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Greenply Industries Ltd. (Unit-I) v. Commissioner Of Customs & Central Excise .
Concise Structured Summary of the Tribunal Opinion
Factual and Procedural Background
The appeal arises from demands raised by the Revenue for duty on intermediate products described as Urea Formaldehyde Resin (UF), Phenol Formaldehyde Resin (PFR) and Melamine Formaldehyde Resin (MFR). The appellants (manufacturers of high pressure and compact laminates located in Uttarakhand) were availing the benefit of area-based exemption Notification No. 50/2003-CE dated 10.6.2003. That notification contained a negative list including goods falling under heading Nos. 3909 to 3915 of the Central Excise Tariff Act. Revenue suspected misuse of the area-based exemption because the appellants were also manufacturing the resins referred to above, which Revenue considered classifiable under Chapter heading 3909 and therefore liable to duty.
Central Excise Intelligence conducted an investigation and issued show cause notices covering the period April 2007 to February 2013. The adjudicating Commissioner confirmed the duty demand after allowing admissible input and input service credit. The appellants appealed to the Tribunal. When the matter was called, only a proxy counsel appeared for one appellant and a short adjournment was sought; the Tribunal observed that the present appeal was identical to two other appeals (filed by M/s Greenply Industries Ltd. and M/s Archidply Industries Ltd.) and ordered that the appeals be attached and disposed of by a common order.
Legal Issues Presented
- Whether the products described as Melamine Formaldehyde Resin (MFR) and Phenol Formaldehyde Resin (PFR) are classifiable as "prepared glues and other prepared adhesives" under CETH/Chapter 35 (specifically heading 3506) rather than under Chapter 39 (e.g., heading 3909), and consequently whether they are eligible for the area-based exemption Notification No. 50/2003-CE.
- Whether intermediate products that emerge in the manufacturing process of particle boards/laminates (i.e., resins/adhesives prepared and transferred directly for use in bonding) are excisable/liable to duty or not.
- Whether the impugned orders confirming duty demands are sustainable in law, in view of the factual matrix and relevant classification notes (e.g., Chapter Note 6 and HSN Explanatory Notes).
Arguments of the Parties
Appellants' Arguments
- The PFR/MFR resins manufactured by the appellants are classifiable under heading 3506 (Chapter 35) as prepared adhesives/glues and thus are eligible for the area-based exemption notification relied upon by the appellants.
- The HSN Explanatory Notes for Chapter 39 contain an exclusion which expressly excludes from Chapter 39 preparations specifically formulated for use as adhesives; therefore, such preparations fall under Chapter 35.
- Cross-examination of officials whose test reports were relied upon shows that the preparations are capable of, and usually used as, adhesives and glues in the laminates industry.
- Several earlier decisions in favour of manufacturers in similar circumstances exist: Balaji Action Buildwell v. CCE (2016 (332) ELT 367 (Tri-Del.)), Shirdi Industries Ltd. v. CCE (2017-TIOL-2338-CESTAT-All), and this Tribunal's order in Greenlam Industries Ltd. (Final Order No. A/62026/2017-EX[DB] dated 24.07.2017). The appellants relied on these precedents.
- Administrative directions and clarifications support the classification as adhesives: Board Circular No. 47/90 dated 31.8.1990, Circular No. 93/36/87-CX.3 dated 11.8.1987, and an Office Memorandum dated 1.6.2012 from the Ministry of Chemicals and Fertilizers clarifying that prepared adhesives/glues based on PF, UF and MF fall under Chapter 3506.
- The appellants contended that MF/PF resins are not marketable as primary resins (and hence not excisable as such) because they are prepared specifically for use as adhesive in their own manufacturing process.
Revenue's Contentions (as reflected in the record)
- Revenue entertained a doubt of misuse of the area-based exemption on the basis that the appellants were manufacturing resins (MFR, PFR) that appear classifiable under Chapter heading 3909 (Chapter 39) and therefore outside the negative list exemption and liable to duty.
- Revenue relied on test reports (for example, from IPIRTI) and other documentary material. In an extracted precedent (Balaji), Revenue had asserted that the addition of hardening agents does not change the basic property of the product being a resin.
- Revenue relied on purchases and purchase orders (e.g., mention of "MF Resin Reactor") as indicative of the appellants manufacturing resin; the adjudicating authority confirmed the demand after allowing admissible credits.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Balaji Action Buildwell v. CCE, Meerut-II, 2016 (332) ELT 367 (Tri-Del.) | Established that products prepared for use as adhesives/glues (even if derived from resins) fall under Chapter 35 (heading 3506) and are excluded from Chapter 39 by the HSN exclusion note and Chapter Note 6; examined process, use, and integrity of test reports in classification. | The Tribunal followed the Balaji decision's analysis (scope of CETH 3909 read with Chapter Note 6 and HSN explanations), accepting that the product as prepared glue should be classified under Chapter 35 and that denial of exemption was unsustainable. The present appeals were disposed of following that precedent. |
| Shirdi Industries Ltd. v. CCE, 2017-TIOL-2338-CESTAT-All | Applied and followed the reasoning that prepared adhesives based on PF/UF/MF should be classified under Chapter 35 and not treated as primary resins under Chapter 39. | The Tribunal noted that the Balaji decision was followed in Shirdi and treated Shirdi as persuasive support for allowing classification as prepared glue; Shirdi was cited as a subsequent follow-up precedent supporting the appellant's position. |
| Greenlam Industries Ltd., Final Order No. A/62026/2017-EX[DB] dated 24.07.2017 (this Tribunal) | Applied similar reasoning to classify adhesives/prepared glues under Chapter 35 and to hold that intermediate products prepared for bonding during manufacture are not dutiable as primary resins under Chapter 39. | The Tribunal noted that Greenlam had been relied upon by the appellants and treated Greenlam as an applicable precedent; the present Tribunal followed the approach in Greenlam as part of disposing the appeals. |
Court's Reasoning and Analysis
The Tribunal's reasoning proceeded by (i) recognising that the present appeal raises issues identical to other appeals and hence consolidating them for common disposal, and (ii) applying the analysis and conclusions of earlier Tribunal decisions (notably Balaji, and as followed in Shirdi and Greenlam).
Key strands of the analysis (as adopted from Balaji and followed here) include:
- Interpretation of tariff headings: On examining the scope of CETH heading 3909 read with Chapter Note 6 and the HSN Explanatory Notes, the Tribunal accepted that where the product is not in a primary resin form (i.e., requiring curing etc.) but is a preparation specifically formulated for use as an adhesive, it should not be classified under Chapter 39.
- Effect of exclusion note and HSN explanation: The exclusion in HSN and the relevant chapter note support classification of such prepared adhesives under Chapter 35 (heading 3506), which covers "Prepared glues and other prepared adhesives". The Tribunal treated this textual and explanatory material as significant for classification.
- Factual/process-centric inquiry: The Tribunal emphasised the importance of examining the actual manufacturing processes and the nature of the emerging product. In Balaji, factual findings showed that the product emerged from reactors/kettles and was transferred directly to a glue kitchen for immediate use in bonding—factors pointing towards classification as prepared glue.
- Evidence and reliability of tests: The Tribunal (through the Balaji analysis) accepted appellants' criticisms of the test reports relied upon by Revenue — late issuance of reports, non-adherence to relevant IS methodologies, omission of relevant parameters (e.g., pH), and denial of adequate opportunity for re-test or cross-examination — and treated these criticisms as undermining the probative value of those reports.
- Documentary inferences: The Tribunal found that reliance by Revenue on purchase orders (naming equipment as "MF Resin Reactor") was weak where supply invoices and other documentary records described the items differently; the court held Revenue could not draw conclusive adverse inferences solely from purchase order descriptions when supply invoices indicated otherwise.
- Requirement for granular analysis by original authority: The Tribunal observed that the original adjudicating authority had not undertaken the necessary comparison of processes and chemical nature of goods nor provided findings on comparability; absence of such analysis made the denial of exemption unsustainable.
On the basis of the above (i.e., the combined textual interpretation of tariff notes and HSN explanations, the factual matrix showing preparation and direct use as glues, and the weaknesses in Revenue's evidentiary reliance), the Tribunal concluded that the impugned orders confirming duty could not be sustained.
Holding and Implications
HOLDING: The Tribunal held that the impugned orders confirming duty on the intermediate products (MFR/PFR/UF resins as prepared adhesives) are not sustainable in law and accordingly set aside those orders. The appeals are allowed with consequential relief, if any.
Implications:
- Direct effect on the parties: The appellants succeed in their appeals; the duty demands under challenge have been set aside and the appellants are entitled to consequential relief as may follow from the setting aside of the impugned orders.
- Reliance on precedent: The decision follows earlier Tribunal authorities (Balaji, Shirdi, Greenlam) and applies the same classification reasoning; the opinion does not purport to create a novel principle but applies and follows prior Tribunal jurisprudence and interpretative material (Chapter Note 6 and HSN Explanatory Notes).
- Broader precedent: The opinion itself applies existing Tribunal precedents; it does not announce a new legal test beyond those earlier decisions (the Tribunal explicitly follows the cited precedents). If any broader implications are to be inferred beyond the direct relief to the appellants, such implications are not discussed in detail in the provided opinion.
This summary is derived exclusively from the text of the provided Tribunal opinion. No additional facts or interpretations beyond that text have been introduced.
Ashok Jindal, Member (Judicial):— When the matter was called, a proxy counsel appeared on behalf of M/s Rama Panels Pvt. Ltd. and prayed for short adjournment. In the matter the main counsel is not available. After appreciating the facts of the case, we find that the case is identical and similar with two appeals filed by M/s Greenply Industries Ltd. and M/s Archidply Industries Ltd. Thereafter, we attached the appeal along with two appeals mentioned herein above, as the issue is identical in all the appeals.
2. The appellants are in appeal against the impugned order, demanding duty on intermediate products immerges namely Urea Formaldehyde Resin, Phenol Formaldehyde Resin and Melamine Formaldehyde Resin. The facts of the case in all the matters are identical, therefore, all the appeals are taken up for disposal by a common order.
3. The facts in brief are as under:—
“The brief facts of the case are that the appellants are manufacturers of high pressure laminates and compact laminates located in the state of Uttrakhand and are availing the benefit of area based exemption Notification No. 50/2003-CE dated 10.6.2003 In the said notification, the goods falling under heading No. 3909 to 3915 of Central Excise Tariff Act fall under negative list and are not eligible for the said notification. On the basis of investigation, the Revenue entertained a doubt about misuse of the said area based exemption by the appellants in as much as they are also manufacturing various resins namely, Melamine Formaldehyde Resin (MFR) and Phenolic Formaldehyde Resin (PFR), which are further used in the manufacture of various Laminated Boards. The said resins appeared to be classifiable under Chapter heading 3909 specified in the negative list and hence liable to duty. An investigation was launched by the Central Excise Intelligence and show cause notices were issued covering the period from April, 2007 to February, 2013. The matter was adjudicated and the Commissioner confirmed the demand after allowing the benefit of admissible credit on the inputs and input service. Aggrieved from the same, the appellants have filed this appeal”.
4. The learned Counsel for the appellants submits, as under:—
“2. Learned Advocate for the appellants submits that PFR/MFR resins are classifiable under heading 3506 and are eligible for area based exemption notification. It was argued that they had obtained resins by mixing melamine/phenol, formaldehyde and other chemicals for use as adhesive in the manufacture of laminates. He referred to the exclusion note contained in HSN Explanatory Notes in Chapter 39, which clearly excludes from Chapter 39 such preparation specifically formulated for use as adhesives and contended that once a preparation is for use as adhesives, the same will get classified under heading 3506 and not under Chapter 39. He also argued that cross examination of Dr. Nath, Joint Director of IPIRTI whose test reports have been relied upon in the show cause notice and of another chemical examiner Shri Purushotam Kumar Sharma has brought out that these preparations are capable of being used/usually used as adhesives and glues in the laminates industry. He pointed out that several demands were raised on the basis of same allegation and same evidences against various manufacturers. Out of these demands, this Tribunal in the case of Balaji Action Buildwell v. CCE, Meerut-II, 2016 (332) ELT 367 (Tri-Del.) has allowed the appeal of the assessee. He also relied upon the case of Shirdi Industries Ltd. v. CCE, 2017-TIOL-2338-CESTAT-All and Board Circular No. 47/90 dated 31.8.1990, in which the classification of ploy vinyl Acetate was decided, and Circular No. 93/36/87-CX. 3 dated 11.8.1987 He also argued that MF/PF resins are not marketable and hence not excisable. Ld. Advocate further relied on the Office Memorandum dated 1.6.2012 issued by the Ministry of Chemicals and Fertilizers clarifying that prepared adhesives/glues based on PF, UF and MF fall under Chapter 3506”.
He also relies on the precedent decision of this Tribunal in the case of Greenlam Industries Ltd. vide Final Order No. A/62026/2017-EX[DB] dated 24.07.2017
5. Heard the parties and considering the facts.
6. Considering the facts that the identical issues come up before this Tribunal in the case of Balaji Action Buildwell (supra) wherein this Tribunal has observed as under:—
“14. On examining scope of CETH 3909 read with Chapter Note 6 and HSN explanation the product in dispute being not in Primary Form of such nature mentioned therein (requiring curing, etc.) is not to be classified under such heading. The exclusion note made in HSN adds support to the same. The Revenue's assertion that addition of hardening agent does not take away the basic property of the product being a resin is not sustainable in the present dispute. Addition of NH4CL as hardening agent in the reactor/kettle before the resultant product is sent to glue kitchen for use in binding purpose has relevance to decide the issue. Prepared glue as it emerges is put into use in the binding section along with other inputs like wax, NH4CL and water for final binding. Chapter 35 covers glues. CETH covers “Prepared glues and other prepared adhesives, not elsewhere specified or included. CETH Item No. 3506 99 91 covers synthetic glue with phenol urea or cresol (with formaldehyde) as the main component - Prepared glues and other prepared adhesives.
15. Based on the above criteria for classification, we find that the appellant had made out strong case for classifying the product “as prepared glue”. This is based on the facts like, the processes adopted and emerging product from the reactors/kettles, which is sent directly to glue kitchen for direct use in bonding of final product along with inputs.
16. The reliance placed by the Revenue on the test reports has been strongly contested by the appellants on various grounds. The test report was given to them after almost 3 months which deprived the chance for them to go for re-test. Further, the methodology followed by testing is not as per IS Standards relevant for synthetic resin additives. The test report of IPIRTI did not mention the pH value which is very relevant to arrive at the correct report. The appellant produced copies of different test reports done in 2011 as well as 2012 by the same Institute where pH values were indicated whereas in respect of their samples, no pH value has been indicated. They have also contested the findings in the test as they were not allowed cross-examination by the Original Authority. The denial was on the reason that the test report is a document and it is not required to be accepted only after cross-examination. The appellant's plea, that in such circumstances, the reliance placed on the test report is not legally tenable, merits consideration. We are in agreement on such plea on the reasons cited above.
17. Regarding purchase of resin reactor from Alex Engineering Works, it is seen that Revenue placed reliance on purchase order which mentioned the product as “MF Resin Reactor”. The appellants have contended that there are various types of equipments and machineries available for use in their type of industry. The suppliers of machinery made visits and had detailed discussions, thereafter the decision was to supply equipments of description appearing in their invoices of March, April, August and September, 2009. The details of description in these invoices were also relied upon in the show cause notice and it is apparent that the description of equipments supplied by Alex Engineering Works were different in name and nomenclature from the purchase order. We find that the support cannot be drawn by the Revenue on the basis of description in the purchase order when the supply invoices indicate the nature of goods supplied.
18. We find that the appellant have been consistently taking the plea that they are engaged in the manufacture of Prepared Glue containing Ammonium Cloride/Formic Acid, etc., in the Kettle installed in Shed-B and the glue prepared is transferred to other Sheds-C, D and E where it is used for bonding of their final products. Preparation of glue in Shed-B is a one stage process. They have also contended that the show cause notice itself admits that addition of hardener to the resin reduces the shelf life and brings into existence the glue with reduced shelf life. It is also admitted that use of hardener brings the quick bonding properties to serve as a glue.
19. As stated earlier before comparing the impugned product with the product of other manufacturers and also before applying case laws to the present facts, it is necessary that Original Authority should have examined the processes undertaken and the comparability of the goods in chemical nature. No such analysis or finding to that effect is available in the impugned order. The appellant have categorically submitted that the impugned goods are prepared for specific need and requirement of bonding of wood fibers/wood particles/coating of papers during the manufacture of final product like MDF Board, Particle Board, etc. The fact is that the preparation of impugned goods is in one stage process under controlled temperature and pH and addition of Ammonium Gloride Formic Acid in the processes, the emerging product being transferred to glue kitchen area for final use in bonding. We find that the classification of the product as primary resin is not sustainable. This is supported by Note-6 of Chapter 39 and HSN Explanation of such note. As such denial of exemption is not sustainable. Considering the above discussion and finding, we allow the appeal by setting aside the impugned order with consequential relief”.
And hold that on the intermediate products emerges in manufacturing process of particle boards, the appellant is not required to pay duty. The said order has been followed by this Tribunal in the case of Shirdi Industries Ltd. (supra) and Greenlam Industries Ltd. (supra).
7. Therefore, following the precedent decisions of this Tribunal, we hold that the impugned orders are not sustainable in the eyes of law and the same are set aside.
8. In result, the appeals are allowed with consequential relief, if any.
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