2018 (6) TMI 1142 - AT - Central Excise

Manufacture - conversion of tissue papers, C-fold tissue, M-fold tissue, paper napkin/serviette of different sizes, toilet roll, kitchen roll, JRT roll and HRT roll etc. from jumbo rolls of paper - whether the activity carried out by the appellant in their factory amounts to manufacture? - Held that - There is no doubt that the final products of the appellant are perceived in the market place as different from the jumbo rolls which are raw materials. No doubt both the jumbo rolls and final products such as napkins are made of the same tissue paper. But there is no doubt that the transformation of jumbo rolls into either toilet rolls/ kitchen rolls or in the form paper napkins bring out a distinctive and different use in the article. Evidently, the resultant products are perceived differently in the market - The process undertaken by the appellant is to be considered as a process of manufacture. The liability for payment of excise duty is, therefore, incurred by the appellant. Time Limitation - Held that - The demand upheld even on the basis of extended time limit. Appeal dismissed - decided against appellant.

Issues Involved:
1. Whether the process of converting jumbo rolls of tissue paper into smaller products amounts to "manufacture" under Section 2(f)(iii) of the Central Excise Act.
2. Classification of the resultant products under the Central Excise Tariff.
3. Applicability of the concept of "deemed manufacture" as per Section 2(f)(iii) of the Excise Act.
4. Time-bar for the demand of excise duty.

Detailed Analysis:

1. Whether the Process Amounts to "Manufacture":
The core issue is whether the activities undertaken by the appellant, such as cutting, slitting, folding, and packing jumbo rolls into smaller tissue products, amount to "manufacture" under Section 2(f)(iii) of the Central Excise Act. The appellant argued that these processes do not lead to the emergence of a new commodity with a different name, character, or use, citing the Supreme Court's decision in CCE, New Delhi vs. S.R. Tissues Pvt. Ltd. The Supreme Court in that case held that the characteristics of tissue paper remain the same before and after the process, thus not constituting manufacture. However, the tribunal noted that the decision in Fit Rite Packers, which came after S.R. Tissues, provided a more comprehensive test for determining manufacture. The tribunal concluded that the process undertaken by the appellant transforms the jumbo rolls into marketable products with distinctive and different uses, thereby satisfying the test of manufacture.

2. Classification Under Central Excise Tariff:
The appellant contended that their products should not be classified under Tariff Item 4818 2000, arguing that C-fold and M-fold towels are used in washrooms/kitchens and are thus similar to toilet paper, classifiable under Tariff Item 4818 10 00 or 4818 90 00. The tribunal, however, upheld the classification under Tariff Item 4818 2000, aligning with the adjudicating authority's interpretation that the products fall under the description of "cleansing or facial tissues, handkerchiefs and towels" as per Entry 55 of the Third Schedule to the Excise Act.

3. Applicability of "Deemed Manufacture":
The appellant argued that their activities do not fall under the "deemed manufacture" provisions of Section 2(f)(iii) of the Excise Act, which include packing or repacking, labeling, or any other treatment to render the product marketable. They claimed that their packing process does not involve unit containers and that their products are already marketable. The tribunal, however, found that the processes undertaken by the appellant render the jumbo rolls into a form suitable for convenient use and marketable, thus falling under the scope of "deemed manufacture."

4. Time-Bar for Demand of Excise Duty:
The appellant raised the issue of the demand being time-barred. The adjudicating authority had discussed this in Para 4.12 of the impugned order, and the tribunal upheld the demand even on the basis of the extended time limit, considering the peculiar facts and circumstances of the case.

Conclusion:
The tribunal upheld the adjudicating authority's decision that the appellant's processes amount to manufacture under Section 2(f)(iii) of the Excise Act. Consequently, the products are liable for excise duty. The tribunal also upheld the classification under Tariff Item 4818 2000 and the applicability of "deemed manufacture." The demand for excise duty, along with interest and penalties, was confirmed, and the appeals were rejected.

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