Crushing Chillies into Powder Not 'Manufacture', Exempt from Excise Duty: CESTAT [Read Order]

The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that crushing chillies into powder does not amount to "manufacture" under excise law and is exempt from excise duty.

The appellant, Sara Spices, was issued three show cause notices covering the periods from October 2006 to March 2008, alleging non-payment of excise duty on ready-to-cook products cleared without payment of duty. The department contended that the appellant failed to include the value of crushed spice powders in its gross turnover, thereby availing SSI exemption under Notification No. 8/2003-CE dated 01.03.2003 without proper compliance.

The adjudicating authority confirmed the duty demand, which the Commissioner (Appeals) upheld. Aggrieved, the appellant approached the CESTAT. During the hearing, the appellant argued that the conversion of whole chillies into powder does not constitute manufacture and thus cannot be treated as excisable goods.

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The appellant’s counsel further submitted that the value of goods falling under CETH 0903.10 was not considered in turnover calculations, as these goods attracted a nil rate of duty. The appellant’s counsel relied on multiple decisions, including a previous ruling in their own case in 2018, where it was held that chilli crushing does not result in a new product and hence is not manufacturing.

In response, the revenue defended the impugned order and relied on the decision in Nilgiri Oil Allied Industries to argue that similar activities had been treated as manufacturing in other contexts. The department’s counsel argued that the value of the cleared goods should be included in the turnover calculation for determining eligibility under the SSI exemption.

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The two-member bench comprising P.A. Augustian (Judicial Member) and Pullela Nageswara Rao (Technical Member) observed that in Sara Spices’ earlier case, it was categorically held that the process of crushing chillies does not qualify as manufacture, and that ruling had attained finality.

The tribunal ruled that clearances of such spice powders could not be included in the turnover for the purpose of SSI exemption under Notification No. 8/2003-CE. The tribunal allowed the appeals and extended consequential relief to the appellant under the law.

To Read the full text of the Order CLICK HERE

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