I.J. Rao, Member (T)

1. The appellants manufacture articles of stationery such as carbon paper, stencil paper, ribbons, duplicating ink, etc. at their factory in' Thane. Among the products of the appellants one is Stencil Paper also referred to as duplicating stencil according to the appellants. This consists of stencil skin, carbon paper and backing paper and stencil head. For the manufacture of this product the appellants import tissue paper known as Altoline. This tissue paper is treated with a chemical solution called "Melt" and the said paper is then passed through a heat chamber for drying. The resultant product is "stencil skin". The appellants purchase duty paid tissue paper and convert the same into carbon paper through a process. They purchase duty paid printing and writing paper and use the same as backing paper for this stencil paper. The said stencil paper is made by collecting together the stencil skin, carbon paper and backing paper. The scale printing is also done simultaneously with collating. The said operation of collating is carried out by a machine known as collating machine. The stencil head of the said stencil paper is punched by the appellants on punching press by punching required holes to make it useable on a particular duplicating machine.

2. Upto 24th April, 1980 the appellants cleared the stencil paper after paying duty on it under Item 68 of the Central Excise Tariff. Thereafter the appellants were asked to file classification lists for the stencil paper classifying it under Tariff Item 17(2) with effect from 16th March, 1976 and to pay the duty. The appellants thereafter cleared the goods under Item 17(2) GET under protest. They contended that duty was payable only under Item 68 CET. They, however, availed of proforma credit on the duty paid on the said paper.

3. On 15th November, 1980 the Central Excise Authorities issued to the appellants a demand-cum-show cause notice calling upon them to pay an amount of over Rs. 39.62 lacs on the ground that it was the differential duty payable by the appellants between 24-10-79 and 23-4-80. After the appellants replied the show cause notice on 1-1-81, they received a letter dated 20th March, 1981 from the Superintendent of Central Excise according to which 'stencil paper' (duplicating stencils according to the Superintendent) was correctly classifiable under Item 68 and "stencil skin" (stencil paper according to the Superintendent) was leviable to duty under Item 17(2) of CET from 27-2-81. After some developments including orders of the High Court, the Assistant Collector of Central Excise heard the appellants in person on 31st July, 1981.

4. By order dated 25th August, 1981 the Assistant Collector rejected the submissions of the appellants and held that the "stencil skin" was "goods" and the process of making "stencil skin" was a manufacturing process and that the same was liable to pay duty under Tariff Item 17(2) CET.

5. The appellants preferred an appeal before the Collector of Central Excise (Appeals) who by the impugned order dated 15-2-82 rejected the contention of the appellants. Aggrieved, the appellants filed a revision application before the Government of India and this application, on statutory transfer, is being dealt with as an appeal before this Tribunal.

6. The issue before us can be briefly stated as the classification of "stencil skin" and the liability of the same to Central Excise duty. Stated differently the question would be whether under the process material which goes into production of 'duplicating stencil' which is the finished product is liable to duty. The appellants say that it is not liable and the Revenue says that it is.

7. The main arguments of the appellants are summarised below:

(i) Conversion of tissue paper (Altoline Tissue Paper) in the "stencil skin" is not manufactured as the paper continues to remain as paper and no new product is brought into existence. (In this context the Learned Senior Counsel argued that the Depart