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CASE NO.: Appeal (civil)  6559 of 1999

PETITIONER: DCL Polyester Ltd., Nagpur               

RESPONDENT: Collector of Central Excise & Customs, Nagpur.                   

DATE OF JUDGMENT: 22/02/2005

BENCH: ARIJIT PASAYAT & S.H. KAPADIA

JUDGMENT: J U D G M E N T

KAPADIA, J.

       The issue which arises for determination in this civil  appeal filed by the assessee under section 35L(b) of Central  Excise Act, 1944 (hereinafter referred to for the sake of brevity  as "the 1944 Act") is \026 whether the product, termed by the  assessee as "sweeping wastes" is classifiable under chapter  heading 39.15 (waste) or whether it is classifiable under chapter  heading 39.07 (Primary Form of Plastic) of Central Excise  Tariff Act, 1985 (hereinafter referred to for the sake of brevity  as "the 1985 Act") as contended by the department.

       DCL Polyester Ltd. (hereinafter referred to for the sake  of brevity as "the assessee") is the manufacturer of partially  oriented yarn of polyester and polyester chips by using purified  terephthalic acid and mono ethylene glycol (raw-materials).

       According to the assessee, manufacture of yarn consisted  of different stages; that after the granules emerged from the  granulators they were required to be bagged (which was one of  the stages in the manufacture); and that in the process of  bagging some "chips" fell off and were collected as "sweeping  wastes".                  The short point which arises for determination, therefore,  is - whether the spilled chips termed as "sweeping wastes" by  the assessee was classifiable as "waste" under chapter heading  39.15, as urged by the assessee.   

       On 1.9.1994, show-cause notice was issued by the  department in which it was alleged that polyester chips emerged  from the granulators after they were completely produced and,  therefore, on account of their spill over, they cannot be treated  as a manufacturing waste.  According to the show-cause notice,  such sweeping/spillage of "chips" did not make them "waste"  classifiable under heading 39.15.  By the said show-cause  notice, the department invoking the extended period of  limitation called upon the assessee to pay duty amounting to  Rs.3,98,302.29 for clearance of polyester chips as "wastes"  during the period 25.7.1991 to 27.2.1994 without cover of gate  passes and in contravention of rules 9, 49, 52A and 276 of the  Central Excise Rules, 1944, with intention to evade payment of  duty.  

       In reply, the assessee submitted that during the

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manufacture of polyester filament yarn, "wastes" of different  types were generated; that after granulation, the chips pass  through a vibrating screen; that during the screening, the  standard chips are collected in the silos, whereas the unusable  chips waste is separated; and that standard chips collected in the  silos are transferred to the bagging silos from where they are  bagged.  According to the assessee, "bagging" is a part of  manufacturing process and in that process, waste is generated  which is unusable.  This waste is termed by the assessee as  "sweeping wastes" and, therefore, it is classifiable under sub- heading 3915.90.   

       By order dated 14.2.1995, the Collector (hereinafter  referred to for the sake of brevity as "the Adjudicating  Authority"), after considering the evidence on record came to  the conclusion that "polyester chips" got segregated after  emerging from the granulators as "chips" and, therefore, such  spillage was not classifiable as "waste".  According to the  Adjudicating Authority, any contamination of the "chips" after  their manufacture will not change the nature of the product.  In  this connection, reliance was placed on the statement of Shri  Rastogi, Manager (Polymerization) at M/s DCL Polyester Ltd.  and Shri Lilapat, Sr. manager working in M/s DCL Polyester  Ltd., Mouda.  The Adjudicating Authority further rejected the  claim of the assessee for benefit of "nil" rate of duty under the  notification no.14/92-CE dated 1.3.1992 on account of absence  of evidence showing utilization of "chips" in the manufacture  of polyester staple fibre.  The demand in the show-cause notice  was consequently confirmed.                   Aggrieved by the said decision, the assessee carried the  matter in appeal to the Customs, Excise & Gold (Control)  Appellate Tribunal (hereinafter referred to for the sake of  brevity as "the tribunal").   

       By impugned judgment and order dated 24.8.1999, the  tribunal upheld the order passed by the Adjudicating Authority  confirming the demand raised by the department.  However, on  the point of the benefit claimed by the assessee under  notification no.14/92-CE dated 1.3.1992, the tribunal remitted  the matter to the Commissioner, Central Excise, to decide \026  whether the assessee has fulfilled all the conditions stipulated in  the said notification.  Subject to above, the appeal of the  assessee was dismissed by the tribunal.  Hence, this civil appeal  by the assessee.

       Shri Jaideep Gupta, learned senior advocate on behalf of  the assessee submitted that "sweeping wastes" took place  during the process of manufacture and it did not emerge at the  end of the process; that the activity of feeding raw-material into  hoppers is a part of the manufacturing activity and the spillage  and rejection of raw-material at that stage resulted in some  waste which cannot be classified under sub-heading 3907.60 as  "polyethylene terephthalate".  He submitted that classification  is indicated by the manner in which the goods are known and  dealt with in the trade.  Learned senior advocate invoked the  test of common parlance.  He relied upon the statement of  buyers who purchased from the assessee the said "chip waste".   He submitted that the end-use by the ultimate buyer was not  relevant as waste was capable of use.  Learned senior advocate  also placed reliance on the explanatory notes to Harmonized  System of Nomenclature (for short "HSN") under entry 39.15  and submitted that the word "may" in the entry indicates that  the illustrations given therein are not exhaustive.  It was urged  that the "chip waste" was not usable for manufacture of yarn

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and was not being used as such by the ultimate buyers. It was  further submitted that neither the show-cause notice nor the  orders passed by the authorities below had invoked chapter note  7 of chapter 39 and in the absence of such invocation, it was not  open to the department to rely upon the said chapter note.   Alternatively, it was submitted that the chips were made from  Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol  (MEG) and as such, they cannot be classified as "thermoplastic  material".

       On the question of limitation, learned senior advocate for  the assessee submitted that in any event, the department was not  entitled to invoke extended period of limitation as the assessee  had filed classification lists for chip waste as also the price list  on 20.11.1991 enclosing therewith purchase orders of the  buyers of "polyester chips waste".  According to the learned  counsel, the classification list in fact had declared chip waste as  liable to duty @ 40% ad valorem.  However, the classification  list was rejected by the department vide letter dated 25.11.1991  stating that chip waste stood approved at "nil" rate as per the  earlier classification list dated 30.8.1991 filed by the assessee..   In the circumstances, it was urged that the department was not  entitled to invoke the extended period of limitation.  On the  above facts, learned counsel submitted that the assessee had  disclosed all the relevant facts in their classification list and the  price list; that the classification lists filed in the past were  accepted without any investigation, visits or tests being  conducted and, therefore, the assessee was of the view that the  "chips waste" was classifiable under sub-heading 3915.90.   Therefore, it was urged that the assessee was not guilty of  wilful suppression as alleged and, therefore, the department was  not entitled to invoke the extended period of limitation.

       Chapter 39 falls in section VII of the 1985 Act.  Section  VII deals with plastics and articles thereof.  In this matter, on  the issue of classification, we are concerned with chapter  headings 39.07 and 39.15, which are quoted hereinbelow: Heading  No. Sub- Heading  No. Description of Goods Rate of  Duty 1 2 3 4 I. PRIMARY FORMS 39.07

Polyacetals, other polyethers  and epoxide resins, in primary  forms, polycarbonates, alkyd  resins, polyallyl esters  and  other polyesters, in primary  forms.

3907.10 Polyacetals 60%

3907.20

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Other polyether 60%

3907.30 Epoxide resins 60%

3907.40 Polycarbonates 60%

3907.50 Alkyd resins including maleic resins  and fumeric resins 60%

3907.60 Polyethylene terephthalate 60%

3907.70 Diallylphthalate resins 60%

3907.80 Polybutylene terephthalate - other polyesters: 60%

3907.91 Unsaturated 60%

3907.99 Other 60% II.       WASTE, PARINGS AND SCRAP;            SEMI-MANUFACTURES; ARTICLES. 39.15

Waste, parings and scrap, of  plastics.

3915.10 Of polymers of ethylene 60%

3915.20 Of polymers of styrene 60%

3915.30 Of polymers of vinyl chloride 60%

3915.90 Of other plastics 60% plus  Rs.40 per  kilogram

       We also quote hereinbelow chapter notes 1, 6 and 7 to  Chapter 39 which deals with plastics and articles thereof:

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"1.     Throughout this Schedule, the expression  plastics means those materials of heading  Nos.39.01 to 39.14 which are or have been  capable, either at the moment of polymerization or  at some subsequent stage, of being formed under  external influence (usually heat and pressure, if  necessary with a solvent or plasticizer) by  moulding, casting, extruding, rolling or other  process into shapes which are retained on the  removal of the external influence.

       Throughout this Schedule any reference to  ’plastics’ also includes vulcanized fibre. The  expression, however, does not apply to materials  regarded as textile materials of Section XI.

6.      (a)     In heading Nos.39.01 to 39.14, the  expression "primary forms" applies only to the  following forms:-

(i)     Liquids and pastes, including  dispersions (emulsions and  suspensions) and solutions;

(ii)    Blocks of irregular shape, lumps,  powders (including moulding  powders), granules, flakes and similar  bulk forms.

       (b)     Notwithstanding anything contained  in Note 3 to this Chapter, heading Nos.39.01 to  39.14 shall also include primary forms obtained  from conversion of another primary form, falling  under the same heading, and such conversion shall  amount to "manufacture".

7.      Heading No.39.15 does not apply to waste,  parings and scrap of a single thermoplastic  material, transformed into primary forms (heading  Nos.39.01 to 39.14).

       Since Central Excise Tariff Act, 1985 is based on HSN  read with explanatory notes thereto, we also quote hereinbelow  extracts of chapter notes 1, 6 and 7 from HSN as well as  explanatory notes thereto: "1.     Throughout the Nomenclature the  expression "plastics" means those materials of  heading Nos.39.01 to 39.14 which are or have  been capable, either at the moment of  polymerization or at some subsequent stage, of  being formed under external influence (usually  heat and pressure, if necessary with a solvent or  plasticizer) by moulding, casting, extruding,  rolling or other process into shapes which are  retained on the removal of the external influence.

       Throughout the Nomenclature any reference  to "plastics" also includes vulcanized fibre. The  expression, however, does not apply to materials  regarded as textile materials of Section XI.

6.      In heading Nos.39.01 to 39.14, the  expression "primary forms" applies only to the  following forms:-

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(a)     Liquids and pastes, including  dispersions (emulsions and  suspensions) and solutions;

(b)     Blocks of irregular shape, lumps,  powders (including moulding  powders), granules, flakes and similar  bulk forms.

7.      Heading No.39.15 does not apply to waste,  parings and scrap of a single thermoplastic  material, transformed into primary forms (heading  Nos.39.01 to 39.14).

EXPLANATORY NOTES

Plastics:

       The expression "plastics" is defined in Note  1 to this Chapter as meaning those materials of  headings 39.01 to 39.14 which are or have been  capable, either at the moment of polymerization or  at some subsequent stage, of being formed under  external influence (usually heat and pressure, if  necessary with a solvent or plasticizer) by  moulding, casting, extruding, rolling or other  process into shapes which are retained on the  removal of the external influence.  Throughout the  Nomenclature, the expression "plastics" also  includes vulcanized fibre.

       The expression, however, does not apply to  materials regarded as textile materials of Section  XI.  It should be noted that this definition of  "plastics" is applicable through the Nomenclature.

       The term "polymerization" is used in this  definition in a wide sense and denotes any method  of forming a polymer, including addition  polymerization, rearrangement polymerization  (polyaddition) and condensation polymerization  (polycondensation).

       If material of this Chapter can be softened  repeatedly by heat treatment and shaped into  articles, e.g., by moulding, and then hardened by  cooling, it is termed "thermoplastic".  If it can be  or has already been transformed into an infusible  product by chemical or physical means (e.g., by  heat) it is termed "thermosetting".

       Plastics have almost unlimited applications  but many articles made therefrom are classified  elsewhere (see Note 2 to this Chapter).  

Primary forms:

       Headings 39.01 to 39.14 cover goods in  primary forms only.  The expression "primary  forms" is defined in Note 6 to this Chapter.  It  applies only to the following forms:

(1)     Liquids and pastes.     These may be the  basic polymer which requires "curring" by heat or

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otherwise to form the finished material, or may be  dispersions (emulsions and suspensions) or  solutions of the uncured or partly cured materials.   In addition to substances necessary for "curring"  (such as hardeners (cross-linking agents) or other  co-reactants and accelerators), these liquids or  pastes may contained other materials such as  plasticizers, stabilizers, fillers and colouring  matter, chiefly intended to give the finished  products special physical properties or other  desirable characteristics.  The liquids and pastes  are used for casting, extrusion, etc., and also as  impregnating materials, surface coatings, bases for  varnishes and paints, or as glues, thickeners,  flocculants, etc.

       When as a result of the addition of certain  substances, the resultant products answer to the description  in a more specific heading elsewhere in the Nomenclature,  they are excluded from Chapter 39; this is, for  example,  the case with:

(a)     Prepared glues \026 see exclusion (b) at the end of this  General Explanatory Note.

(b)     Prepared additives for mineral oils (heading 38.11)

       It should also be noted that solutions (other than  collodions) consisting of any of the products specified in  headings 39.01 to 39.13 in volatile organic solvents, when  the weight of the solvent exceed 50% of the weight of the  solution, are excluded from this Chapter and fall in heading  32.08. (see Note 2(d) to this Chapter).                  Liquid polymers without solvent, clearly  identifiable as being intended for use solely as  varnishes, (in which the formation of the film  depends on heat, atmospheric humidity or oxygen  and not on the addition of a hardener), are  classified in heading 32.10.  When not so  identifiable, they fall in this Chapter.

(2)     Powder, granules and flakes.          In these  forms they are employed for moulding, for the  manufacture of varnishes, glues, etc. and as  thickeners, flocculants, etc.  They may consist of  the unplasticised materials which become plastic in  the moulding and curing process, or of materials to  which plasticizers have been added; these  materials may incorporate fillers (e.g., wood flour,  cellulose, textile fibres, mineral substances, starch)  colouring matter or other substances cited in Item  (1) above.  Powders may be used, for example, to  coat objects by the application of heat with or  without static electricity.

(3)     Blocks of irregular shape, lumps and  similar bulk forms, whether or not containing  fillers, colouring matter or other substances cited  in Item (1) above.  Blocks of regular geometric  shape are not primary forms and are covered by  the expression "plates, sheets, film, foil and strip"  (see Note 10 to this Chapter).

       Waste, parings and scrap of a single

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thermoplastic material transformed into primary  forms are classified in headings 39.01 to 39.14  (according to the material) and not in heading  39.15 (see Note 7 to this Chapter)."

       Scope of an entry in the tariff is a matter of law.   However, whether a product comes within an entry is a mixed  question of law and fact.   

       In the case of Moti Laminates Pvt. Ltd. v. Collector of  Central Excise, Ahmedabad reported in [1995 (76) ELT 241],  this Court held that section 3 levies duty on all excisable goods  mentioned in the schedule provided they are produced and  manufactured.  Therefore, where the goods are specified in the  schedule, they are excisable goods but whether such goods can  be subjected to duty would depend on whether they are  produced or manufactured by the assessee.  The expression  "produced or manufactured" has been explained by this Court  to mean that the goods so produced must satisfy the test of  marketability.  Consequently, it is always open to an assessee to  prove that even though the goods were excisable goods, they  could not be subjected to duty as they were not produced or  manufactured by it or if they had been produced or  manufactured, they were not marketed or capable of being  marketed.

       Similarly, in the case of Union of India v. Delhi Cloth &  General Mills Co. Ltd.  reported in [1997 (92) ELT 315], this  Court held that the commodity which is sought to be made  liable to duty must be marketable in the condition in which it  emerges and not a commodity that may require further  processing or packing to be made marketable.

       In the case of Collector of Central Excise v. Ambalal  Sarabhai Enterprises reported in [1989 (43) ELT 214], this  Court held on interpretation of section 3 that the duty of excise  is on the manufacture of goods and for an article to be "goods",  they must be known in the market as such or they must be  capable of being sold in the market as goods.  Actual sale was  not necessary.  User in the captive consumption was not  determinative of that article being capable of being sold in the  market or known in the market as goods.  Even transient items  of articles can be "goods", provided they were known in the  market as distinct and separate articles having separate uses  during the short life span.  Thus, the goods with even unstable  character can be marketable, if during the short period, they  were capable of being known or sold in the market.

       In the case of Chemicals and Fibres India Limited v.  Union of India and others reported in [1982 (10) ELT 917],  one of the questions which arose for determination was  question of interpretation of tariff items.  It was held by the  Bombay High Court that the rule that the words should be  construed in a popular sense is not applicable in all cases.  The  said rule is a qualified rule.  Where the nature of the product in  question is highly technical and scientific in character, the  words used in the item will have to be given technical or  scientific meaning.  The different chemical processes like  condensation, polymerization is not capable of being construed  in a popular sense.  Indeed, it can be construed only in a  scientific and technical sense.  Incidentally, it may be  mentioned that in Chemicals and Fibres India Limited (supra),  an affidavit was filed on behalf of the assessee by one Dr. Patel,  who inter alia stated that polyester chips were capable of being

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used for manufacture of fibre or yarn by mills other than the  assessee in that case.  This point is important as it was  contended by the assessee that the chips in question were not  usable in the manufacture of yarn.  It was held in the said  judgment that plastics and plasticizers were capable of various  end-users.  However, this observation will not preclude the  assessee from leading appropriate evidence on the point of "nil"  rate of duty under notification dated 1.3.1992 before the  Commissioner, Central Excise, to which authority, the matter  has been remitted as stated above.  Lastly, it may be pointed out  that in the present case, we are concerned with intricate  technical process of manufacture of polyester chips and  partially oriented polyester yarn.  The authorities below on  examination of evidence have concluded that the spillage of  chips after emerging from the granulators were goods by  themselves and they do not cease to be polyester chips by  reason of dust contamination.  In the present case, at the stage  of spillage, the said "chips" are not waste nor can they be said  to be waste owing to the manufacturing process.  This finding is  pure technical finding and, therefore, no interference is called  for in this Civil Appeal.   

       In the case of Collector of Central Excises v. Nuchem  Industries Pvt. Ltd. reported in [(1998) 9 SCC 656], it has been  held by this Court that where technical processes are concerned,  the findings of the tribunal are, ordinarily, not to be disturbed.  

       In the present case, a categorical finding is recorded by  the Adjudicating Authority confirmed by the tribunal, that  polyester chip as a complete product emerges from the  granulators and during the bagging stage, some of the chips  spill over which cannot be termed as a "waste".  We see no  reason to disturb the said finding which is based on technical  processes.  It is also important to note that manufacture of  partially oriented yarn of polyester consists of various  processes.  The manufacture of such yarn goes through various  stages.  Under the 1944 Rules, whenever a stage is reached, the  assessee is required to make entry in RG register.  It is not in  dispute that when chips emerged from the granulators, entries  were made in the RG register.  This circumstance indicates that  the chips were independent products which were required to be  bagged and in that they spilled over as "chips".  In the entire  case, there is no evidence that such "chips" ceased to be  "chips".  On the contrary, the invoices produced by the assessee  show that the said "chips" were bought and sold as polyester  chips in the market.  Lastly, impurity in the chips is a relevant  circumstance for valuation and not for classification, unless the  contamination is so heavy that the nature of the product ceases  to be polyester chips.  In the present case, there is no evidence  that alleged unusable chips had ceased to be chips.

       In the case of M/s O.K. Play (India) Ltd. v.  Commissioner of Central Excise, Delhi-III, Gurgaon reported  in [2005 (1) Scale 732], this Court has observed that the scheme  of Central Excise Tariff is based on HSN and the explanatory  notes thereto.  Therefore, HSN along with the explanatory notes  provide a safe guide for interpretation of an entry.  Further,  equal importance is required to be given to the Statutory Rules  of Interpretation given to the Excise Tariff.  Under rule 3(a), it  is provided that the heading which provides a specific  description shall be preferred to a heading having general  description.  In the present case, it may be noted that headings  39.07 and 39.15 both fall in chapter 39 and looking to the  product emerging from the granulators, we are satisfied that  polyester chips comes within specific description of plastics

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and articles thereof.

       Analyzing the provisions of chapter 39 read with notes  thereto, it is clear that chapter 39 is in two parts, namely,  primary forms vis-‘-vis wastes, parings and scraps.  Headings  39.01 to 39.14 refer to plastics in primary forms whereas  heading 39.15 refers to wastes, parings and scraps of plastics.   Moreover, chapter note 6(a) states that the expression "primary  form" in headings 39.01 to 39.14 inter alia applies to blocks of  irregular shapes, lumps, powders (including moulding  powders), granules, flakes etc.  Further, note 6(b) states that  heading Nos. 39.01 to 39.14 shall include primary forms  obtained from conversion and shall amount to "manufacture".   Note 7 states that heading no.39.15 does not apply to wastes,  parings and scrap of thermoplastic material transformed into  primary forms. (referred to under heading Nos.39.01 to 39.14).   To the same effect is the explanatory note to HSN.   

       In the case of Chemicals and Fibres India Limited  (supra), it has been held by the Bombay High Court that  polymer chip is a saturated linear polyester.  Relying on the  Encyclopedia of Polymer Science and Technology, Vol. 11,  page 35, it was held that polyester is a high polymer, which is a  compound formed by the reaction of molecules and that it was  formed by the process of polycondensation.  It was further  observed that polyesters were known by several trade names,  like, polyethylene terephthalate (PET), terylene, decron etc.  In  the said judgment, it was further held that the distinction  between the plastics and resin was arbitrary since synthetic  material can be called "resin" as well as "plastic".  Synthetic  resin was polymer itself whereas plastic was polymer plus  additives, such as, filler, colorants, plasticizers.  In the  circumstances, chapter note 7 to chapter 39 which excludes  "waste" of single thermoplastic material from entry 39.15 is  applicable to the facts of the present case.  In the circumstances,  we do not find any infirmity in the judgment and order of the  tribunal on the question of classification.

       Now coming to the question of limitation, it is urged on  behalf of the assessee that show-cause notice dated 1.9.1994  invoking the extended period of limitation under the proviso to  section 11A(1) was erroneous as the assessee had filed their  classification list and price-list on 20.11.1991 [including the  purchase orders of the buyers]; that no inspection, audit or  investigation was carried out before approving the classification  list and the price-list and, therefore, the department was not  entitled to invoke the extended period of limitation.  

       We do not find any merit in these arguments.  Firstly, no  such arguments were advanced before the tribunal.  The only  argument advanced before the tribunal was on excisability and  nil rate of duty vide notification dated 1.3.1992.  Secondly, in  the reply to the show-cause notice, the assessee submitted that  wastes had emerged at various stages.  However, in the  classification list, they have not spelt out the various stages at  which the so called "wastes" had emerged.  In the present case,  the department had alleged misdeclaration of polyester chips as  wastes.   According to the assessee, chips, which spilled over  during bagging were unusable and, therefore, "waste".   However, no such details have been mentioned in the  classification list particularly when it urged that "wastes" had  emerged at different stages of production.  In the circumstances,  we are not inclined to interfere with the impugned judgment of  the tribunal.

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       In the result, civil appeal is dismissed, with no order as to  costs.