Process Of Re-Labelling Amounts To ‘Manufacture’ SC Affirms CENVAT Credit Availed By Jindal Drugs Ltd.

Case title: Commissioner of Central Excise, Belapur v. Jindal Drugs Ltd.

Case no.: Civil Appeal No. 1121 of 2016

Order on: 30^th April 2024

Quorum: Justice Ujjal Bhuyan and Justice Abhay S. Oka

FACTS OF THE CASE

In the legal landscape of taxation and excise duties, the interpretation of what constitutes “manufacture” holds significant implications for businesses and revenue authorities alike. A recent case, Jindal Drugs Limited Vs. Commissioner of Central Excise, Belapur, delved into this intricate question, revolving around the activity of labelling undertaken by a company and its classification under the Central Excise Act, 1944.

Jindal Drugs Limited, engaged in the export of cocoa butter and cocoa powder, had a factory in Jammu and another unit in Taloja, Maharashtra. The Taloja unit received goods from Jammu and also imported cocoa butter and cocoa powder. The company affixed additional labels on the goods received from Jammu and imported goods before exporting them. The dispute arose when the revenue authority challenged the classification of this labelling activity as “manufacture,” arguing that it did not enhance marketability.

CONTENTIONS OF THE APPELLANT

1. The appellant argued that the activity of labeling undertaken by the respondent at its Taloja unit, particularly putting labels on cartons that were already labeled at the Jammu unit, should not be considered a manufacturing activity. They emphasized that Note 3 to Chapter 18 of the Central Excise Tariff Act should not be interpreted to include labeling as manufacture.
2. The appellant highlighted the division of opinion within the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) regarding whether labeling constitutes manufacture. They pointed out that while the Judicial Member of CESTAT held that labeling amounted to manufacture according to Note 3 of Chapter 18, the Technical Member disagreed, arguing that no manufacturing had occurred.
3. The appellant contested the decision of the third member of CESTAT, who sided with the Judicial Member’s interpretation, concluding that labeling at the Taloja unit constituted manufacture. They argued that the third member erred in concurring with the Judicial Member and advocated for the restoration of the original order passed by the appellant.

Overall, the appellants sought to establish that the labeling activity conducted by the respondent did not meet the criteria for manufacture as defined by Note 3 to Chapter 18 of the Central Excise Tariff Act. They contested the interpretation of this provision and sought to overturn the decision of CESTAT in favor of the respondent.

CONTENTIONS OF THE RESPONDENTS

The respondents argue that according to Note 3 to Chapter 18 of the Central Excise Tariff Act, the activity of labeling or re-labeling of containers amounts to manufacture. They emphasize the legislative intent behind the amendment that replaced “and” with “or” between the expressions ‘labeling or re-labeling of containers’ and ‘repacking from bulk packs to retail packs’, thereby widening the scope of activities constituting manufacture.

They contend that the process of labeling or re-labeling of containers should be considered independent and separate from repacking from bulk packs to retail packs. Thus, the activity of labeling should be viewed distinctly as one of the processes amounting to manufacture.

The respondents argue that they rightfully availed the cenvat credit of duty paid at their Jammu unit and claimed rebate on the duty paid while exporting goods from their Taloja unit. They assert that both units are separate, and therefore, they are entitled to avail these benefits without any irregularity.

The respondents deny any suppression or misrepresentation of material facts, asserting that their activity of labeling at the Taloja unit was in accordance with Note 3 to Chapter 18 of the Central Excise Tariff Act. They argue that since the issue revolves around the interpretation of a statutory provision, there was no suppression to warrant an extended period of limitation by the appellant.

Finally, the respondents argue against the imposition of penalties, stating that they acted within the provisions of the law and did not engage in any fraudulent activity.

These contentions ultimately led to the affirmation of the CESTAT’s decision in favor of the respondents, dismissing the appeal by the revenue.

LEGAL PROVISIONS

1. Section 35L(1)(b) of the Central Excise Act, 1944: This section pertains to appeals to the Supreme Court from orders of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
2. Central Excise Act, 1944: Various provisions of this act are referred to throughout the judgment, including Section 11A(4) (formerly Section 11A(1)), Section 11AB (now Section 11AA), Section 11AC(1)(a), Rule 14 of the Cenvat Credit Rules, 2004, and Rule 15(2) of the Cenvat Credit Rules.
3. Central Excise Tariff Act, 1985: Note 3 to Chapter 18 of this act is specifically referenced. Note 3 defines activities that amount to “manufacture” in relation to products of Chapter 18.

ISSUE –

• Whether the activity of labelling undertaken by Jindal Drugs Limited amounts to “manufacture” under the Central Excise Act?
• Whether the benefits claimed by the respondent, such as cenvat credit and rebate, were rightfully availed?

COURT’S ANALYSIS AND JUDGEMENT

The Court analyzed Note 3 to Chapter 18 of the Central Excise Tariff Act, focusing on the amendment made in 2008. The amendment replaced ‘and’ with ‘or’ between different processes, expanding the scope of what constitutes manufacture. The Court held that any one of the processes listed in Note 3 would amount to manufacture.

In the case at hand, the activity of labelling undertaken by the respondent fell within the purview of Note 3, as it was an independent process aimed at rendering the product marketable to consumers. Thus, the Court affirmed the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), holding that the labelling activity constituted manufacture.

The Jindal Drugs case underscores the importance of statutory interpretation in tax matters. The Court’s interpretation of what constitutes “manufacture” has far-reaching implications for businesses and revenue authorities. This judgment provides clarity on the classification of certain activities and sets a precedent for similar cases in the future.

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Judgement Reviewed by – Chiraag K A

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