2005 (9) TMI 195 - AT - Central Excise

Issues Involved:
1. Whether the processes carried out by the appellants constitute "manufacture" under the Central Excise Act, 1944.
2. Validity of the duty demands and penalties imposed.
3. Applicability of Notification No. 133/94-Cus. and Notification No. 2/95-C.E.
4. Compliance with the Drugs & Cosmetics Act, 1940 and the Drugs & Cosmetics Rules, 1945.
5. Alleged suppression of facts by the appellants.
6. Jurisdiction and applicability of penalties under Rule 173Q and Section 11AC of the Central Excise Act, 1944.

Detailed Analysis:

1. Whether the processes carried out by the appellants constitute "manufacture" under the Central Excise Act, 1944:
The Tribunal examined the detailed processes (A, B, and C) undertaken by the appellants, which involved various stages of filling, labeling, and packaging of perfumes, deodorants, and other products. The Commissioner had concluded that these processes did not amount to "manufacture" under Section 2(f) of the Central Excise Act, 1944 or the rules/chapter notes of the Central Excise Tariff Act, 1985. However, the Tribunal found that the processes should be treated as "manufacture" in terms of Notification No. 133/94-Cus., especially when considering the broader interpretation of "manufacture" as per the Board's Circular No. 314/30/97 and the Exim Policy. The Tribunal concluded that the processes undertaken by the appellants did constitute "manufacture."

2. Validity of the duty demands and penalties imposed:
The Commissioner demanded a duty of Rs. 60,41,095/- and imposed an equivalent penalty under Rule 173Q read with Section 11AC of the Central Excise Act, 1944. The Tribunal found that if no "manufacture" under the Central Excise Act, 1944 took place, then the duty demands under Section 11A and the penalties under Section 11AC could not be upheld. Furthermore, the penalties under Rule 173Q could not be imposed on a unit in a Free Trade Zone as these units were not covered by Chapter VIIA of the 1944 Rules. The Tribunal also noted that the penalty under Section 11AC was not even proposed in the notice issued, indicating a misdirected application of mind by the Commissioner.

3. Applicability of Notification No. 133/94-Cus. and Notification No. 2/95-C.E.:
The Commissioner denied the benefit of Notification No. 2/95-C.E., stating that the processes did not result in "manufacture" under the Central Excise Act, 1944. The Tribunal disagreed, stating that the broader interpretation of "manufacture" should apply, as supported by the Board's Circular and previous Tribunal decisions. The Tribunal found that the processes undertaken by the appellants did qualify for the benefits under Notification No. 133/94-Cus., and thus the denial of these benefits was incorrect.

4. Compliance with the Drugs & Cosmetics Act, 1940 and the Drugs & Cosmetics Rules, 1945:
The Commissioner alleged that the appellants did not have valid permission from the Drug Controlling authorities and were not complying with the provisions of the Drugs & Cosmetics Act, 1940 and the Drugs & Cosmetics Rules, 1945. The Tribunal did not find sufficient evidence to support these allegations and noted that the permissions from the Development Commissioner and the Food & Drug Authority covered the duty clearance for export or against advance taken, supplies to 100% EOU/FTR, etc.

5. Alleged suppression of facts by the appellants:
The Commissioner alleged that the appellants suppressed the fact that the products contained alcohol and that they did not have valid permissions from the competent authorities. The Tribunal found no substantial evidence to support these allegations and noted that the appellants had raised the issue of "manufacture" and had the necessary permissions from the Development Commissioner.

6. Jurisdiction and applicability of penalties under Rule 173Q and Section 11AC of the Central Excise Act, 1944:
The Tribunal found that the penalties under Rule 173Q and Section 11AC could not be imposed as the processes did constitute "manufacture," and the penalties were not applicable to units in a Free Trade Zone. The Tribunal also noted that the penalties under Section 11AC were not proposed in the notice, indicating a misdirected application of mind by the Commissioner.

Conclusion:
The Tribunal set aside the Commissioner's order, finding that the processes undertaken by the appellants did constitute "manufacture" and that the duty demands and penalties imposed were not valid. The appeal was allowed, and the order demanding duty and imposing penalties was set aside.

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