2008 (7) TMI 311 - HC - Central Excise

Appeal dismissed: activities not 'manufacture' under Section 2(f) so no excise duty; Modvat credit cannot be denied

HC dismissed the appeal, upholding the Tribunal's reasoning that the respondent-assessee's activities did not constitute 'manufacture' under Section 2(f) ... Manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944 - Modvat credit entitlement - repacking as manufacture - concurrent findings of fact - no substantial question of lawManufacture within the meaning of Section 2(f) of the Central Excise Act, 1944 - repacking as manufacture - Modvat credit entitlement - Whether the Tribunal was justified in granting Modvat credit where the final product resulted from repacking and whether such activity amounts to manufacture within Section 2(f) so as to permit credit. - HELD THAT: - The appellate authority found on facts that the assessee received duty-paid bulk material, carried out testing/inspection and repacked the material into smaller marketable packages using automatic/special purpose machinery, followed prescribed rules and cleared the goods on payment of duty. Applying the extended definition of 'manufacturer' in Section 2(f), which includes processes incidental or ancillary to completion of a manufactured product and processes specified in Chapter Notes, the appellate authority treated repacking with a conscious end-use (making the product marketable) as amounting to manufacture. The Tribunal accepted those factual findings and observed that if there is levy of duty on the final product, Modvat credit cannot be denied by treating there was no manufacture; where duty was paid and inputs were used in manufacture, credit is allowable. The Tribunal also relied on its earlier order in the same assessee's case. Given concurrent factual findings by Commissioner (Appeals) and the Tribunal on the nature of activities and utilisation of duty-paid inputs, the High Court held that no substantial question of law arises to warrant interference. [Paras 4, 6, 7]Concurrent findings that repacking amounted to manufacture were upheld and the Tribunal's grant of Modvat credit was sustained.Final Conclusion: The appeal is dismissed; the Tribunal's order allowing Modvat credit on the facts that repacking into saleable packs constituted manufacture under Section 2(f) and that duty-paid inputs were utilised is affirmed, and no substantial question of law is made out. Issues:1. Interpretation of Modvat credit eligibility under Central Excise Act, 1944 for goods not undergoing manufacturing process.2. Determination of manufacturing activity in the context of repacking goods.3. Consideration of Modvat credit on duty paid inputs and its applicability.Issue 1: Interpretation of Modvat credit eligibility:The appellant questioned the Tribunal's decision on granting Modvat credit for goods not undergoing the manufacturing process. The appellant argued that the respondent, not being a manufacturer but an agent, should not be entitled to Modvat credit under Rule 57-I(1)(iii) of the Central Excise Rules, 1944. The appellant relied on previous court decisions and challenged the Tribunal's reliance on its own previous order. However, the first appellate authority considered the definition of 'manufacturer' under Section 2(f) of the Central Excise Act, 1944, which includes processes incidental to product completion. The authority concluded that the repacking process undertaken by the appellant, leading to marketable products, qualifies as manufacturing. The appellate authority allowed Modvat credit based on the duty paid on the final repacked goods, rejecting the appellant's argument against Modvat credit eligibility.Issue 2: Determination of manufacturing activity in repacking goods:The first appellate authority examined the repacking activity involving bulk to smaller packs, emphasizing the conscious end-use aspect of repacking making products marketable. Citing court precedents, the authority stated that the manufacturing process extends until goods are suitably packaged for sale. The appellant availed Modvat credit on bulk goods received and paid excise duty on the repacked goods, leading to the conclusion that the repacking process constitutes manufacturing. The authority set aside penalties and interest demands, affirming the manufacturing nature of the repacking activity.Issue 3: Consideration of Modvat credit on duty paid inputs:The appellant received duty paid raw materials utilized in manufacturing final products. The appellate authority acknowledged the utilization of duty paid inputs in the manufacturing process and granted Modvat credit accordingly. The authority set aside penalties and interest demands, emphasizing the eligibility of Modvat credit on inputs utilized in the manufacturing process.In summary, the judgment delved into the interpretation of Modvat credit eligibility, determination of manufacturing activities in repacking goods, and the consideration of Modvat credit on duty paid inputs. The court upheld the manufacturing nature of the repacking process, allowing Modvat credit based on duty paid on the final repacked goods and emphasizing the utilization of duty paid inputs in the manufacturing process.