2007 (2) TMI 383 - AT - Central Excise

Tribunal confirms duty & penalties on food products, upholds classification. Pre-deposit required, pending appeals.

The demand of duty and penalty amounting to Rs. 2,21,30,791/- raised on various food products was confirmed by the Tribunal. The Tribunal upheld the ... Stay/Dispensation of pre-deposit - Manufacture ISSUES PRESENTED AND CONSIDERED 1. Whether the activities of assembling/baking/heating bought-out components to produce burgers, curry pans, wraps, pizza puffs and French fries constitute 'manufacture' for excise classification purposes. 2. Whether the products, if held to be manufactured, are classifiable under Chapter 16 (preparations of meat) or Chapter 20 (preparations of vegetables/fruits) by virtue of being 'preparations... put up in unit containers and bearing a brand name'. 3. Whether the extended period of limitation (invocation of extended period for assessment) is legally sustainable in view of alleged prior disclosure to excise authorities. 4. Whether unconditional waiver of pre-deposit of duty and penalty is warranted, and if not, what conditional pre-deposit and stay directions are appropriate pending appeal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation as 'manufacture' Legal framework: Excise law treats the making of a new commodity distinct in name/character from its ingredients as manufacture; marketability after process is a relevant factor. Precedent treatment: The Tribunal applied established tests for manufacture - emergence of a new commodity with a distinct name and marketability contingent on processes adopted. Interpretation and reasoning: The Court found that assembling buns with patties/fillets, pouring curry into spiced bread, combining chapathis with filling, preparation of pizza puffs and frying/heating French fries involve processes resulting in products that are different in name and character from component ingredients and are marketable only after the applicant's processes (heating/frying/assembly). The activities are thus prima facie processes of manufacture rather than mere storage/merely serving bought-out goods. Ratio vs. Obiter: Ratio - where bought-out components are combined/processed to create a distinct, marketable product known by a different name, such activity constitutes manufacture for excise purposes. Obiter - factual distinctions as to the exact nature of each item remain subject to fuller adjudication at appeal. Conclusions: Prima facie finding of manufacture is upheld for the disputed products, warranting classification consideration under the tariff once manufacture is established. Issue 2 - Classification as 'preparations... put up in unit containers and bearing a brand name' under Chapters 16/20 Legal framework: Classification under Chapters 16-20 requires the product to be a 'preparation' (eg, of meat or vegetables) and, as relevant here, to be 'put up in unit containers' as defined in the Note to Section IV; the phrase 'put up in unit containers' imports the concept of packing containers designed to hold a predetermined quantity for storage/transport. Precedent treatment: The Court relied on an apex court authority (G. Claridge & Co. Ltd. v. CCE) construing 'container' and Heading 48.18 to mean enclosed/packing containers (boxes, cartons, tins, jars, bottles, bags) and rejecting receptacles not covered/enclosed as 'containers' for the heading. Interpretation and reasoning: The Tribunal observed that certain disputed items (burgers and wraps served in open wrappers; French fries in open containers not covered/enclosed) are prima facie not 'put up in unit containers' within the meaning of the Section IV Note and the discussed precedent. Consequently, such products are prima facie not classifiable under Chapters 16 or 20 on the ground of being preparations 'put up in unit containers and bearing a brand name.' The Court treated the Claridge reasoning as applicable by analogy to the Section IV definition despite differing heading numbers, focusing on the enclosed nature of the receptacle and its role in storage/transport. Ratio vs. Obiter: Ratio - open wrappers/uncapped open receptacles that do not serve as enclosed packing containers are not 'unit containers' for purposes of Chapters 16-20; such packaging fact is decisive for classification. Obiter - application to each specific product requires detailed factual adjudication; the Tribunal's finding is prima facie and not final. Conclusions: A strong prima facie case exists that specific products (burgers, wraps, French fries) are not 'put up in unit containers' and therefore may not fall under Chapters 16/20 as charged; this reduces the prospect of upholding the entire demand on classification grounds. Issue 3 - Extended period of limitation and suppression/suppression with intent Legal framework: Extended period of limitation for excise demand may be invoked where there is suppression or fraud; full disclosure to authorities and furnishing of details may negate suppression and bar invocation of extended limitation. Precedent treatment: The Tribunal applied the principle that prior disclosures/supply of product details to authorities can rebut a charge of suppression, affecting the applicability of extended limitation. Interpretation and reasoning: The applicants had furnished copies of details of their products pursuant to summons from excise authorities since 1998. The Tribunal found prima facie that such full disclosure undermines a finding of suppression with intent to evade duty for part of the demand covered by the show cause notice dated 2-9-2005 (period August 2000 to March 2005), making part of that demand prima facie time-barred. Ratio vs. Obiter: Ratio - consistent, documented disclosure to authorities can constitute a prima facie defence to invocation of extended limitation based on suppression. Obiter - whether the disclosures were adequate in law and fact to defeat suppression is a matter for final adjudication. Conclusions: Part of the demand under the extended period is prima facie time-barred because of prior disclosures; this weakens justification for the extended-period demand. Issue 4 - Waiver of pre-deposit, conditional deposit and stay Legal framework: Statutory/appellate practice permits waiver or reduction of pre-deposit where strong prima facie case is made; the Tribunal has discretion to impose conditional pre-deposit and stay on balance of equities and prima facie findings. Precedent treatment: The Tribunal applied the principle of conditional relief where prima facie findings produce a mixed outcome - some merits favour applicant and some do not - by ordering a limited pre-deposit with waiver of balance on deposit and stay of recovery. Interpretation and reasoning: Having found no strong prima facie case for unconditional waiver (manufacture issue found against applicants prima facie), but also finding strong prima facie grounds on packaging and limitation, the Tribunal exercised discretion to order a moderated pre-deposit (Rs. 10,00,000) within a specified time. On such deposit, the balance of duty and penalties were directed to be waived and recovery stayed pending appeal; non-compliance was to result in vacation of stay and dismissal of appeals without notice. Ratio vs. Obiter: Ratio - where mixed prima facie findings exist, Tribunal may order a conditional pre-deposit limited to an amount reflecting prima facie merits, with corresponding stay on balance. Obiter - the specific quantum and timeframe were case-specific discretionary directions. Conclusions: Unconditional waiver refused; conditional relief granted by requiring specified pre-deposit within a defined period, upon which balance of duty and penalties waived and recovery stayed pending appeal, with clear consequences for non-compliance. Cross-References and Interrelation of Issues 1. The finding of prima facie manufacture (Issue 1) is a predicate to classification enquiry (Issue 2); however, even accepting manufacture, packaging (put up in unit containers) remains decisive for Chapters 16/20 classification. 2. The limitation/extended period issue (Issue 3) operates independently to potentially nullify parts of the demand even where classification might otherwise be made out. 3. The mixed prima facie outcomes on Issues 1-3 informed the Tribunal's discretionary determination on pre-deposit and stay (Issue 4), yielding conditional relief rather than unconditional waiver.