Classifying goods: the method, not the lookup

A tariff code is not a fact about a product. It is a conclusion reached by reading a schedule in a prescribed order, and the same physical article can be classified differently depending on how it is presented, what it is made of and what the notes to its section say. That is why two competent people can search the same phrase and get two answers, and why neither search result is an argument. The order of operations is printed in the tariff itself.

Where does the binding text actually live?

In the schedule to the tariff act, not in any lookup. The Customs Tariff Act, 1975 provides at section 2, headed duties specified in the Schedules to be levied, for duties at the rates set out in its Schedules, the First Schedule being the import tariff and the Second Schedule the export tariff. At the head of the First Schedule, before any chapter, sit the General Rules for the Interpretation of that Schedule, opening with the statement that classification of goods in the Schedule shall be governed by the following principles.

That placement is the point. The rules are not commentary on the tariff, they are part of it, and so are the section notes, chapter notes and sub-heading notes that appear before each group of headings. An exporter or importer arguing classification is arguing about the terms of a statute, which is a much stronger position than arguing about a database entry, and a much less forgiving one.

What is the shape of the nomenclature?

Four levels, and knowing which level you are at prevents most bad classifications. The Additional Notes to the First Schedule define them: a heading is a description accompanied by a four digit number and includes all sub-headings and tariff items whose first four digits correspond to it, a sub-heading is a description with a six digit number and includes all tariff items whose first six digits correspond, and a tariff item is a description accompanied by an eight digit number and the rate of customs duty. The list of tariff provisions is divided into Sections, Chapters and Sub-Chapters.

The dashes carry the hierarchy and are easy to misread. General Explanatory Note 1 to the First Schedule provides that a description preceded by a single dash is a sub-classification of the heading, a description preceded by two dashes is a sub-classification of the immediately preceding single dash description, and a description preceded by three dashes is a sub-classification of the immediately preceding one or two dash description. Reading a three dash line as though it stood on its own is the most common structural error in a classification note.

Rule 1: what actually decides the heading

Rule 1 of the General Rules provides that the titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only, and that for legal purposes classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes, and only then, provided those headings or notes do not otherwise require, according to the following provisions.

Three practical instructions are packed into that sentence. Never classify from a chapter title, because the title has no legal effect. Read the notes before the headings, because a note can exclude your goods from a chapter that otherwise describes them perfectly. And do not reach for the later rules at all if the heading terms and the notes settle the matter, because the later rules only operate where the earlier reading leaves a genuine ambiguity. Most classification arguments that go wrong go wrong by starting at rule 3.

Rules 2 and 3, in the order they apply

Rule 2 extends the reach of a heading in two directions. Rule 2(a) provides that a reference in a heading to an article includes that article incomplete or unfinished, provided that as presented it has the essential character of the complete or finished article, and includes it presented unassembled or disassembled. Rule 2(b) provides that a reference to a material or substance includes mixtures or combinations of it with other materials, and directs that goods consisting of more than one material be classified according to the principles of rule 3.

Rule 3 then resolves the collision, in three steps that must be taken in sequence. First, the heading providing the most specific description is preferred to headings providing a more general description, with the qualification that headings each referring to only part of mixed or composite goods are regarded as equally specific. Second, and only where the first step does not decide, mixtures, composite goods and goods put up in sets for retail sale are classified as if they consisted of the material or component that gives them their essential character. Third, and only where neither of the first two decides, the goods go to the heading which occurs last in numerical order among those equally meriting consideration. Skipping to the third step because it is the easiest to apply is a classification that will not survive scrutiny.

Rules 4, 5 and 6, and what each is for

Rule 4 is the residual: goods that cannot be classified under the preceding rules are classified under the heading appropriate to the goods to which they are most akin. It is rarely the right answer and is worth treating as a signal that the earlier reading was incomplete.

Rule 5 deals with containers and packing. Rule 5(a) covers cases specially shaped or fitted for a specific article, suitable for long term use and presented with the article, which are classified with that article when of a kind normally sold with it, unless the container gives the whole its essential character. Rule 5(b) provides that packing materials and containers presented with the goods are classified with the goods if they are of a kind normally used for such packing, but not where they are clearly suitable for repetitive use. Rule 6 then governs the level below the heading: classification in the sub-headings of a heading is determined according to the terms of those sub-headings and any related sub-heading notes and, mutatis mutandis, to the earlier rules, on the understanding that only sub-headings at the same level are comparable. Comparing a one dash sub-heading with a two dash sub-heading is not a comparison the rule permits.

How do you read a section note or a chapter note?

By asking what kind of note it is before asking what it says. Notes do three different jobs and they bite differently. An exclusionary note removes goods from a chapter regardless of how well the heading text fits them, and it is the note most likely to overturn a confident classification. A definitional note fixes the meaning of a word used in the headings, so the ordinary commercial meaning of that word stops being relevant. A scope note tells you what a chapter covers in outline and is the closest thing to guidance.

Because rule 1 gives the notes the same legal force as the heading terms, the reading order is fixed: section notes first, then chapter notes, then the heading text, then the sub-heading notes when you descend. Reading in the other direction produces a classification that looks right in isolation and fails as soon as the note is put next to it. The one to read alongside your goods description is also the one to quote when you write the decision down.

How do you document a decision so it survives a query?

Classification on an import or export document is your assertion, not the department's, and it is verifiable afterwards. The question that arrives months later is never simply which code, it is why that code, and the file either answers it or it does not. A classification note that names the goods, the rule applied and the note relied on takes minutes to write at the time and is close to impossible to reconstruct at a personal hearing.

1. Describe the goods as presented. Composition, function, state, packing, and whether they are complete, unassembled or a set, because rules 2 and 5 turn on presentation rather than on the product's identity.
2. Name the section and chapter notes you read. Including the ones you considered and rejected, and why they do not exclude the goods.
3. Show the rule sequence. State that rule 1 did or did not settle it, and if it did not, which limb of rule 3 you applied and why the earlier limb did not decide.
4. Record the sub-heading step separately. Under rule 6, comparing only sub-headings at the same level, because a correct heading with a careless sub-heading is still a wrong tariff item.
5. Keep the evidence that supports the description. Technical datasheet, composition breakdown, photographs of the goods as packed, and any test report. The description is the fact the whole reading rests on.

Where the answer is genuinely uncertain and the volume justifies it, there is a formal route. The Department of Revenue records that classification of goods under the Customs Tariff Act, 1975 is one of the questions on which an advance ruling may be sought, that a ruling is statutorily required to be pronounced within 90 days of receipt of the application, and that it binds the applicant and the Commissioner and the authorities subordinate to him in respect of that applicant. Applications now go to the Customs Authority for Advance Rulings under regulations made for that Authority, and the form and fee should be read from the regulations in force before applying.

Where to go from here

A tariff item is an input to several other decisions, and each of them is a separate guide.

• What the code turns into. Import duty, in the order it is actually calculated takes the classification and builds the duty stack on it.
• The whole cost, not just the duty. Landed cost is not the proforma price.
• The other claim that rests on the code. Proof of origin, and what changed, where a preferential claim is tested against the tariff line.
• The gates a code opens onto. What stops a container before you order it covers the non-customs approvals a tariff line can pull in.
• Where the code is declared. The bill of entry, field by field.

Purser carries one classification per product on the product record rather than per document, so the same tariff item and the same reasoning reach the invoice, the packing list and the broker's instruction without being retyped. Purser never submits to a government portal and it never sends an outbound message without a recorded human approval event, so the declaration remains your assertion and your broker's filing. Purser Inbound holds the product record.

Frequently asked questions

What decides the classification of goods in the Indian customs tariff?

Rule 1 of the General Rules for the Interpretation of the First Schedule to the Customs Tariff Act, 1975 provides that the titles of Sections, Chapters and Sub-Chapters are for ease of reference only, and that for legal purposes classification is determined according to the terms of the headings and any relative Section or Chapter Notes. The later rules apply only where those headings and notes do not otherwise require.

What do the four, six and eight digit levels mean?

The Additional Notes to the First Schedule to the Customs Tariff Act, 1975 define them. A heading is a description accompanied by a four digit number and includes all sub-headings and tariff items whose first four digits correspond to it. A sub-heading carries a six digit number and includes all tariff items whose first six digits correspond. A tariff item is a description accompanied by an eight digit number and the rate of customs duty.

In what order do the interpretative rules apply?

In their printed sequence, and each only where the earlier one does not decide. Rule 1 governs first, through the heading terms and the section and chapter notes. Rule 2 extends headings to incomplete, unassembled and mixed goods, rule 3 resolves goods classifiable under two or more headings in three ordered steps, rule 4 is residual, rule 5 deals with cases and packing, and rule 6 applies the same reasoning to sub-headings at the same level.

What does essential character mean in classification?

It is the test in two places in the General Rules to the First Schedule of the Customs Tariff Act, 1975. Rule 2(a) treats an incomplete or unfinished article as the finished article where, as presented, it has the essential character of the finished article. Rule 3(b) classifies mixtures, composite goods and retail sets according to the material or component that gives them their essential character, but only where the most specific description test in rule 3(a) has not already decided the question.

Can an importer get a binding answer on classification?

The Department of Revenue records that classification of goods under the Customs Tariff Act, 1975 is one of the questions on which an advance ruling may be sought, that a ruling is statutorily required to be pronounced within 90 days of the receipt of the application, and that it is binding on the applicant who sought it and on the Commissioner and the authorities subordinate to him in respect of that applicant. Applications are made to the Customs Authority for Advance Rulings under the regulations in force.