M/S MOORCO (INDIA) LTD. MADRASversusTHE COLLECTOR OF CUSTOMS, MADRAS

               MIS MOORCO (INDIA) LTD. MADRAS                                 A
                             v.
            THE COLLECTOR OF CUSTOMS, MADRAS

                          SEPTEMBER 29, 1994

                  [R.M. SAHAI AND N.P. SINGH, JJ.)                            B

       Customs Ac~ 1962 :

       Schedule-<Jeneral rule for intelpretation-Rules 2(b ), 3(a) (b) (c)-Ap-
plicability of rules-When arises-<Joods consisting of more than one material C
or substance-Classification of-How to be done-Held specific heading of
classification should be prefemd over general heading.

      Import Tariff-Tariff Items : 90.24, 90.26 and 90. 29.

    Flow metel""-lmport of components of flow mete..-Levy of duty-Held D
components are to be classified under item 90.24 for levy of duty.

      The appellant, a manufacturer of "Volumetric displacement type flow
meter", imported components and accessories for being used in the flow
meter. The Assistant Collector held that (i) the accessories imported were
used solely for the meter manufactured by the appellant; (ii) the meter       E
was capable of showing the rate of flow but since it was used for measuring
volume also, it was liable to be classified under TarrilT Heading 90.26 for
purposes of payment of duty. For coming to this conclusion the Assistant
Collector relied on clause (c) of Rules 3 of the General Rules for inter-
pretation of the first schedule-Import TrailI of the Customs Act, 1962. The
findings recorded by the Assistant Collector were affirmed by the Collector   F
(Appeals) as well as by the Tribunal. Against the order of the Tribunal
appeal was filed in this court.

     Allowing the appeal, this Court

      HELD : 1. The items imported by the appellant shall be classified G
for purposes of payment of duty under Tariff Heading 90.24. On the
finding recorded by the Assistant Collector the end-product manufactured
by the appellant being specially provided under Tariff Item 90.24 the
accessories imported by the appellant which was solely used for manufac-
ture ofit was liable to be classified ou the same rate as .the item in which H
                                    81
    82                    SUPREME COURT REPORTS (1994] SUPP. 4 S.C.R.

A it was used, uamely Dow meter. [86-G, 84-H, 85-A]

        2. Interpretory Rules appended to the Customs Schedule are framed
  on Brussels Convention so that same description may apply to a particular
  class and character of goods in.the world trade. Rule 2(b) of the Rules
  provides that, 't!ie classification of goods consisting of more than one
B material or substance shall be according to the principles of rule 3.
  Further each of the clauses of Rule 3 are mutually exclusive. What is
  covered in clause (a) cannot be classified in (b) and (c) operates when
  neither applies. It is like a residuary clause. Clause (a) incorporates the
  common and general principle that the goods which can be classified
C specifically with reference to any beading should be placed in that category
  alone. The specific heading of classification bas to be preferred over
  general beading. The clause contemplates goods which may be satisfying
  more than one description. Or it may be satisfying specific and general
  description. In either situation the classification which is the most specific
  bas to be preferred over the one which is not specific or is general in
D nature. [85-B, C, H, 86-B, CJ
            3. Flow meter is specifically classified in heading No. 90.24. Whereas
     the beading 90.26 is general in nature. It applies to every production meter
     or calibrating meter for gas, liquid and electricity supply. Therefore, on
E    the finding recorded by the Assistant Collector, the goods produced by the
     appellant specifically fall in 90.24. They may also fall in 90.26 but that
     being more general entry preference should have been given to the entry
     90.24 as the goods satisfy most specific description of being Dow meter.
     Since the goods manufactured by the appellant satisfied the specific
     description of Tariff Heading 90.24 being a Dow meter, the Tribunal
F    committed an error of law in classifying it under Tariff Heading 90.26 as
     it was a latter item under the classification list. [86-D to Fl

           CIVIL APPELLATE JURISDICTION: Appeal No. 4342 of 1986.

G         From the Judgment and Order dated 27.10.86 of the Customs Excise
     and Gold (Control) Appellate Tribunal, New Delhi in A. No. C/1600/86-
     B-2.

           C.S. Vaidyanathan, and S.R. Selia for the Appellant.

H          Joseph Valla Pally, G. Prakash and V.K. Verma for the Respondent.
                       MOORCO v. COLLECTOR OF CUSTOMS                         83

          The following Order of the Court was delivered :                          A
          An interesting question of law relating to applicability of rules of
    interpretation appended to the Schedule of Customs Act arises for con-
    sideration in this appeal.

          The appellant is a manufacturer of, "volumetric displacement type         B
    flow meter" (for short 'the meter'). It imported goods described as "com-
    ponents and accessories of volumetric displacement type flow meter" for
    use in the end product. The flow meter manufactured by the appellant
    consists of the following devices :

            (a) a device for measuring the variable to be controlled.               C

            (b) control device which compares the measured value with the
                   desired value and actuates the starting stopping (or) operat-
                   ing device.

            ( c) a starting, stopping (or) operating device.                        D
            ( d) action device which carries out orders .received either directly
                 (or) through amplifying relays from device (C).

           In the Bill of lading the item imported is described as Industrial
    Metric Equipment (component and accessory Volumetric Type Flow                  E
    Meter). hi the Purchase Order from Bharat Petroleum Corporation Ltd.
    the item manufactured by the appellant is described as under :

            "To manufacture, test, pack and supply the flow meters with
            accessories and spares as under :
                                                                                    F
                   Double case type flow meters including accessories (as per
                   details given in the attached Continuation Sheet)."

    If the Purchase Order from Indian Oil Corporation Limited the item has

-   been described as under :

            MODEL SD 30 75mm dia (3") single case rotary vane positive
                                                                                    G
            displacement meter with large numeral counter, the rate of flow
            indicator, strainer-cum-air eliminator as per specification given
            below ...................."

    From all this material it appears what was imported by the appellant was H
    84                    SUPREME COURT REPORTS [1994) SUPP. 4 S.C.R.

A   component for being used in the flow meter. It is so understood in the
    commercial circle. Even the Assistant Collector held that the meter
    produced by the appellant was capable of showing the rate of flow. But
    according to him since it was used for measuring volume also, therefore, it
    was liable to be classified under the Tariff Heading 90.26. For this reliance
    was placed on clause (c) of the General Rules for Interpretation of the
B   First Schedule - Import Tariff of the Custom Act. The finding recorded by
    the Assistant Collector has not been disturbed by the Collector (Appeals)
    or by the Tribunal. The relevant Tariff Items read as under :

            "90.24 Instruments and apparatus for measuring, checking or auto-
                   matically controlling the flow, depth, pressure or other
c                  variable of liquids or gases or for automatically controlling
                   temperature (for example, pressure gauges, thermostats,
                   level gauges, flow meters, heat meters automatic oven-
                   draught regulators), not being articles falling within Head-
                   ing No. 90.14:
D
                    {1) Not elsewhere specified 40%

                    (2) Thermostats and Humidistats 60%

            90.26 Gas, liquid and electricity supply or production meter,
E                 calibrating meters therefor. 60%

            90.29 Parts or accessories suitable for use solely or principally
                  with one or more of the articles falling within Heading Nos.
                  90.23, 90.24, 90.26, 90.27 or 90.28."

F   Flow meters are specifically covered in Tariff Heading 90.24. Specific
    excludes general, is the well-known principle. Heading 90_29 permits levy
    on parts or accessories which are used solely in the manufacture of one or
    more of the articles falling within Heading 90.24. The Assistant Collector
    held that the accessories imported by the appellant were used solely for
G   the meter manufactured by the appellant. Therefore, if the meter manufac-
    tured by the appellant can be said to satisfy the description of Tariff
    Heading 90.24 then by virtue of Tariff Heading 90.29 the rate of duty on
                                                                                    -
    the components imported by the appellant could be levied as in tariff
    Heading 90.24. On the finding recorded by the Assistant Collector the
    end-product manufactured by the appellant being specifically provided for
H   by 90.24 the accessory imported by the appellant which was solely used for
                MOORCO v. COLLECTOR OF CUSTOMS                            85
manufacture of it was liable to be classified on the same rate as the item      A
in which it was used, namely, flow meter.

      Does classification change and the goods are liable to be placed in
heading 90.29 by virtue of the Interpretory Rules appended to the Customs
Schedule? These Rules are framed on Brussels Convention so that same
description may apply to a particular class and character of goods in the       B
world trade. The First Schedule appended to the Customs Act Jays down
general principles for the interpretation and classification of goods for
import tariff. Rule 2(b) of the Rules provide that, 'the classification of
goods consisting of more than one material or substance shall be according
to the principles of rule 3.' Rule 3 of the Rules is reproduced below :         C

        "R. 3. - When by application of rule 2(b) or for any other reason,
        goods are, prima facie, classifiable under two or more headings,
        classification shall be effected as follows :

        (a) The heading which provides the most specific description shall      D
        be preferred to headings providing a more general description.
        However, when two or more headings each refer to part only of
        the materials or substances contained in mixed or composite goods
        or to part only of the items in a set put up for retail sale, those
        headings are to be regarded as equally specific in relation to those
        goods, even if one of them gives a more complete or precise             E
        description of the goods.

        (b) Mixtures, composite goods consisting of different materials or
        made up of different components, and goods put up in sets for
        retail sale, which cannot be classified by reference to (a), shall be
        classified as if they consisted of the material or component which
                                                                                F
        gives them their essential character, in so far as this criterion is
        applicable.

        (c) when goods cannot be classified by reference to (a) or (b), they
        shall be classified under the heading which occurs last in numerical    G
        order among those which equally merit consideration. "

The applicability of the rules arise when the goods consisting of more than
one material fall in two or more headings. It is further clear that each of
the classes are mutually exclusive. What is covered in (a) cannot be
classified in (b) and (c) operates when neither applies. It is like a residuary H
    86                    SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A clause. The primary question, therefore, is whether the goods manufac-
    tured by the appellant fall in clause (a) as if it can be classified with
    reference to (a) then clauses (b) and (c) would not apply. Oass (a)
    incorporates the common and general principle that the goods which can
    be classified specifically with reference to any heading should be placed in
    that category alone. The specific heading of classification has to be
B   preferred over general heading. The clause contemplates goods which may
    be satisfying more than one description. Or it may be satisfying specific
    and general description. In either situation the classification which is the
    most special has to be preferred over the one which is not specific or is
    general in nature. In other words, between the two competing entries the
c   one most nearer to the description should be preferred. Whether the class
    of goods manufactured by an assessee falls say in more than one heading
    one of which may be specific, other more specific, third more specific and
    fourth general. The rule requires the authorities to classify the goods in the
    heading which satisfies most specific description. For instance, taking the
    case of appellant the item manufactured by the appellant is described and
D   used as flow meter. It is an instrument for measuring volume as well. Flow
    meter is specifically classified in heading No. 90.24. Whereas the heading
    90.26 is general in nature. It applies to every production meter or calibrat-
    ing meter for gas, liquid and electricity supply. Therefore, on the finding
    recorded by the Assistant Collector the goods produced by the appellant
E   specifically fall in 90.24. They may also fall in 90.26 but that being more
    general entry preference should have been given to the entry 90.24 as the
    goods satisfy most specific description of being flow meter. The Tribunal
    or the appellate authority without adverting to it applied clause (c) and
    levied duty under 90.26 as it was a latter heading. But clause (c) would
    apply only if clauses (a) and (b) do not apply. Since the goods manulac-
F    tured by the appellant satisfied the specific description of Tariff Heading
    90.24 being a flow meter, the Tribunal committed an error of law in
    classifying it under Tariff Heading 90.26 as it was a latter item under the
     classification list.

G          In the result, this appeal succeeds and is allowed and it is held !hat
    the items imported by the appellant which are component part of the flow
    meter shall be classified for purposes of payment of duty under Tariff
    Heading 90.24.


    T.N.A.                                                       Appeal allowed.