TaxTMI 
TaxTMI 
2006 (4) TMI 1
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commissioner (Appeals) classifying 'Denatured Salt' under the Chapter Heading 25.01 and held that 'Denatured Salt' is classifiable under the Chapter Heading No. 38.24 of the Central Excise Tariff Act, 1985 (for short "the Tariff Act"). Facts : 3. Appellant is a limited company incorporated under the Companies Act, 1956 and is engaged in the manufacture of Hydrazine falling under the Chapter Heading No. 28.25 of the Tariff Act. Appellant, during the course of manufacture of the final product produces residuary by-product, i.e., 'Denatured Salt'. Appellant filed classification list claiming classification of the said product under the Heading No. 25.01 carrying 'Nil' rate of duty. 4. Divisional Preventive Officers of the Central Excise visited the plant of the appellant and observed that the raw materials used by the appellant are Urea, Caustic Soda (Sodium Hydroxide) and Chlorine Gas. The process of manufacture followed by the appellant, as stated in the show cause notice based on the report of the prevent staff is as under : Caustic Soda and Chlorine Gas are reacted in a closed tank and transferred to another tank. In the said oth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r human consumption. 5. That only those residual products are classifiable under Heading No. 38.24 which are not elsewhere specified or included. 6. That it is not necessary that sodium chloride should be an input for the manufacture of Denatured Salt. 7. That it is not the intention of the legislature that first salt should be produced and thereafter it should be denatured because the legislation was fully aware that impure/inedible salt is available whether natural or through some chemical process that is why it appear on the HSN. 8. That even six month's period is not available to the department for the raising of the demand and the entire demand is without the authority of law. 7. After considering the replies filed by the appellant, the Deputy Commissioner of Central Excise, Chandigarh decided both the said notices by order in original dated 31-3-1999. By the said order the Deputy Commissioner held that the subject product was correctly classifiable under Heading No. 38.23 (now 38.24) and he accordingly confirmed the demand of duty and directed the appellant to deposit the same along with the interest. It was further held that si....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ince the noticee started producing and supplying the same under the name of 'denatured salt' in their invoices, the goods were known to the localized consumers by this name only". 12. This fact has been recorded in the order in original dated 31-3-1999 passed by the Deputy Commissioner, Central Excise, Chandigarh. 13. The subject product was sent for examination by the authorities to the Central Examiner of Central Revenue Control Laboratories (in short "CRCL"). The CRCL found the subject product to be composed of Sodium Chloride, Sodium Carbonate and other inorganic salts. It was opined by CRCL that the subject product is to be taken as Sodium Chloride. The report of CRCL as quoted in the order of the Commissioner (Appeals) dated 28-3-2000 is reproduced below :- "being composed of Sodium Chloride, Sodium Carbonate and other inorganic salts" Sodium Chloride Content - 53.6% Sodium Carbonate Content - 19.6% Moisture at 100^oC - 9.0% Is to be taken as "Sodium Chloride" Statutory provisions : 14.Heading Nos. 25.01 and 38.23 of the Central Excise Tariff are reproduced below for reference :- "Heading No. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and other saline solutions. The heading also covers : (1) Salt (e.g., table salt) which has been slightly iodised, phosphated, etc., or treated so that it will remain dry. (2) Salt to which anti-caking agents or free-flowing agents have been added. (3) Salt which has been denatured by any process. (4) Residuary sodium chloride, in particular that left after chemical processing (e.g., electrolysis) or obtained as a by-product of the treatment of certain ores." 17. As per HSN this Heading 25.01 relates to sodium chloride, commonly known as salt. Salt is not only used for culinary purposes i.e., cooking salt, table salt, but it also has many other uses and, if necessary, may be denatured to render it unfit for human consumption. The heading includes Salt extracted from underground, evaporated salt, sea water salt obtained by evaporation of sea water by the sun, refined salt obtained by evaporation of saturated brine and other saline solutions and also covers table salt, salt to which anti-caking agents or free-flowing agents have been added, salt which has been denatured by any process and also covers residuary sodium chloride, in particular....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y provided in Rule 1 of the Interpretative Rules, titles of Sections and Chapters are provided for ease of reference only and for legal purpose classification must be determined according to the terms of the headings and relative Section or Chapter notes. Tribunal has totally failed to consider the said interpretation of Rule 1. 22. The Tribunal has further held that since the starting raw materials were not classifiable under Chapter 25, the residue in question cannot be a product covered by Chapter 25. This finding is based on wrong assumptions and reasoning. There is no such requirement in law that before a product is classified under Chapter 25 it must be manufactured out of raw materials falling under Chapter 25. It goes against the explanatory notes of HSN below Heading No. 25.01. 23.The Tribunal has further held as under :- "On a study of the process of manufacture we find that certain chemicals are reacted, none of these chemicals are classifiable under Chapter 25, thus the Residue in question cannot be a product obtained after chemical processing e.g. (electrolysis). None is a bye-product of a treatment of certain ores. The product is obtained after cry....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of Chapter 25 we find that there is no requirement or condition anywhere either in Chapter Note 2 or in any other provision of law that the starting material must itself be salt. The process adopted by the appellant as mentioned in Paragraph 3 of the show cause notice is a physical process. In the said process Hydrazine is concentrated by physical process and the residual solids are obtained as "Denatured Salt". These residuals are the residuary Sodium Chloride left after chemical processing which fully answers the fourth category of explanatory notes in HSN. Apart from this, similar chapter notes also appears in Chapter Note 1 of Chapter 25 in HSN which clearly provides that residuary Sodium Chloride left after chemical processing is covered by Heading No. 25.01. Chapter Note 2 does not provide anywhere that in order to be covered by Heading No. 25.01 the product must not contain impurities. The bracketed portion in Chapter Note 2 is being totally misread by the Revenue. The only effect of the bracketed portion is that if the goods in question are washed, such wash may be even with chemical substances eliminating the impurities without changing the structure of the product. It is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xtures or combinations of that material or substance with other materials or substances. The classification of goods consisting of more than one material or substance shall be according to the principles contained in Rule 3. Sub-rule 3(a) provides that heading which provides for most specific description shall be preferred to headings providing a more general description. Sub-rule 3(b) provides that mixtures, composite goods consisting of different materials or made of a different components, and goods put up in sets, which cannot be classified with reference to sub-rule (a) of Rule 3, shall be classified as if they consisted of the material or component which gives them their essential character. In the present case, the goods in question admittedly contain 53.6% Sodium Chloride and their essential character is derived by the Sodium Chloride, which is salt. Since in the present case the salt is unfit for human consumption, the same would be classifiable as "Denatured Salt" under the specific Heading No. 25.01 and not under Heading 38.23 which is a residuary Heading. 29. This apart, classification of goods is a matter relating to chargeability and the burden of proof is squ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on Yarn. Hence, it is to be classified under Item 18 of the Act. The Revenue has failed to establish the contrary. We would do well to remember the guidelines laid down by this Court in Dunlop India Ltd. v. Union of India. AIR 1977 SC 597 at Page 607. In such a situation, wherein it was stated (AIR P. 607 SCC P. 254, Para 35) :- "When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause." 31. Similarly, in Hindustan Ferodo Limited v. Collector of Central Excise, Bombay, 1997 (2) SCC 677, it is held in Para 4 as under :- "It is not in dispute before us, as it cannot be, that the onus of establishing that the said rings fell within Item 22-F lay upon the Revenue. The Revenue led no evidence. The onus was not discharged. Assuming therefore, that the Tribunal was right in rejecting the evidence that was produced on behalf of the appellants, the appeal should, nonetheless, have been allowed". 32. It was submitted by the learned Senior Counsel appearing fo....