Holding

The processed nuts must be classified under Chapter 20 of the Central Excise Tariff Act, and the processes amount to manufacture under section 2(f)(ii).

Summary

Phil Corporation Ltd. processed cashew nuts, peanuts and almonds by dry/oil roasting, salting, seasoning and packed them in small containers, clearing the goods without paying excise duty and claiming classification under Chapter 8 (0801.00) at a nil rate. The Revenue argued that the processed products fall under Chapter 20 (20.01.10) of the Central Excise Tariff Act and are liable to 16% duty, invoking section 2(f)(ii) of the Central Excise Act which deems certain processes to be "manufacture". The Customs, Excise & Gold Control Tribunal had allowed the assessee, holding the goods were not assessable. The Supreme Court held that the Harmonised System of Nomenclature (HSN) notes clearly place such roasted and seasoned nuts in Chapter 20, that the processes amount to manufacture under section 2(f)(ii), and restored the Commissioner’s order. The appeal was allowed, the tribunal’s judgment set aside, and the penalty/interest issues were remanded for determination.

Issues considered

The correct tariff classification of roasted, salted and seasoned nuts – Chapter 8 or Chapter 20 of the Central Excise Tariff Act, 1985.
Whether the processes of roasting, salting, seasoning and packaging constitute "manufacture" under section 2(f)(ii) of the Central Excise Act, 1944.
The applicability of penalty and interest in view of the classification decision.

Legislation cited

Central Excise Act, 1944s. 2(f)(ii)
Central Excise Tariff Act, 1985s. Chapter 20, s. Chapter 8

Subjects

Central ExciseTariff classificationHarmonised System of NomenclatureChapter 20ManufactureSection 2(f)(ii)Excise dutyPenalty

Judgment

/
-r [2008] 2 S.C.R. 531

-)'
COMMISSIONER OF CUSTOMS & A
CENTRAL EXCISE, GOA
v.
PHIL CORPORATION LTD.
(Civil Appeal No. 2215 of 2002)
B
FEBRUARY 7, 2008
(ASHOK BHAN AND DALVEER BHANDARI, JJ.)
~

Central Excise Tariff Act, 1985:
Chapter Heading 20.01-10- Chapter 20 - HSN Note - c
Classification of products - Processing of cashewnuts,
peanuts, almonds by dry/oil roasting, salting and seasoning
- Packing the same in small containers - HELD: The products
have to be classified under Chapter 20 - HSN is a safe guide
for purpose of deciding issues of classification - Interpretation D

. ~
of Statutes - HSN explanatory notes - Significance· of in
classification of products.
The respondent assessee in C.A. No. 2215 of 2002
was engaged in the business of processing cashewnuts,
peanuts, almonds etc. by dry/oil roasting, salting, E
seasoning and packing them in small containers. These
. goods were cleared by the assessee under its brand name
without payment of excise duty. A show cause notice was
issued to the assessee stating that the goods were
~~ classifiable under Chapter heading 2001.10 of the Central F
Excise Tariff Act, 1985. Accordingly demand of Central
Excise duty was raised and penalty was proposed under
the Central Excise Act, 1944. The stand of the assessee
that the goods were classifiable under Chapter Heading
0801.00 and chargeable to nil rate of duty was rejected by G
~ .... the Commissioner of Customs and Central Excise.
However, the Customs, Excise and Gold Control Appellate
Tribunal allowed the appeal of the assessee holding that
the goods cleared by it were not assessable to duty.
531 H
/

532 SUPREME COURT REPORTS [2008] 2 S.C.R.

-f-
A In the instant appeals, it was contended for the
Revenue that the assessee after receiving the items
concerned, carried out various processes such as dry/
oil roasting, salting, seasoning with spices or herbs and
flavours and flushing the same with Nitrogen gas and then
B packed them in unit containers bearing the brand names.
It was submitted that the products, thus, fell under
Chapter 20 of the Central Excise Tariff Act. It was also
contended that in view of s.2(f)(ii) of the Central Excise ~

Act and HSN note 3 to Chapter 20 of the Central Excise
c Tariff Act, the process itself would amount to manufacture.
.Disposing of the appeals, the Court
HELD: 1.1 The Central Excise Tariff Act, 1985 is
broadly based on the system of classification from t~e
D International Convention called the Brussels' Convention
on· ~he ·Harmonised Commodity Description and Coding
System (Harmonised System of Nomenclature) with
necessary modifications. HSN contains a list of all the
possibl,e goods that are traded and as such the mention " ....
of an item has got nothing to do .yvhether it is manufactured
E and taxable or not. This court has clearly enunciated that
the HSN is a safe guide for the purpose of deciding issues
of classification. [paras 28-29] (550-C, D, E]
Brussels' Convention on the Harmonised Commodity
F Description and Coding System (Harmonised System of ·..,r~
Nomenclature) - referred to.
1.2 In the instant case, the HSN explanatory notes to ,
~

Chapter 20 categorically state that the products in
question are so included in Chapter 20. The said HSN
G explanatory notes also categorically state that such
products are excluded from Chapter 8 as they fall in
-+-- ....
Chapter 20. Jn thjs view of the matter, the classification of
the prOdlf.cts in question has to be made under Chapter
20 of the Central Excise-Tariff Act, 1985. [para 29 and 33]
H [550-E, F]
COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 533
v. PHIL CORPN. LTD.

-~
2.1 The legal position has been clearly crystallized A
in judgments of this Court that certain processes which
may not otherwise amount to manufacture have been
deemed to be manufacture by the Parliament under
section 2(f)(ii) of the Central Excise Act, 1944. [para 30]
[550-F, G] B
Collector, Central Excise, Bombay vs. S.D. Fine
. Chemicals Pvt. Ltd. [1995] Supp. 2 SCC 336 - relied on.
J
Amrit Agro Industries Ltd. & Anr. Vs. Commissioner of
Central Excise, Ghaziabad [2007] 201 ELT 183(SC); c
Collector, Central Excise, Shillong vs. Wood Craft Products
Ltd. [1995] 3 SCC 454; and Union of India & Anr. Vs. Delhi
Cloth & General Mills Co. Ltd. AIR 1963 SC 791: 1963
Supp.(1) SCR 586 - referred to.
O.K. Play (India) Ltd. vs. Commissioner of Central D
Excise-II, New Delhi [2005] 2 SCC 555; Siddhartha Tubes
Ltd. vs. Commissioner of Customs & Central Excise, Indore
(MP.) [2005] 13 SCC 559; and Jaiprakash Industries Ltd. vs.
•... "' Commission of Central Excise, Chandigarh [2003] 1 SCC 67
- cited. E
2.2 In deciding the cases of this nature, the courts
have to make serious endeavour. to ascertain spirits and
intention of. the Parliament in enacting these provisions
and once the legislative intention is properly gathered,
then the bounden duty and obligation of the courts is to F
-~ decide the case in consonance with the legislative
intention of the Parliament [para 31] [551-8]
3. As regards the question of penalty and interest in
Civil Appeal Nos. 7242-7243 of 2002, the matter is
remanded to the Commissioner of Central Excise G
concerned. [para 35] [551-E, F]
-> ..
CIVILAPPEALLTE JURISDICTION: Civil Appeal No.2215
of 2002.
From the final Order No. C1/3356/WZB/2001 dated H
/

534 SUPREME COURT REPORTS [2008] 2 S.C.R. '----

-f-
A 24.10.2001 of the Customs, Excise and Gold (Control)
Appellate Tribunal, West Regional Bench at Mumbai in Appeal
No. E/873/2001-Mum.
WITH
8 Civil Appeal Nos. 7325-7326 of 2001 & 7242-7243 of
2002.
Devadutt Kamat (for B. Krishna Prasad) for the Appellant. i
Joseph Vellapally, Jaideep Gupta, Nitesh Jain (for Mis.
c Gagrat & Co.), M.P. Devanath, Rajesh Kumar, Rakesh
Uttamchandra Upadhyay and Amit Kumar for the Respondent.
The Judgment of the Court was delivered by
DALVEER BHANDARI, J. 1. We propose to dispose of
D the aforesaid appeals by this judgment because common
questions of law are involved in these appeals. In order to avoid
repetition, the facts of Civil Appeal No.2215 of 2002 are
recapitulated in order to comprehend the controversy involved ~ ~
in these cases.
E 2. Mis Phil Corporation Ltd., the respondent assessee
manufactures processed cashew nuts, peanuts, almonds etc.
by dry roasting, oil roasting, salting, seasoning and packs them
in different containers and. clears these items under its brand
name. Admittedly, the respondent assessee did not register with
F the Central Excise Authorities and cleared these goods without.
payment of excise duty. 1"" 1-
}-
3. After due investigation, a show cause notice was issued '
by the Commissioner of Customs and Central Excise, Goa on
6.8.1999 to the respondent assessee demanding duty under
G Chapter 20(2001.10) on the goods cleared without payment of
central excise duty and proposed penalty action. The respondent
assessee in its reply dated 4.10.1999 denied the allegations
incorporated in the show cause notice and submitted that its
products were correctly classifiable under Chapter Heading
H 0801.00 of the Central Excise Tariff Act, 1985 and chargeable
COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 535
v. PHIL CORPN. LTD. [DALVEER BHANDARI, J.]
to Nil rate of duty and hence there was no requirement to register A
with the Central Excise Authorities.
4. After hearing the respondent assessee, the
Commissioner of Customs.& Central Excise vide his Order-in-
Original dated 31.10.2000 held that the goods are to be
classified under Chapter 2001.10 and chargeable to duty and B
J confirmed the demand and imposed penalty and redemption
fine in lieu of confiscation of the seized goods and machinery.
5. Against the said order of the Commissioner of Customs
-& Central Excise, Goa, the respondent assessee filed an
appeal before the Customs, Excise & Gold (Control) Appellate C
Tribunal, West Regional Bench at Mumbai. The Tribunal vide
its impugned order dated 24.10.2001 allowed the appeal of
the respondent assessee and held that the goods cleared by
the respondent assessee are not assessable to duty.
DI
6. Aggrieved by the order of the Tribunal, the appellant
Commissioner of Customs & Central Excise, Goa has preferred
this appeal before this Court.
7. In order to properly comprehend the controversy involved
in these cases, we deem it proper to reproduce the legislative E
intention by reproducing the extracts of Chapters 8 and 20 of
the Central Excise Tariff Act, 1985.
CHAPTER 8
"" ...,, EDIBLE FRUIT AND NUTS; PEEL OF CITRUS FRUIT
OR MELONS F
Note:
This Chapter does not cover inedible fruits or nuts.
Heading Sub- Description of Goods Rate of
No. Heading No. Duty G
1 2 3 4
08.01 0801.00 Edible fruit and Nil
nuts; peel of citrus
fruit or melons H
536 SUPREME COURT REPORTS [2008] 2 S.C.R.

A CHAPTER 20
PREPARATIONS OF VEGETABLES, FRUIT, NUTS
OR OTHER PARTS OF PLANTS
Notes:
B
1. This Chapter covers only products which are prepared
or preserved by processes other than merely chilled or frozen,
or put in provisional preservative solutions, or dried, dehydrated
or evaporated.
c 2. This Chapter does not cover fruit jellies, fruit pastes,
sugar-coated almonds or the like in the form of sugar
confectionery (Chapter 17) or chocolate confectionery (Chapter
18). . .
3. In relation to products of this Chapter,. labeling or
D relabelling of conta.ine~s and, repackir:tg .from bulk packs
to retail packs or the adoption of any ottter treatment to
render the product marketable to the c'onsumer, shall ,.. ...
amount to "manufacture". ·· · ·
4. In this Chapter, "brand name" means a brand name,
E whether registered or not, thafis to say, a name or a mark, such
as a symbol, monogram, labei, signature or invented words or
any writing which is used in relation to a product, for the purpose
of indicating, or so as to indicate, a connection in the course of
trade between the product and some person using such name
F or mark with or without any indication of the identity of that
person.
Heading Sub- Description of Goods Rate of
No. Heading No. Duty
'·

G 1 2 3 4
20.01 Preparations of ~-

vegetables, fruit. nuts
or other parts of plants
including jams, fruit
H
COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 537
v. PHIL CORPN. LTD. [DALVEER BHANDARI, J.]

jellies, marmalades,
A
fruit or nut puree and
fruit or nut pastes,
fruit juices and
vegetable juices,
whether or not B
containing added
sugar or other
sweetening matter.
2001.10 Put up in unit 16%
c
containers and
bearing a brand
name.
2001.90 Other Nil
D
Now, we would like to setout extracts of Chapters 8 and 20
of the Harmonized System of Nomenclature (HSN) as
~ ....
under:
"CHAPTER 8
E
EDIBLE FRUIT AND NUTS; PEEL OF CITRUS FRUIT
OR MELONS

Chapter Notes:
1. This Chapter does not cover inedible nuts or fruits.
4. """' F
2. Chilled fruits and nuts are to be classified in the same
headings as the corresponding fresh fruits and nuts.
3. Dried fruit or dried nuts of this Chapter may be partially
rehydrated, or treated for the following purposes:
G
.. ~ (a) For additional preservation or stabilization (e.g.
by moderate heat treatment, sulphuring, the
addition of sorbic acid or pJtassium sorbate),

(b) To improve or maintain their appearance (e.g.
H
A
538 SUPREME COURT REPORTS [2008] 2 S.C.R

-1-
A by the addition of vegetable oil or small
quantities of glucose syrup},
provided that they retain the character of dried fruit or
dried nuts.
I
B Headings 08.01 and 08.02 read as under: t

08.01 COCONUTS, ·BRAZIL NUTS AND CASHEW
NUTS, FRESH OR DRIED, WHETHER OR -'
NOT SHELLED OR PEELED.

c Coconuts:
0801.11 Desiccated
0801.19 Other
Brazil Nuts:
D
0801.21 In.Shell
0801.22 Shelled ~ ~

Cashew Nuts:
E 0801.31 In Shell
0801.32 Shelled
08.02 OTHER NUTS, FRESH OR DRIED, WEHTER
OR NOT SHELLED OR PEELED.
F Almonds:
'r:.

0802.11 In shell
0802.12 Shelled

G Hazelnuts or filberts (Corylus spp.):
0802.21 In Shell -t --
0802.22 Shelled
.
Walnuts:
H
COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 539
v. PHIL CORPN. LTD. [DALVEER BHANDARI, J.]
0802.31 In Shell A
0802.32 Shelled
0802.40 Chestnuts (Castanea spp.)
0802.50 Pistachios
B
0802.90 Other
.....
The principal nuts of this heading are almonds (sweet or
bitter), hazelnuts or filberts, walnuts, chestnuts (Castanea spp.),
pistachios, pecans and pignolia nuts (seeds of the Pinus pinea).
'
This heading also covers areca (betel) nuts used chiefly
c
as a masticatory, cola (kola) nuts used both as ·a masticatory
and as a base in the manufacture of beverages, and an edible,
nut-like, spiny-angled fruit of the species Trapa natans,
sometimes referred to as a water chestnut.
D
The heading does not include:
~ ""' (a) The edible tuber of the species Eleocharis dulcis or
Eleocharis tuberose, commonly known as the
Chinese water chestnut (heading 07.14).
E
(b) Empty walnut or almond hulls (heading 14.04)
(c) Ground-nuts (heading 12.02), roasted ground-
nuts or peanut butter (heading 20.08)
... ~ (d) Horse chestnuts (Aesculus hippocastanum) (heading
23.08)." F

Chapter 8 does not include roasted ground nuts or
peanuts.
"CHAPTER 20
PREPARATIONS OF VEGETABLES, FRUIT, NUTS G
OR OTHER PARTS OF PLANTS
Chapter Notes:
1. This Chapter does not cover:
H
540 SUPREME COURT REPORTS [2008] 2 S.C.R.
-f -
A (a) Vegetables, fruit or nuts, prepared or preserved
by the processes specified in Chapter 7, 8 or
11;
(b) Food preparations containing more than 20%
by weight of sausage, meat, meat offal, blood,
B fish or crustaceans, molluscs or other aquatic
invertebrates, or any combination thereof
~.
(Chapter 16); or
(c) Homogenised composite food preparations of
c heading 21.04.
2. Headings 20.07 and 20.08 do not apply to fruit jellies,
fruit pastes, sugar-coated almonds or the like in the
form of sugar confectionary (heading 17.04) or
chocolate confectionery (heading 18.06).
D
3. Headings 20.01, 20.04 and 20.05 cover, as the case
may be, only those products of Chapter 7 or of
).. ".C
heading 11.05 or 11.06 (other than flour, meal and
powder of the products of Chapter 8) which have
been prepared or preserved by processes other than
E those referred to in Note 1 (a).
4. Tomato juice the dry weight content of which is 7% or
more is to be classified in heading 20.02.
5. For the purpose of heading 20.07, the expression )r:..
F "obtained by cooking" means obtained by heat
treatment at atmospheric pressure or under reduced
pressure to increase the viscosity of a product
through reduction of water content or other means.

G 6. For the purpose of heading 20.09, the expression
"juices, unfermented and not containing added spirit" "f' •
means juices of an alcoholic strength by volume (see
Note 2 to Chaptor 22) not exceeding 0.5% vol.
20.08 FRUIT, NUTS AND OTHER. EDIBLE PARTS
H OF PLANTS, OTHERWISE PREPARED OR
COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 541
v. PHIL CORPN. LTD. [DALVEER BHANDARI, J.]

PRESERVED WHETHER OR NOT A
CONTAINING ADDED SUGAR OR OTHER
SWEETENING MATTER OR SPIRIT, NOT
ELSEWHERE SPECIFIED OR INCLUDED.
Nuts, ground-nuts, and other seeds,
whether or not mixed together: 8

2008.11 Ground-nuts
2008.19 Other, including mixtures c
2008.20 Pineapples
2008.30 Citrus fruit
2008.40 Pears
D
2008.50 Apricots
2008.60 Cherries
....
2008.70 Peaches, including nectarines
2008.80 Strawberries ·E I

Other, including mixtures other than those
of subheading 2008.19:

. ~
2008.91
2008.92
Palm hearts
Mixtures
F:

2008.99 Other
This heading covers fruit, nuts and other edible parts of

-
~

'
•
., ~
plants, whether whole, in pieces or crushed, including mixtures
thereof, prepared or preserved otherwise than by any of the G
processes specified in other Chapters or in the preceding
headings of this Chapter.
~

It includes, inter a/ia:
H

"
542 SUPREME COURT REPORTS [2008] 2 S.C.R.

A 1. Almonds, ground-nuts, areca (or betel) nuts and
other nuts, dry-roasted, oil-roasted or fat-
roasted, whether or not containing or coated
with vegetable oil, salt, flavours, spices or other
additives.
B 2. x x x"
8. Mr. Vikas Singh, the learned Additional Solicitor General
appearing for the Revenue submitted that the respondent-
assessee received cashew nuts, peanuts, almond etc. and
c carried out various processes such as dry/oil roasting, salting,
roasting with spices or herbs and flavours, such as dry mint
(pudina}, spicy (chatpata) etc. and flushes these products with
nitrogen gas. These products are thereafter packed in unit
containers bearing brand names such as Country Club and
Maharaj. These products fall under Chapter 20 of the Central
0
Excise Tariff Act. The Harmonized System of Nomenclature,
popularly and in short 'HSN' Notes to Chapter 20 categorically
state that Chapter 20 includes almond, groundnuts which
are dry roasted, oil roasted or fat roasted. The relevant
portion of HSN Note of Chapter 20 is extracted hereunder :-
•E
"It inter alia includes almonds, groundnuts, areca (or betel)
nuts and other nuts, dry roasted, oil roasted or fat roasted,
whether or not containing or coated with vegetable oil,
salt, flavours, spices or additives."
9. The learned Additional Solicitor General submitted that )r ..
in the HSN Notes to Chapter 8, roasted groundnuts have been J

specifically excluded whereas in Note 1 of Chapter 20 of the
Central Excise Tariff Act, all products where preservative solution
is applied or dried, dehydrated or evaporated, have been
3 included. Note 1 of Chapter 20 states as under:-
"This chapter covers only products which are prepared or
preserved by processes other than merely chilled or frozen,
or put in provisional preservative solution or dried
dehydrated or evaporated."
,,.
COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 543
v. PHIL CORPN. LTD. [DALVEER BHANDARI, J.]

_.,. 10. The learned Additional Solicitor General further A
submitted that the controversy involved in this case is no longer
res integra. He placed reliance on the recent judgment of this
court in Amrit Agro Industries Ltd. & Anr. v. Commissioner
of Central Excise, Ghaziabad (2007) 201 ELT 183 (SC),
according to which roasted peanuts would fall under Chapter B
20. Para 6 of the judgment reads as under:-
"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
("CEGA T") regarding classification of roasted peanuts C
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 D
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 E_
or not containing vegetable oil are the items which all
would stand covered by the said Heading 20. 08."
11. The learned Additional Solicitor General has also drawn
our attention to paragraph 7 of the said judgment which reads
-..f --< as under:- F
"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, G
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 refers1o the word 'Other'. H
544 SUPREME COURT REPORTS [2008] 2 S.C.R.

A 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."
12. He contended that HSN is quite relevant for the purpose
of deciding issues of classification. In the present case, the HSN
B explanatory notes to Chapter 20 categorically state that the
products in question are so included in Chapter 20. The HSN
explanatory notes to Chapter 20 also clearly indicate that its _.,
products are excluded from Chapter 8 as they fall in Chapter
20. In these circumstances, it has been submitted that the
C Classification of the products in question have to be made under
Chapter 20.
13. The learned Additional Solicitor General also placed
reliance on the judgment of this court in Collector of Central
D Excise, Shillong v. Wood Craft Products Ltd. (1995) 3 SCC
454. This court in paragraph 12 of the said judgment observed
as under:-
"Accordingly, for resolving any dispute relating to tariff
classification, a safe guide is the internationally accepted
E nomenclature emerging from the HSN. This being the
expressly acknowledged basis of the structure of the
Central Excise Tariff in the Act and the tariff classification
made therein, in case of any doubt the HSN is a safe
guide for ascertaining the.true meaning of any expression
F used in the Act."
14. The learned Additional Solicitor General referred to
section 2(f)(ii) of the Central Excise Act which categorically
· states that any process which is specified in the Chapter Notes
as amounting to manufacture would be deemed to be
G manufacture. Section 2(f)(ii) reads as under:-
"2(f) "manufacture" includes any process -
(i)
(ii) which is specified in relation to any goods in the section
H
----... COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 545
v. PHIL CORPN. LTD. [DALVEER BHANDARI, J.]
-'1
or chapter notes of the First Schedule to the Central Excise A
Tariff Act, 1985 (5 of 1986) as amounting to manufacture."
15. The learned Additional Solicitor General submitted that
the respondent apart from processing of products by oil roasting
etc. is involved in packing the products in retail containers of
smaller packets of 50 gms./20 gms. which bear the brand name
B
of the respondent-assessee. According to the appellant, this
process by itself would amount to "manufacture" under Chapter
Note 3 of Chapter 20. The process of the assessee making the
products marketable by putting the products into small unit
containers and branding the said goods squarely falls under c
Chapter Note 3 of Chapter 20. He submitted that the aforesaid
processes have been admitted by the respondent-assessee.
16. The learned Additional Solicitor General further
submitted that the traditional concept of "manufacture" is not
D
applicable in the instant case in view of Chapter Note 3 of
,.., Chapter 20 and section 2(f)(ii) of the Central Excise Act. He
...(
submitted that even if a process is not manufacture it has to be
held "manufacture" if the Chapter Note so states that it would
amount to manufacture. The scope and ambit of section 2(f)(ii)
has been explained by this court in several decisions. He placed E
reliance on Collector, Central Excise, Bombay v. S.D. Fine
Chemicals Pvt. Ltd. (1995) Supp 2 SCC 336. This court in the
said judgment h~ld that certain processes which may not
~
otherwise amount to manufacture have been deemed to be
"(
manufacture by the Parliament under section 2(f)(ii). The learned F
counsel placed reliance on paragraph 12 of the said judgment
which reads as under:-
"The decisions aforesaid make it clear that the definition
of the expression 'manufacture' under Section 2(f) Qf the
G
~ ..,. Act is not confined to the natural meaning of the
expression 'manufacture' but is an expansive definition.
Certain processes, which may not have otherwise
amounted to manufacture, are also brought within the
purview of and placed within the ambit of the said
H
546 SUPREME COURT REPORTS [2008] 2 S.C.R.

A definition by Parliament. Not only processes which are
incidental and ancillary to the completion of manufactured
product but also those processes as are specified in
relation to any goods in the section or Chapter Notes of
the Schedule to the Central Excise Tariff Act, 1985 are
B also brought within the ambit of the definition."
17. The learned Additional Solicitor General also placed
reliance on O.K. Play (India) Ltd. v. Commissioner of Central
Excise-I/, New Delhi (2005) 2 SCC 555. This court while
dealing with the scope of section 2(f) observed as under:-
c
"Section 2(f) contains two clauses and instead of setting
out the activities in respect of different tariff items, sub-
clause (ii) simply states that any process, which is specified
in section/chapter notes of the schedule to the Tariff Act,
shall amount to "manufacture". Under sub-clause (ii}, the
D
legislature intended to levy excise duty on activities that
do not result in any new commodity. In other words, if a
process is declared as amounting to "manufacture" in
the section or chapter notes, it would come within the
definition of "manufacture" under Section 2(f) and such
E
process would become liable to excise duty. The effect
of this definition is that excise duty can be levied on
activities which do not result in the production of a new
commodity or where the raw material does not undergo
such a transformation as to lose its original identity."
F
18. The court in the said judgment in paragraph 13
observed that the activities which otherwise do not amount to
manufacture can now be treated as manufacture and made
liable to duty.
G 19. In reply to the submissions of the learned Additional
Solicitor General, Mr. Joseph Vellapally, the learned senior
advocate appearing for the respondent assessee submitted that
the entire case of the appellant (Commissioner of Customs &
Central Excise, Goa) in a show cause notice and before the
H tribunal was that the process of roasting, salting etc. amounts
COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 547
v. PHIL CORPN. LTD. [DALVEER BHANDARI, J.]
_... "

to manufacture because a new commodity emerges, i.e., the A
manufactured commodity goes from Chapter 8 and fairs under
Chapter 20. According to him, though there was specific
reference to section 2(f)(ii) in the show Cquse notice, but no
case was made out under section 2(f)(ii) read with Chapter Note
3 of Chapter 20 and the department cannot be permitted to B
travel beyond the show cause notice and make out a new case
before this court.
20. Mr. Ve.llapally also submitted that the inclusive definition
of manufacture under Chapter Note 3 of Chapter 20 read with
section 2(f)(ii) of the Central Excise Act has to be strictly c
construed. He submitted that the first requirement is that the
goods to which the Chapter Note can be applied must firstly fall
under that Chapter (i.e. as a food preparation and secondly
lhose goods must be subject to one of the processes mentioned
in the Chapter Note). According to him, the said Chapter Note D
has absolutely no application where the goods which are alleged
.. . to be subjected to the mentioned processes are classifiable
under some other chapter, for example under Chapter 8 in this
case. According to him, raw nuts are agricultural produce falling
under Chapter 8 and not subject to duty is the admitted case of E
the department. Therefore, there is no Chapter Note dealing
with the deeming processes carried on in relation to goods of
Chapter 8 to be manufacture.
21. Mr. Vellapally further submitted that once it is accepted
"" ""I that roasting, salting etc. do not change the essential character F
of the product as an agricultural product, the final product
continues to be an agriculture product falling under Chapter 8
and not a manufactured product under Chapter 20. He submitted
that it is undisputed that the nuts retain their essential character
even after roasting etc. Therefore, the respondent was under a G
." ~ bona fide belief that the goods are not excisable. If the assessee
has an arguable case or divergent views are possible then the
penalty cannot be imposed and extended period cannot be
invoked. He placed reliance on Siddhartha Tubes Ltd. v.
Commissioner of Customs & Central Excise, Indore (M.P.) H
548 SUPREME COURT REPORTS [2008] 2 S.C.R.

A (2005) 13 SCC 559 and Jaiprakash Industries Ltd. v.
Commissioner of Central Excise, Chandigarh (2003) 1 SCC
67.
22. Mr. Vellapally further placed reliance on the Constitution
Bench judgment of this court in Union of India & Anr. v. Delhi
B Cloth & General Mills Co. Ltd. AIR 1963 SC 791 : 1963 Supp
(1) SCR 586. In this case, this court considered the scope and
ambit of inclusive definition of section 2(f). Paragraph 18 of the J..
said judgment reads as under:- I·
c "We are unable to agree with the learned counsel that by
inserting this definition of the word "manufacture" in
Section 2(f) the legislature intended to equate
"processing" to "manufacture" and intended to make mere
"processing" as distinct from "manufacture" in the same
sense of bringing into existence of a new substance
D
known to the market, liable to duty The sole purpose of
inserting this definition is to make it clear that at certain J
?-- ...
places in the Act the word 'manufacture' has been used to
mean a process incidental to the manufacture of the article.
Thus in the very item under which the excise duty is claimed
E in these cases, we find the words : "in or in relation to the
manufacture of which any process is ordinarily carried on
with the aid of power". The definition of 'manufacture' as
in Section 2(f) puts it beyond any possibility of controversy
that if power is used for any of the numerous processes
F that are required to turn the raw material into a finished
article known to the market the clause will be applicable;
and an argument that power is not used in the whole
process of manufacture using the word in its ordinary
sense, will not be available. It is only with this limited
G purpose that the legislature, in our opinion, inserted this
definition of the word 'manufacture' in the definition section
and not with a view to make the mere "processing" of
goods as liable to excise duty." .
23. Mr. Vellapally also submitted that there is no deeming
H
COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 549
-~ v. PHIL CORPN. LTD. [DALVEER BHANDARI, J.]

fiction in section 2(f)(i). It is an inclusive definition of manufacture A
and the test continues to be whether there is a change in the
essential character of the goods and a new commodity
emerges. The same logic applies with equal force to section
2(f)(ii). There is no deeming fiction in the said sub-section 2"(f)(ii)
and the only effect of the said sub-section is that the goods are B
considered manufactured at the stage when goods are
-'- ; subjected to the processes mentioned in the Chapter Notes of
the Central Excise Tariff Act.
24. In the rejoinder, the learned Additional Solicitor General
reiterated the position that the products of the respondent c
assessee have to be classified under Chapter 20 of the Central
Excise Tariff Act.
25. The learned Additional Solicitor General contended
that the deeming provision of section 2(f) (ii) was squarely raised
D
at all levels of the proceedings. In the show cause notice, section
- ...
f
~ 2(f) has been invoked. Similarly, in the order in original, the
Commissioner has categorically relied upon Chapter Note 3 of
Chapter 20 and section 2(f)(ii) and referred to various
documents to strengthen his case. The learned Additional
Solicitor General has also submitted that the Constitution Bench E
judgment of this court in Delhi Cloth and General Mills (supra)
is not applicable in the instant case as the deeming provisions
of section 2(f)(ii) were not at all enacted during the relevant
~
-.... period. Section 2(f)(ii) was incorporated/substituted in the
Central Excise Act with effect from 28.2.1986 vide MF (DR) F
Notification No.10 of 1986-Central Excise dated 5.2.1986.
26. It was submitted by the learned Additional Solicitor
· General that the judgment of the Delhi Cloth and General Mills
(supra) was rendered on 12.10.1962 much before enactment
• "' G
of the deeming provisions of section 2(f)(ii). In these
circumstances, this judgment can be of no avail to the
respondent assessee.
27. The learned Additional Solicitor General further
submitted that the learned tribunal in the impugned judgment H
550 SUPREME COURT REPORTS [2008] 2 S.C.R.
+-- '.

A has not at all considered the effect of section 2(f)(ii) of Chapter
Note 3 of Chapter 20. He also contended that the Sales Tax
judgments relied upon by the tribunal in the impugned judgment
are not at all relevant in deciding the issues in the present case.
· According to him, the tribunal has not considered the issue of
B classification. According to his submission, in view of the HSN
notes and the judgment of this court in Amrit Agro Industries
(supra), the Classification of the· products in question ought to .l
be made only under Chapter 20.
28. We have heard the learned counsel for the parties at
c length and carefully analysed the judgments cited at the Bar.
The Central Excise Tariff Act is broadly based on the system of
classification from the International Convention called the
Brussels' Convention on the Harmonised Commodity
Description and Coding System (Harmonised System of
D Nomenclature) with necessary modifications. HSN contains a
list of all the possible goods that are traded (including animals, .,.
human hair etc.) and as such the mention of an item has got •·
nothing to do whether it is manufactured and taxable or not.
29. In a number of cases, this court has clearly enunciated
E that the HSN is a safe guide for the purpose of deciding issues
of classification. In the present case, the HSN explanatory notes
to Chapter 20 categorically state that the products in question
are so included in Chapter 20. The HSN explanatory notes to
Chapter 20 also categorically state that its products are .,,..
F excluded from Chapter 8 as they fall in Chapter 20. In this view
of the matter, the classification of the products in question have L
..
to be made under Chapter 20.
I-
i
30. The legal position has been clearly crystallized in S.D.
Fine Chemicals Pvt. Ltd. (supra) and other judgments of this
G
court that certain processes which may not otherwise amount •"(
"
to manufacture have been deemed to be manufacture by the
Parliament under section 2(f)(ii). Relevant portion of this
judgment has already been extracted in the preceding
paragraphs.
H
COMMNR. OF CUSTOMS & CENTRAL EXCISE, GOA 551
v. PHIL CORPN. LTD. [DALVEER BHANDARI, J.]

31. In deciding the cases of this nature, the courts have to A
make serious endeavour to ascertain spirits and intention of
the Parliament in enacting these provisions and once the
legislative intention is properly gathered, then the bounden duty
and obligation of the courts is to decide the cases in consonance
with the legislative intention of the Parliament. s
32. In the instant case, for the comprehensive reasons, as
.1 stated in the preceding paragraphs, it is crystal clear that the
products of the respondent assessee have to be classified under
Chapter 20 of the Central Excise Tariff Act.
c
33. As a result, the appeal of the appellant is allowed and
the impugned judgment of the tribunal is accordingly set aside
and the judgment of the Commissioner of Customs & Central
Excise, Goa is restored.
34. Consequently, Civil Appe~I Nos. 7325-7326/01 filed by D
Mis Coco Dry Fruits (India) Ltd. against the Revenue are
accordingly dismissed, upholding the order dated 24.8.2001
passed by the tribunal dismissing the appeals of Mis Coco Dry
Fruits (India) Ltd.
35. Accordingly, Civil Appeal Nos. 7242-7243/02 filed by E
M/s Coco Dry Fruits (India) Ltd. against the Revenue are
dismissed, upholding the order dated 10.12.2002 passed by
the tribunal dismissing the appeals of M/s Coco Dry Fruits (India)
Ltd., but for adjudication the question of penalty and interest,
these appeals are remanded to the Commissioner of Central F
Excise, New Delhi.
36. In the facts and circumstances of the case, we direct
the parties to bear their own costs.
R.P. Appeals disposed of. G