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 thereof, which relates to “Vehicles
other than Railway or Tramway Rolling-Stock and Parts and
Accessories Thereof”.?
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 302-303 OF 2009
COMMISSIONER OF CENTRAL EXCISE,
DELHI-III ...APPELLANT
VERSUS
M/S. UNI PRODUCTS INDIA LTD. ...RESPONDENT
J U D G M E N T
ANIRUDDHA BOSE, J.
These two appeals against the decision of the Customs
Excise & Service Tax Appellate Tribunal (CESTAT) rendered on
16th July, 2008 require adjudication on the question as to whether
1
“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 thereof, which relates to “Vehicles
other than Railway or Tramway Rolling-Stock and Parts and
Accessories Thereof”. The appeals are against a common decision
and we shall also deal with both these appeals together in this
judgment. The respondent-assessee want their goods to be placed
under Chapter heading 5703.90. We shall refer to the specific
entries against this item later 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, at
the material time, were clearing the goods declaring them to be
goods against Heading No.570390.90. Effective rate of excise
duty on goods under that entry was 8% and education cess at the
applicable rate for the subject period. We find this rate of duty,
2
inter-alia, from the order of the Commissioner dealing with the
first and the second show-cause notices. The rate of basic excise
duty would have been 16% apart from education cess if these
goods were classified against goods specified in heading
no.8708.99.00. 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. We
would like to point out here that in the show-cause notices, the
respective chapter sub-headings have been referred to as
8708.99.00 and 570390.90 and in the order of the Tribunal also,
the sub-headings have been referred to as such. But the authorities
themselves in certain places described the sub-headings in shorter
numerical forms, as 5703.90 and 8708.00. We find these minor
variations in the paper-book. But this variation of the subheadings represented in numerical form is not of any significance
so far as adjudication of these appeals are concerned. The
respondent were also to answer as to why penalty should not be
3
imposed upon them in terms of Section 38A of the Central Excise
Act, 1944 read with Rule 25 of the Rules made thereunder. The
first show-cause notice is dated 9th August, 2005 in regard to
clearance of goods made during the period between 9th July, 2004
and 31st March, 2005. They had cleared altogether 8,65,777
pieces of those items in different sizes in that period. The second
show-cause notice was issued on 2nd May, 2006 and related to
clearance of 12,02,482 pieces of the same goods for the period
between 1st April, 2005 and 31st January, 2006. The third showcause notice is of 7th March, 2007 and the clearance involved
20,15,412 pieces from 1st February, 2006 to 31st January, 2007.
For the period involved in the third show-cause notice, clearance
was made by the respondent under Chapter sub-heading
no.570500.19, which carried effective rate of duty @8%.
2. By the time the third show-cause notice was issued, the
adjudicating authority of first instance (Commissioner Central
Excise, Delhi III) had passed the order against the respondent on
29th September, 2006, upon considering their responses to the said
4
two show-cause notices. In this judgment, we shall mainly refer
to
this order, while examining the decision of the Tribunal. The
authorities’ stand has been that the subject-items ought to be
classified under sub-heading 8708.99.00. Against chapter
heading 8708, the goods described are “parts and accessories of
motor vehicles of headings 8701 to 8705”. The sub-headings
against tariff item nos.8701 to 8705 refer to five categories of
vehicles. These are (i) tractors (except those falling under 8709),
(ii) motor vehicles for the transport of ten or more persons,
including the driver, (iii) motor cars and other motor vehicles
principally designed for the transport of persons (other than those
of heading 8702) including station wagons and racing cars (iv)
motor vehicles for transport of goods (v) special purpose motor
vehicles, other than those principally designed for the transport of
persons or goods. The description of goods in Chapter 87 of the
5
Central Excise Tariff of India (2004-05) in the eight digit format
list the tariff-items of chapter 8708 have been depicted in the
following manner:-
“Tariff Item
(1)
Description of Goods
(2)
Uni
t
(3)
Rate
of
duty
(4)
8708 - Parts and accessories of the
motor vehicles of headings 8701
to 8705
8708 10 - Bumpers and parts thereof: Kg 16%
8708 10 10 - For tractors Kg 16%
8708 10 90 - Other Kg 16%
- Other parts and accessories of
bodies (including cabs):
Kg 16%
8708 21 00 - Safety seat belts u 16%
8708 29 00 -
-
Other
Brakes and servo-brakes and parts
thereof:
Kg 16%
8708 31 00 - Mounted brake linings Kg 16%
8708 39 00 - Other Kg 16%
8708 40 00 - Gear boxes Kg 16%
8708 50 00 - Drive-axles with differential,
whether or not provided with other
transmission components
Kg 16%
8708 60 00 - Non-driving axles and parts thereof Kg 16%
8708 70 00 - Road wheels and parts and
accessories thereof
Kg 16%
8708 80 00 - Suspension shock-absorbers
Other parts and accessories :
Kg 16%
8708 91 00 - Radiators Kg 16%
8708 92 00 - Silencers and exhaust pipes Kg 16%
6
8708 93 00 - Clutches and parts thereof Kg 16%
8708 94 00 - Steering wheels, steering columns
and steering boxes
Kg 16%
8708 99 00 - Other Kg 16%
”
3. As would be evident from the above-referred table, there are
total seventeen items under the said sub-heading of tariff-item
specified as parts and accessories (including those referred to as
“other”) and the item against which the excise authorities want
the car mattings to be treated is in the nature of a residuary item,
referred to in that table as “other”. On the other hand, the relevant
parts of Chapter 57 of Central Excise Tariff of India, 2004-2005
stipulates:-
“Notes:
1. For the purposes of this Chapter, 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.
7
Headin
g No.
Sub-heading
|No.
Descriptio
n of goods
(1) (2) (3)
57.01 xx xx
57.02 Carpets and
other textile
floor coverings
(other than those
of heading No.
57.01), knotted,
woven, tufted, or
flocked, whether
or not made up.
In or in relation to
the manufacture
of which any
process is
ordinarily carried
on with the aid of
machines:
5702.11 Of coconut fibres
(coir)
5702.1
2
Of jute
5702.1
9
Othe Other
5702.9
0
Other
57.0
3
Other carpets
and other textile
8
floor coverings,
whether or not
made up
5703.1
0
Of coconut fibres
(coir)
5703.20 Of jute
5703.90 Other”
4. Before the authority of first instance (Commissioner, Central
Excise, Delhi-III, Gurgaon), the respondent explained their
manufacturing process in course of hearing on the first two showcause notices. This is recorded in the order of the Commissioner
passed on 29th September, 2006. We reproduce below that part
from the said order:-
“…….Depending upon the variety of
Moulded Car Carpets, the fibre i.e.
polyester/polypropylene is fed in opening
and blending equipment’s, from where it is
transported to carding equipment’s. After
carding, the same is put for Needle
punching. After needle punching, the fabric
is then chemically treated in order to
provide strength to the carpet fabric as per
customer requirement. After chemical
binding, the fabric is laminated as per
customer requirement. The laminated
9
fabric/impregnated fabric is then moulded
as per the requirement and trimmed to be
fixed in the vehicle. After trimming the
Namda felt is fixed on the back of the
carpet as per requirement. Thereafter, the
child parts as well as grippers are fixed
wherever required. The resultant product is
the moulded car carpets which was
classified under sub-heading 5703.90.”
(quoted from the order
of the Commissioner)
5. The respondent’s argument that the Chapter heading 5703.90
covered carpets and other textile floor coverings and they were
manufacturing those items only was rejected by the
Commissioner. This plea, however, was subsequently accepted
by the Tribunal.
6. Reference has been made before us to “Harmonized
Commodity Description and Coding System”, Explanatory
Notes issued by the World Customs Organisation (2002). These
Notes, termed HSN Explanatory Notes have been referred to by
the learned Counsel for both the parties. Strong persuasive value
of these Explanatory Notes has been recognised by this Court in
10
the cases of CCE vs. Wood Craft Products Ltd. [(1995) 3 SCC
454], Collector of Central Excise vs. Bakelite Hylam [1997
(91) E.L.T. 13 (S.C.)], Collector of Customs vs. Business
Forms Ltd. [(2005) 7 SCC 143] and Holostick India Ltd. vs.
Commissioner of Central Excise [(2015) 7 SCC 401]. General
Rules for the Interpretation of the Harmonized System lay down
the Principles of Interpretation for classification of Goods in the
Nomenclature. Rule 3(a) thereof provides:-
“Rule 3(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 put up for retail 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.”
Clause 3 (a) of the General Rules For the Interpretation of First
Schedule to the Central Tariff Act, 1985 in cases where
possibilities arise of a single item being classified under more than
11
one head corresponds to the said Rule 3(a) of the Explanatory
Notes.
The Explanatory Note IV (b) to this Rule i.e. 3 (a), of the
Rules for Interpretation of the HSN Explanatory Notes
specifies:-
“(iv) It is not practicable to lay down hard
and fast rules by which to determine whether
one heading more specifically describes the
goods than another, but in general it may be
said that:-
(a) xx xx xx
(b) If the goods answer to a
description which more clearly
identifies them, that
description is more specific
than one where identification
is less complete.
Examples of the latter category of
goods are:
(1) Tufted textile carpets,
identifiable for use in motor
cars, which are to be classified
not as accessories of motor cars
in heading 87.08 but in heading
57.03, where they are more
specifically described as
carpets.
12
(2) ………”
7. Section Note 2 of Section XVII of Central Excise Tariff
excludes eleven sets of items from being treated as parts and
accessories. Section Note 3 further provides:-
“3. Refences in Chapters 86 to 88 to
“parts” or “accessories” do not apply to
parts or accessories which are not suitable
for use solely or principally with the
articles of those Chapters. A part or
accessory which answers to a description in
two or more of the headings of those
Chapters is to be classified under that
heading which corresponds to the principal
use of that part or accessory.”
8. 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 ACESSORIES”, a three-layer test has been postulated. It is
on satisfying all of these conditions a particular item would come
under that chapter head. The sub-head III reads:-
“(III) PARTS AND ACCESSORIES
13
It should be noted that Chapter 89 makes
no provision for parts (other than hulls) or
accessories of ships, boats or floating
structures. Such parts and accessories,
even if identifiable as being for ships, etc.,
are therefore classified in other Chapters in
their respective headings. The other
Chapters of this Section each provide for
the classification of parts and accessories
of the vehicles, aircraft or equipment
concerned.
It should, however, be noted that these
headings apply only to those parts or
accessories which comply with all three of
the following conditions:
(a) They must not be excluded by the
terms of Note 2 to this Section (see
paragraph (A) below).
and (b) They must be suitable for use
solely or principally with the articles of
Chapters 86 to 88 (see paragraph (B)
below).
and (c) They must not be more
specifically included elsewhere in the
Nomenclature (see paragraph (C)
below).”
9. Paragraph (B) and relevant extract from Paragraph (C) to the
same document stipulates: -
14
“(B) Criterion of sole or principle use.
(1) Parts and accessories classifiable
both in Section XVII and in
another Section.
Under Section Note 3, parts and
accessories which are not suitable
for use solely or principally with
the articles of Chapters 86 to 88
are excluded from those
Chapters.
The effect of Note 3 is therefore
that when a part or accessory can
fall in one or more other Sections
as well as in Section XVII, its
final classification is determined
but its principal use. Thus the
steering gear, braking systems,
road wheels, mudguards, etc.,
used on many of the mobile
machines falling in Chapter 84,
are virtually identical with those
used on the lorries of Chapter 87,
and since their principal use is
with lorries, such parts and
accessories are classified in this
Section.
(2) Parts and accessories classifiable
in two or more headings of the
Section.
Certain parts and accessories
are suitable for use on more than
15
one type of vehicle (motor cars,
aircraft, motorcycles, etc.);
examples of such goods include
brakes, steering systems, wheels,
axles, etc. Such parts and
accessories are to be classified in
the heading relating to the parts
and accessories of the vehicles
with which they are principally
used.
(C) Parts and accessories covered more
specifically elsewhere in the
Nomenclature –
Parts and accessories, even if
identifiable as for the articles of this
Section, are excluded if they are
covered more specifically by another
heading elsewhere in the
Nomenclature, e.g: -
xx xx
xx xx
xx xx
(7) Textile carpets (Chapter 57)
xx xx
xx xx”
16
Moreover, the Explanatory Notes dealing with parts and
accessories under chapter-head 87.08 includes floor mats (other
than of textile materials or unhardened vulcanised rubber).
10. 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 87.08.
11. One of the reasons for such finding was that the car mattings
were suitable for use solely or principally with the vehicle and
that were not excluded by provisions of Notes to Section XVII.
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.
12. The Commissioner, thus, did not accept the assessee’s stand
and observed:-
17
“(A) what is excluded are the Textile carpets
of Chapter 57 and not car mattings. One can
only safely infer of exclusion of car matting in
the list, provided, if it is established that “car
mattings” are nothing but ordinary textile
carpets of Chapter 57. But as has been already
discussed supra car mattings are commercially
known differently in the market than ordinary
textile carpets of Chapter 57. From the point of
view of its manufacturing process these are
entirely different from ordinary carpets. My
discussion and logic given in para 18.7.1
clearly indicates that, the “car mattings” are
different products. Board’s Circular
No.117/28/05-CX dt. 17.4.95 clearly states car
mattings different product all together.
The observations advanced in the judgments of
Hon’ble Tribunal in the cases of Sterling India
(2000(115) ELT-807-Trib., Jyoti Carpet
Industries (2001 (132) ELT-458-Trib-Delhi),
Swaraj Majda (1993 (68 ELT 258 Trib) clearly
indicates that “car mattings” are entirely
different than ordinary textile carpets of
Chapter 57 (All these judgments are discussed
in latter paras)
B-1 The HSN Clarificatory Notes on Chapter
57 (page 783 of HSN Clarificatory Notes
Volume-II) states the following category of
products are classifiable under Chapter 57:
“The above products are classified in
this chapter whether made-up (i.e.
made directly to size, hemmed, lined,
fringed, assembled etc.) in the form
18
of carpet squares, beside rugs, hearth
rugs, or in the form of carpets for
installation in rooms, corridors,
passages or stairs, in the lengths for
cutting and making up. They may
also be impregnated (i.e. with latex)
or packed with woven or non-woven
fabrics or with cellular rubber or
plastics.”
B-2 From the above notes it is clear that not
only the carpets in running length, but also
made ups (i.e. made directly to size, hemmed,
lined, fringed assembled etc.) in the form of
carpet squares, or in the form of carpet
installation in rooms, corridors, passages or
stairs are required to be classified under
Chapter 57.
B-3 From the above explanation, it is seen that,
carpets covered under Chapter 57 are simple
carpets in running length may be made up
directly to size, hemmed, lined, fringed,
assembled etc. in the form of carpet squares, or
in the form of carpet installation in rooms,
corridors, passages or stairs and not certainly
covers car mattings which undergo further
processing like moulding, chemical treatment
to provide strength to the carpet fabric as per
customer requirement, lamination as per
customers requirements, and trimming for
fixing in the vehicle with NamdA fixing on the
back. The car mattings although is of textile
carpet origin are not ordinary carpets as
19
explained in the Explanatory Notes of HSN for
Chapter 57 and certainly not covered under
Chapter 57.
When car mattings are not by definition
covered under Chapter 57 (as explained above
taking reference of the clarificatory notes of
HSN) those are not excluded from para-C of
HSN General Explanatory Notes on Section
XVII referring to parts and accessories Part-III
para (c) (Sl.No.7) (page 1412 of HSN
Explanatory Notes Vol.4).
Thus “car mattings” satisfies the test 2-C.
18.7. From the above discussion it is clear that “car
matting” satisfies all the tests enumerated in the
explanatory notes of HSN for Chapter XVII, to be
treated as a part and accessory classifiable under
chapter 87.08 of motor vehicles of Chapter 87.05-
87.07.”
13. The other order of Commissioner in connection with the
third show-cause notice was passed on 5th January, 2007. The
reasoning and conclusion of this order was in the same line with
the order passed on 29th September, 2006. Thus, in both the orders
the Commissioner sustained the directions for payment rejecting
20
the reply of the assessee and the orders charged on the respondent
duty differential and interest and also imposed penalty.
14. The two appeals of the respondent before the Tribunal were
decided in their favour by a composite decision. This decision is
assailed before us by the revenue authorities in these two appeals.
The Tribunal observed and held:-
“5.3 We find that chapter 57 covers not only
carpets but also other floor coverings. 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. We also find that in the
interpretative notes for rule 3(a) in HSN,
where 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
21
classifiable under chapter heading 570390.90
as claimed by the assessee.”
6. The orders of commissioner are set aside
and the appeals are allowed with
consequential relief.”
15. Chapter Notes to Chapter 57 of the HSN Explanatory Notes,
relating to carpets and Other Textile Floor Coverings are relevant
for effective adjudication of these two appeals. The said Chapter
Notes read:-
“Chapter Notes.
1.- For the purposes of this Chapter,
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 articles having the
characteristics of textile floor coverings
but intended for use for other purposes.
2. This Chapter does not cover
floor covering underlays.
GENERAL
This Chapter covers carpets and other
textile floor coverings in which textile
materials serve as the exposed surface of
the article when in use. It includes articles
having the characteristics of textile floor
22
coverings (e.g., thickness, stiffness and
strength) but intended for use for other
purposes (for example, as wall hangings or
table covers or for other furnishing
purposes).
The above products are classified in this
Chapter whether made up (i.e., made
directly to size, hemmed, lined, fringed,
assembled, etc.), in the form of carpet
squares, bedside rugs, hearth rugs, or in the
form of carpeting for installation in rooms,
corridors, passages or stairs, in the length
for cutting and making up.
They may also be impregnated (e.g.,
with latex) or backed with woven or
nonwoven fabrics or with cellular rubber or
plastics.”
16. The said instrument, i.e. HSN Explanatory Notes deal with
four entries against tariff item no.5703 in following terms:-
“57.03 – CARPETS AND OTHER
TEXTILE FLOOR COVERINGS,
TUFTED, WHETHER OR NOT MADE
UP.
5703.10 - Of wool or fine animal hair
5703.20 - Of nylon or other
polyamides
5703.30 - Of other man-made textile
materials
5703.90 - Of other textile materials
23
This heading covers tufted carpets and
other tufted textile floor coverings produced
on tufting machines which, by means of a
system of needles and hooks, insert textile
yarn into a pre-existing backing (usually a
woven fabric or a nonwoven) thus producing
loops, or, if the needles and hooks are
combined with a cutting device, tufts. The
yarns forming the pile are then normally
fixed by a coating of rubber or plastics.
Usually before the coating is allowed to dry it
is either covered by a secondary backing of
loosely woven textile material, e.g., jute, or
by foamed rubber.
Products of this heading are distinguished
from the tufted textile fabrics of heading
58.02 by, for example, their stiffness,
thickness and strength, which render them
suitable for use as floor coverings.”
17. Learned counsel for the revenue has argued, referring to
three earlier orders of the Customs Excise and Gold (Control)
Appellate Tribunal (CEGAT-the predecessor of CESTAT) and has
also relied on a circular issued by the excise authorities dated 17th
April, 1995. The said circular (bearing no.117/28/95-CX)
specifies:-
24
“Car Mattings made from non-woven
materials in roll form – Dutiability of
Circular No.117/28/95-CX, dated 17-4-1995
[From F.No.57/1/94-CX.1]
Government of India
Ministry of Finance (Department of Revenue)
New Delhi
Subject: Dutiability of Car Mattings made
from non-woven materials in roll form –
Regarding
I am directed to refer to Board’s
<<15391$Circular No.5/FloorCoverings/87>> (F. No.57/1/87-CX.1), dated
23-6-1987 wherein it was clarified that duty
liability would not be attracted on car
mattings made from duty paid non-woven
material in roll form. It has been brought to
the notice of the Board that this position may
not hold good after extension of Modvat to
these items.
2. The matter has been re-examined by
the Board. The Board is of the view that there
are two clear stages i.e. non-woven material
emerging as excisable and dutiable goods in
roll form and finally car mattings emerging as
different final products. Duty has to be
charged at both stages as the processes of
conversion of non-woven material in roll form
into car mattings involves the processes of
cutting, stitching, sizing etc., and both
products are known differently in the market.
3. It is, therefore, clarified that
appropriate Central Excise Duty is payable on
floor coverings in the form of non-woven
25
material in rolls when cleared from the
factory, as well as, on the car mattings
subsequently manufactured out of duty paid
floor coverings in the form of non-woven
material in rolls.
4. The Board’s earlier
<<15391$Circular No.5/Floor
Coverings/87>> (F. No.57/1/87-CX.1) dated
23-6-1987 may be treated as withdrawn and
assessments may be finalized in terms of the
revised instructions.”
This circular deals with a situation in which non-woven
materials in roll form which were excisable goods, emerged as a
different product when the former is transformed as car matting
upon application of certain process. For this reason, it was
stipulated, that duty would be leviable at two stages. But in these
two appeals, we are to determine as to whether car mattings came
within the aforesaid tariff under Chapter 57. These appeals do not
raise the question as to whether car mattings themselves would be
subjected to excise duty or not. The question here is under which
tariff-head the duty should be paid. The aforesaid circular does
not assist the revenue in the subject appeals.
26
18. In the three Tribunal decisions cited on behalf of revenue
authorities, such car mattings were treated as parts and
accessories of motor cars. The first case cited is that of Collector
of Central Excise, Bombay-II vs. Sterling India [(2000) 115
ELT 807]. This was a decision of CEGAT, New Delhi. Before the
Tribunal in this case, the assessee went unrepresented. The goods
involved were canvas canopy, floor mattings and seat covers. The
Tribunal upheld the Collector’s order that the said articles were
not classifiable as floor coverings under sub-heading No.5702.90
of the Tariff and those were to be classified under Heading No.
8708.00. The order of the Tribunal does not contain any analysis
or reasoning and reads: -
“3. We have gone through the facts on
record. We find that both the Asstt.
Collector of Central Excise, Bombay, who
had adjudicated the matter and the
Collector of Central Excise (Appeals),
Bombay, had held that the goods in dispute
were not the carpets and floor mattings but
were accessories of motor vehicles. The
goods in dispute are canvas canopy, floor
matting and seat covers for motor vehicles.
27
Floor matting was made from jute coated
with PVC. Other items also were not used
as floor coverings. The Collector of Central
Excise (Appeals) has also referred to the
HSN Explanatory Notes and the relevant
Chapter Notes to arrive at his conclusion
that the type of the goods involved in these
proceedings were not to be classifiable as
floor coverings.”
19. The next case is that of Collector of Central Excise vs.
Swaraj Mazda [(1993) 68 ELT 258]. This is also a decision of
CEGAT. This case relates to availability of Modvat credit on floor
mats for motor vehicles. In this case floor mats had been cleared
on payment of duty under sub-heading No.8708, which covered
parts and accessories of motor vehicles of heading 87.01 to 87.05.
Applicability of that entry was not in lis in that appeal. The
Tribunal found that floor mats could be an item entering into the
stream of completion of the manufactured product rendering it fit
for marketing. On that ground input credit under the Modvat
provisions was allowed. The third case, which was cited on
behalf of the revenue was that of Jyoti Carpet Industries vs.
28
Commissioner of Central Excise, Jaipur-I [(2001) 132 ELT
458] decided by the CEGAT. This was a case where the
manufacturer classified textile floor covering of jute as product
under sub-heading 5703.20 in the relevant years. The assessee in
this case had been procuring raw-materials from different
manufacturers and out of such materials, they had been producing
car mattings and other mattings as well, such as bath mats,
telephone mats, floor foot mats etc. with the aid of power
operated machines. The process of manufacture involved cutting
as per standards, overlocking and stitching etc. Following the case
of Sterling India (supra), it was held that floor mats of cars could
be classifiable under head No.8708. But again, like in the case of
Sterling India (supra), the Tribunal has not given any reasoning
for such classification in this decision. The Tribunal in these
appeals, following the case of Sterling India (supra) found that
the subject-goods were classifiable under Chapter 8708.
All these three cases have been decided by the Tribunal,
which obviously has no precedent value for us. We however,
29
discussed these cases only for the purpose of ascertaining as to
whether the revenue authorities had been treating car mats as a
subject head under sub-heading 8708, on proper analysis of
competing claim of the assessees to include them in sub-heading
5703. We do not find so from these decisions of the Tribunal.
20. There are authorities in which it has been held that the
popular meaning among consumers would be a major factor for
interpretation of dispute relating to classification. This principle
has been laid down in the cases of Plasmac Machine
Manufacturing Co. Pvt. Ltd. vs. Collector of Central Excise,
Bombay [1991 Supp.(1) SCC 57] and Dabur India Ltd. vs.
Commissioner of Central Excise, Jamshedpur [(2005) 4 SCC
9]. In the case of Dabur India Ltd (supra), it has been held: -
“9. From the abovementioned authorities, it
is clear that in classifying a product the
scientific and technical meaning is not to
be resorted to. The product must be
classifiable according to the popular
meaning attached to it by those using the
product. As stated above, in this case the
appellants have shown that all the
ingredients in the product are those which
30
are mentioned in Ayurvedic textbooks. This
by itself may not be sufficient but the
appellants have shown that they have a
Drug Controller's licence for the product
and they have also produced evidence by
way of prescriptions of Ayurvedic doctors,
who have prescribed these for treatment of
rickets. As against this, the Revenue has
not made any effort and not produced any
evidence that in common parlance the
product is not understood as a
medicament.”
21. In the case of A.P. State Electricity Board vs. Collector of
Central Excise, Hyderabad [(1994) 2 SCC 428], the
marketability test has been applied, which is, in a way, a corollary
to the “popular meaning” test. In this case it has been held: -
“10. It would be evident from the facts
and ratio of the above decisions that the
goods in each case were found to be not
marketable. Whether it is refined oil (nondeodorised) concerned in Delhi Cloth
and General Mills or kiln gas in South
Bihar Sugar Mills or aluminium cans with
rough uneven surface in Union Carbide or
PVC films in Bhor Industries or
hydrolysate in Ambalal Sarabhai the
finding in each case on the basis of the
material before the Court was that the
articles in question were
31
not marketable and were not known to the
market as such. The ‘marketability’ is thus
essentially a question of fact to be decided
on the facts of each case. There can be no
generalisation. The fact that the goods are
not in fact marketed is of no relevance. So
long as the goods are marketable, they are
goods for the purposes of Section 3. It is
also not necessary that the goods in
question should be generally available in
the market. Even if the goods are
available from only one source or from a
specified market, it makes no difference
so long as they are available for
purchasers. Now, in the appeals before us,
the fact that in Kerala these poles are
manufactured by independent contractors
who sell them to Kerala State Electricity
Board itself shows that such poles do have
a market. Even if there is only one
purchaser of these articles, it must still be
said that there is a market for these
articles. The marketability of articles does
not depend upon the number of purchasers
nor is the market confined to the territorial
limits of this country. The appellant's own
case before the excise authorities and the
CEGAT was that these poles are
manufactured by independent contractors
from whom it purchased them. This plea
itself — though not pressed before us —
is adequate to demolish the case of the
appellant. In our opinion, therefore, the
conclusion arrived at by the Tribunal is
unobjectionable.”
32
22. Emphasis on technical meaning has been highlighted in the
case of Commissioner of Central Excise vs. Wockhardt Life
Sciences Limited [(2012) 5 SCC 585] for resolving classification
related disputes of goods. In this case, it has been held that a
commodity cannot be classified in a residuary entry if there is a
specific entry, even if the specific entry requires the product to be
understood in a technical sense.
23. “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. So far as
subject-dispute is concerned, we have already referred to Chapter
note 1 of Chapter 57. This note stipulates that carpets and other
floor coverings would mean floor coverings in which textile
materials serve as the exposed surface of the Article when in use.
33
This feature of the car mats has not really been rejected by the
revenue authorities as untrue in the order of the Commissioner,
before whom assertion to that effect was made by the respondent.
24. The core issue in these appeals is as to whether car mats
come under chapter-heading 57.03 or not. In the second appeal,
the numerical representation of the product, as claimed by the
assessee, was different but that difference is not of much
significance. 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.
25. 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
34
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. Revenue’s argument is that the Explanatory Notes have
persuasive value only. But the level or quality of such persuasive
value is very strong, as observed in the judgments of this Court to
which we have already referred. Moreover, the Commissioner
himself has referred to the Explanatory Notes in the order-inoriginal while dealing with the respondent’s stand. Thus, we see
no reason as to why we should make a departure from the general
trend of taking assistance of these Explanatory Notes to resolve
entry related dispute. Now, on referring to these Explanatory
Notes, we find that one category of carpets [Textile carpets
(Chapter 57)] has been excluded specifically from parts and
accessories. In our opinion, the subject-item does not satisfy the
35
third condition specified in Section XVII of the Explanatory
Notes in relation to “III-Parts and Accessories”. A plain reading of
clause (C) thereof, which we have quoted above, excludes “textile
carpets” (Chapter 57).
26. 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. We have referred to such exclusion in the preceding
paragraph. 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. 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
36
against the heading 8708. As we find the subject-goods come
under the chapter-heading 570390.90, and the other entry under
the same Chapter forming the subject of dispute in the second
order of the Commissioner, 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.
27. For these reasons, we dismiss the appeals. The impugned
decision of the Tribunal is sustained.
28. Any connected applications shall also stand disposed of.
There shall be no order as to costs.
..………………………….J.
(Deepak Gupta)
37
…………..……………….J.
(Aniruddha Bose)
New Delhi,
May 1, 2020.
38
39
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 302-303 OF 2009
COMMISSIONER OF CENTRAL EXCISE,
DELHI-III ...APPELLANT
VERSUS
M/S. UNI PRODUCTS INDIA LTD. ...RESPONDENT
J U D G M E N T
ANIRUDDHA BOSE, J.
These two appeals against the decision of the Customs
Excise & Service Tax Appellate Tribunal (CESTAT) rendered on
16th July, 2008 require adjudication on the question as to whether
1
“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 thereof, which relates to “Vehicles
other than Railway or Tramway Rolling-Stock and Parts and
Accessories Thereof”. The appeals are against a common decision
and we shall also deal with both these appeals together in this
judgment. The respondent-assessee want their goods to be placed
under Chapter heading 5703.90. We shall refer to the specific
entries against this item later 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, at
the material time, were clearing the goods declaring them to be
goods against Heading No.570390.90. Effective rate of excise
duty on goods under that entry was 8% and education cess at the
applicable rate for the subject period. We find this rate of duty,
2
inter-alia, from the order of the Commissioner dealing with the
first and the second show-cause notices. The rate of basic excise
duty would have been 16% apart from education cess if these
goods were classified against goods specified in heading
no.8708.99.00. 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. We
would like to point out here that in the show-cause notices, the
respective chapter sub-headings have been referred to as
8708.99.00 and 570390.90 and in the order of the Tribunal also,
the sub-headings have been referred to as such. But the authorities
themselves in certain places described the sub-headings in shorter
numerical forms, as 5703.90 and 8708.00. We find these minor
variations in the paper-book. But this variation of the subheadings represented in numerical form is not of any significance
so far as adjudication of these appeals are concerned. The
respondent were also to answer as to why penalty should not be
3
imposed upon them in terms of Section 38A of the Central Excise
Act, 1944 read with Rule 25 of the Rules made thereunder. The
first show-cause notice is dated 9th August, 2005 in regard to
clearance of goods made during the period between 9th July, 2004
and 31st March, 2005. They had cleared altogether 8,65,777
pieces of those items in different sizes in that period. The second
show-cause notice was issued on 2nd May, 2006 and related to
clearance of 12,02,482 pieces of the same goods for the period
between 1st April, 2005 and 31st January, 2006. The third showcause notice is of 7th March, 2007 and the clearance involved
20,15,412 pieces from 1st February, 2006 to 31st January, 2007.
For the period involved in the third show-cause notice, clearance
was made by the respondent under Chapter sub-heading
no.570500.19, which carried effective rate of duty @8%.
2. By the time the third show-cause notice was issued, the
adjudicating authority of first instance (Commissioner Central
Excise, Delhi III) had passed the order against the respondent on
29th September, 2006, upon considering their responses to the said
4
two show-cause notices. In this judgment, we shall mainly refer
to
this order, while examining the decision of the Tribunal. The
authorities’ stand has been that the subject-items ought to be
classified under sub-heading 8708.99.00. Against chapter
heading 8708, the goods described are “parts and accessories of
motor vehicles of headings 8701 to 8705”. The sub-headings
against tariff item nos.8701 to 8705 refer to five categories of
vehicles. These are (i) tractors (except those falling under 8709),
(ii) motor vehicles for the transport of ten or more persons,
including the driver, (iii) motor cars and other motor vehicles
principally designed for the transport of persons (other than those
of heading 8702) including station wagons and racing cars (iv)
motor vehicles for transport of goods (v) special purpose motor
vehicles, other than those principally designed for the transport of
persons or goods. The description of goods in Chapter 87 of the
5
Central Excise Tariff of India (2004-05) in the eight digit format
list the tariff-items of chapter 8708 have been depicted in the
following manner:-
“Tariff Item
(1)
Description of Goods
(2)
Uni
t
(3)
Rate
of
duty
(4)
8708 - Parts and accessories of the
motor vehicles of headings 8701
to 8705
8708 10 - Bumpers and parts thereof: Kg 16%
8708 10 10 - For tractors Kg 16%
8708 10 90 - Other Kg 16%
- Other parts and accessories of
bodies (including cabs):
Kg 16%
8708 21 00 - Safety seat belts u 16%
8708 29 00 -
-
Other
Brakes and servo-brakes and parts
thereof:
Kg 16%
8708 31 00 - Mounted brake linings Kg 16%
8708 39 00 - Other Kg 16%
8708 40 00 - Gear boxes Kg 16%
8708 50 00 - Drive-axles with differential,
whether or not provided with other
transmission components
Kg 16%
8708 60 00 - Non-driving axles and parts thereof Kg 16%
8708 70 00 - Road wheels and parts and
accessories thereof
Kg 16%
8708 80 00 - Suspension shock-absorbers
Other parts and accessories :
Kg 16%
8708 91 00 - Radiators Kg 16%
8708 92 00 - Silencers and exhaust pipes Kg 16%
6
8708 93 00 - Clutches and parts thereof Kg 16%
8708 94 00 - Steering wheels, steering columns
and steering boxes
Kg 16%
8708 99 00 - Other Kg 16%
”
3. As would be evident from the above-referred table, there are
total seventeen items under the said sub-heading of tariff-item
specified as parts and accessories (including those referred to as
“other”) and the item against which the excise authorities want
the car mattings to be treated is in the nature of a residuary item,
referred to in that table as “other”. On the other hand, the relevant
parts of Chapter 57 of Central Excise Tariff of India, 2004-2005
stipulates:-
“Notes:
1. For the purposes of this Chapter, 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.
7
Headin
g No.
Sub-heading
|No.
Descriptio
n of goods
(1) (2) (3)
57.01 xx xx
57.02 Carpets and
other textile
floor coverings
(other than those
of heading No.
57.01), knotted,
woven, tufted, or
flocked, whether
or not made up.
In or in relation to
the manufacture
of which any
process is
ordinarily carried
on with the aid of
machines:
5702.11 Of coconut fibres
(coir)
5702.1
2
Of jute
5702.1
9
Othe Other
5702.9
0
Other
57.0
3
Other carpets
and other textile
8
floor coverings,
whether or not
made up
5703.1
0
Of coconut fibres
(coir)
5703.20 Of jute
5703.90 Other”
4. Before the authority of first instance (Commissioner, Central
Excise, Delhi-III, Gurgaon), the respondent explained their
manufacturing process in course of hearing on the first two showcause notices. This is recorded in the order of the Commissioner
passed on 29th September, 2006. We reproduce below that part
from the said order:-
“…….Depending upon the variety of
Moulded Car Carpets, the fibre i.e.
polyester/polypropylene is fed in opening
and blending equipment’s, from where it is
transported to carding equipment’s. After
carding, the same is put for Needle
punching. After needle punching, the fabric
is then chemically treated in order to
provide strength to the carpet fabric as per
customer requirement. After chemical
binding, the fabric is laminated as per
customer requirement. The laminated
9
fabric/impregnated fabric is then moulded
as per the requirement and trimmed to be
fixed in the vehicle. After trimming the
Namda felt is fixed on the back of the
carpet as per requirement. Thereafter, the
child parts as well as grippers are fixed
wherever required. The resultant product is
the moulded car carpets which was
classified under sub-heading 5703.90.”
(quoted from the order
of the Commissioner)
5. The respondent’s argument that the Chapter heading 5703.90
covered carpets and other textile floor coverings and they were
manufacturing those items only was rejected by the
Commissioner. This plea, however, was subsequently accepted
by the Tribunal.
6. Reference has been made before us to “Harmonized
Commodity Description and Coding System”, Explanatory
Notes issued by the World Customs Organisation (2002). These
Notes, termed HSN Explanatory Notes have been referred to by
the learned Counsel for both the parties. Strong persuasive value
of these Explanatory Notes has been recognised by this Court in
10
the cases of CCE vs. Wood Craft Products Ltd. [(1995) 3 SCC
454], Collector of Central Excise vs. Bakelite Hylam [1997
(91) E.L.T. 13 (S.C.)], Collector of Customs vs. Business
Forms Ltd. [(2005) 7 SCC 143] and Holostick India Ltd. vs.
Commissioner of Central Excise [(2015) 7 SCC 401]. General
Rules for the Interpretation of the Harmonized System lay down
the Principles of Interpretation for classification of Goods in the
Nomenclature. Rule 3(a) thereof provides:-
“Rule 3(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 put up for retail 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.”
Clause 3 (a) of the General Rules For the Interpretation of First
Schedule to the Central Tariff Act, 1985 in cases where
possibilities arise of a single item being classified under more than
11
one head corresponds to the said Rule 3(a) of the Explanatory
Notes.
The Explanatory Note IV (b) to this Rule i.e. 3 (a), of the
Rules for Interpretation of the HSN Explanatory Notes
specifies:-
“(iv) It is not practicable to lay down hard
and fast rules by which to determine whether
one heading more specifically describes the
goods than another, but in general it may be
said that:-
(a) xx xx xx
(b) If the goods answer to a
description which more clearly
identifies them, that
description is more specific
than one where identification
is less complete.
Examples of the latter category of
goods are:
(1) Tufted textile carpets,
identifiable for use in motor
cars, which are to be classified
not as accessories of motor cars
in heading 87.08 but in heading
57.03, where they are more
specifically described as
carpets.
12
(2) ………”
7. Section Note 2 of Section XVII of Central Excise Tariff
excludes eleven sets of items from being treated as parts and
accessories. Section Note 3 further provides:-
“3. Refences in Chapters 86 to 88 to
“parts” or “accessories” do not apply to
parts or accessories which are not suitable
for use solely or principally with the
articles of those Chapters. A part or
accessory which answers to a description in
two or more of the headings of those
Chapters is to be classified under that
heading which corresponds to the principal
use of that part or accessory.”
8. 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 ACESSORIES”, a three-layer test has been postulated. It is
on satisfying all of these conditions a particular item would come
under that chapter head. The sub-head III reads:-
“(III) PARTS AND ACCESSORIES
13
It should be noted that Chapter 89 makes
no provision for parts (other than hulls) or
accessories of ships, boats or floating
structures. Such parts and accessories,
even if identifiable as being for ships, etc.,
are therefore classified in other Chapters in
their respective headings. The other
Chapters of this Section each provide for
the classification of parts and accessories
of the vehicles, aircraft or equipment
concerned.
It should, however, be noted that these
headings apply only to those parts or
accessories which comply with all three of
the following conditions:
(a) They must not be excluded by the
terms of Note 2 to this Section (see
paragraph (A) below).
and (b) They must be suitable for use
solely or principally with the articles of
Chapters 86 to 88 (see paragraph (B)
below).
and (c) They must not be more
specifically included elsewhere in the
Nomenclature (see paragraph (C)
below).”
9. Paragraph (B) and relevant extract from Paragraph (C) to the
same document stipulates: -
14
“(B) Criterion of sole or principle use.
(1) Parts and accessories classifiable
both in Section XVII and in
another Section.
Under Section Note 3, parts and
accessories which are not suitable
for use solely or principally with
the articles of Chapters 86 to 88
are excluded from those
Chapters.
The effect of Note 3 is therefore
that when a part or accessory can
fall in one or more other Sections
as well as in Section XVII, its
final classification is determined
but its principal use. Thus the
steering gear, braking systems,
road wheels, mudguards, etc.,
used on many of the mobile
machines falling in Chapter 84,
are virtually identical with those
used on the lorries of Chapter 87,
and since their principal use is
with lorries, such parts and
accessories are classified in this
Section.
(2) Parts and accessories classifiable
in two or more headings of the
Section.
Certain parts and accessories
are suitable for use on more than
15
one type of vehicle (motor cars,
aircraft, motorcycles, etc.);
examples of such goods include
brakes, steering systems, wheels,
axles, etc. Such parts and
accessories are to be classified in
the heading relating to the parts
and accessories of the vehicles
with which they are principally
used.
(C) Parts and accessories covered more
specifically elsewhere in the
Nomenclature –
Parts and accessories, even if
identifiable as for the articles of this
Section, are excluded if they are
covered more specifically by another
heading elsewhere in the
Nomenclature, e.g: -
xx xx
xx xx
xx xx
(7) Textile carpets (Chapter 57)
xx xx
xx xx”
16
Moreover, the Explanatory Notes dealing with parts and
accessories under chapter-head 87.08 includes floor mats (other
than of textile materials or unhardened vulcanised rubber).
10. 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 87.08.
11. One of the reasons for such finding was that the car mattings
were suitable for use solely or principally with the vehicle and
that were not excluded by provisions of Notes to Section XVII.
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.
12. The Commissioner, thus, did not accept the assessee’s stand
and observed:-
17
“(A) what is excluded are the Textile carpets
of Chapter 57 and not car mattings. One can
only safely infer of exclusion of car matting in
the list, provided, if it is established that “car
mattings” are nothing but ordinary textile
carpets of Chapter 57. But as has been already
discussed supra car mattings are commercially
known differently in the market than ordinary
textile carpets of Chapter 57. From the point of
view of its manufacturing process these are
entirely different from ordinary carpets. My
discussion and logic given in para 18.7.1
clearly indicates that, the “car mattings” are
different products. Board’s Circular
No.117/28/05-CX dt. 17.4.95 clearly states car
mattings different product all together.
The observations advanced in the judgments of
Hon’ble Tribunal in the cases of Sterling India
(2000(115) ELT-807-Trib., Jyoti Carpet
Industries (2001 (132) ELT-458-Trib-Delhi),
Swaraj Majda (1993 (68 ELT 258 Trib) clearly
indicates that “car mattings” are entirely
different than ordinary textile carpets of
Chapter 57 (All these judgments are discussed
in latter paras)
B-1 The HSN Clarificatory Notes on Chapter
57 (page 783 of HSN Clarificatory Notes
Volume-II) states the following category of
products are classifiable under Chapter 57:
“The above products are classified in
this chapter whether made-up (i.e.
made directly to size, hemmed, lined,
fringed, assembled etc.) in the form
18
of carpet squares, beside rugs, hearth
rugs, or in the form of carpets for
installation in rooms, corridors,
passages or stairs, in the lengths for
cutting and making up. They may
also be impregnated (i.e. with latex)
or packed with woven or non-woven
fabrics or with cellular rubber or
plastics.”
B-2 From the above notes it is clear that not
only the carpets in running length, but also
made ups (i.e. made directly to size, hemmed,
lined, fringed assembled etc.) in the form of
carpet squares, or in the form of carpet
installation in rooms, corridors, passages or
stairs are required to be classified under
Chapter 57.
B-3 From the above explanation, it is seen that,
carpets covered under Chapter 57 are simple
carpets in running length may be made up
directly to size, hemmed, lined, fringed,
assembled etc. in the form of carpet squares, or
in the form of carpet installation in rooms,
corridors, passages or stairs and not certainly
covers car mattings which undergo further
processing like moulding, chemical treatment
to provide strength to the carpet fabric as per
customer requirement, lamination as per
customers requirements, and trimming for
fixing in the vehicle with NamdA fixing on the
back. The car mattings although is of textile
carpet origin are not ordinary carpets as
19
explained in the Explanatory Notes of HSN for
Chapter 57 and certainly not covered under
Chapter 57.
When car mattings are not by definition
covered under Chapter 57 (as explained above
taking reference of the clarificatory notes of
HSN) those are not excluded from para-C of
HSN General Explanatory Notes on Section
XVII referring to parts and accessories Part-III
para (c) (Sl.No.7) (page 1412 of HSN
Explanatory Notes Vol.4).
Thus “car mattings” satisfies the test 2-C.
18.7. From the above discussion it is clear that “car
matting” satisfies all the tests enumerated in the
explanatory notes of HSN for Chapter XVII, to be
treated as a part and accessory classifiable under
chapter 87.08 of motor vehicles of Chapter 87.05-
87.07.”
13. The other order of Commissioner in connection with the
third show-cause notice was passed on 5th January, 2007. The
reasoning and conclusion of this order was in the same line with
the order passed on 29th September, 2006. Thus, in both the orders
the Commissioner sustained the directions for payment rejecting
20
the reply of the assessee and the orders charged on the respondent
duty differential and interest and also imposed penalty.
14. The two appeals of the respondent before the Tribunal were
decided in their favour by a composite decision. This decision is
assailed before us by the revenue authorities in these two appeals.
The Tribunal observed and held:-
“5.3 We find that chapter 57 covers not only
carpets but also other floor coverings. 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. We also find that in the
interpretative notes for rule 3(a) in HSN,
where 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
21
classifiable under chapter heading 570390.90
as claimed by the assessee.”
6. The orders of commissioner are set aside
and the appeals are allowed with
consequential relief.”
15. Chapter Notes to Chapter 57 of the HSN Explanatory Notes,
relating to carpets and Other Textile Floor Coverings are relevant
for effective adjudication of these two appeals. The said Chapter
Notes read:-
“Chapter Notes.
1.- For the purposes of this Chapter,
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 articles having the
characteristics of textile floor coverings
but intended for use for other purposes.
2. This Chapter does not cover
floor covering underlays.
GENERAL
This Chapter covers carpets and other
textile floor coverings in which textile
materials serve as the exposed surface of
the article when in use. It includes articles
having the characteristics of textile floor
22
coverings (e.g., thickness, stiffness and
strength) but intended for use for other
purposes (for example, as wall hangings or
table covers or for other furnishing
purposes).
The above products are classified in this
Chapter whether made up (i.e., made
directly to size, hemmed, lined, fringed,
assembled, etc.), in the form of carpet
squares, bedside rugs, hearth rugs, or in the
form of carpeting for installation in rooms,
corridors, passages or stairs, in the length
for cutting and making up.
They may also be impregnated (e.g.,
with latex) or backed with woven or
nonwoven fabrics or with cellular rubber or
plastics.”
16. The said instrument, i.e. HSN Explanatory Notes deal with
four entries against tariff item no.5703 in following terms:-
“57.03 – CARPETS AND OTHER
TEXTILE FLOOR COVERINGS,
TUFTED, WHETHER OR NOT MADE
UP.
5703.10 - Of wool or fine animal hair
5703.20 - Of nylon or other
polyamides
5703.30 - Of other man-made textile
materials
5703.90 - Of other textile materials
23
This heading covers tufted carpets and
other tufted textile floor coverings produced
on tufting machines which, by means of a
system of needles and hooks, insert textile
yarn into a pre-existing backing (usually a
woven fabric or a nonwoven) thus producing
loops, or, if the needles and hooks are
combined with a cutting device, tufts. The
yarns forming the pile are then normally
fixed by a coating of rubber or plastics.
Usually before the coating is allowed to dry it
is either covered by a secondary backing of
loosely woven textile material, e.g., jute, or
by foamed rubber.
Products of this heading are distinguished
from the tufted textile fabrics of heading
58.02 by, for example, their stiffness,
thickness and strength, which render them
suitable for use as floor coverings.”
17. Learned counsel for the revenue has argued, referring to
three earlier orders of the Customs Excise and Gold (Control)
Appellate Tribunal (CEGAT-the predecessor of CESTAT) and has
also relied on a circular issued by the excise authorities dated 17th
April, 1995. The said circular (bearing no.117/28/95-CX)
specifies:-
24
“Car Mattings made from non-woven
materials in roll form – Dutiability of
Circular No.117/28/95-CX, dated 17-4-1995
[From F.No.57/1/94-CX.1]
Government of India
Ministry of Finance (Department of Revenue)
New Delhi
Subject: Dutiability of Car Mattings made
from non-woven materials in roll form –
Regarding
I am directed to refer to Board’s
<<15391$Circular No.5/FloorCoverings/87>> (F. No.57/1/87-CX.1), dated
23-6-1987 wherein it was clarified that duty
liability would not be attracted on car
mattings made from duty paid non-woven
material in roll form. It has been brought to
the notice of the Board that this position may
not hold good after extension of Modvat to
these items.
2. The matter has been re-examined by
the Board. The Board is of the view that there
are two clear stages i.e. non-woven material
emerging as excisable and dutiable goods in
roll form and finally car mattings emerging as
different final products. Duty has to be
charged at both stages as the processes of
conversion of non-woven material in roll form
into car mattings involves the processes of
cutting, stitching, sizing etc., and both
products are known differently in the market.
3. It is, therefore, clarified that
appropriate Central Excise Duty is payable on
floor coverings in the form of non-woven
25
material in rolls when cleared from the
factory, as well as, on the car mattings
subsequently manufactured out of duty paid
floor coverings in the form of non-woven
material in rolls.
4. The Board’s earlier
<<15391$Circular No.5/Floor
Coverings/87>> (F. No.57/1/87-CX.1) dated
23-6-1987 may be treated as withdrawn and
assessments may be finalized in terms of the
revised instructions.”
This circular deals with a situation in which non-woven
materials in roll form which were excisable goods, emerged as a
different product when the former is transformed as car matting
upon application of certain process. For this reason, it was
stipulated, that duty would be leviable at two stages. But in these
two appeals, we are to determine as to whether car mattings came
within the aforesaid tariff under Chapter 57. These appeals do not
raise the question as to whether car mattings themselves would be
subjected to excise duty or not. The question here is under which
tariff-head the duty should be paid. The aforesaid circular does
not assist the revenue in the subject appeals.
26
18. In the three Tribunal decisions cited on behalf of revenue
authorities, such car mattings were treated as parts and
accessories of motor cars. The first case cited is that of Collector
of Central Excise, Bombay-II vs. Sterling India [(2000) 115
ELT 807]. This was a decision of CEGAT, New Delhi. Before the
Tribunal in this case, the assessee went unrepresented. The goods
involved were canvas canopy, floor mattings and seat covers. The
Tribunal upheld the Collector’s order that the said articles were
not classifiable as floor coverings under sub-heading No.5702.90
of the Tariff and those were to be classified under Heading No.
8708.00. The order of the Tribunal does not contain any analysis
or reasoning and reads: -
“3. We have gone through the facts on
record. We find that both the Asstt.
Collector of Central Excise, Bombay, who
had adjudicated the matter and the
Collector of Central Excise (Appeals),
Bombay, had held that the goods in dispute
were not the carpets and floor mattings but
were accessories of motor vehicles. The
goods in dispute are canvas canopy, floor
matting and seat covers for motor vehicles.
27
Floor matting was made from jute coated
with PVC. Other items also were not used
as floor coverings. The Collector of Central
Excise (Appeals) has also referred to the
HSN Explanatory Notes and the relevant
Chapter Notes to arrive at his conclusion
that the type of the goods involved in these
proceedings were not to be classifiable as
floor coverings.”
19. The next case is that of Collector of Central Excise vs.
Swaraj Mazda [(1993) 68 ELT 258]. This is also a decision of
CEGAT. This case relates to availability of Modvat credit on floor
mats for motor vehicles. In this case floor mats had been cleared
on payment of duty under sub-heading No.8708, which covered
parts and accessories of motor vehicles of heading 87.01 to 87.05.
Applicability of that entry was not in lis in that appeal. The
Tribunal found that floor mats could be an item entering into the
stream of completion of the manufactured product rendering it fit
for marketing. On that ground input credit under the Modvat
provisions was allowed. The third case, which was cited on
behalf of the revenue was that of Jyoti Carpet Industries vs.
28
Commissioner of Central Excise, Jaipur-I [(2001) 132 ELT
458] decided by the CEGAT. This was a case where the
manufacturer classified textile floor covering of jute as product
under sub-heading 5703.20 in the relevant years. The assessee in
this case had been procuring raw-materials from different
manufacturers and out of such materials, they had been producing
car mattings and other mattings as well, such as bath mats,
telephone mats, floor foot mats etc. with the aid of power
operated machines. The process of manufacture involved cutting
as per standards, overlocking and stitching etc. Following the case
of Sterling India (supra), it was held that floor mats of cars could
be classifiable under head No.8708. But again, like in the case of
Sterling India (supra), the Tribunal has not given any reasoning
for such classification in this decision. The Tribunal in these
appeals, following the case of Sterling India (supra) found that
the subject-goods were classifiable under Chapter 8708.
All these three cases have been decided by the Tribunal,
which obviously has no precedent value for us. We however,
29
discussed these cases only for the purpose of ascertaining as to
whether the revenue authorities had been treating car mats as a
subject head under sub-heading 8708, on proper analysis of
competing claim of the assessees to include them in sub-heading
5703. We do not find so from these decisions of the Tribunal.
20. There are authorities in which it has been held that the
popular meaning among consumers would be a major factor for
interpretation of dispute relating to classification. This principle
has been laid down in the cases of Plasmac Machine
Manufacturing Co. Pvt. Ltd. vs. Collector of Central Excise,
Bombay [1991 Supp.(1) SCC 57] and Dabur India Ltd. vs.
Commissioner of Central Excise, Jamshedpur [(2005) 4 SCC
9]. In the case of Dabur India Ltd (supra), it has been held: -
“9. From the abovementioned authorities, it
is clear that in classifying a product the
scientific and technical meaning is not to
be resorted to. The product must be
classifiable according to the popular
meaning attached to it by those using the
product. As stated above, in this case the
appellants have shown that all the
ingredients in the product are those which
30
are mentioned in Ayurvedic textbooks. This
by itself may not be sufficient but the
appellants have shown that they have a
Drug Controller's licence for the product
and they have also produced evidence by
way of prescriptions of Ayurvedic doctors,
who have prescribed these for treatment of
rickets. As against this, the Revenue has
not made any effort and not produced any
evidence that in common parlance the
product is not understood as a
medicament.”
21. In the case of A.P. State Electricity Board vs. Collector of
Central Excise, Hyderabad [(1994) 2 SCC 428], the
marketability test has been applied, which is, in a way, a corollary
to the “popular meaning” test. In this case it has been held: -
“10. It would be evident from the facts
and ratio of the above decisions that the
goods in each case were found to be not
marketable. Whether it is refined oil (nondeodorised) concerned in Delhi Cloth
and General Mills or kiln gas in South
Bihar Sugar Mills or aluminium cans with
rough uneven surface in Union Carbide or
PVC films in Bhor Industries or
hydrolysate in Ambalal Sarabhai the
finding in each case on the basis of the
material before the Court was that the
articles in question were
31
not marketable and were not known to the
market as such. The ‘marketability’ is thus
essentially a question of fact to be decided
on the facts of each case. There can be no
generalisation. The fact that the goods are
not in fact marketed is of no relevance. So
long as the goods are marketable, they are
goods for the purposes of Section 3. It is
also not necessary that the goods in
question should be generally available in
the market. Even if the goods are
available from only one source or from a
specified market, it makes no difference
so long as they are available for
purchasers. Now, in the appeals before us,
the fact that in Kerala these poles are
manufactured by independent contractors
who sell them to Kerala State Electricity
Board itself shows that such poles do have
a market. Even if there is only one
purchaser of these articles, it must still be
said that there is a market for these
articles. The marketability of articles does
not depend upon the number of purchasers
nor is the market confined to the territorial
limits of this country. The appellant's own
case before the excise authorities and the
CEGAT was that these poles are
manufactured by independent contractors
from whom it purchased them. This plea
itself — though not pressed before us —
is adequate to demolish the case of the
appellant. In our opinion, therefore, the
conclusion arrived at by the Tribunal is
unobjectionable.”
32
22. Emphasis on technical meaning has been highlighted in the
case of Commissioner of Central Excise vs. Wockhardt Life
Sciences Limited [(2012) 5 SCC 585] for resolving classification
related disputes of goods. In this case, it has been held that a
commodity cannot be classified in a residuary entry if there is a
specific entry, even if the specific entry requires the product to be
understood in a technical sense.
23. “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. So far as
subject-dispute is concerned, we have already referred to Chapter
note 1 of Chapter 57. This note stipulates that carpets and other
floor coverings would mean floor coverings in which textile
materials serve as the exposed surface of the Article when in use.
33
This feature of the car mats has not really been rejected by the
revenue authorities as untrue in the order of the Commissioner,
before whom assertion to that effect was made by the respondent.
24. The core issue in these appeals is as to whether car mats
come under chapter-heading 57.03 or not. In the second appeal,
the numerical representation of the product, as claimed by the
assessee, was different but that difference is not of much
significance. 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.
25. 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
34
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. Revenue’s argument is that the Explanatory Notes have
persuasive value only. But the level or quality of such persuasive
value is very strong, as observed in the judgments of this Court to
which we have already referred. Moreover, the Commissioner
himself has referred to the Explanatory Notes in the order-inoriginal while dealing with the respondent’s stand. Thus, we see
no reason as to why we should make a departure from the general
trend of taking assistance of these Explanatory Notes to resolve
entry related dispute. Now, on referring to these Explanatory
Notes, we find that one category of carpets [Textile carpets
(Chapter 57)] has been excluded specifically from parts and
accessories. In our opinion, the subject-item does not satisfy the
35
third condition specified in Section XVII of the Explanatory
Notes in relation to “III-Parts and Accessories”. A plain reading of
clause (C) thereof, which we have quoted above, excludes “textile
carpets” (Chapter 57).
26. 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. We have referred to such exclusion in the preceding
paragraph. 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. 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
36
against the heading 8708. As we find the subject-goods come
under the chapter-heading 570390.90, and the other entry under
the same Chapter forming the subject of dispute in the second
order of the Commissioner, 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.
27. For these reasons, we dismiss the appeals. The impugned
decision of the Tribunal is sustained.
28. Any connected applications shall also stand disposed of.
There shall be no order as to costs.
..………………………….J.
(Deepak Gupta)
37
…………..……………….J.
(Aniruddha Bose)
New Delhi,
May 1, 2020.
38
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