2017 (3) TMI 512 - AT - Central Excise

Tribunal ruling: Repacking not manufacturing; penalties set aside for lack of malafide intent

Dr. Jal Mehta Firodiya Punarvasan Versus Commissioner of Central Excise, Aurangabad

The Tribunal partly allowed the appeal by setting aside demands and penalties related to repacking activities, ruling that repacking bought-out parts for ... CENVAT credit - credit availed on invoices issued by second stage dealer - penalty - Held that: - the appellants have already paid the amount and not contesting the same. As regards the penalty corresponding to the said amount, we find that the appellant has inadvertently passed on the credit on the invoices of second stage dealer. There is no malafide intention - penalty u/s 11AC should not be imposed. Manufacture - appellants have assembled the kit of bought out items and duly packed and sold to various customers, whether activity amounts to manufacture or not - demand - Held that: - the appellant is not actually assembling the kit whereas they are putting various pars in a packing in loose condition and that parts duly packed in the pouch sold in the market. The activity of repacking from bulk quantity to retail small packing does not amount to manufacture. Therefore, the activity of packing of various parts into small retail packing and sale thereof to various customers does not fall under the purview of manufacture. Accordingly, no demand can be confirmed - Consequently penalty is also set aside. Appeal allowed - decided partly in favor of appellant. Issues:Demand of inadmissible Cenvat Credit on invoices from second stage dealer, demand of inadmissible Cenvat credit on manufacturing unit invoices passed to customers, demand of Cenvat Credit on goods removed as a registered dealer without duty payment, penalty under Section 11AC, interest under Section 11AB.Analysis:The appellant, engaged in manufacturing excisable goods and trading as a registered dealer, faced a show-cause notice for various demands and penalties. The adjudicating authority confirmed a total demand of &8377; 8,52,845, penalty, and interest. The Commissioner (Appeals) dropped part of the demand but confirmed a significant amount and corresponding penalty, leading the appellant to appeal further.The appellant admitted and paid the demand of &8377; 1,44,747 related to Cenvat credit. Regarding the demand of &8377; 3,69,710, the appellant argued that repacking bought-out items for retail sale does not constitute manufacturing under Chapter 87 & 85 of CETA, presenting relevant case laws to support their claim.The Consultant for the appellant contended that inadvertent passing of credit on second stage dealer invoices should not attract penalty under Section 11AC due to lack of malafide intent. The issue of penalty under Section 11AC related to the alleged assembly of kits was deemed a matter of law interpretation, warranting no penalty.The Revenue representative reiterated the findings of the impugned order, leading to a thorough consideration of submissions and records by the Tribunal. The Tribunal found that the appellant had already paid the admitted demand and set aside the penalty under Section 11AC. They also ruled that repacking bought-out parts for retail sale did not amount to manufacturing, thus nullifying the demand and penalty related to it.In conclusion, the Tribunal modified the impugned order, partly allowing the appeal by setting aside the demands and penalties associated with the repacking activity. The judgment was pronounced on 27/02/2017.