P.C. Jain, Member (T)

1. Briefly stated the facts of the case are as follows:--

1.1 The appellants herein are manufacturers of various types of speciality paper for wrapping the same. They also manufacture Wrapping Paper described by them as Mill Wrapper. Part of the Mill Wrapper is utilised by them in wrapping them varieties of papers manufactured by them. Part of the Mill Paper is sent to an outside job-worker for poly-coating the same and receiving back the poly-coated rolls of Mill Wrapper for ultimate use in wrapping the other varieties of paper. By sending the goods for poly-coating the plain Mill Wrapper, to a job-worker, the appellants had taken the permission of both the Assistant Commissioner having jurisdiction over the appellants factory as also of the Assistant Commissioner having jurisdiction over the job workers factory. The relevant permission has been shown to us in the course of personal hearing by the learned Advocate for the appellants.

1.2. In their classification list, the appellants had claimed the benefit of Notification No. 217/86 dated 2.4.86 (as amended) in respect of both the Mill Wrapper and Poly-coated Mill Wrapper falling respectively under Tariff Sub-heading 4805.90 and 4811.30. They had also mentioned in the Remarks Column of the Classification List that process of ploy-coating with plastics will be done by job-worker, for which as we have seen above, due permission was taken from the concerned Assistant Commissioner.

1.3. Thereafter, a show cause notice dated 26.4.89 was issued by the Revenue to the appellants herein as to why the exemption claimed under Notification No. 217/86 dated 2.4.86 be not denied to them, inasmuch as the appellants are getting their product processed from another outside factory, i.e. poly-coating of Mill Wrapper, which is tantamount to manufacture of different commodities attracting different sub-headings/headings and thereby, the conditions of the said Notification No. 217/86 are not satisfied. In other words, the Revenue has alleged that Ploy-coated Paper has not been manufactured by the appellants and therefore, it cannot be said to have been captively used for wrapping the other varieties of papers.

2. On adjudication, the allegations of the Revenue in the show cause notice were confirmed and the benefit of Notification No. 217/86 has been denied to the appellants. The appellants did not succeed in appeal before the lower appellate authority. Hence this appeal before us.

3. Learned Advocate, Shri J.P. Khaitan has submitted that due permission for sending plain Mill Wrapper to an outside job-worker was taken from the Assistant Commissioner in charge of the appellants factory as well as from the Assistant Commissioner in charge of the job-workers factory i.e., M/s. Guardian Plastic Coat Limited. He also submits that rolls of plain Mill Wrapper are going outside and in that very form after due poly-coating thereof, the rolls of poly-coated Mill Wrapper are being received back. He submits that rolls of poly-coated mill Wrapper by themselves are not marketable products and they cannot be sold as it is. They have to be slit and cut before utilising them for wrapping the other varieties of papers. This process of slitting and cutting of the poly-coated rolls of paper is called an incidental or ancillary process to the completion of the manufactured product i.e. poly-coated paper. From that view, he submits that poly-coating of paper manufactured has been completed in the appellants factory and therefore, the benefit of Notification No. 217/86-CE would be clearly applicable to them.

4. Finding of lower authorities, submits the learned Advocate, in respect of discarding the process of slitting and cutting undertaken by the appellants in their own factory, as a process not amounting to manufacture, is not correct, in the peculiar facts and circumstances of the case because the poly-coated roll of paper cannot be used as such for wrapping the variety of papers undertaken by the appellants.

5. In coming to the aforesaid finding, lower appellate authority has relied upon the Tribunals decision in the case of Purolator India Ltd. v. Collector of Central Excise reported in . Learned Advocate submits that the facts and controversy in that case were different from the facts of this case. He points out that in that case, the appellants were engaged in the manufacture of resin impregnated filter paper manufactured out of base filter paper. The appellants therein were purchasing base filter paper and impregnating the same with resins under desired concentration. After drying the resin impregnated paper, it was rewound. Thereafter, the impregnated papers were cut into requisite sizes on a slit machine. Bulk of the impregnated filter paper was sold after slitting, to the customers of the appellants in that case. In some cases, the impregnated filter papers were subjected to further conversion by way of folding on a pleating machine. The process of pleating is similar to the process of corrugating of craft paper. The pleated papers were cut to convenient sizes which facilitated the packing for avoiding damage during transit. It was this pleating papers which were sought to be charged to duty as an article of paper. It is in that context, learned Advocate submits that it was held that pleating of paper was not a new manufacture and therefore, not liable to duty. In the present case, he submits that only poly-coated paper on rolls had been manufactured in the job-workers premises. But poly-coated paper on rolls could not be used as such for wrapping the other varieties of papers for which it was essentially aimed at. It could be used only after slitting and cutting and in that context, a plea was taken that the process of cutting and slitting is a process incidental and ancillary to the completion of the poly-coated paper, which is undertaken by the appellants in their own factory. He, therefore, submits that in the aforesaid view, benefit of Notification No. 217/86-CE, should be made available to the appellants.

6. As an alternative plea, he submits that even if it is assumed that poly-coated paper has been manufactured earlier at the job-workers premises and the benefit of Notification No. 217/86 would not be available to the appellants herein, he points out that in the facts and circumstances of the case, the benefit of Notification No. 214/86-CE cannot be denied to the appellants inasmuch as he had followed the procedure duly by taking the permission from both the Assistant Commissioners, that is already brought on record, he, therefore, prays for allowing the appeal.

7. Opposing the contentions, learned J.D.R. Shri R.K. Roy, so far as the question and application of Notification No. 217/86 is concerned, reiterates the findings of the lower authorities as already set out above.

8. As regards the benefit of Notification No. 214/86-CE, learned J.D.R. submits that the benefit of this Notification has not been claimed by the appellants in their classification list and therefore, this was not the subject matter of the show cause notice and consequently, the lower authorities have not discussed the same.

9. He, therefore, prays for dismissing the appeal or for remanding it in case the Bench feels that the matter for benefit of Notification No. 214/86-CE needs to be examined by the lower authorities.

10. We have carefully considered the submissions of both sides. We observe that the lower appellate authoritys findings to the effect that the benefit of Notification No. 217/86-CE is not available to the appellants in the present case, forget the process of manufacture of the poly-coated paper in the form in which it is used as a wrapping paper. The authorities below have treated the poly-coated rolls, rolled around a metal core as a manufacture of poly-coated paper complete in itself. But this to our mind, is not really relevant so far as the benefit of Notification No. 217/86-CE is concerned because the poly-coated paper, rolled around a metal core, cannot as such be used for wrapping the other varieties of papers in the manner in which those other varieties have actually been cleared by the appellants. This is so because the other variety of papers are being cleared by the appellants only in the sheet form and therefore, the wrapper also has to be in the sheet form. When Notification No. 217/86-CE speaks of captive use, we have to see the actual use in which the input has to be put to use for further manufacture and clearance of the final product. We, therefore, hold that as rightly pointed out by the learned Advocate, incidental and ancillary process of completion of manufactured product i.e. poly-coated paper has taken place in the appellants factory and therefore, we would also like to further say that poly-coated paper has been fully manufactured in the appellants factory, which has been captively utilised in the manufacture of other varieties of paper by way of wrapping the latter. In view of the aforesaid finding, the benefit of Notification No. 217/86-CE cannot be denied to the appellants. Consequential, we set aside the impugned Order and allow the appeal with consequently relief to the appellants. In view of our finding above, we need not go into the controversy, whether Notification No. 214/86-CE is available to the appellants or not.

Pronounced and dictated in the open court.