G. Sankaran, Member (T)
1. The dispute in the two captioned appeals revolves round the correct classification, under the Central Excise Tariff Schedule (GET, for short), of certain goods-“treated paper, treated fabrics and treated glass fabrics”-manufactured by the appellants hereinafter referred to as Formica). There are also other ancilliary issues to which we shall refer at the appropriate places.
2. Since the basic issues are similar in both the appeals, they are being disposed of by this common order.
3. The facts of the case in Appeal No. 1516/83-C, briefly stated, are that Formica manufacture Rigid Plastic Laminates. For this purpose, they procure paper, cotton fabrics and glass fabrics as raw materials and treat them with synthetic resin to obtain treated paper, treated cotton fabric and treated glass fabric. Several layers of treated paper/treated fabric are compressed under heat and pressure to form rigid plastic laminates. The treated paper/fabric were consumed captively for the manufacture of rigid plastic laminates without paying Central Excise duty leviable thereon under Item 17(2) (treated paper), Item 19B (treated cotton fabric) and Item 22B (treated glass fabric). Classification Lists under these items filed by Formica had been duly approved by the Department and Formica was paying duty on clearances of these goods to outside parties but not on those goods which were taken into captive consumption within the factory for production of rigid plastic laminates. The Excise authorities issued to Formica nine show cause notices demanding payment of duty on the captively consumed goods covering the period from 13-1-1976 to 31-12-1981. In due course, the Assistant Collector of Central Excise, Pune confirmed these demands by his order dated 20-3-1982. He held that Formica was liable to pay duty on treated paper/ cotton fabric and treated glass fabric (consumed captively by it in the manufacture of rigid plastic laminated sheets), under Items Nos. 17(2), 19 and 22B respectively. Formica pursued the matter in appeal before the Collector of Central Excise (Appeals), Bombay, but did not meet with success. It is this order of the .Appellate Collector that is under challenge before us.
The facts in Appeal No. 1505/83-C, briefly stated, are that Formica claimed before the Assistant Collector that they were not manufacturing treated glass fabrics. Glass fabrics were purchased from the market and Formica did the process of impregnation of the fabrics with epoxy or phenolic resins for turning the fabric into laminates. Mineral fibres predominated in treated glass fabric and hence the latter should be classified under Item No. 22F, GET and exempted under Notification No. 87/76, dated 16-^-1976. The Assistant Collector negatived this contention and held that Item No. 22B was specific for textile fabrics, impregnated, coated or laminated, not elsewhere specified and covered treated glass fabrics. Aggrieved with the Assistant Collector’s order, Formica pursued the matter in appeal. The Appellate Collector rejected the appeal by his order dated 6-4-1983. It appears from the said order that Formica gave up the claim for classification under Item 22F, CET. Instead, they pressed for classification under Item 15A, CET and, alternatively, under Item 68 CET. It further appears that even this stand was modified by contending that the treated glass fabric would not fall under Item 15A, CET since the solution used for treating the fabric was an unstable reactive mixture which had not reached complete resinification at all. It was thus contended that the treated fabrics wsre non-excisable or, alternatively, classifiable under Item 68, CET. The Collector (Appeals) held that the glass .fabrics, having been treated with preparations ofepoxy or phenolic resins, according to Formica’s own admission, correctly fell under Item 22 B and not 68 of the CET. It is this second order of the Collector (Appeals) that is also under challenge before us in these proceedings.
4. We have heard Shri S. Venkataraman, Consultant for Formica and Shri A. K. Jain, SDR, for the Respondent. We have also perused the record.
5. The submissions on behalf of Formica may be summarised thus :
(i) The show cause notices have invoked Central Excise Rule 9(1) and (2) read with Section 11A of the Central Excises and Salt Act. Rule 9(2) can be invoked only if any or all of 5 ingredients are present : fraud, collusion, wilful mis-statement, suspression of facts or contravention of the provisions of the Act or Rules [Rule 9(1) here] with intent to evade payment of duty. None of these ingredients was present in the present case. Central Excise officers were located in Formica’s factory right from the year 1978 onwards and they were fully aware of the happenings. It is significant that the show cause notices had not invoked Rule 173-Q which would have been the case if there was deliberate intent to evade duty.
(ii) In 1975, consequent on the introduction of Item 68, CET and in response to the Department’s direction, Formica had declared the stocks of Treated Paper and Treated Glass Sheets [shown as falling under Item 15A(2), CET] as on 28-2-1975. They had further submitted that the materials manufactured in their factory and consumad internally to make rigid plastic laminates would not come under the purview of Item 68 CBI. The Sup Jt. of Central Excise, by his letter of 9-4-1975, told Formica that resin-treated paper fell under Item 68, CET and that duty would be leviable on sales as well as internal consumption. There was considerable exchange of correspondence between Formica and the Excise authorities. By letter dated 18-7-1977, the Supdt. of Central Excise informed Formica that treated paper would fall under Item 17, CET.
(iii) The Department could thus not plead ignorance. Hence, duty, if at all, could be demanded only in respect of 6 months prior to the dates of the show cause notices. The extended period of 5 years could not have been invoked in the circumstances. It was submitted that the notices did not spscify the exact amounts of duty and so were void. However, since this point was not raised before the lower authorities, said the learned Consultant, he was not pressing the point.
(iv) Turning to the subject of classification of the goods, the following contentions were made :-
(A) Treated glass fabrics :
(a) At the outset, Shri Venkataraman stated that he was not depending on any of the affidavits filed with the appeal;
(b) It is not a “reacting mixture” but a resin which is used for treating glass fabrics. The resin itself is stable but the product which emerges, viz. the treated glass fabric has got a shelf-life of only 6 months and, that top, under controlled conditions. The epoxy resin used was duty-paid. The duty on the resin used is not an issue before the Tribunal. (The Senior Departmental Representative agreed with this statement.)
(c) The Appellate Collector was right in holding that the process of manufacture was neither uninterrupted nor continuous nor integrated. This submission made before the lower authorities was not factually correct.
(d) Attention was drawn to the show cause notice dated 7-10-1976 issued by the Supdt. of Central Excise to Formica in which it was alleged that Formica had contravened Central Excise Rule 9 inasmuch as they had not paid duties on impregnated glass fabrics called “treated glass fabrics” valued at Rs. 56.92 lakhs manufactured and consumed for further processing into laminated sheets by them from 1970-71 to 1975-76 (pages 63-64 of the paper book). The Assistant Collector, Puae, by his order dated 17-3-1977, held that Formica had knowingly suppressed facts and had produced and consumed and removed the impregnated glass fabrics from their factory without payment of duty thereon and that they had contravened Rule 9(1). The Assistant Collector demanded duty in terms of Rule 9(2) and 10A for the period 1970-71 to 1975-76 and also levied penalty of Rs. 250/- under Rule 9(2) (pages 65-70 of the paper book). On appeal, the Appellate Collector upheld the Assistant Collector’s findings regarding the classification of treated glass fabrics under Item No. 22(3) of the CET. However, he held that the alleged suppression of facts was not established since the Department had full knowledge of the products manufactured by the appellants. He further observed that the demand was raised against Formica after the duty from them had been assessed and recovered under Item No. 68, CET. On this basis he ordered revision of the demand in terms of Rule 10. The penalty imposed on Formica under Rule 9(2) was set aside (pages 72-79 of the paper book). Shri Venkataraman stated that this narration of events would go to show that the Department’s story of suppression of facts on the part of Formica was totally misconceived since the very same charge had been levelled against them and they had been acquitted by the Appellate Collector.
(e) The classification of treated glass fabrics had come up for consideration of the Central Government in the Revision Application filed by Formica against the Appellate Collector’s order of 25-8-1978 [See sub-para (d) above]. The Central Government, by its order dated 24-2-1981 (pages 40 to 42 of the paper book) held that treated glass fabrics could not be classified as fabrics under Item 22(3), CET as they had completely lost their identity, if any, as fabrics after impregnation with resin. When Item 22(3) was held to be inapplicable, the Department sought to bring the product under Item 22B. In this context, it was urged that both Items 22B and 22(3), CET referred to fabrics impregnated, coated on laminated with preparations of cellulosic derivatives or with other plastic materials”. The resin with which Formica treats glass fabrics is a synthetic resin. It is neither a cellulosic derivative nor a plastic material. Therefore, the treated glass fabric would not fall under either 22(3) or 22B, CET. The goods would thus fall under the residuary head Item 68, GET. It was also urged that Item No. 15A(2) had also to be ruled out because that item was specific to cover only articles made out of the materials specified in Item No. 15A(1).
(B) Treated Cotton Fabrics :
Shri Venkataraman stated that his submissions with respect to treated glass fabrics would apply to treated cotton fabrics also.
(C) Treated Paper :
It was submitted that there was no definition of “Paper” in the tariff. As such, treated paper could not bs said to be “Paper” under Item 17, CET For this proposition, the following decisions were relied upon :-
(i) State of Orissa v. Gestetner Duplicators (P) Ltd.-1974 STC (Vol. 33) 333;
(ii) Kilburn & Co. Ltd. v. Commissioner of Sales Tax, Lucknow-1973 STG (Vol. 31) 625;
(iii) Kores (India) Ltd. v. State of Uttar Pradesh-1970 (Vol. 26) STC 126.
Treated paper would, therefore, fall under the residuary Item No. 68, GET.
6. The submissions on behalf of the Respondent may be summarised as follows :-
(i) The Department is not seeking to rely on any test report of the type referred to by Shri Venkataraman.
(ii) There is sufficient material to show that there was suppression of facts on the part of Formica. They took excise licence for treated paper (Item 17) without protest in 1977, for treated cotton fabrics [19(3)], again, in 1977 and for treated glass fabric [Item 22(B)] in 1980. This showed that the assessment done by the Department was accepted. During the periods relevant to the present proceedings, however, no assessment returns in form R.T. 12 in respect of these goods taken into captive consumption were submitted by Formica to the proper officer. From the dates the classification lists were approved in respsct of treated paper under Item 17(2) (23-3-1977), treated cotton fabrics under Item 19(3) (20-7-1977) and treated glass fabrics under Item 22B (22-5-1980), there had been no protest or appeal against the said classifications. However, no R.T. 12 returns were submitted in respect of these goods taken into captive consumption. In respect of goods captively consumed not only classification lists but price lists were also necessary in order to enable the proper officer to determine the correct amount of duty chargeable. Formica had not submitted any price lists from 1977. Thus, the provisions of Rule 173-F were not complied with by
Formica and the Department could not have made any assessment in the absence of information about the goods captively consumed. In the circumstances, it was clear that there was deliberate intention on the part of Formica to suppress material facts and, therefore, the extended period of 5 years for recovery of duty was available to the Department in the present cases. Even when show cause notices were issued, the R.T. 12 returns which were submitted did not furnish values of the goods taken into captive consumption. As instances, some R.T. 12 returns were produced by the SDR relevant to the year 1981 in which the value and quantity of the goods had not been mentioned.
(iii) Formica’s factory was not under the system of physical excise control though from the point of view of convenience of the industry, the office of the Central Excise Officer may have been located in the factory. However, this would not absolve Formica of their own responsibility to comply with the prescribed procedures.
(iv) In the circumstances, it was urged that the extended period of 5 years had been correctly invoked, at any rate from the dates the classification lists were approved.
(v) The point that Rule 173-Q was not invoked, would not mean that there was no suppression of facts.
(vi) The argument that the show cause notice did not specify the amounts was also devoid of substance since, wherever the required information was made available by Formica, the amount was indicated (our attention was drawn to page 85 of the paper book). Wherever the information was not made available, the show cause notice said that the duty had to be worked out on the basis of figures to be furnished by Formica. The Department could have done anything else since Formica had not supplied the necessary information. In the circumstances, non-mention of the amounts was not a fatal informity.
(vii) Turning to the subject of classification of the products, the following points were put forth J-
(a) The classifications as decided by the proper officer in the classification lists were not contested by Formica in accordance with the procedure prescribed in law, by way of appeal etc.
(b) The point made about the resin used by Formica being Stage ‘A’ resin did not make any difference to its assessment since it, being an artificial resin, fell within the mischief of Explanation 2 to Item 15A. In this context, certain authorities were cited- Plastics Dictionary by Dickinson, Glossary of Chemical Terms by Hamlfell and Gessner Hawley and Handbook of Reinforced Plastics by Samuel, as also Volume 14, page 150 of the Encyclopaedia Brittanica. Reference was also made to an internal circular of Formica dated 29-8-1977 which referred to the plastic flow of the resin material used for treatment purposes. Phenol Formaldehyde, melamine and Expoxy resins were all plastic materials. In Items 22B and 19(3), CET there is no reference to plastic materials as defined in Item 15A, CET. All these are resins and plastic materials. The stage of the resin is not material nor its limited short life.
(c) The letter dated 31-7-1981 (pages 1 to 3 of the pdper book) of Formica itself designates these substances as blend of resins. In this context, Formica’s letter of 13-1-1982 (pages 7 to 9 of the paper book) was also referred to. In the circumstances, it was urged that there was no doubt that these were preparations of artificial plastic materials.
(d) The classification list for treated cotton fabrics [19(3), CET] was approved on 20-7-1977, to take effect from 18-6-1977. That for treated glass fabric [22(B)] was approved on 22-5-1980 to take effect from 1-4-1980. The treated glass fabric was designated at various times by different names, such as coated glass fabrics, glass fabrics or prepreg. In respect of treated glass fabric, the directions contained in the Supdt.’s letter of 20-9-1980 were not followed by Formica. The classification list for treated paper [17(2), CET] was approved on 23-3-1979 to take effect from 20-2-1979. In respect of treated paper it was submitted that the tariff changes brought about by the 1976 Budget made it clear that treatment was a process of manufacture and, therefore, there was no question of any trade parlance here.
(e) The book “Encyclopaedia of Chemical Technology” by Kirk Othmer (page 679) was cited to show that treated glass fabrics are known as coated fabrics, and it was submitted that treated glass fabrics continue to remain glass fabrics.
(f) With reference to the case law cited by the Consultant for the appellants, it was submitted that they did not relate to the present goods and, therefore, they had no relevance. At this stage, Shri Venkataraman, the learned Consultant for the appellants, stated that he did not wish to rely on these judgments.
(g) With reference to the Central Government’s Order-in-Revision dated 31-3-1981, it was urged that having regard to Formica’s own admission and the authority of Kirk Othmer, the said order was not correct.
(h) With reference to the Asstt. Collector’s and Appellate Collector’s orders cited by Shri Venkataraman on the question of suppression of facts it was submitted that they related to a much earlier period and were not applicable to the present case. (At this stage, Shri Venkataraman stated that he did not wish to rely on them nor on any affidavits produced).
7. In his reply arguments, Shri Venkataraman made the following submissions :-
(a) The intent to evade duty was absent and none of the 5 ingredients in order to attract the mischief of Rule 9(2) was present in these matters. This would be evident by perusing the exchange of correspondence between Formica and the Department since 1968 on the question of classification and consumption of the disputed products. In the circumstances, the ratio of the Madras High Court decision in the case of Murugan & Co.-1977 E.L.T. (J 193) and of the Tribunal in 1983 E.L.T. 2437 applied and the mischief of Rule 9(2) could not have been invoked against Formica.
(b) It was submitted that there was considerable doubt and confusion in the minds of the Department including the Board about the classification of treated paper and treated glass fabrics, Treated cotton fabric was held to be falling under Item 22B in 1968 and under 19(3) in 1969. Treated paper was held to fall under Item 68 in 1975 and under Item 17 in 1977. Similarly, treated glass fabrics were held to fall under Item 68 when the Item was inserted in the Tariff in 1975, shown as falling under Item 22(3) in the show cause notice dated 25-6-1977, under Item 22B on 2-1-1980 and against not under Item 22(3) in the Government’s revision order of 24-2-1981. In this welter of confusion and doubt there could be no question of suppression of any facts or any mis-statement, Formica took Central Excise licence under compulsion and also made duty payments for clearances outside factory under compulsion. The Order-in-Appeal at pages 72 to 79 of the paper book clearly held that there was no suppression of facts and this order was not reviewed by the competent authority. If at all, therefore, the question of suppression could be raised only for the period after August, 1978.
(c) All assessments upto December, 1980 had been finalised and if the Department had not collected duty on the goods captively consumed, the fault lay with the Department.
8. On the subject of classification, the following points were made :-
(a) Synthetic resins were not the same thing as plastic material; else they would not have been both specified in Item 15A, CET. The distinction between the 2 could be gathered from the decision reported in 1983 E.L.T. 425.
(b) Resol was not a fully condensed resin and, therefore, Explanation 2 to Item 15A(I). CETwas not attracted.
(c) Treated paper continued to retain the identity of paper and, therefore, was not liable to duty again in accordance with the ratio of the Tribunal’s decision in the Golden Paper Udyog case-1983 E.L.T. 1123.
(d) The expression “preparations of cellulose derivative or other artificial plastic materials” occurring in Items 19(3) and 22B had to be interpreted in accordance with the meaning assigned to them in Item 15A. There was no warrant to give that expression a different meaning. Since the substance with which Formica treated cotton fabrics was not resin or plastic material, the treated cotton fabric would not fall under Item 19(3) or 22B. Item 68 was the relevant one.
9. We have carefully considered the submissions of both sides. We shall first deal with the classification of treated paper, treated glass fabrics and treated cotton fabrics.
10. Formica has described the process of manufacture in their letter dated 31-7-1981 to the Assistant Collector. It is not necessary to set out everything which is set in that letter, but the relevant facts are that the manufacturing process begins with the bulk of the fillers (Formica designates the basic raw material, namely, paper, cotton fabrics and glass fabrics as “filler”) being treated with a blend of resins to bz used as core of the laminate to produce the required thickness of the laminate. For every laminate manufactured, 2 layers of treated materials which are used as a surface of the laminates will have to be treated with a different blend of resin. For the number of grades that the party produced, they need to have 2 different materials for each grade, one for the core and the other for the surface. The process starts with selection of the right grade of filler. The filler has to be treated with a solution of resin engineered to yield properties of a particular specification. The treated sheets are then stored under controlled conditions and pressed into a laminate under controlled conditions of heat and pressure, prescribed as part of the process specifications to yield the desired product conforming to the specification demanded by the customer. The technology adopted by each manufacturer in the formulation of resin solutions, treating of fillers and ultimate pressing conditions are peculiar to each manufacturer, though the end-product manufactured by each of them would ultimately meet the specifications laid down by the Standards Institution. It would be difficult for one manufacturer to use treated material of another manufacturer to produce a specific product by using his own norms of pressing a grade of laminate. All treated materials, therefore, are produced for captive consumption. Formica argues on this basis that what is referred to as treated fabric and treated glass fabric are only intermediate products and not manufactured products. The impregnation of the resin on the fillers is completed only when the operation in the press is completed, i.e. lamination and the process of impregnation. The treated materials do not have any distinctive name, character or use as compared to the input material. It is thus submitted that the process of treating the input paper, fabrics and glass fabrics is not a manufacturing process at all. A further point taken up is that glass fabrics cannot be described as textile fabrics at all. The latter term connotes fabrics which can be used for the purpose of clothing or furnishing.
11. Certain affidavits have been filed by Formica. The Senior Departmental Representative has objected to their introduction at this stage. Shri Venkataraman has thereupon stated that he does not wish to rely upon these affidavits. We are not, therefore, looking into them.
12. An Order-in-Appeal dated 22-9-1982 passed by the Collector (Appeals), Bombay has been produced wherein he has held in the case of Melamine and Fibre Board Ltd., Kalol that, though synthetic resins are classifiable under Tariff Item 15A(1), since the product had merged in a continuous process and is unstable and non-marketable, the product cannot be considered as excisable under Item 15A(1). On this basis, he has further held duty-paid inputs were used in the manufacture of plastic laminated sheets falling under Item No. 15A(2) on which duty was paid and hence the assessees were eligible for the set off of the duty paid on inputs as envisaged in Notification No. 178/77, dated 18-6-1977.
13. Two tariff advices have been produced. Tariff advice No. 51/75, dated 31-10-1975 states as follows :-
“It was observed by the (Collectors) Conference that the said impregnated paper (treated paper)-(an intermediate in manufacture of decorative laminated sheets)-was not recognised as paper or marketable because it had to be preserved in an air-conditioned chamber where also the life period was short. It had to be utilised within a short while in the manufacture of laminated sheets, for which it had been specifically treated. The representative of the DGTD opined that the said paper was specifically processed for a particular end-use and could not be used elsewhere after processing. In view of the fact that the said product is not capable of being marketed and is not known or recognised as paper by the trade, the Conference came to the conclusion that it could not fall within the ambit of Tariff Item 17, CET”.
Following this tariff advice, Pune Central Excise Collectorate issued a Trade Notice No. 232/75 on the same lines.
14. Tariff Advice No. 123/81 dated 16-11-1981 has also been produced. Following this tariff advice, Pune Central Excise Collectorate issued Trade Notice No. 263/81, a copy of which has also been produced. The relevant portions of the tariff advice are reproduced below :-
“The question of classification of paper, fabrics or glass fabrics which are impregnated with resin solution before they are used in the manufacture of industrial laminated or decorative laminates has also been considered. It has been claimed by the trade that these impregnated paper/fabrics are in the form of intermediate products and hence would not be liable to duty. Further, this argumsnt has been emphasised by bringing out the fact that these intermediate products are seldom sold (occasional stray sales have taken in the past 3 years) and the shelf-life of these products under carefully controlled conditions can be extended upto six months only”.
“Having regard to the fact that the intermediate impregnated paper/ fabrics are capable of being sold, (though in effect it need not be) and that such intermediate products are covered well by the respective Tariff Items 17, 19 and 22, there could be no doubt regarding their excisability. The fact that they have shelf life only under controlled conditions and that the manufacturers effort to sell them have not proved the desired results, do not in any manner change the situation. The fact that such intermediate products were sold on a trial basis only adds evidence to support the point that they are capable of being sold. In view of this, the Board is of the opinion that impregnated paper, Impregnated fabrics and impregnated glass fabrics are correctly classifiable under Tariff Items 17, 19 and 22 respectively”.
15. Against the above background, we may now consider the classification of the individual products.
16. Treated Paper :
The Learned Consultant for Formica has cited certain authorities in support of his contention that treated paper would not fall under Item 17(2), CET. His further argument was that even if it was held to fall under that item, duty could not be charged a second time, In Kilburn & Co. Ltd. v. Commissioner of Sales Tax, U. P. 1973 SIC (Vol. 31) 625, the Allahabad High Court held that since the word “papsr” had not been defined in the U. P. Sales Tax Act, 1948 or the Rules.it had to be given the meaning which it has in ordinary parlance. Paper, as understood in common parlance, is the paper which is used for printing, writing and packing purposes. As such, the Court held that Ammonia Paper and Ferro Paper, used for obtaining prints and sketches of site plans, were not papsr as understood generally and would not come under the expression “Paper other than handmade papsr” in the relevant Sales Tax Notification. In Korea India Ltd., Kanpur v. State of U.P. 1970 STC (Vol. 26) 126. the Court held that carbon paper was not paper as understood generally and, therefore, could not be taxed with respect to the entry, referred to earlier, appearing in the Sales Tax Notification. In State of Orissa v. Gestetner Duplicators (P) Ltd.-l914 STC (Vol. 33) 333, the Court held that stencil papsr was not papsr within the meaning of the relevant serial number of the notification under the Orissa Sales Tax Act, 1947. The entry read as :-
“Paper including all kinds of paste board, mill board, straw board, card board, blotting papers, newsprint, cartridge papsr, packing paper, paper registers, note books, exercise books, envelopes, labels, letter pads and flat files made out of paper”.
17. Unlike in the entries which the Allahabad and Orissa High Courts were interpreting in the above decisions, the excise item we are concerned with takes in paper, all sorts, including papers which have been subjected to treatments and a few examples of treatments have been specified in the item. The relevant entry reads as follows :-
“17. Paper and Paper board, all sorts (including paste-board, millboard, straw-board, card-board and corrugated board), in or in relation to the manufacture of which any process is ordinarily carried on which the aid of power-
(1) X X XX XX
(2) Paper board and all other kinds of paper (including paper or paper boards which have been subjected to various treatments such as coating, impregnating, corrugation, creping and design printing), not elsewhere specified.”
The tariff item, therefore, would take within its sweep treated papers. The learned Consultant relied upon the Tribunal’s decision in Golden Paper Udyog case-1983 ELT 1123 in support of his contention that even if the treated paper was held to fall under Item 17(2) CET, it could not be subjected to duty again. In this connection, we may observe that we have, in our Order No. 95/84 dated 20-2-1984 in Appeal No. 1452/81-C-CCE Hyderabad v. Uma Laminated Products (P) Ltd., Hyderabad, 1984 (17) ELT 187 (Tribunal) held that treated paper (polyethylene coated/laminated/sandwiched paper in that case) would fall for classification under Item 17(2) CET and would be chargeable to duty under the said item subject, of course, to such exemption/set off or proforma credit of the duty paid on the base untreated paper, as may be admissible. Following the ratio of this decision, we hold that the treated paper herein fell for classification and was chargeable to duty under Item 17(2), CET.
18. Formica has contended before us that the treated glass fabrics (treated paper and treated cotton fabrics) hhve a limited shelf-life and have to be stored under controlled conditions if they are to be useful for the manufacture of rigid plastic laminates. They have also stated that each manufacturer -has his own special recipe for manufacturing treated fabric, etc., and, therefore, the goods produced by them cannot be sold for use by another manufacturer of rigid plastic laminates. While all this may be so, there is no warrant to hold that if goods have a limited shelf-life (in this case, it is said to be about 6 months), they cannot be considered to be “goods” falling under the respective tariff items under the Central Excise Tariff Schedule. It is well known that many drugs and medicines have limited shelf-life and lose their potency unless they are stored in controlled conditions. That, however, does not make them any the less “drugs and medicines”. They would fall under the relevant item of the CET, of course, subject to the express words employed in the item. It is also on record that, at one time, some of the treated material was sold to other parties. If a particular product has a tailor-made composition or construction (as claimed in this case by Formica), that is no reason to hold that it would not attract classification under the relevant CET item even if, for the very reason that it is tailor-made, it has no regular market.
19. The manufacturing process has been admitted before us by the learned Consultant for Formica to be not an uninterrupted, continuous or integrated process. In the light of the amended Central Excise Rules 9 and 49 (amended with retrospective effect by Section 51 of the Finance Act, 1982), whether the process is continuous or discontinuous is immaterial. Excisable goods coming into existence at intermediate stages of the manufacturing process and used captively in the manufacture of other goods are chargeable to duty. This has been clearly laid down by the Delhi High Court in J. K. Cotton Spinning and Weaving Mills and Anr. v. Union of India and Ors.-1983 E.L.T. 239 (Del.).
20. There is some confusion and discrepancy in the submissions made at different stages of the proceedings on the question whether the substance with which the treatment was undertaken was a resin or not. This aspect is not material for determination of the classification of treated paper as for that of treated fabrics/glass fabrics. We shall refer to this aspect later but in the context of treated paper, we would like to observe that the Tariff Item 17(2) does not specify the material with which paper should be treated to bring the treated paper within its ambit. The treatment should result in an article different from the untreated paper and it must have characteristics and uses different from those of the untreated paper. In the present case, the treatment is done with a resin or a blend of resins or a resin solution according to the different terminologies used by Formica. The “treated paper” as it is called has unlike the untreated paper, a limited shelf-life and is used for the manufacture of rigid plastic laminates. It is thus different from the untreated paper. There is little doubt, therefore, that the treated paper herein fell for classification and was chargeable to duty under Item 17(2), CET.
21. Treated glass fabrics : We note from the submissions made before us oy the learned Consultant for the Appellants that there had been some misconceptions in the proceedings before the lower authorities in view of the submissions made in writing and orally before them. The learned Consultant fairly conceded that there were some misconceptions and clarified the position before us. Thus, it was stated before us that the substance with which glass fabrics are treated is not an unstable “reacting mixture”; the resin itself is stable. The epoxy resin used was duty-paid. It was further stated that the duty on the resin used is not an issue before us with which statement the SDR expressed agreement. Therefore, we can proceed on the basis that the substance used to treat glass fabrics was resin and not an unstable “reacting mixture”. The question which arises, therefore, is the classification under the CET of the treated glass fabric. It has been strenuously contended before us that the treated glass fabric has got a shelf life of only six months and that, too, under controlled conditions. The classification of treated glass fabric had corne up for consideration of the Central Government in dealing with a Revision Application filed by Formica against the Appellate Collector’s orders of 25-8-1978 by which he upheld the Assistant Collector’s findings classifying the goods under Item No 22(3) of the CET. The Central Government, in its Order-in-Revision dated 24-2-1981, held that treated glass fabrics had completely lost their identity, if any, as fabrics after impregnation with resin and, therefore, could not be classified as fabrics under Item 22(3), CET. The period involved in those proceedings was 1971-76. Prior to the changes brought about in Tariff litem No. 22 by the Finance Act (No. 2) of 1977, the tariff item covered only “Rayon on Art Silk fabrics”. Therefore, Item 22(3) was apparently not the appropriate item for glass fabrics, though the reasoning in the Government of India order was not this. Therefore, Government’s Order-in-Revision dated 24-2-1981 which did not fix the classification of treated glass fabrics under the Central Excise .Tariff Schedule [(it had only ruled out Item 22(3)] is not relevant for our purpose. The question as posed before us, is not classification of treated glass fabrics under Item 22(3), CET, but of deciding between Items 22B, CET as held by the lower authorities and Item 68, CET as claimed by Formica. Item 22B reads as follows:-
“Textile fabrics impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials not elsewhere specified.”
For any article to fall under this Item, it must satisfy the following tests :-
(a) It should be a textile fabric,
(b) It should be impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials,
(c) It should not be elsewhere specified in the tariff.
22. Now, in accordance with the book “Textile Terms and Definitions” published by the Manchester Textile Institute (7th edition)-a standard book of reference-a textile fabric is “A manufactured assembly of fibres and/or yarns, which has substantial surface area in relation to its thickness and sufficient mechanical strength to give the assembly inherent cohesion” (page 70). The same book at page 77 defines “glass fibre” as follows ;-
“A fibre made by extruding molten glass to sufficient fineness to have the flexibility necessary for use as a textile fibre”.
The term glass fibre occurs under the generic heading “fibre, man-made”. It is clear, therefore, that glass fabric is a textile fabric. Since glass fibres are classified under the generic description “man-made fibre”, it follows that textile fabrics made of glass are also classifiable under the generic description “man-made fabrics”. The description “man-made fabrics” came into the Central Excise Tariff Schedule as a result of the Finance (No. 2) Act of 1977 with effect from 18-6-1977. Prior to this date, Item No. 22, CET covered “Rayon or artificial silk fabrics.” This description was changed to “Man-made fabrics” by the said Act. Since glass is neither rayon nor artificial silk, it follows that glass fabrics did not fall under Item 22, CET as it stood before 18-6-1977. In this context, we must note that Formica had contended before the Asstt. Collector (in the proceedings leading to Appeal No. 1505/83-C before us) that the treated glass fabrics made by them (by purchasing glass fabrics from the market and impregnating them with epoxy or phenolic resins for turning them into laminates) should be regarded as a manufacture in which mineral fibres predominate in weight and hence classifiable under Item No. 22F, CET. Dealing with this contention, the Asstt. Collector said in his order dated 20-5-1980 that while glass fabrics fell under Item 22F, CET as manufactures of mineral fibres and yarn, once the glass fabrics were impregnated with preparations of cellulose derivatives and/or artificial plastic materials, the resultant product would rightly fall under Item 22B, CET. Before the Appellate Collector also, Formica pressed their claim for classification under Item 22F read with Notification No. 87/76. However, during the hearing, Formica seems to have withdrawn this claim and sought classification under Item 15A, CET and under Item 68 CET, if Item 15A was held to be inapplicable. Later on, in a written submission, they argued against Item 15A and said that the impregnated glass fabric was non-excisable or, if excisable, classifiable under Item 68, CET. The Appellate Collector, by his impugned order, held that Item 68, CET was not applicable since Item 22B, CET was the correct item.
23. To put it mildly, there nas been confusion all-round in the matter of classification. Different claims were made at different times, the competing items seem to be Items 15A, 22(3), 22B, 22F and 68, CET. Of these, Formica no doubt withdrew their claim for classification under, Item 22F. But, for arriving at a proper decision, we have considered it proper to keep all the aforesaid tariff items in view. We have already said Item 22 did not cover glass fabrics as the item stood before the 1977 Budget. To the extent glass fabrics are man-made fabrics, one could say that Item 22 covered the goods on and from 18-6-1977. But, on a closer reading of the tariff, it will be apparent that the more appropriate item for glass fabrics would be Item 22F- “Mineral fibres and yarn and manufactures therefrom”. It would appear that this is the rationale behind Notification No. 87/76, dated 16-3-1976 showing glass fabrics under Item 22F. Even after the 1979 budget amendment to Item 22F by which sub-clause (iv) of the Explanation to Item 22F was changed from-
“manufactures containing mineral fibres and yarn, other than asbestos cement products”,to-
“manufactures in which mineral fibres or yarn or both predominate in weight”, glass fabrics would appropriately be classifiable under Item 22F CET. Now, in this background, let us examine whether treated glass fabrics would be classifiable under Item 22F, 22B or 68. Of them, Item 22B is a residuary item and covers only such textile fabrics (impregnated, coated or laminated) as are not specified elsewhere in the tariff. We have seen that glass fabrics fall under Item 22F. Therefore, treated glass fabrics (the goods under consideration) would not fall under Item 22B, CET. The question would then be which of the two Items 22F or 68 would be more appropriate. Here, one has to note that unlike the textile Items 19, 22, etc., there is no Explanation in Item 22F making it explicit that the test of predominance (of mineral fibres or yarn) has to be applied with reference to the base (or untreated) glass fabrics. There is no material on record to show the relative composition of the treated glass fabric. Perhaps, depending upon the composition, Item 15A may also have to be considered. Unless all these aspects are considered, the question of classifying treated glass fabrics under Item 68, CET would not arise. Given the limitation of the material on record, we can only set aside the decision of the lower authorities classifying treated glass fabrics under Item 22B CET which we do. This, however, will not be a bar to the lower authorities from proceeding to re-determine the correct classification of the goods, after affording both sides reasonable opportunity to put forth their cases.
24. Treated Cotton Fabrics : The discussion in respect of “treated paper” is applicable here mutatis mutandis and it is not necessary to traverse the same ground again. Resin coated or impregnated cotton fabric is a coated or impregnated fabric within the meaning of Item 19(1.11), CET which reads : “Cotton fabrics impregnated, coated or laminated with preparations of cellulose derivatives or of other artificial plastic materials”.
25. The learned Consultant for Formica has stated before us that the resin used for treatment was not an unstable reactive mixture. It was a resin. Therefore, the question of going into the submission whether it was a ‘A’ stage resin or a fully finished resin does not arise for our consideration. The initial letter of Formica to the Department, including the description of the manufacturing process, shows that the substance used was phenol formaldehyde, melamine formaldehyde and epoxy resins.
26. Formica’s contention is that the synthetic resin used for treatment is not a “cellulosic derivative or a plastic material”. It may be that it is not a cellulosic derivative. But no authority has been produced in support of the contention that it is not a plastic material. The argument is that Item 15A says “Artificial or synthetic resins and plastic materials”. Hence, there is a distinction between resins and plastic materials and the two do not refer to one and the same thing. This argument is of no avail. Artificial or synthetic resins are plastic materials. They have many applications in plastics, textiles, etc. (see page 891 of the Condensed Chemical Dictionary by Gesner G. Hawley. 10th edition). The treated cotton fabrics under consideration were correctly held to fall under Item 19(III) C.E.T.
27. Now, we proceed to deal with the question whether the demands raised against Formica were hit by limitation. Formica has strenuously contended that the extended period of 5 years could not be invoked since they have no application to the facts of the present case. They have argued that in the period prior to that involved herein, the very same allegation of suppression of facts and removals in violation of Rule 9(1) had been levelled against them, but they had been absolved of these charges by the Appellate authority. So, the same charges cannot be levelled against them. They have further argued that they took out licences and filed classification lists only because of the Department’s insistence. The assessment returns in R.T. 12 form had been finalised by the Department and if the Department had not collected duty the fault lay with the Department. In the case decided by the Appellate Collector by his order of 25-8-1978, on which reliance has been placed by Formica, the facts and circumstances were apparently different. In that case, treated glass sheets were considered by the Department as non-excisable and the classification lists were duly approved for the period 1971-75. In 1975, consequent on the introduction of Item 68 in the C.E.T., Formica were directed by the authorities to pay duty on the goods under the said item and this continued till 1976 when Item 22F was inserted in the C.E.T. It was in these circumstances–“since this demand was raised the duty from them had been assessed and recovered under Tariff Item 68”-that the Appellate Collector held that there was no suppression of facts since the Department knew all the time the true nature of the product. Thus, for a substantial portion of the period, the goods were approved as non-excisable by the Excise authorities. The question of payment of duty on clearances whether for sale or captive consumption was not thus relevant. In the cases before us, the question is not whether the Department did or did not know the true nature of the products. The allegation is that “despite classification lists having been approved under Item 17(2) in respect of treated paper, Item 19(3) in respect of treated cotton fabrics and Item 22B in respect of treated glass fabrics. Formica did not pay duty on these goods manufactured by them and captively consumed by them in the manufacture of rigid plastic laminates. It is true that they submitted classification lists and also paid duty on clearances of these goods outside the factory. But they did not declare the quantity and value of these goods which were captively consumed in the self-assessment returns. While the Departmental authorities seem to have been negligent in the performance of their duties, particularly considering the fact that a Central Excise Office was located in the Formica factory itself, Formica was also remiss in not declaring the quantity and value of the goods manufactured by them and captively consumed by them-especially after classification lists were submitted by them in respect of these very goods.
Formica, admittedly, were working not under the physical control procedure but under the self-removal procedure under which the primary responsibility for correct payment of duty in accordance with duly approved classification and price lists has been cast by law on the assessee himself. Any slackness on the part of the Excise staff posted in the factory would not, in our view, lessen or mitigate the burden cast on the assessee. The fact that Rule 173-Q was not invoked in the show cause notices is not material to the above position. It is seen from the Assistant Collector’s order of 20-3-1982 (the order passed by the original authority in these proceedings) that one of the submissions made before him by Formica was that the treated material was not being removed from the factory premises but was converted within the same premises in the course of a single and integrated process into the end-product, viz. laminates and that, hence, no duty could be levied on the treated paper. (It is true that this plea has been given up before us by the learned Consultant for Formica). It is possible that Formica did not pay duty because of the aforesaid position as put forward by them. That, however, would not detract from the duty liability on these goods even when they were captively consumed for the manufacture of other goods, if they fell within the mischief of the excise tariff schedule and not exempted by notification.
28. Formica has contended that the Department was aware all the time that they were producing the subject goods and captively consuming them in the manufacture of rigid plastic laminates. In their letter dated 19-3-1975 in response to the Supdt.’s letter of 1-3-1975, Formica had said that “you are aware, the items declared by us under Sl. No. 5 of the classification list (not produced before the Tribunal) are manufactured in our plant and are internally consumed in the same premises to make the rigid plastic laminates. We feel that those materials which are internally consumed in the same premises should not come under the purview of the new Item No. 68. We, therefore, want your clarification whether a separate licence in Form L. 4 is necessary”. The Supdt., by his letter dated 7-4-1975, told Formica that “since the treated paper is covered by Item 68 of C.E.T, the stock as on 28th February and 1st March 1975, intended for internal use has to be declared. Since this paper is also sold out, you may apply for licence in form at AL. 4”. By letters dated 4-5-1975 and 31-10-1975, Formica reiterated their contentions. Then there seems to be a gap in the exchange of correspondence. At any rate, none has been produced before us till the letter of 18-7-1977 from the Supdt., calling upon Formica to take out a licence in respect of paper, impregnated with resin, under Item 17 and calling upon them to pay duty under Item 17 and not Item 68. It is not clear from a reading of this letter whether duty was demanded on the treated paper cleared out of the factory or captively consumed within the factory. The correspondence then appears to have terminated abruptly on the subject of charging of duty. It is evident that there are other letters since the show cause notices leading to the present proceedings refer to Supdt.’s letter of 12-1-1981 and Formica’s reply of 14-1-1981 which have not been produced before us either by Formica or by the Department.
29. Yet another aspect of the matter is that there appears to have been doubt and uncertainty in the mind of the Department itself in the matter of classification. Resin-impregnated paper was considered by the Board, by its Tariff Advice 51/75 of 31-10-1975, not to fall within the ambit of 17, C.E.T. However, the Board changed its stand and by its Tariff Advice No. 123/81 of 16-11-1981 held that impregnated paper/fabric were classifiable under Items 17, 19 or 22, as the case may be. The position which emerges, therefore, is that the classification was far from clear both to the authorities and the assessee. This factor, coupled with the exchange of correspondence between the Department and Formica (to which we have adverted) would prima facie point to the absence of any mala fides or deliberate intent to evade duty on the part of Formica. However, they cannot be absolved from their responsibility of paying duty on the goods captively consumed by them at least from the time classification lists in respect of treated paper/cotton fabric/glass fabric were submitted by them which were approved by the Department.
In Murugan & Company, Pudukottai v. Deputy Collector of Central Excise, Tiruchirapalli and Ors., reported in 1977 E.L.T. J 183 the Madras High Court held that in a case where a particular manufacturer goes on producing certain articles under the bona fide impression that the goods are not excisable goods and the Departmental authorities also did not take any steps for bringing the goods under the excise levy as per Rule 9(1), the authorities cannot invoke Rule 9(2) on the ground that the goods have been cleared without payment of excise duty merely because they had taken a view that the goods are excisable long after they had been cleared from the factory. The ratio of the said decision is, in our view, not applicable to the facts of the case before us, for, Formica had, whether of their own volition or at the instance of the Department, submitted classification lists in respect of the disputed products and these classification lists had been approved by the Excise authorities. Therefore, there is no question of Formica taking the plea that they were under a bona fide impression that they were not liable to pay duty. Of course, it was open to them to dispute the decision of the authorities to levy duty and follow the prescribed procedures of appeal, etc. which they have done. That would not, however, absolve them from their liability to pay duty on the disputed products which were captively consumed.
30. In Bharat Beedi Workers (P) Ltd., Mangalore v. Collector of Central Excise, Bangalore, reported in 1983 E.L.T. 2437 (CEGAT), this Tribunal held that there was no wilful suppression of facts, or wrongful mis-declaration of any type nor any deliberate mis-declaration. The assessee in that case was working under the system of physical excise control. It was in these circumstances that the Tribunal held that the provisions of Rule 9(2) could not be invoked by the Excise authorities. In the cases before us, though classification lists were submitted by Formica and approved by the Department, Formica continued to produce and consume the disputed products without payment of duty and without mentioning the fact of captive consumption and the quantity and value of the goods so captively consumed in their assessment returns. In these circumstances, the ratio of the cited decision is not applicable.
31. Having regard to the foregoing discussion, we direct that the demands for duty shall be re-determined and collected for the period commencing from the date of approval of the classification list in respect of each of the products. This, of course, will be subject to the decision we have given on the classification of each product.