2000(08)LCX0379
IN THE CEGAT, COURT NO. III, NEW DELHI
Ms. Jyoti Balasundaram, Member (J) and Shri V.K. Agrawal, Member (T)
NATIONAL ORGANIC CHEMICAL INDS. LTD.
CASES CITED
Collector v. Calcutta Steel Industries — 1988(10)LCX0027 Eq 1989 (039) ELT 0175 (S.C.) — Referred............ [Paras 2, 8]
Collector v. Premier Tyre Ltd. — 1984(12)LCX0015 Eq 1985 (020) ELT 0124 (Tribunal) — Relied on..................... [Para 9]
Hindustan Ferrodo v. Commissioner — 1996(12)LCX0029 Eq 1997 (089) ELT 0016 (S.C.) — Referred............... [Paras 2, 8]
Prakash Pipe and Industries Ltd. v. Collector — 1992(07)LCX0046 Eq 1992 (062) ELT 0580 (Tribunal) — Referred [Para 5]
Advocated By : S/Shri A.M. Setalwad, Sr. Advocate, D.B. Shroff and L.P. Asthana, Advocates, for the Appellants.
Shri H.K. Jain, SDR, for the Respondent.
[Order per : V.K. Agrawal, Member (T)]. - In all these appeals the common issue involved is whether Polyethylene Glycol (PEG-300 to 1500) is classifiable under sub-heading 2901.90 of the Schedule to the Central Excise Tariff Act from 1-3-1986 to 28-2-1988 and therefter under sub-heading 2905.90 as claimed by the Appellants or under sub-heading 3907.20 as confirmed in the impugned orders dated 28-4-1994 and 30-3-1993.
2. Shri A.M. Setalwad, learned Sr. Advocate along with Shri D.B. Shroff, Advocate appearing on behalf of M/s. National Organic Chemical Industries Ltd., submitted that the Collector, Central Excise under the impugned order No. 24/94, dated 28-4-1994 has classified the impugned product under sub-heading 3907.20 on the basis of Note 3 to Chapter 39 of the Tariff; that before introduction of present Central Excise Tariff the Department was trying to classify the impugned product under Tariff Item 15A whereas they were classifying the product under Tariff Item 68 of the Old Central Excise Tariff and the same was accepted by the Assistant Collector vide Adjudication Order dated 25-1-1983; that they have been manufacturing PEGs for more than a decade; that the molecular weight of each PEG is mentioned as suffix, for example, PEG 200, PEG 300, etc., that such nomenclature is being used by all the manufacturers of PEGs; that all PEGs predominantely exhibit chemical behaviour acyclic alchol; that PEGs are condensation products of Ethylene Glycol and Ethylene Oxide; that Ethylene Glycol is indisputably an alcohol; that Polyethylene Glycols are Polymeric derivative of Ethylene Glycol and have general formula HOCH2 (CH2 OCH2) CH2OH. He referred to technical book namely, “ALCOHOLS, THEIR CHEMISTRY PROPERTY AND MANUFACTURE, by Monick J.K.” and the affidavit of Prof. D.D. Kale of Deptt. of Chemical Technology, University of Bombay. In his opinion, Prof. Kale has mentioned that all grades of PEG can be regarded as acyclic alcohols. The learned Sr. Advocate also referred to the “Encyclopaedia of Chemical Technology,” by Kirk Othmer in which it is mentioned that “Polyglycols are adducts of simple glycol and are distinguished by intervening Ether Linkages in the hydrocarbon chain as represented by the general formula CaH2aO, (OH) (sic). Many commercially important Polyglycols have physical, chemical and toxicological properties similar to those simple glyclols” and that “glycols undergo reaction common to Mono-hydric Alcohol forming esters, acetals and similar products.” He mentioned that as PEGs have two hydroxyl groups, they clearly merit classification under Heading 20.05. He also mentioned that diols are classified under sub-heading 2905.31 under HSN; that it is mentioned in Explanatory Note of HSN that “Acyclic Alchols are derivatives of Acyclic Hydrocarbons obtained by replacing one or more atoms of hydrogen by the hydroxyl group. They are oxygenated compound which react with acids giving compounds known as esters." He also mentioned that as per Short Oxford Dictionary, diol is compound whose molecule contains 2 hydroxyl group. The learned Sr. Advocate, therefore, contended that all the PEGs are separate chemically defined organic compound and are used as a chemical intermediate in the manufacture of esters which find application in the food and textile industry as emulsifier and as an antistatic agents in PVC. He, further, mentioned that in order to be classified as plastic under Chapter 39, the material should comply with the conditions set out in Note 1 to Chapter 39; that Note 2(b) to Chapter 39 excludes from that Chapter the goods that were separate chemically defined organic compounds; that PEGS are liquids and do not comply with Note 1 to Chapter 39 and they are excluded from Chapter 39 being separate chemically defined organic compounds; that Note 3 to Chapter 39 is a Note of limitation and not a Note of extension; that Note 3 does not say that everything which contains more than 5 monomers would fall under heading 39.07; that what Note 3 provides is that heading Nos. 30.01 to 39.11 apply only to goods of a kind produced by chemical synthesis and falling in the category mentioned in sub-clauses of Note 3; that from this it cannot be said that any product with an average of at least 3 monomer units would fall under Chapter 39; that Note 3 does not limit the scope of heading 29.05 nor Chapter 29 has any Note providing that Chapter 29 would not cover products falling under Chapter 39 or Alcohol having more than 5 monomers. The learned Sr. Counsel, relying upon the decision of the Supreme Court in the case of Hindustan Ferrodo v. C.C., Bombay, 1996(12)LCX0029 Eq 1997 (089) ELT 0016 (S.C.), submitted that onus of establishing that goods are classifiable under a particular tariff entry lies upon the department; that the department must have some independent evidence to show that the impugned PEGs are Polyethers; that the department could not merely rely on Note 3(c) to Chapter 39; that on the other hand the appellants have shown by independent evidence such as technical literature and an expert opinion by Prof. Kale that PEGs are classifiable as alcohol falling under Chapter 29. In this connection he relied upon the decision in the case of CCE, v. Calcutta Steel Industries, 1988(10)LCX0027 Eq 1989 (039) ELT 0175 (S.C.), wherein it was held that if the department wants to tax a particular goods known as such then the onus is on the Revenue.
3. Finally, the learned Sr. Counsel submitted that the demand is totally time-barred as the show cause notice was issued on 4-5-1992 for demanding the duty for the period from April, 1987 to July, 1991; that classification list have been finalised after drawing samples and obtaining the Chemical Examiner's report; that they had given a full description of products in classification list; that classification was both accurate and complete and there were neither any mis-statement nor any ommission; that there was no positive act of supression on the part of the appellants; that non-mentioning weight of monomer is not a positive act of supression of information, nor there was any such requirement; that their bona fide are evident from the fact that they were classifying the impugned product in the similar fashion under the old Central Excise Tariff; that further their competitors also describe the product in the same fashion; that in the case of S.M. Dyechem Ltd., CCE (Appeals), Bombay by his order dated 6-5-1994 held that PEGs 300 to 6000 cannot be classified under Chapter 39 and as such there was bona fide dispute about the classification of the impugned product and no mala fide can be alleged against them.
4. Shri L.P. Asthana, learned Advocate appearing on behalf of M/s. Vasudha Chemical P. Ltd., submitted that Note 2(b) to Chapter 39 clearly excludes from Chapter 39 chemically defined organic compounds of Chapter 29; that this exclusion operates at the threshold itself, and therefore, the question whether these goods would equally merit classification under Chapter 39 by virtue of Note 3 become irrelevant; that the impugned products are separate chemically defined organic compounds as they have definite molecular structure and definite molecular weight; that this factual position has not been contradicted by the department; that even Polymers can be chemically defined compounds and that is why Note 2(b) for excluding separate chemically defined organic compounds is kept in Chapter 39; that Note 3 to Chapter 39 is only indicative of what could go under Chapter 39; that in fact, the words “apply only to” in Note 3 to Chapter 39 clearly show that the said Note seeks to restrict the scope of headings 39.01 to 39.11 to certain specified products rather than widen the scope of these headings. The learned Advocate also mentioned that the molecular weight is mentioned after PEGs and they are separate chemically defined organic compounds. He also emphasised that the impugned product must posses the properties of plastics as defined in Note 1 to Chapter 39 which the impugned goods do not posses; that the findings of the Collector (Appeals) in the impugned order dated 30-3-93 to the effect that if the products conform to the descriptions of the goods covered by a heading it must be construde that these products are not hit by a Chapter Note is completely against Rule 1 of Interpretative Rules which provides that for legal purposes, classification shall be determined according to the terms of the headings and any relevant Section or Chapter Note; that accordingly Note to any Chapter cannot be disregarded.
5. Shri L.P. Asthana, learned Advocate, further, mentioned that in the case of S.M. Dyechem Ltd. the Collector (Appeals) under the impugned order dated 6-5-94 has taken into consideration Chapter Note as he has given his clear findings that the Asstt. Collector had only discussed about Note 3(c) to Chapter 39 and had not recorded any findings about Note 2(b) to Chapter 39 and Note 1(a) to Chapter 29; that Collector (Appeals) has also given his findings that all the products from PEG 300 to PEG 6000 are separate chemically defined organic compounds as they have got definite molecular structure and definite molecular weight which are represented by numbers 300 to 6000. Learned Advocate also relied upon the decision in the case of Prakash Pipe and Industries v. C.C.E., 1992 (062) ELT 580 wherein it was held that product being an organic compound having fixed formula, weight density, refractive index, boiling point, etc. merits consideration as a separate chemically defined organic compound.
6. Countering the arguments Shri H.K. Jain, learned SDR, submitted that according to Hawley's Condensed Chemical Dictionary, Polyethylene Glycol is a term used for any of the several condensation polymers of ethylene glycol and the general formula has been given in Hawleys Dictionary; that in the formula, word, ‘n’ has been used in the formula which denotes that molecular formula, is not definite one and ‘n’ can have any number; that it is, therefore, evident that Polyethylene Glycol is not a separate Chemically defined organic compound; that if it was separate chemically defined organic compound there was no question of using the term ‘n’ and it would have been a definite number like 1, 2, 3, 4, ........... In case of higher number what is obtained by condensation of Polymers is not a well defined organic compound but a mixture of compound with varying number but having similar organic structure. The learned SDR also submitted that in the Merck Index the value has been shown in fraction whereas in chemistry there is no question of having anything in fraction; that this also goes to show that the impugned product does not have any definite formula. He also mentioned that PEG 200 was classified under heading 29.05 as it has less than 5 monomers and the average value of as ‘n’ was definite. He also mentioned that as per Explanatory Note of HSN Polyoxyethylene falls under heading 39.07 and once the product is specifically mentioned under heading 39.07 in H.S.N. it cannot be classified under any other heading. The learned SDR also referred to the opinion of the Chief Chemist in the case of NOCIL under his letter dated 22-1-1993 which clearly mentions that molecular weight indicates the presence of more than 5 monomer units specifying the criteria stipulated in Note 3(c) to Chapter 39. Regarding invocation of extended period of limitation the learned SDR reiterated the findings of the Collector as contained in the impugned order No. 24/94, dated 10-5-94.
7. In reply Shri L.P. Asthana, learned Advocate submitted that PEGs may fall under Chapter 39 only if it does not have definite molecular weight, that the department has classified PEG 1400 under Chapter 34; that in Chemistry averaging is done while writing a formula. Shri Setalvad mentioned that use of term 'n' does not take away the impugned product from being a separate chemically defined organic compound of known structure. Shri H.K. Jain, learned SDR, replied that Polymers having high molecular weight has wax and that is why PEG 1400 was classified under Chapter 34.
8. We have considered all the submissions putforth before us. We observe that for classifying the impugned product the department has mainly and heavily relied upon Note 3(c) to Chapter 39 which reads as under :-
“Heading Nos. 39.01 to 39.11 apply only to goods of a kind produced by chemical synthesis, falling in the following categories :-
(a) ...........
(b) ...........
(c) Other Synthetic Polymers with an average of atleast 5 monomer units.”
9. The Collector, Central Excise, Bombay-III, in his impugned order has given his finding that Note 1 to Chapter 39 is definitive Note on Plastic and not a note on classification, and therefore, he rejected the contention of the appellants M/s. National Organic Chemical Industries Ltd. that impugned goods manufactured by them do not conform to the specification of Note 1 to Chapter 39. We do not agree with the findings of the Collector. Chapter 39 deals with plastic and articles thereof and Note 1 to Chapter 39 lays down the definition of plastic for the purpose of Schedule to the Central Excise Act. If a product does not conform to the definition of the plastic as given in the said Note 1 it can not be classified as plastic or articles thereof under Chapter 39. We, therefore, find substance in the submissions of the learned Advocate that merely because the impugned product has 5 or more monomer units it does not merely by this fact alone would be classifiable under Chapter 39 of the Tariff unless and until it is proved by bringing evidence on record that the product is plastic also. We find that no evidence has been brought on record anywhere which indicates that the product in question is plastic as defined in Note 1 to Chapter 39. Nowhere Chemical Examiner has mentioned in the test report that the product tested by him is plastic. He has also mentioned that the product is polyether polymer. Similarly the Collector (Appeals) in the case of Vasudha Chemicals has disregarded Note by holding that once the product conform to description of the products covered by heading they are not hit by any Chapter Note. This finding goes against the general rules for Interpretation of the Schedule. Rule 1 of the Interpretative Rules clearly provides that classification shall be determined according to the terms of the headings and any relevant Section or Chapter Note. The Revenue further has not rebutted the findings of the Collector (Appeals) in the case of S.M. Dyechem Ltd. that “all the products from PEG-300 to PEG-6000 are separate chemically defined Organic Compounds as they have got definite molecular structures and definite molecular weights which are represented by numbers 300 to 6000 mentioned after PEG.” Note 1 to Chapter 29 clearly provides that separate chemically defined organic compounds fall under Chapter 29. Correspondingly Note 2(b) to Chapter 39 provides that this Chapter does not cover separate chemically defined organic compounds. The department has thus not substantiated that the product is not separate chemically defined organic compound. It is settled law that the burden of proving that product falls under a specific heading is on the department as held by the Supreme Court in the case of Calcutta Steel Industries and Hindustan Ferrodo, supra. Further, in the case of Collector of Customs, Cochin v. Premier Tyre Ltd., 1985 (020) ELT 124, it was held by the Tribunal that PEG 300 does not fall under Chapter 39 of the Customs Tariff. In view of the fact that the department had not substantiated the classification of the impugned product under heading 39.07 we hold that the product is not classifiable under the said heading. Accordingly, appeal No. 1812/94-C & 795/99-C filed by the Revenue are rejected and cross objection filed by M/s. S.M. Dyechem are also disposed of.
10. Shri Setalwad, learned Sr. Advocate appearing on behalf of M/s. National Organic Chemical Industries Ltd., has submitted that demand is hit by the time limit specified in Section 11A of the Central Excise Act. He has contended that they had described their product in the usual manner as PEG200-PEG300, etc. and the description was same whether the classification list was filed under old Central Excise Tariff or new Central Excise Tariff, and their classification lists were approved. The samples of their product were also taken and sent for chemical test. The Collector has invoked the extended period of limitation holding that though they were in full knowledge of the nature of their product as well as monomer contents they had not disclosed the monomer contents which amounts to suppression of relevant facts. We do not find substance in these findings. The department is required to get the samples tested before approving the classification list. If they had any doubt, they should have asked the Assessee to furnish the test reports of Assessee's own laboratory. In view of this we hold that extended period of limitation was not invocable in the case of M/s. National Organic Chemical Industries Ltd. Accordingly, appeals filed by M/s. NOCIL and M/s. Vasudha Chemicals P. Ltd. are allowed.
Equivalent 2000 (122) ELT 0461 (Tribunal)