Brief of the Case
In the case of M/s Coastal Papers v CCE, Hon’ble Supreme Court while interpreting the Notification No. 22/94-CE, held that whenever the notification is interpreted the intention of the Legislature should be considered. Here, in this case the said notification was brought for the manufacture of paper through non-conventional methods for the basic purpose of Environment Protection. After, going through the Speech of Finance Minister, Budgetary Notes, Dictionaries and the Judgments of the Hon’ble Apex Court, it was held that purposive construction should be made while interpreting the Notification.
Facts of the Case
The appellant is a paper mill which is engaged in the manufacture of paper. For it, the assessee uses both conventional as well as non-conventional raw materials, namely, waste gunny bags, jute waste etc. In order to encourage production of paper by use of non-conventional raw material, the Government of India issued Notification No. 22/94-CE dated 01.03.1994 which assures concessional rate of duty at 5% for “paper and paperboard or articles made from non-conventional material”. But there were some conditions as well like manufacturing should be started from the stage of pulp in the factory which should not contain should contain not less than 75% by weight of pulp made from materials other than bamboo, hard woods, soft woods, reeds or rags. The assessee herein is manufacturing paper out of pulp of waste gunny bags/jute waste and on the manufacture of paper from the pulp of the aforesaid waste, the assessee wants to pay concessional rate of excise duty. There have been some amendments in the Notification No. 22/94-CE in the subsequent years. The Assessee has been using old or used gunny bags/jute waste for the manufacture of the paper. The Revenue, on the other hand, has taken the position that the pulp of waste gunny bags/jute waste is nothing but pulp of ‘rags’ and since the Notification, particularly, disentitles the benefit thereof if the pulp is made from rags, the assessee is not covered by the said Notification. On 28.04.2000, a show-cause notice was issued by the Revenue to the appellant. Further, extended period of limitation was invoked under proviso to Section 11A of the Central Excise Act, 1944 and demand of differential central excise duty for the period from 01.04.1995 to 31.10.1999 was made.
Order of the Ld. Commissioner
The Ld. Commissioner was persuaded by the fact that the purpose of issuing such Notification was to encourage the use of waste from non-conventional materials as raw materials for the purpose of manufacture due to environment concerns and in, particular, use of such raw materials like jute waste, old gunny bag waste, rice straw, wheat straw etc. and reduce the use of bamboo, hard wood, soft wood etc. to save forest. The Ld. Commissioner also referred to the speech of the Finance Minister to emphasize that the Notification has evolved in a eco-friendly manner with more and more encouragement for use of non-conventional materials. The Ld. Commissioner also pointed out that there is no definition of ‘rags’ in the Notification and, similarly, there is no definition of jute pulp in any Notification which could help in tracing any description of gunny bags waste. He, mentioned the ‘Glossary of Terms used in Paper Trade and Industry’ for the adoption of definition/description of jute, jute paper, jute pulp, rag pulps, rags etc. and on that basis concluded that the meaning of the word Rags as they have not been defined in the notification itself, has to be derived from the contemporaneous evidence. The amendments to Central Excise Notification No. 48/91 dated 25.7.91 vide 30/93 shows unambiguously that Jute Waste shall include old gunny bag waste. Therefore, it still remains correct that gunny bag waste can be described as waste of jute products and in extension would be includible in Jute Waste. Therefore, there is no mis-declaration in raw material account.
Held by Hon’ble CESTAT
The Hon’ble Tribunal set aside the decision of the Commissioner by observing the fact can’t be denied that gunny bags/jute bags are articles of textiles. Admittedly, such jute bags which shows signs of wear and tear are excluded from heading 63.09 and are classified with the corresponding new articles under heading 63.05. But there is another category of old gunny bags which are so worn out, soiled or torn beyond clearing or repairs and are generally fit only for the recovery of the fibres for the manufacture of paper etc. This is the separate category of old gunny bags which is different from gunny bags showing only signs of wear. Thus a rag is one which is worn out, soiled and torn of a textile material. If that is the meaning of rags, there is no need to refer to any dictionary, glossary of terms used in paper and paper industry to find out the meaning of rags. The respondent uses torn, soiled etc. gunny bags to make pulp. Gunny bag is a textile material. The Hon’ble Tribunal accepted the Revenue’s contention that rags can be made of any textile material or textile articles and are not limited to pieces of cotton or articles made of cotton.
Contention of the Assessee
The ld. Counsel for the Appellant laid great stress on the principle of purposive interpretation that needs to be given to the Notification. The main thrust was that the objective of the Notification to give its benefit to those who are using waste from non-conventional materials. He submitted that it was well-known that jute/gunny bags were the non-conventional methods which was well recognised in the commercial world. He also submitted that in the absence of any definition of ‘rags’ in the Notification, dictionary meaning could be relied upon as was held by the Supreme Court in the case of Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise, Baroda (1990) 3 SCC 447.
Contention of the Revenue
The ld. Counsel for the Revenue supported the reasons given by the Tribunal. It was submitted that since the excise duty is leviable on the product, any assessee taking advantage of the exemption notification had to strictly come within the four corners of the said Notification to get the benefit thereof. Adopting this line of argument, he also submitted that the Notification mentions the word ‘rags’ simplicitor without any qualifications or exceptions. Therefore, wherever it is found that pulp is from the waste material known as ‘rags’, the said product would come in the excepted category. He emphasized that since it could not be denied that waste of gunny bags/jute bags is known as ‘rags’, if the paper is manufactured from the pulp from the waste of gunny bags/jute bags, the assessee would be disentitled to claim the benefit of the Notification.
Held by the Hon’ble Supreme Court
The Hon’ble Supreme Court observed that the expression ‘rags’ appearing in the Notification has to be construed in the context in which the same is used in the said Notification as well as the purpose for which this term has appeared in the Notification. At the same time, it is also necessary to go behind the objective for which Notification itself is issued.
The purpose for issuing such Notifications is to encourage the manufacturers of the paper and paper products to use non-conventional technology. Use of bamboo or wheat for the manufacture of paper and paper products needs cutting of trees which in turn has the devastating effect of deforestation. The adoption of non-conventional methods of production by taking pulp from the waste of gunny bags/jute waste, mesta, rice straw, wheat straw, bagasse etc., not only is utilised in a useful and constructive manner, it saves environment as well. Materials, namely, bamboo, hard woods, soft woods, and reeds are conventional raw materials. These are the materials which have direct bearing on cutting of trees and in turn on environment. Therefore, ‘rags’ has to be read ejusdem generis. It has to be the specie of the earlier kind of materials mentioned therein. Otherwise, it would not make any sense. Admittedly, jute waste or for that matter gunny bag waste have no adverse impact on environment. It was further observed that right from the year 1984, the coverage of the Notification was widened inasmuch as any materials other than the specified ones would be considered as non-conventional raw materials and the paper made there from would be eligible for the exemption.
By giving the reference of the speech of Finance Minister while presenting the finance Bill, 1984 and Budgetary Explanatory Notes, 1984, the Hon’ble Supreme Court observed that the Government itself distinguished between jute bags/gunny bags and rags and the exemption was being extended to paper made from old jute/gunny bags.
Further, Hon’ble Supreme Court mentions the authority of H.M.M Limited v. Collector of Central Excise, New Delhi (1996) 11 SCC 332, that the benefit of Notifications has to be interpreted by going into the purpose of beneficial notifications and that one does not have to go only by the language employed therein. Then, the reliance was made on Collector of Central Excise and Others v. Himalayan Cooperative Milk Product Union Ltd. and Others (2000) 8 SCC 332, where this Court remarked that purpose and policy decision behind the notification should not be defeated by giving it some meaning other that what is clearly and plainly flowing from it. Further, The Hon’ble Apex Court relied on Rohit Pulp and Paper Mills Ltd. v. Collector of Central Excise (1990) 47 ELT 491 (SC), by which the Hon’ble Apex Court observed that it is sufficient to hold that pulp from the waste of jute bags or gunny bags would not be covered by the term ‘rags’ appearing in Notification dated 01-03-1994 as it could never be the intention to exclude non-conventional material from the benefit of the aforesaid Notification when that was precisely the purpose for which this Notification was issued to encourage use of non-conventional material for the purposes of manufacturing paper or paper products.
Then, after the having the reference of some books and dictionaries, it was observed that almost all the books on the subject uniformly define ‘rag’ or ‘rag pulp’ as one which is made from cotton waste or cotton textile material.
Accordingly, the appeal of the Appellant was allowed