T.U. Mehta, J.
1. This petition involves two questions relating to Central Excises and Salt Act, 1944 (hereinafter referred to as 'the said Act'). The first question is whether the demand of differential amount of duty in the sum of Rs. 8,735.85 raised by the Central Excise Department against the petitioner, falls under section 10-A or section 10 of the said Act and the second question is whether the duty on the paper manufactured by the petitioner, is leviable under Entry No. 17(3) or 17(4) of the Tariff Schedule (Schedule No. 1) attached to the said Act.
2. Short facts forming the background of this petition are as under. The petitioner is a partnership firm manufacturing paper having its paper mill at the village Dungra situated in Bulsar District. It is an admitted position that the paper which is manufactured by the petitioner is subject to excise duty at either of the rates mentioned in entries No. 17/3 and 17/4. These entries are as under :
17(3) Printing & Writing paper other sorts .... 22 Naye Paise per Kgm.
(4) Packing & Wrapping paper, other sorts .... 35 Naye Paise per Kgm.
The contention of the petitioner is that the paper regarding which the differential duty is in dispute, is covered by entry No. 17(3) as these papers are printing & writing papers and, therefore, the proper excise duty leviable on these papers, would be at the rate of 22 Naye Paise per Kilogram. As against this, the contention of the Excise Department is that these papers fall under entry No. 17(4) as they are 'packaging & wrapping' papers chargeable to duty at the rate of 35 Naye Paise per Kilogram. It is an admitted position that the papers in question are coloured papers, specimen of which are produced by the petitioner along with the petition.
3. It is obvious from what is stated above that the main dispute between the parties is under what entry the coloured papers manufactured by the petitioner, fall. It is not in dispute that upto the month of August, 1962, the Excise Department levied duty on these papers by applying entry No. 17(3) at the rate of 22 Naye Paise per Kilogram. However, on 9th August, 1962, the Inspector of Central Excise, Vapi, took samples of these papers from the petitioner's factory. These samples were, therefore, sent to the Deputy Chief Chemist, Bombay for examination. Thereafter on 10th September, 1962, the respondent No. 3, who is the Assistant Collector of Central Excise, at Surat, addressed one letter to the petitioner whereby the gist of the examination conducted by the Deputy Chief Chemist, Bombay, of the papers, the samples of which were taken by the Inspector as stated above, was sent. In this letter, the said gist of the Deputy Chief Chemist is found quoted, and the same is as under :
'In analogy to the ruling on 'Poster Paper' as packing and wrapping papers, tough described in literature as a cheap class or paper is variety of colours for hand bills, job printing etc., the sample under reference may also be assessed as 'Packaging and Wrapping Paper' under 17(4) of the Central Excise Tariff'.
Relying upon the above quoted report of the Deputy Chief Chemist, Bombay, the respondent No. 3 informed the petitioner that the papers manufactured by the petitioner were assessable to duty under Tariff No. 17(4) at the rate of 35 Naye Paise per kilogram. By this letter, the said Assistant Collector further informed the petitioner that if the petitioner-firm was not satisfied with the test carried on by Deputy Chief Chemist, Bombay, it could apply for re-test by the Chief Chemist within one month of the receipt of the letter.
4. It transpires from the record of the case that thereafter on 12th September, 1962, the petitioner entered into a bond in form B-13 under rule 9-B of Central Excise Rules, 1944 for the purpose of payment of excise duty for future. Rule 9-B provides for provisional assessment to duty and enables the assessee to request the officer concerned to assess the goods provisionally at a lower rate when the assessment involves two or more alternative basis. Thereafter, on 20th September, 1962, the Inspector of Central Excise Vapi, issued a notice of demand under rule 10-A of the Central Excise Rules, 1944 asking the petitioner-firm to pay up the differential amount of excise duty in the sum of Rs. 8,735.85. This was on the basis that while previously the excise was charged under entry No. 17(3) at the rate of 22 Naye Paise per kilogram, that charge was resulted in a short levy because the proper entry under which the duty should have been recovered was entry No. 17(4) as the papers manufactured by the petitioner, were found to be 'packing and wrapping' papers. The demand of the differential levy above referred to cover the period running from 30th August, 1961 to 27th July, 1962.
5. On 1st October, 1962, the petitioner addressed one letter to the Assistant Collector, Central Excise, Surat objecting to the above referred demand. A contention was also taken in that letter that the proper rule which applied to the facts of the case was rule No. 10 and not rule No. 10-A, and since rule No. 10 contemplated a period of limitation of three months, it was further contended that the demand in question was barred by time. A letter on the same lines was again addressed by the petitioner to the said Assistant Collector again on 19th october, 1962.
6. It appears that in the meanwhile, the reminent of the sample examined by the Deputy Chief Chemist, Bombay was sent to Chief Chemist, New Delhi for re-test on petitioner's request. After receiving the report of the Chief Chemist, New Delhi, the respondent No. 3 sent a gist of the said report to the petitioner by his letter dated 30th December, 1962. The gist of the said report is found quoted in that letter as under :
'(1) The sample declared as coloured printing paper (Pink) can find use as printing paper for cheap posters and for general packing and wrapping purposes. On the analogy of the assessment of 'poster paper' under item 17(4) of the Central Excise Tariff, the sample under reference is correctly classifiable under item 17(4) as 'Packing and Wrapping' paper, other sorts.'
By this letter, the respondent No. 3 again made the demand for the payment of differential duty under item No. 17(4) of the Tariff at the rate of 35 Naye Paise per kilogram. This demand was repeated by his another letter of 1st February, '63.
7. It is found that in the meanwhile on 23rd January, 1963, the petitioner demanded a complete report of the Chief Chemist, but this demand was not complied with. Ultimately on 20th February, 1963, the petitioner preferred an appeal to the Collector against the notice of demand. The record of the case shows that during the course of the year 1963, after the filing of this appeal to the Collector, there was good deal of correspondence between the petitioner's firm on one hand and the Collector on the other. It is admitted position that on 19-11-1963, the Excise department drew some more samples from the factory of the petitioner and sent them for re-test. A result of this re-test was communicated to the petitioner-firm by Assistant Collector's letter dated 14th February, 1964. Finally the date of the hearing of appeal, preferred by the petitioner to the Collector of Customs, was fixed on 26th February, 1964.
8. During the correspondence, which took place between the petitioner and the Collector in the year 1963, and during the arguments on merits of appeal advanced on behalf of the petitioner, the petitioner pointed out to the Collector, two similar cases of two concerns at Bombay. The names of these two concerns are (1) M/s Kondivita Paper & Board Mills Pvt. Ltd., Bombay and (2) Providence Paper Mills of Bombay. The petitioner pointed out that papers similar to the papers manufactured by the petitioners were also manufactured by these two concerns. The excise duty which was originally charged from these two concerns, was under Entry No 17(4) on the basis that these papers were 'packing and wrapping' papers but these two concerns preferred appeal before the Collector of Customs at Bombay. They were successful in their appeals before the said Collector because he, on consideration of the quality of the paper, came to the conclusion that they were not 'packing and wrapping' papers chargeable under item No. 17(4) but were 'printing and writing' papers liable to be charged under Entry No. 17(3). The petitioner, therefore, requested the Collector of Customs, before whom this appeal was pending, to treat its case accordingly. The petitioner also produced plenty of correspondence from its customers and other merchants to whom the paper manufactured by it, was supplied, to show that these papers were actually used for printing purposes and were useless either for packing or for wrapping purposes. Moreover, the letters produced by the petitioner further showed the actual size in which the paper has been supplied by it to its customers. This size is known as 'Demi' size, which is 17' X 22' in measurement. The petitioner further submitted to the Collector a statement showing the details of supply made by it to defiant merchants during the relevant period. It was on the strength of this evidence that the Collector was supposed to dispose of the appeal, preferred by the petitioner before him.
9. After petitioner's appeal was heard by the Collector on 26th February, 1964, the petitioner addressed many letters to the Collector requesting him to dispose of its appeal expeditiously. However, the Collector, for some reason, could not give his decision immediately. The record of the case shows that on 14th September, 1964, the Collector addressed the following letter to the petitioner's consultation in reply to his letters requesting to expedite the appeal.
'The matter has been referred to the higher authorities whose orders are awaited. The decision when arrived at, will be communicated to you immediately.'
Even after writing this letter, the Collector did not dispose of the appeal for several months. It is found that ultimately on 6th August, 1965, the Collector disposed of the appeal filed by the petitioner recording the following order.
'I have examined the facts and merits of the case. I have also carefully considered all the pleas advanced by the appellants in the appeal petition as also the arguments at the time of personal hearing on 26-2-64.'
I, however, see no reasons to interfere with decision taken by the Assistant Collector of Central Excise, Surat under his Order No. VI(a) 21-4-62 dated 2-2-68. I uphold the said order and, consequently, the appeal is rejected. After receiving this order the petitioner has not preferred any revision to the Central Government as contemplated by section 36 of the Act.
10. As stated above, the first question which had arisen to be determined is whether the demand of the differential amount of duty, which is made by the Excise Department falls under rule 10 or under rule 10-A of the Central Excise Rules. According to the petitioner, the said demand falls under rule 10 but according to the Department it falls under rule 10-A of the Rules. In order to appreciate the respective contentions of the parties, it would be necessary to quote both these rules.
'10. Recovery of duties or charges short-levied or erroneously refunded; when duties of charges have been short-levied through inadvertence, error, collusion of mis-construction on the part of an officer, or through mis-statement as to the quantity, description or value of such goods on the part of the owner, or when any such duty or charge, after having been levied, has been owing to any such cause, erroneously refunded, the person chargeable with the duty or charge, so short-levied, or to whom such refund has been erroneously made, shall pay the deficiency or pay the amount paid to him in excess, as the case may be, on written demand by the proper officer being made within three months from the date on which the duty or charge was paid or adjusted in the owners account-current, if any, or from the date of making the refund.'
'10-A. Residuary powers for recovery of sums due to Government :- Where these Rules do not make any specific provision for the collection of any duty, or of any deficiency in duty if the duty has for any reason been short-levied, or of any other sum of any kind payable to the Central Government under the Act or these Rules, such duty, deficiency of duty or sum shall, on a written demand made by the proper officer, be paid to such person and at such time and place, as the proper officer may specify.'
A bare perusal of these rules show that rule 10-A is a residuary rule which applies only in cases where rule 10 does not apply. Therefore, the first question to be considered is whether the facts of this case are governed by the provisions of rule 10. If a reference is made to rule 10, it will be found that it contemplates the cases of a duty, which has been short-levied through inadvertence, error, collusion or mis-statement as to the quantity, description or value of the goods on the part of the owner. It is, therefore, clear that if the short-levy in question is the result of any mis-statement as to the description of the goods in question, then the matter would be covered by rule 10. The question whether the papers manufactured by the petitioner-firm are printing papers or packing and wrapping papers, is a question which is relating to the description and, therefore, if these papers were previously described as 'printing papers' through as a matter of fact, they should have been described as 'packing and wrapping' papers, it would be a case of a mis-statement as to the description of these goods. In our opinion, therefore, this is a case which is governed by rule 10. If that is so, rule, 10-A has no application because that rule applies only in cases where rule 10 does not apply. Under the circumstances, the period of 3 months from the date on which the duty or charge was paid, would be the period of limitation for the recovery of the differential amount. As stated above, the items on which the differential amount of duty is claimed are for the period running from 30th August, 1961 to 27th July, 1962. All the different items relating to which the differential amount of duty is claimed, are mentioned in the notice for demand which is dated 29th September, 1962 The last three items, which are respectively dated 2-7-62, 13-7-62 and 27-7-62 are saved from the period of limitation. But the rest of the items relating to this demand are found clearly beyond the period of limitation contemplated by rule 10. Therefore, so far as these other items, except last three are concerned, the demand in question is apparently illegal being barred by the period of limitation.
21st July, 1970
11. The second and more important question which is involved in this petition is whether it is item No. 17(3) or 17(4) of the Tariff Schedule which applies to the coloured papers manufactured by the petitioner. We have already stated above the facts relevant to this question. It is evident from these facts that the Assistant Collector of Customs as well as the Collector of Customs had the following evidence before them for coming to a correct conclusion on this point. This evidence can be described as under :
(A) Three reports of the Chemists including the latest report, which was obtained on the samples drawn from petitioner's factory on 19th November, 1963 and a complete copy of which is found in our paper book. These three reports of the Chemist themselves show :
(i) mechanical strength of the paper in question; (ii) sizing material used during the manufacture of the paper; and (iii) penetration test. As will be evident from the discussion which follows these are the three main tests, which would bring about the distinction between a printing paper and packing or wrapping papers.
(B) Correspondence produced by the petitioner between it and its customers showing the size in which the paper in question is supplied by the petitioner and the use to which this paper is put by the consumers.
(C) The samples of the papers in question, and
(D) Evidence as regards the distinguishing features of packing and wrapping papers. So far as this aspect is concerned, the petitioner is found to have pointed out to the authorities concerned that there are four factors, which would distinguish a printing paper from a wrapping and packing paper. These four factors are :
(1) Strength of paper :- So far as printing papers are concerned, they are weak in strength and would be totally useless for packing or wrapping purposes, but so far as packing and wrapping papers are concerned, they are strong enough to bear the strain of handling and of the articles packed.
(2) Imperviousness :- While printing paper is soft and is, therefore, more susceptible to weather effect, packing paper is generally impervious to weather and moisture.
(3) Actual use to which a paper is put :- According to the petitioner, the question as to whether item No. 17(3) or 17(4) would apply would depend mainly upon the use to which the paper is put by the customers. The petitioner has, therefore, tried to show that the paper manufactured by it is never used for packing and wrapping purposes but is only used for printing purposes.
(4) The size in which the paper manufactured by the petitioner is supplied; The petitioner has produced evidence to show that this size is what is called 'Demi' size, which is 17-1/2' X 22'. By proving this size the petitioner wanted to prove that the paper of this size could never be used for packing or wrapping purposes.
12. It is found that in spite of the above evidence neither the Assistant Collector nor the Collector in Appeal has applied his mind to any of these materials for coming to a proper conclusion. In this connection if a reference is made to the Assistant Collector's letter dated 20th December, 1962, by which he sent the gist of the chemical test results to the petitioner, it will be found that for coming to a conclusion that item 17(4) of the Excise Tariff applies to the papers manufactured by the petitioner, he has relied upon only on the opinion of the Chief Chemist, New Delhi, which is already quoted above. Thereafter another letter of this officer dated 1st February, 1963 containing his final order against which the appeal was eventually preferred by the petitioner, also shows that the officer concerned has only accepted the opinion expressed by the Chief Chemist, New Delhi, without discussing any other evidence produced before him coming to the conclusion whether the paper can be classified as printing paper or packing and wrapping paper. This would be quite evident from the letter itself which is in the following terms :
'Please refer to your letter dated 23-1-63. In continuation of this office letter of even No. dated 20-12-62 and 25-1-63, the gist of the test result received from Chief Chemist, New Delhi was communicated to you. Coloured printing paper (Pink) can be used for wrapping purposes and has been so classified as 'Packing Wrapping Paper' falling under tariff item 17(4). You may therefore pay the Central Excise duty under item 17(4) i.e., 35 Nps. per kg.
If you feel aggrieved by this decision, you may appeal to the Collector of Central Excise, Post Box No. 118, Kevda Baug, Baroda within one month from the date of receipt of this order. The appeal should bear court fee stamp of Rs. 00.50 nps. and must be accompanied by this order or a copy of this order also bearing a court fee stamp of Rs. 00.50 nps. as prescribed under item 6(b) of Schedule 'I' of Court Fees Act, 1970'.
This letter completely shows that the volume of evidence which we have already discussed above, is not at all referred to by the Assistant Collector for coming to a conclusion that the paper is covered by item No. 17(4) of the First Schedule. Here it should be recalled that the evidentiary value of the report of the Chemist lies only in so far as it supplies the data obtained by him through the Chemical analysis. It is none of the functions of the Chemists to give an opinion as to whether the goods in question would be covered by a particular item of the tariff schedule. If again a reference is made to the gist of the report of the Chief Chemist, New Delhi, it will be found that even that report is not emphatic about what it purports to state. It only states that the samples declared as coloured printing paper 'can find use as printing paper for cheap posters and for general packing and wrapping purposes', this means that according to the Chief Chemist, it is possible to use the paper in question for cheap posters as well as for general packing and wrapping purposes. Thus, at the best, the Chief Chemist has only hinted at a possibility of the paper being used for the purposes of packing and wrapping. An opinion of this type cannot be taken as proving sufficient evidence for coming to a conclusion that the goods are covered by item 17(4) of the Tariff Schedule. In fact, it is the data disclosed from the Chemical analysis which would enable the concerned authority to come to a proper conclusion as to whether the goods in question are covered by a particular item of the Tariff Schedule. One such report is found in the record of the case as stated above. That report is with reference to the sample taken from the petitioner's factory on 19-11-1963. The report states that the mechanical strength of the samples which was examined, was found poor, that while examining its sizing materials, starch and gum were found absent and that on penetration test, the paper was found soft within 10 seconds. In our opinion, these tests provide proper material for coming to a conclusion whether the paper or as printing paper can be classified as packing and wrapping paper or as printing paper. But the Assistant Collector, who has given his decision on 1st February, 1962 has not taken any of these factors into consideration nor has he taken into consideration any other evidence offered by the petitioner for deciding this point. Under the circumstances, we find that the decision given by the Assistant Collector, is a result of total non-application of his mind.
13. The same can be said with greater force with regard to the order which the Collector has passed in Appeal against the above order. Whatever be the reasons for the Collector to delay his order for months, after the appeal was heard, we find that after this long deliberation over the merits of appeal, the only order which is recorded by the Collector is as under :
'I have examined the facts and merits of the case. I have carefully considered all the pleas advanced by the appellants in the appeal petition as also the arguments at the time of personal hearing on 26-2-1964.
I, however, see no reason to interfere with the decision taken by the Assistant Collector of Central Excise, Surat under his Order No. VI(a) 21-4-62 dated 2-2-63. I uphold the said order and consequently, the appeal is rejected.'
It is too obvious to mention that this order cannot be considered as a speaking order. It does not reveal what facts, the Collector had taken into consideration before coming to his conclusion. Under the circumstances, even this order suffers from the same infirmity as the order passed by the Assistant Collector, does.
14. It is thus evident that while disposing of the controversial points the excise authorities have come to their conclusion without applying their mind. On the other hand we find that the evidence completely reveals that it is not possible to take a view that the papers in question can fall within the classification of 'packing and wrapping papers'. We shall, therefor, shortly discuss this aspect of the matter.
15. We have already mentioned above, that the samples of the papers which are manufactured by the petitioner, are already on our file. We have applied the recognised tests to these samples in order to come to a conclusion whether it is possible to hold that these papers can be classified as 'packing and wrapping'. Our attention is drawn to E.J. Labarres, 'Dictionary and Encyclopaedia of paper and paper making'. This book contains some guidance for determining the essential characteristics of wrapping papers. At pages 369 to 371 of the Second Edition of this book, we find the following tests :
(i) 'The essential quality of a wrapping paper is therefore its strength. No doubt, according to usage and customs, one resistance will predominate in the specification of certain papers - breaking, bursting, tearing or folding resistance - but the central idea of strength, the master property of wrapping paper, is unalterable and imperative.'
(ii) 'In the matter of sizing it is clear that for wrapping one can be less exacting than for writings, though imperviousness to liquid is an important factor in the protective role of a wrapping paper. A parcel may be exposed to rain and the paper must be able to protect the contents at least to a reasonable space of time, thanks to a reasonable degree of imperaneability.'
(iii) 'As to stiffness, a good wrapping should, without being brittle be fairly stiff. If it breaks easily at the folds, it is useless, however good its appearance (e.g. straw paper for grocery purposes is stiff but has no strength whatsoever). On the other hand, if a wrapping is so soft or supple that it has no SHANDLE at all, it will tear at the least strain, and consequently one must aim at a golden mean in this respect.'
These observations show that strength, use of sizing materials and stiffness are the three outstanding characteristics, which would determine whether a paper is a wrapping and packing paper. Now having regard to the report of the Chemist, which is already discussed above, we find that so far as the coloured paper, which is manufactured by the petitioner is concerned, all three qualities are lacking and therefore, these papers are not fulfilling the requirements of a packing and wrapping paper.
22nd July, 1970
16. The next important fact which equires to be considered is the size in which the petitioner-firm is supplying the disputed paper to its customers. It is an admitted fact that these papers are being supplied by the petitioner in 'Demi' size, which is 17-1/2' X 22'. Obviously, the size is not useful either for 'packing or wrapping purposes'.
17. Neither the Act nor the Rules give any statutory showing what is meant by 'a writing paper and a wrapping paper'. Under the circumstances, the meaning, which could be attributed to these expressions would be that which people conversant with the subject-matter would attribute to them. Obviously, people conversant with those articles would be those, who deal with them in the market and those who consume them in their daily use. Therefore, the question is whether these papers are shown in the market by the businessmen and the consumers as 'packing and wrapping paper'. The correspondence which is produced by the petitioner gives answer to this question is the negative.
18. One of the criterions to decide whether a particular article falls within a particular item of the First Schedule of the Act is find out how the said article is known by those who trade in it as well as by those, who use it. Such a criterion has been applied by the Supreme Court in two of its judgments. One of these judgments is given in the case of Union of India v. Delhi Cloth & General Mills Limited, reported in A.I.R. 1963 E.C. 791. The contention raised in that case was that in the course of the manufacture of vanaspati, a vegetable product from the groundnut oil and til oil, the respondents brought into existance at an intermediate stage of manufacturing refined oil which fall within the description of 'vegetable non essential oils, all sorts' covered by items 23 of the First Schedule. The contention assumed that the goods subjected to duty must be goods known as such in the market. The Supreme Court held that if a new substance was brought into existance from raw materials and that substance was the same 'refined oil' as known to the market, it would be subject to duty. Therefore, their Lordships of the Supreme Court considered the question whether the substance sought to be charged was 'refined oil' known to the market. This question was answered by their Lordships of the Supreme Court by holding that the raw material purchased by the respondents for the purposes of manufacturing 'vanaspati' did not become at any stage 'refined oil' as known to the case was decided purely on the basis of the manner in which the article in question was known in the market. Another case which is decided by the Supreme Court on the same lines is South Bihar Sugar Mills Ltd. v. Union of India and another, reported in A.I.R. 1968 S.C. 922. The question involved in that case was whether 'kiln gas' was 'carbon dioxide' chargeable under item 14-H of the First Schedule. This question was resolved by their Lordships of the Supreme Court by reference to the manner in which the substance was known in the market. Applying this principle to the facts of the case before us, we find that the coloured paper, which is manufactured by the petitioner, is known in the market as writing paper and it is also used as such. If this is so, there is no scope for taking a view that this paper falls within item 17(4) of the First Schedule, as it is not possible to treat this paper as packing and wrapping paper.
19. Under the circumstances, we are of the opinion that there is no scope for charging the papers in question under item 17(4) of the First Schedule. The view taken by the department is, therefore, patently wrong. We, therefore, allow this petition and declare that the demand made by the Excise Department is illegal. Since the petitioner is found to have paid up the amount of Rs. 8735.85 Np. that amount shall be refunded by the Excise Department to the petitioner. The rule is made absolute with costs.