ORDER
P.K. Kapoor, Member (T)
1. This is an appeal against the order dated 17-6-1988 passed by the Collector of Central Excise, Calcutta-I. The appellants were engaged in the manufacture of goods falling under Item No. 68 of the erstwhile Central Excise Tariff – During the period 1983 to 1985 they were paying duty at the rate of 10% ad valorem on the product P.U. Cement which was prepared by dissolving an imported duty paid resinous product in a volatile organic solvent known as MEK (Methyl Ethyl Katone). A catalyst/hardner was required to be added before the actual use of the product. A sample of the product was drawn and sent to the Chemical Examiner for chemical test. In the Test Memo No. 1/83, dated 22-12-1983 the Chemical Examiner opined that the sample was composed of synthetic resin, polyurethane, dissolved in a volatile solvent. On the basis of the findings of the Chemical Examiner, the Superintendent of Central Excise issued a show cause notice alleging that the product “P.U. Cement” was classifiable under Tariff Item 15A(1) at the rate of 40% ad valorem and by classifying and paying duty on the said product, under Tariff Item 68 during the period 1983 to 1985, the appellants had evaded the payment of duty amounting to Rs. 21,210.05. The appellants were, therefore, asked to show cause to the Collector of Central Excise, Calcutta-I as to why differential duty amounting to Rs. 21,210.05 should not be recovered from them under Section 11A of the Central Excises and Salt Act, 1944. The appellants disputed the department’s claim that the product in question was classifiable under Tariff Item 15A(1) on the grounds that it was only a physical solution consisting of duty paid resin and solvent in which there was no chemical change. In support of their contention that the disputed product was correctly classifiable under Tariff Item 68, the appellants placed reliance on a Board’s letter No. 10/9/67-CX VI, dated 21-5-1968 and certain decisions of the Tribunal. However, by the impugned order, the Collector held that the product in question was classifiable under Tariff Item 15A(1) and confirmed the demand on the grounds that the assessee had not disputed the findings of the Chemical Examiner and in the manufacture of the said product synthetic resin underwent a chemical change resulting in a product which in the form of a pasty solution based on resin corresponded to Explanation III(a) appended to the description of the goods under Tariff Item ISA of Tariff.
2. On behalf of the appellants, Shri S.K. Bagaria, Learned Advocate appeared before us. He referred to the Supplementary Affidavit and its enclosures filed by the appellants and stated that after receiving the show cause notice dated 22/29-1-1986 the appellants addressed a letter dated 24-6-1986 to the Collector asking for the Chemical Examiner’s report referred to in the show cause notice. He added that thereafter the Assistant Collector along with his letter dated 30-1-1986 forwarded the said test report. He referred to endorsement dated 14-6-1985 by the Assistant Collector on the said report to the effect that the product in question was classifiable under Tariff Item No. 15A(1) and contended that the proceedings initiated by the show cause notice dated 22/29-1-1986 was illegal since the Assistant Collector had already passed an order on the question of the classification of the disputed product. Continuing his submissions, the learned Counsel stated that Chemical Examiner’s report supports the appellants’ contention that the disputed product was only a physical composition and not a chemical compound. He argued that in view of the Chemical Examiner’s findings it has to be held that the adjudicating officers finding that the disputed product was the result of the synthetic resin undergoing a chemical change was erroneous. He argued that the Collector’s finding that the disputed product was classifiable under Tariff Item 15A(1) is not sustainable since the said Tariff Item covers only certain specified “Synthetic Resins”, whereas the appellants were producing polyurethane adhesive by mixing imported resin with Methyl Ethyl Katone, a volatile solvent. He stated that the Collector’s finding that the disputed product corresponds to the Explanation in(a) under Item ISA is also erroneous since the Explanation relates to only basic materials whereas the disputed product being an adhesive was only a product of the basic material. He contended that the impugned order suffers from total non-application of mind since he has not given any basis for his finding that during the change the synthetic resin undergoes a chemical change resulting in a pasty solution and he has also not given any finding as regards the exact nature of the disputed product and whether it could be deemed as any of the resins specifically covered by Tariff Item 15A(1).
3. On behalf of the respondents, Shri Sharad Bhansali, Learned SDR referred to the impugned order and reiterated the findings of the Collector.
4. We have examined the records of the case and considered the submissions on behalf of both sides. The appellants case is that Tariff Item 15A(1) of the erstwhile Central Excise Tariff covers only certain synthetic resins which are specifically listed under the said Item. They have contended that the disputed product being a mixture obtained only by mechanical stirring of a mixture of imported Synthetic Resin and a volatile organic solvent, it did not involve the manufacture of any Synthetic Resin and accordingly it could not be deemed as classifiable under Tariff Item 15A(1).
5. In order to appreciate the considerations which weighed with the Collector in arriving at the finding that the disputed product was classifiable under Tariff Item 15A(1), we refer to the following extract from the impugned order:
“The said assessee have not disputed the Chemical Examiner’s observations that the said product was composed of synthetic resin and polyurethane dissolved in volatile organic solvent. The contention of the said assessee is not tenable as during manufacture of the product described as polyurethane cement, the said synthetic resin (polyurethane) underwent a chemical change turning the same into a pasty solution form based on such polyurethane resin. This product correspond to the Explanation III(a) appended to the description of the goods under T.I. 15A of the erstwhile C.E.T. The impugned product was, therefore, properly classified under T.I. 15A(1) by jurisdictional Assistant Collector, Central Excise.”
6. On a plain reading of the extract from the impugned order reproduced above, we are inclined to agree with the appellants that except for referring to the Chemical Examiner’s report that on test the product was found to be composed of Synthetic Resin and polyurethane dissolved in volatile organic solvent, the Collector has not given any basis for his finding that the process involved in the production of the disputed product results in a chemical change which transforms the synthetic resin into a pasty solution corresponding to the Explanation in(a) below the description of goods in Tariff Item 15A(1). We also find that the Collector failed to give a finding on the appellants’ contention that the disputed product was not classifiable under Tariff Item 15A(1) which covered only certain specified varieties of Synthetic Resins and the process carried out by them using imported Synthetic Resin did not amount to the manufacture of any of the Synthetic Resins specified in the said Tariff Item.
7. In view of the above, we hold that the order passed by the Collector is non-speaking and shows non-application of mind. We therefore set aside the impugned order and remand the matter to the Collector for re-adjudication in accordance with law. We direct that before deciding the matter, the Collector should grant a personal hearing to the appellants.
8. The appeal is therefore allowed by way of remand.
ORDER
S.K. Bhatnagar, Vice President
With due respects to Hon’ble Member (Technical), my views and orders are as follows :-
9. I observe that the appellant’s contention that imported duty paid resinous product was dissolved in a volatile organic solvent (MEK) to obtain T.U. Cement’ which is used as such by simply adding a catalyst/hardner at the time of actual use has not been shown to be wrong. On the other hand, there is no evidence to show that a chemical reaction takes place in the process. In fact the department has not produced any material whatsoever in support of its contention. Therefore, we would be justified in going by the process mentioned by the appellants.
10. Although physical activities can also result into a new commodity and it is not always necessary that a chemical reaction must be involved, at the same time, if it is claimed that as a consequence of any process or processes -whether physical or chemical (or biological for that matter) a new commodity has been produced, it is necessary to show that the item is recognised in the market as a product different in name, characteristics and use and is traded as such as a distinct commodity. However, no evidence has been produced in this respect as well.
11. I am therefore of the opinion that no new commodity emerges as a result of the process undertaken by the appellants. But even if it is presumed for the sake of arguments that a new product was formed, again the department has not produced any evidence to show that it specifically answers any of the criteria or description specifically mentioned in Tariff item 15-A read with the explanations thereunder. However, it is not necessary to labour the point of classification further in view of our observations in Paras (1) & (2) above which go to show that the material was not excisable. Hence, in my opinion it was not necessary to remand the matter and the appeal can be accepted straightaway.
12. It is allowed accordingly.
ORDER
G.A. Brahma Deva, Member (J)
On going through the orders written by my learned Brothers, I agree with the Hon’ble Vice President in allowing the appeal straightaway without remand in the facts and circumstances of the case.