CCE, AURANGABAD versus M/S VIDEOCON INDUSTRIES LTD. THR. ITS DIRECTOR on 29 March 2023

[2023] 6 S.C.R. 259

CCE, AURANGABAD

v.

M/S VIDEOCON INDUSTRIES LTD. THR. ITS DIRECTOR(Civil Appeal No. 5622 of 2009)

MARCH 29, 2023

[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]

Customs Tariff Act, 1975 – First Schedule – Chapter 90 –LCD panels – Classification of – CESTAT held that the LCD panelsimported by assesses were classifiable in Chapter Heading9013.8010 of the First Schedule to the 1975 Act – Held: Reasoningand conclusion of CESTAT that the LCD sets were classifiable underChapter 90, Entry 9013.8010, is sound and unexceptionable.

Customs Tariff Act, 1975 – First Schedule – Section XVI, XVII– Chapters 85 and 90 – General Interpretive Rules and Notes –Plea of revenue that by virtue of Note 2 (b) to Chapter 85, thegoods are to be classified based on their principal or sole use –Held: Revenue’s argument jumps over interpretive instructions – Inthe present case, Note 1 (m) along with the General Note 3 (a) [ofthe General Rules of Interpretation] that headings that arespecifically provided should be preferred over the general ones, isdecisive – Thus, the aforesaid contention of revenue is insubstantialbecause of the clear mandate of Note 1 (m) to Chapter 85 whichexcludes Chapter 90 goods (which includes LCD panels) – Whengoods are excluded from a particular chapter, the “pull in” througha note has to be narrowly construed, as otherwise, the basis ofexclusion would be defeated, and the earlier note (of exclusion)rendered redundant – Secure Meters case is decisive on the questionthat LCDs are not articles provided “more specifically in otherheadings”, i.e., other than 90.13 – Furthermore, the fact that LCDscould be used for purposes other than television sets or audio setsis also concluded because in the said decision its use in meters wasin issue – Tax/Taxation.

Dismissing the appeals, the Court

HELD: 1.1 On a reading of the General Interpretive rulesand the notes to the concerned chapters (85 and 90, in the present

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Acase), it is evident that: (a) classification has to be in accord with“the terms of the headings and any relative Section or ChapterNotes” (Note 1) (b) Reference in a heading to “an article” includes“that article incomplete or unfinished” provided, such incompleteor unfinished article has “the essential character of the completeor finished article.” [Note 2(a)] (c) If on an application of RuleB2(a), an article is classifiable in more than one heading “theheading which provides the most specific description shall bepreferred to headings providing a more general description.” [Note3 (a)] [Para 22][273-B-D]

1.2 Note 1 (m) to Chapter 85 excludes “(m) Articles ofCChapter 90…” The revenue relies on Note 2 (b) to Chapter 85,which says “other parts and accessories, “if suitable for use solelyor principally with a particular kind of machine, instrument orapparatus, or with a number of machines, instruments or apparatusof the same heading” and then enumerates heading 9013, to sayDthat Chapter 85 would cover the present case. The difficulty inaccepting the revenue’s argument, in this case, is that it jumpsover interpretive instructions. One, General Note (1) states thatclassification has to be in consonance with terms and headings inchapter notes. Two, Rule 3 (a) categorically enjoins that in regardto classification, the heading providing for a “more” specificEdescription prevails over the general one. Three, Note 1 (m) – inChapter 85 excludes the application of articles falling in Chapter90. In this court’s opinion, this note, along with the General Note3 (a) [of the General Rules of Interpretation] that headings thatare specifically provided, should be preferred over the general Fones, is decisive. Thus, the revenue’s contention that by virtueof Note 2 (b) to Chapter 85, the goods are to be classified basedon their principal or sole use is insubstantial because of the clearmandate of Note 1 (m), which excludes Chapter 90 goods (whichincludes LCD panels). More importantly, Note 2 opens with the

expression “subject to Note 1”. This subordinates the entireGsubject matter in Note 2; it is only where the article is a “part”which acts as an accessory, that the enumerated portions ofChapter 85 come into play. Such an interpretation is plainlyuntenable. [Paras 23, 25][273-D-E; 274-D-G]

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Commissioner of Central Excise, Delhi-III v. UNIProducts India Ltd. (2020) 19 SCC 742 : [2020] 13SCR 295 – relied on.

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1.3 When goods are excluded from a particular chapter,the “pull in” through a note has to be narrowly construed, asotherwise, the basis of exclusion would be defeated, and theearlier note (of exclusion) rendered redundant. Finally, SecureMeters is decisive on the question that LCDs are not articlesprovided “more specifically in other headings”, i.e., other than90.13. Furthermore, the fact that LCDs could be used for purposesother than television sets or audio sets is also concluded because,in that decision, its use in meters was in issue. [Para 28][278-E-F][278-E-F]

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Secure Meters v Commissioner of Customs (2015) 14SCC 239 : [2015] 6 SCR 219; Collector of CentralExcise v Delton Cables Ltd. & Anr. (2005) 12 SCC 284;Commissioner of Central Excise, Delhi-III vs. UNIProducts India Ltd. (2020) 19 SCC 742 : [2020] 13SCR 295; M/S Intel Design Systems (India) (P) Ltd. vs.Commissioner of Customs and Central Excise (2008) 3SCC 258 : [2008] 2 SCR 686 – relied on.

G. S. Auto International Ltd. v. Collector of CentralExcise 2003 (152) ELT 3 (SC) : [2003] 1 SCR 372 –referred to.

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Case Law Reference

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ACIVIL APPELLATE JURISDICTION: Civil Appeal No. 5622of 2009.

From the Judgment and Order dated 23.02.2009 of the Customs,Excise and Service Tax Appellate Tribunal, West Zonal Bench at Mumbaiin Appeal No.C/591/08-Mum in Order No.A/46/09/CSTB/C-II.

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With

Civil Appeal No. 8026 of 2022.

N. Venkataraman, ASG, Mukesh Kumar Maroria, V. C. Bharathi,Ms. Nisha Bagchi, Mohd. Akhil, Udai Khanna, Bhuvan Kapoor,CMs. Alka Agarwal, Advs. for the Appellant.

Vivek Kohli, Sr. Adv., Rajat Bose, Ankit Sachdeva, S. S. Shroff,V. Lakshmikumaran, Ms. Apeksha Mehta, Ms. Falguni Gupta, Ms. NehaChoudhary, Pranav Mundra, Ms. Charanya Lakshmikumaran, Advs. forthe Respondent.

DThe Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1. These appeals, by the revenue, challenge two orders by theCustoms, Excise and Service Tax Appellate Tribunal (‘CESTAT’hereafter).

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2. In the first appeal[1], the assessee is M/s Videocon International(hereafter “Videocon”). CESTAT, by its impugned order[2] in the firstappeal, allowed Videocon’s appeal and held that the LCD panels importedby it are classifiable Chapter Heading (“CH”) 9013.8010 [of the FirstSchedule to the Customs Tariff Act, 1975 (hereafter “CTA”)], as LiquidFCrystal Devices- as opposed to the revenue’s stand, that they areclassifiable as 85.29 “parts of goods falling under heading 85.28”[television sets falling in heading 85.28]. Videocon manufactures TVsets; the LCD panels are used by it, along with other items, such asprinted boards, decoders, etc.

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3. In the second appeal,[3] the revenue is aggrieved by order of theCESTAT[4] whereby import of LCD panels by the assessee i.e., M/S

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2 Dated 06.01.2009 in Order No. A/46/09/CSTB/C-II

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4 Dated 09.11.2021 in Order No. A/87132/2021 in Customs Appeal No. 85003/2019

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Harman International (India) Pvt. Ltd., (hereafter “Harman”) was heldto be classifiable under CH 9013.8010, rejecting the revenue’s contentionthat they were classifiable as “Car Audio or Video Players” under eitherCTH 8519 or 8555. The LCD panels, in this case, were used as part ofaudio systems in automobiles.

Brief facts

4. In both appeals, the assesses had imported LCD panels/displayboards. In Videocon appeal, Videocon claimed that the imported goodsfell in the relevant entry in CH 9013.8010. That entry reads as follows:

“9013.8010 Liquid crystal devices (LCD)”

The Chapter Heading read as follows:

“9013 Liquid crystal Devices not constituting articles providedfor more specifically in other headings; Lasers, other thanLaser Diodes; other optical appliances and instruments, notspecified or included elsewhere in this chapter”

Whereas, the revenue contended that the LCD panels were tobe classified as CH 8529, which reads as follows:

“Chapter 8529. “Parts suitable for use solely or principallywith the apparatus of heading 8525 to 8528”

CH 8528 reads as follows:

“8528 Monitors and projectors, not incorporating Televisionreception apparatus, reception apparatus for television,whether or not incorporating radio-broadcast receivers orsound or video recording or reproducing apparatus”

5. The revenue claimed that the goods were improperly classified;a show cause notice was issued. The Deputy Commissioner, whoadjudicated them, ruled against the assessee and held that the goodswere classifiable under CH 8529. 9090. The assessee’s appeal succeeded,and the Commissioner directed a remand. The Dy. Commissioner, afterremand, confirmed the show cause notice, and affirmed the classificationproposed by it; the assessee appealed against this order, unsuccessfully.The Commissioner (Appeals) rejected its appeal. It, therefore, approachedthe CESTAT, which by the impugned order, set aside the demand, andupheld the assessee’s plea that the proper classification of the goodswas in CH 9013.8010.

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A6. In the Harman appeal too, the assessee claimed that the importeditems i.e., LCD panels [declared before the customs authorities as“Liquid Crystal Devices-TFT-LCD 4.8 in”] for car audio assemblies,were properly classifiable in CH 9013.8010. Its contention was rejectedby the revenue authorities, who classified it as “Sound Recording orReproducing Apparatus” in CH 8519, and fell in CH 8522, itemB8522.9000. CH 8522 reads as follows:

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“8522 Parts and accessories suitable for use solely orprincipally with the apparatus of headings 8519 or 8521”

The litigation history in Harman’s case followed a trajectory similarCto Videocon’s; ultimately, by the impugned order, CESTAT upheld itscontention that the goods, meant for use in car audio systems, wereclassifiable in CH 9013.8010.

Contention of parties

7. Ms. Nisha Bagchi, learned counsel appearing for the revenue,Dargued that the findings of the CESTAT are erroneous. She argued thatthe literature and other documents reveal that the LCD panels havespecific model numbers. She pointed to the fact that the websites of themanufacturers of the imported articles are meant for use in LCD TVs.It was undeniable that the imported items were used in the manufactureEof LCD TVs. Some, however, were used in manufacturing monitors,though they were not sold in the market. Therefore, the goods wereLCD devices principally used in the manufacture of LCD TVs. LCDTV is an apparatus covered specifically under heading 85.25 & 85.28.

8. Counsel argued that heading 90.13 covers only those articlesFwhich are not provided for more specifically in other headings. In thepresent case, LCDs are specifically mentioned as parts of LCD TVs inheading 85.29. Therefore, they cannot be classified under heading 90.13.Reliance was placed on G.S. Auto International Ltd v Collector ofCentral Excise[5]. It was emphasized that in G.S. Auto (supra), this courtheld that the true test for classification is the test of commercial identityGand not functional test. Therefore, the correct question is how the articlesare referred to in the market by those who deal with them, whether forpurchase, sale or otherwise. The commercial parlance test, therefore, isdeterminative. Counsel submitted that the court in GS Auto (supra)

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referred to Notes 2(b) and (3) of Section XVII and observed that a jointreading of the notes would show that the expression “parts of generaluse” throughout the schedule, meant, articles of Heading No. 7318 andsimilar articles of other base metal, and the expression ‘part andaccessories’ in Chapter Heading 87.08 did not apply to parts oraccessories unsuitable for use solely or primarily with articles of CH87.08 which related to parts and accessories of motor vehicles of CH87.01 to 87.05. For the purposes of classification under CH 87.08, thetest to be applied is whether the goods are suitable for use solely orprimarily with articles of CH Nos.87.01 to 87.05; if the answer is in theaffirmative, the goods will be classifiable under CH 87.08, but if theanswer is in the negative, they would have to be classified under CH73.18.

9. It is urged that on an application of similar logic even if LCDsare covered by CH 90.13, yet, they have to be classified under heading85.29 since these are solely or principally used for manufacture of LCDTVs and commercially known as parts of TVs.

10. Learned counsel referred to Chapter Note 2(b) (of Chapter90) relating to classification of parts and accessories if suitable for usesolely or principally with a particular kind of machine, instrument orapparatus or with a number of machines, are to be classified with thatmachine, instrument or apparatus of that kind. In view of this note, LCDsfor computer monitor are classifiable as part of computer monitor, andthe various general application and special application monitors will alonebe classifiable under Chapter Heading 90.13. The example given forsuch LCD panels were panel for video games, medical monitoring andindustrial test and control, etc., which are not part of any particularequipment or machine but can be used in an assortment of machines. Itwas submitted that the assessee’s plea about classification of differentparts in various Chapter Headings other than Chapter 84 and 85, isirrelevant as the various notes/explanatory notes of all sections, chapters,and headings are unique to the respective sections or chapters or headingsand cannot be generalized or interchanged or applied to with othersections, chapters or headings, unless specified in the tariff/explanatorynotes or by any other legislation. The absence of explanatory note statingthe parts of LCD TVs will not be classifiable under Chapter Heading85.29 if it is specifically specified under any other chapter heading (inthis case, Chapter Heading 90.13), the assessee cannot rely on notesrelating to other sections and chapters.

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A11. Lastly, Ms. Bagchi, anticipating reliance- by the assessee uponthe judgment of this court, in Secure Meters v Commissioner ofCustoms[6]- submitted that the ratio of that case cannot be applied to thefacts of this case because, firstly, the competing entries (in that case)fell within the same chapter, and secondly, that the factual basis in thepresent case, is stronger, because the websites of the manufacturers,Bclearly reveal that the imported goods were meant principally to be usedin television sets. Section note 2 (b) applies in this case because the itemin question was not specifically classifiable under its headings, becauseit is principally meant for use in television sets.

12. In the second appeal[7] concerning import by HarmanCInternational, the revenue argues that the items are LCD attached withinseparable PCBs. Both were part of one equipment, though it wasdeclared as LCDs. Counsel pointed out that Harman, in its letter (dated19.08.2016) stated that it manufactured Car Audio/infotainment itemsand supplied them to auto manufacturers; the shipment contained LCDs Dused in its manufacturing process of car audio assembly. Further, it wasstated that the items were assembled with the importer’s assembledPCBs to give different outputs on car audio screen and was designedspecifically to suit end product requirements and could not be usedseparately as an accessory but was an essential part of its manufacturedproduct. Thus, LCD panels were specifically designed in a particularEmanner to be used only in car audio/infotainment systems. They were,consequently, specific parts of car audio/infotainment systems and cannotbe used otherwise.

13. Counsel urged that the goods were articles describedspecifically as parts of ‘Sound Recording and ReproducingFApparatus’ covered under CTH 8522 and because they are constitutingarticles described more specifically in other headings, there was no scopeof their being covered under CTH 9013 8010. It was urged, that like inVideocon, the manufacturer’s literature described the goods specificallyas ‘LCD Module’.G14. Mr. Vivek Singh, learned Senior counsel (appearing in theVideocon appeal), submitted that the view taken by CESTAT is correct.Goods are admittedly liquid crystal device; they are specifically covered 6 [2015] 6 S.C.R. 219: 2015 (14) SCC 239

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by the entry heading 90.13 as it is not described more specifically in anyother heading. The entry referred to by the revenue i.e., Chapter Heading8529 relates to parts suitable for use solely or principally with theparts of heading nos.85.25 to 85.28, which inter alia includes LCD TV,cannot be considered as a specific heading.

15. It was argued that Section Note 1(m) to Section XVI clearlyexcludes articles of Chapter 90. Therefore, first, it has to be specificallyheld that the LCD panels are not covered by Chapter 90. The revenuedoes not deny that LCD panels are covered by Chapter Heading 90.13.This heading, according to the revenue, covers only LCD panels meantfor general use and are interchangeable and not what are principallymeant for use in TVs. It is argued that tariff entry 90.13 refers to LCDswhich do not constitute articles provided for more specifically inother headings. The entry relied on by the revenue is 8529, whichdeals with parts suitable for use “solely or principally with theapparatus” of Heading 8525 to 8528. This entry is not confined to LCDpanels meant for use in TVs only but to several other parts which go intothe making of LCD TV like TV tuners, PCB boards, switches, connectors,speakers, etc., all of which will be classifiable under heading 8529. Theheading referring to parts cannot be treated as heading covering theLCDs more specifically.

16. It is submitted that the description under heading 8529 is generaland not specific, whereas the description under heading 90.13 is morespecific. LCDs consist of items like LCD TV, (referred to under ChapterHeading 8528.7218 and 8528.7510) and indicator panels incorporatingLCDs (referred to in entry 8531.2000) and other items which arespecifically provided for. The Supreme Court decision in G.S. Auto(supra) is in the context of Section XVII where Note 2 and 3 provides:

“2 The expression parts’ and ‘parts and accessories’ do notapply to the following articles, whether or not they areidentifiable as for the goods this section:

(a) ********

(b) Parts of general use, as defined in Note 2 to Section XV,of base metal (Section XV), or similar goods of plastics(Chapter 39)”

“3. References in Chapters 86 to 88 to parts or accessoriesdo not apply to parts or accessories which are not suitable A

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Afor use solely or’ principally with the articles of those Chapters.A part or accessory which answers to a description in two ormore of the headings of those Chapters is to be classified underthat heading which corresponds to the principal se of thatpart of accessory.”

B17. It was argued that the section notes clearly provide that theword “parts and accessories” will not apply to parts of general useas defined in Note 2 to Section XV of base metal, and it was in view ofthis note that this Court held that parts which are suitable for use solelyor principally with articles of Chapters 86 to 88 are to be treated as partsand accessories of articles falling under Chapter 86 to 88 in terms ofCNote 3. These notes are missing from Section XVI and are, therefore,irrelevant. Chapter notes/section notes and explanatory notes are uniqueto the respective section, chapters and headings they deal with and cannotbe generalized or interchanged. Consequently, classification has referenceto section and chapter notes of the section to which the goods belong, Di.e., Section XVI. Section Note 2(a) and 2(b) in Section XVI are differentfrom Section Notes of Section XVII. According to Section Note 2(a) ofSection XVI the parts which are goods included in any of the headingsof Chapter 84 or 85 are, in all cases, to be classified in their respectiveheadings, and it is only when the parts are not classifiable as per SectionNote 2(a) that Section Note 2(b) is attracted. Therefore, even though aEpart is suitable for use or solely with a particular kind of machine findsmention under any headings in Chapter 84 or 85, it will then get classifiedunder that heading and not as a part of apparatus or a machine.

18. Learned senior counsel relied on the decision of this court inSecure Meters (supra) and urged that the distinction sought to be madeFby the revenue, with this case, is on untenable grounds. It was arguedthat though the competing entries were in Heading 90, nevertheless, thearticle was LC Displays, but used in meters. This clearly underminedthe revenue’s argument that LCD sets were meant principally for TVs.They have multiple uses; if the revenue is correct, each such use wouldGthen be a “principal” use. In that event, the Chapter Heading would berendered redundant.

19. Mr. V. Lakshmikumaran, learned counsel appearing in Harman,adopted the submissions made by Mr. Vivek Singh. He additionally reliedon Rule 1 of the General Rules of Interpretation, which provides that:

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“Classification of goods in this Schedule shall be governedby the following principles:

The titles of Sections, Chapters and Sub-Chapters are providedfor ease of reference only; for legal purposes, classificationshall be determined according to the terms of the headingsand any relative Section or Chapter Notes and, provided suchheadings or Notes do not otherwise require, according to thefollowing provisions.”

It was argued that in terms of Rule 1, since classification of a‘Liquid Crystal Device’ is specifically provided for by nomenclatureunder tariff item 9013 8010, the LCDs imported by the assessee werecorrectly classifiable under tariff item 9013 8010, in terms of thenomenclature of the item.

20. It was argued that Tariff Item 9013 8010 prescribes a morespecific description and is to be preferred over any other heading, whereastariff heading 8522 provides a general description, as parts and accessoriessuitable for use, “solely or principally” with the apparatus of CH 8519 or8521. The further submission of Mr. Laxmikumaran is that the expression“parts and accessories” used in CH 8522 excludes articles covered underChapter 90 of the Tariff, whether or not they are identifiable as for thegoods falling under Section XVI of the Tariff and that even if any articleis identifiable as a “part or/and accessories for the goods of SectionXVI, it shall be excluded from the term “parts and accessories”. Learnedcounsel relied upon the judgment reported in Collector of Central Excisev Delton Cables Ltd & Anr[8]where, the court dealt with section Notes2 (a) and 2 (b) to Chapter 85 and held that Note 2 (b) applies only if theitem is not specifically classifiable under their respective headings. Itwas argued, therefore, in the present case, that Note 1 (m) to Chapter 85specifically excluded from its operation, goods falling in Chapter 90. Insuch circumstances, LCD panels were complete articles capable ofmultiple uses, and not solely or principally in some articles. It wasadditionally urged that the facts found, clearly showed that the PCBsattached to the LCD panels imported by the assessee were meant to actas voltage stabilizers.

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21. First, it would be necessary to refer to the relevant norms ofinterpretation under First Schedule of the CTA, i.e. “The General Rulesof Interpretation of this Schedule”. Rules 1, 2 and 3 are relevant andare extracted below:

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THE FIRST SCHEDULE—IMPORT TARIFF (See Section 2)GENERAL RULES FOR “THE INTERPRETATION OF THISSCHEDULE

Classification of goods in this Schedule shall be governed bythe following principles:

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

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2. (a) Any reference in a heading to an article shall be takento include a reference to that article incomplete or unfinished,provided that, as presented, the incomplete or unfinishedarticle has the essential character of the complete or finishedarticle. It shall also be taken to include a reference to thatarticle complete or finished (or falling to be classified ascomplete or, finished by virtue of this rule), presentedunassembled or disassembled.

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(b) Any reference in a heading to a material or substanceshall be taken to include a reference to mixtures orcombinations of that material or substance with other materialsor substances. Any reference to goods of a given material orsubstance shall be taken to include a reference to goodsconsisting wholly or partly of such material or substance.The classification of goods consisting of more than onematerial or substance shall be according to the principles ofrule 3.

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3. When by application of rule 2(b) or for any other reason,goods are, prima facie, classifiable under two or moreheadings, classification shall be effected as follows:

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(a) the heading which provides the most specific descriptionshall be preferred to headings providing a more generaldescription. However, when two or more headings each referto part only of the materials or substances contained in mixedor composite goods or to part only of the items in a set put upfor retail sale, those headings are to be regarded as equallyspecific in relation to those goods, even if one of them gives amore complete or precise description of the goods.

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(b) mixtures, composite goods consisting of different materialsor made up of different components, and goods put up in setsfor retail sale, which cannot be classified by reference to (a),shall be classified, as if they consisted of the material orcomponent which gives them their essential character, insofaras this criterion is applicable.

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(c) when goods cannot be classified by reference to (a) or(b), they shall be classified under the heading which occurslast in numerical order among those which equally meritconsideration.”

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Chapter 85 falls in Section XVI, the heading of which reads asfollows:

“CHAPTER 85 Machinery and Mechanical Appliances;Electrical Equipment; Parts thereof; Sound Recorders andReproducers, Television Image and Sound Recorders andReproducers, and Parts and Accessories of Such Articles E

NOTE 1. This Chapter does not cover:

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(a) xxxxxxxxxxx xxxxxx

(m) Articles of Chapter 90…

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1. Subject to Note 1 to this Section, Note 1 to Chapter 84and to Note 1 to Chapter 85, parts of machines (not beingGparts of the articles of heading 8484, 8544, 8545, 8546or 8547) are to be classified according to the followingrules:

(a) Parts which are goods included in any of the headings ofChapter 84 or 85 (other than headings 8409, 8431, 8448, H

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A8466, 8473, 8485, 8503, 8522, 8529, 8538, and 8548)are in all cases to be classified in their respective headings; (b) other parts, if suitable for use solely or principally witha particular kind of machine, or with a number ofmachines of the same heading (including a machine ofBheading 8479 or 8543) are to be classified with themachines of that kind or in heading 8409, 8448, 8466,8473, 8503, 8522, 8529 or 8538 as appropriate.However, parts which are equally suitable for useprincipally with the goods of headings 8517 and 8525 to8528 are to be classified in heading 8517

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(c) all other parts are to be classified in heading 8409, 8431,8448, 8466, 8473, 8503, 8522, 8529 or 8538 asappropriate or, failing that in heading 8485 or 8548"

Chapter Heading 90, which falls in Section XVII, reads as follows:

D“CHAPTER 90

“Optical, Photographic, Cinematographic, Measuring,Checking, Precision, Medical or Surgical Instruments andApparatus; Parts and Accessories Thereof”

Note 2 to Chapter 90 reads as follows:

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2. Subject to Note 1 above, parts and accessories formachines, apparatus, instruments or articles of this Chapterare to be classified according to the following rules:

(a) Parts and accessories which are goods included in any ofthe headings of this Chapter or of Chapter 84, 85 or 91 (otherthan heading 4[8487], 8548 or 9033) are in all cases to beclassified in their respective headings; F

(b) Other parts and accessories, if suitable for use solely orprincipally with a particular kind of machine, instrument orapparatus, or with a number of machines, instruments orapparatus of the same heading (including a machine,instrument or apparatus of heading 9010, 9013 or 9031) areto be classified with the machines, instruments or apparatusof that kind; G

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(c) All other parts and accessories are to be classified inheading 9033.”

Analysis and Conclusions

22. On a reading of the General Interpretive rules and the notes tothe concerned chapters (85 and 90, in the present case), it is evident that:

(a) classification has to be in accord with “the terms of the headingsand any relative Section or Chapter Notes” (Note 1)

(b) Reference in a heading to “an article” includes “that articleincomplete or unfinished” provided, such incomplete orunfinished article has “the essential character of the completeor finished article.” [Note 2(a)]

(c) If on an application of Rule 2(a), an article is classifiable inmore than one heading “the heading which provides the mostspecific description shall be preferred to headings providinga more general description.” [Note 3 (a)]

23. Note 1 (m) to Chapter 85 excludes “(m) Articles of Chapter90…” The revenue relies on Note 2 (b) to Chapter 85, which says “otherparts and accessories, “if suitable for use solely or principally with aparticular kind of machine, instrument or apparatus, or with anumber of machines, instruments or apparatus of the same heading”and then enumerates heading 9013, to say that Chapter 85 would coverthe present case.

24. The correct manner of interpreting the notes, chapters, andthe General rules of interpretation was explained by this court, inCommissioner of Central Excise, Nagpur v Simplex Mills Co. Ltd.,[9]where the Court held that the Rules for the Interpretation of the Scheduleto the CET Act are framed pursuant to the powers under Section 2 ofthat Act. The court observed:

“The Rules for the Interpretation of the Schedule to theCentral Excise Tariff Act, 1985 have been framed pursuant tothe powers under Section 2 of that Act. According to Rule 1titles of sections and chapters in the Schedule are providedfor ease of reference only. But for legal purposes,classification ‘shall be determined according to the terms of A

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Athe headings and any relevant section or chapter notes’. Ifneither the heading nor the notes suffice to clarify the scopeof a heading, then it must be construed according to the otherfollowing provisions contained in the Rules. Rule 1 givesprimacy to the section and chapter notes along with terms ofthe headings. They should be first applied. If no clear pictureBemerges then only can one resort to the subsequent rules. Theappellants have relied upon Rule 3. Rule 3 must be understoodonly in the context of sub-rule (b) of Rule 2 which says interalia that the classification of goods consisting of more thanone material or substance shall be according to the principlesCcontained in Rule 3. Therefore when goods are prima facie,classifiable under two or more headings, classification shallbe effected according to sub-rules (a), (b) and (c) of Rule 3and in that order.”

25. The difficulty in accepting the revenue’s argument, in thisDcase, is that it jumps over interpretive instructions. One, General Note(1) states that classification has to be in consonance with terms andheadings in chapter notes. Two, Rule 3 (a) categorically enjoins that inregard to classification, the heading providing for a “more” specificdescription prevails over the general one. Three, Note 1 (m) – in Chapter85 excludes the application of articles falling in Chapter 90. In this court’sEopinion, this note, along with the General Note 3 (a) [of the GeneralRules of Interpretation] that headings that are specifically provided, shouldbe preferred over the general ones, is decisive. Thus, the revenue’scontention that by virtue of Note 2 (b) to Chapter 85, the goods are to beclassified based on their principal or sole use is insubstantial because ofFthe clear mandate of Note 1 (m), which excludes Chapter 90 goods(which includes LCD panels). More importantly, Note 2 opens with theexpression “subject to Note 1”. This subordinates the entire subject matterin Note 2; it is only where the article is a “part” which acts as anaccessory, that the enumerated portions of Chapter 85 come into play.

Such an interpretation is plainly untenable. In Commissioner of CentralGExcise, Delhi-III vs. UNI Products India Ltd.,[10]this court had toconsider whether “car matting” fell within Chapter 57 of the I Scheduleto the CET Act per heading “Carpets and Other Textile Floor Coverings”or were to be classified under Chapter 87, as “vehicles other than railway or tramway rolling-stock and parts and accessories thereof”. The courtheld that the item fell within the description “car matting”:

“25. We do not find any error in such reasoning. Chapter 87of the Central Excise Tariff of India does not contain carmats as an independent tariff entry. We have reproducedearlier the various parts and accessories listed against tariffentry 8708. All of them are mechanical components, andrevenue want car mats to be included under the residuarysub-head “other” in the same list. The HSN Explanatory Notesdealing with interpretation of the Rules specifically exclude“tufted textile carpets, identifiable for use in motor cars” from87.08 and place them under heading 57.03. Revenue’sargument is that the Explanatory Notes have persuasive valueonly. But the level or quality of such persuasive value is verystrong, as observed in the judgments of this Court to whichwe have already referred. Moreover, the Commissioner himselfhas referred to the Explanatory Notes in the order- in-originalwhile dealing with the Respondent’s stand. Thus, we see noreason as to why we should make a departure from the generaltrend of taking assistance of these Explanatory Notes toresolve entry related dispute. Now, on referring to theseExplanatory Notes, we find that one category of carpets[Textile carpets (Chapter 57)] has been excluded specificallyfrom parts and accessories. In our opinion, the subject-itemdoes not satisfy the third condition specified in Section XVIIof the Explanatory Notes in relation to “III-Parts andAccessories”. A plain reading of Clause (C) thereof, whichwe have quoted above, excludes “textile carpets” (Chapter57).

26. The main argument of the Appellant is that because thecar mats are made specifically for cars and are used also incars, they should be identified as parts and accessories. Butif we go by that logic, textile carpets could not have beenexcluded from Parts and Accessories. We have referred to suchexclusion in the preceding paragraph. It has also been urgedon behalf of the revenue that these items are not commonlyidentified as carpets but are different products. The Tribunalon detailed analysis on various entries, Rules and Notes have AB

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Afound they fit the description of goods under chapter heading570390.90. We accept this finding of the Tribunal. Once thesubject goods are found to come within the ambit of thatsub-heading, for the sole reason that they are exclusively madefor cars and not for “home use” (in broad terms), those goodscannot be transplanted to the residual entry against theBheading 8708. As we find the subject-goods come under thechapter-heading 570390.90, and the other entry under thesame Chapter forming the subject of dispute in the secondorder of the Commissioner, in our opinion, there is no necessityto import the “common parlance” test or any other similarCdevice of construction for identifying the position of thesegoods against the relevant tariff entries.”

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26. In the decision reported as Delton Cables Ltd (supra) too,this court had emphasized on the rule of classification of the goods inaccordance with a specific description and observed that:D

“3. There appears to be no dispute that were it not for SectionNote 2(b), the item in question would be classified under TariffHeading 85.44 as contended by the appellant. Sections Notes2(a) and (b) respectively provide as follows:

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“2. (a) Parts which are goods included in any of the headingsof Chapter 84 or Chapter 85 (other than Headings 84.85and 85.48) are in all cases to be classified in their respectiveheadings.

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(b) Other parts, if suitable for use solely or principally with aparticular kind of machine, or with a number of machines ofthe same heading (including a machine of Heading 84.79 orHeading 85.43) are to be classified with the machines of thatkind. However, parts which are equally suitable for useprincipally with the goods of Headings 85.17 and 85.25 to 85.28 are to be classified in Heading 85.17.”

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4. It is clear from a reading of the two clauses to the sectionnote that clause

(b) would only apply once it was found that the items inquestion were not specifically classifiable under theirrespective headings. As has been clearly said by the Collector(Appeals)

“from the sequence of the paragraphs given under SectionNote 2 it is clear that the question of switching over to SectionNote 2(b) can arise only after ensuring that the parts are notcovered by Section Note 2(b) [sic Section Note 2(a).] whichbegins with the expression “other parts” meaning thereby thatthe parts which are not covered by Section Note 2(a) wouldbe considered for coverage by Section Note 2(b). One cannottherefore directly jump over to Section Note 2(b) withoutexhausting the possibility of Section Note 2(a).”

27. M/S Intel Design Systems (India) (P) Ltd. vs. Commissionerof Customs and Central Excise[11]is a decision, where the goods weredescribed as parts of tanks and other armoured and motorized fightingvehicles, under Heading 8710 was held to fall within Chapter 85. Thereasoning of this court, in that case, was as below:

“4. As per Rule 1 on Interpretive Rules, classification ofexcisable goods is to be determined according to the terms ofthe Heading and in terms of Section/Chapter notes. Note 2(f)to Section XVII (which governs Chapter 87) excludes thegoods viz. electrical machinery and equipment (Chapter 85).The goods in question i.e. contractors, switches, control boxetc. are the goods used for switching, protecting electricalcircuits or for making connections to or in electric circuit.These parts/components are specifically covered under CSH8536.90. The CBEC Circular relied upon by the assessee isnot relevant.

5. As per the Explanatory Notes to HSN the parts falling underChapter Heading 8710 would be covered under the saidchapter, provided they fulfill both the conditions i.e. they mustbe identifiable as being suitable for use solely or principally 11 [2008] 2 S.C.R. 686: 2008 (3) SCC 258

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Afor such vehicles and that they must not be excluded by theprovisions of Notes to Section XVII. The identifiable partsunder the said heading bodies of armoured vehicles and partsthereof, cover special road wheels for armoured cars,propulsion wheels for tanks, tracts etc. As per thisrequirement, the goods should not only be identifiable to beBarmoured vehicles, but it should so not have been excludedby Notes to Section XVII. The Chapter note 2(f) excludeselectrical machinery and equipment falling under Chapter85. Explanatory Notes to HSN relating to the parts andaccessories excluded by Note 2 specify items with referenceCto specific Chapter Heading as per (7) (a), (k) which excludesphotographs and other current collectors for electric tractionvehicles, fuses, switches and other electric apparatus ofHeading No.85.35 or 85.36. The items, therefore,manufactured by the appellants are identifiable or are in thenature of goods falling under Chapter Heading 85.36. SinceDthese fall under the category of excluded goods under ChapterNotes, even though they are used specifically solely orprincipally with the armoured vehicles of Chapter Heading8710, they are classifiable under Chapter Heading 8536.90only as held by the adjudicating authority.”

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28. It is, therefore, clear that when goods are excluded from aparticular chapter, the “pull in” through a note has to be narrowlyconstrued, as otherwise, the basis of exclusion would be defeated, andthe earlier note (of exclusion) rendered redundant. Finally, Secure Meters(supra) is decisive on the question that LCDs are not articles providedF“more specifically in other headings”, i.e., other than 90.13. Furthermore,the fact that LCDs could be used for purposes other than television setsor audio sets is also concluded because, in that decision, its use in meterswas in issue. This court held, pertinently, as follows:

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“17. Keeping in mind the aforesaid nature of product inquestion, we revert to the tariff entries. It cannot be disputedthat LCDs are specifically provided in Tariff Item 9013. Theonly condition is that such LCDs should not constitute“articles” provided more specifically in other headings. In H

the present case, it is also not in dispute that LCDs importedby the appellant did not constitute any such “article” whichis more specifically provided in other headings. On thecontrary, the Revenue wants to include in the same chapteri.e. Chapter 90, though under Entry 9028.90.10 as “partsand accessories”. The only reason for including the goodsunder Chapter Heading 9028 is that the LCDs were to beused in the electricity supply meters. However, Entry 9028does not pertain to LCDs but gas, liquid, etc. and includeselectricity supply meters as well. Merely because these LCDsare to be used as parts in the said electricity supply meters,can it be said that they are to be included in Entry 9028?Here, Note 2 of this Chapter Notes becomes important sinceLCDs are used in the electricity supply meters only as partsthereof. Note 2(a) stipulates that parts and accessories whichare goods included in the heading of the said chapter i.e.Chapter 90, are to be classified in their respective headings.Going by the plain reading of Note 2(a) it is clear that LCDs,which are goods and are used as parts in the final productmentioned in Chapter 90, namely, electricity supply meters,are to be classified in its respective heading. Respectiveheading, which is specifically provided is 9013.

18. It was sought to be argued by Ms Kiran Suri that as perNote 2(b), when these LCDs are used solely for particularinstrument, namely, electricity supply meter, it has to beclassified with the said meter and, therefore, Chapter Entry9028 would get attracted. However, this argument loses sightof the fact that Note 2(b) relates to “other parts andaccessories”, namely, it would apply to those parts andaccessories for which Note 2(a) is inapplicable. Once we findthat in the present case Note 2(a) squarely applies, theirresistible conclusion is that the goods will be classified inTariff Item 9013, which is the specific heading for thesegoods.”

29. In view of the above decisions and the foregoing reasoning,the CESTAT’s reasoning and conclusions, in both cases, that the LCD

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Asets were under Chapter 90, Entry 9013.8010, is sound andunexceptionable. Consequently, the appeals have to fail and are dismissed,without order on costs.

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Divya Pandey

(Assisted by : Kritika Singh and Shevali Monga, LCRAs)

Appeals dismissed.

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