Car mattings are not vehicle accessories for Excise Duty payment: SC

Commissioner of Central Excise Vs UNI Products India Ltd. (Supreme Court of India)

The core issue in these appeals is as to whether car mats come under chapter-heading 57.03 or not. In the second appeal, the numerical representation of the product, as claimed by the assessee, was different but that difference is not of much Revenue’s case is that the goods are manufactured in such a way that these can be used as accessories of cars. The Tribunal found that though in common parlance the products involved may not be considered as carpets, in view of the wordings of the chapter, section notes, chapter notes and explanatory notes, the goods were classifiable under chapter heading 570390.90.

We do not find any error in such reasoning. Chapter 87 of the Central Excise Tariff of India does not contain car mats as an independent tariff entry. We have reproduced earlier the various parts and accessories listed against tariff entry 8708. All of them are mechanical components, and revenue want car mats to be included under the residuary sub-head “other” in the same list. The HSN Explanatory Notes dealing with interpretation of the rules specifically exclude “tufted textile carpets, identifiable for use in motor cars” from 87.08 and place them under heading 57.03. Revenue’s argument is that the Explanatory Notes have persuasive value only. But the level or quality of such persuasive value is very strong, as observed in the judgments of this Court to which we have already referred. Moreover, the Commissioner himself has referred to the Explanatory Notes in the order-in­original while dealing with the respondent’s stand. Thus, we see no reason as to why we should make a departure from the general trend of taking assistance of these Explanatory Notes to resolve entry related dispute. Now, on referring to these Explanatory Notes, we find that one category of carpets [Textile carpets (Chapter 57)] has been excluded specifically from parts and accessories. In our opinion, the subject-item does not satisfy the third condition specified in Section XVII of the Explanatory Notes in relation to “III-Parts and Accessories”. A plain reading of clause (C) thereof, which we have quoted above, excludes “textile carpets” (Chapter 57).

The main argument of the appellant is that because the car mats are made specifically for cars and are used also in cars, they should be identified as parts and accessories. But if we go by that logic, textile carpets could not have been excluded from Parts and Accessories. We have referred to such exclusion in the preceding paragraph. It has also been urged on behalf of the revenue that these items are not commonly identified as carpets but are different products. The Tribunal on detailed analysis on various entries, Rules and Notes have found they fit the description of goods under chapter heading 570390.90. We accept this finding of the Tribunal. Once the subject goods are found to come within the ambit of that sub-heading, for the sole reason that they are exclusively made for cars and not for “home use” (in broad terms), those goods cannot be transplanted to the residual entry against the heading 8708. As we find the subject-goods come under the chapter-heading 570390.90, and the other entry under the same Chapter forming the subject of dispute in the second order of the Commissioner, in our opinion, there is no necessity to import the “common parlance” test or any other similar device of construction for identifying the position of these goods against the relevant tariff entries.

FULL TEXT OF THE SUPREME COURT JUDGEMENT

These two appeals against the decision of the Customs Excise & Service Tax Appellate Tribunal (CESTAT) rendered on 16^th July, 2008 require adjudication on the question as to whether “car matting” would come within Chapter 57 of the First Schedule to the Central Excise Tariff Act, 1985 under the heading “Carpets and Other Textile Floor Coverings” or they would be classified under Chapter 87 thereof, which relates to “Vehicles other than Railway or Tramway Rolling-Stock and Parts and Accessories Thereof”. The appeals are against a common decision and we shall also deal with both these appeals together in this judgment. The respondent-assessee want their goods to be placed under Chapter heading 5703.90. We shall refer to the specific entries against this item later in the judgment. The respondent, at the material point of time were engaged in the business of manufacture of textile floor coverings and car matting. The subject-goods have been referred to interchangeably by the revenue also as car mattings and car carpets. The respondent, at the material time, were clearing the goods declaring them to be goods against Heading No.570390.90. Effective rate of excise duty on goods under that entry was 8% and education cess at the applicable rate for the subject period. We find this rate of duty, inter-alia, from the order of the Commissioner dealing with the first and the second show-cause notices. The rate of basic excise duty would have been 16% apart from education cess if these goods were classified against goods specified in heading no.8708.99.00. Altogether three show-cause-notices were issued against the respondent over clearance of goods under the said heading. These notices required them to answer as to why they should not be charged the differential rate of duty and interest. We would like to point out here that in the show-cause notices, the respective chapter sub-headings have been referred to as 8708.99.00 and 570390.90 and in the order of the Tribunal also, the sub-headings have been referred to as such. But the authorities themselves in certain places described the sub-headings in shorter numerical forms, as 5703.90 and 8708.00. We find these minor variations in the paper-book. But this variation of the sub­headings represented in numerical form is not of any significance so far as adjudication of these appeals are concerned. The respondent were also to answer as to why penalty should not be imposed upon them in terms of Section 38A of the Central Excise Act, 1944 read with Rule 25 of the Rules made thereunder. The first show-cause notice is dated 9^th August, 2005 in regard to clearance of goods made during the period between 9^th July, 2004 and 31^St March, 2005. They had cleared altogether 8,65,777 pieces of those items in different sizes in that period. The second show-cause notice was issued on 2^nd May, 2006 and related to clearance of 12,02,482 pieces of the same goods for the period between 1^St April, 2005 and 31^St January, 2006. The third show-cause notice is of 7^th March, 2007 and the clearance involved 20,15,412 pieces from 1^St February, 2006 to 31^St January, 2007. For the period involved in the third show-cause notice, clearance was made by the respondent under Chapter sub-heading no.570500.19, which carried effective rate of duty @8%.

2. By the time the third show-cause notice was issued, the adjudicating authority of first instance (Commissioner Central Excise, Delhi III) had passed the order against the respondent on 29^th September, 2006, upon considering their responses to the said two show-cause notices. In this judgment, we shall mainly refer to this order, while examining the decision of the Tribunal. The authorities’ stand has been that the subject-items ought to be classified under sub-heading 8708.99.00. Against chapter heading 8708, the goods described are “parts and accessories of motor vehicles of headings 8701 to 8705”. The sub-headings against tariff item nos.8701 to 8705 refer to five categories of vehicles. These are (i) tractors (except those falling under 8709), (ii) motor vehicles for the transport of ten or more persons, including the driver, (iii) motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702) including station wagons and racing cars (iv) motor vehicles for transport of goods (v) special purpose motor vehicles, other than those principally designed for the transport of persons or goods. The description of goods in Chapter 87 of the Central Excise Tariff of India (2004-05) in the eight digit format list the tariff-items of chapter 8708 have been depicted in the following manner:-