Whether assessee is eligible for captive consumption exemption on wrapping paper used for wrapping of finished products?

PJ/CASE LAW/2016-17/3072

Case:COLLECTOR OF C. EX. Vs EASTEND PAPER INDUSTRIES LTD.

Citation: 1989 (43) E.L.T.201 (S.C.)

Brief Facts:The respondent-assessee used to manufacture different varieties of printing 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 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 wrapping paper under Gate Pass No. A-460 dated 9th February, 1984 and 485 dated 17th February, 1984 valued at Rs. 13,200/- without payment of 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 contention of the respondent that no duty was required to be paid on the excisable 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.

The Superintendent (Technical) of Central Excise held otherwise. The respondent preferred an appeal before the Collector (Appeals), Calcutta. The Collector (Appeals), also 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 E.L.T. (24) 135], which is the subject-matter of the other appeal involved herein, and set aside the order of Collector.

Appellant’s Contention:It was contended that the wrapping paper was not utilised or consumed in the manufacture of other paper. In order to be non-dutiable, the wrapping paper must be either component part or raw material and must be consumed or utilised in the manufacture of the finished products. Wrapping paper cannot, it was contended, be deemed to be component part because it did not become an integral part of the packed paper.

Respondent’s Contention:It was the contention of the respondent that there was no infringement of the impugned provision and no duty was required to be paid on the excisable 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 manufactured was captively consumed and utilised as component part of other varieties of paper. Wrapping 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-C.E., dated 9th July, 1983.

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 judgment of High Court and orders of the Tribunal that wrapping of paper was a process incidental or ancillary to the completion of manufacture of paper, as the printing and writing paper could not be sold in the market without being packed and wrapped by wrapping paper.

Reasoning of Judgement:In the case of Empire Industries Ltd. and Ors. v. Union of India and Ors, the concept of ‘process’ has been explained 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 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 [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 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 goods’.

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 Orient Paper Mills [1984 (18)E.L.T. 88] and in both the appeals accepted the manufacturer’s contentions. The revenue contends that the Tribunal has erred.

To be able to be marketed or to be marketable it was an essential requirement to be goods, to be wrapped in paper. Anything required to make the 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. Hence the Tribunal was right in the view it took. There is no ground to interfere in these appeals.

Decision:Revenue Appeal Dismissed

Comment:The essence of the case is that the exemption on intermediate goods is allowed when it is further used in manufacture of final products. In this case, the wrapping paper was the intermediate product which was further used in packing/wrapping of final product.
The court has decided the matter in favour of assessee and held that the wrapping process is an incidental part of manufacturing process without which goods can’t be marketed hence assessee is eligible for exemption of captive consumption on wrapping paper

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PJ/CASE LAW/2016-17/3072

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