Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
CASE NO.:
Appeal (civil) 1453 of 2007
PETITIONER:
M/S. CRANE BETEL NUT POWDER WORKS
RESPONDENT:
COMMISSIONER OF CUSTOMS & CENTRAL EXCISE, TIRUPATHI & ANR
DATE OF JUDGMENT: 19/03/2007
BENCH:
Dr.AR. Lakshmanan & Altamas Kabir
JUDGMENT:
J U D G M E N T
(Arising out of SLP (C) No.20185/2005)
WITH
CIVIL APPEAL NO.6659 OF 2005
M/S. CRANE BETEL NUT POWDER WORKS ..Appellant
Versus
COMMISSIONER OF CUSTOMS & CENTRAL
EXCISE, TIRUPATHI ..Respondent
ALTAMAS KABIR, J.
Leave granted.
The appellant-company is 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 appellant cleared the goods under
Chapter Sub-heading 2107 of the Central Excise Tariff and
was paying duty accordingly. However, the appellant 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 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.
The Assistant Collector of Central Excise, Guntur
Division, who was the Adjudicating Authority, did not accept
the contention of the appellant upon holding that the product
manufactured by the assessee, namely, betel nut powder,
was a preparation containing betel nut with other
permitted ingredients which was a new product
commercially known to the market with distinct name and
character. On his said finding, the Adjudicating Authority
rejected the claim of the appellant-company and held that
the appellant’s product had been rightly classified under
Chapter Heading 2107.00 and the appellant was liable to
pay duty at the appropriate rate specified in the chapter to
the Central Excise Tariff Act, 1985.
The appellant-company went up in appeal against the
said order of the Adjudicating Authority to the Commissioner
of Customs and Central Excise, (Appeals) and the same was
decided in favour of the appellant-company.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
After considering the submissions made on behalf of the
respective parties, the Commissioner came to the conclusion
that the process of cutting betel nuts into small pieces and
the addition of essential/non-essential oils, menthol,
sweetening agent etc. does not result in a new and distinct
product having a different character being formed.
Accordingly, there was no "manufacture" involved therein
and even according to Note 7 of Chapter 21 of the Tariff,
there was no "manufacture" involved in the production of the
impugned goods. The Commissioner further held that the
item "betel nut powder/supari" finding a place/mentioned in
the tariff is of no consequence unless the product was the
result of manufacture or production, which is not so in the
instant case.
The Commissioner accordingly allowed the appeal filed
by the appellant herein and set aside the order passed by the
Assistant Commissioner of Central Excise, Guntur Division,
with consequential relief to the appellant-company.
Aggrieved by the order of the Commissioner, the
Revenue went up in appeal to the Customs, Excise and
Service Tax Appellate Tribunal, South Zonal Bench at
Bangalore (for short ’the Tribunal’) by way of Appeal No.
E.734/2004.
The Tribunal took a different view and reversed the
order of the Commissioner upon holding that the end
product of the process involved in the preparation of the
appellant’s product was different from the original material.
According to the Tribunal, a new and distinct product known
as "supari powder" had emerged. The Tribunal went on to
observe as follows :-
"When subjecting raw material to process
of manufacture, it is not necessary that
there should be a sort of transmutation.
Definitely, the ’supari powder’ will have
the characteristics of ’betel nut’. We
cannot say that there is no manufacture
for the reason that the ’betel nut’ remains
as ’betel nut’. It may remain so but
when other ingredients added to it how
can we say these processes do not bring
into existence a new and distinct
commodity? If we ask for betel nut, the
shopkeeper will not give supari powder.
In other words, the betel nut is different
from the supari powder."
The Tribunal accordingly allowed the appeal filed by the
Revenue and set aside the order passed by the Commissioner
on 6th May, 2004.
The appellant went up in appeal before the High Court of
Andhra Pradesh under Section 35 (B) of the Central Excise
Act, 1944 against the said order of the Tribunal dated 12th
April, 2005. The High Court confirmed the view taken by the
Tribunal and after taking into consideration the process
involved in converting the whole betel nuts into sweetened
betel nut pieces, the High Court dismissed the appeal and
chose not to interfere with the order passed by the Tribunal.
This appeal has been filed by the assessee-company
impugning the decision of the High Court dated 15th
September, 2005.
Appearing for the assesee-company, Mr. Soli J. Sorabjee,
learned senior advocate, contended that crushing of betel
nuts into smaller pieces and sweetening the same with
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
essential/non-essential oils, menthol and sweetening agents
did not result in the manufacture of a new product and as
observed by the Tribunal, the end product remained a betel
nut. Mr. Sorabjee submitted that once such a conclusion was
arrived at, it could no longer be contended that a new product
had come into existence.
Referring to Chapter 8 of the Central Excise Tariff Act,
1985, Mr. Sorabjee submitted that the product of the
appellant-company fell squarely under the said Chapter Sub-
heading 0801.00 for which the rate of duty was nil. He then
referred to Note 4 of Chapter 21 which reads as follows :-
CHAPTER 21 MISCELLANEOUS
EDIBLE PREPARATIONS NOTES
"4. In this Chapter "Betel nut powder
known as supari" means any preparation
containing betel nuts but not containing
any one or more of the following
ingredients, namely lime, katha (catechu)
and tobacco, whether or not containing
any other ingredients, such as
cardamom, copra and menthol."
Referring to the Chapter Notes on Chapter 8, Mr.
Sorabjee pointed out that fruits and nuts included under the
chapter could be whole, sliced, chopped, shredded, stoned,
pulped, grated, peeled or shelled. It was pointed out that
under Heading No. 08.02 in which other nuts are described, it
has been specifically mentioned that the said heading also
covers areca (betel) nuts used chiefly as a masticatory.
Mr. Sorabjee urged that the process involving
manufacture did 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.
In support of his aforesaid contention, Mr. Sorabjee
firstly referred to a Constitution Bench judgment of this
Court in the case of Union of India vs. Delhi Cloth &
General Mills, reported in (1963) Supp. 1 SCR 586, where
the change in the character of raw oil after being refined fell
for consideration. While considering the submission made
that "manufacture" is complete as soon as by the application
of one or more processes, the raw material undergoes some
change, the Constitution Bench observed that the word
"manufacture" used as a verb is generally understood to mean
as bringing into existence a new substance and does not
mean merely to produce some change in a substance. In
dealing with the subject, their Lordships had occasion to
refer to an extract from an American judgment in the case of
Anheuser-Busch Brewing Association vs. United States,
52 L.Ed. 336-338, which reads as follows:-
"’Manufacture implies a change, but
every change is not manufacture and yet
every change of an article is the result of
treatment, labour and manipulation. But
something more is necessary and there
must be transformation; a new and
different article must emerge having a
distinctive name, character or use."
Mr. Sorabjee submitted that the aforesaid principle had
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
been subsequently followed by this Court in several cases
and in that regard he referred to the decision of this Court in
the case of Deputy Commissioner of Sales Tax (Law),
Board of Revenue (Taxes), Ernakulam vs. M/s. PIO Food
Packers, reported in 1980 Supp. SCC 174, where the same
sentiments were expressed in the matter of processing raw
pineapple slices into canned slices for better marketing.
This Court held that when the pineapple fruit is processed into
pineapple slices for the purpose of being sold in sealed cans,
there is no consumption of the original pineapple fruit for the
purpose of manufacture.
Similar views have been expressed by this Court in the
case of Shyam Oil Cake Ltd. vs. Collector of Central
Excise, Jaipur, reported in (2005) 1 SCC 264, and in the case
of Aman Marble Industries (P) Ltd. vs. Collector of Central
Excise, Jaipur, reported in (2005) 1 SCC 279. While the first
case involve the classification of refined edible oil after
refining, the second case referred to the cutting of marble
blocks into marble slabs. In the first of the said two cases, it
was held that the process of refining of raw edible vegetable
oil did not amount to manufacture. Similarly, the cutting of
marble blocks into smaller pieces was also held not to be a
process of manufacture for the reason that no new and
distinct commercial product came into existence as the end
product still remained the same and thus its original identity
continued.
Mr. Sorabjee referred to the definition of the expression
"manufacture" in Section 2 (f) of the Central Excise Act,
1944, wherein "manufacture" has been defined to include any
process\027
(i) incidental or ancillary to the completion
of a manufactured product;
(ii) which is specified in relation to any
goods in the section or Chapter notes of
The First Schedule to the Central Excise
Tariff Act, 1985 (5 of 1986) as amounting
to manufacture; or
(iii) which in relation to the goods specified
in the Third Schedule, involves packing
or repacking of such goods in a unit
container or labelling or re-labelling of
containers including the declaration or
alteration of retail sale price on it or
adoption of any other treatment on the
goods to render the product marketable
to the consumer;
And the word "manufacture" shall be
construed accordingly and shall include not
only a person who employs hired labour in
the production or manufacture of excisable
goods, but also any person who engages in
their production or manufacture on his own
account;"
Mr. Sorabjee pointed out from the above that
"manufacture" had to be incidental or ancillary to the
completion of a manufactured product. In the instant case,
the product continued to be pieces of betel nut and hence it
would not come within the definition of "manufacture" as
used in the Central Excise Act, 1944.
Mr. Sorabjee urged that although initially the appellants’
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
product had been classified under Chapter Heading 2107.00,
after subsequent reconsideration of the matter, it was found
to fall squarely under Chapter Sub-heading 0801.00 referred
to in Chapter 8 of the Central Excise Tariff Act, 1985 and an
application was accordingly made to the Assistant Collector of
Central Excise, Guntur for re-determination.
Mr. Sorabjee submitted that while the Commissioner of
Customs and Central Excise (Appeals) had correctly decided
the matter, both the Tribunal as also the High Court took an
erroneous view that on account of processing of the betel nuts
a new and distinct product had emerged, thereby attracting
tax payable in respect of products classified under Chapter
Heading 2107.00. Mr. Sorabjee submitted that the orders
passed by the High Court as also the Tribunal were required to
be set aside and that of the Commissioner of Customs and
Central Excise (Appeals) was liable to be restored.
Appearing for the Revenue, Mr. B. Datta, learned Addl.
Solicitor General, reiterated the stand taken by the
Department before the Tribunal as also the High Court. He
reiterated that the very process of crushing the betel nuts into
different gradable sizes and adding certain ingredients to
the same resulted in the manufacture of a new product which
attracted Chapter Sub-heading 2107.00 of the Tariff instead of
Sub-heading No.0801.00 of the Schedule to the Central Excise
Tariff Act, 1985.
Dr. R.G. Padia, learned senior advocate, who also
appeared for the respondents in the other appeal (Civil Appeal
No.6659/2005) submitted that neither the Tribunal nor the
High Court had committed any error in holding that a new
product emerged after the manufacturing process resorted to
by the assessee which substantially altered the character of
the original product. It was submitted that though it was true
that betel nut remained betel nut even in the final product, the
same did not retain its original character and was converted
into a product where one of the components was betel net or
supari. Distinguishing the view taken by the Constitution
Bench in the Delhi Cloth and General Mills Ltd. (supra), Dr.
Padia contended that while in the said case no new product
had emerged and only raw oil had been subjected to
processing which could not be equated with manufacture, in
the instant case, the raw material itself, which was otherwise
inedible, underwent a change and was transformed into a
product which was edible with the addition of essential/non-
essential oils, menthol, sweetening agents etc. resulting in
the manufacture of a completely new product which was
different from the original raw material.
Dr. Padia also referred to Section 2 (f) of the Central
Excise Act, 1944 and submitted that the definition of the
expression "manufacture" squarely covered the process
involved in the conversion of raw betel nut into sweetened
betel nut powder and/or pieces.
In support of his aforesaid contention, Dr. Padia referred
to a decision of this Court in O.K. Play (India) Ltd. vs.
Commissioner of Central Excise-II, New Delhi, reported in
(2005) 2 SCC 555, where the expression "manufacture" had
been considered in the process of conversion of low density
polyethylene (LDPE) and high density polyethylene (HDPE)
granules into moulding powder for using the same as inputs to
manufacture plastic water-storage tanks and toys. It was
held that such processing amounted to "manufacture" within
Section 2 (f) of the Central Excise Act, 1944. It was also held
that such moulding powder is a marketable commodity and is,
therefore, excisable under Section 2 (d) of the aforesaid Act.
Dr. Padia referred to paragraph 11 of the said judgment which
refers to the two clauses contained in Section 2 (f) of the 1944
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
Act and instead of setting out the activities in respect of
different tariff items, Sub-clause (ii) simply states that any
process, which is specified in Section/Chapter Notes of the
Schedule to the Tariff Act, shall amount to "manufacture". It
was also held that under Sub-clause (ii), the Legislature
intended to levy excise duty on activities that do not result in
any new commodity. In other words, if a process is declared
to be "manufacture" in the Section or Chapter Notes, it would
come within the definition of "manufacture" under Section 2
(f) and such process would become liable to excise duty.
Dr. Padia then referred to the decision of this Court in
Kores India Ltd., Chennai vs. Commissioner of Central
Excise, Chennai, reported in (2005) 1 SCC 385, which
involved the cutting of duty-paid typewriter/telex ribbons in
jumbo rolls into standard predetermined lengths. It was held
that such cutting brought into existence a commercial
product having distinct name, character and use and that
both the Commissioner of Central Excise and the Tribunal had
rightly held that the same amounted to "manufacture" and
attracted the liability to duty.
The next decision referred to by Dr. Padia was that this
Court in Brakes India Ltd. vs. Superintendent of Central
Excise And Ors., reported in (1997) 10 SCC 717, where the
process of drilling, trimming and chamfering was said to
amount to "manufacture" within the meaning of Section 2 (f) of
the 1944 Act. While deciding the matter, this Court quoted
the observations of the High Court as under:-
"If by a process, a change is effected in a
product, which was not there previously ,
and which change facilitates the utility of
the product for which it is meant, then
the process is not a simple process, but
a process incidental or ancillary to the
completion of a manufactured product."
Dr. Padia also referred to the various judgments of the
Tribunal in support of his aforesaid contention which merely
repeat what has been explained in the decisions of this Court
cited by him.
Dr. Padia concluded on the note that both the Tribunal
and the High Court had correctly held that the appellant was
engaged in the manufacture of a new product from betel nuts
and the same had been correctly classified under Chapter
Sub-heading 2107.00 and was liable to duty at the
appropriate rate specified in the Schedule to the Tariff Act.
Despite the elaborate submissions made on behalf of the
respective parties, the issue involved in this appeal boils down
to the question as to whether by crushing betel nuts and
processing them with spices and oils, a new product could be
said to have come into being which attracted duty separately
under the Schedule to the Tariff Act.
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 is 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
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.
In our view, the Commissioner of Customs and Central
Excise (Appeals) has correctly analysed the factual as well as
the legal situation in arriving at the conclusion that the
process of cutting betel nuts into small pieces and addition
of essential/non-essential oils, menthol, sweetening agent etc.
did not result in a new and distinct product having a
different character and use.
The decision of this Court in the case of O.K. Play
(India) Ltd. (supra), relied on by Dr. Padia, does not also help
his submission that any form of manufacture would attract
payment of excise duty, since the said decision was dealing
with Note 6 to Chapter 39 of the 1985 Act where the
expression "manufacture" has been categorically included,
whereas in the instant case, Note 4 of Chapter 21 which
deals with Betel Nut Powder, does not do so.
In the circumstances, we allow the appeal and set aside
the orders passed by the High Court dated 15th September,
2005 and the Tribunal dated 12th April, 2005, respectively,
and restore that of the Commissioner of Customs and Central
Excise dated 6th May, 2004.
The decision in this appeal will govern Civil Appeal
No.6659/2005 as the facts of which are similar to those of
the present appeal.
There will be no order as to costs.