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PETITIONER: STAR PAPER MILLS LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE, MEERUT

DATE OF JUDGMENT22/08/1989

BENCH: OJHA, N.D. (J) BENCH: OJHA, N.D. (J) RANGNATHAN, S. VERMA, JAGDISH SARAN (J)

CITATION:  1989 AIR 2066            1989 SCR  (3) 892  1989 SCC  (4) 724        JT 1989 (3)   460  1989 SCALE  (2)337

ACT:     Central Excises and Salt Act, 1944: Section 2(f), 3  and 35L-’Manufacture’ includes any process incidental or  ancil- lary  to  the completion of  manufactured  products--Whether paper core is used as a componentpart in the manufacture  of paper rolls.

HEADNOTE:     The  appellant company carried on the business of  manu- facture and sale of paper. It claimed exemption from payment of excise on paper core which, accordingly to the appellant, was used in the manufacture of paper. The case of the appel- lant  was  that the paper cores used in the  manufacture  of paper  constituted "component parts" within the  meaning  of Notification  No. 201/79 dated June 4, 1979 as amended.  The case of the respondent on the other hand was that the  paper cores were really used by the appellant as packing  material after the paper had already been manufactured for taking  it to  the market and did not constitute "component  parts"  of paper. The Assistant Collector, Central Excise, rejected the claim  of the appellant but its claim on appeal  as  regards exemption from duty on paper cores was allowed by the Appel- late  Collector.  The  Customs, Excise  and  Gold  (Control) Appellate  Tribunal however allowed the appeal of the  Reve- nue. Partly allowing the appeal, this Court,     HELD: 1. Even though the term "component parts" has  not been  defined either by the Act or by the Notification,  the term  "manufacture" has been defined in section 2(f) of  the Central Excises and Salt Act, 1944. This definition  contem- plates  that "manufacture" includes any process,  incidental or  ancillary to the completion of a  manufactured  product. [895D]     2. In the absence of any definition of the term  "compo- nent  partS"  it is permissible to refer to  the  dictionary meaning of the word "component". Accordingly to the diction- ary  meaning, the word "component" inter alia means  a  con- stituent part. [895F] 3.  If  the use of paper core is necessary in  "any  process incidental

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893 or ancillary to the completion of" paper as marketable goods and  it  would consequently be commercially  inexpedient  to sell paper without the use of paper core, it would certainly be  a constituent part of paper and would thus  fall  within the purview of the term "component parts" used in the  Noti- fication. [896F]     M/s  J.K. Cotton Spinning & Weaving Mills v.  Sales  Tax Officer,  Nagpur and another, [1965] 1 S.C.R. Page  900  and Bhor Industries Ltd. Bombay v. Collector of Central  Excise, Bombay, [1989] 1 SCC 602, referred to.     4. Paper is made (1) in the form of rolls and (2) in the form  of sheets and the paper which is sold in the  form  of sheets is cut in desired sizes. Even though rewinding has to be  done both for manufacturing roll paper as well as  sheet paper, use of paper core in rewinding is necessary only with regard  to manufacture of roll paper, inasmuch as it is  the paper  as  rolled on paper core which is  delivered  to  the customer  in the form of rolls and unless in the process  of rewinding  paper core is used, paper cannot come out of  the machine in rolls so as to be sold as a marketable  commodity known as roll paper. The use of paper core, however, is  not necessary for the manufacture of paper sheets. [897E,  899G- 900A]     5.  Use of paper core would come within the  purview  of the  expression "any process incidental or ancillary to  the completion of manufactured products" used in the  definition of the term "manufacture" in section 2(f) of the Act and for the same reason paper core would also be constituent part of paper and would thus fail within the term "component  parts" used  in the Notification in so far as manufacture of  paper in  rolls is concerned. Paper core, however, cannot be  said to  be used in the manufacture of paper in sheets as  compo- nent parts. [900E-F]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 3474  of 1988.     From  the  Judgment  and Order dated  10.5.1988  of  the Customs  Excise and Gold (Control) Appellate  Tribunal,  New Delhi in Appeal No. E/62/85-C.     Harish N. Salve, Mrs. M. Sud, Ms. Aruna Jain and Praveen Kumar for the Appellant.     B.  Dutta, Additional Solicitor General, T.V.S.N.  Chari and P. Parmeshwaran for the Respondent. 894 The Judgment of the Court was delivered by OJHA,  J.   This  appeal under section 35L  of  the  Central Excises  and Salt Act, 1944 (hereinafter referred to as  the Act)  has  been preferred against the order dated  June  28, 1988  of  the Customs Excise and  Gold  (Control)  Appellate Tribunal,  New Delhi. The appellant carries on the  business of  manufacture and sale of paper. On the plea that  in  the manufacture of paper the appellant uses paper cores,  exemp- tion from payment of excise on such paper cores was  claimed by  it on the basis of a Notification No. 201/79 dated  June 4, 1979 as amended by Notification No. 105/82 dated February 28, 1982 (hereinafter referred to as the Notification)-  The Assistant  Collector, Central Excise rejected the  claim  of the  appellant but its claim on appeal as regards  exemption from  duty on paper cores was allowed by the Appellate  Col- lector.  Aggrieved  by that order the Collector  of  Central Excise,  Meerut,  preferred the appeal in  which  the  order

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which  is  the  subjectmatter of  the  present  appeal,  was passed.     The  Notification  on the basis of which  exemption  was claimed  by the appellant inter alia provides: "the  Central Government  hereby exempts all excisable goods  (hereinafter referred  as "the said goods"), on which the duty of  excise is leviable and in the manufacture of which any goods  fall- ing  under Item No. 68 of the First Schedule to the  Central Excises  and Salt Act, 1944 (1 of 1944) have been  used,  as raw  materials or component parts (hereinafter  referred  as "the  inputs"), from so much of the duty of excise  leviable thereon as is equivalent to the duty of excise already  paid on the inputs."     As  is apparent even from the order of the Tribunal  the details  of  the use of paper cores in  the  manufacture  of paper  as set out by the appellant on the basis whereof  the exemption was claimed by it read as hereunder:               "Paper  cores: Paper cores are used  in  paper               mill  on re-winding and cutting machines.  The               full  width  of paper  manufactured  on  paper               machine is cut in different sizes of reel  and               sheets according to customer’s requirement. To               cut  the parent roll of paper manufactured  on               paper  machine which is wound  on  steel-shell               into small reels suitable for cutter  machine,               the paper is re-wound on ’paper cores’  fitted               on  a shaft on re-winding machine.  The  reels               thus  re-winded on paper cores can  be  easily               cut  into  sheets on cutter machine  into  re-               quired size or sent to customers as               895               reels as such, there is no other use of  paper               cores  except  their  use  in  re-winding  and               cutting machine in paper mills". On the basis of the details aforesaid the case of the appel- lant was that the paper cores constituted "component  parts" within  the meaning of the Notification entitling it to  the exemption granted by the said Notification. The case of  the respondent  on  the  other hand was that  paper  cores  were really  used by the appellant as packing material after  the paper  had  already been manufactured for taking it  to  the market  and  did not constitute component  parts  of  paper. Before  dealing with respective submissions made by  learned counsel for the parties it may be pointed out that it is not in dispute that the excise duty was payable at the  relevant time separately both on paper and paper core under different tariff  items  of the First Schedule to the Act and  it  has also not been disputed by the respondent that if paper  core fell  under the term "component parts", the appellant  would be  entitled to the exemption as claimed by it  and  contem- plated by the Notification. The short question which, there- fore,  arises  for consideration in the  instant  appeal  is whether  paper core is used in the manufacture of  paper  as component  part. Even though the term "component parts"  has not  been defined either by the Act or by  the  Notification the  term "manufacture" has been defined in section 2(f)  of the  Act.  This  definition  inter  alia  contemplates  that "manufacture" includes any process, incidental or  ancillary to  the completion of a manufactured product. Section  3  of the Act which is the charging section contemplates levy  and collection  of duty of excise on all "excisable goods".  The First  Schedule  to the Act specifies  the  excisable  goods under various tariff items. In the absence of any definition of the term "component parts" it is permissible to refer  to the dictionary meaning of the word "component". According to

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the Webster Comprehensive Dictionary, International  Edition the  word "component" inter alia means a constitutent  part. The term "manufacture", as already indicated above,  accord- ing to its definition in the Act includes any process  inci- dental  or  ancillary  to  the  completion  of  manufactured product. In this context what has to be considered is wheth- er  in  the manufacture of paper, paper core is  used  as  a constituent part and is necessary to be used in "any process incidental or ancillary to the completion of a  manufactured product"--namely paper in the instant case.     In M/s J.K. Cotton Spinning & Weaving Mills Co. Ltd.  v. Sales Tax Officer, Kanpur and Another, [1965] 1 S.C.R.  Page 900 while dealing with the expression "in the manufacture of goods" used in section 8(3)(b) of the Central Sales Tax Act, 1965 and Rule 13 framed 896 under  the Act it was held that the said  expression  "would 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." It was further  held: "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  theoreti- cally possible, be commercially inexpedient, goods  intended for  use in the process or activity as specified in Rule  13 will qualify for special treatment."                                     (Emphasis supplied)     In Bhor Industries Ltd., Bombay v. Collector of  Central Excise, Bombay, [1989] 1 S.C.C. Page 602 while dealing  with excise duty it was held:               "Therefore,  the first principle that  emerges               is  that excise was a duty on goods as  speci-               fied in the schedule. In order to be goods  an               article must be something which can ordinarily               come to the market and is brought for sale and               must  be known to the market as  such.  There-               fore, the marketability in the sense that  the               goods  are known in the market or are  capable               of  being sold and purchased in the market  is               essential."     It  is in this background that the use of paper core  in the process of manufacture of paper has to be considered. If it is found that the use of paper core is necessary in  "any process incidental or ancillary to the completion of"  paper as marketable goods and it would consequently be commercial- ly inexpedient to sell paper without the use of paper  core, it would certainly be a constituent part of paper and  would thus  fall within the purview of the term "component  parts" used  in the Notification. This takes us to the  process  of manufacture of paper. The process of paper manufacture is to be  found  at pages 230 to 235 of Part 17  of  Encyclopaedia Britannica. The process of paper manufacture by paper making machine  is contained at pages 232 onwards. After  referring to the various stages of manufacture of paper it is stated:               "After  the drying comes the  calendering  and               there  are usually two or more sets or  stacks               of  calendering rolls, according to the  grade               of  surface required. These calenders  consist               of  vertical  stacks of  chilled  iron  rolls,               generally five               897

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             in  a stack, which revolve on one another  and               some of which are bored for heating by  steam;               pressure  is applied to them at will,  by  ad-               justing  levers  at  the top  of  each  stack.               Finally  the  paper passes to  cooling  rolls,               where  the paper can be cooled by water  spray               if necessary and is then wound on to a reel."               Thereafter at page 234 it is stated:               "Paper,  though  made in the roll on  the  ma-               chine, is usually sold in the form of  sheets.               A number of reels of paper, on their spindles,               mounted  in  a stack, are fed, as  a  pile  of               webs, between two rollers: a series of revolv-               ing  knives slits them longitudinally as  they               emerge  from  between the rollers,  in  effect               into  strips which are cut again  transversely               by  the  scissors action of  a  movable  upper               knife,  working periodically against  a  lower               fixed  knife.  The cut sheets fall on  ’to  an               endless felt for stacking."               At the bottom of the same page it is stated:               "Paper  is sold in sheets of  different  sizes               and is made up into reams containing from  480               to  5 16 sheets in Great Britain, 500  in  the               United  States;  these  sizes  correspond   to               different  trade  names,  as  foolscap,  demy,               royal, etc."     It  is thus apparent that paper is made (1) in the  form of  rolls and (2) in the form of sheets and the paper  which is  sold  in the form of sheets is cut in desired  sizes  by taking recourse to the process referred to above.     Chapter XIII of the Story of Papermaking by Edwin Suter- meister 1954 Edition contains the process known as calender- ing and finishing. At pages 183 and 184 it is stated:               "The  paper from the machine, no  matter  what               its finish, goes next to the reels which  form               large rolls the full width of the machine. The               reels  are so arranged that when one  cylinder               is  full another can take its place while  the               paper  machine  is running  continuously.  The               full cylinder is then rewound at higher  speed               so  that it may again be ready when needed  by               the  paper machine. On rewinding the paper  is               trimmed  on the edges and if desired  is  slit               into any number               898               of  narrower rolls  ....  The cores  on  which               the paper is wound will depend to some  extent               on  what happens to the paper next. If  it  is               delivered to the customer in rolls as it comes               from  the rewinder the cores are apt to be  of               heavy  board  stock,  wound and  pasted  on  a               mandrel: if the rolls of paper pass to another               part  of the same plant for further  treatment               the cores are likely to be of iron pipe, which               can be used over and over."               With  regard  to the use of roll paper  it  is               stated at page 185:               "Roll paper is very widely used in many  lines               of  work.  Newspapers  are  printed,  cut  and               folded  direct from rolls, each of  which  may               weigh 1400 pounds or more; much craft paper is               sold  to  be used directly from  the  roll  in               wrapping  goods, while  tremendous  quantities               are  used  to feed the machines  making  paper

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             bags.  Paper  for  the  conventional   coating               operations  is delivered to the coating  plant               in  roll form; and considerable quantities  of               white  paper  are  printed  continuously  from               rolls. These are only a few of the more  obvi-               ous uses of roll paper.               All  roll  paper must reach  the  consumer  in               perfect condition if it is to be of the great-               est use. It must be carefully wrapped and  the               ends of the rolls protected by stout heads  to               keep edges of the paper from being injured."                   As  regards paper which is to be  used  in               sheet form it is stated at pages 190 and 191:               "Paper  which is to be used in sheet form  may               be  so prepared by passing directly  from  the               reel  stand of the paper machine to a  cutter,               layboy  and  sheet counter in  line  with  the               machine  and  attended by  the  paper  machine               crew.  This system is used for  coarse  papers               which do not need sorting, and it is common on               machines  which run off pulp for  chemical  or               papermaking use. As a more common  alternative               the  rolls go to independent cutters from  the               rewinders or the supercalenders, according  to               the  finish  the final paper is to  have.  The               rolls  are  placed on reel  stands  which  are               constructed to hold up to twelve or more.  Any               one of these may be cut singly, or all may  be               cut  together as desired. From the  reels  the               paper passes through a cutter               899               which  has a knife on a revolving drum  acting               in  a  shearing  manner against  a  fixed  bed               knife.  Each time the drum revolves the  knife               cuts  a sheet from the web of paper being  fed               continuously at constant speed, and the length               of the sheet cut is regulated by altering  the               speed  at  which  the  revolving  knife  tums.               Cutters  are also designed to split the  paper               into the right width of roll, and to trim  the               edges,  if this has not already been  done  at               the rewinder.                        The paper leaves the cutter on  trav-               eling  tapes and goes to a layboy which  auto-               matically jogs the sheets into uniform  piles.               These layboys take the place of operatives who               formerly did the same work, and enable  higher               cutter speeds to be employed."                   In  the Dictionary of Paper  (Fourth  Edi-               tion, published under the Auspices and  Direc-               tion  of the American Paper  Institute,  Inc.)               the  purpose  of rewinding is stated  thus  at               page 346:               "Rewinding: The operation of winding the paper               accumulated  on  the reel of a  paper  machine               onto  a core to a tightly wound roll  suitable               for  shipping or for use in the  finishing  or               converting   department.   During   rewinding,               defective paper in the reel is usually removed               and  breaks  in  the  sheet  are  spliced  and               marked."                   In Pulp & Paper Science & Technology (Vol.               2,  edited by C. Earl Libby) it is  stated  at               page 271.               "The  prime purpose of the  paper-machine  re-

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             winder is to split the sheet into the required               widths,  to provide rolls of paper having  the               correct diameter, and to produce firm, tightly               wound rolls of paper that can be unwound  into               highspeed  printing presses with  few  tension               problems."     What  becomes  obvious from the  processes  referred  to above,  therefore, is that even though rewinding has  to  be done  both  for manufacturing roll paper as  well  as  sheet paper, use of paper core in rewinding is necessary only with regard  to manufacture of roll paper, inasmuch as it is  the paper  as  rolled on paper core which is  delivered  to  the customer  in the form of rolls and unless in the process  of rewinding  paper core is used, paper cannot come cut of  the machine in rolls so as to be sold as a marketable  commodity known as roll paper. The use of 900 paper  core, however, is not ’necessary for the  manufacture of  paper  sheets.  As stated at page 184 of  the  Story  of Papermaking  (supra), the core on which the paper  is  wound will  depend  to some extent on what happens  to  the  paper next.  If  it is delivered to the customer in  rolls  as  it comes from the rewinder the core is apt to be of heavy board stock wound and pasted at mandrel. If, however, the rolls of paper  are not be delivered to the customer in the  form  of rolls as such and the rolls of paper are to pass to  another part  of  the same plant for further treatment the  core  is likely  to be of iron pipe which can be used over and  over. Consequently core of iron pipe is more likely to be used  in the  normal course for further treatment in the plant  which will  include the process of cutting the paper into  sheets. Inasmuch as core of iron pipe can be used over and over,  it cannot  be said that the use of paper core is necessary  for the  rewinding of paper meant to be cut into sheets. It  may be  that for the sake of convenience paper core may be  used by some manufacturer even for rewinding of such paper as  is meant to be cut in sheets but in that case it would at  best provide  more convenience to such manufacturer but for  that reason  paper  core will not become a constitutent  part  of paper manufactured in sheets.     In  view  of  the foregoing discussion, we  are  of  the opinion that use of paper core is necessary for rewinding of paper if it is delivered to the customer in rolls and  would come  within  the  purview of the  expression  "any  process incidental or ancillary to the completion of a  manufactured product" used in the definition of the term "manufacture" in section  2(f) of the Act and for the same reason paper  core would also be constituent part of paper and would thus  fall within  the term "component parts" used in the  Notification in  so  far as manufacture of paper in rolls  is  concerned. Paper core, however, cannot be said to be used in the  manu- facture  of paper in sheets as component part. We  are  con- scious  that the relevant tariff item uses the word  "paper" but since paper in rolls and paper in sheets are nothing but different  forms of paper, both of them would  be  excisable goods as paper under the relevant tariff item.     In  the result, this appeal succeeds and is  allowed  to this extent that it is held that in the manufacture of paper rolls  delivered  to the customers for use  as  roll  paper, paper  core  is used as component part. The  orders  of  the authorities  below are modified to this extent. In the  cir- cumstances  of  the case, however, the  parties  shall  bear their own costs. R.S.S.                                  Appeal allowed. 901

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