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 = 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.

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1766 OF 2009

COMMISSIONER OF CENTRAL EXCISE            …APPELLANT

VERSUS

MADHAN AGRO INDUSTRIES (I) PVT. LTD.   …RESPONDENT

WITH

CIVIL APPEAL Nos.6703­6710 OF 2009

J U D G M E N T

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

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

3

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

4

Amendment of the Central Excise Tariff Act effective 28­

02­2005   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);

(c) Edible preparations of Chapter 21;

(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, Nil

5

crude, refined or purified

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.

8%

15.03 1503.00 Fixed vegetable oils, other than those of

heading No.15.02

8%

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.

8%

15.05 33.03.00 Omitted 8%

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 8%

BEFORE AMENDMENT

CHAPTER 33

ESSENTIAL OILS AND RESINOIDS; PERFUMERY, COSMETIC OR

TOILET PREPARATIONS

Notes :

1. This Chapter does not cover :

6

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

(b)    Soap or other products of heading 34.01;

(c)    Gum, wood or sulphate turpentine or other products of Chapter 38; or

(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.

7

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 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 of heading 0209;

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

(c) edible preparations containing by weight more than 15% of the

products of heading 0405 (generally Chapter 21);

(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. 8%

1513 19 00 ­Other

Palm   kernel   or   babassu   oil   and   fractions

thereof:

kg. 8%

1513 21 ­Crude oil :

1513 21 10  ­Palm kernel oil kg. 8%

1513 21 20 ­Babassu oil kg. 8%

1513 29 ­Other

1513 29 10 ­Palm kernel oil and its fractions kg. 8%

1513 29 20 ­Babassu oil and its fractions edible grade kg. 8%

1513 29 30 ­Babassu   oil   and   its   fractions,   other   than

edible grade

kg. 8%

1513 29 90 ­Other kg. 8%

9

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;

(c) gum, wood or sulphate turpentine or other products of heading 3805;

or

(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

10

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

11

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

13

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

14

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.1007/14/2015­

CX dated 12­10­2015   withdrawing the earlier Circular

12014 (314) ELT 541 (Tribunal)

16

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

17

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

2

(1995) 3 SCC 454

3

(2008) 17 SCC 569

4

(2005) 2 SCC 460

18

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.

19

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

5

1981 (8) E.L.T. 325 (S.C.)

6

1988 (35) E.L.T. 3 (S.C.)

7

(1996) 9 SCC 402

20

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

8

(2003) 3 SCC 111

9

(1996) 9 SCC 402

21

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.

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 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

(c) 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”

26

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

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

28

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

29

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

10 (2008) 9 SCC 82

32

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

33

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.

34

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

35

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

11 (2000) 5 SCC 373

37

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.

38

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1766 OF 2009

COMMISSIONER OF CENTRAL EXCISE, SALEM …Appellant

Versus

M/S MADHAN AGRO INDUSTRIES (I) PVT. LTD. …Respondent

WITH

CIVIL APPEAL NOS. 6703-6710 OF 2009

COMMISSIONER OF CENTRAL EXCISE,

PONDICHERRY …Appellant

Versus

M/S AISHWARYA INDUSTRIES AND ORS. …Respondents

J U D G M E N T

R. BANUMATHI, J.

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 appellantRevenue

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 provided for ease

of reference only;

ii. 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 Chapter Notes do not otherwise require,

according to the provisions thereinafter contained.

The classification of goods will be as per the point (ii) as per which, the

classification demands the following conditions to be taken into

consideration:-

i. Classification shall be done according to the terms of the Headings, and

ii. According to any relative Section or Chapter Notes, and

iii. Provided such Headings or Chapter Notes do not otherwise require

according to the provisions contained thereon that is Rules 2 to 6

It is clear from the above that:- (i) the Heading and (ii) relative Section or

Chapter Notes must be considered before classification is done. Only if

after this exercise is done, a conflict in classification still persists, then the

other rules for Interpretation may be resorted to (iii).

42

9. CHANGES BROUGHT IN BY CENTRAL EXCISE TARIFF

(AMENDMENT) ACT, 2004:- Central Excise Tariff (Amendment) Act, 2004

which came into force with effect from 28.02.2005 brought in significant

changes in Note 2 to Chapter 33 and introduction of Note 2 to Section VI

inviting reclassification of the impugned goods. The Statement of Objects

and Reasons of the Central Excise Tariff (Amendment) Act, 2004 reads as

under:-

(a) To accommodate more prominently the commodities which are of

significance to the country’s needs;

(b) To adopt a common commodity classification for the purpose of levy

and collection of duties of customs and central excise and for purpose

of Import Trade Control Policy and collection of statistics;

(c) To accommodate the demand from the trade and industry for adoption

of a common commodity classification based on internationally

adopted Harmonized Systems of Nomenclature to be used for traderelated

transactions to facilitate International and domestic trade.

(d) The salient feature of the Bill, inter alia, expands the six digit

classification into eight digit classification and such expansion has

been made in the First Schedule and the Second Schedule to the said

Central Excise Tariff Act, to cover a wider range of specific

commodities under enlarged tariff items so as to accommodate

domestic concerns.

Tariff Item under eight digit system would be interpreted as under:-

First two digits: refer to the Chapter Number of the Tariff (e.g. 33 ××××××)

Next two digits: refer to heading of the goods in that Chapter (e.g. ×× 05 ××××)

Next two digits: indicate Chapter sub-heading (e.g. ×××× 90 ××)

Last two digits: refer to the chapter sub-sub-heading (e.g. ×××××× 10)

10. By the 2004 amendment, there has been realignment of certain

goods including the impugned goods. For proper appreciation, we may

usefully refer to comparative chart of relevant old legal provisions and the

new legal provisions after amendment as under:-

Sl.

No.

Old Legal Provision New Legal Provision

1. Section Note to

Section VI

Note 2: Goods put up in sets

consisting of two or more

Note 2:- Subject to Note 1

above, goods classifiable in

43

separate constituents, some or all

of which fall in this Section and

are intended to be mixed together

to obtain a product of Section VI

or VII, are to be classified in the

heading appropriate to that

product, provided that the

constituents are;

(a) …….

(b) …….

(c) ……

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.

2. Chapter Note to

Chapter 33

Note 2: Heading Nos.33.03 to

33.07 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 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.

Note 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.

3. Heading

description

33.05 Preparations for use on the

hair

3305 Preparations for use

on the hair

4. Sub heading

description

3305.10 – Perfumed hair oils

– Other:

3305 90 11 – – – – Perfumed

3305 90 19 – – – – Other

11. By a cumulative reading of the old provisions and the new legal

provisions, it can be seen that following significant changes have been

brought about in the Central Excise Tariff with effect from 28.02.2005:-

(i) Modification of the then Note 2 to Chapter 33 (presently renumbered

as 3) by way of deletion to the extent that ….. goods put up in

packings with labels, literature or other indications that they are for

use as……;

(ii) After amendment, incorporation of the expressions in Note 3 to

Chapter 33 the expressions “suitable for use as goods of those

headings” and “put up in packings of a kind sold by retail for such

use”; and

(iii) Introduction of Section Note 2 to Section VI – if the goods classifiable

under Heading 3305, it cannot be classified in any other heading of

44

the Schedule.

12. Relevant Chapter Notes and Section Notes for classification of the

impugned goods:- Let us now examine the relevant Headings, Sections

and Chapter Notes pertaining to the classification of the impugned goods.

Chapter Note 3 to Chapter 33 (amended w.e.f. 28.02.2005), reads as

under:-

“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”

13. Chapter Note 3 to Chapter 33 envisages four key things, namely:

a. The product may or may not be mixed;

b. The product should be suitable for use as a good under these

headings (33 03 to 33 07);

c. The product should be put up in packings of a kind sold by retail for

such use;

d. Headings 33 03 to 33 07 may also apply for other goods not being

covered by this Chapter Note (as indicated by the phrase ‘inter alia”)

14. It is important to note that the Chapter Note is not phrased in an

exclusive manner. It merely reiterates the conditions which are required to

be satisfied for a certain product to merit classification under Heading Tariff

Items 33 03 to 33 07. The expression, ‘suitable for use as goods of these

headings’ and ‘put up in packings of a kind sold by retail for such use’ as

used in Note 3 of Chapter 33 indicate that oils suitable for use as Hair Oil

are classifiable under Heading …33 05… even if they are not so used.

What matters, is the ‘suitability for such use’ and ‘packings of a kind sold

by retail for such use’. In view of the amended position, if the conditions as

specified in Note 3 to Chapter 33 for classification as ‘Hair Oil, Other’ are

45

satisfied, then the product has to be classified only under Heading …33

05… and no other classification is permissible. The above is further made

clear by amended Section Note 2 to Section VI.

15. Section Note 2 to Section VI (after amendment w.e.f. 28.02.2005)

reads as under:-

“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.”

Section Note 2 to Section VI of the first schedule is exclusionary in nature,

wherein it is inter alia stated that if a good is classifiable under

Heading …33 05… it cannot be classified in any other Heading of the

Schedule. As per the provisions of Note 2 to Section VI, if the conditions as

specified in Chapter Note 3 for classification as ‘Hair Oil’ under

Heading …33 05… are satisfied, then the product has to be classified only

under Heading …33 05… and no other classification is permissible. If the

conditions as specified under Chapter Note 3 of Chapter 33 for

classification of impugned goods as ‘Hair Oil’ under Heading … 33 05… are

satisfied then the product is classifiable as goods only under Chapter 33

and by virtue of Section Note 2 to Section VI no other classification is

permissible.

16. Because of the “suitability for use as hair oil” and being ‘put up in

packings of the kind sold by retail for such use’, by virtue of Section Note 2

to Section VI, their classification under Chapter 15 as ‘fixed vegetables oils’

or ‘coconut oil’ as claimed does not arise in view of the primacy given to

46

Tariff sub-heading …33 05… by Note 2 to Section VI. Further Note 1 (e) to

Chapter 15 provides that “the chapter does not cover goods of Section VI”.

Note 1(e) to Chapter 15 reads as under:-

“Animal or Vegetable fats and Oils and their cleavage products; prepared

edible fats; Animal or Vegetable Waxes

Notes:

1. This Chapter does not cover:-

…………

(e) fatty acids, prepared waxes, medicaments, paints, varnishes,

soap, perfumery, cosmetic or toilet preparations, sulphonated oils or

other goods of Section VI; or

…………..”

Note 1(e) to Chapter 15 clearly excludes goods covered under Section VI

in which Chapter 33 Tariff Item 33 05 is one of the items.

17. Whether Coconut Oil falls under Chapter 15 and applicability of

Interpretative Rule 3:- Contention of the assessee is that the description of

‘Coconut Oil’ under Chapter 15 is specific and hence applicable to the

subject goods in terms of Rule 3(a) of the Interpretative Rules. It is wellsettled

that Rule 3(a) of “General Rules for the Interpretation” is invokable

only if the Headings and the relevant Sections and the Chapter Notes are

not clearly determinative of the classification. Claim of the assessee is that

the description ‘Coconut Oil’ under Chapter 15 is specific and hence,

applicable to their goods in terms of Rule 3(a) of the Interpretative Rules,

though appears attractive, the same does not merit acceptance. This is

because the classification of the impugned goods is based on the terms of

Headings, relative Chapter Notes and Section Notes which are paramount

in this regard under the primary and main Rule 1 of the Interpretative

Rules.

47

18. M/s. Moreshwar and other job workers:- In the light of the above

amended provisions and the interpretation thereon, let me consider

whether the impugned goods are classifiable under the Heading 33 05 or

under Chapter 15 Item 15 13. For convenience, firstly, I refer to the facts in

C.A. Nos.6703-10 of 2009. Assessees/respondents in these appeals viz.,

(i) Aishwarya Industries; (ii) Moreshwar Industries; (iii) Shivam Enterprises;

(iv) Sowparnika Enterprises are four job workers and M/s. Marico Ltd. who

is the registered owner of the brand ‘Parachute’ for ‘Hair Oil’. M/s.

Moreshwar Industries and three other job workers had entered into a

contract with M/s. Marico Ltd. for the manufacture of HDPE bottles (High

Density Polyethylene), screen printing with the brand name and logo

‘Parachute’ of Marico Ltd. and packing the bottles with coconut oil to be

sold in the market under the brand ‘Parachute’. From the materials on

record, the process undertaken by M/s. Moreshwar and others on the job

work from M/s. Marico is summarized as:- (a) M/s. Moreshwar and other

job workers receive coconut oil in tankers from M/s. Marico, Pondicherry;

the said oil is unloaded and stored in storage tanks at M/s. Moreshwar and

other respondents/job workers; (b) Then, after mechanical filtering and

stored in another tanker, the same is packed into 50 ml, 100 ml, 200 ml

and 500 ml ‘containers’ and ‘flip tops’; (c) these retail packs are then

supplied to M/s. Marico depot as per their dispatch schedule for being sold

under the brand name ‘Parachute’; and (d) the description given on the

packings is ‘100% pure coconut oil’ with the ‘Parachute’ mark. As the

48

process carried out by M/s. Moreshwar and other job workers is that after

mechanical filtering packing of goods from bulk to retail pack of a kind

(containers so far manufactured by them) and delivered to M/s. Marico to

be sold under the brand name ‘Parachute’, the activities of M/s. Moreshwar

and other job workers amount to manufacture in terms of Section 2 (f)(iii) of

Central Excise Act, 1944. According to Revenue, once this fact of

manufacture of oil ‘suitable for use as ‘Hair Oil” is established, classification

under Chapter Heading 15 is ruled out and the appropriate Heading is 33

05 by virtue of Chapter Note 3 to Chapter 33 and Note 2 to Section VI.

19. M/s. Madhan Agro Industries (P) Ltd. (MAIPL):- So far as the ‘MAIPL’,

coconut (copra) is crushed and grounded and the oil-cake and oil are

separated and then the oil is filtered and purified. The filtered oil is then

stored in tanks and packed in pouches and bottles of different

measurements viz., 5 ml, 50 ml, 100 ml, 200 ml, 500 ml, and 1000 ml

pouches, 50 ml, 100 ml, 200 ml and 500 ml plastic bottles, 100 ml, 200 ml,

and 500 ml wide mouthed bottles, 200 ml tins, one litre and 2 litre cans and

sold in the market. According to Revenue, MAIPL, tests the products of

their competitor’s such as ‘Parachute Hair Oil’ and compare the results of

their products to ensure the marketability of their product. Case of

Revenue is that plastic bottles have the provision for making a small hole

on the top and when the bottle is tilted and pressed lightly, only a small

quantity of oil comes out, which can be applied on the hair and those

coconut oil manufactured by M/s. MAIPL is suitable for use as ‘Hair Oil’.

49

The very nature of packing shows that the product is meant to facilitate

such use as ‘Hair Oil’ and the same is classifiable under Chapter 33. It is

alleged that with an intention to evade payment of duty, M/s. MAIPL have

mis-declared the excisable coconut oil (un-perfumed Hair Oil) as ‘edible

grade/oil’ filtered 100% pure coconut oil.

20. Findings of the Tribunal:- The tribunal set aside the order of the

Commissioner by holding that Chapter 15 covers all varieties of coconut

oil, edible as well as non-edible and it is not essential that the edible

coconut oil should be marketed in packaging approved by PFA Rules for

classifying it under Chapter 15 and that the earlier decision of the Tribunal

(prior to amendment) applies to the corresponding entries even after

amendment. In the case of MAIPL, after referring to earlier decisions of the

Tribunal, CESTAT held as under:-

“…The packing of coconut oil in that case was not of the type referred

to, above or which could be solely and exclusively said to be meant for

application on hair only. As such the Tribunal held that Chapter 2 to

Chapter 33 was not applicable for classifying the goods in that case

under Chapter 33. HSN Explanatory Notes to Chapter 33 were same

before and after 28.02.05. Moreover entries under Chapter 15 relating

to coconut oil in the HSN and Central Excise Tariff after 28.02.2005 are

also identical. Therefore, the decision of the Tribunal in the above

case interpreting the scope of Chapter 15.13 and 33.05 of Central

Excise Tariff applies to the corresponding entries even after

28.02.2005. The above ratio of the decision of the Tribunal therefore

squarely applies to the present case also….”

21. Contention of the Revenue:- Learned Senior Counsel Mr. A.K. Panda

submitted that the tribunal failed to consider that by virtue of amendment to

Central Excise Tariff Act, 1985 with effect from 28.02.2005, ‘Hair Oil’ other

than perfumed ones merit classification under tariff item No.3305.90.19. It

50

was submitted that consequent to the amendment, that so long as the

product is ‘suitable for use as goods of the heading’ and “put up in packing

for retail sale for such use”, whether mixed or not, is classifiable under

Chapter Heading 33 05 and in the light of Section Note 2 to Section VI, it

cannot be classified under any other Heading in this Schedule. It was

further submitted that CESTAT relied upon various orders for referring to

Chapter Note 2 to Chapter 33 which were though prior to amendment

thereby failing to consider that the Show Cause Notice and the Order-inOriginal

were passed pursuant to the amended Chapter Note 2 to Chapter

Note 33 and Section Note with effect from 01.03.2005. Insofar as

‘Parachute’ is concerned, Revenue places reliance upon various materials

like Trade Mark Registration and other materials as to depicting how the

market has understood, ‘Parachute’ as the ‘Hair Oil’. It was further

submitted that in case of conflict, the Notes contained in the Tariff Schedule

to the CESTAT will prevail over that of the HSN and the impugned order

cannot be sustained.

22. Contention of the respondent(s)/Assessee(s): Contention of the

respondents/assessees is that 100% pure ‘Coconut Oil’ cover all varieties

of coconut (Copra oil) marked as ‘edible oil’ and manufactured under

Prevention of Food Adulteration (PFA) licence the same cannot be

classified “preparation for use on hair” to be classified as ‘Hair Oil’ under

Chapter 33 Tariff Item 33 05 merely because of the small size of the

packings. Learned Senior Counsel Mr. Bagaria submitted that under the

51

statutory provision of the Edible Oils Packaging (Regulation) Order, 1988

read with Sl. No.10 of Schedule III of the Standards of Weights & Measures

(Packaged Commodities) Rules, 1977, edible oil shall be packed in the

specified sizes of 50 ml, 100 ml, 200 ml, 500 ml, 1 litre or 2 litres which are

fully in accordance with the mandatory requirement of the aforesaid

statutory provisions. It is, therefore, submitted that by packing the said

‘edible Oil’ as per the sizes as required under the law, ‘edible oil’ does not

cease to become ‘edible oil’ and become classifiable as ‘Hair Oil’ so as to

attract classification under 33.05. Reliance was placed upon the judgment

of Rajasthan High Court in Assistant Commissioner v. Marico Industries

Ltd. 2006 SCC online Raj 446 to contend that the small packings being

done for convenience of consumers to cater to different sections of

consumers at the different economic levels, it would not make the ‘edible

coconut oil’ to be “Hair Oil” classifiable under Chapter 33. Reliance was

also placed upon the judgment of Allahabad High Court in Marico Limited

v. Commissioner, Commercial Taxes, UP (2015) 78 VST 423.

23. Whether the Tribunal was right in classifying the impugned goods

under Chapter 15:- The Tribunal held that Chapter 15 covers all varieties of

coconut oil, edible as well as non-edible. Chapter 15 of Section III of the

Schedule to CETA, 1985 covers “animal or vegetable fats and oils”.

Heading 1513 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

52

1513 19 00 – – Other

‘Coconut Oil’ manufactured and cleared by M/s. Moreshwar and other job

workers and MAIPL can be classified either as ‘Hair Oil’ under sub-heading

3305 or as ‘Vegetable Oil’ under sub-heading 1513. However, when

‘Coconut Oil’ is put up in packing of a kind sold in retail suitable for use as

application on hair would merit classification under tariff entry 33.05. This is

the object of the legislature in bringing about the amendment to Chapter

Note 3 of Chapter 33 and Section Note 2 to Section VI. Chapter Note 1(e)

to Chapter 15 provides that “…..said Chapter does not cover goods of

Section VI”. This exclusion is in clear conformity and recognition of the fact

that goods which otherwise would fall under Section VI are classifiable in

accordance with the conditions of Chapter Notes contained in Chapter 33

(use of goods, nature of packing, form etc.) and under no other Heading of

the Schedule. By holding that Chapter 15 covers all varieties of coconut

oil, edible as well as non-edible, the Tribunal erred in not keeping in view

that the object of the legislature in bringing about the amendment.

24. As discussed earlier, the process carried on by M/s. Moreshwar and

other job workers are:- (i) oil received from M/s. Marico is unloaded and

stored in storage tanks in the unit and it undergoes the process of

mechanical filtering and stored in another tank, then sent through pipeline

for filling in the small containers by the filling machines; (ii) oil obtained by

leakage, waste, overflow etc. are collected and fed into the salvage oil tank

and the same is recycled and blended with 9 MT coconut oil in tanker for

53

two hours or 16 MT coconut oil tanker for three hours; (iii) for manufacture

of HDPE containers, HDPE granules and master batch in the required ratio

is mixed and fed into the mould and blue colour container is obtained; the

fit container is sent to heating and then screen-printing with blue, green

and white colour printing ink for printing the trademark and logo and other

details as required by M/s Marico Ltd.; (iv) waste grind materials and 8% of

pellets are mixed with virgin granules for manufacture of containers; and

(v) the containers are then wrapped with thin plastic and packed in

cardboard boxes and dispatched to the depot of M/s. Marico Ltd.

25. Order-in-Original by the Commissioner recorded findings of fact that

HDPE containers manufactured by M/s. Moreshwar and other job workers

that coconut oil stored in the tanks at M/s. Moreshwar after mechanical

filtering is packed in 50 ml, 100 ml, 200 ml, 1 ltr., 2 ltr containers for retail

use and these retail packs are supplied to M/s. Marico Depot as per the

dispatch schedule. The description given on the packings is 100% pure

coconut oil with ‘Parachute’ mark. So far as the first component “the

product may or may not be mixed”, as discussed earlier, the impugned

goods “coconut oil” is pure oil and is not a mixed product and thus, the first

condition is satisfied. So far as the second condition, “the product should

be suitable for use as a good under these headings (33 03 to 33 07)” is

also satisfied. Thus, the first and second components of Note 3 to Chapter

Note 33 “the product may or may not be mixed” and “the product should be

suitable for use as a good under these Headings (33 05)” are satisfied.

54

26. As discussed infra by applying the ‘Common Parlance Test’, pure

coconut oil packed in small containers is understood by the dealer and the

consumer and in the market as ‘Hair Oil’. The expression “suitable for use

as goods in these headings” as used in the Chapter Note 3 to Chapter 33

indicates that oils suitable for use as ‘Hair Oil’ or classifiable under Heading

33 05 even if they are not so used. As per Note 3 to Chapter 33, what

matters is suitability for such use, if the answer to which is ‘Yes’, then the

goods are classifiable under Chapter 33. So far as the next component,

“the product should be put up in packings of a kind sold by retail facilitating

such use”, is satisfied then they are classified under Chapter 33. As

pointed out in the Order-in-Original and also as discussed earlier in the

case of MAIPL and also M/s. Moreshwar and other job workers, the product

is packed in small quantities in containers like 50 ml, 100 ml, 200 ml, 500

ml which also contain the brand trademark ‘Parachute’.

27. So far as respondent-MAIPL is concerned, coconut is crushed and

pure coconut oil is packed in 5 ml, 50 ml, 100 ml, 200 ml, 500 ml and one

litre pouches and also containers in 50 ml, 100 ml, 200 ml, 500 ml and one

litre cans and sold under the brand name ‘Shanthi’. Here again, these

pouches/containers in such small packings by construing them in the sense

as to how in the trade, dealers and consumers understood it. The

Commissioner was right in holding that they were ‘Hair Oil’ suitable for use

on hair.

28. Insofar as ‘Parachute’ is concerned, the Revenue relies upon

55

various materials as to how consumers and others engaged in the trade

understood “Parachute” for ‘Nature Care for Hair’ including the registration

of Trademark No.1033842 Class-3-Parachute associated with Hair Oil.

Contention of Revenue is that the market identity of the subject goodscoconut

oil is ‘Hair Oil’ and not as ‘Edible Grade Oil’. The Revenue has

also referred to the website of ‘Parachute’ (vide Order-in-Original

No.06/2008-(C) dated 28.02.2008) where ‘Parachute’ is described as ‘Hair

Oil’ and the same reads as under:-

“Nature Care Division (55% of turnover): Parachute was the first branded

coconut oil in the Indian market and has become a generic name for

coconut oil used for hair application. It currently has a 52% market share in

the branded coconut oil market. About 50% of Marico’s turnover is

contributed by the Parachute brand alone. To build upon and strengthen

the strong association between coconut and Parachute brand, Marico has

set up a Research Centre to develop new coconut based products. Over

the years, the company has launched several brand extensions such as

‘Parachute Jasmine’, ‘Parachute Dandruff Solution’, etc…..”

29. An argument was advanced by the respondent/assessee that the

packings/containers do not contain any label/indication to the effect that the

subject goods are used on the hair. The contention that the packings

contain description as ‘Edible Oil’ and that there was no indication on the

packing that it is ‘Hair Oil’ is of no significance. After the amendment, there

is no necessity that the packings/containers should bear label to the effect

that the goods are used on the hair. As per Note 3 to Chapter 33, any

product “suitable for use as goods in these headings and that put up in

packings of a kind sold by retail for such use”, has to be classified as ‘Hair

Oil’ under Chapter 33. So long as the product is suitable for use as ‘Hair

Oil’ and if it is packed in such a way that it is useable for the purposes of

56

‘Hair Oil’, it has to be classified as ‘Hair Oil’ under Chapter 33.

30. Government of India, Trade Mark Registry and Public search result

indicate that Trademark No.1033842 Class-3-Parachute is associated with

Hair Oil, Hair lotions etc. Registration of the trademark of the ‘Parachute’

brand is for selling items like hair oil, hair lotion, hair growing preparation,

hair tonics etc. The Tribunal held that the aspect of label identified with the

hair oil does not advance the case of Revenue for classification of ‘Coconut

Oil’ as ‘Hair Oil’ since the allegation that job workers used green colour

labels for marketing hair oil was absent in the Show Cause Notice.

Relevant portion of the order of the Tribunal is as under:-

“7. ……..Moreover, the material allegation of Marico that its job workers used

green coloured labels for marketing hair oil exclusively was absent in the

show-cause notice. Marico had never marketed any product under the

orange label and all along marketed its entire range of products using the

green label only. We find that in the absence of any label which could be

identified with a hair oil, this aspect of the label does not advance the

Revenue’s case for classification of the coconut oil as hair oil. Use of a

trademark or a label has no bearing on classification.”

The Tribunal is not right in saying that the Show Cause Notice issued to the

respondent-M/s. Moreshwar and other job workers was absent on using

green coloured labels for marketing hair oil exclusively. Para (3.4.2) of the

Show Cause Notice refers to Screen-printing as under:-

“…..HDPE granules and master batch in the required ratio is mixed and

fed into the mould and blue colour container is obtained. Runners and

raisers are removed and the container is examined and if it is not fit,

the same is sent for grinding. The fit container is sent to heating and

then screen-printing with blue, green and white colour printing ink for

printing the trademark and logo and other details as required by Marico

Ltd…..”[Underlining added]

That apart para (3.4.5)(4.1) of the Show Cause Notice contains scanned

57

copy of the application for registration of the trademark in respect of hair oil.

Contents of Show Cause Notice, there are clear averments as to the colour,

printing of green ‘label’ and also the trademark. Hence, the Tribunal is not

right in saying that the Show Cause Notice is absent as regards use of

green coloured labels for marketing hair oil and that registration of

trademark for hair oil on the containers is of no significance for classifying

the product as hair oil under Chapter 33.

31. Whether classification of ‘Coconut Oil’ falls under Chapter 15 and

applicability of Interpretative Rule 3 is acceptable:- After amendment

Heading 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

32. Contention of the assessee is that the description of ‘Coconut Oil’

under Chapter 15 is specific and hence applicable to the subject goods in

terms of Rule 3(a) of the Interpretative Rules. It is well-settled that Rule

3(a) of “General Rules for the Interpretation” is invokable only if the

Headings and the relevant Sections and the Chapter Notes are not clearly

determinative of the classification. The contention that the description

“coconut oil (copra)” under Chapter 15 is specific and hence, applicable to

the impugned goods does not merit acceptance since the classification of

58

the goods is determinate on the harmonious construction of headings,

relative Chapter Notes and Section Notes and the main Rule 1 of the

Interpretative Rules. Classification of the impugned goods is primarily

based on the Headings, relative Chapter Notes and Section Notes which

are paramount in this regard as per Rule 1 of the Interpretative Rules.

33. Rule 3 provides for classification in case goods are classifiable under

two or more headings. For proper appreciation, at the risk of repetition, it is

necessary to refer to Rule 3 of the Interpretative Rules which reads as

under:-

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.

Rule 3(b) provides the manner of classification of mixtures, composite

goods consisting of different materials or made up of different components

and goods put up in sets for retail sale. As ‘Coconut Oil’ is not mixed or

composite goods, Rule 3(b) does not have application. Rule 3(a) states

that the most specific description will be preferred over the more general

one. In the present case, when item description is read with the Chapter

59

Notes, Section Notes and the tests for classification that is Tariff Item

1513.19.00 and 3305.90.19 are equally specific. Hence, as per Rule 3(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 classification. Hence, the coconut oil

manufactured by the respondents could rightly be classified under heading

3305.90.19, as it occurs last in the numerical order of the tariff.

34. In Union of India and Ors. v. Pesticides Manufacturing and

Formulators Association of India, (2002) 8 SCC 410, this Court has held

that if there are two specific headings to which a product can be referred,

the one occurring subsequently would prevail.

35. The Tribunal set aside the demand on the ground that the “coconut

oil” would merit classification under Chapter Heading 15.03 of CETA, 1985

attracting ‘NIL’ rate of excise duty and not under Chapter Heading 33.05 of

the CETA attracting duty of 16% advalorem. The Tribunal erred in not

appreciating that with effect from 01.03.2005, the Central Excise Tariff Act,

1985 has undergone an amendment as per which (Note 3 to Chapter 33)

Heading nos.3303 to 3307 would apply, inter alia, to products whether or

not mixed suitable for use as goods of these headings and put up in

packings of a kind sold by retail for such use. The case laws which were

reported in Kothari Products Ltd. v. CCE 2002 (139) ELT 633 (T); Srikant

Sachets Pvt. Ltd. v. CCE 2005 (180) ELT 401 (T); and Commissioner of

Central Excise v. Essen Products (I) Ltd. 2006 (200) ELT 342 (T) etc. relied

60

upon by the Tribunal and the Board circular dated 31.08.1995 were dealing

with the cases pertaining to the period prior to 01.03.2005. The Tribunal

was not right in relying upon the earlier orders/circular dated 31.08.1995

prior to amendment to base its conclusion that coconut oil both edible and

non-edible merits classification under Chapter 15.

36. Tests for Classification: The Supreme Court has consistently taken

the view that, in determining the meaning or connotation of words and

expressions describing an article in a tariff schedule, one principle which is

fairly well-settled is that those words and expressions should be construed

in the sense in which they are understood in the trade, by the dealer and

the consumer. Whether a particular article will fall within a particular tariff

heading or not, has to be decided on the basis of as to how that article is

understood in ‘common parlance’ or in ‘commercial world’ and not as per

scientific or technical meaning. In the case of Asian Paints India Ltd. v.

Collector of Central Excise (1988) 2 SCC 470, it has been held that when

definition of a word has not been given, it must be considered in its popular

sense and not according to scientific or technical sense.

37. After referring to various judgments, in Plasmac Machine

Manufacturing Co. (P) Ltd. v. Collector of Central Excise, Bombay 1991

Supp (1) SCC 57, it was held by this Court as under:-

“15. ….. It is an accepted principle of classification that the goods should be

classified according to their popular meaning or as they are understood in

their commercial sense and not as per the scientific or technical meaning.

Indo International Industries v. CST ((1981) 2 SCC 528 and Dunlop India Ltd.

v. Union of India (1976) 2 SCC 241 have settled this proposition. How is the

product identified by the class or section of people dealing with or using the

61

product is also a test when the statute itself does not contain any definition

and commercial parlance would assume importance when the goods are

marketable as was held in Atul Glass Industries (Pvt.) Ltd. v. CCE (1986) 3

SCC 480 and Indian Aluminium Cables Ltd. v. Union of India (1985) 3 SCC

284. In Asian Paints India Ltd. v. CCE (1988) 2 SCC 470 which was a case of

emulsion paint, at para 8 it was said: (SCC p. 473, para 8)

“It is well settled that the commercial meaning has to be given

to the expressions in tariff items. Where definition of a word

has not been given, it must be construed in its popular sense.

Popular sense means that sense which people conversant

with the subject matter with which the statute is dealing, would

attribute to it.””

38. In Dabur Industries Ltd. v. Commissioner of Central Excise,

Jamshedpur (2005) 4 SCC 9, it was held that in classifying a product, the

scientific or technical meaning is not to be resorted to but the test was to

see what the persons using the product understand it to be.

39. In Commissioner of Central Excise v. Wockhardt Life Sciences

Limited (2012) 5 SCC 585, this Court emphasized “Common Parlance

Test” or the “Commercial Usage Test” in paras (33) to (37) and held as

under:-

“33. There is no fixed test for classification of a taxable commodity. This is

probably the reason why the “common parlance test” or the “commercial

usage test” are the most common (see A. Nagaraju Bros. v. State of A.P.

1994 Supp (3) SCC 122). Whether a particular article will fall within a

particular tariff heading or not has to be decided on the basis of the tangible

material or evidence to determine how such an article is understood in

“common parlance” or in “commercial world” or in “trade circle” or in its

popular sense meaning. It is they who are concerned with it and it is the

sense in which they understand it that constitutes the definitive index of the

legislative intention, when the statute was enacted (see Delhi Cloth and

General Mills Co. Ltd. v. State of Rajasthan (1980) 4 SCC 71).

34. One of the essential factors for determining whether a product falls within

Chapter 30 or not is whether the product is understood as a pharmaceutical

product in common parlance [see CCE v. Shree Baidyanath Ayurved Bhavan

Ltd. (2009) 12 SCC 419 and CCE v. Ishaan Research Lab (P) Ltd. (2008) 13

SCC 349]. Further, the quantity of medicament used in a particular product

will also not be a relevant factor for, normally, the extent of use of medicinal

ingredients is very low because a larger use may be harmful for the human

body. [Puma Ayurvedic Herbal (P) Ltd. v. CCE (2006) 3 SCC 266, State of

Goa v. Colfax Laboratories Ltd. (2004) 9 SCC 83 and B.P.L. Pharmaceuticals

Ltd. v. CCE 1995 Supp (3) SCC 1.]

62

35. However, there cannot be a static parameter for the correct classification

of a commodity. This Court in Indian Aluminium Cables Ltd. v. Union of India

(1985) 3 SCC 284 has culled out this principle in the following words: (SCC p.

291, para 13)

“13. To sum up the true position, the process of manufacture of

a product and the end use to which it is put, cannot

necessarily be determinative of the classification of that

product under a fiscal schedule like the Central Excise Tariff.

What is more important is whether the broad description of the

article fits in with the expression used in the Tariff.”

36. Moreover, the functional utility and predominant or primary usage of the

commodity which is being classified must be taken into account, apart from

the understanding in common parlance. [See O.K. Play (India) Ltd. v. CCE

(2005) 2 SCC 460, Alpine Industries v. CCE (2003) 3 SCC 111, Sujanil

Chemo Industries v. CCE & Customs (2005) 4 SCC 189, ICPA Health

Products (P) Ltd. v. CCE (2004) 4 SCC 481, Puma Ayurvedic Herbal (2006) 3

SCC 266, Ishaan Research Lab (P) Ltd. (2008) 13 SCC 349 and CCE v. Uni

Products India Ltd. (2009) 9 SCC 295]

37. A commodity cannot be classified in a residuary entry, in the presence of

a specific entry, even if such specific entry requires the product to be

understood in the technical sense (see Akbar Badrudin Giwani v. Collector of

Customs (1990) 2 SCC 203 and Commr. of Customs v. G.C. Jain (2011) 12

SCC 713). A residuary entry can be taken refuge of only in the absence of a

specific entry; that is to say, the latter will always prevail over the former [see

CCE v. Jayant Oil Mills (P) Ltd. (1989) 3 SCC 343, HPL Chemicals Ltd. v.

CCE (2006) 5 SCC 208, Western India Plywoods Ltd. v. Collector of Customs

(2005) 12 SCC 731 and CCE v. Carrier Aircon Ltd. (2006) 5 SCC 596].

40. In Commissioner of Central Excise, Delhi v. Carrier Aircon Ltd. (2006)

5 SCC 596, this Court held as under:-

“14. End use to which the product is put to by itself cannot be determinative

of the classification of the product. See Indian Aluminium Cables Ltd. v.

Union of India (1985) 3 SCC 284. There are a number of factors which have

to be taken into consideration for determining the classification of a product.

For the purposes of classification the relevant factors inter alia are statutory

fiscal entry, the basic character, function and use of the goods. When a

commodity falls within a tariff entry by virtue of the purpose for which it is put

to (produced), the end use to which the product is put to, cannot determine

the classification of that product.”

41. Chapter 15 of Section 3 of Central Excise Tariff deals with “Animal or

Vegetable fats and Oils and their cleavage products; prepared edible fats;

Animal or Vegetable Waxes”. Sub-Heading 1513 deals with coconut

(copra). Before considering the contentious issues as to the classification

63

of the impugned goods, it is necessary to point out as to how ‘Coconut Oil’

is understood and treated in the market.

42. In Jain Exports Pvt. Ltd. v. Union of India 1987 (29) ELT 753 Del, the

High Court of Delhi dealt with the use of ‘Coconut Oil’ and in the context of

importability of ‘Coconut Oil’, held as under:-

“25. ….it is well known that the coconut oil is not at all used as an edible oil in

a very large part of our country. Almost all the parts of India up to Vindhyas

do not use coconut oil as edible medium. Even in rest of the country though

it is in use extensively in some very small part, its use in most of the other

part is small average. So ordinarily if a person was to go to the market and

ask for coconut oil, the normal question he would be asked will be whether he

needs it as hair oil or shampoo. No one normally will understand coconut oil

to mean only edible variety because such is not the normal major use. A

person would have to specifically clarify that by asking for coconut oil he is

asking for edible variety in order to make his intention clear. Thus by itself

and in ordinary parlance coconut oil in the import policy would be understood

to include both edible variety and industrial variety of coconut oil. If only one

variety of coconut oil was meant to be covered, it would be more consistent to

hold that it is industrial variety considering the overwhelming use of coconut

oil for non-edible purpose. But an entry would never be restricted only to

edible variety of coconut oil……”. [Underlining added]

Though the above observation is in the context of importability of ‘Coconut

Oil’, the factum of overwhelming use of ‘Coconut Oil’ and as to coconut oil

is normally understood as ‘Hair Oil’ cannot be ignored. It is a matter of

common knowledge that in many parts of the country ‘Coconut Oil’ is

widely used as ‘Hair Oil’ and not generally used as edible oil; it is so used

as edible oil only in few areas of the country. No one will normally

understand ‘Coconut Oil’ to mean only as edible oil because such is not the

major use of ‘edible oil’. The moment we held that the impugned goodscoconut

oil is suitable for use as ‘Hair Oil’ as discussed infra, it has to be

classified only under Chapter 33.

43. As pointed out earlier, Revenue relies upon number of materials that

64

those in trade, traders and consumers have understood ‘Parachute’ as

‘Hair Oil’. In para (36) of Wockhardt Life Sciences Ltd. quoted above, this

Court laid emphasis to the “functional utility and predominant or primary

usage of the commodity” that is to be taken into account while classifying

the product. As discussed earlier, after amendment what is more relevant

is the suitability of the goods for being used as ‘Hair Oil’ and the usage of

the product in common parlance.

44. In the Order-in-Original No.06/2008-(C), reference is also referred to

feedback about the product by their consumers and their impressions and

experiences. It also refers to the interview of Mr. Arvind Mediratta, Head of

Marketing Division of M/s. Marico Limited stating that ‘Parachute’ brand is

associated with ‘Hair Oil’ whereas Saffola brand is associated with edible

(cooking) oil. The revenue also refers to an article in the Financial Express

dated 14.06.2001 where Mr. Srikand Gupta, Chief Executive Officer (CEO),

Nature Care Division of M/s. Marico stated that they wanted the ‘Parachute’

brand to be perceived as a cosmetic brand with the utility of nourishing hair.

45. The appellant has relied upon the following write up on coconut oil by

the Coconut Development Board (a statutory body under the Ministry of

Agriculture):-

“Coconut oil is used in the country as a cooking fat, hair oil, body oil and

industrial oil….. Coconut oil is marketed in bulk as well as in packs ranging

from sachets containing 5 ml to 15 kg tins. The branded coconut oil in small

packs is mainly marketed as hair oil and body oil.”

46. A taxing statute is being one levying a tax on goods must, in the

absence of a technical term or a term of science or art, be presumed to

65

have used an ordinary term as coal according to the meaning ascribed to it

in common parlance. In Commissioner of Sales Tax, Madhya Pradesh,

Indore v. Jaswant Singh Charan Singh, AIR 1967 SC 1454, it was held as

under:-

“5. The result emerging from these decisions is that while construing

the word “coal” in Entry I of Part III of Schedule II, the test that would

be applied is what would be the meaning which persons dealing with

coal and consumers purchasing it as fuel would give to that word. A

sales tax statute is being one levying a tax on goods must in the

absence of a technical term or a term of science or art, be presumed to

have used an ordinary term as coal according to the meaning ascribed

to it in common parlance. Viewed from that angle both a merchant

dealing in coal and a consumer wanting to purchase it would regard

coal not in its geological sense but in the sense as ordinarily

understood and would include “charcoal” in the term “coal”. It is only

when the question of the kind or variety of coal would arise that a

distinction would be made between coal and charcoal; otherwise, both

of them would in ordinary parlance as also in their commercial sense

be spoken as coal.”

47. After referring to various judgments on the point of common parlance

test, in Commissioner of Central Excise, New Delhi v. Connaught Plaza

Restaurant Private Ltd., New Delhi (2012) 13 SCC 639, it was held as

under:-

“33. Therefore, what flows from a reading of the aforementioned decisions is

that in the absence of a statutory definition in precise terms; words, entries

and items in taxing statutes must be construed in terms of their commercial or

trade understanding, or according to their popular meaning. In other words

they have to be constructed in the sense that the people conversant with the

subject-matter of the statute, would attribute to it. Resort to rigid interpretation

in terms of scientific and technical meanings should be avoided in such

circumstances. This, however, is by no means an absolute rule. When the

legislature has expressed a contrary intention, such as by providing a

statutory definition of the particular entry, word or item in specific, scientific or

technical terms, then, interpretation ought to be in accordance with the

scientific and technical meaning and not according to common parlance

understanding.”

48. In the case of Alpine Industries v. Collector of Central Excise, New

Delhi (2003) 3 SCC 111, the question was whether “Lip Salve” could be

66

classifiable as a preparation for care of skin or as a medicament. The

product was mainly supplied to the Defence Department for use by military

personnel who are posted in high-altitude areas. In Commissioner of

Central Excise, Calcutta v. Sharma Chemical Works (2003) 5 SCC 60, this

Court held that in interpreting provisions of a statute like the Excise Act, the

popular meaning as understood by the users should be applied and not the

scientific or technical meaning.

49. As held in Jain Exports Pvt. Ltd., the factum of overwhelming use of

‘Coconut Oil’ as ‘Hair Oil’ in most parts of the country cannot be ignored.

No one will normally understand ‘Coconut Oil’ to mean only as ‘edible oil’

because such is not the major use of ‘edible oil’. Applying the common

parlance test and also ‘end use of the product’, coconut oil is predominantly

understood by the users namely dealers/consumers only as ‘Hair Oil’ and

not as ‘edible oil’ and hence, classifiable only under Chapter 33 and not

under Chapter 15.

50. After the amendment (w.e.f. 28.02.2005) what is relevant is

‘suitability of the goods for being used as Hair Oil’ for classifying the same

under 33.05. ‘Coconut Oil’ packed in small sachets/containers suitable for

being used as ‘Hair Oil’ is classifiable under Chapter Tariff Item 3305.

When a good is classifiable under tariff item 3305, by virtue of amended

Section Note 2 to Section VI, no other classification is permissible. By

consideration of the materials placed on record and also applying the

‘Common Parlance Test’, coconut oil packed in small sachets/containers

67

understood in the market by dealers/consumers as ‘Hair Oil’ is classifiable

under Chapter 33, tariff item 33 05. In the case of MAIPL, ‘Coconut Oil’

packed in small sachets/containers suitable for being used as ‘Hair Oil’ are

classifiable under Chapter 3305. In case of ‘Parachute’, this is further

fortified by various materials placed on record and also registration of its

Trademark No.1033842 Class-3 Parachute associated with “Hair Oil, Hair

lotion etc.”

51. Re. Contention HSN Notes to Chapter Note 3 of Chapter 33 is the

same as it was prior to amendment:- The Tribunal held that “HSN

Explanatory Notes to Chapter 33 were same before and after 28.02.2005.”

Moreover, Notes under Chapter 15 relating to ‘Coconut Oil’ in the HSN and

Central Excise Tariff after 28.02.2005 are also identical. Mr. Bagaria,

learned senior counsel for the assessee urged that the changes brought

about by the amendment to Chapter Note 3 of Chapter 33 is of no

significance since HSN Notes to Chapter Note 3 of Chapter 33 is exactly

the same as in the Central Excise Tariff prior to amendment. It was

submitted that Explanatory Notes in HSN clarified the purport, meaning,

scope and effect of Chapter Note 3 of Chapter 33. It was submitted that

since Central Excise Tariff is based on HSN, for resolving any dispute

relating to tariff classification, HSN is a safe guide. In this regard, reliance

is placed upon Collector of Central Excise, Shillong v. Woods Craft Product

Ltd. (1995) 3 SCC 454, Commissioner of Customs and Central Excise, Goa

v. Phil Corporation Limited (2008) 17 SCC 569 and O.K. Play (India) Ltd. v.

68

Commissioner of Central Excise, Delhi-III, Gurgaon (2005) 2 SCC 460.

52. The Harmonized Commodity Description and Coding System (HS) of

tariff nomenclature, generally referred to as the “Harmonized System of

Nomenclature (HSN)” is an internationally standardized system of names

and numbers for classifying traded products, developed and maintained by

the World Customs Organization (WCO) (formerly the Customs Cooperation

Council), an independent inter-governmental organization

[Source: World Customs Organization:http:// www.

wcoomd.org/en/topics/nomenclature/overview/what-is-the-harmonized-system.

aspx]. Along with the HSN, are the Explanatory Notes. They do not form an

integral part of the Harmonized System Convention. However, as

approved by the WCO Council, they constitute the official interpretation of

the Harmonized System at the international level and are an indispensable

complement to the System. [World Customs Council, retrieved from:

http://www.wcoomd.org/ en/topics/nomenclature/instrument-and-tools/tools-to-assistwith-the-classification-in-the-hs/explanatory-notes.aspx].

53. The Central Excise Tariff Act, 1985 (CETA) is based on the

Harmonized System of Nomenclature (HSN), which is an internationally

accepted product coding system formulated under the auspice of the

General Agreement on Tariffs Trade (GATT). In Commissioner of Customs

and Central Excise, Goa v. Phil Corporation Ltd. (2008) 17 SCC 569, this

Court explained the HSN as under:-

“29. …The Central Excise Tariff Act is broadly based on the system of

classification from the international convention called the Brussels

69

Convention on the Harmonized Commodity Description and Coding System

(Harmonized System of Nomenclature) with necessary modifications. HSN

contains a list of all the possible goods that are traded (including animals,

human, hair, etc.) and as such the mention of an item has got nothing to do

whether it is manufactured and taxable or not”

54. HSN Explanatory Notes provide a commentary on the scope of each

heading, giving a list of the main products included and excluded, together

with technical description of the goods concerned (their appearance,

properties, method of production and uses) and practical guidance for their

identification. The Explanatory Notes also clarify the scope of particular

sub-headings wherever appropriate. However, HSN or the Explanatory

Notes thereon cannot supersede the relevant notes contained in the Tariff

Schedule. They can be relied upon as a safe guide in cases of doubt.

55. In the case in hand, we are concerned with classification of goods –

‘Coconut Oil’ between two Chapters both falling within first Schedule to

Central Excise Tariff Act, 1985. For proper appreciation, we may usefully

refer to the relevant HSN Explanatory Notes relating to Chapter 33 and

Chapter 33 of CETA Tariff Notes:-

HSN Explanatory Notes CETA Tariff Notes

Chapter 33

Essential Oils and Resinoids;

Perfumery, Cosmetic or Toilet Preparations

Chapter Notes:

……….

3. Heading 33.03 to 33.07 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.

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

Chapter 33

Essential Oils and Resinoids,

Perfumery, Cosmetic or Toilet

Preparations

Notes:

………………

3. Heading 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 retails for such

use.

70

as goods of these headings and put up in packings

of a kind sold by retail for such use (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.

Preparation (e.g. varnish) and unmixed products

(e.g. unperfumed powdered talc, fuller’s earth,

acetone, 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 deodorizers; or

(b) Put up in a form clearly specialized to such

use (e.g. nail varnish put up in small bottles

furnished with the brush required for

applying the varnish).

33.05 -PREPARATIONS FOR USE ON THE HAIR

…………….

This heading covers:-

1. ……..

2. ………

3. ……….

4. Other hair preparations, such as

brilliantines, hair oils, creams (“pomades”)

and dressings, hair dyes and bleaches

used on the hair; cream-rinses

3305- Preparations for use on the

hair

……………

3305 90 – Other

— Hair Oil

56. So far as Chapter Note 3 to Chapter 33, CETA Amendment Act, 2004

has the same Chapter Note as the HSN. However, the general explanation

of HSN adds further conditions for the product to be classifiable under

Chapter 33 regarding packings of a kind sold to the consumer and put up

with labels and literatures that they are for use for such purpose. To put it

in other words, Chapter Note 3 to Chapter 33 as contained in the HSN,

71

General Explanation to the said HSN Notes places certain conditions, i.e.:-

(a) [when the goods are] In packings of a kind sold to the

consumer and put up with labels, literature or indications

that they are for use as perfumery, cosmetic or toilet

preparations, or as room deodorizers; or

(b) Put up in a form clearly specialized to such use (e.g. nail

varnish put up in small bottles furnished with the brush

required for applying the varnish).

It is important to note that the pre-amended Schedule (prior to CETA

amendment) also had the same rigours as HSN Notes such as “the product

requiring labels and literatures including the specialized use” (as Chapter

Note 2 to Chapter 33). However, after the amendment with effect from

28.02.2005, the Parliament consciously chose not to impose or place the

same rigours for classification of goods under this Heading and deleted the

same. The Parliament intentionally and consciously deleted these

conditions in the new (renumbered) Chapter Note 3 to Chapter 33 of the

Tariff Schedule to the CETA. Therefore, to apply these conditions, postamendment

would be against the intent of the Parliament. Hence, HSN

Chapter Note cannot be relied upon to determine the classification rather

the CETA Tariff Chapter Note must be considered.

57. The relevant HSN Explanatory Notes and competing CETA Tariff Note,

insofar as Section Note 2 to Section VI is as under:-

HSN Explanatory Notes CETA Tariff Notes

Section VI

Products of the Chemical or Allied Industries

Section Notes.

Section VI

Products of the Chemical or Allied

Industries

72

……..

2. Subject to Note 1 above, goods classifiable in

Heading Nos. 30.04, 30.05, 30.06, 32.12, 33.03,

33.04, 33.05, 33.06, 33.07, 35.06, 37.07 or 38.08

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 the Nomenclature.

3. Goods put up in sets consisting of two or more

separate constituents, some or all of which fall in

this Section and are intended to be mixed together

to obtain a product of Section VI or VII, are to be

classified in the heading appropriate to that

product, provided that the constituents are:-

(a) having regard to the manner in which they

are put up, clearly identifiable as being

intended to be used together without first

being repacked;

(b) presented together; and

(c) identifiable, whether by their nature or by

the relative proportions in which they are

present, as being complementary one to

another.

General

Section Note 1

………

Section Note 2

Section Note 2 provides that goods (other than

those described in headings 28.43 to 28.46) which

are covered by heading 30.04, 30.05, 30.06, 32.12,

33.03, 33.04, 33.05, 33.06, 33.07, 35.06, 37.07 or

38.08 by reason of being put up in measured doses

or for retail sale are to be classified in those

headings notwithstanding that they could also fall in

some other heading of the Nomenclature. For

example, sulphur put up for retail sale for

therapeutic purposes is classified in heading 30.04

and not in Heading 25.03 or 28.02, and dextrin put

up for retail sale as a glue is classified in heading

35.06 and not in heading 35.05.

After amendment

Notes:

………..

2. Subject to Note 1 above, goods

classifiable in Headings 3004, 3005,

3006, 3212, 3303, 3304, 3305, 3306,

3307, 3506, 3707 or 3308 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.

58. As discussed earlier, CETA Amendment Act, 2004 amended Section

Note 2 to Section VI. The rigours placed for a product to be classified

under these Headings are not prevalent in the CETA although they are

prevalent in the HSN. The legislature consciously chose not to import the

conditions and rigours placed in the HSN Explanatory Notes and the

following as found in HSN does not find place in the amended Section Note

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2 to Section VI:-

“(a) having regard to the manner in which they are put up,

clearly identifiable as being intended to be used

together without first being repacked;

(b) presented together; and

(c) identifiable, whether by their nature or by the relative

proportions in which they are present, as being

complementary one to another.”

It is clear from the above, that the HSN General Explanatory Notes to

Section VI are to an extent in conflict with the Notes contained in Tariff

Schedule to the Central Excise Tariff Act, 1985. Therefore, the Notes

contained in the Central Excise Tariff Act shall prevail over the Notes

contained in HSN.

59. In Collector of Central Excise, Shillong v. Woods Craft Product Ltd.

(1995) 3 SCC 454, this Court held HSN is a safe guide for interpretation

and entitled to great consideration. The relevant portion of the said

judgment is as under:-

“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 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.”

74

60. However, in Camlin Ltd. v. Commissioner of Central Excise, Mumbai

(2008) 9 SCC 82, this Court held that if the entries under HSN and the

entries under the Central Excise Tariff Act are different then reliance cannot

be placed upon HSN Notes for the purposes of classification of goods under

the Central Excise Tariff. The relevant portion of the said judgment is as

under:-

“24. In our considered view, the Tribunal erred in relying upon the HSN for

the purpose of marker inks in classifying them under Chapter Sub-Heading

3215.90 of the said Tariff. The Tribunal failed to appreciate that the entries

under the HSN and the entries under the said Tariff are completely different.

As mentioned above, it is settled law that when the entries in the HSN and

the said Tariff are not aligned, reliance cannot be placed upon HSN for the

purpose of classification of goods under the said Tariff. One of the factors on

which the Tribunal based its conclusion is the entries in the HSN. The said

conclusion in the order of the Tribunal is, therefore, vitiated and, accordingly,

set aside. We agree with the findings recorded by the Commissioner

(Appeals).”

61. As discussed earlier, after the amendment to CETA, there is a

material difference between the relevant notes provided in the HSN as

against those provided in the Tariff Schedule to the CETA, 1985. The

general explanation as provided in the HSN cannot be applied as they

stand to explain the Notes in the HSN which is materially different from the

Notes contained in the Tariff Schedule of the CETA. In instances of conflict,

the Notes contained in the Tariff Schedule to the CETA will prevail over that

of the HSN. One of the factors on which the Tribunal based its conclusion

was the entries in HSN and its observation that entries in HSN to Chapter

33 and CETA Tariff Notes of Chapter 33 are one and the same even after

amendment. In my view, the Tribunal erred in not keeping in view the

principles laid down by this Court in Camlin Ltd. case that when the Notes

75

in HSN and the Tariff are not aligned, reliance cannot be placed upon the

HSN for the purpose of classification of the goods.

62. Circular No.145/56/95-CX dated 31.08.1995 was issued in the context

of classification of ‘Coconut Oil’ under the Central Excise Tariff as it existed

prior to the amendment. The said circular clarified that for classification of

‘Coconut Oil’ under Chapter 33 (as ‘Hair Oil’), it must satisfy the

requirements of Chapter Note 2 of Chapter 33. As per the said circular,

though ‘Coconut Oil’ may be capable of being used as ‘Hair Oil’, the

product must satisfy the criteria of label/literature on packing of ‘Coconut

Oil’ showing its use as ‘Hair Oil’ as per Note 2 to Chapter 33. The relevant

part of the Circular dated 31.08.1995 is as under:-

“6. …..In the CET Heading 3305 covers “preparations for use on the hair”.

……

9. Therefore, keeping in view of Chapter Notes, HSN Notes, the Tariff

Conference of 1991, the report of D.G. (A.E.) and the opinion of Chief

Chemist, CRCL, it is felt that coconut oil whether pure or refined and whether

packed in small or large containers merits classification under Heading

No.1503 as long as it satisfies the criteria of ‘fixed vegetable oil’ laid down in

Chapter Note 3 of Chapter 15. It is also clarified that if the containers bear

labels/literature, etc., indicating that it is meant for application on hair, as

specified under Note 2 of Chapter 33 and/or if the coconut oil has additives

(other than BHA) or has undergone processes which made it a preparation

for use on hair as mentioned in Chapter Note 6 of Chapter 33 then the

coconut oil may merit classification under Chapter 33.”

63. In exercise of powers under Section 37B of Central Excise Act, 1944,

CBEC issued Circular No.102/05/2006-CX-3 dated 03.06.2009 withdrawing

the Circular No. 145/56/95-CX dated 31.08.1995. After referring to the

amendment and old and new Chapter Notes and Section Notes, the

Circular stated that the ‘Coconut Oil’ packed in small containers of sizes

upto 200 ml shall be classified under Heading 3305. The relevant portion

76

of the said Circular reads as under:-

“5. …..Hence, in view of the amendments/insertion of Chapter Note and

Section Note, the classification of coconut oil would depend upon the fact as

to how the majority of the customers use the said product. Therefore, if

coconut oil is packed in packages which are generally meant for sale in retail

as hair oil, in that case, the said product would be classified as hair oil under

heading 3305, even though few consumers may use it as edible oil.

Through field survey, it has been gathered that smaller packs upto the sizes

of 200ml are normally used as hair oil by the customers. It has also been

reported that in small pack sizes upto 200ml are stacked along with other hair

oil care preparations/cosmetics and not in edible oil section in the retail

shops. Enquiries also reveal that small packs of coconut oil displayed at the

hair care shelves are used as hair oil only and the customer ask for the

smaller packages or the sachets for using them as ‘hair oil’.

6. In view of foregoing discussion, it is concluded that coconut oil packed in

containers upto 200ml may be considered as generally used as hair oil. This

would bring uniformity in assessment in respect of coconut oil sold in small

containers irrespective of the fact as to whether its use as hair oil is indicated

on containers/labels or not. Therefore, following instructions/directions are

issued:-

(i) Circular No. 145/56/95-CX dated 31.08.1995 stands withdrawn.

(ii) the coconut oil packed in small container of sizes upto 200ml shall be

classified under heading 3305.”

64. In Raj Oil Mills Ltd. v. Commissioner, Central Excise 2014 (314) ELT

541 (Tri. – Mumbai), it was held that repacking of ‘Edible Grade Coconut

Oil’ from bulk pack to retail pack of 200 ml and less are not classifiable

under Chapter 33 of Central Excise Tariff which covers “cosmetic or toilet

preparations” rather it would be classifiable under Chapter 15 which covers

“animal or vegetable fats and oils and their cleavage products”.

Challenging the judgment of the Tribunal in Raj Mills Ltd. case, the appeals

preferred by the Revenue in CA Nos. 2023-37 of 2014 were dismissed on

17.12.2014 by holding as under:-

“1. We have heard learned Additional Solicitor General appearing for

the Revenue.

2. Delay condoned.

3. We find no merit in the Civil Appeals. The Civil Appeals are

dismissed.”

After the judgment of the Supreme Court, the Circular dated 03.06.2009

77

was withdrawn by another Circular No.103/01/2015-CX-3 dated

12.10.2015. Now, the issue of classification of ‘Coconut Oil’ as per the

Circular dated 12.10.2015 is to be decided by the field by taking into

consideration the facts of the case read with the judicial pronouncements.

Merely because the ‘Coconut Oil’ of retail pack of 200 ml or less are not

classifiable under Chapter 33 of the Central Excise Tariff and the civil

appeals preferred by the Revenue were dismissed by the Supreme Court,

it does not mean that it has attained finality. As pointed out earlier, civil

appeals preferred by the Revenue were dismissed by a non-speaking

order at the admission stage and hence, the “Doctrine of Merger” is not

applicable. When the order passed by the Supreme Court is not a

speaking order, it is not correct to assume that the Supreme Court had

decided implicitly all the questions in relation to the merits of the order.

Now, the position (as per Circular dated 12.10.2015) is to decide the issue

of classification by the field taking into consideration the facts of the case

read with judicial pronouncements.

65. Conclusion: Impugned orders of the Tribunal are set aside and the

appeals preferred by the revenue are allowed with the following findings:-

i. Tribunal is not right in holding that Chapter 15 covers all varieties

of ‘coconut oil’ both edible and non-edible. The judgments relied

upon by the Tribunal and the Board’s circular dated 31.08.1995

were prior to 2004 amendment. The Tribunal was not right in

relying upon the earlier orders/circular dated 31.08.1995 prior to

amendment to base its conclusion that coconut oil both edible

and non-edible merits classification under Chapter 15. Hence the

78

impugned orders of the Tribunal are liable to be set aside.

ii. After the amendment (w.e.f. 28.02.2005) what is relevant is

‘suitability of the goods for being used as Hair Oil’ for classifying

the same under 33.05. ‘Coconut Oil’ packed in small

sachets/containers suitable for being used as ‘Hair Oil’ is

classifiable under Chapter Tariff Item 3305. When a good is

classifiable under tariff item 3305, by virtue of amended Section

Note 2 to Section VI, no other classification is permissible.

iii. Rule 3(a) states that the most specific description will be

preferred over the more general one. In the present case, when

item description is read with the Chapter Notes, Section Notes

and the tests for classification that is Tariff Item 1513.19.00 and

3305.90.19 are equally specific. Hence, as per Rule 3(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 classification. Hence, the

coconut oil manufactured by the respondents could rightly be

classified under heading 3305.90.19, as it occurs last in the

numerical order of the tariff.

iv. By consideration of the materials placed on record and also

applying the ‘Common Parlance Test’, coconut oil packed in small

sachets/containers understood in the market by

dealers/consumers as ‘Hair Oil’ is classifiable under Chapter 33,

tariff item 33 05.

v. After the amendment to Central Excise Tariff Act (w.e.f.

28.02.2005), there is material difference between the relevant

Explanatory Notes in the HSN as against those provided in the

Tariff Schedule to Central Excise Tariff Act, 1985. As held in

Camlin Ltd. v. Commissioner of Central Excise, Mumbai

(2008) 9 SCC 82, when the Explanatory Notes in the HSN and

the Notes tariff schedule are not aligned, reliance cannot be

placed upon HSN for the purpose of classification of goods.

79

vi. In the case of MAIPL, ‘Coconut Oil’ packed in small

sachets/containers suitable for being used as ‘Hair Oil’ are

classifiable under Chapter 3305. In case of ‘Parachute’, this is

further fortified by various materials placed on record and also

registration of its Trademark No.1033842 Class-3 Parachute

associated with “Hair Oil, Hair lotion etc.”

vii. Circular dated 03.06.2009 and dismissal of appeals preferred by

the Revenue in CA Nos. 2023-37 of 2014 (dated 17.12.2014) at

the admission stage by non-speaking order, the ‘Doctrine of

Merger’ is not applicable.

…………….……………J.

[R. BANUMATHI]

New Delhi;

April 13, 2018

80

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1766 OF 2009

COMMISSIONER OF CENTRAL EXCISE            …APPELLANT

VERSUS

MADHAN AGRO INDUSTRIES (I) PVT. LTD.   …RESPONDENT

WITH

CIVIL APPEAL Nos.6703­6710 OF 2009

O R D E R

In view of the difference of opinion in terms

of   the   judgments   pronounced   by   us   in   the   present

appeals,   the   Registry   is   directed   to   place   the   said

appeals before Hon’ble the Chief Justice of India for

appropriate orders.

…………………………J.

(RANJAN GOGOI)

…………….……………J.

[R. BANUMATHI]

NEW DELHI;

APRIL 13, 2018