2022 (2) TMI 615 - AT - Central Excise

Area Based Exemption - manufacture taking place or not - goods cleared from a unit located in the Industrial Growth Centre or Industrial Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estate or Industrial Area or Commercial Estate - whether the appellant had undertaken any other process or processes amounting to manufacture in the State of Uttarakhand or Himachal Pradesh, which is a condition contemplated in paragraph 4 of the exemption notification? - HELD THAT - It clearly transpire from the aforesaid General Explanatory Notes that the preparations (e.g. varnish), which are suitable for other uses in addition to use as varnish (that is applied on wood) are classified as cosmetics under Chapter 33 only when they are - (a) in packings of a kind sold to the consumer and put up with labels, literature or other indications that they are for use as cosmetics; or put up in a form clearly specialized to such use (e.g. nail varnish put up in small bottles furnished with the brush required for applying the varnish). Thus, it is more than apparent that the colour solution supplied in 20/50 Kg drums from Fiabila cannot be regarded as nail enamel - The packing of nail enamel as contemplated in HSN General Explanatory Notes and the Cosmetics Act has special significance, as without the goods being packed in the specified packing they will not be classifiable or commercially known as nail enamel. The nail enamel takes its name, character and use as such only after being packed in the manner provided. A conjoint reading of the definition of manufacture in section 2(f) (iii) of the Excise Act and Chapter Note 5 of Chapter 33 of the First Schedule to the Excise Act and the aforesaid treatment adopted on the goods (colour solution) by the appellant would render the product marketable to the consumer as nail enamel and, therefore, the appellant would be covered by the exemption notification dated 10.06.2003 since the appellant has adopted such a treatment to the goods that rendered them marketable to the consumer. It is, therefore, not possible to accept the contention advanced by learned authorised representative appearing for the Department that the only change brought about by the appellant when the colouring matter is mixed to a solvent is to reduce the viscosity and this would not amount to manufacture - It cannot also be accepted that when the resultant product achieves superior quality, a new product marketable to the consumers as nail enamel does not come into existence as in the present case it has been found as a fact that a new marketable product comes into existence. The appellant would, therefore, clearly be entitled to the benefit of the area based exemption notification dated 10.06.2003 - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the appellant undertook processes amounting to 'manufacture' as defined under section 2(f) of the Central Excise Act.
2. Eligibility for area-based exemption under Notification dated 10.06.2003.
3. Invocation of the extended period of limitation under section 11A(4) of the Central Excise Act.
4. Imposition of penalty and interest.

Issue-wise Detailed Analysis:

1. Whether the appellant undertook processes amounting to 'manufacture' as defined under section 2(f) of the Central Excise Act:
The appellant, G.S. Pharmabutors Pvt. Ltd., engaged in manufacturing excisable goods like lip-care, eye care, face powder, skin care, and hair care products, added nail enamel to its product line. The raw materials used were color solution and thixo lacquer. The appellant claimed that the processes undertaken, such as testing, homogenization, mixing, adjusting viscosity, filling, and labeling, transformed the raw materials into a new marketable product known as nail enamel. The definition of 'manufacture' under section 2(f) of the Excise Act includes any process incidental or ancillary to the completion of a manufactured product. The Tribunal found that the processes adopted by the appellant rendered the product marketable to consumers, thus constituting 'manufacture.'

2. Eligibility for area-based exemption under Notification dated 10.06.2003:
The exemption notification stipulated that the exemption would not apply if the goods were subjected only to peripheral activities like packing, repacking, or labeling. The Tribunal examined whether the appellant's processes amounted to 'manufacture' beyond these peripheral activities. The Tribunal noted that the appellant's processes, including homogenization and viscosity adjustment, rendered the product marketable as nail enamel. Consequently, the appellant was entitled to the benefit of the area-based exemption notification, as the processes amounted to 'manufacture' in the State of Uttarakhand.

3. Invocation of the extended period of limitation under section 11A(4) of the Central Excise Act:
The Additional Director General invoked the extended period of limitation, covering the period from 2013-14 to June 2017, alleging that the appellant was not entitled to the exemption and had suppressed facts. However, the Tribunal did not find sufficient grounds to uphold the invocation of the extended period of limitation, as the processes undertaken by the appellant were found to amount to 'manufacture,' thereby entitling them to the exemption.

4. Imposition of penalty and interest:
Given that the Tribunal found the appellant's processes to amount to 'manufacture' and thus eligible for the exemption, the imposition of penalty and interest was not justified. The Tribunal set aside the order of the Additional Director General, which had confirmed the demand of penalty and interest.

Conclusion:
The Tribunal concluded that the appellant's processes amounted to 'manufacture,' rendering the product marketable as nail enamel. Therefore, the appellant was entitled to the area-based exemption under the notification dated 10.06.2003. The invocation of the extended period of limitation and the imposition of penalty and interest were not justified. The appeal was allowed, and the order dated 04.03.2020, passed by the Additional Director General, was set aside.