ORDER
S.L. Peeran, Member (J)
1. This appeal was heard fully and closed for orders on 6-7-1994. Due to mix up at Registry level, the file was not put up for preparing the orders, instead a fresh notice for hearing was given for 3-10-1994. The position has been clarified by Misc. Order dated 30-9-1994. Accordingly, the case is taken up for recording the orders. This appeal is directed against the order dt. 15-10-1992 passed by Collector (Appeals), Bombay who has confirmed the classification of the product, “Surface Decorated Covered Paper” used in wrapping filter mass and assembling filter tip of Cigarettes in Tariff Heading 4813.00 of Central Excise Tariff Act, attracting duty @ 10% + Rs. 2425/- per M.T. basic. Thus, the Classification List No. 1/89 w.e.f. 20-10-1989 has been finally approved under this heading.
2. The Asstt. Collector in the order-in-original has held that the subject product gives the essential character to the cigarettes, without which the filter tipped cigarettes will not be complete. The Asstt. Collector has held, relying on the assessee’s admission that the process carried out by the party on the duty paid base paper is a printing process called ‘MOTLEY’, whereby dots appear on the base paper. The essential character of this paper, i.e., non-porous nature is not imparted by this process, and hence the Asstt. Collector has held that it cannot be called conversion. Observing the function of the product, the Asstt. Collector has held :-
“In filter tipped Cigarettes there are two portions. One is the tobacco mass and the other is the filter mass. The former has to burn but the filter mass should not burn, otherwise it will burn the fingers of the smokers. The two masses have to be wrapped in paper to make a Cigarette. Tobacco mass has to be wrapped in porous paper so that oxygen can reach it to keep it to burn, whereas filter mass, which should not burn is to be wrapped in a paper which is non-porous so that oxygen supply is cut off whereby it will not burn.”
The ld. Asstt. Collector has further held that :-
“Filter and its wrap being an essential part of the Cigarette, the ‘tipping paper’ will be included in the term ‘cigarette paper’. My findings are corroborated by a reference to the Explanatory Notes to HSN, Vol. II Page 680, Tariff Heading No. 48.13 which inter alia contains :-
CIGARETTE PAPER, WHETHER OR NOT CUT TO SIZE OR IN THE FORM OF BOOKLETS OR TUBES.
“The heading covers Cigarette paper (including plug wrap and tipping paper, used for wrapping the filter mass and for assembling the filter-tip and the cigarette respectively), regardless of its size or presentation…
…Cigarette paper may be coated at one end with wax metal pigments or other non-absorbent substances or tipped with Cork, Straw, Silk etc. Paper in the form of tubes may also be fitted with filters, generally consisting of small plugs of absorbent paper, Cellulose Wadding or Cellulose acetate fibres, or the tip ends may be reinforced with paper of heavier quality.”
A plain reading of the above will at once bring out clearly that the subject product is a part of the Cigarette paper.”
3. Confirming the order of the Asstt. Collector, the Collector (Appeals) has held that :-
“From the submissions of the appellants it is seen that the paper used for wrapping the filter mass is required to be of some physical character such as it has to be non-porous and heavy. Therefore, the base paper is called Tipping paper which is described as such in the G.P. 1s by its manufacturers. Thus the end-use, of this plain paper is manifest at the initial stage itself. Such tipping paper when decorated by Motley process is to be examined whether it is covered by Heading 48.13. This is necessary because, the use of this paper is directly related to the making of Cigarette.”
4. The ld. Collector, while confirming the Classification of the product under Tariff Heading 4813.00 and rejecting the claim under sub-heading 4811.90 has remanded the matter to the Asstt. Collector to consider the plea of the appellant for grant of the benefit of Notification No. 49/87.
5. The appellants are aggrieved with this order and hence the appeal. The appellants contend that the end-use cannot be the criteria for the purpose of classification and in this context rely on the ruling of the Hon’ble Supreme Court as rendered in the case of Dunlop India v. U.O.I. 1983 (13) E.L.T. 1566 (SC) and that of the Tribunal ruling rendered in the case of Goodlass Neurolac Paints v. C.C.E. 1992 (60) E.L.T. 392. It is pleaded that Tariff Entry 48.11 does not mention that surface decorated paper, if used for wrapping the filter mass would be cigarette paper under 4813.00. It is stated that physical character of the paper evidently manifests the use to which it is put to and therefore, its use does not change by surface decorating it. It is stated that in long past Cork was used as a ‘tip’ to one end of the Cigarette and the paper which wrapped it was called cork-tipped paper or C.T. paper i.e. tipping paper. It is stated that though Cork has long been replaced by filter, the paper wrapping the filter continues to be called C.T. paper (Cork Tipped Paper) in the industry and the trade. Cork used to have dots which was reflected on the paper wrapping it. It is stated that, it was for this reason that when filter replaced the cork, the paper wrapping the filter has been surface decorated by a process called ‘Motley’ so that dots appear on the paper which resemble the cork tipped paper to keep the tradition. They state that the paper was manufactured, classified and assessed under Heading 48.05 because of its distinct physical character. Since there is no change in either the physical character or the end-use by surface decorating it, they had sought classification under Heading 48.11, which covers paper or paper-board, which are converted into surface coloured, surface decorated or printed in rolls or sheets. They further submit that surface decorating is a process of conversion. If any paper falling under Chapter 48 is converted out of duty paid base paper, such converted type of paper attract classification under 48.11 and exempted under Notification No. 49/87, dt. 1-3-1987 as amended, from whole of the duty of excise. They also rely on the Trade Notice No. 27(MP) of Collectorate Bombay-II which has suggested classification of surface decorated tipping paper as paper and paper-board under Heading 4811.90. They submit that only one heading is possible and hence the question of invoking the Rules of Interpretation does not arise and it has been wrongly applied by lower authorities. They also plead that HSN Explanatory Notes also do not apply to the fact of the present case. It is further pleaded that the understanding in the trade is that tipping paper has an identity of its own separate from Cigarette paper. They also submit that they do not manufacture the tipping paper, as they merely purchase duty paid plain tipping paper and that they do not carry out any manufacturing process on this duty paid paper. They submit that the process of printing called ‘Motley’ whereby a design of white dots decorate its one side is a recognised process of conversion in paper technology and this process would make the converted paper fall under subheading 48.11 from 48.05. They submit that the process of converting to surface decorating is incorporated in sub-heading 48.11 itself and that the process of conversion neither changes the physical property nor the end use of the paper. In this context, they rely on the ruling of the Tribunal rendered in the case of Purolater India Ltd. v. CCE 1990 (45) E.L.T. 91.
6. We have heard Shri K.P. Anand, ld. Advocate for appellants and Shri Sharad Bhansali, ld. SDR for the Revenue.
7. Shri K.P. Anand, ld. Advocate reiterating the grounds of appeal forcefully submitted that the plea for classification of the product under the residuary Item 4811.90 as ‘other’ under the main description of the Tariff heading “paper, paper-board, Cellulose wadding and Webs of Cellulose fibres, coated, impregnated, covered, surface-coloured, surface decorated or printed, in rolls or sheets, other than goods of Heading Nos. 48.03,48.09,48.10 or 48.18” is justified. He submitted that the Heading 48.13, which reads, “Cigarette paper, whether or not cut to size or in the form of booklets or tubes”, is not an appropriate heading, as the paper is not Cigarette paper. He submitted that the item is supplied to them by ITC and Triveni Tissues, and it is referred as Cigarette Tissues. It has special quality and it is a fine paper, odourless, porous, combustible, and it has its own specification, which is different from that of the other papers. He submitted that both sides had not produced any evidence on Trade understanding or Trade opinion. He submitted that the onus of classification is on the department and that they had not discharged the same. He submitted that the process of ‘Motley’ does not convert the cigarette-tissue into a ‘Cigarette Paper’, and that the process is also not a process of manufacture. The Asstt. Collector had adopted HSN Explanatory Note to classify the goods, but the same is not relevant, as the paper is not Cigarette paper at all and that the deptt. had not produced any evidence to show that the process of conversion by ‘Motley’ process is a process of manufacture and that the paper has become ‘Cigarette Paper’ for classification under sub-heading 4813.00. He also relied on the definition of several terms as appearing in IS 4661-1946, and few terms as appearing in ‘The Dictionary of Paper’, from “Dictionary and Encyclopaedia of Paper and Paper Making” by E.J. Labarre; from ‘Speciality Papers’ by Francis R. Gould, to submit that the paper in question is not ‘Cigarette Paper’. He relied on the ruling of Shanti Lal Doshi v. CCE 1991 (56) E.L.T. 263 and that of Chetna Polycoats v. CCE 1988 (37) E.L.T. 253, to submit that HSN Explanatory Notes is not a conclusive piece of evidence for classification, but has only a persuasive value. He also submitted that all papers which go into manufacture of Cigarette is not Cigarette paper and that the Cork Tipping paper is different from Cigarette Paper. Mere printing on the paper does not bring in a physical change to constitute as a manufacture and to be considered as a different commodity and hence the Cigarette Tissue, after the ‘Motley’ process fall under the residuary Heading 4811.90. In this context he relied on the technical literature as well. It is his plea that the paper continuous to remain as a strong variety of tissue paper. He submitted that only a White Paper would satisfy the criteria of a ‘Cigarette Paper’ and that the Cigarette Tissue Paper does not fall within the category of ‘Cigarette Paper’. Relying on the definition of the terms of Tissue Paper’ and ‘Cigarette Paper’, the ld. Counsel submitted that only a finest quality of paper having a grammage below 25 gm/M2, is covered within the definition of Tissue Paper. Therefore, he submitted that all Cigarette Papers does not come within the category of ‘Tissue Paper’ or ‘Cigarette Tissue’, which is a different category falling with main Heading 48.11 as ‘paper’ only.
8. Ld. SDR forcefully replying to the arguments of the ld. Advocate submitted that the appellants were receiving ‘Cork Tipping base paper’, and what is cleared after the ‘MOTLEY’ process of manufacture, is ‘Cigarette Paper’. The character of the paper has changed after the printing as the transparency of the paper has changed, after the process of Printing. He submitted that there is no definition in ISI for ‘Cigarette Paper’. He submitted that the process of printing does amount to the process of manufacture and in this context relied on the ruling of Vimla Printers v. CCE, reported in 1993 (66) E.L.T. 231 and that of U.O.I. v. Bata India, reported in 1993 (68) E.L.T. 756. He submitted that the items shown in the Tariff, would be deemed to be marketable, unless otherwise shown by the assessee and that burden is on the assessee and that the same has not been discharged by them. He submitted that the paper received by the assessee were classified under sub-heading 4805.90 as ‘Uncoated Paper under Rolls or Sheets’ and after the ‘Motley’ process, they would be rightly classifiable as ‘Cigarette Paper’, based on their use to which it is put. He submitted that the use in manifest in the Tariff itself, and hence the question of not considering the end-use does not arise at all. Therefore, the end-use in this particular case is certainly relevant. He pointed from the definition relied by the ld. Advocate with regard to ‘Cigarette Paper’ from the literature produced that both combustible and non-combustible paper are covered in the definition of Cigarette Paper. This view is supported by the reading of HSN Explanatory Notes and hence the technical literature relied by the ld. Advocate is more helpful to revenue. Therefore, the HSN Explanatory Note cannot be brushed aside and it has a persuasive value, as rightly held by the lower authorities. The ld. SDR relied on the following rulings in support of his contentions :-
(i) Chetna Pohjcoats (P) Ltd. v. CCE, reported in 1988 (37) E.L.T. 253.
(ii) Naffar Chandra Jute Mills v. Asstt. Collector of Central Excise, reported in 1993 (66) E.L.T. 574 (Cal.).
9. Countering the arguments of the ld. SDR, the ld. Advocate submitted that the ‘Cigarette Tissue’ in erstwhile Tariffs of 1955 and 1960, referred to ‘Cigarette Paper’. He submitted that although the assessee admitted that they carried out a process, but it did not amounted to manufacture, as no new commodity came into picture, as the commodity remained the same; as the same paper could also be used for filter-tips, without printing. Anyhow, printing by itself did not make the tissue paper, a Cigarette Paper.
10. We have carefully considered the submissions made by both the sides and also perused the literature and the citations relied by them. The question for consideration is as to whether the input ‘Cork-Tipping’ paper by a process of printing known as ‘MOTLEY’ process, has brought about a process of manufacture, and the paper has become a ‘Cigarette Paper’, classifiable under the Heading 48.13, as ‘Cigarette Paper, whether or not cut to size or in the form of booklets or tubes’ carrying a duty rate of 30%.
11. The assessee is contending that there is no process of manufacture and that the paper continues to remain paper and it is to be classified under the sub-heading 4811.90, in the residuary heading ‘other’ of main heading ‘Paper, paper-board etc.’
12. The input received by the assessee is described as ‘Cork Tipping Paper’ which has been classified under sub-heading 4805.90, in the residuary heading ‘other’ of the main Heading reading 4805, which reads :
“other uncoated paper and paperboard in rolls or sheets.”
13. The assessee contended that the ‘Motley’ process is not a process of manufacture, although it does bring a physical change, but that change does not make it a ‘Cigarette Paper’ to be classified under Heading 48.11. They contend that end-use is not the criteria for classification and HSN Explanatory Note is not applicable and that department has not considered the Trade and Commercial understanding of the product. In this context definition of the ‘Cigarette Paper’ as appearing in the various Texts, as mentioned, is relied.
14. The definition of ‘Cigarette Mouth Piece Paper’, ‘Cigarette Paper’ as appearing at Page 118 of “The Dictionary of Paper’ published by American Paper and Pulp Association, is reproduced hereunder :-
“Cigarette Mouthpiece Paper : A soft, flexible paper, made of flax and/or bleached chemical wood pulps, of a basis weight of 80 to 90 pounds used for the tips of cigarettes.
“Cigarette Paper : A strong tissue paper of close, uniform texture, free from pinholes, used as a wrapper for tobacco in manufacture of cigarettes. It is generally made from flax pulp (see Chapter Two, p. 27) and contains no size. This paper may be either combustible or non-combustible. Combustible paper is also called free burning paper, contains from about 15% to about 30% of Calcium Carbonate filler. All cigarette paper is made from highly beaten stock which contributes to its high strength and uniform formation but which, at the same time, necessitates the addition of large percentages of the filler to provide the desired porosity. The rate of burning of the cigarette is controlled largely by the porosity of the paper, which depends, among other factors, upon the percentage of filler in the sheet, and by the size and shape of the filler particles. The filler also contributes importantly to the whiteness and opacity of the paper. Non-combustible paper has little or no filler added. The normal weight of cigarette paper for consumption in the American industry is about 20 to 22 gms per square meter, and the calcium carbonate content is about 25%. Cigarette paper for roll-your-own Cigarettes may weigh as little as 15 to 18 gms per square meter. Significant properties include strength, stretch, filler content, texture, colour, opacity and porosity.”
19. They have also mentioned that tipping paper is received by them under gate passes showing classification under 4805.90. They have emphasised that they do not manufacture the tipping paper but merely convert it into the surface decorated tipping paper.
20. I note that the above submission on facts has not been contradicted or shown to be wrong.
21. I also note that the s- called tipping paper and the so-called cigarette paper both are in the nature of tissue paper but have different characteristics and uses as evident from the dictionary of paper which indicates the raw materials used, characteristics and specifications and uses as extracted by the appellants in respect of cigarette mouth piece paper and cigarette paper. The excerpts from ‘Dictionary and Encyclopaedia of Paper and Paper Making’ by E.J. Labarre give further details.
22. In view of the above position one thing is clear that the correct classification of plain tipping paper (or cigarette mouth piece paper) was the responsibility of the manufacturers thereof and the Assessing Officer in-charge of the manufacturing unit for the simple reason that such paper had obviously acquired all the technical specifications and characteristics as such before it was purchased by the appellants. The appellants are only responsible for conversion of this paper into a decorative paper by ‘MOTLEY’ process for their use; And it is self-evident that such a decorative process (that is the mere act of MOTTLING) by itself does not convert it into cigarette paper.
23. Therefore, in my view if the department considered that the tipping paper was classifiable under 48.13 then it should have issued the show cause notice to the manufacturer of that paper and not to the appellants who were admittedly responsible only for converting it into a decorative paper. In any case the manufacturer should have also been impleaded along with the appellants if it was proposed to raise the issue of characteristics and classification of the plain cigarette mouth paper in these proceedings.
24. Even otherwise as observed by the Hon. Member (J) the lower authorities have erred in not applying the marketing test.
25. It is also noteworthy that ISI defines conversion as follows :-
“CONVERSION : “A general term description of processes or operations applied to paper or board after the normal paper making operation to meet specific end use requirements” ( as————-quoted in the case of Percolated Ind. Ltd., 1990 (45) E.L.T. 91).”
The above order also mentions that in the field of paper technology conversion is a general term applied to processes or operations on paper or board after normal paper making operations for example printing, packing, manufacturing etc. are referred to as converting process. Hence, the process undertaken by the appellants constitute merely conversion of plain tipping paper into MOTLEY tipping paper. Therefore, even if it is considered that the tipping paper was also a type of cigarette paper because of its alternative description as cigarette mouth paper and its use even then its conversion into surface decorated printed paper would still attract 48.11 and not 48.13 at this stage (as the former explicitly covers such products in rolls or sheets).
26. Hence, even if HSN notes are taken into account and on that basis tipping paper was considered as a type of cigarette paper still the show cause notice would be addressable to the initial manufacturer of the item and not to the one who has merely subjected the base tipping paper to a further process of conversion as aforesaid. To my mind therefore, the proceedings have been started against a wrong party and deserve to be quashed.
27. This would however, revive the provisional character of the assessment leaving the department free to finalise the assessment after taking only the correct and relevant factors (including relevant notification) into consideration and excluding the aspects which are not relevant or have no direct bearing in so far as the appellants are concerned.
28. I, therefore, set aside the impugned orders and remand the matter to the Assistant Collector for de novo consideration, if necessary, after issuing a fresh show cause notice and giving due opportunity to the appellants and others concerned, if any, required to be impleaded.