1982 (10) TMI 38 - HC - Central Excise

Court Rules Wrapping Paper Not Subject to Double Taxation

ANDHRA PRADESH PAPER MILLS LTD. Versus UNION OF INDIA

The court ruled in favor of the Mills, holding that the wrapping paper, when used internally for packing other paper varieties, does not lose its identity ... Wrapping paper - Liability to duty - Post-manufacturing operations Issues Involved:1. Liability of excise duty on wrapping paper used internally for packing other varieties of paper.2. Whether the wrapping paper loses its identity when used for packing.3. Double taxation on the same excisable goods.4. Interpretation of Sections 3 and 4 of the Central Excises and Salt Act, 1944.5. Application of the doctrine of 'Reading Down' in the context of excise duty.Detailed Analysis:1. Liability of Excise Duty on Wrapping Paper Used Internally:The primary issue was whether the wrapping paper manufactured and used internally by the Mills for packing other varieties of paper is liable to excise duty. The Mills contended that the wrapping paper, when used for packing, does not lose its identity and continues to be separable from the content paper. They argued that demanding duty on the wrapping paper both as a separate item and as part of the packed product amounts to double taxation.The respondents argued that since the wrapping paper is consumed within the factory and not sold to outsiders, it attracts excise duty before being used as packing material. They maintained that once the wrapping paper is used for packing, it loses its identity, and its cost should form part of the value of the packed paper, thus making it liable for excise duty again.2. Identity of Wrapping Paper When Used for Packing:The court examined whether the wrapping paper loses its identity when used for packing other varieties of paper. It was noted that the wrapping paper does not undergo any change in identity or characteristics when used for packing; it merely serves as a post-manufacturing process for the other kinds of paper. The wrapping paper remains identifiable and separable from the content paper.3. Double Taxation on the Same Excisable Goods:The court addressed the issue of double taxation, emphasizing that excise duty should not be levied twice on the same excisable goods. It was held that once the wrapping paper has been assessed to excise duty as wrapping paper, it cannot be subjected to duty again as part of the value of the package containing other dutiable paper. This interpretation aligns with the principle that excise duty is a tax on the manufacture or production of goods, not on post-manufacturing processes.4. Interpretation of Sections 3 and 4 of the Central Excises and Salt Act, 1944:The judgment delved into the interpretation of Sections 3 and 4 of the Act. Section 3 specifies that excise duty is levied on the manufacture or production of excisable goods. Section 4 deals with the valuation of excisable goods for duty purposes, including the cost of packing. The court concluded that the provisions of Sections 3 and 4, read with Tariff Item 17, do not contemplate the levy of excise duty twice on the same goods.5. Application of the Doctrine of 'Reading Down':The court applied the doctrine of 'Reading Down' to ensure that the language of Section 4 is confined to the legislative power under Item 84 in the Union List of the Seventh Schedule to the Constitution. This doctrine ensures that only the manufacturing cost and profit are considered for excise duty, excluding post-manufacturing costs.Conclusion:The writ petition was allowed, directing the respondents to permit the Mills to clear excisable goods without insisting on payment of duty on wrapping paper used internally for packing, provided the Mills has paid excise duty on the value of the wrapping paper as per the applicable tariff rate. The court emphasized that excise duty should not be levied twice on the same excisable goods, aligning with the principle that excise duty is a tax on manufacture, not on post-manufacturing processes.Additional Orders:1. Leave to appeal to the Supreme Court was granted, recognizing the substantial question of public or general importance.2. The request for a stay of the judgment's operation was rejected.