1994 (11) TMI 218 - AT - Central Excise

Summary

Issues Involved:
1. Classification of "Surface Decorated Covered Paper"
2. End-use as a criterion for classification
3. Process of "Motley" as a manufacturing process
4. Applicability of HSN Explanatory Notes
5. Trade and commercial understanding of the product
6. Onus of classification
7. Remand for fresh consideration

Detailed Analysis:

1. Classification of "Surface Decorated Covered Paper":
The primary issue revolves around the classification of "Surface Decorated Covered Paper," used for wrapping the filter mass and assembling the filter tip of cigarettes. The Assistant Collector and the Collector (Appeals) classified it under Tariff Heading 4813.00 of the Central Excise Tariff Act, which covers "Cigarette paper, whether or not cut to size or in the form of booklets or tubes," attracting a duty of 10% + Rs. 2425/- per M.T. basic.

2. End-use as a Criterion for Classification:
The appellants argued that end-use should not be the criterion for classification, relying on the Supreme Court's ruling in Dunlop India v. U.O.I. and the Tribunal's ruling in Goodlass Neurolac Paints v. C.C.E. They contended that Tariff Entry 48.11, which covers paper or paper-board converted into surface-colored, surface-decorated, or printed in rolls or sheets, should apply.

3. Process of "Motley" as a Manufacturing Process:
The Assistant Collector held that the "Motley" process, which involves printing dots on the base paper, does not impart the essential non-porous character to the paper and hence cannot be considered a conversion. The appellants, however, argued that the "Motley" process is a recognized process of conversion in paper technology, and it does not change the physical character or end-use of the paper.

4. Applicability of HSN Explanatory Notes:
The Assistant Collector and the Collector (Appeals) relied on the HSN Explanatory Notes to classify the product under Heading 4813.00. The appellants contended that HSN Explanatory Notes should not apply to this case, citing previous rulings that these notes have only persuasive value.

5. Trade and Commercial Understanding of the Product:
The appellants argued that the understanding in the trade is that tipping paper has an identity separate from cigarette paper. They submitted that they do not manufacture the tipping paper but merely purchase duty-paid plain tipping paper and perform a surface-decorating process called "Motley."

6. Onus of Classification:
The appellants contended that the onus of classification is on the department and that they had not discharged this burden. They argued that the department had not produced any evidence to show that the "Motley" process is a process of manufacture that converts cigarette tissue into cigarette paper.

7. Remand for Fresh Consideration:
The Tribunal noted that the lower authorities had not technically examined whether the "Motley" process amounts to manufacture and whether the resultant paper is cigarette paper. The Tribunal set aside the order of the Collector (Appeals) and remanded the matter to the Assistant Collector for de novo consideration, instructing the department to obtain technical and trade opinions and counter the same to the assessee for a reply.

Separate Judgment by S.K. Bhatnagar, Vice President:
S.K. Bhatnagar, Vice President, concurred with the remand but provided additional observations. He noted that the appellants merely convert plain tipping paper into decorative paper and that the department should have issued a show cause notice to the manufacturer of the tipping paper, not the appellants. He emphasized that the process of "Motley" does not convert tipping paper into cigarette paper and that the proceedings were initiated against the wrong party. He set aside the impugned orders and remanded the matter for de novo consideration, allowing the department to issue a fresh show cause notice if necessary.

Conclusion:
The appeal was allowed by remand, with instructions for the Assistant Collector to reconsider the classification issue in light of technical and trade opinions and the persuasive value of HSN Explanatory Notes. The separate judgment by S.K. Bhatnagar highlighted procedural errors and the need to address the correct party in the classification dispute.