An interesting Query which came in the forum was thus:
“CASE: Almonds are roasted in ghee and salt and cut into pieces and packed in small bags and kept in freezers. These almonds are later on mixed in ice cream to create new flavours.
(The roasted almonds are captively-consumed)
· Ice-cream is chargeable at nil rate as per CETA.
· The almonds are roasted not to preserve it ,but because the final product requires roasted almond.(as the ice cream flavour is roasted almonds)
· There is no packing or repacking for marketing the product, however there is packing done at the time of storing the same in warehouse.
Query: Does such roasting amount to manufacturing and eligible for charging excise.?
Query: If I am roasting almonds and I don’t pack it to make it marketable, instead I tell my customers to bring their own containers and collect the almonds from my premise. will that amt to manufacture or not?”
--Bhushan(Queriest)
(Edited and proof-read for Grammar, typos and sentence construction)
Mythreya’s reply
Your query must be professionally answered thus in the exam:
Query 1:
The facts of the case bear resemblance to Phil Corporation Case.
· The Supreme Court has ruled that central excise duty can be levied on processed and packaged dry fruits as they were manufactured products and could not be classified as agricultural products.
A bench of the apex court comprising Justice Ashok Bhan and Justice Dalveer Bhandari held that dry fruits like cashew nuts, peanuts and almonds, processed by dry roasting, salting, and seasoning and then packed in different containers and sold under brand name, have to be classified under Chapter 20 of the Central Excise Tariff Act (CETA), 1985.
The bench allowed the appeal of the Goa Custom and Central Excise Commissioner against Phil Corporation Limited (PCL) which had claimed that its products were classifiable under Chapter 08.01 of the CETA which attracted nil rate of duty.
Two opposing views/stands emanated for this situation:
Chapter 20 of the Act says excise tax can be levied on processed foods other than merely chilled and frozen foods while Chapter 08.01 exempts edible fruits, nuts and peels of citrus fruits and melons from tax cover.
The Excise Department had argued that apart from processing, PCL was involved in packing the products in retail containers bearing its brand name and this process by itself would amount to manufacturing under the CETA.
PCL on the other hand had argued that processes like roasting and salting do not change the essential character of the product as an agricultural product and the final product continues to be an agricultural product falling under Chapter 8 and not a manufactured product under Chapter 20.
As per the latest amendment to Sec 2(f) by way of an explanation to goods define it as anything which is capable of being bought and sold(Deemed Marketability) ordinarily in the market for consideration.
So, this means that even if the roasted almonds are not packed it is Deemed Marketable immaterial of whether it is packed or not packed and immaterial of whether it carries a branded pack name or not.Here you state additionally that the Almonds were stored in warehouse in a packed condition.
Also, captive consumption does not rule out excisability so long as the roasted Almond is capable of being bought or sold in the market for a consideration(Explanation to sec.2(f) Finance Act 2008).Actual sale and even Actual Open market for the same is not necessary. There is a commercial identity established for Roasted Almonds and this in itself is enough(UOI v. Sonic ElectroChem Case).Also, it would be worthwhile to note here that the explanation mentioned supra also does away with the earlier concept of "worthwhile to trade in"
And finally, to nail the issue, the Supreme Court ruling sets all doubts to rest by stating that roasted almonds are manufactured products.
Thus in Query 1, the ratio from the above legal judgments and stances have to be taken and it must known that such roasted almonds are subject to excise duty.
Query 2:
The doubt has been expressed whether packing or not packing affects the status of the marketability of the Roasted Almonds.
Recourse again has to be taken to the explanation to Sec 2(f) of Finance Act,2008,whereby,vendibility test has been codified and modified to mean even deemed marketability.
The taxable event is 'manufacture' and the liability of central excise duty arises as soon as the goods are manufactured. It is a tax on manufacturing, which is paid by a manufacturer, who passes its incidence on to the customers.
Also, in Dharampal Satyapal v. CCEx Supreme Court held that the test of marketability is that the product which is made liable to duty must be marketable in the condition in which it emerges. Here roasted Almonds as it is have a market and packing, though a "manufacture" is only incidental and there is no value-addition to enhance or alter the inherent property of the Roasted Almonds.
Keeping these legal cases and the explanation sec 2(f) of Finance Act,2008.One comes to the conclusion that even if the customers come to collect the Almonds from the premises of the establishments in their own containers, the roasted almonds are subject to excise duty.(As it satisfies the twin-test of Marketability and Manufacture)
This is how your answer should be in the exam.
Hope this helps…
Mythreya
CAclubindia
