2006 (8) TMI 358 - AT - Central Excise

Issues Involved:
1. Entitlement to the benefit of exemption Notification No. 163/67, dated 21-7-1967, as amended.
2. Classification of Chemi-Mechanical Wood Pulp as Mechanical Wood Pulp.
3. Interpretation of exemption notification in light of changes in Central Excise Tariff and HSN Explanatory Notes.
4. Validity and applicability of the Board's Circular No. 38/90, dated 12-9-1990.
5. Reliability of test reports by Chemical Examiner and Deputy Chief Chemists.

Issue-wise Detailed Analysis:

1. Entitlement to the benefit of exemption Notification No. 163/67, dated 21-7-1967, as amended:
The appellants manufactured Newsprint using 70% chemi-mechanical wood pulp and 30% sulphate chemical pulp. The main issue was whether this composition entitled them to the benefit of the exemption Notification No. 163/67, which exempts paper containing mechanical wood pulp amounting to not less than 50% of fibre content from the whole of duty of excise. The department contended that the appellants did not meet this condition as they used chemi-mechanical wood pulp, which they argued was different from mechanical wood pulp. The appellants argued that chemi-mechanical wood pulp is a variation of mechanical wood pulp, and thus they should be entitled to the exemption.

2. Classification of Chemi-Mechanical Wood Pulp as Mechanical Wood Pulp:
The appellants contended that chemi-mechanical wood pulp should be treated as mechanical wood pulp. They supported their argument with various documents, including the Chemical Examiner's Report, technical literature, and expert opinions from the Central Pulp & Paper Research Institute. The Revenue argued that the new Central Excise Tariff, effective from 1-3-1986, provided different classifications for wood pulps, and chemi-mechanical wood pulp should be classified under semi-chemical wood pulp as per HSN Explanatory Notes.

3. Interpretation of exemption notification in light of changes in Central Excise Tariff and HSN Explanatory Notes:
The Tribunal noted that prior to 28-2-1986, the appellants were granted the benefit of the exemption notification based on chemical tests indicating compliance with the notification's conditions. The change in the tariff classification post-28-2-1986 led to the denial of the exemption. The Tribunal emphasized that the language of the notification remained unchanged, and the interpretation should be based on the notification's plain and clear wording. The Tribunal referred to the Supreme Court's rulings that explanatory notes to HSN are a safe guide for interpreting expressions used in the Act but should not override the clear language of the notification.

4. Validity and applicability of the Board's Circular No. 38/90, dated 12-9-1990:
The Board's Circular stated that chemi-mechanical pulp should not be treated as mechanical wood pulp post-28-2-1986, based on HSN Explanatory Notes. The Tribunal found that the Circular's reliance on HSN notes, while ignoring expert opinions from the Central Pulp & Paper Research Institute, was misplaced. The Tribunal highlighted that the expert opinion categorized chemi-mechanical pulp as a variation of mechanical pulp, used for manufacturing newsprint and magazine grades.

5. Reliability of test reports by Chemical Examiner and Deputy Chief Chemists:
The appellants presented test reports from the Chemical Examiner and Deputy Chief Chemists, which indicated that the Newsprint contained not less than 50% mechanical wood pulp. The Revenue disputed these reports, citing previous cases where test reports were not considered reliable. However, the Tribunal found the test reports, along with expert opinions, credible and supportive of the appellants' claim.

Conclusion:
The Tribunal concluded that chemi-mechanical pulp is a variation of mechanical pulp and should be treated as such for the purposes of the exemption notification. The appellants were entitled to the benefit of exemption Notification No. 163/67, as amended. The appeal was allowed with consequential relief, and the Tribunal emphasized that the interpretation of the notification should align with its clear language and the established practices in the paper industry prior to the tariff change on 28-2-1986.

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