By TIOL News Service

NEW DELHI, OCT 17, 2015: THE appellants herein are printing 'biri wrappers cut to size' and they have been clearing these goods CSH 4821.00 (Nil rate).

The Department took the view that the goods are classifiable under CSH 4823.19 and excise duty at the rate of 20% was payable.

SCDN was issued seeking recovery of excise duty of Rs.27 lakhs [period August 1994 to March 1999].

The appellant, in their reply, had taken the defence that the printing of the biri wrappers and thereafter cutting them to size does not amount to 'manufacture' and, therefore, no duty was payable. And even if it amounts to manufacture the goods are chargeable to Nil rate of duty under CSH 4821.00, the assessee added.

The adjudicating authority looked the other way.

When the matter reached the Tribunal, the two Members differed on the issue as to whether the 'activity' amounted to 'manufacture' or not and so the matter was referred to the third Member.

The third Member took the view that the process undertaken by the appellant amounted to 'manufacture'. Obviously, the issue of classification was left to be addressed by the referring Bench.

Against this judgment on "manufacture" of the Tribunal, the appellant is before the Supreme Court.

When the matter came up for final hearing before the apex Court, after hearing the counsel for the parties at length on the issue as to whether the process would amount to 'manufacture' or not, it was felt by the Bench that the issue of classification was inextricably linked with the issue of manufacture and, therefore, that aspect should also be decided by the Court. This course of action was agreed upon by both the parties.

The Counsel for the Revenue referred to Note 11 appearing in Chapter 48 which reads -

11. Except for the goods of heading No.48.14 or 48.21, paper, paperboard, cellulose wadding and articles thereof, printed with motifs, characters or pictorial representations, which are not merely incidental to the primary use of the goods, fall in Chapter 49.

In the words of the apex Court, the counsel for the Revenue was candid in accepting that in view of Note 11, as far as printing of the biri wrappers is concerned, it would not fall under Chapter Heading 48.23, which was the case set up by the Revenue, but would fall under Chapter 49.

This position was accepted by the appellant.

The only dispute that remained was as to whether the goods in question will fall within the entry 4901.10 [ Transfers (decalcomanias)] [Tariff Rate 20%] or 4901.90 [Tariff Rate Nil].

Whereas the counsel for the Revenue maintained that the goods would fall under CH 4901.10, the appellant argued otherwise.

The Supreme Court observed that Entry 4901.10 deals with 'transfers (decalomanias)' and the description of this entry is contained in HSN explanatory note which reads:

"Transfer (decalcomanias) consist of pictures, designs or lettering in single or multiple colours, lithographed or otherwise printed on absorbent, lightweight paper (or sometimes thin transparent sheeting of plastics), coated with a preparation, such as of starch and gum, to receive the imprint which is itself coated with an adhesive. This paper is often backed with a supporting paper of heavier quality. The designs are sometimes printed against a background of metal leaf.

When the printed paper is moistened and applied with slight pressure to a permanent surface (e.g. glass, pottery, wood, metal, stone or paper), the coating printed with the picture, etc. is transferred to the permanent surface.

This heading also covers vitrifiable transfers, i.e. transfers printed with vitrifiable preparations of heading 32.07.

Transfers may be used for decoration or utility purposes, e.g. for decorating pottery or glass, or for marking various articles such as vehicles, machines, and instruments.

Transfers produced and supplied mainly for the amusement of children are also covered by this heading, as are also articles such as embroidery or hosier transfers which consist of papers on which designs are outlined in pigment which is transferred, usually to a textile surface, by pressure with a heated smoothing iron."

Thereafter the Supreme Court observed -

"10. On the face of it, it is apparent that the printing of biri wrappers would not and can never fit under the description 'transfer decalcomanias' inasmuch as in the present case on plain paper simple printing is done on the wrappers which are cut to size for the purpose of wrapping the biris and there is no use of sheet of plastics. In fact it is not printed on any absorbent, lightweight papers and there is no coating of starch and gum. The conclusion would be that the goods in question would fall under Item no. 4901.90.which attracts nil duty."

Noting that in view of the aforesaid classification, it is not even necessary to go into the question whether the process amounts to manufacture or not, the appeal was allowed to succeed on this ground itself as no duty was payable.

The apex Court also added - Since the appeal is still pending before the Tribunal where the issue of classification is pending, and as that issue has been decided by us in the present order, the Tribunal will dispose of the appeal in terms of the judgment rendered by us, giving consequential benefits of refund of duty/deposits, if any.

In passing: This judgment is dated 7th April 2015 and the judgment delivered in the case of Fitrite Packers - 2015-TIOL-235-SC-CX is dated 7th October 2015. Also see Paper Products Ltd. - 2015-TIOL-230-SC-CX.

(See 2015-TIOL-242-SC-CX)