Holding

The appellant's screen‑printing process falls within the meaning of "printing of colour on one side" under Notification No. 68/76, making the paper exempt from excise duty.

Summary

Modern Industrial Corporation, a small‑scale manufacturer, bought duty‑paid white paper and converted it into flock paper by manually screen‑printing colour on one side, applying adhesive, sprinkling flock, drying and removing excess flock. It claimed exemption from excise duty under Notification No. 68/76, which exempts papers obtained by printing colour on one side, irrespective of subsequent varnishing, glazing or embossing, provided duty on the base paper had been paid. The Assistant Collector rejected the claim and imposed duty under Tariff Item 17(2); the Appellate Collector set aside that order, holding the notification applied. The Customs, Excise and Gold (Control) Appellate Tribunal, invoking s. 36(2) of the Central Excise and Salt Act, reversed the Appellate Collector, reasoning that "printing" required ink and that no colour printing occurred. The Supreme Court, hearing an appeal under s. 35‑L, held that the screen‑printing process constituted colour printing on one side, that the term "subsequently" in the notification allowed further processes, and that the Tribunal erred. The appeal was allowed and the exemption confirmed.

Issues considered

The process of making flock paper qualifies as "printing of colour on one side" under Notification No. 68/76.
Whether subsequent processes such as varnishing, glazing or embossing affect eligibility for exemption.
Whether the term "printing" under the notification requires the use of ink.
Whether the Tribunal had jurisdiction under s. 36(2) given the limitation period of the show‑cause notice.

Legislation cited

Central Excise and Salt Act, 1944s. 35-L, s. 36(2)
Indian Tariff Act, 1934s. 2A

Subjects

central exciseexemptionnotificationflock paperscreen printingcolour printingtariff classifications.35-Ls.36(2)limitation

Judgment

A MODERN INDUSTRIAL CORPORATION
v.
COLLECTOR OF CENTRAL EXCISE & ORS.

AUGUST 25, 1987
B
[RANGANATH MISRA AND MURARI MOHON DUTT, JJ.]

Central Excise and Salt Act, 1944: ss. 35-L & 36(2)/Excise Tariff,
...
Item No. 17(2)-Excise duty-Effect of Notification No. 68176 dated
16.3.1976--Manufacture of flock paper-Process of screen printing
carried on-Benefit of Notification-Whether available.
c
The Notification No. 68/76 dated March 16, 1976 issued by the
Central Government exempted converted types of papers commonly
known as imitation flint papers obtained by one side of paper being
subjected to printing of colour irrespective of the fact whether or not
such paper is subsequently varnished or glazed by chemicals or embos-
D sed, and falling under item 17(t) of Excise Tarrif, if it was proved that ')"
the appropriate duty of excise has already been paid in respect of the
paper used in their manufacture.

The appellant registered as small scale industry, which buys white
E paper on which duty had already been paid and manufactures flockJoc'
paper out of it by a manual process, sought exemption from payment of ~
duty under the aforesaid notification. His claim was rejected by the
Assistant Collector. That order was set aside by the Appellate Collector
who took the view that the wording of the notification showed that as r
long as the one side of the paper has been printed with the colour
F whatever other process is undertaken of further polishing or glazing
etc. is immaterial, and that in this case the first operation of printing of
one side of the paper with colour has been established. Thereafter the
matter went before the Customs, Excise and Gold (Control) Appellate
Tribunal under s. 36(2) of the Salt Act, 1944, which found that printing
is not only word printing, it .extends to numerous other processes-I
G whereby a surface is coated or coloured or is given an imprint, to repre-
sent, reproduce, cover, decorate etc. and it is not just ink that is used
for printing. Since in its opinion in the instant case, there was no colour
printing it set aside the Appellate order.

Allowing the appeal under s. 35-L of the Central Excise and Salt
H Act, 1942, the Court,

1068
MODERN INDUSTRIAL CORPN. v. C.C.E. (MISRA, l.] 1069

HELD: The process carried on by the appellant is covered by the A
Notification No. 68/76 dated March 16, 1976 and it is, therefore, not
liable to pay any duty. [1074G]

The purpose of the notification is that the paper which would have
-f otherwise fallen under Item 17(2) of Excise Tariff would, if covered by
the notification, become exempt from duty. The words used therein B
- make it clear that irrespective of the fact whether or not such paper is
T snbsequently varnished or glazed by chemicals or embossed, it would be
entitled to the benefit of the notification. The word 'subsequently'
makes it clear that the process need not be simultaneous. The Tribunal
.._ failed to notice this aspect. [1073FG, 1074F]

The Tribunal rightly indicated that printing did not require ink
c
and many other processes would also be covered by the term printing.
The appellant has been pleading from the very beginning that the
process carried on by it consists of a colour printing on one side of
the paper. The Tribunal has further recorded a finding that the
~ appellant's process is to paste one side of the paper with adhesive mate- D
rial. Whether adhesive material is mixed to colour or colour is mixed
with adhesive does not make any difference so long as a process of
screen printing is carried on to colour the paper on one side. The fact
of screen printing is accepted by respondents and that has been the
case of the appellant. The Appellate Collector was, therefore, right
'1ll in holding that the appellant was entitled to the benefit of the noti- E
- fication. [1074DE, 10710]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4534
'( of 1984.

From the Order No. C-496 dated 23.7.1984 of the Customs, F
Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal
No. 1117of1980-(C).

Harish N. Salve, Ravinder Narain, P.K. Ram and D.N. Mishra
~·for the Appellant.
G
Govind Das, Mrs. Sushma Suri and R.P. Srivastava for the
Respondents.

The Judgment of the Court was delivered by

RANG AN ATH MISRA, J. This appeal under Section 35-L of the H
1070 SUPREME COURT REPORTS [1987] 3 S.C.R.
)
A Central Excise and Salt Act, 1944 (hereafter referred to as the 'Act)
is directed against the Appellate order of the Customs, Excise and Gold
(Control) Appellate Tribunal. The appellant buys white paper from the
market on which duty has already been paid and manufactures flock
paper out of it. According to the appellant it is registered as a Small
Scale Industry with the Directorate of Industry, Government of ~
B Maharashtra and employs nine workers in all. The process of conver-
sion of paper into flock paper is said to be as follow:-

"Solution of P.V.A. Emulsion thickened with c.m.c. and
coloured with dyes is applied on one side of paper manually
with the help of hand-made screen; then flock is sprinkled -
by hand with the help of man-made sheeves. Thereafter
c paper is put on dryers for drying and finally when the paper Y
is dried extra flock is removed manually by tapping with
fingers and the paper becomes ready."

The appellant had made it clear to the Assistant Collector that it
D had no coating or laminating machine and the process was essentially ~
manual. It claimed the benefit of Nolification No. 68/76-CE issued by
the Central Government. The Assistant Collector issued a show cause
notice and rejected the claim of the appellant after cause was shown
and by order dated 27th of July 1979, held that the appellant should
take out the requisite excise licence and start paying central excise
E duty on flock paper under Tariff Item No. 17(2) of the Central Excise~
Tariff. He also directed the appellant to pay the duty for a period of -
five years preceding the date of issue of the show cause notice. A small
penalty was also imposed. The appellant carried an appeal to the
Appellate Collector against the aforesaid order who by his order dated Y
-+th of October, 1979, held:- '
F
"At the time of hearing they (appellants) produced a piece
of flock paper manufactured by them, and submitted that if
this flock paper was put into the glass of water, the flock-
ing material would disappear and thereafter it would be
seen that the paper which has been used for this purpose is~
G only pril:tted with the colour on one side. The experiment
was performed in my office and it was seen that the paper
was printed with colour on one side and the other side
remained as it is after the flock material has been fixed to
it. The appellants submitted that their appeal may be
decided without a personal hearing as any delay in personal
H hearing would cause them a great hardship and that they
MODERN INDUSTRIAL CORPN. v. C.C.E. [MISRA. J.I 1071

being a small scale manufacturer their activities have come A
to virtual halt because of this order of the Assistant
Collector.

I have gone through the appeal petition and I find that the
Assistant Collector has agreed that one side of the paper is
coloured by printing with colour, but since the flocking B
material had been stuck to this paper, the Assistant Col-
lector has held it to be flock paper and demanded the duty
on it. The wording of the Notification No. 68/76 as amen-
ded under Sr. No. 3A(ii) clearly show that as long as ihe

- one side of the paper has been printed with the colour
whatever other process is undertaken of further polishing C
or glazing etc. is immaterial. In this case the first operation
is that of printing one side of the paper with colour which
has been established beyond doubt by the appellants. What
further process is done on this paper is immaterial as glaz-
ing and embossing etc. have been allowed under this notifi-
cation to be done to the coloured side of the paper. In view D
of this, the order of the Assistant Collector is set aside so
far as the classification of this material is concerned ..... "
On 5 .9 .1980, a show cause notice purporting to be under Section
36(2) of the Act was issued by the Central Government to the appel-

•
lant which inter alia stated:
E
..... "On examination of the records of the case the Central
Government are tentatively of the view that the order of
the Appellate Collector is not proper, legal and correct. The
process of manufacture of flocked proper cannot prima
facie be considered to be equivalent to printing of colour
inasmuch as use of ink appears to be inevitably linked up F
with a printing process as understood and no ink was used
in the particular process. Hence it would appear that
the flocked paper manufactured by the assessee would be
perhaps not eligible for the benefit of notification
No. 68/76."
G
"The Central Government, therefore, in exercise of the
. powers vested in them under section 36(2) of the Central
Excise and Salt Act, 1944, propose to set aside the order of
the Appellate Collector of Central Excise, Bombay, or to
pass such order as is deemed fit after consiMration of the
submissions of the assessee ....... " H
1072 SUPREME COURT REPORTS [ 1987] 3 S.C.R.
A
The appellant showed cause and with the change in the scheme
A of the Act, the matter came before the Tribunal for disposal. Before
the Tribunal, on behalf of the appellant, two contentions were raised:
firstly, the Collector was right in holding that the benefit of the Central

B
Government Notification was available to the appellant and secondly
the proceeding was barred by limitation. The Tribunal found, with
reference to the opinion indicated in the show cause notice, as follows:
,.
"The Government of India was wrong to speak of ink as
inevitably linked up with a printing process. This is only the ""
c
character printing or word printing. But printing is not only
word printing; it extends to numerous other processes
whereby a surface is coated or coloured or is given an im-
print, to represent, reproduce, cover, decorate etc. etc. and ~
-
it is not just ink that is used for printing."

It further found that the Appellate Collector was wrong in hold-
ing that the appellant was entitled to the benefit of the notification in
D question and concluded that there was no colour printing; it did not ~
deal with the question of limitation and set aside the Appellate order.

Both the aspects raised before the Tribunal are reiterated before
us in this appeal, namely,-

E (1) The Appellate Collector was right and the Tribunal is wrong J
in holding that the appellant was not entitled to the benefit of the --
notification; and

(2) The show cause notice was issued after the expiry of the ~
period of limitation and, therefore. the Tribunal had no jurisdiction to
f reverse the order of the Collector.

The Notification No. 68176 dated 16.3. 1976. as far as relevant.
reads thus:
Table

G SI. No. Description Rate of Duty Condition
( 1) (2) (3) (4)

1 ............................ .
2 ............................. .
H 3 ······························
MODERN INDUSTRIAL CORPN. v. C.C.E. [MISRA, J.) 1073

4. Following varieties of paper, A
namely:-
(i) ....................... .

(ii) Converted types of Nil If it is proved to the
paper commonly known satisfaction of proper
as imitation flint offker that the app· B
paper or leatherette ropriate duty of
paper or plastic coated excise or additional
paper, or by any other duty leviable under

- name, obtained by one
side of paper being subjec-
ted to printing of colour,
with or without design,
section 2A of the
Indian Tariff Act,
1934 (32 of 1934), as
the case may be, has
c
irrespective of the fact already been paid in
whether or not such paper respect of the paper
is subsequently varnished used in their manu-
or glazed by chemicals or facture.
embossed, and falling D
under sub-item (2) of the
aforesaid Item No. 17.

(iii)
(underlining by us)
E
...... The appellant has throughout claimed that it buys duty paid paper from
the market and subjects one side thereof to colour printing without de-
sign and while so printing adhesive material is added to hold the spread of
flocking done by hand. The extra flocking material is removed manu-
ally and the paper is ready. The notification is in wide terms; paper by
any name is intended to be covered by it. After the process referred to F
is undertaken, irrespective of the fact whether or not such paper is
subsequently treated in the manner indicated therein, the benefit
appears to have been intended to be made available. The purpose of
the notification is that the paper which would have otherwise fallen
~ under Item 17(2) of Excise Tariff would, if covered by the notification,
becomes exempt from duty. In an affidavit filed in this Court, the G
respondent-department has stated:-

, "It is further submitted that the product does not
merit classification as a paper 'obtained by one side of
paper subjected to printing of colour' under notification
No. 68/76-CE. It is also submitted that in the manufacture H
1074 SUPREME COURT REPORTS [1987] 3 S.C.R.
J
A of flocked paper the process of application of adhesive,
coloured or otherwise to the surface of the base paper
through a silk screen is printing of adhesive only and not
one of imparting colour. The paper obtained immediately
after printing with adhesive coloured or otherwise is not a
finished product itself as in the case of papers envisaged in
B the notification." t

The learned counsel for the appellant produced a sheet of
flocked paper in court during hearing of the appeal. We carried the '"'
-
experiment as indicated in the order of the Appellate Collector and
found that the adhesive and flocking material got washed out and what
c remained was the base paper coloured on one side and white on the
other. This is exactly what the Appellate Collector had found. y
The Tribunal rightly indicated that printing did not require ink
and many other processes would also be covered by the term printing.
The appellant has been pleading from the very beginning that the
D process carried on by it consists of a colour printing on one side of the
)--
paper. The Tribunal has recorded a finding that the appellant's process
is to paste one side of the paper with adhesive material. Whether
adhesive material is mixed. to colour or colour is mixed with adhesive
does not make any difference so long as a process of screen printing is
carried on to colour the paper on one side. The counter-affidavit of the
E respondents in this Court accepts the position that there is screen
_)
printing and that has been the case of the appellant. .-
The words used in the notification make it clear that irrespective
of the fact whether or not such paper is subsequently varnished or )'
glazed by chemicals or embossed would be entitled to the benefit of
F the notification. The word 'subsequently' makes it clear that the pro-
cess need not be simultaneous. The Tribunal failed to notice this
aspect.

We are of the view that the process carried on by the appellant is
covered by the notification and it is, therefore, not liable to pay any
G duty. We set aside the finding of the Tribunal and restore that of the -I
Appellate Collector. The appeal is allowed. There would be no order
for costs.

P.s.s, Appeal allowed.
H