CA Urvashi Porwal
In the case of M/s. Satnam Overseas Ltd. V/s. Commnr. of Central Excise it was held by Supreme Court 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.
The appellant/assessee challenges the correctness and validity of the final order dated 10.10.2002 passed by the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), New Delhi in the appeal which was preferred by the assessee against the order of Commissioner (Appeals) who had upheld the Order-in-Original dated 17.3.1999 passed by the Additional Commissioner pursuant to show cause notice dated 4.8.1997 issued by him.
In the said show cause notice the Additional Commissioner had proposed to classify the product of the appellant/assessee under Heading 2108 of the Central Excise Tariff Act, 1985, as Miscellaneous Edible preparation not elsewhere specified or included.
It may be stated that assessee is engaged in the packing combination of mixture of raw rice, dehydrated vegetables and spices in the name of ‘Rice and Spice’.
Contentions of the Assessee
The defence put forth by the assessee to the show cause notice issued by the Additional Commissioner was that the aforesaid process does not amount to `manufacture’ within the meaning of Section 2(f) of the Central Excise Act, 1944. It was also argued that, in any case, the product was not classifiable under Heading 2108 of the Central Excise
Tariff Act, 1985 as claimed by the Revenue but it should be covered under Heading 11.01. That Heading applies to products of the milling industry, including flours, groats, meal and grains of cereals, and flour, meal or flakes of vegetables on which nil duty is payable. It was, thus, contended that in no case the assessee was under any obligation to pay the duty on the aforesaid process. It was contended that the authorities committed serious error in holding the aforesaid process of the assessee as “manufacturing process”. It would be manifest that it only involved mixing of raw rice, dehydrated vegetable with some spice and did not bring about any new product. It was submitted that the aforesaid mixture, which is sold in a packaged form, is raw food and still needs to be cooked to make it edible. The Assessee pointed out that on the packing/pouch of the product even the cooking instructions are mentioned.
It was further submitted that there was no new product which came into existence as that product was still known as rice which did not lose its essential character and therefore it could not be treated as `manufacture’.
Contentions of the Revenue
The Revenue contended that the finding of the quasi-judicial authorities below to the effect that a new product had come into existence as a result of the processes undertaken by the assessee. It was specifically held by the CEGAT that rice did not remain rice at all as a mixed product containing rice, vegetable and spices emerges after the specific process was undertaken by the assessee.
Held by Hon’ble Supreme Court of India
The Hon’ble Supreme Court stated that the test that needs to be applied is that essential character of the product did not change and, therefore, it would not amount to manufacture.
The Hon’ble Court referred to the judgement in the case of East Taxes Motor Freight Lines vs. Frosen Food Express, where the U.S. Supreme Court held that dressed and frozen chicken was not a commercially distinct article from the original chicken. It was pointed out:
“killing, dressed and freezing a chicken is certainly a change in the commodity. But it is no more drastic a change than the change which takes place in milk from pasteurising, homogenizing, adding vitamin concentrates, standardizing and bottling”.
It was also observed:
“……………………there is hardly less difference between cotton in the field and cotton at the gin or in the bale or between cotton seed in the field and cotton seed at the gin, than between a chicken in the pen and one that is dressed. The ginned and baled cotton and the cotton seed, as well as the dressed chicken, have gone through a processing stage. But neither has been ‘manufactured’ in the normal sense of the word.
Referring to Anheuser-Busch Brewing-Association v. United States the Court said:
“Manufacture implies a change but every change is not manufacture and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary…..There must be transformation; a new and different article must emerge having distinctive name, character on use.”
“At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been manufactured.”
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.
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, the CEGAT erred in stating that there is a transformation into a new commodity, commercially known as distinct and separate commodity.