1997(12)LCX0207

IN THE CEGAT, COURT NO. III, NEW DELHI

Shri S.K. Bhatnagar, Vice President and Ms. Jyoti Balasundaram, Member (J)

TALOJA RESINS & ADHESIVES PVT. LTD.

Versus

COLLECTOR OF C. EX., BOMBAY

Final Order No. 615/97-C, dated 5-12-1997 in Appeal No. E/4061/90-C

Cases Quoted

Collector v. Bhor Industries Ltd. — 1988(04)LCX0047 Eq 1988 (035) ELT 0346 (S.C.) — Referred                                       [Para 6]

Din Chemicals & Coatings v. Collector — 1994(12)LCX0076 Eq 1995 (076) ELT 0112 (Tribunal) — Followed [Paras 16, 17, 18]

Collector v. Mahendra Engg. & Chemical Products Ltd. — 1994(03)LCX0115 Eq 1994 (071) ELT 1037 (Tribunal) — Relied on                                 [Para 17]

Namaste Paints Pvt. Ltd. v. Collector — 1993(06)LCX0069 Eq 1993 (068) ELT 0861 (Tribunal) — Relied on                [Para 17]

Advocated By : Shri Santosh Kumar, Director, for the Appellant.

Shri A.K. Agarwal, SDR, for the Respondent.

[Order per : S.K. Bhatnagar, Vice President]. - This is an appeal filed against the order of the Collector (Appeals), Bombay dated 19-2-1990.

2. Learned representative of the appellants stated that in April, 1986, the appellants started manufacturing Synthetic Resin based adhesive by dissolving duty paid Polyvinyl Alcohol Powder in aqueous solution and adding additives. These were marketed under the trade name of Titebond. The classification list Nos. CL/TRAPL/1/86-87, dated 20-11-1986, CL/TRAPL/2/86-87, dated 17-6-1986 and No. CL/TRAPL/3/86-87, dated 30-6-1986 for different grades were approved by the Department under Chapter No. 3501.90. The classification list No. CL/TRAPL/4/86-87, dated 20-11-1986 was kept pending for approval subject to chemical test and classification list No. CL/TRAPL/ 5/87, dated 14-1-1987 was approved provisionally under Rule 9(b), under Chapter No. 3501.90.

3. It was his submission that the Assistant Collector vide his order dated 21-9-1987 informed that the sample of Titebond P-15 has been found as `aqueous paste of Polyvinyl Alcohol’. Therefore, as per the test report, Titebond products are classifiable under sub-heading No. 3905.20. The A.C. revoked the approval of earlier classification list asking them to file fresh classification list under Chapter No. 3905.20. Hence, the appellants classified their products (vide classification list No. CL/TRAPL/6/87, dated 26-9-1987) under Chapter No. 3905.20 under protest.

4. Their appeal against the order of the Assistant Collector has been rejected by the Collector (Appeals).

5. It was their contention that the Collector (Appeals) has failed to appreciate that Chapter Note 3 to Chapter 39 restricted its scope to the products which have been manufactured by chemical synthesis. Since the appellants manufactured adhesives based on Polyvinyl Alcohol which do not involve any chemical synthesis, this preparation did not amount to manufacture for classification under Chapter 39 before 1988. The Collector of Central Excise (Appeals) failed to appreciate the change in Chapter Note 6 in 1988-89 Budget. The Collector (Appeals) has also failed to appreciate that adhesives based on Polyvinyl Alcohol will show Polyvinyl Alcohol on chemical testing. Therefore, his basis of classification on the chemical test report is not correct. The adhesives based on various synthetic resins on chemical testing will show presence of these synthetic resins. In spite of this, adhesives based on plastics are clearly classified under Chapter 35. Notification No. 125/87, dated 29-4-1987 describes glues and adhesives falling under sub-heading No. 3506.00 as “Glues and adhesives based on plastics.”

6. It was also his submission that the Collector (Appeals) has failed to appreciate the basis for classification decided by Supreme Court in their order in the matter of Collector of Customs v. Bhor Industries Limited reported in 1988(04)LCX0047 Eq 1988 (035) ELT 0346 (S.C.) in which Santicizer 429 was classified as Plasticizer under Chapter 3801.19(6) and not under Chapter 39 in spite of its being a polymer plasticizer. Similarly, the Explanatory Notes to Chapter 35.05 of HSN differentiate between Dextrins and other modified starches (Chapter 3505.10) and Glues based on them (Chapter 3505.20).

7. Further, the demand raised by the Supdt. has been worked on wrong assessable value.

8. Moreover, the Assistant Collector cannot change the approved classification with retrospective effect.

9. Learned DR reiterated the Department’s view and stated that in the instant case, a sample of the product Titebond-15 was sent to the Deputy Chief Chemist and the test report given by him has been recorded in the impugned order. It was his submission that the Collector (Appeals) has held that in view of the test report, the Assistant Collector has correctly approved the appellants’ product under Chapter No. 3905.20.

10. It was his submission that it is important to note that the appellants’ product is in the form of a preparation including such ingredients such as glycerine and the A.C. has rightly referred to Chapter Note 6 (which is required to be read with Chapter Note 3). The process of manufacture does not involve any synthesis and is merely an aqueous paste of PVA and there is a specific entry in Chapter 39 for PVA in any form namely, 3905.20. Therefore, the A.C. had correctly classified under this heading and the Collector (Appeals) has rightly confirmed the order.

11. In response to queries from the Bench, learned DR stated that it is not merely the use but the chemical nature of the product and headings which determine the classification.

12. In reply, learned representative stated that Titebond products are sold and used as adhesives and a product may be classified on the basis of its application and not its chemical nature as can be seen from various items of the Tariff. It was also his submission that the change in the wording of Chapter Note 6 in 1988-89 Budget indicates that prior to this change, product could not be classified under Chapter 39 if no chemical synthesis was involved (in view of Chapter Note 3). Without prejudice to the above submissions, he would also like to mention that in any case, the basis of calculation shown in the work-sheet attached with the show cause notice was also incorrect.

13. It was their contention that their product was rightly classifiable under Chapter 35 as adhesive and no mis-declaration was involved.

14. We have considered the above submissions. We observe that the relevant provisions in the rival Chapters (and headings) as they stood in 1986-87 read as follows :-

“Chapter 35. ALBUMINOIDAL SUBSTANCES; MODIFIED STARCHES;

        GLUES; ENZYMES.

35.01 ALBUMINOIDAL SUBSTANCES; MODIFIED STARCHES; GLUES;

    ENZYMES.

“Chapter 39. PLASTICS AND ARTICLES THEREOF.

Note 3. Heading Nos. 39.01 to 39.11 apply only to goods of a kind produced by chemical synthesis, falling in the following categories :-

(a) Liquid synthetic polyolefins of which less than 60 per cent, by volume distills at 300^oC, after conversion to 1,013 millibars when a reduced pressure distillation method is used (heading Nos. 39.01 to 39.02);

(b) Resins, not highly polymerised, of the coumarone-indene type (heading No. 39.11);

(c) Other synthetic polymers with an average of at least 5 monomer units;

(d) Silicones (heading No. 39.10);

(e) Resols (heading No. 39.09) and other prepolymers."

Note 6. In heading Nos. 39.01 to 39.14, the expression `primary forms’ applies only to the following forms :-

“Polyvinyl alcohols, whether or not containing unhydrolysed acetate groups.”

(a) Liquids and pastes, including dispersions (emulsions and suspensions) and solutions;"

Subsequently, the above Note 6 was amended to read as follows :-

“6. (a) In heading Nos. 39.01 to 39.14, the expression `primary forms’ applies only to the following forms :-

(i) Liquids and pastes, including dispersions (emulsions and suspensions) and solutions.

(b) Notwithstanding anything contained in Note 3 to this Chapter, heading Nos. 39.01 to 39.14 shall also include primary forms obtained from conversion of another primary form, falling under the same heading, and such conversion shall amount to “manufacture”."

The HSN provisions regarding Glues and Adhesives read as follows :-

“35.06. - Prepared glues and other prepared adhesives, not elsewhere specified or included; Products suitable for use as glues or adhesives, put up for retail sale as glues or adhesives, not exceeding a net weight of 1 kg.”

15. We also observe that the period with which we are concerned is 1986-87 and subsequent amendment to Chapter Note 6 [by way of introduction clause (b)] in Chapter Note 6 was prospective in character and had no retrospective effect. Therefore, for the purpose of classification under Chapter 39, the headings have to be read with Chapter Note 3 and Chapter Note 6(a) as they stood during the relevant period and the headings. That apart, even if for arguments’ sake it is considered that the amendment was only clarificatory and therefore, applicable, it would still be necessary to decide as to which of the two entries is more appropriate.

16. Insofar as Chapter 35 is concerned, it includes `Glues’ and during the relevant period, these were classifiable under Heading 35.01. Even in HSN, Glues based on starches or on Dextrins and other modified starches fall under sub-heading 35.05 and prepared glues and other adhesives not elsewhere classifiable and suitable for use as adhesives were classifiable under Heading 35.06; And, it is noteworthy that the condition of not exceeding net weight of 1 kg. included in HSN heading had not been incorporated in our tariff. Further, what is important from our point of view is that synthetic glues or prepared glues including products suitable for use as glues or adhesives are also covered under Chapter 35. In other words, the HSN tariff takes into consideration the criteria of use for the purpose of classification of glues. The chemical nature of a product is important and so is its use but which of these two or both of them are required to be taken into consideration or which one of them will have to be given predominance depends upon the nature of the tariff entry, the language of the heading and chapter notes (read with the rules of interpretation). In this particular case, it is apparent that it is the criteria of use which has to be given due consideration. In this respect, the appellants’ claim that their product is being used as an adhesive has not been contradicted or shown to be wrong. Furthermore, in a similar case of M/s. Din Chemicals & Coatings v. CCE, Calcutta reported in 1995 (076) ELT 112, a three Member Bench of the Tribunal has already held that such products were classifiable under 35.06 (and not under 3905.20).

17. Our view is further buttressed by the Tribunal’s order in the case of Collector of Central Excise, Pune v. Mahendra Engg. & Chemical Products Limited reported in 1994(03)LCX0115 Eq 1994 (071) ELT 1037 (Tribunal) in which the adhesive was held as classifiable under Item 68 on the ground that the end use was relevant for its classification. Again, in case of Namaste Paints Pvt. Ltd. v. Collector of Central Excise reported in 1993(06)LCX0069 Eq 1993 (068) ELT 0861 (Tribunal), it has been held that prepared glues and adhesives with rubber based glue were classifiable under Heading 35.06 (and not under 40.05). It is, however, the case of Din Chemicals & Coatings (supra) which is more similar to the present case.

18. During the period with which we are concerned, the Chapter 35 covered these types of glues under Chapter Heading 3501.90 (and subsequently under 35.06). Respectfully following the ratio of the judgment of the Tribunal in the case of Din Chemicals & Coatings (supra), we hold that the product was classifiable under 3501.90 and the classification list had been correctly approved provisionally and there was no need to change the classification subsequently at the time of its finalisation. There was no mis-declaration involved and the authorities below have erred in passing the impugned orders. We, therefore, set them aside and accept the appeal.

_______

Equivalent 1998 (97) ELT 523 (Tribunal)