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2016 (11) TMI 636 - CESTAT CHANDIGARH

2016 (11) TMI 636 - CESTAT CHANDIGARH - TMI - Manufacture - Whether the conversion of paddy into rice amounts to manufacture as per section 2(f) of the Act or not? - Clandestine removal - 100% EOU - export of basmati rice - section 3(1) of the Central Excise Act, 1944 read with section 12 of the Customs Act, 1962 - Held that: - reliance placed on the decision of the case of The Commissioner of Income Tax vs. M/s.Cynamid India Ltd. [1999 (4) TMI 2 - SUPREME Court] where The deductions claimed by .....

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overed by the term 'agricultural product. The test of manufacture has been failed as the goods are not manufactured goods as per section 2(f) of Central Excise Act, accordingly, the question of excisability does not arise - decided in favor of appellant. - Whether the rice/bran rice are excisable goods in terms of section 2(d) of the Act or not? - Held that: - if in the tariff, the rate of duty is left blank, in that case, the goods are not excisable goods. Admittedly in the case in hand, th .....

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- Held that: - the appellant has succeeded on merits, therefore, we are not going into the issue of limitation. Therefore, the issue No.3 is kept open for the appellant. - Appeal allowed - decided in favor of appellant. - Appeal No. E/56804-56805/2013-Ex(DB) - FINAL ORDER NO. 61376-61377/2016 - Dated:- 22-9-2016 - Mr. Ashok Jindal, Member (J) And Mr. V. Padmanabhan, Member (T) S/Shri Manoj Kumar Singh, Vijay Singh & Ms. Shweta Singh, Advocates for the appellant S/Shri B.K. Singh, Specia .....

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SHE Cess ₹ 11,01,446/-] from the noticee (M/s Dunar Foods Ltd.) for the period 08/2009 to 03/2012, confirm the demand & recovery of CX duty as calculated above, in terms of B-17 bond and legal agreement/LUT executed by the noticee, as mentioned above r.w. Section 11A of the CX Act, 1944 and drop the remaining demand of CX duty of ₹ 50,91,734/- duty ₹ 28,88,139/- + Ed cess ₹ 21,74,714/- + SHE Cess ₹ 28,881/-] (ii) confirm the recovery of interest on amount of de .....

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oods Ltd.) under Rule 26 (ibid) 2. The facts of the case are that the appellant is a 100% EOU and engaged in the export of basmati rice. The appellant has set up an exported oriented unit vide LOP dated 24.3.2009. An audit was conducted by the Anti-Evasion Wing for the period 2009-10, 2010-11 and 2011-12 which revealed that that the appellant had disclosed in the monthly ER-2 returns filed with the department, DTA clearances of broken rice, rice bran and basmati rice during the period 18.08.2009 .....

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18.8.2009 to till date. The demand of duty was sought to be demanded by way of show cause notice of ₹ 11,64,23,720/ alongwith interest and to impose equivalent penalty. The matter was adjudicated and it was concluded as mentioned in paragraph 1 hereinabove. Aggrieved with the said order, the appellants are before us. 3. Learned Counsel appearing for the appellants submits that the central excise duty has been demanded as per proviso to section 3(1) of Central Excise Act, 1944. He submits .....

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for the levy of excise. The excise duty is in fact, an incidence of manufacture. It is his submission that the appellant neither manufactures nor produces rice. The rice which was already in existence in the paddy is simply taken out form the husk by the process of milling. To support his contention, he relied on the decision of Hon'ble Supreme Court in the case of The Commissioner of Income Tax vs. M/s.Cynamid India Ltd. (in Civil Appeals No.4403-4404 of 1996) vide order dated 13.4.1999. T .....

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5 SCC 15 to say that the process of the removal of asbestos fibre from the patent rock by manual or mechanical means does not amount to manufacture as the asbestos was embedded in the said rock and no new or distinct commodity has been realized there from. He submits that the case of the appellant is similar to the said case as the case of asbestos as even in the case of the appellant, the rice is already in existence in the husk. It is simply separated from the husk by the process of milling do .....

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e, it does not mean that the test of being manufactured in India has been satisfied. 6. He further submits that in the impugned order the Commissioner has admitted the fact that the paddy which is raw material is produced by the farmers and rice is not produced by the appellant. However, it has been stated that the rice is manufactured by the appellant. He submits that the stand taken by the Commissioner is not tenable in law as held by the Hon'ble Supreme Court in the case of Commissioner o .....

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t is entirely on the Revenue as held by the Hon'ble Supreme Court in the case of Metiex (India) Pvt.Ltd. vs. CCE-2005 1 SCC 271. In this case, the department has failed to discharge its onus of proving the fact that the process of manufacturing is involved. He submits that it is pertinent to note that in an attempt to justify its stand that manufacturing is involved, reliance has been placed on the Letter of Permission (LOP) and the Licence under section 58 of the Customs Act, 1962. The stan .....

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ct, 1944. The LOP and the Customs Licence have been issued to the EOU on the basis of definition of the word "manufacture" under the Foreign Trade Policy and not the Central Excise Act, 1944. It is submitted that for the purpose of central excise, one has to refer to the meaning of "manufacture" as laid down in section 2(f) of the Act. But in a matter pertaining to DTA sale by a 100% EOU, this Tribunal in the case of Moonlight Exim Pvt.Ltd.-2012 (284) ELT 213 (Tri.-Del.) has .....

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e, the first ingredient in order to charge excise duty has been absent. 8. He further submits that next issue is whether the rice is excisable goods at all. As per section2(d) of the Central Excise Act means the goods specified in the First Schedule and Second Schedule of the Central Excise Tariff Act, 1985 as being subject to duty of excise and includes salt. The eight digit classifications code was introduced in the case of Customs with effect from 1.2.2003 Thereafter in order to bring parity .....

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xcise duties and hence the said changes did not involve any revenue implications. He further submits that by way of various circulars and Notifications, it is clarified by the Central Government that numbering scheme introduced by way of Amendment was merely technical in nature and involved no substantive change. (Circular No.805/5/2005-CX dated 2.5.2005, Notification No.1/2005-CE dated 24.2.2005, Notification No.5/2005 dated 24.2.2005 and Notification No.7/2005-CE dated 24.2.2005. 9. He further .....

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y. There, it is submitted that the legislative intent is to not subject the goods to excise. The said intention not to levy excise duty on rice is clear from the practice that neither is any rice mil getting itself registered with the Central Excise department nor the department is pressing for such registration under the Central Excise. He took support from the decision of this Tribunal in the case of Seasame Foods Pvt.Ltd. vide Final Order No.91/2011 in appeal No.E/635/2005-Ex. He further subm .....

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l under chapter 6 of the Central Excise Tariff Act and like in the case of appellant, the tariff entry against cut flowers has been left blank. To support this, he relied on the decision of the Tribunal in the case of Ramesh Flowers Pvt.Ltd.-2008-TIOL-2445-CESTAT-MAD to say that this Tribunal has held that the tariff entry is left blank, therefore, they are not excisable. He submits that in the case Valpus Biotech Ltd. and Praj Agro Vision Ltd. in Appeal NO.E/3040 to 3042/04-Mum, this Tribunal h .....

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y Farms & Foods Ltd.-2011 (270) ELT 607 (Tri.Mum.) has held that inclusion of goods in the First Schedule and Second Schedule of the CETA, 1985 would make them excisable subject to duty of excise under section 2(d) of the Central Excise Act, 1944 but the said decision has been set aside by the Hon'ble Bombay High Court reported in 2013 (290) ELT 49 (Mum) . 12. He further submits that in the case of Union of India vs. Ahmedabad Electricity Co. Ltd.-AIR 2004 SC 11, the Hon'ble Apex Cou .....

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Ispat vs. CCE - 2009 (93) ECR 116 (Tri.-Del.). Therefore, he submits that as per section 3 of Central Excise Act what is charged on domestic clearances by 100% EOU is a duty of excise duty. As the rice is not excisable goods, therefore, no duty can be demanded under proviso to section 3(1) of Central Excise Act on rice. 13. He further submits that the rice bran falls under chapter 2302 and cannot be said to be excisable on various grounds. As per LOP, the unit shall export the entire production .....

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by tariff item 2302 of the Central Excise Tariff Act attracts nil rate of duty. The definition of excisable goods in section 2(d) itself provides that the goods must be subjected to duty of excise. In the absence of any duty specified in the Central Excise Tariff Act, the goods cannot be said to be excisable goods. The said view has been taken by the Tribunal in the case of Amaravathi Co-operative Sugar Mills Ltd.-2013 (291) ELT 126 (Tri.-Chennai). Similar view was taken by the Hon'ble Apex .....

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000 (116) ELT 204 (Tri.-Del.) to say that the spent earth is the residue/remains of activated clay, which emerges during the process of refining, bleaching and decolouring of facts and oils is not excisable. He further submits that in the case of Indian aluminium Co. ltd.-2006 8 SCC 314, the Hon'ble Apex Court has held that even though aluminium dross having a high percentage of metal is a marketable commodity, but it cannot be classified as manufacture only because it has some saleable valu .....

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lant. 15. He further submits that the show cause notice issued is barred by limitation. In support of this contention, he relied on the decision of Madhu Silica Pvt.Ltd. in appeal No.E/10425 and 10426/2013. He submits that as the demand of duty is not sustainable, therefore, interest and penalty are not imposable on the appellant. In view of the above submissions, it is prayed that the impugned order is to be set aside. 16. The arguments advanced by the learned Counsel were strongly opposed by t .....

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s clear that while the goods produced or manufactured in India are chargeable to duty at the rates indicated in the tariff, but for the goods manufactured in the EOU, the duty of excise will be as mentioned in the proviso. To support his contention, he relied on the decision of the Hon'ble Apex Court in the case of Punjab Laminates-2006 (202) ELT 578 (SC). 17. He further submits that as per section, there shall be levied and collected in such manner as may be prescribed. Therefore, it is cle .....

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3 of the Act, Even if certain goods are excisable goods, the government may, in its wisdom, may not levy excise duty. To go one step further, even if it levies the duty it may not collect the same (as in the case of exempted goods). To make submission simple, the three steps provided in section 3(1) are: (i) Identification of excisable goods; (ii) Levy of duty and (iii) Collection of duty. These three steps are independent. Identification of excisable goods has nothing to do with levy. The corol .....

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notification. 18. He further submits that next question is how to identify the excisable goods. As per section 2(d) of the Central Excise Act, 1944 "Excisable goods means goods specified in [the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt. 19. There are two limbs of the definition. First is for the purpose of identification which clearly says that excisable goods are those, which are specif .....

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the first schedule of the Tariff will remain prone to Excise duty. The term 'subject to' used in section 2(d) of the Act, came for interpretation on several occasions before different Courts. 20. In support of his contention, he took support from the following judgements: (1) In hind Rubber vs. UOI-1999 (48) ELT 263 (P&H) which has been affirmed by the Apex Court reported in 2000 (119) ELT A178 (SC) (2) Associated Cement Co.Ltd.-2001 (128) ELT 21 (SC) (3) Geetanjali Woollens Pvt.Ltd. .....

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rice is the activity of manufacture as held by the hon'ble Apex Court in the case of Delhi Cloth and General Mills Co.Ltd as there is new and different article has emerged having distinct name, character and use i.e. rice, therefore, reliance has been paced as per section 2 (d) of the Central Excise Act that excisable goods which form place in the First Schedule and the Second Schedule of the Central Excise Tariff Act, 1985 and the chapter 10 of CETA is having mentioned rice, therefore, the .....

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careful consideration of the submissions made by both sides, we find that the following issues emerged to be decided : (1) Whether the conversion of paddy into rice amounts to manufacture as per section 2(f) of the Act or not (2) Whether the rice/bran rice are excisable goods in terms of section 2(d) of the Act or not (3) whether the extended period of limitation is invokable in the facts and circumstances of the case or not Issue No. 1 25. Learned Special Counsel heavily relied on various decis .....

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en both decisions referred before us. The decision in the case in the case of M/s.Cynamid India Ltd. is with regard to the Income Tax Act and as per section 2 (29BA) of the Income-tax Act, 1961 the term "manufacture" means with its grammatical variation means a change in non living physical object or article - (a) resulting in transportations of object or article or things into a new and distinct object or article or having a distinct name, character and use or (b) bringing into existe .....

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f manufacture in Income Tax Act as per section 2 (29BA) of the Income Tax Act,1961. 29. Therefore, the decision in the case of M/s.Cynamid India Ltd. is applicable to the facts of this case wherein the Apex Court has observed as under: 5. The High Court has answered the question in favour of the assessee and against the Revenue. Having referred to the definition of 'agricultural product' in Black's Law Dictionary, the High Court has held that the operation of de-husking paddy is not .....

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ed deduction in respect of expenditure incurred in providing to term agricultural product or product of agriculture is required to be construed liberally so as to include not merely the primary product as I actually grows, but also a product which undergoes a simple operation so as to make it more saleable or more useable. The rice and the husk though separated remain as they were produced and hence continued to be agricultural product or product of agriculture . 30. As the Hon'ble Apex Cour .....

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learned Special Counsel has heavily relied on the decision of the Hon'ble High Court of Punjab and Haryana in the case of Hind Rubber which has been affirmed by the Apex Court. We find that in the said case, the item manufactured was having place in Central Excise Tariff and having rate of duty but the same was exempted by way of exemption notification. In that context, it was observed by the Hon'ble Apex Court as the item is mentioned in the First/Second Schedules of the Central Excise .....

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sifiable under Chapter 6 of the Customs Tariff Act, 1975. Equivalent heading in the Central Excise Tariff is Chapter 6 which is blank. Hence they are non-excisable. 34. Further, we find that in the case of Valpus Biotech Ltd. an Praj Agro Vision Ltd., this Tribunal has observed as under: 3.1 As per Section 2(d) of the Act, "excisable goods" means "goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 as being subject to a duty of exci .....

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rate of duty mentioned against cut flowers and the column regarding rate of duty is left blank. This implies that even after amendment to the Central Excise Tariff in 2008 cut flowers remains a non-excisable goods. If the goods are non-excisable goods, the question of levy of excise duty would not arise at all. Therefore, there is absolutely no merit in the appeals filed by Revenue. Accordingly, the same are dismissed. 35. We further find in the case of Ahmedabad Electricity Co.Ltd. (supra), the .....

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ess manufacture is involved. 37. We also take note of the fact in the case of Nahar Industrial Enterprises Ltd., the Hon'ble Apex Court has observed as under: "9. Contrary to what has been contended by the Union of India, a bare reading of the Notification No, 8/97-C.E. dated 1-3-1997 and as amended by Notification 11/2000-C.E. dated 1-3-2000 shows that there was clear intention to rationalize the payment of duty by 100% EOUs and others. What is clearly intended relates to the liability .....

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o is 100% EOIJ does not steal a march over his counterpart selling like goods in India. The earlier benefit given to the EOUs was for any duty payable under Section 3 of the Act which is in excess or the duties paid by its counterparts." 38. Further in the case of Vikram Ispat, this Tribunal has observed as under: 12.We have considered the submissions of all the sides. The concept of 100% E.O.U. was brought with an idea to increase the export from the country. These units were provided faci .....

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egate of the duties of customs on like gods produced or manufactured outside India, if imported into India. There is substance in the submissions of the duty lived on the goods manufactured by 100% E.O.Us. Is central excise duty whereas the measure of collection of duty is customs. The measure of duty does not change the nature or duty. In support of their contention the learned Advocate has relied upon the decision in the case of DIG. Gouse & Co. Pvt. Ltd. v. State of Kerala supra, wherein .....

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ay adopt annual or capital value of the building and this will not make it a tax falling within the scope of Entry 86 of List I of the Seventh Schedule. Similar views were held by the Supreme Court in the case of Hingir - Rampur Coal Co. Ltd. v. State of Orissa, AIR 1961 SC 459 wherein it was held that the method in which the fee is recovered is a matter of convenience and by itself it cannot fix upon the levy the character of the duty of excise. In this case a fee was levied by the State of Ori .....

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the mines would not by itself make the levy a duty of excise. Again the Supreme Court in the case of U.O.I. v, Bombay Tyre International, supra, held that Section 3 of the Central Excise Act creates the charge and defines the nature of the charge that it is a levy on excisable goods, produced or manufactured in India. "The levy of tax is defined by its nature, while the measure of the tax may be assessed by its own standard". The Supreme Court held that "When enacting a measure t .....

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