1989 (9) TMI 235 - AT - Central Excise

Summary

Issues Involved:
1. Classification of impregnated filter paper pleated packs.
2. Liability to pay duty on the goods cleared.
3. Imposition of penalty under Central Excise Rule 173Q.
4. Determination if the process of slitting, pleating, and cutting constitutes "manufacture."
5. Applicability of Central Excise Notification No. 63/82.

Detailed Analysis:

1. Classification of Impregnated Filter Paper Pleated Packs:
- The Additional Collector held that impregnated filter paper pleated packs manufactured by the appellants were classifiable under sub-heading No. 4818.90 of the Schedule to the Central Excise Tariff Act, 1985.
- The appellants contended that the goods could not be considered as articles of paper falling under sub-heading No. 4818.90 but were a converted type of paper wholly exempted from Central Excise duty.
- The Tribunal found that the pleated filter packs are used exclusively for the manufacture of automotive filters and that the process of pleating does not change the character or use of the impregnated paper. Therefore, the pleated paper pack remains a converted type of paper.
- The Tribunal concluded that the subject goods should be classified under Heading No. 48.17, sub-heading No. 4817.90, which covers "Other paper, Paperboard, Cellulose Wadding and Webs of Cellulose fibres, cut to size or shape."

2. Liability to Pay Duty on the Goods Cleared:
- The Additional Collector demanded Rs. 3,13,790.92 as the duty chargeable on the goods cleared during the period from 1-1-1987 to 31-5-1987.
- The Tribunal noted that the resin-impregnated filter paper manufactured by the appellants out of base filter paper is a converted type of paper eligible for duty exemption.
- The Tribunal held that the process of slitting, pleating, and cutting does not constitute "manufacture," and therefore, the pleated filter packs are not liable to be charged to duty.

3. Imposition of Penalty under Central Excise Rule 173Q:
- The Additional Collector imposed a penalty of Rs. 50,000/- on the appellants under Central Excise Rule 173Q.
- Given that the Tribunal found no liability to duty, the imposition of the penalty was also deemed unsustainable and was set aside.

4. Determination if the Process of Slitting, Pleating, and Cutting Constitutes "Manufacture":
- The appellants argued that the process of pleating impregnated paper did not amount to "manufacture" since no new article known to the trade emerged as a result of the process.
- The Tribunal agreed with the appellants, stating that the impregnated filter paper, even after slitting, pleating, and cutting to size, remains impregnated filter paper. The use remains the same, i.e., filtration.
- The Tribunal referenced the Supreme Court judgment in Empire Industries v. Union of India, which held that "manufacture" takes place when a new commodity emerges with a distinct name, character, and use. In this case, no such new commodity emerged.

5. Applicability of Central Excise Notification No. 63/82:
- The Department contended that pleated filter packs made out of exempted resin-impregnated paper cannot be said to have been produced out of duty-paid paper.
- The Tribunal rejected this contention, noting that there is no "manufacture" involved in the production of pleated packs from resin-impregnated filter paper, and thus, the notification's conditions do not apply.
- The Tribunal further stated that even if there were "manufacture," the pleated packs would still be identifiable as impregnated filter paper and hence exempt under the notification.

Conclusion:
- The Tribunal set aside the impugned orders, allowing the appeals with consequential relief, as the processes undertaken by the appellants constituted "conversion" and not "manufacture," and thus, the end-product was not liable to be charged to duty.