Customs, Excise and Gold Tribunal - Delhi
Vijaya Packers vs Collector Of Central Excise on 21 July, 1993
Equivalent citations: 1993ECR526(TRI.-DELHI), 1994(71)ELT254(TRI-DEL)
ORDER Jyoti Balasundaram, Member (J)
1. The issue for determination in this appeal is whether the process of sifting and blending dextrose mono hydrate with tricalcium phosphate and vitamin D resulting in the product known as Glucovita Glucose D classifiable under Heading 1702.21 as "preparation of other sugars" amounts to manufacture within the meaning of Section 2(f) of the Central Excises and Salt Act, 1944.
2. The brief facts of the case are that the appellants undertake manufacture of Glucovita Glucose D on job work basis for M/s. Corn Products Company (India) Ltd. They receive duty paid materials like dextrose mono hydrate tricalcium phosphate and vitamin D. The dextrose mono hydrate is sifted through a sifter to remove any foreign matter such as dirt..., pieces of paper, etc. It is then put into a mixer and blended with tricalcium phosphate and vitamin D. According to the appellants the tricalcium phosphate is an anticaking agent and is added to the extent of 0.6% and vitamin D is added to the extent of 0.00025% with the intention of improving the quality of dextrose. After blending the product is quality tested and packed in polythene bags of different weights and these bags are once again packed in printed cartons bearing the brand name of "Glucovita Glucose D" belonging to Corn Products Company (India) Ltd. The appellants filed classification list under protest classifying w.e.f. 14-6-1990 Glucovita Glucose-D under sub-heading 1702.21 which list was approved on 2-7-1990. The appellants filed a Writ Petition in the Hon'ble Kerala High Court and vide Order dated 29-6-1990 the High Court directed the Department to approve the classification list after giving the appellants an opportunity of being heard on the classification list and accordingly a show cause notice was issued on 9-8-1990 alleging that the processes carried out by them amount to manufacture within the meaning of Section 2(f) of the CESA and proposing classification under sub-heading 1702.21 of the CET. The Assistant Collector held that Circular No. 21/70 issued by the CBEC is a Departmental clarification on classification of glucose D and dextrose under the erstwhile Tariff Item 1E and the question of manufacture has not been discussed while in this case there was a circular No. 7/90 dated 7-3-1990 regarding classification of Glucose-D manufactured out of duty paid dextrose mono hydrate as preparation of other sugars under Heading 1702.21 and this circular was based upon the opinion of the Chief Chemist who had opined that blending of dextrose monohydrate with calcium phosphate and vitamin-D has been done with some specific purpose, that is to enrich the product with calcium and vitamin. The enriched product has a different character and identity and this is also borne out by the specific instructions on the containers for its use as a food only. After considering the various decisions of the Supreme Court, High Courts and the Tribunal and the opinion of the Chief Chemist as contained in the circular No. 7/90, the Assistant Collector came to the conclusion that the processes carried out by the appellants amounted to Manufacture and he approved the classification list by classifying the product under sub-heading 1702.21 and vacated the protest. The Collector (Appeals) upheld the order of the Assistant Collector and hence this appeal.
3. Shri A. Hidyatullah, Senior learned Counsel submits that a mere processing of goods does not amount to manufacture. Manufacture implies a change which must result in transformation so that a new and different article must emerge having a distinct name, character or use. It has been consistently laid down that the essence of the test of transformation is that various operations to which the goods are subjected to must result in the loss of the original identity and the original character of the goods. The same should be regarded in the trade as distinct in identity from the original goods. He submits that merely making a commodity marketable or presentable or readily usable is not a drastic change as the original character and identity of the raw materials is not altered even though its useability is increased thereby. In support of this proposition he cites the following decisions :
1. 1977 (1) E.L.T. (J 199) Union of India v. Delhi Cloth Mills
2. 1980 (6) E.L.T. 343 Commissioner of Sales Tax v. Pio Food Packers
3. 1986 (26) E.L.T. 3 Sterling Food v. State of Karnataka and Anr.
4. 1988 (34) E.L.T. 416 SC Deputy Commissioner of Sales Tax v. Shiphy International
5. 1991 (52) E.L.T. 296 Collector of Central Excise v. Denson Engineers
6. 1990 (48) E.L.T. 458 Collector of Central Excise v. Crescent Chemicals
7. 100 L-Ed. 917 (923) East Texas Motor Freight Lines v. Frozen Foods Express
8. 52 L-Ed. 336 (338) Anheuser - Busch Brewing The next submission of the learned Counsel is that process of sifting and blending in the present case is a mere physical mixture of dextrose and no chemical change or reaction is involved and hence no manufacture is involved. The learned Counsel relies upon the decisions reported in 1985 (21) E.L.T. 869 in the case of Collector of Central Excise v. Anil Chemicals and 1991 (56) E.L.T. 393 - S.D. Fine Chem v. Collector of Central Excise in support of his argument that a mere improvement in the quality or purity does not amount to manufacture. He submits that advertisement of a product and the possible use of the same as advertised are irrelevant to determine the classification. In support of this proposition he cites the decision in the case of 1985 (20) E.L.T. 70 - Leukoplast v. Union of India. According to him the end use of the product is irrelevant as Heading 1702.21 makes no reference to classification on the basis of end use.
Before the Assistant Collector the appellants made the following submissions :
(i) that the essential characteristics of dextrose remained unchanged even after the processes are carried out by them, and, therefore, no manufacture is involved.
(ii) that the Condensed Chemical Dictionary of Materials and Technology by Hawley (Vol. 7) confirms the view that dextrose and glucose are synonymous notwithstanding the addition of certain other ingredients.
(iii) that the allegation in the show cause notice that the product Glucose-D falls under sub-heading 1702.21 of CET has been levelled without examining the samples of the product or obtaining an expert opinion.
(iv) That there is no material on record to show that dextrose and glucose are understood in the trade as different products and the blending process does not alter the essential character of dextrose as a sweetener.
(v) that the show cause notice had not referred to nor revealed that there is any Tariff Advice or Trade Notice of the CBEC expressing a different view from circular No. 21/70 dated 4-6-1970 which had opined that there was no manufacture involved in the processes undertaken and therefore, the above-mentioned circular still continue to apply.
4. In reply the learned SDR, Smt. Shanti Sundaram contended that the processes carried out by the appellants amount to manufacture as the raw materials viz. dextrose mono hydrate admittedly has multiple uses and has been channelised for a particular use viz. food use and, therefore, the sifting/sieving of the industrial raw material to make it fit for direct human consumption is a process of manufacture. She submits that blending of glucose/dextrose with tricalcium phosphate and vitamin-D is not merely incidental but deliberate, the additions being made for the purpose of human body to assist in the metabolic processes of converting glucose into energy. The tricalcium phosphate, though an anticaking agent, has been added in this case for a specific purpose viz. that of adding vital body nutrients. Vitamin-D has been added not only for the purpose of improving the quality of dextrose but to aid absorption of calcium phosphate thereby providing nutrition. She cites relevant extracts from Normal and Therapeutic Nutrition 17th Edition by Corinne H. Robinson and others on classification/distribution and characteristics of glucose, its functions, distribution and functions of calcium and phosphorus and vitamin-D to support her contention that the addition of tricalcium and vitamin-D, albeit in miniscule proportions, is for the specific purpose of supplying vital body nutrients. According to her, sifting and blending in this case result in emergence of a new and different commercial product having a different name, character and use. She cites the following citations in support of this proposition :
1. US Appt. v. Frank Dudley -174 US 1129
2. Adreena Industries v. Collector of Central Excise 1987 (28) E.L.T. 364
3. Pyrites Phosphates & Chemicals Ltd. v. CCE, Delhi -1983 (13) E.L.T. 1192
4. Singareni Collieries - Tribunal 1988 (37) E.L.T. 361 (T)
5. Bhadrada Chemicals v. CCE 1990 (47) E.L.T. 652
6. Ashok Griha Udyog Kendra 1982 (10) E.L.T. 309 (All)
7. Brooke Bond India Ltd. v. UOI and Ors. 1984 (15) E.L.T. 32 (A.P.)
8. Union of India v. DCM 1977 (1) E.L.T. (J 199)
9. 1987 (28) E.L.T. 566 PCA v. CCE
10. Technical literature
5. She further submits that Heading 1702.21 of the Central Excise Tariff is a deviation from the corresponding Heading 1702 of the HSN in that, apart from other sugars, their preparations are specifically covered under Central Excise Tariff Heading 1702 and since preparations of glucose are specifically covered under 1702 Glucovita & Glucose D are to be covered under that Heading as otherwise the words "preparations thereof" will become redundant. The learned SDR submits that since preparations of glucose are specifically covered under 1702 such preparations are deemed to be manufacture by the legislature itself and, hence it is not open to the appellants to dispute that the preparation is not manufacture and in support of this proposition, she cites the following decision reported in 1978(2) E.L.T. (J 389) Union of India v. Mansubhai and 1980 (6) E.L.T. 735 D - Hyderabad Asbestos Cement Products v. Union of India. She submits that the opinion of the Chief Chemist on the meaning of the word preparation is in the nature of expert evidence which the Department is entitled to rely upon.
6. We have heard both sides and carefully considered their submissions.
7. It is an admitted position that Glucovita Glucose D contains mainly Dextrose (more than 80%) with a small amount of calcium phosphate. A sample of the product was drawn on 11-5-1990 and tested by the Chemical Examiner of the Customs House, Cochin and the test report of 9-8-1990 revealed the composition as follows.
"The sample is in the form of White powder. It is a preparation containing mainly dextrose (more than 80%) with a small amount of calcium phosphate".
The Government issued circular No. 7/90 dated 7-3-1990 regarding classification of Glucose D manufactured out of duty paid dextrose mono hydrate. The circular was issued subsequent to the decision taken by the Collectors' Tariff Conference held in November 1989. Before taking a final decision in the matter the Chief Chemist was consulted and he has opined that blending of dextrose mono hydrate with calcium phosphate and Vitamin D is done with specific purpose i.e. to enrich the product with calcium and Vitamin-D. The enriched product is not merely dextrose mono hydrate but a product of different character and entity and this is the reason for specific instructions found on the containers which is marked "intended for use as a food only - for extra energy". As argued by the learned SDR, dextrose mono-hydrate is an industrial raw material for manufacture use only, as can be seen on the HDPE bags carrying the inputs. Dextrose mono hydrate finds use in confectionery infant foods, medicine, brewing and wine making, intermediate caramel colouring, baking and canning, and as a source of methane and anaerobic fermentation (as set out in the Hawley's Condensed Chemical Dictionary, 10th Edition page 500). Thus Glucose-D which is sold under a brand name for a specific purpose viz. for use as foods is apparently different from dextrose mono hydrate. The learned SDR has stand of the Department that the addition of tricalcium phosphate and Vitamin-D to the dextrose mono hydrate is for the specific purpose of adding vital body ingredients thereby altering dextrose mono hydrate (industrial grade) into a food item.
8. Relevant extracts from the book "Normal and Therapeutic Nutrition", 17th Edition by Corinne H. Robinson state that Glucose is the chief end product of the digestion of the oligo and polysaccharides, in the form of carbohydrate circulating in the blood and is the primary carbohydrate utilized by the cell for energy. The amount of carbohydrate in the adult body is about 300 to 350 gms. Of this, 100 gms. is stored as glycogen in the liver, another 200 to 250 gms. is present as glycogen in cordiac, smooth and skeletal muscles, and about 15 gms. makes up the glucose in the blood and extracellular fluid. Carbohydrates are the least expensive source of energy to the body, and Glucose is the primary source of energy for the nervous system and the lungs. After absorption from the intestinal tract the carbohydrate meets the following principal fates :
1. immediate use to meet energy needs of tissue cells
2. conversion to glycogen and storage in the liver or muscle for later release to meet energy needs and
3. conversion to fat as a larger reserve for energy.
The total glycogen reserves in the body would meet about half of one day's energy needs of the adult. Glycogen stored in the liver can be converted to glucose to maintain the sugar level of the blood. Glycogen in the muscle can be used to supply energy needs of muscle cells, but is not available for regulation of the blood sugar level. The amount of energy stored as fat can be large and is a ready and continuing supply to meet energy needs when glycogen stores are depleted. Glucose is quantitatively the most important carbohydrate available to the body whether it be by absorption from the diet or by synthesis within the body. Glucose has inter relationship with other nutrients. Glucose metabolism consists of an inter-related series of biochemical reactions facilitated by enzymatic activity. It cannot be completely separated from the metabolism of fats and protein and on the one hand proteins are potential source of glucose and on the other hand glucose can be converted to fatty acids. A number of points in the sequence of glucose metabolism are also the cross roads for amino acid and fatty acid metabolism and in some respects one nutrient can substitute for another. For example, a decrease in carbohydrate metabolism is accompanied by an increase in fatty acid oxidation. Trace amounts of magnesium, iron and other mineral elements and several of the B-complex vitamins are essential for enzyme activity. Thus, the metabolism of the nutrients are essential for enzyme activity. Thus, the metabolism of the nutrients is inter-dependent, and the lack of any one of them affects the total metabolism of the organism. For example, a deficiency of any one of the Vitamins results in a failure of the reaction to take place at the point where that vitamin is essential and, therefore, any subsequent reactions cannot occur.
9. The chemical reactions that constitute glycolysis take place in the cytoplasmic matrix of the cell. These reactions degrade glucose to pyruvic acid in preparation for entrance into the mitochondria. They are catalyzed by a specific enzyme in each case - some of which require the presence of inorganic phosphate.
10. Distribution and functions of calcium are also set out in the above text. Of the approximately 1.200 of calcium in the adult body 99% is combined as salts that give hardness to the bones and teeth. The bones not only provide the rigid framework for the body but they also furnish the reserves of calcium to the circulation so that the concentration in the plasma can be kept constant at all times. The remaining 1% of the calcium in the adult - about 10 to 12-g is distributed throughout the extracellular and intracellular fluids of the body. It fulfils several important functions, among them being the following :
(i) activates a number of enzymes.
(ii) increasing the permeability of cell membranes, thereby aiding in the absorptive processes.
(iii) regulating the contraction and relaxation of muscles including the heartbeat.
(iv) catalyzes several steps in the blood clotting.
Calcium is absorbed by active transport and body need is the major factor governing the amount of calcium that is absorbed. Healthy adults receiving a diet that meets their requirements absorb approximately 30% to 40% of their dietary calcium. Several mechanisms control the amount of calcium that is absorbed. The two most important of these involve Vitamin-D and the parathyroid hormone. Lack of Vitamin-D seriously impairs the absorption of calcium. Such lack may arise from inadequate exposure to sunlight or failure to ingest Vitamin D in some form.
11. Phosphorus accounts for about 1 per cent of body weight or one fourth of the total mineral matter in the body, and about 85% of the phosphorus is in inorganic combination with calcium as the insoluble apatite of bones and teeth. Vitamin D increases the rate of reabsorption of phosphorus.
12. Vitamin D itself is an inactive storage form of the vitamin that is concentrated in the liver and to a lesser extent in the skin, spleen, lungs, brain and kidney. The Vitamin D compound, calcitriol is considered the active form of Vitamin-D; it circulates to the intestine where it stimulates synthesis of proteins necessary for the transport of calcium across the intestinal mucosa. It also promotes absorption of phosphorus. Formation of calcitriol in the kidney occurs in response to the increase in the blood level of parathyroid hormone that is initiated whenever there is a fall in serum calcium. Calcitriol also stimulates mobilisation of calcium and consequently phosphorus from bone and may improve renal reabsorption of calcium. These actions increase the calcium and phosphorus levels of the blood, thereby permitting normal mineralisation of the bone matrix and cartilage as well as maintaining the correct concentration of calcium in extracellular fluids for muscle contraction and nerve irritability.
13. As little as 2.5 fig will promote bone development and prevent rickets - deficiency of Vitamin D leads to inadequate absorption of calcium and phosphorus from the intestinal tract. The tolerance for Vitamin D varies widely. As little as 45ug over a long period of time may be mildly toxic to the children whereas massive doses of 2500 ug are tolerated by certain individuals.
Vitamin-D 3 functions as steroid hormones to regulate calcium and phosphorus absorption, mobilisation and mineralisation of bones and large amounts are toxic.
14. The literature referred to above shows that addition of calcium and phosphorus and Vitamin-D to Glucose is for a specific purpose that is to provide essential body nutrients and the learned SDR was, therefore, correct in submitting that the addition of tricalcium phosphate and Vitamin-D in small proportions is done with a specific purpose specially in view of the fact that tricalcium phosphate is not only an anticaking agent, but the addition of tricalcium phosphate in this case, is to serve as a nutrient supplement. The literature relied upon by the learned SDR also reveals that both deficiency as well as over-dosage of Vitamin-D adversely affects the human body and it is not that Vitamin-D can be added in a large proportion. Even a small percentage will serve the bodily requirement.
15. In the light of this factual background, let us now discuss the case law cited by the Learned Counsel for the appellant:
In the case of U.O.I. v. DCM Ltd. the question of law that arose for consideration was the leviability to excise duty under Item 23 of the First Schedule to the CESA of refined oil viz. vanaspati manufactured from raw oil. One of the arguments advanced by the appellants therein was that even if it be held that the respondents do not manufacture refined oil as is known in the market, they must be held to manufacture some kind of non-essential vegetable oil by applying to the raw materials purchased by them, the process of neutralisation by alkali and bleaching by activated earth and or carbon and manufacture is complete as soon as the raw material undergoes some change by the application of one or more processes. The Supreme Court held that there is no warrant in law to equate processing to manufacture. The word "manufacture" used as a verb is generally understood to mean as bringing into existence a new substance, however minor in consequence the change may be, and the Court quoted a passage from Permanent Edition of Words and Phrases Vol. 26 cited in the American Judgment which passage is 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 distinct name, character or use".
The Court held that raw oil purchased by the respondents for the purpose of manufacture of vanaspati does not become at any stage refined oil as is known to the consumers and a commercial community and dismissed the Government's appeal.
15.1 In the case of Pio Food Packers the Hon'ble Supreme Court held that although a degree of processing is involved in preparing pineapple slices from the original pineapple yet the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it or adding sugar to preserve it and cannot be said to be manufacture. The Court held that for determining whether a commodity is consumed in the manufacture of another, the generally prevalent test is whether article produced is regarded in the trade by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of process, it must be regarded as still retaining its original identity.
15.2 The test of manufacture laid down by the Supreme Court in the case of Sterling Foods (supra) was that the test which has to be applied for the purpose of determining whether the commodity subjected to processing retains its original character and identity is as to whether the processed commodity is regarded in the trade by those who deal in it as distinct in identity from the original commodity, or the same original commodity - the issue to be decided in that appeal was whether shrimps, prawns and lobsters subjected to processing like cutting of heads, tails, peeling, deveining, cleaning and freezing ceased to be the same commodity for the purpose of Central Sales Tax Act, 1957. In para 7 of the judgment the Supreme Court held that when raw shrimps, prawns and lobsters are subjected to the process set out above, they do not become another distinct commodity and they continue to have their original character and identity as shrimps, prawns, and lobsters, the only difference being that the processed items are ready for the table while raw shrimps, prawns and lobsters are not.
15.3 In the case of Deputy Commissioner of Sales Tax v. Shiphy International supra the Supreme Court held that the process of removing skin from fresh frog legs and cleaning and removing dirt, etc. - processing them for the purpose of avoiding decomposition and decay did not amount to manufacture as the frog legs do not undergo any material change in character or identity and therefore, the respondent was entitled to exemption under Section 5(3) of the Central Sales Tax Act, 1957.
15.4 The Tribunal in the case of Collector of Central Excise v. Crescent Chemical Corporation, held that the process of purifying duty paid mineral oil and mixing the same with sulphuric acid and sodium carbonate and active earth did not amount to manufacture and relied upon the judgment of Gujarat High Court in the case of Mehta Bros. v. Superintendent of Central Excise (Special CA 1175/90), wherein it was held that "it is the production or manufacture of lubricating oil which attracts the charge of excise duty and not the processing of lubricating oil as such. One may add chemicals to lubricating oil, one may subject lubricating oil to a process by which its useability may be reduced or enhanced. That would not attract the applicability of item 11-A so long as the lubricating oil retains its character as lubricating oil and does not become a different excisable commodity".
16. In the case of CCE v. Densons Engineers, the Tribunal held that mixing of duty paid epoxy resin with fillers to make the resin more readily useable does not amount to manufacture as no new commercial product emerged in the process.
The production of prilled ammonium nitrate from 75% to 82% was held not tantamount to manufacture as mere production of same goods of higher purity is not manufacture under the CESA 1944, in the case of Anil Chemicals. The Tribunal therein held that though prilling results in a higher concentration, that alone is not relevant to determine whether a different product has emerged as a manufacture under the CESA is required to be a manufacture that creates excisable goods.
The preparation of lead alloy ingots from duty paid lead and duty paid antimony to the extent of 0.85% was held not to constitute manufacture of lead ingots assessable under Tariff Item 27A because lead alloy so obtained still remains lead in view of the Explanation 1 to the TI, in the case of Hindustan Cables Ltd. v. CCE - 1985 (22) E.L.T. 180 T. In the case of East Texas Motor Freight Lines v. Frozen Food Express, the American Supreme Court held that the processing of chickens in order to make them marketable but without changing their substantial identity, did not turn chickens from agricultural commodities into manufactured commodities.
In the case of SD Fine Chemicals, the Tribunal held that the process of purification of bought out chemicals by distillation and recrystallisation did not amount to manufacture there being no change in name or chemical formula of the chemicals and that the test of transformation of an object in order to cover a commodity which has been held to be a manufacture had not been satisfied as the commercial commodity remains the same.
17. One of the tests laid down by the Hon'ble Supreme Court in the DCM case is that a new product which arises as a result of treatment, labour and manipulation should have a distinct use and in this appeal that test is satisfied inasmuch as, undisputedly, the item has a distinctive use as a food item. The test of change of character is also satisfied in this case - Dextrose Mono Hydrate Industrial Grade has become Glucose D Food Grade after the addition of Tricalcium Phosphate and Vitamin-D. A new commercial product has come into existence with a character different from the character of the original raw material. The test laid down in the DCM case as to change in the character is also satisfied in this case. The ratio of various judgments cited by learned Sr. Counsel for the appellants is that as a result of manufacture a new product distinct in name, character or use should come into existence. If there is no loss in essential character or identity and no new product emerges as a result of processes applied to the raw material then the test of manufacture cannot be said to have been satisfied. However, in this case we cannot accept the argument that Dextrose /Glucose remains the same and does not lose its essential character after the process of sieving and blending as the character has changed from industrial raw material to food grade finished product. The label on the product itself lists ingredients as :-
"Dextrose Monohydrate Calcium Phosphate Vitamin D3 - (Cholecalciferol) Calorific value - 350 per 100 g.
Glucovita Glucose D is intended for use as a food only.
Instructions for use on cover Its glucose energy enters the blood stream instantly and you start feeling refreshed - Glucovita contains calcium X Vitamin D3 which are good for the body".
18. The circular No. 21/70 dated 4-6-1970 issued by the Central Board of Excise and Customs, referred to by the Learned Counsel, is a departmental clarification on classification of Dextrose and Glucose and it clarifies that duty paid Glucose and Dextrose repacked into smaller units will not attract any further duty liability under Central Excise Tariff item 1E, even if some other ingredients are added before repacking. This circular does not advert to the question whether mixing Dextrose Mono Hydrate with Calcium and Vitamin-D amounts to manufacture. Therefore, this circular cannot be relied upon by the appellants to support their stand that the process involved herein do not amount to manufacture. The appellants are not correct in contending that the Assistant Collector has based his decision on the end use of Glucovita Glucose D as specified in the instructions on the container. In addition to referring to the instructions he has relied upon the Circular No. 7/90 which in turn is based upon the Chief Chemist's opinion. It is a fact that the appellants have advertised the product Glucovita Glucose D as an item of food and the product is known in the market as a food item (Emphasis supplied). Therefore, the learned Counsel's reliance on the judgment of the Bombay High Court in the case of Leukoplast India (P) Ltd. v. Union of India [1985 (20) E.L.T. 70] in which the Court held that advertisements published by manufacturers of a product in order to attract consumers has nothing to do with the classification of the product for levy of duty, does not advance the case of the appellants, as, in this case, the product is recognised in the market as a food item.
19. The learned SDR, Mrs. Sundaram, has cited case law on the concept of "manufacture" in Central Excise Law.
19.1 In the case of Narinder Kumar v. Collector of Central Excise [1992 (57) E.L.T. 466 (Tribunal)], the Tribunal dealt with the issue as to whether mixing of various edible nuts such as Almonds, Cashew nuts, pista with other constituents such as Cardamom, Nutmeg, Javatri, Saffron amounted to manufacture resulting in a new product with a distinct name, character or use. The Tribunal held that the product that is formed after manufacture i.e. the end product is called milk masala and has a distinct name, character and use. It ceases to retain its identity because it is not known by that name in the market. No one would know that it is milk masala until he first ascertains its composition. The product is given the name of milk masala as that is the name by which it is known in the market.
19.2 In para 34 of Reckitt and Coleman of India Ltd. v. CCE Calcutta [1985 (22) E.L.T. 216], the Tribunal has dealt with the question as to whether Purity Barley as well as Robinson's Patent Barley could be called preparation on the basis of flour. The contention of the department was that the word "preparation" would only mean the end result giving rise to a product and not necessarily a product arrived at by way of processing the original material. But, however, the Tribunal held that in the context of the words used in Tariff Item 14, this meaning does not appear to be correct because flour is itself a product obtained by grinding the grain and therefore, if the grain in the form of flour is itself to be treated as a preparation, then the words 'preparation with a basis of flour' would appear to be a tautological repetition. Therefore, in the context of the use of the words used in the said notification, it appeared to the Tribunal that the 'preparations' as used in the said TI 14, would have to be a product prepared by addition, mixing or other such similar process to the original commodity in order to derive a new commodity.
19.3 In the case of Shri Bhadrada Chemicals Pvt. Ltd. v. CCE [1990 (47) E.L.T. 652], the Tribunal held that mixing of imported silicene oil with other ingredients has resulted in a distinct product namely silicene emulsion having a distinct name, character and use and so the process of mixing is manufacture within the meaning of Section 2(f) of Central Excises and Salt Act.
19.4 The Andhra Pradesh High Court in the case of Brooke Bond India Ltd. v. Union of India and Ors. [1984 (15) E.L.T. 32], has held that test of manufacture in all cases is to ascertain whether the result of labour is commercially a different commodity and it is irrelevant whether this result is produced by a mechanical or chemical process or otherwise and the essence of the expression 'manufacture' is the changing of one object into another for the purpose of making it marketable.
19.5 In the case of Singareni Collieries Co. Ltd. v. CCE [1988 (37) E.L.T. 361], the Tribunal has held that ANPO though prepared by a simple process of mixture of ammonium nitrate and fuel oil, is a distinct product having its own name, character and use and inasmuch as, the process of mixing has resulted in a product which has its own character and name, the mixing of the two products has to be held a process of manufacture resulting in emergence of a new commodity.
19.6 The breaking of rocks into small pieces and then powdering them and then sieving them in specified meshes and bringing them to given fineness to make them fit for use as a fertilizer was something more than a mere process and in such a situation the conversion of raw material into different article having a distinct name, character and use was held to amount to manufacture in the case of Pyrites Phosphates and Chemicals Ltd. N. Delhi v. CCE Delhi (1983 EC 1192).
19.7 In the case of Anheuser Busch Brewing Association v. United States (cited by the Ld. Senior Advocate), the US Supreme Court had occasion to consider the question of entitlement to drawback on imported corks used in bottling which were subjected to special treatment after their importation. It was contended that corks were subjected to treatment amounting to manufacture thereby causing articles manufactured in US. The US Supreme Court held that manufacture implies a change but every change is not manufacture and yet every change in an article is a result of treatment of labour and manipulation. There must be transformation; a new and different article must emerge having a distinct name, character or use. The Court held that the processes applied to the corks did not amount to manufacture. This being a decision in the context of entitlement to draw back on imported corks, will not be determinative of the test of manufacture in excise law.
20. In the facts of this case, we hold that the processes applied to the raw material result in manufacture within the meaning of Section 2(f) of the CESA 1944. Having answered the question of manufacture in the affirmative we now turn to the question of classification. Heading 17.02 of the Central Excise Tariff Act, 1985 covers "other sugars including chemically pure lactose, maltose, glucose and fructose in any form and preparations thereof...". Heading 1702.21 which the appellants had themselves claimed in their classification list rightly covers the product as it is a preparation of "other sugars" as in which the reducing sugars expressed as anhydrous dextrose amount to more than 80% by weight". We, therefore, hold that the Glucovita Glucose D falls for classification under Heading 1702.21 of the CETA 1985. We, however, do not accept the contention of the learned SDR that since preparations of glucose are specifically covered under Heading 17.02 such preparations are deemed to be manufactured by the Legislature itself and, therefore, it is not open to the appellants to dispute the preparation as not amounting to manufacture, the Hon'ble Supreme Court has held in the case of Bore Industries Ltd. v. Collector of Central Excise reported in 1989 (40) E.L.T. 280 that an article is not leviable to excise merely because of its specification in the Tariff Schedule unless it is "goods" known to the market and that the marketability is an essential ingredient for dutiability.
21. In the result we hold that the process of sifting and blending dextrose mono hydrate with tricalcium phosphate and vitamin D amounts to manufacture within the meaning of Section 2(f) of the CESA 1944 and the resultant product, Glucovita Glucose D is classifiable under Heading 1702.21 of the CETA, 1985. We uphold the impugned order and reject the appeal.
S.K. Bhatnagar, Vice President
22. I observe that the learned Advocate, Shri Hidyatullah is correct in pleading that Glucose and Dextrose are synonymous. Chemically Glucose is C6H12O6 (also known as Cerelose, D-Glucopyranose) 22.1 Dextrose is also C6H12O6 (also known as Grape Sugar, Corn Sugar) (See McGraw Hill Dictionary of Scientific and Technical Terms).
22.2 Normally Glucose/Dextrose is associated with one molecule of water. Hence its formula is strictly speaking, C6H12O6. H2O; And therefore, it is also called Dextrose Mono-hydrate.
23. The Learned Senior Counsel is also correct in pointing out that it is well-settled by now in the light of a catena of High Court and Supreme Court judgments, that only such processes which bring into existence a new product known to the market amount to manufacture. He has justifiably quoted from the Permanent Edition of "Words & Phrases Volume-26" 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. But something more is necessary and there must be transformation, a new and different article must emerge having a distinct name, character or use". He is also right in pointing out that Hon'ble Supreme Court has itself cited and relied upon this extract from American judgments.
24. The Learned Counsel has also very rightly mentioned that in the instant case Dextrose Monohydrate is simply sifted and blended with Calcium Phosphate and Vitamin D and thereafter packed and sold as Gluco Vita Glucose-D; and thus only a physical mixture is involved. So far so good; however, it transpires that he has also emphasised that no chemical change or reaction takes place and there was no transformation as such into a different product; and here lies the rub; for transformation does not necessarily mean chemical transformation and the process involved in manufacture need not necessarily be a chemical process. In other words, even simple physical process or processes may also lead to formation of a new product, identifiable as such and known to the market as a distinct commodity.
25. Cases have been cited before us to show that processes simply meant for improving the purity or presentability and marketability could not by themselves be considered as processes amounting to manufacture. This is of course true in some cases as the citations themselves show and to this extent the Learned Counsel is apparently correct. It is however better to avoid generalisations; because there are situations where because of physical, chemical, bio-chemical or other considerations and/or the deeming provisions of law, different criteria and considerations have to be adopted and the actual determination depends upon one or more of a host of factors which vary from case to case. Indeed the position differs from law to law and even within the same law (such as Central Excise Tariff Act, 1985) from Section to Section and or Chapter to Chapter and at times from item to item. Thus for instance purification of water by distillation results in production of distilled water - a distinct commodity; and freezing of water results into a commodity called ice which is classifiable under different headings. In fact a perusal of Central Excise Tariff as a whole reveals the following interesting picture.
1. Chapter IX - Note 2 states that "For the purposes of heading No. 09.02, blending, sorting, packing, or repacking into smaller containers shall amount to 'manufacture'."
2. Chapter 20 - Heading 20.01 reads as follows :-
"Preparations of vegetables, fruit, nuts or other parts of plants, including jams, fruit jellies, marmalades, fruit or nut puree and fruit or nut pastes, fruit juices and vegetable juices, whether or not containing added sugar or other sweetening matter."
3. Chapter 21 - 'Miscellaneous Edible Preparations' - Note 2 prescribes that "For the purposes of Heading No. 21.04, the expression "homogenised composite food preparations" means preparations consisting of a finely homogenised mixture of two or more basic ingredients such as meat, fish, vegetables or fruit, put up for retail sale as infant food or for dietetic purposes. For the application of this definition, no account is to be taken of small quantities of any ingredients which may be added to the mixture for seasoning, preservation or other purposes.
Note 3 reads as follows :
In this Chapter, "Pan Masala" means any preparation containing betel nuts and any one or more of other ingredients such as lime, katha (catechu), cardamom, copra, menthol and tobacco; and in relation to such a preparation, labelling or re-labelling of containers and re-packing from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to "manufacture".
Note 5 mentions inter alia that Heading No. 21.07, inter alia, includes
(b) preparations for use, either directly or after processing (such as cooking; dissolving or boiling in water, milk or other liquids), for human consumption;
(d) powders for table creams, jellies, ice-creams and similar preparations, whether or not sweetened;
(e) flavouring powders for making beverages, whether or not sweetened;
(g) preparations consisting of tea or coffee and milk powder, sugar and any other added ingredients;
(h) preparations (for example, tablets) consisting of saccharin and a foodstuff, such as lactose, used for sweetening purposes;
(j) preparations for lemonades or other beverages, consisting, for example, of flavoured or coloured syrups flavoured with an added concentrated extract, syrup flavoured with fruit juices and concentrated fruit juice with added ingredients.
Heading 21.01 reads as follows :
"Extracts, essences and concentrates, of coffee or tea, and preparations with a basis of these products or with a basis of coffee or tea; roasted chicory and other roasted coffee substitutes, and extracts, essences and concentrates thereof Chapter 22 - Heading 22.01 covers "Natural or artificial mineral waters and aerated waters, not containing added sugar or other sweetening matter, not flavoured; ice"
Chapter 24 In this Chapter, the expression "cut tobacco" means the prepared or processed cut-to-size tobacco which is generally blended or moisturised to a desired extent for use in the manufacture of machine-rolled cigarettes.
Heading 24.04 covers Other manufactured tobacco and manufactured tobacco substitutes; homogenised or 'Reconstituted' tobacco; tobacco extracts and essences Smoking mixtures for pipes and cigarettes; cut-tobacco:
And includes
- Hookah tobacco whether or not containing tobacco substitutes in any proportion:
Heading 24.04.40 covers Chewing tobacco including preparations commonly known as "Khara Masala" "Kimam", "Dokta", "Zarda", "Sukha" and "Surti".
Heading 2404.49 covers Snuff:
Heading 2404.60 covers Preparation containing snuff of tobacco in any proportion.
Chapter 25 Note 2 provides that "Except where their context otherwise requires, Heading Nos. 25.01, 25.03 and 25.05 cover only products which have been washed (even with chemical substances, eliminating the impurities without changing the structure of the product), crushed, ground, powdered, levigated, sifted, screened, or concentrated by flotation, magnetic separation or other mechanical or physical processes (except crystallisation), but not products that have been roasted, calcined, obtained by mixing or subjected to processing beyond that mentioned in each heading, or sub-heading.
Heading 25.01 mentions that Salt (including table salt and denatured salt) and pure sodium chloride, whether or not in aqueous solution Chapter 29 - Note 1 mentions inter alia that Except where the context otherwise requires, the headings of this Chapter apply only to:
(b) Mixtures of two or more isomers of the same organic compounds (whether or not containing impurities), except mixtures of acyclic hydrocarbon isomers (other than stereoisomers), whether or not saturated (Chapter 27);
(d) The products mentioned in (a), (b) or (c) dissolved in water;
(e) The products mentioned in (a), (b) or (c) above dissolved in other solvents provided that the solution constitutes a normal and necessary method of putting up these products adopted solely for reasons of safety or for transport and that the solvent does not render the product particularly suitable for specific use rather than for general use;
(f) The products mentioned in (a), (b), (c), (d) or (e) above with an added stabilizer necessary for their preservation or transport;
(g) The products mentioned in (a), (b), (c), (d), (e) or (f) above with an added anti-dusting agent or a colouring or odoriferous substance added to facilitate their identification or for safety reasons, provided that the additions do not render the product particularly suitable for specific use rather than for general use;
(h) The following products, diluted to standard strengths, for the production of azo dyes : diazonium salts, couplers used for these salts and diazotisable amines and their salts.
Chapter 29 Heading 29.06 covers Cyclic alcohols and their halogenated, sulphonated, nitrated or nitrosated derivatives.
Chapter 30 - Note 5 reads as follows :
In relation to products of Heading No. 30.03, conversion of powder into tablets or capsules, labelling or relabelling of containers intended for consumers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to 'manufacture'.
Chapter 39 - Note 4 mentions inter alia "For the purposes of this Chapter, except where the context otherwise requires, copolymers (including co-polycondensates, co-plyaddition products, block copolymers and graft copolymers) and polymer blends are to be classified in the heading covering polymers of that comonomer which predominates by weight over every other single comonomer,...."
Note 14 states inter alia Polymer blends are to be classified in the same sub-heading as copolymers (or homopolymers, as the case may be) of the same monomers in the same proportions.
Chapter 40 Note 5(b) states that The presence of the following substances in any rubber or mixture of rubbers shall not affect its classification in Heading No. 40.01 or 40.02, as the case may be, provided that such rubber or mixture of rubbers retains its essential character as a raw material:
(i) emulsifiers or anti-tack agents;
(ii) small amounts of breakdown products of emulsifiers;
(iii) very small amounts of the following : heat-sensitive agents (generally for obtaining thermosensitive rubber latexes), cationic surface-active agents (generally for obtaining electro-positive rubber latexes), antioxidants, coagulants, crumbling agents, freezeresisting agents, peptisers, preservatives, stabilisers, viscosity-control agents or similar special purpose additives."
The examples can be multiplied.
26. The whole idea in citing the above notes and headings is to show that the criteria for considering a process as a manufacturing process or a product as a manufactured product vary from case to case. Similarly the provisions for taking cognizance of the presence of or ignoring the addition of small quantities of other ingredients vary.
27. The criteria for considering a product marketable also differ from item to item.
28. Further, in various sections and Chapters some of the processes have been explicitly declared as processes amounting to manufacture but there is no such specific indication in respect of a large number of others. This has spawned disputes and given rise to different schools of thought. I am of the opinion that in the latter case, the proper course was to turn to the fundamental aspects revolving round the well known criteria of (i) retention of or change in the essential characteristics, (ii) loss of original identity and acquisition of a new one and (iii) the market test if I may call it so.
29. In the above context, the appropriate course for us is to take refuge under the Chapter 17 itself and fall back upon Heading 17.02 to which the item pertains; and when we do so, we find that this Heading distinguishes chemically pure glucose (in any form) from the preparations thereof. In other words, glucose or dextrose monohydrate has to be distinguished from a preparation containing glucose including a preparation consisting mainly of glucose. Now one of the methods of producing or preparing a preparation so to say is to take an item as a base and add required quantity of other ingredients. This is exactly what has happened in the present case. It is noteworthy that it has not been mentioned in this chapter that addition of small quantities of other chemicals would not make any difference. Furthermore, blending or mixing have not only been not excluded but, by necessary implication included, as the use of the word preparation goes to show. In this context learned DR's extensive exposition of the technical aspects of the matter and her explanation as to why these materials are added as ingredients only in very small quantities assumes significance. From our point of view, whatever may be the proportion or purpose, the net result of an apparently simple process of blending is that a chemical called Dextrose gets converted into a food product and a new commodity with a distinct identity of its own emerges as apparent from the way, it is marketed or is known and treated in the market place. The fact that a larger percentage of it is still chemically dextrose and calcium phosphate or Vitamin D have been added only in micro quantities or traces does not make any difference as the latter were expected to serve the required purpose only in such proportions.
30. In view of the above position, concurring with the conclusion of the Hon'ble Judicial Member, the appeal is rejected.