Circular No. 36 dated 8^th May 2000

It is directed to invite your attention on the above-mentioned subject. It has been reported that divergent practice are being followed by Custom Houses with respect to clearance of rags. It is seen that at some of the Custom Houses garments having 2-3 cuts are being cleared as rags, whereas other Custom Houses are insisting for 6-8 cuts on the garments for them to be considered as completely mutilated rags. The mater was discussed in the Conference of Commissioners for Customs on Tariff and Allied Matters held at Chennai on 21^st and 22^nd January, 200, and in this connection, please find enclosed a comply of the extract of proceedings of Conference.

After discussions, the said Conference concluded as under:

i.       if garments are only and used but serviceable after repair, they must be classified under CTH63.09. only such garments which are totally unserviceable and beyond repair, should be classified under CTH 63.10.

ii.      in case where garments declared to be rags are actually found to be only old and used garments falling under heading 63.09, as is mostly the case, the imposition of fine and penalty for violation of EXIM Policy should be such that it not only wips out the merging of Profit (MOP) BUT ALSO ACTS AS A deterrent against repeated imports.

iii.     Rags to be considered as completely mutilated should be totally unser-veceabeland beyond repai and this can be ensured by applying criteria of there cuts or more, through the entire length of the garment, in a crisscross manner, not along the seams.

iv.     Only such garments, which are found to be completely mutilated rags, as imported, should be allowed clearance without licence. Clearance subject to post importation cutilation must not be allowed.

v.      In case, it is found that garments are not completely mutilated rags i.e., garments having less than 3 cuts, the same should be allowed clearance only on such fine and penalty, which not only wipes out the MOP but also acts as a deterrent against future imports.

2.      All cases pending at your level may be decided on the basis of above guidelines.

3.      These instructions may kindly brought to the notice of all concerned by way of issuance of suitable Public Notice/ standing Orders.

4.      Difficulties, if any in implementation of these instructions may be brought to the notice of the Board. This Circular supersedes are previous ones on the subject issued by the Board form time to time. Kindly acknowledge receipt of the Circular.

Laying Down of Uniform Guidelines for Clearance of Rags

Divergent practices are being followed by Customs House with respect of clearance of rags. While at Calcutta and Chennai, garments having 2-3 cuts are being cleared as rags. Cochin Custom House is insisting on 6-8 cuts on the garments for them to be considered as completely mutilated rags.

Import of " worn clothing and other worn articles" falling in CTH 63.09 [ITC (HSN) 63090000] is restricted under the EXIM Policy 1997-2002. However, import of synthetic and woollen rags in completely mutilated condition is allowed freely subject to the condition that mutilation conforms to the requirement specified by Customs by way of Public or Trade Notice.

Mumbai Custom House had issued a Public Notice in 1988(PN60/ 880 which required the goods to have 6-8 cuts depending upon the type of garment. Board had also issued instruction to all customs House vide letter Dated 26.9.88, to follow norms of mutilation specified by Mumbai Custom House. Accordingly, other Custom Houses had also issued Public Notice along the same lines. However, the norms specified in Mumbai custom House Public Notice were not implemented uniformly by various Custom House, in view of Supreme court order in case of Swastika Woollen Industries [1990(47) ELT-216(SC)] that garments cut into 2,3,4 pieces � not along the seams� can be regarded as completely mutilate. The issue was placed before Conference in view of existence of divergent practices.

The conference discussed the issue and overfed threat lack of uniform assessment practice results in complaints that the same foods which can ve freely imported as rags at one port, are treated as restricted at another. The Conference elaborately discussed the scope of heading 63.09 and 63.10 of Customs Tariff. Heading 63.09 covers �worn clothing and other worn articles". According to HSN Explanatory Notes, garments to be classified under heading 63.09, must show signs of appreciable wear, whether or not they require cleaning or repair before use, and must be presented in bulk e.g. in bales, sacks, etc. Heading 63.10 covers `rags�. According to HSN Explanatory Notes, garments to be classified as rags under heading 63.10 must be so worn out or torn as to be beyond cleaning or repair and generally fit only for recovery of fibres. The Conference therefore noted that if garments are declared to be rags, but are actually found to be only old and used garments serviceable after repair, they must be assessed under CTH 63.09. Only such garments which are totally unserviceable and beyond repair should be classified under CTH 63.10. Commissioner of Customs, Calcutta stated that at their port 90-95% of consignments of rags are found to be old and used garments and are accordingly classified under CTH 63.09 and cleared after adjudication.

The Conference noted that under the EXIM Policy 1997-2002, the old and used garments falling under Heading 63.09 are restricted for import. However, rags falling under 63.10 are freely importable subject to the condition that they are imported in a completely mutilated form, and such mutilation conforms to the requirements laid down by Customs. The conference observed that EXIM Policy condition for free importability, does not provide any scope for mutilation subsequent to import. Commissioner of Customs, Nhava Sheva stated that as norms for mutilation of rags have not been notified under section 24 of Customs Act, 1962, allowing clearance subject to post importation mutilation is illegal. The Conference further noted that for garments to be considered as completely mutilated, they should be totally unserviceable and beyond repair and this can be ensured by applying the criteria of three cuts or more through the entire length of the garments, in a crisscross manner, not long the seams.

In view of the above the Conference concluded that:

(i)      If garments are only old and used but serviceable after repair, they must be classified under CTH 63.09. Only such garments which are totally unserviceable and beyond repair, should be classified under CTH 63.10.

(ii)     in cases where garments declared to be rags are actually found to be only old and used garments falling under heading 63.09, as is mostly the case, the imposition of fine and penalty for violation of EXIM Policy should be such that it not only wipes out the Margin of profit (MOP) but also acts as a deterrent against repeated imports.

(iii)    Rags to be considered as completely mutilated should be totally unserviceable and beyond repair and this can be ensured by applying criteria of three cuts or more, through the entire length of the garment, in a crisscross manner, not along the seams.

(iv)     Only such garments, which are found to be completely mutilated rags, as imported, should be allowed clearance without licence. Clearance subject to post importation mutilation must not be allowed.

(v)     In case it is found that garments are not completely mutilated rags i.e. garments having less than 3 cuts, the same should be allowed clearance only on such fine and penalty which not only wipes out the MOP but also acts as a deterrent against future imports.

It was decided that instructions would be issued by Board on the above lines ensuring uniformity in assessment practice.