In re Shri M C Patel & Sons LLP (CAAR Mumbai)
Summary: The Customs Authority for Advance Rulings, Mumbai considered an application filed by M/s Shri M C Patel & Sons LLP seeking an advance ruling on whether threshing, sieving, cleaning and sizing of dried broken raw tobacco leaves followed by packing in bulk packs amounted to “manufacture” under Section 2(f) of the Central Excise Act, 1944 and consequently attracted Central Excise duty. The ruling was issued as CAAR/Mum/ARC/72/2026-27 dated 24.08.2026. The supplied ruling records that the application was received on 30.01.2026 under Section 23C of the Central Excise Act, 1944. The applicant was a resident LLP and relied upon Notification No. 11/2015-Central Excise (N.T.), dated 01.03.2015, which specified a resident firm as a class of persons for advance ruling and included a limited liability partnership within the meaning of “firm”.
The applicant, incorporated as an LLP on 13.06.2025, stated that it had previously operated as a sole proprietorship under the name M C Patel & Sons. It procured dried broken raw tobacco leaves from farmers in bulk packs. The farmers generally sun-dried the leaves, removed stalks and stems, cleaned them and packed them in bulk for sale. The applicant’s process consisted of unpacking the bulk packs, feeding the tobacco into a GLT machine for threshing, cleaning and sizing, and subsequently packing the processed tobacco in bulk bags of approximately 25 kg to 40 kg. No new ingredient, material or substance was added.
The applicant contended that the process did not result in emergence of a new and identifiable product having a distinctive name, character and use. It also submitted that the activity did not constitute deemed manufacture because there was no labelling or relabelling and no conversion from bulk packs into retail packs. According to the applicant, the dried broken tobacco leaves were already marketable before processing. The applicant relied, among other things, upon Commissioner of Central Excise, Kanpur vs Ravindra & Co, 2000 (120) E.L.T. 699 (Tri.-Del.), and Union of India & Ors. v. J.G. Glass Industries Ltd. & Ors., 1997 E.L.T. 5 (S.C.).
The concerned Commissionerate, in its comments, drew attention to Notification No. 04/2026-Central Excise dated 01.02.2026 amending Notification No. 03/2025-Central Excise dated 31.12.2025. The ruling records that during the personal hearing on 07.04.2026, the applicant reiterated that threshing, sieving, cleaning, sizing and bulk packing did not amount to manufacture or deemed manufacture. Photographs depicting the various stages of the process were also produced. No representative appeared for the Department at the personal hearing.
The Authority examined Section 3 of the Central Excise Act, 1944 as the charging provision and Section 2(f) defining “manufacture”. It noted that manufacture, in the ordinary sense, involves emergence of a new and identifiable product having a distinct name, character and use, while also recognising that a process specifically deemed to be manufacture by a Section Note or Chapter Note may attract the statutory fiction.
The Authority found that the tobacco received by the applicant was already dried, broken and capable of being bought and sold. The GLT machine mechanically carried out threshing, cleaning and sizing. No new ingredient was introduced; the basic identity of the tobacco remained unchanged; and the resultant goods continued to be sold as tobacco rather than as a commercially distinct product.
The Authority considered the specific deeming provision in Chapter Note 3 of Chapter 24, which covers labelling or relabelling of containers, repacking from bulk packs to retail packs, and adoption of any other treatment to render the product marketable to the consumer. It found that the first two limbs were not attracted because the applicant did not label or relabel the containers and packed the tobacco again in bulk bags rather than retail packs.
The third limb concerning treatment to render the product marketable was separately examined. The Authority accepted that the tobacco received by the applicant was already capable of being bought and sold. The material on record, including the photographs produced by the applicant, did not establish that the tobacco acquired marketability only after threshing, cleaning and sizing. The Authority also noted the absence of retail packing, branding, labelling, flavouring, blending or other treatment changing the commercial identity of the tobacco.
While considering the applicant’s reliance on Union of India & Ors. v. J.G. Glass Industries Ltd. & Ors., the Authority referred to the two-fold test discussed in that decision for determining whether a process amounts to manufacture. A TaxGuru article discussing the same manufacture test is available under the title Distinct or Different use in an article after transformation is Manufacture : SC.
The Authority ultimately held that threshing, cleaning, sieving and sizing of dried and broken tobacco leaves followed by packing in bulk bags neither resulted in emergence of a new and distinct product nor fell within the specific deeming provision in Chapter Note 3 of Chapter 24. Accordingly, the activities did not amount to “manufacture” or “deemed manufacture” within Section 2(f) of the Central Excise Act, 1944.
Consequently, the Authority ruled that no Central Excise duty became payable merely because the applicant undertook the aforesaid processes. It further observed that the rate of duty or exemption under Notification No. 03/2025-Central Excise, as amended by Notification No. 04/2026-Central Excise dated 01.02.2026, would become relevant only where the goods were otherwise liable to Central Excise duty. TaxGuru has published the relevant 01.02.2026 amendment as Nil Excise Duty Granted on Unbranded, Non-Retail Tobacco to Differentiate Raw Trade from Consumer Market.
Cases Discussed
- Commissioner of Central Excise, Kanpur vs Ravindra & Co, 2000 (120) E.L.T. 699 (Tri.-Del.) — considered in relation to mechanical processing of tobacco without addition of foreign ingredients and the continued classification of the tobacco as unmanufactured tobacco.
- Union of India & Ors. v. J.G. Glass Industries Ltd. & Ors., 1997 E.L.T. 5 (S.C.) — considered on the test for determining whether a process results in manufacture and on the marketability of goods before the relevant process.
FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI
M/s Shri M C Patel & Sons LLP (LLPIN ACP-1282) (hereinafter referred to as “the applicant”) has filed an application in Form AAR (CE-1) before the Authority for Advance Rulings (Central Excise, Customs and Service Tax), Mumbai (hereinafter referred to as “the Authority”). The said application, along with the prescribed fee and supporting documents, was received in the Secretariat of the Authority, Mumbai on 30.01.2026 in terms of Section 23C (1) of the Central Excise Act, 1944. The applicant is engaged in the business of tobacco and has sought an advance ruling under Section 23C (2) of the Central Excise Act, 1944 on the questions relating to the liability to pay Central Excise duty.
2. Applicant’s eligibility for Advance Ruling:
The Applicant being a resident firm falls within the class of persons specified by the Central Government under sub-clause (iii) of clause (c) of Section 23A of the Central Excise Act, 1944 vide Notification No. 11/2015-Central Excise (N.T.), dated 01.03.2015. The said notification expressly includes a Limited Liability Partnership within the meaning of ‘firm’. The applicant has also declared that no proceedings involving the same issue are pending before any Central Excise authority, the Appellate Tribunal or any Court of Law. Accordingly, the Applicant falls within the definition of “applicant” under Section 23A(c) of the Central Excise Act, 1944 and is eligible to seek an advance ruling under Section 23C of the Central Excise Act, 1944.
Further, in terms of Section 23A(e) of the Central Excise Act, 1944, the Authority for Advance Rulings constituted under Section 28E of the Customs Act, 1962, is the designated Authority for pronouncing advance rulings in respect of matters arising under the Central Excise Act, 1944. Accordingly, the present application is maintainable before the Customs Authority for Advance Rulings.
3. Submission by Applicant-
3.1 Statement of facts
3.1.1 The Applicant, M C Patel & Sons LLP Bearing LLPIN ACP-1282 is a limited liability partnership firm duly incorporated on 13.06.2025 under the provisions of the Limited Liability Partnership Act, 2008. The Applicant is duly registered under GST laws having GSTIN 24AFQFS3737M1ZB.
3.1.2 For past several decades, the Applicant was working as sole proprietorship firm under the name and style M C Patel & Sons and was reconstituted recently as LLP. Said proprietorship firm was duly registered under laws having GSTIN 24ADOPP7070L2ZY.
3.1.3 The Applicant procures dried broken raw tobacco leaves packed in bulk pack from the farmers. Usually, the farmers sun dry tobacco leaves, strip stalks and stems, clean and pack in bulk pack for sale.
3.1.4 The Applicant undertake following process:
i. Unpacking of bulk packs
ii. Pouring into GLT machine for threshing, cleaning and sizing of broken raw tobacco leaves.
iii. Packing in bulk bags of 25Kg to 40Kg.
3.1.5 Threshing of tobacco leaves is required to reduce and standardise the size of the broken tobacco leaves. Sizing is done through wire mesh to segregate broken tobacco leaves in different sizes. Cleaning is done to remove dust, stalks and stems and other foreign materials. All these processes are undertaken mechanically through GLT machines having thresher, blower, conveyor belt and wire mesh.
3.1.6 The Applicant or its predecessor sole proprietorship firm was never registered under the Central Excise Act, 1944.
3.2 Relevant Legal Provision under the Central Excise Act, 1944
3.2.1. Position prior to 1st July 2017:
Section 2(d): excisable goods” means goods specified in the First Schedule of the Central Excise Tariff Act, 1985, as being subject to a duty of excise and includes salts.
Explanation. – For the purposes of this clause, “goods” includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.
Section 2(f): “manufacture” includes any process-
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 of the Central Excise Tariff Act, 1985 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…
Section 3(1): There shall be levied and collected in such manner as may be prescribed a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the First Schedule of the Central Excise Tariff Act, 1985.
Chapter 24
Chapter Note 3: In relation to products of heading 2401 or 2402 or 2403, labelling or relabelling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to “manufacture”.
3.2.2 Position between 1st July 2017 to 31st January 2026
No change except First Schedule of the Central Excise Tariff Act, 1985 was substituted with Fourth Schedule.
3.2.3 Position after 1st February 2026
No change
3.3 Rate of Excise duty
3.3.1 Position prior to 1st July 2017
Unmanufactured tobacco and tobacco refuse of Tariff heading 2401, other than bearing a brand, was exempted from Excise duty under S/No. 41 of 12/2012-CE dated 17.03.2012.
3.3.2 Position between 1st July 2017 to 31st January 2026
Excise duty on all tobacco products of Chapter 24 was exempted vide Sr. No. 1 of Notification No. 11/2017-CE dated 30.06.2017. Subsequently, the entry at Sr. No. 1 of Notification No. 11/2017-CE dated 30.06.2017 was omitted altogether vide Notification No. 02/2019-CE dated 06.07.2019 and a fresh Notification No. 03/2019-CE dated 06.07.2019 was issued, where under all goods of 2401 were fully exempt.
3.3.3 Position after 1st February 2026
Excise duty on all goods of Chapter heading 2401 is subject to excise duty @18% vide Notification No. 03/2025-CE dated 31.12.2025.
As the Applicant is of the opinion that they have not undertaken any manufacturing or deemed manufacturing, and therefore, not liable to pay excise duty, hence this application.
3.4 Question(s) on which Advance Ruling is required:
Whether the activity of threshing, sieving, cleaning and sizing of raw tobacco leaves and packing in bulk packs amounts to manufacture under Section 2(f) of the Central Excise Act 1944 and the Applicant would be liable to pay Central Excise?
3.5 Statement containing the applicant’s interpretation of law and/or facts, as the case may be, in respect of the question(s) on which advance ruling is required.
Charging section for levy of Central excise duty is Section 3 of the Central Excise Act as per which excise duty is levied on manufacture of goods. Per Section 2(f), manufacture means
a. Process which results in emergence of a new and identifiable product having a distinctive name, character and use; or
b. Deemed manufacture — labelling or relabelling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer.
3.5.1 Manufacture
The Applicant purchase dried broken tobacco leaves packed in bulk bags from the farmers and after threshing, cleaning and sizing, again pack them in bulk bags. Farmers sell them as tobacco leaves and the Applicant also sells them only as tobacco leaves. Broken stripped tobacco leaves are categorised as ‘unmanufactured tobacco’ and classified under Chapter heading 2401, both at the time of purchase as well as sale. Process undertaken by the Applicant does not result in a new and identifiable product having a distinctive name, character and use and therefore, the Applicant is of the opinion that such activities does not amount to manufacture.
In the case of Commissioner of Central Excise, Kanpur vs Ravindra & Co [2000 (120) L.L.T. 699 (Tribunal)], the Tribunal has held that cutting of unmanufactured tobacco leaves into small pieces, cleaning and packing in containers without adding any foreign ingredient did not amount to manufacture.
3.5.2 Deemed manufacture
In as much as deemed manufacture under Chapter note 2 of the Chapter 24 of the 4th Schedule is concerned, deemed manufacture shall construed where the Applicant undertakes the process of-
a. labelling or relabelling of containers or repacking from bulk packs to retail packs; or
b. adoption of any other treatment to render the product marketable to the consumer.
3.5.3 It is submitted that the Applicant does not label or re-label container. Further, the Applicant undertake packing of tobacco leaves from bulk packs to bulk packs and not retail packs. Thus, activities undertaken by the Applicant does not fall within (a) above.
3.5.4 It is submitted that as per explanation to Section 2(d), marketable means which can be bought and sold for a consideration. It is a matter of fact that dried broken tobacco leaves purchased by the Applicant were marketable and therefore, it cannot be said that such tobacco leaves have become marketable only after the process undertaken by the Applicant.
3.5.5 In UOI v. JG Glass Industries [1997 ELT 5], the Hon’ble Supreme Court held even before printing, glass bottle was marketable and therefore, it cannot be said that glass bottle after printing and decoration has become marketable.
3.5.6 In as much as tobacco refuse is concerned, in addition to above, it is submitted that being waste and by-product, it is not excisable.
In view of the above interpretation of the legal provision, the Applicant is of the opinion that they have not undertaken any manufacturing or deemed manufacturing, and therefore, not liable to pay excise duty.
The applicant seeks leave to rely on judicial pronouncement and other document at the time of hearing.
4. Concerned Commissionerate of Central Excise having Jurisdiction:
In Form AAR (CE-I), the Applicant indicated the Office of the Commissioner of GST & Central Excise, Vadodara-I, GST Bhavan, Race Course Circle, Vadodara-390007, as the concerned Commissionerate having jurisdiction over the Applicant. Accordingly, the application was forwarded to the concerned Commissionerate on 13.02.2026 for furnishing their comments. The comments of the Commissioner, GST & Central Excise, Vadodara-I, were received on 25.03.2026. The Comments furnished by the concerned Commissionerate are as follows:
“In this regard, attention is drawn to Notification No. 04/2026-Central Excise dated 01.02.2026 (copy enclosed), amending Notification No. 03/2025-Central Excise dated 31.12.2025, issued by the Government of India, Ministry of Finance (Department of Revenue) on the same issue, which is self-explanatory”.
5. Details of Personal Hearing: A personal hearing in the matter was held on 07.04.2026. The authorised representatives of the applicant, appeared before the Authority and reiterated the submissions filed with the application. They submitted that the Applicant is engaged in the activities of threshing, sieving, cleaning and sizing of raw tobacco leaves and packing the same in bulk. It was submitted that these activities do not amount to “manufacture” or “deemed manufacture” and therefore, the Applicant is not liable to pay Central Excise duty in terms of Notification No. 04/2026-Central Excise, dated 01.02.2026. It was further submitted that the activities undertaken by the Applicant do not fall within the scope of the definition of “manufacture” under Section 2(f)(1) of the Central Excise Act, 1944.
The Authorised Representatives also produced photographs depicting the various stages of the activity undertaken by the Applicant, including collection of broken tobacco leaves, cleaning, threshing, sieving, the resultant final product and packing thereof in non-branded bulk packages.
The Applicant relied upon the following judicial decisions:
i. 1989 (41) E.L.T. 79 (Tri-Del);
ii. 2000 (120) E.L.T. 699 (Tri-Del);
iii. 1997 (96) E.L.T. (Tri-Cal), which was upheld by Hon’ble Supreme Court, as reported in 1998 (104) E.L.T. A136 (S.C.).
During the course of the personal hearing, the Authorised Representatives were specifically asked why the processes undertaken by the Applicant should not be considered as amounting to “manufacture” in terms of the relevant Section Note or Chapter Note of the First Schedule to the Central Excise Tariff Act, 1985, where a particular process is specifically deemed to amount to manufacture.
In particular, their attention was drawn to Chapter Note 3 of Chapter 24 relating to tobacco and manufactured tobacco substitutes, which provides for the adoption of any other treatment to render the product marketable to the consumer and whether such treatment would amount to manufacture. In response, the Authorised Representatives submitted that, in terms of the Explanation to Section 2(d) of the Central Excise Act, 1944, the subject goods are already marketable and capable of being bought and sold in the market. In support of his contention, reliance was placed upon the decision of the Hon’ble Supreme Court in Union of India vs. J.G. Glass Industries, reported at 1997 E.L.T. 5 (S.C.).
5.1 No representative appeared on behalf of the Department at the time of the personal hearing.
6. Discussion and Findings:
6.1 I have carefully considered the application dated 30.01.2026 filed by the Applicant, the comments furnished by the jurisdictional Commissionerate and the submissions made by the applicant during the personal hearing held on 07.04.2026. I have also examined the relevant provisions of the Central Excise Act, 1944 (hereinafter refer as “the Act”), the First Schedule to the Central Excise Tariff Act, 1985, the relevant Chapter Notes, the applicable exemption notification and the judicial precedents relied upon by the Applicant. Further, I have examined the process undertaken by the Applicant in respect of the subject goods, the photographs and other documents placed on record and all other relevant material available in the case.
The issue that arises for determination is whether the activities of threshing, cleaning, sieving and sizing of dried broken raw tobacco leaves, followed by packing in bulk packs undertaken by the Applicant amount to “manufacture” or “deemed manufacture” within the meaning of Section 2(f) of the Central Excise Act, 1944 and consequently whether the Applicant is liable to discharge Central Excise duty in respect of the subject goods.
6.2 Before examining the processes undertaken by the Applicant, it is necessary to consider the statutory scheme governing levy of Central Excise duty. Section 3 of the Central Excise Act, 1944 is the charging provision and provides for levy and collection of duty of excise on excisable goods which are produced or manufactured in India. The relevant provision is as follow:
“Section 3. Duties specified in First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 to be levied. –
(1) There shall be levied and collected in such manner as may be prescribed a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods (excluding goods produced or manufactured in special economic zones) which are produced or manufactured in India as, and at the rates, set forth in the Fourth Schedule
Therefore, for levy of Central Excise duty, it is necessary that the goods in question are excisable goods and that such goods are produced or manufactured in India.
6.3 The expression “manufacture” is defined in Section 2(f) of the Act. The definition includes processes which are incidental or ancillary to the completion of a manufactured product and also processes which are specifically treated as manufacture under the relevant Section Notes or Chapter Notes.
“Section 2. Definitions. —
(f) “manufacture” includes any process, –
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 Fourth Schedule 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;”
6.4 In the ordinary sense, “manufacture” means bringing into existence a new and identifiable product having a distinct name, character and use. Mere processing of goods does not necessarily amount to manufacture unless it results in a new product or is specifically treated as manufacture under the law. Therefore, whether a particular process amounts to manufacture has to be examined by considering the nature of the process, the identity of the goods before and after the process, and the specific statutory provisions applicable to such goods.
6.5 Tobacco is the common name for plants belonging to the genus Nicotiana of the family Solanaceae. Tobacco leaves vary in size and shape depending upon the specific variety and growing conditions. The leaves generally have prominent veining and may range in colour from green to yellowish-brown and dark brown, depending upon their stage of curing and drying. After curing and drying, the leaves constitute the principal raw material for various tobacco products. Dried tobacco leaves are primarily used in the manufacture of cigarettes, cigars, pipe tobacco, shisha tobacco and other smoking products. They may also be used in the preparation of chewing tobacco, snuff, dipping tobacco and snus. Upon being removed from the plant and subjected to curing and drying, the leaves undergo a change in colour and generally become darker, while developing the characteristic physical and aromatic properties of cured tobacco.
6.6 In the present case, the Applicant procures dried and broken raw tobacco leaves in bulk packs from farmers. As stated by the Applicant, the tobacco leaves are generally sun-dried by the farmers after harvesting. The stalks and stems are removed, the leaves are cleaned and the dried tobacco is thereafter packed in bulk packs for sale. Thus, the tobacco received by the Applicant is already in dried and broken form and is capable of being bought and sold in the market.
6.7 After receipt of the tobacco, the Applicant first undertakes unpacking of the bulk packs and feeds the tobacco into a GLT machine for carrying out the processes of threshing, cleaning and sizing of broken raw tobacco leaves. The Applicant has explained that no new ingredient, material or substance is added to the tobacco during these processes. The entire process is carried out mechanically through the GLT machine, which consists of a thresher, blower, conveyor belt and wire mesh. The process of threshing is undertaken to loosen and break the tobacco material and to reduce and standardise the size of the broken tobacco leaves. The process of cleaning is undertaken through the mechanical arrangement of the machine, including the blower and conveyor system, to remove dust, stalks, stems and other unwanted or foreign materials present in the tobacco. The process of sizing/sieving is carried out through wire mesh of specified sizes, whereby the tobacco leaves are segregated according to their size. Thus, the different sizes of tobacco leaves are separated mechanically without changing the basic nature or character of the tobacco.
After completion of the aforesaid processes, the processed tobacco is collected and packed again in bulk bags weighing approximately 25 kg to 40 kg. The Applicant does not undertake any branding, labelling or re-labelling of the tobacco. Further, the tobacco is not converted into retail packs and no flavouring, blending, chemical treatment or addition of any other substance is undertaken during the process. It is therefore evident from the process described by the Applicant that the activities undertaken consist essentially of mechanical operations for cleaning, separating, sizing and standardising the already dried and broken tobacco leaves. The goods entering the process are dried broken tobacco leaves and the goods emerging from the process also remain tobacco leaves of the same basic nature, which are packed in bulk for further sale. The process, as described, does not involve any addition of a new ingredient or any treatment which changes the fundamental identity, composition or intended use of the tobacco.
6.8 On examination of the nature of the aforesaid processes, I find that the Applicant does not add any new ingredient, substance or material to the tobacco. There is also no claim that the Applicant subjects the tobacco to any chemical treatment, fermentation, flavouring or blending with any other material. The basic identity of the goods as tobacco leaves remains unchanged throughout the process. The tobacco purchased by the Applicant is dried and broken tobacco and the tobacco emerging after threshing, cleaning and sizing continues to be tobacco of the same essential nature. The Applicant also sells the resultant goods as tobacco and not as a commercially distinct product having a different name, character or use.
6.9 The process of threshing, by itself, is essentially a mechanical process intended to break, loosen or standardise the size of the tobacco material. Similarly, sieving or sizing merely segregates the tobacco leaves according to their size, while cleaning removes dust, stalks, stems and other extraneous matter. These processes, considered individually as well as collectively, do not appear to bring into existence a new commodity having a distinct name, character and use. The end product continues to retain the essential identity of the tobacco purchased by the Applicant. I therefore find force in the Applicant’s contention that the ordinary test of manufacture, namely emergence of a new and identifiable product having a distinct name, character and use, is not satisfied merely by undertaking the aforesaid mechanical processes.
6.10 The Applicant has relied upon the decision in case of Commissioner of Central Excise, Kanpur vs Ravindra & Co 2000 (120) E.L.T. 699 (Tri.-Del.), in support of its contention that mere mechanical processing of tobacco, without addition of any foreign ingredient, does not necessarily alter the character of the goods as “unmanufactured tobacco”. In the said case the respondents prepared tobacco under the brand names “Bandar Dholak Chhap” and “Hari Chhap” by beating, crushing and sieving tobacco leaves purchased from the market, without adding any foreign material thereto, and thereafter packed the same in retail paper packets. The Tribunal, taking note of the undisputed nature of the process and the absence of any addition or mixing of ingredients such as chuna, molasses, katha, perfume or spices, held that the tobacco so prepared continued to fall within the definition of “unmanufactured tobacco” under sub-heading 2401.00 of the HSN. The relevant observations of the Tribunal are reproduced below:
“9. In the instant case, it is not the case of the Revenue that the tobacco being dealt with by the respondents is meant for smoking. It is rather admittedly meant for chewing. The process adopted for preparing this tobacco under the brand name of “Bandar Dholak Chhap and Hari Chhap” by the respondents also remains undisputed as the same has not been challenged by the Revenue in their grounds of appeals. They prepare this tobacco by beating, crushing and sieving the tobacco leaves purchased by them from the market without adding any foreign material therein. This process was also confirmed by the Range Superintendent in his report dated 11-10-1985 wherein he mentioned that the tobacco was prepared by the respondents by beating, crushing and sieving the tobacco leaves and packing in retail paper packets bearing the brand name. All these facts also find reference in para 12 of the impugned order dated 14-7-1998 of the Commissioner (Appeals). The correctness of these facts has not been questioned in the grounds of appeals by the Revenue. The Commissioner (Appeals) has also observed in that para that there was nothing on the record that either the Range staff or any other visiting Central Excise Officer even noticed the presence or mixing of any ingredient such as chuna, molasses, katha, perfume, spices etc. in the tobacco by the respondents. Therefore, keeping in view all these referred to above, the tobacco prepared by the respondents fall within the definition of “unmanufactured tobacco” as given under sub-heading 2401.00 in the HSN (reproduced above).”
6.11 However, the matter cannot be concluded merely on the basis of the ordinary test of manufacture because Section 2(f) of the Act expressly provides that a process which is specified in the relevant Section or Chapter Notes as amounting to manufacture shall also be treated as manufacture. Therefore, it is necessary to independently examine the applicable Chapter Note relating to tobacco.
6.12 Chapter Note 3 of Chapter 24 of the Act relating to tobacco and manufactured tobacco substitutes contains a specific deeming provision in respect of products falling under heading 2401, 2402 or 2403. The said Chapter Note provides that labelling or relabelling of containers, repacking from bulk packs to retail packs, or adoption of any other treatment to render the product marketable to the consumer shall amount to “manufacture”. Thus, under the said statutory deeming provision, a process could amount to manufacture even where such process did not, in the ordinary sense, result in the emergence of a new product. The relevant provision is reproduced below:
“3. In relation to products of heading 2401 or 2402 or 2403, labelling or relabelling of containers or repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.”
6.13 In the present case, the Applicant has submitted that no labelling or relabelling of the containers is undertaken. Further, the Applicant submits that the tobacco is received in bulk packs and after processing is again packed in bulk bags of approximately 25 kg to 40 kg. Therefore, there is no conversion of bulk packing into retail packing. Accordingly, the first two specified processes namely labelling/re-labelling and repacking from bulk packs to retail packs, are not attracted on the facts placed on record.
6.14 However the third limb of the said provision namely “the adoption of any other treatment to render the product marketable to the consumer”, requires separate consideration. The processes undertaken by the Applicant namely threshing, cleaning and sizing of the tobacco, therefore need to be examined to determine whether they constitute merely mechanical processing of the tobacco without altering its essential character or whether they amount to a treatment undertaken to render the product marketable to the consumer within the meaning of the aforesaid deeming provision.
6.15 The Applicant has submitted that in terms of section 2(d) of the act the dried and broken tobacco leaves purchased from the farmers are already marketable, as the same are capable of being bought and sold for consideration even before they are subjected to the processes undertaken by the Applicant. The Applicant has further submitted that the threshing, cleaning and sizing do not create marketability in the goods, where the goods are already capable of being bought and sold in the market. The relevant provision is reproduced below:
“2(d)excisable goods means goods specified in the Fourth Schedule as being subject to a duty of excise and includes salt;
Explanation – For the purposes of this clause, “goods” includes any article, material or substance which is capable of being bought and sold for a consideration and such goods shall be deemed to be marketable.”
6.16 In support of the aforesaid proposition, the Applicant has relied upon the decision of the Hon’ble Supreme Court in Union of India & Ors. v. J.G. Glass Industries Ltd. & Ors., 1997 E.L.T. 5 (S.C.), wherein the Hon’ble Supreme Court examined whether the process of printing on glass bottles amounted to “manufacture”. After considering the earlier judicial precedents, the Hon’ble Supreme Court laid down a two-fold test for determining whether a process amounts to manufacture namely whether the process results in the emergence of a different commercial commodity or causes the identity of the original commodity to cease to exist and whether the commodity already in existence would have no commercial use but for such process. Applying the said test the Hon’ble Supreme Court held that plain glass bottles were themselves commercial commodities capable of being sold and used as such and that printing names or logos thereon did not alter their basic character. The relevant observations contained in paragraph 16 of the judgment are reproduced below:
“16. On an analysis of the aforesaid rulings, a two-old test emerges for deciding whether the process is that of “manufacture”. First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process. In other words whether the commodity already in existence will be of no commercial use but for the said process. In the present case, the plain bottles are themselves commercial commodities and can be sold and used as such. By the process of printing names or logos on the bottles, the basic character of the commodity does not change. They continue to be bottles. It cannot be said that but for the process of printing, the bottles will serve no purpose or are of no commercial use.”
6.17 The expression “marketable” has to be understood in the context of the statutory scheme. The Explanation to Section 2(d) of the Central Excise Act, 1944 provides that “goods” includes any article, material or substance capable of being bought and sold for consideration and that such goods shall be deemed to be marketable. Therefore, Therefore, where the goods are already capable of being bought and sold for consideration before undergoing a particular process, the mere fact that such process improves their quality, uniformity, cleanliness, appearance or suitability for a particular use would not, by itself, establish that the process was undertaken “to render the product marketable to the consumer” within the meaning of Chapter Note 3 of Chapter 24. The statutory requirement contained in the said Chapter Note requires an examination of the nature, purpose and effect of the treatment undertaken, and whether such treatment is intended to render the product marketable to the consumer.
6.18 In the present case, the material placed on record indicates that the tobacco received by the Applicant is already dried, broken, stripped and capable of being bought and sold. The Applicant has produced photographs showing the tobacco at different stages of processing. The processes of cleaning and sieving primarily remove unwanted material and segregate the tobacco according to size, while threshing facilitates mechanical handling and standardisation of the size of broken tobacco leaves. There is no material on record to establish that, prior to these processes, the tobacco was incapable of being bought and sold or that it acquired marketability only after undergoing these processes.
6.19 It is also relevant that the Applicant does not undertake any retail packing, branding, labelling, flavouring, blending or other treatment which changes the commercial identity of the tobacco. The resultant goods continue to be unmanufactured tobacco and are packed in bulk bags. Therefore, the evidence on record does not establish that the processes undertaken by the Applicant were adopted for the purpose of conferring marketability upon an otherwise non-marketable product.
6.20 I have also considered the Department’s comments regarding Notification No. 04/2026-Central Excise dated 01.02.2026 amending Notification No. 03/2025-Central Excise dated 31.12.2025. The said notification is relevant for determining the applicable rate of duty or exemption only after the goods are found to be liable to Central Excise duty. Therefore, the first issue to be determined is whether the processes undertaken by the Applicant amount to manufacture or deemed manufacture under Section 2(f) of the Act read with the relevant Chapter Note.
6.21 I further find that the fact that the Applicant packs the processed tobacco in bulk bags of 25 kg to 40 kg instead of retail packs, is relevant for examining the specific deeming provision. The Chapter Note specifically refers to repacking from bulk packs to retail packs. On the facts available on record, the Applicant receives tobacco in bulk packs and repacks it again in bulk packs. Such bulk-to-bulk packing cannot by itself be equated with repacking from bulk packs to retail packs.
6.22 As regards the judicial decisions relied upon by the Applicant during the personal hearing, the same have been considered. These decisions show that every process carried out on a product does not amount to “manufacture”. Normally, a new and different product should emerge for a process to amount to manufacture. However, where the law specifically provides that a particular process shall be treated as “manufacture” through a Section Note or Chapter Note, such provision has to be followed. Accordingly, the present case has been examined both on the general principles of manufacture and under the specific provision applicable to tobacco under Chapter 24.
6.23 After considering the nature of the tobacco, the processes carried out by the Applicant, the fact that no new ingredient is added, the fact that the tobacco remains tobacco even after processing, the manner of packing, the fact that the goods were already marketable before processing, and the requirements of the relevant Chapter Note, I find that the processes of threshing, cleaning, sieving and sizing do not result in a new or different product. Further, based on the material available on record, these processes cannot be said to have been carried out for the purpose of making the tobacco marketable to the consumer. Therefore, the said processes do not fall within the deeming provision of the relevant Chapter Note.
6.24 Accordingly, on the basis of the facts and material available on record, I find that the activities undertaken by the Applicant namely threshing, cleaning, sieving and sizing of dried and broken tobacco leaves followed by packing in bulk bags neither result in the emergence of a new and distinct product nor fall within the specific deeming provision contained in Chapter Note 3 of Chapter 24. The said activities do not amount to “manufacture” or “deemed manufacture” within the meaning of Section 2(f) of the Central Excise Act, 1944.
6.25 Consequently, as the processes undertaken by the Applicant do not amount to manufacture or deemed manufacture, no Central Excise duty becomes payable merely because the Applicant undertakes such processes. The rate of duty or exemption under Notification No. 03/2025-Central Excise as amended by Notification No. 04/2026-Central Excise dated 01.02.2026 would be relevant only where the goods are otherwise liable to Central Excise duty under the law.
6.26 In view of the foregoing discussion and findings, I hold that the activity of threshing, sieving, cleaning and sizing of dried broken raw tobacco leaves and subsequent packing thereof in bulk packs as undertaken by the Applicant on the facts and circumstances placed on record, does not amount to manufacture or deemed manufacture under Section 2(f) of the Central Excise Act, 1944. Accordingly, the Applicant is not liable to pay Central Excise duty merely on account of undertaking the aforesaid activities.
7. I rule accordingly.
