Whether CENVAT credit can be avail on activity of packing or repacking, labelling or relabeling, inspection etc?

PJ/CASE LAW/2015-16/2750

Case:- HONDA MOTOR INDIA PVT. LTD. Versus COMMISSIONER OF C. EX., CHENNAI-II

Citation:-2015 (318) E.L.T. 163 (Tri. - Chennai)

Brief facts:- The relevant facts of the case, in brief, are that the applicants are registered with the central excise department as “Deemed Manufacturer” of spare parts classifiable under Chapter Heading 8708 of the First Schedule to the Central Excise Tariff Act, 1985. The applicants are procuring their inputs from three different sources. The spare parts are received from their warehouses situated at Mumbai, Kolkata, Greater Noida and Bhiwadi on stock transfer basis. Further, they are also importing automobile spare parts. They are also purchasing spare parts from vendors in bulk quantity. They are undertaking the activity of packing or repacking, labeling or relabeling, inspection etc. The applicants availed Cenvat credit on the spare parts and cleared the goods on payment of duty.
Show-cause notices dated 5-6-2013 and 19-11-2013 were issued proposing to deny the Cenvat credit for the period from November 2008 to October 2012 and from November 2012 to August 2013 respectively. In the Show Cause Notice dated 5-4-2013, it has been alleged that they imported certain automobile parts/components by adopting MRP valuation under Section 4A of the Central Excise Act, 1944 and availed Cenvat credit thereon. As the applicant declared MRP at the time of import, their manufacturing activity had been completed at the Port itself. They are not eligible to avail Cenvat credit at their factory. The adjudicating authority by separate adjudication orders denied the Cenvat credit and confirmed the demand of Rs. 57,69,61,914/- and Rs. 13,14,22,320/- against the show-cause notices along with interest and penalties on the applicant-company and also imposed penalty on the Manager and the Deputy Manager.

Appellant’s contention:-The learned counsel for the applicant submits that there is no dispute that the applicant undertook various process namely inspection, quality checking and repacking of the goods. After repacking, they are affixing the sticker “Marketed by” and the tape having markings of “HONDA”. He drew the attention of the Bench to the provisions of Section 2(f) of the Central Excise Act, 1944. It is contended that after the amendment of Section 2(f) with effect from 1-3-2003, the processes packing or repacking in a unit container or labeling or re-labelling of containers would amount to manufacture.
It is submitted that in the present case, the processes undertaken by the applicant would cover within the definition of Section 2(f) of the Central Excise Act, 1944 and therefore there is no reason to deny the CENVAT credit.
It is further contended that the applicant availed Cenvat credit and paid the duty on the final product and there is no reason to deny the CENVAT credit. It is further submitted that credit taken is less than or equal to the duty paid on the finished goods. He submits that the adjudicating authority proceeded on the basis of various case laws which are prior to amendment to Section 2(f) with effect from 1-3-2003.

Respondent’s contention:-The learned Authorized Representative for Revenue reiterates the findings of the adjudicating authority. He particularly drew the attention of the Bench the decision of the Tribunal in the case of Johnson & Johnson Ltd. v. CCE - 2003 (156)E.L.T.134 which was upheld by the Hon’ble Supreme Court as reported in 2005 (188)E.L.T.467 (S.C.). He submits that in the present case the applicants have not fulfilled any of the conditions as provided in clause (iii) of Section 2(f) of the Act.
He submits that in this case the goods were received in retail pack and MRP has been affixed and the compliance of the Metrological Act was done at the time of importation and therefore there is no repacking from bulk to unit container as also from unit to unit container and only inspection was done.
The purpose of relabelling of the goods is to convey the customer information about the product for making a decision for buying the product. He relied upon the decision of the Hon’ble Supreme Court in the case of Metagraphs Pvt. Ltd. v. Collector of Central Excise - 1996 (88)E.L.T.630 (S.C.).
Mere affixing of the brand would not amount to relabeling of the goods. The goods were already in marketable condition and therefore there were no treatment on the goods for rendering the goods further marketable. He relied upon the decision of the Hon’ble Madras High Court in the case of CCE v. Indian Additives Ltd. - 2014 (302)E.L.T.544 (Mad.). He also relied upon the decision of the Authority for Advance Rulings in the case of Amazon Seller Services Pvt. Ltd. - 2012 (285)E.L.T.449 (A.A.R.) wherein it has been held that value addition is a relevant condition for activity to be treated as manufacture.

Reasoning of judgement:- They find that the issue involved in this case is whether the activity of inspection, labelling, affixing of stickers or re-labelling amounts to manufacture or not and whether the applicant is eligible to avail CENVAT credit. They find that the definition of ‘Manufacture’ under Section 2(f) of the Central Excise Act, 1944 with effect from 1-3-2003 is as under:-
(f) “manufacture” includes any process, -
(i) incidental or ancillary to the completion of a manufactured product;
(ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or
(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer.
There is no dispute that the final products are classifiable under Chapter 87 of CETA and the applicant cleared the goods on payment of duty. Prior to 1-3-2003, the provisions of “Deemed Manufacturer” was inserted in the Chapter Note. Such as, Note 5 of Chapter 30 was as under :-
“In relation to products of Heading No. 30.03, conversion of powder into tablets or capsules, labelling or re-labelling of containers intended for consumers and repacking from bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.
On perusal of the impugned adjudication order, they find that after receiving the imported goods in the warehouse, the applicant undertook the activity of inspection, quality check and repacked it. While repacking, the applicant affixed sticker “Marketed by” and also affixed the tape having the markings of HONDA. Similarly, when the goods were imported in any of the warehouse situated at Mumbai, Kolkata, Greater Noida and Bhiwadi, and in that case “Imported and Packed by” sticker was affixed by respective warehouse and the goods were transferred on stock transfer basis to Chennai from where it was marketed by affixing sticker/labelling. On plain reading of clause (iii) of Section 2(f) of the said Act, it is clear that “manufacture” would include packing/repacking of such goods in unit container or labelling/re-labelling of containers including the declaration or alteration of retail sale price on it for rendering the product marketable to the consumer. With effect from 1-3-2003, the definition of ‘manufacture’ under Section 2(f) has wide amplification. Note 5 of Chapter 30 insofar as prior to amendment on 1-3-2003, it would be “repacking from bulk packs to retail packs”. But after the amendment, it includes “packing or repacking of such goods in a unit container”. In other words, it includes any repacking in unit container.
In the present case, prima facie, they find there is inspection, repacking and relabelling of the container from unit to unit container or bulk to unit container. Thus, there is repacking of such goods in container and covered within the definition of “manufacture” under Section 2(f) of the Act, 1944. The case laws relied upon by the learned AR relating to the definition of Section 2(f) is prior to amendment of Section 2(f) as on 1-3-2003. So, it is not necessary to discuss those case laws at this stage. The decision of the Authority for Advance Rulings in the case of Amazon Seller Services Pvt. Ltd. (supra) is in the context of activities provided online to facilitate the sale of goods by various merchants. The facts of the said case are not applicable to the present case. On a query from the Bench, the learned counsel for the applicant submits that the entire Cenvat credit which they have availed are utilized for payment of duties on repacked goods. This Tribunal in the case of M/s. Godrej Consumer Products Ltd. v. CCE, Puducherry, vide Stay Order No. 41031/2014, dated 3-6-2014, after following the decision of the Hon’ble Supreme Court in the case of CCE v. Narmada Chematur Pharmaceuticals Ltd. – 2005 (179)E.L.T.276 (S.C.) granted unconditional stay on the identical situation. In that case the Hon’ble Supreme Court held that when the amount of Cenvat credit wrongly availed is exactly equivalent to the amount of excise duty paid by not availing the exemption, the consequence is revenue neutral and hence demand of such wrong availment of credit has been rightly quashed by the Tribunal.
After considering the submissions of both sides, they find that the applicant has made out a strong prima facie case for waiver of pre-deposit of entire dues. Accordingly, pre-deposit of duty along with interest and penalties are waived and recovery thereof stayed during the pendency of the appeals. All the stay applications are allowed.
They find that there are several appeals pending on this identical issue and therefore they direct the Registry to list all the appeals including the present appeals for hearing on 29-1-2015.

Decision:- Stay granted.

Comment:-The crux of the case is that manufacture includes repacking and relabeling of goods from unit to unit container or bulk to unit container. In present case, imported goods received in warehouse and after inspection, repacked and re-labelled before transferring the stock. Cenvat credit eligible as entire credit availed or utilized for payment of duties on repacked goods. Credit taken is less than or equal to the duty paid on the finished goods. Hence activity of packing or repacking, labelling or relabeling, inspection etc. is considered as manufacture and credit can be availed on it.

Prepared by:- Monika Tak

Comments

PJ/CASE LAW/2015-16/2750

Post a Comment

Query