2019 (2) TMI 1386 - AT - Central Excise

Process amounting to manufacture or not - appellant imported ink in bulk and procured the container form third parties in open market. The ink was procured and refilled in these containers and labelled and cleared as such - Refilling of ink/labelling of the containers from bulk drums/cans amounts to manufacture or not? - cenvat credit of CVD - extended period of limitation. Process amounting to manufacture or not? - Held that - The containers are various different sizes shapes which are procured from third party. Ink is transferred to these containers from the control machine by using the same control machine after which the containers are sold. We have also seen that printing ink bulk drums is classified under heading 3215. We also find that the appellant is importing ink filled above said containers and affixing the label on such containers - Even if when these containers are cleared by the appellant after affixing the label on the containers the same were classified under heading 3215. Only reason for holding that the activity amounts to manufacture by the Commissioner is that these containers are specific shapes and sizes of impugned items making them compatible with printers manufactured/traded by them. The impugned items are made as per fitment, which make them unique for their compatible printers only and hence the amounts to manufacture. From the provisions of section 2(f) defines the term manufacture in an inclusive manner which covers both the processes which are commonly understood as manufacture as well as the processes covered in the inclusive clause which are deemed to be manufacture - admitted position is that the items in question do not form part of Third Schedule of the Central Excise Act in section 2(f) (iii). We observed that the Commissioner have given finding that the containers are specialized containers which are specially designed for the purpose of a printer and hence the process of filling and labelling amounts to manufacture. We find that neither these containers nor the ink manufactured by the appellant, therefore, by merely undertaking the process of filling of ink/labelling of the containers which would enable the container to be used for printing. In the present case, filing in to containers enables the impugned items to be used as printing ink. However there is no change in the essential character or end use of printing ink. Thus, no transformation takes place which would result to be referred as manufacturing activity - the character, name and use of the printing ink does not change. Therefore, the process of refilling and relabeling which enables the products to be used with printing ink does not amount to manufacture - Also, the Chapter note 7 to chapter 32 does not refer to heading 3215 or any Tariff item. Therefore, as per Chapter Note 7 to chapter 32, the activity shall not deem as manufacture. Therefore, we hold that the activity undertaken by the appellant does not amount to manufacture - answered in favour of the appellant. Classification of goods - scope of SCN - Held that - Turing the course of adjudication, the Commissioner have travelled beyond the allegation in the show cause notice and classified the impugned products under sub heading 8443 99 51/52 of Central Excise Tariff without assigning any reason/evidence. It is settled law, that the show cause notice is the foundation of the case on which the Revenue has to form its case and in the absence of any allegation with regard to the classification, in the circumstances, the adjudicating authority cannot change the classification of the products. Therefore, the impugned order classifying the goods under 8443 99 60 is beyond the scope of show cause notice. CENVAT credit sought to be denied of CVD on the imported printing ink make up cartridges and wash solution which relabelled and cleared on payment of duty holding that the activity of labelling does not amount to manufacture - Held that - Admittedly in this case, the appellant cleared the said imported goods after refilling on payment of duty. Therefore, if the activity does not amount to manufacture, in that case, the duty paid by the appellant shall amount to reversal of credit. Therefore, the appellant is not required to reverse the credit of CVD availed by the appellant at the time of import. Extended period of limitation - Held that - The appellant is regularly filing their excise returns and specifically mentioned the activity of relabeling or packing does not amount to manufacture - In that circumstance, it is held that the activity undertaken by the appellant was in the knowledge of the department. Therefore, the extended period of limitation is not invokable. Penalty - Held that - As duty confirmed against the appellant is not sustainable, therefore, the question of imposing penalty does not arise. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the activity undertaken by the appellant refilling ink from bulk containers to different types of reservoir and printing ink cartridges amounts to manufacture.
2. Whether the classification of the goods can be changed by the adjudicating authority without alleging in the show cause notice.
3. Whether the credit can be denied to the appellant if the activity of relabeling/refilling of imported goods does not amount to manufacture wherein such goods have been cleared on payment of duty.
4. Whether the extended period of limitation is invokable to the facts of the case.
5. Whether the penalty can be imposed on the appellant.

Issue-wise Detailed Analysis:

Issue 1: Whether the activity undertaken by the appellant refilling ink from bulk containers to different types of reservoir and printing ink cartridges amounts to manufacture.
The Tribunal found that the appellant's activities, including relabeling and refilling ink from bulk drums into smaller containers, do not amount to manufacture. The appellant imported ink in bulk and procured containers from third parties, then refilled and labeled these containers. The Tribunal noted that the containers are of various sizes and shapes, procured from third parties, and the ink remains classified under heading 3215. The Commissioner erroneously classified the goods under subheading 8443 99 60, considering them as parts and accessories of printers. The Tribunal emphasized that the process of refilling and relabeling does not result in a new product with a different name, character, or use, and thus does not constitute manufacture. The Tribunal cited several judgments, including Servo-Medi Industries Pvt. Ltd. and S.R. Tissues Pvt. Ltd., to support this conclusion.

Issue 2: Whether the classification of the goods can be changed by the adjudicating authority without alleging in the show cause notice.
The Tribunal held that the Commissioner exceeded the scope of the show cause notice by reclassifying the goods under subheading 8443 99 51/52 without any basis or evidence. The show cause notice is the foundation of the case, and any change in classification must be alleged in the notice. The Tribunal found that the Commissioner’s classification of the goods as parts or accessories of printers was not supported by any relationship with the printers, as the containers merely hold ink and do not interface with the printers. The Tribunal also noted that the classification declared by the appellant at the time of import was accepted by the department, and thus, the reclassification was not permissible.

Issue 3: Whether the credit can be denied to the appellant if the activity of relabeling/refilling of imported goods does not amount to manufacture wherein such goods have been cleared on payment of duty.
The Tribunal found that the appellant is not entitled to avail credit of CVD paid at the time of import, as the activity of refilling/relabeling does not amount to manufacture as per Chapter Note 7 to Chapter 32. However, following the decision of the Hon’ble High Court of Bombay in Ajinkya Enterprises, if the activity does not amount to manufacture and the goods have been cleared on payment of duty, the duty paid by the appellant shall amount to reversal of credit. Therefore, the appellant is not required to reverse the credit of CVD availed at the time of import.

Issue 4: Whether the extended period of limitation is invokable to the facts of the case.
The Tribunal held that the extended period of limitation is not applicable, as the appellant was regularly filing their excise returns and specifically mentioned that the activity of relabeling or packing does not amount to manufacture. This declaration in the ER-1 returns indicated that the department was well aware of the appellant's activities.

Issue 5: Whether the penalty can be imposed on the appellant.
The Tribunal concluded that since the duty confirmed against the appellant is not sustainable, the question of imposing a penalty does not arise. Consequently, the appeals were allowed with consequential relief, if any.

Conclusion:
The Tribunal set aside the impugned orders, holding that the activities undertaken by the appellant do not amount to manufacture, the reclassification by the Commissioner was beyond the scope of the show cause notice, and the appellant is not required to reverse the credit of CVD. The extended period of limitation is not applicable, and no penalty can be imposed. The appeals were allowed with consequential relief.