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tariff heading???

Dhanraj (CA Final) (561 Points)

04 July 2009

Dear friends

Could anyone please explain in simple terms this point from Basic Concepts chapter of excise-

'can the test of change in tariff headings/sub-headings be adopted for identifying whether a process amounts to manufacture'

Thanks in advance

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Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 05 July 2009

Mere change in tariff heading does not amount to manufacture. There are numerous cases to support the case.

Nevertheless it can be pleaded that mere change in tariff heading amounts to manufacture. Different tariff heading shows the legislative intention of treating products differently. Let me quote from an article of mine where I pleaded that way:

It may be noted that rod/bar and wire falls under different heading of CETA. It means that the legislature have treated these two products as two distinct and different products. When the legislative intent of the Parliament is clear about treating these two products differently, it cannot be said that they are same products. The above “Test of different heading” was applied by the Hon’ble Supreme Court in Lal Woolen and Silk Mills Ltd. V/s CCE, Chandigarh [1999 (108) ELT 7(S.C.)], wherein the Hon’ble SC held,

“An attempt was made by the learned counsel for the assessee that conversion of gray yarn into dyed yarn did not amount to manufacture hence two separate duties are not leviable. We do not find any merit in the submission. Admittedly both “dyed yarn” and “gray yarn” are covered by two separate distinct head of tariff item with different duty. So this itself recognizes them to be two different goods with separate levy. In view of this it cannot be urged that there is no manufacture of dyed yarn from the gray yarn.”

It may be noted that the principle, that “process amounts to manufacture when tariff heading changes” has been accepted by the Central Board of Excise & Customs since long and is being followed consistently by the Board. The Central Board of Excise and Customs in Circular No. 33/89 dated 12.05.89 says;

“under these circumstances, the board felt that since the product obtained as a result of cutting and setting would fall under a different entry of the tariff, the process would amount to manufacture (specifically so intended by the parliament by provision of separate tariff entries) and the products would again be liable to duty, under the new tariff entry in which they would fall. Modvat benefit, it applicable, would be granted.”

Similarly the Central Board of Excise and Customs has clarified in Circular No. 584/29/2001- CX. Dated 07.09.2001, the Board stated and clarified as under,

“It is hereby clarified that cutting of HR/CR coils of iron or non-alloy steel into sheets or slitting into strips of lesser width or slitting of sheets into strips will amount to manufacture if the resultant product is classifiable under different sub-heading of the Central Excise Tariff.”

In view of these binding Circulars, if a process results into a product classifiable in different tariff heading, such process shall amount to manufacture. It may be noted that, in this particular case rod/bar and wire falls in different tariff heading, therefore conversion of “ rod/bar” into “wire” shall amount to manufacture. Thus in view of these Circulars issued by the Board the process of conversion of bar/rod into wire shall amount to manufacture.

It may further be noted that the “ Bars and Rods” have been defined in Chapter Note 1(d) of Chapter 74 (in case of copper, but true for al metals) where as “Wire” has been defined in Chapter Note 1(f) of Chapter 74. When the legislature has given distinct meaning to these products it cannot be argued that these two are same products. Thus they are different products and conversion of bar/rod into wire shall amount to manufacture.

The Central Board of Excise and Customs took note of different legislative definition and declared in Circular No. 94/5/95-CX., dated 23-1-1995,

“Attention is drawn to Section Note 6(a) and (b) of Section XV which contains the definition of waste and scrap and powders. Further Note 1(h) of Chapter 72 defines granules. Although granules and powders of pig iron, spiegeleisen, iron and steel are classifiable under the Heading 72.05 yet granules, powders and waste and scrap have their own specific definitions and are known distinctly in end use and character. The Board, therefore, is of the view that conversion of cast iron granules/cast iron turnings and borings into cast iron powder amounts to manufacture.”

In view of different definitions given by the legislature and binding Board’s Circular, the author is of the view that the process of conversion of rod into wire shall amounts to manufacture. At least the department cannot take a stand that it doesn’t amount to manufacture. It may be noted that trade parlance will not prevail if the Act defines an article in a particular way. It is well settled that statutory definition prevails over trade parlance or dictionary meaning. In Ichchapur Industrial Coop Society v/s ONGC [1996 (9) SCALE 421], the Hon’ble Supreme Court held that “water is mineral” in view of specific definition of mineral in the statute and discarded the popular meaning.

It may be noted that Circulars and stand taken by the Board is binding on the department and the department cannot take a stand contrary to a Circular. In CCE v/s Usha Martin Industries [1997(94) ELT 460 (SC)] the Hon’ble Supreme Court held,

“ Through a catena of decisions, this court has pronounced that Revenue cannot be permitted to take a stand contrary to the instructions issued by the Board. It is a different matter that an assessee can contest the validity and legality of a departmental instructions, but the right cannot be conceded to department, more so when the others have acted according to such instructions.”

Further the Board’s instruction is binding upon the department even when it is against the interpretation given by the Hon’ble Supreme Court. A five Judge-Bench of the Supreme Court held in CCE v/s Dhiren Chemicals Industries [2002 (139) ELT 3 (SC)],

“ Regardless of the interpretation that we have placed on the said phrase, if there is a circular which have been issued by the Central Board of Excise and Customs, which places a different interpretation upon the said phrase, that interpretation will be binding on the Revenue.”

The case was followed by the Supreme Court in CCE v/s Maruti Foam [2004 (164) ELT 394 (SC)], wherein the Hon’ble Supreme Court held that even if there is a contrary order of the Supreme Court, the departmental Circular is binding on the department unless it is withdrawn. In Ranadey Micronutrients v/s CCE [1996(87) ELT 19 (SC)], the Supreme Court held that a departmental circular is binding on the department even when it is against a statutory provision. In CCE v/s Kores India [1997 (89) ELT 441 (SC)] the Supreme Court held that the department cannot advance any argument contrary to a trade notice.

The Supreme Court affirmed and reaffirmed this view in many other cases like, CCE v/s Jagat Delta Pvt. Ltd. [1997 (88) ELT 638 (SC)], Fenner India v/s CCE [2004 (167) ELT 18 (SC)], Paper Products Ltd. V/s CCE [1999 (112) ELT 765 (SC)]. With these judgments the issue is well settled that the departmental circular is binding upon the department