COMMISSIONER OF CENTRAL EXCISE, DELHI-III versus M/S. UNI PRODUCTS INDIA LTD.
[2020] 13 S.C.R. 295, Supreme Court of India, 2020
Outcome: Dismissed (Dismissed)
Segment: Ratio
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COMMISSIONER OF CENTRAL EXCISE, DELHI-III
v.
M/S. UNI PRODUCTS INDIA LTD.
(C. A. Nos. 302-303 of 2009)
MAY 01, 2020
[DEEPAK GUPTA AND ANIRUDDHA BOSE, JJ.]
Central Excise Tariff Act, 1985 – First Schedule- Chapters
57, 87 – Car mats to be classified under chapter-heading 57.03 or
87.08 – Respondent-assessee was engaged in business of
manufacture of textile floor coverings and car matting – Cleared
goods against Heading No. 570390.90 which inter alia had excise
duty @ 8% as compared to 16% if classified under heading
8708.99.00 – Three show-cause notices issued over such clearance
of goods – Commissioner held car mattings to be parts and
accessories classifiable under Chapter 87.08 – Tribunal decided
in favour of respondent – On appeal, held: Chapter 87 does not
contain car mats as an independent tariff entry – Though in common
parlance the products involved may not be considered as carpets,
in view of the wordings of the chapter, section notes, chapter notes
and explanatory notes, the goods were classifiable under chapter
heading 570390.90 – Subject-item does not satisfy the third
condition specified in Section XVII of the Explanatory Notes in
relation to “III-Parts and Accessories” – Subject-goods come under
the chapter-heading 570390.90 – Impugned decision sustained.
Dismissing the appeals, the Court
HELD: 1.1 Reference has been made to “Harmonized
Commodity Description and Coding System”, Explanatory Notes
issued by the World
Customs Organisation (2002). These Notes,
termed HSN Explanatory Notes have been referred to by both
the parties. Strong persuasive value of these Explanatory Notes
has been recognised by this Court. General Rules for the
Interpretation of the Harmonized System lay down the Principles
of Interpretation for classification of Goods in the Nomenclature.
Clause 3 (a) of the General Rules For the Interpretation of First
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Schedule to the Central Tariff Act, 1985 in cases where
possibilities arise of a single item being classified under more
than one head corresponds to the said Rule 3(a) of the Explanatory
Notes. Section Note 2 of Section XVII of Central Excise
Tariff excludes eleven sets of items from being treated as parts
and accessories. There is reference to “PARTS AND
ACCESSORIES” under the main heading “GENERAL”, in
Section XVII of the HSN Explanatory Notes, 2002. Under the
sub-heading “(iii) PARTS AND ACESSORIES”, a three-layer test
has been postulated. It is on satisfying all of these conditions a
particular item would come under that chapter head. The
Explanatory Notes dealing with parts and accessories under
chapter-head 87.08 includes floor mats (other than of textile
materials or unhardened vulcanised rubber). Chapter Notes to
Chapter 57 of the HSN Explanatory Notes, relating to carpets
and Other Textile Floor Coverings are relevant for effective
adjudication of these two appeals. The said instrument, i.e. HSN
Explanatory Notes deal with four entries against tariff item
no.5703. [Para 6-9, 15 and 16][304-B-C, D, F-G; 305-C, E; 310-
C-H]
CCE v. Wood Craft Products Ltd. (1995) 3 SCC 454 :
[1995]  2  SCR  797; Collector of Central Excise vs.
Bakelite Hylam [1997 (91) E.L.T. 13 (S.C.); Collector
of Customs v. BusinessForms Ltd. (2005) 7 SCC 143;
Holostick India Ltd. v.Commissioner of Central Excise
(2015) 7 SCC 401 : [2015] 4
SCR 576 – relied on.
1.2 “The common parlance test”, “marketability test”,
“popular meaning test” are all tools for interpretation to arrive
at a decision on proper classification of a tariff entry. These tests,
however, would be required to be applied if a particular tariff entry
is capable of being classified in more than one heads. So far as
subject-dispute is concerned, this Court has already referred to
Chapter note 1 of Chapter 57. This note stipulates that carpets
and other floor coverings would mean floor coverings in which
textile materials serve as the exposed surface of the Article when
in use. This feature of the car mats has not really been rejected
by the revenue authorities as untrue in the order of the
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COMMISSIONER OF CENTRAL EXCISE, DELHI-III v.
M/S. UNI PRODUCTS INDIA LTD.
Commissioner, before whom assertion to that effect was made
by the respondent. Core issue in these appeals is as to whether
car mats come under chapter-heading 57.03 or not. In the second
appeal, the numerical representation of the product, as claimed
by the assessee, was different but that difference is not of much
significance. Revenue’s case is that the goods are manufactured
in such a way that these can be used as accessories of cars. The
Tribunal found that though in common parlance the products
involved may not be considered as carpets, in view of the wordings
of the chapter, section notes, chapter notes and explanatory notes,
the goods were classifiable under chapter heading 570390.90.
[Paras 23, 24][315-H; 316-A-D]
1.3. This Court does not find any error in such reasoning.
Chapter 87 of the Central Excise Tariff of India does not contain
car mats as an independent tariff entry. The various parts and
accessories listed against tariff entry 8708 have been reproduced
earlier. All of them are mechanical components, and revenue want
car mats to be included under the residuary sub-head “other” in
the same list. The HSN Explanatory Notes dealing with
interpretation of the rules specifically exclude “tufted textile
carpets, identifiable for use in motor cars” from 87.08 and place
them under heading 57.03. Revenue’s argument is that the
Explanatory Notes have persuasive value only.
But the level or
quality of such persuasive value is very strong, as observed in
the judgments of this Court. Moreover, the Commissioner himself
has referred to the Explanatory Notes in the order-in- original
while dealing with the respondent’s stand. Thus, there is no
reason as to why a departure should be made from the general
trend of taking assistance of these Explanatory Notes to resolve
entry related dispute. Now, on referring to these Explanatory
Notes, it is found that one category of carpets [Textile carpets
(Chapter 57)] has been excluded specifically from parts and
accessories. The subject-item does not satisfy the third condition
specified in Section XVII of the Explanatory Notes in relation to
“III-Parts and Accessories”. A plain reading of clause (C) thereof
excludes “textile carpets” (Chapter 57). The main argument of
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the appellant is that because the car mats are made specifically
for cars and are used also in cars, they should be identified as
parts and accessories. But by that logic, textile carpets could not
have been excluded from Parts and Accessories. Such exclusion
has been referred to in the preceding paragraph. It has also been
urged on behalf of the revenue that these items are not commonly
identified as carpets but are different products. The Tribunal on
detailed analysis on various entries, Rules and Notes have found
they fit the description of goods under chapter heading 570390.90.
This finding of the Tribunal is accepted. Once the subject goods
are found to come within the ambit of that sub-heading, for the
sole reason that they are exclusively made for cars and not for
“home use” (in broad terms), those goods cannot be transplanted
to the residual entry against the heading 8708. As the Court finds
the subject-goods come under the chapter-heading 570390.90,
and the other entry under the same Chapter forming the subject
of dispute in the second order of the Commissioner there is no
necessity to import the “common parlance” test or any other
similar device of construction for identifying the position of these
goods against the relevant tariff entries. The impugned decision
of the Tribunal is sustained. [Paras 25-27][316-E-H; 317-A-E]
Plasmac Machine Manufacturing Co. Pvt. Ltd. v.
Collector of Central Excise, Bombay
1991 Supp. (1)
SCC 57 : [1990] 3 Suppl. SCR 384 ; Dabur India Ltd.
v. Commissioner of Central Excise, Jamshedpur (2005)
4 SCC 9 : [2005] 3 SCR 144; A.P. State Electricity
Board v. Collector of Central Excise, Hyderabad (1994)
2 SCC 428 : [1994] 1 SCR 499; Commissioner of
Central Excise v. Wockhardt Life Sciences Limited
(2012) 5 SCC 585 – relied on.
Collector of Central Excise, Bombay-II v. Sterling India
(2000) 115 ELT 807; Collector of Central Excise v.
Swaraj Mazda (1993) 68 ELT 258; Jyoti Carpet
Industries v. Commissioner of Central Excise, Jaipur-I
(2001) 132 ELT 458 – referred to.
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Case Law Reference
[1995] 2 SCR 797
relied on
Para 6
1997 (91) E.L.T. 13 (S.C.)
relied on
Para 6
(2005) 7 SCC 143
relied on
Para 6
[2015] 4 SCR 576
relied on
Para 6
[1990] 3 Suppl. SCR 384
relied on
Para 20
[2005] 3 SCR 144
relied on
Para 20
[1994] 1 SCR 499
relied on
Para 21
(2012) 5 SCC 585
relied on
Para 22
CIVIL APPELLATE JURISDICTION : Civil Appeal No.  302-
303 OF 2009
From the Judgment and Order dated 16.07.2008 by the Customs,
Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi
in Excise Appeal Nos. 94 and 3226 of 2007.
A.K. Srivastava, H. Raghavendra Rao, S.A. Haseeb, Ms.
Saudamini Sharma, B. Krishna Prasad, V. Lakshmikumaran, Aaditya
Bhattacharya, Ms. Ishita Mathur, Ms. Apeksha Mehta, Ms. Mounica
Kasturi, and Ms. Charanya Lakshmikumaran, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
ANIRUDDHA BOSE, J.
These two appeals against the decision of the Customs Excise &
Service Tax Appellate Tribunal (CESTAT) rendered on 16th July, 2008
require adjudication on the question as to whether “car matting” would
come within Chapter 57 of the First Schedule to the Central Excise
Tariff Act, 1985 under the heading “Carpets and Other Textile Floor
Coverings” or they would be classified under Chapter 87 thereof, which
relates to “Vehicles other than Railway or Tramway Rolling-Stock and
Parts and Accessories Thereof”. The appeals are against a common
decision and we shall also deal with both these appeals together
in this
judgment. The respondent-assessee want their goods to be placed under
Chapter heading 5703.90. We shall refer to the specific entries against
this item later in the judgment. The respondent, at the material point of
COMMISSIONER OF CENTRAL EXCISE, DELHI-III v.
M/S. UNI PRODUCTS INDIA LTD.
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time were engaged in the business of manufacture of textile floor
coverings and car matting. The subject-goods have been referred to
interchangeably by the revenue also as car mattings and car carpets.
The respondent, at the material time, were clearing the goods declaring
them to be goods against Heading No.570390.90. Effective rate of excise
duty on goods under that entry was 8% and education cess at the
applicable rate for the subject period. We find this rate of duty, inter-alia,
from the order of the Commissioner dealing with the first and the second
show-cause notices. The rate of basic excise duty would have been
16% apart from education cess if these goods were classified against
goods specified in heading no.8708.99.00. Altogether three show-cause-
notices were issued against the respondent over clearance of goods
under the said heading. These notices required them to answer as to
why they should not be charged the differential rate of duty and interest.
We would like to point out here that in the show-cause notices, the
respective chapter sub-headings have been referred to as 8708.99.00
and 570390.90 and in the order of the Tribunal also, the sub-headings
have been referred to as such. But the authorities themselves in certain
places described the sub-headings in shorter numerical forms, as 5703.90
and 8708.00. We find these minor variations in the paper-book. But this
variation of the sub- headings
represented in numerical form is not of
any significance so  far  as  adjudication  of  these  appeals  are  concerned.
The respondent were also to answer as to why penalty should not be
imposed upon them in terms of Section 38A of the Central Excise Act,
1944 read with Rule 25 of the Rules made thereunder. The first show-
cause notice is dated 9th August, 2005 in regard to clearance of goods
made during the period between 9th July, 2004 and 31st March, 2005.
They had cleared altogether 8,65,777 pieces of those items in different
sizes in that period. The second show-cause notice was issued on 2nd
May, 2006 and related to clearance of 12,02,482 pieces of the same
goods for the period between 1st April, 2005 and 31st January, 2006.
The third show- cause notice is of 7th March, 2007 and the clearance
involved 20,15,412 pieces from 1st February, 2006 to 31st January, 2007.
For the period involved in the third show-cause notice, clearance was
made by the respondent under Chapter sub-heading no.570500.19, which
carried effective rate of duty @8%.
2. By the time the third show-cause notice was issued, the
adjudicating authority of first instance (Commissioner Central Excise,
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Delhi III) had passed the order against the respondent on 29th September,
2006, upon considering their responses to the said two show-cause notices.
In this judgment, we shall mainly refer to this order, while examining the
decision of the Tribunal. The authorities’ stand has been that the subject-
items ought to be classified under sub-heading 8708.99.00. Against chapter
heading 8708, the goods described are “parts and accessories of motor
vehicles of headings 8701 to 8705”. The sub-headings against tariff item
nos.8701 to 8705 refer to five categories of vehicles. These are (i) tractors
(except those falling under 8709), (ii) motor vehicles for the transport of
ten or more persons, including the driver, (iii) motor cars and other motor
vehicles principally designed for the transport of persons (other than
those of heading 8702) including station wagons and racing cars (iv)
motor vehicles for transport of goods (v) special purpose motor vehicles,
other than those principally designed for the transport of persons or goods.
The description of goods in Chapter 87 of the Central Excise Tariff of
India (2004-05) in the eight digit format list the tariff-items of chapter
8708 have been depicted in the following manner:-
COMMISSIONER OF CENTRAL EXCISE, DELHI-III v.
M/S. UNI PRODUCTS INDIA LTD. [ANIRUDDHA BOSE, J.]
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3. As would be evident from the above-referred table, there are
total seventeen items under the said sub-heading of tariff-item specified
as parts and accessories (including those referred to as “other”) and the
item against which the excise authorities want the car mattings to be
treated is in the nature of a residuary item, referred to in that table as
“other”. On the other hand, the relevant parts of Chapter 57 of Central
Excise Tariff of India, 2004-2005 stipulates:-
“Notes:
1. For the purposes of this Chapter, the term ‘carpets and other
textile floor coverings’ means floor coverings in which textile
materials serve as the exposed surface of the article when in use
and includes article having the characteristics of textile floor
coverings but intended for use for other purposes.
Heading No.
Sub-heading|No.
Description of goods
(1)
(2)
(3)
 57.01
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xx
 57.02
Carpets    and other textile floor
coverings (other than those of
heading No. 57.01), knotted,
woven, tufted, or flocked,
whether or not made up.
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In or in relation to the manufacture
of which any process is ordinarily
carried on with the aid of machines:
5702.11
Of coconut fibres
(coir)
5702.12
Of jute
5702.19
Other
5702.90
Other
 57.03
Other carpets and other textile
floor coverings, whether or not
made up
5703.10
Of coconut fibres
(coir)
5703.20
Of jute
5703.90
Other”
4. Before the authority of first instance (Commissioner, Central
Excise, Delhi-III, Gurgaon), the respondent explained their manufacturing
process in course of hearing on the first two show- cause notices. This
is recorded in the order of the Commissioner passed on 29th September,
2006. We reproduce below that part from the said order:-
“…….Depending upon the variety of Moulded Car Carpets, the
fibre i.e. polyester/polypropylene is fed in opening and blending
equipment’s, from where it is transported to carding equipment’s.
After carding, the same is put for Needle punching. After needle
punching, the fabric is then chemically treated in order to provide
strength to the carpet fabric as per customer requirement. After
chemical binding, the fabric is laminated as per customer
requirement.  The  laminated fabric/impregnated fabric is then
moulded as per the requirement and trimmed to be fixed in the
vehicle. After trimming the Namda felt is fixed on the back of the
carpet as per requirement. Thereafter, the child parts as well as
grippers are fixed wherever required. The resultant product is the
moulded car carpets which was
classified under sub-heading
5703.90.”
(quoted from the order of the Commissioner)
COMMISSIONER OF CENTRAL EXCISE, DELHI-III v.
M/S. UNI PRODUCTS INDIA LTD. [ANIRUDDHA BOSE, J.]
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5. The respondent’s argument that the Chapter heading 5703.90
covered carpets and other textile floor coverings and they were
manufacturing those items only was rejected by the Commissioner. This
plea, however, was subsequently accepted by the Tribunal.
6. Reference has been made before us to “Harmonized
Commodity Description and Coding System”, Explanatory Notes
issued by the World Customs Organisation (2002). These Notes, termed
HSN Explanatory Notes have been referred to by the learned Counsel
for both the parties. Strong persuasive value of these Explanatory Notes
has been recognised by this Court in the cases of CCE vs. Wood Craft
Products Ltd. [(1995) 3 SCC 454], Collector of Central Excise vs.
Bakelite Hylam [1997 (91) E.L.T. 13 (S.C.)], Collector of Customs
vs. Business Forms Ltd. [(2005) 7 SCC 143] and Holostick India
Ltd. vs. Commissioner of Central Excise [(2015) 7 SCC 401].
General Rules for the Interpretation of the Harmonized System lay down
the Principles of Interpretation for classification of Goods in the
Nomenclature. Rule 3(a) thereof provides:-
“Rule 3(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 put up for
retail 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.”
Clause 3 (a) of the General Rules For the Interpretation of
First Schedule to the Central Tariff Act, 1985 in cases where possibilities
arise of a single item being classified under more than one head
corresponds to the said Rule 3(a) of the Explanatory Notes.
The Explanatory Note IV (b) to this Rule i.e. 3 (a), of the Rules
for Interpretation of the HSN Explanatory Notes specifies:-
“(iv) It is not practicable to lay down hard and fast rules by which
to determine whether one heading more specifically describes
the goods than another, but in general it may be said that:-
(a)
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(b)
If the goods answer to a description which more clearly
identifies them, that description is more specific than one
where identification is less complete.
Examples of the latter category of goods are:
(1) Tufted textile carpets, identifiable for use in motor cars,
which are to be classified not as accessories of motor cars in
heading 87.08 but in heading 57.03, where they are more
specifically described as carpets.
(2) ………”
7. Section Note 2 of Section XVII of Central Excise Tariff excludes
eleven sets of items from being treated as parts and accessories. Section
Note 3 further provides:-
“3. Refences in Chapters 86 to 88 to “parts” or “accessories” do
not apply to parts or accessories which are not suitable for use
solely or principally with the articles of those Chapters. A part or
accessory which answers to a description in two or more of the
headings of those Chapters is to be classified under that heading
which corresponds to the principal use of that part or accessory.”
8. There is reference to “PARTS AND ACCESSORIES” under
the main heading “GENERAL”, in Section XVII of the HSN Explanatory
Notes, 2002. Under the sub-heading “(iii) PARTS AND ACESSORIES”,
a three-layer test has been postulated. It is on satisfying all of these
conditions a particular item would come under that chapter head. The
sub-head III reads:-
“(III) PARTS AND ACCESSORIES
It should be noted that Chapter 89 makes no provision for parts
(other than hulls) or accessories of
ships, boats or floating
structures. Such parts and accessories, even if identifiable as being
for ships, etc., are therefore classified in other Chapters in their
respective headings. The other Chapters of this Section each
provide for the classification of parts and accessories of the
vehicles, aircraft or equipment concerned.
It should, however, be noted that these headings apply only to
those parts or accessories which comply with all three of the
following conditions:
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(a)
They must not be excluded by the terms of Note 2 to
this Section (see paragraph (A) below).
and
(b)
They must be suitable for use solely or principally
with the articles of Chapters 86 to 88 (see paragraph
(B) below).
and
(c)
They must not be more specifically included
elsewhere in the Nomenclature (see paragraph (C)
below).”
9. Paragraph (B) and relevant extract from Paragraph (C) to the
same document stipulates: -
“(B)   Criterion of sole or principle use.
(1)Parts and accessories classifiable both in Section XVII
and in another Section.
Under Section Note 3, parts and accessories which are not
suitable for use solely or principally with the articles of
Chapters 86 to 88 are excluded from those Chapters.
The effect of Note 3 is therefore that when a part or
accessory can fall in one or more other Sections as well as
in Section XVII, its final classification is determined but its
principal use. Thus the steering gear, braking systems,
road wheels, mudguards, etc., used on many of the mobile
machines falling in Chapter 84, are virtually identical with
those used on the lorries of Chapter 87, and since their
principal use is with lorries, such parts and accessories are
classified in this Section.
(2) Parts and accessories classifiable in two or more
headings of the Section.
Certain parts and accessories are suitable for use on more
thanone type of vehicle (motor cars, aircraft, motorcycles,
etc.); examples of such
goods include brakes, steering
systems, wheels, axles, etc. Such parts and accessories are
to be classified in the heading relating to the parts and
accessories of the vehicles with which they are principally
used.
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(C) Parts and accessories covered more specifically
elsewhere in the Nomenclature –
Parts and accessories, even if identifiable as for the
articles of this Section, are excluded if they are
covered more specifically by another heading
elsewhere in the Nomenclature, e.g: -
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xx   xx
xx   xx
(7) Textile carpets (Chapter 57)
xx   xx
xx   xx”
Moreover, the Explanatory Notes dealing with parts and
accessories under chapter-head 87.08 includes floor mats (other than of
textile materials or unhardened vulcanised rubber).
10. The Commissioner found that car mattings satisfied all the
tests enumerated in the said explanatory notes of HSN to be treated as
parts and accessories classifiable under Chapter 87.08.
11. One of the reasons for such finding was that the car mattings
were suitable for use solely or principally with the vehicle and that were
not excluded by provisions of Notes to Section XVII. Then he applied
the “market test”, and concluded that if anybody asked for car matting
in the market, the consumer would get a product which could only be
used in a car, with fixed length and width. In his order, the Commissioner
found that what was excluded was textile carpets of Chapter 57 and not
car mattings.
12. The Commissioner, thus, did not accept the assessee’s stand
and observed:-
“(A) what is excluded are the Textile carpets of Chapter 57 and
not car mattings. One can only safely infer of exclusion of car
matting in the list, provided, if it is
established that “car mattings”
are nothing but ordinary textile carpets of Chapter 57. But as has
been already discussed supra car mattings are commercially
known differently in the market than ordinary textile carpets of
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Chapter 57. From the point of view of its manufacturing process
these are entirely different from ordinary carpets. My discussion
and logic given in para 18.7.1 clearly indicates that, the “car
mattings” are different products. Board’s Circular No.117/28/05-
CX dt. 17.4.95 clearly states car mattings different product all
together.
The observations advanced in the judgments of Hon’ble Tribunal
in the cases of Sterling India (2000(115) ELT-807-Trib., Jyoti
Carpet Industries (2001  (132)  ELT-458-Trib-Delhi), Swaraj Majda
(1993 (68 ELT 258 Trib) clearly indicates that “car mattings” are
entirely different than ordinary textile carpets of Chapter 57 (All
these judgments are discussed in latter paras)
B-1 The HSN Clarificatory Notes on Chapter 57 (page 783 of
HSN Clarificatory Notes Volume-II) states the following category
of products are classifiable under Chapter 57:
“The above products are classified in this chapter whether
made-up (i.e. made directly to size, hemmed, lined, fringed,
assembled etc.) in the form of carpet squares, beside rugs,
hearth rugs, or in the form of carpets for installation in rooms,
corridors, passages or stairs, in the lengths for cutting and
making up. They may also be impregnated (i.e. with latex) or
packed with woven or non-woven fabrics or with cellular rubber
or plastics.”
B-2 From the above notes it is clear that not only the carpets in
running length, but also made ups (i.e. made
directly to size,
hemmed, lined, fringed assembled etc.) in the form of carpet
squares, or in the form of carpet installation in rooms, corridors,
passages or stairs are required to be classified under Chapter 57.
B-3 From the above explanation, it is seen that, carpets covered
under Chapter 57 are simple carpets in running length may be
made up directly to size, hemmed, lined, fringed, assembled etc.
in the form of carpet squares, or in the form of carpet installation
in rooms, corridors, passages or stairs and not certainly covers
car mattings which undergo further processing like moulding,
chemical treatment to provide strength to the carpet fabric as per
customer requirement, lamination as per customers requirements,
and trimming for fixing in the vehicle with NamdA fixing on the
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back. The car mattings although is of textile carpet  origin  are
not  ordinary  carpets  as explained in the Explanatory Notes of
HSN for Chapter 57 and certainly not covered under Chapter 57.
When car mattings are not by definition covered under Chapter
57 (as explained above taking reference of the clarificatory notes
of HSN) those are not excluded from para-C of HSN General
Explanatory Notes on Section XVII referring to parts and
accessories Part-III para (c) (Sl.No.7) (page 1412 of HSN
Explanatory Notes Vol.4).
Thus “car mattings” satisfies the test 2-C.
18.7. From the above discussion it is clear that “car matting”
satisfies all the tests enumerated in the explanatory notes of HSN
for Chapter XVII, to be treated as a part and accessory classifiable
under chapter 87.08 of motor vehicles of Chapter 87.05- 87.07.”
13. The other order of Commissioner in connection with the third
show-cause notice was passed on 5th January, 2007. The reasoning and
conclusion of this order was in the same line with the order passed on
29th September, 2006. Thus, in both the orders the Commissioner
sustained the directions for payment rejecting the reply of the assessee
and the orders charged on the respondent duty differential and interest
and also imposed penalty.
14. The two appeals of the respondent before the Tribunal were
decided in their favour by a composite decision. This decision is assailed
before us by the revenue authorities in these two appeals. The Tribunal
observed and held:-
“5.3 We find that chapter 57 covers not only carpets but also
other floor coverings. What has to be considered is that between
the terms ‘carpets and other floor coverings’ the terms ‘parts and
accessories’ which can be considered more specific. Even if the
claim of the Department that at no stage the carpets come into
existence is accepted, it cannot be denied that the article can be
considered as other floor coverings meant for other application.
We also find that in the interpretative notes for rule 3(a) in HSN,
where by way of an example, it has been clarified that “textile
carpet identifiable for use in motor cars to be classified not as
accessories of motor cars in heading 8708 but in heading 5703
where they are more specifically described as carpets”. Though,
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in common parlance the impugned product may not be considered
as carpets, in view of the wordings of the chapter, the section
notes, chapter notes and the explanatory notes extracted above
we are of the considered opinion that the impugned goods is
correctly classifiable under chapter heading 570390.90 as claimed
by the assessee.”
6. The orders of commissioner are set aside and the appeals are
allowed with consequential relief.”
15. Chapter Notes to Chapter 57 of the HSN Explanatory Notes,
relating to carpets and Other Textile Floor Coverings are relevant for
effective adjudication of these two appeals. The said Chapter Notes
read:-
“Chapter Notes.
1.- For the purposes of this Chapter, the term “carpets and other
textile floor coverings” means floor coverings in which textile
materials serve as the exposed surface of the article when in use
and includes articles having the characteristics of textile floor
coverings but intended for use for other purposes.
2. This Chapter does not cover floor covering underlays.
GENERAL
This Chapter covers carpets and other textile floor coverings in
which textile materials serve as the exposed surface of the article
when in use. It includes articles having the characteristics of textile
floor coverings (e.g., thickness, stiffness and strength) but intended
for use for other purposes (for example, as wall hangings or table
covers or for other furnishing purposes).
The above products
are classified in this Chapter whether made
up (i.e., made directly to size, hemmed, lined, fringed, assembled,
etc.), in the form of carpet squares, bedside rugs, hearth rugs, or
in the form of carpeting for installation in rooms, corridors, passages
or stairs, in the length for cutting and making up.
They may also be impregnated (e.g., with latex) or backed with
woven or nonwoven fabrics or with cellular rubber or plastics.”
16. The said instrument, i.e. HSN Explanatory Notes deal with
four entries against tariff item no.5703 in following terms:-
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“57.03 – CARPETS AND OTHER TEXTILE FLOOR
COVERINGS, TUFTED, WHETHER OR NOT MADE UP.
5703.10
- Of wool or fine animal hair
5703.20
- Of nylon or other polyamides
5703.30
- Of other man-made textile materials
5703.90
- Of other textile materials
This heading covers tufted carpets and other tufted textile floor
coverings produced on tufting machines which, by means of a
system of needles and hooks, insert textile yarn into a pre-existing
backing (usually a woven fabric or a nonwoven) thus producing
loops, or, if the needles and hooks are combined with a cutting
device, tufts. The yarns forming the pile are then normally fixed
by a coating of rubber or plastics. Usually before the coating is
allowed to dry it is either covered by a secondary backing of
loosely woven textile material, e.g., jute, or by foamed rubber.
Products of this heading are distinguished from the tufted textile
fabrics of heading 58.02 by, for example, their stiffness, thickness
and strength, which render them suitable for use as floor
coverings.”
17. Learned counsel for the revenue has argued, referring to three
earlier orders of the Customs Excise and Gold (Control) Appellate
Tribunal (CEGAT-the predecessor of CESTAT) and has also relied on a
circular issued by the excise authorities dated 17th April, 1995. The said
circular (bearing no.117/28/95-CX) specifies:-
“Car Mattings made from non-woven materials in roll form
– Dutiability of Circular No.117/28/95-CX, dated 17-4-1995
[From
F.No.57/1/94-CX.1]
Government of India
Ministry of Finance (Department of Revenue) New Delhi
Subject: Dutiability of Car Mattings made from non-woven
materials in roll form – Regarding
I  am  directed  to  refer  to  Board’s <<15391$Circular No.5/
Floor- Coverings/87>> (F. No.57/1/87-CX.1), dated 23-6-1987
wherein it was clarified that duty liability would not be attracted
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on car mattings made from duty paid non-woven material in roll
form. It has been brought to the notice of the Board that this
position may not hold good after extension of Modvat to these
items.
2. The matter has been re-examined by the Board. The Board is
of the view that there are two clear stages i.e. non-woven material
emerging as excisable and dutiable goods in roll form and finally
car mattings emerging as different final products. Duty has to be
charged at both stages as the processes of conversion of non-
woven material in roll form into car mattings involves the processes
of cutting, stitching, sizing etc., and both products are known
differently in the market.
3. It is, therefore, clarified that appropriate Central Excise Duty is
payable on floor coverings in the form of non-woven material in
rolls when cleared from the factory, as well as, on the car mattings
subsequently manufactured out of duty paid floor coverings in the
form of non-woven material in rolls.
4. The Board’s earlier <<15391$Circular No.5/Floor Coverings/
87>> (F. No.57/1/87-CX.1) dated 23-6-1987 may be treated as
withdrawn and assessments may be finalized in terms of the
revised instructions.”
This circular deals with a situation in which non-woven materials
in roll form which were excisable goods, emerged as a different product
when the former is transformed as car matting upon application of certain
process. For this reason, it was
stipulated, that duty would be leviable at
two stages. But in these two appeals, we are to determine as to whether
car mattings came within the aforesaid tariff under Chapter 57. These
appeals do not raise the question as to whether car mattings themselves
would be subjected to excise duty or not. The question here is under
which tariff-head the duty should be paid. The aforesaid circular does
not assist the revenue in the subject appeals.
18. In the three Tribunal decisions cited on behalf of revenue
authorities, such car mattings were treated as parts and accessories of
motor cars. The first case cited is that of Collector of Central Excise,
Bombay-II vs. Sterling India [(2000) 115 ELT 807]. This was a decision
of CEGAT, New Delhi. Before the Tribunal in this case, the assessee
went unrepresented. The goods involved were canvas canopy, floor
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mattings and seat covers. The Tribunal upheld the Collector’s order that
the said articles were not classifiable as floor coverings under sub-heading
No.5702.90 of the Tariff and those were to be classified under Heading
No. 8708.00. The order of the Tribunal does not contain any analysis or
reasoning and reads: -
“3. We have gone through the facts on record. We find that both
the Asstt. Collector of Central Excise, Bombay, who had
adjudicated the matter and the Collector of Central Excise
(Appeals), Bombay, had held that the goods in dispute were not
the carpets and floor mattings but were accessories of motor
vehicles. The goods in dispute are canvas canopy, floor matting
and seat covers for motor vehicles. Floor matting was made from
jute coated with PVC. Other items also were not used as floor
coverings. The Collector of Central Excise (Appeals) has also
referred to the HSN Explanatory Notes and the relevant Chapter
Notes to arrive at his conclusion that the type of the goods involved
in these proceedings were not to be classifiable as floor coverings.”
19. The next case is that of Collector of Central Excise vs.
Swaraj Mazda [(1993) 68 ELT 258]. This is also a decision of CEGAT.
This case relates to availability of Modvat credit on floor mats for motor
vehicles. In this case floor mats had been cleared on payment of duty
under sub-heading No.8708, which covered parts and accessories of
motor vehicles of heading 87.01 to 87.05. Applicability of that
entry was
not in lis in that appeal. The Tribunal found that floor mats could be an
item entering into the stream of completion of the manufactured product
rendering it fit for marketing. On that ground input credit under the
Modvat provisions was allowed. The third case, which was cited on
behalf of the revenue was that of Jyoti Carpet Industries vs.
Commissioner of Central Excise, Jaipur-I [(2001) 132 ELT 458]
decided by the CEGAT. This was a case where the manufacturer
classified textile floor covering of jute as product under sub-heading
5703.20 in the relevant years. The assessee in this case had been
procuring raw-materials from different manufacturers and out of such
materials, they had been producing car mattings and other mattings as
well, such as bath mats, telephone mats, floor foot mats etc. with the aid
of power operated machines. The process of manufacture involved
cutting as per standards, overlocking and stitching etc. Following the
case of Sterling India (supra), it was held that floor mats of cars could
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be classifiable under head No.8708. But again, like in the case of Sterling
India (supra), the Tribunal has not given any reasoning for such
classification in this decision. The Tribunal in these appeals, following
the case of Sterling India (supra) found that the subject-goods were
classifiable under Chapter 8708.
All these three cases have been decided by the Tribunal, which
obviously has no precedent value for us. We however, discussed these
cases only for the purpose of ascertaining as to whether the revenue
authorities had been treating car mats as a subject head under sub-
heading 8708, on proper analysis of competing claim of the assessees to
include them in sub-heading 5703. We do not find so from these decisions
of the Tribunal.
20. There are authorities in which it has been held that the popular
meaning among consumers would be a major factor for interpretation of
dispute relating to classification. This principle has been laid down in the
cases of Plasmac Machine Manufacturing Co. Pvt. Ltd. vs. Collector
of Central Excise, Bombay [1991 Supp.(1) SCC 57] and Dabur India
Ltd. vs. Commissioner of Central Excise, Jamshedpur [(2005) 4
SCC 9]. In the case of Dabur India Ltd (supra), it has been held: -
“9. From the abovementioned authorities, it is clear that in
classifying a product the scientific and technical meaning is not to
be resorted to. The product must be classifiable according to the
popular meaning
attached to it by those using the product. As
stated above, in this case the appellants have shown that all the
ingredients in the product are those which are mentioned in
Ayurvedic textbooks. This by itself may not be sufficient but the
appellants have shown that they have a Drug Controller’s licence
for the product and they have also produced evidence by way of
prescriptions of Ayurvedic doctors, who have prescribed these
for treatment of rickets. As against this, the Revenue has not
made any effort and not produced any evidence that in common
parlance the product is not understood as a medicament.”
21. In the case of A.P. State Electricity Board vs. Collector of
Central Excise, Hyderabad [(1994) 2 SCC 428], the marketability
test has been applied, which is, in a way, a corollary to the “popular
meaning” test. In this case it has been held: -
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“10. It would be evident from the facts and ratio of the above
decisions that the goods in each case were found to be not
marketable. Whether it is refined oil (non- deodorised) concerned
in Delhi Cloth and General Mills or kiln gas in South Bihar
Sugar Mills or aluminium cans with rough uneven surface in
Union Carbide or PVC films in Bhor Industries or hydrolysate
in Ambalal Sarabhai the finding in each case on the basis of the
material before the Court was that the articles in question were
not marketable and were not known to the market as such. The
‘marketability’ is thus essentially a question of fact to be decided
on the facts of each case. There can be no generalisation. The
fact that the goods are not in fact marketed is of no relevance. So
long as the goods are marketable, they are goods for the purposes
of Section 3. It is also not necessary that the goods in question
should be generally available in the market. Even if the goods are
available from only one source or from a specified market, it makes
no difference so long as they are available for purchasers. Now,
in the appeals before us, the fact that in Kerala these poles are
manufactured by independent contractors who sell them to Kerala
State Electricity Board itself shows that such poles do have a
market. Even if there is only one purchaser of these articles, it
must still be said that there is a market for these articles. The
marketability of articles does not depend upon the number of
purchasers nor is the market confined to the territorial limits of
this country. The appellant’s own case before the excise authorities
and the CEGAT was that these poles are manufactured by
independent contractors from whom it purchased them. This plea
itself — though not pressed before us — is adequate to demolish
the case of the appellant. In our opinion, therefore, the conclusion
arrived at by the Tribunal is unobjectionable.”
22. Emphasis on technical meaning has been highlighted in the
case of Commissioner of Central Excise vs. Wockhardt Life
Sciences Limited [(2012) 5 SCC 585] for resolving classification related
disputes of goods. In this case, it has been held that a commodity cannot
be classified in a residuary entry if there is a specific entry, even if the
specific entry requires the product to be understood in a technical sense.
23. “The common parlance test”, “marketability test”, “popular
meaning test” are all tools for interpretation to arrive at a decision on
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proper classification of a tariff entry. These tests, however, would be
required to be applied if a particular tariff entry is capable of being
classified in more than one heads. So far as subject-dispute is concerned,
we have already referred to Chapter note 1 of Chapter 57. This note
stipulates that carpets and other floor coverings would mean floor
coverings in which textile materials serve as the exposed surface of the
Article when in use. This feature of the car mats has not really been
rejected by the revenue authorities as untrue in the order of the
Commissioner, before whom assertion to that effect was made by the
respondent.
24. The core issue in these appeals is as to whether car mats
come under chapter-heading 57.03 or not. In the second appeal, the
numerical representation of the product, as claimed by the assessee,
was different but that difference is not of much significance. Revenue’s
case is that the goods are manufactured in such a way that these can be
used as accessories of cars. The Tribunal found that though in common
parlance the products involved may not be considered as carpets, in
view of the wordings of the chapter, section notes, chapter notes and
explanatory notes, the goods were classifiable under chapter heading
570390.90.
25. We do not find any error in such reasoning. Chapter 87 of the
Central Excise Tariff of India does not contain car mats as an independent
tariff entry. We have
reproduced earlier the various parts and accessories
listed against tariff entry 8708. All of them are mechanical components,
and revenue want car mats to be included under the residuary sub-head
“other” in the same list. The HSN Explanatory Notes dealing with
interpretation of the rules specifically exclude “tufted textile carpets,
identifiable for use in motor cars” from 87.08 and place them under
heading 57.03. Revenue’s argument is that the Explanatory Notes have
persuasive value only. But the level or quality of such persuasive value
is very strong, as observed in the judgments of this Court to which we
have already referred. Moreover, the Commissioner himself has referred
to the Explanatory Notes in the order-in- original while dealing with the
respondent’s stand. Thus, we see no reason as to why we should make
a departure from the general trend of taking assistance of these
Explanatory Notes to resolve entry related dispute. Now, on referring to
these Explanatory Notes, we find that one category of carpets [Textile
carpets (Chapter 57)] has been excluded specifically from parts and
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accessories. In our opinion, the subject-item does not satisfy the third
condition specified in Section XVII of the Explanatory Notes in relation
to “III-Parts and Accessories”. A plain reading of clause (C) thereof,
which we have quoted above, excludes “textile carpets” (Chapter 57).
26. The main argument of the appellant is that because the car
mats are made specifically for cars and are used also in cars, they should
be identified as parts and accessories. But if we go by that logic, textile
carpets could not have been excluded from Parts and Accessories. We
have referred to such exclusion in the preceding paragraph. It has also
been urged on behalf of the revenue that these items are not commonly
identified as carpets but are different products. The Tribunal on detailed
analysis on various entries, Rules and Notes have found they fit the
description of goods under chapter heading 570390.90. We accept this
finding of the Tribunal. Once the subject goods are found to come within
the ambit of that sub-heading, for the sole reason that they are exclusively
made for cars and not for “home use” (in broad terms), those goods
cannot be transplanted to the residual entry against the heading 8708.
As we find the subject-goods come under the chapter-heading 570390.90,
and the other entry under the same Chapter forming the subject of dispute
in the second order of the Commissioner, in our opinion, there is no
necessity to import the “common parlance” test or any
other similar
device of construction for identifying the position of these goods against
the relevant tariff entries.
27. For these reasons, we dismiss the appeals. The impugned
decision of the Tribunal is sustained.
28. Any connected applications shall also stand disposed of.
There shall be no order as to costs.
COMMISSIONER OF CENTRAL EXCISE, DELHI-III v.
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Divya Pandey
Appeals dismissed.