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Judgment
G.D. Kamat, J.—Whether release paper used for the manufacture of coated textile fabrics commonly known as leather cloth is an input
eligible for MODVAT (Modified Value Added Tax) credit, or it is a tool, equipment, or appliance and therefore, excluded from the benefit of the
MODVAT scheme, is the essential controversy in this petition.
Petitioner No. 1 is a manufacturer of coated textile fabrics coated with Poly Venyl Choride or with Poly Urethane at its factory at Kundaim,
Goa. They are holding the necessary licence under the Central Excise Tariff Act, 1985. In the manufacture of coated textile fabrics, they use
release paper which is required to be imported and there is no dispute that upon import of release paper it is subject to the payment of customs
duty. The product thus manufactured by the first petitioner falls under Chapter 59 of the Schedule to the Central Excise Tariff Act which comes
under the heading ""impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use"".
Under heading No. 59.03, in Chapter 59 of the Schedule, the item described reads thus :-
textile fabrics, impregnated, coated, covered or laminated with plastics, other than of heading No. 59.02.
Under heading No. 59.03 there are three special heads which are :---
(i) of base fabrics of cotton,
(ii) of base fabrics of man-made textile materials; and
(iii other.
There is no difficulty in straightaway mentioning that the final product manufactured by the first petitioner would fall under the category (iii)""Other
under heading No. 59.03. There is equally no dispute that duty leviable in so far as this manufactured product is under sub-heading 59.03.19. It
appears that release paper is also known as multicast release paper and if such paper was to be manufactured in India it would be chargeable
under Chapter 48 under sub-heading No. 4809.90 of the Central Excise Tariff Act.
MODVAT scheme was introduced in Rule 57-A of the Central Excise Rules sometime during the financial year 1986-87. In terms it states that
it will apply to such finished excisable goods referred to as the ""final product"" as the Central Government may, by Notification in the Gazette
specify in that behalf for the purposes of allowing credit of any duty of excise or additional duty u/s 3 of the Customs Tariff Act, 1975 as maybe
specified in the notification, paid on the goods used in or in relation to the manufacture of the said final products which are referred to as ""inputs
and further for utilising the credit so allowed towards payment of duty of excise leviable on the final product, whether under the Act or under any
other Act, as may be specified in the Notification and subject to the provisions of the sections and the conditions and restrictions, that may also be
notified in the Notification.
Proviso under the Rule empowers the Central Government to specify goods or classes of goods in respect of which the credit of specified duty
may be restricted. A explanation is added to this Rule to suggest as to what ''input'' includes. Under Clause (a) includes inputs which are
manufactured and used within the factory of production in or in relation to the manufacture of final products and under (b) paints and packaging
material, but then it makes a specific exclusion of five types of items, such as machines, machinery, plant equipment, apparatus, tools or appliance
used for producing or processing any of the goods or for bringing about any change in any substance in or in relation to the manufacture of final
products under sub-clause (i) Packaging material, cylinders for packing gases, plywood for tea chests, are also excluded under sub-clauses (ii) to
(v), with which presently we are not concerned.
It appears that at some stage the MODVAT benefit was not made available for items falling under Chapter 59, with the result, such products
were not available to MODVAT benefit, namely, credit. Subsequently, however, vide Notification No. 83/87-CE dated 1st March, 1987, the net
of MODVAT benefits was extended and goods falling under Chapter 59 were covered.
Petitioners raised the issue of availment of MODVAT credit, by a communication made on November 29, 1988, to the Assistant Collector of
Central Excise at Panaji. However, by his communication dated 3rd January, 1989, the Assistant Collector held that the release paper is not
eligible for MODVAT benefit. Thereupon, a request for personal hearing was made and upon hearing the petitioners and consideration of the
material, the Assistant Collector of Customs made the impugned order on 18th July, 1989, holding that the petitioners are not entitled for availment
of MODVAT credit on the use of release paper in the process of manufacture of coated textile fabric. Broadly stated, two aspects found favour
with the Assistant Collector, that in the first place the use of release paper is to obtain required design and gloss on the final product manufactured
by the petitioners and despite the same is used repeatedly for identical operation till it is worn out, the release paper is not consumed during the
course of its use. In the second place, he held, regard being had to the nature of the use of the paper, the same cannot be treated as having been
used in the manufacture of final product. Therefore, the same is to be considered as tool, equipment or appliance. It is upon this making of the
order that the petitioners have landed in this Court for the reliefs sought in the petition.
It may be mentioned at this stage itself, that the notification issued by Government under Rule 57-A has specified final products described in
Column 3 of the table annexed to the notification. In the description of goods the goods which are classified under headings of different Chapters
of the Central Excise Tariff have been mentioned. Description of inputs has been shown at serial No. 2 of the table showing at the same time their
classification under headings of Chapters of Central Excise Tariff. The result is, as per classification of the so-called inputs release paper falls under
heading 48 vide Column 2 of the table and the final product manufactured by the petitioners under heading of Chapter 59 vide Column 3 of the
same table. As against the order of the Assistant Collector, in the first place the attack is two-fold. Firstly, to avail of MODVAT credit for an
input, it is not necessary that such input must be consumed either wholly or partly. As corollary to the argument, it was submitted that inasmuch as
the input is used in or in relation to the manufacture of the final product, it is not necessary that input must be even wholly consumed or defaced and
the test is whether without the use of that input a manufacture is able to manufacture a final product which is known in the market as such. In the
second place, it is urged that release paper could never be considered as a tool or an equipment or an appliance for, in the first place, it can never
be a part of any machinery and secondly, regard being had to its use in the process of manufacture, it is imposed to get the gloss and the design of
the release paper on the final product and therefore, it is nothing but an input.
The controversy centres in the very expression incorporated in Rule 57-A by which MODVAT scheme has been introduced. MODVAT credit
is available on such inputs on goods used in or in relation to the manufacture of the final product. In addition to this expression, reliance has been
placed by Counsel for the petitioners that the word ""manufacture"" has been defined under the very Central Excise and Salt Act, 1944 in section
2(f). In the definition section under the Act. ""manufacture"" includes any process :---
(i) incidental or ancillary to the completion of a manufactured product; and
(ii) which is specified in relation to any goods in the section or chapter notes of the schedule to the Central Excise Tariff Act, 1985 as amounting to
manufacture.
What is sought to be highlighted is that the definition of ""manufacture"" includes any process which is incidental or ancillary for the purposes of
completion of a manufactured product, i.e. end product. It is now contended that the function of the release paper is to give design and gloss to the
coated textile fabric which is the end product and in the absence of both the design and/or gloss, the end product can never be coated textile fabric
or what is known as leather cloth. That release paper leaves imprint of its design and gives gloss to the product is not controverted, though it is
urged that it is possible to manufacture coated textile fabric either without design or gloss and therefore, it cannot be an input as such. For that
matter, the learned Standing Counsel had also urged that the use and function of a release paper can be brought within the net of an appliance,
though it will be incorrect to hold that release paper is either a tool or an equipment.
In our view, the controversy raised in the petition must be determined in the light of whether the release paper used in or in relation to the
manufacture of the final product by the petitioners, namely coated textile fabric and if it is held to be used in or in relation to the manufacture of the
end product, then it will be an input which is eligible for MODVAT credit.
It must be plainly made clear that an erroneous order or decision rendered by an authority for that matter Assistant Collector, by itself does not
entitle the petitioners to the relief claimed in the petition and the point in reality to be considered is whether release paper is an input used in or in
relation to the manufacture or used in the process of manufacture of the end product and that way entitled for the benefit of the MODVAT
scheme.
A large number of authorities have been cited for and against the propositions canvassed by the learned Counsel for the parties. Before we
come to the authorities on the principal controversy Mr. M.S. Usgaonkar, learned Counsel contended that the Assistant Collector was bound by
two decisions, one of Cegat and the other of Appellate Collector of Customs, Bombay, directly holding that release paper is an input eligible for
MODVAT credit and that such decision could not have been ignored by Assistant Collector being an authority subordinate either to the Appellate
Collector or the Cegat, as the case may be. In carrying this point further, he says in similar circumstances, this Court in the decision of Shah
Enterprises v. Union of India, reported in 1990(47) E.L.T. 229 , passed strictures against the authority who made an order and which authority
had decided the matter despite the decision directly on the point of a superior authority. He then points out that the matter was carried by the
Revenue in appeal before the Supreme Court and the Supreme Court in the decision of Union of India and others Vs. Kamlakshi Finance
Corporation Ltd., , rejected the contention of the Revenue and for that matter even upheld the strictures made. Mr. Usgaokar thereafter contended
that the Assistant Collector should have held himself bound by those decisions but in flagrant violation of judicial discipline, took the view contrary,
that release paper is not an input used in or in relation to the manufacture, but, on the contrary, a tool, equipment or an appliance.
Mr. Khandeparkar, learned Standing Counsel, indeed has come to the rescue of the Assistant Collector saying that the Central Board of
Excise and Customs had issued a Circular dated 15th July, 1988 on the very subject MODVAT and the admissibility of credit duty paid on
release paper. That Circular suggests that in the conference of the West Zone Collectors held sometime in December, 1987, discussion was held
about the matter of release paper used in the manufacture of P.V.C. fabrics (leather cloth). A sort of decision was reached that release paper acts
as a carrier/conveyor belt for transfer of platisol on fabrics as coating; that it is also capable of repeated use four or five times and therefore
MODVAT credit cannot be made available to that item. A Trade Notice bearing No. 124 of 1988 issued by the Additional Collector (Technical)
Central Excise, Bombay, dated 6th September, 1988 is also placed on record. Mr. Khandeparkar says that the petitioner did not bring to the
notice of the Assistant Collector the decisions of Cegat or the Appellate Tribunal directly on the subject of release paper and in the absence
thereof the Assistant Collector deemed himself bound by the Trade Notice bearing No. 124 of 1988 and the Circular of the Central Board of
Excise and Customs and therefore, according to him, in all fairness this Court should refrain from making any strictures on this respondent.
The Assistant Collector has indeed made some reference to the decisions cited before him and regard being had to the absence of the decision
of Cegat as also the decision of the Appellate Collector, we do not think that this is a fit case where we should pass strictures against the
respondent No. 2.
Since at this stage we have made a reference to Trade Notice bearing No. 124 of 1998 and circular of the Board dated 15th July, 1988, we
may touch upon a contention raised by the learned Standing Counsel. Based upon the principle of contemporaneous exposition, it was urged that
neither the Trade Notice, not the Circular can be brushed aside. For that matter, it was urged that courts accept in principle as and by way of
settled law, contemporaneous expositions and more particularly in matters relating to revenue, such as customs, excise, sales tax, etc., to view how
the entries vis-a-vis their classification and entitlement of duties are required to be considered. If is not necessary for us to detain ourselves on this
principle and suffice at this point of time to mention that in the matter of construction of modern statutes or sometimes even current matters, the
principle of contemporaneous exposition is not adhered to. If any authorities are necessary for the proposition, then we can list a few of them, viz.
J.K. Steel Ltd. Vs. Union of India (UOI), , J.K. Cotton Spinning and Weaving Mills Ltd. and Anr Vs. Union of India (UOI) and Ors, and
Doypack Systems Pvt. Ltd. Vs. Union of India (UOI) and Ors, .
The Supreme Court for that matter, even held that it will reject the attempt on the part of parties trying to import that principle on the ground that
the same may lead the Court to forbidden track.
Coming back to the decisions of Cegat, to which a reference has been made, it must be said that in a reference case Collector of Central
Excise, Bombay. v. National Cloth Leather Manufacturing Co, Ltd., the Western Regional Bench of Cegat by a decision rendered on 18th
August, 1992, held that release paper is an input essentially required for the manufacture of final product and it does not form part of the machinery
nor as an input for up-keep and maintenance of the machinery; that without the presence of release paper, artificial leather cloth cannot be
manufactured.
This authority has been indeed attacked by the learned Standing Counsel on the ground that Cegat was influenced in deciding against the Revenue
because release paper was classified under Chapter heading 4810.90. Mr. Khandeparkar made a grievance that mere classification of a particular
item in a chapter heading by itself is not decisive and the real test is the use in or in relation to the manufacture of the end product. The second
attack of the learned Standing Counsel was that Cegat was considering a very limited challenge and did not consider whether release paper could
be an appliance from tariff point of view. It is true that in the decision rendered the Cegat itself held that there was no contention from the
department that release paper has been classified as an appliance and the limited contention placed on behalf of the Revenue Authority was that
release paper was being used as a transferring material and further that it was capable of repeated use.
The next reference we made earlier was to the decision of the Appellate Collector, Bombay and that was in the matter of M/s. Bore Industries
Ltd. v. Assistant Collector, Excise. The Appellate Collector overruled Assistant Collector and upon an elaborate judgment rendered a finding that
release paper has to be ultimately treated as input used in relation to the manufactured of coated fabrics. The Appellate Collector took stock of
large number of authorities on the subject and on an application of the ratio decided the matter in favour of the assessee. To buttress the contention
that release paper is an input essentially used in relation to the manufacture of coated textile fabrics and therefore entitled to MODVAT credit, a
few decisions cited may be taken note of.
Indeed some of the decisions are on the point that input need not be consumed by the final or the end product and secondly the so-called input
need not be present in the final product as such. In our view, the controversy as to the requirement of an input being consumed in the product or
being present in any form in the end product need not detain us long as finally that does not appear to be a sine qua non, regard being had to the
object and scheme of MODVAT as envisaged in Rule 57-A. Therefore, a brief reference to these authorities may be made.
In the decision of Collector of Central Excise, Calcutta-II Vs. Eastend Paper Industries Ltd., , the question was whether wrapping paper is a raw
material and component part of wrapping paper entitled to exemption under the concerned notification. The Supreme Court held, since the paper
is marketed in packed and wrapped condition, the wrapping paper used in wrapping of paper has to be treated as raw material or component part
and the paper so consumed or utilised would be entitled to exemption under the notification. The ratio laid down is, anything that enters into and
forms part of the manufacturing process or is required to make the article marketable must be deemed to have been used in completion or
manufacture of the end product What is relevant to be considered in this authority is that the raw material or component part must be consumed by
the end product or that part gets integrated with the end product is tacitly negatived. In the same volume at page 804 in the decision of Collector of
C. Ex. v. Ballarpur Industries Ltd., the Supreme Court held that sodium sulphate used for chemical reaction at pulp stage has to be treated as ""raw
material"" used in the manufacture of paper, even if sodium sulphate is burnt up and does not retain its identity in the end product. It was observed
that the manufacture of pulp is an integrated process of manufacture of paper and therefore covered in the definition of manufacture as given in
section 2(f) of the Central Excise and Salt Act, which clearly takes within its ambit all ancillary and incidental processes. Next is the decision of
1985 ECR 1152 , the Special Bench of the Tribunal at New Delhi which is a larger Bench than the ordinary Benches, ruled that raw material need
not necessarily form part of the final product and when consumption and utilisation of raw material in the process of manufacture is sufficient and
therefore alum, salt cake sulphuric acid and caustic soda used in the manufacture of paper are held to be inputs entitled to exemption. The ratio that
can be curled out from this decision is that raw material is a material that is put into the manufacturing system to help in the formation of the final
product and such a raw material need go directly into the finished product. Similar is the view taken in 1989 (20) ECC 117 . This is again a
Tribunal decision where the question was whether Titanium metal anodes essentially required for the manufacture of caustic soda are eligible for
MODVAT credit being item excluded under Explanation to Rule 57-A of the Central Excise Rules, 1944. The question again turned on whether
some parts get consumed. The Tribunal held that the Rule does not envisage that the raw material must get consumed in the process either as a
whole or in part. To the same extent is the authority in 1992 (40) ECR 340 . The question was whether lead used in galvanisation of M.S. Steel
products being an input used in relation to manufacture of final product is eligible for benefit of MODVAT credit. It was held that there is no
requirement that input should be present in the final product or that it should be consumed in order to qualify for MODVAT benefit, the only
predicate being that the input must be used in or in relation to the manufacture of the end product and which is not specifically excluded by the
Explanation to Rule 57-A. A decision of somewhat relevance to the facts of the present case is the one reported in 1990 (29) ECC 219 . The
tribunal was considering whether BOPP films which are nothing but films made of synthetic resins could be construed as either an apparatus or an
equipment or an appliance. The facts were that films get partly consumed in the process of manufacture of lamination sheets and lose their identity,
with the result they directly go in the process of lamination, But they are finally retrieved and do not form part of the final product. Yet, it was held
that MODVAT credit is available in respect of those films because those films lose their identity completely after the use.
The story as far as the present petition is concerned is that the release paper used in the process of bringing into being coated textile fabrics.
The release paper leaves its imprint on the fabrics, that is to say, the design of the release paper gets itself released on to the fabric manufactured
and in the process also adds gloss, to the end product. It is not disputed that the same release paper is used for a number of times anywhere
between 5 to 7. Release paper thereafter becomes useless and has to be discarded. It cannot be used for manufacturing PVC fabric any further
because it will not give any gloss to the manufactured product, nor the design. The design which was in existence on that paper before it was used
gets defaced during the course of its use in the process of manufacturing and therefore has to be discarded.
In view of the use that we have seen of this release paper, it is necessary to consider a few authorities which are relied upon by the learned
Standing Counsel. The first in line is the decision of 1989 (24) ECR 1 05 . The question that fell for consideration was whether interleaving kraft
paper used during coiling and uncoiling process of the stainless steel sheets as a protection against scratches was an input excluded under the
Explanation to Rule 57-A. The Tribunal held that interleaving kraft paper is used for wiping stainless steel sheets during coiling and uncoiling
process only to protect them against scratches; that such kraft paper was used and re-used and from the nature of its use they are either equipment
or appliance used in the manufacture of the finished product, namely stainless steel sheets and therefore, stand validly excluded from the purview of
the term ''input"" entitling for MODVAT credit. The nature of the function could not be considered as a kraft paper used in or in relation to the
manufacture. Mr. Khandeparkar asserts that the release paper is again used and re-used and regard being had to its use it must be held to be an
appliance. What is however against Mr. Khandeparkar insofar as the present case is concerned is whereas the kraft paper has been used for
absorption of oil, the release paper is used for the purpose of transferring its design on the end product. Therefore, in our view, the case of kraft
paper will have to be distinguished from that of release paper. The next authority relied upon is 1991 (35) ECR 271 . The question was whether
wire mesh and industrial cloth being used for removal of moisture from pulp are in the nature of appliance and not inputs entitled for the benefit of
MODVAT credit. The Tribunal held that wire mesh and industrial cloth cannot be held to be inputs, but they are in the nature of an appliance. On
facts, it was found that wire mesh and industrial cloth are attached to the paper machine and regard being had to the operation, they were used as
if they are part of the machinery and in that view of the matter, could not be treated as inputs. A distinction was clearly pointed out as to what is a
manufacturing process and a manufacturing apparatus, which has special relevance in the context of bringing out a finished product. The third
authority cited is 1990 (29) ECC 139 , where the Tribunal was called upon to consider whether sand moulds being apparatus for casting are
equipment and not available for MODCAT credit. It was found that sand moulds are independently manufactured and they do not occur at an
intermediate stage of the product during the course of its manufacture and that way the relief sought for credit under MODVAT was negatived. To
the same effect is another decision of Collector of Central Excise v. Indian Plywood Mfg. Co. Ltd, reported in 1993 (63) E.L.T. 328 . Sand paper
is being used for bringing about finishing to wood, whether such a paper was entitled to MODVAT credit. It was found on facts, that sand paper is
mounted on the drums and then it works on the wood. The sanders become functional only by the mounting of the sand paper on the drum and in
that view of the matter the sand paper was taken as an accessory to the machines to make it functional for the purpose of bringing about the
required finish on the plywood. The further observation is that the sand paper by virtue of its working on the plywood was taken in the nature of a
tool and therefore rightly excluded from the purview of Rule 57-A for the purposes of grant of MODVAT credit, regard being had to the
explanation incorporated thereunder. Question indeed arose. Whether galvanized pipe is still a steel pipe and the same was answered in the
authority of Gujarat Steel Tubes Ltd. etc. Vs. State of Kerela and others, . The Supreme Court found that though the pipes underwent the process
of galvanisation, there was no change in the structure, nor function and the pipes retained their identity as steel pipes. Of course, this authority is not
on the subject of MODVAT and the matter was required to be considered from the relevant provisions of the Sales Tax Act. The learned
Standing Counsel thereafter refers to a decision of Union of India and another Vs. Babubhai Nylchand Mehta, . It appears that the respondent
Company used to purchase water-proof kraft paper which used to be combined with some other material in its factory and thereafter a
bitumenised water-proof packing paper was being manufactured. The end product was different and distinct from original kraft paper having
distinct definite characteristics, different use and value. The question was whether it was liable to payment of duty under Item 17(2) of the Central
Excise & Salt Act. The Assistant Collector found against the assessee, but the assesse''s claim was upheld in the High Court. The Supreme Court
however reversed the High Court''s orders and restored the order of the Assistant Collector. Upon a view that manufacture is bringing into being
goods, as known in the excise laws, that is to say, known in the market having distinct, separate and identifiable function. It was found that the kraft
paper was mounted on a roller and then it is passed over a tank containing liquid bitumen. As the first roll of the kraft paper crosses the bitumen
tank roller with a thin coat or layer of bitumen on one side, the second roll of kraft paper is released. The kraft paper coming from the other two
sides is pressed against each other by rubber roller which is positioned in between the two rollers. The result is that the end product is two sheets
of kraft paper pressed against each other with the help of a thin layer of bitumen sandwiched between them. The Court held that this process is
nothing but lamination and the product being a laminated kraft paper which is distinct, separate and different and known as such in the market,
cannot be equated with kraft paper.
In our view this authority would not help the department inasmuch as it is not possible that leather cloth or coated textile fabric, as is known in the
market, can be produced without the use of the release paper. The learned Standing Counsel did try to contend before us that even in the absence
of release paper the leather cloth may be had either without the gloss or the design, which ought not to make any difference. We are afraid that in
the first place there is no material placed before the Court that any such end product without either design or the gloss can at all be marketed and
sold as leather cloth. It is not necessary for us to detain on this aspect of the matter, for what is required to be considered finally is whether the raw
material or input is used in or in relation to the manufacture and that as set out earlier will be the test that is required to be answered in the present
case. Most of the authorities we have already seen earlier and for that matter even of the Supreme Court has profusely relied upon a decision in
J.K. Cotton Spinning and Weaving Mills Co. Ltd. Vs. Sales Tax Officer, Kanpur and Another, , where the question for decision turned on the
interpretation and construction of the expression ""in the manufacture of goods"" in section 8(3)(b) of the Central Sales Tax Act, 1956. In paragraph
8 of the report the Supreme Court observed :---
The expression in the manufacture of goods should 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 ""in the manufacture of goods"". For instance, in the case of a cotton textile manufacturing concern, raw cotton undergoes various
processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven put on rolls, dyed, calendered and
pressed. All these processes would be regarded as integrated processes and included ""in the manufacture"" of cloth. It would be difficult to regard
goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read
the expression ""in the manufacture"" of cloth in that restricted sense, would raise many anomalies. Raw cotton and machinery for weaving cotton
and even vehicles for transporting raw and finished goods would qualify under Rule 13, but not spinning machinery, without which the business
cannot be carried on. In our judgment, Rule 13 does not justify the importation of restrictions which are not clearly expressed, nor imperatively
intended. Goods used as equipment, as tools, as stores, as spare parts, or as accessories in the manufacture or processing of goods, in mining, and
in the generation and distribution of power need not, to qualify for special treatment u/s 8(1), be ingredients or commodities used in the processes,
nor must they be directly and actually needed for ""turning out or the creation of goods"".
In paragraph 9 of the report, the Supreme Court held that if the process or activity is so integrally related to the ultimate manufacture of goods so
that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient goods intended for use in the
process or activity will qualify for special treatment. Supreme Court however held that it does not mean that every category of goods in connection
with manufacture of or in relation to manufacture or which facilitates the conduct of business of manufacture will be included within that Rule.
What is however required to be called out is the ratio laid down in paragraphs 8 and 9 of the report. We are indeed grateful to learned
Standing Counsel for having brought to our attention a very recent decision of the Supreme Court in Collector of Central Excise, Jaipur Vs.
Rajasthan State Chemical Works, Deedwana, Rajasthan, . The question for decision directly was another Notification dated 18th June, 1977 on
the subject of manufacture and definition of ""manufacturing process"". The facts were that brine was pumped into salt pans with diesel pumps for
manufacturing sodium sulphate. Raw material was lifted to platform with the aid of power for manufacturing lime. The question, was whether both
such processes were manufacturing processes carried with the aid of power and therefore, not entitled for exemption. We are plainly aware that
we are not concerned here with the facts of the case, but then what is however required to be noticed is that upon viewing the matter in its correct
perspective and taking stock of large number of decisions including J.K. Spinning and Weaving Mills'' case (supra), section 2(f) of the Central
Excise and Salt Act, 1944 also came for interpretation. The Supreme Court held that manufacture involves a series of processes. Process in
manufacture or in relation to manufacture implies not only the production but the various stages through which the raw material is subject to change
by different operations. It was further observed that it was the cumulative effect of various processes through which the raw material is subjected to
obtain the final product which emerges from such process. Therefore, each step towards such production would be a process in relation to
manufacture. The Supreme Court further observed that where any particular process is so integrally connected with the ultimate production of
goods but for that process manufacture or processing of goods would be impossible or commercially inexpedient, that process is one in relation to
manufacture. When we apply the ratio of this decision which is nothing but reiteration of the ratio laid down by the Apex Court in J.K. Cotton
Spinning and Weaving Mills Ltd., (supra), it is clear that the manufacture involves series of processes and each process is a step in the production
of the final product, and when the particular process is integrally connected to achieve the end product, it must fall within the meaning and
expression used in or in relation to manufacture. The release paper in the present case is used to get a particular gloss and design. It is used in the
process of manufacture and in the absence of its use it is not possible to get the end product, which is known in the market as such. The use of the
release paper is so integrally connected with the process that there can be no doubt that it falls within the meaning of the expression ""used in and in
relation to the manufacture of coated textile fabric.
We are therefore unable to sustain the impugned order of 18th July, 1989, of the second respondent. The same is quashed and set aside.
Petition succeeds. Rule made absolute in terms of prayer (A). A direction must go to the respondents to give MODVAT credit to the petitioners
on the input release paper. There shall be no order as to costs.