2022 (3) TMI 227 - AT - Central Excise

Process amounting to manufacture or not - appellant had labelled or relabeled and re-packed activated carbon from bulk to retail or carried out any other process to render it marketable so that its activities fall under Chapter Note 9 to Chapter 38 of the Schedule to Central Excise Tariff Act, 1985 - liability of Central Excise Duty - HELD THAT - It is undisputed that the appellant is selling activated carbon in bags with its own name pre-printed on them. Thus, if the appellant is selling the goods with its own name on the packets, it is labeling the product. Whether it is also packing from bulk to retail packs? - HELD THAT - From the data presented, which is also the basis of the SCN, it is evident that the appellant had in some cases packed 25 kg bags into 50 kg bags, i.e., from smaller bags to larger bags which cannot be called packing from bulk to retail. It is the other way round. Whether the appellant is also carrying out any other process so as to render the product marketable? - HELD THAT - The appellant s position has constantly been that it has not carried out sieving or any other process and hence the activity would not amount to manufacture and hence no duty is payable. Its purchase invoices did not indicate the grade of the activated carbon. On its request, in some of the invoices the suppliers had indicated the grade later. Hence, there was a difference in hand writing which is presumed by the Revenue to be manipulation of invoices. It produced letters from the suppliers to buttress this assertion. Apart from the fact that its purchase invoices / bill of entry do not indicate the grade of the material, while the sale invoices indicate the grade there is no other evidence brought on record by the Revenue that the Activated Carbon was sieved by the assessee. Since the assessee is registered with the Central Excise Department, officers could have gone and inspected and found out if the appellant had the equipment required for sieving the activated carbon to the required grades and was also carrying out this process. In the absence of such direct evidence, the Commissioner has drawn an indirect inference that material was received was sieved only on the ground that the purchase invoices did not have the grade of the material but the sale invoices - this discrepancy may be a cause for doubt but it required further investigation especially when the assessee had categorically denied having ever sieved the material before repacking. In the absence of any positive evidence, the finding in the impugned order that the assessee had carried out this process, cannot be accepted. Since it is found that the assessee has not packed from bulk to retail and there is no evidence, apart from the differences in the invoices, that the assessee actually carried out the process of sieving, the material to the required grade, the assessee is not covered by Chapter Notice 9 to Chapter 38. The processes carried out by the assessee of repacking from retail to bulk and labelling do not amount to manufacture - demand alongwith demand with interest and penalties do not sustain. Appeal allowed - decided in favor of assessee.

Issues Involved:
1. Rectification of Mistake in Final Order
2. Classification and Manufacturing Process under Chapter Note 9 to Chapter 38 of the Central Excise Tariff Act, 1985
3. Demand of Differential Duty, Interest, and Penalty

Issue-wise Detailed Analysis:

1. Rectification of Mistake in Final Order:

The appeals were initially rejected by the Final Order dated 19.07.2018. However, upon an application for rectification of mistake, the Final Order was recalled. The appellant contended that only one application for rectification (E/ROM/30090/2019) was filed by them, covering both appeals (E/684/2009 and E/827/2009), and no application was filed by the Department. The Tribunal’s Miscellaneous Order dated 25.03.2019 mentioned an incorrect application number E/ROM/30086/2019, which was actually an early hearing application filed by the assessee. The High Court dismissed the appellant’s appeal, clarifying that both appeals needed to be reheard if there was an error apparent on the face of the record.

2. Classification and Manufacturing Process under Chapter Note 9 to Chapter 38 of the Central Excise Tariff Act, 1985:

The appellant was involved in the manufacturing and trading of chemicals, including Activated Granular Carbon. The dispute arose over whether the activities of packing and labeling/relabeling of Activated Carbon amounted to manufacture under Chapter Note 9 to Chapter 38. The appellant argued that they packed smaller bags (25 kg) into larger bags (50 kg), which does not constitute manufacturing as per the Chapter Note. The Tribunal found that the appellant did not pack from bulk to retail but from retail to bulk, and there was no evidence of sieving or any other process to render the product marketable. Thus, the activities did not amount to manufacture.

3. Demand of Differential Duty, Interest, and Penalty:

The Commissioner confirmed a partial demand of ?35,93,990/- along with interest and an equal amount of penalty, while dropping the remaining demand. The Revenue contended that the entire demand should be confirmed as the Commissioner’s findings were contradictory. The appellant sought the dropping of the entire demand and penalties. The Tribunal found that the appellant’s activities did not amount to manufacture under Chapter Note 9, as there was no evidence of packing from bulk to retail or any other process to render the product marketable. Consequently, the demand, interest, and penalties were set aside.

Conclusion:

The Tribunal concluded that the appellant’s activities did not amount to manufacture under Chapter Note 9 to Chapter 38, and hence, the demand, interest, and penalties were not sustainable. The impugned order was set aside, and the assessee’s appeal was allowed while the Revenue’s appeal was rejected.

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