2006 PLP (Trib (PTD)

This appeal has been filed against the order, dated 30-10-1999, passed by the Collector of Customs, Sales Tax and Central Excise Appeals, Karachi.

2. The case of the appellant is that the tea and filter paper used by the appellant in a continuous process for converting the same into tea bags is exempt from excise duty,, and that the process by which filter paper is' converted by the appellant into a tea bags does not fall within the definition of manufacture as defined under subsection (25) of section 2 of the Central Excise Act, 1944, and that the tea bag is not vendable commodity and as such the same is not subject to payment of excise duty.

3. Having heard the rival parties and after perusing the case records, we consider that the relevant issue for-determination of this case is the correct interpretation of the word, "manufacture".

4. The word "manufacture" has recently been subject to judicial scrutiny for sometimes before the superior Courts. The consensus on the interpretation of the said word appears to be as follows:-- (a) The word "manufacture" is generally understood to mean bringing into existence a vendible product known in the market (Civil and Military Press Ltd. v. Pakistan 1985 CLC 1021) (b) "Manufacture," means such transformation that brings about a new and different Article with a distinctive name and character for use. (Municipal Council Domoh v. Vrajlal Manilal & Co., AIR 1982 SC 844). (c) The word "manufacture" used as a verb is generally understood A to mean as bringing into existence a new substance and does not mean merely to produce some change in a substance, however, minor in consequence, the change may be. (Union of India v. Delhi Cloth and General Mills; AIR 1963 SC 79). (d) In the book "Words and Phrases," Vol. 26, the said word has been given the following meaning: "...Manufacture implies a change but every change of an article is the result of the treatment, labour and manipulation, a new and different article must emerge having a distinctive name, character or use..." (e) In order to prove that there was a manufacturing process, it is also essential to prove that the article must change its nature and it becomes an altogether different commercial article. (Mewa Lal v. Tara Ram, AIR 1973 All 165).

5. From, the above citations, it emerges that in order to bring an article within the framework of word "manufacture" an article must

(a) change shape; (b) emerge as a new product; (c) be identifiable and commercially marketable; (d) be an altogether different product.

6. The admitted facts in this case are that the appellant imports filter paper which is used by the appellant for the purpose of inserting the blended tea in a continuous process and the same is thereafter marketed by the appellant which is commonly known as tea sachet/bags. As per records, the department never reported that machinery to manufacture filter paper was installed at the premises of the appellant. Rather the department admits that only blended tea is being packed in a ready to use filter paper bag/sachet and that too in a continuous process.

7. Tea blending is a different business and it follows that an altogether different product was being produced or manufactured by the appellant than the filter paper bags. There is thus no evidence to support the claim of department that the appellant was engaged in the manufacture of filter paper bags.

8. The department simply relied on a definition given in the Act and to our understanding of the term "manufacture", by no imagination of thought, the process being applied by the appellant results in the production of filter paper bags.

9. The contention of the department was that, in its popular sense and (sic) the framework of section 2(f) of the Central Excise Act, 1944 any process ancillary there to the process of manufacture did constitute "manufacturing" and as such, in their opinion, inserting the blended tea into paper bags/sachet by implication and by mischief of law constitutes manufacturing of filter paper bags, which to our mind is an erroneous understanding of the existing law. The argument advanced by the department has been strongly opposed and rebutted by the appellant. It was their point of view that the provisions of law are to be interpreted in commercial parlance.

10. We tend to agree with the appellant's point of view. As observed by the Honorable Supreme Court in the case of Collector of Customs v. Abdul Majid Khan and others, reported as 1977 SCMR 317, if a statute is one passed with reference to a particular trade, business or transaction and words are used therein which every body conversant with the trade, business or transaction knows and understands to have a particular meaning in it, then the words are to be construed as having the particular meaning which may differ from the ordinary or popular meaning. Their Lordships further observed:

"...Moreover, in interpreting a penal or a taxing statute the Courts must look to the words of the statute and interpret them in the light of what is clearly expressed it cannot imply anything which is not expressed, it cannot import provisions the statue so as to support assumed deficiency as held in Messrs Hirjina and Co. (Pakistan) Ltd. v. Commissioner of Sales Tax, Central, Karachi 1971 SCMR

128. Last but not the least, it is also well-established that penal provisions of a statute should be strictly construed and in case of any ambiguity or doubt arising from the construction, the benefit must go to the accused person. Muhammad Ali v. State Bank of Pakistan, Karachi 1973 SCMR 140..."

11. Furthermore, the issue regarding chargeability of tax on bags/ pouches came for decision before the Honourable Lahore High Court in the case of Madina Ghee Mills (Pvt.) Ltd. v. The Collector of Customs Adjudication, Faisalabad reported as 85 Tax 263, their Lordships in the said case observed as under:-- "...10. The Revenue is also incorrect in stressing that the appellants take any process with regard to pouches which could be termed as manufacturing as defined in the aforesaid provision of the Central Excise Rules, 1944 or the Sales Tax Act, 1990. The appellants admittedly purchased printed plastic sheets on rolls which were fed to automatic machines and accordingly they became a part of the manufacturing process for simultaneous packing of ghee so produced. These plastic pouches were neither manufactured distinctly nor produced in a style or shape that these could be stored or used independently. Having become the process of manufacturing of ghee/oil they became the part of the product namely vegetable ghee in plastic pouches which was properly coverable in H.S. Code No.15.16. It was particularly so because these pouches were not re-useable."

12. The argument of the Revenue that rule 5(b) of the aforesaid rules of interpretation of the Harmonized System is not attracted in the case in hand is also not tenable. The 1st Schedule to the Customs Act, 1969 containing General Rules for interpretation is to be read as part of C the first schedule under Central Excise Act. Therefore, rule 5(b) becomes applicable to interpret various entries of the headings given in the first schedule to the Central Excise Act. According to this rule packing materials and packing containers presented with the goods are to be classified with the goods, if they are of .a kind normally used for packing such goods. However, the only exception being of such packing material or packing containers which are suitable for repetitive use. Judging the oil/ghee pouches on the guideline given in the rule, the case of the appellants becomes all the more stronger. It has not been denied by the Revenue that pouches' containing oil/ghee after use of the ghee marketed in them are simply a refuse or waste and thereafter there is absolutely no chance of their repetitive use. Once having been filled with oil/ghee they become part of the product and when product is consumed their independent distinction is lost. Therefore, in view of the aforesaid rule of interpretation, these pouches were liable to be classified under the head covering the goods they contained. It is also not denied by the Revenue that these pouches were not distinctly and separately manufactured as such. They were never found to be capable of being scaled, weighed or stored separately nor it was actually done by any of the appellants. Accordingly the contention the "vegetable ghee in plastic pouches" obtained as a result of continuous process of manufacturing appears to be factual as well as legally correct. These containers as such once having been fed to automatic machines were admittedly never taken off to be called a manufactured product or a product of different form the one which it contained..."

13. In the light of above observations, we are of the opinion that respondents action to treat tea bag/paper bag as an act of "manufacture" was wrong as in fact no independent product ever carne into existence from the process of inserting the paper with the blended tea which in fact is a necessary act to use the paper pouches. In our view the contravening act never assumed the status of manufacture, therefore demand of duty on paper bags used in the packing of tea as a result of a continuous process was not justified. The appeal is accordingly allowed and the impugned order is set aside. C.M.A./551/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Appeal accepted.