1. The captioned appeal was initially filed as a Revision Application before the Central Government which, under Section 35-P of the Central Excises and Salt Act, 1944, has come as transferred proceedings to this Tribunal, for disposal as if it were an appeal filed before it.
2. The facts of the case, as they appear in the impugned order, briefly stated, are that the appellants used to import Vinyl Acetate, a monomer, on which the authorities levied and collected additional (Countervailing) customs duty with reference to Item No. 68 of the Central Excise Tariff Schedule (hereinafter referred to as CET). The monomer is converted into polyvinyl acetate, a polymer. Till 17-6-77, the appellants were paying excise duty on polyvinyl acetate (hereinafter referred to as PVA) under Item No. 15A(1) (ii) CET. The duty paid PVA was used in the manufacture of adhesives described as Nevisol, Nevisol-SH Nevisol-P, Nevisol-W and Nevisol-ST. The appellants also produce polyvinyl alcohol solutions of 9%, 15% and 19.9% by dissolving PVA powder in water. The water solution, according to the impugned order, is a mechnical mixture of dispersed powder in water by means of a high speed stirrer. After 18-6-77 the department informed the appellants that they would be collecting duty on the end products, namely, the aforesaid adhesives under Item 15A (1) (ii) of the CET.This decision was communicated by the Assistant Collector by his order dated 10-4-80. From this order it is seen that the appellants cleared the adhesives during the period from 18-6-77 to 31-10-77 without payment of duty. The Supdt, of Central Excise thereupon had issued a show cause notice dated 7-12-77 asking the appellants to show cause why central excise duty amounting to Rs 1,31,213.22 should not be recovered from them under Rule 10 of the Central Exicse Rules, 1944 (hereinafter referred to as the Rules). The Asstt. Collector, in the above-referred-to order, confirmed the demand after holding adjudication proceedings. In their appeal to the Appellate Collector, the appellants maintained that the adhesives were made by modification (mechanical mixing of duty paid synthetic resins, namely, PVA dispersion with water solution of imported polyvinyl alcohol powder on which appropriate countervailing duty was paid at the time of importation. Similarly, the appellants stated with reference to the adhesives of "Nevisol" group that they mixed PVA dispersions with polyvinyl alcohol solutions and Dibutyl Phthalate. The three products were mechanically stirred, resulting in modification. It was urged that there was no chemical modification involved in this process. Therefore, there was no justification to charge duty on the end-products. Mere physical modification did not amount to manufacture. In the circumstances, the status quo ante as it existed before 18-6-1977 should be restored. The Appellate Collector in his order dated 14-2-1980} held that in the case of PVA, Dibutyl Phthalate, was used as a plasticizer arid the mixing process brought about modification of PVA. In the case of polyvinyl alcohol powder, he held that the addition of water and use of a high speed stirrer brought about physical modification. He further held that Item No. 15A CET as amended in the 1977 Budget, took within its scope modified products of PVA without making any distinction between physical modification and chemical modification. Consequently, he rejected the appeal. It is this order which is under challenge before us.
3. We have heard Shri Gopal Prasad, Consultant, on behalf of the appellants and Smt. Vijay Zutshi, SDR, on behalf of the Respondent.
4. The submissions on behalf of the appellants may be summarised thus :- (a) Prior to 18-6-1977, the Department had classified the water solution of Polyvinyl alcohol powder and the end-products, namely, glue under Item 68 of the CET. With the amendment of the Tariff Item 15A CET by the Finance Bill, 1977, which took effect from 18-6-1977, the Department sought to classify the water solution of polyvinyl alcohol and the PVA dispersions (designated by the appellants as Nevisol 60, Nevisol 50 and Nevisol 40) under Item No. 15A (1) (ii) CET. (b) There was no material change in the tariff description warranting re-classification of the goods. The words "including" in the said item was replaced by the words "such as" ; this change could not yield the result which the department was seeking.
(c) The expression "modified" should be understood as chemical and not physical modification. What was brought about in the case of the present product was a physical modification and this did not amount to a process of manufacture.
(d) In so far as water solution of polyvinyl alcohol was concerned, the Finance Ministry's letter F.No. 3/1/78-CX. III, dated 24-10-1979, addressed to all Collectors of Central Excise has clearly held that change in the form of duty paid artificial or synthetic resins from solid/powder form into liquid or paste form and vice versa by the simple process of adding water and/or stabilizers, additives etc. would not amount to manufacture, liable to duty again when there is no chemical reaction in the process of conversion from one form into another. The benefit of this view has been given to the appellants in respect of the subsequent classification lists but the present dispute has survived.
(e) In so far as the adhesive preparations are concerned, they were mixtures of duty paid polymer with duty paid water solution of polyvinyl alcohol and Dibutyl Phthalate. Here also, the ratio of the Government decision in the above referred to letter of 24-10-1979 would apply. The glue was a mere mixture and the function of Dibutyl Phthalate was to soften the glue.
(f) In support of the proposition that the term "modification" appearing in Item 15A CET meant chemical modification, the Condensed Chemical Dictionary by Hawley as also the Government of India's decision in the case of Gramophone (India) Pvt. Ltd. reported in 1980 E.L.T. 82 were cited. It was also pointed out that the term "modified" occurred in sub-item (i) and not in sub-item (ii) of Item 15A(1) CET. Explanation 2 to Item 15A CET, as inserted in the place of the old Item 15A in the 1982 budget, also went to show that what was contemplated was chemical synthesis and not a physical change.
(g) In the circumstances, it was contended that there was no warrant to charge duty on the adhesives. At any rate, if it was held that they were dutiable, Item 15A(1) was not the appropriate item. Item 68 CET would apply.
5. The submissions on behalf of the Respondent may be summarised thus :- (a) It was not correct to say that there was no manufacture at all involved in the preparation of the adhesives. The end-products, namely, the adhesives had a distinct character and use as compared to the raw material used for their production. It was not necessary that there should be a chemical modification or chemical change to come to the conclusion whether there was manufacture or not. The trade name given to the adhesives as well as their uses were indicative of the fact that there was manufacture involved. In support of this proposition, reliance was placed on the Supreme Court decision in the case of Delhi Cloth and General Mills reported in 1977 E.L.T. 199, as also the decision of the Supreme Court in the case of Deputy Commissioner, Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers (b) Prior to 19.6.1977, the Tariff Item 15A took in only straight or pure resins. With the changes brought about in the 1977 Budget, the item took in also modified resins. The tariff did not distinguish between chemical and physical modification. In this connection, the book "Plastics Dictionary" by Dickinson was referred to. At page 166, the word "modified" was defined thus : Containing fillers, plasticizers, additional resins, pigments or other ingredients that result in varied physical properties". Thus it was clear that the word "modified" did not imply only chemical modification, it took in physical modification also. The reference to Brussels Tariff Nomenclature and Central Excise Tariff Item 15A as substituted in 1982 Budget were not relevant for deciding the present dispute.
(c) In the present case, both polyvinyl alcohol and polyvinyl acetate were polymerisation products and therefore a new product made out of two with the addition of Dibutyl Phthalate would be covered by Item 15A(1) (ii) CET.6. In his reply arguments, Shri Gopal Prasad made the following submissions :- (a) There was no manufacture involved in the preparation of the subject products. Only a change in form was brought about.
(b) The subject goods are not products of polymerisation or co-polymerisation. No doubt the raw materials were polymerisation products but the present dispute is not about the raw materials. In this connection, reliance was placed on the Tribunal's decision in the case of Bhor Industries reported in 1983 E.L.T. 179.
The word "modified" was not present in Item 15A(1) (ii) CET and, therefore, the argument of physical modification also being taken in by the word "modified" cannot help the Department.
7. We have given careful consideration to the contentions of both sides. The dispute in the present case cannot, in our opinion, be resolved by only looking at the question whether the change brought about by the appellants on the raw material amounted to chemical modification or physical modification. The Tarriff Item 15A(1) (ii) covers "polymerisation and co-polymerisation products, such as,...polyvinyl acetate, polyvinyl chloro acetate and other polyvinyl derivatives...". The description of sub-item (1) of Item 15A makes it clear that it covers the specified "artificial or synthetic resins and plastic materials...in any form, whether solid, liquid or pasty,...".
The goods in dispute are adhesives prepared by mechanical mixing of duty-paid synthetic resin, namely, polyvinyl acetate dispersion with water solution of imported polyvinyl alcohol on which appropriate countervailing duty was paid at the time of import. There is no dispute about the appellant's contention that the end-products, namely, the adhesives are marketed as adhesives or glue. From the Handbook of Adhesives, edited by Irving Skeist, extractes of which have been furnished in the appellant's paper book, it is seen that polyvinyl acetate-based adhesives find wide use in a variety of applications such as book binding, paper bags, milk cartons, drinking straws, envelopes, gummed tapes, multiwall shipping bags, labels, leather binding, etc. It is also seem from these extracts that adhesives based on synthetic resins are also known as synthetic glue. It is also seen from page 516 of the Explanatory Notes to the Customs Cooperation Council Nomenclature (CCCN) that preparations specially formulated for use as glues consisting either of a mixture of several artificial plastic materials falling individually within different headings of Chapter 39 ("artificial resins and plastic materials, cellulose esters and ethers; articles thereof") or, of artificial plastic materials which, apart from any permitted additions to the products of Chapter 39 (fillers, plasticizers, solvents, pigments, etc.), contain other added substances not falling in that Chapter (e.g. waxes) are not classified in Chapter 39, but under Chapter 35 in heading 35.06 ("Prepared glues not elsewhere specified or included..."). Though Item No. 15A of the CET was not exactly aligned with the CCCN terminology as a result of the 1977 Finance Bill, the pattern being broadly the same, assistance can be usefully derived from the CCCN and its Explanatory Notes to understand the scope of Item 15A CET subject, of course, to the consideration that the express language of the C.E. Tariff Item is kept in view. Applying these considerations, we are of the view that the products before us are more appropriately classifiable as adhesives or glue and not under Item 15A CET ("Artificial or synthetic resins and plastic materials and cellulose esters and ethers and articles thereof"). As such, the appropriate classification would be under Item 68 CET.8. We set aside the impugned order and direct that the goods be reassessed to duty under Item 68 CET and the consquential relief granted to the appellants within 3 months from the date of communication of this order.