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PETITIONER: M/S. BALLARPUR INDUSTRIES LTD.

       Vs.

RESPONDENT: THE COLLECTOR OF CUSTOMES (APPEALS), CUSTOMS HOUSE, MADRAS.

DATE OF JUDGMENT14/12/1994

BENCH: VENKATACHALA N. (J) BENCH: VENKATACHALA N. (J) SAHAI, R.M. (J)

CITATION:  1995 SCC  Supl.  (1) 446 JT 1995 (1)   164  1994 SCALE  (5)263

ACT:

HEADNOTE:

JUDGMENT: VENKATACHALA, J.: 1.      This appeal under Section 130-E of the Customs  Act, 1962 is directed against the order No.234/1986-B.2  rendered on 10th April, 1986 by the Customs, Excise & Gold  (Control) Appellate Tribunal, New Delhi --  "the CEGAT", in  CD(SB)(T) Appeal No. 1933 of 1983 (B-2). 2.      Whether  there was justification for  the  CEGAT  to classify  the  article  "Granite Press  Roll"  under  Import Tariff  Item  No.  68.01/16(1) of the Ist  Schedule  to  the Customs Tariff Act, 1975 as it stood prior to its  amendment on  28_2.  1986, as against its classification made  by  the Collector  (Appeals)  under  Import Tariff  Item  No.  84.31 thereof, is ’the question which needs our consideration  and decision in this appeal. 3.      The  appellant,  a Company  incorporated  under  the Companies  Act, 1913, has two paper manufacturing  Units  in India.   As ’Granite Press Roll’, which was required by  the appellant  to be used as a part of the machinery in  one  of its  paper manufacturing Units, was not  indigenously  made, the  same was imported from United Kingdom by the  appellant for such use. The Granite Press Roll, so imported, is  goods or article which could be described thus:               Roll  of  138" length and  22"  diameter  with               raised  spigots, fitted by mild  steel  shafts               which are secured in position by means of mild               steel  end-plates hand-fitted to  the  spigots               with mild steel nuts, the 3/8" cavity  between               the steel shaft and the granite shell,  having               been  filled  with concrete  and  the  granite               shell being of 7.18/8" thickness and the  mild               steel  shall 7" thickness. Thus, it is a  part               of  machine  made of parts  of  articles  like               Granite, Steel and concrete. 4.     Whatever be the description of the goods or  article, the  Granite Press Roll, it is found by the CEGAT to  be  "a

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component  pan of paper finishing machinery",  its  function being to give final finish or polish to paper. 5.     However,  by its order under appeal,  the  CEGAT  has classified  the  said article, ’Granite  Press  Roll’  under Import   Tariff   Item  No.  68.01/16(1)  as   against   its classification made by the Collector (Appeals) under  Import Tariff Item No. 84.31. 6.     Was the said change of classification of the  article -  ’Granite Press Roll’ made by the CEGAT, uncalled for,  as was argued on behalf of the appellant by Ms. Indu  Malhotra, is the question which, now requires, our consideration. 7.      As  a  proper consideration  of  the  said  question becomes possible by reference to the relevant provisions  in the  1st Schedule to the Customs Tariff Act, 1975, it  would be advantageous to excerpt them at the out-set :-               "SECTION XIII               ARTICLES  OF STONE, OF PLASTER, OF CEMENT,  OF               ASBESTOS,  OF MICA AND OF  SIMILAR  MATERIALS;               CERAMIC PRODUCTS; GLASS AND GLASSWARE.               CHAPTER 68;               ARTICLES  OF STONE, OF PLASTER, OF CEMENT,  OF               ASBESTOS.. OF MICA AND OF SIMILAR MATERIALS. 166 This Chapter does not cover: (a) ........................ (n) ------------------------------------------------------------ Heading    Sub-heading No.        Rate of duty       Central No.        and description        (a) Standard       Excise            of article             (b) Preferential   Tariff                                   areas Item. ------------------------------------------------------------ 68.01/16   Articles of natural or                    22F, (ii)       artificial stones, of                     23C,            agglomerated natural                      51.            or  artificial            abrasives, of            plastering  material            of cement of concrete            of asbestos, of            asbestoscement or            cellulose fibre            cement or of mica;            articles of vegetable            materials agglomerated            with mineral  binders            mineral wools; expanded            mineral materials;            articles of other            mineral substances, not            elsewhere  specified or            included;            (1) Not elsewhere      (a) 100%                specified            (2) Grinding stones,   (b)  40%                grinding wheels and                the like of natural                stone, of agglomerated                natural abrasives, and                segments or other finished                parts  of such stones and                wheels but excluding hand                polishing stones,                whetstones, oil stones,                and hones."

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167                         "SECTION XVI MACHINERY  AND MECHANICAL APPLIANCES; ELECTRICAL  EQUIPMENT; PARTS THEREOF                            NOTES 1. This Section does not cover; (a) .....................!  |  |  | (o) 2.  Subject to Note 1 to this Section, Note 1 to Chapter  84 and Note 1 to Chapter 85, parts of machiners not being parts of  the articles described in Heading No. 84.64 or parts  of the  following articles falling within Heading No.  85.18/27 namely  (i)  insulators or insulated electric wire  and  the like  (ii) carbon articles used for electrical purposes,  or (iii)  electrical conduit tubing and joints therefor are  to be classified according  to the following rules: (a)  goods  of a kind described in any of  the  Headings  of Chapter 84 and 85 (other than Heading Nos. 84.65 and  85.28) are  in  all  cases to be  classified  in  their  respective Headings; (b)other  parts  if suitable for use solely  or  principally with  a  particular  kind of machine, or with  a  number  of machines  falling  within   the same  Heading  (including  a machine falling within Heading No. 84.59 or electrical goods and apparatus  falling within Heading no. 85.18/27)  are  to be classified with the machines of that kind. However, goods which  are  equally suitable for use principally  with   the goods  of Heading Nos. 85.13 and 85.15 are to be  classified in Heading No. 85.13; (c)  all  other parts are to be classified  in  Heading  No. 84.65 or 85.13; " CHAPTER 84 BOILERS, MACHINERY AND MECHANICAL APPLIANCES; PARTS THEREOF NOTES 1.  This Chapter does not cover; (a) millstones, grindstones   articles falling within                               Chapter 68; (b) ................  |  |  | (e) 168 2. ...........  |  |  |  | 5. ........... ------------------------------------------------------------ Heading    Sub-heading No.        Rate of duty       Central No.        and description        (a) Standard       Excise            of article             (b) Preferential   Tariff                                   areas              Item. ------------------------------------------------------------ 84.01/02   .................  |  | 84.31      Machinery for making    (a) 40%            or finishing cellulosic            pulp, paper or            paper-board

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|  |  |          .............." ----------------------------------------------------------- CHAPTER 85 ELECTRICAL MACHINERY AND EQUIPMENT; PARTS THEREOF" NOTES 1.  This Chapter does not cover; (a) ........................."                 (underlining is ours) 8.  No  doubt,  CEGAT has reached the  conclusion  that  teh article  -  "Granite Press Roll", falls  for  classification under  Chapter  68. The discussion found in  CEGAT’s   order under  appeal,  that  refers  to  the  statutory  rules   of classification   of articles or goods under Tariff items  of Customs Act which formed the basis  for its conclusion  that ’Granite   Press  Roll’ has to be classified as  an  article under Chapter 68, runs "4.  We have carefully considered the rival submissions.  We observe   that   heading  84.31  is   specific   for   paper making/finishing   machinery  but  not for  parts   of  such machinery.   The   respondents  have  not   imported   paper making/finishing   machinery   but  only  a  part  of   such machinery. There is no immutable  rule in the Customs Tariff that  all  parts  of a machine must be  assessed  under  the heading   for the machine. On the contrary, statutory  Notes 1 and 2 in section XVI, Note 1 in Chapter 84  and Note  1 in Chapter   85,which   have an over-riding  effect  over   the headings  themselves,  lay  down in  general  the  order  of priority   or  classification  of  parts  in  the  following sequence ;- (1)  Parts made of certain materials like mineral  products, glass, ceramics, plastics etc. and parts of general use made of  base  metals  are to be  classified  in  the  respective material composition heading. (2) Subject to (1) above, parts having a 169              specific heading for themselves in Chapters 84 &                 85 are to be classified under that heading.                (3)  Other parts, if suitable for use  solely               or  principally  with  a  particular  kind  of               machine  are  to  be  classified  within   the               heading of that machine.               (4)  All other parts are to be  classified  in               heading No. 84.65 or 85.28."               5.  The  respondents are  canvassing  for  the               course  at (3) above. But that is  permissible               only if the prior options at (1) and (2) above               are   not  available.  No  heading  which   is               specific for Granite Press Rolls, or for  that               matter  for parts of paper  making/  finishing               machinery,  has  been shown to  exist  in  the               Tariff. The course at (2) above is, therefore,               not available. The respondents argue that  the               course  at (1) is also not  available  because               the goods arc not made of stone alone but  are               a  composite product of stone and  steel.   We               find that the Rules for the interpretation  of               the   Customs  Tariff  Schedule,   which   are               statutory,  do  not permit  exclusion  of  the               course at (1) above merely on that ground.  We               reproduce below the relevant Rules :-               "2(a) .....................                (b) Any reference in a heading to a  material

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             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 contained in  rule               3.                3.  When  for any reason,  goods  are,  prima               facie,   classifiable   under  two   or   more               Headings, classification shall be effected  as                             follows:                (a)  The  Heading which  provides  that  most               specific  description  shall be  preferred  to               Headings providing a more general description.               (b) Mixtures and composite goods which consist               of  different  materials  or are  made  up  of               different  components  and  which  cannot   be               classified  by  reference  to  (a)  shall   be               classified   as  if  they  consisted  of   the               material  or component which gives  the  goods               their  essential character, in so far 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               latest   among  those  which   equally   merit               consideration."               6.   As  already  stated  in   the   preceding               paragraph,  there is no  specific  description               heading  for Granite Press Rolls or  even  for               parts  of paper making/finishing machinery  in               general. Rule 3(a), therefore, does not apply.               The next course is to determine classification               in  terms  of Rule 3(b) read with  Rule  2(b).               Now, in the Granite Press Roll, the functional               part  is the roll made out of  granite  stone.               It is this part which imparts final finish  to               paper.  The centre shaft and end               170               plates  only provide support to the  roll  and               enable  its  fitment in  the  paper  finishing               machinery.  The  very  name  of  the   article               "Granitc Press Roll" is also suggestive of the               fact  that it is the stone part which  is  the               major  and the important component.  We  have,               therefore, no hesitation in saying that it  is               the  stone  component which  gives  the  goods               their  essential character. As such,  applying               Rules  2(b)  and  3(b),  the  goods  fall  for               classification in Chapter 68 and by virtue  of               Note  l(a) to Chapter 84 they  stand  excluded               from that Chapter." 9.      As is seen from Preamble to the above discussion  in para  4 of the order of CEGAT, what has made it (CEGAT)  not to  classify  ’Granite Press Roll’, machinery pan  of  paper making  or  finishing, the imported article or  goods  under Heading No. 84.31 in Chapter 84, is its view that there were contrary  rules in statutory Notes 1 and 2 in  Section  XVI, Note 1 in Chapter 84 and Note 1 in Chapter 85 which had  the over-riding effect on the Headings themselves. Such contrary rules which according to it had the over-riding effect  over

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the  Headings themselves arc those specified in sequence  by it  in  para  4 of the discussion itself as rules  1  to  4. Again,  as seen from the discussion in para 5 of the  order, CEGAT  has  found rules for the  interpretation  of  Customs Tariff Schedule being statutory, did not permit exclusion of course at (1) above, that is, rule referred to in para 4  of the  order  because that rule (1), to wit,  "parts  made  of certain  materials like mineral products,  glass,  ceramics, plastics  etc.  and pans of the general use  made  of  these metals",   required  classification  under  the   respective material composition heading. It is this assumed  situation, which has made it (CEGAT) reproduce the rules 2(b) and 3(a), (b)  and  (c)  requiring  classification  of  materials   or substances,  or  pans of materials  like  mineral  products, glass,  plastics etc. and parts of general use made of  base metals  and apply the same to the classification of  machine pan -- ’Granite Press Roll’ under consideration, as could be seen from the said discussion itself. Once again, as becomes obvious  from its aforesaid discussion at para 5, it is  its (CEGAT’s)  assumption  that rule (1) in para 4  relating  to materials  and  substances,  given by it  is  applicable  to machine  part (part of machinery) in Section XVI, which  has made  it proceed to hold that ’Granite Press Roll’ falls  in Chapter 68 by reason of Note l(a) to Chapter 84. 10.    As  rightly pointed out on behalf of  the,  appellant here  (respondent before the CEGAT) which was not,  rightly, denied  on behalf of the respondent here  (appellant  before the  CEGAT)  that the rules referred to  in  the  discussion above  by the CEGAT at para 4 of its order were rules  which were non-existent in statutory Notes 1 and 2 in Section XVI, Note 1 in Chapter 84 and Note 1 in Chapter 85, although  the same  were  assumed  to exist. When the  basic  rules  which formed the foundation for CEGAT to reach the conclusion that ’Granite  Press  Roll’  which  was  admittedly  an  imported machine-part,   was  that  which  fell  under  Heading   No. 68.01/16(1)  and not under Heading No. 84.31, arc found  not to  exist,  the  reasoning adopted by it  in  reaching  that conclusion also cannot stand. Consequently, we have to  hold that  CEGAT’s conclusion reached in its order  under  appeal that  the imported article ’Granite Press Roll’ falls  under Tariff item in Chapter 68 is wholly wrong. 171 11.     But,  as rightly pointed out by  CEGAT  itself,  the rules which govern .the classification of machine-part  like the ’Granite Press Roll’ with which we are concerned,  ought to  be  the rules contained in Note 2 of Section  XVI  under Chapter 84 or Chapter 85, which are already excerpted by us. 12.    What, then, cannot be ignored is the  requirement  of the provision in Note 2 to Section XVI, that subject to Note 1 to Section XVI, Note 1 to Chapter 84 and Note 1 to Chapter 85  parts  of machine (not being excepted items) are  to  be classified  according to the rules given thereunder as  (a), (b)  and  (c).  What Note 2 to Section XVI  says,  in  other words,  is that machine parts in Section XVI, which are  not covered by articles specified in Note 1 to Section XVI, Note 1  to  Chapter  84  and Note 1 to  Chapter  85,  are  to  be classified according to rules given under Note 2 to  Section XVI itself, that is, rules (a), (b) and (c) thereof 13.    Coming to Rule (a) of Note 2 to Section XVI, which is also  excerpted by us already, goods of a kind described  in any  of  the  Headings of Chapters 84  and  85  (other  than Heading  Nos.  84.65  and  85.28) are in  all  cases  to  be classified  in  their respective Headings. Then,  coming  to Rule  (b) of Note 2 to Section XVI, which is also  excerpted by  us already, other part of goods of a kind  described  in

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any  of  the  Headings of Chapter 84, if  suitable  for  use solely  or  principally with a particular  kind  of  machine (described in Chapter 84) is required to be classified  with machine  of  that kind mentioned in Chapter  84.  Therefore, what   has  now  to  be  examined  is,  when   Heading   No. 84.31  .describes the goods (article) classified  thereunder as "machinery for making or finishing cellulosic pulp, paper or paper-board" whether the goods or article "Granite  Press Roll",  which  is  held by CEGAT itself, to  be  a  part  or component  of  paper  making  machinery,  does  warrant  its classification  thereunder.  In  our view, when  Note  2  to Section XVI requires classification of parts of machines  to be  made according to rules given thereunder and  when  rule (a)  thereunder requires goods (part of machine) of  a  kind described  in  any  of the Headings of Chapters  84  and  85 (other than Nos. 84.65 and 85.28) under respective Headings, every  machinery  for making or finishing  cellulosic  pulp, paper  or  paper-board,  requires  to  be  classified  under Heading  84.31.  Then, coming to ’Granite  Press  Roll’  the imported  article  under  consideration,  being  a  part  of machine   of  goods  ’Machinery  for  making  or   finishing cellulosic pulp. paper or paper-board’ which is suitable for use solely or principally as machinery for finishing  paper, it requires to be classified  with the machine described  in the  Heading  84.31, as required by rule (b) to  Note  2  of Section  XVI, inasmuch as, Granite Press Roll is   described by  CEGAT  itself  as  part  of  machine  of  paper   making machinery.  Therefore,  ’Granite Press Roll’,  the  imported article,  in  our view, warrants  its  classification  under Chapter  Heading 84.31, as held by the Collector  (Appeals). Thus, when classification of imported article - the  Granite Press  Roll - ought to have been made under tariff item  No. 84.31 of Chapter 84, as is held by us, CEGAT has gone wholly wrong  in classifying that article under import tariff  item No.  68.01/ 16(1) of the Ist Schedule to the Customs  Tariff Act,  1975,  particularly when that article could  not  have been regarded as an article of stone, as such,  to become an excepted item under Note 2 to Section XVI 172 read   with  Note  l(a)  to  Chapter  84,   warranting   its classification under Heading in Chapter 68 and according  to rules governing classification of materials or substances or their parts. 14.     Since ’Granite Press Roll’ is an  imported  article, which  is classified by us as Tariff item 84.31 of  the  1st Schedule  to the Customs Tariff Act, 1975 as it stood  prior to  its  amendment on 28.2. 1986, the  import  duty  payable thereon is only 40% as provided thereunder. 15.     In the result, we allow this appeal, set  aside  the order  of  CEGAT  under appeal, restore  the  order  of  the Collector  (Appeals), and direct the respondents  to  refund the excess import duty collected on ’Granite Press Roll’  to the appellant within one month from today.  However, in  the facts of this appeal, no order as to costs is made.