Customs, Excise and Gold Tribunal - Delhi
Lamtuf Plastics vs Collector Of Central Excise on 23 January, 1992
Equivalent citations: 1992(60)ELT603(TRI-DEL)
ORDER N.K. Bajpai, Member (T)
1. The short point for consideration in this appeal is the question of exemption from Central Excise duty on the articles of plastics manufactured by the appellants under Notification 132/86-C.E., dated 1-3-1986 during the period 1-3-1986 to 31-7-1986.
2. The appellants filed a Classification List effective from 1-3-1986 classifying Phenol, Formaldehyde Pre-peg under sub-heading 3920.32 and articles of plastics (which are mostly rods, tubes, gears, blanks, moulded half-round bearings and other mouldings) under sub-heading 3922.90. Exemption under Notification 132/86 was claimed in respect of articles of plastics. In reply to the Show Cause Notice for denying the benefit of exemption notification, the appellants stated that the P.P. resin received on payment of duty is mixed thoroughly with cotton chindies and dried in hot air oven for manufacturing PF Chindies and PF pre-peg. This pre-peg material can be moulded into various articles under high pressure and controlled temperatures. The appellants' claim before the Collector was that pre-peg was an intermediate product in the manufacture of articles of plastics as well as laminated sheets. The appellants were paying duty on the pre-peg and availed exemption in respect of "articles of plastics" which were covered by serial No. 38 of the Table appended to Notification 132/86. The Classification List had been approved by the Assistant Collector.
3. While the appellants' claim is that the exemption under the Notification cannot be denied on the ground that, during the process of manufacture of the product, another product not mentioned in the notification, emerges at the intermediate stage, the Department's claim is that the exemption is available only if the goods are actually made from the goods falling under Heading 39.01 to 39.15.
4. Arguing for the appellants, Shri V. Sridharan, the Ld. Counsel, submitted that it was not necessary that articles of plastics should be made directly out of synthetic resins mentioned in Heading Nos. 39.01 to 39.15; nor is it necessary that such articles should be wholly made out of goods falling under 39.01 to 39.15. He submitted that in the manufacture of articles of plastics, it was necessary that certain fillers and plasticisers be used. This, he said, was a technological necessity. In support of his interpretation, he relied on the decision of the Tribunal in the case of Bradma of India Ltd. v. Collector of Central Excise 1990 (50) E.L.T. 533 (Tri.). He explained that Notification 68/71, dated 29-5-1971 and Notification 182/82, dated 11-5-1982 were the predecessor Notifications of Notification 132/86, the interpretation of which is the subject-matter of dispute in the present case. Shri Sridharan explained that the Tribunal had decided in Bradma's case that it was not necessary that articles of plastics should be produced directly from artificial resins. The emergence of a product in that case, namely, the plastic sheets out of intermediate artificial resin, did not preclude the appellants from claiming the benefit of exemption under Notification 68/71. He also placed reliance on the decision of the Tribunal in the case of Shellya Industries, Bangalore v. Collector of Central Excise, Bangalore -1983 (14) E.L.T. 1827 (CEGAT) in which it was decided that HDPE woven sacks are articles of plastics and were, therefore, covered under Item 15A(2) and not Item 68 of the erstwhile Central Excise Tariff. Shri Sridharan also referred to the decision of the Tribunal in the case of Shree Radhe Industries, Kalol v. Collector of Customs & Central Excise, Ahmedabad -1983 (12) E.L.T. 379 (CEGAT) in which it was decided that HDPE tapes were classifiable under Item 15A(2) of the erstwhile Central Excise Tariff and were exempt from duty under Notification 68/71.
5. Continuing his arguments, the Ld. Counsel submitted that the Tribunal had occasion to interpret Notification 201/79-C.E., dated 4-6-1979 about set-off of duty on inputs in the case of Sirsilk Ltd. v. Collector of Central Excise, Hyderabad - 1988 (34) E.L.T. 399 (Tri.) and hold that exemption under Item 68 was available even though all types of intermediate products came into existence in the continuous process of manufacture of the final product. He also referred to the judgment of the Supreme Court in the case of Tata Oil Mills Co. Ltd. v. Collector of Central Excise 1989 (24) ECR 645 (SC) in which, while interpreting Notification 46/72-C.E., dated 17-3-1972, the Court held that benefit to soap made from rice bran oil was available even if rice bran fatty acid (derived from rice bran oil in another factory of the as-sessee), is used instead of rice bran oil. The Court held that rice bran oil, being the ingredient from which rice bran fatty acid is obtained, the exemption was available in terms of the aforesaid Notification. Shri Sridharan submitted that the principle of interpretation, applicable to Notification 46/72, would equally apply to Notification 132/86, which is the subject-matter of the present appeal.
6. At this stage, Shri Sridharan handed over photo copies of the following letters issued by the Central Board of Excise & Customs on which he wanted to place reliance:
(a) F. No. 13/22/82-CX. 1, dated 5-6-1984 addressed to all Collectors of Central Excise;
(b) F. No. 386/13/83-A.U., dated 20-11-1985 addressed to all Collectors of Customs & Central Excise;
(c) F. No. 93/13/87-CX. 3, dated 25-6-1987
(d) No. 93/37/88-CX. 3, dated 22-8-1990
7. He submitted that in view of the clarification issued by the Board in these letters, it was clear that the expression "produced out of ... plastic materials under sub-item (1) of the Item 15A CET would not rule out the classification of the finished plastic articles which traverse from the raw material stage falling under T.1.15A(1) through a stage of articles falling under T.1.15A(2) or any other Tariff Item. He read out the following portion from Board's letter dated 20-11-1985 on which he placed reliance :-
"The Board had decided that so long as the finished article of plastic is made out of plastic materials falling under Tariff Item No. 15A(1), even if at the intermediate stage articles classifiable under Item No. 15A(2) or any other Tariff items emerges, the said product would be considered to have been produced out of plastic material falling under Tariff Item No. 15A(1). Accordingly, the Board had issued instructions to the field formations under its letter F.No. 13/22/83-CX. 1 (Ft.) dated 5-6-1984 and 20-6-1984. In line with this, the Board further decided that H.D.P.E. Woven Sacks should be considered as articles of plastic and that the Tribunal's decision could be accepted.
In view of the position explained above as well as taking into account the fact of dismissal of our appeal to Supreme Court against CEGAT Order No. D. 18/82 dated 30-12-1982 (M/s. Radhe Industries, Kalol) wherein the CEGAT has held that H.D.P.E. is a well known plastic material and the tapes made from this material would be rightly covered under Tariff Item No. 15A(2) of C.E.T. as article of plastics, all sorts, H.D.P.E. tapes being neither man-made filament yarn nor cellular spun yarn do not fit into the category of Tariff Item 18, the Board is withdrawing the appeal filed in the Supreme Court in the aforesaid matter."
8. The Ld. Counsel also submitted a copy of the Order No. 88/86-C, dated 11-2-1986 passed by the Tribunal in the case of Poly Weave, Surat v. Collector of Central Excise, Baroda about the eligibility of H.D.P.E. sacks under Notification 182/82- C.E., dated 11-5-1982. He, further, submitted that the Board itself had considered the question of eligibility to exemption under these Notifications of articles of plastics in the manufacture of which certain other products came into existence at the intermediate stage, and after taking note of such intermediate products, finally held that the exemption was available if the conditions of the Notification were otherwise satisfied. The same view was taken by the Board when the new tariff was introduced and this is clear from . their letter dated 22-8-1990 in respect of Notification 53/88, the relevant portions of which are reproduced below:
"A question has been raised as to whether the exemption Notification No. 53/88-C.E., dated 1-3-1988 be amended in order to extend the exemption to articles of plastics which are made out of goods falling under Heading Nos. 39.01 to 39.15 through the stages of intermediate goods not falling under 39.01 to 39.15 and purchased from the market.
The matter has been examined by the Board. The Board felt that there was no stipulation in the Notification No. 53/88-C.E., dated 1-3-1988 that it applied to integrated units only. So long as the non-integrated unit could prove that the intermediate goods had been produced out of the duty paid material of Heading Nos. 39.01 to 39.15, it would be entitled to the exemption as envisaged in the said Notification."
9. In support of his argument, Shri Sridharan also referred to the decision of the Tribunal in the case of Eagle Flask Industries (P) Ltd. v. Collector of Central Excise, Pune -1991 (53) E.L.T. 65 (Tri.) in which Notifications 132/86 and 53/88 were both the subject-matter of dispute. The Tribunal had held in this case that once the classification of the goods 'as articles of plastics' was approved under sub-heading 3922.90, it could not be considered to be different for the purpose of the exemption Notification because the Notification also talks of articles of plastics falling under the specified headings of which sub-heading 3922.90 was one. To quote from this order, "para 9 ... . The Collector has correctly held that they (the products) should be classified as articles of plastics. However, we fail to see how an article, which is considered as an article of plastics for the tariff heading, should not be so considered for the purpose of the Notification because the Notification also talks of articles of plastics falling under the specified headings ... ".
10. Shri Sridharan also referred to the decision of the Calcutta High Court in i the case of Naik Associates v. Union of India -1991 (55) E.L.T. 189 (Cal.) in which, while I interpreting Notification 70/76-C.E., dated 16-3-1976, the High Court held that the words 'entirely', 'exclusively' or 'only' not having been used in the Notification, the exemption could not be restricted by importing such words into it. He submitted that a similar interpretation should be placed on Notification 132/86 which does not use the words 'wholly" or 'directly'. In this context, he also referred to the decision of the Madras High Court in the case of Indian Organic Chemicals Ltd. v. Union of India and Ors. -1983 (12) E.L.T. 34 (Mad.) in which, while interpreting Notification 37/78, the High Court held that the notification merely referred to fibre tops manufactured out of duty paid waste and does not say that no other material should be used alongwith duty paid waste. It was also held that Notification does not use the word 'exclusively out of waste'. Shri Sridharan submitted that similar interpretation should be placed on Notification 132/86.
11. Referring to the judgment of the Supreme Court in the case of Geep Flashlight Industries Ltd. v. Union of India and Ors. -1985 (22) E.L.T. 3 (SC), Shri Sridharan submitted that the ratio of this decision would not apply in the context of the new Central Excise Tariff. He emphasised that even technologically articles of plastics could not be made out of resins alone because the use of fillers/plasticisers was necessary for making articles of plastics.
12. The Ld. Counsel, thereafter, submitted that if these arguments were not found acceptable, the appellants were entitled to the benefit of exemption under Notification 175/86-C.E., dated 1-3-1986 by virtue of Explanation II, because goods exempt under any other Notification, not being a Notification based on the value or quantity of clearances made in a financial year, have to be excluded for the purpose of calculating the clearances of the manufacturer during the year in question. He also questioned the inclusion of net sales for the year 1985-86 while calculating the total value of clearances in the impugned order. He submitted that the figure of Rs. 5,43,832.25 should be excluded because the appellants were entitled to exemption for these clearances under Notification 182/82 which was permissible under Explanation II of Notification 175/86. If this is done, they would be within the limit of Rs. 1.50 crores prescribed in Notification 175/86 for clearances of the previous year as a condition of eligibility to exemption for the following year.
13. Shri Sridharan also submitted that since the appellants had not withheld any information from the Department and had fully explained the process of manufacture in the note enclosed to the various Classification Lists, it cannot be said that they had made any suppression of material particulars from the authorities. He submitted that in view of this, there was no justification for imposition of penalty.
14. Arguing for the Department, Shri L.N. Murthy, Ld. J.D .C. invited attention to the judgment of the Supreme Court in the case of Geep Flashlight (supra)-and submitted that in view of this judgment, only such articles as were wholly made of plastics, were entitled to the exemption under the Notification. Since the appellants' goods were not wholly made of plastics, they were not entitled to the exemption under the Notification. He also invited attention to the order of the Tribunal in the case of Bakelite Hylem No. 519-521/91-C, dated 3-6-1991 in which it was decided by the Tribunal that pre-pegs of different varieties were excisable goods. He submitted that once the ratio of this decision is applied to the present case, it is evident that the appellants would not be entitled to the exemption from duty under serial No. 38 of the Table appended to Notification 132/86.
15. He also submitted that the question of quantum of clearances not having been fully considered by the Collector, the matter can be remanded back to him because verification of figures would have to be done by him alone.
16. Replying, Shri Sridharan, the Ld. Counsel, submitted that if the decision of the Supreme Court in Geep Flashlight case (supra) is to be relied upon, the present order would have to be set aside including the proceedings initiated against the appellants. He submitted that what was in dispute was not the classification of the goods, but a demand arising out denial of exemption under the Notification. He cited the decisions of the Tribunal in the case of Collector of Central Excise v. Fenoplast (?) Ltd. -1989 (42) E.L.T. 659 (Tri.) and in the case of Rexin Sea (India) v. Collector of Central Excise -1990 (49) E.L.T. 134 (Tri.). He submitted that in view of these decisions, no alternative classification for the goods- can be decided at this stage by the Tribunal.
17. We have given our earnest consideration to the matter. In a note appended to the Classification Lists in which the manufacturing process has been set out, we reproduced the following extract :-
"We are manufacturers of articles of plastics from Phenol Formaldehyde Resins. As articles made from these resins are poor in mechanical strength, we re-inforce them with Cotton Fabrics or Cotton Chindies to improve mechanical strength.
We herebelow give our manufacturing process:
"We purchase Phenol Formaldehyde Resin, Cotton Fabrics and Cotton Chindies. After receiving these materials, they are inspected and we carry out the following operations:
P.F. Prepeg. - Phenol Formaldehyde Resin is taken into a tray of our treating plant and we pass Cotton Fabric through it and then dry it in an oven heated by hot air. In this oven resin advances chemically and dry material is collected at the end. This stage of resin is called 'B' stage and it forms 52%-58% of the weight of the dried material. This material is called P.F. Prepeg.
P.F. Chindies. - Phenol Formaldehyde Resin is taken into a mixer and Cotton Chindies are added to it. After mixing it thoroughly this material is dried in hot air oven. In the oven resin advances to 'B' stage and the dried material is collected. This material is called P.F. Chindies.
Resin in both these materials i.e. P.F. Prepeg and P.F. Chindie is chemically at 'B' stage and due to this, materials can be moulded into various shapes by subjecting it to temperature and pressure.
Articles of Plastics. - P.F. Prepeg and P.F. Chindie are both moulded into various profiles in moulds which are heated and subjected to pressure in press, for a calculated time known as curing time. During this time resin chemically advances and reaches 'C' stage and sets permanently. Pressure is then released and component is removed from the mould. Please be informed that P.F. Prepeg and P.F. Chindie are moulded into articles on job work basis for us by M/s. Hyderabad Enterprises, Kutballapur, Kutatpally, Hyderabad."
(Emphasis supplied)
18. It is evident from the above that not only are cotton fabrics and cotton chin-dies essential for manufacture of the final moulded plastic articles, they are used with the specific purpose of adding mechanical strength to re-inforce the resins which otherwise produce articles of poor mechanical strength. Further, P.F. Prepeg and P.F. Chin-dies are produced not in the intermediate process of manufacture but by specific design to increase the mechanical strength of the plastic material from which different articles are moulded. What is more, the stage of manufacture of these products is known by a definite name, viz., 'B' stage. It is also clear from the description given by the appellants that it is the "P.F. Prepeg" and "P.F. Chindies" which "are moulded into various profiles in moulds which are heated and subjected to pressure in press." Both these materials are classified under sub-heading 3920.32. This is not one of the sub-headings to which the exemption given under serial No. 38 of the Table appended to Notification 132/86 applies. The matter does not end there. After manufacture of "P.F. Prepeg" and "P.F. Chindies", they are sent by the appellants to another manufacturer for moulding into articles on job work basis for the appellants and it is at this stage that duty is paid on them under sub-heading 3920.32. It is no body's case that they have not become excisable goods at this stage so as to attract duty liability. The Ld. JDR had also brought to notice the unreported decision of the Tribunal in the case of Bakelite Hylem contained in Order No. 519-521/91-C, dated 3-6-1991 in which it was held that Prepegs were excisable articles which were bought and sold in the market. In these circumstances, we are unable to accept the plea that P.F. Prepegs and P.F. Chindies are produced in the intermediate stage of the process of manufacture; nor is it possible to accept the plea that the ratio of the various decisions cited by the Ld. Counsel is applicable to the subject goods as a result of which they are entitled to exemption under serial No. 38 of the Table appended to Notification 132/86.
19. It is significant that "Articles of plastics" find mention at two places in the Notification. These are as under:
--------------------------------------------------------------------------------
Sl. Sub-heading Descrip- Rate Conditions
No. No. tion of
goods
--------------------------------------------------------------------------------
37. 3922.90 Articles 15% of Plastics
38. 3922.90 -do- Nil If-
(i) Such articles are made out of goods falling under Heading Nos. 39.01 to 39.15 of the said Schedule on which duty of excise leviable thereon under the Central Excises & Salt Act, 1944 (1 of 1944) or the additional duty under Sec-
tion 3 of the Customs Tariff Act, 1975 (51 of 1975), as the case may be, has al-
ready been paid; or
(ii) such articles are produced out of scrap of plastics.
--------------------------------------------------------------------------------
20. A simple reading of these two entries makes it clear that full exemption from duty is given only if the conditions set out against Sl. No. (38) are fulfilled whereas, though exemption is still available to articles of plastics under Sl. No. (37), it is only partial. This means that a discrimination among articles of plastics themselves is built into the Notification and, what the appellants manufacture is entitled to exemption under Sl. No. (37) since those articles do not satisfy the conditions prescribed for enjoying total exemption against Sl. No. (38). This is what the Ld. Collector has held and we agree with him.
21. The ratio of various decisions cited before us is that so long as the finished articles is made out of plastic materials, even if, at the intermediate stage, articles classifiable under a different tariff heading emerge, the finished article would be entitled to exemption under the Notification. That this is not the case in the present proceedings is evident from appellants' own description of the process of manufacture. They have explained that since articles of plastics manufacture from Phenol Formaldehyde Resin are poor in mechanical strength, they re-inforce them with cotton fabrics or cotton chindies. Thus, the raw materials chosen for manufacturing the articles of plastics themselves include an item (cotton fabrics and cotton chindies) which does not fall under Headings 39.Q1 to 39.15 and such articles are, therefore, not entitled for exemption from duty because of condition (i) against Sl. No. 38. Secondly, as we have seen, P.F. Prepeg and P.F. Chindies are not produced incidentally as intermediate products in the process of manufacture of articles of plastics but as a necessary stage from which plastic articles are moulded. Since Board's clarifications apply to goods produced in the intermediate stage, the benefit of those instructions is also not applicable to the present case.
22. As for the eligibility to exemption under Notification 175/86, it appears that the Ld. Collector has not taken into account Explanation II of the Notification for the purpose of granting exemption for the clearances during the month of March, 1986. The appellants are entitled to this exemption because Notification 182/82, dated 11-5-1982, not being a Notification based upon the value or quantity of clearances made in a financial year, they are covered by Explanation II.
23. In view of the foregoing, while we reject the appeal so far as claim for exemption from duty under Sl. No. 38 of the Table appended to Notification 132/86, dated 1-3-1986 is concerned, we direct that the appellants' liability to duty shall be determined afresh after taking into account the exemption under Notification 175/86, dated 1-3-1986 to which they are entitled by virtue of Explanation II. The impugned order is set aside and the matter remanded to the Collector for fresh calculation of the duty. In doing so, the Collector is directed to furnish to the appellants the details of the duty and the basis on which it is arrived at so that they have the opportunity of explaining their view point on it. They may also be given an opportunity of a hearing before the order is finally passed. It should be possible to complete this within a maximum period of three months.
24. In view of the submissions before us, we do not consider it to be a fit case for imposition of penalty.
Jyoti Balasundaram, Member (J)
25. While agreeing with the learned Member (Technical) I would like to add the following.
26. In the case of Bradma of India Ltd. (supra), the Tribunal held that the emergence of an intermediate product viz. plastic sheet out of artificial resin does not preclude the appellants from claiming benefit of exemption under Notification 68/71 and in paragraph 12 it was held that the appellants are entitled to claim the benefit of Notification 182/82 as the articles of plastics viz. blank cards have been produced out of an intermediate product which has emerged from artificial resin or plastic articles.
27. In the case of Sirsilk reported in 1988 (34) E.L.T. 399 the Tribunal held as follows:
"In the continuous process of manufacture of Acetate Yarn/Staple Fibre/Tow the appellants have put in acetaldehyde falling under TI 68 and acetic acid falling under the same Tariff Item as the starting raw materials. However, in the continuous process of manufacture, these two raw materials or inputs were converted into certain other finished products, one of which is Cellulose Acetate falling under TI 15A(1) - Cellulose Acetate is the penultimate final product in the continuous process of manufacture prior to the stage of Acetate Yarn/Staple Fibre/Tow. The benefit of Notification 201/79-C.E. was denied on the ground that the final product viz. Acetate Yarn/Staple Fibre/Tow was manufactured out of Cellulose Acetate and since Cellulose Acetate falls under TI 15A(1) the benefit is not admissible. We do not find anything in the Notification to hold that the inputs falling under TI 68 should form an integral part of the finished product or that such raw materials must go directly into the finished product."
All these decisions, according to him, would not apply to the facts of the present appeal because as has already been held in paragraph 18, P.F. Prepeg and P.F. Chindies are produced not in the intermediate process of manufacture but by specific design to increase the mechanical strength of the plastic material from which different articles are moulded.
28. The decision of the Supreme Court in the case of Tata Oil Mills Co. Ltd. v. Collector of Central Excise reported in 1989 (43) E.L.T. 183 (SC) is also not applicable herein. The Supreme Court held in that case that the terms of Notification 46/72 do not have the effect of excluding cases where the manufacture of soap is done out of rice bran oil but the entire process is not carried out by the assessee itself (rice bran fatty acid used by the assessee in the manufacture of soap was obtained from pre-treatment of rice bran oil in assessee's factory elsewhere). The Supreme Court held that the benefit of Notification which grants a concessional rate of duty to soap containing particular percentage of rice bran oil was available. The Tribunal's decision in the case of Eagle Flask (supra) does not discuss the aspect of inbuilt discrimination among articles of plastic in Notification 132/86 which is what has been discussed in para 20 above.
29. In the light of the above discussion and for the reasons already recorded by my learned brother I agree that the articles of plastics manufactured by the appellants are not covered by Sl. No. 38 of Notification 132/86.I agree with the conclusions reached in paragraph 23 of the order recorded by learned Member (Technical).