1995(10)LCX0110

IN THE CEGAT, SPECIAL BENCH `A’, NEW DELHI

Justice U.L. Bhat, President and Shri K. Sankararaman, Member (T)

COLLECTOR OF CUSTOMS, KANDLA

Versus

DIMPLE OVERSEAS LTD.

Order No. 642/95-A, dated 31-10-1995 in Appeal No. C/324/94-A with C/CO/203/94-A

Advocated By : Shri T.R. Malik, DR, for the Appellant.

 Shri A.S. Sunder Rajan, Consultant, for the Respondents.

[Order per : Justice U.L. Bhat, President]. - This is an appeal filed by the Collector of Customs, Kandla against the order passed by his predecessor, dropping the proceedings initiated by a show cause notice, against the respondent herein. The appeal was filed on the basis of order passed by Central Board of Excise and Customs under Section 129D(1) of the Customs Act. The Tribunal set aside some of the findings of the Collector and consequently set aside the impugned order and remanded the matter for fresh consideration and disposal. The respondents herein challenged the order of the Tribunal before the Supreme Court. The Supreme Court set aside the order of the Tribunal on the ground that remand was made after recording what appear to be definite findings and directed the Tribunal to hear the matter afresh and decide the appeal and cross objection on merits instead of remanding the matter to Collector. The cross objections filed by the respondents are really not cross objections against the order passed by the Collector but are objections filed to the appeal and supportive of the order of the Collector.

2. Respondents herein obtained as advance licence under the DEEC Scheme for export of Newar/Straps which will entitle him to import duty free, the basic raw material for the manufactured product namely, HDPE Granules (refer Notification No. 203 of 1992 which deals with value based advance licence). Intelligence report indicated that there was attempted export of newar/straps under the scheme by misdeclaring the description and actual value for the goods were described as made from HDPE Granules while actually the raw material was recycled plastic scrap/waste. Officers of DRI intercepted the consignment of 60 M.Tons in the course of export. The relevant documents were also recovered. Documents showed that the exporter had filed 10 shipping bills under 5 different DEEC Books for Export of 60 metric tons of Polyethylene newar/strap declared as made out of HDPE Granules/powders for export to M/s. International Textile Company, Dubai. The total value declared as US $ 30,00,000 was an exorbitantly over invoiced rate. This was done with the intention of enabling higher entitlement for import of prime quality of HDPE Granules of the value of US $ 18,57,000/-, completely duty free.

3. The show cause notice issued to respondents referred to the following aspects :-

The goods sought to be exported under the provisions of the DEEC Scheme, were required to be manufactured out of raw materials which the respondents would be entitled to import under the scheme, namely Virgin HDPE Granules, while actually the goods were manufactured not from such prime quality HDPE granules but from recycled plastic scrap or waste HDPE material and hence the export must be as deemed to be banned under clause 3 of Export Trade Control Order No. 1/88-ETC. There was violation of the provisions of the scheme requiring disclosure in the application for DEEC licence of the particulars relating to the supportive manufacturers and valuation was deliberately exaggerated to secure higher import entitlement. Respondents submitted a reply consequent to rebuttle of these aspects. Respondents contended that HDPE Granules were used in the manufacture and no recycled waste HDPE was used, that this was correctly reflected in the reports of the Chemical Experts that the presence of slight percentage of polypropylene was as a result of pigmentation process which was necessary for completing the finished products. Respondents also relied upon the provisions of Export Trade Control Order and the particulars of supporting manufacturers given in the declaration. Respondents further contended that there was no excessive valuation.

4. The Collector accepted the contentions of the Respondents and dropped the proceedings. The Tribunal, at the earlier stage, upheld the finding of the Collector that the allegation of excessive valuation was not acceptable but set aside the findings of the Collector on other aspects. The finding of the Collector on the question of valuation was not challenged by the Department before Supreme Court and has become final and concluded. It is not open to the Department now to seek to reopen this finding.

5. The main controversy relates to the question whether the raw material used for the manufacture of finished product was virgin HDPE or recycled or waste HDPE. Representative samples were got tested by the Deputy Chief Chemist, Bombay and Professor Pandya of IIT Bombay. The Deputy Chief Chemist of the Customs Department reported that his laboratory was not in a position to state whether the Polyethylene used in the export product was of prime quality or otherwise and that the gravity of the material was more than 0.94. This report is not at all helpful to the Department but is helpful to the respondent. Polyethylene is dealt with at page 51 of the 5th edition of Plastics Engineering Handbook of the Society of the Plastics Industry edited by Michael L. Berins. It is seen that Polyethylene is classified by density into three categories namely Ultra or very low density category with specific gravity of 0.880 to 0.915 gms. per cubic cm., low density category with specific gravity of 0.910 to 0.925 gms. per cubic cm., medium density category with specific gravity of 0.926 to 0.940 gms. per cubic cm. and high density category with specific gravity of 0.941 to 0.965 gms. per cubic cm. Specific gravity relating to the various samples taken from the consignment has been calculated. They are 0.958, 0.955, 0.932, 0.945, 0.945, 0.949, 0.933, 0.916, 0.962 and 0.949 for the samples 1 to 10 respectively. Specific gravity of Items 1, 2, 4 to 6, 9 & 10 exceeds 0.940 and specific gravity of Items 3 & 7 is in the medium category and that of 8 is in the low density category. Thus it is seen that majority of the samples had specific samples had gravity or density consistent polypropylene.

6. The report of Professor Pandya of IIT is more authoritative and exhaustive. He has drawn 5 inferences from the data obtained during the examination of samples, indicating also the reasons for drawing the inferences. The inferences are -

(a) All the materials are found to be of prime type (Certain characteristics, which if present, would point to recycled or used material, were absent);

(b) The material is not a homopolymer, but is either a blend or a copolymer;

(c) All samples are blends of copolymer of Polyethylene with polypropylene;

(d) The polyethylene component in the polymer is likely to be HDPE;

(e) All the materials are found to contain approximately 3 to 5% of inorganic compound as indicated by ash content values, which can be attributed to the pigments and stabilizers added to the material during processing.

7. Prime type HDPE is virgin variety of granules or powders. The expert has found that the materials of the samples to be of prime type. He found that though there was absence of indication of recycled or recycled material, the product was not 100% HDPE but was a blend of HDPE with polypropylene or of copolymer of polyethylene with polypropylene. This would mean that there was admixture of a small quantity of polypropylene with polyethylene or monopolymers used were subject to polymerization. It is worthwhile to notice that pure HDPE will contain polyethylene and not polypropylene. There was a small percentage of inorganic compound referable to pigments or stabilizers used during processes. Professor Pandya was summoned before the Collector and cross-examined by both sides. He stated that the tests conducted by him confirmed that predominently the main component of goods were of prime quality. He was asked if the use of masterbatch would alter the composition and he answered that it can alter physical composition but not chemical composition. He also stated that the description of goods as articles of HDPE would be chemically correct. If it is a blend it would have the presence of polyethylene, polypropylene and pigment. The purpose of use of pigment was to colour filament material. He again reiterated that the HDPE was in predominant quantity and because of such predominance what was tested by him was HDPE article. When questioned regarding the variation in density, he stated that it depended on the masterbatch used. Respondents explain that in the process of manufacture, initially yarn is produced and yarn is converted into straps. It was explained before us by learned Counsel that for the purpose of pigmentation masterbatches are used and the same would have a base either of polyethylene or polypropylene and the presence of polypropylene could be so explained. This is supported by the data presented by Professor Pandya also.

8. Having regard to above materials, the conclusion that the goods sampled were HDPE goods predominantly containing polyethylene material with perhaps a small quantity of polypropylene material etc. is correct. The presence of what is stated to be polypropylene is explained by the manufacturing processes adopted in the given case, particularly for the purpose of pigmentation. The reports of two experts are in favour of this conclusion. If prime raw material was used in the manufacture of the finished goods, it will not cease to be prime quality product by mere presence of a small percentage of polypropylene material or other materials which had to be introduced either in the process of pigmentation or otherwise. This is also clear from the policy underlying the Customs Tariff Chapter 39 of the Tariff dealing with plastics and articles. Note 4 is as follows :-

“4. For the purpose of this Chapter, except where the context otherwise requires, copolymers (including co-polycondensates, co-polyaddition 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.”

The note contemplates polymer blends also. It is clear that polymer blends are to be classified in the heading covering the polymers of that comonomer which predominates over other single comonomers. Going by the expert evidence the predominent polymer in the sample was polyethylene and therefore the product must be classified accordingly. Hence, we find no reason to hold that the conclusion of the Collector in this regard is in any manner erroneous.

9. The next contention is that by virtue of Clause 3(3) of the Export Trade Control Order No. 1/88-ETC the export must be deemed to have been barred. According to this provision, if in any case it is found that the value, sort, specification, quality and description of goods to be exported are not in conformity with the declaration of the exporter in those respects or the quality and specification of such goods are not in accordance with the terms of Export Contract the export of such goods shall be deemed to be prohibited. The reasons stated in the show cause notice for invoking this provision is that the product is made not out of virgin HDPE but out of the recycled plastic scrap/waste product. The declaration refers to the goods as newar/strap made out of HDPE granules/powders. The attempt of the Department to show that these goods were manufactured out of recycled or waste HDPE is not successful. There is no other material before us to conclude that these products were made not out of HDPE granules or powders. For these reasons, the finding of the Customs Collector holding that the deemed bar against the export cannot be invoked is sustainable.

10. The last contention is that in the application in connection with DEEC Book, respondents declared the name of M/s. Associated Plastic Industries as the supporting manufacturer but the finished products were not manufactured by that concern and were actually manufactured by two other concerns, Hindustan Synthetics and Shreeji Polypropylene Industries and this constitutes violation of condition of the licences. The advance licences were obtained during the period 30-10-1992 to 15-1-1993 under the 1992 Scheme. We notice that under the 1990-93 Scheme the applicants were required to furnish the names of the supporting manufacturer. The new Policy introduced in 1992 deleted this provision. It was reintroduced with effect from 1-4-1993 and again deleted in the 1994 policy. The result is that at the time when the respondents obtained the advance licences there was no requirement of mentioning the names of the supporting manufacturer. If there was no requirement of naming the supporting manufacturer, there could be no requirement that only services of the named supporting manufacturer should be used. On this ground, the contention of the appellant fails. The appeal is accordingly dismissed.

Equivalent 1995 (80) ELT 900 (Tribunal)