1. The appellants manufacture pencil slats from log wood. According to them, odd pieces of wood, called sawn timber, and saw dust arise in the course of manufacture. The lower authorities have held that all the three articles, namely, pencil slats, sawn timber and saw dust, are classifiable under Item 68 of the Central Excise Tariff and directed the appellants to pay the duty thereon for the period 1975-76 and 1976-77.
(1) there should be no duty liability on pencil slats for the period from December, 1975 to July, 1976 on the ground that during this period or during the preceding 12 months they did not employ more than 49 workers in their factory, vide exemption notification No. 54/75-C.E., dated 1-3-1975.
(2) sawn timber and saw dust were only process waste or process residues which incidentlly arose in the course of manufacture of pencil slats from log wood and as such they were neither "goods" nor any manufacturing process was involved in their case.
They basically relied on two Supreme Court judgments in the case of DCM (1977 E.L.T. 199) and South Bihar Sugar Mills (1978 E.L.T. 336) to say that excise duty became chargeable only when a new and different article emerged having a distinct name, character and use. They stated that this test laid down by the Supreme Court was not satisfied by their sawn timber and saw dust. They cited a number of other judgments of High Courts, Government of India, Central Board of Excise and Customs and Appellate Collector also but since all these judgments flow from the above basic decisions of the Supreme Court, we do not consider it necessary to discuss them individually.
3. The Department's representative agreed with the appellants in regard to their argument in respect of pencil slats based on the number of workers and stated that the Appellate Collector had erroneously proceeded on the basis of financial year while the exemption notification No. 54/75-C.E-, referred to actual months. On careful consideration of the matter, we agree with him. The notification gave exemption to factories in which not more than 49 workers "are working or were working on any day of the preceding 12 months". There is no warrant in the notification to proceed on the basis of financial years.
We, therefore, direct that duty liability in respect of pencil slats should be redetermined by the Assistant Collector strictly in accordance with the wording of the notification. If, as contended by the appellants, more than 49 workers were not working in their factory during December, 1975 to July, 1976 nor in any of the 12 actual months preceding, they would not be liable to duty during the said period.
4. Regarding sawn timber and saw dust, the appellants contended that they burnt these articles in their factory. The Department's representative, however, invited attention to their letter dated 12-5-1976 addressed to the Superintendent of Central Excise with which the appellants had enclosed a statement showing sale of sawn timber and saw dust to outside parties during 1975 and 1976. At this, the appellants stated that these articles were mostly burnt inside the factory and that the fact of their sporadic sale or marketability could not be the criteria for their assessment since they were only an incidental arising and no 'manufacture' was undertaken in relation to them. The Department's representative maintained that sawn timber and saw dust were different articles from wooden logs and hence on the analogy of this Tribunal's Order in the case of Bagasse (1983 E.L.T.1186) and crushing of rock phosphate into powder (1983 E.L.T. 1192), it should be held that the process of sawing amounted to 'manufacture' in relation to sawn timber and saw dust. He further relied on Allahabad High Court judgment reported at 1982 E.L.T. 937 (Oudh Sugar Mills Ltd. v. U.O.I. and Ors.) to say that by-products or intermediate products or residual products were covered by the word 'production' used in charging Section 3 of the Central Excises and Salt Act, 1944 and hence were liable to duty.
5. On careful consideration of the matter, we agree with the appellants that sawn timber is not a different article from log wood as both are timbers or wood only. Just by cutting or sawing a timber log into smaller pieces, it cannot be said that a new and different article having a distinct name, character and use has been brought into existence. We, therefore, hold that no manufacture or production can be said to have taken place in relation to sawn timber and hence the appellants were not liable to pay any duty in respect of sawn timber.
6. However, we agree with the Department's representative that saw dust is a different article from timber log. It has, apart from burning as fuel, other uses also. It, therefore, satisfies the test laid down by the Hon'ble Supreme Court in the two cases relied on by the appellants in as much as it has a distinct name, character and use. The appellants' argument that it is only an incidental arising is answered by the Allahabad High Court judgment (1982 E.L.T. 937) cited by the Department's representative which, we find, is very specific on the point. The High Court has held that the word 'production' in Section 3 of the Central Excises Act is used in juxtaposition with the word 'manufacture' and obviously refers to finished and semi-finished article made from raw material. Therefore, any by-product or intermediate or residual product in the manufacture of particular goods will be covered by the word 'production'. Saw dust is, therefore, liable to duty. The fact that the appellants sold saw dust to outside parties lends further support to the conclusion that it was marketable goods. We, therefore, hold that the appellants were liable to pay duty on saw dust under Item 68 of the Tariff. However, we direct that while re-calculating their duty liability in relation to saw dust, benefit of exemption notification No. 118/75-C.E., dated 30-4-1975 should be given to the appellants in respect of the quantity of saw dust consumed within their factory during the period when this notification was in force.