Full Judgment Text
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PETITIONER:
COLLECTOR OF CENTRAL EXISE, CULCUTTA-II
Vs.
RESPONDENT:
EASTEND PAPER INDUSTRIES LTD. & ANR.
DATE OF JUDGMENT29/08/1989
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RAY, B.C. (J)
CITATION:
1990 AIR 1893 1989 SCR (3)1017
1989 SCC (4) 244 JT 1989 (3) 518
1989 SCALE (2)456
ACT:
Central Excises and Salt Act, 1944/Central Excise Rules,
1944: Section 2(f)/Rules 9(1), 56(a), 173-F and 173-G--Levy
of Excise Duty--Wrapping paper--Captively consumed and
utilised as component part of other varieties of
paper--Whether deemed to have been used in completion or
manufacture of end product.
HEADNOTE:
The respondent, in the first of these appeals, was
manufacturing different varieties of printing paper includ-
ing wrapping paper failing under Item No. 17 of the erst-
while Central Excise Tariff. The appellant issued a show
cause notice to the Respondent for the alleged violation of
Rules 9(1), 173-F and 173-G of the Central Excise Rules,
1944 in respect of wrapping paper removed outside the Facto-
ry without payment of Central Excise duty, and for imposi-
tion of penalty. Showing cause, the Respondent contended
that the wrapping paper was captively consumed and utilised
as component :art of other varieties of paper and as such no
duty was payable. Reliance was placed on section 2(f) of the
Central Excises and Salt Act, 1944 and Notification No.
18A/83-CE dated 9th July, 1983. The Superintendent (Techni-
cal) having held otherwise, the respondent preferred an
appeal to the Collector (Appeals). The Collector rejected
the claim. On appeal, the Customs, Excise and Gold (Control)
Appellate Tribunal referred to its own decision, which is
the subject matter of the other appeals herein and set aside
the order of the Collector.
The facts leading to the other appeals are similar, and
the issue involved is the same. The Revenue has filed the
appeals under section 35-L of the Central Excises & Salt
Act.
On behalf of the Revenue, it was contended that wrapping
paper cannot be deemed to be component part because it did
not become an integral part of the packed paper.
The assessee, however contended that wrapping paper was
raw material or component part of the wrapped paper, and
relied on S. 2(f) of the Act which includes any process
incidental or ancillary to the
1018
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completion of a manufactured product. It was also urged that
Revenue had itself considered the stage of wrapped or packed
paper as the stage at which goods should be entered in the
statutory production register.
Dismissing the appeals,
HELD: 1. ’Manufacture’ in the sense it is used in the
excise law, was not complete until and unless wrapping was
done. It is the law now that excise is a duty on manufac-
ture. Manufacture is the process or activity which brings
into existence new, identifiable and distinct goods. Goods
have been understood to be articles known as identifiable
articles known in the market as goods and marketed or mar-
ketable in the market as such. The finished goods were cut-
to-size and packed paper which, according to the Indian
standard and trade practice, consisted of the wrapping paper
and the wrapped paper. Duty is levied on goods. As the Act
does not define goods, the legislature must be taken to have
used that word in its ordinary, dictionary meaning. The
dictionary meaning of the expression is that to become
’goods’ it must be something which can ordinarily come to
the market to be bought and sold and is known to the market
as such. The Tribunal found, and there was material for the
Tribunal to do so, that the market in which articles in
question were sold were paper packed and wrapped in paper.
Therefore, anything that enters into and forms part of that
process must be deemed to be raw material or component part
of the end product and must be deemed to have been used in
completion or manufacture of the end product. [1021G-H;
1022A-D]
Bhor Industries Ltd., Bombay v. Collector of Central
Excise, Bombay, [1989] 1 SCC 602; South Bihar Sugar Mills
Ltd., etc. v. Union of India & Ors., [1968] 3 SCR 21; Union
of India v. Delhi Cloth & General Mills Ltd., [1963] Suppl.
I SCR 586; Union Carbide India Ltd. v. Union of India and
Ors., [1986] 24 ELT 169; Collector of Central Excise, Baroda
v. M/s Ambalal Sarabhai Enterprises, [1989] 3 SCR 784 relied
on.
2. Processes incidental or ancillary to wrapping are to
be included in the process of manufacture, manufacture in
the sense of bringing the goods into existence as these are
known in the market, is not complete until these are wrapped
in wrapping paper. Manufacture of goods should normally
encompass the entire process carried on by the dealer of
converting raw materials into finished goods. Where any
particular process, is so integrally connected with the
ultimate production of goods that, but for that process,
manufacture or processing of
1019
goods would be commercially inexpedient, article required in
that process, would fail within the expression ’in the
manufacture of goods’. [1022E-G]
Empire Industries Ltd. & Ors. v. Union of India & Ors.,
[1985] 3 SCC 314; J.K. Cotton Spinning and Weaving Mills Co.
Ltd. v. Sales Tax Officer, [1965] 16 STC 563 (SC); relied
on. [1023F]
3. To be able to be marketed or to be marketable, in the
light of facts in the appeals, it was an essential require-
ment to be goods, to be wrapped in paper. Anything required
to make the goods marketable, must form part of the manufac-
ture and any raw material or any material used for the same
would be component part for the end product.
Collector of Central Excise v. Jay Engineering Works
Ltd., [1989] 39 ELT 169 (SC); referred to.
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JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1589 of
1988 etc.
From the Order dated 6.1.1988 of the Customs Excise and
Gold (Control) Appellate Tribunal, New Delhi in Appeal No.
2085 of 1985A in Order No. 5 of 1988-A.
K. Parasaran, Attorney General, A.K. Ganguli, K. Swamy,
P. Parmeswaran and Sushma Suri for the Appellant.
R.N. Bajoria, S.K. Bagaria, Padam Khaita, Vivek Gambhir,
Praveen Kumar, S.K. Bagga and R.K. Mehta for the Respond-
ents.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. These appeals are at the in-
stance of the revenue under section 35-L of the Central
Excises & Salt Act, 1944 (hereinafter referred as to ’the
Act’). Civil Appeal No. 1589 appeal arises out of Order No.
5 of 1988-A passed by the Customs, Excise and Gold (Control)
Appellate Tribunal, New Delhi (hereinafter referred to as
’the Tribunal’).
The. respondent used to manufacture different varieties
of printing paper including wrapping paper falling under
Item No. 17(1) of the erstwhile Central Excise Tariff in
their factory at Bansberia, District Hubli. It is the appel-
lant’s case that the respondent had violated the
1020
provisions of Rule 9(1), Rule 173-F and Rule 173-G of the
Central Excise Rules, 1944 inasmuch as they had removed
4,000 kgs. of wrapping paper under Gate Pass No. A-460 dated
9th February, 1984 and 485 dated 17th February, 1984 valued
at Rs. 13,200 without payment of central excise duty. Show
cause notice was issued to the respondent as to why appro-
priate duty of excise amounting to Rs.3,600 (basic), Rs. 180
(special) and Rs. 16.50 (cess) totalling Rs.3,796.50 should
not be recovered from them on the said quantity at the rate
of Rs.900 per M.T. and special duty at the rate of 5% of
basic duty and cess 1/8% on value. Notice to show cause as
to why penalty should not be imposed was also issued. Cause
was shown by the respondent. It was the contention of the
respondent that there was no infringement of the impugned
provision and no duty was required to be paid on the excisa-
ble goods if it was captively consumed or utilised in the
same factory as component part of the finished goods falling
under the same tariff item and specified in Rule 56(a) of
the Central Excise Rules, 1944. It was further stated that
in the instant case, wrapped paper manufactured was captive-
ly consumed and utilised as component part of other varie-
ties of paper. Wrapping, it was contended, of finished
product by wrapping paper is a process incidental and ancil-
lary to the completion of manufactured product under section
2(f) of the Act and wrapping is used as a component part of
finished excisable goods attracting the benefit of the
notification No. 18A-83-CE dated 9th July, 1983. The Super-
intendent (Technical) of Central Excise held otherwise. The
respondent preferred an appeal before the Collector (Ap-
peals), Calcutta. The respondent contended before the Col-
lector that they were entitled to the benefit of notifica-
tion and it is well settled law in view of several judgments
of High Court and orders of the Tribunal that wrapping of
paper was a process incidental or ancillary to the comple-
tion of manufacture of paper, as the printing and writing
paper could not be sold in the market without being packed
and wrapped by wrapping paper. The Collector (Appeals),
however, rejected the claim to exemption in respect of such
wrapping paper in terms of the proviso to Rule 9(1). There
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was an appeal to the Tribunal. The Tribunal referred to its
own decision in the case of Collector of Central Excise,
Bhubneshwar v. Orient Paper Mills, Brajraj Nagar, [1986] ELT
24 135, which is the subject matter of the other appeal
involved herein, and set aside the order of Collector.
Similar is the case in Civil Appeal Nos. 3760-62 of
1988. In that case, M/s. Orient Paper Mills, Brajraj Nagar,
respondents, were manufacturers of various types of paper
and paper board. They were also the manufacturers of wrap-
ping paper for packing or wrapping of
1021
other varieties of paper. Under the relevant notification,
the Central Government had exempted duty in respect of goods
if these were consumed or utilised in a place where such
goods were produced or manufactured under relevant rule
either as raw materials or component parts for the manufac-
ture. Therefore, in order to get the benefit of non-levy of
excise duty on wrapping paper, it had to be established in
both these appeals that the wrapping papers were consumed or
utilised by the respondent assessees as component parts or
raw materials for the finished products.
The Collector (Appeals) in his order observed that when
wrapping paper was used for making paper reams/reals, it
lost its original identity as wrapping paper and became a
part and parcel of the paper ream/real and as such available
for the benefit of amended Rules. Revenue disputed this
finding. It was contended that the wrapping paper was not
utilised or consumed in the manufacture of other paper. On
behalf of the revenue, it was contended before us in these
appeals that in order to be non-dutiable, the wrapping paper
must be either component part or raw material and must be
consumed or utilised in the manufacture of the finished
products. Wrapping paper cannot, it was contended, be deemed
to be component part because it did not become an integral
part of the packed paper. In this connection, on behalf of
the revenue, learned Attorney General drew our attention to
the fact that reliance had been placed on the decision of
the Kerala High Court in Paul Lazar v. State of Kerala,
[1977] 40 STC 437. On behalf of the respondent, however,
Shri Bajoria placed reliance on section 2(f) of the Act
which includes any process incidental or ancillary to the
completion of a manufactured product. Therefore, it was
urged that all processes leading upto the stage of goods,
when the goods become completed for marketing would be
within the process of marketing. In that view of the situa-
tion, it was urged that wrapping paper was raw-material or
component part of the wrapped paper. It was further urged
that revenue had itself considered the stage of wrapped or
packed paper as the R.G.I. stage, i.e., the stage at which
goods should be entered in the statutory production regis-
ter. ’Manufacture’ in the sense it is used in the excise
law, was not complete until and unless wrapping was done. It
is law now that excise is a duty on manufacture. Manufacture
is the process or activity which brings into existence new,
identifiable and distinct goods. Goods have been understood
to be articles known as identifiable articles known in the
market as goods and marketed or marketable in the market as
such. See in this connection the observations of this Court
in Bhor Industries Ltd., Bombay v. Collector of Central
Excise Bombay, [1989] 1 SCC
1022
602; South Bihar Sugar Mills Ltd., etc. v. Union of India &
Ors., [1968] 3 SCR 21; Union of India v. Delhi Cloth &
General Mills Ltd., [1963] Supp. 1 SCR 586 and Union Carbide
India Ltd. v. Union of India and Ors., [1986] 24 ELT 169.
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See also the decision of this Court in Civil Appeal No.
2215(NA) of 1988--Collector of Central Excise, Baroda v. M/s
Ambalal Sarabhai Enterprises, judgment delivered on 10th
August, 1989. The finished goods were cut-to-size and packed
paper which, according to the Indian Standard and trade
practice, consisted of the wrapping paper and the wrapped
paper. In South Bihar Sugar Mills Ltd.’s, case (supra), it
was held by this Court that the duty is levied on goods. As
the Act does not define goods, the legislature must be taken
to have used that word in its ordinary, dictionary meaning.
The dictionary meaning of the expression is that to become
’goods’ it must be something which can ordinarily come to
the market to be bought and sold and is known to the market
as such. The Tribunal found, and there was material for the
Tribunal to do so, that the market in which articles in
question were sold were paper packed and wrapped in paper.
Therefore, anything that enters into and forms part of that
process must be deemed to be raw material or component part
of the end product and must be deemed to have been used in
completion or manufacture of the end product.
This Court in the case of Empire Industries Ltd. & Ors.
v. Union of India & Ors., [1985] 3 SCC 314 has explained the
concept of ’process’ in Excise Law. In view of the principle
laid down therein and other relevant decisions, processes
incidental or ancillary to wrapping are to be included in
the process of manufacture, manufacture in the sense of
bringing the goods into existence as these are known in the
market is not complete until these are wrapped in wrapping
paper. In J.K. Cotton Spinning and Weaving Mills Co. Ltd. v.
Sales Tax Officer, [1965] 16 STC 563 (SC), this Court while
construing the expression ’in the manufacture or processing
of goods for sale’ in the context of Sales Tax Law, though
the concept is different under the Excise Law, has held that
manufacture of goods should normally encompass the entire
process carried on by the dealer of converting raw materials
into finished goods. Where any particular process, this
Court further emphasised, is so integrally connected with
the ultimate production of goods that, but for that process,
manufacture or processing of goods would be commercially
inexpedient, articles required in that process, would fall
within the expression ’in the manufacture of goods’. The
Tribunal on the appraisement of all the relevant facts in
the light of the principles indicated before, upheld its own
decision in the case of Orient Paper Mills. [1984] 18 ELT 88
and in both the appeals accepted
1023
the manufacturer’s contentions and dismissed the appeal. The
revenue contends that the Tribunal has erred.
Shri Bajoria for the respondent, drew our attention to
the decision of this Court in Collector of Central Excise v.
Jay Engineering Works Ltd., [1989] 39 ELT 169 (SC). There
the respondent was the manufacturer of electric fans, and
brought into its factory nameplates under Tariff Item 68 of
the erstwhile Central Excise Tariff. The nameplates were
affixed to the fans before marketing them. The respondent
claimed the benefit of proforma credit in terms of notifica-
tion No. 201/79 dated 4th June, 1979, which was for the
purpose of relief on the duty of excise paid on goods fall-
ing under Tariff Item 68, when these goods were used in the
manufacture of other excisable goods. The said notification
stated that in supersession of the Notification No. 178/77
of the Central Excise dated 18th June, 1977, all excisable
goods on which duty of excise was leviable and in the manu-
facture of which any goods falling under Item No. 68 have
been used, were exempt from so much of the duty of excise
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leviable thereon as was equivalent to the duty of excise
already paid on the inputs. In that case, the question
before the Tribunal was whether the nameplates could be
considered as component part of the electric fan, so as to
be eligible for proforma credit under the exemption notifi-
cation. It was found by the Tribunal that no electric fan
could be removed from the factory for being marketed without
the nameplate. The Tribunal also noted in that case that
even though it could be said that electric fans could func-
tion without the nameplates, for actual marketing of the
fans, the affixation of the nameplate was considered an
essential requirement.
To be able to be marketed or to be marketable, it ap-
pears to us, in the light of facts in the appeals, that it
was an essential requirement to be goods, to be wrapped in
paper. Anything required to make the goods marketable, must
form part of the manufacture and any raw material or any
materials used for the same would be component part for the
end product. In our opinion, the Tribunal was right in the
view it took. There is no ground to interfere in these
appeals.
Before we conclude, we must further observe that Shri
Bajoria drew our attention to the judgment and order of the
Tribunal in Appeal No. ED(SB)A. No. 2734-83C (Collector of
Central Excise v. Orient Paper Mills), where the appeal has
been preferred and in the’ petition in appeal to this court
by the revenue under section 35L(b) of the Act, where the
question involved was whether the proforma credit under rule
56A of the Central Excise Rules, 1944 in respect of said
1024
packing and wrapping paper used for packing admissible or
not is punishable or not, the revenue has pleaded that the
unit of paper for sale was ’ream’ duly packed in wrapping
paper and the real is cured and such real is also wrapped in
the wrapping paper. Therefore, from that statement, it
further appears that such ream or real are wholesale pack-
ages and are stored in packed condition. If that is the
stand of the then it cannot be contended that wrapping paper
is not integral part of the manufacture. If that is so, any
material utilised must be component part of the raw material
used or consumed in the finished products. Apart from that,
under rule 56A of the Rules, the assessee would be entitled
to the benefit of deduction of the duty to be charged on all
wrapping papers, if any. Nothing contrary to the aforesaid
was indicated to us by the revenue though asked to do so. In
the aforesaid view of the matter, this question involved in
these appeals is really of academic interest.
These appeals, however, have no merit for the reasons
indicated above and are accordingly dismissed without any
order as to costs.
G.N. Appeals dismissed.
1025