Sudhir Ranjan Roy, J.@mdashThe petitioner company as well as its predecessor, D. Gestetner (India) Ltd. was granted licence to manufacture inter alia, "stencils" under Tariff Item No. 68 of the First Schedule to the Central Excises & Salt Act.
2. The petitioner disclosed the price of the said product and removed the quantity on self-removal basis.
3. The Superintendent of Central Excise issued a notice to the petitioner as to why excite duty should not be recovered for manufacture of coated paper at the intermediate stage prior to the manufacture of duplicating stencils.
4. By a letter dated 23.12.1977 the petitioner pointed out that coated paper was never cleared by the petitioner from its factory premises and product of such coated paper was made in the continuous process of manufacturing duplicating stencils and, accordingly, the petitioner was not under any obligation to pay Central Excise duty on such intermediate stage of production.
5. The Inspector of Central Excise by a letter dated 22.5.1980 requested the petitioner company to furnish particulars as to how it classified duplicating stencil papers and the process of manufacture of the goods and the raw materials used etc. The petitioner duly furnished all the said particulars by its letter dated 27.5.1980.
6. By a letter dated 22.7.1980 the Superintendent of Central Excise sent a Trade Notice dated 14.7.1980 issued by the Additional Collector of Central Excise whereby stencil paper was shown as classified under Tariff Item No. 17(2) of the First Schedule of the Central Excises & Salt Act, being a coated variety of paper.
7. The petitioner company in reply pointed out to the Superintendent of Central Excise that Tariff Item No. 17 covers paper and paper boards of different varieties and that stencil paper is not synonymous with duplicating stencils. The petitioner also pointed out to the Collector of Central Excise the differences between stencil paper and duplicating stencils and requested him to consider the issue from technical as well as commercial point of view.
8. The Superintendent of Central Excise by a letter dated 2.8.1980 informed the petitioner that stencil paper was so long classified under Tariff Item No. 68 till recasting of Item 17 of the Central Excise Tariff in the Budget of 1976 which revised Tariff classification 17(2) to cover coated and impregnated variety of paper and stencil paper being a coated variety of paper was classified under Tariff Item No. 17(2) of the Central Excise Tariff.
9. Thereafter, by a show-cause demand notice dated 20.8.1980 the Superintendent of Central Excise alleged that the excisable duties referred to therein, was short-levied and the amount was recoverable from the petitioner under Rule 10(1)(a) of the Central Excise Rules read with Rule 173I thereof. The period for which the said show-cause notice was issued was from 16.3.1976 to 31.5.1980 amounting to Rs. 1,44,91,276 and the petitioner was required to show cause within thirty days from the receipt of the said notice.
10 Being aggrieved by the said show cause notice the petitioner came up before this Court for redress under Article 226 of the Constitution.
11. On 19.9.1980 a Rule was issued by this Court along with an interim order in terms of prayer (e) of the writ petition and the petitioner was given liberty to clear the goods from its factory by payment of excise duty under Tariff Item No. 68 of the First Schedule to the Central Excises & Salt Act, 1944.
12. The petitioner, in the instant writ petition has prayed for the issuance of a writ in the nature of Mandamus directing the respondents to net according to law and to cancel the Trade Notice dated 14.7.1980 issued by the respondent No. 1, the letter dated 22.7.1980 written by the respondent No. 3, the letters dated 29.7.1980 and 2.8.1980 written by the respondent No. 2 and the show-cause-cum-demand notice dated 20.8.1980 issued by the respondent No. 2 as well as the licence dated 21.8.1980 and all proceedings thereunder.
13. According to the respondents in their affidavit-in-opposition, sub-item (2) of Tariff Item 17, as amended, covered all coated and impregnated papers with effect from 16.3.1976. Since then, the question was discussed in several conferences as to whether the duplicating stencil paper should be classified under Tariff Item 17(2). As per tariff advice No. 40/79 dated 25 9.1979 it was declared by the Central Board of Excise and Customs that stencil paper being a coated variety of paper was classifiable under Tariff Item 17(2) A demand was, accordingly, raised on the petitioner company to pay the differential duty under Rule 10(1)(a) read with Rule 173D of the Central Excise Rules, 1944 by a show cause-cum-demand notice dated 20.8.1980. It was considered that the duplicating stencil paper which is a composite article consisting of coated tissue paper, carbon paper and backing paper with a head strip and also printed scale and other instructions on the stencil indicating its use etc. is classifiable under Item 68 of the Central Excise Tariff But the tissue paper after being coated to form ''stencil paper'' will pay duty under Item 17(2) with proforma credit facility under Rule 56A (Annexure ''A'')
14. As such, in view of the provision of Tariff Item 17(2), stencil paper falls within the said item whereas duplicating stencil paper which is a composite article, is classifiable under Item No. 68.
15. It is further the case of the respondents that the petitioner is required to take out licence in the prescribed form to manufacture stencil paper as coated paper in their factory.
16. Duplicating stencil paper according to the respondents, is a separate item and product as distinguished from stencil paper and that stencil paper clearly falls within Item 17(2) of the Central Excise Tariff but duplicating stencil falls under the residuary Item No. 68. And, in the above view of the matter, the petitioner is not entitled to any relief as prayed for.
17. There is no dispute that the petitioner company is a manufacturer of stencil or duplicating stencils. According to the petitioner duplicating stencils are the final product made of coated paper which is otherwise known as stencil paper. The said stencil paper or coated paper, as it appears, is manufactured out of imported tissues and it is coated on the surface by different chemicals compounds and the outcome thereof is stencil paper or coated paper which, according to the petitioner, is considered as component or raw material for manufacturing duplicating stencils and is not normally marketed in India. Manufacturers of duplicating stencils process such stencil papers only for the purpose of manufacturing duplicating stencils, which for the purpose of assessment of excise duty is classified under Tariff Item No 68 as an item of stationery and not under Tariff Item No. 17(2) inasmuch as such duplicating stencils are not paper as understood in the common parlance or in the commercial sense.
18. Incidentally, Tariff Item No. 17(2) relates to "Piper 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 else were specified" and the rate of duty is 40 per cent ad valorem. Whereas under the residuary Item No. 68 the rate of duty is only 8 per cent ad valorem.
19. It appears, that till the issuance of the show cause notice, following which the instant Rule was obtained by the petitioner, quite a lot of confusion prevailed among the Central Excise authorities as to the nature of stencil papers and duplicating stencils and the show cause notice also appears to be the outcome of such confusion.
20. This will clearly appear from the pre-notice correspondences between the petitioner company and the Central Excise authorities.
21. The starting point appears to be the letter dated 22.5.1980 issued to the petitioner company by the Inspector of Central Excise (Annexure ''C'' to the writ petition). By the said letter the petitioner company was requested to furnish certain particulars regarding the manufacture, classification etc. of "Duplicating Stencil paper".
22. The petitioner company in their reply -dated 27.5.1980 (also Annexure ''C'' explained the process of manufacture of duplicating stencils and while doing so, mentioned about the use of chemically coated stencil base tissue paper in the manufacture of such duplicating stencils.
23. Then came the Trade Notice (Annexure ''D'') dated 14.7.1980 relating to the "classification of Duplicating Stencil Papers", in paragraph 2 whereof it was clarified that "stencil paper being a coated variety of paper is classifiable under Item 17(2) of the "central Excise Tariff" like carbon paper.
24. The real confusion seems to have started here since duplicating stencil, which was mentioned as "duplicating stencil paper" was ultimately mixed up with stencil paper or coated paper, which, as already seen, is totally a different item from duplicating stencil.
25. The confusion thus created, manifested itself in the letter of the Superintendent of Central Excise dated 22.7.1980 addressed to the petitioner company (also annexure ''D'') where referring to the Trade Notice dated 14.7.1980 the petitioner company was informed that "duplicating stencil paper being a coated variety of paper is classifiable under Tariff Item 17(2) in terms of the changed description of Tariff ltem-17 in the Budget of 1976".
26. So, here again the Central Excise authority due to the prevailing confusion, failed to make any distinction between stencil paper/coated paper and duplicating stencil.
27. In their reply dated 28 7.1980 (Annexure ''E'') the petitioner company once again made it clear that "...in the said trade notice, classification of ''stencil paper'' has been proclaimed under Item 17(2) being a coated variety of paper only. This public notice does not cover ''duplicating stencil'' which is not identifiable with stencil paper at all and as such ourselves being manufacturers of duplicating stencil, our product does not appear to be covered by the said trade notice. On the other hand, duplicating stencil being a non-specified item, correctly falls under tariff item 68 against which we have been paying excise duty all along with the approval of your Department". It was further emphasized that "stencil paper is a variety of paper which is manufactured out of base tissue paper with surface coating only. Such stencil paper is not synonymous with duplicating stencil..." and further that "duplicating stencil which becomes an article of stationery...loses its identity as paper item altogether".
28. Thereafter, in their letter to the Collector of Central Excise dated 28.7.1980 (Annexure ''E'') the petitioner company again made it clear that "It is therefore, amply clarified that only that variety of coated paper which has been recognised as stencil paper, remains classifiable under item 17(2). We are manufacturers of duplicating stencil where stencil paper is used as one of the components only and the product loses all identity of paper and get recognised as a stationery item". And also "our product is not stencil paper at all, but duplicating stencil only."
29. That the confusion which was created mainly on the basis of the Trade Notice dated 14.7.1980, became absolute, will appear from the letter of the Superintendent, Central Excise dated 2.8.1980 addressed to the petitioner company (Annexure ''G''). In the said letter it was stated inter alia that "stencil paper being a coated variety of paper was, therefore classified under T.C. 17(2) of C.E.T. as per tariff advice No. 40/79 dated 25.9.1979. In the trade parlance this product is commercially known as stencil paper having a specific function of multiplying copies by duplicating machine...but you have named this product as duplicating stencil. Mere change of nomenclature of a specific product by different persons does not exclude from the Tariff inasmuch as you may call it as duplicating stencil and others may call it by other names as distinct from the name as commercially known in the Trade parlance, but the fact remains that it is a coated variety of paper falling under T.I. 17(2)".
30. From the aforesaid letter of (he Superintendent of Central Excise it will appear to be more than clear that the Central Excise authority refused to make a distinction between ''stencil paper'' and ''duplicating stencil'', though factually they arc two distinctly identifiable items.
31. It was this confusion which ultimately resulted in the issuance of the show-cause-cum-demand notice dated 20.8.1980 (Annexure ''I'').
32. It is, as such, clear that the show cause notice is the result of a total confusion as regards to the distinct identities of stencil paper/coated paper and duplicating stencil.
33. Dr. Pal, the learned Counsel representing the petitioner company, based his argument on the looting that the concerned show-cause notice relates to stencil paper/coated paper and he relied on various decisions including some decisions of the Supreme Court in support of his contention that stencil paper/coated paper can, under no circumstances be classified as paper so as to bring it under the Tariff Item No. 17(2).
34. To start with Dr. Pal relied upon the decision of the Orissa High Court in State of Orissa v. Gestetner Duplicators (P) Ltd. (1974) 33 STC 333, It was held in the said decision that stencil paper is not paper within the meaning of serial No. 7-A of the schedule to the notification Issued by the State Government under the Orissa Sales Tax Act, 1947. Incidentally, serial No. 7-A of the notification as referred to, read as follows: "Paper including all kinds of pasteboard, mill board, straw-board, cardboard, blotting-papers, newsprint, cartridge paper, packing paper, paper registers, note-books, exercise books, envelopes, labels, letter pads, writing tables and flat files made out of paper".
35. While coming to the aforesaid decision, reliance was placed upon the decision of the Allahabad High Court in Kores (India) Ltd v. State of Uttar Pradesh (1970) 26 STC 126 and the decision of the Kerala High Court in Kilburn and Company Limited v. Commissioner of Sales Tax (1973) 31 STC 625.
36. In the former case the subject-matter of dispute was carbon paper and it was held that carbon paper is not paper since in the ordinary sense ''paper'' refers to the material used for writing, printing or wrapping and carbon paper cannot be used for any of such purposes.
37. The subject-matter of dispute in the second case were ammonia paper and ferro paper and the Court held that such stuff was not paper.
38. The matter came up for consideration before the Supreme Court in
39. Reference was also made to the decision of the Supreme Court in
40. Dr. Pal also referred to the decision of the Supreme Court in
41. It was contended by Dr. Pal that stencil paper/coated paper, which is a raw material for manufacture of duplicating stencil, cannot come under the category of paper as envisaged in Tariff Item No. 17(2) of the Central Excise Tariff. Moreover, it could not also be used for writing printing or packing purposes.
42. Mr. Das, the learned Counsel representing the respondents, however, did not try to enter into any such controversy. He simply pointed out to the relevant portion of the show-cause notice (Annexure ''I'') to indicate that the said notice related only to such goods as were cleared by the petitioner company from their factory under different gate passes for the period from 16.3.1976 to 31.5.1980 on payment of Central Excise duty. Incidentally, the relevant gate passes on being produced by the petitioner company before me showed that they related to duplicating stencils.
43. In drawing the Court''s attention to the gate passes, Mr. Das, the learned Counsel, wanted to suggest that the contentions raised by Dr. Pal were based on misconception.
44. But in doing so, Mr. Das without in any way helping his clients, rather landed himself into a difficult position in view of the averments made in the affidavit-in-opposition. Reference in this connection may be made to paragraph 20 of the said affidavit-in-opposition where it has been stated that "duplicating stencil paper or duplicating stencil is manufactured in the factory of the petitioner. The petitioner also manufactures stencil paper in its factory. Duplicating stencil paper is a separate item of product as distinguished from stencil paper, although stencil paper is the main ingredient or r&w material for the manufacture of duplicating stencil paper...that stencil paper clearly falls within item 17(2) of the Central Excise Tariff but duplicating stencil does not fall within the said item and falls under the residuary item 68...since stencil paper does not fall under item 68 but clearly falls within item 17(2) steps have been taken by the authority for the realisation of the short-levied duty".
45. Thus, if according to Mr. Das, the show cause notice (Annexure ''I'') relates to duplicating stencils and not to stencil papers, the said show cause notice becomes totally infructuous since indisputably duplicating stencil is covered by the residuary item No. 68 and not by item No. 17(2).
46. I am, however, unable to accept this subsequent explanation sought to be offered by the respondents in their affidavit-in-opposition, since there is absolutely no indication that when the show cause notice was issued the Central Excise authority had the requisite knowledge and idea that duplicating stencil and stencil paper are two distinctly identifiable items. If the notice refers to the item as mentioned in the gate passes and if such item is duplicating stencil, the situation does not improve in any way. This is because as already stated, the Central Excise authority before issuing the show cause notice refused to accept the contention of the petitioner company that stencil papers and duplicating stencils are two distinct commodities and it was on such assumption that the show cause notice was issued. The said position cannot, in my view, be improved at this stage by stating that the show cause notice relates to duplicating stencils and not to stencil papers.
47. It is true, that on the basis of the contention raised before me by Mr. Das, the learned Counsel representing the respondents, I could have disposed of the matter outright by quashing the show cause notice, but since it is more than clear that at the time of issuing the show cause notice the Central Excise authority did not have any clear idea about the subject-matter of the levy, it would be unfair and unjust to strike down the show cause notice mainly on the basis of the contention raised by Mr. Das.
48. Now, since the show cause notice (Annexure ''I'') suffers from total confusion and misconception of fact, it will not be proper in my view, to record a decision here in the instant Rule on the assumption that the show cause notice relates to stencil paper/coated paper, on the basis of which the entire argument of Dr. Pal was built up. It would similarly be unsafe to accept Mr. Das''s contention that the show cause notice relates to duplicating stencils, since the Central Excise authority did not at the time of issuance of the notice make any distinction between stencil papers and duplicating stencils.
49. The best course, in my view, would be to direct the petitioner company to submit to the Central Excise authority in pursuance of the show cause notice since it will be beyond the jurisdiction of this Court exercising writ jurisdiction to enter into the vital question of fact as to whether the show cause notice relates to stencil papers/coated papers or duplicating stencils, when as it is now specifically admitted, that stencil papers and duplicating stencils are two distinctly identifiable commodities.
50. The Rule is, accordingly, disposed of.
51. The respondents are hereby directed to issue a clarification to the show-cause notice already issued indicating specifically as to which particular commodity, namely, whether stencil paper/coated paper or duplicating stencils, it relates to. If necessary, the respondents may also issue a modified show-cause-cum-demand court the light as referred to above.
52. This should be done within a period of thirty days from the date of the communication of this order to the respondents and thereafter the matter should be disposed of in accordance with law and the relevant rules within a period of six months thereafter, after giving the petitioner reasonable opportunity of being heard.
53. The petitioner should co-operate with the respondents in the matter and in case the petitioner is not co-operative, the matter may be disposed of ex-parte.
54. Since the matter is being referred back, to the Central Excise authority for proper adjudication, I refrain from making any comments as to the merits of the contentions of either of the parties.
55. No order is made for costs.
56. The learned Counsels representing the parties or their recorded juniors are permitted to take note of the relevant portions of this order for communication to their respective clients.
57. Certified copy of this order if applied for, may be supplied by the office as expeditiously as possible.
58. Prayer for stay of operation of the order is considered and refused.
