Custom, Excise & Service Tax Tribunal
S R Protus Hygiene P Ltd vs Delhi-Ii on 18 June, 2018
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
West Block No.2, R. K. Puram, New Delhi
COURT -II
Date of hearing: 25.05.2018
Date of Decision: 18.06.2018
Appeal No. E/50939-50940/2017-DB
[Arising out of Order-in-Original No. 30-31/SS/CE/D-II/2016-17 dated
01/03/2017 passed by the Commissioner of Central Excise-DELHI-II.]
S R Protus Hygiene P Ltd Appellant
Shri Naveen Rastogi
Vs.
CCE-Delhi-II Respondent
Appearance:
Sh. Amit Jain, Advocate for the appellant
Sh. R.K.Majhi, DR for the Respondent
Coram:
Hon'ble Mr. V. Padmanabhan, Member (Technical)
Hon'ble Ms. Rachna Gupta, Member (Judicial)
Final Order No._52243-52244/2018_
Per: V. Padmanabhan:
The present appeals are filed against the Order-in-Original No. 30-
31/2016-17 dated 01/03/2017.
2. The brief facts of the case are that the appellant is engaged in making
various types of tissue papers, C-fold tissue, M-fold tissue, paper
napkin/serviette of different sizes, toilet roll, kitchen roll, JRT roll and HRT
roll etc. out of jumbo rolls of paper. The jumbo roll of paper is attached to
the paper napkin machine, set in the required size and then embossing of
design, cutting, slitting, and folding are undertaken using the machine.
Thereafter, the cut to size products are packed manually in polythene
(printed with „PROTUS‟ brand.) and finally into big cartons, i.e. corrugated
boxes and sold.
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3. Show Cause Notice dated 8.4.1016 was issued, alleging that out of
the various products of the Appellant, paper napkins, facial tissues and C-
fold & M-fold towels are classified under Tariff Item 4818 2000 of the
Central Excise Tariff, and, in terms of Entry 55 of the Third Schedule to the
Excise Act and Notification No. 49/2007 CE(NT) dated 24-12-2008, are
liable to MRP based Central Excise duty, as the process of conversion of the
disputed products from jumbo rolls of paper amounts to manufacture under
Section 2 (f)(iii) of the Excise Act.
4. Appellant filed detailed reply rebutting the allegations in the SCN , and
after considering the same, the Ld. Commissioner, by the impugned order
date 01.03.2017, confirmed the demand of Rs. 1,84,58,189/- on the
disputed items, along with interest and equal penalty, holding that the
process undertaken by the Appellant amounts to manufacture as per the
provisions of Section 2(f)(iii) of the Excise Act. However, the Ld.
Commissioner has extended the benefit of cum-duty price, and Cenvat
Credit, in respect of the inputs used in alleged manufacture of final
products.
5. Being aggrieved with the aforesaid Order-in-Original dated
01.03.2017, to the extent it is prejudicial to the interest of the Appellant,
the appellants have filed the present appeals on the following grounds
which were explained in detailed by the counsel Sh. Amit Jain.
5.1 In the instant case, appellant purchased duty paid jumbo rolls
of tissue paper and cut and slit the same to smaller sizes of required
dimensions and folded the same suitably for use as napkins, M-fold/C-
fold tissues, face tissues etc. It is submitted that the conversation of
jumbo rolls of paper into napkins, face tissues, M-fold/C-fold tissues
etc., by the process of cutting, slitting, folding and packing does not
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amount to manufacture as the said activity does not lead to
emergence of any new commodity with different name, character or
use. In the instant case, the duty paid jumbo rolls of tissue paper were
not subjected to any treatment, except the process of cutting/slitting.
The characteristics of the napkins, face tissues, M-fold/C-fold tissues,
etc in terms of texture, moisture absorption capacity, feel etc.
remained the same as the tissue paper in jumbo rolls. In other words,
the character and end-use of the tissue papers in jumbo rolls, napkins
and face tissues etc. remains the same. Therefore, the said activities
undertaken by the appellant does not attract levy of excise duty under
the first principle of manufacture.
5.2 It is submitted that the issue arising in the present case
stands decided in favour of the appellant by the judgment of Hon‟ble
Supreme Court in the case of CCE, New Delhi vs. S.R. Tissues Pvt.Ltd.,
2005(186)E.L.T. 385(S.C.)which was also recently followed by the
Hon‟ble Madras High Court in the case of Fresh Papiers India Pvt. Ltd.
vs. CCE, 2017(347) E.L.T. 604 (Mad)
Reliance in this regard is also placed on the following decisions:
Servo-Med Industries Pvt Ltd v CCE, 2015 (319) E.L.T578
(S.C),
Maj, Gen, Gurdev Singh, Director v. CCE, 2016 (337)
E.L.T. 393(Tri-Del._,
CCE, Chandigarh v. Dabur Ltd.,2015(325) E.L.T. 63 (Tri-
Del.)
In the light of the aforesaid judicial pronouncements, it is submitted
that since no new product commercially known to the market emerges
as a result of the process undertaken by the appellant, it does not
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satisfy the test of manufacture and hence not liable to excise duty.
Therefore, the demand raised against the appellant is unsustainable
and is liable to be set aside.
5.3 In para 4.4 and 4.5 of the impugned order, the Ld.
Commissioner has relied upon the judgment of Hon‟ble Supreme Court
in the case of CCE, Mumbai-IV v. Fitrite Packers, 2015 (342) ELT
635(S.C.). It is submitted that reliance on the said judgment is totally
misplaced as the issue involved in that case was different and was
whether printing on FI wrapping paper would amount to manufacture.
.
5.4 By the impugned order, the Ld. Commissioner has confirmed the demand of Central Excise duty by holding that the processes undertaken by the appellant amounts to manufacture in terms of Section 2(f)(iii) of the Excise Act. The relevant provision is reproduced below:
Section 2(f)(iii) of the Excise Act, defines the term "manufacture" as:
"SECTION 2. Definition.--In this act, unless there is anything repugnant in the subject or context.-
(f) "manufacture "includes any process.-.........
(i).................
(ii).................
(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment 5 E/50939-50940/2017-DB on the goods to render the product marketable to the consumer........"
5.5 It is submitted that the above provision is not applicable in the facts of the present case. The first limb of sub-clause (iii) is not satisfied for the reason that the subject items are packed in plastic/ polythene, capable of holding varied types and varied quantity of items and not any pre-determined quantity of any specific item, hence, does not fall under the phrase "unit container" as defined in Note 2 to Section II & IV of the CETA. Thus, the said plastic/ polythene bags do not qualify as a „unit container‟. In this regard, reliance is placed on the decision of Hon‟ble Tribunal in the case CCE v. Shalimar Super Foods, 2007 (210)E.L.T. 695 (Tri-Mumbai).
5.6 Since there is no unit container, no activity of packing/re- packing the goods in a unit container or labeling/re-labeling of the containers, can be said to have been undertaken in the present case. The subject goods do not have any kind of labelling on them except for the phrase "for institutional sale only" along with the brand name "PROTUS", which are already pre-printed on the polythene used for packing of the goods. The CBEC vide Circular No. 342/58/97-CX dated 8.10.1997, has clarified that the expression "packing" is considered as package containing a pre-packed commodity where the quantity of product contained therein is pre-determined and packing is generally done without the presence of purchaser and the package contains information such as name of the manufacture, quantity, value and other details of the products. Thus, labelling means declaration of 6 E/50939-50940/2017-DB name of the manufacturer, quantify, value and other details of the product.
5.7 Unlike the earlier two parts which specify the activity covered, viz., packing or repacking, labelling or re-labelling, the last part of the definition does not specify the activities to be covered under this part. It only says, "adoption of any other treatment on the goods to render the product marketable to the consumer". Therefore, the words "any other treatment" indicates that these activities should be other than the activities specified in the earlier part of the definition. Further, to render the goods marketable means that the goods were not marketable earlier and have become marketable because of the process undertaken/treatment given by the assessee. Hence, for a process to fall within the scope of the said expression, the same must confer upon the product attributes of marketability which it did not possess earlier.
5.8. It is submitted that the treatment adopted on the subject goods does not render the goods marketable as the goods are already marketable, and as the goods are not for the „consumer‟{as defined under the Consumer Protection Act} or for retail sale, the treatment does not amount to manufacture as per the last part of the sub-clause
(iii) of Section 2(f) of the Excise Act,.
5.9 The products i.e. napkins, face tissues, M-fold tissue & C-fold tissue, are not classifiable under tariff item 48818 2000 and under Entry 55 of the Third Schedule to the Excise Act and Notification No.49/2008-CE*(NT), dated 24-12-2008. The relevant entries in dispute are reproduced below:
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Entry 55 of Third Schedule to Central Excise Act, 1944 4818-Cleansing or facial tissues, handkerchiefs and towels of paper pulp, paper, cellulose wadding or webs of cellulose fibres Central Excise Tariff Entry:
TARRIF DESCRIPTION OF GOODS ITEM 4818 Toilet paper and similar paper, cellulose wadding or webs of
cellulose fibres, of a kind used for household or sanitary purposes, in roll of a width not exceeding 36 cm, or cut to size or shape; handkerchiefs, cleansing tissues, towels, table cloths, serviettes, bed sheets and similar household, sanitary or hospital articles, articles or apparel and clothing accessories, of paper pulp, paper cellulose wadding or webs of cellulose fibres.
4818 10 -Toilet paper 00 4818 20 -Handkerchiefs, cleansing or facial tissues and towel 00 4818 30 -Table cloths and serviettes 00 4818 50 -Articles of apparel and clothing accessories 00 4818 90 -Other 00
Notification No. 49/2008-CE(NT) dated 24-12-2008 S.No Chapter, Description of goods Abatement as heading, sub- a percentage heading or of retail sale tariff item price 55 4818 Cleaning or facial tissues, 35 handkerchiefs and towels, of paper pulp, paper, cellulose wadding or webs of cellulose fibres, other than goods falling under 48 18 50 0 8 E/50939-50940/2017-DB 5.10 It is submitted that first part of Heading 4818(reproduced above) covers the item, Toilet paper and similar papers, of a kind used for household or sanitary purpose, in rolls of a width not exceeding 36 cm, or cut to size or shape. The second part of the heading covers handkerchiefs, cleansing tissues, towels, tables cloths etc. The C-fold and M-fold towels are used in the washrooms/kitchen, in combination with a dispenser, for wiping of hands. These are therefore, in the nature of toilet paper and similar paper, hence, classifiable under Tariff Item 4818 10 00 as „Toilet Paper‟ or under 4818 90 00 as‟ Other‟, thus, outside the ambit of Entry 55 of the Third Schedule.
5.11 Tariff item 4818 20 00, under which the goods in question have been classified, covers „Cleaning‟ or facial tissues‟ whereas Entry 55 in the Third Schedule to the Excise Act, as well as Entry 55 in Notification No. 49/2008-CE(NT) dated 24.12.2008, cover the goods of description „cleansing or facial tissues‟ It is therefore, clear that the entries are not homogenous or uniform. Cleansing or facial tissues contain water/moisture to absorb/wipe dirt on the face and they are generally referred to as wet tissues or wipes and are also normally mildly perfumed. As against this, the cleaning tissues, though referred to as „face tissue‟, are used generally for cleaning hands and they do not contain any water or moisture or other substance for absorption nor are these perfumed. Cleaning tissues are not wet tissues and they are in dry state, in contrast to cleansing or facial tissues. 9
E/50939-50940/2017-DB Therefore, cleaning tissues and cleansing tissues are two different products but the same have been misconstrued as same, leading to the present proceedings. It is submitted that the goods in question are not covered under Entry 55 of the Third Schedule to the Excise Act, hence, not subject to the concept of deemed manufacture, in terms of Section2(f)(iii) of the Excise Act
6. The Revenue„s case was argued by the Ld. DR, Shri R.K Mishra.
6.1 He referred to para 4.2 of the impugned order in which the Commissioner has analysed the relevance of Section 2(f) as well as Sl. No 55 of the Third Schedule. He argued that the appellant‟s manufacturing process satisfies the Clause "adoption of any other treatment on the goods to render the product marketable to consumer" and hence, the activity of slitting undertaken by the appellant will amount to manufacture. He justified the reliance placed by the adjudicating authority on the ratio laid down by the Hon‟ble Supreme Court in the Fit Rite Packers case (supra). He referred to para 8 of the Apex Court‟s decision in which the Apex Court has laid down the guiding principles for interpretation of the Section 2(f), regarding manufacture. He distinguished the Apex Court‟s decision in the case of S.R. Tissues Pvt Ltd. He submitted that in the decision in the case of S.R. Tissues, the Apex Court has not discussed the provisions of the Section 2(f) (iii), since these were introduced only w.e.f. 1.3.2003 and the dispute in that case was prior to this date. He submitted that the Apex Court has discussed the same case laws in S.R. Tissues as well as Fitrite Cases and applied the same differently to the different facts. He also emphasized the observations of the Apex 10 E/50939-50940/2017-DB Court in para 12 of the Fitrite Case wherein it has been observed that to satisfy manufacture, there has to be first a transformation in the original article and this transformation should bring about a distinctive or different use in article Since the activity undertaken by the appellant brings about such a transformation, he justified the levy of Excise duty.
7. We have heard both sides and perused the record.
8. The basic issue in the present case is whether the activity carried out by the appellant in their factory amounts to manufacture. The Adjudicating Authority has held that the process carried out would amount to manufacture and hence Central Excise duty is payable on the resultant products. In the appellant‟s factory there are various types of machinery. The raw materials procured are essentially in the form of paper jumbo rolls. Such jumbo rolls are slit to the required size, cut to size and embossed and printed with the brand name and design. In respect of toilet roll, kitchen roll etc they are rewound into smaller rolls. In respect of paper napkins and C and M Fold Towels, they are folded as required. Finally, the goods are packed in polythene and finally into big cartons i.e. corrugated boxes embossed with the brand „PROTUS‟. The resultant products, after the above processes, have been held by the Adjudicating Authority to be liable to duty as manufactured produces. In this connection he had relied on the decision of the Hon‟ble Supreme Court in the case of Fit Rite Packers (supra). In addition he has also held that goods are also to be held liable to duty in terms of the "deemed" manufacture as per Section 2(f) (iii) of the Central Excise Act. Further, he has held that the goods in question are covered by the Entry 55 of the Third Schedule of the Excise Act. 11
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9. The thrust of the arguments raised by the assessee is that the Hon‟ble Supreme Court in the case of S.R. Tissue Pvt. Ltd. (supra) have already held that the activity of cutting/slitting of jumbo rolls of plain tissue paper will not amount to manufacture. In this decision the Hon‟ble Supreme Court has held that the characteristics of tissue paper in the jumbo rolls as well as in the form of napkin, toilet roll and facial issue remain the same. Since, the characteristics are not different, no new product has emerged. They have sought to differentiate the decision relied by the Adjudicating Authority i.e. Fit Rite Packers claiming that the latter decision has been delivered in the context of whether printing on wrapping paper would amount to manufacture. They have also made elaborate submissions as to why the deemed definition of manufacture in terms of Section 2 (F) (iii) will not be applicable.
10. We have carefully considered the facts involved in the decisions by the Hon‟ble Supreme Court. In the later decision in the case of Fit Rite, the Hon‟ble Supreme Court has referred to their judgment in the case of Servo-Med Industries 2015 (319) ELT 578 (SC) and have formulated certain tests to ascertain whether a particular process would amount to manufacture or not. The Court culled out four categories of cases as under:-
(1) Where the goods remain exactly the same even after a particular process, there is obviously no manufacture involved. Processes which remove foreign matter from goods complete in themselves and/or processes which clean goods that are complete in themselves fall within this category.
(2) Where the goods remain essentially the same after the particular process, again there can be no manufacture. This is for the reason that the original article continues as such despite the said process and the changes brought about by the said process.
(3) Where the goods are transformed into something different and/or new after a particular process, but the said goods are not marketable. Examples within this group are the Brakes India case and cases where the transformation of goods having a shelf life 12 E/50939-50940/2017-DB which is of extremely small duration. In these cases also no manufacture of goods takes place.
(4) Where the goods are transformed into goods which are different and/or new after a particular process, such goods being marketable as such. It is in this category that manufacture of goods can be said to take place."
11. The Apex Court held that the goods can be considered to be manufactured only in the situation described in four above i.e. In cases where goods are transformed into goods which are different and /or new after a particular process, such goods been marketable as such. To decide the question of manufacture in the facts of the present case, we need to examine the processes as to whether the test specified in above is satisfied.
12. The raw materials procured by the appellant are in the form of jumbo rolls. Such jumbo rolls cannot be conveniently and efficiently used either as a tissue paper, napkin, toilet roll, kitchen roll etc. The sheer size of the jumbo rolls makes them impractical for direct use. The processes undertaken in the appellant‟s factory involve slitting the jumbo rolls and cutting to required size, folding them and packing them. These processes bring into existence various products which are in a form suitable for convenient use for various applications. The resultant products are packed in polythene in packs of 50/100 etc which are further packed into big corrugated boxes. The jumbo rolls which are raw materials for the appellant are completely transformed into the form in which it can be conveniently used and are marketed. There is no doubt that the final products of the appellant are perceived in the market place as different from the jumbo rolls which are raw materials. No doubt both the jumbo rolls and final products such as napkins are made of the same tissue paper. But we have 13 E/50939-50940/2017-DB no doubt that the transformation of jumbo rolls into either toilet rolls/ kitchen rolls or in the form paper napkins bring out a distinctive and different use in the article. Evidently, the resultant products are perceived differently in the market. Consequently, the test No. 4 formulated by the Hon‟ble Supreme Court is satisfied in the present case and hence the process undertaken by the appellant is to be considered as a process of manufacture. The liability for payment of excise duty is, therefore, incurred by the appellant.
13. It has been submitted that the Hon‟ble Supreme Court in S.R. Tissue case has held that the process of slitting/cutting of jumbo rolls of plain tissue paper into similar size does not amount to manufacture. We have carefully considered both the decisions of Apex Court. In the S.R. Tissue case, the Apex Court has considered the process of cutting/slitting and concluded it to be not a process of manufacture only by considering the fact that the characteristics of the tissue paper remains the same in the jumbo rolls as well as in the slit ones. We are of the view that after the decision of the Supreme Court in the Fit Rite case, it would be more appropriate to conclude the question of manufacture on the basis of the four tests formulated by the Apex Court. As discussed above the process undertaken by the appellant satisfies the test formulated as above and consequently we conclude that the resultant products of the appellant are liable to payment of excise duty. Since we have already concluded that the processes undertaken by appellant are amounting to manufacture, we do not propose to discuss the submissions advanced to the effect that the case of the appellant will not fall under Section 2 (f) (iii) read with the Third Schedule of the Central Excise Tariff Act.
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14. Regarding the ground of time bar raised by the appellant, we find that the same has been discussed by the Adjudicating Authority in Para 4.12 of the impugned order. In the peculiar facts and circumstances of the case we uphold the demand even on the basis of extended time limit.
15. In view of above discussions we uphold the levy of the Excise duty as per the impugned order alongwith interest and penalties.
16. In the result, impugned order is upheld and the appeals are rejected.
(Order pronounced in the open Court on_18/06/2018_) (Rachna Gupta) (V. Padmanabhan) Member (Judicial) Member (Technical) Rekha