1989 (8) TMI 78 - SC - Central Excise

Whether paper core is used in the manufacture of paper as component part? Held that - use of paper core is necessary for rewinding of paper if it is delivered to the customer in rolls and would come within the purview of the expression any process incidental or ancillary to the completion of a manufactured product used in the definition of the term manufacture in Section 2(f) of the Act and for the same reason paper core would also be constitutent part of paper and would thus fall within the term component parts used in the Notification insofar as manufacture of paper in rolls is concerned. Paper core, however, cannot be said to be used in the manufacture of paper in sheets as component part. We are conscious that the relevant tariff item uses the word paper but since paper in rolls and paper in sheets are nothing but different forms of paper, both of them would be excisable goods as paper under the relevant tariff item. Appeal succeeds and is allowed to this extent that it is held that in the manufacture of paper rolls delivered to the customers for use as roll paper, paper core is used as component part.

Issues Involved:
1. Whether paper cores used in the manufacture of paper qualify as "component parts" under the relevant Notification for excise duty exemption.
2. The applicability of the term "manufacture" as defined in Section 2(f) of the Central Excises and Salt Act, 1944.
3. The interpretation of the term "component parts" in the context of the Notification.

Issue-wise Detailed Analysis:

1. Whether paper cores used in the manufacture of paper qualify as "component parts" under the relevant Notification for excise duty exemption:

The appellant claimed an exemption from excise duty on paper cores used in the manufacture of paper based on Notification No. 201/79, as amended by Notification No. 105/82. The Notification exempts excisable goods from duty equivalent to the duty already paid on the inputs used as raw materials or component parts. The appellant argued that paper cores are used in the re-winding and cutting machines during the paper manufacturing process, making them "component parts" under the Notification. The respondent contended that paper cores are used as packing material after the paper is manufactured and do not qualify as component parts. The Tribunal had to determine if paper cores are integral to the manufacturing process of paper.

2. The applicability of the term "manufacture" as defined in Section 2(f) of the Central Excises and Salt Act, 1944:

Section 2(f) of the Act defines "manufacture" to include any process incidental or ancillary to the completion of a manufactured product. The court referred to the definition and various authoritative texts on paper manufacturing to determine if the use of paper cores is necessary in the manufacturing process. The court considered whether paper cores are used in any process incidental or ancillary to the completion of paper as a marketable product.

3. The interpretation of the term "component parts" in the context of the Notification:

The term "component parts" is not defined in the Act or the Notification, so the court referred to its dictionary meaning and previous judgments. According to Webster's Dictionary, "component" means a constituent part. The court also referred to the judgment in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur, which held that any process integrally connected with the ultimate production of goods would fall within the expression "in the manufacture of goods." The court applied this principle to determine if paper cores are integral to the manufacturing process of paper.

Detailed Analysis:

The court examined the manufacturing process of paper, referring to authoritative texts like Encyclopaedia Britannica and The Story of Papermaking. It found that paper is produced in rolls and sheets, and the use of paper cores is essential for manufacturing roll paper. The paper is wound on paper cores during the rewinding process, making it marketable as roll paper. However, for paper sheets, the use of paper cores is not necessary, as the paper can be cut into sheets without them. The court concluded that paper cores are necessary for the manufacture of roll paper but not for sheet paper.

Conclusion:

The court held that paper cores used in the manufacture of paper rolls qualify as "component parts" under the Notification, entitling the appellant to the exemption. However, paper cores used in the manufacture of paper sheets do not qualify for the exemption. The appeal was allowed to the extent that paper cores used in the manufacture of paper rolls are considered component parts, and the orders of the authorities below were modified accordingly. Each party was ordered to bear its own costs.

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