The Hindu Business Line : The fibre of `contention'

HAYYAN Faisal asks, "Did Shark bite the Fibre Optic Cable, linking Pakistan with world?" in a recent story posted on www.pakistantimes.net, but the case on hand is about how the taxman almost bit the optic fibre cable!

Yes, the Optel Telecommunication Ltd dispute that came up before the Delhi tribunal was about the classification of the cables manufactured by the company, and the Department's arguments tried to make inroads into the sheathing, as we shall presently see.

Optel, an undertaking of Madhya Pradesh State Government, manufacturing optical fibre cables since 1989, classified its product under heading 90.01 of the Central Excise Tariff.

Chapter 90, if you were to consult www.cbec.gov.in, is titled `optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; clocks and watches; musical instruments; parts and accessories thereof'.

And heading 9001 reads: "optical fibres and optical fibre bundles; optical fibre cables other than those of heading 8544; sheets and plates of polarising material; lenses (including contact lenses), prisms, mirrors and other optical elements, of any material, unmounted, other than such elements of glass not optically worked".

Habit is a cable, says Horace Mann. "We weave a thread of it each day, and at last we cannot break it."

Tax officials, as we know, have woven a stout cable of habit, to invariably differ with the taxpayer; and so, in Optel's cable matter, the Department said that heading 85.44 should be more appropriate for the company's products.

It reads, "insulated (including enamelled or anodised) wire, cable (including co-axial cable) and other insulated electric conductors, whether or not fitted with connectors; optical fibre cables, made up of individually sheathed fibres, whether or not assembled with electric conductors or fitted with connectors".

The officials, therefore, told Optel that its cables couldn't be said to be made by other than `individually sheathed' fibre or fibres in bundles so as to classify them under heading 90.01. When the company took up the issue with the Assistant Commissioner, he held that colouring of fibre itself amounted to sheathing and accordingly optical fibre manufactured by Optel should go under 85.44.

At the tribunal, Optel's advocate P.C. Jain forcefully argued that the company does not individually sheath the fibres, which eventually take the form of cables. At no stage of the various processes undertaken by the company, individual fibre is sheathed, he said. Optel had a technical collaboration with Furukawa Electric Company of Japan and the first stage in the process of manufacture is manufacture of `pre-form', said Jain.

"The second stage is the fibre drawing process in which the pre-form is taken to the fibre drawing tower where the same is heated at one end to the melting point and then this end is pulled downwards using a computer-controlled process to draw the fibre and a thin coating of UV cured acrylate is simultaneously applied to it; this coating is invisible to the naked eye; the third step involves colouring of fibres for purposes of identification using various types of colouring ink; loose tubings in which two fibres (one coloured and one with natural colour) are placed in a loose tube into which jelly is filled with the two fibres being loosely accommodated in the tube," he elaborated, in an educative manner. Also, "Jelly is applied during the core manufacturing stage and a polyester film is wrapped around the core which is held in place by PE Tapes; ... it is the loose tube cores which are sheathed with black LDPE and to provide extra strength to the cable with respect to rodent attack, suitable nylon jacketing is also done."

To the taxman who was waiting to gnaw at the assessee's arguments, Jain explained that sheathing was only of loose tubes, and that the thin UV cured acrylate coating did not constitute sheathing. He cited the Explanatory Notes of HSN below heading 90.01 that "optical fibre cables consist of concentric layers of glass or plastic of different refractive indices, invisible to the naked eye, which renders the fibres less prone to fracture."

Even if tube were to be considered sheathing, it contained two fibres and not an individual fibre, he reasoned. To support his stand, he produced a certificate from the Department of Electrical Engineering, SV Government Polytechnic, Bhopal, and it said that the cables manufactured by Optel were multi fibre sheathed cable.

"One sword keeps another in the sheath," says George Herbert; likewise one argument tries to keep the other in check, during hearings. However, when it was the turn of the Department to speak, its representative R.C. Sankhla cited the Concise Oxford English Dictionary and said that sheathing meant "protective casing or covering," and that sheathe means "encase in a close-fitting or protective covering". I wish he had supplemented with what Word suggests as synonyms for sheathe: wrap, envelop, enfold, drape, bind, bandage, swaddle and cloak.

Sankhla's contention was that by putting a UV cured acrylate coating on individual fibre sheathing of individual fibre has been done. "As individual fibre has been sheathed, it is squarely covered by heading 85.44," he submitted. Like his adversary Jain, Sankhla too relied upon the Explanatory Notes of HSN that "the sheaths are usually of different colours to permit identification of the fibres at both ends of the cable".

Sankhla contended that heading 85.44 applied to individual sheathing; and that the number of fibres therein did not matter. Bundles were covered by heading 90.01, and the dictionary defined bundle as "a collection of things or quantity of material tied or wrapped up together," he pointed out.

Jyoti Balasundaram and V.K. Agrawal of the tribunal heard both the sides and said that nowhere was it mentioned in the process of manufacture that the fibre was sheathed individually, as required for classifying it under heading 85.44. According to Webster's English Dictionary, `individual' means "subsisting as one indivisible entity or distinct being; single; pertaining to one only," observed the tribunal.

Explanatory Notes of HSN also do not support the findings of the Department that the coating of acrylate amounted to sheathing, said the tribunal, ruling that the Department had not proved that the impugned optical fibre cables were made up of individually sheathed fibres so as to warrant classification under heading 85.44.

A ruling on sheathing that should have reminded the taxman of Shakespeare's King Henry IV: "So shaken as we are, so wan with care, find we a time for frighted peace to pant... the edge of war, like an ill-sheathed knife, no more shall cut his master."

Picture by K. Pichumani

Cases@TheHindu.co.in

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