UR OPINION NEEDED

CA Amit Kumar (C.A., CWA Final) (251 Points)
Replied 22 January 2010

Dear Bhushan,

Query-1- Rosting of almonds is amount to manufacture, because a new and different product has emerged. in the present case the almonds (after rosting) has been mixed in ice cream which is a new product. Therefore as per sec 2(f) of central excise act rosting of almonds is amount to manufacture.

Query-2- If i u r roasting almonds and dont pack it to make it marketable, This process will not amount to manufacture.

niki_1079 (CA Practice ) (279 Points)
Replied 22 January 2010

Do Roasted Almonds come under 3rd schedule of CEA?

Bhushan (Article) (91 Points)
Replied 22 January 2010

hey ca amit,thanks for giving ur opinion

i hv the following querry to ur answer:

In Querry 1 also im nt packing the roasted almonds to make it maeketeable.It is packed n stored as it is captively consumed on a later date.

and in Querry 2 , Can i escape the levy of excise only by virtue of the fact tht im nt packing it.though im doin the manf and selling it too,the has a separate market of its own.The only thing is that i dont pack it,my customers get their own containers.

reply awaited

Bhushan (Article) (91 Points)
Replied 22 January 2010

@ Niki, well i read it in ch 8 and ch 20 and for further info u can refer the SKB Dry fruit case and phil corporation case

CA.G.Muguntha Narayanan (Internal Auditor at TVS Motors) (2195 Points)
Replied 25 January 2010

Query 1. as rightly said by friends, the activity amounts to manufacture

Query 2. In the definition of Manufacture, there is no line that all manufactured goods must be packed. hence packing is not necessary to make the product marketable. its only an incidental activity for sale. therefore, excise duty has to be paid even if the product is not packed.coz, the product is known to the customer and hence it is marketable

Bhushan (Article) (91 Points)
Replied 25 January 2010

hey Mukund thanks...!!

wht u mean to say is tht in the instinct case ,packing is nt affecting the marketability of my final product(ice cream),it is captively being used and the usage of this product (roasted almond) is giving a distinct identity to final product and thereby making it marketable. hence packing in this case is not a criteria to make my product marketable.

Thanks...i guess it makes some sense.N is justifiable.

CA.G.Muguntha Narayanan (Internal Auditor at TVS Motors) (2195 Points)
Replied 25 January 2010

Its ok. have a great week ahead

Mythreya (Finance IT & Accounting) (2183 Points)
Replied 27 January 2010

Originally posted by : Bhushan
	Can anyone help me out on this one. CASE: Almonds are roasted in ghee and salt and cut into pieces and packed in small bags and kept in freezers.This almond is later on mixed in ice cream to create new flavours.(The roasted almonds are captively consumed) Icecream 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 wearhouse. Querry: Does such roasting amount to manufacturing and eligible for charging excise.? Querry: If i am roasting almonds and i dont 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 nt amt to manufacture.? Kindly reply at earliest. Thanking you in anticipation

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, 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 emnated 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 explantion 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 judgements 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 modfied 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.

Mythreya

Bhushan (Article) (91 Points)
Replied 27 January 2010

@ Mythreya: Thankzz a lot..!! tht ws really appreciable of you to contribute to my querry.

Bhushan (Article) (91 Points)
Replied 28 January 2010

also there is one of my query in audit forum.if u can contribute ,its regarding service charge.

rashmi (article) (59 Points)
Replied 29 January 2010

hiiii again bhushan !!!!!! :) ;) look m not very good at excise....Rather m a lil bad at it only but as far as i know excise becomes chargeable only if the value of goods cleared is 150 lacs or more in the current year and had exceeded 400 lacs in the previous year.....and as much as i can understand from ur discussions the value of almonds consumed is difficult to reach the limit as dey are just sprinkled on the icecream as toppings....but in case dey exceed the specified limit den congratulations !!!!!!! :) ur query is absolutely correct....

Bhushan (Article) (91 Points)
Replied 29 January 2010

well... thanks rashmi :) thats a very humble answer.apreciated. ill check out ...the turnover of "the Co." is well above it...but not for tht product alone..the total turnover is above tht limit. n besides almond is not sold (it is self consumed) so no turnover...so i belive we have nolimits applicable...lets c ill check out provision reguarding captive consumption.

Mythreya (Finance IT & Accounting) (2183 Points)
Replied 29 January 2010

Originally posted by : rashmi
	hiiii again bhushan !!!!!! :) ;) look m not very good at excise....Rather m a lil bad at it only but as far as i know excise becomes chargeable only if the value of goods cleared is 150 lacs or more in the current year and had exceeded 400 lacs in the previous year.....and as much as i can understand from ur discussions the value of almonds consumed is difficult to reach the limit as dey are just sprinkled on the icecream as toppings....but in case dey exceed the specified limit den congratulations !!!!!!! :) ur query is absolutely correct....

Dear Rashmi,

You have raised a good point.I appreciate it very much.Thankyou for pointing it out.

However,the point that you talk of is the Notification No. 8/2003 CE dated 1-3-2003 as amended provides

FULL exemption from payment of duty to the small scale units upto the aggregate

value of clearance of Rs. 150 lakhs in a financial year. The salient features

of the exemption scheme are highlighted as below:

(i) The aggregate value of clearance of all excisable goods cleared for

home consumption by a manufacturer from one or more factories, or

from a factory by one or more manufacturers, does not exceed

Rs.400 lakhs in the preceding financial year.

(ii) The manufacturer should not avail the Cenvat credit of duty paid

on inputs.

(iii) The manufacturer should not utilize the Cenvat credit of duty paid

on capital goods during the period of availment of the said

exemption.

(iv) The exemption is not applicable for specified goods bearing a brand

name or trade name whether registered or not, of another person.

The brand name restriction is, however, not applicable to the

following cases:

Goods cleared as Original Equipments (O.E) or parts of any

machinery/ equipment/appliances cleared for use as O.E.

Goods bearing the brand name or trade name of the Khadi and

Village Industries Commission or a State Khadi and Village

Industry Board or the National Small Industries Corporation or

a State Small Industries Development Corporation or State Small

Industries Corporation.

Ø Goods manufactured in a factory located in rural area (the area

comprised in a village as defined in the land revenue records).

Ø Account books, registers, writing pads and file folders.

--------------

From the above notification points,one can know that

The notification refers to "Aggregate clearances".Moreover the company must be a Small Scale Unit.

From Bhushan's query,the case seems to point elsewhere.

In the exam,if the points which were given earlier are written it is more than enough.Maybe you can mention this minor-part as an assumption and quote this notification,it would do good.(Even then the examiner won't care much because his intent is to test the knowledge regarding captive consumption and not be picky about some rare and extraneous exception).

Also, in the exam if you write,the roasted almonds for home consumption are covered by exemption under this notification,so no need to bother,for a 7 marks or 10 marks question then Im sure, the examiner will not take it in good jest.He expects something more and you have discussed only the exception.The main concept must be tackled.