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Hico Products Ltd. Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1983)LC(1979)DTri(Delhi)
AppellantHico Products Ltd.
RespondentCollector of Central Excise
Excerpt:
.....a alkylated phenol). (2) their product was no doubt an antioxidant, but it was not being used as a rubber processing chemical. at the relevant time their only customer was hindustan petroleum. as seen from the letters furnished by the two other manufacturers, similar goods manufactured by them were also not being used as rubber processing chemicals. (3) in the report of the chemical examiner, as quoted in the letter dated 30-8-76 of the superintendent of central excise, it was stated that "di-butyl para cresol is mentioned in the chemical literature as antioxidant for rubber". this however was not conclusive, in the face of the actual use in india, vide point 2 above. (4) shri tamhane filed a statement showing a number of tariff advices relating to chemicals mentioned in technical.....
Judgment:
1. This is a revision application (hereinafter called "appeal") filed before the Central Government which under Section 35 P of the Central Excises and Salt Act, 1944, stands transferred to this Tribunal to be disposed of as if it were an appeal presented before the Tribunal.

2. The issue in this case is whether the goods manufactured by the appellants, and marketed under the name "Hicar-Ion" are assessable to duty under Item 65 of the Central Excise Tariff, as held by the Department, or under Item 68 ibid, as claimed by the appellants.

3. The matter came up before our predecessor Bench on 5-4-83. In its interlocutory order No. 20/83 of that date, the Bench rejected an application dated 15-2-83 from the appellants for permission to raise additional grounds under Rule 10 of the Customs, Excise and Gold (Control) Appellate Tribunal (Procedure) Rules, 1982. By the same order the Bench directed Shri K.D. Tayal, SDR, to ascertain how the Department was assessing similar products manufactured by two other companies. It was directed that the necessary information should be filed by 18-4-83.

4. In his letter dated 20-4-83 addressed to the Registrar, Shri Tayal had intimated that the product was being manufactured by the following 3 units:- He had further intimated that each of the units was paying duty under Item 65 CET.5. Against this background, the matter was taken up for hearing. Shri Tamhane, who appeared for the appellants, made the following submissions :- (1) According to their information, two of the three units mentioned in Shri Tayal's letter dated 20-4-83, namely M/s Quality Industries and M/s United Carbon India Ltd., were paying duty under .Item 65 but under protest. Further they were selling the goods exclusively to their industrial customers other than those engaged in rubber or rubber products, (At this stage it would be helpful to note that the appellants' products namely Hicar-Ion is also marked by its chemical names namely "Di-butyl Para Cresol" (DPT for brevity) or "Butylated Hydroxy Toluene" (BHT). It is further stated to be a Alkylated Phenol).

(2) Their product was no doubt an antioxidant, but it was not being used as a rubber processing chemical. At the relevant time their only customer was Hindustan Petroleum. As seen from the letters furnished by the two other manufacturers, similar goods manufactured by them were also not being used as rubber processing chemicals.

(3) In the report of the Chemical Examiner, as quoted in the letter dated 30-8-76 of the Superintendent of Central Excise, it was stated that "Di-butyl Para Cresol is mentioned in the chemical literature as antioxidant for rubber". This however was not conclusive, in the face of the actual use in India, vide point 2 above.

(4) Shri Tamhane filed a statement showing a number of tariff advices relating to chemicals mentioned in technical literature as being used as rubber processing chemicals which nevertheless had been classified under Item 68 GET on the basis of their predominant use.

(5) Shri Tamhane also relied on the Tribunal's Order No. 250/1980-C dated 19-5-83, in which imported .."alkylated phenol", also referred to as BHT, was held as not falling within Item 65 CET for the purpose of countervailing duty.

(6) Shri Tamhane also handed over a list of citations from various judicial decisions and orders of the Tribunal on the criteria for interpretation of the Tariff, (1) The product was admittedly an antioxidant. No doubt it had different uses, as seen from the literature, but the use as a rubber processing chemical was an important one. (In this connection he filed a number of extracts from published literature). Since one of the uses of the product was as a rubber processing chemical, it clearly fell within the scope of Item 65 ; (2) Item 65 of the Central Excise Tariff referred to "rubber chemicals", and specified "antioxidants" under that heading. The entry was quite specific and therefore the end use of the goods manufactured by the appellants was not relevant; (3) The letters from M/s Quality Industries and M/s United Carbon India Ltd., had evidently been written on the appellants' request (they were worded in identical terms) and should not be relied upon.

7. We have given our careful consideration to the issue. Item 65 of the Central Excise Tariff, which is under discussion in this case, contains the following description :- The Department's case in brief is that Di-butyl Para" Cresol is mentioned in chemical literature as an antioxidant for rubber (as seen from the Chemical Examiner's report) and accordingly it has to be classified under Item 65. No consideration has been given to the other possible uses of this substance, or the predominant use.

8. In our Order No. 250/1983-C, dated 19-5-83, we had dealt with the same question, but with reference to imported goods. In that case we observed that almost every chemical has more than one use, and it would not be proper to classify it with reference to only one use unless that one is the predominant or common use. On the evidence before us in that case we were unable to hold that the predominant or common use of BHT was as a rubber antioxidant. We were therefore, unable to sustain the finding of the authorities below that the goods were a "rubber antioxidant" and liable to countervailing duty with reference to Item 65 GET. We however added a caveat that "this does not mean that in some other case where the Department lays a proper foundation for holding that the goods are a rubber antioxidant, that finding cannot be sustained".

9. The present case raises the same issue. However, more material has been presented by both sides. We are therefore examining in greater detail the legal as well as the factual position.

10. Shri Tayal had filed before us extracts from various publications regarding the properties and functions of Di-butyl Para Cresol, These show that, while the substance finds use as an antioxidant for rubber, it also has a number of alternative uses. This position is best brought out in the extract from the Condensed Chemical Dictionary (page 328) wherein the uses are given as follows :-- "Antioxidant for petroleum products, jet fuels, rubber, plastics and food products; food packaging, animal feeds. Satisfies ASTM D 910-64T for use in aviation gasoline." So far as the function or use of the goods in India is concerned, the appellants have furnished evidence that the goods manufactured by them and by two out of the three other manufacturers are not used as rubber processing chemicals. This evidence has not been specifically controverted by the Department. Shri Tayal's argument was that the end use of the goods was not relevant.

11. It appears to us that there is a fallacy in the approach of the Department. It is true that Item 65 contains tyre sub-items. The argument of the Department is essentially that if any goods can be described as an antioxidant (or as an accelerator), and it is shown to have use as a rubber processing chemical, it must be classified under Item 65, irrespective of the alternative uses or the predominant use.

For the reasons given below, we disagree with this approach. 12. In a number of items in the Central Excise Tariff, there are sub-items which are clearly species of the genus comprised in the main heading. This is the case for example in Item 14C, where the main heading reads as "glycerine", and the sub-headings are "crude glycerine" and "glycerine, other than crude glycerine". So also in Item 14H the main heading reads as '"gases, including liquefied or solidified gases", and six sub-headings cover specified gases or groups of gases. When dealing with such Items, if any goods can be identified as falling within the description of one of the sub-items, they would ipso facto be classifiable under the main item. The case of Item 65 is however quite different. Here the main heading refers to "rubber processing chemicals" and the sub-headings to "accelerators" and "antioxidants".

In this case "accelerators" and "antioxidants" cannot be regarded as species necessarily falling within the genus of "rubber processing chemicals". On the other hand, each of these terms represents a genus, based on the functions which they perform. Thus, "rubber processing chemicals" are chemicals used in the processing of rubber.

"Accelerators" are substances which increase the speed of a chemical reaction;, and "antioxidants" are substances which delay the oxidation of paints, plastics, rubbers etc. (see Chambers Dictionary of Science and Technology, Revised Edition, 1982). Therefore, each of the three terms is a functional description and not a description based on composition as is the case with Item 14C or 14H. A substance is an antioxidant if it performs the function of an antioxidant as described above. But in order to make that substance assessable under Item 65 it has to be capable of being described not only as an antioxidant but also as a rubber processing chemical, because otherwise it would not fall within the description "Rubber Processing Chemicals, the following, namely...antioxidants". It is well established that although for invoking an exemption notification it is for the assessee to establish that his goods are covered by that notification, for applying a tariff item there is a burden on the Department to establish that the goods are covered by that item. This is where the question of alternative uses and predominant use of the goods becomes relevant. If certain goods have several alternative uses and the use as a rubber processing chemicals is not the predominant use, it would not be correct to describe the goods as "rubber processing chemicals" merely because that description finds a place in the Central Excise Tariff. In such a case the goods could with equal or greater justification be described as "petroleum processing chemicals" or as "plastic processing chemicals" etc.

13. In this connection we may refer to the judgment of the Supreme Court in the case of South Bihar Sugar Mills Ltd. etc. v. Union of India and Ors. (AIR 1968 SC 922). In that case the material under consideration was "kiln gas" resulting from the burning of limestone with Coke in a lime kiln with a regulated amount of air. The kiln gas was a mixture of carbon dioxide, nitrogen, oxygen and a small proportion of carbon monoxide. The carbon dioxide constituted 30 to 35% of the kiln gas, and the nitrogen about 53%. In their judgment, their Lordships of the Supreme Court made the following observations : "...The manufacturer actually produces kiln gas of which one of the constituents undoubtedly is carbon dioxide.... But if it is possible to say that what he produces is carbon dioxide...it is equally possible to say that the combustion of limestone with coke results in the manufacture of nitrogen, whose content in the kiln gas is about 53%..." In the result, the Supreme Court held that kiln gas was not carbon dioxide as known to the trade.

14. In that case the relevant tariff item was based on composition, while in this case it is based on function. However, the principle applies equally if not more forcibly, to this case. If the use for processing rubber is not the predominant use, it would not be correct to hold the goods to be "rubber processing chemicals", ignoring the other uses.

15. Shri Tamhane had filed a very interesting compilation giving examples of various substances which, under different Tariff Advices, were considered to fall outside Item 65, although technical literature showed that one of their uses was as rubber processing chemicals. Among these are Aniline Oil; Diphenylamine; Mone/Di/Tri-Ethanolamines; Picolines (Beta or Gamma), and Hexachloroethane. This would indicate that the Department itself has in several cases followed the same approach in interpreting Item 65 GET as we have in this case.

16. Shri Tayal had argued that the end use of the goods was not relevant. This is again based on a misapprehension. Certainly the use to which a particular consignment of goods is put cannot determine the classification of those goods generally. But where the classifications is related to the function of the goods (as in this case) the predominant use of those goods is very relevant and important. In the matter before us also we are not concerned with the end use of any particular consignment of the goods, but with the predominant use of the goods as a whole. As we have already observed, the literature relied upon by the Department itself does not show that the predominant use of the goods was as a rubber processing chemical. The evidence which has been produced by the appellants indicates that the goods were not being used, or not being predominantly used, as rubber processing chemicals. As the Department has not discharged the burden of showing that the predominant use of the goods was as a rubber processing chemical, we cannot sustain the classification under Item 65 CET. In the absence of any other specific item, the goods would be assessable under Item 68 CET as claimed by the appellants. We therefore allow the appeal and direct that consequential relief be granted.

17. If the question raised in the Appeal-one of construction of Item No. 65 of the First Schedule to the Central Excises and Salt Act, 1944-had not been earlier decided by a Bench of this Tribunal in Order No. 250/83-C, dated 19-5-1983, I would have dissented from my learned brethren in allowing it. I setforth hereinbelow my reasons for doing so.

(a) Item No. 65 of the First Schedule reads- "Rubber processing chemicals, the followings, namely :- (b) the effect of the words "the following, namely" is that in order that a particular product should fall within item 65, it should not only be a "Rubber processing chemical" but also an Accelerator or Antioxidant; [para 12 of the order supra-not cited] ; (c) the description is not one based on composition like for e.g.

Glycerine in item 14-C or Gases in item 14-H.19. What, then, are "Rubber processing chemicals" It is merely a functional description and not a generic term Can it be that a rubber processing chemical ceases to be one such when it is not used for rubber processing or predominantly used for other processes or purposes in course of time How are the meanings in a taxing statute to be understood and interpreted in accordance with commercial and popular understanding and usage or in a technical and scientific sense How are generic descriptions of various items distinguishable from functional nomenclature in the First Schedule itself . These are some relevant questions that arise for consideration.

(a) a whole range of "organic compounds that are added to natural and synthetic rubber to give them qualities necessary for conversion into finished goods are defined by the U.S. Tariff Commission as "Rubber processing chemicals". Amongst the chemicals defined and described as "Rubber processing chemicals" are some which are also technically 'known as "accelerators" and "antioxidants", on account of their exact function, not only in processing Rubber but in there chemical processes as well; (b) an accelerator is defined in the Condensed Chemical Dictionary by Hawley as a- (i) compound, usually organic, that greatly reduces the time required for vulcanization of natural and synthetic rubbers, at the same time improving the ageing and other physical properties.... The introduction of organic accelerators in the early twenties was largely responsible for the successful development of automobile tires and mechanical products for engineering uses. A few inorganic accelerators are still used in low-grade products, e.g., lime magnesium oxide, and lead oxide; (ii) compound added to a photographic developer to increase its activity, such as certain quarternary ammonium compounds and alkaline substances; (i) accelerators are substances which act as catalysts. In processing Rubber, some of them, inorganic as well as organic, accelerate the rate of vulcanization, improve the efficiency of the vulcanization reaction, and enhance the physical properties of vulcanized rubber ; (ii) it is not every accelerator that is a Rubber processing chemical as well. There are accelerators exclusively used for other chemical processes like e.g. development of photographic films; (iii) the description of any chemical as an accelerator is a functional description; it cannot be any other; (d) (i) similarly, an antioxidant is defined in the Condensed Chemical Dictionary (Hawley) as "an organic compound added to rubber, natural fats and oils, food products, gasoline, and lubricating oils, to retard oxidation, deterioration, rancidity and gum formation, respectively, rubber antioxidants are commonly of an aromatic amine type..." (ii) antioxidants function by combining with one or more of the free radicals which arise and thus prevent further degradation of rubber ; (iii) clearly, 'antioxidant' is a functional description and is made use of in diverse chemical processes from food to rubber industry.

(i) "Rubber processing chemicals" is a generic description to designate collectively a number of chemicals which have come to be known, and designated and recognised as such in technical literature as well as commercially; (ii) the description of a chemical as an accelerator or antioxidant is indisputably functional in character. They are used in various chemical industries and not merely rubber processing; (iii) with great respect, I cannot persuade myself to agree to characterise "rubber processing chemicals" as a functional description seeing that the actual inherent functional description is already contained in the words "accelerators" and "antioxidants".

Nor, in my view, is it in accord with the axiomatic cannons of construction of the meaning of words in a taxing statute-the acceptance of its popular meaning [A.I.R. 1977 S.C. 591-Dunlop India Ltd. v. Union of India, ECR C 476 S.C.--not cited] or a construction of a technical or scientific word by its primary meaning. [Where a "word which is of a technical or scientific character, then it must be construed according to that which is its primary meaning, namely, its technical or scientific meaning"-per Fry J. in 16 Ch. D. 718 at p. 720- Hold and Company v. Collyer cited with approval in A.I.R. 1967 S.C. 1454-Sales Tax Commissioner v. J. Singh-and referred to in adverted to supra-but not cited]; (iv) it is inconceivable that any substance could be described twice over in a tariff entry in terms of its function or use ; (v) if use was the legislative intent, it could have been manifested by the expression "used in" [Entries Nos. 4(1) (1-4), 14(D)] or "used for" [entry No. 7] or "used as" [entry 14DD] or "normally used" [entry 33(C)]. So also if "predominant use" was the intent, it could be conveyed by an unequivocal expression thereof, and not left to be inferred by a generic technical description. The entry could then have read- (vi) "Rubber processing chemicals" and amongst them accelerators and antioxidants having, as they do, a technical and scientific meaning and understood even in industrial circles, as denoting a group of chemicals, it is uncalled for to speculate about their actual use or predominant use. What is generally known as a "Rubber processing chemical" does not cease to be one because it is not being used as such predominantly now;(Dunlop India Ltd. v. Union of India) (not cited but adverted to supra) it has been categorically held that the "end use of the article is absolutely irrelevamt in the context of the entry where there is no reference to use or adaptation of the article". (Para 42 of the Judgment). The question for consideration in that case was if V.P. latex was rubber raw classifiable under Item 39 of the Indian Customs Tariff or a synthetic resin falling under Item 87 thereof. In holding that it was classifiable under Item 87 as a synthetic resin, it would appear that the revisional authority had taken into account its actual user as a bonding agent. It was observed by the revisional authority that V.P. latex is "seldom put to any of the other uses to which rubber, natural or synthetic, is ordinarily put" (Para 25 of the Judgment).

It was in the context of this finding by the Government of India that the Supreme Court were constrained to observe that end use was absolutely irrelevant if in the relevant tariff entry there is no reference to such end use; (viii) the Government of India had also, in 1980 ELT 360 (In re : Polyolefins Industries Ltd.-not cited) categorically laid down that use is not a determining factor in the construction of item 65 of the First Schedule.(South Bihar Sugar Mills Ltd. v. Union of India and Ors. does not, in my view, support the case of the Appellant. In that case the question for consideration was if what was known generally as kiln gas is, in actuality, compressed carbon dioxide so as to fall within Item 14-H. Their Lordships of the Supreme Court en a consideration of the process of manufacture of sugar by the carbonation process held that, notwithstanding that carbon dioxide is, indeed, produced, the mixture of gases that emanates is, in truth and in fact, what is known as kiln gas. The question of actual proportion of carbon dioxide in the emanating gas was actually held to be irrelevant in ascertaining the identity of the emanating gas since it was a mixture of several gases known to the trade as kiln gas. In this context it is, that their Lordships observed that, if the proportion of carbon dioxide in the kiln gas is to be taken into account to identify it as carbon dioxide, one can equally plausibly say that it was nitrogen that was produced and not carbon dioxide, inasmuch as, the proportion of nitrogen was much higher than that of carbon dioxide in the mixture of gases that emanates. It is not, therefore, as if their Lordships proceeded to consider the composition of the emanating gas with a view to ascertain its identity. On the contrary, their Lordships had categorically identified the mixture as kiln gas known as such in the trade and in science and not as carbon dioxide. If the ratio of the aforesaid decision were to be correctly applied, it would go to support the contention to the effect that "Rubber processing chemicals" in tariff entry 65 is more of a generic description known, designated, and recognised as such in technical literature as well as in trade and consequently its use or predominant use are altogether irrelevant for its classification in item 65 of the First Schedule.

23. But then, however, in view of the full Bench decision, adverted to earlier, the Appeal has to be allowed.


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