1. The present proceedings arise out of the notice bearing F. No.198/B/13/94/81-C X.5, dated 21st July, 1981 issued by the Central Government to the Respondents (hereinafter referred to as Uma Laminated) calling upon them to show cause why the Central Government, in exercise of its powers under Section 36(2) of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act), should not set aside the Order-in-Appeal No. 68/81 dated 9-2-1981 passed by the Appellate Collector of Customs and Central Excise, Hyderabad and restore the Orders-in-Original dated 12-3-1980 and 5-8-1980 passed by the Assistant Collector of Central Excise, Hyderabad or pass orders as deemed fit. These proceedings have come to this Tribunal as transferred proceedings under Section 35-P of the Act and are being disposed of as if it were an appeal filed by the Central Government before the Tribunal.
2. Uma Laminated are manufacturers of "Polyethylene Coated Paper" and "Polyethylene Sandwiched Paper" using duty-paid kraft paper and duty-paid polyethylene granules as the main raw materials. Excise duty was being charged on these goods under Item No. 17 (2) of the Central Excise Tariff Schedule (C.E.T.). On 13-7-1979, Uma Laminated filed an application before the Assistant Collector of Central Excise, Hyderabad claiming refund of the duty-paid on Polycoated Paper during the preceding "3 years" amounting to Rs. 31,87,078.75 on the ground that "manufacture of polyethylene coated papers using duty-paid papers and duty-paid polyethylene does not come under Item 17(2) C.E.T. as it is only a processing of the duty-paid raw materials. That being the case at best the products we are manufacturing can be classified as a paper product which is not covered under any item of the C.E.T".
3. On 30-5-1980, Uma Laminated filed another claim before the Assistant Collector on the same ground for an amount of Rs. 13,89,381.24 paid as duty on polylethylene coated paper during the period from 13-6-1979 to 28-5-1980.
4. By two orders dated 12-3-1980 and 5-8-1980, the Assistant Collector rejected the claims holding that the products attracted duty under Item 17 (2) C.E.T. He also held that a major portion of the claim filed on 13-7-1979 was barred by limitation under Rule 11 of the Central Excise Rules, 1944, for the period prior to 13-1-1979. The claim filed on 30-5-1980 was also held to be inadmissible on merits and barred by limitation under Rule 11 of the Central Excise Rules for the period from 1-7-1979 to 29-11-1979.
5. Uma Laminated filed two appeals against the aforesaid orders of the Assistant Collector. The Appellate Collector, Hyderabad, by a detailed order, held that the papers manufactured by Uma Laminated were treated papers classifiable under Item 17(2) C.E.T., but that the treatment of the base Kraft Paper by Uma Laminated did not constitute "manufacture" but only processing and, therefore, the subject treated papers would not be liable to any excise duty. He further held that an unwritten law had been evolved into existence to the effect that amounts collected in the name of duties, which are found to constitute imposts, require to be refunded, if the claim for their refund is made within 3 years from the date of their payment. Consequently, he set aside the Assistant Collector's orders and directed him to refund all duties which were clearly shown to have been paid within a period of 3 years from the date of payment (claim ?). He also said that the refund should not exceed the amounts originally claimed and that the refund should be granted by 30-6-1981.
6. The Collector of Central Excise, Hyderabad, being of the view that the Appellate Collector's order was not correct, wrote on 11-6-1981 about the subject to the Addl. Secretary, Ministry of Finance so that the Government would, if they so desired, review the Order-in-Appeal under Section 36(2) of the Act.
7. On 21-7-1981, the Central Government issued a notice to Uma Laminated under Section 36(2) of the Act. It stated that the goods in question, namely, polyethylene coated paper and polyethylene sandwiched paper, had a distinct name, character and use vis-a-vis kraft paper and were, therefore, new products classifiable under Item 17 (2) of the C.E.T. The notice also stated that it appeared to the Central Government that the period of limitation provided under Central Excise Rule 11 read with Rule 173-J was applicable in cases like the present one. The Government, therefore, took the tentative view that the Order-in-Appeal was not proper, legal and correct and proposed to set it aside and restore the Asstt. Collector's Orders-in-Original. Uma Laminated was asked to show cause against the proposed action. In the notice, it was also stated that the operation of the Order-in-Appeal shall remain stayed till the review proceedings were finalised. On 27-7-1982, the Central Government issued a corrigendum to the Show Cause Notice dated 21-7-1981.
8. By letters dated 20-8-1981 and 20-9-1982, Uma Laminated replied to the said show cause notice and its corrigendum dated 27-7-1982. On the setting up of this Tribunal the proceedings came to be transferred to it under Section 35-P(2) of the Act.
9. We have heard with considerable interest Shri V. Lakshmi Kumaran, the learned Departmental Representative for the appellants and Shri K.Narasim-han, the learned Counsel for the Respondents. We have also carefully perused the records.
10. Shri Lakshmi Kumaran framed the following issues for our consideration : (i) Whether the show cause notice issued by the Government was a valid notice and if it was, was it time-barred (ii) Whether the process of polycoating/polylamination of kraft paper with polyethylene amounts to "manufacture" under Section 2(f) of the Central Excises and Salt Act, 1944 (iii) Whether polycoated/polylaminated paper was classifiable under Item No. 17 (2) C.E.T. (iv) If so, whether the finished products would attract duty under sub-item (2) of Item 17 C.E.T., or is it necessary that the finished product and the raw material should fall under different tariff items or different sub-items of the same tariff item in order that the finished product may attract duty (v) Whether the Respondent having availed of the concessional rate of duty under Notification Nos. 71/76 and 71/77 can challenge the levy itself (vi) Whether the refund claims were filed within the prescribed time-limit (vii) Whether the Appellate Collector was right in allowing the refund beyond the time-limit prescribed in the Central Excise Law (viii) Whether the Respondent is entitled for refund duty (which they had already recovered from their customsr which would amount to unjust enrichment (ix) Whether the settled practice of levy of duty on the converted types of papers (since 1957) could be unsettled by the Appellate Collector 12. Issue No. (/).-Considerable arguments have been addressed by both sides on this issue. Section 36 (2) of the Act, as it stood at the relevant time, read as follows : "The Central Government may, of its own motion, or otherwise, call for and examine the record of any proceeding in which any decision or order has been passed under Section 35 or Section 35-A of this Act for the purpose of satisfying itself as to the correctness, legality or propriety of such decision or order and may pass such order thereon as it thinks fit : Provided that no decision or order shall be varied so as to prejudicially affect any person unless such person is given a reasonable opportunity of making a representation and, if he so desires, of being heard in his defence : Provided further that no proceedings shall be commenced under this sub-section in respect of any decision or order (whether such decision or order has been passed before or after the coming into force of this sub-section) after the expiration of a period of one year from the date of such decision or order : Provided also that where the Central Government is of opinion that any duty of excise has not been levied or has been short-levied or erroneously refunded, no order levying or enhancing the duty, or no order requiring payment of the duty so refunded, shall be made under this section unless the person affected by the proposed order is given notice to show cause against it within the time-limit specified in Section 11 A." 13. Shri Narasimhan has vehemently contended that the Appellate Collector's file had not been called for by the Government of India and that the file was not before the Additional Secretary at the time he issued the show cause notice. Section 36 (2) required the Central Government to call for and examine the record relating to the order sought to be reviewed. Since the Appellate Collector's record was not examined by the Government of India, the requirement of the Section was not complied with. Further, that part of the show cause notice which stayed the operation of the Order-in-Appeal without a notice to Uma Laminated was ab-initio void. The fact that the notice was, in the first instance, addressed to a wrong party (although this point was not pressed by the learned Counsel) showed that there was no application of mind on the part of the Additional Secretary.
In the aforesaid circumstances, the learned Counsel for Uma Laminated contended, a valid show cause notice could not be said to have been issued on 21-7-1981. Only with the issue of the corrigendum on 28-7-1982, it could be said that Uma Laminated was served with the notice. Since the order sought to be reviewed was passed on 9-2-1981, the show cause notice was beyond the period of one year prescribed in Section 36(2). There was, therefore, no proceeding before the Tribunal which was duly transferred to it under Section 35-P of the Act.
The learned Counsel further contended that the show cause notice did not set out the reasons for the proposed review.
In support of his contentions, Shri Narasimhan relied on the Gujarat High Court decision in the State of Gujarat v. Chela Bhai Bhara Bhai Prajapati-1974 (33) S.T.C. 147 in which the Court held that, on the facts and circumstances of that case, the Deputy Commissioner of Sales Tax, for initiating suo moto revision under Section 57 of the Bombay Sales Tax Act, 1959, could take into consideration only the record of the proceedings before the Assistant Commissioner and could not consider materials which did not form part of the said record. Reliance was also placed on the Supreme Court decision in the State of Kerala v.KM. Cheria Abdulla & Co.-1965 (16) S.T.C. 875 (S.C.) in which the Court held that for exercising the power of revision under Section 12(2) of the Madras General Sales Tax Act, 1939, the Deputy Commissioner may only call for the record of the order or the proceedings and the record alone may be scrutinised for ascertaining the legality or propriety of an order or regularity of the proceedings. To the same effect were two decisions under the Income-tax Act, one being the Calcutta High Court decision in Ganga Properties v. I.T.O. - 1979 (118) I.T.R. 447 (Cal.
H.C.) ; the second decision being of the Assam & Nagaland High Court in Commissioner of Income-tax v. Sabitri Devi Aggarwala- (1970) 77 I.T.R.14. As against the aforesaid contentions, the Senior Deptl.
Representative has contended that the use of the word "may" in Section 36 (2) of the Act is directory and not mandatory in so far as it relates to calling for and examining of records If the assessment order is plainly inconsistent with the specific and clear provisions of the statute, it must be held that there is a mistake apparent from the record. Reliance was placed in this connection on the Supreme Court decision in Karam Chand Thapar v. State of U.P.-(1976) 38 S.T.C. 593 (S.C.). The record of the appellate authority includes also the record of the original authority-Mahendra Mills v. Appellate Asstt.
Commissioner of Income-tax-(1975) 4 S.C.R. 846. It would suffice if the records of the original authority were available before the reviewing authority. In the present case, the Asstt. Collector's record and his orders, together with the Order-in-Appeal, were before the Reviewing Authority. There was substantial compliance with the requirements of law.
The second proviso to Section 36 (2) requires the proceedings to be commenced within one year from the date of the order. In the present case, the show cause notice, having been issued on 21-7-1981, was well within the permissible time. The fact that the address of the Respondent was wrongly shown in the first notice would not militate against the validity of the notice, particularly because the said notice was in fact taken delivery of by the Respondent.
15. We have carefully considered the submissions of both sides. The order of the Appellate Collector-was dated 9-2-1981. The show cause notice was issued on 21-7-1981 well within the period of one year contemplated under the second proviso to Section 36 (2). The corrigendum, which was meant to correct inter alia the address of the Respondent, wrongly shown as Uma Laminated Jute Products instead of Uma Laminated Products, does not, in our view, vitiate the legality or validity of the show cause notice dated 21-7-1981. It must be noted that the address in the show cause notice, as well as the corrigendum, is 20, Lal Bahadur Stadium, Hyderabad, the correct address of the Respondent. The Respondent had in fact taken delivery of the notice.
Shri Narasimhan has pointed out a further mistake in the show cause notice dated 21-7-1981 in that it refers to the refund claim having been sanctioned within the period of limitation as provided in the General Clauses Act. The corrigendum, however, refers to the period of 3 years as laid down in the Limitation Act. The reference to General Clauses Act in the show cause notice is manifestly a mistake but since it does not materially alter the particulars set out in the show cause notice, we do not consider it to be a fatal mistake. The same is the case with respect to the other mistake pointed out by Shri Narasimhan.
The original notice said that the Appellate Collector allowed the appeal by "setting aside the aforesaid refund claim". The corrigendum corrected this to read : "by setting aside the aforesaid Orders-in-Original". These errors were avoidable ones but they are not such as to vitiate the very validity and legality of the show cause notice.
16. Shri Narasimhan has strenuously contended that the review proceedings were not commenced within one year of the date of the Order-in-Appeal. The SDR has urged that the proceedings commenced when the Collector wrote the letter dated 11-6-1981 to the Additional Secretary. We cannot agree with this contention. The word "proceeding" as per Law Lexicon by Venkatara-maiya (page 1909) means : "The word 'proceeding' originally relates to forms of Law, to the modes in which judicial transactions are conducted. The term 'proceeding' is a very comprehensive term and, generally speaking, means a prescribed course of action for enforcing a legal right and hence it necessarily embraces the requisite steps by which a judicial action is invoked. The meaning to be given to the word 'proceeding' would depend on the scope of the enactment in which it occurred and the context in which the word was used." It is clear that the issue of the show cause notice alone would be the starting point for the purpose of considering whether the proceedings have been initiated. We have already held that the errors sought to be corrected by the corrigendum did not affect the validity and legality of the original notice. The notice dated 21-7-1981, having been issued within one year from the date of the Order-in-Appeal, was not hit by the limitation under Section 36(2) of the Act.
Another objection raised by Shri Narasimhan is that the records of the Appellate Collector had not been called for by, nor were they before, the Central Government when it issued the show cause notice. Shri Narasimhan has also urged that the proceedings transferred under Section 35-P would also be invalid because of this lacuna. We do not consider these objections as tenable. Under Section 36(2), as it stood at the relevant time, the Central Government, of its own motion or otherwise, was empowered to call for and examine the record of any proceedings. So, the invocation of the revisionary power by the Central Government is for the purpose of satisfying itself as to the correctness, legality or propriety of such decision or order. The record of the proceeding is not restricted to the record of the appellate authority-See 1975 (3 SCR) 846. We find that in the Collector's letter dated 11-6-1981 to the Additional Secretary, there is a reference to the facts of the case, the order of the Appellate Collector and indicates the grounds on which review of the order was sought for by the Collector. In the show cause notice, it is stated that the Central Government have examined the records and particular reference has been made to the Order-in-Appeal No. 68/81 dated 9-2-1981 passed by the Appellate Collector. An application was filed by the leartisd I Counsel for the Respondent before us urging that the proceedings were void ab-initio as the mandatory requirements were not complied with. It was also pointed out that the relevant records were received by the Departmental Representative only after the notice of hearing was issued by this Tribunal. However, the show cause notice indicates that the Government have applied their mind to the material that was available. It may be that if the Government considered it necessary and essential, they could have called for the records of the Appellate Collector. Presumably, they did not call for the entire record because they had adequate material in the Order-in-Appeal and the Assistant Collector's files before them in order to satisfy themselves about the legality, correctness and propriety of the decision of the Appellate Collector. The contention that the proceedings are void ab-initio is, in the circumstances, not acceptable. The decisions pointed out by the learned Counsel for the Respondent are not relevant to the facts of the present case. In C.I.T.v. Savitri Devi Aggarwala-(l970) 77 ITR 934, the Court held that there was no valid service of show cause notice on the assessee. It was further held that in a matter where the assessee's interests are going to be seriously affected by some order that may be passed in a proceeding under Section 33-B of the Income-tax Act, 1922, a mere oral information cannot be considered as sufficient in law and it must be held that the first essential preliminary of such an opportunity must be a written show cause notice to the assessee. In the case before us, a written show cause notice has been served on the Respondent. The relevance of the cited decision is not clear.
In Ganga Properties v. I.T.O. Calcutta, (1979) 118 ITR 447, it has been held with reference to Section 263 of the Income-tax Act, 1961, that materials which were not in existence at the time the assessment was made but came afterwards into existence cannot be taken into consideration by the Commissioner for the purpose of invoking his revisional jurisdiction. Such is not the case in the matter before us.In the State of Gujarat v. Chelabhai Bharabhai Prajapati, 1974 (33) STC 147, the Court considered that the Deputy Commissioner had, for the purpose of initiating revisional proceedings, relied on materials which were not part of the record of the Assistant Commissioner and, therefore, he had acted beyond his jurisdiction. Again, the situation before us is not analogous.
In the State of Kerala v. KM. Cheria Abdulla & Co.-1965 (16) STC 875 (S.C.), the Court held that the revisionary authority may call only for the record of the order or the proceeding and the record alone may be scrutinised for ascertaining the legality or propriety of an order or regularity of the proceeding. The point at issue was whether, if the revisionary authority came to the conclusion that the order was improper or illegal, he could make enquiry outside the record in exercise of his revisional jurisdiction or must restrict himself to the record of the subordinate officer. The Court held that he could make or direct such enquiries.
We do not see how the ratio of these decisions is applicable to the facts of the case before us. The position that emerges is that the revisional authority, in initiating review proceedings, must restrict himself to the records of the lower authorities and should not base such a step on any material that did not exist on the record of the lower authorities. As we have seen, the Addl. Secretary had considered the Order-in-Appeal and the records of the Assistant Collector which apparently he considered sufficient for forming a tentative view as to the propriety, legality and correctness of the Order-in-Appeal. The Collector's letter is only in the nature of a representation for review of the Order-in-Appeal. No extraneous material has been alleged to have entered into the picture at this stage. In the circumstances, we fail to see how the show cause notice can be said to be invalid, illegal or void ab-initio-nor how, it can be said that no valid proceedings have been transferred to or survive before us.
Another objection taken by Shri Narasimhan is that the grounds on which the Appellate Collector based his findings have not been analysed and discussed in the show cause notice. We note that para 4 of the show cause notice gives the prima facie view of the reviewing authority about the matter : the process of making the products amounts to "manufacture" within the meaning of Section 2 (f) of the Act that the products are different from the base kraft paper and that the limitation in the Central Excise Rules is applicable. This, in our view, constitutes an adequate basis for initiating the proceedings. It is not necessary that the notice should set out and discuss point by point, all findings in the Appellate Collector's order.
17. Issues (ii), (iii) and (iv) : These three issues are inter-related and are, therefore, best dealt with together Shri Lakshmi Kumaran submitted before us that he relied on the Appellate Collector's finding that treated papers would have to be considered to constitute "paper" and that the treated papers manufactured by Uma Laminated were classifiable under Item 17 (2) CET. However, the Appellate Collector went wrong in holding that since the treatment of kraft paper did not amount to "manufacture", the subject treated papers were not liable to be charged to duty under the said sub-item. In this context, he referred to certain decisions and, in particular, to the decision of the Tribunal in the case of Golden Paper Udyog-1983 E.L.T. 1123 in which it was held that bituminized kraft paper made out of duty-paid kraft paper would not be liable to duty under Item 17(2) of the CET since, even after bituminization, the resultant product continued to be paper falling under the said sub-item. As against this, the decision of the Andhra Pradesh High Court in the Standard Packagings case, 1981 ECR 113-D and that of the Bombay High Court in the case of Kores India-1982 E.L.T. 253 were cited in support of his submission that polyethylene coated/sandwiched paper was liable to duty under Item No. 17(2) CET as treated paper. Reliance was particularly placed on the Bombay High Court decision in the case of New Shakti Dyeing Works-1983 ECR 1142-D in which the Court held that bleached, dyed and printed cotton fabrics were liable to duty again as cotton fabrics under Item 19 of the CET, though they were made out of grey cotton fabrics which had borne duty under the said item.
Shri Lakshmi Kumaran submitted that the ratio of the Supreme Court decision in the Delhi Cloth & General Mills case-1977 E.L.T. 199 and in the South Bihar Sugar Mills-1978 E.L.T. 336 was that there could be said to be "manufacture" if the processes to which the starting material was subjected to resulted in a product which was known differently and had different characteristics or uses. The Court did not hold in this decision or in any other decision that the finished product would not be liable to duty for the reason that it fell for classification under the same item as the duty-paid starting material.
It was submitted that the words "such as" appearing in Item 17 (2) CET amounted to enumeration of products which were illustrative of the types of paper sought to be taxed under the said sub-item. Since coating was one of the treatments enumerated, polycoated paper was covered within the said sub-item. In accordance with the ratio of the Delhi High Court decision in the case of Hyderabad Asbestos v. Union of India-1980 E L.T. 735, when the tariff entry enumerates a product, no question as to whether "manufacture" is involved in the production of the article survives for consideration.
It was strenuously submitted that the decision in 1983 E L.T. 1123 proceeded on the basis that there was absence of legislative intent to charge duty on bituminized kraft paper made out of duty-paid kraft paper. This basis was erroneous. There was abundant material to show the legislative intent which unfortunately was not placed before the Bench. Contemporaneous documents could be relied upon to understand the meaning of and arrive at the proper interpretation of the words and expressions in the statute--the doctrine of contemporanea expositio-K.P. Verghese v. I.T.O.-1982 (1) SCR 629. Also, statutory notifications could be used as an aid for interpreting tariff entries as laid down in the case of J.K. Steels Ltd.v. Union of India and Ors.-'1978 E.L.T. (J-355). In this context, our attention" was drawn to the Finance Minister's speech introducing the Finance Bill of 1976, notes on clausss and other budget papers placed before the Parliament.
It was strenuously contended that all these contemporaneous documents would show, the clear intent to charge duty on treated papers made out of duty-paid papers under Item 17 (2) CET. It was submitted that it was only in 1982 that converted papers, barring some costly varieties, were exempted for the first time, reliance being placed on Budget papers of 1982.
18. Rebutting the contentions on behalf of the appellants, Shri Narasim-han submitted that the 2 decisions of the Tribunal both in the case of Golden Paper Udyog-1983 E.L.T. 1123 and were in favour of the Respondent. He submitted that prior to the introduction of the 1976 Budget, polyethylene coated paper was specifically enumerated in the tariff entry under Item 17(2) and packing and wrapping paper (kraft paper is packing and wrapping paper) under Item 17(3). The situation changed with the introduction of the 1976 Budget on 16-3-1976 when both packing and wrapping paper and polycoat-'ed paper came to be classified under Item 17(2). Therefore, polyethylene coated paper and polyethylene sandwiched paper made out of duty-paid kraft paper were not new products attracting duty again under the very same item. Wherever the legislature intended that duty should be collected for a second time, the tariff entry and/or Section 2(f) of the Act expressly provided for it. Reference was made in this connection to some of the tariff entries like Item No. 4 relating to tobacco and Item No. 14-E relating to patent or proprietary medicines.
Reliance was placed on Gujarat High Court decision in Nav Gujarat Paper Industries v. Supdt. of Central Excise-1977 E.L.T. J-67 wherein it was held that the process of gumming, printing etc. did not change the character of packing and wrapping paper. The decisions in Swastik Products, Baroda v. Supdt. of Central Excise-1980 E.L.T. 164 and Kwality Coated Products v. Union of India-1980 E.L.T. 579, were also relied upon.
Referring to the Bombay High Court decision in the case of New Shakti Dyeing Works, it was submitted that the basic issue before the Court was the vires of the amendments effected to Section 2(f) of the Act and Items 19 and 22 of the Tariff. Therefore, the observations of the Court on bleached, dyed and printed cotton fabrics were only in the nature of obiter dicta.
Referring to the doctrine of contemporanea expositio adverted to by the Depth Representative, Shri Narasimhan submitted that in K.P. Verghese case it has been held that the Central Board of Direct Taxes circulars, although a contemporaneous exposition of the statute, must give way to the plain language of the statute. Contemporaneous documents are at best only of persuasive value. The Supreme Court considered the binding character of CBDT circulars on the lower authorities in the Income-tax Department even though the circulars might not be in strict conformity with the statute. Therefore, the ratio of the decision is of no help to the Department.
Referring to the Budget documents relied upon by the Senior Depth Representative, it was submitted by Shri Narasimhan that there was nothing in them which could lead to the inference that a two-stage levy was contemplated within Item 17(2), one at the stage of untreated paper and the other at the stage of treated paper. Neither departmental instructions nor Notifications issued by the Central Government could alter the plain meaning of the tariff entries. The 1982 Budget papers relied upon by the Department were also of no help because sub-items (1) and (2) of Item 17 had not undergone any material change.
19. We have given careful consideration to the submissions of both sides. We would first like to deal with the doctrine of contemporaneo expositio. Maxwell on the interpretation of the doctrine states at page 265 that "the application of the principle of contemporaneo expositio, is not limited to to the cases in which questions on title to property or contractual rights are dependent on the previous construction put upon the statute: it extends" also, according to Lord Buckmaster in Bourne v. Kene to "decisions that affect the general conduct of affairs, so that their alteration would mean that taxes had been unlawfully imposed or exemption unlawfully obtained, payments needlessly made, or position of the public materially affected".
20. The Supreme Court in K.P. Verghese v. I.T.O-1982 (1) S.C.R. 629 stated as follows :- "The rule of construction by reference to contemporanea expositio is a well established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. This rule has been succinctly and felicitously expressed in Crawford on Statutory Construction (1940 Ed.) where it is stated in paragraph 219 that 'administrative construction (i.e.
contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight; it is highly persuasive'. The validity of this rule was also recognised in Baleshwar Bagarti v. Bhagirathi Dass whereby Mookerjee, J. stated the rule in these terms : It is a well-settled principle of interpretation that courts in construing a statute will give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it." 21. It is, therefore, clear that it is not only permissible to look at cont-temporary documents in order to ascertain the intent and meaning of words in the statute but they can be used as aids in arriving at a proper understanding of the statute.J.K. Steel Ltd. v. Union of India-1978 E.L.T.(J-355), the Supreme Court, after considering several decisions, has held that, in the case of fiscal statutes, it may not be inappropriate to take into consideration the exemptions granted in interpreting the nature and scope of the impost. The levy and exemptions are parts of the same scheme of taxation and the two together carry into effect the purpose of the legislation. The Court concluded that, for finding out the scope of a particular levy, notifications issued by the executive Government providing for exemption from that levy could be looked into as they disclose the overall scheme. It may be mentioned that the Court was considerating certain Central Excise Notifications.
22. Applying the above principles to the present case, we notice that the Finance Minister in his speech, while presenting the Budget for the year 1976, stated as follows :- "My next proposal relates to paper and paper board, which have been assessed at specific duty rates for a long time. As a result of this, certain anomalies have crept in which have been accentuated after price decontrol. I, therefore, propose to replace the present specific duties on paper and paper board by ad valorem duties, printing and writing paper will be subject to a duty of 25 per cent ad valorem and all other paper and paper board to a duty of 30 per cent ad valorem. I would, however, like to make it clear that the concessional duty now available to white printing paper which is supplied by paper mills at the agreed price for various educational purposes, such as production of text-books and exercise books, and for Government use, will continue practically unchanged. Unbleached and Badami printing and writing paper of substance not exceeding 65 grams, will also be subject to a concessional rate of 16 per cent duty, while existing concessions for newsprint will be continued.
The additional yield from this measure will be Rs. 13 crores." This extract does not directly throw light on the present dispute.
However, simultaneously with the presentation of the Finance Bill, the Central Govern-ment, in exercise of its powers under Rule 8(1) of the Central Excise Rules issued a Notification No. 71/76, dated 16-3-1976 exempting polyethylene coated paper, waxed paper and waxed board falling under Item 17 from so much of the excise duty leviable thereon as was in excess of 12.5% ad valorem.
It is seen from the memorandum explaining the provisions in the Finance Bill, 1976, presented along with the Bill in the Parliament, that under sub-item (2) of Item 17 CET the pre-existing concession/concessional duty rates applicable to millboards, strawboards, corrugated boards, waxed paper, etc. made out of duty-paid paper were proposed to be continued as such or in a modified form. The Budget instructions issued by the Central Government to the Collectors elaborated the point and said that paper or paper board produced by treatments such as coating, impregnating, etc. would be chargeable at the appropriate rate of duty unless it was otherwise exempted. It further stated that the manufacturers of such papers/paper boards would be eligible for proforma credit/set off of duty paid on the base paper/paper board.
Based on the Budget instructions, the Collectors of Central Excise issued Trade Notices of which a copy of the Bombay Notice has been filed before us.
23. It is clear from a perusal of all these contemporaneous documents issued or notified or presented to the Parliament at the time of 1976 Budget that the intent was clear to charge duty on papers subjected to treatments such as coating, impregnating, etc. However, such treated papers made out of duty paid base papers were exempted from duty in excess of 12.5% ad valorem.
24. At this stage, we may set out the Tariff Item 17 as it stood before the 1976 Budget and as altered by the said Budget:- "17. Paper, all sorts (including Paste Board, Mill Board, Straw Board and Card Board), in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power- (2) Blotting, toilet, target, tissue other than cigarette tissue, teleprinter, type-writing, manifold, bank, bond, art paper, chrome paper, tub-sized paper, cheque paper, stamp paper, cartridge paper, waxed paper, polyethylene coated paper, parchment and coated board (including art board, chrome board and board for playing cards).
(3) Printing and writing paper, packing and wrapping paper, straw board and pulp board, including grey board, corrugated board, duplex and triplex boards, other sorts.
(4) All other kinds of paper and paper board, not otherwise specified." "17. Paper and paper board, all sorts (including paste-board, millboard, strawboard, cardboard and corrugated board), in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power- (1) Uncoated and coated printing and writing paper (other than poster paper).
(2) Paper board and all other kinds of paper (including paper or paper boards which have been subjected to various treatments such as coating, impregnating, corrugation, creping and design printing), not elsewhere specified." 25. It will be seen from the above that in the place of the pre-existing 4 sub-items, the entry was re-written by the 1976 Budget into 2 sub-items. Before 16-3-1976, there were 3 sub-items which set out, in detail, certain specific varieties of paper and board; the 4th sub-item was a residuary entry, with effect from 16-3-1976, the item was re-cast into 2 sub-items, the first one covering printing and writing paper (other than poster paper) and the other, paper board and all other kinds of paper including treated paper or paper boards.
Sub-item (2) has an inclusive clause whereby paper or paper boards which have been subjected to various treatments, such as coating, etc.
are specifically brought within the purview of the sub-item. The question is whether an untreated paper, which falls under Item 17(2) would after being subjected to one or more of the treatments alluded in the inclusion clause continue to fall in the said entry and attract excise levy or whether even if it continues to remain within the tariff entry, it would or would not be liable to excise levy once again.
There can be no dispute that kraft paper fell under Item 17(3) and polyethylene coated paper under Item 17(2) of the pre-budget tariff and were separately liable to duty. It is far fetched to say that the budget brought about a sweeping change in the tariff, the effect of which was that polyethylene coated paper ceased to be liable to duty separately if it was made out of duty-paid kraft paper for the reason that both products fell under the same Item 17(2) under the general description "Paper board and all other kinds of paper, not elsewhere specified" though the two papers formed two different kinds of paper.
As far as we can see, nothing was added to the total coverage of item 17 and nothing was deleted. In the place of the previous four-fold categorisation, a two-fold categorisation was introduced. The primary entry still remained "Paper and Paper Board, all sorts (including paste board, mill board, strawboard, card board and corrugated board)".
[Earlier, it was "Paper, all sorts (including paste board, mill board, strawboard and card board)"]. Some of the treatments illustratively mentioned in sub-item (2) are such as, are often performed after the base paper comes into existence, e.g. coating. (It may be remembered that Uma Laminated subject kraft paper brought from outside to co ating or laminating or sandwiching with polyethylene). If the legislative intent is not to charge duty on treated papers, why has the statute included treated papers in the sub-item 17(2)? It would be anomalous to contend that the intent was to charge duty on treated paper manufactured in only an integrated factory, i.e. a factory which produces the untreated and treated paper, and not to tax treated paper when such treatment is done on duty-paid untreated paper brought from outside. If this be the intent, the result would be invidious discrimination besides opening up of loopholes for tax avoidance. We also note that Central Excise Rule 56A framed by the Central Government in pursuance inter alia, of Section 37 of the Act, provides for a special procedure for movement of duty-paid materials or component parts for use in the manufacture of finished excisable goods. One of the provisions is that no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods unless duty has been paid for such material or component parts under the same item as the finished excisable goods.
(There is also a provision for remission or adjustment of duty paid for such material or component parts if it has been specifically sanctioned by the Central Government. Apparently, this provision is to take cafe of situations where the finished product falls under a tariff item different from that in which the duty paid materials or component parts fall). Now, in the list of goods to which Rule 56A applies, we find the entry "Paper and paper boards". We do not find anything in Rule 56A to suggest that in a situation where the duty paid materials and component parts fall under the same sub-item as the finished excisable goods, the rule will not apply or that it will apply only if the finished excisable goods fall under a sub-item different from that in which the duty paid materials and component parts fall.
Hence, on a very careful analysis, it is reasonable to conclude that both treated and untreated paper fall for classification under Item 17(2) and attract duty separately subject, of course, to such duty adjustments (set-off, credit of duty) as may be available. This, in our opinion, would bring about harmony among Tariff Item 17, Notifications 71/76 and 71/77 issued in relation to treated paper and Rule 56A.26. It would be useful to look at the problem from other angles too.
Notification No. 71/76 dated 16-3-1976 issued by the Central Government simultaneously with the presentation of the 1976 Budget read as follows :- "In exercise of the powers conferred by Sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts polyethylene coated paper, polyethylene coated board, waxed paper and waxed board, falling under Item No. 17 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), from so much of the duty of excise leviable thereon as is in excess of 12.5 per cent an valorem, subject to the condition that the appropriate duty of excise or additional duty leviable under Section 2A of the Indian Tariff Act, 1934 (32 of 1934), as the case may be, has already been paid in respect of the base paper or board used in their manufacture : Provided that nothing contained in this notification shall apply to a manufacturer who avails of- (i) the special procedure prescribed under Rule 56A of the aforesaid Rules in respect of the duty paid on base paper or board; or (ii) the exemption granted under the Notification of the Government of India in the Ministry of Finance (Department of Revenue and Insurance) No. 67/76-Central Excises, dated the 16th March, 1976.
Explanation.-For the purposes of this notification, the base paper or board used in the manufacture of polyethylene coated paper, polyethylene coated board, waxed paper or waxed board shall be deemed to have paid the appropriate duty of excise or the additional duty leviable under Section 2A of the said Indian Tariff Act, 1934, if it is purchased from the market.
It will be seen that the above statutory notification exempted certain specified varieties of treated paper, including polyethylene coated paper falling under Item 17(2) from excise duty leviable thereon in excess of 12.5% ad valorem subject to certain specified conditions, one of them being that the base untreated paper should have borne the appropriate excise duty or additional duty of customs.
27. Considerable arguments have been addressed by both sides on the question whether the treatment applied to the base paper in the present case would amount to "manufacture" for the purpose of levy of excise duty. The learned Counsel for Uma Laminated placed reliance on the Tribunal decisions in the Golden Paper Udyog cases-1983 E.L.T. 1123.
He also sought to derive support from some of the other tariff items such as Tobacco (Item 4), Patent or Proprietary Medicines (14-E) and cotton yarn (18A). In so far as the Tribunal decisions are concerned, it does not appear that the Bench had occasion to consider the principle of contemporaneous exposition or that material bearing on legislative intent had been placed before them. We have already set out the principle as well as the Supreme Court's observations in K.P.Verghese v. I.T.O. Applying these principles, we are of the view that the inclusion of treated papers by express words in the Tariff Entry 17(2), read with Notification No. 71/76, is clear evidence of the manner in which the tariff entry has been understood by the authority charged with the task of executing the statute. And it is not as if this understanding is without any basis. The tariff entry, as we have noted, specifically includes treated papers. If the untreated paper and the treated paper were to be charged to duty at the same rate, that would amount to a considerable burden and it is clear that the Notification has been issued in order to mitigate the rigour of the second stage levy. While it may be argued that double taxation may be avice, multi-stage taxation is not and Rule 56A of the Central Excise Rules is specifically designed to mitigate the rigours of multi-stage levies. The present is not a case of double levy inasmuch as it is not the same product which is being subjected to duty at two stages. At the first stage, it was untreated paper and at the second stage, it Was treated paper.
28. We would also like to consider whether the process of treatment of paper, as in the present case, would amount to "manufacture" for the purpose of excise levy. In the first place, we think that, strictly speaking, the question should not arise, for the tariff entry itself refers to treatments and the inclusion clause specifically brings treated paper within the ambit of the tariff entry. Even so, the ratio of the Bombay High Court judgment in the case of New Shakti Dye Works-1983 E.C.R. 1142-D (Bombay)-squarely applies to the facts of the present case. In that case, the Court, on consideration of first principles [and, before, it considered the vires of the amendments to Section 2(f) of the Act and Item Nos. 19 and 22 of the C.E.T.], came to the conclusion with reference to Item 19 (and 22) of the Central Excise Tariff Schedule that, though the tariff entry 19 did not spell out processed fabrics separately from grey fabrics, grey fabrics on the one hand and bleached, dyed and printed fabrics on the other, were different varieties of cotton fabrics and not the same things, that the process of bleaching, dyeing and printing amounted to "manufacture" and that the bleached, dyed and printed fabrics would attract a second stage levy under Item 19. The situation in the present case is, if anything, somewhat stronger for holding that treated papers are excisable with a second-stage levy since, as we have seen, the traiff entry specifically includes treated paper. It is also relevant to note that Item 19 covered Cotton Fabrics, all varieties, manufactured either wholly or partly of cotton and Item 17 covered Paper and Paper boards, all sorts. The two situations are thus similar. Though processed fabric was not spelt out in so many words in Item No. 19 (prior to its amendment), the Bombay High Court held, on first principles, that bleached, printed or dyed cotton fabrics, being a different variety of cotton fabrics from grey fabrics, fell within the scope of the item and attracted duty. On the same basis, it has to be held that a paper obtained as a result of treatment of a base paper must fall within the scope of Item 17(2), if the treated paper is a distinct or different article from the base paper.
29. The question whether "manufacture" is involved can also be looked at from the point of view of the principles laid down by the Supreme Court in its judgment in the DCM case-1917 E.L.T. J 199 and in the South Bihar Sugar Mills case-1978 E.L.T. J 336. The ratio of these decisions is that the starting product and the finished product should be known differently and should have different characteristics or uses.
Further, the process of conversion of the starting product to the finished product must not be such as brings about only some slight change in the former, but must be such as results in a product which is new and different and known differently from the former. In the present case, the base paper (kraft paper) and the treated paper (polyethylene coated paper, polyethylene sandwiched paper) are admittedly different products, known differently and have different uses. Encyclopaedia Britannica has this to say on the subject at page 974 in volume 13 : "Equipment installed between dryer sections on the paper machine can apply the coating (on-machine coating), or it can be done by a separate machine, using rolls of paper as feed stock (off-machine coating)".
"The extrusion coating process, a relatively new development in the application of functional coating, has gained major importance in the past 20 years. The process is used to apply polyethylene plastic coatings to all grades of paper and paper board. Polyethylene resin has ideal properties for use with packaging paper, being waterproof; resistant to grease, water vapour, and gases; highly stable; flexible in heat sealing; and free from odour and toxicity".
It is also seen from the statement of consumption of paper and polyethylene by the Respondent for the period 1-7-1976 to 30-6-1979 (at page 24 of the appellant's paper book) that in the case of single-coated paper, polyethylene contributes 18.65% of the weight of the product but 38.09% of its value. In the case of sandwiched paper, polyethylene contributes 10.51% of its weight and 22.79% of its value.
It may thus be seen that polyethylene coated/sand-wiched paper are distinguishable from the base paper by virtue of several features-admittedly, by its different nomenclature, by its different uses and by its different charactristics- a part from the composition and value.
It is to be noted that unlike bituminisation which, in terms, has not been spelt out in the tariff item, the treatment of coating has been specifically spelt out in sub-item 17(2). The raw material in the present case is duty paid kraft paper. The process is coating or lamination/sandwiching of the paper with polyethylene. The end-product is polyethylene laminated/coated/sandwiched paper. Applying the principles laid down by the Supreme Court in the Delhi Cloth and General Mills case (AIR 1963 S.C. 791) and the South Bihar Sugar Mills case (AIR 1968 S.C.R. 21)-namely, when a change is brought about on an article by treatment, labour and manipulation and when such finished goods are "different articles" having a "distinctive name, character or use", these goods are said to be manufactured-there can be little doubt that in the case before us, there has been "manufacture" and that polyethylene coated/laminated/ sandwiched papers are liable to duty under Item 17(2) C.E.T. We may note here that the Andhra Pradesh High Court, in the Standard Packaging case, 1981 E.C.R. 113-D (A.P.), after considering the Supreme Court's decisions referred to above and the Madras High Court decision in the Kwality Coated Products case, concluded that bituminised kraft paper made out of duty paid kraft paper and duty paid bitumen was liable to duty under Item 17. This decision fortifies our conclusion.
30. We must also refer to the submissions made on the "hopping" theory.
In its judgment, in the case of Standard Packagings, 1981 E.C.R. 113-D, the Andhra Pradesh High Court has clearly held that the proposition that manufactured goods should "hop" into another item (from the parent item) before they are taxed, has no basis either in our fiscal philosophy or in our statutes. Therefore, there is no warrant to hold that the subject treated papers would not attract duty on the ground that they fall under the same sub-item as the base paper and do not hop out of it into a different sub-itein or item of the tariff.
From this angle also, there is little doubt that there has been "manufacture" for the purposes of excise levy.
In Nav Gujarat Paper Industries v. Supdt. of Central Excise and Ors.-1977 E.L.T. J-67, it is stated that no material was placed by the Department before the Court to show, firstly, that by the process adopted by the Petitioners, a new different article emerges having a distinct character, name or use and, secondly, that it is capable of being sold in the market as such. It was in these circumstances that the Court stated that they had come to the conclusion that the intermediate product which Revenue calls "gummed paper" is not gummed paper known to the market as such and mere application of gum on one side of paper does not convert the paper into a new commodity known to the market as such. The petitioner in that case had averred that a paper to be marketed as gummed paper, as the known to the trade, had to undergo certain specialised processing including the use of an equipment known as gum breaker which the petitioners did not have in their factory. In the present case, there is no dispute about the manufacturing process or the fact that the finished products are known differently from kraft paper and have different characteristics. The above decision is, therefore, not relevant to the facts of the present case.
In Swastic Products, Baroda v. Supdt. of Central Excise-1980 E.L.T.164, the question was whether colouring or printing of paper would result in a product attracting duty again under Item 17(2) and the Court held it did not. In the present case, the treatment done on the base kraft paper is not such a simple process. It is coated, laminated or sandwiched with polyethylene and the resultant product is known differently and has different characteristics. Further, coating is one of the treatments specified in Item 17(2). We do not think that the above decision has application here.
The learned Counsel for the Respondent mainly relied on Kwality Coated Products v. Union of India-1980 E.L.T. 579-and following this, National Paper Products v. Union of India-W.P. No. 165/79-Madras. But we are of the opinion that, considering the facts of this case and the process involved in the manufacture of the products in issue, the ratio of the decision in Standard Packagings v. Union of India would be applicable.
In the view we are taking on the subject of classification and durability of the subject products, we do not deem it necessary to advert to and discuss the several decisions cited before us by the Senior Deptl. Representative. We have discussed at length the Bombay High Court decision in New Shakti Dye Works-1983 E.C.R. 1142-D. We would only refer to the classic case of Movical v Pinch (1906) L.
King's Bench 352 cited by Shri Narasimhan. In that case, the appellants were, by a chemical process, (the details of which are not readily ascertainable) increasing the sweetness of sachharin from 330 to 550 330 to 500 times as sweet as sugar). The Court held that the substance was sachharin before it was treated, and it was sachharin after it was treated. Therefore, no manufacture of sachharin was involved. The analogy, we would only say, is not apt. There is no dispute about the position that kraft paper and polycoated/laminated/sandwiched paper are different articles, known differently and having different characteristics.
Shri Narasimhan has referred to certain Tariff Items such as Tobacco (4), Patent or Proprietary Medicines (14E), Cotton yarn (18A). The definition of manufacture in Section 2(f) has been specifically amplified in respect of these and a few other tariff items. Such is not the case with reference to Paper (Item 17) and, therefore, one cannot import an artificial or unnatural meaning to the plain words used in the Tariff entry, so runs the argument. As we have noted, the Supreme Court has laid down the tests for determining whether, in a given situation, there has been manufacture of a new and different product.
If the answer is yes (as we have found in the present case) and if the tariff entry is wide enough to cover the new product [ (as we have held the case to be with respect to sub-item 17(2) ], we do not see any difficulty in classifying the new product under the tariff entry even if the definition of manufacture has not been amplified in Section 2(t') with reference to the tariff entry in question as in items Nos.
4, 14E, 18A, etc. Whether there is "manufacture" or not has to be determined with reference to the facts of the case and applying the tests laid down by the Supreme Court. These considerations become irrelevant only when the tariff entry read with Section 2(f) specifies products or processes when the question whether there has been "manufacture" is no longer open. In our view the tariff entry cannot be the sole determinant of the question whether there has been "manufacture." There is yet another aspect of the matter. If we hold that polycoated/ laminated/sandwiched paper falls within the purview of Item 17(2) but would not attract duty if manufactured out of duty-paid base paper, some incongruous results would follow. In an integrated paper plant, the treated paper would attract duty under Item 17(2) because treated papers are specifically included in the sub-item. If treated paper is manufactured in a separate factory from out of duty-paid base paper, unless it be held that it would not fall under Item 17(2), it would attract duty. Surely, the same article cannot be subjected or not subjected to duty depending upon where it is manufactured. Of course, it may be possible to resolve this problem by taking a view that treated paper, so long as it is produced out of paper which has already come into existence, would not attract duty as a separate article. But, such a view has to be ruled out as it would render the inclusion clause in Item 17(2) virtually nugatory.
31. It is relevant to note that polyethylene coated paper had been treated as a specific product even prior to the 1976 budget.
Notification No. 61/57 dated 27-7-1957 specifically exempted polythene (a generic name for polyethylene) coated paper from the excise duty leviable thereon if the paper used in its manufacture had discharged its duty liability. We may also note that Notification No. 67/76, issued along with 1976 Finance Bill exempted paper or paper boards falling under Item No. 17, if made from another article falling under the said item and on which the appropriate amount of duty of excise or the additional duty of Customs under Section 2-A of the Indian Tariff Act, 1934, as the case may be, had been paid from so much of the duty of excise as was equivalent to the duty so paid on that article. In other words, it was in contemplation that a treated paper, so long as the process of treatment amounted to "manufacture" haying regard to Section 2(f) of the Act and the scope of Item 17, would be leviable to excise duty under Item 17 but that it would be partially exempted from such duty if the base paper from which it was manufactured had paid the appropriate amount of excise or countervailing customs duty, the extent of the exemption being equivalent to the duty paid on the base paper.
If we were to accept the view canvassed by the learned Counsel for the Respondent, we would, in effect, be rendering Notifications No. 7/76 dated 16-3-1976 and 71/77 dated 28-4-1977 nugatory. Unless a competent Court of Law declares the Notifications as ultravires and consequently strikes them down, we do not think that we can take a view which would result in their being rendered nugatory.
32. In the result, we hold that poly-coating/poly-lamination of kraft paper amounted to "manufacture" under Section 2(f) of the Act, that the resultant poly-coated/laminated paper was classifiable under Tariff Item 17(2) C.E.T. and that, though the base kraft paper and the finished poly-coated/ laminated paper fell under the same sub-item 17(2) C.E.T., the finished paper was leviable to duty under the said sub-item. The issues alt (ii), (iii) and (iv) (See para 10) are answered accordingly.
33. Issue No. (v)-In view of the answer given to issues (ii), (iii) and (iv), it is not necessary for us to deal with this issue.
34. Issue Nos. (vi) and (vii)-In the view we have taken, namely, that the two disputed products in this case were dutiable under Item 17(2) of the C.E.T., the question whether the refund claims were filed in time or were hit by limitation does not survive for our consideration; nor does the question whether the Appellate Collector was right in ignoring the limitation under the excise law in dealing with the Respondent's claims.
35. Issue No. (viii)-In view of our answers to the issues at (ii), (iii) and (iv), this question does not survive for consideration.
36. Issue No. (ix)-We do not consider it necessary to answer this question in the abstract. However, we would only abserve that we have considered it proper (apart from the merits of the case) that we ough t not to take a view which has the effect of rendering statutory notifications which had been in force for a long period nugatory and meaningless. On merits, we have found that the Notifications in question only followed the intent of the statute and the exemption giving authority and, therefore, ought to be given effect to particularly when they did not have any inbuilt absurdity which made them ex-fade meaningless or unworkable.
37. Having regard to the foregoing discussion, the appeal succeeds and is allowed. The impugned Order-in-Appeal is set aside and the Assistant Collector's orders restored.