Supreme Court settles classification of car mats: Textile Floor Coverings vs. Vehicle Accessories (2020)

Date of the Judgment: May 1, 2020
Citation: 2020 INSC 400
Judges: Deepak Gupta, J., Aniruddha Bose, J.

Are car mats simply textile floor coverings, or are they specialized parts of a vehicle? This question was at the heart of a dispute before the Supreme Court of India. The court had to decide whether “car matting” should be classified under Chapter 57 of the Central Excise Tariff Act, 1985, as “Carpets and Other Textile Floor Coverings,” or under Chapter 87, as “Vehicles Other than Railway or Tramway Rolling-Stock and Parts and Accessories Thereof.” This decision impacts the excise duty applicable to these products.

The Supreme Court bench, consisting of Justices Deepak Gupta and Aniruddha Bose, delivered a unanimous judgment. The majority opinion was authored by Justice Aniruddha Bose.

Case Background

M/S. Uni Products India Ltd. (the respondent) was engaged in manufacturing textile floor coverings and car matting. They were clearing their goods, declaring them under Heading No. 570390.90 of the Central Excise Tariff Act, 1985, which attracted an 8% excise duty. The excise authorities, however, contended that these goods should be classified under heading 8708.99.00, which attracts a 16% duty, as parts and accessories of motor vehicles.

The dispute arose from three show-cause notices issued to the respondent. The first notice, dated August 9, 2005, covered clearances between July 9, 2004, and March 31, 2005, involving 865,777 pieces of car mats. The second notice, dated May 2, 2006, concerned 1,202,482 pieces cleared between April 1, 2005, and January 31, 2006. The third notice, dated March 7, 2007, involved 2,015,412 pieces cleared from February 1, 2006, to January 31, 2007. For the period of the third show-cause notice, the respondent had declared the goods under Chapter sub-heading no.570500.19, which also carried an 8% duty.

Timeline:

Course of Proceedings

The Commissioner of Central Excise, Delhi-III, initially ruled against the respondent, holding that car mats should be classified under sub-heading 8708.99.00 as parts and accessories of motor vehicles. This decision was based on the reasoning that car mats are specifically designed for use in vehicles and are not ordinary textile carpets. The Commissioner imposed differential duty, interest, and penalties on the respondent.

The respondent appealed to the Customs Excise & Service Tax Appellate Tribunal (CESTAT), which overturned the Commissioner’s order. CESTAT held that car mats should be classified under Chapter heading 5703.90, as textile floor coverings. The Tribunal relied on the wording of the chapter, section notes, chapter notes, and explanatory notes of the Harmonized System of Nomenclature (HSN). The revenue authorities then appealed to the Supreme Court.

Legal Framework

The core of the dispute revolves around the interpretation of two chapters of the Central Excise Tariff Act, 1985:

• Chapter 57: This chapter deals with “Carpets and Other Textile Floor Coverings.” The relevant sub-heading is 5703.90, which covers “Other” textile floor coverings. Note 1 of this chapter defines these coverings as those “in which textile materials serve as the exposed surface of the article when in use and includes articles having the characteristics of textile floor coverings but intended for use for other purposes.”
• Chapter 87: This chapter pertains to “Vehicles other than Railway or Tramway Rolling-Stock and Parts and Accessories Thereof.” Specifically, the dispute concerns sub-heading 8708.99.00, which is a residuary category for “Other” parts and accessories of motor vehicles.

The court also considered the Harmonized Commodity Description and Coding System (HSN) Explanatory Notes, which provide guidance on the interpretation of tariff classifications. Rule 3(a) of the General Rules for the Interpretation of the Harmonized System states that “the heading which provides the most specific description shall be preferred to headings providing a more general description.”

Section Note 3 of Section XVII of the Central Excise Tariff Act, 1985, states that references to “parts” or “accessories” in Chapters 86 to 88 do not apply to parts or accessories not suitable for use solely or principally with the articles of those chapters. It further states that a part or accessory that fits descriptions in multiple headings should be classified under the heading corresponding to its principal use.

Arguments

The arguments presented by both sides can be summarized as follows:

The revenue authorities argued that car mats are specifically designed for and used in cars, making them “parts and accessories” of motor vehicles. They emphasized that these mats are not ordinary textile carpets and are commercially known differently. They also pointed to the manufacturing process, which involves chemical treatment, lamination, and molding to fit specific car models.

The respondent contended that car mats are essentially textile floor coverings, falling under Chapter 57. They highlighted that the HSN notes specifically mention that textile carpets identifiable for use in motor cars are to be classified under heading 5703, not as accessories of motor cars under heading 8708. They also argued that their manufacturing process was primarily to make textile floor coverings.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue for consideration:

1. Whether “car matting” would come within Chapter 57 of the First Schedule to the Central Excise Tariff Act, 1985 under the heading “Carpets and Other Textile Floor Coverings” or they would be classified under Chapter 87 thereof, which relates to “Vehicles other than Railway or Tramway Rolling-Stock and Parts and Accessories Thereof”.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court upheld the decision of the Customs Excise & Service Tax Appellate Tribunal (CESTAT), dismissing the appeals filed by the revenue authorities. The court ruled that car mats are to be classified under Chapter 57 of the Central Excise Tariff Act, 1985, as “textile floor coverings,” and not under Chapter 87 as “parts and accessories” of motor vehicles.

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The court relied on the HSN Explanatory Notes, emphasizing their strong persuasive value as established in CCE vs. Wood Craft Products Ltd. [(1995) 3 SCC 454]*, Collector of Central Excise vs. Bakelite Hylam [1997 (91) E.L.T. 13 (S.C.)]*, Collector of Customs vs. Business Forms Ltd. [(2005) 7 SCC 143]* and Holostick India Ltd. vs. Commissioner of Central Excise [(2015) 7 SCC 401]*.
• The court noted that the earlier decisions of the Tribunal in Collector of Central Excise, Bombay-II vs. Sterling India [(2000) 115 ELT 807]*, Collector of Central Excise vs. Swaraj Mazda [(1993) 68 ELT 258]* and Jyoti Carpet Industries vs. Commissioner of Central Excise, Jaipur-I [(2001) 132 ELT 458]* were not based on proper analysis and lacked reasoning.
• The court applied the principle that the heading which provides the most specific description shall be preferred, as per Rule 3(a) of the General Rules for the Interpretation of the Harmonized System.
• The court also referred to Section Note 3 of Section XVII of the Central Excise Tariff Act, 1985, to clarify that parts and accessories must be suitable for use solely or principally with the articles of Chapters 86 to 88.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Specific Exclusion: The HSN Explanatory Notes specifically exclude “textile carpets” from the category of “parts and accessories” under Chapter 87. This was a critical factor in the court’s reasoning.
• Definition of Textile Floor Coverings: The court found that car mats fit the definition of “textile floor coverings” under Chapter 57, as they have textile materials serving as the exposed surface when in use.
• Rejection of Residuary Entry: The court emphasized that car mats should not be classified under the residuary sub-head “other” in Chapter 87 when they more specifically fit the description in Chapter 57.
• Persuasive Value of HSN Notes: The court reiterated the strong persuasive value of the HSN Explanatory Notes in resolving classification disputes.

The court did not find it necessary to apply the “common parlance” test or other similar devices of construction, as the classification was clear from the tariff entries and explanatory notes.

Fact:Law

Logical Reasoning

Key Takeaways

• Classification Certainty: Car mats are definitively classified as “textile floor coverings” under Chapter 57 of the Central Excise Tariff Act, 1985.
• Excise Duty: Manufacturers of car mats will be subject to the excise duty applicable to textile floor coverings, not that of vehicle parts and accessories.
• HSN Notes Importance: The judgment reinforces the importance of the HSN Explanatory Notes in resolving tariff classification disputes.
• Specific vs. General: The ruling emphasizes that specific tariff headings should be preferred over general or residuary headings.

Directions

The Supreme Court did not issue any specific directions other than dismissing the appeals and sustaining the impugned decision of the Tribunal.

Development of Law

The ratio decidendi of this case is that textile carpets, including car mats, which are identifiable for use in motor cars, should be classified under Chapter 57 of the Central Excise Tariff Act, 1985, as “textile floor coverings,” and not under Chapter 87 as “parts and accessories” of motor vehicles.

This judgment clarifies the classification of car mats and settles the dispute that had arisen due to different interpretations by the excise authorities and the assessee. The Supreme Court’s decision provides a clear precedent for future cases involving similar classification issues.

Conclusion

The Supreme Court’s decision in Commissioner of Central Excise, Delhi-III vs. M/S. Uni Products India Ltd. settles the dispute regarding the classification of car mats. The court has definitively ruled that car mats are to be classified as “textile floor coverings” under Chapter 57 of the Central Excise Tariff Act, 1985. This judgment emphasizes the importance of the HSN Explanatory Notes and the principle of preferring specific tariff headings over general ones. The ruling provides clarity for manufacturers and excise authorities alike.