Amco Batteries vs Collector Of Central Excise>1992(09)LCX0076

1992(09)LCX0076

BEFORE THE CEGAT, SPECIAL BENCH ‘B’, NEW DELHI

Shri P.C Jain, Member (T) and Ms. Jyoti Balasundaram, Member (J)

AMCO BATTERIES

Versus

COLLECTOR OF CENTRAL EXCISE

Final Order No. E/206/92-B1, dated 25-9-1992 in Appeal No. E/2145/92-B1

Cases Quoted

Chetna Polycoats P. Ltd. v. Collector - 1988(07)LCX0042 Eq 1988 (037) ELT 0253 (Tribunal) [Para 13]

Collector v. Muzzaffarnagar Steels - 1989(08)LCX0054 Eq 1989 (044) ELT 0552 (Tribunal) [Para 9]

Track Parts Corporation v. Collector - 1991(05)LCX0020 Eq 1992 (057) ELT 0098 (Tribunal) [Para 12]

Advocated By : Shri V. Sridharan, Advocate, for the Appellants.

Shri M.S. Arora, JDR, for the Respondents.

[Order per : Jyoti Balasundaram, Member (J)]. - The issue of classification of Micro Porous Rubber Separators arises for determination in this appeal - the appellants claim classification under Heading 8507.00 of the Central Excise Tariff Act, 1985 while the Department seeks to classify the items under Heading 4016.11.

2. The facts of the case are that the appellants herein are engaged in the manufacture of electric storage batteries and parts thereof including separators falling under Chapter sub-heading 8507.00 of the CET Act, 1985. They have been regularly filing classification lists in respect of batteries and parts thereof. Prior to 1986, these batteries were falling under the erstwhile Tariff Item No. 31. However only three parts namely, containers, covers and plates were specified under the said Item 31 and the rest of the battery parts were falling under TI 68. Prior to 1986 and as well as after 1986 in all the classification lists the appellants have been claiming exemption for the specified parts under Notification No. 5/64 for captive use in the factory of production. However, for the parts falling under TI 68, they were claiming exemption in terms of Notification No. 118/75 for captive consumption. All these parts became exempted after 1986, vide Notification No. 68/86. All these classification lists have been approved by the jurisdictional Assistant Collector of Central Excise. Among other things, the appellants are manufacturing micro-porous rubber separators from the date of inception. Earlier to 1986 these were classified under TI 68 and exemption in terms of Notification No. 118/75 was sought for captive consumption. However, when the Central Excise Tariff Act, 1985 was introduced. Chapter Heading 85.07 specifically included these separators. Therefore, after the introduction of Central Excise Tariff Act, 1985 the appellants have been claiming these M.R. Separators under Chapter sub-heading 8507.00 with exemption under Notification No. 68/86.

3. A show cause notice C. No. V/40/15/70/91 C.I., dated 3-4-1991 was issued by the Collector of Central Excise, Bangalore proposing to demand a sum of Rs. 21,40,222.13 (BED Rs. 21,11,594.40 and SED Rs. 28,627.73) for the period from 1-3-1986 to 30-6-1989 under Rule 9(2) of the Central Excise Rules, 1944 read with Section 11 A of the Central Excises and Salt Act, 1944. A proposal was also made to impose a penalty under Rule 173Q(1) of the Central Excise Rules, 1944 on the appellants. According to the above show cause notice, these M.R. separators are classifiable under Chapter sub-heading 4016.11 of the Central Excise Tariff Act, 1985 and duty would be payable on the said M.R. Separators when used in stationary batteries which are exempted. The said show cause notice proposes to demand duty on the ground that the appellants have misdeclared the said goods as classifiable under Chapter Heading 85.07 and suppressed true facts from the department with an intention to evade payment of Central Excise duty by wrongly availing exemption under Notification No. 68/86, dated 1-3-1986. According to the show cause notice the said M.R. separators appear to be products of rubber classifiable under Chapter sub-heading 4016.11 attracting 60% rate of duty. Since the final product namely stationary batteries are chargeable to NIL rate of duty exemption under Notification No. 217/86, dated 2-3-1986 does not appear to be available to the said M.R. Separators captively used in the manufacture of the final products. The appellants submitted a detailed reply on 4-9-1991 in which they specifically drew the kind attention of the Collector to the legislative history in order to contend that the separators irrespective of the material which it has been made out of, would only fall under Chapter sub-heading 8507.00 in the light of the specific description. They invited the attention of the Collector to Section Note 2(a) of Section XVI and also to Rule 3A of the Interpretative Rules in support of their contention. They also referred to the earlier notification and the present notification granting exemption and by inference concluded that all parts of storage batteries are to be reclassified only under Chapter sub-heading 8507.00. In any view of the matter they submitted that the extended period of limitation cannot be invoked because from 1957 they have been manufacturing these M.R. separators and the Department has been approving them under TI 68 earlier to 1986 and under Heading 8507.00 after 1986. They also specified in their reply that the Assistant Collector classified these products under Heading 8507.00 in spite of chemical examiner’s opinion that it can be classified as sheet of rubber.

4. The Collector of Central Excise, Bangalore passed the Order-in-Original No. 52/91, dated 9-9-1991 confirming a portion of the demand amounting to Rs. 9,96,237 /- pertaining to the period from 1-3-1986 to 26-10-1987 under Rule 9(2) read with Section 11 A of the Central Excises and Salt Act, 1944. He also imposed a penalty of Rs. l lakh on the appellants under Rule 173Q(1) of the Central Excise Rules, 1944, According to the Collector, since Section Note 1(a) of Section XVI does not cover any unhardened vulcanised rubber articles falling under Heading 40.16 these separators are excluded from Chapter 85 and so much so Chapter sub-heading 8507, and Chapter sub-heading 4016.11 is more specific as compared to Chapter sub-heading 8707.00 and M.R. Separators are articles cut to required size of materials falling under Heading 40.08 and being cellular in character, come under the scope of sub-heading 4016.11 as articles of material of vulcanised rubber of cellular nature. With regard to the aspect of time bar the Collector was of the opinion that only from 26-10-1987 when the appellants submitted a detailed write-up as well as process of manufacture of M.R. separators, it can be assumed that the Department came to be aware of the position. Hence this appeal.

5. Shri V. Sridharan, learned Counsel for the appellants contends that the goods are classifiable under 85.07 which is a specific entry for separators. Therefore, irrespective of the material out of which the separators have been manufactured, they cannot be classified anywhere else except under Heading 85.07. He submits that the adjudicating authority has relied upon Section Note 1(a) to Section XVI where other articles of a kind used in machinery or mechanical or electrical appliances or for further technical use of unhardened vulcanised rubber (Heading 40.16) have been excluded from Section XVI to reach the conclusion that the separators will not fall under Heading 85.07. He however would like to draw our attention to HSN Note below Section Note under the Heading General Content of the Section Note l(B)(a) clarifies as further explanation to Section Note 1(a) that washers, etc. falling under 40.16 are excluded from Section XVI i.e. only items like washers, etc. which are used in machinery or mechanical or electrical appliances or for other technical use of unhardened vulcanised rubber only are excluded and not every item falling under Heading 40.16. Learned Counsel further submits that explanatory notes under Heading 40.16 of the HSN make it clear that the Heading covers all articles of vulcanised rubber (other than hard rubber) not covered by preceding headings of this chapter or any other heading of the other chapters from which it is clear that where an item has been specified by description either in Chapter 40 or anywhere else in the Schedule, the item will not fall within the purview of Heading 40.16 and as separators have been specifically mentioned in Heading 85.07 they will fall for classification only under that Heading. He contends that only if an item has been classified under Heading 40.16, Note 1(a) to Section XVI can be applied to exclude it from Section XVI and not otherwise, while in the present case the adjudicating authority is relying upon Note 1(a) for classification of the item under Heading 40.16 which is not legally permissible. He submits that in terms of Note 9 to Chapter 40, plates, sheets and strips apply to plates, sheets and strips and to blocks of regular geometric shape uncut or simply cut to rectangular (including square) shape, whether or not having the character of articles and whether or not printed or otherwise surface worked but not otherwise cut to shape or further worked. There is no dispute that M.R. separators are only cut to rectangular (including square) shape when sheets are formed in the calendar machine and these cannot be considered as “otherwise cut to shape or further worked” in order to exclude them from the scope of Heading 40.08 and for slotting them into Heading 40.16 as articles of materials of Heading 40.08. Once it is accepted that the articles fall under 40.08, they are not excluded from Section XVI by Note 1(a) and, therefore, they would fall under Heading 85.07 which is specifically provided for separators.

6. Lastly he contends that the demand is barred by limitation as the extended period is not applicable inasmuch as the appellants had been filing classification lists for M.R. separators which have been constantly approved under Heading 85.07 and the Collector’s finding that the Department was not aware prior to 26-10-1987 (the demand has been confirmed for the period 1-3-1986 to 26-10-1987) that the separators were made out of Micro Porous Rubber is not correct. In addition the appellants have all along been under the bona fide belief that the M.R. separators which were originally classified under TI 68 continued to be classified under Heading 85.07 along with other parts of batteries attracting 15% rate of duty read with Notification 160/86 and, therefore, under these circumstances the extended period cannot be applied, alleging suppression of facts. He, therefore, prays that the impugned order be set aside and the appeal allowed.

7. Shri M.S. Arora, learned DR submits that the goods are classifiable under Heading 40.16 as, in terms of Note 9 of Chapter 40, they would get excluded from Heading 40.08 as M.R. separators are not simply cut to rectangular (including square) shape, but further cut to make them ready for use. Having been ruled out from the scope of Heading 40.08, they would fall under Heading 40.16 and by virtue of Note 1(a) to Section XVI, they would not be covered under Chapter 85. He places on record a copy of the order of the Tribunal in the case of Bharat Battery Manufacturing Co. v. Collector of Central Excise, Calcutta - Order No. E/165/90-B1, dated 31-10-1990 in which the Tribunal has held that the separators falling under Heading 8507.00 are parts of accumulators and eligible to the benefit of concessional rate of duty under Notification 160/86. He reiterates the finding in the impugned order on the time bar aspect.

8. We have heard both sides and carefully considered their submissions.

9. The extended period of limitation does not appear to be available to the Department in this case - the appellants have been manufacturing M.R. Separators right from 1957 and their classification lists for this item have been approved under TI 68 (prior to 1986) and under Heading 85.07 subsequently. In 1989 the classification of MR Separators under Heading 85.07 has been approved and exemption granted under Notification 68/86 if used for captive consumption even in the face of a Chemical Examiner’s report recommending treatment of the items as sheets of rubber. If the Department had any doubt regarding the item, it was open to and indeed, a duty was cast upon the Excise authorities in terms of Rule 173B to call for material and satisfy themselves after further enquiry, about the correct classification. It has been held by the Tribunal, in the case of Collector of Central Excise v. Muzzaffarnagar Steels - 1989(08)LCX0054 Eq 1989 (044) ELT 0552 (Tri.) = 1989 (025) ECR 47 that

“Rule 173 providing for the filing of classification list clearly shows that what is required of the Assistant Collector is the approval ”after such enquiry as he deems fit." The approval of classification list is an important part of the process of assessment and, therefore, the Assistant Collector is required to be very careful and is expected to apply his mind before according approval. He is entitled to and indeed required to make such inquiries and summon such information as may be called for in order to arrive at the correct decision. In other words the act of approval was not merely a passive act of concurrence but involves an active decision making and the Assistant Collector was required to fully satisfy himself about the particulars of goods being manufactured and the process of manufacture wherever necessary and the relevant facts and then only determine the classification and pass appropriate orders; and once the Assistant Collector has approved the classification the Department has to bear the consequences thereof".

9.1 Therefore, it does not lie in the teeth of the adjudicating authority to allege suppression and invoke the extended period on the ground that no evidence was put forth by the appellants that they have been mentioning the technical literature or the facts of the compounding ingredients.

9.2 In the light of the above discussion we hold that the entire demand is barred by limitation.

10. Turning now to the merits of the matter, the process of manufacture of M.R. separators is as follows :

(i) Mastication

Natural Rubber, Renacit, Ammonia and Stearic acid in the required quantity are mixed in the same order and masticated for several hours. After mastication the mass is divided into equal parts. This is taken for I mixing.

(ii) I MIXING

The masticated mass is mixed with sulphur, silica and vulcabur DPG in the same order gradually and milled. The resultant yellow mass is divided into two parts to be used for II mixing.

(iii) II MIXING

The above one part is taken for milling by gradually adding silica gel and milled. The resultant mass is taken for calendering.

(iv) CALENDERING

The II mixing refined rubber mix is cut into two or three lots and .fed to calendering. After calendering the rubber sheet of separator obtained is wound on bobbins. This rubber sheet of separator is wound on the bobbin along with wetted thin paper coming along with Aluminium plain sheet. Each turn wound on the bobbin is separated by means of corrugated Aluminium strip. The aluminium plain sheet is used to facilitate vulcanising because of its better heat conducting property. The corrugated Aluminium strip is used for segregating two layers of rubber separator sheet and easy flow of steam in between.

Wetted thin paper is used to ensure that the rubber separator sheet does not stick to the surface of Aluminium sheet.

The plain sheet as well as corrugated Aluminium strips are roused for 4 to 5 times depending upon the strength.

(v) VULCANISER

The above bobbins are dipped in water and then fed to the vulcaniser. Vulcanisation is done using 90 Lbs/sq. mm steam pressure for certain hours. After vulcanisation the bobbins are removed.

(vi) HOT WASH

The bobbins are dipped in hot water for hot wash and removed.

(vii) COLD WASH

The above bobbins are removed and dipped in cold water and removed.

(viii) CUTTING

The above bobbins are fed to the cutting machine and the Rubber Separator sheet is unwound and cut according to the required size and thus collected separators are ready for drying.

(ix) DRYING CHAMBER

The above separators are stocked in racks and these stocks are kept in the drying zone of the chamber for about 4 hours (100 lbs /sq. m. steam is used for indirect heating of chamber) and then the racks are removed and separators are collected for further cutting and inspection.

11. Prior to the introduction of the new CETA 1985, electric batteries and parts thereof were falling under TI 31 of the erstwhile Schedule to the CETA, T.I. 31(2) covered storage batteries and TI 31(3) covered parts thereof, namely containers, covers and plates and exempted by virtue of Notification 5/64, dated 25-1-1964 if used in the factory of production in the manufacture of electric storage batteries. Parts other than the 3 above mentioned ones were classified under TI 68. Micro porous rubber separators were classified by the appellants under this heading and the classification lists were approved with the benefit of exemption under Notification 118/75 if used for captive consumption. When the CETA 1985 was introduced, electric storage batteries were provided for under Heading 8507.00 which specifically includes separators. The Heading reads “Electric accumulators including separators therefor whether or not rectangular (including square”). Exemption for captive consumption continued for parts of storage batteries in terms of Notification 68/86 while the effective rate of duty for parts other than containers was maintained at 15% by virtue of Notification 160/86. The adjudicating authority has relied upon Note 1(a) to Section XVI where other articles of a kind used in machinery or mechanical or electrical appliances or for further technical use of unhardened vulcanised rubber (Heading 40.16) have been excluded from Section XVI to conclude that M.R. separators will go out of the coverage of Heading 85.07 even though separators have been specifically included therein. Heading 40.16 covers “other articles of vulcanised rubber other than hard rubber”. The HSN Explanatory Notes set out that Heading 40.16 covers all articles of vulcanised rubber (other than hard rubber) not covered by the preceding headings of this Chapter or any other head of the other Chapters. Therefore, it is clear that where an item has been specified by description either in this Chapter i.e. Chapter 40 or anywhere in this Schedule in other Chapters, it will not come within the scope of 40.16. In this case, separators have been specifically mentioned under 85.07. Therefore, irrespective of their composition, they cannot be classified anywhere else under 85.07.

12. Now, let us turn to Chapter 40 to see whether the item in dispute falls under Heading 40.16 which Heading alone has been excluded from Chapter 85 by Note 1(a) to Section XVI as has been held by the Tribunal in the case of Track Parts Corporation v. Collector of Customs - 1992 (057) ELT 98. While determining the classification of the goods under 40.16, the adjudicating authority appears to have overlooked Note 9 to Chapter 40 which reads as follows :

“In Heading Nos. 40.01, 40.0%, 40.05 and 40.08 except as otherwise provided, the expressions ”plates", “sheets” and “strips” apply only to plates, sheets and strips and to blocks of regular geometric shape, uncut or simply cut to rectangular (including square) shape, whether or not having the character of articles and whether or not printed or otherwise surface worked but not otherwise cut to shape or further worked.

In Heading No. 40.08, the expressions “rods” and “profile shapes” apply only to such products, whether or not cut to length or surface-worked but not otherwise worked.

Sub-heading No. 4008.12 shall also apply to “plates”, “sheets” and “strips” whether or not cut to shape, and surface-worked or further worked so as to render them fit for resoling or repairing or retreading of rubber tyres."

From this, it is clear that the product even after cutting of sheets to required size, will still remain under Heading 40.08, which covers “plates, blocks, sheets, strips, rods and profile shapes of vulcanised rubber other than hard rubber” as admittedly they are only cut to rectangular shape and are not “otherwise cut to shape or further worked” so as to go out of 40.08. The argument of the learned DR that cutting of sheets to size so as to make them ready for use would come within the meaning of the expression “otherwise cut to shape” is not well founded in view of the fact that further cutting of rectangular (including square) sheets to size is not a process specified in Note 9 for exclusion of the sheets from Heading 40.08. It is pertinent to note at this juncture, that according to Note 9, even if the uncut or simply cut rectangular and square sheets acquire the character of articles, they would still fall under 40.08, as “sheets”, and once they fall under 40.08, they are not excluded from Section XVI and, therefore, they would fall under 85.07 which covers separators particularly.

13. We may point out at this stage that HSN Explanatory Notes under Heading 85.07 excludes separators of unhardened vulcanised rubber or of textile material from its scope. However, 85.07 of the CETA, 1985 covers all types of separators, irrespective of the material out of which they are made. Therefore, in view of the clear language of the Tariff we cannot press into service the HSN Explanatory Notes to deny the M.R. separators their rightful parentage under Heading 85.07. It has been held so, in a long line of decisions of the Tribunal, one such being the order in the case of Chetna Polycoats P. Ltd. v. Collector of Central Excise (para 6) -1988(07)LCX0042 Eq 1988 (037) ELT 0253 (Tribunal).

“ It is no doubt true that the Schedule to Central Excise Tariff Act, 1985, is a far more detailed and sophisticated tariff nomenclature than its predecessor schedule. It is also based on the ”Harmonised Commodity Description and Coding System" evolved by the Customs Cooperation Council, Brussels. The new Schedule has many in-built aids to the interpretation of its headings and sub-heading. These are the section notes and chapter notes which have got statutory force and rules for the interpretation of the Schedule, which also have statutory force. The explanatory notes which are not part of the Schedule have no statutory force and are only of persuasive value. These notes, drawn up by experts in the field, are a valuable aid to the understanding of the scope of the headings and the sub-headings but if the entries in the Schedule (CET 1985), in the light of the aforesaid legal aids and in the light of case law, point to a conclusion contrary to, or different from that indicated by the explanatory notes, the former shall prevail. Therefore, reliance on explanatory notes has to be tempered with due regard to the aforesaid considerations."

14. In the light of the foregoing discussion we hold that the M.R. separators manufactured by the appellants are classifiable under Heading 85.07 of the CETA 1985 and that the demand for duty is barred by limitation as already held in para 9.2 above. In these circumstances, penalty is also set aside. Accordingly we set aside the impugned order and allow the appeal.

Equivalent 1993 (63) ELT 534 (Tribunal)