- Whether RBD Palm Stearin is classifiable under Tariff Item 1511 90 90 or 3823 11 12 of Customs or Central Excise Tariff Act.
- What is the effect of the decision of the Supreme Court in JOCIL case [2010 -TMI - 78809 - Supreme Court of India]
The classification of RBD Palm Stearin under Customs Tariff Act was under
dispute while CESTAT Bangalore, classified it to fall under Customs Tariff Item 1511 90 90 but on appeal by the Dept. the Supreme Court reversed it by classifying the product “RBD Palm Stearin” to fall under 3823 11 12.
It is not a litigative journey with regard to the classification of the product
“RBD Palm Stearin” to render a decision on classification but made without reference to the literature, experts/Chemical lab. Report/opinion, but merely reading the interpretive rules, caused the confusion or to know about the liability, is the subject matter for analysis here.
FACTS IN THE SUPREME COURT CASE – JOCIL CASE:
a) The party, JOCIL, imported “non edible Industrial Grade Crude Palm Stearin” and classified it to fall under Ch.sub-hearing 1511 90 90 for the purpose of assessment of Customs duty applicable at BCD 20% and CVD/SAD-Nil.
b) The Assistant Commr.of Customs, classified the said goods under ch.sub hearing 3823 11 12 as “RBD Palm Stearin” wherein the applicable rate for Customs duty is BCD 25%; CVD at 16% and SAD at 4%. Consequently, the Asst.Commr. of Customs demanded differential duty. This order of the Asst.Commr. Was confirmed by the first appellate authority, viz, the Commissioner of Customs (Appeals). The party, JOCIL filed appeal before CESTAT,Bangalore.
c) The Tribunal taking note of the easter value and the opinion of the Central Revenue Chemical Laboratory, held that Chapter 15 covers Palm oil and its fractions, which view was espoused in the HSN Explanatory Notes. Also that Palm Stearin is a glyceride of fatty acid and therefore, the Tribunal held that the categorization should be made under Chapter 15.11
d) The Dept. filed appeal before the Supreme Court. The Supreme Court basing on Rule 3(a) of “General Rules for the Interpretation of the Schedule” and held that “RBD Palm Stearin” being specifically mentioned in ch.sub-hearing 3823 11 12, it is rightly classifiable as so.
TRADE PRACTICE AND CIRCULAR NO.81/02-CUS.DT.3-12-02---BY SUPREME COURT:
a) Even though it was pointed out before the Supreme Court that practice followed by various soap manufacturers that the product in question RBD Palm Stearin is classified under Chapter 15
- there is no finding or discussion about this aspect in the decision
b) The Supreme Court while considering the opinion of CRCL and the Circular No.81/02-Cus.dt.3-12-2002, the same was answered that-
-i) when Rule 3(a) of Interpretive Rules are taken into account, the classification of a product to be decided where it is specifically mentioned
ii) with regard to the Circular, the Court attempted an evasive answer by stating that after 8 digit classification, it has no relevance.While stating so, the Supreme Court failed to take into consideration of the Notifications issued under Central Excise Notification Nos.5/2005-CE(NT) to 10/2005-CE(NT) and 2/2005 dt.24-2-2005, again under Customs Act, to state that the description of goods as contained in existing rule/notification was to be considered as base and corresponding tariff entry in new Tariff was to be found. In otherwords, it cannot be said that the circular of 2002 has no relevance or not applicable.
Basically, the product under dispute was “non-edible Industrial Grade Crude Palm Stearin” imported by the party, JOCIL. Admittedly, it is not “RBD Palm Stearin”. Instead of deciding the classification of the imported product, the Supreme Court has decided the classification of some other product viz,RBD Palm Stearin, definitely, a refined form from the crude form.
Crude Palm Stearin – FFA contains 5.1% and M&I content 0.25%
RBD Palm Stearin – FFA content 0.2% and M&I content 0.15%
Therefore, both are different products.
Both under Circular No.81/02-Cus.dt.3-12-2002 and the reasoning of the
Supreme Court, the following important points arises, viz,
- industrial fatty acid fall under Chapter 38.23
- free carboxylic acid (otherwise called free fatty acid) derived during the refining process fall under Chapter 38
- on refining this carboxylic acid, Palm Stearin is obtained, though it contains tri-glycerides, cannot be classified under Chapter 15 because a product on refining from a substance falling under Chapter 38 cannot become a product to fall under Chapter 15
i) for goods to fall under Chapter 15, there must be an element of “edible oil”
- non-edible industrial grade oil cannot be brought within the ambit of animal or vegetable edible oil
ii) on facts it is admitted that PFAD is added to satisfy the requirement of free fatty acid of the oil to ensure that it is meant for industrial use and not diverted for edible purposes.
iii) According to the Circular-
- Palm Stearin is a glyceride of fatty acid (easter) falling under Ch.15
- Whereas Chapter 38.23 covers-industrial mono carboxylic fatty acid, a mixed fatty acid.
a) Whether Central Excise Tariff or Customs Tariff, the Chapters totaling 96/97 respectively in the First Schedule were aligned to go together. Whille Central Excise Tariff is divided in 20 Sections, there are 21 Sections under Customs Tariff.
Chapter 4 of CBEC Customs Manual deals about classification of goods. In that, it is specifically mentioned that-
“A Section is a group of a number of Chapters which codify a particular class of goods”
“The Tariff is designed to group of all goods relating to same industry and all the goods obtained from the same raw material under one Chapter in a progressive manner.
“Goods are classified beginning with raw materials and ending with finished products”
b)Chapter 15 falls within Section III which deals about animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes.
c) Chapter 38 falls under Section VI which deals about “Products of the
Chemical or allied industries”
d) RBD Palm Stearin cannot be considered as a product of Chemical or allied
e) The generic character of Palm or to say, a Palm product from vegetable fat
cannot be ruled out.
f) As Palm Stearin appears subsequent to Stearic Acid under Chapter 38, by
Applying the rule of “particular class of goods” it cannot be stated that Palm Stearin is obtained on any process from Stearic Acid. In other words, Palm Stearin must be a sub-classification after Stearic Acid.
g) Contempraneous exposito-
-for construction of a statute, the legislative intent and executive instructions be taken to determine the scope and intent of the entry under consideration.
This is quoted because, the executive instructions in Circular No.81/02-Cus.dt.3-12-2002 is very much clear about the scope and intention of the entry “Palm Stearin”.
h) Notification No.3/06 CE as amended by Notfn.33/07-CE dt.2-8-2007
-By this Notification, “all goods other than crude Palm Stearin” are exempted.
If RBD Palm Stearin is to fall under Chapter 3823 11 12 (specific entry) then mentioning “other than Crude Palm Stearin” under Chapter 15 in the Notification is contrary and rather confusing.
By interpreting the Notification No.33/2007, whether “crude Palm Stearin” to fall under Chapter 15 or as per Rule 3, specific entry, the said goods to fall under Chapter 38.
Even though the entire analysis seems to be attractive and well founded, but however, in view of the decision of the Supreme Court in JOCIL case, being the law of the land as on this date, whether under Customs or under Central Excise, the subject goods RBD Palm Stearin is classifiable only under Ch.sub-hearing 3823 11 12 and necessary consequences will definitely arise.