Supply of meals to airlines in tray is not manufacture

B.L. Narasimhan, Advocate for the Appellant. R.K. Mishra, D.R. for the Respondent.

ORDER

B. Ravichandran, Technical Member – The present appeal is against order dated 18.02.2011 passed by the Commissioner of Central Excise, Delhi-II.

2. The brief facts of the case are that the appellants are engaged in the business of airline catering and manufacture of cakes, pastries and chocolates liable to Central Excise Duty. They have entered into catering agreement with various airlines for supply of meal and food items in accordance with menu given by the respective airline from time to time. Normally the food items prepared by the appellants at their unit included the vegetarian /non-vegetarian meal items consisting of dal, curry, rice etc. bread, cakes, pastries, chocolates etc., cut fruits, cut vegetables and sweets and namkeens. The appellants procure various items in packed conditions, like curd, pickles etc. from third parties; the cutlery, crockery, soft drinks and juices and water are provided by the airlines. The food items prepared as per the menu are placed in the bowls and plates provided by the airlines and are wrapped with aluminium foil. Number of such trays containing food items which are not required to be heated (containing bread, salad etc.) including bought out items like curd pickle are placed in a trolley and supplied to the airlines. The prepared meal, other than mentioned above, consisting of dal, curry, rice etc. are placed in the bowls covered with aluminium foils and are placed in another trolley for heating in the flight before service to the passengers. One such meal plate or bowl alongwith the pastry, food items and other bought out items are placed in a tray alongwith water bottle and supplied to the passengers in flight. As per the requirement of the airlines a slip containing the name of the appellant is put inside the pouch containing cutlery. The Revenue entertained the doubt regarding taxability of the whole tray as served to the passenger on the ground that the appellants are engaged in the manufacture of excisable goods, here food preparations which also contained a logo and name of the appellant. As such, proceedings were initiated to demand duty from the appellant on such branded food preparations prepared and cleared by them to various airlines classifying the same under C.E.T.H. 2108 for the financial year 2004-05 and under C.E.T.H. 2106 for the financial years 2005-06 and 2006-07. After due process the case was adjudicated vide the impugned order dated 18.02.2011.

3. The ld. Counsel for appellant submitted that:

4. During the course of argument the ld. Counsel further elaborated on each one of the above points with the details of contract; with photographs of the various stages of placing the asserted items and the emergents of final food tray with water bottle at the time of service to the passengers on board.

5. The ld. A.R. reiterated the findings in the impugned order.

6. We find the points for decision in this appeal are:

7. Regarding the question whether the appellants are engaged in the manufacture of excisable goods namely, food preparations; we find there is no analysis or categorical finding by the Original Authority. Para G. 3 of the impugned order examines this question. The Original Authority reproduced the definition of manufactureas per section 2(f) and also extracts of Honble Supreme Courts orders in the case of Empire India Ltd. v. Union of India 1985 taxmann.com 426 and A.P. State Electricity Board v. Collector of Central Excise 1994 taxmann.com 53 (SC) and there after he concluded that the appellants were engaged in the manufacture of excisable goods.

8. We find absolutely no analysis or discussions about the nature of manufacture undertaken by the appellant especially in the context of the appellants plea that the department cannot tax the meal supplied by the airlines to the passengers on account of purported manufacturing activity on the part of appellant.

9. We find that the show cause notice proposed a demand on the ground that the entire food tray served on board in the aircraft is an item manufactured by the appellant. The value accordingly was of entire tray alongwith various items contained therein. The said demand was confirmed by the Original Authority without discussing the appellants plea of:—

10. We find the appellants have categorically asserted that placing these items together in a tray is being done on board by the airline staff before service to the passengers. The Revenues case is that the appellants are liable to Central Excise duty under the category of edible preparations bearing a brand-name. From the nature of process and the methodology of supply by the appellant to the airlines and thereafter by the airlines staff to the passengers on board, we find that it is not legally sustainable to tax the entire meal tray as edible preparations as the same emerges at the time of service to the passengers on board. It is an admitted fact that the appellants prepare roti, rice, curry etc. and put it in the bowl or tray, wrap them with aluminium foil and supply in a trolley separately to the airline. In another set of tray they supplied various bought out items like cut fruits etc. which do not require pre-heating before service. The logo and name of the appellant in a label is placed inside the cutlery pouch again supplied separately not with the prepared food items like dal, rotti etc. In other words the food items prepared and supplied by the appellants never had brand-name when they were cleared from the premises of the appellant.

11. We find that without examining the nature of manufacture and thereby the liability of the appellant the Original Authority straight away moved to the classification of the impugned meal tray applying the provisions of Rule 3 (c) of interpretation rules to determine the correct classification under Central Excise Tariff. He concluded that these food preparations would be appropriately classifiable under heading 2108 which is the last occurring in numerical order amongst the headings which equally merit consideration. Here, we find that the Original Authority has not examined sequentially the application of the said interpretation rules and also it is not clear which are all the equally competing heading meriting consideration for classification. The need for applying the above rule will arise thereafter only.

12. On perusal of the impugned order and on examining the submissions made by the appellants, we find that the Revenue has not established the liability on the appellant for their activity of manufacturing branded food preparations. Out of Food preparations as contained in the food tray served to the passengers on board, admittedly, the appellants did prepare dal, roti, rice, curry etc. and supplied the same in trays and bowls covered with aluminium foil. However, these are not the items on which Central Excise duty is sought to be demanded. The Central Excise duty was said to be demanded on the full value of the final complete food tray as served to the passengers on board the aircraft. There is nothing in the impugned order which will substantiate and support the claim of the Revenue on the taxability of such complete food tray on whole value. As such we find that the demand is not sustainable on this ground.

13. Regarding the brand-name, we find that the Original Authority found that the appellants are supplying food preparations with brand-name to the airlines. Admitted facts are that the food prepared by the appellants is supplied without brand-name. In separate tray is the cutlery pouch which contains the label with logo and name of the appellant. The same is supplied separately. These are put together by the airline staff and served to the passengers. In any case since the Department has not established the sustainability of the demand on the ground of manufacture, this aspect on brand name is not further examined by us.

14. The appellants strongly contested the demand on the ground of time bar. We find that the demand -cum -Show Cause Notice was issued on 23.02.2010 for the period covering 01.02.2005 to 03.05.2006. It is seen that the notice has been issued after many years invoking extended period of time on the ground that the appellants suppressed the fact about the illicit removal of impugned goods with intend to evade payment of Central Excise duty. The Original Authority confirmed the said demand for extended period on the ground that the appellants were already registered with the Central Excise Department for the manufacture of cakes, pastries and Chocolates and are aware of the provisions of Central Excise law. As such, it was held that the compliance of Central Excise provisions for the impugned goods also rest with them and they have failed in all fronts. Since, the appellants failed to disclose the activities of supply of food preparation with their brand-name to different airlines; extended period was justified by the original authority. We find the demand for extended period and confirmation thereof by the impugned order have been made without any substantial ground considering the nature of dispute in the present case which is of legal interpretation. There is no supporting evidence to allege fraud, suppression with intend to evade payment of duty on the part of the appellants. In a similar matter, where appellants were one of the parties in appeal, the Tribunal in the final order No.A/2701-2706/2015-EB dated 10.08.2015 held that the appellants are providing in catering service to various airlines is very well known fact. In fact catering to the airline is their main business, and no such similarly placed caterer was paying excise duty on such meals. The Tribunal accordingly, held that it is difficult to say that there was suppression of fact or wilful misstatement of facts or intention to evade payment of duty. We find in the present case on a similar situation the demand after many years of the impugned period is not sustainable in view of the facts and circumstances of the case. As such, we find the impugned order is not sustainable both on the question of manufacture and on time bar.

15. Accordingly, the appeal is allowed.