C.C.E.C.& S.T.,Vishakhapatnam vs Jocil Ltd

whether cargo imported is classifiable as non-edible

Industrial Grade Crude Palm Stearin falling under Ch. Sub

1 Heading No. 15 11 90 90 or as "RBD Palm Stearin" falling

under Tariff Item No. 38 23 11 12 of the Customs Tariff Act,

1975.

2. The brief facts which give rise to the aforesaid issue are that

the Respondent imported Crude Palm Stearin through

Kakinada Port and filed Bills of Entry declaring the goods as

industrial grade Crude Palm Stearin falling under Ch. Sub

Heading No. 15 11 90 90 of the Customs Tariff Act, 1975

[hereinafter referred to as "the Act"] and the bills of entry

were assessed provisionally on the basis of the importer's

declaration pending receipt of the test results from the

chemical examiner. `Palm Stearin', the subject matter of

classification in question, was imported through Kakinada

port during the period from 26.08.2003 to 28.12.2004.

Whereas the Respondent-assessee sought to classify the

goods in question under Tariff Item No. 15 11 90 90 of the

Customs Tariff Act, 1975 as "Non-edible Industrial Grade

Crude Palm Stearin", the appellant classified the goods in

question as "RBD Palm Stearin" falling under Tariff Item No.

2 38 23 11 12 of the Act, chargeable to duty at BCD 25%, CVD

16% and 4% SAD. Under Tariff Item No. 15 11 90 90, the

assessment was charged at BCD 20% and nil CVD/SAD. The

Assistant Commissioner of Customs asked the Respondent to

pay the differential duty, under S.28 of the Customs Act,

1962.

3. The Chemical Examiner, Visakhapatnam reported that the

goods in question were RBD Palm Stearin with an admixture

of Palm Fatty Acid Distillate (in short "PFAD") and not crude

palm stearin as declared by the importer. After due

adjudication process, the Assistant Commissioner of

Customs finalized the Bills of Entry by classifying the

impugned goods as RBD Palm Stearin falling under Sub-

heading No. 3823.11.12 of the Customs Tariff Act, 1975 and

demanded the differential duty along with applicable interest.

Aggrieved by these orders, the Respondent preferred an

appeal before the Commissioner (Appeals). When the dispute

in this regard reached the Commissioner (Appeals), the claim

of the Respondent was dismissed and the order of the Asst.

3 Commissioner upheld. However, on appeal to the CESTAT,

the Tribunal allowed the same while relying on its decision in

the case of M/s Jocil Ltd. & Ors v. The Commissioner of

Central Excise & Customs, Visakhapatnam - II.

4. The CESTAT, in determining the appeal, took note of the fact

that the Chemical Examiner has only ascertained the free

fatty acids of the sample, which comes to 23.2%. According

to the Tribunal, since the balance contents of 76.8% have not

been considered, it could not be conclusively said that the

same is not composed of triglycerides. The CESTAT also

relied on the ester value and saponification value registered

at the load port (Load Port Analysis) during the time of

clearance. The said analysis indicated that the balance is

nothing but triglycerides. According to the Central Revenue

Chemical Laboratory (CRCL) opinion which was relied upon

by CESTAT, Chapter 15.11 covers palm oil and its fractions -

this view is also espoused in the HSN Explanatory Notes.

Since Palm Stearin falling under 15.11 is a glyceride of fatty

acids, the CESTAT concluded that the categorization should

4 also have to be made under Ch.15.11. As stated hereinabove,

reliance was also placed on its own decision in M/s Jocil

Ltd. & Ors v. The Commissioner of Central Excise &

Customs, Visakhapatnam - II reported at [2008 (225) ELT

540 (Tri-540]]. Aggrieved by the decision of CESTAT, the

appellant has approached this Court by way of Civil Appeal.

5. The appeal was listed for hearing and we heard the learned

counsel appearing for the parties who have ably taken us

through all the relevant documents on record and also placed

before us the various decisions which may have a bearing on

the issues raised in the present appeal.

6. Before this Court, learned counsel for the appellant

contended that the goods in question are RBD Palm Stearin

with Palm Fatty Acid Distillate (PFAD) and hence must be

classified under Tariff Item No. 38 23 11 12 of the Act. We

may enumerate the arguments put forth by the appellant on

this count: -

a. Tariff Item No. 38 23 11 12 is a specific heading, which

must be given preference over a general description as

5 in Tariff Item No. 15 11 90 90. As per Rule 3(a) of the

General Rules for Interpretation of the First Schedule to

the Act, when for any reasons goods are prima facie

classifiable under two headings, the general description

must give way to the specific.

b. In separate test reports in respect of samples drawn

from various consignments, the Chemical Examiner,

Vishakhapatnam reported that the goods in question

are RBD Palm Stearin with PFAD and not Crude Palm

Stearin. The report clearly indicates that the substance

has been chemically modified, and cannot be called

`crude' in any way.

c. Reliance on the Jocil Ltd case by the CESTAT is

contentious as its decision in the same matter has been

challenged by the appellant in the HC and is pending.

d. The Six-digit First Schedule to the Customs Tariff Act,

1975 was substituted by the Eight-digit First Schedule

vide the Customs Tariff (Amendment) Ordinance, 2003

and this substitution w.e.f. 01.02.2003 has statutory

6 force. Therefore, the new Schedule would operate over

and above the CBEC Circular dated 03.12.2002 and the

latter would not be applicable since the new Schedule

was not operational at the time of issuance of the

Circular. The goods, which were imported between

August 2003 and November 2004, should therefore be

classified under the Eight Digit Tariff Schedule.

7. On the other hand, the Respondent has maintained that the

subject matter in question is industrial grade Crude Palm

Stearin falling under Ch. Sub Heading No. 15 11 90 90 of the

Customs Tariff Act, 1975. To fortify this conclusion, they

have contended that: -

a. Commissioner (Appeals) erred in not appreciating and

applying CBEC Circular dated 03.12.2002. Respondent

claims that the circular had distinguished between

products which are fractions of Palm Oil classifiable

under Chapter 15, and products which are fatty acids

classifiable under Chapter 38. The Respondent

contends that the distinction between both these

7 products was the presence of triglycerides, determined

by the ester value of the product in question.

b. The Chemical Examiner did not ascertain the ester

value of the goods in the chemical analysis, when it was

incumbent on the department to do so. On the other

hand, the Report determined free fatty acid, which

clearly indicated that the product had triglycerides.

When the authorities have thus ignored the CBEC

directions, the Respondent contended, the assessment

needs to be set aside.

c. The onus to classify a particular product under a

specific heading is on the Department [Hindustan

Ferodo Ltd. v. Collector of Central Excise, Bombay

reported at 1997 (89) ELT 16). Therefore, the

Department should have had the product chemically

analyzed and record a finding that there were no

triglycerides in the product. In the absence of the same,

the Respondent contends, the order of the authorities

deserves to be quashed and set aside.

8 d. The Commissioner (Appeals) failed to appreciate that

the oils were a combination of glycerides and fatty

acids. The compound usually has 5% fatty acid and

PFAD is subsequently added to satisfy the requirement

of free fatty acid of the oil to be above 20% (this is done

to ensure that oils which are meant for industrial use

are not diverted for edible purposes). Apart from fatty

acid content of 25%, the rest, Respondent claims, is

triglycerides which have ester value as recorded in the

Load Port Analysis (not Chemical Examiner's report].

e. Respondent also claims that its arguments are

buttressed by the practice followed in this regard by

various other soap manufacturers in the country, where

the product in question is classified under Tariff Item

No. 15.

8. In order to determine the appropriate nature of the subject

matter in question, as well as to adjudicate upon

classification of the same under the Act of 1975, we may

refer to the sub-headings involved herein: -

9

1511 Palm Oil and Its Fractions, Whether Or Not Refined, But Not Chemically Modified 1511 10 00 - Crude oil [...] 1511 90 - Other 1511 90 10 --- Refined bleached deodorised palm oil [...] 1511 90 90 --- Other

3823 Industrial Monocarboxylic Fatty Acids; Acid Oils from Refining; Industrial Fatty Alcohols Industrial monocarboxylic fatty acids; acid oils from refining:

3823 11 -- Stearic acid:

-- Palm stearin: 3823 11 11 ---- Crude 3823 11 12 ---- RBD

9. Heading 15.11 covers palm oil and its fractions, whether or

not refined, but not chemically modified. According to the

Harmonized Commodity Description and Coding System (for

short "HSN") Explanatory Notes developed by the World

Customs Organization, Chapter 15 covers vegetable or

animal fats and oils and their fractions when used as

foodstuffs or for technical or industrial purposes. The

10 CESTAT, in deciding the issue of classification, has relied

upon the opinion of the Customs and Central Revenue

Control Laboratory (CRCL) and a Central Board of Excise and

Customs (CBEC) Circular dated 03.12.2002 to fortify its

conclusions. The CRCL opinion advised that heading 15.11

covers palm oil and its fractions, which include the

constituent elements like triglycerides of fatty acids and point

fractions obtained by the process of fractionation. The CBEC

Circular had distinguished between triglycerides of fatty

acids and free fatty acids and went on to state that palm

stearin was basically a triglyceride (ester) of fatty acids.

Based on this ground, and also on the fact that the report of

the Chemical Examiner merely looked at the free fatty acid

content and not the ester values to indicate the presence of

triglycerides, the CESTAT ruled in favour of the respondent.

10. We are of the considered opinion that the import of the CRCL

opinion and the CBEC Circular needs to be understood in

proper perspective. The mere fact that the CRCL opinion and

the CBEC Circular (No. 81/2002 - dated 03.12.2002) affirm

11 the chemical composition of palm stearin cannot make a case

for its classification under Ch. Sub Heading No. 15 11 90 90.

The essential conclusion to be drawn from these two

reference documents is that palm stearin, which is obtained

from the fractionation of palm oil, is comprised mainly of

triglycerides of fatty acids. The question then arises as to

whether it would be appropriate to categorize the

triglycerides present in the oil, viz. Palm Stearin, under

Chapter 15, while bracketing the free carboxylic acids derived

during the refining process under Chapter 38.

11. To answer this question, we may analyse the key aspects of

classification under Chapter 15 - the chapter covers palm oil

and its fractions, which may be refined or unrefined, but the

critical condition is that the product must not be chemically

modified. The argument that palm stearin, a fraction of palm

oil, being comprised primarily of triglycerides of fatty acids

should be classified in Chapter 15 by way of exclusion from

Chapter 38 which covers industrial carboxylic acids (or in

other words, free fatty acids) is compelling, but not decisive.

12 This argument stems from the interpretation favoured in

Rule 3(b) of the General Rules for the interpretation of the

First Schedule to the Customs Tariff Act, 1975, wherein the

essential character of the subject matter determines its

classification.

12. We also find that Rule 1 of the General Rules of

Interpretation specifically state that "the titles of Sections,

Chapters and sub-Chapters are provided for ease of reference

only; for legal purposes, classification shall be determined

according to the terms of the headings and any relative

Section or Chapter Notes and, provided such headings or

Notes do not otherwise require, according to the following

(subsequent) provision:" The headings are of paramount

importance, and as the HSN Explanatory Notes state, the

headings are expected to cover the broad ambit of

classification since it is impossible to cover all the goods

specifically in titles. It is relevant to note that the title of

Chapter 15 reads "Animal or vegetable fats, oils, waxes, etc."

and for goods to fall into Chapter 15, there has to be the

13 element of "edible oil". Non-edible industrial grade oil cannot

by any stretch of imagination be brought within the ambit of

Animal or vegetable "edible oil". However, Rule 3(a) of the

General Rules of Interpretation stipulates that the "heading

which provides the most specific description shall be

preferred to headings providing a more general description".

While it is not practicable to lay down hard and fast rules by

which to determine which heading is more specific, the HSN

Explanatory Notes state that if the goods answer to a

description which more clearly identifies them, that

description is more specific where the identification is less

complete.

13. In the case at hand, the subject matter in question is

specifically identified in Ch. Sub Heading No. 38 23 11 as

"Palm Stearin", and further differentiated as "Crude" and

"RBD" in Sub Heading Nos. 38 23 11 11 and 38 23 11 12

respectively. The Explanatory Notes are categorical in

affirming the accepted practice that Rule 3(b), which the

CESTAT and the Respondent has referred to, shall be used

14 only if classification under Rule 3(a) fails. In this instance, we

are of the considered opinion that the issue of the essential

character of the subject matter in question may be resorted

to only if identification under Rule 3(a) is impossible. Since

the description offered in Chapter 38 certainly attempts to

identify `Palm Stearin' within its ambit, we do not find it

necessary to place reliance on the explanation offered by the

Respondent.

14.In effect, by contending that free carboxylic acids are

classified under Chapter 38, and thus the remaining

component from refining process, viz. palm stearin which

contains triglycerides, should be shunned to Chapter 15, the

Respondent is implying that Chapter 15 is of a residuary

nature. This would go against the very grain of rules of

classification, as is mentioned in the General Rules of

Interpretation, as well as precedents established by this

Court.

15 In Dunlop India Ltd. & Madras Rubber Factory Ltd. v. Union

of India (UOI) and Ors., reported at (1976) 2 SCC 241, this

Court has held: -

"37. [...] When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause. [...]

38. It is not for the Court to determine for itself under Article 136 of the Constitution under which item a particular article falls. It is best left to the authorities entrusted with the subject. But where the very basis of the reason for including the article under a residuary head [...] is foreign to a proper determination of this kind, this Court will be loath to say that it will not interfere."

15.Referring to the essential characteristics of the subject

matter would not only be applying contorted logic in arriving

at the correct classification but would also amount to

ignoring the express identification offered in Chapter 38 of

the First Schedule of the Customs Tariff Act, 1975.

16. We are of the opinion that the CBEC Circular needs to be

thus harmonized with the Eight-digit First Schedule

16 introduced vide the Customs Tariff (Amendment) Ordinance,

2003. As mentioned before, the Circular had been issued

prior to the coming into force of the amended Tariff Schedule

and consequently, did not have the latter as its reference

point. The goods, which were imported between August 2003

and November 2004, would undoubtedly be classified under

the Eight Digit Tariff Schedule and on account of the

aforementioned reasons, the subject matter in question will

be classifiable under Chapter 38 of the same.

17.Having held thus, it is also important to note that the

interpretive powers of this Court are significantly curtailed by

the presence of a specific enumeration in Chapter 38 of the

Tariff Schedule. This Court, while deciding an issue of

classification, can only adjudicate along the lines of settled

norms and precedents drawn from statutory interpretation

and judicial precedents.

18.For the reasons mentioned hereinabove, we are in agreement

with the contentions raised by the appellant and the appeals

are allowed. By this judgment, the order of the CESTAT is set

17 aside, and the decision of the Commissioner (Appeals]

affirming the order of the Assistant Commissioner is

restored. However, we leave the parties to bear their own

costs.

......................................J. [Dr. Mukundakam Sharma]

......................................J. [Anil R. Dave]

New Delhi, December 15, 2010.

18