Customs Tariff Act and HSN Classification – Rules and Structure

The Customs Tariff Act, 1975 is a key legislation in India that governs the imposition of customs duties on goods imported into or exported from the country. It provides a comprehensive classification system for goods based on the internationally recognized Harmonized System of Nomenclature (HSN), dividing them into 98 chapters and assigning specific 8-digit tariff codes. The Act comprises two schedules—Schedule I specifies the rates of import duties, while Schedule II outlines export duties on select items. Accurate classification of goods under the appropriate heading is essential to determine the applicable rate of duty.

Table of Contents

1. Customs Tariff Act (CTA)
2. Overview of Customs Tariff
3. Rules for Interpretation of Tariff
4. Application of GIR in Tariff

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1. Customs Tariff Act (CTA)

Once the liability of payment of customs duty is established, the next question is what is the amount of duty payable. The two step process is

(a) Correctly classify the goods, to find out rate of customs duty

(b) Find its assessable value to which the rate of duty is to be applied for calculating amount of duty payable.

The rate of duty is found out by classifying the product in its appropriate heading under Customs Tariff.

The Customs Tariff Act classifies all the goods under 97 chapters and specific code is assigned to each item. There are over 1,000 tariff headings and 2,000 sub-headings. This classification forms basis for classifying the goods under particular Chapter head and Sub-head to prescribe customs duty to be charged on that particular product.

Classification of a product is to be done by consignor only – Classification of a product is to be done by consignor only. Classification cannot be changed or questioned at consignee’s end – Steel Authority of India Ltd. v. CCE (2022) 382 ELT 10 (SC).

Classification is responsibility of supplier, purchaser is not obliged to indicate classification – Classification is the responsibility of supplier, purchaser is not obliged to indicate classification of goods he is purchasing – UOI v. Bharat Forge (2022) 93 GST 731 = 141 taxmann.com 731 = 64 GSTL 3 (SC).

Customs Tariff Act is used for GST – Customs Tariff Act is being used for classification of goods for purpose of levy of GST w.e.f. 1-7-2017. There is no separate tariff for purpose of GST.

Linking of Tariff Act and Main Act – Linking has been made in Customs, vide section 2 of Customs Tariff Act and section 12 of Customs Act.

1.1 Background of the Tariff

As international trade increased, need was felt to have universal standard system of classification of goods to facilitate trade flow and analysis of trade statistics. Hence, Harmonised Commodity Description and Coding System (Generally referred to as ‘Harmonised System’ or simply ‘HS’) was developed by World Customs Organisation (WCO) [www.wcoomd.org].

This is an International Nomenclature standard adopted by about 200 Countries to ensure uniformity in classification in International Trade.

HSN is a multi-purpose international product nomenclature developed by WCO (World Customs Organisation). It comprises about 5,000 commodity groups, each identified by a six digit code, arranged in a legal and logical structure. The system is used by more than 200 countries. Over 98% of the merchandise in international trade is classified in terms of HS – WCO website – quoted in Hitachi Home and Life Solutions v. CC (2012) 285 ELT 504 (CESTAT), where it was held that HSN automatically classifies the trade parlance test.

Harmonised System (HS) provides commodity/product codes and description upto 4-digit (Heading) and 6-digit (Sub-Heading) levels only and member countries of WCO are allowed to extend the codes upto any level subject to the condition that nothing changes at the 4-digit or 6-digit levels. India has developed 8-digit level classification to indicate specific statistical codes for indigenous products and also to monitor the trade volumes – Chapter 4 Para 2.2 of CBIC’s Customs Manual, 2023.

HS is amended periodically in a cycle of 4/6 years, taking note of the trade flow, technological progress etc. Member countries including India are under obligation to amend the Tariff Schedules in alignment with HS – Chapter 4 Para 2.3 of CBIC’s Customs Manual, 2023. (Latest changes have been brought into effect on 1-1-2022).

For purpose of uniform interpretation of HS, the WCO has published detailed Explanatory Notes to various headings/sub-headings. WCO in its various committees discusses classification of individual products and gives classification opinion on them. Such information, though not binding in nature, provides a useful guideline for classifying goods – Chapter 4 Para 2.4 of CBIC’s Customs Manual, 2023.

Customs Tariff uses 8 digit nomenclature. ITC (HS) published by DGFT has 10 digit classification.

Permissibility of import and export is governed by the DGFT’s ITC(HS) [Import Trade Control (Harmonised System)] classification of import and export goods, published by DGFT. The nomenclature arranges goods as in the HS to regulate Foreign Trade Policy and collating the statistical analysis of imports and exports of the country – Chapter 4 Para 2.11 of CBIC’s Customs Manual, 2023.

Case law in respect of relevance of HSN in classification of a product is discussed in next chapter.

1.2 Tariff Contains Schedules

Customs Tariff Act has two Schedules – first schedule is in respect of Import Tariff, which we have discussed above. Second Schedule is ‘Export Tariff’, showing export duties leviable. Since most of exports are exempt from export duty, the schedule contains only 50 items (as on 1-1-2022), out of which many are exempt by way of a notification No. 27/2011-Cus dated 1-3-2011 as amended.

1.3 Sections, Chapters and Headings in Tariff

There are 21 sections in case of Customs Tariff.

Methodology of classification of goods – In the Tariff Schedule, commodities/products are arranged in a fixed pattern with the duty rates specified against each of them. The pattern of arrangement of goods in the Tariff is in increasing degree of manufacture of commodities/products in the sequence of natural products, raw materials; semi-finished goods and fully finished goods/article/machinery, etc. The Indian Customs Tariff has 21 Sections and 98 Chapters. Section is a group consisting of a number of Chapters which codify a particular class of goods. The Section notes explain the scope of chapters/headings, etc. The Chapters consist of chapter notes, brief description of commodities arranged at four digit, six digit and eight digit levels. Every four-digit code is called “heading” and every six digit code is called a “sub-heading” and 8 digit code is called a “Tariff Item” – Chapter 4 Para 2.1 of CBI&C’s Customs Manual, 2023.

Sections in Customs Tariff – A ‘section’ is a grouping of a number of Chapters which codify a particular class of goods. Each of the sections is related to a broader class of goods e.g. Section I is ‘Animal Products’, Section VII is ‘Plastics and Articles thereof’, Section XI is ‘Textile and Textile Articles’, Section XVII is ‘Vehicles, Aircrafts, Vessels and associated transport equipment’, etc. Section Notes are given at the beginning of each Section, which govern entries in that Section. These notes are applicable to all Chapters in that section.

Section divided in Chapters and chapters in sub-chapters – Each of the sections is divided into various Chapters and each Chapter contains goods of one class. For example, Section XI relates to Textile and Textile Articles and within that Section, Chapter 50 is Silk, Chapter 51 is Wool, Chapter 52 is Cotton, Chapter 53 is other vegetable textile fabrics, Chapter 61 is Articles of Apparel and so on.

There are 98 chapters out of which Chapter 77 is blank, which is kept reserved for future use.

Some Chapters are divided into sub-chapters e.g. Chapter 72 (Iron and Steel) is divided into I:

I – Primary Materials

II – Iron and Non-Alloy Steel

III – Stainless Steel and

IV – Other Alloy Steel.

Chapter Notes – Chapter Notes are given at the beginning of each Chapter, which govern entries in that Chapter.

Headings and sub-headings within the Chapter – Each chapter and sub-chapter is further divided into various headings depending on different types of goods belonging to same class of products.

For instance, Chapter 50 relating to Silk is further divided into 5 headings. 5001 relates to Silk worm cocoons, 5002 relates to raw silk, 50.03 relates to silk waste etc. The headings are sometimes divided into further subheadings. For example 5003 10 means ‘silk waste not carded or combed’, while 5003 90 means ‘other silk waste’. These are preceded by single dash. 5003 90 is further classified as 5003 90 10 (Mulberry silk waste), 5003 90 20 (Tussar waste) and 5003 90 90 (Other).

Grouping of goods – In the Tariff Schedule, commodities/products are arranged in a fixed pattern with the duty rates specified against each of them. The pattern of arrangement of goods in the Tariff is in increasing degree of manufacture of commodities/products in the sequence of natural products, raw materials, semi-finished goods and fully manufactured goods/article/machinery etc. – Chapter 4 Para 2.1  of CBI&C’s Customs Manual, 2023.

In Moneeto Plasti-Fab P Ltd. v. CCE 2006 (199) ELT 163 (CESTAT), it was held that Tariff based on HSN enumerates articles in order of progression of manufacturing process, a product arising out of further manufacturing generally gets listed under a later heading.

Eight Digit classification – All goods are classified using 4 digit system. These are called ‘headings’. Further 2 digits are added for sub-classification, which are termed as ‘sub-headings’. Further 2 digits are added for sub-sub-classification, which is termed as ‘tariff item’. Rate of duty is indicated against each ‘tariff item’ and not against heading or sub-heading.

The same classification will be used by DGFT (Director General of Foreign Trade) and DGCIS (Director General of Commercial Intelligence & Statistics). The additional 2 digits are to facilitate and provide flexibility in international trade. The common classification will reduce transaction costs and reduce diversion of classification among different agencies.

1.4 Coding of Dashes

Single dash (-) at the beginning of description of any article in Tariff indicates a group, while two dashes (- -) at the beginning indicate a sub-group. The single dash (-) indicates primary classification of article covered by the heading, while double dash (- -) is the sub-classification of the preceding article which has single dash (-) i.e. it is a sub-classification of primary classification.

Triple dash (- – -) and quadruple dash (- – – -) indicate sub-sub-classification of immediately preceding description of article, which has ‘-‘ or ‘- -‘. In other words, a single dash or double dash may be followed by either three dashes or four dashes. Both three dashes or four dashes are used to indicate 8 digit classification i.e. ‘tariff item’.

Goods to fall in tariff entry with double dash (- -) have to satisfy specification of single dash (-) preceding them – Schenectady Herdillia Ltd. v. CCE (2007) 208 ELT 110 (CESTAT).

Following hypothetical example illustrating classification of ‘Ready Made Garments’ will make the distinction clear [Note that this is not actual extract from the tariff]

A                                                                           Ready Made Garments

AA                                                             –          Men’s wear

AA-1                                                          – –       Suits

AA-2                                                          – –       Shirts

AA-3                                                          – –       Other

AB                                                             –          Ladies wear

AB-1                                                          – –       Salwar

AB-2                                                          – –       Skirts

AB-3                                                          – –       Other

AC                                                             –          Other

The ‘ready made garments’ are classified as:

(a) Men’s wear

(b) Ladies wear

(c) Other.

The men’s wear and ladies wear are further sub-classified. Thus, ‘Other’ in AA-3 means men’s wear other than suits and shirts, while ‘other’ in AC means all ready-made garments excluding Men’s wear and Ladies wear.

Rule 6 of Interpretation Rules of Schedule to Tariff state that Classification of goods in sub-headings shall be determined in terms of those sub-headings. Only sub-headings at the same level are comparable e.g. in aforesaid example, AB-1 and AB-3 can be compared, but AB-3 cannot be compared with (say) AA-3.

1.5 Searching HSN Code on CBIC website

Search facility is available on website. The search can be on basis of technical description as well as description through trade or commercial description. It is available at pre-login and post-login. Go to Home> Services> User Services > Search HSN Code. The search is based on Artificial Intelligence and Machine language linked with the e-invoice declaration database – https://www.gst.gov.in dated 6-1-2022.

1.6 Import Policy Aligned with Customs Tariff and HSN

Import Policy has been specified item-wise, termed as ITC (HS) 2022 [Import Trade Classification (Harmonised System) of Import Items, 2022].

The ITC (HS) 2022 is aligned with Customs Tariff, which has been amended w.e.f. 1-1-2022.

ITC (HS) 2022 has been notified vide DGFT Notification No. 54/2015-20 dated 9-2-2022. Updated ITC (HS) 2022 is available on website of DGST (https://dgft.gov.in).

2. Overview of Customs Tariff

Following is broad grouping of goods in Tariff:

• Animal Products (Section I – Chapters 1 to 6)
• Vegetable Products (Section II – Chapters 6 to 14)
• Animal or vegetable fats and oils (Section III – Chapter 15)
• Prepared foodstuffs, beverages (Section IV – Chapters 16 to 24)
• Mineral Products (Section V – Chapters 25 to 27)
• Products of Chemicals and allied industries (Section VI – Chapters 28 to 38)
• Plastics and Rubber and their articles (Section VII – Chapters 39 and 40)
• Raw hides and Skins, Leather and articles (Section VIII – Chapters 41 to 43)
• Wood, cork, straw and their articles (Section IX – Chapters 44 and 46)
• Pulp of wood, Paper, Paperboard and articles (Section X – Chapters 47 to 49)
• Textile and Textile Products (Section XI – Chapters 50 to 63)
• Footwear, Headgear, Umbrellas, Articles of human hair (Section XII – Chapters 64 to 67).
• Articles of stone, plaster, ceramic, mica, glass (Section XIII – Chapters 68 to 70)
• Pearls, precious metals (Section XIV – Chapter 71)
• Base metals and articles of base metal (Iron, Steel, Copper, Nickel, Zinc, Tin etc.). (Section XV – Chapters 72 to 83)
• Machinery and mechanical appliances, electrical equipments, television etc. (Section XVI – Chapters 84 and 85)
• Vehicles, Aircrafts, vessels and associated transport equipment (Section XVII – Chapters 86 to 89)
• Optical, photographic, medical, surgical instruments, clocks, musical instruments (Section XVIII – Chapters 90 to 92)
• Arms and Ammunition (Section XIX – Chapter 93)
• Misc. Manufactured articles like Furniture, toys etc. (Section XX – Chapters 94 to 96)
• Works of Art, collectors’ pieces and antiques (Section XXI – Chapters 97 to 99).

Special provisions in Customs Tariff – Though most of goods are classified as per above system, special classification is used in certain cases – * All goods imported under ‘project imports’ – 98.01 * All laboratory chemicals in packs less than 500 gms or 500 ml – 98.02 * All baggage of passengers or member of crew – 98.03 * Goods for personal use imported by post or air – 98.04 * Stores on board of vessel or aircraft – 98.05. Thus, those goods will be classified in these headings, irrespective of actual classification as per the Customs Tariff.

Columns in CTA – In Customs Tariff, there are five columns:

(1) Tariff Item

(2) Description of goods

(3) Unit

(4) Standard Rate of Duty

(5) Rate of duty for Preferential Area

Government charges lower customs duty in case of import of some specified goods from Myanmar, Bangladesh, Mauritius, Seychelles, Nepal, Tonga etc. If preferential rate is not specified for a particular product, the standard rate of customs duty will apply.

Preferential Area Rates – Customs Tariff has extra column giving Rate of duty for Preferential area. If no rate is mentioned in the column ‘Rate for Preferential Area’, then Standard rate is applicable.

Rules have been framed to determine origin of products.

Power to Central Government to amend schedule of Customs Tariff – Section 11A of Customs Tariff Act empowers Central Government to amend the First Schedule to Customs Tariff, by issue of a notification. Such amendment shall not alter the rate of duty of customs leviable on such goods.

Such amendment may become necessary to align the customs tariff with HSN or make some corrections which will not affect the rate of customs duty.

2.1 Standard Unit of Quantity

Third column of tariff is ‘Unit’ which is unit of measure. The unit of measure is indicated by abbreviations. Some abbreviations are as follows – cc – Cubic Centimetre, cm – Centimeter(s), g – gram(s), g/cm³ – Gram per cubic centimeter, l – litre, m – metre, mt – Metric Tonne, t – Tonne, Tu – Thousand in number, u – Number, Vol. – Volume, W – Watt.

Standard unit compulsory in case of customs, but can be waived – The standard unit of quantity is specified for each tariff item to facilitate the collection, comparison and analysis of trade statistics [Additional Note No. 3 to CETA and in Customs Tariff Act]. These should be used in customs documents – CBI&C letter F. VAL/217/2001 dated 9-11-2005 – 193 ELT T4 [In many cases, these standard units are not used by trade. In some cases, these are impractical e.g. lubricating oil in Kgs not liters, Adhesive tape and plastic articles in Kgs not Nos. Even furniture and toys are to be indicated in Kgs and not Numbers!].

Indeed this difficulty has been noticed and it has been clarified that where statutory UQC (Unit Quantity Code) is at complete variance with established standard trade practices and is unreasonable/illogical to implement, requirement of UQC can be waived by Group AC/DC (in case of non-RMS bills of entry and AC/DC (docks) in case of RMS facilitated Bills of Entry – CC (Imports), JNCH, Nhava Sheva PN 37/2013 dated November, 2013 [298 ELT T35].

3. Rules for Interpretation of Tariff

Rules for Interpretation of Schedule to Tariff are given in the Tariff itself. These are termed as ‘General Interpretative Rules’ (GIR).

Abbreviation ‘%’ in Column 4 indicates that duty is charged ‘ad valorem’ on the value of goods as calculated in section 12 of Customs Act.

In CCE v. Wood Polymers Ltd. 1998 AIR SCW 372 = 1998 (97) ELT 193 (SC), it was held that classification should be done as per rule of interpretation contained in the tariff and not as per trade parlance and commercial understanding. [This is so if rules of interpretation give correct and conclusive answer. Otherwise, one has to look to trade parlance].

In O K Play (India) v. CCE 2005 (180) ELT 300 (SC 3 member bench), it was held as follows:

(1) No one single universal test can be applied for correct classification. There cannot be static parameter for correct classification

(2) HSN along with explanatory notes provide a safe guide for interpretation of entry

(3) Equal importance is required to be given to Rules of Interpretation of Tariff

(4) Functional utility, design, shape and predominant usage have also got to be taken into account while determining classification of an item

(5) The aforesaid aids are more important than the names used in trade or common parlance in the matter of correct classification – quoted with approval in DCL Polyester v. CCE 2005 (181) ELT 190 (SC).

Rules if classification as per tariff and chapter/section notes not possible – Rule 1 of Rules for interpretation of the Schedule states that 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 other provisions of the rules. It has been held that these rules are required to be applied only if classification is not possible on basis of tariff entry read with Chapter notes and section notes. * Track Parts Corporation v. CC – 1992 (57) ELT 98 (CEGAT) * L M Van Moppes Diamond Tools India Ltd. v. CC 1986 (24) ELT 623 (CEGAT) * Hindustan Gas v. CC 1990(49) ELT 548 (CEGAT) * Netlon India v. CCE 2000(121) ELT 675 (CEGAT).

Rule 1 gives primacy to the section and chapter notes along with terms of the headings. They should be first applied. If no clear picture emerges, then only one can resort to subsequent rules – CCE v. Simplex Mills Co. Ltd. 2005 (181) ELT 345 = 140 STC 125 (SC 3 member bench) * Salora International Ltd. v. CCE (2012) 9 SCC 662 = 284 ELT 3 (SC).

Chapter note prevails over heading of chapter – Monita Containers v. CCE (2007) 213 ELT 262 (CESTAT).

In International Auto Suppliers v. CC, Bombay – 1994 (70) ELT 645 (CEGAT – 3 member bench order), it has been held that when appropriate heading is available in tariff, question of referring to interpretative rules does not arise. – same view in CCE v. Crescent Metal 1999(111) ELT 841 (CEGAT) * CCE v. HPL Chemicals 2001(127) ELT 69 (CEGAT) * Bharat Bijlee Ltd. v. CCE (2014) 309 ELT 129 (CESTAT).

Classification of coconut oil packed in small bottles, whether edible oil or hair oil – Coconut Oil packed in small quantities shall be ‘edible oil’ classifiable under heading 1513. However, if the packing satisfies all requirements set up in Chapter Note 3 in section VI-Chapter 33 of Customs Tariff, it will be classifiable as hair oil – CCE v. Madhan Agro Industries (2024) 25 Centax 269 = 391 ELT 145 (SC 3 member bench).

3.1 Relevance of Rules in Interpretation of Other Rules, Notifications

Steel Authority of India Ltd. v. CCE 1997(91) ELT 529 (SC). Chapter notes of chapter of Tariff referred to in the notification have to be read as part and parcel of exemption notification – Gujarat State Fertilizers Co. v. CCE 91 ELT 3 = AIR 1997 SC 3620 = 1997 AIR SCW 1578 (This is the ratio of judgment, as correctly found by head note writer of ELT, though these actual words are not used).

In Sangameshwar Coffee Estates v. CC 1997(96) ELT 119 (CEGAT), it was observed – ‘It is settled law that for interpretation of notification, the meaning assigned to various items in a notification has to be the same as assigned in the tariff.’ – same view in Kirloskar Brothers v. CCE 2001(133) ELT 595 (CEGAT).

In CC v. Maestro Motors Ltd. 2004 AIR SCW 7439 = AIR 2005 SC 1492 = 174 ELT 289 (SC), it was held that if a tariff heading is specifically mentioned in exemption notification, the General Interpretative Rules (GIR) will apply to such exemption notification. However, if an item is specifically mentioned without any tariff heading, then exemption would be available even though for purpose of classification, it may be something else. In this case, there were two separate exemption notifications. In one case, the notification was for exemption to all components of car brought in CKD or SKD condition. Importer had imported SKD packs which were classifiable as ‘car’ in terms of second part of GIR rule 2(a). However, it was held that the exemption will be available even if for purpose of classification, the goods may be classifiable as car as per rule 2(a). In case of other exemption notification, the notification specified specific components with specified tariff headings. In this case also, the imported goods were SKD packs and were classifiable as ‘car’ in terms of rule 2(a). It was held that since the exemption notification mentions specific tariff heading, exemption will not be available if the goods imported are classifiable as ‘car’ in terms of GIR rule 2(a).

When wording in tariff entry and exemption notification issued is similar, article covered under the tariff heading is covered under the notification also – Eagle Flask Industries (P.) Ltd. v. CCE – 1991 (53) ELT 65 (CEGAT) * Western Refrigeration (P.) Ltd. v. CC 1995 (77) ELT 673 (CEGAT). When a notification grants exemption with reference to a particular heading or sub-heading, the notification will have to be interpreted and applied in the light of section notes and chapter notes to Tariff. – CCE v. Bharat Metal Industries 1999(105) ELT 494 (CEGAT) * Winter Misra Diamond v. CCE 1996(83) ELT 670 = 64 ECR 60 (CEGAT).

However, the exemption notification cannot determine classification and it cannot change classification of goods from one entry to another – Eskeyef v. CCE – 1990 (49) ELT 649 (SC).

Chapter notes and section notes cannot be applied to interpret an exemption notification if the description in the tariff and exemption notification is different – Pravinchandra D Bros v. CC – 1996 (88) ELT 151 (CEGAT).

Section note are relevant for classification and exemption but if language of notification is clear, section notes cannot restrict their ambit – New Holland Tractors v. CCE (2010) 253 ELT 249 (CESTAT).

In CCE v. Mewar Bartan Nirman (2008) 231 ELT 27 (SC), it was held that exemption notification should be interpreted in terms of its language. When the language is plain and clear, effect must be given to it. While interpreting the exemption notification, one cannot go by rules of interpretation applicable in cases of classification under the Tariff [In this case, same tariff entry was split into two only for purpose of exemption notification. Hence, the decision has to be viewed from facts of the case].

If exemption notification is related to Tariff (explicitly or by necessary implication), the chapter notes/section notes and rules of interpretation comes into picture. If it is not related to tariff, notification has to be interpreted independently and on its own merit. – Adarsh Ice v. CCE 1999(111) ELT 60 (CEGAT). If exemption notification does not use HSN nomenclature but uses names as available in India, HSN cannot be relied upon – Bhilwara Spinners v. CCE 1999(111) ELT 714 (CEGAT). -. – In Reflect Optics v. CC 1997(91) ELT 637 (CEGAT), it was held that section notes and chapter notes and rules of interpretation of tariff can be applied for interpreting notification only if description of goods in the Chapter heading has been extracted in the notification.

When a notification grants exemption to goods with reference to a particular heading or sub-heading, the notification will have to be interpreted in light of section notes and chapter notes and not according to trade practice or common parlance. – CCE v. Bharat Metal Industries 1999(105) ELT 494 (CEGAT).

Not to be used for interpreting import policy – Rule of Interpretation cannot be used to interpret provisions of import policy. – S S Appliances v. CCE 1998(100) ELT 429 (CEGAT) * Chan Tronix v. CC 2000(124) ELT 510 (CEGAT).

3.2 Steps in Classification of a Product

Following are the steps of classification of a product.

(1) The titles of Sections and Chapters are provided for ease of reference only; for legal purposes, refer the heading and sub-heading. Read corresponding Section Notes and Chapter Notes (Rule 1 of GIR). If there is no ambiguity or confusion, the classification is final. You do not have to look to classification rules or trade practice or dictionary meaning. If classification is not possible, then only go to GIR. The rules are to be applied sequentially.

(2) If meaning of word is not clear, refer to trade practice. If trade understanding of a product cannot be established, find technical or dictionary meaning of the term used in the tariff. You may also refer to BIS or other standards, but trade parlance is most important.

(3) If goods are incomplete or unfinished, but classification of finished product is known, find if the unfinished item has essential characteristics of finished goods. If so, classify in same heading – Rule 2(a).

(4) If ambiguity persists, find out which heading is specific and which heading is more general. Prefer specific heading. – Rule 3(a).

(5) If problem is not resolved by Rule 3(a), find which material or component is giving ‘essential character’ to the goods in question – Rule 3(b).

(6) If both are equally specific, find which comes last in the Tariff and take it – Rule 3(c).

(7) If you are unable to find any entry which matches the goods in question, find goods which are most akin – Rule 4.

(8) In case of mixtures or sets too, the procedure is more or less same, except that each ingredient of the mixture or set has to be seen in above sequence. As per rule 2(b), any reference to a material or substance includes a reference to mixtures or combinations of that material or substance with other material or substance.

(9) Packing material is classified along with the goods except when the packing is for repetitive use – Rule 5

4. Application of GIR in Tariff

GIR (General Interpretative Rules) are to be applied for interpretation of Tariff, if classification is not possible on the basis of tariff entry and relevant chapter notes and section notes.

Rules to be applied sequentially – The Rules are to be applied sequentially. Rule 1 gives precedence to Section Notes/Chapter Notes while classifying a product – Chapter 4 Para 2.6 of CBI&C’s Customs Manual, 2023.

Classification is to be first tested in light of Rule 1. Only when it is not possible to resolve the issue by applying this rule, recourse is taken to Rules 2, 3 and 4 in seriatim  [Though rules nowhere state that these should be applied sequentially, the general arrangement and wording does clearly indicate that intention].

Titles are for reference – Titles of sections or chapters cannot be used for classification. The titles of sections and chapters are provided for use of reference only, and have no legal importance for purposes of classification. (Rule 1)

Rule 1. – The titles of Sections and 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 provisions hereinafter contained.

Section Notes and Chapter Notes have overriding effect – Classification is to be determined only on the basis of description of the heading, read with relevant section or chapter notes. Since these notes are part of the Act itself, these have full statutory (legal) backing. Tribunal has (very rightly) held that coverage of respective headings has to be determined in the light of respective section notes and chapter notes. In this sense, Section Notes and Chapter Notes have an overriding force over the respective headings and subheadings. – * Saurashtra Chemicals, Porbunder v. CC – 1986 (23) ELT 283 (CEGAT) * Tractors and Farm Equipments Ltd. v. CC – 1986 (25) ELT 235 (CEGAT) * Track Parts Corporation v. CC – 1992 (57) ELT 98 (CEGAT). * Calcutta Steel Industries v. CCE – 1991 (54) ELT 90 (CEGAT). In Fenner (India) Ltd. v. CCE – 1995(97) ELT 8 (SC), it was observed that tariff schedule would be determined on terms of headings and any relevant section or chapter notes. In CC v. Sanghvi Swiss Refills P Ltd. 1997(94) ELT 644 (CEGAT), it was held that section notes and chapter notes, being statutory in nature, have precedence over functional test and commercial parlance for purposes of classification.

In slightly contrary view, in Kesharbhai Electronics v. CCE 2001(130) ELT 852 (CEGAT), it was held that where classification is possible on perusal of heading, then there would be no need to go by the section note or chapter note. [This was probably on facts of the case].

If the description read with section or chapter notes is not enough to correctly classify the goods, following further rules have been provided :

4.1 Classification of Incomplete or Unassembled Goods

Any reference to complete goods also includes incomplete or unfinished goods, if such incomplete or unfinished goods have the essential characteristic of finished goods. [first part of Rule 2(a)]. The heading will also include finished goods removed unassembled or disassembled i.e. in SKD or CKD packs. [second part of Rule 2(a)].

Rule 2(a) – Any reference in a heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that, the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to those goods complete or finished (or falling to be classified as complete or finished by virtue of this rule), removed unassembled or disassembled.

Some illustrations in HSN Explanatory notes are – * a machine or apparatus normally incorporating an electric motor is classified in the same heading even if presented without motor. * Passenger coach not fitted with seats will still be a passenger coach * Motor vehicle not yet fitted with wheels, battery or tyres * Bicycles without saddles and tyres * Photographic camera without an optical element * Electric supply meter without its totalling device.

In Salora International Ltd. v. CCE (2012) 9 SCC 662 = 284 ELT 3 (SC), assessee manufactured various components of TV sets. These were assembled for testing of each set. Then the sets were disassembled and then transported as parts to other units (satellite units) of assessee to be reassembled and marketed. Individual serial numbers were given. It was held that the goods have to be classified as finished/complete goods and not as parts. It was held that if only parts were manufactured and matching and numbering functions were done at satellite units, it would have been removal of parts of TV sets.

Scooter body unit without engine is classifiable as scooter. – LML Ltd. v. CC 1999(105) ELT 718 (CEGAT).

In J K Synthetics v. CCE 2000(123) ELT 1166 (CEGAT), it was held that ‘essential character’ is not dependent on weight or value of the material or components of which goods are made of.