Judgement Update | Classification of parts and accessories of motor vehicle
This is to apprise you regarding the recent judgment of Supreme Court in the case of CCE v. Uni Products India Limited, 2020-VIL-17-SC-CE.
In this case, the taxpayer was engaged in manufacturing of car matting (‘goods’) that was solely used in motor vehicles. The taxpayer was classifying these goods under Heading 5703 of the Central Excise Tariff Act, 1985 (‘CETA’) which covered “carpets and other textile floor coverings, tufted, whether or not made up”.
The revenue objected to classification of the goods and contended their classification under Heading 8708 of the CETA which covered ‘parts and accessories of the motor vehicles of Headings 8701 to 8705’. The revenue relied upon Explanatory Notes to Harmonized System Nomenclature (‘HSN’) for Section XVII (covering Chapter 87). As per HSN, parts and accessories fall in this Section only if the following three conditions are satisfied:
- The same are excluded from Note 2 to Section XVII;
- The same are suitable for use solely or principally with articles of this Section; and
- The same are specifically included elsewhere in the Nomenclature
As per the revenue, the goods were not excluded from Note 2 to Section XVII and were meant for use solely or principally with motor vehicles of Chapter 87. Also, the goods were not specifically included in Heading 5703 covering only textile carpets while the goods were more than carpets (being car matting).
The Supreme Court applied Rule 3(a) of the General Rules of Interpretation (‘GRI’) as per which if any product falls under more than one Heading, then such product need to be classified in Heading which provides most specific description. Further, HSN to Rule 3(a) of GRI enlists examples for the same which, inter alia, cover tufted textile carpets for use in motor vehicles under Heading 5703 of the CETA (and not under Heading 8708 of the CETA).
The Court further held that HSN to Heading 8708 specifically covers floor mats other than of textile materials within its purview. As the goods are made up of textile material, these would be classified under Heading 5703 and not under Heading 8708. The Court also held that as the goods are clearly covered under Heading 5703, there is no need to import common parlance and marketability tests to determine classification of the goods.
NITYA’s Comments: This jurisprudence holds significant relevance under Customs and GST law as well. As discussed in our Update – NITYA’s Outlook | Issue 28 | Classification of parts and accessories of motor vehicles dated August 14, 2019 there is generally difference in rate of tax on goods falling under Heading 8708 and other Headings with former attracting higher BCD (15%) and GST (28%). Notably, the Court read Heading 8708 in a restricted way when specific Heading exists otherwise in CETA. Basis this decision, the taxpayers should re-analyze the classification of parts and accessories of motor vehicles imported or supplied by them.