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

The Tribunal partly allowed the appeal by setting aside demands and penalties related to repacking activities, ruling that repacking bought-out parts for retail sale does not amount to manufacturing. The appellant admitted and paid a portion of the demand related to Cenvat credit. The penalty under Section 11AC was set aside due to lack of malafide intent, and the Tribunal found no penalty warranted for the alleged assembly of kits. The judgment was pronounced on 27/02/2017.

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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.

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