Customs, Excise and Gold Tribunal - Delhi
Sanat Products Ltd. vs Commissioner Of Central Excise on 28 September, 1999
Equivalent citations: 2000ECR169(TRI.-DELHI), 2000(115)ELT163(TRI-DEL)
ORDER
P.C. Jain, Vice President
1. The appellants herein filed 3 classification list effective from 14-5-1996 declaring their product 'Sunova-Spirulina Capsule' claiming it as non-excisable. It also contended, inter alia, that if it was held excisable, it would fall under Tariff Heading 14.01 carrying nil rate of duty.
2. There is no dispute that 'spirulina' is a blue green algae, a living micro-organism and falls under plant kingdom. It is a photosynthesis organism capable of producing starch, rich in protein. Sunova is a brand name used by the appellants for the said product in capsules. In the letter accompanying the classification list, it was contended that "since spirulina in powder form as such is classified under Chapter 14 as the conversion of spirulina powder into capsules involves no manufacturing activity and only the binding agents are put to spirulina powder and these binding agents do not have therapeutic value and are inert, the change of form from powder to capsule would not make any difference to classification under the C.E.T.A. 1985.
3. Revenue, having considered the contents of the label affixed on the container of the product sold by the appellant felt that it was an 'edible preparation' in fully packed unit containers. It was also noticed that the appellants had obtained a licence from the U.P. State authorities for manufacture of the said 'food product'. Consequently, a show-cause notice was issued as to why the said product be not classified as 'edible preparation not elsewhere specified' under Tariff Heading 21.08 as it existed at the relevant time.
4. Ld. original authority on the contention of the appellants herein has found as follows :-
"On this aspect, I observe that claim of M/s LLL may be found acceptable only up to the stage if 'spirulina' in its natural form as vegetable product is concerned and not in processed form. They have made ample efforts to explain the botanical definitions, characteristics and properties of algae (Spirulina) in its natural form. But, the question which arises here is when some vegetable product is cultivated for a specific purposes in the artificially made ponds, dried, cleaned, processed/powdered and then packed in measured doses and sold as 'goods' (food supplement) in the market for benefit of the consumers, for their general good health and well being, can it be acceptable as a product in its raw form? There are numerous vegetable products such as tea, coffee, herbs and cocoa which in their original natural form are all vegetable products but on processing and packing into unit containers are leviable to central excise duty after having undergone the process of manufacture. Same is the case with spirulina which is dried, cleaned, processed/powdered with the aid of power operated machines, binding agents if added to obtain the acquired characteristics for filling in capsules the measured quantity per capsule for individual consumption in the manner indicated on the label.
As per Section 2(f) of the Central Excise Act, 1944 manufacture includes any process incidental or ancilliary to the completion of a manufactured product. In this case, the process of drying, cleaning, powdering, processing by adding binding agents and filling/packing are all processes incidental and ancilliary for completion of the manufactured product. These processes are unique and distinct for each manufactured product as per the requirement of that particular product. Some products need simple processes whereas some other require complex processes. Requirement of simple processes does not mean that these do not amount to 'manufacture'.
Therefore, I find that the raw 'spirulina' for which the assessee has sought classification under Chapter 14 looses its identity and transforms into edible preparation for a desired purpose/end use. It completely changes its character. It posesees a brand name 'Sunova' to provide identity and recognition to the product been sold after its extraction from the ponds where it is cultivated then there could not have been a case to levy the central excise duty but here it is not so."
5. In appeal before the Commissioner (A), the appellants herein did not succeed. Hence, this appeal.
6. Ld. Advocate Shri A.R. Madhav Rao submits that there is no dispute that Spirulina is a blue green algae - a product of plant kingdom. It falls under Chapter 12 of the HSN relating to natural products and therefore this Chapter has not been included in the Schedule to C.E.T.A. 1985. Explanatory Notes to HSN under Heading 12.12 clearly stated that "This heading covers all seaweeds and other algae, whether or not. edible. They may be fresh, chilled, frozen, dried or ground. Seaweeds and other algae are used for various purposes (e.g., pharmaceutical products, cosmetics, human consumption, animal feeding, fertilisers)." It is not anybody's case that the product is "dead single cell algae (falling under Heading 21.02)." He, therefore, submits the mixing the ground (powdered) algae with a binding agent so as to facilitate its filling in capsules does not change the name, character and use of the product. It still remains spirulina with the same character and use. No manufacture has therefore taken place. The product is, therefore, not excisable because, there is no entry in Schedule to C.E.T.A. corresponding to Chapter 12 of HSN. Alternatively, he argues that it would at best fall under Tariff Heading 14.01 which, inter alia, includes: "vegetable products not elsewhere specified or included."
Countering the classification under Tariff Heading 21.08, held by lower authorities, ld. Advocate submits that the 'product' is not a 'preparation' because nothing like vitamins etc., are added to the natural powdered spirulina. Addition of binding agent does not make it a preparation. It is only for the purpose of easy filling of the product in capsule so that the powder does not fly away. In this connection, he invites attention of the Bench to following Explanatory Notes to HSN Heading 21.06 pertaining to "Food Preparation Not Elsewhere Specified or Included", :-
"Preparations, often referred to as food supplements, based on extracts from plants, fruit concentrates, honey, fructose, etc. and containing added vitamins and sometimes minute quantities of iron compounds. These preparations are often put up in packagings with indications that they maintain general health or well-being. Similar preparations, however, intended for the prevention or treatment of diseases or ailments are excluded (Heading 30.03 or 30.04)."
According to these Notes, submits the ld. Advocate, addition of vitamins or minute quantities of iron compounds etc. is necessary to food supplements which the lower authorities consider the product to be one in this case.
7. There is no allegation that any vitamin or other compound is being added in the present case, submits the ld. Advocate. He, therefore, prays for setting aside the impugned order and allowing the appeal.
8. Opposing the contention, ld. JDR Shri R.S. Sangia reiterates the various findings of the lower authorities as mentioned above. He specifically draws attention Chapter Note 9 of Chapter 21 which states that Tariff Heading 21.08, inter alia, includes preparations for use, either directly or after processing (such as cooking, dissolving or boiling water, milk or other liquids), for human consumption. He submits that expression 'preparation' has been given a very wide meaning in this Chapter Note and, therefore, the activities undertaken by the appellant for spirulina, a blue green algae by drying, powdering, mixing with a binder and then filling it in a capsule would definitely be within the scope of the term 'preparation'. He, therefore, submits that the goods would be covered by expression 'edible preparations not elsewhere specified or included'. He also relies on Tribunal's judgment in the case of Henna Export Corporation 1993 (67) E.L.T. 907 (Tri.) wherein henna powder after cleaning and grinding of henna leaves into powder has been treated as an excisable product and the process of cleaning and grinding of henna leaves has been considered to be a process of manufacture and hence, excisable.
9. In his rejoinder, ld. Advocate points out that the analogy of Tribunal's judgment in Henna Export Corporation does not apply in the present case inasmuch as henna leaves could not be used otherwise and they were made usable by making of henna powder, therefore, a different product can be said to have come into existence. This finding is clear from the Tribunal's following observations at page 913 :-
"Therefore, by the process adopted by the appellants, the leaves are made into powder which is the state in which henna powder becomes fit for consumption. Therefore, it is held that there is a process of manufacture involved attracting Central Excise duty."
Ld. Advocate submits that although the adjudicating authority has held that spirulina is used only in capsule form and not otherwise, but he submits that this is merely an ipse-dixit of the authorities and is not based, on any evidence. Spirulina in its original form is as much usable as in its powder form. Mere filling of the powder in capsules does not change the name, character and use of the product. It is also pointed out by him that the controversy regarding classification in respect of henna powder was between Tariff Heading 33.05 and 14.01. Tariff Heading 33.05 was also preferred because of Chapter Notes 2 and 4 to Chapter 33 which is neither the controversy nor the contention of the Revenue in the present case and those two Chapter Notes do not come into play at all for resolving the controversy before the Tribunal in the present case. Case of the appellant, submits the ld. Advocate, is that the product is riot excisable falling under Chapter 12 of HSN which does not find a place in the Schedule to the C.E.T.A. 1985 because the said Chapter relates to the natural and agricultural products and not to the manufactured products.
10. We have carefully considered the pleas advanced from both sides. Process of manufacture has already been set out. First controversy before us is whether the goods Sunova-Spirulina capsule are excisable or not in view of the product spirulina being a vegetable natural product and not a manufactured product. In this connection, Explanatory Notes to Chapter 12 of HSN pertaining to "Oilseeds and oleaginous fruits; miscellaneous grains, seeds and fruit; industrial or medicinal plants; straw and fodder" indicate that seaweeds and other algae are covered under the said heading namely 12.12. Relevant Explanatory Notes has already been set out above. It is apparent from the said Explanatory Notes that spirulina is a product of nature and not a manufactured product. Explanatory Notes relating to seaweeds, clearly indicate that dried or ground seaweeds and other algae would continue to fall under HSN Heading 12.12. In other words, the process of drying or grinding the algae does not lead to change in character or use of the product.
But, we observe that the process undertaken by the appellants does not stop merely at drying and grinding the algae. The appellants undertake mixing of binder in the said powdered algae. The question that will arise is whether mixing of the binder would change the character of the product and would thus take it out from the scope of HSN Heading 12.12 to the Heading 21.08 as an edible preparation not elsewhere specified or included. The appellants were, therefore, asked to bring on record the effect of binder used by them. It has been the contention of the appellants that binder is mixed only to facilitate easy filling of the powdered spirulina into capsules. Otherwise the material will fly away while filling the product in a small container like capsule. The appellants have brought on record the meaning of "binder" as understood in technical literature in various books. In this connection, attention has been drawn to the effect of "binder" in the food industry in the Foods and Food Production Encyclopedia by Douglas M. Considine, P.E.: "The term binder accurately connotes the function of this additive - an agent that promotes holding or sticking parts and pieces of food substances together, a very important factor in terms of the texture of the end-product. Properties of an effective binder include: (1) a color that is compatible with the product; (2) capable of absorbing and holding water; (3) neutral flavour; (4) excellent stability; and (5) for many products, an ability to emulsify fats."
In Hawley's Condensed Chemical Dictionary, Eleventh Edition - binder in relation to food industry has been described as a material used in sausage manufacture that absorbs moisture at high temperatures, for example, various flours, dried milk and soy protein. Ld. Advocate, therefore, submits that in view of the aforesaid, effect of binder is that it merely facilitates in easy filling of the product in capsules. The binder does not have any other effect as is apparent from the label which is extensively extracted in order-in-original. All the constituents in the product are natural constituents in the capsule.
11. As against the above, ld. JDR Shri R.S. Sangia in written submissions has drawn attention to the meaning of the word 'preparation' at page 1113 of S.B. Sarkar's Words and Phrases of Excise and Customs (2nd Edition). In this connection, he draws special attention to the preparation of "paste" which has been defined in the said book as "a preparation of fish, tomatoes; or other food reduced to a smooth, soft mass, as for a relish or for seasoning. Pasta."
12. We have carefully considered the pleas advanced from both sides. The question before us is whether the product produced by the appellants, as mentioned above, would continue to fall under Chapter 12 of the HSN as a natural product or would go outside the scope of that Chapter. In other words, the question is whether it loses the character of a natural product by the activities undertaken by the appellants herein. Explanatory Note in relation to seaweeds and algae already extracted above, clearly indicates (as already found) that dried and ground seaweeds and algae do not go outside the scope of Chapter 12. Mixing of a binder, as rightly pointed out by the ld. Advocate for the appellants merely helps in binding the particles of the powdered algae. It does not have any other effect. In our view, it does not change the character of the product. Taking the examples of other natural products like oil seeds, pulses, etc., merely drying them and filling them in some container for easy sale and use does not change the character of those oil seeds and grains. No evidence has been brought on record by the lower authorities that mixing of binder in the present case changes the character of the algae spirulina. It will not, therefore, be correct to hold that the algae in the present case would go out of the scope of Chapter 12 which covers all natural products or products growing in the fields. In view of the foregoing, we have to necessarily hold that the product spirulina in the capsule is not an excisable product being a natural product.
13. At this stage, it is also useful to refer to the general Explanatory Notes in relation to Headings 12.01 to 12.07 of HSN which covers seeds and fruits of a kind used for extraction of edible or industrial oils and fats. It has been stated in the said notes that seeds and fruits covered by the aforesaid headings of HSN may be whole, broken, crushed, husked or shelled. They may also have undergone moderate heat treatment designed mainly to ensure better preservation, for the purpose of de-bittering or to facilitate their use. However, such treatment is permitted only if it does not alter the character of the seeds and fruits as natural product and does not make them suitable for a specific use rather than for general use. In the light of the emphasised portion of the General Notes, though in relation to seeds and fruits, we may state and examine whether mixing of the binder with the dried and ground algae alters the character or the algae as natural products and makes it suitable for a specific use rather than for general use. We observe that the lower authorities have not given any evidence whatsoever that mixing of the binder in the dried and ground algae spirulina alters the character of the natural product or it makes its use as a specific one as compared to its general uses. Lower authorities have merely gone by the fact in classifying the product under Tariff Heading 21.08, that the scope of Tariff Heading 14.01 is restricted to spirulina in its natural form as a vegetable product and is not restricted to any other form. This finding of the adjudicating authority in our view ignores the effect of Explanatory Notes under HSN Heading 12.12 specifically in respect of seaweeds and other algae. Once the product is classified under HSN Chapter 12, it is futile to go into the question whether it would be covered by the Tariff Heading 21.08 or not or whether it is covered by Tariff 14.01. Coverage of the product under HSN Chapter 12 makes the product non-excisable as a natural product not covered by manufactured products on which alone the excise duty is leviable. Consequently, we set aside the impugned order and allow the appeal with consequential relief to the appellant.