Page 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4908 OF 2005

M/S. COASTAL PAPER LTD. .....APPELLANT(S)

VERSUS

COMMNR. OF CENTRAL EXCISE,  VISAKHAPATNAM

.....RESPONDENT(S)

J U D G M E N T

A.K. SIKRI, J.

The appellant (hereinafter referred to as the “assessee”) is

a paper mill which is engaged, inter alia, in the manufacture of

paper.  For the manufacture of paper, the assessee uses various

conventional  raw  materials  and  also  non-conventional  raw

materials,  namely,  waste  gunny  bags,  jute  waste  etc.  The

assessee is exigible to Central Excise on the aforesaid product,

namely, paper manufactured by it, which the assessee has been

paying  to  the  respondent  (hereinafter  referred  to  as  the

“Revenue”) from time to time. In order to encourage production of

paper by use of non-conventional raw material, the Government

of India issued Notification No. 22/94-CE dated 01.03.1994 which

Civil Appeal No. 4908 of 2005 Page 1 of 27

Page 2

assures  concessional  rate  of  duty  at  5%  for  “paper  and

paperboard or articles made from non-conventional material”. The

condition which is contained in the said Notification that needs to

be  fulfilled  in  order  to  avail  the  benefit  thereof  to  pay  the

concessional rate of duty reads as under:

“If  such  paper  and  paperboard  or  articles  made therefrom have been manufactured,  starting from the  stage  of  pulp,  in  a  factory,  and  such  pulp contains not less than 75 per cent by weight of pulp made  from  materials  other  than  bamboo,  hard woods, soft woods, reeds (other than sarkanda) or rags.”

2) As per the aforesaid Notification, following conditions are to be

satisfied in order to avail the benefit:

(i) Manufacture of paper and paperboard or articles made therefrom

should start from stage of pulp, in a factory,

(ii) Such pulp should contain not less than 75% by weight of pulp

made from materials other than bamboo, hard woods, soft woods,

reeds (other than sarkanda) or rags.

It, thus, specifies certain materials which are excluded from

the Notification, meaning thereby, if the pulp is made from those

specific  materials,  namely,  bamboo  hard  woods,  soft  woods,

reeds (other than sarkanda) or rags then the manufacturer would

not be entitled to the benefit of this Notification.

Civil Appeal No. 4908 of 2005 Page 2 of 27

Page 3

3) The assessee herein is manufacturing paper out of pulp of waste

gunny bags/jute waste and on the manufacture of paper from the

pulp  of  the  aforesaid  waste,  the  assessee  wants  to  pay

concessional rate of excise duty as its contention is that pulp of

waste  gunny  bags  or  jute  waste  does  not  fall  in  any  of  the

materials  mentioned  in  the  Notification.  The  Revenue,  on  the

other hand, has taken the position that the pulp of waste gunny

bags/jute  waste  is  nothing  but  pulp  of  'rags'  and  since  the

Notification, particularly, disentitles the benefit thereof if the pulp is

made  from  rags,  the  assessee  is  not  covered  by  the  said

Notification. The question, therefore, that falls for consideration is

as  to  whether  pulp  of  waste  gunny  bags/jute  waste  is  to  be

treated  as  the  pulp  made  from the  material  'rags'.  Before  we

answer this question, it is deemed necessary to take note of the

other  related Notifications touching upon the subject  matter  as

well  as  history  of  the  present  litigation  which  has  lauded  the

matter to this Court.

4) Notification No. 22/94-CE dated 01.03.1994, with which we are

concerned,  is  not  the  first  Notification  which  permitted

concessional rate of excise duty in case of manufacture of paper

or paper products by using non-conventional raw material. First

Civil Appeal No. 4908 of 2005 Page 3 of 27

Page 4

Notification,  in  this  behalf,  was  issued  on  01.03.1973,  i.e.

Notification  No.  42/73-CE  wherein  such  kind  of  lesser  rate  of

duties was prescribed in respect of all sorts of paper other than

newsprint  and  all  varieties  of  boards,  containing  not  less  than

40% by  weight of bagasse, jute stalks or cereals straw in the

form  of  pulp.  This  Notification  was  replaced  by  another

Notification  No.  128/77-CE  dated  18-06-1977  where  the

manufacture  of  the  paper  (other  than  some specified  kinds  of

papers mentioned therein) contained not less than 50% by weight

of pulp made from bagasse, jute stalks, cereals straw or waste

paper.  Certain  other  conditions  were  also  mentioned  in  this

Notification  pertaining  to  the  description  of  paper  mills

manufacturing  such  paper  with  which  we  are  not  concerned.

There  have  been  further  Notifications  from  time  to  time

modifying/amending the aforesaid  conditions which again  need

not  be  referred  to  as  not  relevant  for  our  purposes.  It  would,

however, be necessary to refer to the Notification 48/91-CE dated

25.07.1991 which held the field prior to issuance of Notification

No. 22/94-CE with which are concerned. In this Notification No.

48/91-CE, concessional rate of duty was provided in respect of

writing and printing paper falling under the heading No. 48.02 and

uncoated kraft paper, falling under heading No. 48.04 of the First

Civil Appeal No. 4908 of 2005 Page 4 of 27

Page 5

Schedule to the Central Excise Tariff Act, 1985 (for short, 'CETA,

1985') on certain conditions mentioned in the proviso contained in

the said Notification which was to the following effect.   

“Provided that such paper contains not  less than 75% by weight of pulp made from jute, jute waste (including  hessian  waste  and  old  gunny  bag waste), mesta, rice straw, wheat straw or bagasse or mixture thereof or mixture of two or more of the pulps of the aforementioned materials.”

The purpose of mentioning to the aforesaid Notification is to point

out  this  Notification  listed  those  materials,  the  use  whereof  to

manufacture paper and paper products entitled the manufacturer

to get the benefit of the Notification.  Thus the requirement was to

show that the pulp was made from any of the said materials or

from the mixtures thereof. It can be termed as  'Positive List'. In

contrast, Notification No. 22/94-CE did not contain the list of those

materials from which pulp was required to be made and used for

the  purpose  of  manufacture  of  paper.   On  the  contrary,  this

Notification contained excluded category of materials, i.e., if the

pulp was made from those specified materials  (which included

rags as well)  then the benefit  of Notification was not available.

The effect  of this Notification is that if the pulp is made from any

other  non-conventional  material  which  is  not  spelt  out  in  the

proviso, it would qualify for concessional rate of duty in terms of

Civil Appeal No. 4908 of 2005 Page 5 of 27

Page 6

the said Notification.  The materials mentioned in this list, for the

sake of convenience, can be classified as  'Negative List'.  Now

the requirement was to show that paper is not manufactured from

the  pulp  of  any  of  the  enlisted  material.   Thus,  according  to

Notification No. 22/94-CE, the exemption is available if the paper

is made from pulp which contains not less than 75% by weight

made from non-conventional materials.  The prohibited material

which  disqualifies  from  said  concessional  rate  is  bamboo  or

hardwood or softwood or reed or rags.

5) There  have  been  some  amendments  in  the  Notification  No.

22/94-CE in  the subsequent  years.   During the financial  years

1995-96,  1997-98  and  1999-2000  (till  October  1999),  the

concessional  rate  of  duty  is  provided  for  paper  made  of  pulp

containing  not  less  than  75%  by  weight  of  pulp  made  from

materials  other  than  bamboo,  hard  wood,  soft  wood,  reeds  or

rags.  But  in  respect  of  the year  1996-97,  the concession  was

given to paper  made of  pulp containing not  less than 50% by

weight  of  pulp  made  from materials  other  than  bamboo,  hard

wood, soft wood, reeds or rags.

6) Reverting to the case of the assessee, it has been using old or

used gunny bags/jute waste for the manufacture of paper.  It was

Civil Appeal No. 4908 of 2005 Page 6 of 27

Page 7

availing  the  benefit  of  the  aforesaid  notification  and  paying

concessional  rate  of  duty.   However,  on  28.04.2000,  a

show-cause notice was issued by the Revenue to the appellant

stating therein that the paper manufactured by using jute bags/

gunny  bags  are  not  eligible  for  exemption  under  the  said

notifications  or  successor  notifications  whereby  the  aforesaid

notification was amended from time to time.  Extended period of

limitation was invoked under proviso to Section 11A of the Central

Excise  Act,  1944  (for  short,  “Act”)  and  demand  of  differential

central excise duty for the period from 01.04.1995 to 31.10.1999

was given.  This show cause notice was followed by two more

show cause notices dated 16.05.2000 and 13.03.2001 covering

the period from November, 1999 to  May, 2000.  The assessee

contested the stand taken by the Revenue in these show cause

notices, taking the position that pulp made out of jute bags/gunny

bags  entitled  the  assessee  to  avail  the  benefit  of  the  said

Notification  as  the  paper  from  the  waste  of  jute  bags  was

non-conventional  method.  In  support,  the  assessee  also  gave

material  in  the  form  of  technical  literature  and  expert  opinion.

Personal hearing was provided by the Commissioner of Central

Excise, Visakhapatnam.   Thereafter, the Commissioner passed

Order-in-Original  dated  02.05.2005 accepting  the  contention  of

Civil Appeal No. 4908 of 2005 Page 7 of 27

Page 8

the assessee and dropping all the three show cause notices. He

also held that show cause notice dated 28.04.2000 is barred by

limitation as well under Section 11A of the Act as the Revenue

was not entitled to invoke the proviso to Section 11A and claim

extended period of limitation.

7) A perusal of the order of the Commissioner would disclose that

the Commissioner was persuaded by the fact that the purpose of

issuing such Notification was to encourage  the use of waste from

non-conventional  materials as raw materials for  the purpose of

manufacture and in, particular, use of such raw materials like jute

waste, mesta, baggase, hessain, old gunyy bag waste, rice straw,

wheat straw etc. and reduce the use of bamboo, hard wood, soft

wood  etc.  to  save  forest.  He  also  noted  that  before  1994,

Notifications  contained  list  of  those  materials  use  whereof

qualified for the concessional rate (i.e. the 'Positive List') and from

1994, the 'Negative List' was prescribed by excluding only the set

of raw materials, use of which did not qualify for the benefit of the

Notification. The Commissioner also referred to the speech of the

Finance Minister to emphasize that the Notification has evolved in

a eco-friendly manner  with  more and more encouragement  for

use of non-conventional materials. Going by the aforesaid spirit of

the Notification, when it is found that jute and gunny bags were

Civil Appeal No. 4908 of 2005 Page 8 of 27

Page 9

included in the 'Positive List' and waste therefrom is widely known

as  non-conventional  method  of  producing  paper  and  paper

products,  these  materials  should  not  be  treated  as  'rags',

inasmuch as while including rags in the 'Negative List'  intention

could not be to encompass waste of gunny bags and jute bags

within  said  expression.  In  the  Order-in-Original  passed  by  the

Commissioner, he pointed out that there is no definition of 'rags' in

the Notification and, similarly, there is no definition of jute pulp in

any  Notification  which  could  help  in  tracing  any  description  of

gunny bags waste. The Commissioner opined that for this reason,

it was prudent to fall back upon the definition or standard text or

other  notifications  which  define  these  words.  Thereafter,  he

referred  to  the  'Glossary  of  Terms  used  in  Paper  Trade  and

Industry'  for  the  adoption  of  definition/description  of  jute,  jute

paper, jute pulp, rag pulps, rags etc. and on that basis concluded

as under:  

“37.  The meaning of the word Rags as they have not been defined in the notification itself, has to be derived from the contemporaneous evidence. From the definitions of  Rag pulp,  jute pulp available in the IS Glossary of Terms used in Paper Trade and Industry, the definition of Rags appended with the Notification No. 8/96-CE and the definition of rag in various  judgments  mentioned  in  para  26.A  it conveys the meaning, in unambiguous terms, that old used gunny bags would not  be equated with rags.

Civil Appeal No. 4908 of 2005 Page 9 of 27

Page 10

38.   The show cause notice has gone to add that jute waste is not gunny bag waste and as the party has not mentioned in their record jute waste and not gunny bag waste, there has been suppression of information.  So long as we hold that rags are not  gunny  bag  waste  and   gunny  bags  are  not excluded  raw  materials  for  the  purpose  of concession, it does not matter how the gunny bag is  described  in  documents.  The  amendments  to Central Excise Notification No. 48/91 dated 25.7.91 vide 30/93 shows unambiguously that Jute Waste shall include old gunny bag waste. Therefore, it still remains  correct  that  gunny  bag  waste  can  be described  as  waste  of  jute  products  and  in extension  would  be  includible  in  Jute  Waste. Therefore,  there  is  no  mis-declaration  in  raw material  account.  In  addition,  this  description  by itself would not prove the point of the show cause notice.  As the basic premises on which the SCN stands  is  not  available,  other  allegations  of suppression  and  application  of  extended  period and  attraction  under  Section  11AC and  11AB or violations  under  Rule  226  and  173Q  are  not sustainable.

39.   Therefore, the allegation listed in Para 42 of the show cause notice regarding violation of Rule 173B by misdeclaring gunny waste as jute waste, Rule  173G  regarding  willful  suppression  of  Raw Material Account. Rule 9(1) regarding discharge of appropriate duty and 173F regarding determination of correct rate of duty pertaining to clearances of goods out of gunny bag pulp do not stand on basis of above evidence of disclosure.”

8) The Revenue was not satisfied with the aforesaid outcome and,

therefore,  preferred  an  appeal  against  the  order  of  the

Commissioner  before  the  Customs,  Excise  and  Service  Tax

Appellate Tribunal (for short, 'CESTAT'). The CESTAT has, vide

impugned  order  dated  04.02.2005,  upset  the  decision  of  the

Civil Appeal No. 4908 of 2005 Page 10 of 27

Page 11

Commissioner  on  merits,  holding  that  the  waste  of  jute/gunny

bags amounts to 'rags' and, therefore, pulp made out of it and use

for  manufacture  of  paper  would  not  be  covered  by  the  said

Notification.  

9) While  arriving  at  this  conclusion,  the  Tribunal  remarked  that

inferences  drawn  by  the  Commissioner  from  the  Finance

Minister's Budget speech or Board's circular do not appear to be

flowing either from the said speech or from Board's clarification

and the reasoning of the Commissioner in this respect was false.

It also rejected the contention of the assessee predicated on HSN

Chapter Headings. According to the Tribunal, pulp out of rags was

specifically excluded from the Notification. 'Rag' is understood to

be worn out, soiled and torn of a textile material.  In view thereof,

it was not necessary to refer to any dictionary, Glossary of Terms

used in Paper and Paper Industry or words and phrases to find

out the meaning of  'rags'.  The relevant portion,  discussing this

aspect reads as under:

“11.   We are unable to agree with this contention. There is no denying the fact that gunny bags/jute bags are articles of  textiles.  Admittedly, such jute bags  which  shows  signs  of  wear  and  tear  are excluded  from  heading  63.09  and  are  classified with the corresponding new articles under heading 63.05. But there is another category of old gunny bags which are so worn out, soiled or torn beyond clearing or repairs and are generally fit only for the

Civil Appeal No. 4908 of 2005 Page 11 of 27

Page 12

recovery of the fibres for the manufacture of paper etc.  This  is  the  separate  category  of  old  gunny bags which is different from gunny bags showing only signs of wear. Thus a rag is one which is worn out, soiled and torn of a textile material. If that is the meaning of rags, there is no need to refer to any dictionary, glossary of terms used in paper and paper industry or S.B. Sarkar's Words and Phrases to find out  the meaning of  rags.  The respondent uses  torn,  soiled  etc.  gunny  bags  to  make pulp. Gunny bag is a textile material.  We agree with the Revenue's contention that rags can be  made of any textile  material  or  textile  articles and are not limited  to  pieces  of  cotton  or  articles  made  of cotton.”

10) However, on the issue of limitation, the Tribunal has concurred

with the order of the Commissioner and rejected the appeal of the

Revenue  to  that  extent.   The  net  result  is  that  the  demand

contained  in  show cause notice  which  pertained  to  the  period

from 01.04.1995 to 31.10.1999 is concerned, the same is treated

as time barred.  Insofar as learned counsel for the assessee is

concerned, in  his  endeavour  to demonstrate that  waste of  jute

bags/gunny bags cannot be termed as 'rags' in the sense the term

is used in the Notification, he laid great stress on the principle of

purposive interpretation that needs to be given to the Notification.

Thus main thrust of his argument was that the objective of the

Notification to give its benefit to those who are using waste from

non-conventional materials.  He submitted that it was well-known

that jute/gunny bags were the non-conventional methods which

Civil Appeal No. 4908 of 2005 Page 12 of 27

Page 13

was well recognised in the commercial world. To put it in nutshell,

he  based  his  arguments  on  the  reasons  given  by  the

Commissioner. He also submitted that the reasons given by the

Tribunal were faulty and in the absence of any definition of 'rags'

in  the Notification,  dictionary meaning could  be relied upon as

was held by the Supreme Court in the case of  Rohit Pulp and

Paper Mills Ltd. v. Collector of Central Excise, Baroda1.

  11) Mr. K. Radhakrishnan, learned senior counsel  appearing for the

respondent, likewise, did the same exercise but in reverse, i.e., he

supported the reasons given by the Tribunal with the submission

that it was a blemished decision of the Commissioner based on

faulty reasoning which has rightly been reversed by the Tribunal.

Apart from relying upon the reasons which persuaded the Tribunal

to conclude the matter in favour of the Revenue, he strenuously

argued that since the excise duty is leviable on the product, any

assessee taking advantage of the exemption notification had to

strictly come within the four corners of the said Notification to get

the  benefit  thereof.  Adopting  this  line  of  argument,  he  also

submitted that the Notification mentions the word 'rags' simplicitor

without any qualifications or exceptions. Therefore, wherever it is

found that pulp is from the waste material known as 'rags', the

1 (1990) 3 SCC 447

Civil Appeal No. 4908 of 2005 Page 13 of 27

Page 14

said  product  would  come  in  the  excepted  category.  He

emphasized that since it could not be denied that waste of gunny

bags/jute bags is known as 'rags', if the paper is manufactured

from  the  pulp  from  the  waste  of  gunny  bags/jute  bags,  the

assessee  would  be  disentitled  to  claim  the  benefit  of  the

Notification.

12) We have considered the aforesaid submissions with reference to

record and the plethora of material produced before us by both

the sides.  It  cannot be denied that if  one has to look into the

ordinary  meaning  of  the  expression  'rags'  and  on  that  basis

construe the Notification in question, the assessee would not be

entitled to the concessional rate of excise duty inasmuch as the

waste  of  gunny  bags  or  jute  bags  would  be  called  'rags'  in

ordinary  sense  of  the  term.   However,  whether  case  can  be

decided with such simplistic overtones, is the question. We are of

the view that the expression 'rags' appearing in the Notification

has  to  be  construed  having  regard  to  the  attendant

circumstances, the context in which the same is used in the said

Notification  as  well  as  the  purpose  for  which  this  term  has

appeared in the Notification. At the same time, it is also necessary

to go behind the objective for which Notification itself is issued

Civil Appeal No. 4908 of 2005 Page 14 of 27

Page 15

thereby giving it  a  purposive interpretation,  which has become

cardinal  rule  of  interpretation.  In  our  opinion,  it  is  only  after

examining  all  these  factors  that  the  final  decision  should  be

arrived at.

13) Right  from  1977,  the  Central  Government  prescribed

concessional  rates  of  excise  duty  for  paper  made  from

non-conventional  raw  material,  subject  to  certain  conditions.

History of these Notifications, in brief, has already been traversed

by us in the beginning. The purpose for issuing such Notifications

is clear, namely, to encourage the manufacturers of the paper and

paper  products  to  use non-conventional  technology in  contrast

with  the  conventional  technology  of  using  pulping  bamboo  or

wheat. The reason is too obvious. Use of bamboo or wheat for the

manufacture of paper and paper products needs  cutting of trees

which in turn has the devastating effect of deforestation. It leads

to  degradation  of  environment  and  the  adverse  impact  of

deforestation with serious consequences are now well-known. On

the other hand with the adoption of non-conventional methods of

production  by  taking  pulp  from  the  waste  of  gunny  bags/jute

waste, mesta, rice straw, wheat straw, bagasse etc., not only the

said waste is utilised in a useful and constructive manner, it saves

environment as well. Such a benevolent purpose for issuing these

Civil Appeal No. 4908 of 2005 Page 15 of 27

Page 16

Notifications  has  been  emphasized  by  the  Finance  Ministers

themselves from time to time in the budget speeches.  

14) The tenor  and  language of  various  Notifications  issued in  this

behalf  from time to time also reflect the experience which was

gained  over  a  period  of  time.  Whereas  in  the  beginning,

Notification(s) prescribed the 'Positive List'   of the materials that

had to be used to get the benefit of concessional rate of duty, the

thrust underwent a conceptual transformation and changed to the

'Negative List',  i.e. mentioning only those materials use whereof

will not entail the benefit, thereby making the benefit available to

all other forms of non-conventional materials. This was because

of the reason that experience has shown that it was not proper to

mention  the  non-conventional  material  by  putting  them  in  a

straitjacket  and  to  provide  that  all  kinds  of  non-conventional

materials  used for  the manufacture  of  paper  should qualify  for

concessional rate excepting only those which need not be given

such  a  benefit.  This  thrust,  therefore,  from  'Positive  List'  to

'Negative List' is of great significance and has to be kept in mind.

15) Proceeding further therefrom, it is important to note that the pulp

made from jute, jute waste including hessian waste and old gunny

bags waste are specifically included in the 'Positive List' contained

Civil Appeal No. 4908 of 2005 Page 16 of 27

Page 17

in  Notification  dated  17.09.1990.   Thus,  as  per  the  said

Notification if the paper is manufactured from the pulp made from

the waste of the aforesaid materials, the benefit of concessional

rate  was admissible.   To put  it  otherwise,  it  has  always  been

clearly understood that jute or jute waste including old gunny bag

waste is non-conventional material. Once that is accepted, could

the intention behind Notification No. 22/1994-CE be to exclude

this non-conventional material with the insertion of the word 'rags'

in the 'Negative List'. It seems difficult to comprehend such a kind

of outcome or situation.

16) With the aforesaid introduction, we reproduce the 'Negative List'

of the materials specified in the Notification 22/94-CE. It mentions

'bamboo, hard woods, soft woods, reeds (other than Sarkanda) or

rags'. What is intended by mentioning that pulp made from the

aforesaid  material  would  not  entail  benefit.  Obviously, all  other

materials, namely, bamboo, hard woods, soft woods, and reeds

are conventional  raw materials.  These are  the materials  which

have direct bearing on cutting of trees and in turn on environment.

Therefore, 'rags' has to be read ejusdem generis.  It has to be the

specie  of  the  earlier  kind  of  materials  mentioned  therein.

Otherwise, it would not make any sense. Admittedly, jute waste or

for  that  matter  gunny  bag  waste  have  no  adverse  impact  on

Civil Appeal No. 4908 of 2005 Page 17 of 27

Page 18

environment.  Significantly, while mentioning reeds, the Sarkanda

is specifically excluded therefrom.

17) It needs to be emphasized that prior to 1984, the exemption to

paper made from unconventional raw materials was available only

when  the  paper  is  manufactured  from  the  specified

non-conventional  raw materials.   For  example,  Notification  No.

46/83-CE  dated  01-03-1983  prescribed  concessional  rate  of

excise duty for paper containing not  less than fifty per cent by

weight  of  pulp  made  from  bagasse,  jute  stalks,  cereal  straw,

elephant  grass  (Imperata  Cylindrica),  mesta  (Kneaf)  or  waste

paper.  Thus, jute stalks was specified as a non-conventional raw

material in the notification itself.  However, vide Budget of 1984,

the scope of the exemption to paper made from non-conventional

raw materials  was widened and relevant  portion of  Notification

No. 25/84-CE dated 01-03-1984 reads as under:

“In  exercise  of  the  powers  ….  the  Central Government  hereby  exempts  paper  and paperboards  ….  manufactured  out  of  pulp containing not less than 50 per cent by weight of pulp  made  from  materials  (other  than  bamboo, hardwoods, softwoods, reeds or rags)...”

Thus, right from the year 1984, the coverage of the Notification

was widened inasmuch as any materials other than the specified

ones would be considered as non-conventional raw materials and

Civil Appeal No. 4908 of 2005 Page 18 of 27

Page 19

the paper made therefrom would be eligible for the exemption.

This  is  also  evident  from  the  Finance  Minister's  speech  while

presenting the Finance Bill, 1984, relevant portion of which reads

as under:

“108... As a further measure of relief, I proposed to reduce the basic excise duty on printing and writing paper and also kraft paper produced by large paper mills  by  Rs.  425  per  metric  tonne,  and corresponding concessions are being given on the duty leviable on such paper when unconventional raw  materials  are  used  in  their  manufacture. Simultaneously,  the  range  of  permissible unconventional raw materials is being expanded.”

18) The Budget Explanatory Notes to Finance Bill, 1984 (at para 8.6)

reads as under:

“8.6   Another  change  made  is  with  regard  to extending  the  scope  of  unconventional  raw materials  by  paper  mills  for  the  purpose  of  duty concessions.   It  has  not  been  proided  that  the concessions would be available for use of any raw materials  (other  than  bamboo,  hard  woods,  soft woods,  reeds and rags) to the extent  of  at  least 50% by weight of pulp in the manufacture of paper (with  few  exceptions)  or  paperboard.   In  other words, so long as the percentage by weight of pulp bamboo, hard woods, soft woods, reeds or rags is not  more  than  50%,  the  concessional  rates  of excise duty would apply.”

19) Thus, all the above materials and the notifications clearly suggest

that the Government itself distinguished between jute bags/gunny

bags and rags and the exemption was being extended to paper

made from old jute/gunny bags.

Civil Appeal No. 4908 of 2005 Page 19 of 27

Page 20

20) No  doubt,  such  exemption  Notifications  call  for  strict

interpretation.  However, at  the same time when the expression

'rags'  is not defined in the Notification, it  has to be assigned a

particular meaning which defines the purpose for which such a

Notification was issued giving by plain meaning, even when there

is  a  total  disconnect  between  the  said  meaning  and  the

Notification, may lead to absurd results as it would exclude the

non-conventional material in the form of waste from jute bags or

gunny  bags  even  when  this  very  material  was  there  in  the

'Positive List'  and qualified for exemption. This Court has held in

the case of H.M.M Limited v. Collector of Central Excise, New

Delhi2 that the benefit  of Notifications has to be interpreted by

going  into  the  purpose  of  beneficial  notifications  and  that  one

does not have to go only by the language employed therein.  

21) To the same effect is the judgment of this Court in  Collector of

Central  Excise  and  Others  v.  Himalayan  Cooperative  Milk

Product Union Ltd. and Others3 where this Court remarked that

'purpose and policy decision behind the notification should not be

defeated by giving it some meaning other that what is clearly and

plainly flowing from it.  At this stage, it would also be pertinent to

2 (1996) 11 SCC 332 3 (2000) 8 SCC 642

Civil Appeal No. 4908 of 2005 Page 20 of 27

Page 21

refer to another judgment of this Court in Rohit Pulp and Paper

Mills  Ltd.  v.  Collector  of  Central  Excise4,  wherein  the  Court

held that there would be circumstances where a generic word is

to be given limited meaning by reason of its context.  We would

like to borrow the following discussions therefrom:

“10.  The principle of statutory interpretation by which  a  generic  word  receives  a  limited interpretation  by  reason  of  its  context  is  well established.  In  the  context  with  which  we  are concerned,  we  can  legitimately  draw upon the "noscitur  a  sociis"  principle.  This  expression simply means that "the meaning of a word is to be  judged  by  the  company  it  keeps." Gajendragadkar, J.  explained the  scope of  the rule in State v. Hospital Mazdoor Sabha (1960-2 S.C.R. 866) in the following words:

"This  rule,  according  to  Maxwell,  means that,  when  two  or  more  words  which  are susceptible  of  analogous  meaning are  coupled together they are understood to be used in their cognate sense. They take as it were their colour from  each  other,  that  is,  the  more  general  is restricted to a sense analogous to a less general. The same rule is thus interpreted in "Words and Phrases"  (Vo.  XIV, p.  207):  "Associated  words take their meaning from one another under the doctrine of nosciture a sociis, the philosophy of which is that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the  maxim Ejusdem Generis."  In  fact  the latter  maxim  "is  only  an  illustration  or  specific application  of  the  broader  maxim  noscitur  a sociis".  The  argument  is  that  certain  essential features  or  attributes  are  invariably  associated with  the  words  "business  and  trade"  as understood  in  the  popular  and  conventional sense,  and  it  is  the  colour  of  these  attributes which is taken by the other words used in the definition  though  their  normal  import  may  be

4 1990 (47) ELT 491 (SC)

Civil Appeal No. 4908 of 2005 Page 21 of 27

Page 22

much  wider.  We  are  not  impressed  by  this argument. It must be borne in mind that noscitur a sociis  is merely  a rule of  construction and it cannot prevail in cases where it is clear that the wider words have been deliberately used in order to  make  the  scope  of  the  defined  word correspondingly  wider.  It  is  only  where  the intention of the Legislature in associating wider words  with  words  of  narrower  significance  is doubtful, or otherwise not clear that the present rule  of  construction  can  be  usefully  applied.  It can also be applied where the meaning of  the words of wider import is doubtful; but, where the object of the Legislature in using wider words is clear  and  free  of  ambiguity,  the  rule  of construction in question cannot be pressed into service." This principle has been applied in a number of contexts in judicial decisions where the Court is clear in its mind that the larger meaning of the word in question could not have been intended in the context in which it has been used. The cases are  too  numerous  to  need  discussion  here.  It should be sufficient to refer to one of  them by way  of  illustration.  In  Rainbow  Steels  Ltd.  v. C.S.T., (1981)  2  SCC  141  this  Court  had  to understand the meaning of the word 'old' in the context of an entry in a taxing tariff which read thus:  

"Old, discarded, unserviceable or absolute machinery,  stores  or  vehicles  including  waste products ..... "  Though the tariff item started with the use of the wide word 'old', the Court came to the conclusion that  "in  order  to  fall  within  the  expression  'old machinery' occurring in the entry, the machinery must be old machinery in the sense that it has become non-functional  or non-usable". In other words, not the mere age of the machinery, which would  be  relevant  in  the  wider  sense,  but  the condition  of  the  machinery  analogous  to  that indicated  by  the  words  following  it,  was considered  relevant  for  the  purposes  of  the statute.  

Civil Appeal No. 4908 of 2005 Page 22 of 27

Page 23

11.   The maxim of  noscitur  a  sociis has been described by Diplock, C.J. as a "treacherous one unless one knows the societas to which the socii belong"  (vide:  Letang  v.  Coopex,  1965-1  Q.B. 232). The learned Solicitor General also warns that  one should not  be carried away by labels and  Latin  maxims  when  the  word  to  be interpreted is clear and has a wide meaning. We entirely agree that these maxims and precedents are not to be mechanically applied; they are of assistance  only  in  so  far  as  they  furnish guidance  by  compendiously  summing  up principles based on rules of common sense and logic. As explained in Collector of Central Excise v.  Parle Exports (P) Ltd.,  1989 (38) E.L.T. 741 (S.C.) = (1989-1 S.C.C. 345 at p.357) and Tata Oil Mills Co. Ltd. v. C.C.E., 1989 (43) E.L.T. 183 (S.C.)  =  (1989-4  SCC  541  at  p.  545-6)  in interpreting  the  scope  of  any  notification,  the Court  has first  to keep in mind the object  and purpose of the notification. All parts of it should be  read  harmoniously  in  aid  of,  and  not  in derogation, of that purpose. In this case, the aim and  object  of  the  notification  is  to  grant  a concession  to  small  scale  factories  which manufacture  paper  with  unconventional  raw materials.  The question  naturally  arises:  Could there have been any particular object intended to be achieved  by  introducing  the  exceptions  set out in the proviso? Instead of proceeding on the premise that it is not necessary to look for any reason in a taxing statute, it is necessary to have a closer look at the wording of the proviso. If the proviso had referred only to 'coated paper',  no special  object  or  purpose  would  have  been discernible and perhaps there would have been no justification to look beyond it and enter into a speculation  as  to  why  the  notification  should have thought  of  exempting only  'coated paper' manufactured  by  these  factories  from  the purview  of  the  exemption.  But  the  notification excepts not one but a group of items. If the items mentioned  in  the  group  were  totally  dissimilar and  it  were  impossible  to  see  any  common thread  running  through  them again,  it  may  be permissible  to  give  the  exceptions their  widest latitude. But when four of them-undoubtedly, at

Civil Appeal No. 4908 of 2005 Page 23 of 27

Page 24

least  three  of  them-can  be  brought  under  an intelligible classification and it is also conceivable that  the  Government  might  well  have  thought that  these  small  scale  factories  should  not  be eligible for the concession contemplated by the notification  where  they  manufacture  paper catering  to  industrial  purposes,  there  is  a purpose in the limitation prescribed and there is no  reason  why  the  rationally  logical  restriction should not be placed on the proviso based on this  classification.  In  our  view,  the  only reasonable way of interpreting the proviso is by understanding  the  words  'coated  paper'  in  a narrower  sense  consistent  with  the  other expressions used therein.”

22) The aforesaid discussion would be sufficient to hold that pulp from

the waste of jute bags or gunny bags would not be covered by the

term 'rags' appearing in Notification dated 01-03-1994 as it could

never be the intention to exclude non-conventional material from

the benefit of the aforesaid Notification when that was precisely

the purpose for which this Notification was issued to encourage

use  of  non-conventional  material  for  the  purposes  of

manufacturing paper or paper products.  Still, we would now like

to  take note  of  the dictionary  meaning that  is  assigned to  the

aforesaid  terms,  that  too  from  the  'Dictionary  of  Paper' by

American  Paper  and  Pulp  Association,  which  obviously  is  the

most relevant and authenticated dictionary for the purpose of the

present  case  as  what  is  in  vogue  and  understood  in  paper

industry is contained in such a dictionary.

Civil Appeal No. 4908 of 2005 Page 24 of 27

Page 25

23) The Dictionary of Paper by American Paper and Pulp Association

clearly makes a distinction between rag pulp and jute.  Relevant

portion of the book (contained at pages 22 and 26) is reproduced

below:

“Cotton fibre or rag pulps are used principally in the manufacture of fine and technical papers as listed below, and in the manufacture of roofing papers..”

Jute Pulp is used in the manufacture of wrapping paper and tag stock.  It is also used to some extent in  buff  drawing paper.  The major  supply  of  jute comes from old sacking, burlap and string...”

Jute … Old gunny and sacking are used as raw materials in papermaking”

24) The book 'Pulp and Paper Chemistry and Chemical Technology'

by James P. Casey again distinguishes between rags and jute in

the following manner:

“Use of Rags for Papermaking

High-grade cotton and, to some extent, linen rags are used to make the best grades of bond, writing and  technical  papers,  where  permanence,  high strength, and distinctive quality are of interest.

Pulping of Jute

Whole  jute  is  rarely  used  for  pulp  and papermaking.  Salvaged products, such as old jute sacks and burlap, are the materials available to the paper mills.  Waste jute is cut into small pieces and dusted before cooking.. Jute pulps are used for the manufacture  of  high-strength  bags,  wrappings, drawing papers, and tags.”

Civil Appeal No. 4908 of 2005 Page 25 of 27

Page 26

25) Dictionary of Paper by TAPPI defines 'rag pulps' as under:

“Papermaking fibers made from new or old cotton textile cuttings.  The term may also apply to cotton linters,  i.e.,  the  short  fibers  which  adhere  to  the cotton seed after the ginning process.  Rag pulps are  used  in  papers  where  permanence  and durability are needed, e.g., ledger, blueprint, map, currency papers etc.”

26) Indian  Standard  Glossary  of  Terms  used  in  Paper  Trade  and

Industry – IS 4661 : 1999 defines 'jute' and 'rag pulp' as under:

“Jute  :  (a)  An  Indian  bast  fibre,  white  jute (Corchorus Capsularis) and tossa jute (C. Olitorius) which  is  used  for  the  manufacture  of  coarse sacking and bags (gunny sack).   Old gunny and sacking  are  used  as  raw  materials  in papermaking...

Rag  Pulps:  Papermaking  fibres  of  cotton  made from materials like new or old cotton textile cuttings or cotton linters,  mill  run, fly cotton, cotton waste etc.   Rag  pulps  are  used  in  papers  where permanence  and  durability  are  needed,  for example,  ledger, blueprint,  map,  currency papers etc."

27) Thus, almost all the books on the subject uniformly define 'rag' or

'rag pulp' as one which is made from cotton waste or cotton textile

material.  On the other hand, the learned counsel appearing for

the Revenue could not point out to a single dictionary or could

take  us  through  any  technical  literature  which  even  remotely

suggests that jute gunny bags come under the category of 'rags'

in the context of paper technology.

Civil Appeal No. 4908 of 2005 Page 26 of 27

Page 27

28) The Tribunal has simply brushed aside the aforesaid material with

a mere observation that it is not relevant and this approach of the

Tribunal cannot be justified.

29) The  upshot  of  the  aforesaid  discussion  is  to  hold  that  the

impugned decision of the Tribunal does not stand judicial scrutiny

and warrants to be set aside.  We, thus, allow this appeal, quash

the order of the Tribunal and restore the order that was passed by

the Commissioner.

No costs.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; JULY 21, 2015.

Civil Appeal No. 4908 of 2005 Page 27 of 27