1999 (9) TMI 318 - AT - Central Excise

Summary

Issues Involved:
1. Classification of 'Sunova-Spirulina Capsule' as non-excisable or under Tariff Heading 14.01 or 21.08.
2. Whether the conversion of spirulina powder into capsules constitutes a manufacturing activity.
3. Applicability of the Central Excise Act, 1944, Section 2(f) to the process involved.
4. Interpretation of Explanatory Notes to HSN Heading 12.12 and 21.06.
5. Impact of binding agents on the classification and excisability of the product.

Issue-wise Detailed Analysis:

1. Classification of 'Sunova-Spirulina Capsule':
The appellants filed a classification list declaring 'Sunova-Spirulina Capsule' as non-excisable, alternatively claiming it under Tariff Heading 14.01 with a nil rate of duty. The Revenue contended it was an 'edible preparation' under Tariff Heading 21.08. The original authority found the product to be processed and sold as a food supplement, thus classifiable under Heading 21.08. The appellate tribunal examined whether the product remains a natural product or transforms into a manufactured product.

2. Conversion of Spirulina Powder into Capsules:
The original authority determined that the process of drying, cleaning, powdering, and adding binding agents to spirulina constitutes manufacturing, making it an edible preparation. The tribunal considered whether these processes alter the product's character and use. The appellants argued that the addition of binding agents does not change the product's nature, asserting it remains spirulina.

3. Applicability of Central Excise Act, 1944, Section 2(f):
The original authority applied Section 2(f), which includes any process incidental or ancillary to the completion of a manufactured product, to classify the processes involved as manufacturing. The tribunal scrutinized whether the processes undertaken by the appellants fit this definition, ultimately determining that the processes did not change the product's character as a natural product.

4. Interpretation of Explanatory Notes to HSN Heading 12.12 and 21.06:
The appellants referred to HSN Heading 12.12, which covers all seaweeds and algae, indicating that spirulina, even when dried or ground, remains a natural product. The tribunal agreed, noting that the Explanatory Notes to HSN Heading 12.12 support the classification of spirulina as a natural product, not a manufactured one. The tribunal rejected the Revenue's reliance on HSN Heading 21.06, which pertains to food preparations with added vitamins or iron compounds, as no such additives were present in the appellants' product.

5. Impact of Binding Agents on Classification and Excisability:
The appellants argued that binding agents merely facilitate the filling of capsules and do not alter the product's character. The tribunal accepted this, noting that the binding agents do not change the natural properties of spirulina. The tribunal concluded that the product remains a natural product under HSN Heading 12.12 and is not excisable.

Conclusion:
The tribunal held that 'Sunova-Spirulina Capsule' is not excisable as it remains a natural product under HSN Heading 12.12. The processes of drying, cleaning, powdering, and adding binding agents do not constitute manufacturing under Section 2(f) of the Central Excise Act, 1944. The product does not fall under Tariff Heading 21.08 as an edible preparation. Consequently, the appeal was allowed, and the impugned order was set aside, granting relief to the appellants.