Rule 3 – Classification In Case Goods are Classifiable Under two or More Headings:
The application of this rule arises when the goods consists of more than one material or substance.
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:
Rule 3(a) – Specific over general
(i) The heading which provides the most specific description shall be preferred to headings providing a more general description.
(ii) 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 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 description of the goods.
Analysis: The heading that provides a more specific description should be preferred over the heading that provides a general description.
Relevant case law: Electric shaving machine was classifiable under following two headings:-
Heading No. 85.10: Shavers and hair clippers with self contained electric motors
Heading No. 85.09: Electro-mechanical domestic appliances with self-contained electric motor
It was held that the said product was classifiable under heading No. 85.10 as heading No. 85.10 is more specific as compared to heading No. 85.09 [A. Nagaraju Bros v. State of Andhra Pradesh 1994 (72) E.L.T. 801(S.C.)].
Rule 3(b) – Essential character principle: 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 with reference to (a), shall be classified as if they consisted of material which gives them their essential character, in so far as this criterion is applicable.
Analysis: Sub-rule (b) would apply only if the goods cannot be classified under sub-rule (a). This sub-rule provides that composite goods should be classified on the basis of that material or substance that gives it its essential character.
Relevant case law: It was held that in order to find out whether the incomplete article as imported has the essential character of the completed article, the tests to be applied would be whether the imported article has attained the approximate shape or outline of the finished article or part and whether it can only be used for completion into the particular finished article [BHEL v. CCus 1987 (28) E.L.T. 545 (Tribunal)].
| Example
Product: Lead pencil with an eraser at the back. Classification: Though the above product is composite goods, the essential character is that it is a pencil and the attachment of eraser at the stub is only for the purpose of adding convenience to the user. Therefore, it shall be classified as a pencil and not as an eraser. |
Rule 3(c) – Latter the better: When goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.
Analysis: If both sub-rules (a) and (b) fails to classify the goods in question, then resort may be had to sub-rule (c), which provides that composite goods shall be classified on the basis of the heading that occurs last in numerical order.
Relevant case laws:-
1. Mahindra and Mahindra v. CCE 1999 (109) E.L.T. 739 (Tribunal) [maintained by SC]
When the goods cleared by assessee were equally classifiable under the following two headings:-
Heading No. 87.03:-Motor cars and other vehicles principally designed for the transport of persons.
Heading No. 87.04: Motor vehicles meant for transport of goods.
It was held that heading 87.04 occurs last and as both the headings equally merit classification, goods shall be classified under 87.04 applying the interpretative Rule 3(c).
2. Artherton Engg. Pvt. Ltd. v. CC 2001 (129) E.L.T. 502 (T) [maintained by SC]
Rule 3(c) of the Rules of Interpretation comes into operation only if goods cannot be classified by following Rule 3(a) & 3(b).