Judgment:
1. The department's case is that appellants have been undertaking production of hessian bags out of hessian cloth with the aid of power, without taking out a Central Excise Licence for manufacturing goods falling under Central Excise Tariff Item 22A(2) and that they failed to pay duty amounting to Rs. 11,550/- (Rs. 10,500 Basic Excise duty plus Rs. 1050/- Special Excise duty). As a result of adjudication of the matter, the demand for the above said duty amount was confirmed. The concerned goods, which had been seized were confiscated allowing the appellant the option to redeem the goods on payment of Rs. 500/- only.
No penalty was imposed on the ground that appellants were new to the manufacturing business. When appellants went up in appeal, the Collector (Appeals) upheld the order of the Assistant Collector. It is against this order that the appellants are now before us.
2. We have heard Shri J.S. Agarwal, advocate for the appellants and Shri L.C. Chakraborti, JDR for the department.
3. The learned advocate submits that the issue to be decided in the appeal as regards correct classification of the impugned products, namely, jute bags, is fully covered in favour of the appellants by the following decisions of the Tribunal :-Mis. Innes Watson & Co. Pvt. Ltd. v. Collector of Central Excise, Calcutta.Birla Jute Mfg. Company Ltd. v. Collector of Central Excise, Calcutta.
3. 1986 (23) ELT 446 - Shriram Jute Mills Ltd., Calcutta v. collector of Central Excise, Calcutta.
It Is, therefore, urged that the goods in question are correctly classifiable under Item 68 of Central Excise Tariff (hereafter CET). It has been the appellants' plea that if the goods are held to be classifiable under Item 68-CET, then the appellants would have the benefit of Notification No. 105/80 dated 19-6-1980. It is claimed that the goods are not in fact manufactured in a factory within the meaning of Section 2(m) of the Factories Act, 1948.
4. The learned JDR strongly reiterates the stand taken by the lower authority. He began to say that the Andhra Pradesh High Court decision in 1987 (32) ELT 317 in the case of Inter National Packing Industry v.Central Board of Excise and Customs and Ors. is in his favour. Later on, he said, he drops this point because he realises that the product before the Andhra Pradesh High Court was not hessian bags.
5. We have carefully considered the facts of the case and the submissions made before us. At the outset, we must reject out of hand the claim made on behalf of the appellants that any of the above cited decisions of the Tribunal are in their favour. In these cases, the product, the classification of which was decided by the Tribunal was laminated jute bags and not jute bags as such. The view was taken on the basis of the decision of the Calcutta High Court in the case of Dalhousie Jute Co. v. Union of India AIR 1970 Cal. 497. The operative part of the judgment of the Calcutta High Court on the issue of classification was as follows: "Jute cloth or jute fabric with a solution would not change the character of the product and transform it into another product which can also be described as a new manufacture of jute goods. It is undoubtedly a manufacture of now goods or new kind of goods but it is not a manufacture of jute goods. What is, therefore, being charged under the impugned notice of demand being the difference in weight of the laminated jute goods and the raw jute goods, is the weight of the materials used for lamination, i.e., polythene, gum tape and other adhesive materials used for making the coating. No duty is chargeable on such materials. The authorities are trying to do indirectly what they could not do directly, namely, charge excise duty on articles used." The Calcutta High Court decided that mere lamination of jute goods should not be considered as manufacture of jute goods. Following this decision, the Tribunal decided in various other cases that laminated jute goods will not fall for classification under Item 22-A-CET. After the amendment of the CET with effect from 1-3-1975, the goods, it was held, were classifiable under Item 68-CET. We may mention, however, that in a recent decision of this Tribunal in the case of Calcutta Laminators v. Collector of Central Excise, Calcutta (Order No.568/1988-D dated 16-8-1988) the Tribunal has re-considered the issue in the light of the decision of the Andhra Pradesh High Court in the case of International Packing Industry (supra), wherein the Court held that laminated jute bags in which jute predominated answered to the description of jute manufactures in Item No. 22A-CET and decided that, therefore, the correct classification of such goods was under Item No.22A- CET.6. Reference to these decisions became necessary in view of the stand taken by the learned advocate that three of the earlier decisions of this Tribunal were in his favour. The fact of the matter is that the impugned goods in those cases were laminated jute bags, which is not at all the case here, as the products are simply jute bags. Appellant's case is that they are manufacturing the goods from duty-paid hessian and that mere stitching of bags does not constitute a process of manufacture attracting any further levy. Besides, it is urged, sub-item (1) of Item 22A-CET is comprehensive enough to cover all hessian products, fabrics as well as jute bags.
7. Now, the first issue that has to be decided by us is whether the stitching of jute fabrics into bags constitutes a process of manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944. In the case of Union of India v. Delhi Cloth Mills -1977 ELT199, the Supreme Court had held that manufacture involves bringing into existence a new substance and that it does not mean merely producing some change in a substance. In Idandas v. Phadke -1981 (3) Scale 1790, the Supreme Court held that it must be proved that a certain commodity was produced, that the process of production involved labour or machinery and that the end product which came into existence after the manufacturing process is complete, should have a different name and should be put to a different use. In South Bihar Sugar Mills Ltd. v. Union of India and Anr. -1978 ELT (J 336), the Supreme Court again emphasised the importance of the article having a distinctive name, character or use. There is no doubt that in this case, there is a process of manufacture involved, as undoubtedly, the process of production has involved the use of labour as well as machinery. Jute bags are manufactured out of running length of jute fabrics and the end product is a new product having a distinct commercial name and use in the sense that jute bags are necessarily different from jute fabrics in running length.
8. In the light of the above discussion, it has to be held that the process of cutting of hessian fabrics and stitching it involves a process of manufacture, which brings into existence a new commercial product, namely, "jute bags".
9. The question next to be decided is as to whether, as claimed by the appellants, such jute bags would not be liable to payment of any further duty, as both, hessian cloth as well as jute bags would be covered under sub-item (i) of the relevant Tariff Entry, which Is "hessians". The department's case is that appellants are manufacturing jute bags and, therefore, liable to Central Excise duty for the production of this new item out of hessian cloth, which has discharged duty under Item 22A(i) - CET. It has not been established by the appellants either before the lower authorities or before us that the impugned goods are either being sold by them only as hessians or that they are known in the trade as hessians. In common parlance, jute bags should be considered as quite different from hessian cloth.
(a) the cutting of hessian cloth and their stitching into bags brings into existence a new commercial product and constitution manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.
(b) duty would be payable separately on hessian cloth and on jute bags, which are manufactured therefrom, the former being liable under 22A (i)-CET and the latter being classifiable under Item 22A (ii)-CET.11. The orders of the lower authorities are upheld and this appeal is dismissed.