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'REPORTABLE' IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.2729-2730 OF 2004

M/S. HOLOSTICK INDIA LTD.                    ... Appellant VERSUS

COMMISSIONER OF CENTRAL EXCISE, NOIDA        ... Respondent

J U D G M E N T

R. F. NARIMAN, J.

The  present  case  concerns  itself  with  a  classification issue.  The facts necessary to appreciate  the controversy are as follows: -

The appellant manufactures security holograms.  At  the very beginning of the manufacturing process, they use  coated metallised film which we are informed is classified  under Tariff entry 39.20.36 after which the said film is  embossed.  Post embossing, there is adhesive coating and  release  coating  which  results  in  a  hologram  which  ultimately is cut to size and utilised by customers of the  appellant for security purposes.  In the show cause notice  dated 04.02.2000, the Department sought to classify the  security hologram under Tariff entry 39.19 of the Central  Excise Tariff 1999-2000.  In the reply dated 15.05.2000,

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the appellant disputed this and stated that, in fact, the  holograms ought to be classified under Tariff entry 49.01.

The Commissioner, Central Excise, by an order dated  01.01.2002 agreed with the Department's classification and  classified the said goods under Tariff entry 39.19.  An  appeal  to  the  Customs,  Excise  &  Service  Tax  Appellate  Tribunal  (hereinafter  referred  to  as  'CESTAT')  by  the  appellant  was  dismissed.   The  Tribunal  by  the  impugned  judgment  dated  19.12.2003,  agreed  with  the  learned  Commissioner and added reasoning of its own to which we  shall advert to later.

At  this  stage,  it  is  important  to  set  out  the  relevant tariff entries: -

“39.19 3919.00 Self-adhesive  plates,  sheets,  film,  foil,  tape,  strip  and  other  flat  shapes,  of  plastics, whether or not in rolls.

39.20 Other plates, sheets, film, foil and strip,  of  plastics,  non-cellular,  whether  lacquered  or  metallised  or  laminated,  supported  or  similarly  combined with other materials or not.

- Of polymers of vinyl chloride: 3920.11 - - Rigid, plain 3920.12 - - Flexible, plain 3920.13 - - Rigid, lacquered 3920.14 - - Flexible, lacquered 3920.15 - - Rigid, metallised 3920.16 - - Flexible, metallised

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3920.17 - - Rigid, laminated 3920.18 - - Flexible, laminated 3920.19 - - Other

- Of regenerated cellulose: 3920.21 - - Film, plain 3920.22 - - Film, lacquered 3920.23 - - Film, metallised 3920.24 - - Film, laminated 3920.25 - - Sheet, plain 3920.26 - - Sheet, lacquered 3920.27 - - Sheet, metallised 3920.28 - - Sheet, laminated 3920.29 - - Other

- Of other plastics: 3920.31 - - Rigid, plain 3920.32 - - Flexible, plain 3920.33 - - Rigid, lacquered 3920.34 - - Flexible, lacquered 3920.35 - - Rigid, metallised 3920.36 - - Flexible, metallised 3920.37 - - Rigid, laminated 3920.38 - - Flexible, laminated 3920.39 - - Other

49.01 Printed books, newspapers, pictures and other  products  of  the  printing  industry;  manuscripts,  typescripts and plans 4901.10 - Transfers (decalcomanias) 4901.20 - Maps  and  hydrographic  or  similar  charts of all kinds including atlases, wall maps,  topographical plans and globes, printed 4901.90 - Other”

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Shri V. Lakshmikumaran, learned counsel appearing for  the appellant, has raised a number of arguments before us.  According  to  him,  a  reference  to  the  Rules  for  Interpretation  of  the  First  Schedule  to  Central  Excise  Tariff Act, 1985, when properly read, would necessarily  yield the result that the said goods would fall only under  Entry  49.01.   In  the  course  of  the  argument,  he  also  referred to the Harmonised System of Nomenclature (called  'HSN') Explanatory Notes to which we shall advert a little  later.

He also cited before us a decision of the Tribunal in  'Holographic Security Marking Systems Pvt. Ltd. v. C.C.E.,  Mumbai [2003 (151) E.L.T. 470], an appeal from which was  dismissed by the Supreme Court  In addition, he cited a  judgment of this Court reported in 'Collector of Central  Excise, Shillong  v.  Wood Craft Products Ltd.' [1995 (77)  E.L.T. 23 (S.C.)] in support of the proposition that HSN  Explanatory  Notes  can  be  relied  upon  under  certain  circumstances.

Shri  K.Radhakrishnan,  learned  senior  counsel  appearing  on  behalf  of  the  Department,  countered  these  submissions and sought to impress upon us that the Tribunal  judgment should be sustained.  Apart from the reasoning of  the Tribunal, according to him, entry 49.01 would not at  all apply if the  ejusdem generis Rule is applied to the

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various items contained therein.  Another argument was that  viewed at from any angle Tariff entry 39.19 is a specific  entry  dealing  with  self-adhesive  items  of  plastic,  and  printing  on  such  items  being  merely  incidental  to  such  products would require us to maintain the classification  post entry 39.20 under entry 39.19 and not under entry  49.01.   

We have heard learned counsel for the parties.  The  first important thing to notice is that the original coated  metallised film that has been used by the appellant has  already  been  classified  under  sub-Heading  3920.36  as  a  flexible metallised film of plastic.  The fact that it got  laminated later would not take it out of this particular  sub-Heading.  The only question which arises is, after such  classification, which is not disputed by the appellant,  whether the relevant tariff entry would be 39.19 or 49.01.

On a cursory reading of entry 39.19, it becomes clear  that it is part of a general scheme dealing with various  items of plastics and must be read together with 39.20 as  39.20 begins with the expression “Other plates....”.  So  read, it is clear that what is important is that various  sheets,  films,  etc.  of  plastic  should  become  “self  adhesive” in order to attract 39.19.  If, in addition,  there is printed matter on such sheets, films etc., the  question  is  whether  the  end  product  is  properly

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classifiable under 49.01 which refers to other products of  the  printing  industry  or  whether  it  falls  within  self  adhesive sheets, films, etc.

The  first  thing  to  be  noticed  about  tariff  entry  49.01 is that it refers to printed books, newspapers and  pictures.  Mr. K. Radhakrishnan sought to project before us  that since printed books, newspapers and pictures are of  general public utility in that they are all knowledge based  items, the idea of this Tariff entry is to have knowledge  based products of the printing industry which alone would  come under 49.01.

We are afraid we are not able to agree with the said  submission.  It is clear that printed books, newspapers and  pictures, manuscripts, typescripts, maps and plans of all  kinds, are included within this entry whether they further  the public interest in knowledge being disseminated or not.  In fact, it becomes clear from a reading of the Explanatory  Notes to “HSN” that this Heading would include a large  number of “obvious products” which are set out in this  Explanatory Note as follows: -

“The  heading  includes  the  following  in  addition to the more obvious products:

(1) Advertising  matter  (including  posters),  year  books and similar publications devoted essentially to  advertising, trade catalogues of all kinds (including  book or music publishers' lists, and catalogues of  works of art) and tourist propaganda.  Newspapers,  periodicals and journals, whether or not containing

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advertising material, are however excluded (heading  49.01 or 49.02, as appropriate).

(2) Brochures  containing  the  programme  of  a  circus,  sporting  event,  opera,  play  or  similar  presentation.

(3) Printed  calendar  backs  with  or  without  illustrations.

(4) Schematic maps.

(5) Anatomical,  botanical,  etc.,  instructional  charts and diagrams.

(6) Cinema,  theatre,  concert,  railway  and  other  tickets.

(7) Microcopies on opaque bases of the articles of  this Chapter.

(8) Screens made by printing a film of plastics  with letters or symbols to be cut out for use in  design work.

Such screens simply printed with dots, lines or squares  are excluded (Chapter 39)

(9) Maximum cards and illustrated first-day covers  not bearing postage stamps (see also Part (D) of the  Explanatory Note to heading 97.04).

(10) Self-adhesive printed stickers designed to be  used, for example, for publicity, advertising or mere  decoration,  e.g.,  “comic  stickers”  and  “window  stickers”.

On a reading of the various products outlined herein,  it is obvious that they include a large number of products  which  have  absolutely  nothing  to  do  with  disseminating  knowledge.

The other argument of Shri Radhakrishnan is that the

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expression “other products of the printing industry” should  be  read  ejusdem  generis with  the  three  expressions  preceding these words, namely, “printed books, newspapers,  pictures”.

We do not find any genus in any of these expressions.  Indeed,  it  is  clear  that  the  expressions  “manuscripts,  typescripts and plans” which are also part of the Heading  also do not reveal that there is any one genus to which all  these items can be attributed.  All these expressions speak  of printed matter.

The  other  argument,  namely,  that  the  expression  ”printing industry” that is referred to hereinabove, which  would refer to an industry which includes printing presses  and nothing beyond, is also in our opinion not correct.  A  simple  example  will  suffice.   Newspapers,  which  are  included within entry 49.01 are obviously products of the  newspaper industry and not of the printing industry as is  contended by Shri Radhakrishnan in the narrow sense noted  above.  The printing industry would therefore, refer to  products  of  various  industries  other  than  the  printing  industry stricto senso, which has printed material on them.  Thus, construed, it is clear, that Tariff entry 49.01 would  also be attracted on the facts of this case.  One other  interesting thing needs to be noted.  In the Explanatory  Notes of HSN which have already been referred to, Item 10

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refers to self adhesive printed stickers.  It is clear that  if Shri Radhakrishnan were right, such stickers not being  products of the printing industry as narrowly understood  and not being “other products" if one were to apply the  ejusdem  generis rule,  would  obviously  be  outside  this  entry.  The fact that Item No. 10 in the Explanatory Notes  to  HSN  exists  is  also  an  important  pointer  to  the  construction of entry 49.01 which we have just given above.  

The real question, therefore, in this appeal is the  application  of  Note  No.  2  to  entry  49,  which  reads  as  follows: -

“Except for the goods of Heading No. 39.18 or  39.19,  plastics,  rubber  and  articles  thereof,  printed  with  motifs,  characters  of  pictorial  representations, which are not merely incidental to  the primary use of the goods, fall in Chapter 49.”

It  is  clear  therefore,  that  the  question  resolves  itself  into  whether  printing  is  only  incidental  to  the  primary  use  of  the  goods  or  is  something  more  than  something merely incidental.  We have already referred to  the process hereinabove and the final product which emerges  is a product which is used for security purposes.  It is  important to remember therefore, that the primary use of  the  product  is  security  and  not  the  quality  of  being  adhesive.  Here again, a simple example will suffice.  Take  an adhesive tape with a monogram printed upon it.  The

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primary use of such tape is by virtue of its adhesiveness  to bind and package containers in which goods are to be  stored and transported.  Obviously, in such an example, the  printed monogram of such adhesive tape would be incidental  to the primary use of the said goods – the adhesive tape.  By way of contrast, in the present case, the factor of  adhesiveness is incidental to the primary use to which the  goods  are  put,  namely,  that  they  are  to  be  used  for  security purposes.  Also, the HSN Explanatory Notes are  relevant, which according to the judgment of this Court  reported in 'Collector of Central Excise, Shillong  v. Wood  Craft Products Ltd.' [1995 (77) E.L.T. 23 (S.C.)] in para  12 are a safe guide in case of doubt: -

“12. It is significant, as expressly stated, in  the  Statement  of  Objects  and  Reasons,  that  the  Central Excise Tariffs are based on the HSN and the  internationally  accepted  nomenclature  was  taken  into  account  to  “reduce  disputes  on  account  of  tariff classification”. Accordingly, for resolving  any  dispute  relating  to  tariff  classification,  a  safe  guide  is  the  internationally  accepted  nomenclature emerging from the HSN.  This being the  expressly  acknowledged  basis  of  the  structure  of  Central Excise Tariff in the Act and the tariff  classification made therein, in case of any doubt  the HSN is a safe guide for ascertaining the true  meaning of any expression used in the Act.  The ISI  Glossary  of  Terms  has  a  different  purpose  and,  therefore,  the  specific  purpose  of  tariff  classification  for  which  the  internationally  accepted nomenclature in HSN has been adopted, for  enacting the Central Excise Tariff Act, 1985, must  be preferred, in case of any difference between the  meaning of the expression given in the HSN and the  meaning of that term given in the Glossary of Terms  of the ISI.”

When one goes to the HSN Explanatory Notes to 'other

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printed  matter',  Item  No.  10  which  has  already  been  referred to hereinabove states that 'self adhesive printed  stickers designed to be used, for example, for publicity,  advertising or mere decoration, e.g. “comic stickers” and  “window stickers”' would be included.

It also goes on to say that goods of entry 39.19  (inter  alia)  because  they  are  merely  incidental  to  the  primary use of the products, would not be so included.  This test again provides a useful application of what is  includable and what is left out by applying the “primary”  and "incidental” test outlined in Note 2 above.  Obviously,  a comic sticker would have as its primary use the “comic  part”, the adhesive or sticker part being only incidental  to its primary use.  Similarly, in the facts of the present  case, a security hologram sticker would have as its primary  part, the security hologram, the sticker part or adhesive  part only being incidental to the primary use of the said  goods.

One other submission of Shri Radhakrishnan needs to  be dealt with.  He placed before us two circulars of the  Department  one  dated  14.08.1995  and  the  other  dated  21.06.1996.  These circulars reads as follows: -

Circular No. 142/53/95-CX, dated 14.08.1995 “I am directed to say that certain doubts have  

been expressed regarding the correct classification

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of Photo Identity Cards and Holograms – whether these  should be classified under Chapter 39 as articles of  plastics or under Chapter 49 as products of printing  industry. 2.The  production  of  photo-identity  cards  involves  videography of the person, computerised capture of  the videographed image, merging of the image with the  date of the person already entered in the computer  and the computerised printing out of the merged data  and image through a laser printer.  This print out is  verified, validated and pasted with the Holograms of  the State emblem and then cut, folded and laminated  before issue to the person. 3.The Board has carefully considered the matter.  It  is  felt  that  photo  identity  cards  get  their  distinctive  character  and  identity  because  of  the  date  imprinted  on  them  and  not  because  of  the  material they are made of or because of their shape  and size.  Thus, photo-identity cards are a distinct  product as compared to other identifiable articles of  plastic. 4.Section Note(2) of Section VII of Central Excise  Tariff  also  clearly  excludes  photo  identity  cards  from  the  purview  of  Chapter  39  and  places  them  squarely under Chapter 49. 5.On the other hand, Chapter Note (2) of Chapter 49  states that printing also means reproduced by means  of a duplicating machine, produced under the control  of a computer, embossed, photographed, photo-copied,  thermocopied or typewritten.  Further, as per general  explanatory notes to HSN – page 691, with the few  exceptions as referred to in these notes, Chapter 49  covers  all  printed  matter  of  which  the  essential  nature and use is determined by the fact of its being  printed  with  motifs,  characters  or  pictorial  representations. 6.Keeping in view the distinctive character, process  of  manufacture,  relevant  tariff  headings,  Section  notes, Chapter notes and HSN notes, the Board is of  the view that photoidentity cards and holograms merit  classification  under  sub-heading  4901.90  of  the  Schedule to the Central Excise & Tariff Act, 1985. 7. All pending disputes may be finalized in view of  the above guidelines.  Field formations and trade may  be informed accordingly.”

Circular No. 35/96-Cus., dated 21.06.1996 Subject : Classification  of  holograms  under  

First Schedule, CTA 1975 – Regarding.

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“Doubts have been raised regarding classification  of “embossed holograms” under First Schedule to the  Customs  Tariff  Act,  1975  (Customs  Tariff),  in  the  context  of  the  Boards  Circular  No.  141/52/95-CX.4  dated 14.08.1995 stating the “photo identify cards  and  holograms”  are  classifiable  under  sub-heading  4901.90 of the Central Excise Tariff.  Subsequently  it has been clarified that the hologram, as such,  would be classified keeping in view the manufacturing  process and end use etc.

2.The issue has been examined.  It is observed that  “embossed holograms” presently are made by embossing  plastic  films  with  mechanical  dies  and  are  self  adhesive, however in some cases, the possibility such  holograms being other than self adhesive is also  not  ruled out.

3.Self-adhesive  plates,  sheets,  film,  foil,  tape,  strip  and  other  flat  shapes,  of  plastic  are  classifiable  under  Heading  39.19  of  the  Customs  Tariff.  As per Note 2 to Section VII, read with  Explanatory Notes to Heading 39.19, this heading also  includes articles printed with motifs, characters or  pictorial  representations,  which  are  not  merely  incidental to the primary use of the goods.  In view  of this, self-adhesive embossed holograms will fall  under Heading 3919.90 of the Customs Tariff.  However  embossed  plastic  holograms,  which  are  not  self- adhesive, will fall under Heading 49.11, in view of  Note 2 to Chapter 49.”    

It  will  be  seen  that  under  Para  3  of  the  second  circular self adhesive embossed holograms will now fall  under  Heading  39.19,  whereas  embossed  plastic  holograms  which are not self adhesive alone will fall under entry 49.  This is said to be in view of Note 2 to Chapter 49.  We are  afraid  that  the  second  circular  which  has  been  quoted  hereinabove does not set out the law correctly. It is clear  that merely because a particular embossed hologram is self  adhesive, therefore in all cases, it will attract entry 39

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is not correct.  What is to be seen, as has been pointed  out above, is whether the self adhesive part of the product  is of primary use or the printed matter is of primary use.  It cannot be that invariably in all cases, the moment a  hologram is self adhesive it will fall within entry 39  without  more.   To  this  extent,  it  is  clear  that  the  circular as has been noted above, does not lay down the  correct law.

We  will  now  come  to  the  impugned  judgment.   The  CESTAT in the impugned judgment states as under: -

“It is thus apparent that even if printing is of  essential nature, the product of 39.19 would remain  classifiable  under  Heading  39.19  and  will  not  be  regarded as  “a product of printing industry”.  This  view  is  further  strengthened  by  the  Explanatory  Notes  of  HSN  below  Heading  39.19  which  reads  as  under:

“It  should  be  noted  that  this  heading  includes  articles printed with motifs, character or pictorial  representations which are not merely incidental to  the primary use of the goods (See Note 2 to Section  VII)”.

General Explanatory Notes of HSN below Chapter 49  clearly  mentions  that  “Goods  of  Heading  39.18,  39.19, 48.14 or 48.21 are also excluded from this  Chapter,  even  if  they  are  printed  with  motifs,  characters or pictorial representations, which are  merely incidental to the primary use of the goods.”  For  this  reason  “self-adhesive  printed  stickers  designed  to  be  used,  for  example,  for  publicity,  advertising or mere decoration, eg. “comic stickers”  and  “window  stickers”  mention  in  HSN  Notes  below  Heading  49.11  would  not  cover  the  products  of  Heading  39.19.   In  view  of  this,  the  decisions  relied  upon  by  the  learned  Advocate  are  not  applicable to the facts of the present matters.  In  Holographic  Security  Marking  Systems  case  the  product involved was “stamping foils” falling under

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Heading  32.12  of  the  Tariff  which  was  classified  under Heading 49.01 after the hologram was printed  thereon.   The  Tribunal  observed  that  “until  the  product became transformed because of the printing  of the material on it, it continued to be stamping  foil..”.  In the present case even after printing,  because  of  Note  2  to  Section  VII,  the  product  continues to remain classified under Heading 39.19  of the Tariff.  We thus hold the classification of  the  impugned  product  under  Heading  39.19  of  the  Tariff.”

It is clear that the aforesaid reasoning is flawed in  more than one respect.  After setting out the Explanatory  Notes to HSN and the conclusion of such Note that products  such as “comic stickers” would not fall within entry 39,  the CESTAT arrives at the exactly opposite result without  telling us why.  Secondly, we are again left guessing as to  how  the  self  adhesive  aspect  of  the  product  is  more  important than the security aspect of the said product.  Equally, there is no reasoning so far as this aspect is  concerned.   We  therefore  find  that  the  CESTAT  is  not  correct in the finding reached above and the judgment dated  19.12.2003 of the CESTAT is, therefore, set aside.

Only one further thing remains.  Various arguments  were made by both sides on the Rules of Interpretation of  the First Schedule to the Central Excise Tariff Act, 1985.  Shri Radhakrishnan referred to and relied upon Rule 1 and  Shri Lakshmikumaran referred to and relied upon Rule 3.  We  do not think it necessary to go into any of these Rules for  the purposes of this judgment inasmuch as we have found as

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a fact, in accordance with Note 2 to entry 49, that the  security  hologram  part  of  the  product  in  question  is  primary and the self adhesive part only incidental insofar  as the user of the said goods is concerned.  With the above  observations, the appeals are allowed.  There will be no  orders as to costs.  We are informed, that the appellant  has paid the duty during the pendency of these appeals.  He  will be entitled to a refund of the same in accordance with  law.

......................., J. [ A.K. SIKRI ]

......................., J. [ R. F. NARIMAN ]

New Delhi; March 30, 2015.