1. Indirect Taxes in India
have always witnessed substantial litigation arising out of classification, be
it for determining the nature of transaction (goods vs. service) or taxability
(interpretation of exemption notification to determine eligibility) or the rate
applicable on a transaction (depending on the nature of goods sold or service
provided). Some issues also arose from the fact that the taxing authorities
were different under the earlier laws, with Service Tax, Central Excise &
Customs duty being levied and administered by the Central Government while
Sales Tax & State Excise on specific products being levied and administered
by the respective State Governments.
2. With the introduction
of Goods & Services Tax, it was felt that the issue of classification shall
be laid to rest with a single taxing event of supply becoming applicable for
goods as well as services. However, the charging section of the three primary
GST Acts, i.e., CGST, SGST/ UTGST and IGST Act clearly demonstrate the
continuance of distinct tax treatment for transactions involving supply of
goods, services as well as both, i.e., supplies where an element of goods, as well
as service are involved.
3. In the context of goods,
rate Notifications under CGST and IGST have been issued wherein different rates
have been prescribed for different kinds of goods classified based upon the
HSN. Similarly, rate notifications for services have also been issued. An
Annexure with HSN wise classification of services has been issued and against
each such classification of services, a rate has been prescribed. Further, a
transaction which involves supply of both, goods or services has to be
classified as either composite / mixed supply and different tax treatment has
been prescribed depending on the classification adopted for such composite
supplies.
4. Owing to this fact,
before making any supply, there are two specific steps that need to be
undertaken:
a. Identifying the nature of
supply, i.e., whether the supply is of goods or services or both. In both the
cases,one has to identify whether the supply is a composite supply or mixed
supply?
b. Identifying the HSN
classification of the product or service to determine the rate applicable
thereof.
5. Failure to take the
above steps can have its’ own repercussions.
For example, under
Notification
11-2017, Entry 10 (ii)
provides that rental services of transport vehicles with / without operator
shall attract tax at 9% under heading 9966. However, Entry 17 provides that
leasing or rental services, with / without operator shall attract same rate of
central tax as would have been applicable on supply of like goods involving
transfer of title in goods. This clearly demonstrates the apparent conflict in
the notification as well as, it demands a proper interpretation of both the
entries to determine the correct classification.
Identifying the nature of supply
6. As stated above, the charging
section provides for the levy of GST on supply of goods, services or both.
Further, different tax rates have been prescribed for different kinds of goods
and services. This can result in disputes to decide whether a transaction is
for provision of service or sale simpliciter.
7. For instance, it has
always been a subject matter of dispute as to whether software is a transaction
for sale of goods or provision of service. At the outset, it is important to
note that incorporeal property is also treated as goods. It was further held
that a software, whether customised or not, shall be classified as goods if
they satisfy specific attributes, namely utility, capability of being bought
and sold and capable of transmission, transfer, delivery, storage and possession.
In this context, the Hon’ble SC held that a software embedded in a device shall
be classified as goods1.
Composite Supplies
8. Even in the context of
works contract, there have been a plethora of cases where the Supreme Court had
a chance to determine whether a contract was divisible or not and how to
determine the taxability of the same. The aspect of divisibility vs. indivisibility
further gave rise to the theory of dominant intention, which is laid down in
the following judicial precedents:
a. The need to determine
whether a transaction is a transaction for sale of goods or not arose with the
decision of the Hon’ble SC in the case of Gannon Dunkerley2, wherein
the Supreme Court held that the States had no authority to levy tax on a
transaction supply of goods as well as service when the contract was an
indivisible works contract.
b. Relying on the decision of
Gannon Dunkerley, it was held in Hindustan Shipyard Limited vs. State of
Andhra Pradesh3 that a contract for construction of a vessel
under the instruction of client would amount to sale of goods (as claimed by
the State of Andhra Pradesh) and not works contract (as claimed by the
Appellants).
The Hon’ble Supreme
Court held that in a contract for the sale of specific or ascertained goods,
the property in them is transferred to the buyer at such time as the parties to
the contract intend it to be transferred. When something remains to be done on
the date of the contract to bring the specific goods in a deliverable state,
the property does not pass until such thing is done and brought to the notice
of the buyer. The risk in such case remains with the seller so long as the property
therein is not transferred to the buyer though the delivery may be delayed. On
the basis of these observations, the Hon’ble Supreme Court held that the
transaction was for sale of vessel and not a works contract. Hence, the
contract had to be classified as contract for sale of goods and not works
contract relying on the dominant intention of the transaction.
c. The theory of dominant
intention was again confirmed by the Hon’ble SC in Bharat Sanchar Nigam Limited4 wherein the Hon’ble Supreme Court had held
that in a transaction of mobile connection, the predominant intention is to
receive the telecommunication service and not electro-magnetic waves, as
claimed by the Government.
d. However, in Larsen &
Toubro Limited vs. State of Karnataka in 2014 (034) STR 0481 SC, it was
held that the dominant nature test need not be applied to find out the true
nature of transaction as to whether there is a contract for sale of goods or
the contract of service in a composite transaction covered by the clauses of Article
366(29A). The above decision of Larsen & Toubro Limited was approved by the
Constitutional Bench in the case of Kone Elevators India Private Limited vs.
State of Tamil Nadu in 2014 (304) ELT 161 (SC).
9. Despite the subsumation
of taxes on goods and services under a single legislation, the aspect of
composite supply vs. mixed supply under GST has resulted in the principle of
dominant intention being still relevant.
10. The term
composite supply has been defined u/s. 2 (30) to mean
a supply made by a taxable person to a recipient consisting of two or more
taxable supplies of goods or services or both, or any combination thereof,
which are naturally bundled and supplied in conjunction with each other in the
ordinary course of business, one of which is a principal supply.
11. Further, the term
“principal supply” has been defined u/s. 2 (90) of the CGST Act, 2017 to mean supply
of goods or services which constitutes the predominant element
of a composite supply and to which any other supply forming part of that
composite supply is ancillary.
12. These two terms, namely
composite supply and principal supply shall clearly result in the revival of
dispute as to whether the supply is of goods or services or both? However, the
task shall be cut short in case of works contract services relating to
immovable property, as Schedule II clearly provides that a composite supply of
works contract service shall always be treated as supply of service and shall
be taxed accordingly.
13. Let us analyse the impact
of GST on the transaction which was the subject matter of dispute in the case
of Kone Elevators referred above. Under the earlier regime, the position was
that the contract was a divisible contract for sale of goods (being elevator)
and provision of services (being commissioning and installation services). It
needs to be decided as to whether the supply can be classified as works
contract or not? For the same, reference to the definition of works contract
becomes necessary. Section 2 (119) of the CGST Act defines the term works
contract as a contract for building, construction, fabrication,
completion, erection, installation, fitting out, improvement, modification,
repair, maintenance, renovation, alteration or commissioning of any immovable
property wherein transfer of property in goods (whether as goods or in some
other form) is involved in the execution of such contract;
14. The first aspect
therefore that needs to be checked is whether the elevator can be considered as
immovable property or not? In this context, the Supreme Court has in the
decision of Kone Elevators already held that once assembled, the elevator
becomes a permanent fixture. This in turn leads toward the conclusion that a
contract for supply and installation of elevator would be for creation of a
permanent fixture in an immovable property and hence, the supply would be
classified as works contract.
15. However, the position
would not be so clear when the supply is in relation to a movable property or
pertains to two or more distinct goods supplied together or two or more
distinct services supplied together. In this context, it becomes more important
to analyse the definition of composite supply which provides that for multiple
supplies to be classified as a single composite supply, following conditions
need to be satisfied, namely:
a. There should be two or more
taxable supplies
b. The supplies should be
naturally bundled
c. The supplies should be in
conjunction with each other
d. One of the supplies should
be a principal supply
16. Since what is meant by
“naturally bundled” has not been dealt with under the GST law, some specific
principles will have to be laid down for determining the same, such as:
a. There is a single price or
the customer pays the same amount, no matter how much of the package they
actually receive or use.
b. The elements are normally
advertised as a package.
c. The different elements are
not available separately.
d. The different elements are
integral to one overall supply – if one or more is removed, the nature of the
supply would be affected.
Of course, the above
are mere examples and whether supplies are naturally bundled or not will have
to be decided on a case to case basis.
17. An example of composite
supply, in the context of movable property can be supplies made by vehicle
workshops. When a person takes his vehicle for repairs, there are certain parts
which are required to be replaced. At times, there are Annual Maintenance
Contracts undertaken by the workshops wherein they undertake to provide
periodic service for the vehicle along with replacement of specific parts,
whenever required. In this case, the question that arises is whether the supply
can be classified as a composite supply or not?
18. To decide the same, one
needs to go back to the conditions laid down in the definition of composite
supply to decide whether the same are fulfilled or not? The same is analysed in
the subsequent table:
|
There should be two or more taxable supplies
|
There are two supplies involved, namely supply of services
(being repair / maintenance services) and supply of goods (being replacement
parts)
|
|
The supplies should be naturally bundled
|
The indicators for “naturally bundled” discussed in
para 16 are getting satisfied
|
|
The supplies should be in conjunction with each other
|
This condition is also getting satisfied as only if there is
a repair activity undertaken will there be a need known for replacement part
and only when replacement part is supplied will the replacement activity also
be undertaken.
|
|
One of the supplies should be a principal supply
|
The predominant element of this transaction is to provide
maintenance service to the vehicle owner and the supply of replacement parts
is only ancillary to the service to be supplied.
|
|
|
19. Thus, it can be concluded
that the contract is a composite contract with the principal supply being
supply of service and hence, the transaction would be taxed as service.
20. However, the situation
could have been different where the customer had approached the workstation for
replacement of tool-box, which the workshop agreed to undertake for a single
consideration. In this scenario also, there would have been two distinct
supplies, namely, supply of tool-kit as well as providing service of replacement
of tool-kit. In such a case, a stand can be taken that the pre-dominant supply
is the supply of tool-kit and hence, the entire supply will have to be taxed as
supply of goods.
21. It
is important to note that whether a supply is a composite or not is a subjective
matter and no hardcore rule can be set for deciding the same. The same will
have to be decided on a case to case basis.
Mixed Supplies
22. If any supply consisting
of multiple sub-supplies fail to satisfy the conditions discussed for composite
supply, the next question that arises is whether the supply is a mixed supply
or not. Section 2 (74) of the CGST Act defines the term “mixed supply” as two
or more individual supplies of goods or services, or any combination thereof,
made in conjunction with each other by a taxable person for a single price
where such supply does not constitute a composite supply.
23. The definition is further
explained by the following example:
A supply of a
package consisting of canned foods, sweets, chocolates, cakes, dry fruits,
aerated drinks and fruit juices when supplied for a singleprice is a mixed
supply. Each of these items can be supplied separately and is not dependent on
any other. It shall not be a mixed supply if these items are supplied
separately.
24. In other words, when two
or more supplies are made in conjunction with each other, but are not naturally
bundled and there is a single consideration for all the supplies, such supplies
shall be made liable to GST at the rate applicable to supply, attracting the
highest GST Rate. For example, a person taking a residential property for rent
for both commercial as well as residential use. While the former is taxable
service, the latter is exempt from tax. Therefore, the entire transaction would
be subjected to tax, unless separate consideration is fixed for commercial and
non-commercial use.
Classification of Some Specific Transactions
25. Having discussed the
Rules for Interpretation of classification, there are certain specific
transactions where there is an ongoing issue w.r.t classification, such as:
a. Takeaways vs. Restaurant
Dining
b. Alcohol – Separate Invoicing
vs. Consolidated invoicing
c. Sale of Publications vs.
Job-work of Printing of Publications
d. International Job-work –
Job-work vs. export
26. Each of the above
transactions are discussed in detail in the subsequent paragraphs.
Takeaways vs. Restaurant Dining
27. Schedule II, Entry 6 of
the CGST Act provides that a composite supply by way of or as part of any
service or in any other manner whatsoever of goods, being food or any other
article for human consumption or any drink (other than alcoholic liquor for
human consumption) where such supply or service is for cash, deferred payment
or other valuable consideration, shall be treated as supply of service.
28. The above entry intends
to cover only transaction where there is supply of food / beverages which is
part of a larger supply, i.e., supplies made in restaurant or as caterer. The
same has been made liable for GST at the rate of 12% / 18% on case to case
basis. This rate will apply irrespective of the products used in providing the
said service. For example, non-alcoholic beverages attract GST at 28% plus
compensation cess while food items such as namkeens, bhujia, mixture, etc.
attract 12%. Since this food / beverage items are supplied as a part of
restaurant service, the same is supposed to attract tax at the rate of 18%.
29. However, the treatment as
composite supply of service is only applicable where the food / beverage is
supplied by way of or as part of a service. Therefore, the question that arises
is whether in case of takeaways, where the customer does not receive any
service, but merely buys the food / beverages from the restaurants, the supply
shall be treated as supply of food and beverages or as composite supply of
restaurants?
30. In essence, the question
that arises in case of takeaways is whether the same is supply of goods or
supply of services? This is where the rules of interpretation discussed in the
preceding paras will come into play.
31. The first thing that
needs to be decided in this transaction is whether the supply is of goods,
i.e., food and beverages or of services? In this transaction, it would be safe
to say that in case of takeaways, the predominant intention is to buy the food
/ beverages and there is no service element involved in the supply. Hence, both
the supplies, i.e., namkeen as well as beverage will have to be treated as
supply of goods and GST will have to be discharged as per the rates applicable on those products.
32. In fact, under the
Service Tax regime also, initially it was clarified that the dominant intention
in the case of takeaways was to sell goods and not provide any service.
However, this clarification was subsequently withdrawn.
Supplies involving alcohol – GST vs. VAT
33. Alcoholic liquor meant
for human consumption has been kept outside the purview of GST. The levy of tax
on the same continues to be governed by the provisions of State Excise and
Value Added Tax. In other words, there cannot be any GST implications on the
sale of alcoholic liquor.
34. Keeping the said aspect
in mind, even the Schedule II entry which provides that supply of food /
beverages by way of or as part of service shall be considered to be as
composite supply of service excludes the supply of alcoholic liquor from its’
ambit. Therefore, the intention of the GST law to ensure that no tax is levied
on the alcohol component is very evident.
35. While legally, the law
has clearly laid down its intention, practical issues arise in the case of cocktails (with
alcoholic content) served in restaurant, which contain both, alcoholic as well
as non-alcoholic beverages? What happens to cakes which may also include
alcoholic content? The question that arises is whether the dominant intention
theory will have to be applied for such transaction and if yes, whether the
transaction will attract VAT or GST?
36. The answer to the above
question will have to be determined on case to case basis. For example, in the
first case involving cocktails, it can be said that the dominant intention was
to consume alcohol while in the second case of cake containing alcoholic
liquor, the dominant intention is to consume the cake and not the alcohol and
hence, the supply will have to be subjected to GST.
Publications – Sale vs. Job-work
37. The term “job-work” has
been defined u/s. 2 (68) of the CGST Act to mean any treatment or process
undertaken by a person on goods belonging to another registered person and the
expression “job worker” shall be construed accordingly.
38. Schedule II, entry 3 also
provides that any treatment or process which is applied to another persons’
goods shall be treated as supply of service.
39. There are multiple
scenarios possible, which are as under:
a. A person prints and
publishes books on his own account, which is sold to consumers.
b. A person in possession of
content gives a contract to a job-worker for printing the books, where the
material for printing the books is given by the principal.
c. A person in possession of
content gives a contract to a contractor for printing the books by using the
principal’s content but using own material.
40. In (a) above, it is more
than evident that the transaction shall be that of supply of books and hence,
the same shall be liable for NIL rate of tax. Similarly, in case of (b) above,
the job-work transaction shall be considered as service owing to the specific
entry in Schedule II treating the activity as supply of service. The actual
issue arises in (c) above, where the content is of the principal, but the
entire activity of printing (including materials) is arranged for by the
contractor. The question that arises is whether the supply has to be treated as
supply of goods or supply of services?
41. Drawing analogies from
the decision of the SC in the case of Hindustan Shipyard, it can be contended
that the supply should be characterised as supply of goods in the nature of
books and therefore, liable for NIL Rate of tax. However, a rate of 12% has
been prescribed for services in the nature of printing of books where the
content is provided by the principal and the paper and ink is used by the printer.
Whether mere supply of content by the principal can result in the
categorisation of the transaction as a service? If so, certain entries
prescribed under the schedule of goods like brochures, letterheads, etc.
may loose relevance.
International Job Work – Goods vs. Service
42. This relates to a
transaction where a foreign principal has supplied certain material for
job-work to the Indian contractor who is required to undertake certain
treatment / process on the said material and send it back to the principal. As
already discussed in the previous case, job-work is treated as service under
GST. Therefore, in terms of the provision of section 13 (3) (a) of the IGST
Act, the place of supply becomes the location where the treatment/ process is
undertaken, i.e., the location of supplier and hence, the transaction cannot be
classified as export of services as well as, it becomes subject to tax.
43. However, another
important point to be kept in mind is that in case of such transactions, the
movement of goods takes place from the principal to job-worker and from the
job-worker to the principal upon completion of the process. The process of
import of goods is governed by the provisions of the Customs Act, 1962 and
hence, when the movement of material takes place from the foreign principal to
the Indian Job-worker, the goods are required to be cleared at the Customs with
payment of appropriate custom duty and IGST by disclosing the same as import of
goods.
44. Subsequently, when the
process is completed and the goods are sent back to the principal, the goods
are again subjected to Custom Assessment as Shipping Bill for export of goods
outside India is prepared. This activity of sending the goods outside India
also falls within the ambit of definition of export of goods, which is defined
to mean taking goods out of India to a place outside India. Further, Section 11
of the IGST Act clearly provides that the place of supply of goods exported
from India shall be the location outside India.
45. One can therefore say
that in transactions of international job-work, the same transaction can be
classified as supply of goods as well as supply of service, which appears to be
incorrect. Therefore, what needs to be decided is whether there is a supply of
goods or supply of services?
46. In such situations,
whether dominant intention will play a role in determining the nature of supply
or the altered facts will also have to be considered in determining as to
whether the supply is of goods or services? In this context, reference to the
decision of the SC in the case of Moped India Limited vs. Assistant
Collector of Central Excise in 1986 (23) ELT 8 (SC), wherein the SC had
held that while interpreting the terms of an agreement, it is the substance of
the transaction which shall prevail over the form of the transaction. That is
to say, while the transaction might have been structured as a Job-work, it
might not necessarily be classified as such depending on the actual conduct of
the parties.
47. The situation becomes
even more evident from the fact that the levy of IGST on imports is under the
IGST Act unlike the earlier proposition of countervailing duty being levied
under the Customs Act only. It may therefore be argued that the activity of job
work gets subsumed in the transaction of import and export of goods and
therefore, no tax should be separately payable on the said labour charges.
Services of advertising agents – P2P vs. P2A
48. There are two types of
agents, namely one, who deal on their own account, i.e., buy advertising space
from publishers and sell it to various advertisers and second, where they act
as agents of either advertisers / publishers and facilitate the transaction for
the sale of advertising space. In the first case, the revenue for the agents is
the net difference between the sale rate and the buying rate, while in the
second case, the agents specifically issue an invoice to their client, being
the advertiser / publisher for the agency services provided.
49. There has been
substantial confusion with respect to the first case as to whether the agency
has to pay GST at the rate applicable on the media or they have to pay GST at
the rate applicable for commission agents? In this context, vide press release,
it has been clarified that in case of agency working on a Principal to Principal
basis, GST shall be applicable on the rate applicable on the media (5% in case
of print media). However, in case the agency is operating on a Principal to
Agency basis, GST will be applicable at the rate applicable on commission
services, i.e., 18%.
50. However, it is imperative
to note that under the pre-GST regime, even when the advertising agencies were
operating on a Principal to Principal basis, there was substantial litigation
on the grounds that they were operating as an agent and hence liable to pay GST
on the net commission income. Similar issue had also plagued the freight
forwarders as well. It remains to be seen how far the Tax Authorities receive
this circular and how it will impact the litigation under the earlier tax
regime.
Harmonised System of Nomenclature
51. Section 9 of the CGST
Act, 2017 provides that tax shall be levied on all goods and / or services at
such rates as may be notified by the Government. Subsequently, the CBEC has
vide general rate notifications 01/2017 and 02/2017 for goods and 11/2017 and
12/2017 for services notified the rates respectively. The notifications have
classified the goods on the basis of HSN which is segregated into Chapter/
Heading/ Sub-heading/ Tariff item. Further, it has been provided that the rules
for the interpretation as provided for under Customs Tariff Act, 1975 shall
apply for the interpretation of headings covered under the said notification.
52. HSN in the context of
goods is a multi-purpose international product nomenclature developed/ identified
by 6-digit code arranged in a legal and logical structure globally. India has
added two more digits to the 6-digit code for further precision, thus making it
an 8-digit HSN. The various components of an 8-digit HSN are as under:
|
1 2
|
3 4
|
5 6
|
7 8
|
|
Chapter
|
Heading
|
Sub-
Heading
|
Tariff Item
|
53.
In addition to
HSN for goods,
under GST, even
services have been
given an HSN
code for
identification by way of an Annexure in Notofication
11/2017 under Chapter 99. The components of HSN
for services are as under:
|
1 2
|
3
|
4
|
5
|
6 7
|
|
Chapter
|
Section
|
Heading
|
Group
|
Service Code
|
Rules for Interpretation of Tariff
54. It is always possible
that the same product / service can be classified under multiple HSN. In order
to assist in deciding the correct classification for such instances, the
notifications have provided that the Rules for interpretation as prescribed
under the Customs Tariff Act, 1975 shall be followed for the purpose of
classification under GST.
55. There are six rules
prescribed, which need to be applied in chronological order. The Rules deal
with different scenarios which can arise at the time of classifying a product /
service and lays down the method in which the classification is to be done.
Each of the above six rules are discussed in detail in the subsequent
paragraphs.
Rule 1 – General Rule
56. This is the general rule
for interpretation of tariff. This rule provides that the words in the Section
and Chapter titles are to be used as guidelines only to point the way to the
area of the Tariff in which the product to be classified is likely to be found.
Classification is to be determined by the terms in the Headings and the Section
and Chapter Notes that apply to them, unless the terms of the heading and the
notes say otherwise.
For example, Heading
9505 deals with articles for Christmas activities. Therefore, Christmas tree
candles would logically get covered under the said heading. However, notes to
the said heading specifically provide that Christmas tree candles will not get
covered under heading 9505 and hence, they will have to be classified under
heading 3406 which specifically deals with candles, tapers & the likes.
Rule 2 (a) – Classification of unfinished,
incomplete, unassembled or disassembled products
57. This rule deals with
classification of unfinished, incomplete, unassembled or disassembled products.
This rule provides that unfinished and incomplete goods can be classified under
the same Heading as the same goods in a finished state, provided that they have
the essential character of the complete or finished article, unless the Heading
/Note specifically exclude unfinished / unassembled products.
Judicial Precedents: Collector
of Customs, Bangalore vs. Maestro Motors Limited [2004(174) ELT 289 (SC)]
Components of car in a
completely knocked down condition shall also be considered as cars for the
purpose of levy of customs duty.
Rule 2 (b) – Classification of products not
classifiable u/r 1 or 2 (a)
58. This rule provides that
any reference in a heading to a material / substance / goods of a given
material / substance shall also include reference to a mixture / combination of
that material / substance / goods consisting wholly or partly of such
substance.
Example: Di-calcium
citrate is a calcium acid salt of citric acid. There is no specific
classification for this product. However, classification 2918 15 deals with “salts
and esters of citric acid”. Therefore, it would be apt to classify di-calcium
citrate under 2918 15.
Rule 3 – Multiple probable classifications
59. This rule is a
continuation of Rule 2 (b) and deals with situations wherein a product is
classifiable under more than one heading. The rule lays down three criteria for
determining the appropriate heading as under:
– Rule
3 (a): Heading with most specific description shall be preferred over a more
general description.
Judicial Precedents: Superintendent
of Central Excise & Others vs. Vac Met Corporation Private Limited
[1985 (22) ELT 330 (SC)]
Metallic yarn (also
known as metallized yarn) manufactured in the form of Silver white or Golden
thin flat, narrow and continuous strip made of metallised polyester from
metallised laminated plastic sheets or foils which are spitted by them by
electrically operated machines, fall within the purview of Tariff Entry 15A(2)
which is a specific entry related to articles made of plastic of all kinds and
not under Tariff Item 18 of the Central Excise Tariff which is of general
nature.
– Rule
3 (b): If 3 (a) is not applicable, the classification of the material /
substances which gives the final product its essential character should be
applied.
Judicial Precedent: Sprint
RPG India Limited vs. Commissioner of Customs, Delhi [2000 (116) ELT 6
(SC)]
Computer Software
loaded on a hard disk drive is assessable on the basis of computer software at
the rate of 10% as per Heading 85.24 of Customs Tariff Act, 1975 read with
Notification No. 59/95-Cus. and not under Heading 84.71 ibid as a ‘hard
disk’ simpliciter, since what was imported was software on a hard disk and not
hard disk in the garb of software.
– Rule
3 (c): If classification as per (a) or (b) is not possible, goods should be
classified under heading which occurs last in numerological order amongst those
classifications which equally merit consideration.
Judicial Precedent: Commissioner
of Central Excise, Goa vs. Waterways Shipyard Private Limited [2013 (297)
ELT 0077 Tribunal Mumbai]
Vessel for use as
casino is classifiable under two entries, namely Heading 8903 which covers all
vessels for pleasure or sport, as well as classifiable under Heading 8901 which
covers cruise ships. Since there were two entries under which goods were
classifiable, vessel to be classified under Heading occurring last in numerical
order among those equally meriting consideration.
Rule 4 – Classification for goods not
classifiable as per Rule 1-3
60. This Rule provides that
goods which cannot be classified as per Rule 1-3 shall be classified under the
heading appropriate to the goods to which they are most similar. This is also
known as “last resort rule” often used with new products.
Judicial Precedent: Collector
of Central Excise, Bombay vs. KWH Heliplastics Limited [1998 (97) ELT 385
(SC)]
Plastic tanks would be
classifiable under Heading 39.25 which also applies to reservoir, tanks,
including septic tank, vats and similar containers to hold liquids or something
in liquid form in the process of manufacture as in tanning and dyeing etc.,
and thus can be used and are capable of being used for water storage in
connection with raising of construction or mixing construction materials and
not under the residuary entry of 3926 as held by the Tribunal.
Rule 5– Classification of containers
61. There are two sub-rules.
Sub-rule (a) provides that containers shall be classified as per the heading of
the article which it is meant to contain if all the conditions, viz.,
specifically shaped / fitted for the article, suitable for long term use,
protect the article, normally sold with such article and presented with article
designed to contain are satisfied, except in cases where the container gives
the article its essential character, in which case classification should be as
per the heading applicable for container and not article.
Example: CD cases
are specifically meant for containing CD and are sold along with CD and hence
they shall be classifiable as CD and not separately.
62. Sub-rule (2) provides
that all other types of containers / packing materials, other than those
covered u/r 5 (a) should be classified with the goods they contain, except in
cases where the container / packing material are meant for repetitive use.
Example: Styrofoam
used in packaging of electronic materials, is not reusable as the same is
handed over to customer and hence, the same will have to be classified as per
classification applicable for electronic material and not Styrofoam.
Rule 6 – Manner of Application of Rules
63. Once goods have been
classified to the Heading level as per Rule 1 – 5, then classification to the
Subheading level can now take place by repeating the said rules and taking into
account any related Legal Notes.
Conclusion
64. It would be sufficient to
say that classification plays a pivotal role in not only determining the rate
of tax, but also other aspects such as place of supply, time of supply,
procedural compliances, etc. and hence, any incorrect classification can
have severe consequences on the business. _
