Customs, Excise and Gold Tribunal - Delhi
Guardian Plasticote Ltd. vs Collector Of Central Excise And Ors. on 18 February, 1986
Equivalent citations: 1986(8)ECC71, 1986(24)ELT542(TRI-DEL)
ORDER V.T. Raghavachari, Member (J)
1. Special Bench 'C' consisting of three Members, heard the appeal (513/80 of M/s. United Paper Products Ltd.) earlier. One of the Members prepared an order suggesting that the issue in dispute may be referred to a Bench of more than three Members in view of certain conflict between earlier orders of the Tribunal. One of the other Members agreed with this proposal, though the third Member did not. Subsequently, under orders of the President, this appeal was directed to be heard by a Bench of five Members, and that is how this appeal has been placed for hearing before us. Since another appeal (174/80 of M/s. Guardian Plasticote Ltd.) also involved a similar issue, the same had also come, under the orders of the President, to be heard along with appeal No. 513/80.
2. At the hearing of these two appeals, M/s. Eastern Box Industries (Appeal No. 111/82-C) and M/s. National Laminators (Appeal No. 941/82) were, on their application, heard as interveners.
3. We have heard Shri Bhaskar Gupta, Bar-at-law, for M/s. Guardian Plasticote Ltd. ; Shri H.P. Arora, Advocate for M/s. United Paper Products; Shri M. Chandrasekharan, Advocate, for M/s. Eastern Box Industries ; and Shri M.G. Ramachandran, Advocate for M/s. National Laminators and also Shri A.S. Sunder Rajan, JDR for the department.
4. The product manufactured by M/s. Guardian Plasticote Ltd., consists of two layers of kraft paper joined together by a layer of polythene. The product manufactured by M/s. United Paper Products is bituminized laminated paper, consisting of two layers of kraft paper joined together by bitumin as adhesive. The period in dispute in the case of Guardian Plasticote Ltd. is 1-4-1970 to 28-2-1974. The period in dispute in the case of United Paper Products is 16-3-1976 to 26-5-1976. It may, therefore, be noted that, so far as the period in dispute in the case of Guardian Plasticote Ltd., there was no Tariff Item 68 CET in existence during that period. There is also no dispute that it was by employment of extrusion process that the product of M/s. Guardian Plasticote Ltd., came into existence.
5. Tariff item 17 CET had been undergoing amendments now and then. For a proper appreciation of the issues involved and the submissions made, the Tariff item, as it stood from time to time, is reproduced below : Tariff Item 17 as it stood prior to 1974 :
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Description of Goods Rate of Duty
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17. Paper, all sorts (including pasteboard, millboard, straw-board and cardboard) in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power :
(1) Cigarette tissue One rupee per
kilogram.
(2) Blotting,toilet, target, tissue other than Fifty paise per
cigarette tissue, teleprinter,typewriting, kilogram,
manifold, bank,bond,art paper,chrome
paper, tubsized paper, cheque paper, stamp
paper, cartridge paper, parchment and coated
board (including art board, chrome board and
board for playing cards)
(3) Printing and writing paper, packing and wrap- Thirty-five
paise ping paper (strawboard and pulpboard, includ- per kilogram.
ing grey board, corrugated board, duplex
and triplex boards, other sorts)
(4) All other kinds of paper and paper board Fifty paise per
not otherwise specified. kilogram.
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Position in 1975 :
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Description of goods Rate of Duty
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17. Paper, all sorts (including paste board, mill-board, strawboard and scardboard), in or in relation to the manufacture of which any process is ordina-
rily carried on with the aid of power-
(1) Cigarette tissue Rs. 3 per kg.
(2) Blotting, toilet, target, tissue other than ciga- Re. 1 and 20 paise
rette tissue, teleprinter, typewriting ; mani- per kg.
fold, bank, bond, art paper, chrome paper,
tubsized paper, cheque paper, stamp paper,
cartridge paper, (waxed paper, polythelene
coated paper), parchment and coated board
(including art board, chrome board and for
playing cards)
(3) Printing and writing paper, packing and 90 paise per kg.
wrapping paper, strawboard and pulp board,
including grey board, corrugated board,
duplex and triplex boards, other sorts
(4) All other kinds of paper and paper board, not Rs.1 and 20 paise
otherwise specified per kg.
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Position in 1976 :
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Item No. Tariff description Rate of duty
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17. Paper and Paper Board, All sorts (including paste-
board, mill-board straw-board, cardboard and corrugated board), in or in relation to the manu-
facture of which any process is ordinarily carried on with the aid of power-
(1) Uncoated and coated printing and writing Twenty-five per
paper (other than poster paper) cent ad valorem
(2) Paper board and all kinds of paper (includ- Thirty per cent
ing paper or paper boards which have been ad valore
subjected to various treatments such as coat-
ing, inpregnating corrugation, creping and
design printing), not elsewhere specified.
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6. In respect of the product of M/s. Guardian Plasticote Ltd., they had been referring to the same in their correspondence as coated paper and had been claiming that in respect of such coated paper they were entitled to rely upon Trade Notice No. 94/Paper-VI/CE/1975 dated 8-8-1975 of the West Bengal Collectorate. Shri Bhaskar Gupta also in his arguments referred to this Trade Notice. But it would be seen that the Trade Notice dealt with paper coated or laminated on one side only with polythene. No doubt the word 'laminate' had been used with reference to the polythene material and the heading read polythene coated/laminated paper. Shri Gupta contended that in the circumstances the product of M/s. Guardian Plasticote should also be described and treated as coated paper only and would, therefore, be entitled to exemption. When it was pointed out to him that in their correspondence they had referred to the product as laminated paper, he stated that it might have been so described in certain places but it would not really matter as the two processes are both referred to without distinction in the Trade Notice. But, as earlier seen, the Trade Notice referred to a product with a polythene film on one side of the paper, whereas, in the present instance, polythene film is pressed between two layers of kraft paper. It could, therefore, be described only as laminated paper rather than coated paper.
7. Two further facts relied upon by Shri Gupta, with reference to which there appeared to be no dispute, are that the product manufactured by M/s. Guardian Plasticote Ltd., was being supplied to the Defence Department for packing ammunition, and that kraft paper was being supplied by the customers and the lamination was being done by the appellants as job work.
8. The first argument of Shri Gupta was that the product of his clients did not fall under T.I. 17, as it stood at the relevent time and did not further fall in any of the other items as the Tariff" then stood, and, therefore, the product was not excisable, in the absence of any residuary item at that time. He sought to support his arguments on three different lines of reasoning. He first contended that if coated paper fell under T.I. 17(4) in 1974 (as the Assistant Collector held), there was no need to bring it under T.I. 17(2) in 1975, since duty was the same under 17(2) and 17(4) in 1975. It may be noted that ''waxed paper and polythene coated paper" were introduced in T.I. 17(2) in 1976. But in connection with this argument it should be noted that the product in question is really not coated paper but laminated paper with polythene laminated between two layers of paper. Therefore, this contention of Shri Gupta is not acceptable as a basis for rejecting the classification in 1974.
9. He next pointed out that T.I. 17(2) dealt with coated board even as the item stood in 1974, but that there was no such provision for coated paper under any of the four sub-divisions of T.I. 17. He, therefore, contended that this itself should suffice to establish that coated paper was not considered under the Tariff to be an excisable product. In this connection, as well as in connection with several other arguments of the two appellants, the contention of Shri Sundar Rajan is that in the Tariff as it stood in 1974, 1975 and even later, the main heading was Paper, all sorts. He, therefore, contended that each type of paper, whether specially enumerated or not, fell within the Tariff description and, therefore, the question of duty would have to be resolved on the consideration whether the resultant product was the result of manufacture, as defined in the Central Excises and Salt Act, and not on the basis whether the said product is specifically enumerated in the item or not. This argument appears to us to be quite proper and sound. Therefore, the mere fact that there was no reference to laminated paper (or even coated paper) in T.I. 17, as it stood in 1974, would not render the product non-excisable for that reason.
10. Shri Gupta further contended that whereas under the amendment of 1980 there were specific amendments with reference to T.I. 19 and T.I. 22, as to the various enumerated processes as would amount to manufacture, there was no such amendment even then with reference to T.I. 17. He, therefore, contended that in the absence of such enumeration as to processes (to which an excisable commodity may be subjected) all processes (such as laminating process in his case) cannot be said to result in manufacture as would attract duty liability.
11. But in connection with this argument, we have to take into account the recent decision of the Supreme Court in the case of Empire Industries v. Union of India 1985 (20) E.L.T. 179 (S.C.). In that decision they had taken into consideration several earlier decisions of various High Courts including the decision of the Bombay High Court in the case of New Shakti Dye Works (1983 E.L.T. 1736 Bom.). In the said decision the Bombay High Court had dealt with the question whether several processes, such as, bleaching, dyeing, printing etc. carried out on cotton fabrics would result in manufacture of a new excisable commodity. They had considered the question with reference to first principles as well as statutory provisions. The High Court had held that even on first principles such processes would amount to manufacture. Referring to this conclusion the Supreme Court observed in the case cited supra in para 34 (we observe that there appears to be some discrepancy in respect of the paragraph numbers in the judgment as reported in the several journals in which the report has appeared. We have adopted the paragraph numbers as they appear in the Excise Law Times).
"This question has been elaborately considered by the Bombay High Court in the case of New Shakti Dye Works (P) Ltd., and 24 other petitions heard along with the same and are under appeal to this Court by Special Leave. We are in respectful agreement with the conclusions reached by the learned Acting Chief Justice of the Bombay High Court in that decision."
In paragraph 33, they had further held -
" it appears in the light of the several decisions and on the construction of the expression that the process of bleaching, dyeing and printing etymologically also means manufacturing process".
In paragraph 30, they had observed-
"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."
In paragraph 31, they had further observed-
"Whatever may be the operation it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes such a process which will be part of manufacture. Any process or processes creating something else having a distinctive name, character and use would be "manufacture."
In paragraph 38, they observed-
"in that view of the matter etymologically the word "manufacture" properly construed would doubtless cover the transformation".
12. In the light of the above observations of the Supreme Court it would not be proper to hold that unless a particular process is enumerated in the definition section it would not amount to a process of manufacture, as would attract levy of duty. The proper question would be whether by reason of the said process another distinctive product having a distintive name, character and use had emerged. If this question is answered in the affirmative the process would have to be classified as manufacture within the meaning of the Central Excises and Salt Act.
13. It had been already seen that the very argument of Shri Bhaskar Gupta himself was that when kraft paper was subjected to the process of lamination by laminating two layers of kraft paper with polythene, a new product had emerged, which was not enumerated in any of the several subheadings of T.I. 17. That argument itself would suffice to prove that Shri Gupta could not contest the position that after the lamination process the kraft paper ceased to be mere kraft paper and that a new and distinctive commodity had emerged. It may be noted that with reference to the present issue itself. M/s. Guardian Plasticote Ltd., had approached the High Court at Calcutta at an earlier stage for some relief. A copy of their Writ petition has been filed in the paper book. It is seen that in paragraph 6(a) of that petition M/s. Guardian Plasticote had mentioned "the said products which are processed at the said factory of your petitioner were not covered by any of the items of goods of the description specified in Tariff Item 17. Such products are neither paper nor paper board of any sort. These products are new and distinct commercially known articles" ( emphasis supplied). Therefore, judged by the test laid down by the Supreme Court mentioned supra, there can be no doubt that by subjecting kraft paper to the process of lamination in the manner mentioned earlier, M/s. Guardian Plasticote Ltd. were manufacturing a new commodity. The absence of mention of this process in any of the sub-items of T.I. 17, as it then stood, would not render the new product not a manufactured product.
14. But Sri Gupta contended that in any event the process was one of coating and as coated paper it was exempt. He relied upon the Trade Notice cited earlier in this connection. But it has been already seen that the process was one of lamination and not mere coating (as was the case dealt with under the Trade notice). This argument also is hence not acceptable.
15. Shri Gupta, further referring to the decision of the Supreme Court in Empire Industries case, submitted that the judgment dealt with the question of manufacture under the deeming provisions introduced by way of amendments to the Act and on that basis only held that treated fabrics were to be held as falling under T.I. 19. He contended that in the absence of any such deeming provisions so far as T.I. 17 is concerned, the same result would not follow with reference to the processes carried out by M/s. Guardian Plasticote Ltd., on kraft paper received by them for conversion into laminated paper.
16. Sri Chandrasekharan, for M/s. Eastern Box Industries also raised a similar contention. He stated that three rules would have to be applied in interpreting provisions in statutes and also in following the judgments with reference to such statutory provisions. According to him, they were (i) when an Act is amended the intention is deliberate to change pre-existing law, (ii) when a constitutional issue is not necessary to be decided the Court would not do so ; and (iii) every judgment has to be read in the light of the facts proved in that case and the Court cannot be said to have decided a question which was not required to be decided. He stated that, applying the said principles, the amendment under the 1980 Act with reference to products covered by T.I. 19 and 22 would go to establish that but for such amendments the processes enumerated would not have amounted to manufacture, and that, therefore, the observations of the Supreme Court in the Empire Dyeing case would have to be read in that background. He further contended that the observation of the Bombay High Court relating to their decision being on first principles led to conclusions about manufacturing processes but not about liability for duty. He contended that with reference to textiles the amendment of 1980 made excisable each of the several processes mentioned in Tariff Items 19 and 22, but that in the absence of such an amendment in Section 2(f) with reference to T.I. 17, no duty would become payable irrespective of the several processes carried out in the absence of reference to such processes in the tariff entry itself.
17. Shri Ramachandran, for National Laminators, laid stress on the concluding words in paragraph 20 of the judgment in the Empire Industries case which read "If the impugned act is valid then no other question need be examined except the question as to what should be the actual levy of the duties". He contended that, therefore, the Supreme Court concerned itself with the question whether the Amendment Act was intra vires and having come to an affirmative conclusion on that point further concerned itself thereafter with reference to the actual levy only. He, therefore, contended that no general principles as to what would constitute manufacture can be spelt out of the said judgment.
18. But none of the above arguments appears to us to be acceptable. We have extracted earlier the several passages in the judgment of the Supreme Court which lay down general principles as to whether processes carried out on an already manufactured product could result in manufacture of another distinct excisable commodity. The Supreme Court has held that such a result is possible, and permissible, and that even the fact that the new excisable commodity would also fall under the same tariff item, or even under the same sub-heading of the same tariff item, would not make any difference as to the liability for duty with reference to the new excisable commodity. We may in this connection refer to a later judgment of the Supreme Court in the case of Union of India v. Ahmedabad Manufacturing and Calico Mills 1985 (21) E.L.T. 633, S. C.. In that judgment the Supreme Court, referring to the amendment of Section 2(f) in 1980, observed-
"This amendment has only attempted to explain the obvious and to put the question beyond dispute."
This observation by the Supreme Court itself would support Our finding that the absence of amendment to Section 2(f) with reference to T.I. 17 need not rule out our conclusion as to the process adopted by the appellants amounting to manufacture as defined in the Act.
19. Therefore, what remains to be considered at this stage is the further argument of Shri Gupta (as also one of the submissions of Shri Chandrasekharan) that even if the process carried out resulted in the emergence of a new distinct commercial commodity, whether duty liability would fasten on the same in the nature of the tariff entry as it was worded at the relevant time. The tariff entry, as it stood in the period relevant for the case of Guardian Plasticote, has been already extracted. The tariff entry at that time did not in terms refer to laminated paper. Shri Gupta pointed out that coating or lamination were known as processes even earlier, and were, in suitable cases, taken care of in the relevant tariff entries. His comment was that in the absence of any such entry in T.I. 17, the process of lamination, even if it is to be considered as a process of manufacture, would not, for that reason, attract duty liability.
20. Sri Sunder Rajan had filed extracts from Industrial and Speciality papers (lamination and laminated paper products) (Chapter 15) as also extracts from "Coating of papers and boards" by G.C. Jain published in the Indian Pulp and Paper Technical Associations Souvenir 1964, to establish that the processes of coating and lamination were known processes for bringing into existence a special commodity with special characteristics not to be found in the original paper. He further pointed out, with reference to extracts from "Paper Trade Manual" (paper and allied trade Hand Book) by Raghunath Dutt & Sons (P) Ltd., that paper is generally classified according to uses to which the particular variety is to be put, the broad categories being writing, printing, wrapping, paper other sorts, newspaper printing and board. He pointed out that there are different definitions in the glossary of the said book relating to coated, kraft union, water-proof paper and tarred paper. Kraft union was defined water-proof packing paper made of two kraft papers conjoined by a layer of tar, to make it impervious to water. He also pointed out that the Indian Standard Institution has issued different specifications, for instance, IS 1397/67 for kraft paper; IS 1398/82 for bituminised water proof paper and IS 6615/72 for wrapping and packing paper. On the basis of all the above facts, he contended that the laminated product manufactured by M/s. 'Guardian Plasticote Ltd., as well as the bituminised paper manufactured by United Paper Products, are distinct commercial marketable commodities and the manufacture thereof would, therefore, attract duty liability, since T.I 17 at all times referred to paper, all sorts. His contention is that when paper of one sort is, by a process of manufacture, converted into a paper of another sort duty liability would arise (subject to other safeguards such as, set off etc). In making this submission he relied on the decision of the Supreme Court in the Empire Industries case where duty liability was held to arise though, according to the assessees in that case, the initial product was cotton fabrics and the processed product was also cotton fabrics. The Supreme Court held that even though there was no jump from one tariff entry to another, or even from one sub-heading to another in the same entry, yet duty liability would arise so long as (i) the process engaged in amounted to manufacture and (ii) the resultant product was a commercially distinct marketable commodity.
21. As earlier seen, M/s. Guardian Plasticote themselves admitted in their own writ petition that the laminated product manufactured by them was commercially distinct from kraft paper received by them or the polythene used in the process of lamination. This process of lamination made the two layers of kraft paper impervious to water and oil and the resultant product was, therefore, specially suited for packing ammunition; That was why the same was being exclusively supplied to the Defence Department. Since therefore, the process of lamination, which amounted to manufacture, led to the emergence of a new and distinct commercial product, marketable as such, the conclusion is inevitable that this new product would invite imposition of duty, though there may not be any move away from tariff item 17 or even from one sub-heading to another. The argument of Shri Gupta is that Tariff Item 17(3), as it then stood, related to packing and wrapping paper and since kraft paper was packing and wrapping paper and the laminated product was also packing and wrapping paper, there was no case made out for imposition of duty once over on the resultant product. This argument, for the reasons stated earlier, cannot be accepted.
22. As earlier mentioned there were conflicting judgments of this Tribunal on the question of laminated paper. They are (1) Golden Paper Udyog (P) Ltd. v. C.C.E. Delhi 1983 (2) E.T.R. 147] and (2) C.C.E. Hyderabad v. Uma Laminated Products (P) Ltd., 1984 (4) E.T.R. 118. The judgment of the Supreme Court in the Empire Industries case is subsequent to both the above decisions. Since we have based our decision mainly on the observations of the Supreme Court in its decision we have not made special reference to the two judgments of this Tribunal above referred to, while taking note of the reasons stated therein.
23. Shri Arora, appearing in the appeal of M/s. United Paper Products contended that bituminising process carried out by his clients did not amount to manufacture as would invite imposition of excise duty. In support of this contention, he relied on the decision of the Madras High Court in the case of Kwality Coated Products 1980 E.L.T. 579, Madras] and that of the Andhra Pradesh High Court in the case of Standard Packaging 1985 (20) E.L.T. 314 (A.P.). He contended that these judgments related to bituminised paper itself, and, therefore, in the absence of any judgment to the contrary by any other High Court, we are bound to follow the said decisions and grant relief to his clients. But in considering these arguments we have to take into consideration the judgment of the Supreme Court in the Empire Industries case, which had been rendered subsequent to the above said two decisions. No doubt the judgment of the Supreme Court did not deal with bituminised paper, but the observations in the said judgment as to whether any particular process would amount to manufacture, have been considered earlier in this judgment. It had been seen that judged by the tests laid down by the Supreme Court in the said judgment, the process of laminating two layers of paper with an adhesive between the two in order to manufacture a new commodity, known differently under a distinct name, and meant for distinct use, would amount to manufacture of a new distinct excisable commodity. Judged by the said test, the process of bituminisation carried out by M/s. United Paper Products would also amount to manufacture of a new excisable commodity i.e., bituminised paper, the process of bituminisation being carried out in order to impart additional qualities, such as strength and impermeability to water. Therefore, though the two decisions relied on by Sri Arora may have been with reference to bituminised paper, the conclusion in the said judgments cannot hold good subsequent to the decision of the Supreme Court cited supra, for the reasons more fully stated even earlier.
24. Other submissions relating to the case of United Paper Products have to be now looked into. These relate to eligibility under certain notifications, as also the bar of limitation in respect of the demand. So far as Notification No. 45/73 concerned, the Collector as well as the Board have found in favour of the appellants. So far as Notification No. 67/76 is concerned (relating to set-off of duty) there is no dispute on the applicability of the notification. The finding of the lower authorities is that the set-off under Notification No. 67/76 should be applied first and then the slab exemption under Notification No. 45/73. In view of the words of the Notification No. 45/73 (which speak of exemption to paper from so much of the duty leviable under item 17 read with any Notification for the time being in force issued under Rule 8) we agree with the conclusion of the lower authorities on this question.
25. So far as the bar of limitation is concerned, the contention of Shri Arora is that the period for which the duty demand had been raised was 16-3-1976 to 26-5-1976, but the show cause notice had been issued on 10-7-1978 only and that in the absence of any allegation or proof of suppression or fraud or mis-statement of facts the demand must be held to be barred by time. On the other hand the case for the department is that as the bituminised paper manufactured and cleared by the appellants was not disclosed (in the classification list filed) even as a non-excisable product, the demand under Rule 9 for the period in question was justified and within time. No doubt Shri Arora comments that in the site plan filed with the department there is a reference to a place for manufacture of bituminised water proof paper and hence the manufacture of this product had been disclosed to the Department and was within its knowledge. In this connection Shri Sundar Rajan submitted that he relied on the citations mentioned in the order of the Three Member Bench, in pursuance of which the matter has been referred to this Five Member Bench. He points out that, as held in 1983 E.C.R. 969 non-disclosure of relevant information would amount to suppression of facts. He further points out that as held by the Calcutta High Court in the case of M.S. Metal Industries v. Union of India 1977 Tax Law Reporter N.O.C. 31 Cal. when clearance is made without payment of duty and without observing the necessary excise formalities duty would be demandable under Rule 9(2). He further relies on the judgment of the Bombay High Court in Devi Dayal Rolling and Refineries (P) Ltd. v. Superintendent of Central Excise (1983 E.L.T. 338) wherein it had been held that it is only in cases where there had been assessment that Rule 10 would apply. He contends that since there had been no assessment in the present instance it is only Rule 9 that would be applicable.
26. As mentioned earlier, the appellants had not disclosed in their classification list the bituminised kraft paper as an item manufactured by them but not excisable. They had not disclosed the same at all in their classification list. In the circumstances we hold following the above noted authorities that the demand under Rule 9 was justified and the plea of bar of limitation cannot be upheld.
27. In the light of the above discussion we hold that neither appellant is entitled to any relief in these appeals. Both the appeals are accordingly dismissed.
H.R. Syiem, Member (T)
28. Once a duty has been paid on an article, that duty cannot be recovered again on that article whatever form or shape it changes into. This, in my opinion, is a fundamental rule of taxation. If duty A is leviable on articles X, Y, Z grouped in an item/sub-item, and X has paid it, X will never have to pay this duty again, whether it changes into Y or Z or even into any other thing. Similarly, if Z has once paid duty A, it will never need to pay this duty again whether it changes into Y or X or into anything else. However, if duty A is leviable on X, Y and Z and duty B leviable on P, Q and R, and if X having paid duty A changes into P, it will have to pay duty B, regardless of the fact that duty A may be equal to duty B and P is nearly the same as X.
29. If the tariff item groups a number of commodities in an item or sub-item and one duty is specified against the group, it means each one in the group is liable to the same duty, though the individuals may differ in one or more particulars. But if one of them has paid the duty, leviable against the group, it cannot be subjected to that duty agian in future. If it is, it would be double taxation and this is not permitted by law at present. The Customs Tariff of 1975 recognizes this problem and to prevent it, makes elaborate sub-items of goods, all subject to different duties. The C.C.C.N. on which the Customs Tariff is modelled, makes the list even more elaborate and detailed, the objective being segregation of commodities into separate headings, subheadings, so that whatever the change or process, there will be a heading for the new article. This avoids the problem covered by an article that has undergone a change or process, remaining in the same group heading or sub-heading.
30. The Central Excise is gradually recognizing this. A look at the Item 25, for iron and steel, will show that instead of the old system of a number of totally disparate products like bars and wires, to name just two, being grouped in one head [26AA(ia)], today's iron and steel items are more rationally arranged under Heading 25. For example, plates and sheets are under one item, while galvanized plates and sheets are given another item under the same Heading 25. For this reason, no manufacturer can claim that a galvanized plate was only a plate and that no manufacture was involved in galvanizing. Whether or not manufacture was involved, the moment a plate is galvanized it is drawn into the "galvanized" item as a new entry, not having paid that duty before, to pay that duty.
31. It is the head or item of the tariff that determines "manufacture" for Central Excise purposes. But this has been interpreted frequently to mean that whenever a manipulation or a processing or a change takes place, an article that has already borne a duty must bear that duty again. Under this doctrine, there have been cases when sodium silicate was charged to same duty it had already paid because it had been purified. Disputes frequently arise when an artificial resin that had paid duty as a solid was charged duty again when it was reduced, to a powder state. By this reasoning, when this powder is then formed into a paste, the same resin duty must be paid for the third time. Can there be a more irrational taxation project ? The argument perhaps goes something like this : this solid resin by being turned to powder has become resin a second time and when it is reduced to a paste, it becomes resin for the third time.
32. The decision of the Supreme Court in the Empire Industries v. Union of India, 1985 (20) E.L.T. 179 has been read and understood as not merely a validation of the retrospective amendment of Item 19 I of the Central Excise Tariff, among other things, but also as an approval of levy of duty on processed/ printed cotton fabric even without the amendment. In other words, the judgment is said to consider that the retrospectivity was unnecessary since charging of duty on printed fabric which has already paid duty as grey fabric was completely lawful. I have found nothing in the judgment that would encourage such a perception. At paragraph 20, the Court lists three points that arose before it. In the first point, the last sentence runs :
"In other words whether these various processes carried out by the petitioner company amount to bringing into existence different and distinct goods, commercially known as such, to attract levy of duty under Section 4 of the Central Excises and Salt Act, 1944."
The paragraph ends with the words :
"If the impugned Act is valid, then no other question need be examined except the question as to what should be the actual levy of the duties."
33. There was no pronouncement that duty on processed cotton fabric was valid under the old unamended item. On the other hand, the direction of the arguments and the court's attention was on whether the amending Act, with its retrospectivity, was valid, when a processed cotton fabric was no more and no less a cotton fabric ; there had been no manufacture to call down fresh duty on it when it had already suffered duty as a cotton fabric. The court after a very detailed examination and search, announced that fresh duty was leviable on the processed fabric because it became subject to the coverage of the new heading of processed fabric as soon as it was printed etc., and hence was a manufacture for the purpose of Central Excise Duty.
34. Paragraph 46 of the judgment is, in my opinion, the index of the judgment. The Court approved "small repairs" of this kind, as not acting harshly, as not being arbitrary or discriminatory. And repairs, we should remind ourselves, are not undertaken except when a damage or a fault is detected. There is not a word in the whole judgment that the "small repairs" were unnecessary and that the old unamended item was capable of coping with the problem. And the legislature itself, by this use of a retrospective amendment, recognised the fault and accordingly repaired it. It is not for nothing that the Hon'ble judges took note of the fact, recorded in paragraph 15, that the processors had been collecting processing duty, and, after the Gujarat High Court judgment, claiming refund.
35. It is believed that the Supreme Court agreed with the Bombay High Court judgment in 1983 E.L.T. 1736 and signified its assent to duty on processed fabric even without the retrospective amendment. However, the Bombay High Court arrived at its decision on fresh duty only on the basis of the retrospective amendment, and nothing else. It noted the "small repairs" (paragraph 15) and approved them. It did not say the repairs were unnecessary, which it would have done, had it seen them so. A phrase that appears in paragraph 17 of the Bombay High Court judgment has been quoted by some to reinforce their interpretation that the Court thought the amendment unnecessary. This phrase runs "...it was not necessary to make any separate amendment in the substantive Item No. 19". This phrase does not substantiate duty on printed fabric even under the unamended item, but refers to the argument put forward by the factories that the Item No. 19 description "cotton fabrics" remained unamended and hence the amendment had not had the desired effect. The Court rejected the arguments saying that as the item had been amended by substituting a new 191, the amendment of the description under 19 cotton fabrics, was not necessary.
36. The Bombay High Court judgment has also been understood to approve duty on processed fabric under the unamended item 19 because it quotes and approves another judgment of the same court in Kores (India) Limited 1982 E.L.T. 253 which said that a teleprinter roll out from large jumbo rolls Writing printing paper a new manufacture and therefore, should pay duty as such teleprinter roll. The item for this product was 17 CET and while printing paper was specified under heading 17(3), teleprinter roll was entered in 17(2). In these circumstances, there cannot be any question that when printed paper was cut into teleprinter roll it left its home 17(3) and had to fall into 17(2) a new head, with a new duty. It paid, as teleprinter roll, a new duty, not the same duty it paid as printing paper under item 17(3). The decision supports what I have been writing all this time.
37. There cannot be a good reason for exacting the same duty twice over on the same commodity or product, under the law at present. The law can make every little change, every fine alteration, every new appearance, dutiable, and no one can say it is wrong. But the scheme for that is a heading/ sub-heading for every time of such duty levy, to make each one a duty attracting "manufacture" ; not putting a number of products together as liable to one duty, and then clamping down tax every time a "change" takes place. Change cannot serve as the duty levying test-only a tariff heading can do that. The true qualification for a duty is not a "manufacture" or a "change" but a manufacture or a change that results in entry into a head or item, a head or item that had not till then been qualified for. That is the ratio of the Supreme Court's DCM judgment on vegetable oil.
38. I rule that the reformed, coated, laminated etc. paper, which has paid duty cannot be charged the same duty again.
S.D. Jha, Vice President (J)
39. I have carefully gone through the majority order proposed by Brother V.T. Raghavachari in which Brothers G. Sankaran and K.S. Venkataramani have concurred and minority order proposed by Brother Syiem. I have not been able to persuade myself into concurring with the majority order and to a large extent though with some qualification I am in agreement with the minority views of Brother Syiem, I consider it proper to record my views in brief separately.
In Empire Industries case 1985 (20) E.L.T. 179 (S.C.) a three Judge Bench of the Hon'ble Supreme Court was mainly concerned, as would appear from para 20 of the judgment setting out the main points falling for consideration, with the question whether in respect of cotton fabrics and man-made fabrics as mentioned under Item 19 or 22 of the Schedule to the Central Excises and Salt Act, 1944, certain processes like bleaching, dyeing etc. amounted to manufacture within the meaning of the Act as it stood prior to passing of Central Excises and Salt and Additional Duties of Excise (Amendment) Act, 1980-whether these various processes carried out by the petitioner in that case amounted to bringing into existence different and distinct goods, commercially known as such, to attract levy of duty under Section 4 of the Central Excises and Salt Act, 1944 and whether after the amendment of the Act the levy is valid and whether the amendment of the Act could be said to be intra vires under Entry 84 of List I of the Seventh Schedule to the Constitution or if not it could be said to be valid under Entry 97 of List I of the Seventh Schedule to the Constitution and whether the impugned Act violated Article 14 or Article 19(1)(g) of the Constitution. In Para 21 (as reproduced in Excise Law Times of June 85 part) the Hon'ble Supreme Court set out the question for examination in the following words :
"It is, therefore, necessary to examine the amendment of the definition of 'manufacture' in Section 2(f) of the Central Excises and Salt Act, 1944 and Tariff Items 19(1) and 22(1) of the First Schedule to the Central Excise Tariff."
The above would show that the Hon'ble Supreme Court was examining the question of 'manufacture' in Section 2(f) of the Central Excises and Salt Act, 1944 with reference to Tariff Items 19(1) and 22(1) dealing with cotton fabrics and man-made fabrics and the observations made in the later part of the judgment should be read in this context and not in isolation calling out a few sentences divorced from the specific questions formulated by the Supreme Court in paras 20 and 21 of the judgment as reproduced in E.L.T. (supra). I need not emphasise that Section 2(f)(v) and (vii) in relation to cotton fabrics and man-made fabrics define certain processes like bleaching, mercerising etc. specifically as the processes of manufacture. I am aware that the Supreme Court in this decision approved the Bombay High Court decision in New Shakti Dye Works Pvt. Ltd. and Mahalakshmi Dyeing and Printing Works v. Union of India and Anr. (1983) E.L.T. 1736 (Bom.). In this decision the Bombay High Court on first principles held that processes of bleaching, dyeing and printing did bring into existence a new marketable commodity different from the grey cloth which is handed over to the processors. I am also aware that in Union of India and Ors. v. Ahmedabad Manufacturing and Calico Printing Co. Ltd. (Calico Mills) Ahmedabad 1985 (21) E.L.T. 633 (S.C.), referring to the 1980 amendment in Clause (vii) of Section 2(f) the observation "This amendment has only attempted to explain the obvious and to put the question beyond dispute." What I have said about Empire Industries case would also be true of this decision. From these decisions all that I can gather about the position before the Amendment 1980 is that according to Bombay High Court and the Supreme Court even before the amendment processes of bleaching, dyeing and printing did bring into existence a new marketable commodity different from the grey cloth which is handed over to the processors. From the Empire Industries case (para 18 of the decision) it is seen that the amendment made in 1980 inter alia provided- "sub-item covering such 'cloth', 'cotton cloth or 'cotton fabrics' not subjected to any process mentioned in Sub-clause (v) of clause (f) of Section 2 of the Central Excise Act, as amended by this Act; and (B) a sub-item covering such 'cloth', 'cotton cloth', or 'cotton fabrics' subjected to any such process or any two or more such processes and the rate or duty specified in such Act with respect to such cloth, cotton cloth, or 'cotton fabrics' had been specified separately with respect to each of the aforementioned sub-items thereof". Similar provision was also made in clause (iii) of Sub-section (1) of Section 5 in respect of "rayon or artificial silk fabrics" or "man-made fabrics." The decision nowhere says that even without these amendments duty would have been collectable separately deeming that the products mentioned therein had been specified separately with respect to each of the sub-items mentioned therein. In my view, there has been no such amendment with respect to other sub-items of the First Schedule to the Central Excises and Salt Act, 1944 (hereinafter called Central Excise Tariff) and in absence of such amendment the conservative Central Excise understanding reflected in Brother Syiem's order with respect to Central Excise duty should continue. I might, at this stage, state that Section 3(1) of the Act inter alia provides for duties of excise being levied and collected on all excisable goods other than salt produced or manufactured in India. Section 2(d) defines "excisable goods" to mean goods specified in the First Schedule as being subject to a duty of excise and including salt. Having regard to these provisions duty liability attaching to any goods on their transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name be it the result of one process or several processes could only be attracted when the goods are excisable goods as set out above. For the purpose other relevant provisions' of the Act, the Rules, Central Excise Tariff, its scheme, division, groupings, items and sub-items and exemption notification, if any, would have all to be taken into consideration and then only the duty liability determined. In the Empire Industries decision I have found nothing to dispense with these requirements. In fact, a 4 Member Bench of the Supreme Court in the State of Tamilnadu v. Pyare Lal Malhotra AIR 1976 (S.C.) 800 (not cited by any of the parties before us and not noticed in the Empire Industries decision), dealing with a Sales Tax matter in para 13 of the judgment held as follows :
"Is is true that the question whether goods to be taxed have been subjected to a manufacturing process so as to produce a new marketable commodity, is the decisive test in determining whether an excise duty is leviable or not on certain goods. No doubt, in the law dealing with the Sales Tax, the taxable event is the sale and not the manufacture of goods. Nevertheless, if the question is whether a new commercial commodity has come into existence or not, so that its sale is a new taxable event, in the Sales Tax law, it may also become necessary to consider whether a manufacturing process, which has altered the identity of the commercial commodity, has taken place. The law of Sales Tax is also concerned with "goods" of various descriptions. It, therefore, becomes necessary to determine when they cease to be goods of one taxable description and become those of a commercially different category and description."
In view of the aforesaid 4 Member Bench decision before a product in a sub-item of the Central Excise Tariff is sought to be taxed again, it would have to be seen whether taxable description has changed. In absence of which it may not be legal or proper to tax the item mentioned in the sub-item again. In fact, in June part of E.L.T. 1985 itself there is another Supreme Court decision in Collector of Customs and Central Excise and Anr. v. Oriental Timber Industries 1985(20) E.L.T. 202 (S.C.), dealing with plywood and plywood circle falling under Item 16B of the Central Excise Tariff. The question formulated by the Supreme Court in first part of the decision is whether the plywood manufactured by the respondent and utilised in manufacturing plywood circles to be used as component parts of packing material for wires and cables is exigible to excise duty. In Para 16 of the decision after stating whether cutting of plywood blocks or panels into circles constitute a manufacturing process and whether circles made out of plywood blocks or panels constituted a different product from the plywood may be debatable, the Hon'ble Supreme Court at later part in the same para observed "No question of double taxation arises as duty is leviable only once on the plywood as it comes out of the press in the panel or block stage and no further duty is to be levied on the circles which are made out of the plywood blocks or panels".
40. In Alladi Venkateswarly and Ors. v. Government of Andhra Pradesh and Anr. AIR 1978 S.C. 945, the Hon'ble Supreme Court held as under :
"We do not think that it is fair to so interpret a taxing statute as to impute an intention to the legislature to go on taxing what is virtually the same product in different forms over and over again. Such a result would be contrary to basic axioms of taxation. Unless the language of the taxing statute was absolutely clear, it should not, be given an obviously unfair interpretation "against the assessee."
Keeping the aforesaid in mind, while with respect to cotton fabrics and man-made fabrics the taxing statute is absolutely clear regarding different processes and stages at which duty is to be levied separately, with regard to other items and sub-items the position is not the same. Unless in any particular item or sub-item of the Tariff language is clear manifesting intention to charge duty separately at each stage or on each product mentioned in the sub-item, the principle enunciated in Empire Industries case, regard being had to other decisions of the Hon'ble Supreme Court as set out above, may not be applicable.
41. Particular reference in this connection may be made to the decision of the Supreme Court in Union of India v. Hindu Undivided Family Business known as Ramlal Mansukhrai, Rewari and Anr. 1978 E.L.T. J 389 where in relation to Copper (Item 26A of the Tariff) in Sub-item 2 the word 'manufactures' was used with reference to plates, sheets, circles, strips and foils.
42. Taking up the appeals before us in question from the order of the majority it is seen that in the case of M/s. Guardian Plasticote Ltd. on the basis of arguments advanced by Shri Gupta conclusion was reached subjecting kraft paper to the process of lamination by laminating two layers of kraft paper with polythene a new distinctive commodity had emerged and absence of the mention of the process of lamination in any of the sub-items of tariff item 17 would not render the new product not a new manufactured product. Even though this product was not mentioned in T.I. 17 as the relevant item at the material time cover paper (all sorts), this product will merit duty under T.I. 17. For the purpose of these appeals it is not necessary for me to discuss whether a classification which operates in rem and affects other parties should be decided on the basis of an admission made during arguments to score a point. I would, however, say that the taxable description of the newly emerged product had not changed and regard being had to the 4 Member Bench decision of the Supreme Court above, the product would not attract duty again. If the alternative argument of this appellant be accepted that the product remained the same as it was earlier before lamination then also no case for levying duty twice would be made out.
43. As for the other appellant M/s. United Paper Products, reliance has been placed on two High Court decisions in Kwality Coated Products (1980 E.L.T. 579 Madras) and Standard Packaging v. Union of India 1985 (20) E.L.T. 314 (A.P.). The two decisions hold that there is no transformation into bonding together of the bitumen and kraft paper. The two decisions are directly applicable to the product in question before us. For the reasons set out above I am of the view that the decision of the Supreme Court has not the effect of overruling these two decisions. Relying on these two decisions I would allow the appeal of this appellant. With these observations I am generally in agreement with the views expressed by Brother Syiem.
44. In my view no case for revision of the decision of the Tribunal in Golden Paper Udyog v. Collector of Central Excise (1983 E.L.T. 1123) by this Bench is made out and I would maintain that the decision is correct,
45. However, in view of the decision of the majority the appeals have to fail.