Relabelling and repacking of already marketable returned goods does not amount to manufacture under Chapter Note 7.

Relabelling and repacking of returned peanut butter goods was not manufacture under Chapter Note 7 of Chapter 21 because the goods had already been cleared on duty and were already marketable when they re-entered the factory. Mere relabelling, and occasional repacking into larger packs, did not amount to a fresh process undertaken to render the goods marketable to the consumer. On that basis, the duty demand and penalty were held unsustainable, and the earlier appellate view in a similar matter, which had attained finality, was followed.

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Issues: Whether relabelling and repacking of returned peanut butter goods amounted to manufacture under Chapter Note 7 of Chapter 21, and whether the duty demand and penalty were sustainable.

Analysis: Chapter Note 7 treats labelling or re-labelling of containers, repacking from bulk packs to retail packs, or any other treatment adopted to render the product marketable to the consumer as manufacture. The returned goods in the present case had already been cleared on payment of duty and were already marketable when they re-entered the factory. The assessee merely relabelled the goods and, in some cases, repacked them in larger packs. These activities did not amount to a fresh process undertaken to render the goods marketable within the meaning of the Note. The order under challenge had also followed an earlier appellate order in a similar matter, which had attained finality.

Conclusion: The activity did not amount to manufacture under Chapter Note 7, and the demand of duty and penalty were not sustainable.

Final Conclusion: The Revenue's challenge failed and the order setting aside the demand and penalty was sustained.

Ratio Decidendi: Relabelling or repacking of goods that were already marketable and had earlier been cleared on duty does not constitute manufacture unless the process is undertaken to render the goods marketable to the consumer within the meaning of the relevant chapter note.

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