By TIOL News Service

MUMBAI, NOV 30, 2013 : THE applicant procured Coco Butter and Coco Powder from their factory at Jammu. 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 imports Coco Butter & Coco Powder on payment of duty. The applicant also takes the credit of duty thereon and thereafter affixed two labels described as label 1 and label 2 on the goods procured by them and same were exported on payment of duty.

Thereafter, the applicant filed rebate claims 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 and, therefore, the activity does not amount to manufacture as the product is already marketable before affixing label.

Therefore, show cause notice was issued and the following demands were confirmed by the CCE, Belapur -

a) Demand for the wrongly availed credit of Rs. 23,02,53,752/-.

b) Rebate erroneously granted on the duty on exported goods by utilizing irregular availed credit to the tune of Rs. 13,22,30,368/-

c) Interest on the above a & b and penalty of Rs. 23,02,53,752/-.

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 CETA, 1985, the activity of labeling or re-labeling 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. It is also submitted that the activity undertaken by the applicants was in the knowledge of the department from the day one as the goods exported are factory stuffed and same were sealed by the Central Excise officer in their factory itself and hence extended period is not invokable.

On the other hand,the Revenue representative 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 CETA, 1985. Therefore, applicant has not made out a case for waiver of pre-deposit and hence they be directed to make pre-deposit of the entire amount.

The Member (Judicial) inter alia observed -

+ Mere labeling would not amount to any manufacturing activity as held bythe Tribunal in the case of M/s. Sree Leathers vs. CCE, Kolkata-V (2011-TIOL-1999-CESTAT-KOL) .

+ As the goods are factory stuffed goods and at the time of stuffing, the concerned Range Inspector of Central Excise has verified that CENVAT Credit is 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 demands for extended period cannot be demanded at this stage.

+ applicant to make a pre-deposit of Rs. 1 Crore.

The Member (Technical) recorded a separate order by saying that his view is at variance with that of the Member (J), both on facts and decision.

+ Goods manufactured in the unit being located in J &K are exempt from payment of duty vide Notification Nos. 56/2002-CE and 57/2002-CE both dated 14.11.2002. Vide the said notifications, the exemption is operated first by payment of excise duty on the goods manufactured and thereafter refunding of duty paid on monthly basis.

+ In case, goods manufactured in J&K are exported out of India, no refund or rebate of duty is granted. This is for the simple reason that such goods are already exempt from duty (though operated through a procedure prescribed under Notification Nos. 56/2002-CE and 57/2002-CE). Notification No.19/2004-CE (N.T.) governs Rebate of duty on export of goods to all countries other than Nepal and Bhutan. Clause (2) of the said notification details “Conditions and limitation”and Sub-Clause (h) of Clause (2) lays down that in case of export of goods manufactured by availing notifications 56 & 57/2002-CE the rebate shall not be admissible under the notification.

+ 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. Applicant 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.

+ It is to be noted that all the information indicated in two extra labels is already available in earlier Labels. I do not find any purpose of putting these extra labels from marketing or consumer or purchaser's point of view, except committing fraud on public exchequer by claiming refund second time (in the name of manufacture at Mumbai).

+ Iam of the prima facie view that activity being carried out does not amount to manufacture and whole exercise of putting the extra labels in Mumbai has been done in order to get refund of duty twice, once in J&K and second time in Mumbai. Refund in Mumbai in respect of goods manufactured in J&K, availing exemption is specifically not allowed as per Notification No. 19/2004-CE (N.T.) dated 6.9.2004. Applicant appears to have succeeded in this fraudulent action for number of years.

+ 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 gives 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. 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. 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. I am therefore of the prima facie view that extended period is correctly invoked in this case.

+ Applicant has not pleaded any financial hardship. Even otherwise, all that is being asked is deposit of refund taken twice, and freezing of credit, financial hardship cannot be a reason to pay back the same.

The Member (T), therefore, passed the following order -

(a) Applicant to deposit in cash an amount of Rs. 13,22,30,368/- (Rupees Thirteen Crores Twenty Two Lakhs Thirty Thousand Three Sixty Eight).

(b) Freeze the Cenvat Credit amounting to Rupees Nine Crore Eight Lakhs Twenty Three Thousand Three Hundred Eighty Four only (23,02,53,752-13,22,30,368=9,80,23,384) 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.

So, the matter came to be referred to the third Member (Technical). We reported this as (2013-TIOL-939-CESTAT-MUM).

The Third Member(Technical) connoted the activity undertaken by the appellant as ‘resorting to deception' and while rejecting the plea of the appellant that section 11A is not applicable by holding that rebate of duty granted under rule 18 falls within the scope of refund mentioned in section 11A also made detailed observations on the aspect of invocation of extended period of limitation similar to that taken by the Member (T) and concluded that he concurred with the view taken by the Member(T).

So, the Majority order is -

++ the applicant is directed to deposit in cash Rs.13,22,30,368/- and freezing of credit of Rs. 9,80,23,384/- or balance of credit available, whichever is lower within 8 weeks.

(See 2013-TIOL-1785-CESTAT-MUM)