ORDER
G. Sankaran, Senior Vice-President
1. E/1619/89-C. – By the impugned order dated 31-1-1989, the Additional Collector of Central Excise, New Delhi, held that impregnated filter paper pleated packs manufactured by M/s. Purolator India Ltd. (the appellants) were classifiable under sub-heading No. 4818.90 of the Schedule to the Central Excise Tariff Act, 1985 (the ‘Schedule’, for short) and that the appellants were liable to pay Rs. 3,13,790.92 being the duty chargeable on the goods cleared during the period from 1-1-1987 to 31-5-1987. He also imposed a penalty of Rs. 50,000/- under Central Excise Rule 173Q on the appellants. It is this order that is challenged in these proceedings.
2. The facts of the case, briefly stated, are that the appellants were engaged in the manufacture and clearance of the aforesaid goods without taking out a Central Excise licence and observing the procedures laid down in the Central Excise law including payment of duty. The Assistant Collector of Central Excise issued a show cause notice dated 15-6-1987 to the appellants alleging contravention of several provisions of the Central Excise law. By their letters dated 6-7-1987 and 16-7-1987, the appellants refuted the allegations. They contended inter alia that the goods could not be considered as articles of paper falling under sub-heading No. 4818.90 of the Schedule but were a converted type of paper wholly exempted from Central Excise duty. In due course, the Additional Collector passed the impugned order, after hearing the appellants.
3. The process of manufacture of the goods, as set out in the Additional Collector’s order, is as follows :-
“The noticee imports or buys locally the base filter paper in reel form. The said base filter paper reel is mounted on the unwind stand in the factory. The paper is then unwound and passed through a series of idler rollers. At that stage, the base filter paper comes into contact with the impregnating roll which picks up the phenol Formaldehyde Resin of desired concentration from the resin tray. The resin is then transferred to the filter paper. A rubber roller is engaged to ensure the uniform contact between the paper and the impregnating roll. At that stage, the paper is heated to 90°C to remove the excess quantity of solvent in a drier. This dry paper is rewound at the rewind section. Thereafter the impregnated filter paper is cut to requisite sizes on a slitting machine. Bulk of the impregnated filter paper is sold after slitting to the customers of the noticee. In some cases the impregnated filter paper is subjected to further conversion by way of folding on a pleating machine. The process of pleating is similar to the process of corrugating of craft paper. The only difference between the pleated paper and the corrugated paper is the difference in the flute size. The pleated paper is then cut to convenient sizes which facilitates packing and avoids damage during transit.”
It is also seen from the order that the impregnated filter paper in reels is fed at one end of the pleating machine and emerges at the other end as pleated packs. These are cut to pre-determined dimensions. The pleated packs are so constructed that they automatically become cylindrical in shape. The further processes required to be undertaken at the customer’s end in order to make the slit paper into ready-for-use articles as elements in filters are described as follows :-
“(a) The pleated paper sold by the Noticee is in 2 layers and hence each layer has to be separated by the customer before use.
(b) The pleated paper has to be further cut at both ends in order to match the ends to facilitate proper positioning in the filter.
(c) A metallic clip or glue has to be applied to join both the ends of the folded paper with the help of a press.”
The pleated filter packs are stated to be exclusively used for manufacture of automotive filters.
4. The appellants’ contention, in the main, was that the slit pleated paper was only a converted type of paper and not an article of paper. Several authorities were relied upon in this connection as also affidavits from persons in the paper trade. Without prejudice to this contention, it was also submitted that the process of pleating impregnated paper did not amount to “manufacture” since no new article known to the trade emerged as a result of the process of pleating.
5. The Additional Collector, while rejecting these contentions, observed that the pleated filter packs which had a specific end-use (viz. preparation of filter elements) were different from the impregnated filter paper which, according to him, was capable of general or varied use. Therefore, he held, the pleated filter packs were no longer converted paper but articles made of paper.
6. E/467/88-C. – The main issue involved in this appeal is the same as in the other appeal, viz., the classification and liability to duty of impregnated filter paper pleated packs. The Collector held that the goods were classifiable under Item No. 68 of the erstwhile Central Excise Tariff Schedule and under sub-heading No. 4818.90 of the current Schedule. The Collector further demanded payment of duty amounting to Rs. 18,28,219.41 under Central Excise Rule 9(2) in respect of the goods cleared during the period from 1-3-1982 to 31-12-1986. A quantity of seized goods was confiscated but allowed to be redeemed on payment of a fine of Rs. 12,500. A penalty of Rs. 6,00,000/- was imposed on the appellants.
7. We have heard Shri V. Sridharan, Advocate, for the appellants and Shri A.S. Sunder Rajan, DR, for the respondent-Collector. The basic issue in both appeals as also the arguments thereon being the same, we are disposing of both the appeals by this common order.
8. It is not in dispute before us that the resin-impregnated filter paper manufactured by the appellants out of base filter paper is a converted type of paper eligible for duty exemption as such. It is the slit and pleated filter paper packs, made out of such paper, that are sought to be classified and charged to duty, as articles of paper, under Item No. 68 of the First Schedule to the Central Excises & Salt Act, 1944, and sub-heading No. 4818.90 of the Schedule to the Central Excise Tariff Act, 1985. The appellants’ contention is that the process of slitting the impregnated paper to the required width, pleating them and cutting them into the required lengths do not constitute “manufacture” resulting in any new article; even after these processes, the resultant product continues to be converted papers.
9. It is seen from the article entitled “Impregnated Papers for Automotive Filtration” by J.R. Bell and M.G. Cove – reprinted from “Filtration and Separation” September-October 1978 – that resin impregnated paper is currently the preferred filtration medium for oil, air and fuel filtration in the automobile industry. The filtration unit is typically of a cylindrical form with the paper in a pleated configuration which gives a large surface area within a given volume. Most papers are impregnated with resins; it is the base paper which has the major influence in determining the filtration and performance while the resin gives the structure the required strength to withstand processing into elements and the conditions of end use. From this, it can be seen that the process of pleating makes it possible to have a large area of resin-impregnated filter paper in a given volume in order to enhance filtration efficiency. Pleating thus does not seem to change the character or use of the impregnated paper. The lower authorities have held that the impregnated filter paper has many uses whereas the pleated filter packs are for use in motor vehicles and such other applications. What these many uses are have not been described. But it stands to common sense that the use of filter paper is in filtration irrespective of where and how it is used. Therefore, the use of the impregnated filter paper and the pleated paper pack is the same: filtration. The paper in reel form has been no doubt slit to the required width, pleated and cut to the required length, in order to make it usable in motor vehicles etc. for filtration purposes.
10. The learned Counsel for the appellants has placed reliance on certificates furnished by certain authorities in support of the contention that pleated paper is only a converted type of paper.
(i) The Institute of Paper Technology, Saharanpur has, in its letter dated 30-5-1987, on the basis of “The Dictionary of Paper” published by American Paper and Pulp Association, New York, 1965, and the “ISO Recommendations R-66-1958 & R-231-1961 Paper Vocabulary”, explained 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, impregnation, waxing, gumming, machine coating, printing, bag etc. manufacturing are referred to as converting processes. Consequently, the Institute has opined that the impregnation of base filter paper with phenol formaldehyde resin solution, drying, cutting and pleating are conversion operations.
(ii) The Indian Standards Institution, in its letter dated 7-5-1987, refers to the revision of IS : 4661 (under print) which defines ‘Conversion’ as follows :-
“Conversion – A general term descriptive of processes or portions (operations ?) applied to paper or board after the normal paper making portions (operations ?) to meet specific end-use requirements, such as waxing, coming off-machine coating for the manufacture of bag, envelopes, box, container etc.”
This letter, of course, does not give a direct reply to the question whether pleating is conversion but this, in the words of the I.S.I, is “in the absence of a printed standard on the subject”.
(iii) The Directorate General of Technical Development, Govt. of India, Paper, Pulp & Timber Directorate, Development Officer, in his letter dated 30-6- 1987 after giving the meaning of conversion in Paper Technology, on the lines of the Saharanpur Institute’s letter, opines that “the impregnation of base filter paper with Phenol Formaldehyde Resin Solution, drying, cutting and pleating are the operation of ‘Conversion'”.
11. Thus, in the opinion of the first and third authorities (leaving out the I.S.I, who have not given an opinion), the processes undertaken by the appellants constitute ‘conversion’ of paper as known to paper technology.
12. The appellants have also submitted letters from two dealers in filter paper to the effect that impregnated pleated filter paper is understood in the paper industry as converted type of paper.
13. As against the aforesaid evidence adduced by the appellants, the Department does not seem to have adduced any evidence either from technical authorities or from persons in the paper trade and industry in rebuttal. The learned Departmental Representative, however, contends that the pleating process itself amounts to “manufacture”. Reliance is placed on para 18 of the Tribunal’s decision in the case of Guardian Plasticoat Ltd., Calcutta v. Collector of Central Excise, Calcutta & Ors., 1986 (24) E.L.T. 542. The further submission is that pleating is not done on duty-paid base filter paper but impregnated filter paper which is not duty paid being exempted from duty under Notification No. 63/82.
14. In its order in the Guardian Plasticote case, the Tribunal referred to several judicial pronouncements including the Supreme Court’s judgment in Empire Industries v. Union of India, 1985 (20) E.L.T. 179 (SC). In para 30 of this judgment, the Supreme Court observed that the moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether it be the result of one process or several processes, “manufacture” takes place and liability to duty is attracted”. The Court further held that this would be so even if the new commodity falls under the same Tariff Item or sub-item as the commodity which was subjected to the processes. But the basic thing to note is that the processes to which the original commodity is subjected should result in the emergence of a new commodity distinct and different from the former in name, character and use. We have noted that the impregnated filter paper, even after being slit, pleated and cut to size, remains impregnated filter paper though in the latter state it may be known as impregnated filter paper pleated packs having regard to its physical condition. The use remains the same, namely, filtration. The pleating does not, in our opinion, bring about any fundamental change in the paper except, as we have noted, to make it possible to have a large surface area in a given volume due to the paper being pleated. We do not think the Supreme Court judgment in the Empire Industries case (supra) advances the Revenue’s case.
15. The other submission of Shri Sunder Rajan is also, in our view, devoid of substance. Central Excise Notification No. 63/82, dated 28-2-1982 no doubt makes duty exemption for converted paper conditional inter alia on it being produced out of base paper on which the appropriate duty of excise, or the additional duty of customs, as the case may be, had been paid. It is not the Department’s case that the base filter paper procured from the market by the appellants in the instant case is not duty-paid. Shri Sunder Rajan, however, submits that resin-impregnated paper manufactured out of the base paper is an exempted converted paper and the pleated filter packs made out of such converted paper cannot be said to have been produced out of duty-paid paper. This sub- mission is not acceptable, as, we have already noted that there is no “manufacture” involved in the production of pleated packs from the resin-impregnated filter paper. So, the question of applying the notification to the end-product does not arise. Even if we would have held that there is further “manufacture” in the conversion of the impregnated paper to pleated packs, the latter would still be identifiable as impregnated filter paper except for the difference in shape and size as compared to the impregnated paper in reels. It would still be converted paper made out of base paper i.e., the impregnated paper in reels. The fact that this base paper stands exempted from duty would not come in the way of the pleated packs being also exempt in terms of the notification. For, following the principle laid down by this Tribunal inI.E.L. Ltd. v. Collector of Central Excise, Bombay – 1988 (35) E.L.T. 142, since duty in terms of the notification is nil, the impregnated filter paper in reels can be taken to be goods on which the appropriate amount duty has been paid. In this view, the learned Departmental Representative’s contention would not have survived.
16. Our view gains support from this Tribunal’s order in Vikrant Packers (P) Ltd., Chandigarh v. Collector of Central Excise, Chandigarh – 1987 (31) E.L.T. 515 wherein it has been held that duty-paid poster paper and craft paper, when subjected to printing, and thereafter waxing, falls under Item No. 17(2) of the erstwhile Tariff Schedule whether cleared in reels or cut to the required length, width etc. Even when the paper is cut to the required dimensions, it does not cease to be paper and is not classifiable as an article of paper in the sense an envelope, a bag, a packet or carton is.
17. Now, turning to classification of the subject goods under the Tariff Schedule of 1985, the appellants claim is for Heading No. 48.17, sub-heading No. 4817.90 –
"48.17 - Other paper, Paperboard, Cellulose Wadding and
Webs of Cellulose fibres, cut to size or shape.
4817.90 - Other "
The Department would have the classification under Heading No. 48.18, sub-heading No. 4818.90 -
"48.18 - Other articles of paper pulp, Paper, Paperboard,
Cellulose Wadding or Webs of Cellulose fibres.
4818.90 - Other "
The Explanatory Notes under Heading No. 48.23 of the “Harmonized Commodity Description and Coding System” (HSN) of the Customs Cooperation Council, Brussels (on which the Schedule of 1985 is broadly patterned) state that in the heading (which is a combination of Heading Nos. 48.17 and 48.18 of the Indian Tariff Schedule of 1985) filter paper, folded or not, is included. The notes also say that generally these are in shapes other than rectangular (including square) such as circular filter papers. Those notes do not rule out pleated shapes and do not militate against the classification of the goods under Heading No. 48.17, sub-heading 4817.90 of the Indian Schedule especially when regard is had to the words “cut to size or shape” (in the main text of Heading No. 48.17) which are unqualified. We have already held that the subject goods are not “articles of paper” for the purposes of the erstwhile Tariff and no argument has been urged before us to take a different view for the purpose of the Schedule of 1985.
18. The appellants’ main contention, as noted earlier, is that the slitting, pleating and cutting of resin-impregnated base paper are processes of ‘conversion’. This is also the purport of the certificates issued by the Institute of Paper Technology, Saharanpur and the Indian Standards Institution. Thus, though there is no process of “manufacture” involved, there is conversion. Therefore, the end-product in the instant case is not liable to be charged to duty.
19. In the result, the impugned orders cannot be sustained and are set aside. The appeals are allowed with consequential relief.