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2015 (7) TMI 895 - SUPREME COURT

2015 (7) TMI 895 - SUPREME COURT - 2015 (322) E.L.T. 153 (SC) - Classification - Whether pulp of waste gunny bags/jute waste is to be treated as the pulp made from the material 'rags' - Benefit of Notification No. 22/94-CE dated 01.03.1994 - Concessional rate of duty - . According to the Tribunal, pulp out of rags was specifically excluded from the Notification. - Held that:- Pulp from the waste of jute bags or gunny bags would not be covered by the term 'rags' appearing in Notification dated 01 .....

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bviously is the most relevant and authenticated dictionary for the purpose of the present case as what is in vogue and understood in paper industry is contained in such a dictionary.

Thus, almost all the books on the subject uniformly define 'rag' or 'rag pulp' as one which is made from cotton waste or cotton textile material. On the other hand, the learned counsel appearing for the Revenue could not point out to a single dictionary or could take us through any technical literature wh .....

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an,JJ. For the Petitioner : Mr. M. P. Devanath For the Respondent : Mr. B. Krishna Prasad JUDGMENT A. K. Sikri, J. The appellant (hereinafter referred to as the assessee ) is a paper mill which is engaged, inter alia, in the manufacture of paper. For the manufacture of paper, the assessee uses various conventional raw materials and also non-conventional raw materials, namely, waste gunny bags, jute waste etc. The assessee is exigible to Central Excise on the aforesaid product, namely, paper manu .....

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r to avail the benefit thereof to pay the concessional rate of duty reads as under: If such paper and paperboard or articles made therefrom have been manufactured, starting from the stage of pulp, in a factory, and such pulp contains not less than 75 per cent by weight of pulp made from materials other than bamboo, hard woods, soft woods, reeds (other than sarkanda) or rags. 2) As per the aforesaid Notification, following conditions are to be satisfied in order to avail the benefit: (i) Manufact .....

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manufacturer would not be entitled to the benefit of this Notification. 3) The assessee herein is manufacturing paper out of pulp of waste gunny bags/jute waste and on the manufacture of paper from the pulp of the aforesaid waste, the assessee wants to pay concessional rate of excise duty as its contention is that pulp of waste gunny bags or jute waste does not fall in any of the materials mentioned in the Notification. The Revenue, on the other hand, has taken the position that the pulp of wast .....

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ouching upon the subject matter as well as history of the present litigation which has lauded the matter to this Court. 4) Notification No. 22/94-CE dated 01.03.1994, with which we are concerned, is not the first Notification which permitted concessional rate of excise duty in case of manufacture of paper or paper products by using non-conventional raw material. First Notification, in this behalf, was issued on 01.03.1973, i.e. Notification No. 42/73-CE wherein such kind of lesser rate of duties .....

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ther conditions were also mentioned in this Notification pertaining to the description of paper mills manufacturing such paper with which we are not concerned. There have been further Notifications from time to time modifying/amending the aforesaid conditions which again need not be referred to as not relevant for our purposes. It would, however, be necessary to refer to the Notification 48/91-CE dated 25.07.1991 which held the field prior to issuance of Notification No. 22/94-CE with which are .....

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p made from jute, jute waste (including hessian waste and old gunny bag waste), mesta, rice straw, wheat straw or bagasse or mixture thereof or mixture of two or more of the pulps of the aforementioned materials. The purpose of mentioning to the aforesaid Notification is to point out this Notification listed those materials, the use whereof to manufacture paper and paper products entitled the manufacturer to get the benefit of the Notification. Thus the requirement was to show that the pulp was .....

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The effect of this Notification is that if the pulp is made from any other non-conventional material which is not spelt out in the proviso, it would qualify for concessional rate of duty in terms of the said Notification. The materials mentioned in this list, for the sake of convenience, can be classified as 'Negative List'. Now the requirement was to show that paper is not manufactured from the pulp of any of the enlisted material. Thus, according to Notification No. 22/94-CE, the exem .....

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not less than 75% by weight of pulp made from materials other than bamboo, hard wood, soft wood, reeds or rags. But in respect of the year 1996-97, the concession was given to paper made of pulp containing not less than 50% by weight of pulp made from materials other than bamboo, hard wood, soft wood, reeds or rags. 6) Reverting to the case of the assessee, it has been using old or used gunny bags/jute waste for the manufacture of paper. It was availing the benefit of the aforesaid notification .....

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l central excise duty for the period from 01.04.1995 to 31.10.1999 was given. This show cause notice was followed by two more show cause notices dated 16.05.2000 and 13.03.2001 covering the period from November, 1999 to May, 2000. The assessee contested the stand taken by the Revenue in these show cause notices, taking the position that pulp made out of jute bags/gunny bags entitled the assessee to avail the benefit of the said Notification as the paper from the waste of jute bags was non-conven .....

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led to invoke the proviso to Section 11A and claim extended period of limitation. 7) A perusal of the order of the Commissioner would disclose that the Commissioner was persuaded by the fact that the purpose of issuing such Notification was to encourage the use of waste from non-conventional materials as raw materials for the purpose of manufacture and in, particular, use of such raw materials like jute waste, mesta, baggase, hessain, old gunyy bag waste, rice straw, wheat straw etc. and reduce .....

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evolved in a eco-friendly manner with more and more encouragement for use of non-conventional materials. Going by the aforesaid spirit of the Notification, when it is found that jute and gunny bags were included in the 'Positive List' and waste therefrom is widely known as non-conventional method of producing paper and paper products, these materials should not be treated as 'rags', inasmuch as while including rags in the 'Negative List' intention could not be to encompas .....

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r, he referred to the 'Glossary of Terms used in Paper Trade and Industry' for the adoption of definition/description of jute, jute paper, jute pulp, rag pulps, rags etc. and on that basis concluded as under: 37. The meaning of the word Rags as they have not been defined in the notification itself, has to be derived from the contemporaneous evidence. From the definitions of Rag pulp, jute pulp available in the IS Glossary of Terms used in Paper Trade and Industry, the definition of Rags .....

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ot excluded raw materials for the purpose of concession, it does not matter how the gunny bag is described in documents. The amendments to Central Excise Notification No. 48/91 dated 25.7.91 vide 30/93 shows unambiguously that Jute Waste shall include old gunny bag waste. Therefore, it still remains correct that gunny bag waste can be described as waste of jute products and in extension would be includible in Jute Waste. Therefore, there is no mis-declaration in raw material account. In addition .....

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ion of Raw Material Account. Rule 9(1) regarding discharge of appropriate duty and 173F regarding determination of correct rate of duty pertaining to clearances of goods out of gunny bag pulp do not stand on basis of above evidence of disclosure. 8) The Revenue was not satisfied with the aforesaid outcome and, therefore, preferred an appeal against the order of the Commissioner before the Customs, Excise and Service Tax Appellate Tribunal (for short, 'CESTAT'). The CESTAT has, vide impug .....

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ard's clarification and the reasoning of the Commissioner in this respect was false. It also rejected the contention of the assessee predicated on HSN Chapter Headings. According to the Tribunal, pulp out of rags was specifically excluded from the Notification. 'Rag' is understood to be worn out, soiled and torn of a textile material. In view thereof, it was not necessary to refer to any dictionary, Glossary of Terms used in Paper and Paper Industry or words and phrases to find out t .....

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irs and are generally fit only for the recovery of the fibres for the manufacture of paper etc. This is the separate category of old gunny bags which is different from gunny bags showing only signs of wear. Thus a rag is one which is worn out, soiled and torn of a textile material. If that is the meaning of rags, there is no need to refer to any dictionary, glossary of terms used in paper and paper industry or S.B. Sarkar's Words and Phrases to find out the meaning of rags. The respondent us .....

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e period from 01.04.1995 to 31.10.1999 is concerned, the same is treated as time barred. Insofar as learned counsel for the assessee is concerned, in his endeavour to demonstrate that waste of jute bags/gunny bags cannot be termed as 'rags' in the sense the term is used in the Notification, he laid great stress on the principle of purposive interpretation that needs to be given to the Notification. Thus main thrust of his argument was that the objective of the Notification to give its be .....

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e Supreme Court in the case of Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, Baroda (1990) 3 SCC 447. 11) Mr. K. Radhakrishnan, learned senior counsel appearing for the respondent, likewise, did the same exercise but in reverse, i.e., he supported the reasons given by the Tribunal with the submission that it was a blemished decision of the Commissioner based on faulty reasoning which has rightly been reversed by the Tribunal. Apart from relying upon the reasons which persuaded .....

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from the waste material known as 'rags', the said product would come in the excepted category. He emphasized that since it could not be denied that waste of gunny bags/jute bags is known as 'rags', if the paper is manufactured from the pulp from the waste of gunny bags/jute bags, the assessee would be disentitled to claim the benefit of the Notification. 12) We have considered the aforesaid submissions with reference to record and the plethora of material produced before us by b .....

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appearing in the Notification has to be construed having regard to the attendant circumstances, the context in which the same is used in the said Notification as well as the purpose for which this term has appeared in the Notification. At the same time, it is also necessary to go behind the objective for which Notification itself is issued thereby giving it a purposive interpretation, which has become cardinal rule of interpretation. In our opinion, it is only after examining all these factors .....

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al technology of using pulping bamboo or wheat. The reason is too obvious. Use of bamboo or wheat for the manufacture of paper and paper products needs cutting of trees which in turn has the devastating effect of deforestation. It leads to degradation of environment and the adverse impact of deforestation with serious consequences are now well-known. On the other hand with the adoption of non-conventional methods of production by taking pulp from the waste of gunny bags/jute waste, mesta, rice s .....

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ibed the 'Positive List' of the materials that had to be used to get the benefit of concessional rate of duty, the thrust underwent a conceptual transformation and changed to the 'Negative List', i.e. mentioning only those materials use whereof will not entail the benefit, thereby making the benefit available to all other forms of non-conventional materials. This was because of the reason that experience has shown that it was not proper to mention the non-conventional material by .....

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aste are specifically included in the 'Positive List' contained in Notification dated 17.09.1990. Thus, as per the said Notification if the paper is manufactured from the pulp made from the waste of the aforesaid materials, the benefit of concessional rate was admissible. To put it otherwise, it has always been clearly understood that jute or jute waste including old gunny bag waste is non-conventional material. Once that is accepted, could the intention behind Notification No. 22/1994-C .....

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not entail benefit. Obviously, all other materials, namely, bamboo, hard woods, soft woods, and reeds are conventional raw materials. These are the materials which have direct bearing on cutting of trees and in turn on environment. Therefore, 'rags' has to be read ejusdem generis. It has to be the specie of the earlier kind of materials mentioned therein. Otherwise, it would not make any sense. Admittedly, jute waste or for that matter gunny bag waste have no adverse impact on environme .....

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lks, cereal straw, elephant grass (Imperata Cylindrica), mesta (Kneaf) or waste paper. Thus, jute stalks was specified as a non-conventional raw material in the notification itself. However, vide Budget of 1984, the scope of the exemption to paper made from non-conventional raw materials was widened and relevant portion of Notification No. 25/84-CE dated 01-03-1984 reads as under: In exercise of the powers …. the Central Government hereby exempts paper and paperboards …. manufactur .....

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84, relevant portion of which reads as under: 108... As a further measure of relief, I proposed to reduce the basic excise duty on printing and writing paper and also kraft paper produced by large paper mills by ₹ 425 per metric tonne, and corresponding concessions are being given on the duty leviable on such paper when unconventional raw materials are used in their manufacture. Simultaneously, the range of permissible unconventional raw materials is being expanded. 18) The Budget Explanat .....

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the percentage by weight of pulp bamboo, hard woods, soft woods, reeds or rags is not more than 50%, the concessional rates of excise duty would apply. 19) Thus, all the above materials and the notifications clearly suggest that the Government itself distinguished between jute bags/gunny bags and rags and the exemption was being extended to paper made from old jute/gunny bags. 20) No doubt, such exemption Notifications call for strict interpretation. However, at the same time when the expressio .....

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his Court has held in the case of H.M.M Limited v. Collector of Central Excise, New Delhi (1996) 11 SCC 332 that the benefit of Notifications has to be interpreted by going into the purpose of beneficial notifications and that one does not have to go only by the language employed therein. 21) To the same effect is the judgment of this Court in Collector of Central Excise and Others v. Himalayan Cooperative Milk Product Union Ltd. and Others (2000) 8 SCC 642 where this Court remarked that 'pu .....

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ng discussions therefrom: 10. The principle of statutory interpretation by which a generic word receives a limited interpretation by reason of its context is well established. In the context with which we are concerned, we can legitimately draw upon the "noscitur a sociis" principle. This expression simply means that "the meaning of a word is to be judged by the company it keeps." Gajendragadkar, J. explained the scope of the rule in State v. Hospital Mazdoor Sabha (1960-2 S. .....

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er under the doctrine of nosciture a sociis, the philosophy of which is that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim Ejusdem Generis." In fact the latter maxim "is only an illustration or specific application of the broader maxim noscitur a sociis". The argument is that certain essential features or attributes are invariably associated with the words "business and trade& .....

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y where the intention of the Legislature in associating wider words with words of narrower significance is doubtful, or otherwise not clear that the present rule of construction can be usefully applied. It can also be applied where the meaning of the words of wider import is doubtful; but, where the object of the Legislature in using wider words is clear and free of ambiguity, the rule of construction in question cannot be pressed into service." This principle has been applied in a number o .....

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Old, discarded, unserviceable or absolute machinery, stores or vehicles including waste products ..... " Though the tariff item started with the use of the wide word 'old', the Court came to the conclusion that "in order to fall within the expression 'old machinery' occurring in the entry, the machinery must be old machinery in the sense that it has become non-functional or non-usable". In other words, not the mere age of the machinery, which would be relevant in t .....

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d is clear and has a wide meaning. We entirely agree that these maxims and precedents are not to be mechanically applied; they are of assistance only in so far as they furnish guidance by compendiously summing up principles based on rules of common sense and logic. As explained in Collector of Central Excise v. Parle Exports (P) Ltd., 1989 (38) E.L.T. 741 (S.C.) = (1989-1 S.C.C. 345 at p.357) and Tata Oil Mills Co. Ltd. v. C.C.E., 1989 (43) E.L.T. 183 (S.C.) = (1989-4 SCC 541 at p. 545-6) in int .....

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ptions set out in the proviso? Instead of proceeding on the premise that it is not necessary to look for any reason in a taxing statute, it is necessary to have a closer look at the wording of the proviso. If the proviso had referred only to 'coated paper', no special object or purpose would have been discernible and perhaps there would have been no justification to look beyond it and enter into a speculation as to why the notification should have thought of exempting only 'coated pa .....

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t well have thought that these small scale factories should not be eligible for the concession contemplated by the notification where they manufacture paper catering to industrial purposes, there is a purpose in the limitation prescribed and there is no reason why the rationally logical restriction should not be placed on the proviso based on this classification. In our view, the only reasonable way of interpreting the proviso is by understanding the words 'coated paper' in a narrower se .....

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the purposes of manufacturing paper or paper products. Still, we would now like to take note of the dictionary meaning that is assigned to the aforesaid terms, that too from the 'Dictionary of Paper' by American Paper and Pulp Association, which obviously is the most relevant and authenticated dictionary for the purpose of the present case as what is in vogue and understood in paper industry is contained in such a dictionary. 23) The Dictionary of Paper by American Paper and Pulp Associa .....

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ip; Old gunny and sacking are used as raw materials in papermaking 24) The book 'Pulp and Paper Chemistry and Chemical Technology' by James P. Casey again distinguishes between rags and jute in the following manner: Use of Rags for Papermaking High-grade cotton and, to some extent, linen rags are used to make the best grades of bond, writing and technical papers, where permanence, high strength, and distinctive quality are of interest. Pulping of Jute Whole jute is rarely used for pulp a .....

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