The relevance of end use in classification is only under certain circumstances and not always.
In a very recent judgement relating to a multi-functional machine, the Supreme Court has held that the predominant function would be relevant in determining the classification. In the case of Xerox India Ltd. vs. Commissioner of Customs, Mumbai - 2010 (260)ELT161(SC), the issue was about the classification of a multi-functional machine which works as printer, fax machine, copier and as scanner when it is attached to a computer. The importer wanted to classify it under Item 8471 where the duty is nil. This item covers automatic data processing machines and units thereof, one of the units being “combined input and output units”. Revenue wanted to classify it under the residual Item 8479 (machines having individual functions not specified elsewhere) where the rate of duty is 7.5%. The importer argued that the machines work with the computer as its input and output unit. The Supreme Court took into account the fact that the multi-functional machine in question had about 85% of the total parts and components along with manufacturing cost allocated to printing. This clearly shows that the printing function emerges as the principal function and gives the multi-functional machine its essential character. Since printer is included in Item 8471 the classification of the machine under this heading was justified and accepted by the Supreme Court. Specifically the sub-item 8471.60 was chosen by the Court.
The end use criterion is not always relevant for the purpose of determining classification. It is not relevant when market parlance determines the classification. It is, however, relevant in certain circumstances but if it is relevant, it is only the predominant use which is relevant. In the case of Annapurna Carbon Industries Co. v. State of Andhra Pradesh - AIR 1976 SC 1418, the Supreme Court held that the deciding factor in the matter of classification would be the predominant use or ordinary purpose to which a product is put and it is not enough to show that the article can be put to other uses also. In the case of ACTO v. Jawhar Patang House - 1993(88)STC321(Raj.), relating to the Rajasthan Sales Tax Act, 1954, the issue was whether cotton sewing thread would also cover cotton thread for flying kites. If not, it would attract the general rate of sales tax which was lower. The High Court held that the commodity sold was a cotton thread whose primary use is sewing thread. If it is used for flying kites, it will not change the basic character of the commodity on account of its use. “The taxation of a commodity is based mainly on its primary and general use. If the commodity is capable of use for some other purpose then because of the use in such other purpose, there cannot be any difference in the rate of tax,” held the Court. In the case of Kundanmal Ganeshwal v. State of Karnataka - 1995 (96) STC 149 (Kar.), relating to the Karnataka Sales Tax Act, 1957, the High Court has held that balloons are primarily used as children’s toys and the decorative purpose is incidental. So, it would fall under Entry 47 which is “children toys costing not more than twenty rupees per item”.
The conclusion is that end use is not relevant for classification as much as the basic identify of the goods, tariff entry and market parlance are. It is relevant only when the description or definition of the goods in the tariff is based explicitly or implicitly on use criterion. If the description of the definition is not based on use criterion, it is the market parlance which determines the issue. Use is also the basis of coming to the correct understanding of the market parlance. End use and manufacturing process can be taken into consideration, if they agree with market parlance. But if they differ from the market parlance, then the latter will prevail. When there are various uses, it is the predominant or principal or primary use which has to be taken into consideration.
