2007 (3) TMI 6 - SC - Central Excise

Cutting betel nuts with oils, menthol and sweeteners is treatment, not manufacture; product retains original character

CRANE BETEL NUT POWDER WORKS Versus COMMR. OF CUS. & C. EX., TIRUPATHI

SC held that cutting betel nuts into small pieces and adding oils, menthol, and sweeteners did not constitute manufacture because the end product retained ... Manufacture - Crushing of betel nuts in small pieces and adding other material amount to manufacture - business of marketing betel nuts in different sizes after processing them by adding essential/non-essential oils, menthol, sweetening agent etc. - HELD THAT:- 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. [1962 (10) TMI 1 - SUPREME COURT] 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. 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. Thus, 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. Issues Involved:1. Classification of the appellant's product under the Central Excise Tariff.2. Determination of whether the processing of betel nuts constitutes 'manufacture.'3. Applicability of excise duty based on the classification.Issue-wise Detailed Analysis:1. Classification of the Appellant's Product under the Central Excise Tariff:The appellant-company initially classified its processed betel nuts under Chapter Sub-heading 2107 of the Central Excise Tariff and paid duty accordingly. Later, they filed a revised classification under Rule 173B of the Central Excise Rules, 1944, claiming the product should fall under Chapter Sub-heading 0801.00, which attracted no duty. The Assistant Collector of Central Excise, Guntur Division, rejected this claim, holding that the product was a new commercial entity known as 'betel nut powder' and should be classified under Chapter Heading 2107.00. The Commissioner of Customs and Central Excise (Appeals) overturned this decision, agreeing with the appellant that the process did not result in a new product. However, the Tribunal and the High Court supported the initial classification under Chapter Heading 2107.00.2. Determination of Whether the Processing of Betel Nuts Constitutes 'Manufacture':The central issue was whether the processing of betel nuts-cutting them into smaller pieces and adding oils, menthol, and sweetening agents-constituted 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The Assistant Collector and later the Tribunal and High Court held that the process resulted in a new and distinct product. Conversely, the Commissioner of Customs and Central Excise (Appeals) and the Supreme Court found that the end product remained essentially betel nut, thus not constituting 'manufacture.' The Supreme Court cited precedents such as Union of India v. Delhi Cloth & General Mills and Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s. Pio Food Packers, which held that 'manufacture' implies a transformation resulting in a new product with a distinct name, character, or use.3. Applicability of Excise Duty Based on the Classification:Given the Supreme Court's determination that the processing did not result in a new product, the classification under Chapter Sub-heading 0801.00 was appropriate, which attracted no duty. The Court emphasized that the product remained betel nut in a modified form and thus did not meet the criteria for 'manufacture' as defined in Section 2(f) of the Central Excise Act, 1944. The Supreme Court set aside the orders of the Tribunal and the High Court, restoring the decision of the Commissioner of Customs and Central Excise (Appeals), which had classified the product under Chapter Sub-heading 0801.00.Conclusion:The Supreme Court allowed the appeal, concluding that the process of cutting betel nuts and adding other ingredients did not constitute 'manufacture' and thus the product should be classified under Chapter Sub-heading 0801.00, attracting no excise duty. The orders of the High Court and the Tribunal were set aside, and the decision of the Commissioner of Customs and Central Excise (Appeals) was restored. This ruling also applied to a similar case (Civil Appeal No. 6659/2005). The Court did not issue an order as to costs.