C.C.E. MUMBAI - IV Vs. M/S. FITRITE PACKERS, MUMBAI
Supreme Court of India
Appeal (Civil), 2733 of 2007, Judgment Date: Oct 07, 2015
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2733 OF 2007
COMMISSIONER OF CENTRAL EXCISE, MUMBAI-IV …APPELLANT
VERSUS
M/S. FITRITE PACKERS, MUMBAI ...RESPONDENT
J U D G M E N T
A.K. SIKRI, J.
The dispute between the parties arose on two issues, viz.:
(i) Whether the goods in question, i.e., printed GI paper are
classifiable under Chapter heading 4811.90, as claimed by the Revenue or
they were to be classified under Chapter heading 4901.90 as the product of
printing industry, as per the stand taken by the respondent/assessee?
(ii) Whether printing on duty paid GI paper would amount to manufacture?
The Tribunal vide impugned judgment dated March 27, 2006 has decided the
first issue in favour of the Revenue classifying the goods under Chapter
heading 4811.90 thereby holding that the goods fall within the description
of 'printing in rolls or sheets'. The assessee has not challenged the
aforesaid classification as accorded by the Tribunal and, therefore, the
issue of classification has attained finality.
Insofar as other question is concerned, the Tribunal has decided that the
process of printing of GI paper does not amount to manufacture. Aggrieved
by such a conclusion on the second issue, the Revenue is in appeal before
us. Therefore, this is the only issue that needs to be determined in the
instant appeal which has arisen under the following circumstances:
The respondent/assessee herein purchased GI paper from the market
which is already duty paid base paper. On this paper, the process of
printing is carried out by the assessee according to the design and
specifications of the customers depending on their requirements. This
printing is done in jumbo rolls of GIP twist wrappers. Bulk orders are
received from Parle, which needs the said paper as a wrapping/packing paper
for packing of their goods. On the paper, logo and name of the product is
printed in colorful form. After carrying out the printing as per the
requirement of the customers, the same is delivered to the customers in
jumbo rolls without slitting. The issue is as to whether this printing
process amounts to manufacture or not?
Various show cause notices were issued and orders were passed by the
adjudicating authority thereupon holding that the aforesaid process would
be treated as manufacture and, thus, the respondent/assessee was liable to
pay excise duty thereon.
The Tribunal while upsetting the aforesaid decision of the Commissioner has
arrived at a conclusion that printing is only incidental and primary use of
GI printing paper roll is for wrapping which is not changed by the process
of printing. While coming to this conclusion, the Tribunal has primarily
relied upon the judgment of this Court in Union of India v. J.G. Glass
Industries Ltd.[1]
Questioning the veracity of the aforesaid conclusion of the Tribunal, Mr.
K. Radhakrishnan, learned senior counsel appearing for the Revenue argued
that, no doubt, paper in-question was meant for wrapping/packing of the
goods of the customer but that was not the determinative factor and a vital
feature/aspect which was missed by the Tribunal was that after printing the
said GI paper rolls, it was used for specific purpose which was not
possible with the plain paper. In support, some decisions of this Court
were cited.
Learned counsel for respondent, on the other hand, argued that the approach
of the Tribunal was perfectly justified which was in consonance with the
principle laid down by this Court in J.G. Glass Industries (supra).
According to him, the Tribunal had rightly held that the primary purpose
for which GI paper is used is the wrapping/packaging and even after GI
paper was printed, the essential functioning of this paper remained the
same, namely, wrapping and had not changed by the process of printing. He,
thus, submitted that no interference in the decision of the Tribunal was
called for.
We have considered the aforesaid submissions of the learned counsel for the
parties. In order to discern the principles that are to be applied for
ascertaining as to whether a particular process amounts to manufacture
within the meaning of Section 2(f) of the Central Excise Act, 1944
(hereinafter referred to as the 'Act'), it is not necessary to refer to
various case laws on the subject. Our purpose would be served by referring
to a recent decision, which was rendered by this very Bench, in the case of
Servo-Med Industries Pvt. Ltd. v. Commissioner of Central Excise,
Mumbai[2]. Our reason for saying so is that in this decision many earlier
judgments are taken note of, considered and principles laid down therein
are culled out. The judgment in the case of J.G. Glass Industries (supra)
was also taken note of and discussed. There is an elaborate discussion on
the following aspects, covering the entire spectrum:
(i) Distinction between manufacture and marketability:
It is pointed out that whereas excisable goods signifies that the
goods are capable of being sold in the market, the manufacture is distinct
from saleability. Manufacture takes place on the application of one or more
processes and each process may lead to a change in the goods but every
change does not amount to manufacture. To bring the process within the
definition of 'manufacture' under Section 2(f) of the Act, it is essential
that there must be a transformation by which something new and different
comes into being, i.e., there must now emerge an article which has a
distinctive name, character or use.
(ii) The judgment also explains the circumstances when transformation does
not take place:
Examples are given when character and use remains the same or when
foreign matter is removed from an article or additions are made to the
article to preserve it or increase its shelf life or when no change occurs
in the name, character or use of the product.
(iii) It was noted that when essential character of the product does not
undergo change there would be no manufacture. The Court explained
'retaining of essential character test' to mean that the product in its
primary and essential character remains the same even after the process in-
question and the product is sold in the market with its earlier character.
Following passage from Deputy Commissioner of Sales Tax (Law), Board of
Revenue (Taxes), Ernakulam v. Pio Food Packers[3], was quoted which drew a
line between cases in which essential character had changed and those in
which no such change had taken place.
“19. Interestingly, a line was drawn between cases in which the essential
character had changed and those in which no such change had taken place in
the following terms:
“5. A large number of cases has been placed before us by the parties, and
in each of them the same principle has been applied: Does the processing of
the original commodity bring into existence a commercially different and
distinct article? Some of the cases where it was held by this Court that a
different commercial article had come into existence include Anwarkhan
Mehboob Co. v. The State of Bombay and Ors. (where raw tobacco was
manufactured into bidi patti), A. Hajee Abdul Shukoor and Co. v. The State
of Madras (raw hides and skins constituted a different commodity from
dressed hides and skins with different physical properties), The State of
Madras v. Swasthik Tobacco Factory (raw tobacco manufactured into chewing
tobacco) and Ganesh Trading Co. Karnal v. State of Haryana and Anr., (paddy
dehusked into rice). On the other side, cases where this Court has held
that although the original commodity has under gone a degree of processing
it has not lost its original identity include Tungabhadra Industries Ltd.,
Kurnool v. Commercial Tax Officer, Kurnool (where hydrogenated groundnut
oil was regarded as groundnut oil) and Commissioner of Sales Tax, U.P.,
Lucknow v. Harbiles Rai and Sons (where bristles plucked from pigs, boiled,
washed with soap and other chemicals and sorted out in bundles according to
their size and colour were regarded as remaining the same commercial
commodity, pigs bristles).”
This Court also explained the principle that where there was no
commercial user without further process then the said process would amount
to manufacture labelling it as 'test of no commercial user without further
process'.
(iv) Another circumstance was taken note of and discussed which involves
integrated process, culling out 'the test of integrated process without
which manufacture would be impossible or commercially inexpedient'. It was,
thus, explained that where the manufacture involves series of processes,
i.e., various stages through which the raw-material is subjected to change
by different operations, each step towards such production would be a
process in relation to the manufacture.
On the basis of aforesaid discussion and formulation of certain tests to
ascertain whether a particular process would amount to manufacture or not,
the Court culled out four categories of cases in its conclusion in para 27
of the judgment. We reproduce these categories hereunder:
“27. The case law discussed above falls into four neat categories.
(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 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.”
On the facts of the present case, it is to be determined as to whether the
case would fall under category (2) or category (4). We have already taken
note of printing process. A cursory look into the same may suggest, as
held by the Tribunal, that GI paper is meant for wrapping and the use
thereof did not undergo any change even after printing as the end use was
still the same, namely, wrapping/packaging. However, a little deeper
scrutiny into the facts would bring out a significant distinguishing
feature; a slender one but which makes all the difference to the outcome of
the present case. No doubt, the paper in-question was meant for wrapping
and this end use remained the same even after printing. However, whereas
blank paper could be used as wrapper for any kind of product, after the
printing of logo and name of the specific product of Parle thereupon, the
end use was now confined to only that particular and specific product of
the said particular company/customer. The printing, therefore, is not
merely a value addition but has now been transformed from general wrapping
paper to special wrapping paper. In that sense, end use has positively been
changed as a result of printing process undertaken by the assessee. We
are, therefore, of the opinion that the process of aforesaid particular
kind of printing has resulted into a product, i.e., paper with distinct
character and use of its own which it did not bear earlier. Thus, the
'test of no commercial user without further process' would be applied as
explained in paragraph 20 of Servo-Med Industries (supra). The aforesaid
paragraph is extracted hereunder.
“20. In Brakes India Ltd. v. Superintendent of Central Excise (1997) 10 SCC
717, the commodity in question was brake lining blanks. It was held on
facts that such blanks could not be used as brake linings by themselves
without the processes of drilling, trimming and chamfering. It was in this
situation that the test laid down was that if by adopting a particular
process a transformation takes place which makes the product have a
character and use of its own which it did not bear earlier, then such
process would amount to manufacture irrespective of whether there was a
single process or several processes.”
The ratio thereof is explained in paragraph 24 in the following words:
“24. It is important to understand the correct ratio of the judgment in
the J.G. Glass case. This judgment does not hold that merely by
application of the second test without more manufacture comes into being.
The Court was at pains to point out that a twofold test had emerged for
deciding whether the process is that of manufacture. The first test is
extremely important – that by a process, a different commercial commodity
must come into existence as a result of the identity of the original
commodity ceasing to exist. The second test, namely that the commodity
which was already in existence will serve no purpose but for a certain
process must be understood in its true perspective. It is only when a
different and/or finished product comes into existence as a result of a
process which makes the said product commercially usable that the second
test laid down in the judgment leads to manufacture.....”
This Court emphasised that there has first to be a transformation in the
original article and this transformation should bring out a distinctive or
different use in the article, in order to cover the process under the
definition of 'manufacture'. These tests are satisfied in the present case.
As a result, present appeal is allowed setting aside the order of the
Tribunal and restoring the Order-in-Original passed by the Adjudicating
Authority.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ROHINTON FALI NARIMAN)
NEW DELHI;
OCTOBER 07, 2015.
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[1] 1998 (97) ELT 5 (SC)
[2] 2015 (319) ELT 578 (SC)
[3] 1980 (6) E.L.T. 343 (SC)
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