1996 (12) TMI 85 - HC - Central Excise

Court rules excise duty on wrapping paper at factory gate only. Refunds advised for duty paid inside.

The Court ruled in favor of the petitioner, a wrapping paper manufacturer, holding that excise duty should only be levied once when the paper is cleared ... Double levy of excise duty - wrapping paper as component part of manufacture - captively consumed goods - credit under Rule 56ADouble levy of excise duty - wrapping paper as component part of manufacture - captively consumed goods - Whether excise duty can be levied twice on wrapping paper - once on removal within the factory and again on clearance of packed finished goods. - HELD THAT: - Relying on the decision of the Supreme Court in Collector of Central Excise, Calcutta v. East-end Paper Industries Ltd., the Court held that where wrapping paper is an essential requirement to make the finished paper marketable and is captively used as part of the manufacture, it forms a component part of the excisable finished goods. In such circumstances the wrapping paper is not liable to excise duty at the stage of internal transfer within the factory (manufacturing room to finishing/packing section); excise duty on the wrapping material can be levied only once when the packed finished goods are cleared from the factory. The Court applied this principle to the petitioner's case and concluded that duty could not be lawfully collected twice.Duty on wrapping paper shall not be levied on internal transfer; it is leviable only once at clearance of the packed finished goods from the factory gate.Credit under Rule 56A - Entitlement to credit of excise duty paid on wrapping paper and requirement for decision on the petitioner's pending application. - HELD THAT: - The Court held that the petitioner is entitled to the benefit of credit of duty paid on wrapping paper under Rule 56A(2) if not already allowed, consistent with the legal position recognised by the Supreme Court. The petitioner's pending application dated 3-9-1983 to avail such credit must be decided by respondent No.1 within six weeks of production of a certified copy of this order and the application. The Court directed that the credit be allowed if it has not already been allowed.Respondent No.1 to decide the applicant's application dated 3-9-1983 within six weeks and to allow credit of excise duty paid on wrapping paper under Rule 56A(2), if not already allowed.Bank guarantee discharge - Validity and disposal of bank guarantees and interim orders given earlier in respect of alleged duty on internal clearance of wrapping paper. - HELD THAT: - In view of the conclusion that duty cannot be levied on the internal transfer of wrapping paper, the bank guarantees furnished pursuant to earlier interim orders and court directions in respect of alleged duty on clearance of wrapping paper inside the factory stand discharged. The Court accordingly ordered discharge of those bank guarantees and the interim order referred to.Bank guarantee furnished by the petitioner in respect of alleged duty on internal clearance of wrapping paper and the interim order dated 19-2-1987 are discharged.Statutory notifications benefit - Prayer for a declaration that the petitioner is entitled to benefits under certain notifications. - HELD THAT: - The Court declined to grant a general declaration regarding entitlement under Notification No.187/83 dated 9-7-1983 and the subsequently referenced notifications. The Court observed that if benefits under those notifications are refused, the petitioner remains at liberty to challenge such refusal by appropriate proceedings in accordance with law.Declaration sought in respect of entitlement under the stated notifications is not granted.Refund representation - Procedure for pursuing claim for refund of duty deposited under protest for specified period. - HELD THAT: - The Court did not adjudicate on the petitioner's claim for refund of the amount deposited under protest, but permitted the petitioner to approach the respondents by way of a representation. The respondents are directed to consider such representation in accordance with law expeditiously.Petitioner may approach respondents by representation for refund; respondents to consider it in accordance with law.Final Conclusion: The petition is disposed of: the legal position that wrapping paper captively used as a component part of the finished excisable goods is not liable to excise at internal transfer is affirmed; respondent No.1 is directed to decide the petitioner's application dated 3-9-1983 within six weeks and allow credit under Rule 56A(2) if not already allowed; the bank guarantees and the interim order relating to alleged duty on internal clearance are discharged; declaratory relief regarding specified notifications is refused and the petitioner may seek refund by representation to be considered in law. Issues:1. Whether excise duty can be levied and collected twice on the manufacture of wrapping paper.2. Entitlement to credit of duty paid on wrapping paper under Rule 56A of the Central Excise Rules, 1944.3. Discharge of bank guarantee furnished for duty allegedly payable on wrapping paper clearance inside the factory.4. Declaration of entitlement to benefit under specific notifications.Analysis:1. The petitioner, a public limited company engaged in manufacturing wrapping paper, challenged the respondents' illegal levy and collection of excise duty on the wrapping paper twice. The petitioner argued that duty should only be paid when the wrapping paper is used for wrapping other varieties of paper and cleared from the factory gate, not when transferred within the factory. The Court referred to a previous Supreme Court judgment accepting a similar contention, holding that duty on wrapping paper should be levied only once when the packings with contents are cleared from the factory gate.2. The petitioner sought credit under Rule 56A of the Rules for duty paid on wrapping paper. The Court directed the respondent to decide on the petitioner's pending applications for credit within six weeks and allow the credit if not already granted. The Court emphasized that duty on wrapping paper should not be collected when cleared inside the factory, as established by legal precedent.3. The Court ordered the discharge of the bank guarantee furnished by the petitioner for duty allegedly payable on the clearance of wrapping paper inside the factory. This decision was based on the principle that duty on wrapping paper is only levied once when the packings with contents are removed from the factory gate, not during internal transfers within the factory.4. The petitioner also sought a declaration of entitlement to benefits under specific notifications. The Court declined to grant this declaration but allowed the petitioner to challenge any illegal refusal of benefits under the mentioned notifications through appropriate legal channels. The Court emphasized that all claims and representations should be dealt with promptly and in accordance with the law.In conclusion, the Court disposed of the petition by directing the respondent to decide on the pending credit applications and discharge the bank guarantee. The petitioner was advised to seek refunds through proper representations, with an assurance of expedited consideration by the concerned authorities.