REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6979-6982 OF 2009

C.C.E.C & ST, VISHAKHAPATNAM      …. Appellants

Versus

JOCIL LTD.          …. Respondents

JUDGMENT

Dr. MUKUNDAKAM SHARMA, J.

1. The primary issue for consideration in these cases is one of  

classification under  Tariff  Items of  the Customs Tariff  Act,  

1975. We are called upon to decide the specific issue as to  

whether  cargo  imported  is  classifiable  as  non-edible  

Industrial Grade Crude Palm Stearin falling under Ch. Sub  

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Heading No. 15 11 90 90 or as “RBD Palm Stearin” falling  

under Tariff Item No. 38 23 11 12 of the Customs Tariff Act,  

1975.

2. The brief facts which give rise to the aforesaid issue are that  

the  Respondent  imported  Crude  Palm  Stearin  through  

Kakinada Port and filed Bills of Entry declaring the goods as  

industrial grade Crude Palm Stearin falling under Ch. Sub  

Heading No. 15 11 90 90 of the Customs Tariff  Act,  1975  

[hereinafter  referred to as “the Act”]  and the bills  of  entry  

were  assessed  provisionally  on  the  basis  of  the  importer's  

declaration  pending  receipt  of  the  test  results  from  the  

chemical  examiner.  ‘Palm  Stearin’,  the  subject  matter  of  

classification  in  question,  was  imported  through Kakinada  

port  during  the  period  from  26.08.2003  to  28.12.2004.  

Whereas  the  Respondent-assessee  sought  to  classify  the  

goods in question under Tariff Item No. 15 11 90 90 of the  

Customs  Tariff  Act,  1975  as  “Non-edible  Industrial  Grade  

Crude Palm Stearin”,  the  appellant  classified  the  goods in  

question as “RBD Palm Stearin” falling under Tariff Item No.  

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38 23 11 12 of the Act, chargeable to duty at BCD 25%, CVD  

16% and 4% SAD.  Under Tariff Item No. 15 11 90 90, the  

assessment was charged at BCD 20% and nil CVD/SAD. The  

Assistant Commissioner of Customs asked the Respondent to  

pay  the  differential  duty,  under  S.28  of  the  Customs Act,  

1962.  

3. The Chemical  Examiner,  Visakhapatnam reported  that  the  

goods in question were RBD Palm Stearin with an admixture  

of Palm Fatty Acid Distillate (in short “PFAD”) and not crude  

palm  stearin  as  declared  by  the  importer.  After  due  

adjudication  process,  the  Assistant  Commissioner  of  

Customs  finalized  the  Bills  of  Entry  by  classifying  the  

impugned  goods  as  RBD Palm Stearin  falling  under  Sub-

heading No. 3823.11.12 of the Customs Tariff Act, 1975 and  

demanded the differential duty along with applicable interest.  

Aggrieved  by  these  orders,  the  Respondent  preferred  an  

appeal before the Commissioner (Appeals). When the dispute  

in this regard reached the Commissioner (Appeals), the claim  

of the Respondent was dismissed and the order of the Asst.  

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Commissioner upheld.  However, on appeal to the CESTAT,  

the Tribunal allowed the same while relying on its decision in  

the  case  of  M/s Jocil  Ltd.  & Ors  v.  The Commissioner  of  

Central Excise & Customs, Visakhapatnam – II.  

4. The CESTAT, in determining the appeal, took note of the fact  

that  the  Chemical  Examiner  has only ascertained the  free  

fatty acids of the sample, which comes to 23.2%. According  

to the Tribunal, since the balance contents of 76.8% have not  

been considered, it could not be conclusively said that the  

same  is  not  composed  of  triglycerides.  The  CESTAT  also  

relied on the ester value and saponification value registered  

at  the  load  port  (Load  Port  Analysis)  during  the  time  of  

clearance.  The  said  analysis  indicated  that  the  balance  is  

nothing but triglycerides. According to the Central Revenue  

Chemical Laboratory (CRCL) opinion which was relied upon  

by CESTAT, Chapter 15.11 covers palm oil and its fractions –  

this  view is  also  espoused  in  the  HSN Explanatory  Notes.  

Since Palm Stearin falling under 15.11 is a glyceride of fatty  

acids, the CESTAT concluded that the categorization should  

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also have to be made under Ch.15.11. As stated hereinabove,  

reliance was also placed on its own decision in M/s Jocil  

Ltd.  &  Ors  v.  The  Commissioner  of  Central  Excise  &  

Customs, Visakhapatnam – II reported at [2008 (225) ELT  

540  (Tri-540]].  Aggrieved  by  the  decision  of  CESTAT,  the  

appellant has approached this Court by way of Civil Appeal.  

5. The appeal was listed for hearing and we heard the learned  

counsel  appearing for  the  parties  who have  ably  taken us  

through all the relevant documents on record and also placed  

before us the various decisions which may have a bearing on  

the issues raised in the present appeal.  

6. Before  this  Court,  learned  counsel  for  the  appellant  

contended that the goods in question are RBD Palm Stearin  

with Palm Fatty Acid Distillate  (PFAD) and hence must be  

classified under Tariff Item No. 38 23 11 12 of the Act. We  

may enumerate the arguments put forth by the appellant on  

this count: -

a. Tariff Item No. 38 23 11 12 is a specific heading, which  

must be given preference over a general description as  

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in Tariff Item No. 15 11 90 90. As per Rule 3(a) of the  

General Rules for Interpretation of the First Schedule to  

the  Act,  when for  any  reasons  goods  are  prima facie  

classifiable under two headings, the general description  

must give way to the specific.

b. In  separate  test  reports  in  respect  of  samples  drawn  

from  various  consignments,  the  Chemical  Examiner,  

Vishakhapatnam reported  that  the  goods  in  question  

are RBD Palm Stearin with PFAD and not Crude Palm  

Stearin. The report clearly indicates that the substance  

has  been  chemically  modified,  and  cannot  be  called  

‘crude’ in any way.

c. Reliance  on  the  Jocil  Ltd case  by  the  CESTAT  is  

contentious as its decision in the same matter has been  

challenged by the appellant in the HC and is pending.

d. The Six-digit First Schedule to the Customs Tariff Act,  

1975 was substituted by the Eight-digit First Schedule  

vide the Customs Tariff (Amendment) Ordinance, 2003  

and this  substitution  w.e.f.  01.02.2003 has  statutory  

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force. Therefore, the new Schedule would operate over  

and above the CBEC Circular dated 03.12.2002 and the  

latter would not be applicable since the new Schedule  

was  not  operational  at  the  time  of  issuance  of  the  

Circular.  The  goods,  which  were  imported  between  

August 2003 and November 2004, should therefore be  

classified under the Eight Digit Tariff Schedule.

7. On the other hand, the Respondent has maintained that the  

subject  matter  in  question  is  industrial  grade Crude Palm  

Stearin falling under Ch. Sub Heading No. 15 11 90 90 of the  

Customs  Tariff  Act,  1975.  To  fortify  this  conclusion,  they  

have contended that: -

a. Commissioner (Appeals)  erred in not appreciating and  

applying CBEC Circular dated 03.12.2002. Respondent  

claims  that  the  circular  had  distinguished  between  

products  which  are  fractions  of  Palm  Oil  classifiable  

under Chapter 15, and products which are fatty acids  

classifiable  under  Chapter  38.  The  Respondent  

contends  that  the  distinction  between  both  these  

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products was the presence of triglycerides, determined  

by the ester value of the product in question.

b. The  Chemical  Examiner  did  not  ascertain  the  ester  

value of the goods in the chemical analysis, when it was  

incumbent on the department to do so. On the other  

hand,  the  Report  determined  free  fatty  acid,  which  

clearly  indicated  that  the  product  had  triglycerides.  

When  the  authorities  have  thus  ignored  the  CBEC  

directions, the Respondent contended, the assessment  

needs to be set aside.

c. The  onus  to  classify  a  particular  product  under  a  

specific  heading  is  on  the  Department  [Hindustan  

Ferodo Ltd. v. Collector  of  Central  Excise,  Bombay  

reported  at  1997  (89)  ELT  16).  Therefore,  the  

Department  should  have  had  the  product  chemically  

analyzed  and  record  a  finding  that  there  were  no  

triglycerides in the product. In the absence of the same,  

the Respondent contends, the order of the authorities  

deserves to be quashed and set aside.

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d. The  Commissioner  (Appeals)  failed  to  appreciate  that  

the  oils  were  a  combination  of  glycerides  and  fatty  

acids.  The  compound  usually  has  5% fatty  acid  and  

PFAD is subsequently added to satisfy the requirement  

of free fatty acid of the oil to be above 20% (this is done  

to ensure that oils which are meant for industrial use  

are not diverted for edible purposes). Apart from fatty  

acid  content  of  25%,  the  rest,  Respondent  claims,  is  

triglycerides which have ester value as recorded in the  

Load Port Analysis (not Chemical Examiner’s report].

e. Respondent  also  claims  that  its  arguments  are  

buttressed  by  the  practice  followed  in  this  regard  by  

various other soap manufacturers in the country, where  

the product in question is classified under Tariff  Item  

No. 15.

8. In order to determine the appropriate nature of the subject  

matter  in  question,  as  well  as  to  adjudicate  upon  

classification of  the  same under  the  Act  of  1975,  we may  

refer to the sub-headings involved herein: -

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1511 Palm Oil and Its Fractions, Whether Or  Not Refined, But Not Chemically Modified 1511 10 00 - Crude oil  […] 1511 90 - Other 1511 90 10 --- Refined bleached deodorised palm  oil  […] 1511 90 90 --- Other  

3823 Industrial Monocarboxylic Fatty Acids;  Acid  Oils  from  Refining;  Industrial  Fatty  Alcohols Industrial  monocarboxylic  fatty  acids;  acid  oils  from refining:

3823 11 -- Stearic acid: -- Palm stearin:

3823 11 11 ---- Crude  3823 11 12 ---- RBD

9. Heading 15.11 covers palm oil and its fractions, whether or  

not  refined,  but  not  chemically  modified.  According  to  the  

Harmonized Commodity Description and Coding System (for  

short  “HSN”)  Explanatory  Notes  developed  by  the  World  

Customs  Organization,  Chapter  15  covers  vegetable  or  

animal  fats  and  oils  and  their  fractions  when  used  as  

foodstuffs  or  for  technical  or  industrial  purposes.  The  

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CESTAT,  in  deciding  the  issue  of  classification,  has  relied  

upon  the  opinion  of  the  Customs  and  Central  Revenue  

Control Laboratory (CRCL) and a Central Board of Excise and  

Customs  (CBEC)  Circular  dated  03.12.2002  to  fortify  its  

conclusions. The CRCL opinion advised that heading 15.11  

covers  palm  oil  and  its  fractions,  which  include  the  

constituent elements like triglycerides of fatty acids and point  

fractions obtained by the process of fractionation. The CBEC  

Circular  had  distinguished  between  triglycerides  of  fatty  

acids and free fatty acids and went on to state  that palm  

stearin  was  basically  a  triglyceride  (ester)  of  fatty  acids.  

Based on this ground, and also on the fact that the report of  

the Chemical Examiner merely looked at the free fatty acid  

content and not the ester values to indicate the presence of  

triglycerides, the CESTAT ruled in favour of the respondent.

10. We are of the considered opinion that the import of the CRCL  

opinion and the CBEC Circular needs to be understood in  

proper perspective. The mere fact that the CRCL opinion and  

the CBEC Circular (No. 81/2002 – dated 03.12.2002) affirm  

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the chemical composition of palm stearin cannot make a case  

for its classification under Ch. Sub Heading No. 15 11 90 90.  

The  essential  conclusion  to  be  drawn  from  these  two  

reference documents is that palm stearin, which is obtained  

from the  fractionation  of  palm oil,  is  comprised  mainly  of  

triglycerides  of  fatty  acids.  The  question  then arises  as  to  

whether  it  would  be  appropriate  to  categorize  the  

triglycerides  present  in  the  oil,  viz. Palm  Stearin,  under  

Chapter 15, while bracketing the free carboxylic acids derived  

during the refining process under Chapter 38.

11. To answer this question, we may analyse the key aspects of  

classification under Chapter 15 – the chapter covers palm oil  

and its fractions, which may be refined or unrefined, but the  

critical condition is that the product must not be chemically  

modified. The argument that palm stearin, a fraction of palm  

oil,  being comprised primarily of triglycerides of fatty acids  

should be classified in Chapter 15 by way of exclusion from  

Chapter  38 which covers  industrial  carboxylic  acids  (or  in  

other words, free fatty acids) is compelling, but not decisive.  

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This  argument  stems  from  the  interpretation  favoured  in  

Rule 3(b) of the General Rules for the interpretation of the  

First Schedule to the Customs Tariff Act, 1975, wherein the  

essential  character  of  the  subject  matter  determines  its  

classification.

12. We  also  find  that  Rule  1  of  the  General  Rules  of  

Interpretation specifically  state  that  “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  

(subsequent)  provision:”  The  headings  are  of  paramount  

importance,  and as  the  HSN Explanatory  Notes  state,  the  

headings  are  expected  to  cover  the  broad  ambit  of  

classification  since  it  is  impossible  to  cover  all  the  goods  

specifically  in  titles.  It  is  relevant  to  note  that  the  title  of  

Chapter 15 reads “Animal or vegetable fats, oils, waxes, etc.”  

and for goods to fall  into Chapter 15, there has to be the  

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element of “edible oil”. Non-edible industrial grade oil cannot  

by any stretch of imagination be brought within the ambit of  

Animal  or  vegetable  “edible  oil”.  However,  Rule  3(a)  of  the  

General Rules of Interpretation stipulates that the “heading  

which  provides  the  most  specific  description  shall  be  

preferred to headings providing a more general description”.  

While it is not practicable to lay down hard and fast rules by  

which to determine which heading is more specific, the HSN  

Explanatory  Notes  state  that  if  the  goods  answer  to  a  

description  which  more  clearly  identifies  them,  that  

description is more specific  where the identification is less  

complete.

13. In  the  case  at  hand,  the  subject  matter  in  question  is  

specifically identified in Ch. Sub Heading No. 38 23 11 as  

“Palm  Stearin”,  and  further  differentiated  as  “Crude”  and  

“RBD” in Sub Heading Nos. 38 23 11 11 and 38 23 11 12  

respectively.  The  Explanatory  Notes  are  categorical  in  

affirming  the  accepted  practice  that  Rule  3(b),  which  the  

CESTAT and the Respondent has referred to, shall be used  

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only if classification under Rule 3(a) fails. In this instance, we  

are of the considered opinion that the issue of the essential  

character of the subject matter in question may be resorted  

to only if identification under Rule 3(a) is impossible. Since  

the description offered in Chapter  38 certainly attempts to  

identify  ‘Palm Stearin’  within  its  ambit,  we  do  not  find  it  

necessary to place reliance on the explanation offered by the  

Respondent.  

14.In  effect,  by  contending  that  free  carboxylic  acids  are  

classified  under  Chapter  38,  and  thus  the  remaining  

component  from  refining  process,  viz.  palm  stearin  which  

contains triglycerides, should be shunned to Chapter 15, the  

Respondent  is  implying  that  Chapter  15  is  of  a  residuary  

nature.  This  would  go  against  the  very  grain  of  rules  of  

classification,  as  is  mentioned  in  the  General  Rules  of  

Interpretation,  as  well  as  precedents  established  by  this  

Court.  

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In Dunlop India Ltd. & Madras Rubber Factory Ltd. v. Union  

of India (UOI) and Ors., reported at (1976) 2 SCC 241, this  

Court has held: -

“37.  […]  When  an  article  has,  by  all  standards,  a  reasonable  claim  to  be  classified  under  an  enumerated  item  in  the  Tariff  Schedule,  it  will  be  against  the very principle  of  classification to  deny it   the parentage and consign it to an orphanage of the   residuary clause. […]

38. It is not for the Court to determine for itself under   Article 136 of  the  Constitution  under  which  item  a  particular article falls. It is best left to the authorities  entrusted with the subject. But where the very basis   of  the  reason  for  including  the  article  under  a  residuary  head  […]  is  foreign  to  a  proper  determination of this kind, this Court will  be loath to  say that it will not interfere.”

15.Referring  to  the  essential  characteristics  of  the  subject  

matter would not only be applying contorted logic in arriving  

at  the  correct  classification  but  would  also  amount  to  

ignoring the express identification offered in Chapter 38 of  

the First Schedule of the Customs Tariff Act, 1975.

16. We are of the opinion that the CBEC Circular needs to be  

thus  harmonized  with  the  Eight-digit  First  Schedule  

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introduced vide the Customs Tariff (Amendment) Ordinance,  

2003.  As  mentioned  before,  the  Circular  had  been  issued  

prior to the coming into force of the amended Tariff Schedule  

and consequently,  did  not  have  the  latter  as  its  reference  

point. The goods, which were imported between August 2003  

and November 2004, would undoubtedly be classified under  

the  Eight  Digit  Tariff  Schedule  and  on  account  of  the  

aforementioned reasons, the subject matter in question will  

be classifiable under Chapter 38 of the same.

17.Having  held  thus,  it  is  also  important  to  note  that  the  

interpretive powers of this Court are significantly curtailed by  

the presence of a specific enumeration in Chapter 38 of the  

Tariff  Schedule.  This  Court,  while  deciding  an  issue  of  

classification, can only adjudicate along the lines of settled  

norms and precedents drawn from statutory interpretation  

and judicial precedents.

18.For the reasons mentioned hereinabove, we are in agreement  

with the contentions raised by the appellant and the appeals  

are allowed. By this judgment, the order of the CESTAT is set  

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aside,  and  the  decision  of  the  Commissioner  (Appeals]  

affirming  the  order  of  the  Assistant  Commissioner  is  

restored.  However,  we  leave  the  parties  to  bear  their  own  

costs.

...........………………………J. [Dr. Mukundakam Sharma]

…...............………………..J.         [Anil R. Dave]

New Delhi, December 15, 2010.

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