1999(08)LCX0105

IN THE CEGAT, WEST ZONAL BENCH, MUMBAI

S/Shri Gowri Shankar, Member (T) and J.N. Srinivasa Murthy, Member (J)

CONVERTOR ADHESIVES & CHEMICALS LTD.

Versus

COMMR. OF C. EX., MUMBAI-III

Order No. 2117 to 2126/99/WZB/C-I, dated 19-8-1999 in Appeal No. E/400 to 409/97-Bom

Cases Quoted

Cibatul v. Collector 1996(01)LCX0025 Eq 1996 (085) ELT 0197 (Tribunal) Relied on                                    [Para 14]

Din Chemicals & Coatings (P) Ltd. v. Collector 1994(12)LCX0076 Eq 1995 (076) ELT 0112 (Tribunal) Relied on [Para 14]

Advocated By : Shri C.S. Lodha, Advocate and V.N. Sejpal, C.A., for the Appellant.

Shri G.B. Yadav, JDR, for the Respondent.

[Order per : Gowri Shankar, Member (T)]. - The question for consideration in this appeal is the classification of polyester or polyethylene resins, and of polyisocyanate when cleared together. It is not in dispute that the resin and polyisocyanate are mixed together to be used as adhesives. It is also not in dispute that these goods are cleared in sets each; consisting of one of the resins and of a polyisocyanate. The classification claimed by the appellant of these goods under Heading 35.06 in its classification list filed from time to time 1988 onwards had been approved by the department. The department however, noted that the appellant had filed classification lists in 1992 and 1993 for export of the products in which each of the resins and the polyisocyanate was classified under Chapter 39. Subsequent enquiries by the department led it to believe that each of the products should be rightly classifiable under Chapter 39. Seven notices were therefore issued, proposing recovery of differential duty and imposition of penalty. The first notice was for clearances between July, 1988 to April 1992 invoking the extended period in the proviso to Section 11A. Each of the other notices was for the period of 6 months or less. Each of the notices proposed imposition of penalty. The notice for the longer period also proposed confiscation of land, building and machinery.

2. The Commissioner did not accept the various submissions raised before him by the appellant and confirmed the proposals to recover the duty. He also imposed a penalty. Hence this appeal.

3. The dispute revolves around the scope and applicability of the note 2 to Section VI of the tariff and Heading 35.06. The heading and the note read as follows :

Heading 35.06: prepared glue and other prepared adhesives under elsewhere specified or included.

Note 2 : Goods put up in sets consisting of two or more separate constituents, some or all of which fall in this Section and are intended to be mixed together to obtain a product of Section VI or VII, are to be classified in the heading appropriate to that product, provided that theconstituents are :

(a)      having regard to the manner in which they are put up, clearly identifiable as being intended to be used together without first being repacked;

(b)      presented together; and

identifiable, whether by their nature or by the relative proportions in which they are presented, as being complementary one to another.

4. The show cause notice and the order of the Collector do not dispute that the resin and polyisocyanate are complementary to each other and are required to be mixed with each other before they are to be used. They however, suggest that the resultant adhesive does not satisfy the definition of plastic based adhesives as given in tariff, since it does not contain not only other resins or other substance not falling in the Chapter. The opinion of the Chief Chemist of Central Excise is relied upon in support. The notice further alleges that Heading 3506.00 only applies to products put in retail sales of adhesive in packets not in excess of weight of 1 kilogram and the heading therefore would not apply to the goods cleared by the appellant which are cleared in bulk. It further alleges the fact of the appellant clearing the goods for export has classified under chapter 39. These are the reasons that the Commissioner has also relied upon.

5. The notice, and the order of the Commissioner accept the following as correct. It is necessary to mix the polyurethane or polyester resin with the polyisocyanate in requisite proportions before they can be put to use. It is the alleged suppression of this fact that is made use of to invoke the extended period of limitation contained in the proviso to Section 11A of the Act. The appellant sells the product resin and the polyisocyanate in sets and the customers mix these two products to get the finish product. The reasons for which the classification claimed by the appellant are not acceptable, and for classification under Chapter 39 are that the adhesive obtained by mixing these two products cleared as such does not satisfy the definition of the plastic based adhesive as given in tariff, since it does not contain only (sic) only or other since not falling in that chapter. The adhesives are stated to be polyutherene plastic; being chemical polyutherene primarily form which are classifiable under Heading 3906.60. The notice relies upon the fact that the appellant claimed classification for the same product for export, under Chapter 39, in support. It is alleged that there cannot be two classifications under the tariff for the same heading. Reliance is also placed upon the report of the Dy. Chief Chemist to say that the adhesive does not satisfy the definition of plastic based adhesive as given in tariff. There is a also reference to the HSN Explanatory Notes which say that the Heading 35.06 covers only products put up for sale as adhesive in packages of not exceeding net weight of 1 kg. The goods in the present case are cleared in bulk. The Commissioner also relies upon the test report of the Dy. Chief Chemist which adopts the view that the final product is polyurethene plastic classifiable under Heading 3906.60.

6.The report No. Cex/39-BT-397/92/787 of the Chemical Examiner classified the product as a colourless thick liquid. It is composed of polyester polyisocynate pre-polymer and organic solvent and percentage of the organic solvent being less than 50% by weight. It is the note following the report, which was been seized upon in the notice and by the Commissioner. It says Pre-polymers are classifiable under Chapter 39 of the Central Excise Tariff. By mixing the CAC1151 with CCA1151A it is capable of forming an adhesive based on polytherene plastic. However, the plastic adhesive so formed does not satisfy the definition of plastic based adhesive as given in tariff. Both the products viz. CAC-1511 and CAC-1151A should therefore be individually assessed on merits. There is no definition in the tariff of plastic based adhesive. Neither the notice nor the order notes any such definition or indicates where it is available. The departmental representative is unable to say whether such a definition exists. We are satisfied that there is no such definition in the Tariff of plastic based adhesive and the considerable reliance placed upon it by the Commissioner and upon the test report has therefore to be discounted.

7. It is also necessary to note that the same product was tested by the Chief Chemist at New Delhi, on a representation of the appellant. The Commissioner does not deny that the Chief Chemist in his report says that each of the two products when mixed together form a product which possesses good adhesive property and that, therefore these two can be considered as parts of a component system which can provide an adhesive when mixed together. He gets over the report by saying that the Chief Chemists report is silent over the chemical composition of the resultant product. He says that, the Central Excise Chemical Examiner, Mumbai found the resultant product to be polyurethene plastic and hence classifiable under Heading 3909.60 in terms of Note (2) to Section VI and Note (1) to Section VII. He also cites HSN Explanatory Notes, which according to him, say at page 564 that such polyurethane are stated to be used as adhesive. We have already reproduced above, this note, which occurs as Note (2) to Section VI of the Tariff.

8. If, as the Commissioner observes the goods are covered by the provisions of these notes their classification would be governed by it if the product obtained by mixing items falls within Section VI or Section VII. According to the Chief Chemist, these products are mixed together to obtain an adhesive and such an adhesive is classifiable under Heading 35.06. The Commissioners reference to note (3) at page No. 564 of the HSN Explanatory notes is not clear. This page in the volume-II of 1996 edition of the of the Explanatory Notes refers to Heading 38.07. Possibly, he refers to note 1 at page 596. This note provides explanation to goods in Heading 39.01 to 39.14. It says that when these goods in the form of liquids and pastes are used or inter alia as glues. That note would apply to one of these products.

9. It is the appellants contention that when these two products mixed together it has an adhesive property. This is referred to in the product literature. The Chief Chemist also refers the two goods as two component adhesive. The brochure put up by the appellant (at page 165 to 179 of the appeal paper book, volume-I) refers repeatedly to the two components being mixed together to obtain an adhesive. It is also indicated that the pot life of the adhesive is limited. The following extract is significant :

Pot Life : It is best not to mix more adhesive than will be used in the next 8 hours. It is possible to store leftover mixed adhesive for use next day, provided adequate precautions are taken. Pot life of the mixed adhesive to a great extent depends on the concentration of the mixed adhesive, the ambient relative humidity and the extent to which the adhesive is contaminated with atmospheric moisture and oxygen while in use. The mixed adhesive should be diluted with water free ethyl acetate to solids content of 25 to 30% and stored in a sealed container. It is advisable to mix this adhesive with atleast an equivalent quantity of freshly mixed adhesive before using it the next day.

10. Nor are we able to accept that the report of the Chief Chemist is the results of a misrepresentation of the facts in its letter by the appellant to Board, on the basis of which the Chemist has given his report. The misrepresentation is stated to have occurred by describing the product as CAC-1511 and CAC-1511A, which are the code numbers for the appellants products. Now these two numbers themselves means nothing either to a layman or to a chemist. These are not accepted chemical symbols for any particular substance or attributable to any product. They are, in fact, as the Commissioner himself says, the appellants code numbers for referring to the product. Hence it is not possible to accept that the Chief Chemist would have been misled by two numbers, which would not evoke any response except in the minds of the appellants employees, in giving the report that he did. To do so is to discredit without basis his professional reputation and standing.

11. The departmental representatives emphasize in addition to reiterating the reasoning given by the Commissioner, on the reliance by the Commissioner upon the fact that goods were differently classified for export, misses the point. What was exported was not the two components of the product as such; but an individual component by its own identity. If each of the products is cleared for home consumption it would then not be classifiable under Heading 35.09. The provisions of note (2) to Section VI would not be available. None of the requirements in that Note would be satisfied. The goods put up in sets would not be mixed together to obtain a product of section VI or VII. The constituents are not clearly identifiable as being intended to be used together without being repacked. These are not presented together or identifiable either by this relative proportion as being complementary to another. These requirements are satisfied when presented together for home consumption. We did not find anything unusual in the explanation offered by the advocate for the appellant that the export market did not support the sale of both the components. The buyer might have preferred to buy one of the two components at a lower price elsewhere.

12. The contention raised by the departmental representative that the goods are not put up for retail sale packing is again irrelevant. Heading 35.06 in the Central Excise Tariff differs from the same heading in the HSN Explanatory Notes. The clause products suitable for use as adhesive is present in both and is followed in the Explanatory Notes by the clause put up for retail sale as glues or adhesive not exceeding net weight of 1 kg. This last clause is absent in the Central Excise Tariff. The only conclusion that can be drawn is that the intention to classify the prepared glues or adhesive not elsewhere specified under Heading 35.06, irrespective of their being put up for retail sale is clearly shown in the Central Excise Tariff, no longer contrary to the intention in the HSN Explanatory Notes. The other words of the headings, the structure and identity of the heading in Chapter 35, 39 and Note (2) to Section VI and Section VII are identically worded in the Explanatory Notes to the tariff. In these circumstances the insistence upon this condition before applying Heading 35.06 is not supported by law.

13. The departmental representative raises the contention that that it has not been shown that the two products were in fact intended to be used complementary to each other; and so supplied. We must note that this point of the departmental representative is contrary to the allegation in the notice, which is that the two products are part of a two component system and intended to be complementary to each other. Notwithstanding this, the advocate for the appellant replies to this contention, that barring occasional exceptions, the two components were always supplied to customers in the proportion in which they were to be used. We selected at random one month, March, for the period from 1989 to 1995 and had asked for a summary of the clearances showing each clearance as shown in the gate pass to be represented indicating proportions of each. The summary indicates that the two components had been supplied and in the proportions required for their use except in a few cases, the number of such cases amounts on an average to 0.5%. The explanation given for these exceptions, that sometimes one or the other component was sent as replacement for earlier supply where that component earlier supplied had become unusable due to spillage or contamination, is not unreasonable.

14. Accordingly we hold that the classification claimed by the appellant is correct and should be confirmed. This view is in accordance with the view expressed by this Tribunal in Din Chemicals & Coatings (P) Ltd. v. C.C.E. - 1995 (076) ELT 112 and Cibatul v. C.C.E. - 1996 (085) ELT 197. In each of these decisions, the Tribunal confirmed the classification under Heading 35.06 of goods, cleared in sets, intended to be mixed together before use as adhesives, consisting in the first decision of polyvinyl alcohol and glycerin and in the second decision of epoxy resin and polyamides.

15. Appeal allowed. Impugned order set aside. Consequential relief.

Equivalent 2000 (119) ELT 0441 (Tribunal)