2000 (12) TMI 411 - AT - Central Excise

Issues Involved:
1. Classification of the product 'Penetrator - 4893'
2. Eligibility for exemption under Notification No. 101/66-C.E.
3. Correct classification under Central Excise Tariff Heading

Issue-wise Detailed Analysis:

1. Classification of the Product 'Penetrator - 4893':

The primary issue in this case is the classification of the product named 'Penetrator - 4893' (referred to as 'Penetrator'). M/s. Quinn India Ltd. (the respondents) sought classification under sub-heading No. 3402.90, which covers "organic surface-active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations whether or not containing soap." The Revenue, however, proposed that the correct classification was under Heading No. 38.09, which includes "finishing agents, dye carriers to accelerate the dyeing or fixing of dye-stuffs and other products and preparations, of a kind used in the textile, paper, leather or like industries, not elsewhere specified or included."

2. Eligibility for Exemption under Notification No. 101/66-C.E.:

M/s. Quinn claimed the benefit of exemption under Notification No. 101/66-C.E., dated 17-6-1966 (as amended), which applies to emulsifiers, wetting out agents, softeners, and other like preparations intended for use in any industrial process. The essential condition for this exemption is that the final products should be classifiable under Chapter 34 of the Tariff. The respondents argued that since the Penetrator was made from duty-paid surface active agents, it should be eligible for this exemption.

3. Correct Classification under Central Excise Tariff Heading:

The Revenue contended that the Penetrator should be classified under Heading No. 38.09 of the Central Excise Tariff, as it acts as a dye carrier to accelerate the dyeing of leather. The product was manufactured by dissolving suitable wetting agents in a mixture of organic solvents and demineralised water under mechanical agitation. The main raw materials used were Butyl Glycol, Isopropyl Alcohol, Hyoxyd AAO, and Hyoxyd AAN. The Revenue argued that the Penetrator's primary function was to aid the penetration of dye solutions, anchoring the dye particles to the leather surface, rather than acting as a surface-active preparation.

Detailed Analysis:

Classification under Heading No. 34.02:

The Tribunal noted that Heading No. 34.02 covers products that reduce the surface tension of water, known as organic surface-active agents. The Penetrator, however, was not merely a surface-active agent but a product manufactured using surface-active agents as raw materials. The Tribunal emphasized that the Tariff description is specific and cannot be extended to include products that are not commonly understood as organic surface-active agents or surface-active preparations.

Characteristics and Function of Penetrator:

The Penetrator was described as aiding the penetration of dye solutions, ensuring that dyes are well anchored to the leather surface. This characteristic aligns more with the function of dye carriers to accelerate dyeing rather than merely reducing surface tension. The Tribunal referred to the Concise Chemical and Technical Dictionary, which defines a penetrant as a substance that aids or speeds penetration of a fluid.

Manufacturing Process and Raw Materials:

The manufacturing process involved dissolving wetting agents in a mixture of organic solvents and demineralised water under mechanical agitation. The Tribunal noted that the final product, Penetrator, could not be considered a surface-active agent after this process. It was a different product with distinct characteristics and uses, primarily aiding in the dyeing process.

Exemption under Notification No. 101/66-C.E.:

The Tribunal concluded that the exemption under Notification No. 101/66-C.E. was not applicable, as the Penetrator was not classifiable under Chapter 34 of the Tariff. The notification applies only when the final product remains classifiable under Chapter 34, which was not the case for the Penetrator.

Classification under Heading No. 38.09:

The Tribunal agreed with the Revenue's contention that the Penetrator was more accurately classifiable under Heading No. 38.09, which includes dye carriers and other preparations used in the leather industry. The product's primary function was to act as a dye carrier, aiding the penetration and anchoring of dye particles in leather processing.

Final Decision:

The Tribunal set aside the orders of the lower authorities, concluding that the Penetrator was correctly classifiable under sub-heading No. 3809.00 of the Central Excise Tariff. The appeal filed by the Revenue was allowed, and the cross-objections filed by the respondents were dismissed.

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