REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 4077 OF 2003

COMMNR. OF CENTRAL EXCISE, MEERUT-II     ...APPELLANT  

VERSUS

M/S. SUNDSTRAND FORMS P. LTD.   ...RESPONDENT

JUDGMENT

Dr. MUKUNDAKAM SHARMA, J.

1. The present appeal  arises out of the judgment and order  

dated  14.5.2002  of  Customs,  Excise  and  Gold  [Control]  

Appellate  Tribunal,  New  Delhi  [for  short  “the  Tribunal”]  

allowing the appeal  filed by the Respondent-assessee and  

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setting  aside  the  order  dated  28.12.2000  of  the  

Commissioner, Central Excise, Meerut-II, U.P..

2. In order to decide the issues arising in the present case in  

proper  perspective,  basic  facts  leading  to  filing  of  the  

present appeal are being recapitulated hereunder.  

3. Respondent  is  a  firm  engaged  in  the  manufacture  of  

computer  stationery,  business  forms,  etc.,  [carbonless  or  

with  carbon].   The  respondent  claims  that  the  goods  

produced by them, namely, computer stationery, business  

forms and other allied products fall under sub-Heading Nos.  

4901.90 and 4820.00 of the Schedule to the Central Excise  

Tariff  Act,  1985 [for short “the Tariff  Act”]  and, therefore,  

the said articles are chargeable to NIL rate of duty.

4. Multi copies of computer stationery are manufactured either  

by inserting carbon paper between the two sheets of paper  

or by chemical treatment of the paper to make itself copying  

[carbonless stationery].  

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5. The carbonless paper is a chemically treated paper used for  

producing impression of  the writing or manuscript  of  the  

original paper on the other paper sheet.  Such carbonless  

paper, which is a kind of copying paper is processed firstly  

by printing, which is done at pre-fixed  places of the paper  

with the purpose of printing names of the buyers, logo or  

some other words as desired by the buyers and after the  

said  process  is  over  the  printing  paper  is  then  passed  

through coating unit for applying chemical to develop the  

character of self-copying paper. The backside of the paper is  

coated to obtain top copy and front coating is done on the  

sheet which is to be used as bottom copy. The next step,  

which  is  the  final  step,  is  to  get  chemically  coated  copy  

passed through the coating unit for perforation, punching  

and fan-folding.  

6. There is  also no dispute with regard to the fact  that the  

carbonless  paper  or  self-copy  paper  emerges  at  the  

intermediate stage and has its own life but the same could  

be  further  used  in  the  manufacture  of  stationery  in  

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continuous process.  There is also no dispute with regard to  

the  fact  that  the  carbonless  paper  is  a  well  known  

marketable  commodity  as  is  evident  from the  process  of  

manufacturing.   The  carbonless  paper  or  other  paper  

cannot be treated as the computer stationery unless it is  

subjected to the second stage of processing, i.e., the process  

of perforation, punching and fan-folding etc.  Therefore, in  

common  trade  parlance  the  computer  stationery  is  

processed through various modes of processing as indicated  

hereinbefore.  

7. On intelligence, a team of Central Excise Officers visited the  

factory  premises  of  the  respondent  herein  at  Noida  and  

examined  the  manufacturing  process  of  the  carbonless  

stationery. It was found that the respondent-company was  

purchasing  carbonless  paper  in  roll  form,  coated  with  

chemical on backside or front side or on both sides, from  

the market and such carbonless paper was subjected to the  

process  of  only  printing  and  perforation,  etc.,  for  the  

manufacture of the stationery.  

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8. The Commissioner, Central Excise, Meerut-II issued a show  

cause notice dated 30.04.1998 wherein it was alleged that  

the  respondents  were  engaged  in  evasion  of  duty  on  

carbonless paper which emerged at the intermediate stage  

during the course of manufacture of carbonless stationery  

from the plain paper. Therefore, they were asked to show  

cause as to why duty amounting to Rs. 49,05,335.00 which  

was  allegedly  not  paid  on  the  carbonless  paper  

manufactured and removed from their  factory  during the  

period from 1993-94 to 1997-98 [upto 12/97] should not be  

recovered from them under Rule 9(2) of the Central Excise  

Rules, 1944 read with provisions of Section 11A(1) of the  

Central  Excise  Act,  1944  invoking  extended  period  of  5  

years and also to show cause as to why penalty and interest  

on the evaded duty should not be imposed upon it. The said  

notice proposed to charge duty on the said carbonless paper  

emerging at the intermediate stage under sub-heading No.  

4816.00 to the Schedule to the Central  Excise Tariff  Act,  

1985.  

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9. Simultaneously, proceedings were initiated against MD and  

Deputy  MD  of  the  respondent-company  for  imposing  

penalty upon them. Thereafter, six other show cause notices  

were also issued on the same issue to the respondents for  

raising  the  demand of  duty  in  terms of  Rule  9(2)  of  the  

Central  Excise  Rules,  1944 read with Section 11A of  the  

Central Excise Act, 1944 and invoking penal provisions.

10. Notice  issued  by  the  Department  mentioned  that  the  

respondent-company  is  engaged  in  evasion  of  duty  on  

carbonless paper which emerged at the intermediate stage  

during the course of manufacture of carbonless stationery  

from the plain paper. Therefore, the Department demanded  

Central  Excise  duty  at  the  intermediate  stage  when  the  

paper is coated to make it carbon less paper or self-copying  

paper. Notice alleged that the carbonless paper is a separate  

commodity, different from plain paper, and its user is also  

different  from  the  ordinary  paper.  The  carbonless  paper  

emerged on subjecting certain process, i.e.,  application of  

chemicals  and  printing  which  was  done  to  describe  the  

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name  of  the  buyer  and  other  details  relating  to  which  

ultimately the paper was to be used for in the present case.  

The printing  was only  incidental  to  the  carbonless  paper  

emerging at  the  intermediate  stage  and that  the  printing  

was  not  in  any  way  necessary  for  the  manufacturing  of  

carbonless  paper  which  emerged  at  intermediate  stage.  

According to the Department, such carbonless papers could  

be further used into the manufacturing of the stationery in  

continuous process, as it was evident from the process of  

manufacture and statement of the party that the process of  

perforation, punching and fan folding, etc., was responsible  

to  convert  carbonless  paper/other  paper  into  computer  

stationery.  

11.The  Department  classified  the  product  as  "the  coated  

paper” at the intermediate stage under Heading 48.16 of the  

Tariff Act which applies to carbon paper, self-copying paper  

and other copying or transfer papers. Notice alleged that the  

printing  of  certain  words  only  specified  the  buyer  but  it  

would  not  in  any  way  make  them unmarketable,  as  the  

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carbonless paper which emerged at the intermediate stage  

in  the  course  of  the  manufacture  of  the  carbonless  

stationery was similar to carbonless paper purchased from  

the market and the only difference was that in the case of  

the respondent the carbonless paper manufactured at their  

end was printed with some words relating to the buyers.  

12. Thereafter, the Commissioner in its Order-In-Original dated  

28.12.2000 confirmed the demand of the department and  

imposed  penalty  of  Rs.  50  lakhs  on  the  respondent-

assessee.

13. Aggrieved  by  the  same  the  respondent-assessee  filed  an  

appeal  before  the  Customs,  Excise  and  Gold  [Control]  

Appellate  Tribunal,  New Delhi  which vide  its  order  dated  

14.05.2002  held  that  the  impugned  product  is  not  

classifiable under heading 48.16 as carbonless paper and  

allowed the appeal of the respondent.  

14. Being  aggrieved  by  the  said  order  of  the  Tribunal,  the  

Department has filed the present appeal, on which we heard  

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learned counsel appearing for the parties, who have taken  

us through all the materials available in the record.

15. There  are  two  specific  issues  which  arise  for  our  

consideration in the present appeal and the same were also  

argued extensively by the counsel appearing for the parties.  

The first issue, relates to under which particular heading  

the intermediary product would fall or is it to be treated as  

a  final  or  end  product,  under  heading  4820.00  of  the  

Schedule to the Central Excise Tariff Act. The second issue  

arising  for  our consideration is  as to  whether  or  not  the  

intermediary  product  in  question  has  a  marketability  

prospect and capability.  

16. The  counsel  appearing  for  the  appellant  argued  that  the  

intermediary  product  with  which  we  are  concerned  falls  

under Heading No. 48.09 read with 48.16 of the Schedule to  

the  Central  Excise  Tariff  Act whereas  according  to  the  

counsel  appearing  for  the  respondent-company  the  same  

falls  under  the  Heading  48.20  or  under  sub  heading  

4901.90 of the Schedule.  

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17. In  support  of  his  contention,  counsel  appearing  for  the  

respondent-assessee  relied  upon  the  Circular  dated  

15.10.1991  issued  by  the  Central  Board  of  Excise  and  

Customs,  Government  of  India,  New  Delhi,  which  was  

issued in relation to classification of paper printed with a  

format  of  air  line  tickets  or  embarkation/disembarkation  

cards and submitted that they were under a bona fide belief  

in view of the said circular that no duty was attracted on  

the printed coated paper arising at the inter mediate stage  

during the continuous process of manufacture of carbonless  

computer  stationery  and that  in  the  said  circular  it  was  

clarified that formats (of airline tickets, embarkation cards,  

etc.) which have ink deposited at appropriate places on the  

reverse  side,  instead  of  being  classified  under  Heading  

48.09 or  48.16,  would be  classifiable  under  sub-Heading  

4820.00 or 4901.90 attracting nil rate of duty and  that the  

Department  is  bound  by  its  own Circular  issued  by  the  

Board.   

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18. On  the  other  hand,  counsel  appearing  for  the  appellant  

vehemently argued that the said Circular has no application  

to the facts of the present case as the Circular neither deals  

with continuous carbonless computer stationery paper nor  

with  the  carbonless  stationery  and  that  it  actually  deals  

with plain continuous computer stationery.

19. It  is  the  case  of  the  appellant  that  the  product  

manufactured  by  the  respondent  company  is  carbonless  

paper/self-copying paper, which is coated and therefore the  

same should fall under Heading 48.09 for which excise duty  

at  the  rate  of  20% is  payable.   However,  heading  48.09  

prescribes  a  particular  size  of  paper  in  rolls  of  a  width  

exceeding 36 cm or in rectangular (including square) sheets  

with at least one side exceeding 36 cm in unfolded state.  

Consequently,  the  said  heading  would  not  be  applicable  

exactly to the product of the respondent in the present case.  

However, what is applicable is Heading 48.16, which reads  

as follows:

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“48.16 4816.00 Carbon  paper,  self-copy  paper  and  other  copying  or  transfer   papers  (other  than  those  of  heading  No.  48.09),  duplicator   stencils  and  offset  plates,  of   paper,  whether  or  not  put  in  boxes.   

Rate of Duty 20%”

20. The respondent, however, submitted that they manufacture  

Registers,  account  books,  note  books  and  other  allied  

products  for  which Nil  duty is  prescribed under  Heading  

49.01 of  the Schedule,  where  the  description of  goods is  

printed books, newspapers, pictures and other products of  

the printing industry; manuscripts, typescripts and plans.  

According to the counsel appearing for the respondent the  

products manufactured by them should be treated falling  

under Heading No. 49.01. Reference was also drawn to the  

opinion of the Institute of Paper Technology, Saharanpur,  

U.P.   

21. The said opinion clearly indicates that computer stationery  

is different from carbonless paper and self copying paper.  It  

was also indicated  therein  that  carbonless  papers or  self  

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copying  papers  are  fully  coated  throughout  and  are  

available in reel/sheet form.   

22. There  is  a  set  of  Interpretative  Rules  for  interpreting  

headings of the  Schedule to the Central Excise Tariff Act.  

Para  2A  of  the  same  provides  that  any  reference  in  a  

heading to the goods shall be taken to include a reference to  

those  goods  incomplete  or  unfinished,  provided  that,  the  

incomplete or unfinished goods have the essential character  

of the complete or finished goods.  Para 3 thereof provides  

that  when  goods  are  classifiable  under  two  or  more  

headings, classification should be effected by relying on the  

heading which provides the most specific  description and  

the same would be preferred to headings providing a more  

general description.   

23. In the tariff  provided under Chapter 48, there are certain  

notes which are relevant for the purpose of interpreting the  

subject  matter  of  various  headings.   Note  7  thereof,  

provides,  that  paper,  paperboard,  cellulose  wadding  and  

webs of cellulose fibres answering to a description in two or  

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more of the heading nos. 48.01 to 48.11 are to be classified  

under  one  of  such  headings  which  occurs  last  in  the  

numerical  order  in  the  Schedule.   Note  11  thereof  also  

provides that 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.   

24. Strong reliance was placed by the counsel appearing for the  

respondent on the Circular dated 15th October, 1991, issued  

by the  Central Board of Excise and Customs, Government  

of India, New Delhi.  The said circular relates to levy of duty  

on  paper  sheets  printed  with  format  of  airline  tickets  or  

embarkation/disembarkation  cards  and  classification  

thereof.    The said circular clarifies and relates to airline  

tickets.  A bare glance on the aforesaid circular makes it  

crystal clear that the intermediary products referred to in  

the  present  appeal  are  not  directly  relatable  to  airlines  

tickets or embarkation/disembarkation cards. Besides, the  

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aforesaid circular deals with the end product, namely, the  

computer  stationery  which  is  classifiable  under  Heading  

48.20.   If  the  end  product  is  classifiable  under  Heading  

48.20 then it would be difficult to say that the intermediary  

product would also fall under heading 48.20. In our view,  

the  appropriate  specific  heading  for  the  intermediary  

product would be Heading 48.16.

25. The Commissioner of Customs, who has passed the Order-

In-Original was conscious of the aforesaid fact.  According  

to him, the carbonless paper/self copying paper, which is  

an  intermediary  product  is  classifiable  under  Headings  

48.09  and  48.16  depending  upon the  size  of  the  papers  

manufactured by the respondent company whereas the end  

product  i.e.  the  computer  stationery  is  classifiable  under  

Heading 48.20, which attracts NIL rate of duty.  According  

to him although the final  product is  not dutiable,  as the  

same is classifiable under Heading 48.20, where NIL rate of  

duty is  prescribed,  but  so far  as intermediary product  is  

concerned it is to be classifiable under Heading 48.16 and  

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the duty payable for such intermediary goods is prescribed  

as 20%.

26. The Commissioner has given cogent reasons as to why the  

carbonless paper emerging at intermediate stage  would be  

classifiable under heading 48.16.  According to him goods  

covered under Headings 48.09 and 48.16 are of same kind  

except that in latter heading the goods, other than in roll  

form or in rectangular sheet with at least one side exceeding  

36  cm  fall  and  that  applying  the  principle  of  ejusdem  

generis, the carbonless paper whether printed or not which  

is  not  in  roll  form  or  in  the  sheet  form  with  one  side  

exceeding 36 cm would be covered under sub heading No.  

4816.00.   

27. Having decided the aforesaid classification in the aforesaid  

manner,  so  far,  intermediary  product  is  concerned  the  

Commissioner also considered the scope of marketability of  

the  intermediary  product  in  question.   Relying  on  the  

statements  made  by  the  Director  of  the  respondent-

company  themselves  and  other  relevant  documents  on  

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record  the  Commissioner  came  to  a  finding  that  the  

carbonless  paper  even  in  printed  form  could  be  sold  or  

purchased  although  the  number  of  the  customers  is  

restricted.  He also found on appreciation of the documents  

on record that carbonless paper invariably emerges during  

the course of manufacture of computer stationery and such  

carbonless  paper  emerging  at  the  intermediary  stage  is  

known to the market, has a distinct and very well-identified  

market and is capable of being marketed.

28. It has been indicated from the findings of the Commissioner  

that  the  respondent  company not  only  manufactures  the  

end  product  but  it  also  manufactures  the  intermediary  

products which are sold by them even in the roll form in the  

market.   Invoices indicating sale by the respondent have  

also been placed on record and from scrutiny of the same it  

appears that such intermediary products were sold in roll  

forms only. It is also an undisputed fact in the present case  

that  the  respondent  themselves  purchased  intermediary  

products from the open market.   But then only difference  

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even according to them also is that such carbonless paper  

with  coating  purchased  from  the  market  is  of  inferior  

quality.  

29. The Tribunal, however, while dealing with the appeal filed  

before  it  upset  the  aforesaid  findings  holding  that  

respondent-  assessee was engaged in the manufacture  of  

printed computer stationery and not self copying paper, and  

therefore,  the  intermediary  products  of  the  respondent  

cannot be classified under Heading 48.16.  

30.The  Tribunal  also  relied  upon  the  Circular  dated  

15.10.1991  issued  by  the  Central  Board  of  Excise  and  

Customs  for  coming  to  a  finding  that  provided  tickets,  

printed circulars,  letters,  forms etc.  which are  essentially  

printed  matters  requiring  filing  up  of  only  minor  details  

would be covered by sub heading 4901.90.

31. Having  examined  the  record  and  the  description  of  the  

goods  in  the  headings  and  upon  noticing  rules  of  

interpretation of the  Schedule to the Central Excise Tariff  

Act,  we  are  of  the  considered  opinion  that  although  the  

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respondent  company  may  be  registered  for  newspapers,  

etc., but it cannot be said that either the end product or the  

intermediary product would fall under Chapter 49, heading  

49.01.  End product here is admittedly computer stationery  

which  would  specifically  fall  under  Chapter  48,  heading  

48.20, sub heading 4820.00.   

32. When we read heading 48.16 with sub heading 4816.00, we  

find that it  includes within its  extent  carbon paper,  self-

copy paper and other copying or transfer papers but other  

than  those  articles  included  in  heading  48.09  which  is  

specifically  relatable  to  a  particular  size  of  paper  and  

therefore we are in agreement with the findings recorded by  

the  Commissioner  that  the  intermediary  products  in  the  

present case would fall and are classifiable under heading  

48.16.   

33.The  next  issue  that  is  required  to  be  decided  is  as  to  

whether the intermediary products are marketable or not.  

34. Evidence  in  the  nature  of  documents  and  statements  

recorded  in  that  regard  indicates  that  such  intermediary  

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products are available in the market and are brought and  

sold in the open market.  The Commissioner has referred to  

such  evidence  on  record  and  even  the  invoices  of  the  

respondents themselves clearly indicate that they have sold  

intermediary products of the nature in question in the open  

market in roll forms.   

35. In the present case, there is enough evidence available on  

record to show that not only the intermediary products in  

the present case are capable of being bought and sold in the  

market but they are in fact sold and purchased in the open  

market. Even the respondents have admitted that they have  

themselves purchased such intermediary products from the  

market although the products available in the market were  

of  inferior  quality.  But  the  fact  remains  that  there  are  

enough  people  like  the  respondents  willing  to  purchase  

such material from the market.   

36. During the course of arguments reference was made to a  

number of decisions of this Court on the issue relating to  

marketability of a product.   

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37. We  have  a  recent  decision  of  this  Court  in  the  case  of  

Medley   Pharmaceuticals Ltd  . Vs.  The Commissioner of  

Central Excise and Customs, Daman, reported in (2011)  

2  SCC  601.   This  Court  in  the  said  decision  has  very  

carefully considered almost all the previous decisions of this  

Court  on  the  issue  of  the  levy/payment  of  Excise  Duty  

Valuation  on  articles  manufactured  by  the  assessee  

company  therein.    After  referring  to  practically  all  the  

decisions on the issue this Court in the aforesaid case held  

that  the consistent  view  of  this  Court  is  that  the  

marketability is an essential criteria for charging duty and  

that the test of marketability is that the product which is  

made liable to duty must be marketable in the condition in  

which  it  emerges.  This  Court  also  held  that  the   word  

`Marketable' means saleable or suitable for sale and that it  

need not in fact be marketed but then the article should be  

capable  of  being  sold  to  consumers,  as  it  is  without  

anything more. This Court further went on to hold that the  

essence of marketability of goods is neither in the form nor  

in the shape or condition in which the manufactured article  

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is  found  but  it  is  the  commercial  identity  of  the  article  

known to the market for being bought and sold. The Court  

further held that the product in question is generally not  

being  bought  or  sold  or  has  no  demand  in  the  market,  

would be irrelevant. The aforesaid conclusions are arrived  

at after considering almost all the previous decisions of this  

Court on the issue.   

38. When we apply the ratio of  the aforesaid decision of this  

Court in the case of Medley Pharmaceuticals Ltd. (supra)  

to the facts of the present case it becomes crystal clear that  

the  intermediary  product  in  question  is  generally  being  

bought and sold and there is a demand of such articles in  

the market as the respondents themselves have purchased  

it from the open market for manufacturing the end product.

39. In terms of findings arrived at and on appreciation of the  

materials  on record,  we are of  the view that the findings  

arrived at by the Tribunal by upsetting the findings of the  

Commissioner  vide  its  order  dated  14.05.2002  were  

unjustified  and  uncalled  for.   The  Judgment  and  Order  

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passed by the Tribunal   is  therefore  set   aside and we  

restore  the  order  dated  28.12.2000  passed  by  the  

Commissioner Central Excise, Meerut-II, U.P.  

40.Accordingly, the appeal is allowed but leaving the parties to  

bear their own costs.  

           ....................................... .....J

                                        [Dr. Mukundakam Sharma]

............................................J                       [Anil R. Dave]

New Delhi August 30, 2011

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