1. The appellants manufacture inter alia electric wires and the cables.
They received copper rods which are flatened into strips. The strips are insulated into varnish, bonded glass fibre, paper, cotton and enamels to improve its quality and for suitable use as conductors.
Copper strips are covered under T.I. 26A. The covering of the said strips by glass fibre does not bring into existence in different goods or fresh articles. The appellants filed a classification list on 25-6-1982 and sought classification of the said copper strips covered with glass fibre under T.I. 26A(2) of CET.2. On 14-10-1982, a show cause notice was issued that the goods should be clas-sitied under T.I. 68 because the copper strips being insulated acquired the separate and distinct character as conductors. The appellants sent a reply contending that the copper strips by being bonded with glass fibre would not amount to manufacture under Section 2(f) of the Act. The Assistant Collector held that the strips lapped by glass fibre yarn were different products having a distinctive character as conductor and could not be classified under T.I. 26A(2). On appeal, the Appellate Collector in the course of the order observed that the copper strips even after insulation was basically copper strips but due to the insulation the nature of use became different. The appeal was rejected. Hence the appellants are before this Tribunal.
3. Sh. N. Mookherjee, Ld. Counsel for the appellants submitted that the classification of the insulated copper strips under T.I. 68 would not be sustained because an identical question was considered by the Bombay High Court in the case of Shakti Insulated Wires (P) Ltd. v. U.O.I. and Ors. 1982 ELT 10 (Bom.). His Lordship Mr. Justice M.L. Pendse observed in the course of the judgment that it was impossible to hold that the articles were liable to assessment under T.I. 68. This judgment was followed by the Tribunal in 1985 (6) ETR 367 (Wandleside National Conductor Ltd., Bombay v. C.C.E., Bombay) and also in 1984 (3) ETR 734 (Mis. Devi Dayal Non Ferrous India (P) Ltd. v. C.C.E., Bombay). The Ld.
Counsel contended that the copper strips remained basically copper strips even after the insulation and Item 26A did not refer to the end use as the criteria.
4. Sh. J.N. Nigam, SDR urged that insulation was essentially to put the copper strips for the intended use as insulated copper strip. The end product could be equated to the original copper strip that went into this production. He placed reliance on 1986 (8) ETR 513 [Anil Glass Industires (P) Ltd. v. C.C.E.] where the Hon'ble Supreme Court held that it was a matter of common experience that the identity of an article was associated with its primary function. He relied on AIR 1974 (S. C.) 1362 (Ganesh Trading Co. v. C. C.E., Harjana) and pointed out that husking of paddy was considered as manufacture. The effect of the operation on the product should be the criteria to determine the classification.
5. We have considered the contentions raised by both the parties. The admitted facts will show that the appellants used copper strips and insulated the strips with varnish bonded glass fibre etc. Such an insulation is necessary for making these copper strips suitable for use as conductors. The appellants urged that the strips continued to be copper strips despite the insulation while the department urged that a new and distinct product has come into existence liable to duty under T.I. 68. Before the Hon'ble High Court of Bombay M/s. Shakti Insulated Wires Ltd. (cited supra), the identical question came up for decision.
That was also a case where there was manufacture of copper strips/conductors with varnish bonded glass cover rectangular copper strips/conductors. The department contended that the liability to duty under T.I. 68 would arise. The Bombay High Court has referred to a decision of the Supreme Court reported in 1980 ELT 343 (S.C.) Dy.
Commissioner Sales Tax (Law) Board of Re. (Taxes) v. Pio Food Packers.
The following observation in the judgment is of considerable significance :- "Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another." It is common knowledge that in every process, the original commodity may undergo a change, but it is only when the change takes the commodity whether it is commercially regarded as a distinct article when manufacture could be said to have taken place. Applying that test it was held that the character of copper strips was not changed by the mere application of this special process and it cannot be included in the residuary item. The judgment of the Bombay High Court is on all fours to the facts of this case. The Tribunal has followed the decision of the Bombay High Court in two other decisions where the copper strips subject to a process of insulation and aluminium strips being covered with paper were considered by the Tribunal. In view of those decisions, the assessment under T.1.68 cannot be justified.
6. In the impugned order, the Collector (Appeals) accepted that "though by nature even after the insulation, the copper strip is basically a copper strip". This observation shows that the copper strip continued to be a copper strip even after insulation. The end use of the product as an electric conductor cannot be the basis for taxation for, the tariff item does not refer to the end use as the criteria. The mere covering of copper strip with glass fibre cannot be said to be the process of manufacture.
7. The contention of the department that the function of insulated copper strip was different from the ordinary copper strip would have some force if the tariff item had prescribed the functional aspect as the basis. The decision of the Supreme Court in the case of Atul Glass has no application to the present facts because a glass mirror was a different commodity from the glass sheet. There is no proof that insulated copper strip had become a commercial product distinct from the copper strip. The effect of the operation of insulation will have a bearing on the commodity only if the process amounts to manufacture.
Hence, on a careful consideration of the arguments advanced, we are of opinion that the insulation copper strips in question will not attract duty under T.I. 68.
8. The show cause notice proceeded by saying that the classification list for varnished bonded glass fibre covered rectangular copper strips/conductors was submitted under Tariff Item 26A(2), but since the strips were insulated, they acquired a separate and distinct character as a conductor. The bare strips were classifiable under Tariff Item 26A(2); after insulation they fell under Tariff Item 68.
9. This reasoning was held in the adjudication by the Assistant Collector who ruled that Tariff Item 26A applied to copper and its alloys on bare metal in any crude form or any other form. He said that copper strips which are lapped by glass fibre yarn and bonded is a different finished product having a distinctive character as a conductor and as such cannot be classified under Tariff Item 26A(2).
For this reason he held that the product was classifiable under Tariff Item 68. There is a fallacy in this reasoning, such as it is.
10. Item 26A covers copper strips; it does not cover bare copper strips, but just copper strips. If goods are copper strips, they will fall under this heading whether they are covered or not covered.
Covering does not change the strips to nonstrips; it only turns them into covered strips. There appears to be a belief that only a covered strip can conduct electricity. There is no basis for this whatsoever.
The copper strip does not conduct electricity because it is covered, but because it is copper. In any event, electrical conductivity has nothing to do with assessment of a copper strip under Item 26A. The heading for copper strip in Item 26A is specific for all copper strips, whether covered or not; while Item 68 is not suitable when there is an Item like 26A in which the article can be assessed.
11. I. therefore, agree that the item, insulated copper strips, will not attract duty under Tariff Item 68.