REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 4077 OF 2003
COMMNR. OF CENTRAL EXCISE, MEERUT-II ...APPELLANT
VERSUS
M/S. SUNDSTRAND FORMS P. LTD....RESPONDENT
JUDGMENT
Dr. MUKUNDAKAM SHARMA, J.
1. The present appeal arises out of the judgment and order dated 14.5.2002 of Customs, Excise and Gold [Control] Appellate Tribunal, New Delhi [for short “the Tribunal”] allowing the appeal filed by the Respondent-assessee and setting aside the order dated 28.12.2000 of the Commissioner, Central Excise, Meerut-II, U.P..
2. In order to decide the issues arising in the present case in proper perspective, basic facts leading to filing of the present appeal are being recapitulated hereunder.
3. Respondent is a firm engaged in the manufacture of computer stationery, business forms, etc., [carbonless or with carbon]. The respondent claims that the goods produced by them, namely, computer stationery, business forms and other allied products fall under sub-Heading Nos. 4901.90 and 4820.00 of the Schedule to the Central Excise Tariff Act, 1985 [for short “the Tariff Act”] and, therefore, the said articles are chargeable to NIL rate of duty.
4. Multi copies of computer stationery are manufactured either by inserting carbon paper between the two sheets of paper or by chemical treatment of the paper to make itself copying [carbonless stationery].
5. The carbonless paper is a chemically treated paper used for producing impression of the writing or manuscript of the original paper on the other paper sheet. Such carbonless paper, which is a kind of copying paper is processed firstly by printing, which is done at pre-fixed places of the paper with the purpose of printing names of the buyers, logo or some other words as desired by the buyers and after the said process is over the printing paper is then passed through coating unit for applying chemical to develop the character of self-copying paper. The backside of the paper is coated to obtain top copy and front coating is done on the sheet which is to be used as bottom copy. The next step, which is the final step, is to get chemically coated copy passed through the coating unit for perforation, punching and fan-folding.
6. There is also no dispute with regard to the fact that the carbonless paper or self-copy paper emerges at the intermediate stage and has its own life but the same could be further used in the manufacture of stationery in continuous process. There is also no dispute with regard to the fact that the carbonless paper is a well known marketable commodity as is evident from the process of manufacturing. The carbonless paper or other paper cannot be treated as the computer stationery unless it is subjected to the second stage of processing, i.e., the process of perforation, punching and fan-folding etc. Therefore, in common trade parlance the computer stationery is
processed through various modes of processing as indicated hereinbefore.
7. On intelligence, a team of Central Excise Officers visited the factory premises of the respondent herein at Noida and examined the manufacturing process of the carbonless stationery. It was found that the respondent-company was purchasing carbonless paper in roll form, coated with chemical on backside or front side or on both sides, from the market and such carbonless paper was subjected to the process of only printing and perforation, etc., for the manufacture of the stationery.
8. The Commissioner, Central Excise, Meerut-II issued a show cause notice dated 30.04.1998 wherein it was alleged that the respondents were engaged in evasion of duty on carbonless paper which emerged at the intermediate stage during the course of manufacture of carbonless stationery from the plain paper. Therefore, they were asked to show cause as to why duty amounting to Rs. 49,05,335.00 which was allegedly not paid on the carbonless paper manufactured and removed from their factory during the period from 1993-94 to 1997-98 [upto 12/97] should not be recovered from them under Rule 9(2) of the Central Excise Rules, 1944 read with provisions of Section 11A(1) of the Central Excise Act, 1944 invoking extended period of 5 years and also to show cause as to why penalty and interest on the evaded duty should not be imposed upon it. The said notice proposed to charge duty on the said carbonless paper emerging at the intermediate stage under sub-heading No. 4816.00 to the Schedule to the Central Excise Tariff Act, 1985.
9. Simultaneously, proceedings were initiated against MD and Deputy MD of the respondent-company for imposing penalty upon them. Thereafter, six other show cause notices were also issued on the same issue to the respondents for raising the demand of duty in terms of Rule 9(2) of the Central Excise Rules, 1944 read with Section 11A of the Central Excise Act, 1944 and invoking penal provisions.
10. Notice issued by the Department mentioned that the respondent-company is engaged in evasion of duty on carbonless paper which emerged at the intermediate stage during the course of manufacture of carbonless stationery from the plain paper. Therefore, the Department demanded Central Excise duty at the intermediate stage when the paper is coated to make it carbon less paper or self-copying paper. Notice alleged that the carbonless paper is a separate commodity, different from plain paper, and its user is also different from the ordinary paper. The carbonless paper emerged on subjecting certain process, i.e., application of chemicals and printing which was done to describe the name of the buyer and other details relating to which ultimately the paper was to be used for in the present case. The printing was only incidental to the carbonless paper emerging at the intermediate stage and that the printing was not in any way necessary for the manufacturing of carbonless paper which emerged at intermediate stage. According to the Department, such carbonless papers could be further used into the manufacturing of the stationery in continuous process, as it was evident from the process of manufacture and statement of the party that the process of perforation, punching and fan folding, etc., was responsible to convert carbonless paper/other paper into computer stationery.
11.The Department classified the product as "the coated paper” at the intermediate stage under Heading 48.16 of the Tariff Act which applies to carbon paper, self-copying paper and other copying or transfer papers. Notice alleged that the printing of certain words only specified the buyer but it would not in any way make them unmarketable, as the carbonless paper which emerged at the intermediate stage in the course of the manufacture of the carbonless stationery was similar to carbonless paper purchased from the market and the only difference was that in the case of the respondent the carbonless paper manufactured at their end was printed with some words relating to the buyers.
12. Thereafter, the Commissioner in its Order-In-Original dated 28.12.2000 confirmed the demand of the department and imposed penalty of Rs. 50 lakhs on the respondent assessee.
13. Aggrieved by the same the respondent-assessee filed an appeal before the Customs, Excise and Gold [Control] Appellate Tribunal, New Delhi which vide its order dated 14.05.2002 held that the impugned product is not
classifiable under heading 48.16 as carbonless paper and allowed the appeal of the respondent.
14. Being aggrieved by the said order of the Tribunal, the Department has filed the present appeal, on which we heard learned counsel appearing for the parties, who have taken us through all the materials available in the record.
15. There are two specific issues which arise for our consideration in the present appeal and the same were also argued extensively by the counsel appearing for the parties. The first issue, relates to under which particular heading the intermediary product would fall or is it to be treated as a final or end product, under heading 4820.00 of the Schedule to the Central Excise Tariff Act. The second issue arising for our consideration is as to whether or not the intermediary product in question has a marketability prospect and capability.
16. The counsel appearing for the appellant argued that the intermediary product with which we are concerned falls under Heading No. 48.09 read with 48.16 of the Schedule to the Central Excise Tariff Act whereas according to the counsel appearing for the respondent-company the same
falls under the Heading 48.20 or under sub heading 4901.90 of the Schedule.
17. In support of his contention, counsel appearing for the respondent-assessee relied upon the Circular dated 15.10.1991 issued by the Central Board of Excise and Customs, Government of India, New Delhi, which was
issued in relation to classification of paper printed with a format of air line tickets or embarkation/disembarkation cards and submitted that they were under a bona fide belief in view of the said circular that no duty was attracted on the printed coated paper arising at the inter mediate stage during the continuous process of manufacture of carbonless computer stationery and that in the said circular it was clarified that formats (of airline tickets, embarkation cards, etc.) which have ink deposited at appropriate places on the reverse side, instead of being classified under Heading 48.09 or 48.16, would be classifiable under sub-Heading 4820.00 or 4901.90 attracting nil rate of duty and that the Department is bound by its own Circular issued by the Board.
Please check the details in the attached file....
