ORDER
Moheb Ali M., Member (T)
1. This is all about rags. Much worse. It is about rags cut out of old, used and worthless gunny bags. Notification 22/94-CE dated 1.3.1994 provides concessional rate of duty to kraft paper made out of pulp containing not less than 75% by weight of pulp made from materials other than bamboo, hardwood, softwood, reeds or rags. It is admitted that the respondent in this case made kraft paper out of pulp of rags cut out of old gunny bags. The Revenue contends that the respondent is not entitled to the benefit of the said notification as amended during the period 1994-1995 to 1998-1999, as they used pulp made out of rags in the manufacture of kraft paper. A show cause notice covering the above period demanding a sum of Rs. 14,34,40,742/- was issued on 28.9.2000. Penalties and the demand for interest under Section 11AC and 11AB were also proposed. The Commissioner of Central Excise, Visakhapatnam, who adjudicated the dispute, held that the respondent before him is entitled for the benefit of the said notification. The Revenue is aggrieved by this order. Hence the appeal.
2. The Revenue is represented by learned Joint CDR, Ms. Shobha L. Chary, and the respondent by learned senior advocate Shri R. Raghavan with Shri T.S. Subramniam, advocate.
3. The Joint CDR contends : (a) Old gunny bags are nothing but rags and pulp made out of the same should be considered as rag pulp; (b) Notification 30/93-CE dated 28.2.1993 exempts uncoated kraft paper from payment of duty provided such paper contains not less than 75% by weight of pulp made from jute, jute waster (including Hessian waste and old gunny bag waste) whereas notification 22/94 does not make any mention of jute waste, old gunny bags etc., and therefore the respondent is not entitled to the benefit of notification 22/94 when they have admittedly used pulp of old gunny bag rags; (c) gunny bags are textile materials and old gunny bags which are worn out are nothing but rags as per the description contained in chapter heading 63.10 of HSN; (d) Rags of gunny bags are classifiable under chapter heading 63.10 and once they are classifiable as rags the benefit of notification 22/94 is not available; (e) Fairchild’s Dictionary of Textile describes rags as shabby or tattered clothing or torn piece of cloth; (f) Jute fibres and waste are classifiable under Chapter 53.03 of the Central Excise Tariff Act whereas jute articles are classifiable under Chapter 63 as made up textile articles; (g) Pulp made from jute rags will fall in the category of rag pulp; (h) Since notification 22/94 specifically excludes rag pulp, the benefit of that notification has to be denied; and (i) The respondent did not disclose that they used rag pulp instead, chose to mislead the department by declaring jute waste as the material used for making pulp, therefore larger period of limitation is invocable while demanding duty short levied.
4. The respondent’s main plank is that the word ‘rag’ in notification 22/94 does not include rags of gunny bags. The respondent argued that (a) Larger period of limitation cannot be invoked for demanding alleged short levy as there was no suppression of facts; (b) That they have all along been declaring that they were using pulp made out of jute waste; (c) Jute waste need not necessarily mean jute fibre; (e) That the word ‘rags’ used in the notification should be read in the context of manufacture of paper; (e) Old gunny bag waste is always understood as jute waste; (f) In CETA no specific entry for rags; (g) In view of the note under chapter heading 63.09 in HSN old bags and sacks fall under heading 63.10 in HSN; (h) Entry 63.10 of HSN referred to by the Revenue is not applicable to old gunny bags as that entry covers only rags of cotton fabrics. It is impermissible to say that old gunny bags are rags and deny the benefit of notification 22/94; (i) Gunny bags waste is nothing but jute waste and pulp made out of such waste to jute pulp; (j) In ISI, rag pulp is defined as “Paper making fibres of cotton made from materials like new or old cotton textile cuttings or cotton linters. Thus rag pulp is made out of cotton textiles. Notification 22/94 should be read to mean that ‘rags’ means cotton rags; (k) The Finance Minister in his budget speech has clearly spelt out that notification 22/94 expands the benefit given under the earlier notification 30/93 which has extended the benefit to paper made out of jute waste; (1) Gunny bags are made out of jute/hessian and the pieces cut out of them cannot be called rags; (m) CBEC circular dated 28.2.1994 F.No. 333/33/93 clarified that the material other than bamboo, hardwood and softwood shall be treated as unconventional raw material for the purpose of granting exemption under notification 22/94-CE; and (n) Notification 8/96 and 4/97 have defined rags though in the context of rates of duties applicable to textile articles. Viewed from this definition, it is clear that old gunny bags are not rags and finally he submitted that the dispute started only with the introduction of notification 22/94 and prior to that, paper manufactured out of jute waste was exempted from payment of duty.
5. The respondent further pleaded that there was no contravention of any Rule under the Central Excise Rules and therefore penalties under various Rules proposed are not impossible.
6. We have considered the rival contentions orally presented and the written submissions.
7. Coming to the core issue as to whether the old gunny bag waste is rag for the purpose of interesting notification 22/94, we observe that the Commissioner relied on the following decisions of the Hon’ble Supreme Court in the cases of HMM Ltd. 1996 (87) ELT 503 : 1996 (67) ECR 464 (SC) and CCE v. Himalayan Co-op. Milk Produces Ltd. 2000 (102) ELT 327, wherein the Hon’ble Supreme Court laid down the principles that have to be borne in mind while interpreting a notification. Vide paragraphs 26 & 27 of the impugned order, the Commissioner held that the wordings of the notification and the policy provisions coupled with departmental instructions point to the fact that the scope of non-conventional raw materials has been expanded in notification 22/94 compared to its predecessor notification 30/93. Such an expansion means that paper made out of a pulp out of gunny waste is eligible for concessional rate of 10% ad valorem. Reliance has been placed by the Commissioner on the Finance Minister’s Budget 1994 speech and the clarification issued by the Board vide CBEC file No. 61/16/97 CX-IV dated 24.9.1997. The Commissioner’s conclusion that notification 22/94 speaks of much wider variety of raw materials that could be used in the manufacture of paper for being eligible to concessional rate of duty compared to what has been stated in notification 30/93 is misplaced. We have carefully seen all the notifications particularly 48/91 dated 25.7.1991, 30/93 dated 28.2.1993, 138/86 dated 1.3.1986, 22/94 dated 1.3.1994, 23/94 dated 1.3.1994, 64/94 dated 1.3.1994 and also the Finance Minister’s Budget speech referred to above as well as the Board’s circular. The inferences drawn by the Commissioner do not appear to be flowing from either the Finance Minister’s Budget speech or the Board’s clarification. Paragraph 80 of Part B of Finance Minister’s Budget speech 1994-95 reads as follows:
The paper duty structure is complicated due to ad valorem rates of nil, 10%, 15%, 25% and 30%, specific rates and specific cum ad valorem rates. This is now being simplified by making the general rate of duty of paper at 20% keeping nil rate for newsprint. Stationery articles etc. at 30% for paper based stationery, articles etc. 30% for paper based laminates and floor coverings and 10% or 15% for paper made from unconventional raw materials. I am enlarging the scope of the exemption currently available to paper mills using unconventional raw materials. This exemption limits the benefit by clubbing the clearances of paper from more than one factory of a manufacturer. I am now allowing this concession to be availed of by each factory separately.
8. The Commissioner relies only on a single sentence in this part of the Finance Minister’s speech, i.e. “I am enlarging the scope of the exemption currently available to paper mills using unconventional raw materials” to interpret that notification 22/94 expands the scope of exemption from what has been allowed in 30/93. The reasoning of the Commissioner is faulty. The Finance Minister was only stating that he reduced the number of rates of duties insofar as paper is concerned and secondly he was expanding the scope of notification 33/90 by allowing the exemption to be availed by each of the factories of a manufacturer instead of they being clubbed to determine the eligibility for the benefit of the notification. The Finance Minister’s speech does not say that notification 22/94 expands the scope of raw material used in the manufacture of paper for the purpose of availing of exemption. The Commissioner was also wrong in interpreting the budget speech inasmuch as he does not take into consideration the fact that a duty at 10% ad valorem is leviable under notification 22/94 when the conditions stated therein are satisfied whereas in the predecessor notification, i.e. 30/93, the same goods carried nil rate of duty. When that be so, one cannot interpret the Finance Minister’s speech to mean that he was further liberalizing the levy. Notification 22/94 is issued as a part of exercise for simplification of duty structure and notification 23/94 is for enlarging the scope of the exemption which was available before the budget to paper mills under notification 138/86. Notification 22/94 could not be for enlarging the scope of notification 48/91 amended by notification 30/93.
9. The Board vide circular No. 61/16/97 dated 24.9.1997 clarified that raw material other than bamboo, hardwood and softwood has to be treated as unconventional raw material. This clarification was issued when a doubt was raised whether waste paper pulp could be considered as unconventional raw material. In our opinion, this clarification of the Board does not help the respondent. One cannot conclude therefrom that gunny bag waste is not rag. It has to be independently and separately established that gunny bag waste which the respondent was using to make pulp is not a rag. It is therefore necessary to understand and find the plain and the ordinary meaning of rag. Both the Revenue as well as the respondent are referring to and relying upon the headings of HSN to prove their points as to whether rags include rags of gunny bags. We therefore refer to the various headings in the HSN in order to arrive at a conclusion.
Heading 53.03 covers jute and other textile based fabrics, raw or processed but not spun tow and waste of these fabrics including yarn waste and gurnetted stock.
Heading 53.10 covers woven fabrics of jute or other textile based fabrics of heading 53.03.
Heading 63.05 covers sacks and bags of a kind used for packing of goods.
Heading 63.09 covers worn clothing and other worn articles. In order to be covered under this heading, the goods should be of the heading subject to compliance of requirements specified therein. All other articles (e.g., sacks and bags, tarpaulins and camping roots) showing signs of wear are excluded from this heading and are to be classified under the corresponding new articles. It means sacks and bags of jute of this type would be covered under heading 63.05.
Heading 63.10 covers used or new rags, scrap twine, cordage, raw and cables and worn out articles of twine, cordage raw or cables of textile materials. It is provided in the HSN that this heading covers:
(a) Rag of textile fabrics. Rags may consist of articles of furnishing or clothing or of other old textile articles so worn out has to be beyond cleaning or repairs or of small new cuttings; and
(b) Scrap pieces of twine, cordage etc. and worn out articles of such materials. Thus it is clear that this heading covers worn, dirty or small pieces of textile material. They are generally fit only for recovery of the fibres.
10. The respondent’s contention in view of the aforesaid HSN chapter headings and notes is two-fold. Since old gunny sacks and bags are excluded from 63.09, they were covered under heading 63.05 and not under heading 63.10 as rags. Secondly, CETA 1985 does not have heading 63.10. Heading 63.05 of HSN is pan materiel with heading 63.05 of CETA. Therefore, under CETA also old gunny sacks and bags cannot be considered as rags. Thus the term rags in notification 22/94 does not cover old gunny bags, waste or jute waste.
11. We are unable to agree with this contention. There is no denying the fact that gunny bags/jute bags are articles of textiles. Admittedly, such jute bags which show signs of wear and tear are excluded from heading 63.09 and are classified with the corresponding new articles under heading 63.05. But there is another category of old gunny bags which are so worn out, soiled or torn beyond clearing or repairs and are generally fit only for the recovery of the fibres for the manufacture of paper etc. This is the separate category of old gunny bags which is different from gunny bags showing only signs of wear. Thus a rag is one which is worn out, soiled and torn of a textile material. If that is the meaning of rags, there is no need to refer to any dictionary, glossary of terms used in paper and paper industry or S.B. Sarkar’s Words and Phrases to find out the meaning of rags. The respondent uses torn, soiled etc. gunny bags to make pulp. Gunny bag is a textile material. We agree with the Revenue’s contention that rags can be made of any textile material or textile articles and are not limited to pieces of cotton or articles made of cotton.
12. In view of this, we see considerable merit in the submissions made by the learned Jt. CDR that old gunny bags are nothing but rags of textile material and the pulp made out of such old gunny bags is rag pulp. Rag pulp is excluded type of pulp under notification 22/94. Admittedly, the percentage content of this type of pulp is more than 75% in the paper manufactured by the respondent. They are therefore not entitled to the concessions under notification 22/94 during the relevant period.
13. Notification 22/94 was rescinded/superseded by notification 19/96 dated 23.7.1996 and a general exemption notification, 8/96 dated 23.7.1996 was issued. This was further amended vide notification 28/96 dated 11.9.1996. In 1997 budget, notification 8/96 was replaced by notification 4/97 and in 1998 budget, notification 5/98 was issued. In these notifications, exemptions similar to the one available under notification 22/94 with different rates of duties were available. The respondent is not entitled for concessional rate of duty under any one of these notifications because during this period he used rag pulp in the manufacture of kraft paper.
14. It has however been contended by the respondent that notifications 8/96 and 4/97 did contain the definition of rags and as per that definition, old gunny bag waste cannot be called as rags. It is argued that the benefit of these notifications including the one under earlier notification 22/94 and the subsequent notification 5/98 cannot be denied. The Commissioner has accepted this contention. The Revenue in its appeal contended that fents, rags and chindis mentioned in notification 8/96 relate to exemption of polyester fibre contained in such materials arising during the course of manufacturing process of goods, falling under Chapter 54 and 55 of CETA. Our attention in this regard has been drawn to entry at Sr. No. 55.10 of notification 8/96 dated 23.7.1996 and entry at Sr. No. 118 of notification 4/97. Both the entries relate to the exemption of polyester staple fibre wherein the term low priced fabrics, fents, rags and chindis has been used. It has been submitted that the meanings of these terms given in the explanation clause in the notification specifically relate only to the exemption of polyester fibre covered by entry at Sr. No. 55.10 of notification 8/96 and at Sr. No. 118 of notification 4/97. The exemption to paper in question in these two notifications is at Sr. No. 48.19 and Sr. No. 70 respectively. The above meaning of rags given in the notifications has no relevance to the entries relating to paper.
15. We have carefully seen these notifications and the relevant entries and the explanation clause in question where meaning of various terms, i.e. low price, fents, rags, chindis has been given. We are in agreement with the contention of the Revenue that these meanings relate only to the exemption of polyester fibre and not to the paper. His view is further corroborated by the fact that the subsequent notifications issued after 1998, the exemption of polyester fibre was withdrawn and the entries relating to the exemption of polyester fibre were omitted from the notification. Simultaneously, along with this, explanation clause containing the meaning of the terms (fents, rags, chindis) were also omitted whereas the entries relating to exemption of paper were retained and continued to exist in the notification. In this view of the matter, we reject the contention of the respondent that the meaning ascribed to rags in notifications 8/96 and 4/97 should be taken to mean that rags constitute only cotton or manmade pieces of fabric.
16. We observe that prior to issuance of notification 22/94, the government extended the benefit of concessional duty to papers manufactured out of certain specific raw materials which included jute waste. In the year 1993, old gunny bags were also included with jute waste. Subsequently, vide notification 22/94, the government extended the benefit to all unconventional material by specifically excluding pulp made out of bamboo, hardwood, softwood, reeds or rags. From that year onwards, as contended by the Revenue, the government is very specific in the notification about excluded category of goods by specifying pulp of which raw materials are entitled for availing of the benefit. We, therefore, uphold the Revenue’s contention that old gunny bag waste is nothing but rags for the purpose of the notifications issued subsequent to notification 30/93. Rag pulp was not entitled to the benefit of the notifications during the period 1995 to 2000. That a notification has to be interpreted strictly has been emphasised by the Supreme Court in several cases.
17. The show cause notice seeks to recover differential duty by invoking extended period of limitation under proviso to Section 11A(1) of the Central Excise Act, 1944 by alleging suppression and misdeclaration. It is alleged that the respondent has used only gunny waste, i.e. old, used, torn gunny bags but declared it as jute waste in their central excise records. The respondent misdeclared the pulp manufactured out of the said material as jute waste pulp with the intention of availing of the concessional rate of duty under the relevant notifications. It is contended that the respondent ought to have declared the said pulp correctly as pulp of rags. In view of his finding that the gunny bag waste is not rags and gunny bags are not excluded raw material for the purpose of concession, the Commissioner held that it did not matter how the respondent described the raw material in the documents. The Commissioner further held that as the basic premises on which the show cause notice stands are not available, the allegation of suppression and invocation of extended period has to be rejected. He also dropped proceedings under Section 11AB, 11AC and Rule 226 and 173Q. In the Revenue’s appeal, there is no explicit challenge to the Commissioner’s finding of dropping of these allegations. The Revenue has only contended that the Commissioner has erred in dropping the demand insofar as the kraft paper is concerned. The respondent has elaborately dealt with this issue and contended that in their records expression “jute pulp” was used inasmuch as that expression was in vague until notification 22/94 cam into being on 1.3.1994. In the earlier notifications, jute waste included old gunny bag waste and also in view of the Finance Minister’s 1994 budget speech, the respondent believed that he will continue to enjoy the exemption as was available to him prior to budget 1994. Thus the major portion of the factory site and area is occupied for storage of old gunny bags. It is not correct to say that jute waste refers to only jute fibres.
18. We have carefully considered these submissions. We are of the view that describing old gunny bag waste as jute waste does not amount to misdeclaration though the respondent could have declared the said old gunny bag waste as rags and pulp made from them as rag pulp. Gunny bag waste can be described as jute waste. Further, we do not agree with the Revenue that the jute waste can only be of jute papers and not of old gunny bags. The respondent has been declaring and describing the old gunny bag waste as jute waste. No misdeclaration or suppression on this count can be alleged. In case of bona fide declarations, the Hon’ble Supreme Court held that conscious or deliberate withholding of information by the assessee where he knew that the information supplied was either incorrect or false is required to be established by the department to invoke extended period of limitation. Mere failure or negligence on an assessee’s part is not enough. When there was a scope for doubt whether the goods were dutiable or not, extended period cannot be invoked. The Supreme Court in Camphor Drugs and Laminates, Padmini Products, : 1989 (25) ECR 289 (SC) : ECR C 1507 SC Pushpam Pharmaceuticals, Tamil Nadu Housing Board : 1997 (71) ECR 329 (SC) and Malleable Iron and Steel Castings : 1998 (77) ECR 434 (SC) held accordingly. We, therefore, do not find any merit in invoking the larger period of limitation in this case.
19. In view of the foregoing, we hold that old gunny bag waste is rags and the pulp made therefrom is the pulp of rags. The respondent is therefore not eligible to the concessional rate of duty under notification 22/94 and subsequent notifications issued during the relevant period covered under the impugned order. We, however, hold that differential duty is recoverable under normal period of limitation. We are also not inclined to interfere with the Commissioner’s finding dropping the penalty or levy of interest under Section 11AC, erstwhile Section 11AB of the Act respectively. We also see no reason to interfere with the Commissioner’s order dropping the proceedings under Rule 173Q and 226 of the Central Excise Rules.
20. We partly allow the Revenue’s appeal and modify the impugned order in the above terms. The Revenue is directed to rework out and quantify the amount of duty recoverable from the respondent within the normal period of limitation covered under the show cause notice. The respondent should pay the differential duty with interest leviable under the existing provisions relating thereto, if any, on receiving a written intimation from the department.
21. The appeal of the Revenue is thus partly allowed.