Judgment:
1. These are three appeals filed by the above appellants against the order-in-original passed by the Collector of Central Excise, Bombay dated 31-1-1992 confirming a duty demand of Rs. 1,78,38,348 and imposing a penalty of Rs. 10,000 on M/s. Fitrite Packers and Rs. 25,000 each on Shri Sunil Dalai and Ms. Usha Mehta under Rule 209A of the Central Excise Rules.
2. By SCN dated 27-6-1991 appellants M/s. Fitrite Packers were called upon to show cause why duty should not be demanded on the manufacture of printed plastic films in roll form ready to be used in the manufacture of articles of conveyance and packaging for the period between 1-7-1986 and 19-11-1990. They were also called upon to explain why penalty should not be imposed for contravention of the provisions of Section 6 of the Central Excise Act, 1944 read with Rules 173B, 173C and 173F, 174G(1) read with Rules 9(1), 173G(2), read with Rule 52A and Rule 173G(4) read with Rules 53 and 226 and Rule 173G(3) read with Rule 54 of the Central Excise Rules in the manufacture of clearance of printed plastic films in roll form ready for use in manufacture of articles for conveyance or packaging without obtaining Central Excise L-4 Licence, without filing classification list and price list and without determining the proper Central Excise Duty. They were also called upon to show cause why action should not be taken for not accounting production, clearance and stock in the prescribed statutory records, such as RG-1 Register, Monthly Returns under RT-12 Returns, etc. Ms. Usha N. Mehta, Manager of Fitrite and Shri Sunil N. Dalai, Partner of M/s. Fitrite were also called upon to show cause why penalty should not be imposed on them under Rule 209A for deliberate suppression of the fact of manufacturing activity and thereby causing evasion of Central Excise duty.
3. On behalf of the appellants it was contended that what was printed were the designs, logos, etc. and the said designs, printed motifs, colour, etc. are supplied to the customers and this involve the use of copyright, trade mark, designs etc. This was being done to identify the product with a particular manufacturer and it was not incidental to the use of Cellophone, HMHD and BOPP films/sheets of papers. The said goods fell under Chapter 49 and were chargeable to nil rate of duty. Their contention was that the goods were not excisable goods and, therefore, Rule 174 did not apply to their case. They also claimed that they had applied for licence on their own on 20-11-1990 since they felt that the goods fell under Chapter 39. Thereafter they had also filed classification list and price list under Heading 39.20 and paid duty under protest as they felt that the classification of the goods was not correct. According to the appellants the impugned goods would correctly fall under Chapter 49 in view of the fact that the material printed on the said product was vital for identifying the product and its primary use. The printing of the said material could not be said to be merely incidental to the primary use of the goods. The said printed products which were used for wrapping articles of confectionery cannot be considered to be merely a product of packaging industry. The main purposes of the said printed wrappers was to establish the identity of the goods and to relate it to the brand name of the manufacturer and to give other necessary details customers would require. The said printing carried out by the manufacturer on the said plastic sheets/films was essential to the primary use to. which the said printed sheets/films were put, namely, wrappers and confectionery. It was further pleaded that even if the goods were classifiable under Chapter 39, by virtue of Modvat credit scheme no duty become payable and consequentially there was no loss of revenue.
4. Before the Commissioner the appellants had further submitted that the activity of printing and slitting did not amount to manufacture placing reliance on the Tribunal decision in Collector of Central Excise v. Swastic Products,Collector of Central Excise v. Kiran Spinning,Bhadrachalam Paper Boards Ltd. v. Collector of Central Excise, Hyderabad, 1984 (18) E.L.T. 229 (A.P.). Even if it was held that the goods were excisable, both the inputs and the final products fell under the -same heading and, therefore, there cannot be a further levy of excise, placing reliance on the Tribunal judgment of Park Products Ltd. v. Union of India, 1991 (56) E.L.T. 52 (Bom.), since the impugned goods were correctly classifiable under sub-heading 4901.90 and, therefore, chargeable to nil rate of duty. Section Note 2 to Section VII was also relied upon.
5. Ld. Counsel for the appellants Shri D.B. Shroff contended that the impugned order had not correctly appreciated the various judgments brought to the notice of the Collector during the adjudication proceedings. The activity carried on by the appellants was not a manufacturing activity and it had been brought to the notice of the ld.Collector that neither printing nor cutting amount to manufacture. Ld.
Collector had sought to distinguish the judgments referred to by the appellants by stating that the said judgment pertained to old Central Excise Tariff. This was obviously an incorrect reasoning since the validity of the ratio of the said decisions was not dependent on the fact that they pertain to old Tariff or to the new Tariff. Ld. Counsel explained that the only activity carried on by the appellants was to print/cut the films. If this activity was merely incidental it was obvious that the activity did not amount to manufacture. It cannot be disputed that the printing of the name, logo, trade mark, etc., of a manufacturer on the consumer goods is of vital commercial importance since it helps to distinguish a product of, a particular manufacturer from that of another in the market. The Tribunal had in Maharishi Enterprises case 1988 (34) E.L.T. 365 held that Note 2 to Section VII of the Tariff and Chapter Note 10 of Chapter 39 were not attracted.
Further, Trade Notice No. 61 of 1987 was binding on the Department.
Appellants also contended that there was no justification for invoking the provisions to Section 11A(1) as there was no suppression, mis-statement or mis-declaration on the part of the appellants and the appellants had always acted on the bona fide and honest belief that no excise duty was payable by them. As regards-:the personal penalty on Shri Dalai and Mrs. Usha M. Mehta, ld. Counsel submitted that Shri Dalai was not directly in touch with the activities of M/s. Fitrite Packers and he had no knowledge as to the day to day operations of the appellant firm. No allegation of any lapses on his part, making him liable for penalty had been established. As regards Mrs. Usha M. Mehta, it was very clear that she had not been associated with Central Excise matters of the appellant firm. Penalty imposed on the two persons were uncalled for and unsustainable in law.
6. Ld. Jt. CDR, Shri Lakhinder Singh, who represented the Department submitted that the appellants M/s. Fitrite Packers were engaged in the manufacture of printed plastic covers in roll form, for use by manufacturers of various articles for packing their goods. The goods manufactured by the appellants came under the Chapter Heading 3920.29 (printed cellophone film in roll form) which was clearly chargeable item. The appellants on the other hand had contended that the printed plastic films/sheets in roll form manufactured and cleared by them would merit classification under sub-heading 4901.90 and not under 3920.29. Ld. Jt. CDR submitted that there was no dispute on the fact that the goods were used for packing and once it was accepted that the primary use of the goods was packaging, printing of such goods was of secondary importance because printing only indicated the name of the product, its specifications, use, name of manufacturer, etc. By itself such printing had no utility unless it was used along with the particular goods. Such printing has to be treated as merely incidental and, therefore, the product manufactured by the appellants, namely, printed plastic sheets/films in roll form ready to be used in manufacture of articles for conveyance or packaging cannot be classified as products of printing industry. Ld. Jt. CDR explained that in the present case all the items were clearly classifiable under Heading 3920.39 or 3920.32 in the case of BOPP and HMHD films and under Heading 3920.21/22 in the case of plain and lacquered cellophane film which after printing and slitting were converted to plastic films or sheets ready to be used in manufacture of articles for conveyance or packaging.
7. Ld. Jt. CDR referred to the impugned order and stated that three issues were decided by the Collector, namely, (i) whether the products manufactured by the appellants were classifiable under 3920.29 (with effect from 1-3-1986) or 3920.29 with effect from 1-3-1983; (ii) whether the extended period can be invoked for demanding duty; and (iii) penalties are imposable upon the manufacturers and other persons mentioned in the SCN. As regards reliance placed by the appellants on Trade Notice No. 67/87 informing the Trade regarding classification of plastic films printed with motifs, characters of pictorial representation-etc. Under Chapter 49, the Trade Notice had clearly stated that plastic films, printed with motifs would be classifiable under Chapter 49 and steel windows with or without frames would be classifiable under sub-heading 7308.90. On behalf of the appellants it had been emphasized that the activity of printing was not merely incidental since printing the logo, design, etc. of the manufacturer of the confectionery item on the wrapper can never be treated as incidental Referring to Chapter Note 10 of Chapter 39 ld. DR submitted that a mere reading of Chapter Note 10 would make it clear that printing of plastic sheets were covered under Chapter Heading 3920 since it stated that the expression "plates, sheets, films, foil and strips" under Heading 3920 and 3921 would apply to plates, sheets, etc.
of blocks of regular geometric shape whether printed or not otherwise surface work. Section Note 2 to Section VII relied on by the appellants was not applicable to the product under dispute since in those cases printing was incidental and which were put to use for packing or packaging. Section Note 2 as also Trade Notice No. 67/87 covered a different type of products then the products in consideration.
8. As regards the penalty imposed on the two other appellants, it was clear that Shri Sunil N. Dalai was a Partner in M/s. Modern Paper Convertors and that he knew about the excisability of the product and still he kept silent about the matter. Similarly, Mrs. Usha M. Mehta had also admitted to non obtaining of the Central Excise Licence and for failure to comply with the other requirements of excise law.
9. We have considered the submissions. We find that the Bombay High Court in Park Products (P) Ltd. v. Union of India, 1991 (56) E.L.T. 52 (Bombay) had considered the question of duty liability in respect of the process of backing of duty paid on aluminium foils with printed paper and had held that the process of packing of aluminium foil with printed paper was only to make it more attractive for packing and did not result in any distinct and different articles being manufactured.
In C.C.E. v. Printorium, 1996 (87) E.L.T. 432 the Tribunal had taken the view that printing of aluminium foil did not amount to manufacture as no new and distinct commercially known product had not come into existence. In the Andhra Pradesh High Court judgment in Badmchalam Paper Boards Ltd. v. C.C.E., 1984 (18) E.L.T. 229 (A.P.) it was held that cutting of paper into convenient sizes did not amount to manufacture. In Union of India v. J.G. Class Industries Ltd, 1998 (97) E.L.T. 5 (S.C) the Apex Court while considering the question whether printing/decoration of glass bottles would amount to manufacture under the old Tariff held that the test is whether the product would have served any purpose but for the printing. If the product could serve a purpose even without printing, there is no change in the commercial product after the printing is carried out. In such a case the process cannot be said to be one of manufacture for purposes of Section Note 2(f) of the Central Excise Act. In the instant case the admitted factual position is that the appellants are engaged in the activity of printing various designs, logos and details on cellophane/HMHD and BOPP films and sheets and slitting the same. The cellophane/HMHD, BOPP films, sheets etc. are supplied in rolls. These rolls are fixed on printing machines and printing is thereafter carried out according to the specification, design and requirements of the customer. The printed rolls are then slit on slitting machines and the slit material is rolled into coils and sent to the customers. The printing involve the use of designs, logos, etc. to make the proposed contents of all the wrappers marketable and identifiable as such. The question that has been raised is whether the said activity would amount to manufacture and if the Central Excise Act requires the appellants to take L-4 licence and comply with the formalities under the Central Excise Act and Rules. It is not in dispute that the only activity carried on by the appellants was to print and cut the films. The question that has been raised is whether the activity of printing and slitting was merely incidental to the activity of the main manufacturer of the excise goods or whether the activity engaged in by the appellants, namely, printing and slitting of films was itself an independent activity amounting to manufacture. Note 1 to Section VII of the Central Excise Tariff Act provided that goods put in sets consisting of two or more separate constituents, some or all of which fall in Section VII and are intended to be mixed together to obtain a product of Section VI or Section VII, are to be classified in the heading appropriate to that product, subject to the condition that the constituents are clearly identifiable as being used together without first being repacked or presented together, and identifiable as being complementary to one another.
Further, Chapter Note 10 of Chapter 39 stated that the expression "plates, sheets, films, foils and strips", occurring in Heading No.39.20 and 39.21 would apply only to plates, sheets, etc. of regular geometric shape whether or not printed or otherwise surface worked. In the instant case the appellants had accepted classification of their goods under Chapter Heading 4901.90. It is, therefore, clear that the Chapter Notes relating to Chapter 39 was not applicable to the goods in question. We, therefore, agree with the contention of the ld. Counsel for the appellants that irrespective of the question whether the process engaged in by the appellants was a process of manufacture or not, the goods were more appropriately classifiable under Chapter 49.
We also agree with the contention of the appellants that the decided cases, especially the Bombay High Court judgment in Parle Products Ltd. v. Union of India, supra, supports their contention that the printing and slitting etc. do not amount to manufacture in the facts and circumstances of the case. In the case of Parle Products (supra), it was held that the process of backing of aluminium foil with printed paper used for packing the products to make it more attractive was not manufacture. Hon'ble High Court had held that the process of backing aluminium foils cannot be held to be a process amounting to manufacture. In the instant case it is not in dispute that the appellants are only printing the logo, colouring, trade marking, etc., on various reels and slitting and printing them in rolls for use by the manufacturers of other products.
11. Having regard to our analysis above, we are of the view that the three appeals deserve to be allowed and the impugned order set aside.
We do so accordingly.Union of India v. J.G. Glass Industries while deciding the issue as to whether printing was a process amounting to manufacture. Hon. Court have observed, inter alia, that the test is whether the product would serve any purpose but for the printing. If a product could serve a purposs even without printing and there is no change in the commercial product after printing is carried out, the process cannot be said to be one of the manufacture and on this basis held that printing/decoration carried out on glass bottles does not amount to manufacture.
13. In the present matter it is not the case of the department that the appellants were manufacturing plastic films in roll and printing them.
If they were doing so, department would have been justified in its stand that Heading 39.20 covers such items in view of Chapter Note 10; But the admitted fact is that the appellants were engaged merely in the process of printing and slitting of plastic films and therefore a question has arisen whether such an activity amounts to manufacture. In my opinion Heading 39.20 is attracted only in such cases where plastic film is manufactured and printed and therefore the final product which is cleared is a printed plastic film. But a case, such as present one where only printing (and such incidental processes as slitting etc.) is done falls in a different category as printing here is the main activity and unless by application of the test prescribed by the Supreme Court in the case of J.G. Glass Industries (supra) it could be shown that a new commodity known to the market has emerged, the product could not be held as excisable. In the present case, the appellants are not manufacturing plastic films but merely printing them with logos, designs, motifs etc. as indicated by the customers and therefore in my opinion such a printing with motifs, characters or pictorial representation which are not merely incidential to the primary use of the goods would take them out of the Chapter 39 by virtue of Section Note 2 of Section VII; And they would fall under Chapter 49 as 'other products of printing industry' if (and only if) it could be shown that a new excisable product has emerged as a result of such an activity.
14. In the present case, the goods are admittedly said to be used for wrapping of articles of confectionery therefore, on the basis of this admitted fact the position which emerges is that such wrappers can be used with or without printing for wrapping but since the appellants have themselves admitted to this extent that the main purposes of printing was to distinguish and identify the product and its manufacturer in particular and was vital for its marketing, it is apparent that printing was not merely incidental but the main purpose in the present case and therefore Trade Notice No. 61/87 dated 19-8-1987 of Bombay I Collectorate which takes note of the fact that such products are classifiable under Chapter 49 comes into picture.
Hence, I consider that the alternate request of the appellants that these goods ought to have been classified as products falling under Chapter 49 as products of printing industry and chargeable to Nil rate of duty under Chapter 4901.90 is required to be accepted. Hence, the impugned order is set aside and the appeal accepted.