Whether merely affixing labels on the product that is already labelled amounts to manufacture?

PJ/Case Law/2013-14/1650

Case:- M/s JINDAL DRUGS LTD Vs COMMISSIONER OF CENTRAL EXCISE, BELAPUR

Citation:- 2013-TIOL-939-CESTAT-MUM

Brief facts:-The brief facts of the case are that applicant is procured Coco Butter and Coco Powder from their factory at Jammu at Taloja. As far as unit is located in Jammu, the goods are cleared to the applicant on payment of duty and applicant took the credit of the duty paid by their Jammu unit. The applicant also import the Coco Butter & Coco Powder on payment of duty. The applicant also takes the credit of duty thereon. Thereafter, applicant affixed two labels described as label 1 and label 2 or the goods procured by them and same were exported on payment of duty. Thereafter, the applicant filed rebate claim which were sanctioned to them. Revenue is of the view that putting label A and label B on the boxes does not make the product marketable to the consumer. Therefore, same does not amount to manufacture as the product is already marketable before affixing label. Therefore, show cause notice issued and impugned order was passed confirming the above said demands. The applicants are seeking waiver of pre-deposit of the same on the premise that as per the Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985, the activity of labeling or re-labelling of containers or repacking form bulk packs to retail packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to manufacture.

Appellant’s Contention:- The appellant submits that it is an admitted position by the adjudicating authority that applicants are putting labels i.e. label A & label B on the carton. Therefore as per Note 3 to Chapter 18 of the Central Excise Tariff Act, the activity amount to manufacture. Therefore, they have rightly availed the credit of duty paid by them and goods have been cleared after this process on payment of duty. Therefore, they have rightly claimed the rebate claim, and therefore the demands are not sustainable. He also submits that the activity undertaken by the applicants was in the knowledge of the departments from the day one as the goods exported are factory stuffed and same were sealed by the Central Excise officer in their factory itself. Therefore, it cannot be alleged that the applicants has taken credit wrongly as their activity does not amount to manufacture, as their rebate claim has already been sanctioned. Therefore, the extended period of limitation is not invokable. The main contention of the Ld. Counsel is that as per Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985 the labeling shall amount to manufacture. The note does not implicate labeling should name the product marketable, infact the process of adoption of any other treatment to render the product marketable to the consumer cannot be linked with the activity of labeling. As per the explanation from P.K Jain , it is summarized that if the goods manufactured in J&K availing exemption vide Notification NO. 56/2002-CE and 57/2002-CE are exported out of India, no rebate of excise duty is allowed/granted under the excise law. In order to circumvent the said law, the applicant adopted an ingenious method. Goods manufactured in J&K, availing exemption from payment of duty, were brought to Mumbai. Coco butter was packed in corrugated and card board boxes each containing 25 Kgs. of Coco butter. Each corrugated box had two similar labels to indicate content, net weight manufacture's name, marketers name etc. This was the position at the time of clearance at J&K and receipt in Mumbai. Goods could have been exported straightaway. However, before exporting, two extra but similar labels were affixed in Mumbai. Applicants claims that this affixing of extra labels, is a process amounting to manufacture in terms of Note 3 to Chapter 18. Since applicant, are manufacturing the goods in Mumbai, they availed credit of duty paid on Coco butter in J&K (though refunded as per Notification 56 & 57/2002-CE dated 14.11.2002) and thereafter paid the duty on the so called manufactured Coco Butter from the said credit and claimed rebate such duty paid in cash. Thus overall, they got refund of duty paid in J-K twice, first in Jammu and second in Mumbai. The concept of manufacture has been subject matter of large numbers of disputes and in the famous case of DCM, the Apex court has described the three attributes of the manufacture viz., distinctive name, character or use. The expansive definitions in various Chapter notes/Section Notes etc. are generally extension of these three attributes and try to capture value addition, due to carrying of certain process/activities on the goods already manufactured- particularly after introduction of Modvat Credit scheme etc.) Process/Activities of course have to have some purpose generally with reference to these three attributes. In the present case, process or activity of putting two extra labels has no such purpose. This is not even covered by Note 3 of Chapter 18, as the goods are already labeled. Putting extra label particularly when all the relevant information is already available on the product is not even labeling. There is no relabeling or any other process mentioned in Note 3. In fact, this Tribunal in catena of cases where label/sticker was put on the goods, has taken view that activity does not amount to manufacture. Many of such judgment s have the approval of Hon'ble Supreme Court also. Infact, in some cases, there was some purpose for putting the extra label/sticker. Ld. Brother has quoted one such judgment. Some other case Laws are Lal International Pvt. Vs. CCE reported in 2003 (154) ELT 520 (Tri-Del) Commissioner of C. Ex, New Delhi vs. Panchsheet Soap Factory reported in 2002 (145) ELT 527 (Tri-Del)

Respondent’s Contentions:-The respondent strongly opposed the contention of the appellant and submitted that mere putting label A & label B does not amount to manufacture as the same does not make the product more marketable to the consumer as per Note 3 to Chapter 18 of the Central Excise Tariff Act, 1985. Therefore, applicant has not made out a case for waiver of pre-deposit. Accordingly, applicant be asked to make pre-deposit of the entire amount. Respondent also submit that appellant in respect of extended period has observed that the impugned goods are factory stuffed goods and at the time of stuffing, the concerned Range Inspector of Central Excise has verified that the Cenvat Credit not availed wrongly thereafter the factory stuffing was allowed. Further, rebate was sanctioned after the following procedures. The respondent further submits that he is unable to agree with appellant both on assumed facts and conclusion. Factory stuffing in presence of Central Excise Officer only implies that the goods stuffed in the export container are as per the description and quantity given in invoice and packing list. The Officer only certifies the quantity and description of goods stuffed in the containers. Inspector is not required to verify the Cenvat Credit taken or activity amounts to manufacture or not or any other thing under the Excise Law during factory stuffing. Facility of factory stuffing is only to obviate the need of examining the goods import area by Customs. Central Excise Rules 2002 or Cenvat Credit Rules 2004 do not require even to examine the goods for export (without getting in stuffed in presence of Excise Inspector and large number of exporters do that). Factory stuffing is an activity for customs purposes and is therefore under Customs Law and nothing to with Central Excise Law. In any case, stuffing Inspector is not an authorized under law to decide about correctness of Cenvat Credit or duty Leviability or whether activity amounts to manufacture. There is no evidence that the officer who supervised factory stuffing was aware that the refund of duty is being claimed twice. Even if he was aware it would only amount to his collusion in the nefarious activity of the applicant. Applicant cannot be allowed to take advantage of all his intentional wrongs in the name of factory stuffing by Inspector. Similarly, while sanctioning the rebate, officers are required to check that goods have been exported (i.e. left the country) and duty was paid and the rebate claim is as per the duty paid. One must appreciate, there is hierarchy of officer and various offices within Central Excise Department. Each officer is authorized to exercise certain power/duties. Just because an Inspector has supervised stuffing of container, one cannot say that department has knowledge of each and every issue/activity of that manufacturer. The respondent pleaded that prima facie view that extended period is incorrectly invoked in this case.

Reasoning of Judgment:-The Tribunal heard both the parties and considered that mere labeling would not amount to any activity as held by this Tribunal in the case of M/s. Sree Leathers vs. CCE, Kolkata-V reported in 2012 (275) ELT 225 (Tri-Kolkata). Therefore, prima facie we are not convinced with the arguments of the appellant that activity labeling amounts to manufacture. The issue whether the activity of amounts to manufacture or not shall be dealt in detail at the time of final hearing. We find that the impugned goods are factory stuffed goods and at the time of stuffing, the concerned Range Inspector of Central Excise has verified that CENVAT Credit not availed wrongly thereafter the factory stuffing was allowed. Further, the rebate claim has been sanctioned to the appellants by following procedure laid down in Rule 18 of the Central Excise Rules read with Notification No. 19/2004. Prima facie we are of the view that demands for extended period cannot be demanded at this stage. As show cause notice was issued and rebate claim was sanctioned in 2011-12. Therefore, at this stage we direct the applicant to make a pre-deposit of Rs. 1 Crore within eight weeks. On such compliance the remaining demands of duty, interest and penalty shall remain stayed during the pendency of the appeal. Compliance is to be reported. The two things to be seen are undue hardships to the applicant and safeguarding the interests of revenue. Hon'ble Supreme Court and various High Courts have deliberated in various judgments on this issue and have evolved three criterion viz. (a) prima facie case (b) balance of convenience, and (c) irreparable loss or financial hardship. As elaborated earlier, applicant has not been able to make any prima facie case. Even my Ld. Brother is of this opinion. On the contrary, case appears to be strongly in favour of Revenue. As far as balance of convenience is concerned, in this case what is being demanded is rebate of duty paid second time and the credit of duty taken in Mumbai. As discussed earlier, applicant has got back refund of duty paid twice, one at Jammu and second time as rebate in Mumbai. What is being asked to pay back is refund of duty paid in Mumbai. Even after paying this to Revenue, applicant will continue to retain the refund of duty paid in Jammu. In view, balance of convenience therefore lies in ensuring that the amount of rebate is deposited back to the public exchequer. As far as demand of credit taken is concerned, a part of it was utililzed for payment of duty. To that extent it will not be appropriate to ask that. As far as balance credit amount is concerned, that must be freezed till the disposal of appeal. In connection with balance of convenience, Hon'ble Supreme Court in the case of Dunlop India Ltd. and other reported in 1985 (19) ELT (S.C.) = (2002-TIOL-156-SC-CX) has gone to the extent of saying that even if there is prima facie case in favour of company, it is not sufficient justification for granting of stay. Balance of convenience has also to be seen. Hon'ble A.P. High Court in the case of SQL Star International Ltd. vs. C.C. Hyderabad reported in (2012-TIOL- 146-HC-AD-ST) has observed that the balance of convenience must be clearly in favour of making an interim order and that should not be slightest indication of a likelihood of prejudice to the interest of revenue. Tribunal is therefore of the view that in the circumstances of the case balance of convenience indicates that amount is paid/deposited to public exchequer. It is also noted that applicant has not pleaded any financial hardship. Even otherwise, all that is being asked is deposit of refund twice, and freezing of credit, financial hardship cannot be a reason to pay back the same. In view of proceeding paras, we order

(a) Applicant to deposit in cash an amount
(b) Freeze the Cenvat Credit or the balance of credit available, whichever is lower.
(c) On compliance of (a) & (b) stay from recovery of interest penalty and balance amount of credit. Above amount credit to be paid within 8 weeks from the date of pronouncement of order. Application No. E/S/94517/2013-Mum. In Appeal No. E/86389/2013-Mum. As there is a difference of opinion between the Members of the Bench, the matter may be placed before the Hon'ble President to refer it to a 3 rd Member to decide the conditions of stay.

Decision:- Matter referred to Third Member as there was difference of opinion.

Comment:- The crux of this case is that putting extra label particularly when it is not required and the product is already labelled will not amount to ‘manufacture’. Prima facie, the case is tilted in favour of revenue and there was difference of opinion between the Members of the Bench, w.r.t the conditions to be imposed for granting stay and so the matter has been referred to the third member.

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PJ/Case Law/2013-14/1650

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