Classification of goods – Application of common/trade parlance test, and consideration of ‘use’ – SC draws principles

The Supreme Court of India has culled out certain governing principles with regard to application of the common or trade parlance test and for consideration of ‘use’, while dealing with classification disputes under taxation laws. Relying upon various precedents, the Court summarized the following:
 

Common/trade parlance test:
 

• The test must be applied restrictively.
   
• The test can be invoked only when,
  
  
  • the governing statute does not provide any explicit definition
     
  • words used in the heading are not employed in a specialised, technical context
     
  • the application should not contradict or run counter to the overall statutory framework and the contextual manner
     
  • there is absence of statutory guidance
     
• Overly simplified approaches should be avoided, and the words should be understood within their legal context. 
   
• When a tariff item is general in nature and does not indicate a particular industry or trade circle, the common parlance understanding of that term is appropriate.
   
• Character and nature of the product cannot be veiled behind a charade of terminology which is used to market the product or refer to it in common or commercial circles.
   
• For separate commercial identity, it is essential to demonstrate that the goods have undergone a substantial transformation.
   

Consideration of ‘Use’:
 

• ‘Use’ is relevant factor only when tariff heading allows for consideration of ‘use’ or ‘adaptation’, either explicitly or implicitly, including where the Court concludes that the common or commercial meaning of the good includes ‘use’/’adaptation’ of the good as a defining aspect of its identity.
   
• Unless statutory intention to the contrary is proven, an importer cannot classify goods based on the actual use to which the goods are put.
   
• In case of intended use, the use should be inherent in the goods and should be discernible from their objective characteristics and properties.
   
• If a tariff heading contains both an eo nomine component and a use component, both criteria must be satisfied.
   

On merits of the case, the Apex Court in Commissioner v. Welkin Foods [2026 VIL 02 SC CU] was of the view that goods (aluminium shelves) should not be classified as ‘parts’ of agricultural machines or mechanical appliances of Chapter 84 under CTI 8436 99 00 but should be classified as aluminium structures of Chapter 76 under CTI 76109010.