2021 (6) TMI 714 - AT - Central Excise

Process amounting to manufacture - baby diapers - sanitary napkins - transformation of supplied material into marketable packages necessary for commercial acceptance - N/N. 4/2006-CE dated 1st March 2006 - HELD THAT - It is apparent from the schema of deemed manufacture that emergence of goods of another description from any process to which the enumerated goods are subjected to would take it outside the scope of deemed and requiring conformity with the general comprehension of manufacture or be incidental or ancillary to the completion of a manufactured product in section 2(f) of Central Excise Act, 1944. It is not the case of Revenue that the impugned goods, before or after repacking, are not baby diapers or sanitary napkins but that they do correspond to the description in serial no. 55 of the Third Schedule to Central Excise Act, 1944 - As baby diapers or sanitary napkins are not enumerated in the Third Schedule to Central Excise Act, 1944, their incorporation in notification no. 4/2006-CE dated 1st March 2006 does not suffice for excisability under deemed manufacture to be invoked. It offends the validity of a tax demand to be founded on a judgement except for the dispute that it purports to resolve; only the relevant statute, subject to judicial interpretations of such, can save a demand. Even less so is a random culling in which the issue, as well as the resolution, has been carefully obscured - For the impugned order to appropriate that logic for the proposition that the essence of marketability afforded by a process suffices, and to the exclusion of any or all other conditions in a statute, for goods to be deemed to have been manufactured is but semantic contortion for enabling overreach by the tax administrator. The baby diapers and sanitary napkins are not cleansing or facial tissues, handkerchiefs and towels of paper pulp, paper, cellulose wadding or webs of cellulose fibres in the Third Schedule to Central Excise Act, 1944 - demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Interpretation of the liability to duties of central excise for goods cleared without discharge of levy.
2. Determination of whether the goods fall under the definition of 'manufacture' under the Central Excise Act, 1944.
3. Evaluation of the process undertaken by the appellants in relation to the marketability of the goods.
4. Examination of the applicability of the Third Schedule to the Central Excise Act, 1944 in determining excisability.
5. Assessment of the legislative intent behind the concept of 'deemed' manufacture for goods enumerated in the Third Schedule.

Issue 1:
The Commissioner of Central Excise adjudicated two notices under section 11A of the Central Excise Act, 1944 for recovery of duties on 'baby and clinical diapers' and 'sanitary napkins' cleared without levy discharge. The appellants were held liable for duty, interest, and penalty, while the respondent faced a penalty. The goods were confiscated but could be redeemed on payment of a fine.

Issue 2:
The impugned order concluded that the goods fell under the definition of 'manufacture' as they were repacked for the retail market, necessitating assessment based on 'retail selling price' under section 4A of the Central Excise Act, 1944. The Tribunal relied on the Lakme Lever Ltd case to establish liability.

Issue 3:
The appellants contested the coverage within the Third Schedule, arguing that the goods did not correspond to the description in the Schedule. They cited the Kohinoor Tissue Converting Co. case to support their position that the goods were excluded from the 'retail sale price' assessment.

Issue 4:
The adjudicating authority relied on the fact that the goods were repacked for the retail market, following the decision in Naffar Chandra Jute Mills Ltd. The dispute centered on the inclusion of the goods in the notification prescribing effective rates of duty.

Issue 5:
The Tribunal found that the impugned order erred in not considering the legislative intent behind 'deemed' manufacture of goods listed in the Third Schedule. The demand for duties and penalties was deemed unsustainable based on this analysis.

In conclusion, the Tribunal set aside the impugned order and allowed the appeals, emphasizing the importance of considering the legislative intent behind the concept of 'deemed' manufacture when determining excisability under the Central Excise Act, 1944.