Commissioner of Central Excise Vs. Madhan Agro Industries India Pvt. Ltd.

[Civil Appeal No.1766 of 2009]

[Civil Appeal Nos.67036710 of 2009]

RANJAN GOGOI, J.

1. Aggrieved by the orders passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) (hereinafter referred to as 'the Tribunal') holding that the coconut oil manufactured and packed in "small containers" by the respondent(s)assessee( s) is classifiable under Heading 1513 and not under Heading 3305 of the Central Excise Tariff Act, 1985 (hereinafter referred to as 'the Act'), the Revenue is in appeal before us.

2. The dispute is with regard to classification of coconut oil in packings upto 2 litres in case of M/S Madhan Agro Industries the respondentassessee in Civil Appeal No.1766 of 2009 and packings upto 500ml in case of the respondent(s)assessee(s) in the connected appeals i.e. Civil Appeal Nos.67036710 of 2009. The relevant period of assessment in all the appeals under consideration is subsequent to the amendment of the First Schedule to the Central Excise Tariff Act, 1985 by the Amendment Act of 2004 (5 of 2005) which came into force on 28.2.2005.

3. The facts, in brief, may be noted at the outset: The respondentasessee in Civil Appeal No.1766 of 2009 i.e. M/S Madhan Agro Industries Private Limited is/was a manufacturer of 100% pure coconut oil marketed under the brand name "Shanthi". In Civil Appeal Nos.67036710 of 2009 the assesses are four jobworkers of M/S Marico Limited who had received 100% pure coconut oil from Marico Limited in bulk and thereafter had packed the same in small packages which were supplied back to Marico as per dispatch schedules issued.

The packages in question carried a declaration that they contain 100% pure coconut oil. The trademark "Parachute" is also inscribed on the packs. In Civil Appeal No.1766 of 2009, the packings also included pouches of 5 ml. All the packs are marked as "edible oil".

4. It may also be noticed at this stage that the packing sizes conform to the requirement of Clause 5 of Schedule I of the Edible Oil packaging (Regulation) Order 1998 read with serial No.10 Schedule III of the Standards of Weights and Measures (packaged commodities) Rules 1977.

5. While the assessee(s) contended that coconut oil in small packings is also classifiable as coconut oil under Heading 1513 the revenue claimed classification of the said products as "hair oil" under Heading 3305 while conceding that coconut oil in large packings i.e. beyond 2 Kgs. merited classification under Heading 1513. This is the core dispute between the parties in the present case.

6. The relevant Headings before and after the Amendment of the Central Excise Tariff Act effective 28022005 will require a specific notice and is therefore extracted below:

BEFORE AMENDMENT

CHAPTER 15

ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS; ANIMAL OR VEGETABLE WAXES

NOTES

1. This Chapter does not cover :

(a) pig fat or poultry fat;

(b) cocoa butter, fat and oil (Chapter 18);

(d) Greaves and residues of Chapter 23;

(e) Fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or (f) Factice derived from oils (Chapter 40).

2. Soapstocks, oil foots and dregs, stearin pitch, glycerol pitch and wool grease residues fall in heading No.15.07

3. In this Chapter, the expression 'fixed vegetable oils' means oils which cannot easily be distilled without decomposition, which are not volatile and which cannot be carried off by superheated steam (which decomposes and saponifies them).

4. In relation to the products of subheading Nos.1502.00, 1503.00, 1504.00 and 1508.90, labeling or relabeling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to "manufacture".

Heading No.

Subheading No.

Description of goods

Rate of duty

15.01

1501.00

Animal (including fish) fats and oils, crude, refined or purified

Nil

15.02

1502.00

Fixed vegetable oils, the following, namely cotton seed oil, neem seed oil, karanj oil, silk cotton seed oil, rice bran oil, khakhan oil, palm oil, water melon oil, sal oil, mahua oil, kusum oil, rubber seed oil, mango kernel oil, kokum oil, dhupa oil, undi oil, maroti oil, pisa oil and nahor oil, and their fractions.

15.03

1503.00

Fixed vegetable oils, other than those of heading No.15.02

15.04

1504.00

Vegetable fats and oils and their fractions, partly or wholly hydrogenated, interesterified, reesterified or elaidinised, whether or not refined but not further prepared.

15.05

33.03.00

Omitted

15.06

1506.00

Glycerol, Crude, Glycerol Waters and Glycerol lyes

16%

15.07

1507.00

Vegetable waxes (other than triglycerides), beeswax, other insect waxes and spermaceti, whether or not refined or coloured; degras; residues resulting from the treatment of fatty substances of animal or vegetable waxes

16%

15.08

Margarine; edible mixtures or preparations of animal or vegetables fats; animal or vegetable fats and oils, boiled, oxidized, dehydrated, sulphurised, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically modified; inedible mixtures or preparations of fats and oils of this Chapter

16%

1508.10

Linoxyn

16%

1508.90

Other

BEFORE AMENDMENT

CHAPTER 33

ESSENTIAL OILS AND RESINOIDS; PERFUMERY, COSMETIC OR TOILET PREPARATIONS

Notes :

1. This Chapter does not cover :

(a) Natural oleoresins or vegetable extracts of heading No.13.01;

(b) Soap or other products of heading 34.01;

(d) Perfumery, cosmetics and toilet preparations containing alcohol or opium, Indian hemp or other narcotics and for this purpose, these expressions have the meanings respectively assigned to them in Section 2 of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955).

2. Heading Nos.33.03 to 33.07 apply, inter alia, to products, whether or not mixed (other than aqueous distilltes and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings with labels, literature or other indications that they are for use as cosmetics or toilet preparations or put up in a form clearly specialised to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents, or are held out as having subsidiary curative or prophylactic value.

3. The 'perfumery, cosmetic or toilet preparations' in heading No.33.07 applies, inter alia, to the following products : scented sachets; perfumed papers and papers impregnated or coated with cosmetics; contact lens or artificial eye solutions; wadding, felt and nonwovens, impregnated, coated or covered with perfume or cosmetics; animal toilet preparations.

4. In relation to products of heading Nos.33.03, 33.04 and 33.05, conversion of powder into tablets, labelling or relabelling of containers intended for consumers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the products marketable to the consumer, shall be construed as 'manufacture'

5. Heading No.33.04 applies, inter alia, to the following products : beauty creams, vanishing creams, cold creams, makeup creams, cleansing creams, skinfoods, skin tonics, face powders, baby powders, toilet powders, talcum powders and grease paints, lipsticks, eye shadow and eyebrow pencils, nail polishes and varnishes, cuticle removers and other preparations for use in manicure or chiropody and barrier creams to give protection against skin irritants.

6. Heading No.33.05 applies, inter alia, to the following products; brilliantines, perfumed hair oils, hair lotions, pomades and creams, hair dyes (in whatever form), shampoos, whether or not containing soap or organic surface active agents.

7. The expression "odoriferous substances" in heading 33.02 refers only to the substances of heading No.33.01 to odoriferous constituents isolated from those substances or to synthetic aromatics.

Chapter 33 Cosmetic or toilet preparations, essential oils etc.

Heading No.

Subheading No.

Description of goods

Rate of duty

33.05

Preparations for use on the hair

3305.10

Perfumed for use on the hair Other

16%

3305.91

Hair fixer

16%

3305.99

Other

16%

POST AMENDMENT

CHAPTER 33

Animal or Vegetable fats and Oils and their cleavage products; prepared edible fats; Animal or Vegetable Waxes

NOTES

1. This Chapter does not cover :

(a) pig fat or poultry fat of heading 0209;

(b) cocoa butter, fat or oil (heading 1804);

(d) greaves (heading 2301) or residues of headings 2304 to 2306;

(e) fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or

(f) factice derived from oils (heading 4002).

2. Heading 1509 does not apply to oils obtained from olives by solvent extraction (heading 1510).

3. Heading 1518 does not cover fats or oils or their fractions, merely denatured, which are to be classified in the heading appropriate to the corresponding undenatured fats and oils and their fractions.

4. Soap stocks, oil foots and dregs, stearin pitch, glycerol pitch and wool grease residues fall in heading 1522.

5. In relation to the products of heading 1507 or 1508 or 1509 or 1510 or 8 1511 or 1512 or 1513 or 1514 or 1515, or 1518; subheading 1516 20 or 1517 90; or tariff item 1517 10 10 or 1517 10 21 or 1517 10 29, labelling or relabelling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to 'manufacture'.

6. In relation to refined edible vegetable oils falling under headings 1507 to 1515, the process of refining, that is to say, any one or more of the processes, namely, treatment of crude oil with an alkali, bleaching and deodorisation, shall amount to 'manufacture'.

Subheading Note:

1. For the purpose of subheadings 1514 11 and 1514 19, the expression "low erucic acid rape or colza oil" means the fixed oil which has an erucic acid content of less than 2% by weight.

Supplementary Notes:

1. In this Chapter, "edible grade", in respect of a goods (i.e. edible oil) specified in Appendix B to the Prevention of Food Adulteration Rules, 1955, means the standard of quality specified for such goods in that Appendix.

2. In this Chapter, "fixed vegetable oil" means oils which cannot easily be distilled without decomposition, which are not volatile and which cannot be carried off by superheated steam (which decomposes and saponifies them).

Tariff Item

Description of Goods

Unit

Rate of duty

1513

Coconut (copra), plam kernet or babassu oil and fractions thereof, whether or not refined, but not chemically modified

Coconut (copra) oil and its fractions:

1513 11 00

Crude oil

kg.

1513 19 00

Other Palm kernel or babassu oil and fractions thereof:

kg.

1513 21

Crude oil :

1513 21 10

Palm kernel oil

kg.

1513 21 20

Babassu oil

kg.

1513 29

Other

1513 29 10

Palm kernel oil and its fractions

kg.

1513 29 20

Babassu oil and its fractions edible grade

kg.

1513 29 30

Babassu oil and its fractions, other than edible grade

kg.

1513 29 90

Other

kg.

POST AMENDMENT

CHAPTER 33

Essential Oils and Resinoids, Perfumery, Cosmetic or Toilet Preparations

NOTES

1. This Chapter does not cover:

a) natural oleoresins or vegetable extracts of heading 1301 or 1302;

(b) soap or other products of heading 3401;

(d) perfumery, cosmetics and toilet preparations containing alcohol or opium, Indian hemp or other narcotics and for this purpose, these expressions have the meanings respectively assigned to them in section 2 of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955).

2. The expression "odoriferous substances" in heading 3302 refers only to the substances of heading 3301, to odoriferous constituents isolated from those substances or to synthetic aromatics.

3. Headings 3303 to 3307 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use.

4. The expression "perfumery, cosmetic or toilet preparations" in heading 3307 applies, inter alia, to the following products: cented sachets; odoriferous preparations which operate by burning; perfumed papers and papers impregnated or coated with cosmetics; contact lens or artificial eye solution; wadding, felt and nonwovens, impregnated, coated or covered with perfume or cosmetics; animal toilet preparations.

5. In relation to products of headings 3303, 3304 and 3305, conversion of powder into tablets, labelling or relabelling of containers intended for consumers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the products marketable to the consumer, shall be construed as 'manufacture'.

Tariff Item

Description of Goods

Unit

Rate of duty

3305

Preparations for use on the hair 3305 10 Shampoos :

kg.

16%

3305 10 10

Containing spirit

kg.

16%

3305 10 90

Other

3305 20 00

Preparations for permanent waving or straightening

kg.

16%

3305 30 00

Hair lacquer

3305 90

Other :

Hair oil :

3305 90 11

- Perfumed

kg.

16%

3305 90 19

Other

kg.

16%

3305 90 20

- Brilliantines (spirituous)

kg.

16%

3305 90 30

- Hair cream

kg.

16%

3305 90 40

- Hair dyes (natural, herbal or synthetic)

kg.

16%

3305 90 50

- Hair fixers

kg.

16%

3305 90 90

- Other

kg.

16%

7. We may now take note of the arguments advanced on behalf of the rival parties: Shri Panda, learned Senior Counsel appearing for the appellantUnion of India has urged that a process of interpretation and consideration of the Rules of General Interpretation and relevant Chapter Notes contained in the Act alongwith the results of the market survey undertaken by the Revenue would lead to the conclusion that classification claimed by the Revenue is fully justified and learned Tribunal (CESTAT) was not correct in rejecting the same.

Specifically, Shri Panda has referred to the Rule 1 of the General Rules for the Interpretation of the Schedule to the Tariff Act; Chapter Note 1 (e) to 15; Section Note 2 to Section VI and Chapter Note 3 to Chapter 33 in support of the contentions advanced. Apart from relying on the aforesaid provisions of the Act, Shri Panda has submitted before the Court that an elaborate market survey of the product undertaken had indicated that coconut oil in smaller packages are understood in the market and purchased as 'hair oil' and not as 'edible oil'. Relying on several decisions of this Court, the details of which would be noticed later, Shri Panda has submitted that classification of the product must follow the Common Parlance Test in which event the coconut oil in dispute is eminently classifiable under Chapter 33, Heading 3305 and not under Chapter 15, Heading 1513 as claimed by the assessee.

8. On the other hand, Shri Bagaria, learned Senior Counsel for the respondentsassessees has submitted that none of the provisions relating to Interpretation of the Schedule to the Act and the Chapter Notes relied 12 upon by the Revenue would be applicable and relevant to the present case so as to warrant classification of the product under Chapter 33. Infact, Shri Bagaria has urged that prior to the coming into force of the Amendment Act 5 of 2005, the classification of coconut oil was claimed and allowed under Chapter 15 Heading 1503 which dealt with Fixed vegetable oils.

It is only after the amendment that Heading 1513 was incorporated dealing specifically with coconut oil. Shri Bagaria has also pointed out that amendment made in the year 2005 effective from 28.02.2005 was for the sole purpose of fine tuning of the tariff with the Harmonised System of Nomenclature (HSN). In this regard, Shri Bagaria has drawn attention to the Statement of Objects and Reasons of the Amendment Bill wherein it had been clearly stated that the "Department of Revenue has developed eight digit classification code based on Harmonised System of Nomenclature (HSN) for the purpose of classification of excisable goods in India". Shri Bagaria has also drawn attention of the Court to the fact that in the aforesaid Objects and Reasons, it has been further stated that "the proposed amendment does not make any change in the existing rates of the central excise duties and hence the proposed changes do not involve revenue implication".

9. Referring to the provisions of General Rules for Interpretation and the Chapter and Section Notes relied upon by Shri Panda and drawing the attention of the Court to the Chapter Note 3 and Explanatory Note to Chapter Note 3 in the Harmonised System of Nomenclature (HSN), Shri Bagaria has submitted that there is no manner of doubt that coconut oil, regardless of the size of packings, is classifiable under Chapter 15 of the Tariff Act and by no means, even remotely, under Chapter 33, specifically Heading 33.05 which deals with "preparations for use on the hair".

In this regard Shri Bagaria has contended that there is no dispute on the fact that on all the packages of coconut oil cleared by or on behalf of the respondentsassesses, the inscription "edible oil" has been clearly affixed and there is no advertisement/declaration/ representation to the effect that the coconut oil is meant or intended for used as hair oil. In this regard, Shri Bagaria has also drawn the attention of the Court to Central Excise Notification No.145/56/95CX dated 31.08.1995 whereby the following points were clarified by the CBEC in paragraphs 5 to 9 of the Circular with regard to classification of coconut oil prior to the Amendment of the Act in the Year 2005 :

(i) The Heading 33.05 covers "preparations for use on the hair". Coconut oil is not a preparation for use on the hair. It is fixed vegetable oil capable of being used as cooking medium (or for other purposes including for application on the hair). In the absence of any proof that it is specially prepared for use on the hair or any label/literature/indications on the containers to that effect, the subject goods cannot be classified under heading 3305 simply because they were packed in small containers and applied by some sections of the society on the hair.

(ii) Coconut oil, whether pure or refined and whether packed in small or large containers merits classification under Heading 1503.

(iii) Only if the containers bear labels/literatures etc. indicating that it is meant for application on hair as specified in Note 2 of Chapter 33 and/or if the coconut oil is used as additives or has undergone a process which make it a "preparation for use on hair", that coconut oil may merit classification under Chapter 33.

10. It is submitted that having regard to the object behind the Amendment effected in the year 2005, the efficacy of the above circular, though issued when Chapter No.2 of Chapter 33 (already extracted) was in force, would continue even in the post amendment era when Chapter No.2 has now been substituted by Note 3 15 (Chapter 33).

11. An order dated 03.06.2009 of the Central Board of Excise and Customs (CBEC) under Section 37B of the Central Excise Act has been placed before us. The said order is to the effect that if coconut oil is packed in containers upto 200 ml it may be considered generally for use as hair oil. If, however, the same coconut oil is packed in one litre or two litres pack, classification would be under Chapter 15 as coconut oil. It has been urged by Shri Bagaria that the learned Appellate Tribunal in Rajasthan Oil Mills Vs. Commissioner of Central Excise1 had taken the view that repacking of coconut oil from bulk containers in retail pack of 200 ml or less would not make the item classifiable under Chapter 33.

It is submitted that the Revenue's Appeal against the aforesaid order of the learned Tribunal i.e. Civil appeal Nos.20232037 of 2014 has been dismissed by this Court by Order dated 07122014 following which the CBEC has issued another circular bearing no.1007/14/2015CX dated 12102015 withdrawing the earlier Circular dated 03062009 and directing that the issue of classification may be decided by the field officers "taking into consideration the facts of the case read with the judicial pronouncements".

12. Disputes with regard to classification may arise in different situations and circumstances. Whether a particular item/product would fall under one or the other Chapter/Heading of a Chapter is one such situation. A dispute may also arise on a claim that though the item falls within a particular Heading, owing to multifarious reasons, some part of the same item may fall under another Heading of the same Chapter or a different Chapter altogether. All disputes with regard to classification of goods manufactured and cleared has to be primarily decided and resolved within the frame work of the Act and on the basis of Rules for Interpretation and the various Chapter Notes and Supplementary Notes contained in the Tariff Act.

The understanding of the CBEC and other authorities exercising jurisdiction under the Act in respect of the Rules for Interpretation and the Chapter Notes, as may be reflected in the Circulars/Memos issued from time to time, can be an useful aid in understanding and resolving disputed issues of classification. The Harmonised System of Nomenclature (HSN) and the Chapter Notes and Explanatory Notes thereto, on which the Tariff Act has been remodelled by the Amendment, has been repeatedly acknowledged by this Court to be a safe guide for resolution of disputes with regard to classification under the Tariff Act. The opinions rendered by this Court in Collector of Central Excise, Shillong Vs. Wood Craft Products Ltd.2; Commissioner of Customs and Central Excise, Goa Vs. Phil Corporation Limited3; O.K. Play (India) Ltd. Vs. Commissioner of Central Excise, DelhiIII, Gurgaon4 may be illustratively referred to in this regard. These are the different tools that would be available to the Court to deal with disputes with regard to classification which must be resorted to in the first instance.

13. To what extent the common parlance test would be applicable in determining the classification of the product in question is the first question that may be dealt in view of the very emphatic arguments made on behalf of the Revenue on this question.

14. Shri A.K. Panda, learned Senior Counsel for the Revenue has urged that a detailed market survey undertaken by the Revenue indicated that the consumers who purchase "coconut oil" in small containers invariably make the said purchase for use as hair oil and not as edible oil. It has, therefore, been urged by Shri Panda that the product in dispute in the present case i.e. "coconut oil" in small packings should be classified under Heading 3305 and not under Heading 1513. To support the contention advanced Shri Panda has referred to several pronouncements of this Court wherein it has been held that the object of classification of goods for the purpose of Central Excise and other Fiscal Legislation is to raise the revenue and, therefore, scientific and technical meaning must be avoided and the particular product as understood in trade and in common parlance should be preferred.

15. In IndoInternational Industries vs. Commissioner of Sales Tax, U.P.5 where the common parlance test was adopted to resolve the dispute of classification this Court was dealing with the question as to whether hypodermic clinical syringes could be regarded as "glass ware" under Entry No.39 of the First Schedule to the U.P. Sales Tax Act, 1948.

16. Similarly, in Asian Paints India Ltd. vs. Collector of Central Excise6 the question before this Court was whether "Decoplast" manufactured by the Asian Paints India Ltd. was classifiable under Tariff Item No. 14(1)(3)(iv) of the First Schedule of the Central Excise Tariff as "plastic emulsion paint" or under Tariff Item No.14(1)(v) as "paints not otherwise specified".

17. In Shree Baidyanath Ayurved Bhavan Ltd. vs. Collector of Central Excise, Nagpur7 the issue before this Court was as to whether Dant Manjan Lal manufactured by the Assessee was medicine so as to be covered by Exemption Notification No.62/78CE dated 1st March, 1978 or a toilet preparation.

18. In Alpine Industries vs. Collector of Central Excise, New Delhi8 the question that arose for consideration before this Court was whether "Lip Salve" is classifiable under Heading 33.04 of the Central Excise Tariff Act, 1985 as "a preparation for care of skin" or whether as a "medicament" under Heading 30.03 thereof.

19. In all the aforesaid decisions, this Court has held that[ Paragraph 5 in Alpine Industries (supra)]: "5. It is well established that in interpreting tariff entries in taxation statute like the Excise Act, where the primary object is to raise revenue and for that purpose various products are differently classified, the entries are not to be understood in their scientific and technical meaning. The terms and expressions used in tariff have to be understood by their popular meaning that is the meaning that is attached to them by those using the product.

See the decision of the Supreme Court on the dispute regarding classification for excise duty, the product - Lal Dant Manjan manufactured by Shree Baidyanath Ayurved Bhavan Ltd. reported in the case of Shree Baidyanath Ayurved Bhavan Ltd. v. CCE9. The manufacturer claimed the product to be an Ayurvedic medicinal preparation product for dental care. The view of the Tribunal was upheld by this Court by holding (at SCC pp.40405, para 3) that "ordinarily a medicine is prescribed by a medical practitioner and it is used for a limited time and not every day unless it is so prescribed to deal with a specific disease like diabetes"."

20. A consideration of the facts of the cases, referred to above, however, would go to show that the basic dispute/conflict in the said cases was whether a product which was not defined or specifically dealt with by any of the Headings/Entries would fall under one or another Heading/Entry of the Central Excise Tariff Act. The present is not a case where the identity of the product would require any debate as was the issue in the cases referred to above where the common parlance test was applied.

In the present case, the product is "coconut oil", which is clearly covered by Chapter Heading 1513 and not by Chapter Heading 3305. What calls for a decision in the present case is whether "coconut oil" which otherwise is covered by Heading 1513 of Chapter 15, if packed in small containers and pouches/sachets, would cease to be "coconut oil" falling under Chapter Heading 1513 and 22 would be covered by Heading "preparations for use on the hair" covered by Entry 3305 of Chapter 33. This is a question which has to be resolved not on the basis of the perception of the consumer or the customer but on the basis of the headings and subheadings and on an interpretation of the provisions of the relevant Chapter Notes, if required.

Issues of classification have to be resolved within the framework of the statutory provision. "Coconut oil" packed in small packages/containers does not cease to be "coconut oil" and become "hair oil" though such "coconut oil" may be capable of being used for both purposes. The understanding of the product in the market or amongst the consumers will always have a limited role in this regard. The above has been the view of this Court in O.K. Play (India) Ltd. Vs. Commissioner of Central Excise, DelhiIII, Gurgaon (supra) (para 13) and Commissioner of Customs and Central Excise, Goa Vs. Phil Corporation Ltd. (supra) (para 17).

21. We may now turn to examine the General Rules 23 for Interpretation and the Chapter Notes relied upon by the Revenue.

"[THE FIRST SCHEDULE] - EXCISE TARIFF

RULES FOR THE INTERPRETATION of THIS SCHEDULE

1. The titles of Sections and Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the provisions hereinafter contained.

(a) Any reference in a heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that, the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to those goods complete or finished (or falling to be classified as complete or finished by virtue of this rule), removed unassembled or disassembled.

(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles contained in Rule 3.

3. When by application of subrule (b) of rule 2 or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

(a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b) mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

(c) when goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

4. Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.

5. For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related subheading Notes and, mutatis mutandis, to the above rules, on the understanding that only subheadings at the same level are comparable. For the purposes of this rule the relative Section and Chapter Notes also apply, unless the context otherwise 24 requires.

Chapter Note 1(e) to Chapter 15

CHAPTER 15

Animal or Vegetable fats and Oils and their cleavage products; prepared edible fats; Animal or Vegetable Waxes NOTES

1. This Chapter does not cover :

(a) xxxxxx

(b) xxxxxx

(d) xxxxxxxx

(e) fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or"

SECTION NOTE II to SECTION VI

SECTION VI

PRODUCT of THE CHEMICAL OR ALLIED INDUSTRIES

Notes :

1. xxxxxx

2. Subject to Note 1 above, goods classifiable in heading 3004, 3005, 3006, 3212, 3303, 3304, 3305, 3306, 3307, 3506, 3707 or 3808 by reason of being put up in measured doses or for retail sale are to be classified in those headings and in no other heading of this Schedule.

Chapter Note 3 to Chapter 33

CHAPTER 33

ESSENTIAL OILS AND RESINOIDS; PERFUMERY, COSMETIC OR TOILET PREPARATIONS Notes :

1. xxxxx

2. xxxxx

3. Headings 3303 to 3307 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of 25 essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use.

22. It has already been noticed that under the preamended provisions of the Act coconut oil was not covered by any specific Heading and had been classified under Heading 15.03 which dealt with fixed vegetable oils, other than those of heading No.15.02.

23. On the other hand prior to the amendment Heading 33.05 dealing with preparations for use on the hair was in the following terms:

33.05

Preparations for use on the hair

3305.10

Perfumed hair oils

16%

Other :

3305.91

Hair fixer

16%

3305.99

Other

16%

24. Heading 15.13 of the Harmonised System of Nomenclature (HSN) specifically deals with coconut oil in the following manner:

"15.13 COCONUT (COPRA), PALM KERNEL OR BABASSU OIL AND FRACTIONS THEREOF, WHETHER OR NOT REFINED, BUT NOT CHEMICALLY MODIFIED (+)

Coconut (copra) oil and its fractions :

1513.11 Crude oil

1513.19 Other

Palm kernel or babassu oil and fractions thereof:

1513.21 Crude oil

1513.29 Other"

25. Heading 33.05 of the HSN is in the following terms:

"33.05 PREPARATIONS FOR USE ON THE HAIR

3305.10 Shampoos

3305.20 Preparation for permanent waving or straightening

3305.30 Hair lacquers

3305.90 Other

The Heading covers :

(1) Shampoos, containing soap or other organic surfaceactive agents (see Note 1(c) to Chapter 34), and other shampoos. All these shampoos may contain subsidiary pharmaceutical or disinfectant constituents, even if they have therapeutic or prophylactic properties (see Note 1(d) to Chapter 30)

(2) Preparations for permanent waving or straightening

(3) Hair lacquers (sometimes known as "hair sprays")

(4) Other hair preparations, such as brilliantines, hair oils, creams ("pomades") and dressings: hair dyes and bleaches used on the hair, creamrinses.

26. After coming into force of the amendment, Headings 1513 and 3305 in Chapters 15 and 33 virtually incorporated the contents of the Headings and subheadings as contained in the Harmonised System of Nomenclature (HSN). The position that is noticeable following the amendment of the Tariff Act is that a specific Heading for coconut oil has been introduced in the Tariff Act. So far as "preparation for use on the hair" is concerned, the subheadings have made various such items more specific. Significantly and noticeably coconut oil as a preparation for use as hair oil is not included in Heading 3305 or any of its SubHeadings.

27. Chapter Note 3 of Chapter 33 makes it clear that Heading 3305, inter alia, would apply to products "which are suitable for use as goods mentioned in the Heading and if they are put up in packings of a kind sold by retail for such use".

Heading 3305 deals with "preparations for use on the hair". In the present case, it is not in dispute that in the packings of coconut oil the inscription "edible oil" is mentioned. There is no representation, declaration or advertisement in the packings that the same can be or is meant to be used as a hair oil.

28. Chapter Note II of Chapter 33 prior to amendment and which has been substituted by Chapter Note 3 was more explicit in requiring packing put up with: "labels, literature or other indications that they are for use as cosmetics or toilet preparations or put up in a form clearly specialized to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents, or are held out as having subsidiary curative or prophylactic value." However, the changes brought about/deletions made by the amendment would hardly be significant inasmuch as Chapter Note 3 of Chapter 33 (postamendment) introduced by the Amendment Act in place of the erstwhile Chapter No.2 is identical with Chapter 3 Note of Chapter 33 in Harmonised System of Nomenclature (HSN) which must guide and illuminate the correct process of interpretation and understanding.

Furthermore, there is an explanatory note in the Harmonised System of Nomenclature relating to Chapter Note 3 the relevant part of which is as follows:

General

"Headings 33.03 to 33.07 include products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such sue (see Note 3 to this Chapter).

The products of headings 33.03 to 33.07 remain in these headings whether or not they contain subsidiary pharmaceutical or disinfectant constituents, or are held out as having subsidiary therapeutic or prophylactic value (see Note 1(d) to Chapter 30).

However, prepared room deodorizers remain classified in heading 33.07 even if they have disinfectant properties of more than a subsidiary nature. Preparations (e.g. varnish) and unmixed products (e.g., unperfumed powdered talc, fuller's earth, aceton, alum) which are suitable for other uses in addition to those described above are classified in these headings only) when they are :

(a) In packings of a kind sold to the consumer and put up with labels, literature or other indications that they are for use as perfumery, cosmetic or toilet preparations, or as room deodorisers; or

(b) Put up in a form clearly specialised to such use (e.g. nail varnish put up in small bottles furnished with the brush required for applying the varnish). "

29. Explanatory note to Chapter Note 3 of HSN makes the contents of the Chapter Note more clear. In order to classify a product under tariff Item No.3305 of the Act, the requirements of Clauses (a) and (b) of the Explanatory Note to Chapter Note 3 of Harmonised System of Nomenclature (HSN) would be required to be satisfied and the goods/packages must be put up with labels/literatures and other indications that they are meant for use as perfumery, cosmetic and toilet preparations or the goods must be put up in a form clearly specialised for such use as for example nail varnish must be put up in small bottles accompanied with a brush.

No such situation exists in respect of the coconut oil in question. The absence of any explanatory note to Chapter Note 3 of Chapter 33 of the Central Excise Tariff Act on the same terms as in the HSN would hardly make any difference in the conclusion to be reached in view of the clear and consistent pronouncement of this Court first expressed in Collector of Central Excise, Shillong Vs. Wood Craft Products Ltd. (supra) to the following effect:

"12. It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central excise tariffs are based on the HSN and the internationally accepted 30 nomenclature was taken into account to "reduce disputes on account of tariff classification". Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central excise tariff in the Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terms has a different purpose and, therefore, the specific purpose of tariff classification for which the internationally accepted nomenclature in HSN has been adopted, for enacting the Central Excise Tariff Act, 1985, must be preferred, in case of any difference between the meaning of the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI.

18. We are of the view that the Tribunal as well as the High Court fell into the error of overlooking the fact that the structure of the Central excise tariff is based on the internationally accepted nomenclature found in the HSN and, therefore, any dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself. The definition of a term in the ISI Glossary, which has a different purpose, cannot, in case of a conflict, override the clear indication of the meaning of an identical expression in the same context in the HSN.

In the HSN, block board is included within the meaning 31 of the expression "similar laminated wood" in the same context of classification of block board. Since the Central Excise Tariff Act, 1985 is enacted on the basis and pattern of the HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in the HSN when there is no indication in the Indian tariff of a different intention."

30. The views expressed by this Court as to when the HSN can be ignored including the view in Camlin Limited Vs. Commissioner of Central Excise, Mumbai10 are not contrary to what has been expressed herein; rather the said views have been expressed in situations where the legislative intention to depart from the HSN is clear and unambiguous. Illustratively, the HSN would not permit the Court to import an entry mentioned in the HSN but not in the Tariff Act. The same principle will however not apply to the Chapter notes and the Explanatory notes which are tools for understanding the Entries/Headings. The opinions in O.K. Play (India) Ltd. Vs. Commissioner of Central Excise, DelhiIII, Gurgaon (supra) and Commissioner of Customs and Central Excise, Goa Vs. Phil Corporation Limited (supra) reiterating the view in Collector of Central Excise, Shillong Vs. Wood Craft Products Ltd. (supra) and the specific stress on the Chapter Notes and explanatory notes in the HSN as permissible and useful aids in understanding the Headings/entries in the Central Excise Tariff Act cannot be lost sight of.

31. The photo personality of a cine star with flowing, hair, as urged on behalf of the Revenue, may not be convincingly determinative. Also the fact that some of the smaller containers of coconut oil have nozzles for release of drops of coconut oil from the container will not satisfy the above requirement inasmuch as the materials collected by the Revenue in the course of adjudication proceedings indicate that the amount of coconut oil used in cooking, at times, may be, minimum.

32. The above conspectus of fact can reasonably lead to the conclusion that the coconut oil in dispute in the present case would be more appropriately classifiable under Chapter 15, Heading 1513. If the above is a possible and reasonable conclusion and we are inclined to hold as such, the contention of the Revenue with regard to application of Rules 1 and 3 of the General Rules for Interpretation; Chapter Note 1(e) to Chapter 15; Note 2 to Section VI will not at all be relevant in this regard.

The legislative history behind Chapter 15; the words and expressions in Heading 1513 of the Tariff Act; the relevant Heading i.e. 1513 in the HSN and the conditions/requirements stipulated in Chapter Note 3 of Chapter 33 of the Central Excise Tariff read in the light of the relevant provisions of Chapter Note 3 along with the explanatory notes of Chapter 33 of the HSN, all, would lead to the irresistible conclusion that coconut oil is classifiable under Heading 1513 of Chapter 15 of the Central Excise Tariff Act.

In this regard, it may be noticed that Rule 3 of the Rules of General Interpretation would apply only in a situation where the product is classifiable under two different Chapters, a position that does not exist in the present case. At the same time, Chapter Note 1(e) to Chapter 15 and Note 2 to Section VI would be applicable only if the product i.e. coconut oil would unambiguously fall under any of the Headings under Section VI, a position that cannot be accepted.

33. A contention has been advanced on behalf of the Revenue that "Parachute" is a registered trademark of Marico and goods are being marketed under the aforesaid trade mark for use as hair oil. The issue of registered trade mark and classification for the purpose of levy of Central Excise Tariff are unrelated and unconnected to each other. Registration of a trademark under any particular class cannot be determinative of the classification of the product for purposes of Central Excise Tariff. Moreover, in the present case, Marico had/has obtained registration of its trade mark "Parachute" under different classes including edible oil (Class 29) as well as hair oil lotions, hair preparations under Class 3.

34. The contents of Circular bearing No. No.145/56/95CX dated 31.08.1995 at a point of time when Chapter Note II of Chapter 33 was in force has already been noticed and infact the relevant paragraphs 5 to 9 of the above Circular, extracted above, makes it clear that a product cannot be classified under Chapter 33 Heading 3305 in the absence of any proof that it is specially prepared "for use on the hair" and in the absence of any label/literature etc on the container to such effect. Merely because the product is packed in small containers and used by some sections of the customers as hair oil cannot be a valid basis for classification under Heading 3305.

Only if the containers bear labels/literature indicating that it is meant for use on the hair that the coconut oil in dispute may merit classification under Chapter 33. The above position would continue to hold the field notwithstanding the substitution of Chapter Note II by Chapter Note 3 w.e.f. 28022005 in view of the similar stipulations and conditions incorporated in Chapter No.3 of the HSN read with the Explanatory Note 3 thereto which the Court would be obliged to take into account.

35. The Order under Section 37B of the Central Excise Act dated 3.6.2009 discussed above is infact a virtual admission on the part of the Revenue that coconut oil packed in containers upto 200 ml alone would be classifiable under Chapter 33 and the larger packages even of 1/2 litres would fall under Chapter 15. In the absence of the essential stipulations under Chapter Note 3 of 36 Chapter 33, discussed above, in respect of the product in question there can be no justification for the direction contained in the order/circular dated 3.6.2009. The learned Appellate Tribunal in Raj Oil Mills Vs. Commissioner of Central Excise (supra), therefore, took the view that even small packets of 200 ml or less would be more appropriately classifiable under chapter 15 as coconut oil and not as hair oil under Chapter 33.

The said decision of the Tribunal has been affirmed by this Court and the appeals by the Revenue (Civil Appeal Nos.20232037 of 2014) have been dismissed on 7.12.2014. The dismissal of the appeals, though by a nonspeaking order, is one on merit and therefore the order of the Tribunal in Raj Oil Mills (supra) can be understood to have merged with the decision of this Court as held in V.M. Salgaocar & Bros. Pvt. Ltd. Vs. Commissioner of Income Tax11.

36. For the aforesaid reasons, we take the view that the coconut oil in small packings in respect of which the present dispute with regard to classification has arisen is more appropriately classifiable under Chapter 15, Heading 1513 and not under Chapter 33, Heading 3305. Consequently while dismissing the appeals filed by the Revenue, we affirm the Orders to the above effect passed by the learned Appellate Tribunal.

..............................J. (RANJAN GOGOI)

NEW DELHI

APRIL 13, 2018.

Commissioner of Central Excise, Salem Vs. M/S Madhan Agro Industries (I) Pvt. Ltd.

[Civil Appeal No. 1766 of 2009]

Commissioner of Central Excise, Pondicherry Vs. M/S Aishwarya Industries and Ors.

[Civil Appeal Nos. 6703-6710 of 2009]

J U D G M E N T

R. BANUMATHI, J.

1. I have gone through the judgment by His Lordship Justice Ranjan Gogoi and I am unable to agree with the reasonings and the conclusion. I am of the view that in view of the amended provisions of Chapter Note 3 to Chapter 33 and Section Note 2 to Section VI, 'Coconut Oil' packed in small sachets/containers, as they are suitable for use on hair are classifiable under Chapter 33 and not under Chapter 15. Following are the reasonings for my conclusion.

2. Whether 'Coconut Oil' manufactured and packed in small containers and sachets by the respondent, is classifiable under Chapter Heading 3305 ("Hair Oil", "Other") as claimed by the Revenue or under Chapter 15 Heading 1513 : Coconut (Copra) oil as claimed by the respondent, is the 39 point falling for consideration in these appeals.

3. The competing entries for classification as claimed by the appellant- Revenue and the respondent/assessee are as under:-

Classification by the Appellant

Classification by the Respondent

3305 PREPARATIONS FOR USE ON THE HAIR

1513 COCONUT (COPRA), PALM KERNEL OR BABASSU OIL AND FRACTIONS THEREOF, WHETHER OR NOT REFINED, BUT NOT CHEMICALLY MODIFIED

3305 90 - Other -

-- Hair Oil

- Coconut (copra) oil and its fractions:

3305 90 19 ---- Other

1513 11 00 - - Crude Oil (or)

1513 19 00 - - Other

4. Chapter 33 deals with "Essential oils and Resinoids, Perfumery, Cosmetic or Toilet Preparations". Tariff Item 33 05 reads as under:-

"3305 Preparations for use on the hair

3305 10 - Shampoos

3305 10 10 - - - Containing spirit

3305 10 90 - - - Other

3305 20 00 - Preparations for permanent waving or straightening

3305 30 00 - Hair lacquers

3305 90 - Other - - - Hair oil

3305 90 11 - - - - Perfumed

3305 90 19 - - - - Other"

5. Chapter 15 deals with "Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes". Tariff Item 15 13 reads as under:-

"1513 - Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not refined, but not chemically modified Coconut (copra) oil and its fractions

1513 11 00 - - Crude oil

1513 19 00 - - Other - Palm kernel or babassu oil and fractions thereof

6. A harmonious construction of the following would govern the field for 40 classification of the goods:-

Rule 1 of the General Rules for the Interpretation of the First Schedule Chapter Note 1(e) to Chapter 15 Section Note 2 to Section VI (after amendment w.e.f. 28.02.2005) Chapter Note 3 to Chapter 33 (after amendment w.e.f. 28.02.2005)

As discussed infra, cumulative construction of the above would lead to the conclusion that "if the impugned goods are classifiable under Tariff Item 3305 90 19, then the impugned goods are automatically excluded from classification under Tariff Item 1513 11 00 (or) 1513 19 00".

7. The Tariff itself has provided five rules for the interpretation. The First Rule of the General Rules for the Interpretation of the First Schedule, is generally referred to as the cardinal principle for classification. If the classification can be done from the Heading, Section or Chapter Notes, the rules of interpretation need not be resorted to. Interpretative rules are applicable only where the classification of a product cannot be determined in accordance with the Headings or relative Sections or Chapter Notes. The First Schedule-Excise Tariff Rules for the interpretation of this Schedule, reads as under:-

"1. The titles of Sections and Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the provisions hereinafter contained.

2.(a) Any reference in a heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that, the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to those goods complete or finished (or falling to be classified as complete or finished by virtue of this rule), removed unassembled or disassembled.

(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods 41 consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles contained in rule 3.

3. When by application of sub-rule (b) of rule 2 or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:-

(a) the heading which provide the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

(c) When goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in the numerical order among those which equally merit consideration.

4. Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin. ......"

8. The First Rule has two components, namely:

i. The titles of Sections, Chapters and Sub-Chapters are provid