Holding

Spilled polyester chips are not waste but primary forms of plastic under heading 39.07, and the extended period of limitation cannot be invoked.

Summary

D.C.L. Polyester Ltd., a manufacturer of polyester chips, claimed that chips spilled during bagging were "sweeping wastes" and should be classified under heading 39.15 of the Central Excise Tariff Act, 1985, attracting nil duty. The Revenue argued that the chips were primary forms of plastic under heading 39.07 and demanded duty, also invoking the extended period of limitation under Section 11A(l). The Supreme Court examined the technical nature of the product, the relevant tariff notes and HSN explanatory notes, and held that the spillage did not convert the chips into waste; they remained primary forms of plastic and were therefore chargeable under heading 39.07. The Court also found no merit in the department's invocation of the extended period of limitation. Consequently, the civil appeal was dismissed.

Issues considered

The classification of the spilled polyester chips: whether they fall under heading 39.15 (waste) or heading 39.07 (primary form of plastic).
The propriety of invoking the extended period of limitation under Section 11A(l) of the Central Excise Act.

Legislation cited

Central Excise Act, 1944s. 11A(l), s. 3, s. 35L(b)
Central Excise Rules, 1944s. 276, s. 49, s. 52A, s. 9
Central Excise Tariff Act, 1985

Subjects

classificationcentral excisetariffwasteprimary formextended period of limitationpolyester chipsHSNchapter 39duty

Judgment

D.C.L. POL YSTER LTD., NAGPUR A
v.
COLLECTOR OF CENTRAL EXCISE AND CUSTOMS

FEBRUARY 22, 2005

[ARIJIT PASA YAT AND S.H. KAPADIA, JJ.] B

Central Excise Act, 1944/Central Excise Tariff Act, 1985-Section l lAI
Chapter Heading 39.15 and 39. 07-Excise duty-Levy of-On polyester chips
spilled over during process of bagging-Classification of the product by C
assessee under heading 39.15 as sweeping waste incurring 'nil' duty-Demand
of duty by Revenue classifoing it under heading 39.07 invoking extended
period of limitation-Revenue and the Tribunal held the product classifiable
under heading 39.07-0n appeal, held : The spilled chips are classifiable
under Chapter Heading 39.07-It cannot be said to be waste during
manufacturing process-The chips by spillage did not cease to be chips by D
dust contamination-Revenue could invoke extended period of limitation as
the assessee in the classification list had not specified the stages ofproduction
and the manner the wastes had emerged-Central Excise Rules, 1944-Ru/es.
9, 49, 52A and 276.

Appellant-assessee was manufacturer of partially oriented yarn of
E
polyester and polyester chips. During one of the stages of manufacture
i.e. bagging, some 'chips' fell off and were collected. For the purpose of
assessment, the assessee had termed the spilled chips as "sweeping wastes"
classifiable as 'waste' under heading 39.15 of Central Excise Tariff Act,
1985, incurring 'nil' duty. Revenue demanded duty on the spilled chips. F
Revenue by invoking extended period of limitation also demanded duty,
for clearance of polyester chips as 'waste' without cover of gate passes
and in contravention of Rules 9, 49, 52A and 276 of Central Excise Rules,
1944 with intention to evade payment of duty. The Adjudicating Authority
confirmed the demand holding that the spilled chips were not 'waste' G
classifiable under heading 39.15 as any contamination of the 'chips' after
their manufacture will not change the nature of the product. It also
rejected the claim of the assessee for benefit of 'nil' rate of duty under a
notification dated 1.3.1992 on account of absence of evidence showing
utilization of 'Chips' in the manufacture of Polyester Staple Fibre. In
H
279
280 SUPREME COURT REPORTS [2005] 2 S.C.R.

A appeal, Customs, Excise and Gold (Control) Appellate Tribunal upheld
the order passed by Adjudicating Authority. However, it remitted the
matter to the Commissioner to decide as to whether the assessee had
fulfilled all the conditions stipulated in _the Notification.

In appeal to this Court the questions for _consideration were whether
B the product termed by the assessee as "sweeping wastes"·was classifiable
under Chapter Heading 39.J 5 (waste) or under Chapter Heading 39.07
(Primary Form of plastic) of the Act; and whether the Department was
right in invoking Section IJA(J)?

Dismissing the appeal, the Court
c
HELD : J.1. In the present case, at the stage of spillage, the Polyester
"chips" are not waste nor can they be said to be waste owing to the
manufacturing process. This finding is pure technical finding and,
therefore, no interference is called for Scope of an entry in the tariff is a
D matter of law. However~ whether a product comes within an entry is a
mixed question of law and fact. The fact that as per Central Excises Rules,
1944, after completion of one stage of manufacture, entries were made in
the R.G. Register, indicates that the chips were independent products
which were required to be bagged and in that they spilled over as "chips".
In the entire case, there is no evidence that such "chips" ceased to be
E "chips". On the contrary, the invoices produced by the assessee show that
the said "chips" were bought and sold as polyester chips in the market.
Impurity in the chips is a relevant circumstance for valuation and not for
classification, unless the contamination is so heavy that the nature of the ...
~\
product ceases to be polyester chips. In the present case, there is no
F evidence that alleged unusable chips had ceased to be chips.
(291-C;F; 291-G-H)

Chemicals and Fibres India Ltd, v, Union of India and Ors., (1982)
JO ELT 917 and Collector of Central Excise v. Nuchem Industries Pvt. Ltd.,
[1998( 9 sec 656, relied on.
G
Collector of Central Excise v. Ambalal Sarabhai Enterprises, (1989) 43
ELT 214; Moti Laminates Pvt. ltd. v. Collector ofCentral Excise, Ahmedabad,
(J 995) 76 EL T 24l and Union of India v. Delhi Cloth & General Mills Co.
Ltd, (1997) 92 ELT 315, referred to.

H 1.2. The scheme of Central Excise Tariff is based on HSN and the
D.C.L. POL YSTER v. COLLECTOR OF CENTRAL EXCISE AND CUSTOMS 281
explanatory notes thereto. Therefore, HSN along with the explanatory A
notes provide a safe guide for interpretation of an entry. Further, equal
importance is required to be given to the Statutory Rules of Interpretation
given to the Excise Tariff. Under Rule 3(a), it is provided that the heading
which provides a specific description shall be preferred to a heading having
general description. As headings 39.07 and 39.15 both fall in chapter 39 B
and in view of the product emerging from the granulators, the polyester
chips come within specific description of plastics and articles thereof.
[292-A-CJ

Mis. O.K. Play (India) Ltd. v. Commissioner of Central Excise, Delhi-
111, Gurgaon, referred to. C
1.3. Chapter Note 7 stat~s that heading No.39.15 does not apply to
wastes, parings and scrap of thermoplastic material transformed into
primary forms. (referred to under heading Nos. 39.01 to 39.14). To the
same effect is the explanatory note to HSN. Chapter Note 7 to chapter 39
. which excludes 'waste' of single thermoplastic material from entry 39.15 D
is applicable to the facts of the present case. [292-D-E, H; 293-A)

Chemical and Fibers India Ltd, v. Union of India and Ors., (1982) 10
ELT 917, relied on.

2. It cannot be said that extended period of limitation could not have E
been invoked because assessee was not guilty of willful suppression as the
classification lists filed by it were accepted without investigation, visits or
tests and hence the assessee bonafide believed hat the product was
classifiable under Chapter heading 39.15. Arguments regarding invoking
of extended period of limitation were not advanced before the tribunal.
The only argument advanced before the tribunal was on excisability and F
nil rate of duty vide Notification dated 1.3.1992. In the reply to the show-
cause notice, the assessee submitted that wastes had emerged at various
stages. However, in the classification list, they have not spelt out the
various stages at which the so called "wastes" had emerged. In the present
case, the department had alleged misdeclaration of polyester chips as G
wastes. According to the assessee, chips, which spilled over during bagging
were unusable and, therefore, "waste". However, no such details have been
mentioned in the classification list particularly when it urged that "wastes"
had emerged at different stages of production. (284-H; 285-A; 293-C-E)

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 6559 of 1999. H
282 SUPREME COURT REPORTS [2005] 2 S.C.R.

A From the Judgment and Order dated 24.8.99 of the Central Excise,
Customs and Gold (Control) Appellate Tribunal, New Delhi in F.O. Bearing
No. 760/99-C in E/A. No. 856 of 1995-C.

Jaideep Gupta,
. Sanjay Grover and. Rajesh Kumar for the Appellant.

B R. Venkataramani, K. Swami, Ashok Panigrahi, P. Parmeswaran and
B.K. Prasad for the Respondent.

The Judgment of the Court was delivered by
. '
KAPADIA, J. The issue which arises for determination in this civil
C appeal filed by .the assessee under Section 35L(b) of Central Excise Act,
1944 (hereinaftt:r referred to for· the. sake of brevity as "the 1944 Act") is - ,-
whether the product, termed by the assessee as "sweeping wastes" is
classifiable under chapter heading 39.15 (waste) or whether it is classifiable
.under chapter heading 39.07 (Primary Form of Plastic) of Central Excise
D Tariff Act, 1985 (hereinafter referred to for the sake of brevity as "the 1985
Act") as contended by the department.

DCL Polyester Ltd. (hereinafter referred to for the sake of brevity as
"the assessee") is the manufacturer of partially oriented yam,ofpolyester and
polyester chips by using purified terephthalic acid and mono ethylene glycol
E (raw-materials).

According to the assessee, manufacture of yam consisted of different
stages; that after the granules emerged from the granulators they were required
to be bagged (which was one of the stages in the manufacture); and that in
the process of bagging some "chips" fell off and were collected as "sweeping
F wastes".

The short point which arises for determination, therefore, is - whe~er
the spilled chips termed as "sweeping wastes" by the assessee was classifiable
as "waste" under chapter heading 39.15, as urged by the assessee.

G On 1.9.1994, show-cause notice was issued by the department in which
it was alleged· that polyester. chips emerged from the granulators after they
were completely produced and, therefore, on account of their spill over, they
cannot be treated as a manufacturing waste. According to the ~how-cause
notice, such sweeping/spi!Jage of "chips" did not make them "waste"
classifiable under heading 39. 15. By the said show-cause notice, the department
H
-
'
D.C.L. POLYSTER v. COLLEC10R OF CENTRAL EXCISE AND CUSTOM [KAPADIA, J.J 283

invoking the extended period of limitation called upon the assessee to pay A
duty amounting to Rs.3,98,302.29 for clearance of polyester chips as "wastes"
during the period 25.7.1991 to 27.2.1994 without cover of gate passes and
in contravention of rules 9, 49, 52A and 276 of the Central Excise Rules,
1944, with intention to evade payment of duty.

In reply, the assessee submitted that during the manufacture of polyester B
filament yam, "wastes" of different types were generated; that after granulation,
the chips pass through a vibrating screen; that during the screening, the
standard chips are collected in the silos, whereas the unusable chips waste is
separated; and that standard chips collected in the silos are transferred to the
bagging silos from where they are bagged. According to the assessee, C
"bagging" is a part of manufacturing process and in that process, waste is
generated which is unusable. This waste is termed by the assessee as "sweeping
wastes" and, therefore, it is classifiable under sub-heading 3915.90.

By order dated 14.2.1995, the Collector (hereinafter referred to for the
sake of brevity as "the Adjudicating Authority"), after considering the evidence D
on record came to the conclusion that "polyester chips" got segregated after
emerging from the granulators as "chips" and, therefore, such spillage was
not classifiable as "waste". According to the Adjudicating Authority, any
contamination of the "chips" after their manufacture will not change the
nature of the product. In this connection, reliance was placed on the statement
of Shri Rastogi, Manager (Polymerization) at Mis DCL Polyester Ltd. and E
Shri Lilapat, Sr. manager working in M/s DCL Polyester Ltd., Mouda. The
Adjudicating Authority further rejected the claim of the assessee for benefit
of "nil" rate of duty under the Notification No. 14/92-CE dated 1.3.1992 on
account of absence of evidence showing utilization of "chips" in the
manufacture of polyester staple fibre. The demand in the show-cause notice p
was consequently confirmed.

Aggrieved by the said decision, the assessee carried the matter in appeal
to the Customs, Excise & Gold (Control) Appellate Tribunal (hereinafter
referred to for the sake of brevity as "the tribunal").
G
By impugned judgment and order dated 24.8.1999, the tribunal upheld
the order passed by the Adjudicating Authority confirming the demand raised
by the department. However, on the point of the benefit claimed by the
assessee under Notification No. 14/92-CE dated l.3.1992, the tribunal remitted
the matter to the Commissioner, Central Excise, to decide - whether the
assessee has fulfilled all the conditions stipulated in the said notification. H
284 SUPREME COURT REPORTS [2005] 2 S.C.R.

A Subject to above, the appeal of the assessee was dismissed by the tribunal.
Hence, this civil appeal by the assessee.

Shri Jaideep Gupta, learned senior advocate on behalf of the assessee
submitted that "sweepirig wastes" took place during the process of manufacture
and it did not emerge at the end of the process; that the activity of feeding
B raw-material into hoppers is a part of the manufacturing activity and the
spillage and rejection "of raw-material at that stage resulted in some waste
which cannot be classified under sub"heading 3907.60 as "polyethylene
terephthalate". He submitted that classification is indicated by the manrier in
which the goods are known anct dealt with in the trade. Learned senior advocate
C invoked the· test of common parlance. He relied upon the statement of buyers
who purchased from the assessee· the said "chip wast~". He submitted that the
end-use by the ultimate buyer was not relevant as waste was capable of use.
Learned senior advocate also placed reliance on the explanatory notes to
Harmonized System of Nomenclature (for short "HSN'') under entry 39.15
and submitted that the word "may" in the entry indicates that the illustrations
D given therein are not exhaustive. It was urged that the "chip waste" was not
usable for manufacture of yam and was not being used as such by the ultimate
buyers. It was further submitted that neither the show-cause notice nor the
orders passed by the authorities below had invoked chapter note 7 of chapter .
39 and in the absence of such invocation, it was not open to the department \..
E to rely upon the said chapt~r note. Alternatively, it was submitted that the
chips were made from Purified Terephthalic Acid (PTA) and Mono Ethylene
Glycol (MEG) and as such, they cannot be classified as "thermoplastic
material".

On the question of limitation, learned senior advocate for the assessee
F submitted that in any event, the department was not entitled to invoke extended
period of limitation as the assessee had filed classification lists for chip waste
as also the price list on 20.11.1991 enclosing therewith purchase orders of
the buyers of "polyester chips waste;'. According to the learned counsel, the
classific11tion list in fact had declared chip waste as liable to duty @ 40% ad
valore~. However, the classification list was rejected by the department vide
G letter dated 25.11.1991 stating that chip waste stood approved at "nil" rate as
per the earEer classification list dated 30.8.1991 filed by the assessee .. In the -,
circumstances, it was urged that the department was not entitled to invoke the
extended period.of limitation. On the above facts, learned counsel submitted
that the asse~see had disclosed all the relevant facts in their classification list
H and the price list; that the classification :t_ists filed in the past were accepted
D.C.L. POLYSTER v. COLLECTOR OF CEN\RAL EXCISE AND CUSTOM [KAPADIA, J.J 285

without any investigation, visits or tests being conducted and, therefore; the A
assessee was of_ the view that the "chips .waste" was classifiable under sub-
heading 3915.90. Therefore, it was urged that the assessee was not guilty of
wilful suppression as alleged and, therefore, the department was not entitled
to invoke the extended period of limitation.

Chapter 39 falls in Section VII of the 1985 Act. Section VII deals with B
plastics and articles thereof. In this matter, on the issue of classification, we
are concerned with chapter headings 39.07 and 39.15, which are quot¢d
hereinbelow :

Heading Sub-. Description of Goods Rate of·
No. Heading No Duty c
I 2 3 4
I. PRIMARY FORMS
39.07 Polyacetals, other polyethers and
epoxide resins, in primary forms,
polycarbonates, alkyd resins, D
polyallyl esters and other
polyesters, in primary forms.
3907.10 Polyacetals 60%
.....,,..t
3907.20 Other polyether 60%
3907.30 Epoxide resins 60%
E
3907.40 Polycarbonates 60%
3907.50 Alkyd resins including maleic resins 60%
and fumeric resins
3907.60 Polyethylene terephthalate 60o/o
F
3907.70 Diallylphthalate resins 60%
3907.80 Polybutylene terephthalate - other 60%
polyesters :
3907.91 Unsaturated 60%
3907.99 Other 60% G
II. WASTE, PARINGS AND SCRAP;
SEMI-MANUFACTUR.ES; ARTICLES.
39.15 Waste, parings and scrap, of plastics.
3915.10 Of polymers of ethylene 60%
H
286 SUPREME COURT REPORTS [2005] 2 S.C.R.

A 3915.20 Of polymers of styrene 60%
3915.30 Of polymers of vinyl chloride 60%
3915.90 Of other plastics 60% plus
Rs.40 per
kilo grain
B We also quote hereinbelow chapter notes 1, 6 and 7 to Chapter 39
·~
which deals with plastics and articles thereof :

"I. Throughout this Schedule, the expression plastics means those

c
materials of heading Nos.39.01 to 39.14 which are or have been
capable, either at the moment of polymerization or at some subsequent
stage, of being formed under external influence (usually heat and
L
pressure, if necessary with a solvent or plasticizer) by moulding,
casting, extruding, rolling or other process into shapes .which are
retained on the removal of the external influence.

Throughout this Schedule any reference to 'plastics' also includes
D
vulcanized fibre. The expression, how<'.ver, does not apply to materials
regarded as textile materials of Section XI.

6. (a) In heading Nos.39.01to39.14, the expression "primary forms"

E
applies only to the following forms :-

(i) Liquids and pastes, including dispersions (emulsions and
--
suspensions) and solutions;

(ii) Blocks of irregular shape, lumps, powders (including
moulding powders), granules, flakes and similar bulk forms.
'
F (b) Notwithstanding anything contained in Note 3 to this Chapter,
heading Nos.39.01to39.14 shall also include primary forms
obtained from conversion of another primary form, falling
under the same heading, and such conversion shall amount
to "manufacture".

G 7. Heading No.39.15 does not apply to waste, parings and scrap of
a single thermoplastic material, transformed into primary forms
(heading Nos.39.0I to 39.14).

Since Central Excise Tariff Act, 1985 is based on HSN read with
explanatory notes thereto, we also quote hereinbelow extracts of chapter
H notes I, 6 and 7 from HSN as well as explanatory notes thereto :
D.C.L POLYSTER v. COLLECTOR OFCENTRAL EXCISE AND CUSTOM [KAPADIA, J.] 287

"1. Throughout the Nomenclature the expression "plastics" means A
those materials of heading Nos.39.01 to 39.14 which are or have
been capable, either at the moment of polymerization or at some
subsequent stage, of being formed under external influence (usually
heat and pressure, if necessary with a solvent or plasticizer) by
moulding, casting, extruding, rolling or other process into shapes B
... which are retained on the removal of the external influence .

Throughout the Nomenclature any reference to "plastics" also
includes vulcanized fibre. The expression, however, does not apply
to materials regarded as textile materials of Section XI.

6. In heading Nos.39.01 to 39.14, the expression "primary forms" C
applies only to the following forms :-

(a) Liquids and pastes, including dispersions (emulsions and
suspensions) and solutions;

(b) Blocks of irregular shape, lumps, powders (including D
moulding powders), granules, flakes and similar bulk forms.

7. Heading No.39.15 does not apply to waste, parings and scrap of
a single thermoplastic material, transformed into primary forms .
(heading Nos.39.01 to 39.14).
E
EXPLANATORY NOTES

Plastics :

The expression "plastics" is defined in Note I to this Chapter as
meaning those materials of headings 39.01 to 39.14 which are or
have been capable, either at the moment of polymerization or at some F
subseq~ent stage, of being formed under external influence (usually
heat and pressure, if necessary with a solvent or plasticizer) by
, · moulding, casting, extruding, rolling or other process into shapes
which are retained on the removal of the external influence.
Throughout the Nomenclature, the expression "plastics" also includes G
vulcanized fibre.

The expression, however, does not apply to materials regarded as
textile materials of Section XI. It should be noted that this definition
of "plastics" is applicable through the Nomenclature.
H
288 SUPREME COURT REPORTS (2005] 2 S.C.R.

A The term "polymerization" is u,sed in this definition in a wide
sense and denotes any method of forming a polymer, including addition
polymerization, rearrangement polymerization (polyaddition) and
condensation polymerization (po lycondensation ).

If material of this Chapter can be softened repe~tedly by heat
B treatment and shaped into articles, e.g., by moulding, and then hardened
by cooling, it is termed "thermoplastic". If it' can be or ·has already
been transformed into an infusible product by chemical or physical
means (e.g., by heat) it is termed "thermosetting". •

Plastics have almost unlimited applications but many articles made
C therefrom· are classified elsewhere (see Note 2 to this Chapter).

Primary forms :

Headings 39.01to39.14 cover goods in primary forms only. The
expression "primary forms" is defined in Note 6 to this Chapter. It
D applies only to the following forms :

(1) Liquids and pastes. These may be the basic polymer which
requires "curring" by heat or otherwise to form the finished material,
or may be dispersions (emulsions and suspensions) or solutions of the
uncured or partly cured materials. In addition to substances necessary
E for "curring" (such as hardeners (cross-linking agents) or other co-
reactants and accelerators), these liquids or pastes may contained
other materials such as plasticizers, stabilizers, fillers and colouring
matter, chiefly intended to give the finished products special physical
properties or other desirable characteristics. The liquids and pastes
are used for casting, extrusion, etc., and also as impregnating materials,
F surface coatings, bases for varnishes and paints, or .as glues, thickeners,
flocculants, etc.

When as a result of the addition of certain substances, the resultant
products answer to the description in a more specific heading elsewhere
in the Nomenclature, they are excluded from Chapter 39; this is, for
G
example, the case with : ·

(a) Prepared glues - see exclusion (b) at the end of this General
Explanatory Note.
(b) Prepared .additives for mineral oils (heading 38.11)
G
D.C.L. POLYSTER v. COLLECTOR OF CENTRAL EXCISE AND CUSTOM [KAPADIA, J.J 289

It should also be noted that solutions (other than collodions) A
consisting of any of the products specified in headings 39.01to39.13
in volatile organic solvents, when the weight of the solvent exceed
50% of the weight of the solution, are excluded from this Chapter
and fall in heading 32.08. (see Note 2(d) to this Chapter).

Liquid polymers without solvent, clearly identif:able as being B
intended for use solely as varnishes, (in which the formation of the
film depends on heat, atmospheric humidity or oxygen and not on the
addition of a hardener), are classified in heading 32.10. When not so
identifiable, they fall in this Chapter.

(2) Powder, granules and flakes. In these forms they are employed C
for moulding, for the manufacture of varnishes, glues, etc. and as
thickeners, flocculants, etc. They may consist of the unplasticised
materials which become plastic in the moulding and curing process,
or of materials to which plasticizers have been added; these materials
may incorporate fillers (e.g., wood flour, cellulose, textile fibres, D
mineral substances, starch) colouring matter or other substances cited
in Item (l) above. Powders may be used, for example, to coat objects
by the application of heat with or without static electricity.

(3) Blocks of irregular shape, lumps and similar bulk forms,
whether or not containing fillers, colouring matter or other substances E
cited in Item (l) above. Blocks of regular geometric shape are not
primary forms and are covered by the expression "plates, sheets,
film, foil and strip" (see Note 10 to this Chapter).

Waste, parings and scrap of a single thermoplastic material
transformed into primary forms are classified in headings 39.01 to F,
39.14 (according to the material) and not in heading 39.15 (see Note
7 to this Chapter)."

Scope of an entry in the tariff is a matter of law. However, whether a
product comes within an entry is a mixed question of law and fact.
G,
In the case of Moti Laminates Pvt. Ltd v. Collector of Central Excise,
Ahmedabad, reported in (1995) 76 ELT 241, this Court held that Section 3
levies duty on all excisable goods mentioned in the schedule provided they
are produced and manufactured. Therefore, where the goods are specified in
the schedule, they are excisable goods but whether such goods can be subjected
to duty would depend on whether they are produced or manufactured by the H,
290 SUPREME COURT REPORTS (2005] 2 S.C.R.

A assessee. The expression "produced or manufactured" has been explained by
this Court to mean that the goods so produced must satisfy the test of
marketability. Consequently, it is always open to an assessee to prove that
even though the goods were excisable goods, they could not be subjected to
duty as they were not produced or manufactured by it or if they had been
B produced or manufactured, they were not marketed or capable of being
marketed.

Similarly, in the case of Union ofIndia v. Delhi Cloth & General Mills
Co. Ltd, reported in ( 1997) 92 EL T 315, this Court held that the commodity
which is sought to be made liable to duty must be marketable in the condition
C in which it emerges and not a commodity that may require further processing
or packing to be made marketable.

In the case of Collector of Central Excise v. Ambalal Sarabhai
Enterprises, reported in (1989) 43 EL T 214, this Court held on interpretation
of Section 3 that the duty of excise is on the manufacture of goods and for
D an article to be "goods", they must be known in the market as such or they
must be capable of being sold in the market as goods. Actual sale was not
necessary. User in the captive consumption was not determinative of that
article being capable of being sold in the market or known in the market as
goods. Even transient items of articles can be "goods", provided they were
known in the market as distinct and separate articles having separate uses
E during the short life span. Thus, the goods with even unstable character can
be marketable, if during the short period, they were capable of being known
or sold in the market.

In the case of Chemicals and Fibres India Ltd, v. Union of India and
F Ors., reported in (1982) IO ELT 917, one of the questions which arose for
determination was question of interpretation of tariff items. It was held by the
Bombay High Court that the rule that the words should be construed in a
popular sense is not applicable in all cases. The said rule is a qualified rule.
Where the nature of the product in question is highly technical and scientific
in character, the words used in the item will have. to be given technical or
G scientific meaning. The different chemical processes like condensation,
polymerization is not capable of being construed in a popular sense. Indeed,
it can be construed only in a scientific and technical sense. Incidentally, it
may be mentioned that in Chemicals and Fibres India Ltd., (supra), an affidavit
was filed on beh~lf of the assessee by one Dr. Patel, who inter alia stated that
H polyester chips were capable of being used for manufacture of fibre or yarn
D.C.L. POLYSTER v. COLLECTOR OF CENTRAL EXCISE AND CUSTOM [KAPADIA, J.J29 l

by mills other than the assessee in that case. This point is important as it was A
contended by the assessee that the chips in question were not usable in the
manufacture of yam. It was held in the said judgment that plastics and
plasticizers were capable of various end-users. However, this observation
will not preclude the assessee from leading appropriate evidence on the point
of "nil" rate of duty under notification dated l.3.1992 before the
Commissioner, Central Excise, to which authority, the matkr has been remitted B
as stated above. Lastly, it may be pointed out that in the present case, we are
concerned with intricate technical process of manufacture of polyester chips
and partially oriented polyester yam. The authorities below on examination
of evidence have concluded that the spillage of chips after emerging from the
granulators were goods by themselves and they do not cease to be polyester C
chips by reason of dust contamination. In the present case, at the stage of
spillage, the said "chips" are not waste nor can they be said to be waste
owing to the manufacturing process. This finding is pure technical finding
and, therefore, no interference is called for in this Civil Appeal.

In the case of Collector of Central Excises v. Nuchem Industries Pvt. D
Ltd., reported in [1998] 9 SCC 656, it has been held by this Court that where
technical processes are concerned, the findings of the tribunal are, ordinarily,
not to be disturbed.

In the present case, a categorical finding is recorded by the Adjudicating
Authority confirmed by the tribunal, that polyester chip as a complete product E,
emerges from the granulators and during the bagging stage, some of the chips
spill over which cannot be termed as a "waste". We see no reason to disturb
the said finding which is based on technical processes. It is also important to
note that manufacture of partially oriented yam of polyester consists of various
processes. The manufacture of such yam goes through various stages. Under F
the 1944 Rules, whenever a stage is reached, the assessee is required to make
entry in RG register. It is not in dispute that when chips emerged from the
granulators, entries were made in the RG register. This circumstance indicates
that the chips were independent products which were required to be bagged
and in that they spilled over as "chips". In the entire case, there is no evidence
that such "chips" ceased to be "chips". On the contrary, the invoices produced G
by the assessee show that the said "chips" were bought and sold as polyester
chips in the market. Lastly, impurity in the chips is a relevant circumstance
for valuation and not for classification, unless the contamination is so heavy
that the nature of the product ceases to be polyester chips. In the present case,
there is no evidence that alleged unusable chips had ceased. to be chips. H
292 SUPREME COURT REPORTS [2005] 2 S.C.R.

A In the case of Mis O.K. Play (India) Ltd v. Commissioner of Central
Excise, Delhi-Ill Gurgaon, reported in (2005) l Scale 732, this Court has
observed that the scheme of Central Excise Tariff is based on HSN and the
explanatory notes thereto. Therefore, HSN along with the explanatory notes
provide a safe guide for interpretation of an entry. Further, equal importance

B
is required to be given to the Statutory Rules of Interpretation given to the
Excise Tariff. Under rule 3(a), it is provided that the heading which provides
a specific description shall be preferred to a heading having general description.
In the present case, it may be noted that headings 39.07 and 39.15 both fall
...
in chapter 39 and looking to the product emerging from the granulators, we
are satisfied that polyester chips comes within specific description of plastics
C and articles thereof.

Analyzing the provisions of chapter 39 read with notes thereto, it is
clear that chapter 39 is in two parts, namely, primary forms vis-a-vis wastes,
parings and scraps. Headings 39.01 to 39.14 refer to plastics in primary
forms whereas heading 3 9.15 refers to wastes, parings and scraps of plastics.
D Moreover, chapter note 6(a) states that the expression "primary form" in
headings 39.01 to 39.14 inter alia applies to blocks of irregular shapes,
lumps, powders (including moulding powders), granules, flakes etc. Further,
note 6(b) states that heading Nos. 39.0l to 39.14 shall include primary forms
obtained from conversion and shall amount to "manufacture". Note 7. states
E that heading no.39.15 does not apply to wastes, parings and scrap of
thermoplastic ·material transformed into primary forms. (referred to under
heading Nos.39.01 to 39.14). To the same effect is the explanatory note to
HSN.

In the case of Chemi.cals and Fibres India Ltd, (supra), it has been held
p by the Bombay High Court that polymer chip is a saturated linear polyester.
Relying on the Encyclopedia of Polymer Science and Technology, Vol. 11,
page 35, it was held that polyester is a high polymer, which is a compound
formed by the reaction of molecules and that it was formed by the process
of polycondensation. It was further observed that polyesters were known by
several trade names, like, polyethylene terephthalate (PET),' terylene, decron
G etc. In the said judgment, it was further held that the distinction between the
plastics and resin was arbitrary since synthetic material can be called "resin"
as well as "plastic". Synthetic resin was polymer itself whereas plastic was
polymer plus additives, such as, filler, colorants, plasticizers. In the
circumstances, chapter note 7 to chapter 39 which excludes "waste" of single
H thermoplastic material from entry 39.15 is applicable to the facts of the
D.C.L. POLYSTER v. COLLECTOR OF CENTRAL EXCJSEANDCUSTOM.[KAPADIA, J.J 293

present case. In the circumstances, we do not find any infinnity in the judgment A
and order of the tribunal on the question of classification.

Now coming to the question of limitation, it is urged on behalf of the
assessee that show-cause notice dated l.9.1994 invoking the extended period
of limitation under the proviso to Section l lA(l) was erroneous as the assessee
had filed their classification list and price-list on 20.11.1991 [including the B
purchase orders of the buyers]; that no inspection, audit or investigation was
carried out before approving the classification list and the price-list and,
therefore, the department was not entitled to invoke the extended period of
limitation.

We do not find any merit in these arguments. Firstly, no such arguments C
were advanced before the tribunal. The only argument advanced before the
tribunal was on excisability and nil rate of duty vide notification dated
l.3.1992. Secondly, in the reply to the show-cause notice; the assessee
submitted that wastes had emerged at various stages. However, in the
classification list, they have not spelt out the various stages at which the so D
called "wastes" had emerged. In the present case, the department had alleged
misdeclaration of polyester chips as wastes. According to the assessee, chips,
which spilled over during bagging were unusable and, therefore, ·"waste".
However, no such details have been mentioned in the classification list
particularly when it urged that "wastes" had emerged at different stages of E'
production. In the circumstances, we are not inclined to interfere with the
impugned judgment of the tribunal.

Jn the result, civil appeal is dismissed, with no order as to costs.

K.K.T. Appeal dismissed.