Customs, Excise and Gold Tribunal - Delhi
S.R. Tissues Pvt. Ltd. vs Cce on 28 September, 2000
Equivalent citations: 2001(74)ECC357
ORDER P.G. Chacko, Member (J)
1. The departmental proceedings which led to these appeals can be outlined thus: Central Excise (Preventive) Officers, on 14.10.1998, intercepted one 'tempo' (goods vehicle) loaded with a consignment of 65 cartons of tissue paper rolls, napkins and facial tissue consigned by M/s S.R. Tissues Pvt. Ltd., Hari Nager, New Delhi (hereinafter referred to as 'S.R. Tissues') to M/s Sugandh Agencies, Chandigarh, along with a consignment of 74 cartons of Aluminium Home Foils from M/s S.R. Foils Ltd., Hari Nager, New Delhi (hereinafter referred to as 'S. R. Foils') to the same consignee. The officers, after recording the statement of the driver of the vehicle and examining the documents produced by him, seized the consignment of 65 cartons of tissue paper rolls etc. which were believed to be liable to confiscation. On 15.10.1998, they visited the factory premises of S.R. Tissues and found therein machinery for converting jumbo rolls of tissue paper to various sizes of napkin, rolls and facial tissue paper. They also verified the stock of finished goods and found that the goods were bearing 'S.R.' brand name with the logo of a bird-in-club, besides the product name. The goods were believed to be liable to confiscation and hence seized. In a simultaneous search in the office premises of the party also, a stock of similar finished goods bearing the same brand name/logo was found and the same was also seized on similar grounds. Statements of Shri Rishi Gupta (Director of S.R. Tissues.) and Shri Rakesh Gupta (authorised signatory of the company) were also recorded under Section 14 of the Central Excise Act. On the basis of all the evidence gathered as above by the officers, the Department issued show-cause notice (SCN) dated 12.4.1999 to S.R. Tissues proposing, inter alia, to confiscate the goods seized from the vehicle, factory premises and office premises and to impose penalty on them. Later on, another SCN was issued to them on 12.7.1999 proposing to recover Central Excise duty of Rs. 21,45,890 on the branded goods (tissue paper rolls, napkins and facial tissue papers) cleared by them during the period 1.8.1997 to 14.10.1998, to levy interest on the amount of duty under Section 11AB of the Central Excise Act and to impose penalty on them under Section 11AC of the Act and Rules 173Q etc. of the Central Excise Rules. This SCN also proposed to impose penalty on Shri Rakesh Gupta under Rule 209-A of the Central Excise Rules.
2. The main allegations of the Department were (a) that M/s S.R. Tissues were engaged in the manufacture of excisable goods viz. toilet rolls (of width not exceeding 36 cm.) napkins and facial tissue papers falling under Tariff Sub-Heading 4818.90, from jumbo rolls of the respective materials (exceeding 36 cm. in width) falling under TSH 4803.00, by the process of cutting, slitting etc. amounting to 'manufacture' under Section 2(f) of the Central Excise Act; (b) that the brand name/logo was owned by M/s S.R. Foils and did not belong to S.R. Tissues, and therefore the latter was not eligible for SSI exemption from payment of duty in respect of the goods affixed with such brand name/logo which belonged to "another person" within the meaning of this expression under the Exemption Notification No. 175/85-CE and the successor-Notifications (including Notification Nos. 16/97-CE dated 1.4.1997 and 8/98-CE dated 2.6.1998); (c) that M/s S.R. Tissues were engaged in clandestinely manufacturing and removing such branded goods without payment of duty during the period 1.8.1997 to 14.10.1998; (d) that they contravened the provisions of Rules 9(1), 52-A, 53, 173-B, 173-E 173-G, 174 and 226 of the Central Excise Rules; and (e) that, for the aforesaid reasons, the sezied goods were liable to be confiscated and M/s S.R. Tissues were liable for penal action. The SCN dated 12.7.1999, which invoked the extended period of limitation under Section 11-A of the Act, further alleged that the Company had contravened the aforesaid provisions of law with intent to evade payment of duty and that Shri Rakesh Gupta, being the authorised signatory of the company, was responsible for manufacturing , storing and removing the goods without payment of duty in the course of day-to-day business and had reason to believe that the goods were liable to confiscation and he was liable to penal action under Rule 209-A for his acts of omission and commission.
3. The SCNs were contested by the noticees. The jurisdictional Commissioner of Central Excise passed a common order in adjudication of both the SCNs. It is this order which has been challenged before the Tribunal by M/s S.R. Tissues and Shri Rakesh Gupta in appeal Nos. E/839/2000-C and E/840/2000-C respectively. The appellant company is aggrieved by (i) confiscation of the seized goods with option for redemption on payment of fine of Rs. 15,000 (in respect of the 65 carton of goods seized from the vehicle), Rs. 1,15,000 (in respect of the stock of goods seized from the factory premises) and Rs. 7,000 (in respect of the goods seized from the office premises); (ii) confirmation of the demand of duty to the tune of Rs. 18,18,551 on the goods cleared during the period 1.8.1997 to 14.10.1998, under Rule 9(2) of the Central Excise Rules read with the proviso to Section 11-A(1) of the Act; (iii) order for levy of interest on the duty amount under Section 11-AB of the Act; and (iv) imposition of penalty of Rs. 18,18,551 under Rule 173Q of the Rules read with Section 11 -AC of the Act. Shri Rakesh Gupta's challenge is against the imposition of penalty of Rs. 1,00,000 on him by the adjudicating authority under Rule 209-A of the Rules.
4. We have carefully examined the impugned order. Ld. Commissioner mainly considered three issues namely: (i) Whether the process carried out by the appellants amounted to 'manufacture' under Section 2(f) of the Act so as to render their products eligible to Central Excise duty: (ii) whether M/s S.R. Tissues were eligible for SSI exemption in respect of the products affixed with the brand name 'S.R.' with the logo of the bird-in-club and cleared during the period of dispute; and (iii) whether the extended period of limitation was invocable to demand duty on the clearances of the said period. He decided the issue of 'manufacture' against the assessees after recording findings to the effect that (a) the "tissue papers of different variety for specific purposes" which resulted from the processes viz. unwinding of jumbo rolls of tissue paper, cutting/slitting to sizes, rewinding and packing had "distinct and commercially new identity as known to the market and the buyers" (b) the two-fold test laid down by the Supreme Court in the case of J.G. Glass Industries, 1998 (97) E.L.T. 58(S.C) for determining whether a given process amounted to 'manufacture' or not and also the tests of 'value addition' and 'separate use' laid down by the court in the case of Decorative Laminates, 1996 (86) E.L.T. 186 (S.C) stood satisfied in the instant case and (c) the products fell under a Tariff Sub-Heading different from the one under which the inputs (jumbo rolls of tissue paper) fell. On the question of eligibility for exemption, Ld. Commissioner applied the ratio of the Tribunal's decision rendered in the case of Bharat Solar Industries, Final Order No. E/53-54/99-B1 dated 14.10.1999 to the facts of the instant case and held that M/s S.R. Tissues were not eligible for SSI exemption in respect of the tissue paper products. It was so held on the basis of the finding that the said products 'manufactured' and cleared by M/s S.R. Tissues during the period in question were affixed with the brand name/logo which, according to the Commissioner's finding, belonged to "another person" viz. S.R. Foils. The latter finding regarding ownership of the trade mark was, in turn, based on the fact as found by Ld. Commissioner that the trade mark had been used by M/s S.R. Foils on tissue paper products as well as aluminium foil manufactured/traded by them since 1993 and ownership over the same came to be claimed by M/s S.R. Tissues since August 1997 only and, that too, on the strength of a mere application for registration under the Trade and Merchandise Marks Act. The adjudicating authority found no sufficient evidence in support of the claim of M/s S.R. Tissues and, further, took the view that, in such circumstances, the issue of ownership of trade mark should be decided on the ground of prior use. Support to this view was drawn from Bharat Solar Industries (Supra). Dealing with the applicability of the proviso to Section 11-A(1) of the Act to the case on hand, Ld. Commissioner recorded a finding that M/s S.R. Tissues, by not filing any declaration under Rule 174, suppressed 'the fact of their manufacturing activity' with intent to evade Central Excise duty. He found that the party was engaged in the clandestine manufacture and clearance of excisable goods bearing the brand name of another person.
5. Carefully examined the grounds of the appeals and heard both sides.
6. Shri Lakshmikumaran, Ld. Advocate for the appellants spelt out the activity engaged in by M/s S.R. Tissues, and argued that it did not amount to 'manufacture' within the meaning of this term as defined under Section 2(f) of the Central Excise Act. The appellants were purchasing duty-paid jumbo rolls of tissue paper and cutting/slitting the same to various sizes suitable for use as toilet paper, table napkin or facial tissue, and repacking them. This activity did not alter the name, character or end-use of the material. Ld. Counsel sought to substantiate this contention by referring to the meanings of "facial tissue", "tissue paper" and "toilet paper" as given in the American Paper and Pulp Association's "THE DICTIONARY OF PAPER" (Third Edition -1965). He argued that, as the very manufacture of tissue paper in jumbo rolls had been made by keeping in mind the end-use of the material, there was no scope for any finding of change of end-use in the above activity of the appellants. Since no change of name, character or end-use was involved in the activity, a commercially new product with an identity distinct from that of the tissue paper in jumbo rolls could not be said to have emerged from such activity. The tissue paper remained as such even after the process. Therefore, the process did not amount to manufacture. Ld. Advocate, in this connection, relied on the Tribunal's decisions in the cases of C.C.E v. Reelco Paper Products Pvt. Ltd. , Purolator India Ltd v. C.C.E and Collector of Customs v. Hindustan Photo Films, . He also relied on the Madras High Court's decision in Computer Graphics Put. Ltd. v. Union of India 1991 (53) E.L.T. 491 (Mad) Referring to the Tariff entries mentioned by the adjudicating authority in the impugned order, Ld. Advocate submitted that the existence of separate Tariff entries TSH 4803.00 for toilet or facial tissue stock, towel or napkin stock and similar paper of a kind used for household or sanitary purposes in rolls of a width exceeding 36 cm and a separate TSH 4818.90 for the same material in rolls of a width not exceeding 36 cm. or cut to seize or shape would not necessarily lead to the conclusion that the activity of converting tissue paper falling under the former tariff entry into that falling under the latter entry amounted to manufacture. Inviting our attention to the two Tariff entries, he argued that the end-use of the goods falling under the two entries was 'statutorily fixed' as no change of normal use was discernible on a textual comparison of TH 48.18 with TH 48.03. According to the Counsel, the expression," of a kind used", occurring in the text of each of the two Tariff Headings meant "normally used". Ld. Counsel also urged us to note that no change of name was brought out by such comparison and that no change of characteristics of material was also revealed by examination of the meanings of the terms (such as 'toilet tissue', 'facial tissue' etc.) used under the two Tariff Headings, with reference to THE DICTIONARY OF PAPER ibid. He relied on the Supreme Court's decision in Prabhat Sound Studios v. A.C.C.E in support of his contention that the mere existence of a separate Tariff entry (TH 48.18) for the tissue paper products of smaller size obtained by the activity of slitting/cutting of jumbo rolls of such paper (TH 48.03) would not necessarily lead to the inference that such activity on the duty paid jumbo rolls of tissue paper amounted to manufacture. Yet another submission of Counsel was that there was no section note or Chapter Note in the Tariff defining the activity of cutting, slitting and/or repacking tissue papers as a process amounting to manufacture. He claimed support to the appellants' case on the question of manufacture, from Bombay-I Collectorate Trade Notice No. 56/89 dated 9.6.1989 as well. Ld. Counsel concluded his arguments on the said question, with a prayer for setting aside the Commissioner's order of confirmation of demand of duty, confiscation of the goods and imposition of penalties, on the sole ground that the activity in question was not 'manufacture' and therefore the products which resulted from such activity were not excisable.
6.2 Without prejucice to the above arguments, Ld. Advocate addressed the issue whether the benefit of exemption was available or not to the SSI unit of M/s S.R. Tissues in respect of the branded products in question. He submitted that M/s S.R. Tissues were selling their products under different brand names viz. Mistique, Frangrance and Table Grace which were not even alleged (by department) to belong to, or to have been used by, M/s S.R. Foils. M/s S.R. Tissues also affixed the logo of a bird-in-club with 'S.R.' underneath, only as a house mark, on the packings of the tissues obtained by the cutting/slitting of the jumbo rolls. They had applied for registration of the 'Mistique' brand name as well as the above house mark with the Trade Marks authorities, for the tissue paper products. Quoting from the affidavit of Shri Rakesh Gupta [Director of S.R. Foils] available on record, Ld. Advocate further submitted that M/s S.R. Foils never owned the logo of bird-in-club with "S.R." underneath for use on tissue paper products and that it was only for use on aluminium foils that they obtained registration of such logo with "S.R." underneath. Since, in relation to tissue paper products, M/s. S.R. Foils did not claim ownership of the said logo with "S.R." beneath and also did not oppose the application of M/s S.R. Tissues for registration of the same for use on tissue paper products the latter should be held to be entitled to the benefit of SSI exemption in respect of such products affixed with the said logo with "S.R" underneath. Ld. Counsel, in this connection, relied on CBEC Circular No. 52/52/94-CX dated 1.9.1994. He also claimed support to the aforesaid plea of house mark from the Tribunal's decision in Chemguard Coatings Put. Ltd. v. C.C.E. .
6.3 Adverting to the limitation issue, Ld. Counsel contended that the appellants' case did not attract the proviso to Section 11-A(1) of the Act as they were under a bonafide belief that their activity in question did not amount to manufacture. It was the departmental authorities themselves who occasioned such belief. In this connection, counsel referred to Board's Circular and Bombay Collectorate Trade Notice which clarified that the activity of cutting and slitting of X-ray films, sensitized paper etc. did not amount to manufacture. Ld. Counsel also pointed out that, if duty were to be paid on the products in question, it would only lead to a revenue-neutral situation on account on Modvat credit being admissible on the duty-paid inputs (jumbo rolls of tissue paper). On these grounds, Counsel ruled out any intent to evade excise duty on the part of M/s S.R. Tissues. He therefore contended that the extended period of limitation was not invocable in the appellants' case. The demand of duty was entirely time-barred, he added. Ld. Advocate also invoked the aforesaid grounds for challenging confiscation and penalty as well. He prayed for allowing the appeals.
7. Ld. DR, Shri S.R Rao opposed the Counsel's arguments and relied on the Tribunal's decisions in Electronics Mechanicals lndustires v. C.C.E. and Foils India Laminates P. Ltd. v. CCE 1999 (33) R.L.T 474 in support of his contention that the activity of cutting/slitting jumbo rolls of tissue paper into smaller sizes amounted to 'manufacture' under Section 2(f) of the Act. He sought to counter the Counsel's plea of house mark by submitting that, had the logo of bird-in-club with "S.R" underneath been only a house mark as claimed by the appellants, they would have used the same on all their products cleared to all buyers, which they admittedly did not do. It was, in fact the trade mark of M/s S.R. Foils as rightly found by the adjudicating authority on the basis of prior use following the Tribunal's decision in the case of Bharat Solar Industries. The tissue paper products cleared during the relevant period were admittedly affixed with the said trade mark. Since the trade mark belonged to "another person" in terms of the relevant Exemption Notifications, the benefit of exemption was not available to the said products. On other issues too, Ld. DR reiterated the findings of the adjudicating authority. He prayed for upholding the impugned order and rejecting the appeals.
8.1 We have carefully considered the rival submissions. The fundamental question to be settled is whether M/s S.R.Tissues' activity of converting jumbo rolls of tissue paper to facial tissues, napkins and tissues in roll form by cutting and slitting amounted to 'manufacture' as defined under Section 2(f) of the Central Excise Act. They purchased the jumbo rolls from the market and mechanically cut and slit the same to smaller sizes of required dimensions (suitable for use as facial tissues, napkins etc.) and packed the products separately and sold such packs under certain brand names in the market. It is not in dispute that the jumbo rolls of tissues used for the purpose were classifiable under Tariff Heading 48.03 and were already duty-paid. It is again, not disputed that the facial tissues, napkins etc. obtained by the cutting and slitting of the jumbo rolls fell under TH 48.18. The dispute is whether the conversion of the former to the latter involved 'manufacture' as defined under Section 2(f) of the Act. A similar dispute had arisen in the case of Computer Graphics (supra) before the Madras High Court. The petitioners in that case had imported jumbo rolls of graphic art film on payment of customs duties, slit the same into various widths (20", 30" etc.), cut them into various lengths (10', 200' etc.), packed the products (called flats) in separate cartons and marketed the packs in India. The imported jumbo rolls were covered by the erstwhile Central Excise Tariff Item 37.02 and the flats fell under Tariff Item 37.01. The High Court negatived the Revenue's contention that, there being a separate Tariff entry for the flats as distinct from the jumbo rolls, the flats could be classified as a manufactured product. The court's reasoned observation on the point runs thus:
Tariff Entry 37.01 and Tariff Entry 37.02 deal with two different resultant products of manufacture. If a person manufactures photographic film rolls, such manufacturing process would attract the levy of duty under Entry 37.02. If another person manufactures photographic flats and films, then that manufacturing process would attract Tariff Entry 37.01. But, if photographic flats or films are not manufactured at all, but only made out of jumbo rolls by cutting into smaller pieces, then there being no manufacturing process involved. Tariff Entry 37.01 cannot be made use of to hold that the petitioner should take out a licence.
The Ld. Single Judge, relying on the interpretation of 'manufacture' given by the Supreme Court in Union of India v. Delhi Cloth and General Mills AIR 1963 SC 791 and by the Madras High Court (Division Bench) in the case of Brakes India Ltd. , held that the process of slitting/cutting jumbo film rolls into smaller seizes called 'flats' did not result in a distinct and different commodity and therefore the process did not amount to 'manufacture'.
8.2 The ratio of the High Court's decision in Computer Graphics (supra) is quite apposite to the case on hand. Had M/s S.R. Tissues manufactured tissue paper out of the necessary raw materials by using the required technology and cleared the paper in jumbo rolls of width exceeding 36 cm., for home consumption, the product would have been chargeable to duty under T.H. 48.03, subject to applicable Exemption Notification, if any. Similarly, if they had carried out the same process and cleared the resultant tissue paper in rolls not exceeding 36 cm. in width, duty would have been leviable on the product in terms of TH 48.18, subject to applicable Exemption Notification, if any. This is all what was meant by the Legislature when it classified the jumbo rolls under TH 48.03 and the rolls of width not exceeding 36 cm. under TH 48.18. Had the Legislature intended that the mere activity of slitting and cutting jumbo rolls of duty-paid tissue paper into smaller sizes and packing the products for sale in the market should also be excisable, it would have enacted such intent into law through appropriate section Note or chapter Note in the Central Excise Tariff. Such Section/Chapter Note is conspicuously absent in the Tariff. Therefore, it has to be held that the existence of a separate Tariff Entry [TH 48.18] for the facial tissues, napkins etc. would not, by itself, make these products excisable. The Apex Court's decision in Prabhat Sound Studios (supra) is supportive of this view.
8.3 Their Lordships of the Apex Court, in the above case, were considering the question whether the activity of recording of sound on blank cassette tapes could be called 'manufacture' for the purpose of levy of Central Excise duty. The blank tapes were covered by entry (3) under Tariff Item 59 of the erstwhile Central Excised Tariff, while the sound-recorded tapes stood classified under entry (4) of the said T.I. 59. Their Lordships observed that a manufacturer of cassette tapes might manufacture the tapes and, at his option, sell the blank tapes or record sound on them and thereafter sell the sound-recorded tapes. It was to cover both these eventualities that the above two entries were provided under T.I. 59. A separate entry for recorded tapes did not suggest that the process of recording sound on blank tapes amounted to manufacture. Shri Lakshmi Kumaran has heavily relied on this view of the Apex Court after drawing an analogy between the recording of sound on blank cassette tapes [in which process the cassette tapes falling under entry (3) get converted to sound recorded cassette tapes falling under entry (4) under T.I. 59. ibid] and the activity of slitting and cutting of jumbo rolls of tissue paper [in which the jumbo rolls falling under Chapter Heading 48.03 get converted to smaller sizes falling under Chapter Heading 48.18 of the new Central Excise Tariff]. We note that the analogy is befitting the context and it could very well be held that the provision of a separate Chapter Heading (48.18) for tissue papers of smaller sizes than those in jumbo rolls (48.03) did not, by itself, purport to enact that the process of the jumbo rolls being slit and/or cut to the smaller sizes amounted to 'manufacture'.
8.4 Going by the relevant extracts from the Dictionary of Paper available on record, we note that "Tissue Paper" is a general term indicating a class of papers of characteristic gauzy texture and that such class includes sanitary tissues. We further note that tissue papers are used for a wide variety of purposes. Sanitary tissues include toilet tissue and facial tissue and their principal characteristics are softness, absorbency, cleanliness and adequate strength. The above literature does not contain any reference to napkins. We have therefore consulted Collins Dictionary of the English Language. It says, 'napkin' is also called 'table napkin' and the same means a serviette, which, in turn, means a small square of cloth or paper used while eating to protect the clothes, wipe the mouth and hands etc. Reverting to the appellants' activity of slitting/cutting tissue paper (in jumbo rolls) into smaller sizes suitable for use as facial tissue, toilet tissue and napkins, we observe that, by mere slitting and cutting, the tissue paper does not undergo any change of nomenclature or characteristics. The tissue paper continues to be called tissue paper. Its characteristics viz. gauzy texture, softness, absorbency etc., remain as such. It appears to be inconceivable for us that tissue paper in roll of width of 37 cm will be anything different from tissue paper in roll of width of 35 cm, to the ultimate consumer. In our view, therefore, it is fallacious to hold that the tissue paper in jumbo rolls used by M/s S.R. Tissues and the smaller sizes obtained by slitting/cutting such paper were different in commercial indentity. We find that, by the said activity of slitting and cutting, no new commodity with different name, character, end-use or commercial identity emerged. Therefore, following the decision of the High Court in Computer Graphics (supra), we hold that the said activity of the assessees did not amount to 'manufacture'. Further, the said activity also did not pass the two-fold test laid down by the Hon'ble Supreme Court in J.G. Glass Industries (supra), so as to be held to be 'manufacture'. Ld. Commissioner's decision on the point is patently erroneous. The Tribunal's decisions in the cases of Reelco Paper Products, Purolator India and Hindustan Photo Films, (supra) also support the appellants' case. In Reelco Paper Products, the activity in question was slitting of jumbo reels of duty-paid paper into small sizes followed by perforation. Similiar activity was carried out on jumbo rolls of cinematographic film (unexposed) in the case of Hindustan Photo Films. In Purolator India, the process considered was slitting, pleating and cutting of impregnated filter paper (in reels) to requisite small sizes. In all the cases, the respective processes were held to be not amounting to manufacture.
8.5 In Foils India Laminates (supra) cited by Ld. DR, a co-ordinate Bench of the Tribunal held that the process of slitting/cutting of jumbo rolls of aluminium foils [Tariff Sub-Heading 7607.10] into smaller sizes [TSH 7607.10] called "house foils" amounted to manufacture. We note that the Bench took such a view without considering the Madras High Court's decision in Computer Graphics (supra) which had been cited before it. The Tribunal's decisions in Hindustan Photo Films (supra) and Reelco Paper Products (supra) cited before it and the arguments advanced on the basis of such decisions were also not considered by the Bench. Further, it appears, the Apex Court's decision in Prabhat Sound Studios (supra) was not cited before the Bench in Foil India Laminates. In the circumstances, we are not able to follow the view taken by the Bench in Foils India Laminates (supra). In Electronics Mechanicals Industries (supra) relied on by Ld. DR, the Tribunal held that the slitting of jumbo rolls of audio tapes into tapes of narrower width called 'pancakes' amounted to manufacture. We note that this decision was rendered on the touchstone of marketability alone. By applying the yardstick of the High Court's decision in Computer Graphics (supra) and the Supreme Court's decision in Prabhat Sound Studios (supra), we find that the reliance placed by Id. DR on the Tribunal's decision in Electronics Mechanicals Industries (supra) is not acceptable.
8.6 We have already found that the assessee's activity of slitting/cutting tissue paper (in jumbo rolls) to smaller sizes did not amount to 'manufacture' as defined under Section 2(f) of the Central Excise Act. The tissue paper products cleared by M/s S.R. Tissues during the period of dispute and those seized from their premises by the Department were not excisable goods. The adjudicating authority's order confirming demand of duty, confiscating the seized goods and imposing penalty on M/s S.R. Tissues and their Authorised Signatory, Shri Rakesh Gupta cannot be sustained. We need not go into issues touching SSI exemption, limitation etc. 8.7 In view of our decision already recorded, the impugned order is set aside and the appeals are allowed.