TaxTMI 
TaxTMI 
2023 (8) TMI 1428
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....g the goods without payment of duty, the officers of the department visited the premises of manufacture to study the process undertaken and collected relevant documents. Statements were recorded. The appellant vide letter dt. 15.07.2013 furnished copies of two agreements dt. 13.07.2011 entered with M/s.Marico Limited. One agreement was for packing of oats and the other for manufacture of Savoury Oats. The copy of their service tax registration and details of invoices were also furnished. The appellant contended that Savoury oats and silk oats are classifiable under CETH 1104 12 00 and attracts 'nil' rate of duty. According to appellant, the other product, Muesli was classifiable under CETH 190410 90 and attracts 6% of duty. After scrutiny of the agreements and analyzing the process of manufacture the department was of the view that Savoury Oats and Silk Oats are classifiable under CETH 1904 20 00 attracting @ 12% duty and that Museli is also classifiable under CETH 1904 20 00 attracting @ 12% duty. 2. Show cause notices for the different periods were issued to the appellants and to the Proprietor Shri I. R. Narayan, inter alia, proposing to demand duty on Savoury Oats, Silk Oats....
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....essing of 'savoury oats' involves the mixing of plain oats and dehydrated vegetables in a mixer, which is operated for 60 seconds, and thereafter the entire quantity of mixture is unloaded in a hopper through a conveyor belt and then fed into the packing machine, where the mixture is packed along with seasoning. The final product so produced is marketed as 'Savoury Oats or Masala Oats' which is then cleared to Marico as per the advice received from them. 5.4 The 'Savoury Oats' so processed by the Appellant is essentially a pre-mix comprising of Oat Flakes (68%-76%), dehydrated vegetables (1.5%-3.5%) and seasoning products (23%-25%). Plain Oats which is the main input in this premix is imported by Marico Ltd., and Customs classify the same under tariff heading 1104 12 00 as "Rolled or Flaked Grains of Oats" attracting Nil rate of duty. Plain Oats are obtained by flattening oats which have been steamed and rolled. They are also called as quick oats. The process adopted by the Appellant is essentially one of mixing various ingredients in the specified proportion and then placing such a pre-mix into the plastic pouch and cardboard boxes. No element of either pre-heating or pre-cooki....
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....ivity of processing 'savoury oats' or 'silk oats' by the Appellant. However, as per the impugned order, in the instant case, the main raw material i.e. quick oats are mixed with dried vegetables and savoury seasonings and after a detailed process of manufacture, a new distinct product viz. 'savoury oats' emerges, which is a prepared food obtained from unroasted cereal flakes and not plain rolled oats or oats flakes, to merit classification under Chapter 11 or Tariff Item 1104 12 00 as product of milling industry (para 30.4; pg. no.72 [internal page No.36] of impugned order in Appeal No.E/41851/2016. 5.9 Further, in support of the finding as to why the 'savoury oats' merit classification under TI 1904 20 00, the impugned order holds that the preparation requires cooking the contents of the packet with water for 3 minutes and the same becomes ready to serve and eat. Further, as per the impugned order, rolled or flaked oats alone fall under TI 1104 12 00, and when it is processed beyond the extent prescribed under Chapter 11, the resultant product viz. 'savoury oats' moves to the next appropriate heading in the CETA, and accordingly, the end product viz. 'savoury oats', a prepared ....
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....main "rolled oats". As per HSN Explanatory Notes to Chapter Heading 11.04, the breakfast foods like corn flakes that are cooked preparations ready for consumption fall under heading 19.04. The savoury oats and silk oats are not cooked preparations ready for consumption like corn flakes (i.e. to prepare corn flakes, corn grits are rolled out into flakes, and then cooked, dried and roasted). Savoury oats cannot be consumed by opening the packet and by mixing with milk, in the manner in which corn flakes is consumed. Savoury oats/Silk oats are not cooked preparations but are to be cooked by the consumer at his place and they take the same amount of time (i.e. at least 3 minutes), which is taken by plain rolled oats to cook. A consumer can independently buy plain oats, mix it with vegetables and seasoning, and prepare savoury oats at his end. So what the Appellant has done is for the sake of convenience, mixed all three ingredients and sold it as savoury oats. Therefore, in the absence of savoury oats/silk oats being cooked preparation ready to be consumed (like corn flakes), they are rightly classifiable under Chapter Heading 11.04. 5.14 The judgement of the Hon'ble Supreme Court i....
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.... or swelled cereals" 5.17 The Ld. Commissioner has arrived at a conclusion that savoury oats and silk oats are classifiable under TI 1904 20 00 as "prepared foods obtained from unroasted cereal flakes or from mixtures of unroasted cereal flakes and roasted cereal flakes or swelled cereals". As per the Ld. Commissioner, savoury oats and silk oats are classifiable under Chapter Heading 19.04 since rolled plain oats are processed beyond the extent prescribed under Chapter 11.04. 5.18 Chapter Heading 19.04 covers "prepared foods" obtained either by swelling or roasting of cereals like cornflakes (i.e. breakfast food) or puffed rice (murmure/churmuri); or prepared foods obtained from unroasted cereals flakes or from mixtures of unroasted cereal flakes and roasted cereal flakes or swelled cereals such as muesli, which again is consumed as breakfast food. 5.19 The examples of "prepared foods" under Chapter 19 covers those food products that are already in a prepared state and can be readily consumed. For example, corn flakes, muesli, puffed rice, bulgur wheat are prepared foods. Corn flakes is a prepared food where corn grits are rolled out into flakes, and then cooked, dried and....
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....in the case of Satnam Overseas (supra) as not amounting to manufacture. Plain oats remain as plain oats even after it is mixed with the aforementioned ingredients. Therefore, the savoury oats and silk oats are correctly classified by the Appellant under Chapter Heading 11.04, as they are not prepared food falling under Chapter Heading 19.04. 5.23 Reliance is also placed on the following judgements of the Hon'ble Court/Tribunal in the above frame of reference - a) Bhagyalakshmi Poha Industries vs. Commissioner, 2008 (231) ELT 627 (T); b) KKR Floor Mills vs. Commissioner, 2008 (232) ELT 270 (T); c) Amar Food Products vs. Commissioner, 2011 (269) ELT 381 (T); d) Miki Food Products vs. Commissioner, 2008 (231) ELT 631 (T) e) ARS & Co. vs. CCE, 2015 (324) E.L.T. 30 (S.C.); f) Commissioner vs. Laljee Godhoo & Co. 2015 (324) E.L.T. 30 (S.C.); General Rules of Interpretation : 5.24 The classification of goods falling under First Schedule to the Central Excise Tariff is governed by the principles laid down under General Rules for the Interpretation. Rule 2 and 3 of the said Rules which are relevant as below :- "2 (b) An....
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....but plain rolled oats mixed with certain ingredients are thus classifiable under Chapter Heading 11.04, which specifically covers "Rolled or Flaked Grains of Oats", and not under Chapter Heading 19.04, which is a general description covering prepared foods obtained from unroasted cereal flakes or from mixtures of unroasted cereal flakes and roasted cereal flakes or swelled cereals. 5.27 Without prejudice to the above, it is submitted that assuming that both Chapter Heading 11.04 and 19.04 are equally specific with reference to savoury oats, then the classification shall be as per Rule 3(b) which provides that mixtures and composite foods consisting of different materials will be classified as if they consisted of the material or component which gives them their essential character. In the Appellant's case, it is not in dispute that plain oats comprise 68% - 76% of the entire product i.e. savoury oats/silk oats, and which gives the essential character to the product. Therefore, applying the principles of Rule 3(b) of the General Rules, the product i.e. savoury oats/silk oats are classifiable under Chapter Heading 11.04 of the central Excise Tariff as "rolled or flaked grains of o....
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....er "Prepared foods obtained from unroasted cereal flakes or from mixtures of unroasted cereal flakes and roasted cereal flakes or swelled cereals" attracting 12% duty, since the main ingredient in Muesli is whole rolled oats, which is unroasted. 5.31 The Appellant submits that the whole rolled oats that are imported and used in the manufacture of muesli are roasted in a dry kiln. The reason for using whole rolled oats that are roasted is because it gives the Muesli a crunchy texture while consuming. Further, since roasted whole rolled oats are used, the final product does not get soggy upon addition of liquid medium like milk. It may be seen that the oat meal prepared out of savoury oats and silk oats have a gooey texture (i.e. like porridge), as quick cooking oats that is unroasted is used as a raw material, as against whole rolled oats that are roasted in dry kiln used in the manufacture of muesli. 5.32 The Appellant before Ld. Commissioner had submitted the certificates dated 13s.04.2015 issued by the supplier viz. UniGrain Pty Ltd, which clearly explains the process involved in the manufacture of Whole Rolled Oats and Quick Cooking Oats. In the certificate, the supplier h....
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....facture of, 'Masala & Coriander', 'Curry and Pepper Oats' under the brand name 'Saffola' falling under Chapter Heading 1104 1200 attracting 'nil' rate of duty. Along with the letter, the appellant had enclosed a list of ingredients used in the manufacture of the products and had described the entire manufacturing process in the form of a flow chart. The product labels were enclosed. In spite of this the department has issued the SCN invoking the extended period alleging wilful suppression of facts with intention to evade payment of duty. The letter issued to the department was brushed aside stating that there was no statutory obligation to file such letter. The department has not established any positive act of suppression on the part of appellant. Further, the issue is purely of classification and interpretation of tariff and the law. Hence the demand raised invoking the extended period cannot sustain. It is also submitted that the separate penalty imposed on the proprietor under Rule 26 of CER, 2002 is against principles of law, when penalty has already been imposed on the firm. The Ld. Counsel prayed that the appeal may be allowed. 6. The Ld. A.R Sri Ambe appeared and argu....
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....rtment. 9. We first proceed to analyse the issue with regard to classification of 'Savoury Oats and Silk Oats'. The appellant is a job worker and has entered into an agreement with principal manufacturer M/s.Marico Ltd. in relation to manufacture of ['curry and pepper oats' and 'masala and coriander oats'] Savoury Oats. As per the said agreement, the principal manufacturer viz. M/s.Marico Ltd. would supply the raw material, packing material and equipment necessary for processing the oats as specified in the agreement. The appellant is also given the detailed process required to be undertaken by them to produce the final product as specified in the agreement. 10. The process of Savoury Oats, according to the appellant, involves mixing of plain oats and dehydrated vegetables in a mixer, which is operated for 60 seconds, and thereafter the entire quantity of mixture is unloaded in a hopper through a conveyor belt and then fed into the packing machine, where the mixture is packed along with seasoning. The final product so manufactured is marketed as 'Savoury Oats or Masala Oats' which is then cleared to their principal manufacturer (Marico Ltd.). According to the appellant, this ....
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....04 Cereal grains otherwise worked (for example, hulled, rolled, flaked, pearled, sliced, or kibbled), except rice of heading 1006; germ of cereals, whole, rolled, flaked or ground -Rolled or flaked grains: 1104 12 00 --Of Oats Kg. Nil 1104 19 00 --Of other cereals Kg. Nil -Other worked grains (for example, hulled, pearled, sliced or kibbled) 1104 22 00 --Of oats Kg. Nil 1104 23 00 --Of maize (corn) Kg. Nil 1104 29 00 -Of other cereals Kg. Nil 1104 30 00 -Germ of cereals, whole, rolled, flaked or ground Kg. Nil Tariff Item Description of Goods Unit Rate of duty (1) (2) (3) (4) 1904 Prepared foods obtained by the swelling or roasting of cereals or cereal products (for example, corn flakes); cereals [other than maize (corn)] in grain form or in the form of flakes or other worked grains (except flour, groats and meal), pre-cooked or otherwise prepared, not elsewhere specified or included. 1904 10 - Prepared foods obtained by the swelling or roasting of cereals or....
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.... process undertaken, the product remains as rolled oats only. Again, the HSN Explanatory notes to Chapter 1104 (which has already been noticed in para 5.10 above) states that breakfast food of the type which are cooked preparations and ready for consumption fall under heading 1904. We therefore have to hold that the impugned order has erred in holding that the Savoury Oats/ Silk Oats have to be classified under 1904. The process undertaken by the appellant does not change the essential character of the raw material used. The raw material used is plain oats and even after the processes undertaken at the hands of the appellant, the essential character of the final product remains to be Oats. There is no emergence of a new distinct product. 15. Our view is supported by the decision in the case of Satnam Overseas Ltd. (supra) which is squarely applicable to the facts of present case. The issue that was considered in the said case was whether "rice spice" which is a combination of raw rice, dehydrated vegetables and certain spices and condiments would fall under Chapter 11.01 or 21.08. The Tribunal held against the assessee and held that mere mixture of dry vegetables to the raw rice....
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....ity which had a distinct character of its own. .. .. ... 19. 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. 20. 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. 21. Since ....
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.... roasting of cereals or cereal products (for example, corn flakes); cereals [other than maize (corn)] in grain form or in the form of flakes or other worked grains (except flour and meal), pre-cooked or otherwise prepared, not elsewhere specified or included. The HSN Notes corresponding to Chapter 19, referred to Chapter Note 4, which reads as under :- "For the purposes of Heading No. 19.04, the expression "otherwise prepared" means prepared or processed to an extent beyond that provided for in the headings of or Notes to Chapter 10 or 11". [emphasis added] Under HSN Explanatory Note 1904, which corresponds to the sub-heading 19.04 of the Schedule to the Tariff Act the sub-headings are different. In Heading 1904 of the Schedule to the Tariff Act, sub-heading 1904.10 reads : "Put up in unit containers" for which 13% duty is provided while sub-heading 1904.90 is the residuary sub-heading "other" for which 'nil' rate is provided. The corresponding HSN Notes, however, refers to the following entries :- "1904.10-Prepared foods obtained by the swelling or roasting of cereals or cereal products 1904.20 -Prepared foods obtained from unroasted cereal flak....
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....under Heading 19.04 of the Schedule to the Tariff Act, both prepared foods obtained by swelling or roasting of cereals as well as cereals products such as corn flakes are covered. On a harmonious construction of these two, namely Headings 11.04 and 19.04, it would appear that if corn flakes are processed beyond the extent, which is provided in Chapter 11, so as to make them prepared foods, they would fall under Heading 19.04, but if they are processed only to the extent which is covered by Heading 11.04, namely till the stage of being steam-heated or rolled between heated rollers, they would fall only under Heading 11.04, because at that stage they are not breakfast food commonly known as "corn flakes" which is a cooked preparation ready for consumption. 7. For the foregoing reasons, we are not in a position to subscribe to the contrary view which has been taken in Favourite Food Products (supra), which hereby stands overruled." 17. In the case of Bhagyalakshmi Poha Industries Vs CCE Bangalore (supra), a similar issue was considered by the Tribunal and the decision in the case of Mahavir Food Products was relied. Relevant para of the order reads as under : "5. ....
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....havir Food Products, the Tribunal held that the product "Makai Poha" is classifiable under 1101. 19. The decision in the case of Miki Food Products Vs CCE Ahamedabad 2008 (231) ELT 631 (Tri-Ahmd.) was another case in which the issue was with regard to the classification of "Maize Pauva". The Department had classified the said item under 1904 whereas the assessee had claimed classification under 1101 contending that the product is not ready to eat product. The Tribunal relying upon the decision in the case of Mahavir Food Products held that the goods are classifiable under 1101. 20. From the above discussions, we are able to conclude that the product Savoury Oats / Silk Oats merit classification under CETH 1104 12 00 and not under 1904 20 00 as determined by the authorities below. 21. The second issue is with regard to classification of "Muesli". The appellant has classified the item under tariff heading 1904 10 90 whereas the Department has classified it under 1904 20 00. In regard to this product, there is no dispute that 'Muesli' is a 'prepared food' and falls under 1904. According to the appellant, oats used in the manufacture of 'Muesli' is whole rolled oats which is d....