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CLASSIFICATION OF GOODS UNDER EXCISE VIS A VIS SALES TAX

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CLASSIFICATION OF GOODS UNDEREXCISE VIS-A-VIS SALES TAX

Prem T. ChhatparChartered Accountant

INTRODUCTION

Classification of goods under any statute has always been a subject matter of heated debate anddiscussion over the years. The task at hand is all the more difficult as it involves a comparativeanalysis of two equally complex statutes. The complexities under the Excise Act were initiallyimported into Sales tax laws with the definition of Fabrics/Sugar/Tobacco in Sch. A–15 and off latewhile notifying certain inputs and packing material with effect from 15-8-2000 as being entitled toconcessional rate of tax at 4% under Sch. Entry C-I-29. Further, certain information technologyproducts have also been notified for concessional rate of tax (Notfn. entry A-131) and that Notificationalso requires the classification to be done on the basis of Central Excise tariff entries. Theclassification under the proposed VAT regime would also be with reference to the CET ostensiblywith a view to bring homogeneity and harmony in classification across all states.

The importance of Classification of goods under the Excise law has diminished due to reduction inthe slab rates and the fact that full CENVAT credit is available. However, its ramifications under Salestax laws are important because of the high difference in rates and full set off not being available.Under the circumstances, it has become essential to gain exposure to the classification process underExcise laws. This paper may be treated as a humble attempt to highlight the similarities anddifferences in classification of goods under the two Acts and where possible, to resolve thecontradictions and conflicts in classification.

In this paper, it is proposed to deal with the following aspects:

A. Referential legislation –

1. When no reference to another statute is invited, Common parlance meaning would beparamount and reference to an allied Act would not be permitted for interpretation ofthe entry

2. Invoking of definition under one statute to another

3. Reference to a provision of another statute

B. An overview of the Central Excise tariff

1. Layout of Sections and Chapters

2. Process of Classification in Central Excise

3. Structure of the Central Excise Tariff headings/sub-headings.

4. The basis of the Central Excise Tariff — Harmonised System of Nomenclature (HSN)

5. Whether Classification can be changed?

6. Eight digit classification code excise bill introduced

10th Non Residential Refresher Course

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C. Rules of Interpretation of the Central Excise Tariff

D. Some peculiar characteristics of classification under Excise Tariff Act, 1985

a. Classification of “Parts”

b. Special procedure for dispatch of heavy machinery in knocked down condition forreassembly at site – Its Impact on classification, etc. under sales tax.

b. Article how made is relevant

c. End use relevant only in limited cases

d. Waste and scrap

e. Goods should have “marketability”

f. Waste of packing material after emptying of contents is not dutiable

g. Immovables are not ‘goods’

h. Advertisements/Product literature useful but not conclusive in the classification process

i. Onus of classification on the Department

E. SCHEDULE ENTRY C–I–29

1. Notes for interpretation of Notification Entry

2. Notified packing material – 15-8-2000 to 31-3-2001

3. Notified packing materials wef. 1-4-2001 to 9-5-2002

4. Notified packing material wef. 10-5-2002 onwards

5. Important Section Notes and Chapter Notes relating to Notified inputs

6. Case for prospective effect/leniency

F. Principle of Res Judicata – whether applicable?

G. Implication of classification under Sch. C–I–29

H. Whether PT u/s 13AA payable on all types of packing material?

I. Overlapping of products in Sch. C-I-29 and Schedule C-II

J. Sale of Printed Cartons and Printed Labels — Whether within the ambit of Works ContractAct or BST Act?

K. Notfn. Entry A–131 relating to Information Technology products

L. Instances where Classification of goods varies in accordance with their definition under theExcise laws from time to time. e.g. fabrics, tobacco, sugar.

1. Fabrics

2. “Made up” articles

3. Tobacco


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M. Whether provisions relating to classification of medicines under Excise and Sales Tax lawsare in pari materia?

N. Levy of Excise/Sales tax on Designs & Drawings

A. REFERENTIAL LEGISLATION –

1. When no reference to another statute is invited, Common parlance meaning would beparamount and reference to an allied Act would not be permitted for interpretation of theentry

It is a settled law that as far as taxing statutes are concerned, unless a term is otherwisespecifically defined, words must be understood in the manner a common man wouldunderstand them and terms must be given a meaning which is given in the commercial world.Importing of dictionary meanings was not justified when a word or a term is of common useand well understood. For example, sugar is a well-known commodity both in commonparlance and in the commercial world. By no stretch of imagination, can icing sugar be termedas sugar. It is also a cardinal principle of interpretation of statutes that unless it is necessary orspecifically provided, definition in one statute cannot be applied to construe a word or a termin another statute. Thus, sugar was defined under the Central Sales Tax Act, it was for thepurposes of that Act and not the local Act. The word, “Sugar” as used in the local Act in Entry9 of the Second Schedule must be understood to be sugar which is understood to thatcommodity by the common man or by a shopkeeper or a trader or a customer. Therefore, ifunder the local Act, tax is to be imposed on sale of sugar, it cannot be more than what isprovided by section 15 of the Central Act but as far as exemption is concerned, the position isdifferent. The item which can be considered to be exempted is sugar simpliciter and not sugarwith any additives like icing sugar which has an additive of starch C.S.T. vs. Puran Chand &Sons (1981) 48 STC 284 (Del.)

2. Invoking of definition under one statute to another

Where goods enumerated in the Schedule are defined in accordance with their definitionunder another statute, the definition given in the other statute along with all its amendmentsand variations from time to time should be read into the first statute. For example, fabrics,sugar and tobacco in Sch. Entry A–15 have been defined by their description from time to timein column (3) of the First Schedule to the Additional Duties of Excise (Goods of Specialimportance) Act, 1957. In such a case, one has to go by the exclusive definition in the otherstatute at the relevant point of time – State of Kerala vs. Attessee (Agro Industrial TradingCorporation) (1989) 72 STC 1 (S.C.).

While on the issue of classification of “book-binding cloth”, the Gujarat High Court in ShahTextile Mills P. Ltd. vs. State of Gujarat – 85 STC 515, held that it continued to be a “cottonfabric” under Entry 37 of the First Schedule to the Gujarat Sales Tax Act, 1969 which hadadopted the definition given under Entry 19 of the First Schedule to the Central Excises andSalt Act, 1944. The fact that cotton fabric was purchased and thereafter subjected to processesof bleaching, starching and calendering and was sold as a book-binding cloth capable of beingput to use for specific purpose was not decisive in view of the fact that cotton fabric was verywidely defined by item 19 of the First Schedule to the Central Excise & Salt Act and Entry 37of Schedule I to the Gujarat Sales Tax Act being a referential piece of legislation must carrythe same meaning. The Court also held that it was not legal and permissible for the Tribunalto apply the common parlance test and hold that bookbinding cloth was a distinct and


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separate commercial commodity after undergoing the above processes. The Referentiallegislation contained in Entry 37 of Schedule I to the Gujarat Act was supplemental to theExcise Act, the amendments made in the original incorporated provision must necessarilyproject and must be read as a part of the referential legislation contained in Entry 37.

3. Reference to a provision of another statute

In State of Kerala vs. Attessee (Agro Industrial Trading Corporation) (1989) 72 STC 1(S.C.), the Supreme Court also drew a distinction between the forms of referential legislation.At times, referential legislation may merely consist of a “reference to or citation of” a provisionof another statute. In such a case, a definition given to a word or an expression in a particularAct of statute cannot normally be utilized for the interpretation of a similar word or expressionoccurring in a different Act or statute. However, this is not an absolute principle of law and adefinition given in a particular statute, not being repugnant, may be used to construe andinterpret the same expression occurring in another statute — Leukoplast (India) Ltd. v. Stateof Goa & Ors (1988) 71 STC 180 (Bom.)

This principle was reiterated in CST vs. Jaswant Singh Charan Singh (1967) 19 STC 469(S.C.) and caution was recommended in adopting a meaning ascribed to that word in otherstatutes. However, the apex Court did not totally prohibit reference to the meaning of a wordas given in another statute for the purpose of ascertaining the meaning of that very wordoccurring in the statute before the Court. The Supreme Court has only sounded a note ofcaution — State of Gujarat vs. C.K. Gauze Bandage Mfg. Co. (1992) 84 STC 571. One mayrecall the hardship caused to 100% EOUs, who have effected sales in the domestic marketwithin the prescribed limits or say effected some sale of scrap or even old newspapers, on thebasis of the Tribunal decision in Karsandas Exports – App No. 102 of 2001 dt. 17-10-2003when the expression “100% Export oriented unit” was not assigned the meaning given in theIndustries (Development and Regulation) Act. Although the reference to the said Act has nowbeen made vide amendment in the recent Finance Act, 2004, it can be argued that the benefitof set off under Rule 42AD should be granted to such 100% EOUs in the earlier period also onthe ground that the definition given in the I (DR) A, should be referred to, to ascertain themeaning of the expression. The expression has also acquired the same meaning in thecommercial world. Nevertheless, even if dictionary meaning were to be applied, the meaningof the term, “oriented” can be referred to.

B. AN OVERVIEW OF THE CENTRAL EXCISE TARIFF

1. Layout of sections and chapters

The Central Excise Tariff Act, 1985 (CETA) classifies all the goods under 20 sections and 96chapters. Each of these sections is related to a particular class of goods. Thus section 1 is onanimal products, section 2 on vegetable products, so on and so forth. Each section is dividedinto chapters and each chapter is sub-divided into groups and sub-groups of excisable goods.This tariff schedule is based on the internationally followed product coding system“Harmonised Commodity Description and Coding System” (HSN)

Excise Duty is payable at the rate specified in CETA against the sub-group heading underwhich the product falls. However, benefit of exemptions or concessions may be claimed undervarious notifications if the conditions specified in the notification are satisfied.


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The following is the broad grouping of goods under CETA:—

Section Head Chapter

I Animal products 2 to 5

II Vegetable products 7 to 14

III Animal and vegetable fats 15

IV Prepared foodstuffs and beverages 16 to 24

V Mineral products 25 to 27

VI Products of the chemical or allied industries 28 to 38

VII Plastic and rubber articles 39 to 40

VIII Leather and leather articles 41 to 43

IX Wood cork, straw 44 to 46

X Pulp, paper and paperboard and articles thereof 47 to 49

XI Textiles and textile products 50 to 63

XII Footwear and umbrellas 64 to 67

XIII Articles of stones, plaster, ceramics, glass 68 to 70

XIV Pearls, precious metal 71

XV Brass metals and articles 72 to 83

XVI Machinery, electrical equipments 84 to 85

XVII Vehicles, aircraft and vessels 86 to 89

XVIII Optical, photographic, medical & surgical instruments 90 to 92

XIX Arms & ammunition 93

XX Miscellaneous manufactured articles 94 to 96

2. Process of Classification in Central Excise is a process by which a manufactured commodity

is classified under a sub heading of the First Schedule to the Central Excise Tariff Act,

1985. Classification of a commodity determines the rate of duty of excise leviable on that

commodity. Classification may also entitle or disentitle an exemption. (e.g.) S. No.73 of

Notification No. 6/2002-CE dt. 1-3-2002 exempted plastic materials falling under heading 39.01

to 39.14. Now, to decide as to whether the product manufactured is eligible for the above

exemption, it has to be decided (i) whether the product manufactured falls under Chapter 39

of the First Schedule to the Central Excise Tariff, then (ii) whether the product manufactured

falls under the headings 39.01 to 39.14. If the above two were decided affirmatively, the said

product would be eligible for the said exemption, of course upon fulfilment of other

conditions, if any.


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3. Structure of the Central Excise Tariff headings/sub-headings

The Central Excise Tariff has two Schedules viz., the First Schedule and the Second Schedule.The First Schedule has 96 Chapters grouped into XX (20) Sections. The First Schedule has thefollowing parts viz. Heading, sub-heading, Description of goods and the Rate of duty. The subheading has six digits. In these six digits, the first two digits denote the Chapter, the secondtwo digits denote the heading and the third two digits denote the sub-heading. For example,the classification of Mosquito Repellant is 3808.10. In this, the first two digits denote thechapter; i.e., 38, the second two digits denote the heading; i.e., 08 and the third two digitsdenote the sub-heading; i.e., 10.

The duty mentioned in the First Schedule is called ‘CENVAT’, i.e., Central Value Added Tax.The rate (of duty) mentioned in First Schedule is also known as Tariff Rate, which is themaximum rate of CENVAT leviable on the relevant goods.

The Second Schedule also has the following parts viz., Heading, Sub-heading, Description ofgoods and the Rate of duty. The duty mentioned in the Second Schedule is ‘ Special duty ofExcise’.

The CET adopts the principle of classifying all goods beginning with the raw materials andending with the finished goods within the same Chapter. Thus, for the purpose of groupingvarious products, the Tariff does not differentiate between raw materials and semi-manufactured products and finally manufactured products except for a few exceptions. TheTariff is designed to group all goods relating to the same industry and all goods obtained fromthe same raw material under one Chapter in a progressive manner. Residuary items have beenprovided separately for each class of goods under each Chapter.

4. The basis of the Central Excise Tariff — Harmonised System of Nomenclature (HSN)

Harmonised System of Nomenclature (HSN) derived from the International Convention of‘Harmonised Commodity Description and Coding System’ is the basis of the Central ExciseTariff with required modification and contraction, as deemed to be required to suit the Indianconditions. However, although the CET is based on HSN, the CET nowhere states that Notesin HSN will be applicable for interpreting the tariff. However, the Supreme Court relying onthe Statement of Objects and Reasons has held that the tariff is based on HSN to reduceclassification disputes. Therefore, in case of doubt, the HSN is a safe guide for ascertaining thetrue meaning of an expression used in the Act unless there is an express different intentionindicated in the tariff itself – CCE vs. Wood Craft Products Ltd. – 1995 (77) ELT 23. Thus,the Judiciary has been giving due weightage to HSN.

5. Whether Classification can be changed?

First, the manufacturer should classify the commodity manufactured by him. If it is foundcorrect by the Department, then such classification will be accepted. If the classification wasfound not correct, then the Department will issue notice for not accepting the classification bythe manufacturer/ for reclassification of the product under appropriate heading/sub-headingand the dispute will be decided by quasi-judicial process, which has appellate remedies.However, the Supreme Court has recently held in Commissioner of Customs & Central Excisevs. Charminar Non-wovens Ltd. (2004) 136 STC 356(S.C.) that it was not proper for the HighCourt to intervene at the stage of Show Cause Notice even though there was a judgment of anappellate authority in favour of the assessee, the reason being that on proper investigation, anew fact might be discovered or the law could change in the meanwhile. However, in theabsence of new facts or fresh evidence, the principle of stare decisis ought to be followed asheld recently in Merind Ltd. 136 STC 462 (Bom.).


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6. Eight digit classification code excise bill introduced

At present, the excisable goods have been classified basically using four-digit system with twomore digits added for further sub-classification wherever needed. The first two digits refer toChapter in the Schedule and the next two digits refer to specific items in the Chapter.

A common eight-digit classification code for levy and collection of excise and customs duties,administering import trade control policy and collection of statistics may soon become areality.

A Bill has been introduced in the Lok Sabha that seeks to achieve this objective through theexpansion of the tariff classification of excisable goods to an eight-digit classification code fromthe existing six-digit code. The Central Excise Tariff (Amendment) Bill 2004, if enacted, wouldallow the Revenue Department to adopt Harmonised System of Nomenclature (HSN)-basedeight-digit classification code for excise purposes. It has already adopted eight-digitclassification for levy of import duty with effect from February 1, 2003.

The Directorate General of Foreign Trade (DGFT) and the Directorate General of CommercialIntelligence and Statistics (DGCIS) have already adopted eight-digit classification code for thepurpose of import trade control policy and collection of statistics.

C. RULES OF INTERPRETATION OF THE CENTRAL EXCISE TARIFF

Rule 1: The titles of the Sections and Chapters are provided for ease of reference only; for legalpurposes, classification of commodities shall be determined according to the terms of theheadings and any relative Section or Chapter Notes and, provided such headings or Notes donot otherwise require, according to the provisions hereinafter contained.

According to Rule 1, if the headings read in the light of the Section and Chapter Notes areclearly determinative of the classification, the Rules of Interpretation cannot be invoked -Rajasthan Synthetics Industries Ltd. vs. Collector 1989 (42) ELT 24 (Trib.) & AravaliForgings Ltd. vs. Collector 1994 (70) ELT 693 (Trib.). Thus, it will be seen that the relevantheadings in the Tariff have to be interpreted and applied in the light of Section Notes andChapter Notes which are statutory and binding like the headings themselves.

The Section Notes and Chapter Notes sometimes expand and sometimes restrict the scope ofcertain headings. In other words, the scheme of the Tariff is to determine the coverage of therespective headings in the light of the Section Notes and Chapter Notes. In this sense, theSection Notes and the Chapter Notes have an overriding force on the respective headings –CCE vs. Metrowood Engineering Works 1989 (43) ELT 660 (Trib.). Accordingly, ‘Industriallaminates” having insulation properties were held as Electrical Insulators falling under CETA:Ch. 8546.00, not 3920.31 even if they were plastic laminates and notwithstanding some minorfabrication like punching/drilling of holes therein. Industrial laminates were automaticallyexcluded from the purview of Chapter 39 of the Tariff in view of Chapter Note 2(n) of Chapter39 as the “Electrical Insulators of any material” classifiable under heading 8546.00.

In CC vs. Sanghvi Swiss Refills P. Ltd., 1997 (94) ELT 644 (CEGAT), it was held that SectionNotes and Chapter Notes being statutory in nature, have precedence over functional test andcommercial parlance for the purpose of classification. This principle was reaffirmed by theSupreme Court in CCE vs. Wood Polymers Ltd. 1998 (97) ELT 193 (S.C.), wherein it wasreiterated that classification should be done as per the rules of interpretation contained in theTariff and not as per trade parlance and commercial understanding. Trade parlance was to beexamined only if the tariff entry is ambiguous – Nirlon Synthetic Fibres vs. UOI 1999 (110)ELT 445 (Bom.) or if the statute did not define the words — Indo International Industrial vs.CST 47 STC 359 (S.C.).


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While interpreting chemical compounds, they have to classified as per chemistry, scientific

parameters and the Explanatory Notes and not as per popular understanding or trade parlance

– Godrej Soaps Ltd. vs. CC (2000) 115 ELT 710.

If the description read with the Section or Chapter Notes are not enough to correctly classify

the goods, following further rules have been provided:

Rule 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.

Rule 2 (a) of the Rules of Interpretation extends the scope of headings in Central Excise Tariff

Act, 1985 to include incomplete / unfinished articles having essential character of complete /

finished articles – Bharat Enterprises vs. Commissioner 2002 (139) ELT 321 (Trib. – Delhi).

For example, a dealer may have purchased a packing material on which some final finishing

touches have to be applied or one more process is required to be carried out prior to its

capability of being used for the purpose of packing. In such an eventuality, Rule 2a would

come into play and the incomplete or unfinished article, which bears the essential

characteristic of the finished or complete article, would merit classification as if it was a

complete article.

In Hindustan Udyog vs. CCE 2001 (133 ELT) 405, a “Belt Conveyor system” was supplied

with all the material except the belt, a critical part, which was to be procured and fitted by the

buyer. It was held that the goods were classifiable as “Belt Conveyor” as per Rule 2(a) as the

goods had the essential character of the final product.

Bulky goods like cranes may sometimes be cleared in SKD (Semi knocked down) or CKD

(Completely knocked down) condition (even on different dates) and thereafter assembled at

site. In such a case, it would be deemed that a crane was cleared in parts and not clearance of

crane parts – Shirke Construction Equipments P. Ltd. vs. CCE 1997 (95) ELT 644. However,

some parts of machinery were manufactured in the factory and some bought out components

were directly brought to site, Rule 2a would not be applicable to the parts cleared from the

factory since it could not be said that the machinery was cleared in unassembled condition –

Ganpati Ropeways P. Ltd. – 1999 (112) ELT 395.

(b) Any reference in a heading to material or substance shall be taken to include a reference to

mixtures or combination of that material or substance with other material 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.

Rule 2b read with Rule 3b is applicable to intersectional admixtures or composite articles. If

an article was made of paper and plastic, it would be classifiable as the article of that which

lends it the most essential characteristic.


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Rule 3 When by application or 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 provides the most specific description shall be preferred to

headings providing a more general description. However, when two or more headings

each refer 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.

According to rule 3(a), a heading which provides the most specific description shall be

preferred to heading providing a more general description. – Collector vs. Metrowood

Engineering Works – 1989 (43) ELT 660 (Trib.). When an article has by all standards,

a reasonable claim to be classified under an enumerated item in the CET, it will be

against the very principle to deny it the parentage and consign it to be an orphanage of

the residuary clause – Dunlop India Ltd. vs. UOI 1983 (13) ELT 1566 (S.C.)

(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, in so far as this criterion is applicable.

While deciding the classification of composite articles of plastics made out of a

combination of plastic and non-plastic materials, according to the Bombay-I Collectorate

Trade Notice No. 128/88 dated 6-9-1988 classification would depend on the

predominance of weight and value of the component materials which have gone into

the manufacture of such composite articles of plastics, keeping in view, the Rules of

Interpretation to the Schedule to the Central Excise Tariff Act, 1985. While deciding the

classification of such products, due regard should be given to the trade identity of the

produce, i. e. how the same was known in the commercial/trade parlance. Thus,

classification of such composite articles is not purely a technical matter and common

parlance tests are given due weightage. In Sprint RPG India Ltd. vs. CC 116 ELT 6

(S.C.), computer software loaded on hard disk drive was imported. Value of hard disk

drive was only Rs. 65,000/- while the cost of software was Rs. 67 lakhs. It was held that

computer software gives it the essential character. The hard disk was only a container

and hence the goods were classified as “software”. Similarly, machines that are capable

of multiple functions would be classifiable according to its main function – Luminous

Electronics vs. CCE 2001 (129) ELT 605 (CEGAT 5 Member Bench).

The identity of a particular product is associated in the mind of the consumer with its

primary function. The consumer buys an article because it performs a specific function

for him. This mental association with a product is very relevant in classification – Atul

Glass Industries P. Ltd. vs. CCE 63 STC 322 (S.C.)

The essential character is not dependent merely on the weight or value of the material

or components of which the goods are made – J. K. Synthetics vs. CCE 2000 (123) ELT

1166. In Shivaji Works Ltd. vs. CCE 1994 (69) ELT 674, it has been held that the

functional test is the correct test for determining the character of a product; i.e.,

primary function is the essential characteristic. Unless the incomplete goods are able to

function as finished goods, this rule would not be applicable.


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(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. Thus, Electrical insulating self adhesive tape can be classified as

self adhesive tape under 39.19 and as electrical Insulator under 85.46. Hence, later

serial number; i.e., 85.46 would prevail - Tapex Corporation vs. CCE 1998 (103)

ELT 580.

Rule 3(c) lays down that when two entries merit equal consideration, then the last entry is

the correct entry for the purposes of classification.

Rule 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.

This is supposed to be the last resort and to resolve the dispute, the relationship of the goods

under classification with the description of the goods under disputed headings should be

found out. The relationship with a particular heading depends upon the description, purpose

and use of goods. If the relationship is established, good should be classified where they are

akin to the description in the tariff - CCE vs. KWH Heliplastics Ltd. 1998 (97) ELT 385 (S.C.)

Rule 5 For legal purposes, the classification of goods in the sub-headings of a heading shall be

determined according to the terms of those sub-headings and any related sub-heading notes

and mutatis mutandis, to the above rules on the understanding that only sub-headings at the

same level are comparable. For the purposes of this rule, the relative Chapter and Section

Notes also apply, unless the context otherwise requires.

This rule postulates that sub-headings can be compared only at the same level; i.e., if one

heading contains 5 to 6 sub-headings, these sub-headings can be compared with each other.

However, sub-heading under one heading cannot be compared with sub-heading under a

different heading. Thus, first the heading has to be decided and then one of the sub-headings

within that heading has to be selected.

As per General Explanatory Note No. 1, wherein column (3) of this Schedule, the description

of any article or group of articles under a heading is preceded by “-”, the said article or group

of articles shall be taken to be a sub-classification of the article or group of articles covered by

the said heading. Where, however, the description of an article or group of articles is preceded

by “—”, the said article or group of articles shall be taken to be a sub-classification of the

immediately preceding description of article or group of articles which has ”-”. In other words,

a single dash indicates sub-classification and a double dash indicates sub-sub classification.

The Rules of Interpretation have to be applied sequentially – classification is to be first tested

in the light of Rule 1. Only when it is not possible to resolve the issue by applying this rule,

recourse is to be taken to Rules 2, 3, and 4 in seriatim – Chapter 3 Part II Para 2.1 of the CBE

& C’s Customs Manual, 2001.


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D. SOME PECULIAR CHARACTERISTICS OF CLASSIFICATION UNDER EXCISE TARIFF ACT,1985

a. Classification of “Parts”

Classification of “parts” of items covered by Chapters 82 to 96 is governed by theindividual Chapter Notes or in some cases by Section Notes. By and large, subject tocertain exclusions mentioned in respective Section Note or Chapter Note, parts or partsand accessories is respect of certain Chapters, are generally classified in the sameheading No. in which the main item falls provided there is no separate heading No.covering such parts and accessories. If there is a separate heading for parts, then allparts of items covered under that heading No. fall only under this sub-heading No.Further, on a perusal of Chapter Notes in respect of Chapters 82 to 96, it would be seenthat “parts of general use” are excluded from these Chapters. “Parts of general use” havebeen defined in Section Note 2 of Section XV and they are not to be regarded as “parts”of individual items falling under these Chapters and in all cases, such parts of generaluse are classifiable in Section XV as Base metals and articles of base metals.

A part of a part is a part of the whole. Thus, a tyre valve would be a part of the tyreand would, as a corollary, be a part of the bicycle. CCE vs. MP (I) Ltd. 1990 (46) ELT68. However, this is not the case under sales tax. Tyre flaps used to protect tyres andtubes were held as classifiable under Sch. Entry C-II-91 (residuary entry for rubbergoods) and not Sch. Entry C-II-103 since following United Copiex (I) P. Ltd. 101 STC536 (S.C.), rubber flaps could not be termed as accessories of motor vehicles and at bestcould be said to be an accessory of something which itself was an accessory of a motorvehicle.

b. Special procedure for dispatch of heavy machinery in knocked down condition forreassembly at site – Its Impact on classification, etc. under sales tax

Special procedure has been laid down for preparation of invoices when goods likeheavy machinery which is first assembled in the factory and later disassembled anddispatched in knocked down condition through more than one vehicle because of theirsize. The manufacturer has to intimate (at least 48 hours in advance), his option toavail this special procedure in writing for the complete machinery sought to be clearedin a number of individual part consignments after first being assembled to thejurisdictional Deputy/Assistant Commissioner of Central Excise with a copy to thejurisdictional Superintendent of Central Excise along with the description of suchmachinery/ equipment giving its tariff classification and list of components of suchmachinery/equipment in disassembled form and its value and an undertaking.

Though separate verification need not necessarily be made for each and everyconsignment, before the removal of the first consignment, Assistant Commissionerverifies that the various part consignments are indeed constituents of the completemachinery, which has been first assembled.

A separate invoice shall be made out for in respect of each conveyance on which thepart consignment is loaded. The manufacturer will pay the entire duty on the first suchinvoice (hereinafter referred to as “Parent Invoice”) on the basis of entire value of themachinery unit/equipment. This parent invoice shall be prepared quoting all vehiclenumbers, total value/duty of the consignment. An inventory shall be annexed to theinvoice giving detailed item-wise description as loaded in different vehicles. CENVATCredit, if any, shall be taken only on receipt of parent invoice and the entireconsignment.


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Under sales tax, logically, the goods should be classified as machinery and not as partsof machinery, both in the hands of the buyer and the seller. Thus, purchase on Form Ashould be possible. Set off under Rule 41D also should be available and not denied onthe ground that parts of machinery have been assembled and thereafter used in themanufacture of goods for sale. Resale should also be allowed and not disallowed on thebasis of the decision in Mahindra Ugine Steel Co. Ltd. – S.A. No. 55 of 1998dt. 16-9-2000.

c. Article how made may be relevant

Normally, how an article is manufactured is not important but handicrafts enjoyexemption from excise duty and so it becomes important to understand whatconstitutes a handicraft. In CCE vs. Louis Shoppe 1996 (83) ELT 13, the SupremeCourt laid down that the following tests need to be satisfied:

i. it must be predominantly made by hand although some machinery may also beused in the manufacturing process.

ii. it must be graced with visual appeal in the nature of ornamentation or in-laywork or some similar work lending it an element of artistic improvement. Suchornamentation must be of a substantial nature and not a mere pretence.

However, ordinary furniture in a hotel like cupboard, wardrobe and shelved furniturecannot be classified as “handicraft” as held in Interspace v. CCE 2003 (157) ELT 221.

d. End use relevant only in limited cases

Generally, a product can be used for various purposes and it would not be correct toclassify the goods on the basis of its final use. The end use is irrelevant forinterpretation unless the definition so requires. Accordingly, laminated safety glasswould be classifiable as a glass product even if it were designed for use as a part of amotor vehicle. However, if the Tariff requires, classification can be and should be asper end use. For example, articles of plastic are classifiable under CET 39.26. However,if the article is specially designed as an automobile part, it will be classified as “part ofmotor vehicle” and not as article of plastic. If an article has alternate uses, itspredominant use would be highly relevant.

e. Waste and scrap

i. Waste and scrap could be goods but would be dutiable only if manufactured;i.e., generated in the manufacturing process. Thus, spent earth (residue ofactivated clay) was not dutiable even if it was marketable and even if it wasmentioned in tariff since it could not be said to be manufactured – it only hadlost its absorption capacity - Markfed Vanaspati & Allied Industries 153 ELT491 (S.C)

ii. Excisable only if mentioned in CET

In CCE vs. Carborandum Universal Ltd. 1998 (103) ELT 363, it was held that wastetermed as ‘dust collector fine” emerging during grinding was merely and industrialwaste and even if it fetched a price, it was not excisable goods as there was no tariffentry in CET. Unlike BST Act, there is no residuary entry in CET.

iii Excisable only if generated in the manufacturing process and not in anancillary process. In UOI vs. Ahmedabad Electricity Co. Ltd. 158 ELT 3 (S.C.),


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it has been held that waste arising in an ancillary process is not ‘manufacture’.In this case, coal was used as a fuel to produce steam, which in turn was usedin the manufacturing process. After the coal was burnt, the ‘cinder’ left was heldto be generated in an ancillary process and hence was not generated in themanufacturing process.

iv. Sub-standard goods sold are still goods. They cannot be classified as scrap ascommercially understood. TISCO vs. CCE 1995 (75) ELT 3 (S.C.)

v. Waste of packing material after emptying of contents is not dutiable as“emptying of goods” is not manufacture – Castrol India Ltd. vs. CCE 1998 (99)ELT 234 & Ballarpur Industries vs. CCE 2003 (158) ELT 618.

f. Goods should have “marketability” and mere mention of the commodity in the CETwould not necessarily mean that the same is marketable – Ion Exchange (India) Ltd.CCE 1999 (112) ELT 746 (S.C.) An intermediate product would be dutiable only if thesame was marketable. An intermediate product that had a very short shelf life andcould not be marketed in that condition would not be liable to duty. e.g. yeast was heldas not “goods” as there was no proof of its marketability – CCE vs. Jagjit Industries141 ELT 306 (S.C.)

g. Immovables are not ‘goods’ and hence Plant & Machinery or structure likeTransmission towers assembled and erected at site cannot be treated as ‘goods’ CCE vs.Dodsal P. Ltd. 1987 (28) ELT 352 (S.C.). In deciding the issue, the intention of theassessee was paramount. If the business along with Plant & Machinery embedded toearth was transferred by conveyance, the Plant & machinery would be treated asimmovable property. This will be so if the Machinery was embedded permanently inland with a view to operate as plant and not embedded to dismantle and remove thesame for the purpose of sale as machinery – Duncans Industries Ltd. vs. State of U.P.(1999) 9 SCC 421.

However, an article will be liable to duty if its manufacture is complete before it is fastened toearth. Similarly, if the machinery is in marketable condition at the time of removal fromfactory, duty will be leviable even if it is subsequently fastened to earth or in other words,used in a works contract. Payment of duty is done through issuance of Excise Invoice.However, the issuance of Excise invoice should not be construed as evidence of a divisiblecontract liable to sales tax in contradistinction to works contract tax. However, in NOCIL Ltd.S.A. No. 805 of 2000 dt. 29-11-2001, after taking into account the fact that the appellant hadissued Excise invoices and commercial invoices at differential rates and that Credit Notes hadbeen issued for material dispatched to site but subsequently not installed, the Tribunalconcluded that sales tax was payable as property in goods (HDPE Pipes) had passed to thebuyer upon delivery and the appellant had subsequently no control over them except for beingused in the contract. The Tribunal also took into account the clause that permitted amaximum of 2% of the quantity of pipes towards loss in fabrication, etc. and held thatproperty in goods had been transferred before the start of installation. Whether the contractcould be said to be a divisible one attracting sales tax? (Poser 1) Can’t there be a workscontract whose consideration is to be determined on “Cost plus” basis? (Poser 2)

h. Advertisements/Product literature useful but not conclusive in classification process

The way a product was described in product literature may be useful in understandingthe nature of the product, its properties/capabilities, the manner of usage, etc.


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However, the literature or the advertisements would not be conclusive evidence. Theway a product was packaged would also be irrelevant – e.g. attractive packaging, ipsofacto, would not militate against a product’s classification as a medicine. Goods cannotbe classified on the basis of use claimed by manufacturer in advertisement. –Hindustan Lever Ltd. vs. CCE 2003 (151) ELT 387. Recently, the Hon’ble MSTTribunal also had the occasion to consider the impact of advertisements onclassification of Bio-fertilisers (question was whether they were fertilizers or plantgrowth regulators) in Workhardt Ltd. – Appeal No. 49 of 2000 dt. 31-5-2003. TheTribunal opined that one need not be unduly influenced by claims made inadvertisements for their purpose was to boost sales and could not be relied upon forclassification of a product.

i. Onus of classification on the department

It has been held that the onus of establishing that an article falls in a particular tarifflay upon the revenue. Even if the evidence produced by an assessee was rejected, stillthe appeal of the assessee would have to be allowed as the Revenue had not dischargedthe burden cast upon it of establishing the classification in the manner claimed –Hindustan Ferrodo Ltd. vs. CCE 106 STC 214 (S.C.). This principle was recentlyreaffirmed in CCE v. Sharma Chemical Works 2003 (154) ELT 328 (S.C.) while on theissue of classification of “Banphool Oil.” Wouldn’t the same principle be applicable inSales Tax laws? (Poser 3)

E. SCHEDULE ENTRY C–I–29

1. Notes for interpretation of Notification Entry

1.1 The State Government inserted Schedule Entry C–I–29 wef 1-5-2000 whichprovided for a levy of a concessional rate of tax at 4% on all the inputs andpacking material that would be notified from time to time. The actualNotification was delayed by about 3½ months. In the intervening period,statistical information was called from the dealers for the purpose of selectingthe commodities to be notified. The criteria for selection are not known and canbe a matter of speculation. The Govt. vide Notification dated 11-8-2000 selectedAugust 15, 2000 for the purpose of liberating the notified inputs from the tightfiscal clutches. However, it is said that the “Road to Hell is paved with goodintentions” and instead of liberation, we now have two Masters – Excisedecisions from various Tribunals and the interpretation given by theCommissioner vide DDQs. Hitherto, classification of commodities was a functionof the application of various tests – common parlance tests, dictionary meanings,technical meanings, etc. Now, items covered by Schedule C–I–29 have to bedetermined with reference to the Notes to the Schedule appended to theNotification as well as Rules of Interpretation of the Central Excise Tariff Act,1985.

1.2 As per Note 2, the Rules for the interpretation of the Central Excise Tariff, 1985read with the Explanatory Notes as updated from time to time published by theCustom Co-operation Council, Brussels apply for the interpretation of thisNotification. It has been held that Opinion given by the World CustomsOrganisation in regard to classification of goods has great persuasive value as itrepresents expertise – CCE vs. TELCO 2002 (143) ELT 548. However, as far asclassification under Sch. Entry C–I–29, Note 2 gives statutory backing to theusage of these Notes for interpretation.


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1.3 As per Note 3, where any commodities are described against any heading or, as

the case may be, sub-heading, then other commodities covered by the said

heading or sub-heading but not described as aforesaid, shall not be covered by

the scope of this notification.

1.4 As per Note 4, where the description against any heading or sub-heading is

shown as “other”, then the interpretation as provided in Note 2 shall apply.

1.5 The Commissioner vide Trade Circular No. 24T of 2000 dt. 16-9-2000 had

clarified that where the heading or sub-heading number is provided, then except

for CET heading 39.23, all commodities falling under the said heading are

covered by the Notification. Although this Circular grants a concession which

overrides the Notification Note No. 3, it would be binding on the Departmental

Officers.

2. Notified packing material – 15-8-2000 to 31-3-2001

The following packing material, inter alia, whether sold under a generic name or any

brand name, were listed out as being eligible for the concessional rate of tax of 4% wef

15-8-2000. Due to time constraints and the technical nature of notified inputs, it is

proposed to restrict the discussion in this paper to scope of Notification entries relating

to packing material only and the same are discussed seriatim for the different periods.

However, important Section Notes and Chapter Notes which need to be taken into

account for classification of “inputs” are brought to your Notice hereunder.

2.1 Notfn. entry 128

39.23 Articles for the packing of goods of plastics namely: boxes, cases, crates, carboys

and their stoppers, lids, caps of plastics (but not including insulated ware)

CET heading 39.23 reads as under:

Articles for the conveyance or packing of goods, of plastics; stoppers, lids, caps and other

closures, of plastics

3923.10 — Insulated ware

3923.90 — Other

On a reading of the CET entry it is seen that the scope of the heading is quite wide and it

covers all types of articles for conveyance or for packing of goods made out of plastic.

However, Notfn. Entry restricts the scope to specific types of articles with the use of the term,

“namely”. Similarly, the Notification entry excludes articles which are meant for the

conveyance of goods as well as insulated ware like vacuum flasks. ‘Insulated ware shall mean

any multi-walled or multi-layered article intended to provide thermal insulation. Thus, air

bubbled sheets which have been held to be covered by heading 39.23 vide the decision in

Saluja Udyog vs. Collector – 1999 (108) ELT. 418 (Trib.) would be outside the ambit of

Notfn. Entry 128 above. (After 10-5-2002, the same would be covered due to widened scope of

the entry as held in Supreme Industries P. Ltd. DDQ 11/2000/Adm – 5/86/B-6 dt. 15-12-2003.)

It may be noted that Chapter 39 applies to ‘plastics’ and any reference to plastics also includes

vulcanized fibre but the expression does not apply to materials regarded as textile materials of

section XI


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While on the scope of the Notfn. Entry corresponding to CET entry 39.23, the Commissionerhas determined in DDQ No. 11/2000/Adm-5/110 dated 17-7-2001 in the case of NationalOrganic Chemicals Industries & Others, that HDPE drums and barrels were carboys andhence eligible for the benefit of Notification wef. 15.8.2000 but plastic Jerry cans and HDPEbottles would be covered by Sch. Entry C–II–93 taxable at 13% during the period 15-8-2000 to31-3-2001 as the same were not covered by the Notification although covered by the CETheading 39.23. This view has been taken by the Commissioner in Jupiter Poly containers, JasPoly Containers (DDQ – 11/2000/Adm – 5/102 & 98 / B – 6 dt. 20-4-2001. (However, with thewidening of the scope of the entry wef. 1-4-2001, the same would enjoy the benefit wef1-4-2001.)

It is a settled position that HDPE bags/sacks are classifiable under 39.23 by virtue of decisionsin Collector vs. Orissa Cement Ltd. 1994 (69) ELT 537 (Trib.) and Tex Past Engineers P.Ltd. vs. Commissioner 2000 (118) ELT 493 (Trib.). The position has been accepted by CBECTariff advice / Trade Notice. However, the same would not be eligible for the benefit ofNotification since bags/sacks are not mentioned in the Notification entry.

The Commissioner has also issued a clarification dated 20-7-2002 that plastic carry bags of thetype used for the packing of goods for the sake of convenience of the customer would not beeligible for the benefit. The exclusion is not defined in terms of the actual use by thepurchaser or even intended use by the purchaser. If the bags are of a certain type (as describedin the notification) then they will be excluded from the purview of the concession. In otherwords, the claim or grant of concession is not contingent upon the actual use to which thegoods may be put. The concession is available if it is proved that the goods are of a certaintype. Accordingly, it will not be necessary for the assessee to establish whether the bagsmanufactured by him have actually been used by any manufacturer for packing of goods. Whathe will have to establish is that the bags in question are of a type which are ordinarily notused for packing at the time of sale for the convenience of the customer.

Audio cassettes covers/Cassettes housings

Audio cassette covers were held as covered by Sch. C-II-93 during the period, 1-4-1995 to30-9-1995 vide Mars Enterprises – S.A. No. 367 of 2000 dt. 8-6-2001. Thereafter, in PanoramaComputronics – S.A. No. 1189 of 2001 dt. 6.12.2002, they were held to be covered by Sch.C-II-93 as accessories of Audio cassette players. In this background, the classification of thesegoods under Sch. C-I-29 may be examined.

In Hariram Govindram vs. CCE 1998 (104) ELT 43, the the issue related to classification ofthe following goods:

(a) Plastic moulded covers for video cassettes, (b) Housing for video cassettes, (c) Hubs,locks for video cassettes, (d) Rollers for video cassettes and (e) V-O cassettes withoutmagnetic tape.

The Dept. classified them under 85.23 which at the material time read as:

“5 Heading 8523 at the material time referred to “Prepared unrecorded media for soundrecording or similar recording of other phenomena, other than products of Chapter 37”.

The Tribunal held that a plastic housing could not be considered as a media for soundrecording by itself. Tariff Heading 8523 was concerned with the prepared unrecorded mediafor sound recording or similar recording or other phenomena and covers magnetic tapes as asingle dash sub-entry and audio and video cassettes as double dash sub-entry, as such and the


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above plastic parts would obviously not fall under 85.23; the position has been accepted bythe Excise Dept. vide CBEC Order No. 33/9/94-CX dated 29.7.1994 – 1994 (73) ELT (T25) andis binding on Excise Dept. authorities as held by the Supreme Court in the case of RanadayMicronutrients vs. CCE, 1996 (16) RLT 501 (SC) — 1996 (87) ELT 19 (SC). The view has beenreiterated in Vee Gee Electronics vs. Commissioner 2001 (130) ELT. 473(Trib.).

It may be pertinent to note that Audio cassette covers and CD casings have been held by theCommissioner in Gayatri Plastic Industries DDQ No. 11-2002/Adm – 5/5-6-7-8/B- 7 dated31-3-2002 as falling in heading 39.23 on the reasoning that covers are accessories of cassettesand are different from cassette housings which would be parts and components of cassettesand would fall in Chapter 85. However, as explained above, cassette housings have also beenheld as liable to fall in Chapter 39 (heading 39.26) in the case of Hariram Govindram vs.Collector 1997 (94) ELT 574 (Trib.) and thus, the reasoning of the Commissioner, which isbased on the common meaning of the terms, “parts”, “components” and “accessories” is atvariance with the accepted legal position and the Rules of interpretation although the endresult is acceptable so far as cassette covers and CD casings are concerned. The said goodshave been classified under heading 39.23 by the Excise Authorities not because they do not fitelsewhere but because they belong to this heading.


4819.11 Cartons, boxes, containers and cases, intended for the packing of matchsticks.

CET sub-heading 4819.11 matches with the Sr. No. 134 of the Notification.

The Notfn. intends to cover cartons, boxes, containers and cases intended for thepacking of match sticks and not match boxes. Thus, paper cartons, containers, etc usedin conveying match boxes would not be covered.


6305.10 Sacks and bags, of a kind used for the packing of goods of jute or of othertextile bast fibres of heading No. 53.03

CET sub-heading 63.05 reads as under:

Sacks and bags, of a kind used for the packing of goods

6305.10 – of jute or of other textile bast fibres of heading No. 53.03.

Chapter 63 relates to “Other made up textile articles”. On a perusal of the other sub-headingsof heading 63.05, one can infer that the Notfn would not cover sacks and bags made of cottonor man-made textile materials.

Heading 53.03 reads as under:

“Jute and other textile bast fibres (excluding flax, true hemp and ramie), raw or processed butnot spun; tow and waste of these fibres (including yarn waste and garneted stock) The sacksand bags should be predominantly made up of textile material referred to in 53.03 but it is notnecessary that the same are wholly or exclusively made out of the same. Reliance can beplaced on the decision in Naffar Chandra Jute Mills Ltd. vs. Assistant Collector 1993 (66)ELT. 574 (Cal.) Thus, polylined jute bags; i.e., bags are predominantly made of jute and thereal character of the bag is determined thereby although there may be polyethylene lininginside would be covered by the Notification but laminated jute bags would fall in Chapter No.59 and hence outside the purview of the Notfn.


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3. Notified packing materials wef 1-4-2001

Note 3 of the earlier Notification has been substituted by Notes 3 and 4.

Note 3 states that where any commodities are described against any heading or, as thecase may be, sub-heading, and the aforesaid description is different in any manner thanthe corresponding description in the Central Excise Tariff, 1985 then only thosecommodities described as aforesaid will be covered by the scope of this notificationand other commodities though covered by the corresponding description in theCentral Excise Tariff will not be covered by the scope of this notification.

Subject to Note 3, for the purposes of any entry contained in this notification, wherethe description against any heading or, as the case may be, sub-heading, matches fullywith the corresponding description in the Central Excise Tariff, then all thecommodities covered for the purposes of the said tariff under that heading or sub-heading will be covered by the scope of this notification

Vide Notification dated 14-5-2001, the following packing material, inter alia, wereinserted.

Heading No./sub-heading No. Description

3.1.

39.19 Self adhesive plates, sheets, film, foil, tape, strip of plastic whether or not inrolls

The description in the Notification fully matches with the tariff. For the purposes ofheading Nos. 39.19, 39.20 and 39.21, “film” means sheetings of thickness not exceeding0.25 millimetres. It has been held that electrical insulating tapes are not classifiableunder 39.19 but under Chapter 85. Non-adhesive plastic tapes are classifiable as ‘strips’of plastics under heading 39.20 or 39.21 of the CET depending whether they are non-cellular or cellular - Bombay – I Collectorate Trade Notice No. 64/87 dated 4-9-1987.– 1988 (33) ELT (T22).

Printed plastic labels

Printed plastic labels/stickers depicting the name of the manufacturer, model number,and identifying the parts of the machine and giving instructions as to the use of theappliance have been held to be covered by tariff 39.19 in the case of Johnson &Johnson Ltd. vs. Collector 1996 (88) ELT 465 (Trib.) since the printing was incidentalto the use and was not of a specific nature to warrant its classification as a product ofthe printing industry. However, in Advance Marks & Labels P. Ltd. - DDQ-11-2002/Adm-5/35/B-3 dt. 10-12-2002, the Commissioner has observed that although the ExciseTribunal judgment provides appropriate classification based on Metagraph (26 ELT 66)and rightly held that printed plastic labels were not a product of the printing industrybut would be covered by excise heading 3919, the question whether the labels andstickers were accessories or not of the appliances was not before the Tribunal andtherefore open for examination.

The Commissioner proceeded to look at the functional utility of the product and opinedthat it could not be termed as packing material. The products covered by exciseheading 39.19 were generally used for tightening of packing or fixing on open ends ofcontainers. Packing of goods was the apparent functional utility of the products


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mentioned in C-I-29 and more particularly of those included at Sr. No. 139 ofNotification. Hence, as the product of the applicant did not satisfy this test offunctional utility, they do not get included in C-I-29.

Here one needs to examine the following aspects:

As the classification was based on relevant Rules of Interpretation and the Section andChapter Notes, aren’t the Commissioner’s observations misdirected? Is the Sch. EntryC-I-29 supposed to be a residuary entry or is Sch. Entry C-II-93 supposed to be theresiduary entry for plastic goods? Does the Notification divide the items into water-tightcompartments: Notified inputs and packing material? Do inputs have necessarily to beraw material, parts or components? (Poser 4)

It is submitted that such categorization is not necessary and it is sufficient if theimpugned goods are either “inputs” in the making of the goods or packing material. Theword, “input” has a much wider connotation and embraces within it all goods whichconstitute raw materials, parts, components, intermediates or accessories and finedistinctions between them are not material in deciding the classification. Moreover,labels fall within the scope of the term, “packing material” for the purpose of Notfn.G-5.

3.2

3920.32 Flexible plain films

The main heading covers plates, films, foils and strip of plastics, non–cellular, whetherlacquered or metallised or laminated, supported or similarly combined with othermaterials or not. Further, these are sub-classified into those of PVC, regeneratedcellulose or other plastics. For the purposes of the Notification, only flexible plain(unprinted) films of plastics other than PVC and regenerated cellulose are covered.However, coloured plastic films would still be covered by 3920.32. Reference can bemade to CBEC Circular No. 28/90-CX – 3 dt. 15-6-1990. Biaxally oriented polypropylenefilms (BOPP) are classifiable under heading 3920.31 of the CET and hence not eligiblefor the benefit of the Notification during the period 1-4-2001 to 14-5-2002. However,the entry was widened wef 14-5-2002 so as to cover the heading 39.20.

3.3.

48.19 Cartons (including flattened or folded cartons) boxes (including flattened orfolded boxes), cases, bags and other packing containers, of paper, paperboard,whether in assembled or unassembled condition

The entry is in substitution of sub-heading 4819.11 and has widened the scope of theentry. Chapter 48 pertains to paper and paperboard products. The earlier Notfn. onlyreferred to containers for packing of match sticks whereas that condition was removedand the scope of the entry was widened – Fibre Foils Ltd. - DDQ-11/2001/Adm-5/57/B-13 28-12-2001.

As per Chapter Note No. 11, except for the goods of heading 48.14 or 48.21, paper,paperboard, cellulose wadding and articles thereof printed with motifs, characters orpictorial representations which are not merely incidental to the primary use of thegoods, fall in chapter 49. (Products of the printing industry). As per Chapter Note No.11, what is printed is relevant. If printing is merely incidental to the primary use of the


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goods, say packing, it would continue to fall under Chapter 48 – otherwise it would fall

in Chapter 49. This principle has been reiterated in Malti Arts P. Ltd. vs.

Commissioner 2000 (118) ELT. 139 (Trib.). The appellant was a manufacturer of

cartons which were classified under Chapter 48 and also did printing on job work

basis. Three samples of job work were produced:

a. A sheet printed, which after being cut, would be used as outer cover of an audio

cassette containing certain bhajan songs.

b. Printed label of sarees.

c. Third sample was meant to be converted into a carton of readymade garments.

The Tribunal noticed that the sheets and rolls were printed with trademarks and trade

names, batch number and date of manufacture and other specific details which enabled

the customer to decide whether to buy the goods or not. Such details were held as not

incidental to their use but a primary purpose. In this situation, the Section Note would

prevail and the classification has to be under Chapter 49.

However, the Commissioner has clarified vide Trade Circular No. 10T of 2001 dt.

30-6-2001 that corrugated boxes (including printed corrugated boxes) used for packing

of goods are covered by notification. The decision appears to be based on the reasoning

that what is printed on the cartons does not matter as, according to Chapter Note 11, if

printing is incidental to the primary use of the goods i.e. packing, then it would

continue to be regarded as covered by Chapter 48 and not Chapter 49, which relates to

products of the printing industry. This clarification is apparently based on the judgment

of the Supreme Court in Rollatainers Ltd. and would provide the much needed

protection from the application of the decision in Malti Arts P. Ltd. vs. Commissioner

– 2000 (118) ELT 139 (Trib.) should an assessee chose to classify cartons manufactured

by him as within the purview of the Sales Tax law and not Works Contract.

But this is not applicable to items falling in 48.21. While the CET 48.19 is very wide

and includes various stationery items like box files, trays, etc. the same have been

excluded from the scope of C-I-29. The heading covers bags, boxes, cartons and other

packing containers which terms have been judicially interpreted as under:

Bags – Product not having a fixed configuration and volume when empty as also when

filled in such product classifiable as “bags” under CET 4819.90. K.C. Palanisamy & Co.

vs. Commissioner – 1997 (89) ELT. 134 (Trib.)

Box – means a case or receptacle for holding things — K.C. Palanisamy & Co. vs.

Commissioner – 1997 (89) ELT. 134 (Trib.). Accordingly, cigarette packets should be

regarded as “small boxes” – Collector of Central Excise, Madras vs. I.T.C. Ltd. 152

ELT 241 (S.C.)

“Container” as appearing in chapter 48 of the CET has to be construed to mean

“packing containers” which are analogous to boxes and cartons; i.e., an enclosed

receptacle which can be used for storage and transportation of articles - Collector vs.

United Paper Products – 1995 (80) ELT 122 (Trib.). A container could contain smaller

boxes inside and thereafter goods could be transported. A container is normally

reusable - Collector of Central Excise, Madras vs. I.T.C. Ltd. 152 ELT 241 (S.C.)


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Applying the principle of ejusdem generis, the term, “other packing containers” would

mean all those products which are similar in characteristic to cartons, boxes, cases.

Accordingly, the Commissioner in the case of Fibre Foils Limited DDQ No. 11/2001/

Adm – 5/57/B-13 dt. 28-12-2001 has held that paper drums, composite containers, and

laminated composite containers would be eligible for the benefit of the Notfn. whereas

paper tubes and spiral paper sleeves would be covered by Sch. Entry C – II – 152.

Paper cups (printed) with lids (e.g., Ice cream cups with lids) are classifiable under

sub-heading 4819.12 of the CET as packing containers on the basis of Collector vs.

Modasa Packaging P. Ltd. – 1999 (110) ELT 713 and hence would fall in C-I-29 whereas

paper cups without lids would be covered by 4823.90. Since the Notfn. benefit is

restricted to paper self adhesive tape and printed wrappers for packing, paper cups

without lids would be outside the purview of Sch. Entry C–I–29.

Paper bags which are flexible in nature and on filling acquire different shape are

classifiable under sub-heading 4819.90 of the CET and hence entitled to the benefit —

Lakshmi Packaging P. Ltd. vs. Commissioner – 1997 (91) ELT 323 (Trib.)

3.4

48.21 Paper printed labels and paperboard printed labels

The heading matches with the CET heading. Recently, the Commissioner has held that

paper printed labels whether self adhesive or not would be covered by heading 48.21

and hence would eligible for the concession — Coats & Packs DDQ No. 11/2001/Adm

–5/41/B- 1 dt. 8-3-2002.

However, self adhesive paper in the form of strips or rolls would fall in CET 4811.20

and not under 48.21 or 48.23. Hence, as 48.11 is not a notified input/packing material,

it would not fall in Sch. C–I–29. As coated paper was also paper, it was covered by

Sch. C–II–67(1) – Lamson Sticks P. Ltd. – DDQ–11–2002/Adm–5/76/B-2 dt. 15-12-2003.

Similarly, printed bar code labels of paper were held as covered by Sr. No. 148 wef

1-4-2001 and Sr. No. 162 wef 10-5-2002 – Efficient Data Processing P. Ltd. – DDQ No.

1199/Adm. – 5/ B-3 dt. 12-8-2003.

3.5.

48.23 Paper self adhesive tape and printed wrappers used for packing

Printed wrappers for safety razors blades are classifiable under sub-heading 4823.19 of

the CET in view of the clarification issued by the CBEC under F. No. 61/12/90-CX dt.

24.3.1990, Circular No. 42/90 – Collector v. Shree Arun Packaging Corporation 1997

(94) ELT. 195 (Trib.)

3.6

70.07 Carboys, bottles, jars, phials of glass, of a kind used for the packing of goods;

stoppers, lids and other closures of glass

The corresponding CET heading reads as under:

Carboys, bottles, flasks, jars, pots, phials, ampoules and other containers, of glass, of a

kind used for the conveyance or packing of goods; preserving jars of glass; stoppers,

lids and other closures, of glass.


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Thus, flasks, ampoules, vials for injectibles and other containers have been excludedfrom the purview of the Notfn. Similarly, if the containers are not used for packing ofgoods but only for conveyance, or for preserving something, the same would standexcluded from Sch. C–I–29.

3.7.

83.09 Stoppers, caps and lids (including crown corks, screw caps and pouringstoppers) capsules for bottles, threaded bunges, bung covers, seals and other packingaccessories

Chapter 83 relates to “Miscellaneous articles of base metal.” According to Note 1, forthe purposes of this chapter, parts of base metal are to be classified with their parentarticles. Aluminium foils used for sealing milk bottles are classifiable under heading83.09 as per Delhi Collectorate Trade Notice No. 35/87 dt. 7.7.1987 – 1987 (30) ELT(T21). The view was also confirmed recently in Graphic Print Pack vs. Commissioner2000 (118) ELT. 465 (Trib.) wherein it was held that aluminium foils which are printedand cut in circle form as per the specifications of the customers and placed on thecontainer for closing the container assume the character of articles of heading 83.09(8309.90 to be specific) and not under heading 76.07 as foils in view of Note (d) toChapter 76. If the foil is cut to size, it assumes the character of an accessory and hencewould not fall in chapter 76. Metal tops, bottoms and lids for containers are an integralpart of the metal containers. They are essential for packing of goods and are notaccessories. Hence, they would be classifiable under heading 8312.90 of the CET andhence not eligible for the concession - Jain Packaging P. Ltd. vs. Collector 1997 (94)ELT 225 (Trib.)

Oil seals being parts of machinery would not fall in 83.09 but would fall in Chapter 84.But seals of base metal which are placed on rubber bunks of injection vials and whichhave the centre portion partially open through which the injection syringes could beintroduced for drawing the requisite amount of liquid would be classifiable under sub-heading 83.09 of the CET - Bombay–I Collectorate Trade Notice No. 6/87 dt. 30-1-1987– 1987 (28) ELT (T13)

The description of the following entries in the original Notfn. was amended wef1-4-2001

3.8.

39.23 Articles for packing of goods, of plastics namely: boxes, cases, crates,containers, carboys, bottles, jerry cans and their stoppers, lids, caps or plastics (butincluding insulated ware)

Although bottles, jerry cans and containers have been added, the entry continues to berestricted to articles used for packing of goods and not for conveyance. Thus, plasticbags, which can be considered as secondary packaging done for the convenience incarrying the goods purchased would be outside the scope of C-I-29. This position wasclarified vide Trade Circular No. 10T of 2001 dt. 30-6-2001. Thereafter, theCommissioner has also issued a clarification dated 20-7-2002 that plastic carry bags ofthe type used for the packing of goods for the sake of convenience of the customerwould not be eligible for the benefit. The exclusion is not defined in terms of the actualuse by the purchaser or even intended use by the purchaser. If the bags are of a certaintype (as described in the notification) then they will be excluded from the purview of


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the concession. In other words, the claim or grant of concession is not contingent uponthe actual use to which the goods may be put. The concession is available if it isproved that the goods are of a certain type. Accordingly, it will not be necessary for theassessee to establish whether the bags manufactured by him have actually been used byany manufacturer for packing of goods. What he will have to establish is that the bagsin question are of a type which are ordinarily not used for packing at the time of salefor the convenience of the customer.

‘Thermocole blocks’ prepared as per size and shape to pack electronic goods like TVs,fridge, etc securely during the course of transportation/conveyance would not becovered as despite covering the goods, they could not be said to be boxes as theycomprise pieces which together when assembled on the product to be packed, make anentire pack. If they were boxes, they would have been classified under excise heading3923.10 which refers to ‘boxes’ which is not the case. Moreover, a common man wouldnot recognise the impugned products as ‘boxes’. Therefore, the ‘moulded packs’ are notcovered by the term “boxes” as occurring in notification entry at serial No. 141 dt.14-5-2001 as held in K.K. Nag Ltd. - DDQ-11/2002/Adm-5/2/B-8 dt. 7-4-2002.

Further, the Commissioner has held in the DDQ in the case of Ameet Plastics DDQ No.11/2001/Adm. – 5/56/B-7 dated 18-1-2002 that PVC Heat Shrinkable Preform sleevesand labels are not covered in 3923.90 but were covered by Sch. C-II-93. The DDQ hasbeen confirmed by the Tribunal in Appeal No. 33 of 2002 dt. 21-3-2003.

3.9.

6305.10 Sacks and bags, of a kind used for the packing of goods, of jute or of othertextile bast fibres of heading No. 53.03.

No material change has been effected and it is an exercise in refinement of thelanguage.

4. Notified packing material wef. 10-5-2002 onwards

The following new entries have been inserted wef 10.5.2002

4.1.

70.14 Glass fibres (including glass wool and glass filaments) and articles thereof (forexample yarn, woven fabrics) whether or not impregnated, coated, covered orlaminated with plastics or varnish

The description matches fully with the CET entry and hence all items covered in theCET entry would be eligible for the concession. Glass wool, whether resin bonded ornot, used as insulation in machinery, particularly in refrigerating and air conditioningsystem would be entitled to the benefit. Fibreglass reinforced plastic articles would notbe covered by 70.14 but would fall in Chapter 39.

4.2

7607.60 Aseptic packaging aluminium foil of thickness less than 0.2 mm and backedby paper and LDPE.

The corresponding CET entry reads as under:

76.07 Aluminium foil (whether or not printed or backed with paper, paperboard,plastics or similar backing material) of a thickness (excluding any backing) notexceeding 0.2 m.m.

7607.60 — Backed


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The description in the Notfn. is a curtailed one and only foils backed with paper andLDPE would be covered. If the foil is not backed, or is embossed, perforated or cut toshape or printed, the same would not be covered by 7607.60 although it would fall inthe heading 76.07.

Sub-heading 3920.32 has been deleted and instead the broader heading 39.20 has beeninserted.

Thus, plates, sheets, films, etc., whether plain, rigid, flexible, metallised or lacquered ofPVC and regenerated cellulose would now be covered by the Notfn.

The description of heading 39.23 has been amended to read as under:

4.3 Articles for the conveyance or packing of goods, of plastics, stoppers, lids, capsand other closures, of plastics but not including – insulated wares, bags of thetype which are used for packing of goods at the time of sale for theconvenience of the customer including carry bags.

The entry has been widened so as to cover articles meant for conveyance. Whilethe first two notifications dt. 11-8-2000 and dt. 14-5-2001 included packinggoods by specific descriptions such as boxes, crates, cases, carboys and theirlids, caps, in the notification dt. 9-5-2002, the products were enumeratedomnibus; i.e., by adopting certain qualifications. The term used is ‘articles forconveyance or packing of goods’ excluding certain items. This term providesqualifications to a general category of packing goods and also includes theproducts required for conveyance. Hence, thermocole cushions moulded tospecific shapes were eligible to be covered by Sch. C-I-29 vide DDQ in the caseof Thermolite Packaging (India) P. Ltd. – DDQ No. 11/2002/Adm. – 5/69-44-42/B-2 dt. 13-11-2002.

However, carry bags would still not be eligible for the benefit as they arespecifically excluded. Plastic bags, sheets and tubings were not “other closures”.Besides, it was reasoned that main items like bags could not be described as“other closures”. Trade Circulars also clarified this issue and hence prospectiveeffect to the DDQ was also refused – Prasad Plastics — DDQ-11-2002/Adm-5/68/B-4 26-12-2002.

Liner bags used as inner packing / lining larger bags were not classified under39.23/C-I-29 since the applicant did not lead evidence of common parlance ofusage as a packing bag in this respect. – Shalimar Pack DDQ No. 11/2004/Adm-5/18/B-4 dt. 30-7-2004.

In Supreme Industries P. Ltd. cited supra the applicants sought to classify ice-cream cups under this entry. However, the Commissioner held that theapplicant did not lead evidence of common parlance or trade parlance to provethat these goods were being used as packing material – in fact these goods weremore of kitchenware and food service ware items. Inexplicably, theCommissioner proceeded to hold that these goods fell in CET 6911 and 6912which relate to ceramic products but at the same time, the benefit of Notfn.A–27 was available as the goods fell in residuary entry C-II-93 relating to plasticgoods.

Trolley with plastic containers continues to bear the essential character of acontainer and would fall in 39.23 — Sinter Plast Containers vs. Collector –1999 (107) ELT 351 (Trib.)


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5. IMPORTANT SECTION NOTES AND CHAPTER NOTES RELATING TO NOTIFIED INPUTS

5.1. Section Note 2 of Section VI (Chapters 28 to 38) reads as under:

“Goods put up in sets consisting of two or more separate constituents, some or all of whichfall in this section and are intended to be mixed together to obtain a product of Section VI orVII are to be classified in the heading appropriate to that product, provided that theconstituents are:

(a) having regard to the manner in which they are put up, clearly identifiable as beingintended to be used together without first being repacked;

(b) presented together

(c) identifiable, whether by their nature or by the relative proportions in which they arepresented, as being complementary one to another.

Note 1 of Section VII (Chapters 39 to 40) also reads likewise.

This Note has been put to use in Ciba Specialty Chemicals (India) Ltd. — DDQ No. 11/2000/Adm. – 5/40 to 42 /B-14 dt. 19-7-2001 while on the classification of Araldite adhesive, whichcomes in two tubes – one is a hardener and the other is a resin, which are intended to bemixed together by the customer for use. however, hardeners and Resins are also sold in bulkseparately and have a distinct and disparate independent use and as such they would beclassifiable under their respective headings / subheadings.

5.2. Note 3 of Chapter 32 reads as under:

“In relation to products of heading No. 32.06, labelling or relabelling of containers andrepacking from bulk packs to retail packs or the adoption of any other treatment to renderthe product marketable to the consumer, shall amount to “manufacture.”

Mere labelling is not manufacture unless specifically included in tariff (as amounting tomanufacture) – Nilgiri Herbals vs. CCE 2001 (132) ELT 781.

When goods are bought in bulk but sold in retail, this will not amount to repacking – CBECCircular No. 342 / 58/97-CX dt. 8-10-1997.

Putting of stickers indicative of MRP would not amount to manufacture although the productis rendered marketable. The stickers are put for compliance of the relevant law – Weights &Measures Act and not to make them marketable. The goods were even otherwise marketable.

Combo pack

In Adi Enterprises, vs. CCE 2002 (144) ELT 379, it was held that the act of putting variousitems like shampoo, hair oil, and cream in one package does not amount to manufacture as nonew and identifiable article has emerged. So under sales tax law, it should be possible to claimresale and taxes are chargeable at the respective rates of the goods packed in the packagealthough valuation may present practical difficulties.

5.3. Meaning of “primary form”

Many a times, queries are raised whether recycled plastic granules would be said to be inprimary form. It may be clarified that “waste, parings and scrap and semi-manufactures”would be classified under CET 39.15, which is not notified for the purpose of Sch. EntryC-I-29. However, when the same are recycled to form plastic raw material, the same would be


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classifiable under their respective heading/sub-heading as they would be said to be in primaryform although they may not be “virgin”. Similarly, colouring of granules does not amount tomanufacture and they would be classifiable as if uncoloured. Reliance may be placed on CBECLetter No. 93/10/92-CX. 3 dt. 13-7-1992.

6. CASE FOR PROSPECTIVE EFFECT/LENIENCY

Thus, it will be seen that classification of any commodity according to the Central Excise tariffis rather difficult and the difficulties would increase manifold should there be any changes inthe Central Excise tariff. Similarly, one would have to keep track of judicial precedents laiddown by Excise Tribunal. In such an eventuality, where an application is made fordetermination of the rate of tax under section 52 of the BST Act, there would be a strong casefor grant of prospective effect (unless the issue has already been clarified by way of TradeCircular as in the case of plastic carry bags). In Swastik Industries — DDQ 1196/Adm – 5/89/B – 6 dt. 6-12-2000, the Commissioner was pleased to grant prospective effect in relation to aninterpretation of Schedule entry A–15 on the ground that the said entry is a referentiallegislation borrowing contents from excise legislation and it would be difficult to keep track ofthe excise changes.

Similarly, a lenient view would be warranted as far as penalty is concerned in view of thedifficulties in classification. Even during the period when referential legislation has not comeinto play, where printed wax coated wrappers were held liable to 10% tax and plain waxcoated wrappers were liable to 4%, the Tribunal in the case of Mayuri Packers & Printers SANo. 1420 of 1997 dt. 31-7-1998 deleted the penalty in toto.

F. PRINCIPLE OF RES JUDICATA – WHETHER APPLICABLE?

Further, it is submitted that while the classification of an item under Sch. C–I–29 would varywith the changes in the CET entry itself, the principle of res judicata would not be applicable— the judicial precedents as well as the Circulars of the CBEC, would not be binding on thedealers or the Sales Tax Department although they may deserve considerable weightage andhave persuasive value.

While deciding the issue whether bolting cloth was covered by Sch. Entry A–12 or C–I–15A,the Tribunal appeared to have based its decision on the premise that the decision of the Exciseauthorities in this regard was binding. Accordingly, the bolting cloth was held as covered bySch. Entry C-I-15A. The classification was challenged by filing a Rectification application.However, although the Tribunal declined to modify the classification in the present case onthe ground that the issue was debatable, it conceded that the decision under Excise may bereferred to but an independent view could be taken by the Sales Tax authorities to determinethe Sch. entry under which it would fall under the BST Act. Deekay Nylobolt Inds. P. Ltd.Rectification Application No. 43 of 2001 and Dishti Industries Ltd. Rectification ApplicationNo. 44 of 2001 dt. 30-11-2002. The matter was referred to the High Court to decide, interalia, whether the Tribunal was justified in holding that the classification made by the CentralExcise Department was to be relied upon while determining the tax payable under theprovisions of the Bombay Sales Tax Act, 1959. Deekay Nylobolt Industries Pvt. Ltd. R.A. No.113 of 2001 dt. 30-11-2002

G. IMPLICATION OF CLASSIFICATION UNDER SCH. C–I–29

1. Rate of sales tax applicable on all commodities covered by the Notification would be4% plus Turnover tax and Surcharge, as applicable, irrespective of the use or end useby the manufacturers, resellers, service sector or any other sector. No resale sales taxwas applicable to goods falling in Schedule C–I–29 up to 1-4-2001. However, by virtueof amendment, with effect from 1-4-2001, resales sales tax became applicable.


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2. Thereafter, in exercise of its powers, the Government issued a Notification effectivefrom 13.9.2002, exempting resale sales tax on goods covered by Schedule entry C–I–29as well as packing material falling in Sch. Entry C–I–19 namely

(a) Gunny bags and hessian jute twine

(b) Plastic woven fabrics whether laminated or not of the type used in themanufacturing of plastic woven sacks and woven sacks made from any plasticraw material.

(c ) Sch. Entry C–I–27 – Glass ampoules

3. Classification of the items under Sch. C–I–29 would result in saving in Surcharge(0.90% in case of a 13% item) but since the items would be covered by Schedule C–I,the question of levy of Purchase tax under section 13AA as it stands today needs to beexamined.

H. WHETHER PT U/S 13AA PAYABLE ON ALL TYPES OF PACKING MATERIAL?

1. As per section 13AA, where a dealer, who is liable to pay tax under this Act, purchasesany goods specified in Part I of the Schedule C, directly or through commission agent,from any person and uses such goods in the manufacture of taxable goods anddispatches the goods so manufactured, to his own place of business or to his agentsplace of business situated outside the state within India, then such dealer shall pay, inaddition to the sales tax paid or payable, if any, or as the case may be, the purchase taxlevied or leviable, if any, under the other provisions of this Act in respect of purchasesof such goods, a purchase tax at the rate of 2% on the purchase price of the goods soused in the manufacture and accordingly the dealer shall include the purchase price ofsuch goods in the turnover of purchases in his return under section 32, which he is tofurnish next thereafter.

2. Thus, it will be seen that

a. PT u/s 13AA is not leviable in case the Sch. C–I goods are used in themanufacture of tax free goods.

b. PT u/s 13AA would not be leviable if the Sch. C-I goods are not used in themanufacture of goods. Can packing material be said to have been used in themanufacturing process? The Gujarat High Court in the case of VasukiCarborandum Works 43 STC 294 held by following the decisions of theSupreme Court in J.K. Cotton Spinning & Weaving Mills Co. Ltd. 16 STC 563and Indian Copper Corporation 16 STC 259 that a process or activity may notbe necessary, theoretically, for production of finished goods. However, if it issuch an integral part of the ultimate manufacture of goods that in its absencethe manufacture may not be commercially expedient, that activity or processmust be considered as manufacturing activity and the goods intended for use inthat process or activity should be considered to be goods required in themanufacture of taxable goods for sale. The process of manufacture would bedeemed to continue till the goods are readily marketable for sale. Accordingly,Kathi (Twine) purchased against Form 19 (equivalent to Form 15 of BST Rules)for packing of goods manufactured by the assessee were considered asconsumable stores and therefore no purchase tax under section 15 could belevied by considering the purchase of Kathi as unauthorised.


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3. It may be noted that in Vasuki’s case, the Gujarat Sales Tax Rules, at the relevant time,did not have a specific provision for grant of set off on packing material. Hence, it wasnecessary that packing material was classified as a necessary input for manufacture ofgoods. Further, application of the wider meaning of the term, “manufacture” wasobligatory as set off rules stipulated that the goods should be used in the manufactureof goods for sale. Hence, manufacturing process was deemed to continue till the stagethe goods were marketable/ready for sale. While in sec. 13AA, the term used is “used inthe manufacture of taxable goods”. Hence, a narrower meaning of the term,“manufacture” can be applied in the context of sec. 13AA and it can be contended thatpacking material cannot be said to have been used in the manufacturing process.

4. Further, where on an application of the principles laid down in Rajsheel 74 STC 379(S.C.), if the packing material is considered to have been resold, as a natural corollary,one can say that the goods were not used in the manufacture of taxable goods and noPT u/s 13AA would be attracted.

5. Without prejudice to the above contentions, one may safely submit that no PT u/s13AA would be attracted where the packing material is normally required to be usedafter the goods have been manufactured that is to say after the manufacturing processhas come to an end. Thus, secondary packing material or packing material usedmerely as means of conveyance would not attract PT u/s 13AA even if the same maynot be held as having been resold along with the goods packed. Reference is invited tothe observations in Thermolite Packaging (India) P. Ltd. – DDQ No. 11/2002/Adm. –5/69-44-42/B-2 dt. 13-11-2002, where the Commissioner has observed that “Thermocolecould be termed as packaging products if packing and packaging are to be treated asdifferent. The stage of packaging in terms of functional utility in the process is earlierto packing and in a real sense, the products under consideration are different frompacking materials. These products cannot be independently used as packing materialsif they are to be used alone.”

These observations bring out the distinction between packing materials that can be saidto be used in the manufacturing process and those that are used after themanufacturing process has ended and are intended for safe transportation/conveyanceof goods. Participant’s views are solicited in this regard. (Poser 5)

However, whether this distinction can backfire in the context of set off u/r 41D and setoff could be disallowed on packing material that is not deemed to have been used inthe manufacturing process but is used only as a means of conveyance e.g., thermocolemoulded to specific shape to hold the product or parts thereof safely during thetransportation of goods? (Poser 6) It is submitted that the distinction is not materialbecause there is a separate limb for granting set off u/r 41D for “goods used for packingof goods so manufactured”. It is also not necessary that the packing material should bea subject matter of sale and the packing material (aerated water bottles) could bereturnable. Participant’s views are solicited. (Poser7)

I. OVERLAPPING OF PRODUCTS IN SCH. C-I-29 AND SCHEDULE C-II

It is quite possible that there are many goods which are covered both in Schedule C–II as wellas under Sch. Entry C-I-29. For example, dyes fall in Sch. Entry C-II-82, synthetic pigments fallin Sch. C-II-87. However, since they fall in CET 32.04, they also qualify as notified inputsunder Sch. C-I-29. Rate of sales tax of both the commodities as per Schedule C-II is 13% but


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by virtue of Notification Entries A–24 and A–25, the rate is reduced to 4% plus Surcharge andturnover tax. Dealers would be in a position to claim the benefit of the Notification whichsuits them. In case of interstate sales, however, Form C would not be necessary if goods wereclassified in Sch. C-I-29. However, local manufacturers who transfer a proportion of theirgoods manufactured to their branches outside the state would claim the classification underSch. C-II-82 or 87 so as to avoid Purchase tax under Sec. 13AA up to 30-6-2004.

J. SALE OF PRINTED CARTONS AND PRINTED LABELS - WHETHER WITHIN THE AMBITOF WORKS CONTRACT ACT OR BST ACT?

1. Messrs. Dayal & Associates — DDQ – 1199/Adm – 5/74/B-13 dt. 25-11-2000 hadapplied for a determination u/s 52 of the BST Act as to the taxability of printed cartonsmeant for packaging of pharmaceutical products. The cartons were as per the designsand specifications of the customer and details such as name, address, batch number,date of manufacture, MRP, brand name and similar other particulars were printed onthese cartons. The applicants also printed labels for pasting on the bottles of thepharmaceutical products. The applicants contended that by printing the aforesaidparticulars, the products lost their marketability and that in view of the Bombay HighCourt judgment in Sarvodaya Printing Press 93 STC 387, it would be a transactionfalling within the ambit of the Works Contract Act and not a sale under the BST Act.As regards the printed cartons, the Commissioner held that the cartons was a productof the “packaging industry” and not of the “printing industry” and that the issue wasresolved by the Supreme Court in Rollatainers & Other 95 STC 565. TheCommissioner proceeded to hold that the ruling was equally applicable to otherpacking material like aluminium foil, wrapping paper, cartons, packing bags, etc.Printing makes the product specific but the product has not lost its marketability as abox. Although after printing there is no general marketability, it has marketability withreference to one particular customer and one customer can constitute a market as heldby the Supreme Court in A.P. Electricity Board 95 STC 595. The Commissioner alsodistinguished the Sarvodaya Printing Press judgment on the ground that while in thatcase the Money Receipt books came about by the process of printing, in the presentcase boxes remain boxes even after printing. Reliance was placed by the Commissioneron the decision of the Tribunal in Indian Aluminium SA dt. 10-2-1999 wherein it washeld that printed aluminium foil meant for packing pharma products was also analuminium foil. Further, as held by the Tribunal in National Paper Converters AppealNo. 44 of 1996 dated 15-5-2000, wrapping paper manufactured for Britannia wasbasically a wrapping paper but with specific printing it had become printed matterrestricting its marketability to only one customer. The Commissioner also distinguishedSarvodaya Printing Press decision on the ground that in that case the question of highsecurity and confidentiality were also involved. Accordingly, printed cartons were heldto be covered by Sch. C–II–152 liable to tax at 13%.

2. As regards, printed labels, the Commissioner relied on the Supreme Court judgment inMetagraph 106 STC 180 (pertaining to Excise law) and held that labels were a productof the printing industry as prior to printing it was a mere piece of paper and only afterprinting the labels come into existence. Since the labels do not have general utility,printing of labels and supplying them would amount to “sale” under the WorksContract Act — Dayal & Associates DDQ – 1199/Adm – 5/74/B-13 dt. 25-11-2000.Similar view has been taken by the Commissioner in Safe Offset Centre, Safe OffsetP. Ltd. and Savai Printers P. Ltd. Order No. WC/2000/DDQ – 18,19,20 /Adm. – 12/B –


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132 dt. 27.3.2001 and it has been held that newsletters, literature, art cards, samplecard, sample catch covers, labels, prescription pad cover, folders, stickers, visitingcards, letter heads and posters would be covered by the provisions of the WorksContract Act in view of the decision of the Bombay High Court in Sarvodaya PrintingPres cited supra.

However, the following issues which arise from the above DDQ need to be examined indepth:

3. Whether a distinction is permissible on the lines of “printing industry products” and“packing industry products”? The distinction is based on the decision of the SupremeCourt in Rollatainers 95 STC 565, which was dealing with Excise classification of theabove products which, as we have noted, is governed and heavily influenced by theSection Notes and the Chapter Notes. Note 11 in Chapter 48 states that “except for thegoods of heading 48.14 or 48.21, paper, paperboard, cellulose wadding and articlesthereof printed with motifs, characters or pictorial representations, which are notmerely incidental to the primary use of the goods, fall in Chapter 49”. Thus, thedecision in Rollatainers is clearly influenced by this Chapter Note and would not bedeterminative of the impugned question.

4. Recently, the Mumbai Tribunal of Central Excise has distinguished the aforesaidSupreme Court decision in Malti Arts P. Ltd. 118 ELT 139 and has held that cartonson which specific trade names and trademarks are printed would fall under Chapter 49relating to products of the printing industry and not Chapter 48 which governsproducts of the packaging industry.

5. In National Paper Convertors case cited supra, the issue whether sale of printedcartons was a sale under the Works Contract or not was not permitted to be arguedsince the argument was made for the first time before the Tribunal. The argument wassummarily brushed aside and the order of the Commissioner was upheld. The Tribunalfelt that it would not be proper to adjudicate on a matter which was not discussedbefore the Commissioner. However, under the circumstances, the Tribunal could haveremanded the matter to the Commissioner instead of upholding the DDQ order. In asubsequent decision on the issue, the Tribunal chose to remand the matter to theAssessing authority to examine the question whether sale of printed cartons would bea sale under the Works Contract Act or the BST Act — Premier Packaging IndustriesS.A. No. 1042/1403 of 1995 dated 12-4-2001. Thus, the issue cannot be said to havebeen settled with finality.

6. It has been clarified in Trade Circular No. 10T of 2001 dt. 30-6-2001 that cartons evenif printed would be eligible to be covered by Sch. C–I–29 by virtue of entry 48.19.However, one may contend that sale of printed cartons is a sale under the WorksContract Act. Further, if some dealer wishes to classify his sales under the BST Act,whether Dept. can turnaround and say that it is a works contract? Can one claim thebenefit of the aforesaid Trade Circular before the Tribunal? (Poser 8)

K. INFORMATION TECHNOLOGY PRODUCTS – NOTFN. ENTRY A–131

Items that could get covered under this Notification are also determined on the basis of Exciseclassification. The Notification also states that Rules for Interpretation of the Central ExciseTariff Act, 1985 read with the Explanatory Notes as updated from time to time published bythe Customs Cooperation Council, Brussels apply for the interpretation of this Entry. Note 2


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also narrows down the scope to those goods enumerated in the Notification although they maybe covered by the relevant CET since the intention is to grant concession only to productsrelated to the Information Technology industry. However, the term Information Technology isnot just restricted to Software industry. The goods covered in the Notification fall either in:

Chapter 84 : Machinery Mechanical Appliances and parts thereof

Chapter 85: Electrical / Electronics Machinery and Equipment and parts & accessories thereof

Chapter 90: Optical, Photographic and Surgical instruments and parts & accessories thereof

Recently, Audio conferencing and Video Conferencing systems were held as falling under85.17 since they functioned like Telephone and Videophone set and hence were eligible forthe benefit of Notfn. entry A –131 – Neutron Electronic Systems P. Ltd. – Appeal No. 23 of2001 dt. 27-2-2004.

There is a controversy as to whether UPS would be classified under 85.04 or 85.43 and somedecisions holding that they fall in 85.04 and some holding that they fall in 85.43. Whatever bethe fate, the Notification intends to grant benefit to UPS, in whichever entry they fall.

It may be clarified that 85.23 covers unrecorded media (CDs/Cassettes/VCDs) and not recordedmedia which is covered in 85.24. Since the Notfn. restricts the benefit only to I.T. softwarerecorded on any media, music cassettes/VCDs/CDs would not be eligible for the concession butwould fall in Sch. Entry C-II-125 or 133 as the case may be.

Further, there is a possibility of that some items are covered both in Notfn. Entry A-131 aswell as Notfn. A–33 and A–34. Although, the rate of sales tax on such items is 4% andsurcharge and Turnover tax is exempted, resale sale tax is applicable to goods covered inNotfn. entry A–33 and A–34 but not to items covered in Notfn. entry A–131. It is submittedthat a dealer would be entitled to claim the benefit of Notfn. entry which was more beneficialto him.

L. INSTANCES WHERE CLASSIFICATION OF GOODS VARIES IN ACCORDANCE WITH THEIRDEFINITION UNDER THE EXCISE LAWS FROM TIME TO TIME. E.G. FABRICS, TOBACCO,

1. Fabrics

The classification of these items is directly influenced by their classification underExcise by virtue of the fact that they are defined by reference to structure of the Sch.Entry A–15. Sch. Entry A–15 is reproduced hereunder for ease of reference:

15 (1) Fabrics,

(2) Sugar and

(3) Tobacco

as described from time to time in column (3) of the First Schedule to the Additional Duties ofExcise (Goods of Special importance) Act, 1957 and manufactured or produced in India.

Explanation: For the removal of doubts, it is hereby declared that Pan Masala, that is to sayany preparation containing betel nuts and any one or more of the ingredients, namely lime,catechu and tobacco, whether or not containing any other ingredients such as cardamom,copra and menthol will not be covered by the scope of sub-entry (3) of this entry.


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Thus, on a reading of the entry, it is clear in order that the fabrics described in the FirstSchedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957 arecovered by Sch. Entry A–15, they should be manufactured or produced in India (notnecessarily in Maharashtra). Further, their description in the said Schedule is sufficient and itis not necessary that Additional excise duty, which is in lieu of Sales tax, is paid or payable.It is quite possible that the dealer may be enjoying the benefit of any Notification or that theturnover is less than the excisable limits. Vide Notfn. Nos. 32/2004CE and 31/2004 – CE, alltextiles and textile articles falling under Chapters 50 to 63 have been fully exempted fromduties under Additional Excise Duty (Goods of Special Importance) Act and Additional ExciseDuty (Textiles and Textile Articles) Act, wherever applicable. However, these goods wouldcontinue to be exempt for sales tax under Sch. Entry A–15 for the above reason. Whiledetermining whether the goods are classifiable under the First Schedule, the normal Rules ofInterpretation under Excise, Section Notes and Chapter Notes would be applicable.

2. “Made up” articles

One of the most important Section Notes under Section XI of the CET reads as under:“5. For the purpose of this section, “made up” means :

(a) cut otherwise than into squares or rectangles

(b) produced in the finished state, ready for use (or merely needing separation by cuttingdividing threads) without sewing or other working (for example certain dusters, towels,table cloths, scarf squares, blankets)

(c) hemmed or with rolled edges, or with a knotted fringe at any of the edges butexcluding fabrics the cut edges of which have been prevented from unravelling bywhipping of by other simple means

(d) cut to size and having undergone a process of drawn thread work

(e) assembled by sewing, gumming or otherwise (other than piece goods consisting of twoor more lengths of identical material joined end to end and piece goods composed oftwo or more textiles assembled in layers, whether or not padded)

(f) knitted or crocheted to shape, whether presented as separate items or in the form of anumber of items in the length.

As per Section Note 6, for the purposes of Chapters 50 to 60:

(a) Chapters 50 to 55 and 60 and, except where the context otherwise requires, Chapters56 to 59 do not apply to goods made up within the meaning of Note 5 above and

(b) Chapters 50 to 55 and 60 do not apply to goods of Chapter 56 to 59.

Thus, if the goods are “made up” they would cease to qualify as fabrics within the scope ofSch. Entry A–15. However, whether they are “made up” or not would have to be decided inthe light of Section Note 5 above and not on application of the common parlance test or acombination of the common parlance test and the guidance given in the Section Note. Madeup articles being articles of apparel and clothing accessories, not knitted or crocheted wouldfall in Chapter 62 and other made up textile articles would fall in Chapter 63. For example,terry towels made out of towelling fabrics by cutting, hemming and stitching are classifiableunder heading 63.01 of the CET. (Swatantra Bharat Mills vs. Collector – 1997(96 ELT 369(Trib.). Terry towels manufactured in rolls having dividing thread is classifiable under


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heading 63.01 of the CET as made up article and not under heading 58.02 as terry toweling

fabrics. Blankets with stitching on borders are produced in the finished state ready for use and

hence fulfil the definition of made ups and are classifiable under heading 63.01 and not under

heading 56.03. – Non-woven (India) P. Ltd. vs. Collector – 1999 (107) ELT 648 (Trib.)

Recently, the Delhi High Court in Hoshyar Singh Suresh Chandra Sarees P. Ltd. vs. CST 136

STC 173 has held that silk sarees were silk fabrics and not silk garments. Merely because,

without any further process being carried out on the manufactured article, a person can put it

on, it cannot be branded as a garment. The Court has also clarified the distinction between

“cloth” and “clothes” – cloth comes straight from the textile factory whereas clothes were

articles made after the cloth had been converted by cutting, stitching and/or some further

process having been done to cloth, either by man or machine to make that cloth into a

garment or a wearing apparel. Thus, if the “zalar” is attached to silk saree/art silk saree or the

same is decorated with embroidery, these additional processes would render it as a different

commodity in common parlance and it would lose the benefit of classification under Sch.

A–15. Reference can be made to Shree Ram Industries vs. State of Gujarat (1974) 34 STC

153 (Guj.) and CCE vs. Kapri International P. Ltd. (2002) 128 STC 650 (S.C.). Here too, the

Supreme Court drew a line of distinction between sarees which are decorated in the course of

weaving and those which are decorated after the process of manufacture is completed and

embroidery is superimposed thereon. In the former case, they would still qualify as fabrics

whereas in the latter case they would cease to be fabrics and be liable to be classified as

“made up articles”/ readymade garments. Participants are welcome to share their views /

experience. (Poser 9)

3. Tobacco

Tobacco also has to be interpreted according to the Excise law at the relevant time and

common parlance test would not be applicable. Pan Parag Zarda/Gutka, which also

contained betel nuts, was held to be tobacco exempted from tax under Sch. Entry A –

12 and not liable to tax under Sch. Entry C–II–43A during 1990-91 in view of Kothari

Products Ltd. vs. Government of Andhra Pradesh (Civil Appeal No. 625 / 98 – JT 2000

(3) SC 554 ) Crystal Products SA No. 189 of 1995 and Appeal No. 40 of 2000

dt. 4-8-2001. The Govt. of Maharashtra brought in a retrospective amendment vide Act

No. XXI of 2000 to nullify the aforesaid judgment of the Supreme Court. However, the

Tribunal held that it continued to be tobacco and hence was exempt u/s A–15. The

Tribunal opined that Legislative intent was not properly carried out and the Tribunal

despite being a creature of the statute was constrained not to follow the amendment

which sought to tax declared goods in violation of Constitutional restrictions -

Ajaykumar S. Mittal – Appeal Nos. 8 and 9 of 1996 and S.A No. 582 of 1997

dt. 12-4-2002. It may be noted that the Tribunal distinguished its own Larger Bench

decision in Pratap & Bros. (Export Division) – S.A. Nos. 638/639 of 1998 dt. 25-10-2001.

To achieve its goal, the Govt. has attempted to levy Luxury Tax now.

M. WHETHER PROVISIONS RELATING TO CLASSIFICATION OF MEDICINES UNDER EXCISE

AND SALES TAX LAWS ARE IN PARI MATERIA?

It is noticed that Sales Tax authorities are reluctant to classify goods that are classified under

Chapter 30 of the CET under Sch. Entry C-II-37 on the ground that the provisions under

Excise and Sales Tax are not in pari materia and that the Schedule Entry C-II-37 is a self


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contained and distinct entry by virtue of the Exclusion clauses appearing in the entry, whichstipulate that the following goods are not included in the entry:

1. goods covered, described or specified in any other entry in this Schedule

2. medicated goods

3. products capable of being used as toothpaste, tooth powder, cosmetic, toilet article,soap and hair oil.

4. mosquito repellants

Even when the first three exclusion clauses were removed during the period, 29-6-96 to5-2-1999 and have been removed once again with effect from 1-5-2002, this reluctance toclassify pharmaceutical goods under Sch. Entry C-II-37 is quite pronounced. Participantsattention is drawn to the Rules of Interpretation which state that classification would have tobe determined in the light of Section Notes and Chapter Notes, which as held in Metrowoodcited supra have the effect of narrowing down, excluding or expanding the scope of theChapter. The relevant Chapter Notes 1(d) and 1(e) read as under:

This Chapter does not cover:

Note 1(d) – Preparations of Chapter 33 even if they have therapeutic or prophylacticproperties.

Note 1(e) – Soap or other products of Chapter 34 containing added medicaments

Doesn’t the Note 1(d) have a similar impact of excluding goods of Chapter 33 (Cosmetic orToilet preparations, Essential oils, etc.)? While ascertaining what goods fall in Chapter 33,reference is necessary to Note 2 of Chapter 33, which reads as under:

“Heading Nos. 33.02 to 33.07 apply, inter alia, to products, whether or not mixed (other thanaqueous distillates and aqueous solutions of essential oils) suitable for use as goods of theseheadings and put up in packing with labels, literature or other indications that they are for useas cosmetics or toilet preparations or put up in a form clearly specialised to such use andincludes products, whether or not they contain subsidiary pharmaceutical or antisepticconstituents or are held out as having subsidiary curative or prophylactic value.”

Similarly, wouldn’t you agree that Note 1(e) has the effect of excluding soap or other productsof Chapter 34 (Soap and organic surface active agents, etc) containing added medicaments; i.e.,medicated soaps and shampoos, etc.

Note 2 clearly highlights the fact that products having subsidiary medicinal value, or put upfor sale in packing with labels, literature or other indications that they are for use as cosmeticswould be liable to be classified under Chapter 33 and not Chapter 30. Thus, Note 2 is basedon the tests of common parlance and the “predominance” theory which has been explainedrecently in V.C. Ramalingam & Sons 127 STC 382(Mad.) – “The words “capable of beingused” if widely construed, would apply to any medicinal products if used as creams, hair oils,tooth pastes, tooth powders, cosmetics, toilet articles, soaps and shampoos. Those words“capable of being used” are required to be construed as USED PRIMARILY as creams, hairoils, tooth pastes, tooth powders, cosmetics, toilet articles, soaps and shampoos.”

Thus, products which are basically medicines per se would continue to fall in Schedule entryC-II-37. It is only goods which are predominantly used as cosmetics or toilet articles wouldstand excluded. This interpretation was assigned in Khetan Industrial Works DDQ No. 1183


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/Adm/-5/253/B-9 dt. 29-9-1985, which explains the legislative intent of the insertion of theexclusion clauses at the relevant time. The relevant extract of the same is reproducedhereunder for ready reference:

“ In particular the entries for cosmetics and toilet articles were made broad based so as tocover medicated preparations or preparations which were claimed as having some medicinalproperties. The Legislature intended to exclude such preparations from the scope of theexpression, “medicines”. To make the intention absolutely clear, the Legislature by amendingunder the Maharashtra Act IX of 1984, the entry for medicines (C-I-21) specified that cosmeticsand toilet articles used as medicines would not fall within the expression “medicines” In thecontext of these changes, therefore now the question is whether the product would continue tobe classified as a medicine in the period when the revised Act has come into force. In cases ofsimilar nature, these very entries with the changed setting had come up for interpretation. Ithas been held that if a product is basically a medicine, it continues to be a medicine becauseit is different from a product which is used as a medicine or which is medicated. Theevidence on record in the instant case establishes that the product (Najmex Black DantManjan) is an ayurvedic medicine containing such ingredients which have a therapeuticproperties as recognised by the texts on Ayurveda.”

However, with the passage of time, even miniscule use of the product for its cosmetic ortoiletry function has led to its disqualification from Sch. Entry C-II-37 by virtue of theexclusion clauses, which treatment is, in my humble submission, untenable. Recently, thedifference between the excise entries and the relevant Sales Tax entry was explained in thefollowing words in Allen Laboratories Ltd. – DDQ – 1199/Adm. – 5/ 91 / B–2 dt. 4-2-02

“The judgments before different forums and given against different schedule entries are notapplicable in their entirety. In the Excise entry, there is neither any entry for medicatedcosmetics nor does the entry for drug carry any exclusion clause. The same is the situationwith the Karnataka Act and the Orissa Act. I agree that the Notes to Chapter 30 does excludepreparations of Chapter 33 even if they have therapeutic or prophylactic properties. But, inorder to attract Note No. 2 to Chapter 33, the product must first be a cosmetic, it should besuitable for use as goods of Headings 3303 to 3308 and they must be put in packing as labels,literature and other indications showing that they are for use as cosmetic or toilet preparation.As against this, under the Bombay Sales Tax Act, any product just capable of being used as acosmetic goes out of the purview of ‘drugs’. Moreover, the entry for cosmetics has a specialprovision for ‘medicated cosmetics’. Therefore, the judgments referred are not germane to thecase in hand.”

However, if one applies the meaning of “capable of being used” as held/explained in V.C.Ramalingam & Sons 127 STC 382 (Mad.), goods that have incidental medicinal properties butare predominantly cosmetics or toilet articles. would stand excluded from Chapter 30 by virtueof Note 2 to Chapter 30 as well as from Sch. Entry C-II-37 by virtue of the exclusion clauses.Thus, the entries in the two Acts are in pari materia although the structure of the entries mayappear different at first sight. Participants’ views are solicited in this regard. (Poser 10)

N. LEVY OF EXCISE/SALES TAX ON DESIGNS & DRAWINGS

Like in Sales tax law, intangible assets are also goods and are liable to customs or excise dutyas the case may be. Drawings and designs relating to machinery or technology have been heldto be “goods” even if the dominant intention was to pay for valuable technical advice orinformation technology in Associated Cement Companies Ltd. vs. Commissioner of Customs


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(2001) 128 ELT 21 (S.C.). The Supreme Court held that the filing of Form A-2 with ReserveBank of India for permission to remit Foreign exchange for services (i.e., other than goods) anddeduction of tax at source under the provisions of the Income-tax Act, 1961 for servicesrendered in India, would not be relevant in deciding the issue. The Supreme Court held thatthe moment advice was transcribed on to a media, whether paper, diskettes or any otherthings, then what was supplied became “chattel”. The contents are relevant only for thepurpose of valuation. The Supreme Court did not agree with the argument that the value ofthe media was negligible (US$ 1) and that the value of the ideas, which were not goods wereto be segregated in arriving at the assessable value. Reliance was placed on B. C. Kame’s caseand Rainbow Colour Laboratories Ltd. 118 STC 9(S.C.) to submit that the dominant intentionwas to render service and hence the contract was a Service contract. The Apex Court whileholding that these cases pertained to sales tax and were not relevant in deciding the issue,proceeded to make unwarranted observations about the correctness of Rainbow ColourLaboratories cited supra in the context of the 46th Constitutional Amendment (with whichthe petitioners were not concerned and hence went unchallenged). These cases were clearlynot relevant since it was never in dispute that what was being transferred in the execution ofthe contract were “goods” while in ACC’s case, the Supreme Court was deliberating on theissue whether designs & drawings were “goods” and if so, their classification. Participants arewelcome to share their views on the applicability of ACC’s case in deciding whether a contractwas a works contract or a Service contract. (Poser 11) Further, whether the Supreme Court’sobservations could, at best, be construed as obiter dicta and therefore not binding on the lowerCourts? (Poser 12) With due respect, on a reading of the judgment in Matushree Textiles, itappears that the Hon’ble Bombay High Court has taken it for granted that the observations inACC’s case override the pointed ruling in Rainbow Colour Laboratories Ltd. cited supra.

The Supreme Court hence proceeded to classify the designs and drawings under Chapter 49.Chapter 49 of the First Schedule is titled “Printed books, newspapers, pictures and otherproducts of the printing industry; manuscripts, typescripts and plans.” Note 2 in Chapter 49states that the term “printed” also means reproduced by means of a duplicating machine,produced under the control of a computer, embossed, photographed, photocopied,thermocopied or typewritten. Customs tariff Heading 49.05 pertains to “maps and hydrographicor similar charts of all kinds, including atlases, wall maps, topographic plans and globes”.Customs tariff Heading No. 49.06 pertains to “plans and drawings for architectural,engineering, industrial, commercial, topographical or similar purposes, being originals drawnby hand; handwritten texts; photographic reproductions on sensitized paper and carbon copiesof the foregoing. Thus, the Supreme Court held that designs and drawings if imported wouldbe classifiable under 49.06 and customs duty would payable accordingly (25%). If the designsand drawings are manufactured in India, they would be classifiable under CET 4901.90 –Other but the excise duty payable is Nil. Similarly, in Prerna Textiles vs. CCE (2000) 117ELT 241 (CEGAT) it was held that knowledge in the form of “Designs & drawings” relating tomachinery were “goods” and Civil Appeal thereagainst has been dismissed as reported in(2001) 134 ELT A 169. What would be the case if designs are transferred by e-mail and nottranscribed on to a media like paper / disk / CD? (Poser 13)

In the light of the above, can it be still be argued that designs registered under the DesignsAct, 1911, which are sought to be taxed under sales tax under Sch. Entry C-I-26 with effectfrom 1-5-2000, are not taxable on the ground that what is sought to be taxed is intellectualproperty / Service? If they are goods, whether other designs and drawings not registered underthe Designs Act, 1911, which have been transcribed on to CDs/Floppy disks, would be


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“intangible goods” so as to be eligible to be classified under Sch. Entry A–47? (Poser 14) in myhumble submission, they continue, in the eyes of law, to be intangible goods in much thesame way as software packages in CD form, SIM Cards or Designs registered under the DesignsAct, 1911. After all, it is the substance that counts and not the form!. To complicate matters,vide the Finance Act, 2004 effective from 10-9-2004, intellectual property services other thancopyrights are liable to service tax. Perhaps, the final answer to what constitutes “goods” inthe modern day, how they would have to be classified and what constitutes “service” would beavailable when the issue is decided in Tata Consultancy Service’s case (Reference made tothe Larger Bench in 122 STC 198). Participants’ views are solicited. (Poser 15)

CONCLUSION

Thus, it will be seen that classification of goods poses innumerable challenges both underExcise and Sales tax laws. Under excise, despite various aids like Rules of Interpretation,Section Notes and Chapter Notes, the HSN, classification is a complex issue. To make mattersworse, in Schedule entry C-I-29, in a number of Notification entries, partial coverage is donewhich can lead to litigation and costly misunderstandings. To compound our agony and add tothe confusion, at times, either Rules of Interpretation or common parlance tests have beenapplied as appear convenient. Under the circumstances, one wonders whether the Sales Taxauthorities in various States are well equipped to deal with Excise classification issues onceVAT is introduced since classification/reclassification of goods is proposed to be done withreference to CET?

ACKNOWLEDGEMENTS

This paper may be treated as a humble attempt at analysing the process of Classification ofgoods under Excise and its relevance or otherwise in sales tax — it is a rather vexed subjectthat is alien to most of us. Considering the complexity of the subject at hand, it would be asource of satisfaction for me, if the paper has succeeded in providing food for further thought.Before I conclude, I would like to thank the Association for having given me this opportunityto share my views before such an august gathering. I shall also remain indebted to Mr. S.S.Gupta, Chartered Accountant, Chairman of this Technical session, for the invaluable guidanceprovided and for adding value to the paper.

LIST OF CASES REFERRED TO :—

1. C.S.T. vs. Puran Chand & Sons (1981) 48 STC 284(Del.)

2. State of Kerala vs. Attessee (Agro Industrial Trading Corporation) (1989)72 STC 1 (S.C.)

3. Shah Textile Mills P. Ltd. vs. State of Gujarat 85 STC 515

4. Leukoplast (India) Ltd. vs. State of Goa & Ors (1988) 71 STC 180 (Bom.)

5. CST vs. Jaswant Singh Charan Singh (1967) 19 STC 469 (S.C.)

6. State of Gujarat vs. C.K. Gauze Bandage Mfg. Co. (1992) 84 STC 571

7. Karsandas Exports – Appeal No. 102 of 2001 dt. 17-10-2003

8. CCE vs. Wood Craft Products Ltd. 1995 (77) ELT 23

9. CCE vs. Charminar Non-wovens Ltd. (2004) 136 STC 356 (S.C.)


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10. Merind Ltd. 136 STC 462 (Bom.)

11. CCE vs. MP (I) Ltd. 1990 (46) ELT 68.

12. United Copiex (I) P. Ltd. 101 STC 536 (S.C.)

13. CCE vs. Louis Shoppe – 1996 (83) ELT 13 (S.C)

14. Interspace vs. CCE 2003 (157) ELT 221.

15. Mahindra Ugine Steel Co. Ltd. - S.A. No. 55 of 1998 dt. 16-9-2000

16. Markfed Vanaspati & Allied Industries 153 ELT 491 (S.C)

17. CCE vs. Carborandum Universal Ltd. 1998 (103) ELT 363

18. UOI vs. Ahmedabad Electricity Co. Ltd. 158 ELT 3 (S.C.)

19. TISCO vs. CCE 1995 (75) ELT 3 (S.C.)

20. Ion Exchange (India) Ltd. - 1999 (112) ELT 746 (S.C.)

21. Castrol India Ltd. vs. CCE 1998 (99) ELT 234

22. Ballarpur Industries vs. CCE 2003 (158) ELT 618

23. CCE vs. Dodsal P. Ltd. 1987 (28) ELT 352 (S.C.)

24. Duncans Industries Ltd. vs. State of U.P. (1999) 9 SCC 421

25. Hindustan Ferrodo Ltd. vs. CCE 106 STC 214 (S.C.)

26. CCE vs. Sharma Chemical Works 2003 (154) ELT 328 (S.C.)

27. Rajasthan Synthetics Industries Ltd. vs. Collector 1989 (42) ELT 24 (Trib.)

28. Aravali Forgings Ltd. vs. Collector 1994 (70) ELT 693 (Trib.).

29. CCE vs. Metrowood Engineering Works – 1989 (43) ELT 660 (Trib.)

30. CC vs. Sanghvi Swiss Refills P. Ltd., 1997 (94) ELT 644 (CEGAT)

31. CCE vs. Wood Polymers Ltd. 1998 (97) ELT 193 (S.C.)

32. Nirlon Synthetic Fibres vs. UOI 1999 (110) ELT 445 (Bom.)

33. Indo International Industrial vs. CST 47 STC 359 (S.C.)

34. Godrej Soaps Ltd. vs. CC (2000) 115 ELT 710

35. Bharat Enterprises vs. Commissioner 2002 (139) ELT 321 (Trib. – Delhi)

36. CCE vs. Jagjit Industries 141 ELT 306 (S.C.)

37. J.K. Synthetics vs. CCE 2000 (123) ELT 1166.

38. Shivaji Works Ltd. vs. CCE 1994 (69) ELT 674

39. Hindustan Udyog vs. CCE 2001 (133 ELT) 405

40. Shirke Construction Equipments P. Ltd. vs. CCE 1997 (95) ELT 644


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41. Ganpati Ropeways P. Ltd. 1999 (112) ELT 395

42. Dunlop India Ltd. vs. UOI 1983 (13) ELT 1566 (S.C.)

43. Sprint RPG India Ltd. vs. CC 116 ELT 6 (S.C.)

44. Luminous Electronics vs. CCE 2001 (129) ELT 605 (CEGAT 5 Member Bench)

45. Tapex Corporation vs. CCE 1998 (103) ELT 580.

46. CCE vs. KWH Heliplastics Ltd. 1998 (97) ELT 385 (S.C.)

47. CCE vs. TELCO 2002 (143) ELT 548

48. Saluja Udyog vs. Collector – 1999 (108) ELT. 418 (Trib.)

49. Supreme Industries P. Ltd. DDQ 11/2000/Adm – 5/86/B-6 dt. 15-12-2003

50. National Organic Chemicals Industries Ltd. & Ors. – DDQ No. 11/2000/Adm-5/110dt. 17-7-2001

51. Jupiter Poly containers, Jas Poly containers (DDQ – 11/2000/Adm – 5/102 & 98 / B – 6dt. 20-4-2001.

52. Collector vs. Orissa Cement Ltd. 1994 (69) ELT 537 (Trib.)

53. Tex Past Engineers P. Ltd. vs. Commissioner 2000 (118) ELT 493 (Trib.)

54. Mars Enterprises – S.A. No. 367 of 2000 dt. 8-6-2001.

55. Panorama Computronics – S.A. No. 1189 of 2001 dt. 6-12-2002

56. Hariram Govindram vs. CCE 1998 (104) ELT 43.

57. Ranaday Micronutrients vs. CCE, 1996 (16) RLT 501 (SC) = 1996 (87) ELT 19 (SC).

58. Vee Gee Electronics vs. Commissioner 2001 (130) ELT. 473(Trib.).

59. Gayatri Plastic Industries DDQ No. 11-2002/Adm – 5/5-6-7-8/B- 7 dated 31-3-2002

60. Naffar Chandra Jute Mills Ltd. vs. Assistant Collector 1993 (66) ELT. 574 (Cal.)

61. Johnson & Johnson Ltd. vs. Collector 1996 (88) ELT 465 (Trib.)

62. Advance Marks & Labels P. Ltd. - DDQ-11-2002/Adm-5/35/B-3 dt. 10-12-2002

63. Metagraph 106 STC 180 (S.C.)

64. Fibre Foils Limited DDQ No. 11/2001/Adm – 5/57/B-13 dt. 28-12-2001

65. Malti Arts P. Ltd. vs. Commissioner 2000 (118) ELT. 139 (Trib.)

66. K.C. Palanisamy & Co. vs. Commissioner – 1997 (89) ELT. 134 (Trib.)

67. Collector of Central Excise, Madras vs. I.T.C. Ltd. 152 ELT 241 (S.C.)

68. Collector vs. United Paper Products – 1995 (80) ELT 122 (Trib.)

69. Lakshmi Packaging P. Ltd. vs. Commissioner – 1997 (91) ELT 323 (Trib.)

70. Coats & Packs DDQ No. 11/2001/Adm–5/41/B-


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71. Lamson Sticks P. Ltd. – DDQ – 11 – 2002/Adm – 5/76/B-2 dt. 15-12-2003

72. Efficient Data Processing P. Ltd. – DDQ No. 1199/Adm. – 5/ B-3 dt. 12-8-2003

73. Collector vs. Shree Arun Packaging Corporation 1997 (94) ELT. 195 (Trib.)

74. Graphic Print Pack vs. Commissioner 2000 (118) ELT. 465 (Trib.)

75. Jain Packaging P. Ltd. vs. Collector 1997 (94) ELT 225 (Trib.)

76. K. K. Nag Ltd. - DDQ-11/2002/Adm-5/2/B-8 dt. 7-4-2002

77. Ameet Plastics DDQ No. 11/2001/Adm. – 5/56/B-7 dated 18.1.2002 (confirmed by theTribunal in Appeal No. 33 of 2002 dt. 21-3-2003).

78. Thermolite Packaging (India) P. Ltd. – DDQ No. 11/2002/Adm. – 5/69-44-42/B-2dt. 13-11-2002.

79. Prasad Plastics - DDQ-11-2002/Adm-5/68/B-4 26-12-2002.

80. Shalimar Pack DDQ No. 11/2004/Adm-5/18/B-4 dt. 30-7-2004.

81. Sinter Plast Containers vs. Collector – 1999 (107) ELT 351 (Trib.)

82. Ciba Specialty Chemicals (India) Ltd. DDQ No. 11/2000/Adm-5/40 to 42 / B-14dt. 19-7-2001

83. Nilgiri Herbals vs. CCE 2001 (132) ELT 781.

84. Adi Enterprises, vs. CCE 2002 (144) ELT 379

85. Swastik Industries - DDQ 1196/Adm – 5/89/B – 6 dt. 16-12-2000

86. Mayuri Packers & Printers SA No. 1420 of 1997 dt. 31-7-1998

87. Deekay Nylobolt Inds. P. Ltd. Rect. App. No. 43 of 2001 and Dishti Industries Ltd. Rect.App.. No. 44 of 2001 dt. 30-11-2002.

88. Vasuki Carborandum Works 43 STC 294 (Guj.)

89. J. K. Cotton Spinning & Weaving Mills Co. Ltd. 16 STC 563(S.C.)

90. Indian Copper Corporation 16 STC 259 (S.C.)

91. Rajsheel 74 STC 379 (S.C.)

92. Dayal & Associates – DDQ – 1199/Adm – 5/74/B-13 dt. 25-11-2000.

93. Sarvodaya Printing Press 93 STC 387 (Bom.)

94. Rollatainers & Other 95 STC 565 (S.C.)

95. A.P. Electricity Board 95 STC 595 (S.C.)

96. Indian Aluminium SA dt. 10-2-1999

97. National Paper Converters — App. No. 44 of 1996 dated 15-5-2000.

98. Safe Offset Centre, Safe Offset P. Ltd. and Savai Printers P. Ltd. Order No. WC /2000/DDQ – 18,19,20 /Adm. – 12/B – 132 dt. 27-3-2001.


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99. Premier Packaging Industries S.A. No. 1042/1403 of 1995 dated 12-4-2001

100. Neutron Electronic Systems P. Ltd. – App. No. 23 of 2001 dt. 27-2-2004.

101. Swatantra Bharat Mills vs. Collector – 1997(96 ELT 369(Trib.)

102. Non-woven (India) P. Ltd. vs. Collector – 1999 (107) ELT 648 (Trib.)

103. Hoshyar Singh Suresh Chandra Sarees P. Ltd. vs. CST 136 STC 173

104. Shree Ram Industries vs. State of Gujarat (1974) 34 STC 153 (Guj.)

105. CCE vs. Kapri International P. Ltd (2002) 128 STC 650 (S.C.)

106. Kothari Products Ltd. vs. Govt. of Andhra Pradesh (Civil App. No. 625 / 98 – JT 2000(3) SC 554)

107. Crystal Products SA No. 189 of 1995 and Appeal No. 40 of 2000 dt. 4-8-2001.

108. Ajaykumar S. Mittal – App. Nos. 8 and 9 of 1996 & S.A No. 582 of 1997 dt. 12-4-2002.109. Pratap & Bros. (Export Division) – S.A. NO. 638 / 639 of 1998 dt. 25-10-2001.

110. V.C. Ramalingam & Sons 127 STC 382(Mad.)

111. Khetan Industrial Works DDQ No. 1183 /Adm/-5/253/B-9 dt. 29-9-1985

112. Allen Laboratories Ltd – DDQ – 1199/Adm. – 5/ 91 / B – 2 dt. 4-2-2002

113. Associated Cement Companies Ltd. vs. Commissioner of Customs (2001) 128 ELT 21(S.C.)

114. Rainbow Colour Laboratories Ltd. 118 STC 9(S.C.)

115. Prerna Textiles vs. CCE (2000) 117 ELT 241 (CEGAT.) – Civil appeal dismissed in(2001) 134 ELT A 169.

116. Tata Consultancy Service - 122 STC 198(S.C.).

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Shailendra JainChartered Accountant

T. M. ChhatparAdvocate

Chairman Paperwriter

Qualification : M.Com, M.Phil., S.A.S., L.L.B.,and F.C.A.

Partner of M/s. Shah Baheti Chandak & Co.,Nagpur

Presently Hon. Jt. Secretary of Sales Tax BarAssociation, Nagpur.

Focuses mainly on Sales Tax & Allied Laws alsolooks after Auditing & Direct Tax laws.

Was co-opted member of ProfessionalDevelopment Committee of WIRC

Member of “Bulletin-Committee” of the NagpurBranch of ICAI

Teaching experience as lecturer at

(a) G.S. College of Commerce, Nagpur

(b) ICWA Nagpur Chapter

(c) FCS Nagpur Chapter and

(d) Bhartiya Vidya Bhawan, Nagpur.

Delivered lectures at various seminars organisedby various branches of ICAI, Sales Tax BarAssociation Nagpur and Other ProfessionalBodies.

Presented paper at seminar organised by SalesTax Bar Association, Nagpur

Written and published book on

“Dissertation for M.Phil. Examination”

“Employees Participation in Managementof Trade Union”

Assisted in preparation of advance note on VATpublished by the Institute of CharteredAccountants of India, Nagpur Branch

Retainers and consultant to various Indiancorporates and Multi National Companies

• Born in 1934, started his carreer as SalesTax Officer, Class-I in 1962.

• In 1968 he was promoted as AssistantCommissioner of Sales Tax.

• In the year 1976 he becameDy. Commissioner of Sales Tax.

• In the year 1982, he was appointed asMember, Maharashtra Sales Tax Tribunal.As a member of MSTT, he had thelongest tenure from 1982 to 1993.

• Presently he is practising as Advocate atMumbai. He has addressed manyseminars & Study Circles organised bySTPAM, Sales Tax Tribunal BarAssociation, Malad Chamber of TaxConsultants and other like Associations.As Chairman of Publication Committee ofSTPAM he has edited many shortpublications on amendments from time totime. His book on Taxation of Hotelierswas well received by Tax consultants allover Maharashtra & hence the ThirdEdition of the said Book is recentlypublished by STPAM.

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