2014 (12) TMI 167 - AT - Central Excise

Activity of repacking and change of MRP of toothpaste tubes - manufacturing activity or service activity - Area Based Exemption - department was of the view that the appellant s activity amounted to manufacture, not service and the same attracted central excise duty and since the required declaration for Notification No. 50/2003-C.E. has not been given, and since one of the item in combo pack/promo pack is toothbrush manufactured outside the state, the benefit of this exemption would not be available to the appellant. - Held that - Toothpaste and toothbrushes are mentioned in Third Schedule to the Central Excise Act, 1944. The process undertaken by the appellant involves making promo packs/combo packs of toothpaste and toothbrush (to be given free) so that each combo pack contains one 200 gm. toothpaste tube, one 100 gm. toothpaste tube and one toothbrush. The 100 gm. toothpaste tube, 200 gm. toothpaste tube, toothbrush and combo pack carton with contents and MRP printed, are received from CPIL. Since this process involves repacking and change of MRP of toothpaste tubes, we are prima facie view that the same would be covered by the definition of manufacture. Thus the activity of the appellant, prima facie, is manufacture of toothpaste. There is no dispute that the Khasra No. in which the unit is situated is specified in the Notification No. 50/2003-C.E. and the goods alleged to be manufactured are also covered by this notification - The purpose of the declaration required to be filed in terms of the conditions (i) and (ii) of the Notification No. 50/2003-C.E. is to enable the jurisdictional central excise authorities to ascertain whether the manufacturer is eligible for the exemption after ascertaining as to whether the unit is located in the Khasra No. specified in the notification and whether the goods manufactured are covered by the exemption. We find that all the information as mentioned in the condition (ii) of the notification, Khasra No. and address of the appellant, nature of their activity, etc., was contained in the letter dated 11-10-2007 and 1-11-2007 submitted by CPIL. Beside this, the appellant under impression that their activity is Business Auxiliary Service, had taken service tax registration and were paying service tax on the job charges. When the Department at a later date took a view that the appellant s activity amounted to manufacture, the benefit of duty exemption under Notification No. 50/2003-C.E. could not be denied just on the ground that before effecting clearances they did not file the required declaration. In the circumstances of the case, what the Department seeks is an impossibility - more so when from the facts of the case, it appears that the Department from very beginning had all the information about the location of the appellant s factory and nature of their activity and could have told the appellant that the activity is excisable. - Appellant have a prima facie case in their favour and compliance with the requirement of pre-deposit would cause undue hardship to them. The requirement of pre-deposit of duty demand, interest and penalty is, therefore, waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal. - Following decision of Formica India Division v. CCE reported in 1995 (3) TMI 98 - SUPREME COURT OF INDIA - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the appellant's activity amounts to manufacture under Section 2(f)(iii) of the Central Excise Act, 1944.
2. If so, whether the duty exemption under Notification No. 50/2003-C.E. is available to the appellant.
3. Whether the extended period under proviso to Section 11A(1) is applicable and whether the appellant is liable to penalty under Section 11AC of the Act.

Detailed Analysis:

Issue 1: Whether the appellant's activity amounts to manufacture under Section 2(f)(iii) of the Central Excise Act, 1944.
The Tribunal examined whether the appellant's activity of repacking toothpaste tubes and toothbrushes into combo packs constitutes "manufacture" as defined under Section 2(f)(iii) of the Central Excise Act, 1944. The process involved repacking and changing the MRP of toothpaste tubes, which falls under the definition of manufacture. The Tribunal concluded that the activity does amount to manufacture, stating, "Since this process involves repacking and change of MRP of toothpaste tubes, we are prima facie view that the same would be covered by the definition of manufacture."

Issue 2: Whether the duty exemption under Notification No. 50/2003-C.E. is available to the appellant.
The Tribunal considered whether the appellant is eligible for duty exemption under Notification No. 50/2003-C.E. despite not filing the required declaration. The Tribunal noted that the appellant's unit is located in a specified area and the products are covered by the notification. The Tribunal also took into account that CPIL had filed declarations on 11-10-2007 and 1-11-2007, which included details of the appellant's activities. The Tribunal held that the appellant's failure to file a declaration should not disqualify them from the exemption, especially when the Department had all the necessary information. The Tribunal stated, "In the factual matrix of this case, accepting the Department's stand would mean penalising the appellant for the department's inability to decide in time whether the appellant's activity was taxable service or manufacture attracting central excise duty."

Issue 3: Whether the extended period under proviso to Section 11A(1) is applicable and whether the appellant is liable to penalty under Section 11AC of the Act.
The Tribunal addressed whether the extended period for recovery under Section 11A(1) and the imposition of penalty under Section 11AC were justified. The Tribunal found that the appellant had been transparent about their activities and had sought clarification from the Department, which did not respond. Given these circumstances, the Tribunal concluded that there was no justification for invoking the extended period or imposing penalties. The Tribunal noted, "In view of the declarations dated 11-10-2007 and 1-11-2007 made by CPIL declaring the activity of the appellant and letter dated 28-1-2008 of CPIL and the fact that the appellant was registered as service provider and the department was collecting service tax from them treating their activity as service, there is absolutely no justification for invoking extended period under proviso to Section 11A(1)."

Conclusion:
The Tribunal concluded that the appellant has a prima facie case and that compliance with the requirement of pre-deposit would cause undue hardship. Therefore, the Tribunal waived the requirement of pre-deposit of duty demand, interest, and penalty for hearing the appeal and stayed the recovery thereof until the disposal of the appeal. The Tribunal stated, "The requirement of pre-deposit of duty demand, interest and penalty is, therefore, waived for hearing of the appeal and recovery thereof is stayed till the disposal of the appeal."

(Pronounced in the open Court on 11-7-2012)