The orphanage of residuary tariff entry

EXPERT EYE

The Supreme Court in a judgement delivered on October 7 2005, in the case of Western India Plywoods Ltd. Vs. Collector of Customs, 2005 (188) ELT 365 (SC), has laid down a cogent principle that the application of a residuary tariff entry must be made with a good deal of caution as it is attracted only when no tariff item applies to the goods in question.

Revenue resorts to the residuary entry far too often without first attempting to fit in with other tariff entries. This is no doubt because of a very large number of residuary entries.

The expression "other"occurs frequently under every tariff and sub-tariff heada. For example, in the Customs Tariff Chapter 44 and Sub-chapter-4401 to 4421 which are for Wood and Articles of Wood, the entry "other" occurs 80 times and in Chapter 84 meant for machinery and mechanical appliances as many as 261 times.

In Central Excise Chapter 38 meant for miscellaneous chemical products, it occurs 43 times. The main reason why there are so many residuary entries is that the tariff has become based on eight digits and there are long descriptions like anti-oxidising preparations and other compound stabilisers for rubber or plastics.

If the appraiser in customs is not sure about the anti-oxidising property of the chemical which is presented before him by its brand name only, he cannot make the correct assessment without calling for chemical composition of the product from the literature of the manufacturer or, from the test report which can come after testing the chemicals.

He has the option to call for samples and see on the container the declarations on compositions. But that also takes time. So, the present tariff is such that making an assessment under "other" becomes a necessity in order to make quick assessment to clear the goods fast.

If it is not done, demurrage has to be paid by the importer. In case of Central Excise no such circumstances arise but, accuracy of the classification is still a problem due to the complicated nature of the descriptions in the tariff, which is based on Customs Corporations Council Nomenclature.

This controversy occurred often in Central Excise when there was a residuary tariff entry called item 68. The Bombay High Court in the case of Garware Nylon Ltd v. UOI, reported in 1980(6) ELT 249 (Bom.) used the expression the "orphanage of Item 68".

The High Court also called the other entry as "parent entry". The High Court of course decided in the case that if there is any entry more fitting than the residuary entry, then attempts should be made to put it in the parent entry rather than in the orphanage.

Thereafter the same principle has been upheld by the Supreme Court in several judgements such as CCE v. Jayant Oil Mills - 1989 (40) ELT 287(SC) and Indian Metal & Ferra Alloys Ltd. V. CCE - 1991 (51) ELT 165 (SC). The orphanage has since grown into a multi-storied complex.

And the complexity is not only because of the proliferation of the expression "other" in the tariff itself, but also because the rate of duty for "other" is often higher than in parent entries. Had they been the same, there would be have been no occasion to appeal to the High Court and Supreme Court.

The solution to the problem of eliminating litigation on residuary entry is to make the rate of duty same for both parent entry as well as residuary entry.

This can be achieved if the Budget makers keep the following principle in mind: one chapter one rate. It may not be possible in hundred percent cases. But if it can be realised even in 90% cases, the litigations will be reduced to that extent.

smukher2000@yahoo.com