1. The point of dispute that falls for decision in this case relates to tariff classification and the rate of central excise duty applicable to laminated jute bags. The lower authorities have held that laminated jute bags fell under the residuary item No. 68 of the Central Excise Tariff. The appellants have urged that these goods be clas ified under item 22A relating to jute manufactures. The dispute relates to the period from 1-3-1975 to 5-6-1979. With effect from 6-6-1979, laminated jute bags falling under item No. 68 of the Tariff became fully exempt from duty under notification No. 204/79-CE, dated 6-6-1979.
2. The subject laminated jute bags were manufactured out of jute fabrics laminated with paper, the two being bonded together with the help of bitumen. In the laminated condition, the jute content predominated. In holding that the laminated jute bags fell under item No. 68 of the Tariff, the lower authorities have relied on the Calcutta High Court judgments reported at A.I.R. 1970 Cal. 491-Dalhousie Jute Company Limited v. Union of India (judgment by single judge) and the judgment of the Division Bench dated 14-8-1975 in the same case when the matter was taken up in appeal in the same High Court by the Union of India (Appeal No. 515 of 1971-Union of India v. The Dalhousie Jute Company Ltd.). The learned representative of the department reiterated the same stand during the hearing before us. The appellants have relied on an earlier order of this Tribunal in the case of Mahakali Plastic Weave Private Ltd.-1983 E.L.T. 2064 (CEGAT) in which laminated products composed of bitumen bonded layer of paper and jute (jute being predominant in weight) were classified under item No. 22A. They cited two other orders of the Tribunal relating to jute pack sheets and high density polyethylene sacks to buttress their case but since the products involved in these two cases were found to be quite different, we observed that these decisions were not relevant to the issue.
Thereafter, the appellants made the following three-fold submissions :- (1) In the aforesaid cases relating to M/s. Dalhousie Jute Company, the Single Judge of the Calcutta High Court had held, and thereafter the Division Bench confirmed, that though laminated jute bags were new goods, they continued to remain within item No. 22A but they were not chargeable to duty a second time under item 22A. Dalhousie Jute Company cases were in the context of lamination of duty-paid jute fabrics brought from outside. The Division Bench of the Calcutta High Court left the question of clasification of laminated jute bags open if such bags were manufactured in an integrated process within the same factory, i.e., not out of duty-paid jute fabrics brought from outside.
(2) The alternative plea of the appellants was that laminated jute fabrics, prior to their conversion into bags, fell under item 22B relating to coated/laminated textile fabrics but under this item they were exempt under notification No. 100/77-C.E., dated 3-6-1977.
When converted into bags, such bags fell under Item 68 but no duty was payable because of exemption notification No. 179/77-C.E., dated 18-6-1977 since they had not used power in stitching the bags. The appellants maintained that item 68 was concerned only with the last stage of operation i.e., conversion of fabrics into bags and the use of power in the appellants' factory upto the stage of manufacture of fabrics was not relevant. If this view was not taken, the appellants would stand discriminated against yis-a-vis a manufacturer who may be buying laminated jute fabrics from some one else and then converting such fabrics into bags.
(3) If complete exemption was denied to the appellants, at least the demand raised by the show cause notice dated 7-6-1979 for the period 1-3-1975 to 5-6-1979 should be reduced substantially on the ground of limitation. Though the demand had been raised and confirmed by the Assistant Collector under Rule 9(2), the Appellate Collector tad held that the correct rule applicable was Rule 10. But the Appellate Collector went wrong in applying the five years time limit on the ground of suppression of information by the appellants.
The appellants maintained that there was no suppression on their part.
Their activity in manufacturing and clearing laminated jute bags was known to the department all along but in those days the interpretation of the department was that laminated jute bags fell under item 22A and not under item 68. In this connection, the appellants invited our attention to the letter dated 30-7-1975 of the Superintendent of Central Excise and the letter dated 4-8-1975 of the Collector of Central Excise, Calcutta, both addressed to M/s. Haryana Jute and Laminating Works, Calcutta, in which the above interpretation was reiterated. Copies of these two letters have been placed by the appellants at pp. 27 and 28 of the paper book. The appellants stated further that because of this practice of classification by the department prevailing at that time, the same Appellate Collector gave the benefit of normal time limit of six months to M/s. Calcutta Laminators, vide copy of the Order-in-Appeal No. 1287/Cal./81, dated 7-9-1981 placed at pp. 29 and 30 of the paper book. The appellants desired that the same benefit of six months time limit should be given to them also.
In response to a query from the Bench, the appellants admitted that they had used power in laminating jute fabrics with paper.
The Bench desired to see the relevant classification list. Ample time was given to both sides to file a copy of the same. After nearly 5 1/2 months of search, both sides reported to us that the classification list was not available.
3. The learned representative of the department stated that the department relied on the Calcutta High Court judgments in the case of M/s. Dalho-usie Jute Company. Since the High Court had ruled out item 22A for the laminated jute bags, the only other available item was the residuary item No. 68. Regarding the appellants' alternative plea for exemption under notification No. 179/77-CE, dated 18-6-77, he stated that there was no finding in the lower orders that the bags had been manually stitched. Further, he stated that the notification exempted item 68 goods "in or in relation to the manufacture of which no process is ordinarily carried on with the aid of power". He argued that in an integrated process factory, use of power at the stage of manufacture of fabrics and their lamination with paper was also relevant because such use was "in relation to" the manufacture of laminated jute bags. As regards the appellants' plea of limitation, the learned representative of the department maintained that the appellants had filed no declaration regarding manufacture of laminated jute bags by them and as such the Appellate Collector was correct in applying the extended time limit of five years. The entire demand fell within the five years limit and was, therefore, not time barred.
4. We have carefully considered the available record and the submissions made by both sides. We observe that the aforesaid two judgments of the Calcutta High Court in the case of M/s. Dalhousie Jute Company are specific on the issue of classification of laminated jute bags. We find that the interpretation placed by the appellants on the Calcutta High Court judgments is erroneous. The judgments have clearly held that laminated jute bags were a new product and that they did not fall under item 22A relating to jute manufactures. Since no contrary judgment has been brought to our notice, we respectfully follow the judgments of the Calcutta High Court. These judgments had considered the question of classification of laminated jute bags for a period during which item 68 did not exist in the tariff, i.e., prior to 1-3-1975. The dispute before us relates to the period from 1-3-1975 to 5-6-1979 during which item 68 was very much there. It is not disputed before us that if item 22A did not apply, the only other appropriate tariff item for laminated jute bags would be the residuary item No. 68.
Ruling out item 22A as ordered by the Calcutta High Court, we, therefore, hold that laminated jute bags correctly fell under item 68.
5. It is true that the Division Bench of the Calcutta High Court left the question of classification open if laminated jute bags were manufactured in an integrated process factory. The appellants before us are an integrated process factory but, in our view, that should not make any difference because we feel that the question of classification should be decided by us on the basis of the name, character and use of the product and not on the basis whether unit A had manufactured it or unit B had manufactured it. Laminated jute bags are no different, whether they are manufactured in a small convertor unit or in a large jute mill. Following the classification of the product as decided by the Calcutta High Court, we hold that the laminated jute bags manufactured by the appellants correctly fell under item 68. The appellants have brought to our notice that this Bench took a different view in the case of M/s. Mahakali Plastic Weave Pvt. Ltd. We have seen the order passed in that case, we notice that the discussion in that case was whether laminated jute bags should fall under item 17 relating to paper or under item 22A relating to jute manufactures. Item 68 was not in the picture when the Mahakali case was argued before us.
Further, the Calcutta High Court judgments in the case of M/s.
Dalhousie Jute Company were also not brought to the Bench's notice in that case by either side. In the circumstances, we do not feel bound to follow the earlier Bench order.
6. Coming to the alternative plea of the appellants regarding classification, we notice that there was a prima fade case for putting laminated jute fabrics, prior to their conversion into bags, under item 22B which related to "Coated/laminated textile fabrics". But the exemption claimed by the appellants under this item by virtue of notification No. 100/77-CE, dated 3-6-1977 was not applicable to them because this notification exempted "all varieties of textile fabrics coated or laminated with low density polyethylene" and the jute fabrics of the appellants were laminated with paper and not with low density polyethylene. Without this exemption, classification of laminated jute fabrics under item 22B would saddle the appellants with heavy duty. We are conscious that this has never been the department's case at any stage and it would be wrong for us to create a new liability for the appellants at the second appeal stage. It is the appellants who have come to us in appeal and not the department. It is a well-settled principle in law that an appellant, on his appeal, cannot be put in a worse position than what he was in earlier.
7. However, we find that the alternative plea of the appellants that their laminated jute bags, on classification under item 68, should be entitled to the exemption contained in notification No. 179/77-CE, dated 18-6-1977 deserves consideration. We observe from the Order-in-Original of the Assistant Collector that the appellants had, in their reply to the show cause notice cum-demand, pleaded, inter alia, that laminated jute bags were manufactured in their factory with manually operated machines and were exempt under notifications No.150/65-CE, dated 18-9-1965 and No. 53/65-CE, dated 20-3-1965 Since the demand served on the appellants covers the period from 18-6-1977 onwards also, before confirming it the Assistant Collector and the Appellate Collector ought to have gone into the question of exemption under notification No. 179/77-CE, dated 18-6-1977 on the basis of the appellants' claim that the bags were manufactured with manually operated machines and not with the aid of power. However, we find that neither the Assistant Collector nor the Appellate Collector has gone into this aspect. Since going into it requires verification of fact-whether power was or was not used in manufacturing the bags-we are unable to do so at our level. But since the appellants have taken this plea at the first available opportunity, it is only fair that their claim to exemption under notification No. 179/77-CE dated 18-6-1977 should be gone into by the Assistant Collector.
8. Finally, as regards the appellants' plea of limitation, we agree with them that the evidence laid by them before us does suggest that the local officers of the department at Calcutta proceeded on the interpretation that laminated jute bags fell under item 22A and not under item 68. The Appellate Collector has already held that the correct rule applicable in the circumstances was Rule 10 but at the same time he has held that the appellants were guilty of suppression of information. The reason why he held the appellants guilty of suppression is "because the appellants suppressed material information regarding their product by falsely declaring as classifiable under item 22A". This finding of the Appellate Collector shows that there was a declaration by the appellants though, as per the prevailing view in the department at that time, they indicated item 22A as the classification for their laminated jute bags. This cannot be called suppression on their part. The Appellate Collector's own finding negatives the charge of suppression. In the circumstances, we agree with the appellants that they were at least entitled to the benefit of time bar of six months under Rule 10.
(1) during the period from 1-3-1975 to 5-6-1979, laminated jute bags manufactured by the appellants fell under item 68 and not under item 22A; (2) the appellants' claim to exemption under notification No. 179/77-CE, dated 18-6-1977 under item 68 should be adjudicated upon by the Assistant Collector after a due hearing to the appellants ; and (3) in any case, the appellants would be entitled to the benefit of the time limit of six months under Rule 10 if any duty is ultimately found to be payable by them after fresh adjudication of their entitlement to exemption ordered by us at (2) above.