1991(01)LCX0026
BEFORE THE CEGAT, SPECIAL BENCH ‘C’, NEW DELHI
S/Shri K.S. Venkataramani, Member (T) and S.L. Peeran, Member (J)
CRYSTAL PAINTS
Versus
COLLECTOR OF CENTRAL EXCISE
Order No. 95 & 96/91-C dated 11-1-1991 in E/Appeal Nos. 2099 and 4426/89-C
Cases Quoted
DEEPAK & CO. v. CENTRAL EXCISE - 1979(07)LCX0007 Eq 1980 (006) ELT 0003 (BOM.) [PARA 7]
COLLECTOR v. NITSUNY ELECTRONIC WORKS - 1987 (030) ELT 345 [PARA 7]
POONA BOTTLING CO. LTD. v. UOI - 1981(05)LCX0006 Eq 1981 (008) ELT 0389 (DEL.) [PARA 18]
LUCAS INDIAN SERVICE LTD. v. COLLECTOR - 1983(12)LCX0029 Eq 1984 (016) ELT 0415 (TRIBUNAL) [PARA 18]
TEKNO ENGINEERS & PACKERS v. COLLECTOR - 1991 (051) ELT 0577 (TRIBUNAL) [PARA 18]
GOA BOTTLING CO. (P) LTD. v. UOI - 1984(07)LCX0026 Eq 1987 (028) ELT 0215 (BOM.) [PARA 18]
Advocated By : Shri Navroj Seervai, Advocate, for the Appellant.
Shri Narasimha Murthy, JDR, for the Respondents.
[Order per : S.L. Peeran, Member (J)]. - The appellants have challenged the order-in-appeal passed by the learned Collector of Central Excise, Bombay dated 30-3-1989 so far as classification of the product ‘Apcolite Universal Stainer’ is concerned. There are two points before the Collector (Appeals) for consideration -
(1) eligibility of the appellants for concession under Notification No. 175/86 dated 1-3-1986 and
(2) the classification of the product Apcolite Universal Strainer.
2. As regards the first point, the learned Collector has held that the appellants are eligible for benefit of exemption as envisaged under Notification No. 175/86 and to that extent, he set aside the order-in-original passed by the Assistant Collector wherein he held that the appellants are not entitled for the benefit of small scale industries exemption under the said notification.
3. The Revenue has filed Appeal No. 4426/89-C against the order of the Collector in holding the appellants eligible for grant of exemption under Notification No. 175/86 dated 1-3-1986. As both these appeals have arisen together, both have been heard and a common order is passed in this case.
4. The appellant-assessee in this case is a small scale industry holding Central Excise licence for manufacture of paints and varnishes falling under Chapter 32 of CET Act, 1985 and they are selling them in the market in their own brand name for over 16 years. They were also undertaking processing jobs and process paints and varnishes for M/s. Asian Paints (India) Limited in terms of a contract on payment of job charges. They have contended that their unit is a proprietary concern while M/s. Asian Paints (India) Ltd. is a public limited company registered with the D.G.T.D. and holding industrial licences for their manufacturing establishments and they are two different legal entities. They have further stated that they are registered as separate SSI unit and have separate registrations for Sales-tax and Income-tax purposes.
5. They have stated that they were processing a product called ‘Apcolite Universal Stainer’ for M/s. Asian Paints (India) Ltd. in terms of a contract. As per the said contract, the raw materials/packing materials are supplied by M/s. Asian Paints. These processed stainers are in a wide range of exclusive shades such as Ultra Blue, Burnt Amber, Yellow Oxide, Red Oxide, Black, Fast Violet, Fast Red, Fast Yellow, Fast Green etc. which are sold by M/s. Asian Paints (India) Ltd. They have submitted that the product Apcolite is a modifying tint used for tinting paints such as plastic Emulsion paints, Enamels, Oil paints, Distemper etc. to obtain wide range of exclusive shades. They had classified their product under TI 68 of erstwhile Central Excise Tariff which was approved and the clearances of the same were effected from time to time. On the introduction of Central Excises Tariff Act, 1985 effective from 1-3-1986, they reclassified the said products as falling under Chapter sub-heading 3213.00 as ‘Modifying Tint’ which classification list was provisionally approved and the assessments were being done at the rate of 10% ad valorem.
6. The Inspector of Central Excise, incharge of their factory, drew a sample of Apcolite Universal Stainer (Fast Violet shade) on 24-4-1986 for chemical analysis by the Deputy Chief Chemist, Bombay to determine the correct classification of the product. They have submitted that till the receipt of the first show cause notice dated 25-8-1986, the findings of the Dy. Chief Chemist on analytical tests had not been separately supplied to them as has been the practice. It is submitted that the Superintendent of Central Excise, Division VII, had thereafter issued three show cause notices on 25-8-1986, 28-11-1986 and 24-2-1987 and called upon them to explain as to why the product should not be classified under sub-heading 3204.19 attracting Central Excise duty at 20% ad valorem instead of under Chapter sub-heading 3213.00 attracting 10% as claimed by them in their classification list. The Assistant Collector had confirmed the show cause notice on which they filed an appeal before the Collector (Appeals), Bombay who set aside the Assistant Collector’s order-in-original by his order dated 11-12-1987 and remanded for de novo adjudication. Thereafter, the Assistant Collector issued a fresh show cause notice on 7-3-1986 in terms of the direction given in order-in-appeal. They filed their objections and placed their evidence but, however, the Assistant Collector held that they are not entitled for benefit of SSI under the Notification No. 175/86 as amended and also classified their product under sub-heading 3204.19 attracting duly at 20% ad valorem. They filed the appeal before the Collector who has granted them SSI exemption under the said notification but has upheld the order-in-original classifying the product under sub-heading 3204.90.
7. They have relied on Chapter Note 2 of Chapter 32 of CET 1985 and they contended that preparation of heading 3213.00 would not be covered by Heading Nos. 3203, 3204, 3205 and 3206. They have contended that Heading 3213 is the most specific heading in respect of goods in question as compared to Heading 3204 which is a mere general heading. It is contended by them that Rule 3 of Rules of Interpretation and relevant judicial decisions of the referred paras it is settled principal that in cases of classification the headings of most specific description shall be preferred to headings providing a mere general description. They have also relied upon Harmonised Commodity Description and Coding System. They have contended that same products manufactured by M/s. Asian Paints (India) Ltd. have been classified under Chapter 3213 and duty of 10% ad valorem has been finally approved by the Asstt. Collector, Central Excise, Bombay-Ill Collectorate. In this connection, they have submitted that in classifying a product if two different views are being held by two different officers belonging to the same Department, then it is a settled law that one which is favourable to the assessee should prevail. In this connection, they have relied upon the rulings given in the case of Deepak & Co v. Central Excise, Division X, Bombay reported in [1980 (006) ELT 3 Bombay] and Collector of Customs, Calcutta v. Nitsuny Electronics Works [1987 (030) ELT 34]. They have submitted that the ‘Universal Tinting System’ is a well known international commercial practice where such ‘Universal Stainers’ are used by retail paint and hardware dealers for tinting base white or grey paint so as to obtain a large number of shades with minimum stock inventory. They have referred to two authoritative works -
(1) Principles of Surface Coating Technology - Dean Parker Page 541-542
(2) Painting and Decorative - A.E. Hurst Page 121-122
They have submitted that these works elaborate the commercial practice of modifying tint and tinting system. They have contended that only those shades of products containing synthetic organic colouring matter (Pigment Dye-stuff) would be classifiable under Chapter sub-heading 3204.19 and not the other shades which would be classifiable under sub-heading 3206.19 since they are not based on Synthetic organic colouring matters but based on inorganic pigments. They have submitted that the test has been done in respect of the one shade i.e. violet and the result of the same cannot govern all other shades. They admit that the shade fast violet contains small quantities of pigment dye-stuff but they have denied that other shades red oxide, yellow oxide, black, Burent Sineena, Ultra blue, Turkey umber, etc. contain any pigment dye-stuff but it contains inorganic pigments. They have contended that other shades referred to generally contain synthetic organic colouring matter as has been held in the impugned order since they are essentially based on inorganic pigments. They have also relied upon the affidavit of Shri V.M. Bhavdekar who has stated that pigments and preparations as set out under Chapters 3204.19 and 3206.19 are meant for direct use in the manufacturing process whereas the product in question is only used for modifying specific quantities of white/base white paint stocked by the customers to obtain variety of shades of their choice. The product does not have any independent use but is only used as a painter’s aid and not paint by itself and hence it was considered as stainer and classified under Heading 68 of the erstwhile Excise Tariff.
8. During the time of hearing, the appellants have produced Indian Standard Glossary of Terms relating to Paints (Second Revision), IS : 1303 - 1983 which defines stainer type. They have also produced the meaning of Tint, Tinter, Tinting as found in Paint/Coatings Dictionary, page 423 which is reproduced below :-
“Tint (1) The colour produced by the mixture of white pigment with absorbing (generally chromatic) colorants. The colour of the resulting mixture is lighter and less saturated than the colour without the addition of the white. Tinter - Coloured pigments ground in media compatible with paint vehicles, added in relatively small proportions to already prepared paints to modify their colour. With the introduction of latex paints of many types tinters have been developed which can be used both with organic solvent-thinned paints and with water-thinned paints. Such dust-purpose tinters are known as universal tinters.
Tinting (1) Final adjustment of the colour of a paint to the exact colour required (2) In lithography, a uniform discoloration of the background caused by the bleeding or washing of the pigment in the fountain solution”.
They have also produced seven affidavits of the dealers.
9. Shri Navroj Seervai, learned Advocate appearing for the appellants, based his arguments on the grounds of appeal which have been enumerated above. He has submitted that the Trade parlance test is most important criteria for determining the classification of product in this case. The Trade understands it as a modifying tint and the technical literature also clearly demonstrates that the product is a “Modifying Tint” classified under sub-heading 3213.00 with duty of 10% ad valorem and not under Heading 3204.19 as others with 20% of rate of duty. The Chemical Examiner’s report had indicated that the product is aqueous process of synthetic colouring matter (Pigment) which was true in case of only one tint namely shade base violet for which the sample had been drawn but all other shades were inorganic pigments. The Assistant Collector had based his findings solely on the chemical examiner’s report without considering the trade parlance test as well as the practice adopted by the other Collectorates to classify the product as a modifying tint. He submitted that the chemical examiner’s report’s copy had not been furnished to them to enable them to challenge the same. He submitted that the Revenue had not discharged its burden to hold the product in question as synthetic organic colouring matter and no reason had been given to reject the affidavits and other materials produced by the appellants to show that it is treated as modifying tint and not as a synthetic colouring matter.
10. Shri L.N. Murthy, appearing for the Revenue, reiterated the findings by the lower authorities. He submitted that the assessee had not challenged the chemical examiner’s report, therefore, the order relying on the said report is binding on the party. He submitted that the classification made in respect of other assessees will not be the factor to classify the appellants’ product also under the same heading. Both the sides have produced several citations in respect of their pleas. It is not necessary to go through these citations as they are not directly on the product but on well laid down principles on which there cannot be two opinions.
11. We have considered the submissions made by both the sides and also the records and materials produced before us. The classification list describes the product as “modifying tint” and the classification sought for under Heading 3213 at 10%. The classification list of M/s. Asian Paints (India) Ltd. has also been produced wherein the modified tint has been described under Heading 3213 at 10% ad valorem. The definition of ‘Universal Stainers’ as given in Painting and Decorating - A.E. Hurst at page 121-122 is reproduced below :-
“The principle of stocking basic white or grey, which can be tinted by the vendor to the required colour, has become firmly established in America and is also being tried in this country. This has been made possible by the use of so called universal stainers, but perhaps more correctly multi-purpose stainers, since they are compatible with both oil and water media but not all media and, therefore, not truly universal. These stainers are carried either in collapsible tubes from which they are squeezed by hand into the base colour or in one of the many different types of paint dispenser where the process is carried out automatically in a few seconds.
The developement of these stainers is the result of long and patient research and manufacturers are naturally secretive about their formulation. The stainers are highly concentrated in a special medium which is capable of rapid dispersion in oil paints or water emulsion paints in which it must be completely miscible without separation or flotation. A few years ago this would have been impossible but the vast amount of research in the development of synthetic oils and resins in the past few years has brought revolutionary changes in paint technology. It remains to be seen whether these newer materials compare in durability with the more orthodox finishes."
12. The definition of Universal Tinting System as appearing in page 542 of Principles of Surface Coating Technology by Dean H. Parker is also reproduced below :-
“The Universal tinting system is an ingenious method of merchandising by which retail paint and hardware dealers can sell various types of architectural paints in a large number of colours with a minimum of stock inventory and clerk’s time to make a sale. It involves four unique features. -
1. Ready mixed white paints of different types, such as exterior and interior paints and enamels thinned with water or organic solvents which are so standardised for strength that a given amount of specific tinting colorant will produce the same shade in all types.
2. Liquid tinting colourants in a range of strong colours so formulated that they will disperse readily by mixing in white paints. A single line of universal colorants usable in any paint, has thus largely replaced oil colours (pigments dispersed in oil for tinting oil paints) and aqueous dispersions (pigments dispersed in water for tinting latex paints). Retail dealers use these universal colorants in various proportions to tint ready mixed paints in a wide range of shades.
3. Collections of colour chips in hundreds of different colours from which customers can select the particular shade desired. Retail dealers are supplied with formulas to show what colorants and how much to add to quarts or gallons of the ready mixed white paints to match all colour chips.
4. Some sort of measuring device for the colorants, either tubes of various sizes or dispensers, in which they are kept in bulk form and from which they can be measured out into ready mixed paints in the amounts required to produce the shades desired.
The formuation of the colorants with comments on colour books and dispensers is given here".
13. The affidavit of Shri V.M. Bhavdekar, Development Manager, M/s. Asian Paints (India) Ltd. which was relied upon before the Assistant Collector has stated in his affidavit that the product Apcolite Universal Stainer is used for modifying specific quantities of the while/base white paints. He has submitted that by adding a measured quantity of this modifying tint or stain in enamels, plastic emulsion paints, oil paints, distemper etc., a wide range of exclusive shades of colours can be obtained. He has submitted that Apcolite Universal Stainers by their very characteristics and end use are essentially modifying tints falling under the Heading 3213 and not pigments and preparations based thereon falling under sub-heading 3204.19 of CET Act, 1985. He has further stated that pigments and preparations based thereon are meant for direct use in the manufacturing processes whereas Apcolite Universal Stainer is used for modifying specific quantities of the white/base while paint stocked by the customer to obtain variety of shades of his choice. He has further slated that the product is understood by users as a “Modifying tint” only and not as a colouring matter. He has further stated that the product comply to this description in packets and is always used for tinting specific quantities of white/base white paints. He has stated that in commerical parlance, the word stainer is referred only to such small quantities of tints in forms or packings indicated under the said sub-heading 3213.00. He submitted that the product by design consumption are thus meant to be used as an ancillary to paints product.
14. We have noted the definition of stainer as given in Indian Standard Glossary of Terms relating to Paints in IS-1303-1983 which is extracted above and also the definition of tint, tinter, tinting which has appeared in paint/coatings Dictionary extracted above and the materials on record and also that of the affidavits of various dealers who understand this product in the commercial parlance. Although these materials were not before the lower authorities but yet the affidavit of Shri V.M. Bhavdekar, Development Manager was before the authorities.
15. Chapter Note 2 of the Chapter 32 states as follows :-
“Heading Nos. 32.03, 32.04, 32.05 and 32.06 apply also to preparations based on colouring matters (including in the case of Heading No. 32.06, colouring pigments of Heading No. 25.05 or Chapter 28, metal flakes and metal powders) of a kind used for colouring any material or used as ingredients in the manufacture of colouring preparations. The headings do not apply however, to pigments, dispersed in non-aqueous media, in liquid or paste from, of a kind used in the manufacture of paints including enamels (Heading No. 32.12) or to other preparations of Heading Nos. 32.07, 3208, 32.09,32.10, 32.12, 32.13 or 32.15.”
The relevant Headings 32.04, 32.06, 32.07. 32.12, 32.13 of Chapter 32 are reproduced below :-
“32.04 - Synthetic organic colouring matter, whether or not chemically defined, preparations based on synthetic organic colouring matter as specified in Note 2 to this Chapter; synthetic organic products of a kind used as flourescent brightening agents or as luminophores, whether or not chemically defined.
32.06 - Other colouring matter; preparations as specified in Note 2 to this chapter, other than those of Heading Nos. 32.03, 32.04 or 32.05 inorganic products of a kind used as luminophores, whether or not chemically defined.
32.07 - Prepared pigments, prepared opacifiers and prepared colours, vitrifiable enamels and glazes, engobes (slips), liquid lustres and similar preparations of a kind used in the ceramic enamelling or glass industry; glass frit and other glass in the form of powder, granules or flakes.
32.12- Pigments including metallic powders and flakes, dispersed in non-aqueous media in liquid or paste form of a kind used in the manufacture of paints (including enamels) stamping foils, dyes and other colouring matter put up in forms (for example balls, tablets and the like) or small packings (for example sachets or bottles of liquid) of a kind used for domestic or laboratory purposes".
32.13 - Artist’s, student’s, or signboard painter’s colours, modifying tints, amusement colours and the like, in tablets, tubes, jars, bottles, pans or in similar forms or packings"
16. Chapter Note 2 clearly states that the Heading Nos. 32.03, 32.04, 32.05, 32.06 apply also to the preparations based on colouring matters of a kind used for colouring any material or used as ingredients in the manufacture of colouring preparations. It further states that these headings do not apply to pigments dispersed in non-aqueous media, in liquid or paste form, of a kind used in the manufacture of paints, including enamels or to other preparations of Heading Nos. 32.07, 32.08, 32.09, 32.10, 32.12, 32.13 or 32.15.
17. By a reading of the literature pertaining to the modified tint and the admitted use of the product Apcolite Universal Stainer, it is very clear that it is not used for preparations based on colouring matters or used for colouring any material or used as ingredients as manufactured of colouring preparations. The nature of the product as described in the affidavit of Shri V.M. Bhavdekar, Development Manager, is for the purpose of bringing exclusive shades in enamel plastic paints and Distemper paste. The affidavit clearly states that the product is not used in the manufacturing process but only used for modifying specific quantities of white/base white paints stocked by the customer to obtain variety of shades of his choice. The fact that this is a pigment or a synthetic colouring matter is borne out by the end usage and understanding in the trade and the manner of usage of the product in question. The product is understood as a modifying tint. The Indian Standard Glossary of terms relating to Paints has defined stainer. The product is more or less a stainer and the definition clearly states universal stainer is also referred as universal tint. The dictionary meaning of stainer also clarifies that coloured pigment ground in media compatible with paint vehicle, added in relatively small proportions to already prepared paint to modify their colour. The usage of this product by its addition in partly prepared paint to get required colour is not disputed or denied by the Revenue. Therefore, there is no difficulty to hold the product as a modifying tint or universal stainer. The practice of classifying this product as a modifying tint in respect of Asian Paints is also borne out by examining a copy of their classification list produced in this appeal. This fact is also not denied by the Revenue. It is well settled that the product has to be classified in the manner in which it is understood in the trade.
The Revenue has not placed any evidence to the contrary to deny the classification or for that matter, to reject the materials placed before them in regard to the trade parlance and also the affidavit of Shri V.M. Bhavdekar. There is no reason to deny the classification sought for by the appellants under sub-heading 32.12. It is not necessary to go through the various rulings placed before us by the Counsel. The material on record is sufficient to show that the product is classifiable under sub-heading 32.13. Therefore, the appeal of the appellants has to be allowed.
18. As regards the appeal of the Revenue against the Collector’s order in granting exemption under Notification No. 175/86 dated 1-3-1986, it has to be observed that the said order is not sustainable. The learned counsel for the respondent-assessee has placed before us several rulings on this point. The Revenue has not placed any evidence that the assessee’s concern is a dummy concern. The various rulings are in favour of the assessee. The Counsel placed before us the following rulings -
1. Poona Bottling Co. Ltd. & Another v. Union of India & Others [1981(05)LCX0006 Eq 1981 (008) ELT 0389 (Delhi)]
2. Lucas Indian Service Ltd., Madras v. Collector of Central Excise, Madras [ 1983(12)LCX0029 Eq 1984 (016) ELT 0415 (Tri.)]
3. Tekno Engineers & Packers, Calcutta v. Collector of Central Excise, Calcutta [1990(09)LCX0074 Eq 1991 (051) ELT 0557 (Tri.) = 1990 (16) ETR 635]
4. Goa Bottling Co. (P.) Ltd. & Others v. Union of India & Others [1984(07)LCX0026 Eq 1987 (028) ELT 0215 (Bombay)
We have gone through these rulings and are convinced that there is no evidence that the assessee’s concern is a camoflauge of M/s. Asian Paints. Therefore, the Collector’s order in so far as granting the exemption under the said exemption notification is concerned, is a valid one. Therefore, the Revenue’s appeal is without merits and it is dismissed.
Equivalent 1991 (054) ELT 0249 (Tribunal)