of Central Excise-I, New
Delhi Vs. M/S S.R.
Tissues Pvt. Ltd. & Anr  Insc 393 (5 August 2005)
Singh & S.H. Kapadia
Nos.8436-8438 OF 2001, C.A. Nos.194-195 & 6535 OF 2002, C.A. Nos.9274-9275 OF 2003, C.A. Nos.4682, & 5709-5710 OF 2004 AND C.A. Nos.2408-2409 & 3001 OF 2005. KAPADIA, J.
short question which arises for determination in these civil appeals filed by
the department under section 35-L(b) of the Central Excise Act, 1944 (for short
"the said Act") is 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? The above question arises in this batch of civil appeals.
the sake of convenience, we mention herein below the facts in Civil Appeal
Nos.5293-5394 of 2001.
was engaged in the activity of cutting/slitting of jumbo rolls of tissue paper
of a width exceeding 36 cms. The jumbo rolls were purchased on payment of
excise duty from various suppliers like M/s Ellora Paper Mills and M/s Padamjee
Paper Mills etc., who are the manufacturers of such jumbo rolls. The duty was
paid under tariff heading 48.03 Central Excise Tariff Act, 1985 (hereinafter
referred to as "the Act, 1985"). The jumbo rolls purchased by the assessee
were of a kind normally used for household or sanitary purposes. All that the assessee
was doing was to reduce the width to less than 36 cms. On such reduction of the
width, the department sought to assess and demand duty under tariff sub-heading
the sake of convenience, we quote herein below tariff headings 48.03 and 48.18.
of Goods Rate of Duty 1 2 3 4 48.03 4803.00 Toilet or facial tissue stock,
towel or napkin stock and similar paper of a kind used for household or
sanitary purposes, cellulose wadding and webs of cellulose fibres, whether or
not creped, crinkled, embossed, perforated, surface-coloured, surface-
decorated or printed in rolls of a width exceeding 36 cm. or in rectangular
(including square) sheets with at least one side exceeding 36 cm. in unfolded
48.18 Toilet paper and similar paper, cellulose wadding or webs of cellulose fibres,
of a kind used for household or sanitary purposes, in rolls of a width not
exceeding 36 centimeters, or cut to size or shape;
cleansing tissues, towels, table cloths, serviettes, napkins for babies,
tampons, bed sheets and similar household, sanitary or hospital articles,
articles of apparel and clothing accessories of paper pulp, paper, cellulose
wadding or webs of cellulose fibres.
Sanitary towels and tampons, napkins and napkin liners for babies and similar
4818.90 Other 18% On 14.10.1998, proceedings were initiated against the assessee
by the department on the ground that cutting and slitting of jumbo rolls of
tissue paper falling under heading 48.03 amounted to manufacture. On 12.4.1999,
a show-cause notice was issued to the assessee by the department in which it
was alleged that the assessee was engaged in the manufacture and storage of
tissue paper rolls, napkins and facial tissues, which were liable to be seized
and confiscated for non- compliance of the provisions of the said Act. On
12.7.1999, another show-cause notice was issued to the assessee by the
department alleging that during the period 1.8.1997 to 14.10.1998, the assessee
was engaged in the manufacture of toilet rolls, napkins and facial tissue
papers, from jumbo rolls of tissue paper, falling under tariff sub-heading
4818.90 of the Act, 1985.
replied to the said show-cause notices. The assessee submitted that cutting and
slitting of jumbo rolls of tissue paper into specific width and different
shapes did not amount to manufacture. According to the assessee, there was no
change in the characteristics or the end-use of the tissue paper. According to
the assessee, such a reduction in the width on the duty-paid jumbo rolls cannot
amount to manufacture.
also denied the allegations of the department that they were manufacturing /
making tissues of wet type. The assessee also denied the allegations of the
department that they were imparting fragrance to the napkins made by them. The assessee
pointed out that there was no allegation in the show- cause notice that wet
tissues or tissues having fragrance were being made by the assessee.
order dated 22.11.1999, the commissioner adjudicated the above show-cause
notices and confirmed the demand. He also imposed a penalty. It was held that
the assessee was the manufacturer of table napkins, toilet rolls and ordinary
wet and fragranted facial tissues with distinct brands/trademark.
the commissioner confirmed the aforestated demand.
by the order dated 22.11.1999, the assessee filed an appeal before the Customs,
Excise & Gold (Control) Appellate Tribunal, New Delhi (hereinafter referred
to as "the Tribunal").
judgment and order dated 10.11.2000, the appeal preferred by the assessee was
allowed. It was held that the assessee was purchasing duty-paid jumbo rolls of
thereafter they used to cut/slit the tissue paper to various sizes suitable for
use as toilet papers, table napkins or facial tissues and that this activity
did not alter the name, character or end-use of the material and, therefore,
the said activity / process did not amount to manufacture, both on first
principles as well as in terms of section 2(f) of the said Act. In this
connection, the tribunal placed reliance on the judgment of the Madras High
Court in the case of Computer Graphics Pvt. Ltd. v. Union of India reported in
1991 (52) ELT 491. It was further held by the tribunal that the mere existence
of a separate tariff entry (48.18) for the tissue paper product of a smaller
size obtained by cutting/slitting of jumbo rolls of tissue paper (48.03) would
not necessarily lead to inference that such activity/process on the duty-paid
jumbo rolls of tissue paper amounted to manufacture.
there was no section or chapter note in the tariff defining the activity of
cutting/slitting of tissue paper as a process amounting to manufacture and,
therefore, section 2(f) of the said Act was not applicable. On facts, the
tribunal found that the assessee used to purchase jumbo rolls from the market
and they used to cut and slit the same to smaller sizes of required dimensions
suitably in use as table napkins, facial tissues etc. It was not disputed
before the tribunal that the duty paid jumbo rolls of tissue paper were bought
by the assessee from M/s Ellora Paper Mills and M/s Padamjee Paper Mills etc.
also not in dispute before the tribunal that the jumbo rolls of tissue paper
were classifiable under tariff heading 48.03. It was also not disputed before
the tribunal that the table napkins and facial tissues obtained by cutting and
slitting of jumbo rolls fell in tariff heading 48.18. The only dispute before
the tribunal was whether conversion of duty-paid jumbo rolls of tissue paper
into table napkins and facial tissues by the process of unwinding, cutting
& slitting and packing constituted "manufacture". The tribunal
held that the above process of cutting/slitting of jumbo rolls of tissue paper
into facial tissues and table napkins did not constitute "manufacture";
that there was no section note/chapter note in chapter 48 to bring in the
activity of slitting and cutting of jumbo rolls of tissue paper into smaller
sizes within the ambit of section 2(f) of the said Act;
mere existence of a separate tariff entry 48.18 would not, by itself, make
facial tissues and table napkins excisable. The tribunal further held that by
the said activity of slitting and cutting, no new commodity with different
name, character, end- use or commercial identity emerged and, therefore, there
was no "manufacture" both in terms of first principles as well as in
terms of section 2(f) of the said Act. Accordingly, the appeals filed by the assessee
stood allowed. Hence, these civil appeals.
learned senior counsel appearing on behalf of the department submitted that the
activity of cutting/slitting of jumbo rolls of tissue paper into smaller sizes
amounted to "manufacture" under section 2(f) of the said Act. It was
further submitted that the definition of the word "manufacture" in
section 2(f) was inclusive and, therefore, the normal meaning of the term could
be ascertained for judicial interpretation. He submitted that on
cutting/slitting of jumbo rolls, several different products emerged, namely,
table napkins, toilet rolls, facial tissues etc. and, therefore,
cutting/slitting constituted "manufacture" and, therefore, the
department was right in raising the demand under sub-heading 4818.90. It was
urged that in the present case, the test of character or end-use have to be applied
and on applying the said test one finds that on cutting/slitting of the tissue
paper from the jumbo rolls, a new product with a distinct character and with
the distinct end-use known to the market and to the buyers had emerged and,
therefore, even on first principles the process of cutting/slitting amounted to
manufacture. It was submitted that in the present case, the tribunal ought to
have referred the matter to the larger bench particularly when the co-ordinate
bench of the tribunal in the case of Foils India Laminates Pvt. Ltd. v.
Commissioner of Central Excise, Jaipur reported in 1999 (111) ELT 728 had taken
a contra view. Lastly, it was urged on behalf of the department that the
tribunal had ignored the findings of the commissioner that there was a value
addition of 180% in the final product on account of the price difference
between price of the jumbo roll and the price of the final product; that when
the jumbo roll of tissue paper was subjected to the process of
cutting/slitting, rewinding and packing, the resultant products namely, table
napkins, facial tissues, toilet paper rolls emerged as products of different
varieties and for specific purposes and in the circumstances, cutting/slitting
amounted to "manufacture".
outset, it may be pointed out that according to the commissioner, the assessee
on its own admission was engaged in the manufacture of various items from
tissue paper like table napkins, toilet rolls and dry, wet and fragranted
in their counter affidavit, the assessee has stated that they are not having
any infrastructure to carry out the process of making wet and fragranted type
of facial tissues. This issue has not been examined by the tribunal. Therefore,
we are confining our judgment only to the question of conversion of jumbo rolls
of tissue paper into tissue paper napkins, tissue rolls, toilet rolls and
facial tissues excluding wet and fragranted facial tissues.
outset, we may point out that the assessee is one of the downstream producers.
The assessee buys duty-paid jumbo rolls from M/s Ellora Paper Mills and M/s Padamjee
Paper Mills. There are different types of papers namely, tissue paper, craft
paper, thermal paper, writing paper, newsprints, filter paper etc. The tissue
paper is the base paper which is not subjected to any treatment. The jumbo
rolls of such tissue papers are bought by the assessee, which undergoes the
process of unwinding, cutting/slitting and packing. It is important to note
that the characteristics of the tissue paper are its texture, moisture
absorption, feel etc. In other words, the characteristics of table napkins,
facial tissues and toilet rolls in terms of texture, moisture absorption
capacity, feel etc. are the same as the tissue paper in the jumbo rolls. The
said jumbo rolls cannot be conveniently used for household or for sanitary
for the sake of convenience, the said jumbo rolls are required to be cut into
various shapes and sizes so that it can be conveniently used as table napkins,
facial tissues, toilet rolls etc. However, the end-use of the tissue paper in
the jumbo rolls and the end-use of the toilet rolls, the table napkins and the
facial tissues remains the same, namely, for household or sanitary use. The
predominant test in such a case is whether the characteristics of the tissue
paper in the jumbo roll enumerated above is different from the characteristics
of the tissue paper in the form of table napkin, toilet roll and facial tissue.
In the present case, the tribunal was right in holding that the characteristics
of the tissue paper in the jumbo roll are not different from the
characteristics of the tissue paper, after slitting and cutting, in the table
napkins, in the toilet rolls and in the facial tissues.
case of Brakes India Ltd. v. Supdt. of Central Excise & Others reported in
(1997) 10 SCC 717, this Court has very aptly brought out the test of character
or end-use by observing as follows:
by a process, a change is effected in a product, which was not there
previously, and which change facilitates the utility of the product for which
it is meant, then the process is not a simple process, but a process incidental
or ancillary to the completion of a manufactured product. It will not be safe
solely to go by a test as to whether the commodity after the change takes in a
new name, though in stated circumstances, it may be useful to resort to it.
This may prove to be deceptive sometimes, for it will suit the manufacturer to
retain the same name to the end product also. The 'character or use' test has
been given due importance by pronouncements of the Supreme Court. When adopting
a particular process, if a transformation takes place, which makes the product
have a character and use of its own, which it did not bear earlier, then the
process would amount to manufacture under section 2(f) irrespective of the fact
whether there has been a single process or have been several processes."
Applying the above tests, we hold that no new product had emerged on winding,
cutting/slitting and packing. The character and the end-use did not undergo any
change on account of the abovementioned activities and, therefore, there was no
manufacture on first principles.
there was no deemed manufacture under section 2(f) of the said Act. In order to
make section 2(f) applicable, the process of cutting/slitting is required to be
recognized by the legislature as a manufacture under the chapter note or the
section note to chapter 48. For example, the cutting and slitting of thermal
paper is deemed to be "manufacture" under note 13 to chapter 48.
Similarly, note 3 to chapter 37 refers to cutting and slitting as amounting to
manufacture in the case of photographic goods. However, slitting and cutting of
toilet tissue paper on aluminium foil has not been treated as a manufacture by
the legislature. In the circumstances, section 2(f) of the Act has no
case Shyam Oil Cake Ltd. v. Collector of Central Excise, Jaipur reported in
2004 (174) ELT 145, this Court held that if a process is indicated in a tariff
entry without specifying that the same amounts to manufacture then indication
of such process is merely for identifying the product. For a deeming provision
to come into play, it must be specifically stated that a particular process
amounts to manufacture and in its absence, the commodity would not become
excisable merely because a separate tariff item exists in respect of that
commodity. In that matter, the question which arose for determination was -
whether refining of edible vegetable oil, as a process, constituted
"manufacture". It was held that the product even after refining
continued to remain an edible vegetable oil. It was further held that neither
in the section note nor in the chapter note, refining as a process was indicated
as amounting to manufacture. In the circumstances, it was held that refining of
edible vegetable oil did not amount to "manufacture". In our view,
the ratio of the said judgment is squarely applicable to the facts of the
present case. As stated above, the characteristics of the tissue paper in the
jumbo roll are not different from the characteristics of the tissue paper in
the toilet rolls, table napkins, facial tissues etc. Moreover, cutting/slitting
of tissue paper is not indicated in the section note or in the chapter note as
amounting to "manufacture" and, therefore, section 2(f) of the Act
was also not applicable to the facts of this case.
case of Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad
reported in 1995 (76) ELT 241, this Court held that section 3 of the Act levies
duty on all excisable goods mentioned in the schedule provided they are
produced and manufactured. Therefore, where the goods are specified in the
schedule, they are excisable goods but whether such goods can be subjected to
duty would depend on whether they were produced or manufactured by the assessee
on whom duty is proposed to be levied. Consequently, it is always open to an assessee
to prove that even though the goods in which he was carrying on his business were
excisable as they are mentioned in the schedule, they could not be subjected to
duty as they were not goods either because they were not manufactured or having
been produced or manufactured, they were not marketed or capable of being
case of Union of India v. J.G. Glass Industries Ltd. reported in 1998 (97) ELT
5, this Court has succinctly drawn a distinction between manufacture vis-`-vis
process and in the course of the judgment, it has been observed as follows:
On an analysis of the aforesaid rulings, a two-fold test emerges for deciding
whether the process is that of "manufacture". First, whether by the
said process a different commercial commodity comes into existence or whether
the identity of the original commodity ceases to exist; secondly, whether the
commodity which was already in existence will serve no purpose but for the said
process. In other words, whether the commodity already in existence will be of
no commercial use but for the said process. In the present case, the plain
bottles are themselves commercial commodities and can be sold and used as such.
By the process of printing names or logos on the bottles, the basic character
of the commodity does not change. They continue to be bottles. It cannot be
said that but for the process of printing, the bottles will serve no purposes
or are of no commercial use." Applying the above tests to the facts of the
present case, we hold that mere mention of a product in a tariff heading does
not necessarily imply that the said product was obtained by the process of
manufacturing. That, just because the raw-material and the finished product
came under two different headings, it cannot be presumed that the process of
obtaining the finished product from such raw-material automatically constituted
manufacture. In the present case, merely because tissue paper in the jumbo roll
of the size exceeding 36 cms. fell in one entry and the toilet roll of a width
not exceeding 36 cms. fell in a different entry, it cannot be presumed that the
process of slitting and cutting of jumbo rolls of toilet tissue paper into
various shapes and sizes amounted to manufacture.
above tests would also apply to cutting and slitting of jumbo rolls of aluminium
foils (which item is the subject matter of some of the civil appeals herein).
in the instant case, the commissioner as an adjudicating authority has held
that there was a value addition of 180%. He found that jumbo rolls of tissue
papers were purchased by the assessee @ Rs.30/- to 70/- per kg. and the final
product i.e. the toilet tissue paper was sold by the assessee @ Rs.85/- to
Rs.100/- per kg. and, therefore, there was a value addition of around 180% i.e.
between the range of Rs.30/- to Rs.85/- per kg. This finding of the
commissioner is erroneous.
the excise law, value addition based on a process is certainly a relevant criteria
to decide as to what constitutes "manufacture". Such value addition
should be on account of change in the nature or characteristics of the product.
In the present case, as stated above, there is no change in the nature or
characteristics of the tissue paper in the jumbo roll and the nature and
characteristics of the tissue paper in the table napkin, facial tissues etc.
Therefore, without such change in the nature or characteristics of the tissue
paper, value addition on account of transport charges, sales tax, distribution
and selling expenses and trading margin cannot be an indicia to decide what is
manufacture. Thus, value addition without any change in the name, character or
end-use by mere cutting or slitting of jumbo rolls cannot constitute criteria
to decide what is "manufacture".
case of Decorative Laminates (India) Pvt. Ltd. v. Collector of Central Excise,
Bangalore reported in 1996 (86) ELT 186, this Court held that the process of
application of phenol resin on duty paid plywood under 100% heat amounts to
manufacture and in that connection observed that value addition and separate
use are also relevant factors which the Courts should consider in deciding the
applicability of section 2(f) of the Act. Therefore, value addition based on
price difference only without any change in the name, character or end-use is a
dangerous criteria to be applied in judging what constitutes
"manufacture". Lastly, the end-use in both the entries 4803 &
4818.90 is the same, namely, for sanitary or household purposes. In the
circumstances, value addition criteria as applied by the commissioner is
present case, learned counsel for the department has vehemently urged that the
tribunal should have referred the dispute to a larger bench particularly in
view of the fact that the co-ordinate bench of the tribunal in the case of
Foils India Laminates (supra) had held that the process of cutting/slitting of
jumbo rolls of films into flats constituted manufacture. We do not find any
merit in this argument. While deciding the case of Foils India Laminates
(supra), the tribunal has failed to consider the clarifications issued by the
central board dated 5.9.1988 as well as the judgment of the Madras High Court
in the case of Computer Graphics Pvt. Ltd. v. Union of India reported in 1991
(52) ELT 491 (Mad.), which had taken the view that the process of cutting of
jumbo roll into the smaller sizes of flats did not amount the manufacture.
Therefore, in the present case, the tribunal was right in not following the
judgment in the case of Foils India Laminates (supra).
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.
express no opinion on wet and fragranted facial tissues.
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
to above, civil appeals filed by the department are dismissed, with no order as