1. The point at issue in this appeal is whether Central excise duty was payable on jute pack sheets and jute twine used in the factory of their production for packing of other jute manufactures which were exported out of India under bond.
2. The jute manufactures exported were classifiable under Item 22A of the Central Excise Tariff. So too were the pack sheets used for their packing. The stitching twine, although made of jute also, was classifiable under Item 18D. However, Notification No. 56/72-C.E., dated 17-3-72 fully exempted from payment of duty such jute twine as was consumed within the factory of its production "for the manufacture of jute manufactures falling under Item 22A".
3. During the period from 24-2-79 to 31-7-79, the respondents used, without payment of duty, some quantity of jute pack sheets and stitching twine for the packing of jute manufactures for export as well as for the packing of jute manufactures cleared for horns consumption.
The Department issued a show cause notice on 17-8-79 demanding from them total duty of Rs. 36,952.02 on the pack sheets and twine so used.
On adjudication, the Asstt. Collector confirmed the demand. The Appellate Collector, by his order dated 9-12-80, sustained the demand for Rs. 126.63 which related to the duty on the twine used for home consumption goods but set aside the remaining demand holding that since the goods were exported under Bond/under Rule 13 of the Central Excise Rules, 1944 without payment of duty, no duty could be realised on the packing material also. The Central Government tentatively held the view that the order of the Appellate Collector was not legal, correct and proper because the packing materials were not covered by the Bond under Rule 13 and as such duty should have been paid thereon Accordingly, the Central Government issued the subject show cause notice on 18-11-81 under the then Section 36(2) of the Central Excises and Salt Act, 1944.
The proceedings initiated by this show cause notice have, on transfer to this Tribunal, been taken up the subject appeal of the Department.
4. The respondents stated before us that the sole ground taken in the Government's show cause notice that the packing materials were not covered by a Bond under Rule 13 was not correct because the respondents had executed a B-l (General Security) Bond on 26-6-74 for export of jute manufactures without payment of duty. They submitted a photostat copy of this Bond. They added that the pack sheets used for export goods were themselves jute manufactures and were, therefore, covered by the same Bond whereas the jute twine used by them was fully exempt under Notification No. 56/72-C.E., dated 17-3-72 as it had been used for the jute manufactures exported and was, further, covered by Explanation 2(ii) to Rule 13 which read as under :- "(ii) The term "goods" includes excisable goods used in the manufacture of the goods which are exported." That the Department itself regarded baling of jute manufactures as a process of manufacture was evident from the fact that the R.G. 1 stage for accounting the production of jute manufactures had been fixed by the Department after baling. It was true that the Collector issued a Trade Notice on 29-11-79 stating that duty would have to be paid on jute packing materials used for packing of jute manufactures for export but this Trade Notice could apply only prospectively as had been held by the Central Board of Excise & Customs in its Order-in-Appeal dated 31-3-81 in the case of M/s. Megna Mills Company Ltd. To the respondents' knowledge, this order had now become final. The Appellate Collector in allowing their appeal, had followed this order of the Board. He had passed similar favourable orders in the case of seven other jute mills also. The respondents produced photostat copies of these orders and stated that to their knowledge these orders too had become final.
5. The Department's representative stated that the basic issue in this case was whether packing materials could be considered to have been exported. He invited our attention to the order of the Madras Bench of this Tribunal reported at 1984-ECR-64 (CEGAT Madras) in the case of the Collector of Central Excise, Madras v. The Engineering & Industrial Foundry Company, Coimbatore. In this case, a consignment of grinders and drilling machines fitted with electric motors had been exported. It was held that electric motors fitted to other appliances and which were merely component parts were not eligible for rebate of central excise duty under Rule 12 or the notification issued thereunder. The Department's representative argued that in the case before us pack sheets and twine had been consumed within India prior to export. They were neither exported under Bond nor under claim for rebate of duty.
They could not be deemed to have been exported themselves. Relying on the Supreme Court judgment in the case of Burmah Shell Oil Storage & Distributing Company v. Commercial Tax Officer (1961-(1) SCR-902), he stated that only those goods could be considered as exported for which some one was waiting abroad to receive them. He elaborated by saying that only the contents were sold and purchased and not the packing material (reliance on 1980 46 STC 126 (M.P.)-in the case of Commercial Tax Officer v. Dharamse Morarjee Chemicals). He further relied on the Supreme Court judgment reported at 1961 (1)-SCR-709 (Anwar Khan Mehboob Khan v. The State of Bombay) to say that for utilisation of one substance for the other it was not necessary that the first substance should be destroyed in the process When his attention was drawn to the fact that the sole ground for review taken in the Government of India's show cause notice was that the packing materials were not covered by a Bond under Rule 13 and that the propositions expounded by him during the hearing before us were not there in the said show cause notice, he stated that the respondents had understood the show cause notice on the lines now expounded by him and that, therefore, the show cause notice should be read as amplified accordingly. In support of his contention, he invited our attention to the grounds (c) and (d) in para 5 of the respondents' reply to the show cause notice. On reference to the papers, we observe that in these grounds the respondents had merely stated that by issuing exemption Notifications Nos. 167/60-C.E. and 168/80-C.E. both dated 28-10-80, which fully exempted jute packing materials when used for the purpose of packing jute consignments meant for export, the Government had accepted in principle that packing materials for jute goods meant for export were not liable to duty and further that the Trade Notice issued by the Collector on 29-11-79 which had earlier stated that duty would have to be paid on such packing materials was effective only prospectively and that prior to the said Trade Notice no objection was ever raised by the Department when packing materials were used without payment of duty for jute export goods. The Department's representative stated further that the correct procedure to follow in respect of the packing materials was the one laid down in Rules 191A and 191B whereby excisable goods could be obtained for manufacture and packing of export goods without payment of duty. But he added that during the material period jute manufactures had not been notified as one of the eligible export goods under these rules. Subsequent Notifications Nos. 167/80-C.E. and 168/80-C.E., dated 28-10-80 which granted exemption in respect of jute packing materials were effective only prospectively and could not affect the demand for duty for the past period. Notification No. 56/72-C.E., dated 17-3-72 applied to jute twine etc. consumed in the factory of its production for the "manufacture" of jute manufactures and not their packing.
"Manufacture" was defined in Section 2(f) of the Central Excises and Salt Act, 1944 and as per the said defini.ion packing amounted to manufacture only in the case of specified products. Jute manufactures were not such a specified product. Explanation 2(ii) under Rule 13, which the respondents relied on, was also not applicable for the same reason.
He referred to the order of this Tribunal reported at 1983 E.L.T. 1813 (Tribunal)- Orient Paper Mills v. Collector of Central Excise, Calcutta, and stated that the point whether packing amounted to manufacture did not fall for decision in that case.
6. The Department's representative then brought in a new point on his own. He stated that the order of the Appellate Collector, though passed on 9-12-80, was despatched on 23-2-81. The show cause notice of the Central Government was issued on 18-11-81, i.e. after the expiry of six months from the date of despatch of the Appellate Collector's order.
According to the view taken by this Tribunal in their order dated 24-1-84 in Modella Mills case, the show cause notice was time-barred.
The Tribunal had relied on the Delhi High Court judgment in the Associated Cement Company's case. But he added that he did not agree with the Tribunal's view and stated that there was a contrary judgment of the Bombay High Court reported at 1982 E.L.T. 112 (Bom.)-Pate! Prabhudas Purshottamdas v. U.O.I. and Ors.. The situation was different in the present case as the show cause notice of the Central Government had been issued on 18-11-81, i.e., after coming into force of Section 11A on 17-11-80.
7. In a brief rejoinder, the respondents stated that they may be given the benefit of the time-bar in regard to the issue of the show cause notice as pointed out by the Department's representative.
8. We have given the matter our earnest consideration. We observe that three points stand out in this controversial issue. First, it is generally accepted in principle that export goods should be relieved of home taxes. Occasionally, there may be cases where for reasons of conserving domestic supply for the home demand or for mopping up windfall profits accruing from high international prices of a product, the Government may impose export duties on certain goods. But, by and large, the position is that taxes are either not, levied on the goods meant for export or, if levied, they are subsequently refunded or rebated in order to make the goods competitive in the international market. For this purpose, various instruments have been devised in our country, such, as, export under bond, export subject to claim for rebate of duty, drawback procedure, Rule 191A/191B procedure, duty exemption scheme in tie-up with advance import licences etc. In the case before us, the rules permitted export of jute manufactures either without payment of excise duty or subject to a claim for rebate of the duty paid. The fact that jute pack sheets and stitching twine were ultimately exported out of India along with their contents, is not in doubt. Secondly, the pack sheets themselves were jute manufactures, just like their contents. The respondents have shown to us that they had executed a B-l Bond for export of jute manufactures. Thirdly, it was the established practice of the Department till November, 1979 that no duty was demanded for the pack sheets and twine used for packing of jute goods for export and no objection was taken to such use of these materials without payment of duty. It was in this background that the Board in their Order-in-Appeal in the case of Megna Mills held that the Department's Trade Notice of November, 1979 should be considered to apply only prospectively. The Appellate Collector virtually followed the Board's orders in passing favourable orders not only in the case of the present respondents but six or seven other jute mills also. In the circumstances, the respondents as well as the Bench were entitled to know as to whether the Department had filed appeals against the other favourable orders passed by the Board and the Appellate Collector or not. The Department's representative, however, had no information on the point and the respondents were consequently left with the feeling that they had been singled out for a discriminatory treatment. These three considerations put together would have been adequate justification for us to decline to interfere with the impugned Order-in-Appeal. But since the Department wanted us to undertake an in-depth examination of the legality of the demand for duty, we have done so.
9. In everyday life, it is the experience of all of us that the normal, mini mum packing necessary to deliver the goods, whether in retail or whole-I sale, is taken for granted as a part of the goods themselves and is not consid-ered to have a separate indentity of its own. Thus, when we buy a packet 1 of biscuits, a bottle of orange squash or a tin of paint, we are really buying the biscuits, the orange squash and the paint. We do not say that we are buying the biscuits and the packet, or the orange squash and the bottle or the paint and the tin. The same thing happens at the wholesale level, such as in the case of a bag of sugar, a tin of cooking oil or a carton of dry batteries. There is no doubt that the price that we pay for the goods includes the price of the contents as well as their packing but the transaction is identified in terms of the contents only. There can, therefore, be no quarrel with the observation of the Madhya Pradesh High Court (Commercial Tax Officer v. Dharamse Morarjee Chemicals supra) that the contents are sold and not the packing material. We notice that the Department also accepts this position in principle. Thus, when machinery is imported in wooden crates or chemicals are imported in plastic sacks, the importation, whether for the purpose of assessment of customs duty or for Import Control Licence, is treated as of machinery or chemicals, and not of machinery and wooden crates or of chemicals and plastic sacks. Similarly, normal, minimum packing for delivery of jute goods is by baling them. The customer abroad, no doubt, would be waiting for the jute manufactures he ordered for but not without their normal, minimum packing. On the domestic front, we notice that the Central Excise Department also treates the goods as fully manufactured for the purpose of accounting in the statutory records only after the goods have been put in the normal, minimum packing without which they cannot be delivered to the market. Thus, sugar is treated as fully manufactured after it has been bagged. In the case of jute manufactures, they are so treated as full manufactured after they have been baled in such a situation, it appears quite logical to us that the normal, minimum- packing without which a manufactured.product cannot be deliverd, whether of reasons of transport or otherwise, should be treated as We emphasize that we are saying this in respect of the normal, minimum packing only and not for any special packing or for durable/returnable containers, such as gas cylinders, which are a case apart. Just because the materials used for the normal, minimum packing are not "used up" in the process, it would not be correct to say that they have not been used in an incidental or ancillary process to complete the manufactured product-by turning it into marketable goods. The observation of the Hon'ble Supreme Court relied on by the Department's representative (Anwar Khan Mehboob Khan v. State of Bombay) supports our view. The Department's representative is not correct in saying that Section 2(f) recognizes packing as a process of manufacture for a few specified goods only. On referring to the section, we notice that it treats labelling, re-labelling and re-packing in relation to manufactured tobacco (cigareattes, bidis etc.), medicines, cosmetics ard toilet preparations as processes of manufacture. The word used in the section is "re-packing" which means making retail packs out of bulk packs. The section does not specifically say anything about the normal, minimum packing of manufactured products in general except laying down the rule that "manufacture" includes any process incidental or ancillary to the completion of a manufactured product. Further, the specific provisions relating to labelling, re-labelling and re-packing of manufactured tobacco, medicines and cosmetics and toilet preparations were necessitated by the peculiar requirements of the tariff entries relating to these products. They do not affect the general propositions we have made that the normal, minimum packing of a manufactured product, without which that product cannot be conceived as marketable goods, cannot but be regarded as a process incidental or ancillary to the completion of that product. Since it is not practicable, for reasons of transport, to market jute manufactures without baling them, the process of baling has to be regarded as an incidental or ancillary process to the completion of jute manufactures as marketable goods.
Consequently jute pack sheets and stitching twine used. in the packing and baling process have to be treated as having been used in the manufacture of jute manufactures. We hold that the requirements of Explanation 2(ii) below Rule 13 and also of the Exemption Notification No. 56/72-C.E., dated 17-3-72 were satisfied in the case before us.
10. There is yet another way to look at the matter. When the pack sheets are stitched up around the contents, the sheets themselves assume the shape of a bag like contraption. Such a bag would be an item of jute manufacture in its own right and, consequently, the pack sheets and the twine used in preparing the bag would have to be treated as having been used in the manufacture of that bag. In that case, the stitching twine would clearly have been used in the manufacture of that bag (Vide Notification No. 56/72-C.E.) and the bag itself treated as having been exported along with the contents under bond. In this view of the matter also, there would be no duty liability on the respondents.
11. Since we agree with the respondents that on the substantive ground the demand served on them cannot stand, we do not consider it necessary to go into the time-bar issue raised by the Department's representative. Accordingly, we reject the Department's appeal by discharging the show cause notice issued by the Central Government.