Supreme Court: Manufacturing process creates new products subject to excise duty

UNION OF INDIA Versus BABUBHAI NYLCHAND MEHTA

UNION OF INDIA Versus BABUBHAI NYLCHAND MEHTA - 1991 (51) E.L.T. 182 (SC), 1991 AIR 407, 1990 (3) Suppl. SCR 559, 1991 (2) Suppl. SCC 348, 1990 (4) JT ... Issues:
1. Whether the process undertaken by a company amounts to manufacturing new products for excise duty purposes.
2. Whether the products manufactured by the company are distinct and separate from the original kraft paper.

Analysis:
1. The case involved a company manufacturing various types of waterproof packing paper by combining materials with kraft paper. The company claimed that its products did not fall under the definition of "manufactured" under the Central Excises and Salt Act, 1944. The Assistant Collector initially held that the processed kraft paper products were distinct and liable for excise duty. The High Court, in a writ petition, disagreed, stating that the process did not result in manufacturing new commodities with different characteristics and uses, as per precedents from other High Courts.

2. The High Court analyzed the manufacturing process, where kraft paper was coated and impregnated with materials like bitumen, polythene, and jute fiber. It concluded that the process did not amount to manufacturing new products with different characteristics and uses, as required under the relevant excise duty item. The Division Bench affirmed this judgment, emphasizing that the company did not manufacture paper but processed kraft paper, which did not attract excise duty under the specific item.

3. The Supreme Court heard arguments from both parties, referencing a previous case where lamination of kraft paper with polyethylene was held to result in distinct goods subject to excise duty. The Court noted that the lamination process constituted manufacturing under excise law principles. It rejected the argument that duty-paid kraft paper's essential characteristics remained unchanged after lamination. The Court emphasized that new products emerged from the manufacturing process, distinct from ordinary kraft paper, and subject to excise duty.

4. The Court held that once the processing of kraft paper resulted in new products with distinct characteristics and uses, they were considered manufactured goods subject to excise duty. The judgment aligned with the principles established in the previous case regarding lamination of kraft paper. The Court overturned the High Court's decision, upholding the Assistant Collector's order that the company's products were liable for excise duty. The parties were directed to bear their own costs in the case.