[Order per : T.K. Jayaraman, Member (T)]. - The appellants have filed misc. applications No. E/729 & 730/2004 for modification of this Bench’s Interim Order Nos. 838 & 839/2004, dated 10-8-2004. They have filed one more misc. application No. E/Misc/851/2004 for filing additional grounds in respect of the appeals No. E/590, 591/2004. They have also filed a Stay application No. E/st/633/2004 in E/1051/2004 for stay of the O-I-O No. 06/2004, dated 12-7-2004 of the Commissioner of Central Excise, Bangalore.
2. Shri Habibullah Badsha, Sr. Advocate a/w Shri C. Manishankhar and Shri Jai Kumar, Advocates appeared on behalf of the appellants and Smt. Shobha L. Chary, learned JCDR appeared on behalf of the Department.
3. This Tribunal passed an Interim Order Nos. 838 & 839/2004, dated 10-8-2004 wherein the appellants were directed to pre-deposit a sum of Rs. 25,00,00,000/- within a period of 4 months. However, they have come before this Tribunal for modification of the Stay Order on the following grounds:
(i) The Tribunal has not considered a very important question raised that the sale proceeds of the Contract Bottling Unit (C.B.U.) were not entirely passed on to the appellants.
(ii) The Tribunal failed to note that the finished goods viz. Potable Alcohol (IMFL) is not liable to Central Excise Duty. Hence, any sale proceeds shunted from the sale of such product, a part of which is paid to the appellant as Royalty cannot be deemed to be the price of the flavour sold to the C.B.U.
(iii) The Commissioner, while adjudicating the case, has failed to take into consideration the letters given by the appellants on 18-2-2000 and 4-9-2001 clearly setting out that the process of mixing duty paid flavours will not amount to manufacture because it does not satisfy the norms laid down in the Apex Court judgment rendered in the case of Union of India v. Delhi Cloth & General Mills Ltd. - 1997 (1) E.L.T. (J 199) (S.C.). The Commissioner of Central Excise (Hyderabad-III) Commissionerate, in his OIO, dated 22-9-2003 has clearly held that the mixing of duty paid food flavours will not result in emergence of a new product and that the resultant essence which comes into existence in the premises of M/s. Shaw Wallace Co. does not answer the test of marketability and hence, they are outside the purview of Central Excise levy. Since the above decision has not been stayed or set aside, the learned Advocate prayed for waiver of pre-deposit of Rs. 25 crores and to hear the appeal on merits at an early date. It was also urged that if the appellants were directed to pre-deposit a huge sum of Rs. 25 crores, their business would come to a stand still.
(iv) Our attention was also invited to Board’s Circular No. 247/81/96-CX., dated 3-10-1996 wherein the Department has issued a Circular to the effect that mixing duty paid paints to obtain a paint of different shade shall not amount to manufacture. It was argued that this Circular is squarely applicable to their case where only different flavours are mixed.
4. The Departmental representative urged that at this stage, the appellants cannot introduce additional grounds of excisability of the product supplied to the CBUs. She said that the question of excisability was decided by the then Commissioner in his Order in the year 1985 and the appellants did not protest. Hence, the excisability of the product should not be a consideration at this stage. She also said that while passing the Stay order, all the facts were taken into consideration and there is no new development warranting the modification of the Stay order. However, she said that the adjudication order has followed the ratio of Pepsi Foods Ltd. v. CCE, Chandigarh - (S.C.) case decided by the Hon’ble Supreme Court. Since the facts are similar, the ratio of the Pepsi Foods Ltd. case is squarely applicable to the present case.
5. The learned Counsel submitted that, the appellants not only supplied food flavours to the C.B.Us, but also certain blending materials. The percentage of food flavour essence is very very low and the royalty received cannot be attributed to the food flavour essence supplied to the C.B.Us. Moreover, the C.B.Us. manufacture certain products, which do not use the food flavours, and in respect of these products also, the Royalty is received by the appellants. Hence, the entire royalty received cannot be attributed to the sale of food flavours to the C.B.Us. Though these factors were placed before the adjudicating authority, she has not given any finding on them. The Pepsi Foods Ltd. case is distinguishable because in that case only one item i.e. ‘concentrate’ is involved whereas in the present case, a number of blending materials are also supplied apart from food flavours. In respect of supplies of food flavour to M/s. Herbertson Ltd., the appellants pay royalty to them for using their brand name. It was urged that the Royalty is given to them mainly for use of their brand name by C.B.Us. The learned Counsel took us through the various clauses of the Agreement and emphasized that the royalty payment is not linked to the sale of the food flavours. In the Pepsi Food case, the concentrates as well as the finished products were excisable whereas in the present case, the food flavours as well as the IMFL are not subject to Central Excise Duty.
6. On a very careful consideration of the entire issue, we find that the mixing of food flavours does not amount to manufacture and, therefore, prima facie, the contention of the appellant that what they supplied to C.B.Us. is not excisable duty appears to be correct. Moreover, the decision in M/s. Shah Wallace & Company Limited case by the Commissioner, Hyderabad (in OIO No. 45/2003, dated 22-9-2003), is also in their favour. It is also a fact that there is no evidence to show that the royalty is received only for the supply to food flavours. The Pepsi Food case is also distinguishable in view of the fact that the finished product IMFL is not excisable. Under these circumstances, the earlier Interim Order is modified and we grant full waiver of the pre-deposit in respect of the duties demanded in OIOs 2/2004, dated 27-2-2004 and 6/2004, dated 12-7-2004 passed by the Commissioner of Central Excise, Bangalore. This disposes of the misc. application Nos. E/Misc/729 & 730/04 for modifiation of Interim Order Nos. 838 & 839/2004, dated 10-8-2004 and the stay application No. 633/2004 filed by the applicant.
7. As regards the additional grounds, the appellants have already filed appeals in E/590, 591/04 against the OIOs passed by the Commissioner of Central Excise, Bangalore-III Commissionerate. However, in this application, they have filed the following additional grounds. It was urged that no prejudice will be caused by laying the additional grounds because these pertain to the question of law. The Counsel relied on the Supreme Court decision in the case of National Thermal Power Co. Ltd. v. Commissioner Of Income Tax - (S.C.) wherein the Apex Court has observed as follows :
“The reframed question, therefore, is answered in the affirmative, i.e. the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits”.
8. The Tribunal, in the case of CCE v. Madura Coats Ltd. - allowed the additional grounds regarding the question whether impugned process amounts to manufacture or not to be raised at the appellate stage. This decision was upheld by the Apex Court as reported in (S.C.). Before duty is demanded on a product, it should be proved that the product is excisable which includes two ingredients viz. ‘manufacture’ and ‘marketability’. In the instant case, both the ingredients are absent. The learned Counsel relied on a plethora of cases to show that the simple procedure of mixing two substances cannot amount to manufacture. He also relied on the recent decisions of the Commissioner of Hyderabad in Shaw Wallace case wherein the same issue has been decided in favour of the party. The learned departmental representative vehemently opposed the introduction of additional grounds especially when the appellants did not agitate against the excisability when it was decided against them in 1985. She also relied on the following case laws :
(i) Warner Hindustan Ltd. v. CCE, Hyderabad - (S.C.).
(ii) Hindustan Polymers Co. Ltd. v. CCE, Guntur - (S.C.).
9. On a careful consideration of the matter, we feel that the entire issue depends on the question of excisability of the food flavour. If it is held that it is not excisable, then no duty can be demanded. Hence, any decision ignoring the excisability of the product would not be sound in law. Under these circumstances, we allow the additional grounds of appeal. This disposes of the misc. application No. E/Misc/851/2004 for filing additional grounds.
10. Since the revenue involved is huge, both the cases may be posted for hearing on 14th March, 2005.