[Order per : T.K. Jayaraman, Member (T)]. - These appeals have been filed against the following orders which are given in the tabular column.
| Appeal No. | OIO/OIA | Duty | Education Cess | Penalty | Fine |
| E/71/ 2007 | OIO No. 8/2006 dt. 1-12-2006 | Rs. 1,75,34,808/- | Rs. 95,406/- | Rs. 1,76,30,214/- | Rs. 3,000/- |
| E/888/2007 | OIA No. 39 & 40 dt. 31-8-2007 | Rs. 19,98,332/- | Rs. 39,967/- | Rs. 10,000/- | Nil |
| E/891/2007 | Rs. 15,39,053/- | Rs. 30,781/- | Rs. 15,000/- | Nil |
2. Shri K.S. Ravi Shankar and R. Dakshina Murthy, learned advocates appeared on behalf of the appellants. Shri K. Sambi Reddi, learned departmental representative appeared on behalf of the Revenue. He argued forcefully referring extensively to HSN Notes.
3. We heard both sides. The issue involved in all these appeals is the correct classification of a product called ‘Poha’. The appellants classify them either in Chapter 10 failing which under Chapter 11 of the Central Excise Tariff, whereas, the department is of the view that it would be classifiable under Chapter 19. In that case, it would attract levy of duty. This is the main dispute. The department is of the view that the item would be covered under Chapter 19 : “preparations of cereals, flour, starch or milk; pastrycooks’ products, etc.”, if the item is classified under Chapter 19, then it would be liable to duty. This is the main contention of the Revenue. The learned SDR referred our attention to HSN 19.04 which reads as follows :
| 19.04 | - | Prepared foods obtained by the swelling or roasting of cereals or cereal products (For Example, corn flakes); cereals other than maize (corn) in grain form or in the form of flakes or other worked grains (except flour, groats and meal), pre-cooked or otherwise prepared, not elsewhere specified or included. |
Whereas, the appellant states that if these items are to be treated as rice, it would be covered under Chapter 10 or they would be covered under Chapter 11.06.
3.1 The learned SDR invited our attention to the manufacturing process of the impugned item. The impugned item is known as “Poha”. Its manufacturing process is as follows :
The process adopted for the manufacture of Poha/Avalakki by the appellants are as follows :
• First raw paddy is procured which contains high moisture and impurities.
• It is cleaned and then soaked in water for about 3 to 5 hours.
• Then the water is drained and the paddy is kept in heaps for 2 to 3 hours for brining about equal moisture.
• Later on it is heated in the electrical rotating drums using sand medium preheated to about 130 degree Celsius.
• This process brings softness to the paddy.
• Then the paddy is fed into the edge runner having two rollers for pressing which results in rice flakes or beaten rice or poha etc.
• It is then sieved for separating the flakes from the broken rice and husk.
• Subsequently, the hot rice flakes/poha are kept for natural cooling.
• The cooled poha/rice flakes are packed in 500 Gm and 1 kg unit containers (Polythylene bags) and jute gunny bags of 5 kg, 10 kg, 30 kg and 60 kg.
3.2 Further, the learned SDR stated that the Poha is a manufactured product and it answers the description of Chapter 1904, the description of which is already given above. He said that the Commissioner has elaborately discussed and stated that these items are nothing but precooked preparations and they would certainly answer the description of 19.04. The learned departmental representative took great pains to show that avalakki or poha would answer the description in 19.04. It was also emphasized that this should be considered as a ready to eat food because it can be just mixed with milk or jaggery and consumed. He also relied on certain websites to show that it can be just taken along with jaggery or milk and consumed. In that sense, it was strongly urged that the impugned items should be considered as prepared food. It was also argued that they are packed in unit containers, therefore, they would be perfectly classifiable under Chapter 19.
3.3 Further, the learned SDR referred to the decision of the Tribunal in the case of M/s. Favourite Food Products v. CCE, Rajkot - wherein it has been categorically held that Poha whether of Rice, Maize or Wheat merit classification under Heading 19.04 of the Central Excise Tariff. In view of the above finding, the learned Adjudicating Authority had confirmed the demand. There was also an issue of clubbing of the clearances of other two units, on account of that the SSI benefit was also denied. Thus, the duty was confirmed in the Orders passed by the Commissioner. Similarly, the lower authorities confirmed the demand for different periods and they have been upheld by the Commissioner (A), which are also impugned. Since all impugned orders deal with the samo issue, we are taking them up together for common order.
4. The learned advocate stated that the Adjudicating Authority has not properly applied the provisions of law to the impugned product. According to the learned advocate, the impugned product is only one form of rice. For this, they relied on certain decisions of the Supreme Court and some other judicial decisions. It was also pointed out that the case-law relied on by the Commissioner has been overruled by the Larger Bench decision in the Mahavir Food Products & Ors. v. CCE, Vadodara and vice versa - (Tri.-LB) wherein it is held that harmonious construction of the two Headings 19.04 and 11.04 shows that if flakes processed to an extent covered under Heading 11.04 namely stage of steam heated or rolled between heated rollers would fall under the said heading and if processed beyond so as to make them prepared foods would fall under Heading 19.04. It was held that the product in question ‘makkai poha’ was classifiable only under Heading 11.01 and not under Chapter 19. In this case, the decision of the Favourite Food Products (supra) case has also been overruled. It was also brought to our notice that the department had not gone in appeal against the Larger Bench decision in the case of Mahavir Food Products (supra) and the same has been accepted.
4.1 The learned advocate pointed out that after referring to the relevant Chapter Note 19.04 and stated that 19.04 would not be applicable because in the preparation of poha no cooking is involved. It was strongly emphasized that mere heating of the paddy cannot be equated with a cooking. But in the Favourite Food Products case (supra), the Adjudicating Authority himself has accepted that there was cooking in pressure cooker but that is not the case in these present appeals. Therefore, the facts of the Favourite Food Products case (supra) can be distinguished.
4.2 Further, the learned advocate relied on the decisions in the case of Commissioner of Commercial Tax, Indore & Other v. TTK Healthcare Ltd. - 2007 (7) VST 1 (SC) wherein it has been held that process of frying and addition of preservatives to be applied before ‘fryums’ become consumable. Fryums cannot be considered as cooked food. Even the High Court held that fryums to be cooked food but the Hon’ble Apex Court reversed the decision on the ground that fryums were not cooked food and they were undercooked items which could not be consumed directly. It was strongly emphasized that avalakki or poha has to be further cooked before it can be taken. It may be edible but it cannot be considered as cooked food. It was also emphasized that the classification of the item is one of the interpretation of the statute and there is no justification in invoking the extended period because there is actually no suppression of facts involved. A large number of case laws were also cited. It was further emphasized that even though the avalakki is packed in 10 kg, 15 kg, 20 kg, they are put together into gunny bag of 100 kg, therefore, it cannot be said that they are cleared in unit containers. In view of all these submissions and also relying on the decision of the Mahavir Food Products case, it was contended that the item would not be classifiable under Chapter 19 and it would be classifiable only under Chapter 11.04.
5. On a very careful consideration of the issue, we find that the Commissioner has mainly relied on the decision of the Favourite Food Products case but however, we note that the Favourite Food Products case which dealt with poha has been overruled by Larger Bench. Moreover, in the Favourite Food Products case, there was question of cooking in pressure cookers but in the present case there is, actually no cooking in pressure cookers. The process of manufacture had already been described. It is seen that beyond the processes mentioned in Chapter 11, no further process has been carried out. Moreover, the Favourite Food Products case has been overruled by the Larger Bench decision in the Mahavir Food Products case where the Chapter Notes of both 11 and 19 have been elaborately examined and it was held that when there is no process beyond that which is mentioned in Chapter 11, the item cannot be classified under Chapter 19. In our view, we cannot say that mere heating of the paddy in the rollers before making avalakki is a process of cooking and which is something more than what is mentioned in Chapter 11. Moreover, many decisions have been cited to show that avalakki is also a particular form of rice. Even in the export of the item, it has been stated that the Customs are accepting this as a particular form of rice only. In view of all these factors, we do not find any merit in the impugned orders. Moreover, the longer period has been invoked. In our view, the whole thing is the question of classification and matter of interpretation of the entries in the Customs Tariff. In such a case, there cannot be any allegation of suppression of facts or misrepresentation with an intend to evade duty. All the case laws cited by the learned advocates are applicable to the facts of the present case. The Favourite Food Products case has been distinguished. Moreover, the case on which the Adjudicating Authority and lower authorities have relied on has been overruled in the Larger Bench decision. In view of all the above observations, we do not find any merit in the impugned orders. Therefore, we set aside the impugned orders and allow the appeals with consequential relief.
(Pronounced in open Court on 5-8-2008)