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TMI Blog2017 (11) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2004 No. 6/2005 dated 29.04.2005 2. The Appellant is engaged in the manufacture of Indian Made Foreign Liquor (IMFL) and is a registered owner of several well-known brands such as 'McDowells'. During the impugned periods, the Appellant also prepared food flavours which went into the manufacture of IMFL. The present appeal pertains only to said food flavours . 3. The appellant has its own distillery units for the manufacture of IMFL at various places throughout the country and obtained the license from the State Governments for manufacture of IMFL. In addition, the appellant, to cater the increased demand also entered into agreements with various Contract Bottling Units (CBUs) and Independent Bottling Units (IBU) for manufacture and sale of IMFL. These units are having their own bottling plants and licenses to manufacture IMFL. 4. The contractual arrangement between the Appellant and CBU is explained below: THE CONTRACTUAL ARRANGEMENTS 1. The Appellant had entered into two agreements with CBUs which are as follows: A. Manufacturing Agreement 2. The Manufacturing Agreement guided the manufacture of IMFL by CBUs for the Appellant on a principal to principal basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case reported as 2006 (199) ELT 368 (Tri-Bang.). The above order of the Tribunal was challenged by Revenue before the Hon ble Supreme Court who remanded the matter to this Tribunal for a de novo decision in the matter on the following main grounds: a) That the assessee had pleaded a different factual matrix which has been accepted by the Tribunal without referring to specific details; b) That the exact nature of the process undertaken and how mixing is undertaken is not discernible and the same remains ambiguous and inconclusive; c) That the contention of the assessee that about 26% of the sale of odiferous substances were brought from third party and sold without modification are questions of fact and the same shall be validated; d) That the Tribunal has answered the questions in favour of the assessee without going into the background check since different flavours may have different processes; e) That in so far as the aspect of limitation is concerned, the Tribunal has not scrutinized the dates appropriately but has returned a cryptic finding. 6. With the above background, we have heard Shri G. Shivadass, advocate Ld. Counsel for the appellant and Shri P.R.V. Ramanan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by them. According to the learned counsel, for manufacturing activity, an article must be capable of being bought and sold and known in the market as such. He submits that by adding the food flavour, the value of IMFL was enhanced and new product has come into existence, which amounts to manufacturing activity. By adding the food flavour as an input, a new product or character has emerged in the final product. 8.1 Regarding the valuation, the learned counsel for the Department submits that royalties are received from the Contract Bottling Units (CBUs) and Independent Bottling Units (IBUs) manufacturing IMFL bearing the brands of the appellant. In such cases, both Manufacturing and User-ship Agreements exist. According to the learned Special Counsel, the appellant has granted to other manufacturers the license to use their Trade Mark under User-ship Agreements and tight control is maintained by the appellant. Appellant has invariably received royalty/service charges from Contract Bottling Units under a composite and indivisible agreement. No separate agreements exist for manufacturers not buying food flavour. Department is, therefore, of the view that there is nexus between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1994. Furthermore, the resultant food flavours are not chemically different from the ingredients and therefore, no new or commercially distinct product comes out of such mixing. The Appellant submits that the very issue regarding excisability of food flavours that are physically mixed, came up for consideration in the case of Shaw Wallace Company Limited, another leading manufacturer of IMFL, wherein the Hyderabad Commissioner vide Order-in-Original No. 45/2003 dated 22.09.2003, after examining the process of preparation of food flavours, held that the mere mixing of essences does not amount to manufacture (referred to in para 12 of the Supreme Court's order). The said order was upheld by this Hon ble Tribunal in CCE, Hyderabad Vs. Shaw Wallace Company Limited, 2008-TIOL-884-CESTAT-BANG by following Tribunal decision dated 17.3.2006 in the case of the Appellant. The said order of the Tribunal in Shaw Wallace case has been accepted by the department and not been challenged by the department to the Supreme Court. It is submitted that the department cannot consider the same activity of physically mixing of the flavour to be an activity of manufacture for one assessee and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the appellant, during the course of argument, has submitted a flow chart of the activities carried out by the appellant and tried to explain the processes involved. The flow chart is: 17. The learned special counsel for the Revenue has submitted as follows on the issue of manufacture. (i) To attract the definition of manufacture three criteria are required to be met, namely, (a) The article must be capable of being bought and sold in the market and to be known as such; (b) The article must arise as a result of conversion of inputs and such conversion is in the nature of transformation not merely a change; (c) The article should be goods in the sense that it should be moveable. [This aspect is not in dispute] (ii) In the instant case, subject Food flavours are marketable as they are being sold to other independent bottlers who manufacture their own brands; besides, these flavours are being used in the brand of Herbetsons Ltd.; further these are custom - made and for use in a particular brand of IMFL. (iii) The food flavours/essences are mixed together and a new flavour/essence emerges in the process. Inputs lose their identity and are never the same after such mixing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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