Commnr. Of Central Excise, Meerut-Ii vs M/S. Sundstrand Forms P.Ltd

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

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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].

Page 2 of 23 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

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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.

Page 4 of 23 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.

Page 5 of 23 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

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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

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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

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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.

Page 9 of 23 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.

Page 10 of 23 18. On the other hand, counsel appearing for the appellant

vehemently argued that the said Circular has no application

to the facts of the present case as the Circular neither deals

with continuous carbonless computer stationery paper nor

with the carbonless stationery and that it actually deals

with plain continuous computer stationery.

19. It is the case of the appellant that the product

manufactured by the respondent company is carbonless

paper/self-copying paper, which is coated and therefore the

same should fall under Heading 48.09 for which excise duty

at the rate of 20% is payable. However, heading 48.09

prescribes a particular size of paper in rolls of a width

exceeding 36 cm or in rectangular (including square) sheets

with at least one side exceeding 36 cm in unfolded state.

Consequently, the said heading would not be applicable

exactly to the product of the respondent in the present case.

However, what is applicable is Heading 48.16, which reads

as follows:

Page 11 of 23 "48.16 4816.00 Carbon paper, self-copy paper

and other copying or transfer

papers (other than those of

heading No. 48.09), duplicator

stencils and offset plates, of

paper, whether or not put in

boxes.

Rate of Duty 20%"

20. The respondent, however, submitted that they manufacture

Registers, account books, note books and other allied

products for which Nil duty is prescribed under Heading

49.01 of the Schedule, where the description of goods is

printed books, newspapers, pictures and other products of

the printing industry; manuscripts, typescripts and plans.

According to the counsel appearing for the respondent the

products manufactured by them should be treated falling

under Heading No. 49.01. Reference was also drawn to the

opinion of the Institute of Paper Technology, Saharanpur,

U.P.

21. The said opinion clearly indicates that computer stationery

is different from carbonless paper and self copying paper. It

was also indicated therein that carbonless papers or self

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copying papers are fully coated throughout and are

available in reel/sheet form.

22. There is a set of Interpretative Rules for interpreting

headings of the Schedule to the Central Excise Tariff Act.

Para 2A of the same provides that any reference in a

heading to the goods shall be taken to include a reference to

those goods incomplete or unfinished, provided that, the

incomplete or unfinished goods have the essential character

of the complete or finished goods. Para 3 thereof provides

that when goods are classifiable under two or more

headings, classification should be effected by relying on the

heading which provides the most specific description and

the same would be preferred to headings providing a more

general description.

23. In the tariff provided under Chapter 48, there are certain

notes which are relevant for the purpose of interpreting the

subject matter of various headings. Note 7 thereof,

provides, that paper, paperboard, cellulose wadding and

webs of cellulose fibres answering to a description in two or

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more of the heading nos. 48.01 to 48.11 are to be classified

under one of such headings which occurs last in the

numerical order in the Schedule. Note 11 thereof also

provides that except for the goods of Heading No. 48.14 or

48.21, paper, paperboard, cellulose wadding and articles

thereof, printed with motifs, characters or pictorial

representations, which are not merely incidental to the

primary use of the goods, fall in Chapter 49.

24. Strong reliance was placed by the counsel appearing for the

respondent on the Circular dated 15th October, 1991, issued

by the Central Board of Excise and Customs, Government

of India, New Delhi. The said circular relates to levy of duty

on paper sheets printed with format of airline tickets or

embarkation/disembarkation cards and classification

thereof. The said circular clarifies and relates to airline

tickets. A bare glance on the aforesaid circular makes it

crystal clear that the intermediary products referred to in

the present appeal are not directly relatable to airlines

tickets or embarkation/disembarkation cards. Besides, the

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aforesaid circular deals with the end product, namely, the

computer stationery which is classifiable under Heading

48.20. If the end product is classifiable under Heading

48.20 then it would be difficult to say that the intermediary

product would also fall under heading 48.20. In our view,

the appropriate specific heading for the intermediary

product would be Heading 48.16.

25. The Commissioner of Customs, who has passed the Order-

In-Original was conscious of the aforesaid fact. According

to him, the carbonless paper/self copying paper, which is

an intermediary product is classifiable under Headings

48.09 and 48.16 depending upon the size of the papers

manufactured by the respondent company whereas the end

product i.e. the computer stationery is classifiable under

Heading 48.20, which attracts NIL rate of duty. According

to him although the final product is not dutiable, as the

same is classifiable under Heading 48.20, where NIL rate of

duty is prescribed, but so far as intermediary product is

concerned it is to be classifiable under Heading 48.16 and

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the duty payable for such intermediary goods is prescribed

as 20%.

26. The Commissioner has given cogent reasons as to why the

carbonless paper emerging at intermediate stage would be

classifiable under heading 48.16. According to him goods

covered under Headings 48.09 and 48.16 are of same kind

except that in latter heading the goods, other than in roll

form or in rectangular sheet with at least one side exceeding

36 cm fall and that applying the principle of ejusdem

generis, the carbonless paper whether printed or not which

is not in roll form or in the sheet form with one side

exceeding 36 cm would be covered under sub heading No.

4816.00.

27. Having decided the aforesaid classification in the aforesaid

manner, so far, intermediary product is concerned the

Commissioner also considered the scope of marketability of

the intermediary product in question. Relying on the

statements made by the Director of the respondent-

company themselves and other relevant documents on

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record the Commissioner came to a finding that the

carbonless paper even in printed form could be sold or

purchased although the number of the customers is

restricted. He also found on appreciation of the documents

on record that carbonless paper invariably emerges during

the course of manufacture of computer stationery and such

carbonless paper emerging at the intermediary stage is

known to the market, has a distinct and very well-identified

market and is capable of being marketed.

28. It has been indicated from the findings of the Commissioner

that the respondent company not only manufactures the

end product but it also manufactures the intermediary

products which are sold by them even in the roll form in the

market. Invoices indicating sale by the respondent have

also been placed on record and from scrutiny of the same it

appears that such intermediary products were sold in roll

forms only. It is also an undisputed fact in the present case

that the respondent themselves purchased intermediary

products from the open market. But then only difference

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even according to them also is that such carbonless paper

with coating purchased from the market is of inferior

quality.

29. The Tribunal, however, while dealing with the appeal filed

before it upset the aforesaid findings holding that

respondent- assessee was engaged in the manufacture of

printed computer stationery and not self copying paper, and

therefore, the intermediary products of the respondent

cannot be classified under Heading 48.16.

30.The Tribunal also relied upon the Circular dated

15.10.1991 issued by the Central Board of Excise and

Customs for coming to a finding that provided tickets,

printed circulars, letters, forms etc. which are essentially

printed matters requiring filing up of only minor details

would be covered by sub heading 4901.90.

31. Having examined the record and the description of the

goods in the headings and upon noticing rules of

interpretation of the Schedule to the Central Excise Tariff

Act, we are of the considered opinion that although the

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respondent company may be registered for newspapers,

etc., but it cannot be said that either the end product or the

intermediary product would fall under Chapter 49, heading

49.01. End product here is admittedly computer stationery

which would specifically fall under Chapter 48, heading

48.20, sub heading 4820.00.

32. When we read heading 48.16 with sub heading 4816.00, we

find that it includes within its extent carbon paper, self-

copy paper and other copying or transfer papers but other

than those articles included in heading 48.09 which is

specifically relatable to a particular size of paper and

therefore we are in agreement with the findings recorded by

the Commissioner that the intermediary products in the

present case would fall and are classifiable under heading

48.16.

33.The next issue that is required to be decided is as to

whether the intermediary products are marketable or not.

34. Evidence in the nature of documents and statements

recorded in that regard indicates that such intermediary

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products are available in the market and are brought and

sold in the open market. The Commissioner has referred to

such evidence on record and even the invoices of the

respondents themselves clearly indicate that they have sold

intermediary products of the nature in question in the open

market in roll forms.

35. In the present case, there is enough evidence available on

record to show that not only the intermediary products in

the present case are capable of being bought and sold in the

market but they are in fact sold and purchased in the open

market. Even the respondents have admitted that they have

themselves purchased such intermediary products from the

market although the products available in the market were

of inferior quality. But the fact remains that there are

enough people like the respondents willing to purchase

such material from the market.

36. During the course of arguments reference was made to a

number of decisions of this Court on the issue relating to

marketability of a product.

Page 20 of 23 37. We have a recent decision of this Court in the case of

Medley P harmaceuticals Ltd. Vs. The Commissioner of

Central Excise and Customs, Daman, reported in (2011)

2 SCC 601. This Court in the said decision has very

carefully considered almost all the previous decisions of this

Court on the issue of the levy/payment of Excise Duty

Valuation on articles manufactured by the assessee

company therein. After referring to practically all the

decisions on the issue this Court in the aforesaid case held

that the consistent view of this Court is that the

marketability is an essential criteria for charging duty and

that the test of marketability is that the product which is

made liable to duty must be marketable in the condition in

which it emerges. This Court also held that the word

`Marketable' means saleable or suitable for sale and that it

need not in fact be marketed but then the article should be

capable of being sold to consumers, as it is without

anything more. This Court further went on to hold that the

essence of marketability of goods is neither in the form nor

in the shape or condition in which the manufactured article

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is found but it is the commercial identity of the article

known to the market for being bought and sold. The Court

further held that the product in question is generally not

being bought or sold or has no demand in the market,

would be irrelevant. The aforesaid conclusions are arrived

at after considering almost all the previous decisions of this

Court on the issue.

38. When we apply the ratio of the aforesaid decision of this

Court in the case of Medley Pharmaceuticals Ltd. (supra)

to the facts of the present case it becomes crystal clear that

the intermediary product in question is generally being

bought and sold and there is a demand of such articles in

the market as the respondents themselves have purchased

it from the open market for manufacturing the end product.

39. In terms of findings arrived at and on appreciation of the

materials on record, we are of the view that the findings

arrived at by the Tribunal by upsetting the findings of the

Commissioner vide its order dated 14.05.2002 were

unjustified and uncalled for. The Judgment and Order

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passed by the Tribunal is therefore set aside and we

restore the order dated 28.12.2000 passed by the

Commissioner Central Excise, Meerut-II, U.P.

40.Accordingly, the appeal is allowed but leaving the parties to

bear their own costs.

.......................................

.....J

[Dr. Mukundakam Sharma]

............................................J

[Anil R. Dave]

New Delhi

August 30, 2011

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