Custom, Excise & Service Tax Tribunal
M/S. Balaji Action Buildwell vs Cce, Meerut-Ii on 17 November, 2015
IN THE CUSPTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI
Date of Hearing/ Decision:17.11.2015
Excise Appeal No.E/54336/2014-EX(DB)
[Arising out of Order-in-Original No.48/Commissioner/M-II/2013-14 dated 17.04.2014 passed by the Commissioner of Central Excise, Meerut-II].
M/s. Balaji Action Buildwell .Appellants
Vs.
CCE, Meerut-II Respondent
Appearance:
Rep. by Shri Naveen Mullick, Advocate for the appellant.
Rep. by Shri S. Nanthuck, Joint CDR for the respondent.
For approval and signature:
Honble Shri Ashok Jindal, Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) 1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3 Whether Their Lordships wish to see the fair copy of the Order?
4 Whether Order is to be circulated to the Departmental authorities?
Coram: Honble Shri Ashok Jindal, Member (Judicial) Honble Shri B. Ravichandran, Member (Technical) Final Order No.53675/2015 dated:17.11.2015 Per B. RAVICHANDRAN:
This appeal is against Order-in-Original dated 17.04.2014 passed by the Commissioner of Central Excise, Meerut-II. The appellants are engaged in the manufacture of Plywood, MDF Board, Laminates, Plain Particle Board, Components of Furniture etc. They are availing area based exemption under Notification No.50/2003-CE dated 10.06.2006 for the final products. The appellants are also manufacturing resin/glue in their unit for captive use in the manufacture of final products.
2. The Revenue entertained certain doubts regarding appellants eligibility for exemption under the above said notification in respect of glue/resin made by the appellant. Plastics and articles thereof falling under Tariff Heading 3909 to 3915 are in the negative list for exemption. Investigations were conducted by the officers; proceedings initiated which resulted in the impugned order. The ld. Commissioner confirmed a demand for Rs.6,13,49,586/- on Urea Formaldehyde Resin, Phenol Formaldehyde Resin and Melanine Formaldehyde Resin manufactured by the appellant deciding classification under Tariff Heading 3909. Equal penalty was also imposed on the appellants. Cenvat credit of Rs.2,30,43,200/- is found to be eligible to the appellant in discharging this demand.
3. In the appeal, the appellants strongly contested the findings in the impugned order. Their submission can be summarized as below:-
a) Reliance placed on test report dated 19.03.2012 of IPRITI is not sustainable on various grounds viz : i) Report was made available after 89 days depriving the right of re-test.
ii) No cross examination allowed of the officer, who conducted the test,
iii) The methodology of sample drawal, testing parameters and communication of test results are not as per norms.
b) The reliance placed on Purchase Order dated 4.8.2008 for supply of process equipments by M/s.Alex Engineering Works is misplaced. The actual supplies are after consultations and correct description of equipments used in glue manufacture is indicated in suppliers invoices.
c) Comparison of their products Code G-10, G-11, G-12, G-20, G-21,G-30 with Resins made and sold by M/s. Akolite Synthetic Resins, Mangalore or similar such manufacturers is not correct. The product made by them is curred glue for captive use.
d) The product glue made by them is correctly classifiable under CETH 3506 and not under 3909 Chapter Note 6 of Chapter 39 explains the scope of Primary Form of goods of heading no.3901 to 39.14. The HSN relevant to the entry clearly states that these are basic Polymers which require curring by heat or otherwise to form the finished material. After the hardener is added the product cannot be classified under 39.09. They make glue in one stage process at the reactor/kettle which includes addition of ammonium chloride as hardener.
e) The glue Product Code G-10, G-11, G-12. G-20, G-21. G-30 produced in reactor / kettle is used for bonding by the appellant. The glue from Shed-B sent to glue kitchen area Shed-D is used for bonding. Ammonium chloride, Wax Emulsion and Water are used in the glue kitchen area along with glue.
f) The shelf life of glue is very short and it is not an excisable goods in terms of Section 2(d).
g) Extended period cannot be invoked for demand of duty in this case. Samples of the goods in question were drawn for testing by officers in August, 2010 itself. No report was given to the appellants. No dispute on exemption or duty liability was raised by the Department. The present demand dated 8.5.2012 covered period from November, 2009 to November, 2011 and is substantially barred by limitation.
4. Ld. Counsel for the appellant, Shri Naveen Mullick elaborated each one of the above points in his arguments. He mainly emphasized on the classification dispute and pleaded that the correct classification of glue made by the appellant is under CETH 3506.
5. Ld. AR, Shri S. Nanthuk reiterated the findings in the impugned order.
6. We have heard both the sides and examined case records. The appellants entitlement to exemption on the captively consumed resin/glue depends on the correct classification of the said product. The ld. Counsel for the appellant also mainly insisted on this point though other points regarding validity of test report, marketability of the product and limitation were also stated in their appeal. We find that correct classification of the product is central issue of the dispute.
7. First, it is necessary to examine the processes carried out by the appellant which result in the impugned goods. We find that the comparisons and conclusions based on such comparisons will not be justifiable if processes and chemicals used by various manufacturers and resultant products are not similar. In the present case, we are concerned first with the processes carried out by the appellant in the reactor/kettle in Shed-B. The appellants submitted detailed step by step process, additions of chemicals till the emergence of impugned goods. Processes involved in one of the typical product G-10 are as below:-
Process
(a) Charge Formaldehyde in Reactor by opening the discharge valve of the measuring tank mounted on load cell.
(b) Adjust pH to 8.5 by caustic soda solution which is alkaline nature.
(c) Add Ammonia.
(d) Add Poly vinyl Alcohol
(e) Start heating
(f) Add first urea
(g) Continue heating till temperature reached to 80oC
(h) Continue reaction and check flow time and pH.
(i) Add Ammonium Chloride solution to bring down the pH 4.5 to 5.0.
(j) Continue reaction and check flow time.
(k) When flow time by B-4 cup reach to 18 Sec add second urea
(l) Check flow time and pH, pH should not go less than 4.5
(m) When tolerance (Water solubility) start add Salt when adhesion properties reached increase pH to 6.5 to 7.5
(n) Check reaction, adhesion properties and flow time when flow time reaches at 20 to 21 sec add caustic soda to increase pH 7.5
(o) Add Melamine and continue reaction for 15 to 20 min.
(p) Add Ammonium Chloride and adjust pH 7.5 to 8.0.
(q) Start cooling when temperature reaches to room temperature.
(r) The water is added to compensate the water loss due to evaporation loss during reaction.
(s) The water is added to reduce the viscosity resulting to improve the flow/praying effect of Glue with particle of wood.
8. The ld. Counsel emphasized that the additions and processes in the reactors/kettles are sequential and composite. In other words, there is no removal of any intermediate product out of the said reactor/kettle except after the formation of cured glue. We find ammonium chloride is added in the final stages of reaction. The role of this chemical is, admittedly, to advance the curing effect of the resin. It is a hardening agent. The resultant glue is transferred to glue kitchen area in Shed-D. It is noted that this glue at the reactor in Shed-B is the only product which acts as binder that binds the wood fibers to make MDF.
9. In the glue kitchen area, the glue received from reactor/kettle in Shed-B is used along with wax emulsion, water and further ammonium chloride. The role of these products in the overall binding has also been explained by the appellant.
10. With this background, we have examined the scope of correct classification of the product emerging out of reactor/kettle Code named G-10, G-12, etc. We find that the impugned order took BIS standards, marketing literature of some of the manufacturers to conclude the nature of the product as resin, its marketability and classification under CETH 3909. The processes undertaken by the other manufacturers, especially addition of hardener or curing agent (NH4 CL) has not been examined by the original authority. The correctness of comparison very much depends on this.
11. Examining the scope of CETH 3909, we find Note-6 of Chapter 39 states as below:-
In Heading 3901 to 3914, the expression primary forms applies only to the following forms:
(a) Liquids and pastes, including dispersions (emulsions and suspensions) and solutions;
(b) Blocks of irregular shape, lumps, powders (including moulding powders), granules, flakes and similar bulk forms.
12. The Original Authority classified the product under CETH 3909 Amino Resins, Phenolic Resins and Polyurethane in Primary Forms. The meaning of expression Primary Forms is given in the above Note-6.
13. The scope of Primary Forms is further elaborated in HSN with reference to above Chapter Note.
Primary Forms Heading 39.01 to 39.14 cover goods in primary forms only. The expression primary forms is defined in Note 6 to this Chapter. It applies only to the following forms :
(1) Liquids and Pastes. These may be the basic polymer which requires curring by heat or otherwise to form the finished material, or may be dispersions (emulsions and suspensions) or solutions of the uncured or partly cured materials. In addition to substances necessary for curing (such as hardeners (cross-linking agents) or other co-reactants and accelerators), these liquids or pastes may contain other materials such as plasticisers, stabilizers, fillers and colouring matter, chiefly intended to give the finished products special physical properties or other desirable characteristics. The liquids and pastes are used for casting, extrusion, etc. and also as impregnating materials, surface coatings, bases for varnishes and paints, or as glues, thickeners, flocculants, etc. When as a result of the addition of certain substances, the resultant products answer to the description in a more specific heading elsewhere in the Nomenclature, they are excluded from Chapter 39; this is , for example, the case with :
(a) ..
(b) Prepared additives for mineral oils (heading 38.11).
In addition to the exclusion mentioned in Note 2, the Chapter excludes:
(a) ..
(b) Preparations specially formulated for use as adhesives, consisting of polymers of blends thereof of headings 39.01 to 39.13 which apart from any permitted additions to the products of this Chapter (fillers, plasticisers, solvents, pigments, etc.), contain other added substances not falling in this Chapter (e.g. waxes) and products of headings 39.01 to 39.13 put up for retail sale as glues or adhesives, not exceeding a net weight of 1 kg. (heading 35.06).
14. On examining scope of CETH 3909 read with Chapter Note 6 and HSN explanation the product in dispute being not in Primary Form of such nature mentioned therein (requiring curing etc.) is not to be classified under such heading. The exclusion note made in HSN adds support to the same. The Revenues assertion that addition of hardening agent does not take away the basic property of the product being a resin is not sustainable in the present dispute. Addition of NH 4CL as hardening agent in the reactor/kettle before the resultant product is sent to glue kitchen for use in binding purpose has relevance to decide the issue. Prepared glue as it emerges is put into use in the binding section along with other inputs like wax, NHCL and water for final binding. Chapter 35 covers glues. CETH covers Prepared glues and other prepared adhesives, not elsewhere specified or included. CETH sub-heading no.3506 9991 covers synthetic glue with phenol urea or cresol (with formaldehyde) as the main component - Prepared glues and other Prepared adhesives.
15. Based on the above criteria for classification, we find that the appellant had made out strong case for classifying the product as prepared glue. This is based on the facts like, the processes adopted and emerging product from the reactors/kettles, which is sent directly to glue kitchen for direct use in bonding of final product along with inputs.
16. The reliance placed by the Revenue on the test reports has been strongly contested by the appellants on various grounds. The test report was given to them after almost 3 months which deprived the chance for them to go for re-test. Further, the methodology followed by testing is not as per IS Standards relevant for synthetic resin additives. The test report of IPIRTI did not mention the pH value which is very relevant to arrive at the correct report. The appellant produced copies of different test reports done in 2011 as well as 2012 by the same Institute where pH values were indicated whereas in respect of their samples, no pH value has been indicated. They have also contested the findings in the test as they were not allowed cross examination by the Original Authority. The denial was on the reason that the test report is a document and it is not required to be accepted only after cross examination. The appellants plea, that in such circumstances, the reliance placed on the test report is not legally tenable, merits consideration. We are in agreement on such plea on the reasons cited above.
17. Regarding purchase of resin reactor from Alex Engineering Works, it is seen that Revenue placed reliance on purchase order which mentioned the product as MF Resin Reactor. The appellants have contended that there are various types of equipments and machineries available for use in their type of industry. The suppliers of machinery made visits and had detailed discussions, thereafter the decision was to supply equipments of description appearing in their invoices of March, April, August and September, 2009. The details of description in these invoices were also relied upon in the show cause notice and it is apparent that the description of equipments supplied by Alex Engineering Works were different in name and nomenclature from the purchase order. We find that the support cannot be drawn by the Revenue on the basis of description in the purchase order when the supply invoices indicate the nature of goods supplied.
18. We find that the appellant have been consistently taking the plea that they are engaged in the manufacture of Prepared Glue containing Ammonium Cloride /Formic Acid etc. in the Kettle installed in Shed B and the glue prepared is transferred to other Sheds-C, D and E where it is used for bonding of their final products. Preparation of glue in Shed-B is a one stage process. They have also contended that the show cause notice itself admits that addition of hardener to the resin reduces the shelf life and brings into existence the glue with reduced shelf life. It is also admitted that use of hardener brings the quick bonding properties to serve as a glue.
19. As stated earlier before comparing the impugned product with the product of other manufacturers and also before applying case laws to the present facts, it is necessary that Original Authority should have examined the processes undertaken and the comparability of the goods in chemical nature. No such analysis or finding to that effect is available in the impugned order. The appellant have categorically submitted that the impugned goods are prepared for specific need and requirement of bonding of wood fibers /wood particles/coating of papers during the manufacture of final product like MDF Board, Particle Board, etc. The fact is that the preparation of impugned goods is in one stage process under controlled temperature and pH and addition of Ammonium Cloride Formic Acid in the processes, the emerging product being transferred to glue kitchen area for final use in bonding. We find that the classification of the product as primary resin is not sustainable. This is supported by Note-6 of Chapter 39 and HSN Explanation of such note. As such denial of exemption is not sustainable. Considering the above discussion and finding, we allow the appeal by setting aside the impugned order with consequential relief.
[Operative part of the order pronounced in the open Court] ( Ashok Jindal ) Member (Judicial) ( B. Ravichandran) Member (Technical) Ckp.
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