CHAPTER 3

ASSESSMENT, CLASSIFICATION, VALUATION, PROVISIONAL ASSESSMENT,
MANNER OF DUTY PAYMENT, ACCOUNT CURRENT, SCRUTINY

Part-II

CLASSIFICATION
1. Introduction

1.1 The Central Excise duty is chargeable at the rates specified in the schedule tothe Central Excise Tariff Act, 1985. The said schedule is divided into 20 sections and96 Chapters. There are no Chapters with numbers 1,6,10,12 and 77. As such thereare effectively 91 Chapters. Each Chapter is further divided into headings and sub-headings.In order to determine the applicable rate of duty in respect of a particularitem, the positioning of that item under a particular head or sub-head is essential.The positioning of an item in the appropriate heading/sub-heading is calledclassification. The classification of an item is generally decided in view of how it isdescribed in commercial parlance. However a deviation from this principle is madewhen the trade meaning or commercial nomenclature does not fit into the schemeof the statute.

2. Interpretative Rules for classification.

2.1 The Central Excise Tariff Act, 1985 incorporates five Rules of interpretation,which together provide necessary guidelines for classification of various productsunder the schedule. As regards the Interpretative Rules, the classification is to be firsttested in the light of Rule 1. Only when it is not possible to resolve the issue byapplying this Rule, recourse is taken to Rules 2,3 & 4 in seriatim. The provision of theindividual Rule is as follows:

(i)	Rule 1	This rule provides that section and Chapter titles are only for theease of reference and, therefore, do not have any legalbearing on the classification of goods, which is determinedaccording to the terms of headings and relevant section orChapter notes and according to the other interpretative rules ifsuch headings or notes do not otherwise require. Thus goodsare to be classified in terms of the heading and relative sectionsor Chapter notes without recourse to any interpretative rules. Itis only when the goods cannot be classified on this basis, theassistance is to be sought from the interpretative rules.
(ii)	Rule 2(a)	This rule provides classification of an article referred to in aheading, even if that article is incomplete or unfinished, or ispresented in an unassembled or disassembled form. Animportant condition to be satisfied for classification in thismanner is that in its incomplete or unfinished state, the articlehas the essential character of the complete of finished article.Some of the important aspects which are relevant in this regardare functional aspect, physical aspect and the degree ofcompletion of the product.
(iii)	Rule 2(b)	This rule relates to mixture or combination of materials orsubstances, and goods consisting of two or more materials orsubstances. According to this rule headings in which there is areference to a material or substance also apply to that materialor substance mixed or combined with other materials orsubstances. This rule does not apply where specific provisionsexist in the headings or the sections or chapter notes excludingsuch classification.
(iv)	Rule 3	This rule lays down three steps for classifying the goods whichare, prima facie, classifiable under several headings. Thesequential order of the steps contemplated are - a)most specific description; b) essential character; and c) heading which occurs last in numerical order; This rule applies when goods are prima facie classifiable under2 or more headings. In the first step, {Rule 3(a)} the general guidelines are that adescription by name is more specific than the description bycharacter and a description which identifies the goods clearly and precisely is more specific than the one which is lesscomplete. The second step [Rule 3 (b)] relates only to mixtures, compositegoods consisting of different materials or components andgoods put up in sets. This rule finds applicability if rule 3(a) doesnot help. In all such cases the goods are to be classified as ifthey consist of material or components which gives them theiressential character. When goods cannot be classified with reference to Rules 3(a)and 3(b), they are to be classified in terms of Rule 3(c)- in theheading which occurs last in numerical order among thosewhich equally merit consideration. This is a fall back provisionfor resolving the matter when no heading can be regarded asproviding a more specific description than the others and whenit is not possible to identify the material or component whichgives the concerned goods their essential character.
(v)	Rule 4	When goods cannot be classified in accordance with rules 1,2,& 3, then they are to be classified in a heading of a product,which is most akin to the goods in question. Kinship can, ofcourse, depend on many factors such as description,character, purpose etc.
(vi)	Rule 5	This rule postulates that the classification of any product undera sub-heading is to be contemplated after the productconcerned has been properly classified under its proper fourdigit Chapter heading. The classification in the sub-heading ofa heading is determined mutatis mutandis in accordance withthe principles applicable to classification in the four digitheadings.

3. Powers of the C.B.E.C. to issue orders of classification of goods.

3.1 Section 37B of the Central Excise Act, 1944 empowers the Central Board ofExcise & Customs to issue orders, instructions and directions, for the purpose ofuniformity in the classification of goods or with respect to the levy of excise duties onsuch goods.

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