1988 (5) TMI 191 - AT - Central Excise

Issues Involved:
1. Eligibility of paper reel cores for the benefit of Notification No. 201/79.
2. Definition and interpretation of "component parts" under Notification No. 201/79.
3. Relevance of packing material in the context of excise duty and manufacture.
4. Potential double taxation on paper reel cores.

Issue-wise Detailed Analysis:

1. Eligibility of Paper Reel Cores for the Benefit of Notification No. 201/79:
The primary issue in this appeal is whether paper reel cores used in the rewinding and cutting machines for forming paper reels of required sizes for ultimate clearance and sale are eligible for the benefit of Notification No. 201/79, dated 4-6-1979. The notification exempts excisable goods in which any goods falling under Item No. 68 of the Central Excise Tariff have been used as raw materials or component parts from so much of excise duty as is equivalent to the duty of excise already paid on the inputs.

2. Definition and Interpretation of "Component Parts" under Notification No. 201/79:
The term "component part" is not explicitly defined in the notification. The Oxford Dictionary defines a component as "contributing to the composition of a whole," and Webster's Dictionary defines it as "a constituent, the effective part of a force or velocity in a given direction." The judgment concludes that the paper reel cores do not meet this definition as they are used for marketing convenience and do not contribute to the composition of paper. The paper is complete after it emerges from the paper machine, and the reel cores are used only for reeling the paper for marketing purposes. Thus, the reel cores cannot be considered component parts of the paper.

3. Relevance of Packing Material in the Context of Excise Duty and Manufacture:
The learned Advocate for the respondents argued that packing is a process incidental or ancillary to the completion of the manufacture of paper, citing various judgments, including the Supreme Court's decision in UOI v. Bombay Tyre International Ltd. The Tribunal, however, held that packing materials, including paper reel cores, are relevant for determining the value of the product under Section 4 of the Central Excises and Salt Act but do not relate to the manufacture of the product itself. The reel cores are considered packing material and not component parts of the paper.

4. Potential Double Taxation on Paper Reel Cores:
The respondents argued that denying the benefit of the exemption would result in double taxation, as the reel cores have already suffered duty. They cited several case laws where the courts held that wrapping paper used for packing other paper should not be subject to duty again. However, the Tribunal noted that the cited cases dealt with multiple point levies and proforma credit under Rule 56A, which are not directly applicable to the current issue. The Tribunal concluded that there is no legal prohibition against an item suffering duty when it forms packing material for other excisable goods chargeable under different tariff headings.

Conclusion:
The Tribunal held that paper reel cores are not component parts of paper and are therefore not eligible for the benefit of Notification No. 201/79. The appeal of the Revenue was allowed, and the order of the Collector (Appeals) was set aside. The Tribunal emphasized that the reel cores are used only for marketing purposes and do not contribute to the manufacture of paper, thus failing to meet the criteria set out in the notification for exemption.

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