2010(07)LCX0144

IN THE CESTAT, WEST ZONAL BENCH, AHMEDABAD [COURT NO. II]

S/Shri B.S.V. Murthy, Member (T) and Ashok Jindal, Member (J)

Adani Willmar Ltd.

Versus

Commissioner of Customs, Kandla

Final Order No. A/1006/2010-WZB/AHD, dated 29-7-2010 in Appeal No. C/874/2005

Cases Quoted -

Collector v. Wood Craft Products Ltd. - 1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C.) - Referred [Paras 3,14]

Dunlop India Ltd. v. Union of India - 1975(10)LCX0016 Eq 1983 (013) ELT 1566 (S.C.) - Referred [Paras 3,10]

Manek Chemicals Pvt. Ltd. v. Commissioner - 2002(05)LCX0202 Eq 2002 (145) ELT 0335 (Tribunal) - Relied on [Paras 4,14]

Union of India v. Pesticides Manufacturing and Formulators Association of India - 2002(10)LCX0205 Eq 2002 (146) ELT 0019 (S.C.) - Referred [Para 12]

Departmental Clarification Quoted-

C.B.E. & C Circular No. 32/2002-Cus., dated 10-6-2002 [Paras 3,7,8,9]

Advocated By -

Shri Naresh Thacker, Advocate, for the Appellant.
Shri Rajendra Nagar, SDR, for the Respondent.

[Order per : B.S.V. Murthy, Member (T)]. -

The issue involved in this case is whether Bentonite imported by the appellant on 8-11-2002 is classifiable under CTH-2508.10 as claimed by the appellants or not. Department's contention is that the product is classifiable under CTH 3802.90.


2. Heard both the sides.


3. Learned advocate on behalf of the appellants submitted that in this case there is no dispute that imported goods are processed Bentonite. Chapter note 1 of Chapter 25 of Customs Tariff provides that except where their context otherwise requires headings of Chapter 25 covers only products which are in the crude state or which have been washed (even with chemical substance eliminating the impurities without changing the structure of the product) crushed ground powdered, levigated, lifted, screened, concentrated by flotation, magnetic separation or other mechanical or physical processes. During the relevant time Bentonite was specifically mentioned against the CTH 2508.10. He also submitted that during the relevant time according to ITC (HS) classification of export and import items, processed Bentonite (including activated and ground) was covered under heading 2508.10.02. Further, Note-1 (a) to Chapter 38 provided that chapter 38 which does not cover separate chemically defined elements or compounds. Since Bentonite is separately chemically defined compound and specifically covered under Chapter 25 is covered under Chapter 25 only and not under CTH 3802, as claimed by the department. He further relied upon the decision by the Hon'ble Supreme Court in the case of M/s. Dunlop India Limited and MRF Limited v. UOI -1983 (13) E.L.T 1566 (S.C.) in support of his contention that classification under ITC (HS) should not have been ignored in this case and as held by Hon'ble Supreme Court, ITC (HS) must be read as complementing the tariff. Further, he also submitted that the heading which provides the most specific description should be preferred to the residuary entry. Further with effect from 1-2-2010 the tariff was alligned to the ITC (HS) to the eight (8) digit level and activated Bentonite was specifically covered by entry 2508.10.90. He submitted that this amendment made explicit what was at all times implicit and relied upon the decision of the Hon'ble Supreme Court in the case of Collector of Central Excise, Shillong v. Wood Craft Products Limited - 1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C). He submitted that chemical examiner's report was not helpful to the department since the report has merely stated that goods imported was processed Bentonite. He also relied upon the explanation given to activated clay in the Foseco Non-Ferrous Foundryman's Handbook, 11th Edition, according to which only sodium Bentonite can be considered activated bentonite. He also submits that reliance of the Commissioner (Appeals) on the Board's circular dated 10-6-2002 was misplaced since Board's circular cannot go against the statutory language of the relevant tariff entries.


4. On the other hand learned DR relied upon the Board's circular and the decision of the Tribunal in the case of Manek Chemicals Pvt. Limited - 2002(05)LCX0202 Eq 2002 (145) ELT 0335 (Tri.) in support of his contention that natural clay washed with acid resulting in partial change of structure would be classifiable as "activated natural mineral product" under heading 3802 of Central Excise Tariff Act, 1985. He also submits that there is no dispute that the item imported by the appellant is processed Bentonite and according to the chemical examiner's report copy of which was given to the appellants, the sample was considered as acid treated clay (processed clay). According to the report of chemical examiner, the product is acid treated clay (Processed Clay).


5. We have considered the submissions made by both the sides. During the relevant period the competing headings read as under :-

Chapter note-1 of Chapter 25 reproduced as under :-

Note-1 - Except where their context or Note 4 to this Chapter otherwise requires, the headings of this Chapter cover only products which are in the crude state or which have been washed (even with chemical substances eliminating the impurities without changing the structure of the product) crushed, ground powdered, levigated, sifted, screened, concentrated by flotation, magnetic separation or other mechanical or physical processes (except crystallization), but not products that have been roasted, calcined, obtained by mixing or subjected to processing beyond that mentioned in each heading.


6. From the above reading of relevant heading and Chapter note what emerges is that the headings of Chapter 25 cover only products which are in the crude state or which have not undergone any change in the structure of the product as a result of their processing. The different types of processings also have been listed.


7. There is no dispute that goods imported processed bentonite. The only question arise is where there is any change in structure. According to the safety data sheet, provided by the supplier to the appellants, in the column relating to composition/information on ingredients, it has been specifically stated that the item imported by the appellant is Calcium bentonite (acid activated). Just a few months before importation of the product by the appellant, the Board had issued Circular being No. 32/2002-Cus., dated 10-6-2002, vide F. No. 528/22/2001-Cus-TU. The circular states that circular has been issued in response to representation of the importers that same importers are indulging in the importation of activated clay as processed Bentonite and wrongly classifying the same under CTH-2508 in the introductory paragraph. The brand name and the country of origin has also been indicated in the circular. The circular goes on to discuss how the clay gets activated and also discusses the relevant explanatory notes. Para 2 and 3 of the above circular are reproduced below :-

"2. The matter has been examined. Goods, namely "Bentonite" in natural or crude form is classifiable under sub-heading 2508.10 whereas decolourising earth would be classifiable under sub-heading 2508.20. Bentonite is stated to be a naturally occurring clay predominant in Indonesia, Germany, Japan, USA and India. India is, however, stated to be importing bentonite and its derivatives for use in cosmetics, medicinal formulations, drilling industry and food industry. HSN Explanatory Notes to heading 25.08 states that it includes all natural clay substances, but it excludes activated clay from the scope of the heading.

3. Clay Bentonite in crude form is stated to be made effective by activating it with acid or alkali. Some of the mineral acids used for acid activation are hydrochloric acid, sulphuric acid, etc. After the acid activation process, it is stated that the molecular structure undergoes modification. The acid activation process is stated to be effective in removing the deficiencies by creating voids in the crystal structure of bentonite by replacing bigger atoms of molecules, like aluminum, magnesium, iron etc., by smaller atoms of hydrogen and such an activated bentonite is stated to have specific PH ranging from 2 to 5 depending on the brand and grade of the product. The activation is some times also done by soda ash resulting in a product which is alkaline in nature with a PH ranging from 8.5 to 10.5. After acid or alkali activation, the bentonite undergoes washing, grinding, heating and packing resulting in a new chemical product, namely, and bleaching earth/activated clay, etc. This finished product is said to have properties like absorptive capacity, acid properties, catalytic properties, ion exchange capacity and particle size distribution which is highly useful for various industrial applications like purification, filtration, bleaching, etc. HS Explanatory notes to heading 38.02 states that the heading includes activated clays and activated earths, but excludes natural clayey substances."


8. From the circular and the report of the supplier and the test report of chemical examiner, it is quite clear that the product imported by the appellant has been treated with acid. In the absence of specific report regarding change in the structure, the only conclusion that can be drawn by reading of above three documents would be that the item imported by the appellants is activated clay, unless appellants are able to show that acid treatment did not change the structure of the Bentonite. The appellants have also relied upon the technical book namely Foseco non-Ferrous Foundryman's Handbook, 11th edition, by John R. Brown (Page 157 of the book), wherein the following appears :-

"The best bonding clays are bentonites which can either have a calcium or a sodium base. Sodium bentonites occur naturally in the USA as Wyoming or Western bentonite and also in other countries particularly in the Mediterranean area. Green sand produced with this clay has medium green strength and high dry strength which increases the resistance to erosion of metal but can give problems at shakeout. Sodium bentonite is commonly used for steel casting production.

The Calcium bentonite is more widely distributed, they produce green sands with rather high green strength but low dry strength so they have low erosion resistance and are prone to scabbing and other expansion defects. Calcium bentonites can be converted into sodium bentonites by adding soda ash, the calcium base is replaced by sodium and the clay then has properties approaching those of natural sodium bentonite. Such clays are known as activated clays".

Thus, the term "activated clays" has a definite meaning both commercially as well as technically. This meaning has been shown above from a technical literature.


9. We are not able to understand how this helps the appellants. The relevant portion reproduced above by the appellant just says that Calcium Bentonite can be converted into Sodium Bentonite by adding soda ash. Sodium bentonite according to the book, is used in the steel casting production. It is nobody's case that in this case the bentonite imported by the appellants proposed to be used for production of steel casting. The technical book nowhere discusses the effect of acid treatment on naturally occurring Calcium Bentonite. The observation above after considering the relevant tariff headings, HS Notes, Circular issued by the Board, Technical Book referred by the appellant, Chemical Examiner and the report of the supplier leads to the conclusion that appellants have not been able to make out a case that goods imported by them are not activated clay.


10. Appellants also have relied upon several decisions in support of their contention. As regards their relevance on Dunlop India Limited and MRF Limited v. UOI, Para 37 of this decision which is relevant is reproduced :-

"37. It is good fiscal policy not to put people in doubt and quandary about their liability to duty, when a particular product like V.P. Latex known trade and commerce in this country and abroad is imported, it would have been better if the article is eo nomine, put under a proper classification to avoid controversy over the residuary clause. As a matter of fact in the Red Book (Import Trade Control Policy of the Ministry of Commerce) under Item 150, in Section II, which relates to "rubber, raw and gutta percha, raw", synthetic latex including vinyl pyridine latex and copolymer of styrene butadiene latex are specifically included under the sub-head "Synthetic Rubber". We do not see any reason why the same policy could not have been followed in the I.C.T. book being complementary to each other. When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause. The question of competition between two rival classifications will, however, stand on a different footing."


11. From the above it can be seen that the Hon'ble Supreme Court had observed that when an article is by all standards reasonably claimed to be classifiable under nominated item in the tariff schedule, it cannot be sent to residual heading. In this case, the activated clay has been classified under CTH 38 because of the Chapter notes of Chapter 25, which specifically provides that activated clay is not covered. Therefore, the observation of the Hon'ble Supreme Court is not of any help to the appellants. The other decisions cited on the similar issue would also be of no use since classification in this case has been done specifically as per the Chapter notes and the relevant tariff headings.


12. Appellants also relied upon the decision of the Hon'ble Supreme Court in the case of UOI v. Pesticides Mfg. & Formulators Association of India - 2002(10)LCX0205 Eq 2002 (146) ELT 0019 (S.C.). Relevant Para 25 of the same is reproduced below :-

"25. The HS of Commodity classification which was developed by the World Customs Organisation, Brussels was adopted by India also in the ITC (HS) Classification of Export and Import items, 2002-2007 which was issued by the Government under Section 5 of the Foreign Trade (Development and Regulation) Act, 1992 read with paragraph 2.1 of the Export and Import Policy, 2002-2007. The ITC (HS) like the Schedule to the 1985 Act, also contains several chapters which correspond exactly with the Schedule to the 1985 Act at least as far as the relevant parts of Chapter 38 are concerned. Chapter Note 1(a)(2) and the Heading 38.08 of the ITC (HS) are identical with the Schedule to the 1985 Act. In the ITC (HS), under the several sub-headings to Heading 38.08, the different forms of insecticides, pesticides etc. have been provided for from which it is clear that insecticides etc. in their concentrated bulk forms are covered by the Heading 38.08 at least for the purposes of the Import/Export Policy. For example, subheading 3808.10.11 mentions 'Aldrin' as a form of insecticide. Against that sub-heading, it is provided that it is freely importable/exportable "if registered and not prohibited for import under Insecticides Act, 1968 and formulations thereof". Similarly, 3808.90.10 provides for pesticides, not elsewhere specified'. It is treated as a free item under the policy "if registered and not prohibited for import under the insecticides Act, 1968 and formulations thereof." Undeniably insecticides, pesticides etc. in whatever form are covered by the Insecticides Act. The description demonstrates that bulk concentrates and formulations are covered by the sub-heading 'Aldrin'. The use of the same words in the Tariff Heading in the Schedule to the 1985 Act as has been used for the purposes of the Import Trade Control Policy is an additional reason for holding that insecticides, pesticides concentrates in bulk forms are includible within the Tariff Heading. (See Dunlop India Ltd. v. Union of India and Others 1976 (2) SCC 241.)"


13. We do not find that any help is coming out to the appellants from this decision. The appellants would like to submit that ITC (HS) Classification is required to be taken into account. However, it is a settled law that once tariff headings read with chapter notes are clear and there is no need to consider other aspects, for classification. The purpose of ITC (HS) classification is entirely different and purpose is not the classification of the goods for the purpose of levy of custom duty.


14. The decision of the Hon'ble Supreme Court in the case of CCE Shilong v. Wood Craft Products Limited is also not of any help because with effect from 1-2-2003, the tariff entries were changed and unless appellants are able to show that retrospective effect has been given to the amendment, the same cannot be considered. We are unable to appreciate that activated clay is covered by Chapter heading 25 as implicit earlier and it was instead made explicit later. If the heading was broad and subsequently it was divided into various categories the claim of the appellants would be valid. In this case, the heading was narrow and it has been expanded with effect from 1-2-2003. In this case obviously the 8 digit tariff was specifically given to the processed Bentonite and in the absence that retrospective amendment, benefit cannot be extended. We also find that the decision of the Tribunal in the case of Manek Chemicals Pvt. Limited - 2002(05)LCX0202 Eq 2002 (145) ELT 0335 (Tri. - Del.) is very relevant since in that decision the Tribunal took a view that natural clay washed with acid is covered under CETH 3802. In this case also there is no dispute that the product imported is treated with acid. The appellants had contested this decision on the ground that the decision was rendered in the context of domestic manufacture and not in the context of importation of the goods, therefore not relevant. We do not agree with this view. The decision in that case was that Bentonite when treated with acid is to be classified under CETH 3802 and the issue before us is also the same.


15. In view of the above discussion, we do not find any merit in the appeal filed by the appellants and accordingly, reject the same.

(Pronounced in the Court on 29-7-2010)

Equivalent 2010 (259) ELT 0464 (Tri. - Ahmd.)