2005 (8) TMI 111 - SC - Central Excise

Supreme Court: Unwinding tissue rolls not 'manufacture'. No new product. Tribunal need not refer.

COMMISSIONER OF CENTRAL EXCISE, NEW DELHI-I Versus S.R. TISSUES PVT. LTD.

The Supreme Court held that the process of unwinding, cutting, and slitting jumbo rolls of tissue paper does not amount to 'manufacture' under the Central ... Whether the process of unwinding, cutting and slitting to sizes of jumbo rolls of tissue paper would amount to 'manufacture' on first principles or under Section 2(f) of the said Act? Held that:- We reiterate that the department is right in its contentions that the Tribunal has not examined the question as to whether the assessee had the requisite machinery, infrastructure and facility to manufacture wet tissues and fragranted tissues and, therefore, we remit this question to the Commissioner to be decided afresh in accordance with law, after giving opportunity to the assessee who has stated before us that they do not possess such facility. We express no opinion on wet and fragranted facial tissues. We accordingly hold that the process of slitting/cutting of jumbo roll of plain tissue paper/aluminium foil into smaller size will not amount to 'manufacture' on first principles as well as under Section 2(f) of the said Act. As regards the manufacture of wet tissues and fragranted tissues, the matter is remitted to the Commissioner to ascertain whether the assessee has the requisite infrastructure, facility, machines etc. for manufacturing fragranted and wet tissues and, if so, whether the process amounts to 'manufacture'. Civil appeals filed by the department are dismissed Issues Involved:1. Whether the process of unwinding, cutting, and slitting jumbo rolls of tissue paper amounts to 'manufacture' on first principles or under Section 2(f) of the Central Excise Act, 1944.2. Whether the Tribunal erred in not referring the matter to a Larger Bench.3. Whether the value addition due to the process of cutting/slitting constitutes 'manufacture'.4. Whether the assessee had the requisite infrastructure to manufacture wet and fragranced tissues.Issue-wise Detailed Analysis:1. Whether the process of unwinding, cutting, and slitting jumbo rolls of tissue paper amounts to 'manufacture' on first principles or under Section 2(f) of the Central Excise Act, 1944:The Supreme Court analyzed whether the process of unwinding, cutting, and slitting jumbo rolls of tissue paper into smaller sizes constitutes 'manufacture.' The Court noted that the characteristics of the tissue paper, such as texture, moisture absorption, and feel, remained unchanged before and after the process. The end-use of the tissue paper also remained the same, i.e., for household or sanitary purposes. Therefore, the Court held that no new product with a distinct name, character, or end-use emerged from the process, and thus, it did not constitute 'manufacture' on first principles.Regarding Section 2(f) of the Central Excise Act, the Court emphasized that for a process to be deemed 'manufacture,' it must be recognized by the legislature under a chapter note or section note. The Court pointed out that while the cutting and slitting of thermal paper and photographic goods are deemed 'manufacture' under specific notes, no such provision exists for tissue paper. Consequently, Section 2(f) was not applicable in this case.2. Whether the Tribunal erred in not referring the matter to a Larger Bench:The department argued that the Tribunal should have referred the matter to a Larger Bench due to a contrary view taken by a co-ordinate Bench in the case of Foils India Laminates Pvt. Ltd. The Supreme Court dismissed this argument, stating that the Tribunal had rightly not followed the judgment in Foils India Laminates because it had failed to consider relevant clarifications and judgments, such as the one by the Madras High Court in Computer Graphics Pvt. Ltd. v. Union of India, which held that cutting jumbo rolls into smaller sizes did not amount to manufacture.3. Whether the value addition due to the process of cutting/slitting constitutes 'manufacture':The Commissioner had found a value addition of 180% in the final product compared to the jumbo rolls, suggesting that this indicated 'manufacture.' The Supreme Court rejected this reasoning, stating that value addition should result from a change in the nature or characteristics of the product. Since there was no change in the nature or characteristics of the tissue paper, the value addition due to transport charges, sales tax, distribution, and other expenses did not constitute 'manufacture.'4. Whether the assessee had the requisite infrastructure to manufacture wet and fragranced tissues:The Supreme Court noted that the Tribunal had not examined whether the assessee had the necessary infrastructure to manufacture wet and fragranced tissues. The Court remitted this issue to the Commissioner for a fresh determination, instructing the Commissioner to ascertain whether the assessee possessed the requisite machinery, infrastructure, and facilities for manufacturing such tissues and, if so, whether the process amounted to 'manufacture.'Conclusion:The Supreme Court concluded that the process of slitting/cutting jumbo rolls of plain tissue paper/aluminium foil into smaller sizes does not amount to 'manufacture' on first principles or under Section 2(f) of the Central Excise Act. The matter concerning the manufacture of wet and fragranced tissues was remitted to the Commissioner for further examination. The civil appeals filed by the department were dismissed, with no order as to costs.