2005 (1) TMI 517 - AT - Central Excise

Summary

Issues:
1. Time limitation for demand of duty based on relabelling of goods.
2. Applicability of Rule 173H in the case of relabelling.
3. Interpretation of Chapter Note 5 of Chapter 30 regarding relabelling as manufacture.

Analysis:
1. The appeal was against the demand of duty following an audit note pointing out that relabelling of goods amounted to deemed manufacture under Chapter Note 5 of Chapter 30. The appellant argued that the demand was time-barred as the audit note was issued on 12-4-99, and the show cause notice was issued on 7-8-2000. They contended that relabelling does not amount to manufacture and relied on a CEGAT decision to support their claim. The Tribunal agreed that the demand was time-barred as the appellants genuinely believed relabelling did not constitute manufacture, thus rejecting the extended period invocation.

2. The appellant invoked Rule 173H, stating they had followed the procedure by filing D-3 intimation and clearing goods without payment of duty for relabelling. The Tribunal found that the process of relabelling did not amount to manufacture as it was completed during the original removal when goods were repacked from bulk to retail packs. The Tribunal agreed with the appellant's argument that Rule 173H applied in this case, emphasizing that relabelling alone, without repacking, did not constitute manufacture. Consequently, the demand of duty under Rule 9(2) was deemed illegal.

3. The Department argued that relabelling amounted to manufacture under Chapter Note 5 of Chapter 30, requiring duty payment upon clearance. However, the Tribunal, based on a CEGAT decision, held that relabelling should occur during repacking from bulk to retail packs to be considered manufacture. As the goods were returned solely for relabelling due to defective labels without repacking, the Tribunal concluded that relabelling alone did not constitute manufacture. Therefore, Rule 173H applied, and the duty demand was deemed unjustified. The appeal was allowed with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the demand of duty based on relabelling of goods was time-barred, and Rule 173H applied as relabelling alone did not amount to manufacture under Chapter Note 5 of Chapter 30.