TMI Blog1985 (7) TMI 224X X X X Extracts X X X X X X X X Extracts X X X X ..... lised for packing other varieties of paper. This contention was rejected by the Assistant Collector of Central Excise, Rourkela. By his Order dated 21-11-1983, the Assistant Collector informed the Respondents that since wrapping paper was used by them neither as raw material nor as component part in the manufacture of (other varieties) of paper but as packing material, it could not be used without payment of duty for packing reams of paper in terms of Rules 9 and 49. The matter was pursued by the Respondents in appeal. In his Order, the Collector (Appeals) observed that when wrapping paper was used for making paper reams/reels, it lost its original identity as wrapping paper and because a part and parcel of the paper ream/reel. Holding that such wrapping paper was eligible for the benefit of the amended Rules, he allowed the appeal. It is this Order that has now been challenged before us in these proceedings. 2. In the appeal, it is contended that the Collector (Appeals) had erroneously held that wrapping paper is a component of the paper packed in it, that he ought to have held that wrapping paper is not consumed or utilised either as raw material or as component part in the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction register. The finished goods herein 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. Shri Bajoria then relied upon this Tribunal s decision in Collector of Central Excise, Indore v. Orient Paper Industries, Amlai-1984 (18) E.L.T. 88, wherein, it had been held, in the context of Rule 56A, that packing was a process of manufacture. The principle applied in relation to Rules 9 and 49 also. He also cited the following decisions in support of his contention - (i) Gujarat High Court judgment in Mercury Pharmaceuticals Industries v. State of Gujarat - (1979)43 S.T.C. 301; (ii) Gujarat High Court judgment in Ahmedabad Manufacturing Calico Printing Ltd. Ors. v. Union of India - 1982 E.L.T. 821; (iii) Gujarat High Court judgment in Union of India v. Tata Chemicals, Mithapur - l983 E.L.T. 776; (iv) This Tribunal s decision in Collector of Central Excise, Calcutta v. Kanoria Jute Mills, Calcutta - 1984 (17) E.L.T. 455. 5. In her rejoinder, Smt. Zutshi, submitted that it was not as if Section 2(f) of the Act extended its ambit to processes connected with readying the finis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the manufacture of any other commodity which- (i) is excisable goods specified by the Central Government by notification under sub-rule (1) of rule 56A, (ii) falls under the same Item No. in the First Schedule to the Act as such goods so consumed or utilised fall under, and (iii) is neither exempt from the whole of the duty of excise leviable thereon nor is chargeable to nil rate of duty." In rule 49 of the said rules, after sub-rule (3) and before the Explanation, the following sub-rule shall be inserted, namely:- (4) Notwithstanding anything contained in sub-rule (1) payment of duty shall not be required in respect of excisable goods made in a factory if they are consumed or utilised in the same factory either as raw material or as component parts for the manufacture of any other commodity which- (i) is excisable goods specified by the Central Government by notification under sub-rule (1) of rule 56A, (ii) falls under the same Item No. in the First Schedule to the Act as such excisable goods so consumed or utilised fall under, and (iii) is neither exempt from the whole of the duty of excise leviable thereon nor is chargeable to nil rate of duty." Thus, as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sorting, counting and lastly, packing . At page 242, under the heading Paper Trade Customs, as adopted by the Indian Paper Makers Association , the same book says - Wrappers. The chargeable weight shall include weight of necessary Ream and Reel Wrappers (not Bale wrappers) string and centres (excepting those of Wood or Metal)". At page 255, under the heading General Trade Rules - adopted by the Finish, Norwegian and Swedish Paper Makers Associations and agreed upon by the Swedish Transmarine Export Union and the Norwegian Overseas Exporters Association it is said - The actual weight of paper in sheets is the net weight of the paper plus the weight of ream wrappers. The actual weight of paper in reels is the net weight of the paper plus the weight of the reel wrappers, reel centres, plugs and strings. The actual weight of boards is the net weight plus the weight of inside wrappers and strings. At page 261 - under British Paper Trade Customs , it says - Wrappers - the chargeable weight shall include weight of necessary ream and reel wrappers (not bale wrappers), string and centres (excepting those of wood and/or metal) and wooden plugs. Now, turning to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he dispute revolved round Rule 56A which talks of use of the duty-paid goods as material or component part in the manufacture of the finishing product. But there can be little doubt that the packing or wrapping paper has been used in the manufacture of excisable goods - printing or writing paper, for example, as we shall presently show. 13. In this context, it is well to remember that manufacture in Central Excise terminology [Sec. 2 (f) of the Act] takes in not merely the manufacture of the goods specified in the First Schedule to the Act as soon as they come into existence as an article recognisable by the specified description but also that article subjected to incidental or ancillary processes for its completion. In the present case, paper is the product specified in the First Schedule. It is subjected to certain finishing processes which are in the nature of incidental or ancillary processes. One of the processes, according to the practice of the paper industry and trade, is packing of the paper. The finished packed paper is the completed product. All processes resulting in this product are thus comprehended in the ambit of the term manufacture in Section 2(f) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the budget) could be regarded as a process incidental or ancillary to the completion of the manufactured product. The expression completion of the manufactured product , said the Court, meant subjection of a product which, though answering to the description of the name by which it is sold in the market, was yet in a crude form, to processes including those meant for purification, colouring and otherwise beautifying the end-product. Such processes must be limited to the process of manufacture properly so called. The Court held that the mere transfer of the end-product into containers which could be handled conveniently, the sealing of such containers with the object of preservation of the end-product and ensuring that they would not be subjected to adulteration easily and of putting marks or labels on the containers with the object of identifying the end-product and enhancing the goodwill of the manufacturers would not form part of manufacture. In the above case, one of the factors which apparently influenced the Court in coming to its conclusion was the view it took that the fact that Clause 13 of the Fertiliser (Control) Order, 1957 enjoined a particular type of packing for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without the match box with its sides painted with the requisite composition, matches could not be ignited, the Court held that the process of packing of matches in such boxes was clearly a process incidental or ancillary to the completion of the manufacture of matches so as to fall within the purview of manufacture in Section 2(f) of the Act. This decision does not provide a direct answer to our problem. Apparently, packing or wrapping paper serves merely the purpose of packing or wrapping the contents of the ream and imparts no functional property to the packed paper. 17. In Shiva Glass Works Co. Ors. v. U.O.I. Ors - 1982 E.L.T. 365 (again cited by Senior Departmental Representative, the question was whether packing and transportation costs were includible in the assessable value under Section 4 of the Act. The Court held it was not. This decision is again not of direct help to resolve the present problem. It may be noted also that the Supreme Court has since ruled that the cost of primary packing is includible in the assessable value of goods under Section 4 of the Act. 18. In Paul Lazar v. State of Kerala - (1977) 40 STC 437, the question before the Kerala High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed for the normal minimum packing is not used up in the process, it would not be correct to say that it has not been used in an incidental or ancillary process to complete the manufactured product by turning it into marketable goods. It is true, as the Senior Departmental Representative has pointed out, that the reference in Rule 56A is to the use of the goods as material or component parts for the manufacture of specified excisable goods whereas the reference in the amended Rules 9 and 49 is to the use of excisable goods in the manufacture of other goods as raw material or component part . But, this slight difference in the words used, according to us, does not make for any significant difference in the import of the words. The ratio of the above-cited decision, therefore, applies to the facts of the present case. 19. The Counsel for Orient Paper Mills then cited a few other authorities in support of his contentions. In Mercury Pharmaceuticals Industries v. State of Gujarat - (l979) 43 STC 301, the Gujarat High Court was concerned with the question whether glass ampoules could be said to have been used in the manufacture of injectable liquid medicine. The Sales Tax Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich may facilitate the activity of manufacture in that expended sense could be classified as consumable stores. Goods such as those required for ornamental packaging of the manufactured goods like the attractive boxes in which sometimes they are packed so as to make them easily saleable in the market cannot ex facie be called consumable stores. The Court further observed that no straight jacket formula can, however, he laid down, as to which article or material can be said to be required in a process or activity, which though not strictly a manufacturing activity itself, is such an integral part thereof that in its absence the manufacturing activity might not be commercially expedient. On the basis that that manufacture of injectables is incomplete without the liquid substance being poured into and sealed in glass ampoules, the Gujarat High Court held that glass ampoules must be considered to have been used in the manufacture of injectables. What is sold is the injectable liquid contained in glass ampoules. 20. The above decision, though given in the context of the Sales Tax Law, supports the view taken by the Tribunal in the Kanoria Jute Mills case (Supra) which was followed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess to complete the manufactured product, the view taken also by the Tribunal in the Kanoria Jute Mills case and the Orient Paper and Industries Ltd. case. 24. We are aware of two decisions of the Tribunal which are not in accord with the view expressed in the previous paragraph. They are the decisions in the Hindustan Lever Ltd. case-1985 (19) E.L.T. 96 and Order No. C-279/85 dated 28-3-1985 in the Collector of Central Excise, Calcutta v. H.M.M. Ltd., Calcutta in Appeal No. ED (SB) (T) A. No. 1512/85. In the H.M.M. Limited case (Supra), the question was whether screw caps (falling under item 68, CET) used on bottles of Horlicks (a product falling under item 1B, CET) were component parts used in the manufacture of the finished products. The notification that called for discussion and interpretation was 201/79. The view (the decision was by a majority of 2 to 1) was that a true raw material or component is one whose absene will substract from the quality/character of the ultimate product-the product that is manufactured lacking in smaller or larger measure an essential part-whether it is colour, flavour, hardness, softness, odour or whatever was to be contributed by the missin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the completion of the manufactured goods i.e. paper. The expression manufacture as used in Section 2(f) of the Central Excises and Salt Act, 1944 requires that the process incidental or ancillary to the completion of a manufactured product must have some direct relation to the manufacture of the finished product. The transformation which is necessary in order to satisfy the test of manufacture must be of a corporeal and of substantial nature. Wrapping or packing other varieties of paper with the wrapping paper is for the sake of more convenient distribution of the manufactured goods and it is on account of this fact that Andhra Pradesh High Court in the case of Bhadrachalam Paper Board Ltd. v. The Collector of Central Excise, Hyderabad [1984 (18) E.L.T. 229 (A.P.) = 1985 ECC Vol. 4-318] and Karnataka High Court in the case of West Coast Paper Mills Ltd. v. Collector of Central Excise [1985 (20) E.L.T. 276 (Ker.) = 1985 ECC Vol. 4-324] allowed the benefit of Rule 56-A of the Central Excise Rules which is meant for allowing rebate in respect of the duty paid product when that product has been utilised for the more convenient distribution of finished product. Division Bench of And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India (1978 E.L.T. J 673) that packing of Biscuits is a process incidental and ancillary to the manufacture of biscuits. Packing of P or P medicines and packing of match into match box has also been held to be a process of manufacture, but there is not a single decision of any High Court or of Supreme Court indicating that packing/wrapping other varieties of paper/ board is a process of manufacture or it is incidental or ancillary to the manufacture of the finished product. 27. Judgments relied upon in the majority decision are not helpful to solve the problem before us. 28. The facts in the case of Ramnugar Cane and Sugar Company Ltd., Jaipur and Others v. Union of India and Others (1983 E.L.T. 6) are quite different and are not applicable to the facts of the case before us. In that case the goods involved were vegetable products classifiable under T.I. 13 of C.E.T. and it was held that it being a vegetable article should be fit for human consumption so canning of such vegetable product into containers of metal or polythene is a process incidental or ancillary to the completion of the vegetable product. 29. The decision of the Tribunal in the case of Collector of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E.L.T. 776). The facts of that case are also not relevant to the present case before us. The issue involved in that case was whether the cost of packing and branding of Soda Ash was includible in the assessable value under Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944 and it was held by the Hon ble Judges that the cost of packing material and charges for branding, packing and stitching on various account of soda ash falling under Item 14-A of the Central Excise Tariff was includible for assessable value under Section 4 of the Central Excises and Salt Act, 1944. In that regard the Hon ble Judges observed : Since the expenses of packing, branding and stitching of goods are incurred in order to put an article into marketable condition at the factory gate, therefore, it is inconceivable that an activity of packing, branding and stitching of the goods can be said to be an activity not connected with the manufacture as envisaged by Section 2(f) of the Central Excises and Salt Act, 1944. Nowhere it has been suggested that packing or wrapping of other varieties of paper is a process incidental or ancillary to the manufacture of finished product. Moreover Hon ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (excepting that of wood or metal) and side discs of wrapper/board. Nowhere it suggests that wrapping/packing other varieties of paper is a process incidental or ancillary to the manufacture of the finished product i.e. other varieties of paper/board. 38. In Paper Trade Manual also it has been mentioned that the chargeable weight shall include weight of necessary Ream and Reel wrappers (not Bale wrappers), Strings and centres (excepting those of wood or metal). This is also for the purpose of including the weight of wrapping paper in the assessable value of the contents wrapped in it. All these Journals and Directories talk about inclusion of the weight of the wrappers in the assessable value of the wrapped contents. Nowhere it has been laid down in these Journals and Directories that packing of other varieties of paper is a process of manufacture. Packing of other varieties of paper is done for the convenient distribution of the finished product and packing is a post-manufacturing act as has been laid down by the Andhra Pradesh High Court in the case of Andhra Pradesh Paper Mills Ltd., Rajahmundry (Supra). 39. The decision of the Supreme Court in South Bihar Sugar Mills Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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