Full Judgment
2. The question that arises for our reconsideration in this appeal is the correct classification for the products picture varnish and Gloss-o-Gloss manufactured by the appellant's Tansi Polish Units at Madras. They filed a classification list No. 83/86 in respect of Gasket shellac and Anti-corrosive Black paints, picture varnish and gloss-o-gloss manufactured by them under Chapter Heading 32, 27 and 38 of CET Act, 1985. The department did not accept the classification sought by them in respect of picture varnishes and gloss-o-gloss under Heading 3208.90 attracting duty at the rate of 20% ad valorem.
Therefore, the department issued a show cause notice dt. 23-1-1987 asking them to explain as to why this two product should not be classified under Chapter No. 3210.90 of Central Excise Tariff Act, 1985. It was stated in the show cause notice that note 3 to chapter 32 indicates that, heading in 32.08 includes solution (other than collodions) consisting of any products specified in Heading Nos. 39.01 to 39.13 in volatile organic solvent exceeds 50 per cent of the weight of the solution. It was stated in the show cause notice that the assessee had indicated in the classification list that the solid content of their two products is 50% and therefore had exceeded the specified 50% under Note 2 to Chapter 32; therefore, the product was classifiable under 3210.90.
3. The assessee filed their reply on 5-2-1987 contending that the two products manufactured by them are used in the printing industries as a over coat varnish on the paper after the printing to give a gloss-o-gloss to the printed matters; and gloss-o-gloss varnish is also used for coating over playing cards; and therefore these two items cannot be used for painting and varnishing on any other surface. They contended that the products are in the form of solution in a non-aqueous medium (spirit); and it is sold in the form of a non-aqueous and the weight of solution is only 42% confirming to the description under Note 3 to Chapter 32. The assessee had further stated that under Rule 3A, where the goods produced by them confirms to a particular specific description under tariff item, that tariff item alone is to be preferred to any other tariff item and hence they pleaded for classifying the two products under TI 3208.90 and not under Tariff Item 3210.90 of CET Act, 1985.
4. The Assistant Collector upheld the contention of the assessee and held that the two products to be classified under Tariff Item 3208.90 of Central Excise Tariff Act, 1985, on the following forms as (a) to (d) in the order-in-original : (a) It is seen from the chemical report that the composition of picture varnish is based on Maleic Resin, which is nothing but a chemically modified natural polymer dispersed or dissolved in a non-aqueous medium; (b) Varnishes are liquid preparations used for protecting or decorating surfaces. They form a dry, water insoluble, relatively hard, more or less transparent or translucent smooth, continuous film which may be glossy, matt or satiny. It is seen that Printing Varnish and Gloss-o-gloss, manufactured by the assessee are used in the printing industries as a over-coat varnish on the paper after the printing to give a gloss to the printed matter. The gloss-o-gloss varnish is also used for coating over playing cards, so as to add gloss and enhance the longevity of the same.
(c) Varnishes of the description in which the secondary ingredients are in the form of solution the weight of the solvent or the percentage of the solvent content thereon is not the criterion.
(d) Since, Printing varnish and Gloss-o-gloss are based on chemically modified natural polymers and is capable of being dispersed or dissolved in an non-aqueous medium, the question of classifying it as 'solutions' as defined in Note 3 to Chapter 32, again for a second time does not arise.
5. The appellant though succeeded before the Assistant Collector in getting the show cause notice dropped but felt aggrieved later and therefore, they filed the appeal before the Collector (Appeals), Madras. Before the Collector (Appeals) they contended that the Assistant Collector was wrong in law in classifying the product under Tariff Item 3208.90 as the said classification was not in keeping with Note 3 of Tariff Heading 32. The Collector (Appeals) has observed in the order that they had not stated as to what should be the correct classification and for what reasons they had claimed earlier assessment under Tariff Heading 3208.90 which had been upheld by the Assistant Collector. In the personal hearing it was explained to the Collector (Appeals) that the goods cleared are in non-aqueous medium (ready to use). They had submitted that the claim is for classification under Heading 3208 and not under 3208.90 in view of the Chapter Note No. 3, and that the goods are not non-excisable not being covered by Chapter 32. The Collector (Appeals) observed that these contentions raised before him had not been urged before the Assistant Collector at any point of time. He has noted that 3208 has got sub-heading 3208.10, 3208.20, 3208.30, 3208.40 and 3208.90. The learned Collector has observed that the assessee was unable to say before him that in which sub-heading 10 to 40, the goods were classifiable. He observed that this plea was raised by the appellant for the first time in personal hearing regarding non-exdsability of the goods. Therefore, he held that the appeal had been filed without sufficient cause. He held that merely because the solid content of their product exceeds 50%, the item dos not go outside the purview of sub-heading 3208, as under rules for interpretation of the schedule the goods which cannot be classified in accordance with the above rules shall be classified under heading appropriate to the goods to which they are most akin. He held that in the present case, the goods are non-acqueous solution which is not disputed by the assessee. He further held that it was not disputed by the appellant that the goods were based on synthetic polymers or chemically modified natural polymers or natural resins whether or not modified, disbursed or dissolved in non-acqueous medium. Therefore, he held that merely because the weight of the solvent does not exceed 53% of the weight of the solution, the item cannot be taken out of the purview of Tariff Item 3208.90 and the said classification is not keeping with the interpretative Rule No. 4 of Central Excise Tariff Act and on these grounds he rejected the appellant's claim.
6. The appellants in this appeal have contended that they accepted the products falling under sub-heading 3208.90 but the adjudicating authority had overlooked Note 3 to Chapter 32. This, they are contending by reading the Note 3 to Chapter 32 which notes "solution other than collodions consisting of any products in 39.01 to 39.13 dissolved any volatile organising solutions; when the weight of the solvent exceeds 53% of the weight of the solution." They contend that if the goods manufactured by them do not conform to the above conditions then in that event headings other than the Heading 3208 is not applicable and thus the products are not dutiable. They contend that in their case interpretation of Rule 5 is more applicable which lays down that the classification of the goods in the sub-headings of a heading shall be determined according to the terms of those sub-headings and any related chapter notes and therefore, they contend that by applying Rule 5 of the interpretation rules, although the product can be classified under Chapter Heading 3208 but the chapter note 3 will make the product go outside the purview of the Heading 3208.90.
6A. We have heard Shri P.C. Anand, Chartered Accountant for the appellant and Shri K.K. Bhatia, JCDR for the revenue. Shri P.C. Anand, CA has submitted that no chemical analysis was taken by the department and that the Assistant Collector had wrongly mentioned in the order that the department had drawn samples and the report obtained discloses the weight of the solution as 42%. He, however, produced test report of the Science Department dt. 9-1-1986 in respect of the two goods. The production of the test report was objected to by the learned JCDR on the ground that it had not been placed before the lower authorities and it could not be admitted without any application. We uphold the said objection as it is additional evidence, which was not before the lower authorities and no application has also been filed to take this on record. Shri P.C. Anand contended that by application of Note 3 to Chapter 3208, the product becomes non-excisable.
7. Shri K.K. Bhatia, learned JCDR submitted that the appellant plea in the classification list was initially disputed by the department and therefore, a show cause notice was issued. The learned Assistant Collector after being satisfied with the assessee's contention dropped the proceedings. They filed an appeal without sufficient grounds and the learned Collector had rightly rejected the same.
8. He further pointed out that Note 3 is not a note which excludes any goods. It is an explanatory note to 3208 and had explained that it excluded the solutions (collodions) within its ambit consisting of any of the products specified in Heading No. 39.01 to 39.13 in volatile organic solutions when the weight of the solvent exceeds 53% of the weight of the solution. He further pointed out that chapter sub-heading 32.08 read in the end "solutions as defined in Note 3 to this Chapter".
Therefore, it implied that solutions in volatile organic solvents, when the weight of the solvent exceeds 53% of the weight of the solution meant that he did not exclude those products which had less percentage than 53%.
9. We have carefully considered the submissions made by both the 1993 ] TANSI POLISH UNIT v. COLLECTOR OF CENTRAL EXCISE 177 sides and perused the records. The question that arises for our consideration is as to whether the Chapter Note 3 to Chapter 32 excludes the impugned products from the Chapter Heading 3208 and the products becomes non-excisable? 10. The Chapter Note 3 to Chapter 32 and Chapter Headings 3208 and 3208.90 of Central Excise Tariff Act,1986 is reproduced below : "Note 3. Heading No. 32.08 includes solutions (other than collodions) consisting of any of the products specified in Heading Nos. 39.01 to 39.13 in volatile organic solvents when the weight of the solvent exceeds 53 per cent of the weight of the solution.32.08 - Paints and varnishes (including enamels and lacquers) based on synthetic polymers or chemically modified natural polymers, or natural resins, whether or not modified, dispersed or dissolved in a non-aqueous medium; solutions as defined in Note 3 to this Chapter.
The Note 1 to Chapter 32 has three sub-clauses, and this Note 1 states that the said Chapter does not cover to the three sub-clauses in (a), (b) and (c).
11. The other Chapter Notes 2 to 6 of Chapter 32 are explanatory notes to the respective chapter notes. There is absolutely no indication in the Chapter No. 3 of any exclusion of any product on the basis of percentage of volatile solvents being more or less of the weight of the solution. It only states that Heading No. 32.08 includes solutions in volatile organic solvents when "the weight of the solution exceeds 53% of the weight of the solution. It means products even if they have exceeded their percentage by 53% they are covered in the Chapter Note 3208. What is not covered in Chapter 3208 are solutions other than collodions consisting of any products specified in the Heading Nos.
39.01 to 39.13. It cannot be read to mean that solutions in volatile organic solvents when the weight of solvents is less than 53% of the weight of the solution are excluded from Heading 32.08". The words "other than collodions" are in bracket. We are of the view that this confusion has arisen because the entire words "other than collodions consisting of any of the products specified in Heading Nos. 39.01 to 39.11" should have been in bracket. Then there would not have been any confusion. It is admitted by the appellant that the products come within Chapter 32.08 but a doubt was entertained by them by reading "exceeds 53 per cent" and they perhaps felt that as volatile organic solvents in their solutions had only 48% of the weight of the solution, the product could be non-excisable. This view entertained by them is not sustainable. The chapter note 3 clarifies that even if the weight of the volatile organic solvent exceeds 53% of the weight of the solvent still it falls within Chapter Note 3208. The last line of Chapter 32.08 reads "solutions as defined in Note 3 of this chapter" means that if solution are having volatile organic solvent exceeding 53% of the weight of the solution, it is included in the Chapter Heading 32.08.
12. Shri P.C. Anand, learned CA submitted that the department had not taken the chemical test. This submission appears to be incorrect as the learned Assistant Collector has clearly noted that the chemical test confirmed the product being sold in the form of non-aqueous solution and the weight of the solution is only 42%. The appellants are not disputing the percentage being less 178 EXCISE LAW TIMES [ Vol. 67 than 53% and in fact this appeal is filed on the doubt entertained by them that as the weight is less than 53% they would not be covered by chapter heading 32.08 and the products could be non-excisable. The learned Collector has rightly rejected their pleas and we confirm these findings.
13. There is no merit in the appeal and it is liable to be dismissed.
It is ordered accordingly.