Whether conversion of raw tamarind to paste amounts to manufacture?

PJ/CASE LAW/2015-16/2895

Case:- COMMISSIONER OF C. EX., CHANDIGARH VERSUS DABUR INDIA LTD.

Citation:-2015 (325) E.L.T. 613 (Tri. - Del.)

Brief facts:- There are 7 appeals taken up together as the issue involved is same in all. Two appeals (E/2670 of 2006 and E/2671 of 2006) were filed by the Revenue and the remaining 5 appeals were filed by the party. The facts of the case in brief are that M/s. Dabur India Limited are manufacturers of various Ayurvedic Medicaments and food preparations. They also produce and clear process Tamarind Paste to their other unit for manufacturer of Hajmola, Imli. They have been classifying the said Tamarind Paste under Chapter 20 clearing the same on payment of appropriate duty, if any, leviable thereon. In 2003 consequent on an audit conducted, the Department initiated action to change the classification from Chapter 20 to Heading 1301.10. Various show cause-cum-demand notices were issued covering the period 16-12-1999 to 31-12-2010. The demands were confirmed and on appeals the learned Commissioner (Appeals) vide his order dated 8-5-2006 covering the period 16-12-1999 to 30-9-2004 set aside the original order and allow the parties appeal. The Revenue is before the Tribunal aggrieved by this order of Commissioner (Appeals).
For the demands covering the period 1-10-2004 to 31-12-2010 the confirmation of demands and penalties imposed were upheld by the learned Commissioner (Appeals) in his various appeal orders. M/s. Dabur India Limited are in appeal before them in respect of these Commissioner (Appeals) orders. The issues for decision in these appeals is whether or not the Tamarind Paste/concentrate cleared by M/s. Dabur India Limited is arising out of process amounting to manufacture and the correct classification of the said product.
The issue regarding whether the process undertaken by M/s. Dabur amounts to manufacture or not can be taken up first. There is no dispute regarding the process undertaken by them. The process flow chart for production of processed Tamarind Paste is as below :-
Boiling of Raw
Tamarind/Imli in Tilting Pan

Washing & Filtration of
Material

Squeezing of material

Filtration of material

Concentration in
FFE/ Vacuum after settling

Cooling & Packing in HDPE
Drum with polylining

Appellant’s contention:- The Revenue’s contention is that the process which converts raw Tamarind to the Tamarind Concentrate or Paste will amount to manufacture. In the order dated 2-11-2007, the learned Commissioner (Appeals) concludes that from the process it is very clear that the raw Tamarind undergoes several transformations and losses its original identity. The final product is known by a different name and a different use as input for the manufacture of other goods. He proceeded further to state that reliance placed on earlier orders of Commissioner (Appeals) holding that the process undertaken with reference to said goods does not amount to manufacture will not help the party as the said order have been set aside by the Tribunal vide order dated 23-2-2004. This conclusion of the learned Commissioner (Appeals) is erroneous. The Tribunal only held that there was no speaking order by the Department and hence directed the Competent Authority to decide the representation made by the party hence the learned Commissioner (Appeals) observation giving an impression that the Tribunal has set aside the order of earlier Commissioner (Appeals) on merit is not factually correct. The Commissioner (Appeals) did not give detailed finding regarding the satisfaction of the conditions laid down in the Hon’ble Supreme Court’s order in the case of Delhi Cloth & General Mills Ltd. v. Union of India reported in 1977 (1)E.L.T.(J199) (S.C.). In fact the only summary finding is that it is very clear that the raw Tamarind undergoes several transformations and loses its original identity. To their understanding they could not agree with the same as the raw tamarind would have, if at all, lost its physical identity and reached their paste concentrate form. To levy Central Excise duty it is necessary that a new product should come into existence as a result of a manufacturing activity. The definition under Section 2(f) of the Central Excise Act, 1944 gives a wider content to the term “manufacture” as several processes which are normally not considered or understood as amounted to manufacture are specifically included therein. The common principle used for ascertaining whether a process amounting to manufacture in respect of any goods is laid down by the Hon’ble Supreme Court in the case of Delhi Cloth & General Mills Ltd. v. Union of India (supra). The Hon’ble Supreme Court held as under :-

“14. The other branch of Mr. Pathak’s argument is that even if it be held that the respondents do not manufacture “refined oil”, as is known to the market they must be held to manufacture some kind of “non-essential vegetable oil” by applying to the raw material purchased by them, the processes of neutralisation by alkali and bleaching by activated earth and/or carbon. According to the learned Counsel “manufacture” is complete as soon as by the application of one or more processes, the raw material undergoes some change. To say this is to equate “processing to manufacture” and for this we can find no warrant in law. The word “manufacture” used as a verb is generally understood to mean as “bringing into existence a new substance” and does not mean merely “to produce some change in a substance,” however minor in consequence the change may be. This distinction is well brought about in a passage thus quoted in Permanent Edition of Words and Phrases, Vol. 26, from an American judgment. The passage runs thus :-

“Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.”

Further the Hon’ble Supreme Court in the case of Union of India v. J.G. Glass Industries Ltd. reported in 1998 (97)E.L.T.5 (S.C.) laid down two fold test for deciding whether the process is that of manufacture (or not).

“16. First, whether by the said process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist; secondly, whether the commodity which was already in existence will serve no purpose but for the said process. In other words, whether the commodity already in existence will be of no commercial use but for the said process”.

Applying the principle to the present facts of the case it is clear that M/s. Dabur started with raw tamarind subjecting the same to the process of boiling, washing, filtering, squeezing, concentrating and finally packing of produce processed Imli paste. The process undertaken have not resulted in the tamarind losing its natural character, intended purpose of use and it is also not a new product of different category. The raw tamarind can very well be put into the same use as of tamarind paste/concentrate except that the latter is more refined for uniform better usability.

Respondent’s contention:- The learned Counsel for M/s. Dabur also relied on the Hon’ble Supreme Court’s order in the case of CCE, Mumbai v. Laljee Godhoo & Co. reported in 2007 (216)E.L.T.514 (S.C.). In that case the Hon’ble Supreme Court examined the processes undertaken to convert raw thing to make compounded asafoetida. The Hon’ble Apex Court held that there is no chemical change in these processes and the product at the starting point and the terminal point remains the same. The essential character of the product remain constant and accordingly held there is no process of manufacture.

Reasoning of judgment:- They find in the present case also the process undertaken to produce tamarind concentrate/paste does not produce any chemical change and the product at the starting point and at the end remains the same, but for formation of pulp and removal of added water/moisture. Hence, they find that in the production of tamarind paste/concentrate no process amounting to manufacture is involved. It is pertinent to note that the Department also held the same view in the earlier proceedings as confirmed by the learned Commissioner (Appeals) against which the Revenue is in appeal in two cases. The reason for change in the stand by the Revenue in the subsequent proceedings has not been brought out clearly. There is no change in the process and it is only the change of interpretation without any additional evidence by the Revenue which resulted in confirmation of demands for the later periods. After careful consideration on the evidence on record they hold that there is no justification for the change in the Department’s view and hold that there is no process amounting to manufacture in this case.

The second issue is regarding classification of Tamarind Paste/Concentrate under Central Excise Tariff. The Revenue’s contention is that the same should be under Chapter 13 as vegetable extracts as it is nothing, but a simple extract made out of single herbal, namely, raw Tamarind. M/s. Dabur contention is that the product is all along classified under Chapter 20 and there is no justification to call the same as vegetable extract. Further, no justification has been given by the Department for sudden change in the classification from Chapter 20 to Chapter 13. During the course of argument, the learned Counsel for M/s. Dabur pleaded at length regarding the scope of Chapter 13 - vegetable extract and contended that there is no extraction from any vegetable and there is no justification to call Tamarind paste as an extraction from raw tamarind. It is clear from the flow chart explaining the processed undertaken by M/s. Dabur there is no extraction of any material and certainly not from any vegetable source. The raw tamarind purchased is washed and boiled in a tilting pan and thereafter the water is extracted through hydraulic pressure. The resultant product is passed through Film evaporator which gives totally soluble solids. The process undertaken by M/s. Dabur apparently cannot be called vegetable extraction. The process involved and the product produced cannot be covered under Heading 1302, when examined alongwith Explanatory notes there is no extraction. The water used in washing and boiling the tamarind is in fact removed at thrown away as waste resulting in usable product in the form of pulp. The process thus is more of pulp preparation rather than extraction. These aspects have been examined in detail in the Commissioner (Appeals) order dated 8-5-2006. Here again the change in the view of Revenue for the later period to classify the product as vegetable extract under Heading 1302 is not explained with the reason. With the same set of facts the earlier view of classification was changed. After examining the process, the classification headings and the relevant explanatory notes, we find that the classification adopted prior to change over was correct and sustainable. In other words, the impugned product is correctly classifiable under Chapter 20 rather than Chapter 13.

In view of the findings on both the issues, as above, they dismiss the appeals filed by the Revenue in appeal No. E/2670-2671 of 2006 and allow the appeals No. E/1470 of 2007, E/119, 645 of 2008 and E/52452-52453 of 2014 filed by M/s. Dabur India Ltd. All the appeals are disposed of accordingly.

Decision:- Revenue’s appeals dismissed/Assessee’s appeals allowed.

Comment:- The analogy of the case is that conversion of raw tamarind into tamarind paste/concentrate by subjecting it to the process of boiling, washing, filtering, squeezing, concentrating does not amounts to manufacture as Tamarind does not loses its natural character, intended purpose of use and no new product of different category emerged. There is no chemical change produced, product remains same from starting point to end point of process undertaken. There is no process amounting to manufacture involved.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2895

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