Retail repacking and marketability under excise law treated as manufacture; extended limitation upheld and interest applied prospectively.

Cutting bulk chocolate bars into smaller retail pieces and adding nuts and dry fruits was treated as manufacture because Chapter Note 3 to Chapter 18 covers repacking and any treatment that renders goods marketable to consumers. The duty demand was therefore sustained. The extended limitation period was also upheld, as the claim of bona fide belief was rejected and no material showed absence of intent to evade duty. Interest under Section 11AB was held to apply prospectively only, so it was recoverable for the post-commencement period and not for the earlier period; the penalty was reduced accordingly.

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Issues: (i) Whether cutting bulk chocolate bars into smaller pieces and adding nuts and dry fruits amounted to manufacture under Chapter 18; (ii) Whether the extended period of limitation was invocable on the facts; (iii) Whether interest under Section 11AB was payable for the entire demand period.

Issue (i): Whether cutting bulk chocolate bars into smaller pieces and adding nuts and dry fruits amounted to manufacture under Chapter 18.

Analysis: Section 2(f) of the Central Excise Act, 1944 includes processes specified in the relevant chapter notes of the Tariff as manufacture. Chapter Note 3 to Chapter 18 treats labelling, relabelling, repacking from bulk to retail packs, and any other treatment rendering the product marketable to the consumer as manufacture. The process undertaken by the assessee was held to fall within that note because it altered the product in a manner that rendered it marketable in the retail form.

Conclusion: The process amounted to manufacture and the duty demand on that basis was upheld, against the assessee.

Issue (ii): Whether the extended period of limitation was invocable on the facts.

Analysis: The plea of bona fide belief was rejected because ignorance of the levy could not establish such belief, and the record disclosed no material supporting absence of intent to evade. The goods were liable to duty during the relevant period and the assessee had not discharged duty accordingly.

Conclusion: The extended period was rightly invoked, against the assessee.

Issue (iii): Whether interest under Section 11AB was payable for the entire demand period.

Analysis: Sections 11AB and 11AC were held to operate prospectively. Interest could therefore not be levied for any part of the demand period falling before the date on which Section 11AB came into force, but it was recoverable for the later period after commencement.

Conclusion: Interest was payable only for the post-commencement period and not for the earlier period, in favour of both sides in part.

Final Conclusion: The duty demand was sustained, the penalty was reduced, and interest was confined to the period after Section 11AB became effective.

Ratio Decidendi: A process expressly covered by a chapter note as rendering goods marketable amounts to manufacture, and fiscal provisions creating penalty or interest liability apply prospectively unless the statute clearly provides otherwise.

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