Whether packing of assorted medicaments into single carton and writing details as per customer’s requirement amount to manufacture?

PJ/Case Laws/2012-13/1352

Case:- COMMISSIONER OF CENTRAL EXCISE, HYDERABAD VS M/S NATCO PHARMA LTD.

Citation: - 2012-TIOL-1856-CESTAT-BANG

Brief fact: - The Assessee-unit (M/S NATCO PHARMA LTD) had received the goods in labeled packs (cartons) from another unit of the same company (Nagarjunasagar unit) which had paid duty on the goods in terms of Section 4 of the Central Excise Act. It had so received the goods in terms of a permission granted by the jurisdictional Commissioner under Rule 16 (3) of the Central Excise Rules, 2002, whereby it became entitled to receive duty-paid goods from the other unit for the purpose of storage and marketing. Different cartons so received contained different medicaments. On its part, the assessee-unit took out retail packs of medicaments from different cartons received from the Nagarjunasagar unit and packed them into one carton, marked the essential particulars of the various medicaments on this carton and cleared such cartons containing assorted medicaments to various agencies like ESI hospitals/dispensaries, etc. as per the latter's requirements. According to the department (appellant), this activity amounted to 'manufacture' in terms of Note 5 of Chapter 30 of the First Schedule to the Central Excise Tariff Act, 1985 the goods were liable to be assessed to duty in terms of Section 4A ibid, and accordingly the relevant show-cause notice was issued and the demand has been confirmed against the assessee.

Aggrieved by the same, the assessee filed appeal against the order of Adjudication. The learned Commissioner (Appeals) carefully examined the above activity and held that it did not amount to 'manufacture'. He further held that the only requirement on the part of the assessee at the time of dispatch of goods to consumers was to reverse the CENVAT credit, which had been taken at the time of receipt of the medicaments from Nagarjunasagar unit. The assessee was found to have reversed the credit and, therefore, the demand of duty was set aside and the penalty vacated.

Aggrieved by the same, the Department has filed an appeal against the appellate Commissioner’s order.

Appellant Contention: - The learned Deputy Commissioner (AR) has reiterated the grounds of this appeal and has also referred to Chapter Note 5 (presently Chapter Note 6). It is submitted that the "repacking" done by the assessee was essential for marketing the goods and hence would amount to 'manufacture'.

In this context, reliance is placed on the Hon'ble Supreme Court's judgment in the case of Commissioner of Central Excise, Mumbai Vs. Johnson & Johnson Ltd. [2005 (188) E.L.T. 467(S.C.)]= (2005-TIOL-132-SC-CX).

Respondent Contention:- The learned counsel for the respondent(M/s Natco Pharma Ltd.) also relies on the above judgment of the Hon'ble Supreme Court. He has referred to paragraph 6 of the judgment and has also referred to Chapter Note 5 ibid. It is submitted that there was no 'repacking' done by the respondent in the sense of this term used in the Chapter Note. There was no repacking from bulk pack into retail packs, nor was there any relabeling. What were received from the Nagarjunasagar unit were retail packs packed and labeled and duty-paid. What was done by the respondent was to pick the required quantities of different medicaments from different cartons as per the requirements of the customer and to supply them assorted in a single carton as required by the customer. Such packing, in a single carton, of assorted medicaments cannot be said to be 'repacking' in the sense of this term used in the Chapter Note. The marking of names and quantities of various medicaments over the carton for the convenience of the customer was not ‘relabeling' either. On these facts, the learned counsel has argued in support of the appellate Commissioner's order.

Reasoning of Judgment: The Tribunal held that the Chapter Note under consideration reads as follows:

"In relation to products of heading 3003 or 3004, conversion of powder into tablets or Capsules, labeling or relabeling 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'."

Tribunal further held thatit is an admitted fact that small quantities of retail packs of various medicines were taken from different cartons received from the Nagarjunasagar unit and packed into a single carton and supplied to consumer by the respondent. Obviously, the form in which the goods were cleared by the respondent was an assorted pack of different medicaments. Therefore, the question of repacking from bulk pack to retail packs or relabeling of retail packs does not arise. The respondent is supported by paragraph 6 of the Hon'ble Supreme Court's judgment cited by their counsel. In the present case, the goods received by the respondent from the Nagarjunasagar unit were already marketable and nothing further was done by the respondent. Packing of assorted medicaments into a single carton and writing the names and quantities of such medicaments over the carton were done as per the requirements of the customer and for their convenience. The Chapter Note is not relevant to this context at all. The above activity just served the purpose of Rule 16(3) ibid.

Therefore the Tribunal is in full agreement with the view taken by the learned commissioner (Appeal) and further held that the respondent did not ‘manufacture’ anything and hence did not have any duty liability on the facts of this case. The appeal of the department is therefore dismissed.

Decision:- Revenue appeal dismissed

Comment:-The analogy drawn from this case is that every packing and re-labelling cannot be termed as manufacture and to determine if an activity amounts to manufacture or not, chapter note should be resorted to. When the chapter note clearly deems repacking from bulk to retail packs to be amounting to manufacture, then repacking of goods as received in retail packs as per customers requirement cannot be held to be as amounting to manufacture.

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PJ/Case Laws/2012-13/1352

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