Case Note & Summary
The case involves a batch of civil appeals filed by the revenue (Commissioner of Central Excise) against an order of CESTAT which allowed the respondent-assessee's appeal. The respondent, Jindal Drugs Limited, is engaged in exporting cocoa butter and cocoa powder. Its factory at Jammu manufactures these goods, which are then received at its Taloja unit in Maharashtra. At Taloja, the respondent affixed two additional labels on the packages of the goods received from Jammu and also on imported cocoa butter from China and Malaysia, and then cleared them for export on payment of duty, claiming rebate and cenvat credit of the duty paid by the Jammu unit. The revenue issued a show cause notice alleging that the labelling activity did not amount to manufacture under Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985, as the goods were already marketable. The adjudicating authority confirmed the demand, holding that additional labelling without enhancing marketability does not constitute manufacture, and that the respondent had suppressed facts, justifying the extended period of limitation. CESTAT, however, allowed the respondent's appeal, holding that labelling or re-labelling per se amounts to manufacture under Note 3, and that there was no suppression. The revenue appealed to the Supreme Court. The Supreme Court examined the scope of Note 3, which deems labelling or re-labelling of containers as manufacture, but clarified that such activity must render the product marketable to the consumer. Since the goods were already packaged and marketable, additional labelling did not enhance marketability and thus did not amount to manufacture. The court also found that the respondent had suppressed the fact that only labelling was done, with intent to avail irregular credit, thereby justifying the extended period. Consequently, the Supreme Court allowed the revenue's appeal, set aside the CESTAT order, and restored the order of the adjudicating authority, holding that the cenvat credit and rebate were irregularly availed and that penalty was imposable.
Headnote
A) Central Excise - Manufacture - Labelling - Note 3 to Chapter 18 of Central Excise Tariff Act, 1985 - The issue was whether affixing additional labels on already packaged cocoa butter and cocoa powder amounts to manufacture. The court held that labelling or re-labelling under Note 3 must be such as to render the product marketable to the consumer; if the goods are already marketable, additional labelling does not amount to manufacture. Held that the activity did not enhance marketability and thus did not constitute manufacture (Paras 5.2-5.5, 5.7). B) Central Excise - Limitation - Suppression of Facts - Section 11A of Central Excise Act, 1944 - The revenue alleged suppression of facts by the assessee in not disclosing that only labelling activity was undertaken. The court held that the assessee had suppressed material facts with intent to avail irregular credit, justifying invocation of extended period of limitation. Held that penalty under Rule 15(2) of Cenvat Credit Rules read with Section 11AC was rightly imposed (Paras 5.5, 5.7). C) Central Excise - Cenvat Credit - Eligibility - Rule 3 of Cenvat Credit Rules, 2004 - The assessee availed cenvat credit on duty paid by its Jammu unit and claimed rebate on exports. The court held that since the labelling activity did not amount to manufacture, the credit was irregular and rebate erroneous. Held that credit is allowable only if the process undertaken amounts to manufacture (Paras 5.5, 5.7).
Issue of Consideration
Whether the activity of affixing additional labels on already packaged and marketable goods amounts to 'manufacture' under Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985, and whether the extended period of limitation for demand of duty is applicable due to suppression of facts.
Final Decision
The Supreme Court allowed the revenue's appeal, set aside the CESTAT order dated 16.04.2015, and restored the order in original dated 25.02.2013 passed by the Commissioner of Central Excise, Belapur, confirming the demand of cenvat credit, rebate, interest, and penalty.
Law Points
- Labelling or re-labelling of containers amounts to manufacture only if it enhances marketability
- Note 3 to Chapter 18 of Central Excise Tariff Act
- 1985 is a deeming provision but requires marketability test
- suppression of facts justifies extended period of limitation under Section 11A of Central Excise Act
- 1944
- Cenvat credit not available if process does not amount to manufacture
