1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1766 OF 2009

COMMISSIONER OF CENTRAL EXCISE            ...APPELLANT

     VERSUS

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

WITH  

CIVIL APPEAL Nos.6703­6710 OF 2009  

J U D G M E N T

RANJAN GOGOI, J.

1.      Aggrieved by the orders passed by the Customs,

Excise and Service Tax Appellate Tribunal (CESTAT)

(hereinafter referred to as ‘the Tribunal’) holding that the

coconut oil manufactured and packed in “small

containers” by the respondent(s)­assessee(s) is classifiable

under Heading 1513 and not under Heading 3305 of the

Central Excise Tariff Act, 1985 (hereinafter referred to as

‘the Act’), the Revenue is in appeal before us.

2

2. The  dispute is  with regard to  classification  of

coconut oil in packings upto 2 litres in case of  M/S

Madhan Agro Industries the respondent­assessee in Civil

Appeal No.1766 of 2009 and packings upto 500ml in case

of the respondent(s)­assessee(s) in the connected appeals

i.e. Civil Appeal Nos.6703­6710 of 2009. The relevant

period of assessment in all the appeals under

consideration is subsequent to the amendment of the

First Schedule to the Central Excise Tariff Act, 1985 by

the Amendment Act of 2004 (5 of 2005) which came into

force on 28.2.2005.

3. The facts, in brief, may be noted at the outset:

The respondent­asessee in Civil Appeal No.1766

of 2009 i.e. M/S Madhan Agro Industries Private Limited

is/was a manufacturer of 100% pure coconut oil

marketed under the brand name “Shanthi”.   In Civil

Appeal Nos.6703­6710 of 2009 the assesses are four job­

workers of M/S Marico Limited who had received 100%

pure coconut oil from Marico Limited in bulk and

thereafter had packed the same in small packages which

3

were supplied back to Marico as per dispatch schedules

issued.   The packages in question carried a declaration

that they contain 100% pure coconut oil.  The trademark

“Parachute” is also inscribed on the packs.   In Civil

Appeal No.1766 of 2009, the packings also included

pouches of 5 ml.  All the packs are marked as “edible oil”.

4. It  may  also  be  noticed  at this stage that the

packing sizes conform to the requirement of Clause 5 of

Schedule I of the Edible Oil packaging (Regulation) Order

1998 read with serial No.10 Schedule III of the Standards

of Weights and Measures (packaged commodities) Rules

1977.

5. While the assessee(s) contended that coconut oil

in small packings is also classifiable as coconut oil under

Heading  1513  the  revenue  claimed classification  of the

said products as “hair oil” under  Heading 3305  while

conceding that coconut oil in large packings i.e. beyond 2

Kgs. merited classification under Heading 1513.   This is

the core dispute between the parties in the present case.   

6. The relevant Headings before and after the

4

Amendment of the Central Excise Tariff Act effective 28­

02­2005   will require  a  specific  notice  and  is therefore

extracted below:

BEFORE AMENDMENT

CHAPTER 15  

ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS; ANIMAL OR VEGETABLE WAXES  

NOTES  

1. This Chapter does not cover :  

(a) pig fat or poultry fat;  

(b) cocoa butter, fat and oil (Chapter 18);  

(c) Edible preparations of Chapter 21;

(d) Greaves and residues of Chapter 23;

(e) Fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or  

(f)    Factice derived from oils (Chapter 40).  

2. Soap­stocks, oil foots and dregs, stearin pitch, glycerol pitch and wool grease residues fall in heading No.15.07

3. In this Chapter, the expression ‘fixed vegetable oils’ means oils which cannot easily be distilled without decomposition, which are not volatile and which cannot be carried off by superheated steam (which decomposes and saponifies them).

4. In relation to the products of sub­heading Nos.1502.00, 1503.00, 1504.00 and 1508.90, labeling or relabeling of containers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the  product  marketable to the  consumer, shall amount to “manufacture”.

Heading No.

Sub­heading No.

Description of goods Rate of duty

15.01 1501.00 Animal (including fish) fats and oils, Nil

5

crude, refined or purified

15.02 1502.00 Fixed vegetable oils, the following, namely cotton seed oil, neem seed oil, karanj oil, silk cotton seed oil, rice bran oil, khakhan oil, palm oil, water melon oil, sal oil, mahua oil, kusum oil, rubber seed oil, mango kernel  oil,  kokum oil,  dhupa oil, undi oil, maroti oil, pisa oil and nahor oil, and their fractions.

8%

15.03 1503.00 Fixed vegetable  oils,  other  than those of heading No.15.02

8%

15.04 1504.00 Vegetable fats and oils and their fractions, partly or wholly hydrogenated, inter­ esterified, re­esterified or elaidinised, whether or not refined but not further prepared.

8%

15.05 33.03.00 Omitted 8%

15.06 1506.00 Glycerol, Crude, Glycerol Waters and Glycerol lyes

16%

15.07 1507.00 Vegetable waxes (other than triglycerides), beeswax, other insect waxes and spermaceti, whether or not refined or coloured; degras;  residues resulting from the treatment of fatty substances of animal or vegetable waxes

16%

15.08 Margarine; edible mixtures or preparations of animal or vegetables fats; animal or vegetable fats and oils, boiled, oxidized, dehydrated, sulphurised, blown, polymerized by heat in vacuum or in inert gas or otherwise chemically modified; inedible  mixtures or preparations of fats and oils of this Chapter  

16%

1508.10 ­Linoxyn 16%

1508.90 ­Other 8%

BEFORE AMENDMENT

CHAPTER 33  ESSENTIAL OILS AND RESINOIDS; PERFUMERY, COSMETIC OR

TOILET PREPARATIONS Notes :

1. This Chapter does not cover :

6

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

(b)    Soap or other products of heading 34.01;  

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

(d)   Perfumery, cosmetics and toilet preparations containing  alcohol or opium, Indian hemp or other narcotics and for this purpose, these expressions have the meanings respectively assigned to them in Section 2 of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955).

2.  Heading Nos.33.03 to 33.07 apply, inter alia, to products, whether or not mixed (other than aqueous distilltes and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings with labels, literature or other indications that they are for use as cosmetics or toilet preparations or put up in a form clearly specialised to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents, or are held out as having subsidiary curative or prophylactic value.

3. The ‘perfumery, cosmetic or toilet preparations’ in heading No.33.07 applies,  inter alia, to the following products : scented sachets; perfumed papers and papers impregnated or coated with cosmetics; contact lens or artificial eye solutions; wadding, felt and nonwovens, impregnated, coated or covered with perfume or cosmetics; animal toilet preparations.

4. In relation to  products of  heading  Nos.33.03,  33.04 and  33.05, conversion  of powder into tablets, labelling or relabelling of containers intended for consumers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the products marketable to the consumer, shall be construed as ‘manufacture’

5. Heading No.33.04  applies, inter  alia, to the following  products : beauty creams, vanishing creams, cold creams, make­up creams, cleansing creams, skinfoods, skin tonics, face powders, baby powders, toilet powders, talcum powders and  grease paints, lipsticks, eye shadow and eyebrow pencils, nail polishes and varnishes, cuticle removers and other preparations for use in manicure or chiropody and barrier creams to give protection against skin irritants.

6. Heading No.33.05 applies, inter alia, to the following products; brilliantines, perfumed hair oils, hair lotions, pomades and creams, hair dyes  (in whatever  form), shampoos, whether or   not containing soap or organic surface active agents.

7. The expression “odoriferous substances” in  heading  33.02  refers only  to the substances  of  heading No.33.01  to  odoriferous constituents isolated from those substances or to synthetic aromatics.

7

Chapter 33    Cosmetic or toilet preparations, essential oils etc.

Heading No.

Sub­heading No.

Description of goods Rate of duty

33.05 Preparations for use on the hair

3305.10 ­Perfumed for use on the hair ­Other

16%

3305.91 ­Hair fixer 16%

3305.99 ­Other 16%

POST   AMENDMENT

CHAPTER 15  

Animal or Vegetable fats and Oils and their cleavage products; prepared edible fats; Animal or Vegetable Waxes  

NOTES  

1. This Chapter does not cover :  

(a) pig fat or poultry fat of heading 0209;  

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

(c) edible preparations containing by weight more than 15% of the  products of heading 0405 (generally Chapter 21);

(d) greaves (heading 2301) or residues of headings 2304 to 2306;

(e) fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or  

(f)    factice derived from oils (heading 4002).  

2.  Heading 1509 does not apply  to oils obtained  from olives by solvent extraction (heading 1510).

3.  Heading 1518  does  not cover fats or oils or their fractions,  merely denatured, which are  to be classified  in the heading appropriate  to  the corresponding undenatured fats and oils and their fractions.

4. Soap stocks, oil foots and dregs, stearin pitch, glycerol pitch and wool grease residues fall in heading 1522.

5. In relation to the products of heading 1507 or 1508 or 1509 or 1510 or

8

1511 or 1512 or 1513 or 1514 or 1515, or 1518; sub­heading 1516 20 or 1517 90; or tariff item 1517 10 10 or 1517 10 21 or 1517 10 29, labelling or relabelling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.

6.  In relation to refined edible vegetable oils  falling under headings 1507 to 1515, the process of refining, that is to say, any one or more of the processes, namely,  treatment of  crude oil  with an alkali,  bleaching and deodorisation, shall amount to 'manufacture'.

Sub­heading Note : 1. For the purpose of sub­headings 1514 11 and 1514 19, the

expression “low erucic acid rape or colza oil” means the fixed oil which has an erucic acid content of less than 2% by weight.  

Supplementary Notes : 1.  In this Chapter, “edible grade”, in respect of a goods (i.e. edible oil) specified in Appendix B to the Prevention of Food Adulteration Rules, 1955, means the standard of quality specified for such goods in that Appendix.

2.  In this Chapter, “fixed vegetable oil” means oils which cannot easily be distilled without decomposition, which are not volatile and which cannot be carried  off  by  superheated steam  (which decomposes  and saponifies them).

Tariff Item Description of Goods Unit Rate of

duty

1513 Coconut (copra), plam kernet or babassu oil and fractions thereof, whether or not refined, but not chemically modified

­Coconut (copra) oil and its fractions :

1513 11 00 ­Crude oil kg. 8%

1513 19 00 ­Other ­Palm kernel or babassu oil and fractions thereof:  

kg. 8%

1513 21 ­Crude oil :

1513 21 10  ­Palm kernel oil kg. 8%

1513 21 20 ­Babassu oil kg. 8%

1513 29 ­Other

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

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

1513 29 30 ­Babassu oil and its fractions, other than edible grade

kg. 8%

1513 29 90 ­Other kg. 8%

9

   POST   AMENDMENT

CHAPTER 33

Essential Oils and Resinoids, Perfumery, Cosmetic or Toilet Preparations

NOTES  

1. This Chapter does not cover:

a) natural oleoresins or vegetable extracts of heading 1301 or 1302;  

(b) soap or other products of heading 3401;  

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

(d)  perfumery, cosmetics and toilet  preparations containing alcohol or opium, Indian hemp or other narcotics and for this purpose, these expressions have the meanings respectively assigned to them in section 2 of the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 (16 of 1955).

2. The expression “odoriferous substances” in heading 3302 refers only to the substances of heading 3301, to odoriferous constituents isolated from those substances or to synthetic aromatics.

3. Headings 3303 to 3307 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential  oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use.

4. The expression “perfumery, cosmetic or toilet preparations” in heading 3307 applies,  inter alia, to the following products: cented sachets; odoriferous  preparations  which  operate  by  burning;  perfumed  papers and papers impregnated or coated with cosmetics; contact lens or artificial eye solution; wadding, felt and nonwovens, impregnated, coated or covered with perfume or cosmetics; animal toilet preparations.

5. In relation to products of headings 3303, 3304 and 3305, conversion of powder into tablets, labelling or relabelling of containers intended for consumers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the products marketable to the consumer, shall be construed as ‘manufacture’.

Tariff Item Description of Goods Unit Rate of

10

duty

3305 Preparations for use on the hair

3305 10 ­Shampoos : kg. 16%

3305 10 10 – Containing spirit kg. 16%

3305 10 90 – Other

3305 20 00 ­Preparations for permanent waving or straightening

kg. 16%

3305 30 00 ­Hair lacquer

3305 90 ­Other : – Hair oil :

3305 90 11  – Perfumed kg. 16%

3305 90 19 ­­Other kg. 16%

3305 90 20 – Brilliantines (spirituous) kg. 16%

3305 90 30 – Hair cream kg. 16%

3305 90 40 – Hair dyes (natural, herbal or synthetic) kg. 16%

3305 90 50  – Hair fixers kg. 16%

3305 90 90 – Other  kg. 16%

7. We may now take note of the arguments

advanced on behalf of the rival parties:

Shri  Panda, learned Senior  Counsel  appearing

for the appellant­Union of India has urged that a process

of interpretation and consideration of the Rules of

General Interpretation and relevant Chapter Notes

contained in the Act alongwith the results of the market

survey  undertaken by the  Revenue  would lead to the

conclusion that classification claimed by the Revenue is

fully justified and learned  Tribunal (CESTAT)  was  not

correct in rejecting the same. Specifically, Shri Panda has

11

referred to the Rule 1 of the General Rules for the

Interpretation of the Schedule to the Tariff Act; Chapter

Note 1 (e) to 15; Section Note 2 to Section VI and Chapter

Note 3 to Chapter 33 in support of the contentions

advanced.  Apart from relying on the aforesaid provisions

of the Act,  Shri Panda has submitted before the Court

that an elaborate market survey of the product

undertaken had indicated that coconut oil in smaller

packages are understood in the market and purchased as

‘hair oil’ and not as ‘edible oil’.   Relying on several

decisions  of this  Court, the  details  of  which would  be

noticed later, Shri Panda has submitted that

classification of the product  must follow the  Common

Parlance Test in which event the coconut oil in dispute is

eminently classifiable under Chapter 33, Heading 3305

and not under Chapter 15, Heading 1513 as claimed by

the assessee.   

8. On the other hand, Shri Bagaria, learned Senior

Counsel for the respondents­assessees has submitted

that none of the provisions relating to Interpretation of

the  Schedule to the  Act  and the  Chapter  Notes relied

12

upon by the Revenue would be applicable and relevant to

the  present  case  so as to  warrant  classification of the

product under Chapter 33.   Infact, Shri Bagaria has

urged that prior to the coming into force of the

Amendment Act 5 of 2005, the classification of coconut

oil was claimed and allowed under Chapter 15 Heading

1503 which dealt  with  Fixed vegetable  oils.   It is  only

after the amendment that Heading 1513 was

incorporated dealing specifically with coconut oil.     Shri

Bagaria has also pointed out that amendment made in

the year 2005 effective from 28.02.2005 was for the sole

purpose of fine tuning of the tariff with the Harmonised

System of Nomenclature (HSN).   In this regard, Shri

Bagaria has drawn attention to the Statement of Objects

and Reasons of the Amendment Bill wherein it had been

clearly stated that the  “Department of Revenue has

developed eight digit classification code based on

Harmonised System of Nomenclature (HSN) for the

purpose of classification of excisable goods in India”. Shri

Bagaria has also drawn attention of the Court to the fact

that in the aforesaid Objects and Reasons, it has been

13

further  stated that  “the  proposed  amendment  does  not

make any change in the existing rates of the central excise

duties  and  hence the  proposed changes  do  not involve

revenue implication”.   

9. Referring to the provisions of General Rules for

Interpretation and the Chapter and Section Notes relied

upon by  Shri  Panda and  drawing the  attention  of the

Court to the  Chapter  Note  3  and  Explanatory  Note to

Chapter Note 3 in the Harmonised System of

Nomenclature  (HSN),  Shri  Bagaria has submitted that

there is no manner of doubt that coconut oil, regardless

of the size of packings, is classifiable under Chapter 15 of

the  Tariff  Act  and by no means,  even remotely,  under

Chapter 33, specifically  Heading 33.05 which deals with

“preparations  for  use on  the hair”.  In  this regard Shri

Bagaria has contended that there is no dispute on the

fact that on all the packages of coconut oil cleared by or

on  behalf of the respondents­assesses, the inscription

“edible oil”  has been clearly affixed and there is no

advertisement/declaration/ representation to the effect

that the coconut oil is meant or intended for used as hair

14

oil.   In this regard,  Shri  Bagaria  has  also  drawn the

attention of the Court to Central Excise Notification

No.145/56/95­CX dated 31.08.1995 whereby the

following points were clarified by the CBEC in paragraphs

5 to  9 of the  Circular  with regard to classification  of

coconut oil prior to the Amendment of the Act in the Year

2005 :

(i) The  Heading  33.05  covers “preparations for  use  on the hair”.  Coconut oil is not a preparation for use on the hair.  It is fixed vegetable oil capable of being used as cooking medium (or for other purposes including for application on the hair).  In the absence of any proof that it is specially prepared for use on the hair or any label/literature/indications on the containers to that effect, the subject goods cannot be classified under heading 3305 simply because they were packed in small containers and applied by some sections of the society on the hair.

(ii) Coconut oil, whether pure or refined and whether packed in small or large containers merits classification under Heading 1503.

(iii) Only if the containers bear labels/literatures etc. indicating that it is meant for application on hair as specified in Note 2 of Chapter 33 and/or if the coconut oil is used as additives or has undergone a process which make it a “preparation for use on hair”, that coconut oil may merit classification under Chapter 33.

10. It is submitted that having regard to the object

behind the Amendment effected in the year 2005,   the

efficacy of the above circular, though issued when

Chapter  No.2  of  Chapter  33  (already extracted)  was  in

force, would continue even in the post amendment era

when Chapter No.2 has now been substituted by Note 3

15

(Chapter 33).

11. An order dated 03.06.2009 of the Central Board

of Excise and Customs (CBEC) under Section 37B of the

Central Excise Act has been placed before us.   The said

order is to the effect that if coconut oil is packed in

containers upto 200 ml it may be considered generally for

use  as  hair oil.   If, however, the same coconut oil is

packed in one litre or two litres pack, classification would

be under Chapter 15 as coconut oil.    It has been urged

by Shri  Bagaria that the  learned Appellate  Tribunal in

Rajasthan Oil Mills Vs. Commissioner of Central

Excise1 had taken the view that repacking of coconut oil

from bulk containers in retail  pack  of  200  ml  or less

would not make the item classifiable under Chapter 33.

It is submitted that the  Revenue’s  Appeal against the

aforesaid order of the learned Tribunal  i.e. Civil appeal

Nos.2023­2037 of 2014 has been dismissed by this Court

by  Order  dated  07­12­2014  following  which the  CBEC

has  issued another  circular  bearing  no.1007/14/2015­

CX dated 12­10­2015   withdrawing the earlier Circular

12014 (314) ELT 541 (Tribunal)

16

dated 03­06­2009 and directing that the issue of

classification may be decided by the field officers “taking

into consideration the facts of the case read  with the

judicial pronouncements”.  

12. Disputes with regard to classification may arise

in different situations and circumstances.  Whether a

particular item/product would fall under one or the other

Chapter/Heading of a Chapter is one such situation.   A

dispute may also arise on a claim that though the item

falls within a particular Heading, owing to multifarious

reasons, some part of the same item  may fall under

another Heading of the same Chapter or a different

Chapter altogether. All disputes with regard to

classification of goods manufactured and cleared has to

be primarily decided and resolved within the frame work

of the Act and on the basis of Rules for Interpretation and

the various Chapter Notes and Supplementary Notes

contained in  the  Tariff  Act.  The understanding of the

CBEC and other authorities exercising jurisdiction under

the Act in respect of the Rules for Interpretation and the

Chapter Notes, as may be reflected in the

17

Circulars/Memos  issued  from time  to time,  can be  an

useful aid in understanding and resolving disputed

issues of classification. The Harmonised System of

Nomenclature (HSN) and the Chapter Notes and

Explanatory Notes thereto,  on which the Tariff  Act has

been remodelled by the Amendment, has been repeatedly

acknowledged by this Court to be a safe guide for

resolution of disputes with regard to classification under

the  Tariff  Act.  The  opinions  rendered by this  Court in

Collector of Central Excise, Shillong Vs. Wood Craft

Products Ltd.2;  Commissioner of Customs and

Central  Excise,  Goa  Vs.  Phil  Corporation  Limited3;

O.K.  Play (India)  Ltd.  Vs.  Commissioner  of  Central

Excise, Delhi­III, Gurgaon4 may be illustratively referred

to in this regard.  These are the different tools that would

be available to the Court to deal with disputes with

regard to classification which must be resorted to in the

first instance.  

13. To what extent the common parlance test would

2 (1995) 3 SCC 454 3 (2008) 17 SCC 569 4 (2005) 2 SCC 460

18

be applicable in determining the classification of the

product in question is the first question that may be dealt

in view of the very emphatic arguments made on behalf of

the Revenue on this question.

14. Shri A.K. Panda, learned Senior Counsel for the

Revenue has urged that a detailed market survey

undertaken by the Revenue indicated that the consumers

who purchase “coconut oil” in small containers invariably

make the said purchase for use as hair oil  and not as

edible  oil. It  has, therefore,  been urged by Shri  Panda

that the product in dispute in the present case i.e.

“coconut oil” in small packings should be classified under

Heading 3305 and not under Heading 1513.  To support

the contention advanced Shri Panda has referred to

several pronouncements of this Court wherein it has

been held that the object of classification of goods for the

purpose of Central Excise and other Fiscal Legislation is

to raise the revenue and, therefore, scientific and

technical  meaning must  be  avoided and  the  particular

product as understood in trade and in common parlance

should be preferred.

19

15. In  Indo­International Industries vs.

Commissioner of Sales Tax, U.P.5 where the common

parlance test was adopted to resolve the dispute of

classification this Court was dealing with the question as

to whether hypodermic clinical syringes could be

regarded as “glass ware” under Entry No.39 of the First

Schedule to the U.P. Sales Tax Act, 1948.   

16. Similarly, in  Asian Paints India Ltd. vs.

Collector  of  Central  Excise6 the  question before this

Court was whether “Decoplast” manufactured by the

Asian Paints India Ltd.  was classifiable under Tariff Item

No. 14(1)(3)(iv) of the First Schedule of the Central Excise

Tariff as “plastic emulsion  paint” or  under  Tariff Item

No.14(1)(v) as “paints not otherwise specified”.

17. In  Shree  Baidyanath Ayurved Bhavan Ltd.

vs. Collector of Central Excise, Nagpur7 the issue

before this  Court  was as to  whether  Dant  Manjan Lal

manufactured by the Assessee was medicine so as to be

51981 (8) E.L.T. 325 (S.C.) 61988 (35) E.L.T. 3 (S.C.) 7(1996) 9 SCC 402

20

covered by Exemption  Notification No.62/78­CE dated

1st March, 1978 or a toilet preparation.   

18. In  Alpine Industries vs. Collector of Central

Excise, New Delhi8 the question that arose for

consideration before this Court was whether “Lip Salve” is

classifiable  under  Heading 33.04  of the  Central  Excise

Tariff  Act,  1985 as “a  preparation for  care  of skin”  or

whether as a “medicament” under Heading 30.03 thereof.

19. In all the aforesaid  decisions, this  Court has

held that­ [Paragraph 5 in Alpine Industries (supra)]:  

“5. It is well established that in interpreting tariff entries in taxation statute like the Excise Act, where the primary object is to raise revenue and for that purpose various products are differently classified, the entries are not to be understood in their scientific and technical meaning.   The terms and expressions used in tariff have to be understood by their popular meaning that is the meaning that is attached to them by those using the product.  See the decision of the Supreme Court on the dispute regarding classification for excise duty, the product – Lal Dant Manjan manufactured by Shree Baidyanath Ayurved Bhavan Ltd. reported in the case of Shree Baidyanath Ayurved Bhavan Ltd. v. CCE9.   The

8(2003) 3 SCC 111 9    (1996)  9 SCC 402

21

manufacturer claimed the product to be an Ayurvedic  medicinal preparation product for dental care.   The view of the Tribunal was upheld  by this  Court  by holding (at SCC pp.404­05, para 3) that “ordinarily a medicine is prescribed by a medical practitioner and it is used for a limited time and not every day unless it is so prescribed to deal with a specific disease like diabetes”.”

20. A consideration of the facts of the cases, referred

to above, however, would go to show that the basic

dispute/conflict in the said cases was whether a product

which was not defined or specifically dealt with by any of

the  Headings/Entries  would fall  under one  or  another

Heading/Entry of the Central Excise Tariff Act.   The

present is not a case where the identity of  the product

would require any debate as was the issue in the cases

referred to above where the common parlance test was

applied.  In the present case, the product is “coconut oil”,

which is clearly covered by Chapter Heading 1513 and

not by Chapter Heading 3305. What calls for a decision in

the present case is whether “coconut oil” which otherwise

is covered by Heading 1513 of Chapter 15, if packed in

small containers and pouches/sachets, would cease to be

“coconut oil” falling  under  Chapter  Heading  1513  and

22

would be covered by Heading “preparations for use on the

hair” covered  by  Entry  3305  of  Chapter  33.  This is a

question which has to be resolved not on the basis of the

perception of the consumer or the customer but on the

basis of the headings and sub­headings and on an

interpretation of the provisions of the relevant  Chapter

Notes, if required. Issues of classification have to be

resolved within the framework of the statutory provision.

“Coconut oil” packed in small packages/containers does

not cease to be “coconut oil” and become “hair oil” though

such “coconut oil” may be capable of being used for both

purposes. The understanding of the product in the

market or amongst the consumers  will always  have a

limited role in this regard.   The above has been the view

of this Court in  O.K. Play (India) Ltd.   Vs.

Commissioner of  Central  Excise,  Delhi­III,  Gurgaon

(supra)  (para  13)  and  Commissioner  of  Customs and

Central Excise, Goa Vs. Phil Corporation Ltd.  (supra)

(para 17).  

21.      We may now turn to examine the General Rules

23

for Interpretation and the Chapter Notes relied upon by

the Revenue.  

“[THE FIRST SCHEDULE] – EXCISE TARIFF

RULES FOR THE INTERPRETATION OF THIS SCHEDULE

1. The titles of Sections and Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the provisions hereinafter contained.

2.   (a)   Any reference in a heading to goods shall be taken to include a reference  to those  goods  incomplete  or  unfinished,  provided that, the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to those goods complete or finished (or falling to be classified as complete or finished by virtue of this rule), removed unassembled or disassembled. (b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly  or  partly  of  such material  or  substance.  The classification of goods consisting of more than one material or substance shall be according to the principles contained in Rule 3.

3.   When by application of sub­rule (b) of rule 2 or for any other reason, goods are,  prima facie, classifiable under two or more headings, classification shall be effected as follows: (a)  The heading which provides the most specific  description shall  be preferred to  headings  providing  a  more  general  description.  However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.  (b) mixtures, composite goods consisting of different materials or made up of  different components,  and goods put up  in sets  for retail  sale, which cannot be classified by reference to (a), shall be classified as if they consisted  of the  material or component  which gives them  their essential character, insofar as this criterion is applicable.  (c) when goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

4. Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.

5. For legal purposes, the classification of goods in the sub­headings of a heading shall be determined according to the terms of those sub­ headings and any related sub­heading Notes and, mutatis mutandis, to the above rules,  on the understanding that  only sub­headings at the same  level  are comparable.  For  the purposes of this  rule the relative Section and  Chapter  Notes also apply, unless the context otherwise

24

requires.

Chapter Note 1(e) to Chapter 15

CHAPTER 15 Animal or Vegetable fats and Oils and their cleavage products; prepared edible fats; Animal or Vegetable Waxes  

NOTES  

1. This Chapter does not cover :  

(a)  xxxxxx

(b) xxxxxx  

(c) xxxxxx

(d) xxxxxxxx

(e) fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or”

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­

SECTION NOTE II  to SECTION VI

SECTION VI

PRODUCT OF THE CHEMICAL OR ALLIED INDUSTRIES

Notes :

1. xxxxxx 2. Subject to Note 1 above, goods classifiable in heading 3004, 3005, 3006,  3212,  3303,  3304,  3305,  3306,  3307,  3506,  3707  or  3808  by reason of being put up in measured doses or  for retail sale are to be classified in those headings and in no other heading of this Schedule.

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­

Chapter Note 3 to Chapter 33

CHAPTER 33  

ESSENTIAL OILS AND RESINOIDS; PERFUMERY, COSMETIC OR TOILET PREPARATIONS

Notes :

1. xxxxx

2.  xxxxx

3. Headings 3303 to 3307 apply, inter alia, to products, whether or not  mixed (other than aqueous distillates and aqueous solutions of

25

essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use.

22. It has already been noticed that under the pre­

amended provisions of the Act coconut oil was not covered

by  any specific  Heading  and  had  been classified  under

Heading 15.03 which dealt with fixed vegetable oils, other

than those of heading No.15.02.   

23. On the other hand prior to the amendment

Heading 33.05 dealing with preparations  for use on the

hair was in the following terms:

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­

33.05 Preparations for use on the hair 3305.10 ­­Perfumed hair oils 16%

­­Other : 3305.91 –Hair fixer 16% 3305.99 ­Other 16%

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­

24. Heading 15.13 of the Harmonised System of

Nomenclature (HSN) specifically deals with coconut oil in

the following manner:

“15.13 COCONUT (COPRA), PALM KERNEL OR BABASSU OIL AND FRACTIONS THEREOF, WHETHER OR NOT REFINED, BUT NOT CHEMICALLY MODIFIED (+)

­ Coconut (copra) oil and its fractions : 1513.11 ­  Crude oil 1513.19 ­  Other ­ Palm kernel or babassu oil and fractions thereof: 1513.21 ­ Crude oil 1513.29 ­ Other”

26

25. Heading 33.05 of the HSN is in the following terms:

“33.05  ­  PREPARATIONS FOR USE ON THE HAIR

3305.10 ­ Shampoos

3305.20 ­ Preparation for permanent waving or straightening

3305.30 ­ Hair lacquers

3305.90 ­ Other

The Heading covers :

(1) Shampoos, containing soap or other organic surface­active agents (see Note 1(c) to Chapter 34), and other shampoos. All these shampoos may contain subsidiary pharmaceutical or disinfectant constituents, even if they have therapeutic or prophylactic properties (see Note 1(d) to Chapter 30) (2) Preparations for permanent waving or straightening (3) Hair lacquers (sometimes known as “hair sprays”) (4)  Other  hair  preparations, such  as  brilliantines,  hair oils, creams (“pomades”) and dressings: hair dyes and bleaches used on the hair, cream­rinses.

26.   After coming into force of the amendment,

Headings 1513 and 3305 in Chapters 15 and 33 virtually

incorporated the contents of the Headings and sub­

headings as contained in the Harmonised System of

Nomenclature (HSN).   The position that is noticeable

following the amendment of the Tariff Act is that a specific

Heading for coconut oil has been introduced in the Tariff

Act.   So far as  “preparation for use on the hair”  is

concerned, the sub­headings have made various such

items more specific.   Significantly and noticeably coconut

oil as a preparation for use as hair oil is not included in

Heading 3305 or any of its Sub­Headings.

27

27. Chapter  Note  3  of  Chapter  33  makes it clear

that  Heading  3305,  inter alia,  would  apply to  products

“which are suitable for use as goods  mentioned in the

Heading and if they are put up in packings of a kind sold

by retail for such use”.   Heading 3305 deals with

“preparations for use on the hair”.    In the present case, it

is not in dispute that in the packings of coconut oil the

inscription “edible oil” is mentioned.   There is no

representation, declaration or advertisement in the

packings that the same can be or is meant to be used as a

hair oil.   

28. Chapter Note II of Chapter 33 prior to

amendment and which has been substituted by Chapter

Note 3 was more explicit in requiring packing put up with:

“labels, literature or other indications that they are for use as cosmetics or toilet preparations or  put  up  in a form clearly specialized to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents, or are held out as having subsidiary curative or prophylactic value.”

However, the changes brought about/deletions made

by the amendment would hardly be significant inasmuch

28

as Chapter Note 3 of Chapter 33 (post­amendment)

introduced by the Amendment Act in place of the erstwhile

Chapter No.2 is identical with Chapter 3 Note of Chapter

33  in Harmonised System of  Nomenclature  (HSN) which

must guide and illuminate the correct process of

interpretation and understanding.   Furthermore, there is

an explanatory note in the Harmonised System of

Nomenclature relating to Chapter Note 3 the relevant part

of which is as follows:

General

“Headings 33.03 to 33.07 include products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such sue (see Note 3 to this Chapter).

The products of headings 33.03 to 33.07 remain in these headings whether or not they contain subsidiary pharmaceutical or disinfectant constituents, or are held out as having subsidiary therapeutic or prophylactic value (see Note 1(d) to Chapter 30). However, prepared room deodorizers remain classified in heading 33.07 even if they have disinfectant properties of more than a subsidiary nature.

Preparations (e.g. varnish) and unmixed products (e.g., unperfumed powdered talc,  fuller’s earth, aceton, alum) which are suitable for other uses in addition to those described above are classified in these headings only) when they are : (a) In packings of a kind sold to the consumer and put up with labels, literature or other indications that they are for use as perfumery, cosmetic or toilet preparations, or as room deodorisers; or  (b) Put up in a form clearly specialised to such use (e.g. nail varnish put up in small bottles furnished with the brush required for applying the varnish). "

29. Explanatory note to Chapter Note 3 of HSN

makes  the  contents  of the  Chapter  Note  more  clear. In

29

order to classify a product under tariff Item No.3305 of the

Act, the requirements of Clauses (a) and (b) of the

Explanatory Note to Chapter Note 3 of Harmonised System

of Nomenclature (HSN) would be required to be satisfied

and the goods/packages must be put up with

labels/literatures and other indications that they are

meant for use as perfumery, cosmetic and toilet

preparations or the goods must be put up in a form clearly

specialised for such use as for example nail varnish must

be put up in small bottles accompanied with a brush. No

such situation exists in respect of the coconut oil in

question. The absence of any explanatory note to Chapter

Note 3 of Chapter 33 of the Central Excise Tariff Act on

the same terms as  in  the HSN would hardly  make any

difference in the conclusion to be reached in view of the

clear and consistent  pronouncement of this  Court first

expressed in  Collector of Central Excise, Shillong Vs.

Wood Craft Products Ltd. (supra) to the following effect:

“12. It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central excise tariffs are based on the HSN and the internationally accepted

30

nomenclature  was taken into account to “reduce disputes on account of tariff classification”. Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central excise tariff in the Act and the tariff classification made therein, in case of any doubt the HSN  is  a safe guide for  ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terms has a different purpose and, therefore, the specific  purpose of tariff  classification  for which the internationally accepted nomenclature in  HSN has  been  adopted, for enacting the Central Excise Tariff Act, 1985,  must  be  preferred, in case  of any difference between the meaning of the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI.

18. We are of the view that the Tribunal as well as the High Court fell into the error of overlooking the  fact  that  the structure of the  Central excise tariff is based  on the internationally accepted nomenclature found in the HSN and, therefore, any dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN  unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself. The definition of a term in the ISI Glossary, which has a different purpose, cannot, in case of a conflict, override the clear indication of the meaning of an identical expression in the same context in the HSN. In the HSN, block board is included within the meaning

31

of the expression “similar laminated wood” in the same context of classification of block board. Since the Central Excise Tariff Act, 1985 is enacted on the basis and pattern of the HSN,  the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in the HSN when there is  no indication in the Indian tariff of  a different intention.”

30. The views expressed by this Court as to when

the HSN can be ignored including the view in   Camlin

Limited Vs. Commissioner of Central Excise,

Mumbai10 are not contrary to what has been expressed

herein; rather the said views have been expressed in

situations where the legislative intention to depart from

the HSN  is clear  and unambiguous.   Illustratively, the

HSN  would not permit the  Court to import an entry

mentioned in  the  HSN but  not in the  Tariff  Act.  The

same  principle  will however  not apply to the  Chapter

notes and the Explanatory notes which are tools for

understanding the Entries/Headings. The opinions in

O.K.  Play (India)  Ltd.  Vs.  Commissioner  of  Central

Excise, Delhi­III,  Gurgaon  (supra) and  Commissioner

10 (2008) 9 SCC 82

32

of Customs and Central Excise, Goa Vs. Phil

Corporation Limited  (supra) reiterating the view in

Collector of Central Excise, Shillong Vs. Wood Craft

Products Ltd.  (supra) and the specific stress on the

Chapter Notes and explanatory notes in the HSN as

permissible and useful aids in understanding the

Headings/entries in the Central Excise Tariff Act cannot

be lost sight of.   

31. The photo personality of a cine star with flowing,

hair, as urged on behalf of the Revenue,  may not be

convincingly determinative. Also the fact that some of the

smaller containers of coconut oil have nozzles for release

of drops of coconut oil from the container will not satisfy

the above requirement inasmuch as the materials collected

by the Revenue in the course of adjudication proceedings

indicate that the amount of coconut oil used in cooking, at

times, may be, minimum.

32. The above conspectus of fact can reasonably lead

to the conclusion that the coconut oil in dispute in the

present case would be more appropriately classifiable under

Chapter 15, Heading 1513. If the above is a possible and

33

reasonable conclusion and we are inclined to hold as such,

the contention of the Revenue with regard to application of

Rules 1 and  3 of the  General  Rules for Interpretation;

Chapter Note 1(e) to Chapter 15; Note 2 to Section VI will

not at all be relevant in this regard.  The legislative history

behind Chapter 15; the words and expressions in Heading

1513 of the Tariff Act; the relevant Heading i.e. 1513 in the

HSN and the conditions/requirements stipulated in Chapter

Note 3 of Chapter 33 of the Central Excise Tariff read in the

light of the relevant provisions of Chapter Note 3 along with

the explanatory notes of Chapter 33 of the HSN, all, would

lead to the irresistible conclusion that coconut oil is

classifiable under Heading 1513 of Chapter 15 of the Central

Excise Tariff Act. In this regard, it may be noticed that Rule

3 of the Rules of General Interpretation would apply only in a

situation where the product is classifiable under two

different Chapters, a position that does not exist in the

present case. At the same time, Chapter Note 1(e) to

Chapter 15 and Note 2 to Section VI would be applicable

only if the product i.e. coconut oil would unambiguously

fall under any of the Headings under Section VI, a position

that cannot be accepted.  

34

33. A contention has been advanced on behalf of the

Revenue that  “Parachute” is a registered trademark of

Marico and goods are being marketed under the aforesaid

trade mark for use as hair oil.  The issue of registered trade

mark and classification for the purpose of levy of Central

Excise Tariff are unrelated and unconnected to each other.

Registration of a trademark under any particular class

cannot be determinative of the classification of the product

for  purposes of  Central  Excise  Tariff.  Moreover, in the

present case, Marico had/has obtained registration of its

trade mark  “Parachute”  under different  classes  including

edible oil (Class 29) as well as hair oil lotions, hair

preparations under Class 3.

34. The contents of Circular bearing No.

No.145/56/95­CX dated 31.08.1995 at a point of time

when Chapter Note II of Chapter 33 was in force has already

been noticed and infact the relevant paragraphs 5 to 9 of

the above Circular, extracted above, makes it clear that a

product cannot be classified under  Chapter 33  Heading

3305 in the absence of any proof that it is specially

35

prepared  “for use on the hair”  and in the absence of any

label/literature etc on the container to such effect.  Merely

because the product is packed in small containers and used

by some sections of the customers as hair oil cannot be a

valid basis for classification under Heading 3305.   Only if

the containers  bear labels/literature indicating that it is

meant for use on the hair that the coconut oil in dispute

may  merit classification under Chapter 33.   The above

position would continue to hold the field notwithstanding

the substitution of Chapter Note II by Chapter Note 3 w.e.f.

28­02­2005 in view of the similar stipulations and

conditions incorporated in Chapter No.3 of  the HSN read

with the Explanatory Note 3 thereto which the Court would

be obliged to take into account.

35. The Order under Section 37B of the Central

Excise Act dated 3.6.2009 discussed above is infact a

virtual admission on the part of the Revenue that coconut

oil packed in containers upto 200 ml alone would be

classifiable under Chapter 33 and the larger packages even

of 1/2 litres would fall under Chapter 15.   In the absence

of the essential stipulations under Chapter Note 3 of

36

Chapter 33, discussed above, in respect of the product in

question there can be no justification for the direction

contained in the order/circular dated 3.6.2009.   The

learned Appellate Tribunal in  Raj Oil Mills Vs.

Commissioner  of  Central  Excise  (supra), therefore,  took

the view that even small packets of 200 ml or less would be

more appropriately classifiable under chapter 15 as coconut

oil and not as hair oil under Chapter 33.  The said decision

of the Tribunal  has been affirmed by this  Court  and the

appeals by the Revenue (Civil Appeal Nos.2023­2037 of

2014) have been dismissed on 7.12.2014.  The dismissal of

the  appeals, though  by  a  non­speaking  order, is  one  on

merit  and therefore the order  of the  Tribunal in  Raj Oil

Mills  (supra) can be understood to have merged with the

decision of this Court as held in  V.M. Salgaocar & Bros.

Pvt. Ltd. Vs. Commissioner of Income Tax11.

36. For the aforesaid reasons, we take the view that

the coconut oil in small packings in respect of which the

present dispute with regard to classification has arisen is

more appropriately classifiable under Chapter 15, Heading

11 (2000) 5 SCC 373

37

1513 and not under Chapter 33, Heading 3305.

Consequently while dismissing the appeals filed by the

Revenue, we affirm the Orders to the above effect passed by

the learned Appellate Tribunal.

……………...............J.             (RANJAN GOGOI)

NEW DELHI APRIL 13, 2018.

38

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1766 OF 2009

COMMISSIONER OF CENTRAL EXCISE, SALEM                 …Appellant

Versus

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

CIVIL APPEAL NOS. 6703-6710 OF 2009

COMMISSIONER OF CENTRAL EXCISE,  PONDICHERRY                         …Appellant

Versus

M/S AISHWARYA INDUSTRIES AND ORS.                    ...Respondents

J U D G M E N T

R. BANUMATHI, J.

I  have gone through the judgment by His Lordship Justice Ranjan

Gogoi and I am unable to agree with the reasonings and the conclusion.  I

am of the view that in view of the amended provisions of Chapter Note 3 to

Chapter 33 and Section Note 2 to Section VI, 'Coconut Oil' packed in small

sachets/containers,  as  they are suitable  for  use on hair  are  classifiable

under Chapter 33 and not under Chapter 15.  Following are the reasonings

for my conclusion.   

2. Whether 'Coconut Oil' manufactured and packed in small containers

and sachets by the respondent, is classifiable under Chapter Heading 3305

("Hair  Oil",  "Other")  as  claimed  by  the  Revenue  or  under  Chapter  15

Heading 1513 : Coconut (Copra) oil as claimed by the respondent,  is the

39

point falling for consideration in these appeals.

3. The competing entries for classification as claimed by the appellant-

Revenue and the respondent/assessee are as under:-

Classification by the Appellant Classification by the Respondent

3305  PREPARATIONS FOR             USE ON THE HAIR

1513    COCONUT (COPRA), PALM              KERNEL OR BABASSU OIL AND  

FRACTIONS THEREOF,  WHETHER OR NOT REFINED,  BUT NOT CHEMICALLY MODIFIED

3305   90              - Other                           --- Hair Oil

- Coconut (copra) oil and its  fractions:

3305  90 19       ---- Other 1513  11 00          - - Crude Oil (or) 1513  19 00          - - Other  

4. Chapter 33 deals with "Essential oils and Resinoids, Perfumery,  

Cosmetic or Toilet Preparations".  Tariff Item 33 05 reads as under:-

"3305 Preparations for use on the hair 3305 10 - Shampoos 3305 10 10 - - - Containing spirit 3305 10 90 - - - Other 3305 20 00 - Preparations for permanent waving or

straightening 3305 30 00 - Hair lacquers 3305 90 - Other

- - - Hair oil 3305 90 11 - - - - Perfumed 3305 90 19 - - - - Other"

5. Chapter 15 deals with "Animal or vegetable fats and oils and their

cleavage products; prepared edible fats; animal or vegetable waxes".  Tariff

Item 15 13 reads as under:-

"1513

-

Coconut (copra), palm kernel or  babassu oil and fractions  thereof, whether or not refined,  but not chemically modified Coconut (copra) oil and its  fractions

1513 11 00 - - Crude oil 1513 19 00 - - Other

- Palm kernel or babassu oil and  fractions thereof

6. A harmonious construction of the following would govern the field for

40

classification of the goods:-

 Rule 1 of the General Rules for the Interpretation of the First Schedule

 Chapter Note 1(e) to Chapter 15

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

 Chapter Note 3 to Chapter 33 (after amendment w.e.f. 28.02.2005)

As discussed infra, cumulative construction of the above would lead to the

conclusion that "if  the impugned goods are classifiable under Tariff  Item

3305 90 19,  then the impugned goods are automatically  excluded from

classification under Tariff Item 1513 11 00 (or) 1513 19 00".

7. The Tariff itself has provided five rules for the interpretation. The First

Rule of  the General Rules for the Interpretation of the First Schedule, is

generally  referred  to  as  the  cardinal  principle  for  classification.  If  the

classification can be done from the Heading, Section or Chapter Notes, the

rules  of  interpretation  need  not  be  resorted  to.  Interpretative  rules  are

applicable only where the classification of a product cannot be determined

in accordance with the Headings or relative Sections or Chapter Notes. The

First Schedule-Excise Tariff Rules for the interpretation of this Schedule,

reads as under:-

"1. The titles of Sections and Chapters are provided for ease of reference only; for legal purposes,  classification shall be determined according to the  terms of the headings and any  relative Section or  Chapter Notes and, provided such headings or Notes do not otherwise require, according to the provisions hereinafter contained. 2.(a)  Any  reference  in  a  heading  to  goods  shall  be  taken  to  include  a reference  to  those  goods  incomplete  or  unfinished,  provided  that,  the incomplete or unfinished goods have the essential character of the complete or finished goods.  It shall also be taken to include a reference to those goods complete or finished (or falling to be classified as complete or finished by virtue of this rule), removed unassembled or disassembled. (b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with  other  materials  or  substances.   Any  reference  to  goods  of  a  given material  or  substance  shall  be  taken  to  include  a  reference  to  goods

41

consisting wholly or partly of such material or substance.  The classification of goods consisting of more than one material or substance shall be according to the principles contained in rule 3. 3. When by application of sub-rule (b) of rule 2 or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:- (a) the  heading  which  provide  the  most  specific  description  shall  be preferred to headings providing a more general description.  However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) Mixtures, composite goods consisting of different materials or made up  of  different  components,  and  goods  put  up  in  sets,  which  cannot  be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable. (c) When goods cannot be classified by reference to (a) or (b), they shall be  classified  under  the heading  which  occurs  last  in  the  numerical  order among those which equally merit consideration. 4. Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin. ......"

8. The First Rule has two components, namely: i. The titles of Sections, Chapters and Sub-Chapters are provided for ease

of reference only; ii. for  legal  purposes,  classification  shall  be  determined  according  to  the

terms of the Headings  and any relative Section or Chapter Notes and, provided  such  Headings  or  Chapter  Notes  do  not  otherwise  require, according to the provisions thereinafter contained.

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

classification  demands  the  following  conditions  to  be  taken  into

consideration:-

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

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

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

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

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

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

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

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

42

9. CHANGES  BROUGHT  IN  BY  CENTRAL  EXCISE  TARIFF

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

which came into force with effect  from 28.02.2005 brought in significant

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

inviting reclassification of the impugned goods.  The Statement of Objects

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

under:-

(a) To  accommodate  more  prominently  the  commodities  which  are  of significance to the country's needs;

(b) To adopt a common commodity classification for the purpose of levy and collection of duties of customs and central excise and for purpose of Import Trade Control Policy and collection of statistics;

(c) To accommodate the demand from the trade and industry for adoption of  a  common  commodity  classification  based  on  internationally adopted Harmonized Systems of Nomenclature to be used for trade- related transactions to facilitate International and domestic trade.

(d) The  salient  feature  of  the  Bill,  inter  alia,  expands  the  six  digit classification  into  eight  digit  classification  and  such  expansion  has been made in the First Schedule and the Second Schedule to the said Central  Excise  Tariff  Act,  to  cover  a  wider  range  of  specific commodities  under  enlarged  tariff  items  so  as  to  accommodate domestic concerns.   

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

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

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

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

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

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

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

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

new legal provisions after amendment as under:-

Sl.  No.

Old Legal Provision New Legal Provision  

1. Section Note to  Section VI

Note 2: Goods put up in sets  consisting of two or more  

Note 2:- Subject to Note 1  above, goods classifiable in

43

separate constituents, some or all of which fall in this Section and  are intended to be mixed together to obtain a product of Section VI  or VII, are to be classified in the  heading appropriate to that  product, provided that the  constituents are;  (a) ....... (b) ....... (c) ......

heading 3004, 3005, 3006,  3212, 3303, 3304, 3305,  3306, 3307, 3506, 3707 or  3808 by reason of being put up in measured doses or for retail sale are to be  classified in those headings and in no other heading of  this Schedule.  

2. Chapter Note to  Chapter 33

Note 2: Heading Nos.33.03 to  33.07 apply, inter alia, to  products, whether or not mixed  (other than aqueous distillates  and aqueous solutions of  essential oils), suitable for use as  goods of these headings and put  up in packings with labels,  literature or other indications  that they are for use as  cosmetics or toilet preparations  or put up in a form clearly  specialized to such use and  includes products whether or not  they contain subsidiary  pharmaceutical or antiseptic  constituents, or are held out as  having subsidiary curative or  prophylactic value.

Note 3: Headings 3303 to  3307 apply, inter alia, to  products, whether or not  mixed (other than aqueous  distillates and aqueous  solutions of essential oils),  suitable for use as goods of these headings and put up  in packings of a kind sold  by retail for such use.

3. Heading  description

33.05 Preparations for use on the  hair

3305 Preparations for use  on the hair

4. Sub heading  description

3305.10          - Perfumed hair oils                        - Other:

3305 90 11  - - - - Perfumed 3305 90 19  - - - - Other  

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

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

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

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

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

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

use as......;

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

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

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

use"; and

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

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

44

the Schedule.

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

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

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

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

under:-

"Headings 3303 to 3307 apply,  inter  alia,  to products,  whether or  not mixed (other  than aqueous  distillates  and  aqueous  solutions  of  essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use"

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

a. The product may or may not be mixed;

b. The  product  should  be  suitable  for  use  as  a  good  under  these headings (33 03 to 33 07);

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

d. Headings  33 03 to  33 07 may also apply for other goods not being covered by this Chapter Note (as indicated by the phrase 'inter alia")

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

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

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

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

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

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

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

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

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

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

45

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

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

clear by amended Section Note 2 to Section VI.

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

reads as under:-

"Subject to Note 1 above, goods classifiable in heading 3004, 3005, 3006, 3212, 3303, 3304, 3305, 3306, 3307, 3506, 3707 or 3808 by reason of being put up in measured doses or  for retail  sale are to be classified in those headings and in no other heading of this schedule."

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

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

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

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

specified  in  Chapter  Note  3  for  classification  as  'Hair  Oil'  under

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

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

conditions  as  specified  under  Chapter  Note  3  of  Chapter  33  for

classification of impugned goods as 'Hair Oil' under Heading ...  33 05  ... are

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

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

permissible.

16. Because of the "suitability for use as hair oil" and being 'put up in

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

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

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

46

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

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

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

"Animal  or  Vegetable  fats and Oils  and their  cleavage products;  prepared edible fats; Animal or Vegetable Waxes

Notes: 1. This Chapter does not cover:-

............ (e)  fatty  acids,  prepared  waxes,  medicaments,  paints,  varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or .............."

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

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

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

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

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

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

settled that Rule 3(a) of "General Rules for the Interpretation" is invokable

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

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

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

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

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

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

Headings, relative Chapter Notes and Section Notes which are paramount

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

Rules.  

47

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

amended  provisions  and  the  interpretation  thereon,  let  me  consider

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

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

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

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

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

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

Moreshwar  Industries  and  three  other  job  workers  had  entered  into  a

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

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

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

sold  in  the  market  under  the  brand 'Parachute'.  From the materials  on

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

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

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

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

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

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

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

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

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

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

48

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

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

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

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

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

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

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

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

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

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

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

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

stored  in  tanks  and  packed  in  pouches  and  bottles  of  different

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

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

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

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

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

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

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

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

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

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

49

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

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

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

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

grade/oil' filtered 100% pure coconut oil.

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

Commissioner by holding that Chapter 15 covers all varieties of coconut

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

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

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

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

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

Tribunal, CESTAT held as under:-  

"...The packing of coconut oil in that case was not of the type referred to, above or which could be solely and exclusively said to be meant for application on hair only.  As such the Tribunal held that Chapter 2 to Chapter 33 was not applicable for classifying the goods in that case under Chapter 33. HSN Explanatory Notes to Chapter 33 were same before and after 28.02.05.  Moreover entries under Chapter 15 relating to coconut oil in the HSN and Central Excise Tariff after 28.02.2005 are also identical.   Therefore,  the decision of the Tribunal  in the above case interpreting  the  scope  of  Chapter  15.13 and  33.05  of  Central Excise  Tariff  applies  to  the  corresponding  entries  even  after 28.02.2005. The above ratio of the decision of the Tribunal therefore squarely applies to the present case also...."

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

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

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

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

50

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

product is 'suitable for use as goods of the heading' and "put up in packing

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

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

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

further submitted that  CESTAT relied upon various orders for referring to

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

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

Original were passed pursuant to the amended Chapter Note 2 to Chapter

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

'Parachute' is concerned, Revenue places reliance upon various materials

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

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

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

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

cannot be sustained.    

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

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

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

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

classified "preparation for use on hair" to be classified as 'Hair Oil' under

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

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

51

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

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

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

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

fully  in  accordance  with  the  mandatory  requirement  of  the  aforesaid

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

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

cease to become 'edible oil' and become classifiable as 'Hair Oil' so as to

attract classification under 33.05.  Reliance was placed upon the judgment

of Rajasthan High Court in  Assistant Commissioner v. Marico Industries

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

done  for  convenience  of  consumers  to  cater  to  different  sections  of

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

coconut oil' to be "Hair Oil" classifiable under Chapter 33.  Reliance was

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

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

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

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

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

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

Heading 1513 reads as under:-

"1513

-

Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not  refined, but not chemically modified Coconut (copra) oil and its fractions

1513 11 00 - - Crude oil

52

1513 19 00 - - Other

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

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

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

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

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

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

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

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

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

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

accordance with the conditions of Chapter Notes contained in Chapter 33

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

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

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

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

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

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

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

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

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

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

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

53

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

coconut  oil  with  'Parachute'  mark.   So  far  as  the  first  component  "the

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

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

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

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

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

Note 33 "the product may or may not be mixed" and "the product should be

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

54

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

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

consumer and in the market as 'Hair Oil'. The expression "suitable for use

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

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

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

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

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

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

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

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

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

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

ml which also contain the brand trademark 'Parachute'.  

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

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

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

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

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

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

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

on hair.

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

55

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

understood "Parachute" for 'Nature Care for Hair'  including the registration

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

Contention of  Revenue is  that  the market  identity  of  the subject  goods-

coconut oil is 'Hair Oil'  and not as 'Edible Grade Oil'.  The Revenue has

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

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

Oil' and the same reads as under:-

"Nature Care Division (55% of turnover): Parachute was the first branded coconut  oil  in  the  Indian  market  and  has  become  a  generic  name  for coconut oil used for hair application.  It currently has a 52% market share in the  branded  coconut  oil  market.   About  50%  of  Marico's  turnover  is contributed by the Parachute brand alone.  To build upon and strengthen the strong association between coconut and Parachute brand, Marico has set up a Research Centre to develop new coconut based products.  Over the years, the company has launched several brand extensions such as 'Parachute Jasmine', 'Parachute Dandruff Solution', etc....."

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

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

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

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

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

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

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

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

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

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

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

56

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

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

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

Hair Oil, Hair lotions etc. Registration of the trademark of the 'Parachute'

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

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

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

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

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

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

"7. ........Moreover, the material allegation of Marico that its job workers used green coloured labels  for  marketing hair  oil  exclusively  was absent  in  the show-cause  notice.   Marico  had  never  marketed  any  product  under  the orange label and all  along marketed its entire range of products using the green label only.  We find that in the absence of any label which could be identified  with  a  hair  oil,  this  aspect  of  the  label  does  not  advance  the Revenue's  case for  classification  of  the coconut  oil  as hair  oil.   Use of  a trademark or a label has no bearing on classification."

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

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

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

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

".....HDPE granules and master batch in the required ratio is mixed and fed into the mould and blue colour container is obtained.  Runners and raisers are removed and the container is examined and if it is not fit, the same is sent for grinding.  The fit container is sent to heating and then screen-printing with blue, green and white colour printing ink for printing the trademark and logo and other details as required by Marico Ltd....."[Underlining added]   

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

57

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

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

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

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

green  coloured  labels  for  marketing  hair  oil  and  that  registration  of

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

the product as hair oil under Chapter 33.

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

applicability  of  Interpretative  Rule  3  is  acceptable:- After  amendment

Heading 15 13 reads as under:-

1513 Coconut (copra), palm kernel or  babassu oil and fractions thereof,  whether or not refined, but not  chemically modified

- Coconut (copra) oil and its fractions 1513 11 00 - - Crude oil 1513 19 00 - - Other  

- Palm kernel or babassu oil and  fractions thereof

32. Contention of the assessee is that the description of  'Coconut Oil'

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

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

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

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

determinative  of  the  classification.  The  contention  that  the  description

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

the impugned goods does not merit acceptance since the classification of

58

the  goods  is  determinate  on  the  harmonious  construction  of  headings,

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

Interpretative  Rules.   Classification  of  the  impugned  goods  is  primarily

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

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

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

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

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

under:-

3. When by application of sub-rule (b) of rule 2 or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:- (a) the  heading  which  provide  the  most  specific  description  shall  be preferred to headings providing a more general description.  However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. (b) Mixtures, composite goods consisting of different materials or made up  of  different  components,  and  goods  put  up  in  sets,  which  cannot  be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.  (c) When goods cannot be classified by reference to (a) or (b), they shall be  classified  under  the heading  which  occurs  last  in  the  numerical  order among those which equally merit consideration.

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

goods consisting of different materials or made up of different components

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

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

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

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

59

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

1513.19.00 and 3305.90.19 are equally specific.  Hence, as per Rule 3(c),

when goods cannot be classified by reference to (a) or (b), they shall be

classified under the heading which occurs last in numerical order among

those  which  equally  merit  classification.   Hence,  the  coconut  oil

manufactured by the respondents could rightly be classified under heading

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

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

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

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

the one occurring subsequently would prevail.   

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

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

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

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

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

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

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

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

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

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

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

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

60

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

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

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

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

non-edible merits classification under Chapter 15.

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

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

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

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

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

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

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

understood in 'common parlance' or in 'commercial world' and not as per

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

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

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

sense and not according to scientific or technical sense.

37. After  referring  to  various  judgments,  in  Plasmac  Machine

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

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

"15. ..... It is an accepted principle of classification that the goods should be classified according to their popular meaning or as they are understood in their commercial sense and not as per the scientific or technical meaning. Indo International Industries v. CST ((1981) 2 SCC 528 and Dunlop India Ltd. v. Union of India (1976) 2 SCC 241 have settled this proposition. How is the product identified by the class or section of people dealing with or using the

61

product is also a test when the statute itself does not contain any definition and  commercial  parlance  would  assume importance  when  the  goods  are marketable as was held in  Atul Glass Industries (Pvt.) Ltd. v.  CCE (1986) 3 SCC 480 and Indian Aluminium Cables Ltd. v.  Union of India (1985) 3 SCC 284. In Asian Paints India Ltd. v. CCE (1988) 2 SCC 470 which was a case of emulsion paint, at para 8 it was said: (SCC p. 473, para 8)

“It is well settled that the commercial meaning has to be given to the expressions in tariff items. Where definition of a word has not been given, it must be construed in its popular sense. Popular  sense  means  that  sense  which  people  conversant with the subject matter with which the statute is dealing, would attribute to it.”"

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

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

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

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

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

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

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

under:-

"33. There is no fixed test for classification of a taxable commodity. This is probably  the reason  why  the  “common parlance  test”  or  the  “commercial usage test” are the most common (see  A. Nagaraju Bros. v.  State of A.P. 1994  Supp  (3)  SCC  122).  Whether  a  particular  article  will  fall  within  a particular tariff heading or not has to be decided on the basis of the tangible material  or  evidence  to  determine  how  such  an  article  is  understood  in “common  parlance”  or  in  “commercial  world”  or  in  “trade  circle”  or  in  its popular  sense meaning.  It  is  they who are concerned with it  and it  is  the sense in which they understand it that constitutes the definitive index of the legislative  intention,  when  the  statute  was  enacted  (see  Delhi  Cloth  and General Mills Co. Ltd. v. State of Rajasthan (1980) 4 SCC 71).

34. One of the essential factors for determining whether a product falls within Chapter 30 or not is whether the product is understood as a pharmaceutical product in common parlance [see CCE v. Shree Baidyanath Ayurved Bhavan Ltd. (2009) 12 SCC 419 and CCE v. Ishaan Research Lab (P) Ltd. (2008) 13 SCC 349]. Further, the quantity of medicament used in a particular product will also not be a relevant factor for, normally, the extent of use of medicinal ingredients is very low because a larger use may be harmful for the human body. [Puma Ayurvedic Herbal (P) Ltd. v.  CCE (2006) 3 SCC 266,  State of Goa v. Colfax Laboratories Ltd. (2004) 9 SCC 83 and B.P.L. Pharmaceuticals Ltd. v. CCE 1995 Supp (3) SCC 1.]

62

35. However, there cannot be a static parameter for the correct classification of a commodity. This Court in Indian Aluminium Cables Ltd. v. Union of India (1985) 3 SCC 284 has culled out this principle in the following words: (SCC p. 291, para 13)

“13. To sum up the true position, the process of manufacture of a  product  and  the  end  use  to  which  it  is  put,  cannot necessarily  be  determinative  of  the  classification  of  that product under a fiscal schedule like the Central Excise Tariff. What is more important is whether the broad description of the article fits in with the expression used in the Tariff.”

36. Moreover, the functional utility and predominant or primary usage of the commodity which is being classified must be taken into account, apart from the understanding in common parlance. [See  O.K. Play (India) Ltd. v.  CCE (2005)  2  SCC 460,  Alpine  Industries v.  CCE (2003)  3  SCC 111,  Sujanil Chemo  Industries v.  CCE  &  Customs  (2005)  4  SCC  189,  ICPA Health Products (P) Ltd. v. CCE (2004) 4 SCC 481, Puma Ayurvedic Herbal (2006) 3 SCC 266, Ishaan Research Lab (P) Ltd. (2008) 13 SCC 349 and CCE v. Uni Products India Ltd. (2009) 9 SCC 295]

37. A commodity cannot be classified in a residuary entry, in the presence of a  specific  entry,  even  if  such  specific  entry  requires  the  product  to  be understood in the technical sense (see Akbar Badrudin Giwani v. Collector of Customs (1990) 2 SCC 203 and Commr. of Customs v. G.C. Jain (2011) 12 SCC 713). A residuary entry can be taken refuge of only in the absence of a specific entry; that is to say, the latter will always prevail over the former [see CCE v.  Jayant Oil Mills (P) Ltd. (1989) 3 SCC 343,  HPL Chemicals Ltd. v. CCE (2006) 5 SCC 208, Western India Plywoods Ltd. v. Collector of Customs (2005) 12 SCC 731 and CCE v. Carrier Aircon Ltd. (2006) 5 SCC 596].

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

5 SCC 596, this Court held as under:-  

"14. End use to which the product is put to by itself cannot be determinative of  the  classification  of  the  product.  See  Indian Aluminium Cables  Ltd. v. Union of India (1985) 3 SCC 284. There are a number of factors which have to be taken into consideration for determining the classification of a product. For the purposes of classification the relevant factors inter alia are statutory fiscal  entry,  the basic  character,  function  and use of  the  goods.  When a commodity falls within a tariff entry by virtue of the purpose for which it is put to (produced), the end use to which the product is put to, cannot determine the classification of that product."

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

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

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

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

63

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

is understood and treated in the market.

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

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

importability of 'Coconut Oil', held as under:-

"25. ....it is well known that the coconut oil is not at all used as an edible oil in a very large part of our country.  Almost all the parts of India up to Vindhyas do not use coconut oil as edible medium.  Even in rest of the country though it is in use extensively in some very small part, its use in most of the other part is small average.  So ordinarily if a person was to go to the market and ask for coconut oil, the normal question he would be asked will be whether he needs it as hair oil or shampoo.  No one normally will understand coconut oil to mean only edible variety because such is not the normal major use.  A person would have to specifically clarify that by asking for coconut oil he is asking for edible variety in order to make his intention clear.  Thus by itself and in ordinary parlance coconut oil in the import policy would be understood to include both edible variety and industrial variety of coconut oil.  If only one variety of coconut oil was meant to be covered, it would be more consistent to hold that it is industrial variety considering the overwhelming use of coconut oil  for non-edible purpose.  But an entry would never be restricted only to edible variety of coconut oil......". [Underlining added]   

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

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

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

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

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

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

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

major use of 'edible oil'.  The moment we held that the impugned goods-

coconut oil is suitable for use as 'Hair Oil' as discussed infra, it has to be

classified only under Chapter 33.

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

64

those  in  trade,  traders  and  consumers  have  understood  'Parachute'  as

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

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

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

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

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

the product in common parlance.  

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

feedback about the product by their consumers and their impressions and

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

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

associated with 'Hair Oil' whereas Saffola brand is associated with edible

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

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

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

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

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

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

Agriculture):-

"Coconut oil is used in the country as a cooking fat, hair oil, body oil and industrial oil..... Coconut oil is marketed in bulk as well as in packs ranging from sachets containing 5 ml to 15 kg tins.  The branded coconut oil in small packs is mainly marketed as hair oil and body oil."

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

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

65

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

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

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

under:-  

"5. The result emerging from these decisions is that while construing the word “coal” in Entry I of Part III of Schedule II, the test that would be applied is what would be the meaning which persons dealing with coal and consumers purchasing it as fuel would give to that word. A sales  tax  statute  is  being  one levying  a  tax  on goods must  in  the absence of a technical term or a term of science or art, be presumed to have used an ordinary term as coal according to the meaning ascribed to it  in common parlance.  Viewed from that  angle both a merchant dealing in coal and a consumer wanting to purchase it would regard coal  not  in  its  geological  sense  but  in  the  sense  as  ordinarily understood and would include “charcoal” in the term “coal”. It is only when the question of  the kind or variety of  coal  would arise that  a distinction would be made between coal and charcoal; otherwise, both of them would in ordinary parlance as also in their commercial sense be spoken as coal."

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

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

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

under:-  

"33. Therefore, what flows from a reading of the aforementioned decisions is that in the absence of a statutory definition in precise terms; words, entries and items in taxing statutes must be construed in terms of their commercial or trade understanding, or according to their popular meaning. In other words they have to be constructed in the sense that the people conversant with the subject-matter of the statute, would attribute to it. Resort to rigid interpretation in  terms  of  scientific  and  technical  meanings  should  be  avoided  in  such circumstances. This, however, is by no means an absolute rule. When the legislature  has  expressed  a  contrary  intention,  such  as  by  providing  a statutory definition of the particular entry, word or item in specific, scientific or technical  terms,  then,  interpretation  ought  to  be  in  accordance  with  the scientific  and  technical  meaning  and  not  according  to  common  parlance understanding."

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

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

66

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

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

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

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

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

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

scientific or technical meaning.   

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

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

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

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

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

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

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

under Chapter 15.   

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

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

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

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

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

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

consideration  of  the  materials  placed  on  record  and  also  applying  the

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

67

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

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

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

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

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

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

lotion etc."  

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

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

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

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

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

learned senior counsel for the assessee urged that the changes brought

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

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

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

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

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

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

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

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

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

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

68

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

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

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

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

and numbers for classifying traded products, developed and maintained by

the  World  Customs  Organization  (WCO)  (formerly  the  Customs  Co-

operation  Council),  an  independent  inter-governmental  organization

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

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

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

integral  part  of  the  Harmonized  System  Convention.   However,  as

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

the Harmonized System at the international level and are an indispensable

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

http://www.wcoomd.org/ en/topics/nomenclature/instrument-and-tools/tools-to-assist-

with-the-classification-in-the-hs/explanatory-notes.aspx].   

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

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

accepted  product  coding  system  formulated  under  the  auspice  of  the

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

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

Court explained the HSN as under:-

"29.  ...The  Central  Excise  Tariff  Act  is  broadly  based  on  the  system  of classification  from  the  international  convention  called  the  Brussels

69

Convention on the Harmonized Commodity Description and Coding System (Harmonized System of Nomenclature) with necessary modifications.  HSN contains a list  of all  the possible goods that are traded (including animals, human, hair, etc.) and as such the mention of an item has got nothing to do whether it is manufactured and taxable or not"

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

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

with  technical  description  of  the  goods  concerned  (their  appearance,

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

identification.  The Explanatory Notes also clarify the scope of particular

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

Notes thereon cannot supersede the relevant notes contained in the Tariff

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

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

'Coconut  Oil'  between two Chapters both falling within  first  Schedule to

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

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

Chapter 33 of CETA Tariff Notes:-

HSN Explanatory Notes CETA Tariff Notes Chapter 33

Essential Oils and Resinoids; Perfumery, Cosmetic or Toilet Preparations

Chapter Notes: .......... 3. Heading 33.03 to 33.07 apply, inter alia, to  products, whether or not mixed (other than  aqueous distillates and aqueous solutions of  essential oils), suitable for use as goods of these  headings and put up in packings of a kind sold by  retail for such use.

General ........... Headings 33.03 to 33.07 include products, whether  or not mixed (other than aqueous distillates and  aqueous solutions of essential oils), suitable for use

Chapter 33 Essential Oils and Resinoids, Perfumery, Cosmetic or Toilet

Preparations

Notes:

..................

3. Heading 3303 to 3307 apply, inter alia,  to products, whether or not mixed (other  than aqueous distillates and aqueous  solutions of essential oils), suitable for use  as goods of these headings and put up in  packings of a kind sold by retails for such  use.

70

as goods of these headings and put up in packings  of a kind sold by retail for such use (see Note 3 to  this Chapter).  

The products of headings 33.03 to 33.07 remain in  these headings whether or not they contain  subsidiary pharmaceutical or disinfectant  constituents, or are held out as having subsidiary  therapeutic or prophylactic value (see Note 1(d) to  Chapter 30).  However, prepared room deodorizers remain classified in heading 33.07 even if they  have disinfectant properties of more than a  subsidiary nature.

Preparation (e.g. varnish) and unmixed products  (e.g. unperfumed powdered talc, fuller's earth,  acetone, alum) which are suitable for other uses in  addition to those described above are classified in  these headings only when they are:-

(a) In packings of a kind sold to the consumer  and put up with labels, literature or other  indications that they are for use as  perfumery, cosmetic or toilet preparations,  or as room deodorizers; or

(b) Put up in a form clearly specialized to such  use (e.g. nail varnish put up in small bottles furnished with the brush required for  applying the varnish).

33.05  -PREPARATIONS FOR USE ON THE HAIR

................

This heading covers:-

1. ........

2. .........

3. ..........

4. Other hair preparations, such as  brilliantines, hair oils, creams ("pomades")  and dressings, hair dyes and bleaches  used on the hair; cream-rinses  

3305- Preparations for use  on the               hair

...............

3305 90         -    Other

                    --    Hair Oil  

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

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

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

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

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

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

71

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

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

consumer and put up with labels, literature or indications

that  they  are  for  use  as  perfumery,  cosmetic  or  toilet

preparations, or as room deodorizers; or

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

varnish put up in small bottles furnished with the brush

required for applying the varnish).

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

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

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

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

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

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

same.   The  Parliament  intentionally  and  consciously  deleted  these

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

Tariff Schedule to the  CETA.  Therefore, to apply these conditions, post-

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

Chapter Note cannot be relied upon to determine the classification rather

the CETA Tariff Chapter Note must be considered.   

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

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

HSN Explanatory Notes CETA Tariff Notes Section VI

Products of the Chemical or Allied Industries

Section Notes.

Section VI

Products of the Chemical or Allied Industries

72

........

2. Subject to Note 1 above, goods classifiable in  Heading Nos. 30.04, 30.05, 30.06, 32.12, 33.03,  33.04, 33.05, 33.06, 33.07, 35.06, 37.07 or 38.08  by reason of being put up in measured doses or for retail sale are to be classified in those headings  and in no other heading of the Nomenclature.

3. Goods put up in sets consisting of two or more  separate constituents, some or all of which fall in  this Section and are intended to be mixed together  to obtain a product of Section VI or VII, are to be  classified in the heading appropriate to that  product, provided that the constituents are:-

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

(b) presented together; and

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

General Section Note 1 .........  Section Note 2

Section Note 2 provides that goods (other than  those described in headings 28.43 to 28.46) which  are covered by heading 30.04, 30.05, 30.06, 32.12, 33.03, 33.04, 33.05, 33.06, 33.07, 35.06, 37.07 or  38.08 by reason of being put up in measured doses or for retail sale are to be classified in those  headings notwithstanding that they could also fall in some other heading of the Nomenclature.  For  example, sulphur put up for retail sale for  therapeutic purposes is classified in heading 30.04 and not in Heading 25.03 or 28.02, and dextrin put  up for retail sale as a glue is classified in heading  35.06 and not in heading 35.05.

After amendment

Notes:

...........

2. Subject to Note 1 above, goods  classifiable in Headings 3004, 3005,  3006, 3212, 3303, 3304, 3305, 3306,  3307, 3506, 3707 or 3308 by reason of  being put up in measured doses or for  retail sale are to be classified in those  headings and in no other heading of this  schedule.  

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

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

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

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

conditions  and  rigours  placed  in  the  HSN Explanatory  Notes  and  the

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

73

2 to Section VI:-

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

clearly  identifiable  as  being  intended  to  be  used

together without first being repacked;

(b) presented together; and

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

proportions  in  which  they  are  present,  as  being

complementary one to another."

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

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

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

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

contained in HSN.   

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

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

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

judgment is as under:-

"12. It  is significant,  as expressly stated, in the Statement of Objects and Reasons,  that  the  Central  excise  tariffs  are  based  on  the  HSN  and  the internationally  accepted  nomenclature  was  taken  into  account  to  “reduce disputes  on  account  of  tariff  classification”.  Accordingly,  for  resolving  any dispute  relating  to  tariff  classification,  a  safe  guide  is  the  internationally accepted nomenclature emerging from the HSN.  This  being the expressly acknowledged basis of the structure of Central excise tariff in the Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary  of  Terms  has  a  different  purpose  and,  therefore,  the  specific purpose  of  tariff  classification  for  which  the  internationally  accepted nomenclature in HSN has been adopted, for enacting the Central Excise Tariff Act, 1985, must be preferred, in case of any difference between the meaning of the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI."

74

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

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

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

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

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

under:-

"24. In our considered view, the Tribunal erred in relying upon the HSN for the purpose of marker inks in classifying them under Chapter Sub-Heading 3215.90 of the said Tariff. The Tribunal failed to appreciate that the entries under the HSN and the entries under the said Tariff are completely different. As mentioned above, it is settled law that when the entries in the HSN and the said Tariff are not aligned, reliance cannot be placed upon HSN for the purpose of classification of goods under the said Tariff. One of the factors on which the Tribunal based its conclusion is the entries in the HSN. The said conclusion in the order of the Tribunal is, therefore, vitiated and, accordingly, set  aside. We  agree  with  the  findings  recorded  by  the  Commissioner (Appeals)."

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

material  difference  between the  relevant  notes  provided  in  the  HSN as

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

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

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

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

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

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

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

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

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

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

75

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

HSN for the purpose of classification of the goods.

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

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

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

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

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

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

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

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

part of the Circular dated 31.08.1995 is as under:-

"6. .....In the CET Heading 3305 covers "preparations for use on the hair". ...... 9.  Therefore,  keeping  in  view  of  Chapter  Notes,  HSN  Notes,  the  Tariff Conference  of  1991,  the  report  of  D.G.  (A.E.)  and  the  opinion  of  Chief Chemist, CRCL, it is felt that coconut oil whether pure or refined and whether packed  in  small  or  large  containers  merits  classification  under  Heading No.1503 as long as it satisfies the criteria of 'fixed vegetable oil' laid down in Chapter Note 3 of Chapter 15.  It is also clarified that if the containers bear labels/literature,  etc.,  indicating  that  it  is  meant  for  application  on hair,  as specified under Note 2 of Chapter 33 and/or if the coconut oil has additives (other than BHA) or has undergone processes which made it a preparation for  use  on  hair  as  mentioned  in  Chapter  Note  6  of  Chapter  33 then the coconut oil may merit classification under Chapter 33."

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

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

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

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

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

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

76

of the said Circular reads as under:-

"5.  .....Hence,  in  view  of  the  amendments/insertion  of  Chapter  Note  and Section Note, the classification of coconut oil would depend upon the fact as to how the majority  of  the customers use the said product.   Therefore,  if coconut oil is packed in packages which are generally meant for sale in retail as hair oil, in that case, the said product would be classified as hair oil under heading 3305, even though few consumers may use it as edible oil. Through field survey, it has been gathered that smaller packs upto the sizes of 200ml are normally used as hair oil by the customers.  It has also been reported that in small pack sizes upto 200ml are stacked along with other hair oil  care  preparations/cosmetics  and  not  in  edible  oil  section  in  the  retail shops.  Enquiries also reveal that small packs of coconut oil displayed at the hair  care shelves are used as hair  oil  only  and the customer ask for  the smaller packages or the sachets for using them as 'hair oil'. 6. In view of foregoing discussion,  it is concluded that coconut oil packed in containers upto 200ml may be considered as generally used as hair oil.  This would bring uniformity in assessment in respect of coconut oil sold in small containers irrespective of the fact as to whether its use as hair oil is indicated on containers/labels or not.  Therefore, following instructions/directions are issued:- (i) Circular No. 145/56/95-CX dated 31.08.1995 stands withdrawn. (ii)  the coconut oil  packed in small  container of sizes upto 200ml shall  be classified under heading 3305."

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

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

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

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

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

"animal  or  vegetable  fats  and  oils  and  their  cleavage  products".

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

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

17.12.2014 by holding as under:-

"1. We have heard learned Additional  Solicitor  General  appearing for the Revenue.

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

dismissed."

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

77

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

read with judicial pronouncements.   

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

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

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

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

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

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

relying upon the earlier orders/circular dated 31.08.1995 prior to

amendment  to base its conclusion that coconut  oil  both edible

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

78

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

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

'suitability of the goods for being used as Hair Oil' for classifying

the  same  under  33.05.  'Coconut  Oil'  packed  in  small

sachets/containers  suitable  for  being  used  as  'Hair  Oil' is

classifiable  under  Chapter  Tariff  Item  3305.  When  a  good  is

classifiable under tariff item 3305, by virtue of amended Section

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

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

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

item description is read with the Chapter Notes, Section Notes

and the tests for classification that is Tariff Item 1513.19.00 and

3305.90.19 are equally specific.  Hence, as per Rule 3(c), when

goods cannot be classified by reference to (a) or (b), they shall be

classified under the heading which occurs last in numerical order

among  those  which  equally  merit  classification.   Hence,  the

coconut  oil  manufactured  by  the  respondents  could  rightly  be

classified  under  heading  3305.90.19,  as  it  occurs  last  in  the

numerical order of the tariff.   

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

applying the 'Common Parlance Test', coconut oil packed in small

sachets/containers  understood  in  the  market  by

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

tariff item 33 05.   

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

28.02.2005),  there  is  material  difference  between  the  relevant

Explanatory Notes in the HSN as against those provided in the

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

Camlin  Ltd.  v.  Commissioner  of  Central  Excise,  Mumbai

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

the  Notes  tariff  schedule  are  not  aligned,  reliance  cannot  be

placed upon HSN for the purpose of classification of goods.

79

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

sachets/containers  suitable  for  being  used  as  'Hair  Oil'  are

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

further fortified by various materials placed on record and also

registration  of  its  Trademark  No.1033842  Class-3  Parachute

associated with "Hair Oil, Hair lotion etc."  

vii. Circular dated 03.06.2009 and dismissal of appeals preferred by

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

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

Merger' is not applicable.

…………….……………J. [R. BANUMATHI]

New Delhi; April 13, 2018

80

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1766 OF 2009

COMMISSIONER OF CENTRAL EXCISE            ...APPELLANT

     VERSUS

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

WITH  

CIVIL APPEAL Nos.6703­6710 OF 2009  

O R D E R

In view of the difference of opinion in terms

of the judgments  pronounced  by  us in the  present

appeals, the  Registry is directed to place the said

appeals before Hon’ble the Chief Justice of India for

appropriate orders.

……………...............J.             (RANJAN GOGOI)

…………….……………J.        [R. BANUMATHI]

NEW DELHI; APRIL 13, 2018