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CASE NO.: Appeal (civil)  8595-8596 of 2001

PETITIONER: M/s Amrit Agro Industries Ltd. & Anr

RESPONDENT: Commissioner of Central Excise, Ghaziabad

DATE OF JUDGMENT: 19/03/2007

BENCH: S. H. Kapadia & B. Sudershan Reddy

JUDGMENT: J U D G M E N T With Civil Appeal Nos. 1459-60/2002

KAPADIA, J.

Civil Appeal Nos. 8595-8596/2001:

                These civil appeals are filed by the assessee under  section 35L of the Central Excise Act, 1944 against decision  dated 10.9.2001 passed by CEGAT. The short question which  arises for determination is the classification of ’roasted  peanuts’ and ’moongfali masala mazedar’ under the Schedule  to the Central Excise Tariff Act and consequential demand for  duty of excise.

       The Appellant-assessee manufactures namkeens like aloo  bhujia, chholey masala, roasted peanuts and moongfali masala  mazedar. Appellant claims that all the four items fall under  Heading 21.08 as Namkeen. The Appellant claims that  accordingly all the four items are exempted vide Notification  No. 4/97-C.E. dated 1.3.1997. In that  declaration/classification with effect from 1.3.1997, they  declared all the above items as namkeens. They relied upon  Heading 21.08 which refers to namkeens such as bhujia and  chabena. The Appellant started production of two out of four  items abovementioned, namely, roasted peanuts and moongfali  masala mazedar only in July and September, 1997  respectively. Prior to the above dates, they were in the  business of manufacturing chholey masala and aloo bhujia.

       At this stage, we may clarify that the Department has  accepted the claim of the appellant that chholey masala and  aloo bhujia fell under Heading ’namkeen’ under 21.08. The  appellant has been given exemption benefit accordingly.  Therefore, in the present civil appeals there is no dispute  regarding chholey masala and aloo bhujia.

       It is the case of the Department that roasted peanuts and  moongfali masala mazedar are the two items which do not fall  under Heading 21.08. It is the case of the Department that  Chapter 21 deals with Miscellaneous Edible Preparations. It is  the case of the Department that chholey masala and aloo  bhujia fall under Chapter 21, but not roasted peanuts and  moongfali masala mazedar. According to the Department,  roasted peanuts and moongfali masala mazedar are the two  items which will fall under Heading 20.01 in Chapter 20.  According to the Department, Chapter 20.01 deals with  Preparations of Vegetables, Fruit, Nuts and Other Edible Parts

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of Plants. According to the Department, in the case of roasted  peanuts, the character of a nut remains intact. According to  the Department, in the present case, the assessee applies salt  on the peanuts, thereafter, the assessee roasts peanuts which  are then put in a container. Therefore, according to the  Department, in the process of roasting the character of a nut  remains intact. According to the Department, a roasted peanut  is a preparation from the peanut. Accordingly, the Department  sought to classify roasted peanuts under Heading No. 20.01.

       As regards moongfali masala mazedar, the same test is  sought to be applied by the Department saying that an  essential character of moongfali is not lost even when it is  salted and fried, therefore, according to the Department,  roasted peanuts and moongfali masala mazedar are the items  classifiable under Heading 20.01.

       Having gone through the records and having examined  the process undertaken by the assessee, we are in agreement  with the view expressed by the Tribunal ("CEGAT") regarding  classification of roasted peanuts under Heading 20.01. The  Tribunal had adopted a correct test when it says that the  essential structure of the peanut is not changed by the  process of roasting. The assessee merely applies salt to roasted  peanuts which does not obliterate the essential character.  Moreover, roasting is a process. That process has not been  excluded in Note 1 to Chapter 20. Therefore, roasted peanuts  are covered by Chapter 20. Even according to the Explanatory  notes of HSN under Heading 20.08 ground-nuts, almonds,  peanuts etc. which are dry-roasted, fat-roasted whether or not  containing vegetable oil are the items which all would stand  covered by the said Heading 20.08.

       According to the appellant-assessee, roasted peanuts  would fall under Chapter 21\026Miscellaneous Edible  Preparations. In this connection, reliance is placed by the  appellant on Heading 21.08 which refers to Edible  preparations, not elsewhere specified or included. Learned  counsel in particular also relies upon sub-heading  2108.99 \026  Other. According to the appellant, roasted peanut falls under  Heading 21.01, hence they are entitled to exemption. Learned  counsel for the appellants further submits that in the following  year 1998-99 Chapter Note no. 10 was modified to include  products commonly known as namkeens, mixtures, bhujia,  chabena or by any other name. According to Chapter Note no.  10, such products shall remain classifiable under sub-heading  2108.99 and, therefore, the appellants were entitled to the  benefit of exemption notification. We do not find any merit in  this contention. Firstly, a roasted peanut is not a product  commonly known as namkeen. It cannot be compared to  bhujia. In the case of bhujia, e.g., not only salt but even  masala, salt, gram flour are some of the ingredients which are  used in the preparation of bhujia. Therefore, a roasted peanut  cannot be compared to a bhujia. Similarly, a roasted peanut is  not only known in the market as a bhujia or chabena. In the  circumstances, there is no merit in the contentions raised on  behalf of the appellant-assessee. As stated above, roasted  peanut is also a preparation, however, it is a preparation of  nuts like almonds, peanuts, ground-nuts etc.. They are  products which are prepared or preserved by processes like  roasting. As stated above, roasting is not chilling, it is not  freezing. As stated above, roasting is not one of the  enumerated processes in Chapter Note No. 1 to Chapter 20.  Heading 20.01 specifically refers to preparations of vegetables  fruit, nuts or plants. Sub-heading 2001.90 refers to the word

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’Other’. In the circumstances, we are in agreement with the  view expressed by the Tribunal that roasted peanut falls under  Chapter 20 and not under Chapter 21.

       As regards moongfali masala mazedar, the Department  has adopted the same test to say that even in the case of the  said item the basic character of moongfali is not altered. This  view is erroneous. We have examined the process. In the case  of moongfali masala mazedar, the preparation is very similar  to bhujia. As stated above, even according to the Department  aloo bhujia falls under heading 21.08. In the case of moongfali  masala mazedar, the principle of predominance cannot be  applied, particularly in absence of any Section Note or Chapter  Note propounding the said principle. In this process the  capacity to germinate is obliterated.  Moongfali masala  mazedar is the mixture of material other than the nuts. It is  an oil preparation. It makes use of gram flour (besan). It  undergoes the process of deep frying. When such a process is  applied one cannot apply the principle of predominance. The  only difference between aloo bhujia and moongfali masala  mazedar is that in the former case the namkeen is essentially  made of aloo whereas in the later case it is a namkeen  essentially made from a pulse (dal). Pulse can be chana,  malka, masoor, moong, urad etc.. All these products are only  known as namkeens in the market. In the circumstances, we  are of the view that moongfali masala mazedar falls under  Chapter 21. It falls under Heading 21.01, sub-heading  2108.99 and, therefore, the assessee is entitled to exemption.  

       In the present matter, one of the points which arises for  determination is whether the Department was entitled to  invoke the extended period of limitation. Although, the courts  below have examined the said question, they have lost sight of  an important fact, namely, that at the instance of the  Department, the assessee had filed a revised declaration on  19.11.1997, in the circumstances, the show cause notice  dated 5.5.1998 is within six months, consequently, the  question of extended period does not arise in the present case.

       Accordingly, the appeals are partly allowed with no order  as to costs.

Civil Appeal Nos. 1459-1460/2002         These appeals are a sequel to the appeals decided today  by us being Civil Appeal Nos. 8595-8596/2001.

       In our judgment in Civil Appeal Nos. 8595-8596/2001,  we have held that roasted peanuts unlike moongfali masala  mazedar is a preparation falling under sub-heading 2001.90 of  Chapter 20. To that extent, we have held in favour of the  Department. Consequently, the question which arises in  present Civil Appeal nos. 1459-1460/2002 is whether the  price charged by the assessee, in the facts and circumstances  of the case, has to be considered as cum-duty price.  Essentially these civil appeals are quantum appeals. It is the  case of the Department in the present civil appeals that all  throughout the years the assessee has claimed that roasted  peanuts came under Chapter 21 and, consequently, the said  item stood exempted from payment of duty under above  exemption notification dated 1.3.1997. Therefore, according to  the Department, all these years the assessee had cleared the  goods on the footing that roasted peanuts were exempted.  They have filed the requisite declarations/ classifications on  that basis. According to the Department, since the assessee  had cleared roasted peanuts without payment of duty during

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the relevant years, the quantum of duty is required to be  recomputed. According to the Department, in the normal case  where the assessee does not seek exemption or in cases where  goods are not exempted, the quantum of duty has got to be  recomputed on the basis of "cum-duty price". According to the  Department, the reasoning behind recomputation based on  cum-duty price is that ordinarily the basis for levy of excise  duty is the normal price. That normal price includes the duty  element. Such price is called cum-duty price. Therefore, in  such cases, when the quantum of duty is required to be  recomputed it has to be done on the basis of cum-duty price.  In this connection, the law is well settled as held by this Court  in Commissioner of Central Excise, Delhi  v.  Maruti Udyog  Ltd. reported in 2002 (141) E.L.T. 3. In the said judgment, it  has been held that the sale price realised by the assessee is  the entire price inclusive of excise duty, when the assessee has  by necessary implication, taken on the liability to pay all taxes  on the goods sold and has not sought to realise any some in  addition to the price obtained by it from the buyer. In the said  case, it has been held that when the assessee has charged  cum-duty price, then in arriving at the assessable value of the  goods, the element of duty payable has to be excluded. To this  extent, there is no difficulty. However, in the present case, the  Department contends that there is no question of implication  when throughout the relevant years the assessee has been  clearing the goods on the basis of the exemption notification of  1997, referred to above, which is not applicable to roasted  peanuts, and, therefore, according to the Department, the  above judgment of this Court in the case of Maruti Udyog Ltd.  has no application to the facts of the present case.         On the other hand, it is urged on behalf of the assessee  that the basis for levy of excise duty under section 4(4)(d)(ii) of  Central Excises & Salt Act, 1944 is the wholesale price.  According to the assessee, that price will include the element  of duty payable because such duty forms part of the  consideration for sale of the goods according to the terms and  conditions of sale of such goods and, therefore, whenever a  further demand of duty is created against the assessee and  such further demand of duty cannot be passed on to a  customer in view of the stipulations of the terms and  conditions of sale between the assessee and his customer, the  original consideration (including duty, if any) received by the  assessee for sale in wholesale trade has to be taken as cum- duty price. In this connection, reliance is placed by the  assessee on the judgment of the Tribunal in Srichakra Tyres  Ltd.  v.  Collector of Central Excise, Madras reported in  1999 (108) E.L.T. 361.

       In our view, the above judgments in the case of Maruti  Udyog Ltd. and Srichakra Tyres Ltd. have no application in  the facts of the present case. In the case of Asstt. Collector of  Central Excise  v.  Bata India Ltd. reported in 1996 (84)  E.L.T. 164 this Court held that under section 4(4)(d)(ii) of  Central Excises and Salt Act, 1994 the normal wholesale price  is the cum-duty price which the wholeseller has to pay to the  manufacturer-assessee. The cost of production, estimated  profit and taxes on manufacture and sale of goods are usually  included in the wholesale price. Because the wholesale price is  usually the cum-duty price, the above section 4(4)(d)(ii) lays  down that the "value" will not include duty of excise, sales tax  and other taxes, if any, payable on the goods. It was further  held that if, however, a manufacturer includes in the  wholesale price any amount by way of tax, even when no such  tax is payable, then he is really including something in the  price which is not payable as duty. He is really increasing the

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profit element in another guise and in such a case there  cannot be any question of deduction of duty from the  wholesale price because as a matter of fact, no duty has  actually been included in the wholesale price. It was further  held that the manufacturer has to calculate the value on  which the duty would be payable and it is on that value and  not the cum-duty price that the duty of excise is paid.  Therefore, unless it is shown by the manufacturer that the  price of the goods includes excise duty payable by him, no  question of exclusion of duty element from the price for  determination of value under section 4(4)(d)(ii) will arise.

       In our view, in the facts and circumstances of the case  the judgment of this Court in the case of Bata India Ltd.  (supra) on principle would apply. Therefore, in the present  case, the assessee will have to show as to how he has  determined the value. What the appellant has really done in  the instant case has to be examined. Whether the price  charged by him to his customers contains profit element or  duty element will have to be examined. As stated above, this  examination is warranted because, in the present case, one  cannot go by general implication that the wholesale price  would always mean cum-duty price, particularly when the  assessee had cleared the goods during the relevant years on  the basis of the above exemption notification dated 1.3.1997.

       Accordingly, the appeals are allowed and the matter is  remitted to the adjudicating authority for recomputation of  duty on the principles enumerated hereinabove. There will be  no order as to costs.