Classification of Goods.

Leading Cases.

1. Atul Glass Industries (Pvt.) Ltd. Vs. CCE

AIR1986SC1730
The question raised in the appeal filed by Atul Glass
Industries (Pvt.) Ltd. is regarding classification of glass
mirrors.
The Appellant, Atul Glass Industries (Pvt.) Ltd., carries
on the business of manufacturing and selling glass
mirrOrs. It purchases duty paid glass sheets from the
manufacturers of glass, and either in their original size
or after reducing them to smaller sizes puts the glass
sheets through a process of treatment and manufactures
mirrors.
The Excise Tariff Act relating to 'glass and glass-
ware' prescribed the different rates of duty in respect of
(1) sheet glass and plate glass, (2) laboratory glass-
ware, (3) glass shells, glass globes and chimney for
lamps and lantern, and (4) 'other glassware including
table-ware'.
The Tariff Act also contained differential rate of duty
for glass ware and residual entry provided lower duty
for other products.
Through an amendment the glass and glass ware was
included in one single entry and tax was demanded
from the appellant
Reasoning of the Court.
The original glass sheet undergoes a complete
transformation when it emerges as a glass mirror. What
was a piece of glass simpliciter has now become a
commercial product with a reflecting surface. Into the
process of transformation have gone successive stages
of processing with the aid of chemicals.
The evolved product is completely different from the
original glass sheet. What was once a glass piece in its
basic character has no longer remained so. It has been
reduced to a mere medium.
That is clear if regard is had to the fundamental function
and qualities of a glass mirror. The power to reflect an
image is a power derived not from the glass piece but
principally from the silvering and other processes
applied to the glass medium. If any part of the coating is
scratched and removed, that particular area of the glass
mirror will cease to be glass mirror. That simple test
demonstrates the major importance attributable to the
chemical deposit and coating which constitute a
material component of a glass mirror. It is not
mandatory that a mirror employed for the purpose of
reflecting an image should have a glass base.
Copper mirrors have been known from the dawn of
history. In the modern age, acrylic sheets are sometimes
used instead of glass for manufacturing mirrOrs.
It is apparent, therefore, that a glass mirror cannot be
regarded as a glass. For the same reason, it cannot be
classified as 'glass ware', for 'glass ware' means
merchandise made of glass and understood in its
primary sense as a glass article. A glass bowl, a glass
vase, a glass tumbler, a glass table-top and so on are all
articles in which the primary component is glass.
They are nothing more and nothing less. Any treatment
of an ornamental nature applied to such articles does
not derogate from their fundamental character as glass
articles.
It is quite the contrary in the case of a glass mirror.
The case is more akin to that of carbon paper. A sheet
of paper with a carbon coating thereon is employed for
the purpose of producing copies of the original. The
paper is a mere base while the function is performed by
the carbon coating.
In State of Uttar Pradesh v. Kores (India) Ltd.1SCR837
it was held , that carbon paper could not be described
as paper. It referred to the functional difference between
the two, and pointed out that while paper would be
understood as meaning a substance which was used for
writing or printing or drawing on or for packing or
decorating or covering the walls, carbon paper, which is
manufactured by coating the tissue paper with a
thermosetting ink based mainly on wax, non drying oils,
pigments and dyes could not be so described.
The test commonly applied to such cases is: How is the
product identified by the class or section of people
dealing with or using the product? That is a test which
is attracted whenever the statute does not contain any
definition.
It is generally by its functional character that a product
is so identified. In Commissioner of Sales Tax, U.P. v.
Macneill & Barry Ltd.1986(23)ELT5(SC) , it was held
that ammonia paper , used for obtaining prints and
sketches of site plans could not be described as paper as
that word was used in common parlance.
It is a matter of common experience that the identity of
an article is associated with its primary function. It is
only logical that it should be so. When a consumer buys
an article, he buys it because it performs a specific
function for him. There is a mental association in the
mind of the consumer between the article and the need
it supplies in his life. It is the functional character of the
article which identified it in his mind. In the case of a
glass mirror, the consumer recalls primarily the
reflective function of the article more than anything
else. It is a mirror, an article which reflects images. It is
referred to as a glass mirror only because the word glass
is descriptive of the mirror in that glass has been used
as a medium for manufacturing the mirror. The basic or
fundamental character of the article lies in its being a
mirror.

In Delhi Cloth and General Mills Co. Ltd. v. State of

Rajasthan 1980 : 1980(6)ELT383(SC) it was laid down
that :
“In determining the meaning or connotation of words
and expressions describing an article one principle
fairly well-settled it is that the words or expression must
be construed in the sense in which they are understood
in the trade, by the dealer and the consumer. It is they
who are concerned with it, and it is the sense in which
they understand it that constitutes the definitive index of
the legislative intention when the statute was enacted.
Classification by Indian Standards Institution :
The contention that glass mirrors have been classified
by the Indian Standards Institution as "glass and glass
ware" in the glossary of terms prepared by it in respect
of that classification cannot be accepted to classify glass
mirrors as glassware. This furnishes a piece of
evidence only as to the manner in which the product has
been treated for the purpose of the specifications laid
down by the Indian Standards Institution.
In Union of India v. Delhi Cloth & General Mills
[1963] Supp. (1) S.C.R. 586, classification by Indian
Standards Institution was regarded as supportive
material only for the purpose of expert opinion
furnished by way of evidence in that case.
In Union Carbide Co. Ltd. v. CCE [1978] E.L.T. 180,
the description set forth in the publications of the Indian
Standards Institution was regarded as a piece of
evidence only.
Therefore the glass mirrors cannot be classified as
'other glass and glass ware' under Central Excise Tariff
Act .
In the result, the writ petition is allowed and direction
is issued to the Revenue that the glass mirrors
manufactured by the petitioner be treated to excise duty
under a different classification than “other glass and
glass ware”.
2. Commissioner of Central Excise Vs.Shree
Baidyanath Ayurved Bhawan Ltd. (2009)12SCC419.

Facts.

Baidyanath is engaged in the activity of manufacturing

medicines adopting Indian systems. One of the products
being manufactured by Baidyanath is DML. Baidyanath
claims that DML is manufactured in accordance with
the formulae given in Ayurved Sar Sangraha (an
authoritative text on the Ayurved system of medicine)
by using the ingredients mentioned therein. Ayurved
Sar Sangraha is notified under the First Schedule of the
Drugs and Cosmetics Act, 1940 .
It is also the case of the Baidyanath that DML is sold in
the name which is specified in Ayurved Sar Sangraha.

The Central Excise Tariff Act (CETA) came to be

amended with the effect that a new Sub-heading was
inserted which provided levy of nil duty in respect of
the medicaments manufactured exclusively in
accordance with the formulae described in the
authoritative books in the First Schedule to the Drugs
and Cosmetics Act, 1940.
The factual position is that the product DML is
manufactured by Baidyanath in accordance with the
formulae mentioned in the book `Ayurved Sar
Sangraha' which is notified in the First Schedule
appended to Drugs and Cosmetics Act, 1940 and that
the product is sold in the name which is specified in
that.
The Revenue sought to impose excise duty in respect of
DML claiming that it is not a medicament but a tooth
powder and it is understood as such by the people in
trade and the consumers.
Baidyanath disputes this claim .

Contentions of Baidyanath.

(i) that the product DML falls under classification of

medicament because it comprises of two or more
constituents which have been mixed together for
medicinal use.
(ii) It is manufactured exclusively in accordance with
the formulae described in `Ayurved Sar Sangraha'
which is an authoritative text on the Ayurvedic
System of treatment and is notified in the First
Schedule to the Drugs and Cosmetics Act, 1940.
Moreover, in accordance with the provisions of the
Drugs and Cosmetics Act, 1940, the said product is
manufactured by Baidyanath under a drug licence
issued by the concerned competent authority.
(iii) Further, the product is sold under the name of
`Dant Manjan Lal' which is the name specified for
the said product in `Ayurved Sar Sangraha',
(iv) The people in trade and consumers may recognise
the product as a tooth powder and not a
medicament but that is not a valid ground for
classifying the product as tooth powder and not an
ayurvedic medicine.

(v) Once there is a definition provided in the Tariff

Act, that definition alone shall prevail and
common trade parlance test is not applicable. The
common trade parlance test is to be applied only in
the absence of definition;

Reasoning of the Court.

Ordinarily a medicine is prescribed by a medical
practitioner and it is used for a limited time and not
every day unless it is so prescribed to deal with a
specific disease like diabetes.
People take medication either to cure an illness or as
preventive measure to avoid certain medical conditions.
Merely because there is some difference in the tariff
entries, the product will not change its character.
Something more is required for changing the
classification especially when the product remains the
same.
There cannot be justification enough for changing the
classification without a change in the nature or a change
in the use of the product. The exception being where
Tariff Act itself provides for a statutory definition,
obviously, the product has to be classified as per the
definition.
The question, therefore, is: does the relevant Chapter of
the Central Excise Tariff Act contain a definition of
Ayurvedic Medicine and, if so, common parlance test
for classifiability of the product, whether medicament
or cosmetic, is inapplicable?
Chapter 30 of CETA deals with pharmaceutical
products.
Chapter Note of Chapter 30 provides that
`medicaments' means goods which are products
comprising two or more constituents having been mixed
or compounded together for therapeutic or prophylactic
uses or unmixed products suitable for such uses.
For Ayurvedic medicines the chapter note provides that
“ Ayurvedic Medicines “ are those medicaments which
are prepared in accordance with the formulae described
in the authoritative books specified in the First Schedule
to the Drugs and Cosmetics Act, 1940 and sold under
the name as specified.
The question for consideration is whether the relevant
chapter note contains specific definition of Ayurvedic
Medicine or it is a mere description of ayurvedic
medicine.
If it provides a mere description of description of goods,
that cannot be treated as definition.
Classification of a product is to be determined
according to the terms of the heading and any relative
Section or Chapter Notes and provided such headings or
Notes do not otherwise require.
The common parlance test as one of the well recognized
tests to find out whether the product falls under one
classification or other .
In a Puma Ayurvedic Herbal (P) Ltd. v. Commissioner,
Central Excise 2006(196)ELT3(SC) the Supreme Court
observed that in order to determine whether a product is
a cosmetic or medicament, a twin test (common
parlance test being one of them) has found favour with
the Court.
The tests are:
I. Whether the item is commonly understood as
medicament which is called the common parlance test.
For this test it will have to be seen whether in common
parlance the item is accepted as a medicament. If a
product falls in the category of medicament it will not
be an item of common use. A user will use it only for
treating a particular ailment and will stop its use after
the ailment is cured. The approach of the consumer
towards the product is very material . One may buy any
of the ordinary soaps available in the market. But if one
has a skin problem, he may have to buy a medicated
soap. Such a soap will not be an ordinary cosmetic. It
will be medicament.
II. Are the ingredients used in the product mentioned in
the authoritative textbooks on Ayurveda ?
Therefore in order to determine whether a product is
covered by `cosmetics' or `medicaments' : twin test
noticed in Puma Ayurvedic Herbal (P) Ltd., continue to
be relevant.
The primary object of the Excise Act is to raise revenue
for which various products are differently classified in
CETA . Resort should, in the circumstances, be had to
popular meaning and understanding attached to such
products by those using the product and not to be had to
the scientific and technical meaning of the terms and
expressions used.
The approach of the consumer or user towards the
product, thus, assumes significance. What is important
to be seen is how the consumer looks at a product and
what is his perception in respect of such product. The
user's understanding is a strong factor in determination
of classification of the products.
It is difficult to accept the contention of the
Baidyanath that because DML is manufactured
exclusively in accordance with the formulae described
in Ayurveda Sar Sangrah which is authoritative text on
Ayurvedic system of treatment and is notified in the
First Schedule to the Drugs and Cosmetics Act, 1940
and the said product is sold under the name `Dant
Manjan Lal' which is the name specified for the said
product in Ayurveda Sar Sangrah, the common parlance
test is not applicable.
As a matter of fact, this contention is based on
misplaced assumption that relevant Chapter note by
itself provides the definition of Ayurvedic Medicine
and there is no requirement to look beyond.
Section 3(a) of the Drugs and Cosmetics Act, 1940
defines "Ayurvedic, Sidha or Unani Drug" as follows:
Ayurvedic, Sidha or Unani drug" includes all medicines
intended for internal or external use for or in the
diagnosis, treatment, mitigation or prevention of disease
or disorder inhuman beings or animals and
manufactured exclusively in accordance with the
formulae described in the authoritative books of
"Ayurvedic, Sidha or Unani Tibb system of medicine,
specified in the First Schedule.
It is true it is that Section 3(a) of the Drugs and
Cosmetics Act, 1940 defines `Ayurvedic, Sidha or
Unani Drug' but that definition is not necessary to be
imported in CETA. The definition of one statute having
different object, purpose and scheme cannot be applied
mechanically to another statute.
The object of Excise Act is to raise revenue for which
various products are differently classified in CETA.
The common parlance test continues to be one of the
determinative tests for classification of a product
whether medicament or cosmetic. There being no
change in the nature, character and uses of DML, it has
to be held to be a tooth powder .
DML is used routinely for dental hygiene. Even if the
product DML has some therapeutic or medicinal
properties, the product stands excluded from category
of medicament.
In the matters of classification of goods, the principles
that have been followed by the courts are that there
may not be justification for changing the classification
without a change in the nature or a change in the use of
the product; something more is required for changing
the classification especially when the product remains
the same.
Chapter note concerning ayurvedic medicine does not
contain definition of Ayurvedic Medicine and the
product DML in nature, character and uses remains the
same .
As a result ,appeals of Baidyanath fail and are
dismissed.
3. Reliance Cellulose Products Ltd. Vs. CCE
:AIR1997SC3414

Facts.

Reliance Cellulose Products Limited, manufactures

Sodium Carboxymethyl Cellulose (hereinafter referred
to as SCMC).
The contention of the appellant-company is that the
product manufactured by them is classifiable under
residuary entry rather than being included in the
relevant entry for cellulose ether . Moreover the
Revenue has failed to consider the way the products of
the company were known in the trade.

Reasoning of the Court.

 It is well-settled that excisable commodities have to be
understood in the sense in which the market
understands them and have to be classified accordingly.
This proposition may generally be held to be right but
when a technical or scientific term has been used by the
legislature, it must be presumed that the legislature has
used the term in their technical sense.
In the case of Dunlop India Ltd. v. Union of India :
1983(13)ELT1566(SC) , it was laid down that in
interpreting words in a taxing statute, meaning must be
given as people in trade and commerce, conversant with
the subject, generally treat and understand them.
It was further observed that technical and scientific tests
offer guidance only within limits. Once the articles are
in circulation and come to be described and known in
common parlance, the Court should find no difficulty
for statutory classification under a particular entry.
In the case of Indian Cable Company Ltd. V. CCE
1994ECR20(SC) , it was held that :
In construing the relevant items or entry, in fiscal
statutes, if it is one of everyday use, the authority
concerned must normally, construe it, as to how it is
understood in common parlance or in the commercial
world or trade circles. It must be given its popular
meaning. The meaning given in the dictionary must not
prevail. Nor should the entry be understood in any
technical or botanical or scientific sense. However in
the case of technical words, it may call for a different
approach".
In other words, if the word used in a fiscal statute is
understood in common parlance or in the commercial
world in a particular sense, it must be taken that the
Excise Act has used that word in the commonly
understood sense. That sense cannot be taken away by
attributing a technical meaning to the word.
But if the legislature itself has adopted a technical term,
then that technical term has to be understood in the
technical sense. In other words, if in the fiscal statute,
the article in question falls within the ambit of a
technical term used under a particular entry, then that
article cannot be taken away from that entry and placed
under some other entry on the pretext that the article,
even though it comes within the ambit of the technical
term used in a particular entry, has acquired some other
meaning in market parlance.
For example, if a type of explosive (RDX) is known in
the market as Kala Sabun by a section of the people
who uses these explosives, the manufacturer or importer
of these explosives cannot claim that the explosives
must be classified as Soap and not as Explosive.
The present is not a case where a commonly
understood commercial article is sought to be given a
special meaning by reference to its chemical
composition.
The product manufactured by the appellant is Sodium
Carboxymethyl Cellulose which has been tested and
found to be Cellulose Ether.
It is not the case of the appellant that this product is
known in the market by some other name and that name
is to be found in some other entry.
The Tribunal was right in holding that SCMC
manufactured by the appellant answered the description
"Cellulose Ether" and as such was assessable under the
relevant entry.
The appeal, therefore, fails and is dismissed.