COMMISSIONER OF CUSTOMS, CALCUTTA Vs G.C. JAIN
Bench: MUKUNDAKAM SHARMA,ANIL R. DAVE, , ,
Case number: C.A. No.-006334-006335 / 2003
Diary number: 12245 / 2003
Advocates: ANIL KATIYAR Vs
PRATIBHA JAIN
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REPORTABLE IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 6334-6335 Of 2003
Commissioner of Customs, Calcutta …. Appellant
Versus
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.
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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.
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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-
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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.
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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”
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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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