The Supreme Court’s interpretation of Chapter Note 4 to Chapter 26 of the Central Excise Tariff has fundamentally altered the classification of processed ores, rendering previously exempt imports liable to duty. This judgment by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Hyderabad clarifies that routine physical processes like crushing, screening, and washing - when aimed at improving purity or grade - constitute manufacture, thereby excluding such goods from exemption notifications meant for raw ores.
Background & Facts
The Dispute
M/s Nava Bharat Ventures Ltd imported Manganese Lump Ore classified under Tariff Item 2602 00 40, claiming exemption from Countervailing Duty (CVD) under Notification No. 4/2006-CE, which exempts ores but not concentrates. The Customs authorities denied the exemption, asserting that the imported material had undergone crushing, screening, sizing, and washing processes, transforming it from raw ore into concentrate under Chapter Note 4 to Chapter 26.
Procedural History
- 2012: Original Adjudicating Authority issued Order-in-Original denying exemption and demanding differential duty of Rs. 1.67 crore plus interest.
- 2013: Commissioner (Appeals) upheld the order, affirming that the imported goods were concentrates, not ores.
- 2026: CESTAT Hyderabad heard the appeal and dismissed it, upholding the lower authorities’ findings.
Relief Sought
The appellant sought reversal of the duty demand and interest, arguing that the processes applied were normal preparatory steps under HSN Explanatory Notes and CBIC Circular No. 332/1/2012-TRU, and did not amount to manufacture. It also contended that no sample testing was conducted, and prior customs practice had accepted similar imports as ores.
The Legal Issue
The central question was whether Chapter Note 4 to Chapter 26 deems crushing, screening, and washing of manganese ore as manufacture, thereby converting the product into a concentrate ineligible for exemption under Notification No. 4/2006-CE.
Arguments Presented
For the Appellant
The appellant relied on:
- HSN Explanatory Notes to Chapter 26, which distinguish concentrates as products of special treatments, not routine physical processes.
- CBIC Circular No. 332/1/2012-TRU, clarifying that crushing and screening are not special treatments and do not convert ore into concentrate.
- Precedents from Andhra Ferro Alloys, Sharp Ferro Alloys, and Universal Electrical Industries, where similar imports were held to be ores.
- BIS Standard IS 11895:2006, confirming the imported material met ore specifications.
- Kirk-Othmer’s Encyclopedia, defining concentrate as requiring beneficiation beyond physical processes.
- Mineral and Metals Trading Corporation v. UOI, where the Supreme Court held that concentrates may still be termed ores.
For the Respondent
The Revenue argued:
- Chapter Note 4 explicitly deems conversion of ore into concentrate as manufacture, irrespective of the nature of the process.
- Beneficiation, as defined under Rule 3(d) of the Mineral Conservation and Development Rules, 1988, includes removal of unwanted constituents and improvement of grade - processes admitted by the appellant.
- Star Industries v. CC (Imports), Raigad held that once Note 4 is invoked, ore and concentrate become legally distinct products.
- Beach Minerals v. CC and MOIL Ltd v. CCE confirmed that washing and screening for purity improvement constitute beneficiation and manufacture.
- Exemption notifications must be construed strictly; any ambiguity benefits the Revenue.
The Court's Analysis
The Tribunal conducted a rigorous statutory interpretation of Chapter Note 4, which states: "In relation to products of this chapter, the process of converting ores into concentrates shall amount to manufacture." The Court emphasized that this is a deeming provision, not merely interpretative. Once the process is admitted, the legal consequence follows automatically.
"Once the aforesaid legal repercussions are taken note of, as a fortiori, it becomes obvious that Notification No. 4/2006-C.E. which exempts only ores would not include within itself 'concentrates' also because of the reason that after the insertion of Note 4, concentrate is to be treated as a different product than ores, in law for the purposes of products of Chapter 26."
The Court distinguished the appellant’s reliance on CBIC Circular No. 332/2012, noting that while circulars bind the department, they cannot override statutory deeming provisions. The circular’s reference to "special treatment" was contextual to iron ore and did not negate the broader statutory definition under Note 4.
The Tribunal also relied on Star Industries and Beach Minerals, holding that beneficiation - defined as removal of unwanted constituents or improvement of grade - is sufficient to trigger manufacture under Note 4, even without chemical alteration. The fact that the imported ore had been washed and sized to achieve a consistent 35%+ manganese content confirmed an upgrade in quality, satisfying the definition of concentrate.
The Court rejected the argument that absence of sample testing invalidated the classification. Post-Note 4, the focus shifted from empirical testing to admitted factual processes. The appellant’s own contractual specifications and shipping documents confirmed the processing occurred prior to export.
Finally, the Court upheld the levy of interest under Section 111 of the Customs Act, 1962, noting that provisional assessment under Section 18 does not absolve liability for delayed payment of final duty.
The Verdict
The appeal was dismissed. The Court held that Chapter Note 4 to Chapter 26 deems any process aimed at removing foreign matter or improving grade as manufacture, converting ore into concentrate. Consequently, the imported Manganese Lump Ore was ineligible for CVD exemption under Notification No. 4/2006-CE, and the duty and interest demands were upheld.
What This Means For Similar Cases
Classification Turns on Process, Not Composition
- Practitioners must now assess not just the chemical composition of imported ores, but the entire pre-shipment treatment process.
- Even simple washing or screening, if done to improve purity or grade, may trigger classification as concentrate.
- Importers must document whether processing occurs before or after export to determine liability.
Exemption Notifications Are Strictly Construed
- Notification No. 4/2006-CE and similar exemptions now apply only to Run-of-Mine (ROM) ore with no post-mining treatment.
- Any deviation - regardless of scale - requires reclassification and potential duty liability.
- Legal advice must now include a process audit alongside chemical analysis.
Precedents Without Note 4 Analysis Are Distinguished
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Pre-2011 judgments (Universal Electrical, CC v. Gadgets India) are no longer binding if they ignore Star Industries.
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Tribunals will now prioritize statutory deeming provisions over industry practice or circulars.
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Advocates must cite Star Industries and Beach Minerals in all ore-concentrate disputes post-2011.
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Importers must revise HS code classification protocols to include process-based triggers.
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Customs authorities may now demand process flow charts from importers as part of clearance.
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Litigation strategy must shift from disputing test results to challenging the legal interpretation of "manufacture" under Note 4.
