Excise disputes: Ignoring the common parlance test

[TR RUSTAGI]

 The Indian central excise system has very peculiar features. First and foremost, excise duty is not chargeable unless the goods produced satisfy the test of 'manufacture'. And what constitutes 'manufacture' has not been easy. Decades ago the Supreme Court laid down that every process is not 'manufacture' and that for 'manufacture' a new and different article must emerge, having a distinctive name, character or use.

Yet another feature of the central excise has been the disputes on classification of goods with reference to the entries in the Central excise Tariff Schedule. Take an interesting dispute settled recently by the Supreme Court in its judgment dated October 31, 2006 in the case of Craft Interiors Ltd v Commissioner of Central Excise.

The appellant company undertook various activities, which included civil works, painting, ceiling work, electrical work, laying of vinyl flooring, tables, chairs, sofa sets, erection of immovable items viz. partitions (wooden/ glass/aluminium/gypsum board), storages, workstations, laying of wooden flooring, column cladding, skirting, mirror paneling, window sill, wooden steps, doors, huge conference tables and huge reception tables depending on the customer's requirements. The customer placed a purchase order to the appellants on a turn-key basis for the entire activity. In pursuance of the above said activities, the company also manufactured furniture as part of the above mentioned activities.

On these facts, the excise authorities alleged that the company had manufactured and assembled excisable goods i.e. furniture and furniture parts falling under Chapter 9404 of the excise tariff in the premises of various customers. On adjudication, the commissioner held that the workstations, which were erected at the site, did not answer the description of furniture under Chapter 9304 and held that they were not furniture. He stated that there were other types of workstation which are called modular furniture which were made in a factory and were readily available in the market. They can be bought and ready to fix. Such workstations are classifiable under 9304.

More specifically, he held that "it may be a fact that these items are unique to a building and/ or designed to suit the specification of the buildings and it may emerge as a piece by piece fabrication at the site and my understanding is that it is only for the sake of convenience it is fabricated at site to avoid the difficulty in transporting and handling if done elsewhere. What ultimately emerges on a piece by piece fabrication is a commodity known in the market by the name of table, counters, storage cabinets, book shelf, racks."

In the appeal against the commissioner's order, in the case reported as Craft interiors Ltd v Commissioner of Central Excise 2005 -TMI - 54042 - CESTAT, SOUTH ZONAL (BENCH, BANGALORE), the tribunal also agreed with this reasoning.

Not satisfied, the company approached the Supreme Court for the final verdict. The apex court observed that "ordinarily 'furniture' refers to movable items such as desks, tables, chairs, required for use or ornamentation in a house or office. Thus, ordinarily furniture is not something immovable or something which is fixed in a position which can be removed only by cannibalising".

Reiterating the test of common parlance, the court reminded the litigants that 'the word `furniture' has a meaning in common parlance which every layman understands. It commonly refers to chairs, desks, tables, beds, etc. Hence we should give it this popular meaning.' Taking leave from literature, the court explained that "sometimes chairs, beds, tables, desks, etc, are affixed to the ground, but nevertheless they will still be called as furniture (one may recall the fixed bed in Sherlock Holme's story 'The Speckled Band')."

In its verdict the apex court concluded: "We hold that items which are ordinarily immovable or which ordinarily cannot be removed without cannibalising eg storage units, running counters, over-head unit, rear and side unit, wall unit, pantry unit, kitchen unit and other items which are ordinarily immovable or cannot be removed without cannibalising are not furniture. However, items like tables, desks, chairs etc, are furniture and hence excisable."

Sadly, the basic tenets of interpretation of law are often ignored and disputes in individual cases are made to travel up to the Supreme Court.

An unwarranted attitude by the tax officials causes additional cost to the assessees. Equally, thanks to the protracted litigation, at times an intransigent assessee succeeds in delaying collection of legitimate dues by the department. Rationalisation of excise duty rates has no doubt reduced disputes. A surer way to minimise disputes is to replace it by a comprehensive VAT applied to goods and services. Hopefully it would come. But, alas, it would take its own time!

—The author is ex-chief commissioner, Customs and Central Excise