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

COMMISSIONER OF CENTRAL EX. & CUS., SURAT-III Versus CREATIVE ENTERPRISES

HC dismissed the appeal, upholding the Tribunal's reasoning that the respondent-assessee's activities did not constitute 'manufacture' under Section 2(f) ... Availment of Modvat credit - goods which could not undergo the process of manufacture within the meaning of Section 2(f) of the Central Excise Act, 1944 - HELD THAT:- It is necessary to take note of the fact, to complete narration of facts, that the earlier order of Tribunal was challenged by way of Tax Appeal Stamp No. 815 of 2004 which came to be disposed of on 20-7-2004 for non-removal of office objections. Till date, no steps have been taken to have the said appeal restored to file. When one goes through the order of the first appellate authority, it is apparent that the respondent has been held to be a manufacturer as defined in Section 2(f) of the Central Excise Act, 1944. The appellate authority has taken into consideration the activities carried on by the respondent-assessee. The Tribunal is justified in holding that if the activity of the respondent-assessee does not amount to manufacture there can be no question of levy of duty, and if duty is levied, Modvat credit cannot be denied by holding that there is no manufacture. The appeal is accordingly dismissed. 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.