1987(11)LCX0040

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

S/Shri G. Sankaran, Senior Vice-President, V.T. Raghavachari, Member (J) and K. Prakash Anand, Member (T)

ALBRIGHT, MORARJI AND PANDIT LTD. AND ANOTHER

Versus

COLLECTOR OF CUSTOMS, BOMBAY AND ANOTHER

Order Nos. 870 and 871/87-D, dated 2-11-1987

Advocated By :   Shri A.G. Sapre, Consultant, for the Assessee.

Smt. D. Saxena, S.D.R., for the Department.

[Order per : G. Sankaran, Senior Vice-President]. - Appeal No. 1573/81 has its genesis in the show cause F. No. 380/54/81-Cus. II, dated 18-8-1981 issued by the Central Government to M/s. Albright, Morarji and Pandit Ltd. The notice issued under Section 131(3) of the Customs Act, proposed to review the Orders-in-Appeal dated 17-5-1980. The notice was issued to three respondents including the present respondent, hereinafter called the “assessee”. The present proceedings are, however, confined to the present assessee. The assessee was called upon by the aforesaid notice to show cause why the impugned order in appeal should not be set aside and an appropriate order should not be passed.

2. The facts of the case, briefly stated, are that a consignment of “Graphilor Blocks” was imported by the assessee as parts of heat exchangers. The goods were treated as articles of graphite and assessed to Customs duty under Heading No. 68.01/16(1) of the First Schedule to the Customs Tariff Act, 1975 (hereinafter referred to as “the Schedule”). The assessee, after clearance of the goods, claimed reassessment under Heading No. 84.17 (1) as parts of heat exchangers and consequential refund. The Assistant Collector of Customs rejected the claim on the ground that Statutory Note 1(a) to Chapter 84 of the Schedule excluded articles falling under Chapter 68 from the purview of Chapter 84. In appeal, the Appellate Collector held that the aforesaid Note 1(a) covered only articles falling under Chapter 68 of the type of mill stones, grind stones, etc. and not appliances, machinery and parts. He further held that articles ejusdem generis with millstones and grindstones would alone be covered by the said exclusion clause in Note 1(a). The subject goods, being parts of heat exchangers, fell under Heading No. 84.17 (1) notwithstanding the fact that they might be articles made of graphite. On examination of the matter, the Central Government formed a tentative view that the order in appeal was not correct for the following reasons (which are reproduced from the notice issued by the Central Government):-

“1. The very fact that the clause ‘other articles falling within Chapter 68’ appearing in chapter Note 1(a) of Chapter 84 relates to the chapter regarding machinery and mechanical appliances and parts thereof appears to indicate that other articles will cover machinery and mechanical appliances and parts thereof also. Had this not been the case, there was no warrant for specifically excluding them by chapter note since in that case there would not have been any question of classifying them as machinery parts.

2. The question of applying ejusdem generis rule in this case does not appear to arise since the exclusion Note 1(a) does not merely mention ‘other articles’ but it actually reads other articles falling within Chapter 68. It is not as if only the other articles of the same kind as grind stones and millstones will be excluded. On the contrary, the said exclusion note excludes other articles falling within Chapter 68 and the impugned goods are articles of graphite which fall under Heading 68.01/16 of Customs Tariff Act, 1975.

3. The goods covered by the other three appellate orders (i) S/49-1790/78R, (ii) S/49-1028/79 and (iii) S/49-291/80R are indisputably parts made of graphite, namely, safety discs, burner caps, top and bottom section of Absorber, Karbate impeller and body of pumps graphite blocks, Karbate tube bundles. These being parts made entirely of graphite appear to be appropriately classifiable under Chapter 68 of Customs Tariff Act, 1975 and, therefore, they would stand excluded from the Chapter 84 vide Section Note 1(a) to the said chapter.”

The assessee, by its reply dated 7-10-1981, denied the allegations. It was submitted, inter alia, that graphilor blocks were the product of fusion of electrographite and phenolic resin (both artificially prepared) obtained under severe conditions of temperature arid pressure. Electrographite is not natural graphite but artificial graphite, the classification for which was under CCCN (Customs Co-operation Council Nomenclature) Heading No. 38.01, the corresponding Heading in the Indian Tariff Schedule being 38.01/19 (4). They were articles of chemical products or of preparations of chemical/allied industries and not of mineral substances. It was submitted that, in any event, the goods would not fall under Heading No. 68.01/16. Since they were an integral part of Karbate Cooler Assembly, they would fall under Heading No. 84.17 (1) by virtue of Statutory Note 2(b) to Section XVI of the Tariff Schedule.

3. The proceedings were transferred to this Tribunal under Section 131B of the Customs Act, since they had remained unconcluded and is the deemed appeal No. 1573/81 before us.

4. Appeal No. 494/83 filed by the assessee against order in Appeal dated 18-12-1982 also concerns the classification of graphilor blocks. The claim for refund based on the aforesaid contentions was rejected by the Assistant Collector. In appeal, the Collector (Appeals) set aside the Assistant Collector’s order on the ground that it was not a speaking order and that it did not give reasons why the Assistant Collector had disagreed with the Appellate Collector’s classification of the goods under Chapter 84 (the order impugned in Appeal No. 1573/81) when that order had not yet been set aside by a competent authority. The Collector directed that the Assistant Collector should keep the matter pending disposal of the review proceedings which had been transferred to this Tribunal.

5. We have heard Smt. D. Saxena, Senior Departmental Representative, for the Collector and Shri A.G. Sapre, Consultant, for the assessee.

6. Smt. Saxena pointed out that a similar issue had come up before this Tribunal and had been decided in favour of the Revenue. She relied upon the decision in the case of Saurashtra Chemicals, Porbandar v. Collector of Customs, Bombay [1985(08)LCX0017 Eq 1986 (023) ELT 0283 (Tribunal)]. The goods in that case were certain machinery parts (rings and ring seals) made of carbon or graphite, the competing Heading being 68.01/16 (1) as held by the Revenue and 84.65 as claimed by the appellants. Earlier, a similar issue had come up in another matter where, by a majority, the Bench had ruled classification under Heading 84.65. The Bench hearing the Saurashtra Chemicals case referred the matter to the President for being placed before a larger Bench and the ultimate decision was rendered by a majority of the larger 5-Member Special Bench. The appellants had raised the same contention of ejusdem generis, that is to say, articles of the genre of millstones and grindstones would alone be excluded from Chapter 84 because of Note 1(a) to the Chapter. The Bench noting that the said Note 1(a) read -

“1. This chapter (Chapter 84) does not cover :

(a) Millstones, grind stones and other articles falling within Chapter 68.

and that it used the words “other articles” and not the words “other similar articles”, rejected the said contention and held that even fully finished machinery parts, if they are made of carbon, would fall under Chapter 68 and not Heading No. 84.65. In this decision, note was also taken of another decision of the Tribunal in Appeal No. CD(SB)(T)998/ 78-D, Hindustan Zinc Ltd. v. Collector of Customs, Bombay, disposed of by Order No. 279/84-D, holding that graphite blocks for use in heat exchanger were classifiable under Heading No. 68.01/16 (1) and not Heading No. 84.17 (1).

7. Shri Sapre, for the assessee, however, sought to distinguish the present case from the previously decided ones. He stated that the assessee in 1986 (023) ELT 283 had conceded that one of the competing entries was Heading No. 68.01/16 (1) which was not the case here. The goods herein were not made of graphite but of graphilor (a brand name) consisting of graphite and phenolic resin. The assessee had contended before the Assistant/Appellate Collector that the goods were comprised artificial graphite (electrographite) and phenolic resin (both artificially prepared) processed under severe conditions of temperature and pressure and the department had not controverted this contention. Only if the graphilor blocks had been made of natural graphite, there might have been a case for their classification under Heading No. 68.01/16 (1).

8. We have carefully considered the submissions of both sides. In the normal course, there should be no occasion for us to depart from the ratio of 5-Member Bench decision in the Saurashtra Chemicals case (supra). We find that the Schedule provides for separate classification of natural and artificial graphite. The former falls under Heading No. 25.01/32 (7) and the latter under Heading No. 38.01/19 (4). Section V in which Chapter 25 falls pertains to mineral products and Chapter 38 to miscellaneous chemical products. In the CCCN (Customs Co-operation Council Nomenclature) artificial graphite falls within Heading No. 38.01 and the explanatory notes thereon reads as follows :-

“38.01 - ARTIFICIAL GRAPHITE; COLLOIDAL GRAPHITE, OTHER THAN SUSPENSIONS IN OIL.

(1) Artificial graphite (electro-graphite), a variety of carbon, usually prepared in an electric furnace by heating a mixture of finely ground coke (normally petroleum coke, but sometimes anthracite coke, retort coke, pitch coke, etc.) and carbonaceous binders (e.g., pitch or tar), to a sufficiently high temperature (2000 to 2700°C) to ensure its “graphitisation” under the catalytic action of substances present in the mixture (e.g., silica or iron oxide). The mixture is first extruded or moulded under pressure into “green” blocks of square or circular cross-section; these blocks may either be pre-fired (baked) at about 1000°C. and then graphitised, or they may be submitted directly to the graphitisation process.

In this way, a product is obtained with an apparent specific gravity of about 1.5 to 1.6 and a homogeneous microcrystalline structure which X-ray examination shows to be that of graphite. Chemical analysis confirms that the substance is graphite (precipitation of graphite acid).

In addition to ordinary grades of artificial graphite’s, the heading includes :

(a) Nuclear grade artificial graphite ........................... (not reproduced as not relevant for the present dispute).

(b) Impregnated or impervious artificial graphite, that is, artificial graphite which, in order to increase its density or its impermeability to gases, has first been impregnated in a vacuum with tars or resins or with solutions of sugars or other organic products, and retired to graphitise the carbonaceous residues of these additives.

The impregnation process may be repeated several times to obtain a higher density (1.9 or more) or a high degree of impermeability. Impregnated graphite may also be of nuclear grade.

Artificial graphite of this heading is usually in the form of powder, flakes, blocks, plates, bars, rods, etc. The blocks and plates are used, after cutting and high-finish machining (fine tolerances and appropriate surface finish), to make the brushes and other electrical carbon articles of Heading 85.24, and parts of nuclear reactors.”

The explanatory notes under Heading 68.16 of the CCCN [Articles of stone or of other mineral substances (including articles of peat), not elsewhere specified or included] show that while the heading covers nonelectrical articles of carbon or of natural or artificial graphite it specifically excludes blocks, plates and semi-manufactures of artificial graphite or of carbon mainly used for cutting into electrical brushes. The notes under Heading 38.01 indicate that blocks, plates, bars and similar semimanufactures of artificial graphite which also contain artificial resins or powders of base metals are not covered by that heading but fall under Heading 38.19 but artificial graphite, surface worked or surface finished, cut to special shapes, lathe worked, drilled, milled etc., or transformed into articles, if of a kind used for non-electrical purposes, usually fall under Heading 68.16. The examples given are filters, discs, bearings, moulds, acid-resistant bricks, etc.

9. From the literature on “Graphilor Equipment” available on the record, it is seen that a French firm “Le Carbone - Lorraine” had, in the early fifties, developed a new material called “Graphilor” for constructional materials in chemical plants. It is made from electrographite (which cannot be used as such because of its open porosity) in which the remaining pores are filled with a suitable impermanent (plastic resin) and the electrographite is made impermeable. This graphite is stated to be remarkably insensitive to thermal shock and offer extremely good resistance to the most common chemical reagents. These averments have not been controverted by the Department. Therefore, we have to proceed on the basis that the subject goods are made of artificial, and not natural, graphite impregnated with phenolic resin. There is no dispute that the goods are parts of heat exchangers. With this background, we have to look for the appropriate heading in the Schedule.

10. In the normal course, these goods being parts of heat exchangers, should fall under Heading 84.17 (1). By virtue of Note 2(b) to Section XVI of the Schedule, however, this note is subject, inter alia, to Note 1 to Chapter 84. Note 1(a) to Chapter 84 provides that that chapter does not cover millstones and grind stones and other articles falling within Chapter 68. For the reasons set out in the 5-Member Bench’s order in the Saurashtra Chemicals case (supra), we are also of the opinion that the “other articles” in Note 1(a) need not be similar to, or of the same genre as, millstones or grindstones. But, the question of the goods being made of artificial graphite and not of natural graphite was not raised before, and naturally not considered by the Bench in that case. Being made of artificial graphite and phenolic resin, the subject goods, in our opinion, do not fit into any of the descriptions in Heading No. 68.01/16 : they are not articles of mineral substances since they have been made out of artificially produced substances. Whereas explanatory notes in the CCCN may be of persuasive value, they have no binding value in the matter of interpretation of the entries in the Indian Tariff Schedule.

11. We are thus of the opinion that the appropriate classification of the goods is Heading 84.17 (1). Accordingly, we discharge the review show cause notice date 18-8-1981 and dismiss Appeal No. CD/SB/1573/81-D. For the same reasons, we set aside the orders of the lower authorities and allow Appeal No. CD/SB/494/83-D.

Equivalent 1988 (33) ELT 488 (Tribunal)