2017 (12) TMI 952 - AT - Central Excise

Manufacture - MRP based valuation - allegation of the Revenue is that through their activity of packing and repacking the electric fans and re-labelling the MRP stickers on the cartons in respect of the fans which were sent outside, the appellants had engaged in the process of manufacture under Section 2(f)(iii) of the CEA - whether the activity carried out by the appellants in their Faridabad godown amounts to manufacture under Section 2(f)(iii) of Central Excise Act? - interpretation of statute. Held that - first part of definition in Section 2(f)(iii) involves packing or re-packing of goods specified in Third Schedule in a unit container. In this regard, we find that the activity carried out by the appellants in their Faridabad godown cannot be called as packing or re-packing in unit container because as per the statement of Sh. J.P. Gupta, Dy. General Manager, four motors and four sets of blades received from their factory at Paonta Sahib were packed together in master cartons - The activity cannot be called packing or re-packing of goods in unit containers because the master carton in which four blades sets and four motors sets were packed and MRP sticker applied is not a unit container. Coming to the labelling part, which was carried out in the appellants godown, we find that at the time of receipt of goods, the said goods bore the MRP stickers valid for 10 or 11 states. However, if the said goods were to be dispatched to states other than those 10 or 11 states, the old MRP sticker was changed and a new higher value MRP sticker was affixed - The word re-labelling is followed by the inclusive part which expressly mentions alteration of retail sale price as one type of re-labelling, which on its own would amount to manufacture - the activity of re-labelling of MRP stickers or affixing higher MRP stickers as in the present case amounts to manufacture - the activity carried out by the appellants at their Faridabad godown amounts to manufacture. Extended period of limitation - Held that - the reasoning given by the Ld. Commissioner that the appellants have pre-planned the entire things to evade the central excise duty is not convincing - there does not appear any mens rea on the part of the appellants - extended period not invokable - matter is therefore required to be remanded back to the adjudicating authority to work out the demand for normal period of limitation. Penalty - Held that - In the absence of mens rea, the penalty is not imposable on the appellants under Section 11AC of the Central Excise Act. The penalty on other appellants under Rule 26 of Central Excise Rules, is also not imposable in the absence of any malafide intent. Appeal allowed in part - part matter remanded for purpose of re-quantification of demand for the normal period of limitation.

Issues Involved:
1. Whether the activities of packing, repacking, and re-labelling of MRP stickers on electric fans amount to manufacture under Section 2(f)(iii) of the Central Excise Act, 1944.
2. Whether the demand is barred by the limitation period.
3. Whether penalties under Section 11AC of the Central Excise Act and Rule 26 of Central Excise Rules are imposable.

Detailed Analysis:

1. Whether the activities of packing, repacking, and re-labelling of MRP stickers on electric fans amount to manufacture under Section 2(f)(iii) of the Central Excise Act, 1944:

The appellants argued that the goods were not in a saleable condition as complete fans were not packed in one box and motors and blades were not in the form of sets. They contended that there was no repacking of goods in unit containers, only in outer master cartons, and hence, the question of repacking does not arise. The Revenue, however, argued that the activities of repacking, re-labelling, and affixing higher value MRP stickers amount to manufacture under Section 2(f)(iii) of the Central Excise Act, 1944.

The Tribunal examined Section 2(f)(iii) which includes processes like packing or repacking in a unit container or labelling or re-labelling of containers, including the declaration or alteration of retail sale price, as manufacturing activities. The Tribunal found that the appellants' activities involved re-labelling and affixing higher MRP stickers, which falls under the definition of manufacture as per Section 2(f)(iii). Therefore, the Tribunal held that the activities carried out by the appellants at their Faridabad godown amounted to manufacture.

2. Whether the demand is barred by the limitation period:

The appellants argued that the demand is barred by time and that they had no intention to evade duty since they could have applied the MRP stickers in their factory in Himachal Pradesh, which would have been exempted. The Tribunal noted that the Ld. Commissioner had taken the view that the appellants were aware of the activities of packing/repacking and labelling/re-labelling at their godown and had sought permission for storage of electric fans in a letter dated 09.09.2004. However, the Tribunal found that there was no convincing reason for the appellants to evade payment of central excise duty, as they could have easily applied the higher value MRP stickers at the Paonta Sahib factory itself.

In the absence of any mens rea, the Tribunal held that the extended period is not invokable and remanded the matter back to the adjudicating authority to work out the demand for the normal period of limitation.

3. Whether penalties under Section 11AC of the Central Excise Act and Rule 26 of Central Excise Rules are imposable:

The Tribunal found that in the absence of mens rea, the penalty under Section 11AC of the Central Excise Act is not imposable on the appellants. Additionally, the penalty on other appellants under Rule 26 of Central Excise Rules is also not imposable in the absence of any malafide intent.

Conclusion:

The Tribunal set aside the impugned order and remanded the matter back to the adjudicating authority for the limited purpose of re-quantification of demand for the normal period of limitation. The appeals filed by the appellants were disposed of by way of remand in the above terms.

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