Commissioner Of Central Excise vs M/S. Madhan Agro Industries (I) Pvt. Ltd

2024 INSC 1002 Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1766 OF 2009

Commissioner of Central Excise, Salem …Appellant

Versus

M/s. Madhan Agro Industries (India) Private Ltd. …Respondent

WITH

CIVIL APPEAL NOS. 6703-6710 OF 2009

JUDGMENT

SANJAY KUMAR, J

1. The issue for consideration in these appeals filed by the

Revenue is whether pure coconut oil, packaged and sold in small

quantities ranging from 5 ml to 2 litres, would be classifiable as ‘Edible

oil’ under Heading 1513, titled ‘Coconut (Copra) oil, etc.’, in Section III-

Chapter 15, or as ‘Hair oil’ under Heading 3305, titled ‘Preparations for Signature Not Verified

use on the hair’, in Section VI-Chapter 33, of the First Schedule to the Digitally signed by Deepak Guglani Date: 2024.12.18 17:39:02 IST Reason: Central Excise Tariff Act, 1985.

1

2. The Bench which heard these appeals earlier was divided in its

opinion on the issue. Justice Ranjan Gogoi, as the learned Judge then

was, was of the view that such coconut oil in small packings was more

appropriately classifiable as edible oil under Heading 1513.

Justice R. Banumathi, on the other hand, concluded that coconut oil,

packed in small sachets/containers suitable for being used as hair oil,

was classifiable as such under Heading 3305. In view of their difference

in opinion, these appeals have been placed before us.

3. Insofar as Civil Appeal No. 1766 of 2009 is concerned, this

issue is raised in relation to the duty payable for the period 01.04.2005

to 31.08.2007. As regards Civil Appeal Nos. 6703-6710 of 2009, it is

contextual to the period 28.02.2005 to 28.02.2007. Taking note of this

aspect and in view of the statement of the learned counsel for the

respondents that the total revenue involved in these cases, excluding

interest and penalties, would be about ₹40 crore, this Court requested

the learned Additional Solicitor General, on 18.01.2023, to obtain

instructions whether the issue would survive for consideration and

whether the Revenue still wanted to press these appeals. On

25.01.2023, the learned Additional Solicitor General averred that the

matters required to be resolved on merits. He produced letter dated

24.01.2023 addressed by the Additional Commissioner, Directorate of

Legal Affairs, Central Board of Indirect Taxes and Customs, Government 2 of India, stating that the amount involved in these appeals, viz., the

excise duty, penalties, redemption fine and interest, would aggregate to

over ₹159 crores. According to him, the issue remained relevant due to

pendency of similar cases at various levels. In its written submissions

also, the Revenue asserted that the issue is not rendered academic as

on date as matters relating to this issue were still pending and show-

cause notices had also been issued in this regard under the GST

regime, which presently holds the field.

4. Before we proceed to consider the issue on the facts obtaining

and on merits, it would be apposite to take note of the statutory milieu

germane thereto, both past and present.

Prior to 28.02.2005, i.e., before amendment of the First Schedule

to the Central Excise Tariff Act, 1985 (hereinafter, ‘the Act of 1985’), vide

the Central Excise Tariff (Amendment) Act, 2004 [Act 5 of 2005],

irrespective of the size of its packaging, coconut oil was treated as a

‘vegetable oil’ exigible to excise duty under Heading 15.03 in Chapter 15

in Section III of the First Schedule to the Act of 1985. Section III, Chapter

15 and the relevant Chapter Notes therein along with Heading 15.03, as

they then stood, are extracted hereunder:

3

SECTION III

ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS;

ANIMAL OR VEGETABLE WAXES

CHAPTER 15

ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS;

ANIMAL OR VEGETABLE WAXES Notes:

1. This Chapter does not cover:

(a) to (d) ……;

(e) Fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or

(f) …..

……

3. In this Chapter, the expression ‘fixed vegetable oils’ means oils which cannot easily be distilled without decomposition, which are not volatile and which cannot be carried off by superheated steam (which decomposes and saponifies them).

Heading 15.03 read thus: -

Sub-

Heading Rate of heading Description of goods No. duty No. Fixed vegetable oils, other than those 15.03 1503.00 of Heading No. 15.02 8%

Coconut oil, a vegetable oil, did not find mention in the oils named

in Heading 15.02 and was, accordingly, classified under Heading 15.03.

4 5. In terms of this classification, the Central Board of Excise and

Customs, Ministry of Finance (Department of Revenue), Government of

India, issued Circular No. 145/56/95-CX dated 31.08.1995, due to

doubts being expressed about coconut oil packed in small containers

and as to whether it would be classifiable as a fixed vegetable oil or as a

cosmetic preparation under the Act of 1985. The Board clarified that

coconut oil, whether pure or refined and whether packed in small or

large containers, merited classification under Heading 15.03 if it satisfied

the criteria of ‘fixed vegetable oil’ in Chapter Note 3 of Chapter 15. It was

further clarified that if the containers bore labels/literature indicating that

it was meant for application on hair, as specified under Note 2 of Chapter

33 and/or if the oil had additives (other than BHA) or had undergone

processes which made it a preparation for use on hair, as mentioned in

Chapter Note 6 of Chapter 33, then the coconut oil merited classification

under Chapter 33.

6. Section VI in the First Schedule to the Act of 1985 deals with

“Products of the Chemical or Allied Industries” and Chapter 33 therein,

referred to in the above Circular, is titled “Essential Oils and Resinoids;

Perfumery, Cosmetic or Toilet Preparations”. Relevant particulars in this

Section, Chapter and heading, as they then stood, i.e., prior to the

amendment in 2005, read as under:

5

SECTION VI

PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES

CHAPTER 33

ESSENTIAL OILS AND RESINOIDS; PERFUMERY, COSMETIC OR TOILET PREPARATIONS Notes:

1. ……

2. Heading Nos. 33.03 to 33.07 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings with labels, literature or other indications that they are for use as cosmetics or toilet preparations or put up in a form clearly specialised to such use and includes products whether or not they contain subsidiary pharmaceutical or antiseptic constituents or are held out as having subsidiary curative or prophylactic value.

3 – 5. ……

6. Heading No. 33.05 applies, inter alia, to the following products; brilliantines, perfumed hair oils, hair lotions, pomades and creams, hair dyes (in whatever form), shampoos, whether or not containing soap or organic surface active agents.

Heading 33.05 in Chapter 33 read as under:

Sub-

Heading Rate of heading Description of goods No. duty No. 33.05 Preparations for use on the hair - Perfumed hair oils 3305.10 16% - Other 3305.91 – Hair fixer 16% 3305.99 – Other 16%

7. While so, the Central Excise Tariff (Amendment) Act, 2004 [Act

5 of 2005] was promulgated by the Parliament and came into effect on

6 28.02.2005. Thereby, in exercise of power under Section 5 of the Act of

1985, the Central Government amended the First Schedule to the Act of

1985. Thereafter, the amended Chapter Notes in Chapter 15 in Section

III, to the extent relevant, read as under:

SECTION III

ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS;

ANIMAL OR VEGETABLE WAXES CHAPTER 15

ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS;

ANIMAL OR VEGETABLE WAXES Notes:

1. This Chapter does not cover:

(a) to (d). ……;

(e) fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or

(f) …....

Supplementary Notes:

1. ……

2. In this Chapter, “fixed vegetable oil” means oils which cannot easily be distilled without decomposition, which are not volatile and which cannot be carried off by superheated steam (which decomposes and saponifies them).

8. Headings in Chapter 15 also underwent a major change.

Earlier, there were only 8 headings, i.e., Heading 15.01 to Heading

7 15.08, but after the amendment, the headings range from 1501 to 1522.

Heading 1513 is relevant for our purposes and it reads as under:

Tariff Item Description of goods Unit Rate of duty 1513 Coconut (copra), palm kernel or babassu oil and fractions thereof, whether or not refined, but not chemically modified

- Coconut (copra) oil and its fractions: 1513 11 00 -- Crude oil kg. 8% 1513 19 00 -- Other kg. 8% - Palm kernel or babassu oil and fractions thereof: 1513 21 -- Crude Oil: 1513 21 10 --- Palm kernel oil kg. 8% 1513 21 20 --- Babassu oil kg. 8% 1513 29 -- Other: 1513 29 10 --- Palm kernel oil and its fractions kg. 8% 1513 29 20 --- Babassu oil and its fractions edible grade kg. 8% 1513 29 30 --- Babassu oil and its fractions, other than kg. 8% edible grade 1513 29 90 --- Other kg. 8%

9. Section VI, pertaining to ‘Products of the Chemical or Allied

Industries’, also underwent a change. Section Note 2 therein now read

thus:

SECTION VI

PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES

Notes:

1. …..

2. Subject to Note 1 above, goods classifiable in heading 3004, 3005, 3006, 3212, 3303, 3304, 3305, 3306, 3307, 3506, 3707 or 3808 by reason of being put up in measured doses or for retail sale are to be classified in

8 those headings and in no other heading of this Schedule.

10. Chapter 33 in Section VI was also amended. Chapter Note 3,

pertaining to Headings 3303 to 3307, now reads as follows:

Chapter 33

ESSENTIAL OILS AND RESINOIDS, PERFUMERY, COSMETIC OR TOILET PREPARATIONS Notes:

1 – 2. ….

3. Headings 3303 to 3307 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use.

11. Post the amendment, Heading 3305 reads as under:

Tariff Item Description of goods Unit Rate of duty 3305 Preparations for use on the hair 3305 10 - Shampoos: kg. 16% 3305 10 10 --- Containing spirit kg. 16% 3305 10 90 --- Other kg. 16%

3305 20 00 - Preparations for permanent waving kg. 16% or straightening 3305 30 00 -- Hair lacquers kg. 16% 3305 - Other :

--- Hair Oil:

3305 90 11 ---- Perfumed kg. 16% 3305 90 19 ---- Other kg. 16% 3305 90 20 --- Brilliantines (spirituous) kg. 16% 3305 90 30 --- Hair cream kg. 16% 3305 90 40 --- Hair dyes (natural, herbal or kg. 16% synthetic) 3305 90 50 --- Hair fixers kg. 16% 3305 90 90 --- Other kg. 16%

9

12. The Act of 1985 also provides rules for interpretation of the First

Schedule thereto. Rule 1 therein provides that classification of goods

shall be determined according to the terms of the headings and any

relative Section or Chapter Notes. However, the admitted position is that

the Harmonized Commodity Description and Coding System

[Harmonized System of Nomenclature (HSN)], brought out by the World

Customs Organization, reflects internationally accepted norms and is

extensively used the world over for resolving disputes relating to tariff

classification. It was adopted in 1983 and enforced in January, 1988. In

Commissioner of Customs and Central Excise, Amritsar (Punjab)

vs. D.L. Steels etc.1, this Court noted that this multipurpose international

product nomenclature harmonizes description, classification and coding

of goods and, while the primary objective of the HSN is to facilitate and

aid trade, it is also for other diverse purposes like internal taxes,

monitoring import tariffs, quota controls, rules of origin, transport

statistics, freight tariffs, compilation of national accounts and economic

research and analysis. It was further noted that, in the present times,

given the widespread adoption of the HSN by over 200 countries, it

would be very difficult to deal with an international trade issue involving

commodities, without adverting to the HSN.

1 2022 SCC OnLine SC 863

10

13. As a matter of fact, the Statement of Objects and Reasons of

the Central Excise Tariff Bill, 1985, the precursor to the Act of 1985,

recorded that a technical study group was set up to conduct a

comprehensive inquiry into the structure of Central Excise Tariffs and the

tariffs that were suggested by this group for 137 items were based on

the internationally accepted nomenclatures in the HSN. Significantly, the

Central Excise Tariff (Amendment) Act, 2004 (Act 5 of 2005), effected

amendments in the First Schedule to the Act of 1985 with the sole

intention of fine-tuning the tariff descriptions therein with the HSN. The

Statement of Objects and Reasons dated 13.07.2004 therein noted that

the First Schedule to the Act of 1985 was based on a six-digit

classification code while the Department of Revenue had developed an

eight-digit classification code based on the HSN for the purposes of

classification of excisable goods in India. It was also noted that the

Directorate General of Foreign Trade and the Directorate General of

Commercial Intelligence of Statistics had already adopted the eight-digit

classification code for the purpose of import trade control policy and for

collection of statistics respectively. Reference was made to demands

from several quarters to adopt the eight-digit classification code for

Central Excise also in order to accommodate the demand from the trade

and industry for adoption of a common commodity classification based

on the internationally adopted HSN to be used for all trade-related 11 transactions to facilitate international and domestic trade. The

amendment Bill, therefore, proposed to expand the six-digit classification

in the First Schedule into an eight-digit classification, so as to remove

difficulties arising from divergence in classification by different

departments and would also facilitate international trade. It was clarified

that the proposed amendments did not make any change in the existing

rates of Central Excise duties and, hence, they did not involve revenue

implication.

14. Notably, in Collector of Central Excise, Shillong vs. Wood

Craft Products Ltd.2, a 3-Judge Bench of this Court held as under:

‘12. It is significant, as expressly stated, in the Statement of Objects and Reasons, that the Central excise tariffs are based on the HSN and the internationally accepted nomenclature was taken into account to “reduce disputes on account of tariff classification”. Accordingly, for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central excise tariff in the Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terms has a different purpose and, therefore, the specific purpose of tariff classification for which the internationally accepted nomenclature in HSN has been adopted, for enacting the Central Excise Tariff Act, 1985, must be preferred, in case of any difference between the meaning of

2 (1995) 3 SCC 454

12 the expression given in the HSN and the meaning of that term given in the Glossary of Terms of the ISI.

---------

18. We are of the view that the Tribunal as well as the High Court fell into the error of overlooking the fact that the structure of the Central excise tariff is based on the internationally accepted nomenclature found in the HSN and, therefore, any dispute relating to tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff Act, 1985 itself. The definition of a term in the ISI Glossary, which has a different purpose, cannot, in case of a conflict, override the clear indication of the meaning of an identical expression in the same context in the HSN. In the HSN, block board is included within the meaning of the expression “similar laminated wood” in the same context of classification of block board. Since the Central Excise Tariff Act, 1985 is enacted on the basis and pattern of the HSN, the same expression used in the Act must, as far as practicable, be construed to have the meaning which is expressly given to it in the HSN when there is no indication in the Indian tariff of a different intention.’

15. Again, in O.K. Play (India) Ltd. vs. Commissioner of Central

Excise, Delhi-III, Gurgaon3, another 3-Judge Bench of this Court

affirmed that the scheme of Central Excise Tariffs is based on the HSN

and the Explanatory Notes appended thereto and, therefore, the HSN

along with its Explanatory Notes provide a safe guide for interpretation of

entries.

3

(2005) 2 SCC 460

13

16. Ergo, in resolving disputes relating to tariff description and

classification, a ready reckoner is the internationally accepted

nomenclature in the HSN. That being said, we must hasten to reiterate

what was pointed out in Wood Craft Products Ltd. (supra). If the

headings/entries in the First Schedule to the Act of 1985 are different

from the headings/entries in the HSN or if they are not fully aligned,

reliance cannot be placed upon the HSN for the purpose of classifying

those goods under the Act of 1985.

17. To sum up, the First Schedule to the Act of 1985 is based on the

HSN, which is an internationally standardized system developed and

maintained by the World Customs Organization for classifying products,

and unless the intention to the contrary is found within the Act of 1985

itself, the HSN and the Explanatory Notes thereto, being the official

interpretation of the Harmonized System at the international level, would

be of binding guidance in understanding and giving effect to the

headings in the First Schedule. It is only when a different intention is

explicitly indicated in the Act of 1985 itself that the HSN would cease to

be of guidance. In effect, the legislative intention to depart from the HSN

must be clear and unambiguous. For instance, in Camlin Ltd. v.

Commissioner of Central Excise, Mumbai4, this Court found that there

was an inconsistency between the Central Excise tariff description and

4 (2008) 9 SCC 82

14 the entry in the HSN and, therefore, reliance upon the HSN entry was

held to be invalid. It was affirmed that it is only when the entry in the

HSN and the tariff description in the First Schedule to the Act of 1985 are

aligned that reliance would be placed upon the HSN for the purpose of

classification of such goods under the correct tariff description.

18. It would, therefore, be relevant to examine the HSN in the

context of the changes made in the First Schedule to the Act of 1985 in

2005 apropos ‘coconut oil’. Section III and Chapter 15 in the HSN are

titled the same as Section III and Chapter 15 in the First Schedule and

read thus:

SECTION III

ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS;

ANIMAL OR VEGETABLE WAXES

CHAPTER 15

ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAGE PRODUCTS; PREPARED EDIBLE FATS;

ANIMAL OR VEGETABLE WAXES

Chapter Notes.

1. - This Chapter does not cover:

(a) to (d) …

(e) Fatty acids, prepared waxes, medicaments, paints, varnishes, soap, perfumery, cosmetic or toilet preparations, sulphonated oils or other goods of Section VI; or

(f) …

15

19. Heading 15.13 in the HSN is identical to Heading 1513 in

Chapter 15 in Section III of the First Schedule, after its amendment, and

reads thus:

15.13 – COCONUT (COPRA), PALM KERNEL OR BABASSU OIL AND FRACTIONS THEREOF, WHETHER OR NOT REFINED, BUT NOT CHEMICALLY MODIFIED.

- Coconut (copra) oil and its fractions: 1513.11 -- Crude oil 1513.19 -- Other - Palm kernel or babassu oil and fractions thereof: 1513.21 -- Crude oil 1513.29 -- Other

(A) COCONUT (COPRA) OIL

This oil is obtained from the dried flesh or copra (as it is called) of the coconut (Cocos nucifera). Fresh coconut flesh can also be used. This non-drying oil is pale yellow or colourless and is solid below 250C. Coconut oil is used in soaps, in cosmetic or toilet preparations, for making lubricating greases, synthetic detergents, laundering or cleaning preparations and as a source of fatty acids, fatty alcohols and methyl esters.

Refined coconut oil is edible and is used for food products such as margarine, dietary supplements.

20. Section VI of the HSN is titled ‘Products of the Chemical or

Allied Industries’ as is Section VI in the First Schedule to the Act of 1985.

Section Note 2 therein reads as follows:

16

SECTION VI

PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES

Section Notes.

1. …

2. - Subject to Note 1 above, goods classifiable in heading 30.04, 30.05, 30.06, 32.12, 33.03, 33.04, 33.05, 33.06, 33.07, 35.06, 37.07 or 38.08 by reason of being put up in measured doses or for retail sale are to be classified in those headings and in no other heading of the Nomenclature.

It is, therefore, identical to the amended Section Note 2 in Section

VI in the First Schedule to the Act of 1985. The General Note under

Section Note 2 in the HSN is of relevance and reads as follows:

Section Note 2 provides that goods (other than those described in headings 28.43 to 28.46) which are covered by heading 30.04, 30.05, 30.06, 32.12, 33.03, 33.04, 33.05, 33.06, 33.07, 35.06, 37.07 or 38.08 by reason of being put up in measured doses or for retail sale, are to be classified in those headings notwithstanding that they could also fall in some other heading of the Nomenclature. For example, sulphur put up for retail sale for therapeutic purposes is classified in heading 30.04 and not in heading 25.03 or 28.02, and dextrin put up for retail sale as a glue is classified in heading 35.06 and not in heading 35.05.

21. Chapter Note No. 3 in Chapter 33 of the HSN, titled Essential

Oils and Resinoids; Perfumery, Cosmetics or Toilet Preparations’ is

identical to the amended Chapter Note 3 in Chapter 33 in Section VI of

the First Schedule, and it reads as follows:

17

CHAPTER 33

ESSENTIAL OILS AND RESINOIDS; PERFUMERY, COSMETIC OR TOILET PREPARATIONS Chapter Notes.

1. …

2. …

3. Headings 33.03 to 33.07 apply, inter alia, to products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use.

22. The General Notes thereunder, to the extent relevant, read

thus:

GENERAL

……….

Headings 33.03 to 33.07 include products, whether or not mixed (other than aqueous distillates and aqueous solutions of essential oils), suitable for use as goods of these headings and put up in packings of a kind sold by retail for such use (see Note 3 to this Chapter). The products of headings 33.03 to 33.07 remain in these headings whether or not they contain subsidiary pharmaceutical or disinfectant constituents, or are held out as having subsidiary therapeutic or prophylactic value (see Note 1(d) to Chapter 30). However, prepared room deodorisers remain classified in heading 33.07 even if they have disinfectant properties of more than a subsidiary nature. Preparations (e.g., varnish) and unmixed products (e.g., unperfumed powdered talc, fuller’s earth, acetone, alum) which are suitable for other uses in 18 addition to those described above are classified in these headings only when they are:

(a) In packings of a kind sold to the consumer and put up with labels, literature or other indications that they are for use as perfumery, cosmetic or toilet preparations, or as room deodorisers; or

(b) Put up in a form clearly specialised to such use (e.g., nail varnish put up in small bottled furnished with the brush required for applying the varnish).

23. Heading 33.05 in the HSN reads as follows:

33.05 – PREPARATIONS FOR USE ON THE HAIR.

3305.10 - Shampoos 3305.20 - Preparations for permanent waving or straightening 3305.30 - Hair lacquers 3305.90 - Other

This heading covers:

(1) to (3) ---

(4) Other hair preparations, such as brilliantines; hair oils, creams (“pomades”) and dressings; hair dyes and bleaches used on the hair; cream-rinses.

24. Comparison of the relevant headings in the First Schedule to

the Act of 1985, both pre-2005 amendment and post-2005 amendment,

with the corresponding headings in the HSN reveals that Chapter Note

1(e) in Chapter 15 in Section III of the First Schedule remained the same

even after the 2005 amendment and was identical to Chapter Note 1(e)

19 in Chapter 15 of Section III of the HSN. This Note clarified that Chapter

15 would not be applicable to fatty acids, etc., including cosmetic or toilet

preparations, which would fall in Section VI. However, the headings in

Chapter 15 in Section III of the First Schedule increased to twenty-two

after the amendment, with effect from 28.02.2005. Heading 15.03 in the

pre-amended Chapter 15 dealt with fixed vegetable oils, excluding those

named in Heading 15.02. Coconut oil, not being one of them, was

classifiable under Heading 15.03 and there was no issue about it, as

was clarified vide Circular dated 31.08.1995. However, post the 2005

amendment, Heading 1513 was created specifically for coconut oil and

the other named oils. This heading dealt with crude coconut oil and other

forms of coconut oil and its fractions. All that was required thereunder

was that the coconut oil should not have been chemically modified.

Significantly, the post-2005 amendment description of coconut oil in

Heading 1513 was a replication of its description in Heading 15.13 in the

HSN.

25. When it comes to Section VI of the First Schedule, pertaining to

‘Products of the Chemical or Allied Industries’, the post-2005 amended

Section Note 2 was more or less identical to Section Note 2 in Section VI

of the HSN. However, Chapter Note 2 of Chapter 33 in Section VI of the

First Schedule, prior to the 2005 amendment, was more detailed than

the corresponding Chapter Note 3 in Chapter 33 in Section VI of the 20 HSN. In the HSN, this Chapter Note stated that Headings 33.03 to 33.07

would apply to products suitable for use as goods of these headings and

put up in packings of a kind sold by retail for such use. However, the

unamended Chapter Note 2 in Chapter 33 of the First Schedule to the

Act of 1985 went further by stating that Headings 33.03 to 33.07 would

apply to products suitable for use as goods of these headings and put up

in packings with labels, literature or other indications that they are for

use as cosmetics or toilet preparations or put up in a form clearly

specialized to such use and includes products, whether or not they

contain subsidiary pharmaceutical or antiseptic constituents, or are held

out as having subsidiary, curative or prophylactic value. There was thus

a difference in the Chapter Note in the First Schedule and the

corresponding Chapter Note in the HSN.

26. Interestingly, the expanded Chapter Note in the First Schedule

was a reflection of what was stated in the General Notes in Chapter 33

of the HSN. Whatever was stated in the expanded Note with regard to

the products being ‘put up in packings with labels, literature or other

indications that they were for use as cosmetic or toilet preparations or

put up in a form clearly specialized to such use and that products,

whether or not they contain subsidiary pharmaceutical or antiseptic

constituents or are held out as having subsidiary, curative or prophylactic

value, would also be included under the headings in question’, is set out 21 in the very same words in the General Notes in Chapter 33 of the HSN.

At that time, full conformity was not there between the First Schedule

and the HSN and that was, perhaps, the reason why what was clarified

in the General Notes in Chapter 33 of the HSN was directly incorporated

in Chapter Note 2 in Chapter 33. Notably, in B.P.L. Pharmaceuticals

Ltd. vs. Collector of Central Excise, Vadodara 5, this Court held that

for a product to be classified as a cosmetic under Chapter 33 in Section

VI of the First Schedule, it must first be a cosmetic, i.e., it should be

suitable for use as ‘goods falling under Headings 3303 to 3308’ and it

must be put in packing with a label or literature or other indication,

showing that it is intended for use as a cosmetic preparation. This

decision was rendered in the year 1995 and was in keeping with the

then Chapter Note 2 in Chapter 33 of the First Schedule.

27. As already noted hereinbefore, Act 5 of 2005 was aimed at

bringing about full conformity between the First Schedule to the Act of

1985 and the HSN and amendments were made accordingly in the First

Schedule. Post the 2005 amendment, Chapter Note 3 in Chapter 33 in

Section VI of the First Schedule was made a verbatim reproduction of

the corresponding Chapter Note 3 in Chapter 33 in the HSN. However,

as it is an admitted position that the Explanatory Notes in the HSN would

also be binding once the entry in the HSN corresponds with the

5 1995 Supp (3) SCC 1

22 description of the goods in the First Schedule to the Act of 1985, the

General Notes in Chapter 33 in the HSN would apply. In consequence,

what was set out earlier in Chapter Note 2 in Chapter 33 of the First

Schedule is now brought in by way of the General Notes in Chapter 33

of the HSN and the removal thereof from the Chapter Note in Chapter 33

of the First Schedule has no significance, except for the fact that it

brought about complete parity between the First Schedule to the Act of

1985 and the HSN.

28. Therefore, it would not be sufficient to merely show that the

products in question are suitable for use as goods falling under

Headings 3303 to 3307 in Chapter 33 of the First Schedule and were put

up in packings of a kind sold by retail for such use, but it must also be

demonstrated that such products, which are suitable for other uses in

addition to those described and classified in Headings 3303 to 3307, are

in packings of a kind sold to consumers and are put up with labels,

literature or other indications that they are for use as perfumery,

cosmetic or toilet preparations or they are put up in a form clearly

specialized to such use, for example - acetone put up in small bottles

along with a brush for applying it, thereby indicating its use as nail polish

remover. In consequence, all the conditions prescribed, as above, have

to be satisfied before products suitable for multiple uses can be treated

as goods classifiable under Headings 3303 to 3307. 23

29. The Central Government was also conscious of the effects of

the amendments made by the Act of 2005. Circular No. 890/10/2009-CX

dated 03.06.2009 was issued by the Central Board of Excise and

Customs, Ministry of Finance, Government of India, in relation to

classification of coconut oil packed in small containers. Thereby, the

Board clarified that when ‘hair oil’ is printed on the container/label, there

can be no dispute that it is classifiable as hair oil under Chapter 33 and

not as edible oil under Chapter 15. The Board noted that Chapter Note 2

in Chapter 33 was modified with effect from 28.02.2005 and the

amendment was carried out to align the Central Excise Tariff with the

internationally accepted HSN. The Board further noted that in view of the

amendment, the clarification issued, vide Circular dated 31.08.1995,

required modification. Having said so, the Board strangely concluded

that coconut oil packed in containers of up to 200 ml may be considered

as generally used as hair oil and that this would bring uniformity in

assessment of such oil sold in small containers, irrespective of whether

its use as hair oil was indicated on the containers. The Circular dated

31.08.1995 was withdrawn and coconut oil in small quantities, up to 200

ml, was directed to be classified under Heading 3305.

30. However, this understanding of the Board was clearly not in

keeping with the General Notes in Chapter 33 of the HSN. Perhaps

realizing the same, the Board then issued Circular No. 1007/14/2015-CX 24 dated 12.10.2015. Therein, it was noted that decisions had been

rendered on the issue by Tribunals/Courts holding that, just because the

retail packs of coconut oil were in sizes of 200 ml or less, the same could

not be presumed to be meant for use as hair oil and the same would not

be classifiable under Heading 3305. The Board, accordingly, withdrew

the Circular dated 03.06.2009 and left the issue of classification of

coconut oil packed in small containers of up to 200 ml to be decided in

the field, taking into consideration judicial pronouncements and the facts

of individual cases.

31. It is also relevant to note that in Heading 1513 in Chapter 15 in

Section III of the First Schedule, there is no mention of the size, volume

or weight of the packaging and coconut oil, whether or not refined, is

classifiable under this heading as long as it is not chemically modified.

On the other hand, whenever and wherever it was intended that the

weight of the product was a factor to be considered for classification, the

headings provided for the same. For instance, Heading 0902 in Chapter

IX, titled ‘Coffee, Tea, Mate and Spices’, in Section II of the First

Schedule deals with Tea, whether or not flavoured, and the sub-

headings thereunder specifically detail the weight of the packaging for

the purpose of classification. Similarly, Heading 1806, pertaining to

‘Chocolate and other food preparations containing cocoa’, in Chapter 18,

titled ‘Cocoa and cocoa preparations’, in Section IV of the First Schedule 25 indicates that as per the weight of the preparation, the classification

under Sub-Heading 1806 20 00 would apply. The absence of weight or

volume specifications in relation to ‘coconut oil’ in Heading 1513 is,

therefore, of significance.

32. Coming to the facts in the appeals on hand, Civil Appeal No.

1766 of 2009 pertains to Madhan Agro Industries (India) Pvt. Ltd.,

Kangeyam, Tamil Nadu, which manufactures and markets coconut oil in

packages ranging from 5 ml to 2 litres, under the name and style of

‘Shanti Coconut Oil’. This oil was sold as ‘edible oil’ during the relevant

period, i.e., 01.04.2005 to 31.08.2007. Show-cause notices dated

16.02.2007, 05.09.2007, 06.09.2007, 19.09.2007 and 28.11.2007 were

issued to the company by the Central Excise authorities proposing to

levy duty treating the coconut oil sold during that period as ‘hair oil’,

classifiable under Heading 3305 in Chapter 33 in Section VI of the First

Schedule, and not under Heading 1513 in Chapter 15 in Section III of

the First Schedule. Interest and penalties were also proposed to be

levied. Order-in-original dated 12.12.2007 was passed by the

Commissioner of Customs and Central Excise, Salem, holding to that

effect and confirming the demand for excise duty treating the coconut oil

sold as ‘hair oil’ and also levying interest thereon along with redemption

fine and penalties. Aggrieved thereby, Madhan Agro Industries (India)

Pvt. Ltd. filed Appeal No. E/111/08/MAS before the Customs Excise and 26 Service Tax Appellate Tribunal, South Zonal Bench, Chennai. By Final

Order No. 638/08 dated 25.06.2008, the Tribunal allowed the appeal in

the light of the amendments brought about in the year 2005 and the

Explanatory Notes in the HSN. The Tribunal held that the coconut oil

sold during the relevant period was classifiable as ‘edible oil’ under

Heading 1513 in Chapter 15 of Section III of the First Schedule to the

Act of 1985.

33. Civil Appeal Nos. 6703 to 6710 of 2009, eight appeals in all,

pertain to the period 28.02.2005 to 28.02.2007. Four of these appeals

relate to M/s. Marico Ltd., Mumbai, which manufactures and markets

pure coconut oil as ‘edible oil’ under the name ‘Parachute’. The

remaining four appeals relate to job-workers of M/s. Marico Ltd., who

receive its coconut oil in bulk and market the same after packing it in

small containers, ranging from 50 ml to 2 litres. The four job-workers are

M/s. Aishwarya Industries, M/s. Moreshwar Industries, M/s. Shivam

Enterprises and M/s. Sowparnika Enterprises, all situated at Pondicherry

(now, Puducherry). Show-cause notices were issued in July, 2007, by

the Central Excise authorities proposing to treat the coconut oil so sold

by them as ‘hair oil’, classifiable under Heading 3305, which led to

Orders-in-original being passed on 27th and 28th of February, 2008,

confirming the demand of excise duty against the four job-workers and

M/s. Marico Ltd., treating the coconut oil as ‘hair oil’ and also levying 27 penalty and interest. However, the appeals filed by M/s. Marico Ltd. and

its four job-workers before the Customs Excise and Service Tax

Appellate Tribunal, South Zonal Bench, Chennai, were allowed, vide

Final Orders No. 1068 to 1075 of 2008 dated 30.07.2008. It is against

these orders passed by the Tribunal that the Revenue is before us by

way of these appeals filed under Section 35L(b) of the Central Excise

Act, 1944.

34. Though much stress has been laid by the Revenue upon the

fact that pure coconut oil is suitable for use as ‘hair oil’ and is, in fact,

used as such by many people, this contention does not further the case

of the Revenue, given the clarity of the headings in the First Schedule to

the Act of 1985 which are in perfect alignment with the corresponding

entries in the HSN. Once the entries are aligned and reflect the same

position, the General/Explanatory Notes in the HSN would be applicable

and cannot be ignored while classifying goods as per the headings in the

First Schedule. This position is well settled, as pointed out by this Court

in Wood Craft Products Limited (supra).

35. We may now deal with the next point – the ‘common parlance

test’. A well settled principle of interpretation of taxing statutes is that

words therein must be construed in consonance with their commonly

accepted meaning in the trade and their popular meaning. When a word

is not explicitly defined or there is ambiguity as to its meaning, it must be 28 interpreted for the purpose of classification in the popular sense, which is

the sense attributed to it by those who are conversant with the subject

matter that the statute is dealing with. This principle, known as the

‘common parlance test’, serves as good fiscal policy so as to not put

people in doubt or quandary about their tax liability. The test is an

extension of the general principle of interpretation of statutes for

deciphering the mind of the law-maker but it is subject to certain

exceptions - for example, when there is an artificial definition or special

meaning attached to the word in the statute itself, whereby the ordinary

sense approach would not be applicable [See D.L. Steels (supra)].

36. However, we find that the reliance presently placed by the

Revenue upon the ‘common parlance test’ is utterly misplaced. The said

test would have to be understood in the proper perspective and cannot

be brought into play when there is no ambiguity and there is no

difference in the clear heading in the First Schedule and the

corresponding entry in the HSN. In Commissioner of Central Excise,

New Delhi vs. Connaught Plaza Restaurant Pvt. Ltd., New Delhi 6,

this Court observed that classification of excisable goods shall be

determined according to the headings and corresponding Chapter or

Section Notes but where these are not clearly determinative of the

proper classification, the same shall be effected according to the general

6 (2012) 13 SCC 639

29 rules of interpretation and according to the common parlance

understanding of such goods. It was pointed out that fiscal statutes are

framed at a point of time but are meant to apply for significant periods of

time thereafter and they cannot, therefore, be expected to keep up with

nuances and niceties. It was held that the terms of the statutes must be

adapted to developments of contemporary times rather than being held

entirely inapplicable and it is for this precise reason that Courts apply the

‘common parlance test’ every time parties attempt to differentiate their

products on the basis of subtle and finer characteristics.

37. Earlier, in Alpine Industries vs. Collector of Central Excise,

New Delhi7, this Court observed that, in interpreting tariff entries in

taxation statues like the Excise Act, where the primary object is to raise

revenue and, for that purpose, various products are differently classified,

the entries must not be understood in their scientific/technical sense and

must be construed as per their popular meaning, i.e., the meaning that

would be attached to them by those using the product. However, as

already noted above, this exercise would be undertaken when a product

is not clearly defined or specifically dealt with in the headings in the First

Schedule to the Act of 1985 and the corresponding HSN entries.

38. Long prior thereto, in Indo International Industries vs.

Commissioner of Sales Tax, Uttar Pradesh 8, this Court held that any 7 (2003) 3 SCC 111 8 (1981) 2 SCC 528

30 term or expression defined in a taxing statute must be understood in the

light of the definitions given in the Act, in the absence of which the

meaning of the term as understood in common parlance or commercial

parlance must be adopted.

39. It is also to be noted that Rule 1 of the General Rules of

Interpretation in the First Schedule to the Act of 1985 must be applied in

the first instance and only if classification cannot be determined

thereunder, recourse would have to be taken to the other Rules specified

in the General Rules. Once the determination can be made under Rule

1, the question of applying other tests relatable to the other rules would

not arise. In consequence, when there is no ambiguity or confusion

about the classification of a particular product in the light of the clear

heading in the First Schedule to the Act of 1985 and the corresponding

entry in the HSN, resort to tools such as the ‘common parlance test’

would not arise.

40. Presently, it is an admitted fact that pure coconut oil is suitable

for multiple uses. That notwithstanding, when a specific heading was

created in Chapter 15, viz., Heading 1513, for ‘coconut oil’ along with

other oils, it would not stand excluded therefrom so as to be classified as

a cosmetic product under Heading 3305 in Chapter 33 in Section VI of

the First Schedule, unless all the conditions required therefor are

satisfied. As already noted, such conditions formed part of Chapter Note 31 2 in Chapter VI of the First Schedule itself, prior to the 2005 amendment,

but after that amendment, whereby the said Chapter Note was brought

into conformity with Chapter Note 3 in Chapter 33 of the HSN, the

Explanatory/General Notes in the HSN in relation to the said Chapter

Note would have to be fully satisfied. In effect, not only must the coconut

oil be suitable for use as ‘hair oil’, but it must also be put in packaging

sold in retail for such particular use, i.e., as hair oil. The phrase ‘suitable

for such use’ under Headings 3303 to 3307 in Chapter Note 3 would

have to be read in conjunction with the Explanatory Notes thereto, which

categorically state that such packaging must be accompanied with

labels, literature or other indications that the product is intended for use

as a cosmetic or toilet preparation or it must be put in a form clearly

specialized to such use - as in the case of acetone marketed in small

bottles, along with an applicator brush, indicating its use as nail polish

remover.

41. The mere fact that coconut oil is also capable of being put to

use as a cosmetic or toilet preparation, by itself, would not be sufficient

to exclude such oil from the ambit of ‘coconut oil’ and subject it to

classification as ‘hair oil’ as ‘coconut oil’ is name-specific. It is not in

dispute that the packaging of the coconut oil in the cases on hand clearly

demonstrated that it was being sold as ‘edible oil’ and all parameters that

had to be met in that regard were duly complied with. Edible coconut oil 32 requires to be packed in containers using edible grade plastic. The

coconut oil so sold must satisfy the requirements of the Food Safety and

Standards Act, 2006, and be packaged in conformity with the Edible Oils

Packaging (Regulations) Order, 1998. Further, edible oil would have a

shorter shelf life than oil meant for cosmetic purposes and must meet the

Indian Standards Specifications prescribed for edible oil which are

different from the standards for hair oil. Significantly, the Standards of

Weights and Measures (Packaged Commodities) Rules, 1977, provide

that ‘edible oil’ can be packed in specified sizes of 50 ml, 100 ml, 200 ml,

500 ml, 1 litre or 2 litres.

42. Shanti Coconut Oil, produced and marketed by Madhan Agro

Industries (India) Pvt. Ltd., bore ‘Agmark’ certification from the

concerned authorities to qualify as a Grade-I coconut oil, fit for human

consumption. The fact that such edible coconut oil was sold in smaller

containers would not, by itself, be indicative of it being packaging of a

kind fit for use as ‘hair oil’. One may choose to buy one’s cooking oil in

small quantities, be it for economic or for health reasons or due to the

inclination to use fresh oil in one’s food preparation, and the smaller size

of the packaging of such oil cannot be taken to mean that it is to be used

as ‘hair oil’ without any pointer to that effect, be it by way of a label or

literature or by any other indication that it is to be used as ‘hair oil’.

Notably, the Board’s Circulars dated 03.06.2009 and 12.10.2015 were 33 issued only because of this doubt being raised in the field that edible oil

can also be purchased in small quantities.

43. Small-sized containers are a feature common to both ‘edible

oils’ as well as ‘hair oils’. Therefore, there must be something more to

distinguish between them for classification of such oil, be it under

Chapter 15 or under Chapter 33, other than the size of the packing.

Stress was also laid by the Revenue on the fact that Shanti Coconut Oil

was marketed in containers depicting a popular film actress with flowing

tresses and it was contended that in the light of such marketing, the oil

sold was obviously meant for use as ‘hair oil’ and not as ‘edible oil’.

However, such an advertisement is not conclusive, in itself, to classify

the oil as ‘hair oil’. Reference may be made to Meghdoot Gramodyog

Sewa Sansthan, U.P. vs. Commissioner of Central Excise,

Lucknow9, wherein this Court held that the mere fact that the product in

that case was sold in a packing depicting a lady with flowing hair was not

determinative of such product being intended as a preparation for use on

the hair. This Court considered the composition and curative properties

of the product to ultimately conclude that the product was classifiable as

a ‘medicament’ under Heading 3003 in Chapter 30 of the First Schedule.

44. Further, registration of the trademark ‘Parachute’ by M/s. Marico

Ltd. for ‘hair oil’ is not sufficient to classify the coconut oil sold by it, in its

9 (2005) 4 SCC 15

34 entirety, as hair oil. As rightly noted in the impugned final orders,

‘Parachute’ trademark was also registered by the company for Edible Oil

(Class 29), Coffee/Tea (Class 30), Pharmaceuticals (Class 5) and

Non-Alcoholic Beverages (Class 32). Therefore, the trademark, by itself,

does not indicate that every product sold thereunder is the same and

meant only for one use. Significantly, M/s. Marico Ltd. also markets

various coconut-based hair oils, containing ingredients such as

perfumes, etc., which are manufactured under a separate license

obtained under the Drugs and Cosmetics Act, 1940, and classified as

preparations for use on the hair, thereby falling under Heading 3305.

45. The argument of the Revenue that pure coconut oil should

invariably be classified under Heading 3305 is, therefore, liable to be

rejected. This argument completely loses sight of the

General/Explanatory Notes in relation to Chapter Note 3 in Chapter 33 of

the HSN and the fact that the said Chapter Note 3 is identical to Chapter

Note 3 in Chapter 33 of the First Schedule to the Act of 1985. It is for the

Revenue to take a stand by way of legislative action in the event it

chooses to treat pure coconut oil marketed in small quantities differently

from ‘Coconut oil’ in Heading 1513. Having failed to do so and given the

fact that the relevant headings in the First Schedule to the Act of 1985

are corresponding with the entries in the HSN, there can be no

distinction drawn between the two and the Explanatory Notes in the HSN 35 would have to be given due effect while interpreting Heading 1513 in the

First Schedule to the Act of 1985. In consequence, the coconut oil

marketed and sold by the respondents during the relevant period must

necessarily be classified as edible oil.

46. Pertinently, in Dunlop India Ltd. vs. Union of India and

others10, a 3-Judge Bench of this Court pointed out that it is good fiscal

policy to not put people in doubt and quandary about their liability to pay

duty and that when an article has, by all standards, a reasonable claim

to be classified under an enumerated item in the Tariff Schedule, it would

be against the very principle of classification to deny it that parentage

and consign it to an orphanage of the residuary clause. Applying that

standard, once a specific heading was created for coconut oil in the First

Schedule, something more would be required before such oil can be

excluded therefrom and classified under the general heading pertaining

to toilet and cosmetic preparations. Equally important is certainty and

consistency in the stand of the Revenue.

47. Reliance placed by the Revenue on State of Haryana vs.

Dalmia Dadri Cement Ltd.11, in support of its contention that the

expression ‘for use’ can only mean ‘intended for use’ and not ‘actual

use’, is misplaced as that decision turned upon the language of Section

5(2)(a)(iv) of the Punjab General Sales Tax Act, 1948, and the said 10 (1976) 2 SCC 241 11 AIR 1988 SC 342

36 interpretation cannot be applied mutatis mutandis in the present case, as

the wording of the provisions presently under consideration and the rules

of interpretation applicable thereto are entirely different. The argument of

the Revenue that the fact that edible coconut oil marketed by the

respondents could also be used as hair oil is therefore not sufficient to

classify the same under Heading 3305 with nothing further. As pointed

out by this Court in HPL Chemicals Ltd. vs. Commissioner of Central

Excise, Chandigarh12, classification of goods is a matter relating to

chargeability and the burden of proof is squarely upon the Revenue if it

intends to classify the goods under a particular heading or sub-heading

different from that claimed by the assesses. In such an event, the

Revenue had to adduce proper evidence and discharge that burden of

proof in the context of the classification entries, which it failed to do

satisfactorily in the cases on hand.

48. On the above analysis, we are of the opinion that pure coconut

oil sold in small quantities as ‘edible oil’ would be classifiable under

Heading 1513 in Section III-Chapter 15 of the First Schedule to the

Central Excise Tariff Act, 1985, unless the packaging thereof satisfies all

the requirements set out in Chapter Note 3 in Section VI-Chapter 33 of

the First Schedule to the Central Excise Tariff Act, 1985, read with the

General/Explanatory Notes under the corresponding Chapter Note 3 in

12 (2006) 5 SCC 208

37 Chapter 33 of the Harmonized System of Nomenclature, whereupon it

would be classifiable as ‘hair oil’ under Heading 3305 in Section VI-

Chapter 33 thereof.

49. The impugned orders, holding to that effect, therefore do not

brook interference on any count. The appeals are bereft of merit and are

accordingly dismissed.

Parties shall bear their own costs.

………………………..,CJI (SANJIV KHANNA)

………………………....,J (SANJAY KUMAR)

………………………....,J (R. MAHADEVAN)

December 18, 2024;

New Delhi.

38