2010 (5) TMI 164 - HC - Central Excise

Manufacture processing of rejected goods manufacture of bulk drugs - The respondent (assessee) was clearing the goods to their buyers after payment of the requisite duty. It was observed that the respondent was receiving back some of their goods from their buyers as rejected under Rule 173H of the Rules and was clearing the same to their customers after carrying out processes, without payment of duty, under Rule 173H of the Rules. The adjudicating authority was of the opinion that the so-called rejected goods were reprocessed and it amounted to manufacture of the goods and hence the respondent was liable to pay duty on the reprocessed goods. Commissioner (Appeals) and Tribunal set aside the demand Held that - the processes carried out by the respondent on the duty paid finished goods which were received back by them being rejected would not amount to manufacture and hence no duty was payable by the respondent on the reprocessed goods. decided in favor of assessee

Summary

Issues: Appeal against orders regarding duty on reprocessed goods under Central Excise Rule 173H.

Analysis:
The case involved an appeal by the Commissioner of Central Excise Commissionerate against orders passed by the Commissioner (Appeals) and the Customs, Excise & Service Tax Appellate Tribunal. The dispute arose when the respondent, a pharmaceutical company, received back some goods as 'rejected' under Rule 173H of the Central Excise Rules after initially selling them to buyers. The issue was whether the processes carried out by the respondent on the duty paid finished goods, received back as rejected, constituted the manufacture of a new product and hence attracted duty payment.

The adjudicating authority initially demanded central excise duty from the respondent, considering the reprocessing of rejected goods as manufacturing. However, the Commissioner (Appeals) overturned this decision, stating that the processes carried out by the respondent did not amount to the manufacture of a new product. The Tribunal upheld this decision, leading to the present appeal.

The key question was whether the processes of re-labelling, repacking, re-blending, and other physical and chemical processes undertaken by the respondent on the returned goods constituted manufacturing as per Chapter Note 11 of Chapter 29 of the Central Excise Tariff, 1985, making them liable for central excise duty. The court emphasized that duty cannot be charged twice on the same goods and cited precedent to support the argument that reprocessing duty-paid finished goods does not amount to manufacturing a new product.

Referring to the case law of Collector of Central Excise Baroda vs. Raj Kamal Synthetics Ltd., the court highlighted that if goods received under Rule 173H are admitted to be finished goods, the processes undertaken do not amount to manufacturing a new product. Therefore, the court concluded that the duty paid on the initial manufacture of the goods exempted the respondent from paying duty on the reprocessed goods. The judgment favored the respondent, upholding the decisions of the Commissioner (Appeals) and the Tribunal, and dismissed the appeal against the duty demand.

In summary, the court ruled that the processes undertaken by the respondent on the returned duty-paid finished goods did not constitute manufacturing of a new product, and hence, no additional central excise duty was payable by the respondent on the reprocessed goods. The judgment was delivered by Hon'ble Mr. Justice Ashutosh Mohunta and Hon'ble Mr. Justice Mehinder Singh Sullar on May 18, 2010.