Summary
| Category | Data |
|---|---|
| Court | Supreme Court of India |
| Case Number | C.A. No.-005531 – 2025 |
| Diary Number | 53645/2024 |
| Judge Name | HON’BLE MR. JUSTICE J.B. PARDIWALA |
| Bench | HON’BLE MR. JUSTICE J.B. PARDIWALA; HON’BLE MR. JUSTICE K.V. VISWANATHAN |
| Precedent Value | Binding authority |
| Overrules / Affirms | Overrules CESTAT’s decision in Customs Appeal No. 50542/2021; Affirms application of GRIs and Dunlop India principle |
| Type of Law | Customs tariff classification |
| Questions of Law |
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| Ratio Decidendi | The Court held that classification disputes under the Customs Tariff Act, 1975 must begin with GRI 1, giving primacy to the heading and notes. “End-use” can only be considered when the tariff entry explicitly or inherently refers to use or adaptation; incidental or actual use is irrelevant. Explanatory Notes aligned with the tariff were binding. Common-parlance tests apply only in statutory silence. Aluminium shelves meet the criteria for “structures” under CTI 76109010 and do not qualify as “parts” of agricultural machinery under CTI 84369900. |
| Judgments Relied Upon |
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| Logic / Jurisprudence / Authorities Relied Upon |
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| Facts as Summarised by the Court | M/s Welkin Foods imported aluminium shelving for mushroom cultivation and declared it under CTI 84369900 (parts of agricultural machinery) at nil duty. Revenue audit reclassified the shelves under CTI 76109010 (aluminium structures) attracting ~29.5% duty. CESTAT allowed the importer’s appeal, treating the shelves as agricultural machinery parts. The Supreme Court granted leave to examine the proper classification and the relevance of end-use. |
Practical Impact
| Category | Impact |
|---|---|
| Binding On | All customs authorities, CESTAT, High Courts |
| Persuasive For | Other High Courts, administrative tribunals |
| Overrules | CESTAT’s Judgment and Final Order No. 55604/2024 in Customs Appeal No. 50542/2021 |
| Distinguishes | CESTAT’s non-sequential application of GRIs and its expansive end-use classification |
| Follows | Dunlop India Ltd v. Union of India; Indian Aluminium Cables Ltd v. Union of India |
What’s New / What Lawyers Should Note
- Clarifies that “end-use” or “adaptation” is irrelevant for classification unless the tariff entry itself explicitly or inherently refers to use.
- Reaffirms that GRI 1 (primacy of headings and notes) must be the starting point in all HSN classification disputes.
- Limits the common-parlance test to situations of statutory silence or ambiguity; cannot override explicit legislative text or technical terms.
- Recognises HSN Explanatory Notes as binding guidance when aligned with domestic tariff entries, per Madhan Agro.
- Confirms that “machinery” in Section XVI cannot be extended to “plant” via Section Note 5 unless expressly provided in the tariff heading.
- Demonstrates that aluminium shelves, though custom-made for integration, remain “structures” and not “parts” of machinery.
Summary of Legal Reasoning
- Classification under Customs Tariff Act requires sequential application of GRIs 1–4, starting with GRI 1 (heading and notes).
- HSN Explanatory Notes, when aligned with domestic entries and absent contrary legislative intent, are binding.
- Common-parlance and trade-parlance tests apply only where tariff entries lack definition or technical terms and statutory context is silent.
- “Use” is a relevant factor for classification only if the heading or notes explicitly/inherently refer to “use” or “adaptation” (Dunlop India).
- Chapter 76 (Aluminium structures) is an eo-nomine provision covering all aluminium structures; shelves meet “structure” criteria per Explanatory Notes.
- Section XV Note 1(f) excludes Section XVI articles from Chapter 76; therefore if goods lawfully fall under Chapter 84 they cannot be in Chapter 76.
- Chapter 84.36 (agricultural machinery) is eo-nomine but use-inherent; however, it requires “machinery” whose principal use is agricultural. Shelves are not machinery.
- “Parts” must be integral to machine function; aluminium shelves merely support machinery and are not constituent parts.
- Conclusion: shelves classifiable under CTI 76109010; CESTAT’s CTI 84369900 classification overturned.
Arguments by the Parties
Appellant (Commissioner of Customs)
- Classification determined at import under “as-imported” principle; end use irrelevant where heading lacks reference to “use”.
- Shelves lack moving parts or mechanical function; cannot be “machinery” or “parts” of machinery.
- Objective structure characteristics (bars, plates, welding, permanence) fit the definition of “structures” under CTI 76109010.
- Common-parlance and functional-test misapplied; reliance on brochures and importer’s business profile is extraneous.
Respondent (M/s Welkin Foods)
- Section XVI Note 5 defines “machine” broadly to include plant and apparatus; shelves integral to mushroom-growing plant.
- Note 1(f) to Section XV excludes Chapter XVI goods from Chapter 76; agricultural machinery parts must go to Chapter 84.
- GRIs and specific tests favour more specific heading (84 over 76); “parts” include any item essential to overall apparatus.
- End use and trade parlance (“mushroom growing racks”) justify CTI 84369900 classification; reliance on trade certificates.
Factual Background
M/s Welkin Foods imported aluminium shelving, a floor drain, and an automatic watering system for mushroom cultivation and declared all under CTI 84369900 at nil duty. Revenue audit reclassified the shelving under CTI 76109010 as aluminium structures, raising ~INR 21 lakh duty demand. CESTAT held that the shelves are parts of agricultural machinery (CTI 84369900) based on end use and trade parlance, allowing the appeal. The Supreme Court granted leave to resolve if “end-use” is a valid classification criterion and to determine the correct heading.
Statutory Analysis
- Section 12(1), Customs Act 1962: Duties levied at rates in Customs Tariff Act 1975.
- First Schedule, Customs Tariff Act 1975: Sections XV (Base metals) and XVI (Machinery); Chapters 76 and 84.
- General Rules of Interpretation (GRIs) 1–6: Sequential application; GRI 1 primacy of headings/notes, GRI 3 tie-breakers.
- Section XV Note 1(f): Excludes Section XVI articles from Section XV.
- Section XVI Notes 2–5: Rules for parts classification, composite machines, functional units, and definition of “machine.”
- HSN Explanatory Notes: Binding if aligned; definitions for “structures” (Chapter 76) and grouping by field of industry (Chapter 84).
Alert Indicators
- Precedent Followed