Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7526 OF 2004
M/S. SECURE METERS LTD. .....APPELLANT(S)
VERSUS
COMMISSIONER OF CUSTOMS
NEW DELHI .....RESPONDENT(S)
J U D G M E N T
A.K. SIKRI, J.
The appellant is engaged in the manufacture of electricity
meters. In September 2000, the appellant imported a
consignment consisting of LCD Modules (Printed Circuit Boards)
JUDGMENT
and Liquid Crystal Display (LCD) from Hong Kong. The
classification of the LCD Module is not in dispute. The dispute in
the instant case relates to classification of LCDs. The appellant
sought clearance of LCDs under Chapter Heading 9013.80 and
claimed assessment at Nil rate (basic duty), 16% additional duty
and 4% SAD. As per the appellant, since the LCDs were
classifiable under Chapter Heading 9013.80, in view of
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Notification No. 16/2000, and particularly Entry/S.No. 304 of the
table of the said Notification, the goods classified under Heading
9013.80 attracted Nil rate of basic custom duty. That was the
reason for claiming assessment at Nil rate insofar as basic duty is
concerned. However, the case of the respondent/custom
authorities is that on verification it was found that the goods were
not simple liquid crystal. On the contrary, these were LCD
Modules and Elastomeric LCD Displays and were part of Energy
Meter. The relevant invoices also described the goods as
“electronic part for energy meter” . The drawing and literature
which were provided did not specify the purpose.
2) The Deputy Commissioner, Customs (Adjudicating Authority),
thus, passed orders dated 31.08.2001 holding that LCDs were
classifiable under Chapter Heading 9028.90 and not under
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9013.80 as claimed by the appellant. For classifying the goods
under the aforesaid category, recourse to Rule 3(c) of the General
Rules for the Interpretation of the First Schedule – Import Tariff
was taken by the Adjudicating Authority. The Deputy
Commissioner observed that even if he considered the goods to
be devices, then only those LCD devices/displays which do not
constitute articles provided for more specifically in other heading
Civil Appeal No. 7526 of 2004 Page 2 of 19
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would cover in Chapter Heading 9013 and, accordingly, he took
the view that the goods are specific part of the electricity meter
and, thus, classified the same under Chapter Heading 9028.90 as
parts of electricity meter.
3) The aforesaid order of the Adjudicating Authority has been
affirmed by the Commissioner as well as CESTAT resulting into
dismissal of appeals filed by the appellant herein. The decision of
CESTAT reveals that appellant relied upon its earlier decision in
the case of CCE, Bombay v. Universal Information Commn.
1
Equipment Ltd. However, the Tribunal has held that the
aforesaid decision is not applicable to the facts of the present
case. The Tribunal has accepted the contention of the Revenue
that the invoices issued by the supplier of the goods specifically
mentioned that these were parts of electronic energy meters and
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even the appellant had admitted that these goods had to be
issued as parts of energy meter.
4) Since the appellant claims that the LCDs fall under Chapter
Heading 9013.80 and the argument of the Revenue is that these
are rightly classified under Heading 9028.90, we may first take
note of these Chapter Headings:
1
1997 (94) ELT 543
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Tariff Item Description of Goods
(1) (2)
9013 Liquid Crystal Devices not constituting
articles provided for more specifically in
other headings; lasers, other than laser
diodes; other optical appliances and
instruments, not specified or included
elsewhere in this Chapter
9013.80 Other devices, appliances and instruments;
901380.10 Liquid Crystal Devices (LCD)
9028 Gas, Liquid or electricity supply or
production meters, including calibrating
meters therefor
9028.90 Parts and accessories
9028.90.10 For electricity meters
5) One thing is clear. Both the tariff items under which classification
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is sought by the appellant as well as the authorities, fall under
Chapter 90. Therefore, it would be advisable to refer to the
relevant provisions of Note 2 to Chapter 90 as these notes are
inserted to guide how the goods are to be classified under this
Chapter. Heading of Chapter 90 is as follows:
“Optical, photographic, cinematographic,
measuring, checking, precision, medical or
surgical instruments and apparatus; parts and
accessories thereof”
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6) Note 1 of this Chapter stipulates certain items which are not
covered under this Chapter. Obviously, this Note does not
concern us in the present appeal. Note 2, which is material for
the purposes of this appeal, is reproduced below:
“ 2. Subject to Note 1 above, parts and accessories
for machines, apparatus, instruments or articles of
this Chapter are to be classified according to the
following rules:
(a) Parts and accessories which are goods
included in any of the headings of this Chapter or
of Chapter 84, 85 or 91 (other than heading No.84,
85, 85.48 or 90.33) are in all cases to be classified
in their respective headings;
(b) other parts and accessories, if suitable for use
solely or principally with a particular kind of
machine, instrument or apparatus, or with a
number of machines, instruments or apparatus of
the same heading (including a machine, instrument
or apparatus of heading No. 90.10, 90.13 or 90.31)
are to be classified with the machines, instruments
or apparatus of that kind;
(c) all other parts and accessories are to be
classified in heading No. 90.33.”
JUDGMENT
7) It is not in dispute that the goods in question which are imported
by the appellant are LCDs. It is also not in dispute that these
devices are used in electricity supply meters. Since the LCDs are
used for electronic supply meters by the appellant, the Revenue
has taken the view that it would fall in tariff item No. 9028.90 as
that entry specifically includes, amongst others, electricity supply
meters. As LCDs are used as part of the electricity supply
Civil Appeal No. 7526 of 2004 Page 5 of 19
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meters, they are held to be covered under sub-heading 9028.90
by the Revenue. It may be emphasised that in coming to this
conclusion, the authorities below have been influenced by the fact
that the goods imported are actually used as parts of electronic
energy meters and the appellant has even admitted the same.
8) Challenging the aforesaid view of the authorities, submission of
Mr. Lakshmikumaran, learned counsel appearing for the
appellant, is that when the specific description of the goods in
question, namely, LCDs, is distinctly covered by another tariff item
which is 9013, it has to be classified in that entry and the factum
of its use as part or accessory in the electronic energy meters
would be of no consequence and, therefore, it cannot be held to
be covered by tariff item 9028.90. The submission, precisely, was
that whenever a particular item of goods falls in a specific tariff
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item, it has to be classified under the said tariff item and not in
other item where it can be used as part thereof.
9) Mr. Lakshmikumaran has also placed heavy reliance upon Note 2
attached to Chapter 90 and argued that as per Note 2(a), parts
and accessories, which has goods included in any of the
headings of said Chapter 90 (or of Chapter 84, 85 or 91), are to
be classified in their respective headings.
Civil Appeal No. 7526 of 2004 Page 6 of 19
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10) Ms. Kiran Suri, learned senior counsel appearing for the
respondent/department, argued, per contra , that in the present
case goods were specifically meant for use as parts in electric
meters, which is even accepted by the appellant. Therefore, Note
2 would not apply in this case. She submitted that under these
circumstances it is the General Rule of Interpretation that would
apply and referred to Rule 3 of the said Rules and contended that
if the goods are classifiable under two or more headings, on the
application of Rule 2(b) of the General Rules of Interpretation,
then the classification has to be in the manner stipulated in Rule 3
of the General Rules. Rules 2 and 3 are as under:
“2. (a) Any reference in a heading to an article shall
be taken to include a reference to that article
incomplete or unfinished, provided that, as
presented, the incomplete or unfinished article has
the essential character of the complete or finished
article. It shall also be taken to include a reference
to that article complete or finished (or falling to be
classified as complete or finished by virtue of this
rule) presented unassembled or dis-assembled.
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(b) Any reference in a heading to a material or
substance shall be taken to include a reference to
mixtures or combinations of that material or
substance with other materials or substances. Any
reference to goods of a given material or substance
shall be taken to include a reference to goods
consisting wholly or partly of such material or
substance. The classification of goods consisting
of more than one material or substance shall be
according to the principles of rule 3.
3. When by application of rule 2(b) or for any other
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reason, goods are, prima 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 for retail sale, those headings are to be
regarded as equally specific in relation to those
gods, 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, insofar as this criterion is
applicable.
(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.”
11) She argued that as per Rule 3(a) of the Rules, it was incumbent
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to classify the goods in that heading which provides 'the most
specific description' in contrast with the heading providing for a
more general description. She also referred to the following
portion of the assessment order made by the Commissioner of
Customs to buttress her aforesaid submission:
“Even if we ignore the above definition of device
and consider the imported parts i.e. Liquid Crystal
Displays to be “devices”, only those liquid crystal
devices/displays which do not constitute article
Civil Appeal No. 7526 of 2004 Page 8 of 19
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provided for more specifically in other headings will
be covered in CTH 90.13. In other words, liquid
crystal devices/displays which do not specifically
form part of a specific type of equipment will be
classified here. General purpose LCD, for example
the one displaying only 0-9 numbers, which can be
attached to several devices/equipments and cannot
be specifically covered in any one heading as parts
are to be classified here if they are considered as
devices. Had the intention been to cover all Liquid
Crystal Devices/displays in CTH 90.13 there was
no need for the description -
“Liquid Crystal Devices not constituting articles
provided for more specifically in other headings.”
And “Liquid Crystal Device” would have been
sufficient instead. The only way to make Liquid
Crystal Device/display more specifically covered in
other heading is to make it a part of a specific
articles as in present case.
There can be an argument whether being part of a
specific goods can make LCD more specifically
covered in that heading as part of the specified
equipment as compared to CTH 90.13, but there
can be no doubt that such situation certainly makes
it classifiable in other heading (e.g. CTH 9029.90 in
present case). And when any good is classifiable
in two or more headings, then as per Rule 3(c) of
General Rules for Interpretation, the heading which
occurs last in numeric order is to be preferred.”
JUDGMENT
12) We have given due consideration to the aforesaid submissions
made by learned counsel for the parties.
13) We may point out at the outset that Rule 3 of the General Rules,
which is sought to be invoked by the Department, would be seen
and examined if the classification cannot be determined according
to the terms of the headings and relevant Section and Chapter
Civil Appeal No. 7526 of 2004 Page 9 of 19
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Notes thereof. It is clearly provided in Rule 1 of the General
Rules itself, which reads as under:
“Classification of goods in this Schedule shall be
governed by the following principles:
1. The titles of Sections, Chapters and
sub-Chapters are provided for ease of reference
only; for legal purposes, classification shall be
determined according to the terms of the headings
and any relative Section or Chapter Notes and,
provided such headings or Notes do not otherwise
require, according to the following provisions:
xx xx xx”
It is manifest from the reading of this Rule that we will have
to first undertake the exercise of finding out as to whether the
goods in question can be classified, taking aid of the Chapter
Notes on which reliance is placed. This position is made
amplified in Commissioner of Central Excise, Nagpur v.
2
Simplex Mills Co. Ltd. , this Court held that the Rules for the
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Interpretation of the Schedule to the Central Excise Tariff Act,
1985 have been framed pursuant to the powers under Section 2
of that Act. The relevant para is reproduced below:
“11. The Rules for the Interpretation of the
Schedule to the Central Excise Tariff Act, 1985
have been framed pursuant to the powers under
Section 2 of that Act. According to Rule 1 titles of
sections and chapters in the Schedule are provided
for ease of reference only. But for legal purposes,
classification “ shall be determined according to the
terms of the headings and any relevant section or
2 (2005) 3 SCC 51
Civil Appeal No. 7526 of 2004 Page 10 of 19
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chapter notes”. If neither the heading nor the notes
suffice to clarify the scope of a heading, then it
must be construed according to the other following
provisions contained in the Rules. Rule 1 gives
primacy to the section and chapter notes along with
terms of the headings. They should be first
applied. If no clear picture emerges then only can
one resort to the subsequent rules. The appellants
have relied upon Rule 3. Rule 3 must be
understood only in the context of sub-rule (b) of
Rule 2 which says inter alia that the classification of
goods consisting of more than one material or
substance shall be according to the principles
contained in Rule 3. Therefore when goods are
prima facie, classifiable under two or more
headings, classification shall be effected according
to sub-rules (a), (b) and (c) of Rule 3 and in that
order. The sub-rules are quoted:
“3. (a) The heading which provides the most
specific description shall be preferred to
heading 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,
those headings are to be regarded as equally
specific in relation to those goods, even if one
of them gives a more complete or precise
description of the goods.
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(b) Mixtures, composite goods consisting of
different materials or made up of different
components, and goods put up in sets, 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, insofar as this criterion is
applicable.
(c) When goods cannot be classified by
reference to (a) or (b), they shall be classified
under the heading which occurs last in the
numerical order among those which equally
merit consideration.”
Civil Appeal No. 7526 of 2004 Page 11 of 19
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Before we advert to this core issue, let us understand what
constitutes LCDs and its functions, with adequate clarity.
14) In Bloomsbury Dictionary of 'Science for Everyone' , LCD and LED
( light emitting diode ) are described in the following manner:
“ LCD AND LED
The two principal methods of forming number sand
letters on instruments such as calculators and
digital watches. A basic pattern of seven bars is
used to form the digits 0 to 9 and several letters.
To form other letters and symbols, more than seven
bars are required.
In the LED ( light-emitting diode ), the bars are made
of a substance that permits an electric current to
flow through in one direction only. A substance
used in this way is called a diode . As the current
flows, the diode gives off red, blue, yellow, or other
coloured light, depending on the compound of
which it is made. For example, gallium phosphide
(GaP) emits a green glow. Electric circuits in the
instrument selectively turn on the current to the
bars to form the various numbers and letters.
In the LCD ( liquid crystal display ), the bars are
made of liquid crystals. These are a kind of hybrid
material, not quite a liquid and not quite a solid.
They can't be poured readily, as with liquids, nor
are their molecules locked in place, as with true
solids. But the molecules can be rotated slightly by
an electric current. When no current flows, the
bars are not noticeable, because they reflect light
to the same extent as the rest of the display
surface. But when a current flows through a bar, its
molecules rotate and its ability to reflect light is
reduced. That bar appears darker than the area
around it and forms part of a number or letter.
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You can produce a similar darkening effect, called
polarization, with Polaroid sunglasses. Hold the
glasses several centimeters from one eye and look
Civil Appeal No. 7526 of 2004 Page 12 of 19
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through one lens at a shiny, sunlit surface. Rotate
the lens and observe the darkening.
Liquid crystals can be made to order to do a
particular job. For example, one kind of crystal is
sensitive to slight temperature changes. It is used
in thermometers where the number representing
the temperature appears, then disappears, to be
succeeded by a higher or lower number as the
temperature changes.”
The basic pattern of digits or letters which is formed in these
LCDs is as follows:
0 1 2 3 4 5 6 7 8 9
a c e f h I j l p u
As is clear from the above, in the LCD the bars are made of liquid
crystals which are neither liquid nor solid entirely, but a hybrid
material of the two. The molecules are rotated slightly by electric
current making a particular bar darker than the area around it
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thereby forming part of a number or letter.
15) Keeping in mind the aforesaid nature of product in question, we
revert to the tariff entries. It cannot be disputed that LCDs are
specifically provided in tariff item 9013. The only condition is that
such LCDs should not constitute 'articles' provided more
specifically in other headings. In the present case, it is also not in
dispute that LCDs imported by the appellant did not constitute any
Civil Appeal No. 7526 of 2004 Page 13 of 19
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such 'article' which is more specifically provided in other
headings. On the contrary, the Revenue wants to include in the
same Chapter, i.e. Chapter 90, though under Entry 9028.90.10 as
“parts and accessories” . The only reason for including the goods
under Chapter Heading 9028 is that the LCDs were to be used in
the electricity supply meters. However, Entry 9028 does not
pertain to LCDs but gas, liquid, etc. and includes electricity supply
meters as well. Merely because these LCDs are to be used as
parts in the said electricity supply meters, can it be said that they
are to be included in Entry 9028? Here, Note 2 of this Chapter
Notes becomes important since LCDs are used in the electricity
supply meters only as parts thereof.
Note 2(a) stipulates that parts and accessories which are goods
included in the heading of the said Chapter, i.e. Chapter 90, are to
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be classified in their respective headings. Going by the plain
reading of Note 2(a) it is clear that LCDs, which are goods and
are used as parts in the final product mentioned in Chapter 90,
namely, electricity supply meters, are to be classified in its
respective heading. Respective heading, which is specifically
provided, is 9013.
16) It was sought to be argued by Ms. Kiran Suri that as per Note
2(b), when these LCDs are used solely for particular instrument,
Civil Appeal No. 7526 of 2004 Page 14 of 19
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namely, electricity supply meter, it has to be classified with the
said meter and, therefore, Chapter Entry 9028 would get
attracted. However, this argument loses sight of the fact that Note
2(b) relates to 'other parts and accessories' , namely, it would
apply to those parts and accessories for which Note 2(a) is
inapplicable. Once we find that in the present case Note 2(a)
squarely applies, the irresistible conclusion is that the goods will
be classified in tariff item 9013, which is the specific heading for
these goods.
3
17) In Collector of Central Excise v. Delton Cables Ltd. & Anr. ,
this Court has held, while interpreting Notes 2(a) and 2(b) of
Chapter Heading 85, which is virtually to the same effect, that
Note 2(b) would apply only if the items in question were not
specifically classifiable under their respective headings. Para 4 of
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the said judgment, to this effect, reads as under:
“4. It is clear from a reading of the two clauses to
the section note that clause (b) would only apply
once it was found that the items in question were
not specifically classifiable under their respective
headings. As has been clearly said by the
Collector (Appeals)
“from the sequence of the paragraphs given
under Section Note 2 it is clear that the
question of switching over to Section Note 2 (b)
can arise only after ensuring that the parts are
not covered by Section Note 2 (b) [ sic Section
3 (2005) 12 SCC 284
Civil Appeal No. 7526 of 2004 Page 15 of 19
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Note 2 (a) ] which begins with the expression
“other parts” meaning thereby that the parts
which are not covered by Section Note 2 (a)
would be considered for coverage by Section
Note 2 (b) . One cannot therefore directly jump
over to Section Note 2 (b) without exhausting
the possibility of Section Note 2 (a) .”
18) The aforesaid view of ours gets strengthened from Part-III of
Chapter Notes to Chapter 90. We may mention here that after
studying the Chapter Notes, Note 2 whereof is reproduced above,
there are certain guidelines provided under the caption 'General' .
Part-I thereof deals with General Content and Arrangement of the
Chapter; Part-II deals with Incomplete or Unfinished Machines,
Apparatus, etc.; and Part-III deals with Parts and Accessories.
We are reproducing here this portion in order to show how it
supports the view which we have proposed to take as indicated
above:
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“ (III) PARTS AND ACCESSORIES
Subject to Chapter Note 1, parts or accessories
identifiable as suitable for use solely or
principally with the machines, appliances,
instruments or apparatus of this Chapter are
classified with those machines, appliances, etc.
This general rule does not , however, apply to :
(1) Parts or accessories which in themselves
constitute articles falling in any particular heading
of this Chapter or of Chapter 84, 85 or 91 ( other
than the residual heading 84, 85, 85.48 heading
84.14 ; transformers, electro-magnets, capacitors,
resistors, relays, lamps or valves, etc., remain
Civil Appeal No. 7526 of 2004 Page 16 of 19
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classified in Chapter 85 ; the optical elements of
heading 90.01 or 90.02 remain in the headings
cited regardless of the instruments or apparatus to
which they are to be fitted; a clock or watch
movement is always classified in Chapter 91 ; a
photographic camera falls in heading 90.06 even if
it is of a kind designed for use with another
instrument (microscope, stroboscope, etc.)
(2) Parts or accessories suitable for use with
several categories of machines, appliances,
instruments or apparatus falling in different
headings of this Chapter are classified in heading
90.33 , unless they are in themselves complete
instruments, etc., specified in another heading (see
paragraph (1) above).”
19) This contains a general explanation to Chapter Note 2 and
mentions that where parts or accessories identifiable as suitable
for use solely or principally with the machines, appliances, etc.,
they are to be classified with those machines/appliances.
However, what is important is that immediately thereafter it is
clarified that this general rule would not apply in certain
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circumstances. Sub-para of the above takes things beyond the
pale of any doubt by making it crystal clear that those parts and
accessories which in themselves constitute 'article' falling in any
particular heading of this Chapter, the general rule will not apply
and said article would fall in that particular heading. To
demonstrate this, examples which are given, eminently fit into the
case at hand.
Civil Appeal No. 7526 of 2004 Page 17 of 19
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20) The aforesaid view of ours gets further cemented on going
through Explanatory Notes issued by the World Customs
Organization. Volume 4 of the Second Edition (1996), which
covers Chapters 85-97, contains explanatory note in respect of
item mentioned at 90.13, with which we are directly concerned
herein. Relevant portion thereof reads as under:
“ 90.13 – LIQUID CRYSTAL DEVICES NOT
CONSTITUTING ARTICLES PROVIDED FOR
MORE SPECIFICALLY IN OTHER HEADINGS:
LASERS, OTHER THAN LASER DIODES;
OTHER OPTICAL APPLIANCES AND
INSTRUMENTS, NOT SPECIFIED OR INCLUDED
ELSEWHERE IN THIS CHAPTER.
9013.10 - Telescopic sights for fitting to arms;
periscopes; telescopes designed to
form parts of machines, appliances,
instruments or apparatus of this
Chapter or Section XVI
9013.20 - Lasers, other than laser diodes
JUDGMENT
9013.80 - Other devices, appliances and
instruments
9013.90 - Parts and accessories
In accordance with Chapter Note 5, measuring or
checking optical appliances, instruments and
machines are excluded from this heading and fall
in heading 90.31 . Chapter Note 4, however,
classifies certain refracting telescopes in this
heading and not in heading 90.05. It should,
moreover, be noted that optical instruments and
appliances can fall not only in headings 90.01 to
90.12 but also in other headings of this Chapter (in
Civil Appeal No. 7526 of 2004 Page 18 of 19
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particular, heading 90.15, 90.18 or 90.27 ). This
heading includes:
(1) Liquid crystal devices consisting of a liquid
crystal layer sandwiched between two sheets or
plates of glass or plastics, whether or not fitted with
electrical connections, presented in the piece or cut
to special shapes and not constituting articles
described more specifically in other headings of the
Nomenclature.
xx xx xx”
As per this, LCD would be covered by 'other devices'
mentioned in 9013.80. That is precisely the case of the appellant.
21) The upshot of the aforesaid discussion leads to the conclusion
that the view taken by the Tribunal in the impugned judgment is
unsustainable in law. We, thus, allow the appeal, set aside the
orders of the authorities below and hold that LCDs imported by
the appellant were classifiable under Chapter Heading 9013.80.
JUDGMENT
.............................................J.
(A.K. SIKRI)
.............................................J.
(ROHINTON FALI NARIMAN)
NEW DELHI;
MAY 05, 2015.
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