Customs, Excise and Gold Tribunal - Calcutta
G.C. Jain vs Commissioner Of Customs on 17 December, 2002
Equivalent citations: 2003(162)ELT733(TRI-KOLKATA)
ORDER Archana Wadhwa, Member (J)
1. Both the appeals are being disposed of by a common order as they arise out of the same impugned order passed by the Commissioner of Customs, Calcutta. As per the facts on record the appellants, M/s. Sanghvi Overseas imported 14 consignments of Butyl Acrylate Monomer (hereinafter referred to as BAM) between April and December, 1997 and cleared the same against advanced licences by availing the benefit of customs Notfn. Nos. 203/92 and 79/95, without payment of duty. Another consignment of BAM was cleared by the appellant under bill of entry dt. 6-3-98 and thereafter one more consignment was imported sequently. The last two consignments were warehoused and not cleared. In all these consignments of BAM, the appellant declared the product as Butyl Acrylate Monomer and claimed the classification under heading 2916.12. The assessments were sought by the appellants as adhesives under the DEEC licence.
2. Enquiries were initiated by the Revenue against the appellants on the belief that the product imported by the appellant was defined organic chemical and was not an adhesive and the advanced licences covering imports of adhesives submitted by the appellant for clearance of the consignments under DEEC scheme availing the benefit of customs notification were not applicable in the matter of clearance of the goods in question inasmuch as the said licences were for import of adhesives and the product was not adhesive. Accordingly searches were conducted in the offices of the appellants and their statements, etc., were recorded. The customs clearing agent was also interrogated and efforts were made to find out as to whether the product in question was used as a bonding agent or not. Shri R.K. Jain in his statement recorded during such investigations deposed that the product was used as a bonding agent and on polymerisation the same become an adhesive. The Revenue also drew the sample and sent it for testing. The Revenue also sought the opinion of the various experts as also the persons of the trade dealing in identical items. On the basis of the material collected during investigations the Revenue formed an opinion that the BAM in question was not adhesive but was one of the raw materials for adhesive formations. As such Revenue entertained a view that the exemption has been wrongly claimed by the appellant. They also disputed the value of the goods in question.
3. On the above basis the appellants were served with a show cause notice proposing confirmation of demand of duty, as also confiscation of the imported product and imposition of personal penalties upon the various persons.
4. During the adjudication proceedings the appellants took a specific stand that the BAM in question is a liquid which becomes adhesive on polymerisation when comes in contact with light and heat. To prevent spontaneous polymerisation BAM is normally stabilised by some inhibitor. Since BAM polymerises readily without much requirement of processing and as after polymerisation the same shows adhesive properties it should be treated as adhesive only. They also placed reliance on the manufacturers printed literature and contended that it is clear that BAM is used as adhesive. The appellants clarified that BAM does not possess any adhesive properties in the Monomer form, but the same is an adhesive in the polymer form, which process is undertaken naturally when the Monomer form comes in contact with heat and light. It was pleaded by the appellants that it is not feasible and practicable to import the item in polymer form as after polymerisation, the product immediately becomes an adhesive which does not has much shelf-life. The appellants also pleaded their case on the point of time-bar by submitting that they had declared the goods in the bill of entry correctly and the clearances were given by the customs authorities after drawing samples and satisfying themselves that the product was an adhesive and covered by the advance licences. Their advance licences were accordingly debited by the customs authorities. As such they submitted that the longer period of limitation could not be invoked against them inasmuch as there was no mis-declaration.
5. The said show cause notice culminated into the impugned order passed by the Commissioner vide which it was held that BAM was not adhesive and the benefit of the advance licences and the notification in question was not available to the importer. Accordingly the demand of duty was confirmed by invoking the longer period of limitation in respect of 14 bills of entries on the ground that the appellants had misdeclared the product in question.
6. It was also held by the Commissioner that the goods are liable to confiscation, but inasmuch as the same were not available, no redemption fine was imposed by him. Penalty of equivalent amount was imposed upon M/s. Sanghvi Overseas. The goods covered by the bill of entry dt. 8-5-97 and 19-3-98 which were under seizure by the Revenue were confiscated with an option to the appellant to redeem the same on payment of redemption fine of Rs. 6,00,000/- (Rupees six lakhs). Further penalty of Rs. 3,00,000/- (Rupees three lakhs) was imposed upon M/s. Sanghvi Overseas in relation to the importation of the goods under the above two bills of entries. Penalty of Rs. 65,00,000/- (Rupees sixty-five lakhs) was imposed on the second appellant Shri R.K. Jain on the findings that he was the main person behind the imports which led to evasion of huge amount of customs duty and was an adviser to the importers. It was also observed that the evidence on record shows his active and financial involvement in the matter. The said order of the Commissioner is impugned before us.
7. Shri Sudhir Mehta, ld. Advocate, appearing for the appellant assails the impugned order on merits as also on limitation. He submits that they had filed in-bond bills of entries for warehousing declaring the goods as Butyl Acrylate Monomer. Later ex-bond bill of entry was filed and in addition to giving the chemical name, the word 'adhesive' was also added inasmuch as BAM was nothing but an adhesive and the appellant was claiming clearance of the goods on the basis of the advanced licences which allowed adhesive to be cleared duty free. Assessing officer and the customs officers passed orders of clearance on ex-bond bill of entry accepting BAM as an adhesive. He also submits that the Revenue drew samples before clearance of the goods and it is only thereafter the clearances were effected by them.
8. As regards the merits of the case he submits that the Revenue's contention that BAM is not an adhesive is not correct. He reiterated the following submissions in support of his defence, as made in their memo of appeal :-
(i) Adhesive is end-use of a chemical. There is no chemical called adhesive. Every chemical which is used as adhesive take some time to gain its adhesive property. Few chemicals are pressure sensitive. Few chemicals are to be dissolved in water. Few chemicals after application are to be kept in a bonding situation under pressure for certain time then it gets adhesive property. Few chemicals which are commonly used in the domestic houses such as Fevicol, Dendrite, etc., have different chemical properties. Both the chemical gain adhesive property after certain time and that both the surfaces where applications are made are to be kept for certain hours under pressure. Almost all chemicals when put into use as adhesive take certain time and acts when it comes into contact with air, light or heat at room temperature, etc.
(ii) "BAM" is used as adhesive in leather industry. During transportation and storage it is kept in a manner which would restrict it from self polymerisation. Therefore when the chemical BAM is packed, an inhibitor is used to keep the goods in storage condition. As and when the container is opened and the chemical comes into contact with light, air and heat at room temperature, BAM starts self polymerisation and gets the property of adhesive. Chemical composition of Butyl Acrylate Monomer and Butyl Acrylate Polymer is same. To speed up polymerisation some time initiator or extra heat may be given. No process or manufacturing process is required to Polymerise BAM.
(iii) It is an admitted position that the BAM when polymerised becomes adhesive. Dispute in short is whether BAM in a packed condition without opening the box can be said to be adhesive. Goods in packed condition is of no use. It can only be used when it is opened and put to use. For all practical purpose BAM is an adhesive. Word "adhesive" was mentioned in the ex-Bond B/E inasmuch as the appellant sought release of goods under advance licences allowing adhesive as duty free import. In any event goods were chemically tested in the Customs House and goods were cleared after satisfaction of the proper officer that BAM is adhesive. The department was very much concious that goods were claimed as adhesive and they were so satisfied after examination of the goods and deliberation made in this regard.
(iv) Chemicals of similar nature such as Polyvinyl Alcohol were treated by the Customs House as Binder which is an overlapping terms of adhesive. Several consignments of Polyvinyl Alcohol as Binder have been released by the same customs house. Polyvinyl Alcohol is in powder form and it requires mixing of water and making a solution or paste. Chemical Polyvinyl Alcohol gets adhesive properly after interaction with water. The 14 consignments referred to in para 4 of the show cause notice which were cleared on the basis of advance licence under Customs Notification No. 203/92-Cus. or 79/95-Cus. Customs authorities cleared the goods with consciousness and knowing fully well that BAM is an adhesive. There is no question of suppression of any fact before customs authorities because no fact was concealed. Each of the consignment was tested and chemically examined. In course of hearing Test Memo bearing Nos. 303 dt. 5th March, 1997, 704, dr. 13th February, 1997, 39037, dt. 4th March, 1997 were referred to and xerox copies thereof were submitted by and on behalf of clearing agent to show that chemical was examined by customs laboratory. The appellant does not possess copies of test report therefor. The appellant calls upon the respondent to produce the same at the time of hearing. Nothing has been suppressed by the appellant in any bill of entry. The wild allegation of suppression of material fact, misdeclaration and evasion of duty has been made in the show cause notice without any application of mind.
(v) It has also been alleged that the appellant wrongly claimed benefit of exemption notification. The appellant vehemently denied allegations that Butyl Acrylate Monomer is not an adhesive. The appellant states that BAM time to time was rightly cleared under advance licences submitted by the appellant. In any event claiming of benefit of exemption notifications is a matter of faith and belief and even an erroneous claim to exemption notification, by no stretch can be said to be misdeclaration,
(vi) The purported demand of duty in respect of 14 consignments is made on the purported ground that BAM is not adhesive and as such could not be cleared under the advance licences which were accepted by the jurisdictional/proper officer of customs. The show cause proceeded on hypertechnical notion that Butyl Acrylate Monomer is not adhesive "as it is" but it is adhesive only when it is polymerised. It is alleged that for polymerization a catalyst is to be put into it. Catalyst does not react but it speeds up formation of polymerization. BAM 'as it is' has no use 'as it is' BAM is a condition of storate and/or static condition which is achieved by putting inhibitor to prevent self polymerization. But if the box is open and BAM comes in contact with light and heat polymerization process starts suo motu. However to speed up polymerization extra heat may be given or any initiator/catylist may be dropped into it which would speed up polymerization.
(vii) Adhesive is end-use of a chemical. It is admitted in the show cause that and end-use of BAM is adhesive in leather industry. However, a mala fide distinction is sought to be made that until monomer becomes polymer, it is not adhesive. It is alleged that in Monomer from BAM is not adhesive. By such absurt interpretation attempt has been made to divest BAM from the coverage of adhesive.
(viii) Chemical composition of BAM is same of Butyl Acrylate Polymer Chemical composition of monomer form all molecule subsist separately and in polymer form they link with other molecule and make a chain. To put it more lucidly if 100 student are standing in a campus in a row there shall be gap between one student and another student and each student shall stand independently. But if all the student hold the hand of the following student a chain will be made.
(ix) At the time of clearance of goods, time to time when the ex-bond bills of entry were filed, advance licences were submitted along with it. At the time of debiting the advance licences were debited by the customs authorities entering that goods are covered by the advance licences. After debiting of the licences and after all the licences have spent its validity period, the allegation is made that advance licences did not cover the goods. The appellant has utilised licences particulars of which are mentioned in Annexure 'B' to the reply to the show cause. The allegation made by the customs authorities in the show cause notice cannot be allowed to stand on two counts. Firstly, the goods imported were very much covered by the licence and secondly, assuming though denying that the goods were not covered under the licence even then customs authorities cannot change their stand inasmuch as after debiting of the licence, the position becomes irreversible. Licence cannot be restored to its original position. The valid order of clearances made under Section 47 of the Customs Act cannot be disturbed because of the irreversible situation. Acceptance of advance licences for clearance of BAM as adhesive stands absolute and it cannot be repudiated as licences have been debited by customs authorities. Assessment orders already made cannot be disturbed in the facts and circumstances of the case.
(x) BAM, in common market parlance, is known as adhesive. It is used widely in leather industry. In the show cause notice a technical dispute has sought to be raised. Fact remains that BAM is sold in the market as 'adhesive'. The appellant craves leave to refer to certificates issued by leather manufacturer that they use BAM as adhesive. Further it was practice of the customs house, Calcutta to release BAM as adhesive on advance licences. Few bills of entry by way of stances were annexed to the reply and marked Annexure 'C' therein. Polyvinyl Alcohol is still released by this customs house as adhesive/binder. "As it is" Polyvinyl Alcohol is not adhesive. It is a dry powder. When dissolved into water it becomes adhesive. Bill of entry releasing Polyvinyl Alcohol as adhesive is annexed of the reply and marked Annexure 'C-1' therein.
(xi) It is settled proposition of law that exemption notification are to be liberally construed. Requirement of opening of container, allowing BAM to contact with light and heat and even putting a catylist cannot detract from its being adhesive. "Adhesive" is not defined in the Act. It is now settled law that the words and expressions, unless defined in the statute have to be construed in the sense in which persons dealing with them understand i.e. as per trade and understanding and usage. Case made in the show cause notice resemble story of Merchant of Vanice where pound of flesh is demanded but objection was raised on out come of blood.
(xii) It is admitted position in the show cause notice that Butyl Aery-late Polymer is an adhesive. BAM polymerises readily on heating or when it comes into contact of air or light. Monomer is a condition of storage and polymer is a condition of application. The Butyl Acrylate cannot be kept in a storage condition in a polymer form. The learned Adjudicator held the goods not adhesive just because of the reasoning given in paragraph 118 of the order that inasmuch as some processing is required before it becomes an adhesive, therefore, BAM is not covered as an adhesive.
He also challenged the valuation adopted by the Revenue and the penalty imposed upon M/s. G.C. Jain.
9. Appearing on behalf of Shri R.K. Jain the ld. Advocate submitted that the findings of the Commissioner that the importer was cover-up company of Shri R.K. Jain is not based upon any evidence inasmuch as M/s. Sanghvi Overseas have been importing various items for the last number of years and has financial involvement in the importation.
10. Appearing on behalf of the Revenue Shri T.K. Kar, ld. SDR reiterated the arguments adopted by the adjudicating authority and the evidences relied upon by the Revenue. It was submitted by the ld. SDR that the Commissioner in his impugned order has discussed ample evidence to come to a conclusion that BAM in its Monomer form cannot be considered as an adhesive. The various trade opinions given by the persons dealing in said chemical lead to inevitable conclusion that BAM is only a component for the adhesive and by itself cannot be considered as an adhesive. As such the ld. SDR submits that benefit of the duty free importation has been rightly denied to the appellants. As regards question of limitation Shri Kar strongly contends that the appellant had misdeclared the goods inasmuch as they had added the word 'adhesive' in the ex-bond bills of entry thus giving the impression to the customs officers that the product in question was adhesive whereas the fact was otherwise. As such he submits that the adjudicating authority has rightly invoked the longer period of limitation. For the similar reasons he supports imposition of penalty upon Shri G.C. Jain of M/s. Sanghvi Overseas. As regards imposition of personal penalty upon Shri R.K. Jain, Shri Kar submits that the Commissioner has come to a clear finding that Shri R.K. Jain was the main person in evasion of huge amounts of customs duty and his version that he was helping Shri G.C. Jain as a friend cannot be believed inasmuch as during the course of investigations his name has surfaced as a person who dealt with importation and clearance of the goods through customs house agents. He supports that imposition of personal penalty upon Shri Jain may be upheld.
11. We have considered the submissions made from both the sides and have gone through the impugned order carefully. The issue required to be decided in the present case is as to whether the Butyl Acrylate Monomer is an adhesive or not for the purposes of allowing the duty free clearances against advanced licences issued under DEEC scheme. If the answer to the above question is in the negative then the valuation dispute is also required to be solved. A further question as to whether the demand is barred by limitation or not is also involved.
12. We find from the impugned order that the Commissioner has observed that on the issue as to whether BAM is adhesive or not, voluminous technical literature has been produced by both the investigating agency and the noticee concerned. He has observed that on careful examination of the literature brought on record by both the sides, it is seen that BAM in monomer and inhibited form does not have any adhesive properties and this position has been accepted by the appellants also. As such he has gone by the fact that it is the form in which any material is imported, which is to be considered relevant for the purposes of classification. Inasmuch as BAM is a separate chemical defined compound it has been correctly classified under the Customs Tariff Heading 2916.12 and cannot be considered as an adhesive. It has been further observed that the various opinions given by highly qualified technical persons it is clear that BAM is not an adhesive itself, but needs to undergo some processing before it becomes an adhesive. At this stage we would like to refer to the technical specifications of BAM and the case as made out by the Revenue in the show cause notice :-
"55. As regards the goods i.e. BAM in question, it appeared that BAM itself was not an adhesive. But it could be polymerized or copolymerized to make it suitable as one of the components in adhesive formulations. BAM was actually used as constituents of binder in paint and textile industry and could not be considered to have adhesive property. Only after polymerization these oligomers i.e. low molecular polymers were formed and viscosity increased with increased polymerization.
56. Butyl Acrylate Monomer, popularly known as BAM was an organic chemical. It was an ester of acrylic acid and Butyl alcohol/Butanol. Ester formation was represented by the generic reaction :-
(Organic acid + Alcohol - Ester + Water) BAM was a colourless liquid having specific gravity 0.896-0.901 and viscosity 0.856. It was almost insoluble in water.
Acrylic Esters (Monomers) such as BAM were represented by the generic formula H H \ / C=C / \ H COOR The nature of "R" group determines the properties of each ester and the polymers if form.
The chemical formula of BAM is CH = CHCOOCH The term Monomer represented a molecule or compound usually containing carbon and or relatively low molecular weight and simple structure which was capable of conversion to polymers, syntehtic resin or elastomers by combination with itself or other similar molecular compounds.
Polymers designed to fit specific application requirements ranging from soft, tacky adhesive to hard plastics could be tailored from these versatile monomers. Acrylic monomers were polymerised by various chemical processes such as Bulk polymerisation, Solution polymerisation, Emulsion polymerisation, suspension polymerisation, Ionic polymerisation etc. Usually free radical initiators such as Azo compounds or peroxides were used to initiate the polymerisation of acrylic monomers. Out of the above polymerisation processes, Emulsion polymerisation was the most important industrial method for the preparation of acrylic polymers. The principal markets for aqueous dispersion polymers made by emulsion polymerisation acrylic esters were the paint paper adhesive, textile, floor polish and leather industries where they were principally used as coatings or binders.
Copolymers of either ethyle acrylate or butyl acrylate with methyl methacrylate were most common and such industrial acrylic emulsion polymerisation were usually carried out by Batch processes in jacketed stainless steel or glass lined reactor fitted with various equipments. In normal practice, inhibitors such as Hydroquinone (HQ) or the Mono methyl either of Hydro-quinone (NEHQ) were added to acrylic monomers to stabilize them during shipment and storage.
Also value-wise, prices of Acrylic Polymers were generally one and one half to these time the monomer costs.
Acrylic emulsion and solution polymers from the basis of a variety of adhesive tapes principal use was in pressure sensitive adhesives where a film of very low Tg (- 20°C) polymer or copolymer was used on the adherent side of the tape. (Based on Encyclopaedia of Chemical Technology by KIRK OTHMER, Fourth Edition)
57. As per Hawley's Condensed Chemical Dictionary, 11th Edition Chemistry the chemical was as follows :
1. n-Butyl acrylate, CAS : 141-32-2 . CH2CHCOOC4H9 Properties : Colourless liquid, fp-64C boiling range 145-148.OC, polymerizes readily on heating vap press (20C) 3.2 mm d 9.9015 (20/20C) wt/gal 7.5 1b (20C).
flash p 120F(49)(OC) nearly insoluble in water, Flammable. Derivation : Reaction of acrylate acid or methyl acrylate with butanol. Grade : Technical(inhibited). Hazard : Moderate fire risk. T1 : 10 ppm in air.
Use : Intermediate in organic synthesis polymers and copolymers for solvent coatings, adhesives, paints, binders, emulsifiers.
2. Acrylate : (1) Any or several monomers used for the manufacture of thermosetting acrylic surface coating resins, e.g. 2-hydroxyethyl acrylate (HEA) and hydroxypropyl acrylate (HPA).
(2) Polymer of acrylic acid or its esters, used in surface coatings, emulsion paints, paper and leather finishes, etc. Use Aquous emulsions : adhesive, laminated structures, fabric coatings woven fabrics.
58. In the Internet, some informations featuring I.G. Chemical Affiliations was also available. In the said information under heading Butyl Acrylate following relevant details were available.
Common Name : BUTYLACRYLATE DOT Number : US 2348 (This DOT number US 2348 was also found on the drums of BAM under seizure) Identification : Butyl Acrylate was a colourless liquid. It was used in the manufacture of polymers and resins, and in paint formulations.
13. The trade opinion sought by the Revenue includes that of one given by M/s. Chandra's Chemical which is to the effect that - "That because of high reactivity of the Vinyl groups Acrylate compounds were capable of forming leniar Polymers of high molecular weight by reacting with themselves or other type of venyl compounds, (emphasis provided). All industrial polymerisation processes were carried out at a elevated temperature in the presence of initiator. Polymerisation could be carried out in bulk, solution, or emulsion. The most important process is for producing Acrylics for adhesives - solution and emulsion polymerisation result in end product like adhesive". The Revenue has also relied upon on the information given in the product bulletin of M/s. Indian Petro-Chemicals Ltd. who are manufacturers of BAM in India. It is stated in the said bulletin that - "Butyl Acrylate was obtained by the esterification of Acrylic Acid and butyl alcohol. Butyl Acrylate was used to make solution polymers for imparting flexibility, tackiness and water re-sistence, in paint adhesive, leather and paper quotings". Manager of the said organisation Shri D.K. Chattopadhyay in his letter dt. 26-9-98 informed the Revenue that Butyl Acrylate Monomer, as it was could not be used as adhesive. Similarly ICI (I) Ltd. opinion was obtained which is to the effect that the chemical in its monomer form could not be considered to have adhesive property and adhesives could be prepared from this Monomer by polymerising them usually via suspension or emulsion, polymerisation into low molecular weight oligomers. This requires the presence of initiator and some energy inputs, usually in the form of heat or light.
14. The opinion of Dr. N. Krishnamurthy, Head and Deputy Director, Organic Quotings and Polymers Division, as given vide his letter dt. 20-7-98 is as follows :-
(i) Adhesive in any natural or synthetic polymer which could bond two surfaces which might be of absorbing nature.
(ii) Butyl Acrylate Monomer itself was not an Adhesive. But it could be polymerised or co-polymerised to make it suitable as one of the components in the Adhesives formulations. The Butyl Acrylate Monomer could be polymerised by solution, emulsion and suspension polymerisation techniques.
(iii) The polymerised Butyl Acrylate Monomer could be used in paint and textile industries as one of the binders. The monomer could never be used for such applications. Butyl Acrylate Monomer had no Adhesive properties. The function of Poly Butyl Acrylate was as binder in paints and in Textile Industry, it was used as a coating material on the fibres.
15. The opinion of Dr. A.N. Banerjee, Reader of Department of Polymer Science and Technology, Calcutta University was obtained and vide his letter dt. 18-9-98 he opined as under :-
(i) Butyl Acrylate Monomer as such, had no Adhesive Property and not used as Adhesive in any industry. Thus Polybutyl Acrylate either in solution or in emulsion form might be used as Adhesive :
(ii) Butyl Acrylate was polymerised either in bulk or emulsion at elevated temperature using free radical types initiator.
(iii) Bonding of Polybutyl acrylate with substrate was poor compared to many other polyacrylates, which could be improved by copolymerisation with methyl methacrylate or acrylic acid. After long chain polymerisation the long chain polymer had good interaction with the substrate.
(iv) That Polymerisation induced some Adhesive property which might further be improved by some common additives which were actually used in pressure senstive additives.
16. Careful examination of the opinions as reproduced above led to only one inevitable conclusion that Butyl Acrylate in its Monomer form does not have any adhesive property, but on polymerisation the same become adhesive. Such polymerisation is self-polymeristion, when the chemical comes in contact with heat and light, it is only to increase the process of polymerisation that the temperature may be elevated and an initiator may be used. To the same effect are the findings of the Commissioner and in fact the submissions of the appellants. So the undisputed picture which emerges is that the imported chemical is in its Monomer form which becomes an adhesive on self-polymerisation. The appellants' case is that the self-polymerisation, which is nothing but increase in molecular weight takes place on the chemical coming out of the container. The question is that whether the solution in its Monomer form can be considered as an adhesive or not. According to the appellant it is not practical and feasible to import the product in its polymerised form and the same is always stored in its Monomer form. In fact inhibitors are added to avoid self-polymerisation of the product during storage. Taking an example from our day-to-day life, we are all aware that adhesives, as long as they are in a tube or container are in liquid or semi-liquid form, but when the same are taken out of the tube for the purposes of utilisation they become hard on coming in contact with air and are required to be used immediately otherwise they become brital and hence waste. This obviously reflects that on coming in contact with the environment i.e. air, heat or light, the chemicals turn into adhesives and binds the two or more surfaces together by surface attachment. This happens because the adhesives, on evaporation of the solvents or water leaves a continuous films/residue between the surfaces to be bonded and these films/residue holds the substance together. Similarly in the present matter if the polymerisation takes place inside the container itself, the substance may not be of any use as an adhesive. In any case it is the case of both the sides that the Monomer form becomes polymer form of the chemical suited to be used as adhesives, when it comes in contact with nature. It is only that in some cases where bulk polymerisation is required, extra heat i.e. more than the heat provided by the nature is required to increase the process of polymerisation, as has been opined in the opinions of experts brought on record by the Revenue. As such we are of the view that the Butyl Acrylate Monomer, which undergoes self-polymerisation on coming in contact with the atmosphere can be safely held to be an adhesives and covered by the various advance licences in question.
17. We also note that in the technical literature given by the manufacturer use of the product has been shown as adhesives. Though the Revenue has disputed that the said literature produced by the appellant is not correct and is manipulated inasmuch as the same is different than the manufacturer of identical product in India. But no concrete evidence to that effect has been produced by the Revenue. The literature produced by the appellant is of the Korean manufacturer and is given in English language as well as Korean language. There is no reason to doubt the veracity of the said literature. Inasmuch as the manufacturers themselves have shown the use of Butyl Acrylate as adhesive as well as textile binders, we see no reasons to take a different view.
18. Accordingly we hold that the chemical imported by the appellant was adhesive and is covered by the advance licences produced by them.
19. Though it is of academic interest only we also find that the demand is hit by the bar of limitation inasmuch as the appellants had cleared the goods in question after declaring the same in the bills of entries and giving correct classification of the same. The Revenue has invoked the longer period of limitation on the ground that the word 'adhesive' was added by them in the ex-bond bills of entries along with the description of the product as 'Butyl Acrylate Monomer' and this was done by them deliberately to avail the benefit of the exemption notification. On the other hand the appellants' contention is that such word was added only for the clarification purposes and there was nothing which was suppressed by them. They have admittedly given the chemical name of the product and its correct classification. Availing of benefit of a notification, which the Revenue subsequently might find was not available, cannot lead to the charge of misdeclaration or mis-statement, etc. And even if an importer has wrongly claimed his benefit of the exemption, it is for the department to find out the correct legal position and to allow or disallow the same. Their contention is that inasmuch as in the present matter the customs authorities have allowed the clearance of the goods by extending exemption under the notification and have debited their advanced licences accordingly, the confirmation of demand by invoking longer period of limitation was not justified. They have also contended that there had been earlier cases also of duty free importation of the same item and as such there can be no mala fide on their part to misdeclare the goods.
20. We find that the Commissioner in his impugned order has observed that under normal circumstances, it is not possible for the customs officers who daily assess a large number of bills of entries to initiate detailed investigation unless suspicion/specific intelligence triggers of such investigation. We do not appreciate the above reasoning of the adjudicating authority which defeats the very purpose of assessment by the customs officers. The assessments are not required to be done in a routine and mechanical manner by the customs officers and the same require application of mind and law while assessing the bills of entries. To shirk the responsibility by saying that a customs officer has to deal with large number of bills of entries and cannot as such be held responsible is in the nature of shirking from the responsibility imposed upon the assessing officers under the law. In the instant case the appellant had declared the goods as Butyl Acrylate Monomer with correct classification of the same and the word 'adhesive' was added in the ex-bond bill as per the appellants' understanding that BAM is an adhesive. In these circumstances it was for the Revenue to check whether BAM was covered by the expression adhesive or not and if even after drawing of samples they have allowed the clearances to be effective as adhesives appellant cannot be held responsible for the same and subsequently if the Revenue has changed their opinion as regards the adhesive character of BAM, extended period cannot be invoked against them. As such we are of the view that the demand of duty in respect of 14 consignments is barred by limitation.
21. In view of the foregoing we set aside the demand of duty against M/s. Sanghvi Overseas along with imposition of penalty upon them. Confiscation of the goods is also set aside. Inasmuch as the appeal of the main appellant has been allowed there is no justification for imposition of penalty upon the second appellant Shri R.K. Jain. In a nutshell both the appeals are allowed with consequential relief to the appellants.
22. [Assent per : S.S. Sekhon, Member (T)]. - I have gone through the order prepared by the Hon'ble Member (Judicial) and considered the submissions made and the material on records. I record the following order, as an assent order, to the final findings arrived at as regards allowing the appeals in this case. I am not repeating the facts to avoid this assent order to be prolix.
(a) It is nobody's case that the assessments of the into-bond warehousing Bills of Entries have not been made assessed under the provisions of Section 17(2). Only in certain cases it is found that the assessments are provisional, as the goods under import have ordered to be tested and warehoused. The classification of the goods i.e. BAM under Chapter 2916.12 of the Customs Tariff is also not found to be under challenge or incorrect on the into-bond or and ex-bond bills of entries filed for clearance of the goods. The dispute is on the eligibility of the warehoused BAM to the benefit of Notfn. No. 79/95-Cus. on basis of the DEEC Licences/TRA produced and allowed.
(b) Section 15(1)(b) of the Customs Act provides that in case of goods being cleared from a warehouse under Section 68 the rate of duty and Tariff valuation, if any, applicable would be the rate or and Tariff valuations, applicable on the date of actual physical removal of such goods from the warehouse. This section does not provide for re-classification and or re-valuation of the goods which have been warehoused.
(c) The application of the rate of duty on production of DEEC advance licence or a Tariff Release Advice (TRA) and benefit of Notfn. No. 79/95-Cus. could be granted, if the goods being cleared from the warehouse conform to the conditions of the said exemption notification. It is nobody's case that the other condition of the Licence or the notification are not satisfied. The dispute is limited to the extent, that these clearances of BAM do not conform to the definition of 'materials' as permissible under the notification and the said Advanced Licences. The core dispute is limited only to the extent of the eligibility of BAM to the goods as materials which could be cleared on the said advanced licences produced.
(d) From the Import Licences in the paper book and the lists enclosed thereto it is observed that the item impugned in this case are to be considered for duty free clearance as mentioned in the licence item allowed to be imported at Sl. No. 1(b) is :-
Sl. No. List of Items allowed to be imported Technical acteristics char- Total Quantity Value in USD
1.
(a) X
X
X
X
(b) Adhesive
Synthetic/
150 Kgs
504
(Synthetic/Latex)
Latex
The list does not classify the 'Adhesives, under any particular definition adopted by Customs Tariff or ITC (HSN) classification for imports. Therefore, if the item is an adhesive, and the technical characteristic being synthetic i.e. other than natural latex based, then it could be permitted to be allowed. There appears no reason to restrict 'Adhesive Synthetic' the material in this case only to such entities which would get classified under Customs Tariff heading 3506.
(e) The word 'material' in the notification means- (a) raw materials, components, intermediates, consumables, computer software and parts required for manufacture of export products specified in para 'E' of the certificate, (hereinafter, the Explanation referred to as the export products).
Therefore 'materials' permissible, are not only raw materials but are also intermediates for such raw materials, which are required for manufacture of export products specified in the licences, which in this cases are 'Leather Industry' products. The term used as 'material required for manufacture of export products would encompass such entities also which are not only directly used or usable as such in the manufacturing processes but also which could be used with same processing. In the case Tata Oil Mills Ltd. - 1989 (43) E.L.T. 183 (S.C.) it was held by the Apex Court :-
6. We are of opinion that the view taken by the Excise Authorities as well as by the Tribunal proceeds upon too narrow an interpretation of the notification. It is true, as Mr. Ganguli contended, that an assessee claiming relief under an exemption provision in a taxing statute has to show that he comes within the language of the exemption. But, in trying to understand the language used by an exemption notification, one should keep in mind two important aspects : (a) the object and purposes of the exemption, and (b) the nature of the actual process involved in the manufacture of the commodity in relation to which exemption is granted.
The same is also to be considered in the interpreting this exemption notification, as also to follow the observation of the Apex Court in the case of Bombay Chemicals - 1995 (77) E.L.T. 3 (S.C) :-
Interpretation of exemption notification - Expression therein when to be interpreted in broad or narrow sense - Exemption notification to be strictly construed only when a particular article is capable of falling in one or the other category specified in the notification but once it falls under the exemption notification it has to be construed broadly and widely - Once an article is found to have satisfied the test by which it falls in the exemption notification then it cannot be excluded from it by construing the exemption notification strictly or narrowly -
Considering the objects of the scheme DEEC and the Supreme Court's decisions as mentioned and the Apex Court in the case of Oblum Electrical Industries Pvt. Ltd. - 1997 (94) E.L.T. 449 considering duty DEEC scheme and the word 'materials' used in the exemption notification; the predecessor notification to the present notification, held that on a proper construction of the definition of materials held that expression would be applicable to all materials used in the manufacture of the export products. It also said that wordings in that notification have to be construed keeping in view the object and purposes of the exemption. Keeping in view this position of the law as laid down by the Apex Court and the purpose of the DEEC scheme, the import of the materials in this case BAM, the only issue which is left to be decided is the nature of the product BAM impugned before us.
(f) From the Encyclopaedia of Chemical Technology 4th Edition published by John Wiley and Sons, it is found for Acrylate Esters as in the present case it prescribes :-
"Emulsion Polymerization. Emulsion polymerization is the most important industrial method for the preparation of acrylic polymers. The principal markets for aqueous dispersion polymers made by emulsion polymerization of acrylic esters are the print, paper, adhesives, textile, floor polish, and leather industries, where they are used principally as coatings or binders. Copolymers of either ethyl acrylate or butyl acrylate with methyl methacrylate are most common". (Vol. 1, page 328) (underlining supplied) From this authoritative Book, it is apparent and can be concluded, that BAM, which is an Acrylate Ester, can be polymerised by using water to prepare the 'aqueous emulsion dispersion' which is used in the 'Leather Industry' as a 'Coating or Binder' to be an Adhesive. The aqueous preparation of this emulsion would not require any elaborate use of technology. Therefore BAM which is a monomer under import, could be considered to be like 'Dry Gum Arabic' which by themselves are dried nodules/exudates from Aracis trees, but when mixed with water and forming a dispersion in that within that medium to form an Emulsion of glues or adhesives. If Gum Arabic in the dried form classified under Chapter 15 of the Customs Tariff could be considered as import of an adhesive and binders, there is no reason why BAM which on similar acqueous dispersion even if classified under 2916.12 and can thereby function and used as a binder in 'Leather Industry' as per this authoritative Encyclopaedia on Technology, should be denied the benefit of considering the same as adhesives. When import of Adhesives which are not defined or restricted classification in the Licence. No doubt, technical experts have opined that polymerisation of BAM takes place at elevated temperatures and imports it Adhesive qualities, yet none of these experts have denied that acque-ous-dispersions of BAM Emulsions, would not result in importing adhesives/binder capacities of BAM properties to the emulsions emerging. Polymerisation of BAM can even take place by photo-chemical reactions radiations and induced by exposure to Oxygen in Air, as per this Chemical Encyclopaedia. The crux of the issue is that for Leather Industry employs, aqueous polymerised BAM and that material is sufficient for allowing the import of adhesive. The licence and the notification as observed, do not prescribe the total extent of polymerisation for such synthetic imported BAM.
(g) When it is found that the BAM under import after making aqueous emulsions results in an adhesive/binder and is permissible under import and there is no other violation of the condition of the licence and the notification on record I do not consider the attempt of the appellants in adding the word 'adhesives' on the ex-bond of bills of entries to be an attempt to clear any impermissible item, under the advance DEEC licences, as has been made out. As regards the allegations of altering the product literature and or other documents there is no evidence, that the Proper Officer, while assessing and allowing the clearance of the subject BAM on the licence and TRAs produced, was led to his conclusions based solely on those documents. The appellant can produce a document but if the Proper Officer is not found to have relied upon, such document, then one cannot consider the mere production of the document to be a reason to deny the benefit of the Import Licence and consequently the DEEC exemption under Notfn. No. 79/95-Cus., when on chemical natures and facts the same is eligible. It is on record that the goods were tested and assessments were kept provisional, and if they have been finalised after obtaining such test reports, the only conclusion that can be drawn is that assessment made by the Proper Officers were correct and the re-assessments now being proposed in the proceedings initiated by the investigators are not called for.
(h) When I find that the licences produced entitle the appellant to clear the ex-bond goods free of duty, I cannot find any reasons for them to have misdeclared the values since the goods are duty free. There appears no incentive to do so. There is no allegation that the licences produced will not cover the quantity of values, even after the alleged loading of values as declared. I therefore do not uphold the allegations of the deliberate under-valuation as alleged and arrived at by the lower authorities.
(i) When I find that the licences produced cover the goods under question and no duty is required to be determined, the BAM being exempt fully from duty, I cannot find any reason for confiscation of the goods or visit of penalties. The same are required to be set aside.
23. In view of my findings I would allow these appeals.