2017 (7) TMI 887 - AT - Central Excise

100% EOU - Manufacture - As the appellant is 100% EOU and cleared basmati rice, broken rice and bran made into DTA without payment of duty, therefore, two show cause notices were issued to demand excise duty on the said clearance of basmati rice, broken rice and brown rice cleared into DTA - whether the conversion of paddy into rice amounts to manufacture as per Section 2(f) of the Act? - whether the rice, rice bran and broken rice are excisable goods, in terms of Section 2(d) of the act or not? Held that - reliance was placed in the case of Dunar Food Ltd. Vs. CCE 2016 (11) TMI 636 - CESTAT CHANDIGARH , where it was held that the conversion of paddy into rice does not amount to manufacture and rice/rice bran/broken rice are not excisable goods in terms of Section 2(d) of the Act - the conversion of paddy into rice/broken rice/rice bran does not amount to manufacture in terms of Section 2 (f) of Central Excise Act, 1944 and the rice/rice bran/broken rice are not excisable goods in terms of Section 2(d) of the Act - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the conversion of paddy into rice amounts to manufacture as per Section 2(f) of the Central Excise Act, 1944.
2. Whether rice, rice bran, and broken rice are excisable goods in terms of Section 2(d) of the Central Excise Act, 1944.

Issue-wise Detailed Analysis:

Issue 1: Whether the conversion of paddy into rice amounts to manufacture as per Section 2(f) of the Central Excise Act, 1944.

The Tribunal considered whether the conversion of paddy into rice constitutes a manufacturing process under Section 2(f) of the Central Excise Act, 1944. The Tribunal referenced the case of Dunar Food Ltd. Vs. CCE, where it was held that the conversion of paddy into rice does not amount to manufacture. The decision was supported by the Hon'ble Apex Court, which observed that the process of de-husking paddy is essentially an agricultural operation, and the resulting products (rice and husk) remain in their natural form. The Tribunal cited the case of M/s. Cynamid India Ltd., which discussed the definition of manufacture under the Income Tax Act, emphasizing that a new and distinct article must emerge with a distinct name, character, and use. The Tribunal concluded that the conversion of paddy into rice does not meet the criteria for manufacture as defined in Section 2(f) of the Central Excise Act, 1944. Therefore, the goods in question are not manufactured goods, and the issue was resolved in favor of the appellants.

Issue 2: Whether rice, rice bran, and broken rice are excisable goods in terms of Section 2(d) of the Central Excise Act, 1944.

The Tribunal examined whether rice, rice bran, and broken rice are excisable goods under Section 2(d) of the Central Excise Act, 1944. The Tribunal noted that for goods to be excisable, they must be specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985, and be subject to a duty of excise. The Tribunal referenced several cases, including Ramesh Flowers (P) Ltd., Valpus Biotech Ltd., and Praj Agro Vision Ltd., where it was established that if the tariff rate is left blank, the goods are considered non-excisable. The Tribunal also cited the case of Ahmedabad Electricity Co. Ltd., which stated that merely being listed in the tariff schedule does not make goods excisable unless they are produced or manufactured in India. Additionally, the Tribunal referred to the case of Wimco Ltd., which emphasized that a tariff entry alone does not make goods excisable without involving manufacture. The Tribunal concluded that since the rate of duty for rice is left blank in the tariff, rice, rice bran, and broken rice are not excisable goods. This view was further supported by the Tribunal's observation that no 100% EOU manufacturing rice is paying duty on rice. Consequently, the issue was resolved in favor of the appellants.

Conclusion:

The Tribunal held that the conversion of paddy into rice does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944, and that rice, rice bran, and broken rice are not excisable goods under Section 2(d) of the Act. The impugned orders were set aside, and the appeals were allowed with consequential relief.