1. The two questions that had been raised for decision in the instant Revision application transferred to the Tribunal and heard as an Appeal pursuant to the provisions in Sec. 35 (P) of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act), are- (a) Whether, in the facts and circumstances of the case, the process of bituminising duty paid kraft paper by bonding with duty paid bitumen, amounts to "manufacture" or involves "any process incidental to or ancillary to the completion of manufacture" in terms of the definition of "manufacture" in the Act, (b) If it does, is duty paid kraft paper on bonding with duty paid bitumen, assessable to duty again in terms of Item 17(2) of the First Schedule to the Act (hereinafter referred to as the Schedule), or the residuary Item 68 thereof.
2. The facts necessary to appreciate and determine the aforesaid questions are,- (b) the layers of such kraft paper are bonded with bitumen (duty paid) as the bonding agent or adhesive ; (c) for the period between 1-9-1977 to 31-1-1978, the Appellant was paying Excise duty assessable under Item 17(2) of the Schedule ; (d) an application for refund filed on 23-2-1978 was dismissed by the Deputy Collector on the ground that "water proof bituminised kraft paper undergoes lamination process and as such process is covered under Tariff Item 17(2)", the bituminised kraft paper is dutiable ; (e) an appeal to the Appellate Collector ended in dismissal, inter alia, for (i) the product manufactured by the Appellant is commercially known as water proof paper ; (ii) the plea that the identical product cannot be exigible to duty twice over under the same item of the Schedule is unsustainable in as much as, kraft paper is transformed and its value enhanced by bonding "with the result that identity commercially must pay duty even if the same is classifiable under the same tariff item" ; (iii) the processes specified in Item 17(2) are merely illustrative and do not exclude lamination or bonding and, accordingly, paper board and all other kinds of paper are assessable to duty under the said item even if the process is anything other than those actually specified therein.
(b) since no "manufacture" was involved, the Appellant is not required to pay any duty whatsoever ; (c) such duty as was paid by the Appellant for the aforesaid period was by inadvertence/mistake/error ; and 4. While the adjudication order was begging the question, the order in Appeal, proceeded on misconception of manufacture and misconstruction of the relevant item in the Schedule.
5. Shri Khaitan, learned counsel for the Appellant submitted fairly, even at the outset, that while the decision of the Madras High Court in 1980 E.L.T. 579 Kwality Coated Products v. Govt. of India-(now stated to be the subject matter of an Appeal in the Supreme Court), supported his case in the Appeal, that in 1981 E.C.R. 113 (Standard Packaging v.Union of India) by the High Court of Andhra Pradesh was against his contentions.
(i) the Supreme Court in A.I.R. 1968 S.C. 922 S.B. Sugar Mills v. Union of India) on the oft repeated meaning of "manufacture" ; (ii) the Calcutta High Court in A.I.R. 1970 Calcutta 479 (Dalhousie Co. v. Union of India) holding, inter alia, that more coating of jute fabric with solution would not change the character of the product or transform it into another, and duty charged by difference in weight between the original jute fabric and the coated fabric was in reality duty on the coating material, not assessable to duty at all; (iii) the Gujarat High Court in 1977 E.L.T. J67 (Navgujarat Paper Industries v. Supdt. of Central Excise) holding that mere application of gum to paper does not convert paper into a new commodity known to the market as such ; and (iv) the Gujarat High Court in 1980 E.L.T. 164 (Swastic Products, Baroda v. Supdt. of Central Excise) holding that colouring of paper already manufactured is not a process in the manufacture of paper, nor can the process be said to be one incidental or ancillary to the manufacture of paper ; the Madras High Court observed in 1980 E.L.T. 579 that no manufacture of a new kind of paper is involved in the process of bituminisation of kraft paper to attract levy of duty under Item 17(2) of the Schedule ; (b) the Andhra Pradesh High Court, on the contrary, in 1981 E.C.R. 113, held following the observations of the Supreme Court (no specific case cited, however) that- (i) when a change is brought about by treatment of "labour and manipulation", resulting in finished goods different from the original and having a distinct name, character and use, a "manufacture" occurs ; (ii) the plea of illegality of the levy twice over-first on kraft paper and then again on it being bituminised-is untenable as there is nothing in law including Art. 265 of the Constitution prohibiting it; (A.I.R. 1979 S.C. 321-Avinder Singh v. State of Punjab) ; (iii) it is not necessary for "manufacture" that the resulting finished goods should become assessable, by hopping, as it were, under an item other than that applicable to the original goods ; (A.I.R. 1979 S.C. 321 supra) ; and (iv) bituminised kraft paper is not kraft paper, different as it is in strength and diversity of use for varying needs, and they are known with different names in commercial parlance.
7. Yet another case cited for the Respondent can be distinguished from the instant case. That is the case of Hyderabad Asbestos Cement Products v. Union of India in 1980 E.L.T. (Delhi) 735. While relying on the meaning given to manufacture in A.I.R. 1963 S.C. 79 Union of India v. Delhi Cloth and General Mills) and A.I.R.South Bihar Sugar Mills v. Union of India), the decision in the said case was, in the main, reached on the specific inclusion of the resultant product, namely. Asbestos fibre, in the Schedule, which conclusively determines its exigibility to duty, regardless of whether the process of making the fibre involved manufacture or not. "When the legislature has treated an article as manufacture, the argument is not open that it is not a manufacture". Again, it was observed, "legislature having determined that asbestos fibre is obtained by process of manufacture it would, I feel, be usually extremely hazardous and normally impermissible for the Court to say that this is not a manufacture". In the instant case, bituminisation as a process of manufacture had not been, unlike asbestos fibre, specifically adverted to and duty levied separately in Item 17(2) of the Schedule and if at all, can be said to have been included by a construction of the inclusive definition of "Paper or Paper Board" in item 17(2). The ratio of the aforesaid decision of the Delhi High Court is not strictly applicable.
8. In the welter of conflicting case law, it would appear to be advisable to decide the issue from first principles. We accordingly proceed to do so.
(a) (i) the description in Sub-item 17(2) of the Schedule, read at the relevant time, as follows :- "Paper board and all other kinds of paper (including paper or paper boards which have been subjected to various treatments such as coating, impregnating, corrugation, creping and design printing) not elsewhere specified." (ii) it may be observed straightaway that the Sub-item is residuary in that it deals with "Paper Board and all other kinds of paper not elsewhere specified".
(iii) in the second place, "Paper Board and all other kinds of paper" were given an inclusive definition. The expression includes paper or paper boards subjected to various treatments.
(iv) what are the various treatments They are "such as coating etc.".
(v) in other words, a residuary entry making use of an inclusive definition specifies various processes that are comprehended, prefixing the same with the expression "such as".
(vi) the question that arises is if the processes that are specifically mentioned are merely illustrative or exhaustive.
(vii) if the list of processes is to be construed to be exhaustive, it does violence to the residuary character of the entry as well as the inclusive nature of the definition. The use of the expression "such as" is a well known legislative device merely to illustrate.
The list of processes specified in Item 17(2) cannot therefore be treated as exhaustive or comprehensive; (viii) it cannot be said, therefore, that a process like bituminisation of kraft paper is not comprehended within the processes to which Paper Board could be subjected to in terms of Item 17(2) of the Schedule ; (ix) some of the treatments specified can be undertaken during the manufacture of the paper or paper board itself like e.g., corrugation or creping while others can only be resorted to after the manufacture ; (x) where any process like e.g. corrugation is carried out in the course of the manufacture of the paper or paper board itself, obviously, there cannot be two manufactures attracting two levies at two different stages under the same Sub-item ; (xi) the position cannot be any different where any of the processes is carried out after the manufacture of the paper or paper board.
The resultant product still continues to be paper or paper board and assessable to duty as such, in terms of the inclusive definition in item 17(2) of the Schedule. In so far as the Schedule is concerned, it has no name other than or distinct from paper or paper board notwithstanding that it may have different characteristics and diverse uses ; (xii) it is also not as if bituminisation is a process incidental to or ancillary to the completion of the manufacture of paper or paper board; (xiii) it is difficult, therefore, to sustain the contention that there has been a manufacture on bituminisation of kraft paper by bonding duty paid kraft paper with duty paid bitumen as the binding agent.
(i) while it may be that there is nothing in Art. 265 inhibiting a levy twice over on a manufacture regardless of whether it fell in the same item or another of the Schedule, the question still remains if any such legislative intent is manifest either expressly or even by necessary intendment or implication, if at all a tax can be said to have been levied by implication ; (ii) reading Item 17(2) of the Schedule at the relevant time again with a view to decipher such a legislative intent, it becomes undoubtedly clear that it is conspicuous by its absence. Neither expressly nor by necessary intendment does Item 17(2) contemplate or prescribe a levy twice over ; (iii) the levy is one on "Paper Board and all other kinds of paper" only. What are "Paper Board and all other kinds of paper"? They are defined to include "paper and paper board", subjected to various processes ; (iv) it is well settled that an inclusive definition is made used of to "enlarge the words or phrases occurring in the body of the statute ; and when It is so used, these words or phrases must be construed as comprehending not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include" [per Lord Watson in Dilworth v. Commissioner of Stamps (1899) A.C. 99 at pp.
105, 106-and cited in p. 270 of Maxwell on interpretation of Statutes -12th Edition]. Thus, when by Section 74 (1) of the Shops Act, 1950, "retail trade or business" was defined to include the business of a barber or hair-dresser, Lord Somerville held in M & F Frawley Ltd. v. Ve-Ri-Best Co. Ltd. (1953) 1 Q.B. 318 at 323) that "the words which follow 'includes' describe activities about which, at any rate, there might have been disputes whether they came within the words 'retail trade or business". The words, therefore, comprehended both what they naturally meant (primarily because of the words 'retail', the supply of goods rather than services) and those activities specially mentioned in the definition section ; (v) it is paper or paper board alone that is subjected to the levy.
And Paper or Paper Board is not merely paper or paper board simpliciter but paper or paper board subjected to various processes; (vi) once, therefore, kraft paper is manufactured, it attracts the levy under Item 17(2) of the First Schedule as "Paper or Paper Board." If, thereafter, it is subjected to any of the various processes, it is still "Paper or Paper Board" in terms of the inclusive definition of the said expression. If duty had already been paid on kraft paper qua "Paper or Paper Board", the processes themselves specified merely to define or describe "Paper or Paperboard" do not warrant a second levy ; (vii) again, a quick look at the Schedule at the relevant time would reveal that there are quite a few items e.g. 3, 19, 20, 21, 22, 28, 37A, etc., making use of an inclusive definition of the objects of levy and yet categorically providing for levy twice over. To cite one of these examples- Item 19 defines "Cotton fabrics" to include "embroidery in the piece, in strips, or in motifs, and fabrics impregnated, coated or laminated" and proceeds to levy duty separately on each one of these in Sub-items II and HI in excess of the duty on cotton fabrics simpliciter (Sub-item I), if paid ; (viii) item 17(2) is a study in contrast. At the relevant time (1-9-1977 to 31-1-1978) it merely defined "Paper and Paper Boards, all sorts", inclusively and refrained from a separate levy on those varieties ' included within the said definition ; (ix) the conclusion is irresistable that it is not the legislative intent to levy duty twice over once on paper and paper boards and again when "Paper and Paper Boards" are subjected to any of the processes adverted to in the said sub-item during the relevant period. Had the intent been a levy twice over, there was nothing to prevent giving effect to it in the manner adopted in, say, item 19 ; (x) once it is clear that it was not the legislative intent to levy duty twice in respect of paper or paper board, the mere fact of the issue of an exemption notification (No. 184/76-C.E. dated 27-5-76-not adverted to by either of the parties even though, presumably, in force during the period in question) in respect of "bituminised water proof paper or paper board obtained by bonding a layer of paper or paper board with bitumen", cannot be constructed to imply a levy in terms of item 17(2) of the Schedule. Where, in fact, there is no levy, an exemption from a levy is meaningless. Nor can a levy be inferred from an exemption from such levy when in fact there was none.
(c) In the view we had taken about manufacture on bituminisation, it does not appear that the levy under item 68, is attracted to the process. Even otherwise, paper and paper board subjected to the various treatments specified in item 17(2) including bonding cannot fall in the residuary item 68 which comprehends only those manufactured goods not elsewhere specified. Nor does bituminised kraft paper hop into any other item. If at all, it can become exigible to duty all over again under item 17(2) only and no other.
That was not the case as we found on a construction of the said item, as it read at the relevant time.
10. For the aforesaid reasons, both the questions raised are answered in the negative.
11. In the result, we allow the Appeal, set-aside the orders below, and direct the refund applied for to be made, if otherwise in order.