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TMI Blog1986 (10) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... carbon paper through a process. They purchase duty paid printing and writing paper and use the same as backing paper for this stencil paper. The said stencil paper is made by collecting together the stencil skin, carbon paper and backing paper. The scale printing is also done simultaneously with collating. The said operation of collating is carried out by a machine known as collating machine. The stencil head of the said stencil paper is punched by the appellants on punching press by punching required holes to make it useable on a particular duplicating machine. 2. Upto 24th April, 1980 the appellants cleared the stencil paper after paying duty on it under Item 68 of the Central Excise Tariff. Thereafter the appellants were asked to file classification lists for the stencil paper classifying it under Tariff Item 17(2) with effect from 16th March, 1976 and to pay the duty. The appellants thereafter cleared the goods under Item 17(2) C.E.T. under protest. They contended that duty was payable only under Item 68 C.E.T. They, however, availed of proforma credit on the duty paid on the said paper. 3.On 15th November, 1980 the Central Excise Authorities issued to the appellants a dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... market. In common parlance paper means paper which is used for writing, printing or packaging and as stencil skin is not used for any of these purposes, it is not known as paper and cannot be considered as such. (iii) The stencil skin is obtained at an intermediate stage in the process of manufacture of duplicating paper and is neither bought nor sold as such. It is, therefore, not goods . (The appellants sought support for this argument by some affidavits filed). They also submitted that a small number of instances of export of stencil skin to some foreign buyers did not amount to buying and selling the same. (iv) Even if stencil skin is paper no duty can be levied as there is no removal of the goods from the factory, all the skins being used in the manufacture of stencil paper also known as duplicating stencils . (v) Even if stencil skin is charged to duty it could be liable to duty under Tariff Item 68 C.E.T. and not 17(2) as it is not paper. The Learned Counsel cited case law to which reference will be made at appropriate places. 8. Replying to the arguments and opposing the same the Learned J.D.R. Shri Sundar Rajan submitted that the Bombay High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion made by the Revenue that the Supreme Court judgment in Union Carbide India Ltd. 1986 (24) E.L.T. 169 S.C. was not correct as Rules 9 and 49 were not considered there. Shri Sorabjee also argued that captive consumption is different from being able to bring goods to the market and that mere removal for captive consumption does not render something into goods when they are otherwise not goods. He pointed out that the affidavits filed have not been answered by the lower authorities. 11.We have considered the arguments of both sides carefully. The points for decision before us can be reduced to whether - (1) Stencil Skin are goods and (2) if they are so whether they are classifiable under Item 17(2) C.E.T. or Item 68 thereof. 12. Shri Sorabjee s argument that stencil skin were not goods was based on the averment that these are not normally and in the ordinary course bought and sold. The consumption is entirely captive and they are useless for anybody except the makers of stencil paper like the appellants. In this context Shri Sorabjee referred to Board s Tariff Advice No. 61/78, dated 20-11-1978 which was extracted from Jain s Central Excise Tariff 1985-86 page 468. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made and becomes a component part of stencil. In the Union Carbide case the position was different. As observed by the Supreme Court it appeared from the records (of the case) that the aluminium cans at the point of levy of excise duty exist in a crude and elementary form incapable of being employed at that stage as a component in a flashlight. The Hon ble Court also observed that the cans have sharp uneven edges and in order to use them as a component in making flashlight cases, the cans have to undergo various processes such as trimming, threading and redrawing. After the cans are trimmed, threaded and redrawn, they are reeded, beaded and anodized or painted. It is at that point only that they (the cans) become a distinct and complete component capable of being used as flashlight case..... 16. In the present case, we note the submission of the Learned J.D.R. to the effect that the stencil skin is a ready component of the stencil. The observations made by the Supreme Court about the cans do not apply to the stencil skins which are subject matter of this appeal. Therefore, we hold that on the basis of the facts and circumstances the ratio of the judgment in Union Carbide (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining its original identity". It may be noted that the taxable event in the context of Sales Tax Law is sale . The taxable event under the Excise Law is manufacture . The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes manufacture takes place and liability to duty is attracted. Though in the facts of that case perhaps it was not necessary and as such the attention of the Court was not drawn to the definition of the term manufacture under Section 2(f) of the Central Excise Act nor was the Tariff Item IB placed before .the Court." 18. It cannot be denied that the stencil skin is manufactured by the appellants. The argument that the stencil skin is not bought or sold in market place appears to be immaterial as it is not a general consumption item but a highly specialized item. It is conceivable that a manufacturer who wants to manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correct classification. The Revenue s argument is that it is paper falling under Item 17(2) C.E.T. Appellants resist this argument and submit that it is not paper and it is not liable to duty under that item. We would like to straightway reject the argument of the Learned J.D.R. that the Bombay High Court s order, dated July 13, 1981 classified these goods under Tariff Item 17(2). These orders do not have any indication to that effect. 22. tem No. 17 of C.E.T. at the relevant time was as follows: 17. Paper and Paper board, all sorts (including paste-board, mill board, strawboard, cardboard and corrugated board), in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power - (1) Uncoated and coated printing and writing paper (other than poster papery (2) Paper board and all other kinds of papers (including paper or paper boards which have been subjected to various treatments such as coating, impregnating, corrugation, creping and design printing), not elsewhere specified". 23. This item will become relevant if the stencil skin is found to be paper. Shri Soli Sorabjee relied upon a judgment of the Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that carbon paper is not paper, the Hon ble Supreme Court observed as follows: 16. Bearing in mind the ratio of the above-mentioned decisions, it is quite clear that the mere fact that the word paper forms part of the denomination of a specialised article is not decisive of the question whether the article is paper is generally understood. The word paper in the common parlance or in the commercial sense means paper which is used for printing, writing or packing purposes. We are, therefore, clearly of opinion that carbon paper is not paper as envisaged by entry 2 of the aforesaid Notification. Shri Sorabjee submitted that the Tribunal s rejection of this judgment in 1985 (6) E.T.R. 570 [Kores (India) Ltd. Thane v. Collector of Central Excise, Thane] on the ground that it was delivered in a sales-tax case was wrong. We note this argument but do not find it necessary to make any observations on the correctness or otherwise of the earlier decision as it is not necessary for the present proceedings. 24. Shri Soli Sorabjee also relied on a judgment of the Karnataka High Court in Khoday Industries Limited v. Union of India c Others 1986 (23) E.L.T. 337. The High Court in this ..... X X X X Extracts X X X X X X X X Extracts X X X X
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