Full Judgment
2. Briefly, the facts were that the present respondents had classified their products "Silfin-9009" as a lubricating preparation falling under 34.03. The said classification was not accepted by the Department and on the basis of the Test Report by the Deputy Chief Chemist, the Assistant Collector by his order- in-original dated 11-3-1992 approved the product as "organic surface active preparation" under Chapter Sub-heading 3402.90 attracting duty @ 25% ad valorem. In the appeal filed by the respondents herein, the Collector (Appeals) by his order-in-appeal dated 26-11-1992 held that the disputed product "Silfin-9009" was to be classified under Chapter sub-heading 3403.00 as claimed by the assessee. The Department is in appeal against the said order.
3. When the matter was called none was present for the respondents.
Since this appeal is an old one having been filed on 23-7-1993 the same was taken up for disposal after hearing the ld. SDR.4. Ld. SDR submitted that the Collector (Appeals) had taken the view that water dispersible textile lubricating preparations containing a high preparation of fatty surface active agents together with mineral oil and other chemicals would be covered by Heading 34.03 on the basis of Explanatory Note of HSN under Heading 34.03. He further observed that Heading 34.03 covered lubricating preparations and preparations of a kind used for oil or grease treatment of textile materials. According to the Collector (Appeals), Heading 34.03 included cutting oil preparations, bolt or nut release preparations, anti-rust or anti-corrosion preparation and mould release preparations, based on lubricants. Since the expression "preparations of a kind used for the oil or grease treatment of textile materials", used in Heading 34.03 could mean that the preparations are such that the same may be a mixture of a mineral oil or fatty substance with surface active agents, Id SDR submitted that the Collector (Appeals) had erred in classifying the goods under sub-heading 3403.00 since the manufacturing process given by the respondents clearly showed the blending of organic ester (butyl stearate) with non-ionic and ionic surfactants. Butyl stearate was insoluble in water and since the treatment of raw silk has to be done in acqueous medium, it was necessary to blend butyl stearate with surfactants so as to form emulsion. Even as per HSN Explanatory Notes relating to Heading 34.03, preparations for lubricating, or oil or greasing of textiles, leather, etc. included mixtures of mineral oil or fatty substances with surface active agents, water dispersible textile lubricating preparations containing a high proportion of surface active agents together with mineral oils and other chemicals. The Collector (Appeals) had observed that water dispersible textile lubricating preparations containing a high proportion of surface active agents together with mineral oil and other chemicals are covered by Heading 34.03 as seen from the Explanatory Note of HSN under Heading 34.03. On this, ld. SDR submitted that the manufacturing process given by the respondents had shown that 'Silfin-9009' did not mention any mineral oil or fatty substance. Therefore, the reliance placed by Collector (Appeals) on HSN Explanatory Notes under Heading 34.03 was not applicable to the product under dispute and, therefore, the Collector (Appeals) had clearly erred in coming to the conclusion that 'Silfin-9009' would be classifiable under Heading 34.03. Further, the Chemical Examiner's report had also clearly stated that the item was a mixture of OS A A (Organic Surface Active Agents). The Report had stated : "It is in the form of pale yellow liquid. It may be considered as organic surface active preparation." Having regard to the aforesaid facts he submitted that the respondents' product 'Silfin-9009' would be rightly classifiable under sub- heading 3402.90 and not under 34.03 as held by the Collector (Appeals). He, therefore, prayed for allowing the appeal and for setting aside the impugned order.
5. We have considered the submissions. The dispute falls within a very narrow compass. The competing entries are reproduced hereunder :-34.02 Organic surface-active agent (other than soap); surface active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap 3402.10 - Sulphonated castor oil, fish oil or sperm oil Nil 3402.90 - Other 18%34.03 Lubricating preparations (including cutting-oil preparations, bolt or nut release preparations anti-rust or anti-corrosion preparations and mould release preparations, based on lubricants) and preparations of a kind used for the oil or grease treatment of textiles materials, leather, furskins or other materials, but excluding preparations containing, as basic constituents, 70% or more by weight of petroleum oils or of oils obtained from bituminous minerals 3403.10 - Lubricating preparations (including cutting-oil 15% preparations, bolt or nut release preparations, anti-rust or anti-corrosion preparations and mould release preparations based on lubricants) (G) Preparations for the lubricating, oiling or greasing of textiles, leather, hides, furskins, etc. These may be used to lubricate or soften textile fibres during spinning, to "stuff leather, etc. They include, for example: mixtures of mineral oil or fatty substances with surface active agents (e.g., sulphoricinoleates); water dispersible textile lubricating preparations containing a high proportion of surface-active agents together with mineral oils and other chemicals.
6. It would be observed from the above that for an item to come under sub-heading 34.03 as per Explanatory paragraph (G) of HSN the preparation should be a mixture of mineral oil or fatty substance with surface active agents or it should be a water dispersible textile lubricating preparation containing a high proportion of surface active agents together with mineral oils and other chemicals. The presence of mineral oil or fatty substance is therefore an essential requirement.
Ld. SDR had contended that the respondents Tiave not shown that their product contained any mineral oil or fatty substances. The Test Report had stated that it is a mixture of organic surface active agents only.
Since there was no mention of any mineral oil in the composition of the product 'Silfin-9009' to make it eligible for classification under sub-heading 3403.00 ld. SDR had contended that the finding given by the Collector (Appeals) about butyl stearate being insoluble in water and the treatment of raw silk being done in acqueous medium was not relevant.
7. We find that the ld. SDR's arguments have force. In terms of explanation Clause (G) of HSN extracted above an essential ingredient of an item falling under Heading 34.03 is mineral oil or other fatty substance. The process of manufacture of 'Silfin-9009' does not mention their presence.
8. In the above view of the matter we find that the Department's appeal has merit. Accordingly, we allow the same and set aside the impugned order.