1985 (7) TMI 224 - AT - Central Excise

Summary

Issues Involved:
1. Whether the use of wrapping paper for packing other varieties of paper qualifies as "raw material or component part" under amended Rules 9 and 49 of the Central Excise Rules, 1944.
2. Interpretation of "manufacture" under Section 2(f) of the Central Excises and Salt Act, 1944.
3. Applicability of Rule 56A in the context of packing materials.
4. Precedent value of various High Court and Tribunal decisions on the issue of packing as part of the manufacturing process.

Detailed Analysis:

Issue 1: Use of Wrapping Paper as "Raw Material or Component Part"
The core issue was whether wrapping paper used for packing other varieties of paper could be considered as "raw material or component part" under the amended Rules 9 and 49 of the Central Excise Rules, 1944. The Tribunal noted that the trade practice in India and several other countries considers the packed ream or reel of paper as the article of commerce. In this context, the wrapping paper becomes part of the finished product and is not talked of separately. The Tribunal concluded that packing paper is indeed a "raw material or component part" used in the "manufacture" of paper, as known to industry and trade, and recognized by the Indian Standards Institution and the Central Excise Department.

Issue 2: Interpretation of "Manufacture" under Section 2(f)
The Tribunal 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. It was observed that packing is considered one of the finishing processes in paper-making. Therefore, the packed paper is the completed product, and all processes resulting in this product are comprehended in the ambit of the term "manufacture." The Tribunal emphasized that the term "manufacture" should be understood in its wider scope, encompassing all processes leading to the stage the goods are completed for marketing.

Issue 3: Applicability of Rule 56A
The Tribunal referred to its earlier decision in the Orient Paper & Industries case, where it was held that normal packing should be treated as a process incidental or ancillary to the completion of the product. The Tribunal noted that Rule 56A, which talks of the use of duty-paid goods as "material or component part" in the manufacture of specified excisable goods, supports the view that packing materials can be considered as part of the manufacturing process. The Tribunal held that the exemption in Rule 9 was available to the wrapping paper in the present case, aligning it with the concession of proforma credit in Rule 56A.

Issue 4: Precedent Value of Various Decisions
The Tribunal considered several High Court and Tribunal decisions. The Gujarat High Court in Mercury Pharmaceuticals Industries v. State of Gujarat and Vasuki Carborundum Works v. State of Gujarat supported the view that materials integrally connected with the ultimate production of goods fall within the expression "in the manufacture of goods." The Full Bench of the Gujarat High Court in Ahmedabad Manufacturing and Calico Printing Ltd. v. Union of India observed that packing is an inseparable part of the process of manufacture of the excisable article. The Tribunal preferred these decisions over contrary views, such as those in Hindustan Lever Ltd. and H.M.M. Ltd., which were based on different contexts and notifications.

Separate Judgment by S.C. Jain:
S.C. Jain dissented, arguing that packing or wrapping other varieties of paper cannot be considered a process incidental or ancillary to the completion of the manufactured goods. He emphasized that wrapping paper is not a raw material or component part as required by amended Rules 9 and 49. Jain referenced the Andhra Pradesh High Court's decision in Andhra Pradesh Paper Mills Ltd. v. The Collector of Central Excise, which held that packing constitutes a post-manufacturing process. He concluded that the respondents were not entitled to the benefit under amended Rules 9 and 49 but could seek relief under Rule 56A if conditions were met.

Conclusion:
The majority decision upheld the Collector (Appeals)'s order, allowing the use of wrapping paper without payment of duty under amended Rules 9 and 49, while the dissenting opinion by S.C. Jain rejected this view, emphasizing the post-manufacturing nature of packing.