1. This is an appeal filed by Collector of Central Excise, Meerut against the order of Collector of Central Excise (Appeals), New Delhi.
The short point arising for consideration in this appeal is whether the paper reel cores used on the rewinding and cutting machines for formation of paper reels of required sizes for ultimate clearance and sale are eligible for benefit of Notification No. 201/79, dated 4-6-1979. In terms of Notification No. 201/79 as amended by Notification No. 105/82, dated 28-2-1982 all excisable goods on which the duty of excise is leviable and in the manufacture of which any goods falling under Item No. 68 of the Central Excise Tariff have been used as raw-material or component parts referred as inputs are exempt from so much of excise duty as is equivalent of the duty of excise already paid on the inputs.
2. The Learned J.D.R. for the department, Shri C.V. Durghayya pleaded that the Collector (Appeals) had erred in holding that paper reel cores on which the paper is wound are component parts of the paper cleared from the factory. He stated that the paper as it emerges from the paper machine is wound over long steel rollers. However, the paper for the purpose of marketing is cut to desired sizes and the paper from this reel after the paper making stage is re-wound on to paper reel cores of desired sizes. He pleaded that the reel cores were in the nature of packing material on which the paper was wound for marketing and could not be considered as a component part of the paper.
3. He drew our attention to the respondents own submissions before the Assistant Collector as to the details of the use of paper reel cores in the manufacture of paper as set out in the grounds of appeal. For convenience of reference, the relevant portion is reproduced below :- "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 reels and sheets according to customer's requirement. To cut the parent roll of paper manufactured on paper machine which is would 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 required size or sent to customers as reels as such, there is no other use of paper cores except their use in re-winding and cutting machine in paper mills." He pointed out that on their own admission, the paper cores are in the nature of packing material and does not form a component of paper. He pleaded that the scope of Notification No. 201 /79 by amendment by Notification No. 105/82 had become very restricted and was available only in respect of the use of Item 68 goods which were in the nature of rawmaterials or component parts for the manufacture of other excisable goods. His plea is that after the amendment of the notification, goods used as packing materials, could not be taken to be covered by either of two terms 'raw-materials' or component parts. He also cited the case of . Hindustan Lever Ltd. v. The Collector of Central Excise, Bombay, [1984 ECR 1662 (CEGAT)] in support of his pleas and drew our attention to paras 6 and 10 reproduced below in this regard :- In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 178/77 Central Excises, dated the 18th June, 1977, 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 falling under Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) (hereinafter referred as 'the inputs") have been used from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs.
Provided that the procedure set out in the Appendix to this notification is followed : Provided further that nothing contained in this notification shall apply to the said goods which are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty." A careful reading to the notification would show that the term "inputs" has not been used in it in the ordinary sense of the term but as a term of reference to goods falling under Item No. 68 of Central Excise Tariff used in the manufacture of other excisable goods. The term "inputs" itself is one of wide scope and not, as the Department contends, of restricted or narrow scope. What the notification requires is that the Item 68 goods which are referred to as "inputs" are used in the manufacture of other excisable goods. The Department wants to interpret the notification to mean that the Item 68 goods should enter into the composition and form part or ingredients of the finished product. In other words, they should be used as raw-materials or components. But then this requirement that Item 68 goods should be used as raw materials or component parts was written into the notification only on 28-2-1982 by the amending Notification No. 105/82. The amending notification, in our view narrows down the scope of the 1979 notification and incidentally, also the scope of the expression "inputs" as contemplated in it. In other words, with this amendment, the finished excisable goods must inter alia be made from the Item 68 goods if they are to earn exemption under the notification. Prior to the amendment, this was not a requirement. The Item 68 goods need have been used only in the manufacture of the finished excisable goods In the result, we hold that the appellants were entitled to the benefit of Notification No. 201/79 in respect of printed cartons on which duty under Item No. 68 Central Excise Tariff had been paid.
This position would hold good till the notification was amended by Notification No. 105/82, dated 28-2-1982. All relief flowing from this order shall be granted to the appellants within 3 months from the date of communication of this order." 4. The learned Advocate for the respondents, Shri J.S. Kapil pleaded that the paper reel cores were normal essential packing required for marketing of the paper in required sizes. He pleaded that packing is a process incidental or ancillary to the completion of the manufacture of paper. He cited the judgment of the Tribunal in the case of Hindustan Lever v. C. C., Bombay 1984 ECR 1662 (CEGAT) and drew our attention to paras 7 and 8 reproduced below for convenience :- Much arguments have been addressed by both sides on the question whether packing amounts to a process of manufacture in the present case. Both sides have cited case law in support of their rival contentions. We had occasion, though in a somewhat different context, to go into the question at length in our Order No. C-340/84, dated 4-6-1984 in Appeal No. ED(SB) A. No. 2734/83-C in the case of Collector of Central Excise, Indore v. Orient Paper and Industries Ltd., Amlai [1984 ECR 1487]. In that case, the Revenue had vehemently contended before us that wrapping paper used in packing reams/reels of paper and reel core on which paper is wound could not be said to have been used in the manufacture of paper or board which was wrapped or packed with the wrapping paper. That is to say, the process of packing or wrapping was not a process of manufacture. The appellants had equally vehemently contended that packing or wrapping was a process of manufacture. After considering and discussing the following decisions- (i) Calcutta High Court in Orissa Industries Ltd. v. Union of India and Ors. - 1979 ELT(J 457).
(ii) Karnataka High Court in Alembic Glass Industries Ltd. v. UOI and Ors. -1979 ELT (J 461) (1975 Cen-Cus 67 C) (iii) Madras High Court in E.I.D. Parry Ltd. and Anr. v. UOI -1978 ELT (J 18) (1975 Cen-Cus 67 C)Seshasayee Paper and Boards Ltd., Erode v. Appellate Collector of Customs and Central Excise, Madras -1984 (15) ELT 3 (MAD.)Collector of Central Excise, Hyderabad v. Bhadrachalam Paper Board Ltd.UOI and Ors. v. Bombay Tyre International Ltd. etc. -1983 ELT 1896 (SC) (vii) Special Bench-D of this Tribunal in C. C.E. Calcutta v. Kanoria Jute Mills, Calcutta Appeal No. 1418/81 -D (Order No. 146/84-D, dated 8-3-1984) (1984 ECR 1553), We took the view that normal minimum packing (not any special packing or durable returnable containers) without which a manufactured product could not be delivered whether for reasons of transport or otherwise, should be treated as a process incidental or ancillary to the completion of that product and that it would not be correct to say that such packing materials were not used in an incidental or ancillary process to complete the manufactured product by turning it into marketable goods, just because the materials used for the normal minimum packing were not "used up". This particular view was expounded at length in the Special Bench-D decision referred to above and following that decision we hold that the benefit of the proforma credit under Central Excise Rule 56A of the duty paid on the packing or wrapping paper used for packing or wrapping of other varieties of paper was admissible for being set off against the duty payable on the packed or wrapped paper. We agree with Shri M.S. Gupta that the amending notification was only prospective in nature. We do not agree with Smt.
Vijay Zutshi that it was in the nature of a clarificatory notification which merely clarified the position already obtaining. It is true that synthetic detergent is available in the market in paper packs also.
That, however, would not detract from the considerations which have led us to the above conclusion in respect of printed cartons used in the manufacture of synthetic detergents marketed in such cartons.
Shri Gupta had also cited before us the Supreme Court's decision in J.K. Cotton Spinning and Weaving Co. Ltd. v. Sales Tax Officer, Kanpur and Anr. -AIR 1965 (SC) 1310 and that of the Calcutta High Court in Phelps And Co. (Pvt.) Ltd. v. Member, Board of Revenue, West Bengal - 20 STC (1967) 511 which followed the Supreme Court decision in the aforesaid case and in another case. In the case before the Supreme Court, their Lordships were concerned with the interpretation of Section 8(3) (b) of the Central Sales Tax Act which dealt with goods purchased by a registered dealer as being intended for re-sale by him or subject to any rules made by the Central Government in this behalf for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power. Rule 18 framed by the Central Government under Section 13 of the Act read at the material time as follows :- "The goods referred to in Clause (b) of Sub-section (3) of Section 8 which a registered dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power." It was while construing these two provisions read together, that the Supreme Court held, among other things, that there was no warrant for limiting the meaning of the expression "in the manufacture of goods" to the process of production of goods only but that it would take within its compass all processes which are directly related to the actual production such as equipment used in the process of designing, electrical equipment such as humidifiers, exhaust fans and similar equipment. It can easily be seen from the two provisions that the expression "in the manufacture of goods" has, by law, been given a wide amplitude. There are no similar provisions in the Central Excise law.
Section 2(f) of the Central Excise Act gives only an inclusive definition - "includes any process incidental or ancillary to the completion of a manufactured product". In our view, the ratio of the decision cited has no application to the facts of the case before us." 5. He pleaded that the process of manufacture of paper is complete only after reeling of the same is done for the purpose of clearance and sale. He pleaded that the reel core comes into the manufacture of paper and therefore, qualifies as component used in the manufacture of paper.
He pleaded that in case the respondents are denied the benefit of exemption, it will tantamount to double taxation. In support of his plea, he cited the following case laws -Seshasayee Paper and Boards Ltd., Salem v. Appellate Collector of Customs and Central Excise, Madras (ii) Haryana Steel and Alloys Ltd., Murthal v. C. C.E., New Delhi -1984 ECR 1847 (Iron Paper Mills).
(iii) Bhadrachalam Paper Boards Ltd., Khammam v. C.C.E., Hyderabad -1984 (18) ELT 229 (A.P.).
(iv) C.C.E., Nagpur v. Ballarpur Industries Ltd., Chandrapur - 1983 ELT 1263 (CEGAT).
He pleaded that in the cases cited by him, the Hon'ble High Court and CEGAT have held that the wrapping paper on which duty has been paid, when again used for wrapping, for clearance of other paper from the factory, was not liable to pay duty again as that would amount to double taxation. He pleaded that the reel core had already suffered duty and in case duty is again asked to be paid on the same, it will amount to double taxation.
6. The point that arises for consideration is whether paper reel core can be considered as a component part in the manufacture of paper in terms' of Notification No. 201/79. The term component part is not defined in the Notification and has to be therefore understood in the ordinary sense.
(ii) Component part, esp. of motor vehicle; (Math) one of two or more vectors equivalent to given vector.
(i) A constituent, the effective part of a force or velocity in a given direction.
(ii) One of any number of vectors which are added together to form a vector sum.
From the definition of component or component part, as above it is understood to be something which contributes to the making of a whole like various components going into the making of a machine or a structure. The question before us is the consideration of the term component part as set out in the Notification No. 201/79 in the context of paper. What is to be abated from the duty leviable on the excisable goods in terms of this Notification is that component of the duty as has been paid under Item 68 on the raw-materials going into their making or on the component parts as are used in their manufacture.
Excisable goods in question before us, are paper. When paper emerges from the paper machine, all processes relating to the manufacture of paper as such are complete at that stage. However, for the purpose of marketing, this paper is required to be cut to required sizes and put on the reels for the purpose of sale. These processes are carried out after the paper has completely taken shape. Reeling is done, therefore, only for the convenience of marketing. Nothing more remains to be done with reference to the making of the paper as such. As conceded by the Learned Advocate for the respondents and as pleaded by Revenue, the reel is only a packing material for paper. After the paper is removed from the reel, the reel remains as such and emerges again as an independent identity. Taking into consideration the meaning of component part in the ordinary sense, as seen from the same in the Dictionaries referred to above, the reel cannot be considered as a component of paper. The plea of the respondents is that packing is a process incidental to the manufacture of paper, and reeling should be taken to be a process relatable to the manufacture of paper. No doubt, it is the paper reel with the reel core which is cleared from the factory and the duty is levied on the reel but still it can in no way be said that the reel core has become a component of paper. It may be component of the reel of the paper, but certainly not of the paper on which the Central Excise Duty is levied. In this context, in Bombay Tyres International Ltd. (1983 ELT1896) the observations of the Supreme Court which are relevant and are reproduced below for convenience of reference:- "The case in respect of the cost of packing is somewhat complex. The new Section 4(4)(d)(i) has made express provision for including the cost of packing in the determination of "value" for the purpose of excise duty, inasmuch as the case of the parties is that the new Section 4 substantially reflects the position obtaining under the unamended Act. We shall proceed on the basis that the position in regard to the cost of packing is the same under the Act, both before and after the amendment of the Act. Section 4(4) (d) (i) reads:- (i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee.
Explanation:- In this Sub-clause "packing" means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound." It is relevant to note that the packing of which the cost is included, is the packing in which the goods are wrapped, contained or wound when the goods are delivered at the time of removal. In other words, it is the packing in which It is ordinarily sold in the course of wholesale trade to the wholesale buyer. The degree of packing in which the excisable Article is contained will vary from one class of articles to another. From the particulars detailed before us by the assessees, it is apparent that the cost of primary packing, that is to say, the packing in which the Article is contained and in which it is made marketable for the ordinary consumer, for example a tube of toothpaste or a bottle of tablets in a cardboard carton, or biscuits in a paper wrapper or in a tin container, must be regarded as falling within Section 4(4)(d)(i). This is indeed conceded by learned counsel for the assessee. It is the cost of secondary packing which has raised serious dispute. Secondary packing is of different grades. There is the secondary packing which consists of larger cartons in which a standard number of primary cartons (in the sense mentioned earlier) are packed.
The large cartons may be packed into even larger cartons for facilitating the easier transport of the goods by the wholesale dealer.
Is all the packing, no matter to what degree, in which the wholesale dealer takes delivery of the goods to be considered for including the cost thereof in the "value"? Or does the law require a line to be drawn somewhere? We must remember that while packing Is necessary to make the excisable Article marketable, the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufactured Article itself. It seems to us that the degree of secondary packing which is necessary for putting the excisable Article in the condition in which it is generally sold in the wholesale market at the factory gate is the degree of packing whose cost can be included in the "value" of the Article for the purpose of the excise levy. To that extent, the cost of secondary packing cannot be deducted from the wholesale cash price of the excisable Article at the factory gate. We have also been referred to Section 2(f) of the Act which defines the expression "manufacture", and it is urged that the degree of packing to be considered for the purpose of including its cost in the "value" of an excisable Article should be spelled out from that definition. We are unable to accept the suggestion. The expression "manufacture" is related to the taxable event and refers to a process which enters into the character of the Article, while "packing" has been defined by Section 4(4)(d)(i) in relation the "value" of the Article." 7. From the above, it is clear that so far as the packing material are concerned, these are relevant for the purpose of arriving at the value in terms of Section 4 and are not relatable to the manufacture of the product as such. Under the Notification No. 201/79, the concession is only available if the raw-material and component part is used in the manufacture of excisable goods. The reel cannot be taken to have been used in the manufacture of paper but the same is used in the process beyond the stage of manufacture of paper. The value of the same is required to be reckoned for the purpose of assessment in terms of Central Excises and Salt Act as held by the Hon'ble Supreme Court. But it cannot be related to the manufacture of the paper as such.
8. A lot of stress has been laid by the learned Advocate for the respondents that if the benefit of the set-off in respect of the duty paid on reels is not given, it will tantamount to double taxation and he cited a number of cases of different High Courts and this Tribunal in support of his plea. We observe that the case law cited by the respondents relates to packing paper utilised for the clearance of other paper in a packed condition and the question in these proceedings was that of levy of duty on this paper which had suffered duty once earlier and the eligibility for proforma credit of the duty paid earlier on this under Rule 56A. Here the question is of multiple point levy. As a proposition of law, there is nothing against the item having to suffer duty when forms packing material of other excisable goods chargeable to duty under different tariff headings. There is nothing in law which prohibits such a levy nor has any case law been cited in this regard.
9. In view of the above, we hold that the paper reel cores are not component parts of paper and benefit of Notification No. 201/79 is not available as claimed by the respondents and as held by the Collector (Appeals). In view of this, we allow the appeal of the Revenue.