Important point
Process of unwinding, cutting and slitting to sizes of jumbo rolls of tissue paper would not amount to ‘manufacture’ u/s 2(f) of the Central Excise Act.

Headnote:Central Excise Act, 1944—Sections 2(f) and 35-L(b)—Central Excise Tariff Act, 1985—Tariff Heading 48.03 and 48.18—Manufacture—Process of unwinding, cutting and slitting to sizes of jumbo rolls of tissue paper—Whether would amount to ‘manufacture’—Assessee was engaged in the activity of cutting/slitting of jumbo rolls of tissue paper of a width exceeding 36 cms—Jumbo rolls were purchased on payment of excise duty from various suppliers who are the manufacturers of such jumbo rolls—Jumbo rolls purchased by the assessee were of a kind normally used for household or sanitary purposes—All that the assessee was doing was to reduce the width to less than 36 cms—On such reduction of the width, department sought to assess and demand duty under tariff sub-heading 4818.90—Show cause notice was issued to the assessee alleging that assessee was engaged in the manufacture of toilet rolls, napkins and facial tissue papers, from jumbo rolls of tissue paper, falling under tariff sub-heading 4818.90 of the Act, 1985—No new product had emerged on winding, cutting/slitting and packing—Whether Section 2(f) of the Act can be held applicable to the facts of this case—(No).
       Held : At the outset, we may point out that the assessee is one of the downstream producers. The assessee buys duty-paid jumbo rolls from M/s. Ellora Paper Mills and M/s Padamjee Paper Mills. There are different types of papers namely, tissue paper, craft paper, thermal paper, writing paper, newsprints, filter paper etc. The tissue paper is the base paper which is not subjected to any treatment. The jumbo rolls of such tissue papers are bought by the assessee, which undergoes the process of unwinding, cutting/slitting and packing. It is important to note that the characteristics of the tissue paper are its texture, moisture absorption, feel etc. In other words, the characteristics of table napkins, facial tissues and toilet rolls in terms of texture, moisture absorption capacity, feel etc. are the same as the tissue paper in the jumbo rolls. The said jumbo rolls cannot be conveniently used for household or for sanitary purposes. Therefore, for the sake of convenience, the said jumbo rolls are required to be cut into various shapes and sizes so that it can be conveniently used as table napkins, facial tissues, toilet rolls etc. However, the end-use of the tissue paper in the jumbo rolls and the end-use of the toilet rolls, the table napkins and the facial tissues remains the same, namely, for household or sanitary use. The predominant test in such a case is whether the characteristics of the tissue paper in the jumbo roll enumerated above is different from the characteristics of the tissue paper in the form of table napkin, toilet roll and facial tissue. In the present case, the tribunal was right in holding that the characteristics of the tissue paper in the jumbo roll are not different from the characteristics of the tissue paper, after slitting and cutting, in the table napkins, in the toilet rolls and in the facial tissues. (Para 12)
       No new product had emerged on winding, cutting/slitting and packing. The character and the end-use did not undergo any change on account of the abovementioned activities and, therefore, there was no manufacture on first principles. Similarly, there was no deemed manufacture under section 2(f) of the said Act. In order to make section 2(f) applicable, the process of cutting/slitting is required to be recognized by the legislature as a manufacture under the chapter note or the section note to chapter 48. For example, the cutting and slitting of thermal paper is deemed to be “manufacture” under note 13 to chapter 48. Similarly, note 3 to chapter 37 refers to cutting and slitting as amounting to manufacture in the case of photographic goods. However, slitting and cutting of toilet tissue paper on aluminium foil has not been treated as a manufacture by the legislature. In the circumstances, section 2(f) of the Act has no application. (Paras 14 & 15)
       The characteristics of the tissue paper in the jumbo roll are not different from the characteristics of the tissue paper in the toilet rolls, table napkins, facial tissues etc. Moreover, cutting/slitting of tissue paper is not indicated in the section note or in the chapter note as amounting to “manufacture” and, therefore, section 2(f) of the Act was also not applicable to the facts of this case. (Para 16)
       Applying the above tests to the facts of the present case, we hold that mere mention of a product in a tariff heading does not necessarily imply that the said product was obtained by the process of manufacturing. That, just because the raw-material and the finished product came under two different headings, it cannot be presumed that the process of obtaining the finished product from such raw-material automatically constituted manufacture. In the present case, merely because tissue paper in the jumbo roll of the size exceeding 36 cms. fell in one entry and the toilet roll of a width not exceeding 36 cms. fell in a different entry, it cannot be presumed that the process of slitting and cutting of jumbo rolls of toilet tissue paper into various shapes and sizes amounted to manufacture. The above tests would also apply to cutting and slitting of jumbo rolls of aluminium foils. (Paras 19 and 20)
       Lastly, in the instant case, the commissioner as an adjudicating authority has held that there was a value addition of 180 . He found that jumbo rolls of tissue papers were purchased by the assessee @ Rs. 30/- to 70/- per kg. and the final product i.e. the toilet tissue paper was sold by the assessee @ Rs. 85/- to Rs. 100/- per kg. and, therefore, there was a value addition of around 180 i.e. between the range of Rs. 30/- to Rs. 85/- per kg. This finding of the commissioner is erroneous. Under the excise law, value addition based on a process is certainly a relevant ‘criteria to decide as to what constitutes “manufacture”. Such value addition should be on account of change in the nature or characteristics of the product. In the present case, as stated above, there is no change in the nature or characteristics of the tissue paper in the jumbo roll and the nature and characteristics of the tissue paper in the table napkin, facial tissues etc. Therefore, without such change in the nature or characteristics of the tissue paper, value addition on account of transport charges, sales tax, distribution and selling expenses and trading margin cannot be an indicia to decide what is manufacture. Thus, value addition without any change in the name, character or end-use by mere cutting or slitting of jumbo rolls cannot constitute criteria to decide what is “manufacture”. (Para 21)

Judgment

Kapadia, J.—A short question which arises for determination in these civil appeals filed by the department under section 35-L(b) of the Central Excise Act, 1944 (for short “the said Act”) is - whether the process of unwinding, cutting and slitting to sizes of jumbo rolls of tissue paper would amount to “manufacture” on first principles or under section 2(f) of the said Act?

2. The above question arises in this batch of civil appeals. For the sake of convenience, we mention herein below the facts in Civil Appeal Nos. 5293-5294 of 2001.

3. The assessee was engaged in the activity of cutting/slitting of jumbo rolls of tissue paper of a width exceeding 36 cms. The jumbo rolls were purchased on payment of excise duty from various suppliers like M/s. Ellora Paper Mills and M/s. Padamjee Paper Mills etc., who are the manufacturers of such jumbo rolls. The duty was paid under tariff heading 48.03 Central Excise Tariff Act, 1985 (hereinafter referred to as “the Act, 1985”). The jumbo rolls purchased by the assessee were of a kind normally used for household or sanitary purposes. All that the assessee was doing was to reduce the width to less than 36 cms. On such reduction of the width, the department sought to assess and demand duty under tariff sub-heading 4818.90.

4. For the sake of convenience, we quote herein below tariff headings 48.03 and 48.18.

Heading Sub-Heading Description of Goods Rate of No. No. Duty

1 2 3 4

48.03 4803.00 Toilet or facial tissue stock, towel or napkin 18

stock and similar paper of a kind used for household or sanitary purposes, cellulose lose wadding and webs of cellulose fibres, whether or not creped, crinkled, embossed, perforated, surface-coloured, surface-decorated or printed in rolls of a width exceeding 36 cm. or in rectangular (including square) sheets with at least one side exceeding 36 cm. in unfolded state.

48.18 Toilet paper and similar paper, cellulose wadding or webs of cellulose fibres, of a kind used for household or sanitary purposes, in rolls of a width not exceeding 36 centimeters, or cut to size or shape; handkerchiefs, cleansing tissues, towels, table cloths, serviettes, napkins for babies, tampons, bed sheets and similar household, sanitary or hospital articles, articles of apparel and clothing accessories of paper pulp, paper, cellulose wadding or webs of cellulose fibres.

4818.10 Sanitary towels and tampons, napkins and 13

napkin liners for babies and similar sanitary articles.

4818.90 Other 18

5. On 14.10.1998, proceedings were initiated against the assessee by the department on the ground that cutting and slitting of jumbo rolls of tissue paper falling under heading 48.03 amounted to manufacture. On 12.4.1999, a show-cause notice was issued to the assessee by the department in which it was alleged that the assessee was engaged in the manufacture and storage of tissue paper rolls, napkins and facial tissues, which were liable to be seized and confiscated for non-compliance of the provisions of the said Act. On 12.7.1999, another show-cause notice was issued to the assessee by the department alleging that during the period 1.8.1997 to 14.10.1998, the assessee was engaged in the manufacture of toilet rolls, napkins and facial tissue papers, from jumbo rolls of tissue paper, falling under tariff sub-heading 4818.90 of the Act, 1985.

6. The assessee replied to the said show-cause notices. The assessee submitted that cutting and slitting of jumbo rolls of tissue paper into specific width and different shapes did not amount to manufacture. According to the assessee, there was no change in the characteristics or the end-use of the tissue paper. According to the assessee, such a reduction in the width on the duty-paid jumbo rolls cannot amount to manufacture. The assessee also denied the allegations of the department that they were manufacturing/making tissues of wet type. The assessee also denied the allegations of the department that they were imparting fragrance to the napkins made by them

Click Here to Read the rest of this document

2005 Supreme(SC) 990

Important pointProcess of unwinding, cutting and slitting to sizes of jumbo rolls of tissue paper would not amount to ‘manufacture’ u/s 2(f) of the Central Excise Act.

Cases Referred (7)

Important point
Process of unwinding, cutting and slitting to sizes of jumbo rolls of tissue paper would not amount to ‘manufacture’ u/s 2(f) of the Central Excise Act.