Customs, Excise and Gold Tribunal - Delhi
Twin City Organics Pvt. Ltd. vs Cce, Mumbai on 7 March, 2001
Equivalent citations: 2001(76)ECC554, 2002(148)ELT568(TRI-DEL)
ORDER
P.G.Chacko
1. The appellants are licensed manufacturers of excisable goods. Their products include Camphor Powder (Technical Grade) and Isoborneol. Till June 1990, they were clearing these goods on payment of Central Excise duty at the rates applicable to Chapter Sub-Headings 2914.20 and 2906.90 respectively of the Schedule to the Cental Excise Tariff Act, 1985. On 29.6.1990, they filed revised classification list No. 2/90-91 claiming classification of both the products under Chapter Sub-Heading [CSH] No. 3307.41 of the Tariff Schedule. The Department, thereupon, issued show-cause notice [SCN] to the appellants proposing to classify the products under CSH 2914.20 and 2906.90. The party contested the proposal. In adjudication of the dispute, the jurisdictional Assistant Collector of Central Excise passed order dated 31.12.92 confirming classification of the products viz. Camphor Powder (Technical Grade) and Isoborneol under CSH 2914.20 and 2906.90 respectively. The Assistant Commissioner's decision was affirmed by the Collector (Appeals) as per order passed on 31.3.94 in the appeal filed by the assessee. The present appeal No. E/1070/94-C of the assessee is against the order of the lower appellate authority.
1.2 The appellants had filed classification list No. 458/91-92 with effect from 3.3.92 classifying their products under CSH 3307.41. But the Assistant Collector, without recourse to SCN proceedings, modified the classification of the products as under CSH 2914.20 and 2906.90 and made endorsements to this effect in the classification list on 25.1.93. The party preferred appeal to the Collector (Appeals) but the latter, as per the aforesaid (common) order dated 31.3.94, upheld the lower authority's decision. Hence the assessee's appeal No. E/1071/94-C before the Tribunal.
1.3 The appellants had re-named their products Camphor Powder (Technical Grade) and Isoborneol as 'Karpooram' and 'Pach Karpooram' respectively and filed classification list No. 1/93 effective from 1.1.1993 claiming classification of the products under CSH 3307.41. Later, the department issued two SCNs, one dated 16.7.93 proposing to modify and approve classification of the two products under CSH 2914.20 and 2906.90 respectively and the other dated 22.7.93 demanding basic and special excise duties (at the rates applicable to the Tariff Sub-Headings as per the classification list as approved) totalling to Rs.48,84,885/67 on the clearances effected of Karpooram and Pach-Karpooram during January-June 1993. The party replied to the first notice but did not reply to the second one. The Assistant Collector passed order dated 27.9.93 approving classification of 'Karpooram' and 'Pach-Karpooram' under CSH 2914.20 and 2906.90 respectively and confirming the above demand of duty against the party. The aggrieved assessee filed appeal. The Collector (Appeals), as per his aforesaid common order of 31.3.94, upheld the Assistant Commissioner's order dated 27.9.93. Hence the assessee is in appeal to the Tribunal in E/1089/94-C.
2. We have carefully examined the records and heard both sides.
3. We have four products before us for classification viz. Camphor (Technical Grade), Isoborneol, Karpooram and Pach-Karpooram. As regards Karpooram and Pach-Karpooram, the lower authorities classified them in the same way as they classified Camphor (Technical Grade) and Isoborneol respectively. They did so on the basis of the finding that, as between Camphor and Karpooram as also between Isoborneol and Pach-Karpooram, there was no difference of ingredients except in the percentage contents thereof. In the present appeals, we note, there is no serious challenge to this finding. Moreover, it has been agreed by both sides that Karpooran can be taken to be the same as Camphor for the purpose of classification and, similarly, Pach-Karpooram and Isoborneol can go together. Therefore, we would address the dispute of classification in respect of only two out of the four items, viz. Camphor (Technical grade) and Isoborneol.
4. The lower authorities classified both the products in Chapter 29 of the Tariff Schedule by relying on Chapter Note 1(a) to Chapter 29. They held that Camphor (Technical Grade) and Isoborneol were separate chemically defined organic compounds containing permissible impurities and were correctly classifiable under CSH Nos. 2914.20 and 2906.90 respectively. In arriving at the decision, they also relied on the Tribunal's decision in the case of Collector Vs. Atul Products [1985 (20) E.L.T. 147]. The adjudicating authority had considered the merits of the rival claims for classification of the products. In dealing with the assessee's claim under CSH 3307.41, that authority referred to HSN Notes on Heading No. 3307.41 and reached a finding that their products were not "agarbatti or dhoop or similar preparation" to merit classification under CSH 3307.41. The said authority, further ruled out classification under the Sub-Heading in terms of Chapter Note 2 to Chapter 33 of the Tariff Schedule. It also found that the description of CSH 3307.41 was not specific and hence Rule 3(a) of the Rules of Interpretation was not invocable for classifying any product under that Sub-Heading. In considering the Department's claim as set out in the SCN for classifying the products under CSH Nos. 2914.20 and 2906.90, the adjudicating authority referred to Chapter Note 1(a) to Chapter 29 and, after an elaborate discussion on the process of manufacture, recorded a finding that in Camphor Powder (Technical grade) and Isoborneol, Camphor and Isoborneol were separate chemically defined compounds and the other ingredients (not having been deliberately added during or after the manufacture) were impurities of permissible nature in terms of HSN Note as well as of the Tribunal's decision in the case of Atul Products (supra) and therefore Camphor (Technical grade) and Isoborneol were to be correctly classified under CSH 2914.20 and 2906.90 respectively. The lower appellate authority upheld the findings of the adjudicating authority with regard to coverage of the products under Chapter Note 1(a) to Chapter 29 and, without touching the assessee's claim under CSH 3307.41, affirmed classification under CSH 2914.20 and 2906.90.
5. ld. Advocate, Sh. V. Lakshmi Kumaran, for the appellants, submitted that Camphor Powder (Technical grade) and Isoborneol manufactured by them were meant to be used, and actually used, as incense like Agarbatti and Dhoop by burning during Hindu religious rites. The products were sold to dealers in the form of blocks weighing 25 Kgs. each and labelled "Only for Pooja". They were not used in any manner other than as incense by burning. In this connection, he referred to affidavits (filed along with reply to the SCN dated 22.12.90) of some of their dealers who affirmed that the products supplied by the appellants were either used as such as incense by burning during daily poojas and other rites in Hindu temples or used as incense in similar manner after converting the blocks into tablet form. He also quoted from Hindu Scriptures to establish the sacredness of incense in Hindu religious rites. Ld. Counsel further drew our attention to HSN Explanatory Notes under Heading 33.07 and submitted that the products in question, being odoriferous preparations like 'Agarbatti' and 'Dhoop' used during religious rites, were squarely covered by the description "similar preparations in whatever form" under CSH 3307.41. The description was specific as against the general description of the goods covered by Chapter 29 in terms of Chapter Note 1(a) to that Chapter. Therefore, according to ld. Counsel, Rule 3(a) of the Interpretative Rules was to be applied for classifying the appellants' products under CSH 3307.41 in preference to any Heading/Sub-Heading in Chapter 29. Ld. Advocate also claimed support from Chapter Note 2 to Chapter 33. Apropos of the Department's claim, he faulted it by relying on the Chemical Examiner's report and Chapter Note 1(a) to Chapter 29. The Chemical Examiner had reported that each of the two products was a mixture of various compounds and hence could not be a separate chemically definded compound to fall within the coverage of Chapter 29. Ld. Advocate gave a brief account of the process of manufacture of the products and submitted that the minor ingredients of the final product were deliberately left in the product so as to render it particularly suitable for burning and were, therefore, to be considered as impurities not permissible in terms of Chapter Note 1(a). The products with such impermissible impurities stood excluded from Chapter 29. In this connection, he relied on HSN Explanatory Notes to the term "impurities" occurring in Chapter Note 1(a). Ld. Counsel also relied on the Deputy Chief Chemist's opinion regarding classification of the products. He submitted that the order of the Collector (Appeals) was not sustainable for the aforesaid reasons and on the further ground that the order was not a speaking order on all issues raised by the party.
6. Ld. JDR, Sh. S.P.Rao, who argued the Revenue's case, submitted that Camphor and Isoborneol were separate chemically defined organic compounds specifically covered by Chapter 29 of the Tariff Schedule. Camphor was specifically mentioned under CSH 2914.20, while Isoborneol being a cyclic alcohol other than Menthol was squarely covered by CSH 2906.90. He submitted that, though both the products admittedly contained impurities, none of such impurities was shown to have been deliberately left in the products for any specific purpose so as to be called impermissible impurities. The impurities in each of the two products had come to exist as intermediate products of the process of manufacture. They were neither deliberately added during or after the process nor deliberately left with the final product. Ld. DR further submitted that the appellants had not raised the plea of deliberate action in respect of impurities before the lower appellate authority. Relying on HSN Explanatory Notes, ld. DR contended that all the impurities present in each of the two products were permissible impurities in terms of Chapter Note 1(a) to Chapter 29 and therefore the products were correctly classifiable under CSH 2914.20 and 2906.90. Opposing the Counsel's arguments in support of the assessee's claim under CSH 3307.41, ld. DR submitted that they had admittedly cleared the products in the form of 25 Kg. blocks. That these blocks were subsequently made into tablets was immaterial for purposes of Chapter Note 2 to Chapter 33. He contended that the products in question did not meet the requirements of Chapter Note 2 to Chapter 33. Ld. DR also challenged the appellants' claim that Camphor was used only for burning. He further reiterated the findings of the adjudicating and lower appellate authorities and urged for rejecting the appeals.
7.1 We may first have a look at the chemical composition of the products. Samples of the two products were tested in the Central Excise laboratory and the result was that the sample described as "Camphor (Technical grade)" was found to contain 60% camphor along with 18% isoborneol and small quantities of other minor ingredients, while the other sample described as "Isoborneol" contained 60% isoborneol and 18% camphor along with small amounts of other minor ingredients. A re-test was conducted at the instance of the assessees and, thereupon, Dr. K.Hussain, Chemical Examiner Gr.I in the office of the Deputy Chief Chemist, reported as under:-
Sample Sample
CAMPHOR ISOBORNEOL
1. Camphor 76.9% 20%
2. Isoborneo 14.4% 73.3%
3. Camphene 1.6% 2.3%
4. Fanchone 0.5% 0.1%
5. Ferri Alcohol 2.3% 1.4%
6. Isoborneol Acetate 0.4% 0.4%
7. Borneol 3.1% 1.7%
8. High Boilers 0.8% 0.8%
The Chemical Examiner, further, opined that the products might not fall under Chapter 29 as they were not well-defined organic compounds. He also suggested classification of the goods under Chapter 33 or 38 of the Tariff Schedule. The Assistant Collector and the Collector (Appeals) considered the above percentage composition and classified the products under Chapter 29 on the basis of their finding that the major ingredient (camphor or isoborneol, as the case may be) in each product was a chemically defined organic compound and the minor ingredients, which were also noted to be chemically defined organic compounds, were only permissible impurities in terms of Chapter Note 1(a) read with HSN Notes.
7.2 Chapter 29 of the Central Excise Tariff Schedule comprises organic chemicals. It is not in dispute that Isoborneol, being a cyclic alcohol other than Menthol, falls under Sub-Heading No.2906.90 and Camphor is expressly covered by Sub-Heading No.2914.20. The oft-mentioned Chapter Note 1(a) reads as follows:
"1. Except where the context otherwise requires, the headings of this Chapter apply only to:
(a) Separate chemically defined organic compounds, whether or not containing impurities;"
Both sides have heavily relied on this Chapter Note in support of their respective claims, and both have taken the aid of HSN Notes for pressing their points. We shall examine these arguments first. We note that the chemical composition as reported on re-test of the samples stands accepted. Almost 77% content of the sample of the product called "Camphor powder (Technical grade)" was camphor and the rest comprised isoborneol and various other minor ingredients. As for the other product viz. Isoborneol, it contained 73.3% of isoborneol, the rest being camphor and various other minor ingredients. Each of the two products is a mixture of organic substances. While, in one product, the major component of the mixture is camphor (76.9%), it is isoborneol (73.3%) in the other product. In both products, the minor ingredients are substances whose presence in the mixture resulted solely and directly from the manufacturing process. The finding to this effect as recorded by the adjudicating authority after examining the process of manufacture of the products has not been challenged in these appeals. However, the appellants have contended that the minor ingredients were deliberately left in the products so as to render the products particularly suitable for burning in religious rites and, therefore, such ingredients were not to be considered as permissible impurities in terms of Chapter Note 1(a). Ld. Advocate has sought to illustrate this point by submitting that, in the chain of chemical conversions involved in the manufacture of camphor, isoborneol was generated at an intermediate stage and the same was deliberately left in the final product for the aforesaid specific purpose. Isoborneol so left in the product would not be an impurity as contemplated under Chapter Note 1(a), according to him. We note that this argument is based on the relevant Explanatory Notes to HSN.
7.3 No doubt, the Chapter Headings and Sub-Headings under reference are patterned on the HSN. Chapter Note 1(a) to Chapter 29 of the Tariff Schedule and Chapter Note 1(a) to Chapter 29 of the HSN are identically worded. The relevant Explanatory Notes (HSN) on "Chemically defined compounds" mentioned in Chapter Note 1(a) are as under:
A separate chemically defined compound is a single chemical compound of known structure, which does not contain other substances deliberately added during or after its manufacture (including purification). Accordingly, a product consisting of saccharin mixed with lactose, for example, to render the products suitable for use as a sweetening agent is excluded from this Chapter (see Explanatory Note to heading 29.25).
The separate chemically defined compounds of this Chapter may contain impurities (Note 1(a)). An exception to this rule is created by the wording of heading 29.40 which, with regard to sugars, restricts the scope of the heading to chemically pure sugars.
The term "impurities" applies exclusively to substances whose presence in the single chemical compound results solely and directly from the manufacturing process (including purification). These ubstances may result from any of the factors involved in the process and are principally the following:
(a) Unconverted starting materials.
(b) Impurities present in the starting materials.
(c) Reagents used in the manufacturing process (including purification).
(d) By-products.
It should be noted, however, that such substances are not in all cases regarded as "impurities" permitted under Note 1(a). When such substances are deliberately left in the product with a view to rendering it particularly suitable for specific use rather than for general use, they are not regarded as permissible impurities.
Hawley's Condensed Chemical Dictionary (in short, CCD) describes 'camphor' as a ketone of molecular formula C10H16O occurring as colourless or white crystals, granules etc. with aromatic odour. It describes 'isoborneol' as a reduction product of camphor, with molecular formula C10H16OH, and as a white solid with camphor odour. Each of the two is a single chemical compound of known structure. In the appellants' products viz. 'Camphor (Technical Grade)' and 'Isoborneol', the major ingredients are camphor (76.9%) and isoborneol (73.3%) respectively and both of these are separate chemically defined compounds in terms of the above HSN Notes. None of the minor ingredients in each product was deliberately added during or after the manufacturing process. On the other hand, all of them resulted solely and directly from the manufacturing process as rightly found by the lower authorities. Therefore, as per the HSN Notes, the said minor ingredients must be held to be only impurities permitted under Chapter Note 1(a) unless it is established that the said ingredients were deliberately left in the product with a view to rendering it particularly suitable for specific use. We have found no evidence on record to prove the appellants' claim that the minor ingredients were deliberately left in the products to render them particularly suitable for burning in religious rites. There has been no attempt even to show that the said ingredients had the necessary incendiary property for the purpose of burning. Such ingredients were, therefore,m only permissible impurities in terms of Chapter Note 1(a) and, consequently, the products in question must belong to Chapter 29 of the Tariff Schedule. The appellants have relied on the Chemical Examiner's opinion that the products might not fall under this Chapter. But such opinion has no persuasive effect on us since the core function of Tariff classification is beyond a Chemical Examiner's realm and the aforesaid opinion was given without reference to the HSN.
7.4 It was argued by ld. Advocate that the products in question were covered by "similar preparations in whatever form" mentioned against TSH (Tariff Sub-Heading) 3307.41. The corresponding HSN sub-heading as well as Chapter Note (2) to Chapter 33 of the Central Excise Tariff (CET) Schedule were also relied on by him in support of the argument. The CET and HSN entries are extracted below:-
CET
- Preparations for perfuming or deodorizing rooms, including odoriferous preparations used during religious rites:
3307.41 - 'Agarbatti', 'Dhoop' and similar preparations in whatever form.
HSN
- Preparations for perfuming or deodorizing rooms, including odoriferous preparations used during religious rites:
3307.41 - "Agarbatti" and other odoriferous preparations which operate by burning.
The adjudicating authority had examined the above entries and held that TSH 3307.41 included two categories of odoriferous preparations viz. those which operated by burning and others which operated otherwise than by burning. That authority further held that the first category was restricted to 'Agarbatti' and 'Dhoop' and the second category was covered by the expression "similar preparations in whatever form". The Assistant Collector did not include the assessees' products even in the second category inasmuch as it was the assessees' case that their products were used as incense by burning during religious rites. The above categorisation by the adjudicating authority does not stand to reason. When 'Agarbatti' was accepted to be an odoriferous preparation which operated by burning and TSH 3307.41 was found to be fully aligned with HSN sub-heading 3307.41 [Agarbatti and other odoriferous preparations which operate by burning], it only followed that all the preparations mentioned under TSH 3307.41 also operated by burning. However, we note, the question whether the impugned products could be considered at all to be preparations falling under Tariff Heading 33.07 was prudently dealt with by the Assistant Collector, who, relying on Chapter Note 2 to Chapter 33 of the Tariff Schedule and Chapter Note 3 to Chapter 33 of the HSN, held that the goods did not fall under the said Tariff Heading. Considering the facts and evidence on record, we must agree with this decision of the adjudicating authority.
7.5 The appellants cleared the products to their dealers in the form of 25 Kg. blocks during the relevant period. The dealers, in retail sale, either supplied the blocks as such to customers or converted the blocks into tablets and then supplied to customers. The end-users used the tablets as incense by burning in religious rites and ceremonies. These are some facts sought to be proved by the appellants by way of affidavits of a few dealers. It has also been pleaded that the products in block form cleared from the appellants' factory carried the label "only for Pooja". It, however, appears from the record that such labelling was started only after the relevant period. The material fact is that it was in the form of 25 Kg. blocks, and that too without any label of the above sort, that the assessees cleared the impugned products during the relevant period. The goods so cleared did not satisfy the requirements of Chapter Note 2 to Chapter 33 of the Tariff Schedule read with Chapter Note 3 to Chapter 33 of the HSN inasmuch as the goods as cleared by the assessees during the relevant period were not put up in packings of a kind sold by retail for use as incense in religious rites, with label, literature or other marks indicating that the products were meant for such use. The 25 Kg. blocks cleared by the party were not shown to be "clearly specialised" to the aforesaid use as incense in religious rites, nor did they carry any label, literature or other indication as above during the relevant period. This apart, the goods were not shown to be suitable for use as incense. In this context, we observe that, though the scriptures cited by ld. Advocate could bring home to us the indispensability and sacredness of incense in Hindu religious rites, they could not establish that the impugned goods were suitable for use as incense in such rites. Suitability for use as incense, in relation to the products, must, in our view, be taken to mean that they had more or less the same incendiary properties as those of 'Agarbatti' and Dhoop'. The dealers' affidavits were no proof of such suitability of the products, nor was any other evidence of such suitability adduced by the assessee. Therefore, the products in question did not pass the test of the above Chapter Notes and hence stood excluded from the coverage of Tariff Heading 33.07.
7.6 It is also pertinent to note that the descriptions under TSH 2914.20 and TSH 2906.90 are more specific than that under TSH 3307.41 and therefore, by virtue of Rule 3(a) of the Rules of Intepretation, the classification under the former must be preferred as rightly observed by the Assistant Collector.
8. In view of our findings recorded hereinbefore, we uphold the decision of the lower authorities on classification. The appellants' products viz. Camphor (Technical Grade) and Karpooram should be classified as Camphor under TSH 2914.20 and their products viz. Isoborneol and Pach-Karpooram should fall under TSH 2906.90 as cyclic alcohol other than Menthol. We note that the entire demand of duty involved in appeal No.E/1089/94 had arisen out of approval of classification as above by the Assistant Collector. Therefore, there being no case of time bar against the demand, we uphold the demand of duty also. The appeals are dismissed.