2015 (2) TMI 833 - AT - Central Excise

Area based exemption in Jammu & Kashmir - Denial of Cenvat Credit - Manufacturing activity - Labeling / relabeling & Repacking of imported goods being Coco Butter and Coco Powder - Enhance the marketability of the product - proceedings were initiated against the appellant to deny the CENVAT Credit taken by them and consequently denying the rebate claim sanctioned to the appellant along with interest and penalty - Extended period of limitation - Held that - In the case for the duty paid by Jammu unit, the Jammu unit has taken the refund and the Taloja unit has also taken the CENVAT Credit of the duty paid by Jammu unit. If instead of Jammu, the manufacturing unit would have located in some other area where the benefit of Notification No.56/2002 is not available, then it would be alleged the activity of labeling/relabelling amounts to manufacture. As similar issue came before this Tribunal in the case of United Distributors 2015 (1) TMI 983 - CESTAT MUMBAI wherein the facts of the case are that the appellant was engaged in the activity of importing and trading of goods. The goods imported by the appellant were required to pay duty on MRP basis as per Section 3 of the CTA 85. The appellant was fixing sticker in their warehouse after clearance of the goods by discharging duty on the basis of MRP less abatement, the Revenue issued a show-cause notice to the appellant on the premise the activity of fixing stickers amount to manufacture as per Section 2(f)(iii) of the Central Excise Act, 1944. In that case also the goods after importation, wherever it was found that label/sticker was damaged or missing, the activity of labeling of sticker on the said goods took place and the contention of the appellant was that, their activity does not amount to manufacture. In that case, we held that as the activity of fixing MRP stickers took place after clearance of goods from Customs. Therefore, as per Section 2(f)(iii) of the Central Excise Act, 1944, the activity undertaken by the appellant amount to manufacture. In that case, we held that merely putting the stickers shall amount to manufacture. Therefore, following the said decision, we are of the confirmed view that in this case also the activity of fixing labels undertaken by the appellant, which is not in dispute, shall amount to manufacture as per Note 3 of Chapter 18 of the CETA although this activity does not enhance the marketability of the product. On limitation, we find that the activity of affixing the additional label and availlment of CENVAT Credit was known to the department during the impugned period as the appellant were filing their returns regularly and obtained registration for the activity of affixing label on the packages. Further, the issue in question is that whether the labeling/relabelling amount to manufacture or not as per Note 3 to Chapter.18 of CETA although the goods are already marketable needs interpretation of statute. Therefore, the demand for extended period of limitation is also not sustainable. Decided in favour of appellant.

Summary

Issues:
- Demand of Rs. 23,02,53,752/- confirmed for wrong availment of credit and disallowing rebate.
- Whether affixing labels on goods amounts to manufacture as per Central Excise Tariff Act.
- Interpretation of Note 3 to Chapter 18 of the Central Excise Tariff Act regarding manufacturing activities.
- Applicability of extended period of limitation for the demand raised.

Issue 1: Demand Confirmation for Wrong Availment of Credit and Rebate Disallowance
The appellant, engaged in export of Coco Butter and Coco Powder, faced a demand of Rs. 23,02,53,752/- for allegedly wrong availment of credit and disallowance of rebate for the period June 2008 to July 2012. The dispute arose from affixing labels on goods received from Jammu and imported goods at their Taloja unit, leading to denial of CENVAT Credit and rebate claim. The appellant contended that affixing labels did not enhance marketability, thus not constituting manufacture. The Tribunal analyzed the facts and submissions to conclude that the activity of affixing labels, although not enhancing marketability, still amounted to manufacture as per Chapter Note 3 of the Central Excise Tariff Act.

Issue 2: Interpretation of Central Excise Tariff Act Regarding Manufacturing Activities
The central issue revolved around determining whether affixing labels on goods constituted a manufacturing activity as per the Central Excise Tariff Act. The Tribunal extensively reviewed Chapter Note 3 to Chapter 18 of the Act, which deems certain processes as manufacturing, including labeling or re-labeling of containers. The Tribunal deliberated on the definition of deemed manufacture and the alignment of definitions with Section 2(f)(iii) of the Central Excise Act, emphasizing the process of repacking and labeling as activities falling within the ambit of manufacturing. The Tribunal referred to past judgments to establish that affixing labels, even if not enhancing marketability, qualified as manufacture under the Act.

Issue 3: Applicability of Extended Period of Limitation
A crucial aspect examined was the applicability of the extended period of limitation for raising the demand against the appellant. The Tribunal scrutinized the timeline of the department's knowledge regarding the appellant's activities, emphasizing that the issue of whether labeling amounted to manufacture required statutory interpretation. Given the regular filing of returns by the appellant and the need for statutory interpretation, the Tribunal held that the demand for the extended period of limitation was not sustainable. Consequently, the Tribunal set aside the impugned order and allowed the appeal with any consequential relief.

This detailed analysis of the legal judgment highlights the key issues, arguments presented by both parties, statutory provisions, and the Tribunal's findings regarding the demand confirmation, manufacturing activities, and the applicability of the extended period of limitation.