2015 (4) TMI 357 - SC - Central Excise

Classification of goods - Classification of Holograms and Holographic films - Classification under tariff entry 39.19 or 49.01 - held that - It is clear that merely because a particular embossed hologram is self adhesive, therefore in all cases, it will attract entry 39 is not correct. What is to be seen, as has been pointed out above, is whether the self adhesive part of the product is of primary use or the printed matter is of primary use. It cannot be that invariably in all cases, the moment a hologram is self adhesive it will fall within entry 39 without more. After setting out the Explanatory Notes to HSN and the conclusion of such Note that products such as comic stickers would not fall within entry 39, the CESTAT arrives at the exactly opposite result without telling us why. Secondly, we are again left guessing as to how the self adhesive aspect of the product is more important than the security aspect of the said product. Equally, there is no reasoning so far as this aspect is concerned. We therefore find that the CESTAT is not correct in the finding reached and the judgment dated 19.12.2003 of the CESTAT is, therefore, set aside. Only one further thing remains. Various arguments were made by both sides on the Rules of Interpretation of the First Schedule to the Central Excise Tariff Act, 1985. - it is not necessary to go into any of these Rules for the purposes of this judgment inasmuch as we have found as a fact, in accordance with Note 2 to entry 49, that the security hologram part of the product in question is primary and the self adhesive part only incidental insofar as the user of the said goods is concerned - Since appellant has paid the duty during the pendency of these appeals. He will be entitled to a refund of the same in accordance with law. - Decided in favour of assessee.

Issues Involved:
1. Classification of security holograms under the Central Excise Tariff.
2. Interpretation of relevant tariff entries, specifically 39.19, 39.20, and 49.01.
3. Application of the Harmonized System of Nomenclature (HSN) Explanatory Notes.
4. Application of the ejusdem generis rule.
5. Consideration of the primary vs. incidental use of goods.
6. Validity of departmental circulars regarding classification.

Detailed Analysis:

1. Classification of Security Holograms:
The appellant manufactures security holograms using coated metallised film classified under Tariff entry 39.20.36. The Department sought to classify these holograms under Tariff entry 39.19, whereas the appellant argued for classification under Tariff entry 49.01. The Commissioner and the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) upheld the Department's classification under 39.19.

2. Interpretation of Relevant Tariff Entries:
The key tariff entries in question are:
- 39.19: Self-adhesive plates, sheets, film, foil, tape, strip, and other flat shapes, of plastics.
- 39.20: Other plates, sheets, film, foil, and strip, of plastics.
- 49.01: Printed books, newspapers, pictures, and other products of the printing industry.

The Court noted that the original coated metallised film used by the appellant is classified under sub-Heading 3920.36. The main issue is whether the final product should be classified under 39.19 or 49.01.

3. Application of HSN Explanatory Notes:
The appellant referred to the HSN Explanatory Notes, which include products such as self-adhesive printed stickers under Chapter 49. The Court found these notes to be a safe guide in case of doubt, as established in the case of 'Collector of Central Excise, Shillong v. Wood Craft Products Ltd.'

4. Application of the Ejusdem Generis Rule:
The Department argued that entry 49.01 should be interpreted ejusdem generis with "printed books, newspapers, and pictures." The Court disagreed, stating that there is no common genus among these items and that 49.01 includes a broad range of printed matter.

5. Consideration of Primary vs. Incidental Use:
The Court emphasized the importance of determining whether the printing is incidental to the primary use of the goods. It concluded that the primary use of the security holograms is for security purposes, not their adhesive quality. Therefore, the printing is not merely incidental but essential to the product's primary use.

6. Validity of Departmental Circulars:
The Court examined two departmental circulars:
- Circular No. 142/53/95-CX: Classified photo identity cards and holograms under sub-heading 4901.90.
- Circular No. 35/96-Cus.: Stated that self-adhesive embossed holograms fall under Heading 39.19.

The Court found the second circular incorrect in law, as it failed to consider whether the self-adhesive part of the product is of primary use or merely incidental.

Conclusion:
The Court set aside the CESTAT's judgment, finding that the security aspect of the holograms is primary and the adhesive part incidental. The appeals were allowed, and the appellant was entitled to a refund of the duty paid. The judgment emphasized the correct application of tariff entries and the importance of primary vs. incidental use in classification disputes.

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