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Reichhold Chemicals India Ltd. Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1984)(15)ELT164TriDel
AppellantReichhold Chemicals India Ltd.
RespondentCollector of Central Excise
Excerpt:
.....the period november 1965 to 31-5-1970 without payment of duty on the ground that, they were 'alkyd resins' within the ambit of central excise notification no. 156/65, dated 23-9-1965. the department took the view that the two products were not alkyd resins but unsaturated polyester resins, not eligible to the benefit of the aforesaid notification.accordingly, by a notice dated 7-9-1970, the appellants were called upon to show cause why excise duty to the tune of rs. 4,66,294.57 should not be demanded from them, for the period 1965 to 31-5-1970, in terms of rule 10-a of the central excise rules (hereinafter referred to as the rules). in reply, the appellants relied upon 2 letters to them from the department advising that the chemical examiner, madras had, on test, found that the two.....
Judgment:
1. The captioned appeal was initially filed as a Revision Application before the Central Government which under Section 35-P of the Central Excises and Salt Act, 1944, has come as transferred proceedings to this Tribunal for disposal as if it were an appeal filed before it.

2. The dispute herein concerns two products called POLYLITE 8001 and POLYLITE 93-410 manufactured and cleared by the appellants during the period November 1965 to 31-5-1970 without payment of duty on the ground that, they were 'Alkyd resins' within the ambit of Central Excise Notification No. 156/65, dated 23-9-1965. The Department took the view that the two products were not alkyd resins but unsaturated polyester resins, not eligible to the benefit of the aforesaid Notification.

Accordingly, by a notice dated 7-9-1970, the appellants were called upon to show cause why excise duty to the tune of Rs. 4,66,294.57 should not be demanded from them, for the period 1965 to 31-5-1970, in terms of Rule 10-A of the Central Excise Rules (hereinafter referred to as the Rules). In reply, the appellants relied upon 2 letters to them from the Department advising that the Chemical Examiner, Madras had, on test, found that the two products were alkyd resins. They also referred to the fact that on this basis, the Department had permitted clearance of the 2 products during the entire period as alkyd resins, exempted from excise duty. It was contended that, in the circumstances, the Department was estopped from making the demand. They also contested the correctness of the Chemical Examiner's revised opinion that the 2 products were not alkyd resins but polyester resin, on the basis of which the demand had been made. They also contended that, if at all, Rule 10 and not Rule 10-A applied to the facts of the case. The Asstt.

Collector, after holding adjudication proceedings, held that on the basis of the Chemical Examiner's opinion and the end-use of the two products, they were unsaturated polyester resins and not alkyd resins.

He also negatived the contention that Rule 10 and not Rule 10-A applied to the facts of this case. On appeal, the Appellate Collector held that the demand for duty, to the extent it related to a period earlier than one year preceding the date of service of the notice, was time-barred under Rule 10 read with Rule 173-J which applied in the case of the appellants who were working under the "Self Removal Procedure".

3. The Appellate Collector did not pass any orders on the classification dispute since ' 'the Counsel submitted that he would limit the appeal to the issue of limitation and that the issue as to whether the relevant products were dutiable was not pressed at present". The reduced amount in pursuance of this order was worked out by the Departmental authorities to be Rs. 1,06,780.52.

4. In the Memorandum of Revision Application, it was submitted that the question of dutiability of the products was not given up by the appellants, as observed by the Asstt. Collector. The grievance taken at earlier stages was repeated that only a truncated, not complete, copy of the Chemical Examiner's report had been made available to the appellants.

5. The Central Government, in its Order-in-Revision of 30-10-1975, set aside the Appellate Collector's order and directed the latter to consider the appeal on merits after furnishing a full copy of the Chemical Examiner's report to the appellants.

6. By his order dated 9-4-1976, the Appellate Collector held that Polylite 8001 and Polylite 93-410 were unsaturated polyester resins and not alkyd resins and hence they were not eligible for duty exemption under Notification No. 156/65, dated 23-9-1965. He also held that the demand for duty in respect of the period of one year prior to the date of the demand notice was valid.

7. It is against the Appellate Collector's order of 9-4-1976 that the appellants filed the revision application dated 26-9-1976 which is now before us as transferred proceedings for disposal as if it were an appeal before us.

8. In the Memorandum of Appeal, it is stated that, even according to the Chemical Examiner, the line of demarcation between polyester resin and alkyd resin is not very sharp. Hence, his later opinon of 1970 cannot be used to alter the original classification of the goods from alkyd resin (which was based on the Chemical Examiner's opinion of 1966) to polyester resin and that, in any event, the Department would be estopped from pressing the revised classification for any period prior to the issue of the show cause notice.

9. The appeal was heard on 2-9-1983. Shri Ramasubramaniam, the learned Counsel for the appellants, drew our attention to Notification No.156/65, dated 23-9-1965 which was in force during the material time.

This exempted alkyd resin from excise duty. There was no explanation or definition of the expression "alkyd resin". In contrast, Notification No. 122/71, dated 1-6-1971 contained an explanation of the said expression in the following terms :- "Explanation.-For the purposes of this Notification : - (i) the expression "alkyd resins" means synthetic resins manufactured by the inter-action of polybasic acids and/or anhydrides (excluding maleic acid/anhydride and fumeric acid except when used to the extent not exceeding two per cent calculated on the quantity of main polybasic acid/ anhydride ingredient e.g. phthalic anhydride in the resins to reduce cooking time and improve the colour of the resin) polyhydric alcohols and mono basic fatty acids and includes chemically modified alkyd resins and liquid alkyd resins but does not include blends or mixtures of alkyd resins with other artificial or synthetic resins." Reference was also made to the Chemical Examiner's report of 22-5-1970 from which it could be seen that the distinction between Alkyd and Polyester resins was thin. It could not, therefore, be contended by the Department that the earlier classification, based on the Chemical Examiner's test report, of the goods as alkyd resins was erroneous. The Department would be estopped from contending to the contrary and no demand under Rule 10 could be validly made.

10. In response to a query from the Bench, the learned Counsel stated that the two products in question would not qualify to be called "alkyd resins" within the meaning of the expression in the 1971 Notification.

11. On behalf of the Respondents, Shri A.K. Jain, SDR, produced for our perusal an advertisement of the appellants in which Polylite resins were shown as polyester resins ; alkyd resins were shown separately.

The two were different types of resins. The appellants had not rebutted the later report of the Chemical Examiner to the effect that the two products were polyester resins. Shri Jain further submitted that the explanation of the term "alkyd resin" in the 1971 Notification was only clarificatory in nature and, therefore, it would apply in respect of the prior period as well. He also relied on page 621 of the McGraw Hill Encyclopaedia of Science & Technology, Volume 10, on "Polyester resins". Relying on the judgment of the Delhi High Court in the Bawa Potteries' Case reported in 1981 ELT 114 (para 11), he submitted that the Department would not be estopped from demanding the duty for the prior period.

12. We have carefully considered the submission of both sides. Leaving aside, for then once, the question whether the Department was estoppe.' from demanding duty in respect of the past period, the crucial question that falls for determination is whether Polylite 8001 and Polylite 93-410 were or were not "alkyd" resins for the purpose of Notification No. 156/65. As we have seen, the said Notification did not explain the term. We have, therefore, to fall back upon the technical understanding of the term-both sides rely, quite rightly in our opinion, on technical authorities and not commercial parlance, in this case. On this, we have firstly, the technical opinion given by the Chemical Examiner himself on 22-5-1970. He has said : "It is worthwhile to mention that technologically the line of demarcation between Polyester resins and Alkyds is not sharp". The Condensed Chemical Dictionary (10th edition) (HAWLEY-p. 833) describes Polylite as a trade mark (of Reichhold Chemicals, Inc., N.Y. ) for a group of 100% reactive alkyd resins dissolved in styrene and other monomers (emphasis supplied).

Encyclopaedia of Chemical Technology Volume 1 (page 517) by Kirk Othmer describes the following classes of alkyd resins : - It goes on to say that an exception to the above classification has been made in the case of new casting and low pressure laminating resins. "These resins include the unsaturated polyester alkyds and copolymers of vinyl and maleyl compounds. Certain physical and chemical properties and their method of application distinguish them from all the other types of alkyds products described so that it is most convenient to treat them as a separate group", (page 518) (Emphasis supplied). Again, "two new groups of resins were developed during World War II that have already assumed marked commercial importance. These resins are used as casting resins and for low pressure laminating purposes. They are non-electrostatic and polymerise without forming volatile materials. One group of resins is composed of polyesters of either an unsaturated polyhydric alcohol or an unsaturted polybasic acid or both. Mixed unsaturated esters such as allyl alcohol glycol maleates are also included in this group. The other group of resins consists of copolymers of esters of maleic acid with various vinyl compounds." (page 530) Unsaturated Esters : These unsaturated alkyds as manufactured are low in molecular weight but vary in viscosity, most of them are sold as liquids that are readily converted to solids by polymerisation, especially in the presence of peroxide catalyst, (page 530).

Recently resins produced from Styrene and Polyesters have become commercially available for use in laminating and potting applications. These resins consist of a unsaturated polyester (alkyd) dissolved in monomeric styrene which upon exposure to heat with or without the presence of catalysts polymerises to form solid thermoset materials. Monomers such as diallyl phthalate, triallyl cyanurate or Vinyl Teluene may replace styrene in these reactions.

Typical unsaturated alkyds are a result of the reactions of varying proportions of aromatic or aliphatic dibasic acids such as phthalic, maleic, adipic or sebacic acid and propylene or other glycols." 13. It is, therefore, abundantly clear that technologically speaking unsaturated polyester resins are known and understood to fall in the group of Alkyd resins. It would appear that the Chemical Examiner's opinion of 1966 reporting Polylite 8001 and Polylite 93-410 was, therefore, in consonance with scientific understanding. It is noteworthy that even in his later report of 22-5-1970, he says that technologically, the line of demarcation between polyester resins and alkyd is not sharp. Why has he changed his stand and called them polyester resins The Chemical Examiner says :- "It may be brought to your notice that samples described as Polylite 8001 and Polylite 93-410* drawn from M/s. Reichhold Chemicals India Ltd., Madras and forwarded for test in the Custom House Laboratory in the past have been reported as "Synthetic resin of Alkyd Type".

"The earlier reports were on the basis of party's declaration on the T.Ms, and the absence of the precise information of the composition of the products under reference. Further it is worthwhile to mention that technogically the line of demarcation between Polyester Resins and Alkyds is not sharp".

"As the majority of the Technical references describe 'Polylite' as Polyester synthetic resin and more especially as printed write-up of manufacturers also mention 'Polylite' as Polyester Synthetic resin, the sample of 'Polylite 8001', resin would merit to be considered as Polyester resin.

The earlier reports on the samples of Polylite 8001 and Polylite 93-410 drawn from M/s. Reichhold Chemicals Ltd., Madras, may therefore be amended to read as "Synthetic resins of Polyester Type". The manufacturers however have declared the products Polylite 8001 and Polylite 93-410 as Alkyd on the respective test memos." 14. It may be seen that the Chemical Examiner's report does not contain any reason to show that the appellants' products-polyester resins- were not alkyd resins. We have already seen that polyester resins are, in technical parlance considered to fall within the group "alkyd resins".

In fact, the Chemical Examiner himself recognises that the dividing line between the two groups is not sharp. Here, we may usefully refer also to page 32 of the Tenth Edition of Hawley's Condensed Chemical Dictionary-a reference book already referred to. This is what it says on Alkyd resins : - "Alkyd resin.-The thermosetting reaction product of a dihydric or polyhydric alcohol (ethylene glycol or glycerol) and a polybasic acid (phthalic anhydride) in the presence of a drying oil (linseed, soybean) which acts as a modifier. Alkyds are actually a type of polyester resin, which has a similar derivation, but is not oil-modified. Alkyd resins may be produced by direct fusion of glycerol, phthalic anhydride and drying oil at from 210-235C." McGraw-Hill Encyclopaedia of Science & Technology (Volume 10) which was referred to by the learned Sr. D.R. also says at page 621 : - Polyester resins.-Polymeric materials in which ester group are in the main chains. The aliphatic polyesters tend to be relatively soft, and the aromatic derivatives are usually hard and brittle, or tough. The properties of another group may be modified by cross linking, crystallization, plasticizers, or fillers. The commercial products are : alkyds, which are used in paints, enamels, and in moulding compounds; unsaturated polyesters or unsaturated alkyds which are used extensively with fibre glass for boat hulls and panels; aliphatic saturated polyesters; aromatic polyesters, such as polyethylene terephthalate which is used in the form of fibres and films; and the aromatic polycarbonates".

All these authorities make it crystal clear that polyester resins are comprehended in the broad description of "alkyd resins".

15. We, therefore, hold that the products Polylite 8001 and Polylite 93-410 were "alkyd resins".

The expression "alkyd resins" came to be defined by way of an explanation only on 1-6-1971 by amending Notification 122/71. Our attention has not been drawn to any definition on these lines in the technical literature referred to before us. We are, therefore, of the view that the definition introduced on 1-6-1971 cannot be applied to the prior period to the disadvantage of the appellants, particularly in the context of the overwhelming evidence in technical literature to conclude that, in technical parlance, polyester resins were covered by the broad description "alkyd resins". For the same reason we cannot accept Shri Jain's contention that the explanation introduced on 1-6-1971 was only clarificatory in nature and, therefore, would apply in respect of the prior period as well.

Having regard to the view which we have taken on the classification of the 2 products in question, vis-a-vis Notification No. 156/65, it is not necessary for us to go into the other contentions and submissions.

17. In the result we set aside the order appealed against and allow the appeal.


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