ALL PROCESS WOULD NOT AMOUNT TO MANUFACTURING UNDER CENTRAL EXCISE ACT, 1944

[Mr. M. GOVINDARAJAN]

The term ‘manufacturing’ is defined in Section 2(f) of the Central Excise Act, 1944 (‘Act’ for short) which includes any process enumerated therein. However all the process would not amount to manufacturing under this Act. The term ‘process’ is not defined under the Act. Therefore it should be understood in a common parlance.  The process may be a flow, progress, movement, transformation, change continuation, a link, an action, happening etc., Any process which produces distinct and identifiable commodity and renders marketable value then it can be said as manufacturing process.   A commodity whether manufactured or not necessarily depends on the context and the factors of production/process of the commodity.

In ‘Mafatlal Industries Limited V. Nadiad Nagar Palika’ – [2000 -TMI - 71287 - SUPREME COURT OF INDIA] the Supreme Court observed that cutting 100 meters cloth into small pieces does not bring any different commercial commodity and does not amount to manufacture.

In ‘Collector of Central Excise V. Technoweld Industries’ – [2003 -TMI - 46589 - SUPREME COURT OF INDIA] the Supreme Court has dealt with the issue that drawing wires from wire rods is manufacture or not and it is held that both the products being wires are not considered exciable merely because they are covered by two separate entries in the tariff.

In ‘Parle Products Private Limited V. Union of India’ – [1991 -TMI - 43023 - HIGH COURT OF JUDICATURE AT BOMBAY] the Division Bench of the Bombay High Court has dealt with a issue of use of aluminium foil with printed paper for packing whether amounts to manufacturing.   The Court held that the Department was clearly in error in recovering the duty from the company.   Backing of aluminium foil with printer paper only to make it more attractive for packing and not resulting in any distinct and different articles does not amount to manufacture.

In ‘Commissioner of Central Excise, New Delhi – I V. S.R. Tissues Private Limited’ – [2005 -TMI - 47380 - SUPREME COURT OF INDIA] the Supreme Court has observed that slitting/cutting of jumbo rolls of plain tissue paper/aluminium foil is not treated as a manufacture.  Mere mention of the product in tariff heading does not necessarily imply that the said product was obtained by process of manufacture.

In ‘Commissioner of Central Excise, Mumbai – V V. GTC Industries Limited’ – [2011 -TMI - 202904 - BOMBAY HIGH COURT] the assessee used duty paid paper back aluminium foil in the roll form for the purpose of packing cigarettes.   In the process the cigarette roll is cut to size and got embossed with word ‘PULL’ and is wrapped in the cigarette. As per notification dated 13.05.1988 the duty paid aluminium foil when cut and embossed, the resultant product was exempted from payment of excise duty.   However, the government withdrew the said notification by a Notification No.44/94, dated 01.03.1994.   Thereupon, the respondent filed classification list 9/94/Aluminium foil dated 26.4.1994, under protest classifying the product as aluminium foil cut to shape under Tariff Heading 7606.30 and 7607.20.  The assessee, during the pendency of the approval of the classification list paid duty on cut to shape/embossed aluminium foil at 20% as per tariff heading 7607.30 and 7607.20.   The Assistant Commissioner held that the aluminium foil cut to shape/embossed which is used for packing cigarettes does not amount to manufacture and accordingly returned the classification list.  The Department filed appeal before the Commissioner of Central Excise (Appeal) against this order.   The appeal was dismissed.  The CESTAT also dismissed the appeal filed by the Department against the order of the Commissioner of Central Excise (Appeals).   Therefore the present appeal before High Court was filed by the Department.

The Department, before the High Court, submitted the following arguments:

• The process of embossing itself is manufacturing and the product that emerges on embossing is a new product;
• Aluminium foil brought in bulk by the assessee on payment of excise duty is also subjected to the process of cutting it into small pieces which changes the form and nature of the foil and hence the said process amounts to manufacturing;
• Therefore the order passed by the CESTAT is liable to be set aside.

The assessee submitted the following arguments;

• The assessee purchases a roll of aluminium foil with backing of white paper and the roll is cut in pieces and on one side of each piece word ‘PULL’ is embossed in which the cigarettes are filed in with the help of machine and Aluminium paper back foil holding cigarettes is directly placed in cigarette packing machine;
• The cigarettes are filled in aluminium foil in such a way that word ‘PULL’ comes on the upper side of the packet;
• The aluminium foil backed with a white paper purchased by the assessee is itself a excisable commodity.   When the paper foil is cut to the size it does not change its nature and form and embossing word ‘PULL’ also does not add any different character or value to the said aluminium foil;
• Therefore aluminium foil used in the cigarettes packet is not dutiable commodity;
• A foil is a barrier for moisture and so it is used to protect the cigarettes from moisture.

After hearing both sides the High Court observed that a roll of aluminium foil backed with white thin paper is purchased by the assessee for the purpose of packing their product. In the roll there is a continuous foil, therefore, it is cut to the size as per requirement of the capacity of the packet in which the cigarettes are to be packed. Thus the cuts are given horizontally and separate pieces of the foil are made. As soon as the separate piece of the foil is made, a word ‘PULL” is embossed on it. Therefore fixed number of cigarettes are wrapped in the foil and the said wrapped cigarettes are inserted in the cigarettes packet.  An aluminium foil being a resistant to moisture is used to make it convenient for the use and to know from which side a cigarette can be taken out.   Thus it shows that cutting and embossing do not transform aluminium foil into a distinct and identifiable commodity.  It does not change the nature and substance of the aluminium foil.   It does not render any marketable value to that piece of paper. Cutting to the size and embossing is only for making it usable for the purpose of packing.

The High Court, therefore, held that the view taken by the Assistant Collector of Central Excise as also the CESTAT that embossing on foil and cutting to shape and size during the process of packing of cigarettes cannot be faulted.  Aluminium foil is cut to size in a continuous process and does not emerge as a new commodity and hence is not exciable.