JUDGMENT
S.L. Peeran, Member (J)
1. This appeal arises from Order-in-Appeal No. 36/98 dated 9.2.98 by which the Commissioner (Appeals) has upheld the Order-in-Original No. 45/97 dated 28.4.97 passed by the Asst. Commissioner of Central Excise, by which he has held that BIB SYRUP is excisable and dutiable product and the same is classifiable under sub-heading 2107.91 despite the fact that the products concentrate and the end product BIB SYRUP fall in the same sub-heading of Central Excise Tariff and it does not effect durability of the product. He has held that the product concentrate, undergoes definite manufacturing process of addition of sugar syrup to enable it to become fit for use in dispensing aerated waters/beverages. The Commissioner (Appeals) has noted that there are several millions of items manufactured all over, and there cannot be a tariff to describe each of the items. He has noted that the limitation of the tariff as such, they may fall under the same tariff heading, but this does not mean that they are not different products as such. He has taken a view that the new product having a distinct name, character and use has emerged in the manufacture of bag-in-box syrup. He has noted that the material bag-in-box syrup is sold in the market for those who have fountain-pepsi. They fit this bag-in-box syrup on to the fountain-pepsi and mixing the same with water aerating produce pepsi which is dispensed. Therefore, he has held that a clear market exists for this product. He has noted that there is a semblance of ready-manufacture in the fountain-pepsi, which attract the buyers, much different from buying a bottle or can of already filled in pepsi. He has held that bag-in-box syrup is a distinctly marketable product despite concentrate of the item in question falling under the same tariff heading.
2. It is the contention of the appellants in terms of written submissions now filed during the course of arguments that they buy duty paid sugar and purify the same by mixing with water and activated carbon. The purified sugar in the form of liquid is then added to the duty paid soft drink concentrate purchased from M/s. Pepsi Foods Ltd. This mixture of sugar and concentrate is called as beverage syrup or syrup. Generally, this syrup is consumed in the manufacture of aerated water within the appellant’s factory. However, some quantity is cleared on sale for use by the ultimate buyer in beverage dispenser (fountain Pepsi). The period in question is June to August 1994. They contend that department claims that the soft drink concentrate and beverage syrup are preparations for beverage. They claim that mere addition of the liquid sugar to the concentrate would not amount to manufacture. In this regard, they reply on the judgment rendered in the case of Jyothi Laboratories Ltd. v CCE, 1994 (50) ECR 36. It is their contention that the beverage syrup is nothing but an intermediary in the manufacture of aerated water whether manufactured in the factory of the appellant or made at the time of dispensing through the vending machine and the essential nature of the goods supplied remains the same namely, preparation for aerated water. It is stated that the product is not a new product with a distinct name, character and use. Hence, there is no manufacture. It is stated that the Commissioner (Appeals) has not appreciated the defence of the appellants and has taken for granted that the mixing of sugar and the concentrate has resulted in the emergence of a new product which is not correct.
3. It is, further, stated that what is received by the appellant is “a preparation for beverage” classified under chapter heading 2107. After addition of sugar it would still remain “a preparation for beverage”, according the department. It is stated that since use remains the same there is no manufacture. If the addition of sugar at the appellant’s factory only brings out the preparation for beverage, then it could not be a preparation for beverage at the time of receipt. However, the product received being a “preparation for beverage” is not at all in dispute. Therefore, it is stated that the preparation for beverage if made into preparation for beverage, it would not amount to manufacture. To hold the item to be manufacture, a “legal fiction”, may be required and section note is required to be added to the section. They submit that a similar note is found in Section XVI and XVII in Note 6 wherein such a legal fiction has been introduced to deem conversion of an article incomplete or unfinished into complete or finished one as amounting to manufacture. It is stated that there is no such Note in Chapter 21. They state that Note 7 defining “manufacture” was introduced only through Finance Bill 1995 on 16.3.1995 and it came into effect only on the passing of the Finance Bill. Therefore, the Commissioner having proceeded on the presumption of manufacture is not correct in the light of Note 7 introduced by Finance Bill 1995. It is stated that there has to be a different taxable commodity and a mere fact that the item falling under the same tariff will not become dutiable. In this regard, the following rulings are relied:
(i) Telengana Steel Industries v. State of A.P., 1994 (73) ELT 513 (SC)
(ii) Mahavir Aluminium Ltd. v. CCE, 2001 (76) ECC 110 (T) : 2001 (131) ELT 657 (T)
4. Further reliance is placed on the following the judgments to argue that mere adding of an item will not bring into existence a new product and that there will be no manufacture:-
(a) CCE v. Densons Engineers, 1991 (33) ECC 46 (T) : 1991 (52) ELT 296
(b) CCE v. Berger Paints India Ltd., 1998 (104) ELT 642
(c) Bata India Ltd. v. CCE, 1994 (73) ELT 167 (T)
(d) Kingwin Universal India v. CCE, 2000 (69) ECC 317 (T) : 2000 (117) ELT 305 (T)
5. It is stated that if the process is held to be manufacture, the beverage syrup can no longer be considered as a preparation for manufacture of beverage but beverage itself. Then it would be classifiable under heading 2202,90 attracting duty at the rate of 10% ad valorem vide Notification No. 2/94. They contend that the classification adopted and the amount of duty demanded is incorrect.
6. It is, further, stated that the Apex Court in the case of Hamdard (Wakf) Laboratories v. CCE, 1999 (66) ECC 14 (SC) : 1999 (113) ELT 20 (SC) and the Tribunal in the case of CCE v Markfed Agro Chemicals, 1994 (50) ECR 417 have also laid down the law as to the distinction between preparation for beverage and beverage itself. It was held by the Apex Court that mixing of the sharbat with water to make it drinkable does not make the beverage a preparation for beverage. They stated that in the case of appellants, beverage syrup has to be just mixed with water and aerated with carbon-di-oxide for consumption by individuals. Mixing with water and aeration with carbon-di-oxide before they are consumed does not take away the beverage syrup from the category of beverage. The consumption through the vending machine is similar to the consumption of various beverages at home with the help of soda maker, Thus, if it is held that in adding sugar syrup to concentrate amounts to manufacture, the beverage syrup sold by the appellants is nothing but beverages and are no longer preparation for beverages as held by the Commissioner (Appeals). Preparation for beverage after alleged manufacture cannot continue to be preparation for beverage.
7. They also contend that important changes were made relating to Chapter 21 in the Budget of 1995. A new explanatory note was inserted in Chapter 21 and the description of heading 27 & 28 were also recast. The explanatory note to chapter 21 introduced in the 1995 budget is as below:
“5. Sub-heading No. 2108.10, inter alia, includes preparations for lemonades or other beverages, consisting, for example, of; flavoured or coloured syrup, syrup flavoured with an added concentrated extract, syrup flavoured with fruit juice and intended for the use in the manufacture of aerated water, such as in automatic vending machines”.
Heading No. 21.08 was also recast to create a new sub-heading as below:
21.08 Edible preparations, not elsewhere specified or included
2108.10-Preparations for Lemonades or other Beverages intended for use in the manufacture of Aerated water.
2108.20……..
8. They contend that prior to the above amendment, the liquid sugar added with concentrate extract and intended for use in the manufacture of aerated waters such as in automatic vending machines would not be classifiable under Chapter 21. It is only after the 1995 budget and following the explanatory notes as above that the beverage syrup has been brought under heading 21.08.
9. Now the ground taken by the appellant is that beverage syrup if held to be manufactured and liable to duty, then the item is classifiable during the period of this appeal under heading 2202,90. They further submit that no notice has been issued for classifying the beverage syrup under heading 2202.90. For change of classification, a fresh show cause notice has to be issued and in such an eventuality the notice (if any to be issued) would be time barred. They rely on the following judgements:
(1) Shantha Industries v. CCE, Coimbatore, 1995(78) ELT 556 (T) maintined by Supreme Court 1998 (99) ELT A142.
(2) Atul Glass Works v. CCE, 1999 (114) ELT 597 (T)
10. They further, contend that appellants have reversed the modvat credit taken on inputs when they were clearing BIB on the ground that it is not excisable. The said credit is, therefore, required to be restored in case it is held that it amounts to manufacture and attracts duty. In this regard, they rely on the judgment rendered in DCM Shriram Industries Ltd. v. CCE, 1999 (114) ELT 862(T). They, further, contend that the sale price should not be taken as assessable value and it should be considered as cum-duty price. The duty alleged to be payable should be abated therefrom in terms of Section 4(4)(d)(ii) of Central Excise Act and in this regard they relied on the following judgments:
(i) CCE v. Maruti Udyog Ltd., 2002 (80) ECC 249 (SC) : 2002 (141) ELT 3 (SC)
(ii) TTK Pharma Ltd. v. CCE, 2003 (151) ELT 175 (T-SRB)
11. We have heard learned Consultant Shri R. Swaminathan and Smt. R. Bhagya Devi, Ld. SDR.
12. We have carefully considered the submissions and have perused the order. It is not in dispute that the item received by the appellant was preparation for beverage. The department contend that on adding sugar syrup, the item continues to be a preparation for beverage falling under the same tariff heading. They contend that a separate product comes into existence and on account of which duty is required to be paid. The point which has not been considered by both the authorities is that what is cleared is beverage on mixing of sugar syrup. Therefore, the contention of the appellant that even if it is considered as a manufactured product, the item is not a preparation for beverage but beverage itself in terms of Apex Court’s judgment rendered in Hamdard (Wakf) Laboratories v. CCE, 1999 (66) ECC 14 (SC) : 1999 (113) ELT 20 (SC) requires reconsideration. The plea of the appellant that there is no chapter note to consider the addition of sugar in the preparation of beverage would bring into existence a different product is a valid point as Note 7 was introduced by the Budget 1995 thereby clearly it indicates that prior to introduction of Note 7 to Chapter 21, such an exercise of adding of sugar syrup did not amount to a process of manufacture. However, as the appellant’s contention that addition of sugar syrup to the preparation of beverage would bring into existence beverage to be classified as “beverage” under that heading has not been clearly noted and the authorities have not applied their mind, therefore, the appellant’s contention is required to be considered besides their claim for abatement of duty and modvat claim. In view of infirmity in the order of the Commissioner (Appeals), the matter requires to be remitted back to the original authority for reconsideration of appellant’s claim in the light of the judgments cited by them and in the light of their submissions. The contention that preparation of beverage continues to remain a preparation of beverage and also that the authorities have accepted their plea and the item falling on the same heading which does not call for confirmation of demand should be reconsidered. In case, if the authorities arrive at the conclusion that the item has undergone a process of manufacture and which has become dutiable, then the appellant’s contention that the item had become beverage and not a preparation for beverage and that no demands have been raised on the item beverage is also required to be considered, besides the plea that they are entitled to claim of modvat credit and abatement. The fact that the item falling under the same heading even after addition of sugar syrup as a preparation of beverage, even if it is as a result of manufacture does not make it a dutiable product requires reconsideration. There has to be a taxable event inasmuch as every process of manufacture will not result in bringing into existence a new product and dutiable product that too without a specific tariff heading. This point is required to be considered by the authorities below in the light of well laid down judgments cited by the appellants.
13. In view of aforesaid observations, the matter is required to be remitted back to the original authority for reconsideration in the light of Apex Court judgment cited supra and the contentions raised. The appeal is allowed by way of remand to the original authority, who shall grant an opportunity of hearing to the appellants and decide the matter de novo expeditiously. Ordered accordingly.