2008 (10) TMI 208 - AT - Central Excise

Rule 16 returned goods re-labeling / re-packing Chapter Note 7 of Chapter 27 - The goods returned in packs - These packs were relabelled and repacked into smaller packs - Guru did not pay duty on the clearance after relabelling as the goods had initially been cleared on payment of duty - labelling or re-labelling and packing in retail packs from bulk packs constitutes manufacture as per chapter note held that demand of duty is not sustainable.

Summary

Issues:
1. Whether relabelling and repacking of returned goods amount to manufacture in terms of Chapter Note 7 of Chapter 21.
2. Whether the Commissioner's decision to vacate the demand and penalty ordered by the Original Authority was correct.

Analysis:

Issue 1:
The case involved M/s. Guru Agro Foods Pvt. Ltd. receiving back part of a consignment of Creamy Peanut Butter, which was then relabelled and repacked. The Assistant Commissioner demanded duty under Section 11A of the Central Excise Rules on the clearances of the returned goods, considering the relabelling and repacking as manufacture under Chapter Note 7 of Chapter 21. However, the Commissioner (A) vacated the order, stating that the goods had not become marketable after the operations carried out by the assessee on return, as they were already marketable before re-entering the factory. The Tribunal found that the relabelling and repacking did not constitute manufacture as per the specific wording of Chapter Note 7, which refers to activities to render the product marketable to the consumer. Since the goods were only repacked in bigger packs without any other activity to make them marketable, the Tribunal held that the Note did not apply in this case. Additionally, the Tribunal noted that the impugned order followed a previous order by the same authority, which had become final as there was no appeal against it. Therefore, the Revenue's appeal was dismissed, and the impugned order was sustained.

Issue 2:
The grounds taken in the appeal by the Revenue were based on the argument that the relabelling and repacking of the returned goods amounted to manufacture under Chapter Note 7 to Chapter 21. The Revenue contended that the Commissioner had wrongly vacated the demand and penalty ordered by the Original Authority. However, the Tribunal, after hearing both sides and considering the submissions and case records, disagreed with the Revenue's interpretation. The Tribunal held that the activities undertaken by the assessee did not fall within the scope of manufacture as defined in Chapter Note 7, as there was no additional treatment to render the goods marketable beyond repacking in bigger packs. Therefore, the Tribunal dismissed the Revenue's appeal and upheld the decision of the Commissioner (A) to vacate the demand and penalty.

In conclusion, the Tribunal's judgment clarified that relabelling and repacking of returned goods did not amount to manufacture under Chapter Note 7 of Chapter 21 in this case. The decision to vacate the demand and penalty ordered by the Original Authority was upheld, and the Revenue's appeal was dismissed.