Classification of kerosene dictated by multiple use

Kerosene has been exempted over a period of time for its various uses for cooking or burning lamps and not for industrial uses. The industrial uses are for rocket and jet engine fuel, domestic heating, solvent, insecticidal sprays and fuel in engines. This variety of uses has led to controversies about its classifications, one of which has now found a detai-led discussion in the latest Supreme Court judgement in the case of IOC vs. CCE – 2010(259)ELT172(SC).

This judgement deals with a controversy regarding the entitlement of kerosene for a lower duty available to kerosene which was defined in the exemption notification No.5/98 CE and subsequent amendments. The definition is not only in terms of physical properties but it also contains the expression “ordinarily used as illuminant in oil burning lamps”. The IOC supplied some part of it for industrial purpose and claimed the exemption for ordinarily use for burning lamps. The argument was that the kerosene was capable of illumination and the said condition of “ordinarily used” should not mean that it must actually be used. The Supreme Court held that the word “ordinarily” must be given its ordinary meaning.

It elaborated that while constructing the word kerosene, the Court must not be oblivious to the context in which it has been used. The context is that of providing concessional rate of duty for the purpose of relief to the economically backward sections of the society who use kerosene for illumination and other domestic purposes. Therefore, the Supreme Court concluded that the benefit of the concessional rate of duty was available only on the kerosene cleared by the assessee to the Public Distribution System and not for industrial purposes.

Other uses of kerosene such as for making insecticides are industrial uses where exemptions are not available usually except for special purposes. Once there was a controversy whether deodorised kerosene will also get exemption for kerosene. According to the definition given above, deodorised kerosene is not a kerosene.

Here we can make some general observations about end use and its relevance to classification. The first principle that emerges from various judicial pronouncements is that the use factor is much less relevant than the market parlance. In the case of Indian Aluminium Cables Ltd. vs. UOI – 1985(21)ELT3(SC), the Supreme Court has held that the process of manufacture or end use is not determinative of the classification in a fiscal statute. The next principle is that the use is relevant when it is explicitly mentioned in the tariff or in the notification.

If the end use concept is built-in then it becomes a factor to reckon with. If the description or definition is not based on the use criterion, it is the market parlance which determines the issue. Use may also be the basis for coming to the correct understanding of market parlance. End use and manufacturing process can be taken into consideration if they agree with the market parlance.

But if they differ, then the market parlance will prevail. Thirdly when there are various uses , it is the primary or predominant use which has to be taken into consideration. Predominant use has been taken as the determining factor for classification in the case of balloons which are primarily used as children's toys as held by the Karnataka High Court in the case of Kundanmal Ganeshwal vs. State of Karnataka – 1995(96)STC149(Kar.). Another general principle which is relevant is that when the exemption or tariff exemption does not incorporate that the end use is to be proved, the expression 'for use' only means intended for use.

E-mail: smukher2000@yahoo.com

Sukumar Mukhopadhyay is a former member of CBEC