2007 (7) TMI 63 - AT - Customs

Demand and penalty Department contended that the activity of repacking and affixing sticker of MRP undertaken by the appellant is amounted to manufacture and accordingly demand were made along with penalty Held that intention to evade payment of duty not attributable and accordingly penalty set aside

Summary

Issues:
1. Whether the activity of repacking and affixing MRP stickers on imported watches amounts to 'manufacture' for the purpose of excise duty?
2. What is the correct classification of the goods manufactured through the repacking activity?
3. Whether the demand of excise duty on MRP basis, despite the watches being cleared on duty payment on the same basis, is justified?
4. Whether the assessee can utilize CENVAT credit to satisfy the demand of excise duty imposed by the Commissioner?
5. Whether the penalty imposed on the appellants should be set aside in the given circumstances?

Analysis:
1. The Commissioner demanded excise duty and penalty from the appellants for repacking imported watches with MRP stickers, considering it as 'manufacture'. The Tribunal acknowledged the activity as 'manufacture' under Section 2(f)(iii) of the Central Excise Act, agreeing with the Commissioner's finding. However, the Tribunal allowed the assessee to pay the duty using CENVAT credit, which exceeded the demanded amount. The Tribunal emphasized that the intent to evade duty was not present as the credit available could cover the duty demand.

2. The Tribunal recognized the need to determine the correct classification of the goods resulting from the repacking activity. While the primary issue was the 'manufacture' status, the Tribunal did not delve into a detailed classification analysis, focusing instead on the duty payment mechanism using CENVAT credit.

3. The debate centered on whether demanding excise duty on MRP basis for repacked watches, already cleared on the same basis, was justified. The Tribunal found that the demand should be met through CENVAT credit, considering the revenue-neutral situation and the availability of credit exceeding the duty demand.

4. The Tribunal concluded that the assessee could utilize the CENVAT credit to pay the excise duty, rendering the penalty unjustified given the circumstances. By setting aside the penalty and upholding the demand with modification for payment through available credit, the Tribunal ensured a fair resolution without attributing an intent to evade duty to the assessee.

5. In light of the above analysis, the Tribunal decided to vacate the penalty imposed on the appellants, considering the availability of CENVAT credit exceeding the duty demand as a mitigating factor. The appeal was disposed of with the modified order sustaining the demand but removing the penalty, ensuring a just outcome in the given circumstances.