1. Facts of the case in brief are that the respondent imported two consignments of "class E other high temperature insulating paper". In both the cases, the goods were assessed under Heading 39.01/06 of the Customs Tariff Act, 1975 and for the purpose of countervailing duty under Item 17(2) of the Central Excise Tariff on the ground that the goods consisted of presspahan paper board laminated with polyester film. Subsequently, the respondent made two refund applications contending that the goods were classifiable under Chapter 48 CTA read with Notification No. 37/78-Cus. In terms of this notification, electrical grade insulation paper and electrical grade insulation paper board falling under Chapter 48, were partially exempt from basic customs duty and there was full exemption from countervailing duty. The Asstt. Collector of Customs, however, closed both the refund claims and informed the respondent that since the assessment, of E class insulating paper was under consideration of the Central Board, of Excise and Customs, he would take up the matter after the Board had taken a decision on this point; Against this decision of, the Asstt.
Collector closing their claims, the respondent filed an appeal before the Appellate Collector. The Appellate Collector held that the Asist.
Collector should have applied his own mind and, should not have closed the refund claims. The Appellate Collector further went into the merits of the assessment and observed that the subject goods were a composite material inasmuch as the paper had been laminated with a thin plastic film. The goods had to be assessed in terms of Rule 3(b) of the Rules for the Interpretation of the Customs Tariff. In terms of this rule, composite goods had to be, classified on the basis of that material or component which gave the goods their essential character. In respect of the subject goods, the Appellate, Collector observed that the essential character of the goods 'came/only from paper and not from the polyester film as, the polyester film by itself did not have the insulating property. That being so, the Appellate, Collector held that the subject goods, had to be assessed as paper under Chapter 48 of the CTA.Consequently, the respondent was also entitled for exemption in terms of Notification No. 37/78-Cus. The Central Government was, however, tentatively of the view that the Appellate Collector was not correct in holding that the composite goods got their essential character from paper and not from polyester film. It 'appeared to the Govt. that the subject composite material owed' its essential characteristics of electric insulation to the plastic portion rather than to the paper backing. That being so, the correct classification of the goods appeared to be under Heading 39.01/06 CTA with CV duty under Item 1-7(2) CET whereunder assessment had been done originally by the Custom: House. By the subject show cause notice, the Central Government called upon the respondent, as to why the original assessment should not be restored. The proceedings initiated by this show cause notice have since been transferred to this Tribunal and have been taken up as the subject appeal.
2. The case was heard on 21-6-1983. The Department's representative made a preliminary point saying that the Appellate Collector had exceeded his jurisdiction by going into the merits himself instead of directing the Asstt. Collector to decide the refund claims on merits.
He, therefore, desired that the Bench should set aside the Appellate Collector's order and remand the matter to the Asstt. Collector. The respondent countered this argument by saying that the Appellate Collector had recorded reasons for going into merits of the claim. The reason was that the Asstt. Collector had abdicated his responsibility and closed the refund claims on the ground that the point at issue was under consideration of the Board. We agreed with the respondent that in the circumstances of this case, the Appellate Collector did no wrong by doing something which the original authority ought to have done but omitted to do. Further, we found that the proceedings before us were initiated by the show cause notice issued by the Central Government and no such objection as now raised by the Department's representative was taken in the said show cause notice. We, therefore, over-ruled the preliminary objection of the Department's representative.
3. Coming to the merits of the case, the Department's representative stated that the goods were not known in the trade as paper or board.
The goods were known and understood in the trade parlance as electrical grade insulating materials. The ISI specification for paper or board did not cover these goods. The goods were a composite material. The appellate order had proceeded on the wrong footing that polyester film did not possess insulating properties and, therefore, it could not be said to have given the essential character to the goods. Polyester film by itself was a well-known insulating material. It was used quite extensively for insulating cables. The Department's representative stated further that insulating materials were of various grades or class - A, B, C, D, E etc. Each grade or class denoted a particular extent of temperature resistance and dielectrical strength of the insulating material. E class insulating material could withstand 120C of temperature and possessed a much higher degree of dielectrical strength than A class insulating material. The respondent had imported E class material for use in electric motors. Electric motors required this particular class of insulating material because of the need to withstand higher temperatures generated inside the motor. This capacity to withstand higher temperature upto 120C which was an essential character of E class insulating material came from polyester film. The presspahn paper or board did not possess this higher capacity. Applying Rule 3(b) of the Rules for Interpretation of the Customs Tariff, the only conclusion could be that since the essential character of an E class insulating material came from polyester film, the composite material had to be classified as plastics under Heading 39.01/06 CTA.The Department's representative added that the Explanatory Note in the CCCN relating to Chapter 48 and the description of the goods given in exemption notification No. 37/78-Cus. covered only impregnated insulation papers and not laminated insulating papers since the latter were clearly a composite material.
4. The respondent showed a sample of the subject goods and admitted that both presspahn paper or board as well as the polyester film components of the goods possessed insulating properties. In such a situation, he maintained that the onus was on the Department to prove that it was the plastic portion which gave the essential character to the goods. The show cause notice, issued by the Central Government, did not give any basis on which the Government had come to the tentative conclusion that it was the polyester film which gave the essential character to the goods. The respondent argued" that presspahn paper or board component of the goods was predominant as it was 10 mils while the polyester film component was only 1 mil. He maintained that the polyester film only enhanced the insulating property of the presspahn paper or board. The Department's stand itself was contradictory; whereas the Department maintained that for the basic customs duty the goods were classifiable as articles of plastic, the Department treated them as paper or board for the purpose of charging countervailing duty under Item 17,(2) GET. He added that Note 2 to Chapter 39 of the CTA excluded the subject goods from the purview of that Chapter since the subject goods were not a result of any chemical synthesis but were just one layer each of presspahn paper or board and polyester film laminated together with a bonding agent. Finally, he argued that according to Rule 3(c) of Rules for Interpretation of Customs Tariff, Chapter 48 should be preferred to Chapter 39 since Chapter 48 occurred later in the Customs Tariff.
5. We have given our earnest consideration to the matter. We find it stated in the Central Government's show cause notice that the subject composite material owed its essential characteristics of electric insulation to the plastic portion rather than to the paper backing.
This was the basis for the Government's tentative conclusion that by virtue of Rule 3(b) of the Rules of Interpretation, the goods merited classification under Heading 39.01/06 CTA. The statement made in the show cause notice was rather sketchy but we find from the records that the respondent has in the way been handicapped in Offering a proper defence. The respondent made detailed submissions buttressed by test reports from the Victoria Jubilee Technical Institute, opinion of Dr.
3.N. Hate, Chartered Engineer, catalogues and letters from foreign suppliers etc. etc. The matter was argued before us at length by both sides with reference to the detailed record as well as ISI specifications. It cannot, therefore, be said that either side felt any handicap in presenting its case. Coming to the merits of the case, we find that the respondent imported the goods of a particular grade -E class - to suit his particular electric insulation requirements. This E class insulating material must possess temperature resistance of 120C plus higher degree of dielectric strength etc. Presspahn paper or board is not capable of giving insulation of such high degree. Such high degree of insulation in -E class material comes only from the plastic film portion of the goods. Without the plastic film portion, the goods do not become E class, even though impregnated presspahn paper or board, by itself, is also an insulating material. We have, therefore, no doubt in our mind that in the composite material, the essential characteristics of E class electric insulation come from the plastic portion rather than the paper backing. Since classification of the composite goods, in the absence of a specific heading for such goods, has to be determined on the basis of Rule 3(b) of the Rules for Interpretation of the Tariff which requires that such goods shall be classified as if they consisted of the material or component which gives the goods their essential character insofar as this criterion is applicable, classification under Heading 39.01/06 would have to be preferred to classification under Chapter 48 CTA. The respondent sought to place reliance on the Interpretative Rule 3(c) instead. This rule is applicable only when the goods cannot be classified by reference to Rule 3(a) or 3(b). Since in the present case it is possible to decide the classification of the subject composite goods with reference to Rule 3(b), resort to Rule 3(c) is not permissible. The respondent also wanted to rule out classification under Heading 39.01/06 by virtue of Note 2 to Chapter 39 CTA. This Note explains the scope of Heading 39.01/06 as such and is relevant for deciding whether certain goods fall under this heading of their own right or not. In the case before us, the composite goods are neither paper nor plastic material in their own right. They have been classified by us under Heading 39.01/06 by virtue of the Interpretative Rule (b). In other words, they have been held to be deemed plastic goods. Reference to Note 2 to Chapter 39 CTA is, therefore, not relevant in such a situation. There is also no force in the respondent's argument that since the paper portion is 10 mils and the plastic portion only 1 mil in the composite goods, the goods should be classified as paper on the basis of predominant content.
Interpretative Rule 3(b), which is the relevant rule applicable in this case, does not lay down the principle of classification on the basis- of predominant content but oh the basis as to which of the component gives the goods their essential character. Thus, it is not the bulk but the property of giving the essential character which is the criterion applicable to the case before us and since in E class insulating material the essential characteristic of higher degree of insulation comes from the plastic portion, the classification has to be under Heading 39.01/06 only. Exemption' Notification No. 37/78-05., benefit of which is sought by the respondent, applies to electrical grade insulation paper falling under Chapter 48 CTA. Since we have held that the subject goods do not fall under Chapter 48, they are not entitled to the benefit of this notification. However, as regards the countervailing duty, there is force in the respondent's plea. Since the goods, by themselves, are neither paper or board nor an article of plastic, their classification either under Item 17 or 15A of the Central Excise Tariff would be inappropriate. Further, since the Central Excise Tariff has no Rules of Interpretation like Rule 3(b) in the CTA and the goods are a composite material in which both the components are active components in the sense that both possess insulation properties, the appropriate Central Excise Tariff item for the goods would be the residuary Item 68.
6. In the light of the above discussion, we order that the goods shall be re-assessed under Heading 39.01/06 CTA read with Item 68 GET and consequential refund shall be granted to the appellants. The proceedings initiated with the Central Government's show cause notice are disposed of accordingly.