[Order per : S.L. Peeran : Member (J)]. - The Revenue is aggrieved with the order-in-appeal dt. 30-11-1992 passed by the Collector (Appeals), Madras.
2. By this order, the ld. Collector has held as follows :
“I have carefully considered the case records, grounds contained in the appli-cation and the submissions/arguments of the respondents contained in their written submissions and paper book. The grounds of the application are :
(i) The product becomes a polymer from monomer when it attains adhesive property, and hence the goods are to be treated as based on plastics only.
(ii) The products are marked as Anaerobic adhesives and hence classifiable under Chapter 35.
(iii) Note (1) of Section VII is cited as an authority to classify the goods under the respective headings.
On the other hand, the respondents rely on the report of the Chemical Examiner dt. 15-5-1991 which categorically states that the impugned adhesives are only monomers and based on plastics. The certificate produced from CIPET also confirms this. At the time of personal hearing, the advocate drew attention to the cross-examination of the Chemical Examiner who confirmed his earlier opinion. It is also not disputed that polymerisation takes place only at the time of application of the impugned goods at the hands of the customer; the goods remain monomer at the time and place of clearance in terms of Rule 9(1) of the C.E. Rules, 1944. Hence the grounds of the application fall in this regard. Note (1) to Section VII speaks of classification of goods under Chapters 39 and 40 under the given condition, but in the present instance, the goods are classifiable under 3506.00 and it is not disputed in the application. Hence the citing of Note 1 is not relevant. The respondents gave a list of adhesives which were tested under the above-said Chemical Examiner’s report categorising them as monomers not based on plastics. Therefore, the order of the Asstt. Collector under review classifying them under 3506.00 read with Notification No. 125/87 is correct in law, and the application is accordingly rejected".
3. The Asstt. Collector by his order-in-original dated 31-7-1991 has decided in favour of the assessee. As can be seen there is concurrent finding against the revenue. The revenue being aggrieved with the order of the Asstt. Collector, had filed an application under Section 35E(4) of Central Excises and Salt Act, 1944, before the Collector (Appeals), which had been met with a defiant cross objection from the assessee, supported by enormous evidence. Although the evidence has not been referred to by the ld. Collector in her order, yet in the order-in-original, the ld. Asstt. Collector has made reference to it and after due consideration on merits in the light of the case law, has held that the product in question namely ‘Anabond’ is an adhesive, being only a monomer, and hence held to be classifiable under T.I. 3506.00 of Central Excise Tariff, 1985, and also being eligible to the benefit of S. No. 2 of the Notification No. 125/87. In this appeal, it is stated that the item in question is being cleared as ‘monomers’ after mixing up with the additives for ready polymerisation, such additives are termed as “Anaerobic Additives”, as can be seen from the “Hand Book of Adhesives”. It is stated that as per the product literature and from the Chemical Examiner’s report, the adhesive property is obtained after polymerisation. The product becomes a polymer instantaneously at the time of application under external influence like pressure, in an air free environment and the reaction mechanism of bonding and sealing can be achieved only by formation of polymerised compounds. Noting these details, the Revenue have stated that the Collector had failed to note that neither any further process is carried out nor any chemical is added to make the product a polymer, after it is cleared from the factory and therefore, the Collector ought to have held that the intrinsic quality of the product is such that, in effect, the product acts as a polymer and hence the classification of the product ought to have been decided based on its functional quality, especially when the Chapter Notes and Section Notes support this view. It is also stated that when the Collector (Appeals) had agreed to the point that the adhesive property is attained only because of polymerisation taking place at the time of application and that point has been admitted by the appellate authority, then the Collector ought to have held that the product is to be classified in terms of S. No. 1 of Notification No. 125/76, dt. 29-4-1987, as an adhesive based on plastic. In this regard, the Revenue is relying on the definition of `plastic’ as appearing at page 552 of HSN, and the different process of polymerisation as explained at page 551 of the said Explanatory Note. It is also pointed out that the expression `plastic’ is defined in Note (1) to this Chapter as meaning those materials of Headings 3901 to 3914, which are or have been capable, either at the moment of polymerisation or at some subsequent stage of being formed under external influence (usually heat and pressure), if necessary with a (solvent or plasticiser) by moulding, casting extruding, rolling or other process into shapes which are retained on the removal of external influence. Therefore, it is pleaded that in the instant case, the formation of plastic films at the time of application under the influence of external pressure is akin to the definition of plastic as explained above. Citing the definition, the Revenue submits that as per Explanatory Notes at page 553, prepared glues and adhesives will be outside the purview of Chapter 39 and will be classifiable under Chapter 35. Therefore, the product in question though falling under Chapter 35 should be construed as `Adhesives based on Plastic’. It is, further submitted that as per Explanatory Notes at page 498 (Note B(4), preparations specifically formulated for use as adhesives consisting either of a mixture of several plastics falling individually in different headings of Chapter 39 or of plastics with additives not falling under Chapter 39 are classified under Chapter 3506. Applying the above definition to the product in question, the revenue submits that it is to be inferred that it contains a composition of `dimethyl acrylate monomers’ and the certain additives and filters etc. of which some are monomers and the rest are polymers. It is further stated that the quality of instantaneous polymerisation is obtained only because of these additives, which does not involve a chemical reaction when mixed with the monomer, but will exhibit the quality of polymerisation at the time of application in an air free environment under the influence of external pressure. The revenue points out to Note (I) to Sec. VII and submits that the goods put up in sets consisting of two or more separate constituents intended to be mixed up together to obtain a product of Sec. VI or Sec. VII are to be classified in the head- ing appropriate to the product provided that the constituents are, having re- gard to the manner in which they are put up, clearly identifiable as being inten- ded to be used together or without first being repacked. Therefore, they point out that in the instant case, the mixture is clearly intended to be used as an adhesive after polymerisation. Therefore, they submit that Chapter Notes can be referred to while deciding whether the adhesives are based on plastic or not.
4. We have heard ld. JDR Shri Somesh Arora for the appellant and Shri C. Natarajan, ld. Advocate for the respondent.
5. Shri Somesh Arora, ld. JDR fairly submitted that there is no serious dispute about the classification of the product under Chapter 3506 of the CET, 1985, but it is the claim of the assessee for the benefit of the S. No. 2 of the Noti- fication No. 125/87, which is disputed. S. No. 2 reads as `Glues & Adhesives’ other than based on `plastics’. The revenue is seeking S. No. 1, which reads “Glues & Adhesives based on Plastics”. Ld. JDR also submitted that the ingredients in the product is a `monomer’ and this fact is not contested by the Chief Chemist, in the test report. He also pointed out that although the product is a monomer, yet it requires to be considered as a polymer/plastic, on account of polymerisation taking place at the time of its application. The ld. JDR submitted that this aspect has to be considered for the purpose of classification under S. No. 1 of the notification as a polymer/plastic and not a monomer. He also pointed out that on account of presence of 20% of polymer in the product, it is required to be considered as based on polymer/plastic.
6. Ld. Advocate replying to the grounds of appeal and also to the contention of ld. JDR, submitted that the test results obtained by the department clearly indicated that the product in question is a monomer and not based on plastic and polymer. The Chemical Examiner has answered the question whether the product is based on plastic or not and his opinion is that some addition of minor amount of polymer contents is used as thickening agent for improving the means and that by itself does not make the product of a polymer plastic. He also relied on the Expert’s opinion, which had clearly supported the view taken by the Chemical Examiner. He also submitted that the classification under T.I. 3506 of CET, 1985 has not been challenged and therefore, the department cannot take a different view for the purpose of notification and that the view taken in classification is binding for the purpose of interpreting the words in the notification, when the wordings are same. For the purpose of classification, the department has accepted the contention that the goods are not based on plastic and that they are monomer and therefore, the benefit claimed under S. No. 2 of the notification cannot be deprived, being on a different reading, by taking support of the Chapter Note or the Explanatory Notes. He also submitted that S. No. 2 of the notification reads “glues and adhesives other than those based on plastic”. He submitted that there is no word “exclusively” employed in these words, in S. No. 2 and therefore, the revenue cannot deprive the benefit on the ground that the thickening agent added to the product by itself will make the product a plastic or polymer. The ld. Counsel also pointed out to the enormous evidence, relied by assessee before the lower authorities which had not been controverted by the dept. The ld. Advocate submitted that there is no ground to interfere with the finding given by the lower authorities.
7. We have carefully considered the submissions made by both the sides and perused the entire records and the evidence placed before us. The only question that has to be decided by the assessee is as to whether the impugned goods are based on plastics or not. The Chemical Examiner by his letter dt. 15-5-1991 to the Asstt. Collector has also submitted his report on the product. The report of the Chemical Examiner is noted hereinbelow :
“The anaerobic adhesives and sealants are manufactured by mixing basic ester Dimethylacrylate Monomer or other Monofunctional acrylate monomer with catalyst (an organic peroxide). Depending upon the types and conditions of substrates to be bonded the other additives such as thickners, plasticizers, dilutents and filters (Polymethacrylate powder, Silica, PTFE Powder, golyethylene glycol, selected colours), activators and stabilisers, are added as secondary ingredients. It is observed that no chemical reaction takes place during the mixing operations.
Anaerobic adhesives bind two substrates by creation of an air free environment. The main application is for fastener, such as lock-studs, bold-nuts, and screws, to produce fail-safe assemblies to withstand heavy vibrations, to resist shock and impact loads and to offer better performance. In addition to locking they also seal the threads.
The above property was demonstrated to us on bolts and nuts, and these nuts and bolts were found to be strongly bonded. It was also observed that the excess adhesive material left open to atmosphere did not polymerise.
The approximate percentage composition of these adhesives and sealants is as follows :-
| Ester Monomer | 80% |
| Stabiliser | 1% |
| Activator | 2% |
| Catalyst | 4% |
| Thickners (PMMA) | 3 to 5% |
| Filler (SILICA and PTFE) | 5 to 10% |
After noting the details of the product, the Chemical Examiner has opined as follows :
“1. Anaerobic Adhesives :
These are compositions based on reactive monomeric complex organic comp-ounds with additives and fillers. These products cure in the presence of an active surface when oxygen is excluded, thus polymerising and forming strong bonds.
These have been found to be packed in unit containers with description and other informations indicative of the products being used as adhesives. From the technical books available here is understood that such adhesives are compositions based on reactive monomers.
Regarding the issue, whether these products are to be considered as adhesives based on plastics or not, my views are as follows :
In the technical books available here PLASTICS are defined as ;
1. ASTM Standards 1980 Part 34 page 22 (D-883)
Plastics (n) - “A material that contains as an essential ingredient one or more organic polymeric substances of larger molecular weight, is solid in its finished, and, at some stage in its manufacture or processing into finished articles, can be shaped by flow”.
(2). Plastics Technical Dictionary by Manser Pt I Page 387
Plastics (noun) - “A material which contains as an essential ingredient a high polymer and which at some stage in its processing into finished products can be shaped by flow”.
3. Glossary of Chemical Terms by C.K. HAMPEL & C.G. HAWLEY - page 231.
PLASTICS “Collective term for high polymers (resins) to which various modifying materials have been added so that the product can be manufactured in whatever degree of quality, hardness, and shape desired, synthetic resins are the basis of most plastics.....”.
4. Adhesives Hand Book - By J. SHIELDS - Glossary of Terms relating to Adhesive Technology - Page 349.
PLASTICS : “A generic term for materials based on natural or synthetic polymers susceptible to shaping and moulding by virtue of their flow properties. Plastics processing is often assisted by heat and pressure applications”.
(5) Handbook of Adhesive Bonding - By CAGLE
Chapter - Glossary -Page. 46
PLASTICS : “Natural and artificially prepared organic polymers of low extensibility as compared with rubber which can be moulded, extruded out and worked into a great variety of objects, rigid or non-rigid and used as substitutes for wood, metals, glass, rubber, leather, fibres, and textiles materials. Many are also referred to as synthetic resins.......”
It would therefore, be seen from the above that, PLASTICS essentially are organic polymers, and that a composition based on plastics.
On persual of the Definition of `Plastic’ as mentioned in the Chapter Notes to Chapter 39 CET, it would be seen that the definition at the outset itself states that plastics are materials of Heading 39.01 to 39.14. All these materials are polymers and no monomers is included in any of the above headings. Hence in order to call the composition based on plastic it has to contain any of the polymers mentioned under Chapter 39.01 to 39.14, as an essential ingredient.
In my opinion therefore, these adhesives and sealant preparations under reference which are essentially based on monomers may not therefore merit to be considered as adhesives based on plastics, though some of them may contain minor amount of Polymers which are used as thickening agents for improving viscosity.
As can be seen from the above report, it is clear that the product is adhesives and sealant preparations which are essentially based on monomers, though some contents of polymer is used as a thickening agents for improving viscosity. This portion of the Central Examiner’s report appears to have given rise to a doubt to the revenue. However, they have not challenged the other reports of the experts produced by the assessee. The assessee has produced the opinion of one Dr. P. Desikan, Chemical Consultant. The detail opinion given by the said chemical expert which is also noted herein below :
“The issue on hand is whether Anabond Private Limited’s products
(a) ANABOND 111, 112, 115, 122, 132, 151
(b) ANABOND 402, 412, 422
(c) ANABOND 340, 341, 610, 611 and
(d) ANABOND 101, 124, & 800
meant for four different kinds of application, all of which are in the realm of “adhesives” use can be described as “adhesives based on plastics” or “adhesives other than those based on plastics.
The different products, while different in detailed composition and processing parameters have the following general method of preparation.
1. The prescribed methacrylate ester/esters are blended with the required small amounts of stabilizer (hydroquinone tyape) and activators.
2. Polymethylmethacrylate in proportions varying from 2 to 20% purely as an inert viscosity modifier (thickener) is added with heating and blending as required to develop the thickness required, for products (a), (b) & (c) only, mentioned above.
3. Fillers (silica for some formulations of products in (a), (b) & (c) or partly incorporating Polytetrafloureothylene in products (c) above totalling 5 to 10% is incorporated.
4 Colour is blended
The following points are to be noted :
1. It is important to emphasize that the adhesive function comes only from the major component (70-90%), namely methacrylate ester/esters of chosen structure, which are stabilised in the monomeric stage upto the time of application and are able to function as adhesives because of the onset of polymerisation after application at customer’s end. The small amounts of polymethylmethacrylate, silica or polytetraflouroethylene are serving only as thickeners and fillers to give the right consistency for facil application of the adhesive. Even in their absence, with only the methacrylate esters, stablilzer and activator in the composition (as in products of (d) the objectives of (i) preserving monomer composition upto the time of application and (ii) development of polymerisation and adhesion on application CAN BE MET. In the use of all those so-called anaerobic adhesives, initial availability of oxygen in the partly filled containers and hydroquinone type inhibitors will keep the monomer from polymerising. On application between mating surfaces, the spread, relative non-availability of oxygen, presence of activators and contact with metal, if any, help in polymerisation.
2. It is, therefore, necessary only to characterize the major component, namely the methacrylate ester/esters, and based on it to go on to the choice raised in the first paragraph.
3. These are separate chemically defined organic compounds, defined by the term esters of unsaturated carboxylic acids. A similar product in the monomer category is “dimethyl terephthalate” which is an ester of a saturated dicarboxylic acid.
4. The “methacrylate esters”, like “dimethyl terephthalate” can be considered only as monomers and separate chemically defined organic compounds, so long as they are kept as monomers. Only after polymerisation, if the polymerisation results in resins capable of being moulded into different shapes for various end uses, can they become “plastics”. As monomers, they are not polymers and definitely not plastics.
5. Therefore adhesives comprising substantially of these monomers should be described as “monomer based” not “polymer of plastic based.”
6. On the other hand, an adhesive based on a polymer and a solvent such as polyvinylalcohol solution, whose adhesive action depends merely on solvent removal is a plastic based adhesive. The main adhesive component in the formulation is present in it as a polymer BEFORE APPLICATION. The primary polymer, polyvinylalcohol is a polymer capable of description as a Thermoplastic.
7. In simple terms, if the main adhesive functionary component in the formulation is a polymer or plastic, then the formulation is a “plastic” based adhesive. Otherwise it is other than plastic based.
8. CIPET’s finding in their infra-red evaluation of samples of products 111, 112, 412 & 340 that the spectra do not reveal peaks characteristic of poly- mers, is as it should be because in these adhesives, the adhesive is deve- loped only by onset of polymerisation after application at customer’s end and it must be appreciated with these adhesives that there is no adhesion value if the polymerisation takes place before application".
As can be seen from the above report, this expert has clearly stated that adhesive comprising substantially of these monomers should be described as “monomer based” and not as “polymer or plastic based”. As can be seen from the reports furnished by the assessee as well as the Chemical Examiner’s report, it is clear that the product is 80% monomer. A small quantity of polymers are added as additives, as “thickening agent”. The addition of this small quantity of a polymer does not make it a plastic. Therefore, the functional character of the product will not be relevant for the purpose of granting the benefit of the notification. It is now well settled that so long as the experts recognise the product a a monomer and such an understanding also exists in Commercial Parlance, then the product cannot be considered as a plastic or polymer. There is no dispute with regard to the classification of product under Chapter Heading 35.06 of Central Excise Tariff Act, 1985 which reads :
“Prepared glues not elsewhere specified or included”
The department has considered this product as a monomer for the purpose of classification under Chapter 35. The polymers and plastic additives are separately classifiable under Chapter 39. The Chapter Note 1 of Section VII which the department is relying is relevant for the purpose of classification only. The lower authorities after a very careful consideration of the enormous evidence has dropped the charges levelled in the show-cause notice, by accepting the contention of the assessee. This has been done after due application of mind and after a very clear analysis of the evidence on record. Therefore, it cannot be said that the orders passed by both the lower authorities are without any due application of mind.
The ld. Chief Chemical Examiner had also not conclusively opined in the matter and therefore, the assessee had established by cross-examining him that the department did not have the entire facility to determine the chemical contents of the product. Therefore, the reports of other experts were obtained, which have been examined by the lower authorities. The conclusions arrived at by them is sustainable. The various grounds raised by the revenue do not have any force and are also supported by any evidence. Therefore, there is no grounds made out by the revenue and to interfere with the impugned order, hence, the appeal is liable to be rejected and it is ordered accordingly.
| Dated : 31-10-1994 | Sd/ (S.L. Peeran) Member (J) |
8. [Order per : S.K. Bhatnagar, Vice-President]. - I observe that the appellant’s product(s) is basically a mixture prepared by compounding of various chemicals in different proportions. The major constituent is `Dimethyl acrylate’ monomer to which additives such as thickners, plasticizers, diluents and filters are added. These include a polymer called Polymethylmethacrylate.
9. It is admitted on all sides that at the time of manufacture and clearance, the Dimethyl acrylate remains a monomer but subsequently at the time of application, it also gets converted into a polymer in anaerobic and other required conditions. There is no dispute regarding the above facts.
10. However, the question whether they can be considered as `preparations based on plastics’ is a tricky one. The Collector has asserted in the memorandum that the additives also play an important role but has unfortunately, not produced any evidence in support of this contention which was necessary particularly after the Respondents had claimed that the main role was played by the principal compound which is a monomer. The Depart- mental Chemist’s report in this essential respect is strangely silent.
11. It is also noticed that the Chemical Examiner has reported presence of PMMA to the extent of 3 to 5% whereas according to one of the Experts’ Report produced by the Respondents varies from 2 to 20%.
12. There is one more word of caution. The opinions of the Experts pro- duced by the Respondents do not apparently cover all the Anabond and Acquabond varieties mentioned in the Show Cause Notice, dated 13-8-1990 (para 8).
13. From the Chemical Examiner’s Report, it is not clear as to on what basis the Chemical Examiner has given his Report. In fact, a perusal of this report shows that in respect of a number of samples, it just does not give any indication of the nature or type of test conducted and the opinion appears to be based mainly on the “enclosed write-up and the product literature”. The repeated use of the words “is stated to be” with reference to the same and then concluding `in view of the above’, is rather unusual for a Test Report. It was neither fair nor proper on the part of the Chemical Examiner to do so and the Departmental Chemical Examiner’s Report loses much of its evidentiary value.
14. It also appears that the samples in question were drawn on 21-9-1987 in respect of some of the products only and not in respect of all the products. This is apparent from the Respondents’ cross-objections and comparison of Annexures (I) and (IV) thereof. It is not clear why the samples of other items in stocks as indicated by the Respondents in Annexure (V) were not drawn. It is also interesting to note that there are in fact, two reports of Chemical Examiners on record. The second one is dated 25-6-1990 and pertains to Test Memo No. 1/89 whereas earlier report dated 8-12-1988 pertains to Test Memo Nos. 2/87 to 9/87. It has not been clarified what was the reason for yet another test and why it includes a note again on some items such as Anabond 112 and 202. But this report also refers to “enclosed write-up and earlier printed literature” and what is “stated to be therein”. These reports emphasise subsequent polymerisation at the time of application (and this is not even disputed by the either side) but that by itself was not sufficient in view of the methods of formation of plastics specifically indicated in Chapter Note 1 of Chapter 39.
15. The opinion of Dr. P. Desikan produced by the appellants, also does not indicate the basis or the tests conducted, but it nevertheless reveals that different products are different in detailed composition; And in some of the products a second polymer Polytetraflouroethylene is also present to the extent of 5 to 10%. It however, does not indicate that in some (like Anabod 112) another polymer is also present as Polyethyleneglycol. This means that along with PMMA (reported by both the sides) the total polymer content can hardly be considered as negligible.
16. The CIPET Tests Certificate dated 15-12-1991 luckily mentions the method of analysis namely infra-red spectroscopy, but is confined to four products only and does not indicate the details of even their composition.
17. Both the reports taken together also do not cover all the items mentioned in the Show Cause Notice on one hand and include some others which are not subject matter of dispute. In fact the Chemical Examiner’s Report on one hand and these two Reports on the other hand have only some of the products in common. Not only that about some of the items mentioned in the Show Cause Notice there is no Report at all i.e. none has been produced by either side.
18. In the above circumstances all these reports are of only a limited value. The Departmental Chemical Examiner’s Report is indeed not of much help even in respect of the items covered and in the absence of any other material the department’s case remains unsubstantiated.
19. Our observations and findings are therefore, confined to the items mentioned in common in the three reports and SCN. For the remaining items of SCN which are not covered by anyone or all of these reports, the matter can only be remanded.
20. The rejection of the department’s appeal, as already announced, is thus, subject to the above clarifications, observations and findings.
21. It is ordered accordingly.
| Dated : 3-1-1995 | Sd/ (S.K. Bhatnagar) Vice President |
[Order per : G.R. Sharma, Member (T)]. - I have persused the order proposed by the ld. Member (Judicial) as also the order proposed by the Hon’ble Vice-President. I also notice that after hearing the arguments of both sides, it was held that having regard to the fact that there is no ground made out by the Revenue to interfere with the impugned order, the appeal is liable to be rejected and therefore, the Hon’ble Member (Judicial) held in the proposed order accordingly. The Hon’ble Member Vice President in Para 18 also held that, in the above circumstances all these reports are of only a limited value. The departmental Chemical Examiner’s report is indeed not of much help even in respect of items covered and in the absence of any other material, the department’s case remains unsubstantiated.
23. However, on detailed examination of the case papers it is found that there were certain items though mentioned in the show cause notice yet not covered by any or all of these reports. For these items, I entirely agree with the order proposed by the Hon’ble Vice-President that in respect of these items, the matter can only be remanded. Agreeing further, with the order proposed by the Hon’ble Vice-President that the rejection of the Department’s appeal as already announced is thus subject to the above clarifications, observations and findings.
Comments