Customs, Excise and Gold Tribunal - Tamil Nadu
Rane Brake Linings vs Cce on 30 March, 2007
Equivalent citations: 2007(118)ECC222, 2007ECR222(TRI.-CHENNAI), 2007(215)ELT144(TRI-CHENNAI)
ORDER P.G. Chacko, Member (J)
1. The dispute in this case relates to classification of what is called 'friction dust' for the period from 7.1.1981. For the prior period, it was classified under Tariff Item No. 15A(1)(i) of the old Central Excise Tariff as per order dated 24.2.1981 of the Assistant Collector of Central Excise as affirmed in Order-in-Appeal No. 483/81 dated 16.6.1981 of the appellate Collector of Central Excise and reaffirmed in Revisional Order No. 151/82 dated 6.3.82 of the Govt. of India. It may also be mentioned in this context that the writ petition filed by the party against the Government's revisional order was dismissed by the Hon'ble High Court of Delhi vide order dated 23.8.2001 in C.W.P. No. 2963/1982. The assessee accepted the above classification and accordingly paid duty for the period prior to 7.1.1981. For the subsequent period also, they had claimed classification of the same product under Tariff Item No. 68, this time relying on Tariff Advice No. 7/81 dated 7.1.1981 issued by CBEC. This claim as raised before the appellate Collector was disposed of in Order-in-Appeal No. 483/81 ibid as follows:
As to the contention that the product has to be classified as per the Tariff Advice No. 7/81 dated 7.1.81., I have to state that in the absence of details as to the resinuous characteristic or not of the product in the test report of Chemical Examiner, I cannot decide the issue. The appellants are asked to approach the lower authority and seek remedy as per the Tariff Advice.
2. The present proceedings originated from the aforementioned part of the appellate Collector's Order No. 483/81 dated 16.6.81. The appellant is took up the matter with the Assistant Collector and the latter issued a show-cause notice dated 9.7.81 proposing continuance of classification of the product under Tariff Item No. 15A(1)(i) de hors Tariff Advice No. 7/81 dated 7.1.81 ibid. The notice alleged that, as per the Chemical Examiner's report already communicated to the noticee, friction dust was a phenolic resin with resinuous properties classifiable under the above tariff item and continued to be so even after issue of the said tariff advice. It also asked the appellants to show cause why (a) they should not take out a licence under Rule 174 of the Central Excise Rules, 1944 in terms of the above classification (b) duty should not be recovered from them for the period from 7.1.81 under Rule 10 of the said rules/Section 11A of the Central Excise Act and (c) future assessments of the product should not be done under the above tariff item. In their reply to the show-cause notice, the appellants refused to accept the Chemical Examiner's report and asserted that their product had no resinuous properties so as to be classified under Tariff Item 15A(1)(i). In this connection, they relied on test certificates issued by (1) Central Leather Research Institute [CLRI], (2) the Department of Chemical Technology, University of Bombay and (3) the Department of Chemistry, University of Manchester. The appellants also suggested that a sample of the product be sent to the Chief Chemist, Central Revenues Control Laboratory (CRCL), New Delhi for test and report. The Assistant Collector sent a sample to the Chemical Examiner and obtained his report dated 23.9.1981 which took the view that friction dust should be treated as a phenolic resin. A copy of the Chemical Examiner's report was submitted to the appellants, who, still not satisfied, reiterated their request for retest by the Chief Chemist, CRCL, New Delhi, which was not acceded to. The Assistant Collector, after considering the Chemical Examiner's test report and retest report, held that friction, dust being a condensation product and phenolic resin required to be classified under Tariff Item No. 15A (1)(i) for the period from 7.1.1981 also. Accordingly, he directed the appellants to take out central excise licence under Rule 174 and observe other central excise formalities in respect of the product classified under the above tariff item. Duty of excise was also demanded in respect of the clearances made from 7.1.1981. Against this decision of the Assistant Collector communicated in order dated 21.11.1981, the appellants filed a revision application with the Collector of Central Excise, wherein they urged that a sample of their product be tested at CRCL, New Delhi. They also undertook to pay duty on the goods if the CRCLs analysis report went against them. The party's request was favourably considered by the Collector, who collected remnant samples from the Chemical Examiner, Madras and sent the same to CRCL, New Delhi for retest. The Chief Chemist, CRCL, upon retest of the samples, opined that the product in question be considered as a plastic material (phenol-formaldehyde) classifiable under Tariff Item No. 15A(1)(i) as 'phenoplast'. Considering the Chief Chemist's findings, the Collector upheld the decision of the lower authority. Against the Collector's decision, the party approached this Tribunal, which remanded the case to the Collector for fresh decision after supplying a copy of the Chief Chemist's report to the party and giving them an opportunity of being heard vide Order No. 568/1987-C dated 29.7.1987 of the Special Bench 'C' of the Tribunal. Pursuant to the remand, the Commissioner of Central Excise, Chennai - II passed Order-in-Original No. 9/2005 dated 30.5.2005 confirming classification of friction dust manufactured by the appellants since 7.1.1981, under Tariff Item No. 15A(1)(i). Hence the present appeal.
3. Tariff Item No. 15A(1)(i) is reproduced below:
Item No. Tariff Description 15A Artificial or synthetic resins and plastic materials and cellulose esters and ethers, and articles thereof--
(1) The following artificial or synthetic resins and plastic materials, and cellulose esters and ethers, in any form, whether solid, liquid or pasty, or as powder, granules or flakes, or in the form of moulding powders, namely:
(i) Condensation, Polycondensation and poly addition products, whether or not modified or polymerized, and whether or not linear such as Phenoplasts, Aminoplasts, Alkyds, Polyamides, Super polyamides, Polyesters, Polyallyl esters, Polycarbonates, Polythesters, Polyethylene imines, Polyurethanes, Epoxide resins and silicones;
Relying on the Government of India's Revisional Order dated 6.3.1982 and the Chief Chemist's report, learned Commissioner, in the impugned order, held that friction dust was a 'phenoplast' with resinuous properties appropriately classifiable under the above tariff item, and could not be classified under the residuary Tariff Item No. 68 ("all Other goods not elsewhere specified"). He also noted that Tariff Advice No. 7/81 dated 7.1.81 of CBEC pertained to ion exchange resins and not to other resinuous materials like friction dust and therefore the tariff advice was not applicable to the goods under classification.
4. There is no dispute regarding the process of manufacture of friction dust, which is obtained by heating Cashew Nut Shell liquid [CNS liquid, for short] with carbon black, sulphuric acid, hexamine, etc. in a kettle and grinding (powdering) the resultant hard mass into particles of the requisite size followed by sieving. The product has good thermal conductivity and resistance to high temperature and is used in brake linings and clutch facings due to its good abrasion resistant property. CNS liquid contains phenol, and Hexamine is a formaldehyde-donor. The factual position settled in the proceedings relating to the period upto 6.1.81 is that, when CNS liquid is heated with hexamine in the presence of sulphuric acid (catalyst), a chemical reaction called condensation takes place resulting in the formation of phenol-formaldehyde condensation polymer. In the heating process, water gets removed through evaporation and the dehydrated resin becomes a hard mass. It is powered and sieved to get particles of requisite size. This product is a thermosetting resin which will not undergo any change on further heating. It is on account of this resistance to high temperatures that it is used in brake linings and clutch facings. After considering the Chemical Examiner's first report dated 24.5.77 (which reported that the sample was composed of phenolic substance, carbon black and nitrogenous compound and that it possessed resinuous property) and his second report (which reported that the sample was a cured resin) and after consulting technical literature on resins and plastics, the Assistant Collector, in the proceedings relating to the period prior 7.1.81, found that friction dust was a phenolic resin manufactured by the process of condensation and was therefore classifiable under Tariff Item No. 15A(1)(i). The Assistant Collector's decision was affirmed by the appellate Collector and reaffirmed by the Govt. of India and that decision was accepted by the assessee after their writ petition against the Govt.'s order was dismissed by the Delhi High Court.
5. We have heard both sides and considered their submissions. The assessee's case as made out by their Consultant is that friction dust has no resinous property and therefore the question of classifying it under Tariff Item No. 15A(1)(i) did not arise on account of CBEC's Tariff Advice No. 7/81 dated 7.1.81. In this connection, reference has been made to the Chief Chemist's report which said that the sample did not show thermoplastic property and was not heat-fusible. Learned Consultant has relied on this report to submit that the product is not capable of being moulded into articles of plastic and hence cannot be a resin. He has also relied on the test certificates of CLRI, University of Bombay and University of Manchester, which also stated that the product was not fusible. On the basis of these materials, it has been claimed by learned consultant that friction dust has no resinous property and hence not classifiable under Tariff Item No. 15A(1)(i) in terms of Tariff Advice No. 7/81. On the other hand, learned SDR has submitted that this tariff advice cannot be made applicable to a condensation (polycondensation) product like friction dust. It is applicable only to copolymerization products. Tariff Advice No. 7/81 reads as under:
ION EXCHANGE RESINS [TARIFF ITEM 15A OR 68] It is considered that --
(i) Since Copolymerisation product is one form i.e. co-polymer beads have been produced the same is classifiable under Item 15A(1)(ii) and
(ii) When these copolymer beads are further treated to manufacture Ion Exchange Resins such resins may or may not have resinous characteristics. Where the Ion Exchange Resins are found on test to have resinous characteristics the same would be classifiable again as modified forms of, co-polymer product (co-polymer beads) under Item 15A(1)(ii) subject to adjustment of duty paid at the earlier stage as already provided in the Central Excise Rules, 1944. However, when such resins do not have resinous characteristics, the same would fall outside the purview of Item 15A(1)(ii) and be properly classified under Item 68 of Central Excise Tariff.
We note that the Tariff Advice is clearly to the effect that a copolymerization product in the form of beads would be classifiable under Tariff Item No. 15A(1)(ii) and that when such beads are further treated to manufacture ion exchange resins, such resins would be classifiable under the said Tariff Item if they have resinous characteristics and under Tariff Item No. 68 if they have no such characteristics. As rightly pointed out by learned SDR, the above Tariff Advice did not at all deal with products of condensation polymerisation. It dealt with only copolymerization products and ion exchange resins resulting from further treatment of such products. In the present case, as we have already noted, it is a settled fact that friction dust is manufactured by the process of polycondensation involving phenolic compounds [contained in CNS liquid] and formaldehyde [provided by Hexamine] as monomers and sulphuric acid as catalyst. Chemical literature shows that, in polycondensation, different monomers (small organic molecules) react to form a polymer (large organic molecule) with elimination of simple inorganic molecules like H2O(water). In the present case, molecules of phenolic compounds (monomers) and formaldehyde (monomer) combine to form the polymer called 'phenol- formaldehyde' with the elimination of H2O molecules. This process is polycondensation and not copolymerization. According to chemical literature, copolymerisation is an addition reaction (as contradistinguished from a condensation reaction) in which molecules of two or more different monomers combine to form a polymer. There is no formation of H2O or other inorganic molecules while this addition takes place between organic monomers to form the organic polymer. Therefore, we hold that Tariff Advice No. 7/81 dated 7.1.81 is not applicable to the goods in question and, for that matter, the apex Court's judgments (relied on by learned consultant) in Collector v. Jayant Dalal Pvt. Ltd. (wherein a Tariff Advice was held to be binding on the Revenue) and Ranadey Micronutrients v. Collector (wherein CBEC's circulars were held to be binding on the Revenue) are not relevant.
It is also pertinent to note that the Tribunal's remand order, pursuant to which the Commissioner passed the impugned order, had not referred to the Tariff Advice. Nevertheless, the Commissioner, in his fairness, considered its applicability as the assessee had heavily relied on the same. Learned consultant made an attempt to 'salvage' the Tariff Advice by referring to BTN Explanatory Notes on 'phenoplasts', which said that certain artificial resins of phenol-formaldehyde type were ion exchangers. But the Explanatory Notes which he referred to treated all phenoplasts (including phenol-formaldehyde resins) as condensation products. On the other hand, the Tariff Advice was dealing with only those ion exchange resins which resulted from further treatment of copolymers and not of condensation polymers.
6. Learned SDR has relied on Tariff Advice No. 21/80 dated 6.5.1980 of CBEC and Trade Notice No. 165/80 dated 28.11.80 of Commissionerate of Central Excise, Bombay - II. The said Tariff Advice was specific for 'friction dust' manufactured from CNS liquid and the same is as under:
Products of the type such as friction dust obtained by treatment of CNS liquid (whether or not self polymerized) with paraformalehyde, etc. would be classifiable as artificial or synthetic resins under Item 15A of the Central Excise Tariff.
The said Trade Notice clarified thus:
It is clarified for the information of the trade that all artificial or synthetic resins and plastic materials derived from self polymerization and/or condensation of natural products like linseed oil, CNSL oil, Caster Oil, are not liable to duty under 15A. However, products of the type such as friction dust obtained by treatment of cashew nut shell liquid (whether or not self polymerized) with paraformalehyde, etc. are classifiable as artificial or synthetic resins under Item 15A of the Central Excise Tariff.
It was submitted by learned SDR that the above Tariff Advice was never withdrawn and therefore would be applicable to classification of 'friction dust' for the period from 7.1.1981. Learned consultant argued that the above Tariff Advice was impliedly superseded by Tariff Advice No. 7/81 dated 7.1.81. But we have already held that the second Tariff Advice is not applicable to friction dust based on condensation polymer. Therefore, there is no question of the first Tariff Advice being superseded by the second. Tariff Advice No. 21/81 ibid is specific for friction dust manufactured from CNS liquid in the manner it was manufactured by the appellants during the period of dispute. The appellants have no case that the said Tariff Advice was withdrawn or that it was superseded by any subsequent commodity-specific Tariff Advice. Therefore, we have to hold that Tariff Advice No. 21/80 dated 6.5.80 continued to govern classification of the subject goods for the entire period of currency of the old Central Excise Tariff.
7. Contentious arguments were also made with reference to the Chief Chemist's report also. The Chief Chemist's letter dated 3.5.1982 and the 'Note' attached thereto are reproduced hereunder:
C. No. 22-EX.O./82 New Delhi, the 3rd May, 1982 From The Chief Chemist, Central Revenue. To The Additional Collector, o/o the Collector of Central Excise, Madras Sir,
Subject: Central Excise - Friction Dust -Classification of M/s. Rane Brake Linings Ltd. -Retest of - Reg.
******* Please refer to your letter C.No. V/15A/30/12/81 CXI dated 18.1.82.
The sealed remnant sample forwarded by the Deputy Chief Chemist, Madras vide his letter I 2635/81 dated 23.12.81 was registered here under C.I. No. 7(r) dated 2.1.82 and analysed with the following results:
The sample is in the form of black powder. It is composed of phenol-formaldehyde type of polymeric substance and carbon black. It is neither heat fusible nor soluble in common organic solvents.
Please see note attached.
Sealed remnant sample is being returned to you separately by registered post parcel.
Yours faithfully, Sd/-
(KESHAV PRASAD) CHIEF CHEMIST, CENTRAL REVENUE Note attached to the Chief Chemist's report C. No. 22-ex/082 dated 3.5.82 The manufacturing process of the product under reference as seen from the papers forwarded by the Dy. Chief Chemist, Madras is as follows:
The refined cashew nut shell oil is directly heated in a kettle and during the process of heating it is mixed with chemicals like sulphuric acid, Hexamine (formaldehyde donor) etc. The heated material takes the shape of a sponge. It is then dried in the oven and in open atmosphere and allowed to cool. The materials then become hard and this hard material is ground to the required particle size.
It is seen from the literature available here that CNSL (cashew nut shell liquid) known to react with formaldehyde and the cross-linked (cured) products becomes rubbery, infusible and insoluble solids. Fully cured polymers are also ground for use as friction dusts in brake linings composition where they reduce "fade" i.e. the face in coefficient of function with increase in temperature. Its function in the brake lining composition is as friction augmenting agent. CNSL is a natural source of phenolic bodies.
Item 15A reads:
Artificial or synthetic resins and plastic materials in any form....
The general note on artificial resins and plastic material occurring in CCCN Ch. 39 in the light of which the item 15A was recast in the year 1964 is cited below:
Artificial resins and plastic materials are products of various kinds and different constitution having the common characteristic of plasticity that is of being capable or of having been capable at some stage of being formed under external influence into shapes which are retained on the removal of external influences.
The term plastic material according to literature is usually reserved for the end product of the process even though there may only be a plastic intermediate stage.
The phenolic resin constituent of the sample has undergone high degree of cross-linking (curing) and therefore, the common thermoplastic behaviour is not reflected. A cured product of this type composed of cured polymers and fillers in my opinion, may be considered as plastic material (phenol formaldehyde) classifiable as phenoplasts under item 15A(1) of CET as phenoplast.
Sd/-
CHIEF CHEMIST, CENTRAL REVENUE
8. The appellants would rely on the Chief Chemist's finding that the product did not reflect any thermoplastic behaviour and, on this basis, they would content that it had no resinous character. The Chief Chemist found that the phenol-formaldehyde polymer (phenolic resin) constituent of the sample had undergone high degree of cross-linking (curing) and hence the thermoplastic behaviour was not reflected. Further, after considering the general note on 'artificial resins and plastic materials' in Chapter 39 of CCCN (BTN), based on which Tariff Item 15A was recast in the year 1964, he held that the product was classifiable as phenoplast. This finding of the Chief Chemist was accepted by the appellants. As a matter of fact, they had undertaken before the Collector (revisional authority) that they would abide by the findings of the CRCL and pay duty if such findings went against them. Their present challenge against the above finding cannot be entertained. The Chief Chemist also held the item to be classifiable under Tariff Item 15A(1)(i). We agree with the appellants when they say that it was not the function of the Chief Chemist to embark on classification of goods under the tariff. But it was very much within his domain to report on the chemical composition of the sample supplied to him, on the basis of test results, method of manufacture and technical literature. The opinion so formed by the Chief Chemist to the effect that the sample was composed of cured polymers and fillers and could be considered as plastic material (phenol-formaldehyde) classifiable as 'phenoplast' is purely a technical opinion and the same has to be accepted. It cannot be questioned by the appellants, who had pressed for a test by CRCL and had undertaken to abide by it. Even if the Chief Chemist's recommendation for classification of the product under Tariff Item No. 15A(1)(i) is ignored, his finding that it may be considered as a plastic material (phenol-formaldehyde) classifiable as 'phenoplast' is liable to be accepted by the authorities to classify the item under Tariff Item No. 15A(1)(i).
9. The appellants have relied on the test certificates of CLRI, University of Bombay (Department of Chemical Technology) and University of Manchester (Department of Chemistry) in support of their case that friction dust has no resinous character. It is true that these agencies certified samples of the product to be infusible. Their report is in no way different from what was reported by the Chief Chemist inasmuch as the latter also found that, on account of a high degree of cross-linking (curing), thermoplastic behaviour was not reflected in the sample. The report of the Chief Chemist, if correctly understood, is to the effect that any plastic material developed from a phenolic resin is a 'phenoplast'. Tariff Item No. 15A covers 'artificial or synthetic resins and plastic material and....' It nowhere specifies that the plastic material must be thermoplastic material. It could be thermosetting plastic material also as found by the Assistant Collector in the proceedings for the pre-7.1.1981 period, which finding was upheld at higher appellate and revisional levels. Further, we are also of the view that the opinion of the Chief Chemist, CRCL will prevail over that of any other expert in matters relating to classification of products resulting from chemical processes.
10. It was submitted by learned consultant that friction dust was classified by the Commissioner with reference to how it appeared at an earlier intermediate stage. We find that this submission is factually wrong inasmuch as the Chief Chemist, in his report, categorically found that phenol-formaldehyde resin, when cured, would still be a plastic material which could be classified as phenoplast. Hence the apex Court's judgment in Union of India and Ors. v. Ahmedabad Mfg. and Calico Printing Co. Ltd. relied on by learned consultant is not applicable to this case.
11. With reference to the judgment of the Hon'ble Delhi High Court in C.W.P. No. 2963/82, learned SDR submitted that, after the said judgment, it was not open to the appellants to contest the department's stand that friction dust was a polycondensation product classifiable under Tariff Item No. 15A(1)(i). Learned consultant at this stage submitted that the classification dispute was not before the High Court and therefore its judgment could not be relied upon by the Revenue to argue that the classification dispute stood settled by the High Court in the above writ petition. In this connection, learned consultant relied on the Supreme Court's judgment in Mittal Engineering Works (P) Ltd. v. CCE, Meerut , (wherein it was observed thus: "a decision cannot be relied upon in support of a proposition that it did not decide") and Sneh Enterprises v. CC, New Delhi , (wherein it was observed thus: "a judgment as is well known is the authority for the proposition which it decides and not what can legally be deduced from it"). We find that what was under challenge before the Hon'ble High Court was a revisional order dated 6.3.1982 passed by the Govt. of India on the question whether friction dust was exigible to levy of central excise duty under Tariff Item No. 15A(1)(i). The Hon'ble High Court held that there was no merit in the writ petition and accordingly dismissed it. Hence, in our view, the appellants cannot be heard to say that the High Court did not deal with the classification dispute. We think, learned SDR has a valid point here too.
11. Learned consultant also argued that the adjudicating authority had travelled beyond the scope of the show-cause notice. In this connection also, he cited certain decisions. We have already mentioned, earlier in this order, the allegations raised and proposals made in the show-cause notice. The Commissioner's decision to classify the goods under Tariff Item No. 15A(1)(i) of the old Tariff for the period from 7.1.1981 is very much within the scope of the show-cause notice.
12. For the reasons recorded above, we uphold the classification of the product in question under Tariff Item No. 15A(1)(i) of the old Central Excise Tariff. The impugned order is sustained and this appeal is dismissed.
(Pronounced in open court on 30.3.07)