Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5
CASE NO.:
Appeal (civil) 8595-8596 of 2001
PETITIONER:
M/s Amrit Agro Industries Ltd. & Anr
RESPONDENT:
Commissioner of Central Excise, Ghaziabad
DATE OF JUDGMENT: 19/03/2007
BENCH:
S. H. Kapadia & B. Sudershan Reddy
JUDGMENT:
J U D G M E N T
With Civil Appeal Nos. 1459-60/2002
KAPADIA, J.
Civil Appeal Nos. 8595-8596/2001:
These civil appeals are filed by the assessee under
section 35L of the Central Excise Act, 1944 against decision
dated 10.9.2001 passed by CEGAT. The short question which
arises for determination is the classification of ’roasted
peanuts’ and ’moongfali masala mazedar’ under the Schedule
to the Central Excise Tariff Act and consequential demand for
duty of excise.
The Appellant-assessee manufactures namkeens like aloo
bhujia, chholey masala, roasted peanuts and moongfali masala
mazedar. Appellant claims that all the four items fall under
Heading 21.08 as Namkeen. The Appellant claims that
accordingly all the four items are exempted vide Notification
No. 4/97-C.E. dated 1.3.1997. In that
declaration/classification with effect from 1.3.1997, they
declared all the above items as namkeens. They relied upon
Heading 21.08 which refers to namkeens such as bhujia and
chabena. The Appellant started production of two out of four
items abovementioned, namely, roasted peanuts and moongfali
masala mazedar only in July and September, 1997
respectively. Prior to the above dates, they were in the
business of manufacturing chholey masala and aloo bhujia.
At this stage, we may clarify that the Department has
accepted the claim of the appellant that chholey masala and
aloo bhujia fell under Heading ’namkeen’ under 21.08. The
appellant has been given exemption benefit accordingly.
Therefore, in the present civil appeals there is no dispute
regarding chholey masala and aloo bhujia.
It is the case of the Department that roasted peanuts and
moongfali masala mazedar are the two items which do not fall
under Heading 21.08. It is the case of the Department that
Chapter 21 deals with Miscellaneous Edible Preparations. It is
the case of the Department that chholey masala and aloo
bhujia fall under Chapter 21, but not roasted peanuts and
moongfali masala mazedar. According to the Department,
roasted peanuts and moongfali masala mazedar are the two
items which will fall under Heading 20.01 in Chapter 20.
According to the Department, Chapter 20.01 deals with
Preparations of Vegetables, Fruit, Nuts and Other Edible Parts
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5
of Plants. According to the Department, in the case of roasted
peanuts, the character of a nut remains intact. According to
the Department, in the present case, the assessee applies salt
on the peanuts, thereafter, the assessee roasts peanuts which
are then put in a container. Therefore, according to the
Department, in the process of roasting the character of a nut
remains intact. According to the Department, a roasted peanut
is a preparation from the peanut. Accordingly, the Department
sought to classify roasted peanuts under Heading No. 20.01.
As regards moongfali masala mazedar, the same test is
sought to be applied by the Department saying that an
essential character of moongfali is not lost even when it is
salted and fried, therefore, according to the Department,
roasted peanuts and moongfali masala mazedar are the items
classifiable under Heading 20.01.
Having gone through the records and having examined
the process undertaken by the assessee, we are in agreement
with the view expressed by the Tribunal ("CEGAT") regarding
classification of roasted peanuts under Heading 20.01. The
Tribunal had adopted a correct test when it says that the
essential structure of the peanut is not changed by the
process of roasting. The assessee merely applies salt to roasted
peanuts which does not obliterate the essential character.
Moreover, roasting is a process. That process has not been
excluded in Note 1 to Chapter 20. Therefore, roasted peanuts
are covered by Chapter 20. Even according to the Explanatory
notes of HSN under Heading 20.08 ground-nuts, almonds,
peanuts etc. which are dry-roasted, fat-roasted whether or not
containing vegetable oil are the items which all would stand
covered by the said Heading 20.08.
According to the appellant-assessee, roasted peanuts
would fall under Chapter 21\026Miscellaneous Edible
Preparations. In this connection, reliance is placed by the
appellant on Heading 21.08 which refers to Edible
preparations, not elsewhere specified or included. Learned
counsel in particular also relies upon sub-heading 2108.99 \026
Other. According to the appellant, roasted peanut falls under
Heading 21.01, hence they are entitled to exemption. Learned
counsel for the appellants further submits that in the following
year 1998-99 Chapter Note no. 10 was modified to include
products commonly known as namkeens, mixtures, bhujia,
chabena or by any other name. According to Chapter Note no.
10, such products shall remain classifiable under sub-heading
2108.99 and, therefore, the appellants were entitled to the
benefit of exemption notification. We do not find any merit in
this contention. Firstly, a roasted peanut is not a product
commonly known as namkeen. It cannot be compared to
bhujia. In the case of bhujia, e.g., not only salt but even
masala, salt, gram flour are some of the ingredients which are
used in the preparation of bhujia. Therefore, a roasted peanut
cannot be compared to a bhujia. Similarly, a roasted peanut is
not only known in the market as a bhujia or chabena. In the
circumstances, there is no merit in the contentions raised on
behalf of the appellant-assessee. As stated above, roasted
peanut is also a preparation, however, it is a preparation of
nuts like almonds, peanuts, ground-nuts etc.. They are
products which are prepared or preserved by processes like
roasting. As stated above, roasting is not chilling, it is not
freezing. As stated above, roasting is not one of the
enumerated processes in Chapter Note No. 1 to Chapter 20.
Heading 20.01 specifically refers to preparations of vegetables
fruit, nuts or plants. Sub-heading 2001.90 refers to the word
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5
’Other’. In the circumstances, we are in agreement with the
view expressed by the Tribunal that roasted peanut falls under
Chapter 20 and not under Chapter 21.
As regards moongfali masala mazedar, the Department
has adopted the same test to say that even in the case of the
said item the basic character of moongfali is not altered. This
view is erroneous. We have examined the process. In the case
of moongfali masala mazedar, the preparation is very similar
to bhujia. As stated above, even according to the Department
aloo bhujia falls under heading 21.08. In the case of moongfali
masala mazedar, the principle of predominance cannot be
applied, particularly in absence of any Section Note or Chapter
Note propounding the said principle. In this process the
capacity to germinate is obliterated. Moongfali masala
mazedar is the mixture of material other than the nuts. It is
an oil preparation. It makes use of gram flour (besan). It
undergoes the process of deep frying. When such a process is
applied one cannot apply the principle of predominance. The
only difference between aloo bhujia and moongfali masala
mazedar is that in the former case the namkeen is essentially
made of aloo whereas in the later case it is a namkeen
essentially made from a pulse (dal). Pulse can be chana,
malka, masoor, moong, urad etc.. All these products are only
known as namkeens in the market. In the circumstances, we
are of the view that moongfali masala mazedar falls under
Chapter 21. It falls under Heading 21.01, sub-heading
2108.99 and, therefore, the assessee is entitled to exemption.
In the present matter, one of the points which arises for
determination is whether the Department was entitled to
invoke the extended period of limitation. Although, the courts
below have examined the said question, they have lost sight of
an important fact, namely, that at the instance of the
Department, the assessee had filed a revised declaration on
19.11.1997, in the circumstances, the show cause notice
dated 5.5.1998 is within six months, consequently, the
question of extended period does not arise in the present case.
Accordingly, the appeals are partly allowed with no order
as to costs.
Civil Appeal Nos. 1459-1460/2002
These appeals are a sequel to the appeals decided today
by us being Civil Appeal Nos. 8595-8596/2001.
In our judgment in Civil Appeal Nos. 8595-8596/2001,
we have held that roasted peanuts unlike moongfali masala
mazedar is a preparation falling under sub-heading 2001.90 of
Chapter 20. To that extent, we have held in favour of the
Department. Consequently, the question which arises in
present Civil Appeal nos. 1459-1460/2002 is whether the
price charged by the assessee, in the facts and circumstances
of the case, has to be considered as cum-duty price.
Essentially these civil appeals are quantum appeals. It is the
case of the Department in the present civil appeals that all
throughout the years the assessee has claimed that roasted
peanuts came under Chapter 21 and, consequently, the said
item stood exempted from payment of duty under above
exemption notification dated 1.3.1997. Therefore, according to
the Department, all these years the assessee had cleared the
goods on the footing that roasted peanuts were exempted.
They have filed the requisite declarations/ classifications on
that basis. According to the Department, since the assessee
had cleared roasted peanuts without payment of duty during
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5
the relevant years, the quantum of duty is required to be
recomputed. According to the Department, in the normal case
where the assessee does not seek exemption or in cases where
goods are not exempted, the quantum of duty has got to be
recomputed on the basis of "cum-duty price". According to the
Department, the reasoning behind recomputation based on
cum-duty price is that ordinarily the basis for levy of excise
duty is the normal price. That normal price includes the duty
element. Such price is called cum-duty price. Therefore, in
such cases, when the quantum of duty is required to be
recomputed it has to be done on the basis of cum-duty price.
In this connection, the law is well settled as held by this Court
in Commissioner of Central Excise, Delhi v. Maruti Udyog
Ltd. reported in 2002 (141) E.L.T. 3. In the said judgment, it
has been held that the sale price realised by the assessee is
the entire price inclusive of excise duty, when the assessee has
by necessary implication, taken on the liability to pay all taxes
on the goods sold and has not sought to realise any some in
addition to the price obtained by it from the buyer. In the said
case, it has been held that when the assessee has charged
cum-duty price, then in arriving at the assessable value of the
goods, the element of duty payable has to be excluded. To this
extent, there is no difficulty. However, in the present case, the
Department contends that there is no question of implication
when throughout the relevant years the assessee has been
clearing the goods on the basis of the exemption notification of
1997, referred to above, which is not applicable to roasted
peanuts, and, therefore, according to the Department, the
above judgment of this Court in the case of Maruti Udyog Ltd.
has no application to the facts of the present case.
On the other hand, it is urged on behalf of the assessee
that the basis for levy of excise duty under section 4(4)(d)(ii) of
Central Excises & Salt Act, 1944 is the wholesale price.
According to the assessee, that price will include the element
of duty payable because such duty forms part of the
consideration for sale of the goods according to the terms and
conditions of sale of such goods and, therefore, whenever a
further demand of duty is created against the assessee and
such further demand of duty cannot be passed on to a
customer in view of the stipulations of the terms and
conditions of sale between the assessee and his customer, the
original consideration (including duty, if any) received by the
assessee for sale in wholesale trade has to be taken as cum-
duty price. In this connection, reliance is placed by the
assessee on the judgment of the Tribunal in Srichakra Tyres
Ltd. v. Collector of Central Excise, Madras reported in
1999 (108) E.L.T. 361.
In our view, the above judgments in the case of Maruti
Udyog Ltd. and Srichakra Tyres Ltd. have no application in
the facts of the present case. In the case of Asstt. Collector of
Central Excise v. Bata India Ltd. reported in 1996 (84)
E.L.T. 164 this Court held that under section 4(4)(d)(ii) of
Central Excises and Salt Act, 1994 the normal wholesale price
is the cum-duty price which the wholeseller has to pay to the
manufacturer-assessee. The cost of production, estimated
profit and taxes on manufacture and sale of goods are usually
included in the wholesale price. Because the wholesale price is
usually the cum-duty price, the above section 4(4)(d)(ii) lays
down that the "value" will not include duty of excise, sales tax
and other taxes, if any, payable on the goods. It was further
held that if, however, a manufacturer includes in the
wholesale price any amount by way of tax, even when no such
tax is payable, then he is really including something in the
price which is not payable as duty. He is really increasing the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5
profit element in another guise and in such a case there
cannot be any question of deduction of duty from the
wholesale price because as a matter of fact, no duty has
actually been included in the wholesale price. It was further
held that the manufacturer has to calculate the value on
which the duty would be payable and it is on that value and
not the cum-duty price that the duty of excise is paid.
Therefore, unless it is shown by the manufacturer that the
price of the goods includes excise duty payable by him, no
question of exclusion of duty element from the price for
determination of value under section 4(4)(d)(ii) will arise.
In our view, in the facts and circumstances of the case
the judgment of this Court in the case of Bata India Ltd.
(supra) on principle would apply. Therefore, in the present
case, the assessee will have to show as to how he has
determined the value. What the appellant has really done in
the instant case has to be examined. Whether the price
charged by him to his customers contains profit element or
duty element will have to be examined. As stated above, this
examination is warranted because, in the present case, one
cannot go by general implication that the wholesale price
would always mean cum-duty price, particularly when the
assessee had cleared the goods during the relevant years on
the basis of the above exemption notification dated 1.3.1997.
Accordingly, the appeals are allowed and the matter is
remitted to the adjudicating authority for recomputation of
duty on the principles enumerated hereinabove. There will be
no order as to costs.