Full Judgment Text
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CASE NO.:
Appeal (civil) 4342 of 1986
PETITIONER:
MOORCO (INDIA) LTD. MADRAS
RESPONDENT:
COLLECTOR OF CUSTOMS, MADRAS
DATE OF JUDGMENT: 29/09/1994
BENCH:
R.M. SAHAI & N.P. SINGH
JUDGMENT:
JUDGMENT
1994 SUPPL. (4) SCR 87
The following Order of the Court was delivered :
An interesting question of law relating to applicability of rules of
interpretation appended to the Schedule of Customs Act arises for con-
sideration in this appeal.
The appellant is a manufacturer of, "volumetric displacement type flow
meter" (for short ’the meter’). It imported goods described as "com-ponents
and accessories of volumetric displacement type flow meter" for use in the
end product. The flow meter manufactured by the appellant consists of the
following devices :
(a) a device for measuring the variable to be controlled.
(b) control device which compares the measured value with the desired
value and actuates the starting stopping (or) operating device.
(c) a starting, stopping (or) operating device.
(d) action device which carries out orders received either directly
(or) through amplifying relays from device (C).
In the Bill of lading the item imported is described as Industrial Metric
Equipment (component and accessory Volumetric Type Flow Meter). In the
Purchase Order from Bharat Petroleum Corporation Ltd. the item manufactured
by the appellant is described as under :
To manufacture, test, pack and supply the flow meters with accessories and
spares as under ;
Double case type flow meters including accessories (as per details given in
the attached Continuation Sheet),"
If the Purchase Order from Indian Oil Corporation Limited the item has been
described as under :
MODEL SD 30 75mm dia (3") single case rotary vane positive displacement
meter with large numeral counter, the rate of flow indicator., strainer-
cum-air eliminator as per specification given below ,.,....,,.........."
From all this material it appears what was imported by the appellant was
component for being used in tie flow meter. It is so understood in the
commercial circle. Even the Assistant Collector held that the meter
produced by the appellant was capable of showing the rate of flow. But
according to him since it was used for measuring volume also, therefore, it
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was liable to be classified under the Tariff Heading 90.26. For this
reliance was placed on clause (c) of the General Rules for Interpretation
of the First Schedule - Import Tariff of the Custom Act. The finding
recorded by the Assistant Collector has not been disturbed by the Collector
(Appeals) or by the Tribunal. The relevant Tariff Items read as under :
"9024 Instruments and apparatus for measuring, checking or auto-matically
controlling the flow, depth, pressure or other Variable of liquids or gases
or for automatically controlling temperature (for example, pressure gauges,
thermostats, level gauges, flow meters, heat meters automatic oven-draught
regulators), not being articles falling within Head-ing No. 90.14:
(1) Not elsewhere specified 40%
(2) Thermostats and Humidistats 60%
90.26 Gas, liquid and electricity supply or production meter, calibrating
meters therefore. 60%
90.29 Parts or accessories suitable for use solely or principally with one:
or more of the articles failing within Heading Nos. 90.23. 90.24, 90.26,
90.27 or 90,28;"
Flow meters are specifically covered in Tariff Heading 90:24. Specific
excludes general, is the well-known principle. Heading 90.29 permits
levy on parts or accessories which are used solely in the manufacture of
one or more of the articles falling within Heading 90.24. The Assistant
Collector held that the accessories imported by the appellant were used
solely for the meter manufactured by the appellant. Therefore, if the meter
manufactured by the appellant can be said to satisfy the description of
Tariff Heading 90.24 then by virtue of Tariff Heading 90.29 the rate of
duty on the components imported by the appellant could be levied as in
tariff Heading 90.24. On the finding recorded by the Assistant Collector
the end-product manufactured by the appellant being specifically provided
for by 90.24 the accessory imported by the appellant which was solely used
for manufacture of it was liable to be classified on the same rate as
the item in which it was used, namely, flow meter,
Does classification change and the goods are liable to be placed in heading
90.29 by virtue of the Interpretory Rules appended to the Customs
Schedule? These Rules are framed on Brussels Convention so that same
description may apply to a particular class and character of goods in the
world trade. The First Schedule appended to the Customs Act lays down
general principles for the interpretation and classification of goods for
import tariff. Rule 2(b) of the Rules provide that, ’the classification of
goods consisting of more than one material or substance shall be according
to the principles of rule 3. Rule 3 of the Rules is reproduced below :
"R. 3. - When by application of rule 2(b) or for any other reason, goods
are, prime facie, classifiable under two or more headings, classification
shall be effected as follows :
(a) The heading which provides the most specific description shall be
preferred to headings providing a more general description. However, when
two or more headings each refer to part only of the materials or substances
contained in mixed or composite goods or to part only of the items in a Set
put up fot retail sale, those headings are tobe regarded as equally
specific in relation to those goods, even if one of them gives a more
complete or precise description of the goods.
(b) Mixtures, composite goods consisting of different materials or made up
of different components, and goods put up in sets for retail sale, which
cannot be classified by reference to (a), shall be classified as if they
consisted of the material or component which gives them their essential
character, in so fat as this criterion is applicable,
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(c) when goods cannot be classified by reference to (a) or (b), they
shall be classified under the heading which occurs last in numerical order
among those which equally merit consideration."
The applicability of the rules arise when the goods consisting of more than
one material fall in two or more headings. It is further clear that each of
the classes are mutually exclusive. What is covered in (a) cannot be
classified in (b) and (c) operates when neither applies. It is like a
residuary clause. The primary question, therefore, is whether the goods
manufactured by the appellant fall in clause (a) as if it can be classified
with reference to (a) then clauses (b) and (c) Would not apply. Class (a)
incorporates the common and general principle that the goods which can be
classified specifically with reference to any heading should be placed in
that category alone. The specific heading of classification has to be
preferred over general heading. The clause contemplates goods which may be
satisfying more than one description. Or it may be satisfying specific and
general description. In either situation the classification which is the
most special has to be preferred over the one which is not specific or is
general in nature. In other words, between the two competing entries the
one most nearer to the description should be preferred. Whether the class
of goods manufactured by an assessee falls say in more than one heading
one of which may be specific, other more specific, third more specific and
fourth general. The rule requires the authorities to classify the goods in
the heading which satisfies most specific description. For instance, taking
the case of appellant the item manufactured by the appellant is described
and used as flow meter. It is an instrument for measuring volume as
well. Flow meter is specifically classified in heading No. 90.24. Whereas
the heading 90:26 is general in nature. It applies to every production
meter or calibrating meter for gas, liquid and electricity supply.
Therefore, on the finding recorded by the Assistant Collector the goods
produced by the appellant specifically fall in 90.24. They may also fall in
90.26 but that being more general entry preference should have been given
to the entry 90.24 as the goods satisfy most specific description of being
flow meter. The Tribunal or the appellate authority without adverting to
it applied clause (c) and levied duty under 90.26 as it was a latter
heading. But clause (c) would apply only if clauses (a) and (b) do not
apply. Since: the goods manufactured by the appellant satisfied the
specific description of Tariff Heading 90.24 being a flow meter, the
Tribunal committed an error of law in classifying it under Tariff Heading
90.26 as it was a latter item under the classification list.
In the result, this appeal succeeds and is allowed and it is held that the
items imported by the appellant which are component part of the flow meter
shall be classified for purposes of payment of duty under Tariff Heading
90.24.