Issue: Classification under Central Excise Tariff Act, 1985
Facts: Aggrieved by the orders passed by the Hon’ble CESTAT wherein it was held that the coconut oil manufactured and packed in “small containers” by the Assessees is classifiable under Heading 1513 (coconut oil) and not under Heading 3305 (hair oil) of the Central Excise Tariff Act, 1985, the Revenue appealed before the Hon’ble Supreme Court of India.
Submissions: The Revenue contended that a detailed market survey 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. Therefore, “coconut oil” in small packings should be classified under Heading 3305 i.e. hair oil and not under Heading 1513 i.e. coconut oil. Further, it was contended that scientific and technical meaning must be avoided and the particular product as understood in trade and in common parlance should be preferred. Also, 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.
The assessee contented that the Hon’ble CESTAT in Rajasthan Oil Mills Vs. Commissioner of Central Excise, 2014 (314) ELT 541 (Tribunal) 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.
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. Further, it was submitted that under the 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 awas fully in accordance with the mandatory requirement of the aforesaid statutory provisions. Also, 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.
Judgment: Justice Ranjan Gogoi held in the favor of Assessee and held that 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. 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 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.
Explanatory note to Chapter Note 3 of HSN makes the contents of the Chapter Note more clear. In order to classify a product under tariff Item No.3305 of the Act, the requirements of Clauses (a) and (b) of the Explanatory Note to Chapter Note 3 of Harmonised System of Nomenclature (HSN) would be required to be satisfied and the goods/packages must be put up with labels/literatures and other indications that they are meant for use as perfumery, cosmetic and toilet preparations or the goods must be put up in a form clearly specialised for such use as for example nail varnish must be put up in small bottles accompanied with a brush. No such situation exists in respect of the coconut oil in question.
On the contrary, Justice Banumathi made different observations and held in the favor of Revenue and observed that 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 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.
The matter is now referred to Larger Bench.
GST Law India is a blog on GST and allied commercial laws managed by members of the law firm ALA Legal.