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PETITIONER: COLLECTOR OF CENTRAL EXISE, CULCUTTA-II

       Vs.

RESPONDENT: EASTEND PAPER INDUSTRIES LTD. & ANR.

DATE OF JUDGMENT29/08/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RAY, B.C. (J)

CITATION:  1990 AIR 1893            1989 SCR  (3)1017  1989 SCC  (4) 244        JT 1989 (3)   518  1989 SCALE  (2)456

ACT:     Central Excises and Salt Act, 1944/Central Excise Rules, 1944: Section 2(f)/Rules 9(1), 56(a), 173-F and  173-G--Levy of  Excise  Duty--Wrapping  paper--Captively  consumed   and utilised   as   component  part  of   other   varieties   of paper--Whether  deemed  to have been used in  completion  or manufacture of end product.

HEADNOTE:     The  respondent,  in  the first of  these  appeals,  was manufacturing different varieties of printing paper  includ- ing  wrapping paper failing under Item No. 17 of  the  erst- while  Central  Excise Tariff. The appellant issued  a  show cause notice to the Respondent for the alleged violation  of Rules  9(1),  173-F and 173-G of the Central  Excise  Rules, 1944 in respect of wrapping paper removed outside the Facto- ry  without payment of Central Excise duty, and for  imposi- tion  of  penalty. Showing cause, the  Respondent  contended that the wrapping paper was captively consumed and  utilised as component :art of other varieties of paper and as such no duty was payable. Reliance was placed on section 2(f) of the Central  Excises  and Salt Act, 1944  and  Notification  No. 18A/83-CE dated 9th July, 1983. The Superintendent  (Techni- cal)  having  held otherwise, the  respondent  preferred  an appeal  to the Collector (Appeals). The  Collector  rejected the claim. On appeal, the Customs, Excise and Gold (Control) Appellate  Tribunal referred to its own decision,  which  is the subject matter of the other appeals herein and set aside the order of the Collector.     The facts leading to the other appeals are similar,  and the  issue involved is the same. The Revenue has  filed  the appeals  under  section 35-L of the Central Excises  &  Salt Act.     On behalf of the Revenue, it was contended that wrapping paper  cannot be deemed to be component part because it  did not become an integral part of the packed paper.     The assessee, however contended that wrapping paper  was raw  material  or component part of the wrapped  paper,  and relied  on  S. 2(f) of the Act which  includes  any  process incidental or ancillary to the 1018

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completion of a manufactured product. It was also urged that Revenue had itself considered the stage of wrapped or packed paper  as the stage at which goods should be entered in  the statutory production register. Dismissing the appeals,     HELD:  1. ’Manufacture’ in the sense it is used  in  the excise  law, was not complete until and unless wrapping  was done.  It is the law now that excise is a duty  on  manufac- ture.  Manufacture is the process or activity  which  brings into  existence new, identifiable and distinct goods.  Goods have  been understood to be articles known  as  identifiable articles  known in the market as goods and marketed or  mar- ketable in the market as such. The finished goods 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. 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  of  the expression 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 as such. The Tribunal found, and there was material for  the Tribunal  to  do so, that the market in  which  articles  in question  were sold were paper packed and wrapped in  paper. Therefore, anything that enters into and forms part of  that process must be deemed to be raw material or component  part of  the end product and must be deemed to have been used  in completion  or  manufacture of the  end  product.  [1021G-H; 1022A-D]     Bhor  Industries  Ltd., Bombay v. Collector  of  Central Excise,  Bombay, [1989] 1 SCC 602; South Bihar  Sugar  Mills Ltd., etc. v. Union of India & Ors., [1968] 3 SCR 21;  Union of India v. Delhi Cloth & General Mills Ltd., [1963]  Suppl. I  SCR 586; Union Carbide India Ltd. v. Union of  India  and Ors., [1986] 24 ELT 169; Collector of Central Excise, Baroda v. M/s Ambalal Sarabhai Enterprises, [1989] 3 SCR 784 relied on.     2. Processes incidental or ancillary to wrapping are  to be  included in the process of manufacture,  manufacture  in the sense of bringing the goods into existence as these  are known in the market, is not complete until these are wrapped in  wrapping  paper. 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 1019 goods would be commercially inexpedient, article required in that  process,  would  fail within the  expression  ’in  the manufacture of goods’. [1022E-G]     Empire Industries Ltd. & Ors. v. Union of India &  Ors., [1985] 3 SCC 314; J.K. Cotton Spinning and Weaving Mills Co. Ltd.  v. Sales Tax Officer, [1965] 16 STC 563  (SC);  relied on. [1023F]     3. To be able to be marketed or to be marketable, in the light of facts in the appeals, it was an essential  require- ment to be goods, to be wrapped in paper. Anything  required to make the goods marketable, must form part of the manufac- ture and any raw material or any material used for the  same would be component part for the end product.     Collector  of  Central Excise v. Jay  Engineering  Works Ltd., [1989] 39 ELT 169 (SC); referred to.

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JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1589  of 1988 etc.     From the Order dated 6.1.1988 of the Customs Excise  and Gold  (Control) Appellate Tribunal, New Delhi in Appeal  No. 2085 of 1985A in Order No. 5 of 1988-A.     K. Parasaran, Attorney General, A.K. Ganguli, K.  Swamy, P. Parmeswaran and Sushma Suri for the Appellant.     R.N. Bajoria, S.K. Bagaria, Padam Khaita, Vivek Gambhir, Praveen  Kumar, S.K. Bagga and R.K. Mehta for  the  Respond- ents. The Judgment of the Court was delivered by     SABYASACHI  MUKHARJI,  J. These appeals are at  the  in- stance  of  the revenue under section 35-L  of  the  Central Excises  & Salt Act, 1944 (hereinafter referred as  to  ’the Act’). Civil Appeal No. 1589 appeal arises out of Order  No. 5 of 1988-A passed by the Customs, Excise and Gold (Control) Appellate  Tribunal, New Delhi (hereinafter referred  to  as ’the Tribunal’).     The. respondent used to manufacture different  varieties of  printing  paper including wrapping paper  falling  under Item  No.  17(1) of the erstwhile Central Excise  Tariff  in their factory at Bansberia, District Hubli. It is the appel- lant’s case that the respondent had violated the 1020 provisions  of Rule 9(1), Rule 173-F and Rule 173-G  of  the Central  Excise  Rules, 1944 inasmuch as  they  had  removed 4,000 kgs. of wrapping paper under Gate Pass No. A-460 dated 9th February, 1984 and 485 dated 17th February, 1984  valued at  Rs. 13,200 without payment of central excise duty.  Show cause  notice was issued to the respondent as to why  appro- priate duty of excise amounting to Rs.3,600 (basic), Rs. 180 (special) and Rs. 16.50 (cess) totalling Rs.3,796.50  should not be recovered from them on the said quantity at the  rate of  Rs.900  per M.T. and special duty at the rate of  5%  of basic  duty and cess 1/8% on value. Notice to show cause  as to why penalty should not be imposed was also issued.  Cause was  shown by the respondent. It was the contention  of  the respondent  that there was no infringement of  the  impugned provision and no duty was required to be paid on the excisa- ble  goods if it was captively consumed or utilised  in  the same factory as component part of the finished goods falling under  the same tariff item and specified in Rule  56(a)  of the  Central Excise Rules, 1944. It was further stated  that in the instant case, wrapped paper manufactured was captive- ly  consumed and utilised as component part of other  varie- ties  of  paper.  Wrapping, it was  contended,  of  finished product by wrapping paper is a process incidental and ancil- lary to the completion of manufactured product under section 2(f) of the Act and wrapping is used as a component part  of finished  excisable  goods  attracting the  benefit  of  the notification No. 18A-83-CE dated 9th July, 1983. The  Super- intendent (Technical) of Central Excise held otherwise.  The respondent  preferred  an appeal before the  Collector  (Ap- peals),  Calcutta. The respondent contended before the  Col- lector  that they were entitled to the benefit of  notifica- tion and it is well settled law in view of several judgments of  High Court and orders of the Tribunal that  wrapping  of paper  was a process incidental or ancillary to the  comple- tion  of manufacture of paper, as the printing  and  writing paper  could not be sold in the market without being  packed and  wrapped  by wrapping paper.  The  Collector  (Appeals), however, rejected the claim to exemption in respect of  such wrapping  paper in terms of the proviso to Rule 9(1).  There

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was an appeal to the Tribunal. The Tribunal referred to  its own  decision  in the case of Collector of  Central  Excise, Bhubneshwar v. Orient Paper Mills, Brajraj Nagar, [1986] ELT 24  135,  which is the subject matter of  the  other  appeal involved herein, and set aside the order of Collector.     Similar  is  the case in Civil Appeal  Nos.  3760-62  of 1988. In that case, M/s. Orient Paper Mills, Brajraj  Nagar, respondents,  were manufacturers of various types  of  paper and  paper board. They were also the manufacturers of  wrap- ping paper for packing or wrapping of 1021 other  varieties of paper. Under the relevant  notification, the Central Government had exempted duty in respect of goods if  these  were consumed or utilised in a place  where  such goods  were  produced or manufactured  under  relevant  rule either as raw materials or component parts for the  manufac- ture. Therefore, in order to get the benefit of non-levy  of excise  duty on wrapping paper, it had to be established  in both these appeals that the wrapping papers were consumed or utilised  by the respondent assessees as component parts  or raw materials for the finished products.     The Collector (Appeals) in his order observed that  when wrapping  paper  was used for making paper  reams/reals,  it lost  its original identity as wrapping paper and  became  a part and parcel of the paper ream/real and as such available for  the  benefit of amended Rules.  Revenue  disputed  this finding.  It was contended that the wrapping paper  was  not utilised  or consumed in the manufacture of other paper.  On behalf  of the revenue, it was contended before us in  these appeals that in order to be non-dutiable, the wrapping paper must  be either component part or raw material and  must  be consumed  or  utilised in the manufacture  of  the  finished products. Wrapping paper cannot, it was contended, be deemed to  be component part because it did not become an  integral part  of the packed paper. In this connection, on behalf  of the revenue, learned Attorney General drew our attention  to the  fact that reliance had been placed on the  decision  of the  Kerala  High Court in Paul Lazar v.  State  of  Kerala, [1977]  40  STC 437. On behalf of the  respondent,  however, Shri  Bajoria  placed reliance on section 2(f)  of  the  Act which  includes any process incidental or ancillary  to  the completion  of  a manufactured product.  Therefore,  it  was urged  that all processes leading upto the stage  of  goods, when  the  goods  become completed for  marketing  would  be within the process of marketing. In that view of the  situa- tion,  it was urged that wrapping paper was raw-material  or component  part of the wrapped paper. It was  further  urged that  revenue had itself considered the stage of wrapped  or packed  paper as the R.G.I. stage, i.e., the stage at  which goods  should be entered in the statutory production  regis- ter.  ’Manufacture’  in the sense it is used in  the  excise law, was not complete until and unless wrapping was done. It is law now that excise is a duty on manufacture. Manufacture is the process or activity which brings into existence  new, identifiable and distinct goods. Goods have been  understood to  be articles known as identifiable articles known in  the market as goods and marketed or marketable in the market  as such. See in this connection the observations of this  Court in  Bhor  Industries Ltd., Bombay v.  Collector  of  Central Excise Bombay, [1989] 1 SCC 1022 602; South Bihar Sugar Mills Ltd., etc. v. Union of India  & Ors.,  [1968]  3  SCR 21; Union of India v.  Delhi  Cloth  & General Mills Ltd., [1963] Supp. 1 SCR 586 and Union Carbide India  Ltd. v. Union of India and Ors., [1986] 24  ELT  169.

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See  also  the decision of this Court in  Civil  Appeal  No. 2215(NA) of 1988--Collector of Central Excise, Baroda v. M/s Ambalal  Sarabhai  Enterprises, judgment delivered  on  10th August, 1989. The finished goods 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.  In South Bihar Sugar Mills Ltd.’s, case (supra),  it was held by this Court that 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 of the expression 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 as such. The Tribunal found, and there was material for  the Tribunal  to  do so, that the market in  which  articles  in question  were sold were paper packed and wrapped in  paper. Therefore, anything that enters into and forms part of  that process must be deemed to be raw material or component  part of  the end product and must be deemed to have been used  in completion or manufacture of the end product.     This Court in the case of Empire Industries Ltd. &  Ors. v. Union of India & Ors., [1985] 3 SCC 314 has explained the concept of ’process’ in Excise Law. In view of the principle laid  down therein and other relevant  decisions,  processes incidental  or ancillary to wrapping are to be  included  in the  process  of manufacture, manufacture in  the  sense  of bringing the goods into existence as these are known in  the market  is not complete until these are wrapped in  wrapping paper. In J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, [1965] 16 STC 563 (SC), this Court  while construing the expression ’in the manufacture or  processing of  goods for sale’ in the context of Sales Tax Law,  though the concept is different under the Excise Law, has held that 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,  this Court  further emphasised, is so integrally  connected  with the ultimate production of goods that, but for that process, manufacture  or  processing of goods would  be  commercially inexpedient,  articles required in that process, would  fall within  the  expression ’in the manufacture of  goods’.  The Tribunal  on the appraisement of all the relevant  facts  in the light of the principles indicated before, upheld its own decision in the case of Orient Paper Mills. [1984] 18 ELT 88 and in both the appeals accepted 1023 the manufacturer’s contentions and dismissed the appeal. The revenue contends that the Tribunal has erred.     Shri  Bajoria for the respondent, drew our attention  to the decision of this Court in Collector of Central Excise v. Jay  Engineering Works Ltd., [1989] 39 ELT 169  (SC).  There the  respondent was the manufacturer of electric  fans,  and brought into its factory nameplates under Tariff Item 68  of the  erstwhile  Central Excise Tariff. The  nameplates  were affixed  to the fans before marketing them.  The  respondent claimed the benefit of proforma credit in terms of notifica- tion  No.  201/79 dated 4th June, 1979, which  was  for  the purpose of relief on the duty of excise paid on goods  fall- ing under Tariff Item 68, when these goods were used in  the manufacture of other excisable goods. The said  notification stated  that in supersession of the Notification No.  178/77 of  the Central Excise dated 18th June, 1977, all  excisable goods on which duty of excise was leviable and in the  manu- facture  of which any goods falling under Item No.  68  have been  used, were exempt from so much of the duty  of  excise

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leviable  thereon  as was equivalent to the duty  of  excise already  paid  on  the inputs. In that  case,  the  question before  the  Tribunal was whether the  nameplates  could  be considered  as component part of the electric fan, so as  to be eligible for proforma credit under the exemption  notifi- cation.  It was found by the Tribunal that no  electric  fan could be removed from the factory for being marketed without the  nameplate.  The Tribunal also noted in that  case  that even though it could be said that electric fans could  func- tion  without  the nameplates, for actual marketing  of  the fans,  the  affixation of the nameplate  was  considered  an essential requirement.     To  be able to be marketed or to be marketable,  it  ap- pears  to us, in the light of facts in the appeals, that  it was  an essential requirement to be goods, to be wrapped  in paper. Anything required to make the goods marketable,  must form  part  of the manufacture and any raw material  or  any materials used for the same would be component part for  the end  product. In our opinion, the Tribunal was right in  the view  it  took.  There is no ground to  interfere  in  these appeals.     Before  we conclude, we must further observe  that  Shri Bajoria drew our attention to the judgment and order of  the Tribunal  in Appeal No. ED(SB)A. No. 2734-83C (Collector  of Central Excise v. Orient Paper Mills), where the appeal  has been preferred and in the’ petition in appeal to this  court by  the revenue under section 35L(b) of the Act,  where  the question involved was whether the proforma credit under rule 56A of the Central Excise Rules, 1944 in respect of said 1024 packing  and wrapping paper used for packing  admissible  or not  is punishable or not, the revenue has pleaded that  the unit  of paper for sale was ’ream’ duly packed  in  wrapping paper and the real is cured and such real is also wrapped in the  wrapping  paper.  Therefore, from  that  statement,  it further  appears that such ream or real are wholesale  pack- ages  and  are stored in packed condition. If  that  is  the stand of the then it cannot be contended that wrapping paper is not integral part of the manufacture. If that is so,  any material utilised must be component part of the raw material used or consumed in the finished products. Apart from  that, under rule 56A of the Rules, the assessee would be  entitled to the benefit of deduction of the duty to be charged on all wrapping  papers, if any. Nothing contrary to the  aforesaid was indicated to us by the revenue though asked to do so. In the aforesaid view of the matter, this question involved  in these appeals is really of academic interest.     These  appeals, however, have no merit for  the  reasons indicated  above and are accordingly dismissed  without  any order as to costs. G.N.                                      Appeals dismissed. 1025