1997(02)LCX0262

IN THE CEGAT, COURT NO. II, NEW DELHI

Shri S.K. Bhatnagar, Vice President and Ms. Jyoti Balasundaram, Member (J)

SAMMAS POLYMERS PVT. LTD.

Versus

COLLECTOR OF CUSTOMS, MADRAS

Final Order No. C/406/97-B2, dated 28-2-1997 in Appeal No. C/3317/87-B2

Advocated By : Shri N. Ramanathan, Advocate, for the Appellant.

Shri Mohammed Ali, JDR, for the Respondent.

[Order per : S.K. Bhatnagar, Vice President]. - This is an appeal against the order of Collector of Customs (Appeals), Madras dated 1-7-1987.

2. Learned counsel stated that the appellants are a small scale industrial unit established by a few dedicated non-resident Indian Technocrats who have responded to the invitation of the Government of India to start an industry in their native country utilising capital re-patriated by them from abroad and the expertise they had gathered during their stay overseas. The main activity of this industrial unit is production of plastic collapsible tubes which are used extensively for packing various products like foodstuff, shaving cream, toothpaste etc. The appellants manufacture these tubes against specific orders placed on them by their customers as per their requirements and decorative designs. In order to meet the twin objectives of manufacturing special sizes of packing materials, that is collapsible tubes, and to impart on them decorative designs, the Technocrats of the Unit decided to import a single homogeneous machine for performing both the functions of manufacturing tubes and printing designs thereon. The appellants placed an order on M/s. Ossberger-Turbinenfabrik Gmbh, West Germany, for the supply of type DUO-30 Injection Blow Moulding Machine with its accessories which include a decorating unit type SD-3 appropriate to the above Pressblower type moulder adapted for decorating plastic tubes and tubler products of sizes ranging from 12 mm x 55 mm to 35 mm x 165 mm length. The suppliers accepted the order for the above machine which they shipped on 26-6-1986 by the Vessel S.S.Conscience, Rotation No. 711/86 from the Port of Hamburg.

3. Along with the Bill of Entry, they also submitted before the proper officers of customs, the supplier’s Invoices No. IV-86248/V-86249, dated 24-6-1986 and the manufacturers’ literature explaining technical characteristics of the machine. In the bill of entry, the appellants claimed the assessment of the injection moulding machine under the heading 84.77.10 read with the Notification No. 125/86-Cus., dated 17-2-1986. The appellants declared the decorating unit type SD-3 on the said Bill of Entry separately on the basis of the supplier’s invoice and claimed assessment of the same as part of the injection moulding machine in question. The assessing officer classified the moulding machine under the heading 84.77.10 as claimed by the appellants but assessed the decorating unit separately under the heading 84.43.30 as `Flexographic Printing Machine’ at 50% basic duty plus 25% auxiliary duty and countervailing duty at 15% ad. val. He also classified various parts and accesories of the main machine at different rates of duty on their individual merits, under the relevant heading of the Tariff even though the appellants demanded that these accessories also be assessed along with the main machine, that is, moulding machine at the rate applicable to the same in view of the provisions contained in the Accessories (Condition) Rules, 1963. The appellants protested against the assessment of the decorating unit as a Printing Machine. The Collector of Customs (Appeals) passed his orders ruling out classification of the decorating unit under the heading 84.77.10 of extending the benefit of Notification No. 125/86 as claimed by the appellants, since according to him, the decorating unit is not covered by Sl. No. 21 of the said notification. He, however, held that the order for assessment under the heading 84.77.90 as decided by the Assistant Collector of Customs was not correct since the decorating unit, according to him, is not a part of another machine and that it was correctly assessable under the heading 84.43.30 since its function is that of Printing Design and lacquering.

4. The Collector of Customs (Appeals), Madras, has erred in not appreciating the correct facts of the case. Even though the supplier’s invoice had indicated the price of the decorating unit type SD-3 separately, the Collector of Customs (Appeals) should have appreciated the fact that functionally and technically, the said decorating unit cannot be construed as an independent machine by itself since it is specially designed for operation along with the injection moulding machine. He has not applied his mind to the technical characteristics of the blower and the decorating unit as explained in the manufacturers’ literature produced before him. In fact, there is no finding of the Collector of Customs (Appeals) in this regard. The order, therefore, reflects lack of application of mind.

5. The Collector of Customs (Appeals) has held that the classification of the two units, namely, moulding machine and the decorating unit under the same heading is permissible only if the assembly answers to the definition of composite machines as contained in Note (3) of Section XVI of the Tariff. While arriving at this conclusion, the Collector of Customs (Appeals) has placed reliance on Explanatory Notes to the Harmonised Commodity Description and Coding System for interpretation of Note (3) of Sectional Notes. The appellants say that the Collector (Appeals) has erred in law by relying on the Explanatory Notes to the Harmonised Commodity Description and Coding System which are not statutorily applicable to the notes under Section XVI of the Customs Tariff of India. In the Customs Tariff, according to Note (3) under section XVI, composite machines are deemed to consist of two or more machines fitted together to form a whole. According to note (4) under Section XVI, it is further amplified that where combination of machines are interconnected by piping, transmission devices, electric cables or by other devices intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function. The appellate authority ought to have appreciated that Sectional Notes (3) and (4) appearing under Section XVI of the Customs Tariff of India are not amplified by any other Explanatory Notes such as those application to the Harmonised Commodity Description and Coding System. In fact, the Explanatory notes of the tariff nomenclature structured by the Customs Cooperation Council prior to the introduction of the Harmonised System specifically stated that composite machines may consist of two or more machines or appliances of different kinds fitted together to form a whole or may be machines performing separate functions which are generally complementary and are described in different headings of Section XVI and are classifiable according to the principal function of the composite machine. As examples, of such composite machines, this explanatory note specifically cited Printing Machines with a subsidiary machine for holding the paper (heading 84.43); a card board box making machine combined with an auxiliary machine for printing a name or simple design (heading 84.41); industrial furnaces combined with lifting or handling machinery (heading 84.17 or 85.14); cigarette making machinery combined with subsidiary packaging machinery (heading 84.78).

6. In view of the above, the appellants submit that whether two or more machines can be treated as composite for the purpose of application of Note (3) of Section XVI of the Tariff should not be decided purely with reference to Explanatory Notes to the Harmonised Tariff for which there is no statutory backing for their application to the interpretation of the Indian Customs Tariff but on the basis of fair and just appreciation of the technical characteristics of the machines and functions they discharge. But even if HSN is taken into consideration in view of the Explanatory Notes governing composite machines as contained in the earlier tariff of the Customs Cooperation Council and in view of the notes (3) and (4) appearing under Section XVI of the Customs Tariff of India, the decorating unit in question would merit classification under the heading 84.77.10 along with blower moulding machine because of their technical characteristics and functions discharged by them.

7. It may be seen from the manufacturers’ literature that the blower type DUO-30 and the Decorating Unit type SD-3 together form a complete tube production line with an annual output of about 5 million tubes. In fact, the literature specifically says that the tube production line is composed of the Press blower and the decorating unit type SD-3, both the machines being connected by storage conveyor and operating in continuous process to produce plastic tubes of the sizes ranging from 12 mm x 55 mm to 35 mm x 165 mm. A perusal of the literature would show that the press blower injection moulding machine is designed to operate in conjunction with its small decorating unit SD-3 and the features are such that the tubes are transported to the pick up place of the decorating unit and further that these are in-built arrangements for storing the tubes in the system when the printer is pre-occupied. The speed adjustment and operational features of the printer have a direct bearing to the output of the injection moulder machine and the printer itself is not designed for operation as an independent unit anywhere else. In view of the technical and functional features of the printer, it cannot be treated as a conventional printing machine of the type described under the heading 84.43. In fact, the appellants agree with the findings of the Assistant Collector of Customs that “it is not just a printing machine to fall under the tariff heading 84.43.30 of the Harmonised System.” If it is treated as a printing machine, the appellants say that it would automatically be covered by Sl. No. 21 of Notification No. 125/86-Cus., dated 17-2-1986, which mentions “coding, marking, ink printing machine” and would, therefore, be entitled to be assessed at the same rate of duty as the moulding machine.

8. Learned DR drew attention to the order-in-original and order-in- appeal and stated that as observed by the A.C., the claim for assessment of parts and spares at the same rate as the main machine in terms of Accessories (Condition) Rules, 1963 had been withdrawn by the importer before the A.C.

9. According to learned Collector, the two machines perform complimentary functions but they do not satisfy the parameters laid down in the Explanatory Notes and therefore, they do not fall under the category of composite machines. Hence, decorative unit has to be assessed as a separate unit classifiable under heading 84.43 in view of its functions. The A.C.’s order for assessment under heading 8477.90 CTA is therefore, not correct.

10. Furthermore, the benefit of customs Notification 125/86 with reference to entry 21 thereof is also not acceptable as it does not perform coding or marking functions.

11. The learned Collector was, therefore, right in modifying the A.C.’s order on classification and denying the appellants the benefit of the above notification.

12. We have considered the above submissions. We observe that the appellants had imported (1) press blower injection blow moulding machine and (2) a decorating unit (with spares and tools) for their plastic and laminate collapsible tube manufacturing plant as indicated in the invoice and submitted by the appellants before us and not contradicted by the Department. The main issue before us is whether these two machines should be assessed together as one unit or separately. In our opinion, the fact that both of them are required and have to work in conjunction to produce the final product or perform complimentary functions is by itself not sufficient to treat them as a single composite machine.

13. In the catalogue produced before us, the photograph, features and functions of these two machines have been shown but the learned counsel has not been able to throw light on any aspect or feature which would go to show that the two together would constitute a single composite machine. The nearest this catalogue comes to describing their complimentary and continuous functioning is as follows :

“The complete tube production line with an annual output of above 5 millions of readily decorated plastic collapsible tubes is composed of the PRESS BLOWER Injection blow moulder DUO-30 and the small decorating unit SD-3. Both machines are connected by a storage conveyor and produce plastic tubes of PE and PP of sizes from 12 mm x 55 mm cylindrical length to 35 mm x 160 mm cylindrical length in a continuous process of manufacture and decoration. The plain tubes conveyed via the storage bar of the Small Decorating Unit are pre-treated at the first station in the corona of a high frequency tension field, on the following stations they are 3 coloured printed, over-lacquered wet to wet, put on a chain, dried in a counterflow hot-air drier and aftercooled, so that they leave the machine ready for filling or packing.

The tube machine as well as the decorating unit are designed for continuous operation during 24 hours. For refilling inks and lacquers and controlling the prints a survey is necessary from time to time, but not permanently."

14. This indicates that both are a part of the tube manufacturing line. But, this is not the issue in dispute before us.

15. It is true that as per this catalogue, the plain tubes are transported to the pick-up place of the decorating machine and there is provision for fine adjustment of the synchronous operation by the electronic control system of the DUO-30. But, even this is not enough because for customs purposes, what is necessary is that the parameters as laid down in Note (3) and (4) of Section VI of the Tariff read with corresponding HSN Explanatory Notes are satisfied. These provisions as rightly indicated by the learned Collector must show that the machines of two different kinds even if they perform complimentary functions could be considered as a single composite machine only if they are fitted together to form a whole by incorporation one in the other or by mounting one on the other or by mounting on a common base or frame or in a common housing.

16. Since these two machines do not satisfy these criterion, they are required to be treated as distinct machines for customs purposes even though they are responsible for the production of the final product in a continuous process of manufacture and decoration and for this purpose, they have to function together and their operations can be synchronised.

17. once they are required to be assessed separately in view of the above position, a question arises which is the correct heading in which the decorating unit is classifiable. In this respect, learned Collector had rejected their classification under heading 84.77 and held them to be classifiable under 84.43.30. These two entries read as follows :-

“8443.30  Flexographic printing machinery.

8477.10   Injection-moulding machines."

From a reading of these entries, it is apparent that heading 8443.30 is appropriate because decorating the tubes by a process of flexographic printing is its main function. That for this purpose, the tubes are required to be subjected to some pre-treatment and are also required to be lacquered is understandable but that does not make any substantial difference to the fact that printing (and not injection moulding) is its principal function and the Collector’s observation that “The printing system consists of 3 inking and printing stations; it is a flexographic printing system with rubber or plastic stereos” has not been challenged or shown to be wrong. In fact, the catalogue itself shows that it is the press blower which has been described as injection blow moulder and the other machine is described only as a decorating unit and the photographs also shows the words, various designs and patterns printed on it. Therefore, learned Collector was right in rejecting classification under heading 84.77 and holding it as classifiable under heading 8443.30.

18. Again, the learned Collector is right in pointing out that since it is not a coding or marking machine, therefore, it is not covered by Sl. No. 21 of Notification No. 125/86.

19. In view of the above discussion, we hold that the order of the Collector (Appeals) is correct. We, therefore, uphold the same and reject the appeal as already announced in the open Court.

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Equivalent 1999 (109) ELT 733 (Tribunal)