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
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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].
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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.
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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.
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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.
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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.
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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:
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"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.
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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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