2022 (9) TMI 560 - AT - Central Excise

Area Based exemption - manufacture and clearance of Nail Polish and Nail Polish - process amounting to manufacture or not - invocation of extended period of limitation - peripheral activities - Marketable goods or not - 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 - There is no dispute that the appellant had undertaken the peripheral processes mentioned in paragraph 4 of the notification. Whether any other process or processes, apart from peripheral processes, had been undertaken by the appellant so as to amount to manufacture contemplated in section 2(f) of the Excise Act would have to be examined. The adoption of any other treatment on the goods to render the product marketable to the consumer is one of the requirement set out under section 2(f) of the Excise Act for the process to result in manufacture . Thus, what has to be seen is whether in the present case, adoption of any other treatment on the goods had rendered the product marketable to the consumers. 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 - 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. Eligibility for area-based exemption under Notification dated 10.06.2003.
2. Definition and scope of "manufacture" under section 2(f) of the Central Excise Act, 1944.
3. Invocation of the extended period of limitation under section 11A(4) of the Excise Act.
4. Imposition of penalty and interest.

Issue-wise Detailed Analysis:

1. Eligibility for Area-Based Exemption:
The appellant, engaged in the manufacture of Nail Polish and Nail Polish Remover in Uttarakhand, claimed the benefit of area-based exemption under Notification dated 10.06.2003. This notification exempted certain goods from excise duty if the manufacturing unit was located in specified industrial areas and met certain conditions. The exemption did not apply to goods subjected only to peripheral processes like packing, labeling, etc., unless they also underwent "manufacture" as defined in section 2(f) of the Excise Act.

2. Definition and Scope of "Manufacture":
The core issue was whether the processes undertaken by the appellant amounted to "manufacture" under section 2(f) of the Excise Act. The appellant argued that the processes, including mixing raw materials, adjusting viscosity, and packaging, resulted in a new product'nail enamel'distinct from the raw materials. The Tribunal examined the definition of "manufacture" and relevant chapter notes, concluding that the appellant's processes rendered the product marketable to consumers, thus qualifying as "manufacture."

3. Invocation of Extended Period of Limitation:
The show cause notice invoked the extended period of limitation under section 11A(4) of the Excise Act, covering the period from July 01, 2012, to June 30, 2017. The appellant contested this, arguing that the extended period was unjustified. However, the Additional Director General upheld the invocation, citing the appellant's failure to disclose material facts.

4. Imposition of Penalty and Interest:
The Additional Director General imposed penalty and interest on the appellant, which the appellant challenged. The Tribunal's analysis focused on whether the appellant's processes amounted to "manufacture" and whether the exemption was rightly denied. Given the Tribunal's conclusion that the appellant's processes did constitute "manufacture," the imposition of penalty and interest was deemed unsustainable.

Conclusion:
The Tribunal concluded that the appellant's processes amounted to "manufacture" under section 2(f) of the Excise Act, making them eligible for the area-based exemption. Consequently, the order dated January 29, 2020, was set aside, and the appeal was allowed.