Customs, Excise and Gold Tribunal - Mumbai
Milton Plastics Ltd. vs Commissioner Of Customs (Imp) on 31 May, 2007
Equivalent citations: 2007(216)ELT210(TRI-MUMBAI)
ORDER K. Jayaraman, Member (T)
1. This appeal has been filed against Order-in-Original No. 126/2001 CAC/CC/MCH dated 27.03.2001 passed by the Commissioner of Customs (Imports), Mumbai.
2. Revenue proceeded against the appellant by way of issue of show cause notice dated 10.02.2000 on the ground that the appellant was not untitled for confessional rate of duty under exemption Notification No. 72/91-Cus. Adjudicating authority in the impugned order demanded differential duty amounting to Rs. 1,05,12,925/-. Further he ordered confiscation of the goods under Section 111(o) of the Customs Act, 1962. He imposed a redemption fine of Rs. 50 Lakhs under Section 125 of the Customs Act, 1962. He imposed a penalty of Rs. 50 Lakhs on the appellant under Section 112(a)(ii) of the Customs Act, 1962. The appellants urged highly aggrieved over the impugned order, hence they have come before this Tribunal for relief.
3. Shri V. Sridharan, learned advocate appeared for the appellant and Shri Ajay Saxena, learned S.D.R. for the Revenue.
4. Learned advocate urged following points:
(i) The appellant imported a number of consignments of Polyols and Isocyanates and claimed exemption under Notification No. 72/91-Cus dated 25.07.1991
(ii) The appellants manufacture articles of plastics such as casseroles by mixing polyol and isocyanate with a suitable catalyst, polyurethane foam is obtained. The above mixture is poured into the mould cavity through a mixing head attached to the moulding system. This way of producing the polyurethane foam is called foam-in-place.
(iii) In terms of the notification, the imported polyols and isocyanates should have been used for the purpose of manufacture of thermoplastic polyurethane. The case of the department is that the polyurethane foam obtained by the appellant is a thermoset polyurethane and not a thermoplastic polyurethane. Therefore, the benefit of the above notification is not available to the imported polyol and isocyanate.
(iv) Revenue has relied on test report dated 04.02.1993 of the Chemical Examiner. The appellants produced certificate from the supplier and other independent individuals stating that the polyurethane foam manufacture and used by the appellants out of imported goods is nothing but thermoplastic polyurethane.
(v) The appellants requested for the cross examination of the Deputy Chief Chemist but cross examination was not given as the Deputy Chief Chemist had expired. The adjudicating authority has solely relied on the test report of the Deputy Chief Chemist.
(vi) The Commissioner in the impugned order has referred to and relied upon the order dated 19.11.1993 and the show cause notice dated 22.03.1993 issued by the Commissioner, of Customs in respect of imports made earlier to reject the various contentions raised by the appellants in the present reply to the show cause notice dated 10.02.2000. It is a settled law that each show cause notice is a separate and independent proceedings and the same cannot be relied upon in a subsequent proceeding. Further, the appellants were not put to notice that reliance will be placed on the earlier order passed on the subject.
(vii) The imports took place in the present case during 1992-93. In the normal course, the end use certificates would have been filed and the bonds cancelled by the department. However, at this distant point of time, the appellants are unable to lay hands on the end-use certificate submitted to the Customs. In any case, certificate of Chartered Accountant was submitted to the Customs evidencing the use of the imported goods for the manufacture of polyurethane foam.
(viii) Nothing prevented the department from raising this objection earlier. The notification grants a time limit of 3 months or within the extended time limit to enable the assessee to produce the evidence for complying with the notification. Extended period has to be construed to mean a reasonable period of say 6 months or 1 year at the most. Objection if any on the end-use is therefore, to be raised within the time limit provided in the notification. The objection raised belatedly after about 7 years vitiates the impugned show cause notice.
(ix) According to Hawley's Condensed Chemical Dictionary, polyurethane is a thermoplastic polymer (which can be made thermosetting) produced by the condensation reaction of a polyisocyanate and a hydroxyl containing material e.g. a polyol. Thus, the material produced by reaction of the isocyanate and polyol is a thermoplastic polymer only and it immaterial that it can be made thermosetting. There may be different varieties of polyurethane namely fiber, coatings, elastomers and foam, but the fact remains that the product resulting from the condensation reaction of a polyisoeyanate and a Polyol is a thermoplastic polymer.
(x) The appellants submitted a sample of the product to Shriram Institute for Industrial Research and obtained their opinion. According to the said institute, the impugned goods are thermoplastic polyurethane foam. The opinion of the institute is in accordance with Hawley's Condensed Chemical Dictionary an the Handbook of Plastics and Elastomers edited by Charles A. Harper.
(xi) According to the supplier of the imported goods M/s Bayer, the polyurethane foam obtained by the appellants out of the polyol and isocyanate supplied by them result in thermoplastic polyurethane and not thermoset polyurethane. This clarification was given by them after testing the sample of polyurethane foam sent by the appellants to them. In view of the above, the entire basis made in the show cause notice fails.
(xii) The opinion of the Deputy Chief Chemist is not at all based on technical reasoning. Reasons as to why the Polyurethane foam is a thermoset polyurethane foam is not given. Further as the chemical examiner is no more and the Customs Department is unable to produce him for cross examination by the appellants, the test report of the chemical examiner cannot be given due weightage.
(xiii) In the present case the show cause notice has been issued even beyond the five years period hence it is wholly time barred and without jurisdiction.
(xiv) As the goods are not available for confiscation, redemption fine could not have been imposed in this case. The reliance on Apex Court decision in the case of Weston Components Ltd. v. C.C. New Delhi is mis-placed as that case relates to the release of the goods provisionally to the importer on execution of a bond. Various Tribunals' decisions have distinguished Weston case decision to the effect that when the goods are not available for confiscation there cannot be any question of redemption fine.
(xv) As the issue involved is purely classified imposition of penalty is not correct.
4. Learned S.D.R. Shri Ajay Saxena explained the difference between thermoplastic and thermostating plastic. He stated that in the case of thermoplastic the bond between the various small molecules is rather weak and therefore they easily change their shape on application of heat. However, in the case of thermostate plastic in view of the cross linkage the material is very rigid. He invited our attention to the Deputy Chief Chemist's report and urged that the test report of the Deputy Chief Chemist should be given preference over the other test report submitted by the appellant. He relied on quiet a few decisions. He also stated that the test report submitted by the appellant are actually solicited and therefore no weightage should be given to them. He urged that the appellants had manufactured polyurethane foam of thermostate plastic and therefore are not entitled for benefit of the exemption notification. Since they do not fulfill the condition of the exemption notification, the impugned goods are liable for confiscation under Section 111(o) of the Customs Act.
5. In these circumstances the appellants are liable to both fine and penalty. He urged that Apex Court decision in Weston case is squarely applicable to the present situation and the imposition of fine and penalty are in order.
6. We have gone through the records of the case carefully. It is not disputed that the appellants imported isocyanates and polyols in terms of the Notification 72/91-Cus dated 25.07.1991. The goods were imported during the year 1992-93. Annex to the show cause notice dated 10.2.2000 gives the list of the bills of entry. In terms of the notification the manufacturer is required to give end use certificate within the period of six months or by such extended period is allowed by the Commissioner. It is very clear that the show cause notice has been issued seven years after the import of the goods. The revenue has taken a view that due to non fulfillment of the conditions of the notification, the impugned goods are liable for confiscation under Section 111(o) of the Customs Act and therefore there is not question of time bar in demand of duty. No doubt the imported items should have been used in the manufacture of thermoplastic polyurethane. Revenue has relied on the test report of the Chemical Examiner, Shri S.D. Subramanium, according to which the samples may be considered as thermoplastic polyurethane. Unfortunately Shri S.D. Subramanium was not available for cross examination as he had expired. However, the supplier M/s Bayer, a well known manufacturing company and also Shriram Institute for Industrial Research have certified that sample of goods manufactured by the appellant have character of thermoplastic polyurethane. The Standard Text Books also reveal that in reaction between polyols and Isocynates (which the appellant imported), Thermoplastic Polyurethane emerges. There is no reason for rejection of the technical opinion of M/s Bayer and also Shriram Institute for Industrial Research which are based on the test report of the samples of the goods manufactured by the appellant. We reproduce below the opinion of Shriram Institute for Industrial Research on the sample of polyurethane foam manufactured by the appellant.
1. The Plastics are broadly of two types, the thermoplastics and the thermosets. Thermoplastics and Thermosets have been defined by American Society for Testing and Materials (ASTM) as follows in Part 34., 1979 of ASTM specification.
Thermoplastic A plastic that repeatedly can be softened by heating and hardned by cooling through temperature range characteristics of plastics and that in the softened state can be shaped by flow into articles by moulding.
Thermosets A plastic that after having been cured by heat or other means, is substantially infusible and insoluble.
2. Polyurethenes are formed by the interpetion of polyols and icocyanates in the presence of catalysts etc. and could be thermoplastic or thermosetting depending upon the recipe or the degree of crosslinking achieved in the P. U.
3. For the production of rigid polyurethane foam apart from the polyols a few polyhydric alcohols are also incorporated in the polyol system to give foam a 3-dimensional thermosetting character. If adequate crosslinking goes not take place the P.U. foam still remains as thermoplastic which is also reported by E.N. Doyle in his book on "The developments and use of polyurethane products" at pages 239 and 245. Photocopies of relevant pages of this book are enclosed herewith.
4. we have tested your foan as per the above definition of ASTM for its thermoplastic behavious. We have found that your foam after crushing can be compression moulded into sheet and pieces of the same sheets can again be remoulded into fresh sheet.
We have also found out that foam is greatly affected by solvents and not only than foam is distintegrated by solvents, it substantially dissolves and therefore it can not be classed as thermoset.
5. As has been stated in Para 4 above, it can be safely concluded that the foam produced from your formulation is a thermoplastic.
7. The adjudicating authority has not given proper reasoning for rejecting the above test report. It can not be said that the appellants have not fulfilled the conditions of the said exemption notification. Hence, the goods are not liable for confiscation under Section 111(o) of the Customs Act. In these circumstances the demand of duty by Revenue on the ground of non-fulfillment of exemption notification after seven years cannot be sustained. There is no justification for imposition of fine and penalty, as we do not find any merit in the impugned order we set aside the same and allow the appeal with consequential relief.
(Pronounced in Court on 31/05/07)