Customs, Excise and Gold Tribunal - Delhi
Super Urethane Products (P) Ltd. vs Collector Of C. Ex. on 8 March, 1990
Equivalent citations: 1990ECR77(TRI.-DELHI), 1990(48)ELT310(TRI-DEL)
ORDER G.A. Brahma Deva, Member (J)
1. These five appeals involve common issues, hence they were heard together, clubbed and disposed of by this common order.
2. We have heard Shri A.K. Jain, the learned Advocate for the appellants and Shri A.S. Sunder Rajan, the learned DR for the respondents.
3. The first and foremost point to be decided in these appeals is whether rigid polyurethane foam is classifiable under sub-heading No. 3921.11/3921.90 as claimed by the appellants or under sub-heading No. 3909.60 as held by the authorities below under Central Excise Tariff Act, 1985.
4. Shri A.K. Jain, the learned Counsel for the appellants submitted that rigid polyurethane foam manufactured by the appellants is in the shape of bun i.e. form of block having geometrical shape which falls under sub-heading 3921.11 of the new Tariff and eligible for exemption under Notification No. 243/83-C.E., dated 9-9-1983. He explained that the Department grossly erred in classifying this item under the sub-heading 3909.60 on the two grounds:
(i) Blocks as such omitted under sub-heading 39.21 and
(ii) the goods in question obtained by reaction of two non-plastic chemicals i.e. rigid polyurethane foam is of 'primary form'.
5. The learned Advocate explained that though the term block as such is omitted under sub-heading 39.21 but it finds place very much in the Notes 10 of the Chapter 39 as blocks of regular geometrical shape and further according to Notes 6(b) of the same Chapter 'primary form' applies only to blocks of irregular shapes. It means blocks of regular geometric shape are not primary form. He said that the blocks cut by the appellants have a very consistent length and width. The height of the block is controlled by the discharge rate of the chemicals, the speed of the conveyor at the prevailing temperature. This being a regular geometric shape, comes under Tariff Item No. 3921.11. He submitted further that it is not the case of the Department, that they are not similar. In the absence of clear finding about irregular shape and dissimilarity the Department is not justified in classifying these blocks under 3909.60. In this connection, the learned Advocate drew our attention to the Board's Circular No. 10/89 dated 10-2-1989 issued after studying the various factors including opinion of the Deputy Chief Chemist on representation made by the appellants and he read the relevant para 4 of the Circular which reads as under:
"Accordingly, it is hereby clarified that if the polyurethane foam products obtained are in the form of blocks of regular geometric shape, that is to say are similar to each other in dimension like height, breadth, length and curvature whether or not printed or otherwise surface-worked, uncut or cut into rectangles (including squares) but not further worked (even if when so cut, they become articles ready for use) then, by virtue of Note 10 of Chapter 39, such products would merit classification under Heading No. 39.21 from 28-2-1986 onward. If the polyurethane foam goods obtained in the moulds are 'articles of polyurethane foam' classifiable under Heading Nos. 39.22 to 39.26, then such goods would be classifiable as 'articles of polyurethane foam' under Heading No. 39.22 during the period from 28-2-1986 to 9-2-1987 and under Heading Nos. 39.22 to 39.26 from 10-2-1987 onwards."
6. The learned Advocate submitted that the Board's circular is similar to Trade Notice No. 35/89 dated 21-2-1989 (Madras Collectorate and Hyderabad Trade Notice No. 46/89 dated 3-3-1989) and letter addressed to the appellants by the Board on 15-2-1989 which is in conformity with the nature of the product manufactured by the appellants. He emphasised that these circulars and Trade Notices are binding on the Department. In support of his contention, the learned Advocate cited the following decisions:
1. 1979 (4) ELT (J377) (Guj.) - Balkrishna Rechhodlal Shah and Ors. v. Asst. Collector of Central Excise
2. 1988 (38) ELT 741 (SC) - Collector of Central Excise v. Park Exports P. Ltd.
3. 1985 (5) ETR 16 (Tribunal) : 1984 (16) ELT 510 (Tri.) - Central Railway, Bombay v. Collector of Customs, Bombay
4. 1977 (1) ELT (J 67) (J 78) (Guj.) - Navgujarat Paper Industries v. Super-intendent of Central Excise
7. The learned Advocate submitted that the Department has not questioned the classification for the earlier period as rigid polyurethane foam falling under erstwhile Item 15A(3) of the old Tariff Act and the appellants were enjoying partial exemption upto the introduction of Central Excise Tariff Act, 1985 and after introduction of the new Tariff Act the appellants filed classification list claiming partial exemption in respect of rigid polyurethane foam falling under sub-heading 3921.11 under Notification No. 243/83 dated 9-9-1983. However, without approving the classification list the appellants were directed to pay duty. These classification lists which were kept alive altered the classification while approving at very late and that too modified the classification without issuing show cause notice prior to change of classification. Dictionary meanings, Board's opinion, intention of the legislation, historical background have to be taken into consideration while classifying a particular item. In the case of ambiguity or if two views are possible the benefit should go to the appellants. In this connection he relied on the following decisions:
1. 1986 (159) ITR 85 (90) - Commissioner of Income Tax v. J.K. Hosiery Factory
2. 1989 (177) ITR 583'-Mis. Kothari (Madras) Ltd. v. Agricultural Income Tax Officer
3. 1989 (22) SCR 339 (CEGAT 98-D) : 1990 (45) ELT 611 (Tri.) - Mis. Paharpur Cooling Towers F. Ltd. v. Collector of Customs, Bombay
4. AIR 1987 SC1073 - Ambica Quarry Works v. State of Gujarat and Ors.
5. 1982 1 SCR 629 (650)-K.P. Varghese v. Income Tax Officer, Ernakulam and Ors.
6. 1988 (38) ELT 564 SC - CCE, Guntur v. Andhra Sugar Ltd.
8. Shri Sunder Rajan, the learned Departmental Representative while countering the arguments submitted that the circular and Trade Notices which are inconsistent in nature are not binding on the quasi-judicial authorities and, however, its effect may be that the Tribunal is not bound by such circulars. It should be interpreted as specified in the statute and Tariff in this instant case is conclusive for the purpose of classification. Here the intention is also not clear in issuing such circulars, as circular says that the opinion of the Deputy Chief Chemist was taken into account but it adopted only para 7 of the opinion in coming to the conclusion that it is not a primary form, whereas the opinion is taken in to. It is clear that the rigid polyurethane foam manufactured by the appellants can be found bun like block can constitute primary form as per para 4 of the opinion. He argued that the arguments advanced by the appellants' counsel is taken as basis for classifying the product. No product can come under Heading 39.06 and it is not the intention of the legislature in inserting that heading. He stated that there is no change in old Tariff Item 15A(3) and what was worded in old Tariff 15A(3) is similarly worded under 39.06. The learned DR relied on the decisions of U. Foam Ltd., Hyderabad v. Collector of Central Excise [1983 (14) ELT 2502] and in the case Kay Foam Ltd. v. Collector of Central Excise [1982 (10) ELT 651].
9. Shri Jain, the learned Advocate in his rejoinder submitted that the report of the Chemical Examiner cannot be taken as basis, as he is not an authority to refer, as enumerated in the following cases:
1. 1983 (12) ELT 744 (Guj.) - Steadfast Paper Mills v. D.R. Kohli, Former Collector of C.E., Baroda
2. 1986 (23) ELT 471 (Tribunal) - N.P. Venkataraman Iyer v. C.C. Madras
3. 1983 (12) ELT 46 Bombay - Pidilite Industries P. Ltd. & Others v. Government of India and Ors.
The learned Advocate stated that the two decisions cited by the learned DR are not relevant to this case on the ground that the items are different in the first case and the second judgment never dealt with the present issue.
10. We have considered the arguments advanced by both sides on the issue of classification. It is evident as admitted by the appellants that the rigid polyurethane foam is in the form of bun like block. The term 'block' is omitted in the entry under Tariff 39.21. Now the point to be considered whether the block is of irregular shape or blocks of regular geometric shape. In view of the explanations under Notes 6(b) and Notes 10 of the Chapter 39, primary form is applicable only to blocks of irregular shape and if it is blocks of regular geometric shape it can be classified under 39.21 as explained in Notes
10. The contentions of the appellants' counsel that rigid polyurethane foam is block of regular geometric shape is not acceptable at this stage as it was clearly admitted by the appellants before the Adjudicating authority that the rigid polyurethane foam is obtained by chemical reaction of the chemicals and having irregular shape in block form and the product tested by the Department by National House, Calcutta confirms that the product is rigid polyurethane as per findings of the Additional Collector in its adjudication proceedings. Further, the process of manufacturing of rigid polyurethane was clearly explained by the Deputy Chief Chemist which is relevant and reproduced as under:
"I have studied the two representations dated 25-11-1987 and 7-4-1988 from Super Urethane Products Pvt. Ltd.
In essence, the question is whether polyurethane comes out in primary form in this factory to be classified under 3909.60.
The peculiarity with polyurethane rigid foam is that both the formation of the polymer polyurethane itself in the form of a foam and the predetermined shape of the foam occur simultaneously. The exceptions are very few and they are in the class of coating resins and adhesives where they are in the nature of prepolymers. Polyurethane is a thermoset polymer and therefore, once the polyol and isocyanate react to produce polyurethane, it cannot be shaped in a separate step after the polyurethane is formed.
The rigid foam blocks in question are formed by depositing a mixture of polyol, diosocyanate and an activator through a mixing head on a mobile tray by the technique known as Horizontal pouring. The mixing head also traverses back and forth across the width of the tray in order that the reactive mixture is deposited on the tray in ribbons, side by side, also across the width. The ribbon;;, so deposited rapidly rise and swell because of the reaction and the adjacent strips get fused together as they rise in the form of a foam. The significant point here is that the top of the block is open and consequently the ultimate foam has a curved irregular top looking like a bread or a bun. As the block is formed in continuous length, it is sawn off at measured intervals. What results from this process is several blocks of uniform length and width but not of uniform thickness. Therefore, such blocks would not perhaps be considered as having regular geometrical shape until the top curved surface is sliced away to make all the six surfaces of the block even and parallel to the opposite face. In this sense, the bun like block can constitute a primary form.
I agree with the views expressed in the notes of U.S. and D.S. that the factual position should be looked into and if the process details and nature of the products obtained given in the factory are more or less the same as those given in the preceding paragraph, then the blocks could be classified under 3909.60.
Perhaps such a classification is bound to create a disparity in the practice of classification before 1-3-1986 and after, to the disadvantage of the party. However, this is a fiscal matter on which I have no comments.
It is also necessary to point here that the view expressed in the case of blocks may not be applicable to specific articles made by pouring the reaction mixture into moulds. Here, no primary form is obtained before the formation of articles. The article results simultaneously with the formation of resin in the mould. The edges of such articles removed from the mould may require trimming to give precision to the shape, but before such trimming, the article cannot be considered as a primary form."
11. Accordingly as per para 4 of the opinion opined that the blocks would not perhaps be considered having regular geometric shape and in that sense bun like blocks can constitute a primary form.
12. The term block is specifically omitted under sub-heading 3921.11. Nothing is implied as there is no intendment nor equity in tax law. It has to be read, construed and interpreted as it is stated in the Taxing statute. In the absence of term block under heading 3921.11 and in view of the factual position, these blocks were of irregular shape even after taking into consideration the definition of primary form as explained in Chapter Note 6(b) and Notes 10 of Chapter 39. In view of the factual position, the department is justified in classifying this item, rigid polyurethane foam under sub-heading 3909.60. The contention of the appellant's counsel that the classification was modified without issuing show cause notice is not tenable in view of the fact that sufficient opportunity was given and detailed order was passed by the Assistant Collector after considering the written submissions filed by the appellants and they were heard in person. In the view we have taken, we uphold the issue of classification as held by the authorities below and appellants fail on this point.
13. Nextly, Shri Jain argued that the Department raised demand on RT 12 assessments without issuing a show cause notice for the period October 87 to January 88. He argued that issue of show cause notice is a must and mandatory and in the absence of show cause notice the demand is null and void. In support of his contention, the learned Advocate relied on the following decisions:
1. 1989 (39) ELT 617 (Tribunal) - C.C.E. v. Indian Iron & Steel Co.
2. 1988 (38) ELT 573 (SC)-C.C.E., Baroda v. Kosan Metal Products Ltd.
3. 1988 (35) ELT 349 (SC)-UOI and Ors. v. Madhutmilan Syntex P. Ltd.
4. 1978 (2) ELT (J 66) (Ker.)- Good Shepherd Rubber Co. v. Inspector of Central Excise, Palghat
14. The learned Advocate has drawn our attention to the letter dated 27-4-1988 in which the appellants specifically requested the Superintendent for issue of a show cause notice and he submitted neither it was complied with nor this point was considered by the Collector (Appeals) in his order though it was urged. He emphasised that the demand on RT 12 is similar to the demand under Section 11-A and particularly in view of the decision of the Supreme Court in the case of Madhumilan Syntex P. Ltd. and as clarified by this Tribunal in the case of Indian Iron and Steel Co., the learned Advocate requested this Tribunal to set aside the demands raised as it is void in the absence of show cause notice.
15. Shri Sunder Rajan, the learned DR while arguing on this point submitted that the demand on RT 12 assessments cannot be compared with that of the demand under Section 11-A and raising demand on RT 12 is only a requirement of Rule 173(I) of the Act. Non-issuance of show cause notice will not vitiate the proceedings and at best it can be treated as violation of principles of natural justice and he has no objection for sending the matter back to the Asst. Collector on this limited issue with the direction for issue of a show cause notice.
16. The point to be considered on the second issue is whether the demand raised without issuing show cause notice amounts to void or mere violation of principles of natural justice.
17. On perusal of the records it is evident that wherever the Department has raised demand on RT 12 it raised without issuing a show cause notice. The Kerala High Court had an occasion to examine Rule 173I in the case of Inspector of Central Excise v. Mis. Good Shepherd Rubber Co. (supra) and on some of the similar facts of the present case and while deciding the issue the High Court quashed the assessment on the ground that no show cause notice was issued under Rule 10 for recovery of short-levy. This ratio was confirmed by the Supreme Court in case of C.C.E., Baroda v. Kosan Metal Products Ltd. and Ors. (supra) and the same principle was followed by this Tribunal in the case of Indian Iron and Steel Co. (supra).
18. In the light of the above case law, the legal position is clear that even if there is a demand on RT12, a show cause notice has to be issued. Show cause notice is a must and post-facto show cause notice for demand of duty is invalid.
19. In the view we have taken, the demand raised on RT 12 assessments without issuing show cause notice is not sustainable.
20. In the result the appeal No. 1544/89 filed by the appellants is dismissed as it concerns only with the classification issue and in the rest of the appeals the Department fails on point of raising the demand on RT 12 in the absence of show cause notices for the periods in question.
21. Accordingly, the appeals are disposed of in the above terms.
D.C. Mandal, Member (T)
22. I agree with the order written by Brother Shri Brahma Deva. I, however, add the following in elucidation of paragraph 17 of his order :-
(i) In the case of Indian Iron and Steel Co. (supra), demands for duty short-levied were raised on the RT 12 returns and the show cause notice was issued on 28-11-1981 consolidating the RT 12 returns for the period. In paragraph 10 of the Tribunal's order dated 8-7-1988 it was held, "Legal position is clear that even if there is a demand on the RT 12, a show cause notice has to be issued. In the present appeal the show cause notice was issued well after the period of limitation provided by Section 11A, namely, 6 months." The Tribunal held in paragraph 11 of the order that the demand raised against the respondents was time-barred as the show cause notice was issued beyond the period of limitation. In the said case the Tribunal relied on the judgment of Kerala High Court in the case of Inspector of Central Excise v. Good Shepherd Rubber Co., Olavakkode reported in 1978 ELT 471 (Kerala) which has been referred to in paragraph 17 of the order written by Shri Brahma Deva. In Indian Iron and Steel Company's case (supra), the Tribunal, vide paragraph 9 of the order relied on the Tribunal's earlier decision reported in 1985 (20) E.L.T. 353 (Shree Yamuna Mills Co. Ltd., Baroda v. Collector of Central Excise, Baroda). In that appeal the appellants urged that the original assessment on RT 12 return was in violation of the principles of natural justice since no opportunity to present their case was offered to them and there was no notice to - show cause against the assessment at that stage, and that the notice to show cause issued subsequently did not result in a proper adjudication. The Bench held that the appellants were correct in their submission that the procedures had become vitiated in consequence of failure to afford an opportunity to be heard at the time of RT 12 assessment and to failure to ad-judicate on the notice to show cause subsequently issued.
(ii) The learned advocate cited inter alia two judgments of Supreme Court, vide Srl. Nos. 2 and 3 in paragraph 13 of foregoing order. In 1988 (35) E.L.T. 349 (S.C.) in the case of Union of India and Ors. v. Madhumilan Syntex Pvt. Ltd. (supra), the Hon'ble Supreme Court has held that Section 11A of the Central Excises and Salt Act, 1944 clearly proceeds that prior Show Cause Notice must be issued to the person against whom any demand on ground of short-levy or non-levy of payment of excise duty is proposed to be made. In 1989 (20) ECR 30 (SC) in the case of The Collector of Central Excise, Baroda v. Kosan Metal Products Ltd. (supra), the Hon'ble Supreme Court has observed in paragraph 4 of the judgment that Section 11A provides that when any duty of excise had not been levied or paid or had been short-levied or short-paid or erroneously refunded, a notice is to be served on the concerned person within a period of six months.
(iii) The judgment of Kerala High Court in the case of Good Shepherd Rubber Company, Palghat v. Inspector of Central Excise, Palghat and Ors., reported in 1978 E.L.T. (J 66) was upheld by the Division Bench of the same High Court in the judgment reported in 1978 E.L.T. (J 471) in the case of Inspector of Central Excise, M.O.R. Palghat and Another v. Good Shepherd Rubber Co., Olavakkode.