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M/s Krap Chem P. Ltd. Versus Commissioner Central Excise & Service Tax Daman Rajkot

2015 (325) E.L.T. 339 (Tri. - LB) - Manufacturing activity or not - activity of blending to increase the viscosity of the product- Appellants had mixed Guar Dal Flour/Powder (75%), Guar Dal Powder/Saw Dust (5-10%) and TKP (10-15%) in a blender - Guar Dal Powder, known as Guar Gum - classification under Sub Heading No.1301.10 - Imposition of penalty - Held that:- Appellants received the Guar Dal Powder which is derived from seed of Guar plant. The seed of Guar plant in powder form known as Guar D .....

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as per end use of the goods. Thus, there is a change of character of the impugned product.

There is change of character of the goods of different properties as per viscosity used in various industries. - the activities undertaken by the Appellant would amount to manufacture. - Decided against the assessee.

Classification - Held that:- the Guar Dal Flour/Powder was modified by chemical reaction in order to improve their properties as per end use of the product in various in .....

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n the Appellants cannot be sustained.

Demand of duty confirmed for the normal period of limitation with Interest - Penalty waived - Decided partly in favor of assessee. - Appeal No.E/196,197,1305-1308/2003 - Order No.A/11271-11276/2015 - Dated:- 28-8-2015 - MR. P.K. DAS, MEMBER (JUDICIAL), MR. H.K. THAKUR, MEMBER (TECHNICAL) AND MR. P.M. SALEEM, MEMBER (TECHNICAL) For the Petitioner : Shri Gajendra Jain, Shri Jigar Shah, Shri Anand Nainawati And Ms. Dimple Gohil - Advocates For the R .....

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ection that the matter shall be decided by the Larger Bench. 2. The learned Authorised Representative on behalf of the Revenue raised a preliminary issue insofar as the Hon ble Supreme Court directed the Larger Bench to decide the conflict of opinion between two Division Benches of the Tribunal in the case of M/s Hindustan Gum & Chemicals Ltd Vs CCE, Ahmedabad-II [2004 (163) ELT 196 (Tri-Del)] in favour of the Assessee and M/s Dilip Gum Industries Vs CCE Rajkot [2004 (174) ELT 371 (Tri-Mum)] .....

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(Tri-Del)] (M/s Hindustan Gum & Chemicals Ltd Vs CCE Ahmedabad), (hereinafter referred to as Hindustan Gums & Chemicals Ltd 2012), in favour of the Revenue. Thus, there is no difference of opinion of co-ordinate Benches of the Tribunal and therefore, the matter may be transferred to the Division Bench to pass appropriate order. 3. On the other hand, the learned Advocates on behalf of the Appellants submit that in the said decisions, the Division Bench had not examined the law in proper .....

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Supreme Court. 4. The relevant portion of the Order dt.01.05.2015 of the Hon ble Supreme Court is reproduced below:- It is argued by Mr. Radha Krishnan, learned Senior Counsel appearing for the Appellants that it was pointed out before the Tribunal that in the case of Dilip Gum Industries Vs CCE, Rajkot (Order No.A/772-773/WAB/2004/C-II), dt.01.09.2004, the Tribunal held that Guar Gum is classifiable under Heading 1301.10. The Tribunal further noted that in another judgment given by the another .....

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in Hindustan Gum & Chemicals Ltd, holding at the same time that the order in Dilip Gum Industries does not come as a binding precedent, which according to the learned Senior Counsel was impermissible. We are inclined to agree with the aforesaid submission of learned Senior Counsel. After finding a conflict of opinion rendered by two coordinate Benches in the aforesaid two cases, the only course of action open for the Tribunal was to refer the matter to the Larger Bench to resolve this confl .....

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the impugned order and remit the case back to the Tribunal. We also direct that the matter shall be hard by a Larger Bench. We may record that in the impugned order, the Tribunal has held that the aforesaid process constitutes manufacture. Since in the case of Hindustan Gum & Chemicals Ltd, this issue was left open to be decided by the Tribunal, the Larger Bench of the Tribunal can take a fresh look into this issue in the instant case as well. Having regard to the fact that the matter is qu .....

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ling declarations in terms of notification issued under Rule 174 of the erstwhile Central Excise Rules, 1944 with the Department from the Financial Year 1997-98 onwards, declaring that the product sold by them as Guar Dal Powder. On 29.06.2000, a team of Central Excise Officers visited the premises of M/s Kraps. The said officers were of the opinion that M/s Kraps was engaged in the manufacture of Guar Dal Powder, known as Guar Gum, classifiable under Sub Heading No.1301.10 of the Schedule to th .....

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amp; Central Excise, Surat-II, proposing that the goods should be classified under Heading No.1301.10 of CETA, demand of duty of ₹ 92,53,196.00 alongwith interest and to impose penalty, for the period 1997-98 to June 2000. It has also proposed to confiscate the seized goods under Rule 173Q(1) of erstwhile Central Excise Rules, 1944. 5.2 By the impugned order, the Adjudicating authority confirmed the classification of Guar Dal Powder as Guar Gum under sub-heading No.1301.10 of the CETA and .....

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Tribunal held that the process carried out by M/s Kraps amounts to manufacture. The impugned goods Guar Dal Powder would be classifiable under Heading No.1101 of the Tariff, attracting Nil rate of duty and therefore, the demand of duty, confiscation, penalty ordered in the impugned order was set aside. Revenue filed appeals before the Honble Supreme Court. By Order dt.01.05.2015, the Honble Supreme Court set aside the order of the Tribunal and remanded the matter to the Tribunal to decide by .....

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the Central Excise Procedure. The statements of Shri Babulal Kanjibhai Sakaria, Manager, Shri Jibrajbhai Bhavanjibhai Patel, Partner, and Shri Ramnikbhai Narsinghbhai Patel, Accountant of M/s Ravi Gum were recorded. 6.1 A show cause notice dt.05.01.2002 was issued by the Deputy Commissioner of Central Excise, Division-II, Rajkot, proposing demand of duty of ₹ 4,56,208.00 alongwith interest and to impose penalties on all the Appellant Nos.3 to 6, for the period 1997-98 to 1999-2000. 6.2 The .....

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i Gum was set aside and the penalties imposed on other Appellants were reduced. 6.4 M/s Ravi Gums and other Appellants filed appeals before the Tribunal. By Final Order No.A/2706-2709/WZB/AHD/2007, dt.12.10.2007, the Tribunal, following the Tribunal s earlier decision in the case of M/s Kraps Chem P. Ltd (supra), set aside the impugned order, and allowed the appeals with consequential relief to all the Appellants. Revenue filed the appeals against the order of the Tribunal before the Honble Sup .....

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he Central Excise Act, 1944. It is a mere mixing of Gaul Dal Flour/Powder and TKP (Tamarind Kernel Powder) without any chemical reaction and after processing Gaul Dal Flour would remain Guar Dal Flour/Powder. So, there is no change in character, use and identity. 7.1 Secondly, even if it would amount to manufacture, the product will be classified under Heading 1101 of the Tariff, at Nil rate of duty. It cannot be classified under Heading No.1301. The expression Gum as mentioned in Heading No.130 .....

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riod of limitation and imposition of penalty cannot be sustained. The learned Advocate submitted written submissions alongwith case laws, during the course of hearing. 8. Ms.Dimple Gohil, learned Advocate appearing on behalf of M/s Ravi Gums and its Partner and employees, adopted the arguments of the learned Advocate Shri Gajendra Jain. She submits that the entire demand of duty is beyond the normal period of limitation. It is submitted that M/s Ravi Gums is a job worker and demand of duty along .....

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se of mere mixing of Gaul Dal Flour and TKP and the Appellant also added Glycol and Methonol for dispersion of powder in the blender, which is increasing the viscosity of the product for use in different industries. The process undertaken by the Appellant would amount to manufacture. The process undertaken by the Appellant, by adding various additives to change its viscosity and solubility as per the requirement of the user. Thus, there is a change of character, use and identity of the goods. Th .....

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penalty is warranted. The learned Authorised Representative also submitted written submission with compilation of case laws during the course of hearing. 10. After hearing both the sides and on perusal of the records, we find that the first issue is that whether the process undertaken by the Appellant would amount to manufacture. The learned Advocate submits that the Appellants had mixed Guar Dal Flour/Powder (75%), Guar Dal Powder/Saw Dust (5-10%) and TKP (10-15%) in a blender. There was no ch .....

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Guar Dal Powder of different particle sizes and blend into blender and packing 50 kgs pack. They are also using Glycol and Methonol for dispersion of powder from the sides of blender/mixture. The other additives like Guar Dal Dust/Saw Dust and TKP were added in required quantity. The blender was operated with the aid of power. It is stated that they had laboratory equipments such as Viscometer, Micro Balance, Stirrer, which were used for testing the quality of the material received from the Blen .....

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ity of the product subject to explosive industries ranges from 1500 to 2000 CPH, and of product supplied to Mosquito Coil Industries ranges from 1200 to 1400 CPH. It is stated that the difference in the viscosity of their product supplied to different industries and the viscosity depends upon the percentage of inputs used in the process of the product. It is further stated that when TKP used more, the viscosity of the product was less and when the TKP percentage less, the viscosity of the produc .....

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. Gupta deposed that ratio of ingredients used in different grades of their finished products are as follows:- (1) For Paper Industries:- They supplied Guar Dal Powder known as paper aid which contains Guar Dal flour of 100 Hp or 150 Mesh + TKP (Tamarind Seed Powder) 30% to 50% and Glyxol and Methanol about 1% and no other inputs were used for making of this grade of finished goods supplied to Paper Industries. They used to blend the whole inputs with the help of blender which was working with t .....

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me. The ingredients used for making these products were Guar Dal Flour of 200 Meshm+ TKP about 5 to10% or Guar dust of 5 to 10% and when used both percentage remains same. On being asked, he deposed that except above inputs, no other raw material or chemicals were used for manufacture of finished product supplied to Mosquito coils and explosive industries. Further, he deposed that products supplied to explosive industries contains less TKP in compare to the product supplied to Mosquito coils ind .....

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cal reaction during mixing of these items and the viscosity of the final product ranges from 0 to 5000 CPH as per requirement of end use of the product. The chemical reaction in the Blender is expressing the magnitude of internal friction in a fluid and there is a change of properties as per end use of the goods. Thus, there is a change of character of the impugned product. The Appellants received Guar Dal Powder and after due process, it was sold as Guar Dal Powder/Guar Gum. There is no dispute .....

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article must emerge having a distinctive name, character or use. The Hon ble Supreme Court, while dealing with the identical issue in the case of Hindustan Gums & Chemicals Ltd 2011 (272) ELT 336 (SC), directed the Tribunal to consider the process of manufacture and also sold as a marketable commodity. In the present case, we have already observed that the process undertaken by the Appellant, emerged having a distinct name Guar Gum. There is change of character of the goods of different prop .....

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micals Ltd 2012 (supra) is reproduced below:- 13. We have considered arguments on both sides. We find that the chemical process carried out gives the product a different molecular structure and makes it suitable for a different use. Any person wanting to use Tamarind Powder as thickener in textile industry will not buy and use such powder unless it is subjected to the processes that the appellants are carrying out. So prima facie the processes constitute a manufacturing process. We have also con .....

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y paid oil. The case of Tikatar Industries also was a case of conversion of duty paid bitumen to another grade of bitumen and the question being decide was levy of excise duty for a second time and the decision itself was based on a circular from the Board which sought to avoid levy of duty on activities involving small value additions. In the case of Shyam Oil Cakes the nature of commodity had not changed substantially. Thus we find that the decisions quoted are not appropriate to the facts and .....

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ue involved in this case is whether addition of dehydrated vegetables and spices to raw rice in the name of Rice & Spice would amount to manufacture. The product i.e. Rice & Spice is combination of raw rice, dehydrated vegetables and certain spices and condiments mixed in pre-determined proportion and that blended together in a mixer for uniformity and the blended mixer is heated, if required, to sterilize the product. The mixed product is packed in pouches with Nitrogen flushing for a .....

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ial use, without sterilization, it cannot be said sterilization made it commercially usable. It has been observed that to amount to manufacture, there must be a transformation by which new and different article emerges which has distinct name, character or use. (c) CCE Vs Osnar Chemicals Pvt.Ltd. 2012 (276) ELT 162 (SC) It has been held that mixing polymer and additives to heated Bitumen resulting in emergence of Polymer Modified Bitumen (PMB) and Crumbled Rubber Modified Bitumen (CRMB) would no .....

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nd no chemical change brought about in asafetida. There is no change in essential character of product and process does not amount to manufacture. In the above cases, there was no change of character, use of identity of the goods. In the present case, it is already observed that the process undertaken by the Appellant, would change the character, identity and end use of the product. Thus, none of the case laws would be applicable in the present cases. 15. The next issue is whether the product in .....

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.10 In or in relation to the manufacture of which any process is ordinarily carried on with the aid of power 8% (4) 1301.90 Other Nil 16. The learned Advocate submits that the term gum as mentioned in the Heading No.13.01 would cover plant exudates/extracts. It is submitted that botanical gums are divided into two parts, seed gum and plant exudates/extracts. The seed gums are divided into Guar Gum and locust bean gum. The plant exudates/extracts cover gum Arabic, gum ghatti, gum karaya, gum trag .....

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roximately 40% of the seed, is then separated from the germ by various milling processes. The final milled endosperm, which is commercial guar gum, has a typical analysis of crude fiber, 2.5%, moisture, 10-15%; protein, 5-6%; an ash 0.5-0.8%. 17. It is submitted that on reading the tariff description of heading 1301 of the CETA covers Lac, gum, resin and other vegetable saps and extracts. The meaning of the term resin, saps, and extracts would cover only plant exudates/extracts. So, the word gum .....

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as it stood, and it is to be judged in the light of its surrounding words. In the present case, we are unable to accept the submissions of the learned Advocate for the reason that Heading No.1101 covers the products of Milling Industries, including flour, groats, meal, grains of cereals and flour, meal or flakes of vegetables. On the other hand, Heading No.1301 categorically covers gum . In our considered view, the description of Heading No.1301 does not distinguish between seed gum and plant ex .....

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ducts. The most important are: (1) Agar-agar (agar) obtained by extraction from certain marine algae found mainly in the Indian and Pacific Oceans, and usually presented in the form of dried fibres, flakes, powder or in a gelatinous form obtained by treatment with acids. It is commercially known as gelose and also as Japanese vegetable gelatin (or moss) or Alga Spinosa. (2) Endosperm flour or locust beans (Ceratonia siliqua) or guar seeds (Cyamopsis phosalioides or Cyamopsis tetragonoloba). Th .....

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tated above that in present case, the Guar Dal Flour/Powder was modified by chemical reaction in order to improve their properties as per end use of the product in various industries. So, it is rightly covered under Chapter 13 of the CETA. The Learned Advocate strongly relied upon CBEC Circular F. No. 10/18/86-CX, -I dated 14.08.1986, where it has been clarified that Tamarind Seed Powder or TKP would be correctly classifiable under Sub Heading No. 1101.90 of CETA. It is seen that the said circul .....

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ing 13.01 mentions gums which is a description which will cover the product better. The Appellants are relying on the entries in Heading 13.01 of the HSN which mentions natural gums to argue that the impugned product will fall outside the scope of Heading 13.01 of Central Excise Tariff. The word Natural occurring in 13.01 of HSN is conspicuous by its absence in Heading 13.01 of the Central Excise Tariff. 20. Let us now examine the matter with reference to HSN notes. As per HSN notes. Tamarind .....

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actic or therapeutic purposes (Heading 30.04) Note C (5) under Heading 13.02 Cotyledon flour of tamarind seeds (Tamarindus indica). These flours are included in this heading even if modified by heat or chemical treatment. 21. It is clear that the note under Heading 13.02 covers the impugned goods more appropriately than that under Heading 11.06. Further the Rules of Interpretation of the Tariff mandates that if a product appears to be classifiable under more than one heading the heading coming l .....

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for the reason like that live animals of Chapter 1 of HSN could not attract excise duty. Further the early chapters of the Tariff covers animal products and vegetable products most of which cannot be considered to be manufactured items and the government did not want to levy excise duty on most such items. So the elaborate entries in HSN were compressed into fewer entries in Central Excise Tariff. In this scheme there is no evidence demonstrating that the products covered in one chapter of HSN w .....

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Headings 13.01 and 13.02 of HSN. Going by this approach the Revenue s argument that the product was covered under Heading 13.01 of the Excise Tariff has more merit. 20. We find force in the submissions of the learned Advocate that the extended period of limitation cannot be invoked. It is seen from the records that the Appellant filed declaration under Rule 174 of erstwhile Rules from the year 1997-98. The Appellant had specifically mentioned the description of the goods as Guar Dal Powder, with .....

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