Whether putting a label describing the goods with particular code number amounts to manufacture?

PJ/Case Law/2013-14/1963

Case:- CROWN ADHESIVES AND COATINGS Vs COMMISSIONER OF C. EX., THANE-I

Citation:- 2013 (296) E.L.T. 57 (Tri. - Mumbai)

Brief facts:- The facts of the case were that the appellants were importing ‘polyurethane resin’ and clearing on payment of customs duty under Chapter Sub-heading No. 3909 50 00. The said goods were brought to their factory. Label was fixed on the container, indicating their name, describing the goods as ‘solvent free adhesives’ and also indicating certain code numbers assigned by them. These were cleared from the factory after the above process along with another item. The second item was ‘castor oil’ which was being purchased by them locally, the item being classifiable under Chapter No. 1515 30 90. The said item was exempt from payment of excise duty. On the second item also, they did not carry out any activity except pasting a label describing the goods as ‘solvent free hardener’. Here also, they indicated certain code numbers and their own name and address. These two products in the condition in which they were originally imported/purchased locally (except pasting the labels as described above) were cleared by them on payment of excise duty, classifying the goods under Chapter No. 3506 99 99 as adhesives.
A show cause notice was issued proposing to deny the Cenvat credit taken on polyurethane resin imported by them on the ground that the item was being cleared without any processing or manufacture. In the impugned order, the demand had been confirmed, denying the Cenvat credit availed by them. Interest and penalty had also been imposed.

Appellant’s contentions:- The contention of the learned Advocate for the appellants was that as per Note (3) of Section VI and Note (1) of Section VII, goods put up in sets consisting of two or more separate constituents, some or all of which fall in that Section and were intended to be mixed together to obtain a product of Section VI or Section VII, were to be classified in the heading appropriate to that product subject to the condition specified in the said Section Notes. The other contention of the learned Advocate was that as per Note (5) to Chapter 15, process of labeling or relabeling of containers or 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. In view of the said Chapter Note, they were carrying out the activity of manufacture and the credit taken by them was in order. The other contention of the learned Advocate was that even if for some reason it was held that the activity being carried out by them does not amount to manufacture, the credit taken by them could not be recovered as they had utilized the same in the clearance of the final product. In support of his contention, he relied upon the following case laws:-
(1) CCE, Surat-III v. Creative Enterprises - 2009 (235)E.L.T.785 (Guj.);
(2) Vickers Systems International Ltd. v. CCE, Pune-I - 2008 (229)E.L.T.298 (Tri.) = 2008 (10)S.T.R.378 (Tri.);
(3) Ajinkya Enterprises v. CCE, Pune-III - 2011-TIOL-1333-CESTAT MUM = 2013 (288)E.L.T.247 (Tri.);
(4) CCE, Pune-III v. Ajinkya Enterprises - 2012-TIOL-578-HC-MUM-CX = 2013 (294)E.L.T.203 (Bom.);
(5) North Sun Enterprises Industrial Estate v. CCE, J&K - 2012 (284)E.L.T.75 (Tri.);
(6) Delta Corporation v. CCE - 2013 (287)E.L.T.15 (Guj.).

The learned Advocate for the appellants also relied upon the decision of the Hon’ble Supreme Court in the case of CCE, Mumbai-III v. Converter Adhesives & Chemicals (P) Ltd. reported in 2006 (199)E.L.T.194 (S.C.), wherein the Hon’ble Supreme Court had upheld that adhesives based on plastics - goods sold in two sets, one set being a polyurethane resins and the other set being polyisocyanate - polyurethane resin falling under sub-heading 3909.60 when mixed together with second set, they become adhesives classifiable under Heading 35.06 as per Section Note (2) of Section VI and Section Note (1) of Section VII ibid.

Respondent’s contentions:- The learned Commissioner (AR), on the other hand, argued that the goods on which Cenvat credit had been taken were classifiable under Chapter 39, and under Chapter 39 there was no Chapter Note corresponding to Note (5) of Chapter 15. Hence the activity of putting label on the imported polyurethane resin cannot be construed amounting to manufacture. Selling the goods in a set of two items does not make the activity amounting to manufacture so as to permit availment of Cenvat credit by the appellants. The learned Commissioner (AR) further argued that the Hon’ble Supreme Court decision in the case of CCE, Mumbai-III v. Converter Adhesives & Chemicals (P) Ltd.(supra) was for deciding the classification of the product and not whether the process undertaken by the appellants in the present case amounts to manufacture.

Reasoning of judgment:- The Bench had considered the submissions of both the sides. There was no dispute on the facts of the case. It was admitted position that the goods on which Cenvat credit had been taken were being sold as such. Only the activity that was being carried out on these goods was putting a label describing the goods as ‘solvent free adhesives’ with particular code number. There was no provision under the law, which will lead the said activity to be deemed to be amounting to manufacture. Selling adhesives and solvent together does not amount to manufacture. They had also gone through the invoices as also the leaflet of the appellants. It was seen that both the items, viz. adhesives and hardener, were being separately invoiced. They were being charged separately. They also agreed with the contention of the learned Commissioner (AR) that the Hon’ble Supreme Court’s decision in the case cited supra was relating to the classification of the goods when sold as a set. The question in this case was not the classification of adhesives and hardener when being sold together, but whether the activity being carried out on the imported polyurethane resin amounts to manufacture. In view of the facts stated above, we hold that the activity carried out on polyurethane resin would not amount to manufacture.
The learned Advocate for the appellant had quoted a number of judgments to state that the credit had been utilized for the clearance of final product and, therefore, the same could not be recovered again. This contention was correct. However, in the present case, whole of the credit availed did not appear to be used for clearance of polyurethane resin or adhesive, we therefore direct the lower authority to examine how much credit had been utilized for the clearance of polyurethane resin on which credit was availed and demand had to be reduced to that extent. Interest and penalty will also be correspondingly changed.

Decision:- Appeals were disposed off.

Comment:- The analogy drawn from the case is that mere putting a label describing the goods with particular code number shall not amount to manufacture and hence credit shall not be available on the same as there is no provision under the law which states the said activity to be deemed to be amounting to manufacture. Accordingly, demand of credit availed was being upheld along with interest and penalty.

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PJ/Case Law/2013-14/1963

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