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924/14/2010-CX, Dated: 19/05/2010
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Circular No 924/ 14/2010-CX
F.No. 167/42/ 2009-CX.4
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Custom
.....
New Delhi, the 19 May, 2010
To,
All the Chief Commissioner of Central Excise,
All the Chief Commissioner of Customs
All the Director General
All Commissioners,
Sir,
Subject: Classification of rice parboiling machinery -reg
It has been brought to the notice of the Board that classification of Rice parboiling machinery is being disputed in certain jurisdictions. Two tariff headings under consideration for its classification are 8419 or 8437. It has been represented by the Rice Mill Machinery Manufacturers Association that the practice so far followed by the department was not to charge excise duty for many years but suddenly it has been sought to charge duty on these machines by proposing classification under heading 8419. The matter has been examined by the Board.
2. Paddy processing plant consists of sections with functions like parboiling, drying, rice milling and polishing . Parboiling plants and drier plants are used for steaming and drying paddy and also for reducing the moisture content in the paddy. The processed paddy is then sent to subsequent sections where husking, hauling, milling and polishing are undertaken. Briefly, parboiling process involves three stages, namely, pre-steaming, soaking and steaming. In the first stage, clean raw paddy is steamed for 3 to 5 minutes. In the second stage, pre-steamed paddy is soaked in water tanks for about 4-5 hours. In the last stage, the soaked paddy is passed through steaming process for 3-5 minutes. Subsequently, steamed rice are dried in a dryer. The dryer is also supplied alongwith parboiling rice machinery. It has been mentioned by the Association that 100% of parboil plant and equipment are used only in rice mill industry and that the parboiling process is exclusive to paddy. It has also been contended by the Association that parboiling units are integral part of rice mill. Subsequent to the parboiling process, the further process of dehusking and drying is carried out in the same unit. Therefore, parboiling rice machinery is an integral part of rice mill plant. Thus it has been argued by the Association that these machines merit classification under heading 8419 because of following main grounds:
i. Rice parboiling machineries are used only in rice mill plant.
ii. These are integral part of rice processing plant and these cannot function in isolation. Therefore, function of Rice parboiling machinery/ drying unit is complementary to other function of rice processing plant.
3. On the other hand, in support of classifying it under tariff heading 8419, it has been argued that Parboiling and drier plants perform the function of steaming and drying which are independent of milling and these occur before milling process. Therefore it has been viewed that parboiling and drier plant are not essential and integral part of rice mill and therefore it would merit classification under heading 8419. It has also been opened that machinery performing specific functions like steaming or drying are specifically covered by heading 8419. Further, reference has also been made to Chapter Note 2 to Chapter 84 to justify the classification under heading 8419.
4.1 On examination of the issue, the Board observes that the General rules for interpretation of Central Excise Tariff provide that “for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require”. Therefore the classification of these goods should be determined in terms of the headings read with the relevant section and chapter notes. Section Note 3 & 4 to Section XVI and chapter Note 2 to Chapter 84 are relevant for present issue and these are reproduced below:
Section Note 3 and 4 to Section XVI
“3. Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.
4. Where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function.”
Chapter Note 2 to Chapter 84:
“Subject to the operation of Note 3 to Section XVI and subject to Note 9 to this Chapter, a machine or appliance which answers to a description in one or more of the headings 8401 to 8424, or heading 8486 and at the same time to a description in one or other of the headings 8425 to 8480 is to be classified under the appropriate heading of the headings 8401 to 8424 or under the heading 8486, as the case may be, and not under the headings 8425 to 8480.
Heading 8419 does not, however, cover :
(a) germination plant, incubators or brooders (heading 8436);
(b) grain dampening machines (heading 8437);
(c) ....
(d) ...
(e) .....”
4.2 Parboiling machinery, drier plant and rice mill in conjunction form the paddy processing. Thus such a plant can be considered as composite machines fitted together to perform the function of rice milling which is the principal function of such a combination. Thus in terms of the Section Note 3 & 4 even if one of the component/ machinery is performing complementary functions, the classification of such component/ machinery will be governed by the principal function being performed, and that in this case is rice milling.
4.3 Chapter Note 2 provides that if a machine can be classified based on description under heading 8419 and also under 8437, in that case it should be classified under 8419 only. Therefore, it would be seen that as per Chapter Note 2, the parboiling machine merit classification under heading 8419 but as per Section Note 3 and 4, the machinery merit classification under heading 8437. The Board observes that this controversy has been perceived by the HSN and at pages 1235 it has been mentioned that Chapter Note 2 which is known as rule of precedence for heading 8401 to 84.24 applies only to machines considered as whole. Composite machines or multifunction machines are required to be classified in accordance with Note 3 and Note 4 of Section XVI. As per this clarification available in the HSN, the parboiling machine and dryers which are part of composite machine (rice mill) would be correctly classified in terms of Section Notes 3 and 4 and therefore, the correct classification should be under heading 8437. Further, grain dampening machine has been excluded from the purview of heading 8419 and placed under heading 8437. One of the functions of Rice parboiling machinery is soaking of grain, which is in nature of dampening; hence this also support the classification of parboiling machinery under heading 8437.
5.0 Therefore, Board is of the view that Rice parboiling machinery and drier which are essentially for use in conjunction with the rice mill will merit classification under heading 8437.
6.0 Trade & industry as well as field formations may please be informed suitably.
7.0 Receipt of this order may please be acknowledged.
8.0 Hindi version will follow.
Yours faithfully
(Madan Mohan)
Under Secretary (CX-4)
