Judgment Case ID: 6198

Judgment:
ivil Appeal No. 2882 of 1989. From the Judgment and Order dated 2.12.1988 of the Customs	 Excise and Gold (Control) Appellate Tribunal	 New Delhi in Appeal No. E/1351 of 1988 C. C. Shirappa Adv. General for State of Karnataka	 A.K. Ganguli	 K. Swami and Mrs. Sushma Sun	 Advs. with them for the Appellant. 326 Soli J. Sorabji	 O.P. Malhotra	 Ms. Indu Malhotra	 Ms. Auesha Zaidi and Mrs. Nisha Bagchi for the Respondent. The Judgment of the Court was delivered by VENKATACHALIAH	 J. This appeal	 under Section 35 L(b) of the Central Excise and Salt Act	 1944	 arises out of and is directed against the Order No. E/1351/88 C dated 2.12.1988	 by the Customs	 Excise and Gold (Control) Appellate Tribu nal	 (Tribunal) New Delhi	 allowing the appeal preferred by the Respondent and holding that Respondent was entitled to certain proforma credits of the duty paid on "Sodium Sul phate" used in the manufacture of paper and paper boards in which respondent is engaged. The short point for consideration in this appeal is whether the Respondent Manufacturer	 The Ballarpur Indus tries Ltd.	 was entitled to the benefit of Central Govern ment 's Notification No. 105/ 82 CE dated 28.2.1982 a ques tion which in turn	 depends on whether Sodium Sulphate could be said to have been used as "Raw Material" in the manufac ture of 'paper ' and 'paper board '. In the proceedings before the authorities	 the dispute initially concerned six other inputs. But the controversy before us was limited	 as it should rightly be	 only to Sodium Sulphate inasmuch as even in the appeal before the Collector (Appeals)	 the depart ment 's grievance	 apparently	 was confined to the Proforma Credits of duty earlier paid on Sodium Sulphate [See Col. 6 of the Assistant Collector 's Memorandum Appeal dated 15.7.1987 before the Collector (Appeals)]. Respondent is a manufacturer of paper and paper boards in the processes relating to which "Sodium Sulphate" is used "in the chemical recovery cycle of Sodium Sulphate which forms an essential constituent of Sulphate cooking liquor used in the digestion operation. " The notification dated 28.2.1982 under which the credit is claimed reads: "In exercise of the power conferred by sub rule (1) of rule 8 of the Central Excise Rules	 1944	 and in supersession of the Noti fication of the Government of India in the Ministry of Finance (Department of Revenue) No. 178/77 Central Excise	 Dated 18 June	 1977	 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 failing under 327 Item No. 68 of the First Schedule to the (1 of 1944) (hereinafter referred as "the inputs") have been used as raw material or component parts (hereinafter referred to 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". (Emphasis Supplied) The Superintendent of Central Excise	 Range 2	 Yamunana gar	 declined the Proforma Credit to the duty paid on "Sodium Sulphate" on the ground that Sodium Sulphate "was burnt up in the process of manufacture and was not retained in the paper" and that	 therefore	 it could not be consid ered "Raw Material" in the manufacture of paper. According ly	 he caused a notice dated 18.1.1983 to be issued requit ing respondent to show cause why the amounts of Proforma Credit availed of by the respondent for the period between 28.2.1982 and 31.10.1982 should not be recovered. The reason why "Sodium Sulphate" could not be held to be a "raw materi al" in the manufacture of paper was set out in the notice thus: " . . The Proforma Credit claimed and granted in respect of the above mentioned items from 28.2.82 to 31.10.82 is not admissi ble because these Chemicals are burn out and do not remain in the finished product. The amount of proforma credit availed is	 there fore	 liable to be recovered . . " (Emphasis supplied) However	 the Assistant Collector of Central Excise	 Ambala	 by his order dated 27.6.1986 took a different view and held that Sodium Sulphate	 even as the other inputs referred to in the said notice	 was an essential raw materi al in the manufacture of paper and attracted the benefit of the notification. The show cause notice dated 18.1.1983 was	 accordingly	 set aside. But	 the Collector of Central Excise (Appeals) set aside the order of the Assistant Collector and remitted the matter to Assistant Collector for a readjudication. The respondent manufacturer challenged this order before the Tribunal. The Tribunal upheld the contention of the Respond ent Manufacturer	 set aside the order of the Collector (Appeals) and restored the order of the Assistant Collector. The Tribunal adopted the reasoning in its earlier decision in Seshasayee Paper and Boards Ltd. vs Collector of Central Excise	 [1985] 22 in which the Tribunal had held: " . . the term "raw material" has to be interpreted in the circumstances of each case in the absence of any acceptable or useful definition of the term either in the diction ary or in the technical literature . . " " . . sodium sulphide lye	 Sodium Sul phate	 Daicol (Gaur Gums) and Fluo solid lime used for the bleaching of pulp should be considered as raw materials in the manufacture of paper; they serve a distinct and definitive purpose in the normal and recognised process of manufacture of paper and are essential for the process of manufacture . . " In this appeal	 the Collector challenges the correctness of the decision of the Tribunal. We have heard Sri A.K. Ganguly	 learned Senior Coun sel for the Appellant and Sri Soli Sorabjee	 learned Senior Counsel for the Respondent Manufacturer. The thrust of Sri Ganguly 's arguments is that the amplitude of the expression "Raw material" in the Notification has to be ascertained with reference to and in the context of the purpose in substituting that expression in place of the words obtaining in the earlier Notification No. 79/CE dated 4.6.1979	 in which credit was given to duty paid on "goods" which have been "used" in the manufacture of excisable goods. Sri Ganguly says that the Tribunal has	 virtually and in effect	 ignored the essential and important distinction between goods being "used" in the manufacture on the one hand and "goods" used as "Raw Material" on the other	 ignoring the conscious change intended by the substitution of the expres sion "Raw Material" in the later notification dated 28.2.1982 which was clearly intended to cut down the bene fit. Sri Ganguly referred to the following observations of this Court in Collector of Central Excise vs Eastend Paper Industries Ltd.	 SC: In J.K. Cotton Spinning and Weaving Mills Co. Ltd. vs Sales Tax Officer	 [1965] 16 STC 563 SC	 this Court while construing the expression 'in the manufacture or processing of goods for sale ' in the context of Sales Tax Law	 though the concept is different under the Excise Law	 has held that manufacture of goods should normally encompass the entire 329 process carried on by the dealer of convert ing raw materials into finished goods . . " (P. 204) (Emphasis Supplied) and contended that the import of the word "Raw Material"	 judicially accepted	 connotes something more than what is 'used ' in the manufacture and requires that goods to become "Raw Material" must	 either in their original or altered form	 endure as a composite element of the end product. Ganguly submitted that the technical literature and evidence in the case as to the part played by Sodium Sulphate in the chemical technology of paper making suggested two things: First	 that Sodium Sulphate was utilised in the preparation of an anterior	 intermediate product at the stage of 'diges tion ' of the pulp and did not	 therefore	 strictly belong to the process of manufacture of paper itself; and	 Secondly	 that Sodium Sulphate did not go directly into and find a place in the finished product and did not	 therefore	 quali fy for being "Raw Material" in the manufacture of paper. Learned Counsel said that no satisfactory answer to the question raised in the appeal could be afforded unless a clear line of demarcation between the material merely used in the manufacture of paper on the one hand and material used as "Raw Material" on the other is drawn. Sri Ganguly sought to substantiate this distinction in the present case with reference to certain observations of this Court in Deputy Commissioner of Sales Tax	 Board of Revenue vs Thomas Stephen & Co.	 Ltd.	 JT One of the ques tions there was whether cashew shells used in the kiln by the dealer who was a manufacturer of tiles	 terra cotta ware and ceramic items were exigible to purchase tax under Sec tion 5A (1)(a) of the Kerala General Sales Tax Act	 1963	 on the ground that the dealer had "consumed such goods in the "The Tribunal had held that manufacture of other goods . ." cashew shells had been used only as fuel in the kiln for the manufacture of tiles and that	 therefore	 the condition of 5A (1)(a) of the Act was not satisfied	 there having been no consumption of cashew shells in the manufacture of the ceramic goods. This Court held: "The cashew shells in the instant case	 had been used as fuel in the kiln. The cashew shells did not get transformed into the end product. These have not been used as raw materials in the manufacture of the goods. These have been used only as an aid in the manufacture of the goods by 330 the assessee. Consumption must be in the manufacture as raw material or of other compo nents which go into the making of the end product to come within the mischief of the section. Cashew shells do not tend to the making of the end product. Goods used for ancillary purposes like fuel in the process of the manufacture	 do not fail within section 5A(1)(a) of the Act. Cashew shells	 therefore	 do not attract levy of tax under the said section . . " (p. 634) (Emphasis Supplied) Sri Ganguly says that "Sodium Sulphate" in the present case must	 like the cashew shells	 be held to have been used as an aid in the manufacture of paper and for ancillary purposes like fuel and not as "Raw Material in the manufac ture of paper. Sri Sorabjee	 for the Respondent	 sought to maintain that Sodium Sulphate was an essential chemical ingredient in the chemistry of paper technology and that the fact that the ingredient was actually burnt up or sublimated in the proc ess and did not retain its identity in the end product	 will not	 necessarily	 detract from its being a "Raw Material". The relevant test is how essential is the ingredient in the manufacture. Learned counsel said that in the complexity of the chain of chemical reactions in the manufacturing proc ess	 undue emphasis on the search for the identity of any individual chemical ingredient 'in the final product would be artificial and unrealistic. Sri Sorabjee submitted that authoritative scientific treatises on the paper technology recognise that "Sodium Sulphate" is an essential raw materi al. Sri Sorabjee referred to the publication of the Food and Agriculture Organisation of the United Nations under the caption "Guide for Planning Pulp and Paper Enterprises" in which the following statement occurs: "For any pulp and paper enterprise a variety of non fibrous raw materials are required: water	 fuel	 power and paper making chemicals and	 for pulp mills	 pulping and bleaching chemicals . . " (p. 270) "The sulphate (kraft) pulping proc ess	 now the most common pulping process for both wood and nonwood fibrous raw materials	 requires the purchase of salteake (sodium sulphate) and limestone (calcium carbonate). De 331 pending on the efficiency of the recovery system	 about 40 to 80 kilogrammes of salteake and 25 kilogrammes of limestone are needed per ton of pulp. These chemicals are converted in the chemical recovery and causticizing systems to give sodium hydroxide and sodium sulphide	 which are the active chemicals in the pulping liquor." (p. 275) Sri Sorabjee submitted that the Tribunal had consistent ly taken this view in several cases and that the department not having carried those matters up in appeal must be held to have accepted the correctness of that view. As instances in point	 Learned Counsel referred to two decisions	 in Collector of Central Excise	 Nagpur vs Ballarpur Industries Ltd.	 Chandrapur	 and in Collector of Cen tral Excise	 Bhubaneswar vs Titaghur Paper Mills	 Adverting to appellant 's contention that use of Sodium Sulphate was at a stage of preparation of the Pulp which is a stage anterior to the actual manufacture of paper	 Sri Sorabjee submitted that	 apart from the fallacy inherent in the attempt to dissect an otherwise integrated process of manufacture	 the definition of 'manufacture ' in Section 2(f) of the 'Act ' which takes with in it all ancillary and inci dental processes	 should secure to render the contention insubstantial. The question	 in the ultimate analysis	 is whether the input of Sodium Sulphate in the manufacture of paper would cease to be a "Raw Material" by reason alone of the fact that in the course of the chemical reactions this ingredient is consumed and burnt up. The expression "Raw Material" is not a defined term. The meaning to be given to it is the ordinary and well accepted connotation in the common parlance of those who deal with the matter. The ingredients used in the chemical technology of manufacture of any end product might comprise	 amongst others	 of those which may retain their dominant individual identity and character throughout the process and also in the end product; those which as a result of interaction with other chemicals or ingredients	 might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end product; those which	 like cata lytic agents	 while influencing and accelerating the chemi cal reactions	 however	 may themselves remain uninfluenced and unaltered and remain independent of and outside the end products and those	 as here	 which might be burnt up or consumed in the chemical reactions. The ques 332 tion in the present case is whether the ingredients of the last mentioned class qualify themselves as and are eligible to be called "Raw Material" for the end product. One of the valid tests	 in our opinion	 could be that the ingredient should be so essential for the chemical processes culminat ing in the emergence of the desired end product	 that having regard to its importance in and indispensability for the process	 it could be said that its very consumption on burning up is its quality and value as raw material. In such a case	 the relevant test is not its absence in the end product	 but the dependance of the endproduct for its essen tial presence at the delivery and of the process. The ingre dient goes into the making of the end product in the sense that without its absence the presence of the end product	 as such	 is rendered impossible. This quality should coalesce with the requirement that its utilisation is in the manufac turing process as distinct from the manufacturing apparatus. The decision of this Court in Deputy Commissioner of Sales Tax	 Board of Revenue vs Thomas Stephen & Co. Ltd.	 relied upon by Sri Ganguly	 does not really advance the appellant 's case. The observations therein to the effect that "consumption must be in the manufacture of raw material or of other component which go into the making of end product" were made to emphasise the distinction between the "fuel" used for the kiln to impart the heat treatment to ceramics and what actually went into the manufacture of such ceramics. The observations	 correctly apprehended	 do not lend themselves to the understanding that for something to qualify itself as "Raw Material" it must necessarily and in all cases go into	 and be found	 in the end product. We also find no substance in the contention of Sri Ganguly that the process in which the Sodium Sulphate was used	 was anterior to and at one stage removed from the actual manufacture of paper. Sri Sorabjee 's answer to this contention is	 in our view	 appropriate. That apart the following observations in Collector of Central Excise vs Eastend Paper Industries Ltd.	 cited by Sri Ganguly himself is a complete answer: " . . Where any particular process	 this Court further emphasised	 is so integrally connected with the ultimate production of goods that	 but for that process	 manufacture or processing of goods would be commercially inexpedient	 articles required in that proc ess	 would fall within the expression 'in the manufacture of goods ' . . " 333 8. On a consideration of the matter	 we are persuaded to the view that the Tribunal was right in its conclusion that Sodium Sulphate was used in the manufacture of paper as "Raw Material ' within the meaning of the Notification No. 105/82 CE dated 28.2.1982. Now a word about Sri Ganguly 's insistence on drawing a line of strict demarcation between what can be said to be 'goods ' merely "used" in the manufacture and what constitute goods used as "Raw Material" for the purpose. We are afraid	 in the infinite variety of ways in which these problems present themselves it is neither necessary nor wise to enunciate principles of any general validity intended to cover all cases. The matter must rest upon the facts of each case. Though in many cases it might be diffi cult to draw a line of demarcation	 it is easy to discern on which side of the border line a particular case fails. Sri Ganguly 's insistence	 however	 serves to recall the pertinent observations of an eminent author on the point. It was said: " . . A common form of argument used by counsel in legal cases is to suggest that if the court decides in favour of the opposing counsel 's arguments	 it will become necessary to draw lines which may be very difficult or impossible to draw. "Where will you draw the line"? 1s	 of course	 a question which must be faced by a legislator who is actually propos ing to lay down lines for all future cases	 but it is not a question which needs in gener al to be faced by common law courts who pro ceed in slow stages	 moving from case to case . . ' ' [See: "Pragmatism and Theory in English Law:; page 75; Hamlyn Lectures of 1987] The learned author recalls Lord Lindley 's "robust answer" to the question: Where will you draw the line? "Nothing is more common in life than to be unable to draw the line between two things. Who can draw the line between plants and animals? And yet who has any difficulty in saying that an oak tree is a plant and not an animal?" [See: Att. Gen vs Brighton & Hove Co operative Assoc.	 at p. 282] 334 Again	 Lord Coleridge in Mayor of Southport vs Morris	 at 361 said: "The Attorney General has asked where we are to draw the line. The answer is that it is not necessary to draw it at any precise point. It is enough for us to say that the present case is on the right side of any line that could reasonably be drawn. In the result for the foregoing reasons	 we find no merit in this appeal which is	 accordingly	 dismissed. G.N. Appeal dis missed.

Summary:
Respondent has been using Sodium Sulphate in the process of manufacture of paper and paper boards	 and by virtue of Notification No. 105/82 CE dated 28.2.1982 claimed pro forma credits. The Superintendent of Central Excise de clined the claim on the ground that Sodium Sulphate was burnt up in the process of manufacture and was not retained in the paper	 and therefore	 could not be considered .as raw material in the manufacture of paper. He also issued a show cause notice for the recovery of proforma credits already availed of by the respondent. On appeal	 however	 the Assistant Collector set aside the show cause notice holding that Sodium Sulphate was an essential raw material in the manufacture of paper and as such attracted the benefit of the notification. But	 the Collector of Central Excise (Appeals) set aside the order of the Assistant Collector and remitted it back to him for readjudication. Respondent challenged this order before the Customs	 Excise and Gold (Control) Appellate Tribunal. Adopting the reasoning in its earlier decision in Seshasayee Paper and Boards Ltd. vs Collector of Central Excise	 	 the Tribunal allowed the appeal and restored the order of the Assistant Collector. This appeal under Section 35 L(b) of the is against the Tribunal 's order. On behalf of the Appellant	 it was contended that the word "raw material" connotes something more than what is 'used ' in the manufacture and requires that goods to become "raw material" must either in their original or altered form	 endure as a composite element of the end product. 324 The Respondent contended that Sodium Sulphate was an essential chemical ingredient in the chemistry of paper technology and the fact that the ingredient was actually burnt up or sublimated in the process; and did not retain its identity in the end product	 will not detract from its being a raw material. Dismissing the appeal	 HELD: 1.1. The Tribunal was right in its conclusion that Sodium Sulphate was used in the manufacture of paper as "Raw Material" within the meaning of the Notification No. 105/82/CE dated 28.2.1982. [333A] 1.2. The expression "Raw Material" is not a defined term. The meaning to be given to it is the ordinary and well accepted connotation in the common parlance of those who deal with the matter. The ingredients used in the chemi cal technology of manufacture of any end product might com prise	 amongst others	 of those which may retain their dominant individual identity and character throughout the process and also in the end product; those which	 as a result of interaction with other chemicals or ingredients	 might themselves undergo chemical or qualitative changes and in such altered form find themselves in the end product; those which	 like catalytic agents	 while influencing and accelerating the chemical reaction	 however	 may themselves remain uninfluenced and unaltered and remain independent of and outside the end products and those	 as here	 which might be burnt up or consumed in the chemical reactions. It could be that the ingredient should be so essential for the chemi cal processes culminating in the emergence of the desired end product	 that having regard to its importance in the indispensability for the process	 it could be said that its very consumption on burning up is its quality and value as raw material. In such a case	 the relevant test is not its absence in the end product	 but the dependence of the end product for its essential presence at the delivery end of the process. The ingredient goes into the making of the end product in the sense that without its absence	 the presence of the end product	 as such	 is rendered impossi ble. This quality should coalesce with the requirement that its utilisation is in the manufacturing process as distinct from the manufacturing apparatus. [331F H; 332A C] Deputy Commissioner of Sales Tax	 Board of Revenue vs Thomas Stephen & Co. Ltd.	 JT 	 distinguished. Seshasayee Paper and Boards Ltd. vs Collector of Central Excise	 325 ; Collector of Central Excise vs Eastend Paper Industries Ltd.	 SC; Collector of Central Excise	 Nagpur vs Ballarpur Industries Ltd.	 Chan drapur	 and Collector of Central Excise	 Bhubaneshwar vs Titaghur Paper Mills	 	 referred to. 2. It cannot be gain said that Sodium Sulphate used was anterior to and at one stage removed from the actual manu facture of paper. Section 2(1 ') of the Act defines 'manufac ture ' and it takes within it all ancillary and incidental purposes. 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	 articles required in that process	 would fail within the expression 'in the manufac ture of goods '. [332F G	 331D] Collector of Central Excise vs Eastend Paper Industries Ltd.	 SC	 followed. is not always possible to draw a line of strict demarcation between what can be said to be 'goods ' merely used in the manufacture and what constitute goods used as "Raw Material" for that purpose. In the infinite variety of ways in which these problems present themselves it is nei ther necessary nor wise to enunciate principles of any general validity intended to cover all cases. The matter must rest upon the facts of each case Though in many cases it might be difficult to draw a line of demarcation	 it is easy to discern on which side of the boarder line a particu lar case falls. [333B C] Pragmatism and Theory in English Law	 page 75	 Hamlyn Lectures of 1987; Attorney General vs Brighton & Hove Co operative Association	 ; Mayor of South Port vs Morris	 	 relied on.