Full Judgment Text
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CASE NO.:
Appeal (civil) 6559 of 1999
PETITIONER:
DCL Polyester Ltd., Nagpur
RESPONDENT:
Collector of Central Excise & Customs, Nagpur.
DATE OF JUDGMENT: 22/02/2005
BENCH:
ARIJIT PASAYAT & S.H. KAPADIA
JUDGMENT:
J U D G M E N T
KAPADIA, J.
The issue which arises for determination in this civil
appeal filed by the assessee under section 35L(b) of Central
Excise Act, 1944 (hereinafter referred to for the sake of brevity
as "the 1944 Act") is \026 whether the product, termed by the
assessee as "sweeping wastes" is classifiable under chapter
heading 39.15 (waste) or whether it is classifiable under chapter
heading 39.07 (Primary Form of Plastic) of Central Excise
Tariff Act, 1985 (hereinafter referred to for the sake of brevity
as "the 1985 Act") as contended by the department.
DCL Polyester Ltd. (hereinafter referred to for the sake
of brevity as "the assessee") is the manufacturer of partially
oriented yarn of polyester and polyester chips by using purified
terephthalic acid and mono ethylene glycol (raw-materials).
According to the assessee, manufacture of yarn consisted
of different stages; that after the granules emerged from the
granulators they were required to be bagged (which was one of
the stages in the manufacture); and that in the process of
bagging some "chips" fell off and were collected as "sweeping
wastes".
The short point which arises for determination, therefore,
is - whether the spilled chips termed as "sweeping wastes" by
the assessee was classifiable as "waste" under chapter heading
39.15, as urged by the assessee.
On 1.9.1994, show-cause notice was issued by the
department in which it was alleged that polyester chips emerged
from the granulators after they were completely produced and,
therefore, on account of their spill over, they cannot be treated
as a manufacturing waste. According to the show-cause notice,
such sweeping/spillage of "chips" did not make them "waste"
classifiable under heading 39.15. By the said show-cause
notice, the department invoking the extended period of
limitation called upon the assessee to pay duty amounting to
Rs.3,98,302.29 for clearance of polyester chips as "wastes"
during the period 25.7.1991 to 27.2.1994 without cover of gate
passes and in contravention of rules 9, 49, 52A and 276 of the
Central Excise Rules, 1944, with intention to evade payment of
duty.
In reply, the assessee submitted that during the
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manufacture of polyester filament yarn, "wastes" of different
types were generated; that after granulation, the chips pass
through a vibrating screen; that during the screening, the
standard chips are collected in the silos, whereas the unusable
chips waste is separated; and that standard chips collected in the
silos are transferred to the bagging silos from where they are
bagged. According to the assessee, "bagging" is a part of
manufacturing process and in that process, waste is generated
which is unusable. This waste is termed by the assessee as
"sweeping wastes" and, therefore, it is classifiable under sub-
heading 3915.90.
By order dated 14.2.1995, the Collector (hereinafter
referred to for the sake of brevity as "the Adjudicating
Authority"), after considering the evidence on record came to
the conclusion that "polyester chips" got segregated after
emerging from the granulators as "chips" and, therefore, such
spillage was not classifiable as "waste". According to the
Adjudicating Authority, any contamination of the "chips" after
their manufacture will not change the nature of the product. In
this connection, reliance was placed on the statement of Shri
Rastogi, Manager (Polymerization) at M/s DCL Polyester Ltd.
and Shri Lilapat, Sr. manager working in M/s DCL Polyester
Ltd., Mouda. The Adjudicating Authority further rejected the
claim of the assessee for benefit of "nil" rate of duty under the
notification no.14/92-CE dated 1.3.1992 on account of absence
of evidence showing utilization of "chips" in the manufacture
of polyester staple fibre. The demand in the show-cause notice
was consequently confirmed.
Aggrieved by the said decision, the assessee carried the
matter in appeal to the Customs, Excise & Gold (Control)
Appellate Tribunal (hereinafter referred to for the sake of
brevity as "the tribunal").
By impugned judgment and order dated 24.8.1999, the
tribunal upheld the order passed by the Adjudicating Authority
confirming the demand raised by the department. However, on
the point of the benefit claimed by the assessee under
notification no.14/92-CE dated 1.3.1992, the tribunal remitted
the matter to the Commissioner, Central Excise, to decide \026
whether the assessee has fulfilled all the conditions stipulated in
the said notification. Subject to above, the appeal of the
assessee was dismissed by the tribunal. Hence, this civil appeal
by the assessee.
Shri Jaideep Gupta, learned senior advocate on behalf of
the assessee submitted that "sweeping wastes" took place
during the process of manufacture and it did not emerge at the
end of the process; that the activity of feeding raw-material into
hoppers is a part of the manufacturing activity and the spillage
and rejection of raw-material at that stage resulted in some
waste which cannot be classified under sub-heading 3907.60 as
"polyethylene terephthalate". He submitted that classification
is indicated by the manner in which the goods are known and
dealt with in the trade. Learned senior advocate invoked the
test of common parlance. He relied upon the statement of
buyers who purchased from the assessee the said "chip waste".
He submitted that the end-use by the ultimate buyer was not
relevant as waste was capable of use. Learned senior advocate
also placed reliance on the explanatory notes to Harmonized
System of Nomenclature (for short "HSN") under entry 39.15
and submitted that the word "may" in the entry indicates that
the illustrations given therein are not exhaustive. It was urged
that the "chip waste" was not usable for manufacture of yarn
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and was not being used as such by the ultimate buyers. It was
further submitted that neither the show-cause notice nor the
orders passed by the authorities below had invoked chapter note
7 of chapter 39 and in the absence of such invocation, it was not
open to the department to rely upon the said chapter note.
Alternatively, it was submitted that the chips were made from
Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol
(MEG) and as such, they cannot be classified as "thermoplastic
material".
On the question of limitation, learned senior advocate for
the assessee submitted that in any event, the department was not
entitled to invoke extended period of limitation as the assessee
had filed classification lists for chip waste as also the price list
on 20.11.1991 enclosing therewith purchase orders of the
buyers of "polyester chips waste". According to the learned
counsel, the classification list in fact had declared chip waste as
liable to duty @ 40% ad valorem. However, the classification
list was rejected by the department vide letter dated 25.11.1991
stating that chip waste stood approved at "nil" rate as per the
earlier classification list dated 30.8.1991 filed by the assessee..
In the circumstances, it was urged that the department was not
entitled to invoke the extended period of limitation. On the
above facts, learned counsel submitted that the assessee had
disclosed all the relevant facts in their classification list and the
price list; that the classification lists filed in the past were
accepted without any investigation, visits or tests being
conducted and, therefore, the assessee was of the view that the
"chips waste" was classifiable under sub-heading 3915.90.
Therefore, it was urged that the assessee was not guilty of
wilful suppression as alleged and, therefore, the department was
not entitled to invoke the extended period of limitation.
Chapter 39 falls in section VII of the 1985 Act. Section
VII deals with plastics and articles thereof. In this matter, on
the issue of classification, we are concerned with chapter
headings 39.07 and 39.15, which are quoted hereinbelow:
Heading
No.
Sub-
Heading
No.
Description of Goods
Rate of
Duty
1
2
3
4
I. PRIMARY FORMS
39.07
Polyacetals, other polyethers
and epoxide resins, in primary
forms, polycarbonates, alkyd
resins, polyallyl esters and
other polyesters, in primary
forms.
3907.10
Polyacetals
60%
3907.20
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Other polyether
60%
3907.30
Epoxide resins
60%
3907.40
Polycarbonates
60%
3907.50
Alkyd resins including maleic resins
and fumeric resins
60%
3907.60
Polyethylene terephthalate
60%
3907.70
Diallylphthalate resins
60%
3907.80
Polybutylene terephthalate
- other polyesters:
60%
3907.91
Unsaturated
60%
3907.99
Other
60%
II. WASTE, PARINGS AND SCRAP;
SEMI-MANUFACTURES; ARTICLES.
39.15
Waste, parings and scrap, of
plastics.
3915.10
Of polymers of ethylene
60%
3915.20
Of polymers of styrene
60%
3915.30
Of polymers of vinyl chloride
60%
3915.90
Of other plastics
60% plus
Rs.40 per
kilogram
We also quote hereinbelow chapter notes 1, 6 and 7 to
Chapter 39 which deals with plastics and articles thereof:
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"1. Throughout this Schedule, the expression
plastics means those materials of heading
Nos.39.01 to 39.14 which are or have been
capable, either at the moment of polymerization or
at some subsequent stage, of being formed under
external influence (usually heat and pressure, if
necessary with a solvent or plasticizer) by
moulding, casting, extruding, rolling or other
process into shapes which are retained on the
removal of the external influence.
Throughout this Schedule any reference to
’plastics’ also includes vulcanized fibre. The
expression, however, does not apply to materials
regarded as textile materials of Section XI.
6. (a) In heading Nos.39.01 to 39.14, the
expression "primary forms" applies only to the
following forms:-
(i) Liquids and pastes, including
dispersions (emulsions and
suspensions) and solutions;
(ii) Blocks of irregular shape, lumps,
powders (including moulding
powders), granules, flakes and similar
bulk forms.
(b) Notwithstanding anything contained
in Note 3 to this Chapter, heading Nos.39.01 to
39.14 shall also include primary forms obtained
from conversion of another primary form, falling
under the same heading, and such conversion shall
amount to "manufacture".
7. Heading No.39.15 does not apply to waste,
parings and scrap of a single thermoplastic
material, transformed into primary forms (heading
Nos.39.01 to 39.14).
Since Central Excise Tariff Act, 1985 is based on HSN
read with explanatory notes thereto, we also quote hereinbelow
extracts of chapter notes 1, 6 and 7 from HSN as well as
explanatory notes thereto:
"1. Throughout the Nomenclature the
expression "plastics" means those materials of
heading Nos.39.01 to 39.14 which are or have
been capable, either at the moment of
polymerization or at some subsequent stage, of
being formed under external influence (usually
heat and pressure, if necessary with a solvent or
plasticizer) by moulding, casting, extruding,
rolling or other process into shapes which are
retained on the removal of the external influence.
Throughout the Nomenclature any reference
to "plastics" also includes vulcanized fibre. The
expression, however, does not apply to materials
regarded as textile materials of Section XI.
6. In heading Nos.39.01 to 39.14, the
expression "primary forms" applies only to the
following forms:-
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(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.
7. Heading No.39.15 does not apply to waste,
parings and scrap of a single thermoplastic
material, transformed into primary forms (heading
Nos.39.01 to 39.14).
EXPLANATORY NOTES
Plastics:
The expression "plastics" is defined in Note
1 to this Chapter as meaning those materials of
headings 39.01 to 39.14 which are or have been
capable, either at the moment of polymerization or
at some subsequent stage, of being formed under
external influence (usually heat and pressure, if
necessary with a solvent or plasticizer) by
moulding, casting, extruding, rolling or other
process into shapes which are retained on the
removal of the external influence. Throughout the
Nomenclature, the expression "plastics" also
includes vulcanized fibre.
The expression, however, does not apply to
materials regarded as textile materials of Section
XI. It should be noted that this definition of
"plastics" is applicable through the Nomenclature.
The term "polymerization" is used in this
definition in a wide sense and denotes any method
of forming a polymer, including addition
polymerization, rearrangement polymerization
(polyaddition) and condensation polymerization
(polycondensation).
If material of this Chapter can be softened
repeatedly by heat treatment and shaped into
articles, e.g., by moulding, and then hardened by
cooling, it is termed "thermoplastic". If it can be
or has already been transformed into an infusible
product by chemical or physical means (e.g., by
heat) it is termed "thermosetting".
Plastics have almost unlimited applications
but many articles made therefrom are classified
elsewhere (see Note 2 to this Chapter).
Primary forms:
Headings 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
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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 "curring"
(such as hardeners (cross-linking agents) or other
co-reactants and accelerators), these liquids or
pastes may contained other materials such as
plasticizers, 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) Prepared glues \026 see exclusion (b) at the end of this
General Explanatory Note.
(b) Prepared additives for mineral oils (heading 38.11)
It should also be noted that solutions (other than
collodions) consisting of any of the products specified in
headings 39.01 to 39.13 in volatile organic solvents, when
the weight of the solvent exceed 50% of the weight of the
solution, are excluded from this Chapter and fall in heading
32.08. (see Note 2(d) to this Chapter).
Liquid polymers without solvent, clearly
identifiable as being intended for use solely as
varnishes, (in which the formation of the film
depends on heat, atmospheric humidity or oxygen
and not on the addition of a hardener), are
classified in heading 32.10. When not so
identifiable, they fall in this Chapter.
(2) Powder, granules and flakes. In these
forms they are employed for moulding, for the
manufacture of varnishes, glues, etc. and as
thickeners, flocculants, etc. They may consist of
the unplasticised materials which become plastic in
the moulding and curing process, or of materials to
which plasticizers have been added; these
materials may incorporate fillers (e.g., wood flour,
cellulose, textile fibres, mineral substances, starch)
colouring matter or other substances cited in Item
(1) above. Powders may be used, for example, to
coat objects by the application of heat with or
without static electricity.
(3) Blocks of irregular shape, lumps and
similar bulk forms, whether or not containing
fillers, colouring matter or other substances cited
in Item (1) above. Blocks of regular geometric
shape are not primary forms and are covered by
the expression "plates, sheets, film, foil and strip"
(see Note 10 to this Chapter).
Waste, parings and scrap of a single
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thermoplastic material transformed into primary
forms are classified in headings 39.01 to 39.14
(according to the material) and not in heading
39.15 (see Note 7 to this Chapter)."
Scope of an entry in the tariff is a matter of law.
However, whether a product comes within an entry is a mixed
question of law and fact.
In the case of Moti Laminates Pvt. Ltd. v. Collector of
Central Excise, Ahmedabad reported in [1995 (76) ELT 241],
this Court held that section 3 levies duty on all excisable goods
mentioned in the schedule provided they are produced and
manufactured. Therefore, where the goods are specified in the
schedule, they are excisable goods but whether such goods can
be subjected to duty would depend on whether they are
produced or manufactured by the assessee. The expression
"produced or manufactured" has been explained by this Court
to mean that the goods so produced must satisfy the test of
marketability. Consequently, it is always open to an assessee to
prove that even though the goods were excisable goods, they
could not be subjected to duty as they were not produced or
manufactured by it or if they had been produced or
manufactured, they were not marketed or capable of being
marketed.
Similarly, in the case of Union of India v. Delhi Cloth &
General Mills Co. Ltd. reported in [1997 (92) ELT 315], this
Court held that the commodity which is sought to be made
liable to duty must be marketable in the condition in which it
emerges and not a commodity that may require further
processing or packing to be made marketable.
In the case of Collector of Central Excise v. Ambalal
Sarabhai Enterprises reported in [1989 (43) ELT 214], this
Court held on interpretation of section 3 that the duty of excise
is on the manufacture of goods and for an article to be "goods",
they must be known in the market as such or they must be
capable of being sold in the market as goods. Actual sale was
not necessary. User in the captive consumption was not
determinative of that article being capable of being sold in the
market or known in the market as goods. Even transient items
of articles can be "goods", provided they were known in the
market as distinct and separate articles having separate uses
during the short life span. Thus, the goods with even unstable
character can be marketable, if during the short period, they
were capable of being known or sold in the market.
In the case of Chemicals and Fibres India Limited v.
Union of India and others reported in [1982 (10) ELT 917],
one of the questions which arose for determination was
question of interpretation of tariff items. It was held by the
Bombay High Court that the rule that the words should be
construed in a popular sense is not applicable in all cases. The
said rule is a qualified rule. Where the nature of the product in
question is highly technical and scientific in character, the
words used in the item will have to be given technical or
scientific meaning. The different chemical processes like
condensation, polymerization is not capable of being construed
in a popular sense. Indeed, it can be construed only in a
scientific and technical sense. Incidentally, it may be
mentioned that in Chemicals and Fibres India Limited (supra),
an affidavit was filed on behalf of the assessee by one Dr. Patel,
who inter alia stated that polyester chips were capable of being
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used for manufacture of fibre or yarn by mills other than the
assessee in that case. This point is important as it was
contended by the assessee that the chips in question were not
usable in the manufacture of yarn. It was held in the said
judgment that plastics and plasticizers were capable of various
end-users. However, this observation will not preclude the
assessee from leading appropriate evidence on the point of "nil"
rate of duty under notification dated 1.3.1992 before the
Commissioner, Central Excise, to which authority, the matter
has been remitted as stated above. Lastly, it may be pointed out
that in the present case, we are concerned with intricate
technical process of manufacture of polyester chips and
partially oriented polyester yarn. The authorities below on
examination of evidence have concluded that the spillage of
chips after emerging from the granulators were goods by
themselves and they do not cease to be polyester chips by
reason of dust contamination. In the present case, at the stage
of spillage, the said "chips" are not waste nor can they be said
to be waste owing to the manufacturing process. This finding is
pure technical finding and, therefore, no interference is called
for in this Civil Appeal.
In the case of Collector of Central Excises v. Nuchem
Industries Pvt. Ltd. reported in [(1998) 9 SCC 656], it has been
held by this Court that where technical processes are concerned,
the findings of the tribunal are, ordinarily, not to be disturbed.
In the present case, a categorical finding is recorded by
the Adjudicating Authority confirmed by the tribunal, that
polyester chip as a complete product emerges from the
granulators and during the bagging stage, some of the chips
spill over which cannot be termed as a "waste". We see no
reason to disturb the said finding which is based on technical
processes. It is also important to note that manufacture of
partially oriented yarn of polyester consists of various
processes. The manufacture of such yarn goes through various
stages. Under the 1944 Rules, whenever a stage is reached, the
assessee is required to make entry in RG register. It is not in
dispute that when chips emerged from the granulators, entries
were made in the RG register. This circumstance indicates that
the chips were independent products which were required to be
bagged and in that they spilled over as "chips". In the entire
case, there is no evidence that such "chips" ceased to be
"chips". On the contrary, the invoices produced by the assessee
show that the said "chips" were bought and sold as polyester
chips in the market. Lastly, impurity in the chips is a relevant
circumstance for valuation and not for classification, unless the
contamination is so heavy that the nature of the product ceases
to be polyester chips. In the present case, there is no evidence
that alleged unusable chips had ceased to be chips.
In the case of M/s O.K. Play (India) Ltd. v.
Commissioner of Central Excise, Delhi-III, Gurgaon reported
in [2005 (1) Scale 732], this Court has observed that the scheme
of Central Excise Tariff is based on HSN and the explanatory
notes thereto. Therefore, HSN along with the explanatory notes
provide a safe guide for interpretation of an entry. Further,
equal importance is required to be given to the Statutory Rules
of Interpretation given to the Excise Tariff. Under rule 3(a), it
is provided that the heading which provides a specific
description shall be preferred to a heading having general
description. In the present case, it may be noted that headings
39.07 and 39.15 both fall in chapter 39 and looking to the
product emerging from the granulators, we are satisfied that
polyester chips comes within specific description of plastics
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and articles thereof.
Analyzing the provisions of chapter 39 read with notes
thereto, it is clear that chapter 39 is in two parts, namely,
primary forms vis-‘-vis wastes, parings and scraps. Headings
39.01 to 39.14 refer to plastics in primary forms whereas
heading 39.15 refers to wastes, parings and scraps of plastics.
Moreover, chapter note 6(a) states that the expression "primary
form" in headings 39.01 to 39.14 inter alia applies to blocks of
irregular shapes, lumps, powders (including moulding
powders), granules, flakes etc. Further, note 6(b) states that
heading Nos. 39.01 to 39.14 shall include primary forms
obtained from conversion and shall amount to "manufacture".
Note 7 states that heading no.39.15 does not apply to wastes,
parings and scrap of thermoplastic material transformed into
primary forms. (referred to under heading Nos.39.01 to 39.14).
To the same effect is the explanatory note to HSN.
In the case of Chemicals and Fibres India Limited
(supra), it has been held by the Bombay High Court that
polymer chip is a saturated linear polyester. Relying on the
Encyclopedia of Polymer Science and Technology, Vol. 11,
page 35, it was held that polyester is a high polymer, which is a
compound formed by the reaction of molecules and that it was
formed by the process of polycondensation. It was further
observed that polyesters were known by several trade names,
like, polyethylene terephthalate (PET), terylene, decron etc. In
the said judgment, it was further held that the distinction
between the plastics and resin was arbitrary since synthetic
material can be called "resin" as well as "plastic". Synthetic
resin was polymer itself whereas plastic was polymer plus
additives, such as, filler, colorants, plasticizers. In the
circumstances, chapter note 7 to chapter 39 which excludes
"waste" of single thermoplastic material from entry 39.15 is
applicable to the facts of the present case. In the circumstances,
we do not find any infirmity in the judgment and order of the
tribunal on the question of classification.
Now coming to the question of limitation, it is urged on
behalf of the assessee that show-cause notice dated 1.9.1994
invoking the extended period of limitation under the proviso to
section 11A(1) was erroneous as the assessee had filed their
classification list and price-list on 20.11.1991 [including the
purchase orders of the buyers]; that no inspection, audit or
investigation was carried out before approving the classification
list and the price-list and, therefore, the department was not
entitled to invoke the extended period of limitation.
We do not find any merit in these arguments. Firstly, no
such arguments were advanced before the tribunal. The only
argument advanced before the tribunal was on excisability and
nil rate of duty vide notification dated 1.3.1992. Secondly, in
the reply to the show-cause notice, the assessee submitted that
wastes had emerged at various stages. However, in the
classification list, they have not spelt out the various stages at
which the so called "wastes" had emerged. In the present case,
the department had alleged misdeclaration of polyester chips as
wastes. According to the assessee, chips, which spilled over
during bagging were unusable and, therefore, "waste".
However, no such details have been mentioned in the
classification list particularly when it urged that "wastes" had
emerged at different stages of production. In the circumstances,
we are not inclined to interfere with the impugned judgment of
the tribunal.
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In the result, civil appeal is dismissed, with no order as to
costs.