Customs, Excise and Gold Tribunal - Bangalore
Itc Bhadrachalam Paper Boards Ltd. vs Commr. Of C. Ex. on 28 February, 2003
Equivalent citations: 2003(88)ECC37, 2002ECR209(TRI.-BANGALORE), 2003(154)ELT162(TRI-BANG)
ORDER S.S. Sekhon, Member (T)
1. Out of these are three appeals, Appeals No. E/248/98 & E/72/02 are filed by M/s ITC Bhadrachalam Paperboards Ltd. against Order-in-Original No. C. Ex. 69/97, dated 28-10-1997 and Order-in-Appeal No. 135/2001 (H-III)-CE, dated 1-8-2001 whereas the appeal No. E/206/99 is filed by Revenue against the Order-in-original No. 69/97, dated 28-10-97.
2. These appeals involve classification of fluorescent paper and pa-perboard under sub-heading No. 4810.10 of the Central Excise Tariff Act, 1985 as contended by the appellant or under sub-heading No. 4811.90 as held by the Commissioner (Appeals) and the Commissioner. Revenue has appealed against the Order-in-original of the Commissioner concluding that the demands were barred by limitation.
3. The jurisdictional Assistant Commissioner of Central Excise approved the classification of Fluorescent Paper and Paperboard under subheading No. 4810.10 (with effect from 20-3-90). Subsequently a show cause notice dated 4-5-92 seeking to classify the fluorescent paper and paperboard under sub-heading No 4811.90 and demand of differential duty of Rs. 22,93,820/- for the period from October, 1991 to March, 1992 was made. The Assistant Commissioner confirmed the demand vide order dated 17-1-94. Against the said reclassification and the consequent demand, the Commissioner (Appeals), Hyderabad, by his order dated 18-10-1994 upheld the Assistant Commissioner's order in the matter of classification under 4811.90 but set aside the demand for differential duty by holding that demand for the period prior to reclassification could not survive as the clearances were effected on the basis of approved classification list. Thus, the entire demand of differential duty for the period from October, 1991 to March, 1992 was set aside. Against the above order of the Commissioner (Appeals) the department had not filed any appeal.
4. The appellant filed an appeal before the Tribunal. The Tribunal vide Final Order 121/95-C, dated 25-4-1995 [1995 (78) E.L.T. 166 (Tri.)] remanded the matter to the Asstt. Commissioner of Central Excise, Warangal for determining the classification afresh between the two competing entries in the Tariff after furnishing the full text of the Chemical Examiner's report on the product and after complying with the principles of natural justice.
5. Based on the de novo direction, the appellant was issued with a fresh show cause notice C. No. V/30/48/13/94-VC, dated 4-11-95 asking them to show cause as to why the fluorescent paper and paperboard should not be reclassified under Heading 4811.90 in view of the fact that the said goods are being coated with the mixed paste of clay and fluorescent pigments (an organic substance) and where the organic chemical predominates. The show cause notice had also alleged that the classification of fluorescent paper/board is mainly dependant on the fluorescent pigments; that fluorescent pigments are synthetic organic substances classified under Chapter subheading No. 3204.30 and that therefore, fluorescent paper and paperboard cannot be classified under sub-heading No 4810.10. Further, the show cause notice had proposed to finalise the provisional assessment ordered for the period from 1-3-92 to 28-2-94 under 4811.90. Thus, the show cause notice also sought to overcome the Order-in-Appeal No. 241/94 (H) (CE), dated 18-10-94 with regard to demand of differential duty from 1-3-92 to 4-5-92.
6. The Assistant Commissioner passed Order No. 4/98, dated 10-2-98 confirming the classification under sub-heading No. 4811.90 of the Central Excise Tariff Act, 1985 and demanding a differential duty of Rs. 45,08,684/-for the period from 1-3-92 to 28-2-94.
7. Against the above said order the appellant filed an appeal. The Commissioner (Appeals) vide Order-in-Appeal No. 172/98 (H-III)-CE, dated 1-8-2001 has upheld the order of the Assistant Commissioner. Hence appeal No. E/248/98 & Cross Objection, filed by Revenue, E/6/207/2002.
8. The Commissioner vide Order-in-Original No. 69/97 in the proceedings pursuant to show cause notice O.R. No. 161/92, dated 22-11-1994 issued to M/s. ITC Bhadrachalam paper Boards Ltd. After careful study of the Chemical Examiner Test Reports and the Chapter Headings and considering the role of the Fluorescent material concluded as follows -
'13. ITC Bhadrachalam stressed the role of Fluorescent material by saying that it is only a colouring agent. The purpose of using colouring agent (organic) is immaterial for the purpose of classification. The heading clearly uses the words "with no other coating" which are decisive. The heading does not stretch the words to "with no other coating material". Therefore, I do not find any ambiguity in the language used in the description of heading. What is precluded is other coating, which is Fluorescent coating in this case. Fluorescent pigments may be coating material or colouring material. I do not wish to go into that discussion, as that is not relevant for the purpose of classification under Chapter heading. What is relevant is whether Fluorescent substances which are organic substances are coated on the surface of paper or not. There is evidence by way of test reports. ITC Bhadrachalam have admitted the fact of coating of fluorescent colour on one surface of the paper. What is all the more important is that the coating solution itself is known as "Fluorescent Coating Solution". Therefore, classification of impugned goods under Chapter heading No. 48.10 is conclusively ruled out. The goods are rightly classifiable under Chapter sub-heading No. 4811.90.' The next issue considered in this impugned order is whether extended period of limitation was applicable while referring to the show cause notice which alleged as follows -
'The above version of the assessees to say that it is used only as a dye is quite contrary to that what was stated in their declaration dated 3-3-1989 filed along with Classification List RCL No. 32/88-89 filed in respect of Fluorescent Board wherein against the item at serial No. 1 (i.e.) against composition of the product, it is correctly stated that "The product is coated with pigment, China Clay and binder'.
And it was noted by the Commissioner that the charge made in Para 4 of the very said notice was non-indication of nature of pigment, an organic substance would amounts to suppression of facts. The Commissioner after examining the declaration dated 10-5-1989 filed by the ITC Bhadrachalam under Rule 57G showing the inputs were synthetic organic products and classified under Chapter sub-heading No. 3204.30 and in view of the fact that organic substance i.e. Fluorescent materials in the Modvat declaration concluded, since the department had access to study manufacturing process and also at liberty to seek any clarification from ITC Bhadrachalam as also the classification lists were approved after due verification. Therefore, he concluded that the allegation of suppression of facts fails. Therefore, the duty demand is devoid of merit.
9. The Revenue has filed their appeal against this finding of bar of limitation on the grounds -
(a) The Commissioner has observed that "I have seen the declaration dated 10-5-89 filed by ITC Bhadrachalam under Rule 57G in which the inputs were shown to be synthetic organic products and their classification under Chapter sub-heading 3204.30. ITC Bhadrachalam have declared the usage of organic substance i.e. fluorescent pigment, both in their Modvat declaration dated 10-5-89 and in their declaration dated 3-3-89". The factual position is that the assessees have filed a Modvat declaration dated 10-5-89 covering very large number of products manufactured including no doubt the disputed products. In response to this declaration, the Jurisdictional Assistant Commissioner in his letter dated 24-5-89 had even informed the assessees that their declaration at Sl. No. 3 for final products fluorescent paperboard and its corresponding inputs was not acknowledged and a revised declaration for Sl. No. 3 products may be submitted after the approval of the classification list for the said final products. As per this, the assessee had filed another modvat declaration dated 23-8-89, only after the approval of the said classification list. Thus, Modvat declaration dated 10-5-89 had no relevance to the issue involved. In fact, Commissioner has failed to appreciate that for purposes of classification list for each product manufactured and there was clear misstatement in the said Classification list approved for the products in question.
(b) The Commissioner also observed in the Order-in-Original that "the department had access to study manufacturing process and they were also at liberty to seek any clarification from ITC Bhadrachalam". This observation appears to be not relevant as party is not absolved of their responsibility of stating facts and giving true declarations. What is relevant is whether the assessee had misrepresented and/or suppressed the facts or not. It is very clear from the evidence brought on record, as discussed in the show cause notice that the assessee had suppressed the facts of usage of organic substance for coating and mis-declared its actual use in the Classification lists dated 1-3-89 and 24-3-89. On the other hand, the party had clearly mis-represented and mis-declared the true nature of the "fluorescent paper" or "fluorescent paperboards" when it grouped them under the following category - as mentioned in the classification list:
"PAPER AND PAPERBOARD COATED ON ONE OR BOTH SIDES WITH KAOLIN (CHINA CLAY) OR OTHER INORGANIC SUBSTANCES WITH OR WITHOUT BINDER AND WITH NO OTHER COATING IN REELS OR SHEET"
Thus the Assistant Commissioner went by the representation and declaration of the party in the classification list about the nature of coating, while approving and agreeing to the classification as claimed. It was only when later the true nature of composition of coating materials was investigated that the use of organic fluorescent pigments came to light, which materially alters the classification of the product. Commissioner has erred in giving too much stress on the approval given by the Assistant Commissioner and ignoring the misdeclaration and misleading nature of declaration to claim a particular classification for charge lower rate.
(c) The Commissioner also held that "the Classification lists were approved after due verification". The classification lists were approved essentially considering the declarations filed by the assessee in the classification lists and the nature of composition of coating materials as claimed. The act of misdeclaration by the assessee in the classification lists led to such (wrong) approvals, and party cannot be absolved of their misdeed of department had gone in the initial stages by their claim.
(d) The assessees have misstated to the department that fluorescent paper/board is coated with china clay which is an inorganic substance and the fluorescent pigments are only mixed with china clay as a dye for colouring, whereas the factual position is that fluorescent pigments (organic substance) are used for coating the paper/board to impart the essential character which makes the products "fluorescent paper/board". As per HSN under Chapter heading 32.04, most organic products of a kind used as luminophores are not colouring matter. The assessees never revealed this fact the said pigment is of organic nature.
(e) Commissioner has erred in not appreciating the grounds as detailed in paras 4, 5 and 6 of the show cause notice issued which clearly establish suppression of facts and misdeclaration on the part of the assessee with an intention to evade payment of duty and the proviso to the Section 11(A) of the Central Excise Act, 1944 was rightly invokable in this case.
(f) In view of the foregoing, the Commissioner appears to have erred in not confirming the duty demand of Rs. 34,51,825/- under Rule 9(2) of the Central Excise Rules, 1944 read with the proviso to the Sub-section (1) of the Section 11A of the Central Ex-
else Act, 1944 and in not imposing the penalty under Rules 9(2) and 173Q ibid, and the order of the Commissioner appears to be not legal and proper.
10. After hearing both sides and considering the material on records including cross-objection filed by the Respondents, it is found -
(a) There is no doubt that fluorescent paper is coated by an organic pigment which was declared in the Modvat declaration and the Assistant Commissioner had all the time and facilities and it was duty bound to approve the classification lists after due verification. Therefore, we find no merits in the grounds taken in the appeal before us filed by Revenue, as regards the limitation, as arrived at by the Commissioner in his order. We find no reason to interfere the Commissioner's order relying upon the case Muzaffar Nagar Steels [1989 (44) E.L.T. 552] which has been followed subsequently by the Tribunal in many decisions. The Revenue's appeal, therefore, merits rejection.
(b) As regards the classification of Fluorescent paper, the entity under classification is uncontestedly a paper coated with fluorescent pigment and other materials. On test, it has been found to be a coating made up of substantial percentage of organic substances. The Commissioner (Appeals) also has concluded the classification as arrived at by the Commissioner under Chapter Heading 4811.90, after pursuant of the HSN notes which are binding on classification of manufacture products under Central Excise Tariff. Relying upon the HSN notes in Chapter heading 4811 along with General Explanatory Notes of that Chapter, we do not agree with the contention made before him that fluorescent material was only used as a colouring material. Fluorescent paper is not just any other coloured paper coated either by inorganic or organic material or not coated. We also find no serious challenge to Commissioner (Appeals) view that Fluorescent pigment imparts special quality to the paper i.e. fluorescence or luminescence to the paper. Thus, the entity is a special quality paper, perfectly fitting into the description of coated paper and paperboard, which is covered under Chapter Sub-Heading 4811.90 to qualify under the Heading for classification of the said goods as arrived at by the Commissioner (Appeals).
(c) The appellants have contended before us : (i) that Chapter Heading 4810 of the Tariff reads as under :-
"Paper and paperboard, coated on one or both sides with kaolin (china clay) or other inorganic substances with or without a binder, and with no other coating, whether or not surface coloured, surface-decorated or printed in rolls or sheets"
which would make it clear that this heading provides three Independent aspects of the classification of the goods under heading viz. (i) coating with kaolin (china clay) or other inorganic substance (ii) usage or non-usage of binding materials and (iii) with or without surface colouring using organic substance; and submitted that they have used china clay notwithstanding the fact of usage of organic substance in surface colouring which was not prohibited. Therefore, classification should be under Chapter Heading 4810.
(ii) The appellants submit that the learned Commissioner (Appeals) in taking out the entity from 4810 on the plea that china clay coat on surface were done simultaneously was not called for. It is a technical necessity in industry to mix fluorescent material in china clay and it was wrong to reject the contention of the assessee on the grounds that coating solution so prepared resulted being predominantly fluorescent pigment which would tender the coated paper not to be classifiable under Heading 4810; in as much as the test of predominant cannot be applied to coating solution when such solution were non-excisable. They relied on Board Circulars in this regard.
(iii) They further submit that the notes under Heading 4811 of HSN described that paper was quite different for entity and classification and organic/inorganic chemical mentioned in Heading 4810 only related to coating material and not binder material which may be an organic. The use of fluorescent pigment classifiable under Heading 3204.30 was only for the purpose imparting surfacing colour and not for coating and single colour on such quoted paper of both sides which coated with china clay would fall under heading 4810. They relied upon the certificate obtained from Pulp and Paper Research Institute which prescribes the fluorescent colour as a colouring agent is binder their product and it would be only items coated tar, bitumen, plastic, paraffin wax, etc., which would fall under 4811 and not to this product.
(b) The learned JCDR for Revenue drew our attention to the notes under Chapter Heading 4810 which reads as under -
"The inorganic substance, other than kaolin (China clay), commonly used for coating include barium sulphate, magnesium silicate, calcium carbonate, calcium sulphate, zinc oxide and powdered metal (see the General Explanatory Note to this Chapter : coated paper and paperboard). The inorganic coating materials referred to in the heading may contain small amounts of organic substances for example to enhance the surface characteristics of the paper."
(underline supplied)
(c) Considering these submissions it is found, these HSN notes to our mind, would permit an organic substance in coating material only in small quantities, to enhance surface characteristic of the paper. The lower authorities have come to a definite finding and relied upon the test report of Paper and Pulp Research Institute submitted by M/s. ITC Bhadrachalam certified that the coating solution consisted of fluorescent material. On analysis this substance was found to be 44.40% and above. The Chemical Examiner's test was no different from the report of Paper and Pulp Research Institute. Presence of 44.40% fluorescent material, which is admitted to be an organic substance, cannot be considered as presence in small quantities of an organic substance to enhance the characteristic of paper or as submitted by the as-sessee to be colouring material only as permissible under HSN notes to heading 4810. The quantity is considerable to lead to a conclusion that organic material to impart fluorescent coating to the surface of the paper, is not small quantity, but fluorescent in substantial quantities. Fluorescent paper is a paper that is coated with fluorescent pigment, which not only reflects a visible wavelength, but also is activated, by most of the remaining absorbed light to re-emit it as colour of longer wavelength which results in reinforcement of the reflected colour, as pointed out by the JCDR. Therefore, the function of the material is not demonstrated by the assessee to be only to enhance surface characteristic but the function of fluorescent organic material is to impart characteristics as submitted by learned JCDR which are more than only surface characteristics. We, therefore, find that the notes under heading 4810 would exclude such coated paper which are having in the coating organic substance in substantial quality to enhance and supply special characteristic of fluorescence to the paper, from the purview of being classified under Chapter Heading 48.10 when HSN Notes are applied in this case. HSN notes are guiding factors to determine classification and that is well settled by the Apex Court.
(d) Since Heading 4811 comes after Heading 4810 and applying the HSN notes and Rules of Interpretation especially Rule 3 (c), when we consider the classification under Headings 48.10 and 48.11 we have to approve 4811. We, therefore, find no merits in the grounds taken by the appellants to challenge the classification arrived at Heading 4811.90 by the lower authorities. Therefore, the appeals Nos. E/248/98 and E/72/2002, as regards classification, filed by the appellants, M/s. ITC Bhadrachalam, are required to be dismissed.
11. In view of our above findings, these three appeals are dismissed.