Collector
of Central Excise, New
Delhi. Vs. Ballarpur
Industries Ltd. [1989] INSC 296 (29 September 1989)
Venkatachalliah,
M.N. (J) Venkatachalliah, M.N. (J) Ojha, N.D.
(J) Verma, Jagdish Saran (J)
CITATION:
1990 AIR 196 1989 SCR Supl. (1) 341 1989 SCC (4) 155 JT 1989 (4) 396 1989 SCALE
(2)750
ACT:
Central
Excises & Salt Act, 1944/Central Excise Rules, 1944: Sections 2(f), 3 and
Item 68 in First Schedule---Notification No.105/82-CE dated 28.2.1982/Rule
8---Manufacture of paper/paper-boards--Use of Sodium Sulphate in the
process--Whether used as raw material--Entitlement to proforma credits of duty
paid.
Words
& Phrases: "Raw Material' '--Meaning of.
HEAD NOTE:
Respondent
has been using Sodium Sulphate in the process of manufacture of paper and
paper-boards, and by virtue of Notification No. 105/82-CE dated 28.2.1982
claimed proforma-credits. The Superintendent of Central Excise declined the
claim on the ground that Sodium Sulphate was burnt up in the process of
manufacture and was not retained in the paper, and therefore, could not be
considered .as raw material in the manufacture of paper. He also issued a show
cause notice for the recovery of proforma-credits already availed of by the
respondent.. On appeal, however, the Assistant Collector set aside the show
cause notice holding that Sodium Sulphate was an essential raw material in the
manufacture of paper and as such attracted the benefit of the notification.
But, the Collector of Central Excise (Appeals) set aside the order of the
Assistant Collector and remitted it back to him for readjudication. Respondent
challenged this order before the Customs, Excise and Gold (Control) Appellate
Tribunal. Adopting the reasoning in its earlier decision in Seshasayee Paper
and Boards Ltd. v. Collector of Central Excise, [1985] 22 ELT 163, the Tribunal
allowed the appeal and restored the order of the Assistant Collector.
This
appeal under Section 35-L(b) of the Central Excises and Salt Act, 1944 is
against the Tribunal's order.
On
behalf of the Appellant, it was contended that the word "raw
material" connotes something more than what is 'used' in the manufacture
and requires that goods to become "raw material" must either in their
original or altered form, endure as a composite element of the end product.
324
The Respondent contended that Sodium Sulphate was an essential chemical
ingredient in the chemistry of paper technology and the fact that the
ingredient was actually burnt up or sublimated in the process; and did not
retain its identity in the end product, will not detract from its being a raw
material.
Dismissing
the appeal,
HELD:
1.1.
The Tribunal was right in its conclusion that Sodium Sulphate was used in the
manufacture of paper as "Raw Material" within the meaning of the
Notification No. 105/82/CE dated 28.2.1982. [333A]
1.2.
The expression "Raw-Material" is not a defined term. The meaning to
be given to it is the ordinary and well-accepted connotation in the common
parlance of those who deal with the matter. The ingredients used in the
chemical technology of manufacture of any end product might comprise, amongst
others, of those which may retain their dominant individual identity and
character throughout the process and also in the end-product; those which, as a
result of interaction with other chemicals or ingredients, might themselves
undergo chemical or qualitative changes and in such altered form find
themselves in the end-product;
those
which, like catalytic agents, while influencing and accelerating the chemical
reaction, however, may themselves remain uninfluenced and unaltered and remain
independent of and outside the end-products and those, as here, which might be
burnt-up or consumed in the chemical reactions. It could be that the ingredient
should be so essential for the chemical processes culminating in the emergence
of the desired end-product, that having regard to its importance in the
indispensability for the process, it could be said that its very consumption on
burning-up is its quality and value as raw-material. In such a case, the relevant
test is not its absence in the end-product, but the dependence of the end product
for its essential presence at the delivery end of the process. The ingredient
goes into the making of the end-product in the sense that without its absence,
the presence of the end-product, as such, is rendered impossible. This quality
should coalesce with the requirement that its utilisation is in the
manufacturing process as distinct from the manufacturing apparatus. [331F-H;
332A-C] Deputy Commissioner of Sales Tax, Board of Revenue v.
Thomas
Stephen & Co. Ltd., JT 1988 1 SC 631, distinguished.
Seshasayee
Paper and Boards Ltd. v. Collector of Central Excise, 325 [1985] 22 ELT 163;
Collector of Central Excise v. Eastend Paper Industries Ltd., [1989] 43 ELT 201
SC; Collector of Central Excise, Nagpur v. Ballarpur Industries Ltd., Chandrapur,
[1983] ELT 1263 and Collector of Central Excise, Bhubaneshwar v. Titaghur Paper
Mills, [1985] 21 ELT 901, referred to.
2. It
cannot be gain said that Sodium Sulphate used was anterior to and at one stage
removed from the actual manufacture of paper. Section 2(1') of the Act defines
'manufacture' and it takes within it all ancillary and incidental purposes.
Where any particular process, is so integrally connected with the ultimate production
of goods that, but for that process, manufacture or processing of goods would
be commercially inexpedient, articles required in that process, would fail
within the expression 'in the manufacture of goods'. [332F-G, 331D] Collector
of Central Excise v. Eastend Paper Industries Ltd., [1989] 43 ELT 201 SC,
followed.
3. It.
is not always possible to draw a line of strict demarcation between what can be
said to be 'goods' merely used in the manufacture and what constitute goods
used as "Raw-Material" for that purpose. In the infinite variety of
ways in which these problems present themselves it is neither necessary nor
wise to enunciate principles of any general validity intended to cover all
cases. The matter must rest upon the facts of each case Though in many cases it
might be difficult to draw a line of demarcation, it is easy to discern on
which side of the boarder-line a particular case falls. [333B-C] Pragmatism and
Theory in English Law, page 75, Hamlyn Lectures of 1987; Attorney General v.
Brighton & Hove Cooperative Association, [1900] 1 Ch. 276; Mayor of South
Port v. Morris, [1893] 1 Q.B. 359, relied on.
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 2882 of 1989.
From
the Judgment and Order dated 2.12.1988 of the Customs, Excise and Gold (Control)
Appellate Tribunal, New
Delhi in Appeal No. E/1351
of 1988-C.
C. Shirappa
Adv. General for State of Karnataka, A.K. Ganguli, K. Swami and Mrs. Sushma
Sun, Advs. with them for the Appellant.
326 Soli
J. Sorabji, O.P. Malhotra, Ms. Indu Malhotra, Ms. Auesha Zaidi and Mrs. Nisha Bagchi
for the Respondent.
The
Judgment of the Court was delivered by VENKATACHALIAH, J. This appeal, under
Section 35-L(b) of the Central Excise and Salt Act, 1944, arises out of and is
directed against the Order No. E/1351/88-C dated 2.12.1988, by the Customs,
Excise and Gold (Control) Appellate Tribunal, (Tribunal) New Delhi, allowing the appeal preferred by
the Respondent and holding that Respondent was entitled to certain proforma
credits of the duty paid on "Sodium Sulphate" used in the manufacture
of paper and paper-boards in which respondent is engaged.
The
short point for consideration in this appeal is whether the
Respondent-Manufacturer,--The Ballarpur Industries Ltd.,--was entitled to the
benefit of Central Government's Notification No. 105/ 82-CE dated 28.2.1982 a
question which in turn, depends on whether Sodium Sulphate could be said to
have been used as "Raw-Material" in the manufacture of 'paper' and
'paper-board'. In the proceedings before the authorities, the dispute initially
concerned six other inputs. But the controversy before us was limited, as it
should rightly be, only to Sodium Sulphate inasmuch as even in the appeal
before the Collector (Appeals), the department's grievance, apparently, was
confined to the ProformaCredits of duty earlier paid on Sodium Sulphate [See
Col. 6 of the Assistant Collector's Memorandum Appeal dated 15.7.1987 before
the Collector (Appeals)].
2.
Respondent is a manufacturer of paper and paperboards in the processes relating
to which "Sodium Sulphate" is used "in the chemical recovery
cycle of Sodium Sulphate which forms an essential constituent of Sulphate
cooking liquor used in the digestion operation." The notification dated
28.2.1982 under which the credit is claimed reads:
"In
exercise of the power conferred by subrule (1) of rule 8 of the Central Excise
Rules, 1944, and in supersession of the Notification of the Government of India
in the Ministry of Finance (Department of Revenue) No. 178/77-Central Excise,
Dated 18 June, 1977, the Central Government hereby exempts all excisable goods
(hereinafter referred as "the said goods") on which the duty of
excise is leviable and in the manufacture of which any goods failing under 327
Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944 (1
of 1944) (hereinafter referred as "the inputs") have been used as raw
material or component parts (hereinafter referred to as "the inputs")
from so much of the duty of excise leviable thereon as is equivalent to the
duty of excise already paid on the "'inputs".
(Emphasis
Supplied) The Superintendent of Central Excise, Range-2, Yamunanagar, declined
the Proforma-Credit to the duty paid on "Sodium Sulphate" on the
ground that Sodium Sulphate "was burnt-up in the process of manufacture
and was not retained in the paper" and that, therefore, it could not be
considered "Raw-Material" in the manufacture of paper. Accordingly,
he caused a notice dated 18.1.1983 to be issued requiting respondent to show
cause why the amounts of Proforma Credit availed of by the respondent for the
period between 28.2.1982 and 31.10.1982 should not be recovered. The reason why
"Sodium Sulphate" could not be held to be a "raw material"
in the manufacture of paper was set out in the notice thus:
"
..... The Proforma Credit claimed and granted in respect of the above mentioned
items from 28.2.82 to 31.10.82 is not admissible because these Chemicals are
burn out and do not remain in the finished product. The amount of proforma
credit availed is, therefore, liable to be recovered ..... " (Emphasis
supplied) However, the Assistant Collector of Central Excise, Ambala, by his
order dated 27.6.1986 took a different view and held that Sodium Sulphate, even
as the other inputs referred to in the said notice, was an essential raw
material in the manufacture of paper and attracted the benefit of the
notification. The show cause notice dated 18.1.1983 was, accordingly, set
aside.
But,
the Collector of Central Excise (Appeals) set-aside the order of the Assistant
Collector and remitted the matter to Assistant Collector for a readjudication.
The respondent-manufacturer challenged this order before the Tribunal. The
Tribunal upheld the contention of the Respondent-Manufacturer, set-aside the
order of the Collector (Appeals) and restored the order of the Assistant
Collector.
The
Tribunal adopted the reasoning in its earlier decision in Seshasayee Paper and
Boards Ltd. v. Collector of Central Excise, [1985] 22 328 ELT 163 in which the
Tribunal had held:
"
..... the term "raw material" has to be interpreted in the
circumstances of each case in the absence of any acceptable or useful
definition of the term either in the dictionary or in the technical literature
..... " " ..... sodium sulphide lye, Sodium Sulphate, Daicol (Gaur
Gums) and Fluo solid lime used for the bleaching of pulp should be considered
as raw materials in the manufacture of paper; they serve a distinct and
definitive purpose in the normal and recognised process of manufacture of paper
and are essential for the process of manufacture ..... " In this appeal,
the Collector challenges the correctness of the decision of the Tribunal.
3. We
have heard Sri A.K. Ganguly, learned Senior Counsel for the Appellant and Sri Soli
Sorabjee, learned Senior Counsel for the Respondent-Manufacturer. The thrust of
Sri Ganguly's arguments is that the amplitude of the expression
"Raw-material" in the Notification has to be ascertained with
reference to and in the context of the purpose in substituting that expression
in place of the words obtaining in the earlier Notification No. 79/CE dated
4.6.1979, in which credit was given to duty paid on "goods" which
have been "used" in the manufacture of excisable goods. Sri Ganguly
says that the Tribunal has, virtually and in effect, ignored the essential and
important distinction between goods being "used" in the manufacture
on the one hand and "goods" used as "Raw-Material" on the
other, ignoring the conscious change intended by the substitution of the expression
"Raw Material" in the later notification dated 28.2.1982 which was
clearly intended to cut-down the benefit. Sri Ganguly referred to the following
observations of this Court in Collector of Central Excise v. Eastend Paper
Industries Ltd., [1989] 43 ELT 201 SC:
In
J.K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, [1965] 16
STC 563 SC, this Court while construing the expression 'in the manufacture or
processing of goods for sale' in the context of Sales Tax Law, though the
concept is different under the Excise Law, has held that manufacture of goods
should normally encompass the entire 329 process carried on by the dealer of
converting raw materials into finished goods ..... " (P. 204) (Emphasis
Supplied) and contended that the import of the word "Raw-Material",
judicially accepted, connotes something more than what is 'used' in the
manufacture and requires that goods to become "Raw-Material" must,
either in their original or altered form, endure as a composite element of the
end-product. Sri. Ganguly submitted that the technical literature and evidence
in the case as to the part played by Sodium Sulphate in the chemical technology
of paper making suggested two things:
First,
that Sodium Sulphate was utilised in the preparation of an anterior,
intermediate product at the stage of 'digestion' of the pulp and did not,
therefore, strictly belong to the process of manufacture of paper itself; and,
Secondly, that Sodium Sulphate did not go directly into and find a place in the
finished product and did not, therefore, qualify for being
"Raw-Material" in the manufacture of paper.
Learned
Counsel said that no satisfactory answer to the question raised in the appeal
could be afforded unless a clear line of demarcation between the material
merely used in the manufacture of paper on the one hand and material used as
"Raw-Material" on the other is drawn. Sri Ganguly sought to
substantiate this distinction in the present case with reference to certain
observations of this Court in Deputy Commissioner of Sales Tax, Board of
Revenue v. Thomas Stephen & Co., Ltd., JT 1988 (1) SC 631. One of the
questions there was whether cashew-shells used in the kiln by the dealer who
was a manufacturer of tiles, terra-cotta-ware and ceramic-items were exigible
to purchase-tax under Section 5A (1)(a) of the Kerala General Sales Tax Act,
1963, on the ground that the dealer had "consumed such goods in the
"The Tribunal had held that manufacture of other goods ....."
cashew-shells had been used only as fuel in the kiln for the manufacture of
tiles and that, therefore, the condition of 5A (1)(a) of the Act was not
satisfied, there having been no consumption of cashew-shells in the manufacture
of the ceramic goods.
This
Court held:
"The
cashew shells in the instant case, had been used as fuel in the kiln. The
cashew shells did not get transformed into the end product. These have not been
used as raw materials in the manufacture of the goods.
These
have been used only as an aid in the manufacture of the goods by 330 the assessee.
Consumption must be in the manufacture as raw-material or of other components
which go into the making of the end product to come within the mischief of the
section. Cashew shells do not tend to the making of the end product. Goods used
for ancillary purposes like fuel in the process of the manufacture, do not fail
within section 5A(1)(a) of the Act. Cashew shells, therefore, do not attract
levy of tax under the said section ..... " (p. 634) (Emphasis Supplied)
Sri Ganguly says that "Sodium Sulphate" in the present case must,
like the cashew-shells, be held to have been used as an aid in the manufacture
of paper and for ancillary purposes like fuel and not as "Raw-Material in
the manufacture of paper.
4. Sri
Sorabjee, for the Respondent, sought to maintain that Sodium Sulphate was an
essential chemical ingredient in the chemistry of paper technology and that the
fact that the ingredient was actually burnt-up or sublimated in the process and
did not retain its identity in the end-product, will not, necessarily, detract
from its being a "Raw Material".
The
relevant test is how essential is the ingredient in the manufacture. Learned
counsel said that in the complexity of the chain of chemical reactions in the
manufacturing process, undue emphasis on the search for the identity of any individual
chemical ingredient 'in the final product would be artificial and unrealistic.
Sri Sorabjee submitted that authoritative scientific treatises on the paper
technology recognise that "Sodium Sulphate" is an essential raw
material. Sri Sorabjee referred to the publication of the Food and Agriculture Organisation
of the United Nations under the caption "Guide for Planning Pulp and Paper
Enterprises" in which the following statement occurs:
"For
any pulp and paper enterprise a variety of non fibrous raw materials are
required: water, fuel, power and paper-making chemicals and, for pulp mills,
pulping and bleaching chemicals ..... " (p. 270) "The sulphate (kraft)
pulping process, now the most common pulping process for both wood and nonwood
fibrous raw materials, requires the purchase of salteake (sodium sulphate) and
limestone (calcium carbonate).
De331
pending on the efficiency of the recovery system, about 40 to 80 kilogrammes of
salteake and 25 kilogrammes of limestone are needed per ton of pulp. These
chemicals are converted in the chemical recovery and causticizing systems to
give sodium hydroxide and sodium sulphide, which are the active chemicals in
the pulping liquor." (p. 275) Sri Sorabjee submitted that the Tribunal had
consistently taken this view in several cases and that the department not
having carried those matters up in appeal must be held to have accepted the
correctness of that view. As instances in point, Learned Counsel referred to
two decisions, in Collector of Central Excise, Nagpur v. Ballarpur Industries
Ltd., Chandrapur, [1983] ELT 1263 and in Collector of Central Excise, Bhubaneswar
v. Titaghur Paper Mills, [1985] 21 ELT 901.
Adverting
to appellant's contention that use of Sodium Sulphate was at a stage of
preparation of the Pulp which is a stage anterior to the actual manufacture of
paper, Sri Sorabjee submitted that, apart from the fallacy inherent in the
attempt to dissect an otherwise integrated process of manufacture, the
definition of 'manufacture' in Section 2(f) of the 'Act' which takes with in it
all ancillary and incidental processes, should secure to render the contention
insubstantial.
5. The
question, in the ultimate analysis, is whether the input of Sodium Sulphate in
the manufacture of paper would cease to be a "Raw-Material" by reason
alone of the fact that in the course of the chemical reactions this ingredient
is consumed and burnt-up. The expression "RawMaterial" is not a
defined term. The meaning to be given to it is the ordinary and well-accepted
connotation in the common parlance of those who deal with the matter.
The
ingredients used in the chemical technology of manufacture of any end-product
might comprise, amongst others, of those which may retain their dominant
individual identity and character throughout the process and also in the
end-product; those which as a result of interaction with other chemicals or
ingredients, might themselves undergo chemical or qualitative changes and in
such altered form find themselves in the end-product; those which, like catalytic
agents, while influencing and accelerating the chemical reactions, however, may
themselves remain uninfluenced and unaltered and remain independent of and
outside the end-products and those, as here, which might be burnt-up or
consumed in the chemical reactions. The ques332 tion in the present case is
whether the ingredients of the last mentioned class qualify themselves as and
are eligible to be called "Raw Material" for the end-product. One of
the valid tests, in our opinion, could be that the ingredient should be so
essential for the chemical processes culminating in the emergence of the
desired end-product, that having regard to its importance in and
indispensability for the process, it could be said that its very consumption on
burning-up is its quality and value as raw-material. In such a case, the
relevant test is not its absence in the end product, but the dependance of the
end product for its essential presence at the delivery and of the process. The
ingredient goes into the making of the end-product in the sense that without
its absence the presence of the end-product, as such, is rendered impossible.
This quality should coalesce with the requirement that its utilisation is in
the manufacturing process as distinct from the manufacturing apparatus.
6. The
decision of this Court in Deputy Commissioner of Sales Tax, Board of Revenue v.
Thomas Stephen & Co. Ltd., relied upon by Sri Ganguly, does not really
advance the appellant's case. The observations therein to the effect that
"consumption must be in the manufacture of raw material or of other
component which go into the making of endproduct" were made to emphasise
the distinction between the "fuel" used for the kiln to impart the
heat-treatment to ceramics and what actually went into the manufacture of such
ceramics. The observations, correctly apprehended, do not lend themselves to
the understanding that for something to qualify itself as
"Raw-Material" it must necessarily and in all cases go into, and be
found, in the end-product.
7. We
also find no substance in the contention of Sri Ganguly that the process in
which the Sodium Sulphate was used, was anterior to and at one stage removed
from the actual manufacture of paper. Sri Sorabjee's answer to this contention
is, in our view, appropriate. That apart the following observations in
Collector of Central Excise v. Eastend Paper Industries Ltd., cited by Sri Ganguly
himself is a complete answer:
"
..... Where any particular process, this Court further emphasised, is so
integrally connected with the ultimate production of goods that, but for that
process, manufacture or processing of goods would be commercially inexpedient,
articles required in that process, would fall within the expression 'in the
manufacture of goods' ..... " 333
8. On
a consideration of the matter, we are persuaded to the view that the Tribunal
was right in its conclusion that Sodium Sulphate was used in the manufacture of
paper as "Raw-Material' within the meaning of the Notification No.
105/82-CE dated 28.2.1982.
9. Now
a word about Sri Ganguly's insistence on drawing a line of strict demarcation
between what can be said to be 'goods' merely "used" in the
manufacture and what constitute goods used as "Raw Material" for the
purpose.
We are
afraid, in the infinite variety of ways in which these problems present
themselves it is neither necessary nor wise to enunciate principles of any
general validity intended to cover all cases. The matter must rest upon the
facts of each case. Though in many cases it might be difficult to draw a line
of demarcation, it is easy to discern on which side of the border-line a
particular case fails.
Sri Ganguly's
insistence, however, serves to recall the pertinent observations of an eminent
author on the point. It was said:
"
..... A common form of argument used by counsel in legal cases is to suggest
that if the court decides in favour of the opposing counsel's arguments, it
will become necessary to draw lines which may be very difficult or impossible
to draw. "Where will you draw the line"? 1s, of course, a question
which must be faced by a legislator who is actually proposing to lay down lines
for all future cases, but it is not a question which needs in general to be
faced by common law courts who proceed in slow stages, moving from case to case
..... '' [See: "Pragmatism and Theory in English Law:;
page
75; Hamlyn Lectures of 1987] The learned author recalls Lord Lindley's
"robust answer" to the question: Where will you draw the line?
"Nothing is more common in life than to be unable to draw the line between
two things.
Who
can draw the line between plants and animals? And yet who has any difficulty in
saying that an oak-tree is a plant and not an animal?" [See: Att. Gen v.
Brighton & Hove Co-operative Assoc., [1900] 1 Ch. 276 at p. 282] 334 Again,
Lord Coleridge in Mayor of Southport v. Morris, [1893] 1 Q.B. 359 at 361 said:
"The
Attorney-General has asked where we are to draw the line. The answer is that it
is not necessary to draw it at any precise point. It is enough for us to say
that the present case is on the right side of any line that could reasonably be
drawn."
10. In
the result for the foregoing reasons, we find no merit in this appeal which is,
accordingly, dismissed.
G.N.
Appeal dismissed.
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