Judgment

JUDGMENT :- We have heard Sri Ganguly, learned senior counsel for the appellant and Shri Soli J. Sorabjee, learned Senior Counsel for the respondent. Special Leave granted.

2. Appellant, Union of India, prefers this appeal against the order dated 26th July, 1991, of the High Court of Judicature at Bombay in Writ Petition No. 2102 of 1983 upholding the respondents contention that the process of backing duty paid aluminium foil with paper, plain or printed, resulting in the preparation of "paper-backed aluminium-foil" did not amount to manufacture of a new and commercially distinct article. By this writ petition respondent sought to restrain the appellant from levying and collecting duty on "paper-backed-aluminium-foil" in respect of its transactions for the period between February, 1980 and August, 1983.

3. The High Court noticed the scope of the controversy in the proceedings thus :

"The short question which falls for determination is whether the company is liable to pay duty under Tariff item No. 27(c) in respect of process of backing of duty paid aluminium foils...."

The High Court proceeded to answer this question against the revenue on two grounds. The first was that respondents averments in the writ petition that "paper-backed-aluminium foil" was not a new and distinct commercial article, remained unrebutted by the Revenue as no counter-affidavit had been filed. The High Court observed :

"...The petition is pending in this court for last over eight years and the department has not thought it fit to file a return to controvert the claim of the company..."

The second ground related to the merits of the issue, independently of this non-traverse. The High Court went into the question whether "paper-backed-aluminium foil" prepared out of duty paid aluminium foil was an article commercially distinct from aluminium foil simpliciter and held:

"......The process of backing aluminium foil is undertaken only to make the aluminium foil used for packing the product more attractive. In our judgment, by no stretch of imagination the process of backed aluminium foil can lead to the conclusion that the process amounts to manufacture. Once this conclusion is reached then it is obvious that it is not permissible for the department to levy and collect excise duty twice over, in respect of the same excisable goods falling under the same entry. In our judgment, the department was clearly in error in recovering duty from the company and consequently, the company is entitled to the relief."

4. On the question whether the respondents filed a counter-affidavit or not, there is some controversy. Respondents say that a counter was in fact filed in the High Court on 13th August, 1987.

Be that as it may, the matter of this nature does not stand concluded by a mere non-traverse. The question whether the process involved in converting the "aluminium-foil" into "paper-backed-aluminium-foil" amounts to manufacture within the meaning of S. 2(1) of the Central Excises and Salt Act, 1944, or not, turns upon whether as a result of the application of the process a new and commercially distinct article, known to the market as such, emerges at the end. This, in turn, depends upon the evidence as to the requisite transformation of the goods into a new and different article having distinct identity and character or use. Unless this occurs the process, however elaborate it might otherwise be, would not graduate itself into manufacture. The article that results from applying the process must be commercially known as another and different article.

Such a question can be decided on evidence as to how the article is known and recognised by those in the trade, industry or commerce dealing with the article. The finding of the court must be based on such evidence and not on its own perceptions of the matter. In this case, evidence on the point is conspicuous by its absence. Indeed, in a sense, there was nothing to traverse. Appellant, so far as the proceedings in judicial r