Real Estaea
Incorporation and Commercial Laws SINGH & ASSOCIATES

Rice is not an excisable good.

Though, those who are in Rice Industry are aware that Rice is not an excisable good as de-husking of paddy to take out rice does not amount to manufacturing. However, the law in this respect was not settled. Taking advantage of the same, the Excise Department was treating de-husking of paddy as manufacture and was harassing Export Oriented Units, who were also selling Rice in Domestic Tariff Area (locally within India).

Singh & Associates successfully acted for Dunar Foods Limited (Company) which is engaged in the business of export of Basmati Rice and is the owner of the renowned brand “Dunar”. The Company has two Export Oriented Units (hereinafter referred to as “EOU”), one is in Karnal and other is in Amritsar from where it exports Rice and also sells the same in Domestic Tariff Area (that is within the country).

The Excise Department had issued various Show Cause Notices to Dunar Foods Limited and calculated the demand for several hundred crores in addition to equivalent Penalty and Interest against the Company, which were challenged by the Company and contested by the Department. The matter then reached the Principal Bench, CESTAT, Chandigarh.

It would be significant to mention here that as per Excise Department the sale of Rice by DTA unit i.e. other than EOU units are not subject to excise duty due to the reason that the rate of duty in Chapter 10 in the Excise Tariff Act is blank and not due to the fact that conversion of Paddy into Rice is not a manufacturing activity.

However in the case of sale of rice by the EOUs of Dunar Foods Limited, it was the contention of the Excise Department before Principal Bench, CESTAT, Chandigarh that sale done by the Company in Domestic Tariff Area will attract Excise Duty and the duty to be paid will be equivalent to custom duty due to the mandate of proviso to Section 3 of Central Excise Act, as de-husking of paddy to take out rice is a manufacturing activity and also due to the reason that “Rice” is present in the Central Excise Tariff Act under heading Chapter 10.

The counsel of Singh & Associates representing Dunar Foods Limited before the Hon’ble Tribunal placed their arguments against the contentions of the Excise Department and the Principal Bench, CESTAT, Chandigarh after hearing in detail the arguments vide its order dated 22 September 2016, upheld the appeal filed by Dunar Foods Limited and held that “de-husking of paddy into rice will not amount to manufacture as the operation of de-husking paddy is not an industrial or manufacturing operation as commonly understood.” Further, the Hon’ble Tribunal had also held that de-husking of paddy into rice is essentially an agricultural operation and such changes as are brought about in the product are an outcome of agricultural operation. Both rice and husk remain in their natural form as a result of de-husking. And de-husking of paddy into rice does not amount to manufacture and hence rice is not an excisable good.

Thereafter, this order dated 22 September 2016 of the Principal Bench, CESTAT, Chandigarh was appealed by the Excise Department before the Hon’ble Supreme Court of India which came up for hearing on Monday, 3 April 2017. In the Hon’ble Supreme Court also the counsels of Singh & Associates appeared and presented the case.

The Hon’ble Supreme Court of India on Monday 03rd April 2017 dismissed the Appeal filed by the Excise Department, against the order dated 22 September 2016 of the Principal Bench, CESTAT, Chandigarh. Consequently, the law is settled that “de-husking of paddy into rice” does not amount to manufacturing and hence rice is not an excisable good.

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