2003 (9) TMI 369 - AT - Central Excise

Duty demand - Availing exemption on final product, namely, coated paper under Notification No. 3/2001-C.E. - Uncoated paper emerges during the manufacturing process of coated paper - Penalty - HELD THAT - We are of the view that the appellants are justified in contending that the process of coating of the uncoated paper would not amount to a manufacturing process. No different commodity emerges after the coating having distinct features, name, use and character. The coated paper continuous to be paper for printing and writing. The ratio of the decision of this Tribunal in CCE v. Shree Vindhya Paper Mills 1988 (1) TMI 175 - CEGAT, NEW DELHI is directly applicable in the present case. The view taken by the Commissioner in the impugned order that the assessee is manufacturing two products, namely, uncoated paper and coated paper cannot be accepted. Uncoated paper emerges at one stage of the manufacturing process of coated paper. A reading of the exemption notification would clearly show that it grants an exemption from payment of duty on paper and paper board articles made therefrom upto clearance of 3500 MTs, when the same is manufactured from the stage of pulp and using non-conventional raw material. The objective is apparently to promote use of non-conventional raw material in making paper, paperboard and articles of paper and paperboard. If the interpretation sought to be given by the Revenue is accepted, it will defeat the very objective. Thus, we find no reason to uphold the view taken by the Commissioner affirming the demand under the show cause notice. We, therefore, set aside the order impugned and allow the appeal.

Summary

Issues involved: Duty demand u/s 11A of the Central Excise Act, penalty imposition, exemption eligibility for uncoated paper, captive consumption, manufacturing process interpretation.

Duty Demand and Exemption Eligibility:
The appeal concerns a duty demand of Rs. 1,06,39,037 u/s 11A of the Central Excise Act and a penalty of Rs. 10 lakhs imposed by the Commissioner, which the appellants contested. The dispute arose as the appellants, availing exemption on coated paper, were alleged to be liable for duty on uncoated paper. The exemption under Notification No. 3/2001-C.E. allows duty exemption for paper made from non-conventional raw material up to a certain quantity. The appellants argued that both coated and uncoated paper should be treated the same under the exemption, emphasizing that the manufacturing process does not change the essential nature of the paper.

Captive Consumption and Manufacturing Process Interpretation:
The show cause notice proposed duty demand on uncoated paper captively consumed for manufacturing coated paper, contending that such uncoated paper is not eligible for exemption. The appellants argued that the process of coating uncoated paper does not constitute a separate manufacturing activity, citing precedent where the process did not change the essential nature of the paper. They maintained that duty should be payable only at the stage when coated paper is cleared from the factory. The Tribunal agreed with the appellants, ruling that the process of coating does not result in a new commodity with distinct features, name, use, or character. The interpretation by the Revenue was deemed to defeat the objective of promoting non-conventional raw materials in paper manufacturing, leading to the order being set aside and the appeal being allowed.