2001(02)LCX0221

IN THE CEGAT, EASTERN BENCH, KOLKATA

Smt. Archana Wadhwa, Member (J) and Dr. S.N. Busi, Member (T)

INTERPLAS (INDIA) PVT. LTD.

Versus

COMMISSIONER OF C. EX., CALCUTTA-III

Order Nos. A-171-172/Kolkata/2001, dated 19-2-2001 in Appeal No. E/R-309/99 & E/R-516/99

Cases Quoted

Collector. v. Lotus Inks —1996(09)LCX0068 Eq 1996 (087) ELT 0580 (S.C.) — Referred.................................... [Para 4.12]

Collector. v. Usha Martin Industries— 1997(08)LCX0104 Eq 1997 (094) ELT 0460 (S.C.) — Referred................. [Para 4.9]

Eswaran & Sons Engg. Ltd. v. Commissioner —1999(04)LCX0207 Eq 1999 (112) ELT 1011 (Tribunal) — Referred [Para 4.9]

H.M. Bags Manufacturer v. Collector —1997(07)LCX0062 Eq 1997 (094) ELT 0003 (S.C.) — Referred.................... [Para 4.9]

Packel Plastics (Nasik) Pvt. Ltd. v. Commissioner —1999 (035) RLT 0033 (CEGAT) — Referred [Para 4.9]

Paper Products Ltd. v. Commissioner —1999(08)LCX0250 Eq 1999 (112) ELT 0765 (S.C.) — Referred............ [Para 4.9]

Print Pack Industries v. Collector —1998 (025) RLT 0471 (CEGAT) — Referred................... [Para 4.9]

R.N. Polysacks Pvt. Ltd. v. Commissioner —1999(05)LCX0115 Eq 2000 (117) ELT 0790 (Tribunal) — Referred [Para 4.9]

Ranady Mirco Nutrients v. Collector —1996(09)LCX0009 Eq 1996 (087) ELT 0019 (S.C.) — Referred................... [Para 4.9]

Sun Export Corporation v. Collector —1997(07)LCX0044 Eq 1997 (093) ELT 0641 (S.C.). — Referred.............. [Para 4.12]

DEPARTMENTAL CLARIFICATION CITED

C.B.E. & C. Circular No. 189/23/96-CX, dated 26-3-1996.................................. [Paras 4.8, 4.9, 6]

Advocated By :   Shri S.K Bagaria, Advocate, for the Appellant.

Shri A.K. Chattopadhyay, JDR, for the Respondents.

[Order per : Dr. S.N. Busi, Member (T)]. - The dispute in these two appeals relates to correct classification of “Glass Filled Nylon-66 Insulating Liners” (hereinafter referred to as GFN Liners). Whereas both the appellants, namely, M/s Interplas (India) Pvt. Ltd. (hereinafter called as M/s Interplas) and M/s Calcutta Springs Ltd. (M/s Calcutta Springs for short) claim classification of the same under sub-heading 3926.90 of the Central Excise Tariff as “Other articles of Plastics”, the Revenue held the same classifiable u/s.h. 8546.00 as “Electrical Insulators”.

2. As the issue is common in both the appeals the same have been taken up together for disposal.

3. The appellants have been engaged in the manufacture of GFN Liners. The said Liners are exclusively sold and supplied to the Indian Railways. When the Central Excise Officers visited the premises of the appellants, they noticed that GFN Lines were being manufactured and cleared without payment of central excise duty and without observing the Central Excise procedures and formalities. They gathered information that the GFN Liners were being solely used in track-circuited section of Railway for electrically insulating the track circuits in order to prevent flow of electric current from one track circuit section for effective control of automatic signals. They, therefore, opined that the said GFN liners were nothing but electrical insulators and as such would merit classification u/s.h. 8546.00. As against this, the appellants had been under the impression that the said goods being “Other articles of plastics” fall u/s.h. 3926.90 and fully exempted from central excise duty under Notification Nos. 132/86-C.E., 53/88-C.E., 14/92-C.E. etc. issued from to time. A show cause notice dated 12-6-1995 was issued to M/s Interplas demanding central excise duty of Rs. 7,57,16,909/- for the period from June, 1990 to March, 1995 and a separate Show-cause Notice dated 19-5-1995 issued to M/s Calcutta Spring’s demanding central excise duty of Rs. 90,35,793/- (modified to Rs. 75,52,339/- vide corrigendum dated 12-6-1995) for the period from 8-4-1992 to 10-3-1995. In the show cause notices it was alleged that the appellants indulged in suppression of facts and clandestine removal of the impugned goods and as such invoked longer period in demanding duty. The show cause notices also proposed penalties on the appellants. The appellants contested the said Show-cause Notices on merits as well as on limitation. The Commissioners who adjudicated the above matters, while agreeing with the appellants on the question of limitation, rejected their pleas on merits and, therefore, confirmed the duty demands in respect of the normal period. Thus, the duty demand of Rs. 40,23,563/- was confirmed against M/s Interplas vide Order-in-Original No. 16/Ch. 39/Commissioner/CE/Cal.III/ Adjn/98-99, dated 30-3-1999. The duty demand to the extent of Rs. 18,87,935.67/- was confirmed against M/s Calcutta Springs vide Order-in-Original No. 16/Ch. 73/Commissioner/CE/Cal-II/Adjn/99, dated 12-8-1999. In both the cases, penalties were not imposed. The present appeals emanate from the said Adjudication Orders.

4. Shri S.K. Bagaria, learned Advocate appearing for both the appellants, seriously contested the Revenue’s contention that the impugned goods are electrical insulators. He submits that the liners are joints which are interposed between the rail and electric rail clips in rail fastenings to obtain the required holding force of rails with prestressed concrete sleepers. Such liners are made of steel as well as of Glass Filled Nylon. GFN Liners are one of the varieties of such liners and their design is exactly the same as that of steel liners. He further submits that most of the railway tracks are non-circuited i.e., without any electric current. GFN liners are used in circuited tracks as well as in non-circuited tracks where electric current never passes. In areas and sections of non-circuited tracks prone to corrosion due to local environmental and climatic conditions, use of GFN liners is common. He contends that the aforesaid functions and uses of GFN liners and the fact that the same are only liners and not electrical insulators has been certified by the Research Designs & Standards Organisation (RDSO), the highest expert technical authority of the Ministry of Railways, Government of India as well as by other authorities and experts.

4.1 The learned Advocate invites attention to the letter dated 28/29-11-1996 of the RDSO wherein it has been certified that the GFN lines cannot be treated as an insulator and that it is called “liner” due to the fact its primary function is to provide a medium between Rail and Electric Rail Clip for transfer of load and keeping the rail in position. It has further been certified that the GFN liner is a standard I.R. Track Fitting used as a joint between Rail and Electric Rail Clip on concrete sleepers for proper distribution of load and keeping the rail in position to the desired gauge.

4.2 The learned Advocate refers to another letter dated 26-8-1987 from the Railway Board, Ministry of Railways which supports the position mentioned in para 4.1 supra and further evident that along with the GFN liners, Rubber pads are also used. Rubber pads have also got insulation properties but the same have never been treated or classified as electrical insulators.

4.3 The contention of the learned Advocate is the experts on the subject, namely, S.K. Sinha, Chief Engineer (Rtd), Eastern Railways, Shri S.R. Venkataraman, Chief Engineer (Rtd), Southern Railways, Shri T.P. Ghosh, Deputy General Manager, Rail India Technical Services (RITES) are unanimous in their view that the GFN Liners cannot be called electrical insulators inasmuch as the same are merely track fitting materials.

4.4 The learned Advocate points out that the GFN liners are purchased by the railways under Trade Group Code No. 60 (sub-item 6012) which is for “Fish Bolts, Nuts, Keys and Fastenings”. These goods are never purchased by the Railways under Trade Group Code No. 41 which is applicable to “Insulators and Insulating Fittings”. The GFN liners are never subjected to “Insulation Resistance Test”. As per the Indian Railways Standard Specification No. IRS 32-93, in respect of Thermo Plastic Material Insulators, the Insulation Resistance Test is a must. No such test is conducted or required in respect of the GFN Liners.

4.5 In order to strengthen his argument that the GFN Liners cannot be categorised as electrical insulators, the learned Advocate draws support from the ITC (HS) Classification of Export & Import Items (based on the Harmonised System) issued by the M/o Commerce, Government of India, wherein the Insulating liners of Nylon/HDPE have been classified u/s.h. 392690.04.

4.6 The learned Advocate submits that the Glass Filled Nylon is used for manufacture of the said liners due to its high mechanical properties. Simply because the said constituent material also has got natural insulation property, the said liners made thereof do not and cannot become electrical insulators.

4.7 The learned Advocate argues that the Explanatory Notes below Heading No. 85.46 in the Harmonised Commodity Description and Coding System (HSN) also fully support the submissions of the appellants. It is clearly stated in the HSN below heading No. 85.46 that the electrical insulators of heading No. 85.46 “are used for fixing, supporting or guiding of electric current conductors while at the same time insulating them electrically from each other, from earth etc”. He goes on to say that it is evident from the Explanatory Notes in the HSN that insulators are used on outdoor cables, e.g., telecommunications, power net-works, electrical traction systems, indoor installations, machines and appliances etc.; and this is not at all the position in the instant case.

4.8 The learned Advocate argues that the Commissioner totally erred in relying on the Circular No. 189/23/96-CX., dated 26-3-1996 of the Central Board of Excise & Customs, New Delhi for classifying the said liners u/s.h. 8546.00. According to him, the classification contained in the said Board’s Circular related to the goods used in fabrication of “Insulated rail joints” to prevent flow of electric current from one railway track section to adjacent section. Insulated rail joints in respect whereof the said classification was given by the Board are totally different products. At this stage, he invites attention to “Maintenance Handbook on Insulated Rail Joints” issued by M/o Railways that such insulated rail joints are required at the end of track circuit and at points and crossings where the polarity of track circuit is to be changed. Such insulated rail joints are of three classes, namely, Class ‘A’, Class ‘B’ and Class ‘C’ and are made of wood, nylon and fibre respectively. He draws attention to para 2.2. of the Maintenance Handbook on Insulated Rail Joints which states: Since the Rail Insulated Joints are inserted to break electrical continuity of the Rail, the joints should offer infinity resistance. Practically it is not possible so that continuity test performs with the help of a multimeter. Multimeter should not show continuity across the joint, between fish plate & bolt and between fish plates resistance of a joint should not be less than 1000 Ohm”. As regards GFN Liners, the same are totally different products and not at all “insulated rail joints” or parts/components thereof. The GFN liners are never used in fabrication of “insulated rail joints”. The classification given in the Board’s Circular after obtaining information from the RITES related to goods used in fabrication of “insulated rail joints” and not to the GFN liners. In fact, the expert Technical Authority of Ministry of Railways, namely, RDSO, in its certificate dated 22-11-1996 certifies : “Reference above, it is stated that Glass Filled Nylon 66 (GFN-66) liner is a standard IR Track fitting used as a joint between rail and elastic rail clip on concrete sleepers for proper distribution of load and keeping rail in position to the desired gauge. GFN-66 liner is preferred for us in corrosion prone and track circuited areas due to its anti-corrosive and insulating properties. The product as such cannot be classified as an insulator and is called liner due to the fact that its primary function is to provide a medium between rail and elastic rail clip for transfer of load and keeping the rail in position.” The said GFN liners are admittedly used in non-circuited tracks where there is no flow of any electric current at all and obviously there can be no scope to allege that these are used to prevent the flow of electric current.

4.9 The learned Advocate argues that the Commissioner totally erred in holding that the said Circular of the Board was binding on him. The reliance placed by the Commissioner for this purpose on the judgement of the Hon’ble Supreme Court in the case of Ranady Mirco Nutrients v. C.C.E. reported in 1996 (087) ELT 19 is misconceived. He submits that in the said matter, the Circular was in favour of the assessee and it is in these circumstances that it was held by the Hon’ble Supreme Court that the lower authorities cannot reject the assessee’s submission by ignoring Circular which was binding on them. It has been repeatedly held by the Hon’ble Supreme Court that even though the Revenue cannot be permitted to take a stand contrary to the instructions issued by the Board, it is permissible for the assessee to contest the validity or legality or correctness of the Board’s instructions. He further submits that this position was again reiterated by the Hon’ble Supreme Court in the judgments in the cases of C.C.E. v. Usha Martin Industries reported in 1997 (094) ELT 460 and Paper Products Limited v. C.C.E. reported in 1999 (112) ELT 765. These relevant aspects of the matter were ignored and lost sight of by the Commissioner. The learned Advocate pleads that in any event the said Board’s Circular dated 26-3-1996 changing the well settled position as regards classification of the GFN liners will apply only prospectively and has no retrospective effect as has been clarified by the M/o Finance. This position of law is well settled by a number of decisions, some of which are -

(i)      H.M. Bags Manufacturer v. C.C.E. - 1997(07)LCX0062 Eq 1997 (094) ELT 0003 (S.C.);

(ii)     Paper Products Ltd. v. C.C.E. - 1999(08)LCX0250 Eq 1999 (112) ELT 0765 (S.C.);

(iii)    Eswaran & Sons Engg. Ltd. v. C.C.E. - 1999(04)LCX0207 Eq 1999 (112) ELT 1011 (T);

(iv)    Print Pack Industries v. C.C.E. - 1998 (025) RLT 0471 (CEGAT);

(v)     Packel Plastics (Nasik) Pvt. Ltd. v. C.C.E. - 1999 (035) RLT 0033 (CEGAT); and

(vi)    R.N. Polysacks Pvt. Ltd. v. C.C.E. - 1999(05)LCX0115 Eq 2000 (117) ELT 0790 (CEGAT).

4.10 The other argument advanced by the learned Advocate is that the Commissioner has erred in classifying the impugned goods u/s.h. 8546.00 by applying Rule 3(c) of the “Rules of Interpretation” of the Central Excise Tariff. Commissioner failed to appreciate that the said Rule 3(c) can be applied only if the classification cannot be decided on the basis of the earlier Rules. This is not at all the position in the instant case. On the basis of the evidence and documents already on record it is absolutely clear that the GFN liners are articles of plastics falling u/s.h. 3926.90 and are not electrical insulators falling u/s.h. 8546.00. According to the learned Advocate, there is no scope to apply Rule 3(c) ibid to the present case.

4.11 The learned Advocate disputes the observation of the Commissioner that as GFN liners are not specifically mentioned in the Explanatory Notes in the HSN below heading No. 39.26, the same are to be classified u/s.h. 8546.00. He submits that this reasoning of the Commissioner is arbitrary and misconceived. Heading No. 39.26 “covers other articles of plastics”. Mentioning of different goods in the Explanatory Notes in the HSN below heading No. 39.26 is illustrative and not exhaustive. Any article of plastic which is not covered by the earlier headings or sub-headings of Chapter 39 will be covered by sub-heading No. 3926.90 irrespective of as to whether such articles are mentioned in the Explanatory Notes in HSN by name or not.

4.12 Highlighting the specific observation of the Commissioner in the impugned order, to the effect that claims for classification both under Chapter 85 and Chapter 39 are equally strong, the learned Advocate submits that in such a situation, it is well settled that if two views are possible, the one favourable to the assessee shall be adopted. In this connection, he relies upon the judgments of the Hon’ble Supreme Court in C.C. v. Lotus Inks: 1996(09)LCX0068 Eq 1996 (087) ELT 0580 (S.C.) and Sun Export Corporation v. C.C. - 1997(07)LCX0044 Eq 1997 (093) ELT 0641 (S.C.).

4.13 Another submission of the learned Advocate is that the Commissioner erred in rejecting the appellant’s claim for allowing the benefits of modvat credit of the duties paid on the inputs.

5. Shri A.K. Chattopadhaya, learned JDR appearing for the Revenue, reiterates the reasoning contained in the Order impugned.

6. After hearing the submissions and the arguments advanced from both sides and on a careful perusal of the various available documents referred to by the learned Advocate, we find the GFN Liners are not exclusively used in track circuited areas. It has come on record that the same are found used in both track circuited areas as well as non-circuited areas. Moreover, the experts on the subject, who issued certificate which were adverted to by the learned Advocate, are categorical in their opinion that the impugned good are essential fitments of rail fastening system and the same are joints which are interposed between the rail and the elastic rail clips in order to obtain the required holding and gripping force to rails with the sleepers. Para 2 of the Certificate dated 10-10-1996 of Shri V. Gopalakrishnan, Chief Track Engineer (Rtd), Chennai throws enough light on this aspect in clear terms, which is reproduced below for ready reference :

“2. Liners are made either from steel or from Glass Filled Nylon i.e., plastic and both are used in the above rail fastening system. Both the liners perform the same function - joints between the rail and elastic rail clip to provide the desired tow load to the rails on the sleepers. But the Glass Filled Nylon liners are mainly used in track circuited areas where current passes with nominal 2/3 volts as it has got the insulation properly also. In areas and sections Rly. Track (non-track circuited i.e. where no electric current flows) subjected to severe corrosion, Glass Filled Nylon Liners are used because of its anti-corrosive property and also in view of low life and maintenance problems of steel liners. The design & size of Glass Filled Nylon liners are the same as that of steel liners.”

Shri T.P. Ghosh, Deputy General Manager (Rtd.) of RITES, Calcutta has also given his expert opinion to the same effect, besides other experts mentioned by the appellants. It is observed that Ministry of Commerce, Govt. of India, has classified the impugned goods u/s.h. 392690.40 of the ITC (HS) Classification of Export & Import Items. It is also observed that the Adjudicating authorities in both the cases have come to the conclusion that the claim of classification under Chapter 85 and Chapter 39 seems equally strong. Both of them have noted the following identical finding in their Orders-in-Original which is reproduced below:

“As against this evidence the assessee has also produced certificates/letters from similar Technical Experts/authorities in the Indian Railways. From the evidence before me, I am inclined to hold that the liner function is an important function, if not the primary function, of the goods; the insulation function is not only a later improvement, but is also not universal. The liner is used in fastening the railway line with the railway (concrete) sleepers; this is an absolutely essential function, this was being done by steel liners earlier but nylon liners are more lasting and provide better grips. The nylon liners are used in circuited tracks for its insulation property, but even there it also performs as a liner for fastening. Besides it is also used in many non-circuited tracks especially in the coastal belts (chiefly for its non-corrosive property), where the insulation property is apparently immaterial. It is also pertinent to note that, as pleaded by the assessee, if mechanical strength was not the main necessity, they could have used cheaper plastics like HDPE/LDPE as raw materials instead of nylon for the minimal insulation required in the circuited tracks. Against this backdrop, I feel that insulation is not the only, or always the primary function of the goods. Further, ITC classification also puts ‘Insulated liner’ under chapter 39. The Indian Railways Trade Group Code also seems to favour classification outside Heading 8546.00.

To sum up the claims of both Chapters 85 and 39 seem equally strong. The goods, though not fully ‘electrical insulators’ (heading 85.46) but ‘insulated liners’, yet it cannot be denied that it does the work of insulation in circuited tracks. On the other hand, as per HSN notes (pages 575 volume 2) and also as mentioned in page 5 of the Show-cause Notice, while nuts, bolts, washers etc. of plastic are covered in sub-heading 3926.96, liners are not so specifically covered.”

Notwithstanding the above observation, the Adjudication authorities had tilted towards Heading 85.46 in deciding the classification of the impugned goods mainly on account of the Board’s Circular No. 189/23/96-CX, dated 26-3-1996. As mentioned above, the learned Advocate vehemently argued that the impugned goods are totally different from the “insulated rail joints” in regard to which the Board had issued clarification about their classification. The main function of the “insulated rail joints” is to prevent flow of electric current from one railway track section to adjacent section. As against this, the primary function of the GFN Liners is to act as a track fitting between rail and electric rail clip on concrete sleepers for proper distribution of load and keeping rail in position to the desired gauge. As these two products are different from each other, we are of the view that the Board’s Circular will not have any application. Therefore, any discussion about the binding nature of the said Circular concerning the present matter is redundant. We, therefore, do not propose to enter into any discussion in that arena.

7. The foregoing discussion makes it abundantly clear that the impugned goods do not merit classification as electrical insulators under sub-heading 8546.00 but deserve to be categorised as “other articles of plastics” and consequently classifiable under sub-heading 3926.90. In this view of the matter, the aforementioned impugned orders are liable to be set aside. Ordered accordingly. Since the appellants succeed on merits, we refrain from giving our findings on the other pleas.

8. In the result, these two appeals are allowed with consequential benefit, if any, to the appellants.

Equivalent 2001 (133) ELT 0151 (Tri. - Kolkata)