Commissioner Of Customs, Calcutta vs G.C. Jain & Anr

G.C. Jain & Anr. .... Respondents

WITH

CIVIL APPEAL NO. 1757 OF 2004

JUDGMENT

Dr. MUKUNDAKAM SHARMA, J.

1. These appeals are directed against the judgment and order

dated 17.02.2002 passed by the Customs, Excise and Gold

(Control) Appellate Tribunal, Eastern Bench, Kolkata in appeal

Nos. CRV-75 and 74 of 1999, whereby the Tribunal had

allowed the appeal of the Respondents and set aside the order

passed by the Commissioner of Customs on the ground that

the Butyl Acrylate Monomer i.e. the chemical imported by the

Respondents can safely be held to be an adhesive and was

covered by the advance licences produces by the Respondents.

2. As per the facts on record the Respondents, M/s. Sanghvi

Overseas imported 14 consignments of Butyl Acrylate

Monomer (hereinafter referred to as `BAM') between April and

December, 1997 and cleared the same against advanced

licenses by availing the benefit of customs Notification Nos.

203/92 and 79/95, without payment of duty. Another

consignment of BAM was cleared by the Respondents under

bill of entry dated 06.03.1998 and thereafter one more

consignment was imported. The last two consignments were

warehoused and not cleared by the authorities.

3. In all these consignments of BAM, the Respondents declared

the product as Butyl Acrylate Monomer and claimed the

classification under heading 2916.12. The assessments were

sought by the Respondents as adhesives under the DEEC

license.

4. Enquiries were initiated by the Revenue against the

Respondents on the belief that the product imported by the

Respondents was defined organic chemical and was not an

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adhesive. The Revenue/appellant took a stand that the

advanced licences covering imports of adhesives submitted by

the Respondents for clearance of the consignments under

DEEC scheme, availing the benefit of customs notification

were not applicable in the matter of clearance of the goods in

question inasmuch as the said licences were for import of

adhesives and the product imported was not adhesive.

Accordingly, searches were conducted in the offices of the

Respondents and their statements were recorded. The

customs clearing agent was also interrogated and efforts were

made to find out as to whether the product in question was

used as a bonding agent or not. Shri R.K. Jain, in his

statement, recorded during such investigations, deposed that

the product was used as a bonding agent and on

polymerisation the same become an adhesive.

5. The Revenue also drew the samples and sent it for testing. The

Revenue also sought the opinion of the various experts as also

the persons of the trade dealing in identical items. On the

basis of the material collected during the investigation the

Revenue formed an opinion that the BAM was not adhesive

but was one of the raw materials for adhesive formations. As

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such Revenue was of the opinion that the exemption had been

wrongly claimed by the Respondents. In addition, the Revenue

also disputed the value of the goods in question.

6. Accordingly, on the above basis the Respondents were served

with a show cause notice proposing confirmation of demand of

duty, as also confiscation of the imported product and

imposition of personal penalties upon the various persons.

7. During the adjudication proceedings the Respondents took a

specific stand that the BAM in question is a liquid which

becomes adhesive on polymerisation upon coming into contact

with light and heat. It was argued on behalf of the

Respondents that to prevent spontaneous polymerisation BAM

is normally stabilised by some inhibitor and that since BAM

polymerises readily without much requirement of processing

and as after polymerisation the same shows adhesive

properties it should be treated as adhesive only. They also

placed reliance on the manufacturer's printed literature and

contended that it is clear that BAM is used as an adhesive.

The Respondents clarified that BAM does not possess any

adhesive properties in the Monomer form, but the same is an

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adhesive in the polymer form, which process is undertaken

naturally when the Monomer form comes in contact with heat

and light. The Respondents pleaded that it is not feasible and

practicable to import the item in polymer form as after

polymerisation, the product immediately becomes an adhesive

which does not has much shelf-life. The Respondents also

pleaded their case on the point of time-bar by submitting that

they had declared the goods in the bill of entry correctly and

the clearances were given by the customs authorities after

drawing samples and satisfying themselves that the product

was an adhesive and squarely covered by the advance

licences. Their advance licences were accordingly debited by

the customs authorities. As such they submitted that the

longer period of limitation could not be invoked against them

inasmuch as there was no mis-declaration on the part of the

Respondents.

8. The said show cause notice culminated into the impugned

order passed by the Commissioner, whereby, it was held that

BAM was not adhesive and the benefit of the advance licences

and the notification in question was not available to the

importer. Accordingly, the demand of duty was confirmed by

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invoking the extended and longer period of limitation in

respect of 14 bills of entries on the ground that the

Respondents had mis-declared the product in question.

9. It was also held by the Commissioner that the goods are liable

to confiscation, but inasmuch as the same were not available,

no redemption fine had been imposed by him. Penalty of

equivalent amount was imposed upon M/s. Sanghvi Overseas.

The goods covered by the bills of entry dated 08.05.1997 and

19.03.1998 which were under seizure by the Revenue were

confiscated with an option to the Respondents to redeem the

same on payment of redemption fine of Rs. 6,00,000/-

(Rupees six lakhs). Further penalty of Rs. 3,00,000/- (Rupees

three lakhs) was imposed upon M/s. Sanghvi Overseas in

relation to the importation of the goods under the above two

bills of entries. Penalty of Rs. 65,00,000/- (Rupees sixty-five

lakhs) was imposed on the second Respondent

Shri R.K. Jain on the findings that he was the main person

behind the imports which led to evasion of huge amount of

customs duty and was an adviser to the importers. It was also

observed that the evidence on record showed his active and

financial involvement in the matter.

6 10.Aggrieved by the abovementioned order, the Respondents filed

an appeal before the Central Excise Gold (Appellate) Tribunal,

Kolkata submitting that the BAM in question can be classified

as an adhesive and the Respondents had rightly claimed

clearance of the goods on the basis of the advanced licences

which allowed adhesive to be cleared duty free. It was pointed

out that the Revenue also drew samples before clearance of

the goods and it is only thereafter that the clearances were

permitted by them. The Tribunal by its order dated

17.02.2003 allowed the appeals of the Respondents stating

that BAM can be rightly classified as an adhesive and

therefore, the Respondents had rightfully claimed the

clearance of goods on the basis of advanced licences. Hence,

the present Special Leave Petitions have been preferred by the

Appellant.

11. The learned counsel appearing for the Appellant submitted

before us that the Tribunal made a fundamental error in

ignoring the fact that the BAM was required to undergo a

further industrial process to become an adhesive, and thus

the imported item under no circumstances could be classified

as an adhesive. The contention is that the imported chemical

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is a Monomer organic chemical, which is one of the raw

materials used in the manufacture of adhesives, the opinion

which has been substantiated by various experts from the

field of Industry. The appellant has alleged that the imported

material i.e. BAM (inhibited), is a colourless liquid, lighter

than water, monomer organic chemical having wide use in

paint, textile and leather industry as raw material and can in

no way be compared with other ployurathene adhesives of well

known brands. It was further contended that in the product

literature submitted before the Tribunal, the portion specifying

that BAM was used as raw material for Adhesive Industry was

erased by the Respondent Importers. He also refuted the

Respondents' claim that BAM in the Monomer form on coming

in mere contact with heat and light undergoes self-

polymerization and au contraire it was submitted that it

requires a specific industrial process.

12.The next contention was that the Tribunal also failed to take

into account that the difference in value between acrylates

and products obtained after polymerization is one and a half

times to three times which means polymerization involves

complicated technical and industrial processes. It has been

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contended that various experts in the fields from industry as

well as renowned institutions have categorically opined that

BAM is not an adhesive. It was also argued that taking into

account the product literature of M/s LG Chemicals Ltd, a

manufacturer of the imported product, which was part of the

appeal petition, revealed that BAM was a raw material for

adhesive. It was claimed that BAM in inhibited state is quite

different from product obtained after emulsion polymerisation

through industrial process. Thus the form in which the goods

were imported could not be termed as an adhesive.

13. The learned counsel for the Respondents refuted all the

contentions raised by the Appellant and submitted that `BAM'

is used as adhesive in leather industry and that during

transportation and storage it is kept in a manner which would

restrict it from self polymerisation. It was thus submitted that

when the chemical BAM is packed, an inhibitor is used to

keep the goods in storage condition and that as and when the

container is opened and the chemical comes into contact with

air, light and heat at room temperature, the BAM starts self

polymerization by itself and suo moto and gets the properties

of adhesive. He also pointed out the fact that there is no

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dispute with regard to the fact that the BAM when

polymerised becomes adhesive.

14.Dispute in short is whether BAM can be said to be an

adhesive for the purpose of allowing the duty free clearances

against advance license issued under the DEEC scheme.

Goods in packed condition are of no use. It can only be used

when it is opened and put to use. We are, therefore, to

consider as to whether for all practical purposes BAM is an

adhesive. It is admitted in the Show Cause that end-use of

BAM is adhesive in leather industry. However, a distinction is

sought to be made in the present case that until monomer

becomes polymer, it is not adhesive. It is alleged that in

Monomer form, BAM is not adhesive. By putting such an

interpretation, an attempt has been made by the appellant to

divest BAM from the coverage of adhesive. The issue is

whether the requirement of opening the container, allowing

BAM to contact with air, light and heat and even putting a

catalyst could detract from its being an adhesive.

15.Admittedly, the expression "adhesive" is not defined in the

Act. It is now well settled that the words and expressions,

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unless defined in the statute have to be construed in the

sense in which persons dealing with them understand i.e. as

per trade and understanding and usage.

16. The word "adhesive" was mentioned in the ex-Bond B/E

inasmuch as the appellant sought release of goods under

advance licences allowing adhesive as duty free import. In any

event goods were chemically tested in the Customs House and

goods were cleared after satisfaction of the proper officer that

BAM is an adhesive. The department was very much

conscious that goods were claimed as an adhesive and they

were so satisfied after examination of the goods and

deliberation made in this regard. Therefore, the 14

consignments referred to in para 4 of the Show Cause Notice

were cleared on the basis of advance licence under Customs

Notification No. 203/92-Cus. or 79/95-Cus. Customs

authorities cleared the goods with consciousness and knowing

fully well that BAM is an adhesive. There is no question of

suppression of any fact before customs authorities because no

fact was concealed. Each of the consignments were tested and

chemically examined.

11 17. Therefore, the counsel appearing for the Respondents

submitted before us that the allegation made by the customs

authorities in the Show Cause Notice cannot be allowed to

stand on two counts. Firstly, the goods imported were very

much covered by the licence and secondly, assuming, though

denying that the goods were not covered under the licence

even then customs authorities cannot change their stand

inasmuch as after debiting of the licence, the position

becomes irreversible. Licence cannot be restored to its original

position. The valid order of clearances made under Section 47

of the Customs Act cannot be disturbed because of the

irreversible situation. Acceptance of advance licences for

clearance of BAM as adhesive stands absolute and it cannot

be repudiated as licences have been debited by customs

authorities. Assessment orders already made cannot be

disturbed in the facts and circumstances of the case. These

are important factors and areas which are required to be kept

in mind while deciding the issue falling for our consideration.

18.So the undisputed picture which emerges is that the imported

chemical is in its Monomer form and becomes an adhesive on

self-polymerisation. The Respondents' case is that the self-

12 polymerisation, which is nothing but increase in molecular

weight takes place on the chemical coming out of the

container. The question is that whether the solution in its

Monomer form can be considered as an adhesive or not.

According to the Respondents it is not practical and feasible to

import the product in its polymerised form and the same is

always stored in its Monomer form. In fact inhibitors are

added to avoid self-polymerisation of the product during

storage. It is the case of both the sides that the Monomer form

becomes polymer form of the chemical suited to be used as

adhesives, when it comes in contact with nature. It is only

that in some cases where bulk polymerisation is required,

extra heat i.e. more than the heat provided by the nature is

required to increase the process of polymerisation, as has

been opined in the opinions of experts brought on record by

the Revenue. As such the Tribunal was of the view that the

Butyl Acrylate Monomer, which undergoes self-polymerisation

on coming in contact with the atmosphere, can be safely held

to be an adhesive and covered by the various advance licences

in question.

13 19.It is also noted that in the technical literature given by the

manufacturer, use of the product has been shown as

adhesives. Even though the Revenue has disputed that the

said literature produced by the Respondents is not correct and

is manipulated inasmuch as the same is different than the

manufacturer of identical product in India, however, no

concrete evidence to that effect has been led by the Revenue.

The Tribunal has given a finding that the literature produced

by the Respondents is of the Korean manufacturer and is

given in English language as well as Korean language and

there is no reason to doubt the veracity of the said literature.

Inasmuch, as the manufacturers themselves have shown the

use of Butyl Acrylate as adhesive as well as textile binders, we

see no reasons to take a different view.

20.Under the DEEC scheme, the word `adhesives' has not been

defined. Under exemption notification, the word `materials'

has been defined as under: -

"(a) raw materials, components, intermediates,

consumables, computer software and parts required

for manufacture of export products"

14 Therefore 'materials' permissible, are not only raw materials but

are also intermediates for such raw materials, which are required

for manufacture of export products specified in the licences,

which in this cases are 'Leather Industry' products. The term

used as 'material' required for manufacture of export products

would encompass such entities also which are not only directly

used or usable as such in the manufacturing processes but also

which could be used with same processing.

21.From the Encyclopaedia of Chemical Technology 4th Edition

published by John Wiley and Sons, it is found for Acrylate

Esters as in the present case it prescribes :-

"Emulsion Polymerization: Emulsion

polymerization is the most important industrial

method for the preparation of acrylic polymers.

The principal markets for aqueous dispersion

polymers made by emulsion polymerization of

acrylic esters are the print, paper, adhesives,

textile, floor polish, and leather industries, where

they are used principally as coatings or binders.

Copolymers of either ethyl acrylate or butyl

acrylate with methyl methacrylate are most

common. (Vol. 1, page 328)"

From this authoritative Book, it is apparent and can be

concluded, that BAM, which is an Acrylate Ester, can be

polymerised by using water to prepare the 'aqueous emulsion

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dispersion' which is used in the 'Leather Industry' as a 'Coating

or Binder' to be an Adhesive. The aqueous preparation of this

emulsion would not require any elaborate use of technology.

There is no reason why BAM which on aqueous dispersion, even

if classified under 2916.12, can be used as a binder in 'Leather

Industry' as per this authoritative Encyclopedia on Technology,

should be denied the benefit of considering the same as

adhesives.

22. The appellant has placed reliance on the judgment passed by

the CEGAT, Mumbai in the matter of Pioneer Embroideries

Ltd v. commissioner of Customs, Mumbai 2004 (178) E.L.T

933 (tri.). We have gone through the said judgment, however,

the same is not applicable to the present case both on facts

and law.

23.When it is found that the licences produced entitle the

Respondent to clear the ex-bond goods free of duty, there are

no reasons for them to have mis-declared the values since the

goods are duty free. There appears no incentive to do so. There

is no allegation that the licences produced will not cover the

quantity of values, even after the alleged loading of values as

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declared. Therefore, this court upholds the decision of the

Tribunal.

24.It is also observed that the demand is hit by the bar of

limitation inasmuch as the appellant had cleared the goods in

question after declaring the same in the bills of entries and

giving correct classification of the same. Availing of benefit of a

notification, which the Revenue subsequently formed an

opinion was not available, cannot lead to the charge of mis-

declaration or mis-statement, etc. and even if an importer has

wrongly claimed his benefit of the exemption, it is for the

department to find out the correct legal position and to allow

or disallow the same. In the instant case the appellant had

declared the goods as Butyl Acrylate Monomer with correct

classification of the same and the word 'adhesive' was added

in the ex-bond bill as per the appellant's understanding that

BAM is an adhesive. In these circumstances it was for the

Revenue to check whether BAM was covered by the expression

adhesive or not and if even after drawing of samples they have

allowed the clearances to be effective as an adhesives

appellant cannot be held responsible for the same and

subsequently, if the Revenue has changed their opinion as

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regards the adhesive character of BAM, extended period

cannot be invoked against them. As such we are of the view

that the demand of duty in respect of 14 consignments is also

barred by limitation.

25.Therefore, the present appeals are dismissed but without any

orders as to costs.

............................................J

[Dr. Mukundakam Sharma ]

............................................J

[ Anil R. Dave ]

New Delhi,

July 4, 2011.

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