1993(06)LCX0069
BEFORE THE CEGAT, SPECIAL BENCH ‘C’, NEW DELHI
S/Shri P.C. Jain, Member (T) and S.L. Peeran, Member (J)
NAMASTE PAINTS PVT. LTD.
Versus
COLLECTOR OF CENTRAL EXCISE
Final Order Nos. 204/93-C and 205/93-C, dated 29-6-1993 in Appeals Nos. E/1412/89-C, E/1410/89-C
Cases Quoted
Elgi Polytex v. Collector -1988(02)LCX0035 Eq 1988 (034) ELT 0404 (SC) [Paras 2, 4, 6]
Collector v. Adhinesh Rubber — Cegat Order Nos. 76-77/90-C dated 31-1-1990 . [Paras 5, 6]
Collector v. MRF Ltd. — 1990(07)LCX0088 Eq 1990 (050) ELT 0604 (Tribunal) [Paras 4, 6]
Advocated By : Ms. S. Sharma, Advocate, for the Appellants.
Shri Somesh Arora, JDR, for the Respondents.
[Order per : S.L. Peeran, Member (J)]. - These appeals arises from a common order-in-original dated 20-12-1988 passed by Collector of Central Excise, Bangalore by which he has confirmed a demand of Rs. 1,21,141.80 raised in the show cause notice dated 15-7-1988 under Rule 9(2) of Central Excise Rules, 1944 read with Section 11A of Central Excises & Salt Act, 1944 on the goods cleared without payment of Central Excise Duty during the period 4-9-1987 to 23-6-1988. He has further ordered for confiscation of 540 litres of rubber solution valued at Rs. 7,000/- and as the same had been provisionally released, he therefore, ordered for imposition of fine of Rs. 1,000/- and also ordered for imposition of fine of Rs. 500/- on M/s. Namaste Leather Garments (P) Ltd. (who have preferred appeal in E/1410/89 on this portion of the order). A penalty of Rs. 12,000/- has also been imposed on the appellant under Rule 9(2)/52A/173Q(1)/226 of Central Excise Rules/ 1944. The show cause notice dated 15-7-1988 alleges that the appellant M/s. Namaste Paints (P) Ltd. had contravened the provisions of Section 6 of the Central Excises and Salt Act, 1944 read with Rules 9(1), 52A, 53, 173B, 173C, 173F, 174 & 226 of Central Excise Rules, 1944 inasmuch as they had wilfully suppressed the fact of manufacturing of Rubber solution falling under chapter sub-heading No. 4005 of Central Excise Tariff Act, 1985 in their factory and cleared the said goods between 4-9-1987 to 23-6-1988 without obtaining Central Excise Licence and without following Central Excise procedure and without payment of Central Excise Rules thus evading a duty amount of Rs. 1,21,141.80. The appellant M/s. Namaste Leather Garments (P) Ltd. were alleged to have contravened the provisions of Rule 209(A) of Central Excise Rules, 1944 inasmuch as they had acquired possession of 540 litres of non-duty paid Rubber Solution in 18 drums from the other named appellant, and the goods had not been supported with any duty paying documents and hence the same was liable for confiscation.
2. The appellant No. 2 herein by their reply dated 29-8-1988 submitted inter alia that they were SSI Unit. It is their case that they had been manufacturing leather adhesive with the use of certain chemical compounds such as Dentrite, (2%), Arabic Gum and Compher (3%) and industrial solvent known as boiling point solvent (95%). The product is known in the market as leather adhesive and that they have not used natural rubber at all. This they had manufactured till 19-5-1980. After the receipt of Licence from Rubber Board, they switched over to the manufacture of the Leather Adhesive with the use of Natural Rubber in the proportion of 4%, Industrial Solvent (SBPS) 95% Dentrite l/2%, Arabic Gum and Compher l/2% in a proportion of 1 kg. It is their contention that the product Rubber based or Dentrite based Adhesive/solution is nothing but prepared glues or other prepared Adhesives not elsewhere specified or included in the Central Excise Tariff and it is correctly classifiable under sub-heading 3506.00 of Central Excise Tariff 1988-89 and not under sub-heading 4005 of Central Excise Tariff as alleged by the department. They contend that it is not an article of Rubber at all but is only a glue or an adhesive. They relied heavily on the ruling rendered in the case of Elgi Polytex Ltd. v. Collector of Central Excise as reported in 1988 (034) ELT 404. They have further claimed exemption under Notification No. 175/86-C.E., dated 1-3-1986 and also pleaded that they do not come under the licensing control as per Notification No. 11/88-C.E., dated 15-4-1988. The ld. Collector in the impugned order held that the case Elgi Polytex (supra) cannot be applied to the facts of this case as it had not been accepted by the department and the same was before Supreme Court and it had not allowed finality. He held that after the case had been filed they had filed classification and Asstt. Collector had classified the same under Tariff Heading 40.05 on the classification declaration filed on 30-6-1988 by the party. He has also noted that the party by letter dated 20th August 1988 had requested for treating the classification already filed by them ‘under protest’ claiming the goods classifiable under Heading 35.06. The ld. Collector has held that as the goods had been classified under Tariff Heading 40.05 and that they had not filed any appeal, the classification under Tariff Heading 40.05 required to be confirmed. In the order, the ld. Collector has not dealt with the plea of the appellant regarding the benefit of Notification No. 175/86-C.E./ dated 1-3-1986 claimed by them.
3. We have heard Ms. Sarita Sharma, ld. Advocate for the appellant and Shri Somesh Arora, ld. JDR for the revenue.
4. Miss S. Sharma relied heavily on the ruling of Elgi Polytex’s which has been confirmed by the Hon’ble Supreme Court as reported in 1989(08)LCX0086 Eq 1989 (043) ELT A130. There is no difference in the process of manufacture in this case and in the reported citation and this ruling is further confirmed in another case of Collector of Central Excise v. MRF Ltd. as reported in 1990(07)LCX0088 Eq 1990 (050) ELT 0604 (Tri.) = 1990 (029) ECC 315.
5. On the other ld. JDR contended that there is no vulcanising agent in the product and hence sub-heading 35.06 is ruled out. The product is a Rubber solution and hence clearly falls under sub-heading 40.05. Explanatory notes of HSN under Heading 40.05 also describes products of this type. He also referred to the ruling rendered in the case of Collector of Central Excise v. Adhinesh Rubber as rendered in order Nos. 76-77/90-C dated 31-1-1990 and contended that vulcanising agent is necessary for classifying the product under sub-heading 35.06 of Central Excise Tariff, 1985.
6. We have carefully considered the submissions of both the sides and perused the citations relied before us. The ld. Collector has not examined the case on merits. He was also not preferred to apply the ruling of the Tribunal rendered in the case of M/s. Elgi Polytex nor has to tried to distinguish the same. He has proceeded on the basis of Asstt. Collector approving the classification filed on 30-6-1988. But the period in question is 4-9-1987 to 23-6-1988 and therefore, he was bound to have examined the same, when the appellant had specifically raised the question of correct classification. Further, the party has also raised the claim for the benefit of Notification No. 175/86, which has not been gone into at all. Therefore, the impugned order is not a speaking order and on this ground alone the order deserves to be set aside. The appellant are claiming the case to be covered by two cited rulings. While ld. JDR has contested the case on the ground that for classifying under sub-heading 35.06 the presence of vulcanising agent is necessary. In this context, he has relied on an unreported ruling cited by him.
Chapter 35 covers Albuminoidal Substances, modified starches, glues, Enzymes and sub-heading 3506 reads
“Prepared glues and other prepared adhesives not elsewhere specified or included”.
We have gone through the chapter notes also. There is no reference anywhere in the notes that for prepared glues there has to be a presence of vulcanising agent.
Chapter 40 deals with Rubber and Articles thereof. Note 3 of the Chapter 40 reads
“In heading Nos. 40.02, 40.03 and 40.05 the expression ‘Primary forms’ applies only to liquids and pastes (including latex, whether or not prevulcanised and other dispensions and solutions), and blocks of irregular shape, lumps, bales, powders, granules, crumbs and similar bulk forms”.
Note 9 reads
“In Heading Nos. 40.01, 40.02, 40.03, 40.05 and 40.08, 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”.
Sub-heading 4005.00 reads
“Compounded rubber, unvulcanised in primary forms or in plates, sheets or strips”.
Does the product in question fall under sub-heading 4005.00.
The definition of “Rubber” “rubber hard” as appearing at page 901 of “The Condensed Chemical Dictionary” by Gessner G. Hawley, Tenth Edition reads as follows :
“Rubber” Any of a number of natural or synthetic high polymers having unique properties of deformation (elongation or yield under stress and elastic recovery after vulcanization (q.v) with sulfur or other cross-linking agent, which in effect changes the polymer from thermoplastic to thermosetting. The yield of stretch of the vulcanized material ranges from a few hundred to over 1000 per cent. The deformation after break, called “permanent set”, is usually taken 5 to 10% for natural rubber to 50% or more for some synthetic elastomers, and varies considerably with the state of vulcanization and the pigment loading.
“Rubber, hard” A rubber compounded with from 30 to 50% by weight of sulfur and cured until an extremely hard, brittle product is formed. Lime or magnesia is used as activator. The theoretical maximum of sulfur that can combine chemically with rubber hydrocarbon is 32%. Combustible; non-toxic.
Hazard. Flammable in form of dust.
Uses Battery boxes, tank linings; acid-and alkali-resistant equipment, combs. As dust, filler for low-cost rubber products.
The definition of “Adhesive-rubber based” appears at page 21 of the said Dictionary which is reproduced herein below :
“Adhesive, rubber-based : (Cement, rubber) (1) A solution of natural or synthetic rubber in a suitable organic solvent, without sulfur or other curing agent; (2) a mixture of rubber (often reclaimed), filler, and tackifier (pine tar, liquid asphalt) applied to fabric backing (pressure-sensitive friction tape); (3) a room-temperature curing rubber-solvent-curative mixture, often made up in two parts, which are blended just before use; (4) rubber latex, especially for on-the-job repairing, such as conveyor belts; (5) silicone rubber cement (see ”RTV" and silicone).
Hazard : Those containing organic solvents, (1) and (3) above are flammable.
Shipping Regulations : (Rali, Air) Flammable Liquid laber".
The reading of the definition of “rubber” “rubber-hard” and that of ‘Adhesive-rubber based’ with the chapter notes 3 & 9 of Chapter 40 clearly indicates that this chapter deals with Rubber and Articles thereof and not with ‘glues’ or ‘Adhesives with rubber-base’. We have gone through the HSN notes under Chapter 40.05. It clearly states that “This heading covers compounded rubber which is unvulcanised and is in primary form or in plates, sheets or strip”.
It further clearly states that “This heading also excludes :
(c) prepared glues and other prepared adhesives consisting of rubber solutions or dispensions with added fillers, vulcanising agents and resins, and rubber solutions and dispensions put up for retail sale as glues or adhesives, not exceeding a net weight of 1 kg. (Heading 35.06).
Reading the HSN notes also, it is clear that glues prepared out of 4% of natural rubber do not fall under Chapter 40, and the exclusion referred above in HSN note under Heading 40.05 is also very specific about it.
This issue has been gone into in Elgi Polytex’s and has ruled out the applicability of Chapter 40.
The ld. JDR cited order No. 75 and 77/90-C. In this case also the bench has applied the ratio of Elgi Polytex’s case and dismissed the revenue’s appeal. In fact this ruling clearly helps the appellant’s in the present case.
The ld. JDR argued that vulcanising agent is a must in a adhesive for classifying under Chapter 35. The definition of “Adhesive - Rubber based” extracted Supra shows that it can be prepared without sulfur also, which is a vulcanising agent. Vulcanising agents are required as a must for the process of vulcanisation but it is not necessary for preparation of ‘adhesives rubber based’ or for glues as per the definitions extracted above and also by reading the definition of vulcanisation appearing at page 1091 of the said dictionary:
“Vulcanisation: A physicochemical change resulting from cross-linking of the unsaturated hydrocarbon chain of polyisoprene (rubber) with sulfur, usually with application of heat. The precise mechanism which produces the network structure of the cross-linked molecules is still incompletely known. Sulfur is also used with unsaturated types of synthetic rubbers; some types require use of peroxides, metallicoxides, chlorinated quinones, or nitrobenzenes. Natural rubber can be vulcanized with selenium, organic peroxides and quinone derivatives, but these have limited industrial use, high-energy radiation curing is an important innovation.
Vulcanisation can be effected with sulfur alone in high percentage, but the time required is too long to be economic and the properties obtained are poor, Inorganic accelerators and metallic oxides (usually zinc) are essential for satisfactory cure. Organic accelerations (q.v.) introduced in the early 1920’s, notably shortened vulcanisation time.
Three factors affect the properties of a vulcanisate: (1) the percentage of sulfur and accelerator used, (2) the temperature; and (3) time of cure. Sulfur percentage is usually from 1 to 3%, with strong acceleration the time can be as short as three minutes at high temperature (150°C). Vulcanisation can also occur at room temperature with specific formulations (self-curing cements).
Vulcanisation was discovered in 1846 by Charles Goodyear in the U.S. and simultaneously by Thomas Hancock in England. Its over-all effect is to convert rubber hydrocarbon from a soft, tacky, thermoplastic to a strong, temperature-stable thermoset having unique elastic modulus and yield properties. See also rubber, rubber synthetic".
In the case of Collector of Central Excise v. MRF Ltd. (supra) the product had a presence of ‘Rubber Compound - 12% (b) Rubber Chemical 3% (c) solvent 85% yet the classification under Heading 35.06 of Central Excise Tariff has been confirmed applying the ratio of Elgi Polytex’s case.
In the result, we uphold the appellant’s contention and allow their appeals by setting aside the impugned order.
Equivalent 1993 (68) ELT 861 (Tribunal)