1. The show cause notice for review of the Order-in-Appeal No. C.3/212/80 dated 2-5-81 passed by the Appellate Collector of Customs, Madras, is the subject-matter of this appeal. The Appellate Collector upheld the contentions of the respondent (The Indian Textile Paper Tube Co. Ltd.) and reversed the orders of the Asstt. Collector of Customs, Madras, dated 12-10-79.
2. The respondents imported a consignment of top line tube winder endless belts, valued at Rs, 31,101.00 The supply was by M/s. Scandura Ltd., West Yorkshire, U.K. The consignment was covered under the Bill of Entry No. D-282 dated 6-8-79. The goods were assessed to duty under heading 40.05/16 (3) at 40% + C.V. duty at the rate of .25% under Item 16A (4) C.E.T. The importers lodged the refund claim with the Asstt.
Collector on the ground that the belts in question were essential spare parts of the spiral tube winding machine and as such correctly assessable to duty under Heading 59.16/17 of Customs Tariff Act as textile articles of a kind commonly used in machinery or plant. The claim for refund was rejected by the Asstt. Collector in his order dated 12-10-79. He held that in the absence of specific detail as to the material of covering the classification of the goods under Chapter 40 and levy of C.V. duty under Item 16A (4) of CET was in order. The Appellate Collector of Customs on appeal held that endless belts were tailor-made items for the machinery and as such there were no grounds to hold them as rubber products specially in the light of the averments in the write-up that the same was made of high quality polyester. The Appellate Collector held that an earlier consignment had also been assessed to duty under Heading 59.16/17 which would appear more appropriate and allowed the appeal with consequential relief. On the report of the Collector of Customs, the Government issued a show cause notice dated 21-11-81. The Government were of the view that the Appellate Collector was not correct in classifying the goods under Heading 59.16/17 of the Customs Tariff Act, 1975. The original classification under Heading 40.05/16 (3) of the Customs Tariff Act, 1975, was also not in order. From the composition of the belts, the Government were of the view that the goods in question are basically articles of plastics falling under Heading 39.07 of the Customs Tariff Act, 1975.
3. Shri Sundar Rajan, JDR, drew our attention to Section to Rule 3 of the Rules for the Interpretation of the First. Schedule of the Customs Tariff Act. Rule 3 reads as follows :- "3. When for any reason, goods are prirna facie, classifiable under two or more Headings, classification shall be effected as follows :- (a) The Heading which provides the most specific description shall be preferred to Heading providing a more general description.
(b) Mixtures and composite goods which consist of different materials or are made up of different components and which cannot be classified by reference to (a) shall be classified as if they consisted of the material or component which gives the goods their essential character, in so far as this criterion is applicable.
Shri Sundar Rajan argued that 3 (a) would apply when the Heading provided the most specific description. According to him since the goods in question would not fit in with the specific description in Heading 59.16/17 or 40.05/16 (3) the principles of Rule 3(b) would be applicable. He stated that if the goods consist of different materials, then the classification should be according to the material or components which gives the goods their essential character. In that connection he pointed out that the write-up received from M/s. Scandura Ltd., U.K., reads as follows :- "The belt has a core of high-tenacity polyester which yield on exceptionally strong caracass with low elastic stretch to cope with the high tesions necessary for efficient tube winding. A cover of high quality polyurethane and the endless construction are design features which prevent slippage between the belt and the tube during manufacture.
Scandura T.W. Belts have an exceptional consistency of life which exceeds that of conventional rubber belts. Their high tension strength of up to 350 kg./cm. of width is achieved without any loss of the flexibility require when belts have to negotiate the small for more used in the production of rarrow diameter tubes.
Their heat resistance is excellent and they can be used satisfactorily for winding waxed card board on hot formers. They offer good release of glue or adhesive." He submitted that the belt had a core of high tenacity polyester with high tensions necessary for finished tube winding. He also pointed out that a cover of high quality polyurethane has been provided to prevent slippage during manufacture. He stated that since the belts were made of polyurethane substance and not of rubber, the appropriate classification would not be Chapter 40 CTA. As regards the essential quality, Shri Sundar Rajan stated that it came only from the polyui ethane layer which was smooth in view of (i) it was intended for taking the glue from one end, and applying it on paper at the other end, and (ii) the smooth surface of the belt ensures that the gum did not stick on to the surface and enabled spreading of the gum uniformly on the paper. The predominance of the plastic material was pointed out to be a significant factor. He also relied on the explanatory note in support of his contention. He cited the ruling reported in 1983 ELT 553 (Dharangadhra Chemical Works Ltd. v. Collector of Customs, Madras). In that case it was held that the goods 'pipes and fittings of Haveg (41)' were not component parts of machinery but were only pipes and fittings made of polyester material out of which the required pipeline part would be fabricated. In 1983 ELT 2465 (Sunrise Electric Corporation, Bombay v. Collector of Customs, Bombay) it was held that the subject goods had been manufactured by laminating paper with a thin plastic film and drew its essential characteristic from the plastic film, rather than from the paper backing and, therefore, is classifiable under Customs Heading 39.01/06 as per Interpretative Rule 3(b). In 1983 ECR 1127 (Collector of Customs, B 'mbay v. Yash Udyog, Sawantwadi) it was held that the goods which were by themselves neither paper of board nor an article of plastic, their classification either under Item 17 or 15A of the Central Excise Tariff would be inappropriate since the goods were a composite material. It was held that the goods would fall under the residuary Item 68. He stated that as the essential quality came out of the polyurethane layer the goods could be classified only under Heading 39.07 as an article of plastic.
4. Shri Dayasagar, Consultant, appearing for the respondent, stated that the goods were imported in 1979 and the duty was paid on 6-8-79.
Relying on 1983 ELT 1596 (SC) (Geep Flashlight Industries Ltd. v. Union of India and Ors.) he stated that the show cause notice was issued beyond the period of six months. He stated that the Government had not applied their mind while issuing the show cause notice. On merits he argued the Rule 3(b) of the Interpretative Rules would come into operation only when Rule 3(a) did not apply. He said that the article in question was not a "conveyor belt" but a "component of a machinery".
It had no other use except for card board tube forming in the Textile industries. According to him Heading 59.16/17 was more specific than Heading 39.07 It is a textile article commonly used in Machinery or Plant. The plastic materials, i.e., polyurethane, etc., did not by itself give the goods the essential characteristic. The core of high tenacity polyester which is the textile material with the cover of high quality polyurethane and the endless construction which, between themselves give the essential character of the goods which are vital components in the machine for the manufacture of cardboard tubes. He urged that another consignment imported in 1976 was assessed only under Chapter 59.
5. Shri Sundar Rajan, in reply, pointed out that the show cause notice was not barred by time because it was issued within six months from the date of the Appellate Collector's order, namely, 4-7-81, when it was issued. He relied on the ruling reported in 1981 ELT 421 (Associated Cement Companies Ltd. v. Union of India,) in support of his contention.
6. On the question of time bar we find that the Appellate Collector issued the orders on 4-7-81, the show cause notice was issued on 21-11-81 and served on the party on 24-11-81. The show cause notice has, therefore, been issued within the period of six months. Section 131(5) of the Customs Act, 1962 refers to a case of non-levy and short levy. For those cases the time limit of Section 28 would be applicable.
Section 131(3) provides for the Central Government to annul or modify and order passed Under Section 128 or 130. The Supreme Court in 1983 ELT 1596 held as follows :- "The provisions contained in Section 131(5) of the Act speak of limitation only with regard to non-levy or short-leyy. It is significant that Section 131(5) does not speak of any limitation in regard to revision by the Central Government of its own motion to annul or modify any order or erroneous refund of duty. The provisions contained in Section 131(5) with regard to non-levy or short-levy cannot be equated with erroneous refund in as much as the three categories of errors in the levy are dealt with That Was a case of refund. In 1984 (16) ELT 332 (Collector of Customs, Bombay v.: NaV Bharat Enterprises, New Delhi) it was held that Section: 131(3) of 'the Customs Act, 1962 empower the Central Government to annul or modify any order passed under that Act and that the time limit provided in Section 131(5) would not be applicable to the notice issued under 131(3). : Further "relevant date" as provided under the third proviso to Section 36(2) will be computed from the date of passing of the Appellate Order and not from the date of passing the order by the original assessing authority. The show cause notice is, therefore, in time.
7. There are 3 Headings which deserve consideration. Heading 40.05/16 (3) was the original classification. It reade as follows :--_________________________________________________________________Heading Sub-heading No. & Standard Centrals Ex. No. description of article rate of Tariff Item duty_________________________________________________________________40.05/16 (3) Transmission, conveyor 40% The goods in question cannot come under this Heading. Even according to the respondent it would attract duty under/Heading 56,16/17. Chapter 40 relates to rubber, synthetic rubber, factice and artiqles thereof. The; consignment in question will not fall under Chapter 40.
8. The remaining competing entries are Chapter 59.16/17 and Chapter 39.07. Chapter 59 relates to wadding, felt, twine, ropes, cables, etc.
The Heading 59.16/17 reads as follows :-_________________________________________________________________Heading Sub-heading No. Standard Central Ex.No. of description rate of Tariff Item of article.
duty._________________________________________________________________59,16/17 Transmission, conveyor or 40% 22B, 19 elevator belts or belting, 20, 21 of textile material, Chapter 39 refers to artificial resins, plastic materials, etc. The Heading 39.07 reads as follows :-_________________________________________________________________Heading Sub-heading No. & Standard Centrals Ex. No. description of article rate of Tariff Item duty_________________________________________________________________39.07 Articles of the materials 100% 15A, 15B described in Heading No. 39.01/06.
16B Under the Interpretative Rules, if the Heading provides the most specific description it should be preferred. Heading 59.16/17 refers to textile fabrics and textile articles of a kind commonly used in machinery or plant. So it must be made out that it is a textile article and that it is commonly used in machinery or plant. The technical write-up quoted above does not show that it is a textile article which is commonly used in machinery or plant. It is no doubt the vital component in the cardboard tube manufacturing industry but since the Chapter Heading does not provide the most specific description we have necessarily to look to 3(b) of the Interpretative Rules. The product consist of high tenacity polyester. This yield on exceptionally strong carcass with low elastic stretch to cope with the high tension necessary for efficient tube winding. There is a cover of high quality polyurethane. The goods were so designed to prevent slippage between the belt and the tube during manufacture. They are used for winding waxed card board and the belt is used for taking the glue from one end and for applying it on the paper at the other end. The smooth surface of the belt ensures that the gum does not stick to the surface. Thus it is seen that the essential quality of the product, comes from two polyurethane layers.
The top layer is intended for taking the glue and spreading it on the paper at the other end. In other words the transmission of the glue to the paper is possible, because of the polyurethane external layer does not absorb the glue applied to it. The smooth surface of the belt enables the spraying of the glue uniformly on the paper. So it is rightly contended that there is a predominance of the plastic material and it should be assessed only as such. An earlier assessment under Chapter 59 in 1976 will not prevent the Government from reviewing the matter specially as there is no estoppel in taxing statute.
9. We, therefore, agree with the view that the proper classification of the belts in question would be as articles of plastic under Heading 39.07 of the Customs Tariff Act, 1975 and not under Heading 59.16/17 as stated by Appellate Collector. The impugned order is, therefore, set aside and the appeal is allowed.