1. The captioned appeal was originally filed as a revision application before the Central Government which, under Section 35P of the Central Excises and Salt Act, 1944, has come as transferred proceedings to this Tribunal for disposal as if it were an appeal filed before it.
2. The only issue arising for determination in the present proceedings is the proper classification, under the First Schedule to the Central Excises & Salt Act, 1944 (hereinafter referred to as GET), of carbon paper manufactured by the appellants.
3. M/s. Kores (India) Ltd., the appellants, purchase duty-paid paper from the market. This paper is coated with a solution of carbon black or lamp black in a greasy/oily medium on a coating machine on one side or both sides, as required, by means of a coating roller and an equalising rod and then passing it through chilled rollers.
4. After holding adjudication proceedings, the Assistant Collector, Thane, Division I, by an order dated 18-9-80, held that the carbon paper manufactured by the appellants fell under item No. 17(2),CET with the amendments brought about in item 17 by the Finance Act of 1976 and not under item 68 CET as contended by the appellants. The matter was pursued in appeal. The Appellate Collector, Bombay by his Order dated 17-3-82, confirmed the Assistant Collector's Order and dismissed the appeal. It is against this Order of the Appellate Collector that the appellants are presently before us.
5. We have heard Shri Soli Sorabjee, Senior Counsel assisted by Shri S.Ganesh and Shri R.K. Habbu, Advocates for the appellants and Shri V.Lakshmikumaran, Senior Departmental Representative for- the respondent.
6. The submissions made by Shri Soli Sorabjee, learned Counsel for the appellants, may be summarised thus: (i) The 1976 budget changes did not have the effect of bringing carbon paper under item 17(2) CET. Carbon paper was brought under item 17 for the first time by the 1982 Finance Act which carved out a specific sub-entry inter alia for carbon paper. Prior to this change, item 17(2) was of a descriptive nature: it did not amount to a definition. In other words, item 17(2), at the material time, merely specified certain products. It did not enact a statutory definition of carbon paper. This definition came about only with the 1982 Finance Act.
(ii) The base paper used was duty-paid tissue paper falling under item 17, CET. After the processes to which it was subjected by the appellants, it lost the character of paper, though it was called carbon paper. For a product to fall under item 17(2), it must even after treatment continue to be a kind of paper. In the present case the manufactured product lost its identity as a kind of paper and was not known in the trade, as shown by the affidavits on record, as paper but as an article of stationery. The mere fact that paper had been used as a raw material in the manufacture of carbon paper could not make the latter classifiable under item 17(2). The decision of the Gujarat High Court in Hind Engineering 1974-T.L.R. 1788(Guj.) was cited in this context.
(iii) Paper was known and understood in commercial parlance to mean a product used for writing, drawing, printing or packing. By this test, carbon paper was not 'paper'. Certain decisions were cited in this context the most important of them being the Supreme Court's judgement in State of U.P. v. Kores (India) Ltd. (AIR-1977-S.C.-132) wherein the Court had held that carbon paper was not 'paper' as known and understood in the market. The correct test to apply is the trade parlance or commercial understanding of the product.
(iv) The onus of proving the classification was on the department and this had not been discharged at all. On the other hand, a number of Collectorates had issued trade notices classifying carbon paper under item 68 CET as an article of stationery.
6. The submissions of Shri Lakshmikumaran, learned Senior Departmental Representative, in reply to Shri Sorabjee's arguments, may be summarised thus : (i) Item 68, CET which was a residual, non-descript item, was to be resorted to only if there was no other appropriate item. In the present case, item 17 was more specific to cover carbon paper. In fact there was no question of any competition between items 17 and (ii) Item 17(2) might not be a definition: it was much more than that. The item covered paper which was subjected to treatment -it did not require that the treated paper should be known as paper in the trade. Even if Carbon paper was known in the trade as an article of stationery and not as paper, it would still fall under Item 17(2) (by virtue of the inclusive character of the item) since it was paper falling under item 17 which was subjected to treatment. The question of considering item 68 would not, therefore, arise. The Tribunal's decision in 1984(17) ELT 590 was cited in this context.
(iii) The Supreme Court's decision in the Kores (India) Ltd., case (supra) would not apply to the facts of the present case since the Central Excise tariff entry was not in pari materia with the entry in the Tax law.
(iv) The Tribunal had considered the classification of carbon paper in the following cases :Continental Carbon & Ribbon Mfg. Co. v. Collector of Central Excise, CalcuttaUniversal Carbon Ltd., Hyderabad v. Collector of Central Excise, HyderabadCollector of Central Excise v. Swapna Paper Industries,- Order No. (v) The affidavits filed by the appellants would not clinch the issue. Even writing paper was sold in stationery shops but it would not cease to be paper on that account.
(vi) The Indian Standards Institution classified carbon paper as a paper in its Glossary of Terms used in the Paper industry.
(vii) The specification of Carbon paper in item 17 by the 1982 Finance Act would not clinch the present dispute : that specification was for levying such paper at a particular rate of duty.
(i) the affidavits filed by the appellants remained unrebutted; The trade understanding was supported also by the trade notices issued by different Collectorates which, though not of a binding character, showed the recognition by the 'department of the trade understanding.
(ii) In the Continental Carbon <5c Ribbon Mfg. Co. case (Supra), decided by the Tribunal, there was no dispute regarding the assessment of carbon paper. The appeal was decided on the basis of limitation. In the Universal Carbon case (Supra), no evidence was led by the appellants and the Tribunal did not go into the question whether carbon paper retained its identity as paper. The Swapna Paper Industries case was an ex-parte decision following the earlier decisions.
8. We have carefully considered the submissions of both sides. Before we discuss the rival contentions, it will be useful to set out item 17 as it. stood from 16-3-1976 and during the material time. It reads as follows : "PAPER AND PAPER BOARD, ALL SORTS (including pasteboard, 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." It will be useful also to set out the changes brought about by the Finance Act, 1982.
(including pasteboard, millboard, strawboard, cardboard and corrugated board), AND ARTICLES THEREFORE SPECIFIED BELOW, 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 -(a) X X X X X X(b) X X X X X X (3) Carbon and other copying papers (including duplicator, stencils) and transfer papers, whether or not cut to size and whether or not put up in boxes.
9. The base paper is admittedly a paper falling under item 17 which has discharged its duty burden. The question is whether after it is subjected to the processes described in the earlier part of this Order, and has acquired its identity as Carbon paper, would still fall under item 17(2) GET or under the residual item 68. It is the appellants' contention as set out in the memorandum of revision (the appeal before us), that the said processes result in or bring into existence a substance having a distinctive name, character or use, known as Carbon paper which is regarded in trade parlance not as a kind of paper but as an article of stationery. Therefore it does not fall under item 17(2) but under item 68. On the other hand, the department contends that Carbon paper is a kind of paper - a coated paper - which falls under item 17(2) and not under item 68.In State of U.P. and Anr. v. Kores (India) Ltd. (supra), the Supreme Court considered the question whether Carbon paper fell for classification under the relevant sales tax entry "Paper other than hand made paper "in Serial No. 2 of notification No.ST-3124/X-1012(4)-1965 dated 1st Duly, 1966 issued by the Governor of U.P. under Section 3 A of the U.P. Sales Tax Act, 1948. The revenue's contention was that carbon paper does not Idse its character as paper even after being subjected to chemical processes. This contention did not find favour with the Court. The Court observed that it was well settled that a word which was not defined in an enactment had to be understood in its popular and commercial sense with reference to the context in which it occurred. The Court noted that the word "paper" was not defined in the U.P. Sales Tax Act, 1948 or the rules made thereunder and had, therefore, to be understood in the sense in which persons dealing in any using the article understood it. After referring to a few decisions, the Court said that in popular parlance, the word "paper" was understood as a substance used for bearing writing, or printing, or for packing, or for drawing on, or for decorating or covering walls. Carbon paper, which was manufactured by coating tissue paper with a thermo-setting ink etc. could not be used for the aforesaid purposes but was used between two sheets of plain paper in order to reproduce on the lower sheet that which was written or typed on the upper sheets i.e. making replicas or carbon copies and could not be properly described as a paper. The Court also observed that the mere fact that the word "paper" formed part of the denomination of a specialised article was not decisive of the question whether the article was paper as generally understood. The Court held that Carbon paper was not paper as envisaged in the sales tax notification.
11. Learned Counsel for the appellants has placed much reliance on the above decision. We have now to see whether the ratio of the decision has application to the case before us. In this context, it will be useful and relevant to note the observations of the Supreme Court in its recent judgment in Empire Industries Ltd. and Ors. v. Union of India and Ors. - 1985(20)-E.L.T.179(SC).
It may be noted that the taxable event in the context of Sales Tax Law is "sale". The taxable event under the excise law is 'manufacture'. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be as the result of one process or several processes "manufacture" takes place and liability to duty is attracted." The above passage occurs in para 30 at page 193 of the report.
12. We have reproduced' in the earlier part of this order item 17(2) of the GET as it stood at the relevant time. This sub-item covers inter alia all other [i.e. other than the paper specified in Sub-item (1) ] kinds of paper (including paper which has been subjected to various treatments such as coating, impregnating, corrugation, creping and design printing), not elsewhere specified. Now, in the present case, tissue paper is indisputably subjected to the process of coating (and certain other processes). The resultant carbon paper is tissue paper which has been subjected to one of the treatments specifically set out in the sub-item itself : coating. Can it then be said that carbon paper does not fall within the mischief of item 17(2), GET? And, can it be said that, following the Supreme Court's decision in 'the Kores (India) Ltd., case (supra), carbon paper has to be ruled out of item 17(2)? We must remember that the Supreme Court was construing a sales tax entry which, unlike item 17(2), GET, was of a narrow and limited scope: "Paper other than handmade paper". The Central excise tariff entry, by contrast, is of a wide sweep taking as it does all kinds of paper including papers which have been subjected to various treatments. While the excise item takes untreated paper, the Sales tax entry on the face of it, and as construed by the Supreme Court, did not take in coated paper (carbon paper). So long as a product is paper which has been subjected to one of the treatments specified in the entry or a treatment similar to the specified ones, we do not see any good reason why the treated paper should not be classified under item 17(2), GET.No authority has been placed before us to the effect that carbon paper - a coated paper - would not fall under item 17(2), GET.13. The affidavits filed by the appellants from dealers in paper items state that, in trade parlance, carbon paper is regarded as an article of stationery and not as paper or coated paper. Carbon paper is undoubtedly an article of stationery. But so is writing paper which we buy as loose sheets or in quires from stationery marts. Does it mean that writing paper is not classifiable as paper under item 17, GET? An item of paper may well be an article of stationery as indeed several non-paper items too are : for example, pens, paper clips, staplers etc.
If the tariff contained an item to cover articles of stationery, one could plausibly argue that carbon paper is more appropriately classifiable under that item rather than under item 17(2), GET. Can the same thing be said with reference to item 68 - "All other goods not elsewhere specified" - as an entry to be preferred to item 17(2), GET which, in terms, covers coated paper which carbon paper is? 14. Now, on the point whether carbon paper is understood as a coated paper in trade, we have the authority of the Indian Standards Institution's publication "Glossary of Terms used in Paper Trade and Industry" - 15:4661: 1968. This Glossary as the book shows, was drawn up by a paper sectional committee consisting inter alia of representatives of All India Federation of Master Printers, Bombay, Stationery and Office Equipment Association of India, Calcutta, Indian Paper Mills Association, Calcutta, Calcutta Paper Traders' Association, Indian Paper Makers' Association, Calcutta etc. apart from technical and other authorities. As the foreword shows, the standard has been formulated with a view to eliminate ambiguity and confusion, arising from different interpretations of terms used in paper trade and industry and establishing a generally recognised usage and that, wherever possible, the terms accepted by the I.S.O. (International Standards Organisation) had been retained realising the need for a common terminology throughout the world, (paras 0.2, 0.3). The Standard defines the terms commonly used in the paper trade and industry in this country (India) (para 11). The following definition occurs in the Glossary: "Carbon paper - Paper coated (generally on one side) with a pressure - transferable pigmented layer, used for making copies at the same time as an original manuscript on typescript is made". The value of Indian Standards as reliable indices to trade understanding has been time and again stressed by the Courts, including the Supreme Court in Union of India and Ors. v. Delhi Cloth and General Mills Co. Ltd. and Ors. 1977-ELT-(J 199). The Supreme Court held "apart from all this we are of the opinion that the view of the Indian Standard Institution as regards what is a refined oil as known to the trade in India must be preferred to the opinion of this author." Of course in that case the revenue was relying on a foreign author. The affidavits filed on behalf of Delhi Cloth and General Mills were held by the Court to be clear and categorical as to trade understanding. In Porrits and Spencer (Asia) Ltd. v. Union of India and Anr. 1980-ELT 679 (Del.), the Delhi High Court did not place reliance on the affidavits as to trade understanding filed on behalf of Porrits and Spencer but preferred to follow the classification of felts as a textile fabric in the glossary of textile terms published by the Indian Standard Institution.
In view of this position, we do not attach much importance to the affidavits produced by the appellants in preference to the I.S.Glossary according to which Carbon paper is a term used for designating a particular type of coated paper in the paper trade and industry.
15. The question of classification of Carbon Paper had come up before the Tribunal in the past. Though three decisions were cited by the Senior Departmental Representative, we need to consider but only one of them which discussed the issue in detail. In the Universal Carbon Ltd. case (supra) (Order No. 55/85-C dated 23-1-85), the Tribunal has discussed the issue at length and come to the conclusion that carbon paper, as a coated paper, fell under item 17(2) GET. We do not see any reason to depart from this view.
16. It has been stated that the department's own understanding was that carbon paper did not fall under item 17 but under item 68 as an article of stationery. Three trade notices have been cited in this connection.
It is, however, important to note that all these trade notices are of dates prior to 17-3-1976, the date on which item 17 was recast by the 1976 Finance Bill (which is the item under consideration now). The notices are hence not relevant for the present purpose nor are they decisive of the question as fairly stated by Shri Soli Sorabjee.
17. The analogy of the Brussels Tariff Nomenclature (C.C.C.N.) is, in our view, of no help in resolving the dispute before us. The C.C.C.N.has a specific entry - 48.13 - which covers inter alia Carbon paper.
The question of considering Carbon paper for inclusion in 48.07 as a coated paper, therefore, does not arise. Nor is the reference to I.S.specifications for Carbon paper of any help. These specifications are quality specifications and have nothing to do with the question whether carbon paper is a coated paper. As we have seen, the I.S.I. Glossary of Terms defines Carbon paper as a coated paper.
18. The Gujarat High Court decision in Hind Engineering Co. v. Sales Tax Commissioner 1974 T.L.R. 1788(Guj.) was relied upon by the learned Counsel for the appellants in support of the contention that if, as a result of treatment, paper loses its identity as paper, and gets transformed into a different commercial commodity, then it cannot be classified under item 17, GET as paper. The question in that case was whether rubber beltings marketed by the assessee could be said to be "cotton fabrics" within the meaning of the entry in the sales tax law.
The goods were rubber beltings - cotton canvas superimposed with rubber layers on both sides. The Court held that rubber beltings could not be said to be "cotton fabriss" within the meaning of item 19, GET read with Section 2(f) of the Central Excises and Salt Act. On rubberisation, canvas could not said to continue to retain its identity as canvas. A different commercial commodity - rubber belongs - was the result and it would not fall within the meaning of the expression "cotton fabrics". The Court was construing the entries in the sales tax law as well as those in the Central Excise Tariff. Tariff item 19 has since been amended in 1979 with retrospective effect to specifically cover cotton fabrics subjected to processing. And, this amended entry has been construed by the Supreme Court in its recent decision in Empire Industries Limited and Ors. v. Union of India and Ors. 1985(20) E.L.T.-179(SC).
The law having changed, one has to consider with reference to the changed tariff, entries whether the ratio of the aforesaid decision of 'the Gujarat High Court would continue to apply. Shri Sorabjee has relied upon the decision in the Hind Engineering Co. case only to show that carbon paper is not understood as paper in the trade - it is a commodity different from paper although the starting material may have been paper and, therefore, it cannot fell under item 17(2), GET. These contentions have already been discussed by us at length and we have shown that Carbon paper, as a kind of coated paper, fell under Item 17(2).
19. Since we have considered at length the Supreme Court decision on Carbon paper itself in the Kores (India) case, it does not seem necessary to discuss the other two decisions cited: 33-S.T.C. 333 (Orissa) holding that stencil paper is not "paper", 31-S.T.C.-625 (Allahabad) holding that ammonia paper and ferro paper are not 'paper' and 28-S.T.C.-469 (Kerala) holding that cellophane is not paper.
20. The fact that carbon paper was inserted as a specific entry in item No. 17 by the 1982 Finance Bill would not be decisive of the question whether, prior to the said change, carbon paper did or did not fall under item 17(2) as it then stood. We have found that item 17(2), GET covered carbon paper. The specification of carbon paper in the tariff item by the 1982 Bill may have been necessitated by the need to levy duty on carbon paper under a specific entry.
21. Summing up, we hold that, during the material period, carbon paper manufactured by the appellants fell for classification under item No.17(2), C.E.T. and not under item 68. In the result, we uphold the impugned order and reject the appeal.