The 35-year-old from Wardle, who requested not to be named, was pulled into the machine by two giant rollers at Elliott Absorbent Products' Rochdale site on 22 October 2009.
He suffered severe friction burns to his arms, chest and stomach, requiring skin grafts to both arms.
The company was fined £27,500 and ordered to pay costs of £4,389 on 7 January 2011.
Sarah Taylor, the investigating inspector at HSE, said: "Sadly a worker has suffered permanent scarring because Elliotts didn’t do enough to look after the safety of its workers."
According to the hearing, an infra-red sensor, designed to stop the machine operating when someone approached the rollers, had been disabled because paper dust generated by the machine had been triggering it.
The HSE investigation found that the company failed to provide an alternative safety guard until after the incident, when it installed a pressure mat which stopped the machine working when someone stepped on it.
The court also heard that HSE served Elliotts with three Improvement Notices in May 2008, regarding inadequate guards on three other machines, the company complied with the notices within a month of them being issued.
Taylor added: "The three enforcement notices should have acted as a wake-up call to check the guards on all its machines. But the infra-red sensor on the machine at the company’s Littleborough factory was disabled without considering why it was there in the first place – to prevent workers being injured."