2014 (6) TMI 856 - AT - Central Excise

Waiver of pre deposit of duty - manufacture - marketability - whether various processes/activities involved in placing the rechargeable battery and battery charger in blister pack by the Applicant would result into manufacture of an excisable goods within the meaning of Section 2(f) of CEA, 1944. - Penalty u/s 11AC - clandestine manufacture and removal of excisable goods - Held that - Prima facie analysis of the facts disclose that the principal activity/processes carried out by the applicant are in the nature of packing and branding and at this stage it is difficult to say that such processes would fall under the scope of the definition of manufacture in absence of a Chapter Note or Section Note. The judgments cited by the Ld. Special Counsel on the relevance of marketability in ascertaining whether the present resultant product after packing becomes an excisable product or otherwise, in our opinion, are out of place. In the said judgments the issue involved was whether an intermediate product emerges during the course of manufacture of final products be dutiable, thus necessitating the test of the product s marketability. The judgment of Flex Engg s case 2012 (1) TMI 17 - Supreme Court of India is also not relevant to the facts in hand as in the said case the issue was whether CENVAT Credit would be admissible in the premises of the assessee on the machines, as the process of testing carried out in the said premises be called as a process of manufacture. Besides, applicant had discharged the service tax on the said process with effect from July, 2010, and they exercised their option under Voluntary Compliance Encouragement Scheme, 2013 (VCES) for the period from October, 2007 to June, 2010. In these premises, we are of the view that the Applicant could able to make out a prima facie case for total waiver of pre deposit of dues adjudged, accordingly, all dues adjudged is waived and its recovery stayed during the pendency of the appeal - Stay granted.

Issues Involved:
1. Whether the processes/activities undertaken by the Applicant constitute 'manufacture' under Section 2(f) of the Central Excise Act, 1944.
2. Applicability of extended period of limitation due to alleged suppression of facts.
3. Justification of the penalty imposed under Section 11AC of the Central Excise Act, 1944.
4. Whether the Applicant is entitled to waiver of pre-deposit of duty and penalty.

Issue-Wise Detailed Analysis:

1. Whether the processes/activities undertaken by the Applicant constitute 'manufacture' under Section 2(f) of the Central Excise Act, 1944:

The Department alleged that the Applicant was involved in the clandestine manufacture and removal of excisable goods, specifically battery chargers and rechargeable batteries branded as 'Eveready Rechargeable/Ultima'. The processes included placing rechargeable batteries and battery chargers in blister packs, testing, affixing hologram stickers, and branding, which were argued to result in a new distinct commodity. The Department contended that these activities constituted 'manufacture' under Section 2(f)(ii) of the Central Excise Act, 1944, read with Note 6 of Section XVI of the First Schedule to the CETA, 1985.

The Applicant countered that their activities were limited to packing and general testing to ensure working condition, and did not amount to 'manufacture'. The Applicant argued that the raw materials were already marketable as separate entities, and mere packing did not transform them into a new product. They cited several judgments, including CCE, New Delhi vs. SR Tissues Pvt. Ltd., to support their claim that packing does not constitute manufacture.

The Tribunal noted that the principal activities were packing and branding, and without a specific Chapter Note or Section Note deeming such activities as 'manufacture', it was difficult to classify them as such. The Tribunal also found the Department's reliance on marketability to be misplaced, as the cited judgments pertained to intermediate products during manufacturing processes, not the final product in question.

2. Applicability of extended period of limitation due to alleged suppression of facts:

The Department invoked the extended period of limitation, alleging suppression of facts by the Applicant. The Applicant argued that all facts were within the knowledge of the Department and that they had complied with the Voluntary Compliance Encouragement Scheme (VCES) for the period from October 2007 to June 2010, indicating transparency in their operations.

The Tribunal did not find sufficient grounds to support the Department's claim of suppression, noting the Applicant's compliance with VCES and payment of service tax from July 2010.

3. Justification of the penalty imposed under Section 11AC of the Central Excise Act, 1944:

The Department imposed an equal amount of penalty under Section 11AC of the Central Excise Act, 1944, based on the alleged suppression of facts and the resultant duty evasion. The Applicant contested this, arguing that the processes did not constitute 'manufacture' and hence, no duty was evaded.

Given the Tribunal's prima facie finding that the activities might not constitute 'manufacture', the justification for the penalty under Section 11AC was also questioned.

4. Whether the Applicant is entitled to waiver of pre-deposit of duty and penalty:

The Tribunal considered whether the Applicant had made a prima facie case for waiver of pre-deposit of the adjudged duty and penalty. Given the complexities surrounding the definition of 'manufacture' and the Applicant's compliance with service tax regulations and VCES, the Tribunal found that the Applicant had a strong prima facie case.

Consequently, the Tribunal granted a total waiver of pre-deposit of the dues adjudged and stayed the recovery during the pendency of the appeal.

Conclusion:

The Tribunal allowed the stay petition, granting a total waiver of pre-deposit of the adjudged dues and staying the recovery during the appeal's pendency. The judgment highlighted the complexities in defining 'manufacture' and the importance of clear legislative provisions to avoid such disputes.

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