1. The matter has been remanded by the Hon'ble Supreme Court vide their order dt. 7-4-2004 for fresh decision on merits as also on limitation.
Accordingly, we have heard Shri S.K. Bagaria, ld. Sr. Advocate appearing for the respondents along with Shri Partha Banerjee, ld Advocate, Shri A. Hore ld. JDR appears for the Revenue in support of the appeal filed by Commissioner of Central Excise, Calcutta against Commissioner's order dropping the show cause notice issued to the respondents.
2. Issue involved in the present appeal is as to whether by reason of treatment of timber with wood preservatives, the respondents have manufactured "densified wood" classifiable under heading 4409.00 of the Schedule to the Central Excise Tariff Act, 1985. The respondent is also manufacturing and selling wood preservatives, which is a compound of copper-chrome-arsenic conforming to IS:401/1982 read with IS:10013 of 1981. It is made of chemicals namely, Arsenic Pentoxide, Copper Sulphate and Sodium Dichromate. All the said three chemicals are inorganic chemicals soluble in water. No plastic or metal is used for making the said preservative. The said preservative is water soluble and is applied on timber for its protection from wood destroying elements. The said wood preservative was classified by the Central Excise Authorities under Heading No. 38.08 as insecticides/fungicides/weedicides/pesticides and there is no dispute about the same.
The said wood preservatives manufactured by the Respondent Company are sold by it and it also itself undertakes treatment of timber with such preservatives. Such treatment is mostly undertaken by the Respondent Company in respect of wood supplied to it for this purpose by its various customers.
The preservative treatment of wood is made by the Respondent Company as per IS : 401-1982. For this purpose the timber is kept in cylindrical vessel. Air and moisture is extracted from the vessel by applying vacuum and thereafter wood preservative (in the form of water containing 5% preservative) is flooded in the vessel and the timber gets soaked in the solution. Such treated timber is then taken out from the vessel. As per assessees, the object of such treatment given to timber with the help of preservatives is to protect it from wood destroying elements, such as, fungus, borers, termites etc. After treatment, wood is subjected to seasoning i.e. drying of timber, which is done to extract and moisture content so that wrapping, bending and cracking tendencies and eliminated.
A Notice to Show Cause dated 21-1-1992 was issued to the Respondent Company alleging that the said treated timber was liable to be classified as "Densified Wood" falling under Sub-heading No. 4409.00.
The assessee company disputed the allegations made in the said notice and produced voluminous evidence in support of its submissions that by reason of the said treatment with preservatives, the timber did not and could not become "Densified Wood". It relied on the difinition of densified wood given in Note 2 to Chapter 44 of the Schedule to the 1985 Act and on the Explanatory Notes in Chapter 44 in the Harmonised Commodity Description and Coding System (in short HSN). After considering the submissions of the Respondent Company and the evidence adduced by it, the Collector of Central Excise, Calcutta-I Collectorate by his Order dt. 20-10-1992 discharged the said notice. It is against the said order that the present appeal has been filed by the Department.
3. After appreciating the arguments raised by both the sides, we find that densified wood stands defined under Chapter Note 2 of Chapter 44 of the Schedule to the 1985 Act as under: In this Chapter, the expression "densified wood" means wood which has been subjected to chemical or physical treatment (being, in the case of layers bonded together, treatment in excess of that needed to ensure a good bond) and which has thereby acquired increased density or hardness together with improved strength or resistance to chemical or electrical agencies In terms of the above definition, for a wood to be considered as densified wood, the same must be subjected to chemical or physical treatment and in case of layers bonded together, the treatment must be in excess of that needed to ensure a good bond. Further as a result of such chemical or physical treatment, the wood in question must acquire increased density or hardness together with improved strength or resistance to chemical or electrical agencies. As per the appellant, as a result of treatment given by them to the wood with the preservatives in question, the same neither acquires increase density or hardness nor such treatment results in improvement of its mechanical strength or resistance to chemical or electrical agencies. In support of their above arguments they have referred to Indian Standards Institution Specifications as contained in IS:401-1982. In particular para 2.3.2 relating to Water-Soluble Type preservatives and para 3.4.2 of the said IS1 Specifications have been relied upon. For better appreciation we reproduce the relevant paras of the said specifications 2.3.2 3B-Water-Soluble (Fixed Type-Copper-chrome-arsenic composition, acid-cupric-chromate composition, chromated zinc Chloride, copper-chrome-boric composition and zinc meta-arsenite.
The preservative shall conform to IS:10013 (Part II-1981). The preservative is specially recommended in heavy termite and marine borers infected areas and in cooling tower timbers when soft rot is the chief deteriorating factor.
As such it is the appellants contention that in terms of the said specifications preservatives treatment of the wood is a part of national effort to conserve the material resources of the country and to achieve their most economic utilization and the same does not equate or regard such treated wood as densified wood.
4. Reference may also be made to the amendment carried out in the said ISI on July, 1984 to the following effect: Preservative treatment of timber, however, is not carried out with the purpose of improving its basic properties like mechanical, electrical or chemical properties.
5. As is clear from foregoing that treatment of the wood with the preservatives in terms of the said ISI Specifications neither enhances the basic properties like mechanical, electrical or chemical nor increases the density or hardness of the wood. Inasmuch as, the respondents is applying preservatives to the wood and treating the said within the frame work of IS:401-1982, it cannot be said that as a result of such treatment densified wood.
6. Apart from the above, assessee has also relied upon the following evidences: Treatment with wood preservatives like CCA (ASCU), Creosote, Penmtachlorophenol etc. is given to non-durable timbers to protect the same from attack of biological agencies like fungus, borers, termites etc. Treatment with wood preservatives does not increase the hardness or density of wood. There is no improvement in strength or resistance to chemical or electrical agencies. As a matter of fact, preservatives like CCA, impair strength and electrical resistance.
Wood having undergone such preservative treatment is not called "densified wood". Densified wood is obtained by impregnation of resins or compression under heat or both in a steam/electrically heated platen press. This product is used for specialized purposes whereas preservative treated wood is used as ordinary sawn wood in place of expensive woods like teak, sal.
[b] Certificate dated 11-2-1992 from the Timber Development Association of India: This is to certify that in trade, commercial as well as technical parlance, densified wood means such wood which has been subjected to chemical or physical treatment whereby it acquires increased density or hardness and whereby its mechanical strength or resistance to chemical or electrical agencies is improved. Densified wood is obtained by either impregnating resins or by compression under heat or by both. Such wood is utilized for specialized uses such as rail fish plates, bobbins, filter presses etc. where high strength and resistance to chemicals/electricity is required.
The wood preservatives manufactured by M/s. ASCU India Limited, are internationally known and dealt with in the market only as preservatives for protecting wood against attacks of fungus, borers, termites etc. Treatment with such preservatives does not result in increasing the density or hardness of wood, neither its mechanical strength nor resistance to chemical or electrical agencies is improved in any way.
This is to certify that various ASCU Wood Preservatives are being purchased by us to treat the wood for protecting it from attacks of destructive elements, such as fungus, borers, termites etc. Due to such treatment by using ASCU Wood Preservatives the wood in question neither acquire any increased density or hardness nor such treatment has the effect of improving mechanical strength of the wood or its resistance to chemical or electrical agencies.
[d] Communication dated 17-3-1982 from Wood Preservative Branch, F.R.I. & Colleges, Dehradun: Preservative treatment of timber is carried out basically with a view to impart resistance to the timber against the attack of wood destroying agencies like fungi, termites, marine borers etc. The chemical used in the field of wood preservation are called wood preservatives and these are various water soluble, oil type and oil solvent type toxic compounds. Preservative treatment of timber is not carried to improve its mechanical, electrical or chemical properties.
The said test house in Kolkata tested two samples of untreated and treated wood at its laboratory to examine moisture content, density, tensile strength and various other properties and vide its test certificate dt. 16-4-1992 observed that the wood in question neither acquired increased density or hardness nor such treatment resulted in improvement of mechanical strength or resistance to chemical or electrical agencies.
[f] Certificate dated 27-2-1992 from Karnataka State Forest Industries Corporation Limited: This is to certify that various ASCU Wood Preservatives are being purchased by us to treat the wood for protecting it from attacks of destructive elements, such as, fungus, borers, termites etc. Due to such treatment by using ASCU Wood Preservatives the wood in question neither acquires any increased density or hardness nor such treatment has the effect of improving mechanical strength of the wood or its resistance to chemical or electrical agencies.
Appreciation of the above evidence show that almost all the experts in the field of the timber have unanimously opined that treatment with preservatives does not increase the density or hardness of the wood or its resistance on the same is basically meant to impart resistance to the wood against the attack of various wood destroying agencies. We find that the Revenue has not produced any other evidence on record so as to counter or rebut the opinion given by the experts.
7. Even the Explanatory Notes in Chapter 44 of HSN supports the assessees stand. For better appreciation we reproduce the relevant portion: For the purposes of the Nomenclature, the classification of wood is not affected by treatment necessary for its preservation, such as seasoning, superficial charring, priming and stopping, painting, varnishing or impregnation with wood preservatives, such as creosote, coal tar, pentachlorophenol, chromated copper arsenate or ammoniacal copper arsenate, Densified wood covered by this heading has been chemically or physically treated to increase its density or hardness and improve its mechanical strength or resistance to chemical or electrical agencies. Such wood may be solid or consist of several layers bonded together, in the latter case the treatment applied being in excess of that required merely to produce a good bond between the layers.
Two main processes, impregnation and densification, are use to produce the products of this heading. These processes may be used separately or together.
In impregnation the wood is deeply impregnated, usually width thermosetting plastics or molten metal.
Impregnation with thermosetting plastics (e.g. aminoresins or phenolic resins) is more often applied to very thin veneers built up into laminated wood than to solid wood, since penetration is thereby facilitated.
Metallised wood is obtained by plunging pieces of solid wood, previously heated, into a bath of molten metal (e.g. tin, antimony, lead, bismuth or their alloys) under pressure in a closed vessel.
The density of metallised wood generally exceeds 3-5g/cm3.
Densification has the effect of contracting the cells of the wood: this may be done by transverse compression by means of powerful hydraulic presses or between rollers, or by compression in all directions at high temperature in an autoclave. Densified wood may have a density as great as 1.4g/cm3.
Impregnation and densification may be carried out simultaneously by glueing very thin sheets of wood (usually beech) with thermosetting plastics under heavy pressure at a high temperature so that the wood is deeply impregnated and compressed as well as bonded.
Densified wood is generally used in the manufacture of gears, shuttles, bearings and other machine parts, propellers, insulators and other electric goods, vessels for the chemical industry etc.
Comparison of the two above Explanatory Notes carves out the following differences.
the Explanatory Notes Wood Preservatives in Heading No. 44.13 by the Respondent(1) Process (a) Process -1 Timber is treated with Used The wood is deeply wood preservative as impregnated usually per IS:401. Sawn timber with thermosetting is loaded inside the plastics or with treatment cylinder.
molten metal. Impr- After extracting air egnation with ther- and moisture from the mosetting plastics cylinder, the wood like amino-resins preservative solution or phenollic resins is flooded in the is more often applied cylinder and timber to very thin veneers gets soaked in the built up into laminated solution.(2) Material Thermosetting plastics Wood Preservative Impregn- like amino-resins or Chemicals as per ated into phenolic resins and IS:10013 the wood also molten metals(3) Purpose To increase the density To protect the timber for which or hardness of the timber from termites, borers, processing together with improvement fungi and other wood is done in its mechanical strength destroying agencies.
or resistance to chemical or electrical agencies Preservative treatment of timber is not carried(4) End Manufacture of gears Various normal Users shuttles, bearings uses of natural and other machine wood as specified(5) Machin- Closed pressure Cylinder eries vessel, hydraulic like vessel used press, roller and(6) Density There is no impr- parameter ovement in natural density of timber Inasmuch as, the respondents is admittedly only undertaking treatment of the timber with wood preservatives, which does not result in any increase density, the process undertaken by them cannot be held to be resulting in manufacture of densified wood.
8. It may be seen hear that an identical controversy arise in respect of the erstwhile Tariff Item 16B as regards the definition of "improved wood", which is identical to the definition of "densified wood". The matter was referred to the Central Revenue Control Laboratory and based upon their Report, Board vide it Circular dt. 13-4-1982 observed that -"from the above technical opinions, it would be seen that woods that are either treated with chemicals like pesticides and anti-termites or subject to arriving at seasoning process which do not increase to density or hardness, and mechanical strength or resistances to chemical or electrical agencies would not be classifiable as "improved wood" under Item No. 16B-CET". The said view of the Board was based upon the test report dt. 12-4-1982 of CRCL. The said test report is worth reproducing in the present order: The samples described as processed are found to have been subjected to impregnation with chemicals, for making them immune to insect attack (i.e. that they are said to be dipped in ASCU-Arsenic Pentoxide and Copper Sulphate). It is also observed that there is no practical difference in the densities of the two materials, i.e. the ordinary wood, and the chemical impregnated wood.
Regarding, the query whether the samples of processed wood fall under the scope of the term "improved wood", my views are as follows: In the general explanation under Chapter 44 of the CCCN (BTN), it is mentioned that for the purpose of the nomenclature, the classification of wood is not affected by the treatment necessary for its preservation such as seasoning, superficial charring, priming and stopping of impregnation with creosote.
The term "improved wood" has been defined vide the explanation to Item No. 16B, as amended in the Finance Bill, 1982. From the aforesaid explanation it appears that improved wood are those which have been treated chemically or physically to increase the density or hardness of wood or make the wood resistant to chemical or electrical agencies. Processes like impregnation of wood in synthetic resins like phenol-formaldehyde, ureaformaldehyde, or with molten metal etc. improves the properties of wood. The density of resin impregnated wood is about 20% greater than that of the original wood. Resin treatment also increases the electrical resistivity (volume) of wood, resistance to chemical attack and heat resistance. The strength property of compressed wood is increased in proportion to the degree of compression. The mechanical properties are also improved compared to the uncompressed wood. As per CCCN(BTN) Chapter Heading 44.17, two processes viz. impregnation and densification have been cited as wood improving techniques.
Under the circumstances "improved wood" in my opinion may not cover woods that are either treated with chemicals like pesticides and anti-termites or subjected to ordinary seasoning process which do not increase the density or hardness, and mechanical strength or resistance to chemical or electrical agencies.
In view of the above, I am of the opinion, that the samples under reference, which have been only treated with chemicals, Arsenic Pentoxide-Copper Sulphate (ASCU), may not be covered by the term "improved wood" as appearing at Item 16B of the Central Excise Tariff.
The samples being considered by the Revenue Laboratory in the test report was that of the assessee only, as is clear from the observations that - "when the wood is dipped in ASCU". Inasmuch as, the definition of "improved wood" as it appeared under erstwhile Tariff Item No. 16B is identical to definition of "Densified Wood" as appearing in Note 2 of Chapter 44, we are of the view that the above report of the Central Revenue Control Laboratory and the subsequent Circular issued by the Board covers the present dispute also and is binding upon the Revenue, who cannot be heard arguing against the same, though the said circular was in the context of Old Tariff Item 16B, but the same would be equally binding upon the Revenue in view of the fact of the two definitions under the old and new classifications being identical.
9. Apart from the above, we find that the assessee, during the course of adjudication before the Commissioner had drawn the attention of the adjudicating authority to the fact that several others assessees similarly situate are carrying on identical treatment of wood by using the same wood preservatives purchased from them. The Revenue has not initiated any action against them alleging that such treatment of wood converts the same into densified wood. The assessee also disclosed the name by such organization in their reply, which was not controverted by the Commissioner. Even the test report of the samples of the wood preservative manufactured and cleared by the assessee was got tested and as per the report of the chemical examiner, the same was found to be simply wood preservative/insecticides/regicides.
10. Even referring to the appellants literature, we find that physical properties of the treated timbers were mentioned as under- ASCU treatment does not reduce timber strength, weight for weight timber is stronger than steel or concrete. Its resilience is better than mild steel, concrete or aluminium. The timber is good thermal insulator, it does not corrode and it has high electrical resistance ASCUED timber is protected from biodegradation and needs no paint protection Revenue's reliance on the above literature does not advance their case inasmuch as, it is nowhere claimed in the said literature that the treatment given by the assessee increases the strength or density of the wood. Neither the said literature claims that such treatment increases the wood's mechanical strength or resistance to chemical or electrical agencies. As such, we find that the said literature, in any way, is not contrary to the assessee's stand. Even otherwise, to claim the classification based upon the assessee's literature or advertisement, as against the other ample evidence placed on record by the assessee, is not a safe proposition, as is the settled law.
11. We further note that the Revenue in their appeal memo has referred to two test reports of National Test House, Alipur and Central Revenue Control Laboratory. Inasmuch as, the assessee's stand before the Hon'ble Supreme Court was that these two reports do not belong to them, the Hon'ble Supreme Court by observing that - "it is not possible for us to conclude whether or not in the absence of the test report the Tribunal would have still arrived at the same conclusion", remit the matter back to Tribunal to decide on the basis of material, whether or not the department has shown that densified wood has come into existence. As such, the said two test report referred to by the department in their appeal memo are not being taken into consideration inasmuch as, the same do not belong to the assessee company.
12. As we have already, after considering the other material on record, have held that densified wood classifiable under Chapter 44, does not come into existence by mere treatment of the same, we are of the view that no duty liability gets fastened on the assessee. The Revenue's appeal, accordingly fails on merit.
13. In terms of the directions, as contained in the Hon'ble Supreme Court's decision, while remanding the matter, we proceed to decide the issue of limitation also. The period involved in the present appeal is from 1-1-1987 to 31-12-1991 whereas the show cause notice was issued on 21-1-1992. As such, it is the assessee's contention that the period prior to six months from the date of issuance of show cause notice was barred by limitation and inasmuch as, the entire facts were in the knowledge of the department, there was no scope to invoke the extended period. For the above prepositions, they have referred to the fact that their unit is inexistence from year 1964 and the treated wood was being cleared by them with the knowledge and consent of their Jurisdictional Central Excise Authorities. In fact, in the year 1978, their Jurisdictional authorities directed them to take out a licence but proceedings were subsequently dropped. During the said period lot of correspondence was exchanged and vide their letter dt. 20-12-1978, the entire relevant facts as also the process of treatment of wood with wood preservatives was placed before Collector of Central Excise, Kolkata. Similarly, in the year 1979, proceedings were initiated as regards the classification of the wood preservatives being manufactured and cleared by them to outside parties as also being used captively for treatment of wood. Such proceedings were ultimately dropped by the Commissioner vide his order dt. 30-11-1979 It has further been argued that the appellant as also Revenue was of the bona fide belief that by reason of preservative treatment of wood, "densified wood" within the meaning of Note-2 of Chapter 44 does not come into existence. The said bona fide belief was based upon the fact that neither the Revenue has ever asked them to pay duty on the same in spite of having knowledge of the treatment nor the other organizations, who were purchasing the said preservative from them and using the same for wood treatment, was ever asked to pay duty. In support of their observations, reliance has been placed upon the various decisions of the Hon'ble Supreme Court.
14. We fully agree with the above contentions of the ld. Advocate Shri S. Bagaria Apart from the fact that proceedings under Central Excise were initiated against the said in the year 1978 as also in 1979 though, for the other purposes, it cannot be reasonably concluded that the Revenue was not aware of the activities being carried out by the assessee. The fact that the appellants customers, who were also undertaking the same activities with the preservative purchase from the assessee was also not paying any duty led the assessee to the reasonable belief that no such duty on the emerging product is required to be paid as "densified wood". There is no evidence on record to show that the appellant had suppressed any information or misstated any relevant facts before the concerned officers with an intent to avail undue benefit or to evade duty. As such, we agree with the assessee's contention that the demand in any case is barred by limitation except for a period of six months before the date of issuance of the show cause notice.
15. Inasmuch as we have already held in favour of the assessee on merits, we find no justification in setting aside the impugned order of Commissioner. Revenue's appeal accordingly fail.