1998(06)LCX0085
IN THE CEGAT, COURT NO. III, NEW DELHI
S/Shri P.C. Jain, Member (T) and S.S. Kang, Member (J)
INDUSTRIAL ORGANIC CORPORATION LTD.
Final Order No. 723/98-C, dated 26-6-1998 in Appeal No. E/2134/93-C
Cases Quoted
Collector v. Essen Synthetic (P) Ltd. — 1987(08)LCX0073 Eq 1987 (032) ELT 0759 (Tribunal) — Referred .... [Paras 5, 8]
Collector v. Kumudam Publication — 1995(12)LCX0085 Eq 1997 (096) ELT 0226 (S.C.) — Referred ................. [Para 12]
Advocated By : Shri A.K. Madan, SDR, for the Appellant.
Shri V. Sridharan, Advocate, for the Respondent.
[Order per : P.C. Jain, Member (T)]. - Respondents herein are engaged in the manufacture of Calcium Propionate since 1980 and were filing declaration with the department every year for exemption from licensing control claiming the product as fungicide which is exempted from payment of duty under sub-heading 3808.10 of the Central Excise Tariff Act, 1985.
2. Central Excise Officer, visiting on 17-12-1990 drew a sample of the product and sent it to Chemical Examiner of the Department for testing. Test result indicated that it was a definite organic chemical falling under Heading 2915.50 attracting duty @ 15% ad valorem.
3. The officers, therefore, on a surprise visit, seized 2940 kgs. of the said finished goods valued at Rs. 1,25,000/- found lying in the factory premises. On scrutiny of records, it was also found that the said goods involving duty of Rs. 65,47,291.65 were removed without payment of duty during the period March, 1986 to December, 1990 without following proper Central Excise procedures. Hence a show-cause notice dated 3-4-1991 was issued to the respondents as to why the aforesaid duty be not recovered and penalty be not imposed.
4. On adjudication, the adjudicating authority, namely Collector of Central Excise, Bombay III Collectorate held that the product is classifiable under Heading 3808.10 and is not liable to any duty. Therefore, he dropped the proceedings drawn against the respondents and also released the seized product unconditionally. Central Board of Excise & Customs in exercise of its powers under Section 35-E has found the adjudication order, impugned before us, as incorrect, illegal and improper and therefore directed the said Collector to file an application (to be treated as an appeal) before us.
5. Following grounds have been taken by the Revenue in its appeal :
(i) Under the scheme of Central Excise law, the criterion of end-use was not relevant at all unless the same finds a specific mention expressly under the Tariff.
(ii) Calcium propionate is a well defined organic chemical, there was no warrant to ascertain its uses and rely on the same for its classification.
(iii) Adjudicating authority’s reliance on Tribunal’s decision in the case of Collector of Central Excise v. Essen Synthetic (P) Ltd. [1987(08)LCX0073 Eq 1987 (032) ELT 0759 (Tribunal) = 1987 (013) ECR 0602 (Cegat)] regarding non-reliance on the provisions of the insecticides Act relating to manner of sale and packing of insecticides (including fungicides and weedicides) for the purpose of Central Excise law is incorrect. The authority, it is urged, should have held that the present product, not being sold in the manner and packing, as required in that Act, cannot to be treated as fungicide.
(iv) Insecticides (including fungicides) are used by application of spraying, dusting, sprinkling, casting, impregnating etc. Present product is not used in that manner. It is used as an additive in food products such as baked bread etc.
(v) The product is used in baking industry as an additive according to IS-6031-1971 of Indian Standards Specification.
6. It is also urged that the respondents wilfully mis-described their product as ‘fungicide’, which it is not with a view to evade payment of duty. Therefore, larger period of limitation for issuing the show-cause notice has been rightly invoked.
7. Consequently it is prayed by the learned SDR that the impugned order be set aside. Demand of duty be confirmed, seized goods be confiscated as also the land, building and plant and penalty be imposed.
8. Opposing the above contention, learned Advocate, Shri V. Sridharan has urged that Chapter Note 1(a)(2) under Chapter 38 of the Central Excise Tariff Act, 1985 clearly indicates that ‘fungicides’ are classifiable under Chapter 38, even if these are recognisable as chemically defined compounds. In this connection he relies on the following circulars of the Central Board of Excise & Customs :-
“ ‘Insecticides, Fungicides, Weedicides and Pesticides’ irrespective of classification for basic duty purposes would be covered under Heading No. 3801.20 of the Central Excise Tariff. Whatever be the mode of packing and whether or not of technical grade or constituting preparations and whether in bulk form or otherwise, and would accordingly be eligible for ‘nil’ rate of assessment as provided in the Central Excise Tariff Heading No. 3810.20-Madurai Collectorate Trade Notice No.120/86, dated 27-10-1986.
DDT Technical - On examination of the Notes under Chapter 38 and Chapter 29, it is observed that separate chemically defined elements or compounds with the exception of insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators etc. were excluded from the purview of Chapter 38 by virtue of Note 1(a)(2) of Chapter 38. It may be mentioned that Heading 38.08 of the Central Excise Tariff is not fully aligned with the same heading of HSN inasmuch as the concept of retail sale, which is crucial in HSN, had been dispensed with in regard to classification of goods under Heading 38.08 of the Central Excise Tariff. Therefore DDT whether in bulk of for retail sale would merit classification under Heading No. 38.08 of the Schedule to the Central Excise Tariff Act, 1985 if the same is meant for use as insecticides-C.B.E. & C. Circular No. 17/79-CX. 3, dated 8-5-1991 - 1991 (054) ELT (T21).”
9. Reliance placed by the Revenue on the provisions of Insecticides Act regarding manner of sale and packing of insecticides (including fungicides) is in appropriate and totally irrelevant for the purpose of classification under the Central Excise Tariff Act, 1985. Tribunal’s judgment (supra) in the case of Essen Synthetics relied upon by the lower authority is correct.
10. The fact that the product is an anti-fungal agent is clear from the note appended to Deputy Chief Chemist’s report, referred to in the impugned order. It indicated that the product finds its use as “antifungal/mold inhibitor/preservative in food industry. He has also pointed out that ISI Specification No. IS 6031-1971, para 0.3 reads as follows :-
“Calcium propionate is an anti-roping agent and mould inhibitor. It is permitted to be used in Bread under P.F.A. Rules 1955”.
11. He has also drawn attention to the `Handbook of Food Additives’ published by the Chemical Rubber Co., relevant extracts of which are given below :-
“They evaluated the fungistatic properties of the normal saturated fatty acids containing from 1 to 14 carbon atoms, over a pH range from 2 to 8 and found that ratifungal effectiveness varied according to chain length, concentration of acid and pH. These same investigators in that year patented the use of propionic acid and certain of its salts as a mold inhibitor in bread. Propionates were elected because the higher homologs, although they were higher antimicrobial activity, also have tastes and odors would be noticeable, especially in baked goods.
At about this same time others found that propionic acid and propionates are especially effective against Bascillus mesentericus, which causes ‘rope’ in bread, and also that propionates are useful to retard the molding of cheese.”
A recent study of Seiler presented quantitative data on equilibrium relative humidity as a controlling factor in mold growth on bread and caked, as well as information on propionates and sorbates as mold inhibitors. He reported that for bread,0.2% of calcium propionate by flour weight extended mold-free up to six days, as compared with four days for untreated leaves. No odor problems were found at this level.
In relation to rope control by proportionate there is the early study of O’Learyl and Kralovec. Their data showed 0.11% (basis of flour) of calcium propionate to be more effective than 0.25% of calcium acid phosphate in the control of rope in bread inoculated with various levels of B, mesentericus, up to 1,00,000 bacteria per loaf. The propionates appeared to delay the development of color and viscousness more than the phosphate. These workers reported that calcium propionate at a level of 0.188% effectively inhibited rope in bread having a pH as high as 5.8. At pH 5.6, a concentration of 0.15% as effectively inhibitory. Because propionate also inhibits molds and spares used, it has superseded the acid phosphate as an anti-rope agent.”
He draws further attention to C.G. Hawley’s Condensed Chemical Dictionary where uses of Calcium propionate has been described as :-
“Use - Mold-inhibiting additive in bread, other goods, tobacco, pharmaceuticals, medicines (anti fungal agent)”.
12. He also points out that use of an article or product is not always irrelevant in determining classification. In this connection he relies on Apex Court’s observation in Collector of Customs v. Kumudam Publication [1997 (096) ELT 116 - para] as follows :-
“We are unable to say that the conclusion arrived at by the Tribunal is not correct. It may not also be entirely correct to say that in no case can the end use or function of the goods is relevant on the question of classification. A Three Judge Bench of this Court has relied upon the function and end use also in determining the classification in Indian Tool Manufacturers v. Assistant Collector of Central Excise, Nasik & Ors. [1994(09)LCX0084 Eq 1994 (074) ELT 0012 (S.C.) = 1994 (Supp.) 3 SC.C. 632].”
13. We have carefully considered the pleas advanced from both sides. We observe that the product is used by the respondents as an antifungal agent. Even otherwise, property and function of calcium propionate, is inhibiting mold i.e. prevention of fungus in the bread and other food products and medicine. This is apparent from the substantial material produced by the respondent. When the Revenue says it is used as a food additive, it forgets why it is added in the food. It is obvious that it is added for inhibiting or preventing growth of mold in the bread or as an antifungal agent. It is not added to achieve any other purpose. It is, therefore, correct to describe the product as a “fungicide.”
14. Revenue’s further argument is that it is not a fungicide in terms of the Insecticides Act. This plea is not tenable. Purpose of the Insecticides Act is to regulate the production and sale of such insecticides (including fungicides) as are covered by that Act. The Act does not seek to cover all insecticides and fungicides, weedicides. Provision of the Insecticides Act, therefore, have no application in determining the classification of a fungicide under the Central Excise Tariff Act, 1985. Chapter note 1(a)(2) of Chapter 38 read with the relevant Tariff Heading 38.08 leaves no doubt about classification of calcium propionate under that heading, even if it is a well defined chemical compound.
15. Revenue’s reliance on HSN Explanatory Notes relating “Fungicides” at page 529 of Vol. II under heading 38.08 is not quite appreciated. Rather, it helps the respondents when it states that “fungicides are products which protect against the growth of fungi (e.g. preparations based on copper compounds) or which are designed to eradicate the fungi already present (e.g., preparation based on formaldehyde)”. If the Revenue’s emphasis is on `copper compounds’ and `preparation of formaldehyde’, which the present product is not, the plea is without substance. Revenue is ignoring the fact that HSN Explanatory Notes is merely giving them as examples of fungicide and not that those are the only fungicides covered by Tariff Heading 38.08.
16. In view of the foregoing discussion, we reject the contention of Revenue on classification of calcium propionate under 29.15.
17. Although, in view of the foregoing finding, it is not necessary to go into the question whether the show cause notice is barred by time or not, yet we observe that respondent did not mis-state or suppress anything in its declaration to the Revenue. It’s clearly mentioned “calcium propionate”. Respondent’s further declaration that it is `fungicide’ was a matter of his belief which is clearly bonafide in view of its uses as mold inhibitor in bread. Calcium propionate was and is a well-defined chemical compound. Revenue could, as it sought to do subsequently, classify it differently under Chapter 29. No new fact has emerged after the visit of Central Excise Officers leading to the impugned order. Therefore, the show cause notice would be barred by time for bulk of the period.
18. In view of the foregoing discussion, there is no warrant for confiscating the seized goods and imposing any penalty.
19. Hence Revenue’s appeal is dismissed.
Equivalent 2000 (124) ELT 559 (Tribunal)