1990(06)LCX0032

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

S/Shri G. Sankaran, President, S.L. Peeran, Member (J) and
G.A. Brahma Deva, Member (J).

SATYA VIJAY EXPORTS PVT. LTD.

Versus

COLLECTOR OF CUSTOMS

Order No. 631/90-C, dated 21-6-1990 in Appeal No. C. 1501/90-C

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

 Shri V. Chandrasekhran, S.D.R., for the Respondent.

[Order per : G. Sankaran, President]. — This appeal is against the Order-in-Original No. S33-10/89-A. GR.2 dated 20-7-1989 passed by the Additional Collector of Customs, Custom House, Calcutta.

2. The facts of the case, briefly stated, are that the appellants imported two consignments of “High Impact Polystyrene” by S.S. Tiger Bay at Calcutta port and filed two bills of entry No. 819 and 820 dated 15-9-1988. The goods were declared as “Polystyrene HI-425" and the value was declared on the basis of a price of U.S. $ 1485 per M.T. cif. The appellants claimed classification of the goods under Heading No. 3903.19 of the First Schedule to the Customs Tariff Act, 1975 (hereinafter referred to as the ‘Schedule’) and the benefit of Customs Notification No. 342/76 dated 2-8-1976. The Customs authorities observed that identical goods had been imported through Bombay port during the relevant period at substantially higher prices of U.S. $ 1880 to 1990 per M.T. cif. The goods, on test, were found to be a copolymer of styrene containing styrene monomer to the extent of 87.5%. It, therefore, appeared to the Customs authorities that the goods were classifiable under Heading No. 3903.90 of the Schedule attracting duty (under the Schedule) at 100% + 30% (auxiliary) and 40% (additional) in terms of Sl. No. 12 of Notification No. 88/87-Customs dated 1-3-1987 read with Notification No. 162/88-Customs dated 13-5-1988 and Central Excise Notification No. 53/88 dated 1-3-1988 instead of at 15% (under the Schedule) + 30% (auxiliary) + 20% (additional) as claimed. Accordingly, a show cause notice was issued to the appellants and, in due course, the Additional Collector of Customs passed an order classifying the goods under Heading No. 3903.90 of the Schedule, and 3903.90 of the Central Excise Tariff Schedule (‘CET’, for short) at the higher rates of duty (as indicated above). He also ordered that the assessable value of the goods should be determined on the basis of a price of US $ 1850 per M.T. cif in terms of Rule 11 of the Customs Valuation Rules read with Section 14(1) of the Customs Act, 1962. This order is challenged in the present appeal.

3. The defence of the appellants before the Additional Collector and his findings thereon are :-

(a) The appellants had contracted for purchase of the goods, a branded product of M/s. Hanam Chemical Corporation, Korea, with a Korean supplier at US $ 1485 per M.T. cif Calcutta. In the case of two consignments of identical goods imported at Bombay (the third being of a different type), they were purchased from a Hongkong supplier and the imports were of a later date.

The Additional Collector did not accept this defence stating that the goods in both instances were purchased from intermediaries and not direct from the manufacturers. The differing circumstances such as time and place of import, the country of supply should not, according to the Additional Collector, make any substantial difference in price. He however, allowed a factor of U.S. $ 30 per M.T. towards the difference in freight as between Bombay and Calcutta.

(b) The appellants contended that the product is well known in industry as polystyrene and not as a copolymer of styrene and butadiene. They assailed a second test conducted on the product as having been done without their knowledge. The product had always been assessed as a homo-polymer and never as a co-polymer.

The Additional Collector has observed in his order that the Chemical Laboratory report showed the goods as a co-polymer of styrene having styrene monomer to the extent of 87.5% only i.e. less than 95%. The manufacturers’ literature shows the product to be a graft co-polymer of styrene monomer and synthetic rubber. A “polymer” should, according to the explanatory notes of the “HSN” (Harmonised System of Nomenclature), contain 95% or more of the monomer. Therefore, in the present case, the product cannot be held to be a poly- styrene falling under heading No. 3903.19 of the Schedule; it falls under Heading No. 3903.90 as “Other polymers of styrene.” Accordingly, the Additional Collector rejected the appellants’ claim for the benefit of the lower rate of duty.

4. We have heard Shri N.C. Sogani, Consultant, for the appellants and Shri V. Chandrasekharan, DR, for the respondent-Collector.

5. On the issue of classification, the learned Consultant’s submission was that the two test reports at pages 28 and 29 of the appellants’ paper book would show that the samples had the characteristics of polystyrene polymer. The further note of the Chemical Examiner would show that the styrene monomer content was around (about)87.57%. That is to say, it was not an exact determination. In this context, Shri Sogani drew our attention to the minutes of the Tariff Conference of Collectors of Customs held at Mangalore on the 5th and 6th April, 1989 (pages 72-75 of the paper book). The relevant part of the minutes reads as follows :-

“The Conference thereafter examined the practicability of ascertaining the differences between the Homo-Polymer and Co-Polymer by chemical analysis. The view (sic) of the Chief Chemist which were obtained in the matter was placed before the Conference. The Chief Chemist had indicated that the estimation of the Butadiene content in HIPS can be done by infra-red spectral analysis provided samples of known compositions are available. That is to say standard samples of known compositions of individual Comonomers would be required. Conventional methods are also reported in literature for determination of Butadiene content, in the Co-Polymers and such methods are normally lengthy conventional chemical methods of comparatively low accuracy. The Conference was also informed that there are only a handful of test laboratories in India which could carry out a test with any degree of certainty.”

This would, according to Shri Sogani, show that the estimation of polystyrene was, at best, rough and not dependable.

6. In reply, the learned DR., Shri V. Chandrasekharan, submitted that the appellants should have sought for retest of the product, if they were not satisfied with the results of the test. In accordance with statutory note (4) to Chapter 39, the product would be a" graft copolymer" and the classification ordered by the Collector was correct.

7. The relevant tariff entries read as follows :-

“ 39.03 Polymers of styrene, in primary forms

 - Polystyrene :

3903.11 — Expansible

3903.19 — Other

3903.20 - Styrene-acrylonitrile (SAN) copolymers

3903.30 - Acrylonitrile-butadiene-styrene (ABS) copolymers

3903.90 — Other"

Statutory Chapter note 4 to Chapter 39 reads as follows :-

“4. For the purposes of this Chapter, except where the context otherwise requires, copolymers (including co-polycondensates, co-polyaddilion products, block copolymers and graft copolymers) and polymer blends are to be classified in the heading covering polymers of that comonomer which predominates by weight over every other single comonomer, comonomers whose polymers fall in the same heading being regarded as constituting a single comonomer.

If no single comonomer predominates, copolymers or polymer blends, as the case may be, are to be classified in the heading which occurs last in numerical order among those which equally merit consideration.

The expression “copolymers” covers all polymers in which no single monomer contributes 95% or more by weight to the total polymer content."

8. Though it has been urged by the appellants that a second test was conducted behind their back Shri Sogani has pleaded that the case may be decided on its merits and not remanded for de novo adjudication.

9. As noted earlier, the Customs Laboratory Test Reports show that samples of the subject goods were found to have the characteristics of polystyrene polymer. The manufacturers’ literature on the product has not been produced before us. However, the Addl. Collector has reproduced the relevant part of this literature as follows :-

“HANNAM POLYSTYRENE HI: High impact grades of Hannam Polystyrene are graft Co-polymers of styrene monomer and synthetic rubber and their original colour is transniucent milky white. They have high impact and flexural strengths and beautiful products can be obtained due to their brilliant gloss and fine color tone.

HI-425-Easy flow and high impact type".

The remarks in the test report read as follows :-

“An estimation of styrene content in the extracted sample reveals that the styrene - Monomer content is around 87.5% by weight taking into consideration the rubber portion as Polybutadiene. (Ref. Identification & Estimation of natural & Synthetic Rubbers - Ministry of Supply Admirality.)

In the light of above the sample u/r may be regarded as Co-polymer of styrene containing less than 95% Styrene Monomer. (The test-report may be ammended to read “Polystyrene Copolymer” instead of “Polystyrene Polymer” as reported earlier in the T.M.)"

In the second test report, the relevant portion reads as follows :-

“It also reveals that the sample contains about 87% by weight of styrene monomer calculated on the basis of Iodine value of unsaturated component of the polymer taking it as polybutadiene rubber. As per literature now submitted HI-425 are graft Copolymer of slyrene monomer and synthetic rubber.

In view of above the sample u/r may be considered as Copolymer of styrene containing less than 95% by weight of styrene monomer".

The thing which strikes one is that the estimation of styrene monomer is not exact - it is only approximate. Mark the words “ about 87%” and “around 87.5%”. Apparently, the difficulty in distinguishing homopolymers from Copolymers had been exercising the Collectors, on the introduction of the new Tariff Schedule, as seen from the minutes of the Collectors’ Conference held at Mangalore on the 5th and 6th of April 1989 (page 72-75) of the appellants’ Paper Book). From this, it appears that the practice at Bombay had been to assess High Impact polystyrene of various grades under Heading No. 3903.19 with the benefit of exemption under Notification No. 88/87-Customs dated 1-3-1987, as polystyrene. However, it appeared from literature that several grades of the product were copolymers classifiable under Heading 3903.90. The practical difficulty to distinguish between the homopolymer and Copolymer was discussed (relevant part of the minutes extracted earlier). The Conference was of the view that the rate of duty on homopolymer and Copolymer must be maintained at an uniform rate to avoid manipulation especially when there were no easy and practicable methods to distinguish them. And, this is what the Central Govt. did shortly thereafter by amending Customs Notification No. 47/89 dated 1-3-1989 by Notification No. 237/89 dated 18-9-1989 so as to equate the effective rate of basic Customs duty on polystyrene and “co-polymers of styrene” (this expression within quotes was added to the term “polystrene” in the original Notification). This position has been continued in the successor Notification No. 49/90-Customs dated 20-3-1990. A similar change was affected as regards the effective rate of basic excise duty leviable on polystyrene and Co-polymers of polystyrene (Notification No. 133/86-C.E., dated 1-3-1986 as amended).

10. The relevant tariff headings & chapter notes have been extracted earlier. According to the test reports, the goods consist of about 87/87.5% of styrene. It has been considered by the Chemical Examiner as a co-polymer of styrene containing less than 95% of styrene monomer. According to the product literature, it is a graft co-polymer of styrene monomer and synthetic rubber. It is, therefore, apparent that it is not a homopolymer (i.e. a polymer consisting of the same monomer). For the purpose of Chapter 39 of the Schedule, a co-polymer is a polymer in which no single monomer contributes 95% or more by weight to the total polymer content (Chapter note 4). Thus, the product is a copolymer for the purpose of Chapter 39. In accordance with the same Chapter note, co-polymers, including graft polymers and polymer blends are to be classified in the heading covering polymers of that comonomer which predominates by weight over every other single monomer. The subject product, whether it is regarded as a copolymer or a graft copolymer, will be classifiable as a polymer of styrene which predominates by weight. Thus it falls under Heading 39.03.

10.1 In determining the sub-heading under which the goods are classifiable, the sub-heading note in Chapter 39 which like the main notes in the chapter has legal force, has also to be kept in view. This sub-heading note is re-produced below :-

“Within any one heading of this Chapter, copolymers (including copoly-condensates, co-polyaddition products, block copolymers and graft copolymers) are to be classified in the same sub-heading as homopolymers of the predominant comonomer and chemically modified polymers of the kind specified in chapter Note 5 are to be classified in the same sub-heading as the unmodified polymer, provided that such copolymers or chemically modified polymers are not more specifically covered by any other sub-heading and that there is no residual sub-heading named ”Other" in the series of sub-headings concerned. Polymer blends are to be classified in the same sub-heading as copolymers (or homo-polymers, as the case may be) of the same monomers in the same proportions."

According to this note, copolymers and graft copolymers are ordinarily to be classified in the same heading as copolymers of the pre-dominant comonomer. However, this is subject to the proviso that such co-polymers are not more specifically covered by any other sub-heading and that there is no residual sub-heading named “Other” in the series of sub-headings concerned. In the present instance, Heading No. 39.03 consists of 5 sub-headings (extracted earlier). The subject product which is a copolymer is not more specifically covered by any sub-heading. Therefore, it has to be classified under the residual sub-heading viz. 3903.90 “Other”.

11. Leaving alone the aforesaid discussions, we note that the goods were warehoused under Section 59 of the Customs Act, 1962 under cover of bills of entry No. 819 and 820 both dated 15-9-1988. The Addl. Collector passed the impugned order on 20-7-1989. As already stated, with effect from 18-9-89, the basic Customs duty and basic Excise duty on polymers & copolymers of polystyrene have been equated. In fact, on 26-10-1989, the appellants wrote to the Asstt. Collector drawing his attention to this position and requested for re-assessment of the goods. Presumably because of the Addl. Collector’s adjudication order, however, the re-assessment does not seem to have been done. As submitted in the memorandum of appeal as well as during the hearing before us, the dispute as regards the rate of duty applicable to the goods has become academic in view of the fact that, in terms of Section 15 of the Customs Act, warehoused goods attract duty rates in force on the date of their clearance from the warehouses.

12. Shri Sogani has also drawn our attention to Notification No. 342/76-Cus-toms dated 2-8-1976 which extends a concessional rate of basic duty of Customs (50% of the standard rate of basic duty as modified by any exemption Notification in force) to polystyrene, among other goods, of Republic of Korean origin. It appears that this claim had not been made before the lower authority. Be that as it may, if the goods conform to the requirements laid down in the said Notification, the appellants will be entitled to the benefit of the concessional rate of duty. But this matter will have to be looked into by the lower authority. However, it is clear from the relevant entry in the Notification reading :-

“Polymerisation and Copolymerisation products (for example................... polystyrene ........)” that both polystyrene polymers and poly styrene copolymers are covered by the entry."

13. Now, we turn to the aspect of valuation of the goods. We see force in the appellants’ contention that though the goods imported at Bombay and Calcutta were comparable, the fact that the Bombay imports were of supplies made by a Hongkong party whereas in the instant case, the supplies were made by a Korean party would make for difference in prices. (The goods in both cases were of Korean manufacture). The aforesaid difference is bound to reflect on the prices. The Addl. Collector has, however, allowed only a reduction on account of the difference in freight as between Bombay and Calcutta. This apart, there is no evidence of similar imports effected at about the material time at Calcutta at higher prices nor is there any evidence of remittance by the appellants to the supplier of any amount towards the difference between the “real” price and and the invoiced price. The Addl. Collector may or may not be right when he says that the fact that the suppliers were based in different countries should not make any substantial difference in prices considering that they were both intermediaries. The Customs authorities could have investigated the matter further and tried to ascertain the price to the Korean supplier, the price to the Hongkong supplier, and such other relevant factors especially when the Addl. Collector has impliedly conceded that the aforesaid difference in the matter of suppliers could have made for some though not substantial (according to him) difference in prices. It is also noted in the adjudication order that the goods in the instant case were shipped a month prior to the shipment of the goods to Bombay. This also could conceivably make for some difference in the prices. Similarly, it is seen that the appellants had made submissions regarding certain distinctive features of the Bombay imports, before the Addl. Collector during the personal hearing on 22-6-1989, as for example :-

(a) the terms of payment was 180 days D/A - L.C. This would, according to the appellants, work out to a minimum difference of + 170$ per M.T. at 18% simple interest.

(b) the third party (supplier at Hongkong) would have added his profit margin of 10% to the price. This would have accounted for + 188 $ per M.T.

The Additional Collector has not satisfactorily and cogently dealt with these submissions which at least on a prima facie basis appear plausible. The Addl. Collector has merely repelled them by stating that the quantity of the present import was only 34 M. Ts whereas the Bombay import was of 102 M.Ts and that because of this, the price to the appellants should have been higher than the invoiced price. By the same token, it could perhaps be said that the price to the Bombay importer should have been not more than that to the appellants, if not lower.

14. The Additional Collector has, in determining the assessable value of the subject goods at 1850 $ per tonne, invoked Rule 11 of the Valuation Rules read with Section 14(1) of the Customs Act 1962. The submission of Shri Sogani is that whether Section 14(1) of the Customs Act or the Valuation Rules is adopted as the basis, there is no justification for ignoring the invoice price of 1485 $ per tonne whereas Shri Chandrasekharan justifies the action of the Collector.

15. Section 14( 1) of the Customs Act provides that for the purposes of the Customs Tariff Act, 1975, or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation in the course of international trade, where the seller and buyer has no interest in the business of each other and the price is the sole consideration for the sale or offer for sale. In the present instance there is no allegation that the seller and buyer are related persons or that they are interested in the business of each other or that the price is not the sole consideration for the sale or offer for sale. The price with which the comparison is to be made is that at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place ot importation. In the present case, the two prices with which the invoice price is sought to be compared do not fit in with this provision. The Department has also not produced any evidence concerning other imports .effected at Calcutta around the same time as the present import. Even if the price at which the Bombay imports were affected are to be taken for purpose of comparison we have seen how the comparison has not been properly done and how no due allowance has been made for the different circumstances attendant on the imports at Bombay vis-a-vis the present import.

16. The Collector has also invoked Rule 11 of “The Customs Valuation (Determination of Price of Imported Goods) Rules, 1988". Rule 11 provides that in case of dispute between the importer and proper officer of Customs valuing the goods, the same shall be resolved consistent with the provisions contained in Section 14(1) of the Customs Act, 1962. We have already commented on how the facts and circumstances of the present import are to be assessed in the light of Section 14(1) of the Customs Act.

17. The learned Consultant for the appellants made certain submissions with reference to the other provisions of the Customs Valuation Rules. Since the Collector has invoked only Rule 11, it is not necessary for us to discuss the submissions with reference to other provisions of the Rules.

18. In the state of the evidence on record, we are of the opinion that the Revenue has not established the charge of under-valuation/mis-declaration of value on the part of the appellants. In this context, we cannot but take note of the fact that the Additional Collector has not confiscated the goods or imposed any penalty on the appellants under Section 111(m) of the Customs Act.

19. In the light of the discussions above, we allow the appellants’ claim as regards valuation of the goods and direct the Additional Collector to determine the assessable value of the goods on the basis of the invoiced price of 1485 $ per M.T. CIF. We dismiss the appellants’ claim as regards classification of the goods. However, we direct the Additional Collector to re-determine the rate of duty applicable to the subject goods in the light of the observations in para 11 and 12 of this order.

20. The appeal is disposed of in the above terms.

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Equivalent 1991 (51) ELT 457 (Tribunal)