Customs, Excise and Gold Tribunal - Delhi
Collector Of C. Ex. vs Cellulose Products Of India Ltd. on 26 February, 1993
Equivalent citations: 1993ECR429(TRI.-DELHI), 1995(75)ELT882(TRI-DEL)
ORDER
S.K. Bhatnagar, Vice President
1. This is an appeal filed by; the department against the order of Collector of Central Excise (Appeals), dated 3rd April, 1987.
2. The learned Departmental Representative stated that the respondents M/s. Cellulose Products of India Limited are manufacturers of Polyvinyl alcohol (PVA). The issues involved in this case are :
(i) Whether Polyvinyl alcohol was excisable?
(ii) If so, whether it was classifiable under CET Item 15A or 68; and liable to duty?
3. The respondents had claimed it as non-excisable.
4. The learned Assistant Collector had held it as excisable under Item 15A; thereupon the respondents had filed an appeal before Collector (Appeals), who has held that the product was classifiable under TI 68 of CET.
5. It was the department's contention that PVA was excisable and classifiable under TI 15A and liable to duty. Hence the appeal.
6. The Tariff Item 15A, as it stood during the relevant period, covered :
"Artificial or Synthetic resins and plastic materials; and other materials and articles specified" therein, including, inter alia, (1) "Condensation, polycondensation and polyaddition products, whether or not modified or polymerised, and whether or not linear"
(for example, unsaturated polyester etc.) "Polymerisation and co-polymerisation products."
(for example, polyethylene, polyvinyl chloride, polyvinyl acetate, polyvinyl chloroacetate and other polyvinyl derivatives etc.)"
7. It was their submission that polyvinyl alcohol is a derivative of polyvinyl acetate. It is manufactured by polymerisation processes. It is also linear and resinous. Hence it merited classification under Tariff Item 15A and was liable to duty accordingly.
8. It was also their submission that the Collector (Appeals) has examined the scope of exclusion clause... "Alcohol, all sorts, including alcoholic liquors for human consumption" appearing at (a) under Item No. 68. But, the question of such examination will arise only after it is established that the products PVA does not fall under Item No. 1 to 67 of the CET. Hon'ble Gujarat 'High Court has observed in the case of Darshan Hosiery Works v. Union of India 1990 E.L.T. 390 (Guj.) that the expression "not elsewhere specified" referred to in Item No. 68 means total omission or failure to be specified as goods in the First Schedule to Central Excises and Salt Act, 1944 either for the purpose of taxability or for the purpose of exemption from liability to duty. Therefore, once an article is found specified in any of items between Item No. 1 to 67, irrespective of the purpose for which they are specified Item No. 68 does not come into play. The product PVA falls correctly under Item No. 15A and not under TI 68. And Collector (Appeal's) application of clause (a) of TI 68 is incongruous.
9. The observation of Collector (Appeals) in para 28 of the Order in appeal that "polyvinyl alcohol can never be obtained through polymerisation process and is hence, not a polymerisation product" does not appear to be well founded as CEGAT in its decision in the case of Sun Export Corporation reported in 1986 (26) E.L.T. 1042 has held that PVA is a polymerisation product.
10. It was also their contention that in the case of Sun Exports the appellants had alternatively claimed assessment of PVA under TI 68 but the Tribunal had turned down their plea.
11. The amendment of TI 15A in the Budget of 1982 makes no difference as it has only resulted in merger of sub-items I and II into a single sub-item (1) and has not caused any substantial change. In any eventuality after the amendment the decision of the Tribunal classifying it under 15(A)(1) became even more appropriate and relevant.
12. It was also their submissions that Notification 129/81, dated 27-6-1981 clearly implies that PVA falls under Item 15A and not under TI 68.
13. It was also their contention that the learned Collector has erred in relying upon Bombay High Court's judgment in the case of Raman Lal Bhandari [reported in 1987 (27) E.L.T. 617] as the said case is not on all fours with the present one and is distinguishable.
14. The learned Collector (Appeals) has also relied upon Board's circular dated 1-10-1984 but the same was applicable only to commercially known alcohols falling under TI 68.
15. The learned Collector (Appeals) has on one hand considered it that PVA being an alcohol is covered by the language of TI 68 (a) and is statutorily exempt from duty. On the other hand he had restricted his findings for the period prior to the issue of Notification 121/81, dated 27-6-1981. This is improper for it would mean that the product will fall under TI 68 prior to 27-6-1981 but not thereafter. As there was no material change either in TI 68 or TI 15A and the order of the Collector (Appeals) was vague in this respect.
16. The learned Departmental Representative filed a copy of Collector's letter dated 26-11-1991 enclosing the process of manufacture of polyvinyl alcohol and reiterated that polymerisation takes place during conversion of vinyl acetate into polyvinyl acetate.
17. In response to questions from the Bench, he stated that after the polyvinyl acetate is hydrolised polyvinyl alcohol is formed but at this stage no further polymerisation takes place. Only by this process acetate gets converted into alcohol.
18. He further stated that the Department relies on the order of the Tribunal in the case of Sun Export Corporation 1986 (26) E.L.T. 1042 (Tribunal) which is an order specifically on the classification of polyvinyl alcohol. It has been held in that case that polyvinyl alcohol is a derivative of polyvinyl acetate, and is, therefore, correctly classifiable to duty under Item 15A(1)(ii) of the Central Excise Tariff and not under Item 68.
19. The learned Counsel drew attention to the cross-objection filed by them and the documents included in their paper book.
20. The learned Advocate contended that the product in question is alcohol which is obtained from polyvinyl acetate and at this stage no polymerisation takes place.
21. In response to questions from the Bench, he stated that whereas in their factory they start from vinyl acetate which is converted into polyvinyl acetate by polymerisation but the conversion from polyvinyl acetate to polyvinyl alcohol does not involve any polymerisation. It was rather impossible to take vinyl alcohol and produce polyvinyl alcohol therefrom (as the former was unstable).
22. He also stated that even if it was considered as a derivative of polyvinyl acetate it was not one of the types mentioned in Tariff Item 15A(1) or 15A(2).
23. He would also like to mention that the scheme of the Act and the Tariff has to be taken into account and understood in the light of the constitutional provisions particularly Entry 84 in List No. 2, and with reference to the context provided by them and Tariff Item 68 it will be found that it specifically excludes 'alcohol, all sorts'.
24. It was their contention that industrial alcohols are not covered by any of the item upto Item 67 and are excluded, by its proviso, from tariff Item 68 also; thus they are excluded from the Tariff as a whole. He would also contend that even if for argument's sake it was accepted that they use the manufacturing process described under Tariff Item 15A even then they will get excluded by virtue of Tariff Item 68.
25. However, their basic contention remains that the product being an alcohol was excluded from the purview of the tariff as a whole and was not excisable; but, even if it was included in any case, it will not be covered by Tariff Item 15A; it will also not be covered by Item 68.
26. In response to questions from the Bench, the learned Senior Advocate stated that in the market also polyvinyl alcohol is known and treated as alcoholonly and not as plastic or resin or a derivative of any of the chemicals mentioned in Item 15A. In this connection he would also like to rely on the order of Collector (Appeals).
27. It was his contention that the Assistant Collector had erred in understanding the chemical process and nature of the material in question and in treating it as a type of resin.
28, The learned Counsel also drew attention of the Bench to various observations and finding in the case of Sun Export Corporation, Bombay 1986 (26) E.L.T. 1042 and stated that the basic question with reference to Item 68 has not been answered. He would also like to state that in this order basically both the contending, sides were concerned with the dispute relating to the issue as to whether the product was classifiable under 15(A)(1)(i) or 15A(1)(ii) whereas in their case initially a question arose as to whether the relevant item was 15A or 68. It was their contention that neither of the two entries are attracted. He also drew attention to the extracts from the Technical Literature and stated that there is no doubt or dispute that polyvinyl acetate is a product of polymerisation but the product in question is polyvinyl alcohol made from polyvinyl acetate by hydrolysis.
29. In response to questions from the Bench both sides accepted the correctness of the process of manufacture as shown in the appellants' paper book as well as paper book now filed by the Collector.
30. We have considered the submissions of both the sides. We find that polyvinyl alcohol is an organic chemical produced by a multi stage process involving polymerisation. Actually vinyl acetate is polymerised to yield polyvinyl acetate which is hydrolysed to produce polyvinyl alcohol - a polymer. We are not concerned with the fact that vinyl alcohol monomer is unstable and we are also not concerned with the stage at which polymerisation takes place for these aspects are not relevant for our purpose. We are only concerned with the fact that polyvinyl alcohol has been described as an organic polymer in the technical literature (including the extracts thereof produced by the appellants themselves) and other internationally accepted standard works.
31. Thus for example Me Graw-Hill Dictionary of Scientific and Technical terms (Second Edition) describes Polyvinyl alcohol as "water soluble polymer made by hydrolysis of a polyvinyl ester (such as polyvinyl acetate)".
As per Encyclopaedia of Polymer Science and Technology (Volume I Page 149) "When a Polyvinyl ester, such as Polyvinyl acetate is hydrolysed, poly (vinyl alcohol) is obtained. This is, at present, the only industrial method of preparing this polymer."
As per the Condensed Chemical Dictionary Tenth edition revised by Gessner G. Hawley Polyvinyl alcohol "is a water soluble synthetic polymer made by alcoholysis of polyvinyl acetate."
32. The next question which crops up is whether polyvinyl alcohol could also be considered as a resin. In this connection it is interesting to note that the article on polyvinyl alcohol incorporated in the book called "water soluble resins" by Robert 'D' Davidson refers to the manufacture of Polyvinyl alcohol in the following words: "In producing polyvinyl alcohol resin a multi step process is used... ".
33. That apart the Encyclopaedia Brittanica (15th Edition) describes polyvinyl alcohol in the following words : "Polyvinyl alcohol, a colourless, water soluble, flammable resin belonging to the family of organic polymers... . The resin is used in sizing agents that confer resistance to oils and greases upon paper and textiles, to make films resistant to attach by solvents or oxygen, as a component of adhesives and emulsifiers and as a starting material for the preparation of other resins."
"Polyvinyl alcohol differs from most polymers in that it cannot be prepared directly from a simple compound of low molecular weight because the appropriate monomer, vinyl alcohol cannot be prepared. Polyvinyl alcohol is made by treating polyvinyl acetate with acids or alkalies; which remove the acetate groups without disrupting the long chain structure of the molecule.
34. From the above it can be easily seen that chemically speaking the product is a polyhydric alcohol in the nature of a water soluble synthetic resin belonging to the family of organic polymers.
35. We have already noticed that in the multi stage process by which it is produced, polymerisation takes place at one stage and the modification of the ester into alcohol takes place at another stage resulting in the formation of this polyvinyl derivative.
36. We also find that TI 15A CET covers, inter alia, artificial or synthetic resins in the production of which polymerisation was involved at some stage irrespective of whether or not they were modified or polymerised after initial polymerisation stage. This is apparent from the fact that the words "whether or not modified or polymerised" have been used in conjunction with the words condensation, poly condensation and poly addition products on one hand and have been followed by the words "whether or not linear" on the other. Again examples of "polymerisation and co-polymerisation products" include polyvinyl chloride, polyvinyl acetate and other polyvinyl derivatives. This is significant inasmuch as the item in question is apparently a resinous a polymer in the nature of a polyvinyl derivative.
37. This Item, (No. 15A of the CET) would, however, be attracted only if it could be shown that such products were covered by the Entry 84 in the list No. 1 - Union List included in VII Schedule in terms of Article 276 of the Constitution of India and were not hit by the exceptions mentioned therein. The Entry 84 reads as follows :
"84. Duties of excise on tobacco and other goods manufactured or produced in India except -
(a) alcoholic liquors for human consumption;
(b) Opium, Indian hemp and other narcotics drugs and narcotics, N.L. but including medicinal and toilet preparations containing alcohol or any substance included in sub-para (b) of this entry."
The corresponding entry in the List II of the State List i.e. Entry 51 reads as follows :-
"51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India :
(a) alcoholic liquors for human consumption
(b) Opium, Indian hemp and other narcotics but not including medical and toilet preparations containing alcohol or any substance including in sub-para (b) of this entry."
It is also apparent that only keeping in view these entries that the exclusion clause was incorporated in Item 68 GET. The relevant clause reads as follows :
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Tariff Item Description of goods Rate of duty No.
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68. All other goods, not elsewhere specified, but excluding -
(a) alcohol, all sorts, including li-
quors for human consumption;
(b) ...
(c) ...
Explanation:... ... ...
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38. With reference to the above context, we observe that it is well settled that in a statute the words and terms are to be considered in the sense they are normally used. And in a taxation statute apart from the common parlance we may also see in what sense they are used in trade parlance by the persons who usually deal with them in the normal course of their business.
39. It is also well settled that if one has to choose between the meaning or the sense in which a words is commonly understood, and the sense or meaning attached to it for scientific or technical purposes in that case normally the former has to be preferred to the latter unless intention of the legislature to the contrary could be shown. Keeping this in mind let us see how the word 'alcohol' has to be understood and how the clause 'alcohol, all sorts' including liquors for human consumption has to be construed.
40. To our mind a common man considers 'alcohol' to be a product in the nature of an alcoholic preparation including liquors, spirits and alcoholic beverages (as for example, whisky, beer, gin, rum and wine etc.). And if a common man was asked to purchase alcohol, we are reasonably sure, that he will go to a wine shop and purchase alcoholic liquors and beverages normally sold there; and we are equally sure that he will not go to a dealer in organic chemicals or industrial alcohols.
41. Similarly, in national and international trade, business and industrial circles also a distinction is drawn between alcoholic liquors and beverages on one hand and organic chemicals, whether in the nature of industrial alcohols, or otherwise, on the other.
42. This is reflected in the categories of types of products in which these items are classified in the Internationally recognised systems of product classification like CCCN and HSN (and the National Systems based thereon).
43. This will be evident from what follows :
Chapter 22 of HSN titled "BEVERAGES, SPIRITS AND VINEGAR" includes, inter alia, * * * * * *
44. It is significant that Monohydric as well as Polyhydric alcohols have been included in Chapter 29 but ethyl alcohol has been specifically excluded therefrom and included with alcoholic beverages and spirits including alcoholic liquors of human consumption under Chapter 22.
45. The above illustrations make clear the distinction between "alcohol, all sorts, including liquors for human consumption" as commonly understood by man in the street as well as man-in the trade on one hand, and the Organic Chemicals including those with OH group as part of their molecule and therefore chemically speaking alcohol in technical parlance, on the other.
46. The position becomes clearer if it is realised that no common man will normally call menthol or phenol as alcohol (although their molecules contain OH group) but any one would readily accept that whisky, wine or rum are alcohol.
47. It is equally significant that international trade and business circles also recognise Poly-hydric alcohol as an organic chemical falling under 29.05 HSN.
48. It is apparent from the above observations that the Entry 84 in the Union List of the Constitution could not be so read or interpreted as to exclude even organic chemicals in the nature of Polyhydric alcohols etc. merely because the later contained OH group in their molecule and are in a purely scientific and highly technical sense alcohols for that reason.
49. The above discussion also shows that the words "alcohol, all sorts, including alcoholic liquors for human consumption" mentioned in Item 68, CET, could not be also so read or interpreted as to include organic chemicals of the nature of polyhydric alcohol for the same reasons.
50. Hence the item in question i.e. polyvinyl alcohol can only be considered as an excisable product which is neither hit by constitutional provisions nor by the exclusion clause Tariff Item 68, CET.
51. Further being a resinous polymer it is classifiable under the Tariff Item 15A, CET.
52. As far as the Bombay High Court judgment in the case of Raman Kantilal Bhandari 1987 (27) E.L.T. 617 (Bom.) is concerned, it is observed that this case relates to import of Pentaerithericol in 1984. The assessment of the Item under Tariff Item 29 of the Customs Tariff was not challenged; but a question did arose whether for the purpose of countervailing/additional duty the item attracted Tariff Item No. 68, CET.
53. The importers claim for refund was rejected by the Assistant Collector as time barred under Section 27, CA '62. He filed a writ petition before the Hon'ble High Court of Bombay and urged, inter alia, that the CEGAT had held in April, 1983 that Tariff Item 68 refers to 'alcohol, all sorts' and all types of alcohol, the chemical description of which is certain, are excluded from purview of Item 68 and therefore, do not attract countervailing duty on import. It was further argued that the decision of the Tribunal was not only not challenged by the Department but was specifically accepted. And following it a circular was issued by CBEC. Not only that for an earlier period the Assistant Collector had himself allowed the refund in respect of the same product.
54. It was with reference to this context that the Hon'ble High Court considered the case as that of payment under mistake of law and entertained the petition. It noted that the Department had conceded that the expression 'alcohol' is a generic term while ethyl alcohol is a species, and still urged that Item 68(a) was strictly restricted to ethyl alcohol only. The Court also observed that the department had relied mainly on the affidavits of the Deputy Chief Chemist, the Customs Officers and the certificates issued by Dr. G.G. Nair, Director of Bombay Drug House; and in response to a specific query by the Bench had stated that "there is no other material available".
55. The Hon'ble judge came heavily on the department for trying to make "a desparate attempt to bypass the decision of the CEGAT and the circular issued by the Central Board of Excise" persuant thereto.
56. The Hon'ble Court observed, inter alia, that it was not impressed by the plea that the Tariff Item 68(a) should be restricted only to ethyl alcohol as they would render the words 'all sorts' redundant. The Hon'ble judge also found that the certificates issued by Dr. Nair could not be relied upon to conclude that in trade citcles the expression 'alcohol' means only ethyl alcohol.
57. In the matter before us the Tribunal's order of 1983 has been followed by another order of the CEGAT itself in the case of Sun Export Corporation 1986 (26) E.L.T. 1042 (Tribunal) which is par on the point of classification of the products in question namely Polyvinyl alcohol.
58. Furthermore, we respectfully agree with the Hon'ble High Court that the Tariff Item 68(a) is not restricted to ethyl alcohol only and it is incorrect to say that in trade parlance the expression alcohol means only ethyl alcohol. In other words we have also reached the same conclusion in this respect, albeit by a different route, and have concluded that the exclusion clause of the Tariff Item 68(a) not only covers ethyl alcohol but others also.
59. However, we have extended our inquiry further to show what these other products are. In this respect it is essential to emphasise, even at the point of repetition that in spite of an opportunity being given the department had not produced all the relevant material before the Hon'ble Court and had merely relied upon the affidavits of the Departmental Officers and certificates of Dr. Nair which were not found acceptable. And, in respect to specific query from Hon'ble Judge, stated that there is no other material available.
60. This was rather surprising as the Customs Officers of all the people could not possibly be unaware of the existence of B.T.N./C.C.C.N. an internationally recognised work utilised by Indian Customs day and night. Moreover, it appears that the attention of the Hon'ble Court was also not drawn towards even T.I. 15A CET - a relevant provision of law and one which was a technical item covering organic chemicals of specified types and amenable to technical interpretation. (It is also noteworthy in this context that classification of the product under TI 29 CTA for the basic customs duty purposes had not been challenged). In any eventuality, as aforesaid, we have also come to the conclusion that C.E.T. 68(a) is not attracted in our case, but our enquiry which was required to be extended in the above circumstances, goes to show that Item 68 covers alcohol all sorts including ethyl alcohol as well as alcoholic beverages, spirits and liquors for human consumption (classifiable under Chapter ,22 of HSN), but it excludes items classifiable as organic chemicals (even though their molecules may contain OH group). Such chemicals (covered by Chapter 29 HSN) would be classifiable under the appropriate heading in the Central Excise Tariff; And in so far as Polyvinyl alcohol is concerned it satisfies the ingredients of Tariff Item 15A as it stood at the relevant time.
Hence, respectfully following the Tribunal's order in the case of Sun Export Corporation, Bombay and Ors. v. CC, Bombay (supra) which is specifically about the classification of Polyvinyl alcohol and places it under Tariff Item 15A, we set aside the impugned order of the Collector (Appeals) and accept the department's appeal.