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Cemento Corporation Ltd. v. Collector, Central Excise .
Factual and Procedural Background
The appellant manufactures “Gajaraj Lympo”, a lime-pozzolana mixture promoted as a substitute for cement. Between 1982 and 1985, the Central Excise authorities demanded duty on the product under Tariff Item (TI) 23 of the First Schedule to the Central Excises and Salt Act, 1944, which then covered “cement”. The appellant maintained that the correct classification was the residuary TI 68 and, being a village industry product certified by the Khadi and Village Industries Commission (KVIC), it was exempt from duty under Notification No. 116/75-CE.
After conflicting laboratory reports and an unsuccessful writ petition, the matter proceeded through departmental adjudication. The Collector (Central Excise) in 1987, and later the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) in 1993, upheld classification under TI 23(2). The present appeal challenges those concurrent findings.
Legal Issues Presented
- Whether “Lympo” is “cement” or “a variety of cement” classifiable under Tariff Item 23(2) of the 1944 Act, or whether it falls under the residuary Tariff Item 68.
- Consequentially, whether the appellant is entitled to exemption from excise duty under Notification No. 116/75-CE dated 30-4-1975 as a village-industry product.
Arguments of the Parties
Appellant's Arguments
- “Lympo” is chemically and functionally distinct from cement; it is marketed and understood in trade parlance only as a cement substitute.
- Indian Standard specifications for cement are not met by Lympo; its compressive strength and composition differ markedly.
- KVIC certification and industry practice (several West Bengal manufacturers clearing Lympo duty-free) support classification under TI 68 and eligibility for the 1975 exemption notification.
Respondent's Arguments
- Because Lympo can be used for most building purposes performed by cement (except RCC work), it is known in common parlance as an “inferior type” of cement akin to “Sagol” or “Ashmoh”.
- Tariff Item 23 is not tied to Indian Standard norms; therefore, failure to satisfy IS specifications does not preclude classification as cement.
- Earlier notifications listing inferior cements under TI 23(2) demonstrate legislative intent to cover products like Lympo.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Dunlop India Ltd. v. Union of India, (1976) 2 SCC 241 | Classification should follow the understanding in trade parlance. | Applied to evaluate whether Lympo is perceived in trade as “cement” or merely a substitute. |
| Nageswara Pozzolana Works (P) Ltd. v. CCE, (1992) 58 ELT 321 (CEGAT) | Lime-pozzolana mixtures are not cement and fall under the residuary tariff item. | Cited as persuasive authority; the Court noted that the Revenue’s appeals against this decision had already been dismissed. |
| ITO v. Mani Ram, AIR 1969 SC 543; (1969) 72 ITR 203 | Where two successive statutes deal with the same commodity, identical classification should ordinarily prevail. | Used to buttress the view that because Lympo is not listed as cement in the 1985 Tariff (TI 25.02) it could not have been cement under the 1944 Tariff either. |
Court's Reasoning and Analysis
Justice Ruma Pal held that TI 23(2) (“all others”) refers only to other varieties of cement. If a substance is not cement, it cannot be drawn into TI 23 merely because it performs some similar functions.
- The accepted test is trade parlance. Evidence showed Lympo was marketed and understood as a cement substitute, not as cement itself. The Revenue produced no contrary trade evidence.
- Admission by the authorities that Lympo is a substitute underscores its distinct identity; a “substitute” cannot simultaneously be the thing it substitutes.
- The 1985 Central Excise Tariff Act, which replaced the earlier Schedule, classifies all varieties of cement under TI 25.02, while Lympo is placed in the separate TI 25.05 attracting “Nil” duty. The same commodity cannot be treated differently across the two tariffs.
- Even assuming ambiguity, the well-established principle that doubtful revenue provisions must be construed in favour of the assessee would require adoption of TI 68.
Holding and Implications
HELD: “Lympo” is not classifiable under Tariff Item 23(1) or 23(2) but under the residuary Tariff Item 68 of the First Schedule to the Central Excises and Salt Act, 1944.
Implications: The Tribunal’s order is set aside and the appellant’s appeal is allowed. The excise authorities must now assess the appellant’s entitlement to duty exemption under Notification No. 116/75-CE on the footing that Lympo falls under TI 68 for the relevant period (1982-1985). The judgment clarifies that lime-pozzolana mixtures are not cement for excise purposes, but it does not create a new legal test; it principally reinforces existing principles on classification and taxpayer-favourable construction.
Ruma Pal, J.— The issue in this case relates to the classification for the purposes of excise duty of a product manufactured by the appellant, which the appellant claims is a cement substitute and not cement. The product is “lympo” which is a lime-pozzolana mixture which the appellant manufactures under the trade name “Gajaraj Lympo”. The respondent's claim is that lympo is in fact a variety of cement and was exigible to duty as such.
2. The issue has arisen in the context of the Central Excises and Salt Act, 1944 prior to its amendment in 1985. Cement was then specified in Tariff Item (TI) 23 in the First Schedule of that Act and was exigible to duty. The relevant entry then read as follows:
“Item No. Tariff description Rate of duty 23. Cement (1) Grey Portland cement (including ordinary Portland cement, Portland pozzolana cement and Portland slag cement), masonry cement, rapid hardening cement, low heat cement and waterproof (hydrophobic) cement Two hundred and fifty rupees per metric tonne (2) All others Forty per cent ad valorem”
3. According to the appellant since its product was not cement, it was not classifiable under TI 23 and was classifiable under TI 68 which covered all other goods, not elsewhere specified excluding a few specified articles which are not material to the case before us.
4. The appellant's further case is that the manufacturing activity had been started in 1982 with technical assistance from the Khadi and Village Industries Commission in Patna, Bihar and, therefore, was also entitled to the benefit of Notification No. 116/75-CE dated 30-4-1975 by which products of village industries falling under Tariff Item 68 of the First Schedule to the Central Excises and Salt Act, 1944 were exempted from the whole of the duty of excise leviable thereon provided the Khadi and Village Industries Commission certified that the said products were genuine products in the industry as specified in the Schedule to the Khadi and Village Industries Commission Act, 1956. The Director of KVIC by his letters dated 1-4-1981/2-4-1981 and 2-3-1983 had, according to the appellant, certified that technical consultancy services were being extended to the appellant to establish a lympo unit (lime-pozzolana mixture) and that lympo was the substitute of cement, it was a masonry binder and not cement and that the product fell under “village industry” as specified under the Khadi and Village Industries Commission Act, 1956. On the basis of this certificate, the appellant cleared the lympo manufactured at nil rate of duty.
5. On 31-7-1982, the Superintendent, Central Excise, Ranchi directed the appellant to clear its product lympo by classifying the same under TI 23(2) upon payment of duty as specified against that tariff entry. Samples of the appellant's product were taken on 8-10-1982. One of the samples was given to the Chemical Examiner, Customs House, Calcutta which according to the respondent submitted a report that lympo could be regarded as a type of cement. The report is not on record. By letter dated 3-5-1983 issued by the Superintendent, Central Excise, Ranchi the appellant was again directed not to clear the product without payment of duty and proper licence treating its product as classifiable under TI 23(2). The appellant filed a writ application before the High Court at Ranchi vide CWJC No. 691 of 1983 challenging the demand. The Court directed a fresh sample of the appellant's product to be drawn. This was done on 14-9-1983 and sent to the Director General, National Test House, Alipore, Calcutta. The test certificate states:
“The said sample fails to meet the requirement as covered under Tariff Item 23(1) of the Central Excises and Salt Act, 1944. It appears that Tariff Item 23(2) of the said Act does not specify any particular variety of cement but includes all others. In absence of the identity of the variety of cement it will not be possible to comment on the material covered under TI 23(2) on the basis of the result of test carried out.”
6. On the basis of this report, the High Court dismissed the writ application and gave the appellant liberty to challenge the directive of the Superintendent, Central Excise before the Collector, Central Excise. The appellant duly approached the Collector (Appeals) who by an order dated 3-4-1984 set aside the impugned directive but leaving the question of classification open for a fresh determination in accordance with the prescribed procedure.
7. On 30-5-1984 a show-cause notice was issued to the appellant by the Superintendent, Central Excise. The appellant gave its reply in which it was contended that lympo was not a cement but was a cement substitute. Material was also submitted and reliance was placed on the Indian Standard Specifications to show that there was a marked difference between the compressive strengths and composition of different varieties of cement and lympo. In addition the names of various manufacturers in West Bengal who were manufacturing lympo and taking the benefit of the exemption notification dated 30-4-1975 were also submitted.
8. The Collector, Central Excise by his order dated 29-9-1987 accepted that there was a difference between the plasticity and setting property of lympo and ordinary Portland cement, but rejected the appellant's case on the following grounds:
1. Since lympo serves the purpose of all types of residential constructions, save and except RCC work, the characteristics and actual uses of the product conform fully to cement, as it is known in common parlance.
2. Tariff Item 23 covers all varieties of cement including inferior variety with lower compressive strength such as “Sagol” and “Ashmoh” and that these inferior varieties of cement were covered by Tariff Item 23(2) as was clear from Notifications No. 5/70 dated 31-1-1970 and No. 14/79 dated 27-1-1979.
3. Tariff Item 23 was not based on Indian standard specifications and, therefore, merely because lympo did not meet the IS specification for cement or its varieties did not mean that lympo was not classifiable under Tariff Item 23.
9. Accordingly, the Collector held that lympo was correctly classifiable under sub-item (2) of Item 23 and was subject to duty during the relevant period, namely, up to the amendment of the 1944 Act.
10. This decision was upheld on 14-9-1993 by the impugned decision of the New Delhi Bench of the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT). In rejecting the appellant's appeal, the Tribunal said:
“The ultimate test of classification is how the product is known in the trade parlance. ‘Lympo’ is put to practically all the uses to which cement is put — except for RCC construction work. Considering all the facts and circumstances, it appears to be an inferior type of cement like ‘Sagol’ and ‘Ashmoh’ as held by the Collector — though described as a cement substitute. When the substitute is so much like the real thing, it is difficult not to hold it as the same.”
11. Before dealing with the submissions of the parties, it may be noted at this stage that in 1985, the First Schedule to the 1944 Act was repealed and re-enacted with some changes, as the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as “the 1985 Act”). Cement has now been classified under Chapter 25 of the Schedule to the 1985 Act along with “salt: sulphur: clay and stone: plastering materials: and lime”. The specific tariff entry relating to cement is TI 25.02 which reads:
“Heading No. Sub-Heading No. Description of goods Rate of duty (1) (2) (3) (4) 25.02 2502.10 Cement clinkers Portland cement (including ordinary Portland cement, Portland pozzolana cement and Portland slag cement) Rs 200 per tonne 2502.21 White cement, whether or not artificially coloured and whether or not with rapid hardening properties 25% 2502.29 Other Rs 350 per tonne 2502.30 Aluminous cement (Cement fondu) 25% 2502.40 Sagol; ashmoh 25% 2502.50 High alumina refractory cement 25% 2502.90 Other 25%”
12. It is not and cannot be disputed by the respondents that lympo is not classifiable under TI 25.02 but under TI 25.05 which reads:
“Heading No. Sub-Heading No. Description of goods Rate of duty (1) (2) (3) (4) 25.05 2505.00 Mineral substances not elsewhere specified (including clay, earth colours, natural abrasives, sulphurs, slate and stone), lime; plasters with a basis of calcium sulphate, whether or not coloured, but not including plasters specially prepared for use in dentistry.” Nil
13. Although lympo has not been mentioned either in TI 25.02 or 25.05, the appellant has drawn our attention to the Budget speech of the Finance Minister in 1988 where in para 135, it is stated:
“It is time that we think innovatively and use unconventional materials for housing which would be cheap and functional. The excise duty on blocks, slabs, lintels etc. constituting structural intermediates and components of prefabricated building is being reduced from 12% to 5% ad valorem. Similarly, fly-ash bricks will pay a lower duty of 5% ad valorem, and lympo, a cement substitute, will bear a zero rate of duty.”
14. Soon after this, a notification was issued being Notification No. 33/88-CE dated 1-3-1988 exempting lympo from the whole of the duty of excise leviable thereon.
15. In 1990, Notification No. 16/90-CE dated 20-3-1990 was issued under Section 5-A of the 1944 Act exempting certain goods described in column (3) of the table annexed to the notification and falling under the heading number or sub-heading number of the 1985 Act from the levy of excise duty. Among the goods so exempted were cement which was described as being under TI 2502.20 and lympo which was described as being under Tariff Entry 25.05 of the Schedule to the 1985 Act.
16. In supersession of this notification another was issued by the Central Government under Section 5-A(1) of the 1944 Act being Notification No. 7/92 dated 1-3-1992 again exempting lympo from the whole of the duty and describing the corresponding entry in the 1985 Act as TI 25.05 Therefore for the period after the 1985 Act came into force, a distinction has been statutorily maintained, between cement, the different varieties and “other” cements which have been classified under TI 2502.02 and lympo which has been classified under TI 25.05 The only question which remains is whether for the period 1982 to 1985 lympo manufactured by the appellant could be classifiable under TI 23(2) of the Schedule to the 1944 Act.
17. In our view, the Tribunal and the Collector have incorrectly interpreted the provisions of Tariff Item 23 of the First Schedule to the 1944 Act. The tariff heading of the entry is “Cement”. Therefore when TI 23(2) speaks of “all others” it means “all other kinds or varieties of cement”. It is axiomatic that if the product is not cement but can be used for some purposes like cement, such product is not cement. The test as enunciated by the Tribunal for determination of the question of classification is no doubt how the product is known to the trade (1976) 2 SCC 241. The appellant has produced evidence to show that lympo had never been known or indeed advertised as “cement” whether of a superior or inferior quality, but was known as a cement substitute. The respondents have produced nothing to show to the contrary. A substitute necessarily implies a difference in identity. When once it is admitted that lympo is a cement substitute, the Tribunal could not have come to the conclusion that lympo was cement or a variety of cement. In our view, there is no ambiguity in the definition of TI 23(1) or TI 23(2). Even if there were, on the principle that when two constructions can be equally drawn, the one favourable to the taxpayer should be adopted, the Tribunal should have held in favour of the appellant.
18. Indeed an earlier Bench of the same Bench of CEGAT, in Nageswara Pozzolana Works (P) Ltd. v. CCE (1992) 58 ELT 321 (cegat) had clearly held: (ELT p. 327, para 17)
“The dictionary meaning of cement cannot be the factor for considering the product in question as cement as cement has a different meaning and trade understanding. The product which is an alternative, is used for such purposes as laying bricks and plastering which function can be obtained by mixture of limestone and, therefore, cannot be considered as a cement.”
19. In that case after considering a vast volume of technical material and taking into consideration the trade parlance and understanding of cement and lime-pozzolana mixture, the Tribunal came to the conclusion that the latter cannot be considered as a variety of cement to be classifiable under TI 23(1) or TI 23(2) of the First Schedule of the 1944 Act but under Tariff Item 68. Appeals (CAs Nos. 7504-05 of 1995) filed by the Collector of Central Excise against this decision of CEGAT were dismissed by this Court on 15-2-1996.
20. In any event, the position has been clarified by the 1985 Act beyond doubt. Cement and all its varieties including “Sagol” and “Ashmoh” have been separately provided for under TI 25.02 Lympo on the other hand has been classified under a different tariff item altogether. The Schedules to the 1944 and the 1985 Acts deal with the same commodity. If lympo is not cement or a variety of it under the 1985 Act it could not have been cement under the Schedule of the 1944 Act either. (See in this connection ITO v. Mani Ram AIR 1969 SC 543, (1969) 72 ITR 203.) Since even according to the respondents there was no other entry of the Schedule to the 1944 Act, under which lympo could have been classified, necessarily it would have to be classified under the residuary tariff item viz. TI 68.
21. For all these reasons, we set aside the impugned decision of the Tribunal and allow the appeal and hold that lympo was not classifiable under TI 23(1) or 23(2) but under TI 68 of the Schedule to the 1944 Act. Since the appellant's case was dismissed in limine by the Tribunal and the respondent authorities, the further question whether the appellant was entitled to the benefit of Notification No. 116/75-CE dated 30-4-1975 had not been considered by them. With this judgment the respondent will consider the appellant's claim to exemption from excise duty under the notification treating the appellant's product for the period in question as classifiable under TI 68.
22. The appeal is allowed accordingly without any order as to costs.
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