2017 (7) TMI 754 - AT - Central Excise

Deemed Manufacture - appellant are engaged in manufacture of Computer Bracket Assembly and in addition, they are also engaged in the export of parts / components of motor vehicles to M/s. Hyundai Assan Otomotive Sanayi, Turkey and other countries - whether the activity undertaken by the appellants tantamount to deemed manufacture as per Section 2(f)(iii) of the Central Excise Act, 1944? - Held that - after packing, the shipping mark label is affixed on the box - Three types of packing are undertaken depending on the type of automobile parts. They are (a) carton box packing, (b) wooden box packing and (c) metal pallet packing. The packed carton box is stuffed inside the container for export. The process of labeling and packing explained by the learned Senior Advocate, would satisfy the ingredients of deemed manufacture under Section 2(f)(iii) of Central Excise Act, 1944. The submission of learned AR that such packing is only for the purpose of transportation and that the labeling is only for the purpose of identification are too flimsy and not backed by any legal basis. The Standard of Weights and Measures Act, 1987 though provides for affixing the Retail Sale Price on packaged commodities, the said legislation has nothing to do with the question whether tune activity undertaken by the assessee amounts to manufacture or not. As per sub-clause (iii) of the said definition, packing / repacking or labeling or re-labelling would amount to the process of manufacture and the appellants have been able to successfully establish that such activities have been undertaken by them after purchase of the goods from various vendors till the goods are exported. The activities undertaken by the appellant amounts to manufacture and they are liable to avail CENVAT credit on the inputs / input services used in the export of goods - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the activities undertaken by the appellants amount to deemed manufacture under Section 2(f)(iii) of the Central Excise Act, 1944.
2. Whether the demand for recovery of CENVAT credit along with interest and penalty is justified.
3. Whether the extended period of limitation for issuing the show cause notice is applicable.

Issue-wise Detailed Analysis:

1. Deemed Manufacture under Section 2(f)(iii) of the Central Excise Act, 1944:
The appellants are engaged in the export of auto parts/components and claimed CENVAT credit on inputs and input services. They also claimed rebate under Rule 18 of the Central Excise Rules, 2002. The core issue is whether the activities performed by the appellants, such as packing, repacking, labeling, and applying anti-rust material, amount to deemed manufacture as per Section 2(f)(iii) of the Central Excise Act, 1944. The appellants argued that their activities fall under the definition of deemed manufacture, as they involve packing and labeling of goods specified in the Third Schedule to the Central Excise Tariff Act. The learned AR contended that the labeling and packing were only for transportation purposes and did not amount to manufacture. However, the Tribunal found that the activities undertaken by the appellants, including packing, repacking, and labeling, satisfy the definition of deemed manufacture under Section 2(f)(iii). Therefore, the appellants are entitled to avail CENVAT credit on the inputs and input services used in the export of goods.

2. Justification of Demand for Recovery of CENVAT Credit, Interest, and Penalty:
The show cause notice alleged that the activities of the appellants do not amount to manufacture and proposed to recover the CENVAT credit availed along with interest and impose a penalty. The adjudicating Commissioner confirmed the recovery and imposed an equal amount of penalty. The Tribunal, however, held that the activities of the appellants amount to manufacture and thus, they are rightly entitled to avail CENVAT credit. Consequently, the demand for recovery of CENVAT credit along with interest and penalty was found to be unjustified and was set aside.

3. Applicability of Extended Period of Limitation:
The appellants argued that the credit availed was disclosed in their returns and all necessary details were provided to the department upon request. They contended that there was no suppression of facts with the intent to evade duty, making the invocation of the extended period of limitation unsustainable. The learned AR argued that the appellants should not have taken credit and that the suppression of facts was evident when their rebate claim was rejected. The Tribunal found that the appellants had disclosed the credit availed in their returns and that the goods were exported, making them eligible for rebate on inputs/input services. Therefore, the show cause notice invoking the extended period of limitation was found to be unsustainable.

Conclusion:
The Tribunal concluded that the activities undertaken by the appellants amount to deemed manufacture under Section 2(f)(iii) of the Central Excise Act, 1944. Consequently, the demand for recovery of CENVAT credit along with interest and penalty was unjustified and was set aside. Additionally, the invocation of the extended period of limitation was found to be unsustainable. The appeal was allowed with consequential reliefs as per law.