Customs, Excise and Gold Tribunal - Delhi
Dimensional Plastiglas Industries ... vs Collector Of C. Ex. on 4 February, 1991
Equivalent citations: 1991(54)ELT443(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. This appeal is directed against the order, dated 11-8-1988 passed by the Collector of Customs & Central Excise, Jaipur. The brief facts are that the appellants, herein, filed in 1974 a classification list describing the product, manufactured by them, as Acrylic sheets, Plastics, made out of artificial resins or plastic materials falling under sub-item No. (1) of T.I.15(A) C.E.T. on which the appropriate duty has already been paid Methyl-Methacrylate monomer. They sought classification of acrylic sheets under Tariff Item 15A(2) and claimed total exemption from central excise duty under Notification 38/73, dated 1-3-1973 as amended. This was approved by the Department on the basis of declaration made. Subsequently, they surrendered the Central Excise licence on the ground that their product was not chargeable to duty and in July, 1985, they filed a declaration seeking exemption from Central Excise licensing control in terms of Notification 111/78 issued under Rule 174A of Central Excise Rules on the ground that since the goods, manufactured by them, were totally exempted in terms of notification, they were not to be brought under Central Excise licensing control. The officers of the Central Excise Department visited the appellants on 26-6-1987 and found the product manufactured by them was not acrylic sheets and consequently, were of the view that the product was not eligible for exemption under Notification 132/86, dated 1-3-1986 under Serial No. 35 of the table to the notification. The Department found that the product was rigid plastic sheets under the 'trade name of 'Krinkglas'. The product was manufactured from a mixture of polyester resin, methyl methacrylate monomer and other chemicals and colouring agents and it was reinforced with mat of fibre glass. The unit was also not holding any Central Excise Licence at that time. The officers also seized the stock of finished goods lying with the appellants on that day, as being, in their view, liable to confiscation, namely, quantity measuring 3308.58 sq. feet valued at Rs. 82,739.50. On 6-8-1987, samples of the product, manufactured by the appellants, were drawn and sent to Chemical Examiner for chemical test, whose report confirmed the presence of fibre glass in the sample sheet and the product was found to be modified acrylic plastic sheet (rigid). In a note, the Chemical Examiner pointed out that acrylic sheets are those which are cast by using methyl methacrylate monomer. A show cause notice was issued, dated 18-12-1987 alleging suppression of facts and demanding Central Excise duty amounting to Rs. 24,28,499.31 under Section 11A of the Central Excises & Salt Act and Rule 9(2) of the Central Excise Rules. It was alleged that the seized goods were liable to confiscation under Rule 173Q and the appellants were liable to a penalty under the same Rule. On considering their reply to the show cause notice and after hearing them in the matter, the Collector confirmed the demand, confiscated the seized goods levying a fine of Rs. 8.000/- in lieu of confiscation and imposed a total penalty of Rs. 27.000/- on the appellants under Rule 173Q and Rule 226 of Central Excise Rules. The appeal is against this order of the Collector.
2. Shri V. Sridharan, the Ld. Counsel, appearing for the appellants, contended that the demand is time-barred. It covers period beyond six months from the issue of show cause notice and there are no grounds for alleging suppression of any facts by the appellants. The Ld. Counsel submitted that the show cause notice is dated 18-12-1987 and the demand, in effect, for a period from 1-1-1983 to 31-3-1983, if the normal period of limitation is applied, the entire period of demand is time-barred, according to him. The longer period of 5 years has been invoked on the ground that in the classification list filed in 1974, the product is stated as acrylic sheets and not as modified acrylic sheets and that this amounts to suppression. This, according to the appellants, is erroneous. In the classification list filed in 1974 itself, according to them, they have specifically disclosed that apart from Methyl methacrylate other items falling under Item 15A(1) would be utilised. In the Licence application dated 17-9-1973, it was specifically stated that Synthetic Resins include Polyester would be utilised. The classification list filed in 1974 had been approved. After drawal of sample, a separate file was opened for the classification list which was ultimately approved on 28-8-1984. Since the sample was drawn, it was cleared that the department could have known that Polyester Resin was utilised. The similar samples were also drawn on 28-4-1984 and 22-2-1985 which, on test, disclosed the use of Polyester Resin. Another fact was that they had submitted drawback claim for the purpose of verifying the inputs regarding such drawback the Department had looked into their records ascertaining their inputs used in the manufacture of their final product. The Ld. Counsel submitted that in any case the demand for the period subsequent to 19-8-1985 is totally time-barred. There was a query raised by the Superintendent that they were not exempted under Notification 38/73 on the ground that the product is a Modified Acrylic Sheet. The query was replied vide their letter, dated 19-8-1985 disclosing all the facts. The Superintendent also accepted the classification of the product. The Ld. Counsel, further pointed that besides Methyl Melhacrylate and Polyester Resin, the product consists of 18 to 20% weight of glass fibre. In view of the Supreme Court judgment in the case of Geep Flashlight Industries v. U.O.I. -1985 (22) ELT 3 (SC), the product not being wholly made of plastic will fall outside the ambit of Item 15A of the Central Excise Tariff. The Ld. Counsel, further, referred to the reasoning of the Collector whose only ground for classifying the product under Item 15A(2) is that mixing of Methyl Methacrylate and Polyester Resin amounts to co-polymerisation. It was contended that co-polymerisation covers simultaneous polymerisation of two monomers. Polyester resin, admittedly, is not a monomer. There is no evidence as to whether any polymerisation takes place and if so, whether it is simultaneous. Mere mixing of Polyester resin and Methyl Methacrylate cannot bring about any change in the mixture. Explanation 2 to Item 15A(1) specifically refers chemical synthesis. The Ld. Counsel pointed out that in the absence of this, the mixture of Polyester Resin and Methyl Methacrylate cannot be classified under Item 15A(1). Therefore, the product Krinklglas cannot fall under Item 15A(2). The Ld. Counsel, further submitted that the Tribunal had, in similar cases, held that the ratio of Supreme Court judgment in the Geep Flashlight Industries case is applicable and in this connection referred to the decision of the Tribunal in Texplas India Ltd. v. Collector of Central Excise -1989 (40) ELT 129 (Tribunal) wherein the Tribunal had held that the products concerning that case, namely, press moulding sheets, rings, tubes, spacers, etc. based on synthetic resin with fibre glass reinforcement will fall outside the scope of Item 15A(2). The Tribunal in that case also followed the decision in the case of Collector of Central Excise, Ahmedabad v. Melamine Fibre Board Ltd. -1988 (36) ELT 139 (Tribunal) which also gave the decision on the basis of Supreme Court judgment in the case of Geep Flashlight Industries in which the Supreme Court held that the articles made of plastic means article made wholly of commodity commercially known as plastics and not articles made from plastics alongwith other material. In the Texplas case, the same arguments, as in the Collector's order to distinguish the facts of the case from Geep Flashlight Industries, had also been repelled by the Tribunal. The Ld. Counsel also placed reliance upon the Tribunal's order No. 402/84-D, dated 20-7-1984 in the case of Jayant Dalai Private Ltd., Bombay v. Collector of Central Excise, Bombay -1990 (45) ELT 668 (Tri.). The goods involved there were Caprolactum Castings under the brand name "NYLOCAST". The Department sought classification of the goods under 15A(2) based on Deputy Chief Chemist's report since the raw-material Caprolactum was a monomer and not a plastic material. The Tribunal, in that case, considered the process of manufacture of the Monomer Castings and also the fact Caprolactum after being melted and poured into pre-heated metal moulds wherein polymerisation takes place and after a few hours, the castings are taken out of oven. The Tribunal also noted while deciding the case of Gujarat High Court in the case of Jalal Plastics Industries and Ors. v. Union of India and Ors. -1981 (8) ELT 653 (Gujarat) and the Rajasthan High Court decision in the case of Raish Plastics and Ors. v. Union of India -1983 (12) ELT 92 (Rajasthan). The Rajasthan High Court agreed with the Gujarat High Court judgment and held that articles made of plastics in Item 15A(2) means those articles in the manufacture of which plastic material is used as raw material but it does not include article made of non-plastic raw material which has undergone polymerisation in course of manufacturing process. The Tribunal followed this decision and held that Nylon Monomer Castings manufactured by the appellants, from Caprolactum did not fall under Item 15A(2) but w.e.f. 1-3-1975 were classifiable under Item 68 C.E.T. It was also submitted by the Ld. Counsel that the denial of exemption under Notification 38/73 is also not correct. The notification, itself, contemplates any artificial resin under T. 1.15A, as the exemption of acrylic sheets is available if produced out of any of the following materials or a combination thereof and the following materials are artificial resins or plastic imported in any form under Item 15A(1) scrap of plastic and Methyl Methacrylate monomer. Therefore, the denial of exemption is not correct. The Ld. Counsel also submitted that there was no ground for imposition of penalty as it has clearly been shown that there was no mala fide on the part of the appellants.
3. The Ld. D. R., Sh. Narasimha Murthy, for the Revenue, submitted that On limitation no support can be drawn from their application for Central Excise licence because it is not a detailed document regarding raw-material usage. The show cause notice is alleging not only suppression of facts, but mis-declaration by the appellants regarding true nature of their product. They had failed to give correct description of the goods, full particulars and exact position of the product. With reference to the classification list, the Ld. D.R. pointed out that there was absence of complete disclosure of particulars which was very necessary especially that they were claiming exemption under Notification 38/73. They also did not disclose that they were selling the product as modified acrylic. The verification carried out by the Department for drawback purposes is in respect of drawback under Customs Act cannot lead support to the appellants for classification of the goods under Central Excise Tariff. The Department, in that case, was only to look into the fact whether the inputs are actually used and whether they are duty paid. The Ld. D.R. referred to the appellants' letter to the Department dated 19-8-1985 to show that these sheets were not commercially known as such and in any case, the appellants had addressed this letter to the Superintendent and not to the Assistant Collector, who has to approve the classification list. The Ld. D.R., in the circumstances, justified invoking the longer period for demand and cited in support the Supreme Court decision in the case of Jaishri Engineering Co. (P) Ltd. v. Collector of Central Excise -1989 (40) ELT 214 (SC) for the submission that a mis-leading description of the product by the manufacturer would justify invoking longer period for demanding duty. As regards the merits of the case, the Ld. D:R. submitted that the Supreme Court decision with reference to different type of articles, namely, plastic torch, which is a product with plastic and other material. It was not in the context of the plastic sheets, etc. The material in the form of sheet made of plastic is included in Item ISA. The goods are not, according to the Department, comparable with the goods which form the subject-matter of the Supreme Court decision. The Ld. D.R. also relied upon the Gujarat High Court decision in the case of Bhor Industries Limited v. Union of India - 1980 (6) ELT 752 (Gujarat) which laid down that the articles made of plastic wherein the plastic should be used as a principal ingredient. The Bombay High Court in the case of Ravji Industrial Corporation v. Union of India and Ors. -1981 (8) ELT 734 (Bom.) held that corrugated roofings reinforced by fibre glass, will not cease to be an article of plastics. This decision was confirmed by the Bench of the Bombay High Court reported in 1989 (42) ELT 199. He also relied upon this Tribunal's decision in the case of KM. T. Fibreglass Industries, Calcutta v. Collector of Central Excise, Calcutta -1986 (23) ELT 194 (Tribunal) wherein it was held that fibreglass reinforced products will fall under Item 15A(2). The Ld. D.R., further, submitted that a notification, it is well settled is to be strictly interpreted and since Notification 38/73 exempts acrylic sheets, it cannot be extended to modified acrylic sheets. It was pleaded that the goods correctly fall under Item 15A(2) C.E.T. without being eligible for the notification being not acrylic sheet, but only modified acrylic sheet. The argument, as above, will also apply for the classification of the items under Central Excise Tariff Act 198S for heading and the product fibre glass being rigid plastic sheet will merit classification under Heading 3920.31. In reply, the Ld. Counsel pointed out that although the Collector, in his order, has found that polyester resin Methyl Methacrylate mixed polyester predominated, the test report of the product by the National Test House, dated 17-6-1985 shows that it is a mixture of polyester and Methyl Methacrylate, glass fibre 18.4 per cent and total polymer content is 81.6 per cent and had opined that the sample is regarded as Methacrylate modified polyester resin sheet. The Ld. Counsel, further pointed out that the case law cited by the Department regarding the merits of the case were without reference to the Supreme Court decision in the case of Geep Flashlight Industries. On the classification of the Item under Central Excise Tariff Act, 1985, it was pointed out that there is a factual inaccuracy in the order of classification of the material because the impugned order has been passed on the assumption that all the items made by the appellants represent sheets whereas in fact there are a variety of items which are cleared by the appellants. It was clarified that certain items like pyramids are like structures which are moulded articles prepared by moulding the krinklglas and this article, according to the appellants, would fall under Heading 39.22 for the period prior to 10-2-1987 and under Heading 39.26 thereafter. Illuminating signs, sign boards and art panels in the form in which they are cleared from the factory are clearly identifiable as intended for use solely and exclusively as sign boards, etc. Though they may vary in the form of sheet like items, they carry the necessary logo, name and description duly built in them even at the time of conception of the product in the factory and is therefore, classifiable as a part of illuminated signs under Heading 94.05 since the subsequent illuminated sign may be fabricated by the customer with a permanent light source attached to it. It was contended that if this it cannot come under Chapter 39 by virtue of Chapter Note 2(8) of Chapter 39. It was also submitted that for the period prior to March, 1986, the illuminated signs will not come under item 15A(2). The Collector's reasoning for ruling out classification under 94.05 has omitted to consider the implication of Chapter Note 2(5) to Chapter 39 in arriving at the classification of- these products.
4. The submissions made by the Ld. Counsel and the Ld. D.R., have been carefully considered. The issue is whether the product krinklglass and various items made is to be classified under T.I. 15A(2) CET or under Item 68 GET and subsequent to 28-2-1986 under Chapter 39 or 94 of CETA, 1985. In paras 3 and 4 of the appeal, the process of manufacture has been set out as follows:
"The process of manufacture may be set out briefly. The appellants use a number of raw materials namely Methyl Methacrylate Monomer, Polyester Resin, Cobalt, Naphathanate (accelerator), Methyl Ethyl Ketone Peroxide (catalyst), Glass Fibre Mat, Polyester Film and Pigments wherever required. All these items are purchased from the open market by the appellants. In the first step, required quantities of methyl monomer and polyester resin are put in a drum. Both MMA and Polyester resin are in liquid state. In the drum they are mixed together. It is significant to note that no chemical or any other reaction whatsoever takes place in this process of mixing. This stirring can be done manually. However, stirring is done for sake of convenience mechanically with the aid of electricity. One Kilogram of mixture contains about 300 to 500 gms. of MMA monomer and the balance quantity is polyester resin. Thus, it will be appreciated that very substantial and large quantity of MMA monomer is used by the appellants. To this mixture Cobalt Naphathanate (accelerator) is added. At this stage also no reaction whatsoever takes place. Mixing is once again done merely to ensure that the accelerator does not settle down in the bottom of the drum but spreads uniformly in the entire mixture. The required quantity of the mixture is taken out from the drum. Whenever coloured items are required, pigments are added. Here also, no reaction takes place. This mixture is now ready to be laid on the table for making the required items.
Just before pouring of the mixture on the table, Methyl Ethyl Ketone Peroxide (Catalyst) is added. Immediately after addition of the catalyst, mixture is poured on to a table. At this stage, fibreglass mat is placed on the table. Then a layer of Polyester film is placed on the table above the liquid and air bubbles are driven out manually. The material is allowed to remain in position for a required length of time, normally applied by the appellants. The material spreads and becomes hard and rigid. It is then taken out, cut to the required sizes and in case of out station delivery, packed in wooden crates and despatched to the customers. The process of making sign boards is slightly different and is being explained separately."
Item 15A(1) and 15A(2) Central Excise Tariff are as follows:
"Item No. 15A - PLASTICS
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Item No. Tariff Description Rate of duty
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1. 2. 3.
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15A. Artificial or Synthetic resins and plastic materials; and other materials and articles specified below:
(1) Condensation, Polycondensation and poly-addition Fifty per cent ad products, whether or not modified or polymerised, and valorem.
whether or not linear (for example, pheno-plasts, amino-
plasts, alkyds, polyallyl esters and other unsaturated polyesters, silicones); polymerisation and co-polymerisa-
tion products (for example, polyethylene, polytetraha-
loethylenes, polyiso - butylene, poly-styrene, polyvinyl chloride, polyvinyl acetate, polyvinyl chloroacetate and other polyvinyl derivatives, polyacrylic and polymethacrylic derivatives, coumaroneindene resins);
regenerated cellulose; cellulose nitrate, cellulose acetate and other cellulose esters, cellulose ethers and other chemical derivatives of cellulose, plasticised or not (for example, collodions, celluloid); vulcanised fibre; har-
dened proteins (for example, hardened casein and har-
dened gelatin); natural resins modified by fusion (run gums); artificial resins obtained by esterification of natural resins or of resinic acids (ester gums); chemical derivatives of natural rubber (for example, chlorinated rubber, rubber hydrochloride, oxidised rubber, cyclised rubber); other high polymers, artificial resins and artifi-
cial plastic materials, including alginic acid, its salts and esters; linoxyn.
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(2) Articles of materials described in sub-item (1), the following namely :-
Boards, sheeting, sheets and films, whether lacquered or metallised or laminated or not; lay fiat tubings not containing any textile materials.
5. The contention of the appellants is that the product krinklglas is not made wholly out of plastic material, as mentioned in Item 15A(1) because the starting point is a monomer and further there is an admixture of fibreglass for reinforcement which would all go to show that the item is not one which would come under T.I. 15A(1) GET and not being such a material the article made out of it will not fall for classification under T.I. 15A(2). The appellants have placed strong reliance on the decision of the Supreme Court in Geep Flashlight Industries case (supra) for this contention of theirs. They have also argued that this decision as well as further decisions of the Tribunal where it was followed, have been incorrectly appreciated by the Collector who had sought to distinguish the ratio of those decisions.
6. On a careful consideration of these submissions, we find that the Tribunal in the case of Texplas India - 1989 (40) ELT 129 had held that the product in that case, namely, press moulding for which the raw-materials were glass fibres, synthetic resins and following the Geep Flashlight Industries ratio had held that the item was correctly classifiable under 68 GET. The Tribunal had also repelled the arguments made before it that the facts before the Supreme Court relating to plastic torch were different from those of materials before the Tribunal, namely, press moulding. The Tribunal observed that "this argument of the Ld. Counsel does not convince us."
7. In para 3 of the judgment, the Supreme Court has, specifically, held that the articles made of plastic means articles made wholly out of plastic and not articles made out of plastic alongwith other material. In view of this ratio, for the purposes of classification under Item 15A(2) GET, articles made out of plastics should be those articles which are wholly made of plastics and not made from plastic alongwith other materials as in the present case. In another case of Wiltech India v. C.C.E., Bangalore -1988 (38) ELT 36 (Tri.), the appellants had relied upon the Tribunal's decision hi the VMT Fibreglass Industries v. C.C.E., Calcutta-1986 (23) ELT 194 in which it was held that the fibreglass reinforced glass and reinforced product corrugated and plain roofing, manufactured by the appellants having a composition of fibreglass mat and polyester resin was classifiable under 15A(2). The Tribunal, in that case, held that the decision hi the case of VMT Fibreglass cannot be followed in that case before the Tribunal hi view of the Supreme Court decision in Geep Flashlight Industries case (supra). The ratio of the Tribunal's decision in the case of Joyant Dalal v. C.C.E., Bombay, the details of which have been narrated supra in the Ld. Counsel's arguments, wherein the Tribunal had followed the decisions of the Gujarat and Rajasthan High Courts, is also in favour of the conclusion that the products which are not wholly made out of articles falling under 15A(1) cannot be classified under 15A (2) GET. In this case also, admittedly, the product is a combination of methyl methacrylate monomer acrylic polyester resin reinforced by fibreglass. There is, further, no chemical synthesis in the mixing of the raw-materials which is a requirement built into Tariff Item 15A(1). The test report obtained by the department from the National Test House would also go to show that the product is a mixture of polyester and methyl methacrylate glass fibre 18.4 per cent and polymer content percentage 81.6. Therefore, in view of the case law cited (supra), the product krinklglass being not wholly made of material covered by Item 15A(1) will not be classifiable under Item 15 A(2) of GET, but would be correctly classifiable under Item 68 of C.E. Tariff. As regards classification of the item under Central Excise Tariff Act, 1985, it is observed that there are no detailed findings by the Collector with reference to the Chapter Note 2(5) of the Chapter 39 with reference to the products and the claim of the appellants that some of the products which they make would be eligible under Heading 39.26 in view of the HSN Explanatory Note at page 1582 under Heading 94.05 wherein it has been stated that items of this nature would come under Heading 39.26. In the circumstances, it is felt that the classification of the product under GET Act, 1985 will have to be re-determined with reference to the various contentions of the appellants and having regard to the tariff description, Section and Chapter notes as well as the rules of interpretation of the C.E. Tariff. In this view of the matter, it will be appropriate to remand the case to the Collector for redetermining the classification of the products, herein, under GET Act, 1985 afresh after hearing the appellants in the matter and in accordance with law. As regards the point raised on limitation, it has been already held that the item krinklglass prior to 1-3-1986 will be assessable under Item 68 GET. The charge of suppression against the appellants, does not seem to be well-founded as is evident from the appellants' correspondence with the Department dated 19-8-1985 wherein they have given a reply regarding their product and the fact also remains that the samples had been drawn twice in April, 1984 and February, 1985. The Department is unable to rebut the further claim of the appellants that even the samples have been drawn in 1974 itself were described as modified acrylic sheet because the Department is unable to trace out the file. In the circumstances, the charge of suppression cannot be held to be established and the demand for duty, if any, will be effective from 19-8-1985. For the same reason, the penalty on the appellants is not sustainable and is set aside. The appeal is disposed of in the above terms.