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CIRCULAR No. 1/2005-Cus.dated 11.1.2005    
Subject- Clarification on various Tariff Issues - reg.



          I am directed to say that divergence of practice regarding various Tariff related issues has been brought to the notice of the Board. A number of such matters were discussed at the Tariff Conferences of Chief Commissioners of Customs held at Kolkata on 22nd and 23rd January, 2004 and Shillong from 13th to 15th May, 2004. On the basis of the recommendations of these Tariff Conferences, draft circulars were prepared and put up on the Deptt.’s web-site and also circulated to various trade bodies for giving it wider publicity. Various parties were asked to give their comments and feedback on the draft circulars within 3 weeks. Board has taken decisions on these issues after considering the feedback received.


(A)            Briefs of such issues and the decisions taken by the Board on the same are enclosed herewith.


(B)            Field formations may finalise the pending assessments, if any,  accordingly.


(C)           Suitable Public Notices may be issued for the benefit of the  Trade.


(D)           Hindi version will follow.


                        Yours faithfully,




                                                                            STO (TU)

                                                                        Ph. 2309 3859

  F. No. 528/78/2004-Cus (TU)                           



(i)                Subject- Classification of Pontoon upgraded as  Accommodation Barge


Issue in Brief: This matter was discussed in the Tariff Conference of Chief Commissioners of Customs held at Kolkata on 22nd and 23rd January, 2004 [Agenda Point T-3]. Pontoon and Barges, which are usually used for the transport of goods and sometimes of persons, are generally classified under Tariff Heading 8901. The Pontoon/ Barge upgraded to an 'Accommodation Barge' is sought to be classified under Heading 8901, on the ground that there is a specific entry 89011040 for Barges. However, from the description, as well as usage of such vessels, it appears that these goods are essentially for the purpose of accommodating work personnel who are working on the production drilling platforms on the sea. The primary function of the vessel does not appear to be transportation of goods and persons but providing accommodation to the drilling platform crew. Accordingly, the appropriate and correct classification appears to be 8905. There is a difference in the rate of duty under the two referred tariff headings, hence the dispute. The Conference noted that the intended use of the item in question was as ‘Accommodation Barge’ for 150 personnel and to provide support function for project material storing & transfer. Its secondary utility by virtue of its design and onboard machineries (such as mooring winches, crane, free deck space, generator, compressor logistic support etc.) was for performing several diverse functions as required.


Decision: The goods described as “Accommodation Barge” are generally moored at one place. Therefore, taking note of the HSN Notes to heading 8905, the item would be more appropriately classifiable under heading 8905 since navigability was subsidiary to its main function. This HSN notes also states “……….. Pontoons clearly designed to serve as a base for machines….” fall under heading 8905. In fact, house boats are specifically covered under this heading. It was also noted that describing the product as ‘barge’ should not affect the classification of the product and what was important was its actual use. Accordingly, it has been decided that pontoons upgraded to ‘accommodation barge’ are appropriately classifiable under heading 8905.



(ii) Subject- Classification of parts of Cellular phones.


Issue in Brief: This matter was discussed in the Tariff Conference of Chief Commissioners of Customs held at Kolkata on 22nd and 23rd January, 2004 [Agenda Point T-4]. The importers or manufacturers who import parts of cellular phones claim exemption under Sl. No 320 of Notification 21/2002 – Cus., dated 1.3.2002,  which is applicable to parts of handsets and attract NIL rate of duty (0% BCD+0% CVD), subject to fulfillment of condition no. 5 of this notification. Under this condition, the jurisdictional Assistant Commissioner/Deputy Commissioner of Central Excise issues the necessary certificate to the effect that the importer has executed the required undertaking bond with them and that he will be following the required procedure for manufacture of Excisable goods as provided for in Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods), Rules, 1996. A doubt has been expressed in many Commissionerates that when all the parts required for manufacture of the Cellular phone handset are imported by the manufacturer (either in the same consignment or spread out over different consignments), whether such imports of parts can be denied the benefit of serial no. 320 of the notification ibid., by treating them as complete handsets (in disassembled form) by virtue of Rule 2(a) of the General Interpretative Rules. If by doing this, they get treated as complete handsets under CTH 852520.17 in disassembled form, there is a possibility of denial of exemption under Sl no 320, which applies only to parts, components and accessories of cellular phones.  If this exemption is denied, they would be otherwise charged to duty as applicable to handsets (5% BCD + 0% CVD) under Sl No. 313 of Customs Notification 21/2002 dated 1.3.2002, read with the relevant C. Excise notification. The Conference deliberated over the following judgements relating to the application of Rule 2(a) of the General Interpretative Rules, specially CCE Mumbai v/s Maruti Udyog Ltd  {1996 (16) RLT 6469 (TRIB)}, Wipro GE Medical systems v/s CCE Customs, Bangalore, {1999(106) ELT 169(Trib)}, CCE Mumbai v/s Crescent Metal Processing Works {1999(111) ELT 841(Trib)}, Polar Appliances v/s Commissioner of customs, New Delhi {2001(127) ELT 448(Trib-Del)}, CCE, Bangalore v/s BPL Sanyo, {1998(102) ELT 249 (MAD)}, Shivaji Works v/s CCE Aurangbad {1994(69) ELT 674 (Trib)}.


Decision: The Board took into account the fact that though the interpretative rules cannot always be invoked for interpreting notifications but still, this will depend upon the nature of the notification. In the instant case, it is observed that the relevant serial nos. of the notification, namely, 313, 319 & 320 granted exemption to certain items on the basis of sub-heading nos. This, therefore, required that the classification of each imported item had to be first determined and thereafter exemption decided as per the relevant sl. no. of the notification. To decide the classification of an item in disassembled form, rule 2(a) of the Interpretative Rules had to be invoked. Thus, if by invoking Rule 2(a), the items under import get classified under heading 8525 as cellphones, exemption will be available as per Sl. No. 313 of the notification only and not as per sl. No. 319 or 320. It has, therefore, been decided that keeping the language of Notification No. 21/2002-Cus., dated 1.3.2002 in mind, the imported goods would first have to be classified by invoking Rule 2(a) of the Interpretative Rules and then exemption given either under sl. No. 313, 319 or 320. In case, all the parts/components of the mobile phone handset are imported in a single consignment, it would be classified as ‘complete mobile handset’ under CTH 852520.17 and hence it would be ineligible for benefit under Sl.No. 319 or 320 of Notification No. 21/2002-Cus., dated 1.3.2002.



(iii) Subject- Eligibility of general purpose Labeling Machine under   Notification No.21/2002-Cus., dated 1.3.2002 for use in  Textile Industry.  


Issue in Brief: This  matter  was  discussed  in  the Tariff Conference of  Chief  Commissioners of Customs held at Kolkata on 22nd and 23rd  January, 2004 [Agenda Point N-8]. Concessional rate of duty of 5% is extended to specified machinery/equipment which are meant for use in textile industry vide S.No.250 of Notification No.21/2002-Cus., dated 1.3.2002. List 30 of the said Notification specifies labeling machine at Sl.No.84 therein. The intention of the Notification is to allow concessional duty for labeling machines which are for use in textile industry. The field formations have noticed import of Labeling machines of general purpose which can be used not only in textile industry but also in other industries. Labeling machines, imported by trading firms are normally used for general purposes and not in textile industry alone. But importers of such machines are claiming concessional rate of duty under the said notification by declaring them as machinery/ equipment for use in textile industry. Rejection of the claim of the importers may not be found sustainable as the imported labeling machines can be used also in textile industries. Labeling machines being an omni-bus term, the Notification gives room for unscrupulous importers to avail of unintended benefit.


Decision: The Board deliberated upon the language of the notification.  The expression used in the notification is “…………..goods for use in the textile industry”. The notification, therefore, does not appear to restrict the concession to only those machinery or equipment which was ‘specifically designed for use’ in the textile industry.  The notification allows the import of general purpose machinery also as listed in List 30 so long as they are capable of use in textile industry.  It has accordingly been decided that ‘general purpose labeling machine’ was eligible for exemption under S.No.250 of Notification No.21/2002-Cus., dated 1.3.2002, if it could also be used in the textile industry.



(iv) Subject- Eligibility of exemption under Notification No.94/96-  Cus.  for Fuel Injection Pump and Injectors exported and re-imported after fitment on Engines



Issue in Brief:  This matter was discussed in the Tariff Conference of Chief Commissioners of Customs held at Kolkata on 22nd and 23rd January, 2004 [Agenda Point N-10]. Notification No.94/96-Cus., dated 16.12.96 exempts re-imported goods from Customs duty subject to specified conditions. In the case under reference, a company exported ‘Unique Fuel Injection pumps and Injectors’ to their ‘engine manufacture facility’ abroad. These pumps and injectors were fitted on engines, tested and the engine assembly fitted with these items were imported back into India. The importer filed a Bill of Entry declaring engine separately & fuel pump and injectors fitted on the engine separately, claiming benefit of Notification No.94/96-Cus.for fuel pump and injectors. Fuel pump and injectors could be identified as those which were originally exported with reference to export documents and on that basis, the benefit of Notification 94/96-Cus. was extended by the Customs formation. CRA raised an objection observing that in terms of the second proviso to Notification No.94/96-Cus., exemption under the above notification may be allowed only if the goods exported and imported are the same. In the instant case, the items exported were multi cylinder fuel injection pump classified under heading 8413 of the Customs Tariff and the items imported are engine assembly fitted with fuel injection pumps and injectors classifiable under heading 87089900 of the Customs Tariff. Thus, there has been functional difference in the goods imported and exported besides changes in classification of the goods imported and exported. Thus the condition regarding similarity of imported/exported goods did not appear to be satisfied.


Decision: The Board deliberated upon the wording of notification no.94/96-Cus. The notification requires that the exported item and the re-imported item should be the same and it should be possible to establish their identity. This notification is meant to cover cases of repair or reprocessing with the exported article retaining its identity.  In the instant case what has been exported are fuel injection pumps and injectors and the items imported are engines (though fitted with the injection pumps and injectors). If the Govt. feels that such types of cases should be covered by the said notification, it should be suitably amended to do so. It has accordingly been decided by the Board that fuel injection pumps and injectors exported and re-imported after fitment onto engines are not covered by notification no.94/96-Cus., dated 16.12.96.  


(v) Subject- Import of ACT test tubes - benefit as accessories of the ACT machine(Notification No. 21/2002-Cus.  dated 1.3.2002, Sl. No. 363B).


     Issue in Brief: This matter was discussed in the Tariff Conference of Chief Commissioners of Customs held at Kolkata on 22nd and 23rd January, 2004 [Agenda Point N-13]. The issue relates to assessment of ACT (Activated Clot Time) test tubes and whether  ACT test tubes can be considered as accessories of Activated Clot Time (ACT) machines and hence eligible for benefit of  Notification No.21/2002-Cus., dated 1.3.2002, Sl.No.363B (List 37 sl.no.59). Under Notification No.21/2002-Cus., dated 1.3.2002, Sl.No.363A  covers specified medical equipments as given in List 37 annexed to the said Notification. These equipments attract concessional rate of duty @ 5% only. Further, under entry 363B of the said Notification, concessional rate of duty @ 5% basic is extended to accessories of the said equipments. Activated Clot Time Machine (ACT machine) appears in List 37 at Sl.No.59 and therefore, attracts duty @5% only. The item in dispute is ACT test tube, which is claimed as accessory of ACT machine, for coverage under 363B of the said Notification.

 Perusal of the product literature of ACT Test Tube (Model FTCA 510) shows that this test tube is coated inside with an activator and contains diatomaceous earth (12 mg). Fresh whole blood, 2 ml, is added to it to conduct Activated Clotting Time (ACT) Test, which is commonly used for ‘Heparin anti-coagulation monitoring’ during bypass surgery and other surgeries.  The ACT tests are performed using whole blood at the patients' bed side with ‘Hemochron ACT machine’ models 401 or 801.  Heparin is an anticoagulant which is essentially required during Open Heart Surgery to prevent thrombosis (blocking of arteries). Over-dosing of heparin can lead to dangerous bleeding whereas under-dosing leads to thrombosis.  The ACT test is an important test to determine the above state.  A digital timer on the ACT machine determines the coagulation time in seconds, known as the clotting time. 

Decision: This issue was examined by the Board in consultation with the Directorate General of Health Services (DGHS) and it has been clarified by the DGHS that

‘ACT test tubes are specific to ACT machines and cannot be used for any other purpose; hence the ACT test tubes are to be considered as accessories to the main equipment, namely ACT machine, listed at entry no. 59 under list 29 of the notification 17/2001 dated.1.3.2001’.


          The current entry under Sl.No.363 of Notification No. 21/2002-Cus., dated 1.3.2002 is identical to the earlier entry. Therefore, the clarification by the DGHS is relevant in the present context also. Board has deliberated over the opinion received from the Directorate General of Health Services (DGHS) that ACT test tubes are specific to ACT machines and can not be used for any other purpose. The Board is of the view that since the ACT test tubes have single use only and have to be disposed of thereafter, it can not be considered to be components/parts of the ACT machine but would be in the nature of a consumable or accessory. It has therefore been decided by the Board that ACT test tubes are eligible for exemption under Notification No.21/2002-Cus., dated 1.3.2002 – Sl. 363 B (List 37, Sr.59).


(vi) Subject- Admissibility of benefit of Notification No. 6/2002-C.E., dated 1.3.2002 (sl.no.63) on "Dant Mukta" used  in the manufacture of  Lal Dant Manjan.


 Issue in Brief: - This matter was discussed at the Tariff Conference of Chief Commissioners of Customs held at Shillong from 13th - 15th     May, 2004 [Agenda Point N-1]. Central Excise Notification No. 6/2002-CE, dated 1.3.2002, Sl.No. 63, covers ‘Tooth Powder’ falling under CETH 33.06. Although the subject notification doesn’t specify any subheading, the Central Excise Tariff specifies heading 3306.10 for ‘Tooth Powder and Tooth Paste’. It, thus implies that for coverage under the said Notification, the goods should be classifiable under CTH 3306.10. Therefore, the issue under reference relates to classification of ‘Dant Mukta’ under CETH 3306.10 as against 3306.90. This entry of the Notification 6/2002-CE is worded exactly similar to the earlier exemption vide Notification No. 6/2000-CE, dated 1.3.2000 (sl.no.51). Tariff Unit, CBEC had earlier issued a clarification dated 4th March, 2003 regarding classification of ‘Dant Mukta’. This clarification did not deal with the matter of admissibility of notification benefit on ‘Dant Mukta’ and it was limited to its classification as a ‘dental hygienic agent’ of Ch.33 as against ‘medicament’ of Ch.30. Classification of ‘Dant Mukta’ under heading 3306.10 or 3306.90 would depend upon whether in the form as presented, ‘Dant Mukta’ can be treated as dental powder. If found so, it would be eligible for the notification benefit. 


Decision: The Board took note of the fact that the CEGAT had decided in case of Dant Shakti that it would be appropriately classifiable under CTH 33.06.  Since Dant Shakti and Dant Mukta are similar products, classification of Dant Mukta would also fall under CTH 33.06.  However, since the referred notification specifically requires that the goods should be tooth powder, Dant Mukta being a raw material for the manufacture of ‘Lal Dant Manjan’, would not qualify for the benefit. It has accordingly been decided by the Board that ‘Dant Mukta’ is not eligible for benefit under Notification No. 6/2002-C.E., dated 1.3.2002, Sl.No.63.  


(vii) Subject-Admissibility of Exemption under Notification No. 21/2002-Cus. (Sr. No. 356) for items namely Inflatable Life Raft & Life Jackets supplied along  with Vessel.


Issue in Brief: This matter was discussed at the Tariff Conference of Chief Commissioners of Customs held at Shillong from 13th - 15th     May, 2004 [Agenda Point N-5]. As per Notification No. 21/2002-Cus., dated 1.3.2002 (Sr. No. 356), which corresponds to the earlier Notification No.16/2000-Cus., Sl. No. 299, “Raw materials and parts, for use in the manufacture of goods falling under heading Nos. 89.01, 89.02, 89.04, 89.05 (except 8905.20) or 89.06, in accordance with the provisions of section 65 of the Customs Act, 1962” are fully exempt from Customs duty. An objection was raised by the Audit on the admissibility of exemption to the said goods imported by the shipbuilder, on the ground that the goods in question having separate identity and use as life saving equipment would not qualify to be 'raw materials or parts' for manufacture of vessels/ ships. Although strictly speaking, the said rafts and jackets are not directly raw material and parts used in the manufacture of ships, nevertheless these items are statutorily required onboard and therefore supplied by the shipbuilder.


Decision: The Board took into account that the inflatable life jackets and life rafts were supplied as statutory supply for the ship.  The certificate of ship worthiness issued by the authorities requires that the ship should be fitted with life jackets and life rafts.  Additionally, the subject notification does not mention any specific chapter for the parts.  Therefore, the Board has decided that the benefit of the referred notification(s) would be available on the import of inflatable life jackets and life rafts considering these as essential parts for the manufacture of ships.


(viii)            Subject- Scope of the exemption vide Notification No. 80/70-Cus., dated 29.08.1970, as amended.


Issue in Brief: This matter was discussed at the Tariff Conference of Chief Commissioners of Customs held at Shillong from 13th - 15th     May, 2004 [Agenda Point N-7]. The aforesaid exemption exempts articles supplied free under warranty as replacement for defective ones. The language of the condition in the said notification suggests  that the  intention behind  the  notification was to exempt warranty spares imported by individuals only since it uses the words "private personal property of the importer”. However, in the case of M/s. Echjay Industries (P) Ltd V/s Union of India reported in 1994 (52) ECR 366 (Bombay) in which the Bombay High Court quashed the denial of the said exemption by Customs on the ground that it was applicable only to an individual and not to Company. The Court held that a company was a legal person and, therefore, the exemption would be available to companies as well. Following this, the CEGAT in the case of Kesoram Industries Ltd. V/s Collector of Customs, Calcutta, reported in 1999 (108) ELT 694 (Tribunal) held that the free replacement spares imported by a company were entitled for the benefit of this exemption. However, in another order, the Bombay High Court in the case of M/s Birla Erickson and others V/s Union of India dismissed the petition holding that the exemption was not meant for import for commercial purpose. In the order, however the Court has not referred to the earlier orders of the Bombay High Court and other orders of the Tribunal.


Decision: The Board took into account that the intention of the notification was to restrict the exemption to imports by individuals which was reflected by the use of words ‘private personal property’. The Board also took note of the earlier judicial pronouncements treating the company as an individual and ordering extension of benefit of the said notification. However, the latest order of the Mumbai High Court ruled that this benefit should not be extended to such imports for commercial purpose. It has accordingly been decided by the Board that benefit of Notification No. 80/70-Cus., dated 29.8.1970 would not be extended to import of warranty replacements by companies or commercial organisations. 


(ix)          Subject-Extension of benefit under Customs Notification 21/2002-Cus., Sl. No.344 for a new Car  registered for Transport to Airport from showroom and not for use in the country of  manufacture.


Issue in Brief: This matter was discussed at the Tariff Conference of Chief Commissioners of Customs held at Shillong from 13th - 15th     May, 2004 [Agenda Point N-8]. The exemption under Notification No.21/2002-Cus., Sl.No.344 is allowed to “motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702) including station wagons, racing cars, new, which have not been registered anywhere prior to importation”. The question to be decided is whether the importer is eligible for the benefit of the said exemption under Notification 21/2002-Cus. when the car had been registered before its shipment. The supplier in certain cases certify that the Registration Nos. have been temporarily allocated for transportation of the motor vehicles from the showroom to the airport to facilitate its export. Some other instances have also come to notice when the cars though new, are registered abroad before being exported to India for exhibition, field trials, etc.


Decision: The Board observed that condition (c) of category 2 (I) of Licensing Note to Chapter 87, states that a new imported vehicle for the purpose of this Chapter shall mean a vehicle that has not been registered for use in any country according to the laws of that country, whereas as per the referred Customs Notification, it should not be registered anywhere prior to importation. It was also noted that in many countries, registration of the vehicle is an essential requirement for moving the vehicle from the showroom or the factory to the airport. To verify whether the registration is a technical formality or not, the field formations may compare the date of dispatch of the car with the date of registration.  It was, accordingly, decided by the Board that temporary registration of the kind discussed above, shall not interfere with the notification benefit.    


(x)             Subject- Classification of used steel rails for re-rolling Under CTH 7204 or 7302 and whether freely importable.


Issue In Brief: This matter was discussed in the Tariff Conference of Chief Commissioners of Customs held at Shillong on 13th - 15th     May, 2004 [Agenda Point T-2]. The issue involved is whether the goods described as “used steel rails for re-rolling" are classifiable as scrap of steel under heading 7204 of the Customs Tariff Act, 1975 or as old and used rails of railway under heading 730210.10. This would also determine the importability of the said item i.e. whether the goods are freely importable under para 2.1 of the Foreign Trade Policy, 2004-2009 read with para 2.30 of the Hand book of Procedure, Vol. I, or whether it would be restricted for import and require specific license in terms of para 2.17 of the policy ibid. The "waste and scrap" of iron and steel is classified under heading 7204 of the Customs Tariff Act, 1975. Section Note 8 (a) to Section XV of the Customs Tariff Act defines the term waste and scrap as "metal scrap and waste from the manufacture or mechanical working of the metals and metal goods definitely not usable as such because of breakage, cutting up, wear or other reasons." Explanatory Notes to HSN under heading 7204 mention that the heading covers waste / scrap of iron and steel as defined in Note 8(a) to Section XV. The note mentions details of the articles, which are covered under said heading. It also mentions that the waste and scrap is generally used for recovery of metals by re­melting or for the manufacture of chemicals. However, the heading excludes articles, which with or without repair or renovation can be reused for former purpose or can be adopted for other uses; it also excludes structural steel works useable after renewal of worn out parts.


Decision: The Board considered the alternative headings of 72.04 and 73.02 for the item.  The main point for discussion related to the policy restrictions on the import of used rails.  Chapter 73 of the CTA’75 specifically covers articles such as rails.  In the case under reference, even though the items in question were in the form of rails, these bore markings of use and therefore these could not be used again as rails.  Hence, suitable classification would be as scrap of CTH 7204 and not as articles under heading 7302. It has accordingly been decided by the Board that used steel rails for re-rolling were appropriately classifiable under CTH 7204 and these were freely importable.