CA FINAL N CS FINAL IDT. CLASSIFICATION

Classification of Excisable Goods

What is Assessment ….. ???

Determination of :

     ü Classification

ü Value and

          ü Amount of Duty

Classification

Means determination of Heading / Sub-heading of Schedule I of CEAT under

which Goods fall

Schedule I

 

Divided into 20 Sections (21 Sections in Customs Tariff)

Divided into 96 Chapters (99 Chapters in Customs Tariff)         XX

Heading                                               XXXX

Sub-Heading                                       XXXXXX

Sub Sub Heading (Tariff Items)        XXXXXXXX

Overview of the Tariff:

·         Central Excise Tariff has 4 columns

(1)          Tariff item

(2)          Description of the Goods

(3)          Unit (i.e. unit of measure like cm, cc, g, l, m, mt, etc.) and

(4)          Rate of Duty.

·         Central Tariff has 5 columns

(1)          Tariff item

(2)          Description of the Goods

(3)          Unit (i.e. unit of measure like cm, cc, g, l, m, mt, etc.)

(4)          Standard Rate of Duty and

(5)          Rate of Duty for Preferential Area.

Note:

a)      The Govt. charges lower customs duty in case of import of some specified goods from Myanmar, Bangladesh, Mauritius, Seychelles, Nepal, Tonga, etc.

b)      If preferential rate is not specified for a particular product, the Standard Rate of Duty will apply

Schedules to Central Excise Tariff – Total 3 Schedules

1^st      Contains goods on which BED is charged

2^nd     Contains goods on which SED is charged

3^rd      Contains goods covered under MRP provisions

Schedule to Customs Tariff – Total 2 Schedules

1^st      Import Tariff

2^nd     Export Tariff (the Schedule contains only 26 items, out of which 24 items are exempt by way of a notification)

Rule of Interpretation (Rules of Classification)

Rule No.1

·               Section / Chapter title are not the part of law. Therefore, classification can not be based on it.

·               Notes included in the section / chapter notes of CETA are having legal value. Therefore, classification can be based on those notes.

·               These rules are to be applied for interpretation of Tariff, only if classification is not possible on the basis of tariff entry and relevant chapter notes and section notes.

Rule No.2 (a)

·               Incomplete / unfinished gods

·               Fully / partially disassembled goods

having essentially same characteristics as that of complete or finished goods, are classifiable under the heading of complete / finished goods.

Example – Passenger coach not fitted with seats will still be a passenger coach.

Note: Rule 2(a) applies only if:

i.        All the components are presented at the same time for clearance

ii.       Goods unassembled or dissembled can be put together by simple fixing device or by riveting or welding.

iii.      Goods do not require complicated process to make final products.

Rule No.2(b)

In case of a mixture or a combination of Goods, the goods are classifiable under the heading of each of its constituents.

Rule No.3

This rule applies only where Rule 2(b) is applicable.

Apply these sub rules in the sequential order:

Rule No.3(a)

Find out which Heading is specific and which Heading is more general. Specific Heading shall be preferred over general Heading.

(e.g. GD – Automobiles SD – 2/3 Wheelers)

Rule No.3(b)

If problem is not resolved by Rule 3(b), Find out which material or component is giving ‘essential character’ to the goods in question. Goods may be classified on the basis of essential characteristics also. Main function of the machinery is important, any additional feature or function will not take it away from the main character.

(Example: Composite article ‘Pen Stand fitted with clock’ will be called ‘pen stand with clock’ and not ‘clock with pen stand’ as original character of ‘pen stand’ continues to prevail.)

Rule No.3 (c) “Latter is Better”

Where multiple classifications are possible, the classification falling later in numerical order shall be adopted.

Rule No.4 Akin Goods (Most closely resembling goods)

Any of the new item emerging during the process of Research & Development are called as Prototypes. And prototypes are exempt from duty.

If any of the new items is produced commercially, for which there is no specific entry under CETA, then such goods are classifiable under the heading of its most akin goods. (e.g. Pharmaceuticals because in these products, contents are copyrights i.e. new combination of contents are new products)

Rule No.5                  Classification of Packing Materials

Specific shape / size Such material is classifiable under the heading of the goods with which those are going to be used.

General Use Such material is classifiable under their respective heading.

Rule No.6  Determination of Sub-Headings

Rule No.1 to 5 shall apply mutis mutandis (as it is) for determination of sub headings.

Classification of Parts & Accessories

A part is an essential component of the whole without which whole cannot function. Accessory is something supplementary or subordinate in nature and need not be essential for actual functioning of the product.

Parts                                                Accessories

Specific Use Classifiable under the heading of the goods with which those are to be used

General Use Classifiable under their respective headings

Fitted Accessories loose their identify

Not Fitted Classifiable under their respective headings

Sec 37 B

Power of Central Board to issue Directions

·         The CB is empowered to issue directions to the CEOs regarding classification of Goods.

·         The directions given shall be general in nature & not for the goods of any particular assessee.

·         The CEOs are bound by any such direction issued by the CB.

·         Where an assessee finds that any such direction is against his interest, he can challenge the validity of such a direction in the court.

Market Parlance Theory

Since the primary objective of the Excise Act is to raise revenue, resort should not be had, for the purpose of classification, to the scientific and technical meaning of the terms & expressions used therein, but to their popular meaning, that is to say, the meaning assigned to that by those trading & using the product.

·         If the specific heading & notes do not cover the excisable goods then resort must be had to the Commercial or Trade Understanding of the Goods.

·         Rules of interpretation given under the Act will be preferred over Trade parlance.

·         Example: Carbon Paper is not understood as paper and hence it cannot be classified as ‘paper’.

·         Of course, this principal will not apply if the wording in the tariff or the Chapter/section notes is clear and it specifies that the word has to be understood in a particular sense only.

HSN

·         Schedule 1 is based on the Harmonized system of nomenclature (HSN) given by WTO under GATT.

·         The objective of HSN is to bring the uniformity of classification of the goods in all the countries who are members of the GATT.

·         Certain notes have been incorporated in the HSN for any explanation or for expanding the scope of coverage. Majority of such notes have already been adopted in the Schedule 1 but certain notes have been left out.

·         The notes included in the Schedule are referred as Section / chapter notes of CETA and the notes which are not so included are referred as HSN Notes.

·         Section / Chapter Notes are given at the beginning of each section / chapter, which govern the entries in that section / chapter.

·         HSN notes do not have legal value since they have not been adopted.

Relevance of End Use in the Classification

The process of manufacture and the end use to which it is put, cannot necessarily be determinative of classification of that product under Central Excise Tariff. What is more important is whether the broad description of the articles fits in with the expression used in the tariff.

Bhushan Steels And Strips Ltd. 2010	S.C.	The side slittings, end cuttings of HR/CR coil and others will be classifiable under Heading 72.16 of the Schedule to the Tariff Act being offcuts of different shapes and sizes.
N.I. Systems (India) P. Ltd. 2010	S.C.	PXI Controllers, I.O. Modules and Chassis were rightly classified under Chapter 90 as parts and accessories of Automatic Regulating or Controlling Instruments and Apparatus in terms of CTH 9032.90.00.
L.M.L. LTD. 2010	S.C.	CD ROMs containing images of drawings and designs of engineering goods classified the same under heading 8524.39 (Recorded CD ROMs, liable to duty).

1.     IMP.   CASE LAWS

1.      Pleasantime Products v. CCE 2009 (243) E.L.T. 641 (S.C.)

(REFER MY BLOG FOR DETAILED STUDY OF IMP. CASE LAWS.) www.drmaheshgour.blogspot.com