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National Insulated Cables Co. of Vs. Collector of Customs - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1985)(21)ELT793TriDel
AppellantNational Insulated Cables Co. of
RespondentCollector of Customs
.....force. '4. in this chapter, the expression "synthetic rubber" is to be taken to apply to : (a) unsaturated synthetic substances which can be irreversibly transformed into non-thermoplastic substances by vulcanisation with sulphur and which, when so vulcanised as well as may be (without the addition of any substances such as plasticisers, fillers or reinforcing agents not necessary for the cross-linking), can produce substances which at a temperature between 18 and 29c, will not break on being extended to three times their original length and will return, after being extended to twice their original length, within a period of five minutes, to a length not greater than one-and-a-half times their original length. such substances include cis-polyisoprene (ir), polybutadiene (br),.....
1. The captioned appeals were originally filed as revision applications before the Central Government, which under the provisions of Section 131-B of the Customs Act, 1962, have come as transferred proceedings to this Tribunal for disposal as if they were appeals filed before it.

2. The goods whose classification for the purpose of assessment to customs duty is in dispute in these proceedings are Chlorosulphonated polyethylene, manufactured by DU PONT and marketed under the brand name "Bypalon" 40 and 40E. The goods were assessed by the customs authorities as synthetic resin.

The appellants' claim is that the goods are synthetic rubber and were assessable at a lower rate of duty and that the differential amount of duty is due to be refunded to them.

3. That appellants' claim was not accepted by the lower authorities and hence the appeal.

(a) For levy of basic customs duty.-Heading No. 39.01/06 of the First Schedule to the Customs Tariff Act, 1975 (CTA, 1975 for short) covering inter alia synthetic resins and plastic materials-as assessed by the customs authorities; Heading No. 40.01/04 of the same Schedule covering inter alia synthetic rubber-as claimed by the appellants.

(b) For levy of additional (countervailing) duty of customs.-Item No. 15A(l) of the First Schedule to the Central Excises and Salt Act, 1944 (CET, for short) covering inter alia synthetic resins and plastic materials - as assessed by the customs authorities; Item No. 16AA, CET covering inter alia synthetic rubber-as claimed by the appellants.

5. First, we shall consider the classification under the C.T.A., 1975.

Heading 40.01/04 of the Schedule covers, among other products, synthetic rubber. There is a statutory definition of the term "Synthetic rubber" for the purpose of the Chapter. The Customs Tariff Schedule has its own aids to interpretation in the form of rules for interpretation, section notes and chapter notes- all of which have legal force.

'4. In this Chapter, the expression "Synthetic rubber" is to be taken to apply to : (a) unsaturated synthetic substances which can be irreversibly transformed into non-thermoplastic substances by vulcanisation with sulphur and which, when so vulcanised as well as may be (without the addition of any substances such as plasticisers, fillers or reinforcing agents not necessary for the cross-linking), can produce substances which at a temperature between 18 and 29C, will not break on being extended to three times their original length and will return, after being extended to twice their original length, within a period of five minutes, to a length not greater than one-and-a-half times their original length.

Such substances include cis-polyisoprene (IR), polybutadiene (BR), polychlorobutadiene (CR), polybutadiene styrene (SBR), polych-lorobutadiene-acrylonitrile (NCR), (c) natural rubber modified by grafting or mixing with artificial plastic material, de-polymerised natural rubber, and mixtures of unsaturated synthetic substances with saturated synthetic high polymers, provided that all the above-mentioned products comply with the requirements concerning vulcanisation, elongation and recovery in (a) above.' 7. Against the above background, let us consider the rival contentions.

Shri Bannerjee, the learned Counsel for the appellants, submitted that the Import Trade Control authorities have classified Hypalon as synthetic rubber under Chapter 40 of the I.T.C. Schedule; the import licences were issued on that basis-not on the basis that Hypalon was a synthetic resin. This was so before the introduction of the Customs Tariff Act, 1975 and had continued since. Next, he submitted that the rejection of the appellants' claim on the ground that Hypalon was a saturated substance was incorrect. In this context, he referred to certain passages from the book "Rubber Technology" by Maurice Morton to show that Hypalon 40 could be cross-linked with sulphur. Similarly, the manufacturer Du Pout's literature showed that Hypalon 40 could be vulcanised with Tetrone A-a high sulphur rubber accelerator. The same position was supported by the book "Rubber Technology and Manufacture" by C.M. Blow. Saturated Rubbers could not be cross-linked with sulphur.

Since Hypalon 40 could be vulcanised with sulphur, it could not be saturated-it could only be unsaturated. By infra red spectroscopy, it could be shown that Hypalon 40 was unsaturated in the raw state though the degree of unsaturation was very low, being of the order of 3 double bonds per 1000 carton atoms. [To a query from the Bench, Shri Pradhan, Rubber Technologist of the appellant-company replied that S.B.R.(Styrene-butadiene rubber) contained 65% unsaturation and isoprene rubber, 100%). Shri Bannerjee submitted that the statement before the Appellate Collector that Hypalon was a saturated substance was wrong on facts and should not come in the way of the correct appreciation of the facts of the case. He also cited the opinion given by a Professor of the Calcutta University to the effect that Hypalon was unsaturated and classifiable as synthetic rubber under Chapter 40. Concluding, Shri Bannerjee, pleaded that if Chapter 40 was held to be not apt, Chapter 39 was also not apt since it did not include within its scope synthetic rubber. If it was felt necessary to ascertain the factual position better, he pleaded that a report could be called for from the Appellate Collector after a fact-finding enquiry by him and the appeals could be decided thereafter.

8. On behalf of the respondent, Shri Sundar Rajan, the learned Departmental Representative, contended that the appellants had conceded before the Appellate Collector that Hypalon was a saturated product.

A.S.T.M. (American Society of Testing and Materials) Designation No.1418/1964 described Hypalon as a saturated product, He also relied on this Tribunal's Order in the case of Elpro International, Pune (Order No. 112/83-C, dated 12-4-1983) and in the case of Kirti Rubber Works, Pune (Order No. 320/83-C dated 8-6-1983) as also the recent order in the case of Indian Cable Company Ltd., Calcutta (Order No. 1012/84-C, dated 31-12-1984), holding that Hypalon was a saturated substance. The writ petition filed by the appellants in the Calcutta High Court relating to certain subsequent imports also did not contain any averment to the effect that Hypalon was an unsaturated substance.

9. Replying to the Departmental Representative's arguments, Shri Bannerjee submitted that the writ petition was still pending and was of no assistance in the present proceedings. To a query from the Bench, Shri Bannerjee replied that the correctness of the statement before the Appellate Collector about the saturated nature of Hypalon was not challenged in the revision application (the appeal before us).

10. We have carefully considered the submissions before us. The question which arises for determination in this case is whether Hypalon 40 and 40E are classifiable under Heading No. 39.01/06 of the C.T.A., 1975, read with item No. 15A(1) of the C.E.T., as claimed by the respondent or under Heading No. 40.01/04 of the C.T.A., 1975 read with Item No. 16AA of CET as claimed by the appellants.

11. There is little doubt, on the basis of the material placed before us, that Hypalon is recognised by industry and trade as synthetic rubber. The manufacturer (Du Font's) literature on Hypalon states that Hypalon is the registered trade mark for a series of chlorosulfonated polyethylene synthetic rubber manufactured by Du Pont. Vulcanizates of Hypalon are highly resistant to the deteriorating effects of ozone, oxygen, Weather, heat, oil and chemicals. Hypalon resists discoloration or exposure to light, and is widely used in light-coloured vulcanizates. It can be compounded to give excellent mechanical properties-for example, high tensile strength and abrasion resistance.

Several types and grades of Hypalon are available for a variety of end-use requirements.

The condensed Chemical Dictionary by Gessner G. Hawley (page 554, 10th Edition) supports this. It states that Hypalon is a trade mark of Chlorosulfonated polyethylene, a synthetic rubber. It gives the uses for hypalon as insulation for wire and cable; shoe soles and heels; automotive components, building products, coating, flexible tubes and hoses, seals, gaskets, diaphragms.

The fact that the Import Control authorities recognise Hypalon as a synthetic rubber is not, in our view, decisive of the classification of the goods under the Customs Tariff Schedule since the objects of the two enactments are different.

12. The question, therefore, arises whether Hypalon is classifiable under Heading No. 40.01/04 of the Customs Tariff Schedule which covers inter alia natural or synthetic rubber. This question has, in the context of the Customs Tariff Schedule to be answered not by reference to the commercial or trade understanding of the product but with reference to the definition of the expression "synthetic rubber" contained in statutory note 4 to Chapter 40. This definition prescribes certain parameters regarding the products' extendability and its behaviour when the extending force is removed. But the prime stipulation is that the expression "synthetic rubber" is to be taken to apply to unsaturated substances. Unless this test is satisfied, the product cannot come within the scope of Chapter 40.

13. On this last point rests the entire dispute. It is noteworthy that during the hearing before the Appellate Tribunal, Shri A.M.Bhattacharjee (a rubber technologist as well as a representative of the local agency of Du Pont- as seen from the impugned order) who appeared on behalf of the appellant-company stated that Hypalon was a saturated product. The Appellate Collector has recorded that what the appellants contested, however, was that the definition (of synthetic rubber) given in the Tariff was not quite correct. The entire tenor of the arguments seems to have been that commercial parlance recognises the product as synthetic rubber. That this so need not be doubted but the commercial parlance test is of little help in the present case. What we have to see is whether the product conforms to the definition of "synthetic rubber" contained in note 4 of Chapter 40 of the Customs Tariff Act, 1975 which note, as we have seen earlier, has legally binding force.

The said note recognises only unsaturated substances, conforming to the other requirements laid down therein, as "synthetic rubber".

14. We have also to note the admission of the Rubber Technologist and local representative of the manufacturer (DU PONT) before the Appellate Collector that Hypalon was a saturated substance. It was not a statement made by a layman but one who was an expert conversant with the subject. This admission was sought to be explained away before us as a factually wrong statement. If this was indeed so, one should have thought that the appellants would have repudiated the statement in their revision application. They could also have adduced Shri Bhattacharya's evidence in the shape of an affidavit. Even better, they could have obtained a clear statement on that disputed point from DU PONT, the manufacturers of the product. The appellants have not chosen to do any of these things.

15. For a proper appreciation of the point involved in the present case, it is necessary to know the meaning of the terms "Saturated" and "Unsaturated" in relation to chemical substances. The following is extracted from the Chambers Dictionary of Science and Technology :-- "Saturated compounds (Chem). Compounds which do not contain any free valencies and to which no hydrogen atoms or their equivalent can be added, i.e. which contain neither a double nor a triple bond." (Page 1033).

"Unsaturated (Chem). (1) Less concentrated than a saturated solution or vapour. (2) Containing a double or a triple bond, especially between two carbon atoms; unsaturated molecules can thus add on other atoms or radicals before saturation is reached." (Page 1232).

The following are extracted from the Condensed Chemical Dictionary (Tenth Edition) revised by Gessner G. Hawley :- "Saturation. (1) The state in which all available valence bonds of an atom (esp. carbon) are attached to other atoms. The straight-chain paraffins are typical saturated compounds. See also unsaturation ..." (Page 910).

"Unsaturation. Of a chemical compound, the state in which not all the available valence bonds along the alkyl chain are satisfied; in such compounds the extra bonds usually form double or triple bonds (chiefly with carbon). Thus, unsaturated compounds are more reactive than saturated compounds, as other elements readily add to the unsaturated linkage. An unsaturated compound (ethylene, C2H4, butadience, C4H6, benzene, C6H6) has fewer hydrogen atoms or equivalent groups than the corresponding saturated compound (ethane, C2H6, butane, C4H10, cyclohexane, C6H12.

In structural formulas unsaturation may be represented by parallel lines joining the carbon atoms (ethylene, H2C=CH2, butadiene H2C=CHCH= CH2) or by colons or triple dots, H2C : CH2H2C : CH2 (ethylene) and HC : CH (acetylene)." (Page 1070) It is clear from the above definitions that when one talks of an unsaturated organic chemical (we are dealing with organic chemicals here) in the chemical sense of the word, one has in mind the existence of a double or triple bond, especially between to carbon atoms where not all the available valence bonds are satisfied and, therefore, such bonds are available for attachment with Hydrogen or other atoms or radicals. Correspondingly, when one talks of a saturated substance, we have in mind a compound which contains neither a double nor a triple bond in the chain, that is, where unsatisfied valence bonds are absent.

16. The Hypalon Unit is designated by the following structure: Cl H H[2]-CH[2]-CH-CH[2]-CH[2]-C-CH[2]-CH[2]-CH-CH[2] | | 17. McGraw-Hill Encyclopaedia of Science & Technology (Volume 11) at page 764 has the following to say on : "Hypalon. Hypalon is the Du Pont trade name for a family of chloro-sulfonated polyethylenes prepared by treating polyethylene with a mixture of chlorine and sulfur dioxide, whereby a few scattered chlorine and sulfonyl chloride groups are introduced into the polyethylene chain. By this treatment, polyethylene is converted to a rubberlike material in which the undesirable degree of crystallinity is destroyed but other desirable properties of polyethylene are retained ... The outstanding chemical stability of Hypalon results from the complete absence of unsaturation in the polymer chain." "Vulcanization is accomplished by means of metallic oxides, such as litharge, magnesia, or red lead, in the presence of an accelerator.

The sulfonyl chloride groups provide the sites of reactivity at which the bases react with the chlorine of the sulfonyl chloride group to give cross-links." 18. The Kirk-Othmer Encyclopaedia of Chemical Technology (Third Edition, Volume 8) has the following on Chlorosulfonated Polyethylene at pages 484, 485 and 487 : "Chlorosulfonated polyethylene is the term used to represent a group of synthetic elastomers derived from the reaction of a mixture of chlorine and sulfur dioxide on any of the various plastic polyethylenes (see Olefin polymers). The product of this reaction is a chemically modified form of the original polyethylene, and may contain 20-40% chlorine (mainly as secondary alkyl chlorides, RR'CHCl) and ca 1 -2% sulfur, present mostly as secondary sulfonyl chloride groups (RR'CHSOaCl). Chlorosulfonated polyethylene is thus a saturated chlorohydro-carbon elastomer haying sulfonyl chloride functions which are used as cross-linking or curing sites. The useful processing properties of Chlorosulfonated polyethylene are controlled by the molecular weight, molecular weight distribution, and degree of chain branching in the starting polyethylene. The useful chemical properties, such as resistance to ozone, oxygen, and other oxidizing chemicals", as well as solvent resistance, resistance to thermal degradation, and light discoloration, are believed to result from the stability of the carbon-to-secondary chlorine bond and the absence of any unsaturation along the polymer chain as by-products of either the chlorosulfonation or curing reactions." (Page 484).

"Chlorosulfonated polyethylene, as sold by its manufacturer, is a raw synthetic rubber. To convert it to useful articles, other manufacturers must mix, or compound the polymer with selected fillers, processing aids, stabilizing chemicals, and cross-linking agents or catalysts. The compound must then be shaped or moulded and finally vulcanized." (Page 485).

"Loss of sulfur as SO2 during the cure amounts to 40-60%. This would be expected to result in the development of unsaturation in the polymer. The outstanding ozone resistance of the vulcanizates, however, seems to deny the presence of even traces of unsaturation.

A fully acceptable and complete mechanism for the curing of these polymers remains to be developed." (Page 487).

19. The A.S.T.M. Designation : DS 418-64 adopted in 1964-on "Recommended Practice for Nomenclature for Synthetic Elastomers and Latices" designates chloro-sulphonyl-polyethylene elastomers by the code "CSM"-(Hypalon is chlorosulphonated polyethylene). The "M" family includes elastomers having a saturated chain of the polymethylene type "CSM" is classified under the "M" family. This is prima facie evidence of the saturated nature of Hypalon.

20. Among the documents submitted to the Bench by the appellants on 19-10-1984 is a technical opinion-T.O. No. 1 of 1982-83 dated 2-4-1982 by Shri N. Rajagopalan, Deputy Chief Chemist, on Hypalon. This document forms an annexure to an application moved before the Calcutta High Court by the Customs authorities, affirmed on 8-9-1984. The Deputy Chief Chemist has stated that Hypalons are fully saturated and that unsaturation results during the curing process.

21. "Rubbber Technology and Manufacture" edited by C.M. Blow of the University of Technology, Loughborough University (published by Newnes Butter Worth, London) also recognises Chlorosulfonated polyethylene as CSM type of rubber. We have already referred to the ASTM Designation 418 : 1964 which gives the same designation and describes such rubber as saturated.

22. It has been urged by the appellants that polyethylene, the base material for manufacture of Hypalon, contains unsaturation and that this unsaturation is retained during chlorosnlphonation for making Hypalon. This fact is said to be confirmed by infrared spectrophotometry, (ASTM-D-3677-78 is cited in support), because the absorption band due to unsaturation, as seen in the infrared spectra of polyethylene, is observed in the same wave length region of 10-11.5 micron, in the case of chlorosulphonated polyethylene also.

ASTM D-3677-78, as seen from the document, lays down standard test methods for rubber-identification by infrared spectrophotometry. The document says that these methods, based on infrared examination of pyrolysis products (pyrolyzates) and films can be used for rubber identification. The method will identify the rubbers (specified in the document) occurring alone or in binary blends in the range from 80% major component to 20% minor component. (It is necessary to explain at this stage that pyrolysis is the transformation of a compound into one or more other substances by heat alone, i.e. without oxidation. It is thus similar to destructive distillation. Though the term implies decomposition into smaller fragments, pyrolytic change may also involve isomerization and formation of higher molecular weight compound- see Condensed Chemical Dictionary by G. Hawley-10th edition-page 874). The method is said to be applicable to rubbers in the raw state and when compounded, both in the cured and uncured state. Para 6.1 of the Standard which specifies the rubber for the identification method does not specify chlorosulphonatcd polyethylene. Some later paragraphs- and 12.2.8- state that some of the principal absorptions in the spectrum obtained from the pyrolyzate of chlorosulphonated "polyethylene are closely similar both in frequency and intensity to those found in the spectrum of polybutadiene pyrolyzate.

We do not see anything in the Standard which goes to support the appellants' contention. It is to be noted, that the Standard is for identification of component rubbers in specified mixtures. And it is not the rubbers but their pyrolyzates which are subjected to infrared spectrophotometry.

23. One of the notes submitted by the appellants state that vulcanisation of Hypalon with elemental sulphur is not used for practical purposes and that there is no data available for this aspect.

It appears Prof. P.K. Sengupta of the Rubber Technology Department of Calcutta University has, after laboratory tests, confirmed that vulcanisation of Hypalon with elemental sulphur is possible and that, after vulcanisation, it meets the two tests of elongation and retraction laid down in Chapter 40 of the Customs Tariff.

It is also stated in the aforementioned note that saturated rubbers cannot be cross-linked (vulcanised) by sulphur and accelerators.

However, it is seen from pages 157-158 of CM. Blow's "Rubber Technology and Manufacture" that vulcanisation of CSM (chlorosulphonated polyethylene) is based on metal oxides, litharge or magnesia or a combination of magnesia and pentaerythritol together with accelators of which dipentamethy-lene thiuram tetrasulphide (DPTS) is a suitable one.

Thiazoles are satisfactory with litharge. In all such curing systems, the book says, it is believed that a mixture of ionic and covalent cross-links is produced, the latter involving sulphur cross-links through chain unsaturation arising from complex degradative reactions of sulpbomyl chloride groups.

That unsaturation results in the process of curing-which is what the Deputy Chief Chemist said in his technical opinion of 2-4-1982-is borne out by the above account from C.M. Blow's book.

24. The discussion contained the preceding paragraphs leads to the conclusion that Hypalon is a saturated substance and that unsaturation occurs during the process of curing or vulcanisation. It is not an unsaturated substance as contended by the appellants.

25. In our Order No. C-1012/84, dated 31-12-1984 in Appeal No. CD (SB) (T) A. No. 1593/81-C--Collector of Customs, Calcutta v. Indian Cable Company Ltd., Calcutta, the 40. This order was relied upon in course of the present proceedings by the Deptl. Representative. Based on the evidence placed before us, we had observed that Hypalon 40, as such and by itself, was a saturated substance and that unsaturation resulted during the curing or vulcanisation process. For the purpose of levy of Customs duty on imported goods, the nature and condition of the goods at the time of their import is relevant and not their condition and nature at a later point of time.

26. Having regard to the foregoing discussion and following our earlier Order No. C-1012/84, we hold that Hypalon, though a synthetic rubber, is not classifiable under Chapter 40 of the Customs Tariff Act, 1975 since, being a saturated substance, it does not conform to the definition of synthetic rubber in Chapter Note No. 4.

27. Having regard to its chemical composition-it is a polymerisation product-and its properties, Hypalon falls under heading No. 39.01/06 of the Customs Tariff Act, 1975.

28. As regarding additional duty of Customs, all the present consignments have been imported prior to 1-3-1981 when the Central Excise Tariff Item No. 16AA did not contain a statutory definition of "Synthetic rubber". The tariff item covered synthetic rubber without any explanation of the expression. Since Hypalon is a synthetic rubber (though not conforming to the requirements of Note 4 to Chapter 40 of the Customs Tariff Act, 1975), it is a synthetic rubber falling under Item No. 16AA-CET during the material period. The appellants are entitled to the refund of the excess additional duty collected.

29. Summing up, the appellants' claim that the products are classifiable under heading No. 40.01/04 of the Customs Tariff Act, 1975 fails. The products are classifiable under heading No. 39.01/06.

However, the appellants' claim that the products are classifiable under Item No. 16AA of the Central Excise Tariff as synthetic rubber succeeds and the excess additional duty collected shall be refunded. The appeals are disposed of with the above directions.

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