B.J. Divan, J.
1. The petitioners herein are a partnership firm having their office at Bombay and they have a factory situated at Barejadi in the district of Ahmedabad in the State of Gujarat and according to the petitioners, at the said factory the petitioner, have been producing since 1963 paper gummed tapes of different widths varying according to the requirements of their different customers. According to the petitioners, they manufacture these papers gummed tapes out of duty paid paper purchased by the petitioners from the manufacturers. According to the petitioners, in the integrated process of preparing paper gummed tapes, gum is merely applied on one side of the duty paid paper, but according to the petitioners, they do not manufacture gummed paper at all another product which the petitioners prepare at their factory is printed wrappers meant for different customers and manufacturers and such wrappers are printed on white paper normally used as textile wrappers. It is the petitioner's contention that at their factory at Barejadi they do not manufacture paper at all. The petitioners contended that for the purpose of producing paper gummed tapes and also print wrappers on white paper, they purchase duty paid paper from the manufacturers of paper and the textile wrappers are printed in accordance with the orders placed by their customers as per their requirements and according to the designs and specifications given by such customers. The Excise Authorities have been contending that the paper produced by the petitioners as an intermediate product is gummed paper; that the petitioners manufacture gummed paper as an intermediate product in the process of manufacturing paper gummed tapes and they contend that such gummed paper means paper obtained by applying gum to one side of paper. The contention of the Excise authorities regarding the textile wrappers produced by the petitioners by printing designs etc. on white papers is that such textile wrappers are converted types of paper. The excise authorities contend that ordinarily gummed paper and converted types of paper would be liable to duty by virtue of Section 3 of the Central Excises and Salt Act, 1944 read with Item 17. Clause (4) of the First Schedule to the Act, but by virtue of a notification dated September 5, 1970 bearing No. 165/70, the Government of India have exempted converted types of paper commonly known as imitation flint paper or leatheratte paper or plastic-coated paper, or by any other name, obtained by one side of paper being subjected to printing of colour, with or without design, irrespective of the fact whether or not such paper is subsequently varnished or glazed by chemicals or embossed, and also gummed paper obtained by gum being applied to one side of paper, from excise duty under sub-item (4) of item 17 of the First Schedule of the Act. But this exemption is subject to the condition that it must be proved to the satisfaction of the proper officer that the appropriate duty of excise or the appropriate Additional duty leviable under section 2A of the Indian Tariff Act, 1934, has been duly paid in respect of the paper used in the making of such converted type of paper or gummed paper. The petitioners, however, contend that what they are doing is not manufacturing any paper, either gummed paper or converted types of paper, but they are merely manufacturing gummed tapes and so far as converted paper is concerned they manufacture labels, cartons etc. made out of duty paid paper and printed with design or monograms of the manufacturers or traders, with or without description of particular goods or quality and both these products of theirs are articles of paper and, therefore, outside the purview of this item of excise.
2. In view of these rival contentions, the petitioners have filed this special Civil Application, praying that a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, direction or order under article 226 of the Constitution of India be issued against respondents ordering and directing the respondents, namely, the Union of India, the Collector of Central Excise, Baroda, the Superintendent of Central Excise, I.O.C. Range, Div. II. Ahmedabad and the Inspector of Central Excise, Barejadi, Distt. Ahemdabad, not to apply the provisions of the Act and rules made thereunder to the petitioner's factory at Barejadi in respect of paper gummed tapes and textile wrappers and they have also sought direction against these respondents preventing these respondents from enforcing the demands contained in the letters of December 29, 1970, February 18, 1971, March 15, 1971 all the three of them from the Superintendent of Central Excise and letter dated July 19, 1971 of the Inspector of Central Excise, Barejadi and letter dated July 21, 1971 of the Superintendent of Central Excise, I.O.C. Range, Div. II, Ahmedabad. They have also sought for orders seeking to restrain the respondents from taking any steps or proceedings against the petitioners either under the Act or under the Rules in respect of the said two products of the petitioners, namely, paper gummed tapes and textile wrappers.
3. In order to appreciate the rival contentions of the parties, it is necessary to refer to certain provisions of the Act and the rules made thereunder. Under section 2(f) of the Act the word 'manufacture' includes any process incidental or ancillary to the completion of a manufactured product. Under section 3 of the Act, which is a charging section under the Act, there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India. We are not concerned with the duty on salt, but it is clear from the provisions of section 3 that the duties under this charging section can be levied on all excisable goods produced or manufactured in India. Under section 2(d) of the Act, 'excisable goods' means goods specified in the First Schedule as being subject to a duty of excise and includes salt. Section 6 of the Act provides that certain operations can be carried on only subject to a licence and that section empowers the Central Government to provide by a notification in the Official Gazette from such date as may be specified in the notification, that no person shall, except under the authority and in accordance with the terms and conditions of a licence granted under the Act, engage in the production or manufacture of any process of the production or manufacture of any specified goods included in the first Schedule. The rule making power has been conferred on the Central Government by section 37 of the Act and under sub-section (1), the Central Government may make rules to carry into effect the purpose of the Act, under sub-section (2) of section 37, clause (xvii) in particular, and without prejudice to the generality of the foregoing power conferred by sub-section (1) of section 37 such rules may exempt any goods from the whole or any part of the duty imposed, by the Act, and under section 37(2)(xii) the rules may provide for the issue of licences and transport permits and the fees, if any, to be charged therefore. Acting under these powers, the Central Government has made rules known as Central Excise Rules, 1944. These rules have been made in exercise of the powers conferred by sections 6, 12 and 37 of the Act. Under rule 8, it has been provided that the Central Government may, from time to time, by notification in the Official Gazette, exempt subject to such condition as may be specified in the notification any excisable goods from the whole or any part of duty leviable on such goods. Under Item 17 of the First Schedule of the Act paper all sorts including paste board, mill board, straw board and card board in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power is subjected to the levy of excisbale duty at different rates depending upon the type of paper. In sub-item (1) of Item 17, cigarette issue is subjected to excise duty at a higher rate than other types of paper. Under sub-items (1), (2) and (3), different types of paper specifically named therein are subjected to different rates of excise duty specified in the 3rd column of the First Schedule and sub-item (4) of Item 17 deals with all other kinds of paper and paper board not otherwise specified. Thus, sub-item (4) of Item 17 is the residuary category for levying excise duty at a particular rate in respect of kinds of paper not specifically set out or mentioned in any of the three other sub-items (1), (2) and (3) of Item No. 17 of the entry. It is clear from reading of the Item 17 that if any manufacturer or any person manufacturers any kind of paper and the product which he manufactures can be called 'Paper' of any type, he will be liable to pay excise duty under sub-item (4) of Item 17. On September 5, 1970, the Central Government issued a notification bearing No. 165/70-CE F. No. 8/45-CX. 6/2. The notification is in the following terms :-
'In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts. -
(i) converted types of paper, commonly known as imitation flint or leatheratte paper or plastic-coated paper or by any other name, obtained by one side of paper being subjected to printing of colour, with or without design, irrespective of the fact whether or not such paper is subsequently varnished or glazed by chemicals or embossed; and
(ii) gummed paper obtained by gum being applied to one side of paper falling under sub-item (4) of Item No. 17 of the First schedule to the Central Excises and Salt Act, 1944 (1 of 1944) from the whole of the duty leviable thereon, subject to the condition that it is proved to the satisfaction of the proper officer that the appropriate duty of excise or the appropriate additional duty leviable under section 2A of the Indian Tariff Act, 1934, as the case may be, has been duly paid in respect of the paper used in the making of such converted type of paper or gummed paper.'
4. After the publication of this notification dated September 5, 1970, the Collector of Central Excise, Baroda, on September 17, 1970, issued Trade Notice No. 249/1970 (Paper & Board No. 4/70) drawing the attention of all Trade Associations/Chambers of Commerce and Member of R.A.C. to this notifcation of September 5, 1970 and mentioning therein that the exemption granted by the notification of September 5, 1970 was effective from 5th September 1970. On the very day that is, on September 17, 1970 the Central Excise Collectorate, Baroda, issued another trade notice bearing No. 250/70 (paper and Board No. 5/70) and that trade notice on which the petitioners rely is in these terms :-
'Doubts have been raised regarding duty liability under Item No. 17 of Central Excise Tariff in respect of -
(i) lables, cartons, etc. made out of duty paid paper and printed with design or monogram of a manufacturer or trader, with or without description of particular goods or quality, and
(ii) Gummed tape made out of gummed paper. It is clarified that the above description of goods are articles of paper and therefore outside the purview of the said items of the tariff.'
5. It appears that the Collectorate of Central Excise of Bangalore issued a trade notice on June 8, 1971 and that trade notice is in the following terms :-
'Attention of the trade is invited to Government of India Ministry of Finance (Department of Revenue and Insurance). Notification No. 194/70, dated 5.9.70 communicated in this office trade notice No. 194/70 (No. 2/Paper), dated 17.9.70.
The base paper purchased by the manufacturers of coverted paper purchased by the manufacturers treated as duty paid unless there is evidence to the contrary.'
6. In the instant case the affidavit-in-reply on behalf of the respondents has been made by Mr. Chinmay Ghose, Assistant Collector of Central Excise, Division I, Ahmedabad, being affidavit dated February 16, 1972. In paragraph 25 of the affidavit in reply it has been stated that although the trade notice No. 105/71 of 8th June, 1971, refers to base paper purchased from the market to be regarded as duty paid, this trade notice is not valid and binding and has no effect within the jurisdiction of the Central Excise Collectorate, Ahmedabad as it has been issued by another Collectorate, then the affidavit proceeds, 'However, I state that the office of the Assistant Collector, Central Excise, Ahmedabad, has received instructions from C.B.R. dated 15th May, 1971, received under Collector Central Excise, Baroda's letter No. V(17) 8-1/71, dated 17th June, 1971 for regarding the base paper purchased from the market as duty paid.'
7. These are the different provisions of the Act, the Rules and the different notification, which arise for consideration in the instant case. It is obvious that if the petitioners are manufacturing articles of paper as distinguished from any kind of paper they are not liable to pay any duty at all under sub-item (4) of Item 17 in the First Schedule of the Act. Moreover if what they manufacture as textile wrappers or paper gummed tapes are held to be articles of paper, then there is no question of their falling within the exemption notification of September 5, 1970, bearing No. 163/70 issued by the Central Government. If, however, it is held that the textile wrappers and the alleged gummed paper manufactured at an intermediate stage of their production of paper gummed tapes, are paper of any sort, then they would fall within sub-item (4) of Item 17 and then they would be exempted by virtue of the notification dated September 5, 1970. It may be pointed out that the distinction between the two (i) articles of paper which are totally outside the purview of sub-item (4) of Item 17 and (ii) items, which would otherwise fall under sub-item (4) of Item 17 but are exempted by virtue of the notification dated September 5, 1970, is this, that if they do not fall under sub-item (4) of Item 17 being articles of papers, the petitioners are not required to take out a licence for their manufacture and are not required to subject themselves to the control of the excise authorities those two products of theirs. If, however, the alleged gummed paper and the textile wrappers are held to be paper of any sort falling within sub-item (4) of Item 17 of the First Schedule, the petitioners would be required to take out a licence for the manufacture of these two articles and would be liable to inspection and supervision of the excise authorities, and lastly, it would be for them to satisfy the excise authorities that the paper which they utilised in the manufacture of what is alleged to be gummed paper in their intermediate product or converted type of paper, which is the contention of the Department, is duty paid paper and this is the scope of the controversy between the parties.
8. At this stage, it will be appropriated if we refer to two decisions of the Supreme Court, which lay down the principles regarding the interpretation of section 3 and also the interpretation of section 2(f) of the Act. Arguments, similar to the arguments advanced before us by the learned Assistant Government pleader were advanced before the Supreme Court in Union of India v. Delhi Cloth and General Mills (AIR 1963 S.C. 791). It was argued before us by the learned Assistant Government pleader that if any process incidental or ancillary to the completion of a manufactured product is defined in section 2(f) of the Act is carried on, it amounts to 'manufacture' and, therefore, in the instant case it would be held that the petitioners were manufacturing gummed paper at the relevant time. At page 795 of the report Dass Gupta J., delivering the judgment of the Supreme Court has pointed out in paragraph 18 that -
'This consideration of the meaning of the word 'goods' provides strong support for the view that 'manufacture' which is liable to excise duty under the Central Excises and Salt Act, 1944, must be the bringing into existence of a new substance known to the market'. 'But' says the learned Counsel look at the definition of 'manufacture' in the definition clause of the Act and you will find that 'manufacture' is defined thus -
'Manufacture' includes any process incidental or ancillary to the completion of a manufactured product' [S. 2(f)].
We are unable to agree with the learned Counsel that by inserting this definition of the word 'manufacture' in S. 2(f) the ligislature intended to equate 'processing' to 'manufacture' and intended to make mere 'processing' as distinct from 'manufacture' in the sense of bringing into existence of a new substance known to the market, liable to duty. The sole purpose of inserting this definition is to make it clear that at certain places in the Act the word 'manufacture' has been used to mean a process incidental to the manufacture of the articles. Thus in the very item under which the excise duty is claimed in these cases, we find the word 'in or relation to the manufacture of which any process is ordinarily carried on with the aid of power'. The definition of 'manufacture' as S. 2(f) puts it beyond any possibility of controversy that if power is used for any of the numerous processes that are required to turn the raw material into a finished article known to the market the clause will be applicable, and an argument that power is not used in the whole process of manufacture using the word in its ordinary sense, will not be available. It is only with this limited purpose that the legislature, in our opinion, inserted this definition of the word 'manufacture' in the definition section and not with a view to make the mere 'processing' of goods as liable to excise duty.'
The above passage from the decision of the Supreme Court makes it clear that for the purposes of Excises Act mere processing of goods is not manufacturing the same and secondly this view in paragraph 17 also makes it clear that to become 'goods' within the meaning of section 3, an article must be something which must ordinarily come to the market to be bought and sold. Thus, the test of the market placing was applied by the Supreme Court in Union of India vs. Delhi Cloth and General Mills. The controversy before the Supreme Court in that case between the manufacturer on the one hand and the revenue on the other was whether at an intermediate stage of the production of hydrogenated oil, the manufacturers were producting refined oil. On examination of the materials before it, the Supreme Court held that though the manufacturer's 'refined oil' at no stage of its intermediate production was the manufacture bringing into existence any commodity known to the market as 'refined oil' and hence, the case was decided in favour of the manufacturers and against the revenue, the contention of the revenue being rejected in that case.
9. The second decision of the Supreme Court which has a bearing on this question is in South Bihar Sugar Mills Ltd. and another vs. Union of India and another, (AIR 1968 S.C. 922). In this case the controversy before the Supreme Court was, whether kilng as produced as an intermediate product of the manufacture for the purpose of refining sugar in one case and manufacture of soda ash in another, can be considered to be carbon dioxide gas on which excise duty could have been levied. At page 928 of the report in paragraph 14, Shelat J. delivering the judgment of the Supreme Court has pointed out -
'The Act charges duty on manufacture of goods. The word 'manufacture' implies a change but every change in the raw material is not manufacture. There must be such a transformation that a new and different articles must emerge having a distinctive name, character or use. 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 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. That it would be such an article which would attract the Act was brought out in Union of India vs. Delhi Cloth and General Mills Ltd. - AIR (1963) Supreme Court, 79.'
10. These two decision of the Supreme Court pointed out that in every case where the question arises whether an intermediate product or an end product can or cannot be subjected to the levy of excise duty, the test of bringing into existence a new substance which is known to the market as such and which can be bought and sold in the market by that name must be satisfied. It must be established in such that there was such a transformation in the raw material that a new and different articles did emerage having a distinctive name, character or use, and it must be capable of ordinarily being taken to the market to be bought and sold and must be known to the market, as such. Against these two decisions of the Supreme Court, the learned Assistant Govt. Pleader drew our attention to a later decision of the Supreme Court, and asked us not to apply the test of marketibility in connection with the excise duty on goods. The case on which he relies was The Cannanore Spinning and Weaving Mills Ltd. vs. The Collector of Customs and Central Excise, Cochin and others (AIR 1970 S.C. 1950). In that case the Supreme Court did not apply the test of the market place, because by the relevant notification in terms a specified meaning was given to the word 'hank' it was contended on behalf of the Revenue before the Supreme Court in that case that the word 'hank' as understood to the market was 'circular loop or coil' of cotton yarn 850 yard in length. But as pointed out by Hegde. J. while delivering the judgment of the Supreme Court at page 1952 by a notification dated September 21, 1963 it was provided that -
'Notwithstanding anything contained in Explanations 1 and 2, the term 'hanks' shall mean from 1st day of October, 1962, hanks which do not contain more than 1,000 metres of yarn in plain (straight) reel.'
It the earlier notification the word 'hank' was not defined. It was contended before the Supreme Court by the revenue that the word 'hank' has acquired a special meaning in commercial circles, that is, a circular loop or coil of cotton yarn 850 yards in length and the court must give that meaning to the word 'hank' occurring in the relevant notifications. Hegde J. pointed out that the rule making authority makes it further clear by the Government's notification dated September 28, 1963, which explains the word 'hank' to mean a circular coils which did not contain more than 1,000 metres of yarn in plain (straight) reel and the Supreme Court held that in view of this particular definition and the explanation given by the notification itself, the meaning of the word 'hank' as understood in the market was not to be applied but the meaning as specially set out in the notification was to be applied to the facts of the case before the Supreme Court. In the instant case before us, there is no such clear cut definition of the word 'gummed paper' or 'converted paper'. The revenue authorities seek to bring the petitioners within the framework of the Central Excise Act on the ground that at an intermediate stage of production gummed paper and converted paper at the end product were brought into existence by the petitioners.
In our opinion, the decision in Cannanore Spinning and Weaving Mills vs. Customs Collectorr cannot apply to the present case because it was by virtue of special definition set out in one of the notifications explaining the meaning of the word 'hank' that the Supreme Court decided that particular case. In the instant case, there is no such clear cut definition of the words 'gummed paper' or 'converted paper'.
11. The learned Assistant Government pleader contended that in the notification of September 5, 1970 being Notification No. 165/70, the exemption which was granted by the Central Government was to gummed paper obtained bu gum being applied to one side of parer and, therefore, contended that as soon as it was found that gum was applied to one side of paper at an intermediate stage of production by the petitioners it must be held that the petitioners were manufacturing gummed paper and therefore, in order to be exempted from excise duty, they must comply with the requirements of the Central Excises and Salt Act, 1944 and the rules framed thereunder. In our opinion the function of the notification of 5th September, 1970 was to exempt certain types of paper, namely, converted type of paper and gummed paper. It is the contention of the Revenue before us that both these types of papers, converted type of paper and gummed paper, are capable of falling within the category of sub-item (4) of item 17 in the First Schedule to the Excise Act, namely, all other kinds of paper and paperboard, not otherwise specified. In order to apply the exemption notification of Sept. 5, 1970, it must first be found that the petitioners are manufacturing gummed paper or converted type of paper that is they are bringing into existence a new substance known to the market as gummed papers or converted type of paper. If it is found that what the petitioners are doing is making articles out of paper as distinguished from making any kind of paper, then it is obvious that since they are not bringing into existence a new kind of paper, the petitioners would be totally exempted from the duty, in the sense that none of the four items of Item 17 would apply to the petitioners.
12. In paragraphs 7A of the petition, the petitioners have mentioned the process of manufacturing the commodity known in the market as 'gummed paper'. The petitioners have contended that the application of gum to one side of paper does not ipso facto result in the manufacture of gummed paper. According to the petitioners if gum is applied on one side of paper that by itself and without anything more does not and cannot result in the manufacture or production of a paper known as 'gummed paper' as known and understood in the trade and market. The petitioners have stated that in order that an article or a commodity can be regarded in the trade or market as gummed paper, it is necessary to carry out the following process after applying gum to one side of paper -
'The paper to which gum is applied on one side will have to be passed through an equipment known as gum breaker which is operated with the aid of power so as to eliminate the curling tendency of the paper, and which tendency is acquired by reason of the application of the gum on one side of the paper. Unless such paper is processed through the gum breaker it will never have the quality of lying flat. The petitioners did not have and do not have the equipment known as gum breaker.'
13. The petitioners further contend that after such to which gum is applied on one side is processed through gum breaker as aforesaid, the same will have to be out into sheets of standard sizes by the equipment known as cutting machine known as Gross Cutter which is also being operated by the aid of power. In this connection, the petitioners have lastly stated that gummed paper is not easily available in the market and is normally manufactured as per the requirements and specification of individual consumers like Indian Security Press, Nasik. Paragraph 7A of petition thus contains a categorical statement regarding the process which is required to be gone through in order to obtain a commodity or an article known to the trade and market as 'gummed paper'. The essential steps in this process are, according to the petitioners, first, the application of gum on one side of paper, secondly subjecting such paper to the process of gum breaker and thus counteract the tendency of the paper to curl up. After the process of submitting paper to gum breaker has been gone through, the sheets of paper will lie flat rather than curl up and the sheets of appropriate sizes have to be cut from much larger sheets by means of cutting machine sizes have to be cut from much larger sheets by means of cutting machine known as Gross Cutter. In the affiadvit-in-reply of Chinmay Ghose in paragraph 8A it has been stated -
'I submit that it may be true that the petitioners may not have utilised the machinery known as the gum breaker for the manufacture of gummed papers. That, however, does not by itself indicate that what has been manufactured is not gummed papers. That process of the manufacture of gummed paper has already been explained above with reference to para 10 of the petition. In sub-para 2, the petitioners have described a particular type of cutting machine known as Gross Cutter. I state, however, that the petitioners do not have such a Gross Cutter as described by them in their Factory at Barejadi. They do in fact utilise and operate a paper cutting machine which however is of different nature. Therefore, the description of such a Gross Cutter or its essentiality to the process of gummed papers manufactured sought to be made out by the petitioners is not borne out by the facts.'
Thus, the contention in the affidavit-in-reply is that by submitting the paper bought from the market to some process some kind of paper is brought into existence and thus the definition of the word 'manufacture' as set out in section 2(f) is sought to be relied upon also in the affidavit in reply. Against the elaborate description as given by the petitioners of the process which is required to be gone through before a commodity known to the market as 'gummed paper' can be brought into existence no material has been placed so far as the respondent are concerned to show that what the petitioners are in fact manufacturing even at an intermediate stage by applying gum on one side of the paper amounts to what is known to the trade as 'gummed paaer'. In South Bihar Sugar Mills Ltd. and another vs. Union of India and another, - AIR 1968, SC. 922, in paragraph 15 at page 928 of the judgment, Shelat J. has pointed that in that particular case the revenue had not produced any affdavit of persons dealing in carbon dioxide to show that kiln gas is known to the market as carbon dioxide. Similarly in the instant case we find that the revenue has not produced before us any affidavits of persons dealing in gummed paper to show that what the petitioners were manufacturing as an intermediate product in the process of manufacturing gummed tapes was known to the market as 'gummed paper'. In view of the record as it stands, it is not possible for us to say that what the petittioners are manufacturing is gummed paper or that what they are manufacturing at an intermediate stage of the product is a new and a different article known to the trade and market as gummed paper.
14. Regarding converted paper, the petitioners contend in paragraph 7B of the petition that the textile wrappers manufactured by them are normally made out of duty paid packing and wrapping paper. Such wrappers are made out of paper which is purchased from the market. According to the petitioners the designs and monograms of the petitioners' customers are printed on paper purchased by the petitioners from the market. After the printing, the essential character and nature of the commodity remained the same and no new product emerged or is brought into existence nor any radical transformation is affected in the nature of the product. The petitioners contend that they do not manufacture converted paper. They have contended that by printing of designs and monograms of their customers on back of wrapping paper the nature and character of the paper does not change but it still continues to be that of packing of wrapping paper. In the affidavit-in-reply in paragraph 8E the contents of paragraph 7B of the petition are dealt with. The deponent on behalf of the revenue admits that textile wrappers are manufactured from paper which is purchased from the market. Such paper purchased from the market is expected to be duty paid. However, there is no presumption, according to the deponent, that the paper purchased by the petitioner; from the market is in fact duty paid. In paragraph 11 of the affidavit-in-reply Chinmay Ghose, the deponent, stated :-
'On blank wrapping and packing paper, the petitioners processed the same by printing the names, monograms and/or designs as per the requirement of their customers. Thus the products obtained by the process is called a converted type of paper and is used as wrapping and packing goods classifiable under sub-item (4) of Item 17.'
In this connection it may be pointed out that by the trade notice No. 250/70, dated September 17, 1970, the Collectorate Central Excise, Baroda has stated that labels, cartons etc. made out of duty paid paper and printed with designs or monograms of a manufacturer or trader with or without description of particular goods or quality were articles of paper, and therefore, outside the purview of the said Item 17 of the Central Excise Tariff. A copy of this trade notice is annexed as per Ex. A to the petition. It is thus clear that taking the contents of paragraph 11 of the affidavit-in-reply in conjunction with the contents of trade notice of September 17, 1970 the product manufactured by the petitioners cannot, according to the description given by the Department itself, be said to be converted type of paper, but merely an article made out of paper. In order to get out of the difficulty posed by the contents of this trade notice No. 250/70 of September 17, 1970, the learned Assistant Government pleader relied upon certain observations of the Supreme Court in Orient Paper Mills Ltd. vs. Union of India, in (AIR 1960 S.C. 48). In that case the question before the Supreme Court was, whether machine glazed poster paper manufactured by the appellant was printing and writing paper chargeable under Item 17(3) of the First Schedule to the Central Excise and Salt Act, 1944. Before the excise authorities, the manufacturer has taken up the contention that machine glazed poster paper known as 'M.G. Poster Paper' was packing and wrapping paper falling within sub-item (4) of Item 17 and not printing paper falling within sub-item (3) of Item 17. If it was held to be falling within sub-item (3) of Item 17, the manufacturer would be required to pay higher excise duty than what he would be bound to pay if the article fell within sub-item (4) of Item 17. The Collector of Central Excise at the time when he gave the decision in the matter had observed that the Central Board of Revenue had already made it clear that all types of poster paper of whatever colour including white should not be treated as 'printing and writing paper, but as 'packing and wrapping paper' and hence, the contention of the particular manufacturer was rejected. It was in this context that the Supreme Court held that it was not open to a quasi judicial authority like the Collector of Excise to permit himself to be swayed by an executive instructions given to him by the Central Board of Revenue, and it was, therefore, held by the Supreme Court that even though the question of the legality of the direction issued by the Board had not been taken before the authorities under the Act, that direction completely vitiates the proceedings and makes a mockery of the judicial process, and the Supreme Court held that the direction was invalid and had vitiated the proceedings before the Collector as well as the Government. In the instant case it is not as if we are asking the Collector of Excise to allow his discretion to be vitiated by any direction of the Board of Revenue. But the same Collector and the same Revenue authorities, who are now seeking to bring within the net of the Excises Act the textile wrappers produced by the petitioners as converted paper, had by their trade notice held out a representation to the manufacturers that mere printing of designs or monograms on duty paid paper in order to meet the requirements of a particular customer, though such labels, cartons etc. may be with or without description of the particular goods or quality, would not be treated as manufacture of paper but would amount to merely goods which are articles of paper, as distinguished from manufacture of paper. In Union of India and others vs. M/s Anglo Afghan Agencies - (AIR 1968, S.C. 718), the Supreme Court has pointed out that even if a trade notice amounts not more than executive instructions, it would be binding on the Department and the Department would be estopped from contending that what was mentioned in the trade notice should not be adhered to. In paragraph 16 at page 725 of the report Shah J. (as he then was) delivering the Judgment of the Supreme Court observed :-
'Therefore, even assuming that the provisions relating to the issue of trade notices offering inducement to the prospective exporters are in character executive, the Union Government and its officers are, on the authorities of this Court not entitled at their mere whim to ignore the promises made by the Government.
Thus, it is obvious that it is not open to the Department to get out from the stand taken in the trade notice if the manufacturers have acted on those trade notices and entered upon their manufacturing programme on the basis of what has been stated in the trade notices.
15. Even apart from the question of what has been stated in the trade notice, unless the Department is able to show by placing appropriate materials before us that by subjecting raw materials purchased by the petitioners to certain process, the petitioners have brought about such a transformation that a new and different article emerges having a distinctive name, character or use, and that the article which is sought to be subjected to excise even as an intermediate product or as an end product is known as such to the trade and market and can be bought and sold in the market as such. There cannot be any question of levying excise duty on such end product or intermediate product. Neither in the case of alleged gummed paper which is brought into existence at an intermediate product in the manufacture of gummed tapes by the petitioners nor in the case of textile wrappers the department has been able to satisfy us that the goods which they wish to bring within the purview of sub-item (4) of Item 17 of the First Schedule to the Central Excises Act are not articles of paper but are some sort of paper, known to the market as such. The averments in the petition are clear and specific and there is no clear cut material placed by the Department before us to refute those assertions of the petitioners. The process of manufacturing gummed paper has been elaborately set out by the petitioners but there is no denial by any expert or any person well versed in the manufacturing of such gummed paper to the contrary so far as the Department is concerned. As a matter of fact, apart from the mere ipse dixit of an Assistant Collector of the Central Excise viz. Chinmay Ghose, there is no material shown by the Department to show firstly that by the processes adopted by the petitioners a new different article emerges having a distinctive character, name or use and, secondly, that it is capable of being sold in the market as such. No affidavit of person dealing in gummed paper or in converted types of paper has been filed by the revenue to show that what has been manufactured by the petitioners at an intermediate product while preparing gummed tapes is known to the market and is capable of being bought and sold in the market as gummed paper or that the end product of textile wrappers, is not mere an article made out of a paper but in a kind od paper.
16. There is a clear assertion with necessary details on the side of the petitioners and beyond a bare denial and reiteration of the stand taken up in the course of the correspondence there is no material placed by the revenue before the court to show that the processes of manufacture set out by the petitioners in the petition are not the correctt processes.
17. Under these circumstances we have come to the conclusion that the intermediate product of what the revenue calls 'gummed paper' is not gummed paper known to the market as such and mere application of gum on one side of paper does not convert that paper into a new commodity known to the markets as such. Similarly mere printing of designs and monograms and other descriptions of goods regarding to quality of the name of manufacturers does not convert packing or wrapping paper into another kind of paper. It still continues to be printing or wrapping paper on which something has been printed. Under these circumstances, both the major contentions of the petitioners succeed. We, therefore, allow this Special Civil Application and issue a writ of mandamus, directing the respondents to forbear from applying the provisions of the Central Excise and Salt Act, 1944 to the petitioners' factory at Barejadi in respect of gummed paper and textile wrappers and/or enforcing the demand contained in the letters dated December 29, 1970, February 18, 1971, March 15, 1971 all from the Superintendent of Central Excise and also the demand contained in the letter of July 19, 1971 of the Inspector of Central Excise Barejadi and the letter of July 21, 1971 of the Superintendent of Central Excise, I O C. Range, Division II., Ahmedabad. The respondents are further restrained from taking any steps or proceedings against the petitioners either under the Act or under the rules made thereunder in respect of the petitioners said product of gummed paper and textile wrappers.
18. We wish to make it clear that though in paragraph 13 of the petition some reference is made to the item of paper gummed tapes which are sought to be converted under Item No. 60 by reasons of the Finance Bill No. II of 1971 which came into force somewhere in 1971, we are not concerned with the paper gummed tapes which may be falling in the category of Adhesive tapes all sorts. The sole question before us is, whether the intermediate product of gummed paper was being manufactured in the petitioners' factory at the relevant time and that is why we have confined our discussion to that item only.
19. The respondents will pay the costs of this petition to the petitioners. The rule is made absolute accordingly.