http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: COLLECTOR OF CENTRAL EXCISE

       Vs.

RESPONDENT: M/S. WOOD POLYMERS LTD. ETC.

DATE OF JUDGMENT:       17/12/1997

BENCH: S.C. AGRAWAL, D.P. WADHWA

ACT:

HEADNOTE:

JUDGMENT:                THE 17TH DAY OF DECEMBER,1997 Present:                Hon’ble Mr.Justice S.C.Agrawal                Hon’ble Mr.Justice D.P.Wadhwa Joseph  Vellapally,  F.S.Nariman,  Sr.  Advs.,  Y.P.Mahajan, K.C.Kaushik,   S.Dwivedi,   V.K.Verma,   Mrs.Rekha   Pandey, Ms.Meenakshi   Arora,    (Mrs.Alka    Agarwal,    V.K.Bhatt, Mrs.V.D.Khanna,)  Advs.  for  M/S.I.M.Navavati,  Associates, Mrs.   Janaki   Ramachandran,   K.K.Anand,   Rajesh   Kumar, M.L.Lahoty,  Paban   Kr.Sharma,   Himanshu   Shekhar,   R.N. Karanjawala,     Mrs.Nandini     Gore,     Arvind     Kumar, Mrs.M.K.Karanjawala,  Advs.  with  them  for  the  appearing parties.                       J U D G M E N T      The following Judgement of the Court was delivered: S.C.AGRAWAL,J. CIVIL APPEALS NOS. 1852-53/1991.2516-21/1991 AND 11899/1996      These appeals  by the  Revenue raise a common question, namely, whether  paper  based  laminated  Sheets/Boards  are classifiable for  the purpose  of excise  duty under Heading 3920.21 of  the Schedule  to the  Central Excise Tariff Act, 1985 [hereinafter  referred to  as ‘the  Act’] as claimed by the Revenue  or under  Heading 4818.90  of the said Schedule till February  28,1988 and under Heading 4823.90 of the said Schedule on  and after  March 1,1988 as found by the Customs Excise &  Gold  [Control]  Appellate  Tribunal  [hereinafter referred to as ‘the Tribunal’].      M/s Wood Polymers Ltd., the respondent in Civil Appeals Nos.1852-53 of 1991, manufactures (i) paper based decorative laminated sheets,  (ii) cotton  fabric based  laminates  and (iii) paper  based insulators  electrical  grade.  The  said products were  classified  by  the  Assistant  Collector  of Central Excise  under Chapter  39 sub-Heading  3920.21.  The said classification  was approved in appeal by the Collector of Central  Excise  (Appeals).  On  further  appeal  by  the assessee, the  Tribunal, by its judgment dated March 6,1990, held that paper based decorative laminated sheets/boards are classifiable under  sub-heading 4818.90  till  February  28, 1988 and  under Heading  4823.90 on  and after March 1,1988, and that  cotton fabric  based  laminates  are  classifiable

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

under  Heading  3922.90  till  February  28.1988  and  under Heading 3926.90  on and after March 1,1988. As regards paper based insulators  it was  held that  same  are  classifiable under Heading  8546.00. In taking the said view the Tribunal has followed  its  earlier  judgments  in  Amit  Polymers  & Composited Ltd.,  Hyderabad v.  CCE Hyderabad,1989  (20) ECR 454, and  M/s Meghdoot  Laminate Pvt. Ltd. v. CCE Ahmedabad, Order Nos,  553 to  572/89  dated  September  29,  1989.  As regards paper  based  insulators  the  Tribunal  has  placed reliance on  its decision  in CCE  Ahmedabad v.  Metro  Wood Engineering  Works,  1989  (22)  ECR  369.    Civil  Appeals Nos.1852-53 of  1991 have  been filed by the Revenue against the said judgment of the Tribunal.      The same  view was  taken by  the Tribunal  in judgment dated August  17,1991 in  the case  of M/s Meghdoot Laminate Pvt. Ltd  and in  the judgment  dated November 3,1995 in the case  of  M/s  Moti  Polymers  in  respect  of  paper  based decorative  laminated   sheets  which   were  held   to   be classifiable under  Heading 4818.90  and not  under  Heading 3920.21 as  claimed by the Revenue. Civil Appeals Nos. 2516- 21 of  1991 and  Civil Appeal  No. 11899  of 1995  have been filled against the said judgment of the Tribunal.      On behalf of the Revenue it has been submitted that the matter now  stand covered  by the  recent judgment  of  this Court in CCE Hyderabad v. Bakelite Hylam Ltd., (1997) 91 ELT 13(SC). In  that case the Court has considered the questions regarding the  classification for the purpose of excise duty of the  following items:  (i) Decorative  laminated  sheets; (ii) Industrial  laminated sheets which are paper based, and (iii) Glass  Epoxy laminated  sheets. In  the judgment under appeal in  that case  the Tribunal  had held  that all these varieties of  laminated sheets were not covered by Entry 15- A(2) and  were classifiable  under residuary  Item 48 of the Old Tariff which was in operation prior to coming into force of the  Act and  that the  said products  were  classifiable under Heading  4818.90 till  February  28,  1988  and  under Heading 4823.90  on or  after March 1,1988 and that they did not fall  under Heading  3920.21 till  February 28,1988  and under Heading  3920.37 on  or after  March 1,1988 of the New Tariff in  the Schedule  to the Act. Reversing the said view of the  Tribunal, this  Court has held that the Tribunal had rightly classified decorative laminates under residuary Item 68 of  the Old  Tariff. But  as regards classification under the New  Tariff, this  Court set  aside the  decision of the Tribunal in  so far  as it  classified decorative  laminated sheets under  Heading 4818.90/4823.90  of the New Tariff and held that  decorative  laminated  sheets  were  classifiable under Heading  3920.31/3920.37 of the New Tariff. In respect of industrial  laminated sheets  and glass  epoxy  laminated sheets it  was held  that they had been correctly classified by the Tribunal under Heading 7014/8546 of the New Tariff.      In view of the judgment of this Court in Bakelite Hylam Ltd., (supra)  the decision  of the  Tribunal  holding  that paper based  insulators manufactured  by  M/s  Wood  polymer Ltd.,[respondents in Civil Appeals Nos. 1852-53 of 1991] are classifiable under  Heading 8546  of the  New Tariff must be upheld since  it is  in consonance with the decision of this Court in  Bakelite Hylam  Ltd., (supra).  The only  question that remains is with regard to classification of paper based decorative laminated  sheets/boards and  cotton fabric based laminated sheets.      Shri F.S.Nariman,  the learned senior counsel appearing for the  respondents in  Civil Appeals Nos. 1852-53 of 1991, has, however, urged that the decision of this Court Bakelite Hylam Ltd., (supra) does not lay down the correct law and it

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

needs  reconsideration   in  so   far  as   it  related   to classification of paper based decorative laminated sheets.      In order  to deal  with the  said  submission  of  Shri Nariman we  would set  out the  relevant entries  in the New Tariff which were in these terms : ------------------------------------------------------------ Heading No. Sub-heading No.                Description of ------------------------------------------------------------ 3920                                Other Plates, Sheers,                                     Film, foil and strip,                                     of plastics, non-cellul-                                     ar, whether lacquered or                                     metallised or laminated,                                     supported or similarly                                     combined with other                                     materials or not. Of                                     regenerated Cellulose : 3920.21                             Film of thickness not                                     exceeding 0.25                                     millimeters.                                     Of Other Plastics : 3920.31                             Rigid plates, sheets                                     film foil and strip. 4818                                Other Articles of Paper                                     pulp, paper, paper-                                     Board, Cellulose                                     Wadding or Wabs of                                     Cellulose Fibres 4818.90                             other. ------------------------------------------------------------ Some changes were made in the tariff entries in the Schedule to the  Act effect from March 1,1988 and Heading No. 3820.31 was re-numbered  and as  a  result  plates,  etc.  of  other plastics that  were ‘Rigid laminated’ were placed in Heading 3920.37. Similarly,  Heading 48.18  was re-numbered as 48.23 and sub-heading  4818.90 was numbered as 4823.90 with effect from March 1,1988.      The New  Tariff introduced  by the  Act prescribes  the Rules of  Interpretation of  the entries  and in  respect of goods which  are prima  facie classifiable under two or more headings the following provision in contained in Rule 3:      "3 When by application of sub-rule (b) of Rule 2 or for      any other  reason, goods are, prima facie, classifiable      under two  or more  headings, classification  shall  be      effected as follows:           (a) The  heading which  provides the most specific           description  shall   be  preferred   to   headings           providing a more general description......           (b)  Mixtures,   composite  goods   consisting  of           different  materials   or  made  up  of  different           components, and goods put up in sets, which cannot           be  classified  by  reference  to  (a),  shall  be           classified as if they consisted of the material or           component  which   gives  them   their   essential           character,   insofar    as   this   criterion   is           applicable.           (c) When  goods cannot  be classified by reference           to (a)  or (b), they shall be classified under the           heading which  occurs last  in the numerical order           among those which equally merit consideration."      Shri Nariman  has urged  that test  to be  applied  for classification for the purpose of excise duty is the ‘common parlance test’,  i.e., the  sense in  which the  product  is understood in  the trade  parlance or  commercial usage  and understanding. The  learned counsel has submitted that paper

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

based  decorative  laminates  are  manufactured  by  passing several sheets  of duty  paid kraft paper through resin bath and are  impregnated with  a chemical  solution classified a resin  solution   (phenol  formaldehyde   solution).  It  is submitted that  the paper  based decorative  laminates  are, therefore, primarily  paper falling  in Chapter  48  dealing with paper  and paper board, articles of paper pulp and does not fall in Chapter 39 which deals with plastic and articles thereto. It  is submitted  that this  Court  Bakelite  Hylam Ltd., (supra)  has considered  the question  in the light of Rule 3  of the  Rules of Interpretation and had not examined the trade  parlance and  commercial of  traders, dealers and users,  expert  opinions,  trade  literature  and  marketing material were  produced before  the authorities to show that the decorative  laminates are in commercial parlance are not known as  plastic and  are not  sold, marketed  and used  as article of plastic.      We are  unable to  accept the  said contention  of  the learned  counsel.   In   view   of   the   rules   regarding Interpretation which  are contained  in the  New Tariff  the matter of  classification has  to be considered in the light of the  said rules. As indicated earlier, Rule 3 of the said rules  contains   the   principles   to   be   applied   for classification of  goods which  are prima facie classifiable under two  or more headings.  Since decorative laminates are composite goods  made  from  different  components,  namely, paper and  chemical solutions  with which it is impregnated, the  classification   of  decorative  laminates  has  to  be determined in  the light of Rule 3(b). According to the said rule, composite  goods consisting  of different materials or made up  of different  components which cannot be classified by reference  to sub-rule (a) shall be classified as if they consisted of  the material  or components  which gives  them their essential  character  insofar  as  this  criterion  is applicable. As  a result  of impregnation  with the chemical solutions the  character of paper is changed into decorative laminates and  it is  the chemical solutions which give them their essential  character. In  this regard,  this Court  in Bakelite Hylam Ltd., (supra) has said :      "In the  present case,  the essential  character  of  a      decorative laminated  sheet is its rigidity or strength      and its  resistence to  heat  and  moisture.  This  are      essentially  characteristics   which  are  imparted  by      resins.  Paper   does  not   possess   any   of   these      characteristics. Therefore,  applying Rule  3  (b)  and      going  by   the  essential   characteristics  of   such      laminated sheets,  these goods  are more  appropriately      classifiable under Chapter 39."      Reliance had  been placed by the Court on the following Explanatory Note  to Chapter  39 in the Harmonised System of Nomenclature :      "Combinations of plastics and materials other than textiles :      This  Chapter   also  covers  the  following  products,      whether they  have been  obtained by a single operation      or by  a number  of successive operations provided that      they retain  the essential  character  of  articles  of      plastics :      (c) Paper  reinforced stratified  plastic sheeting, and      products consisting of one layer of paper or paperboard      coated or  covered with a layer of plastics, the latter      constituting more  than half the total thickness, other      than wall coverings of heading 48.14.      (d) Products  consisting of  glass fibres  or sheets of      paper,  impregnated   with  plastics   and   compressed

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

    together,   provided    they   have   a   hard,   rigid      character.(If having  more the character of paper or of      articles of glass fibres they are classified in Chapter      48 to 70, as the case may be.)"      In has  been pointed  out that Explanatory Note clearly provides that  sheets of paper impregnated with plastics and compressed together,  as in  the present case, provided they have a hard, rigid character would fall under Chapter 39 and if having  more the  character of  paper or  of articles  of glass fibres  they are  classified in Chapters 48. Since the decorative laminated sheets are hard and rigid in character, they are classifiable under Chapter 39 and not under Chapter 48.      Shri Nariman  has placed  reliance on  the decision  of this Court in Moti Laminates Private Ltd. v. Collector, 1995 (76) ELT  241 (SC),  wherein it  has been  held that  Phenol Formaldehyde (Resol)  is not "goods" capable of being bought and   sold.   Shri   Nariman   has   also   submitted   that classification  of   decorative  laminated   sheets  can  be determined under Rule 1 of the rules of interpretation which reads as under :      "1. The  titles of  Sections and  Chapters are provided      for  ease   of  reference  only;  for  legal  purposes,      classification shall  be determined  according  to  the      terms of  the headings  and  any  relative  Section  or      Chapter Notes  and, provided  such headings or Notes do      not otherwise  require,  according  to  the  provisions      hereinafter contained."      In Bakelite  Hylam Ltd.,  (supra) this  Court has taken note of  Rule   1. It  has been pointed out that Rule 1 does not help  to classify  the goods in question because in view of Note  1(f). Chapter  48 is not applicable to these goods. Under Note  1(f) to  Chapter 48  paper reinforced stratified plastic sheeting  or one  layer of  paper  board  coated  or covered with  a layer  of plastics  the latter  constituting more than  half the  total thickness  or  articles  of  such materials, other than wall coverings of heading No. 48.14 do not fall that Chapter but fall in Chapter 39. In view of the said provision  in Chapter  48 it  has been held that Rule 1 cannot be invoked and the matter of classification has to be determined in  accordance with  Rule 3(b)  of the  Rules  of Interpretation.      In Moti  Laminates Private  Ltd. (supra) this Court was considering the  question whether  resin or  resol which are produced in  the process  of manufacturing  laminated sheets are liable  to payment  of excise  duty for  the reason that artificial or  synthetic resins  and plastic  materials  are leviable goods under Item 15A of the old tariff. It was held that resol  or resin  is not  marketable or capable or being marketed and,  therefore the  same was  not subject to duty. The said  decision in  Moti Laminates  Private Ltd.  (supra) does not  have any bearing on the question of classification of paper  based decorative  laminated sheets produced by the respondents.      It has  been pointed  out that by Finance Act, 1997 the Central Excise  Tariff Act,  1985 has  been amended  and the following new the sub-Heading 4823.40 has been Inserted :      "4823.40. Products  consisting of  sheets of  paper  or      paper  board,   impregnated,  coated  or  covered  with      plastics  (including   thermostat  resins  or  mixtures      thereof or  chemical formulations  containing melamine,      phenol or  urea formaldehyde  with  or  without  curing      agents or  catalysts), compressed  together in  one  or      more  operation;   products   known   commercially   as      decorative laminates".

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

    The submission  is that  the insertion  of the said new entry in  Chapter 48  has  to  be  regarded  as  legislative recognition of  the commercial understanding that decorative laminates is  an article  of paper  because  products  known commercially as  decorative laminates  have been included in the said  entry falling in Chapter 48 which relates to paper and paper  boards. We  are unable to accept this contention. Decorative  laminates  have  been  mentioned  in  the  entry falling in  sub-Heading 4823.40  which has  been inserted in Chapter 48  presumably in  view  of  the  decisions  of  the Tribunal  holding  that  paper  based  decorative  laminated sheets fall  under Chapter  48. The  insertion of  the  said entry in  Chapter 48 does not, in out opinion, mean that the interpretation placed  by this  Court in Bakelite Hylam Ltd. (SUPRA) on  the entries, as they stood prior to insertion of the entry falling in sub-heading 4823.40, is not correct and it needs  reconsideration.  We  are,  therefore,  unable  to accept the  contentions urged  on behalf  of the respondents seeking reconsideration  of the  decision of  this Court  in Bakelite Hylam Ltd. (supra).      In accordance  with the law laid down in Bakelite Hylam Ltd. (supra)  it must  be held  that paper  based decorative laminated sheets  and  cotton  fabric  based  laminates  are classifiable under Heading 3920.21/3920.37 of the New Tariff and the  decision of  the Tribunal holding that the same are classifiable  under   tariff  entries   4818.90/4823.90  and 3922.90/3926.90 cannot be upheld and has to be set aside.      In the  result, Civil  Appeals Nos. 1852-53 of 1991 are partly allowed  and, while  maintaining the  decision of the Tribunal that  the paper  based insulators  are classifiable under Heading  8546.00, the decision of the Tribunal holding that   paper   based   decorative   laminated   sheets   are classifiable under sub-heading 4818.90 till February 28,1988 and under sub-heading 4823.90 on and after March 1, 1988 and cotton  fabric   based  laminated   decorative  boards   are classifiable under sub-heading 3922.90 till February 28,1988 and under  sub-heading 3926.90  on and after March 1,1988 is set aside and it is directed that the paper based decorative laminated  sheets   and  cotton   fabric   based   laminated decorative boards are classifiable under sub-heading 3920.21 till February  28, 1988 and under sub-heading 3920.37 on and after March 1,1988.      Civil Appeals  Nos. 2516-21  of 1992  and 11899 of 1996 are also  allowed and  the judgment  of the Tribunal holding that paper based decorative laminated sheet are classifiable under sub-heading  4818.90 is set aside and it is  held that the said   product is classifiable under sub-heading 3920.31 till February  28,1988 and  under sub-heading 3920.37 on and after March 1,1988. No order as to costs. CIVIL  APPEALS   NOS.   7027/1995,   7029/1995,   9483/1996, 221/1997, 10466/1995, 10489/1995      These appeals  are filed  against the  judgment of  the Tribunal  dated  July  18,1995  whereby  the  claim  of  the appellants for  payment of  excise duty  at the concessional rate on  the notification  No. 135/89-CE  dated May 12, 1989 has been negatived.      The  appellants   manufacture  paper  based  decorative laminated sheets.  The said products are made by coating and impregnating paper  in  chemical  solution,  namely,  Phenol Formaldehyde Solution  and Melamine  Formaldehyde  solution. Notification No.  135/89 dated  May  12,  1989  provided  as follows :      "Notification No. 135/89-C.E.dated 12.5.1989           In exercise of the powers conferred by sub-section      (1) of  Section 5A of the Central Excises and Salt Act,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

    1944  (1   of  1944,   the  Central  Government,  Being      satisfied that  it is  necessary in the public interest      so to  do, hereby  exempts  goods  falling  under  sub-      heading No.  4823.90 of  the Schedule  to  the  Central      Excise  Tariff  Act,  1985  (5  of  1986),  other  than      products consisting  of sheets  of paper or paper board      impregnated,   coated   or   covered   with   plastics,      compressed together  in one  or more operation, from so      much of  the duty  of excise  leviable thereon which is      specified in  the said  schedule as is in excess of the      amount calculated at the rate of 12% ad valorem."      The said  notification  was  subsequently  replaced  by Notification No. 20/94-C.E. dated March 1, 1994 which was in the following terms :      "Notification No. 20/94-C.E.dated 1.3.1994           In exercise of the powers conferred by sub-section      (1) of  Section 5A of the Central Excises and Salt Act,      1944  (1   of  1944),  the  Central  Government,  being      satisfied that  it is  necessary in the public interest      so to  do, hereby  exempts goods  of  the  description,      specified in column (3) of the Table hereto annexed and      falling within  the Chapter  or sub-heading Nos. of the      Schedule to  the Central  Excise Tariff Act, 1985 (5 of      1986),   as are  specified in  column (2)  of the  said      Table, from  so much  of the  duty of  excise  leviable      thereon which  is specified in the said Schedule, as is      in  excess   of  the  amount  calculated  at  the  rate      specified in  the corresponding  entry in column (4) of      the said Table. ------------------------------------------------------------ S.No.    Chapter/sub       Description of goods       Rate          head No. ------------------------------------------------------------ 1.       48               Maplitho paper and kraft    Nil                           paper supplied to a braille                           press against an indent                           placed by the National Insti-                           tute for Visually Handicapped                           Dehradun 2.      48               Paper splints for matches,    Nil                          whether or not waxed. 3.      48               Asphaltic roofing sheets      Nil 4.      48               Paper pulp moulded trays       Nil 5.      48               Cellulose insole board of      100%                          sheets                          ad                                                     Valorem 6.     4811.30          All goods, other than products        and              consisting of sheets of paper  20%        4823.90          or paper board imprognated,    ad                         coated or covered with       Valorem                         plastics, compressed to-                         gether in on or more                         operations. ------------------------------------------------------------      By Notification No. 144/94-C.E. dated December 22, 1994 Notification   No. 20/94 dated March 1, 1944 was amended and entry at  serial No  . 6  in the table annexed with the said notification was substituted by the following entry :      "All goods, other than the following, namely ;-      (a)  Products consisting  of sheets  or paper  or paper           board impregnated, coated or covered with plastics           (including thermoset resins or mixtures thereof or           chemical formulations containing melamine, phenol,           urea or formaldehyde with or without curing agents           or catalysts),  compressed  together  in  or  more

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

         operations, or]      (b)  Products   known   commercially   as   "decorative           laminates."      The case of the appellants is that till the issuance of Notification No.  144/94 dated  December 22,  1994 they were liable to  pay concessional rate of excise duty on the basis of Notification  No. 20/94 dated March 1, 1994 and only as a result of  the amendment  made in  the said  notification by Notification No.  144/94 dared  December 22,  1994 paper  or paper board  impregnated, coated  or covered  with  plastics known as  "decorative laminates"  have been exclude from the benefit of  such  concessional  rate  of  excise  duty.  The submission  of   the  appellants   is  that   the   products manufactured by  them fall  under sub-heading 4823.90 and do not fall  under the  exception since  they are not laminated sheets or  paper impregnated,  coated or covered by plastics but are  made by coating and impregnated with chemical known as  Phenol   Formaldehyde  Solution  Melamine  Formaldeyhdre solution which is unstable and unmarketable and which is not resin and that it cannot be said that the paper is coated or covered with  resins. In support of the aforesaid submission reliance is  placed on  the  decision  of  this  Court  Moti Laminates Private  Ltd. [supra]  was rendered in the context of marketability  and  it  was  not  relevant  to  determine whether the  final product  of the appellants is eligible to claim the  benefit of  concessional rate of duty in terms of Notification No. 135/89.      In Bakelite Hylam Ltd. (supra) this Court has held that paper based  decorative laminated  sheets or  boards do  not fall  in Chapter 48 but fall in Chapter 39 of the New Tariff introduced by  the Central  Excise Tariff  Act, 1985  and it cannot be classified under sub-heading 4818.90 till February 28, 1988  and under sub-heading 4923.90 on or after March 1, 1988. In view of the said decision the products manufactured by the  appellants, namely, paper based decorative laminated sheets do not fall under sub-heading 4923.90. The appellants are,  therefore,  not  entitled  to  claim  the  benefit  of concessional rate  of duty  on the basis of Notification No. 135/89 dated  May 12,  1989 and  the Notification  No. 20/94 dated  March   1,1994.  The   fact   that   products   known commercially as  decorative laminates  have  been  expressly mentioned in  entry at  serial No.  6, as substituted on the basis of  Notification No.  144/94 dated  December 22, 1994, does not mean that prior to the issuance of the Notification No.  144/94   dated  December   22,  1994   products   known commercially as  decorative laminates  fell within the ambit of the  Notification No.  135/89 dated  May, 12 1989 and No. 20/94 dated  March 1,  1994 for  the purpose of concessional rate of  duty. The  insertion of products known commercially as decorative  laminates by  Notification No.  144/94  dated December 22,1994  only means  that these  products have been expressly excluded  for the  purpose of applicability of the concessional rate of duty.      There is,  therefore, no merit in these appeals and the same are  accordingly dismissed.  But in  the  circumstances there is no order as to costs.