Essential character test governs tariff classification of tool bit blanks, placing unfinished goods outside Chapter 82.

Tool bit blanks cleared from the factory were treated as unfinished cut bars requiring grinding, sharpening and grooving, so they had not acquired the essential character of finished tools and did not fall under Chapter 82. Chapter Note 1 controlled the classification, and Rule 2(a) was held inapplicable because the department failed to show that the blanks had the character of complete tools. Once Chapter 82 was excluded, the goods were classified as tool bit blanks under Heading 7308.90 for the period up to 1-3-1988 and under Heading 7224.00 thereafter; residuary Heading 7326.90 was rejected.

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Issues: (i) Whether tool bit blanks, at the stage of clearance from the factory, had acquired the essential character of tools so as to fall under Chapter 82; (ii) if not, the correct classification of the goods for the periods before and after 1-3-1988.

Issue (i): Whether tool bit blanks, at the stage of clearance from the factory, had acquired the essential character of tools so as to fall under Chapter 82.

Analysis: The goods were found to be merely cut bars or blanks which still required further processes such as grinding, sharpening and grooving before they could function as tools. Chapter Note 1 to Chapter 82 was treated as controlling, because the chapter covers only goods having a blade, working edge, working surface or other working part. Rule 2(a) was held inapplicable as the blanks had not acquired the essential character of finished tools, and the department had not discharged the burden of showing otherwise.

Conclusion: The goods were not classifiable under Chapter 82.

Issue (ii): If not, the correct classification of the goods for the periods before and after 1-3-1988.

Analysis: Once Chapter 82 was ruled out, the goods were treated as having acquired a distinct identity as tool bit blanks and not as ordinary bars and rods. For the period up to 1-3-1988, Heading 7308.90 was held to be the appropriate classification. For the period after 1-3-1988, Heading 7224.00 was held to be the more specific entry for semi-finished products of other alloy steel, and the residuary Heading 7326.90 was rejected.

Conclusion: The goods were classifiable under Heading 7308.90 up to 1-3-1988 and under Heading 7224.00 thereafter; classification under Heading 7326.90 was set aside.

Final Conclusion: The classification adopted by the department was displaced, the appeals were allowed in part, and the goods were held to fall outside Chapter 82 and within the specified tariff headings according to the relevant period.

Ratio Decidendi: In tariff classification, goods must be classified according to the terms of the headings and relevant chapter notes, and Rule 2(a) applies only when the incomplete goods have acquired the essential character of the finished article.

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