2016 (11) TMI 636 - AT - Central Excise

Manufacture - Whether the conversion of paddy into rice amounts to manufacture as per section 2(f) of the Act or not? - Clandestine removal - 100% EOU - export of basmati rice - section 3(1) of the Central Excise Act, 1944 read with section 12 of the Customs Act, 1962 - Held that - reliance placed on the decision of the case of The Commissioner of Income Tax vs. M/s.Cynamid India Ltd. 1999 (4) TMI 2 - SUPREME Court where The deductions claimed by the assessee were in respect of the expenditure incurred by it in disseminating literature, pamphlets, etc., containing information on modern techniques and methods of agriculture designed for increasing the yield of rice amongst the cultivators and farmers who grow rice - held that assessee-company was entitled to weighted deduction under section 35-C - conversion of paddy into rice is not a distinct operation and the rice and husk remain in their natural form as a result of dehusking and are covered by the term agricultural product. The test of manufacture has been failed as the goods are not manufactured goods as per section 2(f) of Central Excise Act, accordingly, the question of excisability does not arise - decided in favor of appellant. Whether the rice/bran rice are excisable goods in terms of section 2(d) of the Act or not? - Held that - if in the tariff, the rate of duty is left blank, in that case, the goods are not excisable goods. Admittedly in the case in hand, the rate of duty in the tariff is left blank, therefore, we hold that the rice is not excisable goods. This view also takes support from the various RTI applications filed by the appellant wherein it has been replied by the department that no unit is manufacturing rice is paying duty on the rice being 100% EOU, we hold that the rice is not excisable goods - decided in favor of appellant. Whether the extended period of limitation is invokable in the facts and circumstances of the case or not? - Held that - the appellant has succeeded on merits, therefore, we are not going into the issue of limitation. Therefore, the issue No.3 is kept open for the appellant. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the conversion of paddy into rice amounts to manufacture as per section 2(f) of the Act or not.
2. Whether the rice/bran rice are excisable goods in terms of section 2(d) of the Act or not.
3. Whether the extended period of limitation is invokable in the facts and circumstances of the case or not.

Issue-Wise Detailed Analysis:

Issue No. 1: Whether the conversion of paddy into rice amounts to manufacture as per section 2(f) of the Act or not.

25. The learned Special Counsel relied on various decisions, particularly the decision of the Hon'ble Apex Court in the case of Delhi Cloth and General Mills Co.Ltd., to argue that a new and different article has emerged having a distinct name, character, and use, thus constituting manufacture.

26. Conversely, the learned Counsel for the appellant referenced the Apex Court's decision in M/s.Cynamid India Ltd., arguing that the activity undertaken by the appellant is not manufacture.

27. The decision in M/s.Cynamid India Ltd. pertains to the Income Tax Act, where the term "manufacture" means a change in a non-living physical object resulting in a new and distinct object or article with a distinct name, character, and use.

28. The definition of manufacture in section 2(f) of the Central Excise Act, 1944, aligns with the definition in the Income Tax Act.

29. The Apex Court in M/s.Cynamid India Ltd. held that de-husking paddy is not an industrial or manufacturing operation; rice and husk remain in their natural form and are covered by the term 'agricultural product.'

30-31. Therefore, the conversion of paddy into rice does not meet the test of manufacture as per section 2(f) of the Central Excise Act, and the goods are not considered manufactured. The issue is resolved in favor of the appellants.

Issue No. 2: Whether the rice/bran rice are excisable goods in terms of section 2(d) of the Act or not.

32. The learned Special Counsel relied on the case of Hind Rubber, affirmed by the Apex Court, where the item manufactured was in the Central Excise Tariff with a rate of duty but was exempted by notification.

33-34. However, in the case of Ramesh Flowers (P) Ltd., this Tribunal held that items classified under a chapter left blank in the Central Excise Tariff are non-excisable.

35-36. The Apex Court in Ahmedabad Electricity Co.Ltd. and Wimco Ltd. held that merely being mentioned in the tariff does not make goods excisable unless manufacture is involved.

37-38. In Nahar Industrial Enterprises Ltd. and Vikram Ispat, the courts emphasized that the duty levied on goods manufactured by 100% EOUs is central excise duty, not customs duty.

39. The Tribunal concluded that if the tariff rate is left blank, the goods are not excisable. The appellant's RTI applications confirmed that no 100% EOU manufacturing rice pays duty on rice. Thus, rice is not excisable.

40. The issue is resolved in favor of the appellant.

Issue No. 3: Whether the extended period of limitation is invokable in the facts and circumstances of the case or not.

41. Since the appellant succeeded on merits, the issue of limitation was not addressed, and it remains open for the appellant.

Conclusion:

42. The appellants succeeded on both grounds, and the impugned order was set aside. The appeals were allowed with consequential relief, if any.

(Pronounced in the open court on 22.09.2016)

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