The appellant/assessee challenges the correctness and
validity of the final order dated 10.10.2002 passed by the
Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), New Delhi in the appeal which was preferred by the
assessee against the order of Commissioner (Appeals) who had
upheld the Order-in-Original dated 17.3.1999 passed by the
Additional Commissioner pursuant to show cause notice dated
4.8.1997 issued by him. In the said show cause notice the
Additional Commissioner had proposed to classify the product
of the appellant/assessee under Heading 2108 of the Central
Excise Tariff Act, 1985, as Miscellaneous Edible preparation
not elsewhere specified or included.
It may be stated that assessee is engaged in the
packing combination of mixture of raw rice, dehydrated
vegetables and spices in the name of 'Rice and Spice'. The
exact process which is taken note of by the Tribunal as
explained by Cl. R.L. Mehta, Deputy General Manager of the
assessee is as follows:
“This product i.e. Rice Spice is a
combination of Raw Rice, Dehydrated
vegetables and certain spices and condiments
mixed in a pre-determined proportion and that
blended together in a mixer for uniformity
and the blended mixer is heated, if required,
to sterlize the product. The mixed product is
the packed in pouches with Nitrogen flushing
for a longer shelf life”.
The defence putforth by the assessee to the show cause
notice issued by the Additional Commissioner was that the
aforesaid process does not amount to `manufacture' within
the meaning of Section 2(f) of the Central Excise Act, 1944. It was also argued that, in any case, the product was not
classifiable under Heading 2108 of the Central Excise Tariff
Act, 1985 as claimed by the Revenue but it should be covered
under Heading 11.01. That Heading applies to products of the
milling industry, including flours, groats, meal and grains
of cereals, and flour, meal or flakes of vegetables on which
nil duty is payable. It was, thus, contended that in no case
the assessee was under any obligation to pay the duty on the
aforesaid process.
The Additional Commissioner did not agree with the
contention of the assessee holding it to be a manufacturing
process, and opinion of the Additional Commissioner is
accepted by the Commissioner (Appeals) as well as by CEGAT.
Ms. Charanaya, the Learned counsel appearing for the
appellant argued before us that the authorities committed
serious error in holding the aforesaid process of the
assessee as “manufacturing process”. Her arguments was that
from the reading of the process described above, it would
be manifest that it only involved mixing of raw rice,
dehydrated vegetable with some spice and did not bring about
any new product. It was submitted that the aforesaid
mixture, which is sold in a packaged form, is raw food and
still needs to be cooked to make it edible. She pointed out
that on the packing/pouch of the product even the cooking
instructions are mentioned in the following manner: JUDGMENT
“All cooking appliances vary in
performance, these are guidelines only.
Empty contents into 375 ml (2/3 pints) of
cold water, stir well. Add I tablespoon of
butter or margarine. Bring to boil,
uncovered, in a small saucepan. Reduce
heat, cover the saucepan and simmer gently
for approximately 15 minutes or until all
water is absorbed.”
It was further submitted that there was no new product
which came into existence as that product was still known as
rice which did not lose its essential character and
therefore it could not be treated as `manufacture'. In
support the aforesaid submission Ms. Charanya referred to
certain judgments which shall be discussed by us at the
later stage.
In support of her other submission viz. that the
product would still be classified under Heading 11.01, the
learned counsel referred to the `Rule of Interpretation'
contained in the Schedule of Excise Tariff known as “Rules
for the Interpretation of this Schedule”. In this behalf
Rule 3 and in particular clause (b) thereof was pressed into
service. Therefore it would be apposite to take note of
this clause as well which we reproduce below:
“When by application of sub-rule (b) of rule 2 or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
(a) The heading which provides the most
specific description shall be preferred to
headings providing a more general
description. However, when two or more
headings each refer to part only of the
materials or substances contained in mixed
or composite goods or to part only of the
items in a set, those headings are to be
regarded as equally specific in relation to
those goods, even if one of them gives a
more complete or precise description of the
goods.
(b) Mixtures, composite goods
consisting of different materials or made up
of different components, and goods put up in
sets, which cannot be classified by
reference to (a), shall be classified as if
they consisted of the material or component
which gives them their essential character,
insofar as this criterion is applicable.
(c) When goods cannot be classified by
reference to (a) or (b), they shall be
classified under the heading which occurs
last in the numerical order among those
which equally merit consideration.”
Mr. A.K. Sanghi learned senior counsel appearing on
behalf of the Revenue, countered the aforesaid submission by
pointing out that a specific finding was arrived at by the
Tribunal, affirming the finding of the quasi-judicial
authorities below to the effect that a new product had come
into existence as a result of the processes undertaken by
the assessee. It was specifically held by the CEGAT that
rice did not remain rice at all as a mixed product
containing rice, vegetable and spices emerges after the
specific process was undertaken by the assessee. He also JUDGMENT referred to those observations of the CEGAT where it has
remarked that there is a transformation of a new commodity
commercially known as distinct and separate commodity
having its own character, use and name. Be it the result of
one process or several processes in fact ' manufacture' had
taken place. He, thus, argued that when a new commodity
had come into existence as held by CEGAT, this was the
trigger point for the levy of excise duty under the Excise
Act. He further submitted that in view of the aforesaid,
viz. coming into existence a new product, that particular
edible product had to be fallen under Chapter 11 of the
Tariff as it is not a product of milling industry not
classifiable under Chapter 11 of the Tariff.
From the aforesaid arguments advanced by counsel on
the either side, it is clear that there is no dispute about
the legal proposition that the process would be treated as
“manufacture” only if new product known to the market comes
into existence with original product losing its original
character.
The only question is as to whether this test is
satisfied on the facts of the present case. Before we
embark on the discussion on this issue and answer the same,
it would be advisable to take note of few judgments wherein
legal position that prevails on this subject is stated with
elaboration. JUDGMENT
The first judgment which we want to mention, which was
cited by Ms. Charanya, is Crane Betel Nut Powder Works vs.
Commissioner of Customs, Central Excise, Tirupathi (2007
(210) ELT, 171 (S.C.). In the said case the assessee was
engaged in the business of marketing betel nuts in different
sizes after processing them by adding essential/non-
essential oils, menthol, sweetening agent etc. Initially,
the assessee cleared the goods under Chapter Sub-heading
2107 of the Central Excise Tariff and was paying duty
accordingly. However, the assessee filed a revised
classification declaration under Rule 173B of the Central
Excise Rules, 1944, with effect from 17th July, 1997,
claiming classification of its product under Chapter Sub-
heading 0801.00 of the Central Excise Tariff. It was
contended by the assessee that the crushing of betel nuts
into smaller pieces with the help of machines and passing
them through different sizes of sieves to obtain goods of
different sizes/grades and sweetening the cut pieces did not
amount to manufacture in view of the fact that mere crushing
of betel nuts into smaller pieces did not bring into
existence a different commodity which had a distinct
character of its own.
Though the authorities below had decided against the
assessee, this Court reversed the said view holding that the
said process would not amount to `manufacture' as the JUDGMENT process involving manufacture does not always result in the
creation of a new product. In the instant case
notwithstanding the manufacturing process, it could not be
said that a transformation had taken place resulting in the
formation of a new product. The relevant portion of the
judgment is reproduced below:
“.30. In our view, the process of
manufacture employed by the appellant-company
did not change the nature of the end product,
which in the words of the Tribunal, was that
in the end product the `betel nut remains a
betel nut’. The said observation of the
Tribunal depicts the status of the product
prior to manufacture and thereafter. In
those circumstances, the views expressed in
the D.C.M. General Mills Ltd. (supra) and the
passage from the American Judgment (supra)
become meaningful. The observation that
manufacture implies a change, but every
change of not manufacture and yet every
change of an article is the result of
treatment, labour and manipulation is
apposite to the situation at hand. The
process involved in the manufacture of
sweetened betel nut pieces does not result in
the manufacture of a new product as the end
product continues to retain its original
character though in a modified form.”
What is to be highlighted is that even after the betel
nut which had been cut to different sizes and had undergone
the process, the Court did not treat it as 'manufacture'
within the meaning of Sec.2(f) of the Act on the ground that
the end product was still a betel nut and there was no
change in the essential character to that article even when it was the result of treatment, labour and manipulation,
inasmuch as even after employing the same it had not
resulted in the manufacture of a new product as the end
product continued to retain its original character.
Another judgment which was referred to by learned
counsel for the appellant is Commissioner of Central Excise
vs. Laljee Godhoo & Co. (2007 (216) ELT 514 (S.C). Vide this
judgment the Court affirmed the view taken by the CEGAT,
holding that the process of subjecting raw asafoetida (hing)
resulting in formation of compounded asafoetida does not
amount to manufacture, even when this process has undergone
chemical change, because of the reason that the said
chemical change had not brought even after it underwent a
process, any new product as the product remained the same at
starting and terminal points of the process. Though the
exact process undertaken is not discernible from the
judgment, the learned counsel pointed out that this process
is described in the order passed by the CEGAT against which
the appeal was preferred by the Department. The order of
the CEGAT is reported in Laljee Godhoo & Co. vs.
Commissioner of Central Excise, Mumbai (2001 (132) ELT 287
(S.C.). The process noted in the judgment of the CEGAT runs
thus:
“The gum Arabic and wheat flour are blended
in the sigma mixers. Filtered water mixed
asafoetida is then poured slowly into the mixer over the gum and wheat flour. This
gets the product ready. Further the
resultant product is given a heat treatment
by suction in pipes through which a heater
is attached and the moisture is sucked out.
The powder is then passed through a hammer
mill where it is crushed thoroughly. This
powder is then passed through a sieve,
which contains magnet balls absorbing any
fine iron particles. The compounded
asafoetida in powder form is then packed in
different grammage bottles. In case of
lump form, the gum and wheat flour along
with filtered water mixed with asafoetida
is poured into the sigma mixer. This
process takes about 40 minutes. After this
the mixture, which has by now made into
lumps is extracted and put into the
aluminium trays and dried for a day before
it is packed in cartons.”
We would like to reproduce para 5 of the order of the
CEGAT, since this judgment was upheld by this Court in the
said case. This para is to the following effect:
“It is common ground that the
processes to which the raw asafoetida is
subjected, resulting in the lump or powder
which is sold does not bring about any
chemical change in the asafoetida.The
process, as we have seen, is nothing more
than the addition to the asafoetida of wheat
flour and gum arabic.It is stated that gum
Arabic is added in order that the particles
of the asafoetida and wheat flour adhere to
each other. Neither the gum arabic nor the
wheat flour reacts chemically with the
asafoetida.The contention is that while the
raw asafoetida itself is used in cases where
its very strongly pungent flavour is
required, for example, in the making of
pickles and papad, it is compounded in order
to render it more suitable for use in day-
to-day cooking where a lighter flavour is
desired. The essential character of the
product therefore does not change. It is
used in both its concentrated and blended
form only as an addition to food preparation,JUDGMENTflavouring agent or for the
medicinal properties that it is reputed to
possess.”
Again the test which was applied was that essential
character of the product did not change and, therefore, it
would not amount to manufacture. It was so held even when
gum arebic as well as wheat flour were mixed in the process.
A pertinent aspect which was noted was that mixing of these
articles did not result in chemical reaction with
asafoetida.
Last judgment to which we would like to refer to is
Deputy Commissioner Sales Tax (Law), Board of Revenue
(Taxes), Ernakulam Vs. PIO Food Packers (1980 (6) ELT 343
(S.C.). In that case, the process undertaken by the assessee
was to wash the pineapple, after purchase, and then remove
inedible portion, the end crown as well as skin and inner
core. After removing those inedible portions the pineapple
fruit used to be sliced and the slices were filled in canes
after adding sugar as preservative. Thereafter, canes would
be sealed under temperature and then put in a boiled water
for sterlisation. Identical question was posed viz. whether
this process amounted to `manufacture'. Giving the answer
in the negative, the Court held that even when with each
process suffered, the original commodity experienced a
change, such a change would not amount to `manufacture'
unless it seized to be the original commodity and a new and JUDGMENT distinct article was produced therefrom. This is explained
in detail in paras 4 and 5 of the said judgment and
therefore we would like to reproduce the same as under:
4. Section 5-A(1)(a) of the Kerala General
Sales Tax Act envisages the consumption of a
commodity in the manufacture of another
commodity. The goods purchased should be
consumed, the consumption should be in the
process of manufacture, and the result must
be the manufacture of other goods. There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining its original identity.
5. A large number of cases has been placed before us by the parties, and in each of them the same principle has been applied: Does theprocessing JUDGMENTof the original commodity bring into existence a commercially different and distinct article ? Some of the cases where it was held by this Court that a different commercial article had come into existence include Anwarkhan Mehboob Co. v. The State of Bombay and Others (where raw tobacco was manufactured into bidi patti), A Hajee Abdul Shukoor and Co. v. The State of Madras (raw hides and skins constituted a different commodity from dressed hides and skins with different physical properties), The State of Madras v. Swasthik Tobacco Factory (raw tobacco manufactured into chewing tobacco) and Ganesh Trading Co. Karnal v. State of Haryana and Another, (paddy dehusked into rice). On the other side, cases where this Court has held that although the original
commodity has undergone a degree of
processing it has not lost its original
identity include Tungabhadra Industries Ltd.,
Kurnool v. Commercial Tax Officer, Kurnool
(where hydrogenated groundnut oil was
regarded as groundnut oil) and Commissioner
of Sales Tax, U.P., Lucknow v. Harbiles Rai
and sons (where bristles plucked from pigs,
boiled, washed with soap and other chemicals
and sorted out in bundles according to their
size and colour were regarded as remaining
the same commercial commodity, pigs
bristles).”
Another important aspect which needs to be highlighted
from this judgment is that the argument of the Revenue that
the sale of pineapple slices after the aforesaid process,
was at a higher price in the market than the original fruit
and, therefore, it constituted a different commercial
commodity. The Court negatived this contention as well by
observing that the process undertaken by the assessee may
have made value addition to the product but the essential
character of the product did not undergo any change, which
is the determinative factor, inasmuch as pineapple remained JUDGMENT
the pineapple; albeit in slice form and continued to be
known as pineapple in the market. For this proposition the
Court decided to rely upon a foreign judgment where the
U.S. Supreme Court had held that dressed and frozen chicken
was not a commercially distinct article from the original
chicken. Detailed discussion of the said judgment appears in
para 7 which reads as follows:
7. While on the point, we may refer to East Taxes Motor Freight Lines vs. Frosen Food Express, where the U.S. Supreme Court held that dressed and frozen chicken was not a commercially distinct article from the original chicken. It was pointed out:
“killing, dressed and freezing a chicken is certainly a change in the commodity. But it is no more drastic a change than the change which takes place in milk from pasteurising, homogenizing, adding vitamin concentrates, standardizing and bottling”.
It was also observed:
“……………………there is hardly less difference between cotton in the
field and cotton at the gin or in the bale or between cotton seed in the field and cotton seed at the gin, than between a chicken in the pen and one that is dressed. The ginned and baled cotton and the cotton seed, as well as the dressed chicken, have gone through a processing stage. But neither has been ‘manufactured’ in the normal sense of the word.
Referring to Anheuser-Busch BrewingAssociation v. United States the Court said:
”Manufacture implies a change but every change is not manufacture and yet every change in an JUDGMENTarticle is the result of treatment, labour and manipulation. But something more is necessary…..There must be transformation; a new and different article must emerge having distinctive name, character on use.”
And further:
“At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been manufactured.”
The comment applies fully in the case before us. Although a degree of processing is involved in preparing pineapple slices from the original fruit,
the commodity continues to possess its
original identity, notwithstanding the
removal of inedible portions, the slicing
and thereafter canning it on adding sugar
to preserve it. It is contended for the
Revenue that pineapple slices have a higher
price in the market than the original fruit
and that implies that the slices constitute
a different commercial commodity. The
higher price, it seems to us, is occasioned
only because of the labour put into making
the fruit more readily consumable and
because of the cane employed to contain it.
It is not as if the higher price is claimed
because it is a different commercially
commodity. It is said that pineapple
slices appeal to a different sector of the
trade and that when a customer asks for a
cane of pineapple slices he had in mind
something very different from fresh
pineapple fruit. Here again, the
distinction in the mind of the consumer
arises not from any difference in the
essential identity of the two, but is
derived from the mere form in which the
fruit is desired. Learned counsel for the
Revenue contends that even if no
manufacturing process involved, the case
still falls within Section 5(1)(a) of the
Kerala General Sales Tax Act, because the
statutory provision speaks not only of
goods consumed in the manufacture of other
goods for sale but also goods consumed
otherwise. There is a fallacy in the
submission. The clause, truly read, speaks of goods JUDGMENTconsumed in the manufacture of
other goods for sale or goods consumed in
the manufacture of other goods for purposes
other than sale.”
It follows from the above that mere addition in the
value, after the original product has undergone certain
process, would not bring it within the definition of
'manufacture' unless its original identity also under goes
transformation and it becomes a distinctive and new
product.
When we apply the aforesaid principle to the facts of
this case, it is clear that mere addition of dehydrated
vegetables and certain spices to the raw rice, would not
make it a different product. Its primary and essential
character still remains the same as it is continued to be
known in the market as rice and is sold as rice only.
Further, this rice, again, remains in raw form and in order
to make it edible, it has to be cooked like any other
cereal. The process of cooking is even mentioned on the
pouch which contains cooking instructions. Reading thereof
amply demonstrates that it is to be cooked in the same form
as any other rice is to be cooked. Therefore, we do not
agree with the CEGAT that there is a transformation into a
new commodity, commercially known as distinct and separate
commodity.
Since we are holding that the activity undertaken by
the assessee does not amount to manufacture, this appeal is
liable to succeed on this ground itself inasmuch in the
absence of any manufacture there is no question of payment
of any excise duty. We may, however, remark that even
otherwise the classification of the product by the Revenue
under sub-heading 21.08 may not be correct. In fact, the
CEGAT has accepted that classification only on the ground
that the product after mixing of raw rice with dehydrated
vegetable and spice, has become a new product as it amounts
to `manufacture' and on that basis it has held that it no
longer remains product of milling industry. As we have held
that it does not amount to `manufacture' as the essential
characteristics of the product, still remains the same,
namely, rice, a natural corollary would be that it
continues to be the product of the milling industry and
would be classifiable under sub-heading 11.01. Rate of duty
on this product, in any case, is 'nil'.
This appeal, accordingly, succeeds and is allowed.
The order of the CEGAT as well as demand of excise duty by
the Revenue are hereby set aside.
No costs.
(A.K.SIKRI)
New Delhi;
Date: 18.3.2015.
Civil Appeal No(s). 8958/2003
M/S. SATNAM OVERSEAS LTD. Appellant(s)
VERSUS
COMMNR. OF CENTRAL EXCISE, NEW DELHI Respondent(s)
(with appln. (s) for ex-parte stay and office report)
Date : 18/03/2015 This appeal was called on for hearing today.
CORAM :
For Appellant(s) M/s. L.Charanaya, V.Lakshmikumaran,M. P.
Devanath,Vivek Sharma,Aditya Bhatacharya,
Prashanth S.Shivadass,R.Ramachandran and Mr.
Rajesh Kumar,Advs.
For Respondent(s) Mr. A.K.Sanghi,Sr.Adv.
Ms. Nisha Bagchi,Adv.
Ms. Shweta Garg,Adv.
Mr. B. Krishna Prasad,Adv.
UPON hearing the counsel the Court made the following
O R D E R
The appeal succeeds and is allowed in terms of the signed judgment.JUDGMENT