Supreme Court Classifies LCD Panels Under Chapter 90: CCE vs. Videocon & Harman (2023)

Date of the Judgment: 29 March 2023

Citation: 2023 INSC 313

Judges: S. Ravindra Bhat, J. and Dipankar Datta, J.

Can LCD panels, used in the manufacturing of televisions and car audio systems, be classified as “parts” of those systems, or do they fall under a separate category as “liquid crystal devices”? The Supreme Court of India addressed this question in two appeals, clarifying the correct classification of LCD panels under the Customs Tariff Act, 1975. The court held that LCD panels are to be classified under Chapter Heading 9013.8010 as “Liquid Crystal Devices” and not as parts of other apparatus. The judgment was delivered by a bench of Justices S. Ravindra Bhat and Dipankar Datta, with the opinion authored by Justice S. Ravindra Bhat.

Case Background

The cases involve two separate appeals concerning the classification of imported LCD panels. In the first case, M/s Videocon Industries Ltd. (“Videocon”) imported LCD panels for use in manufacturing television sets. In the second case, M/s Harman International (India) Pvt. Ltd. (“Harman”) imported LCD panels for use in car audio systems. Both companies declared the imported goods under Chapter Heading 9013.8010 of the Customs Tariff Act, 1975, as “Liquid Crystal Devices”. However, the revenue authorities contended that these LCD panels should be classified under Chapter Heading 8529 as “parts” of television sets (in Videocon’s case) or under Chapter Heading 8522 as parts of “Sound Recording or Reproducing Apparatus” (in Harman’s case). This difference in classification led to disputes over applicable customs duties.

Timeline:

Legal Framework

The core of the dispute lies in the interpretation of the Customs Tariff Act, 1975, specifically the classification of goods under different Chapter Headings. The relevant provisions are:

• Chapter Heading 9013: “Liquid crystal devices not constituting articles provided for more specifically in other headings; Lasers, other than Laser Diodes; other optical appliances and instruments, not specified or included elsewhere in this chapter”. Specifically, 9013.8010 covers “Liquid crystal devices (LCD)”.
• Chapter Heading 8529: “Parts suitable for use solely or principally with the apparatus of heading 8525 to 8528”. This includes parts of television sets (heading 8528).
• Chapter Heading 8522: “Parts and accessories suitable for use solely or principally with the apparatus of headings 8519 or 8521”, which includes parts of sound recording or reproducing apparatus.
• General Rules for the Interpretation of this Schedule:
  • Rule 1: Classification is determined by the terms of the headings and any relative Section or Chapter Notes.
  • Rule 2(a): A reference to an article includes that article incomplete or unfinished, provided it has the essential character of the complete article.
  • Rule 3(a): The heading that provides the most specific description is preferred over a general description.
• Section XVI, Note 1(m): This chapter does not cover articles of Chapter 90.
• Section XVI, Note 2: Subject to Note 1, parts of machines are classified based on specific rules. Parts included in Chapter 84 or 85 are classified in their respective headings. Other parts suitable for use solely or principally with a particular machine are classified with those machines.
• Chapter 90, Note 2: Subject to Note 1, parts and accessories are classified as per specific rules. Parts included in Chapter 84, 85, or 91 are classified in their respective headings. Other parts suitable for use solely or principally with a particular machine or instrument are classified with those machines or instruments.

Arguments

Revenue’s Arguments:

• The revenue argued that the LCD panels, though described as “liquid crystal devices,” are specifically manufactured for use in LCD TVs and car audio systems.
• They contended that Chapter Heading 8529 (for Videocon) and 8522 (for Harman) specifically cover parts of television sets and car audio systems, respectively, and thus, the LCD panels should be classified under these headings.
• The revenue relied on the “commercial parlance test,” arguing that the LCD panels are known in the market as parts of TVs and car audio systems.
• They cited Chapter Note 2(b) of Chapter 90, stating that parts suitable for use solely or principally with a particular kind of machine or instrument should be classified with that machine or instrument.
• The revenue argued that the LCD panels were not for general use and were designed specifically for use in televisions and car audio systems.
• They emphasized that the websites of the manufacturers revealed that the imported goods were meant principally to be used in television sets.

Assessees’ Arguments (Videocon and Harman):

• The assessees argued that the imported goods were specifically “liquid crystal devices” and thus, should be classified under Chapter Heading 9013.8010.
• They contended that Chapter Heading 9013 is a specific heading for LCDs, whereas Chapter Headings 8529 and 8522 are general headings for parts.
• They relied on Note 1(m) to Section XVI, which excludes articles of Chapter 90 from Chapter 85.
• They argued that the term “parts” in Chapter 85 does not apply to articles that are specifically covered under Chapter 90.
• The assessees submitted that LCD panels are complete articles capable of multiple uses and are not solely or principally used in some articles.
• They argued that the LCD panels are not merely parts but complete devices that can be used in various applications.
• They cited Rule 1 of the General Rules of Interpretation, which states that classification should be determined according to the terms of the headings and any relative Section or Chapter Notes.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the LCD panels imported by the assessees are classifiable under Chapter Heading 9013.8010 as “Liquid Crystal Devices” or under Chapter Heading 8529/8522 as parts of television sets/car audio systems.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• G.S. Auto International Ltd v Collector of Central Excise [2003] 1 S.C.R. 372: 2003 (152) ELT 3 (SC) – The court distinguished this case, stating that the test of commercial identity was in the context of Section XVII and not applicable to the present case.
• Secure Meters v Commissioner of Customs [2015] 6 S.C.R. 219: 2015 (14) SCC 239 – The court followed this case, stating that LCDs are not articles provided “more specifically in other headings” other than 90.13, and that the fact that LCDs could be used for other purposes was also concluded in that decision.
• Commissioner of Central Excise, Nagpur v Simplex Mills Co. Ltd. [2005] 2 S.C.R. 441: (2005) 3 SCC 51 – The court relied on this case to explain that the rules of interpretation must be applied in a particular order, with primacy given to section and chapter notes.
• Commissioner of Central Excise, Delhi-III vs. UNI Products India Ltd. [2020] 13 S.C.R. 295: 2020 (19) SCC 742 – The court cited this case to emphasize that when goods are excluded from a particular chapter, the “pull in” through a note has to be narrowly construed.
• Collector of Central Excise v Delton Cables Ltd & Anr 2005 (12) SCC 284 – The court relied on this case to emphasize the rule of classification of the goods in accordance with a specific description and that Note 2(b) applies only if the item is not specifically classifiable under their respective headings.
• M/S Intel Design Systems (India) (P) Ltd. vs. Commissioner of Customs and Central Excise [2008] 2 S.C.R. 686: 2008 (3) SCC 258 – The court used this case to demonstrate that when goods are excluded from a particular chapter, the “pull in” through a note has to be narrowly construed.

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the specific nature of the goods, the rules of interpretation, and the exclusion of Chapter 90 articles from Chapter 85. The court emphasized the following:

• Specificity of Headings: The court prioritized the specific description of “liquid crystal devices” under Chapter Heading 9013 over the general descriptions of “parts” under Chapter Headings 8529 and 8522.
• Exclusionary Note: The court gave significant weight to Note 1(m) of Section XVI, which explicitly excludes articles of Chapter 90 from Chapter 85.
• Rules of Interpretation: The court followed the rules of interpretation, emphasizing that the heading providing the most specific description should be preferred and that section and chapter notes should be given primacy.
• Precedent: The court relied on the decision in Secure Meters, which held that LCDs are not articles provided “more specifically in other headings” other than 90.13.

Fact:Law Ratio:

The court’s decision was primarily driven by legal considerations and the interpretation of tariff headings and notes, with a relatively lower emphasis on the factual aspects of the specific use of the LCD panels.

Logical Reasoning

Judgment

The Supreme Court held that the LCD panels imported by Videocon and Harman are correctly classifiable under Chapter Heading 9013.8010 as “Liquid Crystal Devices.” The court rejected the revenue’s contention that these panels should be classified as “parts” of television sets or car audio systems under Chapter Headings 8529 and 8522, respectively.

The court reasoned that:

• Chapter Heading 9013 provides a more specific description for LCDs than the general headings for parts under Chapter 85.
• Note 1(m) to Section XVI explicitly excludes articles of Chapter 90 from Chapter 85.
• The rules of interpretation prioritize specific descriptions over general ones.
• The decision in Secure Meters supports the classification of LCDs under Chapter Heading 9013.

Key quotes from the judgment:

• “classification has to be in accord with “the terms of the headings and any relative Section or Chapter Notes””
• “the heading which provides the most specific description shall be preferred to headings providing a more general description.”
• “Note 1 (m) – in Chapter 85 excludes the application of articles falling in Chapter 90… this note, along with the General Note 3 (a) that headings that are specifically provided, should be preferred over the general ones, is decisive.”
• “LCDs are not articles provided “more specifically in other headings”, i.e., other than 90.13.”

The court dismissed the appeals, affirming the CESTAT’s decision.

Key Takeaways

• Clarity in Classification: The judgment provides clarity on the classification of LCD panels, ensuring that they are classified under Chapter Heading 9013.8010 as “Liquid Crystal Devices” rather than as parts of other apparatus.
• Implications for Importers: Importers of LCD panels can now confidently classify their goods under Chapter Heading 9013.8010, potentially reducing disputes with customs authorities.
• Guidance for Customs Authorities: Customs authorities are now guided to classify LCD panels under Chapter Heading 9013.8010, ensuring consistency in the application of customs duties.
• Emphasis on Specificity: The judgment emphasizes the importance of specific descriptions in tariff headings and the exclusionary nature of Note 1(m) to Section XVI.

Directions

No specific directions were given by the Supreme Court in this judgment.

Specific Amendments Analysis

There were no specific amendments discussed in this judgment.

Development of Law

The ratio decidendi of this case is that LCD panels are to be classified under Chapter Heading 9013.8010 as “Liquid Crystal Devices” and not as parts of other apparatus. This judgment clarifies the interpretation of the Customs Tariff Act, emphasizing the importance of specific descriptions in tariff headings and the exclusionary nature of Note 1(m) to Section XVI. It reinforces the principle that when goods are specifically described under a particular heading, that heading should be preferred over general headings, even if the goods are used as parts of other apparatus. There is no change in the previous position of law, but it has clarified the position of law.

Conclusion

The Supreme Court’s decision in CCE vs. Videocon & Harman definitively classifies LCD panels under Chapter Heading 9013.8010 as “Liquid Crystal Devices.” This judgment provides much-needed clarity for importers and customs authorities, emphasizing the importance of specific tariff descriptions and the exclusionary nature of Note 1(m) to Section XVI. The court’s adherence to the rules of interpretation and reliance on precedent ensures consistency in the application of customs law.