Betel Nut Powder - subject to duty of excise with immediate effect – Supreme Court Ruling becomes history

By Santosh Hatwar

NEW DELHI, JULY 06, 2009: ONE of the sources for drafting the Finance Bill seems to be the Judgements delivered by the Supreme Court. The assessees fight the demand notices till the last and the highest judicial forum and for those who win the cases, the relief seems to be only short living as the judgement is also an opportunity for the law makers to explore and make suitable amendments to undo the ratio of the case law.

Excise duty on betel nut powder is one of the most agitated issues in Central Excise. The demand was contested by the assesses upto the Supreme Court and in case of 2007-TIOL-37-SC-CX the SC held that the process of crushing of betel nuts into small pieces and adding menthol / sweetening agent does not amount to manufacture.

Towards the end of the judgement, the Supreme Court  observed:

The decision of this Court in the case of O.K. Play (India) Ltd., relied on by Dr. Padia, ( advocate for revenue)  does not also help his submission that any form of manufacture would attract payment of excise duty, since the said decision was dealing with Note 6 to Chapter 39 of the 1985 Act where the expression "manufacture" has been categorically included, whereas in the instant case, Note 4 of Chapter 21 which deals with Betel Nut Powder, does not do so.

And it does now. Vide Finance Bill 2009, the Central Excise Tariff Act has been proposed to be amended as under:

Chapter 21, after Note 5, the following Note has been inserted,

‘6. In relation to product of tariff item 2106 90 30, the process of adding or mixing cardamom , copra, menthol, spices, sweetening agents or any such ingredients other than lime, katha (catechu) or tobacco to betel nut, in any form, shall amount to “manufacture”.’

Not only the above, another note has been inserted in Chapter 8 to exclude betel nut product known as “Supari” of tariff item 2106 90 30 from the said Chapter.

The above changes come into effect immediately as per the declaration under the Provisional Collection of Taxes Act, 1931.