Customs, Excise and Gold Tribunal - Delhi
Kirit Packaging Industries Ltd. vs Collector Of Central Excise on 19 February, 1988
Equivalent citations: 1988(17)ECC50, 1988(17)ECR552(TRI.-DELHI), 1988(35)ELT414(TRI-DEL)
ORDER
S.D. Jha, Vice-President (J)
1. The question for decision in this appeal is classification of LDPE colours/pigments (Master Batches) after amendment of Item 15A on 28-2-1982.
2. The appellant had earlier been classifying PVC Master batches under Tariff Item 14I(1)(ii) of the Central Excise Tariff. After amendment of Tariff Item 15A on 28-2-1982, the appellant filed revised declaration on 1-12-1984 claiming full exemption in terms of Notification No. 83/83-C.E., dated 1-3-1983 as also from licensing control under Notification No. 111/78-C.E., dated 9-5-1978 as amended on the ground that master batches i.e. LDPE colours or pigments fall under Tariff Item 15A(1), no manufacture was involved and no liability to duty attracted. The Assistant Collector of Central Excise by order dated 10-7-1985 after following the usual procedure, held the goods in question as classifiable under Tariff Item 14I(1)(ii) of Central Excise Tariff and rejected their declaration dated 1-12-1984 claiming re-classification under Tariff Item 15A(1). The order was upheld in appeal by the Collector of Central Excise (Appeals), Bombay by his order dated 23-6-1986. Hence this appeal to the Tribunal.
3. Before the Tribunal, the appellants presented an application for an out of turn hearing urging that the issue involved in their appeal was identical to those in Appeal Nos. 2135/83-C and 2126/86-C, parties Plastic Colour Corporation v. Collector of Central Excise, Ahmedabad. At the hearing, however, it was noticed that the issues involved in the present appeal were somewhat different from those in appeals by M/s. Plastic Colour Corporation. Hearing of this appeal was therefore, delinked with the hearing of appeals by M/s. Plastic Colour Corporation and the appeal separately heard.
4. It may be stated that at the hearing, Smt. J.K. Chander, Departmental Representative for the respondent, drew attention of the Bench to a decision of the Tribunal in National Organic Industries v. Collector of Central Excise, Bombay 1987 (30) ELT 463 (Tribunal) where the Tribunal had held PVC master batches as properly classifiable under Tariff Item 68. Shri K.A. Sindhi, learned Consultant for the appellant, however, submitted that the position involved in the present appeal was different inasmuch as the present appeal related to a period after amendment of Tariff Item 15A on 28-2-1982 whereas the Tribunal decision (supra) related to an earlier period. In view of this, he was permitted to make extensive submissions both oral and in writing.
5. Shri Sindhi has referred to and supplied extracts from Plastics Engineering Handbook edited by Joel Frados at page No. 38 onwards Chapter - Compounding; Extracts from page Nos. 843, 844 and 845 abid on the item colorants, Modern Plastics Encyclopedia (1982-83) page Nos. 143 and 144 Chapter - Colour Concentrates by B.F. Faulks; Encyclopedia of PVC, PVC Volume 2, edited by Leonard I. Nass page No. 921 - Colour Pigment; Whittington's Dictionary of Plastics, First Edition Page Nos. 49 and 157 on Colour Concentrate and Moulding Compounds; Methods of Compounding from Plastic Engineering Handbook, already referred to above by Joel Frados, Page No. 848; Another Publication Plastics Compounding 1986-87 page No. 63 Colour Concentrates; Extracts from Pigments and Processes for their Manufacture "source not quoted" and also from The Condensed Chemical Dictionary, Tenth Edition Revised by Gessner G. Howley Page No. 646 - Master batch. Extensive extracts or reproduction from all the above material do not appear necessary and so much of it as may be considered necessary, would be referred to at a later stage. He has also supplied photostat copies of 32.05 of CCN on Synthetic Organic Dyestuffs (including Pigment Dyestuffs). Reference has also been made to certain Trade notices.
6. Shri Sindhi drew attention to title or heading of Item No. 15A prior to 28-2-1982 which then read -
"Artificial or Synthetic Resins and Plastic materials and Articles thereof."
and to the same after 28-2-1982, which after amendment read -
"Artificial or synthetic resins and plastic materials; and other materials and articles specified below."
and emphasised the addition of the word 'other materials' in the title after 28-2-1982. He submitted that from the re-structured Tariff Item 15A legislative intent was obvious that re-structured description of Tariff Item 15A took in its ambit not only artificial or synthetic resins and plastic materials but other materials also. Though other materials might not be falling within the description of plastic materials, such other materials are to be treated as plastic materials when such materials are used in plastic or plastic articles. Drawing attention to the use of the word 'materials' in explanation 3rd in the restructured Tariff Item 15A, he emphasised that the explanation did not speak about plastic materials. The apparent intention according to him is that if other materials were used in the production of articles or articles of plastics, such other materials are to be classified under Tariff Item 15A(1) even though the other materials may not on merits be classifiable under Tariff Item 15A(1). He enumerated other materials which could find use in plastics as being -
1. Plasticizers 8. Tackifiers
2. Stabilizers 9. Antiblocking agents
3. ubricants 10. Foaming agents
4. Modifiers 11. Flame retardants
5. Fillers 12. Fungicides
6. Colorants 13. Odarants
7. Antistatic agents According to him by deeming fiction such other materials even though not plastics, would become plastics. He did not dispute that LDPE master batches containing LDPE resin, pigments or colours, and ether materials are usually used in the manufacture of plastic articles by thermoplastic moulding process. Basic resin i.e. Polyethylene which is melted with master batches is also used in the manufacture of plastic articles. This is also true of LDPE compound. He argued that basic LDPF resin master batches and LDPE compound all fall within the description of artificial plastic materials of sub-item (1) of Item 15A. Pigments or colours incorporated in master batches lose their capability of alternative uses and they acquire capability of single and restrictive use, as raw materials in plastic or artificial plastic materials. He submitted that such incorporated pigments or colours fell within the meaning of other materials of Tariff Item 15A of Central Excise Tariff Schedule. LDPE Master batches are not such goods which could be said to have been excluded from Tariff Item 15A(1) and included in the description of other entries of Central Excise Tariff such as Tariff Item 14 or Tariff Item 68. He argued that the test of commercial parlance or identification is not relevant for classification in respect of goods falling under Tariff Item 15A(1) as it uses only scientific expressions. He submitted that this arguments finds support from Finance Ministry's letter No. F.93/9/82-CX.3, dated 25-3-1983.
7. He submitted that as these master batches fall only under Item 15A.(1), there was no question of same attracting duty liability again as in mixing of pigment and colours, no chemical change took place. He argued that no manufacture took place as distinct articles with new name, character or use did not emerge.
8. Smt. Chander for the respondent, contraverting Shri Sindhi's contentions, submitted that master batches were in fact colour concentrates different from base materials. They find use only as colour in plastic industry. She defended their classification under Tariff Item 14I(1)(ii). She also invited our attention to the Tribunal decision in National Organic Industries v. Collector of Central Excise, Bombay 1987 (30) ELT 463 (Tribunal), where such master batches were held classifiable on residuary Item 68. She submitted that the amendment of the Tariff Item in 1982 had not effected such a change as to take out master batches from out of 68. This, she submitted while still maintaining that proper classification would be only under Item 14 as pigments and colours.
9. Smt. Chander also Submitted that even assuming that master batches as urged by the appellants, fell under Tariff Item 15A(1) would not make it exempt from duty in absence of an exemption notification to that effect. She submitted that old concept of their being no duty liability on the newly emerging goods, falling under the same sub-item or item had been exploded and so far as the Tribunal is concerned, set at rest by the very recent Five Member Bench decision in (Guardian Plasticote Ltd., Calcutta v. Collector of Central Excise, Calcutta and Ors. [1986 (24) ELT 542 (Tribunal)].
10. At the close of the hearing, the Bench felt that for proper appreciation, the cost of input material and the output material as also the use to which the goods in question are put to, should be examined. The appellants were, therefore, called upon to submit papers on these points. The appellants with their communication dated 30-6-1987, filed a list of five manufacturers who purchase LDPE master batches from the appellants. The manufacturers are respectively engaged in the manufacture of the final products like Polyethylene Water Tank, Stepal Fibers, HMHDPE bags. They have also filed invoice dated 22-5-1987 issued by J.K. Enterprises in favour of the appellants M/s. Kirit Packaging Industries evidencing sale of Indothene (16 MA 400), the total quantities of 2150 kgs. (86 bags) the sale price is Rs. 54,825.00. The invoice does not show per kilogram cost but the same works out to Rs. 25.50 P.
11. The appellants have also filed their Price list of colours effective from 1-1-1987. The Price list describes the product as Plastic Colour Granules (Colour Concentrates). In this Price list, the lowest price at Rs. 23/- per kg. is that of Code No. 621 Polyfill - Impact Stabilizer which is a stabilizer and does not appear to be used as colour. In the Colour' varieties, the lowest price is Code No. 201 Black and at Rs. 30/- per kg. The Price range between different colours, then varies from Rs. 35/- lowest to as high as Rs. 250/- per kilogram. Different rates being Rs. 36, Rs. 46/-, Rs. 49/-, Rs. 60/-, Rs. 65/-, Rs. 80/-, Rs. 84/-, Rs. 110/-, Rs. 130/-, Rs. 150/- and Rs. 250/-. It appears that the price range varies depending on the colour going into the base material plastics or resins. This information was considered necessary in view of the appellants claim at one stage that the master batches in question are directly used as raw materials for plastic articles. On going through the papers, it is however, seen that such a claim was never made at any of the earlier stages and in fact even in the written submissions, such a claim is not made. We will, therefore, proceed on the basis that the appellants product master batches is used by manufacturers of plastic articles for imparting colour in the plastic articles and in this process, the resin or plastic portion in the master batches also gets dissolved and dispersed in the plastic Article manufacturered.
12. This approach also finds support from the difference in price of the base material plastics obtained from the plastic manufacturer and the value at which the appellants sell the master batches. The price difference is so wide that it does not appear believable that the master batches in question are used directly for moulding for plastic articles.
13. Though a lot of literature as to master batch has been placed before us, it is not considered necessary or prudent to refer to all of them or to reproduce them. It is sufficient to refer to The Condensed Chemical Dictionary, Tenth Edition by Gessner G. Howley. The Dictionary has to sav as under -
"A previously prepared mixture comprised of a base material and a high percentage of an ingredient (usually a dry powder) that is critical to the product being manufactured Aliquet parts of this mixture are added to production-wise quantities (batches) during the mixing operation. This method permits uniform dispersion of very small amounts (less than 1%) of such additives as dry curing agents in rubber and colorants in plastics and paints. Modifying elements may be incorporated in alloys in this way. Master-batches of organic dyes dispersed in rubber or plastic are prepared by manufacturers of colorants for direct use. Master batch accelerators (mixtures of rubber, zink, oxide and accelerator) are commonly used in rubber mixes."
In Modern Plastics Encylopedia, Color Concentrates by B.F. Faulks, has to say as under -
"To ensure that the concentrate disperses readily and evenly in the processor's resin system, a resin carrier that is compatible with but exhibits a lower melting flow than the base resin generally is employed by the concentrate manufacturer.
To introduce the concentrate into the plastic, it is mechanically blended with the base resin in predetermined proportions by weight (this is referred to as the let down ratio) to produce the desired color and opacity in the end product. This master batch mixture is achieved either by tumble blending the concentrate and resin together and feeding directly to the processing equipment or by delivering concentrate and resin separately through a proportional feeder to the processing unit. Letdown ratios of 25 : 1 (25 parts resin to 1 part concentrate) have become accepted practice in the industry, but much higher ratios (ranging from 50 : 1 to 200 : 1) are now possible, depending upon individual requirements and conditions of the application."
14. In National Organic Industries v. Collector of Central Excise, Bombay 1987 (30) ELT 463 (Tribunal), the Tribunal taking into consideration the technical literature, commercial understanding and case law, held master batches as not falling under Item 14I(1)(ii). After having so held, the Tribunal in paras 14A and 15 proceeded to hold as under -
"We observe that it has been conceded by both the parties that the master batches are used for imparting colour to PVC compounds for the production of articles of PVC of the desired colour shades. The master batches is a specialised product used in the PVC industry and is intended for proper dispersal of the colour in the PVC compound.. The master batches have a high concentration of the pigment dispersed uniformly in the PVC by using specialised machines for the purpose. The master batches for admixture with the PVC compounds have the properties of miscibility and uniform dispersion in the PVC compound resulting in a proper dispersion of the colour creating a desired effect for the purpose of manufacture of specified products. The use of master batches is only in the PVC industry. While master batches impart colour to the PVC compound, these are not bought and sold as pigment or colour it has been shown so by Revenue. These are also not known in the trade as pigments or colours. Anything which imparts colouration need not be considered as pigment and colour as set out in the Central Excise Tariff unless it satisfies the trade parlance criterion."
"The Revenue have cited the Supreme court judgment in the case of Atul Glass Works 1986 (25) ELT 473 (S.C.), in support of the plea that the PVC master batches are not known as PVC compounds and that character of the product has changed by addition of the pigment for showing that the product does not fall under 15A(1)(ii). It is seen that the product master batches formed with the dispersion of pigment in PVC has neither remained as pigment as known in the trade nor PVC. The definition of the pigment as stated by the Revenue also does not help them. In the master batches the PVC cannot be considered merely as a vehicle for the pigment. After mixing with PVC compound, PVC in the master batches becomes a part of the ultimate product manufactured out of the compound. It is not like pigments ordinarily sold in suspension form where on application the carrier evaporates and has no other role to play. In the instant case, the PVC in the master batches not only acts as a carried, as pointed out, but it becomes part and parcel of the product which is manufactured out of PVC compounds. Therefore the analogy with the pigment in the suspension form given by Revenue will not apply. In this view of the matter the PVC master batch cannot be held to fall under Item 14(1)(ii) as pleaded by the Revenue. The item therefore, for the reasons as above will fall under Item 68 CET."
The other Member constituting the Bench had, with certain observations, concurred with the conclusion.
15. Shri Sindhi has attempted to distinguish this decision urging that the decision related to a period before 28-2-1982 when in the present appeal, we are concerned with a period after 28-2-1982 when Tariff Item 15A was amended and "other materials" included in the title of the item. We do not see any force in this argument. This argument would have been of any substance or consequence if it had been the appellants case that the master batches are specified in Tariff Item 15A(1). Admittedly, master batches are not specified under Tariff Item 15A(1). As already held in the above decision, master batches are technically and commercially understood to be different from the base material which has gone into them. On the arguments urged by Shri Sindhi, we do not think that the ratio of the decision should be held inapplicable to the present appeal even though it relates to a period after amendment of Tariff Item 15A on 28-2-1982.
16. In view of our finding above, it is not necessary to consider and record a finding on Smt. Chander's contention as to duty liability again on goods falling under the same item or sub-item and reliance for this argument on Tribunal decision in Guardian Plasticote Ltd's (supra) case.
Following the Tribunal decision in National Organic Chemical Industries, we hold that master batches are classifiable under residuary Tariff Item 68 and not under Tariff Item 14I(1)(ii) as claimed by Revenue or Tariff Item 15A(1) claimed by appellants. We order accordingly. The appellants classification list shall be approved in the foregoing terms with consequential relief and adjustment as may be called for. The appeal is disposed of in the foregoing terms.