Customs, Excise and Gold Tribunal - Mumbai
Commissioner Of Customs vs Tata Chemicals Ltd. And Bla Industries ... on 24 September, 2004
Equivalent citations: 2004(177)ELT1038(TRI-MUMBAI)
ORDER Moheb Ali M., Member (T)
1. This is not so much about coal as its ash content. Notification 35/90 dated 20.3.1990 exempts coking coal of ash content below 12% from so much of duty of Customs as was in excess of 5% ad valorem. Notification 23/91 exempts similar coal from the whole of auxiliary duty. The respondents imported metallurgical coal weighing 38462 MT (33462 MT belonged to TCL and 5000 MT to BLA) and claimed the benefit of the above said notifications. Bills of entry filed by the respective importers; were assessed provisionally subject to determination of ash content. Samples were drawn and sent to CFRI(Central Fuel Research Institute) for analysis who opined that the ash content of coal belonging to TCL is 13.8% by wt. and that of BLA is 12.6% by wt. The department communicated the results to the importers. The importers protested against the report and asked for the representative samples which were sent for analysis. The department thereupon sent another set of samples lying with them to CRCL for a retest. The latter in its report opined that TCL coal has 12.21% ash content by wt. And that of BLA has 12.33%. Thus the two labs confirmed that the ash content is more than 12%.
2. Now that two different labs confirmed the ash content to be above 12% in the imported consignments, show cause notices were issued asking the respondents to explain why the benefit of above mentioned notifications should not be denied, why the assessments should not be finalised and why the differential duties should not be demanded. In the year 1995 the Assistant Collector adjudicated the cases and confirmed he demands; arising out of denial of the benefit of notifications aforesaid. The respondents appealed against the orders of the Assistant Collector and succeeded before the Commissioner (Appeals). The present appeals are filed against the orders of the Commissioner (Appeals). The issues are identical in both the appeals and are therefore dealt with in this common order.
3. Before we narrate the rival contentions, we may mention a few things about coal itself and a few others about how the samples of coal should be drawn and tested according to IS 436 (on drawal of samples) and IS 1350 (testing methods) for the purpose of determining the ash content respectively.
4. Indian coking coal has a very high percentage of ash ranging from 17% to as high as 34%. Use of such coal has several disadvantages least of them being the problems relating to disposal of ash. Low ash content in coal determines its calorific value and therefore its efficacy. The exemption notifications cited earlier have the avowed purpose of encouraging import of low ash coal. The requirement of less than 12% ash content is important. No particular method of testing the ash content is prescribed in the notifications themselves (sometimes they do). We have the authority of the Hon'ble Supreme Court in the case of Bombay Oil Industries Pvt. Ltd v. UOI (1995 [77] ELT 32) wherein the apex court laid down that the method of testing laid down by ISI is to be followed in respect of imported goods and not any other international method.
5. ISI has prescribed standards for testing coal for its ash content in IS 1350 and for drawing samples in IS 436. In regard to drawing of samples from a ship, IS 436 says as follows:
"5. SAMPLING FROM SHIPS DURING LOADING OR UNLOADING 5.1 Sub-lots - For the purpose of sampling, the entire quantity of coal in a ship shall be divided into a suitable number of sub-lots of approximately equal weight as specified in Table 1.
5.1.1 A gross sample shall be drawn from each of the sub-lots and shall be kept separately so that there will be as many gross samples as the number of sub-lots into which the lot has been divided.
5.2 Sampling of coal from ships shall be carried out, as far as practicable, when coal, is in motion. If it is taken on a conveyer, the gross sample shall be collected as per the procedure laid down in 3. If not, the gross samples may be drawn during loading or unloading of the ship. For this purpose, the number of increments to be taken shall be governed by the weight of the gross sample and the weight of increment as specified in Table 3 for various size groups of coal."
-----------------------------------------------------
TABLE 1 NUMBER OF SUB-LOTS/GROSS SAMPLES (Clauses 0.3.4.1 and 3.1)
------------------------------------------------------
WEIGHT OF THE LOT NO. OF SUB-LOTS/GROSS (METRIC TONNES) SAMPLES Up to 500 2 501 " 1000 3 1001 " 2000 4 2001 " 3000 5 Over 3000 6 -----------------------------------------------------
Then the IS 436 goes on to describe the procedure to reduce a gross sample into a sample for a lab test etc. in great detail. The foreword to IS 436 says that the procedure has been prescribed after extensive research.
6. IS 1350 prescribes the method of testing for determining the ash content. This standard says that 'Methods' of sampling shall be as prescribed in IS: 436. Thus the procedure laid down in 1350 is closely linked with the drawal of samples as per IS 436. Clause 8 of IS 1350 reads as follows:-
8. DETERMINATION OF ASH 8.0 Outline of the Method. The sample is heated in air to 500°C in 30 minutes, from 500 to 815°C for a further 30 to 60 minutes and maintained at this temperature until constant in mass.
8.0 Apparatus 8.1.1 Muflle Furnace - Capable of giving a substantially uniform zone of 500°C in 30 minutes from cold, of being raised to 815 ± 10°C in a further 30 to 60 minutes and of maintaining this temperature up to the end of the run up period. The furnace should also be capable of being raised to a temperature of 850 ± 10°C, if necessary. The ventilation shall be such as to give about five air changes per minute.
NOTE - The necessary rate of air change can be obtained by fitting a chimney about 20 cm high to the back of the muffle and leaving the front door of the muffle open by 1.25 cm. If the chimney cannot be fitted to the back of the muffle, the required ventilation can be obtained by fitting an insulating brick as a door, leaving a clearance of 12.5 cm2 as fair inlet, and carrying a silica tube passing to the back of the muffle to withdraw air, which is vented through a vertical light-alloy tube 2.5cm in diameter and 50 cm in length, also fitted into the insulating brick. The samples of coal can be ashed completely in an hour.
8.1.2 Dish - of silica, porcelain or platinum, 10 to 15 mm deep, of such a size that, with the amount of sample used, the spread does not exceed 0.15 g/cm2.
8.2 Procedure 8.2.1 Thoroughly mix for one minute the air-dried material, ground to pass through 212-micron IS sieve preferably with a laboratory mechanical mixer. Weigh a clear dry empty dish and lid. Into the dish weigh accurately about one to two grams of the material according to the size of the dish. Distribute the material so that the spread does not exceed 0.15 g per cm2. Insert the uncovered dish into the muffle furnace at room temperature, raise the temperature to 500°C in 30 minutes and to 815 (±) 10°C in a further 30 to 60 minutes and maintain at this temperature for 60 minutes.
8.2.2 Cover the dish with its lid if the ash is light and fluffy, remove from the muffle furnace and allow to cool, first on a cold metal slab for ten minutes and finally in a desiccator placed at the side of the balance. Weigh after the dish has been in the desiccator for 15 minutes. Re-ignite at the same temperature until the change in mass of the ash is less than 0.001g. Note the colour of ash. Brush out the ash and reweigh the empty dish. Obtain the mass of the ash by difference.
8.3 Calculation (M3-M4) Ash, percent by mass - 100 x -------
M2 - M1 Where M1 = mass in g dish, M2 = mass in g of dish and sample, M3 = mass in g of dish and ash, and M4 = mass in g of dish after brushing out of the ash and on re-weighing.
8.4 Precision - The results of duplicate determinations shall agree within the following limits:
Ash, percent Precision Repeatability Reproducibility Upto 10.0 0.2 units 0.4 units Over 10.0 2.05 percent of the Arithmetic mean of The duplicate values 3.0 percent of the Arithmetic mean of The duplicate values
7. Both parties agree that the method prescribed for drawing representative samples in IS 436 is not followed. There appears to be some degree of agreement that gross air dried method followed by both CFRI and CRCL are in accordance with the method prescribed in IS 1350. We may point out that the respondents find fault with the GAD method adopted by the labs to test the ash content - according to them the coal should have been tested in the form in which it was received (as received basis) - instead of the method of reducing the coal's moisture content by air drying it, prescribed in the gross air dried method.
8. Shri Sethna, the learned senior advocate appearing for the Revenue, forcefully put forth that the respondents were regularly importing metallurgical coke at Okha Port and were well aware of the method adopted to draw samples; that they executed a bond at the time when goods were assessed provisionally to abide by the test results; that they cleared the goods without raising any objection as to the method adopted to draw the samples; that they are forbidden to raise objections on that aspect when the test results given by two independent labs were received; that their representative was very much present when the samples were drawn; that they were duty bound to provide all facilities to draw the samples as per Section 145 of the Customs Act which they failed to do; that the proper officer has drawn the samples in the presence of the importer in accordance with the provisions of Section 144 of the Customs Act; that the respondents were aware that IS 436 was not followed while drawing the samples; that provisional assessment was done at the behest of importers; that the respondents failed to produce any other report except the one given by foreign surveyors to disprove the results communicated by the department; that the respondents' insistence that the samples should have been drawn as per IS 436 at a time when the provisionally released goods had already been consumed tantamounts to dishonesty; that the gross air dried method adopted by the labs is the only recognised method of testing to ascertain the ash content; that the respondents are wrong in claiming that the imported coal should have been tested 'as received'; that in the port of loading the coal was tested on gross air dried method only; that the respondents are wrong in claiming that the test results should have been recalculated applying the formula prescribed to convert the test results arrived at on GAD basis to as received basis; that there is no need to do so; that the respondents' contention that the test results are wrongly arrived at because the samples were inadequate is not correct; that the contention that CRCL conducted the test on samples which did not represent their consignment is untenable; that the department sent the samples drawn from the respondents' consignment to CRCL when they disputed the results of CFRI that the Inspector who drew the samples used a clean stone to break the lumps of coal of big size and did not convert the coal into 'chura' as claimed by the respondents; that the samples were not contaminated simply because a stone was used to break the lumps; that the endorsement made on the test report does not show that the samples sent for test are not adequate; that the cross examination of the Scientist of CRCL clearly showed that adequate samples were used for testing as per IS 1350; that in any case the respondents are precluded from doubting the veracity of the results obtained by qualified people and that both the testing houses have shown that the imported coal has more than 12% ash content. The respondents are not entitled for the benefit of concessional rate of duty. He pleaded that the Commissioner (Appeals) went on a wrong assumption that the goods are to be tested on 'as received' basis and therefore his order should be set aside and the order of the lower authority should be restored.
9. The learned senior advocate, Shri C.S. Lodha appearing for the respondents, argued that it is an admitted fact that the samples were not drawn in accordance with the procedure prescribed by IS 436; that any results arrived at on the basis of non-representative samples are unreliable; that in the case of UOI v. Gangadhar Narsingdas Agrawal and Ors. (1988 [33] ELT 673) the Hon'ble Bombay High Court (confirmed by the Supreme Court) held the percentage of iron ore content in the goods under export should be determined in the condition in which they were being exported and applying the ratio of this decision the ash content should be determined on the 'as received' basis and not by GAD as rightly held by the Commissioner (Appeals); that in the case of CC(P), Ahmedabad v. Rajkot Engineering Association (2000 [123] ELT 968), the Tribunal held that when samples are not properly drawn and sent for test the test results are not dependable and have to be discarded; the ratio of the decision squarely applies to them; that the bond executed by them at the time of provisional assessment does not bind them to abide by any result arrived at wrongly; that the department is bound to follow the correct procedure as prescribed in IS 436 and IS 1350 while drawing the sample and while testing the same respectively; that during the course of cross examination it was clearly brought out that the samples drawn were not representative and for the reasons cited in the Commissioner (Appeals)'s order, the Revenue's appeal; have to be rejected.
10. We have heard the rival pleadings and went through the written submissions filed and the case law cited.
11. We are confronted with a rather tricky situation here. On one hand we have importers who agree to pay the differential duty - between provisionally assessed duty and the finally assessed one - by executing a bond as required under Section 18 of the Customs Act and on the other the department, which finally assesses the duty on the basis of test results which are not entirely without blemish. That the department did not agree with the test report of CASCO who conducted the test on the coke to determine its ash content at the load port is evident from the fact that they drew samples of the consignment during its discharge. The Department is not bound to accept the test report furnished by the importer. According to the test report done at the load port, the ash content of the metallurgical coke is 9.8% by wt. and that test itself has been done in accordance with the procedure laid down in the British Standard, which is equivalent to Indian Standard.
12. During the course of cross examination of the officer who drew the samples, it came out that the officer drew 20 kgs. of the material from out of the heap on the wharf and another 20 kgs. from the ship's hold and out of these lots, prepared samples to be sent to CFRI for test to determine the ash content. The officer says that he used a 'clean stone' lying in the vicinity and broke the lumps of coal into smaller pieces (chura) if for nothing else at least to fit the samples in appropriate containers. We wonder which Customs/Excise officer in his shining uniform really goes through this kind of trouble. But this one seemed to have done. This method of drawing samples was later assailed by the respondent very; severely. The learned advocate says that the manner in which the sample was drawn and the torture it was put to by using a stone to break the lumps is neither scientific not permissible under IS 436. We have already extracted the procedure to be followed and the quantity to be drawn according to IS 436. The procedure adopted does not come anywhere near he method prescribed.
13. Thus the department having not relied upon the test report filed by the importers chose to conduct the test of their own by drawing samples in such a manner which cannot be called scientific. But the hitch is that the importers' representative was very much present while all this was going on. The importers themselves received the third set of samples so drawn without demur. Having done so, they raise a hue and cry about the method adopted to draw samples, the use of a stone et all. Why did they not object to the wrong way of drawing of samples, why did they say that the third set of samples given to them initially is lost and why did they of course insist that the retest should be done with the samples drawn in a manner prescribed under IS 436 knowing well that it is an impossible task to perform one year after the import was made and the entire consignment consumed, are some of the questions that the learned advocate for the appellant poses. Is there a touch of dishonesty on the part of the respondents! It appears to be so however faintly.
14. There is an admission on the part of the appellants that the samples were drawn in a manner other than the one prescribed in IS 436. Honestly speaking the manner prescribed for drawing samples is rather cumbersome and in any case cannot be adhered to by the Customs officers in Okha who use stones to break lumps of coal. A glimpse of stone age here. However the appellants argue that the test itself has been done in accordance with IS 1350. But this is contested as well.
15. The respondents, during the course of hearings before the original authority, cross-examined one Shri Ram Singh, a scientist 'C' of CFRI, not because he had anything to do with the testing of sample of the respondents' consignment of coal but because he volunteered to be cross-examined. The adjudicating authority enquired from the respondents whether they would like to cross-examine Shri Ram Singh in the absence of the scientist who tested the sample (he actually retired by then). The respondents by then were ready to cross-examine anybody who is prepared to be cross-examined whether he is a witness or not. Generally, we are told that only witnesses are allowed to be cross-examined. So much for cross-examination before authorities who are not fully conversant with the nuances of Evidence Act. One other aspect of this cross-examination is that we are not sure whether Ram Singh was answering questions in the capacity of an expert in the field of coal testing or is doing so in the capacity of a witness. There is a difference. Be that as it may, the respondents heavily relied on his version of things to argue that the test was not done as per IS 1350. We hold that Ram Singh's scholarly evidence cannot be relied upon for the above reasons.
16. The respondents relied upon certain endorsements on the test report of CFRI to argue that the results indicated therein are unreliable. Firstly, the delay of nine months that took place in reporting the test results is fatal according to the respondents. Secondly, the CRCL report is based on samples which did not represent their consignment. Thirdly, before testing the samples, the scientist did not determine the moisture content of the samples, a requirement under IS 1350.
17. We have considered all these pleas. It appears that the samples are adequate for testing as brought by the scientist of CRCL. Whether the sample is in the form of 'chura' or lump is answered by the Assistant Collector. In the order-in-original he says that it is not exactly 'chura' but consisted of small pieces. The second sample was sent to CRCL for retest as the respondents did not agree with results arrived at by CFRI. It is only after they declared that they did not have the third set of sample given to them that the department thought it fit to send the sample lying with them for retest. The respondents cannot argue that what is i sent to CRGL is not the sample drawn from their consignment. From the evidence it appears that what is sent to CRCL is a sample of the same consignment imported by the respondents. We see no reason to discard the officer's evidence in this regard.
18. The Commissioner (Appeals) in the impugned order held that the correct method to test the ash content is to determined on 'as received' basis. The respondents fully supported this contention. We do not agree with this contention as rightly pointed out by the learned advocate for the appellants. The respondents had us believe that at the load port the method adopted was gross air dried method and that was correctly done. They can't be found to argue that GAD method is good at the load port but not good enough at the port of discharge. Further GAD is universally recognised method of testing the ash content.
19. Section 145 reads thus "All operations necessary for making any goods available for examination by the proper officer shall be performed by the owner ...." The learned advocate for the appellants laid a lot of emphasis on this aspect to argue that the respondents cannot complain about the manner in which samples are drawn after failing to make necessary arrangements for examination as required under Section 145. But one might counter this argument by saying that the officer is required to spell out what arrangements he would like the importer to make for facilitating examination. There is nothing on record to show that the officers asked for any such arrangements to be made. Nothing was asked, therefore, nothing was given in the form of assistance.
20. It has to be pointed out that neither Notification No. 35/90 nor Notification No. 23/91-CUS which exempt metallurgical coal from basic (in excess of 5% Adv.) and auxiliary duties (from the whole of auxiliary duty leviable thereon of customs) respectively prescribe any particular method of either drawing the samples or testing them. In respect of certain imported goods under Chapter 27 of the Customs Tariff, the method of test to determine the characteristics of a product is defined. For instance smoke point shall be determined in the apparatus known as the smoke point lamp, in the manner indicated in the Indian Standard Institution specifically (IS 1448 as per the time being in force ). There are other examples as well wherein the manner indicated in the Indian Standard Institution have to be followed for testing the imported goods under Chapter 27. Since the Notifications in question nor the chapter notes prescribed any particular method of testing, the laboratories such as CFRI and CRCL follow IS 1350 for testing the ash content in coal. The method of drawing coal samples is prescribed in IS 436, but the method so prescribed has not been followed in the present case. The respondents assailed the test reports on the ground that the test is vitiated when samples are not drawn in the manner prescribed in IS 436. It is an admitted fact that the officers who drew the samples of coal in the present appeals gathered 20 kgs. of coal from the wharf and another 20 kgs. from the holds ship. The respondents representative was present when the samples were drawn. One set of samples was given to the respondents. The latter did not protest the manner in which the sample was drawn. It is only latter when the test results were communicated the respondents wanted the samples to be drawn in accordance with IS 436 and sent for retest. The department by then was helpless inasmuch as the imported coal which was provisionally released on the execution of a bond were consumed by the importers and therefore was not available for drawing any fresh samples. The department then decided to send another set of samples lying with them to CRCL for retest. The report of CRCL was also not in favour of the Respondents.
21. In the above said circumstances one has to sec whether the respondents stand that the samples should have been drawn in the manner prescribed in IS 436 is correct. It is evident from the facts of the case that the respondents have been regularly importing coal of certain specifications and were aware that coal samples have to be drawn in a particular manner to determine the ash content. The respondents still did not object to the manner in which the samples were drawn in the presence of the representative. Thus, both the parties that is the Customs and the importers were adopting a method in vogue at the Port of Okha. If such a method was wrong it was incumbent on the part of the importers to protest against it. instead they choose to clear the goods provisionally on execution of a bond and on payment of duty at a concessional rate. Clearly therefore it appears that the respondents are estopped from claiming that the samples should have been drawn in accordance with the procedure laid down in IS 436
22. The respondents have become a party to the drawal of samples in a particular manner. They are therefore bound to live by its results. It would have been a different thing had the test itself not been conducted in accordance with the procedure laid down in IS 1350. The CRCL Scientist in his Cross-examination states that the test was done in accordance with the approved procedure. As a general principle, one who knowingly accepts a benefit of a contract or conveyance is estopped to deny validity or binding effect on him of such contract or conveyance. The doctrine of estoppel is a branch of a rule against assuming inconsistent positions. Estoppel is frequently based upon the acceptance and retention by one having knowledge or notice of the facts of benefits from a transaction, which he might have rejected or contested. The respondents wanted to clear the goods at a concessional rate of duly and therefore did not object to the manner in which the samples were drawn. They enjoyed the benefit of such clearance but were found to be contesting the test results at such a time when the department could not extricate itself from the position earlier adopted by both the parties. The respondent's requests to draw sample in accordance with IS 436 nearly nine months after the goods had been cleared and consumed was to say the least an impossible task to be performed. All objections to the drawal of samples should have been made at an appropriate time.
23. We also have gone through the decision of the Tribunal in the case of Commissioner of Customs (P) Ahmedabad v. Rajkot Engineering Association [2000 (123) ELT 968] relied upon by the respondents. In the above-cited decision the Tribunal observed that samples were not tested as per specified standards. In the present case the evidence of CRCL Scientist is clear that the samples have been tested in accordance with the procedure laid down in IS 1350. The facts in the present case are different from the one in the above-cited order.
24. We hold that the Commissioner was wrong in holding that the coal should have been tested on 'as received' basis. We hold that both CFRI & CRCL distinguished tested the samples correctly in accordance with the Standard laid down in IS 1350. We also hold that gross air dried method is the correct way to test the ash contents and the results achieved are binding on both the parties.
25. The appeals are allowed with consequential relief, if any.