2008 (9) TMI 1 - SC - Central Excise

Tribunal reclassifies marker inks, exempts from duty

The Tribunal confirmed the classification of items as 'writing inks' eligible for a nil rate of duty, except for marker inks which were wrongly classified ... Classification of goods - writing ink - marker ink - residuary tariff heading - use of HSN explanatory notes as aid to classification - non-alignment of HSN and Central Excise Tariff entriesWriting ink - classification of goods - residuary tariff heading - Whether the inks other than marker inks manufactured by the assessee are classifiable as writing inks and liable to nil rate of excise duty. - HELD THAT: - The Tribunal found, and this Court agrees, that those inks (items at serial nos. 2 to 9) are water-based ordinary writing or drawing inks within the meaning of the tariff entry for writing ink and therefore fall under the specific sub-heading attracting nil duty. The Tribunal's conclusion was based on the admitted chemical composition of these inks (being aqueous) and the accepted understanding that the Central Excise Tariff groups writing inks together under the specific sub-heading. The Court endorsed the Tribunal's application of the tariff classification to these inks and confirmed the Tribunal's decision in their favour. [Paras 23, 24, 27]Inks other than marker inks are writing inks and are classifiable under CSH 3215.10 carrying nil rate of duty; the Tribunal's findings in their favour are confirmed.Marker ink - classification of goods - use of HSN explanatory notes as aid to classification - non-alignment of HSN and Central Excise Tariff entries - Whether the marker ink (item at serial no. 1) is classifiable under the residuary sub-heading 3215.90 and exigible to duty, or is a writing ink under sub-heading 3215.10. - HELD THAT: - The Tribunal had relied on HSN explanatory notes to classify marker ink under the residuary entry. The Court held that reliance on HSN was improper because the HSN scheme and the Indian Central Excise Tariff entries are not aligned; settled law precludes using HSN where the entries differ. The Court also noted that the marker ink manufactured by the assessee did not contain the silver nitrate mentioned in the HSN example for marking inks and that marker inks are used in marker pens, which are exempted items. Considering the tariff scheme, the legislative intent (as reflected in the Finance Minister's letter regarding exemption of pens and allied inks) and the end-use in exempted pens, the Court concluded that marker inks are classifiable as writing inks under CSH 3215.10. The Tribunal's contrary reliance on HSN was set aside. [Paras 16, 18, 24, 26, 27]Marker ink is classifiable under CSH 3215.10 as writing ink (nil rate); the Tribunal's classification of marker ink under CSH 3215.90 is set aside.Final Conclusion: The appeals by the Revenue are dismissed and the appeals by the assessee are allowed: the Tribunal's classification of inks other than marker inks as writing inks (nil duty) is confirmed, and its contrary classification of marker inks under the residuary entry is set aside; marker inks are to be classed as writing inks under CSH 3215.10. Parties to bear their own costs. Issues Involved:1. Classification of 'writing inks' manufactured and captively consumed by the assessee.2. Consequent demand of duty on these inks.Detailed Analysis:Classification of 'Writing Inks':Issue:The primary issue revolves around the classification of various inks manufactured by the assessee, specifically whether they should be classified as 'writing inks' or under a different category, impacting the duty rate applicable.Findings:- The Tribunal initially classified items at serial nos. 2 to 9 as 'writing inks,' thus exigible to a nil rate of duty. However, 'marker ink' at serial no. 1 was classified under Chapter sub-heading 3215.90, making it subject to 16% excise duty.- The Tribunal relied on the Harmonized System of Nomenclature (HSN) for its classification, which differentiates between 'ordinary writing or drawing inks' and other inks like 'marking inks.'Legal Reasoning:- The Indian Central Excise Tariff creates two categories: 'writing ink' and a residual entry of 'other.' In contrast, the HSN has distinct categories for 'printing ink,' 'other,' and a residual entry of 'other.'- It is settled law that when the entries in the HSN and the Indian Tariff are not aligned, reliance cannot be placed on HSN for classification purposes.- The Tribunal erred in relying on HSN for classifying marker inks under Chapter Sub-Heading 3215.90, as the Indian Tariff classification should prevail.Conclusion:- The Tribunal's classification of items at serial nos. 2 to 9 as 'writing inks' is confirmed, making them eligible for a nil rate of duty.- The classification of 'marker inks' under Chapter Sub-Heading 3215.90 by the Tribunal is set aside. Marker inks should be classified under CSH 3215.10, making them eligible for a nil rate of duty.Consequent Demand of Duty:Issue:The duty demand on the inks based on their classification, particularly whether the marker inks should be subject to 16% excise duty.Findings:- Initially, the department had approved the classification list submitted by the assessee, which did not attract duty. However, this classification was later challenged by the revenue.- The Commissioner (Appeals) had accepted the assessee's contention that all inks used in writing instruments (including marker pens) should be classified as 'writing inks' and thus exempt from duty.Legal Reasoning:- The Tribunal's reliance on HSN for classifying marker inks under 3215.90 was incorrect, as the Indian Tariff classification should take precedence.- The Finance Minister's letter dated 28th May 1997, indicated that writing inks used in pens, which are exempt from duty, should also be exempt from excise duty.Conclusion:- The Tribunal's decision to impose a 16% duty on marker inks is overturned.- Marker inks are to be classified under CSH 3215.10, making them exempt from excise duty.Final Judgment:- The appeals filed by the Revenue are dismissed.- The appeals filed by the assessee are accepted.- The Tribunal's order is confirmed for inks other than marker inks, which are classified as 'writing inks' and eligible for a nil rate of duty.- The Tribunal's order classifying marker inks under Chapter Sub-Heading 3215.90 is set aside. Marker inks are to be classified under CSH 3215.10 and are exempt from duty.- Parties to bear their own costs in all the appeals.