No excise on bought out items placed in tray served in airlines

In the case of Taj Sats Air Catering Ltd. Vs. CCE, Delhi-II, it was held that the activity of placing various food items, prepared by the appellants as well as various bought out readymade items, in a tray either at the time of placing the tray in the trolley or at the time of serving the passengers on board does not amount to manufacture of a new commodity as contemplated under section 2 (f) of Central Excise Act, 1944 and accordingly the excise duty cannot be demanded on the total value of manufactured and bought products placed in the tray.

Facts of the Case

The brief facts of the case are that the appellants are engaged in the business of airline catering and manufacture of cakes, pastries and chocolates liable to Central Excise Duty.  They have entered into catering agreement with various airlines for supply of meal and food items in accordance with menu given by the respective airline from time to time.  Normally the food items prepared by the appellants at their unit included the vegetarian/non-vegetarian meal items consisting of dal, curry, rice etc. bread, cakes, pastries, chocolates etc., cut fruits, cut vegetables and sweets and namkeens.  The appellants procure various items in packed conditions, like curd, pickles etc. from third parties; the cutlery, crockery, soft drinks and juices and water are provided by the airlines.   The food items prepared as per the menu are placed in the bowls and plates provided by the airlines and are wrapped with aluminium foil.  Number of such trays containing food items which are not required to be heated (containing bread, salad etc.) including bought out items like curd pickle are placed in a trolley and supplied to the airlines.  The prepared meal, other than mentioned above, consisting of dal, curry, rice etc. are placed in the bowls covered with aluminium foils and are placed in another trolley for heating in the flight before service to the passengers.  One such meal plate or bowl alongwith the pastry, food items and other bought out items are placed in a tray alongwith water bottle and supplied to the passengers in flight.   As per the requirement of the airlines a slip containing the name of the appellant is put inside the pouch containing cutlery.  The Revenue entertained the doubt regarding taxability of the whole tray as served to the passenger on the ground that the appellants are engaged in the manufacture of excisable goods, here food preparations which also contained a logo and name of the appellant.  As such, proceedings were initiated to demand duty from the appellant on such “branded food preparations” prepared and cleared by them to various airlines classifying the same under C.E.T.H. 2108 for the financial year 2004-05 and under C.E.T.H. 2106 for the financial years 2005-06 and 2006-07.  After due process the case was adjudicated vide the impugned order dated 18.02.2011.

Contentions of the assessee

The assessee submitted that:

(a) The impugned order is legally unsustainable as it confirms duty on the tray consisting of all food preparations, salad, curd, sweets and water bottles.  These items are not emerging due to process of manufacture undertaken by the appellant.  The appellant is paying duty on various items like cakes, pastries and chocolates manufactured by them

(b) The activity of placing various food items, prepared by the appellants as well as various bought out readymade items, in a tray either at the time of placing the tray in the trolley or at the time of serving the passengers on board does not amount to manufacture of a new commodity as contemplated under section 2 (f) of Central Excise Act, 1944.  The tray consisting of main meal – dal, rice and vegetables and the tray consisting of readymade bought out items – curd, pickle, butter mineral water, are supplied to the airlines separately in 2 different trolley/ cabinet.  The airline staffs add the contents of these two trays while serving the passengers.

(c)     The impugned goods, placed in a tray is not “branded food preparation”.  It is rightly classifiable under C.E.T.H. 2108.99, prior to 28.02.2005 and CETH 2106 90 99 after 28.02.2005 with Nil rate of duty.

(d) The entire tray containing food items as presented to the passengers on board cannot be classified as edible preparation not elsewhere specified and bearing a brand-name.  The logo and brand-name placed in slip inside the cutlery pouch cleared separately cannot be taken to mean that the entire meal tray is liable to tax as edible preparation with the brand-name.  The meal consisting of dal, curry, rice etc does not bear the brand-name of the appellant in the form in which it is cleared from the appellant’s factory to the airline.  The duty on bought out items like curd, pickle, mineral water, butter and also cutlery pack and food tray supplied by the airline cannot be subjected to tax at the hands of the appellant.

(e)     Extended period of demand is not invokable in this case as there is no fraud, misstatement or suppression of facts on the part of the appellants as can be seen from the facts of the case. The issue involved in the present case is of pure legal interpretation and as such there could be no suppression with an intention to evade payment of duty.  No such deliberate action on the part of the appellant has either been alleged or supported with evidence.

Contentions of the Revenue

The revenue reiterated the findings in the impugned order and contended that the demand is correctly upheld

Held by Hon’ble CESTAT

The Hon’ble CESTAT stated that regarding the question whether the appellants are engaged in the manufacture of excisable goods namely, food preparations; the Hon’ble CESTAT stated that there is no analysis or categorical finding by the Original Authority.  The Original Authority reproduced the definition of “manufacture” as per section 2(f) and also extracts of Hon’ble Supreme Courts orders in the case of M/s. Empire India Ltd. and A.P. State Electricity Board and there after concluded that the appellants were engaged in the manufacture of excisable goods.

The Department cannot tax the meal supplied by the airlines to the passengers on account of purported manufacturing activity on the part of appellant.

The show cause notice proposed a demand on the ground that the entire food tray served on board in the aircraft is an item manufactured by the appellant.  The value accordingly was of entire tray alongwith various items contained therein.  The said demand was confirmed by the Original Authority without discussing the appellant’s plea of:-

(a) The total cutlery bowl and the trays were supplied by the airline.

(b) Fruits, salad etc. separately packed were not liable to excise duty,

(c) Various packed labelled bought out items like curd, butter etc. are not made by the appellant and

(d) The pastries, chocolates and cakes manufactured by the appellants have suffered appropriate Central Excise duty.

The appellants have categorically asserted that placing these items together in a tray is being done on board by the airline staff before service to the passengers.  The Revenue’s case is that the appellants are liable to Central Excise duty under the category of edible preparations bearing a brand-name.  From the nature of process and the methodology of supply by the appellant to the airlines and thereafter by the airlines staff to the passengers on board, it is not legally sustainable to tax the entire meal tray as edible preparations as the same emerges at the time of service to the passengers on board.  It is an admitted fact that the appellants prepare roti, rice, curry etc. and put it in the bowl or tray, wrap them with aluminium foil and supply in a trolley separately to the airline.  In another set of tray they supplied various bought out items like cut fruits etc. which do not require pre-heating before service.  The logo and name of the appellant in a label is placed inside the cutlery pouch again supplied separately not with the prepared food items like dal, rotti etc. In other words the food items prepared and supplied by the appellants never had brand-name when they were cleared from the premises of the appellant.

The Hon’ble CESTAT stated that without examining the nature of manufacture and thereby the liability of the appellant the Original Authority straight away moved to the classification of the impugned meal tray applying the provisions of Rule 3 (c) of interpretation rules to determine the correct classification under Central Excise Tariff.  He concluded that these food preparations would be appropriately classifiable under heading 2108 which is the last occurring in numerical order amongst the headings which equally merit consideration.   Here, the Original Authority has not examined sequentially the application of the said interpretation rules and also it is not clear which are all the equally competing heading meriting consideration for classification.  The need for applying the above rule will arise thereafter only.

On perusal of the impugned order and on examining the submissions made by the appellants, the Revenue has not established the liability on the appellant for their activity of manufacturing branded food preparations.  Out of Food preparations as contained in the food tray served to the passengers on board, admittedly, the appellants did prepare dal, roti, rice, curry etc. and supplied the same in trays and bowls covered with aluminium foil.  However, these are not the items on which Central Excise duty is sought to be demanded.  The Central Excise duty was said to be demanded on the full value of the final complete food tray as served to the passengers on board the aircraft.  There is nothing in the impugned order which will substantiate and support the claim of the Revenue on the taxability of such complete food tray on whole value.  As such the demand is not sustainable on this ground.

Accordingly, the appeal is allowed.