Re-processing of duty-paid bulk drugs did not amount to manufacture for a second excise levy after return and repacking.

Re-processing of duty-paid bulk drugs returned by the manufacturer did not amount to manufacture for a second central excise levy. The goods were received back under Rule 173H and subjected to milling, blending, sifting, washing, solvent treatment and repacking, but the Tribunal, following Pepsi Foods, treated these steps as re-conditioning of existing goods rather than production of new goods. Although Chapter 29 Note 11 treats labelling, relabelling, repacking and similar treatment to render goods marketable as manufacture, that principle did not justify a fresh levy on repaired or reprocessed returned goods.

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Issues: Whether re-processing of duty-paid bulk drugs received back by the manufacturer, followed by milling, blending, sifting, washing, solvent treatment and re-packing, amounted to manufacture so as to attract a fresh levy of central excise duty.

Analysis: The bulk drugs were returned after clearance on payment of duty and were re-processed under Rule 173H of the Central Excise Rules. The Tribunal noted that Chapter 29 of the Central Excise Tariff Act, 1985 contains Note 11, under which labelling, re-labelling, repacking from bulk packs to retail packs, or any other treatment to render the product marketable to the consumer amounts to manufacture. However, the earlier decision in Pepsi Foods, which was followed here, had held that incidental re-packing and re-labelling during re-processing of damaged goods does not create a second levy of excise duty. The Tribunal further held that accepting the Revenue's contention would improperly treat repair and re-conditioning of existing goods as excisable manufacture, contrary to the basic principle that excise is attracted only by production or manufacture of new goods.

Conclusion: Re-processing of the returned bulk drugs did not amount to manufacture for the purpose of a second excise levy, and the appeal was allowed in favour of the assessee.

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