Slitting of imported paper was not manufacture where the tariff note applied only to thermal paper, defeating classification.

Slitting imported crape paper into narrower widths was treated as manufacture only if the relevant tariff entry or chapter note expressly covered that process for the goods in question. Because the note invoked by the department applied only to thermal paper, and the imported material was not thermal paper, the manufacture theory failed. The classification under the disputed tariff heading was therefore unsustainable, and the duty demand could not be upheld. The analysis also notes that the departmental case could not rest on a ground not alleged in the show cause notice.

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Issues: Whether slitting of imported crape paper into smaller widths for marketing as masking tape amounts to manufacture and whether the resultant goods are classifiable as dutiable goods under the tariff heading invoked by the department.

Analysis: The process undertaken was only slitting of imported crape paper of 750 mm width into narrower strips. The tariff scheme relied upon by the department treated articles of paper or paperboard of width not exceeding 15 cm under the heading invoked, whereas the assessee asserted that the goods had been imported and cleared under the heading for gummed or adhesive paper and paperboard. The decision also noted that the chapter note relied upon by the adjudicating authority specifically treated slitting or cutting as manufacture only in relation to thermal paper, and the imported material in question was admittedly not thermal paper. In the absence of a show cause allegation that the goods were thermal paper, the departmental basis for treating the activity as manufacture could not stand.

Conclusion: The process of slitting did not amount to manufacture on the facts of the case, and the impugned classification and duty demand were unsustainable.

Final Conclusion: The appeal succeeded and the orders below were set aside, resulting in relief to the assessee in accordance with law.

Ratio Decidendi: Slitting of paper does not amount to manufacture unless the tariff entry or chapter note specifically brings the process within the scope of manufacture for the relevant kind of goods, and such classification cannot be sustained on a basis not alleged in the show cause notice.

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