1987 (3) TMI 245 - AT - Central Excise

Summary

Issues Involved:
1. Classification of PVC masterbatches under the Central Excise Tariff.
2. Eligibility for exemption under Notification No. 167/79.
3. Time-barred nature of the demand raised by the Department.

Issue-wise Detailed Analysis:

1. Classification of PVC Masterbatches under the Central Excise Tariff:

The primary contention was whether PVC masterbatches should be classified under item 14(1)(ii) CET, as held by the Department, or under item 15A(1)(ii), as claimed by the appellants. The appellants argued that PVC masterbatches were essentially a type of PVC compound containing various additives, including colorants, and should be classified under item 15A(1)(ii). They cited the Encyclopaedia of PVC and other technical sources to support their claim that masterbatches are used to achieve uniform color dispersion in PVC and retain the properties of PVC compounds.

The Department, however, maintained that masterbatches are used as colorants and not as resins, and thus should be classified under item 14(1)(ii) CET. The Tribunal noted that masterbatches are produced in a single stream operation where PVC is mixed with pigments to form a physical mixture without changing the chemical character of PVC. The Tribunal concluded that for an item to be considered a derivative of polyvinyl, there must be a chemical change, which was not the case here. Consequently, masterbatches could not be classified under item 15A(1)(ii) as polyvinyl derivatives.

The Tribunal further observed that masterbatches are used solely for imparting color to PVC compounds and are not known or marketed as pigments. Therefore, they could not be classified under item 14(1)(ii) either. The Tribunal held that masterbatches fall under item 68 CET, which is a residuary entry.

2. Eligibility for Exemption under Notification No. 167/79:

The appellants claimed the benefit of Notification No. 167/79, which was available for PVC compounds. However, since the Tribunal determined that PVC masterbatches are not classified under item 15A(1)(ii) but under item 68 CET, the benefit of the said notification was not applicable. The Tribunal emphasized that the classification should be based on the technical nomenclature and the chemical composition of the products.

3. Time-barred Nature of the Demand Raised by the Department:

The appellants argued that the demand raised by the Department was time-barred. The first show cause notice was issued on 7-5-1979, and a second show cause notice was issued on 29-9-1980. The appellants contended that the second show cause notice should be considered the relevant one, as it superseded the first notice. The Tribunal agreed with this contention, noting that the second show cause notice was issued in suppression of the first and that the grounds and amount of demand were changed.

The Tribunal observed that the first show cause notice was defective and not pursued further by the Department. Since no suppression of facts was alleged for invoking the extended period for the demand, the Tribunal held that the demand was time-barred when reckoned from the date of the second show cause notice.

Separate Judgments Delivered by the Judges:

The Vice President concurred with the detailed analysis provided by V.P. Gulati, emphasizing that the masterbatches should be classified under item 68 CET and that the demand was time-barred. Both judges agreed on the classification and the time-barred nature of the demand, resulting in the appeal being allowed on these terms.