The document discusses the classification of goods for excise duty purposes, emphasizing the necessity of a systematic approach to categorize goods into specific groups for duty rates. It elaborates on the rules and principles derived from the Harmonized System of Nomenclature (HSN) and the Indian Central Excise Tariff (CETA), detailing various classification rules including ambiguity, incomplete goods, mixtures, and the essential character principle. Additionally, it covers how goods are categorized based on trade parlance and other specific rules to ensure accurate classification.

1. Dr.P.Ravichandran,
M.Com., M.B.A., M.A (Astrology)., M.Phil., Ph.d.,
D.C.P., D.L.L & A.L., P.G.D.C.A., P.G.D.P.M & I.R.,
Associate Professor of Commerce,
Commerce Research Centre,
S.B.K.College, Aruppukottai.
e-mail id : prcapk@gmail.com
Mobile: 9443424090 & 9080030090
Classification of goods
Excise Duty

2. Classification of goods
 Why Classification?
 All goods can’t carry the same rate of duty;
 It is also not possible to identify all goods
individually;
 It is necessary to create Group & Sub-group to
decide a rate of duty on each group & sub-
group - this is called classification.

3. Classification / Tariff…
 World Customs Organization (WCO) felt the
need to have universal standard system of
classification of goods;
 HSN (Harmonized System of Nomenclature)
was introduced;
 Indian Central Excise Tariff (CETA) is
based on HSN w.e.f 1986.

4. Classification of goods
 CETA, 1985 contains 20 sections and 96 chapters.
Goods are classified under CETA, 1985 based on
the “Harmonized System of Nomenclature”
(HSN) having 8 digit classifications.
 First 4 digits – Heading
 Next 2 digits – Sub heading (sub-classification)
 Next 2 digits – Tariff item (sub sub-classification)

5. Example
Tariff entry 3305 90 40 covers ‘Hair dyes (natural, herbal (or)
synthetic)’
33 – refer to Chapter 33 ‘Cosmetic (or) toilet
preparation, essential oil etc.’
05 – refer to Heading ‘Preparations for use on the hair’
90 – refer to Sub-heading ‘Other’
40 – refer to the item ‘Hair dyes (natural, herbal (or)
synthetic)’.
HSN contains a list of all the possible goods that are
traded (including animals, human hair, etc.) were
mention of an item therein has nothing to do whether
it is manufactured (or) not.

6. Rules to classify the goods
 Different goods are chargeable to different rates of duty.
 Rule-1 – No ambiguity in classification;
 Rule-2 (a) – Incomplete (or) unfinished goods;
 Rule-2 (b) – Goods made up of two (or) more materials fall
under different classification;
 Rule-3 – Goods classifiable under two (or) more headings;
 Rule-3(a) – Specific over general;
 Rule-3 (b) – Essential character principle;
 Rule-3 (c) – Latter is better;
 Rule-4 – Most akin goods;
 Rule-5 – Packing materials;
 Rule-6 – Goods compared at the same level of sub-headings;

7. Rule-1 – No ambiguity in classification
 This rule says that if there is no ambiguity (or) confusion
in classification of the goods, then the classification is final.
 X Ltd. Manufactures tables while classifying this, there is no
ambiguity (or) confusion. If so classification is as per Rule-1
Wooden table Steel table

8. Rule-2 (a) – Incomplete (or) unfinished goods
 If the goods are incomplete (or) unfinished provided
these goods have essential character of finished
goods, then, classify in same heading.
 1. Motor car not fitted with wheels (or) tires (or) sheets shall be
classified under the heading of motor vehicle.
 2. Passenger bus not fitted with sheets will still be a passenger
bus.
 3. A cycle is made. It is removed in completely knocked down
(CKD) (or) semi knocked down (SKD) condition – Rim, spokes,
sheet, body, handle bar, peddle, chain etc. are removed from the
show room to be re-assemble near home. This will not be classified as
parts of cycle, but as cycle only.

9. Passenger Aircraft not fitted
with engine will still be a
passenger Aircraft.
Motor car not fitted with
wheels, seats and engine
will be classified under the
heading of motor vehicle.
Rule-2 (a) – Incomplete (or) unfinished goods

10. Rule-2 (b) – Goods made up of two (or) more
materials fall under different classification
Any reference in a heading to a material (or)
substance shall be taken to include a reference to
mixtures (or) combination of that material with
other materials. The classification of goods
consisting of more than one material shall be
according to the principle of Rule-3.

11. Rule-3 – Goods classifiable under two (or) more headings
 In order to classify any goods having a mixture of two
(or) more goods, one has to consider the following:
 1. Most specific description;
 2. Essential character;
3. Heading which occurs last in the numeric order.

12. Rule-3 (a) – Most Specific description
 The heading which provides the most specific description shall
be preferred to headings providing a more general description.
Example:
 1. Football is made up of two articles –
the bladder – rubber, the cover – leather.
Football is a sports requisites only.
 2. Cricket bat is not classified as wooden article but as sports
requisites only.

13. Rule-3 (a) – Most Specific description
The heading that provides a more specific description should be
preferred over heading that provides a general description.
Dry battery used in car
classifiable as motor vehicle
product.
Dry battery used in lamps
(or) torch classifiable as
torch product.

14. Rule-3 (b) – Essential character principle
 If the product consists of more than one material
(or) made up of different components (or)
mixtures, the classification should be done
according to its main function and additional
function may be ignored.

15. Rule-3 (b) – Essential character
Cell phone consist of music system,
voice recorder system, lighting
system etc. However the essential
character is cell phone.
Lead pencil with an eraser. It
shall be classified as pencil and
not as an eraser.

16. Examples
1. A wrist watch with compass, radio and calculator
is classified as a wrist watch.
2. Pen stand with clock is classified as pen stand even
though there is clock.
 3. Pen with clock is classified as pen only.
4. Cell phone which consists a calculator will be
called as cell phone and not a calculator.
5. Software loaded into a laptop can be classified as
laptop.
6. Software developed and the same was loaded into a
hard disc drive will be classified as software.

17. Rule-3 (C) – Latter is better
 When goods cannot be classified under Rule-3(a) (or)
Rule-3(b), they shall be classified under the heading
which occurs last in the numerical order is taken. It
means that, where two (or) more headings seem equal,
priority should be given to the essential character.
 If a product by virtue of its essential character comes
under two headings namely 8512 and 8513 equally,
then, the said product can be classified under the
heading 8513 (i.e., Latter the better)

18.  Motor Cars and other vehicles principally designed
for the transport of persons falls under heading 87.03,
whereas Motor vehicles meant for transport of
goods falls under heading 87.04.

19. Rule-4 – Most akin goods
 Goods which cannot be classified in accordance
with the above rule shall be classified under the
heading appropriate to the goods to which they are
most akin. i.e., most related character.
Example:-
 1. Jangri is a sweet made up of sugar.
2. Window mirror of the car and front mirror of the
car is classified as mirror.

20. Rule – 4: Most Akin Goods
Window mirror
of the Car
Front mirror
of the Car

21. Rule-5 – Packing materials
 Rule-5(a) – Certain goods are sold in containers
specially made to contain them. It will be classified
along with that article.
Example:
1. Camera sold in leather cases – leather cases
are not to be classified as leather product
but as a camera.
2. Spectacles sold in plastic boxes (or) leather
cases – the box / case is to be classified as
spectacles only.

22.  Rule-5(b) – Packing materials and packing
containers presented with the goods there in
shall be classified with the goods, if they are of
a kind normally used for packing such goods.
Example:
1. Camera sold in Golden case – Gold case is a
gold article and not camera.
2. Spectacles given in sandal wood box with lots
of decorations – sandal wood box is a
wooden handicraft article and not a
spectacle.

23. Camera case
classified as
Camera product
Musical instrument cases
classified as
music instrument product
Rule – 5: Packing Materials

24.  Gas cylinders are meant for repetitive use and
therefore cannot be classifiable along with gas.

25. Rule-6 – Goods compared at the same level of sub-headings
 The classification of goods in the sub-heading of a
heading shall be determined according to the terms of
those sub-headings any related sub-heading notes.
 i.e., if one heading contains 4 to 5 sub-heading, these
sub-headings can be compared with each other.
 However, sub-heading under one heading should not
be compared with the sub-heading of another
heading.

26. Trade Parlance Theory
 According to the Trade Parlance Theory, if a product
is not defined in the schedule and section notes and
chapter notes of the CETA, 1985, then it should be
classified according to its popular meaning (or)
meaning attached to it by those dealing with it.
i.e., goods should be classified in scientific (or)
technical (or) commercial sense.
Example – Glass mirror cannot be classified as Glass
and Glassware because glass loses its basic
character after it is converted into mirror. It
means
that mirror has the reflective function.