Customs, Excise and Gold Tribunal - Mumbai
Sharp Industries Limited vs Commissioner Of C. Ex. on 11 July, 2000
Equivalent citations: 2000ECR577(TRI.-MUMBAI), 2000(120)ELT825(TRI-MUMBAI)
ORDER Gowri Shankar, Member (T)
1. The question for consideration in this appeal is the classification of product manufactured by the appellant. This consists of aluminium foil, the thickness of which does not exceed .02mm and covered by one side polyester film and on the other polyethylene. The goods are cleared after printing of formed into containers, kept open one side and closed the other three sides by the appellant. The appellant had claimed classification of these foils and pouches under chapter 76 (foils under heading 76.07 and of the pouches under 76.12). The department was of the view that they are classifiable under heading 3920.38 and the pouches under heading 3920.90. Following the issue of show-cause notice and subsequent proceedings, the Commissioner's order confirmed the classification proposed. He also in addition imposed a penalty equal to the duty demanded of Rs. 3,38,90,754/- under section 11 AC and recovery of interest under section 11 A. Heading 76.07 reads as follows.
"Aluminium foil (whether or not printed or backed with paper, paperboard, plastics or similar backing materials) of a thickness (excluding any backing) not exceeding 0.2mm."
2. It is the contention of the advocate for the appellant that the heading being specific that the goods fall under this heading and not under the heading cited by the department which is for other plates, sheets, films, foils and strips of plastics, non-cellular and not reinforced, laminated, supported or similarly combined with other materials or no. He cites the decision of the larger bench of the Tribunal in Hindustan Packaging v. Collector -1995 (75) E.L.T. 313 and its decision in India Foils v. CCI -1998 (99) E.L.T. 101. Since the aluminium foil does not exceed thickness of 0.2 mm the ratio of decisions of the larger bench of the Tribunal will apply to the goods under consideration. The thickness or weight of the plastic, or its purpose itself is immaterial. Alternatively heading 76.07 is more specific than the other heading. The goods should be classifiable under it in terms of rule 1 of the Interpretative Rules for interpretation of the tariff. The Commissioner's reliance upon rule 3(b) of these rules therefore cannot be justified. The other persons producing, this commodity classified it under heading 76.07 and not under 39.20 and hence there cannot be any discrimination. The pouches are classifiable, it is claimed, under heading 76.12.
3. In his order the Commissioner finds that the goods being a composite article of plastic and aluminium, can be considered either as an article of flexible laminated foils of plastic or as an article of aluminium foil laminated with polyethylene. He therefore finds recourse to the Interpretative rules justified. He finds that in the material plastic predominantly over the aluminium in terms of thickness and weight, as seen by the chemical test. He refers to the explanatory Notes to the Harmonized System of Nomenclature to chapter 39, providing that classification of products consisting of plastic plates, sheets, foils, etc. separated by a layer of another material such as metal foil, paper, paperboards, etc. are covered by chapter 39 provided that they retain the essential characteristics of articles of plastic. He finds that the goods in view of the predominance of the plastic by weight have the essential characteristic of plastic. He distinguishes the Tribunal's decision in Hindustan Packaging v. Collector and India Foils v. CCE.
4. The question for consideration by the Tribunal in Hindustan Packaging v. Collector was the classification of aluminium foil backed by paper and polyethylene, with the thickness of the aluminium foil not exceeding 0.2 mm. The Tribunal noted that Note 1(b) of chapter 48 excluded metal foil backed paper or paperboards. It found that Note 1 to chapter 76 defined foil as product with the definition of foil containing in note 1 to chapter 76, refer to such foil whether or not backed with paper or plastic or other imposing material lead to the conclusion that the goods were classifiable not in the chapter 48 but under chapter 76. The emphasis by the Tribunal upon the exclusion from chapter 48 by metal foil backed with paper or paperboards is significant. By application of Note 1(G) to chapter 48 such foil would be excluded from classification under that chapter. We are, however, not concerned with the aluminium foil backed with paper or paperboards and therefore the Note 1(G) to Chapter 48 does not come into the picture. There is no such corresponding note in chapter 39. On the other hand the HSN Explanatory Notes referred to by the Commissioner shows that the products consisting of plastic sheets, plates, etc., separated by a layer of another material such as metal foil paper boards, etc. continue to be classified under chapter 39; provided that they retain the essential characteristics of articles of plastics. When such products could be classifiable under chapter 39, note to chapter 76 is also supported by the fact that (unlike in the case of aluminium backed with paper) there is no note in chapter 39 corresponding to note (m) of chapter 48 excluding from that chapter metal foil backed with paper or paper board. The decision of the Tribunal in India Foil v. CC -1998 (99) E.L.T. 101 will not help in choosing the alternative between chapter 39 and chapter 76. It was concerned with classification of aluminium foil pouches either under heading 76.07 or
5. There is no dispute that the products, foils, with which we are concerned, consists of two layers of plastics separated by a layer of aluminium. The advocate for the appellant contends that this aluminium foil is what is needed to make the pouches from out of the sheets, either by the appellant or the buyers of this product. Samples of such pouches or sheets intended to be converted into pouches were shown to us indicating that the products to be packed in consists of such variegated goods such as fertilizers, coffee powder, etc. That the aluminium foil is used to make containers of packing of goods is clear from the HSN Explanatory Notes to heading 76.07, which indicates its use inter alia for packing foodstuff, cigarettes, tobacco, etc. What we are concerned with however is not plain aluminium foil, but aluminium foil between two layers of plastic. It was explained to us that the internal layer of plastic is necessary, to prevent contact between the packed article and the metal and the aluminium which would result in contamination of that packed article. To that extent, it is the plastic that contributes to the essential characteristics of the foil. What the object was in the outer layer of the plastic was not explained to us. Obviously it has some use since no manufacturer would use it unless it was necessary. It is not in dispute that the plastic predominates over weight of the foil accounting for around two third of the total weight. Taking these aspects into account it is difficult for us not to conclude that it is the plastic that confers the essential characteristics of the product. In any event, in such a situation, it is rule 3(b) that will have to be resorted to since it will be evident from the precedent discussion that none of the rules preceding it would apply.
6. The reliance on the Supreme Court Judgment in CCE v. Cotspun 1999 (113) E.L.T. 353 to say that there cannot be no short levy when clearances are in accordance with the approved classification list would not help the appellant in view of the amendment carried out in Finance Act, 2000, is that this provision has the effect of nullifying the retrospective effect of the judgment of the Supreme Court in CCE v. Cotspun and similar judgment that there cannot be short levy in a situation where duty has been paid in accordance with an approved classification list.
7. On merits therefore the classification of both the foil and pouches will have to be confirmed under chapter 39.
8. The appellant, however, has a strong case with regard to limitation. The samples of the goods in dispute were drawn in 1991 and tested, the report of such test being communicated to the appellant by letter dated 27th February, 1991 of the jurisdictional Superintendent. Sample No. 34/90 and 43/90 referred to in this letter are described as printed/imprinted film composed of layers of aluminium foils sandwiched between outer layer of plastic film and of pouches made of such film respectively. The proportion of plastic by weight is shown to be 69.6% in the case of foils and 63.3% in the case of pouches. Therefore as a result of this test the department was fully aware of the nature of the product and of the predominance of plastic. Against this background the notice to show cause dated 2nd April, 1998 for clearance between 1st March, 1993 and 31st July, 1997 is clearly barred by limitation. The charge of suppression of composition of products contained in that notice for invoking the extended period will not be sustainable in the light of the department's knowledge, acquired eight previously, of the composition of the goods and the predominance of plastic in nature. The assessee had taken up this point in its reply dated 15-3-1999 to the show-cause notice dated 2-4-1998. The Commissioner has not recorded this point in his order or dealt with it. It appears that the department has not taken any action on this test report and initiated its action for short levy on the result of a further test report of samples drawn in January, 1998. Accordingly, the entire demand for duty contained in the notice dated 2nd April, 1998 will be barred by limitation as well as demand for clearances beyond six months from the relevant date contained in the notice dated 4th March, 1998 and 17th August, 1998. We are unable to determine this period exactly in the absence of dates of receipt of the notice by the appellant.
9. This position would hold true notwithstanding that we are unable to accept the contention that the circulars of the Board issued in 1989 and 1990 are contradictory and could give rise to doubts in the assessee's mind. The Board's circular No. 6/89-C.E., dated 16-1-1989 consider inter alia among other products that classification of printed plastic laminated with aluminium foils, opening being on either one would be under heading 76.07 if the thickness of aluminium foil did not exceed 0.2 mm. The circular No. 7/90-C.E., dated 23-2-1990 do not deal with such products but with a product containing a layer of aluminium foil in between two plastic films. It is significant to note that the HSN Explanatory Notes to chapter 39, which we have referred to above, consider the like products plastic sheets and supported by a layer of another material not a lamination of one layer upon the another. It would appear that such a lamination of aluminium foil of thickness less than 0.2 mm of plastic. The two circulars therefore deal with two different products.
10. Notice to show-cause dated 2nd April, 1998, which demanded duty by invoking he extended period, proposes penalty under section 11 AC and the other two notices proposed penalty under Rule 173Q. The Commissioner has imposed a penalty evidently with regard to all three notices under Section 11 AC of the Act read with Rule 173Q of the Act. Provisions of this rule will not apply with regard to the duty demanded in the show-cause notice of 2-4-1998, for the larger period since it was not invoked in the notice and in view of our finding that the extended period was not available to the department Section 11 AC also will not apply for the same reason. In view of this finding we have not considered it necessary to deal with the departmental representative's argument, that penalty could be imposed on a manufacturer who had evaded duty prior to 28-9-1996 the date of its enactment.
11. In our view penalty could not be imposed on the appellant under Rule 173Q either. As we have noted, the classification of the goods as claimed by the appellant had been approved even after the goods were tested in 1991, and continued to be approved not less than 8 years thereafter. If the departmental authorities themselves were satisfied, after subjecting the goods to testing, that they were correctly classified, there is no question of expecting the assessee to think to the contrary, to its own disadvantage. The appellant having conducted its affairs in accordance with what the department considered was lawful, we do not find any circumstances in the facts of this case for imposition of penalty. For the same reason as we have indicated with regard to penalty under Section 11AC of the Act, interest under Section 11AB also cannot be demanded. The penalty and the demand for interest are therefore set aside.
12. The appeal is therefore allowed in part.