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Case title: Commissioner of central excise Belapur V. Jindal Drugs Ltd

Case no: Civil appeal No. 1121 of 2016 and 788-790 of 2022

Dated on: 30th April, 2024

Quorum: Justice Abhay S. Oka and Justice Ujjal Bhuyan

Facts of the case:

This is an Appeal against the Order dated 16.04.2015 passed by Customs Excise and Service Tax Appellate Tribunal (CESTAT) against Appeal No.E/86389/13-Mum.The Respondent is engaged in the business of exporting cocoa butter and cocoa powder. Its factory at Jammu manufactures cocoa butter and cocoa powder. Respondent has another unit located at Taloja. The Cocoa butter manufactured at Jammu are received by the Respondent’s unit at Taloja. In the Taloja unit, respondent affixed two labels on two sides of the packages of the goods received from its Jammu factory and had claimed rebate of the duty paid on the exported goods. Further, respondent availed cenvat credit of the duty paid on those two goods at the time of clearance from Jammu. Respondent also imported cocoa butter and cocoa powder from China and Malaysia which was received at Taloja.The factory of the respondent at Taloja was visited by the officials of the appellant and it was found that the respondent was not only putting labels on the good bought from the Jammu unit but also was putting labels on the imported goods. As the labels were already fixed on the boxes containing the two goods additional labels affixed did not amount to manufacture as the additional labels affixed would not enhance the marketability of the goods which were already marketable. The appellant then issued a show cause notice to the respondents on 09.10.2012 to show cause as to why activity of labelling undertaken by the respondent on the product received from the Jammu unit and also on the imported goods are not to be held as activity of manufacturing in the terms of Note 3 chapter 18 of the Central Excise Tariff Act. It was alleged that the respondent had wrongly availed cenvat credit amounting to Rs. 23,02,53,752/. from the period of June, 2008 to July 2012. It was also alleged that the rebate amounting to Rs. 13,22,30,368 from the period of June, 2008 to July, 2011 was erroneously sanctioned. Thereafter, hearing the respondent, appellant passed an order on 25.02.2013 that the cenvat credit availed was irregular and the rebate sanctioned was erroneous thereby, the respondent was made liable to refund the credit availed for Rs. 23,02,53,752/- and a rebate of Rs. 13,22,30,368/- along with interest and penalty of 23,02, 53,752/- However, the penalty could be reduced to 25%, if the assessee paid the duty within 30 days of order. The Respondent preferred appeal before CESTAT. After hearing the matter CESTAT passed an order dated 16.04.2015 by stating that activity undertaken by respondent is covered by Note 3 to chapter 18 which amounts to manufacture and that there was no suppression or misrepresentation of the material fact by the respondent. That being the position the cenvat credit and the refund availed by the respondent was right and hence no penalty could be imposed. Aggrieved by the same, the appellant has now preferred appeal.

Contentions of the appellant: 
The activity undertaken at the Taloja unit i.e; putting labels on both the sides of the cartons that were labelled at Jammu is not a manufacturing activity. Note 3 to chapter 18 Central Excise Tariff Act cannot be read in the manner that the activity of the labelling amounted to manufacture. The Technical Member of CESTAT had given a good reason to why such an activity cannot be considered as a manufacturing activity.

Contentions of the respondent: 
In Note 3 chapter 18 of the Central Excise Tariff Act, Parliament has consciously replaced the word ‘and’ by the word ‘or’, vide amendment dated 01.03.2008, thereby making it clear that the activity of labelling or re-labelling amounted to “manufacture”.

Legal provisions:

Section 11A (1) of the central excise act- deals with recovery of duties not levied or paid or short-levied or short-paid or erroneously refunded. 
Rule 14 of Cenvat credit rules 2004- credit has been taken wrongly or erroneously refunded. 
Rule 3 of cenvat credit rules- A manufacturer or producer of final products shall be allowed to take credit.   

Issues: 
Whether the activity of labelling amounts to manufacture?

Courts analysis and judgement:

Supreme court examined the definition of “manufacture” under Section 2(f)(ii) under Central excise Act “manufacture” includes any process, (i)incidental or ancillary to the completion of a manufactured product. 
(ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act (5 of 1986) as amounting to manufacture; or 
(iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, and the word “manufacturer” shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account; Therefore, the word ‘manufacture’ includes any process which is incidental or ancillary to the completion of a manufactured product; any process specified in Section or chapter notes of the first schedule to the Central Excise Tariff Act or any process in relations to goods specified in 3rd schedule which involves packing or re-packing, labelling or re-labelling, declaration or alteration of retail sales price or adoption of any other treatment on the goods to render the product marketable. Further, post-amendment of 01.03.2008 to Note 3 to chapter 18 of the Central Excise and Tariff Act, “manufacture” contemplates any of the three processes. The three processes are- 
i) labelling or re-labelling of containers; or 
ii) repacking from bulk packs to retail packs; or 
iii) the adoption of any other treatment to render the product marketable to the consumer. 
If any one of the above three processes is satisfied, then the same would amount to “manufacture” under Section 2 (f) (ii) of the Central Excise Act. There is no dispute as to the activity carried out by the respondent at the Taloja unit. Whether the goods are brought from Jammu or are imported, those re-labelled on both the sides of the pack containing the goods at the Taloja unit and thereafter, introduced in the market or sent for exports, in terms of Note 3 to the chapter 18 this process of re-labelling amounts to “manufacture”. The view taken by the CESTAT is correct and no case for interference is made out. Accordingly, the civil appeal 788-790 of 2022 stands dismissed.

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Judgement reviewed by- Parvathy P.V.

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