RE-PACKING, LABELLING WOULD AMOUNT TO PROCESS OF PACKING AND AMOUNT TO MANUFACTURE.

[Mr. M. GOVINDARAJAN]

                        In the present competitive environment it is used to give free articles along with the saleable products.  Such free articles are packed along with the saleable products.  The free articles may be manufactured by them or it may be purchased from other manufacturers.  The question to be discussed in this article is whether in case the free articles are purchased from other manufacturer for which excise duty is paid, the free articles may be treated as input and CENVAT credit may be taken against such articles with reference to decided case law. 

                        In ‘Prime Healthcare Products V. Commissioner of Central Excise, Daman, Vapi’ – 2009 -TMI - 93662 - (CESTAT, AHMEDABAD) the appellant is engaged in the manufacture of tooth paste falling under Chapter sub heading No. 3306.10 of the Central Excise Tariff Act, 1985 and availing CENVAT credit.  During the period 2001 to 2002 they cleared combi packs containing tooth paste and tooth brush and they also cleared regular pack of identical quantity wherein no toothbrush was supplied along with the pack.   The assessee purchased tooth brush and availed CENVAT credit of the duty in respect of the toothbrush.   The retail price for both types of packages was same.

                        It is the case of the revenue that tooth brush is not an input of tooth paste and the cost of tooth brush is not added in the M.R.P. and hence the assessee had availed CENVAT credit on duty paid on tooth brush in contravention of the provisions of CENVAT Credit Rules, 2004.  After a detailed inquiry a show cause notice was issued to the assessee proposing to disallow and recover from the assessee CENVAT credit amounting toRs.17,47,975/- and Rs.37,094/- wrong taken/availed by the assessee on tooth brush for the period from Marcy 2001 to October 2001 and December 2002 and also for penalty for contravention of the relevant Rules as well as interest on the assessee. 

                        The demand was confirmed by the Adjudicating Authority.   On the appeal before the Commissioner of Central Excise (Appeals), the Commissioner set aside the demand for the extended period Rs.37,094/- and confirm Rs.17,47,975/- and penalty.  The assessee filed this present appeal before the Tribunal.   The assessee contended that combi pack containing tooth brush reaches final stage of marketability only after the packet containing tooth brush is placed with the tooth paste.   Therefore CENVAT credit in respect of tooth brush is admissible.   He relied on the following judgments:

‘Commissioner of Central Excise V. Gupta Soap’ – 2007 -TMI - 1425 - CESTAT, MUMBAI

It was held that duty paid in respect of soap dish in a unipack of soap with dish (both soap and soap was packed together in one pack) credit is admissible in respect of duty paid on soap dish.

‘Lotte India Corporation Limited V. Commissioner’ - 2007 -TMI - 3874 - CESTAT, CHENNAI

It was held that credit of duty paid on product of butter scotch used for manufacture of combi pack coffee bite and butter scotch is admissible.

‘Naga Limited V. Commissioner’ – 2005 -TMI - 54318 - CESTAT, SOUTH ZONAL BENCH, CHENNAI

Duty paid in respect of detergent cake in composite pack with power is eligible for CENVAT credit.

The Tribunal with reference to the above decided case laws found that repacking, labeling etc., as in the present case, process of packing amounted to manufacture and therefore packing the two items together itself amount to manufacture and hence it has to be held that credit is admissible in the present case.

                        Aggrieved against the order of Tribunal, the Department filed an appeal before High Court, Gujarat – 2011 (272) ELT 54 (Guj). Under Sec. 35G of the Central Excise Act, 1944 proposing to formulate the following substantial questions of law:

• Whether the CESTAT is justified in the eyes of law in allowing the CENVAT Credit on the items viz., ‘tooth brush’ which is not manufactured by the assessee but brought out from the open market and the same also not as an input of final product of ‘tooth paste’ and the cost of tooth brush is also not added in the MRP?
• Whether the CESTAT has justified in the eyes of law in setting aside a penalty which has been imposed upon the assessee for contravention of CENVAT Credit Rules, in respect of wrongly availment of CENVAT Credit on ‘tooth brush’?

The High Court examined the reasoning of the Tribunal in view of the provisions contained in CENVAT Credit Rules, 2004.   Rule 3(1) of the Rules says that a manufacturer or producer of final product or a provider of taxable service shall be allotted to take credit of items mentioned therein.   The proviso further states that the CENVAT credit shall be allowed to be taken of the amount equal to central excise duty paid on any input or capital goods received in the factory of manufacture of final product.   The word ‘input’ is defined in Rule 2(k) which also includes accessories of the final products cleared along with the final product.   There is no dispute in the fact that on tooth brush, excise duty has been paid.   The tooth brush is put in the packet along with the tooth paste and no extra amount is recovered from the consumer on the tooth brush.  Considering the above provisions the High Court is of the view that the Tribunal is justified in taking the view that the credit is admissible in the case of the assessee.

                        The High Court further found that the Tribunal supported by the provisions of Sec. 2(f) of the Central Excise Act, 1944 which defines the word ‘manufacture’ which includes any process in relation to the goods specified in the III Schedule, which includes packing or re-packing of such goods in a unit container.  Tooth paste is found in III schedule at Serial No.38 under Heading – sub heading of Tariff item, Entry No. 3306.  Hence, the process of packing and re-packing the input, that is, tooth brush and tooth paste in a unit container would fall within the ambit of ‘manufacture’ as defined under the Act and therefore the assessee would be entitled to claim CENVAT credit of such input.