C.C.E.C & ST,
VISHAKHAPATNAM Vs JOCIL LTD.
primary issue for consideration in these cases is one of classification under
Tariff Items of the Customs Tariff Act, 1975. We are called upon to decide the
specific issue as to whether cargo imported is classifiable as non-edible Industrial
Grade Crude Palm Stearin falling under Ch. Sub Heading No. 15 11 90 or as
"RBD Palm Stearin" falling under Tariff Item No. 38 23 11 12 of the
Customs Tariff Act, 1975.
brief facts which give rise to the aforesaid issue are that the Respondent
imported Crude Palm Stearin through Kakinada Port and filed Bills of Entry
declaring the goods as industrial grade Crude Palm Stearin falling under Ch.
Sub Heading No. 15 11 90 90 of the Customs Tariff Act, 1975 [hereinafter
referred to as "the Act"] and the bills of entry were assessed
provisionally on the basis of the importer's declaration pending receipt of the
test results from the chemical examiner. `Palm Stearin', the subject matter of classification
in question, was imported through Kakinada port during the period from
26.08.2003 to 28.12.2004. Whereas the Respondent-assessee sought to classify
the goods in question under Tariff Item No. 15 11 90 90 of the Customs Tariff
Act, 1975 as "Non-edible Industrial Grade Crude Palm Stearin", the
appellant classified the goods in question as "RBD Palm Stearin"
falling under Tariff Item No. 38 23 11 12 of the Act, chargeable to duty at BCD
25%, CVD 16% and 4% SAD. Under Tariff Item No. 15 11 90 90, the assessment was
charged at BCD 20% and nil CVD/SAD. The Assistant Commissioner of Customs asked
the Respondent to pay the differential duty, under S.28 of the Customs Act, 1962.
Chemical Examiner, Visakhapatnam reported that the goods in question were RBD
Palm Stearin with an admixture of Palm Fatty Acid Distillate (in short
"PFAD") and not crude palm stearin as declared by the importer. After
due adjudication process, the Assistant Commissioner of Customs finalized the
Bills of Entry by classifying the impugned goods as RBD Palm Stearin falling
under Sub- heading No. 3823.11.12 of the Customs Tariff Act, 1975 and demanded
the differential duty along with applicable interest. Aggrieved by these
orders, the Respondent preferred an appeal before the Commissioner (Appeals).
When the dispute in this regard reached the Commissioner (Appeals), the claim of
the Respondent was dismissed and the order of the Asst. Commissioner upheld.
However, on appeal to the CESTAT, the Tribunal allowed the same while relying
on its decision in the case of M/s Jocil Ltd. & Ors v. The Commissioner of Central
Excise & Customs, Visakhapatnam - II.
CESTAT, in determining the appeal, took note of the fact that the Chemical
Examiner has only ascertained the free fatty acids of the sample, which comes
to 23.2%. According to the Tribunal, since the balance contents of 76.8% have
not been considered, it could not be conclusively said that the same is not
composed of triglycerides. The CESTAT also relied on the ester value and
saponification value registered at the load port (Load Port Analysis) during
the time of clearance. The said analysis indicated that the balance is nothing
but triglycerides. According to the Central Revenue Chemical Laboratory (CRCL)
opinion which was relied upon by CESTAT, Chapter 15.11 covers palm oil and its
fractions - this view is also espoused in the HSN Explanatory Notes. Since Palm
Stearin falling under 15.11 is a glyceride of fatty acids, the CESTAT concluded
that the categorization should also have to be made under Ch.15.11. As stated
hereinabove, reliance was also placed on its own decision in M/s Jocil Ltd.
& Ors v. The Commissioner of Central Excise & Customs, Visakhapatnam -
II reported at [2008 (225) ELT 540 (Tri-540]]. Aggrieved by the decision of
CESTAT, the appellant has approached this Court by way of Civil Appeal.
appeal was listed for hearing and we heard the learned counsel appearing for
the parties who have ably taken us through all the relevant documents on record
and also placed before us the various decisions which may have a bearing on the
issues raised in the present appeal.
this Court, learned counsel for the appellant contended that the goods in
question are RBD Palm Stearin with Palm Fatty Acid Distillate (PFAD) and hence
must be classified under Tariff Item No. 38 23 11 12 of the Act. We may
enumerate the arguments put forth by the appellant on this count: -
a. Tariff Item No. 38 23
11 12 is a specific heading, which must be given preference over a general
description as in Tariff Item No. 15 11 90 90. As per Rule 3(a) of the General
Rules for Interpretation of the First Schedule to the Act, when for any reasons
goods are prima facie classifiable under two headings, the general description must
give way to the specific.
b. In separate test
reports in respect of samples drawn from various consignments, the Chemical
Examiner, Vishakhapatnam reported that the goods in question are RBD Palm
Stearin with PFAD and not Crude Palm Stearin. The report clearly indicates that
the substance has been chemically modified, and cannot be called `crude' in any
c. Reliance on the Jocil
Ltd case by the CESTAT is contentious as its decision in the same matter has
been challenged by the appellant in the HC and is pending.
d. The Six-digit First
Schedule to the Customs Tariff Act, 1975 was substituted by the Eight-digit
First Schedule vide the Customs Tariff (Amendment) Ordinance, 2003 and this
substitution w.e.f. 01.02.2003 has statutory force. Therefore, the new Schedule
would operate over and above the CBEC Circular dated 03.12.2002 and the latter
would not be applicable since the new Schedule was not operational at the time
of issuance of the Circular. The goods, which were imported between August 2003
and November 2004, should therefore be classified under the Eight Digit Tariff
the other hand, the Respondent has maintained that the subject matter in
question is industrial grade Crude Palm Stearin falling under Ch. Sub Heading
No. 15 11 90 90 of the Customs Tariff Act, 1975. To fortify this conclusion,
they have contended that: -
(Appeals) erred in not appreciating and applying CBEC Circular dated
03.12.2002. Respondent claims that the circular had distinguished between products
which are fractions of Palm Oil classifiable under Chapter 15, and products
which are fatty acids classifiable under Chapter 38. The Respondent contends
that the distinction between both these products was the presence of
triglycerides, determined by the ester value of the product in question.
b. The Chemical Examiner
did not ascertain the ester value of the goods in the chemical analysis, when
it was incumbent on the department to do so. On the other hand, the Report
determined free fatty acid, which clearly indicated that the product had
triglycerides. When the authorities have thus ignored the CBEC directions, the
Respondent contended, the assessment needs to be set aside.
c. The onus to classify
a particular product under a specific heading is on the Department [Hindustan Ferodo
Ltd. v. Collector of Central Excise, Bombay reported at 1997 (89) ELT 16). Therefore,
the Department should have had the product chemically analyzed and record a
finding that there were no triglycerides in the product. In the absence of the
same, the Respondent contends, the order of the authorities deserves to be
quashed and set aside.
d. The Commissioner
(Appeals) failed to appreciate that the oils were a combination of glycerides
and fatty acids. The compound usually has 5% fatty acid and PFAD is
subsequently added to satisfy the requirement of free fatty acid of the oil to
be above 20% (this is done to ensure that oils which are meant for industrial
use are not diverted for edible purposes). Apart from fatty acid content of
25%, the rest, Respondent claims, is triglycerides which have ester value as
recorded in the Load Port Analysis (not Chemical Examiner's report].
e. Respondent also claims
that its arguments are buttressed by the practice followed in this regard by various
other soap manufacturers in the country, where the product in question is
classified under Tariff Item No. 15.
order to determine the appropriate nature of the subject matter in question, as
well as to adjudicate upon classification of the same under the Act of 1975, we
may refer to the sub-headings involved herein: -
1511 Palm Oil and Its
Fractions, Whether Or Not Refined, But Not Chemically Modified
1511 10 00 - Crude
1511 90 - Other
1511 90 10 ---
Refined bleached deodorised palm oil
1511 90 90 --- Other 3823
Industrial Monocarboxylic Fatty Acids; Acid Oils from Refining; Industrial
Fatty Alcohols Industrial monocarboxylic fatty acids; acid oils from refining: 3823
11 -- Stearic acid: -- Palm stearin:
3823 11 11 ---- Crude
3823 11 12 ---- RBD
15.11 covers palm oil and its fractions, whether or not refined, but not
chemically modified. According to the Harmonized Commodity Description and
Coding System (for short "HSN") Explanatory Notes developed by the
World Customs Organization, Chapter 15 covers vegetable or animal fats and oils
and their fractions when used as foodstuffs or for technical or industrial
purposes. The CESTAT, in deciding the issue of classification, has relied upon
the opinion of the Customs and Central Revenue Control Laboratory (CRCL) and a
Central Board of Excise and Customs (CBEC) Circular dated 03.12.2002 to fortify
its conclusions. The CRCL opinion advised that heading 15.11 covers palm oil
and its fractions, which include the constituent elements like triglycerides of
fatty acids and point fractions obtained by the process of fractionation. The
CBEC Circular had distinguished between triglycerides of fatty acids and free
fatty acids and went on to state that palm stearin was basically a triglyceride
(ester) of fatty acids. Based on this ground, and also on the fact that the
report of the Chemical Examiner merely looked at the free fatty acid content
and not the ester values to indicate the presence of triglycerides, the CESTAT
ruled in favour of the respondent.
We are of the considered opinion that the import of the CRCL opinion and the
CBEC Circular needs to be understood in proper perspective. The mere fact that
the CRCL opinion and the CBEC Circular (No. 81/2002 - dated 03.12.2002) affirm
the chemical composition of palm stearin cannot make a case for its
classification under Ch. Sub Heading No. 15 11 90 90. The essential conclusion
to be drawn from these two reference documents is that palm stearin, which is
obtained from the fractionation of palm oil, is comprised mainly of triglycerides
of fatty acids. The question then arises as to whether it would be appropriate to
categorize the triglycerides present in the oil, viz. Palm Stearin, under Chapter
15, while bracketing the free carboxylic acids derived during the refining
process under Chapter 38.
answer this question, we may analyse the key aspects of classification under
Chapter 15 - the chapter covers palm oil and its fractions, which may be
refined or unrefined, but the critical condition is that the product must not
be chemically modified. The argument that palm stearin, a fraction of palm oil,
being comprised primarily of triglycerides of fatty acids should be classified
in Chapter 15 by way of exclusion from Chapter 38 which covers industrial
carboxylic acids (or in other words, free fatty acids) is compelling, but not
decisive. This argument stems from the interpretation favoured in Rule 3(b) of
the General Rules for the interpretation of the First Schedule to the Customs
Tariff Act, 1975, wherein the essential character of the subject matter
determines its classification.
also find that Rule 1 of the General Rules of Interpretation specifically state
that "the titles of Sections, Chapters and sub-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
following (subsequent) provision:" The headings are of paramount importance,
and as the HSN Explanatory Notes state, the headings are expected to cover the broad
ambit of classification since it is impossible to cover all the goods specifically
in titles. It is relevant to note that the title of Chapter 15 reads
"Animal or vegetable fats, oils, waxes, etc." and for goods to fall
into Chapter 15, there has to be the element of "edible oil".
Non-edible industrial grade oil cannot by any stretch of imagination be brought
within the ambit of Animal or vegetable "edible oil". However, Rule
3(a) of the General Rules of Interpretation stipulates that the "heading which
provides the most specific description shall be preferred to headings providing
a more general description". While it is not practicable to lay down hard
and fast rules by which to determine which heading is more specific, the HSN Explanatory
Notes state that if the goods answer to a description which more clearly identifies
them, that description is more specific where the identification is less complete.
the case at hand, the subject matter in question is specifically identified in
Ch. Sub Heading No. 38 23 11 as "Palm Stearin", and further
differentiated as "Crude" and "RBD" in Sub Heading Nos. 38
23 11 11 and 38 23 11 12 respectively. The Explanatory Notes are categorical in
affirming the accepted practice that Rule 3(b), which the CESTAT and the
Respondent has referred to, shall be used only if classification under Rule
3(a) fails. In this instance, we are of the considered opinion that the issue
of the essential character of the subject matter in question may be resorted to
only if identification under Rule 3(a) is impossible. Since the description
offered in Chapter 38 certainly attempts to identify `Palm Stearin' within its
ambit, we do not find it necessary to place reliance on the explanation offered
by the Respondent.
effect, by contending that free carboxylic acids are classified under Chapter
38, and thus the remaining component from refining process, viz. palm stearin
which contains triglycerides, should be shunned to Chapter
Respondent is implying that Chapter 15 is of a residuary nature. This would go
against the very grain of rules of classification, as is mentioned in the
General Rules of Interpretation, as well as precedents established by this Court.
In Dunlop India Ltd. & Madras Rubber Factory Ltd. v. Union of India (UOI)
and Ors., reported at (1976) 2 SCC 241, this Court has held: -
"37. [...] When
an article has, by all standards, a reasonable claim to be classified under an enumerated
item in the Tariff Schedule, it will be against the very principle of
classification to deny it the parentage and consign it to an orphanage of the residuary
clause. [...] 38. It is not for the Court to determine for itself under Article
136 of the Constitution under which item a particular article falls. It is best
left to the authorities entrusted with the subject. But where the very basis of
the reason for including the article under a residuary head [...] is foreign to
a proper determination of this kind, this Court will be loath to say that it
will not interfere."15.Referring to the essential characteristics of the
subject matter would not only be applying contorted logic in arriving at the
correct classification but would also amount to ignoring the express
identification offered in Chapter 38 of the First Schedule of the Customs
Tariff Act, 1975.
are of the opinion that the CBEC Circular needs to be thus harmonized with the Eight-digit
First Schedule introduced vide the Customs Tariff (Amendment) Ordinance, 2003.
As mentioned before, the Circular had been issued prior to the coming into
force of the amended Tariff Schedule and consequently, did not have the latter
as its reference point. The goods, which were imported between August 2003 and
November 2004, would undoubtedly be classified under the Eight Digit Tariff
Schedule and on account of the aforementioned reasons, the subject matter in
question will be classifiable under Chapter 38 of the same.
held thus, it is also important to note that the interpretive powers of this
Court are significantly curtailed by the presence of a specific enumeration in
Chapter 38 of the Tariff Schedule. This Court, while deciding an issue of classification,
can only adjudicate along the lines of settled norms and precedents drawn from
statutory interpretation and judicial precedents.
the reasons mentioned hereinabove, we are in agreement with the contentions
raised by the appellant and the appeals are allowed. By this judgment, the order
of the CESTAT is set aside, and the decision of the Commissioner (Appeals] affirming
the order of the Assistant Commissioner is restored. However, we leave the
parties to bear their own costs.
[Dr. Mukundakam Sharma]
[Anil R. Dave]