G. Sankaran, President
1. By the impugned order No. 70/89 dated 29-12-1989, the Collector of Central Excise, New Delhi -
(a) demanded from M/s Rexor India Ltd., Faridabad, duty amounting to Rs. 73,64,0707/- leviable on printed metallised/lacquered polyester film cleared by them during the period from 1-3-1986 to 28-9-1987, invoking the provisions of Rule 9(2) of the Central Excise Rules, 1944 (the "Rules", for short) and the extended time limit provided in Section 11A of the Central Excises and Salt Act, 1944 (the "Act", for short),
(b) imposed a penalty of Rupees ten lakhs on the company.
Aggrieved by this order, Rexor India Ltd. (the "appellants", for short) have filed the present appeal.
2. The facts of the case, briefly stated, are that the appellants are engaged in the business of metallising and lacquering inter alia of polyester films. The present dispute concerns the appellants' activity of metallising printed polyester films supplied to them by other parties. These parties print the polyester films with pictures, motifs etc., as per customers' requirements and send them to the appellants who then metallise and return them on job work basis. It is stated that the printed polyester films are laminated to LDPE/HDPE films by those parties - printers/laminators - and pouches are made therefrom. In pursuance of enquiries made by the Department on or about 28-9-1987, a show cause notice dated 7-6-1988 was issued by the Collector to the appellants which ultimately culminated in the impugned order.
3. We have heard Shri V. Lakshmi Kumaran, Advocate, for the appellants and Shri L. Narasimha Murthy, DR, for the respondent-Collector.
4. The submissions of the learned counsel for the appellants were six-fold:-
(a) The activity of metallising printed polyester film on job-work basis does not amount to "manufacture" for the purpose of excise levy.
(b) In any event, printed metallised polyester film is classifiable under Heading 49.01 and not 39.20, as held by the Collector.
(c) If at all the proper classification of the goods is under Heading 39.20, duty could be demanded from the appellants only from the date of the show cause notice i.e. 7-6-1988.
(d) The demand by the show cause notice dated 7-6-1988 for the period from 1-3-1986 to 26-9-1987 is barred by limitation. And, so, penalty is not imposable.
(e) In any case, the quantum of duty demanded is incorrect.
(f) Collector has passed the impugned order in a hurry without applying his mind to the appellants' written submissions.
5. As regards (a) above - our attention was drawn to Heading No. 49.01 of the CET as in force during 1986-87. It read:-
"49.01 - Printed books, newspapers, pictures and other products of the paper printing industry; manuscripts, typescripts and plans"
In 1987-88, the word "Paper" before the words "Printing industry" was deleted and so the relevant portion read:-
"... other products of the printing industry... ."
Because of Note 2 to Section VII of the CET (Chapter 39 falls in this section) which reads as follows:-
"Except for the goods of Heading 39.18 or 39.19, plastics, rubber, and articles there of, printed with motifs, characters or pictorial representations, which are not merely incidental to the primary use of the goods, fall in Chapter 49".
printed polyester films cannot fall under Chapter 39. It may also not have fallen under Chapter 49 till the amendment of Heading 49.01, since it covered only products of the paper printing industry provided, of course, the conditions in Section Note 2 to Chapter 39 (extracted earlier) were satisfied. In this context, the learned counsel referred to the Board's Telex dated 7-8-1987 (page 42 of the Appellants' Paper Book) and Tariff Advices dated 16-1-1989 and 6-5-1989 (page 43 and page 45 respectively). The Telex gives the Board's view that plastic films printed with motifs, characters or pictorial representation would be appropriately classifiable under Chapter 49 in view of and subject to section note 2 to Section VII and Rule 4 of the Rules for the interpretation of the CET. The Board's Circular No. 6/89-CX3 dated 16-1-1989 to all Collectors states inter alia that printed plastic films/sheets laminated with another plastic sheet are not products of the printing industry (because the primary use of the goods is for packing of goods although they may have on them printed names, trade marks, directions for use and other information about the products to be packed). It further says that, in any case, these goods were not classifiable under Chapter 49 even before 1-3-1987 as this Chapter encompassed within its ambit only products of the paper printing industry and would merit classification under Chapter 39 only as other material is not used at all necessitating examination of their classification under other Chapters. This circular was followed by another one - F. No. 93/22/89-CX. 3 dated 5-5-1989 - which referred to the Telex of 7-8-1987 and instructing the Collectors to give effect to the circular of 16-1-1989 from the date of its issue. This, as the letter explained, was because the classification of such goods under Chapter 49 was an off-shoot of the Telex of 7-8-1987 and representations had been received against demands raised for the past period in respect of the goods covered by the circular of 16-1-1989.
6. Continuing, the counsel submitted that Heading 39.20 covered plastic film whether metallised or not. The process of metallising was not defined as a process of "manufacture" in Section 2(f) of the Act or in the relevant section or chapter notes. He, therefore, contended that the activity of metallising of printed plastic film did not constitute "manufacture" for the purpose of excise levy. In this connection, he placed reliance on following case law -
(a) Swastik Packaging v. CCE, Bombay - 1986 (23) ELT 217 (Tribunal);
(b) Tribunal's Order No. E. 187/1990-D dated 26-3-1990 in Appeal No. E. 203/84-D - M. Basheer Ahammed v. CCE Cochin;
(c) Gujarat Steel Tubes Ltd. v. State of Kerala - 1989 (42) ELT 573 (S.C.);
(d) Transpower Corporation v. CCE - 1989 (43) ELT 299 (Tribunal); and
(e) Indian Hume Pipe Co. Ltd. v. CCE - 1990 (45) ELT 457 (Tribunal).
7. On the issue of classification [see para 4 (b) above], the counsel referred to Section Note 2 to Section VII (extracted earlier), the polyester film supplied to the appellants for metallising had already on them printed matter. Polyester film by itself was not capable of being used for packaging purposes because it was not heat-sealable (cf: technical authorities cited). It had to be laminated with LDPE or some such suitable film when only it would be heat-sealable and useable for packaging. The purpose of the printed polyester film, therefore, was to convey a message - the name of the product, the brand, the name of the manufacturer etc. The printing was thus not merely incidental to the use of the film - it was substantial: decoration. Therefore, the correct classification would be under Chapter 49 and not 39. This would be so even if it was held that polyester film was for packaging.
8. As regards the points at (c) and (d) in para 4 above, it was submitted that the apex authority - CBEC - was itself giving different decisions on classification on different dates. The letter dated 5-5-1989 instructed Collectors to give effect to the revised classification with prospective effect from the date of the relevant circular, viz., 16-1-1989. Therefore, in the instant case, the period of dispute being before 16-1-1989, no duty was payable. Further, the invocation of the extended period of limitation had no justification. In support of these submissions, reliance was placed on the following decisions:-
(a) Steel Authority of India Ltd. v. CCE, Calcutta - 1985 (22) ELT 487 (Tribunal);
(b) Tribunal's Order No. 75 & 76/1988-D dated 27-1-1988 in Appeal Nos. E.1646/83 & 3050/87-C - Indian Oxygen Ltd. v. CCE, Calcutta - upheld by the Supreme Court by its judgment dated 17-3-1989 in Civil Appeal Nos. 1960-61 of 1988;
(c) Rathi Alloys & Steel Ltd. v. CCE, Jaipur - 1990 (27) ECR 289 (S.C.);
(d) CCE v. Chemphar Drugs & Liniments - 1989 (40) ELT 276 (S.C.); and
(e) Padmini Products v. CCE - 1989 (43) ELT 195 (S.C.).
It was further submitted that, in any event, there was no intent to evade duty because the facility of MOD VAT would have been available as packaging material.
9. As regards quantification of duty - see para 4(e) above, it was submitted that from the seized invoices and challans, it was clear that the film was of thickness below 25 mm. and the rate of duty was only 25% (and not 35% as ordered by the Collector) in terms of Notification No. 269/86 dated 24-4-1986. Further, the appellants were eligible for MOD VAT credit of the duty already paid on the polyester film but the Collector had erroneously denied it though it was specifically asked for. In this context, reliance was placed on the Tribunal's decision in CCE, Hyderabad v. Shri Balaji Cable Industries 1987 (29) ELT 77.
10. In his reply, the learned DR, submitted that metallising was a process incidental or ancillary to the completion of the manufactured product. It did not have to be specified as a process of "manufacture". In this context, he pointed out that the tariff entry itself talked of metallised film. Metallising imparted a shine, a decorative effect, to the goods. The end-product was new goods. While the case-law cited by the counsel for the appellants was, according to the DR, not relevant to the present case, he relied on the Supreme Court's judgment in Union of India v. Ramlal Mansukhrai & Another - 1978 (2) ELT J 389 and CCE & Another v. Oriental Timber Industries - 1985 (20) ELT 202 (S.C.) in support of the Department's stand.
11. On the issue of classification of the goods, Shri Murthy submitted that section note 2 to Section VII was not attracted when the printed film was metallised. The question was not one merely of printing on a film but of metallising a printed film. The film was not a product of the printing industry. The Board's clarificatory Telex was with reference to the entry in Chapter 49 after its amendment and its benefit would be available only from 7-8-1987, the date of its issue, to 16-1-1989, the date of the revised classification (in the present case, from 7-8-1987 to 28-9-1987). The heading of Chapter 49 would show that the Chapter pertained basically to paper products - reading material and would not cover goods which ultimately went for packaging. The Technical authorities cited by the counsel did not show what was the property imparted by the metallisation process. One of the authorities indicated application in packaging also. Applying Rule 3(a) of the Rules for interpretation of the Schedule, Chapter 39 was more specific for plastic films.
12. The DR did not make any submission on the issue of quantification of duty. On the other issues, he supported the impugned order for the reasons stated therein.
13. We have carefully considered the rival submissions and perused the record.
14. The period of demand is from 1-3-1986 to 28-9-1987. Till 1-3-1987 when Heading 49.01 was amended, it read as -
"Printed books, ... and other products of the paper printing industry;... ."
On 1-3-1987, the word "paper" was omitted. It is clear, therefore, that only products of the paper printing industry would fall within this heading till 1-3-1987. In the present instance the goods do not contain paper. The printing is on plastic film. Therefore, the subject goods could not have fallen under Heading 49.01 at least upto 1-3-1987. This is recognised in the Board's circular letter of 16-1-1989. However, it goes on to classify printed plastic films/sheets laminated with another plastic sheet under Chapter 39 since, in the Board's view, they are not products of the printing industry (or of the paper printing industry) - both prior to and from 1-3-1987. The Collector has also classified the goods under Heading 39.20, sub-heading 3920.31, during the relevant period.
15. But the submission for the appellants is that the process of metallising printed plastic films is not "manufacture" for the purpose of excise levy. The relevant parts of the tariff entry, both before and after the amendment of 1-3-1987, reads:-
"Other plates, sheets, film, foil, and strip, of plastics, non-cellular, whether lacquered or metallised or laminated, supported or similarly combined with other materials or not."
On a plain reading of the entry, it is apparent that both non-metallised and metallised films are covered by it. There is little doubt that if an assessee manufactures polyester film and metallises it and clears the metallised film, duty will be payable on the metallised film because such film falls within the scope of the entry. The question here, however, is different. The appellants do not manufacture polyester film. The, film is manufactured by others and printed on by printers. The printed film is received by the appellants who metallise them on job charge basis. The question would be whether the activity of metallising would amount to "manufacture" within the mischief of Section 2(f) of the Act which would make the metallised film liable to duty under the tariff entry. Now, according to Section 2(f) of the Act,
"manufacture" includes any process, -
(i) incidental or ancillary to the completion of a manufactured product;
(ii) which is specified in relation to any goods in the section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture."
Metallising is not specified in the relevant section or Chapter notes as amounting to manufacture. Since the entry covers not only unmetallised film but also metallised film, metallising is undoubtedly a process incidental or ancillary to the completion of the manufactured product when the factory manufacturing the plastic film subjects it to metallisation and clears the metallised film. But would that make 'metallising' in the appellants' premise of printed plastic film brought from outside a manufacturing activity?
16. In the case of Swastik Packaging (supra), the appellants used to receive duty-paid aluminium foils and subject them to printing. The relevant tariff entry read -
"27 - Aluminium
(c) Foils (whether or not embossed, cut to shape, perforated, coated, printed or. . . "
The Tribunal noted that Section 2(f) had been amended in relation to Aluminium so as to include the process of lacquering or printing of plain containers in the definition of "manufacture", but not to foils. It was held, therefore, following the Supreme Court's judgment in CCE & Another v. Oriental Timber Industries - 1985 (20) ELT 202 (S.C.) that the intention of the entry was to charge duty once on foils whether or not they be in any of the stages mentioned in the entry. It was further held that duty would not be attracted again at the printing stage if duty had already been paid at the stage when foils were first produced. The relevant part of the tariff entry in the present case is analogous ("Films whether or not metallised"). Whether metallised or not, the film in the present case falls under the same description. The entry, as it reads, is not one which leads itself explicitly or implicitly to two sub-classifications viz., films, not metallised and films, metallised. Therefore, in our opinion, if the film has discharged duty at the unmetallised stage, no further duty is attracted. On the other hand, if the unmetallised film has not discharged duty, duty will be leviable on the metallised film.
17. In this context, we may note that there is no dispute as regards the marketability of the metallised film. The learned counsel for the appellants clearly stated before us that the goods were marketable. But that, by itself, is not determinative of the issue. The counsel submitted that the present goods viz., metallised printed film has a use which has already been pre-determined at the printing stage i.e. for making pouches for packing. The Department has not controverted this. And, it appears to be correct looking at the sample of the unmetallised and metallised film on record. In other words, metallisation has not brought about a change in the use of the printed film. Metallisation does certainly give a decorative effect to the bare printed films, but the use remains the same. After metallisation, the name undergoes a change. All this would not, in our view, make metallisation per se a manufacturing activity in the present instance. As we have already said, the tariff entry is such that if a factory produces films and subjects it to metallisation and clears the metallised film, that will attract duty. But if duty paid unmetallised film is brought from outside and subjected to metallisation, no further duty would be attracted.
18. The above view is reinforced by the Tribunal's decision in the Basheer Ahammed case (supra - Order No. E.187/1990-D dated 26-3-1990). The issue there was whether the activity of recording sound on duty-paid blank cassette tapes amounted to an activity of "manufacture" bringing the resultant sound recorded cassette tapes into the mischief of sub-item (4) of Item 59 of the CET as in force at the material time. The relevant portion of the item read:-
"59. Articles of a kind used for sound or sound and image recording, whether recorded or not, namely:-
(1) xxx xxx
(2) xxx xxx
(3) Cassette tapes for sound recording,
(4) Sound recorded cassette tapes."
It may be noted that there was a separate sub-classification for sound recorded cassette tapes. Even so, it was held that the activity of recording sound on duty paid blank cassette tapes was not a "manufacturing" activity that resulted in goods falling under sub- ' item (4). If, however, a party manufactured a cassette tape for sound recording attracting the description "Articles of a kind used for sound recording" and recorded sound on it, the resultant product would fall under sub-item (4). The analogy is close with perhaps the only difference that, in the present instance, the tariff entry does not have a specific sub-classification for metallised printed film.
18A. In the case of Gujarat Steel Tubes (supra) before the Supreme Court, the question was whether the process of galvanising steel tubes brought forth a commodity different from steel tubes. Galvanising was, the Court noted, for making the steel tube weather-proof but that did not change its character as a steel tube. In the present case, metallising of the printed film whose use, as we have seen, was already pre-determined, did not bring about any fundamental change in the printed film except perhaps to give it a decorative effect.
19. The Tribunal held in the Transpower Corporation case (supra) that galvanising steel angles, channels with a view to make them resistant to oxidation did not result in "manufacture" of new articles falling under Item No. 68, CET as it stood then.
20. In the Indian Hume Pipe Co. case (supra), the Tribunal held that the process of lining and coating with cement mortar of steel pipes did not change the basic character of the goods as steel pipes and no new excisable product emerged.
21. In the face of the authorities discussed above, the submission of the learned DR that because metallising had imparted a decorative shining effect to the printed film, new excisable goods had emerged is not acceptable. He submitted that metallising is a process incidental or ancillary to the completion of the manufacture of the product: metallised printed film, Yes, it is so. In fact, this argument is not even needed to levy duty on metallised printed film cleared, as we said earlier, from an integrated factory manufacturing polyester film and printing and metallising it. But, it is not so in the case of the bare film which has already suffered duty under the same description.
22. Shri Murthy also sought to distinguish the present case from the other authorities cited. In the Swastik Packaging case (supra), he said, there was only printing, no metallising. This difference, such as it is, does not detract from the analogy of that case with the present case. Suffice it to say that the crucial words there were "whether or not printed". And, in the present case: "whether or not metallised". Similarly, he said, by way of distinguishing the present case, in the Swastik Packaging case and Basheer Ahammed case, there was no addition of material. Here, there was addition of material: metallising. Whether there is addition of material or not, the material point is the effect and result of the process or processes adopted by the assessee and the status of the resultant product vis-a-vis the Tariff Schedule. In the Indian Hume Pipe Co. case, there was addition of material and we have already discussed that case.
23. The learned DR has cited the Supreme Court judgment in the Ramlal Mansukhrai case (supra), wherein the Court was interpreting the words "circles in any form or size" appearing in Item 26A(2) of the CET as it stood then. It was held that since excise duty was leviable on "circles in any form or size", untrimmed circles attract the levy and the contention that only trimmed circles could be treated as circles was negatived. We have carefully read the judgment but do not see in what manner it is relevant to the resolution of the dispute before us. Same is the case with the other decision relied on by the DR, viz, the Supreme Court judgment in the Oriental Timber Industries case (supra): it is not clear how it helps the Revenue's case.
24. In the light of the preceding discussion, we are of the view that the appellants' activity of metallising of the printed polyester film brought from outside did not amount to an activity of "manufacture" for the purpose of levy of excise duty under Heading No. 39.20, sub-heading 3920.31. However, we would like to make it clear that this view should not be taken to cover metallising of bare (unprinted) polyester film. That issue was not before us and there has been no occasion to go into it.
25. In the above view of the matter, it is not necessary for us to discuss the submissions before us on the other aspects of the case such as classification, limitation etc.
26. In the result, the impugned order is set aside and the appeal is allowed.