CLASSIFICATION OF GOODS UNDER CENTRAL EXCISE ACT, 1944

[Mr. M. GOVINDARAJAN]

The classification of goods consists of determining the headings or sub headings of the Central Excise Tariff under which the goods would be covered. The actual amount of excise duty payable on excisable goods is dependent upon the rate of duty.  The rate of duty is determinable on the basis of classification of goods.  The classification of goods is also required to be decided for the purposes of determining the eligibility to exemptions, most of which are with reference to the Tariff Headings and sub headings.

Section 37B of the Central Excise Act, 1944 empowers the Central Board of Excise & Customs to issue orders, instructions and directions, for the purpose of uniformity in the classification of goods or with respect to the levy of excise duties on such goods.

Central Excise Tariff Act is based on the Harmonized system of Nomenclature (HSN).  When there is no ambiguity about the scope of the entry, the classification is to be done as per the entry in the tariff itself.  HSN explanatory notes can be resorted to in the case of ambiguity in classifying goods.

Some of the issues involved in classification of goods are discussed as below with reference to decided case laws:

Classification based on expert opinion                                                                                                                                                  

In ‘Commissioner of Central Excise & Customs V. Innovative Foods Limited’ – 2015 (12) TMI 665 - SUPREME COURT the respondents are engaged in the manufacture of processed, preserved and frozen fish, prawns and various kinds of breaded fish pellets and other food preparation of meat and vegetables. The said product was marked in individual unit container under the brand name SUMERU.  The department held that the Brand name SUMERU shall be classifiable under Tariff sub heading 1601.10 and confirmed the demand of ₹ 42.3 lakhs.  The Tribunal allowed the appeal holding on the basis of expert evidence and opinion the products have not gone under any process.  Therefore the said products should be classified under Chapter 3 and not under Chapter 16.  The said order was challenged by the Revenue before the Supreme Court.  The Supreme Court found that the conclusion of the Tribunal is primarily rested on the opinion of expert bodies which include the Director of Marine Products Export Development Authority as well as the Director of Central Institute of Fisheries Technology. The Department did not even cross examine the experts who had given the opinion in question on the basis of which goods have rightly been classified under Chapter 3 by the Tribunal.  The Supreme Court did not find any merit in the appeal.

Classification on assessee’s understanding?

In ‘Commissioner of Central Excise, Tirunelveli V. Lovely Offset Printers P. Limited’ – 2012 (8) TMI 892 - CESTAT CHENNAI the respondents classified rolon crocodile belt sleeves and Sahara Airlines Gift sleeves under CTH 4821.00 under which no excise duty was payable.  The Revenue’s case is that the said products were classifiable under Heading 4819.19 and liable to excise duty.  The Revenue confirmed the duty.  The Commissioner (Appeals) set aside the order of Adjudicating Authority.  Before the Tribunal the Revenue contended that Heading 48.21 covers only items like labels of a kind used as attachment to any type of package for the purpose of indicating its nature, identity, manufacturer, price etc.,  The papers designed and printed for packing goods and gift articles cannot be claimed under Heading 48.21.  The Revenue also informed that the respondent has paid duty on such products for the subsequent period.  The Tribunal held that the classification of the product cannot be decided on the basis of assessee’s understanding or on the basis of the fact that for any previous period of subsequent period the assessee has paid the duty on the product.  The Tribunal held that it is clear that assessee was aware of the two classifications and has attempted to evade the excise duty on wrapper by classifying it as labels.

Invoking extended period

In ‘Commissioner of Central Excise, Pune – I V. JCB India Limited’ – 2014 (2) TMI 632 - CESTAT MUMBAI the Tribunal held that in case of classification dispute, the extended period is not invocable and the penalty is not imposable under Rule 25 of Central Excise Rules, 2002.

In ‘Commissioner of Central Excise, Mumbai – IV V. Brahans Rubber P. Limited’ – 2015 (9) TMI 1322 - CESTAT MUMBAI the alleged first item is processed rubber compound in sheet form.  The second item is processed rubber compound in the cord form.  The respondent classified the first items under 4005.10.  The respondent availed CENVAT credit of duty paid for the first item.  The classification of impugned product depends upon the fact of non availment of CENVAT credit on inputs used in manufacture of impugned product irrespective of the fact whether such inputs are minor or major in description.   Once the manufacturer taken credit of any inputs, then the goods, manufactured out of such inputs, goes out of 4005.10 and classification under 4005.9.  The Tribunal held that the respondent clearly misdeclared the fact that they were not availing CENVAT credit of any inputs, hence extended period of limitation is invocable and penalty is also imposable.  For the second item, processed rubber compound in cord form, the compounded rubber in primary form is used as an input and such sheet further extended through a die of dimension of 10 x 10 sq.mm to get compounded rubber of said dimension in running length.  Then impugned product is the outcome of second time extrusion process and extrusion process is carried out on compounded rubber.  Therefore the second item is classifiable under 4006.90.  The Tribunal further held that the respondent was manufacturing item in dispute about 10 years and filing classification declaration.  The unit was visited and audited number of times and the department never suggested the classification of item under a particular heading.  The extended period is not invocable.

Estoppel

In ‘Elson Machines Private Limited V. Commissioner of Central Excise’ – 1988 (11) TMI 107 - SUPREME COURT OF INDIA, the Supreme Court held that the Central Excise authorities are not stopped from taking a view different than in the classification list as there is stopped against the law.

Res-judicata

In ‘Hindustan Pencils P. Limited V. Commissioner of Central Excise, Jammu & Kashmir’ – 2015 (6) TMI 334 - CESTAT NEW DELHI earlier jurisdictional Assistant Commissioner has approved the classification list by the classification claimed by the assessee and subsequently on finding that the earlier decision was wrong the department had revised the classification.   In view of the plea of the appellant regarding res-judicata, the Tribunal held that it is not applicable.

Re-opening     

In ‘Shankar Rao Mahite SSG Limited V. Commissioner of Central Excise, Pune’) – 2010 (10) TMI 1003 - CESTAT MUMBAI the Tribunal found that the show cause notice is proposing denial of the benefit of exemption Notification on a vague ground that mobile storage system falling under Chapter 7216.10 & 7326.90 is like an office furniture and cannot be considered as office equipment.  The Notification No. 1/95 grants exemption in respect of goods supplied to a 100% EOU.   In other words it is an end use based exemption.  The duty liability is to be determined at the time and place of removal from the manufacturing unit and consequently its applicable is to be applied at the time of clearance of goods.  It is not being suggested that mobile storage system supplied by M/s Godrej & Boyce Manufacturing Co. Limited to the appellant is not meant for supplies to others, who may not necessarily be 100% EOU.   It is settled law that the classification of products has to be done by the jurisdictional Officer-in-charge of the manufacturing unit.  The Officer-in-Charge of recipient unit cannot be allowed to sit in judgment over the classification already determined by the Officer-in-charge of the manufacturing unit.  The Tribunal set aside the order.

Jurisdictional issue

In ‘Flextronics Technologies (I) P. Limited V. Commissioner of Central Excise, Bangalore’ – 2010 (8) TMI 342 - CESTAT, BANGALORE the manufacturer classified the Aluminum Tables under Heading 8537 of Central Excise Tariff.  The appellants took credit on the basis of the invoice.  The Commissioner disallowed the credit on the finding that Aluminium tables are classifiable under the Heading 9403 and such goods are not covered under the definition of capital goods. The Tribunal held that the Commissioner having jurisdiction over recipient assessee is not competent to revise classification and assessment of goods as given in excise invoices.  The impugned order denying the capital credit was set aside by the Tribunal.

Application of other Act

In ‘Ellora Services V. Commissioner of Central Excise, Mumbai – IV’ – 2013 (9) TMI 1014 - CESTAT MUMBAI the appellant is a manufacturer of a product branded as WUDCARE’ which is used as a preventive against termite infestation and powder falling.  The appellant classified the product under 3808.10 applicable to insecticides, fungicides, herbicides, weedicides and pesticides and discharged the duty liability.  The Revenue was of the view that the product falls under the Heading 3808.90.  The Tribunal held that as per Dy. Chief Chemist’s test report, product literature and technical literature the said product more appropriately classifiable under sub heading 3808.10 as insecticides.  It is not necessary that the product is to kill insects.   Mere repelling suffices to merit classification as insecticides as seen from HSN Explanatory note in Heading 3808.  The classification under Insecticides Act, 1968 is not relevant to determine classification under Central Excise Tariff.  The product is marketed as insecticide and test of marketability is also satisfied.  The Tribunal held that the product is rightly classified under sub heading  3808.10.  The Tribunal set aside the impugned order.

Suppression of fact

In ‘Rydak Syndicate Limited V. Commissioner of Central Excise, Kolkata – II’ – 2010 (11) TMI 932 - CESTAT KOLKATA the Tribunal found that the appellants filed a declaration on 02.06.1998 declaring that they are clearing printed sheets and other declaration on 23.11.1998 for pouches of papers clearing classification under Heading 4817 of the Tariff.   Both the declarations were acknowledged by the Revenue.   As the appellants filed the necessary declarations, the allegations of suppression of facts with intent to evade payment of duty are not sustainable.  The extended period cannot be invoked.  The Tribunal set aside the impugned order.

Discrimination

In ‘Union of India V. N.S. Rathinam & Sons’ – 2015 (8) TMI 97 - SUPREME COURT the Supreme Court found that Notification No. 102/87-CE prescribes excise duty @ ₹ 365/- per ton for iron/steel scrap from ship breaking and exempts remaining from duty, if on import of ship, duty is to be paid @ ₹ 1035/- per Light Displacement Tonnage (LDT) along with additional duty.   Notification No. 103/87-CE exempts such scrap from entire excise duty if import duty was paid @ ₹ 1400/- per LDT.  The Supreme Court held that there was no rational basis for treating two categories of persons who paid customs duty differently.  The two notifications pertained to same goods falling under same headings 72.15 and 73.09 of Central Excise Tariff.  The important factors for parity were same.  The Supreme Court suggested to save Notification No. 102/87-CE from vice of arbitrariness, provision should have been incorporated in it for payment of differential duty for those who has paid customs duty less than ₹ 1,400/- to bring for the both sub categories completely at par.

In ‘Commissioner of Central Excise, Hyderabad V. NATCO Parential Limited’ – 2011 (12) TMI 514 - SUPREME COURT the Tribunal, in this case, held that Stronic and Hivit injections, manufactured by the assessee have to be classified under sub heading 3003.10 as claimed by the them.  The said decision has been accepted by the Commissioner.  The Supreme Court held that in the light of the communication of the Commissioner, nothing survives for the consideration in appeal.  The Supreme Court dismissed the appeal.