2015 (4) TMI 356 - SC - Central Excise

Manufacture - packing combination of mixture of raw rice, dehydrated vegetables and spices in the name of Rice and Spice . - Classification under Heading 11.01 or under sub-heading 21.08 - Held that - it is clear that there is no dispute about the legal proposition that the process would be treated as manufacture only if new product known to the market comes into existence with original product losing its original character. - 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. Activity undertaken by the assessee does not amount to manufacture, this appeal is liable to succeed on this ground itself inasmuch in the absence of any manufacture there is no question of payment of any excise duty. We may, however, remark that even otherwise the classification of the product by the Revenue under sub-heading 21.08 may not be correct. In fact, the CEGAT has accepted that classification only on the ground that the product after mixing of raw rice with dehydrated vegetable and spice, has become a new product as it amounts to manufacture and on that basis it has held that it no longer remains product of milling industry. As we have held that it does not amount to manufacture as the essential characteristics of the product, still remains the same, namely, rice, a natural corollary would be that it continues to be the product of the milling industry and would be classifiable under sub-heading 11.01. Rate of duty on this product, in any case, is nil . - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the process undertaken by the assessee amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944.
2. The correct classification of the product under the Central Excise Tariff Act, 1985.

Issue-wise Detailed Analysis:

1. Whether the process undertaken by the assessee amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944:

The appellant/assessee contended that their process of mixing raw rice, dehydrated vegetables, and spices did not amount to "manufacture" as defined under Section 2(f) of the Central Excise Act, 1944. They argued that the mixture, sold in packaged form, still required cooking to be edible and did not constitute a new product. The Tribunal, however, held that a new product had come into existence, thus considering it a manufacturing process. The Supreme Court examined precedents, including the Crane Betel Nut Powder Works vs. Commissioner of Customs and Commissioner of Central Excise vs. Laljee Godhoo & Co., where it was established that a process does not necessarily result in a new product unless it changes the essential character of the original product. The Court concluded that the addition of dehydrated vegetables and spices to raw rice did not transform it into a new product, as its primary identity as rice remained unchanged. Therefore, the process did not amount to "manufacture."

2. The correct classification of the product under the Central Excise Tariff Act, 1985:

The Revenue classified the product under Heading 2108 as Miscellaneous Edible Preparation. The assessee argued for classification under Heading 11.01, which includes products of the milling industry, such as flours and grains of cereals, attracting nil duty. The Tribunal's classification was based on its finding that the process amounted to "manufacture." Given the Supreme Court's decision that the process did not constitute "manufacture," the product retained its essential character as rice, a product of the milling industry. Consequently, the appropriate classification would be under Heading 11.01, attracting nil duty.

Conclusion:

The Supreme Court held that the process undertaken by the assessee did not amount to "manufacture" as defined under Section 2(f) of the Central Excise Act, 1944. Consequently, the product should be classified under Heading 11.01 of the Central Excise Tariff Act, 1985, attracting nil duty. The appeal was allowed, and the order of the CEGAT and the demand for excise duty by the Revenue were set aside.