1989 (8) TMI 78 - SC - Central Excise

Paper cores treated as component parts for roll paper, not sheet paper, under Section 2(f) exemption notifications

SC held that paper cores qualify as 'component parts' in the manufacture of paper when the final product is paper in rolls, but not when it is paper in ... Component parts - manufacture - process incidental or ancillary to manufacture - marketability - use as raw materials or component partsComponent parts - manufacture - process incidental or ancillary to manufacture - marketability - Paper cores used in the rewinding process for paper delivered to customers in rolls are component parts of the manufactured paper. - HELD THAT: - The Court applied the definition of 'manufacture' in Section 2(f) of the Act, which includes processes incidental or ancillary to completion of a manufactured product, and the marketability principle that goods must be known in the market as such. Drawing on authoritative descriptions of papermaking and finishing, the Court found that rewinding onto cores is necessary to produce roll paper that is deliverable to the customer as a marketable commodity. Where rewinding onto cores is an integral step so that without it the paper cannot be commercially supplied as roll paper, the cores perform a constitutive function in the manufacture. Accordingly paper cores used for rewinding paper meant to be delivered as rolls fall within the concept of 'component parts' for the purposes of the Notification and are eligible for exemption to the extent provided therein. [Paras 11, 12, 13]Paper cores used in the manufacture of paper rolls delivered to customers are component parts and qualify for exemption under the Notification.Component parts - manufacture - process incidental or ancillary to manufacture - commercial expediency - Paper cores used when paper is manufactured to be cut into sheets are not component parts of the paper. - HELD THAT: - The Court examined the stages of production and recognized that when paper is ultimately to be cut into sheets, rewinding need not involve disposable paper cores; reusable iron pipes or other methods may be employed and the core is not essential to produce the marketable commodity (sheets). Even if some manufacturers use cores for convenience in such cases, that convenience does not render the cores constitutive of the manufactured product. Because the use of cores is not necessary to the completion of paper in sheet form and is not integral to commercial production of sheet paper, cores used in that context do not fall within the Notification's term 'component parts.' [Paras 11, 12]Paper cores used in the manufacture of paper intended to be cut into sheets are not component parts and do not qualify for exemption under the Notification.Final Conclusion: The appeal is allowed in part: paper cores used in rewinding where paper is manufactured and delivered as rolls are component parts and eligible for exemption under the Notification; paper cores used in manufacture of paper to be cut into sheets are not component parts. Orders below are modified accordingly; parties to bear their own costs. Issues Involved:1. Whether paper cores used in the manufacture of paper qualify as 'component parts' under the relevant Notification for excise duty exemption.2. The applicability of the term 'manufacture' as defined in Section 2(f) of the Central Excises and Salt Act, 1944.3. The interpretation of the term 'component parts' in the context of the Notification.Issue-wise Detailed Analysis:1. Whether paper cores used in the manufacture of paper qualify as 'component parts' under the relevant Notification for excise duty exemption:The appellant claimed an exemption from excise duty on paper cores used in the manufacture of paper based on Notification No. 201/79, as amended by Notification No. 105/82. The Notification exempts excisable goods from duty equivalent to the duty already paid on the inputs used as raw materials or component parts. The appellant argued that paper cores are used in the re-winding and cutting machines during the paper manufacturing process, making them 'component parts' under the Notification. The respondent contended that paper cores are used as packing material after the paper is manufactured and do not qualify as component parts. The Tribunal had to determine if paper cores are integral to the manufacturing process of paper.2. The applicability of the term 'manufacture' as defined in Section 2(f) of the Central Excises and Salt Act, 1944:Section 2(f) of the Act defines 'manufacture' to include any process incidental or ancillary to the completion of a manufactured product. The court referred to the definition and various authoritative texts on paper manufacturing to determine if the use of paper cores is necessary in the manufacturing process. The court considered whether paper cores are used in any process incidental or ancillary to the completion of paper as a marketable product.3. The interpretation of the term 'component parts' in the context of the Notification:The term 'component parts' is not defined in the Act or the Notification, so the court referred to its dictionary meaning and previous judgments. According to Webster's Dictionary, 'component' means a constituent part. The court also referred to the judgment in J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur, which held that any process integrally connected with the ultimate production of goods would fall within the expression 'in the manufacture of goods.' The court applied this principle to determine if paper cores are integral to the manufacturing process of paper.Detailed Analysis:The court examined the manufacturing process of paper, referring to authoritative texts like Encyclopaedia Britannica and The Story of Papermaking. It found that paper is produced in rolls and sheets, and the use of paper cores is essential for manufacturing roll paper. The paper is wound on paper cores during the rewinding process, making it marketable as roll paper. However, for paper sheets, the use of paper cores is not necessary, as the paper can be cut into sheets without them. The court concluded that paper cores are necessary for the manufacture of roll paper but not for sheet paper.Conclusion:The court held that paper cores used in the manufacture of paper rolls qualify as 'component parts' under the Notification, entitling the appellant to the exemption. However, paper cores used in the manufacture of paper sheets do not qualify for the exemption. The appeal was allowed to the extent that paper cores used in the manufacture of paper rolls are considered component parts, and the orders of the authorities below were modified accordingly. Each party was ordered to bear its own costs.