The main legal point established in the judgment is that the process of manufacture must result in the creation of a new substance with a distinctive name, character, or use to be considered as 'manufacture' under the Central Excise Act, 1944.

Judgment

ALTAMAS KABIR, J. - Leave granted.

2. The appellant Company is engaged in the business of marketing betel nuts in different sizes after processing them by adding essential/non - essential oils, menthol, sweetening agent, etc. Initially, the appellant cleared the goods under Chapter Sub - Heading 2107 of the Central Excise Tariff and was paying duty accordingly. However, the appellant filed a revised classification declaration under Rule 173 - B of the Central Excise Rules, 1944, with effect from 17 - 7 - 1997, claiming classification of its product under Chapter Sub - Heading 0801.00 of the Central Excise Tariff. It was contended that the crushing of betel nuts into smaller pieces with the help of machines and passing them through different sizes of sieves to obtain goods of different sizes/grades and sweetening the cut pieces did not amount to manufacture in view of the fact that mere crushing of betel nuts into smaller pieces did not bring into existence a different commodity which had a distinct character of its own.

3. The Assistant Collector of Central Excise, Guntur Division, who was the adjudicating authority, did not accept the contention of the appellant upon holding that the product manufactured by the assessee, namely, betel nut powder, was a preparation containing betel nut with other permitted ingredients which was a new product commercially known to the market with distinct name and character. On his said finding, the adjudicating authority rejected the claim of the appellant Company and held that the appellants product had been rightly classified under Chapter Sub - Heading 2107.00 and the appellant was liable to pay duty at the appropriate rate specified in the Chapter to the Central Excise Tariff Act, 1985.

4. The appellant Company went up in appeal against the said order of the adjudicating authority to the Commissioner of Customs and Central Excise (Appeals) and the same was decided in favour of the appellant Company.

5. After considering the submissions made on behalf of the respective parties, the Commissioner came to the conclusion that the process of cutting betel nuts into small pieces and the addition of essential/non - essential oils, menthol, sweetening agent, etc. does not result in a new and distinct product having a different character being formed. Accordingly, there was no "manufacture" involved therein and even according to Note 7 of Chapter 21 of the Tariff, there was no "manufacture" involved in the production of the impugned goods. The Commissioner further held that the item "betel nut powder/supari" finding a place/mentioned in the tariff is of no consequence unless the product was the result of manufacture or production, which is not so in the instant case.

6. The Commissioner accordingly allowed the appeal filed by the appellant herein and set aside the order passed by the Assistant Commissioner of Central Excise, Guntur Division, with consequential relief to the appellant Company.

7. Aggrieved by the order of the Commissioner, the Revenue went up in appeal to the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Bangalore (for short "the Tribunal") by way of Appeal No. E.734 of 2004.

8. The Tribunal took a different view and reversed the order of the Commissioner upon holding that the end product of the process involved in the preparation of the appellants product was different from the original material. According to the Tribunal, a new and distinct product known as "supari powder" had emerged. The Tribunal went on to observe as follows:

"When subjecting raw material to process of manufacture, it is not necessary that there should be a sort of transmutation. Definitely, the supari powder will have the characteristics of betel nut. We cannot say that there is no manufacture for the reason that the betel nut remains as betel nut. It may remain so but when other ingredients are added to it, how can we say these processes do not bring into existence a new a