Supreme Court classifies Imported Aluminium Shelves for Mushroom Cultivation as ‘Aluminium Structures’, Customs Duty Applies [Read Judgment]

The Supreme Court has classified the imported Aluminium Shelves as ‘Aluminium Structures’ by taking a different view from the decision of CESTAT, which treated it as ‘Agricultural machinery’.

Justices J.B. Pardiawala and R Mahadevan ruled that “Looked at from any angle, we are of the firm view that the subject goods cannot be classified under Chapter Heading 8436. Consequently, the subject goods are liable to be classified under CTI 76109010 as ‘Aluminium Structures’.”

The Customs department challenged the decision of the CESTAT, which classified the structures as' Agricultural machinery’, which has ‘nil’ duty and favoured the Welkin Foods (Respondent). On the contrary, the aluminum structure under CTI 76109010 attracts a basic customs duty of 10%, a countervailing duty of 12.5%, a customs cess of 3%, and an additional customs duty of 4% respectively.

The appellate tribunal had ruled in favour of the importer, ruling that the shelves were specifically designed for mushroom cultivation, could not be used for any other purpose, and were known in trade parlance as “mushroom growing racks”.

It treated them as mechanical appliances or parts of agricultural machinery, relying on end-use, trade parlance, and the fact that other machinery was mounted on the shelves.

The Supreme Court observed that “When undertaking this exercise of determining the most appropriate heading, the tribunals and courts are bound by the GRIs, which are provided for in the First Schedule to the Act, 1975 and ought to be applied sequentially. The GRI 1 forms the basis for classifying goods under the First Schedule of the Act, 1975, and establishes the primacy of the notes and terms of headings in determining classification. Thus, any customs law classification dispute at its core would involve interpreting the tariff headings involved, along with the section and chapter notes relevant to such headings.”

According to the apex court, when the tribunal or court goes for interpreting a tariff heading which is of classification dispute, then it needs to invoke the common or trade parlance test to understand the meaning and scope of the terms used in that tariff heading.

It said that to be classified under CTI 76109010, the subject goods need to fulfil a two-part criterion: first, they must be made of aluminium, and secondly, they must be a structure or part of such a structure.

On the basis of examining the objective characteristics and properties of the subject goods, it is evident that the subject goods fulfil both the characteristics and thus can be classified under CTI 76109010 as aluminium structures, said the bench.

The Court also observed that the “mushroom growing apparatus” is an assembly of separate and independent machines, each performing a distinct function such as filling, watering, or compost spreading.

It does not qualify as a composite machine, since the components are not permanently fitted together, nor as a functional unit, as they do not operate collectively to achieve a single, clearly defined function.

The mere fact that these machines are used in the overall process of mushroom cultivation is insufficient. Therefore, it cannot be classified as “agricultural machinery” under Chapter Heading 8436.

The apex bench also said that the tribunal erred in invoking end-use and trade parlance to override the clear tariff structure and HSN guidance. It held that the correct classification of the subject goods is CTI 76109010 as aluminium structures.

Accordingly, the appeal of the customs department was allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates