Customs, Excise and Gold Tribunal - Delhi
Umbergaon Rubber (P) Ltd. vs Collector Of Central Excise on 24 July, 1992
Equivalent citations: 1992(62)ELT576(TRI-DEL)
ORDER P.K. Kapoor, Member (T)
1. The appellants arc engaged in the manufacture of Footwear (Hawai Chappals) falling under sub-heading 6401.11 of the Central Excise Tariff Act, 1985. They were served with a notice dated 18-7-1987 requiring them to show cause in terms of Rule 9(2) read with proviso to Sub-section (1) of Section 11A of the Central Excises and Salt Act, 1944 as to why Central Excise duty amounting to Rs. 21,74,887.68 should not be recovered from them on Compounded Rubber removed by them for the manufacture of 'Hawai Chappals' during the period 1-3-1986 to 31-10-1988. It was alleged that 'Compounded Rubber' which emerged as an intermediate product in the manufacture of 'Hawai Chappals' in the appellants' factory, being in primary form in terms of Note 3 to Chapter 40 was liable to duty under Heading 4005.00 since it was not covered by Notification No. 71/68 dated 1-4-1968 which covered rubber products in the form of plates, sheets and strips. The appellants denied the charges and claimed that 'Compounded Rubber' was covered by Notification No. 71/68 or alternatively it could be deemed as eligible for exemption under Notification No. 152/87. They also denied the charge of suppression of facts and stated that they had been regularly submitting the required declaration in regard to their manufacturing activity. However, in the impugned order the Collector rejected all the contentions of the appellants and confirmed the demand of Rs. 21,35,538.34 and also imposed penalty of Rs. 10,00,000/- on the appellants under Rule 173Q(1).
2. Appearing on behalf of the appellants Shri A.N. Haksar the learned Sr. Advocate stated that the following distinct stages were involved in the manufacture of 'Hawai Chappals' in the appellants factory:
(a) Mixing of raw rubber with Chemicals, fillers, accelerators etc. in a mixing mill to produce compounded rubber.
(b) Conversion of compounded rubber into vulcanised rubber sheets. (c) Cutting of vulcanised sheets into soles, drilling of holes and fixing of straps.
Shri Haksar further stated that compounded rubber before vulcanisation being in crude semi-finished condition could not be deemed as an excisable product. He contended that even if it was assumed that Rubber Compound emerging at the very first stage was an excisable product, it would not have attracted duty in terms of Notification No. 152/87-C.E., dated 25-5-1987 since it was being used by the appellants within their factory for the production of vulcanised rubber sheets which were classifiable under Chapter 40 of the Schedule to the Central Excise Tariff Act, 1985. He argued that even if the appellants' claim for exemption of the 'compounded rubber' under Notification No. 71/68 dated 1-4-1968 was denied on the grounds that it was not in the form of regular sheets it could not be denied the benefit of Notification No. 152/87 since in the second stage the 'Rubber Compound' in question was used for conversion into vulcanised sheets falling under Chapter 40. He contended that while denying the benefit of Notification No. 152/87 on the ground that 'Compounded Rubber' was used by the appellants for the manufacture of Hawai Chappals falling under sub-heading 6401.11 the Collector overlooked the fact that in the second stage the 'Rubber Compound' used in the appellants' factory for conversion into vulcanised sheets, a product falling under Chapter 40. Shri Haksar stated that use of 'Compounded Rubber' for the manufacture of intermediate products falling under Chapter 40 of the Schedule to the Central Excise Tariff Act, 1985 could also be inferred from Notification No. 246/88-C.E., dated 26-8-1980 which was issued under Section 11C, to provide for waiver of duty in cases where in accordance with the prevailing practice duty was not recovered on compounded rubber used in the production of goods falling under Chapter 40 during the period 28-2-1986 to 24-5-1987.
3. On behalf of the respondents Smt. Ananya Ray, the learned S.D.R. contended that the compounded rubber in question was not eligible for exemption in terms of Notification No. 71/68 since on being tested by the Chemical Examiner it was found to be in the form of irregular lumps. She argued that such compounded rubber in primary form was also not covered by Notification No. 152/87 since the appellants were using it for the manufacture of Hawai Chappals falling under sub-heading No. 6401.11 and not any goods falling under Chapter 40. On these grounds she pleaded that the order passed by the Collector may be confirmed.
4. Replying to the points raised by the learned S.D.R., Shri Haksar reiterated his stand that rubber compound was not straightaway converted into Hawai Chappals. He stated that Rubber Compound emerging at the first stage of manufacturing process has to be converted into vulcanised sheets, for being cut into soles. He argued that compounded rubber used by the appellants was eligible for exemption under Notification No. 152/87 since it was used for the manufacture of rubber sheets, falling under Chapter 40.
5. We have examined the records of the case and considered the submissions made on behalf of both sides. It is seen that the only question to be examined in this case is whether compounded rubber which emerges as one of the intermediate products in the manufacture of Hawai Chappals would be covered by any of the Notification Nos. 71/68 or 152/87.
6. It is seen that the first stage in the manufacture of rubber chappals in the appellants factory involves the mixing of raw rubber with chemicals, fillers, accelerators etc. in a mixing mill to produce compounded rubber. According to the impugned order a sample of the compounded rubber was tested by the chemical examiner who in his report dated 8-9-1988 certified the following:
"The sample is in the form of blue coloured irregular lumps (bulk form). It is mainly composed of natural rubber, inorganic filler, and colouring matter (Compounded Rubber). From the method of manufacture supplied by the party, appearance and apparent elasticity of the sample, it appears to be unvulcanised."
7. According to the report of the Chemical Examiner, the 'Compounded Rubber' in question was in the form of irregular lumps and was unvulcanised. Hence, in terms of Note 3 to Chapter 40 and Heading No. 4005.00 reproduced below, in our view the goods were classifiable under Heading 4005.00 of the Schedule to the Central Excise Tariff Act, 1985:
>"Note 3. - In Heading Nos. 40.02, 40.03 and 40.05 the expression 'primary form' applies only to liquids and pastes (including latex, whether or not pre-vulcanised, and other dispersions and solutions), and blocks of irregular shape, lumps, bales, powders, granules, crumbs and similar bulk forms."
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Heading No. Sub-heading No. Description of goods
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40.05 4005.00 Compounded rubber, unvulcanised, in primary forms or in plates, sheets or strips.
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8. In the impugned order it was held that the disputed goods were not eligible for exemption under Notification No. 71/68-C.E., dated 1-4-1968 (as amended) which is reproduced below:
"In exercise of the powers conferred by Rule 8(1) of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the M.F. (D.R.) No. 31/64-CE, dated 1-3-1964, the Central Government hereby exempts all rubber products in the form of plates, sheets and strips unhardened whether vulcanised or not; and whether combined with any textile material or otherwise (other than the products which are made either wholly or partly of rubber and which are used for the resoling, retreading or repairing of tyres, including the products commonly known as tread rubber, camel back, cushion compound, cushion gum, tread gum and tread packing strips), falling under Chapter 40 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from the whole of the duty of excise leviable thereon."
On a plain reading of the notification it is seen that it covers rubber products in the form of plates, sheets and strips. Since the Chemical Examiner had certified that the compounded rubber in question had the appearance of irregular lumps and was not in the form of plates or sheets or strips, we are of the view that the adjudicating authority had correctly held that the disputed 'compounded rubber' was not eligible for exemption under Notification No. 71/68-CE, dated 1-4-1968 (as amended).
9. On the grounds that the appellants were using the 'Compounded rubber' in question in the manufacture of Rubber Hawai Chappals falling under sub-heading 6401.11 and not for the manufacture of any goods falling under Chapter No. 40, the Collector had held that it was also not eligible for the exemption under Notification No. 152/87-C.E., dated 25-5-1987. As against this the appellant's case is that no duty is attracted on the compounded rubber in question in terms of the said notification since compounded rubber emerging at the first stage in the manufacture of Rubber Chappals is utilised in the manufacture of another intermediate product viz. vulcanised sheets, which are classifiable under Chapter 40. In order to appreciate the rival contentions, it would be desirable to refer to Notification No. 152/87-C.E., dated 25-5-1987, which is reproduced below:
"Exemption to compounded rubber if used within factory of production -In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts compounded rubber, falling under Heading No. 40.05 of the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), from the whole of the duty of excise leviable thereon which is specified in the said Schedule provided that such compounded rubber is used in the factory of its production for the manufacture of goods falling under Chapter 40 of the said Schedule."
The learned counsel for the appellants has contended that 'Compounded rubber unvulcanised in primary form' cannot be straightaway converted into Rubber Chappals since, there are three distinct stages in the manufacture of 'Hawai Chappals'. He has pointed out that the 'Compounded rubber unvulcanised in primary form' emerging at the first stage is first converted into vulcanised sheets, and in the final stage the vulcanised sheets are cut into soles of various sizes in which holes are drilled for placement of straps. We are inclined to agree with the appellants that 'Compounded Rubber unvulcanised in primary form' cannot be utilised straightaway for conversion into Rubber Chappals. The Collector has himself observed that the 'Compounded rubber' in question emerges in the form of irregular lumps. It, therefore, does not stand to reason that such irregular lumps can be converted straightaway into Rubber Chappals without first converting them into vulcanised sheets having adequate strength and regular shape. It has therefore, to be held that in the manufacture of Rubber Chappals, the 'Rubber Compound unvulcanised in primary form' falling under sub-heading 4005.00 was first being utilised at the intermediate stage by the appellants in their factory for the manufacture of unhardened sheets of vulcanised rubber falling under Chapter 40 of the Schedule to the Central Excise Tariff Act, 1985. Under these circumstances, we are inclined to agree with the appellants that the Collector's order holding that the 'Rubber Compound' in question was not eligible for exemption under Notification No. 152/87 was erroneous and not sustainable.
10. In view of the above discussion we set aside the impugned order and allow the appeal with consequential relief to the appellants.