Holding

Cutting or slitting duty‑paid jumbo rolls of plain tissue paper or aluminium foil into smaller sizes does not constitute "manufacture" under either the first‑principles test or Section 2(1) of the Central Excise Act, 1944.

Summary

The Commissioner of Central Excise challenged Mis. S.R. Tissues Pvt. Ltd. for cutting and slitting duty‑paid jumbo rolls of tissue paper into smaller rolls, napkins and facial tissues, alleging that this constituted "manufacture" under Section 2(f) of the Central Excise Act, 1944 and attracted duty under a different tariff heading. The Tribunal held that the process did not change the character, name or end‑use of the paper and therefore was not manufacture, a view affirmed by the Supreme Court. The Court applied the character/end‑use test, noted that the chapter notes to the Central Excise Tariff do not deem cutting/slitting of tissue paper or aluminium foil as manufacture, and rejected the Commissioner’s reliance on a 180% value‑addition as irrelevant without a change in nature of the product. Consequently, the Court held that cutting/slitting of plain tissue paper or aluminium foil does not amount to manufacture on first principles nor under Section 2(1). The civil appeals filed by the Department were dismissed.

Issues considered

The process of unwinding, cutting and slitting jumbo rolls of tissue paper amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944.
Whether the same process is deemed manufacture under Section 2(1) based on chapter or section notes of the Central Excise Tariff.
The relevance of a 180% value addition in determining manufacture.
The significance of separate tariff headings (48.03 and 48.18) in inferring manufacture.
Whether cutting/slitting of aluminium foil is likewise a manufacture.

Legislation cited

Central Excise Act, 1944s. 2(1), s. 2(f)
Central Excise Tariff Act, 1985

Subjects

manufacturecentral excisecutting and slittingtariff classificationvalue additionSection 2(f)excise dutydownstream producerproduct characterend‑use

Judgment

COMMISSIONER OF CENTRAL EXCISE-I, NEW DELHI A
v.
MIS. S.R. TISSUES PVT. LTD. AND ANR.

AUGUST 5, 2005

[B.P. SINGH AND S.H. KAPADIA, JJ.] B

Central Excise Act, 1944.

Sections 2(f), 35-l (b)-Assessee involved in the process of cutting/
slitting duty paid jumbo rolls of tissue paper into paper rolls, napkins and C
facial tissues-Department alleging such process to be manufacture and
demanding duty on product-Whether such process amounts to manufacture-
Held; process of cutting/slitting of plain tissue paper I aluminium foil into
smaller size does not amount to manufacture and, therefore, no duty payable
on finished product-Central Excise Tariff Act, 1985-Heading no. 48.03
and 48.18. D
Words & Phrases-"Manufacture"-Meaning of in the context of
Central Excise Act, 1944.

Assessee was engaged in the activity of cutting]slitting of jumbo rolls
of tissue paper of width measuring 36 ems. normally used for household E
or sanitary purposes. The jumbo rolls were purchased from manufacturers
I suppliers on payment of excise duty under taritf heading 48.03, Central
Excise Tariff Act, 1985. Department issued show-cause notice and initiated
proceedings against assessee on the ground that cutting]slitting of jumbo
rolls of tissue paper falling under heading 48.03 amounted to manufacture F
and alleged that the assessee was engaged in the manufacture and storage
of tissue paper rolls, napkins and facial tissues and sought to assess and
demand duty under tariff sub-heading 4818.90 of the 1985 Ac:. Assessee
replied to show-cause notice submitting that cutting/slitting of jumbo
rolls of tissue paper into specific width and different shapes did not
amount to manufacture and denied that they were manufacturing wet
G
and fragmented tissues. Commissioner held that assessee was manufacturer
of table napkins, toilet rolls, and ordinary wet and fragmented facial
tissues with distinct brands/trademark and confirmed the demand and
also imposed penalty. Assessee challenged order of Commissioner by
filing an appeal before the Customs, Excise & Gold (Control) Appellate H
355
356 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A Tribunal which was allowed. Tribunal held that cutting/slitting the ~issue
paper to various sizes for use as toilet papers, table napkins or facial
features did not alter the name, character or end-use of the material,
therefor~, the s~id ac~ivity/process did not amount to manufacture, both
on first principles as well as in terms of Section 2 (t) of the 1944 Act. Hence
B these appeals by the Department.

Depal'.tment contended that the activity of cutting/slitting of jumbo
rolls of tissue paper into smaller sizes amounted to 'manufacture' under
Section 2 (t) of the 1944 Act; that on applying the test of character or end-
use, a new product with a distinct character and end-use known to the
C market and to the buyers emerged and, therefore, even on first principles
the process of cutting/slitting amounted to manufacture; that the tribunal
ought to have referred the matter to a larger bench particularly when the
co-ordinate bench of the tribunal had taken a contrary view; that there
was a value addition of 180% in the final product on account of price
D difference between price of jumbo roll and price of final product; and
that when the jumbo roll of tissue paper was subjected to the process of
cutting/slitting/rewinding and packaging, the resµltant product namely
table napkins, facial issues, toilet paper rolls emerged as products of
different varieties and for specific purposes and in the circumstances,
cutting/slitting amounted to "manufacture".
E
Dismissing the appeal, the Court

HELD : 1. The assessee is one of the downstream producers. The
assessee buys duty-paid jumbo rolls. There are different types of papers
namely, tissue paper, craft paper, thermal paper, writing paper,
F 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
boi}ght by the assessee, which undergoes the process of unwinding, cutting/
slitting and packing. It is important to note that th.e characteristics of the
tissue paper are its texture, moisture absorption, feel etc. In other words,
G the characteristics of table napkins, facial tissues and toilet rolls in terms
of textur~, 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 purroses. 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
H
COMMR OF C.E.-1, NEW DELHI v. S.R. TISSUES PVT. LTD. 357

tissues, toilet rolls etc. However, the end-use of the tissue paper in the A
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 B
and facial tissue. 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. Applying the above
tests, it is held that no new product had emerged on winding, cutting/
slitting and packing. The character and the end-use did not undergo any c
change on account of the abovementioned activities and, therefore, there
was no manufacture on first principles. (364-E-H; 365-A, Fl

Brakes India ltd v. Supdt. of Central Excise & Others, reported in
(1997] IO SCC 717, relied on.
D
2 Similarly, there was no deemed manufacture under section 2 (I)
of the Central Excise Act, I 944. In order to make section 2(1) applicable,
the process of cutting/slitting is required to be recognized by the legislat~re
as a manufacture under the chapt~r note or the section note to chapter
48. For example, the cutting and slitting of thermal paper is deemed to E
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 or aluminium foil has not been treated as a manufacture by
the legislature. In the circumstances, section 2(1) of the Act has no
application. The characteristics of the tissue paper in the jumbo roll are F
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(1) of the Act was also not
applicable to the facts of the case. (365-G-H; 366-A, D-E] G
Shyam Oil Cake ltd v. Collector of Central Excise, Jaipur, reported
in (2004) 174 ELT 145, relied on.

3.1. Therefore, where the goods are specified in the schedule of the
Act, they are excisable goods but whether such goods can be subjected H
358 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A to duty would depend on whether they were produced or manufactured
by the assessee on whom duty is proposed to be levied. Consequently, it
is always open to an assessee to prove that even though the goods in which
he was carrying on his business were excisable as they are mentioned in
the schedule, they could not be subjected to duty as they were not goods
B either because they were not manufactured or having been produced or
manufactured, they were not marketed or capable of being marketed.
[366-F-G)

Moti Laminates Pvt. Ltd. v. Collector of Central Excise, Ahmedabad,
(1995) 76 ELT 241, relied on.
c •
3.2. 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 au(omatically constituted
D manufacture. In the present case, merely because tissue paper in the
jumbo roll of the size exceeding 36 ems. fell in one entry and the toilet
roll of a width not exceeding 36 ems. fell in a different entry, it cann~t
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
E above tests would also apply to cutting and slitting of jumbo rolls of
aluminium foils. [367-D-G)

Union ofIndia v. J.G. Glass Industries Ltd. reported in (1998) 97 ELT
5, relied on.

F 4. The commissioner as an adjudicating authority has held that
there was a value addition of 180%. 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. As stated above, there is no change in the
G 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
tissue etc. Therefore, without such change in the nature or characteristics
of the tissue paper, value addition on account of transport charges, sales
!ax, distribution and selling expenses and trading margin cannot be an
H indicia to decide what is manufacture. Thus, value addition without any
COMMR. OF C.E.-1. NEW DELHI v. S.R. TISSUES PVT. LTD. 359

change in the name, character or end-use by mere cutting or slitting of A
jumbo rolls cannot constitute criteria to decide what is "manufacture".
Therefore, value addition based on price difference only without any
change in the name, character or end-use is a dangerous criteria to be
applied in judging what constitutes "manufacture". Lastly, the end-use
in both the entries 4803 & 4818.90 is the same, namely, for sanitary or B
household purposes. In the circumstances, value addition criteria as applied
by the commissioner is erroneous. [367-G; 368-A-FJ

Decorative Laminates {India) Pvt. Ltd. v. Col/ectc• a/Central Excise.
Bangalore. reported in (1996) 86 ELT 186, relied on.

5. The process of slitting/cutting of jumbo roll of plain tissue paper/
c
aluminium foil into smaller size will not amount to "manufacture" on first
principles as well as under section 2(1) of the Central Excise Act, 1944.

Computer Graphics Pvt Ltd v. Union of India reported in (1991) 52
ELT 491 (Mad.), approved. D
Foils India Laminates Pvt. Ltd. v. Commissioner of Central Excise,
Jaipur. (1999) 111 ELT 728, overruled.

6. As regards the manufacture of wet tissues and fragranted tissues,
the matter is remitted to the commissioner to ascertain whether the ' E
assessee has the requisite infrastructure, facility, machines etc. for
manufacturing fragranted and wet tissues and, if so, whether the process
amounts to "manufacture". [369-B-DJ

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5293-5294
OF 2001. F
.From the Judgment and Order dated 28.9.2000 and 10.11.2000 of the
Central Excise, Customs and Gold (Control) Appellate Tribunal, New Delhi
in F.O. No. 518-519/2000-C in A. No. E/839-840 of 2000-C.

WITH G
C.A. Nos. 8436-38/2001, 194-195 and 6535/2002, 9274-9275/2003,
4682, 5709-5710/2004 and 2408-2409, 3001 of 2005.

Rajiv Dutta, Additional Solicitor General Joseph Vellapally, Ms. Shilpa
Singh, T.A.Khan, Raghunath Kapoor, P. Parmeswaran, B.K. Prassd, V. H
360 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A Lakshmikumaran, Alok Yadav, V. Balachandran, Alok Yadav,Manmohan
Sharma, Pramod B. Agarwala, Ms. Praveena Gautam, K. R. Sasiprabhu,
Ramesh Singh, Ms. Shalini Gupta and Rajesh Kumar for the appearing
parties.

The Judgment of the Court was delivered by
B
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 ('(or short "the said Act") is - whether the process of
unwinding, cutting and slitting to sizes of jumbo rolls of tissue paper would
c amount to "manufacture" on first principles or under section 2(t) of the said
Act?

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.
5293-5394 of 2001.
D
The assessee was engaged in the activity of cutting/slitting of jumbo
rolls of tissue paper of a width exceeding 36 ems. The jumbo rolls were
purchased on payment of excise duty from various suppliers like M/s. Ellora
Paper Mills and Mis. Padamjee Paper Mills etc., who are the manufacturers
of such jumbo rolls. The duty was paid under tariff heading 48.03 Central
E Excise Tariff Act, 1985 (hereinafter referred to as "the Act, 1985"). The
jumbo rolls purchased by 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 ems. On such reduction of the width, the department
sought to assess and demand duty under tariff sub-heading 4818.90.
F
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
G 1 2 3 4
48.03 4803.00 Toilet or facial tissue stock, towel or 18%
napkin stock and similar papr of a kind
used for household or sanitary purposes,
cellulose wadding and webs of cellulose
H fibres, whether or not creped, crinkled,
COMMR. OF C.E.-1, NEW DELfll v. S.R. TISSUES PVT. LTD. [KAPADIA, J.] 361

embossed, perforated, surface-coloured, A
surface-dee.orated 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 B
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, c
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.
D
4818.10 Sanitary towels and tampons, napkins 13%
and napkin liners for babies and similar
sanitary articles.

4818.90 Other 18%
E
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 F
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 l.8.1997 to 14.10.1998, the
assessee was engaged in the manufacture of toilet rolls, napkins and facial
tissue paper, from jumbo rolls of tissue paper, falling under tariff sub-heading G
4818.90 of the Act, 1985 .
•
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 H
362 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.
..
/ ·A tissue paper. According to the assessee, such 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 tisssues of wet type. The assessee also denied the allegations of the
department that they were imparting fragrance to the napkins made by them.
B The assessee pointed out that there was no allegation in the show-cause notice
that wet tissues or tissues having fragrance were being made by the assessee.

-
By order dated 22.11.1999, the commissioner adjudicated the above
show-cause notices and confirmed the demands. He also imposed a penalty.
It was held that the assessee was the manufacturer of table napkins, toilet rolls
C and ordinary wet and fragranted facial tissues with distinct brands/trademark.
Accordingly, the commissioner confirmed the aforestated demand.

Aggrieved by the order 22.11.1999, the assessee filed an appeal before
the Customs, Excise & Gold (Control) Appellate .Tribunal, New Delhi
D · (hereinafter referred to as "the Tribunal")
By judgment and order dated 10.11.2000, the appeal preferred by the
assessee was al19wed. It was held that the assessee was purchasing du!¥-paid
jumbo rolls of tissue paper, that, thereafter they used to cut/slit the tissue
paper to various sizes suitable for use as toilet papers, table napkins or facial
E tissues and that this activity did not alter the name, character or end-use of
the material and, therefore, the said activity/process did not amount to
manufacture, both on first principles as well as in tenns of section 2(f) of
the said Act. In this connection, the tribunal placed reliance on the judgment
of the Madras High Court in the case of Computer Graphics Pvt. Ltd. v.
Union of India reported in (1991) 52 EL T 491. It was further held by the
F tribunal that the mere existence of a separate tariff entry (48.18) for the tissne
paper product of a smaller size obtained by cutting/slitting of jumbo rolls of
tissue paper (48.03) would not necessarily lead to inference that such activity/
process on the duty-paid jumbo rolls of tissue paper amounted to manufacture.
Moreover, there was no section or chapter note in the tariff defining the
G activity of cutting/slitting of tissue paper as a process amounting to manufacture
and, therefore, section 2(f) of the said Act was not applicable. On facts, th~
tribunal found that the assessee used to purchase jumbo rolls from the market
..
and they used to cut and slit the same to smaller sizes ofrequired dimensions
suitably in use as table napkins, facial tissues etc. It was not disputed before
the tribunal that the duty paid jumbo rolls of tissue paper were bought by
H
COMMR. OF C.E.-1, NEW DELHI v. S.R. TISSUES PVT. LTD. [KAPADIA, J.J 363
' the assessee from Mis Ellora Paper Mills and Mis Padamjee Paper Mills Etc. A
It is also not in dispute before the tribunal that the jumbo rolls of tissue paper
were classifiable under tariff heading 48.03. It was also not disputed before
the tribunal that the table napkins and facial tissues obtained by cutting and
slitting of jumbo rolls fell in tariff heading 48.18. The only dispute before
the tribunal was - whether conversion of duty-paid jumbo rolls of tissue paper B
into table napkins and facial tissues by the process of unwinding, cutting &
slitting and packing constituted "manufacture". The tribunal held that the
above process of cutting/slitting of jumbo rolls of tissue paper into facial
tissues and table napkins did not constitute "manufacture"; that there was no
section note/chapter note in chapter 48 to bring in the activity of slitting and
cutting of jumbo rolls of tissue paper into smaller sizes within the ambit of c
section 2(f) of the said Act; that a mere existence of a separate tariff entry
48.18 would not, by itself, make facial tissues and table napkins excisable.
The tribunal further held that by the said activity of slitting and cutting, no
new commodity with different name, character, end-use or commercial
identity emerged and, therefore, there was no "manufacture' both in terms D
of first principles as well as in terms of section 2(f) of the said Act.
Accordingly, the appeals filed by the assessee stood allowed. Hence, these
civil appeals.

- Mr. Dutta, learned senior counsel appearing on behalf of the department
submitted that the activity of cutting/slitting of jumbo rolls of tissue paper
into smaller sizes amounted to "manufacture" under section 2(f) of the said
Act. It was further submitted that the definition of the word "manufacture"
E

in section 2(f) was inclusive and, therefore, the normal meaning of the terms
could be ascertained for judicial interpretation. He submitted that on cutting/
slitting of jumbo rolls, several different products emerged, namely, table F
napkins, toilet rolls, facial tissues etc. and, therefore, cutting/slitting constituted
"manufacture" and, therefore, the department was right in raising the demand
under sub-heading 4818.90. It was urged that in the present case, the test of
character or end-use have to be applied and on applying the said test one fmds
that on cutting/slitting of the tissue paper from the jumbo rolls, a new product
with a distinct character and with the distinct end-use known to the market G
and to the buyers had emerged and, therefore, even on first principles the
process of cutting/slitting amounted to manufacture. It was submitted that in
the present case, the tribunal ought to have referred the matter to the larger
bench particularly when the co-ordinate bench of the tribunal in the case of
Foils India Laminations Pvt. Ltd v. Commissioner of Central Excise, Jaipur, H
364 SUPREME COURT REPORTS [2005) SUPP. 2 S.C.R.

A reported in (1999) 111 EL T 728 had taken a contra view. Lastly, it was urged
on behalf of the department that the tribunal had ignored the findings of the
commissioner that there was a value addition of 180% in the final product
on account of the price difference between price of the jumbo roll and the
price of the final product; that when the jumbo roll of tissue paper was
B subjected to the process of cutting/slitting, rewinding and packing, the
resultant products namely, table napkins, facial tissues, toilet paper rolls
emerged as products of different varieties and for specific purposes and in
the circumstances, cutting/slitting amounted to "manufacture''.

At the outset, it may be pointed out that according to the commissioner,
....
C the assessee on its own admission was engaged in the manufacture of various
items from tissue paper like table napkins, toilet rolls and dry, wet and
fragranted facial tissues. However, in their counter affidavit, the assessee has
stated that they are not having any infrastructure to carry out the process of
making wet and fragranted type of facial tissues. This issue has not been
D examined by the tribunal. Therefore, we are confining our judgment only to
the question to conversion of jumbo rolls of tissue paper into tissue paper
napkins, tissue rolls, toilet rolls and facial tissues excluding wet and
fragranted facial tissues.

E
At the outset, we may point out that the assessee is one of the
downstream producers. The assessee buys duty-paid jumbo rolls from Mis
Ellora Paper Mills and Mis Padamjee Paper Mills. There are different type
·-
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
subject to any treatment. The jumbo rolls of such tissue papers are bought
by the assessee, which undergoes the process of unwinding, cutting/slitting
F
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 cannot be conveniently used for household or for
G 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-used of the
toilet rolls, the table napkins and the facial tissues remains the same, namely,
H for household or sanitary use. The predominant test in such a case is whether
COMMR. OF C.E.-1, NEW DELHI v. S.R. TISSUES PVT. LTD. [KAPADIA, l.l 365

the characteristics of the tissue paper in the jumbo roll enumerated above is A
different from the characteristics of the tissue paper in the form of table
napkin, toilet roU 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 roUs and in the facial tissues. B

In the case of Brakes India ltd v. Supdt. of Central Excise & Others,
. reported.in [!997] 10 Sec 717, this Court has very aptly brought out the
test of character or end-use by observing as foUows :

"lf by a process, a change is effected in a product, which was C
not there previously, and which change facilitates the utility of the
.. product for which it is meant, then the process is not a simple
process, but a process incidental or ancillary to the completion of
a manufactured product. It will not be safe solely to go by a test as
to whether the co!'lmodity after the change takes in a new name, D
though in stated circumstances, it may be useful to resort to it. This
may prove to be deceptive sometimes, for it will suit the manufacturer
to retain the same name to the end product also. The 'character or
use' test has been given due importance by pronouncements of the
Supreme Court. When adopting a particular process, if a
transformation takes place, which makes the product have a character E
and use of its own, which it did not bear earlier, then the process
would amount to manufacture under section 2(!) irrespective of the
fact whether there has been a single process or have been several
processes."
F
Applying the above tests, we hold that 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(!) of the G
, .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 H
366 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A as amounting to manufacture in the case of photographic goods. However,
slitting and cutting of toilet tissue paper or aluminium foil has not been treated
as a manufacture by the legislature. In the circumstances, section 2(t) of the
Act has no application.

In the case Shyam Oil Cake Ltd. v. Collector of Central Excise, Jaipur
B reported in (2004) 174 ELT 145, this Court held that if a process is indicated
in a tariff entry without specifying that the same amounts to manufacture then
indication of such process is merely for identifying the product. For a
deeming provision to come into play, it must be specifically stated that a
particular process amounts to manufacture and in its absence, the commodity v

c would not become excisable merely because a separate tariff item exists in
respect of that commodity. In that matter, the question which arose for
determination was - whether refining of edible vegetable oil, as a process,
constituted "manufacture". It was held that the product even after refining
continued to rerJJ.ain an edible vegetable oil. It was further held that neither
'-·
in the section note nor in the chapter note, refining as a process was indicated
D as amounting to manufacture. In the circumstances, it was held that refining
of edible vegetable oil did not amount to "manufacture". In our view, the ratio
of the said judgment is squarely applicable to the facts of the present case.
As stated above, the characteristics of the tissue paper in the jumbo roll are
not different from the characteristics of the tissue paper in the toilet rolls,
E 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(t) of the Act was also not applicable
to the facts of this case.

In the case of Moti Laminates Pvt. Ltd. v. Collector of Central Excise,
F Ahmedabad reported in (l 995) 76 EL T 24 l, this Court held that section 3
of the Act levies duty on all excisable goods mentioned in the schedule
provided they are produced and manufactured. Therefore, where the goods
are specified in the schedule, they are excisable goods but whether such
goods can be subjected to duty would depend on whether they were produced
or manufactured by the assessee on whom duty is proposed to be levied.
G Consequently, it is always open to an assessee to prove that even though the
goods in which he was carrying on his business were excisable as they are
mentioned in the schedule, they could not be' subjected to duty as they were
not goods either because they wer~ not manufactured or having been
produced or manufactured, they were not marketed or capable of being
H marketed. ~
COMMR. OF C.E.-1, NEW DELHI v. S.R. TISSUES PVT. LTD. [KAPADIA. J.] 367

In the case of Union of India v. J.G. Glass Industries Ltd. reported in A
(1998) 97 ELT 5, this Court has succinctly drawn a distinction between
manufacture vis-a-vis process and in the course of the judgment, it has been
observed as follows :

"I6. On an analysis of the aforesaid rulings, a two-fold test emerges B
for deciding whether the process is that of "manufacture". First,
whether by the said process a different commercial commodity
comes into existence or whether the identity of the original commodity
ceases to exist; secondly, whether the commodity which was already
in existence will serve no purpose but for the said process. Jn other
words, whether the commodity already in existence will be of no C
commercial use but for the said process. In the present case, the plain
bottles are themselves commercial commodities and can be sold and
used as such. By the process of printing_ names or logos on the
bottles, the basic character of the commodity does not change. They
continue to be bottles. It cannot be said that but for the process of
D
printing, the bottles will serve no purposes or are of no commercial
use."

Applying the above tests to the facts of the present case, we hold that
1nere 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 E
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 ems. fell in one entry and the toilet roll of a width not exceeding F
36 ems. 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 aluminim foils (which item is the subject matter of some of the civil G
appeals herein).

Lastly, in the instant case, the commissioner as an adjudicating authority
\\'11> 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 H
368 SUPREME COURT REPORTS [2005] SUPP. 2 S.C.R.

A 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 I
a process is certainly a relevant criteria to decide as to what constitutes 1
"manufacture". Such value addition shouJq:_be on account of change in the
B 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
C 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".

In the case of Decorative Laminates (India) Pvt. Ltd' ~- Collector of
D
Central Excise, Bangalore reported in (1996) 86 EL T 186, this Court held
that the process of application of phenol resin on duty paid plywood under
I 00% heat amounts to manufacture and in that connection observed that
value addition and separate use are also relevant factors which the Courts
should consider in deciding the applicability of section 2(f) of the Act. ·
E Therefore, value addition based on price difference only without any change
in the name, character or end-use is a dangerous criteria to be applied in
judging what constitutes "manufacture". Lastly, the end-use in both the
entries 4803 & 4818.90 is the same, namely, for sanitary or household
purposes. In the circumstances, value addition criteria as applied by the
commissioner is erroneous.
F
In the present case, learned counsel for the department has vehemently
urged that the tribunal should have referred the dispute to a larger bench
particularly in view of the fact that the co-ordinate bench of the tribunal in ·
the case of Foils India Laminates (supra) had held that the pro~ess of cutting/
G slitting of jumbo rolls of films into flats constituted manufacture. We do not
find any merit in this argument. While deciding the case of Foils India
Lamintes (supra), the tribunal has failed to consider the clarifications issued
by the central board dated 5.9.1988 as well as the judgment of the Madras
High Court in the case of Computer Graphics Pvt. Ltd. v. Union of India
reported in (1991) 52 ELT 491 (Mad.), which had taken the view that the
H
COMMR. OF C.E.-1, NEW DELHI v. S.R. TISSUES PVT. LTD. (KAPADIA, J.] 369

process of cutting of jumbo roll into the smaller sizes of flats did not amount A
the manufacture. Therefore, in the present case, the tribunal was right in not
following the judgment in the case of Foils India Laminates (supra).

We reiterate that the departtnent is right in its contentions that the
tribunal has not examined the question as to whether the assessee had the B
requisite machinery, infrastructure and facility to manufacture wet tissues and
fragranted tissues and, therefore, we remit this question to the commissioner
to be decided afresh in accordance with law, after giving opportunity to the
assessee who has before us that they do not possess such facility.

We express no opinion on we:t and fragranted facial tissues." c
We accordingly hold that the process of slitting/cutting of jumbo roll
of plain tissue paper/aluminium foil into smaller size will not amount to
"manufacture" on first principles as well as under section 2(1) of the said Act.
As regards the manufacture of wet tissues and fragranted tissues, the matter
is remitted to the commissioner to ascertain whether the assessee has the
D
requisite infrastructure, facility, machines etc. for manufacture fragranted and
wet tissues and, if so, whether the process amounts to "manufacture".

Subject to above, civil appeals filed by the departtnent are dismissed,
with no order as to costs. E
A.K.T. Appeal dismissed.