1972 (9) TMI 143 - HC - Central Excise

Issues Involved:
1. Whether the petitioners are manufacturing gummed paper and textile wrappers.
2. Applicability of the Central Excise and Salt Act, 1944 to the petitioners' factory.
3. Interpretation of the term "manufacture" under Section 2(f) of the Act.
4. Application of exemption notification dated September 5, 1970.
5. Whether the intermediate product is a new substance known to the market.

Detailed Analysis:

1. Whether the petitioners are manufacturing gummed paper and textile wrappers:
The petitioners, a partnership firm, contend that they do not manufacture gummed paper or converted types of paper at their factory. They argue that they produce paper gummed tapes and printed wrappers using duty-paid paper purchased from manufacturers. The Excise Authorities, however, argue that the petitioners manufacture gummed paper as an intermediate product in the process of making paper gummed tapes and that the textile wrappers are converted types of paper.

2. Applicability of the Central Excise and Salt Act, 1944 to the petitioners' factory:
The petitioners filed a special Civil Application seeking a writ of mandamus to prevent the application of the Central Excise and Salt Act, 1944, and the rules made thereunder to their factory in respect of paper gummed tapes and textile wrappers. They also sought to restrain the respondents from enforcing demands contained in various letters from the Excise authorities.

3. Interpretation of the term "manufacture" under Section 2(f) of the Act:
The court referred to Section 2(f) of the Act, which defines "manufacture" to include any process incidental or ancillary to the completion of a manufactured product. The court also considered the charging section under Section 3 of the Act, which levies duties of excise on all excisable goods produced or manufactured in India. The court examined Supreme Court decisions, including Union of India v. Delhi Cloth and General Mills and South Bihar Sugar Mills Ltd. v. Union of India, which clarified that "manufacture" implies a change that brings into existence a new substance known to the market.

4. Application of exemption notification dated September 5, 1970:
The petitioners argued that their products do not fall under the category of gummed paper or converted types of paper as defined in the exemption notification dated September 5, 1970. The notification exempts certain types of paper, including gummed paper obtained by applying gum to one side of the paper, from excise duty, provided it is proved that the appropriate duty of excise has been paid on the paper used. The court noted that if the petitioners are manufacturing articles of paper rather than any kind of paper, they are not liable to pay duty under sub-item (4) of Item 17 in the First Schedule of the Act.

5. Whether the intermediate product is a new substance known to the market:
The court examined the process described by the petitioners for manufacturing gummed paper, which involves applying gum to one side of the paper and subjecting it to further processes such as using a gum breaker and a cutting machine. The court found that the revenue did not provide any material to show that the intermediate product manufactured by the petitioners is known to the market as gummed paper. Similarly, the court found that the textile wrappers produced by the petitioners are made from duty-paid paper and do not undergo a transformation that results in a new product known to the market.

Conclusion:
The court concluded that the petitioners are not manufacturing gummed paper or converted types of paper as defined under the Act. The intermediate product of applying gum to one side of the paper does not result in a new commodity known to the market. The court allowed the petition and issued a writ of mandamus directing the respondents to forbear from applying the provisions of the Central Excise and Salt Act, 1944, to the petitioners' factory in respect of gummed paper and textile wrappers. The respondents were also restrained from taking any steps or proceedings against the petitioners under the Act or the rules made thereunder in respect of these products. The rule was made absolute, and the respondents were ordered to pay the costs of the petition to the petitioners.

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