Customs Classification Must Follow Tariff Description, Not End Use: SC

Classification of Imported Goods – End Use Or Based on Specific Description – Supreme Court Delivers Verdict

The Honorable Supreme Court has given a very important verdict on the issue of Customs classification for imported goods where they are classified based on end use by the importer but actually have a specific description in the Tariff. In the latest verdict delivered just couple of days ago in Commissioner of Customs (Import) Vs M/s Welkin Foods (Civil Appeal 5531 of 2025 decided on January 6th 2026), the issue was regarding classification of aluminium racks used for growing mushrooms. The importer had classified the same as 84369900, as ‘parts’ of agricultural machinery, as opposed to Customs Tariff Item 76109010, as aluminium structures. This had led to a duty differential when compared to entry 76109010 which was sought by the Revenue Authorities. Revenue’s objection was that while floor drain and automatic watering system could be parts of agricultural machinery, the aluminium shelving was in fact an aluminium structure.

While the Order in Original and Order in Appeal went in Revenue favour, the CESTAT had ruled in favour of importer leading to Revenue being in appeal before the Supreme Court. CESTAT had observed thus while delivering its verdict –

(i) the respondent is involved in mushroom cultivation and got the subject goods imported from a party who exclusively deals in structures specific to the mushroom cultivation industry;

(ii) the subject goods are specifically designed to integrate with other machinery used in mushroom cultivation and are not simply aluminium shelves but mechanical appliances used for agricultural purposes;

(iii) the subject goods are essential for mushroom growing and are designed as part of the mushroom growing apparatus;

(iv) the subject goods cannot be used as aluminium structures for any purpose other than their specific use in the mushroom growing industry;

(v) in common trade parlance, the subject goods are known not as mere aluminium racks but as mushroom growing racks; and

(vi) Chapter 76 covers all aluminium structures generally, whereas Chapter 84 specifically pertains to any machine or device made of metal used for agricultural purposes.

Reason for contrary view by Revenue

One of the basis for Revenue view was that the subject goods, at the time of import, were in the form of aluminium shelves, which were structures made of aluminium. At this stage, the goods could not be classified as ‘agricultural machines’ because they were neither attached to any other machinery nor could they be used independently for mushroom cultivation while the CESTAT had gone based on end use of the item in question to classify the product.

As per the CESTAT, the subject goods served no purpose other than their specific use in the mushroom growing industry, as they were designed with such specifications to enable integration with other machines involved in mushroom cultivation.

Moreover, dictionary definitions of the word ‘Machine’ indicated that a machine consisted of moving parts that used power to carry out a specific task. The subject goods lacked any moving parts and did not transmit force, motion, or energy through them to accomplish a task.

Merely because the subject goods were used as a base or structure for other machines to be clamped onto them, the shelves themselves could not become an ‘agricultural machine’ or a ‘part’ of one.

Aluminium shelves exhibited characteristics of a ‘structure’, such as their arrangement of parts, immobility, and function as a supporting base. Therefore, they should have been classified as aluminium structures.

In this case, the subject goods, even if considered part of another incomplete article, did not possess the essential characteristics related to agricultural machinery and could not be classified as an agricultural machine.

Common parlance vs Specific Description

The Court at the very outset observed that the adoption of the common parlance or trade parlance test is often heavily contested. The consideration of end use as a factor for determining classification is a contentious issue in many classification disputes. Consequently, it is essential to understand whether end use can be taken into account when dealing with classification disputes of imported goods under the First Schedule of the Act, 1975, and if so, what principles govern such consideration.

The Court also went on to opine that Customs classification is best described as the process of identifying the appropriate heading, subheading, or tariff item for a good. This is the most crucial step in the customs law, as it is not just an administrative task. Instead, the classification determines the legal and financial treatment of the goods in question, including the applicable duty rate and eligibility for exemptions.

The Court referred to GRI 1 or the General Rules of Interpretation 1 which is the fundamental rule for effectively navigating the HSN. The influence of GRI 1 is pervasive and forms the basis for customs classification of goods under the Act, 1975. GRI 1 states that: (i) headings of sections, chapters and subchapters are for reference only and (ii) for legal purposes, the classification shall be determined by the terms of headings and the relevant section or chapter notes. Thus, GRI 1 essentially establishes the primacy of the notes and terms of headings for determining the classification of a product.

The primary purpose of the GRIs as per the Court is to establish mandatory boundaries for any classification inquiry, ensuring a structured, uniform, and predictable approach to classification. It is essential not to treat these GRIs as a menu of options that can be invoked randomly, but rather as a legal framework that dictates a precise and sequential methodology for classifying all goods. Therefore the GRIs 1-4 had to be applied sequentially.

(a) Classification begins and, in most cases, ends at the first door: GRI 1.

(b) If, upon applying GRI 1 and/or GRI 2 (often acting as an extension of GR1), the result is a tie between two or more headings, the key to the GRI 3 door is granted to find the tie-breaker.

(c) Further, once the door to GRI 3 is unlocked, the subsequent doors to GRI 3(b) and GRI 3(c) are also unlocked in a sequential manner, i.e., the door to GRI 3(b) unlocks only when the dispute is not resolved through application of GRI 3(a), and similarly door to GRI 3(c) unlocks only when the dispute is not resolved through application of GRI 3(b)

(d) If, upon applying GRI 1 and/or GRI 2, the result seems to be that no heading applies at all, the key to the GRI 4 door is granted to find the “most akin” good.

The official interpretation of the HSN is provided in the Explanatory Notes published by the World Customs Organisation (hereinafter “Explanatory Notes”). Therefore, these Explanatory Notes form the foundation for interpreting the HSN. Given their importance for classification, it is apposite to understand how they can be used when addressing questions of classification under the First Schedule of the Act, 1975.

The application of Explanatory Notes is governed by a single, critical condition of ‘alignment’. This test is met when the domestic tariff entry (in the First Schedule of the Act, 1975) is fully aligned with the corresponding HSN heading, and no explicit deviation or contrary legislative intent is found in the Act, 1975. Where such alignment exists, the Explanatory Notes are to be treated as binding guidance. The rationale is based on the legislative intent. Since the First Schedule of the Act, 1975 was amended to be in accordance with the HSN, the Explanatory Notes, being the official, international interpretation, are the most authentic guide to understanding the scope of the headings. The court found the alignment test to be satisfied in the case on hand.

It is only when a particular term in a taxing statute is not defined, that it should be understood in the sense recognised by those who deal with it. The purpose of a fiscal statute is to generate revenue, and the legislature assumes it is addressing the public and traders, not scientists or technical experts. Therefore, the terms used in the statute are based on the understanding of those dealing with the said goods. If a specific scientific meaning had been intended, the statute would have included an explicit definition to that effect.

The Court noted the view taken in Union of India & Ors v. Garware Nylons Ltd & Ors, reported in (1996) 10 SCC 413 and noted that –

a. First, it clarifies when the common understanding of the term should be adopted, as opposed to when its trade understanding must be applied. The choice is not arbitrary but rather determined by the statutory context and the audience to whom the tariff item is addressed. When a statute or tariff is general in nature and does not indicate a particular industry or trade circle, the common parlance understanding is appropriate. However, when a tariff item is specific to a particular industry, as was the case in Garware Nylons (supra), the term must be understood as it is used within that specific trade circle.

b. Secondly, the Court highlighted that when a party asserts a meaning of a term based on common or trade parlance, it must present satisfactory evidence to support that claim. A dispute over classification cannot be resolved without such evidence.

Next up was the verdict in Commissioner of Central Excise, New Delhi v. Connaught Plaza Restaurant Private Limited, reported in (2012) 13 SCC 639. The Court noted that earlier in the aforesaid case, the classification of “soft-serve” had been concluded holding that the term “ice cream” should be interpreted using the common parlance test rather than adopting a scientific or technical meaning. Notably, the Court had applied the common parlance test not only because there was no specific definition, but also because the statutory context, including the heading, section, and chapter notes, provided no guidance on how to interpret ‘ice cream’. In this context of statutory flexibility, the Court employed the common parlance test to determine whether “soft serve” qualifies as “ice cream” under the Central Excise Tariff Act, 1985. Furthermore, notably, the Court also held that mere marketing alone could not lead a subject item to develop a separate meaning distinct from its common parlance.

The Court then also looked at cases where common parlance test was not followed. The verdict in Akbar Badrudin Giwani v. Collector of Customs, Bombay, reported in (1990) 2 SCC 203 was seen in context of classification of imported stones i.e. whether or not they were marble which resulted in the Court in the said case, making it clear that it would not apply the common or trade parlance tests to determine the meaning of the terms if: (i) such application contradicted the statutory context in which the word was used, (ii) such application conflicted with the clear intention expressed by the statute, or (iii) the statute itself employed the words in a scientific or technical sense.

The Court noted that in the HSN era, where GRI 1 explicitly states that the classification of a good should prioritise chapter headings, chapter notes, and section notes, it is only when (i) no clear pathway exists to determine classification under a chapter heading, i.e., absence of a definition or criterion, and (ii) there is ambiguity regarding the meaning and scope of a tariff item, that the possibility of invoking the common parlance test arises.

Scientific or specialised meaning and sub-category of items

The Court was of the view that while dealing with classification involving tariff headings that use scientific or technical terms, if fiscal law specifically classifies an item under a technical term in one category, the same should not be moved to another category just because people in the market use a different name for it. Doing so would go against the legislative intent, as the legislature itself had adopted a technical term, expecting it to be understood in the technical sense.

The following settled principles emerge as per the Court regarding where there are claims of separate commercial identity: (i) first, if the importer or manufacturer claims that a special meaning is attributed to the goods in the market, then the burden lies on such importer or manufacturer to prove this specialised meaning, distinct from its common or commercial understanding; and (ii) secondly, such a specialised meaning cannot be established solely on the basis of the product’s marketing and nomenclature in the market.

The mere fact that a product constitutes a sub-type of a broader category does not, by itself, establish a separate commercial identity for classification purposes. To succeed in such a claim, the importer or manufacturer must establish that the product has undergone such a substantial transformation that it can no longer be identified with the general class of goods of a category, but must instead be recognised as a distinct commercial entity. This transformation must be substantial and not merely incidental. Simple incidental changes, which do not fundamentally alter the nature and character of the goods, do not suffice to remove a product from the grasp of its general class or the common or commercial meaning associated with that class. The inquiry in this regard must focus on whether there are major differences in the design, utility, nature, character, and functions of the good.

Governing principles for common parlance test

The Court therefore came out with the following governing principles in order to apply the common parlance test –

a. The common or trade parlance test must be applied restrictively. Its function is limited to ascertaining the common or commercial meaning of a term found within a tariff heading or its defining criterion.

b. The trade or common parlance test can be invoked when dealing with a classification dispute only when the following conditions are satisfied –

i. The governing statute, including the relevant tariff heading, Section Notes, Chapter Notes, or HSN Explanatory Notes, does not provide any explicit definition or clear criteria for determining the meaning and scope of the tariff item in question.

ii. The tariff heading does not include scientific or technical terms, or the words used in the heading are not employed in a specialised, technical context.

iii. The application of the common parlance test must not contradict or run counter to the overall statutory framework and the contextual manner in which the term was used by the legislature.

c. In the contemporary HSN-based classification regime, the common or trade parlance test cannot serve as a measure of first resort. It should only be employed after a thorough review of all relevant material confirms the absence of statutory guidance.

d. When interpreting terms in a tariff item by relying on the basis of common or trade parlance, an overly simplified approach should be avoided, and the words should be understood within their legal context. Further, when a party asserts a meaning of a term based on common or trade parlance, it must present satisfactory evidence to support that claim.

e. When a tariff item is general in nature and does not indicate a particular industry or trade circle, the common parlance understanding of that term is appropriate. However, when a tariff item is specific to a particular industry, the term must be understood as it is used within that specific trade circle.

f. The common or trade parlance test cannot be used to override the clear mandate of the statute. Specifically:

i. The test cannot be applied in a way that results in the reclassification of a good that is clearly identifiable under a particular heading according to the statute, simply because that good is marketed or called by a different name in trade or common parlance.

ii. Conversely, the test cannot be used to challenge the classification of goods under a statutory heading if those goods retain the essential characteristics defined by that heading, even if they have a unique or specialised trade name. In other words, the character and nature of the product cannot be veiled behind a charade of terminology which is used to market the product or refer to it in common or commercial circles.

iii. To establish a separate commercial identity, it is essential to demonstrate that the good has undergone such a substantial transformation that it can no longer be characterised as a mere sub-type or category of a broader class and thus falls outside the ambit of the common or commercial understanding associated with such a class of goods.

In other words, the common or trade parlance test cannot be invoked where the statute, either explicitly or implicitly, provides definitive guidance. Explicit statutory guidance exists where the legislature provides a specific definition or a clear criterion for a term within the Act itself. Conversely, implicit guidance is found where the terms employed are scientific or technical in nature, or where the statutory context indicates that the words must be construed in a technical sense. It is only in a state of statutory silence, where the legislative intent remains unexpressed, that the tribunals or courts may resort to the common or trade parlance test. A review of the foreign jurisprudence also revealed that Courts in USA and Europe also applied common parlance test in a similar way.

End use basis for classification

The Court specifically observed that whether or not the purpose for which goods are used can be considered while deciding on their classification under fiscal statutes is often a highly debatable issue. As with all classification disputes, the parties’ position regarding use depends on a single factor: the rate of the taxable duty. Importers, manufacturers, and traders will invoke ‘use’ when it allows them to have the goods taxed at a lower rate. Conversely, the revenue authorities will seek to invoke use when they see the possibility of taxing the goods at a higher rate.

The Court relying on Dunlop India’s case even if it was in the pre-HSN era, has noted that the use of an article for classification under customs law is only relevant if the entry referred to the “use or adaptation”. If such a reference is absent from the entry, use cannot be regarded as a relevant factor for the purposes of classification. The Court also acknowledged that the ‘taxable event’ occurs when the goods are imported into the country, and consequently, what matters is the condition of the goods at the time of import. The above principles hold good even in the post HSN era.

As per the Court, there could be cases where there is an inherent reference to ‘use’ or ‘adaptation’ in a tariff heading and this may possibly be present in these two scenarios:

a. Firstly, the language of the tariff heading or the supporting chapter and section notes is inherently indicative of consideration of use. For example, a heading that reads as ‘refrigerating or freezing equipment’ or ‘tool tips’ inherently refers to ‘use’ in the form of ‘function’ (refrigeration or freezing and cutting or working point of a larger tool, respectively). Consequently, use can be considered a factor when classifying goods under this heading. Another example is the heading, which reads, “Motor vehicles principally designed for the transport of goods.” This clearly indicates consideration of “use” (transportation of goods), albeit such consideration of use should be primarily derived from the design features of the good.

b. Secondly, in cases where the common or commercial meaning adduced to the eonomine (i.e. by or under that name) good provided for in the tariff heading is such that the ‘use’ of the article is an important and defining component of an article’s identity. For example, the common parlance meaning of ‘air conditioning machines’ would indicate that the ‘use’ of an ‘air conditioning machine’ is an important and defining component of its identity.

Sometimes, depending on the specific tariff item and relevant statutory context, intended use can also be assessed through other objective factors, such as design features and composition. These factors may be considered individually or together. Here, (i) the actual use to which a product is put is irrelevant for determining classification and only intended use can be considered and (ii) if an importer or manufacturer wishes to classify based on the intended use of the product, then such ‘intended use’ must be inherent in the product and should be discernible from the objective characteristics and properties of the good in question. The twin factors mentioned should be regarded as fundamental principles while determining the classification of a product under the First Schedule of the Act, 1975 at the point of import.

Standard of intended use to be established by the importer

The burden on the importer is to show that the product’s intended use, supported by its objective features, aligns with the specific standard set by the statute. This standard varies, depending on the exact wording and legal context of the tariff heading itself. The Court has proceeded to provide illustrations:

a. A tariff heading might cover “Motor vehicles principally designed for the transport of goods”. If an importer seeks classification under this heading, it is not enough to merely prove the vehicle can carry goods. The law itself defines the standard. The importer must demonstrate, using objective evidence of the vehicle’s design and features, that its principal use is to transport goods.

b. An importer imports certain LCDs and wants to classify them under the heading “Electricity meters”. The relevant chapter contains a note that states parts or accessories must be classified under the same heading that describes the final good if they are intended to be used solely in such final good. In such a situation, to classify the goods under the heading of “Electricity meters”, the importer has to satisfy that the LCDs were such that they could solely be used in electricity meters.

Therefore, usage could be a consideration for solving classification disputes where –

a. ‘Use’ can be considered as a relevant factor when dealing with classification, only if the concerned tariff heading allows for consideration of ‘use’ or ‘adaptation’, either explicitly or implicitly.

b. A tariff entry is said to allow consideration of ‘use’ or ‘adaptation’ for classification in the following scenarios:

I. The tariff heading itself explicitly contains a reference to use or adaptation.

II. The notes related to a tariff item provide a legal definition or criterion that includes a reference to use or adaptation.

III. Use or adaptation is inherent in the wording of the tariff entry itself.

IV. The heading is an eonomine term with no statutory definition, and based on the common or trade parlance test, the Court concludes that the common or commercial meaning of the good includes ‘use’ or ‘adaptation’ of the good as a defining aspect of its identity.

c. Unless statutory intention to the contrary is proven, an importer cannot classify goods based on the actual use to which the goods are put.

d. If the importer wishes to classify goods based on their ‘intended use’, then the following conditions must be fulfilled:

I. First, the tariff heading under which the importer seeks to classify should allow consideration of ‘use’ as a relevant factor;

II. Secondly, if such a tariff heading allows for consideration of ‘use’, the ‘use’ mentioned in the tariff heading and the ‘intended use’ claimed by the importer must be consistent.

III. Lastly, the intended use as claimed by the importer:

1. should be inherent in the goods in question and should be discernible from their objective characteristics and properties, which include, among other things, factors such as function, design and composition; and

2. should conform to the standard of use established for that entry.

e. When a tariff heading contains both an eonomine component and a use component, both criteria must be satisfied. An importer cannot rely on the use criterion to ignore the product’s fundamental eonomine identity.

The Court has also provided a caveat indicating that objective is not to establish a comprehensive framework or a universal test for classification in all cases. The exact criterion for determining such intended use and the test to be applied for final classification would depend on the type of goods, the wording of the tariff entries under review, and other relevant material, such as chapter, section, and explanatory notes.

Foreign jurisprudence

United States

The Court has further noted jurisprudence followed in USA for classification noting that tariff item provisions are broadly divided into eo nomine and use provisions. Of late US courts have considered use even under eo nomine headings, provided the term inherently references the product’s use. Reference has also been made to “Additional U.S Rules of Interpretation” where Rule 1(a) and Rule 1(b) merit attention:

a. Rule 1(a) deals with principal use and reads as follows: a tariff classification controlled by use (other than actual use) is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of goods of that class or kind to which the imported goods belong, and the controlling use is the principal use.

b. Rule 1(b) deals with actual use and reads as follows: a tariff classification controlled by the actual use to which the imported goods are put in the United States is satisfied only if such use is intended at the time of importation, the goods are so used, and proof thereof is furnished within 3 years after the date the goods are entered.

Thus, in the United States, use provisions are categorised either into principal use provisions or actual use provisions.

European Union

The Court has observed that under European Union law, it is a well-established principle that, in the interests of legal certainty and ease of verification, the main criterion for classifying goods for customs purposes is generally based on their objective characteristics and properties as defined in the wording of the relevant heading and notes to the sections or chapters. [See Indurstriemetall Luma GmbH v Hauptzollamt Duisburg – Case 38/76].

In accordance with the above principle, the intended use of a product can serve as an objective criterion for classification under European Union Law only if the intended use is inherent to the product and can be assessed based on the product’s objective characteristics and properties. Several factors relevant for determining intended use include: (i) the methods of use of the good, i.e., what functions it can perform; (ii) the place of the good’s use, i.e., where and in which context it can be used; and (iii) the design of the good, i.e., whether it is specifically designed for such an intended purpose.

The Indian approach to use-based classification was held to be a hybrid structure that combined elements of the methods used in the United States and the European Union.

Court’s Conclusion on classification of aluminium shelves

The Court found Chapter Heading 7610 to be an eo-nomine provision which maked no reference to use in any manner whatsoever, either explicitly or inherently. An eo nomine provision is one that describes a commodity by its name. A use limitation cannot be imposed on an eo-nomine provision unless the name inherently suggests use. An eo-nomine provision would ordinarily include all forms of the name article. Consequently, Chapter Heading 7610 would cover all forms of aluminium structures, except for prefabricated buildings of heading 94.06, which have been excluded by the heading itself.

There was no explicit definition or criterion provided for determining what constitutes a structure in the Schedule to the Act, 1975. Answer is however in the explanatory notes. The explanatory note to heading 7308, which is relevant to Chapter Heading 7610, offers a broad criterion for recognising ‘structures’: firstly, they generally remain in the same position once assembled, and secondly, they are usually composed of various prepared components (such as rods, tubes, plates, etc.) joined by methods like riveting, bolting, or welding.

The subject goods were found to fulfil the characteristics and unquestionably fall within the category of structures. There was no doubt that even in common parlance, the subject goods would be referred to as structures. Therefore, the subject goods were classifiable under CTI 76109010 as Aluminium Structures.

Chapter Heading 8436 is, first and foremost, an enamine heading for ‘machinery’. It referred to goods by their name: ‘agricultural machinery’. The fact that an entry did not specify a particular article, but rather a category of articles, did not change it from an eo nomine provision to a ‘use’ provision. Tariff headings often name broad categories without losing their eo nomine character.

However, it was undeniable that the term ‘agricultural machinery’ inherently refered to ‘use’. It pertained to items primarily utilised in agricultural processes. While the First Schedule of the Act, 1975 offered no explicit definition or criteria for classifying goods as ‘agricultural machinery’, support for this interpretation could be found in the HSN Explanatory Notes, which stated that Chapter Heading 8436 belonged to a category of headings that group machinery by the field of industry in which it was used, regardless of its specific function in that field. Such an interpretation aligns perfectly with the common parlance meaning associated with the term ‘agricultural machinery’. There was no doubt that, in common parlance, the term ‘agricultural machinery’ was understood to mean machinery whose principal use was in agricultural processes. To be classified under Chapter Heading 8436, the use test must be one of ‘principal use’, not ‘use’ simpliciter.

A “part” is an integral or constituent component that is essential for the article to be complete and functional. This condition is not met where each individual machine/goods under import is self-contained. These shelves do not contribute to their operation; they merely serve as a surface for the devices to perform their functions. A surface supports an object but does not become a part of it.

Reliance on marketing materials

Relying solely on marketing materials, such as brochures, or on the fact that the goods were sourced from a person dealing in mushroom cultivating equipment, could not be sufficient grounds to establish that, in trade parlance, the subject goods were known as mushroom growing racks. To establish a separate commercial identity distinct from that of general aluminium shelves, sufficient evidence needed to be presented, especially indicating how the goods, owing to their design, structure, and function, substantially transformed from being merely aluminium shelves into mushroom growing racks. No such evidence was discernible in this case. However, in the facts of this case, even if the subject goods obtained a separate commercial identity, it would not still warrant their classification under CTI 84369900, as they could not be regarded as ‘parts’ of an agricultural machinery.

Conclusion

The above principles could impact many cases where classification disputes are already underway or could come up moving forward where the opposing parties rely on end use/common parlance test vis-à-vis specific description classification respectively. Unless items in question meet the test laid down here, there could be exposures for the tax payers. Those dealing with high value imports would be well advised to get their classification positions checked periodically so that they are not saddled with huge liabilities at a later date which could be disconcerting.