The present case concerns itself with a
classification issue. The facts necessary to appreciate
the controversy are as follows: -
The appellant manufactures security holograms. At
the very beginning of the manufacturing process, they use
coated metallised film which we are informed is classified JUDGMENT under Tariff entry 39.20.36 after which the said film is
embossed. Post embossing, there is adhesive coating and
release coating which results in a hologram which
ultimately is cut to size and utilised by customers of the
appellant for security purposes. In the show cause notice
dated 04.02.2000, the Department sought to classify the
security hologram under Tariff entry 39.19 of the Central
Excise Tariff 1999-2000. In the reply dated 15.05.2000,
the appellant disputed this and stated that, in fact, the
holograms ought to be classified under Tariff entry 49.01.
The Commissioner, Central Excise, by an order dated
01.01.2002 agreed with the Department's classification and
classified the said goods under Tariff entry 39.19. An
appeal to the Customs, Excise & Service Tax Appellate
Tribunal (hereinafter referred to as 'CESTAT') by the
appellant was dismissed. The Tribunal by the impugned
judgment dated 19.12.2003, agreed with the learned
Commissioner and added reasoning of its own to which we
shall advert to later.
At this stage, it is important to set out the
relevant tariff entries: -
“39.19
3919.00 Self-adhesive plates, sheets, film,
foil, tape, strip and other flat shapes, of
plastics, whether or not in rolls.
39.20 Other plates, sheets, film, foil and strip,
of plastics, non-cellular, whether lacquered or
metallised or laminated, supported or similarly
combined with other materials or not.
- Of polymers of vinyl chloride:
3920.11 - - Rigid, plain
3920.12 - - Flexible, plain
3920.13 - - Rigid, lacquered
3920.14 - - Flexible, lacquered
3920.15 - - Rigid, metallised
3920.16 - - Flexible, metallised
3920.17 - - Rigid, laminated
3920.18 - - Flexible, laminated
- Of regenerated cellulose:
3920.21 - - Film, plain
3920.22 - - Film, lacquered
3920.23 - - Film, metallised
3920.24 - - Film, laminated
3920.25 - - Sheet, plain
3920.26 - - Sheet, lacquered
3920.27 - - Sheet, metallised
3920.28 - - Sheet, laminated
- Of other plastics:
3920.31 - - Rigid, plain
3920.32 - - Flexible, plain
3920.33 - - Rigid, lacquered
3920.34 - - Flexible, lacquered
3920.35 - - Rigid, metallised
3920.36 - - Flexible, metallised JUDGMENT
3920.37 - - Rigid, laminated
3920.38 - - Flexible, laminated
49.01 Printed books, newspapers, pictures and other
products of the printing industry; manuscripts,
typescripts and plans
4901.10 - Transfers (decalcomanias)
4901.20 - Maps and hydrographic or similar
charts of all kinds including atlases, wall maps,
topographical plans and globes, printed
4901.90 - Other”
Shri V. Lakshmikumaran, learned counsel appearing for
the appellant, has raised a number of arguments before us.
According to him, a reference to the Rules for
Interpretation of the First Schedule to Central Excise
Tariff Act, 1985, when properly read, would necessarily
yield the result that the said goods would fall only under
Entry 49.01. In the course of the argument, he also
referred to the Harmonised System of Nomenclature (called
'HSN') Explanatory Notes to which we shall advert a little
later.
He also cited before us a decision of the Tribunal in
'Holographic Security Marking Systems Pvt. Ltd. v. C.C.E.,
Mumbai [2003 (151) E.L.T. 470], an appeal from which was
dismissed by the Supreme Court In addition, he cited a
judgment of this Court reported in 'Collector of Central
Excise, Shillong v. Wood Craft Products Ltd.' [1995 (77)
E.L.T. 23 (S.C.)] in support of the proposition that HSN JUDGMENT Explanatory Notes can be relied upon under certain
circumstances.
Shri K.Radhakrishnan, learned senior counsel
appearing on behalf of the Department, countered these
submissions and sought to impress upon us that the Tribunal
judgment should be sustained. Apart from the reasoning of
the Tribunal, according to him, entry 49.01 would not at
all apply if the ejusdem generis Rule is applied to the
various items contained therein. Another argument was that
viewed at from any angle Tariff entry 39.19 is a specific
entry dealing with self-adhesive items of plastic, and
printing on such items being merely incidental to such
products would require us to maintain the classification
post entry 39.20 under entry 39.19 and not under entry
49.01.
We have heard learned counsel for the parties. The
first important thing to notice is that the original coated
metallised film that has been used by the appellant has
already been classified under sub-Heading 3920.36 as a
flexible metallised film of plastic. The fact that it got
laminated later would not take it out of this particular
sub-Heading. The only question which arises is, after such
classification, which is not disputed by the appellant,
whether the relevant tariff entry would be 39.19 or 49.01.
On a cursory reading of entry 39.19, it becomes clear JUDGMENT
that it is part of a general scheme dealing with various
items of plastics and must be read together with 39.20 as
39.20 begins with the expression “Other plates....”. So
read, it is clear that what is important is that various
sheets, films, etc. of plastic should become “self
adhesive” in order to attract 39.19. If, in addition,
there is printed matter on such sheets, films etc., the
question is whether the end product is properly
classifiable under 49.01 which refers to other products of
the printing industry or whether it falls within self
adhesive sheets, films, etc.
The first thing to be noticed about tariff entry
49.01 is that it refers to printed books, newspapers and
pictures. Mr. K. Radhakrishnan sought to project before us
that since printed books, newspapers and pictures are of
general public utility in that they are all knowledge based
items, the idea of this Tariff entry is to have knowledge
based products of the printing industry which alone would
come under 49.01.
We are afraid we are not able to agree with the said
submission. It is clear that printed books, newspapers and
pictures, manuscripts, typescripts, maps and plans of all
kinds, are included within this entry whether they further
the public interest in knowledge being disseminated or not.
In fact, it becomes clear from a reading of the Explanatory JUDGMENT
Notes to “HSN” that this Heading would include a large
number of “obvious products” which are set out in this
Explanatory Note as follows: -
“The heading includes the following in
addition to the more obvious products:
(1) Advertising matter (including posters), year
books and similar publications devoted essentially to
advertising, trade catalogues of all kinds (including
book or music publishers' lists, and catalogues of
works of art) and tourist propaganda. Newspapers,
periodicals and journals, whether or not containing
advertising material, are however excluded (heading
49.01 or 49.02, as appropriate).
(2) Brochures containing the programme of a
circus, sporting event, opera, play or similar
presentation.
(3) Printed calendar backs with or without
illustrations.
(4) Schematic maps.
(5) Anatomical, botanical, etc., instructional
charts and diagrams.
(6) Cinema, theatre, concert, railway and other
tickets.
(7) Microcopies on opaque bases of the articles of
this Chapter.
(8) Screens made by printing a film of plastics
with letters or symbols to be cut out for use in
design work.
Such screens simply printed with dots, lines or squares
are excluded (Chapter 39)
(9) Maximum cards and illustrated first-day covers
not bearing postage stamps (see also Part (D) of the
Explanatory Note to heading 97.04).
(10) Self-adhesive printed stickers designed to be used, for example,JUDGMENTfor publicity, advertising or mere
decoration, e.g., “comic stickers” and “window
stickers”.
On a reading of the various products outlined herein,
it is obvious that they include a large number of products
which have absolutely nothing to do with disseminating
knowledge.
The other argument of Shri Radhakrishnan is that the
expression “other products of the printing industry” should
be read ejusdem generis with the three expressions
preceding these words, namely, “printed books, newspapers,
pictures”.
We do not find any genus in any of these expressions.
Indeed, it is clear that the expressions “manuscripts,
typescripts and plans” which are also part of the Heading
also do not reveal that there is any one genus to which all
these items can be attributed. All these expressions speak
of printed matter.
The other argument, namely, that the expression
”printing industry” that is referred to hereinabove, which
would refer to an industry which includes printing presses
and nothing beyond, is also in our opinion not correct. A
simple example will suffice. Newspapers, which are
included within entry 49.01 are obviously products of the
newspaper industry and not of the printing industry as is JUDGMENT
contended by Shri Radhakrishnan in the narrow sense noted
above. The printing industry would therefore, refer to
products of various industries other than the printing
industry stricto senso, which has printed material on them.
Thus, construed, it is clear, that Tariff entry 49.01 would
also be attracted on the facts of this case. One other
interesting thing needs to be noted. In the Explanatory
Notes of HSN which have already been referred to, Item 10
refers to self adhesive printed stickers. It is clear that
if Shri Radhakrishnan were right, such stickers not being
products of the printing industry as narrowly understood
and not being “other products" if one were to apply the
ejusdem generis rule, would obviously be outside this
entry. The fact that Item No. 10 in the Explanatory Notes
to HSN exists is also an important pointer to the
construction of entry 49.01 which we have just given above.
The real question, therefore, in this appeal is the
application of Note No. 2 to entry 49, which reads as
follows: -
“Except for the goods of Heading No. 39.18 or
39.19, plastics, rubber and articles thereof,
printed with motifs, characters of pictorial
representations, which are not merely incidental to
the primary use of the goods, fall in Chapter 49.”
It is clear therefore, that the question resolves itself into whether printing is only incidental to the
primary use of the goods or is something more than
something merely incidental. We have already referred to
the process hereinabove and the final product which emerges
is a product which is used for security purposes. It is
important to remember therefore, that the primary use of
the product is security and not the quality of being
adhesive. Here again, a simple example will suffice. Take
an adhesive tape with a monogram printed upon it. The
primary use of such tape is by virtue of its adhesiveness
to bind and package containers in which goods are to be
stored and transported. Obviously, in such an example, the
printed monogram of such adhesive tape would be incidental
to the primary use of the said goods – the adhesive tape.
By way of contrast, in the present case, the factor of
adhesiveness is incidental to the primary use to which the
goods are put, namely, that they are to be used for
security purposes. Also, the HSN Explanatory Notes are
relevant, which according to the judgment of this Court
reported in 'Collector of Central Excise, Shillong v. Wood
Craft Products Ltd.' [1995 (77) E.L.T. 23 (S.C.)] in para
12 are a safe guide in case of doubt: -
“12. It is significant, as expressly stated, in
the Statement of Objects and Reasons, that the
Central Excise Tariffs are based on the HSN and the
internationally accepted nomenclature was taken
into account to “reduce disputes on account of
tariff classification”. Accordingly, for resolving
any dispute relating to tariff classification, a
safe guide is the internationally accepted
nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of
Central Excise Tariff in the Act and the tariff
classification made therein, in case of any doubt
the HSN is a safe guide for ascertaining the true
meaning of any expression used in the Act. The ISI
Glossary of Terms has a different purpose and,
therefore, the specific purpose of tariff
classification for which the internationally
accepted nomenclature in HSN has been adopted, for
enacting the Central Excise Tariff Act, 1985, must
be preferred, in case of any difference between the
meaning of the expression given in the HSN and the
meaning of that term given in the Glossary of Terms
of the ISI.”
When one goes to the HSN Explanatory Notes to 'other
printed matter', Item No. 10 which has already been
referred to hereinabove states that 'self adhesive printed
stickers designed to be used, for example, for publicity,
advertising or mere decoration, e.g. “comic stickers” and
“window stickers”' would be included.
It also goes on to say that goods of entry 39.19
(inter alia) because they are merely incidental to the
primary use of the products, would not be so included.
This test again provides a useful application of what is
includable and what is left out by applying the “primary”
and "incidental” test outlined in Note 2 above. Obviously,
a comic sticker would have as its primary use the “comic
part”, the adhesive or sticker part being only incidental
to its primary use. Similarly, in the facts of the present
case, a security hologram sticker would have as its primary
part, the security hologram, the sticker part or adhesive part only being JUDGMENTincidental to the primary use of the said goods.
One other submission of Shri Radhakrishnan needs to
be dealt with. He placed before us two circulars of the
Department one dated 14.08.1995 and the other dated
21.06.1996. These circulars reads as follows: -
Circular No. 142/53/95-CX, dated 14.08.1995
“I am directed to say that certain doubts have
been expressed regarding the correct classification
of Photo Identity Cards and Holograms – whether these
should be classified under Chapter 39 as articles of
plastics or under Chapter 49 as products of printing
industry.
2.The production of photo-identity cards involves
videography of the person, computerised capture of
the videographed image, merging of the image with the
date of the person already entered in the computer
and the computerised printing out of the merged data
and image through a laser printer. This print out is
verified, validated and pasted with the Holograms of
the State emblem and then cut, folded and laminated
before issue to the person.
3.The Board has carefully considered the matter. It
is felt that photo identity cards get their
distinctive character and identity because of the
date imprinted on them and not because of the
material they are made of or because of their shape
and size. Thus, photo-identity cards are a distinct
product as compared to other identifiable articles of
plastic.
4.Section Note(2) of Section VII of Central Excise
Tariff also clearly excludes photo identity cards
from the purview of Chapter 39 and places them
squarely under Chapter 49.
5.On the other hand, Chapter Note (2) of Chapter 49
states that printing also means reproduced by means
of a duplicating machine, produced under the control
of a computer, embossed, photographed, photo-copied,
thermocopied or typewritten. Further, as per general
explanatory notes to HSN – page 691, with the few
exceptions as referred to in these notes, Chapter 49
covers all printed matter of which the essential
nature and use is determined by the fact of its being
printed with motifs, characters or pictorial representations.JUDGMENT
6.Keeping in view the distinctive character, process
of manufacture, relevant tariff headings, Section
notes, Chapter notes and HSN notes, the Board is of
the view that photoidentity cards and holograms merit
classification under sub-heading 4901.90 of the
Schedule to the Central Excise & Tariff Act, 1985.
7. All pending disputes may be finalized in view of
the above guidelines. Field formations and trade may
be informed accordingly.”
Circular No. 35/96-Cus., dated 21.06.1996
Subject : Classification of holograms under
First Schedule, CTA 1975 – Regarding.
“Doubts have been raised regarding classification
of “embossed holograms” under First Schedule to the
Customs Tariff Act, 1975 (Customs Tariff), in the
context of the Boards Circular No. 141/52/95-CX.4
dated 14.08.1995 stating the “photo identify cards
and holograms” are classifiable under sub-heading
4901.90 of the Central Excise Tariff. Subsequently
it has been clarified that the hologram, as such,
would be classified keeping in view the manufacturing
process and end use etc.
2.The issue has been examined. It is observed that
“embossed holograms” presently are made by embossing
plastic films with mechanical dies and are self
adhesive, however in some cases, the possibility such
holograms being other than self adhesive is also not
ruled out.
3.Self-adhesive plates, sheets, film, foil, tape,
strip and other flat shapes, of plastic are
classifiable under Heading 39.19 of the Customs
Tariff. As per Note 2 to Section VII, read with
Explanatory Notes to Heading 39.19, this heading also
includes articles printed with motifs, characters or
pictorial representations, which are not merely
incidental to the primary use of the goods. In view
of this, self-adhesive embossed holograms will fall
under Heading 3919.90 of the Customs Tariff. However
embossed plastic holograms, which are not self-
adhesive, will fall under Heading 49.11, in view of
Note 2 to Chapter 49.”
It will be seen that under Para 3 of the second JUDGMENT
circular self adhesive embossed holograms will now fall
under Heading 39.19, whereas embossed plastic holograms
which are not self adhesive alone will fall under entry 49.
This is said to be in view of Note 2 to Chapter 49. We are
afraid that the second circular which has been quoted
hereinabove does not set out the law correctly. 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. To this extent, it is clear that the
circular as has been noted above, does not lay down the
correct law.
We will now come to the impugned judgment. The
CESTAT in the impugned judgment states as under: -
“It is thus apparent that even if printing is of
essential nature, the product of 39.19 would remain
classifiable under Heading 39.19 and will not be
regarded as “a product of printing industry”. This
view is further strengthened by the Explanatory
Notes of HSN below Heading 39.19 which reads as
under:
“It should be noted that this heading includes
articles printed with motifs, character or pictorial
representations which are not merely incidental to
the primary use of the goods (See Note 2 to Section
General Explanatory Notes of HSN below Chapter 49
clearly mentions that “Goods of Heading 39.18,
39.19, 48.14 or 48.21 are also excluded from this
Chapter, even if they are printed with motifs,
characters or pictorial representations, which are
merely incidental to the primary use of the goods.”
For this reason “self-adhesive printed stickers
designed to be used, for example, for publicity,
advertising or mere decoration, eg. “comic stickers”
and “window stickers” mention in HSN Notes below
Heading 49.11 would not cover the products of
Heading 39.19. In view of this, the decisions
relied upon by the learned Advocate are not
applicable to the facts of the present matters. In
Holographic Security Marking Systems case the
product involved was “stamping foils” falling under
Heading 32.12 of the Tariff which was classified
under Heading 49.01 after the hologram was printed
thereon. The Tribunal observed that “until the
product became transformed because of the printing
of the material on it, it continued to be stamping
foil..”. In the present case even after printing,
because of Note 2 to Section VII, the product
continues to remain classified under Heading 39.19
of the Tariff. We thus hold the classification of
the impugned product under Heading 39.19 of the
Tariff.”
It is clear that the aforesaid reasoning is flawed in
more than one respect. 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 above and the judgment dated JUDGMENT 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.
Shri Radhakrishnan referred to and relied upon Rule 1 and
Shri Lakshmikumaran referred to and relied upon Rule 3. We
do not think it 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. With the above
observations, the appeals are allowed. There will be no
orders as to costs. We are informed, that the 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.
[ A.K. SIKRI ]
New Delhi; March 30, 2015.