Whether repacking of imported polymer can be treated as manufacturing activity?

PJ/Case law/2013-14/1915

Case:- LSR SPECIALITY OIL PVT LTD V/S THE COMMISSIONER OF CENTRAL EXCISE, BELAPUR

Citation:- 2013-TIOL-1704-CESTAT-MUM

Issue:- Whether repacking of imported polymer can be treated as manufacturing activity?

Brief Facts:- The applicants are engaged in the manufacture of lubricants and chemical additives. The raw material for the manufacture of the final products is polymer. The applicants are importing polymer on payment of appropriate duties. Certain quantities of duty paid imported polymer were cleared after reworking and repacking on the transaction value. The demand is confirmed on the ground that the applicants were clearing the duty paid imported polymer as such, therefore the applicants are liable to reverse the credit availed in respect of such polymer as per the provisions of Rule 3(5) of the Cenvat Credit Rules. The applicants filed these applications for waiver of pre-deposit of duty of Rs.11695872/-, interest and penalties.

Appellant’s contention:- The appellants contended that the demand is time barred as the demand is for the period February 2007 to October 2011 and show cause notice was issued on 6.3.2012 by invoking extended period of limitation. Their contention is that they were regularly filing statutory monthly returns showing taking of credit as well as payment of duty hence the allegation of suppression with intent evade payment of duty is not sustainable. The applicants, during argument, admitted that the demand for the normal period comes to approximately Rs. 25 lakhs. They further contended that the issue of limitation was specifically taken before the adjudicating authority. However, the adjudicating authority has not given any finding.

Respondent’s contention:- The Respondent contended that the applicants are importing the polymer by classifying the same under Chapter 39 and after repacking, they were clearing the same by reclassifying under Chapter 38 of the Central Excise Tariff just to take advantage of Chapter Note 10 of Chapter 38 of the Tariff whereby the activity of packing and repacking of the goods classifiable under the Chapter amounts to manufacture. They further submittedthat the applicants never disclosed to them that the applicants were clearing the inputs as such on which credit has been availed rather the applicants in their declaration have shown their final products as lubricants and chemical additives regarding which the applicants were paying appropriate duty. In respect of polymer which is cleared as such, the applicants declared the same as chemical additives just to suppress the material fact that the applicants are clearing imported duty paid polymer as such.

Reasoning of Judgment: - The Hon’ble Tribunal held thatthe admitted facts of the case are that the applicants are importing polymer by classifying the same under Chapter 39 of the Customs Tariff and the same is being cleared as such after repacking. There is no chapter note under Chapter 39 of the Central Excise Tariff to show that repacking amounts to manufacture. The applicants while clearing polymer as such, reclassified the same under Chapter 38 of the Central Excise Tariff. As the applicants are clearing the imported duty paid polymer on which credit has been availed as such, therefore the applicants are liable to reverse the credit availed in respect of polymer. In respect of limitation, they find that the applicants never disclosed to the Revenue regarding their activity that they are clearing polymer as such, rather the applicants have shown in their declaration as chemical additives. The applicants are receiving polymer in metal crates and the polymer is debulked from metal crates into bags and the polymer bags are cleaned, repacked and relabelled. They find that this activity cannot be considered as amounting to manufacture as per the provisions of Section 2(f) of the Central Excise Act. The applicants pleaded financial hardship on the ground that deposit of the amount will cause undue hardship. Keeping in view the facts and circumstances of the case, they find that the applicants have not made out a case for total waiver of duty. The applicants are directed to deposit an amount equal to 50% of the duty confirmed, within a period of eight weeks. On deposit of the same, pre-deposit of the remaining amount of duty, interest and penalties is waived and recovery of the same is stayed during the pendency of the appeals.

Decision:- Stay application allowed on terms.

Comment:- The essence of this case is that as re-packing of polymer classifiable under chapter 39 does not amounts to manufacture, the credit taken on imported polymers is required to be reversed as per the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004.

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PJ/Case law/2013-14/1915

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