whether penalty and interest can be levied and collected when the duty has been paid before the issue of Show Cause Notice under the provisions of the Central Excise Act, 1944 (`the Act' for short).

1 IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. OF 2012 (@ DY.NO.11065 OF 2006) COMMNR.OF CENTRAL EXCISE, KOLKATA ... APPELLANT VERSUS M/S.PLAXAIR INDIA PVT. LTD. ... RESPONDENT O R D E R 1. Delay condoned. 2. Learned counsel for the sole respondent appears and takes notice. Hence notice waived. 3. Appeal admitted. 4. The issue raised in this appeal lies in a very narrow compass. Therefore, by consent of the learned counsel for the parties to the lis, the matter is taken up for final hearing. 5. The issue in this appeal is, whether penalty and interest can be levied and collected when the duty has been paid before the issue of Show Cause Notice under the provisions of the Central Excise Act, 1944 (`the Act' for short). 2 6. In the present case, it is the stand of the assessee that the assessee had paid the duty under the provisions of the Act before the issue of the Show Cause Notice and, therefore, not liable for the payment of penalty and interest on the duty so paid under Section 11 AC of the Act. 7. The Tribunal, accepting the stand of the assessee and by relying on the observations made by this Court in the case of Rashtriya Ispat Nigam Ltd. Vs. CCE., Visakhapatnam, 2004 (163) ELT A 53 (SC), has allowed the assessee's appeal and has set aside the demands raised by the Revenue for payment of penalty and interest. The Revenue, being aggrieved by the orders passed by the Tribunal, is before us in this appeal. 8. Mr. R.P. Bhatt, learned counsel appearing for the Revenue, would submit that the issue raised in this appeal is now squarely covered by the decision of this Court in Union of India Vs. Dharmendra Textile Processors & Ors., (2008) 13 SCC p.369 and, therefore, submits that the judgment and orders passed by the Tribunal requires to be annulled by this Court. Per contra, learned counsel appearing for the assessee would submit that though the issue is now covered by the decision of this Court in the case of Dharmendra Textile Processors (supra), the matter 3 requires to be remitted to the Tribunal for fresh consideration and decision. In this connection, the learned counsel invites our attention to para 20 of the judgment in Dharmendra Textile Processors (supra). 9. This Court, in the aforesaid cited decision after considering the effect of Section 11 AC of the Act, has come to the conclusion that the view expressed in Dilip N. Shroff Vs. C.I.T., (2007)6 SCC 329 is not correctly decided and accordingly has accepted the view taken in S.E.B.I. Vs. Cabot International Capitals Corporation, (2006) 5 SCC 361. After doing so, the three Judge Bench of this Court thought it fit to set aside the orders passed by the High Court and the Tribunal and remitted the matter to the High Court/Tribunal, as the case may be, for fresh adjudication in the light of the decision of this Court in Dharmendra Textile Processors case (supra). 10. In view of the above, we are left with no other alternative but to set aside the orders passed by the Tribunal in Appeal No.E/711/03 dated 16.8.2005 and remit the matter to the Tribunal for its fresh consideration and decision. We also make it clear that the Tribunal now will decide the issue afresh, keeping in view the observations made by this Court in Dharmendra Textile 4 Processors case (supra). 11. With these observations and directions, the appeal is disposed of. No costs. ...................J. (H.L. DATTU) ...................J. (ANIL R. DAVE) NEW DELHI; FEBRUARY 22, 2012

The Corporation is having its duty free shops at all major International Airports in India. At the said duty free shops, the appellant sells several articles including liquor to foreigners and also to Indians, who are going abroad or coming to India by air. We are concerned with a duty free shops situated at an International Airport at Bengaluru. The appellant is registered as a dealer under the Act as well as under the Central Sales Tax Act, 1956 (hereinafter referred to as `the Central Act'). In the return filed under the Act as well as under the Central Act for the relevant period, the appellant had stated that though liquor, cigarettes, perfumes and food articles were sold at the duty free shops at the Bengaluru International Airport, no tax was payable by the appellant as the goods which had been sold at the duty free shops were sold directly to the passengers and even the delivery of goods at the duty free shops was made before importing the goods or before the goods had crossed the customs frontiers of India.=Transfer of documents of title to the goods is one of the methods whereby delivery of the goods is effected. Delivery may be physical also. =In our opinion, submissions with regard to sale not taking effect by transfer of documents of title to the goods are absolutely irrelevant. Transfer of documents of title to the goods is one of the methods whereby delivery of the goods is effected. Delivery may be physical also. In the instant case, at the duty free shops, which are admittedly outside the customs frontiers of our country, the goods had been sold to the customers by giving physical delivery. It is not disputed that the goods were sold by giving physical possession at the duty free shops to the customers. Simply because the sales had not been effected by transfer of documents of title to the goods and the sales were effected by giving physical possession of the goods to the customers, it would not mean that the sales were taxable under the Act. Thus, we do not agree with the aforestated submissions made by the learned counsel appearing for the Revenue. 32. Looking to the aforestated clear and settled legal position, we allow the appeal and quash the order of assessment so far as the transactions which are the subject matter of this litigation are concerned. There shall be no order as to cost.

1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2560 OF 2010 M/S HOTEL ASHOKA ...APPELLANT (INDIAN TOUR.DEV.COR.LTD.) VERSUS ASSISTANT COMMISSIONER OF COMMERCIAL TAXES & ANR. ....RESPONDENTS WITH CIVIL APPEAL NOs. 10404-10412 OF 2010 J U D G M E N T ANIL R. DAVE, J. CIVIL APPEAL NO. 2560 OF 2010 1. In this appeal, an order dated 9th June, 2009 passed by the High Court of Karnataka, in Writ Appeal No. 881 of 2009 (T-CST) is challenged by the 2 appellant, who is an assessee and registered as a dealer under the provisions of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as `the Act'). Facts giving rise to the present litigation in a nutshell are as under: 2. The appellant, M/s Hotel Ashoka, is managed by India Tourism Development Corporation Limited (hereinafter referred to as `the Corporation'). The Corporation is having its duty free shops at all major International Airports in India. At the said duty free shops, the appellant sells several articles including liquor to foreigners and also to Indians, who are going abroad or coming to India by air. We are concerned with a duty free shops situated at an International Airport at Bengaluru. The appellant is registered as a dealer under the Act as well as under the Central Sales Tax Act, 1956 (hereinafter referred to as `the Central Act'). In the return filed under the Act as well as under the Central Act for the relevant period, the appellant had stated that though liquor, cigarettes, perfumes and food articles were sold at the duty free shops at the Bengaluru International Airport, no tax was payable by the appellant as the goods which had been sold at the duty free shops were sold directly to the passengers and even the delivery of goods at the duty free shops was made before importing the goods or before the goods had crossed the customs frontiers of India. 3 3. According to the appellant, no tax can be levied under the Act or under the Central Act when the goods are sold in the course of import or before the goods have crossed the customs frontier of India as per the provisions of Section 5 of the Central Act and so far as the Act is concerned, no tax can be levied, if the sale takes place before the goods crosses the customs frontiers of India as no State can tax the sale or purchase of goods which are outside the concerned State i.e. the State of Karnataka in the instant case, as per the provisions of Article 286 of the Constitution of India. In spite of the above stand of the appellant, the Assistant Commissioner of Commercial Taxes (Transition -12) Bengaluru, by an assessment order dated 28th May, 2008 directed the appellant to pay a sum of Rs.4,20,70,900/- by way of sales tax. 4. Being aggrieved by the assessment order passed by the Assistant Commissioner of Commercial Taxes Bengaluru, the appellant filed W.P.(C) No. 10989 of 2008 in the High Court of Karnataka which was rejected on 11th February, 2009, on the ground that the appellant had not exhausted equally efficacious alternative remedy available to it under the provisions of the Act. The learned Single Judge did not consider merits of the case for the aforestated reason. 4 5. Being aggrieved by the view expressed by the learned Single Judge, the appellant preferred Writ Appeal No. 881 of 2009(T-CST) before the Division Bench of the High Court which was also dismissed on 9th June, 2009 as the Division Bench found substance in the observations made by the learned Single Judge, hence the appellant has filed this appeal before this Court. 6. Learned counsel appearing for the appellant drew our attention to the provisions of Article 286 of the Constitution and Section 5 of the Central Act. He submitted that the Constitution does not permit any State to impose tax on sale or purchase of goods where such sale or purchase takes place outside the State or in the course of the import of the goods into or export of the goods out of the territory of India. 7. He further submitted that in the instant case, all sales had taken place at the duty free shops of the appellant before the goods had crossed the customs frontiers of India. He stated that the goods, which are the subject matter of the present litigation were brought in India and had been kept at bonded warehouses and thereafter they were transported to duty free shops which were outside the customs frontiers of India. 5 8. He further submitted that till the goods cross the customs frontiers of India, technically the goods are considered to have remained outside India and once the sale or purchase of the goods which takes place in the course of import or export or outside the concerned State, according to the provisions of Article 286 of the Constitution, no State can impose any tax on such a sale or purchase. As the duty free shops of the appellant are outside the customs frontiers of India, as per legal fiction, the sale of goods cannot be said to be in any State but technically such a sale would be considered to be in the course of import of the goods and, therefore, the sale effected at the duty free shops of the appellant cannot be taxed under the Act. 9. He further submitted that all the duty free shops of the appellant are in customs area as defined under Section 2(11) of the Customs Act, 1962 (in short the `Customs Act'). According to the said definition, `customs area' is the area of a customs station and it includes any area in which imported goods or export goods are ordinarily kept before clearance by Customs Authorities. According to him, the goods can be said to have been imported only after sale of the goods at duty free shop to a passenger, if the passenger brings the goods in India, after crossing the customs frontiers of India and not before that, because import means bringing of goods into India from a place outside India and as the duty free shops are in customs area, and as the 6 goods are sold before clearance of Customs Authorities, it cannot be said that the goods sold by the duty free shops were sold after they were imported or in Karnataka State. 10. For the aforestated reasons, according to him, the assessment order passed by the Assistant Commissioner of Commercial Taxes, Bengaluru dated 28th May, 2008 is bad in law. According to the learned counsel, the said officer had committed a grave error by treating the sale at duty free shops as sale after import of the goods in the State of Karnataka. 11. He further submitted that the learned Single Judge as well as the Division Bench of the High Court ought not to have passed orders against the appellant as the appellant had not exhausted equally efficacious alternative statutory remedy. He submitted that the issue involved in the litigation had already been decided by this Court and other High Courts and the legal position was so clear that the appellant ought not to have been asked to exhaust alternative statutory remedy. He submitted that when facts were not in dispute and the law had been settled by this Court in several other cases, it was not proper on the part of the learned Single Judge to dispose of the petition only on the ground that the alternative remedy had not been exhausted. He also submitted that the Division Bench also committed an error by confirming the order passed by the learned Single 7 Judge of the High Court. So as to substantiate his submission, the learned counsel relied upon several judgments including the judgments delivered in the cases of State of Travancore-Cochin and others v. Bombay Company Ltd. Alleppey [AIR 1952 SC 366], State of Travancore-Cochin and others v. Shanmugha Vilas Cashewnut Factory Quilon [AIR 1953 SC 333], J.V. Gokal & Co. (Private) Ltd. v. Assistant Collector of Sales Tax (Inspection) and Others [AIR 1960 SC 595] and in Kiran Spinning Mills v. Collector of Customs [AIR 2000 SC 3448]. 12. On the other hand, learned senior counsel Shri Bhat and Shri Sharma, assisted by learned counsel Shri Qadri appearing for the respondent-State, mainly submitted that the orders passed by the learned Single Judge as well as by the Division Bench of the High Court are just and proper. They submitted that the High Court rightly did not entertain the petition as the appellant had not challenged the validity of the order before the appellate authority appointed under the Act. They submitted that the Act has set up appellate authorities and according to the provisions of the Act, an order passed by the assessing officer should be first challenged before the first appellate authority and only after all the remedies under the Act are exhausted, the appellant should have approached the High Court. As the statutory remedies had not been exhausted by the appellant, according to the 8 learned counsel, the High Court had rightly dismissed the appeal by confirming the order passed by the learned Single Judge. 13. On merits they submitted that purchase of the goods at the duty free shops of the appellant would be taxable under the provisions of the Act. They submitted that after purchase of the goods at the duty free shops, passengers enter the country by crossing the customs frontiers. The goods were actually delivered to the customers and sales were not effected by transfer of documents of title to the goods and, therefore, it can not be said that no tax could have been levied on the sales effected at the duty free shops. According to them, crossing of customs frontiers had no significance because once the goods are brought into our country and especially in the State of Karnataka, all sales effected in the State of Karnataka would be subject to tax as per the provisions of the Act. The duty free shops situated at Bengaluru International Airport are situated in the State of Karnataka and, therefore, sales effected at the said shops would be taxable under the provisions of the Act. 14. They further submitted that according to Section 5 of the Central Act, the sales which caused import or which occasioned import would not be 9 subject to tax under the Act. According to them, all these transactions referred to in the assessment order had not taken place in the course of import or they had not caused or occasioned import, and, therefore, they would be subject to tax under the Act. They further submitted that the goods had not been sold by transferring the documents of title to the goods. According to them, before the goods had crossed the customs frontiers, they ought to have been transferred by transfer of documents of title to the goods, but as it was not done so, it cannot be said that the sales had taken place in the course of import of the goods before crossing the customs frontiers of our country. So as to substantiate the aforestated submissions, they relied upon the judgments in K. Gopinathan Nair and Others v. State of Kerala [(1997) 10 SCC 1], Binani Bros. (P) Ltd. v. Union of India and Others [(1974) 1 SCC 459], Mohd. Serajuddin & Ors. v. State of Orissa [(1975) 2 SCC 47]. 15. In the circumstances, they submitted that the appeal be dismissed with costs and the stay granted by this Court be vacated. 10 16. We heard the learned counsel at length and considered the impugned order of assessment as well as the orders passed by the High Court of Karnataka and the judgments referred to by the learned counsel. 17. In our opinion, the facts stated by the counsel are not much in dispute. 18. It is an admitted fact that the goods which had been brought from foreign countries by the appellant had been kept in bonded warehouses and they were transferred to duty free shops situated at International Airport of Bengaluru as and when the stock of goods lying at the duty free shops was exhausted. It is also an admitted fact that the appellant had executed bonds and the goods, which had been brought from foreign countries, had been kept in bonded warehouses by the appellant. When the goods are kept in the bonded warehouses, it cannot be said that the said goods had crossed the customs frontiers. The goods are not cleared from the customs till they are brought in India by crossing the customs frontiers. When the goods are lying in the bonded warehouses, they are deemed to have been kept outside the customs frontiers of the country and as stated by the learned senior counsel appearing for the appellant, the appellant was selling the goods from 11 the duty free shops owned by it at Bengaluru International Airport before the said goods had crossed the customs frontiers. 19. Thus, before the goods were imported in the country, they had been sold at the duty free shops of the appellant. 20. In view of the aforestated factual position and in the light of the legal position stated hereinabove, it is very clear that no tax on the sale or purchase of goods can be imposed by any State when the transaction of sale or purchase takes place in the course of import of goods into or export of the goods out of the territory of India. Thus, if any transaction of sale or purchase takes place when the goods are being imported in India or they are being exported from India, no State can impose any tax thereon. 21. Section 5 of the Central Act deals with the transaction which is said to have taken place in the course of import or export. Relevant portion of Section 5 of the Central Act reads as under: 12 "5(1) xxx xxx xxx (2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before goods have crossed the customs frontiers of India." 22. Upon perusal of the aforestated provision of Section 5 of the Central Act, it is clear that a sale or purchase of goods shall be deemed to take place in the course of import of the goods into the territory of India only if sale or purchase takes place before the goods have crossed the customs frontiers of India. 23. Looking to the aforestated legal position, it cannot be disputed that the goods sold at the duty free shops, owned by the appellant, would be said to have been sold before the goods crossed the customs frontiers of India, as it is not in dispute that the duty free shops of the appellant situated at the 13 International Airport of Bengaluru are beyond the customs frontiers of India i.e. they are not within the customs frontiers of India. 24. If this is the factual and legal position, in our opinion, looking to the provisions of Article 286 of the Constitution, the State of Karnataka has no right to tax any such transaction which takes place at the duty free shops owned by the appellant which are not within the customs frontiers of India. 25. Looking to the aforestated simple and factual legal position, in our opinion, it would not be much useful to discuss the judgments which have been referred to by the learned counsel appearing for the appellant. In our opinion, the legal position is so clear that it was not necessary for the learned counsel to refer to any judgment and merely by showing the aforestated factual aspects and legal provisions to the concerned authority, the appellant could have convinced the concerned authority that the sale effected at the duty free shops of the appellant could not have been taxed by the State of Karnataka. 14 26. Learned counsel appearing for the respondent-Authorities had vehemently submitted that the appellant had not exhausted equally efficacious alternative statutory remedy and, therefore, the Single Judge of the High Court had rightly not entertained the petition filed by the appellant. 27. According to them, the Division Bench had also rightly dismissed the appeal for the same reason. According to them, this Court also should not entertain this appeal. 28. It is true that the appellant had rushed to the High Court without exhausting equally efficacious alternative statutory remedy. In our opinion, the learned Single Judge of the High Court was also right when he directed the appellant to move the statutory appellate authority. In normal circumstances, even we would have expressed the same opinion but looking to the fact that the special leave petition has already been admitted and the matter pertains to the assessment year 2004-2005, it would not be in the interest of the justice to relegate the appellant to the statutory authorities especially when the legal position is very clear and the law is also in favour of the appellant. 15 29. The learned counsel appearing for the respondent had submitted that the sale would not be subject to tax under the Act only if it occasions in the course of import but the transactions of sale, which are subject matter of this litigation had not taken place in the course of import and, therefore, they would not be exempted under the provisions of Section 5 of the Central Act. In our opinion, the aforestated submission cannot be sustained. 30. They again submitted that `in the course of import' means `the transaction ought to have taken place beyond the territories of India and not within the geographical territory of India'. We do not agree with the said submission. When any transaction takes place outside the customs frontiers of India, the transaction would be said to have taken place outside India. Though the transaction might take place within India but technically, looking to the provisions of Section 2(11) of the Customs Act and Article 286 of the Constitution, the said transaction would be said to have taken place outside India. In other words, it cannot be said that the goods are imported into the territory of India till the goods or the documents of title to the goods are brought into India. Admittedly, in the instant case, the goods 16 had not been brought into the customs frontiers of India before the transaction of sales had taken place and, therefore, in our opinion, the transactions had taken place beyond or outside the custom frontiers of India. 31. In our opinion, submissions with regard to sale not taking effect by transfer of documents of title to the goods are absolutely irrelevant. Transfer of documents of title to the goods is one of the methods whereby delivery of the goods is effected. Delivery may be physical also. In the instant case, at the duty free shops, which are admittedly outside the customs frontiers of our country, the goods had been sold to the customers by giving physical delivery. It is not disputed that the goods were sold by giving physical possession at the duty free shops to the customers. Simply because the sales had not been effected by transfer of documents of title to the goods and the sales were effected by giving physical possession of the goods to the customers, it would not mean that the sales were taxable under the Act. Thus, we do not agree with the aforestated submissions made by the learned counsel appearing for the Revenue. 32. Looking to the aforestated clear and settled legal position, we allow the appeal and quash the order of assessment so far as the transactions which are the subject matter of this litigation are concerned. There shall be no order as to cost. 17 CIVIL APPEAL NOs. 10404-10412 OF 2010 33. As issues involved in the aforestated appeals and in Civil Appeal No.2560 of 2010 are same, for the reasons recorded in the judgment rendered in Civil Appeal No. 2560 of 2010, these appeals also stand allowed and the assessment orders, so far as they pertain to the subject matter of these appeals are concerned, are quashed. There shall be no order as to costs. ................................................J. (D.K. JAIN) ....................................................J. (ANIL R. DAVE) New Delhi February 3, 2012.

the benefit of Modvat credit= The assessee filed declarations and availed of the benefit of Modvat credit in respect of the Flexible Laminated Plastic Film in roll form & Poly Paper used for testing the F&S machine. On 4th March, 1993, a notice was issued to the assessee to show cause as to why the benefit of Modvat credit 4 =the process of testing the customised machines is integrally connected with the ultimate production of the final product viz. the F&S machines and therefore, that process is one in relation to the manufacture, falling within the sweep of Rule 57A of the Rules.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 7152 OF 2004 M/S FLEX ENGINEERING LIMITED -- APPELLANT VERSUS COMMISSIONER OF CENTRAL EXCISE, -- RESPONDENT U.P. WITH CIVIL APPEAL NO.429 OF 2012 (Arising out of S.L.P. (C) No. 875 of 2008), CIVIL APPEAL NO.430 OF 2012 (Arising out of S.L.P. (C) No. 10759 of 2010) AND CIVIL APPEAL NO.431 OF 2012 (Arising out of S.L.P. (C) No. 6501 of 2011) J U D G M E N T D.K. JAIN, J.: 1 1. Leave granted in S.L.P. (C) Nos. 875 of 2008, 10759 of 2010 and 6501 of 2011. 2. This batch of appeals, by grant of leave, arises out of judgments dated 26th August, 2002 in C.E.R. No. 11 of 2001, 11th April, 2007 in C.E.A. No. 10 of 2004, 8th September, 2009 in C.E.A. No. 6 of 2003 and 25th October, 2010 in C.E.R. No. 51 of 2002 passed by the High Court of Judicature at Allahabad. By the impugned judgments, rendered in the reference applications filed by the assessee, under Section 35H of the Central Excise Act, 1944 (for short "the Act"), the questions referred by the Customs, Excise and Gold (Control) Appellate Tribunal, as it then existed, (for short "the Tribunal") have been answered in favour of the revenue. 3. In order to comprehend the controversy at hand, a few material facts may be noticed. At the outset, it may be noted that these appeals relate to the period between August 1992 to June 1996. 2 The appellant -assessee, a body corporate, claiming to be pioneers in the concept of flexible packaging, is engaged in the manufacture of various types of packaging machines, marketed as Automatic form fill and seal machines (for short "F&S machines"), classified under chapter heading 8422.00 of the Schedule to the Central Excise Tariff Act, 1985 (for short "the Tariff Act"). The literature placed on record shows that the assessee has prototype models of F&S machines with technical details like web width, Roll diameter, Core diameter, typical material range, the type of material to be packed, etc. According to the assessee, the machines are `made to order', inasmuch as all the dimensions of the packaging/sealing pouches, for which the F&S machine is required, are provided by the customer. The purchase order contains the following inspection clause: "Inspection/Trial will be carried out at your works in the presence of (sic) our Engineer before dispatch of equipment for the performance of the machine." 3 Flexible Laminated Plastic Film in roll form & Poly Paper which are duty paid, falling under chapter headings 3920.38 and 4811.30 of the Schedule to the Tariff Act, are used for testing, tuning and adjusting various parts of the F&S machine in terms of the afore-extracted condition in the purchase order. As the machine ordered is customer specific, if after inspection by the customer it is found deficient in respect of its operations for being used for a particular specified packaging, it cannot be delivered to the customer, till it is re-adjusted and tuned to make it match with the required size of the pouches as per the customer's requirement. On completion of the above process and when the customer is satisfied, an entry is made in the RG 1 register declaring the machine as manufactured, ready for clearance. 4. The assessee filed declarations and availed of the benefit of Modvat credit in respect of the Flexible Laminated Plastic Film in roll form & Poly Paper used for testing the F&S machine. On 4th March, 1993, a notice was issued to the assessee to show cause as to why the benefit of Modvat credit 4 on the above goods be not denied, on the ground that they have used the said material for the purpose of testing the final product i.e. the F&S machine which cannot be treated as inputs as stipulated in Rule 57A of the Central Excise Rules, 1944 (for short "the Rules"). On a similar ground, a number of show cause notices were issued to the assessee covering the period from August 1992 to June 1996. The assessees' reply to the show cause notices did not find favour with the adjudicating authority, who accordingly, denied the benefit of Modvat credit on the said items. Appeals preferred by the assessee before the Commissioner (Appeals) and the Tribunal were also dismissed. 5. Aggrieved thereby, the assessee filed applications seeking reference to the High Court on the questions proposed. However, having failed to persuade the Tribunal that its orders gave rise to questions of law, the assessee moved the Allahabad High Court, praying for a direction to the Tribunal for reference. 5 6. The High Court partly allowed the application and directed the Tribunal to draw a statement of the case and refer the following questions of law for its opinion: "Q1) Whether, in the circumstances of the present case, facts of which are not in dispute, duties paid on material, namely, plastic films/poly paper used for testing machines for forming commercial/technical opinion as to their marketability/ excisability would be eligible to be taken as credit (sic) under rule 57-A read with relevant notification? Q2) Whether such use of material in testing in view of the purposes mentioned above, could be said to be used (sic) in the manufacture of or use in relation to the manufacture of the final products viz., Machines as assembled?" 7. As aforesaid, the High Court has answered both the questions in the negative, opining that testing the performance of a final product is not a process of manufacture and therefore, materials used for testing the performance of the F&S machine cannot be termed as `inputs' for the purpose of allowing Modvat credit. According to the High Court, anything required to make the goods marketable must form a 6 part of the manufacture and any raw material or any materials used for the same would be a component part of the end product. It has observed that materials used after manufacture of the final product, viz. the F&S machine, is complete, is only to detect the deficiency in the final product and therefore, could not be the goods used in or in relation to the manufacture of the final product within the meaning of Rule 57A of the Rules. Hence the present appeals by the assessee. 8. Assailing the opinion of the High Court, Mr. Rajesh Kumar, learned counsel appearing on behalf of the assessee submitted that the expression "in or in relation to" used in Rule 57A of the Rules is very wide and is used to expand the scope, meaning and content of the expression `inputs' so as to include all inputs so long as these are used "in or in relation to the manufacture" of finished excisable goods. It was argued that since the machines are tailor made, as per the specifications provided by a customer to achieve a distinct and different result, it is of no use to any other 7 customer. Therefore, unless each individual machine is tested by using the flexible plastic films in the presence of the customer or his representative, as per the terms of the contract, to satisfy him that it is capable of being used for a particular packing as specified by him, the process of manufacture of the final product cannot be said to be complete. It was contended that the testing of the machine being an integral process of the manufacture and marketability of the final product, particularly in terms of the specific condition in the contract, the claim for Modvat credit was admissible on flexible plastic films consumed in the testing of the F&S machines. It was stressed that to avail of the Modvat credit in respect of an input, it is not necessary that such input must be physically present in the finished product. 9. In support of the proposition that the material used in testing, for the purpose of verification of certain characteristics of the final product, is an input in or in relation to the manufacture, learned counsel placed reliance on the decisions of this 8 Court in Commissioner of Income Tax, Kerala, Vs. Tara Agencies1, Maruti Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi-III2, National Leather Cloth Manufacturing Company Vs. Union of India & Anr.3 and a decision of the Bombay High Court in Tata Engineering & Locomotive Co. Ltd. Vs. Commr. Of C. Ex., Pune4. 10. Per contra, Mr. Mukul Gupta, learned senior counsel appearing for the revenue, supporting the decision of the High Court, contended that Modvat credit is available only on the inputs which are actually used in the manufacture of the final product. According to the learned counsel, testing of a machine can take place only after the manufacture of the machine is complete and therefore, any goods used in a process subsequent to the completion of the process of manufacture cannot be termed as inputs within the meaning of Rule 57A of the Rules. 1 (2007) 6 SCC 429 2 (2009) 9 SCC 193 : 2009 (240) E.L.T. 641 (S.C.) 3 (2010) 12 SCC 218 : 2010 (256) E.L.T. 321 (S.C.) 4 2010 (256) E.L.T. 56 (Bom.) 9 11. Before analysing the rival submissions, it would be appropriate to refer to the relevant statutory provisions. 12. The Modvat scheme, introduced with effect from 1st March 1986, was aimed at allowing credit to the manufacturers for the excise duty paid by them in respect of the inputs used in the manufacture of the finished product. Rules 57A and 57C of the Rules, which make a manufacturer eligible to avail of the credit for the duty paid on the inputs read as follows: "RULE 57A : Applicability.- (1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the "final products") as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the "specified duty") paid on the goods used in or in relation to the manufacture of the said final products whether directly or indirectly and whether contained in the final product or not (hereinafter referred to as the "inputs") and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification: 1 Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted. Explanation.--For the purposes of this rule, "inputs" includes-- (a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products, (b) paints and packaging materials, (c) inputs used as fuel, (d) inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose, and (e) accessories of the final product cleared alongwith such final product, the value of which is included in the assessable value of the final product, but does not include-- (i) machines, machinery, plant, equipment, apparatus, tools, appliances or capital goods as defined in rule 57Q used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products; (ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products; (iii) packaging materials or containers, the cost of which is not included in the assessable value of the final products under section 4 of the Act; and 1 (iv) crates and glass bottles used for aerated waters. (2) Notwithstanding anything contained in sub-rule (1), the Central Government may, by notification in the official Gazette, declare the inputs on which declared duties of excise or additional duty (hereinafter referred to as `declared duty') paid shall be deemed to have been paid at such rate or equivalent to such amount as may be specified in the said notification and allow the credit of such declared duty deemed to have been paid in such manner and subject to such condition as may be specified in the said notification even if the declared inputs are not used directly by the manufacturer of final products declared in the said notification, but are contained in the said final products. Explanation. - For the purposes of this sub-rule, it is clarified that even if the declared inputs are used directly by a manufacturer of final products, the credit of the declared duty shall, notwithstanding the actual amount of duty paid on such declared inputs, be deemed to be equivalent to the amount specified in the said notification and the credit of the declared duty shall be allowed to such manufacturer. Rule 57C. Credit of duty not to be allowed if final products are exempt.--No credit of the specified duty paid on the inputs used in the manufacture of a final product (other than those cleared either to a unit in a Free Trade Zone or to a hundred per cent Export- Oriented Unit) or to a unit in an Electronic Hardware Technology Park or to a unit in Software Technology Parks or supplied to the United Nations or an international organisation for their official use or supplied to projects funded by them, on which exemption of duty is available under notification of the Government of India in the Ministry of Finance (Department of Revenue) No.108/95-Central Excises, dated the 28th August, 1995 shall be allowed if the final 1 product is exempt from the whole of the duty of excise leviable thereon or is chargeable to nil rate of duty." 13. It is manifest that Rule 57A of the Rules entitled a manufacturer to take credit of the Central Excise duty paid on the inputs used in or in relation to the manufacture of the final product provided that the input and the finished product are excisable goods and fall under any of the specified chapters in the tariff schedule. It is pertinent to note that vide Notification No.28/95-C.E. (N.T.), dated 29th June 1995, the said Rule was amended and the phrase "whether directly or indirectly and whether contained in the final product or not" was inserted. There is no dispute that in the instant case, both the F&S machines and the flexible laminated plastic film and poly paper are excisable. Therefore, the short question for consideration is whether the said material on which Modavt credit is claimed by the assessee, not physically used in the manufacture of the said machine but used for testing the F&S machines would be covered within the sweep of the expression "in or in relation to the manufacture of the final 1 products", as appearing in Rule 57A of the Rules. In short, the bone of contention is as to what meaning is to be assigned to the expression "in relation to the manufacture of final products." 14. In our opinion, apart from the fact that the amended Rule itself contemplates that physical presence of the input, in respect of which Modvat credit is claimed, in the final product is not a pre-requisite for such a claim, even otherwise this issue is no longer res-integra. In Collector of Central Excise & Ors. Vs. Solaris Chemtech Ltd. & Ors.5, this Court while examining the scope and purport of the expression "in or in relation to the manufacture of the final products" observed that these words have been used to widen and expand the scope, meaning and content of the expression "inputs" so as to attract goods which do not enter into finished goods. Speaking for the Bench, S.H. Kapadia, J. (as his Lordship then was) held as follows: "11. Lastly, we may point out that in order to appreciate the arguments advanced on behalf of 5 (2007) 7 SCC 347 : 2007 (214) E.L.T. 481 (S.C.) 1 the Department one needs to interpret the expression "in or in relation to the manufacture of final products". The expression "in the manufacture of goods" indicates the use of the input in the manufacture of the final product. The said expression normally covers the entire process of converting raw materials into finished goods such as caustic soda, cement, etc. However, the matter does not end with the said expression. The expression also covers inputs "used in relation to the manufacture of final products". It is interesting to note that the said expression, namely, "in relation to" also finds place in the extended definition of the word "manufacture" in Section 2(f) of the Central Excises and Salt Act, 1944 (for short "the said Act"). It is for this reason that this Court has repeatedly held that the expression "in relation to" must be given a wide connotation. 12. The Explanation to Rule 57-A shows an inclusive definition of the word "inputs". Therefore, that is a dichotomy between inputs used in the manufacture of the final product and inputs used in relation to the manufacture of final products. The Department gave a narrow meaning to the word "used" in Rule 57-A. The Department would have been right in saying that the input must be raw material consumed in the manufacture of final product, however, in the present case, as stated above, the expression "used" in Rule 57-A uses the words "in relation to the manufacture of final products". 13. The words "in relation to" which find place in Section 2(f) of the said Act have been interpreted by this Court to cover processes generating intermediate products and it is in this context that it has been repeatedly held by this Court that if manufacture of final product cannot take place without the process in question then that process is an integral part of the activity of manufacture of the 1 final product. Therefore, the words "in relation to the manufacture" have been used to widen and expand the scope, meaning and content of the expression "inputs" so as to attract goods which do not enter into finished goods. 14. In J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. STO6 this Court has held that Rule 57-A refers to inputs which are not only goods used in the manufacture of final products but also goods used in relation to the manufacture of final products. Where raw material is used in the manufacture of final product it is an input used in the manufacture of final product. However, the doubt may arise only in regard to use of some articles not in the mainstream of manufacturing process but something which is used for rendering final product marketable or something used otherwise in assisting the process of manufacture. This doubt is set at rest by use of the words "used in relation to manufacture". (Emphasis supplied by us) 15. In Collector of Central Excise, Jaipur Vs. Rajasthan State Chemical Works, Deedwana, Rajasthan7, to which a reference was made in Solaris Chemtech Limited (supra), this Court had held that any operation which results in the emergence of the manufactured goods would come within the ambit of the term manufacture. This is because of the 6 AIR 1965 SC 1310 7 (1991) 4 SCC 473 : 1991 (55) E.L.T. 444 (S.C.) 1 words used in Rule 57A, namely, goods used in or in relation to the manufacture of final products. 16. At this juncture, it would also be apposite to refer to Circular No.33/33/94/CX.8, dated 4th May 1994, issued by the Central Board of Excise and Customs, relating to the Modvat scheme. The relevant part of the Circular reads as under: "Subject: Instruction regarding Modvat Scheme. 1..... 2. With a view to consolidate the instructions and streamline of procedures, the following instructions are issued in supersession of all the instructions issued on or before 31st December, 1993, in relation to Modvat - (i) Modvat credit is available for all excisable goods used as inputs in or in relation to the manufacture of finished goods. It is, therefore, clarified that the input credit is admissible whether such input is physically present in the finished excisable goods or not so long such inputs are used in or in relation to the manufacture of finished excisable goods. In this connection definition of the term manufacture as propounded by the Supreme Court in the Empire Industry's case-1985 (20) E.L.T. 179 and C.C.E. v. Rajasthan State Chemical case - 1991 (55) E.L.T. 444, 448 (S.C.) are quite relevant. (Emphasis supplied)" 1 17. It is trite to state that "manufacture" takes place when the raw materials undergo a series of changes and transformation that result in the formation of a commercially distinct commodity having a different name, character and use. It is equally well settled that physical presence of an input in the final finished excisable goods is not a pre-requisite for claiming Modvat credit under Rule 57A of the Rules. It may very well be indirectly related to manufacture and still be necessary for the completion of the manufacture of the final product. It needs little emphasis that the process of manufacture is complete only when the product is rendered marketable. Thus, manufacture is intrinsically integrated with marketability. In this regard it would be profitable to refer to the following observations of this Court in Union of India & Ors. Vs. Sonic Electrochem (P) Ltd. & Anr.8: "8. We do not consider it necessary to discuss the cases on the question of marketability, as this Court has dealt with all relevant cases in A.P. SEB case9. In that case, the question was whether electric poles manufactured with cement and steel for the appellant Board were marketable. After considering 8 (2002) 7 SCC 435 9 (1994) 2 SCC 428 1 various cases on the question of marketability of goods, Jeevan Reddy, J., speaking for the Court, summed up the position thus: (SCC p. 434, para 10) "10. It would be evident from the facts and ratio of the above decisions that the goods in each case were found to be not marketable. Whether it is refined oil (non-deodorised) concerned in Union of India v. Delhi Cloth and General Mills Co. Ltd.10 or kiln gas in South Bihar Sugar Mills Ltd. v. Union of India11 or aluminium cans with rough uneven surface in Union Carbide India Ltd. v. Union of India12 or PVC films in Bhor Industries Ltd. v. CCE13 or hydrolysate in CCE v. Ambalal Sarabhai Enterprises (P) Ltd.14 the finding in each case on the basis of the material before the Court was that the articles in question were not marketable and were not known to the market as such. The `marketability' is thus essentially a question of fact to be decided on the facts of each case. There can be no generalisation. The fact that the goods are not in fact marketed is of no relevance." 9. It may be noticed that in the cases referred to in the passage, quoted above, the reasons for holding the articles "not marketable" are different, however, they are not exhaustive. It is difficult to lay down a precise test to determine marketability of articles. Marketability of goods has certain attributes. The 10 AIR 1963 SC 791 11 AIR 1968 SC 922 12 (1986) 2 SCC 547 13 (1989) 1 SCC 602 14 (1989) 4 SCC 112 1 essence of marketability is neither in the form nor in the shape or condition in which the manufactured articles are to be found, it is the commercial identity of the articles known to the market for being bought a nd sold. T he fact that the product in question is generally not being bought and sold or has no demand in the market would be irrelevant. The plastic body of EMR does not satisfy the aforementioned criteria. There are some competing manufacturers of EMR. Each is having a different plastic body to suit its design and requirement. If one goes to the market to purchase the plastic body of EMR of the respondents either for replacement or otherwise one cannot get it in the market because at present it is not a commercially known product. For these reasons, the plastic body, which is a part of EMR of the respondents, is not "goods" so as to be liable to duty as parts of EMR under para 5(f) of the said exemption notification." (Emphasis supplied by us) 18. In Collector of Central Excise, Calcutta-II Vs. M/s Eastend Paper Industries Ltd.15, the assessee was manufacturing different kinds of paper. A question arose whether the wrapping paper manufactured and used for wrapping the finished product is a part of manufacture. It was held that wrapping of finished product by wrapping paper is process incidental and ancillary to completion of the manufactured product under Section 2 (f) of Act. Thus, the Court held that, 15 (1989) 4 SCC 244 2 anything required to make goods marketable, must form a part of manufacture and any raw material or any material used for same would be a component part of the final product. 19. In Dharampal Satyapal Vs. Commissioner of Central Excise, Delhi-I, New Delhi16, the term marketable has been held to mean saleable, as under: "18......Marketability is an attribute of manufacture. It is an essential criteria for charging duty. Identity of the product and marketability are the twin aspects to decide chargeability. Dutiability of the product depends on whether the product is known to the market. The test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. Marketable means saleable. The test of classification is, how are the goods known in the market. These tests have been laid down by this Court in a number of judgments including Moti Laminates (P). Ltd. v. CCE17, Union of India v. Delhi Cloth & General Mills Co. Ltd.18 and Cadila Laboratories (P) Ltd. v. CCE19." 20. Thus, if a product is not saleable, it will not be marketable and consequently the process of manufacture would not be 16 (2005) 4 SCC 337. 17 (1995) 3 SCC 23 18 (1997) 5 SCC 767 19 (2003) 4 SCC 12 2 held to be complete and duty of excise would not be leviable on it. The corollary to the above is that till the time the step of manufacture continues, all the goods used in relation to it will be considered as inputs and thus, entitled to Modvat credit under Rule 57A of the Rules. In the present case, as aforesaid, each machine is tailor made according to the requirements of individual customers. If the results are not in conformity with the order, then the machine loses its marketability and is of no use to any other customer. Thus, the process of manufacture will not be said to be complete till the time the machines meet the contractual specifications and that will not be possible unless the machines are subjected to individual testing. Even though the revenue has alleged that the process of manufacture is complete as soon as the machine is assembled, yet it has not discharged the onus of proving the marketability of the machines thus assembled, prior to the stage of testing. Moreover, as has been held in the case of Hindustan Zinc Ltd. Vs. Commissioner of Central Excise, Jaipur20, the burden of proving whether a 20 (2005) 2 SCC 662; 2 particular product is marketable or not is on the department and in the absence of such proof it cannot be presumed to be marketable. In the absence of the revenue having adduced any such evidence or contorted the assessee's claim that the machines cannot be sold unless testing is done with some alternative evidence as to their marketability, the stand of the revenue cannot be accepted. 21. Thus, in our opinion the process of testing the customised F&S machines is inextricably connected with the manufacturing process, in as much as, until this process is carried out in terms of the afore-extracted covenant in the purchase order, the manufacturing process is not complete; the machines are not fit for sale and hence not marketable at the factory gate. We are, therefore, of the opinion that the manufacturing process in the present case gets completed on testing of the said machines and hence, the afore-stated goods viz. the flexible plastic films used for testing the F&S machines are inputs used in relation to the manufacture of the 2 final product and would be eligible for Modvat credit under Rule 57A of the Rules. 22. In view of the aforegoing discussion, the opinion rendered by the High Court on the questions referred by the Tribunal cannot be sustained. We hold that the process of testing the customised machines is integrally connected with the ultimate production of the final product viz. the F&S machines and therefore, that process is one in relation to the manufacture, falling within the sweep of Rule 57A of the Rules. Consequently, the appeals are allowed and the impugned orders are set aside, leaving the parties to bear their own costs. ........................................... (D.K. JAIN, J.) ............................................ (ASOK KUMAR GANGULY, J.) NEW DELHI; JANUARY 13, 2012. ARS 2 2

whether laminated panels of particle and medium density fiber board should be classified under sub- heading no. 4406.90 and 4407.90 or under sub- heading no. 4408.90. The appellant alleged that the product manufactured by the respondent herein was classifiable under sub heading 4408.90. For this purpose the appellant relied on Chapter Note 5 of Chapter 44 of the Central Excise Tariff Act, 1985 (hereinafter referred to as `the Act') which reads as under:- "For the purposes of heading No. 44.08, the expression "similar laminated wood" includes blockboard, laminboard and battenboard, in which the core is thick and composed of blocks, laths or battens of wood glued or otherwise joined together and surfaced with the outer plies and also panels in which the wooden core is replaced by other materials such as a layer or layers of particle board, fiberboard, wood waste glued or otherwise joined together, asbestos or cork".

                                                 1








                                                                REPORTABLE 








                 IN THE SUPREME COURT OF INDIA




                  CIVIL APPELLATE JURISDICTION






                    CIVIL APPEAL NO.4462  OF 2003 










COMMNR. OF CENTRAL EXCISE, NOIDA                                 .....Appellant.








                                      Versus




M/S. KITPLY INDUSTRIES LTD.                                       .....Respondent










WITH




CIVIL APPEAL NO.9736 OF 2003










                               J U D G M E N T










ANIL R. DAVE, J.








1.     The present appeals arise out of the judgments and orders passed on 




23.9.2002 and 6.6.2003 by the Customs, Excise & Gold (Control) Appellate 




Tribunal,   New   Delhi   and   the   Customs,   Excise   &   Service   Tax   Appellate 




Tribunal,   dismissing   the   appeals   filed   by   the   appellant-   Revenue 



                                                    2








Department. By this judgment, we dispose of  Civil Appeal Nos. 4462/2003 




and 9736/2003 as they involve similar questions of law. 








2.      The   issue   which   falls   for   consideration   in   the   present   appeals   is 




whether laminated panels of particle and medium density fiber board should 




be   classified   under   sub-   heading   no.   4406.90   and   4407.90     or   under   sub-




heading no. 4408.90.   The appellant alleged that the product manufactured 




by the respondent herein was classifiable under sub heading 4408.90.   For 




this   purpose   the   appellant   relied   on   Chapter   Note   5   of   Chapter   44   of   the 




Central Excise Tariff Act, 1985 (hereinafter referred to as `the Act') which 




reads as under:-








        "For   the   purposes   of   heading   No.   44.08,     the   expression 


        "similar laminated wood" includes blockboard, laminboard 


        and battenboard, in which the core is thick and composed of 


        blocks, laths  or  battens  of wood  glued   or otherwise  joined 


        together and surfaced with the outer plies and also panels in 


        which the wooden core is replaced by other materials such 


        as   a   layer   or   layers   of   particle   board,   fiberboard,   wood 


        waste glued or otherwise joined together, asbestos or cork".










For the sake of convenience, the relevant headings are also extracted below:






"44.06   -   Particle   board   and   similar   board   of   wood   or   other   ligneous  




materials,   whether   or   not   agglomerated   with   resins   or   other   organic  




binding substances.



                                                     3








4406.10- Plain particle boards. 






4406.20- Insulation board and hardboard






4406.30-   Veneered   particle   board,     not   having   decorative   veneers   on   any  




face






4406.90-Other. 






44.07 - Fiber board of wood or other ligneous materials, whether or not  




bonded with resins or other organic substances.






4407.10-Insulation board and hardboard






4407.90- Other. 






44.08-Pplywood, veneered panels and similar laminated wood. 






4408.10 - Marine plywood and aircraft plywood.






4408.30- Decorative plywood






4408.40-   Cuttings   and   trimmings   of   plywood   of   width   not   exceeding   5  




centimeters






4408.90 - Other". 






3.      In  order   to   decide   the   issue   arising   in   the  present   case   in  its   proper 




perspective,   basic   facts   leading   to   filing   of   the   present   appeals   are   being 




recapitulated hereunder: 



                                                     4








The   respondent   asessee,   who   is   engaged   in   the   manufacture   of   wood   and 




articles   of   wood   falling   under   Chapter   44,   was   issued   show   cause   notices 




dated   16.2.2000   and   27.12.2000   by   the   appellant   authorities,   inter   alia, 




calling   upon   it   to   show   cause   as   to   why   classification   of   its   products   (1) 




Laminated Particle Board and (2) Laminated Medium Density Fibre Board 




should not be changed to chapter Sub-heading no 4408.90 The respondent 




replied  to  the  said   notices  refuting  the   allegations  on  merits  as   well  as   on 




limitation.   The   said   show   cause   notices   were   adjudicated   and   the   demand 




proposed   therein   was   dropped   by   the   Commissioner   of   Central   Excise, 




Meerut-II   vide   Orders   dated   20.4.2001   and   31.10.2001   respectively.   The 




Commissioner,  ultimately found that the pre requisites of Chapter Note 5 of 




Chapter 44 were not satisfied and, therefore,  no further action was taken so 




far as the aforestated classification was concerned. 








4.      Aggrieved   by   the   orders,   the   Revenue   filed   appeals   before   the 




Tribunal.   The   Tribunal   dismissed   the   said   appeals   vide   orders   dated 




23.9.2002 and 6.6.2003, upholding the findings of the Commissioner. 








5.      Aggrieved   by   the   orders   of   the   Tribunal,   the   Reveue   has   filed   the 




present appeals. 



                                                    5








6.      The learned counsel for the appellant submitted that the Tribunal had 




erred   in   not   appreciating   that   the   manufacturing   process,   as   stated   by   the 




factory manager clarified that "pre-laminated" meant already laminated and 




as a result of the process,  the surface of the panels become water resistant as 




well   as   scratch   resistant   and   due   to   melamine   surface,   it   resisted   cigarette 




burns and also got an attractive look.  In spite of the above facts stated by the 




factory manager with regard to the process,   the respondent-assessee never 




mentioned the word "Panel" in the manufacturing process submitted  along 




with classification declared under Rule 173 B of the Act. 








7.      Learned   counsel   for   the   appellant   further   argued   that   Chapter   Note 




44.08   specifically   speaks   of   plywood,   veneered   panels   and   `similar 




laminated wood'. He pointed out that in the instant case, it is an admitted 




fact   that  the   goods   in  question,   which   are  `wood  products'     are   laminated 




and   they   are   covered   under   chapter   heading   44.08   and   not   under   chapter 




heading 44.06 as there is no mention of lamination in the latter chapter sub 




heading. 








8.      The learned counsel for the appellant also submitted that the Tribunal 




failed to appreciate that if a product is capable of being classified under two 




chapter headings, then Rule 3 (c) of the Rules for interpretation of  the   Act 



                                                     6








envisages   that   classification   under   the   heading,   which   occurs   last   in   the 




numerical   order.   Therefore,   chapter   sub-heading   4408.90   would   be   the 




appropriate sub heading for classification of the products in question. 








9.        To substantiate his claim, he relied on the cases of CCE, SHILLONG 




v.  WOOD   CRAFT   PRODUCTS   LTD.  1995   (77)   ELT   23,  M/S  




SAUSASHTRA   CHEMICALS    v.  COLLECTOR   OF   CUSTOMS,  




BOMBAY  1986   (23)   ELT   283,  DECORATIVE   LAMINATED   (INDIA)  




PVT   LTD    v.  COLLR.   OF   C.   EX.,   BANGALORE    1996   (86)   ELT   186  




(S.C.). 








10.       On the other hand, the learned counsel for the respondent submitted 




that for Chapter Note 5 of Chapter 44 to apply, an essential pre-requisite is 




that the similar laminated wood must be surfaced with outer piles,  which is 




conspicuously   absent   in   the   present   case   and   hence   the   said   chapter   note 




would   not   apply.   He   also   submitted   that   the   impregnation   is   only   an 




additional   process,   which   is   done   on   the   particle   board   to   increase   its 




strength and, therefore, the goods would still continue to fall under heading 




4406. 








11.       The   learned   counsel   also   submitted   that   the   decision   in   the   case   of 




Wood Craft Products Ltd.  (supra) would not be applicable to the instant 



                                                    7








case as it was with respect to classification of block board. The respondent 




relied on the case of CCE, INDORE v. BOMBAY BURMAH TRADING 




CORPN.   LTD.  2000(39)   RLT   184   to   substantiate   its   claim   that   pre-




laminated particle board is classifiable  under heading 44.06 and not under 




heading 44.08. 








12.    We   have   heard   the   learned   counsel   for   the   parties   and   perused   the 




records. 








13.      It   is   not   in   dispute   that   the   product   before   the   lamination   is   not 




classifiable   under   tariff   heading   44.08.   However,   it   is   the   case   of   the 




appellant that after the lamination, the panels so obtained become a distinct 




product   falling   outside   the   purview   of   44.06.   Hence,   what   needs   to   be 




determined   by   us   is   whether   even   after   the   lamination,   the   products   falls 




under sub-heading 4406.90 and 4407.90 or would it fall under sub- heading 




4408.90. 








14.    For this purpose, it is important to refer to the statement of the factory 




manager Shri B.V Rao, who stated that in the process of manufacture of the 




panels,   plain   panels   of   the   mother   boards   (plain   particle/MDF   fiber)   are 




used. Papers are passed through the impregnating unit wherein the resin and 




other   required   chemicals   are   spread   on   the   paper   and   the   paper   gets 



                                                  8








impregnated.  The  impregnated  paper  is further  dried   and  cut into  required 




length. These paper sheets are assembled with the mother boards in such a 




way that  the impregnated paper is  placed on the upper side and one layer of 




impregnated   design   paper   is   placed   over   one   layer   of   impregnated   tissue 




paper.   This   assembly   is   put   for   pressing   under   the   required   heat   and 




pressure.   The   above   assembly   is   taken   out   as   pre-laminated   boards   and   is 




ready for dispatch. 








15.    From the above process,  it is clear that the products are pre-laminated 




wood,   most   aptly   falling   under   chapter   heading   44.08   as   the   said   chapter 




heading   specifically   speaks   of   plywood,   veneered   panels   and   similar 




laminated wood. The word "similar"  discussed in the above para has been 




discussed   by   this   court   in   the   case   of  CCE,   Shilling  v  M/S   Wood   Craft 




Products Ltd. (supra) wherein  a similar issue with regard to  "Block board" 




had arisen.  For sound reasons recorded,  this Court held that `Block board' 




should be  classified under heading No. 44.08.  The logic applied in the case 




of   `Block board' can very well be applied in the instant case.   In the said 




judgment, this Court observed as under in paras 5 and 6








               "5.           It is significant   that Heading No. 44.12 of the 


               HSN is the same as Heading No.   44.08 of the Indian 


               tariff   and   reads   "Plywood,   veneered   panels   and 


               similar   laminated   wood."     The   explanatory   notes   on 



                                                 9








              the   HSN   indicate   the   meaning   of   the   expression 


              "similar laminated wood" as under:-




              "similar laminated wood.   This group can be divided 


              into two categories:




              Block board, lamin board and batten board, in which 


              the   core   is   thick   and   composed   of   blocks,     laths   or 


              battens of wood glued together and surfaced with the 


              outer   plies.     Panels   of   this   kind   are   very   rigid   and 


              strong and can be used without framing or backing."




              6.         It   is   clear   that   if   the   expression   "similar 


              laminated wood" in the Indian Tariff is understood as 


              it meant under the HSN on which pattern the Central 


              Excise   Tariff   Act   is   based,     then   block   boards   of   all 


              kinds     would   fall   within   the   expressionn   "similar 


              laminated  wood".  This   is   how   the   amended   Chapter 


              Note reads expressly.   The question is whether it can 


              be so read even for the earlier periods particularly the 


              first  period   before   amendment  of  Chapter   Note   5  to 


              expressly   include   block   board   in   the   expression 


              "similar laminated wood".










16.    Heading   44.08   in   the   instant   case   covers     "plywood",     "veneered 




panels" together with all kinds of "similar laminated wood".  In other words, 




it   is   treating   "plywood"   or   "veneered   panels"   as   "laminated   wood". 




Therefore,  it covers all kinds of laminated wood bearing any resemblance to 




"plywood" or "veneered panels". The word used is "similar" and not "same". 




Thus,   some   resemblance   to   "plywood"   or   "veneered   panels"   is   enough, 



                                                      10








provided the article can be treated as "laminated wood". The sweep of the 




heading is, therefore, quite wide.








 17.    Therefore, for the product to be classified under the above heading, it 




is   enough   if   it   is   similar   to   laminated   wood,     which   in   the   instant   case   is 




proved   beyond   reasonable   doubt.     Even     factory   manager,   Shri   B.V.   Rao 




admitted the   facts with regard to lamination.   At this point we may again 




refer to the case of   M/s. Wood Craft Products Ltd. (supra).   It has been 




mentioned   therein   that   "The   meaning   of   the   significant   words   and 




description   of   the   wood   products   as   intermediate   materials   meant   for 




manufacture of final products clearly indicate that "laminated wood" means 




a wood product  prepared by placing layer on layer and "block board" is a 




plywood   board   with   a   core   of   wood.   Any   plywood   board   with   a   core   of 




wood in which there are layers, one above the other is, therefore, laminated 




wood similar to plywood or, veneered panels. It is "similar laminated wood" 




included   in   the   heading   "Plywood,   veneered   panels   and   similar   laminated 




wood". Similarity with, and not identity with plywood or veneered panels is 




required".








18.     From the above, it is clear that the product is similar to plywood and 




veneered   panels   and   hence   tariff   heading   44.08   is   squarely   applicable. 



                                                     11








Further, in the instant case, the core layer is  made up of the particle board or 




MDF board (referred to as "mother boards" in the process mentioned above) 




and   joined   together   with   the   help   of     resins   and   then   laminated   with 




plasticised   paper   (paper   impregnated   with   melamine   formaldehyde   resin). 




Hence it is also clearly seen that the laminated panels manufactured by the 




respondent are covered under Chapter Note 5 to Chapter 44 of the schedule 




to the Act. The product need not be same as plywood or veneered panels but 




mere similarity with them is enough for chapter note 5 to apply. 








19.     The   Tribunal   has   erred   in   holding   that   as   "particle   board"   is 




specifically   covered   under   heading   44.06,   laminated   particle   board   will 




come under the scope of "similar board of wood" under the said heading. It 




is   clear   that   the   product   after   the   lamination   is   a   distinct   marketable 




commodity   different   from   the   original   one.   This   conclusion   is   further 




substantiated   by   the   fact   that   Shri   B.V.   Rao   said   in   his   statement   that   the 




panels   after   lamination,   become   water   resistant   and   look   attractive   due   to 




printed paper and brings about a change in the name, usage etc. Therefore, 




the   Tribunal's   conclusion   that   the   laminated   board   is   similar   to   `particle 




board' is incorrect and cannot be accepted. 



                                                   12








20.     The respondent has placed reliance on the pari materia heading in the 




HSN 44.10 to contend that the product is classifiable under chapter heading 




44.06. We cannot accept this argument. In the proviso to the said heading, it 




has been mentioned that if the manufacturing process gives the product the 




essential   character   of   articles   of   another   heading,     then   chapter   heading 




44.12   will   not   apply.   In   the   instant   case,   going   by   the   statement   of   the 




respondent's   own   officer,   the   product   after   lamination   assumes   a   distinct 




marketability and brings about a change in the product.  This change,  after 




lamination   makes   the   product   fall   outside   the   purview   of   chapter   heading 




44.06 and  that would place the product under chapter heading 44.08 as the 




word   used   under   chapter   heading   44.08   is   "similar  laminated  wood" 




(emphasis supplied).  Further recourse may also be taken to rule 3 (c) of the 




Rules for interpretation of the Act which envisages that if the products are 




capable   of   classification   under   two   chapter   headings,   then   as   per   the   said 




rule,  the classification  must  be under the heading which  occurs last  in the 




numerical order. Therefore, heading 4408.90 would be the appropriate sub 




heading for classification  of  the product in question. 








21.     In terms of the above conclusions arrived at and on appreciation of the 




materials  on record, we are of the view that the findings arrived  at by the 




Tribunal are unjustified  and cannot be accepted. The impugned judgments 



                                         13








and orders passed by the Tribunal in both the appeals are, therefore, set aside 




and it would be open to the   appellant   to assess the respondent as per the 




above findings. Accordingly, the appeals are allowed but leaving the parties 




to bear their own costs. 










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


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




                                               (Dr. MUKUNDAKAM SHARMA)




                                                                   




                                                                                     


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


                                               (ANIL R. DAVE)




New Delhi




September  7, 2011.