1989 (10) TMI 65 - HC - Central Excise

Summary

Issues Involved:
1. Liability of bituminised water-proof packing paper to excise duty under Tariff Item No. 17.
2. Whether the process of making bituminised water-proof packing paper constitutes "manufacture" under Section 2(f) of the Central Excises and Salt Act, 1944.
3. Applicability of exemption notifications to the classification of the product.

Detailed Analysis:

1. Liability to Excise Duty:
The petitioners, a partnership firm and one of its partners, sought a declaration that bituminised water-proof packing paper should not be subject to excise duty under Tariff Item No. 17 of the Tariff Schedule annexed to the Central Excises and Salt Act, 1944. They also requested an injunction to restrain authorities from levying and recovering excise duty on the said product.

2. Manufacturing Process and Definition of Manufacture:
The core issue was whether the process of creating bituminised water-proof packing paper constitutes "manufacture." The petitioners described the process as bonding two layers of kraft paper using bitumen, arguing that this did not change the paper's character or quality. However, the respondents contended that the process resulted in a new product with distinct characteristics, uses, and a higher market value.

The court examined the definition of "manufacture" under Section 2(f) of the Central Excises and Salt Act, 1944, which includes any process incidental or ancillary to the completion of a manufactured product. The court referred to various precedents, including the Supreme Court's rulings in *Empire Industries Ltd. v. Union of India* and *M/s. Name Tulaman Manufacturers Pvt. Ltd. v. Collector of Central Excise*, which established that "manufacture" involves transforming raw materials into a new product with a distinct name, character, or use.

3. Applicability of Exemption Notifications:
The petitioners argued that Notification No. 184 of 1976, which granted certain exemptions, should influence the classification of the product. However, the court, relying on the Supreme Court's decision in *J.K. Steel Ltd. v. Union of India*, held that notifications could be considered for determining a fiscal statute's entry. Nevertheless, the court concluded that the process of converting kraft paper into bituminised water-proof paper constituted manufacture, making the product liable to excise duty, irrespective of the exemption notification.

Conclusion:
The court found that the process of creating bituminised water-proof packing paper constituted "manufacture" under Section 2(f) of the Central Excises and Salt Act, 1944. The resultant product was distinct from kraft paper in terms of name, character, and use, making it liable to excise duty under Tariff Item No. 17. Consequently, the petition was rejected, and the rule was discharged with no order as to costs. The request for a Certificate for leave to appeal to the Supreme Court was also refused, as no substantial question of law was involved.