1989 (9) TMI 102 - SC - Central Excise

Whether in input of Sodium Sulphate in the manufacture of paper would cease to be a Raw-Material by reason alone of the fact that in the course of the chemical reactions this ingredient is consumed and burnt-up? Held that - One of the valid tests, in our opinion, could be that the ingredient should be so essential for the chemical processes cluminating in the emergence of the desired end-product, that having regard to its importance in and indispensability for the process, it could be said that its very consumption on burning-up is its quality and value as raw-material. In such a case, the relevant test is not its presence in the end-product, but the dependence of the end-product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end-product in the sense that without its absence the presence of the end-product, as such, is rendered impossible. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus. No substance in the contention of Sri Ganguly that the process in which the Sodium Sulphate was used, was anterior to and at one stage removed from the actual manufacture of paper. Thus the Tribunal was right in its conclusion that Sodium Sulphate was used in the manufacture of papers as Raw-Material within the meaning of the Notification No. 105/82-C.E., dated 28-1-1982. Appeal dismissed.

Issues Involved:
1. Entitlement to Proforma Credits
2. Definition of "Raw Material"
3. Interpretation of Notification No. 105/82-C.E.
4. Role of Sodium Sulphate in Paper Manufacturing
5. Relevance of Judicial Precedents

Issue-wise Detailed Analysis:

1. Entitlement to Proforma Credits:
The main issue in this appeal is whether the Respondent-Manufacturer is entitled to the benefit of Central Government's Notification No. 105/82-C.E., dated 28-2-1982. This depends on whether Sodium Sulphate can be considered as "Raw Material" in the manufacture of paper and paperboard. The Superintendent of Central Excise initially denied the Proforma-Credit on the ground that Sodium Sulphate is burnt up in the process and does not remain in the finished product. However, the Assistant Collector of Central Excise, Ambala, held that Sodium Sulphate is an essential raw material, a decision later upheld by the Tribunal.

2. Definition of "Raw Material":
The controversy hinges on the interpretation of the term "Raw Material" as used in the Notification. The Tribunal, relying on its earlier decision in Seshasayee Paper and Boards Ltd. v. Collector of Central Excise, interpreted "Raw Material" to include Sodium Sulphate, emphasizing that it serves a distinct and definitive purpose in the manufacturing process. The appellant argued that "Raw Material" should be something that endures as a composite element of the end-product, citing judicial precedents to support this narrower interpretation.

3. Interpretation of Notification No. 105/82-C.E.:
The Notification exempts excisable goods from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the "inputs" used as raw material or component parts. The appellant contended that the substitution of the term "Raw Material" in the Notification was intended to cut down the benefit, distinguishing it from materials merely "used" in the manufacture. The Tribunal, however, upheld that Sodium Sulphate qualifies as "Raw Material" under the Notification.

4. Role of Sodium Sulphate in Paper Manufacturing:
The appellant argued that Sodium Sulphate is used at an anterior stage of the manufacturing process and does not find a place in the finished product. In contrast, the respondent maintained that Sodium Sulphate is an essential chemical ingredient in the paper manufacturing process. The Tribunal agreed with the respondent, noting that the essentiality of an ingredient in the manufacturing process qualifies it as "Raw Material," even if it is consumed or burnt up during the process.

5. Relevance of Judicial Precedents:
The appellant cited various judicial precedents to argue that for something to qualify as "Raw Material," it must be present in the end-product. However, the Tribunal and the Supreme Court found these precedents distinguishable. The Court emphasized that the term "Raw Material" should be interpreted based on the facts of each case and the essentiality of the ingredient in the manufacturing process.

Conclusion:
The Supreme Court upheld the Tribunal's decision, concluding that Sodium Sulphate is used as "Raw Material" in the manufacture of paper within the meaning of Notification No. 105/82-C.E. The appeal was dismissed, affirming the Tribunal's interpretation that the essentiality of an ingredient in the manufacturing process qualifies it as "Raw Material," irrespective of its presence in the end-product.

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