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PETITIONER: MODERN INDUSTRIAL CORPORATION

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE & ORS.

DATE OF JUDGMENT25/08/1987

BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH DUTT, M.M. (J)

CITATION:  1987 AIR 2174            1987 SCR  (3)1068  1987 SCC  Supl.  374     JT 1987 (3)   394  1987 SCALE  (2)424

ACT:     Central   Excise  and  Salt  Act,  1944:  ss.   35-L   & 36(2)/Excise Tariff, Item No. 17(2)--Excise duty--Effect  of Notification No.68/76 dated 16.3.1976---Manufacture of flock paper--Process  of  screen printing carried  on--Benefit  of Notification----Whether available.

HEADNOTE:     The  Notification No. 68/76 dated March 16, 1976  issued by the Central Government exempted converted types of papers commonly  known  as imitation flint papers obtained  by  one side  of paper being subjected to printing of  colour  irre- spective  of  the fact whether or not such paper  is  subse- quently  varnished or glazed by chemicals or  embossed,  and failing under item 17(2) of Excise Tarrif, if it was  proved that the appropriate duty of excise has already been paid in respect of the paper used in their manufacture.     The appellant registered as small scale industry,  which buys  white  paper on which duty had already been  paid  and manufactures  flock  paper out of it by  a  manual  process, sought  exemption from payment of duty under  the  aforesaid notification.  His claim was rejected by the Assistant  Col- lector. That order was set aside by the Appellate  Collector who  took  the  view that the wording  of  the  notification showed  that as long as the one side of the paper  has  been printed with the colour whatever other process is undertaken of further polishing or glazing etc. is immaterial, and that in this case the first operation of printing of one side  of the  paper with colour has been established. Thereafter  the matter  went before the Customs, Excise and  Gold  (Control) Appellate  Tribunal  under s. 36(2) of the Salt  Act,  1944, which  found  that printing is not only  word  printing,  it extends  to  numerous other processes whereby a  surface  is coated  or  coloured or is given an imprint,  to  represent, reproduce, cover, decorate etc. and it is not just ink  that is  used for printing. Since in its opinion in  the  instant case,  there was no colour printing it set aside the  Appel- late order.      Allowing the appeal under s. 35-L of the Central Excise and Salt Act, 1942, the Court,    1069

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   HELD: The process carried on by the appellant is covered by  the Notification No. 68/76 dated March 16, 1976  and  it is, therefore, not liable to pay any duty. [1074G]     The purpose of the notification is that the paper  which would  have  otherwise  fallen under Item  17(2)  of  Excise Tariff would, if covered by the notification, become  exempt from  duty. The words used therein make it clear that  irre- spective  of  the fact whether or not such paper  is  subse- quently  varnished  or glazed by chemicals or  embossed,  it would  be entitled to the benefit of the  notification.  The word ’subsequently’ makes it clear that the process need not be simultaneous. The Tribunal failed to notice this  aspect. [1073FG, 1074F]     The  Tribunal  rightly indicated that printing  did  not require  ink and many other processes would also be  covered by  the term printing. The appellant has been pleading  from the  very beginning that the process carried on by  it  con- sists  of  a colour printing on one side of the  paper.  The Tribunal has further recorded a finding that the appellant’s process  is  to paste one side of the  paper  with  adhesive material.  Whether adhesive material is mixed to  colour  or colour  is mixed with adhesive does not make any  difference so  long  as a process of screen printing is carried  on  to colour the paper on one side. The fact of screen printing is accepted  by respondents and that has been the case  of  the appellant. The Appellate Collector was, therefore, right  in holding  that the appellant was entitled to the  benefit  of the notification. [1074DE, 1071D]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal  No.4534  of 1984.     From  the Order No. C-496 dated 23.7. 1984 of  the  Cus- toms,  Excise  and Gold (Control)  Appellate  Tribunal,  New Delhi in Appeal No.1117 of 1980---(C).     Harish  N.  Salve, Ravinder Narain, P.K.  Ram  and  D.N. Mishra for the Appellant.     Govind Das, Mrs. Sushma Suri and R.P. Srivastava for the Respondents. The Judgment of the Court was delivered by RANGANATH MISRA, J. This appeal under Section 35-L of the 1070 Central Excise and Salt Act, 1944 (hereafter referred to  as the  ’Act ) is directed against the Appellate order  of  the Customs,  Excise and Gold (Control) Appellate Tribunal.  The appellant buys white paper from the market on which duty has already  been paid and manufactures flock paper out  of  it. According to the appellant it is registered as a Small Scale Industry  with  the Directorate of Industry,  Government  of Maharashtra and employs nine workers in all. The process  of conversion  of paper into flock paper is said to be as  fol- low:-               "Solution  of P.V.A. Emulsion  thickened  with               c.m.c.  and coloured with dyes is  applied  on               one  side of paper manually with the  help  of               hand-made  screen; then flock is sprinkled  by               hand with the help of man-made sheeves. There-               after  paper is put on dryers for  drying  and               finally when the paper is dried extra flock is               removed  manually by tapping with fingers  and               the paper becomes ready."     The appellant had made it clear to the Assistant Collec- tor  that  it had no coating or laminating machine  and  the

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process  was essentially manual. It claimed the  benefit  of Notification No. 68/76-CE issued by the Central  Government. The  Assistant  Collector  issued a show  cause  notice  and rejected  the claim of the appellant after cause  was  shown and  by order dated 27th of July 1979, held that the  appel- lant should take out the requisite excise licence and  start paying central excise duty on flock paper under Tariff  Item No. 17(2) of the Central Excise Tariff. He also directed the appellant to pay the duty for a period of five years preced- ing  the  date of issue of the show cause  notice.  A  small penalty was also imposed. The appellant carried an appeal to the  Appellate Collector against the aforesaid order who  by his order dated 4th of October. 1979, held:-               "At  the  time of  hearing  they  (appellants)               produced  a piece of flock paper  manufactured               by  them,  and submitted that  if  this  flock               paper  was  put into the glass of  water,  the               flocking material would disappear and thereaf-               ter it would be seen that the paper which  has               been  used  for this purpose is  only  printed               with  the colour on one side.  The  experiment               was  performed  in my office and it  was  seen               that the paper was printed with colour on  one               side  and  the other side remained  as  it  is               after the flock material has been fixed to it.               The appellants submitted that their appeal may               be  decided without a personal hearing as  any               delay  in personal hearing would cause them  a               great hardship and that they               1071               being a small scale manufacturer their activi-               ties have come to virtual halt because of this               order of the Assistant Collector.               I have gone through the appeal petition and  I               find  that the Assistant Collector has  agreed               that  one  side of the paper  is  coloured  by               printing  with colour, but since the  flocking               material  had  been stuck to this  paper,  the               Assistant  Collector has held it to  be  flock               paper and demanded the duty on it. The wording               of the Notification No. 68/76 as amended under               Sr.  No. 3A(ii) clearly show that as  long  as               the  one  side of the paper has  been  printed               with  the  colour whatever  other  process  is               undertaken  of  further polishing  or  glazing               etc.  is  immaterial. In this case  the  first               operation is that of printing one side of  the               paper  with colour which has been  established               beyond  doubt by the appellants. What  further               process is done on this paper is immaterial as               glazing  and embossing etc. have been  allowed               under  this  notification to be  done  to  the               coloured  side of the paper. In view of  this,               the  order of the Assistant Collector  is  set               aside  so  far as the classification  of  this               material is concerned  .....  "                   On 5.9.1980, a show cause notice  purport-               ing  to be under Section 36(2) of the Act  was               issued by the Central Government to the appel-               lant which inter alia stated:               "On examination of the records of the case the               Central Government are tentatively of the view               that  the order of the Appellate Collector  is               not proper, legal and correct. The process  of               manufacture  of  flocked proper  cannot  prima

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             facie be considered to be equivalent to print-               ing  of colour inasmuch as use of ink  appears               to  be  inevitably linked up with  a  printing               process  as understood and no ink was used  in               the particular process. Hence it would  appear               that  the  flocked paper manufactured  by  the               assessee would be perhaps not eligible for the               benefit of notification No. 68/76."               "The  Central Government, therefore, in  exer-               cise  of the powers vested in them under  sec-               tion 36(2) of the Central Excise and Salt Act,               1944,  propose to set aside the order  of  the               Appellate Collector of Central Excise, Bombay,               or  to pass such order as is deemed fit  after               consideration of the submissions of the asses-               see  .......  "               1072     The  appellant showed cause and with the change  in  the scheme  of the Act, the matter came before the Tribunal  for disposal.  Before the Tribunal, on behalf of the  appellant, two  contentions  were raised: firstly,  the  Collector  was right in holding that the benefit of the Central  Government Notification was available to the appellant and secondly the proceeding  was  barred by limitation. The  Tribunal  found, with  reference to the opinion indicated in the  show  cause notice, as follows:               "The Government of India was wrong to speak of               ink  as inevitably linked up with  a  printing               process.  This is only the character  printing               or  word  printing. But printing is  not  only               word  printing; it extends to  numerous  other               processes  whereby  a  surface  is  coated  or               coloured or is given an imprint, to represent,               reproduce, cover, decorate etc. etc. and it is               not just ink that is used for printing."     It further found that the Appellate Collector was  wrong in holding that the appellant was entitled to the benefit of the notification in question and concluded that there was no colour printing; it did not deal with the question of  limi- tation and set aside the Appellate order.     Both the aspects raised before the Tribunal are  reiter- ated before us in this appeal, namely,--     (1)  The Appellate Collector was right and the  Tribunal is  wrong in holding that the appellant was not entitled  to the benefit of the notification; and     (2) The show cause notice was issued after the expiry of the period of limitation and, therefore, the Tribunal had no jurisdiction to reverse the order of the Collector.      The Notification No. 68/76 dated 16.3. 1976, as far  as relevant. reads thus: Table Sl. No.     Description     Rate of Duty     Condition (1)             (2)          (3)               (4) 1. ....................... 2. ....................... 3. .......................    1073 4. Following varieties of paper, namely:-- (i)  ........................ (ii)  Converted types of        Nil  If it is proved to the       paper commonly known           satisfaction of proper       as imitation flint             officer that the app-       paper or leatherette           ropriate duty of       paper or plastic coated        excise or additional       paper, or by any other         duty leviable under

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     name, obtained by one          section 2A of the       side of paper being subjec-    Indian Tariff Act,       ted to printing of colour,     1934 (32 of 1934), as       with or without design,        the case may be, has       irrespective of the fact       already been paid in       whether or not such paper      respect of the paper       is subsequently varnished      used in their manu-       or glazed by chemicals or      facture.       embossed, and falling       under sub-item (2) of the       aforesaid Item No. 17. (iii)  ........................                                       (underlining by us) The appellant has throughout claimed that it buys duty  paid paper  from  the  market and subjects one  side  thereof  to colour  printing without design and while so printing  adhe- sive  material is added to hold the spread of flocking  done by hand. The extra flocking material is removed manually and the paper is ready. The notification is in wide terms; paper by  any  name  is intended to be covered by  it.  After  the process referred to is undertaken, irrespective of the  fact whether  or  not such paper is subsequently treated  in  the manner  indicated therein, the benefit appears to have  been intended to be made available. The purpose of the  notifica- tion  is  that the paper which would have  otherwise  fallen under  Item 17(2) of Excise Tariff would, if covered by  the notification,  becomes  exempt from duty.  In  an  affidavit filed in this Court, the respondent-department has stated:-                         "It  is further submitted  that  the               product  does  not merit classification  as  a               paper ’obtained by one side of paper subjected               to printing of colour’ under notification  No.               68/76-CE.  It  is also submitted that  in  the               manufacture               1074               of flocked paper the process of application of               adhesive, coloured or otherwise to the surface               of  the  base paper through a silk  screen  is               printing  of  adhesive  only and  not  one  of               imparting  colour. The paper obtained  immedi-               ately after printing with adhesive coloured or               otherwise is not a finished product itself  as               in the case of papers envisaged in the notifi-               cation."     The  learned counsel for the appellant produced a  sheet of  flocked paper in court during hearing of the appeal.  We carried  the  experiment as indicated in the  order  of  the Appellate Collector and found that the adhesive and flocking material got washed out and what remained was the base paper coloured on one side and white on the other. This is exactly what the Appellate Collector had found.     The  Tribunal  rightly indicated that printing  did  not require  ink and many other processes would also be  covered by  the term printing. The appellant has been pleading  from the  very beginning that the process carried on by  it  con- sists  of  a colour printing on one side of the  paper.  The Tribunal has recorded a finding that the appellant’s process is  to paste one side of the paper with  adhesive  material. Whether  adhesive material is mixed to colour or  colour  is mixed with adhesive does not make any difference so long  as a  process  of screen printing is carried on to  colour  the paper on one side. The counter-affidavit of the  respondents in  this  Court accepts the position that  there  is  screen printing and that has been the case of the appellant.     The  words used in the notification make it  clear  that

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irrespective of the fact whether or not such paper is subse- quently  varnished or glazed by chemicals or embossed  would be  entitled  to the benefit of the notification.  The  word ’subsequently’  makes it clear that the process need not  be simultaneous. The Tribunal failed to notice this aspect.     We  are of the view that the process carried on  by  the appellant  is covered by the notification and it is,  there- fore,  not liable to pay any duty. We set aside the  finding of the Tribunal and restore that of the Appellate Collector. The appeal is allowed. There would be no order for costs. P.S.S.                                          Appeal   al- lowed. 1075