (a) the heading which provide the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. (c) When goods cannot be classified by reference to (a) or (b), D they shall be classified under the heading which occurs last in the numerical order among those which equally merit consideration. Rule 3(b) provides the manner of classification of mixtures, composite goods consisting of different materials or made up of different components and goods put up in sets for retail sale. As ‘Coconut Oil’ is E not mixed or composite goods, Rule 3(b) does not have application. Rule 3(a) states that the most specific description will be preferred over the more general one. In the present case, when item description is read with the Chapter Notes, Section Notes and the tests for classification that is Tariff Item 1513.19.00 and 3305.90.19 are equally specific. Hence, as per Rule 3(c), when goods cannot be classified by reference to (a) or F (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit classification. Hence, the coconut oil manufactured by the respondents could rightly be classified under heading 3305.90.19, as it occurs last in the numerical order of the tariff. G

34. In Union of India and Ors. v. Pesticides Manufacturing and Formulators Association of India, (2002) 8 SCC 410, this Court has held that if there are two specific headings to which a product can be referred, the one occurring subsequently would prevail. H

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A 35. The Tribunal set aside the demand on the ground that the “coconut oil”would merit classification under Chapter Heading 15.03 of CETA, 1985 attracting ‘NIL’ rate of excise duty and not under Chapter Heading 33.05 of the CETA attracting duty of 16% advalorem. The Tribunal erred in not appreciating that with effect from 01.03.2005, the Central Excise Tariff Act, 1985 has undergone an amendment as per B which (Note 3 to Chapter 33) Heading nos.3303 to 3307 would apply, inter alia, to products whether or not mixed suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use. The case laws which were reported in Kothari Products Ltd. v. CCE2002 (139) ELT 633 (T); Srikant Sachets Pvt. Ltd. v. CCE 2005 C (180) ELT 401 (T); and Commissioner of Central Excise v. Essen Products (I) Ltd.2006 (200) ELT 342 (T) etc. relied upon by the Tribunal and the Board circular dated 31.08.1995 were dealing with the cases pertaining to the period prior to 01.03.2005. The Tribunal was not right in relying upon the earlier orders/circular dated 31.08.1995 prior to amendment to base its conclusion that coconut oil both edible and non- D edible merits classification under Chapter 15.

36. Tests for Classification: The Supreme Court has consistently taken the view that, in determining the meaning or connotation of words and expressions describing an article in a tariff schedule, one principle which is fairly well-settled is that those words and expressions should be E construed in the sense in which they are understood in the trade, by the dealer and the consumer. Whether a particular article will fall within a particular tariff heading or not, has to be decided on the basis of as to how that article is understood in ‘common parlance’ or in ‘commercial world’ and not as per scientific or technical meaning. In the case of F Asian Paints India Ltd. v. Collector of Central Excise (1988) 2 SCC 470, it has been held that when definition of a word has not been given, it must be considered in its popular sense and not according to scientific or technical sense.

37Copy pinpoint37. After referring to various judgments, in Plasmac Machine G Manufacturing Co. (P) Ltd. v. Collector of Central Excise, Bombay1991 Supp (1) SCC 57, it was held by this Court as under:- “15. ..... It is an accepted principle of classification that the goods should be classified according to their popular meaning or as they are understood in their commercial sense and not as per the H scientific or technical meaning. Indo International Industries v.

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INDUSTRIES (I) PVT. LTD. [R. BANUMATHI, J.]

CST ((1981) 2 SCC 528 and Dunlop India Ltd. v. Union of A India (1976) 2 SCC 241 have settled this proposition. How is the product identified by the class or section of people dealing with or using the product is also a test when the statute itself does not contain any definition and commercial parlance would assume importance when the goods are marketable as was held in Atul B Glass Industries (Pvt.) Ltd. v. CCE (1986) 3 SCC 480 and Indian Aluminium Cables Ltd. v. Union of India (1985) 3 SCC 284. In Asian Paints India Ltd. v. CCE (1988) 2 SCC 470 which was a case of emulsion paint, at para 8 it was said: (SCC p. 473, para 8) “It is well settled that the commercial meaning has to be given to the expressions in tariff items. Where definition of a word C has not been given, it must be construed in its popular sense. Popular sense means that sense which people conversant with the subject matter with which the statute is dealing, would attribute to it.””

38Copy pinpoint38. In Dabur Industries Ltd. v. Commissioner of Central D Excise, Jamshedpur (2005) 4 SCC 9, it was held that in classifying a product, the scientific or technical meaning is not to be resorted to but the test was to see what the persons using the product understand it to be.

39Copy pinpoint39. In Commissioner of Central Excise v. Wockhardt Life E Sciences Limited (2012) 5 SCC 585, this Court emphasized “Common Parlance Test” or the “Commercial Usage Test” in paras (33) to (37) and held as under:- “33. There is no fixed test for classification of a taxable commodity. This is probably the reason why the “common parlance test” or the “commercial usage test” are the most common (see A. Nagaraju Bros. v. State of A.P. 1994 Supp (3) SCC 122). Whether a particular article will fall within a particular tariff heading or not has to be decided on the basis of the tangible material or evidence to determine how such an article is understood in “common parlance” or in “commercial world” or in “trade circle” or in its popular sense meaning. It is they who are concerned with it and it is the sense in which they understand it that constitutes the definitive index of the legislative intention, when the statute was enacted (see Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan (1980) 4 SCC 71). H

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A 34. One of the essential factors for determining whether a product falls within Chapter 30 or not is whether the product is understood as a pharmaceutical product in common parlance [see CCE v. Shree Baidyanath Ayurved Bhavan Ltd. (2009) 12 SCC 419 and CCE v. Ishaan Research Lab (P) Ltd. (2008) 13 SCC 349]. Further, the quantity of medicament used in a particular product B will also not be a relevant factor for, normally, the extent of use of medicinal ingredients is very low because a larger use may be harmful for the human body. [Puma Ayurvedic Herbal (P) Ltd. v. CCE (2006) 3 SCC 266, State of Goa v. Colfax Laboratories Ltd. (2004) 9 SCC 83 and B.P.L. Pharmaceuticals Ltd. v. CCE C 1995 Supp (3) SCC 1.]

35. However, there cannot be a static parameter for the correct classification of a commodity. This Court in Indian Aluminium Cables Ltd. v. Union of India (1985) 3 SCC 284 has culled out this principle in the following words: (SCC p. 291, para 13) D “13. To sum up the true position, the process of manufacture of a product and the end use to which it is put, cannot necessarily be determinative of the classification of that product under a fiscal schedule like the Central Excise Tariff. What is more important is whether the broad description of the article fits in E with the expression used in the Tariff.”

36. Moreover, the functional utility and predominant or primary usage of the commodity which is being classified must be taken into account, apart from the understanding in common parlance. [See O.K. Play (India) Ltd. v. CCE (2005) 2 SCC 460, Alpine F Industries v. CCE (2003) 3 SCC 111, Sujanil Chemo Industries v. CCE & Customs (2005) 4 SCC 189, ICPA Health Products (P) Ltd. v. CCE (2004) 4 SCC 481, Puma Ayurvedic Herbal (2006) 3 SCC 266, Ishaan Research Lab (P) Ltd. (2008) 13 SCC 349 and CCE v. Uni Products India Ltd. (2009) 9 SCC 295] G

37. A commodity cannot be classified in a residuary entry, in the presence of a specific entry, even if such specific entry requires the product to be understood in the technical sense (see Akbar Badrudin Giwani v. Collector of Customs (1990) 2 SCC 203 and Commr. of Customs v. G.C. Jain (2011) 12 SCC 713). A H

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INDUSTRIES (I) PVT. LTD. [R. BANUMATHI, J.]

residuary entry can be taken refuge of only in the absence of a A specific entry; that is to say, the latter will always prevail over the former [see CCE v. Jayant Oil Mills (P) Ltd. (1989) 3 SCC 343, HPL Chemicals Ltd. v. CCE (2006) 5 SCC 208, Western India Plywoods Ltd. v. Collector of Customs (2005) 12 SCC 731 and CCE v. Carrier Aircon Ltd. (2006) 5 SCC 596]. B

40Copy pinpoint40. In Commissioner of Central Excise, Delhi v. Carrier Aircon Ltd.(2006) 5 SCC 596, this Court held as under:- “14. End use to which the product is put to by itself cannot be determinative of the classification of the product. See Indian Aluminium Cables Ltd. v. Union of India (1985) 3 SCC 284. C There are a number of factors which have to be taken into consideration for determining the classification of a product. For the purposes of classification the relevant factors inter alia are statutory fiscal entry, the basic character, function and use of the goods. When a commodity falls within a tariff entry by virtue of the purpose for which it is put to (produced), the end use to which D the product is put to, cannot determine the classification of that product.”

41Copy pinpoint41. Chapter 15 of Section 3 of Central Excise Tariff deals with “Animal or Vegetable fats and Oils and their cleavage products; prepared edible fats; Animal or Vegetable Waxes”. Sub-Heading 1513 E deals with coconut (copra). Before considering the contentious issues as to the classification of the impugned goods, it is necessary to point out as to how ‘Coconut Oil’ is understood and treated in the market.

42Copy pinpoint42. In Jain Exports Pvt. Ltd. v. Union of India1987 (29) ELT 753 Del, the High Court of Delhi dealt with the use of ‘Coconut Oil’ and in the context of importability of ‘Coconut Oil’, held as under:- “25. ....it is well known that the coconut oil is not at all used as an edible oil in a very large part of our country. Almost all the parts of India up to Vindhyas do not use coconut oil as edible medium. Even in rest of the country though it is in use extensively in some very small part, its use in most of the other part is small average. So ordinarily if a person was to go to the market and ask for coconut oil, the normal question he would be asked will be whether he needs it as hair oil or shampoo. No one normally will understand H

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A coconut oil to mean only edible variety because such is not the normal major use. A person would have to specifically clarify that by asking for coconut oil he is asking for edible variety in order to make his intention clear. Thus by itself and in ordinary parlance coconut oil in the import policy would be understood to include both edible variety and industrial variety of coconut oil. If B only one variety of coconut oil was meant to be covered, it would be more consistent to hold that it is industrial variety considering the overwhelming use of coconut oil for non-edible purpose. But an entry would never be restricted only to edible variety of coconut oil......”. [Underlining added] C Though the above observation is in the context of importability of ‘Coconut Oil’, the factum of overwhelming use of ‘Coconut Oil’ and as to coconut oil is normally understood as ‘Hair Oil’ cannot be ignored. It is a matter of common knowledge that in many parts of the country ‘Coconut Oil’ is widely used as ‘Hair Oil’ and not generally used as edible oil; it is so used as edible oil only in few areas of the country. No one will normally understand ‘Coconut Oil’ to mean only as edible oil because such is not the major use of ‘edible oil’. The moment we held that the impugned goods-coconut oil is suitable for use as ‘Hair Oil’ as discussed infra, it has to be classified only under Chapter 33.

43Copy pinpoint43. As pointed out earlier, Revenue relies upon number of materials that those in trade, traders and consumers have understood ‘Parachute’ as ‘Hair Oil’. In para (36) of Wockhardt Life SciencesLtd. quoted above, this Court laid emphasis to the “functional utility and predominant or primary usage of the commodity” that is to be taken into account while classifying the product. As discussed earlier, after amendment what is more relevant is the suitability of the goods for being used as ‘Hair Oil’ and the usage of the product in common parlance.

44Copy pinpoint44. In the Order-in-Original No.06/2008-(C), reference is also referred to feedback about the product by their consumers and their impressions and experiences. It also refers to the interview of Mr. Arvind Mediratta, Head of Marketing Division of M/s. Marico Limited stating that ‘Parachute’ brand is associated with ‘Hair Oil’ whereas Saffola brand is associated with edible (cooking) oil. The revenue also refers to an article in the Financial Express dated 14.06.2001 where Mr. Srikand Gupta, Chief Executive Officer (CEO), Nature Care Division of M/s. Marico stated that they wanted the ‘Parachute’ brand to be perceived as a cosmetic brand with the utility of nourishing hair.

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INDUSTRIES (I) PVT. LTD. [R. BANUMATHI, J.]

45Copy pinpoint45. The appellant has relied upon the following write up on coconut A oil by the Coconut Development Board (a statutory body under the Ministry of Agriculture):- “Coconut oil is used in the country as a cooking fat, hair oil, body oil and industrial oil..... Coconut oil is marketed in bulk as well as in packs ranging from sachets containing 5 ml to 15 kg tins. The B branded coconut oil in small packs is mainly marketed as hair oil and body oil.”

46Copy pinpoint46. A taxing statute is being one levying a tax on goods must, in the absence of a technical term or a term of science or art, be presumed to have used an ordinary term as coal according to the meaning ascribed C to it in common parlance. In Commissioner of Sales Tax, Madhya Pradesh, Indore v. Jaswant Singh Charan Singh, AIR 1967 SC 1454, it was held as under:- “5. The result emerging from these decisions is that while construing the word “coal” in Entry I of Part III of Schedule II, D the test that would be applied is what would be the meaning which persons dealing with coal and consumers purchasing it as fuel would give to that word. A sales tax statute is being one levying a tax on goods must in the absence of a technical term or a term of science or art, be presumed to have used an ordinary term as coal according to the meaning ascribed to it in common parlance. E Viewed from that angle both a merchant dealing in coal and a consumer wanting to purchase it would regard coal not in its geological sense but in the sense as ordinarily understood and would include “charcoal” in the term “coal”. It is only when the question of the kind or variety of coal would arise that a distinction F would be made between coal and charcoal; otherwise, both of them would in ordinary parlance as also in their commercial sense be spoken as coal.”

47Copy pinpoint47. After referring to various judgments on the point of common parlance test, in Commissioner of Central Excise, New Delhi v. G Connaught Plaza Restaurant Private Ltd., New Delhi (2012) 13 SCC 639, it was held as under:- “33. Therefore, what flows from a reading of the aforementioned decisions is that in the absence of a statutory definition in precise terms; words, entries and items in taxing statutes must be construed H

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A in terms of their commercial or trade understanding, or according to their popular meaning. In other words they have to be constructed in the sense that the people conversant with the subject-matter of the statute, would attribute to it. Resort to rigid interpretation in terms of scientific and technical meanings should be avoided in such circumstances. This, however, is by no means an absolute B rule. When the legislature has expressed a contrary intention, such as by providing a statutory definition of the particular entry, word or item in specific, scientific or technical terms, then, interpretation ought to be in accordance with the scientific and technical meaning and not according to common parlance understanding.”

48Copy pinpoint48. In the case of Alpine Industries v. Collector of Central Excise, New Delhi(2003) 3 SCC 111, the question was whether “Lip Salve” could be classifiable as a preparation for care of skin or as a medicament. The product was mainly supplied to the Defence Department for use by military personnel who are posted in high-altitude D areas. In Commissioner of Central Excise, Calcutta v. Sharma Chemical Works (2003) 5 SCC 60, this Court held that in interpreting provisions of a statute like the Excise Act, the popular meaning as understood by the users should be applied and not the scientific or technical meaning.

49Copy pinpoint49. As held in Jain Exports Pvt. Ltd., the factum of overwhelming use of ‘Coconut Oil’ as ‘Hair Oil’ in most parts of the country cannot be ignored. No one will normally understand ‘Coconut Oil’ to mean only as ‘edible oil’ because such is not the major use of ‘edible oil’. Applying the common parlance test and also ‘end use of the product’, coconut oil is predominantly understood by the users namely dealers/consumers only as ‘Hair Oil’ and not as ‘edible oil’and hence, classifiable only under Chapter 33 and not under Chapter 15.

50Copy pinpoint50. After the amendment (w.e.f. 28.02.2005) what is relevant is ‘suitability of the goods for being used as Hair Oil’ for classifying the same under 33.05. ‘Coconut Oil’ packed in small sachets/containers suitable for being used as ‘Hair Oil’ is classifiable under Chapter Tariff Item 3305. When a good is classifiable under tariff item 3305, by virtue of amended Section Note 2 to Section VI, no other classification is permissible. By consideration of the materials placed on record and

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INDUSTRIES (I) PVT. LTD. [R. BANUMATHI, J.]

also applying the’Common Parlance Test’, coconut oil packed in small sachets/containers understood in the market by dealers/consumers as ‘Hair Oil’ is classifiable under Chapter 33, tariff item 33 05. In the case of MAIPL, ‘Coconut Oil’ packed in small sachets/containers suitable for being used as ‘Hair Oil’ are classifiable under Chapter 3305. In case of ‘Parachute’, this is further fortified by various materials placed on record and also registration of its Trademark No.1033842 Class-3 Parachute associated with “Hair Oil, Hair lotion etc.”

51Copy pinpoint51. Re. Contention HSN Notes to Chapter Note 3 of Chapter 33 is the same as it was prior to amendment:- The Tribunal held that “HSN Explanatory Notes to Chapter 33 were same before and after 28.02.2005.” Moreover, Notes under Chapter 15 relating to C ‘Coconut Oil’ in the HSN and Central Excise Tariff after 28.02.2005 are also identical. Mr. Bagaria, learned senior counsel for the assessee urged that the changes brought about by the amendment to Chapter Note 3 of Chapter 33 is of no significance since HSN Notes to Chapter Note 3 of Chapter 33 is exactly the same as in the Central Excise Tariff D prior to amendment. It was submitted that Explanatory Notes in HSN clarified the purport, meaning, scope and effect of Chapter Note 3 of Chapter 33. It was submitted that since Central Excise Tariff is based on HSN, for resolving any dispute relating to tariff classification, HSN is a safe guide. In this regard, reliance is placed upon Collector of Central Excise, Shillong v. Woods Craft Product Ltd. (1995) 3 SCC 454, E Commissioner of Customs and Central Excise, Goa v. Phil Corporation Limited(2008) 17 SCC 569 and O.K. Play (India) Ltd. v. Commissioner of Central Excise, Delhi-III, Gurgaon(2005) 2 SCC 460. F

52Copy pinpoint52. The Harmonized Commodity Description and Coding System (HS) of tariff nomenclature, generally referred to as the “Harmonized System of Nomenclature (HSN)” is an internationally standardized system of names and numbers for classifying traded products, developed and maintained by the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an independent inter-governmental G organization [Source: World Customs Organization: http:// www. wcoomd.org/en/topics/nomenclature/overview/what-is- the-harmonized-system. aspx]. Along with the HSN, are the

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A Explanatory Notes. They do not form an integral part of the Harmonized System Convention. However, as approved by the WCO Council, they constitute the official interpretation of the Harmonized System at the international level and are an indispensable complement to the System. [World Customs Council, retrieved from: http://www.wcoomd.org/ en/topics/nomenclature/instrument-and-tools/tools-to-assist-with- B the-classification-in-the-hs/explanatory-notes.aspx].

53Copy pinpoint53. The Central Excise Tariff Act, 1985 (CETA) is based on the Harmonized System of Nomenclature (HSN), which is an internationally accepted product coding system formulated under the auspice of the C General Agreement on Tariffs Trade (GATT). In Commissioner of Customs and Central Excise, Goa v. Phil Corporation Ltd. (2008) 17 SCC 569, this Court explained the HSN as under:-

“29. ...The Central Excise Tariff Act is broadly based on the system of classification from the international convention called the D Brussels Convention on the Harmonized Commodity Description and Coding System (Harmonized System of Nomenclature) with necessary modifications. HSN contains a list of all the possible goods that are traded (including animals, human, hair, etc.) and as such the mention of an item has got nothing to do whether it is manufactured and taxable or not” E

54Copy pinpoint54. HSN Explanatory Notes provide a commentary on the scope of each heading, giving a list of the main products included and excluded, together with technical description of the goods concerned (their appearance, properties, method of production and uses) and practical F guidance for their identification. The Explanatory Notes also clarify the scope of particular sub-headings wherever appropriate. However, HSN or the Explanatory Notes thereon cannot supersede the relevant notes contained in the Tariff Schedule. They can be relied upon as a safe guide in cases of doubt.

55Copy pinpoint55. In the case in hand, we are concerned with classification of goods - ‘Coconut Oil’ between two Chapters both falling within first Schedule to Central Excise Tariff Act, 1985. For proper appreciation, we may usefully refer to the relevant HSN Explanatory Notes relating to Chapter 33 and Chapter 33 of CETA Tariff Notes:-

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INDUSTRIES (I) PVT. LTD. [R. BANUMATHI, J.]

A HSN Explanatory Notes CETA Tariff Notes Chapter 33 Chapter 33 Essential Oils and Resinoids; Essential Oils and Resinoids, Perfumery, Cosmetic or Toilet Preparations Perfumery, Cosmetic or Toilet Preparations Chapter Notes: Notes: .......... B

3. Heading 33.03 to 33.07 apply, inter alia, to .................. products, whether or not mixed (other than aqueous 3. Heading 3303 to 3307 apply, inter alia, distillates and aqueous solutions of essential oils), to products, whether or not mixed (other suitable for use as goods of these headings and put up than aqueous distillates and aqueous in packings of a kind sold by retail for such use. solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retails for such C General use. ........... Headings 33.03 to 33.07 include products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use (see Note 3 to this D Chapter). The products of headings 33.03 to 33.07 remain in these headings whether or not they contain subsidiary pharmaceutical or disinfectant constituents, or are held out as having subsidiary therapeutic or prophylactic value (see Note 1(d) to Chapter 30). However, prepared room deodorizers remain classified in heading 33.07 even if they have disinfectant properties of more than a subsidiary nature. Preparation (e.g. varnish) and unmixed products (e.g. unperfumed powdered talc, fuller's earth, acetone, alum) which are suitable for other uses in addition to those described above are classified in these headings only when they are:-

(a) In packings of a kind sold to the consumer and put up with labels, literature or other indications that they are for use as perfumery, cosmetic or toilet preparations, or as room deodorizers; or (b) Put up in a form clearly specialized to such use (e.g. nail varnish put up in small bottles furnished with the brush required for applying the varnish).

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33.05 -PREPARATIONS FOR USE ON 3305- Preparations for use on THE HAIR the hair

................ ............... B This heading covers:- 3305 90 - Other

1........ -- Hair Oil 2......... 3.........

4. Other hair preparations, such as C brilliantines, hair oils, creams ("pomades") and dressings, hair dyes and bleaches used on the hair; cream-rinses

56Copy pinpoint56. So far as Chapter Note 3 to Chapter 33, CETA Amendment D Act, 2004 has the same Chapter Note as the HSN. However, the general explanation of HSN adds further conditions for the product to be classifiable under Chapter 33 regarding packings of a kind sold to the consumer and put up with labels and literatures that they are for use for such purpose. To put it in other words, Chapter Note 3 to Chapter 33 as contained in the HSN, General Explanation to the said HSN Notes places certain conditions, i.e.:-

(a) [when the goods are] In packings of a kind sold to the consumer and put up with labels, literature or indications that they are for use as perfumery, cosmetic or toilet preparations, or as room deodorizers; or

(b) Put up in a form clearly specialized to such use (e.g. nail varnish put up in small bottles furnished with the brush required for applying the varnish). G It is important to note that the pre-amended Schedule (prior to CETA amendment) also had the same rigours as HSN Notes such as “the product requiring labels and literatures including the specialized use” (as Chapter Note 2 to Chapter 33). However, after the amendment

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INDUSTRIES (I) PVT. LTD. [R. BANUMATHI, J.]

with effect from 28.02.2005, the Parliament consciously chose not to impose or place the same rigours for classification of goods under this Heading and deleted the same. The Parliament intentionally and consciously deleted these conditions in the new (renumbered) Chapter Note 3 to Chapter 33 of the Tariff Schedule to the CETA. Therefore, to apply these conditions, post-amendment would be against the intent of the Parliament. Hence, HSN Chapter Note cannot be relied upon to determine the classification rather the CETA Tariff Chapter Note must be considered.

57Copy pinpoint57. The relevant HSN Explanatory Notes and competing CETA Tariff Note, insofar as Section Note 2 to Section VI is as under:- C HSN Explanatory Notes CETA Tariff Notes Section VI Section VI Products of the Chemical or Allied Industries Products of the Chemical or Allied Industries Section Notes. After amendment D ........ Notes:

2. Subject to Note 1 above, goods classifiable in Heading Nos. 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

2. Subject to Note 1 above, goods by reason of being put up in measured doses or classifiable in Headings 3004, 3005, for retail sale are to be classified in those 3006, 3212, 3303, 3304, 3305, 3306, headings and in no other heading of the E 3307, 3506, 3707 or 3308 by reason of Nomenclature. being put up in measured doses or for

3. Goods put up in sets consisting of two or more retail sale are to be classified in those separate constituents, some or all of which fall in headings and in no other heading of this Section and are intended to be mixed this schedule. together to obtain a product of Section VI or VII, are to be classified in the heading appropriate to F that product, provided that the constituents are:- (a) having regard to the manner in which they are put up, clearly identifiable as being intended to be used together without first being repacked; (b) presented together; and G (c) identifiable, whether by their nature or by the relative proportions in which they are present, as being complementary one to another.

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A General Section Note 1 ......... Section Note 2

Section Note 2 provides that goods (other than B 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 C 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.

58Copy pinpoint58. As discussed earlier, CETA Amendment Act, 2004 amended Section Note 2 to Section VI. The rigours placed for a product to be classified under these Headings are not prevalent in the CETA although they are prevalent in the HSN. The legislature consciously chose not to import the conditions and rigours placed in the HSN Explanatory Notes E and the following as found in HSN does not find place in the amended Section Note 2 to Section VI:- “(a) having regard to the manner in which they are put up, clearly identifiable as being intended to be used together without first being repacked; F (b) presented together; and (c) identifiable, whether by their nature or by the relative proportions in which they are present, as being complementary one to another.” G It is clear from the above, that the HSN General Explanatory Notes to Section VI are to an extent in conflict with the Notes contained in Tariff Schedule to the Central Excise Tariff Act, 1985. Therefore, the Notes contained in the Central Excise Tariff Act shall prevail over the Notes contained in HSN.

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59Copy pinpoint59. In Collector of Central Excise, Shillong v. Woods Craft A Product Ltd.(1995) 3 SCC 454, this Court held HSN is a safe guide for interpretation and entitled to great consideration. The relevant portion of the said judgment is as under:- “12. It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central excise tariffs are based on B 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 Central excise tariff in the C Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terms has a different purpose and, therefore, the specific purpose of tariff classification for which the internationally accepted nomenclature in HSN has been adopted, for enacting the Central Excise Tariff Act, 1985, must be preferred, in case of any difference between the meaning of the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI.”

60Copy pinpoint60. However, in Camlin Ltd. v. Commissioner of Central Excise, Mumbai(2008) 9 SCC 82, this Court held that if the entries under HSN and the entries under the Central Excise Tariff Act are different then reliance cannot be placed upon HSN Notes for the purposes of classification of goods under the Central Excise Tariff. The relevant portion of the said judgment is as under:- “24. In our considered view, the Tribunal erred in relying upon the HSN for the purpose of marker inks in classifying them under Chapter Sub-Heading 3215.90 of the said Tariff. The Tribunal failed to appreciate that the entries under the HSN and the entries under the said Tariff are completely different. As mentioned above, it is settled law that when the entries in the HSN and the said G Tariff are not aligned, reliance cannot be placed upon HSN for the purpose of classification of goods under the said Tariff. One of the factors on which the Tribunal based its conclusion is the entries in the HSN. The said conclusion in the order of the Tribunal is, therefore, vitiated and, accordingly, set aside. We agree with the findings recorded by the Commissioner (Appeals).” H

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61Copy pinpoint61. As discussed earlier, after the amendment to CETA, there is a material difference between the relevant notes provided in the HSN as against those provided in the Tariff Schedule to the CETA, 1985. The general explanation as provided in the HSN cannot be applied as they stand to explain the Notes in the HSN which is materially different from the Notes contained in the Tariff Schedule of the CETA. In instances of B conflict, the Notes contained in the Tariff Schedule to the CETA will prevail over that of the HSN. One of the factors on which the Tribunal based its conclusion was the entries in HSN and its observation that entries in HSN to Chapter 33 and CETA Tariff Notes of Chapter 33 are one and the same even after amendment. In my view, the Tribunal C erred in not keeping in view the principles laid down by this Court in Camlin Ltd. casethat when the Notes in HSN and the Tariff are not aligned, reliance cannot be placed upon the HSN for the purpose of classification of the goods.

62Copy pinpoint62. Circular No.145/56/95-CX dated 31.08.1995was issued in the context of classification of ‘Coconut Oil’ under the Central Excise Tariff as it existed prior to the amendment. The said circular clarified that for classification of ‘Coconut Oil’ under Chapter 33 (as ‘Hair Oil’), it must satisfy the requirements of Chapter Note 2 of Chapter 33. As per the said circular, though ‘Coconut Oil’ may be capable of being used as ‘Hair Oil’, the product must satisfy the criteria of label/literature on packing of ‘Coconut Oil’ showing its use as ‘Hair Oil’ as per Note 2 to Chapter 33. The relevant part of the Circular dated 31.08.1995 is as under:- “6. .....In the CET Heading 3305 covers “preparations for use on the hair”. F ......

9. Therefore, keeping in view of Chapter Notes, HSN Notes, the Tariff Conference of 1991, the report of D.G. (A.E.) and the opinion of Chief Chemist, CRCL, it is felt that coconut oil whether G pure or refined and whether packed in small or large containers merits classification under Heading No.1503 as long as it satisfies the criteria of ‘fixed vegetable oil’ laid down in Chapter Note 3 of Chapter 15. It is also clarified that if the containers bear labels/ literature, etc., indicating that it is meant for application on hair, as specified under Note 2 of Chapter 33 and/or if the coconut oil has H

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INDUSTRIES (I) PVT. LTD. [R. BANUMATHI, J.]

additives (other than BHA) or has undergone processes which A made it a preparation for use on hair as mentioned in Chapter Note 6 of Chapter 33 then the coconut oil may merit classification under Chapter 33.”

63Copy pinpoint63. In exercise of powers under Section 37B of Central Excise Act, 1944, CBEC issued Circular No.102/05/2006-CX-3 dated B 03.06.2009 withdrawing the Circular No. 145/56/95-CX dated 31.08.1995. After referring to the amendment and old and new Chapter Notes and Section Notes, the Circular stated that the ‘Coconut Oil’ packed in small containers of sizes upto 200 ml shall be classified under Heading 3305. The relevant portion of the said Circular reads as under:- C “5. .....Hence, in view of the amendments/insertion of Chapter Note and Section Note, the classification of coconut oil would depend upon the fact as to how the majority of the customers use the said product. Therefore, if coconut oil is packed in packages which are generally meant for sale in retail as hair oil, in that case, the said product would be classified as hair oil under heading 3305, D even though few consumers may use it as edible oil. Through field survey, it has been gathered that smaller packs upto the sizes of 200 ml are normally used as hair oil by the customers. It has also been reported that in small pack sizes upto 200ml are stacked along with other hair oil care preparations/cosmetics and not in edible oil section in the retail shops. Enquiries also reveal that small packs of coconut oil displayed at the hair care shelves are used as hair oil only and the customer ask for the smaller packages or the sachets for using them as ‘hair oil’.

6. In view of foregoing discussion, it is concluded that coconut oil packed in containers upto 200ml may be considered as generally used as hair oil. This would bring uniformity in assessment in respect of coconut oil sold in small containers irrespective of the fact as to whether its use as hair oil is indicated on containers/ labels or not. Therefore, following instructions/directions are issued:- (i) Circular No. 145/56/95-CX dated 31.08.1995 stands withdrawn. (ii) the coconut oil packed in small container of sizes upto 200ml shall be classified under heading 3305.” H

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64Copy pinpoint64. In Raj Oil Mills Ltd. v. Commissioner, Central Excise2014 (314) ELT 541 (Tri. - Mumbai), it was held that repacking of ‘Edible Grade Coconut Oil’ from bulk pack to retail pack of 200 ml and less are not classifiable under Chapter 33 of Central Excise Tariff which covers “cosmetic or toilet preparations” rather it would be classifiable under Chapter 15 which covers “animal or vegetable fats and oils and their B cleavage products”. Challenging the judgment of the Tribunal in Raj Mills Ltd. case, the appeals preferred by the Revenue in CA Nos. 2023-37 of 2014 were dismissed on 17.12.2014 by holding as under:- “1. We have heard learned Additional Solicitor General appearing for the Revenue. C

2. Delay condoned.

3. We find no merit in the Civil Appeals. The Civil Appeals are dismissed.” After the judgment of the Supreme Court, the Circular dated D 03.06.2009 was withdrawn by another Circular No.103/01/2015-CX-3 dated 12.10.2015. Now, the issue of classification of ‘Coconut Oil’ as per the Circular dated 12.10.2015 is to be decided by the field by taking into consideration the facts of the case read with the judicial pronouncements. Merely because the ‘Coconut Oil’ of retail pack of E 200 ml or less are not classifiable under Chapter 33 of the Central Excise Tariff and the civil appeals preferred by the Revenue were dismissed by the Supreme Court, it does not mean that it has attained finality. As pointed out earlier, civil appeals preferred by the Revenue were dismissed by a non-speaking order at the admission stage and hence, the “Doctrine of Merger” is not applicable. When the order passed by the Supreme F Court is not a speaking order, it is not correct to assume that the Supreme Court had decided implicitly all the questions in relation to the merits of the order. Now, the position (as per Circular dated 12.10.2015) is to decide the issue of classification by the field taking into consideration the facts of the case read with judicial pronouncements.

65Copy pinpoint65. Conclusion: Impugned orders of the Tribunal are set aside and the appeals preferred by the revenue are allowed with the following findings:- i. Tribunal is not right in holding that Chapter 15 covers all varieties of ‘coconut oil’ both edible and non-edible. The judgments relied H

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upon by the Tribunal and the Board’s circular dated 31.08.1995 A were prior to 2004 amendment. The Tribunal was not right in relying upon the earlier orders/circular dated 31.08.1995 prior to amendment to base its conclusion that coconut oil both edible and non-edible merits classification under Chapter 15. Hence the impugned orders of the Tribunal are liable to be set aside. B ii. After the amendment (w.e.f. 28.02.2005) what is relevant is ‘suitability of the goods for being used as Hair Oil’ for classifying the same under 33.05. ‘Coconut Oil’ packed in small sachets/containers suitable for being used as ‘Hair Oil’ is classifiable under Chapter Tariff Item 3305. When a good is classifiable under tariff item 3305, by virtue of amended Section C Note 2 to Section VI, no other classification is permissible. iii. Rule 3(a) states that the most specific description will be preferred over the more general one. In the present case, when item description is read with the Chapter Notes, Section Notes and the tests for classification that is Tariff Item 1513.19.00 D and 3305.90.19 are equally specific. Hence, as per Rule 3(c), when goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit classification. Hence, the coconut oil manufactured by the respondents could E rightly be classified under heading 3305.90.19, as it occurs last in the numerical order of the tariff. iv. By consideration of the materials placed on record and also applying the’Common Parlance Test’, coconut oil packed in small sachets/containers understood in the market by dealers/ F consumers as ‘Hair Oil’ is classifiable under Chapter 33, tariff item 33 05. v. After the amendment to Central Excise Tariff Act (w.e.f. 28.02.2005), there is material difference between the relevant Explanatory Notes in the HSN as against those provided in the G Tariff Schedule to Central Excise Tariff Act, 1985. As held in Camlin Ltd. v. Commissioner of Central Excise, Mumbai (2008) 9 SCC 82, when the Explanatory Notes in the HSN and the Notes tariff schedule are not aligned, reliance cannot be placed upon HSN for the purpose of classification of goods. H

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A vi. In the case of MAIPL, ‘Coconut Oil’ packed in small sachets/ containers suitable for being used as ‘Hair Oil’ are classifiable under Chapter 3305. In case of ‘Parachute’, this is further fortified by various materials placed on record and also registration of its Trademark No.1033842 Class-3 Parachute associated with “Hair Oil, Hair lotion etc.” B vii. Circular dated 03.06.2009 and dismissal of appeals preferred by the Revenue in CA Nos. 2023-37 of 2014 (dated 17.12.2014) at the admission stage by non-speaking order, the ‘Doctrine of Merger’ is not applicable. C ORDER 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. D

Devika Gujral Directions to place before Hon’ble CJI for appropriate orders.