Commissioner of Central Excise, Salem vs M/s Madhan Agro Industries (India) Private Ltd.

Held: Pure coconut oil sold in small quantities as ‘edible oil’ would be classifiable under Heading 1513, unless the packaging thereof satisfies all the requirements set out in Chapter Note 3 in Section VI-Chapter 33 of the First Schedule read with the General/Explanatory Notes under the corresponding Chapter Note 3 in 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 – Pure coconut oil is suitable for multiple uses – 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 – 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, as hair oil – 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 – Packaging of the coconut oil in the instant cases 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 – Small-sized containers are a feature common to both ‘edible oils’ as well as ‘hair oils’ – Thus, 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 – Relevant headings in the First Schedule to the Act of 1985 corresponding with the entries in HSN, there can be no distinction drawn between the two and the Explanatory Notes in the HSN would have to be given due effect while interpreting Heading 1513 in the First Schedule – Thus, the coconut oil marketed and sold by the respondents during the relevant period must necessarily be classified as edible oil. [Paras 40-49]

Interpretation of statutes – Taxing statutes – Principle of interpretation – ‘Common parlance test’ :

Held: 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 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 – 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 exceptionswhen 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 – Said test 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. [Paras 35, 36]

Central Excise Tariff Act, 1985 – Central Excise Tariffs – Interpretation of entries – Reliance on the Harmonized System of Nomenclature-HSN and the Explanatory Notes:

Held: Once the Headings in the First Schedule to the Act of 1985 in perfect alignment with the corresponding entries in the HSN, 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 – 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 – 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 – Legislative intention to depart from the HSN must be clear and unambiguous. [Paras 16, 17, 34]