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Collector of Customs Vs. Hico Products Ltd. - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1984)(18)ELT645TriDel
AppellantCollector of Customs
RespondentHico Products Ltd.
Excerpt:
.....the indian customs tariff was not fully in part materia with the cccn. hence reference to cccn notes and opinions was not permissible. fatty alcohols were, in terms, included in chapter 15 without any qualification. and, there was no exclusion by way of statutory chapter note of any kind of fatty alcohol unlike in the case of fatty acids. nor were chemically defined substances excluded from chapter 15. in this context, reliance was placed on the supreme court decision in the dunlop case-1983 elt 1566- wherein the court held that v.p. latex fell in chapter 39 and so could not be classified elsewhere.in 1980 elt 291, the bombay high court held that there would be no warrant to refer to the btn notes, when the tariff entry was clear as to its scope. the non-applicability of the.....
Judgment:
1. Since the issue involved in all the 8 cap-tioned appeals is common, we are disposing of all the appeals by this common order, a copy of which shall be kept in each of the appeal files.

2. We shall refer to the facts of appeal No. 829/80-C. Hico Products imported a consignment of lauryl alcohol which was assessed to basic Customs duty under heading No. 29.01/45 of the Customs Tariff Schedule and to additional (countervailing) Customs duty corresponding to the Central Excise duty leviable under Item No. 68 of the Central Excise Tariff Schedule (CET). The importer paid the duty so assessed vide Bill of Entry Cash No. 159 dated 29-12-1979. Later on, Hico Products claimed refund of the additional duty paid on the ground that lauryl alcohol, being a fatty alcohol, was correctly classifiable under heading 15.08/13 of the Customs Tariff Schedule and so did not attract additional duty by virtue of Customs exemption Notification No. 48, dated 1-3-1979. The Assistant Collector rejected the claim on the basis that lauryl alcohol is a chemically defined alcohol falling under Chapter 29 and only crude fatty alcohols which are in a complex mixture are excluded from Chapter 29. The Assistant Collector passed a similar order in respect of certain; consignments of lauryl alcohol cleared vide Bill of Entry Cash No. 4091 dated 29-12-1979. Both the orders were taken up in appeal. Allowing both the appeals, the Appellate Collector, vide his order dated 25-7-1980, held that alcohol of less than 99.7% purity would not fall under Chapter 29 but under Chapter 15 and, hence, it would be exempt from additional duty of Customs. The alcohol in these cases was of 95% purity.

3. In exercise of its powers under Section 131(3) of the Customs Act, 1962, the Central Government called for and examined the records relating to the proceedings leading to the impugned order. It appeared to the Central Government that, though fatty alcohols were included in heading 15.08/13, what was included was only crude fatty alcohols. Note 1 (a) to Chapter 29 provided that the said chapter covered separate chemically defined organic compounds whether or not containing impurities. It further appeared to the Governnent that fatty alcohols having purity of 90% and above could be said to be reasonably pure and such alcohols would fall under Chapter 29 and not 15. The Central Government derived support for this view from the general notes in the Customs Cooperation Council Nomenclature (CCCN) which put chemically defined alcohols in Chapter 29 and not 15. On this view, the Central Government, issued a notice dated 22-9-1981 under Section 131(3) of the Customs Act calling upon Hico Products to show cause why the Appellate Collector's order should not be set aside and the Assistant Collector's order should not be restored or such orders as deemed fit should not be passed. Hico Products submitted their reply on 6-11-1981 denying the allegations contained in the notice. No action appears to have ensued thereafter. On the setting up of this Tribunal, the proceedings were transferred to it under Section 131(B) of the Customs Act and that is how we are now dealing with the matter as if it were an appeal filed before the Tribunal.

4. The facts and circumstances of the appeals at Serial Nos. 2-8 are similar with the difference that the products involved are Oleic alcohol, Octyl alcohol and Cetyl alcohol, all admittedly fatty alcohols.

5. In the hearing before us, the learned Departmental Representative urged that in accordance with an opinion given on 22-5-1981 by the Chief Chemist of the Central Revenues Control Laboratory (copy furnished), octyl alcohol (Kalcohol 089), lauryl alcohol (Kalcohol 20) and Hexyl alcohol (N-Hexanol) which, as per literature produced, have purity of 95% are separate chemically defined octyl alcohol, lauryl alcohol and hexyl alcohol containing impurities to the extent of 5% within the meaning of separate chemically defined compounds under Chapter 29. These cannot be considered as fatty alcohols tailing under Chapter 15 which refer to mixture of alcohols wherein alcohol percentage in terms of particular carbon atom predominates as for example lauryl alcohol, wherein the percentage of alcohol in terms of C12 predominates over Clo or Ci4. The Chief Chemist also opined that since commercial fatty alcohols were marketed in different grades of purity, it appeared to be a workable solution to have 90% purity as the demarcation line. VSP has fixed 90% purity for a pharmaceutical grade octa decanol. The Chief Chemist was, therefore, of the opinion that the products merited classification under heading No. 29.01/45(1).

6. The Departmental Representative also relied on the Explanatory Notes under heading 29.04 of the CCCN to the effect that the heading excludes fatty alcohols as also those under Chapter 15 to the effect that mixtures of fatty alcohols fall under the said chapter. Reliance was also placed on the Compendium of Classification opinion of the CCCN which showed fatty alcohols less than 90% pure as falling under heading 15.10. This showed the international trade and commercial understanding. Reference was also made to Interpretative Rule 3(a) in support of the argument that Chapter 29 was more sp,. fie, Finally, it was stated that as the invoices would show, the goods were not bought and sold as fatty alcohols but as chemicals, viz. lauryl alcohol, etc.

7. On behalf of Hico Products, Shri Tamhane submitted that the Chief Chemist's opinion bristled with ambiguities and had no firm basis.

Words like "reasonably pure" did not form a satisfactory basis for classification. The Indian Customs Tariff was not fully in part materia with the CCCN. Hence reference to CCCN notes and opinions was not permissible. Fatty alcohols were, in terms, included in Chapter 15 without any qualification. And, there was no exclusion by way of statutory Chapter Note of any kind of fatty alcohol unlike in the case of fatty acids. Nor were chemically defined substances excluded from Chapter 15. In this context, reliance was placed on the Supreme Court decision in the Dunlop Case-1983 ELT 1566- wherein the Court held that V.P. Latex fell in Chapter 39 and so could not be classified elsewhere.

In 1980 ELT 291, the Bombay High Court held that there would be no warrant to refer to the BTN notes, when the tariff entry was clear as to its scope. The non-applicability of the CCCN notes to fnterpretation of the Indian Customs Tariff has been recognised by the Tribunal in its decision in 1983(2) ETR 765 and 1983 ELT 362. Assuming, while not admitting, the classification to be under Chapter 29, Shri Tamhane urged, in view of Chapter note 1(a), the present substance being a mixture of fatty alcohols and not a single chemically defined substance, would stand excluded from Chapter 29. Besides, the manufacturers' catalogue described the chemically pure grade of alcohol as of 99.7% purity. The imported product was far below this degree of purity. The substance being a cleavage product of a vegetable oil, neatly fitted into the title of Chapter 15 which was more specific than Chapter 20.

8. On behalf of Dai-Ichi Karkaria, Shri Bagalkote adopted the arguments advanced by Shri Tamhane. The Chief Chemist at one place says that commercial grade of fatty alcohol is 95-97% pure and at another place as 90%. The VSP Standard is for drugs and would have no bearing on the substances under consideration. By the combined effect of Interpretative Rule 3(a), the specific heading 15.08/13 and the fact that no fatty alcohol was specifically excluded from Chapter 15 or included in Chapter 29, the products clearly fall under heading 15.08/13. Industry and trade understood fatty alcohols as cleavage products of vegetable oil, animal oils and fats and not as organic chemicals. The extraneous materials present are not impurities but are cleavage products.

9. We have carefully considered the submissions of both sides. At the outset, it is necessary to note that the Indian Customs Tariff Schedule of 1975 is not fully in part materia with the CCCN though the latter forms the broad frame work on which the former is patterned. While, therefore, the Explanatory Notes to the CCCN which constitute expert opinion or commentary of an international organisation, have considerable persuasive value and are a useful aid to the understanding of the scope of the entries in our tariff schedule and of the terms employed therein-the Tribunal has held so in its decision in Kanwar Sewing Machine Co. v. Collector of Customs, Bombay-1983 ELT 804, the limitations in this approach have to be recognised. These notes have no legal force. The Customs Tariff Schedule is a self-contained code having its own rules for interpretation. For legal purposes, classification has to be determined according to the terms of the Headings read with relative section and chapter notes, if any. Provided these Headings or Notes do not otherwise require, the Rules of interpretation will govern classification of goods. If the CCCN notes or opinions do not accord with the classification determined on the above basis, the latter shall hold the field. In this background, we shall consider the matter further.

10. Chapter 15 of the Customs Tariff Schedule is entitled "Animal and Vegetable Fats and Oils and their cleavage products, prepared edible fats, Animal and Vegetable Waxes". The title is for ease of reference only. Heading 15.08/13 specifies in terms fatty alcohols (and fatty acids) among other goods. Chapter Note l(d) says that the chapter does not cover "fatty acids in isolated state,... or other goods falling within any Heading in Section VI". (Section VI includes, inter alia, Chapter 29). As the Counsels for the Respondents have pointed out, no kind of fatty alcohols are by specific words excluded from Chapter 15 unlike in the case of fatty acids. However, we have to see whether any fatty alcohol would fall within the mischief of the exclusion phrase "other goods falling within any Heading in Section VI". Let us now look at Chapter 29 titled "Organic Chemicals". Fatty alcohols are not expressly specified in any of the Headings therein. If at all they fall under Chapter 29, the relevant sub-heading would be 29.01/45(1): "Not elsewhere specified". Chapter Note 1(a) reads : (a) separate chemically defined organic compounds, whether or not containing impurities" The only other relevant statutory aid available is Interpretative Rule 3(a) which provides that when for any reason, goods are, prima facie, classifiable under two or more Headings, the Heading which provides the most specific description should be preferred to Headings providing a more general description.

11. From a combined reading of all the above statutory notes and rule, the prima facie conclusion which emerges is that fatty alcohols of all sorts are more specifically covered by Chapter 15 than Chapter 29.

12. Now, page 99 of the CCCN Explanatory Notes, Volume 1, says this under Heading 15.10 which inter alia covers fatty alcohols (only relevant portions extracted) : "The fatty alcohols classified here are mixtures of acyclic alcohols obtained by catalytic reduction of the mixed fatty acids of this heading or of their esters, by saponification of sperm oil, by catalytic reaction between olefines, carbon monoxide and hydrogen ("Oxo"' process), by hydration of olefines, by oxidation of hydrocarbons, or by other means.

(1) Lauryl alcohol which is a mixture of saturated fatty alcohols obtained by catalytic reduction of the fatty acids from coconut oil.

It is liquid at normal temperatures, but is semi-solid in cold weather.

(2) Cetyl alcohol which is a mixture of cetyl and stearyl alcohols, the former greatly predominating, obtained from spermaceti and sperm oil. It is a crystalline, translucent solid at. normal temperatures.

(3) Stearyl alcohol which is a mixture of stearyl and cetyl alcohols obtained by reduction of stearin or oils rich in stearic acid, or from sperm oil by hydrogenation and hydrolysis followed by distillation. It is a white crystalline solid at normal temperatures.

(4) Oleyl alcohol which is obtained by reduction of olein, or from alcohols derived from sperm oil by hydraulic pressure. It is liquid at normal temperatures.

(5) Mixtures of primary aliphatic alcohols commonly comprising alcohols in the range from six to thirteen carbon atoms. They are liquids generally produced by the "Oxo" process.

(b) Fatty alcohols which have the character of artificial waxes (heading 34.04)." "Acyclic Alcohols and their Halogenated, Sulphonated, Nitrated or Nitrosated Derivatives".

On pages 360-361 of the Explanatory Notes is listed the saturated monohydric alcohols included in the heading. Among them are hexanols, heptanols, octanols and dodecyl, cetyl and stearyl alcohols. The notes further say that the heading excludes crude fatty alcohols which are complex mixtures of different alcohols (heading 15.10). The significance and relevance of these explanatory notes can be readily appreciated in the context of the heading 29.04 of the CCCN.13. When we turn to Chapter 29 of our tariff schedule, we find that all the 45 headings of the CCCN have been compressed into a single head ing 25.01/45 with several sub-headings. The opening clause of the heading does not have any words or expressions to show that the goods covered by Heading 29.04 of the CCCN are included therein. Nor do the several sub-headings. The only alcohols specified in terms are in sub-heading 3 which reads- "The following alcohols, namely, isopropyl alcohol, methyl alcohol, propyl alcohol".

The result, in our view, is that fatty alcohols are not covered by Chapter 29, either by express mention or by necessary implication. This may or may not have come about as a result of the abridgement or contraction of the headings in the CCCN-we do not know. Note 1(a) to Chapter 29 also is of little help to the Department. The note has the effect merely of restricting the scope of the Chapter to inter alia separate chemically defined organic compounds whether or not containing impurities. It would not follow that if such a substance is covered by a specific heading in another chapter, it would still necessarily fall for classification under Chapter 29 as for example, sucrose, glucose and lactose (headings 17.01 and 17.02).

13A. In the above view of the matter, the Chief Chemist's opinion loses much of its significance. The criterion of 90% purity adopted by him as a workable solution for classifying fatty alcohols under Chapter 15 or 29 seems to be not well-founded on any authority. It seems to be based only on the requirement of 90% minimum octa-decanol for U.S.P.purposes. According to the Chief Chemist (quoting from "Materials and Technology-Natural Organic Products", Volume 5, by Longman de Bussy), the approximate composition of commercial fatty alcohols [alcohols present in terms of percentage having a particular number of carbon atoms) ranges from 95 in the case of Myristyl alcohol (C14) through 96 (C10) in the caseofdecyl alcohol to 97% (C8, C12, and C18 in the case of Ocytl, lauryl and stearyl alcohols respectively]. However, according to the data sheet (furnished by Hico Products) of the West German suppliers-Henkel KGaA the minimum composition of chemically pure octyl alcohol is shown as 99.4% (C8), lauryl alcohol as 99.7% (C12) and myristyl alcohol as 99.5% (C14). Viewed in this light, the demarcating line of 90% adopted by the Chief Chemist does not seem supportable in the absence of any authority. The Chief Chemist says he is not aware of the reason why (he CCCN Compendium of Opinions has adopted 90% as the dividing line. Nor has the Departmental Representative thrown light on this.

14. The Departmental Representative has urged that the subject products have not been bought and sold as fatty alcohols, but as chemicals. The invoice in one case, for instance, shows the description as 'Lauryl alcohol C-12 Pure-Min. 95%." It is neither described as fatty alcohol nor as a chemical-nor is this material. What matters is whether it is a fatty alcohol or not.

15. Assuming for the sake of argument, that chemically defined fatty alcohols fall under Chapter 29, the question would be the demarcating criterion between the fatty alcohols of Chapter 15 and Chapter 29. In the present case, it has not been shown by the Department whether the difference between 100% and 95% (as in the case of Lauryl alcohol) is comprised of impurities or other fatty alcohols of different carbon atom numbers). If the latter is the case, it will be more a case of crude fatty alcohols which even according to CCCN would fall under Chapter 15. But then, the onus is on the Department to show that they fall under Chapter 29. This, we think, the Department has not satisfactorily discharged.Dunlop India v. Union of India-1983 ELT 1566 wherein the Court held that the meaning given to articles in a fiscal statute must be as people in trade, commerce, conversant with the subject generally treat and understand in the usual course. But once an article is classified and put under distinct entry, the basis of classification is not open to question. Applying this principle, fatty alcohols are appropriately classifiable under heading 15.08/13 where they are specified.

17. Customs Notification 48, dated 1-3-1979 exempts goods falling within Chapter 15, among others, from the levy of additional (countervailing) duty corresponding to the Central Excise duty under Item No. 68-CET. We have already determined that the goods under consideration fall under Chapter 15. They are, therefore, eligible for the duty exemption contained in Notification No. 48.

18. In the view we have taken, it does not seem necessary to refer to and discuss at length the case law cited before us. However, we may briefly refer to them. In Precision Bearings India Ltd., Bombay v.Collector of Customs, Bombay-1983 ELT 362A, the Tribunal held that since CCCN Explanatory Notes had not been incorporated in the Customs Tariff, the matter would have to be decided on the basis of the plain interpretation of the Tariff itself. In Haldyn Glass Works Pvt. Ltd. v.M.L. Badhwar-1980 ELT 291 (Bom.), the Bombay High Court held that when the expression in a notification is very clear and is not restricted or limited, it is not necessary to fall back upon the Brussels Nomenclature to determine the full scope of the notification. We have adverted to the relevance of the CCCN Notes in para 9 of this order.

The decision of the Tribunal in Milak Bros. Gandhidham v. Collector of Customs, Bombay-1983(2) ETR 765 has no application to the present case.

In that case, the Bench was concerned with the interpretation of the Customs Export Tariff Schedule to which the CCCN has no relevance or application.


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