Exemption for paper manufacturing from pulp cannot be denied merely because conversion occurred on job work basis in another factory.

Exemption under Notification No. 6/02-C.E. and Notification No. 4/06-C.E. applied to paper and paper board manufactured from the stage of pulp where the prescribed pulp specification and other notification conditions were satisfied. The only dispute was whether pulp had to be converted into paper in the same factory from which the finished paper was cleared. Where the pulp was converted into paper on job work basis under Notification No. 214/86-C.E. and returned without duty, the exemption was not to be denied merely because the paper-making process was carried out in another factory. On that basis, the demand and penalties were treated as unsustainable.

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Issues: Whether the exemption under Notification No. 6/02-C.E. dated 01.03.2002 and Notification No. 4/06-C.E. dated 01.03.2006 could be denied on the ground that conversion of pulp into paper was undertaken in another factory on job work basis and not in the same factory from which the final paper was cleared.

Analysis: The exemption notifications granted concessional duty to paper and paper board manufactured starting from the stage of pulp, subject to specified conditions, including the nature of the pulp and the quantum of first clearances. It was undisputed that the appellant used pulp of the prescribed specification and satisfied the other conditions in the notifications. The only dispute was whether the conversion of pulp into paper had to occur in the same factory. The paper rolls were converted on job work basis under Notification No. 214/86-C.E., returned without payment of duty, and the appellant remained liable to pay duty on the finished goods cleared from its unit. On this basis, the condition was held not to require denial of exemption merely because the paper-making process was outsourced.

Conclusion: The exemption could not be denied merely because pulp was converted into paper in another factory on job work basis; the demand and penalties were unsustainable and the appeals were allowed.

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