Customs, Excise and Gold Tribunal - Mumbai
Betts India Ltd. vs Commissioner Of Customs, Goa on 29 October, 2001
Equivalent citations: 2002(144)ELT588(TRI-MUMBAI)
JUDGMENT G.N. Srinivasan, Member (J)
1. This is an appeal filed by the appellants against the decision of the Commissioner of Customs & Central Excise, Goa, dated 20.2.2001, made in Order-in-Original No. 2/2001-COMMR whereunder he has classified the imported "PLASTIC LAMINATED FILMS" under heading 3920 of the Customs Tariff Act, 1975 and under heading 3920 of the Central Excise Tariff Act, and confirmed the differential duty amounting to Rs.1,86,73,889/- payable in respect of the above consignment of PLASTIC LAMINATED FILMS imported and cleared from January 1997 to April 200 vide bills of entry shown in the annexure to show cause notice under Section 28(1) of the Customs Act. By the said order he also confirmed the provisional assessment of bill of entry as finally assessed at tariff item 39.20 under Customs Tariff Act. He also imposed a penalty of Rs.1,86,73,889/- under Section 114A of the Customs Act.
2. The appellant before us is now known as Betts India Ltd., Goa, was previously known as Courtalds Packaging (India) Ltd. The appellants, Belts India Ltd., imported 'PLASTIC LAMINATED FILMS" and described the same as "CORE OF ALUMINIUM FOIL COVERED ON BOTH SIDES WITH PLASTIC FILMS" and sought to classify the same under chapter sub-heading 7607.19 of the Customs Tariff Act read with chapter sub-heading 7607.90 of CETA which incidentally relates to aluminium foil. The case of the department is that in plastic laminated films, the aluminium foils is not department is that in plastic laminated films, the aluminium foil is not backed but covered on both sides/embedded between four layers of plastic films (two on either side) and as such the imported films cannot be classified under chapter heading 76.07; further the structure of the imported film is LLDPE 110 m/PE white 45m/Alu. 30m/PE, 30m/LLDPE 60m, as a result the predominant material in plastic laminated film is LLDPE and PE i.e. plastic material; on the basis of the CBEC Circular No. 7/90-CX3 dated 23.2.1990 as modified by Circular No. 461/27/99-CX dated 11.6.1999, the plastic laminated films are classifiable under heading 39.20 of the Customs Tariff Act as plastic sheet foils separated by layer of aluminium foil. A show cause notice dated 30.7.1999 in respect of bills of entry dated 12.2.1999, 13.5.1999, 31.5.1999,8.6.1999 and 30.6.1999 was issued demanding differential duty of Rs.9,53,230/- due to wrong classification by the assessee under chapter 76.07 instead of 39.20 of the Customs Tariff Act. It came to light thereafter that the assessee was purchasing/procuring from India Aluminium Ltd., Kalwa identical PLASTIC LAMINATED FILM indigenously manufactured, wherein the same was classified under chapter 39.20 of the CETA paying appropriate duty. It is therefore claimed by the department that there has been suppression by the assessee in respect of the same material being procured indigenously which has been classified under chapter 39.20 but declared the classification of the imported plastic laminated films in the various bills of entry for clearance under 7607.19 under the Customs Tariff Act read with heading 7607.90 of the CETA. Therefore a show cause notice dated 1.5.2000 was issued invoking extended period of limitation demanding differential duty which is described in the first paragraph of this order.
3. The assessee objected to this by filing reply dated 5.6.2000 claiming inter alia that as far as the indigenously manufactured item is item is concerned, the same was procured by them from Indian Aluminium Ltd., and they claimed the classification of the product under heading 39.20 of the CETA, on the instructions of the department. Therefore the assessee importers cannot be held liable for suppression. As far as the bills of entry are concerned the classification has been claimed correctly as the aluminium has been sandwiched between polyethylene to have the barrier properties and prevention of moisture. This is the thrust of the arguments. It is no doubt true in the reply as well as during he course of the hearing before the adjudicating authorities, several case laws were cited and considered by the adjudicating authority and the adjudicating authority came to the conclusion that there has been a suppression and confirmed the duty demanded as well as imposed penalty. Hence the present appeal.
4. Shri V. Sridharan, learned Advocate along with the Shri R. Nambirajan, Advocate and Shri Gajendra Jain, Charted Accountant, appeared for the Assessee and Shri A.K.Jain, learned DR, appeared for the Department.
5. Shri Sridharan submitted at the outset that when a manufacturer of cosmetic industry uses the two materials namely polyethylene sandwiching the aluminium foil, the manufacturer tries to obtain maximum benefit out of the investment made by him in packaging the final product namely cosmetics. Traditionally, he cites the tooth paste which a cosmetic item was packed in aluminium package only i.e. aluminium tubes. Thereafter it was found that it is more convenient, cheaper and profitable to utilise for packing the cosmetic product with the help of LLDPE and aluminium foil. He states that two layers of LLDPE followed by the aluminium foil. He stated that two layers of LLDPE are used for packing tooth paste. The learned counsel further states that one of the advantages of using LLDPE is the other material will have better printing of the product ultimately marketed. He also cites several technical books and technical authorities to show as to why the product i.e. packaging material which consists of four layers of LLDPE sandwiching one layer of aluminium foil is for packing the cosmetic product namely tooth paste. He stresses the point that it is no doubt true that both aluminium as well as PVC i.e. LLDPE has barrier properties but usage of PVC is mainly for purpose of sealability and that aluminium foil gives essential character to the imported items. He invited our attention to the decision of the Tribunal in the case of Sharp Industries Limited v. CCE 2000 (120) ELT 825 where the Tribunal on the basis of the evidence before it came to the conclusion that the aluminium foil sandwiched between films of polyester and polyethylene and articles (pouches) thereof would be classifiable under chapter 39. He emphasises the fact that in paragraph 5 of the said judgment there was no discussion and that the technical data produced in the present case and placed before the tribunal is absent in that case. He also referred to the judgment of the Tribunal in the case of CCE v. India Foils Ltd. 2000(39) RLT 304 where a similar product has been classified not under sub-heading 3920 of CETA, 1985 but under sub-heading 7607.60. In the said judgment, the judgment of the Tribunal in Sharp Industries case could not have been cited because 2000(39) RLT 304 judgment is earlier in point of time. It must be mentioned here when the Tribunal decided the case of Sharp Industries Ltd. 2000(120) ELT 825 the judgment of the Tribunal in CCE v. India Foils Ltd. 2000 (39) RLT 304 was not cited before it. The said India Foils Ltd. judgment has been followed by ERB in Appeal No. ER-492/00 Order No. A1868-CAL/2000 dated 14.11.2000 in the case of Indian Aluminium Co. Ltd. v. CCE, Mumbai-Vi. It may be mentioned that Indian Aluminium Co. is the supplier of the product namely laminated films which has been referred to in page 2 of the impugned order. Therefore also, for the sake of repetition, we have to state that the ERB has classified the said product under sub-heading 7607.60.
6. Learned DR would however state that the impugned order has been rightly passed. He states that from the material given by the appellant himself the product in question should be classified as plastic film under heading 39.20 and he invited our attention to Book, PLASTICS IN PACKAGING written by A.S. Athlete, at page 117 of the paper book. In the same Book at 249 i.e. page No. 134 of the paper book, another Book titled FOOD PROCESSING TECHNOLOGY - PRINCIPLES AND PRACTICE written by P. Fellow page 431 paper book page 92; Kirk-Othmer ENCYCLOPAEDIA OF CHEMICAL TECHNOLOGY Fourth Edition Volume 11 pages 248& 249 mentioned at paper book pages 53-54; Book titled PLASTICS IN CONTACT WITH FOOD written by John H. Briston and Leonard L. Katan published by London Food Trade Press Ltd. at page 355 paper book 108; Board Circulars dt. 23.2.1990 and 11.6.1999 clarifying that the aluminium foil which has multiple laminations of polyethylene are to be classified under heading 3920 and not under heading 7607. He emphasises the fact that the so called qualities of barrier properties and sealability are prevalent even in LDPE at a lesser degree and he relies on specifically page 117 of the paper book. He also invited our attention to observation of the Tribunal in Sharp Industries (120) ELT 825 at 827 wherein paragraph 5 thereof the Tribunal held inter alia as follows- "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." He emphasises what is contained in the said paragraph 5 is applicable to the present case. He also invited our attention to page 74 of the impugned order where the adjudicating authority has emphasized as to the duty of the assessee to inform regarding local procurement, failure of which has resulted in suppression of the facts.
7. We have considered the rival submissions. The composition of the goods under consideration is not under dispute. It has been described as a product containing four layers of plastics sandwiching aluminium foil i.e. both sides containing two layers of plastics followed by aluminium foil thereafter plastics films. What could be the classification. The rival entries of the tariff reads as under:
"39.20 Other plates, sheets, film, foil and strip, of plastic, non-cellular and not reinforced, laminated, supported or similarly combined with other materials.
76.07 Aluminium foil (whether or not printed or backed with paper, paperboard, plastics or similar backing materials) of a thickness (excluding any backing) not exceeding 0.2 mm."
8. The learned counsel strenuously took us through various technical books which are itemised below.
8.1) Kirk-Othmer ENCYCLOPAEDIA OF CHEMICAL TECHNOLOGY, Fourth Edition, Volume 2, pages 248 & 249 (paper book page 35):-
"Packaging has replaced the building and construction industry as the largest consumer of aluminium in the United States because aluminium is impermeable to gas, resistant to corrosion, and recyclable. The most prominent has been the use of aluminium for beer and carbonated beverages. Over 95% of the beer and carbonated soft drinks are packaged in two-piece aluminium cans. Alloys 3004 and 5182 are used for can bodies and ends, respectively. Aluminium has long dominated the market for short, convenience-type cans with easy-open lids, which contain foods such as meat, pudding and fish; and it is beginning to make headway into the market for larger food cans (eg. pet food cans). Aluminium is also used in aerosol cans (see AEROSOLS), and as foil-plastic-paper laminates for packaging a variety of cereal, frozen food, and non-food products. Formed light-gauge sheet and foil are also used for frozen food trays, pie plates, and similar products (see FOOD PACKAGING).
The absence of any harmful reaction with the micro-organisms involved in the manufacture of pharmaceuticals is obviously important in this application of aluminium."
8.2) THE WILEY ENCYCLOPAEDIA of PACKAGING TEACHNOLOGY by Marily Bakker at pages 347 & 348 (Pages 51 & 52 of the paper book):
"Aluminium ha high resistance to most fats, petroleum greases, and organic solvents. Intermittent contact with water generally has no visible effect on aluminium otherwise exposed to clean air. Standing water in the presence of certain salts and caustics can be corrosives.
Aluminium resists mildly acidic products better than it does mildly alkaline compounds, such as soaps and detergents. Use with stronger concentrations of mineral acids is not recommended without proper protection because of possible severe corrosion. Weak organic acids, such as those found in foods, generally have little or no effect on aluminium. A clear vinyl coating, however, is recommended for use with tomato sauce and other acetic foods."
"When water-vapour or gas-barrier qualities are critical to the success of a packaging material, aluminium foil is usually considered. Aluminium foil containers are odourless, moistureproof, and stable in hot and cold temperatures. They were originally developed to supply bakers with cost-cutting disposable pie plates and bake pans."
"Foil lamination. In many laminations, light-gauge foil is the primary barrier against water vapour transfer. While creasing can create pinholes or breaks in this barrier, problems can be minimized by proper lamination (see Laminating machinery)."
8.2) DEVELOPMENTS IN FOOD PACKAGING-1 by S.J. Palling, Applied Science Publishers Ltd., London, page 24 (at page 84 of the paper book):-
"More recently the excellent barrier properties of thin aluminium foils have been fully exploited in the development of adhesive bounded laminated materials of paper/foil, foil/plastic and paper/foil/plastic. Dried foods like soups, particularly those sensitive to oxidation of constituent fats, may b e packed in sachets made from reel-fed paper/aluminium/polyethylene and the gas and moisture barrier properties of the metal foil produce a high integrity package giving an excellent product shelf life."
8.4) FOOD PROCESSING TECHNOLOGY - PRINCIPLES AND PRACTICE, by P. Fellows at page 428, 430 & 431 (paper book page 90, 91 & 92):-
"Aluminium foil This is produced by a cold reduction process in which pure aluminium (purity, greater than 99.4%) is passed through rollers to reduce the thickness to less than 0.152 mm and annealed to give dead-folding properties. The advantages of foil include a good appearance, dead-folding, the ability to reflect radiant energy and an excellent barrier to moisture and gases. Foil (more than 0.015 mm thick) is totally impermeable to moisture, gases, light and micro-organisms. It is widely used for wraps (0.0009 mm), bottle caps (0.05 mm) and trays are coated with vinyl epoxy compounds to make them suitable for microwave heating without damage to the magnetron. Foil is also used as the barrier material in laminated films, and aluminium is used to 'metallise' flexible films."
"Polyethylene Low-density polyethylene is heat sealable, chemically inert, odour free and shrinks when heated. It is a good moisture barrier but has a relatively high gas permeability, sensitivity to oils and poor odour resistance. It is less expensive than most films and is therefore widely used, including applications in shrink- or stretch-wrapping. Low-slip properties are introduced for safe stacking, or conversely high-slip properties permit easy movement of wrapped packs into an outer container. Stretch-wrapping uses thinner low-density polyethylene than shrink-wrapping does (25-38 um compared with 45-75um), or liner low-density polyethylene (17-24 um). Linear low-density polyethylene has a highly liner arrangement of molecules and the distribution of molecular weights is smaller than for lower-density polyethylene. It therefore has greater strength and a higher restraining force. The cling properties of both films are biased on one side, to maximise adhesion between layers of the film but to minimise adhesion to adjacent packages."
8.5) PLASTICS IN CONTACT WITH FOOD by John H. Briston and Leonard L. Katan, First Edition, London Food Trade press ltd., page 395 (paper book page 108 & 109):-
"The main non plastics substrates used are paper, fibreboard and aluminium foil. Paper and fibreboard contribute opacity, stiffness (at low cost) and paintability, while aluminium foil has additional properties, such as high temperature performance and impermeability to gases, water vapour, oils and greases. Above a thickness of about 25 microns, aluminium foil can be considered to have 100 per cent barrier properties, but below this it is liable to pinholing."
LAMINATES "Both aluminium foil and paper can be attractively printed and are thus often used as the outer component of a sachet or pouch, except where scuffproof decoration of extra gloss are required. In such cases, an outer ply of cellulose acetate or polypropylene may be added. The inner ply will be a thermo-plastic in order to give heat scalability."
9. On the basis of the above technical books, he stresses the point that the usage of plastics in aluminium foil is for heat sealing the package containing the cosmetics. If unnecessarily the final product which is not packed in the manner stated above exposed to moisture, will become a hard matter. He tries to emphasize the fact by quoting the HANDBOOK OF COSMETIC SCIENCE AND TECHNOLOGY, 1st Edition, by John Knowlton and Steven Pearce, page 259 of the said Book. It is stated therein as follows:-
"Although aluminium tubes were historically used for packaging almost all toothpastes, these have now been totally superseded by laminated tubes. The exact types of laminate used vary but are typically aluminium sheets that have been paper-printed and sandwiched between sheets of polyethylene. Polyethylene along cannot be used for tube manufacture, due to the so-called "memory" of the plastic, which describes its tendency to revert to its moulded from when distorted. The aluminium in the laminate overcomes this difficulty and also provides a barrier to prevent moisture and/or flavour loss.
Laminated tubes are sealed thermally, the polythene on the inside surface of the laminate providing two adjacent surfaces which can be sealed, under pressure, in this way. The polythene on the outside of the tube increases aesthetic appeal and provides protection for the pack graphics, which are printed on to the paper layer in the laminate."
10. He also emphasises that in case of doubt as to which gives the essential character to the product, he relies on rule 3(c) of the Interpretative Rules.
11. The learned DR in his arguments has cited:-
" 1. Description: Plastic Laminated Film (Core of Aluminium foil covered on both sides with plastic films)
2. Structure: LLDPE 110m-PE White: 45m-ALU: 30m PE 30m-LLDPE 60m.
3. Essential Characteristics: The product gets the essential characteristics from plastic material:
a) From the technical literature on PLASTIC AND PACKAGING written by A. Athlete published by Tata McGrow Hill Publishing Co., Ltd., New Delhi at page No. 138 of this literature at table 64 comparison of Barier properties of Aluminium Foil and polyethylene has been shown. This table shows that polyethylene which is used on both the sides of the Aluminium Foil in the product also have the resistance/barrier properties to Water vapour, Gas transmission, Odour, Water resistance and Oil resistance but of lesser grading than the Aluminium Foil.
b) the above mentioned literature in part 10 titled as Other Packaging Applications Techniques & Related Techniques at its page 249 indicates that in laminated tubes the inner layer of polyethylene provide both barrier protection and sealing medium.
c) In the literature titles Food Processing Technology - Principles & Practice written by P. Fellows and published by Woodhead Publishing Ltd., England at page 431 it is mentioned that linear low density polyethylene has a highly linear arrangement of molecules and the distribution of molecular weights is smaller than for low density polyethylene. It therefore has a greater strength and a bigger restraining force.
d) From The Wiley Encyclopaedia of PACKAGING TECHNOLOGY, at page 349, in the last sentence it is mentioned that it is a flexible package made from a laminate of three materials; an outer layer of polyester for strength a middle layer of aluminium foil as a moisture, light and gas barrier and inner layer of polypropylene as the heat seal and food contact material.
e) The book titled PLASTIC IN CONTACT WITH FOOD, written by John H. Briston and Leonard K. Kalan published by London Food Trade Press Ltd., at page 395 it is mentioned as under:
However, there still remain applications where plastics as a group cannot provide the whole answer, and the optimum solution is to use plastics in combination with other material, such as paper, tin plate, aluminium etc. From the above it may be concluded that in the product i.e. Aluminium Foil laminated both the sides, the plastics provides as a resistance barrier to moisture, light, gas, water and oil etc. While the inner layer of plastic is used for heat seal and food contact material also outer layer of plastic provides strength to product as well. As such in the role of the constituent material role of plastic is pre-dominating. Moreover plastic material used in the product has more weight and quantity in comparison to the Aluminium foil. Therefore it is plastics material which gives the essential characteristics to the product.
(4) Tariff description: Chap. Heading 76.07 interalia covers the Aluminium foil whether or not backed with plastic and not otherwise, HSN Explanatory notes of Heading 76.07 at page 1158 provides that provisions of HSN Explanatory Notes to heading 74.10 relating to copper foil apply mutatis mutandis to this heading. Explanatory Note D of heading 74.10 indicates that copper foil often backed with Aluminium foil either for convenience of handling transport in order to facilitate subsequent treatment etc. In he present case the Aluminium foil is laminated both the sides with plastic material and is being used for the convenience for handling transport or in order to facilitate subsequent treatment etc. Therefore it cannot be said that the product can be treated as Aluminium foil backed with plastic material to cover it with description of Heading 76.07 (5) Board's Circular: Both the Board's Circular No. 7/90-CX dated 23.2.90 and No. 161/27/99-CX dated 11.6.99 clearly provides that Aluminium foil which has multiple laminations of Polyester Polypropylene etc. are to be classifiable under 39.20 and not under 76.07.
(6) Case Laws: It is squarely covered by the case law reported in 2000 (120) ELT 825 Tribunal of Mumbai - in the case of M/s. Sharp Inds. Ltd. v. CCE Mumbai-III. Order dated 11.7.2000."
He also lays stress on the observations made by the Tribunal in Sharp Industries case.
12. The fact remains that the decisions rendered by ERB and WRB are of co-ordinate Benches but in Sharp Industries case we have to observe that technical material which has been provided in this case, were absent. The observations of Sharp Industries, to which great emphasis has been laid by the DR has to be tested with the technical date provided by the appellants before us.
13. In this connection we have to observe that the DR may be correct in observing about the barrier properties mentioned in pages 116 & 117 of the book titled Plastics in Packaging. As far as foil is concerned, it has got barrier properties. As far as LLDPE is concerned, it has got heat sealability and barrier properties. In the comparison of barrier properties of common flexible packing materials, aluminium foil has 10 grades for water vapour resistance, gas transmission resistance, odour water and oil resistance, whereas the grade for polyethylene for water resistance is 7, gas transmission resistance 3, odour resistance 3, water resistance 10 and oil resistance 5. It has been stressed by the DR by having two materials as a packaging material, the polyethylene effect is zero as sought to be propounded by the learned counsel is not correct but he stresses that it has got a lesser value. In fact in one of the barrier properties, it has got equal number i.e. 10. The argument is very attractive but it cannot be accepted because in our view all along historically the packaging material of the tooth paste was only aluminium. It was changed to polyethylene and aluminium foil. Why should the businessman spend money without any purpose? The purpose is to have better marketability. By having a single material used for packaging, i.e. metal or plastic, the food may be contaminated. We have to state that when the product has been marketed in this way therefore we have to take a practical view how to get it. It is to be pointed out and observed that the combined effect of both the products i.e. LLDPE and Aluminium have to be taken into account. The cost of each packaging material individually used and if it is used with the combination of another product if there is a benefit of the cost, it can also be one of the criteria which may be viewed from the manufacturer's point of view of utilising the same for packaging the end product. The learned counsel says the cost of plastic would be Rs. 60/- approximately per kg. As against aluminium which is approximately Rs.170/- per kg. The combined effect of cost as well as the utility of the packaging material in a combined way namely LLDPE plus aluminium foil for barrier property, vapour resistance and water resistance etc. should be taken note of.
14. In the case of Sharp Industries there is no discussion of technical aspects of the matter based on evidence, as there was no evidence submitted in Sharp Industries case. No doubt it has been stressed by the learned DR which is mentioned here by repetition, that in paragraph 5 that the internal layer of plastic is necessary for prevention of contact between the packed article and the metal and it has been observed by the Tribunal that to that extent it is the plastic that contributes the essential characteristics of the foil. But on the basis of technical literature produced before us, nobody can come to a definite conclusion as to which material namely either metal foil or the plastic gives the essential character to the product in determining the classification. Both materials give synergetic effect to achieve the objective of the assessee.
15. Another able argument of the DR is that in the case of India Foils (39) RLT 304, the material before the Tribunal for consideration was aluminium foil backed on one side with HDPE on the other side with printed polyester film which is not the product before us where we have two layers of LLDPE, polyethylene each sandwiching one layer of aluminium foil. This may be so. However, there also the aluminium foil was covered by plastics.
16. In our view, in the case before us, it is difficult to ascertain whether aluminium or the plastics give essential characteristics to the imported item. In that scenario we have to rely on the Interpretative Rules 3(c) to the Customs Tariff which says that when goods cannot be classified by reference to Rule 3(a) or (b), they shall be classified under heading which occurs last in numerical order among those which equally merit consideration. If Rule 3(c) is applied, then the imported items are to be classified under heading 76.07 as claimed by the appellants since between heading 39.20 and 76.07, 76.07 occurs last in numerical order.
17. We are not following the judgment of Sharp Industries because it lacks evidence which is present in this case. As far as India Foils case is concerned, there also, the technical literatures which have been given in this case, have not been given. It may be also observed that there it was a case of aluminium backed with HDPE. Here even though HDPE is not involved, but the fact remains,t eh aluminium foil has been used along with the LLDPE & PE, for taking the benefit of both the materials. It is therefore not possible for us to find which one of them gives the essential character, but both in a cumulative way give the benefit. We are therefore of the view that the product is classifiable under chapter 76, by recourse to Rule 3(c) of the Interpretative Rules. In view of this, there is no necessity for us to give findings separately for limitation aspect of the matter.
18. In the result, the appeal is allowed and the impugned order set aside.
(Dictated in Court)