Holding

Manufacture is deemed complete only after wrapping, making the wrapping paper a component part of the finished product and liable to excise duty.

Summary

Eastend Paper Industries Ltd. manufactured various papers, including wrapping paper, and removed 4,000 kg of wrapping paper from its factory without paying excise duty. The Revenue issued a show‑cause notice under Rules 9(1), 173‑F and 173‑G of the Central Excise Rules, 1944, alleging duty evasion. The assessee contended that the wrapping paper was captively consumed as a component part of the finished paper and thus exempt under Section 2(f) of the Central Excises and Salt Act, 1944 and Notification No. 18A‑83‑CE. The Collector (Appeals) rejected the claim, but the Customs, Excise and Gold (Control) Appellate Tribunal set aside that order. On appeal under section 35‑L, the Supreme Court held that manufacture is not complete until the paper is wrapped, that wrapping paper forms an integral component part of the finished product, and therefore excise duty is payable. The Court dismissed the revenue’s appeal.

Issues considered

Whether wrapping paper used to pack/wrap finished paper is a component part or raw material within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.
Whether the process of wrapping completes the manufacture of paper for the purpose of levying excise duty.
Interpretation of Rules 9(1), 173‑F, 173‑G and the proviso to Rule 9(1) in relation to captive consumption of wrapping paper.

Legislation cited

Central Excise Rules, 1944s. 173-F, s. 173-G, s. 56(a), s. 56A, s. 9(1)
Central Excises and Salt Act, 1944s. 2(f)
Notification No. 18A‑83‑CE dated 9 July 1983

Subjects

excise dutymanufacturecomponent partwrapping papercaptive consumptionCentral Excise ActSection 2(f)Rule 9(1)Rule 173-FRule 173-Gproforma creditproduction register

Judgment

COLLECTOR OF CENTRAL EXCISE, CALCUTTA-II
A
v.
EASTEND PAPER INDUSTRIES LTD. & ANR.

AUGUST 29, 1989

[SABYASACHi MUKHARJI AND:B.C. RAY, JJ.] B

Central Excises and Salt Act, 1944/Central Excise Rules,· 1944:
... Section 2(f)/Rules 9(1), 56(a), 173-F and 173-G-Levy of Excise
Duty-Wrapping paper-Captively consumed and utilised as com-
ponent part of other varieties of paper-Whether deemed to have been
used in completwn or manufaciure of end product.
c
The respondent, iri the first of tliese appeals, was manufacturing
different varieties of pdritlrig paper including wrapping paper falling
under Item No. 17 of th~ erstwhile Central Excise Tariff. The appellant
issued a show. caiise notice tci the Respondent for the alleged violation of
Rules 9(1), 173-F and 173-G of the Central Excise Rules, 1944 in respect
of wrapping paper removed outside the Factory without payment of
Central Excise duty, and for imposition of penalty. Showing cause, the
Respondent contended that the wrapping paper was captively
consumed and utilised as component ')ar'. of other varieties of paper
arid as such no duty was pdyable. Reliance. was placed on section 2(1) of
the Cen!ral Excises and Salt Act, 1944 and Notification No. 18A;83-CE E
dated 9th July, 1983. The Superintendent (Technical) having held
otherwise, the respondent preferred an appeal to the Collector
(Appeals). The Collector rejected the claim. On appeal, the Customs,
Excise and Gold (Control) Appellate Tfibiiiial referred to its own deci'
sion, which is the subject matter of the other appeals herein and sei
aside the order of the Collector.

The facts leading to the other appeais are similar, and the issue
involved is the same. The Revenue has filed the appeals under section
.. 35-L of the Central Excises & Salt Act .

On behalf of the Revenue, it was contended that wrapping paper G
cannot be deemed to be component part because ·it did not become an
integral part of the packed paper.

The assessee, however contended that wrapping paper was raw
material or component part of the wrapped paper, and relied on S. 2(1)
of the Act which includes any process incidental or ancillary to the H
1017
1018 SUPREME COURT REPORTS [1989] 3 S.C.R.

completion of a manufactured product. It was also urged that Revenue
A
had itself considered the stage of wrapped or packed paper as the stage
at which goods should be entered in the statutory production register.

Dismissing the appeals,

B HELD: J. 'Manufacture' in the sense it is used in the excise law,
was not complete until and unless wrapping was done. It is the law now
that excise is a duty on manufacture. Manufacture is the process or
activity which brings into existence new, identifiable and distinct goods.
Goods have been understood to be articles known as identifiable articles
known in the market as goods and marketed or marketable in the
C market as such. The finished goods were cut-to-size and packed paper
--
which, according to the Indian standard and trade practice, consisted
of the wrapping paper and the wrapped paper. Duty is levied on goods.
As the Act does not define goods, the legislature must be taken to have
used that word in its ordinary, dictionary meaning. The dictionary
meaning of the expression is that to become •goods' it must he some-
D thing which can ordinarily come to the market to be bought and sold
and is known to the market as such. The Tribunal found, and there was
material for the Tribunal to do so, that the market in which articles in
question were sold were paper packed and wrapped in paper. There-
fore, anything that enters into and forms part of that process must be
deemed to be raw material or component part of the end product and
E must be deemed to have been used in completion or manufacture of the
end product. [J02JG-H; J022A-D]

Bhor Industries Ltd., Bombay v. Collector of Central Excise,
Bombay, [1989] l SCC 602; South Bihar Sugar Mills Ltd., etc. v. Union
of India & Ors., [1968] 3 SCR 21; Union of India v. Delhi Cloth & ~·
F General Mills Ltd., [1963] Suppl. l SCR 586; Union Carbide India Ltd.
v. Union of India and Ors., [1986] 24 ELT 169; Collector of Central
Excise, Baroda v. Mis Ambalal Sarabhai Enterprises, [1989] 3 SCR 784
relied on.

2. Processes incidental or ancillary to wrapping are to be
G included in the process of manufacture, manufacture in the sense of
bringing the goods into existence as these are known in the market, is
not complete until these are wrapped in wrapping paper. Manufacture
of goods should normally encompass the entire process carried on by
the dealer of converting raw materials into finished goods. Where any
particular process, is so integrally connected with the ultimate produc-
H tion of goods that, but for that process, manufacture or processing of
COLLECTOR OF C.E. v. EASTEND PAPER [MUKHARJI, J.] 1019

goods would be commercially inexpedient, article required in that pro-
A
cess, would fall within the eXPres..ion 'in the manufacture of goods'. [1022E-GI

Empire Industries Ltd. & Ors. v. Union of India & Ors., [1985) 3
SCC 314; J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales
Tax Officer, [1965] 16 STC 563 (SC); relied on. [1023F]
B
3. To be able to be marketed or to be marketable, in the light of .
facts in the appeals, it was an essential requirement to be goods, to be
wrapped in paper. Anythiug required to make the goods marketable,
must form part of the manufacture and any raw material or any mate-
rial used for the same would be component part for the end product.

)
Collector of Central Excise v. Jay Engineering Works Ltd., [1989)
c
39 ELT 169 (SC); referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1589
of 1988 etc.
D
From the Order dated 6. 1. 1988 of the Customs Excise and Gold
(Control) Appellate Tribunal, New Delhi in Appeal No. 2085 of 1985-
~ A in Order No. 5 of 1988-A.

K. Parasaran, Attorney General, A.K. Ganguli, K. Swamy, E
P. Parmeswaran and Sushma Suri for the Appellant.

R.N. Bajoria, S.K. Bagaria, Padam Khaita, Vivek Gambhir,
Praveen Kumar, S.K. Bagga and R.K. Mehta for the Respondents.

The Judgment of the Court was delivered by · F

SABYASACHI MUKHARJI, J. These appeals are at the
instance of the revenue under section 35-L of the Central Excises &
Salt Act, 1944 (hereinafter referred as to 'the Act'). Civil Appeal No.
1589 appeal arises out of Order No. 5 of 1988-A passed by the
Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi G
).... (hereinafter referred to as 'the Tribunal').

The. respondent used to manufacture different varieties of print-
ing paper including wrapping paper falling under Item No. 17(1) of the
erstwhile Central Excise Tariff in their factory at Bansberia, District
Hubli. It is the appellant's case that the respondent had violated the H
1020 SUPREME COURT REPORTS [1989] 3 S.C.R.

A
provisions of Rule 9(1), Rule 173-F and Rule 173-G of the Central "-·
Excise Rules, 1944 inasmuch as they had removed 4,000 kgs. of wrap-
ping oaper under Gate Pass No. A-460 dated 9th February, 1984 and
485 dated 17th February, 1984 valued at Rs. 13,200 without payment of

B
central excise duty. Show cause notice was issued to the respondent as
to why appropriate duty of excise amounting to Rs.3,600 (basic),
Rs.180 (special) and Rs.16.50 (cess) totalling Rs.3,796.50 should not
,
be recovered from them on the said quantity at the rate of Rs.900 per
M. T. and special duty at the rate of 5 % of basic duty and cess 1;8% on
value. Notice to show cause as to why penalty should not be imposed
was also issued. Cause was shown by the respondent. It was the con-
tention of the respondent that there was no infringement of the
impugned provision and no duty was required to be paid on the excis-
"'\
-
c able goods if it was captively consumed or utilised in the same factory .(
as component part of the finished goods falling under the same tariff
item and specified in Rule 56(a) of the Central Excise Rules, 1944. It
was further stated that in the instant case, wrapped paper manufac-
lured was captively consumed anJ utilised as component part of other
D varieties of paper. Wrapping, it was contended, of finished product by
wrapping paper is a process incidental and ancillary to the completion
of manufactured product under section 2(f) of the Act and wrapping is
used as a component part of finished excisable goods attracting the
benefit of the notification No. 18A-83-CE dated 9th July, 1983. The
j
Superintendent (Technical) of Central Excise held otherwise. The
E respondent preferred an appeal before the Collector (Appeals),
Calcutta. The respondent contended before the Collector that they
were entitled to the benefit of notification and it is well settled law in
view of several judgments of High Court and orders of the Tribunal that
wrapping of paper was a process incidental or ancillary to the comple-

F
tion of manufacture of paper, as the printing and writing paper could
not be sold in the market without being packed and wrapped by wrap-
ping paper. The Collector (Appeals), however, rejected the claim to
•
exemption in respect of such wrapping paper in terms of the proviso to
Rule 9(1). There was an appeal to the Tribunal. The Tribunal referred
to its own decision in the case of Collector of Central Excise,
Bhubneshwar v. Orient Paper Mills, Brajraj Nagar, [1986] ELT 24 135,
G which is the subject matter of the other appeal involved herein, and set
aside the order of Collector. .....
Similar is the case in Civil Appeal Nos. 3760-62 of 1988. In that
case, Mis. Orient Paper Mills, Brajraj Nagar, respondents, were
manufacturers of various types of paper and paper board. They were
H also the manufacturers of wrapping paper fpr packing or wrapping of
-,:=
COLLECTOR OF C.E .• v. EASTEND PAPER [MUKHARH, J.] 1021
'""~
)- other varieties of paper. Under the relevant notification, the Central
Government had exempted duty in respect of .goods if these were A
consumed or utilised in a place where such goods were produced or
manufactured under relevant rule either as raw materials pr com-
ponent parts for the manufacture. Therefore, in order to get the
benefit of non-levy of excise duty on wrapping Raper, it had to b10
i established in both these appeals that the wrapping papers werf co'!, ~
sumed or utilised by the respondent assessees as componenf pqrts or r.al"
materials forthe finished products. '.

.......
" The Collector (Appeals) in his order observep that when wrap-
I" ping paper was used for making paper reams/reals, it lost its original
identity as wrapping paper and became a part and parcel of the paper
ream/real and as such available for the benefit of amended Rules.
c
~
Revenue disputed this finding. It was contended that the wrapping
I

•
paper was not utilised or consumed in the manufacture pf other paper:
On behalf of the revenue, it was contended before us in these appeals
that in order to be non-dutiable, the wrapping paper must be either
component part or raw material and must be consumed or utilised in D
the manufacture of the finished products. Wrapping paper cannot, it
',·, was contended, be deemed to be component part bec.ause it did not
become an integral part of the packed paper. In this connection, on
.J, ·behalf of the revenue, learned Attorney General drew our a(tention to
the fact that reliance had been placed on the decision ()f the Kerala
-.A\
High Court in Paul Lazar v. State of Kera/a, [1977] 40 STC 437. On E

!.. behalf of the respondent, however, Shri Bajoria placed reliance on
section 2(f) of the Act which includes any process i!l~idental or ancil-
lary to the completion of a manufactured product. Therefore, it was
urged that all processes leading upto the stage of goods, when the
.... goods become completed for marketing would be within the process of
'
"
marketing. In that view of the situation, it was urged that wrapping
paper was raw-material or component part of the wrapped paper. It
was further urged that revenue had itself considered the stage of wrap-
F

ped or packed paper as the R.G.I. stage, i.e., the stage at which goods
- •' should be entered in the statutory production register. 'Manufacture'
in the sense it is used in the excise law, was not C()mpl~te until anp
unless wrapping was done. It is law now that excise is a duty on G
manufacture. Manufacture is the process or activity which brings into
A existence new, identifiable and distinct goods. Goods have been
understood to be articles known as identifiable articles known in the
market as goods and marketed or marketable in the '!larket as such.
See in this connection the observations of this Court in Bhor Industries
Ltd., Bombay v. Collector of Central Excise Bombay, (1989] 1 SCC H
1022 SUPREME COURT REPORTS (1989) 3 S.C.R.

A
602; South Bihar Sugar Mills Ltd., etc. v. Union of India & Ors., A.
[1968] 3 SCR 21; Union of India v. Delhi Cloth & General Mills Ltd.,
[1963] Supp. 1 SCR 586 and Union Carbide India Ltd. v. Union of
India and Ors., (1986] 24 ELT 169. See also the decision of this Court
in Civil Appeal No. 2215(NA) of 1988-Co//ector of Central Excise,
Baroda v. Mis Ambalal Sarabhai Enterprises, judgment delivered on
B 10th August, 1989. The finished goods were cut-to-size and packed ~
paper which, according to the Indian Standard and trade practice,
consisted of the wrapping paper and the wrapped paper. In South

,-
Bihar Sugar Mills Ltd. 's, case (supra), it was held by this Court that
the duty is levied on goods. As the Act does not define goods, the
legislature must be taken to have used that word in its ordinary, die-
tionary meaning. The dictionary meaning of the expression is that to
c become 'goods' it must be something which can ordinarily come to the ~
market to be bought and sold and is known to the market as such. The
Tribunal found, and there was material for the Tribunal to do so, that
;
the market in which articles in question were sold were paper packed
and wrapped in paper. Therefore, anything that enters into and forms
D part of that process must be deemed to be raw material or component
part of the end product and must be deemed to have been used in
completion or manufacture of the end product.

This Court in the case of Empire Industries Ltd. & Ors. v. Union t
of India & Ors., .[J985) 3 SCC 314 has explained the concept of 'pro-
E cess' in Excise Law. In view of the principle laid down therein and
. other relevant decisions, processes incidental or ancillary to wrapping
are to be included in the process of manufacture, manufacture in the ,..i!
_sense of bringing the goods into existence as these are known in the
market is not complete until these are wrapped in wrapping paper. In
J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer,
F [1965) 16 STC 563 (SC), this Court while construing the expression 'in
~
the manufacture or processing of goods for sale' in the context of Sales
Tax Law, though the concept is different under the Excise Law, has
held that manufacture of goods should normally encompass the entire
process carried on by the dealer of converting raw materials into
finished goods. Where any particular process, this Court further
G emphasised, is so integrally connected with the ultimate production of
goods that, but for that process, manufacture or processing of goods
would be commercially inexpedient; articles required in that process,
would fall within the expression 'in the manufacture of goGds'. The ""
Tribunal on the appraisement of all the relevant facts in the light of the
principles indicated before, upheld its own decision in the case of •
H Orient Paper Mills, rt984] 18 ELT 88 and in both the appeals accepted
COLLECTOR OF C.E. v. EASTEND PAPER IMUKHARJI, J.] 1023

f the manufacturer's contentions and dismissed the appeal. The revenue
contends that the Tribunal has erred. A

Shri Bajoria for the respondent, drew our attention to the deci-
sion of this Court in Collector of Central Excise v. Jay Engineering
Works Ltd., [1989] 39 ELT 169 (SC). There the respondent was the
i manufacturer of electric fans, and brought into its factory nameplates B
under Tariff Item 68 of the erstwhile Central Excise Tariff. The name-
plates were affixed to the fans before marketing them. The respondent

- "I'°
claimed the benefit of proforma credit in terms of notification No.
201/79 dated 4th June, 1979, which was for the purpose of relief on the
duty of excise paid on goods falling under Tariff Item 68, when these
goods were used in the manufacture of other excisable goods. The said
~ notification stated that in supersession of the Notification No. 178/77 c
of the Central Excise dated 18th June, 1977, all excisable goods on
,, which duty of excise was leviable and in the manufacture of which any
goods falling under Item No. 68 have been used, were exempt from so
much of the duty of excise leviable thereon as was equivalent to the
duty of excise already paid on the inputs. In that case, the question D
before the Tribunal was whether the nameplates could be considered
as component part of the electric fan, so as to be eligible for proforma
credit under the exemption notification. It was found by the Tribunal
~ that no electric fan could be removed from the factory for being
marketed without the nameplate. The Tribunal also n.oted in that case
that even though it could be said that electic fans could function E
without the nameplates, for actual marketing of the fans, the affixation
.(
of the nameplate was considered an essential requirement.

To be able to be marketed or to be marketable, it appears to us,
j in the light of facts in the appeals, that it was an essential requirement
to be goods, to be wrapped in paper. Anything required to make the F
goods marketable, must form part of the manufacture and any raw
material or any materials used for the same would be component part
for the end product. In our opinion, the Tribunal was right in the view
it took. There is no ground to interfere in these appeals.

Before we conclude, we must further observe that Shri Bajoria G
),_ drew our attention to the judgment and order of the Tribunal in
Appeal No. ED(SB)A. No. 2734-83C (Collector of Central Excise v.
Orient Paper Mills), where the appeal has been preferred and in the
.,. petition in appeal to this court by the revenue under section 35L(b) of
the Act, where the question involved was whether the proforma credit
under rule 56A of the Central Excise Rules, 1944 in respect of said H
·~
1024 SUPREME COURT REPORTS [1989] 3 S.C.R.

A packing and wrapping paper used for packing admissible or not is
punishable or not.· the revenue has pleaded that the unit of paper for
sal~ was 'ream' duly packed in wrapping paper and the real is cured
l!IJd suc'1 real is also wn1pped in the wrapping paper. Therefore, from
i'1at statement, it further appears that such ream or real are wholesale
p11ckages an~ are stored in packed condition. If that is the stand of the
B
rew~nue, then it f:iilJl!Ot be contend~d that wrapping paper is not inte-
gr!ll pa,rt PHhe 111anuf!lctur~. If that is so, any material utilise<l must be
component part of the raw material used or consumed in the finished
products. Apart from that, under rule 56A of the Rules, the assessee
wmdd be entitled to the benefit of deduction of the duty to be charged
on all wrapping papers, if any. Nothing contrary to the aforesaid was
C indicated to us by the revenue though asked to do so. In the aforesaid
view of the matter, this question involved in these appeals is really of
academic interest.

These appeals, however, have no merit for the reasons indicated
above and. are a~cor<lingly dismissed without any order as to costs.
p
O.N. Appeals dismissed.