Full Judgment
2. Brief facts of the case are that the appellants manufactured Ion Exchange Resins and a product known as co-polymer beads came into existence as a intermediary product in the process of manufacture of the Ion exchange resins. It is seen from the record that co-polymer beads (used for the manufacture of cation exchange resin) are made from divinyl benzene and styrene which are co-polymerised in a polymeri- sation kettle, in the presence of catalyst and stabilizer. The reaction is carried out using suspension polymerisation with water as the suspension media. Once the reaction is completed, co-polymer beads are pulled and later washed free of catalyst and stabiliser. The beads are either dried and screened to remove fines and lumps. In respect of other type of Ion exchanges, i.e., Anion Exchangers, Co-pblymer beads are made from styrene and divinyl benzene ethylene glycol dimethecolate. The process of manufacture of these beads is exactly similar to the one described above for Cation Exchangers.
3. The appellants initially started with paying duty, on the co-polymer beads under 15A(1)(ii). Departmental authorities, however, advised them vide Superintendent letter dated 13-2-1979, as stated by the appellants, that they were not required to pay duty on co-polymer beads but the duty burden was required to be discharged on the end product i.e., Ion exchange resins. The duty paid by the appellants on the co-polymer beads is stated to have been refunded. This position was again confirmed in reply to a letter from the appellants seeking clarifications vide Superintendent's letter dated 28-5-1979. The appellants, however contested the levy of duty on Ion exchange resin under 15A(1)(ii). The Collector (Appeals) allowed their appeal in the following terms : "Since co-polymer product in one form, i.e., co-polymer beads have been produced, the same is classifiable under Item 15A(1)(i) and (ii) when these co-polymer beads are further treated to manufacture Ion Exchange Resins, such resins may or may not have resinuous characteristics, where the Ion exchange resins are found on test to have resinuous characteristics, the same would be classifiable again as modified forms of co-polymer product (co- polymer beads) under Item 15A(1)(ii) Subject to adjustment of duty paid at the earlier stage as already provided in the Central Excise Rules, 1944.
However, when such resins do not have resinuous characteristics the same would fail outside the purview of Item 15A(1)(ii) and be properly classifiable under Item 68 of the Central ExciseTariff.
Accordingly, on the basis of analytical and chemical report of each product, the product containing resinuous properties shall be classifiable under Tariff Item No. 15A(1)(ii), Subject to adjustment of duty paid at the earlier stage as provided in Rule 56A of the Central Excise Rules, 1944, whereas are classifiable under Tariff Item No. 68. If any demands also shall have to be revised and modified on the basis of the aforementioned classification. Thus three impugned orders at Sr. Nos. 1, 2 and 3 in the annexure, are modified to the above extent and the appeals are allowed conditionally." Following the issue of the appellate order, while the appellants became entitled to refund of duty in respect of excess duty paid on the Ion exchange resins, a demand was also issued to appellants demanding duty on the co-polymer beads produced as an intermediary product for the period January, 1979 to August, 1981 amounting to Rs. 58,20,035.54. It was stated in the said demand notice that the Ion exchange resin in terms of Collector (Appeals) order was found to be assessable under Tariff Item 68 and the co-polymer beads which were assessable under a different Tariff Item namely . 15A(1)(ii) was therefore liable to duty.
The appellants made various pleas against the demand before the Assistant Collector but he, however, confirmed the demand. The order of the Assistant Collector was upheld by the Collector (Appeals) and it is against bis order that the appellants have come in appeal before us.
4. The learned advocate for the appellants Submitted a date chart of the events relevant to the present proceedings and the same is appended as Annexure 'A' for proper appreciation of the facts of the case. He made Submissions on the following points : He pleaded that the co-polymer beads were manufactured by the appellants for their own use for captive consumption and these were not marketable or capable of sale to consumers. He pleaded that onus was on the Department to prove that the goods, in question, were marketable as such. He stated that the appellants had produced two affidavits before the lower authorities from knowledgeable persons showing that these were not bought or sold in the market. On the other hand, he pleaded the Department had not produced any evidence to show that these goods were sold to the consumers. He pleaded that the co-polymer beads were an intermediary product in the manufacture of Ion Exchange Resins and in the absence of any evidence these could not be held as goods for the purpose of Central Excise duty. He cited the following case law in support of the plea :Union Carbide India Ltd. v. Union of India and Ors. [1986 (24) ELT 169];Union of India v. Delhi Cloth and General Mills 1963 Supp.
I.S.C.R. 586 - 1977 (1) ELT (J 199);Hindustan Petroleum Corporation Ltd. v. Collector of Central Excise, Bombay (4) Punjab Rubber and Allied Industries v. Union of India and Ors.
[1983 (12) ELT 54 (Punjab)]; (5) Secretary, Finance v. W.S. Insulators [1983 (14) ELT 2184 (Madras)]; (6) Flocks (India) Pvt. Ltd. v. Government of India [1983 (12) ELT 197 (Allahabad)].
The learned advocate pleaded that Item 15A(1)(ii) under which goods were sought to be assessed by the Revenue covered only artificial resin or plastic materials. He pleaded that DVB beads are not artificial resins or plastic materials and therefore not covered under 15A(1) or any of its Sub-items. He pleaded that the goods did not have the properties of plasticity as understood in the plastic trade. He Stated that in the proceedings before the lower authorities, the appellants had gone on record and stated that these did not have the resinuous properties and therefore could not be classified under Tariff Item 15A(1)(ii). In the written Submissions by the learned advocate for the appellants in this regard our attention has been drawn to the Explanatory Note Chapter 39 of the B.T.N. on which, it has been pleaded, Item 15A(1) has been modelled and also referred to the harmonised tariff in this regard. For an item to be considered as resinuous and plastic material, it has been contended, that these should have che properties of plasticity, that is of being capable of, or having been capable at some stage, of being formed under external influence (usually heat and pressure, if necessary with a solvent or plasticisers) into shapes which are retained on the removal of the external influences. The learned advocate also drew out attention to the Report on Nomenclature in the field of MacroMolecules (dopted by the Council of the International Union of Pure and Applied Chemistry and published in Journal of Polymer Science, Vol. VIII, pages 257-277) defining 'resin' as follows : "A resin is amorphous Substance or mixture, of intermediate or high molecular weight, which is insoluble in water but soluble in some organic solvents and which at ordinary temperatures is either in a form of viscous liquid or a solid which softens gradually on heating. All solid resins are thus thermoplastics and thermoplastics obeying the solubility criteria just mentioned are resins." He drew our attention to the definition of plastic as given in the Whittington's Dictionary of Plastics, according to which, he pleaded, plastic is defined as a Substance which at some stage in its manufacture or processing into finished articles can be shaped by flow.
The learned advocate pleaded that the appellants product was not, soluble in any organic solvents and also cannot be moulded, cast, extruded or rolled and these were not formed under any external influence into shapes, he pleaded that this plea was taken by the appellants before the Assistant Collector but no finding had been given on the point raised by the appellants. Some tests results, carried at the instance of the appellants at the Central Salt and Marine Chemicals Research Institute, Bhavnagar, have been cited in support of this plea.
There is nothing on record to show whether the products tested were the same as manufactured by the appellants nor the departmental authorities appear to have been associated with these tests.
5. The learned advocate pleaded that demands relating to January 1979 to 9th March, 1981 are barred by limitation in terms of Section 11A as the show cause notice demanding the duty was issued on the 10th September, 1981. He pleaded that the proviso to Section 11A had not been invoked in the show cause notice. As it is, he pleaded, there was no question of fraud, collusion, misstatement or suppression of facts on part of the appellants with a view to evade payment of duty in view of the facts and circumstances of the case. He pleaded that the lower authorities had erred in rejecting the plea of limitation raised by them.
6. The learned JDR for the Department, pleaded that from the documents filed by the appellants could be seen that the appellants had conceded that duty on co-polymer beads was payable under 15A(1)(ii). He pleaded that from the course of events in the instant case it was clear that earlier both the department and the assessee considered the beads and the final product, i.e. Ion exchange resins as chargeable to duty under 15A(1)(ii) and that inasmuch as since both the products fell under the same tariff item, the duty was charged at the final stage. He pleaded that marketability is not a prerequisite for excisability and placed reliance on the following case law in this regard : (1) 1987 (27) ELT 292 (Tribunal) in the case of Kores India Ltd. v. CCE, Bombay; (2) Order Nos. 199-200/86', dated 18-4-1986 (Tribunal) Dai-ichi Karkaria v. CCE, Pune;Devangere Cotton Mills v. Union of India (5) 1986 (26) ELT 209 : Deccan Sugar Abkhari Company Ltd. v. Union of India.
7. Regarding the Classification of the goods, he pleaded, that co- polymer beads were the result of co-polymerisation of the chemical inputs in a polymerisation kettle and therefore answered to the description of the goods listed under Tariff Item No. 15A(1). He placed reliance in this regard on the following case law : (1) 1982 ELT 917 (Bom.) in the case of Chemicals and Fibre India Ltd. v. Union of India; 8. Regarding limitation, he pleaded that the demand in the instant case arose out of implementation of the appellate order Nos. 245-251/81, dated 23-2-1981 and therefore the question of limitation would not arise inasmuch as the appellate authority can mould relief on the facts of each case. He cited the case of Hindustan Polymer v. CCE : 1986 (24) ELT 697 (Tribunal) in this regard. He pleaded that the appellants had not filed any appeal against order Nos. 245-251/81, dated 23-2-1981 and therefore the said order of the Collector (Appeals) had attained finality and the recovery of the differential' duty would not attract Section 11A of the Central Excises and Salt Act, 1944. In this connection, he also cited the order of the Collector (Appeals) dated 12-2-1982 as a part of the same proceedings when the Assistant Collector proceeded to recover the demand in terms of earlier appellate order cited supra. According to him, the Collector (Appeals) vide his order had held that the Assistant Collector could not recover the amounts without confirming the demand raised and that Assistant Collector was competent to make adjustments from the refunds claimed by the appellants.
9. The points that arise for determination before us, as pleaded, are in respect of the following : (i) whether the co-polymer beads are goods for the purpose of levy of excise duty; (iii) whether the demand raised in respect of these is bit by limitation.
We observe that the co-polymer heads are product of polymerisation carried out in a reaction kettle in the presence of catalyst and a stabilizer. These are taken out and utilised after necessary washing and grading. It has not been pleaded nor is there any evidence before us that these beads are not a stable product and have no shelf life.
The Revenue have produced an extract from the Condensed Chemical Dictionary by Gessner G. Hawley, DVB is one of the items listed in this Dictionary. The entry is as under : "Divinylbenzene (DVB; vinylstyrene) C6H4 (CH : CH2)2, existing as orthemeta and paraisorners. The commercial form contains the 2 isomeric forms together with ethylvinylbenzene and diethylbenzene.
Properties : (pure meta-isomer) Water-white liquid easily polymerized. B.p. 199.5C; f.p-66.90C; c.gr.). 9289(29C); viscosity 1.09 centipoise (29C); refractive index (n 20D) 1.5772.
Flash point 165F (73.9C) Divinylbenzene, 55%) Pale straw-colored liquid; f.p. 87C; b.p. 195C; sp. Gr. 0.918 (25/25C) insoluble in water; soluble in methanol and either. Combustible Hazard : Toxic by inhalation. Velocity of polymerisation involves an explosion risk. If uninhibited, store at less than 90F (32.2C).
Tolerance, l0ppm in air.
Uses : Polymorization monomer for special synthetic rubbers, drying oils, ion-exchange resins, casting resins, and polyesters.
It is thus seen that the beads are a distinct product and recognised so in chemical technology and these are capable of being stored and capable of being brought to the market for multifarous uses. It makes no difference for the purpose of excise levy if the product is specialised one and can be utilised only by the appellants themselves so long as the product is recognised as a distinct product capable of being brought to the market in suitable packing, as seen from the above, for various uses. In as much as authoritative evidence has been produced by the Revenue that copolymer beads are a standard product it has to be held that the DVB beads are excisable products. Affidavits produced by the appellants do not advance their case as it is quite possible that the specialised goods finding a limited use in the country are manufactured only for captive consumption but that does not mean that the product is not marketable. The case law cited by the appellants is in respect of specified products and the Hon'ble Supreme Court and other High Courts have held those goods as not excisable after considering the nature of the products in question and the stage and status of their manufacture. In this connection, the Tribunal in the case of Kores India Limited v. CCD, Bombay [1987 (27) ELT 292 (Tribunal)] has taken note of the arguments as advanced in the present case and have held as under : "Stencil paper consists of stencil skin, carbon paper and backing paper and stencil head. The manufacturer of stencil skin is independent and is complete when the skin is made and becomes a component part of stencil. It is a complete product after processing is done on it. The taxable event for central excise is the manufacture of excisable goods and the moment there is a transformation into a new commodity, comrnercially known as a distinct and separate commodity having its own character, use and name, manufacture takes place and liability to duty is attracted.
The appellants' argument that the stencil skin is not bought or sold in the market place appears to be immaterial as it is not a general consumption item but a higniy specialised one. It is conceivable that a manufacturer who wants to manufacture stencils may purchase stencil skin from the appellants or some other manufacturers.
Besides, the appellants did in a few instances export stencil skin along with machine to purchasers abroad which shows the capability of the stencil skin to be bought and sola if the right circumstances are present in view of these reasons, stencil skin is "goods" and is liable to excise duty." We therefore hold that in the tacts and circumstances of the case co-polymer beads are goods for the purpose of excise levy.
10. The next point for consideration is whether these beads are assessable under Item 15A(1)(ii). The plea of the appellants is that the beads do not fall under category of resin or plastic materials as these are neither soluble in any organic solvents nor these at any stage of process of manufacture or process have been shaped or are capable of being shaped by application of heat of pressure. The appellants had taken mis plea before the lower authorities but the goods have been held falling under 15A(1)(ii) for the simple reason that these are co-polymerised products. The learned JDR also pleaded before us that the goods are co-poiymerised pruduct and therefore fall within the ambit of Tariif item 15A(1). The question that arises lor consideration is whether all Co-poiyuitrised products are covered under Tariff Heading l5A( l)(ii). The Tariff item 1.5A(1)(ii) reads as under : "15A.. Artificial or synthetic tesms and plastic materials and cellulose esters and etners, and articles thereof (1) The following artificial or synthetic resins and plastic materials, and oellulose esters and ethers, in any form, whether solid, liquid or pasty, or as powder, granules of ilakes, or in the form of moulding powders, namely : (ii) Polymerisation and co-polymerisation products such as Polyethylene, Polytetrahaloethylenes, Polyisobutylene, Polystyrene, Polyvinyl chloride, Polyvinyl acetate, Polyvinyl. chloracetate and other Poiyvinyl derivatives, Polyacrylic and Polymethacrylic derivatives and CoumaroneIndene Resins; and It is seen for any goods to fall under this item, the prerequisite is that these should belong to the genre of artificial or synthetic resins and plastic materials, cellulose ester and ethers. We observe that in the case of Ion exchange resins, the Revenue have, as seen from the Collector (Appeals)'s order and also the Trade Notice issued in this regard, held that all Ion exchange resins do not tall under this item and only such of these which have resinuous properties will be covered under this item and would be assessable under item 68 GET. Ion exchange resins are modified co-polymerised products. Therefore, what is true for Ion exchange resins is also true for co-polymer beads. Before co-polymer beads can be said to be covered under this item, it has to be first established that these belong to generic of artificial or synthetic resins and plastic materials notwithstanding the fact that these are result of co- polymer isation process. The appellants have all along been maintaining that these do not answer to the criterion set out in the technical books for plastics and resins and as understood internationally. We find that the goods have not been tested to ascertain this position. In view of this we hold that in the absence of any findings that the goods are plastic materials or resins, it cannot be held that co-polymerised beads are assessable under 15A(1)(ii). The Revenue have also not produced any literature to show that these answer to the description of the plastics and resins. We observe issue can be settled by testing of the product. We, therefore, hold that .in this regard the Collector (Appeals) should decide the case de novo in the light of our observations above.
11. The learned JDR pleaded before us that the appellants had earlier conceded that the goods were assessable under 15A(1)(ii) as seen from the correspondence entered into by the appellants with the departmental authorities. We observe that the previous conduct of the appellants conceding the goods to be falling under 15A( 1) under a mistaken belief cannot serve as evidence that they would fall under 15A(1)(ii) CET. The Hon'ble Supreme Court in the case of Union Carbide India Ltd. v. Union of India and Ors. [1986 (24) ELT 169] have in the context of marketability of the goods likewise held that previous conduct of the appellants cannot be a determining factor for deciding the issue.
12. In regard to limitation, the Revenue have claimed that the demand for payment of duty in respect of co-polymer beads had been raised in terms of appellate order passed by the Collector (Appeals). The plea is that inasmuch as he was competent to mould the relief sought for by the appellants, in the appeal filed by them, the relief given could cover the aspect of the duty chargeable in respect of co-polymer beads and therefore Section 11A was not in the picture. The appellants, however, have claimed that being a demand of duty in respect of products which was charged to duty earlier, the demand can only be in terms of Section 11A and this could be in the facts and circumstances of the case for a period of six months reckoned from the date of the demand. We observe the appellants were before the Collector (Appeals) for relief in respect of duty paid on Ion exchange resins and the issue of levy of duty on co-polymer beads was not at issue as the appellants were not paying any duty on these beads. This they were not doing as the departmental authorities had told them so. and they had asked for payment of duty only on Ion exchange resins. This position apparently arose on a mistaken belief on the part of both the Revenue and the appellants in the intial stages that both the co-polymer beads and Ion exchange resins were taken to fell under 15A(1)(ii), and both the products being resins, and the duty at the final stage was, therefore, considered to be payable. The appellants, however, took precaution to get clarification from the departmental authorities as to whether in case they were to pay duty on the Ion exchange resins, they were not required to pay duty on co-polymer beads and they therefore stopped paying duty on co-polymer beads. The appellants, however, filed a claim for refund of duty paid on Ion exchange resins on the plea that the same were assessable under Tariff Item 68 as against 15A(1)(ii) CET.The position was also clarified by the departmental authorities when a Trade Notice was issued in this regard that when Ion exchange resins have no resinuous characteristics, the same would fall outside the purview of Item 15A(1)(ii) and will be assessable under 68 CET. It was in these terms that the Collector (Appeals) also passed orders and made observation in his order that the co-polymer beads would be chargeable to duty under 15A(1)(ii).
13. We observe that Ion exchange resins and co-polymer beads are separate products and the levy of duty in respect of each product has to be decided separately and any duty to be paid has to be determined in respect of each commodity separately. As it is, the two products are different. One is co-polymerised product and the other is modified form of co-polymerised product. The Collector (Appeals) in this background was competent to mould the relief only in terms of duty that was leviable on the Ion exchange resins only and was not competent to mould the relief taking into account the levy of duty on another product in respect of which the duty burden is required to be discharged separately in terms of various provisions of the law if duty is leviable thereon. The Revenue, it is seen, chose not to levy duty on the co-polymer beads out of a mistaken belief that duty need not be collected on them as the final product was Subject to duty. In fact, duty should have been charged on both the products and setoff of duty paid on beads should have been considered in case it was available under the law. Not having done so, the Revenue can only raise the demand for non-payment of duty on beads in terms of Section 11 A.14. We observe that the appellants had placed all facts before the departmental authorities regarding the manufacture of co-polymer beads and they did not hold back any information and, in fact, had filed the necessary classification lists also for payment of duty thereon. The authorities, however, chose not to levy duty on co-polymer beads and, in fact, when the duty for the same period was paid, the same was also refunded to the appellants. It cannot, therefore, be said in the facts and circumstances of the case that there has been any suppression or misstatement on the part of the appellants to evade payment of duty nor any charge on these lines had been made against the appellants. We, therefore, hold that duty chargeable on co-polymer beads can only be recovered for a period of six months reckoned from the date of demand raised against the appellants. The appeal is partially allowed in the above terms. (Harish Chander) (S.D. Jha) (V.P. Gulati) Member (J) Vice-President (J) Member (T) 5.
- In view of this letter, Appellants stopped paying duty on DVB beads 6.
3-3-1979 Appellants' letter to Superintendent to clarify whether they should 7.
28-5-1979.
Superintendent's letter reiterating that Appellants should pay duty on 8.
7-1-1981.
Tariff Advice No. 7/81 issued by C.B.E.C. regarding classification 9.
23-2-1981.
Order-in-Appeal in Appellants' case, holding that Ion Exchanges 11. 7-10-1981.
Refund Order passed by Assistant Collector for Rs. 92,39,681.05 dated 23-2-1981.
Appeal, p. 4 pr. 13(f). 12.
- Assistant Collector setoff and adjusted, without any reference Rs. 58,20,035.54.
Appeal, p. 5, pr. 13(g). 13. 14-10-1981.
Appellants' reply to Show Cause Notice : 14.
- Affidavit dated 7-9-1981 of Mr. F.S. Cambatta, Trader in 15.
- Affidavit dated 2-11-1981 of Prof.
Shantilal Bafna, Expert in plastics 16. 18-9-1982.
Order-in-Original by Assistant Collector, confirming demand upto [1978 E.L.T. (J-l)].
Appeal, p. 23.
N.B. : This decision has now 17. 15-12-1981.
Memorandum of Appeal to Collector (Appeals).
Comp., p. 21. 18. 14-12-1983 Order-in-Appeal by Collector (Appeals), rejecting Appeal. 20. 14-8-1985 Test Report of DVB beads by Central Salt and Marine Chemicals Research 21. 7-10-1985 Test Certificate by Central Institute of Plastics, Engineering and Tool 22. 19-8-1986 Application to Tribunal to take on record the above two Test Reports.
15. I have carefully gone through the order proposed by Brother Gulati.
As I am only in partial agreement with him and not complete, I consider it proper to record my own views separately.
16. I agree with him that demand of duty, if any, on DVB beads against the appellants could be only for a period of six months preceding the show cause notice dated 10-9-1981.
17. On the question whether co-polymer beads are goods, Brother Gulati's discussion is to be found in para 9 for coming to conclusion that DVB beads are goods. He has relied on Condensed Chemical Dictionary by Gessner G. Hawley. He has also observed that the Supreme Court decisions in Union Carbide India Ltd. case, Delhi Cloth and General Mills case and cases referred to in para 4 of the order would not .be applicable in the case and the decisions would not apply in case of specialised product. In that connection he has also referred to Tribunal decision in Kores India Ltd. in para 9 of the order. The nature of the product in Kores India Ltd. case was different and it was clearly a component. Besides, the appellants have adduced evidence to show that the goods are, in fact, not marketable. I have my reservations about observations of Brother Gulati, about the Supreme Court decision and his own views as to DVB being goods as also his reliance on the chemical dictionary. But there is no gainsaying the fact that DVB beads answer to the description obtaining in 15A(1)(ii) of the Tariff reproduced below : 15A. Artificial or synthetic resins and plastic materials and cellulose esters and, and articles, thereof (ii) Polymerisation and co-polymerisation products such as Polyethylene, Polytetrahaloethylenes, Polyisobutylene, Polystyrene, Polyvinyl chloride, Polyvinyl acetate, Polyvinyl chloroacetate and other Polyvinyl derivatives, Polyacrylic and Polymethacrylic derivatives and CoumaroneIndene Resins;Dunlop India Ltd. and Madras Rubber Factory v.Union of India and Ors. 1983 (13) ELT 1566 (S.C.) has held that "But, once an article is classified and put up in a distinct entry, the basis of classification is not open to question". Having regard to this observation, as the DVB beads answer to the description obtaining in the Tariff Item any other enquiry as to their marketability, being goods or having resinous or plastic character to me appears to be not necessary. I would therefore not propose a remand as has been done by Brother Gulati for finding out the resinous or plasticity character of DVB beads for classifying them under 15A(1)(ii) as they stood at the material time. I would uphold its classification under Item 15A(1)(ii).
18. I agree with Brother Gulati on his observations as to demand against the appellants being permissible only under Section 11A of the Central Excises and Salt Act, 1944 and not on the strength of earlier Order-in-Appeal dated 23-2-1981 when Collector (Appeals) was dealing with the question of Ion Exchange and was not called upon to decide the classification of co-polymer beads.
19. In the result, I would uphold the demand up to a period of six months preceding the show cause notice but otherwise dismiss the appeal.