1993 (1) TMI 100 - SC - Central Excise

Supreme Court: Backing duty paid aluminum foil with paper constitutes new article manufacture.

The Supreme Court overturned the High Court's decision, ruling that backing duty paid aluminum foil with paper does constitute the manufacture of a new ... Manufacture - new and commercially distinct article - evidence of market recognition - non-traverse and burden of proof - double levy of excise duty under same tariff item - remand for fresh disposalManufacture - new and commercially distinct article - evidence of market recognition - Whether the process of backing duty-paid aluminium foil with paper results in 'manufacture' by producing a new and commercially distinct article - HELD THAT: - The Court held that the question turns on whether the application of the process produces a new and commercially distinct article known and recognised in the market; mere elaborateness of the process is not decisive. That determination depends on evidence showing transformation into an article with a distinct identity, character or use as perceived in trade, industry or commerce. The High Court's conclusion on the merits could not be sustained on the material before it because evidence on market recognition and requisite transformation was absent or not examined; the Court emphasised that a judicial conclusion must rest on such evidence and not on the court's own perceptions. [Paras 4, 5, 6]Not finally decided on the merits; the question of whether backing amounts to manufacture must be reconsidered by the High Court on the basis of appropriate evidence of market recognition and transformation.Non-traverse and burden of proof - double levy of excise duty under same tariff item - remand for fresh disposal - Whether the High Court was justified in upholding the writ petition solely on the ground of non-traverse and in its ancillary observation regarding levy of duty under the same tariff item - HELD THAT: - The Supreme Court held that a mere failure to file a counter-affidavit does not conclusively decide the substantive legal question; the court must examine the merits on evidence. The High Court's additional observation that, even if a commercially different article emerged, duty could not be levied under the same tariff item was addressed: the appellate court noted that the High Court's reasoning flowed from its primary factual conclusion that no manufacture occurred, and that the question of double levy (and its relation to precedent) could not be properly decided without resolving the factual issue. Consequently, the High Court's order was set aside and the matter remitted for fresh disposal after affording parties opportunity to place material relied upon, so that both procedural and substantive aspects can be properly examined. [Paras 3, 6, 7]High Court judgment set aside; writ petition remitted to High Court for fresh disposal after affording opportunities to the parties to place relevant material-both the procedural non-traverse and the question of levy under the tariff to be considered afresh.Final Conclusion: Appeal allowed; the High Court judgment dated 26th July, 1991 is set aside and the writ petition is remitted to the High Court for fresh disposal in accordance with law after affording both parties opportunity to place all material they rely upon; parties to bear their own costs. Issues:- Whether the process of backing duty paid aluminum foil with paper amounts to the manufacture of a new and commercially distinct article.- Whether the High Court's decision on the levy of duty on 'paper-backed aluminum-foil' was sustainable.- Whether the absence of a counter-affidavit affects the determination of whether the process amounts to manufacture under the Central Excises and Salt Act, 1944.- Whether a commercially different article emerging from a process can be exigible to duty under the same tariff item.Analysis:The Supreme Court heard an appeal by the Union of India against a High Court order upholding that the process of backing duty paid aluminum foil with paper did not amount to manufacturing a new and distinct article. The High Court's decision was based on two grounds. Firstly, the Revenue did not file a counter-affidavit to rebut the respondent's claim that 'paper-backed aluminum foil' was not a new commercial article. Secondly, the High Court found that the process did not result in a commercially distinct article from aluminum foil. The absence of a counter-affidavit was not conclusive, and the determination of whether the process constitutes manufacture depends on whether a new and commercially distinct article emerges. The court emphasized the importance of evidence in establishing the transformation of goods into a different article known in the market. The court highlighted that its decision should be based on evidence, not its own perceptions. The Supreme Court concluded that the High Court's decision was not sustainable based on the material before it.The appellant argued that even if a commercially distinct article emerged, it should not be subject to duty under the same tariff item as the original aluminum foil. The appellant cited a previous case but the court disagreed, stating that the High Court's finding that the process did not amount to manufacture was crucial. The Supreme Court allowed the appeal, set aside the High Court's judgment, and remitted the case for fresh disposal. Both parties were directed to present all relevant material, and each party was ordered to bear its own costs for the proceedings.This judgment clarifies the legal principles surrounding the determination of whether a process amounts to manufacturing a new and distinct article under the Central Excises and Salt Act, 1944. It underscores the importance of evidence in establishing the commercial distinctiveness of the resulting article and highlights that a court's decision should be based on such evidence rather than personal perceptions.