By TIOL News Service

KOLKATA, JUNE 27, 2014 : THE Department has alleged clandestine manufacture and removal of excisable goods against the appellant and in adjudication proceedings a Central Excise demand of Rs.16.69 crores is confirmed along with equivalent penalty. The period involved is July, 2006 to June, 2011.

The case of the department is that the Applicant had received raw materials, i.e. rechargeable batteries, battery chargers, blisters, blister cards etc. from   M/s. Eveready Industries India Ltd. (EIIL)   under cover of commercial challans, and then converted the same into excisable goods known as 'Eveready Rechargeable/Ultima'; affixed the brand name as per the requirement of EIIL, and later sent the said goods to the depot of EIIL against the bills and challans.

It is further contended that the processes of placing of rechargeable batteries with battery chargers of various specifications in the blister card, testing, pasting Hologram Stickers on the blister, affixing the brand name 'Eveready', on the unbranded chargers and then, the whole set is sealed using thermo-sealing machine by putting the goods in between two blisters (upper and lower), resulted into the finished product, that is, 'Eveready Rechargeable/Ultima', which is a new distinct commodity having different commercial name in the market parlance, hence, these processes are 'manufacture' within the definition of Section 2(f)(ii) of CEA,1944 read with Note 6 of Section XVI of the First Schedule to the CETA, 1985. Further, relying upon the General Rules of Interpretation of CETA,1985 it was alleged that in view of Rule 3(b) read with Rule 2(b) of Rules of Interpretation, the final product i.e.'Eveready Chargeable/Ultima', is classifiable under Sub-Headings 85044030 and 85073000 of CETA.

While confirming the demand, the Commissioner observed that conversion of raw materials, components and semi-finished goods into a marketable final product at the Applicant's premises, that is, branding of unbranded battery chargers, performing quality control tests/operations and packaging these chargers along with rechargeable batteries to make a complete marketable set, have resulted into 'manufacture' being incidental or ancillary to the completion of a manufactured product, as prescribed under Sec.2(f)(i) of CEA,1944. The judgment of the Supreme Court in the case of   Grasim Industries Ltd. vs. UOI 2011-TIOL-100-SC-CX is relied upon.

Before the CESTAT the applicant submitted that the finding of the Commissioner is beyond the scope of the demand notice and hence bad in law. Inasmuch in the SCN it is alleged that the processes/activities undertaken by the Applicant is manufacture under Section 2(f)(ii) of CEA read with Note 6 of Section XVI of CETA,1985, whereas while confirming the demand, the Commissioner had observed that the activities/processes carried out by the Applicant fall within the scope of Section 2(f)(i) of CEA, 1944.

It is also submitted inter alia that in absence of any Chapter Note in Chapter 85 or Section Note with a deeming clause, mere packing of different excisable goods, in one single package, would not fall under the scope of 'manufacture'. Furthermore, since the impugned goods are not notified in the Third Schedule to CEA, 1944, Section 2(f)(iii) is also not applicable to the facts of the present case and that mere value-addition by packing the rechargeable batteries with battery recharger would not be construed as resulting into manufacture. The apex court decision in SR Tissues Pvt. Ltd. 2005-TIOL-101-SC-CX  is relied upon.

Further, the demand is time barred as all the facts were within the knowledge of the Department; that they had commenced payment of service tax with effect from July, 2010, by registering with the Service Tax Department, as the activity carried out by them, does not result into manufacture; that for the period, October, 2007 to June, 2010, the Applicant has approached the Department under Voluntary Compliance Encouragement Scheme (VCES, 2013).

The Special counsel for the Revenue laid emphasis on the fact that the impugned goods becomes marketable only after blister packing and on affixing with brand name of   M/s EIIL   and naming of the product as 'Eveready Recharge' (for combo pack) together with other details. Many case laws were cited in support of the department stand and it was also submitted that the department was never informed of the ‘job work' activity undertaken by the applicant.

The Bench after hearing both sides inter alia observed -

++ A delve into the past would remind us the volume of litigation on the issue of whether packing and branding of various products would result into manufacture. To minimize such dispute, relevant chapter notes and section notes have been inserted time and again considering such activity as manufacture with the introduction of new Tariff Act in the year 1985. Clause(ii) of section 2(f) deals with the said situation. Similarly, under clause(iii) of the said section 2(f), the process of packing, labelling etc. has been considered as manufacture in relation to the list of goods mentioned in the Third Schedule to the said Act.

++ In the show cause notice the activity undertaken by the applicant has been alleged as manufacture within the scope of clause (ii) of Sec.2(f) of CEA, considering such activity as manufacture being specified at section note 6 of Section XI of CETA,1985.

++ In confirming the demand, the adjudicating authority, laying emphasis on the aspect of marketability of the product and also considering testing being a process incidental and ancillary to the manufacture of the product, held that the clause (i) of Sec. 2(f) of CEA.1944 is attracted.

++ Prima facie analysis of the facts disclose that the principal activity/processes carried out by the applicant are in the nature of packing and branding and at this stage it is difficult to say that such processes would fall under the scope of the definition of manufacture in absence of a Chapter Note or Section Note.

Noting that the judgments cited by the Special counsel for the revenue are out of place and the fact that the appellant has been discharging Service Tax w.e.f July, 2010 and had filed an application under VCES, 2013 for settling their dues for the period October, 2007 to June, 2010, the Bench concluded that the applicant had made out a prima facie case for total waiver of pre-deposit of adjudged dues.

Holding so, the Bench granted a stay in the matter and allowed the stay petition.

(See 2014-TIOL-1140-CESTAT-KOL)