2007 (1) TMI 333 - AT - Central Excise

Summary

Issues:
1. Demand of duty and penalties by the Commissioner.
2. Allegation of manufacture in terms of Chapter Note 4.
3. Prima facie assessment of the appellants' activities and waiver of predeposit.

Issue 1: Demand of duty and penalties by the Commissioner:
The Commissioner demanded around Rs. 11 crores of duty from the appellants and imposed penalties exceeding the duty amount. The appellants were selling garments with packing materials to distributors without paying excise duty, while the garments were imported and cleared after paying Customs duty. The Department considered this activity as dutiable manufacture under Note 4 to Chapters 61 and 62 of the CETA Schedule, leading to the demand.

Issue 2: Allegation of manufacture in terms of Chapter Note 4:
The Chapter note defines "manufacture" to include affixing a brand name, labeling, or repacking to make the product marketable. The show-cause notice alleged that the appellants repacked garments from bulk to retail packs and labeled them. However, the containers sold to distributors lacked labels, and second-hand cartons were used. Without evidence of bulk packs meeting standards, the idea of repacking is not established. Thus, the department's allegation of manufacture under the Chapter Note was not proven, leading to a waiver of predeposit and stay of recovery for the duty and penalties.

Issue 3: Prima facie assessment of the appellants' activities and waiver of predeposit:
After examining submissions and evidence, the Tribunal found that the appellants' activities did not align with processes specified in the Chapter note. The absence of labeling on containers and lack of evidence for repacking from bulk packs raised doubts on the alleged manufacture. Consequently, the Tribunal granted a waiver of predeposit and stay of recovery for the demanded duty and penalties. Due to the significant stake involved, the appeals were scheduled for a final hearing on a specific date to expedite the resolution.

This judgment from the Appellate Tribunal CESTAT, Chennai addressed the demand of duty and penalties by the Commissioner, the allegation of manufacture under Chapter Note 4, and the subsequent waiver of predeposit based on a prima facie assessment of the appellants' activities. The Tribunal scrutinized the appellants' sales process, the absence of labeling on containers, and the lack of evidence for repacking to determine that the alleged manufacture was not substantiated. As a result, the Tribunal granted relief to the appellants by waiving predeposit and staying the recovery of duty and penalties, ensuring a fair and thorough evaluation of the case before final disposition.