Crane Betel Nut Powder Works Vs. Commissioner of Customs & Central Excise,
Tirupathi & Anr  Insc 300 (19 March 2007)
Dr.AR. Lakshmanan & Altamas Kabir
(Arising out of SLP (C) No.20185/2005) WITH
CIVIL APPEAL NO.6659 OF 2005 M/S. CRANE BETEL NUT POWDER WORKS ..Appellant
Versus COMMISSIONER OF CUSTOMS & CENTRAL EXCISE, TIRUPATHI ..Respondent
ALTAMAS KABIR, J.
The appellant-company is engaged in the business of marketing betel nuts in
different sizes after processing them by adding essential/non-essential oils,
menthol, sweetening agent etc. Initially, the appellant cleared the goods under
Chapter Sub-heading 2107 of the Central Excise Tariff and was paying duty
accordingly. However, the appellant filed a revised classification declaration
under Rule 173B of the Central Excise Rules, 1944, with effect from 17th July, 1997, claiming classification of its product under Chapter Sub- heading 0801.00
of the Central Excise Tariff. It was contended that the crushing of betel nuts
into smaller pieces with the help of machines and passing them through
different sizes of sieves to obtain goods of different sizes/grades and
sweetening the cut pieces did not amount to manufacture in view of the fact
that mere crushing of betel nuts into smaller pieces did not bring into
existence a different commodity which had a distinct character of its own.
The Assistant Collector of Central Excise, Guntur Division, who was the
Adjudicating Authority, did not accept the contention of the appellant upon
holding that the product manufactured by the assessee, namely, betel nut
powder, was a preparation containing betel nut with other permitted ingredients
which was a new product commercially known to the market with distinct name and
character. On his said finding, the Adjudicating Authority rejected the claim
of the appellant-company and held that the appellant's product had been rightly
classified under Chapter Heading 2107.00 and the appellant was liable to pay
duty at the appropriate rate specified in the chapter to the Central Excise
Tariff Act, 1985.
The appellant-company went up in appeal against the said order of the
Adjudicating Authority to the Commissioner of Customs and Central Excise,
(Appeals) and the same was decided in favour of the appellant-company.
After considering the submissions made on behalf of the respective parties,
the Commissioner came to the conclusion that 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.
Accordingly, 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. The
Commissioner further held that the item "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
The Commissioner accordingly allowed the appeal filed by the appellant
herein and set aside the order passed by the Assistant Commissioner of Central
Excise, Guntur Division, with consequential relief to the appellant-company.
Aggrieved by the order of the Commissioner, the Revenue went up in appeal to
the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore
(for short 'the Tribunal') by way of Appeal No.
The Tribunal took a different view and reversed the order of the
Commissioner upon holding that the end product of the process involved in the
preparation of the appellant's product was different from the original
According to the Tribunal, a new and distinct product known as "supari
powder" had emerged. The Tribunal went on to observe as follows :-
"When subjecting raw material to
process of manufacture, it is not necessary that there should be a sort of
Definitely, the 'supari powder' will have the characteristics of 'betel
nut'. We cannot say that there is no manufacture for the reason that the 'betel
nut' remains as 'betel nut'. 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? If we ask for betel nut, the shopkeeper will not give
In other words, the betel nut is different from the supari powder."
The Tribunal accordingly allowed the appeal filed by the Revenue and set
aside the order passed by the Commissioner on 6th May, 2004.
The appellant went up in appeal before the High Court of Andhra Pradesh
under Section 35 (B) of the Central Excise Act, 1944 against the said order of
the Tribunal dated 12th April, 2005. The High Court confirmed the view taken by
the Tribunal and after taking into consideration the process involved in
converting the whole betel nuts into sweetened betel nut pieces, the High Court
dismissed the appeal and chose not to interfere with the order passed by the
This appeal has been filed by the assessee-company impugning the decision of
the High Court dated 15th September, 2005.
Appearing for the assesee-company, 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 and as observed by
the Tribunal, the end product remained a betel nut. Mr. Sorabjee submitted that
once such a conclusion was arrived at, it could no longer be contended that a
new product had come into existence.
Referring to Chapter 8 of the Central Excise
Tariff Act, 1985,
Mr. Sorabjee submitted that the product of the appellant-company fell squarely
under the said Chapter Sub- heading 0801.00 for which the rate of duty was nil.
He then referred to Note 4 of Chapter 21 which reads as follows :- CHAPTER 21
MISCELLANEOUS EDIBLE PREPARATIONS NOTES "4. In this Chapter "Betel
nut powder known as supari" means any preparation containing betel nuts
but not containing any one or more of the following ingredients, namely lime,
katha (catechu) and tobacco, whether or not containing any other ingredients,
such as cardamom, copra and menthol."
Referring to the Chapter Notes on Chapter 8, Mr.
Sorabjee pointed out that fruits and nuts included under the chapter could
be whole, sliced, chopped, shredded, stoned, pulped, grated, peeled or shelled.
It was pointed out that under Heading No. 08.02 in which other nuts are
described, it has been specifically mentioned that the said heading also covers
areca (betel) nuts used chiefly as a masticatory.
Mr. Sorabjee urged that the process involving manufacture did not always
result in the creation of a new product. In the instant case notwithstanding
the manufacturing process, it could not be said that a transformation had taken
place resulting in the formation of a new product.
In support of his aforesaid contention, Mr. Sorabjee firstly referred to a
Constitution Bench judgment of this Court in the case of Union of India vs.
Delhi Cloth &
General Mills, reported in (1963) Supp. 1 SCR 586, where the change in the
character of raw oil after being refined fell for consideration. While
considering the submission made that "manufacture" is complete as
soon as by the application of one or more processes, the raw material undergoes
some change, the Constitution Bench observed that 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. In dealing with the subject, their Lordships had
occasion to refer to an extract from an American judgment in the case of
Anheuser-Busch Brewing Association vs. United States, 52 L.Ed. 336-338, which
reads as follows:- "'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."
Mr. Sorabjee submitted that the aforesaid principle had been subsequently
followed by this Court in several cases and in that regard he referred to the
decision of this Court in the case of Deputy Commissioner of Sales Tax (Law),
Board of Revenue (Taxes), Ernakulam vs. M/s. PIO Food Packers, reported in 1980
Supp. SCC 174, where the same sentiments were expressed in the matter of
processing raw pineapple slices into canned slices for better marketing.
This Court held that when the pineapple fruit is processed into pineapple
slices for the purpose of being sold in sealed cans, there is no consumption of
the original pineapple fruit for the purpose of manufacture.
Similar views have been expressed by this Court in the case of Shyam Oil
Cake Ltd. vs. Collector of Central Excise, Jaipur, reported in (2005) 1 SCC
264, and in the case of Aman Marble Industries (P) Ltd. vs. Collector of
Central Excise, Jaipur, reported in (2005) 1 SCC 279. While the first case
involve the classification of refined edible oil after refining, the second
case referred to the cutting of marble blocks into marble slabs. In the first
of the said two cases, it was held that the process of refining of raw edible
vegetable oil did not amount to manufacture. Similarly, the cutting of marble
blocks into smaller pieces was also held not to be a process of manufacture for
the reason that no new and distinct commercial product came into existence as
the end product still remained the same and thus its original identity
Mr. Sorabjee referred to the definition of the expression
"manufacture" in Section 2 (f) of the Central Excise Act, 1944,
wherein "manufacture" has been defined to include any process (i)
incidental or ancillary to the completion of a manufactured product;
(ii) which is specified in relation to any goods in the section or Chapter
notes of The First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986)
as amounting to manufacture; or (iii) which in relation to the goods specified
in the Third Schedule, involves packing or repacking of such goods in a unit
container or labelling or re-labelling of containers including the declaration
or alteration of retail sale price on it or adoption of any other treatment on
the goods to render the product marketable to the consumer;
And the word "manufacture" shall be construed accordingly and
shall include not only a person who employs hired labour in the production or
manufacture of excisable goods, but also any person who engages in their
production or manufacture on his own account;"
Mr. Sorabjee pointed out from the above that "manufacture" had to
be incidental or ancillary to the completion of a manufactured product. In the
instant case, the product continued to be pieces of betel nut and hence it
would not come within the definition of "manufacture" as used in the
Central Excise Act, 1944.
Mr. Sorabjee urged that although initially the appellants' product had been
classified under Chapter Heading 2107.00, after subsequent reconsideration of
the matter, it was found to fall squarely under Chapter Sub-heading 0801.00
referred to in Chapter 8 of the Central Excise
Tariff Act, 1985 and an application was accordingly made to the Assistant
Collector of Central Excise, Guntur for re-determination.
Mr. Sorabjee submitted that while the Commissioner of Customs and Central
Excise (Appeals) had correctly decided the matter, both the Tribunal as also
the High Court took an erroneous view that on account of processing of the
betel nuts a new and distinct product had emerged, thereby attracting tax
payable in respect of products classified under Chapter Heading 2107.00. Mr.
Sorabjee submitted that the orders passed by the High Court as also the
Tribunal were required to be set aside and that of the Commissioner of Customs
and Central Excise (Appeals) was liable to be restored.
Appearing for the Revenue, Mr. B. Datta, learned Addl.
Solicitor General, reiterated the stand taken by the Department before the
Tribunal as also the High Court. He reiterated that the very process of
crushing the betel nuts into different gradable sizes and adding certain
ingredients to the same resulted in the manufacture of a new product which
attracted Chapter Sub-heading 2107.00 of the Tariff instead of Sub-heading
No.0801.00 of the Schedule to the Central Excise Tariff Act,
Dr. R.G. Padia, learned senior advocate, who also appeared for the
respondents in the other appeal (Civil Appeal No.6659/2005) submitted that
neither the Tribunal nor the High Court had committed any error in holding that
a new product emerged after the manufacturing process resorted to by the
assessee which substantially altered the character of the original product. It
was submitted that though it was true that betel nut remained betel nut even in
the final product, the same did not retain its original character and was
converted into a product where one of the components was betel net or supari.
Distinguishing the view taken by the Constitution Bench in the Delhi Cloth and
General Mills Ltd. (supra), Dr.
Padia contended that while in the said case no new product had emerged and
only raw oil had been subjected to processing which could not be equated with
manufacture, in the instant case, the raw material itself, which was otherwise
inedible, underwent a change and was transformed into a product which was
edible with the addition of essential/non- essential oils, menthol, sweetening
agents etc. resulting in the manufacture of a completely new product which was
different from the original raw material.
Dr. Padia also referred to Section 2 (f) of the Central Excise Act, 1944 and
submitted that the definition of the expression "manufacture"
squarely covered the process involved in the conversion of raw betel nut into
sweetened betel nut powder and/or pieces.
In support of his aforesaid contention, Dr. Padia referred to a decision of
this Court in O.K. Play (India) Ltd. vs.
Commissioner of Central Excise-II, New Delhi, reported in (2005) 2 SCC 555,
where the expression "manufacture" had been considered in the process
of conversion of low density polyethylene (LDPE) and high density polyethylene
(HDPE) granules into moulding powder for using the same as inputs to
manufacture plastic water-storage tanks and toys. It was held that such
processing amounted to "manufacture" within Section 2 (f) of the
Central Excise Act, 1944. It was also held that such moulding powder is a
marketable commodity and is, therefore, excisable under Section 2 (d) of the
Dr. Padia referred to paragraph 11 of the said judgment which refers to the
two clauses contained in Section 2 (f) of the 1944 Act and instead of setting
out the activities in respect of different tariff items, Sub-clause (ii) simply
states that any process, which is specified in Section/Chapter Notes of the
Schedule to the Tariff Act, shall amount to "manufacture". It was
also held that under Sub-clause (ii), the Legislature intended to levy excise
duty on activities that do not result in any new commodity. In other words, if
a process is declared to be "manufacture" in the Section or Chapter
Notes, it would come within the definition of "manufacture" under
Section 2 (f) and such process would become liable to excise duty.
Dr. Padia then referred to the decision of this Court in Kores India Ltd.,
Chennai vs. Commissioner of Central Excise, Chennai, reported in (2005) 1 SCC
385, which involved the cutting of duty-paid typewriter/telex ribbons in jumbo
rolls into standard predetermined lengths. It was held that such cutting
brought into existence a commercial product having distinct name, character and
use and that both the Commissioner of Central Excise and the Tribunal had
rightly held that the same amounted to "manufacture" and attracted
the liability to duty.
The next decision referred to by Dr. Padia was that this Court in Brakes
India Ltd. vs. Superintendent of Central Excise And Ors., reported in (1997) 10
SCC 717, where the process of drilling, trimming and chamfering was said to
amount to "manufacture" within the meaning of Section 2 (f) of the
1944 Act. While deciding the matter, this Court quoted the observations of the
High Court as under:- "If by a process, a change is effected in a product,
which was not there previously , and which change facilitates the utility of
the product for which it is meant, then the process is not a simple process,
but a process incidental or ancillary to the completion of a manufactured
Dr. Padia also referred to the various judgments of the Tribunal in support
of his aforesaid contention which merely repeat what has been explained in the
decisions of this Court cited by him.
Dr. Padia concluded on the note that both the Tribunal and the High Court
had correctly held that the appellant was engaged in the manufacture of a new
product from betel nuts and the same had been correctly classified under
Chapter Sub-heading 2107.00 and was liable to duty at the appropriate rate
specified in the Schedule to the Tariff Act.
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 the
Schedule to the Tariff Act.
In our view, 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. In those circumstances, the views expressed in the
D.C.M. General Mills Ltd.(supra) and the passage from the American Judgment
(supra) become meaningful. The observation that 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 is apposite to the situation at
hand. 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 our view, the Commissioner of Customs and Central Excise (Appeals) has
correctly analysed the factual 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
The decision of this Court in the case of O.K. Play (India) Ltd. (supra),
relied on by Dr. Padia, 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 deals with Betel Nut Powder, does not do so.
In the circumstances, we allow the appeal 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.
The decision in this appeal will govern Civil Appeal No.6659/2005 as the
facts of which are similar to those of the present appeal.
There will be no order as to costs.