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Unit 3: Classification and Valuation of Excisable Goods

The Central Excise Tariff Act was amended in 2004. Earlier there was six digits classification code Notes
for classification of the goods, which has been replaced by 8 digits classification code. With
introduction of this 8 digits classification code, a detailed classification of the goods is now
available. The classification of items is significant because it is only the proper classification,
which leads to determination of rate of duty.
In Central Excise Tariff, against each item a rate of duty has been prescribed. These are normally
termed as “tariff rates”. In order to determine the rate of duty on a particular product, first find
out the chapter heading under which the item is classifiable. Against that classification, the
corresponding tariff rate has to be read with the exemption notification, if any. Thus, effective
rate of duty on an item is obtained.
Some commodities may be subject to ‘special duty of excise’ prescribed under the Central Excise
Tariff Act, 1985. Certain goods may also be subject to duty under some other Acts such
as Additional Duty of Excise (Goods of Special Importance) Act, 1957 or certain Cess.

1. Classification of Excisable Goods Under Central Excise Act

Classification of a product means the determination of heading/sub-heading under which a
particular product fall. Classification means the appropriate classification code which is applicable
to the excisable goods in question under the first schedule to the Central Excise Tariff Act, 1985.
The classification of goods is required for the purpose of determining eligibility to exemptions,
under section 5-A which are with reference to the Tariff headings or sub-headings. Wrong
classification would either cause loss of revenue to the Central Government or impose
unjustifiable loss to assessee. In Reckitt and Colman of India vs. C.C.EX (1994) (71)EL 11-44, the
tribunal has held that for the purpose of classification of goods, the nomenclature, character and
function of the product is required to be determined and thereafter the excisable product may be
identified accordingly.

2. Harmonised System of Nomenclature (HSN)

HSN system define as excisable goods list in India and goods are classified systematically
following the footsteps of HSN (Harmonised System of Nomenclature) as in Customs Tariff. But
it is neither a copy of HSN nor a copy of Customs Tariff. HSN is a multi-purpose 6 digit
nomenclature classifying goods into 5019 groups. HSN contains 241 headings at 4 digit level and
5019 at 6 digit level. HSN has been adopted by large number of countries to ensure uniformity
in classification of items in international trade. Indian Customs adopted HSN w.e.f. 28.2.86 and
Customs Tariff is fully aligned with it. Customs Tariff and Central Excise Tariff have two more
digits and are using 8 digit nomenclature.

3. Relationship between Central Excise Tariff Act 1985 and Central Excise Act 1944

The CE Act 1944 does not provide any guidelines for classification of goods. Earlier, goods used
to be classified as per ‘popular or trade parlance’ as First-Schedule to CE Act contained bare
description of products. In place of it, CETA 1985 based on HSN came into force on 1.3.1986.
The linkage between Central Excise Act 1944 and Central Excise Tariff Act 1985 as amended by
the Central Excise Tariff (Amendment) Act 2004 is as follows:
(1) Rate of duty at which excise duty is levied under section 3 (charging section) of CEA is given
in Section 2 of CEA. The rates of duty are specified in schedule to CETA (2) Section 3(1) of Central
Excise Act 1944 specifies that excise duty shall be levied and collected at the rates mentioned in
schedule to CETA.

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