Customs, Excise and Gold Tribunal - Delhi
Dr. Beck And Co. (India) Ltd. vs Collector Of Central Excise on 20 June, 1996
Equivalent citations: 1997(89)ELT732(TRI-DEL)
ORDER
U.L. Bhat, President
1. By the order of the Collector of Central Excise challenged in the appeal, the demand of duty on "Resin" allegedly manufactured by the appellant at an intermediate stage and captively consumed in the manufacture of Wire Enamel from the period 1-8-1982 to 31-12-1982 has been confirmed.
2. The appellant is engaged in the manufacture of Wire enamels or varnish (T.I. No. 15) and other goods. Three show cause notices for different periods were issued to the appellant alleging that in the course of such manufacture, "Resin" covered by T.I. No. 15A(1) was manufactured and also captively consumed. Excise duty was payable on the Resin so manufactured and captively consumed, but was not paid. The classification lists filed did not mention manufacture and captive consumption of Resin in a continuous and integrated process. The first two notices were dropped on account of bar of limitation. The appellant, besides raising plea of limitation, contended that the process adopted is a continuous, integrated and uninterrupted process taking place in a reactor, that in the course of the process no identifiable goods come into existence which is capable of removal, that the Resinous substance which may come into existence during the chemical reaction in the reactor is not capable of being identified as "goods" and is not capable of removal and is not dutiable. It was further contended that the mass of Resinous substance which emerges in the reactor, if removed, would not be usable as such and is not known to the market and the same is not capable of being sold or marketed as such. The Resinous mass is full of impurities and is not capable of being sold without further processing. In the written submission filed before the Collector, it was stated that Resin is not manufactured or captively consumed, that Resin in a chemical sense came into existence in the sense that there is presence of Resin in a chemical sense in the reactor but it did not satisfy the test of marketability. What emerges at the intermediate stage is a brown viscous sticky Resinous mass in an unfinished condition. Chemical tests were in the previous years got conducted by the department. The appellant relied on affidavits of an expert, two dealers and the appellant's Works Manager. The Collector dropped the first two show cause notices.
3. In regard to the third show cause notice, the Collector held that it was not disputed that Resin is formed in a continuous and integrated process and it is entirely consumed by the appellant, that such Resin is capable of being separated and taken out and hence it is capable of being marketed. The literature relating to wire enamel, according to the Collector, shows that polyester, poly-esterimide or poly Vinyl Formal etc. which are well known varieties of Resins as are understood in Chemistry and in the market are the base of Wire Enamel. The Collector indicated that tests conducted by the departmental Chemical Examiner from time to time since 1982 showed the finished product of the appellant to be in the form of brown coloured viscous liquid compound of polyestor type of synthetic Resin/volatile, solvent, the percentage or resin ranging from 29% to 42% depending on the variety of the product.
4. Regarding the affidavit of the expert, Dr. Potnis relied on by the appellant and the decision of the Bombay High Court in Union of India v. Shakti Industries Pvt. Ltd.-1989 (39) E.L.T. 509 in which also a similar affidavit of the same expert was relied on to hold that the intermediate product alleged to be "Resin" was not marketable and not dutiable, the Collector held the potential marketability or capability of the article being taken to the market for buying and selling could not be disputed, that there is no occasion to market the article only because the process followed is a continuous and integrated one, that the intermediate product is Resin of the description well-known in the trade, and is capable of being separated and as such capable of being marketed. Since the Collector was not prepared to act on the affidavit of the expert in this case, he held that the decision of the High Court of Bombay is not applicable to the facts of the case. He further held that it cannot be disputed that the intermediate product even in its impure form is capable of being marketed and is commercially known in the market. Accordingly he held that the intermediate product is "goods" liable to excise duty.
5. Learned counsel for the appellant took us through the show cause notice, the reply and the affidavits relied on and pointed out that the expert was made available for cross-examination but there was practically no cross-examination conducted and that the expert opinion stood unchallenged and unrebutted. It is stated that the appellant did not produce the deponents of the other three affidavits for cross-examination but undertook to do so if deemed necessary and appellant was not required by the Collector to produce them and hence their affidavits also stood unrebutted. The evidence, it is contended, clearly showed that the intermediate product is not "Resin" as known to Chemistry or to the trade or market but is a brown viscous sticky viscous mass which contained solvent and chemicals and there was also presence of Resin, that this Resin cannot be separated, that the Resinous mass is not "Resin", that the Resinous mass is of no use to and cannot be used by any one other than the appellant and is not marketable nor known commercially. It is contended that the Collector's finding is based on assumptions and conjectures which have no factual basis. The decision of the High Court of Bombay squarely applied to the case. Learned counsel also took us through relevant decisions of the Supreme Court.
6. Shri Sanjeev Sachdeva, SDR rebutted the above submissions and supported the impugned order. He further submitted that old T.I. refers to the items in scientific terminology and not in common parlance expressions and technical meaning and not popular meaning has to be considered. The intermediate product in this case is either Resin or contains Resin which can be separated and the same attracts the expression "artificial Resin", "polymerisation and co-polymerisation products, the other high polymers, artificial resins and artificial materials, including alginic acid, its salts and esters" included in T.I. 15A(1). He also relied on Explanation II to the Tariff Item to contend that the intermediate product in this case attracts the description "condensation, poly-condensation, polyaddition, polymerisation and co-polymerisation products produced by chemical synthesis answering to the description "artificial plastics, including artificial resins" and as such also must be regarded as dutiable. He supported the finding that Resin in the intermediate product can be separated and marketed and known to Chemistry and to the trade and market.
7. Item 15A reads thus :-
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Item No. Tariff Description Rate of duty
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(1) (2) (3)
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15A Artificial or Synthetic resins and Fifty per cent ad valorem.
plastic materials; and other
materials and articles specified
below -
(1) Condensation, polycondensation
and polyaddition products, whether
or not modified or polymerised,
and whether or not linear (for
example, phenoplasts, amino-plasts,
alkyds, polyallyl esters and other
unsaturated polyesters, silicones);
polymerisation and co-polymerisation
products (for example, polyethylene,
polytetraha-loethylenes, polyiso
butylene, poly-styrene, polyvinyl
chloride, polyvinyl acetate, polyvinyl
chloroacetate and other polyvinyl
derivatives, polyacrylic and
polymethacrylic derivatives,
coumaroneindene resins); regenerated
cellulose ; cellulose nitrate,
cellulose acetate and other cellulose
esters, cellulose ethers and other
chemical derivatives, cellulose,
plasticised or not (for example,
collodions, celluloid) ; vulcanised
fibre; hardened proteins (for example,
hardened casein and hardened gelatin);
natural resins modified by fusion (run
gums); artificial resins obtained by
esterification of natural resins or of
resinic acids (ester gums); chemical
derivatives of natural rubber (for
example, chlorinated rubber, rubber
hydro-chloride, oxidised rubber, cyclised
rubber) ; other high polymers, artificial
resins and artificial plastic materials,
including alginic acid, its salts and
esters; linoxyn.
(2) Articles of materials described in Fifty per cent ad valorem
sub-item (1), the following, namely :-
Boards, sheeting, sheets and films,
whether lacquered or metallised or
laminated or not; lay flat tubings not
containing any textile materials.
(3) Polyurethane foam. Seventy-five per cent
ad valorem.
(4) Articles made of polyurethane Seventy-five per cent
foam ad volorem
Explanation II. - In sub-item (1), "condensation, polycondensation,
polyaddition, polymerisation and co-polymerisation products" are to
be taken to apply only to goods of a kind produced by chemical
synthesis answering to one of the following descriptions :-
(a) artificial plastics, including artificial resins;
(b) silicones;
(c) resols, liquid polyisobutylene, and similar artificial
polycondensation or polymerisation products.
Explanation III.- Sub-item (1) is to be taken to apply to
materials in the following forms only :-
(a) liquid or pasty (including emulsions, dispersions and solutions);
(b) blocks, lumps, powders (including moulding powders),
granules, flankes and similar bulk forms;
(c) waste and scrap."
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(Emphasis supplied
8. Manufacture implies change, but every change is not manufacture. Manufacture involves a new and different article emerging, having a distinctive name, character and use. Manufacture which is liable to excise duty under the Act must be bringing into existence of a new substance known to the market [Union of India v. Delhi Cloth and General Mill Co. Ltd. - 1977 (1) E.L.T. J199 (SC)]. "Goods" must be an article which can ordinarily come to the market to be bought and sold. Marketability is an essetial ingredient to hold that an article is dutiable. The fact that the goods are in fact not marketed is of no relevance. So long as the articles are marketable they are excisable goods. It is also not necessary that the goods shall be generally available in the market. Even if the goods are available from only one source or from a specified market it makes no difference so long as it is available for purchasers. "Marketability" only means "saleable" or "suitable for sale, capable of being sold to consumers in the market" "as it is, without anything more". [Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta -1994 (74) E.L.T. 22 (SC)]. An article, to be regarded as goods, must be something which can ordinarily come to the market to be bought and sold and is known to the market [1977 I E.L.T. J 199 (SC)]. Any goods mentioned in the tariff schedule does not attract duty unless it is marketable or capable of being marketed [Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Allahabad -1995 (76) E.L.T. 241 (SC)],
9. In construing an item or entry in a fiscal statute like the Central Excises and Salt Act, 1944, if it is one of every day use, it must be normally construed the way it is understood in common parlance or in the commercial world or trade circles. It must be given its popular meaning. It should not be understood in any technical or scientific sense. [Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta - 1994 (74) E.L.T. 22 (SC)]. A different approach is necessary in the case of words of a technical or scientific character. Such words must be construed according to that which is its primary meaning, namely, its technical or scientific meaning (STC, Indore v. J. Singh - AIR 1967 SC 1454). The High Court of Bombay which considered old T.I. 15A in Chemicals and Fibres India Ltd. v. Union of India and Ors. 1982 (10) E.L.T. 917, indicated that it refers to a class of products and to chemical processes. With reference to item 15A(1) it was observed that the nature of products referred to therein are highly technical and scientific in character and, therefore, the words used therein will have to be given only their technical or scientific meaning. The processes referred to are not capable of being construed in a popular sense, but can be construed only in a scientific or popular sense. But we find on an examination of the item that it also uses expressions like "Artificial Resins", "plastic materials", "natural rubber", "artificial waxes", "starches", "resols" which are words of every day use and cannot be regarded as technical or scientific words. These words must be understood in their popular sense or as understood in the trade.
10. What exactly is the intermediate product in this case? The Collector called it "Resin". The appellant calls it "brown viscous Resinous mass" which has presence of Resin. The Collector refers to result of earlier chemical tests conducted during various years indicating that the product had Resin content ranging from 29% to 42%. The Collector did not attempt to collect any other material. The appellant relied on four affidavits of which that of the expert was not accepted and the other three were not referred to by the Collector. The chemical test reports were not referred to in the show cause notice and are not before us.
11. Dr. S.K. Potnis is a Director of the Department of Chemical Technology in the University of Bombay and Professor of Polymer Technology and Head of the Plastics and Paints Division in the Department of Chemical Technology of Bombay University. The affidavit refers to his qualifications from India and abroad. He had visited West Germany for specialised studies in Polymer Technology and was guest professor in West Germany. He has two hundred research and review papers to his credit and written a book on plastics and polymers. He is intimately conversant with plastic materials, processing and manufacturing methods, plastic science research and technology and plastic products. He has been working with wire enamels and insulating varnishes for several years. He has been working in close collaboration with the industry and advised several companies. He visited the appellant's factory in August, 1989 and studied the process of manufacture of wire enamels/insulating varnishes and various stages of manufacture. According to him, raw materials are charged in Kettle I, polycondensation reaction is carried out to required molecular weight at 220 C to 240°C, cresylic solvents are added to check the reaction after temperature comes down below 180°C and after cooling down to 150°C, the contents of Kettle I are transferred under pressure of the semi-processed hot liquid mass to Kettle II for further processing, required mixture of cresylic solvents and solvent naphtha in predetermined proportions are added to give required flow and rate of evaporation for the liquid mass, after cooling below 50°C the product is further modified with a special cross linking catalyst appropriate to the ingredients used and the final product obtained in Kettle II is checked for viscosity and other properties, filtered and packed. He saw the sample removed from Kettle I. It was in the form of yellowish/brown viscous sticky mass. According to him, the manufacturing process of wire enamels is a continuous and uninterrupted process and the yellowish brown viscous sticky mass is not physically removed but flows into Kettle II for further processing. He is definite that the Polyester Resin generated in Kettle I is not isolated.
12. Dealing with the question whether the product generated in Kettle I is Resin, he stated that for a product to be Resin it must be identifiable by way of its melting/softening points, chemical properties like acid value, saponification value, iodine value and molecular weight. The sticky mass in Kettle I is a solution/dispersion in cresylic solvents and cannot be characterised as Resin as it is generally known by any of its properties. Separation of whatever Resin in the sticky mass is possible only through further elaborate processing steps and it is not possible by simple techniques of evaporation of solvents. The product, he stated, therefore, does not fit in the normal definition of Resin but is a mixture of different components. At the same time, he indicated that the product transferred from Kettle I would answer the test for the presence of Polyester Resin. According to him, Polyester Resins can be broadly divided into four categories, (i) Polyester Resins chips for manufacture of textile fibres, (ii) saturated polyester granules for moulding purposes, (iii) unsaturated polyester Resins dissolved in styrene for fibre glass reinforced plastics and (iv) saturated polyester Resins available as solution for wire enamels/insulating varnishes. According to him, the product transferred from Kettle I is not a solid but is a mixture of saturated polyester Resin and cresylic solvents and can only be used for wire enamels/insulating varnishes and cannot be put to any other use. Yellowish brown viscous sticky mass in Kettle I itself cannot be used as such for wire enamels by simple dilution with solvent, because the product does not contain required amount of specific solvent mixture to impart it the correct coating properties. It also does not contain the necessary cross-linking agents required to cure the final finished wire enamels during the enamelling process. The process of converting the sticky mass in Kettle I into an usable and marketable product, namely, wire enamel/insulating varnish requires special technical know-how in the form of required type and quantity of solvent mixture and catalyst necessary and also special equipment and facilities which are not available with any normal user or consumer of wire enamels /insulating varnishes. He concluded that the sticky mass generated in Kettle I cannot be used as Polyester Resin by any industry and it is not a product of commercial use.
13. Our understanding of the contents of the affidavit is that the viscous mass generated in Kettle I is not Resin going by melting point, softening point and chemical properties and Resin content cannot be separated without further processing, and it does not have the chemical properties of Resin and cannot be used as such. This product is arrived at by Polycondensation reaction and addition of crypolic solvents. Item 15A(1) specifically refers to "Polycondensation products, whether or not modified or polymerised, and whether or not linear". In view of the opinion of Dr. S.K. Potnis that the product in Kettle I is the result of Polycondensation, it can be said that it is a Polycondensation product. But in so far as Polycondensation product is concerned, Explanation II has also to be taken into consideration. The Explanation states, inter alia, that Polycondensation is to be taken to apply only to goods of a kind produced by chemical synthesis answering one of the descriptions in clauses (a), (b) or (c). According to the SDR, it is clause (a) which is attracted in this case. Clause (a) refers to "artificial plastics, including artificial resins". The words "Polycondensation products" used in item 15A(1) are no doubt technical or scientific words and are not words in common parlance and, therefore, require to be understood only in the technical or scientific sense. In that view, the product obtained in Kettle I, as we have already indicated, is Polycondensation product. But by virtue of Explanation II, "Polycondensation" can apply only to goods answering description "artificial Resins" (which alone is relevant according to the department). The explanation "artificial Resins" cannot be regarded as a scientific or technical expression; it is an expression used in common parlance and must be understood by its popular connotation.
14. "Resin, synthetic" is explained in the Condensed Chemical Dictionary 10th edition by Gessner G. Hawley at Page 891 as follows :-
"A man-made high polymer (q.v.) resulting from a chemical reaction between two (or more) substance, usually with heat or a catalyst. This definition includes synthetic rubbers and silicones (elastomers), but excludes modified, water-soluble polymers (often called resins)."
Item 15A considered by the High Court of Bombay in Chemicals and Fibres India Ltd. v. Union of India and Ors. - 1982 (10) E.L.T. 917 on which Shri Sachdeva placed strong reliance, was not in the form in which it was at the time relevant in the present case. The question there was whether Polymer chips which come into existence in the course of manufacture of synthetic fibres were artificial or synthetic Resins. It was contended before the High Court that Polymer chips are purely an intermediate product which are not goods and are not marketable but are base material for the manufacture of polyester staple fibre. The High Court observed that this aspect has no relevance to the question argued in that case. The High Court held that Polyester chips of textile grade is a polycondensation product and will technically and chemically fall within item 15A(1) as it then stood. One of the products referred to in the sub-item was "Polycondensation product", but the item, as it stood then, did not contain any explanation of the nature contained in the item as it stood at the time relevant to this case stating that the "Polycondensation" is to be taken to apply only to the goods of the kind produced by chemical synthesis answering to the description of "artificial Resins". Since the words used in the item as it then stood were only scientific and technical, the court construed it in the scientific and technical sense. We have already indicated that going by the technical or scientific sense, the mass in Kettle I is a Polycondensation product. But we have to consider the impact of Explanation II(a) on this product. The High Court further observed that in view of the multiplicity of types, grades and uses of polyester product, there are no uniformly accepted specifications and testing standards and polyesters which are artificial Resins do not have any fixed uniform specification and they are made according to the requirements of the use to which they have to be put. These products, it was indicated, could not have been described individually and have, therefore, been described with reference to the category into which they chemically fall and with reference to the processes from which they result. The Court also explained that Terylene, Decron, Teron and other names are trade names. But that cannot be said of the word "artificial Resins". It is not a trade name, but it is a product known in the market and known commercially. Therefore, the decision is of no assistance to the department.
15. Therefore, in view of Explanation II(a) to Item 15A, the enquiry should be directed to find out whether Polycondensation product in this case is produced by chemical synthesis and answers the description "artificial Resins". We have referred to the fact that the impugned order refers to the product as artificial Resin, without support of any material and merely on the basis of the result of earlier chemical tests, the full text of which are not available to us, that the product contains 29% to 42% Resin and relying on the statement of Dr. S.K. Potnis that the product in Kettle I, though it is not Resin as known to the trade, has the presence of Resin, but it cannot be separated without further complicated processing. Dr. Potnis was clear in his mind that this product is not known as Resin and Resin cannot be separated without elaborate processes. There is no rebuttal evidence. The appellant also relied on the affidavit of Ashok S. Warde of Pune who is a partner of a concern carrying on trade in chemicals such as Resins and solvents for 15 years. He stated that yellowish brown coloured viscous sticky mass was shown to him and he had not come across any Resin in such form being bought and sold in the market. To the same effect is the affidavit of another trader P.P. Vartak. This is supported by the affidavit of the Works Manager of the appellant, M.D. Kulkarni. The affidavits of the two traders cannot be brushed aside as interested as canvassed by Shri Sachdeva. It is significant that Dr. S.K. Potnis was actually made available for cross-examination, but there was hardly any crossexamination on relevant aspects of his evidence. The appellant specifically offered to make available the deponents for cross-examination, but the offer was not taken up. In these circumstances, it must necessarily follow that the product obtained in Kettle I which has the presence of Resin is not "artificial Resin" as known to trade or in the market or commercially.
16. The department has an alternate contention that the disputed substance falls within the scope of the words "Other high Polymers, artificial Resins and artificial plastic materials" occurring almost at the end of T.I. 15A(1). We have already indicated while considering Explanation II(a) that the disputed substance cannot be regarded as "artificial Resin". It follows that the substance does not attract T.I. 15A.
17. Marketability of a product is a must for "manufacture", as we have indicated earlier. The opinion expressed by the Expert that the sticky mass generated in Kettle I, though a product of polycondensation is not Resin as known to Chemistry and the trade is not rebutted. The contrary indicated by the Collector was only his view not based on any materials. The Expert opinion that the mass cannot be used as Resin, that separation of Resin would be possible only through further elaborate processes and it can be used only for wire enamels or insulating varnishes and for no other purpose and that it cannot be used for wire enamel by simple dilution because it does not contain required amount of specific solvent mixture and necessary cross-linking agents and it is not a product of commercial use and not "marketable goods" has not been rebutted by the Department. Dr. S.K. Potnis is an expert with high academic qualifications, considerable expertise and intimate inter-action with the Industry. His evidence is supported by the affidavits of two traders who certainly are familiar with the trade and trade practices. Their evidence also stands unrebutted. It is not marketable commodity and hence not excisable.
18. The view receives support from the decision of the Supreme Court in Moti Laminates Pvt. Ltd. v. Collector of Central Excise -1995 (76) E.L.T. 241. The manufacturer in that case was engaged in the manufacture of laminated sheets in the course of which a semi-processed mixture was produced and the same was captively consumed. The mixture was a solution of Resin and water and was not fully stable. It was held that substance was incapable of being used for any other purpose without further processing and in view of its instability was not marketable and hence not dutiable. The High Court of Bombay in Union of India v. Shakti Industries Pvt. Ltd. -1989 (39) E.L.T. 509 had occasion to consider dutiability of a brown viscous sticky mass in an unfinished condition obtained in the course of integrated process of manufacture of varnish. The department contended that the sticky mass was polyester Resin. In that case also evidence of Dr. S.K. Potnis was available. The evidence was more or less similar to his evidence in this case. Accepting the expert evidence of Dr. S.K. Potnis, the learned single Judge held that the substance was not marketable and hence not dutiable. The division Bench which dealt with the case in appeal confirmed the order. The Collector in the present case declined to follow this decision on the ground that it was based entirely on the evidence of Dr. S.K. Potnis and he has found it difficult to persuade himself to agree with the opinion of Dr. S.K. Potnis. He did not agree with the expert evidence because he felt several aspects could not be disputed, namely, that Resin is capable of being separated in the process and that it had potential marketability. He disagreed with the expert, not on the basis of any materials before him, but only his own assumption. At one stage, the Collector observed :
"Dr. Potnis has given his opinion after examining the sample which was separated, by the assessee from his manufacturing process."
The above statement reveals confusion of thought. The expert evidence is not that the sticky mass cannot be taken out of Kettle I but that the Resin present in the sticky mass cannot be separated by a simple technique of evaporation of solvents and except though further elaborate processing. There was no material at all before the Collector to enable him to arrive at a contrary conclusion. His conclusion was based entirely on assumptions and surmises.
19. In the light of our finding that though the disputed article is a polycondensation product, it is not goods of a kind answering the description "artificial Resin" (which according to the department is the only expression in Explanation II to T.I. 15A which can apply), it does not attract T.I. 15A, and the further finding that it is not known to the trade and has no marketability, we hold that it is not dutiable. The impugned order is set aside. The appeal is allowed.