The Central Excise Tariff Act, 1985 incorporates FIVE Rules of interpretation, which together provide necessary guidelines for classification of various products under the schedule. Rules for Interpretation of Schedule to Tariff are given in the Tariff itself. These are termed as ‘General Interpretative Rules’ (GIR). GIR (General Interpretative Rules) are to be applied for interpretation of Tariff, if classification is not possible on the basis of tariff entry and relevant chapter notes and section notes. Following are the steps of classification of a product.
(1) Refer the heading and sub-heading. Read corresponding Section Notes and Chapter Notes. If there is no ambiguity or confusion, the classification is final (Rule 1 of GIR). You do not have to look to classification rules or trade practice or dictionary meaning. If classification is not possible, then only to GIR. The rules are to be applied sequentially.
(2) If meaning of word is not clear, refer to trade practice. If trade understanding of a product cannot be established, find technical or dictionary meaning of the term used in the tariff. You may also refer to BIS or other standards, but trade parlance is most important.
(3) If goods are incomplete or un-finished, but classification of finished product is known, find if the unfinished item has essential characteristics of finished goods. If so, classify in same heading – Rule 2(a).
(4) If ambiguity persists, find out which heading is specific and which heading is more general. Prefer specific heading.- Rule 3(a).
(5) If problem is not resolved by Rule 3(a), find which material or component is giving ‘ essential character to the goods in question – Rule 3(b).
(6) If both are equally specific, find which comes last in the Tariff and take it – Rule 3(c).
(7) If you are unable to find any entry which matches the goods in question, find goods which are most akin – Rule 4.
(8) Packing material is to be classified in the heading in which the goods packed are classified – Rule 5.
(9) In case of mixtures or sets too, the procedure is more or less same, except that each ingredient of the mixture or set has to be seen in above sequence. As per rule 2(b), any reference to a material or substance includes a reference to mixtures or combinations of that material or substance with other material or substance.
As regards the Interpretative Rules, the classification is to be first tested in the light of Rule 1. Only when it is not possible to resolve the issue by applying this Rule, recourse is taken to rules 2,3 and 4 in seriatim.
Steps in Classification
The following steps are involved in classification :
1. First reference is made to the heading and sub-heading, together with corresponding section notes and chapter notes. In case of no ambiguity, as per Rule 1, the classification would be final.
2. Where the product name is not clear, reference is made to the common trade practice, Further reference may be made to dictionary meaning or technical terminology, if the product name is not understood in common trade practice or, it is a new product.
3. In case of incomplete or un-finished goods, the essential characteristics of the product must be matched with the known finished product. In case of similarity, it should be classified, as per Rule 2, under the same heading.
4. In case of ambiguity Rule 3(a) should be applied and specific heading should be preferred over general heading.
5. If Rule 3(a) does not apply, goods should be classified, as per rule 3(b) as if they consist of material or components which gives them their essential character.
6. When goods cannot be classified with reference to rules 3(a) and 3(b), they should be classified, as per Rule 3(c) under the heading, which occurs last in numerical order.
7. In case of residuary items classification should be made as per Rule 4 under heading, which is most akin to the goods in question.
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