Customs, Excise and Gold Tribunal - Delhi
Bhor Industries Ltd. vs Collector Of Central Excise on 25 April, 1984
Equivalent citations: 1984(17)ELT559(TRI-DEL)
ORDER G. Sankaran, Member (T)
1. The captioned appeal was initially filed as a Revision Application before the Central Government which, under Section 35-P of the Central Excises and Salt Act, 1944, has come as transferred proceedings to this Tribunal, for disposal as if it were an appeal filed before it.
2. The facts of the case, briefly stated, are that M/s. Bhor Industries, Bombay (hereinafter referred to as Bhor for brevity's sake) filed a classification list No. XIV/75, dated 20-11-1975 for the product PVC films for lamination with jute and PVC films for tapes claiming that the PVC film was non-excisable on the ground it was a non-marketable intermediate product for internal use. This description was further amended to crude PVC films/sheets. The classification list was approved on 9-12-1975 by the Assistant Collector, Central Excise. Later on, on 15-2-1977, the Assistant Collector issued a show cause notice to Bhor calling upon them to show cause why the aforesaid films should not be reclassified as excisable under Item No. 15A(2) of the Central Excise Tariff Schedule and why duty should not be recovered from them thereafter as well as in respect of past clearances. The notice invoked Central Excise Rule 10 read with Rule 173-J. A corrigendum to the notice was issued on 23-2-77 substituting Rule 10-A in the place of Rule 10. Bhor contested the notice by saying that the product was not finished PVC film as known to the market, and the classification approval given on 9-12-1975 could not be revised when even the Central Board of Excise & Customs could not do so because the notice was bsyond the period of one year laid down in Section 3 5-A of the Central Excises and Salt Act. Bhor also challenged the legality of the proceedings in pursuance of the notices issued under Rule 10/ 10A even after the deletion of these Rules on 6-8-1977. They also cited a decision dated 14-1-1974 of the then Appellate Collector holding the very product as crude films/sheets as not marketable and falling outside Item 15A(2), CET. This decision could not be upset except under proper review proceedings under Section 36 of the Act. The Asstt. Collector did not accept these contentions but held that the product PVC films/sheets used for internal consumption for the manufacture of adhesive tapes, insulating tapes and jute laminates was classifiable under Item No. 15A(2), CET. He also directed Bhor to pay duty at the appropriate rate on past clearances under Rule 10A read with Rule 173-J. The appeal against this order did not meet with success. It is this order that is now under challenge before us.
3. The Sr. D.R. prayed for permission to produce a sample of the goods in dispute. However, in response to a query from the Bench, he said that the sample was not of the relevant period but of the present period. Shri Patel, for the appellants, objected to the production of the sample. We uphold the objection.
4. The points put forth by the learned Counsel for Bhor may be summarised as follows :-
(i) The classification of the very product had come up in the Asstt. Collector's adjudication order of 18-11-1972 by which it was held that flexible PVC sheets (unsupported), utilised by Bhor during the period 1-3-1970 to 29-5-1971 for the manufacture of textile fabrics, coated with plastic materials ("leather cloth"), in their factory were excisable.
In appeal, this order was set aside by the Appellate Collector who, by his order dated 14-1-74, held that the "Crude PVC sheets" manufactured by Bhor and used by them in the manufacture of leather cloth in their factory were not marketable as PVC sheets and so were not liable to duty under Item No. 15A(2), CET.
(ii) On 9-12-1975, the classification list for the product was approved- as crude films/sheets, non-exci sable. On 27-7-1976, the Department raked up the question afresh and on 15-2-1977, a show cause notice was issued under Rule 10 read with Rule 173-J. By a corrigendum of 23-2-1977, Rule 10A was invoked in the place of Rule 10.
(iii) The Appellate Collector, in his order of 14-1-1974, had dealt with the various points-technical and others-in detail and come to the conclusion that the crude PVC sheets manufactured by Bhor were not marketable as PVC sheets and hence not excisable. There was no basis or justification for re-classification of the product. The only reason appeared to be that the end-use of the product was different (manufacture of adhesive tapes, insulation tapes and jute laminates as against leather cloth earlier). This factor could not result in change in the classification or excisabieity of the product. The Department had not adduced any evidence on the marketability of the crude films/sheets as PVC films/sheets as known to the trade. The show cause notice, however, proceeded on the basis that crude PVC films was PVC films. Nor was there any finding of the lower authority that crude films/sheets was marketed and known as PVC films/sheets. The Department had not discharged the onus of proving the excisability of the product. The burden of proof lay on the Deptt.-1981 E.L.T. 432 (Bom.)-Advani-Oerlikon Ltd. and Anr. v. Union of India and Ors..
(iv) After deletion of Rule 10, the demand could not have been confirmed under Rule 10. Nor could Rule 10A have been invoked when the Department was in the know of the product, its classification, approval of the classification list by the Assistant Collector etc.
(v) The end-use of the product was not relevant for the purpose of classification unless the tariff entry made it relevant AIR 1977 S.C. 597; Dunlop India Ltd. and M.R.F. Ltd. v. Union of India and 0(tm).-1978 E.L.T, J-646.
(vi) The amount of duty was not specified in the show cause notice. Hence the notice was liable to be set aside following the ratio of 1980 E.L.T. 121 (Bom.)-J.B.A. Printing Inks Ltd. v. Union of India and Ors.
5. The points put forth on behalf of the respondent by the learned Sr. D.R. may be summarised thus:-
(i) The real question for determination is whether crude PVC films falls for classification under Item 15A(2), CET or not.
(ii) The Appellate Collector's order dated 14-1-1974 was in respect of PVC sheets for leather cloth. It had no application in the instant case where the PVC film was used for manufacture of adhesive tapes, insulation tapes and jute laminates. The PVC film for leather cloth was not the same as for the other end-products.
Bhor had not produced samples before the Tribunal to show the claimed difference between crude films/sheets and marketable films/sheets.
(iii) The Appellate Collector, in passing the order of 14-1-1974, had gone on the basis of certain facts such as roller speed, temperature, tensile strength etc. However, it appeared that there was no technical authority before the Appellate Collector. Reference to pages 264-265 of "Polymer Technology" by D.C. Miles and J.H. Briston would show that the temperature range was different from what the Appellate Collector had taken into account. Similarly, "Encyclopaedia of PVC" (pages 1408-1414) by Leonard did not make any difference to crude film or roller speed.
In this connection, reference was also made to Kirk-Othmer's "Encyclopaedia of Chemical Technology", second edition, Vol. 9 pages 230-231.
It was urged that the subject product was nothing biit PVC film falling under Item 15A(2), GET.
(iv) For a product to be charged to duty, there was no requirement that there should be commercial transactions in it, reliance begin placed on AIR 1962 (S.C.) p.1006 (Chhotabhai Jethabhai Patel & Ors \ Union of India and Ors.) and 1978 E.L.T. (J-336) (Supreme Court decision in South Bihar Sugar Mills and Anr. v. Union of India and Anr.). That the product might not, in fact, have been marketed and sold would not detract from its excisability-1984 ECR 361 CEGAT)- (Nirlon Synthetic Fibres & Chemicals Ltd., Bombay v. Collector of Central Excise, Bombay).
(v) The tariff entry did not distinguish between crude films/sheets and other films. It was immaterial whether the film was crude or finished : it would fall under Item 15A(2).
(vi) Goods removed for captive consumption were liable to pay duty. This had been made amply clear by the amendments to Rules 9 and 49 by the Finance Act, 1982, the validity of which has been upheld by the Delhi High Court in J.K. Cotton Spinning & Weaving Mills and Anr. v. Union of India and Ors. (1983 E.L.T. 239. Del).
(vii) When a tariff entry specified a commodity, it would cover all its forms and varieties semi-finished and finished articles made from raw materials would attract levy. Reliance was placed on 1982 E L T 937 (All.) Oudh Sugar Mills Ltd. & ' Ors v. Union of India and Ors. 1983 E.L T 116 (Bom.)-Commissioner of Sales Tax v. Agarwal & Co.).
(viii) Referring to Rule 173-B(5) and contrasting it with Rule 173-C it was urged that re-classification of a product was permissible without issue of a show cause notice.
(ix) The benefit of proforma credit under Rule 56-A would not be available to Bhor at this stage and with retrospective effect. It had to be sought for at the relevant time, permission obtained and the prescribed procedure followed.
6. In reply, the following points were put forth by Shri J.M. Patel:__
(i) The basis on which the Department had proceeded was quite different from the basis now being put forth. The only basis so far has been that the end-use of the film had changed. But this could not constitute a justification for the change. There was nothing on record to show that the film was different for different end-uses The show cause notice did not furnish the basis for saying that the film was a finished film.
(ii) There was no evidence to show that the film was marketable.
(iii) An Appellate Collector might not be bound by his predecessors' decision but, in the present case, the order of 14-1-1974 not having been reviewed by the competent authority, it had become final and therefore, binding.
(iv) Reliance by the Sr. D.R. on Rule 173-B(5) for the change in classification was misconceived. Change would be permissible on the basis of new facts but that was not the case here. And such chanse could only be perspective. *
(v) Rule 56-A benefit was not sought for by Bhor because the Deptt. had upheld their claim that the film was non-excisable. To deny the benefit now with retrospective effect would be grossly unjust.
7. We have carefully considered the contentions of both sides and perused the record.
8. The crucial issue is whether the product which Bhor calls crude PVC film/sheet fell within Item No. 15-A(2) CET during the relevant period.
9. Poly vinyl Chloride (PVC) film admittedly fell under Item 15-A(2) which read as follows:-
"Articles made of plastics, all sorts, including tubes, rods, sheets, foils, sticks, other rectangular or profiles shapes, whether laminated or not, and whether rigid or flexible, including levy flat tubings and Poly vinyl Chloride sheets, not otherwise specified."
Bhor's contention is that their film is crude film/sheet which had not acquired the character and status of PVC film as known to the market. Only marketable PVC film/sheet would fall within the said item. The Sr. D.R.'s contention, on the other hand, is that there is nothing to show that the film/ sheet was crude, that the test of marketability was not relevant and that film/ sheet, whether crude or finished, would fall under the item.
10. The tariff entry as such does not spell out whether it covers only finished film/sheet.or whether it covers also crude film/sheet, all types film/ sheet, If we come to the conclusion that the tariff entry covers there would be no need to consider whether the film/sheet, the subject of the dispute before us, was crude or finished and whether it was marketable or marketed.
11. In 1983 E.L.T. 116 (Bom.) (Commissioner of Sales Tax v. Agarwal & Co.), the Bombay High Court following the Supreme Court's decisions in several sales tax cases, held that while interpreting a general term used for describing any commodity in any fiscal legislation, the general term so used covers that commodity or item or article in all its forms and varieties.
Following the ratio of this decision, it is clear that all forms and varieties of films/sheets would be covered by Item 15-A(2), CET. There is no warrant to suppose or conclude that crude film/sheet will not be covered by the item or that only finished film/sheet will be covered by it. It is also seen from Kirk-Othmer's "Encyclopaedia of Chemical Technology" (Second edition, extracts furnished by D.R.) that "variations in the amounts and types of plasticizers used in these films determine properties such as elongation, tear resistence, tensil strength, ageing characteristics, gas permeability, and MVTR. Physical and mechanical properties are also highly dependent upon the method of manufacture, which can be by extrusion, casting or calendering. Properties can thus be varied to such an extent that only general statements can be made concerning these films. Properties of vinyl film materials range from hard brilliant films, approaching cellulose acetate, to soft, flexible materials similar to polyethylene.
"Calendered flexible (plasticized) vinyl films have moderate tensile strength and chemical resistence, good tear strength, high elongation and low water absorption. They can be easily formed and sealed with heat or adhesives."
It is seen from the above extracts that the properties of the film would dependent upon a number of factors and that these can be varied to a large extent by the manufacturing procedures employed. It is, therefore, not correct to contend that only films/sheets conforming to certain standards (e.g. ASTM, ISI) can be considered as films/sheets falling within Item 15A(2), CET. It is well to remember that these standards spell out certain specifications to which the product must conform if it is to be described and marketed as conforming to those standards. It would not, however, follow that products such as the films/sheets in the present case would cease to be films/sheets, if they do not fulfil the standard specifications.
12. While the end-use criterion adopted by the lower authorities can scarcely be a good or satisfactory basis for classification (not dutiability) in the present case, the nature of the product itself, viz., PVC film/sheet, without reference to its end-use, points to its excisability under Item No. 15A(2), CET.
According to the Explanation to Item 15A, for the purpose of sub-item 2, (already extracted) " 'plastics' means the various artificial or synthetic resins or plastic materials included in sub-item (1)". There is no dispute about the fact that the subject film/sheet was made of PVC resin. Sub-item (2) covers "articles made of plastics, all sorts, including...sheets, foils...and polyvinyl chloride sheets". The enumeration is illustrative and not exhaustive. The sub-item covers articles (made of plastics), all sorts, not elsewhere specified. Sheets are specified in the sub-item. Films are only thin sheets ("Film" a sheeting having nominal thickness not greater than 0.25 mm-IS : 2828-1964). Even otherswise, films would be taken in by the term "articles...all sorts". Once the product is a film/sheet, it is no longer open to argument that it would not fall under Item 15A(2) because it is "crude" nad not "finished". As we have already noted, in the case of films, the properties can be varied to such an extent that only general statements can be made concerning them. Hence, it is furtile to contend that a "crude" film/sheet is not a film/sheet for the purpose of Item No. 15A(2), CET.
13. The learned Counsel for Bhor has rightly objected to the introduction of any new facts at this stage. But the question herein can be decided without introduction of any new facts. We do not think it necessary to investigate whether the subject product was a "crude" or a "finished" film/sheet. In fact, we think this distinction is not material to its classification under Item 15A(2), CET. The learned Counsel has contended that the Deptt. cannot change the very basis of the case. If it is a question of introduction of new facts at this stage, there may be some merit in this argument. Here, we have not permitted introduction of any new facts-nor of a sample of the product since it could not be said to be representative of the period in dispute. For the rest, we think, there can be no estoppel against arguments based on citations of technical authorities espscially in a case such as the present one if that is needed to arrive at the proper classification of the product.
14. The learned Counsel for Bhor is, however, quite right when he says that the deptt. was in the know of the true nature of the product. It was the subject of a classification list dated 20-11-1975 which was approved by the Asstt. Collector on 9-12-1975. This list claimed that the crude PVC film/sheet was a non-marketable intermediate product for internal use. Earlier, it was the subject of adjudication before the Asstt. Collector leading to his order of 18-11-1972 and of appeal before the Appellate Collector resulting in his order of 14-1-1974. It cannot, therefore, be said that the production and consumption of the product was not in the knowledge of the Deptt. One of the reasons for initiating the proceedings leading to the Asstt. Collector's order of 18-2-1978 (culminating in the present proceedings) seems to be that the end-use of the PVC film was different. This, as we have said, is not relevant for the purpose of excisability but the notice also referred to the Notification No. 75/71, dated 29-5-1971 which granted exemption to the product only for specified end-uses. The notice also, in terms, said that the classification list appeared to have been incorrectly approved on 9-12-1975. In our view, therefore, Rule 10-A could not have been invoked against Bhor. The period for which duty could be demanded was only 12 months preceding the issue of the show cause notice on 15-2-1977. However, no authority has been shown in support of Bhor's contention that the proceedings initiated under Rule 10 could not be continued (and concluded) after the substitution of the rule on 6-8-1977. If the notice had not been issued before f-8-1977, the case may have been arguably different. But such is not the case here. The above view is supported by the decision of the M.P. High Court in Gwalior Rayon Manufacturing (Weaving) Co. \ Union of India and Ors.-1982 E.L.T. 844 (M.P.). Though the decision was in respect of pending cases on 17-11-1980 which the Court held could be continued even after omission of Rule 10 in view of subsitution of the Rule by Section 11 A, the ratio in our opinion, applies to the case before us.
15. Bhor has contended that since the show cause notice did not specify the amount being demanded, it was void and a nullity. They have noted 1980 E.L.T. 121 (Bom.) in support of this contention. The decision prima facie supports Bhor's contention. However, one crucial difference has to be noted. In the present case, Bhor did not furnish the particulars of clearances of the disputed goods despite the Department's communications of 28-7-1976, 33-10-1976,24-1-1977 and 28-4-1977. Instead Bhor merely contested the queries. The show cause notice of 15-2-1977 makes a specific mention of the fact that despite the Department's communications, Bhor had not furnished the requisite particulars of past clearances. In the circumstances, the Asstt. Collector could not have specified the amount of the demand in the notice. He could only have asked them to show cause why duty at the appropriate rate should not be recovered in respect of past clearances which he did. We cannot, in the given facts, fault the Asstt. Collector or find flaw in the show cause notice. Bhor did not furnish the particulars necessary to calculate and specify the amount of duty demand. In fact, in their letter of 11-6-1977, they said : "There is no past clearance of PVC film/sheet for manufacture of adhesive tapes and insulating tapes." They cannot, therefore, now be permitted to contend that the show cause notice was void on account of non-specification of the amount, a situation for which they were responsible and seek to take advantage of the situation. We also take note of the Delhi High Court decision (DB) in Hindustan Aluminium Corporation Ltd. v. Supdt. of Central Excise, Mirzapur and Ors., 1981 ELT 642 (Del.) in which, after referring to the Bombay High Court decision in '1980 E.L.T. 121, and expressing their disagreement with it, the Court held that non-mention of the amount of demand would not render the show cause notice void and illegal. If the notice was silent on the amount, the noticee would be entitled to ask the notice-giver to indicate the amount before replying to the notice. Here, as we have seen, the non-specification of the amount was the result of the appellant's own action in not supplying the particulars of clearances.
We reject Bhor's contention that the show cause notice was void and illegal because it did not specify the amount being demanded.
16. With the retrospective amendment of Rules 9 and 49 by Section 51 of the Finance Act of 1982, [the validity of which has been upheld by the Delhi High Court in J.K. Cotton Spinning & Weaving Mills and Anr. v. Union of India and Ors.-1983 E.L.T. 239 (Del)], it is clear that excisable goods manufactured and consumed captively in the production of other goods are liable to be charged to duty unless, of course, they are specifically exempted from duty. Notification 75/71, dated 29-5-1971 exempted flexible polyvinyl chloride sheeting, sheets and films, not containing any textile material, intended to be used in the manufacture of textile fabrics, impregnated or coated with preparations of cellulose derivatives or of other plastic materials, falling under Item Nos. 19, 22 or 22-B, as the case may be, subject to the prescribed condition. In the case before us, the use of the film/sheet is not in the manufacture of impregnated or coated textile fabrics unlike in the case before the Appellate Collector leading to his order of 14-1-1974 and which pertained to the period 1-3-1970 to 29-5-1971 i.e. prior to the issue of Notification No. 75/71. No notification has been cited before us conferring duty exemption on PVC films/ sheets used in the manufacture of adhesive tapes, insulating tapes and laminates. The demand for duty from Bhor, in the circumstances, was justified.
17. The learned Counsel for Bhor has contended that the Appellate Collector's order of 14-1-1974 not having been reviewed by the competent authority, had become final and binding and that the same matter could not have been agitated again by the Asstt. Collector. We note that the Appellate Collector, in the aforesaid order, was concerned with the Asstt. Collector's order confirming a demand for the period 1-3-1970 to 29-5-1971 which, for the reasons set out in his order, the Appellate Collector set aside. It is true that since this order was not reviewed, it became final and binding but in respect of the matter in relation to which the order was made. It cannot be deemed to be of a permanently binding nature irrespective of any change in the circumstances. As we have seen, Notification No. 75/71, dated 29-5-1971 brought about a qualitative change in the duty exemption of PVC films/sheets. No doubt, the Deptt. woke up rather late. But in the show cause notice, it was alleged that PVC films/sheets had been exempted only when used in the manufacture of leather cloth in terms of Notification No. 75/71 and that since their use in the manufacture of other goods was not exempted, they were liable to duty. The Asstt. Collector's order of 18-2-78 shows that he has based his decision inter alia on the consideration that the Appellate Collector's earlier decision was with reference to PVC film used for manufacture of leather cloth during the period prior to issue of Notification No. 75/71, dated 29-5-1971 and that decision had no application in the changed circumstances.
We do not see any force in Bhor's contention that the Asstt. Collector could not have decided the matter in the way he did in the absence of a review of the Appellate Collector's order of 14-1-1974.
18. The Sr. D.R. has contended that re-classification of the product was permissible under Rule 173-B(5) without the issue of show cause notice. This has been denied by the Counsel for Bhor who said that re-classification would be permissible only on the basis of new facts and even then, only prospectively. In the present case, in actual fact, a show cause notice was issued before revising the approval given to the classification list. In Southern Steel Ltd., Hyderabad v. Union of India and Ors. in 1979 E.L.T. (J 402), the A.P. High Court held that the mere fact that the Deptt. did not question the assessee's stand (that the goods were not excisable) for years together, would not prevent it from levying duty whenever they come to the conclusion that the classification list is not correct and according to correct classification, duty is leviable. In Etikoppaka Co-operative Agricultural Society Ltd. v. Union of India and Ors.-1979 E.L.T. (J 533), the A.P. High Court held that if the Central Government had placed an incorrect interpretation over a notification at one stage, it did not give rise to equitable estoppel so as to prevent the Govt. from interpreting the notification correctly at a later stage. Therefore, the Asstt. Collector was well within his Jurisdiction to review the classification, after issuing a show cause notice and giving due opportunity to Bhor. Since, however, the earlier approval was admittedly a mistake, the recovery of duty on the basis of the revised decision can only be for the period permitted by Rule 10. We have already said so and that Rule 10 had no application to the case.
19. The question of Bhor's eligibility to the Rule 56-A concession has been raised before us, the Sr. D.R. contending that Bhor is not eligible to it at this stage with retrospective effect and Shri Patel contending that to deny the benefit would be grossly unjust. It does not appear that this point was raised before the lower authorities and we do not have before us a finding thereon. As sucb, we refrain from expressing any view on the question. Bhor may, if they so wish, raise this question before the lower authoritks.
20. In the result, the Appellate Collector's order is confirmed subject to the modification that duty in respect of clearances prior to the issue of the show cause notice shall be restricted to the period permissible in terms of Rule 10 read with Rule 173-J viz. 12 months. The appeal is allowed to this limited extent and is otherwise rejected.