D.C. Mandal, Member (T)

1. The issue for decision in this case is whether correcting fluid and diluter packed in separate bottles and then cleared as one set in a common container should be classified under Tariff Heading 3823.00 in respect of correcting fluid and 38.14 in respect of the diluter for the purpose of Central Excise duty and whether value of correcting fluid only should form the basis of assessable value of the correcting fluid and not the total value of the correcting fluid and thinner.

2. The facts of the case in brief are as follows :-

(a) The appellants manufacture correcting fluid falling under Tariff Heading 3823.00. They also purchase diluter in bulk falling under Tariff Heading 3814.00. They repack diluter into small glass bottles and seal them. They clear correcting fluid and diluter separately. In respect of correcting fluid they pay Central Excise duty which is at 15% ad valorem. They do not pay duty on diluter packed in small glass bottles as they avail of the benefit of full exemption from Central Excise duty under Notification No. 230/86-C.E., dated 3-4-1986, as amended. They also clear sets of one bottle of correcting fluid and one bottle of diluter, both packed in a common container.

They filed a classification list in respect of this double pack, classifying the diluter under Tariff Heading 3814.00 and correcting fluid under Tariff Heading 3823.00 respectively. The value of the double pack was shown by them to be the total value of diluter and correcting fluid less the value of the correcting fluid, for the purpose of assessment to Central Excise duty. They did not include the value of the diluter on the ground that diluter was not manufactured by them. They manufactured correcting fluid on which only Central Excise duty was payable. The classification list was approved by the central excise officer. The Assistant Collector of Central Excise, Central Excise Division-I, Nagpur, issued a show cause notice on 4-8-1988 under Section 11A of the Central Excises and Salt Act, 1944, proposing recovery of Central Excise duty amounting to Rs. 1,04,894.22 for the period from January, 1988 to June, 1988. In his order-in-original No. 27/89 (Demand) dated 19-7-1989 (issued on 20-7-1989), the Assistant Collector, Central Excise Division-I, Nagpur, held that in the double pack of correcting fluid and diluter, correcting fluid provides the essential character to the goods and under Rule 3(b) of the Rules for interpretation of the Schedule to the Central Excise Tariff Act, 1985, the double pack of correcting fluid and diluter should both be assessed under Heading 3823.00 as a set of articles and the value for assessment should be the total value of the correcting fluid and diluter taken together in respect of one double pack and not the value of the correcting fluid only. He confirmed the demand for duty of Rs. 1,04,894.22 under Section 11A of the Central Excises and Salt Act, 1944. By the impugned order the Collector (Appeals) has upheld the order of the Assistant Collector. Hence this appeal before us.

3. During the hearing before us, the learned advocate for the appellants has argued that in terms of Note 2(d) to Chapter 38 of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as New Tariff), Diluter was classifiable under Heading 38.14 and chargeable to Nil rate of duty under Notification No. 230/86-C.E., dated 3-4-1986. He has stated that there is no dispute in the classification and assessment of correcting fluid and diluter cleared separately. The Department has classified the set consisting of both correcting fluid and diluter under Heading 3823.00 following the Interpretative Rule 3(b) and Note 2 to Section VI of the New Tariff. He has also argued that the diluter or thinner cleared in the common pack with the correcting fluid is used as and when required for mixing with correcting fluid, otherwise the correcting fluid is used as such. Therefore, by mixing thinner with the correct