Customs Act | Statutory Tariff Headings And HSN Notes Prevail Over Common Parlance In Customs Classification : Supreme Court

The Supreme Court on Tuesday (January 6) observed that the 'Aluminum Shelves' imported for mushroom cultivation cannot be classified as 'parts of agricultural machinery' but are liable to be classified as 'aluminium structures', attracting a customs duty.

A bench of Justices JB Pardiwala and R Mahadevan resolved the long-standing dispute over the classification of aluminium shelving systems used in mushroom farms for the purpose of attracting custom duty on the import of aluminium shelving. Moreover, the bench fundamentally restructures how goods are classified for customs duty and laid down seven-point mandatory framework by downgrading the routine reliance on the “common parlance” or “trade parlance” test and affirmed the primacy of express or implied statutory guidance flowing from tariff headings, section and chapter notes, HSN Explanatory Notes, and technical expressions used in the tariff entries.

The dispute was that the respondent-importer had imported the aluminium shelving to be used in mushroom cultivation and had claimed classification of the imported item under Customs Tariff Item (CTI) 84369900, covering “parts of agricultural machinery”, which attracts nil customs duty.

Opposing the importer's classification, the Revenue classified the goods under CTI 76109010 as “aluminium structures”, attracting 10% basic customs duty along with applicable levies.

While the original and appellate customs authorities accepted the Revenue's view, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) reversed these findings, holding the goods to be agricultural machinery parts. This prompted the Revenue to approach the Supreme Court.

Before the Supreme Court, the issue was whether the imported aluminium shelving should be classified under Chapter 84 as parts of agricultural machinery, or under Chapter 76 as aluminium structures. In addressing this issue, the Court undertook an extensive examination of core principles governing tariff classification under the Customs Tariff Act, 1975.

Setting aside the impugned CESTAT order, the judgment authored by Justice J.B. Pardiwala held that the Tribunal had erred in straightaway applying the “common parlance” test, without first giving due primacy to the express or implied statutory guidance emerging from the tariff headings, section and chapter notes, HSN Explanatory Notes, and the technical language employed in the tariff entries.

The Court said that when the wording of the tariff headings covers aluminium shelving as 'structure' being supported by other equipment, such as watering or composting systems, therefore it would be inappropriate to consider aluminium shelves to contribute as to any mechanical function.

“These shelves do not contribute to their operation; they merely serve as a surface for the devices to perform their functions. A surface supports an object but does not become a part of it. To illustrate, a car needs a road to operate. One could even create a custom race track for a specific race car, enabling it to be driven solely on that track. However, it is never disputed that the road is not a 'part' of the car.”, the court explained with the help of an example.

Since Heading 7610, which covers aluminium structures, is an eo nomine entry that directly encompasses the imported shelving, the goods clearly met the HSN definition of “structures” as assembled aluminium components that remain in position once installed, thereby excluding the need to apply the common parlance test.

“Thus, broadly speaking, the common or trade parlance test cannot be invoked where the statute, either explicitly or implicitly, provides definitive guidance. Explicit statutory guidance exists where the legislature provides a specific definition or a clear criterion for a term within the Act itself. Conversely, implicit guidance is found where the terms employed are scientific or technical in nature, or where the statutory context indicates that the words must be construed in a technical sense. It is only in a state of statutory silence, where the legislative intent remains unexpressed, that the tribunals or courts may resort to the common or trade parlance test.”, the court said.

Further, the following governing principles were culled out with regard to the application of the common or trade parlance test while dealing with classification disputes under taxation laws:

"a. The common or trade parlance test must be applied restrictively. Its function is limited to ascertaining the common or commercial meaning of a term found within a tariff heading or its defining criterion.

b. The trade or common parlance test can be invoked when dealing with a classification dispute only when the following conditions are satisfied.

i. The governing statute, including the relevant tariff heading, Section Notes, Chapter Notes, or HSN Explanatory Notes, does not provide any explicit definition or clear criteria for determining the meaning and scope of the tariff item in question.

ii. The tariff heading does not include scientific or technical terms, or the words used in the heading are not employed in a specialised, technical context.

iii. The application of the common parlance test must not contradict or run counter to the overall statutory framework and the contextual manner in which the term was used by the legislature. Thus, broadly speaking, the common or trade parlance test cannot be invoked where the statute, either explicitly or implicitly, provides definitive guidance. Explicit statutory guidance exists where the legislature provides a specific definition or a clear criterion for a term within the Act itself. Conversely, implicit guidance is found where the terms employed are scientific or technical in nature, or where the statutory context indicates that the words must be construed in a technical sense. It is only in a state of statutory silence, where the legislative intent remains unexpressed, that the tribunals or courts may resort to the common or trade parlance test.

c. In the contemporary HSN-based classification regime, the common or trade parlance test cannot serve as a measure of first resort. It should only be employed after a thorough review of all relevant material confirms the absence of statutory guidance.

d. When interpreting terms in a tariff item by relying on the basis of common or trade parlance, an overly simplified approach should be avoided, and the words should be understood within their legal context. Further, when a party asserts a meaning of a term based on common or trade parlance, it must present satisfactory evidence to support that claim.

e. When a tariff item is general in nature and does not indicate a particular industry or trade circle, the common parlance understanding of that term is appropriate. However, when a tariff item is specific to a particular industry, the term must be understood as it is used within that specific trade circle.

f. The common or trade parlance test cannot be used to override the clear mandate of the statute. Specifically:

i. The test cannot be applied in a way that results in the reclassification of a good that is clearly identifiable under a particular heading according to the statute, simply because that good is marketed or called by a different name in trade or common parlance.

ii. Conversely, the test cannot be used to challenge the classification of goods under a statutory heading if those goods retain the essential characteristics defined by that heading, even if they have a unique or specialised trade name.

In other words, the character and nature of the product cannot be veiled behind a charade of terminology which is used to market the product or refer to it in common or commercial circles.

g. To establish a separate commercial identity, it is essential to demonstrate that the good has undergone such a substantial transformation that it can no longer be characterised as a mere sub-type or category of a broader class and thus falls outside the ambit of the common or commercial understanding associated with such a class of goods."

Accordingly, the appeal was allowed, and the CESTAT order was set aside, whereby the classification of the goods under CTI 76109010 as aluminium structures was restored.

Headnote

Customs Act, 1962; Section 28, 46 — Customs Tariff Act, 1975; General Rules of Interpretation (GRI) — Classification of "Aluminium Shelving for Mushroom Growing" - The Supreme Court set aside the CESTAT order that had classified aluminium shelves as "parts of agricultural machinery" under CTI 84369900 - held that the subject goods are "Aluminium Structures" classifiable under CTI 76109010 - 1. Analysis of General Rules of Interpretation (GRI) – i. Sequential Application: The Court reiterated that GRIs 1 to 4 must be applied sequentially; ii. Primacy of GRI 1: Classification begins and often ends at GRI 1, which prioritizes the terms of headings and relevant Section or Chapter Notes; iii. GRI 3 (Specific vs. General): GRI 3 is a "tie-breaker" invoked only if GRI 1 and GRI 2 result in a tie between two or more headings - The CESTAT erred by jumping to GRI 3 to prefer a "specific" heading without first exhausting the mandatory sequential inquiry of GRI 1; iv. Reliance on HSN Explanatory Notes - These notes are the foundation for interpreting the HSN-based tariff - affirmed that HSN notes have binding force when the domestic tariff is aligned with HSN – Held that the 'Aluminum Shelves' imported for mushroom cultivation cannot be classified as 'parts of agricultural machinery' but are liable to be classified as 'aluminium structures', attracting a customs duty. [Relied on Commissioner of Central Excise, Salem v. Madhan Agro Industries (India) Private Ltd. (2024); Paras 117- 142]

Analysis of the Common Parlance Test – i. Restrictive Application: The "common parlance" or "trade parlance" test is not a measure of first resort in the HSN era; ii. Conditions for Invocation - It can only be invoked if: (i) the statute/notes provide no explicit definition; (ii) the heading lacks scientific/technical terms; and (iii) it does not contradict the statutory framework; iii. Exceptions - Where a term is used in a scientific or technical sense, common parlance is irrelevant - held that technical meanings must prevail over commercial nomenclature if the statute implies a technical sense. [Relied on Akbar Badrudin Giwani v. Collector of Customs, Bombay (1990); Paras 63-68]

Analysis of "End Use" and "Intended Use" – Held that the taxable event is the time of import - The condition of the article at import not its eventual use is the crucial factor – Held that holding that "use" is relevant only if the tariff entry itself explicitly refers to use or adaptation; iii. Objective Characteristics: Classification must be based on objective characteristics and properties to ensure legal certainty and prevent subjectivity. [Relied on Dunlop India Ltd v. Union of India (1976); Indian Aluminium Cables Ltd v. Union of India (1985), Paras 69-83, 87-93]

Definition and Characteristics of "Machine" – i. Essential Features: A machine must consist of moving parts and utilize power (mechanical or electrical) to perform a specific task; ii. Support Structures vs. Parts: Static structures that merely support a plant are not "parts" of the machine itself – Held that All of the individual machines are already complete and fully operational on their own; their mechanical and electrical functions do not rely on aluminium shelves - These shelves do not contribute to their operation; they merely serve as a surface for the devices to perform their functions. [Relied On Saraswati Sugar Mills v. Commissioner of Central Excise, Delhi-III (2014); Paras 124-140]

Specific Application to Aluminium Shelves – Held that i. Heading 7610: The HSN Explanatory Notes characterize "structures" as items that generally remain in position once installed and are made of bars, rods, plates, etc., joined by riveting or bolting - The subject goods fulfilled all these criteria; ii. Heading 8436: The shelves lacked moving parts and independent mechanical functions - Integrating them post-import with watering systems did not change their character at the time of import into "agricultural machinery" – Held that the subject goods are correctly classifiable under CTI 7610 90 10 - The CESTAT judgment was set aside for misapplying the General Rules of Interpretation and over-relying on the end use/common parlance tests in the face of clear statutory guidance – Appeal allowed. [Paras 96, 100, 117-130, 142]

Cause Title: COMMISSIONER OF CUSTOMS (IMPORT) VERSUS M/S WELKIN FOODS

Citation : 2026 LiveLaw (SC) 17

Click here to download judgment

Appearance:

For Petitioner(s) :Mr. N.Venkataraman, A.S.G. Mr. Gurmeet Singh Makker, AOR Ms. Neelakshi Bhadauria, Adv. Mr. Siddhant Kohli, Adv. Mr. Hitarth Raja, Adv. Ms. Khushboo Agarwal, Adv.

For Respondent(s) :Mr. Salil Arora, Adv. Ms. Reeva Chugh Arora, Adv. Mr. Tahir Ashraf Siddiqui, AOR