caselaws
Supreme Court of India
M/S. Holostick India Ltd vs Commnr. Of Central Excise, Noida on 30 March, 2015Author: R F Nariman
Bench: A.K. Sikri, Rohinton Fali Nariman
‘REPORTABLE’
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.2729-2730 OF 2004
M/S. HOLOSTICK INDIA LTD. … Appellant
VERSUS
COMMISSIONER OF CENTRAL EXCISE, NOIDA … Respondent
J U D G M E N T
R. F. NARIMAN, J.
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 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
3920.19 – – Other
– 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
3920.29 – – Other
– 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
3920.37 – – Rigid, laminated
3920.38 – – Flexible, laminated
3920.39 – – Other
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 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 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 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, for
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 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
incidental 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.
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 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 VII)”.
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 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.
………………….., J.
[ A.K. SIKRI ]
………………….., J.
[ R. F. NARIMAN ]
New Delhi;
March 30, 2015.
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