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Collector of Central Excise Vs. Orient Paper Mills - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1985)(5)LC2513Tri(Delhi)
AppellantCollector of Central Excise
RespondentOrient Paper Mills
Excerpt:
1. this is an appeal against order-in-appeal no. 6/or/84 dated 24-1-1984 passed by the collector of central excise (appeals), calcutta by which he set aside the assistant collector (rourkela)'s order c. no.v (17) 3-18/rkl-83/9918 dated 21-11-1983. the facts of the case, briefly stated, are that m/s. orient paper mills, brajraj nagar (the respondents in the present proceedings) are manufacturers of various types of paper and paper board. they also manufacture wrapping paper for packing or wrapping of other varieties of paper. consequent on the amendment of rules 9 and 49 of the central excise rules, 1944 (hereinafter referred to as 'the rules') by central excise notification no. 187/83, dated 9-7-1983, the respondents claimed that they were not required to pay duty on wrapping paper.....
Judgment:
1. This is an appeal against Order-in-Appeal No. 6/OR/84 dated 24-1-1984 passed by the Collector of Central Excise (Appeals), Calcutta by which he set aside the Assistant Collector (Rourkela)'s Order C. No.V (17) 3-18/RKL-83/9918 dated 21-11-1983. The facts of the case, briefly stated, are that M/s. Orient Paper Mills, Brajraj Nagar (the Respondents in the present proceedings) are manufacturers of various types of paper and paper board. They also manufacture wrapping paper for packing or wrapping of other varieties of paper. Consequent on the amendment of Rules 9 and 49 of the Central Excise Rules, 1944 (hereinafter referred to as 'the Rules') by Central Excise Notification No. 187/83, dated 9-7-1983, the Respondents claimed that they were not required to pay duty on wrapping paper utilised for packing other varieties of paper. This contention was rejected by the Assistant Collector of Central Excise, Rourkela. By his Order dated 21-11-1983, the Assistant Collector informed the 'Respondents that since wrapping paper was used by them neither as raw material nor as component part in the manufacture of (other varieties) of paper but as packing material, it could not be used without payment of duty for packing reams of paper in terms of Rules 9 and 49. The matter was pursued by the Respondents in appeal. In his Order, the Collector (Appeals) observed that when wrapping paper was used for making paper reams/reels, it lost its original identity as wrapping paper and because a part and parcel of the paper ream/reel. Holding that such wrapping paper was eligible for the benefit of the amended Rules, he allowed the appeal. It is this Order that has now been challenged before us in these proceedings.

2. In the appeal, it is contended that the Collector (Appeals) had erroneously held that wrapping paper is a component of the paper packed in it, that he ought to have held that wrapping paper i not consumed or utilised either as raw material or as component part in the manufacture of other paper in the place where such wrapping paper itself is manufactured.

3. Smt. Vijay Zutshi, learned Senior Departmental Representative, appearing on behalf of the appellant-Collector, submitted that the Collector (Appeals), in his Order, did not spell out whether wrapping paper was considered by him as raw material or component part. If it was the former, it ought to have been consumed or used up as the Rule required, which it was not. If it was the latter, it was not utilised as a component part: it was only a packing material. In this context, she submitted that Rules 9 and 49 were narrower in scope than Rule 56A in that while the latter talked of 'material', the former talked of 'raw material' which, in the case of paper, would be substances like pulp, rags etc. Nor could wrapping paper be deemed to be a component part because it did not become an integral part of the packed paper. In fact, she urged, hardly anything could be said to be a component part of paper. In this context, she relied upon the Kerala High Court decision in Paul Lazar v. State of Kerala-(1977) 40 STC 437.

4. In his reply, Shri R.N. Bajoria, learned Counsel, representing the Respondents, urged that the context in which the claim for the benefit of Rules 9 and 49 was made, should not be overlooked. Section 3 of the Central Excises and Salt Act (hereinafter called the Act) postulated excise levy on good s manufactured in India. The term "manufacture" was defined in Section 2(f) of the Act to include processes incidental or ancillary to the completion of the manufactured product. Therefore, all processes leading up to the stage the goods were 'completed' for marketing were comprehended in the term "manufacture". Even labelling, in specified cases,-e.g. patent or proprietary medicines-was considered by the Act to be part of "manufacture". Thus, the meaning of the term was wider in its scope than in the ordinary parlance. If this was kept in view, it was not difficult to see that wrapping paper was a raw material or component part of the wrapped paper. The emphasis was on the user of the goods and not whether it was used up or merely utilised as sought to be made out by the Senior Departmental Representative. The Department itself considered the stage of wrapped or packed paper as the R.G. 1 stage, i.e. the stage at which goods should be entered in the statutory production register. The finished goods herein 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. Shri Bajoria then relied upon this Tribunal's decision in Collector of Central Excise, Indore v. Orient Paper & Industries, Amlai-1984 (18) E.L.T. 88, wherein, it had been held, in the context of Rule 56A, that packing was a process of manufacture. The principle applied in relation to Rules 9 and 49 also. He also cited the following decisions in support of his contention- (i) Gujarat High Court judgment in Mercury Pharmaceuticals Industries v. State of Gujarat-(1919) 43 S.T.C. 301; (ii) Gujarat High Court judgment in Ahmedabad Manufacturing & Calico Printing Ltd. and Ors. v. Union of India-1982 E.L.T. 821;Union of India v. Tata Chemicals, Mithapur-1983 E.L.T.Collector' of Central Excise, Calcutta v. Kanoria Jute Mills, Calcutta-1984 5. In her rejoinder, Smt. Zutshi, submitted that it was not as if Section 2(f) of the Act extended its ambit to processes connected with readying the finished product for marketing. Where, it was considered necessary, the Schedule specifically provided so as for e.g., Tobacco.

In respect of patent or proprietary medicines, labelling was, by fiction, (not that, in reality, it was), considered as part of "manufacture". Packing could not be deemed to be a process of "manufacture". The Tribunal's decision in 1984 (17) E.L.T. 455 had not considered Section 2(f); it was with reference to Rule 56A only. That marketing/sale was not relevant for construing "manufacture" was clear from the following decisions : (i) Madras High Court judgment in E.I.D. Parry Ltd. and Anr. v. Union of India-1978 E.L.T. (J 18); (ii) Gujarat High Court judgment in Extrusion Process Pvt. Ltd. v. N.R. Jadhav, Supdt. of Central Excise-1979 E.L.T. (J 380); (iii) Madras High Court judgment in Assistant Collector of Central Excise, Vellore v. Subramania Chettiar-19%0 E.L.T. 609 (Mad.);Shiva Glass Works Co. and Ors.

v. Union of India and Ors.-1982 E.L.T.The packed paper could be put to use without the wrapper. The latter was, therefore, not a part of the former.

6. We have given careful consideration to the submissions of both sides. The issue for determination is whether the use of packing or wrapping paper for packing or wrapping of other varieties of paper amounts to use as "raw material or component part for the manufacture of any other commodity" (in this case, other varieties of paper), in terms of the amendment to Rules 9 and 49, as introduced by notification No. 187/83, dated 9-7-1983. The import of these Rules is that excisable goods emerging in the course of continuous process of manufacture or otherwise, are liable to be charged to duty, inter alia, when they are removed within the factory of their production for the manufacture of other commodities. The amendment effected reads as follows :- 'In Rule 9 of the Central Excise Rules, 1944 (hereinafter referred to as the said rules), in Sub-rule (1) after the second proviso, the following proviso shall be inserted, namely :- "Provided also that such goods may be removed without payment of duty leviable thereon, if they are consumed or utilised in the place where such goods are produced or manufactured or any premises appurtenant thereto so specified under this sub-rule, either as raw material or as component parts for the manufacture of any other commodity which- (i) is excisable goods specified by the Central Government by notification under Sub-rule (1) of rule 56 A, (ii) falls under the same Item No. in the First Schedule to the Act as such goods so consumed or utilised fall under, and (iii) is neither exempt from the whole of the duty of excise leviable thereon nor is chargeable to nil rate of duty." ' 'In rule 49 of the said rules, after Sub-rule (3) and before the Explanation, the following sub-rule shall be inserted, namely:- "(4) Notwithstanding anything contained in Sub-rule (1) payment of duty shall not be required in respect of excisable goods made in a factory if they are consumed or utilised in the same factory either as raw material or as component parts for the manufacture of any other commodity which- (i) is excisable goods specified by the Central Government by notification under Sub-rule (1) of rule 56A, (ii) falls under the same Item No. in the First Schedule to the Act as such excisable goods so consumed or utilised fall under, and (iii) is neither exempt from the whole of the duty of excise leviable thereon nor is chargeable to nil rate of duty." ' Thus, as a result of the amendments, an exception has been made to the general principle set out earlier, that is, the requirement of payment of duty on excisable goods manufactured and captively consumed for the manufacture of other commodities. The exception is that if such use is as raw material or component part in the manufacture of any other commodity, no duty liability attaches to the goods so used-subject to all the other requirements of the rules being complied with. In the present proceedings, it is no one's case that the conditions at (i), (ii) and (iii) above (in both the rules) are not satisfied.

"manufacture" includes any process incidental or ancillary to the completion of a manufactured product; This definition evidently does not spell out what "manufacture" is or what it comprehends; it is only an inclusive definition. Therefore, unless the term has been spelt out in more detail as has been done in the definition clause in relation to specified goods, it has to be understood having regard to the manufacturing practices always keeping in view the inclusive clause which takes in processes incidental or ancillary to the completion of the manufactured product. As observed by the Rajasthan High Court in Ramnugur Cane & Sugar Co. Ltd., Jaipur and Ors. v. Union of India and Ors.-1983 E.L.T. 6 (not cited before us), "it would be permissible in a given case, not directly covered by any of the eight clauses to ascertain whether packing, which includes containers, is a process incidental or ancillary to the completion of a manufactured product...".

Note : These 8 clauses contain specific definitions of "manufacture" in relation to specified goods.

8. According to the "Directory of the Indian Paper Makers Association", "the chargeable weight shall include the weight of necessary ream and reel wrappers, strings and, in the case of reels, cores (excepting that of wood or metal) and side discs of wrapper/board." "The Paper Trade Manual (Paper & Allied Trade Handbook)" published by Raghu Nath Dutt & Sons Ltd., Calcutta-a book often cited before us-says at page 40- "As paper cannot be put to use in the very state it leaves the machine, it must be subjected to further treatment, known as finishing. The finishing process usually covers the operations of surface or tub-sizing, glazing, embossing, cutting, sorting, counting and lastly, packing''.

At page 242, under the heading "Paper Trade Customs, as adopted by the Indian Paper Makers Association", the same book says- The chargeable weight shall include weight of necessary Ream and Reel Wrappers (not Bale wrappers) string and centres (excepting those of Wood or Metal)".

At page 255, under the heading "General Trade Rules-adopted by the Finish, Norwegian and Swedish Paper Makers' Associations and agreed upon by the Swedish Transmarine Export Union and the Norwegian Overseas Exporters' Association" it is said- "The actual weight of paper in sheets is the net weight of the paper plus the weight of ream wrappers. The acutal weight of paper in reels is the net weight of the paper plus the weight of the reel wrappers, reel centres, plugs and strings. The actual weight of boards is the net weight plus the weight of inside wrappers and strings." ' "Wrappers-the chargeable weight shall include weight of necessary ream and reel wrappers (not bale wrappers), string and centres (excepting those of wood and/or metal) and wooden plugs." Now, turning to the Indian Standard Specification for Writing and Printing Papers (First revision 1972) IS : 1848-1971, on page 5, it reads- "4. Packing and Marketing.

4.1. The packing of the paper shall be done in accordance with IS : 6211-1971.

9. From the above extracts of the publications relied upon by Shri Bajoria, it is abundantly clear that the trade practice in India and several other countries is to consider the packed ream or reel of paper as the article of commerce. In other words, the paper used to pack or wrap the paper packed or wrapped is considered as part of the latter and not talked of separately. In fact, packing is considered as one of the-the last-finishing processes in paper-making. When one talks of a ream of paper as a finished product what is in view is a package consisting of the prescribed number of sheets of paper wrapped and packed in the wrapping or packing paper used to pack or wrap the sheets. The weight of the wrapper paper is included in the weight of the printing or writing or whatever paper is being bought.

10. The question is whether the packing or wrapping paper in the present case (which is indisputably a packing material) can be considered to have been used as raw material or component part in the manufacture of the packed or wrapped paper, as the amended Rules 9 and 49 require.

11. In the Orient Paper & Industries case- (Supra), this Bench, followed the Tribunal's earlier decision in Collector of Central Excise, Calcutta v. Kanoria Jute Mills, Calcutta-1984 (17) E.L.T. 455, to the effect that the normal minimum packing (not any special packing or durable/ returnable containers) without which a manufactured product cannot be delivered whether for reasons of transport or otherwise, should be treated as a process incidental or ancillary to the completion of the product. It was further observed that 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.

12. Of course, in the aforesaid case, the dispute revolved round Rule 56A which talks of use of the duty-paid goods as "material or component part" in the manufacture of the finishing product. But there can be little doubt that the packing or wrapping paper has been used in the manufacture of excisable goods-printing or writing paper, for example, as we shall presently show.

13. In this context, it is well to remember that "manufacture" in Central Excise terminology [Sec. 2 (f) of the Act] takes in not merely the manufacture of the goods specified in the First Schedule to the Act as soon as they come into existence as an article recognisable by the specified description but also that article subjected to incidental or ancillary processes for its completion. In the present case, paper is the product specified in the First Schedule. It is subjected to certain finishing processes which are in the nature of incidental or ancillary processes. One of the processes, according to the practice of the paper industry and trade, is packing of the paper. The finished packed paper is the completed product. All processes resulting in this product are thus comprehended in the ambit of the term "manufacture" in Section 2(f) of the Act. Once this position is reached, we feel that the controversy that wrapping or packing paper may be a "material or component part" for Rule 56A but is not a "raw material or component part" for Rules 9 and 49 loses much of its force. It may be possible to argue that wrapping or packing paper is not an ingredient of, say, writing paper simpliciter on the ground that writing paper can function without the wrapping or packing paper and that the latter cannot be recognised in the former, on analysis. Equally, it may be possible to argue that packing or wrapping paper is not a raw material (in the sense, say, pulp is) for manufacture of writing paper simpliciter. But, that is not the problem here. We are concerned not with, say, writing paper simpliciter but the excisable commodity writing paper. Viewed from this angle, packing paper is surely a "raw material or a component part" used in the "manufacture"-in a process incidental or ancillary to the completion of the manufactured product-of paper, as known to industry and trade-and, as recognised by the Indian Standards Institution and even by the Central Excise Department. And, it is such packed or wrapped paper that is ordinarily brought to the market to be bought and sold. Here, we may recall the observations made by the Supreme Court in South Bihar Sugar Mills Ltd. v. Union of India-AIR 1968 S.C. 922 : "The duty is levied on goods. As the Act does not define goods, the Legislature must be taken to have used this word in its ordinary dictionary meaning. The dictionary meaning is that to become goods it must be something which must ordinarily come to the market to be bought and sold and is known to the market." Applying this test, what comes to the market and what is known to the market, as evidenced by the literature cited by the Respondents, is paper packed or wrapped with packing or wrapping paper. If these are "goods"- paper-for the levy of duty, then, everything that enters into and forms a part of those goods must be deemed to be a raw material or component part of the goods.

14. We may now turn to the authorities cited by both sides. Smt. Zutshi cited the Madras High Court decision in E.I.D. Parry Ltd. and Anr. v.Union of India-1978 E.L.T. J 18. The question in that case was whether packing of fertilizer lying in stock with the petitioner on the budget eve (the packing being done after the budget) could be regarded as a process incidental or ancillary to the completion of the manufactured product. The expression "completion of the manufactured product", said the Court, meant subjection of a product which, though answering to the description of the name by which it is sold in the market, was yet in a crude form, to processes including those meant for purification, colouring and otherwise beautifying the end-product. Such processes must be limited to the process of manufacture properly so called. The Court held that the mere transfer of the end-product into containers which could be handled conveniently, the sealing of such containers with the object of preservation of the end-product and ensuring that they would not be subjected to adulteration easily and of putting marks or labels on the containers with the object of identifying the end-product and enhancing the goodwill of the manufacturers would not form part of manufacture.

In the above case, one of the factors which apparently influenced the Court in coming to its conclusion was the view it took that the fact that Clause 13 of the Fertiliser (Control) Order, 1957 enjoined a particular type of packing for the fertiliser before it was sold and the stage at which excise duty should be collected were wholly irrelevant for they did not determine whether packing was a process of manufacture.

The situation in the above case was quite unlike the one in the present case. Excise duty was levied on fertiliser for the first time in 1969.

The fertiliser in the above case had been manufactured before the imposition of the levy. Only the packing of the fertiliser was done subsequent to the coming into force of the levy. The question was whether the packed fertiliser could be brought under the levy. The Court said 'No'. The ingredients of the situation in the present case are vastly different. Duty was charged on the packed paper. There is no contention before us that the packed paper was not excisable or dutiable. The dispute is whether the packing paper could be used without payment of duty.

15. In the Extrusion Process Pvt. Ltd. v. N.R. Jadhav, Superintendent of Central Excise-1979 E.L.T. J 380 (cited by the Senior Departmental Representative), the question before the Gujarat High Court was whether the process of printing and lacquering of duty-paid extruded Aluminium Tubes was a process incidental or ancillary to completion of extruded tubes. The Court held that these processes did not being into existence a new article or substance which could be put to a use different from the one to which a plain extruded tube was put. The tube remained a tube and whether printed and lacquered or not, it was used for the purpose for which a plain extruded tube is used.

Again, the situations are not similar. The question was whether printing and lacquering brought into existence a new excisable product different from the aluminium extrudes tubes already subjected to duty and brought from elsewhere. The Court said 'No'. In the case before us, the packing was not done in a premises different from the one where the contents paper was manufactured. It was the last in the chain of processes leading to the marketable and marketed commodity.

16. Yet another decision cited by the Senior Departmental Representative is Assistant Collector of Central Excise v. Subramonia Chettiar-1980 E.L.T. 609 wherein the question before the Madras High Court was whether packing of matches in a match box was a process incidental or ancillary to the completion of matches. Taking note of the fact that without the match box with its sides painted with the requisite composition, matches could not be ignited, the Court held that the process of packing of matches in such boxes was clearly a process incidental or ancillary to the completion of the manufacture of matches so as to fall within the purview of "manufacture" in Section 2(f) of the Act.

This decision does not provide a direct answer to our problem.

Apparently, packing or wrapping paper serves merely the purpose of packing or wrapping the contents of the ream and imparts no functional property to the packed paper.

17. In Shiva Glass Works Co. and Ors. v. U.O.I. and Ors.- E.L.T. 365 (again cited by Senior Departmental Representative, the question was whether packing and transportation costs were includible in the assessable value under Section 4 of the Act. The Court held it was not.

This decision is again not of direct help to resolve the present problem. It may be noted also that the Supreme Court has since ruled that the cost of primary packing is includible in the assessable value of goods under Section 4 of the Act.

18. In Paul Lazar v. State of Kerala-{1977) 40 STC 437, the question before the Kerala High Court was whether copper wire was a component part of electrical transformers. The Court said that in order to be regarded as a component part, the article so used must have a commercial identity as a distinguishable part of the article. It is not necessary that the article should be capable of being visually identified in the finished product, so long as it can be identified by chemical or other test. An article can be regarded as a component part of the principal object only if the latter is incomplete without the former and the former is capable of identification either visually or through chemical or other test as a distinguishable part of the finished product. On this basis, the Court held that copper wire, though a necessary material or constituent used in the manufacture of transformers, has an identity of its own to be regarded as a component part of electrical goods.

The facts of the case before us are not analogous. Unlike copper wire which finds multifarious applications, packing paper, as the very name signifies has only one application : packing. And, as we have already noted, the industrial practice is to clear paper in the packed condition and the goods presented for assessment is the packed paper.

The above decision is not of application to the present case.

18. Now, we shall deal with the authorities cited by the Counsel for the respondents. The first is this Tribunal's decision in Collector of Central Excise, Indore v. Orient Paper and Industries Ltd., Amlai-1984 (18) E.L.T. 88. In that case, the department's contention was that wrapping paper was not used in the manufacture or other varieties of paper, that the process of packing or wrapping was not a process of manufacture and, therefore, Rule 56A which contemplated proforma credit of duty paid on materials and component parts used in the manufacture of excisable goods would not apply to the case. The Bench followed an earlier decision of the Tribunal in Collector of Central Excise, Calcutta v. Kanoria Jute Mills, Calcutta-1984 (17) E.L.T. 455, in which it was held that normal packing (not any special packing or durable/ returnable containers) without which a manufactured product cannot be delivered whether for reasons of transport or otherwise, should be treated as a process incidental or ancillary to the completion of that product. It was further held that just because the material used for the normal minimum packing is not "used up" in the process, it would not be correct to say that it has not been used in an incidental or ancillary process to complete the manufactured product by turning it into marketable goods.

It is true, as the Senior Departmental Representative has pointed out, that the reference in Rule 56A is to the use of the goods as "material or component parts" for the manufacture of specified excisable goods whereas the reference in the amended Rules 9 and 49 is to the use of excisable goods in the manufacture of other goods as "raw material or component part". But, this slight difference in the words used, according to us, does not make for any significant difference in the import of the words. The ratio of the above-cited decision, therefore, applies to the facts of the present case.

19. The Counsel for Orient Paper Mills then cited a few other authorities in support of his contentions. In Mercury Pharmaceuticals Industries v. State of Gujarat-(1919) 43 STC 301, the Gujarat High Court was concerned with the question whether glass ampoules could be said to have been used in the manufacture of injectable liquid medicine. The Sales Tax Tribunal had held that the finished product was the injectable liquid medicine that went into the body of the patient through his muscles or veins and that glass ampoules could, by no stretch of imagination, be considered as raw material. The Tribunal further held that "consumable stores" properly so-called were goods which were consumed in the process of manufacture of the finished product. Glass ampoules, therefore, were not consumable stores. In discussing the matter, the Gujarat High Court referred to the Supreme Court's judgment in J.K. Cotton Spinning and Weaving Mills Company Ltd. y. Sales Tax Officer-{(1965) 16 STC 563 (SC)] wherein the Court was construing the expression "in the manufacture or processing of goods for sale" in Section 8(3)(b) of the Central Sales Tax Act, 1956. The Supreme Court said "the expression 'in the 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 goods would be commercially inexpedient, goods required in that process, would, in our judgment, fall within the expression 'in the manufacture of goods'. The Supreme Court further observed "In our judgment, if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity, manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment... The expression "in the manufacture" takes in within its compass all processes which are directly related to the actual production.

In Vasuki Carborundum Works v. State of Gujarat-1979 43 STC 294, the Gujarat High Court was concerned with the question whether twine purchased and used by the assessee who was a manufacturer of crockery and carborundum for packing of goods for sale could be regarded as an item of consumable stores in the process of manufacture of goods for sale. The Court held that twine was consumable stores because it was necessarily required in the activity of marketing of the goods, which is essentially connected with the larger activity of manufacture.

Undoubtedly, not all articles or materials, which may facilitate the activity of manufacture in that expended sense could be classified as consumable stores. Goods such as those required for ornamental packaging of the manufactured goods like the attractive boxes in which sometimes they are packed so as to make them easily saleable in the market cannot ex facie be called consumable stores. The Court further observed that no straight jacket formula can, however, he laid down, as to which article or material can be said to be required in a process or activity, which though not strictly a manufacturing activity itself, is such an integral part thereof that in its absence the manufacturing activity might not be commercially expedient.

On the basis that that manufacture of injectables is incomplete without the liquid substance being poured into and sealed in glass ampoules the Gujarat High Court held that glass ampoules must be considered to have been used in the manufacture of injectables. What is sold is the injectable liquid contained in glass ampoules.

20. The above decision, though given in the context of the Sales Tax Law, supports the view taken by the Tribunal in the Kanoria Jute Mills case (Supra) which was followed in the Orient Paper and Industries Ltd. case (Supra) where also it was held that the normal minimum packing would be a process incidental or ancillary to the completion of the manufacture product.

21. Another decision cited by the Counsel for the respondents is that of a Full Bench of the Gujarat High Court in Ahmedabad Manufacturing and Calico Printing Ltd. and Ors. v. Union of India-1982 E.L.T. 821.

This decision though not directly on the issue before us, is of more direct relevance than the ones given in the context of the sales tax law. The Court was concerned with the interpretation of Section 4 of the Central Excises and Salt Act on valuation of excisable goods. Even so, some of the observations of the High Court must be noted. The Court said that Sections 3 and 4 of the Act taken together and read conjointly constitute the charging section. It is fallacious to assume that Section 3 standing alone is the charging Section. Discussing this aspect at great length, the Court observed that the taxing event is manufacture of excisable article but the valuation for the purpose of crystallizing of the burden includes the value of packing. What is sold by the manufacturer in substance is the excisable article (though in packed condition) and not the packing. Till the excisable article is packed, its manufacture as marketable product is incomplete. It is an integrated inseparable part of the process of manufacture of the excisable article.In Union of India v. Tata Chemicals, Mithapur-1983 E.L.T. 776, the Gujarat High Court, again, while interpreting Section 4 of the Central Excises and Salt Act observed that it is inconceivable that an activity of packing, branding and stitching of the goods such as soda ash, in that case, can ever be said to be an activity not connected with the manufacturing of the goods in question. The Court followed the Full Bench decision in the Calico Mills case (Supra) and observed that till the excisable article is packed its manufacture as marketable product is not complete.

23. On a consideration of all the aforesaid decisions, it is obvious that the preponderance of decisions which includes the Full Bench decision of the Gujarat High Court is in favour of taking the view that normal minimum packing required to make an excisable product marketable is a part of the process of manufacture, an incidental or ancillary process to complete the manufactured product, the view taken also by the Tribunal in the Kanoria Jute Mills case and the Orient Paper and Industries Ltd. case.

24. We are aware of two decisions of the Tribunal which are not in accord with the view expressed in the previous paragraph. They are the decisions in the Hindustan Lever Ltd. case-1985 (19) E.L.T. 96 and Order No. C-279/85 dated 28-3-1985 in the Collector of Central Excise, Calcutta v. H.M.M. Ltd., Calcutta in Appeal No. ED (SB) (T) A. No.1512/85.

In the H.M.M. Limited case (Supra), the question was whether screw caps (falling under item 68, CET) used on bottles of Horlicks (a product falling under item IB, CET) were component parts used in the manufacture of the finished products. The notification that called for discussion and interpretation was 201/79. The view (the decision was by a majority of 2 to 1) was that "a true raw material or component is one whose absene will substract from the quality/character of the ultimate product-the product that is manufactured lacking in smaller or larger measure an essential part-whether it is colour, flavour, hardness, softness, odour or whatever was to be contributed by the missing ingredient-from its total aggregation". On this basis, it was held that screw caps were not a component part for the purpose of notification No. 201/79.

We venture to think that the above decision does not provide a direct solution to the question before us which is not related to notification No. 201/79 but Rules 9 and 49. The same is the case with the decision in the Hindustan Lever case-1985 (19) E.L.T. 96 which, again, turned on the interpretation of notification No. 201/79. Of more direct relevance to the present case is the Tribunal's decision in the Orient Paper and Industries case-1984 (18) E.L.T. 88-which was in the context of Rule 56A. Rule 56A permits the use of duty-paid goods as material or component part in the manufacture of specified excisable goods and allows credit of the duty paid on such inputs towards payment of duty on the finished product. Rule 9 exempts from duty excisable goods manufactured in a factory which are captively used as raw material or component part in the manufacture of other commodities specified under Rule 56A. (The significant additional facility under Rule 56A is the use of the inputs for the more convenient distribution of finished product. This, however, does not enter into the picture in sofar as the present case is concerned). Thus, in a manner of speaking, the exemption in Rule 9 is the counterpart of the concession of proforma credit in Rule 56A. What holds good for Rule 56A must hold good for Rule 9 also ; otherwise, the result would be truly an amolous : a captive user would be denied the desired relief in the simple and straight-forward manner provided in rule 9 but would be given the same relief under the cumbersome and, in the circumstances, wasteful procedure of rule 56A. Hence, we would prefer to follow the Tribunal's decision in the Orient Paper and Industries case (Supra).

24. In the light of the foregoing discussion, we hold that the exemption in Rule 9 was available to the packing or wrapping paper in the present case. The impugned order of the Collector (Appeals) is upheld and the appeal is rejected.

25. I have gone through the order written by learned brother Shri G.Sankaran, but I regret my inability to agree with it for the reasons given as under :- 26. The packing or wrapping of other varieties of paper cannot be said to be a process incidental or ancillary to the completion of the manufactured goods i.e. paper. The expression 'manufacture' as used in-Section 2(f) of the Central Excises and Salt Act, 1944 requires that the process incidental or ancillary to the completion of a manufactured product must have some direct relation to the manufacture of the finished product. The transformation which is necessary in order to satisfy the test of manufacture must be of a corporeal and of substantial nature. Wrapping or packing other varieties of paper with the wrapping paper is for the sake of more convenient distribution of the manufactured goods and it is on account of this fact that Andhra Pradesh High Court in the case of Bhadrachalam Paper Board Ltd. v. The Collector of Central Excise, Hyderabad 1985 ECC Vol. 4-318 and Karnataka High Court in the case of West Coast Paper Mills Ltd. v.Collector of Central Excise 1985 ECC Vol. 4-324 allowed the benefit of Rule 56-A of the Central Excise Rules which is meant for allowing rebate in respect of the duty paid product when that product has been utilised for the more convenient distribution of finished product.

Division Bench of Andhra Pradesh High Court in the case of Bhadrachalam Paper Boards Ltd. (Supra) followed the decision of a Single Judge of Madras High Court in the case of Seshasayee Paper and Boards Ltd. v.Appellate Collector of Customs and Central Excise, 1984(15) E.L.T. 3 (Mad.)=1984 ECC Vol. 1-426 where the facts of the case were identical.

In that case the argument pressed before the learned Single Judge of the Madras High Court was that for Rule 56-A to apply, the goods received must undergo the process of manufacture to become entitled to the beneficial procedure under Rule 56-A but that contention was rejected by the learned Judge. Relief of rebate of duty was allowed under Rule 56-A on the ground that duty paid wrapped paper was used for packing of finished product for its convenient distribution. Learned Single Judge relied upon the judgment of the Andhra Pradesh High Court rendered in Andhra Pradesh Paper Mills Ltd., Rajahmundry v. Assistant Collector of Central Excise (W.P. No. 2055 of 1980) (1982) 2 AM WR (Short Notes) 22 ; (1983) 1-CU R-l, wherein it has been held as under :- "That once the wrapping paper has been assessed to excise duty as wrapping paper prior to its user for packing or wrapping other varieties of paper the value of the said paper cannot once again be subjected to excise duty as forming part of the value of the package containing other duitable paper. The process of packing other kind of paper with the wrapping paper really constitutes a post-manufacturing process of other kind of paper. It cannot be said that user of the wrapping paper for packing other kind of paper forms part of the process of manufacturing other varieties of paper" In none of these decisions which directly relate to the issue before us, it has been held that packing or wrapping other varieties of paper is a process incidental or ancillary to the manufacture of the finished product. There are several decisions of various High Courts on the point whether packing is a process of manufacture or not In the case of Shiv Glass Works v. Union of India and Ors., (1982 E.L.T. 365), Calcutta High Court held that it cannot be said that the manufacture of the excisable goods is complete when it is packed. It was a case of packing in tin containers. On the other hand, it has been held by Madras High Court in the case of Aurofood (P) Ltd. v. Union of India (1978 E.L.T. J 673) that packing of Biscuits is a process incidental and ancillary to the manufacture of biscuits. Packing of P or P medicines and packing of match into match box has also been held to be a process of manufacture, but there is not a single decision of any High Court or of Supreme Court indicating that packing/wrapping other varieties of paper/ board is a process of manufacture or it is incidental or ancillary to the manufacture of the finished product.

27. Judgments relied upon in the majority decision are not helpful to solve the problem before us.

28. The facts in the case of Ramnugar Cane and Sugar Company Ltd., Jaipur and Ors. v. Union of India and Ors. (1983 E.L.T. 6) are quite different and are not applicable to the facts of the case before us. In that case the 'goods' involved were vegetable products classifiable under T.I. 13 of C.E.T. and it was held that it being a vegetable article should be fit for human consumption so canning of such vegetable product into containers of metal or polythene is a process incidental or ancillary to the completion of the vegetable product.Collector of Central Excise, Indore v. Orient Paper and Industries, Amlai 1984 (18) E.L.T.88 (CEGAT) on which much emphasis has been placed in the majority decision is based on earlier decision of this Tribunal in the case of Collector of Central Excise, Calcutta v. Kanoria Jute Mills, Calcutta 1984 (17) E.L.T. 455 (CEGAT), The facts of Kanoria Jute Mills' case were also different from the facts of the case before us. In that case the goods were jute products. It was held that since it is not practicable to market those jute products as such without packing them so the process of packing is an incidental or ancillary to the completion of jute products as marketable goods.

30. In the case of paper it has been held by various High Courts in the judgments referred to and discussed above that packing/wrapping of other varieties of paper is for more convenient distribution of the finished product. Nowhere it has been laid down that packing/wrapping of other varieties of paper is a process incidental or ancillary to the completion of the finished product. The observation of this Bench of the Tribunal in the case of Orient Paper and Industries (Supra), that packing of paper is a process incidental or ancillary to the completion of the manufactured product by turning it into marketable goods, run counter to the observation of the Hon'ble Judge of Andhra Pradesh High Court in the case of Andhra Pradesh Paper Mills Ltd., Rajahmundry (Supra) wherein it has been observed that the process of packing of other kind of paper with the wrapping paper really constitutes a post-manufacturing process of other kinds of paper. Their Lordships further observed that it cannot be said that user of the wrapping paper for packing other kind of paper forms part of the process of manufacturing other varieties of paper.

31. It appears that while deciding the case of Orient Paper and Industries, Amlai (Supra) the decision of Andhra Pradesh High Court was not brought to the notice of the Bench hearing the matter otherwise these observations could not have been made by the Bench. Any observation made by a Bench of the Tribunal which runs counter to the observation made by a High Court or Supreme Court cannot be relied upon for further guidance.

32. The other decision relied upon in the majority decision is that of Gujarat High Court in the case of Union of India v. Tata Chemicals, Mithapur (1983 E.L.T. 776). The facts of that case are also not relevant to the present case before us. The issue involved in that case was whether the cost of packing and branding of Soda Ash was includible in the assessable value under Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944 and it was held by the Hon'ble Judges that the cost of packing material and charges for branding, packing and stitching on various account of soda ash falling under Item 14-A of the Central Excise Tariff was includible for assessable value under Section 4 of the Central Excises and Salt Act, 1944. In that regard the Hon'ble Judges observed : "Since the expenses of packing, branding and stitching of goods are incurred in order to put an article into marketable condition at the factory gate, therefore, it is inconceivable that an activity of packing, branding and stitching of the goods can be said to be an activity not connected with the manufacture as envisaged by Section 2(f) of the Central Excises and Salt Act, 1944." Nowhere it has been suggested that packing or wrapping of other varieties of paper is a process incidental or ancillary to the manufacture of finished product. Moreover Hon'ble Supreme Court in the case of Union of India v. Bombay Tyre International Ltd. (1983 E.L.T.1896) while interpreting the provisions of Section 4 of the Central Excises and Salt Act, 1944, for the purposes to determine the value of the goods, has held that the definition of 'manufacture' as given in Section 2(f) of the Central Excises and Salt Act, is of no avail in determining whether the cost of packing is includible or not in the assessable value because packing has been separately defined in Section 4(4)(d)(i) of the Central Excises and Salt Act.

33. The other aspect upon which the majority decision is based is that as per trade practice in India and in several other countries, the packed ream or reel of paper is considered as the article of commerce.

The paper used to pack or wrap is considered as part of the latter and not talked of separately. Packing is considered as one of the last finishing processes in the paper making.

34. Reliance has been placed on various Journals and Directories concerning paper namely (i) Directory of the Indian Paper Makers Association, (ii) The Paper Trade Manual (Paper and Allied Trade Handbook) and (iii) Indian Standard Specification for Writing and Printing Papers (First Revision 1972).

35. A reference has also been made of the decision of the Hon'ble Supreme Court in the case of South Bihar Sugar Mills Ltd. v. Union of India AIR 1968 SC 922 to support their findings that it is paper packed or wrapped with packing or wrapping paper which becomes 'goods' for the levy of excise duty and everything that enters into and forms part of these goods must be deemed to be a raw material or component part of the goods.

36. Journals and Directories concerning paper relied upon by the respondents have no significance in the light of the decision of the Supreme Court in the case of Bombay Tyre International Ltd. (Supra) wherein it has been laid down that the definition of 'manufacture' as given in Section 2(f) of the Act is of no avail in determining whether the cost of packing s includible or not in the assessable value because packing has been separately defined in Section 4(4)(d)(i) of the Act.

37. In the Directory of the Indian Paper Makers Association it has only been mentioned that the chargeable weight shall include the weight of necessary ream and reel wrappers, strings and, in the case of reels, cores (excepting that of wood or metal) and side discs of wrapper/board. Nowhere it suggests that wrapping/packing other varieties of paper is a process incidental or ancillary to the manufacture of the finished product i.e. other varieties of paper/board.

38. In Paper Trade Manual also it has been mentioned that the chargeable weight shall include weight of necessary Ream and Reel wrappers (not Bale wrappers), Strings and centres (excepting those of wood or metal)^. This is also for the purpose of including the weight of wrapping paper in the assessable value of the contents wrapped in it. All these Journals and Directories talk about inclusion of the weight of the wrappers in the assessable value of the wrapped contents.

Nowhere it has been laid down in these Journals and Directories that packing of other varieties of paper is a process of manufacture.

Packing of other varieties of paper is done for the convenient distribution of the finished product and packing is a post-manufacturing act as has been laid down by the Andhra Pradesh High Court in the case of Andhra Pradesh Paper Mills Ltd., Rajahmundry (Supra).

39. The decision of the Supreme Court in South Bihar Sugar Mills Ltd. (Supra) is not at all relevant to this case before us. In that case their Lordships observed as under :- "The duty is levied on goods. As the Act does not define goods, the Legislature must be taken to have used this word in its ordinary dictionary meaning. The dictionary meaning is that to become goods it must be something which must ordinarily come to the market to be bought and sold and is known to the market." It only talks about the marketabilily of the finished product. It will be too much to say that it is only wrapped or packed paper which is subject to marketability. Paper remains a paper and can be used as such though unpacked or unwrapped. What the Hon'ble Supreme Court has said is that the 'goods' subject to excise levy should be marketable. It is not essential that it must go to the market to be bought and sold and that is why the 'goods' captively consumed are also subject to excise levy though in fact they do not find their way to the market to be bought and sold.40. When packing of other varieties of paper is not a process of manufacture as has been observed by the Andhra Pradesh High Court in the case of Andhra Pradesh Mills Ltd. (Supra), it cannot be said that packing/wrapping paper is a component part of the finished product. It is also not a raw material as mentioned in amended Rules 9 and 49 of the Excise Rules. Rule 56-A talks of material while Rules 9 and 49 talk of raw material which in the case of paper would be substances like pulp, rags etc. and wrapping paper cannot be said to be a raw material used in the manufacture of other varieties of paper. It is neither a component part as it does not become an integral part of the packed paper nor it is a raw material for the manufacture of finished product i.e. other varieties of paper and therefore, respondents are not entitled to take the benefit under the amended Rules 9 and 49. They can however, take the benefit under Rule 56-A of the Central Excise Rules if conditions mentioned therein are fully satisfied. The Collector (Appeals) has gone wrong while extending the benefit of amended Rules 9 and 49 of Central Excise Rules, to the respondent and therefore, I set aside the order passed by the Collector (Appeals) and accept the appeal filed by the Collector.


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