UNION OF INDIA AND ANRversusBABUBHAI NYLCHAND MEHTA

                 UNION OF INDIA AND ANR.                                    A
                            v.
                BABUBHAINYLCHANDMEHTA

                        DECEMBER 18, 1990
                                                                            B
         [N.M. KASLIWAL AND S.C. AGRAWAL, JJ.]

     Central Excises & Salt Act, 1944: Section 2([) and Schedule Item
17(2)-Processed Kraft Paper-Assessability to duty.


     The respondent is the proprietor of a company which carried on C
business of manufacturing Waterproof Kraft Paper. The company
purchased kraft paper as well as other material from the open market
and combined these materials with kraft paper In its factory. The com-
pany claimed that as the manufacturing process was not carried out In
bringing Into existen'Ce various kinds of kraft papers, it was not liable to
pay any excise duty In respect of the products produced In its factory.      D

      The Assistant Collector of Central Excise held that the kraft
paper marketed by the company was bituminised water proof packing
papers which were different and distinct products than the original
kraft paper and hence were liable to payment of excise duty.
                                                                            E

      The company filed a writ petition in the High Court. The teamed
Single Judge held that the process carried on by the company could not
be considered as manufacture of a new commodity with a different
name and different use. On appeal, the Division Bench affirmed the
judgment of the learned Single Judg-..                                 F

      Before this Court it was contended on behalf of the Revenue that
the case was covered by the recent decision of this Court in Laminated
Packings (P) Ltd. v. Collector of Central Excise, Guntur, (1990] Vol. 4
sec 51 in which, In similar circumstances, it was held that by the G
process of lamination of Kraft paper with polyethylene, different goods
came Into being.

     The learned counsel on behalf of the company tried to distinguish
the Laminated Packings case. In the alternative, it was urged that no
evidence was placed on record by the appellant to show that the goods in H

                                  559
    560         SUPREME COURT REPORTS              [1990] Supp. 3 S.C.R.

A question were known in the market having distinct, separate and identi-
    fiable function.

          Allowing the appeal, this Court,

B         HELD: (1) The coating and lamination and other process applied
    by the company in its factory amounted to manufacture, because kraft
    paper did not remain an ordinary kraft paper, and as such it was liable
    to excise duty under Central Excise Tariff Item No. 17(2). [564G I


         Laminated Packings (P) Ltd. v. Collector of Central Excise,
    Guntitr, [1990] Vol. 4 SCC 51, followed.
c
          Standard Packaging Na/lore v. Union of India, [1984] ECR 2639,
    referred to.


          (2) In the facts and circumstances of this case there could be no
D
    controversy that new goods came into being, and laminated papers were
    sold in the market as distinct, separate and different goods. [565B]


          CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3743
    of 1988.
E
         From the Judgment and Order dated 2.12.1987 of the Bombay
    High Court in Appeal No. 414 of 1986.


         M. Chandrashekhar, Additional Solicitor General, P. Parmesh-
F   war, C. V. Rao and Ms. Sushma Suri for the Appellants.

          U.R. Lalit and G.B. Sathe for the Respondent.

          The Judgment of the Court was delivered by

G
          KASLIW AL, J. This appeal by special leave is directed against
    the order of Bombay High Court dated 2.12.1987. 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. com-
    pany) and carries on business of manufacturing Water-proof Kraft
H   Paper. The company manufactures the following products:
                     U.0.1. v. B.N. MEHTA [KASLIWAL, J.]               561

          i) Bitumi.nised Water-proof packing paper                          A
          ii) Polythene-lined kraft packing paper
          iii) Waxed kraft packing paper
          iv) Jute-lined bituminised water-proof packing paper
                                                                             B
          v) Waxed kraft packing paper
          vi) Hessian-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 there-
     after combines these materials with kraft paper in its factory. Till. C
     October 30, 1980 the company classified its products under Item 17(2)
     of the schedule to the _central Excise 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 pay-
     ment of duty as the same did not fall within the expression
     "manufactured" under Section 2(f) of the Act. The company in these D
     circumstances filed classified list. before the Assistant Collector and
    '!:!aimed that as the manufacturing process was not carried out in bring-
     ing 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.
                                                                              E

          The Assistant Collector of Central Excise, Bombay by order
    dated February 16, 1981 held that the kraft paper marketed by the
    company !~ bitumj_nised water_proof packing -paper, polythene-lined
    kraft packing paper etc. and as such were different and distinct pro-
    ducts than the original kraft paper purchased by the company. The F
    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.

          The company aggrieved against the order of the Assistant
     Collector filed a writ petition under Art. 226 of the· Constitution G
     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
                                                                         H


I
    562         SUPREME COURT REPORTS                 [1990] Supp. 3 S.C.R.

A 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 recoveted 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
B 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 affidavit observed as under:

               "The perusal of the affidavit indicates that for manufactur-
               ing Bituminised Waterproof packing paper, kraft paper is
               mounted on a roller and'then it is passed over a tank con-
c              taining liquid bitumen. As the first roll of kraft paper cros-
               ses 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
D              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 at the conclu-
  sion that the process undertaken by the company could not be treated
E as manufacturing a new and different article. According to the High
  Court the conclusion was inescapable that the company did not under-
  take manufacture of different products with different characteristics
  and uses. After quoting item 17(2) of the schedule to the Act the High
  Court observed as under:
F
               "The mere perusal of this item makes it clear that the liabi-
               lity arises in relation to manufacture of paper and for which
               any process is ordinarily carried on with the aid of power. It
               is not in dispute that the respondents carry out the process
               of coating and impregnating with the aid of power, but Shri
G              Sathe, learned counsel appearing on behalf of the respon-
               dents, very rightly submitted that these processes are car-
               ried out not in relation to the manufacture and that being
               the principal requirement of import of levy under Item
               17(2), the mere fact that process of coating and impregnat-
               ing is carried out cannot attract levy of duty. The liability to
H              pay duty arises because of manufacture of paper and it is
                U.0.1. v. B.N. MEHTA IKASLIWAL. J.)              563

           not in dispute that the respondents do not manufacture any   A
           paper but purchase kraft paper from the open market. The
           process carried out by the respondents as such kraft paper
           does not amount to manufacture, and, therefore, Item
           17(2) is not attracted to the work undertaken by the
           respondents".                                                B

Learned Division Bench thus affirmed the judgment of learned Single
Judge and dismissed the appeal.

      We have heard Mr. Krishnamurthy Iyer on behalf of the Union
of India and Mr. U .R. Lalit on behalf of the respondent. Mr. Krish- C
namurthy Iyer submitted that the case is fully covered by a recent
decision of this court in Laminated Packings (P) Ltd. v. Collector of
Central Excise, Guntur, [1990] Vol. 4 SCC 51 in which in similar
circumstances it was held that by process of lamination of Kraft paper
with polyethylene different goods came into being. It was held that D
laminated kraft paper is distinct, separate and different goods known
in the market as such from the kraft paper. The Court did not approve
the dicision of Division Bench of Andhra Pradesh High Court in the
case of Standard Packaging Nallore v. Union of India, [1984] ECR
2635 which was relied on by the Collector of Central Excise, .Guntur
for reaching to the conclusion that the appellant would be eligible to E
claim refund of duty paid by them in this regard.

      Mr. Lalit on the other hand tried to distinguish the above case
andTurther submitted as an alternative argument that even if the case
is covered by the above decision, no evidence was placed on record by
the appellant to show that the goods in question were known in the      F
market as having distinct, separate and identifiable function.

      We have given our careful consideration to the arguments
advanced by learned counsel for both the parties. In our view the
above decision in Laminated Packings (P) Ltd. v. Collector of Central G
Exicse, Guntur, (supra) is an authority directly clinching the issue
involved before us. In the above case the short question for considera-
tion was whether the lamination of duty paid kraft paper with poly
ethylene resulting in polyethylene laminated kraft paper would
amount to 'manufacture' and excisable under law or not. Dealing with
the above question it was observed as under:                            H
    564         SUPREME COURT REPORTS               (1990) Supp. 3 S.C.R.

A              "Lamination, indisputably by the well settled principles of
               excise law, amounts to 'manufacture'. This question, in our
               opinion, is settled by the decisions of this Court, Reference
               may be made to the decision of this Court in Empire
               Industries Ltd. v. Union of India, Reference may also be
               made to the decision of this Court in CCE v. Krishna
B              Carbon Paper Co. We are, therefore, of the opinion that by
               process of lamination of kraft paper with polyethylene dif-
               ferent goods come into being. Laminated kraft paper is
               distinct, separate and different goods known in the market
               as such from the kraft paper.

c                    Counsel for the appellant sought to contend that the
               kraft paper was duty paid goods and there was no change in
               the essential characteristic or the user of the paper after
               lamination. The fact that the duty has been paid on the
               kraft paper is irrelevant for consideration of the issue
               before us. If duty has been paid, then benefit or credit for
D              the duty paid would be available to the appellant under
               Rule 56-A of the Central Excise Rules, 1944".

          It is no doubt correct that in the above case it was also observed
    that manufacture is bringing into being goods as known in the excise
    laws, i.e. to say known in the market as having distinct, separate and
E   identifiable function. On this score in our opinion, there is sufficient
    evidence. On the basis of the above observations it was strenuously
    contended by Mr. Lalit that in the above case there was sufficient
    evidence on record to hold that after manufacture the goods were
    known in the market as having distinct, separate and identifiable func-
    tion but there is no such evidence on record in the case in hand before
F   us.

         We find no force in the above contention. Once we hold that the
  coating and lamination and other process applied by the company in its
  factory amounts to manufacture, new products come into being. It
O does not remain an ordinary kraft paper and as such it is liable to
  excise duty of 40% ad va/orem as provided, under Central Excise
  Tariff Item No. 17g). In the above Laminated PackinRs case it was
  clearly held that by process of lamination of kraft paper with
  polyethylene different goods come into being. Laminated kraft paper
  is distinct, separate and different goods known in the market as such
H from the kraft paper.
                     U.0.1. v. B.N. MEHTA (KASLIWAL, J.]                 565

          We are in agreement with the above view. The entire case before       A
    the Assistant Collector was understood and argued on the basis of
    controversy regarding manufacture. Once it is held that the products
    which come into being are manufactured from kraft paper, then in the
    facts and circumstances of this case there can be no controversy that
    new goods come into being and they are sold in the market as distinct,
                                                                                B
    separate and different goods.

         In the result we allow this appeal, set aside t_he order of the High
    Court and uphold the order of the Assistant Collector. In the facts and
    circumstances of the case the parties shall bear their own costs.

    R.S.S.                                                  Appeal allowed .




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