'Common Parlance', 'Popular Meaning', 'Marketability' Tests Applicable Only If Tariff Entry Classifiable In More Than One Head: SC [Read Judgment]

The Supreme Court on Friday dismissed the Delhi Central Excise Commissioner's appeals against the 2008 decision of the CESTAT holding that "car matting" would be chargeable to duty at 8% under the heading "Carpets and Other Textile Floor Coverings", and not at 16% under "Vehicles other than Railway or Tramway Rolling-Stock and Parts and Accessories Thereof".

In the case "Commissioner of Central Excise Delhi-III vs M/s UNI Products India Ltd", the court was addressing the question as to whether "car matting" would come within Chapter 57 of the First Schedule to the Central Excise Tariff Act, 1985 under the heading "Carpets and Other Textile Floor Coverings" or they would be classified under Chapter 87, which relates to "Vehicles other than Railway or Tramway Rolling-Stock and Parts and Accessories Thereof".

The bench of Justices Deepak Gupta and Aniruddha Bose cites the relevant parts of Chapter 57 of Central Excise Tariff of India, 2004-2005 which stipulate that the term 'carpets and other textile floor coverings' means floor coverings in which textile materials serve as the exposed surface of the article when in use and includes article having the characteristics of textile floor coverings but intended for use for other purposes.

In delivering its verdict, the bench of Justices Deepak Gupta and Aniruddha Bose laid down that the "common parlance test", "marketability test" and "popular meaning test", which are all "tools for interpretation to arrive at a decision on proper classification of a tariff entry", would be required to be applied only "if a particular tariff entry is capable of being classified in more than one heads".

Facts

As narrated in the judgment, the respondent, at the material point of time were engaged in the business of manufacture of textile floor coverings and car matting. The subject-goods have been referred to interchangeably by the

revenue also as car mattings and car carpets. The respondent-assessee wanted their goods to be placed under tariff entry 5703.90 (in Chapter 57). Effective rate of excise duty on goods under that entry was 8% and education cess at the applicable rate for the subject period. The rate of basic excise duty would have been 16% apart from education cess if these goods were classified against goods specified in tariff entry 8708.99.00 (in Chapter 87).

Altogether three show-cause-notices were issued against the respondent over clearance of goods under the said heading. These notices required them to answer as to why they should not be charged the differential rate of duty and interest.

"There is reference to "PARTS AND ACCESSORIES" under the main heading "GENERAL", in Section XVII of the HSN Explanatory Notes, 2002. Under the sub-heading "(iii) PARTS AND ACCESSORIES", a three-layer test has been postulated. It is on satisfying all of these conditions a particular item would come under that chapter head...Section Note 2 of Section XVII of Central Excise Tariff excludes eleven sets of items from being treated as parts and accessories", reads the judgment penned by Justice Bose. One category of carpets [Textile carpets (Chapter 57)] has been excluded specifically from 'parts and accessories'.

Further, it records that The Commissioner found that car mattings satisfied all the tests enumerated in the said explanatory notes of HSN to be treated as parts and accessories classifiable under Chapter 87. "One of the reasons for such finding was that the car mattings were suitable for use solely or principally with the vehicle. Then he applied the "market test", and concluded that if anybody asked for car matting in the market, the consumer would get a product which could only be used in a car, with fixed length and width. In his order, the Commissioner found that what was excluded was textile carpets of Chapter 57 and not car mattings", observed the Apex Court.

In appeal, The Tribunal set aside the Commissioner's order, holding that "chapter 57 covers not only carpets but also other floor coverings", and "What has to be considered is that between the terms 'carpets and other floor coverings' the terms 'parts and accessories' which can be considered more specific". "Even if the claim of the Department that at no stage the carpets come into existence is accepted, it cannot be denied that the article can be considered as other floor coverings meant for other application", the Delhi CESTAT had opined.

The tribunal also found that in the interpretative notes in HSN, by way of an example, it has been clarified that "textile carpet identifiable for use in motor cars to be classified not as accessories of motor cars in heading 8708 but in heading 5703 where they are more specifically described as carpets".

"Though, in common parlance the impugned product may not be considered as carpets, in view of the wordings of the chapter, the section notes, chapter notes and the explanatory notes extracted above we are of the considered opinion that the impugned goods is correctly classifiable under chapter heading 570390.90 as claimed by the assessee", the Tribunal had ruled, which was impugned before the top court.

Conclusions of the Supreme Court

"Revenue's case is that the goods are manufactured in such a way that these can be used as accessories of cars. The Tribunal found that though in common parlance the products involved may not be considered as carpets, in view of the wordings of the chapter, section notes, chapter notes and explanatory notes, the goods were classifiable under chapter heading 570390.90", records the judgment.

"We do not find any error in such reasoning. Chapter 87 of the Central Excise Tariff of India does not contain car mats as an independent tariff entry. We have reproduced earlier the various parts and accessories listed against tariff entry 8708. All of them are mechanical components, and revenue want car mats to be included under the residuary sub-head "other" in the same list. The HSN Explanatory Notes dealing with interpretation of the rules specifically exclude "tufted textile carpets, identifiable for use in motor cars" from 87.08 and place them under heading 57.03", was the view of the bench.

"The main argument of the appellant is that because the car mats are made specifically for cars and are used also in cars, they should be identified as parts and accessories. But if we go by that logic, textile carpets could not have been excluded from Parts and Accessories...It has also been urged on behalf of the revenue that these items are not commonly identified as carpets but are different products. The Tribunal on detailed analysis on various entries, Rules and Notes have found they fit the description of goods under chapter heading 570390.90. We accept this finding of the Tribunal", reiterated the bench.

"Once the subject goods are found to come within the ambit of that sub-heading, for the sole reason that they are exclusively made for cars and not for "home use" (in broad terms), those goods cannot be transplanted to the residual entry against the heading 8708", the Court stated.

"...in our opinion, there is no necessity to import the "common parlance" test or any other similar device of construction for identifying the position of these goods against the relevant tariff entries", the bench further said.

"The common parlance test", "marketability test", "popular meaning test" are all tools for interpretation to arrive at a decision on proper classification of a tariff entry. These tests, however, would be required to be applied if a particular tariff entry is capable of being classified in more than one heads", declared the Court, dismissing the appeals.

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