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Case Law Details

Case Name : In re VVF (India) Limited (CAAR Mumbai)
Appeal Number : Ruling No. CAAR/Mum/ARC/92/2021
Date of Judgement/Order : 22/12/2021
Related Assessment Year :
Courts : CAAR

In re VVF (India) Limited (CAAR Mumbai)

CAAR held that the goods ‘Fatty Alcohol Ethoxylate (1-mole, 2-moles, 7-mole)’ are non-ionic organic surface-active agents and merit classification under subheading 34021300 of Customs Tariff Act, 1975, subject to prescribed conditions under note 3 to Chapter 34.

FULL TEXT OF ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI

M/s VVF (India) Limited vide their application dated 17.02.2017 sought an advance ruling on the classification of Fatty Alcohol Ethoxylate (1-mole, 2-mole, 7-mole). The application was admitted on 03.11.2017, though no ruling was passed. Thereafter, on the appointment of the Customs Authority for Advance Rulings, Mumbai under the provisions of section 28EA of the Customs Act, 1962; the secretariat of the erstwhile AAR transferred the said application to the CAAR, Mumbai.

2. On scrutiny by the Secretary to the Customs Authority for Advance Rulings, Mumbai, it appeared that the application has lapsed since no ruling was given within 3 months as mandated under sub-section 6 of section 28-1 of the Act. However, on a constructive interpretation of the law and purely as a trade facilitation measure, the applicant was given an opportunity to re-submit the application if they continued to be desirous of obtaining an advance ruling as sought originally. Accordingly, the application has been submitted on 03.08.2021.

3. The applicant is a registered resident public limited company. They are engaged in the manufacturing and export of oleochemicals. They also export fatty alcohol ethoxylate (I -mole, 2-mole, 7-mole) (hereinafter referred to as FAE) as a merchant exporter, which is procured from M/s. Esteems Industries Private Limited. As per sample shipping bills appended with CAAR-1, the applicant has classified FAE under subheading 34021300 of the Customs Tariff Act, 1975 for export purposes. The applicant intends to import FAE. In their original application, the applicant indicated that they wish to import Fatty Alcohol Ethoxylate (1-mole, 2-moles, 7-mole) under the jurisdiction of the Principal Commissioner/ Commissioner of Customs, Mumbai Zone-I, Mumbai Zone-II and Mumbai Zone-Ill. In their fresh application dated 03.08.2021 also, the applicant has expressed the same intention.

4. As per the applicant, the generic name of FAE is “Lauryl alcohol with ethylene oxide derived with 1, 2, and 7-mole ethoxylation”. These are surfactants, which are commonly used as components of cleaning detergents and formulation in the industrial, commercial, and domestic markets. FAEs find large-scale applications in detergents (wetting agents, emulsifiers), personal hygiene products (shampoos, foam boosters), leather (degreasing, wetting), textile paints and agriculture (emulsifiers, dispersion) processes. As per safety data sheets issued as of 01.01.2015 by Esteem Industries Pvt. Ltd. for FAE, the product is recommended to be used as a surfactant in the chemical industry. Therefore, FAE is a surfactant, also known as a ‘surface active agent’, used in various applications as mentioned above. As per the applicant, the product FAE is classifiable under subheading 34021300, which is a specific Tariff Heading for classifying organic non-ionic surface-active agents.

5. In respect of the application for advance ruling filed originally, Commissioner of Customs, NS-V, JNCH, Nhava Sheva was of the view that the said product merits classification under CTH 3402 and that the CTH 3824 may not be considered.

6. In their new CAAR-1 application, the applicant has declared that they would import under the jurisdiction of Principal Commissioner/ Commissioner, Mumbai (Zone I, Zone II and Zone III). Accordingly, their application was forwarded to the jurisdictional customs authorities for comments. The jurisdictional commissionerate of Mumbai Customs, Zone II is of the view that as per information provided by the applicant, the goods to be imported are FAE. The surface-active agents are specifically classified under heading 3402 of the Customs Tariff Act, 1975. Therefore, heading 3824, which is a residual heading does not merit consideration. No comments have been received from Mumbai Customs, Zone I and III.

7. The applicant was heard in virtual mode on 21.09.2021. Shri Karthik Dedhia, advocate represented the applicant. No one appeared on behalf of Principal Commissioner/ Commissioner, Mumbai (Zone I, Zone II and Zone III). The applicant explained the product specifications in detail and drew my attention specifically to Chapter Note 3 of Chapter 34. They shared a test report of the products dated 06.03.2017 issued by Jamnagar based Intertek laboratory and a safety data sheet dated 01.01.2015 issued by M/s. Esteem Industries Pvt. Ltd. in respect of the goods under consideration. The test report of the FAE is reproduced below:

Test Unit Result Test Method
FAE 01 FAE 02 FAE 03
Appearance of
0.5% solution
Milky   hazy

precipitate on top and

does       not       mix      with

No         precipitate

semi-milky

Clear                  and

solution solution

Visual
water       layerhaziness
completely solution
Surface tension nN/m 20.8 21.9 28.5 IS: 6104

7.1. An email was sent to the applicant on 23.09.2021 for further clarifications. They were asked to submit a test report with an explicit description of the appearance of the goods in the visual test method. They were also asked to submit details in respect of the impugned goods such as the manufacturing process, basic raw materials used in the manufacturing, the polarity of the goods, etc. The applicant submitted the requisite details on 19.11.2021. The new report as submitted by the applicant was issued by the same testing laboratory with the same date of issuance but with a different description as compared to the first report.

Test Unit Result Test Method
FAE 01 FAE 02 FAE 03
Appearance of
0.5% solution
Translucent

solution but not a solution stable   emulsion-stable
has separation of insoluble       matter of
after standing for after 1 hour

Translucent emulsion without separation without insoluble matter. standing for 1 hour with a solution Transparent with a stable    emulsion separation If insoluble matter after standing for 1 hour Visual
Surface tension nN/m 20.8 21.9 28.5 IS: 6104

The samples in report FAE 01, FAE 02 and FAE 03 represent lauryl alcohol 1-mole ethoxylate, lauryl alcohol 2-mole ethoxylate and lauryl alcohol 7-mole ethoxylate, respectively. They informed that FAE is obtained by performing the process of ethoxylation upon fatty alcohol. The fatty alcohol used here is lauryl alcohol. The reaction formula is:

ROH + nC2H4O –> R(OC2F14)nOHn=1-loo

The reaction is performed by blowing ethylene oxide through the alcohol at 180°C and under 1-2 bar of pressure. The resultant goods are FAEs or organic surface-active agents. The polarity of the goods is non-ionic. The impugned goods lower the surface tension between liquid-liquid or liquid-sol id.

7.2. In the 2″d virtual personal hearing dated 07.12.2021, S/Shri Kartik Dedhia and Dr. Rajesh Rao appeared on behalf of the applicant. Shri Rao explained that the usage of both the terms, i.e., solution and emulsion in the test report is an oversight. They also confirmed that the test report pertains to samples provided by M/s. Esteem Industries Pvt. Ltd. The samples were not drawn from actual chemicals which are intended for importation. To a question as to the form of FAE, it was explained that it was in a liquid state. It was then pointed out to the applicant that if FAE is liquid, its mixture in water would lead to an emulsion and not a solution, as reported in the test report. It was also pointed out to the representatives that the act of the testing laboratory issuing the test report on the same date using different descriptions is inappropriate.

8. I have considered all the materials placed before me for the subject product. I have gone through the comments from the jurisdictional commissionerate and submissions made by the applicant during the personal hearings. To summarise, the applicant intends to import FAE, for which appropriate classification is sought. As per the applicant, the product is classifiable either under subheading 34021300 or under subheading 38249900, out of which, subheading 34021300 is appropriate according to them.

8.1. The applicant has stated that the fatty alcohol used to prepare FAE is lauryl alcohol. In Section VI of the Customs Tariff Act, 1975, the lauryl alcohol is mentioned under heading 2905 and specifically at subheading 29051700. However, lauryl alcohol ethoxylate is not saturated monohydric alcohol. Further, the impugned goods are not halogenated, sulphonated, nitrated or nitrosated derivatives of the lauryl alcohol. Therefore, these goods are not classifiable under Chapter 29. The FAE is neither a separately defined chemical element nor a separately defined chemical compound. Hence, these goods are not classifiable under Chapters 28 and 29 of the Customs Tariff Act, 1975. Chemical mixtures are generally classified in Chapters 30 to 38 based on their function, intended usage, and chemical composition.

8.2. Coming to the chemical synthesis and intended usage of the impugned products, alcohol ethoxylate is a compound that is produced by the addition of epoxides/ethylene oxide (EO) in the desired molar ratio to substrates like alcohol. Ethoxylation is a chemical process where ethylene oxide reacts with amine, alcohol or phenol, acid, oil to produce ethoxylate or ethoxylates or ethoxylated surfactant. The applicant informed that the fatty alcohol used in this process lauryl alcohol, therefore the product is also known as lauryl alcohol ethoxylate in common trade parlance. The addition of ethylene oxide (EO) to fatty alcohol results in a surface-active agent having the hydrophobic carbon-rich oleo based fatty alcohol and the hydrophilic polyoxyethylene fragment. These dual characteristics, i.e., hydrophobic and hydrophilic, enable the fatty alcohol ethoxylate to inhabit the interfaces between oil and water and combine them by reducing the interfacial energy providing effective mixing resulting in clear solutions/formulations. Thereby fatty alcohol ethoxylates are compounds that lower the surface tension between two liquids, between a gas and a liquid, or between a liquid and a solid. This functionality of FAE gives them the term of surface-active agents or surfactants. The applicant has also submitted in their application that the FAEs are used as surface-active agents. Such FAE finds large-scale applications in detergents (wetting agents, emulsifiers), personal hygiene products (shampoos, emollients, foam boosters, viscosity builders), leather (degreasing, wetting), textile paints and agriculture (emulsifiers, dispersion) processes.

9.1. The applicant has suggested headings 3402 and 3824 of the Customs Tariff act, 1975 for the classification of FAE.

CTH 3402: Organic surface-active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of heading 3401

CTH 3824: Prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included.

Rule 1 of the GI Rules lays down that the titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes. Note 3 to Chapter 34 has expressed organic surface-active agents as the products which when mixed with water at a concentration of 0.5% at 20°C and left to stand for one hour at the same temperature: (a) give a transparent or translucent liquid or stable emulsion without separation of insoluble matter; and (b) reduce the surface tension of water 4.5 X 102 N/m (45 dyne/Cm) or less. Further HSN explanatory notes have given the following description for organic surface-active agents:

a. The organic surface-active agents of this heading are chemical compounds, not chemically defined, which contain one or more hydrophilic or hydrophobic functional groups in such a proportion that, when mixed with water at a concentration of 0.5 % at 20 °C and left to stand for one hour at the same temperature, they give a transparent or translucent liquid or stable emulsion without separation of insoluble matter. Further, it states that an emulsion should not be considered as having a stable character if, after being left to stand for one hour at 20 °C, (1) solid particles are visible to the naked eye, (2) it has separated into visually distinguishable phases or (3) it has separated into a transparent part and a translucent part, visible to the naked eye. However, products that are not capable of reducing the surface tension of distilled water to 4.5 x 10-2 N/m (45 dyne/cm) or less at a concentration of 0.5 % at 20 °C are not regarded as surface-active agents and are therefore excluded from this heading.

b. Organic surface-active agents are capable of adsorption at an interface; in this state, they display a number of physicochemical properties, particularly surface activity (e.g., reduction of surface tension, foaming, emulsifying, wetting), which is why they are usually known as surfactants”.

Thus, for any goods to be classified as organic surface-active agents, they must satisfy the above two conditions.

Classification of Fatty Alcohol Ethoxylate (1- mole, 2-mole, 7-mole)

9.2. The test results were analysed against the standards prescribed by the HSN explanatory notes mentioned above. It is observed that all three FAEs. i.e., FAE 01, FAE 02 and FAE 03 are able to reduce the surface tension of distilled water below 4.5 x 10-2 N/m (45 dyne/cm). However, the lab has used loose language to report the findings of the visual test. As per note 3(a) of Chapter 34, if the chemical is mixed with water at a concentration of 0.5% at 20 °C for one hour, it would give a transparent or translucent liquid or stable emulsion without separation of insoluble matter. However, as per the lab report when the chemical is mixed with water, it gives both a solution and an emulsion. A solution results when there is complete miscibility between the solute and the solvent at a given temperature. A solution is a clear homogeneous mixture and the solute particles are no longer visible nor do they settle down. On the other hand, an emulsion comprises a dispersion of two or more immiscible liquids. It is a stable suspension of small droplets of one liquid in another with which it is immiscible. Therefore, depending on the degree of affinity the resulting mixture can either be a solution or an emulsion, but not both. In the present case, the mixture of FAE in water should give an emulsion, and not both, i.e., solution and emulsion. A laboratory issuing report for legal purposes should have used proper scientific terms carefully. It is further observed that, when the applicant was asked to produce a report with an explicit description of findings of the visual test, the same report with a changed description was submitted. The sample IDs for testing, the date of issuance, etc., were the same as that of the first report. Only the description of the findings of the visulat test was changed. It was unprofessional behaviour on part of the lab to reproduce the same report with a changed description. It is to be noted though, that the samples provided by the applicant to the lab were not drawn from the chemicals intended for importation. These samples pertain to M/s. Esteem Industries Pvt. Ltd. Therefore, this lab report cannot form the basis to arrive at a ruling. I will rely on the description of the goods provided by the applicant and the information available in the public domain and other reliable sources.

9.3.  As per the product information provided by the importer by way of the Safety Data Sheet of the item in question “Fatty Alcohol Ethoxylate (1), Fatty Alcohol Ethoxylate (2) and Fatty Alcohol Ethoxylate (7)”, is a surfactant. As per the safety data sheet, the Chemical Abstracts Service (CAS) No. of the products under consideration is 68439-50-9. The CAS no. was checked on https://commonchemistry.cas.org/. The chemical registered against this number is Alcohols, C12-14,  ethoxylated  that is FAE. Further, PubChem was referred to on https://pubchem.ncbi.nlm.nih.gpv/ for more information. It is a public chemical information resource, developed and maintained by the National Center for Biotechnology Information (NCBI) at the National Library of Medicine (NLM), an institute within the U.S. National Institutes of Health (NIH). The PubChem id for the chemical under consideration is 2724258. The chemical is also known as Polyoxyethylene lauryl ether, Laureth, non-ionic surfactant etc. It is stated on the website that FAE is an alkyl polyglycol ether of lauryl alcohol, chemically defined as an alcohol ethoxylate having an average alkyl chain of 12-14 carbon atoms and an ethylene oxide chain of 9 ethylene oxide units and it is used as a surfactant. The impugned goods are non-ionic surfactants as per the description provided by the applicant and information available on PubChem. Nonionic surfactants are a type of surface-active agents that have no net electrical charge in their formulations. That means the molecule does not undergo any ionization when it is dissolved in water. Accordingly, the product under consideration is classifiable under subheading 34021300 as a non-ionic organic surface-active agent.

9.4. Coming to one of the proposed headings, i.e., 3824, suggested by the applicant. It is seen that this heading includes prepared binders for foundry moulds or cores; chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included. The product FAE is a surfactant and there is a specific entry for it under heading 3402. Thus, the question of ‘not elsewhere specified or included’ does not arise. Therefore, the product is not under heading 3824.

9.5 When the alternate heading 3402 is considered, it would appear that organic surface-active agents have to satisfy the conditions mentioned in para 9.1. The lab report submitted cannot be considered to arrive at a ruling for the reasons discussed in 9.2. The ruling in this case has to rely upon product description and relevant information available in the public domain and other reliable sources. Therefore, the impugned goods appear to be appropriately classifiable under subheading 34021300, subject to the condition that the chemicals so imported satisfy the conditions prescribed under note 3 to Chapter 34 of Customs Tariff Act, 1975.

10. In view of the above-mentioned discussions, I hold that the goods “Fatty Alcohol Ethoxylate (1-mole, 2-moles, 7-mole)” are non-ionic organic surface-active agents and merit classification under subheading 34021300 of Customs Tariff Act, 1975, subject to prescribed conditions under note 3 to Chapter 34.

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