Sunrise Electric Corporation, Bombay vs Collector Of Customs, Bombay>1983(08)LCX0067

1983(08)LCX0067

BEFORE THE CEGAT, SPECIAL BENCH `D’, NEW DELHI

Shri S. Venkatesan, Sr. Vice-President; Smt. S. Duggal, Member (J) and Shri K.L. Rekhi, Member (T)

SUNRISE ELECTRIC CORPORATION, BOMBAY

Versus

COLLECTOR OF CUSTOMS, BOMBAY

Orders Nos. 537 to 539/1983-D, dated 26-8-1983

Advocated By : Shri N.C. Sogani, Consultant, for the Appellants.

Shri K. Chandramouli, SDR, for the Respondent.

[Order per : S. Venkatesan, Senior Vice-President]. - This is a revision application (hereinafter called “appeal”) filed before the Central Government which under Section 131B of the Customs Act, 1962, stands transferred to this Tribunal to be disposed of as if it were an appeal presented before the Tribunal.

2. The goods in this case are what the appellants have described as “E class electrical grade insulating papers”. They were classified by the Customs authorities under Heading No. 39.01/06, relating to artificial resins and plastic materials, etc. The appellants claimed reassessment under Heading No.48.01/21, relating to paper and paper-board and articles thereof. Their claim was rejected by the Assistant Collector, who held that the assessment under Heading No. 39.01/06 was in order. Their appeal to the Appellate Collector was rejected for reasons which will be mentioned later. Against this order of rejection the appellants filed a revision application which now stands transferred to the Tribunal.

3. Appearing for the appellants, Shri Sogani argued the case in great detail. Before setting out his arguments, it would be useful to take note of two previous orders of the Tribunal.

4. In its order No. D171 to 178/83, dated 5-4-1983, a Bench of the Tribunal dealt with a batch of eight appeals from the present appellants. The goods in that case were described in the invoice and the relative Bills of Entry as “Presspahn paper”. The question in those cases was whether the goods should be considered as “paper” or “paper-board”. The lower authorities had held that it was “paper-board” and therefore not eligible for the concessional rate of duty under exemption Notification No. 37/78, dated 1-3-1978, which at the relevant time was applicable only to paper and not to paper-board. The Bench held that in the absence of any statutory demarcating line between “paper” and “board” either in the Tariff Schedule or in the relevant notification, they had to go by the understanding in the electrical trade and industry. After referring to relevant Indian Standards Specifications and British Standards Specifications, the Bench held that the goods in question should be considered as “paper” and were therefore eligible for the concessional rate of duty under notification.

5. It should be mentioned that the goods in question in the above cases were accepted as being of either paper or paper-board. No question arose that they were a composite article of paper and plastic material, like the goods which are the subject of the present appeal.

6. The second relevant decision of the Tribunal is contained in its Order No. 303/83C, in a case relating to Messrs Yash Udyog, Sawantwadi. The goods were described by the importers as “Class E Other high temperature insulating paper”, and were assessed under Heading No. 39.01/06 CTA for basic duty and under Item 17(2) of the Central Excise Tariff for countervailing duty. The appellants claimed refund on the ground that the goods were classifiable under Chapter 48 CTA, read with Notification No. 37/78, dated 1-3-1978. The Assistant Collector “closed” the refund claim without giving a proper reason. On appeal, the Appellate Collector held that the goods were a composite material inasmuch as the paper had been laminated with a thin plastic film. He observed that the goods had to be classified in terms of Rule 3(b) of the Rules for the interpretation of the Customs Tariff (or `Interpretative Rules’). The Appellate Collector held that the essential character of the goods came only from the paper and not from the polyester film. He accordingly held that the goods were classifiable as paper under Chapter 48 CTA, and also entitled to the concessional rate of duty under Notification No. 37/78. The Central Government, being tentatively of the view that the Appellate Collector’s order was not correct, initiated proceedings under Section 131(2), Customs Act as in force at that time. The matter was transferred to the Tribunal and dealt with as an appeal by the Collector of Customs, Bombay. After hearing both the parties, the Tribunal delivered its order under reference. It was held that in the composite material, the essential characteristics of E Class electrical insulation came from the plastic portion rather than the paper backing, and that on the basis of Interpretative Rule 3(b), classification under Heading No. 39.01/06 would have to be preferred to classification under Chapter 48. So far as the countervailing duty was concerned, it was held that in the absence of any Interpretative Rules in the Central Excise Tariff for the classification of composite articles, the classification of the goods under either Item 17 or Item 15A of the Central Excise Tariff would be inappropriate, and that for the purposes of countervailing duty they would fall under item 68 CET.

7. It has not been seriously disputed by Shri Sogani that the goods which are the subject-matter of the present proceedings are in all material respect similar to the goods imported by Messrs Yash Udyog. However, when it was pointed out to him that the Tribunal had already taken a decision on such goods in the case of Messrs Yash Udyog, Shri Sogani argued that certain relevant aspects of the matter had not been considered in that case. He submitted that if those aspects had been considered, the decision would have been in favour of the importers. He thereafter argued the present case at considerable length.

8. Since the Tribunal has had occasion to consider the classification of basically similar goods in the case of Messrs Yash Udyog, a number of the arguments advanced by Shri Sogani are already covered by the order in that case. However, the important arguments advanced by him, particularly those not advanced in the case of M/s. Yash Udyog, are set out below :-

(i) Heading No. 48.01/21 specifically refers to “composite paper or paper-board”. The goods in question could fairly be considered as coming within description;

(ii) Interpretative Rule 3(a) states that the Heading which provides the most specific description shall be preferred to Headings providing a more general description. Rule 3(b), relating to mixtures and composite goods which consist of different materials or are made up of different components, shall be classified as if they consist of the material or component which gives the goods their essential character. Rule 3(b) comes into operation only when goods cannot be classified by reference to Rule 3(a). In this case the description “composite paper or paper-board” being more specific than the description in Chapter 39, the goods could be classified with reference to Rule 3(a) and Rule 3(b) would not come into operation;

(iii) The plain meaning of the expression in the Tariff should be applied, without referring to the CCCN or the Explanatory Notes thereto;

(iv) Even if the explanatory Notes are held to be relevant, the goods would deserve classification under Chapter 48 by virtue of the Explanatory Note (Page 668) which states that “Headings 48.03 to 48.07 relate to certain special papers and paper-boards......and those which have been subjected to various treatments, such as......impregnating......”;

(v) Again, it is stated at page 677 of the Explanatory Notes that Heading No. 48.07 applies to “paper and paper-board to which superficial coatings or layers of other materials have been applied to the whole or part of one or both surfaces”;

(vi) Again, with reference to Heading No. 47.07, which covers paper and paper-board, impregnated, coated, etc., it has ben stated at page 679 of the explanatory Notes that the Heading does not include “One layer of paper or paper-board coated or covered with a layer of plastic material, the latter constituting more than half the total thickness (Headings 39.01 to 39.06)”. This would show that if the thickness of the plastic coating or covering is less than half the total thickness, the goods would remain within Heading No. 48.07;

(vii) At page 570 of the Explanatory Notes, with reference to Heading Nos. 39.01 to 39.06, it has been stated that they also include plates, sheets, etc., consisting of textile fabric impregnated, coated, covered or laminated with artificial plastic materials, provided that (1) they cannot, without fracturing, be subjected to a specified process of bending, or (2) the textile fabric is completely embedded in, or coated or covered on both sides, with such material. It was Shri Sogani’s contention that the goods in question would withstand the prescribed test for bending, and accordingly would be excluded from Headings 39.01 to 39.06;

(viii) Shri Sogani referred to Chapter Note 1(e) to Chapter 48 of the CTA. This Note provides that the Chapter does not cover paper-reinforced stratified artificial plastic sheeting, or vulcanised fibre or articles of such materials (which are shown as falling within Chapter 39). According to him the goods in question were not hit by this provision, since the plastic material was in the form of film and not sheet; and

(ix) Shri Sogani also submitted that Interpretative Rule 3(b) was applicable only in the case of composite goods where the different materials had different uses or functions. In the present case both the paper and the plastic material had the same function and therefore, according to him, Rule 3(b) would not apply.

9. On the assumption that the goods fell under Chapter 48, Shri Sogani argued that they should not be classified with reference to the grammage criterion (holding that goods of a grammage above 180 per sq. metre would be board), but with reference to thickness, as had been held in the previous cases of the same appellants, referred to in para 4 above. He further argued that the thickness to be considered for this purpose should be the thickness of only the paper and not of the paper and plastic material together. He submitted that in the present case the benefit of exemption had been disallowed by the Appellate Collector only on the ground that the grammage of the goods was more than 180 per sq. metre. According to him, the grammage criterion was not relevant in the case of electrical insulation paper. If the thickness of the paper alone was taken into consideration, the goods would qualify for the benefit of the exemption in Notification No. 37/78.

10. Finally, Shri Sogani submitted that in case the basic classification was held to be under Heading No. 48.01/21, the classification for the purpose of countervailing duty should be under Item No. 68, and not under Item 17(2), as had been adopted in this case.

11. For the Department, Shri Chandramouli submitted that the classification of identical goods had been considered by the Tribunal in the case of Messrs Yash Udyog, and that the decision taken in that case was fully applicable to the present case. He submitted that the catalogue of the manufacturers, submitted by the appellants, showed that the esential property of the goods was derived from the content of plastic material. The goods were admittedly used in electric motors where the operating temperature was as high as 120^oC, and the plastic material was essential for withstanding such a high temperature. Therefore, the decision in the case of Messrs Yash Udyog should be followed in this case.

12. At this stage it would be useful to say a little more about the order of the Appellate Collector in this case. He has begun by referring to the items of the CTA and of the CET which had been applied. He has then observed that “as of today, the Custom House accepts that the basic duty classification ought to be under 48.01/21(1)......The dispute now is that the appellants claim benefit of Notification No. 37-Cus., dated 1-3-1978". He has gone on to discuss the eligibility of the goods for the benefit of that notification, which on the relevant date covered only electrical grade insulation paper and not paper-board. Observing that the goods were undeniably paper-board, he held that it was not possible to give them the benefit of assessment under that notification. He concluded his order with the sentence ”The appeals are, therefore, rejected reluctantly."

13. We asked Shri Chandramouli whether he could elucidate the observation of the Appellate Collector to the effect that as of that day, the Custom House accepted the basic duty classification to be under Item 48.01/21(1). Shri Chandramouli was not in a position to do so. Shri Sogani, however, informed us that at that time there was a tariff advice, resulting from one of the conferences of Collectors of Customs, according to which the classification of these goods was to be under Heading 48.01/21. However, he very fairly added that this tariff advice had since been rescinded.

14. We have given our careful consideration to all the arguments advanced, particularly to those which Shri Sogani desired to stress as not having been placed before the Tribunal with reference to the case of M/s. Yash Udyog.

15. Shri Sogani has laid stress on the words “composite paper or paper-board” occurring in Heading No. 48.01/21. According to him this is a very specific description, which covers the goods under consideration, to the exclusion of any other Heading.

16. The scope of the above expression has been explained in the Explanation Notes to the CCCN, which have been relied on by Shri Sogani. At page 675 of the Explanatory Notes, referring to Heading No. 48.04 (which covers “composite paper or paper-board”), the scope of this expression is explained as follows :-

“This heading covers paper and paper-board made by sticking two or more layers of paper or paper-board together with the aid of an adhesive. These products can be made from paper and paper-board of any quality and the bonding material may be of animal, vegetable or mineral origin (e.g., dextrin, glue, tar, gum, asphalt or latex).”

It is thus clear that the “composite paper or paperboard’ referred to in Heading 48.01/21 CTA refers to articles composed of different layers or varieties of paper and/or paperboard, and it is not applicable to articles composed partly of paper or paperboard and partly of other material. Even without referring to the Explanatory Notes the same conclusion can be arrived at, because Shri Sogani’s argument is equivalent to saying that so long as the composite article contains some paper or paperboard, the nature, quantity or function of the component of any other material is unimportant. Such a proposition is obviously not acceptable. It may be that there is some other constituent, of a material other than paper or paperboard, which is so insignificant that its absence can be ignored in considering the classification of the composite article. But this in effect means that Interpretative Rule 3(b) has to be applied, to examine the functions performed by the respective materials, and their respective importance. In any event, it obviously cannot be held that the expression ”composite paper or paperboard" is a specific description of any composite article which happens to contain some paper or paperboard. The argument of Shri Sogani that Heading No. 48.01/21 specifically covers the goods in question, without reference to the presence, importance and functions of the other material cannot, therefore, be accepted.

17. Since the goods are not covered by the expression “composite paper or paperboard” and no other tariff description has been brought to our notice which specifically covers them, it is clear that classification has to be done with reference to Interpretative Rule 3(b), relating to the classification of composite goods which consist of different materials or made up of different components. This is what was done in classifying the goods which were the subject matter of the case of Messrs. Yash Udyog, and the conclusion was that by the application of Interpretative Rule 3(b) they would be classifiable under Heading No. 39.01/06 of the CTA. It has already been observed that the goods covered by the present appeal are in all material respects similar to those in the case of Messrs Yash Udyog.

18. As regards Shri Sogani’s contention that the plain meaning of the expression in the Tariff should be applied, without referring to the CCCN or the Explanatory Notes, this would no doubt have force if there was some tariff description which covered the goods beyond possibility of doubt. However, that is not the position here, or there would have been no occasion for the present proceedings. It is, therefore, permissible, if not necessary, to refer to the CCCN and the Explanatory Notes. In a number of decisions of the Tribunal and of the courts, the relevance of these has been accepted, having regard to the known fact that the Customs Tariff Schedule is broadly based on the CCCN.

19. The quotation from page 668 of the Explanatory Notes does not help the appellants, since it refers to papers and paperboards which have been subjected to various treatments such as impregnation. There is no suggestion that the goods in the present case consist of paper which has been impregnated or subjected to similar treatment. On the contrary, it is a composite article made of paper/paperboard and a plastic film or sheet. For similar reasons, the reference to page 677 of the Explanatory Notes is of no assistance to the appellants.

20. Shri Sogani placed heavy reliance on the material at page 679 of the Explanatory Notes referring to Heading No. 48.07, wherein it has been stated that the Heading excludes paper or paperboard coated or covered with a layer of plastic material, the latter constituting more than half the total thickness. In other words, the proposition in this Explanatory Note is that if in the composite articles, the thickness of the plastic material is more than half the total thickness, it would fall under Heading No. 39.01/06. Shri Sogani’s argument is that the converse of this proposition should be equally true, namely, that if the thickness of plastic material is less than half the total thickness of the composite article, it should stand included in Heading No. 48.07 of the CCCN (and consequently within Heading No. 48.01/21 CTA). At first sight, this argument may appear to have substance. However, on closer examination, it will be seen that is by no means conclusive. Firstly, because a proposition is true, it does not necessarily follow that the converse or complementary proposition is also true. Secondly, the Explanatory Note is in general terms, which might be of relevance when considering articles in general, where the quantity or proportion of the materials alone is given importance. It does not appear to take into account a case where the function performed by the other material, and consequently its importance in the composite article, is not proportionate to its thickness in the composite article. This is precisely the position in the present case, where the composite article is meant for the specific purpose of electrical insulation, and with reference to this function the importance of the plastic material is very substantially higher than its thickness in relation to the paper/paperboard. And finally, it may be observed that the Explanatory Note incorporates a rule of thumb, which does not follow directly from the wording of the Heading. As against this, Interpretative Rule 3(b), which is a part of the Tariff, offers a clear and consistent criterion. If one has to choose between applying the relevant Interpretative Rule or relying on an Explanatory Note which has no specific basis, preference necessarily has to be given to the Interpretative Rule.

21. Shri Sogani also made reference to page 570 of the Explanatory Notes. We can only say that the application of the Note referred to by him not only appears far-feteched, but also assumes a factual position regarding the bending characteristics of the material in question, which is not on record. Further, this Note is also sought to be invoked for the purpose of applying its converse. We do not, therefore, think this note helps in any way in reaching a decision on the present issue.

22. Shri Sogani had also referred to Note 1(e) to Chapter 48 of the CTA, which excludes paper-reinforced stratified artificial plastic sheeting from the scope of Chapter 48. He argued that the goods in question were not hit by this provision. As this description does not apply to the goods under consideration, this Chapter Note has no application to them, and does not help in reaching a decision.

23. Shri Sogani also advanced the argument that Interpretative Rule 3(b) was applicable only in the case of composite goods where the different materials had different uses or functions. While this is an interesting idea, we do not find any warrant in the wording of Interpretative Rule 3(b) for such an assumption. The complete article may, as in this case, be made up of two materials, both of which have like functions, but one of which possesses the essential quality in a much higher degree than the other. Interpretative Rule 3(b) plainly means that in such a case it is the second material which gives to the composite article its essential character.

24. Having examined with great care the various arguments advanced by Shri Sogani, some of which no doubt were not placed before the Tribunal in the case of Messrs. Yash Udyog, we still do not find any ground for reaching a conclusion different from that which was reached in the case of Messrs Yash Udyog, namely that the goods would, by the application of Interpretative Rule 3(b), be classifiable under Heading No. 39.01/06 CTA for the levy of basic Customs duty.

25. At this stage we have to take note of Shri Sogani’s argument that the Appellate Collector had already held that the classification of the goods was under Heading No. 48.01/21, and that it was not open to us to go against this finding, or to place the appellants in a worse position than they were as a result of the Order-in-Appeal. This argument certainly deserves attention, and we have considered it very carefully. We find that the Appellate Collector has not given any reasoning of his own for holding that the classification for basic Customs duty ought to be under Heading No. 48.01/21(1). He has only said that the Customs House accept this. We observe that there is nothing to this effect in the Order-in-Original of the Assistant Collector, which on the contrary held that the assessment under Heading No. 39.01/06 was in order. We also observed that the proceedings before the Appellate Collector were not in the nature of adversary proceedings, with a representative of the Department being present to argue the Department’s case. The order shows that there was a personal hearing, at which, apart from the Appellate Collector, only the Consultant of the appellants Shri Abichandani, is recorded as having been present. While the arguments advanced by Shri Abichandani are referred to, there is no reference to any representative of the Department being present or to any arguments being advanced by him. From the record, therefore, it cannot be said that the Department had made a concession in this regard, to the effect that the classification of the goods should be under Heading No. 48.01/21(1). It appears that the Appellate Collector has introduced in the order his own knowledge of the view taken by the Custom House in some other case. Such an observation, which has no reasoning to support it, and which is not even set out as a conclusion reached by the Appellate Collector himself, obviously cannot be taken as a reasoned finding in favour of the appellants’ claim that the basic duty classification of the goods was under Heading No. 48.01/21. In any event, after making this his starting point, the Appellate Collector finally, on the basis of the distinction between paper and paperboard, rejected the appeal, although saying that he did so “reluctantly”. The result of our holding that the basic classification is under Heading 39.01/06, would also be that the appeal would be rejected. It cannot, therefore, be said that by our deciding in favour of classification under Heading No. 39.01/06 (which was the correct classification according to the Assistant Collector), the appellants would be in a worse position than they were as a result of the order of the Appellate Collector.

26. In conclusion, Shri Sogani had submitted that even if the basic classification was held to be under Heading No. 48.01/21 CTA, the classification for countervailing duty should be under Item No. 68, and not Item No. 17(2). The question arises whether such a ground could be taken by the appellants at this stage, when it was apparently not taken in the appeal to the Appellate Collector or in the revision application to Government, which stands transferred to the Tribunal. We find that the facts which are necessary for reaching a conclusion on this argument are the same as those involved in the main question before us, namely the basic classification under the CTA for the levy of basic duty. In the Tribunal’s order in the case of Messrs Yash Udyog, it was explained why, although the goods were classified under Heading No. 39.01/06 for the levy of basic Customs duty, by applying Interpretative Rule 3(b), they were held to be classifiable under Item No. 68 CET for the levy of countervailing duty, in the absence of a provision in the Central Excise Tariff corresponding to Interpretative Rule 3(b). The logic of that decision is equally applicable to the present case. Having regard to all the circumstances, we would take the view that the appellants should not be debarred from agitating the correct classification for purpose of countervailing duty even at this stage, since no new or additional facts are necessary to support this argument.

27. In the result, we hold that the goods in question were correctly classifiable under Heading No. 39.01/06 for the levy of basic Customs duty and under Item No. 68 CET for the levy of countervailing duty. We, therefore, allow the appeal only to the extent of ordering consequential relief in the matter of countervailing duty and reject it so far as the assessment to basic Customs duty is concerned.

Equivalent 1983 (14) ELT 2465 (CEGAT)