TMI Blog1980 (11) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... s at their factory at 1, Pokhran Road, Thane (West). The teleprinter rolls which are the subject-matter of this controversy are made by the use of various components including tissue paper. These teleprinter rolls are used on teleprinter machines on which messages received on the teleprinter machines are printed. The process of making teleprinter rolls, as stated in the petition, is really not complicated. The petitioners purchase from paper manufacturers and/or paper dealers paper which is described as Jumbo (or large) rolls of writing or printing paper. This paper is an ordinary printing or writing paper and the manufacturers of such printing or writing paper pay excise duty thereon in accordance with the appropriate rates in the Central Excise Tariff. After purchasing Jumbo (or large) printing or writing paper rolls, the petitioners cut the same to a size suitable for use on a teleprinter machine and roll such cut paper to a specification suitable for slitting such rolls on a teleprinter machine. The writing or printing paper cut to a specified size and rolled to a specified dimension is known in the trade as singleply teleprinter roll. Some of the customers of the petitioners d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tariff. 3. The petitioners further state that they have been making teleprinter rolls since the year 1974. Sometime in the year 1968 the Central Board of Revenue of the Government of India decided inter alia that teleprinter rolls 'converted' out of duty paid paper should not be subjected to excise duty again. In consequence of the said decision no excise duty was sought to be collected or recovered thereon by the respondents or any of their officers until sometime in March, 1973. On or about 17th March, 1973 the petitioners were informed by the Superintendent of Central Excise, Division `IX', Range II, that excise duty was liable to be paid on teleprinter rolls. As the petitioners were of the opinion that such teleprinter rolls did not bear any excise duty, they by their letter dated 20th March, 1973 addressed to the Superintendent of Central Excise asked for clarification. On 22nd March, 1973 the Superintendent of Central Excise informed the petitioners that the teleprinter rolls made by them were liable to excise duty with effect from 7th February, 1973 and that the petitioners should obtain the requisite licence and comply with the other formalities relating to such teleprint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-1975 and 31-1-1976. The Assistant Collector by his order dated 18-6-1976 rejected the claims. The appeal filed before the Appellate Collector of Central Excise and Customs came to be rejected on 5-10-1976. The reasoning adopted by the Appellate Collector was that since the appeal against classification had been dismissed, the petitioners were not entitled to any refund. The petitioners presented a revision petition to the Central Government on 28-2-1977. However the said revision Petition came to be dismissed on 30-10-1978. 6. The petitioners in the meanwhile, as a matter of abundant caution, and without prejudice to their contention that the excise duty was not payable on such teleprinter rolls applied for permission on or about 30th August, 1973 to avail of proforma credit under Rule 56A of the Central Excise Rules, 1944 on the excise duty paid on tissue paper used in making carbon paper which was in turn used in the said two-ply or three-ply or more plies teleprinter rolls. The petitioners fairly conceded in their petition that at the relevant time no excise duty was payable on carbon paper. This petition to the Assistant Collector of Central Excise for proforma credit under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay as to make them fit on teleprinter machines. Such teleprinter rolls are manufactured in one-ply, two-ply or even more plies depending upon the demand of the teleprinter users. To make two-ply or more plies of teleprinter rolls, the petitioners have to inter-leaf such cut papers with one or more carbon sheets and then roll them to specific dimensions so as to fulfil the requirements of the customers who desire to have more copies of messages received by them. Further a warning mark is printed at the end of the roll for cautioning the teleprinter operator that the roll is coming to an end; and after that a slogan is printed on the roll itself indicating the name of the customer. The process of cutting large rolls of paper into specific sizes and dimensions and to roll them into teleprinter rolls interleaved with carbon papers with the aid of power driven machines amounts to manufacture of paper within the meaning of Section 2(f) of the Central Excises Salt Act, 1944. It was also contended on their behalf that if such large rolls of paper are not subjected to the above manufacturing process, they cannot be used as teleprinter paper and, hence, cannot be called as teleprinter roll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the two Appellate Collectors of Central Excise, Respondents Nos. 1 to 4 to withdraw and/or cancel the impugned orders dated 15th May, 1973, 20th June, 1975, 16th April, 1977 and also directing them to refund to the petitioners the amount of Rs. 1,43,454.54 P. The petitioners have further sought for direction to be issued to respondents to withdraw the orders passed by the respondents dated 4th July, 1974, 18th October, 1975 and 19th April, 1977 refusing the proforma credit on tissue paper used by the petitioners in manufacturing carbon paper which in turn was used for making teleprinter paper rolls and the petitioners also pray for a writ of Mandamus or any other appropriate writ, direction or order under Article 226 of the Constitution of India directing the respondents to refund the amount of Rs. 1,23,051.26 P. in respect of the proforma credit under the provisions of Rule 56A of the Central Excise Rules, 1944. 10. Before these rival submissions and contentions are examined to find out whether teleprinter rolls attract the levy of excise duty under sub-item (2) of Tariff Item No. 17 as mentioned in the First Schedule of the Central Excise Tariff, it is necessary to refer t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The petitioners by their letter dated 20 March, 1973 addressed to the Superintendent of Central Excise, Division IX, Range II, Thane, inquired with him whether teleprinter rolls attracted central excise duty and maintained that, in their opinion, no central excise duty was applicable to the teleprinter rolls. The petitioners requested the Superintendent to visit their factory and inform them the correct position in the matter. The Superintendent of Central Excise, Division IX, Range II, Thane replied to the said letter and informed the petitioners that he had visited their factory on 20-3-1973 and saw the product `teleprinter rolls/tapes' and the process concerning them. He found that the product was liable to excise duty under Tariff Item No. 17(2) of the Central Excise Tariff. The petitioners were therefore, informed to apply for L. 4 Licence for paper and carry out all the excise formalities in that connection. The petitioners were also informed that duty was leviable on this product, that is, 'teleprinter rolls' with effect from 7-2-1973. The petitioners were also informed to supply the details of production and clearance from that time to enable him to recover duty on the past ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upees and twenty paise per kilogram." 14. According to the provisions of this Item, the paper is divided into four types of papers. In sub-item (3) of Item No 17, "printing and writing paper" is referred to. Whereas, in sub-item (2) of Item No. 17 'paper, teleprinter' is referred to. In order to find out whether, as contended by the petitioners that mere cutting and re-rolling of duty paid printing and writing paper does not amount to a process of manufacture of paper, it will be necessary to refer to the process of manufacture or making of teleprinter rolls as is admitted by the petitioners themselves. It consists of the following stages. Ordinary writing and printing paper undergoes following special operations before becoming teleprinter rolls/tapes described by the words 'teleprinter paper' as it is called by the respondents :- (1) Jumbo (large) size paper rolls are obtained from the paper manufacturers and, or paper dealers; (2) These Jumbo (large) size paper rolls are then cut to a specified size and rolled to a specified dimension as some customers want 5" diameter and some 81/4 " diameter : (3) This is then inter-leafed with one or more carbon papers as desired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e process of manufacturing teleprinter rolls starts with paper and ends with paper and they in effect do not manufacture paper, and, therefore, their end product, teleprinter rolls, do not attract levy of Central Excise duty. 17. In order to appreciate the rival submissions and contentions of the parties, it becomes necessary to examine few provisions of the Central Excises and Salt Act, 1944. The word "manufacture" on which the whole controversy in this petition centres is defined under Section 2(f) of the said Act. It reads as follows : "2. (f) 'Manufacture' includes any process incidental or ancillary to the completion of a manufactured product." Item No. 17 is already quoted above and it is clear from the same that "paper of all sorts (including pasteboard, millboard, strawboard and cardboard) in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power" refers in sub-item (2) to "teleprinter", that is "teleprinter paper". As per the provisions of Section 3 which is the charging section under the Act, "there shall be levied and collected in such manner as may be prescribed the duties of excise on all excisable goods other than s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt to manufacture of paper within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944 and, therefore, no levy of excise duty is attracted under sub-item (2) of Tariff Item No. 17 as mentioned in the First Schedule of the Central Excise Tariff, as the excise duty was already paid on the writing and printing paper before the petitioners had purchased it. Therefore, the principal submission on behalf of the petitioners is that they did not manufacture paper so as to attract levy of excise duty under sub-item (2) of Tariff Item No. 17 as mentioned in the First Schedule of the Central Excise Tariff and no activity pertaining to the manufacture of paper or activity incidental or ancillary to the completion of paper as a manufactured product was carried on by the petitioners on fully manufactured writing or printing paper to enable the writing or printing paper to be used as teleprinter rolls and, therefore, this activity cannot be regarded as an activity pertaining to the manufacture of paper or activity incidental or ancillary to the completion of paper as a manufactured product. 19. Shri Korde, the learned Counsel for the petitioners in support of his submission re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jumbo rolls but apart from being out into different sizes, there is a warning mark printed at the end of the roll for caution of the teleprinter operator. Further, a slogan printing is done on the roll itself indicating the name of the customer and the end product that emerges has a distinctive name characteristics and usage and also known in the market differently. There is also an additional process of inter-leafing these rolls with carbon paper according to the requirements of the customers. It is, therefore, difficult to see how the learned Counsel for the petitioners can take any assistance of this decision in support of its submission that what was made is teleprinter rolls and not manufacturing of teleprinter paper. 21. The learned Counsel for the petitioners further relied upon a decision of a Division Bench of the Gujarat High Court in the case of Navgujarat Paper Industries v. Superintendent of Central Excise Ors. reported in 1977 (1) E.L.T. (J 67). The learned Counsel for the petitioners took us through the entire decision and emphasized the distinction made out by the learned Judges of that Division Bench between "articles of paper" and "paper". In that case it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that paper into a new commodity known to the market as such. Similarly, mere printing of design and monograms and other description of goods regarding to quantity and the name of manufacturers does not convert packing or wrapping paper into another kind of product. It still continued to be printing or writing paper on which something has been printed." Here again this decision is of little assistance to the petitioners. The Counsel for the petitioners emphasized the distinction drawn by the Gujarat High Court between 'paper' and `articles of paper' that it wanted us to accept the same distinction between 'writing or printing paper' and `teleprinter rolls/tapes' as an 'article of paper' and not 'manufacturing of teleprinter rolls/tapes'. What is important to bear in mind is the clear observation of the Gujarat High Court that, "the end product was not known in the market as such and the process of applying gum did not convert the original paper into a new commodity known to the market". In contradistinction, the process described earlier which leads to the manufacturing or making of teleprinter paper or teleprinter roll is altogether different and the end product, that is, teleprin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the customers, thereafter, interleafing them with carbon papers and all these processes being carried out with the aid of power driven machines were not undertaken nor did the end product having a distinct and special form and size and also having a special usage and marketability emerge. No processes whatsoever were carried out with the aid of power driven machines and the end product remained paper. Therefore, the Division Bench of the Gujarat High Court held that, "Coulouring or printing on one side of the paper did not amount to manufacture of paper." 24. In this case, however, the processes are entirely different. The most important distinguishing factor is that these processes are carried out by power driven machines and the end product which emerges is altogether different and has a distinctive characteristics, usage and name and is known in the market as a distinct product altogether. The identity of the original writing or printing paper is wholly lost and it becomes a separate and distinct commodity known in the market. This decision also therefore, does not help the petitioners in any way to support their submission that making of teleprinter rolls does not amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry................ There must be transformation; a new and different article must emerge, having a distinctive name, character and use." 25. Applying this test is it possible to say that teleprinter paper or roll as described by the petitioners is a different commodity or article from the one used as the base material which is large size or jumbo rolls writing or printing paper ? The answer would appear to be 'Yes' for the reasons already stated. The commodity or article, that is, teleprinter paper or teleprinter roll is well known in the market and is known as a distinct commodity and as such meanings given to articles in a fiscal statute must be as people in trade and commerce. conversant with the subject, generally treat and understand them in usual course. There is, however, a basic and initial difficulty in the way of the petitioners which seems to us to be insurmountable. As held by the Supreme Court in the case of Dunlop India Ltd. v. Union of India reported in AIR 1977 S.C. 597 that, "But once an article is classified and put under a distinct entry, the basis of classification is not open to question. Technical and scientific tests offer guidance only within limits. Once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Supreme Court in the case of Deputy Commissioner of Agricultural Income-Tax and Sales Tax, Quilon v. Travancore Rubber and Tea Co., reported in The Sales Tax Cases, Vol. XX, 1967, 520 where it was held that the onus of proving that the assessee was carrying on business and was, therefore, a 'dealer' within the meaning of Section 2(b) of the Central Sales Tax Act, 1956, was on the department and that the department has discharged that onus." That was a case where the assessee had converted the latex tapped from its rubber trees into sheets and effected a sale of those sheets to its customers and that the conversion of latex into sheets was a process essential for the transport and marketing of the produce. The Counsel for the petitioners wanted to take aid of this decision in support of their contention that the burden was squarely on the respondents and the respondents having failed, their product did not attract levy of excise duty. 27. The petitioners also relied upon a decision of this court in the case of Sandoz (India) Ltd. v. Union of India reported in 1980 Tax. L.R. 2332 =1980 E.L.T. 696 (Bom.) (D.B.), where the word 'manufacture' occurring in Section 2(f) come for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and which in turn was used in preparing or making the teleprinter paper rolls. 29. Rule 56A lays down the special procedure for movement of duty paid materials or component parts for use in the manufacture of finished excisable goods. The proviso to Rule 56A provides that "no credit of duty shall be allowed in respect of any material or component parts used in the manufacture of finished excisable goods—(i) if such finished excisable goods produced by the manufacturer are exempt from the whole of the duty of excise leviable thereon, or are chargeable to nil rate of duty, and (ii) unless—(a) duty has been paid for such material or component parts under the same item (*****) as the finished excisable goods or (b) remission or adjustment of duty paid for such material or component parts has been specifically sanctioned by the Central Government". The rest of the Rule lays down procedure for the manufacture to comply and receive such deductions in payment of excise duty. What is pertinent and important to note, as far as this submission of the Counsel for the petitioners is concerned, is that there was no duty leviable on carbon paper itself. The case of the petitioners is that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s—Assessment regarding.-Since Teleprinter rolls tapes are a variety of printing and writing paper they will be classifiable under Item No. 17(1) of CET. Such teleprinter rolls/tapes if made from duty paid parchment paper grease proof paper falling under Item No. 17 (2) will be liable to pay duty again under Item No. 17 (1) CET with the facility of proforma credit or set off under Notification No. 67/76-C.E., dated 16-3-76 in respect of duty paid on grease proof paper/parchment paper used in the manufacture of teleprinter rolls/tapes. C.B.E. C. Letter No. 61/39/77-CX. 2, dated 13-4-1978." Since teleprinter rolls tapes are a variety of printing and writing paper, they will be classifiable under Item No. 17(1) of the Central Excise Tariff, and will be liable to duty under Item No. 17(1) with the facility of proforma credit or subject to the Notification No. 67/76-CE, dated 16-3-1976 in respect of duty paid on grease proof/parchment paper used in the manufacture of teleprinter rolls/tapes. 31. This obviously relates to the later amendment of Item No. 17 of the Central Excise Tariff. Item No. 17 now consists of only two classifications which are as follows :- Item No. 17 — PA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Central Excise, Kanpur, who by his order communicated to the petitioner in the following words:- "Please be advised that the Collector of Central Excise, Kanpur has been pleased to accord his permission to avail of the concession permitted under Rule 56A of Central Excise Rules, 1944, to you," Since then the petitioner has been availing of the concession in respect of V.N.E. Oil used in the manufacture of paints and varnishes. Suddenly without any warning or notice the petitioner-company was served with two notices demanding the various amounts which were refunded to the petitioners in that case. The authorities in that case were of the view that though the petitioners had availed of proforma credit on quantities of processed V.N.E. Oil used in the manufacture of synthetic resin, they did not possess any proper permission from the competent authority. The petitioners were permitted to avail of proforma credit on materials used in the manufacture of paints and varnishes, but they did not possess any such permission for synthetic resin for the manufacture of which the party held a separate licence. The party, therefore, had no right to avail of proforma credit on the processed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter paper rolls and, therefore, this case is of no assistance to the petitioners. The carbon paper, therefore, in our view is not an intermediary product. The observations of the Allahabad High Court in Nagrat Paints's case that, "the fact, therefore, that the substance produced by the manufacturer at an intermediary stage is not put in the market would not make any difference to the chargeability of the substance to excise duty, if it is covered by any item in Schedule I of the Act" has no application to the facts of the present case. In our opinion, the carbon paper is an intermediary product but not an essential ingredient for the manufacture of teleprinter paper rolls. It was also not an excisable product at the relevant period. Hence, the petitioners are not entitled to proforma credit on the duty paid on the tissue paper under Rule 56A of the Central Excise Rules, 1944. We, therefore, do not see any merit in this contention of the petitioners and hold that the respondent have rightly refused to give any proforma credit to the tune of Rs. 1,23,051.26 in respect of teleprinter rolls cleared between 7-2-1973 and 15-3-1976. We do not see anything wrong in the reasoning given by e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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