2014 (8) TMI 132 - AT - Central Excise

Deemed Manufacture - affixing labels and MRPs on the individual packages of cosmetics and toilet products - department is of the view that the activity of affixing labels and declaring MRPs amounts to manufacture as the products are notified under the 3 rd Schedule to the Central Excise Tariff Act and therefore, the activity of labelling and affixing MRP amounts to manufacture - Held that - The excise duty demand on imported goods contained in packages of above 10 grams or 10 ml. is not sustainable in law as the activity of labeling/affixing MRP is a statutory requirement before goods are allowed to be cleared for home consumption and therefore, the import is complete only after these activities are undertaken. Further no additional excise duty liability accrues as the additional customs duty (CVD) liability has been discharged on the MRP affixed and the entire exercise is revenue neutral. As regards the goods contained in packages of 10 grams of 10 ml. or less, the activity of labelling/re-labelling would amount to manufacture as there is no statutory requirement of undertaking the said activity before their import can be allowed. However, the appellant would be eligible to take cenvat credit of the CVD paid on such goods. Further, as the entire activity was undertaken with the knowledge and permission of the Customs authorities, the allegation of suppression of facts does not sustain and the duty demand is sustainable only for the normal period of limitation. Since the issue relates to interpretation of law, there is no warrant for imposition of any penalties. Thus the matter is remanded back to the adjudicating authority only for the limited purpose of re-computation of duty demand for the normal period and allowing cenvat credit of the CVD paid on the imported goods, subject to the appellant producing the necessary documentary evidence in this regard. - Decided partly in favour of assessee.

Issues Involved:
1. Whether the activity of affixing labels and declaring MRPs on imported goods amounts to 'manufacture' under Section 2(f)(iii) of the Central Excise Act, 1944.
2. Whether the excise duty demand is sustainable for goods in packages of above 10 grams or 10 ml.
3. Whether the excise duty demand is sustainable for goods in packages of 10 grams or 10 ml or less.
4. Applicability of extended period of limitation for duty demand.
5. Eligibility for Cenvat Credit of Countervailing Duty (CVD) paid on imported goods.
6. Imposition of penalties on the appellants.

Detailed Analysis:

1. Affixing Labels and Declaring MRPs as 'Manufacture':
The appellant, a manufacturer and importer of cosmetics, undertakes the process of affixing labels and MRPs on imported goods before marketing them in India. The department contends that this activity amounts to 'manufacture' as per Section 2(f)(iii) of the Central Excise Act, 1944, since the products are listed under the 3rd Schedule to the Central Excise Tariff Act. Consequently, the appellants are required to discharge excise duty liability on these goods.

2. Excise Duty on Packages Above 10 grams or 10 ml:
The appellant argues that for goods in packages above 10 grams or 10 ml, CVD is already discharged based on the MRP declared, making the exercise revenue-neutral. The Tribunal agrees, noting that the MRP remains unchanged before and after importation, and thus, no additional duty liability accrues. Further, since the activity of labeling and declaring MRP is a statutory requirement before clearance for home consumption, the import is considered complete only after these activities. Therefore, the excise duty demand on these goods is unsustainable and set aside.

3. Excise Duty on Packages of 10 grams or 10 ml or Less:
For goods in packages of 10 grams or 10 ml or less, there is no statutory requirement for labeling or affixing MRPs under the Packaged Commodity Rules, 1977, or the Drugs and Cosmetics Rules, 1945. Hence, the activity of labeling/re-labeling amounts to 'manufacture', attracting excise duty. However, the appellant is eligible for Cenvat Credit of the CVD paid on such goods. The Tribunal remands the matter to the adjudicating authority for re-computation of the duty demand for the normal period and allowing Cenvat Credit, subject to necessary documentary evidence.

4. Extended Period of Limitation:
The Tribunal finds that the appellant had declared all activities to the Customs authorities and undertook them with their knowledge and permission. Therefore, the invocation of the extended period of limitation for duty demand is not sustainable. The duty demand is limited to the normal period of limitation.

5. Eligibility for Cenvat Credit:
The appellant is entitled to Cenvat Credit of the CVD paid on the imported goods. The adjudicating authority is directed to allow this credit, subject to the appellant providing the necessary documentary evidence.

6. Imposition of Penalties:
Given that the issue pertains to the interpretation of law relating to 'manufacture' and valuation, the Tribunal finds no basis for imposing penalties on the appellants. The penalties are thus set aside.

Conclusion:
1. The excise duty demand on goods in packages above 10 grams or 10 ml is unsustainable and set aside.
2. The excise duty demand on goods in packages of 10 grams or 10 ml or less is sustainable, but the appellant is eligible for Cenvat Credit of the CVD paid.
3. The extended period of limitation for duty demand is not applicable.
4. The matter is remanded to the adjudicating authority for re-computation of duty demand for the normal period and allowing Cenvat Credit.
5. Penalties imposed on the appellants are set aside.

Appeal allowed by way of remand.

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