SC upholds general trend of taking assistance of Explanatory Notes while resolving entry related dispute of excisable goods

The SC on May 1, 2020 {COMMISSIONER OF CENTRAL EXCISE, DELHI-III  v. M/S. UNI PRODUCTS INDIA LTD.} held that “The common parlance test”, “marketability test”, “popular meaning test” are all tools for interpretation to arrive at a decision on proper classification of a tariff entry. It was held that these tests, however, would be required to be applied if a particular tariff entry is capable of being classified in more than one heads. Otherwise they are not applicable.

It was held by the SC Bench, comprising of Justice Deepak Gupta &  Justice Aniruddha Bose, that Chapter 87 of the Central Excise Tariff of India does not contain car mats as an independent tariff entry. It was held that all of them are mechanical components, and revenue want car mats to be included under the residuary sub-head “other” in the same list. It was held that the HSN Explanatory Notes dealing with interpretation of the rules specifically exclude “tufted textile carpets, identifiable for use in motor cars” from 87.08 and place them under heading 57.03. The Court held that the Commissioner himself has referred to the Explanatory Notes in the order-in-original while dealing with the respondent’s stand. Thus, the Court held that it sees no reason as to why it should make a departure from the general trend of taking assistance of these Explanatory Notes to resolve entry related dispute. 

The core issue in the present appeals was as to whether car mats come under chapter-heading 57.03 or not. Revenue’s case was that the goods are manufactured in such a way that these can be used as accessories of cars. The Tribunal found that though in common parlance the products involved may not be considered as carpets, in view of the wordings of the chapter, section notes, chapter notes and explanatory notes, the goods were classifiable under chapter heading 570390.90.

In the present case, the respondent-assessee, at the material time, were clearing the goods declaring them to be goods against Heading No. 570390.90. Effective rate of excise duty on goods under that entry was 8% and education cess at the applicable rate for the subject period. 

The SC held that the main argument of the appellant is that because the car mats are made specifically for cars and are used also in cars, they should be identified as parts and accessories i.e. Heading No. 8708.99.00, inviting excise @ 16%. The Court held, but if we go by that logic, textile carpets could not have been excluded from Parts and Accessories.  The SC held that CEGAT Tribunal on detailed analysis on various entries, Rules and Notes have found they fit the description of goods under chapter heading 570390.90. The SC held it accepts the finding of the Tribunal. The Court held that once the subject goods are found to come within the ambit of that sub-heading, for the sole reason that they are exclusively made for cars and not for “home use” (in broad terms), those goods cannot be transplanted to the residual entry 36 against the heading 8708. It was held that it finds the subject-goods come under the chapter-heading 570390.90. Accordingly, the appeal of Revenue was dismissed by the SC