1. The Appellants processed Cashew nuts, Peanuts, Almonds, etc. by subjecting them to dry roasting, oil roasting, salting, seasoning with spices or herbs and flavours. Such processed nuts were packed in different containers under varying brand names filled with nitrogen gas. They had not registered themselves under the Central Excise Rules.
2. Their unit was visited by the jurisdictional Excise Officers. After studying the processes and after recording statements of the employees of the unit, show cause notice was issued alleging that the products of the Appellants were classifiable under Heading 2001.10. It was claimed that duty of Rs. 10,92,741/- was evaded by the present Appellants. This duty was sought to be confirmed and penalties wee sought to be imposed.
Confiscation of seized stocks and the machinery used for manufacture were also alleged in the said notice.
3. After hearing the assessee the Commissioner passed Orders confirming the duty demand, imposing penalties and ordering confiscation but permitting redemption. The Order is now in challenge before us.
4. Before the adjudicating Commissioner the claim made by the present Appellants was that the proper classification of goods was under Chapter 8 for which the rate of duty was 'nil'. Arguments were also made on denial of natural justice and on limitation. Essentially the same arguments were made before us also. We have considered these submissions.
5. Chapter 8 of the CETA 1985 covers edible nuts. Chapter 20 covers preparations of nuts. Note 1 to Chapter 20 states that where such nuts etc. are merely chilled or frozen, or preserved in provisional solutions, or dried, dehydrated or evaporated they would not fall under Chapter 20. The clear indication is that such products would continue to fall under Chapter 8. In other words Chapter 8 will not only cover nuts taken out of kernel but also those which are subjected to the abovenamed processes. The Commissioner observed that since the contested goods have been subjected to processes, other than these, their transition from Chapter 8 to Chapter 20 was warranted. It is his belief that the processes undertaken on the base nuts by the appellants amounted to 'manufacture' in terms of Section 2(f) of the Central Excise Act 1944 and that the roasted, salted, cashew nuts were different commodities than the base nuts, commercially separately known in the market and thus subject to fresh levy of duty. In holding so he referred to the classic Judgments of the Supreme Court in the case of Union of India v. Delhi Cloth & General Mills 1977 (1) ELT J199 and the subsequent Judgment of the Supreme Court in the case of S.D. Fine Chemicals 1995 (77) ELT 49 in which the review was made of several judgments pronounced following the first cited judgment.
6. The definition of 'manufacture' as given in the Act is an expansive one in as much that it includes processes ancillary to the process of manufacture also, at the same time not defining the phrase 'manufacture'. This peculiar situation has given rise to a number of disputes. What is required in each case is to study the process and also the change brought out by the process in the particular goods.
Then the conclusion must be drawn whether the changes would give rise to a new commodity commercially so known in the market. This finding would at all times be a finding of fact. This was so brought out in the judgment in the case of S.D.Fine Chemicals (Supra). Very often an error is committed in following the judgments in law in a case where facts were distinct and different from the facts on the basis of which the cited judgment was passed. There are judgments which pronounced that punching holes in sheets would not amount to manufacture. This may not be followed where a sieve is manufactured where the principal process would consist of punching of holes. There is no doubt that the sieve is a distinct product from unpunched sheet. But many authority may have fallen in error when dealing with other cases in following the law laid down that the punching of holes did not amount to manufacture in a particular case. Therefore where there is a dispute as tot he fact of 'manufacture' the facts in that particular case alone to need be examined, keeping in mind the standard laid down by the Supreme Court in the S.D. Fine Chemicals' judgment and not by following any other pronouncements in any other cases where the facts not similar. Where the facts are identical then the law laid down by earlier judgments is required to be followed.
7. In the present case two judgments are in focus and would be relevant. The Commissioner has relied upon the Madras High Court Judgment in the case of Kalaivani Fabrics v. CC(A) 1989 (44) ELT 219.
The appellants have placed reliance on Bombay High Court Judgment in the case of CST v. Bombay Traders (Sales Tax Cases 38, Page 236). We shall deal with these two Judgments.
8. In the first cited case M/s. Kalaivani Fabrics had exported blanched and roasted peanuts in bulk. No export duty was leviable on goods of this description. However, export duty was leviable on groundnut kernels. The Customs treated the roasted peanuts as groundnut kernels and charged duty. M/s. Kalaivani Fabrics then approached the Madras High Court claiming the classification to be wrong and also claiming that the Tribunal having earlier held that roasted peanuts would be classified as shelled peanuts, there was no purpose in filing appeal against this order before the Tribunal. In this background the Writ Petition was filed in the Madras High Court. The High Court compared the physical and the commercial parameters of these two varieties. The High Court held that the blanched and roasted peanuts were different in shapes and were completely distinct from the raw kernel. It was held that these commodities were distinctly known in commerce. The High court dismissed the claim that groundnut kernel had to be interpreted in its generic sense. On commercial acceptance the Single Member referred to the Supreme Court's observations in the case of Atul Glass Industries Pvt. Ltd. v. Collector of Central Excise 1986 (25) ELT 473.
The Court held that the kernels which had undergone these processes were distinct commodities and could not be taxed, as plain groundnut kernels.
9. The Commissioner relies upon this judgment to draw a conclusion that after roasting the cashew nuts do not remain the same but are transformed into a different commodity. He therefore holds that where the raw nuts merit classification under Chapter 8, the processed one must fall under Chapter 20.
10. In the second cited case the Bombay High Court was examining a reference on the question of law arising out of an order passed by the Sales Tax Appellate Tribunal. The assessees before the Tribunal had purchased plain cashew nuts in tin and after frying, adding salt had packed them in plastic packets for sale. The Tribunal found that the activity of frying and salting did not render the cashew nuts into different commercial commodities. It was held that the definition of 'manufacture' made vide Section 2(17) of the Bombay Sales Tax Act 1959 did not cover the activity of frying and spicing. The Hon'ble High Court answered the reference by holding that the finding of the tribunal as to 'manufacture' was correct. The Court observed that essentially it is a question of fact and the Tribunal's findings could not be faulted.
11. The counsel for the appellants submitted that this Tribunal being under the jurisdiction of the Bombay High Court was bound by this judgment in preference to any other decision of any other High Court.
12. Prima facie it appears that the 2 Judgments lay down different law where the activity concerned was similar. However, on closer examination certain differences come to light. In the Kalaivani judgment the activity consisted merely of dry roasting whereas in the Bombay High Court Judgment the activity undertaken was frying and applying spices. Therefore the facts before us in the present case are more appropriately covered by the Bombay High court Judgment.
13. As observed above, the definition of 'manufacture' in Section 2(f) of the Act is subject to various interpretations. On the other hand the definition of 'manufacture' in the Bombay Sales Tax Act is much more clear. It reads as follows: " 'Manufacture' with all its grammatical variations and prominent expression means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adopting any goods,....." 14. Prima facie, the activity of frying and salting would be capable of falling under several activities prescribed in the said definition.
However, in the face of this definition also the Tribunal came to the conclusion that the activities of frying and spicing of plan cashew nuts did not amount to manufacture, which belief was upheld by the High Court.
15. Therefore it has to be concluded that the Judgment of the Bombay High Court being based on the same facts as are before us in the present Appeal warrants greater applicability than the one relied upon by the Commissioner.
16. An additional factor in following the Bombay High Court judgment is the requirement of jurisdictional discipline. In the larger bench Judgment reported in 1997 (96) ELT 257 (C.C.E, Chandigarh v. Kashmir Conductors) it has been held that the decision of the particular High Court is binding on the authorities placed in their jurisdiction.
17. On the basis of this analysis we hold that the activity of salting and subjecting to dry roasting, oil roasting did not amount to manufacture in terms of the Central Excise law. Therefore on such activity having been undertaken also the nuts would continue to fall under the purview of Chapter 8 of the CETA 1985 and their classification would not change to chapter 20. Consequently there would be no liability to pay duty upon the appellants assessee.
18. Since we have found for the appellants on merit we do not feel it necessary to go in to aspects of limitation.