2003(03)LCX0105

IN THE CEGAT, SOUTH ZONAL BENCH, CHENNAI

S/Shri S.L. Peeran, Member (J) and Jeet Ram Kait, Member (T)

Third Member on Reference : Shri G.A. Brahma Deva, Member (J)

COMMR. OF CUS., CHENNAI

Versus

ANDHRA PRADESH PAPER MILLS LTD.

Final Order No. 147/2003 and Misc. Order No. 288/2002, dated 11-3-2003 in Appeal No. C/339/98

CASES CITED

Ferro Alloys Corporation Ltd. v. Commissioner — 1996(07)LCX0131 Eq 1997 (090) ELT 0405 (Tribunal) — Relied on [Para 4]

Jindal Strips Ltd. v. Commissioner — 1997(05)LCX0115 Eq 1997 (094) ELT 0234 (Tribunal) — Relied on............ [Para 4]

REPRESENTED BY :   Shri A. Jayachandran, DR, for the Appellant.

Shri P.B. Naidu, Vice President-Commercial, for the Respondent.

[Order per : S.L. Peeran, Member (J) (Oral)]. - This is a Revenue appeal against Order-in-Appeal No. C. Cus. 95/98 dated 4-2-98 passed by the Commissioner of Customs (Appeals), Chennai by which he has accepted the claim of classification of the items imported by the respondents. The description of the items as mentioned in the Bill of Entry is “spares for paper machines, suction box top covers, strips and doctor blades” under chapter heading 8439.99 with the claim of benefit of Notification No. 156/86 read with Notification No. 180/90 and the second item is “foils”. They claimed classification in respect of these items under the same chapter heading as claimed for the first item with benefit of the said notification. As the same was not classified under the claim made by them, and the claim with regard to second item was altered to chapter heading 3920.10, they filed refund application claiming benefit of classification under the Customs Tariff chapter heading No. 8439.99 with claim of benefit of Sl. No. 3 of the Notification No. 156/86-Cus. dated 1-3-1986 as amended which grants partial benefit to item falling under chapter heading 84.39 with description “paper making machinery and components thereof.” The ld. Commissioner after due consideration of the catalogue, technical literature, function of the item as part of paper making machinery upheld their contention. The findings recorded by him is noted herein below :-

I have seen the samples of the imported goods. I have also seen the technical literature submitted by the appellants before the earlier Commissioner (Appeals) as well as at the original stage. All these clearly shows that the imported goods are not in the nature of film at all. They are actually profiles made of polyethylene. These, profiles are designed and are meant for paper industry. Perhaps, the confusion arose because of the write-up submitted by the appellants at the time of import of the goods in which the imported goods had been described as foils. The appellants have now clarified that in trade, they are known as foils.

Since the goods are not in the nature of films and since they are specifically meant for paper industry, they will be rightly classifiable under Heading 8439.99.

With regard to applicability of C. No. 156/86 benefit, which exempts “component parts of paper machinery”, I find that in case of Jindal Strips Ltd. - 1997(05)LCX0115 Eq 1997 (094) ELT 0234 (T), the Hon’ble CEGAT has held that when the expression ‘component’ is not defined in a notification, meaning in common parlance is to be looked into and that ‘component’ means a part or a constituent. Also, the Hon’ble CEGAT, in case of’ Ferro Alloys Corporation Ltd., [1996(07)LCX0131 Eq 1997 (090) ELT 0405 (Tribunal) = 1996 (017) RLT 0094 (CEGAT-EB)] while going into the question of whether ‘spare parts’ imported would get benefit of Notification which exempts ‘component parts’, has held that, “component to mean only ‘part’-spare part, being essentially a part, to be regarded as a component- hence spare parts covered by the said Notification”.

In the present case, the goods imported were ‘spare parts’ while C. No. 156/86 exempts ‘component parts’. The issue involved being identical to the one decided by CEGAT in case of Ferro Alloys Corporation Ltd., supra, I hold, that C. No. 156/86 benefit would be applicable in the present case.

The appeal is allowed. Refund due may be granted subject to fulfilment of unjust enrichment angle.

2. Revenue in this appeal contends that Section Note l(a) of Section XVI excludes transmission of conveyor belts or belting of plastics of chapter 39 and therefore the item is excluded from the purview of chapter 84 as the item is a polyethylene films in rolls or as ‘belting’ conveyor transmission, they do not fall under chapter heading 8339.99 and as such cannot be granted benefit of notification. They are also not machinery parts as the item is plastic film in rolls and are to be assessed as falling under 39.20 or 39.21.

3. We have heard ld. DR for the Revenue and Shri P.V. Naidu, Vice President (Commercial). Ld. DR merely relied on the aspect pertaining to classification of the item under chapter 39 in view of item being a plastic one and clearly falling under the said chapter note. On a specific query from the Bench as to how the item is excluded from the Section note 1(a) of Section XVI of the tariff and as to whether the item is transmission or conveyor belts or belting of plastics of chapter 39, ld. DR had no answer for this, while respondent’s representative filed a written submission along with catalogue and literature. It is submitted that the item in question is specifically manufactured in terms of the drawings and part number and used as parts of paper making machinery; that they are not foils of plastics as a film and also they are not in film rolls. They function as part of the paper making machine for dewatering the pulp so that the formation of the paper is achieved. It is supplied in sizes of 3750 mm length x 62 mm wide x 25 mm thick with different blade angles of deg and 2 deg as per drawing L-1513 - each 5 nos. for their paper machine no.3 and in size of 3800 mm length x 50 mm wide x 25 mm thick with three different blade angles of 1, 1.5 and 2 degrees as per drawing L5-260/3 each 40 nos. The catalogue at page 5 also states that the same is installed in CCESTILITE V20 and they are not used as transmission or conveyor belts or belting. The Commissioner, after noting about the entire product and the catalogue, has rightly upheld the contention in the light of the judgments noted by him in the order. The representative referred to the invoice wherein the part number and the drawing number has been shown including the flow chart as to how the item is fixed to the machine and it does not act as a transmission or conveyor belts or belting.

4. We have carefully considered these submissions made by both sides and have perused the entire documents including the literature, catalogue, section notes and tariff entries and the provisions of the Notification No. 156/86-Cus., dated 1-3-1986. Ld. Commissioner has examined the issue threadbare and has clearly noted that the item in question is a part of paper making machinery and covered by the benefit of the notification. He has also noted the applicability of Customs Notification No. 156/86 by applying the judgment rendered in Jindal Strips Ltd. - 1997(05)LCX0115 Eq 1997 (094) ELT 0234 (T) and Ferro Alloys Corporation Ltd. [1997 (090) ELT 0485 (T) = 1996 (017) RLT 94]. On a careful consideration, we notice that section note l(a) of Section XVI reads as follows :-

“1. This Section does not cover :

(a) Transmission or conveyor or belting, of plastics of Chapter 39, or of vulcanised rubber (heading No. 40.10); or other articles of a kind used in machinery or mechanical or electrical appliances or for other technical uses, of vulcanised rubber other than hard rubber (heading No. 40.16);”

In terms of the above section, only transmission or conveyor belts or belting, of plastics of Chapter 39 are excluded from the purview of Section XVI which includes Chapter 34. It has been demonstrated before us by the respondent’s representative that the item in question is not a transmission or conveyor belts or belting of plastics. The catalogue placed before us clearly discloses it is a part of paper making machinery and that it is not ‘V belt’ as contended by the Revenue. The function of the item in a paper making machine is for dewatering the pulp so that the formation of paper is achieved. The item has been manufactured on the basis of drawings supplied by the respondent and the catalogue clearly and details as to how this item has been manufactured to the specifications for the purpose of use in the paper making machinery. The technical literature, catalogue and the finding given by the Commissioner on merits has not been adverted to in the grounds of appeal. Even to a specific query from the Bench, ld. DR was unable to explain nor meet with the arguments of the respondents including the judgments cited by the Commissioner. He merely read out the grounds. It was for the Revenue to have shown that the item is a transmission or conveyor belts or belting of plastics of Chapter 39 to be excluded from note 1(a) of Section XVI which covers chapter heading 84. The item being parts of the paper making machinery and components thereof, therefore it has been rightly granted benefit of the notification in the light of the two judgements cited by the Commissioner (Appeals) which lays down significantly that components and spare parts are one and the same for the purpose of the notification. We have carefully considered the grounds and are satisfied that the Revenue has not made out any ground for interference with the order. The classification adopted by the Commissioner is in terms of prayer made by the importer in the impugned order under Customs Tariff heading 84.39 and granting benefit of Sl.No. 3 of the Notification No. 156/86 which is in order and that there is no need to interfere with the same. Thus, there is no merit in this appeal and hence it is rejected.

5. [Contra per : Jeet Ram Kait, Member (T) (Oral)]. - I have perused the order recorded by my learned brother Shri S.L. Peeran, Member (J) and I am not able to persuade myself to agree with the view taken by him that the Revenue appeal should be dismissed.

6. I find that in this case, this is the second round of litigation before the Tribunal. The Tribunal vide their order No. 648/1997 dated 19-2-97 had remanded the matter to the Commissioner (Appeals) with the following observation as contained in Para 5 of the order.

“The fact that it is made of polyethylene material is not at all disputed. Chapter Note 10 of Chapter 39 reads as under :

10. In heading Nos. 39.20 and 39.21 the expression “plates, sheets, film, foils and strip” applies only to plates, sheets, film, foil and strip (other than those of Chapter 54) and to block of regular geometric shape, whether or not printed or otherwise surface-worked, uncut, or cut into rectangles (including squares) but not further worked (even if when so cut, they become articles ready for use).

Prima facie in view of this chapter note read along the description of chapter 39.20, the goods appear to fall under this item. Hence before classifying the goods under Chapter 84 this aspect should have been considered.

This not having been considered the order is question is defective and in the circumstances the appeal is allowed by remand to the lower appellate authority to consider the matter afresh in the light of our above observation by granting personal hearing to the respondent.”

7. In view of the above observation of the Tribunal while remanding the case, the Commissioner (Appeal) was duty-bound to consider the case in terms of the remand order. However, the Commissioner (Appeals) in the de novo proceedings has not done that exercise by going into the details of Chapter Note 10 of Chapter 39 which are extracted from the remand order as noted above and has allowed the appeal of the assessee.

8. In the order prepared by learned Member (J), he has held that the item in question is a part of paper making machinery and hence entitled to the benefit of Notification. He has also held that in terms of Section note 1(a), only transmission or conveyor belts or belting of plastics of Chapter 39 are excluded from the purview of Section XVI which includes chapter 84.

9. The Revenue has stated in the grounds of their appeal that from the catalogue it is seen that the foils are used as a cover to the fabric ‘V’ belt of the paper making machine and that apparently the use of Polyethylene film is to enhance the lifespan of the fabric ‘V’ belt. The catalogue further says that CESTILITE V-20 Polyethylene film rolls enhance the lifespan by 10 to 30% and also could be useful/compatible with fabric and wire surfaces and also better than other types of films normally used. They have further stated that from the above, it is seen that CESTILITE V-20 film is not an essential part of the paper/pulp making machine and that the said film is only an accessory to enhance the performance and lifespan of a part of Paper Making Machinery viz. Fabric ‘V’ Belt or Conveyor belting. They have further stated that the imported goods are in the nature of film in rolls. The catalogue also says that about a minimum of 15 layers of films to be covered over the Fabric ‘V’ Belt or Wire ‘V’ Belt for effective advantage for increase in the life span of these ‘V’ belts. Therefore, the layers of films covered over the ‘V’ belt also acts as a “belting”. Belting of plastic of Chapter 39 is specifically excluded from the purview of Chapter 84 by virtue of note 1(00a) to Section XVI. In view of this, either as Polyethylene films in rolls or as ‘belting’ - Conveyor transmission - the subject goods are not at all classifiable under heading 8439.99. They have further stated that Paper/Pulp Making Machine can effectively function without the goods imported viz. Polyethylene film of CESTILITE V-20 grade. These are not essential part of Paper/Pulp making machine and on this count also the goods are to be assessed on merits. They have also stated that the goods are plastic films in rolls and as per the scheme of classification envisaged in the HSN such type of goods are not considered as Machinery parts. The plastic films in rolls are to be assessed only as film falling under heading 39.20 or 39.21. The above factual position has not been controverted by the respondents.

10. I observe that the imported goods are in the nature of film in rolls/polyethylene material popularly known as “Foils” in the language of Paper Technology. The sample was shown to us in the Court. It is made up of plastic and is rectangular in shape and this is a plastic article and a wire mesh is placed in it. On this wire mesh, wet paper pulp is put and this wet paper pulp is transmitted by this plastic article which is known as foils. Since this plastic article is used for transmitting wet paper pulp, they are excluded from Chapter 84 as per note 1(a) of Section XVI which does not cover transmission or conveyor belts or pulping of plastics falling under Chapter 39. The foils are not entitled to the benefit of Sl. No. 3 of Notification No. 156/86-Cus. as amended as they are neither paper making machinery nor components thereto. They are only a device which is used for carrying the wire mesh on which wet paper pulp is put and transmitted. This also incidentally helps in allowing the water to flow down from the wet pulp. In view of the above, I am of the considered opinion that since the function of the item is for transmission of the wet paper pulp and since the catalogue does not prove that the foils of polyethylene plastics are integral part of paper making machine suitable for use, solely and principally, with the paper machine in question since the machine can function without the goods imported. I am therefore, in agreement with the view of the Revenue, that the item in question should be assessed only as film falling under heading 39.20 or 39.21. Therefore, the order of the original authority is just and proper and cannot be assailed and the same is required to be restored. Accordingly I set aside the impugned order and allow the Revenue appeal.

DIFFERENCE OF OPINION

In view of the difference of opinion, the following questions arise for determination by the third Member.

Whether the appeal is required to be rejected as held by Member (J) by holding that the classification adopted by the Commissioner in respect of the imported item under Customs Tariff Heading 84.39 is correct and the item is entitled for benefit of Sl. No. 3 of Notification No. 156/86-Cus., dated 1-3-86.

Or

Whether the appeal is required to be allowed by holding that the imported item has to be assessed only as film falling under heading 39.20 or 39.21 as held by Member (T) and that the importer is not entitled to the benefit of Sl. No. 3 of Notification No. 156/86-Cus. as amended as the item is neither paper making machinery nor components thereto.

11. [Order per : G.A. Brahma Deva, Member (J)]. - Since there has been difference of opinion between the Members of the Bench I am hearing the matter. The following questions has been referred to me to express my view as 3rd Member :

“Whether the appeal is required to be rejected as held by Member (J) by holding that the classification adopted by the Commissioner in respect of the imported item under Customs Tariff Heading 84.39 is correct and the item is entitled for benefit of Sl. No. 3 of Notification No. 156/86-Cus. dated 1-3-1986.

Or

Whether the appeal is required to be allowed by holding that the imported item has to be assessed only as film falling under heading 39.20 or 39.21 as held by Member (T) and that the importer is not entitled to the benefit of Sl. No. 3 of Notification No. 156/86-Cus. as amended as the item is neither paper making machinery nor components thereto.”

12. Shri C. Mani, DR while supporting the view taken by Member (T) submitted that the dispute is in respect of classification of foil. Since it is made of polyethylene material it is more appropriately classifiable under Chapter 84. He said that imported goods are in the nature of film rolls. Cestilite V-20 is not an essential part of the paper/pulp making machine and the said film is an accessory to enhance the performance and lifespan of fabric V belt or conveyor belting. The catalogue placed by the party indicates that a minimum of 15 layers of film to be covered over the fabric V belt or wire V belt therefore the layers of films covered over the V belt acts as a belting; in view of this either as polyethylene films or as belting - conveyor transmission. The said goods are not at all classifiable under heading 84.39.99.

13. On the other hand Shri P.B. Naidu, Vice-President of the appellant concern submitted that the raw material with which the foils are made of is Ultra High Molecular Weight Polyethylene. As per the catalogue the polyethylene castilite V - 20 wear surfaces do more than other materials and can increase clothing life by 10 to 30%. The statement in catalogue is misinterpreted by the revenue as that the life of fabric enhances by 10 to 30% if foils are used. He said that it is to be understood that the foils manufactured with material composition in Cestilite V - 20 gives 10 to 30% better life over the foils manufactured with different composition than Cestilite V-20. The foils are essential since the function of the foils in a paper making machine is to drain water from wet pulp so that formation of paper is achieved. He also said that the function and the essentiality of foil in paper making machine can be observed from the video film shown. The foils are not thin polyethylene rolls as presumed. Referring to the samples he also said that it can be seen that the foils cannot be supplied in rolls. He explained that from the video films it can be observed that the foils are stationary and the wire over the foils only is moving. Hence the foil is not transmitting wet paper pulp and so not a conveyor belt. Referring to the observations made by Member (00T) that this incidentally helps in allowing the water to flow down from the wet pulp he said that this is not incidental action but an essential action to drain water from pulp. He also contended that the observations made by Member (T) that the machines can function without the goods imported is not correct. The foils are essential since the function of the foils in a paper making machine is to dewater the pulp so that the formation of the paper is achieved. The contention that the foil enhances the performance and life span of fabric is wrong. The function and the essentiality of foil in paper making machine can be observed from the video film presented to the Hon’ble Tribunal. Accordingly, he submitted that the foils likely classifiable under heading 84.39.99 and not under heading 39.20/39.21 as general parts of plastic.

14. I have carefully considered the matter. The dispute is in respect of classification of foil imported by the assessee. On examining the samples of the goods, technical literature including catalogue the Commissioner has observed that the imported goods are not in the nature of film at all. They are actually profiles made of polyethylene. These profiles are designed and are meant for paper industry. He also observed that perhaps the confusion arose because of the write-up submitted by the appellants at the time of import of the goods in which the imported goods had been described as foils. They have clarified that in trade they are known as foils. It was the contention of the revenue that Section Note 1(a) of Section XVI excludes transmission of conveyor belts or belting of chapter 39 and therefore the item is excluded from the purview of Chapter 84 as the item is a polyethylene films in rolls or as belting conveyor transmission and they do not fall under chapter 8339.99 and as such cannot be granted benefit of notification. According to revenue they are not machinery parts and that the item is plastic film in rolls and has been assessed under Chapter 39.20. As can be seen from the technical literature as submitted by the party it is specifically manufactured in terms of the drawings and part number and used as parts of paper making machinery; that they are not foils of plastics as a film and also they are not in film rolls. I find that the reasoning given by the Commissioner that the item in question is part of paper making machinery and covered by the benefit of notification is more convincing. In the facts and circumstances the Commissioner (Appeals) was right in holding that item in question is a part of the paper industry and accordingly classifiable under chapter 84.39 and eligible to benefit of Notification No. 156/86-Cus. dated 1-3-86. In view of the foregoing conclusion the view expressed my Member (J) is hereby concurred. The Registry is directed to place this file before the original Bench to pass final order.

MAJORITY ORDER

In terms of the majority order the impugned order passed by Commissioner of Customs (Appeals) is upheld and the appeal filed by the revenue is rejected.

Equivalent 2003 (154) ELT 0600 (Tri. - Chennai)