JUDGMENT

KASLIWAL, J.:— This appeal by special leave is directed against the order of Bombay High Court, dt. 2-12-1987 (Reported in (1988) 33 ELR 292 (Bom) ). Brief facts of the case are that respondent is the sole proprietor of a concern known as Neptune Water-proof Manufacturing Company (in short the company) and carries on business of manufacturing Water-proof Kraft Paper. The company manufactures the following products:

i) Bitumanised Water-proof packing paper.

ii) Polythene-lined kraft.. packing paper.

iii) Waxed Kraft packing paper.

iv) Jute-lined - bitumanised water-proof packing paper.

v) Waxed kraft packing paper

vi) Hessain-lined kraft paper.

The company purchases kraft paper from the open market as well as other materials like bitumine, polythene, jute fibre and wax and thereafter combines these materials with kraft paper in its factory. Till October 30, 1980 the company classified its products under Item 17(2) of the schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act) and paid duty accordingly. On October 30, 1980 the company discovered that none of its products were liable to payment of duty as the same did not fall within the expression "manufactured" under Section 2(f) of the Act. The company in these circumstances filed classified list before the Assistant Collector and claimed that as the manufacturing process was not carried out in bringing into existence various kinds of kraft papers as mentioned above, the company is not liable to pay any excise duty in respect of the products produced in its factory.

2. The Assistant Collector of Central Excise, Bombay by order dated February 16, 1981 held that the kraft paper marketed by the company is bitumanised water proof packing paper, polythene-lined kraft packing paper etc. and as such were different and distinct products than the original kraft paper purchased by the company. The Assistant Collector also held that the processed kraft paper had a definite characteristic, use and value and as such they are different products and are liable to payment of excise duty.

3. The company aggrieved against the order of the Assistant Collector filed a writ petition under Art. 226 of the Constitution before the High Court. Learned single Judge of the High Court held that the process carried on by the company cannot be considered as manufacture of a new commodity with a different name and different use. The learned Judge relied upon the decisions of Madras High Court and Andhra Pradesh High Court where identical question was considered. Learned Judge in these circumstances set aside the order of the Assistant Collector and directed that the department should refund the excise duty levied and recovered from the respondent.The Union of India filed an appeal before the Division Bench of the High Court. The Division Bench while admitting the appeal, directed the respondents to file an affidavit setting out the process and accordingly affidavit was filed on July 18, 1986. The High Court after the perusal of the affidavitobserved as under:--

"The perusal of the affidavit indicates that for manufacturing Bitumanised Waterproof packing paper, kraft paper is mounted on a roller and then it is passed over a tank containing liquid bitumen. As the first roll of kraft paper crosses the bitumen tank roller with a thin coat or layer of bitumen on one side, the second roll of kraft paper is released. Kraft paper coming from the two sides is pressed against each other by a rubber roller which is positioned in between the two rollers. The end product is the two sheets of kraft paper pressed against each other with the help of a thin layer of bitumen sandwitched between them."

The High Court on perusal of the above affidavit arrived to the conclusion that the process undertaken by the company could not be treated as manufacturing a new and different article. According to the High Court the conclusion was inescapable that the company did not undertake manufacture of diffe