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Jayant Dalal Private Ltd. Vs. Collector of C. Ex. - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1990)(45)ELT668TriDel
AppellantJayant Dalal Private Ltd.
RespondentCollector of C. Ex.
Excerpt:
.....is whether these castings fall under item 15-a(2) of the central excise tariff (articles made of plastic materials), as held by the collector, or under item 68 (all other goods, not elsewhere specified), as urged by the appellants.2._before proceeding with the rival claims of the two sides, it would be useful to set out a few basic facts relevant to this case :-november'74 - - the appellants commenced manufacture of caprolac tum castings under the brand name "nylocast". item 15-a(2) existed in the central excise tariff at that time.1-3-75 - item 68 introduced in the central excise tariff. the appellants, however, did not come forward to get a licence and pay duty as, they claim, they never employed more than 49 workers in their factory and were, therefore, totally exempt from payment.....
Judgment:
1. The appellants manufacture Nylon Monomer Castings from Caprolactum.

The basic dispute in this case is whether these castings fall under Item 15-A(2) of the Central Excise Tariff (Articles made of plastic materials), as held by the Collector, or under Item 68 (All other goods, not elsewhere specified), as urged by the appellants.

2._Before proceeding with the rival claims of the two sides, it would be useful to set out a few basic facts relevant to this case :-November'74 - - The appellants commenced manufacture of Caprolac tum Castings under the brand name "NYLOCAST". Item 15-A(2) existed in the Central Excise Tariff at that time.1-3-75 - Item 68 introduced in the Central excise Tariff. The appellants, however, did not come forward to get a licence and pay duty as, they claim, they never employed more than 49 workers in their factory and were, therefore, totally exempt from payment of duty under Item 68 at that time.4-3-77 - Central Excise Officers visited the appellants' factory.

On the same day, the appellants addressed a letter to the Superintendent giving some particulars about their manufacturing activity.27-5-78 - The Collector issued a Trade Notice based on Govt. of India Notification No. 111/78-C.E., dt. 9-5-1978 which required that even the exempted units clearing goods beyond a certain ceiling had to take out an L-4 licence.28-3-79 - The appellants applied for an L-4 licence under Item 68.Nov. '79 - Some Central Excise Officers visited the appellants' factory.7-12-79 - The Deputy Chief Chemist of the Customs and Central Excise Department visited the appellants' factory and saw their process of manufacture.28-12-79 - Based on the note recorded by the Dy. Chief Chemist, the Superintendent wrote to the appellants that their product Monomer Casting fell under Item 15-A(2) and that since the raw material Caprolactum was a monomer and not a plastic material, the appellants were not entitled to the exemption under Notification No. 68/71-C.E., dated 29-5-1971. The Superintendent added in his letter that "now duty will have to be recovered from you under T.I. 15-A(2) from the date of inception of the unit. You are, therefore, requested to furnish sales value of the material cleared by you since the inception of the unit".5-1-80 - The appellants asked for a full copy of the report of the Deputy Chief Chemist and also desired to inspect the said original report.19-1-80 - Four show cause notices were issued to the appellants15-2-80 on the respective dates calling upon them to pay the ag23-6-80 gregate duty of Rs. 45,28,595.12 for the period from 1-3-24-6-80 1975 to 31-3-1980 under Item 15A(2).30-7-80 - The appellants asked for a full copy of the report of the Deputy Chief Chemist and also desired to ross-ex amine him.1-10-80 - While the adjudication before the Collector was pending, the appellants made a representation direct to the Central Board of Excise & Customs.27-11-80 - The Board issued their Tariff Advice No. 78/80 dated 27-11-1980 according to which Nylon Monomer Castings made from Caprolactum were considered to be classifi able under Item 68 and not under Item 15-A(2). The appellants claim that this Tariff Advice was issued by the24-12-80 - The Collector issued a Trade Notice incorporating the gist of the Board's Tariff Advice.16-9-81 - The Collector adjudicated upon the show cause notices, held that the goods were classifiable under Item 15-A(2) and that the Board's Tariff Advice was not acceptable to him as it overlookethe duty demand aggregating to Rs. 45,28,595.12, confis- cated the land, building, plant and machinery of the appellants' redeem the same on payment of a fine of Rs. 5 lakhs and imposed a penalty of Rs. 16 lakhs on the appellants under Rule 173-Q of the Central Excise Rules, 1944 and a fur ther penalty of Rs. 1000/- each under Rules 226, 52A and 9(2).8-12-81 - The appellants filed an appeal to the Central Board of Excise & Customs against the Collector's order. This ap peal, on its transfer to the Tribunal, has been taken up as the subject appeal before this Tribunal.

3. The matter was argued before us at length. The appellants placed on record an affidavit dated 14-11-1980 of Dr. Siegfried Schaaf who, they claimed, was the inventor of the process of making Nylon Monomer Castings. The Department's Representative also submitted a lot of technical literature to explain the nature of the starting material (caprolactum), that of the end-product (casting) and the process of manufacture. Ultimately, an agreed position emerged between both the sides. We set out the agreed position below. This is virtually the same as contained in paragraph 2 of the Board's Tariff Advise No. 78/80, dated 27-11-80 except that the portion underlined has been added by us on the basis of the agreement between both the sides :- "2. The process of manufacture of the Monomer Castings, as given by the manufacturers, is that caprolactum, which has paid duty under Item 14AA of CET, is melted in glass flask under controlled conditions and thereafter small quantity of organic chemicals is added into the flask to prepare the molten mass. The molten mass is then poured manually into pre-heated metal moulds kept in the electric ovens, polymerisation takes place here, and after a few hours the castings are taken out from the oven, allowed to cool and removed from the moulds. The castings are then sent to machine shop for converting into components of the required size and shape as per customer's drawing and designs in Steel Mills, Material Handling Industries, Bottling and Brewery Industry, Mining and Heavy Industries, Synthetic Fibre Units, etc. etc." 4. In short, the agreed position now is that by virtue of Explanation I below Item 15A(2), articles made of plastics falling under this item are only those which have been made of the various materials specified in Item 15A(1) (hereinafter referred to as plastic material), that the starting material (caprolactum) in the appellants' case is not a plastic material but only a monomer, that the end-product (casting) is a plastic article and that the transformation of non-plastic material into plastic (or polymerisation) takes place after the molten mass is poured into pre-heated moulds. This polymerisation takes place during the course of manufacture of the castings at the stage when the molten mass poured into moulds is setting. The controversy now between the two sides is as follows:- The appellants say that since the castings are made of monomer, they cannot be considered an article "made of plastic for that purpose of Item 15A(2). The Department maintains, on the other hand, that the expression "made of does not mean the same things as "made from" or "made out of and since the end-product is plastic, it has to be considered as made of plastic. This, in short, is the substantive point of dispute now.

5. In this connection, two judgments of the Gujarat and Rajasthan High Courts were placed before us. Both sides referred to them in the course of their arguments. The first judgment [1981 (8) E.L.T. 653 (Guj.) -Jalal Plastic Industries and Ors. v. Union of India and Ors.] related to the case of plastic bangles. These bangles were manufactured out of monomer as the starting material. However, polymerisation took place in the course of manufacturing process. In short, the basic issue requiring determination by the Gujarat High Court in this case was also the same as in the present appeal before us. The High Court held that 'articles made of plastic' in Item 15A(2) meant those articles in the manufacture of which plastic material was used as raw material but it did not include articles made of non-plastic raw material which had undergone polymerisation in the course of manufacturing process. In the case before the Rajasthan High Court, again plastic bangles of the same type were the product in dispute. In addition, acrylic sheets/tubes made out of monomer but which underwent polymerisation process in the course of manufacture were also involved in the dispute. The Rajasthan High Court [1983 (12) E.L.T. 92 (Raj.) - Raish Plastics and Ors. v.Union of India] agreed with the earlier Gujarat High Court judgment in Jalal Plastics case. We find that these two judgments are specific on the substantive point of controversy before us. No contrary judgment has been brought to our notice by either side. The Department's Representative stated that the Govt. had filed an appeal against the Division Bench judgment of the Gujarat High Court and that the Gujarat High Court itself, in paragraph 19 of their judgment, granted leave to appeal to the Supreme Court observing that the proposed appeal involved a substantial question of public or general importance. The Department's Representative requested that, in the circumstances, the Gujarat High Court judgment need not be treated as final. We find that the Gujarat High Court judgment has not been stayed by the Supreme Court. Since the two High Courts had interpreted the scope of Item 15A(2) in a particular manner which supports the appellants' case and since no contrary judgment of any other High Court has been brought to our notice, the said judgments of the Gujarat and Rajasthan High Courts are binding on this Tribunal.

6. The appellants have brought to our notice that there were six other manufacturers in India, four in Bombay and two elsewhere, who were also manufacturing Nylon Monomer Castings from caprolactum but in their case the Board's Tariff Advice has been followed and, accordingly, their end-products (castings) have been classified under Item 68 and exempted under the notification relating to small-scale units whose annual clearances did not exceed Rs. 30 lakhs in value. The appellants took the initiative of representing to the Board and it was in pursuance of their representation that the Board's Tariff Advice dated 27-11-1980 was issued. Yet, while the other six manufacturers have been given the benefit of the Tariff Advices, the appellants were singled out by the Collector for a discriminatory treatment and hefty duties under Item 15A(2) were demanded from them right from 1-3-1975, confiscation of their factory ordered and harsh penalties imposed on them. We find substance in the appellants' grievance on the count of discrimination.

But since, on the authority of the Gujarat and Rajasthan High Court judgments (incidentally, the Board's Tariff Advice is also to the same effect), we agree with the appellants on the substantive point of dispute before us, it is not necessary for us to go into the aspect of discrimination any further. Relying on the aforesaid two High Court judgments, we hold that Nylon Monomer Castings manufactured by the appellants from caprolactum did not fall under Item 15A(2). Being not covered by any other specific entry in the Tariff, such castings were appropriately classifiable under the residuary Item No. 68 with effect from 1-3-1975.

7. There was a lot of discussion on certain other issues before us, that is, (i) whether the Collector had violated the principles of natural justice by not producing the Deputy Chief Chemist for cross-examination and by not informing the appellants at the time of personal hearing before him that he did not propose to agree with the Board's Tariff Advice and his own Trade Notice based thereon, (ii) whether the Board's Tariff Advice and the Collector's Trade Notice were binding on the Department (though both sides agreed that while acting in his quasi-judicial capacity the Collector was not bound by either the Tariff Advice or the Trade Notice), (iii) whether machined Nylon Monomer Castings did not fall under Item 15A(2) on the further ground that they were not known in the trade as articles of plastics but were known as engineering goods or machinery components.

(iv) whether the entire duty demand or a portion thereof was barred by limitation, and (v) whether mens rea was present to warrant imposition of penalties in this case and whether excessively harsh penalties were justified.

While the appellants made the plea of violation of principles of natural justice by the Collr., they at the same time requested us to decide the case on merits and not remand it for re-adjudication.

Regarding their plea of time-bar in relation to the duty demands, they stated that they took note of the Larger Bench Order dt. 7-6-84 in Appeal No. 11/82-B 1984 (17) E.L.T. 331 (Tri.) of Atma Steel Private Ltd. and Ors. in which it was held that the rule of limitation as in force on the date of issue of the show cause notice would apply. They stated that they reserved their position in regard to their plea of time-bar. Since we have decided the appeal in favour of the appellants on the substantive point of dispute, we do not consider it necessary to go into their other arguments.

8. In the light of our above discussion, we hold that Nylon Monomer Castings manufactured by the appellants from caprolactum did not fall under Item 15A(2) but, with effect from 1-3-1975, were classifiable under Item 68 of the Central Excise Tariff. Accordingly, we set aside the Collector's impugned order and allow this appeal. The Department will be at liberty to re-determine the duty liability of the appellants under Item 68 as permissible under law. In their appeal, in prayers (e) and (f), the appellants have sought relief in respect of certain other demands for duty which were not the subject-matter of the Collector's impugned order. Since the proceedings relating to these demands were not before us, we refrain from passing any order in respect thereof.


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