2000(05)LCX0393

IN THE CEGAT, NORTHERN BENCH, NEW DELHI

Shri S.K. Bhatnagar, Vice President and Ms. Jyoti Balasundaram, Member (J)

Third Member on Reference : Shri S.S. Kang, Member (J)

PUDUMJEE PULP & PAPER MILLS LTD.

Versus

COMMR. OF C. EX., PUNE

Misc. Order No. 250/98-C, dated 21-12-1998 & Final Order Nos. 299-300/2000-C, dated 31-5-2000 in Appeal No. E/1011/91-C & E/1038/91-C

Ballarpur Industries Ltd. v. Assistant Collector — 1995(01)LCX0139 Eq 1995 (076) ELT 0499 (S.C.) — Reliedon [Para 4]

ITC Ltd. v. Union of India — 1987(12)LCX0041 Eq 1988 (034) ELT 0473 (Cal.) — Relied on................................. [Para 4]

Seraikella Glass Works P.Ltd. v. Commissioner — 1997(04)LCX0074 Eq 1997 (091) ELT 0497 (S.C.) — Relied on [Para 4]

Union of India v. Madhumilan Syntex P. Ltd. — 1988(05)LCX0034 Eq 1988 (035) ELT 0349 (S.C.) — Distinguished [Para 4]

Advocated By :   Shri C.S. Lodha, Advocate, for the Appellant.

Shri J.M. Sharma, JDR, for the Respondents.

[Order per : Jyoti Balasundaram, Member (J)]. - The above appeals arise out of the order of the Collector of Central Excise, Pune classifying paper described as "Intaglio Paper" manufactured by M/s. Pudumjee Pulp and Paper Mills Ltd. (hereinafter referred to as the first appellant) and seized on 7-7-1989 while in transit during movement from M/s. Veekay Paper Packs, Bangalore to whom the paper has been supplied by M/s. Sudhir Papers, Bangalore (hereinafter referred to as the second appellant) under sub-Heading 4806.90 of the CETA, 1985 and paper described as "Opaque Laminating Base Paper" (similarly seized) under sub-Heading 4806.20, confirming a duty demand of Rs. 1,28,618.44 by applying the extended period of limitation under the proviso to Section 11A(1) and imposing a personal penalty of Rs. 1,25,000/- on the first appellant and appropriating certain amounts against bonds executed by the second appellant for the purpose of provisional release of the seized goods.

2. The brief facts of the case are that on 7-7-1989 a tempo carrying 10 reels of paper was intercepted in Bangalore. The goods had been allegedly loaded from the godown of M/s. Road Bird P. Ltd. at the instance of M/s. Veekay Paper Packs. The driver of the tempo produced consignment notes and stated that he did not have other documents such as Central Excise gate pass, invoice, etc. The Proprietor of M/s. Road Bird P. Ltd. produced the Excise Gate Pass No. 673, dated 5-6-1989 issued by the first appellant and on verification of the same, the Central Excise Officers found that 44 reels of “Intaglio S/c 38 GSM" were removed to the second appellant, as writing and printing paper under sub-Heading No. 4820.10 with the benefit of Notification 48/89. However, on verification, the officers noticed that 44 reels of paper had been received in the transporter's godown at Bangalore and the weighment sheet of 5-6-1989 also confirmed receipt of 44 reels of paper. The physical verification of the consignments revealed that it contained paper which was known in the market as "butter paper" (used for wrapping and packing food items, agarbatis, soaps etc.) and since the description was different from the actual goods, 10 reels of paper were seized under the reasonable belief that they did not conform to the description in the Gate Pass and 4 representative samples of the seized paper were drawn from one of the reels. Statement of Shri H.R. Varadarajan, Proprietor of Veekay Paper Packs was recorded on 7-7-1989 in which he stated that he requested M/s. Muktha Paper Mart, Bangalore to send 10 reels of paper to Papco Printing P. Ltd. for printing purposes; that the paper which he had purchased was for packing coffee powder, sweets, wrapping of agarbaties and also used in Bakery; that the paper was also known in the market as "butter paper". Statement of the clerk of M/s. Muktha Paper Mart was recorded on 13-7-1989 in which he corroborated the statement of Shri H.R. Varadarajan and also stated that they were purchasing the paper from M/s. Sudhir Papers and selling the same to customers. In the follow-up action, the premises of the second appellant were searched and certain incriminating documents relating to evasion of duty were seized therefrom. The person in-charge of traffic in M/s. Road Bird P. Ltd. deposed that in most of the cases the GPIs were not accompanying the consignments. The Partner of the second appellant stated that they had received lorry receipts and invoice from the first appellant and produced photostat copies of the Gate Pass duly countersigned by the Jurisdictional Superintendent of the first appellant. Statement of various persons such as Shri Mangi Lal, Proprietor of M/s. Mangi Lal & Co., manufacturers of agarbati covers, Shri Chagan Lal, Proprietor of M.K. Packaging Plastics, manufacturers of agarbati and soap covers, etc. were recorded on the basis of which the Department was of the view that Intaglio paper is known in the market as "butter paper". As for "Opaque Laminating Base Paper", on the basis of the test reported dated 22-12-1989 of the Central Pulp and Paper Research Institute, Saharanpur the Department was of the view that the paper is other glazed paper classifiable under sub-Heading 4806.20 and not under sub-Heading 4805.90 as claimed by the first appellant. On the above basis, a show cause notice proposing recovery of differential duty and proposing confiscation on the Intaglio Paper and Opaque Laminating Base Paper under seizure and also proposing imposition of penalty. The Collector of Central Excise held as under on the two varieties of paper :

“(i)    Intaglio S/C : The test report of Central Pulp and Paper Research Institute, Saharanpur dated 22-12-1989 clearly shows that Opacity is less than 70% viz. 67.1% and that resistence to wetting is also not too low viz. 17.1 g/m. The laboratory has further ruled out it being imitation grease proof paper due to low oil transudation time of less than 5 seconds but has good strength properties and is, therefore, closer to general grade packing 5 wrapping paper. Hence the paper is to be classified primarily on the basis of low opacity as not being printing and writing paper. Instead it would rightly be classifiable under sub-Heading 4806.90 other as it is not glazed on either side as per the said test report. Therefore, the benefit of Notification 48/89 would not be available to it.

(ii)     Opaque Laminating Base Paper : The test report of Central Pulp and Paper Research Institute, Saharanpur, have reported opacity to be 71% i.e. just marginally above the 70% cut-off point, but is not printing/writing paper as it is glazed and its cobb value is also high. Therefore, it is closer to wrapping/packing paper particularly as its breaking length and burst factor are very high i.e. it has good strength properties. Since it is glazed, it would, therefore, be rightly classifiable under 4806.20 as other glazed translucent paper. The exemption under Notification No.138/86 would not be available to it."

He further held that the first appellant had mis-declared these two items as printing and writing paper and had suppressed that their ultimate end use was for wrapping/packing and, therefore, the extended period of limitation is available for demanding duty under the proviso to Section 11A(1) and also liable to penalty for mis-declaration. He also appropriated a sum of Rs. 12,000/-, Rs. 40,000/- and Rs. 1 lakh respectively out of 3 separate bonds executed by Veekay Paper Packs (for Intaglio paper seized on 7-7-1989) and M/s. Sudhir Papers (for Opaque Laminating Base Paper seized on 12-7-1989). Hence these appeals.

3. We have heard Shri C.S. Lodha, learned Counsel and Shri J.M. Sharma, learned DR and carefully considered their submissions.

4. The first plea raised by the appellants is that the Collector had no jurisdiction to revise the classification by issuing a show cause notice because the appellants had cleared the goods strictly in accordance with the classification lists approved by the Proper Officer from time to time, after repeated drawal of samples and after the goods were subjected to chemical examination. It is the appellants' contention that the only route open to the Department in such a situation was to have appealed against the approval of the classification lists. This argument is not tenable as it has been held that the provisions of Sections 11A and 11B of the Central Excise Act, 1944 are applicable even if no appeal has been filed against the approval of the classification list or price lists. In the case of ITC Ltd. v. Union of India reported in 1987(12)LCX0041 Eq 1988 (034) ELT 0473 (Cal.), the Hon'ble Calcutta High Court has held that under the scheme of the Act Section 11A was provided as a substantive provision and a complete code for realisation of excise duty in case of short levy or short payment and Section 11B also provided the substantive and the machinery provision for refund of any excess excise duty paid which is also a complete code for the same. The Court held that the provisions of Section 35A and Section 35EE relating to appeal neither over-ride the Section 11B nor can it be said that Section 11A, is a mere machinery provision which cannot be invoked independently and/or the same would only be invoked in aid of the powers conferred in Section 35A and/or Section 35EE of the Central Excise Act, 1944. In view of the ratio of the above judgment, we hold that the Collector has not acted beyond jurisdiction in issuing the notice for reclassification of seized goods and consequent demand. Further, in the case of Ballarpur Industries Ltd. v. Assistant Collector of Customs and Central Excise reported in 1995(01)LCX0139 Eq 1995 (076) ELT 0499 (S.C.), the Apex Court has held that in the case of approved classification list price list, duty short levied for the period prior to the issue of the show cause notice is recoverable subject to the time limit provided under Section 11A of the Central Excises Act, 1944. The Court held that there could be no reason for the issuance of a show cause notice for the period subsequent thereto as, in that case, the necessary corrective action could always be taken and the show cause notice which must be issued within the time frame prescribed in the provisions must relate to a period prior thereto, as the purpose of the show cause notice is recovery of duties or charges short levied, etc. Therefore, we hold that there is no infirmity on this score in the show cause notice. The Learned Counsel's reliance on the judgment of the Hon'ble Supreme Court in the case of Union of India v. Madhumilan Syntex P. Ltd. reported in 1988(05)LCX0034 Eq 1988 (035) ELT 0349 (S.C.), is distinguishable - in that case, the show cause notice issued to the assessees was only with regard to quantification of the amount short levied and, therefore, the Apex Court held that such notice cannot be regarded as the show cause notice against modification of the classification lists. However, in the present case, the show cause notice is a combined one both for reclassification as well as for consequent demand of duty. We may also add that in a recent decision of the Supreme Court in the case of Seraikella Glass Works P. Ltd. v. CCE, Patna reported in 1997(04)LCX0074 Eq 1997 (091) ELT 0497 (S.C.), the Apex Court has held that when even after the final assessment and payment of duties it is found that there has been a short levy or non-levy of duty, the Excise Officer is empowered to take proceedings under Section 11A within the period of limitation after issuing the show cause notice and in such cases, limitation period will run from the date of final assessment.

5. The next issue to be considered is whether the demand is barred by limitation. The show cause notice does not allege any suppression or mis- statement with intention to evade payment of duty and it also does not invoke the proviso to Section 11A of the Central Excises Act, although it alleges that the assessee had been misclassifying the seized varieties of paper. We also note that the goods in dispute had been cleared in accordance with the classification lists which had been finally approved after due application of mind such as chemical examination of the goods and after extending the benefit of Notification 48/89-C.E., dated 1-3-1989 claimed by the appellants for writing and printing paper (which the Department has held to be as variety of packing and wrapping paper and Notification 138/86, dated 1-3-1986 for opaque laminating base paper which has been held to be other glazed transparent and translucent paper). Therefore, for the reason that show cause notice does not allege suppression or mis-statement with intention to evade payment of duty attracting the proviso to Section 11A, and for the reason that no suppression can be attributed to the appellants when goods were cleared after payment of duty in consonance with the classification approved by the Department, we hold that the demand is governed by the normal period of limitation of six months. The seized goods were cleared under cover of gate pass No. 673 dated 5-6-1989 as evident from the opening paragraphs of the impugned order wherein recital of facts shows that the seized goods were intercepted on 7-7-1989 after they had been loaded on the tempo from the godown of Road Bird P. Ltd. at Bangalore at the instance of Veekay Paper Packs (second seller, since the appellants sold the goods in question first to Sudhir Papers who in turn sold them to Veekay Papers) and gate pass No. 673 dated 5-6-1989 was produced by the transporter. The Collector does not dispute this stand of the appellants, but, however, confirms the demand under the proviso to Section 11A(1) on the ground that the appellants had wilfully mis-declared the goods as printing/writing paper to illegally take advantage of the exemption Notification, thereby establishing intent to evade payment of duty. We have already held in the preceding portion of our order that the extended period of limitation is not available to the Department. Therefore, in the absence of any rebuttal of the appellants stand that duty had been paid in June 1989, we accept that position and applying that date, we hold that the demand is barred by limitation as the show cause notice has been issued beyond the period of six months from the date of payment of duty, which in this case, is to be taken as the relevant date.

6. Even on merits, the appellants have a strong case. Classification lists for the two varieties of the paper in dispute viz. 'Intaglio Paper' and 'Opaque Laminating Base Paper' had been approved under Chapter Heading 4802.10 which covers "uncoated paper and paper board of a kind used for writing, printing or other graphic purposes and ....." while the Collector in the impugned order has upheld classification of Intaglio Paper under sub-Heading 4806.90 (Heading 4806 covers vegetable parchment grease proof papers, tracing papers, glassine and other glazed transparent or translucent papers, in rolls or sheets) and of opaque laminating base paper under Sub-heading 4806.20 which covers glassine and other glazed transparent and translucent papers. At the outset it must be noted that the process of glazing does not take the papers the category of those covered by Heading Nos. 48.01 to 48.05 out of the coverage of those Chapter Headings, by virtue of Note 2 to Chapter 48 which states that “Heading Nos. 48.01 to 48.05 include paper and paper boards which have been subjected to calendering, super calendering, glazing, etc”. The Collector has relied upon the test report dated 22-12-1989 of the Central Pulp and Paper Research Institute, Saharanpur to hold that the disputed varieties of paper will fall under Heading 48.06. The test reports are reproduced below :

The test report at page 115 certifies that the paper can be considered as writing and printing paper as well as general purpose packing/wrapping paper. The test report at pages 116 certifies that the paper falls closer to the category of printing paper as well as general grade packing/wrapping paper.

Therefore, the test reports do not point to the papers being other than writing and printing paper (in the case of Intaglio Paper) and printing paper (in the case of opaque laminating base paper) and is not sufficient basis for holding that the papers are classifiable under Sub-heading 4806. The classification lists for the varieties of the papers manufactured by the appellants herein, including the two disputed varieties have been approved from time to time after chemical examination of the paper and after finding that the papers were as claimed by the appellants. The method of manufacture of papers falling under Heading 48.06 is different from that of ordinary papers, as noted by the adjudicating authority himself in para 8 his findings, and there is no evidence to show that the appellants are carrying out the processes necessary for the manufacture of these special papers. We also find that although the show cause notice proceeds to reclassify the papers on the basis of their end use, the Collector has given up this basis, because, as recorded in para 7 of his findings, the picture which emerges from the facts on record is far from clear as far as end use is concerned and it is not possible to mainly rely on the end use factor for the purpose of deciding classification. The material on record is, therefore, not sufficient for change in classification and the Department has not been able to establish that the two varieties of paper in question are classifiable under Heading 48.06 instead of under Headings 4802.10 and 4805.90 as claimed by the appellants and as approved by the Department. We, therefore, hold that the disputed varieties of paper are classifiable under Sub-headings 4802.10 (Intaglio Paper) and 4805.90 (Opaque Laminating Base Paper) of the Schedule to the Central Excises Act, 1944 and set aside the differential duty demand. The confiscation of the seized goods and penalty is also set aside.

7. In the result, the impugned order is set aside and the appeal is allowed with consequential relief to the appellants in accordance with law.

8. [Per : S.K. Bhatnagar, Vice President]. - With due respects to the Hon'ble Member (Judicial) my views are as follows :-

9.  Insofar as the question of classification of the paper is concerned the main question is as to whether Intaglio S/C-B Opeque (OLBP) Paper were classifiable under 4806.90, 4806.20 respectively and whether the seized goods were liable to confiscation.

10. In this respect I find that the above heading read as follows during the relevant period :

11. Learned DR has drawn attention to the findings of the Collector in this regard whereas the appellants have emphasised the approval of the classification lists furnished by them from time to time. In this connection it is important to note that the goods under seizure at Bangalore were not accompanied by GP1 and the statement of Shri J. Prakash dated 7-7-1989 that no GP1 was received with this consignment from the factory. Therefore, it is evident that the goods had been clandestinely removed and were liable to confiscation irrespective of their classification (heading) and irrespective of approval of the classification list.

12.  The scenerio has a bearing on the case in another way as well. This is evident from the fact that a classification list is merely indicative of the intention of the manufacturer to produce the goods of the type described in the list and his obligation to clear the same under the heading and the notification approved by the appropriate authority. If the manufacturer produced goods other than those described in the classification list then the fact of submission of the classification list and its approval (as such or in modified form) does not advance the cause of the manufacturer.

13. Further, in case of seizure of goods of a type other than those approved in classification lists and/or removed clandestinely, it is the test report, if any, and or the market enquiry and the statement(s) of the concerned persons etc. are, inter alia the constituent elements of evidence the evaluation of which is the determining factor. In the present case 44 reels of paper were recovered and the GP No. 673, dated 5-6-1989 was for 41 reels of Intaglio SC-38 GSM under 48.02 with exemption under Notification 48/89, which is available to printing and writing paper but on physical verification of the consignment it was as found that it was of butter paper. A sample was sent to Central Pulp and Paper Research Institute, Saharanpur; and it was reported to be of general purpose of wrapping paper and the market enquiry also indicated that the material was butter paper generally used for wrapping and packing (after printing if so required).

14.  Heading 48.06 includes, inter alia, Glassine and other glazed and transparent paper. The evidence placed before us in the form of test report and the market enquiry is required to be considered along with the fact that initially no GP 1 was produced and the one subsequently produced neither tallies in terms of quantity not in terms of heading or notification. Heading 4802.20 and Notification 48.90 mentioned in the GP 1 do not cover Butter Paper. Therefore, it is not possible to hold that the goods were cleared with reference to this GP 1 or in other words this GP 1 was not relevant for the goods in question. Since no other GP 1 has been produced, Therefore, clandestine removal is established.

15.  Not only that the gate pass produced describes the goods as 'Intaglio Paper'. Hence, if Intaglio Paper was printing paper classifiable under 48.02 and eligible to exemption at that time in terms of Notification No. 48/89 in view of the classification report approved by the appropriate officer it still does not advance the case of the appellants in so far as the seized consignments are concerned because the paper found in the seized consignments was butter paper and not writing or printing paper at all and could not be considered as 'Intaglio Paper' in view of the test report and market enquiries.

16.  Further this could only shown that in the garb of ‘Intaglio-Paper’ the appellants were clearing goods other than Intaglio Paper. This itself was an offence. The test reports of a previous period and pertaining to some other goods of the type described in the classification list and the approval thereof, therefore, does not advance the cause of the appellants and the Department had rightly invoked Rule 9(2).

17. Insofar as the clearance of Opaque Laminating Glazed paper said to be classifiable under 4805.90 is concerned it is obvious from the description of the item that it is different from transparent or translucent papers (whether glazed or otherwise). Since it is Opaque and glazed and since the sample sent to CPPRI, Saharanpur has founded at to be a type of wrapping paper again the classification will have to be determined with reference to this test report (and not with reference to test report(s) of samples drawn much earlier at the manufactures end on which the approval of classification list was based).

18. Yet again, therefore, even from appellants own submissions, it can be seen that the test report(s) or classification lists of earlier periods have no relevance or bearing on the classification of the seized goods.

19. The plea that once a commercial transaction is complete and the goods get transferred from a manufacturer or wholesale dealer to another person the property becomes that of the purchaser, is also of no help because this transfers only ownership and does not in any way absolve, by itself, the responsibility or liability of the manufacturer if the origin of the goods could be traced to him by investigation and it is not denied or it is otherwise established that goods had been manufactured in his factory.

20.  Further, in case of a charge under Rule 9(2) the period specified under 11A of the Act is applicable with reference to the liability in respect of the goods removed from any place specified in Rule 9(1) and the producer thereof is liable to pay duty and also liable to penalty and such goods are liable to confiscation.

21.  Persons who usually deal in the course of trade with a commodity can only be expected to know the type or variety of goods with which they were dealing and the procedure commonly followed in relation thereto (unless proved otherwise). Therefore, in my opinion the charges stand proved and the show cause notice is not hit by time bar as it is apparent from the fact of the case discussed above that it was deliberate action both on the part of the manufacturer/seller and the consignee/recepient; and for the same reasons 173Q & 209A are also attracted. The Department had, therefore, rightly invoked 173Q, 9(2) and 209(A). The Collector has discussed various type of papers and apparently taken HSN into account. However, what we are basically concerned is that it is the test report of the Central Pulp & Paper Research Institute, Saharanpur which has been rightly relied upon and the reports of the DYCC which do not pertain to goods in question or the period in question and are of much earlier period are not relevant; and it is evident that the appellants were manufacturing and clearing Butter Paper generally used for packing and wrapping Toffees and other food articles etc. and Opaque Laminating Glazed Paper without correctly describing them and without disclosing full facts and therefore, the classification lists approved for a different type of paper were not relevant and have been rightly not considered. They have no bearing in respect of these goods except to the extent of showing on their own count that if they were clearing this type of goods under the garb of what they had declared in the classification list the manufacturer were indulging in clandestine removal of the goods and the consignee/recepient was consiously and knowingly party to evasion of Central Excise duty. I, therefore, hold that the show cause notice was not time barred and the Collector's decision on merit is correct and the goods were liable to confiscation and the appellants were liable to penalty. The appeal is therefore rejected.

22. In view of difference of opinion between the Hon'ble Member Judicial and the Vice President the matter is submitted to the Hon'ble President for reference to a Third Member on the following point :

Whether, in view of the observation and findings of Hon'ble Member Judicial, the appeal is required to be allowed or in view of the findings of the Vice President the appeal is required to be rejected.

23. [Per : S.S.Kang, Member (J)]. - Following difference of opinion is referred to the 3rd Member :

"Whether, in view of the observation and findings of Hon'ble Member Judicial, the appeal is required to be allowed or in view of the findings of the Vice President, the appeal is required to be rejected."

24.  In this case the issue is in respect of classification of the paper produced by the appellant. The appellant claimed the classification of Intaglio Paper under Sub-Heading 4802.10 of the Central Excise Tariff and in respect of Opaque Laminating Base Paper under Sub-Heading 4805.90 of the Central Excise Tariff and Revenue wants to classify the Intaglio Paper under Sub-Heading 4806.90 of the Central Excise Tariff and in respect of Opaque Laminating Base Paper under sub-Heading 4806.20 of the Central Excise Tariff.

25.  Heard both sides.

26.  The contention of the appellant is that samples drawn from the seized goods were sent to Central Pulp and Paper Research Institute, Saharanpur and test report in respect of both papers describes these papers as writing and printing paper. The contention of the appellant is that in the impugned order the reference to writing and printing paper mentioned in the test report is omitted. The appellant also contended that they were manufacturing these papers since 1986 and their Classification lists were approved after taking samples. The contention of the appellant is also that as they were filing classification lists which were duly approved on the basis of test report, hence the allegation of mis-declaration on the part of. appellant is unsustainable.

27.  The contention of the Revenue is that the Intaglio Paper manufactured by the appellant is closer to general grade packing/wrapping. Therefore, these papers is to be classify, under 4806.90 of the tariff primarily on the basis of this quality. In respect of Opaque Laminating Base Paper also that it is closer to wrapping/packing paper particularly as its breaking length and burst factor are very high and good strength properties. Since it is a glazed paper, therefore, it is to be classifiable under Sub-heading 4806.20 of the Central Excise Tariff.

28. The Tariff entry under heading 48.06 of the Central Excise Tariff under which the Revenue wants to classify the goods reads as under :

29. The test reports in respect of both the papers of Central Pulp and Paper Research Institute, Saharanpur as reproduced in the order of Hon'ble Member (Judicial) describes these papers as writing and printing paper and having poor grease properties. Therefore, these test reports do not exclude in Intaglio Paper from the scope of writing and printing paper and Opaque Laminating Base Paper from the scope of glazed paper out of the scope of printing paper. In view of the above test reports of Central Pulp and Paper Research Institute, Saharanpur, I agree with findings of Hon'ble Member (Judicial) that there is no fresh material on record for change in classification and the Revenue has not been able to establish that two varieties of papers in question are classifiable under Heading 4806 instead of Heading 4802.10 are Heading 4805.90 as claimed by the appellant and as approved by the Department. Therefore, the impugned order deserves to be set aside and the appeal is allowed with consequential relief in accordance with law.

MAJORITY ORDER

We hold that the disputed varieties of paper are classifiable under CET Sub-heading Nos. 4802.10 (intaglio paper) and 4805.90 (opaque laminating base paper), set aside the impugned order and allow the appeal with consequential relief to the appellants in accordance with law.

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Equivalent 2000 (125) ELT 1075 (Tribunal)