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TMI BlogManufacture - Sliced, scented and sweetened betel nut does not involve manufacture - Supreme Court.X X X X Extracts X X X X X X X X Extracts X X X X ..... Manufacture - Sliced, scented and sweetened betel nut does not involve manufacture - Supreme Court. - By: - DEV KUMAR KOTHARI - Central Excise - Dated:- 22-6-2008 - - What is Betel nut: From Britannica ready reference and encyclopedia: betel nut n [fr. its being chewed with betel leaves] (1673) : the astringent seed of the betel palm. be·tel \'bç-təl\ n [Pg bétele, fr. Tamil ve ṟṟilai ] (1553) : a climbing pepper ( Piper betle ) of southeastern Asia whose leaves are chewed together with betel nut and mineral lime as a stimulant masticatory. Thus we find that betel nut is considered a seed of betel palm tree. Betel-nut as an agricultural produce Betel-nut trees are planted in areas where suitable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soil and climatic conditions are found. Now-a-days due to advanced technology, betel-nut trees can be planted in several areas. However, pre-dominant areas are coastal areas. The tree of betle-nut is a long lasting tree and if it is properly maintained, it can have a productive and useful life of more than forty-fifty years. Depending on price of produce and yield of trees, some times economic viability of trees may be prolonged or shortened depending on revenue being derived from produce. The crops of betel-nut are harvested twice a year. The natural packing of betle-nut is quite sophisticated and to bring out the edible beetle-nut, the upper covering is removed. Betel nut is a hard substance to cut it instrument called sarota (which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has two medium-sharp blades joined by ribet with handles) is used. Skilled workers who are trained to cut supari can easily cut betel nuts in pieces or slices. For grinding also betle nuts are first broken and then grinded. Uses of betel-nut We find several uses of betel-nut as follows:- (i) Full betel-nut is used in worship / puja to make symbolic Ganesh and laxmi and also as offering to gods and goddesses. (ii) Sliced beetle-nut without any addition of any other thing is also used in pujan and havan samagri, and for chewing as well as for use in Pan. (iii) Betel-nut powder or thin slices are used in Pan Masala and gutka. (iv) Scented and sweetened betel-nut slices are used as mouth freshener. (v) Betel-nut powder with sugar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other ingredients is also used for medicinal purposes. For example Betel nut powder with sugar and milk is considered a good medicine for chronic headache. In all above uses, we find that the betel-nut retains its primary character of being a betle nut. Even with addition of some colours , essence , flavors , chemicals like lime, and sugar, the resultant product is still betel-nut though it may be described as betel-nut powder, beetle-nut slices and in popular term Supari, Sugandhit Supari, scented Supari, Supari Chura, Supari powder etc. The process of plucking betel-nut from the tree, drying it in sunlight or in some firing equipment and removing the upper covering and also cutting into small pieces or slices are generally consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered as nominal process required to render the produce of the betel-nut plantations suitable for taking to the market. Without certain other process like putting kattha (catechu) , chuna (edible lime) and other favor and sweeteners, the market for supari will be limited and therefore, these processes can also considered as process normally carried out to take the produce to the retail market. Different products of betel nuts: We find many different forms and products of betel nut for example: Betel nut in its full size with or without natural covering - this is generally used in puja. Betel nut in pieces without any flavor or color used for puja or in Pan. These can be called broken betel nut or sliced betel nut. Betel nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t as raw material for use in production of Pan Masala, Gutkha, mouth freshener. mithi Supari (sweetened supari) etc. Sliced and sweetened betel nut. There is no manufacture, so not liable to excise duty. As discussed above betel nut in different forms remains betel nut. The processes carried out are generally to render the agricultural produce fit to the market. Unless there is a manufacturing which results into an altogether new or other product, it cannot be said that a new product has been manufactured. Regarding 'agricultural produce' we can rely on the judgment of the Supreme Court in the case of CST V D.S.Bist (1979) 44 STC 392 (SC) in which it was held that tea made out of green tea leaves after carrying out various process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es remain tea and is an agricultural produce. Applying the same rule supari even after breaking, slicing, and with or without other additives is still called supari and its natural character and attributes remain more or less intact. In case of sweetened and flavored supari, we find that after chewing it for few minutes the sweet and flavor goes and there remain simple supari in our mouth. This shows that the betel nut remain betel nut even after it is sweetened and / or flavored. Rulings on Supari- Betel nut: In the matter of Crane Beetle-nut Powder Works v. Commissioner of Custom Central Excise, Tirupati, 2007 -TMI - 1149 - SC the matter came before the Supreme Court as to whether process involved in making supari powder or sweete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned supari etc. constitutes manufacture or not?. The Supreme Court, considering findings of Commissioner (appeal) and also one fundamental findings recorded by the CESTAT, has held that there is no manufacture involved in the production of the impugned goods as was held by the Commissioner who observed as follows: (a) the process of cutting betel nuts into small pieces and the addition of essential/non-essential oils, menthol, sweetening agent etc. does not result in a new and distinct product having a different character being formed. (b) there was no "manufacture" involved therein and even according to Note 7 of Chapter 21 of the Tariff, there was no "manufacture" involved in the production of the impugned goods. (c) the item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "betel nut powder/supari" finding a place/mentioned in the tariff is of no consequence unless the product was the result of manufacture or production, which is not so in the instant case. On appeal of the Revenue the Tribunal reversed the order of the Commissioner and allowed appeal of revenue by observing as follows:- (a) That the end product of the process involved in the preparation of the appellant's product was different from the original material. (b) A new and distinct product known as "supari powder" had emerged. (c) It is not necessary that there should be a sort of transmutation on subjecting raw material to process of manufacture. (d) Definitely, the 'supari powder' will have the characteristics of 'betel nut'. (e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) We cannot say that there is no manufacture for the reason that the 'betel nut' remains as 'betel nut'. (f) It may remain so but when other ingredients added to it how can we say these processes do not bring into existence a new and distinct commodity? (g) If we ask for betel nut, the shopkeeper will not give supari powder. In other words, the betel nut is different from the supari powder." On assessee/ manufacturer's appeal the Andhra Pradesh High Court confirmed the view taken by the Tribunal. Therefore, the assessee preferred appeal before the Supreme Court. Before the Supreme Court various contentions as to non taxability as well as no manufacturing were raised and several judgments were relied on by the counsels of both part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. It is needless to elaborate the same because the Supreme Court considered that when there was no manufacture at all, as there was no emergence of a new and distinct product, it is not necessary to go into questions of various entries in different chapters of Excise law. Before the Supreme Court on behalf of assessee Mr. Soli J. Sorabjee, learned senior advocate, contended that crushing of betel nuts into smaller pieces and sweetening the same with essential/non-essential oils, menthol and sweetening agents did not result in the manufacture of a new product. That the Tribunal has also observed that the end product remained a betel nut and that once such a conclusion was arrived at by the Tribunal, it could no longer be contended that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new product had come into existence. Per author, on review of findings of Tribunal as analyzed above the finding in (d) and (f) are contradictory and its order is also contradictory to its own finding in (d). Case laws relied on by assessee counsels: Union of India v. Delhi Cloth General Mills, reported in (1963) Supp. 1 SCR 586, Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. M/s. Pio Food Packers, reported in 1980 Supp. SCC 174 Shyam Oil Cake Ltd. v. Collector of Central Excise, Jaipur, reported in (2005) 1 SCC 264. Aman Marble Industries (P) Ltd. v. Collector of Central Excise, Jaipur, reported in (2005) 1 SCC 279. The Counsels for revenue tried to distinguish the above judgments and relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on: O.K. Play (India) Ltd. v. Commissioner of Central Excise-II, New Delhi, reported in (2005) 2 SCC 555, Kores India Ltd., Chennai v. Commissioner of Central Excise, Chennai, reported in (2005) 1 SCC 385. Brakes India Ltd. v. Superintendent of Central Excise and Ors., reported in (1997) 10 SCC 717. After hearing submissions and arguments of counsels of parties the Supreme Court observed and held as follows: In para 29 - Despite the elaborate submissions made on behalf of the respective parties, the issue involved in this appeal boils down to the question as to "whether by crushing betel nuts and processing them with spices and oils, a new product could be said to have come into being which attracted duty separately under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Schedule to the Tariff Act?' In para 30. The Supreme Court took the view, that the process of manufacture employed by the appellant-company did not change the nature of the end product, which in the words of the Tribunal, was that in the end product the 'betel nut remains a betel nut'. The said observation of the Tribunal depicts the status of the product prior to manufacture and thereafter. The process involved in the manufacture of sweetened betel nut pieces does not result in the manufacture of a new product as the end product continues to retain its original character though in a modified form. In para 31 the court held that "In our view, the Commissioner of Customs and Central Excise (Appeals) has correctly analyzed the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual as well as the legal situation in arriving at the conclusion that the process of cutting betel nuts into small pieces and addition of essential/non-essential oils, menthol, sweetening agent etc. did not result in a new and distinct product having a different character and use". In para 32 the Supreme Court held that the decision of this Court in the case of O.K. Play (India) Ltd. , relied on by Dr. Padia on behalf of revenue , does not also help his submission that any, form of manufacture would attract payment of excise duty, since the said decision was dealing with Note 6 to Chapter 39 of the 1985 Act where the expression "manufacture" has been categorically included, whereas in the instant case, Note 4 of Chapter 21 which de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als with Betel Nut Powder, does not do so. In para 33 the Supreme Court allowed the appeals of assessees and set aside the orders passed by the High Court dated 15th September, 2005 and the Tribunal dated 12th April, 2005, respectively, and restore that of the Commissioner of Customs and Central Excise dated 6th May, 2004. Subsequent judgment of CESTAT: In a subsequent judgment, for period relevant after introduction of eight digit classification, the Tribunal has followed the above ruling. The judgment of the Tribunal Dated - 08 October 2007 is reported as CCEC. GUNTUR Versus CRANE BETEL NUT POWDER WORKS and held as follows: a. that the Apex Court's judgment in the assessee's own case is still applicable. b. that the end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product 'betel nut remains a betel nut' and there is no change in the end product. c. Therefore, the effect of introduction of 8 digit classification does not have any consequences or bearing on the case. d. For that reason, we have to set aside the Order-in-Original passed by the Commissioner of Central Excise confirming demands under the 8 digit classification and allow the assessees' appeal. e. The Revenue appeal does not have any merit. f. The impugned order passed by the Commissioner (Appeals) is correct in law, g. the Revenue appeal is dismissed and the party's appeal is allowed. Conclusion: On reading of the judgment of the Supreme court and Tribunal it appears that several other vital contentions as disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussed in this article were not raised before the courts. The Supreme Court laid more emphasis on the finding of the Tribunal that the sliced and sweetened betel nut remains betel nut and any new product does not emerge. Although the Tribunal has considered supari powder or sweetened supari different from supari, however, the basic finding that betel nut remains betel nut was not challenged and could not be disputed. Therefore, in spite of change in form of betel nut, from raw betel nut to sweetened betel nut, there was no manufacture attracting levy of excise duty. The present definition of 'manufacture' is similar to the one considered by the Supreme Court, therefore, the ruling of the SC is still relevant and applicable. - - Scholarly ..... 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