While deciding the customs classification of “aluminium shelving for mushroom growing”, the Supreme Court explained that a surface supports an object but does not become a part of it. Accordingly, the Court ruled that the aluminium shelves merely serve as a surface for the devices to perform their functions, and the same is correctly classifiable under CTI 7610 9010 as ‘Aluminium Structures’ and not under CTI 8436 9900 as a ‘part’ of any agricultural machinery.
Emphasising the governing principles for applying the common or trade parlance test in classification disputes, the Court clarified that the test’s function is restricted to ascertaining the common or commercial meaning of a term when the statute provides no explicit definition or clear criteria. It can only be invoked if the tariff heading does not use scientific or technical terms and its application does not contradict the statutory framework.
The Court also clarified that in the HSN-era, it is not a measure of first resort and should only be used after a thorough review confirms the absence of statutory guidance. Further, the test cannot be used to reclassify a good that is clearly identifiable under a specific heading, merely because it is marketed or known by a different name in trade parlance.
A Two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan observed that “Use” can be a relevant factor only if the tariff heading refers to ‘use’ or ‘adaptation’, either explicitly or inherently. Further, the classification must be based on the ‘intended use’ which is inherent in the goods and discernible from their objective characteristics (function, design, composition) at the time of import.
The Bench went on to observe that the ‘actual use’ to which the goods are put post-importation is irrelevant, unless there is an overwhelming statutory intention to the contrary. The importer must demonstrate that the goods’ intended use conforms to the standard specified in the entry. However, the use criterion cannot be used to ignore the product’s fundamental identity.
The Bench found that the subject goods are made of aluminium and, based on the HSN Explanatory Notes, they are ‘structures’ as they generally remain in the same position once assembled. Therefore, the goods are prima facie classifiable under CTI 76109010. However, the Bench noted that if the goods were correctly classifiable under Chapter 84 (Section XVI), they would be excluded from Chapter 76 (Section XV) due to Section Note 1(f) to Section XV.
The Bench explained that the subject goods, being static, non-moving assemblies, are not ‘machinery’ in common parlance. They are mere structures. The Bench determined that the overall apparatus was neither a ‘composite machine’ (as components are not permanently fitted) nor a ‘functional unit’ (as each machine performs its own independent task).
The Bench also explained that a “part” is an integral component essential for an article to be complete and functional, whereas the subject goods do not meet this standard. The individual machines (watering system, compost spreader, etc.) are complete and fully operational on their own. The shelves merely serve as a surface or platform for the devices to perform their functions and do not contribute to their operation.
Accordingly, the Bench concluded that the subject goods cannot be classified under Chapter Heading 8436 as they are neither ‘machinery’ themselves nor ‘parts’ of any agricultural machinery.
Briefly, the respondent imported aluminium shelving, a floor drain, and an automatic watering system, and classified all items under Customs Tariff Item (CTI) 84369900 as ‘parts’ of agricultural machinery, which carries a nil rate of duty. The Customs department accepted the classification for the floor drain and watering system, but disputed the classification of the aluminium shelving. The department contended that the shelves were ‘aluminium structures’ and should be classified under CTI 76109010, which attracts customs duty. This misclassification led to a short levy of duty amounting to INR 21 lacs.
The Joint Commissioner of Customs held that the subject goods were liable to be classified under CTI 76109010. The decision was based on the findings that the goods were aluminium structures to be fixed at a location, their end-use was irrelevant for classification under CTI 7610, and they did not possess the characteristics of a machine. This adjudication was affirmed by the Commissioner of Customs (Appeals), adding that the goods could not be classified under Chapter Heading 8436 merely because they could be integrated with other machines used in mushroom cultivation.
On appeal, the CESTAT reversed the lower authorities’ decisions and held that the goods were specifically designed for the mushroom-growing industry and could not be used for any other purpose. Thus, Chapter 84 (specific to agricultural machinery) was more appropriate than Chapter 76 (generic to aluminium structures). The goods were a “mechanical appliance used for agricultural purposes” and were known in common trade parlance as Mushroom growing racks, not mere aluminium structures. Thus, relying on General Rule of Interpretation (GRI) 3, the CESTAT classified the goods under CTI 84369900.
Appearances:
AOR Gurmeet Singh Makker, for the Appellant/ Taxpayer
AOR Tahir Ashraf Siddiqui, along with Advocates Salil Arora and Mayur Punjabi, for the Respondent/ Revenue
