2022 (1) TMI 448 - AT - Central Excise

Process amounting to manufacture or not - re-packing from the bulk of imported chemical to a smaller packing and re-labeling thereof - whether the process amounts to manufacture or is merely a trading activity? - extended period of limitation - HELD THAT - It is observed that sub-clause (5) of Rule 3 of Cenvat Credit Rules, 2004, which has been relied upon by the adjudicating authority below while confirming the demand against the appellant, comes into picture only when the inputs on which Cenvat Credit has been taken, are removed, as such‟, from the premises of the importer/ manufacturer. As already discussed above, the imported inputs have undergone such changes at the end of the appellant that may be called as manufacture prior those inputs were cleared by the appellant. It becomes abundantly clear that clearance of inputs as such‟, is an absolute wrong finding of the adjudicating authority and hence rule 3 (5) of CCR, 2004 does not apply. The authority has totally ignored the amendment which has come into effect in Chapter Note 10 of Chapter 29 post 1st of March, 2008. Even the case law as relied upon by the adjudicating authority also pertains to the period when the activity both of re-packing from bulk to retail containers and re-labeling thereof was manufacture but post amendment either of these activity being done with respect to the imports that the clearance of said inputs post said activity will be manufacture. The findings of adjudicating authority on this aspect are therefore liable to be set aside. Extended period of limitation - HELD THAT - There is also no denial that show cause notices were issued to the appellant for the same reason as in the present appeal for the immediately prior period (2005- 2011). It does not lie in the mouth of the Department to still allege suppression. Otherwise also the entire dispute appears to be revenue neutral - there appear no revenue consequences. No reasons appear to be available with the appellant to have mala fide intent to evade duty. No evasion is otherwise apparent on part of the appellant. Thus, extended period is held to have wrongly been invoked by the Department. Show Cause Notice itself gets hit by period of limitation. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Allegation of improper availing of Cenvat Credit on imported inputs.
2. Determination of whether re-packing and re-labeling of imported chemicals amount to manufacture or trading activity.
3. Application of Rule 3(5) of Cenvat Credit Rules, 2004.
4. Invocation of the extended period for the demand of Cenvat Credit.

Detailed Analysis:

1. The appellant was accused of not reversing the 4% CVD on imported inputs, leading to a demand for payment of the alleged credit availed. The Department contended that the appellant had cleared the imported inputs without reversing the Cenvat Credit, which was disputed by the appellant.

2. The main issue revolved around whether the re-packing and re-labeling of the imported chemicals constituted manufacturing activity or merely a trading activity. The appellant argued that such activities fell under the definition of manufacture as per Chapter Note 10 of the Central Excise Tariff Act, emphasizing that the imported goods were repacked and cleared after payment of duty.

3. The Tribunal analyzed the definition of manufacture under Section 2 of the Central Excise Act, noting that repacking and relabeling are considered manufacturing activities. It was observed that the appellant's actions of repacking the chemicals into smaller packs and relabeling them met the criteria of manufacture, contrary to the Department's assertion that the goods were cleared "as such."

4. Regarding the invocation of the extended period, the Tribunal found that the appellant had regularly filed returns and that similar issues for the preceding period had been under consideration. The Tribunal concluded that there was no evidence of mala fide intent to evade duty, and the dispute appeared to be revenue neutral. Consequently, the extended period was deemed wrongly invoked, and the Show Cause Notice was held to be time-barred.

Conclusion:
The Tribunal set aside the order, allowing the appeal in favor of the appellant. The findings of the adjudicating authority were deemed incorrect due to the failure to consider the amended provisions related to the definition of manufacture. The appellant's activities of repacking and re-labeling were held to constitute manufacturing, leading to the dismissal of the Department's allegations.