2018 (9) TMI 1713 - AT - Central Excise

Tribunal classifies PET flakes as 'parings' not primary forms, denies exemption

Commissioner of Central Excise, Trichy Versus Sree Ranga Polymers

The Tribunal upheld the classification of PET flakes under CETH 39159042 as 'parings' instead of primary forms of plastic, denying eligibility for ... Classification of goods - Pet Flakes - whether classified under CETH 3907.60 or CETH 39159042 of the Central Excise Tariff Act, 1985? - eligibility for exemption under Sl.No.78 of Notification No.4/2006-CE dt. 1.3.2006. Held that:- The important requirement for goods to be classified in Heading 39.07 is that they should be ‘primary forms” of plastics. What are primary forms is amplified in Chapter Note 6the important requirement for goods to be classified in Heading 39.07 is that they should be ‘primary forms” of plastics. What are primary forms is amplified in Chapter Note 6 - It is thus evident that primary forms for the purpose of Chapter 39 are constituent goods which are ‘primary” in form and meant to be converted by further polymerisation or chemical synthesis into other materials of Headings 3901 to 3914.It is thus evident that primary forms for the purpose of Chapter 39 are constituent goods which are ‘primary” in form and meant to be converted by further polymerisation or chemical synthesis into other materials of Headings 3901 to 3914. Discernably, the appellants are not doing any chemical synthesis or polymerization processes on the PET bottles used by them as raw material. On the other hand, the process involves only putting the used PET bottles into a crusher which makes them small pieces and subjecting the resultant goods to washing and packing after which they are cleared from the factory. Though the appellant has argued that they are manufacturing ‘flakes”, but, what is being manufactured is only ‘parings” of PET bottles. True, these ‘parings” eventually get converted into new PET bottles, however that will not make the final product of the appellant eligible for classification as ‘primary form of plastic”. The ‘flakes” which are included as ‘primary form” in Note 6 of Chapter 39 will surely have to be a ‘primary grade material”. This is certainly not the case here. Appeal allowed - decided in favor of Revenue. Issues Involved:1. Classification of PET flakes under the Central Excise Tariff Act, 1985.2. Eligibility for exemption under Notification No. 4/2006-CE (Entry No. 78).3. Interpretation of Chapter Notes 3, 6, and 7 of Chapter 39 of the CETA.Issue-wise Detailed Analysis:1. Classification of PET flakes under the Central Excise Tariff Act, 1985:The primary issue was whether the PET flakes produced by the assessee should be classified under CETH 3907.60 as 'Polyethylene terephthalate' or under CETH 39159042 as 'Waste, parings and scrap of plastics.' The original authority classified the PET flakes under CETH 39159042, while the Commissioner (Appeals) classified them under CETH 3907.60. The Tribunal found that the PET flakes were not 'primary forms' of plastic as defined in Chapter Note 6 of Chapter 39, which includes forms like liquids, pastes, blocks, lumps, powders, granules, and flakes that are primary grade materials. The Tribunal concluded that the process used by the assessee did not involve chemical synthesis or polymerization but merely crushing and washing PET bottles, thus classifying the PET flakes under CETH 39159042 as 'parings.'2. Eligibility for exemption under Notification No. 4/2006-CE (Entry No. 78):The Tribunal examined whether the PET flakes were eligible for exemption under Sl.No.78 of Notification No.4/2006-CE, which applies to plastic materials reprocessed in India from waste or scrap of goods falling within specified chapters. The exemption covers reprocessed plastic materials classifiable under CETH 3901 to 3914. Since the PET flakes were classified under CETH 39159042 and not under CETH 3907.60, they did not qualify for the exemption.3. Interpretation of Chapter Notes 3, 6, and 7 of Chapter 39 of the CETA:The Department argued that Chapter Notes 3 and 6 of Chapter 39 should be considered, which state that CETH 39.01 to 39.11 apply only to goods produced by chemical synthesis and define 'primary forms.' The assessee contended that Chapter Note 7, which excludes waste, parings, and scrap transformed into primary forms from Heading 3915, should also be considered. The Tribunal determined that the PET flakes produced by the assessee did not meet the criteria of 'primary forms' as per Chapter Note 6 and were merely parings of PET bottles, thus falling under Heading 3915. The Tribunal also noted that the buyer of the PET flakes converted them into powder form and did not pay Central Excise duty, reinforcing that the flakes were not primary forms.Conclusion:The Tribunal upheld the original authority's classification of PET flakes under CETH 39159042 and denied the benefit of Notification No.4/2006-CE (Entry No.78). The decision of the Commissioner (Appeals) was set aside, and the Revenue's appeal was allowed, restoring the original order. The cross-objection filed by the respondent was disposed of accordingly.