ivil Appeal No 3474 of 1988
From the Judgment and Order dated 1051988 of the Customs Excise and Gold Control Appellate Tribunal New Delhi in Appeal No E6285 C Harish N Salve Mrs M Sud Ms Aruna Jain and Praveen Kumar for the Appellant
B Dutta Additional Solicitor General TVSN Chari and P Parmeshwaran for the Respondent 894 The Judgment of the Court was delivered by OJHA J
This appeal under section 35L of the hereinafter referred to as the Act has been preferred against the order dated June 28 1988 of the Customs Excise and Gold Control Appellate Tribunal New Delhi
The appellant carries on the business of manufacture and sale of paper
On the plea that in the manufacture of paper the appellant uses paper cores exemp tion from payment of excise on such paper cores was claimed by it on the basis of a Notification No 20179 dated June 4 1979 as amended by Notification No 10582 dated February 28 1982 hereinafter referred to as the Notification The Assistant Collector Central Excise rejected the claim of the appellant but its claim on appeal as regards exemption from duty on paper cores was allowed by the Appellate Col lector
Aggrieved by that order the Collector of Central Excise Meerut preferred the appeal in which the order which is the subjectmatter of the present appeal was passed
The Notification on the basis of which exemption was claimed by the appellant inter alia provides the Central Government hereby exempts all excisable goods hereinafter referred as the said goods on which the duty of excise is leviable and in the manufacture of which any goods fall ing under Item No 68 of the First Schedule to the 1 of 1944 have been used as raw materials or component parts hereinafter referred as the inputs from so much of the duty of excise leviable thereon as is equivalent to the duty of excise already paid on the inputs As is apparent even from the order of the Tribunal the details of the use of paper cores in the manufacture of paper as set out by the appellant on the basis whereof the exemption was claimed by it read as hereunder Paper cores Paper cores are used in paper mill on re winding and cutting machines
The full width of paper manufactured on paper machine is cut in different sizes of reel and sheets according to customer s requirement
To cut the parent roll of paper manufactured on paper machine which is wound on steel shell into small reels suitable for cutter machine the paper is re wound on paper cores  fitted on a shaft on re winding machine
The reels thus re winded on paper cores can be easily cut into sheets on cutter machine into re quired size or sent to customers as 895 reels as such there is no other use of paper cores except their use in re winding and cutting machine in paper mills
On the basis of the details aforesaid the case of the appel lant was that the paper cores constituted component parts within the meaning of the Notification entitling it to the exemption granted by the said Notification
The case of the respondent on the other hand was that paper cores were really used by the appellant as packing material after the paper had already been manufactured for taking it to the market and did not constitute component parts of paper
Before dealing with respective submissions made by learned counsel for the parties it may be pointed out that it is not in dispute that the excise duty was payable at the relevant time separately both on paper and paper core under different tariff items of the First Schedule to the Act and it has also not been disputed by the respondent that if paper core fell under the term component parts the appellant would be entitled to the exemption as claimed by it and contem plated by the Notification
The short question which there fore arises for consideration in the instant appeal is whether paper core is used in the manufacture of paper as component part
Even though the term component parts has not been defined either by the Act or by the Notification the term manufacture has been defined in section 2f of the Act
This definition inter alia contemplates that manufacture includes any process incidental or ancillary to the completion of a manufactured product
Section 3 of the Act which is the charging section contemplates levy and collection of duty of excise on all excisable goods
The First Schedule to the Act specifies the excisable goods under various tariff items
In the absence of any definition of the term component parts it is permissible to refer to the dictionary meaning of the word component
According to the Webster Comprehensive Dictionary International Edition the word component inter alia means a constitutent part
The term manufacture as already indicated above accord ing to its definition in the Act includes any process inci dental or ancillary to the completion of manufactured product
In this context what has to be considered is wheth er in the manufacture of paper paper core is used as a constituent part and is necessary to be used in any process incidental or ancillary to the completion of a manufactured product namely paper in the instant case
In Ms JK Cotton Spinning  Weaving Mills Co Ltd vs Sales Tax Officer Kanpur and Another 1965 1 SCR Page 900 while dealing with the expression in the manufacture of goods used in section 83b of the Central Sales Tax Act 1965 and Rule 13 framed 896 under the Act it was held that the said expression would normally encompass the entire process carried on by the dealer of converting raw materials into finished goods
Where any particular process is so integrally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be commercially inexpedient goods required in that process would in our judgment fall Within the expression
 It was further held In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may even if theoreti cally possible be commercially inexpedient goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment Emphasis supplied In Bhor Industries Ltd Bombay vs Collector of Central Excise Bombay 1989 1 SCC Page 602 while dealing with excise duty it was held Therefore the first principle that emerges is that excise was a duty on goods as speci fied in the schedule
In order to be goods an article must be something which can ordinarily come to the market and is brought for sale and must be known to the market as such
There fore the marketability in the sense that the goods are known in the market or are capable of being sold and purchased in the market is essential
 It is in this background that the use of paper core in the process of manufacture of paper has to be considered
If it is found that the use of paper core is necessary in any process incidental or ancillary to the completion of paper as marketable goods and it would consequently be commercial ly inexpedient to sell paper without the use of paper core it would certainly be a constituent part of paper and would thus fall within the purview of the term component parts used in the Notification
This takes us to the process of manufacture of paper
The process of paper manufacture is to be found at pages 230 to 235 of Part 17 of Encyclopaedia Britannica
The process of paper manufacture by paper making machine is contained at pages 232 onwards
After referring to the various stages of manufacture of paper it is stated After the drying comes the calendering and there are usually two or more sets or stacks of calendering rolls according to the grade of surface required
These calenders consist of vertical stacks of chilled iron rolls generally five 897 in a stack which revolve on one another and some of which are bored for heating by steam pressure is applied to them at will by ad justing levers at the top of each stack
Finally the paper passes to cooling rolls where the paper can be cooled by water spray if necessary and is then wound on to a reel
 Thereafter at page 234 it is stated Paper though made in the roll on the ma chine is usually sold in the form of sheets
A number of reels of paper on their spindles mounted in a stack are fed as a pile of webs between two rollers a series of revolv ing knives slits them longitudinally as they emerge from between the rollers in effect into strips which are cut again transversely by the scissors action of a movable upper knife working periodically against a lower fixed knife
The cut sheets fall on to an endless felt for stacking
 At the bottom of the same page it is stated Paper is sold in sheets of different sizes and is made up into reams containing from 480 to 5 16 sheets in Great Britain 500 in the United States these sizes correspond to different trade names as foolscap demy royal etc
 It is thus apparent that paper is made 1 in the form of rolls and 2 in the form of sheets and the paper which is sold in the form of sheets is cut in desired sizes by taking recourse to the process referred to above
Chapter XIII of the Story of Papermaking by Edwin Suter meister 1954 Edition contains the process known as calender ing and finishing
At pages 183 and 184 it is stated The paper from the machine no matter what its finish goes next to the reels which form large rolls the full width of the machine
The reels are so arranged that when one cylinder is full another can take its place while the paper machine is running continuously
The full cylinder is then rewound at higher speed so that it may again be ready when needed by the paper machine
On rewinding the paper is trimmed on the edges and if desired is slit into any number 898 of narrower rolls 
The cores on which the paper is wound will depend to some extent on what happens to the paper next
If it is delivered to the customer in rolls as it comes from the rewinder the cores are apt to be of heavy board stock wound and pasted on a mandrel if the rolls of paper pass to another part of the same plant for further treatment the cores are likely to be of iron pipe which can be used over and over
 With regard to the use of roll paper it is stated at page 185 Roll paper is very widely used in many lines of work
Newspapers are printed cut and folded direct from rolls each of which may weigh 1400 pounds or more much craft paper is sold to be used directly from the roll in wrapping goods while tremendous quantities are used to feed the machines making paper bags
Paper for the conventional coating operations is delivered to the coating plant in roll form and considerable quantities of white paper are printed continuously from rolls
These are only a few of the more obvi ous uses of roll paper
All roll paper must reach the consumer in perfect condition if it is to be of the great est use
It must be carefully wrapped and the ends of the rolls protected by stout heads to keep edges of the paper from being injured
 As regards paper which is to be used in sheet form it is stated at pages 190 and 191 Paper which is to be used in sheet form may be so prepared by passing directly from the reel stand of the paper machine to a cutter layboy and sheet counter in line with the machine and attended by the paper machine crew
This system is used for coarse papers which do not need sorting and it is common on machines which run off pulp for chemical or papermaking use
As a more common alternative the rolls go to independent cutters from the rewinders or the supercalenders according to the finish the final paper is to have
The rolls are placed on reel stands which are constructed to hold up to twelve or more
Any one of these may be cut singly or all may be cut together as desired
From the reels the paper passes through a cutter 899 which has a knife on a revolving drum acting in a shearing manner against a fixed bed knife
Each time the drum revolves the knife cuts a sheet from the web of paper being fed continuously at constant speed and the length of the sheet cut is regulated by altering the speed at which the revolving knife tums
Cutters are also designed to split the paper into the right width of roll and to trim the edges if this has not already been done at the rewinder
The paper leaves the cutter on trav eling tapes and goes to a layboy which auto matically jogs the sheets into uniform piles
These layboys take the place of operatives who formerly did the same work and enable higher cutter speeds to be employed
 In the Dictionary of Paper Fourth Edi tion published under the Auspices and Direc tion of the American Paper Institute Inc the purpose of rewinding is stated thus at page 346 Rewinding The operation of winding the paper accumulated on the reel of a paper machine onto a core to a tightly wound roll suitable for shipping or for use in the finishing or converting department
During rewinding defective paper in the reel is usually removed and breaks in the sheet are spliced and marked
 In Pulp  Paper Science  Technology Vol 2 edited by C Earl Libby it is stated at page 271 The prime purpose of the paper machine re winder is to split the sheet into the required widths to provide rolls of paper having the correct diameter and to produce firm tightly wound rolls of paper that can be unwound into highspeed printing presses with few tension problems
 What becomes obvious from the processes referred to above therefore is that even though rewinding has to be done both for manufacturing roll paper as well as sheet paper use of paper core in rewinding is necessary only with regard to manufacture of roll paper inasmuch as it is the paper as rolled on paper core which is delivered to the customer in the form of rolls and unless in the process of rewinding paper core is used paper cannot come cut of the machine in rolls so as to be sold as a marketable commodity known as roll paper
The use of 900 paper core however is not necessary for the manufacture of paper sheets
As stated at page 184 of the Story of Papermaking supra the core on which the paper is wound will depend to some extent on what happens to the paper next
If it is delivered to the customer in rolls as it comes from the rewinder the core is apt to be of heavy board stock wound and pasted at mandrel
If however the rolls of paper are not be delivered to the customer in the form of rolls as such and the rolls of paper are to pass to another part of the same plant for further treatment the core is likely to be of iron pipe which can be used over and over
Consequently core of iron pipe is more likely to be used in the normal course for further treatment in the plant which will include the process of cutting the paper into sheets
Inasmuch as core of iron pipe can be used over and over it cannot be said that the use of paper core is necessary for the rewinding of paper meant to be cut into sheets
It may be that for the sake of convenience paper core may be used by some manufacturer even for rewinding of such paper as is meant to be cut in sheets but in that case it would at best provide more convenience to such manufacturer but for that reason paper core will not become a constitutent part of paper manufactured in sheets
In view of the foregoing discussion we are of the opinion that use of paper core is necessary for rewinding of paper if it is delivered to the customer in rolls and would come within the purview of the expression any process incidental or ancillary to the completion of a manufactured product used in the definition of the term manufacture in section 2f of the Act and for the same reason paper core would also be constituent part of paper and would thus fall within the term component parts used in the Notification in so far as manufacture of paper in rolls is concerned
Paper core however cannot be said to be used in the manu facture of paper in sheets as component part
We are con scious that the relevant tariff item uses the word paper but since paper in rolls and paper in sheets are nothing but different forms of paper both of them would be excisable goods as paper under the relevant tariff item
In the result this appeal succeeds and is allowed to this extent that it is held that in the manufacture of paper rolls delivered to the customers for use as roll paper paper core is used as component part
The orders of the authorities below are modified to this extent
In the cir cumstances of the case however the parties shall bear their own costs
RSS Appeal allowed


Summary:
The respondent who was an employee of the appellant bank was dismissed from service on the basis of disciplinary proceedings instituted against him
He filed a suit chal lenging the validity of the disciplinary proceedings on the ground that the inquiry was vitiated by serious violation of principles of natural justice
The trial court decreed the suit
The decree was confirmed by the Additional District Judge in appeal and by the High Court in second appeal
Before this Court the appellant contended that i having regard to the nature of relationship of master and servant between the parties the decree of re instatement of the respondent was illegal and the suit as framed was not maintainable because the respondent s remedy was a suit for damages ii alternatively if the respondent was held to be a public servant so as to enable him to ask for re in statement in the service the suit must be dismissed as not maintainable in view of the provisions of the UP Public Services Tribunal Act 1976 and iii there was no viola tion of the principles of natural justice
While confirming the decree with modifications this Court HELD 1 The High Court was right in holding that as the respondent was not given adequate opportunity to examine the documents he was handicapped in filing his show cause and defending himself effectively
938C 936 2 The appellant bank is not covered by the definition of public servant  in section 2b of UP Public Services Tribunal Act 1976
It has been constituted in exercise of the power conferred by section 3 of the  and has been sponsored by the Syndicate Bank a natio nalised Bank
Although fifteen per cent of the total capital of the Bank has been contributed by the State of Uttar Pradesh it has no controlling power and none of the condi tions mentioned in section 2b of the UP Act is satisfied
939G 3 The plaintiff respondent is not a public servant within the limited meaning of the expression used in the UP Act and the courts below are right in overruling the defence plea of the bar by the UP Act on the jurisdiction of the civil court to entertain the suit
939H 940A The test for determining if an authority fails within the definition of State in Article 12 of the Constitution is whether it is an instrumentality or agency of the Govern ment
The enquiry has to be not as to how the juristic person is born but why it has been brought into existence
It is therefore immaterial whether the authority is created by a statute or under a statute
940C Ajay Hasia  Ors
vs Khalid Mujib Sheravardi  Ors   referred to
5 An examination of the relevant circumstances in regard to the appellant Bank leads to the irresistible conclusion that it is an instrumentality of the Central Government
By establishing the Rural Banks the Central Government acts in discharge of its obligations under Arti cles 38 and 48 of Part IV of the Constitution through them
940G 942C 6 The provisions of the do not leave any room for doubt that the Regional Rural Banks are under deep and pervasive control of the Central Government and have been established as its instrumentality and are therefore State  within Article 12 of the Con stitution
943A 7 There is no merit in the argument that the Courts cannot force the services of the respondent on the appellant bank by passing a decree for his re instatement in service and all that can be done is to grant a relief by way of compensation in a properly consti tuted suit
943B Central Inland Water Transport Corporation Ltd vs Brojo Nath Ganguly  referred to 937 8 In the instant case the departmental proceeding against the respondent from 571983 onwards is quashed and the decree for the plaintiff s re instatement in service with consequential benefits is confirmed subject to the modification that if the Bank authorities be of the view that in spite of the delay of several years the inquiry ought to be completed it will be open to them to proceed with it and to take further steps in the proceeding from the stage where it stood on 571983 in accordance with the directions of the Court in this judgment
943F G