1990(10)LCX0015

BEFORE THE CEGAT, SPECIAL BENCH ‘C NEW DELHI

S/Shri K. S. Venkataramani, Member (T) and S.L. Peeran, Member (J)

COLLECTOR OF CUSTOMS

Versus

EAST WEST EXPORTERS

Order No. 1167/90-C, dated 29-10-1990 in Appeal No. C/3836/88-C(NT)

CASE CITED

NAVICHEM SYNTHETIC INDUSTRIES v. COLLECTOR - 1984 (17) ELT460 (TRIBUNAL)     [PARAS 4,6,12]

Advocated By: Shri M. Jayaraman, SDR for the Appellant.

Shri K.L. Jain, Partner, for the Respondents.

[Order per : S.L. Peeran, Member (J)]. - The Revenue has sought for setting aside the impugned order-in appeal passed by the Collector of Central Excise(Appeals) Madras vide his order No. C-3/97/1988 dated 27.5.1988 in which he has held that the imported impugned goods namely ‘Instant adhesive’ (Synthetic Adhesive Binders) are correctly assessable under Heading 3506.10/3506.91 CTA read with C.N. 136/86 and for CV duty purpose under Heading 3501.90 and has set aside the order passed by the Assistant Collector of Customs, Madras confirming the demand under Section 128(2) of the Customs Act.

2. The main grounds made out in the appeal by the Revenue, are that the appellants authority allowed the case based on the test report by the independent Analyst M/s Italab (P) Ltd., Bombay and has failed to note the Chief Chemist’s Test Report No. 40-Cus/86 dated 9-12-1986. They have relied on the excerpts of the Chief Chemist’s report, which are reproduced below -

“The samples are aqueous emulsions of synthetic resin, polyvinyl acetate.... these emulsions merit classification only under Chapter 39".

The Revenue have further submitted that the report of Central Revenue Control Laboratory, New Delhi is more reliable and authentic compared to independent analyst and hence the decision based on the report issued by M/s. Italab (P) Ltd. is not correct in law. They have further submitted that the sample tested by M/s. Italab (P) Ltd., Bombay was not a representative sample and the same was not drawn in the presence of Customs officials. They have assessed that the impugned goods being aqueous emulsions of synthetic resin polyvinyl acetate, they are correctly classifiable under heading 3905.11 (if the pickings are more than 1 kg) as resins and not prepared glues under Chapter 35. However, the Revenue admits that the goods in 1 kg pickings are covered under Chapter heading 35 which can be used as adhesive but they are not covered by Customs Notification No. 136/86 since these are not prepared glues. The Revenue has placed reliance on HSN Explanatory Notes to Chapter 39, page 560, “Polymers of vinyle acetate are generally used for preparation of lacquers, paints, adhesives etc. solutions and dispersions (emulsions and suspensions) of polyvinyl acetate are used as acetates”. In case the impugned goods are “acqueous emulsions of synthetic resin polyvinyl acetate” and therefore, are correctly classifiable under heading 3905.11 as polymers of vinyl acetate in acqueous dispersion. Therefore, the Revenue has sought for restoration of the order of the lower authorities.

3. The respondents have contended that the lower authorities have not given them the benefit of C.N. 136/88 in spite of their specific representation. The lower authorities have also not issued a speaking order furnishing the detailed reasons for denial of such benefit. Due to this, they were denied the opportunity to agitate before higher forums. They have further submitted that there is no short levy and on the contrary, they are entitled for refund of duty in terms of C.N. 136/86. The change of classification from Chapter 35 to Chapter 39 of CTA was done without giving them an opportunity to present their case. In assuming that the classification should be under Chapter 39 of CTA even then the basic Customs duty chargeable would be only 50% and not 100 % as the goods were of South Korean origin and the necessary details to show the country of origin had been produced to the lower authorities in terms of C.N. 342/76. They have further contended that the test report of Customs laboratory confirmed that they should be treated as ‘prepared adhesives’. Accordingly the impugned goods were to be classified under heading 3506.91 of CTA and 3501 CET. The CV duty leviable would be only 15%. They have further contended that as per Notification No. 136/86 (Sl. No. 78) prepared glues were chargeable to duty only at 60% and the impugned goods attracted duty only at that rate. The denial of the benefit of Notification No. 136/86 by the lower authorities, was not justified. They have further made a very strong grievance that despite several requests, the lower authorities refused to give a speaking order while confirming the demand notice for claiming short levy at 25% on C.V. duty account. The goods were of Korean origin and despite the details of country of origin being submitted, the Department had denied them the benefit of C.N. 342/76. They have submitted that rate of duty chargeable under Chapter 39 would be only 50% plus 40% plus C.V. duty 40% totaling to 166% while the duty already paid by them was 176%.

4. The learned Collector after examining the contentions of the importer and the documents placed before him, upheld their contentions and set aside the order of the Assistant Collector of Customs, Madras. The learned Collector has observed that the importer had placed the test report of M/s. Italab (P) Ltd. which stated as follows -

and had sought the Department to have the goods tested in their laboratory including Customs laboratory if they so desired but the Customs laboratory had, however, expressed their inability to further analyse the product and confirm deny the presence of other materials - apart from the main Vinyl acetate as they did not have the necessary sophisticated equipment to test small amount of polyvinyl alcohol, plasticisers, if any, in the product (emphasis supplied). The learned Collector has held that since the Department has not contested the detailed analysis, certificate produced by the appellants has to be accepted as authentic. With regard to changing of classification from heading 3506.91 CTA (Adhesives based on rubber or plastics, including artificial resins) to heading 3905 CTA (polymers of vinyl acetate in acqueous dispersion), the learned Colletor has observed that as the impugned product is not in its pure and primary form, classification under heading 3903 CTA would not be appropriate. He has further held that addition of polyvinyl alcohol and plasticisers to Polyvinyl Acetate is to make the product an effective adhesive. He has relied upon the information given in ‘Adhesion and Adhesives’ edited by R. Hokwinic & Solomon, Vol. I quoted in the Chemical Examiner’s report, which states that the most important polyvinyl ester adhesive is polyvinyl acetate. As an adhesive, it is used in solution in acqueous dispersion and by hot melt techniques. In one form or the other, it is probably the most widely used thermoplastic adhesive. For satisfactory conlescence and file-formation, a certain amount of plasticiser must be incorporated of which Di-butyphthalate and butyl carbitol are examples. Polyvinyl alcohol is sometimes added. It is effective stabiliser. The learned Collector, relying on this literature, has held that the addition of plasticiser (DEP) and polyvinyl alcohol is only to make it an adhesive from its primary resin stage. He has also drawn the support for this view from Kirk Othmer Encyclopaedia -III Edition Vol. 18 page 165 (as quoted by the Chemical Examiner) which is quoted below:

“Emulsions adhesives are latexes of resins dispersed in a waterbase. Usually the resin is plasticised either internally or externally e.g. polyvinyl acetate emulsion adhesive or white glue is characterised by quick tack, goods adhesion to many surfaces, grease resistance and other desirable proportion. Esters that are moderately high in solubility parameter and dielectric constant are used as plasticisers DEP, BBP and Di-propylene Glycol di-bensonte impart good flexibility to the resin, which otherwise would be too brittle for many adhesive purposes. These same plasticisers impart desirable wet properties of high emulsion viscosity, good wet tack or green strength and sufficient open time after the emulsion is applied to a substrate and during which a good functional bond may be formed”,

The learned Collector, basing on these references from Technical publications, has held that the impugned goods could be classifiable under Chapter 35. He has held that 1 kg containers are assessable under heading 3506.10 CTA, 5 kg and 18 kg tins under heading 3509.91 CTA. The Collector has held that the appellants have also claimed the benefit under C.N. 136/86 (Sl. No. 78) which is applicable for prepared glues. There is no speaking order as to why this benefit was not extended at the time of original assessment under Chapter 35. The appellants plea for issue of a speaking order was never responded to. There is no reason as to why that benefit, once it is established that the primary resin has been converted/prepared into an adhesive by addition of other ingredient, be not given. It has also been established by CEGAT judgment in M/s. Nevichem Synthetic Industries Bombay v. Collector of Central Excise, Bombay [1984 (17) ELT 460], by quoting from ‘Handbook of Adhesives’ edited by Irving Skeist, that adhesives based on synthetic resins are also known as synthetic glues. Therefore, the impugned goods are also known as synthetic glues. Therefore, the impugned goods are also eligible for the benefit of C.N. 136/86 as ‘prepared glues’. For these reasons, the original assessment under CET Heading 3501.90 as ‘glues’ is also correct.

5. The Revenue has seriously challenged these findings of the learned Collector in the impugned order. Shri M. Jayaraman, learned Senior Departmental Representative, reiterated the grounds of appeal submitted that the impugned goods were acqueous emulsions of synthetic resins, polyvinyl acetate. They are classifiable under Chapter 3905.11 if the pickings are more than 1 kg as resins and not prepared goods and are not classifiable under Chapter Heading 35 CTA. He referred to HSN Explanatory Notes to Chapter 39 at page 560 which states that polymers of vinyl acetate are generally used for the preparations of lacquers, paints adhesives etc. Solutions and dispersions (emulsions and suspensions) of polyvinyl acetate are used as adhesives. Hence, he sought for classification of the impugned goods as polymers of Vinyl acetate in acqueous dispersion under Chapter heading 3905.11 of CTA. He further relied on chapter note 6 of Chapter heading 39 and submitted that the impugned goods were packed in more than 1 kg containers and hence it should be classified under Chapter heading 3905.11 of CTA. However, Shri M. Jayaraman admitted that the Chief Chemist had not denied the impugned products to be as glues. He fairly submitted that if the impugned product is a prepared glue then it deserves to be classified under Heading 35 of CTA. To a query from the Bench, the learned Departmental Representative, fairly submitted that packing does not change the classification and the opinion of Chief Chemist that the classification is to be on the basis of packing, is not correct.

6. Shri K.L. Jain, partner of respondents firm, supported the findings of the learned Collector. He pointed out that the samples of the goods had been sent to the Madras Test House for test. It had reported that the impugned product was a prepared adhesive. Again, the sample had been sent for retest and to say whether the prepared adhesive and prepared glue were one and the same thing. They reported that they were same. He further submitted that the part of the goods were still lying with Customs and that they had lost the shelf life. He had released a part of it under Chapter Heading 35 of CTA without grant of benefit under the relevant notification. He submitted that the report of M/s. Italab (P) Ltd. was presented to the Department even before the assessment and clearance of the goods by requesting the Department to subject the goods for retest. The Laboratory had sent a reply that it did not have the equipment. The learned Collector had referred to these facts in his findings and had rightly held that the test report of M/s. Italab (P) Ltd. had not been contested by the Department. He further submitted that samples had not been sent to the Chief Chemist and without samples being sent, his opinion had been sought in this matter and hence the learned Collector was right in not relying on the same. He further submitted that the Department had not issued a speaking order for one year despite goods being in custody and requests being made on five occasions. Meanwhile, demand notice for payment of Rs. 22,215/- had been made without affording any personal hearing not indicating under the heading under which the amount was demanded. He submitted that he approached the Public Grievance Committee and on whose directions, the Asstt. Collector of Customs had directed them to file the appeal before the Collector (Appeals). He relied upon the rulings of this Tribunal as rendered in the case M/s Nevichem Synthetic Industries, Bombay v. Collector of Central Excise, Bombay [1984 (17) ELT 460]. He sought for upholding the order passed by the learned Collector (Appeals).

7. We have heard both the sides and carefully considered the submissions and perused the records. The question that arises for our consideration is as to whether the impugned goods ‘Instant adhesives (Synthetic Adhesive Binders), are classifiable under chapter heading 35.06 of CTA as originally assessed or under Heading 35 of CTA and whether the impugned goods are entitled to the benefit of Notification No. 136/86 as sought for by them and held in his order by the learned Collector (Appeals).

8. The Revenue in this appeal has sought for confirming the order-in-original dated 13-10-1987 which is based on the letter dated 9-12-1986 of the Chief Chemist, Central Revenue, which reads more like an order than an opinion on chemical analysis of the sample. The same is reproduced below -

“From :

To

Shri C.V. Durghayya,

Asstt. Collector of Customs Group A

Office of the Collector of Customs,

Customs House, Madras

Sub : Instant Adhesive D-403 and D-405 - reg.

Please refer to your letter S Misc 76/86-group A dated 19-11-1986.

The test report from here states that the samples are aqueous emulsions of synthetic resin, polyvinyl acetate. The subsequent statement, that the composition indicates classification under Chapter 39 of CTA is clear indication of the fact that no other ingredient which would take the products away from the Chapter 39, is present in the sample. It has been further amply clarified that despite the composition these emulsions merit classification under Chapter 35 of CTA and 3506.10 (not 3606.10 as typed in your original letter) only by virtue of its advertised use and mode of packing, i.e. not exceeding 1 kg.

I fail to understand how you are facing difficulty in deciding the classification in spite of my test report being abundantly clear to enable correct classification.

The presumption that ‘glues and adhesives in pickings of more than 1 kg. when imported for the retail sale’, would also fall under the heading 3506.91 of H.S. of Tariff, is not correct. This heading does not have anything to do with the size of the packing. The only question relevant for this heading is whether by their composition as well as use, they are nothing else but ‘prepared glues or other prepared adhesives’ and whether they are specified or included elsewhere. In the case in question had the adhesives 403 and 405 been imported in packings bigger than 1 kg. they would merit assessment only under Chapter 39 because such materials are included in that chapter under sub-heading 3905.11. Their use as glue or adhesive is only among other uses. The additional limiting condition regarding the size of packing is incorporated in 3506.10 in order that, when used in adhesives they can be classified under that heading subject to the said condition.

Coming to the Notification No. 136/86, the expression ‘prepared enzymes and glues’ cannot cover ‘products suitable for use as glues or adhesives’ falling under sub-heading 3506.10. That expression would cover only those glues which, independent of the size of packing find use only as glues or adhesives, unlike those which are covered by heading 3506.10.

Sd/-

(Keshav Prasad)

Chief Chemist"

9. The competing entries of the Chapter headings 3506.10, 3506.91 and 3905.11 of CTA are given below -

10. The relevant Notification No. 136/86 (Sr. No. 78) is also reproduced below -

11. The learned Collector has given a reasoned order setting out the reasons for classifying the impugned goods under chapter heading 3506.10 and 3506.91. He has also relied on technical literature. The reliance on the technical literature is not assailed before us. The ground made out in this appeal is that according to HSN Explanatory notes to 39 (page 560) “Polymers of vinyl acetate are generally used for the preparation of lacquers, paints adhesives etc. solutions and dispersions (emulsions and suspensions) of polyvinyl acetate are used in adhesives”. As rightly held by the Collector, the Chief Chemist is not disputing the product to be adhesive. They are not polyvinyl acetate to be used in the preparation of adhesives. The product is itself adhesive as per the report of M/s. Italab (P) Ltd. which has not been disputed or challenged by the Department as rightly held by the learned Collector. The Collector has also observed that addition of polyvinyl alcohol and plasticisers to polyvinyl acetate is to make it an effective adhesive. The learned Collector has based his findings relying on the technical work ‘Adhesion and Adhesives by R. Hokwinic & G. Solomon Vol. I. Reliance on the Kirk Othmer Encyclopaedia III Vol. 18 page 165 is also made to come to the conclusion that the impugned goods are adhesives. The finding of the learned Collector is, therefore, not assailable and has to be upheld. It is also to be observed that Chapter 39 deals with plastics and articles thereof. Chapter Heading 3905 reads “Polymers of vinyl acetate or other vinyl esters in primary forms, other vinyl polymers in primary form. Heading 3905.11 reads ‘in aqueous dispersion’. Admittedly the impugned goods are not vinyl esters in primary form or other vinyl polymers in primary form. Chapter note 6 to Chapter 39 reads - ”6 - In Heading Nos. 39.01 to 39.14, the expression “primary Forms” applies to the following forms -

(b) Blocks of irregular shape, lumps, powders (including moulding powders) granule flakes and similar bulk forms".

It is not the case of the Department that the impugned goods are in primary form either. Hence, the Chapter Heading 3905.11 of CTA 86 has to be ruled out.

12. The learned Collector has relied on the ruling of M/s. Nevichem Synthetic Industries (supra). It has been observed by the Tribunal at para 7 as follows -

“The goods in dispute are adhesives, prepared by mechanical mixing of duty paid synthetic resin, namely polyvinlyl acetate dispersion with water solution of imported polyvinyl alcohol on which appropriate countervailing duty was paid at the time of export. There is no dispute about the appellant’s contention that the end products, namely, the adhesives are marketed as adhesives or glue. From the Handbook of Adhesives, edited by Irving Skeist, extracts of which have been furnished in the appellant’s paper book, it is seen that polyvinyl acetate based adhesives find wide use in a variety of applications such as book binding, paper bags, milk cartons, drinking straws, envelopes, gummed tapes, multiwall shipping bags, labels, leather binding etc. It is also seen from these extracts that adhesives based on synthetic resins are also known as synthetic glue. It is also seen from page 516 of the Explanatory notes to the Customs Cooperation Council Nomenclature (CCCN) that preparations specially formulated for use as glues consisting either of a mixture of several artificial plastic materials falling individually within different headings of Chapter 39 (Artificial resins and plastic materials cellulose esters and ethers; articles thereof) or of artificial plastic materials, which apart from any permitted additions to the products of Chapter 39 (fillers, plasticizers, solvents, pigments etc.) contain other added substances not falling in that chapter (e.g. waxes) are not classified in Chapter 39 but under Chapter 35 in Heading 35.06 (Prepared glues not elsewhere specified or included) T.I. No. l5A of the CET was not exactly aligned with the CCCN terminology as a result of the 1977 Finance Bill, the pattern being broadly the same, assistance can be usefully derived from the CCCN and its Explanatory Notes to understand the scope of Item 15A CET subject, of course, to the consideration that the express language of the CE Tariff Item is kept in view. Applying these considerations, we are of the view that the products before us are more appropriately classifiable as adhesives or glue and not under Item 15A CET (Artificial or synthetic resins and plastic materials and cellulose esters and ethers and articles thereof). As such, the appropriate classification would be under Item 68 CET.”

The learned Collector, therefore, has rightly applied the ratio of the above ruling to come to the conclusion that the impugned goods are classifiable under heading 3506.10/3506.91 CTA read with C. Notification No. 136/86 and for CV duty purposes under heading 3501.90 of CTA 86.

12A The Revenue in this appeal is mostly relying on the letter of the Chief Chemist. It has to be observed that the letter of the Chief Chemist reads more like an order on classification. Time and again, the Tribunal and Courts have pointed out that the chemical examiner has to only give his findings and results on the test carried out by him and not enter into a dialogue or exceed from that limit in expressing his opinion in the form of an order regarding the classification of the product. It is hoped that such exercises are avoided.

13. The Revenue has sought for restoration of the order-in-original. As rightly pointed out by the learned Collector, the lower authorities have not given any speaking order at all. The importers had made several requests for issue of speaking order which has also not been responded to Shri K.L. Jain was at pains to explain how they were put to irrepairable loss and damage on account of the attitude of Revenue in this case and on which account, the goods had to be left uncleared on account of its completion of shelf life. It is rather unfortunate that the importers have been made to suffer in this regard on account of the administrative lapses on the part of the Department.

14. We, therefore, do not find any reason to interfere with the impugned order passed by the learned Collector (Appeals), Madras and dismiss the appeal.

______

Equivalent 1991 (52) ELT 66 (Tribunal)