Customs, Excise and Gold Tribunal - Delhi
T.T.K. Pharma Ltd. vs Collector Of Central Excise on 17 December, 1993
Equivalent citations: 1994ECR188(TRI.-DELHI), 1994(71)ELT162(TRI-DEL)
ORDER S.L. Peeran, Member (J)
1. The appellants are aggrieved with the rejection of their appeal before the Collector (Appeals) Central Excise, Madras in order-in-appeal No. 136/87 dated 20-8-1987.
2. The question that arises for consideration in this appeal is the correct classification of product 'Bronidiol'. The appellants had claimed the classification under chapter sub-heading 3801.20 of CET 1986 in their classification list No. 1/86 dated 6-3-1986 claiming the said product as 'fungicide'. They relied on the product literature and letters issued by the users of that product. They contended that the product is a nontoxic fungicide used for the prevention and destruction of the growth of 'fungi bacteria' and 'yeast' and hence claimed the classification 'fungicide'.
3. The Department examined their claim and found that the product is classifiable only as a preservative and not as fungicide on the following ground stated by the department in the show cause notice dated 27-10-1986 -
"Bronidiol is marketed only as 'Broad spectrum preservative' and used only as a 'preservative' in pharmaceutical products, cosmetics and in similar products where there is scope for deterioration of biological specimens thereby it prolongs the life of an organic material. It is neither sold nor used as fungicide. No statutory formality applicable for the manufacture and sale of fungicide is followed by M/s. T.T.K. Pharma Ltd. in respect of 'bronidiol'. Their contention that bronidiol contains fungicidal property also would not qualify it being called as fungicide".
4. They filed their reply to the show cause notice on 1-12-1986 contending that the product is a preservative because it is capable of killing different types of fungi and in the CET neither the term 'preservative' nor the term 'fungicide' is defined. They further contended that there are no formalities for nontoxic fungicides manufactured as 'bronidiol' is a nontoxic one; and only because of the fungicidal property of the product, it is known as preservative.
5. The Assistant Collector did not accept these contentions. He has held in the order-in-original that merely because the product has property to kill fungi it does not become 'fungicide' as even 'kerosene' has that property and no one would definitely agree to it to be a fungicide. He has likewise compared to 'common salt' used in pickles as preservative, would not by itself become fungicide. Therefore, on this analogy, the learned Asstt. Collector rejected the appellants claim for classifying their products as fungicide.
6. The learned Collector has upheld these findings of the Asstt. Collector. He has observed that the product is not known commercially as fungicide. He has even rejected the chemical examiner's opinion that the product has fungicidal property on the ground that something more is required to be considered as fungicide for classifying it under heading 3808.10.
6A. In this appeal, the appellants contend that the lower authorities have erred seriously in not accepting the Chemical examiner's report which is in their favour, which reads as follows -
"The sample is in the form of white crystalline solid. It is organic chemical. It is not a formulation.
In the specimen label forwarded, the product is described as broad spectrum preservative.
Reference to technical books available here shows that 2 bromo 2 nitro propane 1:3 Diol is used as a preservative and is active against gram negative bacteria.
The party have substantiated their claim as fungicide quoting the fungi which the product referred destroys.
Preservatives is defined in the technical literature available here as follows:
"Any substance or mixture prolongs the life of an organic material, either by mixture in low concentrations, by impregnating by coating or by immersion. Examples are such food additives as benzoic acid; ante oxidants used in petroleum, rubber and plastics; fungicides for textiles; paint or wood and various alcohols and aldehydes used to prevent deterioration of biological specimen.
Based on the above, the product under reference may be considered to possess fungicidal property".
They have also relied on the literature of their product before the authorities which claimed to have the property of fungicide. They contend that the lower authorities had failed to examine their literature and also was not justified in rejecting their contention that the product was known commercially as fungicide.
7. We have heard Shri P.C. Anand, Chartered Accountant for the appellants and Shri K.K. Bhatia, Jt CDR for the respondents. Shri Anand submitted that the learned Asstt. Collector was not justified in rejecting the customer's letter which supported the appellants contention that the goods commercially were known as fungicide. This was also supported by the Chemical examiner's report. The Collector(Appeals) was wholly unjustified in rejecting the report also. He contended that the department did not dispute about the product having fungicidal qualities in as much as it was used to kill fungis and keep the cosmetics and medicines intact. The department also did not dispute its qualities of prescription and therefore, both the lower authorities were not justified in rejecting the appellants case. He relied on the ruling of Sarita Chemicals v. Collector of Central Excise reported in [1987 (30) ELT 434 (Tri.)] which held that Customs test report should not be rejected.
8. Shri Bhatia, learned Jt. CDR supported the orders of the lower authorities and contended that the adjudication authorities can reject the chemical reports. He contended that the product is an organic chemical and not a formulation. He contended that the Chemical examiner had only quoted the definition as given in technical literature and not relied on the contents of the products to give his opinion and, therefore, the opinion expressed by the Chemical examiner was not sufficient. He further submitted that the product was being marketed as a 'Broad spectrum preservative' and used only as a preservative in pharmaceutical products, cosmetics and in similar products where there is scope for deterioration and that the product was neither sold nor used as fungicide. Further no statutory formality as applicable for the manufacture and sale of fungicide was followed. Therefore, the lower authorities were justified in rejecting the appellant's claim for classifying the product 'Bronidiol' as fungicide.
9. We have heard both the sides, carefully considered their submissions and perused the records. The main ground for rejecting the plea of the appellants for classifying the product as fungicide under heading 3801.20 is that it is not known in the common trade parlance as such. This conclusion has been drawn by the learned Asstt. Collector not on any market enquiries but on his common understanding and illustration given by him in his order. He has drawn an analogy that 'kerosene' is capable of killing fungi but is a mineral oil and not known as fungicide. Likewise common salt is used as preservative in pickles and it could not be considered as fungicide. On this analogy, he has rejected the plea for grant of exemption under Notification No. 234/86 under erstwhile TI 68 and held classifiable under sub-heading 2902.90 from 1-3-1986 onwards. The learned Asstt. Collector has not discussed the literature and customers letters produced by the appellant nor the Chemical examiner's report is examined. Now it has to be seen as to whether the lower authorities have correctly applied the well known principles of classification of goods in respect of tariff item. The tariff item 2902.90 of CET 1986, TI 2905.90 of CET1987 and TI 3801.20 of CET 1986 are noted below :
_____________________________________________________________ Heading Sub- Description of goods Rate of duty No. Heading ______________________________________________________________ 29.02 Alcohols and their halogenated, sul-
phonated, nitrated or nitrosated derivatives 2902.90 Other 15% 29.05 Aldehyde-function com-
pounds
2905.90 Other 15%
38.01 Miscellaneous products
of the chemical or allied
industries (including
those consisting of mix-
tures of natural
products) not elsewhere
specified or included
3801.20 Insecticides, fungicides, Nil
herbicides, weedicides
and pesticides
_______________________________________________________________
10. The literature and letters of the customers are not produced before us for examination. We have to proceed on the basis of the available materials before us. The chemical report states that it is in the form of white crystalline solid and it is organic chemical and not a formulation. The Chemical examiner has examined technical books available with him and examining the definition of the preservative, has opined that it could be considered to possess fungicidal property.
11. It is admitted by the department that the product has fungicidal properties and it is used as preservative with a view to kill the fungicides. The appellants had produced their product literature and their customers letters, which as noted in Asstt. Collector's orders and the reply to the show cause notice, has been in support of their contention that the product is used only for such purpose. The Chemical Examiner's opinion is also supportive to draw the conclusion that the main use of the product is to kill the fungicide. The product literature also has been produced before us. We have perused the same and it supports the appellant's claim. The literature describes the product as '"Bronidiol (2 bromo -2 nitro - propane - 1, 3 - diol) is a broad spectrum antibacterial agent used as a preservative in a variety of formulated products which are important commercially i.e. pharmaceutical cosmetics, toiletries -
Chemical Data
Name and Formula
Chemically 2-Bromo-2-Nitropropane -1, 3-diol
Br Structural formula HOCH2 - C- CH2CH
N02
Molecular formula C3H6O4NBr Molecular weight 200
(A) It is an almost white crystalline powder which is soluble in water and other polar solvents.
Analytical Specification
Description : Bronidiol is a white to off-white
crystalline powder having a faint
characteristic odour
I.R. Spectrum : A typical sample spectrum is shown in Fig. 1
Melting point : About 130°C
Sulphated Ash : Not more than 0.1%
Water : Not more than 0.5%
Assay : 98% -102%"
12. The product is not alcohol or acylic alcohol to come within the TI 2902 of CET 1986 or 2905 of CET 1987. It is preservative as it is capable of destroying bacteria and fungus. Therefore, the appellants claim for classification as fungicide cannot be rejected. The burden of classification is on the department which has not been discharged in the present case. The Asstt. Collector has held that the product is not known in common trade parlance as fungicide but the department has not placed any material in support of this plea. The Asstt. Collector's analogy of common salt and kerosene is also not apt. The department has also made a ground that statutory formality for manufacture and sale was not followed in the instant case. It is to be observed that the tariff notes does not lay down any such condition that the classification is subject to other statutory formalities being followed. So long as the trade understands the product to be a fungicide and it is used for such a purpose which is not denied in this case, then the product has to be considered as such.
13. The Asstt. Collector has classified the product under TI 2902.90 from 1-3-1986. This entry covers 'other' under menthol which comes under sub-heading alcohols and their halogenated, sulphonated, nitrated or nitrosated derivatives. The chemical examiner's report does not suggest that it falls under this tariff entry. It cannot be made out from the lower authorities orders as to from where they have got the material to concur this product to be coming under this tariff entry. Hence, the classification under this tariff entry is not appropriate.
14. Tariff entry 2905 of CET 1987 reads acylic alcohols etc. as noted above; 2905.10 refers to Methanol and 2505.90 is other. Even for this, there is no evidence for classifying it. Therefore, the lower authorities order classifying the product 'Bronidiol' under these two headings TI 2902.90 of CET 86 and TI 2905.90 of CET 1987 has to be set aside and the prayer for classification under sub-heading 3801.20 of 1986 CET has to be accepted by allowing the appeal.
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23-10-1991 (S.L. Peeran) Member (J) K.S. Venkataramani, Member (T)
15. I have had the benefit of carefully going through the order proposed by the Hon'ble Member (Judicial) Shri S.L. Peeran and since I find that our views in the matter do not coincide, I am recording my finding as follows :-
16. The claim of the appellants that their product Bronidiol is a fungicide classifiable under sub-heading 3801.20 Central Excise Tariff Act 1985 is not borne out by the way they themselves marketed the product because it is seen from the Chemical Examiner's Report dated 24-6-1986 that the label of the product described it as broad spectrum preservative. The label on a product is indeed a reliable evidence of how the manufacturer of the product seeks to market it. Therefore, this could be accepted as evidence as to how the appellants herein marketed their product and as evidence as to how the product is known in the market. The literature on the product available before us [which is different from literature on the product entitled "The Facts You would like to know about Bronidiol," which was before the Collector (Appeals)] also described the product as broad spectrum bacterial agent used as preservative in variety of formulation products i.e. Pharmaceuticals, Cosmetics and Toiletries. Therefore, it can be reasonably concluded that the product Bronidiol is marketed as a preservative and not as a fungicide. The Collector (Appeals) in para-3 of his order has given a detailed summary of the literature on the product which was made available to him. From this, it is evident that in pharmaceutical preparation, the product is recommended to be used to prevent deterioration in storage of the pharmaceutical product. In respect of ayurvedic preparations "Bronidiol plays vital role of completely preserving the product". From the above, it is evident that it is its role as a preservative in the various formulations that is highlighted. It is in this context of how the product is described and being marketed by the manufacturer that one has to see the Department's added reasoning for not considering it as a fungicide, as in the show cause notice, that no statutory formality applicable for the manufacture and sale of fungicide has been followed by the appellants and becomes relevant. It may also be useful to recall in this context the Tribunal decision in the case of Collector of Central Excise, Bombay v. Bombay Chemicals Pvt. Ltd., Bombay and Standard Chemical & Pharmaceutical Co. Bombay, reported in 1986 (24) E.L.T. 373 (Tribunal). In that case, a claim was made for exemption in terms of Notification 55/75-C.E. for the disinfectant fluids manufactured by the appellants therein for exemption against the Notification Entry "Insecticides, pesticides, weedicides and fungicides". The Tribunal observed..."the juxtaposition of the four terms, which indicate distinct uses or applications should be taken as referring to substances which are recognised as respectively suited to those applications". Therefore, observation of the Tribunal in para-56 thereof also pertinent which is reproduced below :-
"It will not do to say an insecticide is a germicide because it has the ability to kill germs, any more than it will do to call a disinfectant, a well known commodity, a bactericide just because it can kill bacteria. The names bac-tericide, pesticide, fungicide, insecticide are each understood to designate a well-known product or compound even if it also acts in ways that the other products act. Their manufacturers produce and market them as such products and, even more important, the consuming public always buy and accept these products as they are called, and not by any versatility they might have in doing duty as other products. Disinfectants have a similar acceptance from their production and sale to their consumption by the user. That a disinfectant can be used or that it is used as a bactericide, will not bring it into the category of a bactericide for the purpose of conferring a tax benefit given to the latter."
Therefore, in the present case the product is essentially a preservative which is different from product which is marketed as a fungicide and understood in the market as such. In this context, it has to be held that not much turns on the Chemical Examiner's observation that the product possess fungicidal property because he himself has referred to the label of the product describing it as a preservative and he himself has extracted the definition in technical literature of a preservative to say that it means any substance which prolongs the life of an organic material, either by admixture by impregnating by coating or by immersion. As for the reliance placed by the Departmental authorities on HSN Explanatory Notes it is now well-settled that these notes have persuasive value because the Central Excise Tariff Act broadly follows HSN and as was observed by the Tribunal in the Bombay Chemicals Pvt. Ltd., Bombay case (supra) these notes can be taken to represent the understanding of Imports and Exports and Customs Administration. In the result, the claim of the appellants herein for the classification of their product Bronidiol under Heading 3801.20 Central Excise Tariff Act 1985 as fungicides is not maintainable, and the lower authorities were correct in not classifying the product under that such heading. As for its classification under heading 29.02 and 29.05,1 am in agreement that Hon'ble Member (Judicial) that it has not been made out clearly by the lower authorities as to how the product comes under the ambit of the two such headings. Therefore, the case needs to be remanded to the jurisdictional Assistant Collector for a proper classification of the product in accordance with law and after giving the appellants all the materials on which such classification is sought to be done by the Department.
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29-10-1991 (K.S. Venkataraman) Member (T)
17. In view of the difference of opinion arising between the two Members, the following point of difference is referred to the President in terms of Section 129 C (5) Customs Act as applicable to Central Excises and Salt Act, 1944 : "Whether the product Bronidiol is a Fungicide classifiable under subheading 3801.20 Central Excise Tariff Act 1985, or whether the product being marketed as a preservative, and not as fungicide, cannot be classified under that heading and whether the lower authorities were correct in denying this classification to the product, and whether on the proper classification, other than under Chapter 38 Central Excise Tariff Act, the case needs to be remanded to jurisdictional Assistant Collector".
Sd/- Sd/- 29-10-1991 29-10-1991 (S.L. Peeran) (K.S. Venkatramani) Member (Judicial) Member (Technical) S.K. Bhatnagar, Vice President
18. This matter has been referred to me by the hon'ble President in view of the difference of opinion between two Members on the following point:
"Whether the product Bronidiol is a Fungicide classifiable under Subheading 3801.20 Central Excise Tariff Act, 1985, or whether the product being marketed as a preservative and not as fungicide, cannot be classified under that heading and whether the lower authorities were correct in denying this classification to the product, and whether on the proper classification, other than under Chapter 38 Central Excise Tariff Act, the case needs to be remanded to the jurisdictional Assistant Collector".
19. The appellant has sent a letter requesting that the case may be decided on merits. Hence learned JCDR was heard and the matter was reserved for orders.
20. I have gone through the written Memorandum of Appeal, the proposed orders passed by the two learned Members and also considered the submissions made by learned JCDR who reiterated the Department's view points.
21. I observe that a chemical can be put to many uses. How it is treated in a given situation depends upon various factors including composition purity and purpose for which it is intended to be used and the way it is marketed.
22. In the instant case, the appellants have themselves marketed the product as broad spectrum preservative.
23. The literature produced before the Collector and the Tribunal also describes the product as broad spectrum anti-bacterial agents used as a preservative in a variety of formulated products, for example, pharmaceuticals, cosmetics/toiletries etc. Therefore, the fact that it has some fungicidal property also does not by itself make it classifiable as a fungicide for excise purposes.
24. I, therefore, agree with learned Member (Technical) in this respect.
25. However, in so far as the question of remand is concerned, I am of the opinion that it was not necessary as the Tribunal itself was competent to decide the classification finally.
26. The reference replied in the above terms and the file may now be placed before the original Bench for a final order.
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3-12-1993 (S.K. Bhatnagar) Vice President FINAL ORDER
27. In view of the majority opinion, it is held that the product 'Bronidiol' is not classifiable under sub-hdg. 3801.20 CETA, 1985 and it is further directed that jurisdictional Assistant Collector should decide its classification as between headings 29.02 and 29.05 in accordance with law and after giving the appellants all the materials on which such classification is sought to be done by the Department. Appeal is disposed of accordingly.