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Indian Explosives Ltd. Vs. Collector of Customs - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1983)LC949DTri(Delhi)
AppellantIndian Explosives Ltd.
RespondentCollector of Customs
Excerpt: which the two variations can be distinguished.5. it is also relevant to take note of two "tariff advices" issued by the central board of excise and customs for the purposes of distinguishing cellulose nitrate used in the manufacture of explosives alone from cellulose nitrate used for other industrial purposes, for which artificial or synthetic resins are generally used. in tariff advice no. 10/71, the contents of which were published under tariff notice/tariff circular no. 99/71 dated 12.5.1971 of the calcutta custom house (briefly called the f7irst tariff advice), the nitrogen content was made the sole criterion for distinguishing cellulose nitrate used in the manufacture of explosives, which was considered to be not classifiable under item 82(3) ict and therefore by.....
1. These are 5 revision applications (hereinafter called "appeals") filed before the Central Government which under Section 131 of the Customs Act, 1962, stand transferred to this Tribunal to be disposed of as if they were appeals presented before the Tribunal. Since the issue involved in all the appeals is the same, they were all heard together on 14.4.83, and this common order is passed covering all the 5 appeals.

2. The issue involved in all the cases is as regards the classification of Blasting Soluble Nitro Cotton (referred 10 for short as "BSNC") under the First Schedule to the Indian Tariff Act, 1934, which was in force at the material time. It is the claim of the appellants that the goods should have been classified under Item 87 of the said schedule, whereas the customs authorities had classified them under Item 82(3)(a) Ibid. For convenience the descriptions in the two items are reproduced below: 82(3)(a)Artificial or synthetic resins and plastic materials in any form, whether solid, liquid or pasty, or as powder, granules or flakes, on in the form of moulding powders.

3. The matter having been decided against them at the original as well as at the appellate level, the appellants filed revision applications to the Central Government. In four out of five cases no orders were passed by the Central Government on the respective revision applications. In the fifth case, which is the subject matter of appeal file No. 7/74 of the Tribunal, the Central Government passed an order No. 2628 of 1975 dated 1.8.75, whereby the revision application was rejected. The appellants filed an application to the Calcutta High Court under Article 226 of the Constitution, challenging the said order. The Calcutta High Court, in its order dated 23.5.1977, quashed and set aside the above mentioned order, with the observation that the revision application would be treated as pending and is to be disposed of in accordance with law after a fresh personal hearing. As no further order was passed by the Central Government on the said revision application, it was transferred to the Tribunal under Section 131 B of the Customs Act, 1962.

4. Before setting out the arguments advanced at the personal hearing, it would be useful to set out some other relevant facts. An important reference document in this case is the Indian Standards Specification No. 1091 of 1968, framed by the Indian Standards Institution. This specification distinguishes between the different uses of cellulose nitrate, and sets out the requirements for the different grades and types. Under this specification, cellulose nitrate can be of two grades. Grade I is for use in the manufacture of explosives. Grade II is for industrial purposes other than explosives. Grade I, for explosives, is further divided into Type A and Type B, the latter type also being referred to as "Guncotton". The main distinguishing features of the different grades and types are the percentage of nitrogen content, the acidity or alkalinity, and the solubility in ether-alcohol. The requirements in these respects are briefly set out below: Grade I, Type A (Cellulose nitrate other than Guncotton, for explosives): Grade I, Type B (Cellulose nitrate of the type known as Gun-cotton, for explosives): Grade II (Cellulose nitrate for industrial purposes other than explosives): It will be seen that there is some overlapping between Grade I type A and Grade II, so far as nitrogen content is concerned, but there are other characteristics by which the two variations can be distinguished.

5. It is also relevant to take note of two "tariff advices" issued by the Central Board of Excise and Customs for the purposes of distinguishing cellulose nitrate used in the manufacture of explosives alone from cellulose nitrate used for other industrial purposes, for which artificial or synthetic resins are generally used. In tariff advice No. 10/71, the contents of which were published under Tariff Notice/Tariff Circular No. 99/71 dated 12.5.1971 of the Calcutta Custom House (briefly called the F7irst Tariff Advice), the nitrogen content was made the sole criterion for distinguishing cellulose nitrate used in the manufacture of explosives, which was considered to be not classifiable under Item 82(3) ICT and therefore by implication classifiable under Item 87 ibid, from cellulose nitrate used as a resin for the manufacture of lacquers, plastics etc, and classifiable under Item 82(3) ICT. According to this tariff advice, cellulose nitrate for explosives should have more than 12.3 percent of nitrogen content, while cellulose nitrate used as resin should have 12.3 percent or less of nitrogen content. A tolerance of 0.1 percent could be allowed.

6. In the Second Tariff Advice which modified the first one, and was contained in the Calcutta Custom House Public Notice No. 63/73 dated 22.2.1973, it was observed that the nitrogen percentage in both industrial grade and explosive grade of cellulose nitrate overlapped to some extent and this factor might not itself serve to distinguish the two grades in all cases. It was further observed that there were other relevant factors like alkalinity. The Public Notice, therefore, ended with the following conclusion: Accordingly cellulose nitrate with minimum nitrogen content of 12% (with a tolerance of 0.1%) provided it is in water wet condition and having alkalinity from 0.2 to 0.4% by weight (calculated as calcium carbonate) and provided further that the goods are used 'for in (Sic) the' manufacture of explosives, declared as such would also be eligible to be classified under item 87 I.C.T.7. In the Order-in-Revision dated 1.8.1975 of the Government of India, which was set aside by the Calcutta High Court, reference has been made to the two tariff advices. It was observed that in terms of the First Tariff Advice the goods imported by the appellants were on the basis of the nitrogen content classifiable under Item 82(3) ICT., but with reference to the Second Tariff Advice they would have been classifiable under Item 87 ICT, subject to the fulfilment of the other criteria contained in the second tariff advice. The revisional authority further observed that classification of the goods under Item 87 could only be resorted to when a serious attempt in classifying them under Item 82(3) failed. Reference was made to technical literature and it was observed that the substance retained its resinous characteristic and would appropriately fall within the ambit of Item 82(3) ICT. The revisional authority further observed that Item 82(3) covered synthetic resins without any reference to their end use, and that it was not possible to take out a particular grade of nitro-cellulose which had been proved to qualify as artificial resins from the ambit of Item 82(3), relying on its end use. By implication therefore the revisional authority disagreed with the approach in the two tariff advices, came to the conclusion, as already mentioned, that the goods were correctly assessable under Item 82(3) ICT, and rejected the revision application.

8. It is this order which was challenged before the Calcutta High Court and which, as already mentioned, was quashed by High Court. The High Court quoted from the above-mentioned order and made the following observations:-- In my opinion, the Central Government did not apply its mind properly. Having regard to the fact that it has not specifically held that the said circular had no application, its decision that the "wet condition" "alkalinity" and "end use" had no relevance amounts to a patent error of law.

In that view of the matter, in my opinion, there has been error apparent on the face of the record and this order cannot be supported. I ought to point out that both Mr. Sen and Mr. Roy Chowdhury, appearing on behalf of the Central Government, have taken a very fair attitude in the matter.

In that view of the matter, I pass the following order. The application is allowed and the Rule is made absolute. The order of the Central Government dated 1st of August 1975 being order No. 2628 of 1,975 passed in the revision application is hereby quashed and set aside.

9. We have set out the facts at some length in order to facilitate a clear appreciation of a somewhat technical question. The basic question is however quite simple, namely whether Item 82(3)(a) or Item 87 was more appropriately applicable to the goods under consideration.

10. It may be mentioned that there has been no serious attempt to suggest that the goods were actually put to any other use than the manufacture of explosives.

11. At the personal hearing Shri B. Gupta, for the appellants, traced the background to the cases. He referred to the Indian Standards Specification, and the criteria laid down therein. He made the point that since the tariff advices were in the nature of interpretations, the Second Tariff Advice would be applicable even in cases prior to the date of the tariff advice. Shri Gupta contended that the goods which are the subject matter of these appeals were correctly classifiable under Item 87 ICT in terms of the criteria set out in the Second Tariff Advice. Since they were imported prior to the date of the Second Tariff Advice they were not tested with reference to the criteria laid down in that tariff advice. In the nature of things it would not possible at this date to furnish a test report on the goods with reference to the Second Tariff Advice. He submitted further that in the case of importations subsequent to the issue of the Second Tariff Advice, tests had been made with reference to that tariff advice and the goods had been found to comply with the criteria contained therein. Shri Gupta also cited three other cases where the Appellate Collector of Customs, Bombay had allowed their appeals in similar cases.

12. We asked Shri Gupta whether he or his clients were in a position to say that a substantial number of consignments of similar goods were imported after the issue of the second tariff advice, and that all of them on test had been found to c6mply with the requirements of that tariff advice After consulting the representative of the appellants, who were present, Shri Gupta replied that he was not in a position to give a definite reply on this question but could do so if given sufficient time. We did not feel it necessary to delay the matter further by seeking comprehensive information in this regard.

13. On behalf of the Department, Shri A.K. Jain submitted that the appellants had referred to the two tariff advices and had placed reliance on the Second Tariff Advice. He submitted that the Second Tariff Advice had to be read as a whole, and that it could be applied only if all the conditions mentioned therein were satisfied, and not merely the nitrogen content. Since the consignments were not tested at the time of import, it could not be said at this stage that the goods definitely satisfied the requirements of the second tariff advice for classification under Item 87. Shri Jain also pointed to the reference in the order of the Government of India to the "pleading" of the appellants that they were importing nitrocellulose within certain mutually agreed specifications and that according to this specification the nitrogen content of the nitrocellulose imported by them was within the range of 11.9 percent to 12.16 percent. No other ingredient or criterion was referred to in the order of the Government of India.

Thus, it was apparent that no material was available regarding the criteria of alkalinity etc. The goods were not tested with reference to these criteria and could not now be tested and therefore they could not be definitely said to have satisfied these criteria.

14. With reference to the ISJ Specification, Shri Jain submitted that this could give some guidance but could not be conclusive in the matter of tariff classification.

15. On the question of the actual use to which the goods were put, Shri Jain admitted that he had no information to challenge the statement that they were used in the manufacture of explosives. He however contended that since the description in the tariff item was not linked to the end use of the goods, the use to which a particular consignment was put was irrelevant.

16. Shri Jain also submitted that in the order of the Government of India reference had been made to authoritative technical literature and that the nitrogen content had been taken as a very relevant factor. The relevance of the nitrogen content has not been challenged by the appellants.

17 Shri Jain also submitted that a tariff advice was not binding on a quasi-judicial authority like the Tribunal. He cited the decision of the Bombay High Court in the case of Advani Oerlikon (ELT 1980 page--432). He submitted that quasi-judicial authorities, including the Tribunal must act impartially, without considering themselves bound by tariff advices.

18. Replying to Shri Jain, Shri Gupta stated that the appellants had also placed reliance on the specifications agreed between them and their suppliers for supply of the goods. In these specifications there was reference also to acidity, alkalinity and solubility in ether-alcohol. He pointed out that in the I SI Specification there was some overlapping between the two grades so far as the nitrogen content was concerned, but they could be distinguished with reference to other criteria such as alkalinity.

19, In reply to a question from us, Shri Gupta agreed that the Central Board of Excise and Customs could modify its own tariff advice, as it had done in the present case. We then put it to him whether the Government of India, which was at a higher level than the Board in a quasi-judicial as well as executive capacity, would not be competent to go against a tariff advice issued by the Board, Shri Gupta did not wish to express a view on this question.

20. We have carefully considered the issues involved in these cases. As we have observed above, the question for consideration is whether the goods are more appropriately covered by the description in Item 82(3) or that in Item 87. We would observe here that, though the goods have been described by different names, they are basically cellulose nitrate (the expression used in the Indian Standards Specification). It is also not controverted that chemically the description "artificial or synthetic resins" would be applicable to them. What the appellants have contended is that, in the light of the composition and other characteristics, which make them preeminently suitable for use in the manufacture of explosives, they should not be classified under Item 82(3), and would accordingly be classifiable under Item 87.

21. In this connection we have to observe that the Item 87 did not refer to "cellulose nitrate suitable for the manufacture of explosives" or cover any such material. It is a residuary item, with the heading "all other articles not otherwise specified". It comes into play only if any goods cannot be placed under any other tariff item. In this connection, we may refer to some observations of Mrs. Sujata V.Manohar, J, who participated in the judgment of a Division Bench of the Bombay High Court, in the case of Garware Nylons v. Union of India and Ors. 1980 ELT 249 Bom. 1980 Cen-Cus 256 D. She observed: Before any product can be put in the residuary Item, it is necessary for the respondents to establish that the product is not covered by the other Items which are specified in the First Schedule.

It was ultimately held in that case that the goods, which were nylon twine, were covered by Item 18 of the Central Excise Tariff, which deals inter alia with nylon yarn, and therefore could not be "consigned to the orphanage of the residuary Item 68". In that case the respondents were the Union of India and the appellants were the assessees, but the principle enunciated therein is quite general and applies equally to these cases. Viewed in this light, it is difficult to see how the goods, consisting as they do of cellulose nitrate, can be said not to fall within the Item 82 3 and thus be relegated to Item 22. So far as the tariff advices are concerned, we would observe that they are basically administrative measure, meant to assist (but not to bind) the quasi-judicial authorities, and to conduce of uniformity of practice. Clearly they would not bind any quasi-judicial authority such as an Assistant Collector or Appellate Collector, even though these officials may be subordinate to the Board for administrative purposes.

That such tariff advices do not bi d the Board itself is evident from the fact that the Board can and does modify its own tariff advices, as it has done in this case. In fact, if it were held that the Board could not modify its own tariff advices, the appellants' case would fail, since they are relying heavily on the Second Tariff Advice of the Board. Thus the Board's tariff' advice does not bind the Board itself, nor does it bind the quasi-judicial authorities who are administratively subordinate to the Board. A fortiori, such a tariff advices could not bind the Government of India, or the Tribunal, which could exercise powers of revision or appeal over orders of the Board.

It therefore appears to us that the Government of India acting as the revisional authority were not bound by any tariff advice issued by the Board. The wording of the order-in-revision dated 1.8.1975 would indicate, although not categorically, that the Central Government were not inclined to agree with the tariff advice on the basis of which certain goods which, by virtue of their composition could fall under Item 82(3), were excluded from the scope of that item by referring to their specifications or to their end use.

23. We would also agree with the argument of Shri Jain that, since the two tariff items do not make any reference to end use the end use of any particular consignment could not be a deciding factor in its classification. We mention this because the Second Tariff Advice implies that the actual use to which a particular consignment is put has to be taken into consideration. In saying this, we do not mean to imply that goods cannot be distinguished or classified with reference to certain accepted characteristics or criteria, which are recognised as making them pre-eminently suitable for a particular use or purpose.

But, as we have already observed, in the present case we do not have before us two tariff items, one of them referring to use as a plastics etc., and the other to use in the manufacture of explosives, but one tariff item which refers to the chemical character of the goods and another which is the ultimate residuary item.

24. If therefore we did not have any other guidance or direction, we would be inclined to hold that, so long as the goods could be considered to fall within the description of "artificial or synthetic resin" they must be classified under Item 82(3), in preference to Item 87, and that the two tariff advices of the Board which imply a different approach, were misconceived. We are however bound by the directions and observations of the Calcutta High Court--directly in the case which was the subject matter of the order of the Government of India dated 1.8.1975 and by implication in the other cases, and we have therefore taken into consideration the criteria set out in the Second Tariff Advice. Even so, we find that we cannot come to a definite finding that the goods in the cases under consideration fulfilled the criteria in the Second Tariff Advice. This is because the goods were not tested with reference to the criteria in the Second Tariff Advice, and no samples are now available for test. It has been submitted on behalf of the appellants that the goods could not be tested with reference to the Second Tariff Advice because it came to be issued later on. A reply to this could be (hat, since the goods were assessed under Item 82(3), contray to the stand of the appellants, they could have asked for a test to be made with reference to the Indian Standard Specification, which was available at that time, even if the Board's Second Tariff Advice was not, and on which the Board's Second Tariff Advice when issued, was evidently based.

25. The appellants have placed reliance on the specifications agreed between them and their suppliers. With reference to these specifications, we have to point out that they do not fully tally with the specifications in the Indian Standards Specification and the Second Tariff Advice. For instance, while the Indian Standards Specification does not permit any acidity, these "agreed specifications" allowed upto 0.05 percent of acidity. Thus, even if it were accepted that the goods conformed to the specifications agreed upon between the appellants and their suppliers, it would not follow that they satisfied the Indian Standard Specification or the Second Tariff Advice based upon it.

26. In the result, we do not find any reason to modify the orders of the authorities below in these cases. We accordingly reject all the 5 appeals.

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