Customs, Excise and Gold Tribunal - Delhi
Indrol Lubricants And Specialities ... vs Collector Of C. Ex. on 4 December, 1992
Equivalent citations: 1994(69)ELT325(TRI-DEL)
ORDER N.K. Bajpai, Member (T)
1.These three appeals were heard toether on the basis of written submissions of the appellants and are being disposed of by this common order.
2. These appeals are directed against the orders on classification of two products manufactured by the appellants. While the first two appeals relate to the classification of Temporary Corrosion Preventive Fluid under their brand name 'Protective PX-2' and 'Rustillo 114' respectively, the third relates to 'Hoquench-179'. The appellants have claimed these products are Speciality Oils falling under Item 68 of the erstwhile central excise tariff, the lower authorities have classified them as varnishes falling under Item 14II(i).
APPEAL NO. 3541/87-C
3. It appears from the records that on chemical test the product 'Protective PX-2' was found to be as under :-
"The sample is in the form of dark brown liquid and the same is composed of resin, bituminous matter and volatile solvent. It gives tack-free transparent coating."
4. Based on this report, the Assistant Collector instituted proceedings for classification of the product as varnish under Item 14II(i) as against the appellants' claim for classification under Item 68. After the consideration of their reply to the notice and after hearing them, he decided the classification under Item 14II(i) which has also been upheld in appeal by Collector of Central Excise (Appeals), Bombay.
5. The grounds of appeal to the Tribunal is that the chemical test report cannot be the sole basis for arriving at a decision for re-classifying the product; the commercial understanding and the end-use of the product very clearly establish that their product is not a varnish but it is only a temporary corrosion preventive fluid classifiable under Item 68; that varnish and temporary corrosion preventive fluids are different; that Collector (Appeals) has ignored the Defence Handbook on "PX-2 Corrosion Preventive Compound" submitted by them. They have also submitted that the Classification Lists which have been approved from time to time can be changed only prospectively and that too if there is a change in the composition of the product or a change in the tariff description. It is also stated that Collector (Appeals) should have taken into consideration Trade Notice No. 138(MP)/Paints & Varnishes/(2)/198, dated 31-10-1981 as published by Bombay Chamber of Commerce in their weekly dated 25th July, 1983.
6. When the appeals were listed for hearing by the Tribunal, the appellants sent written submissions and requested that these may be considered while deciding the appeals. We have heard Smt. Ananya Ray, the learned SDR for the Department.
7. After explaining the facts of the case, Smt. Ray placed reliance on the decision of the Madhya Pradesh High Court in the case of Akhtar Abbas v. Asstt. Collector of Central Excise, Bhopal [AIR 1961 MP 353] in which the Court held :
"Varnish is a generic name given to a homogeneous solution of gums or resins in alcohol, lin seed oil or the like which is coated on various articles for preventive or decorative purposes."
8. The learned SDR submitted that this decision had been accepted and relied upon by a Division Bench of the Bombay High Court in the case of Jagdish D. Dengvekar v. Collector of C. Excise, Poona, [1978 (2) E.L.T. (J 581)] while deciding that French Polishes were also varnishes classifiable under Item 14.
9. Smt. Ray submitted that the Condensed Chemical Dictionary by Gessner & Hawley also defined varnish as an organic protective coating, similar to a paint except that it does not contain colourant. It may be comprised of a vegetable oil (linseed, tung etc.) and solvent, or of a synthetic or natural resin and solvent. The product itself bears the name "Protective PX-2" and the Defence Handbook which was submitted to Assistant Collector itself indicates the following characteristics of the product.
"A thin, black, tough, slightly tacky film capable of being handled and resistant to rubbing, is left when the solvent evaporates."
10. This left no doubt that the function of the product was protective and this was proved from its name, chemical composition and use as indicated in the documents relied upon by the appellants themselves.
11. Referring to the plea of the appellants that the classification could only be changed prospectively, the learned SDR submitted that there could be no grievance on this score because the change was not made retrospective but from the date the Classification List itself was effective. This was in conformity with the law.
12. We have carefully considered the appeal and perused the case record. The written submissions are a repetition of the grounds of appeal and we have taken them as well as the arguments of the learned SDR into consideration. It is true that no classification can be decided merely on the basis of the test report. In the case of the subject goods - "Protective PX-2", the chemical test shows the composition to be resin, bituminous matter and volatile solvent which gives a tack-free transparent coating. The Defence Handbook cited by the appellants also confirms that the product gives tacky film resistant to rubbing when the solvent evaporates. The appellants' claim is that the product is a temporary corrosion preventive compound which in their view is different from a varnish and should have been classified under the residuary Item 68. The learned SDR has cited the decision of the M.P. High Court in the case of Akhtar Abbas (supra) according to which varnish is a generic name given to homogeneous solution of gums and resins in alcohol, linseed oil or the like which is coated to various articles for preventive or decorative purposes. It appears to us that if this definition is applied to the subject goods they would answer the description of varnish even though they may not be known by that name. To us it appears that they share all the qualities and characteristics of varnish and perform the same function and have the same use as varnish. To the extent to which the High Court has held that varnish is a generic name, it would be difficult to deny that the subject goods are not covered by this generic name.
13. Finally, the contention of retrospective change of the Classification Lists is not borne out from the facts on record. The order passed by the Assistant Collector is for the classification of Protective PX-2 as varnish under Tariff Item 14II(i) and approval of the Classification List 30/80, dated 19-12-1980. The copy of the demand notice No. CEx/IV/Castrol/CL/80/854, dated 21-11-1981 issued by the Range Supdt. indicates the amount calculated for the period 19-12-1980 to 31-10-1981. Neither the order of the Assistant Collector nor the demand notice gives any indication that the revised classification was given retrospective effect. We agree with the learned SDR that there is no substance in the plea of retrospective revision of the Classification List and the case law National Fertilizers [1990 (48) E.L.T. 562] & Rainbow Ink [1992 (59) E.L.T. 593] is not relevant.
14. We also observe that the Assistant Collector has recorded a well reasoned order which is fully sustainable in view of our own findings. The appeal regarding the classification of Protective PX-2 is, therefore, rejected.
APPEAL NO. 3542/87-C
15. This relates to the classification of the appellants' product named "Rustillo-114" for which they filed Classification List No. 12/82 and claimed its classification under Item 68. The product on test was found to be as under by the Deputy Chief Chemist :
"The sample is in the form of dark brown coloured liquid. It is composed of mineral solvent, colouring matter, synthetic resin and additives. It gives tackfree transparent coating."
16. Based on this report, proceedings were initiated by a show cause cum demand notice, dated 26th June, 1982 by the Range Superintendent under Section 11A demanding a duty of Rs. 33085.25 for the period 26-6-1977 to 25-6-1982 on the ground that the appellants had suppressed the facts by giving wrong declaration in their Classification List that the product is not classifiable under Items 1 to 67 of the erstwhile central excise tariff. After considering the plea of the appellants which are similar to those in the proceedings relating to classification of Protective PX-2, the Assistant Collector decided that Rustillo 114 was a varnish classifiable under Item 14II(i). He also confirmed the demand of duty by holding that the allegation of deliberate suppression of facts and misdeclaration were established. On appeal, Collector (Appeals) upheld the Assistant Collector's orders.
17. On the question of classification of Rustillo-114, the appellants have taken the very same grounds as they have taken in the appeal about the classification of Protective PX-2. We have dealt with all these grounds in Paragraph 12 of our order.
18. The only other ground taken in the present appeal is about the applicability of Trade Notice 174(MP)/1975, dated 9th September, 1975 issued by the Bombay Central Excise Collectorate. As far as this is concerned, Smt. Ray read it out and submitted that it related to speciality oils which were broadly grouped as under in the Trade Notice :-
(a) Electrical oils : like transformer oil, switch gear oil, etc.
(b) Carrier Oils : Including medicinal oils like white oils, liquid paraffin, agricultural spray oil etc. These oils help in heat transformers, pressure transfers carrying the base chemicals etc.
(c) Processing oils : These help in processing of the products in any industry, example, rubber processing oil, emulsifier, textile oils, plasticizer oils etc. The product in question was not an oil and being composed of resin and bituminous matter in a volatile solvent it did not meet the description of corrosion preventive oil and compound figuring at serial No. 27 of the list of speciality oils attached to the Trade Notice nor did it find place in the three broad categories indicated above. Thus, the Trade Notice was not relevant for the purpose of determining the classification of the subject product. In the absence of any specific item for Temporary Corrosion Preventive Fluids in the central excise tariff, the classification of the product had to be determined with reference to its composition, use and name. It was a kind of varnish which provided a protective coating and the name of the product left no doubt about its character and use. She fully relied on the judgment of the Madhya Pradesh High Court in the case of Akhtar Abbas (supra).
19. Let us look at the Trade Notice cited by the appellants. It refers to certain speciality oils and deals with the question of their classification under Item 11B. The list enclosed to the Trade Notice includes "Corrosion Preventive Oil and Compound" and the subject goods which may by the name alone appear to share the quality of "corrosion prevention", are not oil inasmuch as their chemical composition is different, being composed of resin, bituminous matter and volatile solvent. Even the expression "Corrosion Preventive Oil Compound", in our view, would not cover the subject goods which correspond more to the characteristics of "varnish" in the sense of leaving a 'tackfree transparent coating'. Thus, corrosion prevention oil and compound would be different from the subject goods in the context of the Trade Notice.
20. The appellants have referred to an End-Use Certificate, dated 13th June, 1987 issued by M/s. Alliance Engineering Co., Bombay certifying that Rustillo 114 was being used by them as rust preventive coating in lieu of oil coating for machine components. This certificate itself disproves their contention that their product is a "rust preventive oil" which is our own finding independently arrived at in the preceding paragraph.
21. There is no dispute that the products are not Temporary Corrosion Preventive Fluids or Rust Preventive Coating conforming to a particular ISI specification. The dispute is about their classification under the central excise tariff and we have discussed the whole matter in Para 12 in terms of the judgment of the M.P. High Court in the case of Akhtar Abbas (supra) and whatever are our findings about Protective PX-2 apply with equal force to Rustillo 114.
22. As far as the applicability of the commercial parlance test is concerned, no evidence has been brought on record to contradict the name character and use of the goods and these take both the products to fall under the generic name of varnish for which the correct classification is Item 14II(i) and not the residuary Item 68. The law is well settled that the classification of goods is to be done under the residuary entry only if they are found not to answer the description of any specific item of the tariff.
23. A word about reliance on Trade Notice No. 138(MP) Paints & Varnishes/(2)/1981, dated 13-10-1981 issued by the Collector of Central Excise, Bombay. The Assistant Collector has stated that according to this Trade Notice while deciding the classification of a product as an adhesive or as a varnish, commercial understanding and description of the product in manufacturer's literature or in the labels should be taken into consideration. We observe that the classification has rightly been determined on the basis of the Chemical Composition, character and use of the product and this is fully supported by the judgment of the M.P. High Court cited by the learned SDR. No evidence of commercial understanding has been brought on record by the appellants to contradict the classification made by the authorities.
24. Finally, we proceed to consider whether the demand of duty of Rs. 33085.25 made under Section 11A on the ground that the appellants had suppressed the facts by giving the wrong declaration in their Classification List that Rustillo-114 was not classifiable under any tariff item from 1 to 67, was legally sustainable. The further conclusion in the show cause notice is that the appellants have got wrongful gain of the duty amounting to Rs. 33085.25. The proceedings against the appellants were initiated after a sample of the goods was drawn on 24-11-1981 and the report of the Deputy Chief Chemist was received. The Assistant Collector's findings on the question are as under :-
"On a perusal of the earlier Classification lists filed by the company, I find that the Company had actually declared on the body of the Classification List that the same did not fall under tariff Items 1 to 67 of CET. Instead of submitting the details regarding the composition and end use of the products, the Company had merely given a vague remark 'already submitted to your office'. The particulars of the letter vide which the said information was given was not mentioned. Under the Self Removal Procedure, it is the Company's responsibility to ensure that the correct declaration regarding the classification of their products is furnished. The Company has not only failed to fulfil this responsibility but they have also misled the Department by giving a categorical declaration that the product was not falling under TI 1 to 67 and a vague remark that the details had been already furnished."
25. Rule 173B requires every assessee to file with the proper officer for approval the Classification List in the prescribed form showing :
(a) the full description of all excisable goods manufactured by him
(b) the tariff item of the CET schedule
(c) the rate of duty leviable.
26. Under Sub-rule (2) of Rule 173B the proper officer is empowered to make such enquiry as he thinks fit before according his approval. It appears in the present case that the appellants had not indicated the details of the composition and end-use of the product in the Classification List but the Assistant Collector, instead of asking for the details, approved the same. He also did not locate the details said to have been submitted. In these circumstances, it would not be correct to lay the blame on the appellants and extend the period of demand beyond six months by alleging the charge of suppression of facts. We consider that in. these circumstances the demand should be restricted to a period of six months. This would be in conformity with the view taken by the Supreme Court in the case of Nat Steel Equipment Private Ltd. v. Collector of Central Excise, [1988 (34) E.L.T. 8]. The decisions of the Tribunal in the case of National Fertilizer [1990 (48) E.L.T. 562] and Rainbow Ink and Varnish Manufacturing Co. v. Collector of Central Excise [1992 (59) E.L.T. 593] which relate to prohibition against change in Classification List once approved with retrospective effect have obviously no application to the present case which is one of demand under Section 11A. Moreover, the Supreme Court decision in the case of Nat Steel (supra) specifically covers a situation such as the one involved in the present case.
27. Thus, after a full consideration of all aspects of the matter, we come to the conclusion that;
(a) Rustillo-114 is correctly classifiable under Item 14II(i) and
(b) the demand for duty as a result of the re-classification is to be restricted to a period of six months preceding the date of issue of the show cause notice; and
(c) the Assistant Collector will re-calculate the demand for six months and communicate the amount to the appellants who would be given an opportunity to verify the amount. The appeal is disposed of in terms of this order.
APPEAL NO. 3770/87-C
28. This appeal is about the classification of the appellants' product named "floquench-179" which was classified under Item 68. A sample sent for test on 28-11-1981 brought the following results from the Deputy Chief Chemist :-
"The sample is in the form of yellow viscous liquid. It is surface active preparation."
29. Based on this report, the Assistant Collector initiated proceedings for the classification of the product under Item 15AA as a surface active preparation and also demanded the duty of Rs. 62,656.07 for past clearances under Section 11A on the ground that the appellants had deliberately suppressed the facts by giving a wrong declaration in the Classification List that the product was not classifiable under Tariff Items 1 to 67 of the Central Excise Tariff. After consideration of the appellants' reply and after hearing them, the Assistant Collector passed an order holding that on the basis of the test report, the product was classifiable as a surface active preparation under Item 15AA of the Central Excise Tariff. During the hearing held on 30th September, 1982, the appellant company shifted their stand and submitted that if the classification of the product was decided under Item 15AA, then the same was eligible for exemption under serial No. 4 of Notification No. 101/66-C.E., dated 17th June, 1966 as "wetting out agents" intended for use in the metal quenching industry. She held that since the product 'Iloquench 179' had already been manufactured and cleared by the appellants, it was no longer possible to verify the duty-paid nature of surface active agent - a condition subject to which exemption from duty was available to wetting out agents in terms of Notification No. 101/66. She, therefore, held that exemption in respect of past clearances of the product could not be accorded at that stage of the proceedings considering that the claim was made only at the time of personal: hearing. She, however, decided that in respect of future clearances of the product, the appellants' claim for exemption under Notification No. 101/66 would be considered if they filed a classification list under Rule 173B and claimed the exemption by fulfilling the prescribed conditions of the notification. She, therefore, held that the past clearances were rightly assessable to duty under Item 15AA of the tariff and exemption under Notification No. 101/66 was not available.
30. We now come to the question whether there was a deliberate misdeclaration in the classification list inasmuch as the appellants had stated that their product was not classifiable under Tariff Items 1 to 67 and this was done with a view to taking advantage of the lower rate of duty under Item 68. The Assistant Collector has held that the appellants had deliberately mis-declared in the Classification List and their product was not classifiable under Items 1 to 67 of the central excise tariff. To quote :-
"The Co. cannot pose ignorance regarding the composition of their product and that it has properties of organic surface active agents. This is obvious from the fact that at the time of personal hearing the Co.'s representative have admitted that the product is a wetting agent used in the metal quenching industry. But the Co. declared the product as a 'speciality oil' covered by Trade Notice No. 174(MP)/Blended or compounded lubricating oils/(l) 1975, dated 9-9-1975 whose function was other than lubrication and that the product was, therefore, not classifiable under Items 1 to 67 of Central Excise Tariff. Under the self removal procedure, it is obligatory on the part of the Company to give the correct declaration in respect of the classification of their product and the Company can therefore not disown their responsibility in this respect. I, therefore, hold that the Company have deliberately suppressed the factual position regarding the composition, function and properties of their product with an intent to evade central excise duty and, therefore, the period of 5 years has been correctly invoked in the show cause notice and the demands are therefore within the time prescribed under Section 11A."
31. Collector (Appeals) has upheld the order of the Assistant Collector both on the question of Classification as well as the demand of duty. In their appeal to the Tribunal, the appellants have taken the ground that the Assistant Collector should have presumed that the organic surface active agent used in the manufacture of 'wetting out agent' were duty paid since this was a condition for granting exemption to 'wetting out agent' under Notification No. 101/66; that it was possible to verify the end-use of their product; that this was not a case of mis-declaration since the operations were in the knowledge of the Department.
32. In their written submissions, the appellants have stated that the product contains proprietory ingredients Noigen Pc-43/75 and antirust/antifoam Additives. The product is water based and mode of application of the product is after dilution with water in desired proportion. The product is neither Surfactant nor Surface Active Preparation. The ingredients present in the product exhibits inverse solubility calibre thereby providing a blanket which offers slow cooling as explained in the product literature. The product is recommended for the actual application in the industries like Gear Induction Hardening etc.
33. We have considered the appeal. We observe that the appellants have themselves accepted the classification of the product "Iloquench-179" under Item 15AA but made a claim for exemption under Notification No. 101/66 during the hearing with the Assistant Collector on the ground that the product was a 'wetting agent' - a claim which is contrary to the Chemical Examiner's report according to which the product is a 'surface-active preparation'. The exemption under the notification is available to 'surface active preparations' if they are not manufactured with the aid of power. The appellants have not laid any such claim. They are, therefore, not entitled to exemption under the notification.
34. As regards the claim that the product is a wetting out agent, the Assistant Collector has rightly rejected it for past clearances on the ground that, with the goods having been cleared, it is not possible to verify the facts with reference to the conditions stipulated in the notification.
35. Finally, about the demand for the past period in terms of the proviso to Section 11A, we agree with the Assistant Collector that this is a clear case of mis-declaration in the Classification List. In the case of goods manufactured with a brand name unless the chemical composition of the product, its character and use are declared by the assessee, its correct classification cannot be determined. In the absence of any such details the manufacturer making a claim for classification at a low rate of duty does so at his own peril and, if the facts are found on verification to be otherwise, the appellant is liable to the consequences of his mis-declaration which, in the circumstances of this case, we find to have been correctly adjudged. In the light of these findings, we agree that the demand for duty was rightly confirmed. Thus, the appeal on all counts fails and is rejected.