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PJ/Case Law/2014-15/2185

Whether conversion of retail packs any good into bigger/bulk packs amount to manufacturing?

Case:- M/s VARUN COATINGS Vs COMMISSIONER OF CENTRAL EXCISE, THANE-II
 
Citation:-  2014-TIOL-706-CESTAT-MUM

Brief Facts:-  Brief facts of the case were that the appellants were job worker of M/s Asian Paints (I) Ltd. On the direction of M/s Asian Paints, the appellant had received retail packs which were converted into bigger packs in the months of January and February, 2002. The applicant did the repacking from small packs to bigger packs and cleared the same without payment of duty. In fact, they have not taken credit on the inputs. The Revenue was of the view that the reprocessing activity amounts to manufacture of final products. Accordingly, the Revenue held that the appellant was liable to pay duty on their clearance. The other issue in this case was that during the course of reprocessing, certain inputs were destroyed by flood which was cleared by the appellant on payment of duty on transaction value. But the Revenue was of the view that as inputs had not gone into the manufacture, therefore, the appellants were required to reverse the entire amount of credit taken by them. Accordingly, impugned proceedings were initiated and duty demands against the appellant were confirmed along with the interest. Penalties equivalent to duty was also confirmed by way of these two impugned orders. Duty demands against the appellant were confirmed along with the interest. Penalties equivalent to duty was also confirmed by way of these two impugned orders.
 
 
Appellant’s Contention:- Shri Vishal Kumar, authorized representative of the appellant appeared and submitted that as per the direction of the principal manufacturer i.e. M/s Asian Paints, they had done only repacking of the goods from retail to bulk packing and they have not done any reprocessing of the goods. The activity of repacking of duty paid finished paints from retail into bulk packs did not amount to manufacture, therefore, they were not liable to pay duty. It was further contended that they have not taken any CENVAT credit on the invoice issued by the M/s Asian Pains for re-packing. Therefore, they have not issued any invoices. The main reliance by the adjudicating authority was only on a inter office memo written by M/s Asian Paints dated 18.01.2001 wherein it had been stated that the goods were sent to the appellant for reprocessing. In fact, the person who had written this letter did not know the difference between re-packing and re-processing under the excise law. Further, it was contended that the appellant was not having any facility for reprocessing but they have facilities only for repacking. No evidence had been produced by the Revenue as the appellant had done the reprocessing. In these circumstances, the demand on account of manufacturing was not sustainable.
 
 
Respondent’s Contention:- The learned A.R submitted that as per the letter dated 18.01.2002 of M/s Asian Paints (I) Ltd., the goods were sent to the appellant for reprocessing, therefore, the appellant had reprocessed the goods. Hence they were liable for payment of duty. He further submitted that as inputs were not used for processing of the inputs therefore, the entire credit taken on inputs had to be reversed.
 
Reasoning of Judgment:-  After hearing both the sides, Hon’ble judge found that the appellant received the goods from their principal manufacturer for only repacking of the paints from retail packs to bulk packs. There was no evidence on record that the appellant had reprocessed the goods and having any facility at their unit for reprocessing of the same. In the absence of any evidence, merely on the basis of words "sent for reprocessing" could not be taken as evidence for ascertain the fact that the appellant had taken the goods for reprocessing of the goods. Therefore, it was held that the appellant had done only the repacking from retail packs to bulk packs of the impugned goods which did not amounts to manufacture during the impugned period. Therefore, the demand of duty was not sustainable, consequently, penalty was also not sustainable.
                                                 
And in the other issue as inputs were destroyed in flood and not gone into manufacturing, therefore, the appellants were required to reverse the credit taken thereon. The fact was that the appellant had paid duty on the transaction value. The appellant was directed to reverse the entire amount of credit taken on the inputs destroyed in floods. As there was no malafide intention of the appellant for taking credit on inputs destroyed in flood, therefore, no penalty was warranted.
 
 
Decision:-  Appeals disposed off
 
Comment:-  The conclusion of this case was that the department was relying on the words “sent for processing” mentioned in the letter and held that the appellant had reprocessed the goods, but in  the absence of any evidence, merely on the basis of words "sent for reprocessing" it cannot ascertained  that the appellant had taken the goods for reprocessing of the goods. Therefore, it was held that the appellant had done only the repacking from retail packs to bulk packs which does not amount to manufacturing, consequently demand of duty and penalty was also not sustainable.
 
 
Prepared by:- Madhav Rathi

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