Holding

The process of cutting betel nuts and adding oils/menthol does not create a new product; therefore, it is not "manufacture" and the goods are classified under Chapter 0801.00.

Summary

Mis Crane Betel Nut Powder Works processed betel nuts by crushing them into small pieces and adding essential/non‑essential oils, menthol and sweetening agents. The company sought re‑classification of its product from Chapter 2107 (betel nut powder) to Chapter 0801.00 (betel nut powder known as supari) which carries nil excise duty. The issue was whether such processing amounted to "manufacture" of a new product under Section 2(f) of the Central Excise Act, 1944, thereby attracting duty. The Supreme Court held that the end product retained the character of betel nut, no new distinct commodity was created, and therefore the process did not constitute manufacture. Consequently, the product falls under Sub‑heading 0801.00 and the appeal was allowed, setting aside the Tribunal and High Court orders and restoring the Commissioner’s decision.

Issues considered

Whether crushing betel nuts and adding spices/oils creates a new product distinct from the raw material for excise duty purposes
Whether the process amounts to "manufacture" under Section 2(f) of the Central Excise Act, 1944

Legislation cited

Central Excise Act, 1944s. 2(f), s. 35(b)
Central Excise Rules, 1944s. Rule 1738
Central Excise Tariff Act, 1985

Subjects

central excisemanufactureproduct classificationbetel nut powdersupariexcise dutySection 2(f)tariff sub‑headingtransformation

Judgment

i-

-!
MIS CRANE BETEL NUT POWDER WORKS A
v.
COMMISSIONER OF CUSTOMS & CENTRAL EXCISE, TIRUPATHI
ANDANR.

MARCH 19, 2007
B
[DR. AR. LAKSHMANAN AND ALTAMAS KABIR, JJ.]

Central Excise Act, 1944-s. 2(f)-Process of cutting betel nuts into
small pieces and adding essential/non- essential oils, menthol, sweetening
agent etc.-Held does not result in manufacture of a new and distinct product
c
having a different character and use-End product continues to retain its
original character though in a modified form-Central Excise Tariff Act,
1985-Chapter 8, Sub heading 0801.00.

,I Appellant-company is engaged in the business of marketing betel nuts B
in different sizes after processing them by adding essential/non-essential oils,
.... menthol and sweetening agent.

The question which arouse for consideration in the present appeal is
whether buy crushing betel nuts and processing them with spices and oils, a E
new product could be said to have come into being which attracted duty
separately under the Schedule to the Central Excise Tariff Act, 1985.
"'t·.

Allowing the appeal, the Court

HELD: 1.1. The process of manufacture employed by the appellant F
company did not change the nature of the end product, which in the words of
the Tribunal, was that in the end product the 'betel nut remains a betel nut'
The said observation of the Tribunal depicts the status of the product prior to
manufacture and thereafter. The observation 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 manipulations opposite to the situation (j}
at hand. The process involved in the manufacture of sweetened betel nut pieces
does not result in the manufacture of a new product as the end product
continues to retain its original character though in a modified form.
(Para 31 I
109 H
'
-+-
110 SUPREME COURT REPORTS {2007] 4 S.C.R.

A 1.2. The Commissioner of Customs-and Central Exdse (Appeals) has
correctly analysed the factual as well as the legal situation in arriving at the
conclusion that the process of cutting betel nuts .into s~all pieces and addition
of essential/non-essential oils, menthol, sweetening agent etc. did not result
in a new and distinct product' having a different character and use.
(Para 32) fl 18-FJ
B
OK. Play (India) Ltd. v. Commissioner a/Central Excise-I/, New Delhi,
(20051 2 sec 555, disting,.ished.

Union ofIndia v. Delhi Cloth & General Mills, (1963) Supp. .I SCR 586,
C followed.

Deputy Commissioner of Sales Tax (law), Board of Revenue (Taxes),
Ernakulam v. Mis PIO Food Packers, (1980) Supp. SCC 174; Shyam Oil Cake
Ltd v. Collector of Central Excise, Jaij:Jur, (2005) I SCC 264; Aman Marble
Industries (P) Ltd v. Collector a/Central Excise, Jaipur, (200S)lSCC279;
D Kores India Ltd Chennai v. Commissioner ofCentral Excise, Chennai, (2005)
I SCC 385 and Brakes India Ltd v. Superintendent of Central Excise And
Ors., (1997) 10 SCC 717, referred to.

Anheuser-busch Brewing Associatio_n v. United States, 52 L.ED.336-
E 338, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1453 of2007.

From the Final Judgment and Order dated 15.09.2005 of the High Court
of Judicature, Andhra Pradesh at Hyderabad in C.EA. No. 20 of2005.
F ·WITH

Civil Appeal No. 6659 of2005.

Soli Sorabjee, S. Chandra Shekhar, Ardhendumauli Prasad and Madhu
Sharan for the Appellant.
G
B. Dutta, A.S.G., R.G. Padia, T.A. Khan and B. Krishna Prasad for the
Respondents.

\·
The Judgment of the Court was delivered by

H ALTAMAS KABIR, J. I. Leave granted.
CRANE BETEL NUT POWDER WORKS"· COMMNR. OF CUSTOMS & CENTRAL EXCISE. TRIPUATHI IALTAMAS KABIR. J.1111

2. The appellant-company is engaged in the business of marketing betel A
nuts in different sizes after processing them by adding essential/non-essential
oils, menthol, sweetening agent etc. Initially, the appellant cleared the goods
under Chapter Sub-heading 2107 of the Central Excise Tariff and was paying
duty accordingly. However, the appellant filed a revised classification
declaration under Rule 1738 of the Central Excise Rules, 1944, with effect from B
17th July, 1997, claiming classification of its product under Chapter Sub-
heading 0801.00 of the Central Excise Tariff. It was contended that the crushing
of betel nuts into smaller pieces with the help of machines and passing them
through different sizes of sieves to obtain goods of different sizes/grades and
sweetening the cut pieces did not amount to manufacture in view of the fact
that mere crushing of betel nuts into smaller pieces did not bring into existence C
a different commodity which had a distinct character of its own.

3. The Assistant Collector of Central Excise, Guntur Division, who was
the Adjudicating Authority, did not accept the contention of the appellant
upon holding that the product manufactured· by the assessee, namely, betel D
nut powder, was a preparation containing betel nut with other permitted
ingredients which was a new product commercially known to the market with
...
distinct name and character. On his said finding, the Adjudicating Authority
rejected the claim of the appellant-company and held that the appellant's
product had been rightly classified under Chapter Heading 2107 .00 and the
appellant was liable to pay duty at the appropriate rate specified in the E
chapter to the Central Excise Tariff Act, 1985.

4. The appellant-company went up in appeal against the said order of
the Adjudicating Authority to the Commissioner of Customs and Central
Excise, (Appeals) and the same was decided in favour of the appellant-
company. F

5. After considering the submissions made on behalf of the respective
parties, the Commissioner came to the conclusion that the proce·ss of cutting
betel nuts into small pieces and the addition of essential/non-essential oils,
menthol, sweetening agent etc. does not result in a new and distinct product G
having a different character being formed. Accordingly, there was no
"manufacture" involved therein and even according to Note 7 of Chapter 21
of the Tariff, there was no "manufacture" involved in the production of the
impugned goods. The Commissioner further held that the item "betel nut
powder/supari" finding a place/mentioned in the tariff is of no consequence
unless the product was the result of manufacture or production, which is not H
112 SUPREME COURT REPORTS [2007) 4 S.C.R.

A so in the instant case.

6. The Commissioner accordingly allowed the appeal filed by the
appellant herein and set aside the order passed by the Assistant Commissioner
of Central Excise, Guntur Division, with consequential relief to the appellant-
B company.

7. Aggrieved by the order of the Commissioner, the Revenue went up
in appeal to the Customs, Excise and Service Tax Appellate Tribunal, South
Zonal Bench at Bangalore (for short 'the Tribunal') by way of Appeal No.
E.734/2004.
c 8. The Tribunal took a different view and reversed the order of the
Commissioner upon holding that the end product of the process involved in
the preparation of the appellant's product was different from the original
material. According to the Tribunal, a new and distinct product known as
"supari powder" had emerged. The Tribunal went on to observe as follows:-
D
"When subjecting raw material to process of manufacture, it is not
necessary.-that there should be a sort of transmutation. Definitely, the
'supari powder' will have the characteristics of 'betel nut'. We cannot
say that there is no manufacture for the reason that the 'betel nut'
remains as 'betel nut'. It may remain so but when other ingredients
E·
added to it how can we say these processes do not bring into
existence a new and distinct cominodity? Ifwe ask for betel nut, the
shopkeeper will not give supari powder. In other words, the betel nut
is. different from the supari powder."

p The Tribunal accordingly allowed the appeal filed by the Revenue and set
aside the order passed by the Commissioner on 6th May, 2004.

9. The appellant went up in appeal before the High Court of Andhra
Pradesh under Section 35 (B) of the Central Excise Act, 1944 against t~e said
order of the Tribunal dated 12th April, 2005. The High Court confinned the
G view taken by the Tribunal and after taking into -consideration the' process
involved in converting the whole betel nuts into sweetened betel nut pieces,
the High Court dismissed the appeal and chose not to interfere with the order
passed by the Tribunal.

IO:This appeal has been filed by the assessee-company impugning the
H
''.
CRANE BETEL NUT POWDER WORKS v. COMMNR. OF CUSTOMS .t CENTRAL EXCISE. TRIPUATHI !ALTAMAS KABIR. J.t 113
•
I

· ·decision of the High Court dated 15th September, 2005. A
11. Appearing for the assesee-company, Mr. Soli J. Sorabjee, learned
senior advocate, contended that crushing of betel nuts into smaller pieces
and sweetening the same with essential/non-essential oils, menthol and
sweetening agents did not result in the manufacture of a new product and
as observed by the Tribunal, the end product remained a betel nut. Mr. B
.Sorabjee submitted that once such a conclusion was arrived at, it could no
longer be· contended that a new product had come into existence.
,,,,,
12. Referring to Chapter 8 of the Central Excise Tariff Act, 1985, Mr.
Sorabjee submitted that the product of the appellant-company fell squarely c
under the said Chapter Sub-heading 0801.00 for which the rate of duty was
nil. He then referred to Note 4 of Chapter 21 which reads as follows:-

CHAPTER 2 I MISCELLANEOUS EDIBLE PREPARATIONS NOTES

"4. In this Chapter "Betel nut powder known as supari" means any D
preparation containing betel nuts but not containing any one or more
of the following ingredients, namely lime, katha (catechu) and tobacco,
whether or not containing any other ingredients, such as cardamom,
copra and menthol."

13. Referring to the Chapter Notes on Chapter 8, Mr. Sorabjee pointed E
out that fruits and nuts included under the chapter could be whole, sliced,
chopped, shredded, stoned, pulped, grated, peeled or shelled. It was pointed
out that under Heading No. 08.02 in which other nuts are described, it has
been specifically mentioned that the said heading also covers areca (betel)
nuts used chiefly as a masticatory.
F
14. Mr. Sorabjee urged that the process involving manufacture did not
always result in the creation of a new product. In the instant case
notwithstanding the manufacturing process, it could not be said that a

. transformation had taken place resulting in the formation of a new product.

15. In support of his aforesaid contention, Mr. Sorabjee firstly referred
G

to a Constitution Bench judgment of this Court in the case of Union of India
..)
v. Delhi Cloth & General Mills, reported in [1963] Supp. l SCR 586, where
the change in the character of raw oil after being refined fell for consideration.
While considering the submission made that "manufacture" is complete as
H
114 SUPREME COURT REPORTS [2007] 4 S.C.R.

A soon as by the application of one or more processes, the raw material
undergoes some change, the Constitution Bench observed that the word
"manufacture" used as a verb is generally understood to mean as bringing
into existence a new substance and does not mean merely to produce some
change in a substance. In dealing with the subject, their Lordships had
B occasion to refer to an extract from an American judgment in the case of
Anheuser-Busch Brewing Association v. United States, 52 L.Ed. 336-338,
which reads 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
c and manipulation. But something more is necessary and there must be
transformation; a new and different article must emerge having a
distinctive name, character or use."

16. Mr. Sorabjee submitted that the aforesaid principle had been
subsequently followed by this Court in several cases and in that regard he
D referred to the decision of this Court in the case of Deputy Commissioner of
Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Mis. PIO Food
Packers, reported in [ 1980] Supp. SCC 174, where the same sentiments were
expressed in the matter of processing raw pineapple slices into canned slices
for better marketing. This Court held that when the pineapple fruit is processed
E into pineapple slices for the purpose of being sold in sealed cans, there is
no consumption of the original pineapple fruit for the purpose of manufacture.

17. Similar views have been expressed by this Court in the case of
Shyam Oil Cake Ltd v. Collector of Central Excise, Jaipur, reported in [2005]
I SCC 264, and in the case of Aman Marble Industries (P) Ltd v. Collector
F of Central Excise, Jaipur, reported in [2005] I sec 279. While the first case
involve the classification of refined edible oil after refining, the second case
referred to the cutting of marble blocks into marble slabs. In the first of the
said two cases, it was held that the process of refining ofraw edible vegetable
oil did not amount to manufacture. Similarly, the cutting of marble blocks into
G smaller pieces was also held not to be a process of manufacture for the reason
that no new and distinct commercial product came into existence as the end
product still remained the same and thus its original identity continued.

18. Mr. Sorabjee referred to the definition of the expression "manufacture"
in Section 2 ( t) of the Central Excise Act, 1944, wherein "manufacture" has
H
--1-
CRANE BETEL NUT POWDER WORKS,._ COMMNR. OF CUSTOMS & CENTRAL EXCISE. TRIPUATHI fALTAMAS KABIR. J.fl 15
~-

been defined to include any process A
(i) incidental or ancillary to the completion of a manufactured product;

(ii) which is specified in relation to any goods in the section or
Chapter notes of The First Schedule to the Central Excise Tariff
Act, 1985 (5 of 1986) as amounting to manufacture; or B
(iii) which in relation to the goods specified in the Third Schedule,
involves packing or repacking of such goods in a unit container
or labelling or re-labelling of containers including the declaration
or alteration of retail sale price on it or adoption of any other C
treatment on the goods to render the product marketable to the
consumer;

And the word "manufacture" shall be construed accordingly and shall ·
include not only a person who employs hired labour in the production
or manufacture of excisable goods, but also any person who engages D
in their production or manufacture on his own account;"

19. Mr. Sorabjee pointed out from the above that "manufacture" had to
be incidental or ancillary to the completion of a manufactured product. In the
instant case, the product continued to be pieces of betel nut and hence it
would not come within the definition of "manufacture" as used in the Central E
Excise Act, 1944.

20. Mr. Sorabjee urged that although initially the appellants' product
had been classified under Chapter Heading 2107.00, after subsequent
reconsideration of the matter, it was found to fall squarely under Chapter Sub- F
heading 0801.00 referred to in Chapter 8 of the Central Excise Tariff Act, 1985
/ and an application was accordingly made to the Assistant Collector of Central
Excise, Guntur for re-determination.

21. Mr. Sorabjee submitted that while the Commissioner of Customs and
Central Excise (Appeals) had correctly decided the matter, both the Tribunal O
as also the High Court took an erroneous view that on account of processing
of the betel nuts a new and distinct product had emerged, thereby attracting
_J
tax payable in respect of products classified under Chapter Heading 2107.00.
Mr. Sorabjee submitted that the orders passed by the High Court as also the
Tribunal were required to be set aside and that of the Commissioner of H
116 SUPREME COURT REPORTS [2007] 4 S.C.R.
" ;.--
A Customs and Central Excise (Appeals) was liable to be restored.

22. Appearing for the Revenue, Mr. B. Datta, learned Addi. Solicitor
General, reiterated the stand taken by the Department before the Tribunal as
also the High Court. He reiterated that the very process of crushing the betel
nuts into different gradable sizes and adding certain ingredients to the same
B resulted in the manufacture of a new product which attracted Chapter Sub-
heading 2107.00 of the Tariff instead of Sub-heading No.0801.00 of the Schedule I,-

to the Central Excise Tariff Act, 1985.

23. Dr. R.G. Padia, learned senior advocate, who also appeared for the
c respondents in the other appeal (Civil Appeal No.6659/2005) submitted that
neither the Tribunal nor the High Court had committed any error in holding
that a new product emerged after the manufacturing process resorted to by
the assessee which substantially altered the character of the original product.
It was submitted that though it was true that betel nut remained betel nut
even in the final product, the same did not retain its original character and
D was converted into a product where one of the components was betel net or
supari. Distinguishing the view taken by the Constitution Bench in the Delhi
Cloth and General Mills Ltd (supra), Dr. }>adia contended that while in the \.

said case no new product had emerged and only raw oil had been subjected
to processing which could not be equated with manufacture, in the instant
E case, the raw material itself, which was otherwise inedible, underwent a
change and was transformed into a product which was edible with the addition
of essential/non-essential oils, menthol, sweetening agents etc. resulting in
the manuf~cture of a completely new product which was different from the
original raw material.
F
24. Dr. Padia also referred to Section 2 (f) of the Central Excise Act, 1944 ~

and submitted that the definition of the expression "manufacture" squarely
covered the process involved in the conversion of raw betel nut into sweetened
betel nut powder and/or pieces.

G 25. In support of his aforesaid contention, Dr. Padia referred to a decision
of this Court in O.K. Play (India) Ltd v. Commissioner of Central Excise-
II,~ New Delhi, reported in [2005] 2 SCC 555, where the expression "manufacture"
had been considered in the process of conversion of low density polyethylene \--
(LDPE) and high density polyethylene (HOPE) granules into moulding powder
for using the same as inputs to manufacture plastic water-storage tanks and
H
CRANE BETEL NUT POWDER WORKS"- COMMNR. OF CUSTOMS It CENTRAL EXCISE. TRIPUATHI !AL TAMAS KABIR. J.1117

-I
toys. It was held that such processing amounted to "manufacture" within A
Section 2 (f) of the Central Excise Act, 1944. It was also held that such
moulding powder is a marketable commodity and is, therefore, excisable under
Section 2 (d) of the aforesaid Act. Dr. Padia referred to paragraph 11 of the
said judgment which refers to the two clauses contained in Section 2 (f) of
the 1944 Act and instead of setting out the activities in respect of different
B
tariff items, Sub-clause (ii) simply states that any process, which is specified
in Section/Chapter Notes of the Schedule to the Tariff Act, shall amount to
"manufacture". It was also held that under Sub-clause (ii), the Legislature
intended to levy excise duty on activities that do not result in any new
r
commodity. In other words, if a process is declared to be "manufacture" in,
the Section or Chapter Notes, it would come within the definition of c
"manufacture" under Section 2 (f) and such process would become liable to
excise duty .
.-
26. Dr. Padia then referred to the decision of this Court in Kores India
Ltd., Chennai v. Commissioner of Central Excise, Chennai, reported in [2005]' D
1 sec 385, which involved the cutting of duty-paid typewriter/telex ribbons'
in jumbo rolls into standard predetermined lengths. It was held that such ,
cutting brought into existence a commercial product having distinct name,
character and use and that both the Commissioner of Central Excise and the
Tribunal had rightly held that the same amounted to "manufacture" and
E
attracted the liability to duty.

27. The next decision referred to by Dr. Padia was that this Court in
Brakes India Ltd. v. Superintendent of Central Excise And Ors., reported in
[1997] 10 sec 717, where the process of drilling, trimming and chamfering was
said to amount to "manufacture" within the meaning of Section 2 (f) of the F
1944 Act. While deciding the matter, this Court quoted the observations of '
; the High Court as under:-

"If by a process, a change is effected in a product, which was not
there previously , and which change facilitates the utility of the
G
product for which it is meant, then the process is not a simple process,
but a process incidental or ancillary to the completion of a manufactured
product."
_)
28. Dr. Padia also referred to the various judgments of the Tribunal in
support of his aforesaid contention which merely repeat what has been H
118 SUPREME COURT REPORTS [2007] 4 S.C.R.

A explained in the decisions of this Court cited by him.
29. Dr. Padia concluded on the note that both the Tribunal and the High
Court had correctly held that the appellant was engaged in the manufacture
of a new product from betel nuts and the same had been correctly classified
B under Chapter Sub-heading 2107.00 and was liable to duty at the appropriate
rate specified in the Schedule to the Tariff Act.

30. Despite the elaborate submissions made on behalf of the respective ,,._

parties, the issue involved in this appeal boils down to the question as to
'I
whether by crushing betel nuts and processing them with spices and oils, a
c new product could be said to have come into being which attracted duty
separately under the Schedule to the Tariff Act.

31. In our view, the process of manufacture employed by the appellant- -.
company did not change the nature of the end product, which in the words
of the Tribunal, was that in the end product the 'betel nut remains a betel
D
nut'. The said observation of the Tribunal depicts the status of the product
prior to manufacture and thereafter. In those circumstances, the views expressed
in the D.C.M General Mills Ltd (supra) and the passage from the American
Judgment (supra) become meaningful. The observation that manufacture implies
a change , but every change is not manufacture and yet every change of an
E article is the result of treatment, labour and manipulation is apposite to the
situation at hand. The process involved in the manufacture of sweetened
betel nut pieces does not result in the manufacture of a new product as the
end product continues to retain its original character though in a modified
form.
F
32. In our view, the Commissioner of Customs and Central Excise
(Appeals) has correctly analysed the factual as well as the legal situation in
arriving at the conclusion that the process of cutting betel nuts into small
pieces and addition of essential/non-essential oils, menthol, sweetening agent
etc. did not result in a new and distinct product having a different character
G and use.

33. The decision of this Court in the case of O.K. Play (India) Ltd
(supra), relied on by Dr. Padia, does not also help his submission that any
~
form of manufacture would attract payment of excise duty, since the said
H decision was dealing with Note 6 to Chapter 39 of the 1985 Act where the
CRANE BETEL NUT POWDER WORKS>. fOMMNR. OF CUSTOMS & CENTRAL EXCISE. TRIPUATHI IALTAMAS KABIR. J 11J9

expression "manufacture" has been categorically included, whereas in the A
instant case, Note 4 of Chapter 21 which deals with Betel Nut Powder, does
not do so.

34. In the circumstances, we allow the appeal and set aside the orders
passed by the High Court dated 15th September, 2005 and the Tribunal dated
12th April, 2005, respectively, and restore that of the Commissioner of Customs B
and Central Excise dated 6th May, 2004.

35. The decision in this appeal will govern Civil Appeal No.6659/2005
as the facts of which are similar to those of the present appeal.

36. There will be no order as to costs.
c
B.B.B. Appeal allowed.