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2025 (5) TMI 983 - AAR - GSTClassification of Blades cleared as Spare Parts for being used in Agricultural Machines viz. Chaff Cutters which is meant and used for Cutting Straw for preparing Animal Feed - to be classified under Chapter Heading 8208 40 00 or under Chapter Heading 8436 10 00 / 8436 80 90? - HELD THAT - Ongoing through the description of the goods manufactured by the applicant it is found that the goods manufactured by the applicant is cutting blades made of metal which is normally used in chaff cutter. According to Rule 1 of the Interpretative Rules classification shall be determined according to the terms of the heading and any relative Section or Chapter Notes . Thus by applying Rule 1 the impugned goods merit Classification under Heading 82.08 which covers within its ambit cutting blades for agricultural horticultural or forestry machines instead of Heading 84.36 as note 1(k) of Section XVI specifically excludes articles of Chapter 82 or 83. It is also settled law that a specific heading must be given precedence over the general Heading. Note 2 to Section XVI which govern classification of parts of machines has been applied by the applicant to classify the impugned product under Heading 84.36 is subject to Note 1 to Section XVI. Since note 1(k) to Section XVI clearly stipulates that This section does not cover (k) Articles of Chapter 82 or 83 . Once the Chaff Cutter Blades cleared as Spare Parts are specifically covered by Chapter 82 Note 2 to Section XVI cannot be invoked for classification in terms of Note 1 (k) to Section XVI. The Chaff Cutter Blades cleared as spare parts merit classification under Chapter 82.08 attracting GST at the rate of 18% and not under Chapter heading 84.36 Conclusion - The blades are classifiable under Chapter Heading 8208 4000 and attract GST rate of 18%.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Authority for Advance Ruling (AAR) were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Correct HSN Classification of Blades Used in Chaff Cutters Relevant legal framework and precedents: The classification of goods under GST follows the Customs Tariff nomenclature and the General Rules of Interpretation (GRI) of the Customs Tariff, specifically Rules 1, 2, and 3. Section and Chapter Notes, as well as Explanatory Notes of the Harmonized System of Nomenclature (HSN), are crucial in interpreting headings. Rule 1 mandates classification according to the terms of the headings and relevant notes. Rule 2 clarifies inclusions of incomplete articles and mixtures. Rule 3 prescribes preference to the most specific heading when goods are classifiable under multiple headings. Precedents include the Supreme Court decision in Dunlop India Ltd. & Madras Rubber Factory Ltd. v. Union of India, which emphasized that when an article is clearly classifiable under a specific tariff item, it should not be relegated to a residual category. The Hon'ble CESTAT's decision in Commissioner of Central Excise, Delhi-III v. Nice Steel Industries also supports classification of chaff cutter blades under heading 8208.40. Court's interpretation and reasoning: The applicant manufactures blades used as spare parts for chaff cutters, which are agricultural machines used to cut straw for animal feed. The applicant currently classifies these blades under HSN 8208 40 00 attracting GST at 18%. However, manufacturers in other states classify identical blades under HSN 8436 10 00 or 8436 80 90, attracting GST at 12%. The applicant contended that blades are "knives and cutting blades for machines or mechanical appliances" specifically for agricultural machines, covered under Chapter 82, Section XV, and thus attract 18% GST. The applicant relied on the Explanatory Notes of HSN heading 82.08, which explicitly includes blades for agricultural machines such as root cutters and straw cutters. The opposing view argued that blades are parts of chaff cutter machines, which fall under Chapter 84, Section XVI, and should be classified under headings 8436 10 00 or 8436 80 90 attracting 12% GST. They relied on Note 2 of Section XVI, which governs classification of parts of machines under Chapter 84 and 85. Key evidence and findings: The applicant demonstrated that the blades are metal cutting blades with holes for mounting on chaff cutter machines, making them essential parts of the machine. The applicant also produced an adjudication order from Agra where identical blades were classified under 8436 10 00. The jurisdictional officer supported classification under Chapter 82, heading 8208 40 00, applying 18% GST. Application of law to facts: Applying Rule 1 of the GRI, classification must be determined by the heading terms and relevant notes. Heading 82.08 explicitly covers knives and cutting blades for agricultural machines, including blades for straw cutters. Section XVI Note 1(k) excludes articles of Chapter 82 from Section XVI, meaning parts covered under Chapter 82 cannot be classified under Chapter 84. The applicant's blades fit squarely within heading 8208 40 00 as per the HSN Explanatory Notes. The blades are unmounted knives for agricultural machines, not general parts of machinery. The blades' essential character is that of cutting blades, not machine parts in the sense contemplated under Chapter 84. Rule 3(a) favors the most specific description. Heading 82.08 is more specific for blades than the broader machinery headings under 8436. The Supreme Court's Dunlop judgment supports giving precedence to specific headings over general or residual ones. Treatment of competing arguments: The applicant's argument that blades are tools under Chapter 82 and not parts of machines under Chapter 84 was supported by the exclusion in Note 1(k) of Section XVI. The opposing argument relying on Note 2 of Section XVI was found inapplicable because Note 1(k) excludes Chapter 82 articles from Section XVI. The applicant also relied on the "suitability for use" or "principal use" test from the Westinghouse Saxby Farmer Ltd. Supreme Court judgment, which states that parts suitable solely or principally for use with a particular machine are classified with that machine. However, since blades are specifically covered under Chapter 82, this test does not override the exclusion in Note 1(k). Conclusions: The blades used as spare parts for chaff cutters are classifiable under HSN heading 8208 40 00 attracting GST at 18%. The classification under 8436 10 00 or 8436 80 90 attracting 12% GST is not applicable due to the exclusionary Note 1(k) and the specific coverage of blades under Chapter 82. 3. SIGNIFICANT HOLDINGS The Authority for Advance Ruling held:
The ruling reaffirmed the principle from the Supreme Court in Dunlop India Ltd. that "When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause." The ruling clarified that blades used as spare parts for chaff cutters are "unmounted knives or cutting blades for agricultural machines" and are correctly classifiable under HSN 8208 40 00 attracting GST at 18%, rejecting the contention for classification under HSN 8436 10 00 or 8436 80 90 attracting GST at 12%. Accordingly, the final determination on the issue was that the blades manufactured and sold by the applicant are to be classified under Chapter Heading 8208 40 00 and taxed at 18% GST rate.
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