COMMISSIONER OF CUSTOMS (IMPORT) vs M/S WELKIN FOODS

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COMMISSIONER OF CUSTOMS (IMPORT) vs M/S WELKIN FOODS | BharatTax

goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) the heading which provides 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 put up for retail sale, 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 for retail sale, 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), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. 4. Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin. 5. In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein: (a) camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character; (b) subject to the provisions of (a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision does not apply when such packing materials or packing containers are clearly suitable for repetitive use.

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, this court found that there was an inconsistency between the Central Excise Tariff description and the entry in the HSN and, therefore, reliance upon the HSN entry was held to be invalid. It was affirmed that it is only when the entry in the HSN and the tariff description in the First Schedule to the Act of 1985 are aligned that reliance would be placed upon the HSN for the purpose of classification of such goods under the correct tariff description.” (Emphasis Supplied) Thus, in Madhan Agro (supra), this Court clarified the applicability of the Explanatory Notes. Their application is governed by a single, critical condition of ‘alignment’. This test is met when the domestic tariff entry (in the First Schedule of the Act, 1975) is fully aligned with the corresponding HSN heading, and no explicit deviation or contrary legislative intent is found in the Act, 1975. Where such alignment exists, the Explanatory Notes are to be treated as binding guidance. The rationale is based on the legislative intent. Since the First Schedule of the Act, 1975 was amended to be in accordance with the HSN, the Explanatory Notes, being the official, international interpretation, are the most authentic guide to understanding the scope of the headings.

amendment in 1964, Tariff Item 15 classified soaps as: (i) Soap, household and laundry, (ii) Soap, toilet, and (iii) Soap, other than household, laundry, or toilet. After the 1964 amendment, Tariff Item classified soaps as: (i) Soap, household and laundry, and (ii) other sorts. Consequently, the specific category for ‘toilet soaps’ was abolished, raising the issue of whether ‘toilet soaps’ should be classified as ‘household soaps’ or as ‘other sorts’. It is in this context that the Court made the following relevant observations: “4. The provisions of the tariff do not determine the relevant entity of the goods. They deal whether and under what entry, the identified entity attracts duty. The goods are to be identified and then to find the appropriate heading, sub- heading under which the identified goods/products would be classified. To find the appropriate classification description employed in the tariff nomenclature should be appreciated having regard to the terms of the headings read with the relevant provisions or statutory rules or interpretation put up thereon. For exigibility to excise duty the entity must be specified in positive terms under a particular tariff entry. In its absence it must be deduced from a proper construction of the tariff entry. There is neither intendment nor equity in a taxing statute. Nothing is implied. Neither can we insert nor can we delete anything but it should be interpreted and construed as per the words the legislature has chosen to employ in the Act or rules. There is no room for assumption or presumptions. The object of the Parliament has to be gathered from the language used in the statute. The contention that toilet soap is commercially different from household and laundry soaps, as could be seen from the opening words of Entry 15, needs careful analysis. [...] Let us, therefore, consider the meaning of the word soap “household”. The word household signifies a family living together. In the simplistic language toilet soap being used by the family as household soap is too simplification to reach a conclusion. Therefore, one has to gather its meaning in the legal setting to discover the object which the Act seeks to serve and the purpose of the amendment brought about. The task of interpretation of the statute is not a mechanical one. It is more than mere reading of mathematical formula. It is an attempt to discover the

intention of the legislature from the language used by it, keeping always in mind, that the language is at best an imperfect instrument for the expression of actual human thoughts. It is also idle to expect that the draftsman drafted it with divine prescience and perfect and unequivocal clarity. [...] 5. In Ramavatar Budhaiprasad v. Assistant STO , another Constitution Bench was to consider whether “betel leaves” are “vegetable” within the meaning of Item 6 of Second Schedule to the M.P. Sales Tax Act. It was contended that betel leaves are vegetable and, therefore, they are exempted from the payment of sales tax. While construing Item 6, this Court held that the words must be construed not in any technical sense nor from the botanical point of view but as understood in common parlance. It has not been defined in the Act and being a word of every day use it must be construed in its popular sense meaning “that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it”. It is to be construed as understood in common language. Therefore, betel leaves were held to be not vegetable. The term ‘vegetables’ is to be understood as commonly understood denoting those classes of vegetable matter which are grown in kitchen gardens and are used for the table. The same view was reiterated in Motipur Zamindary Co. (Pvt.) Ltd. v. State of Bihar and State of W.B. v. Washi Ahmed . In Washi Ahmed case green ginger was held to be vegetable within the meaning of the word used in common parlance. In Motipur Zamindary case it was held that sugar-cane was not vegetable. In Porritts & Spencer (Asia) Ltd. v. State of Haryana this Court held that ‘Dryer felts’ are not textiles. In that context the principle of understanding the meaning of the word in common parlance was adopted. In Indo International Industries v. CST this Court held that: (SCC p. 530, para 4) “It is well-settled that in interpreting items in statutes like the Excise Tax Acts or Sales Tax Acts, whose primary object is to raise revenue and for which purpose they classify diverse products, articles and substances resort should be had not to the scientific and technical meaning of the terms or expression used but to their popular meaning, that is to say, the meaning attached to them by those dealing in them. If any term or expression

parlance test, the Court accepted the CESTAT’s finding that wild pomegranate was not consumed as a fruit. Accordingly, the Court refused to classify the imported good under Heading 0813. The relevant observations made by the Court are as follows: “14. We would, at this stage, take on record the well-settled principle that words in a taxing statute must be construed in consonance with their commonly accepted meaning in the trade and their popular meaning. When a word is not explicitly defined, or there is ambiguity as to its meaning, it must be interpreted for the purpose of classification in the popular sense, which is the sense attributed to it by those people who are conversant with the subject-matter that the statute is dealing with. This principle should commend to the authorities as it is a good fiscal policy not to put people in doubt or quandary about their tax liability. The common parlance test is an extension of the general principle of interpretation of statutes for deciphering the mind of the law-maker. However, the above rule is subject to certain exceptions, for example, when there is an artificial definition or special meaning attached to the word in a statute, then the ordinary sense approach would not be applicable. xxx 18. The first Chapter Note to Chapter 8 stipulates that inedible nuts and fruits are not covered by the Chapter. Clearly, for the purpose of classification, this Note draws a distinction between “edible” and “inedible” fruits. Etymologically, the word “edible” derives from the Latin word “edibilis” which means “eatable”. The word “edible” as per Webster's New International Dictionary means “fit to be eaten as food; eatable; esculent”. The Concise Oxford English Dictionary defines edible as “fit to be eaten”. The phrase “fit to be eaten” can imply an absence of harmful effects. However, while the word “edible” seems simple, it warrants elaboration as over-simplification will be problematic. 19. Ben Baumgartner, in his article, has referred to several judgments of different courts in the United States of America to argue that the decisions have culminated in the various tests and parameters to determine the meaning of the word “edible”. These are extracted below: “Thus, courts have turned to, and parties have argued for, various other tests to determine

whether a good is edible. Such tests include : (1) whether the good appears edible to the senses, (2) whether the good provides nourishment, (3) whether the good's constituent parts are edible, (4) whether the good is principally used as food, (5) whether the good may be eaten without harmful effects, (6) whether the good is “habitually eaten”, and (7) whether the good is actually eaten. This comment argues that a good should be considered edible if it can be eaten without harmful effects, but that whether the good is “habitually eaten” should control if testing the good is dangerous, and if neither of these tests yields a result, the matter should be resolved by whether the good is actually eaten.” The author thereafter goes on to argue that an item should be considered edible if it can be eaten without harmful effects, however, the “habitually eaten” test would apply if the testing of the goods to check for harmful effects is dangerous. If neither of the two tests yield a result, the matter should be resolved by determining if the item was actually eaten. 20. We need not discuss this article in detail but for the purpose to record that the word “edible” is capable of diverse and multiple meanings, which are plausible. For the purpose of the present case, the word “edible” must be construed using the principle of common parlance, which has been discussed supra. The law-makers, while enacting statutes, are cognizant of the way in which a word might be understood in common or trade parlance. Thus, if a meaning different than that attributed to it by people who are conversant in that subject-matter was intended to be attached to a word, the same would be specifically delineated by way of a definition. The word “edible” has no such specific definition attached to it, and therefore, must be interpreted using the common parlance test. The question which so arises is whether the goods — “anardana”, are dried pomegranates, which when fresh are understood as “edible” fruits in common parlance. [...] xxx 23. In favour of the appellant's claim, it must be highlighted that pomegranates, along with some other fruits, are expressly included in Clause 7 to the Explanatory Notes to Sub-Heading 0810.90. Consequently, it can be argued with

those stones were not marble, as they were a restricted item under Item 62, Appendix 2, Part B of the Import and Export Policy April 1988–March 1991. In Entry 62, the restricted item was described as follows: “marble/granite/onyx”. However, after the import, the customs authorities classified those goods as marble on the basis that, in common parlance, they were known as marble and their end use was similar to that of marble. Conversely, the appellant therein contended that the imported goods should be classified as ‘slabs of calcareous stones (other than marble)’ and not as ‘marble’ under Tariff Item 25.15 in Appendix 1-B, Schedule I to the Import (Control) Order, 1955. Tariff Item 25.15 was worded as follows: “Marble, travertine, ecassine, and other calcareous monumental or building stone of an apparent specific gravity of 2.5 or more and alabaster, whether or not roughly trimmed or merely cut, by sawing or otherwise, into blocks or slabs of a rectangular (including square) shape.” The core issue before the Court was whether the common parlance meaning of the term ‘marble’ should be adopted. In other words, the Court was left to consider the broader question of when the undefined terms within the customs tariff schedule should be interpreted according to their common parlance meaning and when their scientific and technical meanings should be applied. It is in this context that the Court made the following pertinent observations: “36. In deciding this question the first thing that requires to be noted is that Entry 25.15 refers specifically not only to marble but also to other calcareous stones whereas Entry 62 refers to the restricted item marble only. It does not refer to any other stones such as ecaussine, travertine or other calcareous monumental or building stone of a certain specific gravity. Therefore, on a plain reading of these two entries it is apparent that travertine, ecaussine and other calcareous monumental or building stones are not intended to be included in ‘marble’ as referred to in Entry 62 of

Appendix 2 as a restricted item. Moreover, the calcareous stones as mentioned in ITC Schedule has to be taken in scientific and technical sense as therein the said stone has been described as of an apparent specific gravity of 2.5 or more. Therefore, the word ‘marble’ has to be interpreted, in our considered opinion, in the scientific or technical sense and not in the sense as commercially understood or as meant in the trade parlance. There is no doubt that the general principle of interpretation of tariff entries occurring in a text (sic tax) statute is of a commercial nomenclature and understanding between persons in the trade but it is also a settled legal position that the said doctrine of commercial nomenclature or trade understanding should be departed from in a case where the statutory content in which the tariff entry appears, requires such a departure. In other words, in cases where the application of commercial meaning or trade nomenclature runs counter to the statutory context in which the said word was used then the said principle of interpretation should not be applied. Trade meaning or commercial nomenclature would be applicable if a particular product description occurs by itself in a tariff entry and there is no conflict between the tariff entry and any other entry requiring to reconcile and harmonise that tariff entry with any other entry. xxx 40. It may be pointed out that this Court has clearly and unequivocally laid down that it is not permissible but in fact it is absolutely necessary to depart from the trade meaning or commercial nomenclature test where the trade or commercial meaning does not fit into the scheme of the commercial statements. This Court referring to the observation of Pullock, B. in Grenfell v. Inland Revenue Commissioner observed: (quoted at SCR p. 724) “that if a statute contains language which is capable of being construed in a popular sense such statute is not to be construed according to the strict or technical meaning of the language contained in it, but is to be construed in its popular sense, meaning of course, by the words ‘popular sense’, that sense which people conversant with the subject matter with which the statute is dealing would attribute to it.” But “if a word in its popular sense and read in an ordinary way is capable of two constructions, it is wise to adopt such a

48.

On a conspectus of all these decisions mentioned hereinbefore the position which thus emerges is that when the expression ‘marble’ has not been defined in the Customs Tariff Act as well as in the Customs Act or in the relevant notification regarding the restriction on import of marble in the List of Restricted Articles, it is necessary to decide the significance and true meaning of the word ‘marble’ as used in the ITC Schedule as well as in the List of Restricted Items, Customs Tariff Act and the Customs Act not in its popular sense i.e. people who are dealing with this trade meant the same or what that term is commercially known in trade parlance but it has to be given a meaning in the context in which this word has been used in the ITC Schedule as well as in the List of Restricted Items of Import. It is also necessary to decide whether the word ‘marble’ as stated in the ITC Schedule refers to only marble or includes travertine, ecaussine, alabaster and other calcareous monumental or building stones and can be termed as marble in the commercial sense or in trade nomenclature so as to bring the same within the restricted Item 62 of Appendix 2 of the Import and Export Policy for April 1988 — March 1991. We have already stated hereinbefore that in the List of Restricted Items under Item 62 only marble has been mentioned and not the other stones including calcareous stone used for building or monumental purposes which have been left out. Therefore, per se it may be difficult to say that marble includes the other calcareous stones mentioned in the ITC Schedule. [...] xxx 55. It is apparent from all these reports that the calcareous stone of specific gravity of 2.5 is not marble technically and scientifically. The finding of the Appellate Tribunal is, therefore, not sustainable. It is, of course, well settled that in taxing statue the words used are to be understood in the common parlance or commercial parlance but such a trade understanding or commercial nomenclature can be given only in cases where the word in the tariff entry has not been used in a scientific or technical sense and where there is no conflict between the words used in the tariff entry and any other entry in the Tariff Schedule. In the instant case, in the Tariff Entry 25.15 in the ITC Schedule, Appendix 1 2DB, marble, travertine, ecaussine, alabaster and other calcareous stones of an apparent specific gravity of 2.5 or more have been mentioned whereas in Entry 62 only the word marble has been mentioned as a restricted item for

ranging from 5 ml to 2 litres, should be classified as ‘Edible oil’ under the Heading 1513 (Coconut (Copra) oil, etc.) or as ‘Hair oil’ under the Heading 3305 (Preparations for use on the hair) of the first schedule to the Central Excise Tariff Act, 1985. It is not necessary to set out in detail the factual context of the case for the purposes herein. It is only important to note the Court’s rejection of the reliance placed by the Revenue on the common parlance test. The Court observed that the common parlance test cannot be applied when there is no ambiguity and no difference in the clear heading in the first schedule and the corresponding entry in the HSN. The relevant observation made by the Court is as follows: “35. We may now deal with the next point—the “common parlance test”. A well-settled principle of interpretation of taxing statutes is that words therein must be construed in consonance with their commonly accepted meaning in the trade and their popular meaning. When a word is not explicitly defined or there is ambiguity as to its meaning, it must be interpreted for the purpose of classification in the popular sense, which is the sense attributed to it by those who are conversant with the subject-matter that the statute is dealing with. This principle, known as the “common parlance test”, serves as good fiscal policy so as to not put people in doubt or quandary about their tax liability. The test is an extension of the general principle of interpretation of statutes for deciphering the mind of the law-maker but it is subject to certain exceptions—for example, when there is an artificial definition or special meaning attached to the word in the statute itself, whereby the ordinary sense approach would not be applicable. 36. However, we find that the reliance presently placed by the Revenue upon the “common parlance test” is utterly misplaced. The said 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 v. Connaught Plaza Restaurant P. Ltd., New Delhi, this court observed that classification of excisable goods

of cellulose, plasticide or not (for example collodions, celluloid).” 16. Regenerated cellulose, cellulose nitrate, cellulose acetate and ethers as well as other chemicals which were derivatives of cellulose have to be understood in the technical sense of the terms. Moreover, it has not been shown that there is a special meaning given to the product of the appellant in the market. xxx 20. In other words, if the word used in a fiscal statute is understood in common parlance or in the commercial world in a particular sense, it must be taken that the Excise Act has used that word in the commonly understood sense. That sense cannot be taken away by attributing a technical meaning to the word. But if the legislature itself has adopted a technical term, then that technical term has to be understood in the technical sense. In other words, if in the fiscal statute, the article in question falls within the ambit of a technical term used under a particular entry, then that article cannot be taken away from that entry and placed under the residuary entry on the pretext that the article, even though it comes within the ambit of the technical term used in a particular entry, has acquired some other meaning in market parlance. For example, if a type of explosive (RDX) is known in the market as Kala Sabun by a section of the people who uses these explosives, the manufacturer or importer of these explosives cannot claim that the explosives must be classified as soap and not as explosive. xxx 22. [...] Cellulose ether has been made specifically taxable under Entry 15-A(1). The product manufactured by the appellant is sodium carboxymethyl cellulose which has been tested and found to be cellulose ether. The question is whether this product will come under Entry 15-A(1). It is not the case of the appellant that this product is known in the market by some other name and that name is to be found in some other entry. The Tribunal was right in holding that SCMC manufactured by the appellant answered the description “Cellulose Ether” and as such was assessable under Entry 15-A(1).”

applying common parlance was based on the fact that the relevant tariff items used scientific or technical terms. It is natural that scientific or technical terms would lack common or commercial meaning. To illustrate, the Court in Reliance Cellulose (supra) observed that the “cellulose ether,” unlike “plastic,” lacked a common or commercial meaning. The Court in Reliance Cellulose (supra) also sounded a note of caution that while dealing with classification involving tariff headings that use scientific or technical terms, if fiscal law specifically classifies an item under a technical term in one category, the same should not be moved to another category just because people in the market use a different name for it. Doing so would go against the legislative intent, as the legislature itself had adopted a technical term, expecting it to be understood in the technical sense. 61. In Indian Tool Manufacturers v. CCE, reported in 1994 Supp (3) SCC 632, a three-Judge bench of this Court examined the classification of ‘Throw Away Inserts’ and primarily considered whether such ‘Throw Away Inserts’ could be classified as ‘Tool Tips’. The appellant challenged this, relying on the market parlance test, arguing that a customer seeking to buy ‘Throw Away Inserts’ would not ask for Tool Tips, and vice versa. Rejecting this contention, the Court made the following observation: “12.That may be the position. But that will not solve the controversy in this case. If there is a general heading for the purpose of levy of Excise Duty, then every variety of goods falling under that general heading will have to be taxed under that heading. The fact that a particular variety is known by a particular name in the market will not take it out of the general heading. For example, when duty is leviable on biscuits, then every variety of biscuits will be taxed under that heading. A particular type of thin crisp biscuits is known in the market as 'wafer', but basically it is a biscuit. It was held by the Andhra Pradesh High Court

“If V.P. Latex was designed for or intended to be used as rubber, there would have been no difficulty in classifying it under Item 39 ICT. In fact synthetic rubber itself has been classified as raw rubber only because synthetic rubber serves exactly the same purpose as crude rubber in all its industrial uses and has no practical difference from the latter. Pyratex V.P. Latex is designed for use as an adhesive in the manufacture of tyres. It is seldom put to any of the other uses to which rubber, natural or synthetic is ordinarily put. In composition it is similar to rubber latex and it may also well answer the tests for rubber such as elongation, etc. when reduced to dry state, but its use is not the same as that of rubber. It could theoretically be converted into a substance which is akin to rubber but it has been admitted that due to high rate of cure, scorching and incompatibility with other rubbers, it does not find use in a dry state. In fact it does not replace rubber in use though it has similar properties.” xxx 26. To revert to the order of the authority, it is clear that the authority would have found no difficulty in coming to the conclusion that V.P. Latex in view of chemical composition and physical properties is rubber raw, if the same were commercially used as rubber. The authority, therefore, was principally influenced to come to its decision on the sole basis of the ultimate use of the imported article in the trade. xxx 28. The relevant taxing event is the importing into or exporting from India. Condition of the article at the time of importing is a material factor for the purpose of classification as to under what head, duty will be leviable. The reason given by the authority that V.P. Latex when coagulated as solid rubber cannot be commercially used as an economic proposition, as even admitted by the appellants, is an extraneous consideration in dealing with the matter. [...] xxx 40. We are clearly of opinion that in the state of the evidence before the Revisional Authority no reasonable person could come to the conclusion that V.P. Latex would not come under rubber raw. The basis of the reason with

15.

Tariff Heading 84.15 covers air conditioning machines which control and maintain temperature and humidity in closed places. The main function of air-conditioning system is to control temperature which is not done by a chiller. A reading of Tariff Entry 84.15 would show that it is intended to cover only those machines which comprise elements for changing temperature and humidity and chillers would fall outside the purview of the said entry. The function of the chiller is only to chill water or bring it to a very low temperature, and it is the air-handling unit having an independent and distinct function which produces the effect of air conditioning, controlling the temperature and the humidity. The chiller itself does not do any air conditioning as it is designed only to refrigerate or produce chilled water/liquid. 16. Revenue is classifying the impugned chillers as parts of the air-conditioning system as the same are used in central air-conditioning plants of star hotels, airports, hospitals, large office complexes and large establishments. The use of the chillers in the air-conditioning system would not take away the primary or basic function of the chiller which is to produce chilled water by using a refrigerating circuit. Heading 84.18 covers refrigerators, freezers and other refrigerating or freezing equipment. Accordingly, the chillers in question shall fall under specific Heading 84.18 of the Tariff Act. This view is supported by the explanatory notes of HSN below Heading 84.15. HSN provides that: “If presented as separate elements, the components of air conditioning machines are classified in accordance with the provisions of Note 2(a) to Section 16 (Headings 84.14, 84.18, 84.19, 84.21, 84.79, etc.)….” “Chillers” manufactured by the respondent are cleared as separate elements and not as (sic part of) air conditioning machines, therefore, the same have to be classified under Tariff Entry 84.18 as refrigerating or freezing equipments as the basic function of the chillers

COMMISSIONER OF CUSTOMS (IMPORT) vs. M/S WELKIN FOODS