G. Sankaran, Senior Vice-President

1. E/1619/89-C. - By the impugned order dated 31-1-1989, the Additional Collector of Central Excise, New Delhi, held that impregnated filter paper pleated packs manufactured by M/s. Purolator India Ltd. (the appellants) were classifiable under sub-heading No. 4818.90 of the Schedule to the Central Excise Tariff Act, 1985 (the 'Schedule', for short) and that the appellants were liable to pay Rs. 3,13,790.92 being the duty chargeable on the goods cleared during the period from 1-1-1987 to 31-5-1987. He also imposed a penalty of Rs. 50,000/- under Central Excise Rule 173Q on the appellants. It is this order that is challenged in these proceedings.

2. The facts of the case, briefly stated, are that the appellants were engaged in the manufacture and clearance of the aforesaid goods without taking out a Central Excise licence and observing the procedures laid down in the Central Excise law including payment of duty. The Assistant Collector of Central Excise issued a show cause notice dated 15-6-1987 to the appellants alleging contravention of several provisions of the Central Excise law. By their letters dated 6-7-1987 and 16-7-1987, the appellants refuted the allegations. They contended inter alia that the goods could not be considered as articles of paper falling under sub-heading No. 4818.90 of the Schedule but were a converted type of paper wholly exempted from Central Excise duty. In due course, the Additional Collector passed the impugned order, after hearing the appellants.

3. The process of manufacture of the goods, as set out in the Additional Collector's order, is as follows :-

that before allowing the clearance of goods for manufacture in bond to Delhi, representative samples from each category and colour of the imported fabric be kept in the Custom House and compared at the time of export."

"The noticee imports or buys locally the base filter paper in reel form. The said base filter paper reel is mounted on the unwind stand in the factory. The paper is then unwound and passed through a series of idler rollers. At that stage, the base filter paper comes into contact with the impregnating roll which picks up the phenol Formaldehyde Resin of desired concentration from the resin tray. The resin is then transferred to the filter paper. A rubber roller is engaged to ensure the uniform contact between the paper and the impregnating roll. At that stage, the paper is heated to 90°C to remove the excess quantity of solvent in a drier. This dry paper is rewound at the rewind section. Thereafter the impregnated filter paper is cut to requisite sizes on a slitting machine. Bulk of the impregnated filter paper is sold after slitting to the customers of the noticee. In some cases the impregnated filter paper is subjected to further conversion by way of folding on a pleating machine. The process of pleating is similar to the process of corrugating of craft paper. The only difference between the pleated paper and the corrugated paper is the difference in the flute size. The pleated paper is then cut to convenient sizes which facilitates packing and avoids damage during transit."

It is also seen from the order that the impregnated filter paper in reels is fed at one end of the pleating machine and emerges at the other end as pleated packs. These are cut to pre-determined dimensions. The pleated packs are so constructed that they automatically become cylindrical in shape. The further processes required to be undertaken at the customer's end in order to make the slit paper into ready-for-use articles as elements in filters are described as follows :-

"(a) The pleated paper sold by the Noticee is in 2 layers and hence each layer has to be separated by the customer before use.

(b) The pleated paper has to be further cut at both ends in order to match the ends to facilitate proper positioning in the filter.

(c) A metallic clip or glue has to be applied to join both the ends of the folded paper with the help of a