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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2733 OF 2007

COMMISSIONER OF CENTRAL EXCISE,  MUMBAI-IV

…APPELLANT

VERSUS

M/S. FITRITE PACKERS, MUMBAI ...RESPONDENT

J U D G M E N T

A.K. SIKRI, J.

The dispute between the parties arose on two issues, viz.:

(i) Whether  the  goods  in  question,  i.e.,  printed  GI  paper  are

classifiable under  Chapter heading 4811.90, as claimed by the

Revenue or  they were to  be classified under  Chapter  heading

4901.90 as the product of printing industry, as per the stand taken

by the respondent/assessee?

(ii) Whether  printing  on  duty  paid  GI  paper  would  amount  to

manufacture?

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2) The Tribunal vide impugned judgment dated March 27, 2006 has

decided  the first issue in favour of the Revenue classifying the

goods under Chapter heading 4811.90 thereby holding that the

goods fall within the description of 'printing in rolls or sheets'.  The

assessee  has  not  challenged  the  aforesaid  classification  as

accorded by the Tribunal and, therefore, the issue of classification

has attained finality.  

3) Insofar as other question is concerned, the Tribunal has decided

that  the  process  of  printing  of  GI  paper  does  not  amount  to

manufacture.   Aggrieved  by  such  a  conclusion  on  the  second

issue, the Revenue is in appeal before us.  Therefore, this is the

only issue that needs to be determined in the instant appeal which

has arisen under the following circumstances:

The respondent/assessee herein  purchased GI  paper  from the

market  which  is  already  duty  paid  base  paper.  On  this  paper,  the

process  of  printing is  carried out  by  the assessee according to  the

design  and  specifications  of  the  customers  depending  on  their

requirements. This printing is done in jumbo rolls of GIP twist wrappers.

Bulk orders are received from Parle, which needs the said paper as a

wrapping/packing paper for packing of their goods. On the paper, logo

and name of the product is printed in colorful form. After carrying out

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the  printing  as  per  the  requirement  of  the  customers,  the  same  is

delivered to the customers in jumbo rolls without slitting.  The issue is

as to whether this printing process amounts to manufacture or not?  

4) Various show cause notices were issued and orders were passed

by the adjudicating authority thereupon holding that the aforesaid

process  would  be  treated  as  manufacture  and,  thus,  the

respondent/assessee was liable to pay excise duty thereon.

5) The  Tribunal  while  upsetting  the  aforesaid  decision  of  the

Commissioner  has arrived at  a  conclusion that  printing is  only

incidental and primary use of GI printing paper roll is for wrapping

which is not changed by the process of printing.  While coming to

this  conclusion,  the  Tribunal  has  primarily  relied  upon  the

judgment of this Court in Union of India v. J.G. Glass Industries

Ltd.1

6) Questioning  the  veracity  of  the  aforesaid  conclusion  of  the

Tribunal, Mr. K. Radhakrishnan, learned senior counsel appearing

for  the Revenue argued that,  no doubt,  paper  in-question was

meant for wrapping/packing of the goods of the customer but that

was not the determinative factor and a vital feature/aspect which

was missed by the Tribunal  was that  after  printing the said GI

1 1998 (97) ELT 5 (SC)

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paper  rolls,  it  was  used  for  specific  purpose  which  was  not

possible with the plain paper. In support, some decisions of this

Court were cited.

7) Learned counsel for respondent, on the other hand, argued that

the approach of the Tribunal was perfectly justified which was in

consonance with  the  principle  laid  down by this  Court  in  J.G.

Glass Industries (supra).   According to  him,  the Tribunal  had

rightly held that the primary purpose for which GI paper is used is

the wrapping/packaging and even after GI paper was printed, the

essential  functioning of  this paper remained the same, namely,

wrapping and had not changed by the process of printing.  He,

thus, submitted that no interference in the decision of the Tribunal

was called for.

8) We have considered the aforesaid  submissions  of  the learned

counsel for the parties. In order to discern the principles that are

to be applied for ascertaining as to whether a particular process

amounts to manufacture within the meaning of Section 2(f) of the

Central Excise Act, 1944 (hereinafter referred to as the 'Act'), it is

not necessary to refer to various case laws on the subject.  Our

purpose would be served by referring to a recent decision, which

was  rendered  by  this  very  Bench,  in  the  case  of  Servo-Med

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Industries  Pvt.  Ltd.  v.  Commissioner  of  Central  Excise,

Mumbai2.  Our reason for saying so is that in this decision many

earlier judgments are taken note of, considered and principles laid

down therein are culled out.  The judgment in the case of  J.G.

Glass Industries (supra) was also taken note of and discussed.

There  is  an  elaborate  discussion  on  the  following  aspects,

covering the entire spectrum:

(i) Distinction between manufacture and marketability:   

It is pointed out that whereas excisable goods signifies that the

goods are capable of being sold in the market, the manufacture is

distinct  from  saleability.  Manufacture  takes  place  on  the

application of one or more processes and each process may lead

to a change in the goods but every change does not amount to

manufacture.   To  bring  the  process  within  the  definition  of

'manufacture'  under Section 2(f)   of the Act,  it  is essential  that

there  must  be  a  transformation  by  which  something  new  and

different comes into being, i.e., there must now emerge an article

which has a distinctive name, character or use.

(ii) The  judgment  also  explains  the  circumstances  when

transformation does not take place:

Examples are given when character and use remains the same or

2 2015 (319) ELT 578 (SC)

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when foreign matter is removed from an article or additions are

made to the article to preserve it or increase its shelf life or when

no change occurs in the name, character or use of the product.

(iii) It was noted that when essential character of the product does not

undergo  change  there  would  be  no  manufacture.  The  Court

explained  'retaining of essential character test' to mean that

the  product  in  its  primary  and  essential  character  remains  the

same even after the process in-question and the product is sold in

the  market  with  its  earlier  character.  Following  passage  from

Deputy Commissioner of Sales Tax (Law), Board of Revenue

(Taxes),  Ernakulam v.  Pio Food Packers3, was quoted which

drew  a  line  between  cases  in  which  essential  character  had

changed and those in which no such change had taken place.

“19. Interestingly, a line was drawn between cases in which the essential character had changed and those in which no such change had taken place in the following terms:

“5. A large number of cases has been placed before us by the parties, and in each of them the same principle has been applied: Does the processing of the original commodity bring into existence a commercially different and distinct article? Some of the cases where it was held by this Court that a different commercial article had  come into  existence  include  Anwarkhan Mehboob Co. v. The State of Bombay and Ors. (where  raw  tobacco  was  manufactured  into bidi patti), A. Hajee Abdul Shukoor and Co. v. The  State  of  Madras  (raw  hides  and  skins constituted  a  different  commodity  from

3 1980 (6) E.L.T. 343 (SC)

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dressed hides and skins with different physical properties), The State of Madras v. Swasthik Tobacco  Factory  (raw  tobacco  manufactured into  chewing  tobacco)  and  Ganesh  Trading Co.  Karnal  v.  State  of  Haryana  and  Anr., (paddy dehusked into rice). On the other side, cases where this Court has held that although the  original  commodity  has  under  gone  a degree of processing it has not lost its original identity  include  Tungabhadra  Industries  Ltd., Kurnool  v.  Commercial  Tax  Officer,  Kurnool (where  hydrogenated  groundnut  oil  was regarded as groundnut oil) and Commissioner of  Sales  Tax,  U.P.,  Lucknow v. Harbiles  Rai and Sons (where bristles  plucked from pigs, boiled, washed with soap and other chemicals and sorted out  in  bundles according to  their size and colour  were regarded as remaining the  same  commercial  commodity,  pigs bristles).”

This Court also explained the principle that where there was no

commercial  user  without  further  process then the said process

would  amount  to  manufacture  labelling  it  as  'test  of  no

commercial user without further process'.

(iv) Another  circumstance  was taken  note  of  and  discussed which

involves integrated process,  culling out  'the test of integrated

process without which manufacture would be impossible or

commercially inexpedient'.  It  was,  thus,  explained that where

the manufacture involves series of processes, i.e., various stages

through which the raw-material is subjected to change by different

operations,  each  step  towards  such  production  would  be  a

process in relation to the manufacture.

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9) On the basis of aforesaid discussion and formulation of certain

tests to ascertain whether a particular process would amount to

manufacture or not, the Court culled out four categories of cases

in its conclusion in para 27 of the judgment. We reproduce these

categories hereunder:

“27. The case law discussed above falls into four neat categories.

(1) Where the goods remain exactly the same even after  a  particular  process,  there  is  obviously  no manufacture  involved.  Processes  which  remove foreign matter from goods complete in themselves and/or  processes  which  clean  goods  that  are complete in themselves fall within this category.

(2) Where the goods remain essentially the same after the particular process, again there can be no manufacture. This is for the reason that the original article continues as such despite the said process and  the  changes  brought  about  by  the  said process.

(3)  Where  the  goods  are  transformed  into something  different  and/or  new  after  a  particular process,  but  the  said  goods  are  not  marketable. Examples  within  this  group are  the  Brakes  India case and cases where the transformation of goods having  a  shelf  life  which  is  of  extremely  small duration.  In  these  cases  also  no  manufacture  of goods takes place.

(4)  Where the goods are transformed into goods which  are  different  and/or  new  after  a  particular process, such goods being marketable as such. It is in this category that manufacture of goods can be said to take place.”

10) On the facts of  the present  case,  it  is  to  be determined as to

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whether the case would fall under category (2) or category (4).

We have already taken note of printing process.  A cursory look

into the same may suggest, as held by the Tribunal, that GI paper

is meant for wrapping and the use thereof did not undergo any

change even after  printing as the end use was still  the same,

namely, wrapping/packaging.   However, a  little  deeper  scrutiny

into the facts would bring out a significant distinguishing feature; a

slender one but which makes all the difference to the outcome of

the present case.   No doubt, the paper in-question was meant for

wrapping and this end use remained the same even after printing.

However, whereas blank paper could be used as wrapper for any

kind of product, after the printing of logo and name of the specific

product of Parle thereupon, the end use was now confined to only

that  particular  and  specific  product  of  the  said  particular

company/customer. The printing, therefore, is not merely a value

addition but  has now been transformed from general  wrapping

paper  to  special  wrapping  paper.  In  that  sense,  end  use  has

positively  been  changed  as  a  result  of  printing  process

undertaken by the assessee.  We are, therefore, of the opinion

that  the  process  of  aforesaid  particular  kind  of  printing  has

resulted into a product, i.e., paper with distinct character and use

of  its  own which it  did  not  bear  earlier.  Thus,  the 'test  of  no

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commercial  user  without  further  process'  would  be  applied  as

explained in paragraph 20 of  Servo-Med Industries (supra). The

aforesaid paragraph is extracted hereunder.

“20.  In  Brakes  India  Ltd.  v.  Superintendent  of Central Excise (1997) 10 SCC 717, the commodity in question was brake lining blanks. It was held on facts that such blanks could not be used as brake linings  by  themselves  without  the  processes  of drilling,  trimming  and  chamfering.  It  was  in  this situation  that  the  test  laid  down  was  that  if  by adopting  a  particular  process  a  transformation takes  place  which  makes  the  product  have  a character and use of its own which it did not bear earlier,  then  such  process  would  amount  to manufacture  irrespective  of  whether  there  was  a single process or several processes.”

11) The ratio  thereof  is  explained in  paragraph 24 in  the following

words:

“24.  It is important to understand the correct ratio of  the  judgment  in  the  J.G.  Glass  case.   This judgment does not hold that merely by application of  the  second  test  without  more  manufacture comes into being.  The Court was at pains to point out  that  a twofold test  had emerged for  deciding whether the process is that of manufacture.  The first test is extremely important – that by a process, a different commercial commodity must come into existence as a result of the identity of the original commodity  ceasing  to  exist.   The  second  test, namely that the commodity which was already in existence will  serve no purpose but  for  a certain process must be understood in its true perspective. It is only when a different and/or finished product comes into existence as a result of a process which makes the said product commercially usable that the second test laid down in the judgment leads to manufacture.....”  

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12) This Court emphasised that there has first to be a transformation

in the original article and this transformation should bring out a

distinctive  or  different  use  in  the  article,  in  order  to  cover  the

process  under  the  definition  of  'manufacture'.  These  tests  are

satisfied in the present case.

13) As a result, present appeal is allowed setting aside the order of

the  Tribunal  and  restoring  the  Order-in-Original  passed  by  the

Adjudicating Authority.   

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

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

NEW DELHI; OCTOBER 07, 2015.

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