1. These revision applications filed before the government of India, (now transferred to the Appellate Tribunal under Section 35P of the Central excises and Salt Act, 1944) against the order-in-appeal No.438-439/CO/78, dated 31-8-1978 passed by the Appellate Collector of Centreal excise, calcutta.
2. M/s Basant Pran electric Company Private Limited, Calcutta (hereinafter called the Appellants) manufactured and cleared 13461 856 Kgs. and 296.669 Kgs. of varnished Paper during the periods from 7-10-1968 to 16-12-1974 and from 17-10-1974 to 31-8-1975 respectively without obtainining the Central excise licence and without payment of excise duty.
3. superintendent of Central excise issused show cause notices to the appellants for violation of Rules 174 and 9(1) of the Central Excise Rules, 1944 and demanded Rs. 12.70.48 and Rs. 474.75 on the said excisable goods under Rule 9(2) and also asked to show cause why penalty should not be imposed n them under Rule 173Q of the central Excise Rules, 1944.
4. In reply to the show cause notices the appellants alleged that they manufactured varnished/coated peper from duty paid paper for use in the manufacture of electrical equipment. They contended that they had not violated Rules 174 and 9(1) of the Cetnral Excise Rules, 1944 and that it was in the knowledge of the Central Excise Department that they were manufacturing varnished/coated paper and clearing it without payment of duty. they also submitted true copies of classification lists in Form I and other allied correspondence. It was also alleged by them that on the advice of the Superintendent of Central Excise, Calcutta, IX division, they applied for licence on 7th December, 1974. Benefit of exemption Notification No. 165/70, dated 5-9-1970 was also sought by the appellants and it was stated that var-isned paper tapes, the end-product were cleared on payment of excise duty under tariff entry No. 59 of the Central Excise Tariff.
5. The Assistant Collector of Central Excise, however, did not accept the contention of the appellants and by his order dated 27-8-1976 held that the appellants had violated the provisions of Rules 174 and 9(1) of the Central Excise Rules, 1944 and therefore, directed them to pay the amount of Rs. 12,709.49 and Rs.474.72/- as excise duty under Rule 9(2) and also imposed a penalty of Rs., 500/- i.e. Rs. 250/- in each case.
6. Aggrieved by the said orders of the Assistant Collector, the appellants preferred two appeals before the Appellate Collector of Central Excise, Calcutta, who by his composite order dated 31-8-1978 disposed of both the appeals confirming the order of the Assistant Collector regarding the payment of the duty amount but the penalty imposed on the appellants was 7. Not satisfied with the said order of the Appellate Collector of Central Excise, the appellants filed two revision applications before the Government of India which have been transferred to this Tribunal and are treated as appeals. Since both the appeals contain the identical issue, so we propose to dispose off these appeals by a consolidated order.
8. We have heard Shri Rangaswamy assisted by Miss Radha Eangaswamy and Miss Anu Kapur, Advocates on behalf of the appellants and Mrs. Vijay Zutshi, Sr. Departmental Representative for the department and have gone through the record.
9. As per the contention of the learned counsel for the appellants, the appellants at all material times carried on and still carry on the business of manufacture of electric insulating varnished paper in the form of sheets, rolls and tapes. The base paper used in the manufacture of the said product is an ordinary kraft paper under Item No. 17 of the C.E.T. purchased by the appellants from the market on which proper duty had been paid under the said Item No. 17 of the Tariff. The said base kraft paper is then varnished with insulating varnish solution which is a product under Item No. 14 of the C.E.T. According to the learned counsel, the sole use of the varnished paper is to serve as electrical insulation and none else. The said varnished paper is not paper or converted paper as understood in common parlance that is to say, paper which is used for printing, writing, packing purposes etc. He quoted various examples like 'toilet paper', sand paper, indicator paper, ammonia and ferro papers, lipi printing paper, emery paper, ferro and ammonia sensitised paper, flint paper, etc. in support of his contention that even though they are called paper but they are not liable to assessment under Item 17. Toilet paper, though it is called paper, is an article of toiletry and is toilet requisite and is not paper as commonly understood. Two cases of Allahabad High Court and Orissa High Court, namely Kilburn & Co. Ltd v.. Commissioner of Sales Tax (UP) [1973 31 STC (All.)] and State of Orissa v. Gestetner Duplicators (Pvt.) Ltd. [1974 33 STC 333 (Orissa HighCourt] were cited by him. Regarding the sand paper, indicator paper, ammonia and ferro paper, lipi printing paper, emery paper, ferro and ammonia sensitised paper, the learned counsel pointed out various letters of the Central Board of Excise & Customs showing therein that these products though called paper do not attract duty under Item 17 of the Central Excise Tariff.
10. On the point of applicability of Rule 9(2) of the Central Excise Rules, 1944, the learned counsel submitted that in the very beginning the appellants submitted the classification list in Form I dated 24-7-1969. In that classification list the product Electric Insulating Varnished Paper was declared to be non-excisable and this was provisionally accepted by the Supdt. of Central Excise. It continued upto the year 1972 and in that year a show cause notice was served on the appellants to show cause as to why they had removed that product without payment of duty. But it was held that the said product was exempt from duty under Notification No. 165/70, dated 5-9-1970. On the advice of the department a fresh classification list in Form I was submitted by the appellants on 17-4-1973 in which this product was declared as exempt from duty under the said Notification No. 165/70, dated 5-9-1970 and the same was accepted by the Central Excise authority. This continued upto the year 1974 and in that year the Supdt. of Central Excise, Calcutta II Division advised the appellants that though the product was exempt from duty, but they should take out necessary licence from Calcutta II Division. In the application for seeking licence, the appellants specifically mentioned that the product was exempt from duty under Notification No. 165/70, dated 5-9-1970.
However, in the year 1975, the appellants were served with two show cause notices calling upon them to explain why duty in respect of the product for the past clearance should not be recovered and why a penalty should not be imposed upon them 11. According to the learned counsel, the recovery of duty in respect of the past clearance is barred by limitation under Rule 10 of the Central Excise Rules, 1944. The goods were cleared during the period 7-10-1969 to 31-8-1975 and show cause notices were issued on 17-12-1975 and so the recovery of duty amount relating to the period 7-10-1969 to 17-12-1974 is barred by limitation as prescribed under Rule 10 read with Rule, 173-J as it then was.
12. The Departmental Representative countered the arguments of the learned counsel of the appellants and submitted that the product manufactured and cleared by the appellants was varnished paper and not varnished electric insulating paper. The varnished paper has come into existence as a result of treatment/coating and it falls under Tariff Entry 17(4) of the Central Excise Tariff. She pointed out that in this tariff entry the end use has not been mentioned and the types of papers e.g. emery paper, ferro and ammonia sensitised papers, lipi printing paper, sand papers etc., as mentioned by the learned counsel of the appellants, have been specifically excluded from the Tariff Entry No.17 by way of the circulars issued by the Central Board of Excise & Customs. In none of the cases cited by the learned counsel of the appellants it has been laid down that the entry of the paper product should be looked into with respect to their end use. Varnished paper which is the product in dispute came into existence by a process of manufacture and it has a districtive name, character and use and it squarely falls within the Tariff Entry 17(4) of the Central Excise Tariff.
13. On the point of limitation, it was argued that the appellants submitted 'the Classification List in Form I to the Assistant Collector of Central Excise, Calcutta IX Division, who was not the proper officer for passing any order so far as the determination of duty regarding that particular product was concerned. The appropriate jurisdiction in that case was that of Assistant Collector of Central Excise, Calcutta II Division and therefore, the acceptance of the classification list by the officer having no jurisdiction gives no relief to the appellants.
No licence was obtained by the appellants prior to 7th December, 1974 and the appellants manufactured the goods prior to that date in violation of Rule 174 and therefore the provisions of Rules 174 and 9(1) are applicable in this case.
14. The product manufactured was varnished/coated paper. The process of manufacturing this product was impregnating/coating the plain duty paid kraft paper with insulating components. The question for determination is whether, this product i.e. varnished/coated paper is classifiable under Item 17 (4) of the C.E.T. and, if so, whether it is subject to nil duty under exemption Notification No. 165/70, dated 5-9-1970.
(1) Cigarette tissue Rs. 2.00 per kg.
(2) Blotting, toilet, target, tissue typewriter, mani- fold, bank, bond Rs. 1.00 per kg.
art paper, chrome paper, tub-sized paper, (3) Printing and writing paper, packing and Rs. 0.50 per kg.
wrapping paper, straw board & pulp board, (4) All other kinds of paper and paper board,not Rs.1.00 per kg.
16. Analysing the provisions of Tariff Entry No. 17 we find that this tariff entry is meant only for paper/board, all sorts. To bring an article within the ambit of this tariff entry, that article must belong to the family group of paper/ board. The product in question i.e.
electric insulating varnished paper cannot be said to be paper as envisaged within this Tariff Entry No. 17 of the Central Excise Tariff.
The fact that the word 'paper' has been used does not mean that this product comes within the ambit of the Tariff Entry No. 17. In various types of products, such as, Emery Paper, Ferro & Ammonia Sensitised Papers, Lipi Printing Paper, Sand Paper, though the word paper has been used but they have been excluded from the ambit of the Tariff Entry No.17 by various circulars of Central Board of Excise & Customs meaning thereby that all the products though called paper in common parlance do not come within the abmit of this Tariff Entry No. 17 because their use is not as papers but as product with very different utilities. The electric insulating varnished paper .which is the product under dispute is known as an electrical insulator, as has been alleged by the appellants and not disputed by the Department. The authority below has not alleged anywhere that this product serves as a purpose of paper as envisaged in Tariff Entry No. 17. All the merits are on the side of categorising this product as a insulating material and not as paper.
The authority below has not given any justification in classifying this product under Item No. 17(4) of the C.E.T., and therefore, we have no other alternative but to set-aside the order of the authority below on this point. However, the excise authorities are at liberty to classify this item under any other appropriate tariff item keeping in view the fact that this product is an insulating varnished paper used as an electrical insulator.
17. Regarding the contention of the learned counsel of the appellants that this product was exempted by the excise authorities under Notification No,. 165/70-C.E., dated 5-9-1970 and that it should be held to be exempted under this Notification in future also, we find no force in this contention. Notification No. 165/70-C.E., dated 5-9-70 reads as under : (a) converted types of paper, commonly known as imitation flint paper or leatherette paper or plastic coated paper, or by any other name, obtained by one side of paper being subjected to printing of colour, with or. without design, irrespective of the fact whether or not such paper, is subse-quently varnished or glazed by chemicals or embossed ; and (b) gummed paper obtained by gum being applied to one side of paper; if manufactured, to the satisfaction of proper officer, from appropriate excise duty paid or countervailing duty paid paper," 18. As has been held above, this item does not fall under Item 17(4) of the C.E.T. and even otherwise this product i.e electric insulating varnished/ coated paper does not come within the ambit of this notification.
19. Point of limitation is involved only in Appeal No. ED (SB) 885/80-C which involves the period 7-10-1969 to 16-12-1974. The show cause notice was issued on 17-12-1975. The authority below has not correctly construed the provisions of Rule 9(2) in applying the extended period of limitation of 5 years. It has been laid down by the Hon'ble Supreme Court in N.B. Sanjana v. The Elphinstone Spinning & Weaving Mills Co.
Ltd. (1978 E.L.T. J 399) that to attract Sub-rule (2) of Rule 9 the goods should have been removed in contravention of Rule 9(1) i.e.
clandestinely and without assessment. If the goods have been removed with prior permission of the Central Excise authorities, Rule 9(2) will not apply.
20. The Madras High Court in Murugan & Co., Pudukottai v. Dy. Collector of Central Excise, Tiruchirapalli and Ors. (1977 E.L.T. J 193) also laid down that Rule 9(2) cannot be invoked where the excise authorities entertained a doubt as to whether the goods are excisable or not and do not object to the clearance of goods without payment of duty. Mere non-payment of excise duty is not a sufficient ground to invoke Rule 9(2).
21. Applying the said principle of law, we have to see in the present circumstances of the case, whether the provisions of Rule 9(2) and Role 174 have been rightly applied by the authority below, in bringing this demand within time, 22. In this respect there is no dispute about the fact that in the very beginning when the appellants started manufacturing this product, they submitted a Classification List in Form I on 24-7-1969 and in that classification list this product-anelectrical insulating varnished paper was declared to be non-excisable and this was provisionally accepted by the Supdt. of Central Excise. This continued upto 1972 and in the year 1972 the appellants received a show cause notice for removing this product without payment of duty but the proceedings were decided in favour of the appellants and it was held that the product was exempted from duty under Notification No. 165/70-C.E., dated 5-9-1970. On 17th December, 1974 on the advice of the department, the appellants applied for getting the licence for the manufacture of this product and in that application it was specifically mentioned by the appellants that this product was exempt from duty under Notification No. 165/70-C.E., dated 5-9-1970. The department did not take any action in the matter imposing any duty on this product till 1975 when the show cause notices were issued.
23. From these facts of the case it is apparent that the appellants manufactured this product under the bonafide impression that the goods were not excisable goods and the departmental authorities also did not take any step for bringing the goods under the excise levy as per Rule 9(1) and now the authorities cannot invoke Rule 9(2) on the ground that the goods have been cleared without payment of excise duty merely because they have taken a view that the goods are excisable long after the goods had been cleared from the factory. It has been laid down in Murugan & Co. (Supra) by the Madras High Court, "where the goods are sought to be brought to excise levy for the first time by the issue of demands after the goods had been cleared from the factory, the manufacturers cannot be held to have contravened Rule 9(1) so as to enable the excise authorities to invoke Rule 9(2). "Rule 9(2) cannot be invoked where the excise authorities entertain a doubt as to whether the goods are excisable or not and do not object to the clearance of the goods without payment of duty." So, the recovery of any duty relating to the period from 7-10-1969 to to 17-12-1974 is barred by limitation because this case is covered under the provisions of Rule 10 which prescribe the period of limitation of one year.
24. In view of our discussion and findings above, we hold, that this product i.e. electrical insulating varnished paper is not classifiable under Item 17(4) of the Central Excise Tariff. However, the department is at liberty to classify this product in any other appropriate tariff entry applicable to it at the relevant time but the demand for the period 7-10-1969 to 17-12-1974 is barred by limita-tion as prescribed under Rule 10 read with Rule 173-J as it then was. With these findings we set aside the order of the authority below in both the appeals and accept the appeals accordingly.