DUNLOP INDIA LTD v. UNION OF INDIA & Ors.

[The court, expressed no opinion with regard to the question relating to countervailing duty under 16 AA of the First Schedule to the Central Excise and Salt Act, 1944] • A c D E F G H JOO SUPREME COURT REPORTS [1976] 2 S.C.R. A B C1v1L APPELLATE JURISDICTION : Civil Appeal Nos. 1446 and 2746 of 1972. Appeals by Special Leave from the Judgment and Order dated the 14th January, 1972/17th August, 1972 of the Central Govt. in Rvs. under Sec. 131 (3) of the Customs Act, 1962 being No. 25/53/59 ous (Tu), 1972 and of the Collector of Customs, Custmm House, Madras in Appeal No. C/3/1848 of 1970 respectively. • S. Choudhry, S. !. Sorabji, D. N. Gupta for the Appellant (In CA No. 1446/72). S. ]. Sorubji, V. !. Taraporawala and K. R. Nambiar for the Appel lants (in CA No. 2746/72). ·C G. L. Sanghi and Girish Chandra for the Respondents( ir, both the appeals). G. M11/d10ty and H. K. Dutt for Intervener No. l (Inchcck Tyres Ltd.) D E F G H S . .!. Sorabji, Ravinder Narain, K. K, Master of M/s.

1. B. Dada chanji & Co. for Intervener No. 2. (Firestone Tyres Ltd.). S . .T. Sorabji Ravinder Narain, K . .T . .Toh11 and R .. D. Divan of (Burkib Fibres M/s . .T. B. Dadachanji & Co. for Intervener No. 4 Tyres Ltd.) . /. N. Shroff for Intervener No. 3 and 5 (Ceat Tyres Ltd and Pre mier Tyres Ltd). The Judgment of the Court was delivered by GoswAMJ, J.-In these appeals by special leave the only question that is raised is whether the substance known as Pyratex-Vinyl Pyridine Latex (for short, V. P. L'atex) is not rubber raw classifiable under item No. 39 of the Indian Tariff Act 1934 (hereinafter referred to as I.C.T.). The appellants are manufacturers of automotive tyres. V. P. Latex is required in the process of manufacturing of tyres. V. P. Latex is not manufactured in India and has to be imported from out side the country. essential ingredients in the course of manufacture of automotive tyres. The tyre industry uses V. P. Latex as one of The appeliant in Civil Appeal No.

1446 of 1972 imported some ln appeal from time in April, 1969, 3 consignments of V. P. Latex. the proceedings before the Assistant Collector of Customs for appraise mcnt of the said consignments for the purpose of imposition of customs duty and/or countervailing duty, the Appellate Collector of Custom~, Calcutta, upheld the appellant's contention and classified V. P. Latex under item 39 of the I.C.T. as raw rubber. The classification made by the Appellate Collector was revised by the Central Government in ·a proceeding initiated, suo mollt, under section 131 (2) of the Customs Act, 1962. The Central Government held, by the impugned order, that the said V. P. Latex was "an aqueous dispersion of synthetic 1st resin," and hence classifiable under item 87 of I.C.T. prior to March 1970, and thereafter under the new item No. 82(3) I.C.T. •, • DUNLOP INDIA v. UNION (Goswami, J.) IOI The Central Government by the same order further held that the &aid _goods werl;! liable to countervailing duty under item No.

ISA C.E.T. both before and after 1st March, 1970. It is apparent that if V. P. Latex were to be classified under item No. 87, higher duty will be leviable and that is the reason for the controversy in these appeals. In Civil Appeal No. 2746 of 1972, the appeal is directed against the order of August 17, 1972, of the Appellate Collector of Customs, Madras, dismissing a batch of 18 appeals of the Company. The Appe llate Collector confirmed the order of the Assistant Collector of Cus- toms Appraising, Madras, rejecting the appellant's claim for refund of duty on the basis th•at V. P. Latex should be cla?sified under item 39 1.C.T. and not under item 82(3) of the LC.T. The appellant did not go in revision before the Central Government. as already similar claims had been rejected by the Central Government. There arc several interveners in the appeals and the entire industry is interested in the matter.

Prior to the 1st March, 1970, the First Schedule to fodian Tariff Act, 1934, contained, inter alia, the following dutiable items Rubber, raw. All other articles not otherwise specified. Item No. 39 Item No. 87 In addition to the above, the following item was introduced in the Tariff Act by the Finance Act, 1970 : - "Item No. 82(3) (a)-Artificial or synthetic plastic materials in any form, whether solid, liquid or pasty, or as powder, granules or flakes, or in the form of moulding powders". resins Under section 2A of the Tariff Act any article which is imported into India shall be liable to customs duty equal to the excise duty for the time being leviable on a like article if produced or manufactured in India. Such customs duty in addition to the duty under the Tariff Act is known as countervailing duty. Item 15A of the First Schedule to the Central Excises and Salt Act 1944 (briefly C.E.T.) reads as follows:- " l SA : Artificial or Synthetic resins and Plastic Materials and Articles thereof- · ( l) Artificial or synthetic resins and plastic materials in any form, whether solid, liquid or pasty, or as pow- der, granules or flakes, or in the form of mouldi1ag powders, the following, namely .. " An additional item being item No.

16AA was introduced in the reads as C.E.T. for the first time by the Finance Act 1970, which follows :--· "Item No. 16AA : Synthetic rubber, including butadiene acrylonitrile rubber styrene butadiene rubber and butyl rubber; synthetic rubber latex, including prevulcanised syn thetic rubber latex". B c () E F G II A B c D E F c H 102 SUPREME COURT REPORTS [1976] 2 s.c.R. The quantity of V. P. Latex consumed by the tyre industry in India as a whole is said to be about 1000 tonnes per year 'a'ild the value thereof is Rs. 40,33,00.0/- approximately. The appellant, Dunlop India Limited, consumes •about 300 tonnes per year. The contro versy between the parties centres round the real meaning of V.P. Latex While the •appellants submit that V. P. Latex is synthetic rubber in the latex form, according to the respondents it is not so, but on the other hand, it is what may be described as 'resin'. ln order that the Court is able to appreciate the rival contentions, both sides addressed us referripg to several standard authorities and treatises.

Before we proceed further it may be appropriate to see how rubber is described in the Encyclopaedia Britannica, volume 19, 1965 edition : x "RUBBER is the substance caoutchouc (q.v.), a milk like fluid that is obtained from certain tropical shrubs or tyres and then subjected to various processes of manufacture; or it may be a product of chemical synthesis". toughness. In its natural x "The uniqueness of rubber lies in its physical properties of extensibility and greatly affected by temperature, becoming harder when cooled at O~lOC it is opaque and softer when heated (above 50 C. it becomes tackier and less elastic, decomposing into liquid form at 190 -200 C). When vulcanized (i.e. heated with &ulphur at 120 -160 C.) it loses its thermoplasticity and becomes stronger and more elastic. " "Chemically, rubber is a polymer of isoprene ......... . state, x x x x x "The term synthetic rubber is used to describe an ever grow ing number of elastic materials, some of which closely resem ble natural rubber while others have completely different Since World War II, precise termino physical properties. logy has not kept pace with the rapid developments in synthetic and plastics industries.

" x x x x "The copolymerization of the butadiene and the swrene takes place in an emulsion· in the presence of an active t;litiator, such as cumene hydroperoxide and p-menthane hydropero xide, which allows the conversion to occur at a low tempera ture (5? C.). SBR is usually prepared with 75% butadiene and 25% styrene; the proportion will, however, vary accord- ing to the desired degree of elasticity ....... " Let us consider the appellants' case to treat the V. P. Latex as In this attempt the appellants rely upon several autho rubber raw. rities from the rubber world pronouncing upon the chenlical properties as well as various uses and potentialities. Their contention is that V. P. Latex is a synthetic rubber latex and can never be taken for synthetic DUNLOP INDIA v. UNION ( GosWi111li, J.) (03 resin. The principal point to distinguish V. ~· Latex from s;nthc_tic resin is, while synthetic resin cannot. be vulcamsed, ".'· P. L~tex, _be'.n~ rubber can be vulcanised.

Accordmg to the American St"ndard tor Testing Material, (A.S.T.M.) raw rubber is d~fincd ~~ crud:? or :111- compoundcd rubber, either natural or synthetic. lnlttan Standa1ds Institution (LS.I.) defines rubber as follows : - '"Rubber in its modified state free of all diluents, retracts within one minute to less than l .5 times its original length after being stretched at normal room temperature to twice its length aad held for one minute before release. " According It is claimed by It also ·defines raw rubber as 'vulcanised rubber'. H. J. Stern in his book "Rubber~Natural and Synthetic", V. P. Latex is composed of butadiene styrene and vinyl pyridine in the ratio of 70 : 15 : 15 respectively. A synthetic latex is produced as first stage in the manufacture of most synthetic rubbers. V. P. Latex is one such sy\1thetic rubber latex. An affidavit sworn by Mr. Mayer, Manager Technical Services; Chemical Division, Goodyear Interna tional Corporation, states that V. P. Latex is a terpolyer rubb~r as defined in A.S.T.M. Specification Dic566-60T and that there is no measurable resin content in this product. appellants that pyratex which is the commercial name for V. P. Latex, imported by them, is exactly similar to the V. P. Latex referred to in Mr.

Mayer's affidavit, since it also contains. butadicne styrene and vinyl pyridine in the same proportion of 70 : 15 : 15 with no measur able resin content. It is claimed that V. P. Latex is an emulsion of synthetic rubber and it is borne out by its chemirnl composition and by its physical properties. In the ease of V. P. Latex when coagulated, the coagulum answers fully the A.S.T.M. standards and tests prescribed Its use in liquid state is commercially more expedient for rubber. than its use in dry state. V. P. Latex has been designed as a special synthetic rubber latex to be suitable for its use at the fabric cross It is claimed that in its appli linking stage with rubber compound. cation it is in no way different from any other natural rubber or synthetic rubber latices. The advantage gained in the case of V. P. Latex is that it is more stable and is not whimsical with reference man~facturi1~g. c01~ditions.

According to G. S. Whitby, the additions of ~JJ:yl pynd111c 111 such terpolymers of butadiene, styrene and viRyl pyndme have been found to improve the characteristics and properties with the increase of vinyl pyridine content and it is kno~~i1 to reach optimum at about 15 parts i.e. at a charge of 75 : 10 : 15. It is further said that vinyl pyridine copolymers suffer from the drawback of extremely high rate of cure, scorching and incompatibility with other rubbers and hence do not find use in the dry state in spite of certain superior properties. Accordi11g to the appellants' V. P. Latex, ~hen coagulated just like any other rubber latex satisfies the el.onga It is also claimed that in the inter t1on tests prescribed for rubber. . national field of rubber manufacture, an over ·the world, V. P. Latex is fully recognised as a synthetic· rubber latex and not as a synthetic resm. 8-Ll276 SCf/75 A c [) E F G A B c D E F H • I ~ 104 SUPREME COURT REPORTS [ 197 6] 2 S.C.R. The Condensed Chemical Dictionary, 8th edition, 1971, defines latex as a white free-flowing liquid obtained from some species of shrubs or trees in which microscopically small particles or globules of natural rubber are suspended in a watery serum.

Natural rubber latex, obtained from the tree Heve a Braziliensis, contains about 60% water, 35% rubber hydrocarbon, and 5% proteins and other substances. Coagulation is prevented by protective colloids, but can be . induced by addition of acetic or formic acid. Synthetic latices include polysty rene, SBR rubber, neoprene, polyvinyl chloride etc. Both natural and synthetic latices are available in vulcanised form. It describes their uses for thin rubber products (surgeons' gloves, drug sundries); gir dles, pillows, etc; emulsioR paints; adhesives; tire cord coating; rubber, natural. In the same Dictionary, rubber synthetic is described as follows : - "Any of a group of manmade e1'astomers which approxi mate one or more of tbc properties of natural rubber. Some sodium polysulfide ('Thikol'); polychloro of these are prene (neoprene); butadiene-styrene copolymers (SBR); acrylonitrile-butadiene copolymers (nitrile rubber); ethylene propylene-diene (EPDM) rubbers; synthetic polyisoprene ('Coral', 'N atsyn') ; butyl rubber (copolymer of isobutylene and is prene); polyacrylonitrile ('Hycar'); silicone (polysi loxane); cpichlorophydrin; polyurethane ('Vulkollan') ". · Styrene-butadiene rubber (SBR, s. type elastomer)-is the most common type of synthetic rubber., Manufacture involves copolyrneri zation of about 3 parts butadiene with 1 part styrene.

Its uses are for tiers, footwear, mechanical goods coati, ngs; adhesives; etc. The appellants have also produced the Import Trade Control Policy, Volume I, {or the yeali 1975-76 described during the arguments as the 'Red Book' of the Commerce Ministry of the Government of India. It may be useful to quote the entire entry 150 at page 58 : SECTION II : Policy for individual items and the detailed policy for Actual Users: Part& SI. No. of I.T.C. Schedule 1 Description IMPORT POLICY Established Importers Actual Users 2 3 4 150 Rubber, raw and gutta per- Nil cha, raw, (I) A. U. for import cif Gutta percha, raw. (2) Requirements actual users for the following items will be met by imports through public sector agency DUNLOP INDIA v. UNION (Goswami, .1.) 105 ~. 2 3 4 (i) Synthetic rubber na mely, Butyl rubber, Acrylonitrile Butadiene Copolymer, Poly 'Ch loroprene, Thikol, Cbloroprene, Polybu- Hyplaon,- tadiene, Polyacrylic, Viton EPDM. Chlonobutyl and Bi·omobutyl, Sili concrubber and/silicone rubber master batches and Synthetic i11c/11di11g Vinyl pyrid ing latex and copoly mer of styrene butadi ene latex, Nitrile latex polychloroprene latex.

(ii) Hot type special grades of SBR for manufa cture of high impact polystyrene only. Please see Section III to this Red Book. (3) Import of SBR and/or Alkyl substituted Styrene Butadiene Elastometric Copolymers will not be allowed. (4) Import of· natural rubber rubber will and reclaimed not be allowed. (emphasis added). The earlier Volume of the Import Trade Control Policy, the year 1969-70, this item 150-Rubber, raw-shows under the fourth column "Actual Users for Synthetic rubber," the following :,-- (i) Import of natural rubber will normally be arranged through STC for meeting the requirements of actu•al users. • 1 (ii) AU. for synthetic Rubber namely, Butyl rubber, Acrylonitrile Butadiene Copolymer, Polychloroprene, Thikol, Poly isoprene and Polybutadiene and Syn1he tic latex. x x x x In the Import Trade Control Policy in Volume No. I for the year 1970- 71 against serial No. 150, rubber, raw, under column 4 "Actual Users for Synthetic rubber", actual users are shown as (ii) "AU. (Actual User) for Synthetic Rubber namely, Butyl Rubber, Acrylon-trile Buta diene Copolymer, Poly Chloroprene, Thikol, Poly Isoprene and Poly butadiene Hypalon, SilicO'.ne rubber and Synthetic Latex including: A B c D E G H 106 I SUPREME COURT REPORTS [l976j 2 S.C.R. Vinyl Py1'i<line' latex and copolymer of styrene butadienc latex" (em phasis added).

Again the Condensed Chemical Dictionary at page 741 describes "Pyratcx" the trade name under which V. P. Latex has been imported as follows : - "Pyratex. 248 Trade mark for a vinylpyridine Latex. Properties : Total solids 40-42%, PH 10.5-11, 5; sp. gr. 0.96. Uses : To promote adhesion between rayon or nylon fibers and rubber, as in tire cord, belting, hose, etc. " The British Standard specification is as· follows : - The British Standards Institution gives the specification of PSBR41 lat.ox as "(Vinyl) pyridine-styrene-butadiene rubber latex with a nomi nal total solids content within the range 40.0% to 49.9% and a nomi nal bound styrene content of less than 20.0% of the total polymer"'. In the Elastomcrs Manual, under Table XI, the International Institute "GENT AC" and of Synthetic Rubber Producers, Inc. "PYRATEX" as Emulsion Styrene-Butadienc and Butadiene Rubber Latices of S 41 P Class. The classification "S 41 P" properly decoded means as belonging to the Chemical Family of Styrene-Butadiene Rub- ber (SBR) having total solid contents of 40 to 49% and Styrene Co monomer content of less than 20% wherein Vinyl Pyridine is present in the Polymer. enumi<rates Although the controversy between the parties was placed before us in an exhaustively enlarged form going into the Chemistry of V. P. Latex, it is not necessary to go into all the complexities of chemical formulae and properties.

The impugned order itself takes note of all the contentions raised before the Government and also pressed before us. This approach is also convenient and unobjectionable, since it is urged on behalf of the respondents that we should not entertain fresh materials which were not available before the authority. We may, therefore, briefly note the claim of the appellants to V. P. Latex being classified as raw rubber under item 39 I.C.T. on the grounds advanced before the Government which the authority took note of ·: \ (1) V.P. Latex is a synthetic rubber latex which satisfies wholly each and every test prescribed by the autho ritv in India as well as abroad for classification of rubber. (2) According to the A.S.T.M. definition, rubber means "an elastOmer that can be or already is vulcanised. Col!cctively the rubber constitutes the definite raw material of the rubber industry. They may be of vegetable origin or synthetic".

Synthetic resin can not be vulcanised whereas V.P. Latex, being rubber, can be vulcanised. A .B c D E F G H DUNLOP INDIA v. UNJON (Goswami, J.) 107 \. (3) A.S.T.M. further defines raw rubber as crude or un compounded rubber, either natural or synthetic. (4) According to I.SJ. definition, rubber is defined as follows : - · "Rubber in its modified state free of all di!uents, retracts within one minute to less than 1.5 times its original length after being stretched at normal room temperature to twice its length and held for one minute before release". LS.I. also defines raw rubber as unvulcanised rubber. {5) V. P. Latex is composed of butadiene styrene .and vinyl pyridine in the ratio of 70 : 15 : 15 respectively. .According to H. J. Ster,n (author of 'Rubber-Na tural and Synthetic'), a synthetic latex is produced at the first stage in the manufacture of most synthetic rubbers (page 358). V. P. Latex is one such syn thetic rubber latex . .(6) V.P. Latex is very much similar to other synthetic rubber latices.

V.P. Latex cannot be regarded as an aqueous dispersion of synthetic resin since it has no measurable resin at all. On the contrary the proper description of V.P. Latex would be to call it an emul-· sion of synthetic rubber and this is borne out by its chemical composition and by its physical properties. (7) The question of classifying a substance rests primarily on its chemical prop·erties as borne out by technical In the case of V.P. Latex, when coagulated, tests. the coagulum answers fully the A.S.T.M. Stand_ards and tests prescribed for rubber. Its use in liquid state is commercially more expedient than its use in dry state but this should not be a factor in classifying a product according to its technical and chemical com position. ( 8) V.P. Latex has been designed as a special synthetic rubber latex to be suitabll) for its use at the fabric In its cross-linking stage with rubber application it is in no way different from any other natural rubber or synthetic rubber latices. v.

P. Latex should, therefore, properly be regarded as a synthetic rubber latex. · compound. ( 9) It is not correct to say that all rubber latices when coagulated should have an absolute commercial dry rubber usage in order to be classified under raw rub- "the addition of ber. Quoting from G. S. Whitby vinyl pyridine in ·such terpolymers of butadiene styrene and vinyl pyridine has been !mprovc the characteristics and properties with the mcrcase of vinyl pyridine content and it is known to A B c D .E F G H • 1 108 A SUPREME COURT REPORTS [ J 97 6] 2 s.c.R. (Synthetic reach optimum at about 15 parts, i.e. at a charge of 75: 10: 15 rubber by Whitby, page 725). It was admitted that vinyl pyridine copoly mers do not find use in the dry state as they suffer from the drawback of extremely high rate of cure, scorching and incompatibility with other rubbers. . ' B (10) V.P. Latex has to be assessed in the form in which In this view, V.P. Latex is nothing it is imported. but a synthetic rubber latex.

(11) In the international field of rubber manufacture all over the world V.P. Latex is fully recognised as a synthetic rubber latex and not as a synthetic resin. While V.P. Latex can be coagulated and vulcanised, a synthetic rubber cannot be vulcanised. C The appellants submitted before the revisional authority-letter dated 26th November, 1970, written by Dunlop Products ·Chemical Division on V.P. Latex; extracts from Elastomers Manual published by the International Institute of Synthetic Rubber Producers; Articles D written by W.F. Brucksch, Jr. of Metal Halides in Vinylpyridine Rubber (PBR) published Rubber Chemistry and Technology; A.S.T.M. Glos sary of Terms relating to Rubber and Rubber like Materials; and the books by G.S. Whitby and H. J. Stern. It was pointed out before the authority by the appellants that rubber was always obtained first in a latex form and latex was nothing but an aqueous state of rubber, that V.P. Latex is a liquid rubber designed for use in tyre manufacture It was also pointed out with reference to the classification of synthetic rubber latices that the Central Board itself had ruled in several cases that these were to be regarded as coming under I.C.T. 39.

E · as a bonding agent by cross linking with fabrics. The conclusion of the revision of authority after considering the above submissions, may be quoted in its own words : F G "V.P. Latex is a synthetic latex designed to be used in the manufacture of tyres as a bonding agent by cross linking It has been admitted by the importers that the with fabric. product is not used in the dry state .... V.P. Latex is a liquid latex used as such and the question boils down to consider whether synthetic rubber latex could be classified as 'raw rubber' assessable under item 39 J.C.T. irrespective of its usage known commercially or in the industry. " Then after noting the definition of latex in the Chemical Dic tionary and in the "Materials Hand Book" by Brady, the authority observed as follows : - "These definitions imply that latex is a material from H which rubber is obtained and not rubber itself". ' Latex, according to the authority is, milk juice of the rubber tree which is source of rubber and is in common parlance referred to as .) I ~ - t DUNLOP INDIA v. UNION (Goswami, J.) 109 rubber. The authority then refers to Chapter 40 of the Brussels Tarifi Nomenclature (B.T.N.) dealing with natural rubber latex (40.01) and synthetic rubber latex ( 40.02) :

40.

"Natural rubber latex, whether or not with added synthetic rubber latex; pre-vulcanised natural r~b)x:r latex; natural rubber; balata, gutta-percha and s1m1lar natural gums".

40.

"Synthetic rubber latex; pre-vulcanised synthetic rubber latex; synthetic rubber; factice derived from oils". The authority then observed as follows : - "Chapter 40 of the B.T.N. covers raw rubber. Heading No 40.01 refers to 'natural' Rubber Latex whether or not with added synthetic rubber latex., pre-vulcanised natural rubber latex, natural rubber ... but natural rubber latex has been defined under 40.01 as containing in suspension 30% to 40% of rubber. Ruber latex therefore appears to fall under 40.01 by specific inclusion only. So also synthetic rubber latex is specifically mentioned in heading 40.02. Had they not been so specified, latex may have been excluded from the scope of the heading 'rubber'." To say the least, it is difficult to appreciate the strained meanin~ given by the authority in the above extract. At any rate the authority concludes "hence it appears that rubber latex is not rubber as such but merely a source of rubber ..... In this view, latex and rubber will have to be distinguisned from each other".