CX - Shrink sleeves are classifiable under Ch. 39 & not Ch. 49 - printing is only incidental and main purpose is to provide tamper protection to product to make shatter resistance, enhance puncture resistance and tamper proof packing: SC
By TIOL News Service
NEW DELHI, OCT 02, 2015: IT all started with the CAG report viz. no. 11 of 2003 (Indirect Taxes) which carried the caption - "Incorrect availing of credit on exempted goods".
Paragraph 8.7(a) of this report read -
"(a) M/s Paper Products Limited, in Surat II Commissionerate of Central Excise, manufactured Shrink Sleeves of plastic and cleared them on payment of duty. The assessee also availed modvat/cenvat credit of duty paid on inputs/capital goods which was utilized for payment of duty on shrink sleeves. As shrink sleeves attracted nil rate of duty under sub-heading 4901.90, the duty paid thereon was to be treated as deposits. Therefore, the assessee was not entitled to utilize the credit for payment of duty on shrink sleeves. Further test check of the records of one of the purchasers of shrink sleeves revealed that the recipient unit (M/s Hindustan Lever Limited, Silvassa) had also availed modvat credit of duty paid on shrink sleeves. The utilization of modvat credit of Rs.2.36 crore for the period from April 1998 to July 2001 by the assessee and availing of credit subsequently by the recipient units was incorrect. On being pointed out (December 2001), the Ministry of Finance accepted the objection (October 2002)."
The duty bound Commissioner issued a demand notice for the extended period alleging that "Shrink sleeves" are correctly classifiable under Chapter 4901.90, and not under Chapter heading 3920.19 as claimed, and since they attract nil rate of duty under Tariff, the duty paid by them by utilizing common inputs/capital goods is to be treated as deposit and the assessee should have, in fact, paid an amount of 8% under rule 57CC/57AD of CER'44 /rule 6 of CCR 2002.
Ignoring the Board Circular no. 6/89-CX, dated 16.01.1989 clarifying that printed plastic films are to be classified under chapter 39 and not under chapter 49, the adjudicating authority confirmed the demand.
When the matter reached the Tribunal, the same Circular was referred and it was held that considering the process of manufacture and the fact that the trade perceived these products as packing industry goods and not products of printing industry, the "Shrink sleeves" are correctly classifiable under chapter 39 of the CETA'85.
Consequently, the order confirming the demands and imposing penalty were set aside.
We reported this CESTAT order as 2005-TIOL-890-CESTAT-MUM.
The unhappy Revenue took the classification matter to the next level.
Before the Supreme Court, the counsel for the Revenue referred to the decision in Metagraphs Pvt. Ltd. Vs. Collector of Central Excise, Bombay - 2002-TIOL-457-SC-CX, to justify the stand of the department. In that case the apex court had come to the conclusion that the Tribunal was not right in concluding that the printed aluminium labels in question are not 'products of printing industry'.
The Supreme Court inter alia observed thus -
We are clear in our mind that the printing was only incidental and the main purpose of the product is to provide tamper protection to the product to make shatter resistance, enhance puncture resistance and tamper proof packing.
The apex court also mentioned that the judgment in Holostick India Ltd. Vs. Commissioner of Central Excise, NOIDA - 2015-TIOL-60-SC-CX relied by the Revenue actually helps the assessee and not the Revenue in view of the contents of paragraph 17 of the same.
The Revenue appeals were dismissed.
(See 2015-TIOL-230-SC-CX)
